-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Qldj519GzMpVqg9yNo6DqL0gqRCx2IctK3qUoiJzJ+klIYEjDILBJHXbwua1Jzna W4u1kjgSkWEc2TKEXIWUUw== 0000950133-98-000917.txt : 19980326 0000950133-98-000917.hdr.sgml : 19980326 ACCESSION NUMBER: 0000950133-98-000917 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 31 CONFORMED PERIOD OF REPORT: 19971231 FILED AS OF DATE: 19980325 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: IRIDIUM WORLD COMMUNICATIONS LTD CENTRAL INDEX KEY: 0001035442 STANDARD INDUSTRIAL CLASSIFICATION: RADIO TELEPHONE COMMUNICATIONS [4812] IRS NUMBER: 522025291 FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: SEC FILE NUMBER: 000-22637 FILM NUMBER: 98572367 BUSINESS ADDRESS: STREET 1: CLARENDON HOUSE STREET 2: 2 CHURCH STREET CITY: HAMILTON HM 11 BURMU STATE: D0 ZIP: 00000 BUSINESS PHONE: 4412955950 MAIL ADDRESS: STREET 1: CLAREDON HOUSE STREET 2: 2 CHURCH STREET CITY: HAMILTON HM 11 BURMU STATE: D0 ZIP: 00000 FILER: COMPANY DATA: COMPANY CONFORMED NAME: IRIDIUM LLC CENTRAL INDEX KEY: 0000948421 STANDARD INDUSTRIAL CLASSIFICATION: RADIO TELEPHONE COMMUNICATIONS [4812] IRS NUMBER: 521984342 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: SEC FILE NUMBER: 000-22637-01 FILM NUMBER: 98572368 BUSINESS ADDRESS: STREET 1: 1575 EYE STREET N W CITY: WASH STATE: DC ZIP: 20006 BUSINESS PHONE: 2023265600 MAIL ADDRESS: STREET 1: 1575 EYE STREET NW CITY: WASHINGTON STATE: DC ZIP: 20005 FORMER COMPANY: FORMER CONFORMED NAME: IRIDIUM INC /DE DATE OF NAME CHANGE: 19950724 FILER: COMPANY DATA: COMPANY CONFORMED NAME: IRIDIUM IP LLC CENTRAL INDEX KEY: 0001042683 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 522048736 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: SEC FILE NUMBER: 333-31741-01 FILM NUMBER: 98572369 BUSINESS ADDRESS: STREET 1: 1575 EYE STREET, N.W. CITY: WASHINGTON STATE: DC ZIP: 20005 BUSINESS PHONE: 2023265600 MAIL ADDRESS: STREET 1: 1575 EYE STREET N.W. CITY: WASHINGTON STATE: DC ZIP: 20005 FILER: COMPANY DATA: COMPANY CONFORMED NAME: IRIDIUM ROAMING LLC CENTRAL INDEX KEY: 0001042684 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 522048734 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: SEC FILE NUMBER: 333-31741-02 FILM NUMBER: 98572370 BUSINESS ADDRESS: STREET 1: 1575 EYE STREET, N.W. CITY: WASHINGTON STATE: DC ZIP: 20005 BUSINESS PHONE: 2024083800 MAIL ADDRESS: STREET 1: 1575 EYE STREET N.W. CITY: WASHINGTON STATE: DC ZIP: 20005 FILER: COMPANY DATA: COMPANY CONFORMED NAME: IRIDIUM CAPITAL CORP CENTRAL INDEX KEY: 0001042685 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 522048739 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: SEC FILE NUMBER: 333-31741-03 FILM NUMBER: 98572371 BUSINESS ADDRESS: STREET 1: 1575 EYE STREET, N.W. CITY: WASHINGTON STATE: DC ZIP: 20005 BUSINESS PHONE: 2023265600 MAIL ADDRESS: STREET 1: 1575 EYE STREET N.W. CITY: WASHINGTON STATE: DC ZIP: 20005 FILER: COMPANY DATA: COMPANY CONFORMED NAME: IRIDIUM OPERATING LLC CENTRAL INDEX KEY: 0001051721 STANDARD INDUSTRIAL CLASSIFICATION: RADIO TELEPHONE COMMUNICATIONS [4812] IRS NUMBER: 522066319 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: SEC FILE NUMBER: 000-22637-02 FILM NUMBER: 98572372 BUSINESS ADDRESS: STREET 1: 1575 EYE STREET N W CITY: WASH STATE: DC ZIP: 20006 BUSINESS PHONE: 2023265600 MAIL ADDRESS: STREET 1: 1575 EYE STREET NW CITY: WASHINGTON STATE: DC ZIP: 20005 10-K405 1 FORM 10-K DATED DECEMBER 31, 1997 1 ================================================================================ SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 AND 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997 IRIDIUM WORLD COMMUNICATIONS LTD. (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) BERMUDA 0-22637 52-2025291 (STATE OR OTHER JURISDICTION (COMMISSION FILE NUMBER) (I.R.S. EMPLOYER OF INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
CLARENDON HOUSE, 2 CHURCH STREET, HAMILTON HM 11, BERMUDA (441) 295-5950 (ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES) ------------------------ IRIDIUM LLC (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) DELAWARE 0-22637-01 52-1984342 (STATE OR OTHER JURISDICTION (COMMISSION FILE NUMBER) (I.R.S. EMPLOYER OF INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
1575 EYE STREET, N.W., WASHINGTON, D.C. 20005 (202) 408-3800 (ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES) ------------------------ IRIDIUM OPERATING LLC (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) DELAWARE 0-22637-02 52-2066319 (STATE OR OTHER JURISDICTION (COMMISSION FILE NUMBER) (I.R.S. EMPLOYER OF INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
1575 EYE STREET, N.W., WASHINGTON, D.C. 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) DELAWARE 333-31741-01 52-2048736 (STATE OR OTHER JURISDICTION (COMMISSION FILE NUMBER) (I.R.S. EMPLOYER OF INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
1575 EYE STREET, N.W., WASHINGTON, D.C. 20005 (202) 408-3800 (ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES) THIS REGISTRANT MEETS THE CONDITIONS SET FORTH IN GENERAL INSTRUCTION (I)(1)(A) AND (B) OF FORM 10-K AND IS THEREFORE FILING THIS FORM WITH THE REDUCED DISCLOSURE FORMAT. ------------------------ 2 IRIDIUM ROAMING LLC (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) DELAWARE 333-31741-02 52-2048734 (STATE OR OTHER JURISDICTION (COMMISSION FILE NUMBER) (I.R.S. EMPLOYER OF INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
1575 EYE STREET, N.W., WASHINGTON, D.C. 20005 (202) 408-3800 (ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES) THIS REGISTRANT MEETS THE CONDITIONS SET FORTH IN GENERAL INSTRUCTION (I)(1)(a) AND (b) OF FORM 10-K AND IS THEREFORE FILING THIS FORM WITH THE REDUCED DISCLOSURE FORMAT. ------------------------ IRIDIUM CAPITAL CORPORATION (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) DELAWARE 333-31741-03 52-2048739 (STATE OR OTHER JURISDICTION (COMMISSION FILE NUMBER) (I.R.S. EMPLOYER OF INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
1575 EYE STREET, N.W., WASHINGTON, D.C. 20005 (202) 408-3800 (ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES) THIS REGISTRANT MEETS THE CONDITIONS SET FORTH IN GENERAL INSTRUCTION (I)(1)(a) AND (b) OF FORM 10-K AND IS THEREFORE FILING THIS FORM WITH THE REDUCED DISCLOSURE FORMAT. ------------------------ SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
NAME OF EACH EXCHANGE TITLE OF EACH CLASS ON WHICH REGISTERED ------------------- --------------------- Iridium World Communications Nasdaq National Market Ltd............................ Class A Common Stock ($0.01 par value)
Iridium Operating LLC and Iridium Capital Corporation, as issuers, and Iridium IP LLC and Iridium Roaming LLC, as guarantors, are required to file reports required by Section 13 of the Act pursuant to Section 15(d) of the Act in respect of the issuers (i) 13% Senior Notes due 2005, Series A and (ii) 14% Senior Notes due 2005, Series B. Indicate by check mark whether the registrants (1) have filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrants were required to file such reports), and (2) have been subject to such filing requirements for the past 90 days. Yes [X]* No [ ] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrants' knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X] The aggregate market value of the Iridium World Communications Ltd. voting stock held by nonaffiliates of the registrants as of March 10, 1998 was $621,456,021. At March 10, 1998, there were 12,008,812 shares of Iridium World Communications Ltd. Class A Common Stock, ($0.01 par value per share) outstanding. - --------------- * Iridium Capital Corporation, Iridium IP LLC and Iridium Roaming LLC became subject to the filing requirements of Section 15(d) on September 8, 1997. Iridium Operating LLC became subject to the filing requirements of Section 15(d) on December 18, 1997. ------------------------ DOCUMENTS INCORPORATED BY REFERENCE None. ================================================================================ 3
PAGE NUMBER ------ PART I Item 1. Business.................................................... 2 Item 2. Properties.................................................. 29 Item 3. Legal Proceedings........................................... 30 Item 4. Submission of Matters to a Vote of Security Holders......... 30 PART II Item 5. Market for IWCL's Common Equity and Related Stockholder 30 Matters................................................... Item 6. Selected Financial Data..................................... 32 Item 7. Management's Discussion and Analysis of Financial Condition 34 and Results of Operation.................................. Item 7A. Quantitative and Qualitative Disclosures About Market 39 Risk...................................................... Item 8. Financial Statements and Supplementary Data................. 39 Item 9. Changes in and Disagreements With Accountants On Accounting 39 and Financial Disclosure.................................. PART III Item 10. Directors and Executive Officers of the Registrants......... 40 Item 11. Executive Compensation...................................... 47 Item 12. Security Ownership of Certain Beneficial Owners and 51 Management................................................ Item 13. Certain Relationships and Related Transactions.............. 53 PART IV Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 56 8-K.......................................................
1 4 ITEM 1. BUSINESS INTRODUCTION This annual report is filed jointly by Iridium World Communications Ltd. ("IWCL"), Iridium LLC ("Parent"), Iridium Operating LLC ("Iridium"), Iridium Capital Corporation ("Capital"), Iridium Roaming LLC ("Roaming") and Iridium IP LLC ("IP"). IWCL was incorporated by Parent as an exempted company under the Companies Act 1981 of Bermuda on December 12, 1996. IWCL is organized to act as a member of Parent and to have no other business. On June 13, 1997, IWCL consummated an initial public offering (the "IWCL IPO") of 12,000,000 shares of its Class A Common Stock, par value $0.01 per share (the "Class A Common Stock") and applied the net proceeds of approximately $225 million to purchase 12,000,000 Class 1 Membership Interests in Parent. As of March 10, 1998, IWCL owned approximately 8.5% of the outstanding Class 1 Membership Interests in Parent. 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. Parent's purpose is to acquire, own and manage the IRIDIUM communications system (the "IRIDIUM System"). Iridium was formed as a limited liability company pursuant to the provisions of the Delaware Act on October 23, 1997. Iridium is a wholly-owned subsidiary of Parent and has the same purpose as Parent. On December 18, 1997, Parent and Iridium effected an asset drop-down transaction (the "Asset Drop-Down Transaction") pursuant to which substantially all of the assets and liabilities of Parent were transferred to Iridium. The Asset Drop-Down Transaction was effected for the purpose of providing the agent for the secured lenders under Iridium's $1 billion Secured Bank Facility (as defined) with an efficient means for obtaining a security interest in the membership interests in Iridium. Capital is a Delaware corporation and a wholly-owned subsidiary of Iridium. Capital has no business other than serving as a co-issuer of Iridium's $1.1 billion in aggregate principal amount of Senior Notes (as defined) and guarantor of Iridium's Secured Bank Facility (as defined). Capital has no significant assets and does not conduct any operations. Roaming, a Delaware limited liability company and a wholly-owned subsidiary of Iridium, is the entity that enters into roaming agreements with other wireless telecommunications providers on behalf of Iridium. IP, also a Delaware limited liability company and a wholly-owned subsidiary of Iridium, holds the worldwide trademark registrations of Iridium. Each of Roaming and IP is a guarantor of the Senior Notes and the Secured Bank Facility. The Senior Notes and the Secured Bank Facility also are guaranteed by a new wholly-owned subsidiary of Iridium, Iridium Facilities Corporation, a Delaware Corporation ("Facilities"). Facilities is the entity which holds certain real property of Iridium. IWCL acts as a member of Parent and has no other business. The business of Iridium constitutes substantially all of Parent's business. The business of Iridium is described below. Any reference below to Iridium relating to any event prior to the Asset Drop-Down Transaction should be interpreted as a reference to the Parent, as predecessor to Iridium. BUSINESS SEGMENT Iridium operates in one industry segment, telecommunications. FORWARD LOOKING STATEMENTS Iridium is a development stage company with no operating history. Accordingly, many statements in this report are forward looking. Examples of such forward looking statements include, but are not limited to, the statements concerning 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, the last year in which Iridium will have negative cash 2 5 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, including, but not limited to, systems contractors, equipment suppliers, gateway operators, service providers and roaming partners. These forward looking statements are based on a number of assumptions and are inherently predictive and speculative. One or more of the assumptions underlying such forward looking statements is likely to be incorrect. Therefore, actual results may be materially different from those expressed or implied by such statements. Factors which may cause IWCL's, the Parent's or Iridium's results to differ materially from those expressed or implied by such forward looking statements include, but are not limited to, (i) Iridium's absence of current revenues, highly leveraged capital structure and significant additional funding needs, (ii) delays and cost overruns related to the construction and deployment of the IRIDIUM System, (iii) technological risks related to the development and implementation of the various components of the IRIDIUM System, (iv) customer acceptance of Iridium World Services, (v) satellite launch, operation and maintenance risks, (vi) risks associated with the need to obtain operating licenses in the numerous countries where Iridium assumes it will provide its services, (vii) competition from satellite and terrestrial communications services and (viii) Iridium's dependence on Motorola, Inc. ("Motorola") and other members of the Parent for the construction and operation of the IRIDIUM System and the distribution and marketing of Iridium World Services. These factors, and other factors that may materially affect Iridium's operations, are described in greater detail in the Securities and Exchange Commission filings of IWCL, Parent and Iridium, including Exhibit 99 to this report. 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 March 1, 1998, Motorola had launched 51 Iridium satellites in ten separate launches. Motorola has informed Iridium, however, that two of those 51 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. Iridium expects to commence commercial service on September 23, 1998. Iridium believes there is a significant market comprised of individuals and businesses who need global communications capability and are willing to pay for the convenience of a hand-held wireless phone or belt-worn pager. The availability of terrestrial wireless communications service is often constrained by the limited geographic coverage of terrestrial systems, the incompatibility of differing wireless protocols or the absence of roaming agreements among wireless operators. The combination of 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 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 global paging (Iridium World Page Services) both in combination with Iridium voice services and as a stand-alone service. The signaling capabilities of the IRIDIUM System will enable Iridium to track a voice customer's location 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. 3 6 The IRIDIUM System encompasses four components: the "space segment," which will include the low earth orbit satellite constellation and the related control facilities; the ground stations or "gateways," which will link the satellites to terrestrial communications systems; the Iridium subscriber equipment, which will provide mobile access to the satellite system and terrestrial wireless systems; and the terrestrial wireless interprotocol roaming infrastructure, which will facilitate roaming among the Iridium satellite system and multiple terrestrial wireless systems that use different wireless protocols. The satellite constellation of the IRIDIUM System, which will consist of 66 operational satellites arranged in six polar orbital planes, is being assembled and delivered in orbit by Motorola pursuant to a fixed price contract, subject to certain adjustments. Motorola also will operate and maintain the satellite constellation for five years (extendible to seven years at Iridium's option). Each of the gateways will be owned, operated and financed by one or more investors in Iridium or their affiliates. Iridium expects that portable, hand-held Iridium phones will be manufactured by at least two experienced suppliers, Motorola and Kyocera, both of which have hand-held Iridium phones under development. The phones are expected to be available in satellite 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 GSM (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 telephone 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 Iridium World Satellite Services particularly well suited for aeronautical and shipping communications and for service in land areas where LEO MSS systems using "bent pipe" technology are not expected to have the more extensive gateway infrastructure needed by such systems to provide global coverage. Convenient roaming onto terrestrial wireless networks. Iridium will offer subscribers a combination of Iridium World Satellite Services and Iridium World Cellular Services. With the addition of Iridium World Cellular Services, customers will be able to overcome (i) the incompatibility of differing wireless protocols and (ii) the service limitations of satellite-only voice services in buildings and urban canyons. Iridium expects to be able to deliver all of its voice services with one phone, one phone number and one customer bill. Global paging with belt-worn pagers. The Iridium belt-worn pager will have the capability of receiving alphanumeric messages of up to 200 characters and numeric messages of up to 20 digits virtually anywhere in the world. With Iridium World Page Services, users of Iridium World Satellite Services or Iridium World Cellular Services will generally be able to update their location on the IRIDIUM System by briefly turning on their phone, thereby allowing the IRIDIUM System to send a targeted page. Iridium believes that it will be the first company, and the only company prior to 2000, which will offer global paging to a belt-worn pager. 4 7 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 Iridium's strategic investors provide telecommunications services in various parts of the world and have significant operating, regulatory and marketing experience in their service territories. Iridium expects that its investors with existing wireless communications sales and service organizations will use these organizations to market and distribute Iridium 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 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. 5 8 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 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. 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 1, 1998, Roaming has entered into more than 90 roaming agreements. Iridium World Cellular Services will permit subscribers to roam among terrestrial wireless networks that have roaming agreements with Iridium, with Iridium essentially acting as the customer's "home" system or as an interface between the visited wireless network and the customer's home terrestrial wireless network, even if the visited and home networks use differing cellular protocols (e.g., IS-41, including AMPS, NAMPS and CDMA; and GSM900). With Iridium World Cellular Services, customers are expected to be able to overcome (i) the coverage limitations of their "home" wireless network when traveling to a city served by a wireless operator that does not have a roaming agreement with the customer's home wireless network but does have one with Iridium and (ii) the service limitations of satellite-only service when in buildings and urban canyons, where terrestrial wireless service will typically be available. Customers who travel between cities that are served by different terrestrial wireless protocols but do not travel beyond the reach of terrestrial wireless services will be able to realize the interprotocol benefits of Iridium World Cellular Services with either Iridium's planned single phone that is compatible with multiple protocols, or with a combination of cellular phones, one for each protocol. The availability of Iridium World Cellular Services depends upon the successful development of the IIU. 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 World Satellite Services and any terrestrial wireless network that has a roaming agreement with Iridium. For Iridium World Services, a user will require an Iridium phone and a phone that is compatible with the local wireless protocol. To meet this requirement with a single phone, Motorola is developing a multi-mode phone that will work alternatively with the IRIDIUM System and most major terrestrial wireless systems, with the user able to adapt the phone to the appropriate terrestrial protocol by inserting the corresponding TRC into the phone (e.g. a GSM900-TRC in Europe or an AMPS-TRC in North America). Kyocera is developing a multi-mode phone that is expected to be configured as a satellite phone casing into which terrestrial wireless phones using differing wireless protocols can be inserted. In addition, like Iridium World Satellite Services and Iridium World Cellular Services customers, Iridium World Services customers will be able to have one phone number, which can either be an Iridium phone number (i.e., it will begin with "8816" or "8817," the international country codes assigned to Iridium by the ITU) or the customer's "home" cellular number. 6 9 PAGING 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. 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 ("AMSRS") in its authorized band. The IRIDIUM System is the only mobile satellite system, licensed or in development, that can provide a communication capability that is truly global, while using spectrum already allocated for AMSRS. Several parties filed comments with and have petitioned the FCC to deny Motorola's application to provide AMSRS service. Among other arguments, petitioners claim that the AMSRS 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 7 10 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 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 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 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 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. 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 Service (the combination of Iridium World Satellite Services and Iridium World Cellular Services), 1.0 million to 1.3 million for stand-alone Iridium World Cellular Services and 350,000 to 500,000 for stand-alone Iridium World Page Services. Iridium's estimates of target markets and customer counts are based upon a number of assumptions, one or more of which is likely to be incorrect. There can be no assurance that actual target markets and actual customer counts for Iridium World Services will not be materially different from Iridium's estimates or that Iridium will not revise such estimates substantially from time to time. TARGET MARKETS Iridium believes that the traveling professional and corporate/industrial communications markets will be its principal target markets. 8 11 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 Iridium World Satellite Services, Iridium World Cellular Services and Iridium World Page Services will appeal to traveling professionals as a logical extension of their existing communications capabilities. Iridium believes traveling professionals will use this increased capability to remain in contact with their home or office and a substantial portion of these calls will be international calls. The defining element for this segment is that the handset purchase decision is made by the individual, with the Iridium account registered in his or her name. Corporate/Industrial. Iridium believes that the corporate/industrial market segments constitute a significant opportunity for Iridium World Services. The corporate sub-segment consists of national and multinational companies whose executives travel outside of their home terrestrial wireless coverage area and who will have a need for MSS services in the regular course of business. The industrial sub-segment includes industries that are expected to demand MSS services at remote industrial sites and on land and water transportation vehicles, such as utilities, oil and mineral exploration, pipeline, construction, engineering, fishing and forestry. For companies that have multiple locations around the globe, or a requirement for remote fleet management and communications, the IRIDIUM System is expected to provide a single technical and operational communications solution regardless of location, in contrast to MSS and terrestrial systems that cannot provide global coverage. Iridium World Satellite Services are expected to be used in this market segment for business communication and emergency backup communication. The defining 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. 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. 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. 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. 9 12 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. 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 currently had distribution 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 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 World 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 World 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 10 13 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 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 Iridium World Cellular Services suggested retail prices will be comparable to other cross-protocol roaming services. In addition to airtime charges, Iridium subscribers will pay a monthly subscription fee in the same manner that terrestrial wireless customers pay monthly charges. Iridium will permit service providers that are wireless network operators to offer Iridium World Satellite Services as additional features to their existing wireless services, permitting their customers to remain customers of the wireless network and to roam onto the IRIDIUM System. These customers will pay 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. 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 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 Iridium World Satellite Services if a terrestrial service cannot be accessed. With Iridium 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 11 14 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. SPACE SEGMENT The satellite constellation of the space segment will consist of a constellation of 66 operational satellites arranged in six orbital planes in low earth orbit. To minimize the cost of the constellation and reduce production time, the design of the satellites emphasizes attributes which facilitate production in large quantities. The satellites will be placed in six distinct planes in near-polar orbit at an altitude of approximately 780 kilometers and will circle the Earth approximately once every 100 minutes. Each satellite will communicate with subscriber equipment on the ground using main mission antennas, with gateways using gateway link antennas and with other Iridium satellites in space using cross-link antennas. The main mission antennas will communicate with subscriber units through tightly focused antenna beams forming a continuous pattern on the Earth's surface. The main mission antenna subsystem of each satellite will include three phased array antennas, each containing an array of transmit/receive modules. Collectively, the 48 beams produced by a single satellite will combine to cover a circular area with a diameter of approximately 4,340 kilometers. The IRIDIUM System architecture will incorporate certain characteristics, such as call hand-off, which will allow the space segment communications link with subscriber equipment to be transferred from satellite to satellite as the satellites move over the area where the subscriber is located. The cross-link antennas will permit satellites in the constellation to communicate with one another. Each Iridium satellite will have four cross-link antennas to allow it to communicate and route traffic to the two satellites that are fore and aft of it in the same orbital plane as well as neighboring satellites in the adjacent co-rotating orbital planes. This intersatellite networking capability is a significant distinguishing feature of the IRIDIUM System and provides a number of benefits. These intersatellite links, which enable the satellites to function as switches in the sky, will allow the IRIDIUM System to (i) select the optimal space-to-ground path of each call, thereby enhancing system reliability and capacity while reducing the costs associated with the use of terrestrial phone systems, (ii) service subscribers in all areas (including, mid-ocean and remote areas) regardless of the proximity to a gateway, (iii) provide full global service with a relatively small number of gateways, thereby lowering total ground segment build-out and operating costs and (iv) provide enhanced ability to track the location of a voice customer, allowing Iridium to target calls and pages as customers travel globally. Operation of the satellites will be monitored, managed and controlled by the system control segment. The 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. As of March 1, 1998, Motorola had launched 51 Iridium satellites in ten separate launches. Motorola has informed Iridium that two of those 51 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. 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. 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 12 15 scheduled under the Space System Contract for completion on September 23, 1998. Ground testing of satellite hardware has been substantially completed. Motorola has completed construction of most of the terrestrial facilities necessary to command the in-space movements of the satellites, including the 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 launches 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 launches 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. 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 launches 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 a 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 13 16 concluded that the launch failure resulted from an explosion of one of the nine solid rocket boosters attached to the first stage of the launch vehicle. Thereafter, the launch suspension was lifted. The first launch of Iridium satellites occurred on May 5, 1997 (following successive postponements on May 2, May 3 and May 4 due to weather conditions and a faulty warning light). Motorola has informed Iridium, however, 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 March 1, 1998, Motorola had launched 51 Iridium satellites in ten separate launches. Motorola has informed Iridium, however, that two of those 51 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 five more launches of 21 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, 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. 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. 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 who complete construction and installation of their gateways on schedule and who meet certain revenue criteria thereafter. None of such warrants has been issued. Implementation of Gateways. The success of Iridium is dependent upon the efforts of its gateway owners, all of whom are investors, or affiliates of investors, in Parent. Iridium is focusing considerable efforts on the coordination of the development of the gateway infrastructure and business systems. 14 17 Iridium has assigned all of its gateway service territories to Parent's equity investors or their affiliates. Iridium expects these gateway service territories to be served initially by up to 12 gateways. Each gateway owner has entered into a Gateway Authorization Agreement. The Gateway Authorization Agreements obligate the gateway operators to use their reasonable best efforts to perform, among other obligations, the following with respect to its designated territory: (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 service 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. 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. 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 10 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 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 one TRC, and its version of the alphanumeric pager will have an initial retail price of approximately $500. Iridium expects the price for subscriber equipment that is manufactured by Kyocera to be similar to Motorola's. Iridium does not currently intend to manufacture or distribute Iridium subscriber equipment or derive any income from the sale of Iridium subscriber equipment. 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 in the distribution process 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 15 18 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. 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. 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. 16 19 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 service. 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 1, 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. Iridium World Cellular Services is not expected to be available between certain IS-41 systems before 1999 or in Japan before 1999. PROGRESS TO DATE The following chart sets forth Iridium's past and projected development milestones. Estimates for the commencement of service do not account for potential delays. There can be no assurance that the IRIDIUM System will commence commercial operations in September 1998 as planned. 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 17 20 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 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 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 18 21 higher signal strength for Iridium World Satellite Services which Iridium believes will afford both better voice quality and signal penetration to portable, hand-held phones and a higher degree of in-building penetration for pagers; (ii) its intersatellite networking capability, which Iridium believes will permit full global coverage, reduce the number of gateways required to provide global coverage, enhance system reliability and capacity and reduce tail charges incurred for the landline portion of telephone calls; and (iii) its 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. 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 full 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 car-mounted 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 hand-held units. APMT has proposed a two-satellite GEO satellite system covering India, China and certain Southeast Asian nations, offering mobile telecommunications to dual-mode, hand-held terminals. 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 19 22 proposed by Matra-Marconi to provide fixed services, and mobile services to hand-held units, with a GEO satellite covering Europe, the Middle East and Africa. Afro-Asian Satellite Communications has proposed a two GEO satellite system covering 55 countries in the Middle East, the Asia Pacific region and eventually Africa, serving dual-mode, hand-held terminals. Elekon-Stir is a proposed Russian LEO system consisting of seven satellites offering store and forward mobile data services and with limited voice capabilities. Inmarsat currently operates a world-wide GEO system that is capable of providing fixed and mobile voice and data services to laptop-sized "Mini-M" terminals and to briefcase-sized mobile terminals and car-mounted units. Other regional systems that may be established could also provide services that compete with the Iridium World Satellite Services. The regional GEO systems do not provide full global coverage and, therefore, are expected to generally target persons not currently served by landline or cellular telephone service. It is possible that one or more regional mobile satellite services could enter into agreements to provide intersystem roaming that could be global or nearly global in scope. LAND-BASED TELECOMMUNICATIONS SYSTEMS Iridium does not intend to compete with terrestrial cellular telephone systems for the vast majority of personal communications services, because, among other reasons, Iridium satellite voice services will be priced significantly higher than most terrestrial wireless services, the IRIDIUM System will lack the operational capacity to provide local service to large numbers of subscribers in concentrated areas and Iridium's satellite system is not expected to afford the same voice quality, signal strength, or ability to penetrate various environments (such as buildings) as terrestrial wireless systems. Rather, Iridium expects its subscribers to use Iridium World Satellite Services in areas or situations where local cellular systems use a standard incompatible with that of the users' home markets or where terrestrial service is unavailable, inconvenient, of poor quality or unreliable. As terrestrial cellular systems expand their geographical penetration, particularly outside of major urban and suburban areas and improve the quality of coverage in already-served areas, potential customers for Iridium World Satellite Services and other satellite-based services will be lost. Moreover, the advent of near global terrestrial cellular roaming described below will represent a significant competitive threat to Iridium's satellite-based service and Iridium World Cellular Services, particularly with respect to traveling professionals who spend most of their time in regions that are well served by terrestrial-based wireless services. TERRESTRIAL CELLULAR INTERPROTOCOL ROAMING SERVICES Iridium's Iridium World Cellular Services service offering, which will allow Iridium subscribers to roam onto a variety of cellular networks, will face competition from existing and future terrestrial cellular interprotocol roaming services, which provide roaming services across similar cellular networks. GTE Mobilnet (GTE) and Deutsche Telekom Mobil ("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 World Cellular Services and Iridium World Satellite Services. 20 23 PAGING In addition to competing with paging services offered by proposed regional MSS systems, Iridium World Page Services will face competition from regional and nationwide terrestrial paging services, and from M-Tel's SkyTel service which currently provides paging services to over 20 countries around the world. SkyTel operates by forwarding paging messages via international circuits to a foreign paging network that subsequently transmits the message over its local network. Also, in 1995 Inmarsat introduced an international satellite-based one-way messaging service. Iridium believes that the relatively higher link margins of the Iridium World Page Services will provide superior performance to any proposed satellite paging systems and that Iridium will be the only global paging service using a belt-worn pager before 2000. COMPETITION RELATED TO NEW TECHNOLOGIES AND NEW SATELLITE SYSTEMS Iridium may also face competition in the future from companies using new technologies and new satellite systems which could render the IRIDIUM System obsolete or less competitive. Such new technologies, even if not ultimately successful, could have a material and adverse effect on Iridium as a result of associated initial marketing efforts. Iridium's business could be materially and adversely affected if competitors begin operations or existing telecommunications service providers penetrate Iridium's target markets before completion of the IRIDIUM System. 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 ("WRCs") (previously known as World Administrative Radio Conferences or "WARCs") 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 21 24 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 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, 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 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 had given all or a substantial portion of the authorizations necessary to operate the IRIDIUM System in their territories. The 51 countries and territories are: the United 22 25 States, Italy, Argentina, Colombia, Honduras, Thailand, Malaysia, Guatemala, Puerto Rico, Finland, Russia, El Salvador, Brazil, Japan, Philippines, South Korea, Taiwan, Germany, Austria, Canada, Australia, Venezuela, Sweden, Norway, Iceland, 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 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. 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 an application 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. 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. 23 26 The IRIDIUM System license is held by Space System License, Inc., a wholly owned subsidiary of Motorola, which is contractually bound to operate the system for the exclusive benefit of Iridium. As a result, Motorola, rather than Iridium, has the responsibility to construct, launch, operate and maintain the IRIDIUM System in accordance with the terms of the license. Any request to renew or modify the IRIDIUM System license must be filed and prosecuted by Motorola. If the Space System Contract or the Operations and Maintenance Contract is ever terminated or not renewed, Motorola would have to assign the Iridium license to Iridium or a third party. Any such assignment would be subject to FCC approval. Under both the ITU's rules and the terms of the IRIDIUM System license, the IRIDIUM System must be coordinated with all other domestic and foreign users of the frequency bands assigned to the IRIDIUM System. The United States has essentially completed the process of registering the Iridium space segment operations with the ITU. It has submitted the advance publication and coordination materials to the ITU and coordinated the use of the space segment with all those administrations expressing concerns that the system might cause or receive interference to their systems. On this basis, the United States has requested the ITU to notify the IRIDIUM System in the ITU's Master Frequency Register, which will give it a legal right to protection from interference from future systems. The request has been published, and administrations that have previously engaged in coordination with the United States regarding the IRIDIUM System may file comments on the claim that coordination is complete. Any comments will need to be resolved before the IRIDIUM System will be listed in the Master Frequency Register. Iridium believes that coordination has been completed successfully between the IRIDIUM System and all existing or planned systems that have been identified under the coordination process. If further coordination is required with any identified system, it is possible that such coordination would not be completed prior to Iridium's projected commencement of commercial operations. However, Iridium believes that failure to complete such 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. 24 27 Applications for authorizations for gateway, subscriber and TT&C facilities are in varying stages of processing in countries other than the United States and there can be no assurance that these applications will be granted or that sufficient spectrum for initial needs will be assigned. Of the gateway and subscriber authorizations granted to date, several have conditions attached to them concerning their operation and there can be no assurance that these conditions will be satisfied. If the initial spectrum assignments prove insufficient as demand increases over time, there is no assurance Iridium will be able to obtain additional spectrum from the FCC or other administrations. Countries in Europe are approaching frequency assignments and licensing issues on a regional basis. CEPT, an organization of forty-three countries in greater Europe, has adopted recommendations regarding the frequency assignment plan and the authorization process which it will recommend that member countries follow. These recommendations are voluntary but 16 European countries have adopted some or all of these recommendations and many other European countries -- especially EU members -- are expected to follow these recommendations. These recommendations currently give Iridium the opportunity to obtain the spectrum it needs to operate initially in Europe. There is a risk that Iridium may have to share this spectrum with other planned satellite systems using an FDMA/TDMA access mode. Because European countries must follow ITU procedures, which Iridium believes will protect Iridium's minimum spectrum requirements, Iridium believes this risk is unlikely to occur. However, there can be no assurance that Iridium will receive all the spectrum it needs to operate in Europe. Iridium mobile subscriber equipment must be type accepted in many countries in accordance with national, regional and/or internationally-recognized standards relating to unwanted emissions, 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. Research and Development -- Licensing In September 1997, Iridium filed an application with the FCC for authorization to operate a satellite system in the 2 GHz 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. 25 28 Currently, the Russian global navigation satellite system, GLONASS, operates in a frequency band that partially overlaps the 1610-1626.5 MHZ MSS band. When operating co-channel with GLONASS, MSS systems are required to coordinate their operations with the previously registered operations of GLONASS. In addition, even when not operating co-channel, they are required to protect GLONASS operations from harmful interference. Iridium believes that a bilateral coordination agreement between Russia and the United States is in the final stages of negotiation, under which Russia would agree to move the GLONASS system's operations to frequencies below 1610 MHZ by January 1, 1999, and to frequencies below approximately 1605 MHZ by the year 2005. The FCC has conditioned the Iridium blanket subscriber license upon compliance with a level of protection from interference to the GLONASS system. 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 26 29 light of the secondary nature of IRIDIUM's MSS downlinks, the failure by an MSS operator to implement an acceptable CDMA emissions mask could significantly reduce the total capacity of the IRIDIUM System. Furthermore, the downlinks of the IRIDIUM System may need to accept interference from Inmarsat terminals, including Inmarsat aeronautical and land mobile terminals, when they are in the vicinity of an Iridium terminal. UNITED STATES ELECTRONIC SURVEILLANCE LAWS The Communications Assistance for Law Enforcement Act of 1994 ("CALEA") was enacted on October 25, 1994. CALEA requires that telecommunications carriers deploy equipment, facilities and services that meet certain electronic surveillance requirements identified in the statute. Penalties of $10,000 a day for each wire tap order not fulfilled could be imposed under CALEA as well as an order of compliance in the case of a failure to comply, and other unspecified penalties, including injunctions, might otherwise be imposed. The U.S. government has indicated that CALEA imposes requirements on the IRIDIUM System similar to the requirements that the U.S. government has requested 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. 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. COMPETITION At the time that the FCC authorized the construction of the IRIDIUM System, it also authorized one other competitive MSS systems to operate in the 1610-1626.5 MHZ band. This was the Globalstar System proposed by Loral/Qualcomm Partnership, L.P. ("Loral/Qualcomm"). The Globalstar and IRIDIUM Systems were the only big LEO systems initially licensed by the FCC. While the IRIDIUM System was granted exclusive use of the 1621.35-1626.5 MHZ band in the United States, Globalstar was granted shared use of the bands 1610-1621.35 MHZ and 2483.5-2500 MHZ. These systems were not mutually exclusive. 27 30 At the same time the FCC authorized the IRIDIUM, Globalstar and Odyssey systems, the FCC afforded three other applicants (that had initially failed to establish their qualifications) additional time in which to demonstrate that they were financially qualified. They 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, Globalstar and Odyssey Systems. This court action has been placed in abeyance pending a final FCC decision on a petition for review of the FCC's subsequent decision to waive the financial qualifications 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, Globalstar and Odyssey 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. 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. 28 31 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 has advised Iridium that these codes have been assigned to the IRIDIUM System. The four-digit country code must be used by domestic and international carriers in each country to route calls to the IRIDIUM System and to recognize those calls for billing purposes as calls to the Iridium network. Although the typical three-digit country code is supported by all carriers for the call routing and billing systems, it is expected that some carriers will have to modify their routing and billing systems, and in some cases, enhance their switch capacity, to be able to route and bill for calls destined for the four-digit codes assigned to the IRIDIUM System and other MSS systems. It is possible that some carriers will not agree to make the necessary modifications, to make them in a timely fashion, or to make them without Iridium and other MSS system operators paying for some or all of the costs of such modifications. It is generally expected that resistance to making the modifications is most likely to occur in developing countries that employ less modern switching equipment. 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 Limited Liability Company Agreement of Iridium each officer of Parent holds the same position with Iridium. There are 13 persons who are executive officers of Parent and Iridium. Iridium has no employees other than its officers. As of March 1, 1998, Parent had approximately 417 full-time employees. None of Parent's employees are covered by a collective bargaining agreement. Parent's management considers its relations with its officers and the employees of Parent to be good. ITEM 2. 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. Parent leases its corporate headquarters office space in Washington, D.C. The lease expires in May 2004, and has an option to renew for one three year period. In addition, Parent leases office space in Reston, Virginia and Chandler, Arizona. The leases expire in September 2004 and March 1998 respectively. The Reston, 29 32 Virginia lease has an option to renew for one five year period and the Chandler, Arizona lease has an option to renew for a 3 month period. Iridium and Parent believe they have adequate facilities to operate their businesses as currently contemplated. ITEM 3. LEGAL PROCEEDINGS None. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. ITEM 5. MARKET FOR IWCL'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS IWCL was formed on December 12, 1996 for the purpose of acting as a member of the Parent. On June 13, 1997, IWCL consummated an initial public offering of 12,000,000 shares of its Class A Common Stock, par value $.01 per share (the "Class A Common Stock") and applied the net proceeds of approximately $225 million to purchase 12,000,000 Class 1 Membership Interests of Parent ("Class 1 Interests"). At March 10, 1998, there were 12,008,812 shares of Class A Common Stock outstanding and IWCL owned 12,008,812 Class 1 Interests, constituting approximately 8.5% of the outstanding Class 1 Interests. (A) Market Information The Class A Common Stock is traded on the Nasdaq National Market ("Nasdaq") under the symbol "IRIDF". The following table sets forth the high and low sales prices per share of Class A Common Stock as reported on the Nasdaq.
MARKET PRICE ------------- HIGH LOW ----- ---- 1997 quarter ended: June 30 (June 13 to June 30).............................. 22 3/8 18 September 30.............................................. 44 1/4 17 December 31............................................... 54 1/8 32 7/8 January 1, 1998 to March 20, 1998........................... 30 7/8 54 5/8
On July 16, 1997, IWCL, the Parent and Capital, consummated a private offering of (i) 300,000 units each consisting of (A) $1,000 principal amount of 13% Senior Notes due 2005 and, Series A of the Parent and Capital (the "Series A Notes") and (B) one warrant ("Warrant") to purchase 5.2 shares of Class A Common Stock and (ii) $500,000,000 aggregate principal amount of 14% Senior Notes due 2005, Series B of the Parent and Capital (the "Series B Notes") for aggregate net proceeds to the Parent of approximately $746 million. The Series A Notes and Series B Notes are guaranteed by IP, Roaming and Iridium Facilities Corporation ("Facilities"), a Delaware Corporation and a wholly-owned subsidiary of Iridium which holds Iridium's real property. In the aggregate, the Warrants entitle the holders thereof to purchase 1,560,000 shares of Class A Common Stock. The exercise price of the Warrants is $20.90 per share of Class A Common Stock. The Warrants are exercisable at any time after July 11, 1998, subject to certain conditions. The Warrants expire on July 15, 2005. In connection with the issuance of the Warrants, the Parent issued to IWCL warrants to purchase Class 1 Interests (the "Parent Interest Warrants") having the same tenor and terms as the Warrants. The Parent Interest Warrants entitle IWCL to purchase, in the aggregate, a number of Class 1 Interests equal to the aggregate number of shares of Class A Common Stock issued in respect of the Warrants, subject to anti-dilution adjustments. IWCL has agreed, subject to anti-dilution adjustments, to exercise one such warrant for each share of Class A Common Stock issued pursuant to the Warrants. 30 33 On October 17, 1997, the Parent and Capital consummated a private offering of $300,000,000 aggregate principal amount of 11.25% Senior Notes due 2005, Series C of the Parent and Capital (the "Series C Notes" and together with the Series A Notes and the Series B Notes, the "Senior Notes") for aggregate net proceeds to the Parent of $293 million. The Series C Notes are guaranteed by IP, Roaming and Facilities. 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 Delaware limited liability company and a wholly-owned subsidiary of the Parent. The purpose of the Asset Drop-Down Transaction was to facilitate the pledge the assets held by the Parent in connection with the establishment of secured bank financing. Pursuant to the Asset Drop-Down Transaction, substantially all of the assets and liabilities of the Parent were transferred to Iridium, including, without limitation, the Senior Notes. (B) Holders of Class A Common Stock At March 10, 1998, there were approximately 560 holders of Iridium World Communications Ltd's Class A Common Stock. (C) Dividend Policy IWCL has never declared or paid any dividends on its Class A Common Stock and the Parent has never made distributions on its Class 1 Interests. IWCL and, except as described below, the Parent do not currently anticipate paying any such dividends or distributions until some time following the date on which the Parent and its consolidated subsidiaries achieve a positive operating cash flow. Cash distributions by Parent on its Class 1 Interests are expected to be restricted, either directly or indirectly, by debt covenants of the Parent and its subsidiaries, including Iridium, potentially long after the achievement of a positive operating cash flow. IWCL's only assets are its Class 1 Interests and its Parent Interest Warrants and IWCL has no independent means of generating revenues. The Parent's interest in Iridium constitutes substantially all of the Parent's assets. Accordingly, the ability of the Parent to pay any distributions on its Class 1 Interests, for all practical purposes, is dependent on the ability of Iridium to pay distributions to the Parent. Iridium's agreements relating to indebtedness significantly restrict its ability to pay distributions to the Parent. Such restrictions are expected to be effective long after Iridium and its consolidated subsidiaries achieve a positive operating cash flow. See "Management's Discussion and Analysis of Operations and Financial Condition". The Parent has agreed to pay, and Iridium has agreed to reimburse Parent for, IWCL's operating expenses, which expenses are not expected to be material, and to 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 the Class 1 Interests. The Limited Liability Company Agreement of the Parent 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 ensure that each non-U.S. member of Parent holding Class 1 Interests receives an amount 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. To the extent permitted by law and by agreements relating to indebtedness, the Parent intends to distribute to holders of its Class 1 Interests, including IWCL, net cash, if any, received from its operations, less amounts required to repay outstanding indebtedness, satisfy other liabilities and fund capital expenditures and contingencies. IWCL intends to distribute promptly, as dividends to its shareholders, the distributions on Class 1 Interests, if any, made to IWCL by the Parent, less any amounts required to be retained for payment of taxes, for payment of liabilities and to fund contingencies. 31 34 ITEM 6. SELECTED FINANCIAL DATA IWCL The following selected financial data as of December 31, 1997 is derived from IWCL's financial statements which have been audited by KPMG Peat Marwick LLP, independent certified public accountants. The selected financial data should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the financial statements of IWCL and notes thereto included herein.
YEAR ENDED DECEMBER 31, 1997 -------------------- (IN THOUSANDS EXCEPT PER SHARE DATA) STATEMENT OF LOSS DATA: Equity in loss of Iridium LLC............................. $18,834 Net loss.................................................. 18,834 Net loss per Class A Common Share......................... $ 2.79
DECEMBER 31, 1997 ----------------- (IN THOUSANDS) BALANCE SHEET DATA: Cash...................................................... $ -- Investment in Iridium LLC................................. 223,922 Total assets.............................................. 223,922 Stockholders' equity...................................... 223,922
IRIDIUM LLC The following selected financial data of Parent as of December 31, 1993, 1994, 1995, 1996 and 1997 and for the period January 1, 1993 to July 28, 1993 (predecessor company) and the period July 29, 1993 (the Initial Contribution Date) to December 31, 1993, and the years ended December 31, 1994, 1995, 1996 and 1997, have been derived from the consolidated financial statements of Parent (and its predecessor prior to the Initial Capital Contribution Date), which have been audited by KPMG Peat Marwick LLP, independent certified public accountants. The selected financial data set forth below should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the consolidated financial statements of Parent and notes thereto included herein. Parent is the predecessor of Iridium, and has transferred substantially all of its assets and liabilities to Iridium pursuant to the Asset Transfer Agreement between Parent and Iridium.
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) CONSOLIDATED STATEMENT OF LOSS DATA: Revenues(2)...................................... $ -- $ -- $ -- $ -- $ -- $ -- Sales, general and administrative................ 5,309 7,141 17,561 27,187 71,404 296,598 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 $293,553 ====== ====== ======= ======= ======= ======== Net loss per Class 1 Interest.................... $ -- $ .43 $ .38 $ .27 $ .64 $ 2.25 ====== ====== ======= ======= ======= ========
32 35
DECEMBER 31, ---------------------------------------------------------- 1993 1994 1995 1996 1997 -------- -------- ---------- ---------- ---------- (DOLLARS IN THOUSANDS) CONSOLIDATED BALANCE SHEET DATA: Cash and cash equivalents................................ $ 23,496 $202,391 $ 51,332 $ 1,889 $ 9,040 Restricted cash.......................................... -- -- -- -- 350,220(3) 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 1,626,326 Total assets............................................. 299,886 851,809 1,505,383 2,434,081 3,645,687 Long-term debt........................................... -- -- -- 735,904 1,537,590(4) Total members' equity (deficit).......................... $294,308 $795,813 $1,404,610 $1,572,029 $1,634,637
- --------------- (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) 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. (4) Does not include the $350 million of outstanding borrowings under the Secured Bank Facility. See note (3) above. IRIDIUM OPERATING LLC The following selected financial data of Iridium has been derived from the consolidated financial statements of Iridium 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 (the Initial Contribution Date) 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 "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the consolidated financial statements of Iridium and notes thereto included herein. Parent is the predecessor of Iridium, and on December 18, 1997, transferred substantially all of its assets and liabilities to Iridium pursuant to the Asset Drop-Down Transaction.
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) 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
33 36
DECEMBER 31, ---------------------------------------------------------- 1993 1994 1995 1996 1997 -------- -------- ---------- ---------- ---------- (DOLLARS IN THOUSANDS) 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
- --------------- (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. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION IWCL is a member of Parent and has no other business. IWCL's sole assets are its Class 1 Interests and its Parent Interest Warrants, and IWCL's results of operations reflect its proportionate share of the results of operations of Parent on an equity accounting basis. IWCL has no operations other than those related to its interest in Parent and, indirectly, Iridium. Accordingly, management's discussion and analysis addresses the financial condition and results of operations of Parent and Iridium. 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. Each of Capital, Roaming, IP and Facilities is a wholly owned subsidiary of Iridium, and has no significant assets and does not conduct any significant operations. Iridium is currently devoting its entire efforts to establishing and commercializing 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. LIQUIDITY AND CAPITAL RESOURCES Funding Requirements Iridium expects to commence commercial operations on September 23, 1998. Iridium currently estimates that 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%), respectively, 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%), respectively, of such $5.3 billion estimate. 34 37 While Iridium has raised sufficient funds to meet its expected pre-commercial operations project costs, Iridium expects to require significant additional funding after commencement of commercial operations. These projections of aggregate funding needs are forward looking and could vary, perhaps substantially, from actual results, due to events outside of the control of Iridium, including without limitation unforeseen construction, systems integration or regulatory delays, launch failures and lower than anticipated customer demand. With respect to the development and construction of 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 Terrestrial Network Development Contract to design the gateway hardware and software, and (iii) 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. Substantially all of the initial capital raised by Iridium is being used and will continue to be used to make payments to Motorola under the Space System Contract and, to a lesser extent, the Terrestrial Network Development Contract. The Space System Contract provides for a fixed price of $3.45 billion (subject to certain adjustments), scheduled to be paid by Iridium to Motorola over approximately a five-year period for completion of milestones under the contract. Payments under the Operations and Maintenance Contract will be payable quarterly and are expected to aggregate approximately $2.88 billion over such contract's initial five-year term (assuming commencement of commercial operations on September 23, 1998 and no excusable delays), in addition to the cost of certain spare satellites at the completion of the contract. The payments increase each year, ranging from quarterly payments of $129.4 million in 1998 to $157.4 million in 2003 to $171.4 million in 2005. If Iridium exercises its option to extend the Operations and Maintenance Contract for an additional two years, the payments due for that two-year extension are expected to aggregate approximately $1.33 billion (assuming commencement of commercial operations on September 23, 1998 and no excusable delays). The Terrestrial Network Development Contract provides for payments aggregating approximately $284 million. As a result of technological developments, changes in the product mix of Iridium World Services, 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 and interpretations is reflected in Iridium's estimates of its funding requirements, there can be no assurance that any such amendments or interpretations will not affect the price and terms of those agreements in a manner not reflected in Iridium's funding estimates. Through February 1, 1998, the Parent and Iridium incurred expenditures totaling $2.94 billion to Motorola under the Space System Contract in respect of completed milestones and expenditures totaling $140 million under the Terrestrial Network Development Contract. Based on estimates and the planned schedule, Iridium's expected future cash requirements by year under the contracts through December 31, 1999 are approximately as follows (in millions):
1998 1999 ---- ---- Space System Contract....................................... $514 -- Terrestrial Network Development Contract.................... 93 $ 63 Operations and Maintenance Contract......................... 129 537
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. The interest expense associated with the development and construction of the IRIDIUM System increased significantly in calendar year 1997 as a result of a substantial increase in debt financing. See "-- Sources of Funding". Iridium expects interest expense will increase in calendar year 1998 as compared with calendar years 1997 as a result of its financing plan. Prior to the receipt of revenues from commercial operations, Iridium expects to service its interest expense out of available cash and borrowings. From approximately the time of commencement of commercial operations through approximately year-end 1999 35 38 (the last year in which Iridium projects negative cash flow and a net increase in year-end outstanding borrowings) Iridium expects to service its interest expense partly from available cash and bank facilities 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 related to the Operations and Maintenance Contract, funds needed for working capital, capital expenditures and debt service are anticipated to be funded through operations. SOURCES OF FUNDING As of February 1, 1998, Iridium had indirectly received $1.94 billion from equity investments in the Parent, and has the right to receive approximately $49 million due from South Pacific Iridium Holdings Limited pursuant to the terms of a definitive purchase agreement. Iridium's indebtedness for borrowed money equaled approximately $2.0 billion, including $1.1 billion in aggregate principal amount of Senior Notes (as defined), approximately $285 million of borrowings under the $450 million Guaranteed Bank Facility (as defined) and approximately $350 million of borrowings under the Secured Bank Facility (as defined). On July 16, 1997, IWCL, Parent and Capital consummated a private offering of (i) 300,000 units each consisting of (A) $1,000 principal amount of 13% Senior Notes due 2005, Series A of the Parent and Capital (the "Series A Notes") and (B) one warrant ("Warrant") to purchase 5.2 shares of Class A Common Stock and (ii) $500,000,000 aggregate principal amount of 14% Senior Notes due 2005, Series B of the Parent and Capital (the "Series B Notes") for aggregate net proceeds to Parent of $746 million. On October 17, 1997, the Parent and Capital consummated a private offering of $300,000,000 aggregate principal amount of 11.25% Senior Notes due 2005, Series C of the Parent and Capital (the "Series C Notes" and together with the Series A Notes and the Series B Notes, the "Senior Notes") for aggregate net proceeds to Parent of $293 million. As of February 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 of the Senior 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 or for other purposes. The Guaranteed Bank Facility matures on June 30, 1999. On December 18, 1997, pursuant to the Asset Drop-Down Transaction, substantially all of the assets and liabilities of Parent were transferred to Iridium, including, without limitation, the Senior Notes and the Guaranteed Bank Facility, and the Parent was released from such liabilities. Pursuant to the Memorandum of Understanding, dated July 11, 1997, between Parent and Motorola, as modified to apply to Iridium in connection with the Asset Drop-Down Transaction (the "Motorola MOU"), in addition to the Motorola Guarantee, Motorola has conditionally agreed to 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. Pursuant to the Motorola MOU, Motorola has agreed to extend the Motorola Guarantee (including the Motorola Additional Guarantee, if committed) until after July 15, 2005, if the Guaranteed Bank Facility is so extended. Iridium believes it would be able to amend the Guaranteed Bank Facility to increase its amount to the extent of the Motorola Additional Guarantee and to extend its maturity until after July 15, 2005, 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. 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 $1.0 billion (the "Secured Bank Facility"). As of February 1, 1998, Iridium had drawn $350 million under this Secured Bank Facility. The availability of the Secured Bank Facility is subject to significant conditions, including 36 39 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) of the Parent and all of the membership interests in Iridium. In addition, each of Iridium's subsidiaries has guaranteed Iridium's obligations thereunder. The Reserve Capital Call is the contractual commitment by 17 of Parent's investors to purchase up to 18,206,550 Class 1 Interests at $13.33 per interest (an aggregate of approximately $243 million). 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 Iridium can demonstrate by July 1, 1998 that it has sufficient available or committed funds for its budgeted project costs through such extended maturity. Assuming approximately $445 million of borrowings under the Guaranteed Bank Facility and $715 million of borrowings 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 borrowing. 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. 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. The debt instruments governing Iridium's indebtedness are likely to contain restrictions on, among other things, the incurrence of indebtedness, the granting of liens and the payment of cash dividends. 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 that it 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. 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 July 29, 1993 (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 37 40 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 and timely commencement of the operation of the IRIDIUM System, wide subscriber acceptance and numerous other factors. 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 delivery of each satellite to its mission orbit. Depreciation related to the ground control stations commences with the placement in service of each such station. 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. Iridium has obtained a satellite insurance policy to cover certain costs associated with the loss of a satellite. Capitalized amounts under the Space System Contract and the Terrestrial Network Development Contract aggregated approximately $3.0 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 Parent's additional paid-in capital and Iridium's debt issuance costs are deferred and amortized over the term of the related indebtedness. 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. 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 costs 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 IRIDIUM 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 and Parent's consolidated balance sheets. INCOME TAXES Each of Parent and 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. IWCL is taxed directly. 38 41 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. 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. Parent 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, Parent 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 Parent's consolidated financial statements as currently and previously reported. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Not Applicable. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA See Index to Financial Statements on page F-1. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. 39 42 ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANTS IWCL The following table information concerning the executive officers and directors of IWCL as of March 1, 1998. The current members of the IWCL Board of Directors were elected by Parent. Members of the IWCL Board of Directors will hereafter be elected at the annual general meeting or at a special meeting of stockholders. The exclusive right to elect members of the IWCL Board of Directors is vested with the holders of Class A Common Stock.
NAME AGE POSITION ---- --- -------- Edward F. Staiano......................... 61 Chairman of the Board and Chief Executive Officer Roy Grant................................. 40 Chief Financial Officer Wayne Morgan.............................. 53 Secretary F. Thomas Tuttle.......................... 55 Assistant Secretary Alberto Finol............................. 62 Deputy Chairman and Director Ulf Bohla................................. 53 Director Robert W. Kinzie.......................... 64 Director Richard Lesher............................ 63 Director William Schreyer.......................... 69 Director Yoshiharu Yasuda.......................... 57 Director
PARENT AND IRIDIUM The following table sets forth information concerning the executive officers and directors of Parent and Iridium as of March 1, 1998. Pursuant to the limited liability company agreement of Iridium, each officer and director of Parent holds the same position with Iridium. The directors of Parent and Iridium are designated by the members of Parent and serve until a successor is designated.
NAME AGE POSITION ---- --- -------- 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 President 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)
40 43
NAME AGE POSITION ---- --- -------- 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)
- --------------- (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 CAPITAL The following table sets forth information concerning the executive officers and directors of Capital as of March 1, 1998.
NAME AGE POSITION - ---- --- -------- 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
Executive Officers of IWCL, Parent, Iridium and Capital Set forth below is information concerning each director and executive officer of IWCL, Parent, Iridium and 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. There are no family relationships between any officers and directors of IWCL, Parent, Iridium or Capital. 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 of IWCL since May 1997 and Chief Executive Officer of IWCL since March 1997. Chairman of the Board and Chief Executive Office of Capital since June 18, 1997. 41 44 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 of 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. 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 IWCL since April 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. 42 45 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. WAYNE MORGAN -- Secretary of IWCL. Mr. Morgan has been employed as a corporate manager by Codan Services Ltd. In Bermuda since August 1996. Prior thereto, Mr. Morgan served Johnson & Higgins (Bermuda) Limited from 1980 to 1996 in a number of positions including Vice President and Manager of Support Services, Senior Vice President, Client Account Management and Senior Vice President, Principal Branch Manager. Prior to joining Johnson & Higgins, Mr. Morgan was the Deputy Accountant General for the Government of Bermuda from 1975 to 1980. Mr. Morgan has served as the Secretary of IWCL since December 1996. 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. Assistant Secretary of IWCL since December 1996. 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 IWCL, Parent, Iridium and Capital 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 IWCL since December 1996. Director of Iridium Capital since June 18, 1997. Prior thereto, Mr. Kinzie was the Director of Strategic Planning for Intelsat from 1987 to 1991. Prior to joining Intelsat, Mr. Kinzie worked from 1966 to 1987 in a number of positions with COMSAT Corporation including President, Communications Services Division and President of COMSAT General Corporation. Prior to joining COMSAT Corporation in 1966, Mr. Kinzie was an economist with the FCC from 1962 to 1965. RICHARD L. LESHER -- Vice Chairman of the Board and Independent Company Director since June 1997; member of the Audit Committee, the Compensation Committee and the Related Party Contracts Committee. Director of IWCL since June 1996. 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 1997, 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 Contracts Committee. During the past five years, Mr. Binladin has served as Senior Vice President of the Saudi Binladin Group. 43 46 ULF BOHLA -- Director since October 1994; member of the Banking and Financing Committee and the Related Party Contracts Committee. Director of IWCL since December 1996. 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 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 Committee; member of the Compensation Committee and the Related Party Contracts Committee. Deputy Chairman and Director of IWCL since December 1996. Mr. Finol has been the President of Ilapeca, a Venezuelan holding company with interests in dairy products, supermarkets, pharmaceuticals and communications, since 1990 and has served as a Director since 1966. He is the Chairman of Iridium SudAmerica and the Chairman and a major shareholder of Iridium Andes-Caribe Ltd., one of the owners of Iridium SudAmerica. He has also served as the Director of Group Zuliano, a major Venezuelan petrochemical holding group. He represented his native region of Zulia on the Venezuelan Congress from 1969 to 1993. EDWARD GAMS -- Director since July 1993; member of the Banking and Financing Committee. Mr. Gams has served as Corporate Vice President and Director of Investor Relations of Motorola since 1996 and Vice President and Director of Investor Relations of Motorola since 1991. He was first employed by Motorola in 1979, and has held a variety of positions in operational and corporate finance, including service as Director of Corporate Financial Planning from February 1991 to August 1991 and as manager of Corporate Financial Planning from December 1989 to February 1991. KAZUO INAMORI -- Director since July 1993; member of the Related Party Contracts Committee. Dr. Inamori has been Chairman of the Board of DDI Corporation since 1984, of Kansai Cellular Telephone Co., Ltd. since 1988, of Taitoh Corporation since 1990, of Nippon Iridium Corporation since 1993, of DDI Tokyo Pocket Telephone Inc. since 1994, of DDI Kansai Pocket Telephone Co., Ltd. since 1994, Kyocera Multimedia Corporation since 1995 and at Kyocera DDI Institute of Future Telecommunications Inc. since 1996. Dr. Inamori established Kyocera Corporation in 1959 and has been Chairman of the Board since 1986. GEORG KELLINGHUSEN -- Director since July 1997; member of the Related Party Contracts Committee. Dr. Kellinghusen has been a member of the Board of Vebacom GmbH since August 1996. From 1989 to 1996, Dr. Kellinghusen was affiliated with Varta AG, most recently as the Chairman of the Board of 44 47 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 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. 45 48 THEODORE H. SCHELL -- Director since July 1993; member of the Banking and Financing Committee and 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. Director or IWCL since 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. 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. Director of IWCL since December 1996. Mr. Yasuda is currently 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. 46 49 ITEM 11. 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. IWCL does not have any salaried employees. All executive officers of IWCL are executive officers of Parent and Iridium, except for the Secretary who is a Bermuda resident, as required under Bermuda law. SUMMARY COMPENSATION TABLE
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 - --------------------------- ---- -------- -------- ------------ ------------ ------ ------------ 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
- ------------ (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 47 50 of $500,000 per year. In addition to base salary, Parent has agreed to provide Dr. Staiano, at its expense, with a car, a furnished apartment in Washington, D.C. and access to a corporate jet aircraft. Parent has agreed to provide reimbursement for any tax liability created as a result of the use of those items. Dr. Staiano was also awarded options to purchase 750,000 shares of Class A Common Stock of IWCL at a price of $13.33 per share. The options vest, pro rata, over a period of five years. Vested options may be exercised at any time after a public offering. Dr. Staiano's options will continue to vest even if his employment is terminated by Iridium, other than for cause, so long as he is not retained or employed by a competitor. Dr. Staiano does not receive an annual bonus or participate in Parent's retirement plans. Option Grants The following table sets forth the options granted for the fiscal year ended December 31, 1997 for each named executive officer. OPTIONS/SAR GRANTS IN LAST FISCAL YEAR
INDIVIDUAL GRANTS ------------------------------- POTENTIAL REALIZABLE VALUE NUMBER OF PERCENT OF TOTAL AT ASSUMED ANNUAL RATES OF SECURITIES OPTIONS/SARS STOCK PRICE APPRECIATION FOR UNDERLYING GRANTED TO EXERCISE OF OPTION TERM(a) OPTIONS/SARS EMPLOYEES BASE PRICE EXPIRATION ---------------------------- NAME GRANTED IN FISCAL YEAR ($/SH) DATE 5%($) 10%($) - ---- ------------ ---------------- ----------- ---------- ------------ ------------- 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............ -- -- -- -- -- --
- --------------- (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
NUMBER OF SHARES UNEXERCISED OPTIONS ACQUIRED AT FISCAL YEAR-END(a) ON OPTIONS VALUE DATE OF MONTHS --------------------------- NAME YEAR EXERCISE GRANTED REALIZED OPTION HELD EXERCISABLE UNEXERCISABLE - ---- ---- -------- ------- -------- ------- ------ ----------- ------------- Edward F. Staiano.... 1997 -- 750,000 -- 1/13/97 11 137,500 612,500 Robert W. Kinzie..... 1997 -- 90,000 -- 4/15/97 8 46,500 133,500 Mauro Sentinelli..... 1997 -- 75,000 -- 8/1/97 5 5,000 70,000 Leo Mondale.......... 1997 -- 67,500 -- 4/15/97 8 26,250 86,250 Mark Gercenstein..... 1997 -- 0 -- 1/1/96 23 17,250 27,750
VALUE OF UNEXERCISED IN-THE-MONEY OPTIONS/SAR AT FISCAL YEAR-END(b) --------------------------- NAME EXERCISABLE UNEXERCISABLE - ---- ----------- ------------- Edward F. Staiano.... $5,018,750 $22,356,250 Robert W. Kinzie..... 1,697,250 4,872,750 Mauro Sentinelli..... 182,500 2,555,000 Leo Mondale.......... 958,125 3,148,125 Mark Gercenstein..... 629,625 1,012,875
- --------------- (a) These figures include Options granted before fiscal year 1997. (b) The closing price of Company Stock on the last day of fiscal year was $36.50 per share. 48 51 Compensation Committee Interlocks and Insider Participation The Compensation Committee of the Parent Board and the Iridium Board determines the compensation of the executive officers of Parent and Iridium consistent with guidelines established by the Parent Board and the Iridium Board. The members of the Compensation Committee for the fiscal year ending December 31, 1997 were Alberto Finol, Richard L. Lesher, George S. Medawar, John F. Mitchell, Jung L. Mok, Sribhumi Sukhanetr, Wang Mei Yue and Yoshiharu Yasuda. The Compensation Committee was chaired by Mr. Mitchell, formerly an executive officer of Motorola, who continues to serve as Vice Chairman of the Board of Directors of Motorola. Mr. Finol serves as the Deputy Chairman of IWCL. Pension Plan
YEARS OF SERVICE -------------------------------------------------------- COMPENSATION 15 20 25 30 35 - ------------ -------- -------- -------- -------- -------- 125,000............................. $ 36,964 $ 49,286 $ 61,607 $ 76,929 $ 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
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 credit service; and Mr. Gercenstein has twelve 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. 49 52 Employment Arrangements On January 2, 1997, Edward F. Staiano became Chief Executive Officer and Vice Chairman of the Parent Board. Pursuant to the terms of his employment agreement, Dr. Staiano will receive a base salary of $500,000 per year. In addition to base salary, Parent has agreed to provide Dr. Staiano, at its expense, with a car, a furnished apartment in Washington, D.C. and access to a corporate jet aircraft. Parent has agreed to provide reimbursement for any tax liability created as a result of the use of those items. Dr. Staiano was also awarded options to purchase 750,000 Class 1 Interests of Iridium at a price of $13.33 per interest. The options vest, pro rata, over a period of five years. Vested options may be exercised at any time after a public offering. Generally, Dr. Staiano's options are subject to all of the provisions of the Option Plan (described under "-- Option Plan" below) except that Dr. Staiano's options will continue to vest even if his employment is terminated by Parent, other than for cause, so long as he is not retained or employed by a competitor. Dr. Staiano does not receive an annual bonus or participate in Parent's pension plans. Option Plan Parent has established a plan under which executive officers and managers of Parent are awarded options to purchase Class A Common Stock ( the "Option Plan" ). The Option Plan covers 2,625,000 shares of Class A Common Stock. The Option Plan also permits the award of stock appreciation rights in connection with any grant of options. As of March 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 (ii) 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." SUBSIDIARIES OF IRIDIUM Iridium has four subsidiaries: Iridium Capital Corporation ("Capital"), Iridium Roaming LLC ("Roaming"), Iridium IP LLC ("IP") and Iridium Facilities Corporation ("Facilities"). 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 50 53 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. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT IRIDIUM WORLD COMMUNICATIONS LTD. There are no persons known by IWCL to own beneficially more than five percent of its Class A Common Stock as of March 1, 1998. The following table sets forth certain information regarding beneficial ownership of IWCL's Class A Common Stock as of March 1, 1998 by the Directors and nominees, the named executive officers in the Summary Compensation Table ("NEOs") and all Directors, nominees and officers as a group.
AMOUNT AND NATURE OF BENEFICIAL PERCENT OF NAME OF INDIVIDUAL OWNERSHIP(1)(2) CLASS(1) - ------------------ ----------------- ---------- Robert W. Kinzie................................. 78,457(3) * Edward F. Staiano................................ 250,000 2.05% Mauro Sentinelli................................. 17,852 * Leo Mondale...................................... 41,792 * Mark Gercenstein................................. 25,603 * Alberto Finol.................................... 127,900(4) 1.07% Ulf Bohla........................................ 0 -- Richard Lesher................................... 9,183 * William Schreyer................................. 10,183 * Yoshiharu Yasuda................................. 2,000 * All Directors of IWCL and Executive Officers of IWCL and Parent as a Group..................... 681,030 5.47%
- --------------- * Represents holdings of less than one percent. (1) Includes shares which, as of March 1, 1998, may be acquired within sixty days pursuant to the exercise of options (which shares are treated as outstanding for the purposes of determining beneficial ownership and computing the percentage set forth). (2) Except as noted, all shares are owned directly with sole investment and voting power. (3) Includes 1,500 shares owned by Mr. Kinzie's wife, as to which Mr. Kinzie disclaims beneficial ownership. (4) Includes 122,900 shares owned by Mr. Finol's holding company and 5,000 shares owned by Mr. Finol's wife. Mr. Finol disclaims beneficial ownership of the shares owned by his wife. 51 54 PARENT Iridium is 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.
AMOUNT AND NATURE OF BENEFICIAL PERCENT OF NAME AND ADDRESS OF BENEFICIAL OWNER OWNERSHIP(1) CLASS(1) - ------------------------------------ ----------------- ---------- 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
- --------------- (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 10-K 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 52 55 under the Option Plan. Options to purchase 482,487 shares of Class A Common Stock were vested at March 11, 1998. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS 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 from $750 million to $655 million with the net proceeds of the Initial Senior Notes offering; for the purposes of the 53 56 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 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 a 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). "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. 54 57 Motorola Conflicts of Interest Motorola has and may have various conflicts of interest with Iridium and with other members of Parent. 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. 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. 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. 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 transmission. OTHER MATTERS Iridium Services Deutschland, a wholly owned subsidiary of o.tel.o communications GmbH & Co., the parent of Vebacom Holdings, Inc., a holder of approximately 8.8% of the Class 1 Interests, was allocated a gateway service territory consisting of several countries in or near Europe. Nippon Iridium Corporation, an affiliate of Nippon Iridium (Bermuda) Corporation, a holder of approximately 11.2% of the Class 1 Interests, was allocated the Japan gateway service territory. Each of o.tel.o 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 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. 55 58 Certain of the directors of IWCL are, or have been within the past year, executive officers of suppliers of Parent and Iridium. In addition, certain of the directors of Parent and Iridium are executive officers of gateway owners and service providers. ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K. (a) The following are filed as a part of this Report on Form 10-K: (1) The following financial statements are included at the indicated page in this Report.
PAGE ---- Index to Financial Statements............................... F-1 IRIDIUM WORLD COMMUNICATIONS LTD. Independent Auditors' Report......................... F-2 Balance Sheets....................................... F-3 Statements of Loss................................... F-4 Statements of Stockholders' Equity................... F-5 Statements of Cash Flows............................. F-6 Notes to Financial Statements........................ F-7 IRIDIUM LLC Independent Auditors' Report......................... F-11 Consolidated Balance Sheets.......................... F-12 Consolidated Statements of Loss...................... F-13 Consolidated Statements of Members' Equity (Deficit)........................................... F-14 Consolidated Statements of Cash Flows................ F-15 Notes to Consolidated Financial Statements........... F-16 IRIDIUM OPERATING LLC Independent Auditors' Report......................... F-33 Consolidated Balance Sheets.......................... F-34 Consolidated Statements of Loss...................... F-35 Consolidated Statements of Member's Equity (Deficit)........................................... F-36 Consolidated Statements of Cash Flows................ F-37 Notes to Consolidated Financial Statements........... F-38
(2) The following additional financial data are transmitted with this Report and should be read in conjunction with the Consolidated Financial Statements and Financial Statements in this Report. Schedules other than those listed below have been omitted because they are inapplicable or are not required.
PAGE ---- Independent Auditors' Report on Consolidated Financial Statement Schedule........................ S-1 Schedule 1 -- Condensed Financial Information of Iridium LLC......................................... S-2
56 59 (3) Exhibits
EXHIBIT NUMBER DESCRIPTION OF EXHIBIT - ------- ---------------------- 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: Incorporated by reference to Exhibit 3.4 to the Registration Statement on Form S-4 of Iridium Operating LLC, Iridium Capital Corporation, Iridium Roaming LLC and Iridium IP LLC (Registration No. 333-44349, -01, -02, -03 and -04) (the "1998 Form S-4"). 3.5 Amended and Restated Limited Liability Company Agreement of Iridium IP LLC: Incorporated by reference to Exhibit 3.5 to the 1998 Form S-4. 3.6 Limited Liability Company Agreement of Iridium Operating LLC: Incorporated by reference to Exhibit 3.6 to the 1998 Form S-4. 3.7 Articles of Incorporation of Iridium Facilities Corporation.* 3.8 By-Laws of Iridium Facilities Corporation.* 3.9 Memorandum of Association of Iridium World Communications Ltd.: Incorporated by reference to Exhibit 3.1 to the Form S-1. 3.10 By-Laws of Iridium World Communications Ltd.: Incorporated by reference to Exhibit 3.2 to the Form S-1. 4.1.1 Indenture dated as of July 16, 1997 relating to Iridium LLC's and Iridium Capital Corporation's 13% Senior Notes due 2005, Series A, and 13% Senior Notes due 2005, Series A/EN: Incorporated by reference to Exhibit 4.1 to the 1997 Form S-4. 4.1.2 First Supplemental Indenture dated as of December 18, 1997 relating to Iridium Operating LLC's and Iridium Capital Corporation's 13% Senior Notes due 2005, Series A, and 13% Senior Notes due 2005, Series A/EN: Incorporated by reference to Exhibit 4.1.2 to the 1998 Form S-4. 4.1.3 Second Supplemental Indenture dated as of February 27, 1998 relating to Iridium Operating LLC's and Iridium Capital Corporation's 13% Senior Notes due 2005, Series A, and 13% Senior Notes due 2005, Series A/EN.* 4.2 Forms of Series A Note and Series A/EN Note: Incorporated by reference to Exhibit 4.1 to the 1997 Form S-4. 4.3.1 Indenture dated as of July 16, 1997 relating to Iridium LLC's and Iridium Capital Corporation's 14% Senior Notes due 2005, Series B, and 14% Senior Notes due 2005, Series B/EN: Incorporated by reference to Exhibit 4.2 to the 1997 Form S-4. 4.3.2 First Supplemental Indenture dated as of December 18, 1997 relating to Iridium Operating LLC's and Iridium Capital Corporation's 14% Senior Notes due 2005, Series B, and 14% Senior Notes due 2005, Series B/EN: Incorporated by reference to Exhibit 4.3.2 to the 1998 Form S-4. 4.3.3 Second Supplemental Indenture dated as of February 27, 1998 relating to Iridium Operating LLC's and Iridium Capital Corporation's 14% Senior Notes due 2005, Series B, and 14% Senior Notes due 2005, Series B/EN.* 4.4 Forms of Series B Note and Series B/EN Note: Incorporated by reference to Exhibit 4.2 to the 1997 Form S-4. 4.5.1 Indenture dated as of October 17, 1997 relating to Iridium LLC's and Iridium Capital Corporation's 11 1/4% Senior Notes due 2005, Series C: Incorporated by reference to Exhibit 4.5.1 to the 1998 Form S-4. 4.5.2 First Supplemental Indenture dated as of December 18, 1997 relating to Iridium Operating LLC's and Iridium Capital Corporation's 11 1/4% Senior Notes due 2005, Series C: Incorporated by reference to Exhibit 4.5.2 to the 1998 Form S-4.
57 60
EXHIBIT NUMBER DESCRIPTION OF EXHIBIT - ------- ---------------------- 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.* 4.6 Forms of Series C Note and Series C/EN Note: contained in an exhibit to Exhibit 4.5.1: Incorporated by reference to Exhibit 4.6 to the 1998 Form S-4. 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: Incorporated by reference to Exhibit 10.2 to the 1998 Form S-4. 10.3 Form of 1997 Subscription Agreement between IWCL and Iridium LLC: Incorporated by reference to Exhibit 10.4 to the 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.* 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: Incorporated by reference to Exhibit 10.20 to the 1998 Form S-4. 10.21 Exchange and Registration Rights Agreement: contained in an annex to Exhibit 10.20: Incorporated by reference to Exhibit 10.21 to the 1998 Form S-4. 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.
58 61
EXHIBIT NUMBER DESCRIPTION OF EXHIBIT - ------- ---------------------- 10.24 Agreement between Dr. Staiano and Iridium LLC: Incorporated by reference to Exhibit 10.28 to the 1997 Form S-4. 10.25 Asset Transfer Agreement: Incorporated by reference to Exhibit 10.25 to the 1998 Form S-4. 10.26 Consent of Arthur Andersen LLP to Contract Assignment: Incorporated by reference to Exhibit 10.26 to the 1998 Form S-4. 10.27 Consent of Motorola Inc. to Contract Assignment: Incorporated by reference to Exhibit 10.27 to the 1998 Form S-4. 10.28 Form of Credit Agreement among Iridium Operating LLC, Chase Securities Inc., Barclays Capital, The Chase Manhattan Bank and Barclays Bank PLC.* 10.29 Conditions Precedent to the Disbursement of the Term Loans under Section 2.01(a) of the Credit Agreement.* 10.30 Regulatory and Technical Conditions Precedent to availability of funding under the Credit Agreement.* 10.31 Form of Assignment and Acceptance under the Credit Agreement.* 10.32 Form of Pledge and Security Agreement among Iridium Operating LLC, each of the Subsidiaries and The Chase Manhattan Bank.* 10.33 Form of Parent Security Agreement between Iridium LLC and The Chase Manhattan Bank.* 10.34 Form of Subsidiary Guarantee Agreement between each of the Subsidiary Guarantors and The Chase Manhattan Bank.* 10.35 Form of Subsidiary Guarantee Assumption Agreement.* 10.36 Form of Depositary Agreement between Iridium Operating LLC and The Chase Manhattan Bank.* 10.37 Form of Motorola Consent under the Credit Agreement among Motorola, Iridium Operating LLC and The Chase Manhattan Bank.* 10.38 Form of Motorola Pledge Agreement between Motorola, Inc. and The Chase Manhattan Bank.* 10.39 Form of Progress Certificate (Pre-Commercial Activation) under the Credit Agreement.* 10.40 Form of Verification of Independent Technical Advisor under the Credit Agreement.* 10.41 Form of Progress Certificate (Post-Commercial Activation) under the Credit Agreement.* 10.42 Form of Borrowing Request under the Credit Agreement.* 11.1 Statement re Computation of Loss per Class A Common Share: Iridium World Communications Ltd.* 11.2 Statement re Computation of Loss per Class 1 Interest: Iridium LLC.* 12 Statement re Computation of Ratios: Iridium Operating LLC.* 21 Subsidiaries of the Registrants.* 23 Consent of KPMG Peat Marwick LLP.* 27.1 Financial Data Schedule -- Iridium World Communications, Ltd.* 27.2 Financial Data Schedule -- Iridium LLC* 27.3 Financial Data Schedule -- Iridium Operating LLC* 99 Certain Factors Which May Affect Forward Looking Statements.*
(b) Reports on Form 8-K Iridium LLC and Iridium World Communications Ltd. filed an 8-K on July 18, 1997 reporting that Motorola had advised Iridium LLC that it had lost contact with one of the Iridium satellites. Iridium LLC and Iridium World Communications Ltd. filed an 8-K on October 13, 1997 reporting that Iridium LLC and Iridium Capital Corporation issued $300 million aggregate principal amount of 11 1/4% Senior Notes due 2005, Series C in an unregistered offering. In addition, such Form 8-K reported that Motorola had informed Iridium LLC that Motorola had experienced a problem with one of the Iridium satellites prior to its attaining final orbit. Such Form 8-K also reported that Motorola had advised Iridium LLC that (i) it factored satellite loss into its planning for 59 62 constellation deployment, (ii) it remained on course for commercial activation in September 1998 and (iii) Iridium would not bear the financial risk for loss of the satellite. Iridium LLC, Iridium Operating LLC and Iridium World Communications Ltd. filed an 8-K on December 19, 1997 reporting that Iridium LLC entered into an asset drop-down transaction with Iridium Operating LLC, a newly formed wholly-owned subsidiary of Iridium LLC. Such Form 8-K also reported that, (i) pursuant to the Asset Drop-Down Transaction, substantially all of the assets and liabilities of Iridium LLC were transferred to Iridium Operating LLC, (ii) the Asset Drop-Down Transaction was consummated in connection with establishment of a $1,000,000,000 credit facility by Iridium Operating LLC and (iii) such credit facility would be secured by a security interest in substantially all of the assets of Iridium Operating LLC and in all of the membership interests in Iridium Operating LLC. 60 63 INDEX TO FINANCIAL STATEMENTS
PAGE ---- IRIDIUM WORLD COMMUNICATIONS LTD. Independent Auditors' Report................................ F-2 Balance Sheets.............................................. F-3 Statements of Loss.......................................... F-4 Statements of Stockholders' Equity.......................... F-5 Statements of Cash Flows.................................... F-6 Notes to Financial Statements............................... F-7 IRIDIUM LLC Independent Auditors' Report................................ F-11 Consolidated Balance Sheets................................. F-12 Consolidated Statements of Loss............................. F-13 Consolidated Statements of Members' Equity (Deficit)........ F-14 Consolidated Statements of Cash Flows....................... F-15 Notes to Consolidated Financial Statements.................. F-16 IRIDIUM OPERATING LLC Independent Auditors' Report................................ F-33 Consolidated Balance Sheets................................. F-34 Consolidated Statements of Loss............................. F-35 Consolidated Statements of Member's Equity (Deficit)........ F-36 Consolidated Statements of Cash Flows....................... F-37 Notes to Consolidated Financial Statements.................. F-38
F-1 64 INDEPENDENT AUDITORS' REPORT The Board of Directors and Stockholders Iridium World Communications Ltd.: We have audited the accompanying balance sheets of Iridium World Communications Ltd. as of December 31, 1997 and 1996, and the related statements of loss, stockholders' equity, and cash flows for the year ended December 31, 1997 and for the period December 12, 1996 (inception) through December 31, 1996. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these 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 financial statements referred to above present fairly, in all material respects, the financial position of Iridium World Communications Ltd. as of December 31, 1997 and 1996, and the results of its operations and its cash flows for the year ended December 31, 1997, and for the period December 12, 1996 (inception) through December 31, 1996, in conformity with generally accepted accounting principles. KPMG Peat Marwick LLP McLean, Virginia January 16, 1998 F-2 65 IRIDIUM WORLD COMMUNICATIONS LTD BALANCE SHEETS (IN THOUSANDS EXCEPT SHARE DATA)
DECEMBER 31, ------------------- 1996 1997 ------- -------- ASSETS Cash........................................................ $ -- $ -- Investment in Iridium LLC................................... -- 223,922 ------- -------- Total Assets...................................... $ -- $223,922 ======= ======== LIABILITIES AND STOCKHOLDERS' EQUITY Liabilities................................................. $ -- $ -- Stockholders' equity: Class B Common stock, non-voting, par value $0.01; 2,500,000 shares authorized; none issued or outstanding............................................ -- -- Class A Common stock, voting, par value $0.01; 50,000,000 shares authorized; 1,200,000 and 12,003,262 issued and outstanding............................................ 12 120 Additional paid-in capital................................ -- 242,636 Subscription receivable................................... (12) -- Accumulated deficit....................................... -- (18,834) ------- -------- -- 223,922 ------- -------- Total liabilities and stockholders' equity........ $ -- $223,922 ======= ========
The accompanying notes are an integral part of these financial statements. F-3 66 IRIDIUM WORLD COMMUNICATIONS LTD. STATEMENTS OF LOSS (IN THOUSANDS EXCEPT SHARE DATA)
PERIOD FROM DECEMBER 12, 1996 (INCEPTION) TO YEAR ENDED DECEMBER 31, 1996 DECEMBER 31, 1997 ----------------- ----------------- Equity in loss of Iridium LLC.............................. $ -- $ 18,834 ---------- ---------- Loss before income taxes................................... -- 18,834 Income taxes............................................... -- -- ---------- ---------- Net loss................................................... $ -- $ 18,834 ========== ========== Net loss per Class A Common share -- basic and diluted..... $ -- $ 2.79 ---------- ---------- Weighted average shares used in computing net loss per Class A Common share -- basic and diluted................ -- 6,739,726 ========== ==========
The accompanying notes are an integral part of these financial statements. F-4 67 IRIDIUM WORLD COMMUNICATIONS LTD. STATEMENTS OF STOCKHOLDERS' EQUITY (IN THOUSANDS EXCEPT SHARE DATA)
CLASS A COMMON STOCK ADDITIONAL ------------------- PAID-IN SUBSCRIPTION ACCUMULATED SHARES AMOUNT CAPITAL RECEIVABLE DEFICIT TOTAL ---------- ------ ---------- ------------ ----------- -------- Inception, December 12, 1996..... -- $ -- $ -- $ -- $ -- $ -- Class A Common Stock subscribed..................... 1,200,000 12 -- (12) -- -- ---------- ---- -------- ---- -------- -------- BALANCE, December 31, 1996....... 1,200,000 12 -- (12) -- -- Retire subscribed Class A Common Stock.......................... (1,200,000) (12) -- 12 -- -- Equity offering.................. 12,000,000 120 225,480 -- -- 225,600 Warrants issued in conjunction with Iridium LLC Series A Senior Notes................... -- -- 17,113 -- -- 17,113 Exercise of stock options........ 3,262 -- 43 -- -- 43 Net loss......................... -- -- -- -- (18,834) (18,834) ---------- ---- -------- ---- -------- -------- BALANCE, December 31, 1997....... 12,003,262 $120 $242,636 $ -- $(18,834) $223,922 ========== ==== ======== ==== ======== ========
The accompanying notes are an integral part of these financial statements. F-5 68 IRIDIUM WORLD COMMUNICATIONS LTD. STATEMENTS OF CASH FLOWS (IN THOUSANDS)
PERIOD FROM DECEMBER 12, 1996 (INCEPTION) TO YEAR ENDED DECEMBER 31, 1996 DECEMBER 31, 1997 ----------------- ----------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net loss................................................. $ -- $ (18,834) Adjustments to reconcile net loss to net cash used in operating activities -- Equity in loss of Iridium LLC......................... -- 18,834 --------- --------- Net cash used in operating activities...................... -- -- --------- --------- CASH FLOWS FROM INVESTING ACTIVITIES : Investments in Iridium LLC............................... -- (242,756) --------- --------- Net cash used in investing activities...................... -- (242,756) --------- --------- CASH FLOWS FROM FINANCING ACTIVITIES : Net proceeds from equity offering........................ -- 225,600 Proceeds from Warrants issued in conjunction with Iridium LLC, Series A Senior Notes............................ -- 17,113 Proceeds from Class A Common Stock subscribed............ -- 12 Retirement and cancellation of Class A Common Stock...... -- (12) Proceeds from exercise of stock options.................. -- 43 --------- --------- Net cash provided by financing activities........ -- 242,756 --------- --------- Increase (decrease) in cash................................ -- -- CASH, beginning of period.................................. -- -- --------- --------- CASH, end of period........................................ $ -- $ -- ========= =========
The accompanying notes are an integral part of these financial statements. F-6 69 IRIDIUM WORLD COMMUNICATIONS LTD. NOTES TO FINANCIAL STATEMENTS 1. ORGANIZATION AND BUSINESS Iridium World Communications Ltd. ("IWCL") was incorporated under the laws of Bermuda on December 12, 1996. At inception, IWCL was wholly owned by Iridium LLC, a limited liability company. In June 1997, IWCL registered with the Securities and Exchange Commission a total of 13,800,000 shares of its Class A Common Stock ("Class A Common Stock") for sale in an initial public offering (the "Offering"), and on June 13, 1997 IWCL consummated the Offering and issued 12,000,000 shares of Class A Common Stock. Pursuant to the 1997 Subscription Agreement between IWCL and Iridium LLC, approximately $225 million in net proceeds from the Offering were invested in Class 1 Membership Interests of Iridium LLC ("Class 1 Interests"), at which time the outstanding shares of Class A Common Stock held by Iridium LLC were retired, and IWCL became a member of Iridium LLC. Iridium LLC through its wholly-owned subsidiary Iridium Operating LLC ("Iridium"), a Delaware limited liability company, is currently devoting substantially all of its efforts to establishing and commercializing the IRIDIUM communications system (the "IRIDIUM System"). IWCL's sole asset is its investment in Iridium LLC. At December 31, 1997, IWCL's investment was approximately 8.5% of the total outstanding Membership Interests in Iridium LLC. 2. SIGNIFICANT ACCOUNTING POLICIES Investment in Iridium LLC The investment in Iridium LLC is accounted for using the equity method. In accordance with the equity method of accounting, IWCL's carrying amount of the investment in an affiliate is initially recorded at cost and is increased to reflect its share of the affiliate's income and is reduced to reflect its share of the affiliate's losses each period since the initial investment. At December 31, 1997, Iridium LLC had total assets, total liabilities and total members' equity of approximately $3,646,000,000, $2,011,000,000 and $1,635,000,000, respectively. At December 31, 1996, Iridium LLC had total assets, total liabilities and total members' equity of $2,434,000,000, $862,000,000 and $1,572,000,000, respectively. Iridium LLC reported a net loss of $293,553,000 and $73,598,000 for the years ended December 31, 1997 and 1996, respectively. Management Estimates The preparation of 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 financial statements and the reported amounts of revenues and expenses during the reported periods. Actual results could differ from those estimates. Income Taxes IWCL recognizes income taxes using the asset and liability method. Under the asset and liability method, deferred tax assets and 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 enacted tax rates expected to apply to taxable income in the years in which those 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-7 70 IRIDIUM WORLD COMMUNICATIONS LTD. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) 3. STOCKHOLDERS' EQUITY On July 16,1997, Iridium LLC and Iridium Capital Corporation, a wholly owned subsidiary of Iridium, completed an offering (the "High Yield Offering") of (i) 300,000 units, each consisting of $1,000 principal amount of Iridium LLC 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 Iridium LLC 14% Senior Notes due 2005, Series B ("Series B Notes"). Iridium was subsequently substituted for Iridium LLC as obligor under the Series A Notes and the Series B Notes. The Series A Notes and Series B Notes are guaranteed by Iridium Roaming LLC and Iridium IP LLC, also wholly-owned subsidiaries of Iridium. IWCL is not an obligor or guarantor of the Series A Notes or Series B Notes. The IWCL Warrants represent, in aggregate, the right to purchase 1,560,000 shares of Class A Common Stock of IWCL. Approximately $17,113,000 of the proceeds of the High Yield Offering was allocated to the fair value of the purchase price of the IWCL Warrants. The exercise price of each IWCL Warrant is $20.90 per share. The IWCL Warrants are exercisable at anytime on or after one year from the date of original issuance and expire on July 15, 2005. Concurrent with the issuance of the IWCL Warrants in the High Yield Offering, Iridium LLC issued to IWCL 1,560,000 LLC Interest Warrants, each exercisable for one Iridium LLC Class 1 Interest at an exercise price of $20.90 per LLC Interest Warrant. IWCL and Iridium LLC have agreed that IWCL will exercise one LLC Interest Warrant upon the exercise of each IWCL Warrant. Exchange Rights of Iridium LLC Members Concurrent with the Offering, IWCL and Iridium LLC executed an Interest Exchange Agreement that conditionally permits holders of Class 1 Interests in Iridium LLC to exchange those interests, subject to the restrictions on transfer in the Iridium LLC Limited Liability Agreement, for shares of Class A Common Stock in IWCL at a ratio of one share of Class A Common Stock for each Iridium LLC Class 1 Interest, subject to anti-dilution adjustments. Under the Interest Exchange Agreement no exchanges of Iridium LLC Class 1 Interests are permitted until 90 days after Iridium LLC has achieved one full quarter of positive earnings before interest, taxes, depreciation and amortization. In addition, no exchange shall take place unless approved pursuant to authorization of Directors representing at least 66 2/3% of the Iridium LLC Board of Directors. Global Ownership Program IWCL and Iridium LLC intend to commence a Global Ownership Program which is designed to offer up to an aggregate of 2,500,000 shares of IWCL's Class B Common Stock at a purchase price of $13.33 per share to certain governmental telecommunication administrations and related entities as part of a comprehensive program to enhance market access, improve the competitive standing of the IRIDIUM System and achieve appropriate regulatory approvals. At the time of issuance, purchasers of Class B Common Stock will be required to pay only an amount equal to the per share par value 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 holder of Class B Common Stock may elect to pay the purchase price in cash at any time. Class B Common Stock is convertible to Class A Common Stock on a one-for-one basis, subject to anti-dilution adjustments, once certain conditions are met, including full payment for the shares and expiration of a minimum holding period. The proceeds generated from each sale of Class B Common Stock will be used to purchase Class 1 Interests in Iridium LLC. The payment terms with respect to such Iridium LLC Class 1 Interests will mirror the payment terms on the Class B Common Stock. As of December 31, 1997, no shares of Class B Common Stock had been issued under this program. F-8 71 IRIDIUM WORLD COMMUNICATIONS LTD. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) Share Issuance Agreement IWCL and Iridium LLC have also executed a Share Issuance Agreement which provides that all net proceeds from future primary offerings of securities by IWCL will be invested in Class 1 Interests in Iridium LLC. Voting Rights The holders of Class A Common Stock are entitled to one vote per share. The holders of Class B Common Stock have no voting rights, except as required by Bermuda law in connection with matters involving a variation in terms of the Class B Common Stock. Participation in the Governance of Iridium Providing that IWCL's Interest in Iridium LLC represents five percent or more of the total outstanding Class 1 Interests of Iridium LLC (which occurred upon the consummation of the IWCL IPO), IWCL shall be entitled to designate two Independent Company Directors as Directors of Iridium LLC. Stock Option Plan of Iridium LLC Iridium LLC has established a plan under which executive officers, managers and independent directors of Iridium LLC are awarded options to purchase Class A Common Stock of IWCL (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 December 31, 1997, options covering 2,004,556 shares of Class A Common Stock are outstanding with exercise prices ranging from $13.33 to $52.50. As of December 31, 1997, there are 397,145 options exercisable at a weighted average exercise price of $13.33. As of that date no stock appreciation rights had been granted. The right to exercise the options vest, pro rata, over a period of five years. Pursuant to the Share Issuance Agreement, IWCL has agreed that upon the exercise of any options, it will issue to Iridium LLC, for delivery to an exercising option holder, the number of shares of Class A Common Stock covered by the exercised options and Iridium LLC has agreed to simultaneously deliver to IWCL a like number of Iridium LLC Class 1 Interests, subject to anti-dilution adjustments. The exercise price of the option is paid to Iridium LLC and represents payment for the Class A Common Stock by the exercising option holder and for the Iridium LLC Class 1 Interests by IWCL. During the year ended December 31, 1997, options to acquire 3,262 shares of Class A Common Stock were exercised. IWCL issued such shares in the names of the optionees and Iridium LLC issued 3,262 Class 1 Interests to IWCL. Management Services Agreement In connection with the IWCL IPO, Iridium LLC and IWCL entered into a Management Services Agreement. Pursuant to the Management Services Agreement, Iridium LLC has agreed to supervise and manage the day-to-day operations of IWCL. Among other things, Iridium LLC is responsible for administering the following functions of IWCL: treasury, accounting, legal, tax, insurance, licenses and permits and securities law compliance. Iridium LLC receives no fees or reimbursement from IWCL for its services to IWCL under the Management Services Agreement. Operating costs incurred by IWCL during the period since inception and paid for by Iridium LLC have not been significant. 4. EARNINGS PER SHARE In February 1997, the Financial Accounting Standards Board issued Statement No. 128, Earnings per Share("Statement 128"). Statement 128 supersedes Accounting Principles Board Opinion No. 15, Earnings per Share ("APB 15") and its related interpretations, and promulgates new accounting standards for the F-9 72 IRIDIUM WORLD COMMUNICATIONS LTD. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) computation and manner of presentation of earnings (loss) per share data. Statement 128 requires the presentation of basic and diluted earnings (loss) per share data. Basic earnings (loss) per Class A Common share is calculated by dividing net income (loss) by the weighted average number of Class A Common shares outstanding during the period. Diluted earnings (loss) per share is calculated by dividing net income (loss) by the weighted average number of Class A Common shares and, to the extent dilutive, other potentially dilutive securities outstanding during the period. Potentially dilutive securities are comprised of warrants to purchase Class A Common Stock issued in conjunction with the Series A Notes and stock options. Due to the loss incurred during the year ended December 31, 1997, the impact of the warrants and stock options is anti-dilutive and is not included in the diluted earnings (loss) per share calculation. The adoption of Statement 128 had no effect on earnings (loss) per share as previously presented. 5. INCOME TAXES IWCL is subject to income taxation based on its ratable portion of Iridium LLC's income or loss. During the year ended December 31, 1997 and the period December 12, 1996 (inception) to December 31, 1996, IWCL recognized no current or deferred income tax expense or benefit. As of December 31, 1997, IWCL's only deferred tax asset relates entirely to its investment in Iridium LLC and amounted to approximately $7,446,000 for which a full 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. F-10 73 INDEPENDENT AUDITORS' REPORT The Board of Directors and Members Iridium LLC and subsidiaries: We have audited the accompanying consolidated balance sheets of Iridium LLC and subsidiaries (a development stage limited liability company) as of December 31, 1997 and 1996, and the related consolidated statements of loss, members' equity (deficit), and cash flows for each of the years in the three-year period ended December 31, 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 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-11 74 IRIDIUM LLC (A DEVELOPMENT STAGE LIMITED LIABILITY COMPANY) CONSOLIDATED BALANCE SHEETS (IN THOUSANDS EXCEPT MEMBER INTEREST DATA)
DECEMBER 31, ------------------------ 1996 1997 ---------- ---------- ASSETS Current assets: Cash and cash equivalents................................. $ 1,889 $ 9,040 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.............................. 12,519 379,476 Property and equipment, net (Note 4)........................ 2,065 1,526,326 System under construction (Note 7).......................... 2,388,320 1,625,054 Other assets (Note 2)....................................... 31,177 114,831 ---------- ---------- Total assets...................................... $2,434,081 $3,645,687 ========== ========== LIABILITIES AND MEMBERS' EQUITY Current liabilities: Accounts payable and accrued expenses..................... $ 17,937 $ 106,794 Accounts payable to 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 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) Members' equity (Notes 1, 3, 5, 7 and 8): Class 2 Interests, authorized 50,000 interests for Series M; authorized an aggregate of 300,000 interests for Series A, Series B and Series C: Series M, convertible, no interests issued and outstanding......................................... -- -- Series A, redeemable, convertible, 46,977 and 39,907 interests issued and outstanding; liquidation value of $46,977 and $39,907.............................. 46,977 39,907 Series B, redeemable, 1 interest issued and outstanding......................................... -- -- Series C, redeemable, 75 interests issued and outstanding......................................... -- -- Class 1 Interests, authorized 225,000,000 interests, 120,836,025 and 141,222,442 interests issued and outstanding............................................ 1,659,625 2,024,220 Deferred Class 1 Interest compensation.................... -- (1,454) Adjustment for minimum pension liability (Note 8)......... (733) (643) Deficit accumulated during the development stage.......... (133,840) (427,393) ---------- ---------- Total members' equity............................. 1,572,029 1,634,637 ---------- ---------- Total liabilities and members' equity............. $2,434,081 $3,645,687 ========== ==========
The accompanying notes are an integral part of these consolidated financial statements. F-12 75 IRIDIUM LLC (A DEVELOPMENT STAGE LIMITED LIABILITY COMPANY) CONSOLIDATED STATEMENTS OF LOSS (IN THOUSANDS EXCEPT MEMBER INTEREST DATA)
PERIOD FROM YEAR ENDED DECEMBER 31, JUNE 14, 1991 -------------------------------------- (INCEPTION) THROUGH 1995 1996 1997 DECEMBER 31, 1997 ---------- ----------- ----------- ------------------- OPERATING EXPENSES Sales, general and administrative (Notes 5, 7, 8 and 10)............ $ 26,436 $ 70,730 $ 177,474 $313,301 Depreciation and amortization........ 751 674 119,124 121,429 ---------- ----------- ----------- -------- Total operating expenses..... 27,187 71,404 296,598 434,730 OTHER INCOME Interest income...................... 5,226 2,395 3,045 15,308 ---------- ----------- ----------- -------- Loss before provision for income taxes................................ 21,961 69,009 293,553 419,422 Provision for income taxes (Note 6).... 1,684 4,589 -- 7,971 ---------- ----------- ----------- -------- Net loss............................... $ 23,645 $ 73,598 $ 293,553 $427,393 ========== =========== =========== ======== Preferred dividend requirement (Note 3)................................... -- 3,652 5,703 ---------- ----------- ----------- Net loss applicable to Class 1 Interests............................ $ 23,645 $ 77,250 $ 299,256 ========== =========== =========== Net loss per Class 1 Interest -- basic and diluted.......................... $ 0.27 $ 0.64 $ 2.25 ========== =========== =========== Weighted average interests used in computing net loss per Class 1 Interest -- basic and diluted........ 88,162,875 120,115,575 132,879,976 ========== =========== ===========
The accompanying notes are an integral part of these consolidated financial statements. F-13 76 IRIDIUM LLC (A DEVELOPMENT STAGE LIMITED LIABILITY COMPANY) CONSOLIDATED STATEMENTS OF MEMBERS' EQUITY (DEFICIT) (IN THOUSANDS EXCEPT INTEREST DATA)
CLASS 2 INTERESTS, ADJUSTMENT ALL SERIES CLASS 1 INTERESTS DEFERRED FOR -------------------- ------------------------ CLASS 1 MINIMUM NUMBER OF NUMBER OF INTEREST PENSION INTERESTS AMOUNT INTERESTS AMOUNT COMPENSATION LIABILITY --------- -------- ----------- ---------- ------------ ---------- Inception June 14, 1991........................... -- $ -- -- $ -- $ -- $ -- Net loss.......................................... -- -- -- -- -- -- ------- -------- ----------- ---------- ------- ------- BALANCE, December 31, 1991........................ -- -- -- -- -- -- Net loss.......................................... -- -- -- -- -- -- ------- -------- ----------- ---------- ------- ------- BALANCE, December 31, 1992........................ -- -- -- -- -- -- Net loss.......................................... -- -- -- -- -- -- ------- -------- ----------- ---------- ------- ------- BALANCE, July 29, 1993............................ -- -- -- -- -- -- Class 1 Interests subscribed, July 29, 1993....... -- -- 60,000,000 -- -- -- Subscribed Class 1 Interests issued for cash at $13.33 per interest.............................. -- -- -- 324,167 -- -- Costs of raising equity........................... -- -- -- (8,096) -- -- Net loss.......................................... -- -- -- -- -- -- ------- -------- ----------- ---------- ------- ------- BALANCE, December 31, 1993........................ -- -- 60,000,000 316,071 -- -- Class 1 Interests subscribed...................... -- -- 59,458,350 -- -- -- Subscribed Class 1 Interests issued for cash at $13.33 per interest.............................. -- -- -- 518,202 -- -- Costs of raising equity........................... -- -- -- (1,863) -- -- Net loss.......................................... -- -- -- -- -- -- ------- -------- ----------- ---------- ------- ------- BALANCE, December 31, 1994........................ -- -- 119,458,350 832,410 -- -- Subscribed Class 1 Interests issued for cash at $13.33 per interest.............................. -- -- -- 633,514 -- -- Costs of raising equity........................... -- -- -- (7) -- -- Net loss.......................................... -- -- -- -- -- -- Adjustment for minimum pension liability.......... -- -- -- -- -- (1,065) ------- -------- ----------- ---------- ------- ------- BALANCE, December 31, 1995........................ -- -- 119,458,350 1,465,917 -- (1,065) Subscribed Class 1 Interests issued for cash at $13.33 per interest.............................. -- -- 1,377,675 140,131 -- -- Class 2 Interests issued for cash at $13.33 per interest......................................... 43,401 43,325 -- -- -- -- Series A, Class 2 Interests issued in dividends... 3,652 3,652 -- (3,652) -- -- Costs of raising equity........................... -- -- -- (251) -- -- Warrants to purchase Class 1 Interests issued in connection with 14.5% Senior subordinated notes............................................ -- -- -- 31,761 -- -- Warrants to purchase Class 1 Interests issued in connection with debt guarantee................... -- -- -- 25,719 -- -- Net loss.......................................... -- -- -- -- -- -- Adjustment for minimum pension liability.......... -- -- -- -- -- 332 ------- -------- ----------- ---------- ------- ------- BALANCE, December 31, 1996........................ 47,053 46,977 120,836,025 1,659,625 -- (733) Subscribed Class 1 Interests issued for cash at $13.33 per interest.............................. -- -- 7,500,000 59,248 -- -- Exercise of employee stock options................ -- -- 3,262 43 -- -- Initial Public offering........................... 12,000,000 240,000 -- -- Class 2 Interests converted to Class 1 Interests........................................ (12,773) (12,773) 883,155 12,773 -- -- Series A, Class 2 Interests issued in dividends... 5,703 5,703 -- (5,703) -- -- Costs of raising equity........................... -- -- -- (16,100) -- -- Warrants to purchase Class 1 Interests issued in connection with 13% Senior notes, Series A....... -- -- -- 17,113 -- -- Warrants to purchase Class 1 Interests issued in connection with debt guarantee................... -- -- -- 55,615 -- -- Deferred Class 1 Interests compensation........... -- -- -- 1,606 (1,454) -- Net loss.......................................... -- -- -- -- -- -- Adjustment for minimum pension liability.......... -- -- -- -- -- 90 ------- -------- ----------- ---------- ------- ------- BALANCE, December 31, 1997........................ 39,983 $ 39,907 141,222,442 $2,024,220 $(1,454) $ (643) ======= ======== =========== ========== ======= ======= DEFICIT ACCUMULATED DURING THE DEVELOPMENT STAGE TOTAL ----------- ---------- Inception June 14, 1991........................... $ -- $ -- Net loss.......................................... (757) (757) --------- ---------- BALANCE, December 31, 1991........................ (757) (757) Net loss.......................................... (8,773) (8,773) --------- ---------- BALANCE, December 31, 1992........................ (9,530) (9,530) Net loss.......................................... (5,309) (5,309) --------- ---------- BALANCE, July 29, 1993............................ (14,839) (14,839) Class 1 Interests subscribed, July 29, 1993....... -- -- Subscribed Class 1 Interests issued for cash at $13.33 per interest.............................. -- 324,167 Costs of raising equity........................... -- (8,096) Net loss.......................................... (6,924) (6,924) --------- ---------- BALANCE, December 31, 1993........................ (21,763) 294,308 Class 1 Interests subscribed...................... -- Subscribed Class 1 Interests issued for cash at $13.33 per interest.............................. -- 518,202 Costs of raising equity........................... -- (1,863) Net loss.......................................... (14,834) (14,834) --------- ---------- BALANCE, December 31, 1994........................ (36,597) 795,813 Subscribed Class 1 Interests issued for cash at $13.33 per interest.............................. -- 633,514 Costs of raising equity........................... -- (7) Net loss.......................................... (23,645) (23,645) Adjustment for minimum pension liability.......... -- (1,065) --------- ---------- BALANCE, December 31, 1995........................ (60,242) 1,404,610 Subscribed Class 1 Interests issued for cash at $13.33 per interest.............................. -- 140,131 Class 2 Interests issued for cash at $13.33 per interest......................................... -- 43,325 Series A, Class 2 Interests issued in dividends... -- -- Costs of raising equity........................... -- (251) Warrants to purchase Class 1 Interests issued in connection with 14.5% Senior subordinated notes............................................ -- 31,761 Warrants to purchase Class 1 Interests issued in connection with debt guarantee................... -- 25,719 Net loss.......................................... (73,598) (73,598) Adjustment for minimum pension liability.......... -- 332 --------- ---------- BALANCE, December 31, 1996........................ (133,840) 1,572,029 Subscribed Class 1 Interests issued for cash at $13.33 per interest.............................. -- 59,248 Exercise of employee stock options................ -- 43 Initial Public offering........................... -- 240,000 Class 2 Interests converted to Class 1 Interests........................................ -- -- Series A, Class 2 Interests issued in dividends... -- -- Costs of raising equity........................... -- (16,100) Warrants to purchase Class 1 Interests issued in connection with 13% Senior notes, Series A....... -- 17,113 Warrants to purchase Class 1 Interests issued in connection with debt guarantee................... -- 55,615 Deferred Class 1 Interests compensation........... -- 152 Net loss.......................................... (293,553) (293,553) Adjustment for minimum pension liability.......... -- 90 --------- ---------- BALANCE, December 31, 1997........................ $(427,393) $1,634,637 ========= ==========
The accompanying notes are an integral part of these consolidated financial statements. F-14 77 IRIDIUM LLC (A DEVELOPMENT STAGE LIMITED LIABILITY COMPANY) CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS)
PERIOD FROM YEAR ENDED DECEMBER 31, JUNE 14, 1991 ---------------------------------- (INCEPTION) THROUGH 1995 1996 1997 DECEMBER 31, 1997 --------- --------- ---------- ------------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net loss.......................................... $ (23,645) $ (73,598) $ (293,553) $ (427,393) 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 Employee Class 1 Interests Compensation......... -- -- 152 152 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 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 Increase in restricted cash....................... -- -- (350,220) (350,220) Deferred financing costs.......................... (1,094) (28,535) (57,363) (87,524) --------- --------- ---------- ----------- Net cash provided by financing activities............................... 632,420 898,123 969,797 3,332,217 --------- --------- ---------- ----------- Increase (decrease) in cash and cash equivalents.... (151,059) (49,443) 7,151 9,040 CASH AND CASH EQUIVALENTS, beginning of period............................... 202,391 51,332 1,889 -- --------- --------- ---------- ----------- CASH AND CASH EQUIVALENTS, end of period..................................... $ 51,332 $ 1,889 $ 9,040 $ 9,040 ========= ========= ========== ===========
The accompanying notes are an integral part of these consolidated financial statements. F-15 78 IRIDIUM LLC (A DEVELOPMENT STAGE LIMITED LIABILITY COMPANY) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. ORGANIZATION AND BUSINESS Iridium LLC (the "Parent") and its subsidiaries are devoting their 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. 2. SIGNIFICANT ACCOUNTING POLICIES Principles of Consolidation and Basis of Presentation The consolidated financial statements include the accounts of the Parent and its wholly-owned subsidiary, Iridium, and Iridium's wholly-owned subsidiaries, Iridium Capital Corporation, Iridium Roaming LLC and Iridium IP LLC. All significant intercompany transactions have been eliminated. F-16 79 IRIDIUM LLC (A DEVELOPMENT STAGE LIMITED LIABILITY COMPANY) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Development Stage Enterprise The Parent, through Iridium, is currently devoting its entire efforts to establishing and commercializing the IRIDIUM System. On December 18, 1997, the Parent and Iridium entered into an Asset Drop-Down Transaction whereby substantially all of the assets and liabilities of the Parent were transferred to Iridium. The purpose of the Asset Drop-Down Transaction was to facilitate the pledge of substantially all of the assets of the Parent in connection with the establishment of secured bank financing for the development and construction of the IRIDIUM System. At December 31, 1997, the Parent's ownership interest in Iridium constituted substantially all of the Parent's assets. 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 The Parent 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 Chase Securities, Inc., and Barclays Capital, a division of 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: Satellites in service................. 5 years Furniture, fixtures and equipment..... 5 years Leasehold improvements................ Shorter of 5 years or remaining lease term
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-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. F-17 80 IRIDIUM LLC (A DEVELOPMENT STAGE LIMITED LIABILITY COMPANY) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 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, the Parent 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 the Parent's results of operations for the years ended December 31, 1996 and 1997. Member Interest-Based Compensation During 1996, the Parent adopted Statement of Financial Accounting Standards No. 123, Accounting for Stock-Based Compensation ("Statement 123"), which encourages, but does not require, the recognition of member interest-based employee compensation at fair value. The Parent has elected to continue to account for member interest-based employee compensation using the intrinsic value method prescribed in Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees and related interpretations. Accordingly, compensation cost for options to purchase Class A Common Stock of IWCL granted to employees is measured as the excess, if any, of the fair value of Class 1 Interests at the date of the grant over the exercise price an employee must pay to acquire the interest. Compensation expense, if any, is recognized over the period earned by the employee and was $152,000 for the year ended December 31, 1997. No compensation expense was recognized for the year ended December 31, 1996 as all options to acquire Class 1 Interests were granted at an exercise price equal to the fair market value as of the date of grant. Warrants or options to purchase member interests granted to other than employees as consideration for goods or services rendered are recognized at fair market value. Equity Issuance Costs The Parent classifies all costs incurred in connection with the issuance of equity as a reduction of members' equity. These costs include fees paid to investment bankers, attorneys and others in connection with the issuance of equity. Deferred Financing Costs All costs incurred in connection with securing debt financing have been deferred and are amortized over the terms of the related debt 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, the Parent wrote-off approximately $3,200,000 of deferred costs associated with the intended financing. Such costs are included in operating expenses in the accompanying consolidated statement of loss for the year ended December 31, 1995. F-18 81 IRIDIUM LLC (A DEVELOPMENT STAGE LIMITED LIABILITY COMPANY) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Income Taxes Iridium, Inc. was subject to Federal, state and local income taxes directly. As a result of the merger of Iridium, Inc. with and into the Parent, the Parent became a limited liability company. As a limited liability company, the Parent is no longer subject to U. S. federal income tax directly. Rather, each Class 1 member is subject to U.S. federal income taxation based on its ratable portion of the Parent's income or loss. However, the Parent's primary operations are in the District of Columbia which does not recognize the limited liability status for tax purposes. Accordingly, the Parent is subject to District of Columbia franchise taxes directly. The Parent recognizes its provision for income taxes under the asset and liability method. Under the asset and liability method deferred tax assets and deferred tax liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using tax rates expected to apply to taxable income in the years in which these temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Net Income (Loss) per Class 1 Interest In February 1997, the Financial Accounting Standards Board issued Statement No. 128, Earnings per Share ("Statement 128"). Statement 128 supersedes Accounting Principles Board Opinion No. 15, Earnings per Share ("APB 15") and its related interpretations, and promulgates new accounting standards for the computation and manner of presentation of the Parent's loss per Class 1 Interest data. Statement 128 requires the presentation of basic and diluted earnings (loss) per interest data. Basic earnings (loss) per Class 1 Interest is calculated by dividing net income (loss), after considering required dividends on Class 2 Interests, by the weighted average number of Class 1 Interests outstanding during the period. Diluted earnings (loss) per share is calculated by dividing net income (loss), after considering required dividends on Class 2 Interests, by the weighted average number of Class 1 Interests and, to the extent dilutive, other potentially dilutive securities outstanding during the period. Potentially dilutive securities are comprised of options, warrants, and convertible Class 2 Interests. Due to the losses incurred during the years ended December 31, 1995, 1996, and 1997, the impact of other potentially dilutive securities is anti-dilutive and is not included in the diluted earnings (loss) per Class 1 Interest calculation. The adoption of Statement 128 had no effect on earnings (loss) per Class 1 Interest as previously presented. 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. The Parent 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, the Parent 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 the Parent's consolidated financial statements as currently and previously reported. Reclassifications Certain 1995 and 1996 amounts have been reclassified to conform to the 1997 presentation. F-19 82 IRIDIUM LLC (A DEVELOPMENT STAGE LIMITED LIABILITY COMPANY) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 3. MEMBERS' EQUITY Classes of Membership Interests The members' interests in the Parent are divided into two classes: Class 1 Interests which represent the common equity and Class 2 Interests which represent the preferred equity. The LLC Agreement authorizes the Parent to issue 225,000,000 Class 1 Interests, 50,000 Series M Class 2 Interests, and 300,000 additional Class 2 Interests. A description of each of the classes of membership interests follows: CLASS 1 INTERESTS. Subject to the rights of holders of any series of Class 2 Interests, all voting rights of the members are vested in the Class 1 Interests. Each member is entitled to appoint one Director for each 5,250,000 Class 1 Interests owned. Class 1 members may aggregate any or all of their Class 1 Interests with other Class 1 members and appoint one Director for each 5,250,000 Class 1 Interests owned in the aggregate. The members may manage the Parent only through their designated Directors and have no authority, in their capacity as members, to act on behalf of or bind the Parent. The LLC Agreement contains a reserve capital call provision under which certain members have agreed to purchase additional Class 1 Interests (the "Reserve Capital Call"). If the Board elects to exercise this option, the Parent could raise up to an additional $243 million for 18,206,550 Class 1 Interests. However, the Reserve Capital Call is pledged to secure the Secured Bank Facility (See Note 5). SERIES M CLASS 2 INTERESTS. Motorola owns a warrant to purchase Series M Class 2 Interests in an amount that is convertible into 2.5% of the outstanding Class 1 Interests at the time of exercise of the warrant (calculated on a fully diluted basis) at a price of $1,000 per Series M Class 2 Interest. Each Series M Class 2 Interest is non-voting and currently convertible into 75 Class 1 Interests. The initial Series M Conversion Price is $13.33, but is subject to anti-dilution adjustments from time to time. Dividends on Series M Class 2 Interests are cumulative and accrue at the rate of 8% per annum. No Series M Class 2 Interests are outstanding. SERIES A CLASS 2 INTERESTS. The Series A Class 2 Interests are convertible preferred interests that pay dividends at a rate of 14 1/2% per annum. Dividends on the Series A Class 2 Interests are payable, either in-kind or in cash, at the option of the 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 the 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 non-voting and convertible to Class 1 Interests at any time at the option of the holder. Currently each Series A Class 2 Interest may be converted into 18.51 Class 1 Interests. The Series A Class 2 Interests are redeemable, at the option of the Parent, at anytime after March 1, 2001, subject to a premium if redeemed prior to March 1, 2005. SERIES B AND SERIES C CLASS 2 INTERESTS. In connection with Motorola's guarantee of the $450 million credit facility (the "Guarantee Agreement") (See Note 5), the Parent issued to Motorola one Series B Class 2 Interest and 75 Series C Class 2 Interests. The Series B Class 2 Interest and Series C Class 2 Interests do not pay any dividends. The Series B Class 2 Interest entitles Motorola to one seat on the Board of Directors in addition to Directors it may appoint as the owner of Class 1 Interests and Series M Class 2 Interests. The Series C Class 2 Interests entitle Motorola to appoint a majority of the Board of Directors in the event of certain events of default. The Series B and Series C Class 2 Interests are redeemable at the option of the Parent at $.01 per interest upon the later of (i) the termination or expiration of the Guarantee Agreement and (ii) the reimbursement of any payments made by Motorola pursuant to the Guarantee Agreement (See Note 5). F-20 83 IRIDIUM LLC (A DEVELOPMENT STAGE LIMITED LIABILITY COMPANY) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The LLC Agreement provides that the Parent may merge or consolidate with one or more limited liability companies, corporations, or similar entities provided that the transaction is approved by the Board of Directors and Class 1 members holding not less than 66 2/3% of the outstanding Class 1 Interests. In the event of a merger, members who hold interests and do not vote in favor of, or consent in writing to, the merger are entitled to appraisal and repurchase rights of their interests as specified in the LLC Agreement. Dividend and Liquidation Rights Class 1 members are entitled to receive dividends, as and when declared by the Board of Directors, in its discretion. Class 2 members are entitled to receive dividends, if any, in accordance with the terms of the relevant series of Class 2 Interests, as and when declared by the Board of Directors. The Class 2 Interests rank senior to the Class 1 Interests as to dividends and distributions upon the liquidation, dissolution and winding-up of the Parent. The LLC Agreement requires the Board of Directors, to the extent of legally available funds, to declare and pay a dividend sufficient to assure that each non-U. S. Class 1 Member receives an amount at least equal to the amount of such member's U. S. federal, state and local income tax liability resulting from allocations of the Parent's taxable income to such member. Parent's only current source of funds is from dividend distributions from Iridium, and Iridium is required to declare and pay a dividend to the Parent in the same amount as required by the LLC Agreement. However, Iridium is restricted by the terms of certain of its debt obligations from declaring and paying dividends in excess of those required to be made to the Parent. The LLC Agreement contains significant restrictions on the ability of a member to transfer any interests in the Parent, including but not limited to the conditions that: (i) a majority of the Directors approve the transfer, and (ii) the transfer not result in any member beneficially owning, or having the right to beneficially own, more than 45% of the outstanding Class 1 Interests. Exchange Rights of Iridium LLC Members Concurrent with the initial public offering, IWCL and Iridium LLC executed an Interest Exchange Agreement that conditionally permits holders of Class 1 Interests in Iridium LLC to exchange those interests, subject to the restrictions on transfer in the Iridium LLC Limited Liability Agreement, for shares of Class A Common Stock in IWCL at a ratio of one share of Class A Common Stock for each Iridium LLC Class 1 Interest, subject to anti-dilution adjustments. Under the Interest Exchange Agreement no exchanges of Iridium LLC Class 1 Interests are permitted until 90 days after Iridium has achieved one full quarter of positive earnings before interest, taxes, depreciation and amortization. In addition, no exchange shall take place unless approved pursuant to authorization of Directors representing at least 66 2/3% of the Iridium LLC Board of Directors. Global Ownership Program The Parent, in conjunction with IWCL, has commenced a Global Ownership Program which is designed to offer up to an aggregate of 2,500,000 shares of IWCL's Class B Common Stock at a purchase price of $13.33 per share to certain governmental telecommunication administrations and related entities as part of a comprehensive program to enhance market access, improve the competitive standing of the IRIDIUM System and achieve appropriate regulatory approvals. As of December 31, 1997, no shares had been issued under this program. Limitations on Liability Members are generally not liable for the debts, obligations or liabilities of the Parent. F-21 84 IRIDIUM LLC (A DEVELOPMENT STAGE LIMITED LIABILITY COMPANY) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Recent Equity Transactions On April 16, 1997, the LLC Agreement was amended to increase the authorized number of Class 1 Interests from 3,000,000 to 225,000,000. On May 9, 1997, the Parent effected a 75 for 1 subdivision of its Class 1 Membership Interests whereby each existing Class 1 Interest was subdivided into 75 Class 1 Interests. All interest and per interest data appearing in the consolidated financial statements and notes thereto have been retroactively adjusted for the subdivision. On May 9, 1997, the Parent entered into a definitive agreement with South Pacific Iridium Holdings Limited ("SPI"), an affiliate of P. T. Bakrie Communications Corporation, pursuant to which SPI acquired from Parent 7,500,000 Class 1 Interests at $13.33 per interest. The transaction closed on May 30, 1997 with 40% of the total purchase price paid on that date and the remainder due on or before May 1998. Through December 31, 1997, the Parent has received an aggregate of $59.2 million from SPI in satisfaction of the commitment. On June 13, 1997, IWCL, a wholly-owned subsidiary of the Parent as of that date, consummated an initial public offering (the "Offering") of 12,000,000 shares of its Class A Common Stock which resulted in proceeds of approximately $225 million to IWCL (expenses of the offering were paid by the Parent). Pursuant to the 1997 Subscription Agreement between the Parent and IWCL, such proceeds were used to purchase 12,000,000 Class 1 Interests in the Parent. Upon consummation of the Offering, all of the outstanding shares of IWCL held by the Parent were retired and cancelled, and IWCL became a member of the Parent. 4. PROPERTY AND EQUIPMENT Property and equipment at December 31, 1996 and 1997, consists of the following (in thousands):
1996 1997 ------- ---------- 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 ======= ==========
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 F-22 85 IRIDIUM LLC (A DEVELOPMENT STAGE LIMITED LIABILITY COMPANY) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 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. 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. The Parent recognized $25,719,000 and $55,615,000 as an expense 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 the Reserve Capital Call and all of the Parent's membership interests in Iridium. The availability of the Secured Bank Facility is subject to significant conditions, including technical conditions relating to the IRIDIUM System, conditions relating to regulatory approvals and conditions relating to other financing sources. Borrowings under the Secured Bank Facility mature on September 30, 1998, subject to Iridium's right to extend such maturity until up to June 30, 1999 if it can demonstrate by July 1, 1998 that it has sufficient available or committed financing for its budgeted project costs through such extended maturity. At December 31, 1997, $350,000,000 was outstanding under the Secured Bank Facility. Notes Payable On July 16, 1997, the Parent, IWCL and Iridium Capital Corporation completed an offering (the "High Yield Offering") of (i) 300,000 units, each consisting of $1,000 principal amount of 13% Senior Notes due 2005, Series A ("Series A Notes"), and one IWCL Warrant representing the right to purchase 5.2 shares of Class A Common Stock of IWCL, and (ii) $500 million aggregate principal amount of 14% Senior Notes due 2005, Series B ("Series B Notes"). Concurrent with the Asset Drop-Down Transaction, the Parent's obligations under the Series A Notes and Series B Notes were assigned to Iridium. The Series A Notes and Series B Notes are guaranteed by Iridium Roaming LLC and Iridium IP LLC. The aggregate net proceeds received was approximately $746 million. Interest on the Series A Notes and Series B Notes is payable in cash semi-annually on January 15th and July 15th of each year, commencing on January 15, 1998. The notes are redeemable at the option of Iridium, in whole or in part, at any time on or after July 15, 2002. The Series A and Series B Notes mature on July 15, 2005. The IWCL Warrants represent, in aggregate, the right to purchase 1,560,000 shares of Class A Common Stock of IWCL. The exercise price of each IWCL Warrant is $20.90 per share. The IWCL Warrants are exercisable at any time on or after one year from the date of the original issuance and expire on July 15, 2005. Concurrent with the issuance of IWCL Warrants in the High F-23 86 IRIDIUM LLC (A DEVELOPMENT STAGE LIMITED LIABILITY COMPANY) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Yield Offering, the Parent issued to IWCL 1,560,000 LLC Interest Warrants, each exercisable for one Class 1 Interest at an exercise price of $20.90 per LLC Interest Warrant. IWCL and the Parent have agreed that one LLC Interest Warrant must be exercised upon the exercise of each IWCL Warrant. Approximately $17,113,000 of the proceeds of the High Yield Offering was allocated to the purchase price of the LLC Interest Warrants. 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):
1997 ---------- 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 ==========
Long-Term Debt Due to Members 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, 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. The warrants entitle the holder to purchase Class 1 Interests at an exercise price of $.01 per interest, are exercisable on March 1, 2001 and expire on March 1, 2006. The Parent recognized the estimated fair market value of these warrants of $31,761,000 as an addition to members' equity. 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 is no longer subject to U.S. federal income tax directly; however, the Parent is subject to District of Columbia franchise taxes. F-24 87 IRIDIUM LLC (A DEVELOPMENT STAGE LIMITED LIABILITY COMPANY) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The Parent's provision for income taxes for the years ended December 31, 1995, 1996, and 1997 consists of the following (in thousands):
1995 1996 1997 ------ ------ ------ Current -- Federal..................................... $1,258 $3,435 $ -- -- State and Local............................. 426 1,154 -- Deferred -- Federal..................................... -- -- -- -- State and Local............................. -- -- -- ------ ------ ------ $1,684 $4,589 $ -- ====== ====== ======
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 Iridium) relate primarily to the capitalization for tax purposes of certain start-up expenditures, and state and local taxes. The capitalization of start-up expenditures resulted in Iridium, 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, the Parent recognizes deferred taxes for those jurisdictions for which the Parent is 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 Management Services Agreement In connection with the IWCL IPO, the Parent and IWCL entered into a Management Services Agreement. The Management Services Agreement was amended and restated in connection with the Asset Drop-Down Transaction to add Iridium as a party. Pursuant to the Management Services Agreement, the Parent has agreed to supervise and manage the day-to-day activities of Iridium. Among other things, the Parent is responsible for administering the following functions of Iridium: contract administration (including the Space System Contract, the TNDC and the O&M Contract), treasury, accounting, legal, tax, insurance, licenses and permits and securities law compliance. The Parent similarly has agreed to supervise and manage the day-to-day operations of IWCL. Among other things, the Parent is responsible for administering the following functions of IWCL: treasury, accounting, legal, tax, insurance, licenses and permits and securities law compliance. In addition, Parent has agreed to advance funds to IWCL in the event that IWCL does not have sufficient funds to pay income or similar taxes. The Parent does not receive fees or reimbursement from IWCL for its services to IWCL under the Management Services Agreement; however, the cost of such services provided to IWCL to date is not significant. In return for such services, Iridium has agreed to provide sufficient funds, on a cost reimbursable basis, to the Parent to enable the Parent to manage the business and operations of each of Iridium and IWCL, F-25 88 IRIDIUM LLC (A DEVELOPMENT STAGE LIMITED LIABILITY COMPANY) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 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 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 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):
1995 1996 1997 ---- ---- ---- Consulting............................................ $603 $826 $643 Other................................................. 1 26 5 ---- ---- ---- $604 $852 $648 ==== ==== ====
As of December 31, 1996, and 1997, the balance payable to Motorola under the Support Agreement was approximately $563,000 and $0, respectively. Space System Contract The Parent entered into the Space System Contract with Motorola to design, develop, produce and deliver the Space Segment component of the IRIDIUM System. In connection with the Asset Drop-Down Transaction, the Parent assigned the Space System Contract to Iridium. Under this fixed priced contract, Motorola will construct the space vehicles and place them into low-earth orbits for a contract price of $3.45 billion (subject to certain adjustments). The scheduled date of commencement of commercial operations is September 1998. For the years ended December 31, 1995, 1996, and 1997, $802 million, $836 million, and $577 million, respectively, was incurred under the Space System Contract. Such costs are capitalized as system under construction in the accompanying consolidated balance sheets and are transferred to property and equipment as the underlying assets are placed into service. As of December 31, 1996 and 1997, the balance payable to Motorola under the Space System Contract was $100 million and $0, respectively. The aggregate fixed and determinable portion of all remaining obligations under the Space System Contract is $589 million expected to be payable in 1998. Terrestrial Network Development Contract The Parent entered into the Terrestrial Network Development Contract ("TNDC") with Motorola for an original amount of $160 million. In connection with the Asset Drop-Down Transaction, the Parent assigned the TNDC to Iridium. Under the TNDC, Motorola is designing and developing the terrestrial gateway hardware and software. The payments under the original contract are tied to the completion of milestones specified in the contract. During 1996, the TNDC was amended to obligate Motorola to provide additional services and support under the TNDC in exchange for an additional $18.9 million. In lieu of a cash payment for the $18.9 million from Iridium, the Parent may, at its election, issue 5,545 warrants to purchase Class 1 Interests 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 F-26 89 IRIDIUM LLC (A DEVELOPMENT STAGE LIMITED LIABILITY COMPANY) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 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 follows (in thousands):
YEAR ENDING DECEMBER 31, - ------------------------ 1998.................................................... $139,405 1999.................................................... 6,000 -------- $145,405 ========
Operations and Maintenance Contract To provide for the operations and maintenance of the space segment upon completion of the Space System Contract, the Parent entered into the Operations and Maintenance Contract ("O&M") with Motorola. In connection with the Asset Drop-Down Transaction, the Parent assigned the O&M contract to Iridium. This contract obligates Motorola for a period of five years after completion of the final milestone under the Space System Contract to operate the Space System, and to exert its best efforts to monitor, upgrade and replace hardware and software of the space segment (including the individual space vehicles) at specified levels, in exchange for specified quarterly payments. Such payments are expected to begin in 1998 and to aggregate approximately $2.88 billion. During 1996, a two-year option agreement was entered into for the extension of the O&M contract with Motorola after the completion of the initial five-year term. If such option is exercised, Iridium will be obligated to make quarterly payments expected to aggregate an additional $1.33 billion. Upon commencement of the O&M, Iridium will capitalize the portion of the costs incurred that pertain to hardware and software components of the space segment that extend its useful life. The portion of the costs of the O&M associated with day-to-day operations will be expensed as incurred. Assuming that commercial operations commence in September 1998, the aggregate fixed and determinable portion of all obligations under the O&M is expected to be as follows (in thousands):
AMOUNT YEAR ENDING DECEMBER 31, ---------- 1998................................................... $ 129,000 1999................................................... 537,000 2000................................................... 558,000 2001................................................... 581,000 2002................................................... 605,000 2003................................................... 472,000 ---------- $2,882,000 ==========
Gateway Owners Incentives The Parent has agreed to issue warrants to purchase 300,000 Class 1 Interests to each gateway owner whose specified gateway activities are completed on schedule, and warrants to purchase 7,500 Class 1 Interests for each $1 million of cumulative IRIDIUM System service revenue generated within 15 months of commercial activation, but in no event will warrants to purchase more than an aggregate of 9,165,000 Class 1 Interests be issued to all gateway owners. The warrants will have terms identical to those issued to Motorola F-27 90 IRIDIUM LLC (A DEVELOPMENT STAGE LIMITED LIABILITY COMPANY) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) under the Guarantee Agreement (see Note 5). IWCL and Iridium LLC have executed a Share Issuance Agreement which provides that all net proceeds from future primary offerings of securities by IWCL will be invested in Class 1 Interests in Iridium LLC. 8. EMPLOYEE BENEFITS The Parent has adopted a comprehensive performance incentive and retirement benefit package. The performance incentive program became effective in 1993, while the various retirement plans became effective on February 1, 1994. Incentive Programs The Parent has established short- and long-term incentive plans primarily based on employee performance. Effective December 31, 1995, the Parent terminated the long-term incentive plan. The remaining liability of the long-term incentive plan is approximately $2,426,000 and $1,738,000 as of December 31, 1996 and 1997, respectively, and is expected to be paid in 1999. Under these plans, the Parent incurred expenses of approximately $1,300,000, $1,252,000 and $3,412,000 for the years ended December 31, 1995, 1996, and 1997, respectively. 401(k) Employee Retirement Savings Plan The Parent adopted a 401(k) employee retirement savings plan in 1994 covering all employees. The Parent makes matching contributions to this qualified plan on behalf of participating employees up to 3% of employees' compensation. Employee contributions to the plan vest immediately. The Parent's contributions vest ratably over a seven-year period, including service credit for any prior employment with Motorola. Under this plan, the Parent has incurred approximately $161,000, $288,000, and $558,000 during the years ended December 31, 1995, 1996 and 1997, respectively. Retirement Plans All employees of the Parent are covered by a non-contributory defined benefit retirement plan. Vesting in plan benefits generally occurs after five years. Benefits under the plan are based on years of credited service (including any prior employment with Motorola), age at retirement and the average earnings over the last four years. The plan is funded annually in accordance with the Employee Retirement Income Security Act of 1974. In early 1995, the Parent adopted a non-qualified defined benefit plan covering employees earnings in excess of the maximum amounts which may be considered under the qualified plan, excluding those executives participating in the supplemental executive plans described below, who also participate in the qualified defined benefit plan. Supplemental Executive Plans The Parent maintains a non-qualified defined benefit plan for selected senior officers. Vesting in these plans generally occurs upon the attainment of age 55 with five years of service. Benefits under these plans are based on average annual compensation prior to retirement. The Parent has also agreed to provide for the payment of certain taxes associated with plan benefits. The supplemental executive plans are not funded. The net periodic pension cost recognized under the plans was approximately $1,256,000, $1,925,000, and $2,420,000 for the years ended December 31, 1995, 1996, and 1997, respectively. For the years ended December 31, 1996 and 1997, the amounts provided to cover taxes associated with the plan benefits were $736,000 and $693,000, respectively. In addition, the Parent recorded an additional minimum pension liability F-28 91 IRIDIUM LLC (A DEVELOPMENT STAGE LIMITED LIABILITY COMPANY) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) adjustment of $332,000 and $90,000 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):
1995 1996 1997 ------------------------- ------------------------- ------------------------- QUALIFIED NON-QUALIFIED QUALIFIED NON-QUALIFIED QUALIFIED NON-QUALIFIED --------- ------------- --------- ------------- --------- ------------- 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 ==== ==== ==== ====== ====== ======
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:
1996 1997 -------------------------- -------------------------- QUALIFIED NON-QUALIFIED QUALIFIED NON-QUALIFIED --------- ------------- --------- ------------- 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%
Option Plan of Iridium LLC The Parent has established a plan under which executive officers and managers of the Parent are awarded options to purchase Class A Common Stock (the "Option Plan") of IWCL. The Option Plan covers 2,625,000 shares of Class A Common Stock of IWCL. The Option Plan also permits the award of stock appreciation rights in connection with any grant of options. As of December 31, 1997, options covering 2,004,556 shares of Class A Common Stock of IWCL had been granted. As of that date, no stock appreciation F-29 92 IRIDIUM LLC (A DEVELOPMENT STAGE LIMITED LIABILITY COMPANY) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) awards had been granted. The right to exercise the options vests, pro rata, over a period of five years. Pursuant to the Share Issuance Agreement, IWCL has agreed that upon the exercise of any options, it will issue to the Parent, for delivery to an exercising option holder, the number of shares of Class A Common Stock of IWCL covered by the exercised options and the 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 the Parent and will represent payment for the Class A Common Stock by the exercising option holder and for the Class 1 Interests by IWCL. As of December 31, 1996 and 1997, 2,625,000 Class 1 Interests have been reserved for issuance to IWCL in connection with the Option Plan. As permitted by Statement 123, the Parent applies the intrinsic value method in accounting for compensation cost under this plan. Accordingly, no compensation expense is recognized for options to acquire Class A Common Stock of IWCL granted at an exercise price equal to or exceeding the fair market value as of the date of grant. For the year ended December 31, 1997, the Parent recognized $152,000 in compensation expense for options to acquire Class A Common Stock of IWCL granted at an exercise price that was below fair market value at the date of grant. Had compensation cost been determined consistent with the fair value method of Statement 123, the Parent's net loss and net loss per Class 1 Interest would have been increased to the pro forma amounts indicated below (in thousands except per interest data) for the years ended December 31, 1996 and 1997:
1996 1997 -------- --------- Net loss As reported......................................... $(73,598) $(293,553) Pro forma........................................... (74,172) (296,132) Net loss per Class 1 Interest As reported......................................... $ .64 $ 2.25 Pro forma........................................... .65 2.27
During 1996 and 1997, the fair value of options granted are estimated on the dates of the grants using the Black-Scholes Option Pricing Model with the following weighted-average assumptions: dividend yield of 0.0%, expected volatility of 45%, risk-free interest rates from 5.97% to 6.76%, and expected life of five years. The effects on compensation cost as determined under Statement 123 on net loss in 1996 and 1997 may not be representative of the effects on pro forma net income (loss) for future periods. The weighted-average contractual life for options outstanding at December 31, 1996 and 1997 was 9.39 and 8.92 years, respectively. A summary of the Parent's stock option activity, and related information for the years ended December 31, 1996 and 1997 follows:
1996 1997 --------------------- --------------------- WEIGHTED WEIGHTED INTERESTS AVERAGE INTERESTS AVERAGE UNDER EXERCISE UNDER EXERCISE OPTION PRICE OPTION PRICE --------- -------- --------- -------- Outstanding -- beginning of year.......... -- -- 729,750 $13.33 Granted................................. 729,750 $13.33 1,309,775 14.24 Exercised............................... -- -- (3,262) 13.33 Forfeited............................... -- -- (31,707) 13.33 ------- ------ --------- ------ Outstanding -- end of year................ 729,750 $13.33 2,004,556 $13.92 ======= ====== ========= ====== Options exercisable at end of year........ -- -- 397,145 $13.33 Weighted-average fair value of options granted during the year................. $6.50 $8.35
F-30 93 IRIDIUM LLC (A DEVELOPMENT STAGE LIMITED LIABILITY COMPANY) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The range of exercise prices of options outstanding at December 31, 1997 was $13.33 to $52.50. 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):
1996 1997 -------------------- ------------------------ CARRYING FAIR CARRYING FAIR AMOUNT VALUE AMOUNT VALUE -------- -------- ---------- ---------- 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
The fair value of long-term debt is estimated based on the current rates offered for similar debt. The carrying amounts of due from affiliates and accounts payable and accrued expenses approximate their fair market value as of December 31, 1996 and 1997 because of the relatively short duration of these assets. 10. OPERATING LEASE COMMITMENTS The Parent leases its corporate headquarters office space and other office space and equipment under non-cancelable operating lease agreements. The initial lease term for the corporate headquarters office space is seven years. Future minimum payments under all operating lease arrangements are as follows (in thousands):
YEAR ENDING DECEMBER 31, AMOUNT - ------------------------ ------- 1998..................................................... $ 8,417 1999..................................................... 8,459 2000..................................................... 8,440 2001..................................................... 5,755 2002..................................................... 4,951 2003 and beyond.......................................... 7,985 ------- $44,007 =======
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. QUARTERLY FINANCIAL INFORMATION (UNAUDITED) In thousands, except member interest data: The following is a summary of results of operations for each of the fiscal quarters during 1995:
FIRST SECOND THIRD FOURTH TOTAL QUARTER QUARTER QUARTER QUARTER YEAR ------- ------- ------- ------- ------- Operating expenses................... $5,753 $6,083 $5,911 $9,440 $27,187 Net loss............................. 4,528 5,033 5,092 8,992 23,645 Net loss applicable to Class 1 Interests.......................... 4,528 5,033 5,092 8,992 23,645 Net loss per Class 1 Interest........ 0.07 0.07 0.06 0.09 0.27
F-31 94 IRIDIUM LLC (A DEVELOPMENT STAGE LIMITED LIABILITY COMPANY) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The following is a summary of results of operations for each of the fiscal quarters during 1996:
FIRST SECOND THIRD FOURTH TOTAL QUARTER QUARTER QUARTER QUARTER YEAR ------- ------- ------- ------- ------- Operating expenses................ $8,410 $10,321 $19,621 $33,052 $71,404 Net loss.......................... 7,663 9,840 24,232 31,863 73,598 Net loss applicable to Class 1 Interests....................... 7,663 10,679 25,812 33,096 77,250 Net loss per Class 1 Interest..... 0.07 0.09 0.21 0.28 0.64
The following is a summary of results of operations for each of the fiscal quarters during 1997:
FIRST SECOND THIRD FOURTH TOTAL QUARTER QUARTER QUARTER QUARTER YEAR ------- ------- ------- -------- -------- Operating expenses............. $36,054 $48,414 $84,997 $127,133 $296,598 Net loss....................... 35,928 47,926 84,095 125,604 293,553 Net loss applicable to Class 1 Interests.................... 37,602 49,242 85,412 127,000 299,256 Net loss per Class 1 Interest..................... 0.31 0.40 0.60 0.90 2.25
F-32 95 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-33 96 IRIDIUM OPERATING LLC (A WHOLLY-OWNED SUBSIDIARY OF IRIDIUM LLC) (A DEVELOPMENT STAGE LIMITED LIABILITY COMPANY) CONSOLIDATED BALANCE SHEETS (IN THOUSANDS)
DECEMBER 31, ------------------------ 1996 1997 ---------- ---------- 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 (Note 2)....................................... 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 Members (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 and 3): 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 ========== ==========
The accompanying notes are an integral part of these consolidated financial statements. F-34 97 IRIDIUM OPERATING LLC (A WHOLLY-OWNED SUBSIDIARY OF IRIDIUM LLC) (A DEVELOPMENT STAGE LIMITED LIABILITY COMPANY) CONSOLIDATED STATEMENTS OF LOSS (IN THOUSANDS)
PERIOD FROM YEAR ENDED DECEMBER 31, JUNE 14, 1991 ------------------------------ (INCEPTION) THROUGH 1995 1996 1997 DECEMBER 31, 1997 ------- ------- -------- ------------------- OPERATING EXPENSES Sales, general and administrative (Notes 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 ======= ======= ======== ========
The accompanying notes are an integral part of these consolidated financial statements. F-35 98 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)
ADJUSTMENT DEFICIT FOR ACCUMULATED MEMBER'S MINIMUM DURING THE INTEREST PENSION DEVELOPMENT AMOUNT LIABILITY STAGE TOTAL ---------- ---------- ----------- ---------- 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 ========== ======= ========= ==========
The accompanying notes are an integral part of these consolidated financial statements. F-36 99 IRIDIUM OPERATING LLC (A WHOLLY-OWNED SUBSIDIARY OF IRIDIUM LLC) (A DEVELOPMENT STAGE LIMITED LIABILITY COMPANY) CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS)
PERIOD FROM YEAR ENDED DECEMBER 31, JUNE 14, 1991 ---------------------------------- (INCEPTION) THROUGH 1995 1996 1997 DECEMBER 31, 1997 --------- --------- ---------- ------------------- 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 ========= ========= ========== ===========
The accompanying notes are an integral part of these consolidated financial statements. F-37 100 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-38 101 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 Chase Securities, Inc., and Barclays Capital, a division of 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: Satellites in service................. 5 years Furniture, fixtures and equipment..... 5 years Leasehold improvements................ Shorter of 5 years or remaining lease term
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. F-39 102 IRIDIUM OPERATING LLC (A WHOLLY-OWNED SUBSIDIARY OF IRIDIUM LLC) (A DEVELOPMENT STAGE LIMITED LIABILITY COMPANY) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) System Under Construction System under construction includes all costs incurred related to the construction of the space and ground components of the IRIDIUM System. Depreciation expense is recognized on a satellite-by-satellite basis as the satellites are placed into service following delivery of each satellite to its mission orbit. Depreciation related to the ground control stations will commence with the placement in service of each such station. Interest costs incurred during the construction of the IRIDIUM System are capitalized. Total interest cost incurred and capitalized for the years ended December 31, 1996 and 1997 was approximately $28,127,000 and $163,747,000, respectively. Interest paid for the years ended December 31, 1996 and 1997 was approximately $1,485,000 and $30,191,000, respectively. No interest was incurred, paid or capitalized for the year ended December 31, 1995. During 1996, Iridium adopted Statement of Financial Accounting Standards No. 121, Accounting for the Impairment of Long-lived Assets and for Long-lived Assets to be Disposed of ("Statement 121"). Statement 121 requires that long-lived assets to be held and used be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. An impairment loss is recognized when the undiscounted net cash flows associated with the asset are less than the asset's carrying amount. Impairment losses, if any, are measured as the excess of the carrying amount of the asset over its estimated fair market value. The adoption of Statement 121 did not have a material impact on Iridium's results of operations for the years ended December 31, 1996 and 1997. Deferred Financing Costs All costs incurred in connection with securing debt financing have been deferred and are amortized over the terms of the related debt in a manner that approximates the effective yield method. Costs for future debt financing are also deferred and are included in other non-current assets in the accompanying consolidated balance sheets. Total deferred financing costs are approximately $30,200,000 and $113,394,000 at December 31, 1996 and 1997, respectively. During October 1995, the Parent withdrew an intended public offering of certain subordinated debt financing. Accordingly, approximately $3,200,000 of deferred costs associated with the intended financing were written off. Such costs are included in operating expenses in the accompanying consolidated statement of loss for the year ended December 31, 1995. Income Taxes Iridium files its Federal and state income tax returns as a member of the consolidated returns of the Parent. Iridium, Inc. was subject to Federal, state and local income taxes directly. As a result of the merger of Iridium, Inc. with and into the Parent, the Parent became a limited liability company. As a limited liability company, the Parent and Iridium are no longer subject to U. S. federal income tax directly. Rather, each member in Iridium is subject to U.S. federal income taxation based on its ratable portion of Iridium's income or loss. However, Iridium's primary operations are in the District of Columbia which does not recognize the limited liability status for tax purposes. Accordingly, Iridium is subject to District of Columbia franchise taxes directly. Iridium recognizes its provision for 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 F-40 103 IRIDIUM OPERATING LLC (A WHOLLY-OWNED SUBSIDIARY OF IRIDIUM LLC) (A DEVELOPMENT STAGE LIMITED LIABILITY COMPANY) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. New Accounting Pronouncement In June 1997, the Financial Accounting Standards Board issued Statement No. 130, Reporting Comprehensive Income ("Statement 130"). Statement 130 establishes standards for the reporting and display of comprehensive income and its components in the consolidated financial statements. Iridium is required to adopt the provisions of Statement 130 for the year ending December 31, 1998. Earlier application is permitted; however, upon adoption of Statement 130, Iridium will be required to reclassify previously reported annual and interim consolidated financial statements. The disclosure of comprehensive income in accordance with the provisions of Statement 130 will impact the manner of presentation of Iridium's consolidated financial statements as currently and previously reported. Reclassifications Certain 1995 and 1996 amounts have been reclassified to conform to the 1997 presentation. 3. MEMBER'S EQUITY The sole member of Iridium is the Parent and the Parent holds all outstanding membership interests in Iridium. The limited liability company agreement of Iridium provides that the members of the Parent may manage Iridium only through their designated directors and have no authority in their capacity as members to act on the behalf of Iridium. Parent is generally not liable for the debts, obligations or liabilities of Iridium. Parent is entitled to receive dividends, as and when declared by the Iridium Board of Directors, in its discretion. In the event that Parent is required by the terms of the Parent's Limited Liability Agreement to declare or pay a dividend to its members, Iridium is required to declare and pay a dividend to the Parent in the same amount. Parent is currently required to declare and pay a dividend sufficient to assure that each non-U.S. Class 1 Member of Parent receives and amount at least equal to the amount of such member's U.S. federal, state and local income tax liability resulting from allocations of Parent's taxable income to such member. Iridium is presently restricted by the terms of certain of its debt obligations from declaring or paying dividends to the Parent in amounts in excess of those required to be made to the Parent. 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):
1996 1997 ------- ---------- 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 ======= ==========
F-41 104 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 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. F-42 105 IRIDIUM OPERATING LLC (A WHOLLY-OWNED SUBSIDIARY OF IRIDIUM LLC) (A DEVELOPMENT STAGE LIMITED LIABILITY COMPANY) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 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):
1997 ---------- 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 ==========
Long-Term Debt Due to Members of the Parent During 1996, the Parent sold units to certain of its members and their affiliates; each unit consisting of $1,000 principal amount at maturity 14 1/2% Senior Subordinated Discount Notes due 2006 (the "Notes") and one warrant to purchase 10.40775 Class 1 Interests of the Parent, for aggregate proceeds of approximately $238,453,000. Concurrent with the Asset Drop-Down Transaction, the Parent's obligations under the Notes were assigned to Iridium. The Notes are unsecured and are subordinate to all senior debt of Iridium. The Notes fully accrete to an aggregate face value of $480,150,000 on March 1, 2001 and mature on March 1, 2006. Each Note accrues cash interest at a rate of 14 1/2% per annum, payable semi-annually commencing on September 1, 2001. The Notes will be subject to redemption, at the option of Iridium, at any time on or after March 1, 2001. 6. INCOME TAXES From inception through July 29, 1996, Iridium, Inc. was subject to U.S. federal and state and local income taxes directly, and accordingly, recognized provisions for income taxes for U.S. federal and for all state and local jurisdictions. Subsequent to the merger of Iridium, Inc. into a limited liability company, the Parent F-43 106 IRIDIUM OPERATING LLC (A WHOLLY-OWNED SUBSIDIARY OF IRIDIUM LLC) (A DEVELOPMENT STAGE LIMITED LIABILITY COMPANY) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 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):
1995 1996 1997 ------ ------ ------ Current -- Federal..................................... $1,258 $3,435 $ -- -- State and Local............................. 426 1,154 -- Deferred -- Federal..................................... -- -- -- -- State and Local............................. -- -- -- ------ ------ ------ $1,684 $4,589 $ -- ====== ====== ======
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 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 F-44 107 IRIDIUM OPERATING LLC (A WHOLLY-OWNED SUBSIDIARY OF IRIDIUM LLC) (A DEVELOPMENT STAGE LIMITED LIABILITY COMPANY) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 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):
1995 1996 1997 ---- ---- ---- Consulting............................................ $603 $826 $643 Other................................................. 1 26 5 ---- ---- ---- $604 $852 $648 ==== ==== ====
As of December 31, 1996, and 1997, the balance payable to Motorola under the Support Agreement was approximately $563,000 and $0, respectively. Space System Contract The Parent entered into the Space System Contract with Motorola to design, develop, produce and deliver the Space Segment component of the IRIDIUM System. In connection with the Asset Drop-Down Transaction, the Parent assigned the Space System Contract to Iridium. Under this fixed priced contract, Motorola will construct the space vehicles and place them into low-earth orbits for a contract price of $3.45 billion (subject to certain adjustments). The scheduled date of commencement of commercial operations is September 1998. For the years ended December 31, 1995, 1996, and 1997, $802 million, $836 million, and $577 million, respectively, was incurred under the Space System Contract. Such costs are capitalized as system under construction in the accompanying consolidated balance sheets and are transferred to property and equipment as the underlying assets are placed into service. As of December 31, 1996 and 1997, the balance payable to Motorola under the Space System Contract was $100 million and $0, respectively. The aggregate fixed and determinable portion of all remaining obligations under the Space System Contract is $589 million expected to be payable in 1998. Terrestrial Network Development Contract The Parent entered into the Terrestrial Network Development Contract ("TNDC") with Motorola for an original amount of $160 million. In connection with the Asset Drop-Down Transaction, the Parent assigned the TNDC to Iridium. Under the TNDC, Motorola is designing and developing the terrestrial gateway hardware and software. The payments under the original contract are tied to the completion of milestones specified in the contract. During 1996, the TNDC was amended to obligate Motorola to provide additional services and support under the TNDC in exchange for an additional $18.9 million. In lieu of a cash payment F-45 108 IRIDIUM OPERATING LLC (A WHOLLY-OWNED SUBSIDIARY OF IRIDIUM LLC) (A DEVELOPMENT STAGE LIMITED LIABILITY COMPANY) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 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):
YEAR ENDING DECEMBER 31, AMOUNT ------------------------ -------- 1998.................................................... $139,405 1999.................................................... 6,000 -------- $145,405 ========
Operations and Maintenance Contract To provide for the operations and maintenance of the space segment upon completion of the Space System Contract, the Parent entered into the Operations and Maintenance Contract ("O&M") with Motorola. In connection with the Asset Drop-Down Transaction, the Parent assigned the O&M contract to Iridium. This contract obligates Motorola for a period of five years after completion of the final milestone under the Space System Contract to operate the Space System, and to exert its best efforts to monitor, upgrade and replace hardware and software of the space segment (including the individual space vehicles) at specified levels, in exchange for specified quarterly payments. Such payments are expected to begin in 1998 and to aggregate approximately $2.88 billion. During 1996, a two-year option agreement was entered into for the extension of the O&M contract with Motorola after the completion of the initial five-year term. If such option is exercised, Iridium will be obligated to make quarterly payments expected to aggregate an additional $1.33 billion. Upon commencement of the O&M, Iridium will capitalize the portion of the costs incurred that pertain to hardware and software components of the space segment that extend its useful life. The portion of the costs of the O&M associated with day-to-day operations will be expensed as incurred. Assuming that commercial operations commence in September 1998, the aggregate fixed and determinable portion of all obligations under the O&M is expected to be as follows (in thousands):
YEAR ENDING DECEMBER 31, AMOUNT - ------------------------ ---------- 1998................................................... $ 129,000 1999................................................... 537,000 2000................................................... 558,000 2001................................................... 581,000 2002................................................... 605,000 2003................................................... 472,000 ---------- $2,882,000 ==========
F-46 109 IRIDIUM OPERATING LLC (A WHOLLY-OWNED SUBSIDIARY OF IRIDIUM LLC) (A DEVELOPMENT STAGE LIMITED LIABILITY COMPANY) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 8. EMPLOYEE BENEFITS The Parent has adopted a comprehensive performance incentive and retirement benefit package. Under the terms of the Management Services Agreement (See Note 7), Iridium has committed to reimburse the Parent for all costs associated with employee benefits except for non-cash compensation related to employee stock options. The performance incentive program became effective in 1993, while the various retirement plans became effective on February 1, 1994. Incentive Programs The Parent has established short- and long-term incentive plans primarily based on employee performance. Effective December 31, 1995, the Parent terminated the long-term incentive plan. The remaining liability of the long-term incentive plan is approximately $2,426,000 and $1,738,000 as of December 31, 1996 and 1997, respectively, and is expected to be paid in 1999. Under these plans, the Parent incurred expenses of approximately $1,300,000, $1,252,000 and $3,412,000 for the years ended December 31, 1995, 1996, and 1997, respectively. 401(k) Employee Retirement Savings Plan The Parent adopted a 401(k) employee retirement savings plan in 1994 covering all employees. The Parent makes matching contributions to this qualified plan on behalf of participating employees up to 3% of employees' compensation. Employee contributions to the plan vest immediately. The Parent's contributions vest ratably over a seven-year period, including service credit for any prior employment with Motorola. Under this plan, the Parent has incurred approximately $161,000, $288,000, and $558,000 during the years ended December 31, 1995, 1996 and 1997, respectively. Retirement Plans All employees of the Parent are covered by a non-contributory defined benefit retirement plan. Vesting in plan benefits generally occurs after five years. Benefits under the plan are based on years of credited service (including any prior employment with Motorola), age at retirement and the average earnings over the last four years. The plan is funded annually in accordance with the Employee Retirement Income Security Act of 1974. In early 1995, the Parent adopted a non-qualified defined benefit plan covering employees earnings in excess of the maximum amounts which may be considered under the qualified plan, excluding those executives participating in the supplemental executive plans described below, who also participate in the qualified defined benefit plan. Supplemental Executive Plans The Parent maintains a non-qualified defined benefit plan for selected senior officers. Vesting in these plans generally occurs upon the attainment of age 55 with five years of service. Benefits under these plans are based on average annual compensation prior to retirement. The Parent has also agreed to provide for the payment of certain taxes associated with plan benefits. The supplemental executive plans are not funded. The net periodic pension cost recognized under the plans was approximately $1,256,000, $1,925,000, and $2,420,000 for the years ended December 31, 1995, 1996, and 1997, respectively. For the years ended December 31, 1996 and 1997, the amounts provided to cover taxes associated with the plan benefits were $736,000 and $693,000, respectively. In addition, an additional minimum pension liability adjustment of $332,000 and $90,000 has been 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. F-47 110 IRIDIUM OPERATING LLC (A WHOLLY-OWNED SUBSIDIARY OF IRIDIUM LLC) (A DEVELOPMENT STAGE LIMITED LIABILITY COMPANY) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 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):
1995 1996 1997 ------------------------- ------------------------- ------------------------- QUALIFIED NON-QUALIFIED QUALIFIED NON-QUALIFIED QUALIFIED NON-QUALIFIED --------- ------------- --------- ------------- --------- ------------- 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 ==== ==== ==== ====== ====== ======
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:
1996 1997 -------------------------- -------------------------- QUALIFIED NON-QUALIFIED QUALIFIED NON-QUALIFIED --------- ------------- --------- ------------- 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%
F-48 111 IRIDIUM OPERATING LLC (A WHOLLY-OWNED SUBSIDIARY OF IRIDIUM LLC) (A DEVELOPMENT STAGE LIMITED LIABILITY COMPANY) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 9. FAIR VALUE OF FINANCIAL INSTRUMENTS The following table presents the carrying amounts and estimated fair values of financial instruments as of December 31, 1996 and 1997 (in thousands):
1996 1997 -------------------- ------------------------ CARRYING FAIR CARRYING FAIR AMOUNT VALUE AMOUNT VALUE -------- -------- ---------- ---------- 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
The fair value of long-term debt is estimated based on the current rates offered for similar debt. The carrying amounts of due from affiliates and accounts payable and accrued expenses approximate their fair market value as of December 31, 1996 and 1997 because of the relatively short duration of these assets. 10. OPERATING LEASE COMMITMENTS The Parent leases its corporate headquarters office space and other office space and equipment under non-cancelable operating lease agreements. The initial lease term for the corporate headquarters office space is seven years. Future minimum payments under all operating lease arrangements are as follows (in thousands):
YEAR ENDING DECEMBER 31, AMOUNT ------------------------ ------- 1998..................................................... $ 8,417 1999..................................................... 8,459 2000..................................................... 8,440 2001..................................................... 5,755 2002..................................................... 4,951 2003 and beyond.......................................... 7,985 ------- $44,007 =======
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. F-49 112 IRIDIUM OPERATING LLC (A WHOLLY-OWNED SUBSIDIARY OF IRIDIUM LLC) (A DEVELOPMENT STAGE LIMITED LIABILITY COMPANY) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1997 ----------------- Current assets.............................................. $0 Total assets................................................ 0 Current liabilities......................................... 0 Total liabilities........................................... 0
FOR THE PERIOD FROM INCEPTION THROUGH DECEMBER 31, 1997 ------------------- Net revenues................................................ $0 Cost of services............................................ 0 Net loss.................................................... 0
Iridium has recognized the obligations relating to the Series A Notes, the Series B Notes and the Series C Notes because Iridium will have the operations to service such obligations. The following is summarized financial information of the Guarantor Subsidiaries as of December 31, 1997 and for the period from inception of each of the Guarantor Subsidiaries through December 31, 1997. Full financial statements of the Guarantor Subsidiaries are not presented because management believes they are not material to investors.
DECEMBER 31, 1997 ----------------- Current assets.............................................. $0 Total assets................................................ 0 Current liabilities......................................... 0 Total liabilities........................................... 0
FOR THE PERIOD FROM INCEPTION THROUGH DECEMBER 31, 1997 ------------------- Net revenues................................................ $0 Cost of services............................................ 0 Net loss.................................................... 0
12. QUARTERLY FINANCIAL INFORMATION (UNAUDITED) In thousands: The following is a summary of results of operations for each of the fiscal quarters during 1995:
FIRST SECOND THIRD FOURTH TOTAL QUARTER QUARTER QUARTER QUARTER YEAR ------- ------- ------- -------- -------- Operating expenses............. $ 5,753 $ 6,083 $ 5,911 $ 9,440 $ 27,187 Net loss....................... 4,528 5,033 5,092 8,992 23,645
The following is a summary of results of operations for each of the fiscal quarters during 1996:
FIRST SECOND THIRD FOURTH TOTAL QUARTER QUARTER QUARTER QUARTER YEAR ------- ------- ------- -------- -------- Operating expenses............. $ 8,410 $10,321 $19,621 $ 33,052 $ 71,404 Net loss....................... 7,663 9,840 24,232 31,863 73,598
F-50 113 IRIDIUM OPERATING LLC (A WHOLLY-OWNED SUBSIDIARY OF IRIDIUM LLC) (A DEVELOPMENT STAGE LIMITED LIABILITY COMPANY) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The following is a summary of results of operations for each of the fiscal quarters during 1997:
FIRST SECOND THIRD FOURTH TOTAL QUARTER QUARTER QUARTER QUARTER YEAR ------- ------- ------- -------- -------- Operating expenses............. $36,054 $48,414 $84,959 $127,019 $296,446 Net loss....................... 35,928 47,926 84,057 125,490 293,401
F-51 114 INDEPENDENT AUDITORS' REPORT The Board of Directors and Members Iridium LLC: Under date of January 16, 1998, we reported on the consolidated balance sheets of Iridium LLC and subsidiaries (a development stage limited liability company) as of December 31, 1997 and 1996, and the related consolidated statements of loss, members' equity (deficit), and cash flows for each of the years in the three-year period ended December 31, 1997, and for the period June 14, 1991 (inception) through December 31, 1997, as contained in the annual report on Form 10-K for the year 1997. In connection with our audits of the aforementioned consolidated financial statements, we also audited the related financial statement schedule as listed in Item 14(a)2 in the annual report on Form 10-K for the year 1997. This financial statement schedule is the responsibility of the Company's management. Our responsibility is to express an opinion on the financial statement schedule based on our audits. In our opinion, such financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein. KPMG Peat Marwick LLP McLean, Virginia January 16, 1998 S-1 115 SCHEDULE 1 IRIDIUM LLC SCHEDULE 1 -- CONDENSED FINANCIAL INFORMATION OF REGISTRANT (IN THOUSANDS) Condensed Balance Sheets:
AS OF DECEMBER 31, ----------------------- 1996 1997 ---------- ---------- Cash........................................................ $ -- $ 3,100 Investment in Iridium Operating LLC......................... 1,572,029 1,631,537 ---------- ---------- Total assets...................................... 1,572,029 1,634,637 ========== ========== Liabilities Total liabilities................................. $ -- $ -- Members' equity............................................. 1,572,029 1,634,637 ---------- ---------- Total liabilities and members' equity............. 1,572,029 1,634,637 ========== ==========
Condensed Statements of Loss:
PERIOD FROM YEAR ENDED DECEMBER 31, JUNE 14, 1991 ---------------------------- (INCEPTION) TO 1995 1996 1997 DECEMBER 31, 1997 ------- ------- -------- ----------------- Equity in loss of Iridium Operating LLC......... $23,645 $73,598 $293,401 $427,241 ------- ------- -------- -------- Employee Class 1 Interests compensation......... -- -- 152 152 ------- ------- -------- -------- Loss before income taxes.............. 23,645 73,598 293,553 427,393 Income taxes.................................... -- -- -- -- ------- ------- -------- -------- Net loss.............................. $23,645 $73,598 $293,553 $427,393 ======= ======= ======== ========
Condensed Statements of Cash Flows:
PERIOD FROM YEAR ENDED DECEMBER 31, JUNE 14, 1991 --------------------------------- (INCEPTION) TO 1995 1996 1997 DECEMBER 31, 1997 --------- --------- --------- ----------------- Net loss.................................. $ (23,645) $ (73,598) $(293,553) $ (427,393) Adjustments to reconcile net loss to cash flows from operating activities: Employee Class 1 Interests compensation......................... -- -- 152 152 --------- --------- --------- ----------- Equity in loss of Iridium Operating LLC.................................. 23,645 73,598 293,401 427,241 --------- --------- --------- ----------- Cash used in operating activities.... -- -- -- -- Cash flows used in investing activities -- Investment in Iridium Operating LLC..... (633,507) (193,708) (399,796) (2,059,421) Cash flows from financing activities Proceeds from equity transactions.... 633,507 193,708 399,796 2,059,421 Transfer from Iridium Operating LLC................................ -- -- 3,100 3,100 --------- --------- --------- ----------- Cash provided by financing activities......................... 633,507 193,708 402,896 2,062,521 --------- --------- --------- ----------- Net increase in cash and cash equivalents............................. -- -- 3,100 3,100 Cash and cash equivalents at beginning of period.................................. -- -- -- -- --------- --------- --------- ----------- Cash and cash equivalents at end of period.................................. $ -- $ -- $ 3,100 $ 3,100 ========= ========= ========= ===========
S-2 116 Note to Condensed Financial Statements of Registrant: BASIS OF PRESENTATION The accompanying condensed financial statements represent the accounts of Iridium LLC (a development stage limited liability company) on a stand-alone basis. Substantially all footnote disclosures are omitted. Reference is made to the audited consolidated financial statements and footnotes of Iridium LLC and subsidiaries (a development stage limited liability company) as of December 31, 1997 and 1996, and for each of the years in the three-year period December 31, 1997, and for the period June 14, 1991 (inception) through December 31, 1997, which appear in the 1997 Form 10-K. S-3 117 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, each of the Registrants has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. IRIDIUM WORLD COMMUNICATIONS LTD. By: /s/ EDWARD F. STAIANO ------------------------------------ Edward F. Staiano Chairman and Chief Executive Officer Date: March 23, 1998 IRIDIUM LLC By: /s/ ROBERT W. KINZIE ------------------------------------ Robert W. Kinzie Chairman Date: March 23, 1998 IRIDIUM OPERATING LLC By: /s/ EDWARD F. STAIANO ------------------------------------ Edward F. Staiano Vice Chairman and Chief Executive Officer Date: March 23, 1998 IRIDIUM CAPITAL CORPORATION By: /s/ EDWARD F. STAIANO ------------------------------------ Edward F. Staiano Chairman and Chief Executive Officer Date: March 23, 1998 IRIDIUM ROAMING LLC By: /s/ EDWARD F. STAIANO ------------------------------------ Edward F. Staiano Acting Chief Executive Officer Date: March 23, 1998 IRIDIUM IP LLC By: /s/ EDWARD F. STAIANO ------------------------------------ Edward F. Staiano Acting Chief Executive Officer Date: March 23, 1998 i 118 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons in the capacities and on the dates indicated.
NAME TITLE DATE ---- ----- ---- /s/ ROBERT W. KINZIE Director of Iridium World March 23, 1998 - ------------------------------------------ Communications Ltd.; Chairman of Robert W. Kinzie Iridium LLC and Iridium Operating LLC; Director of Iridium Capital Corporation /s/ EDWARD F. STAIANO Chairman and Chief Executive Officer of March 23, 1998 - ------------------------------------------ Iridium World Communications Ltd.; Edward F. Staiano Vice Chairman and Chief Executive Officer of Iridium LLC and Iridium Operating LLC; Chairman and Chief Executive Officer of Iridium Capital Corporation; Acting Chief Executive Officer of Iridium Roaming LLC and Iridium IP LLC /s/ ROY GRANT Chief Financial Officer of Iridium March 23, 1998 - ------------------------------------------ World Communications Ltd.; Vice Roy Grant President-Chief Financial Officer of Iridium LLC and Iridium Operating LLC; Chief Financial Officer of Iridium Capital Corporation; Acting Chief Financial Officer of Iridium Roaming LLC and Iridium IP LLC /s/ HASAN M. BINLADIN Director of Iridium LLC and Iridium March 23, 1998 - ------------------------------------------ Operating LLC Hasan M. Binladin /s/ ULF BOHLA Director of Iridium World March 23, 1998 - ------------------------------------------ Communications Ltd., Iridium LLC and Ulf Bohla Iridium Operating LLC /s/ GORDON J. COMERFORD Director of Iridium LLC and Iridium March 23, 1998 - ------------------------------------------ Operating LLC Gordon J. Comerford Director of Iridium LLC and Iridium March , 1998 - ------------------------------------------ Operating LLC Atilano de Oms Sobrinho Director of Iridium LLC and Iridium March , 1998 - ------------------------------------------ Operating LLC Robert A. Ferchat /s/ ALBERTO FINOL Deputy Chairman and Director of Iridium March 23, 1998 - ------------------------------------------ World Communications Ltd.; Director Alberto Finol of Iridium LLC and Iridium Operating LLC /s/ EDWARD GAMS Director of Iridium LLC and Iridium March 23, 1998 - ------------------------------------------ Operating LLC Edward Gams /s/ KAZUO INAMORI Director of Iridium LLC and Iridium March 23, 1998 - ------------------------------------------ Operating LLC Kazuo Inamori
ii 119
NAME TITLE DATE ---- ----- ---- /s/ HARDIANTO K. KAMARGA Director of Iridium LLC and Iridium March 23, 1998 - ------------------------------------------ Operating LLC Hardianto K. Kamarga /s/ GEORG KELLINGHUSEN Director of Iridium LLC and Iridium March 23, 1998 - ------------------------------------------ Operating LLC Georg Kellinghusen Director of Iridium LLC and Iridium March , 1998 - ------------------------------------------ Operating LLC S. H. Khan Director of Iridium LLC and Iridium March , 1998 - ------------------------------------------ Operating LLC Anatoly I. Kiselev /s/ RICHARD L. LESHER Director of Iridium World March 23, 1998 - ------------------------------------------ Communications Ltd.; Iridium LLC and Richard L. Lesher Iridium Operating LLC /s/ JOHN F. MITCHELL Director of Iridium LLC and Iridium March 23, 1998 - ------------------------------------------ Operating LLC John F. Mitchell /s/ JUNG L. MOK Director of Iridium LLC and Iridium March 23, 1998 - ------------------------------------------ Operating LLC Jung L. Mok /s/ GIUSEPPE MORGANTI Director of Iridium LLC and Iridium March 23, 1998 - ------------------------------------------ Operating LLC Giuseppe Morganti /s/ J. MICHAEL NORRIS Director of Iridium LLC and Iridium March 23, 1998 - ------------------------------------------ Operating LLC J. Michael Norris /s/ YUSAI OKUYAMA Director of Iridium LLC and Iridium March 23, 1998 - ------------------------------------------ Operating LLC Yusai Okuyama /s/ JOHN A. RICHARDSON Director of Iridium LLC and Iridium March 23, 1998 - ------------------------------------------ Operating LLC John A. Richardson /s/ JOHN M. SCANLON Director of Iridium LLC and Iridium March 23, 1998 - ------------------------------------------ Operating LLC John M. Scanlon /s/ THEODORE H. SCHELL Director of Iridium LLC and Iridium March 23, 1998 - ------------------------------------------ Operating LLC Theodore H. Schell /s/ WILLIAM A. SCHREYER Director of Iridium World March 23, 1998 - ------------------------------------------ Communications Ltd.; Iridium LLC and William A. Schreyer Iridium Operating LLC Director of Iridium LLC and Iridium March , 1998 - ------------------------------------------ Operating LLC Sribhumi Sukhanetr /s/ TAO-TSUN SUN Director of Iridium LLC and Iridium March 23, 1998 - ------------------------------------------ Operating LLC Tao-Tsun Sun
iii 120
NAME TITLE DATE ---- ----- ---- /s/ YOSHIHARU YASUDA Director of Iridium World March 23, 1998 - ------------------------------------------ Communications Ltd., Iridium LLC and Yoshiharu Yasuda Iridium Operating LLC Director of Iridium LLC and Iridium March , 1998 - ------------------------------------------ Operating LLC Wang Mei Yue
iv 121 EXHIBIT INDEX
EXHIBIT NUMBER DESCRIPTION OF EXHIBIT - ------- ---------------------- 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: Incorporated by reference to Exhibit 3.4 to the Registration Statement on Form S-4 of Iridium Operating LLC, Iridium Capital Corporation, Iridium Roaming LLC and Iridium IP LLC (Registration No. 333-44349, -01, -02 and -03) (the "1998 Form S-4"). 3.5 Amended and Restated Limited Liability Company Agreement of Iridium IP LLC: Incorporated by reference to Exhibit 3.5 to the 1998 Form S-4. 3.6 Limited Liability Company Agreement of Iridium Operating LLC: Incorporated by reference to Exhibit 3.6 to the 1998 Form S-4. 3.7 Articles of Incorporation of Iridium Facilities Corporation.* 3.8 By-Laws of Iridium Facilities Corporation.* 3.9 Memorandum of Association of Iridium World Communications Ltd.: Incorporated by reference to Exhibit 3.1 to the Form S-1. 3.10 By-Laws of Iridium World Communications Ltd.: Incorporated by reference to Exhibit 3.2 to the Form S-1. 4.1.1 Indenture dated as of July 16, 1997 relating to Iridium LLC's and Iridium Capital Corporation's 13% Senior Notes due 2005, Series A, and 13% Senior Notes due 2005, Series A/EN: Incorporated by reference to Exhibit 4.1 to the 1997 Form S-4. 4.1.2 First Supplemental Indenture dated as of December 18, 1997 relating to Iridium Operating LLC's and Iridium Capital Corporation's 13% Senior Notes due 2005, Series A, and 13% Senior Notes due 2005, Series A/EN: Incorporated by reference to Exhibit 4.1.2 to the 1998 Form S-4. 4.1.3 Second Supplemental Indenture dated as of February 27, 1998 relating to Iridium Operating LLC's and Iridium Capital Corporation's 13% Senior Notes due 2005, Series A, and 13% Senior Notes due 2005, Series A/EN.* 4.2 Forms of Series A Note and Series A/EN Note: Incorporated by reference to Exhibit 4.1 to the 1997 Form S-4. 4.3.1 Indenture dated as of July 16, 1997 relating to Iridium LLC's and Iridium Capital Corporation's 14% Senior Notes due 2005, Series B, and 14% Senior Notes due 2005, Series B/EN: Incorporated by reference to Exhibit 4.2 to the 1997 Form S-4. 4.3.2 First Supplemental Indenture dated as of December 18, 1997 relating to Iridium Operating LLC's and Iridium Capital Corporation's 14% Senior Notes due 2005, Series B, and 14% Senior Notes due 2005, Series B/EN: Incorporated by reference to Exhibit 4.3.2 to the 1998 Form S-4. 4.3.3 Second Supplemental Indenture dated as of February 27, 1998 relating to Iridium Operating LLC's and Iridium Capital Corporation's 14% Senior Notes due 2005, Series B, and 14% Senior Notes due 2005, Series B/EN.* 4.4 Forms of Series B Note and Series B/EN Note: Incorporated by reference to Exhibit 4.2 to the 1997 Form S-4. 4.5.1 Indenture dated as of October 17, 1997 relating to Iridium LLC's and Iridium Capital Corporation's 11 1/4% Senior Notes due 2005, Series C: Incorporated by reference to Exhibit 4.5.1 to the 1998 Form S-4. 4.5.2 First Supplemental Indenture dated as of December 18, 1997 relating to Iridium Operating LLC's and Iridium Capital Corporation's 11 1/4% Senior Notes due 2005, Series C: Incorporated by reference to Exhibit 4.5.2 to the 1998 Form S-4.
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EXHIBIT NUMBER DESCRIPTION OF EXHIBIT - ------- ---------------------- 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.* 4.6 Forms of Series C Note and Series C/EN Note: contained in an exhibit to Exhibit 4.5.1: Incorporated by reference to Exhibit 4.6 to the 1998 Form S-4. 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: Incorporated by reference to Exhibit 10.2 to the 1998 Form S-4. 10.3 Form of 1997 Subscription Agreement between IWCL and Iridium LLC: Incorporated by reference to Exhibit 10.4 to the 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.* 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: Incorporated by reference to Exhibit 10.20 to the 1998 Form S-4. 10.21 Exchange and Registration Rights Agreement: contained in an annex to Exhibit 10.20: Incorporated by reference to Exhibit 10.21 to the 1998 Form S-4. 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.
123
EXHIBIT NUMBER DESCRIPTION OF EXHIBIT - ------- ---------------------- 10.24 Agreement between Dr. Staiano and Iridium LLC: Incorporated by reference to Exhibit 10.28 to the 1997 Form S-4. 10.25 Asset Transfer Agreement: Incorporated by reference to Exhibit 10.25 to the 1998 Form S-4. 10.26 Consent of Arthur Andersen LLP to Contract Assignment: Incorporated by reference to Exhibit 10.26 to the 1998 Form S-4. 10.27 Consent of Motorola Inc. to Contract Assignment: Incorporated by reference to Exhibit 10.27 to the 1998 Form S-4. 10.28 Form of Credit Agreement among Iridium Operating LLC, Chase Securities Inc., Barclays Capital, The Chase Manhattan Bank and Barclays Bank PLC.* 10.29 Conditions Precedent to the Disbursement of the Term Loans under Section 2.01(a) of the Credit Agreement.* 10.30 Regulatory and Technical Conditions Precedent to availability of funding under the Credit Agreement.* 10.31 Form of Assignment and Acceptance under the Credit Agreement.* 10.32 Form of Pledge and Security Agreement among Iridium Operating LLC, each of the Subsidiaries and The Chase Manhattan Bank.* 10.33 Form of Parent Security Agreement between Iridium LLC and The Chase Manhattan Bank.* 10.34 Form of Subsidiary Guarantee Agreement between each of the Subsidiary Guarantors and The Chase Manhattan Bank.* 10.35 Form of Subsidiary Guarantee Assumption Agreement.* 10.36 Form of Depositary Agreement between Iridium Operating LLC and The Chase Manhattan Bank.* 10.37 Form of Motorola Consent under the Credit Agreement among Motorola, Iridium Operating LLC and The Chase Manhattan Bank.* 10.38 Form of Motorola Pledge Agreement between Motorola, Inc. and The Chase Manhattan Bank.* 10.39 Form of Progress Certificate (Pre-Commercial Activation) under the Credit Agreement.* 10.40 Form of Verification of Independent Technical Advisor under the Credit Agreement.* 10.41 Form of Progress Certificate (Post-Commercial Activation) under the Credit Agreement.* 10.42 Form of Borrowing Request under the Credit Agreement.* 11.1 Statement re Computation of Loss per Class A Common Share: Iridium World Communications Ltd.* 11.2 Statement re Computation of Loss per Class 1 Interest: Iridium LLC.* 12 Statement re Computation of Ratios: Iridium Operating LLC.* 21 Subsidiaries of the Registrants.* 23 Consent of KPMG Peat Marwick LLP.* 27.1 Financial Data Schedule -- Iridium World Communications, Ltd.* 27.2 Financial Data Schedule -- Iridium LLC* 27.3 Financial Data Schedule -- Iridium Operating LLC* 99 Certain Factors Which May Affect Forward Looking Statements.*
- --------------- * Filed herewith. + Confidential treatment previously granted in connection with the Form S-1 or the 1997 Form S-4. ++ Management Compensation Plan. EX-3.7 2 ARTICLES OF INCORPORATION 1 EXHIBIT 3.7 CERTIFICATE OF INCORPORATION OF IRIDIUM FACILITIES CORPORATION FIRST. The name of the corporation is Iridium Facilities Corporation. SECOND. The address of the corporation's registered office in the State of Delaware is Corporation Trust Center, 1209 Orange Street in the City of Wilmington, County of New Castle. The name of its registered agent at such address is The Corporation Trust Company. THIRD. The purpose of the corporation is to engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of Delaware. FOURTH. The total number of shares which the corporation shall have authority to issue is 100 shares of Common Stock, and all such shares are to be without par value. FIFTH. The name and mailing address of the incorporator is Aretha Jones, 1575 Eye Street, N.W., Suite 800, Washington, D.C., 20005. SIXTH. The board of directors of the corporation is expressly authorized to adopt, amend or repeal by-laws of the corporation. SEVENTH. Elections of directors need not be by written ballot except and to the extent provided in the by-laws of the corporation. 2 EIGHTH. Any action required or permitted to be taken by the holders of Common Stock of the corporation, including but not limited to the election of directors, may be taken by written consent or consents but only if such consent or consents are signed by all holders of Common Stock. NINTH. A director of the corporation shall not be liable to the corporation or its stockholders for monetary damages for breach of fiduciary duty as a director, except to the extent that such exemption from liability or limitation thereof is not permitted under the Delaware General Corporation Law as currently in effect or as the same may be hereafter be amended. No amendment, modification or repeal of this Article NINTH shall adversely affect any right or protection of a director that exists at the time of such amendment, modification or repeal. IN WITNESS WHEREOF, I have signed this certificate of incorporation this 6th day of February 1998. /s/ Aretha Jones Aretha Jones EX-3.8 3 BY-LAWS OF IRIDIUM WORLD COMMUNICATIONS 1 EXHIBIT 3.8 BY-LAWS OF IRIDIUM FACILITIES CORPORATION ARTICLE I Stockholders Section 1.1. Annual Meetings. An annual meeting of stockholders shall be held for the election of directors at such date, time and place either within or without the State of Delaware as may be designated by the Board of Directors from time to time. Any other proper business may be transacted at the annual meeting. Section 1.2. Special Meetings. Special meetings of stockholders may be called at any time by the Chairman of the Board, if any, the Vice Chairman of the Board, if any, the President or the Board of Directors, to be held at such date, time and place either within or without the State of Delaware as may be stated in the notice of the meeting. A special meeting of stockholders shall be called by the Secretary upon the written request, stating the purpose of the meeting, of stockholders who together own of record a majority of the outstanding shares of each class of stock entitled to vote at such meeting. Section 1.3. Notice of Meetings. Whenever stockholders are required or permitted to take any action at a meeting, a written notice of the meeting shall be given which shall state the place, date and hour of the meeting, and, in the case of a special meeting, the purpose or purposes for which the meeting is called. Unless otherwise provided by law, the written notice of any meeting shall be given not less than ten nor more than sixty days before the date of the meeting to each stockholder entitled to vote at such meeting. If mailed, such notice shall be deemed to be given when deposited in the United States mail, postage prepaid, directed to the stockholder at such stockholder's address as it appears on the records of the Corporation. Section 1.4. Adjournments. Any meeting of stockholders, annual or special, may be adjourned from time to time, to reconvene at the same or some other place, and notice need not be given of any such adjourned meeting if the time and place thereof are announced at the meeting at 2 which the adjournment is taken. At the adjourned meeting the Corporation may transact any business which might have been transacted at the original meeting. If the adjournment is for more than thirty days, or if after the adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the meeting. Section 1.5. Quorum. At each meeting of stockholders, except where otherwise provided by law or the certificate of incorporation or these by-laws, the holders of a majority of the outstanding shares of stock entitled to vote on a matter at the meeting, present in person or represented by proxy, shall constitute a quorum. In the absence of a quorum of the holders of any class of stock entitled to vote on a matter, the holders of such class so present or represented may, by majority vote, adjourn the meeting of such class from time to time in the manner provided by Section 1.4 of these by-laws until a quorum of such class shall be so present or represented. Shares of its own capital stock belonging on the record date for the meeting to the Corporation or to another corporation, if a majority of the shares entitled to vote in the election of directors of such other corporation is held, directly or indirectly, by the Corporation, shall neither be entitled to vote nor be counted for quorum purposes; provided, however, that the foregoing shall not limit the right of the Corporation to vote stock, including but not limited to its own stock, held by it in a fiduciary capacity. Section 1.6. Organization. Meetings of stockholders shall be presided over by the Chairman of the Board, if any, or in the absence of the Chairman of the Board by the Vice Chairman of the Board, if any, or in the absence of the Vice Chairman of the Board by the President, or in the absence of the President by a Vice President, or in the absence of the foregoing persons by a chairman designated by the Board of Directors, or in the absence of such designation by a chairman chosen at the meeting. The Secretary, or in the absence of the Secretary an Assistant Secretary, shall act as secretary of the meeting, but in the absence of the Secretary and any Assistant Secretary the chairman of the meeting may appoint any person to act as secretary of the meeting. Section 1.7. Voting; Proxies. Unless otherwise provided in the certificate of incorporation, each stockholder entitled to vote at any meeting of stockholders shall be entitled to one vote for each share of stock held by such stockholder which has voting power upon the matter in question. Each stockholder entitled to vote at a meeting -2- 3 of stockholders or to express consent or dissent to corporate action in writing without a meeting may authorize another person or persons to act for such stockholder by proxy, but no such proxy shall be voted or acted upon after three years from its date, unless the proxy provides for a longer period. A duly executed proxy shall be irrevocable if it states that it is irrevocable and if, and only as long as, it is coupled with an interest sufficient in law to support an irrevocable power, regardless of whether the interest with which it is coupled is an interest in the stock itself or an interest in the Corporation generally. A stockholder may revoke any proxy which is not irrevocable by attending the meeting and voting in person or by filing an instrument in writing revoking the proxy or another duly executed proxy bearing a later date with the Secretary of the Corporation. Voting at meetings of stockholders need not be by written ballot and need not be conducted by inspectors unless the holders of a majority of the outstanding shares of all classes of stock entitled to vote thereon present in person or represented by proxy at such meeting shall so determine. Directors shall be elected by a plurality of the votes of the shares present in person or represented by proxy at the meeting and entitled to vote on the election of directors. In all other matters, unless otherwise provided by law or by the certificate of incorporation or these by-laws, the affirmative vote of the holders of a majority of the shares present in person or represented by proxy at the meeting and entitled to vote on the subject matter shall be the act of the stockholders. Where a separate vote by class or classes is required, the affirmative vote of the holders of a majority of the shares of such class or classes present in person or represented by proxy at the meeting shall be the act of such class or classes, except as otherwise provided by law or by the certificate of incorporation or these by-laws. Section 1.8. Fixing Date for Determination of Stockholders of Record. In order that the Corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, the Board of Directors may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted by the Board of Directors, and which record date shall not be more than sixty nor less than ten days before the date of such meeting. If no record date is fixed by the Board of Directors, the record date for determining stockholders entitled to notice of or to vote at a meeting of stockholders shall be at the close of business on the day next preceding the day on which notice is given, or, if notice is waived, at the close of business on the day next preceding the day on which the meeting is held. A -3- 4 determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; provided, however, that the Board of Directors may fix a new record date for the adjourned meeting. In order that the Corporation may determine the stockholders entitled to consent to corporate action in writing without a meeting, the Board of Directors may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted by the Board of Directors, and which date shall not be more than ten days after the date upon which the resolution fixing the record date is adopted by the Board of Directors. If no record date has been fixed by the Board of Directors, the record date for determining stockholders entitled to consent to corporate action in writing without a meeting, when no prior action by the Board of Directors is required by law, shall be the first date on which a signed written consent setting forth the action taken or proposed to be taken is delivered to the Corporation by delivery to its registered office in the State of Delaware, its principal place of business, or an officer or agent of the Corporation having custody of the book in which proceedings of meetings of stockholders are recorded. Delivery made to the Corporation's registered office shall be by hand or by certified or registered mail, return receipt requested. If no record date has been fixed by the Board of Directors and prior action by the Board of Directors is required by law, the record date for determining stockholders entitled to consent to corporate action in writing without a meeting shall be at the close of business on the day on which the Board of Directors adopts the resolution taking such prior action. In order that the Corporation may determine the stockholders entitled to receive payment of any dividend or other distribution or allotment of any rights or the stockholders entitled to exercise any rights in respect of any change, conversion or exchange of stock, or for the purpose of any other lawful action, the Board of Directors may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted, and which record date shall be not more than sixty days prior to such action. If no record date is fixed, the record date for determining stockholders for any such purpose shall be at the close of business on the day on which the Board of Directors adopts the resolution relating thereto. -4- 5 Section 1.9. List of Stockholders Entitled to Vote. The Secretary shall prepare and make, at least ten days before every meeting of stockholders, a complete list of the stockholders entitled to vote at the meeting, arranged in alphabetical order, and showing the address of each stockholder and the number of shares registered in the name of each stockholder. Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting, during ordinary business hours, for a period of at least ten days prior to the meeting, either at a place within the city where the meeting is to be held, which place shall be specified in the notice of the meeting, or, if not so specified, at the place where the meeting is to be held. The list shall also be produced and kept at the time and place of the meeting during the whole time thereof and may be inspected by any stockholder who is present. ARTICLE II Board of Directors Section 2.1. Powers; Number; Qualifications. The business and affairs of the Corporation shall be managed by or under the direction of the Board of Directors, except as may be otherwise provided by law or in the certificate of incorporation. The Board of Directors shall consist of one or more members, the number thereof to be determined from time to time by the Board. Directors need not be stockholders. Section 2.2. Election; Term of Office; Resignation; Removal; Vacancies. Each director shall hold office until his or her successor is elected and qualified or until his or her earlier resignation or removal. Any director may resign at any time upon written notice to the Board of Directors or to the President or the Secretary of the Corporation. Such resignation shall take effect at the time specified therein, and unless otherwise specified therein no acceptance of such resignation shall be necessary to make it effective. Any director or the entire Board of Directors may be removed, with or without cause, by the holders of a majority of the shares then entitled to vote at an election of directors. Unless otherwise provided in the certificate of incorporation or these by-laws, vacancies and newly created directorships resulting from any increase in the authorized number of directors elected by all of the stockholders having the right to vote as a single class or -5- 6 from any other cause may be filled by a majority of the directors then in office, although less than a quorum, or by the sole remaining director. Any director elected or appointed to fill a vacancy shall hold office until the next annual meeting of the stockholders and his or her successor is elected and qualified or until his or her earlier resignation or removal. Section 2.3. Regular Meetings. Regular meetings of the Board of Directors may be held at such places within or without the State of Delaware and at such times as the Board may from time to time determine, and if so determined notice thereof need not be given. Section 2.4. Special Meetings. Special meetings of the Board of Directors may be held at any time or place within or without the State of Delaware whenever called by the Chairman of the Board, if any, by the Vice Chairman of the Board, if any, by the President or by any two directors. Reasonable notice thereof shall be given by the person or persons calling the meeting. Section 2.5. Participation in Meetings by Conference Telephone Permitted. Unless otherwise restricted by the certificate of incorporation or these by-laws, members of the Board of Directors, or any committee designated by the Board, may participate in a meeting of the Board or of such committee, as the case may be, by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other, and participation in a meeting pursuant to this by-law shall constitute presence in person at such meeting. Section 2.6. Quorum; Vote Required for Action. At all meetings of the Board of Directors one-third of the entire Board shall constitute a quorum for the transaction of business. The vote of a majority of the directors present at a meeting at which a quorum is present shall be the act of the Board unless the certificate of incorporation or these by-laws shall require a vote of a greater number. In case at any meeting of the Board a quorum shall not be present, the members of the Board present may adjourn the meeting from time to time until a quorum shall be present. Section 2.7. Organization. Meetings of the Board of Directors shall be presided over by the Chairman of the Board, if any, or in the absence of the Chairman of the Board by the Vice Chairman of the Board, if any, or in the absence of the Vice Chairman of the Board by the President, or in their absence by a chairman chosen at the meeting. -6- 7 The Secretary, or in the absence of the Secretary an Assistant Secretary, shall act as secretary of the meeting, but in the absence of the Secretary and any Assistant Secretary the chairman of the meeting may appoint any person to act as secretary of the meeting. Section 2.8. Action by Directors Without a Meeting. Unless otherwise restricted by the certificate of incorporation or these by-laws, any action required or permitted to be taken at any meeting of the Board of Directors, or of any committee thereof, may be taken without a meeting if all members of the Board or of such committee, as the case may be, consent thereto in writing, and the writing or writings are filed with the minutes of proceedings of the Board or committee. Section 2.9. Compensation of Directors. Unless otherwise restricted by the certificate of incorporation or these by-laws, the Board of Directors shall have the authority to fix the compensation of directors. ARTICLE III Committees Section 3.1. Committees. The Board of Directors may designate one or more committees, each committee to consist of one or more of the directors of the Corporation. The Board may designate one or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of the committee. In the absence or disqualification of a member of a committee, the member or members thereof present at any meeting and not disqualified from voting, whether or not such member or members constitute a quorum, may unanimously appoint another member of the Board to act at the meeting in the place of any such absent or disqualified member. Any such committee, to the extent provided in the resolution of the Board of Directors or in these by-laws, shall have and may exercise all the powers and authority of the Board of Directors in the management of the business and affairs of the Corporation, and may authorize the seal of the Corporation to be affixed to all papers which may require it; but no such committee shall have the power or authority in reference to the following matters: (i) approving or adopting, or recommending to the stockholders, any action or matter expressly required by law to be submitted to stockholders for approval, (ii) adopting, amending or repealing these By-Laws or (iii) removing or indemnifying directors. -7- 8 Section 3.2. Committee Rules. Unless the Board of Directors otherwise provides, each committee designated by the Board may adopt, amend and repeal rules for the conduct of its business. In the absence of a provision by the Board or a provision in the rules of such committee to the contrary, a majority of the entire authorized number of members of such committee shall constitute a quorum for the transaction of business, the vote of a majority of the members present at a meeting at the time of such vote if a quorum is then present shall be the act of such committee, and in other respects each committee shall conduct its business in the same manner as the Board conducts its business pursuant to Article II of these by-laws. ARTICLE IV Officers Section 4.1. Officers; Election. As soon as practicable after the annual meeting of stockholders in each year, the Board of Directors shall elect a President and a Secretary, and it may, if it so determines, elect from among its members a Chairman of the Board and a Vice Chairman of the Board. The Board may also elect one or more Vice Presidents, one or more Assistant Vice Presidents, one or more Assistant Secretaries, a Treasurer and one or more Assistant Treasurers and such other officers as the Board may deem desirable or appropriate and may give any of them such further designations or alternate titles as it considers desirable. Any number of offices may be held by the same person unless the certificate of incorporation or these by-laws otherwise provide. Section 4.2. Term of Office; Resignation; Removal; Vacancies. Unless otherwise provided in the resolution of the Board of Directors electing any officer, each officer shall hold office until his or her successor is elected and qualified or until his or her earlier resignation or removal. Any officer may resign at any time upon written notice to the Board or to the President or the Secretary of the Corporation. Such resignation shall take effect at the time specified therein, and unless otherwise specified therein no acceptance of such resignation shall be necessary to make it effective. The Board may remove any officer with or without cause at any time. Any such removal shall be without prejudice to the contractual rights of such officer, if any, with the Corporation, but the election of an officer shall not of itself create contractual rights. Any vacancy occurring in any office of the Corporation by -8- 9 death, resignation, removal or otherwise may be filled by the Board at any regular or special meeting. Section 4.3. Powers and Duties. The officers of the Corporation shall have such powers and duties in the management of the Corporation as shall be stated in these by-laws or in a resolution of the Board of Directors which is not inconsistent with these by-laws and, to the extent not so stated, as generally pertain to their respective offices, subject to the control of the Board. The Secretary shall have the duty to record the proceedings of the meetings of the stockholders, the Board of Directors and any committees in a book to be kept for that purpose. The Board may require any officer, agent or employee to give security for the faithful performance of his or her duties. ARTICLE V Stock Section 5.1. Certificates. Every holder of stock in the Corporation shall be entitled to have a certificate signed by or in the name of the Corporation by the Chairman or Vice Chairman of the Board of Directors, if any, or the President or a Vice President, and by the Treasurer or an Assistant Treasurer, or the Secretary or an Assistant Secretary, of the Corporation, representing the number of shares of stock in the Corporation owned by such holder. If such certificate is manually signed by one officer or manually countersigned by a transfer agent or by a registrar, any other signature on the certificate may be a facsimile. In case any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed upon a certificate shall have ceased to be such officer, transfer agent or registrar before such certificate is issued, it may be issued by the Corporation with the same effect as if such person were such officer, transfer agent or registrar at the date of issue. Section 5.2. Lost, Stolen or Destroyed Stock Certificates; Issuance of New Certificates. The Corporation may issue a new certificate of stock in the place of any certificate theretofore issued by it, alleged to have been lost, stolen or destroyed, and the Corporation may require the owner of the lost, stolen or destroyed certificate, or such owner's legal representative, to give the Corporation a -9- 10 bond sufficient to indemnify it against any claim that may be made against it on account of the alleged loss, theft or destruction of any such certificate or the issuance of such new certificate. ARTICLE VI Miscellaneous Section 6.1. Fiscal Year. The fiscal year of the Corporation shall be determined by the Board of Directors. Section 6.2. Seal. The Corporation may have a corporate seal which shall have the name of the Corporation inscribed thereon and shall be in such form as may be approved from time to time by the Board of Directors. The corporate seal may be used by causing it or a facsimile thereof to be impressed or affixed or in any other manner reproduced. Section 6.3. Waiver of Notice of Meetings of Stockholders, Directors and Committees. Whenever notice is required to be given by law or under any provision of the certificate of incorporation or these by-laws, a written waiver thereof, signed by the person entitled to notice, whether before or after the time stated therein, shall be deemed equivalent to notice. Attendance of a person at a meeting shall constitute a waiver of notice of such meeting, except when the person attends a meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened. Neither the business to be transacted at, nor the purpose of, any regular or special meeting of the stockholders, directors or members of a committee of directors need be specified in any written waiver of notice unless so required by the certificate of incorporation or these by-laws. Section 6.4. Indemnification of Directors, Officers and Employees. The Corporation shall indemnify to the full extent permitted by law any person made or threatened to be made a party to any action, suit or proceeding, whether civil, criminal, administrative or investigative, by reason of the fact that such person or such person's testator or intestate is or was a director, officer or employee of the Corporation or serves or served at the request of the Corporation any other enterprise as a director, officer or employee. Expenses, including attorneys' fees, incurred by any such person in defending any such action, suit or proceeding shall be paid or -10- 11 reimbursed by the Corporation promptly upon receipt by it of an undertaking of such person to repay such expenses if it shall ultimately be determined that such person is not entitled to be indemnified by the Corporation. The rights provided to any person by this by-law shall be enforceable against the Corporation by such person who shall be presumed to have relied upon it in serving or continuing to serve as a director, officer or employee as provided above. No amendment of this by-law shall impair the rights of any person arising at any time with respect to events occurring prior to such amendment. For purposes of this by-law, the term "Corporation" shall include any predecessor of the Corporation and any constituent corporation (including any constituent of a constituent) absorbed by the Corporation in a consolidation or merger; the term "other enterprise" shall include any corporation, partnership, joint venture, trust or employee benefit plan; service "at the request of the Corporation" shall include service as a director, officer or employee of the Corporation which imposes duties on, or involves services by, such director, officer or employee with respect to an employee benefit plan, its participants or beneficiaries; any excise taxes assessed on a person with respect to an employee benefit plan shall be deemed to be indemnifiable expenses; and action by a person with respect to an employee benefit plan which such person reasonably believes to be in the interest of the participants and beneficiaries of such plan shall be deemed to be action not opposed to the best interests of the Corporation. Section 6.5. Interested Directors; Quorum. No contract or transaction between the Corporation and one or more of its directors or officers, or between the Corporation and any other corporation, partnership, association or other organization in which one or more of its directors or officers are directors or officers, or have a financial interest, shall be void or voidable solely for this reason, or solely because the director or officer is present at or participates in the meeting of the Board of Directors or committee thereof which authorizes the contract or transaction, or solely because his or her or their votes are counted for such purpose, if: (1) the material facts as to his or her relationship or interest and as to the contract or transaction are disclosed or are known to the Board or the committee, and the Board or committee in good faith authorizes the contract or transaction by the affirmative votes of a majority of the disinterested directors, even though the disinterested directors be less than a quorum; or (2) the material facts as to his or her relationship or interest and as to the contract or transaction are disclosed or are known to the stockholders entitled to vote thereon, and the contract or transaction is -11- 12 specifically approved in good faith by vote of the stockholders; or (3) the contract or transaction is fair as to the Corporation as of the time it is authorized, approved or ratified, by the Board, a committee thereof or the stockholders. Common or interested directors may be counted in determining the presence of a quorum at a meeting of the Board of Directors or of a committee which authorizes the contract or transaction. Section 6.6. Form of Records. Any records maintained by the Corporation in the regular course of its business, including its stock ledger, books of account and minute books, may be kept on, or be in the form of, punch cards, magnetic tape, photographs, microphotographs or any other information storage device, provided that the records so kept can be converted into clearly legible form within a reasonable time. The Corporation shall so convert any records so kept upon the request of any person entitled to inspect the same. Section 6.7. Amendment of By-Laws. These by-laws may be amended or repealed, and new by-laws adopted, by the Board of Directors, but the stockholders entitled to vote may adopt additional by-laws and may amend or repeal any by-law whether or not adopted by them. ADOPTED this 6th day of February, 1998 /s/ Aretha Jones --------------------------- Aretha Jones Sole Incorporator -12- EX-4.1.3 4 SECOND SUPPLEMENTAL INDENTURE / SERIES A 1 EXHIBIT 4.1.3 SECOND SERIES A NOTE SUPPLEMENTAL INDENTURE Dated as of February 27, 1998 This SECOND SERIES A NOTE SUPPLEMENTAL INDENTURE (this "Supplemental Indenture"), dated as of February 27, 1998, is made by and among IRIDIUM FACILITIES CORPORATION (the "New Guarantor Subsidiary"), a Delaware corporation and a subsidiary of IRIDIUM OPERATING LLC, a Delaware limited liability company ("Operating"), Operating and IRIDIUM CAPITAL CORPORATION, a Delaware limited liability company, ("Capital" and together with Operating, the "Note Issuers") on behalf of themselves and the existing Guarantor Subsidiaries (the "Existing Guarantor Subsidiaries") under the Indenture referred to below, and STATE STREET BANK AND TRUST COMPANY, a Massachusetts bank and trust company, as trustee under the Indenture referred to below (the "Trustee"). W I T N E S S E T H : WHEREAS Operating, a Delaware limited liability company and Capital, a Delaware corporation, as joint and several obligors, have heretofore executed and delivered to the Trustee an Indenture, dated as of July 16, 1997, as amended by the First Series A Note Supplemental Indenture, dated as of December 19, 1997 (the "Indenture") providing for the issuance of an aggregate principal amount of up to $300,000,000 of 13% Senior Notes due 2005, Series A (the "Series A Notes") and the Initial Guarantors agreed to guarantee those obligations; WHEREAS Section 4.15 of the Indenture provides that under certain circumstances the Note Issuers are required to cause the New Guarantor Subsidiary to execute and deliver to the Trustee a supplemental indenture pursuant to which the New Guarantor Subsidiary shall unconditionally guarantee all of the Note Issuers' obligations under the Series A Notes pursuant to a Subsidiary Guarantee on the terms and conditions set forth herein; and WHEREAS pursuant to Section 9.01 of the Indenture, the Trustee, the Note Issuers and Existing Guarantor Subsidiaries are authorized to execute and deliver this Supplemental Indenture. NOW THEREFORE, in consideration of the foregoing and for other good and valuable consideration, the receipt of which is hereby acknowledged, the New Guarantor Subsidiary, the Note Issuers, the Existing Guarantor Subsidiaries and the Trustee mutually covenant and agree for the equal and ratable benefit of the holders of the Series A Notes as follows: 1. Definitions. (a) Capitalized terms used herein without definition shall have the meanings assigned to them in the Indenture. (b) For all purposes of this Supplemental Indenture, except as otherwise herein expressly provided or unless the context otherwise requires: (i) the terms and expressions used herein shall have the same meanings as corresponding terms and expressions used in the Indenture; and (ii) the words "herein," "hereof" and "hereby" and other words of similar import used in this Supplemental Indenture refer to this Supplemental Indenture as a whole and not to any particular section hereof. 2 2. Agreement to Guarantee. The New Guarantor Subsidiary hereby agrees, jointly and severally with all other Guarantor Subsidiaries, to Guarantee the Note Issuers' obligations under the Series A Notes on the terms and subject to the conditions set forth in Article X of the Indenture and to be bound by all other applicable provisions of the Indenture. 3. Ratification of Indenture; Supplemental Indentures Part of Indenture. Except as expressly amended hereby, the Indenture is in all respects ratified and confirmed and all the terms, conditions and provisions thereof shall remain in full force and effect. This Supplemental Indenture shall form a part of the Indenture for all purposes, and every holder of Series A Notes heretofore or hereafter authenticated and delivered shall be bound hereby. 4. Governing Law. THIS SUPPLEMENTAL INDENTURE SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK BUT WITHOUT GIVING EFFECT TO APPLICABLE PRINCIPLES OF CONFLICTS OF LAW TO THE EXTENT THAT THE APPLICATION OF THE LAWS OF ANOTHER JURISDICTION WOULD BE REQUIRED THEREBY. 5. Trustee Makes No Representation. The recitals contained herein shall be taken as statements of the Note Issuers and the Guarantor Subsidiaries and the Trustee assumes no responsibility for their correctness. The Trustee makes no representation as to the validity or sufficiency of this Supplemental Indenture. 6. Counterparts. The parties may sign any number of copies of this Supplemental Indenture. Each signed copy shall be an original, but all of them together represent the same agreement. 7. Effect of Headings. The Section headings herein are for convenience only and shall not effect the construction thereof. -2- 3 IN WITNESS WHEREOF, the parties hereto have caused this Supplemental Indenture to be duly executed as of the date first above written. IRIDIUM FACILITIES CORPORATION, By: /s/ Roy Grant -------------------------- Roy Grant Chief Financial Officer IRIDIUM LLC, on behalf of itself and the Existing Guarantor Subsidiaries, By: /s/ Roy Grant -------------------------- Roy Grant Vice President and Chief Financial Officer IRIDIUM CAPITAL CORPORATION By: /s/ Roy Grant -------------------------- Roy Grant Vice President and Chief Financial Officer STATE STREET BANK AND TRUST COMPANY as Trustee, By: /s/ Paul D. Allen -------------------------- Name: Paul D. Allen Title: Vice President -3- EX-4.3.3 5 SECOND SUPPLEMENTAL INDENTURE / SERIES B 1 EXHIBIT 4.3.3 SECOND SERIES B NOTE SUPPLEMENTAL INDENTURE Dated as of February 27, 1998 This SECOND SERIES B NOTE SUPPLEMENTAL INDENTURE (this "Supplemental Indenture"), dated as of February 27, 1998, is made by and among IRIDIUM FACILITIES CORPORATION (the "New Guarantor Subsidiary"), a Delaware corporation and a subsidiary of IRIDIUM OPERATING LLC, a Delaware limited liability company ("Operating"), Operating and IRIDIUM CAPITAL CORPORATION, a Delaware limited liability company, ("Capital" and together with Operating, the "Note Issuers") on behalf of themselves and the existing Guarantor Subsidiaries (the "Existing Guarantor Subsidiaries") under the Indenture referred to below, and STATE STREET BANK AND TRUST COMPANY, a Massachusetts bank and trust company, as trustee under the Indenture referred to below (the "Trustee"). W I T N E S S E T H : WHEREAS Operating, a Delaware limited liability company and Capital, a Delaware corporation, as joint and several obligors, have heretofore executed and delivered to the Trustee an Indenture, dated as of July 16, 1997, as amended by the First Series B Note Supplemental Indenture, dated as of December 19, 1997 (the "Indenture") providing for the issuance of an aggregate principal amount of up to $500,000,000 of 14% Senior Notes due 2005, Series B (the "Series B Notes") and the Initial Guarantors agreed to guarantee those obligations; WHEREAS Section 4.15 of the Indenture provides that under certain circumstances the Note Issuers are required to cause the New Guarantor Subsidiary to execute and deliver to the Trustee a supplemental indenture pursuant to which the New Guarantor Subsidiary shall unconditionally guarantee all of the Note Issuers' obligations under the Series B Notes pursuant to a Subsidiary Guarantee on the terms and conditions set forth herein; and WHEREAS pursuant to Section 9.01 of the Indenture, the Trustee, the Note Issuers and Existing Guarantor Subsidiaries are authorized to execute and deliver this Supplemental Indenture. NOW THEREFORE, in consideration of the foregoing and for other good and valuable consideration, the receipt of which is hereby acknowledged, the New Guarantor Subsidiary, the Note Issuers, the Existing Guarantor Subsidiaries and the Trustee mutually covenant and agree for the equal and ratable benefit of the holders of the Series B Notes as follows: 1. Definitions. (a) Capitalized terms used herein without definition shall have the meanings assigned to them in the Indenture. (b) For all purposes of this Supplemental Indenture, except as otherwise herein expressly provided or unless the context otherwise requires: (i) the terms and expressions used herein shall have the same meanings as corresponding terms and expressions used in the Indenture; and (ii) the words "herein," "hereof" and "hereby" and other words of similar import used in this Supplemental Indenture refer to this Supplemental Indenture as a whole and not to any particular section hereof. 2 2. Agreement to Guarantee. The New Guarantor Subsidiary hereby agrees, jointly and severally with all other Guarantor Subsidiaries, to Guarantee the Note Issuers' obligations under the Series A Notes on the terms and subject to the conditions set forth in Article X of the Indenture and to be bound by all other applicable provisions of the Indenture. 3. Ratification of Indenture; Supplemental Indentures Part of Indenture. Except as expressly amended hereby, the Indenture is in all respects ratified and confirmed and all the terms, conditions and provisions thereof shall remain in full force and effect. This Supplemental Indenture shall form a part of the Indenture for all purposes, and every holder of Series B Notes heretofore or hereafter authenticated and delivered shall be bound hereby. 4. Governing Law. THIS SUPPLEMENTAL INDENTURE SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK BUT WITHOUT GIVING EFFECT TO APPLICABLE PRINCIPLES OF CONFLICTS OF LAW TO THE EXTENT THAT THE APPLICATION OF THE LAWS OF ANOTHER JURISDICTION WOULD BE REQUIRED THEREBY. 5. Trustee Makes No Representation. The recitals contained herein shall be taken as statements of the Note Issuers and the Guarantor Subsidiaries and the Trustee assumes no responsibility for their correctness. The Trustee makes no representation as to the validity or sufficiency of this Supplemental Indenture. 6. Counterparts. The parties may sign any number of copies of this Supplemental Indenture. Each signed copy shall be an original, but all of them together represent the same agreement. 7. Effect of Headings. The Section headings herein are for convenience only and shall not effect the construction thereof. -2- 3 IN WITNESS WHEREOF, the parties hereto have caused this Supplemental Indenture to be duly executed as of the date first above written. IRIDIUM FACILITIES CORPORATION, By: /s/ Roy Grant ------------------------------ Roy Grant Chief Financial Officer IRIDIUM LLC, on behalf of itself and the Existing Guarantor Subsidiaries, By: /s/ Roy Grant ------------------------------ Roy Grant Vice President and Chief Financial Officer IRIDIUM CAPITAL CORPORATION By: /s/ Roy Grant ------------------------------ Roy Grant Vice President and Chief Financial Officer STATE STREET BANK AND TRUST COMPANY as Trustee, By: /s/ Paul D. Allen ------------------------------ Name: Paul D. Allen Title: Vice President -3- EX-4.5.3 6 SECOND SUPPLEMENTAL INDENTURE / SERIES C 1 EXHIBIT 4.5.3 SECOND SERIES C NOTE SUPPLEMENTAL INDENTURE Dated as of February 27, 1998 This SECOND SERIES C NOTE SUPPLEMENTAL INDENTURE (this "Supplemental Indenture"), dated as of February 27, 1998, is made by and among IRIDIUM FACILITIES CORPORATION (the "New Guarantor Subsidiary"), a Delaware corporation and a subsidiary of IRIDIUM OPERATING LLC, a Delaware limited liability company ("Operating"), Operating and IRIDIUM CAPITAL CORPORATION, a Delaware limited liability company, ("Capital" and together with Operating, the "Note Issuers") on behalf of themselves and the existing Guarantor Subsidiaries (the "Existing Guarantor Subsidiaries") under the Indenture referred to below, and STATE STREET BANK AND TRUST COMPANY, a Massachusetts bank and trust company, as trustee under the Indenture referred to below (the "Trustee"). W I T N E S S E T H : WHEREAS Operating, a Delaware limited liability company and Capital, a Delaware corporation, as joint and several obligors, have heretofore executed and delivered to the Trustee an Indenture, dated as of October 17, 1997, as amended by the First Series C Note Supplemental Indenture, dated as of December 19, 1997 (the "Indenture") providing for the issuance of an aggregate principal amount of up to $300,000,000 of 11 1/4% Senior Notes due 2005, Series C (the "Series C Notes") and the Initial Guarantors agreed to guarantee those obligations; WHEREAS Section 4.15 of the Indenture provides that under certain circumstances the Note Issuers are required to cause the New Guarantor Subsidiary to execute and deliver to the Trustee a supplemental indenture pursuant to which the New Guarantor Subsidiary shall unconditionally guarantee all of the Note Issuers' obligations under the Series C Notes pursuant to a Subsidiary Guarantee on the terms and conditions set forth herein; and WHEREAS pursuant to Section 9.01 of the Indenture, the Trustee, the Note Issuers and Existing Guarantor Subsidiaries are authorized to execute and deliver this Supplemental Indenture. NOW THEREFORE, in consideration of the foregoing and for other good and valuable consideration, the receipt of which is hereby acknowledged, the New Guarantor Subsidiary, the Note Issuers, the Existing Guarantor Subsidiaries and the Trustee mutually covenant and agree for the equal and ratable benefit of the holders of the Series C Notes as follows: 1. Definitions. (a) Capitalized terms used herein without definition shall have the meanings assigned to them in the Indenture. (b) For all purposes of this Supplemental Indenture, except as otherwise herein expressly provided or unless the context otherwise requires: (i) the terms and expressions used herein shall have the same meanings as corresponding terms and expressions used in the Indenture; and (ii) the words "herein," "hereof" and "hereby" and other words of similar import used in this Supplemental Indenture refer to this Supplemental Indenture as a whole and not to any particular section hereof. 2 2. Agreement to Guarantee. The New Guarantor Subsidiary hereby agrees, jointly and severally with all other Guarantor Subsidiaries, to Guarantee the Note Issuers' obligations under the Series A Notes on the terms and subject to the conditions set forth in Article X of the Indenture and to be bound by all other applicable provisions of the Indenture. 3. Ratification of Indenture; Supplemental Indentures Part of Indenture. Except as expressly amended hereby, the Indenture is in all respects ratified and confirmed and all the terms, conditions and provisions thereof shall remain in full force and effect. This Supplemental Indenture shall form a part of the Indenture for all purposes, and every holder of Series C Notes heretofore or hereafter authenticated and delivered shall be bound hereby. 4. Governing Law. THIS SUPPLEMENTAL INDENTURE SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK BUT WITHOUT GIVING EFFECT TO APPLICABLE PRINCIPLES OF CONFLICTS OF LAW TO THE EXTENT THAT THE APPLICATION OF THE LAWS OF ANOTHER JURISDICTION WOULD BE REQUIRED THEREBY. 5. Trustee Makes No Representation. The recitals contained herein shall be taken as statements of the Note Issuers and the Guarantor Subsidiaries and the Trustee assumes no responsibility for their correctness. The Trustee makes no representation as to the validity or sufficiency of this Supplemental Indenture. 6. Counterparts. The parties may sign any number of copies of this Supplemental Indenture. Each signed copy shall be an original, but all of them together represent the same agreement. 7. Effect of Headings. The Section headings herein are for convenience only and shall not effect the construction thereof. -2- 3 IN WITNESS WHEREOF, the parties hereto have caused this Supplemental Indenture to be duly executed as of the date first above written. IRIDIUM FACILITIES CORPORATION, By: /s/ Roy Grant ------------------------------ Roy Grant Chief Financial Officer IRIDIUM LLC, on behalf of itself and the Existing Guarantor Subsidiaries, By: /s/ Roy Grant ------------------------------ Roy Grant Vice President and Chief Financial Officer IRIDIUM CAPITAL CORPORATION By: /s/ Roy Grant ------------------------------ Roy Grant Vice President and Chief Financial Officer STATE STREET BANK AND TRUST COMPANY as Trustee, By: /s/ Paul D. Allen ------------------------------ Name: Paul D. Allen Title: Vice President -3- EX-10.15 7 AMENDMENT NO.1 TO GUARANTEED BANK FACILITY 1 EXHIBIT 10.15 EXECUTION COPY AMENDMENT NO. 1 AMENDMENT NO. 1 dated as of December 19, 1997 among: IRIDIUM OPERATING LLC (as transferee of IRIDIUM LLC), a limited liability company duly organized and validly existing under the laws of the State of Delaware (the "Company"); the Lenders party to the below-mentioned Credit Agreement (individually, a "Lender" and, collectively, the "Lenders"); and THE CHASE MANHATTAN BANK, as administrative agent for the Lenders under the Credit Agreement referred to below (in such capacity, the "Administrative Agent"). WHEREAS, on or prior to the date hereof, Iridium LLC transferred pursuant to that certain Asset Transfer Agreement dated as of December 18, 1997 between Iridium LLC and the Company substantially all of its assets to the Company and in conjunction with such transfer the Company assumed all of the obligations of Iridium LLC under the Credit Agreement and the Revolving Credit Notes; WHEREAS, the Company, the Lenders and the Administrative Agent are parties to a Credit Agreement dated as of August 21, 1996 (as heretofore modified and supplemented and in effect on the date hereof, the "Credit Agreement") among the Company, the Lenders, Chase Securities Inc. and Barclays Capital, the investment banking division of Barclays Bank PLC (formerly, BZW, a division of Barclays Bank PLC), each in its capacity as Global Arranger in respect of the Credit Agreement, the Administrative Agent and Barclays Bank PLC, as documentation agent, providing, subject to the terms and conditions thereof, for loans to be made by said Lenders to the Company up to an original aggregate principal amount of $750,000,000, which commitments have been permanently reduced as of the date hereof to $450,000,000; WHEREAS, concurrently herewith the Company is entering into a new senior secured credit agreement with certain lenders providing, subject to the terms and conditions thereof, for additional loans to be made by such lenders to the Company in an aggregate principal amount up to $1,000,000,000; WHEREAS, the Company, the Lenders and the Administrative Agent wish to amend the Credit Agreement in certain respects, and Motorola, which has guaranteed the prompt Amendement No. 1 2 -2- payment in full of certain amounts owning under the Credit Agreement, wishes to consent to such amendments and to confirm its guarantee. Accordingly, the parties hereto hereby agree as follows: SECTION 1. Definitions. Except as otherwise defined in this Amendment No. 1, terms defined in the Credit Agreement are used herein as defined therein. SECTION 2. Amendments. Subject to the satisfaction of the conditions precedent specified in Section 4 hereof, the Credit Agreement shall be amended as of the Effective Date (as defined in said Section 4) as follows: 2.01. Section 1.01 of the Credit Agreement shall be amended by adding the following new definitions (to the extent not already included in said Section 1.01) and inserting the same in the appropriate alphabetical locations and amending in their entirety the following definitions (to the extent already included in said Section 1.01), as follows: "Amendment No. 1" shall mean Amendment No. 1 dated as of December 19, 1997 to this Agreement. "Average Life" shall mean, as of the date of determination with respect to any Indebtedness, the quotient obtained by dividing (a) the sum of the products of the number of years from the date of determination to the dates of each successive scheduled principal payment of such Indebtedness multiplied by the amount of such payment by (b) the sum of all such payments. "Commercial Activation" shall mean the date on which the Company commences generally available commercial service on the IRIDIUM(R) global wireless communications system. "Commitment Termination Date" shall mean June 30, 1999. "LLC Agreement" shall mean the Limited Liability Company Agreement of Iridium Operating LLC entered into by the members of the Company, dated as of December 18, 1997, pursuant to which the Company is organized, as the same shall be amended and otherwise modified and in effect from time to time. "Maximum Available Amount" shall mean, as of the date of determination thereof, an amount (rounded downward to the Amendment No. 1 3 -3- nearest $1,000,000) equal to 99 1/3% of the total Commitments in effect as of such date of determination. "Moody's" shall mean Moody's Investors Service, Inc. (or any successor to the rating business thereof) "Permitted Investments" shall mean: (a) 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 of America is pledged and which have a remaining Average Life of not more than 365 days from the date of acquisition thereof; (b) investments in commercial paper maturing not more than 270 days after the date of acquisition thereof and having, at such date of acquisition, a credit rating of at least P-1 from S&P or A-1 from Moody's (or such similar equivalent rating by at least one "nationally recognized statistical rating organization" (as defined in Rule 436 under the Securities Act of 1933, as amended)); (c) investments in certificates of deposit, banker's acceptances and time deposits maturing not more than 270 days after the date of acquisition thereof issued or guaranteed by or placed with, and money market deposit accounts issued or offered by, any commercial bank or trust company organized under the laws of the United States of America or any State thereof or any other country which is a member of the Organization for Economic Cooperation and Development, in each case which has a combined capital, surplus and undivided profits of not less than $500,000,000 or its equivalent in foreign currency, and whose debt is rated at least A- by S&P or A-3 by Moody's (or such similar equivalent rating by a "nationally recognized statistical rating organization" (as defined above)); (d) repurchase obligations with a term of not more than 7 days for securities described in clause (a) of this definition and entered into with a financial institution which has a combined capital, surplus and undivided profits of not less than $500,000,000 or its equivalent in foreign currency, and whose debt is rated at least A- by from S&P or A-3 by Moody's (or such similar equivalent rating by a "nationally recognized statistical rating organization" (as defined above)); Amendment No. 1 4 -4- (e) Interest Rate Protection Agreements entered into by the Company with one or more counterparties to protect itself from fluctuations in floating interest rates with respect to Indebtedness hereunder and other Indebtedness permitted pursuant to Section 8.07 hereof; and (f) any mutual or similar fund investing exclusively in Permitted Investments of the type described in clauses (a), (b) and/or (c) above. "S&P" shall mean the Standard & Poor's Ratings Services (or any successor to the rating business thereof). 2.02. The definition of "Aggregate Projected Loan Amount" in Section 1.01 of the Credit Agreement shall be amended by inserting a new sentence at the end thereof to read as follows: "For avoidance of doubt, in calculating the Aggregate Projected Loan Amount at any time, any amount of principal of or interest on the Loans, or any other amount owning hereunder, theretofore paid by Motorola pursuant to Section 2 of the Motorola Guarantee Agreement shall continue to be reflected as outstanding and unpaid in such calculation." 2.03. The definition of "Permanent Financing" in Section 1.01 of the Credit Agreement shall be deleted in its entirety. 2.04. Section 2.01 of the Credit Agreement shall be amended by inserting "(a)" at the beginning of such Section and by deleting the reference to "six" in the proviso of the second sentence thereof and replacing it with "ten." In addition, Section 2.01 of the Credit Agreement shall be further amended by adding the following subsection: "(b) Effective Date Reallocation. On the Effective Date (as defined in Amendment No. 1, the "Effective Date") after giving effect to the assignments contemplated by Section 4.08 of Amendment No. 1, the following shall become effective: (i) the Commitments of each Lender shall be as set forth in Schedule I to Amendment No. 1, which shall be deemed to replace in its entirety Schedule I hereto as in effect immediately prior to giving effect to Amendment No. 1; Amendment No. 1 5 -5- (ii) each Lender whose Commitment is decreasing (a "Decreasing Lender") (relative to the "Commitment" of such Lender immediately prior to giving effect to Amendment No. 1) shall assign a portion of its Commitment to each Lender whose Commitment is increasing (relative to the Commitment of such Lender under the Credit Agreement immediately prior to giving effect to Amendment No. 1) (an "Increasing Lender"), and each such Increasing Lender agrees to take by assignment a portion of the Commitment of such Decreasing Lender, such that immediately after giving effect to all such assignments under this Section 2.01(b)(ii), the Commitments of all Lenders are as set forth in Schedule I hereto as referred to in Section 2.01(b)(i) hereof; (iii) if after giving effect to the adjustments under clauses (i) and (ii) above, any Decreasing Lender does not hold Loans of each Type ratably with the other Lenders in accordance with their respective Commitments, the Company shall prepay (on a non-pro rata basis, notwithstanding anything to the contrary in Section 4.02 hereof) the Loans of each Type of such Lender in an amount such that after giving effect to such non-pro rata payment and the making of Loans in accordance with Section 2.01(b)(iv) hereof, all Lenders hold Loans of each Type ratably in accordance with their respective aggregate Commitments as in effect on the Effective Date; (iv) if after giving effect to the adjustments under clauses (i), (ii) and (iii) above, any Increasing Lender does not hold Loans of each Type hereunder ratably with the Other Lenders in accordance with their respective Commitments, such Lender severally agrees to make Loans (on a non-pro rata basis, notwithstanding anything to the contrary in Section 4.02 hereof) of the Types and in the amounts such that after giving effect to the making of such Loans, all Lenders hold Loans of each Type ratably in accordance with their respective Commitments; and (v) all "Interest Periods" under the Credit Agreement as in effect immediately prior to giving effect to Amendment No. 1 in respect of each Loan held by a Lender immediately prior to giving effect to Amendment No. 1 (an "Existing Loan") shall automatically be terminated, and subject to Section Amendment No. 1 6 -6- 3.02 hereof, the Company shall be permitted to Continue such Existing Loans as Eurodollar Loans of the same Type or (if applicable) to Convert such Existing Loans into Base Rate Loans of the appropriate Type hereunder. After giving effect to the assignments and adjustments contemplated above, the Lenders shall hold Loans hereunder ratably in accordance with their respective Commitments as reflected in Schedule I hereto (as referred to in Section 2.01(b)(i)). Notwithstanding anything to the contrary in Section 11.06 hereof, any such assignments or substitutions contemplated above shall be deemed to occur automatically, without any requirement for additional documentation, on the Effective Date." 2.05. Section 2.08(b) of the Credit Agreement shall be amended by deleting the amount "$745,000,000" from clauses (i) and (ii) thereof and replacing it, in each case, with the words "the Maximum Available Amount". 2.06. Section 4.04 of the Credit Agreement shall be amended by deleting the reference to "$20,000,00" in the proviso thereof and replacing it with "$15,000,000". 2.07. Section 6.02(e) of the Credit Agreement shall be amended by deleting the amount "$745,000,000" and replacing it with the words "the Maximum Available Amount". 2.08. Section 7.02 of the Credit Agreement shall be amended by (a) replacing each reference to the words "of the Company" appearing in the first two sentences thereof with the words "of Iridium LLC" and (b) inserting, immediately after the date "December 31, 1995" in the last sentence thereof the words "(and assuming the transfer of substantially all of the assets from Iridium LLC to the Company effected on December 18, 1997)". 2.09. Section 7.12 of the Credit Agreement shall be amended by replacing the second sentence thereof in its entirety with the following new second sentence: "The only member of the Company on the date of Amendment No. 1 is Iridium LLC." 2.10. Section 8.05 shall be amended in its entirety to read as follows: "8.05 Prohibition of Fundamental Changes. The Company shall not, and shall not permit any of its Subsidiaries to, Amendment No. 1 7 -7- consolidate with or merge into any other Person or convey, transfer or lease its Property substantially as an entirety to any Person, and the Company shall not permit any Person to consolidate with or merge into it or convey, transfer or lease its Property substantially as an entirety to it, except that any (a) Subsidiary may enter into any such transaction with the Company, so long as the Company is the surviving entity and (b) any Subsidiary may enter into any such transaction with another Subsidiary." 2.11. Section 8.06 shall be amended by deleting "and" from the end of clause (k) thereof, replacing the period at the end of clause (1) thereof with ";" adding at the end of such Section 8.06, the following clauses (m) and (n): "(m) Liens on Property to secure up to but no exceeding $750,000,000 of Indebtedness (prior to Commercial Activation) or $1,700,000,000 of Indebtedness (after Commercial Activation) permitted under Section 8.07(g) hereof; and (n) Liens arising in connection with the Iridium clearinghouse function (as described in Article IV of the Gateway Authorization Agreements between the investors party thereto and the Company)." 2.12. Section 8.09 shall be amended in its entirety to read as follows: "8.09 Restricted Payments. The Company will not, nor will it permit any of its Subsidiaries to, declare or make any Restricted Payment at any time, except that: (a) so long as no Default shall have occurred and be continuing, the Company may make distributions to Iridium LLC to enable Iridium LLC to make distributions to the members of Iridium LLC pursuant to Section 3.07(c) of the LLC Agreement with respect to each such member's U.S. income tax liability (if any); (b) the Company may make any distribution to Iridium LLC to enable Iridium LLC to redeem fractional interests of its equity interests following the exercise of any warrants, options or other rights to acquire any equity interests in Iridium LLC by the holders thereof; and Amendment No. 1 8 -8- (c) the Company may make payments (but no prepayments) of principal of and interest on Indebtedness incurred under Section 8.07(f) hereof as required in accordance with the terms thereof, but only, in each case, to the extent required by the indenture or other agreement pursuant to which such Indebtedness was issued (and subject to the subordination provisions applicable thereto). Except as expressly limited by the preceding sentence, nothing herein shall be deemed to prohibit the payment of distributions or dividends by any Subsidiary of the Company to the Company or to any other Subsidiary of the Company." 2.13. Section 8.13 of the Credit Agreement shall be deleted in its entirety and replaced by "[Intentionally Left Blank]". 2.14. Section 9(n) of the Credit Agreement shall be deleted in its entirety and replaced with the following: "(n) Motorola shall cease to be the direct or indirect, through a Wholly Owned Subsidiary, record and beneficial owner of at least 13,266,713 Class 1 Interests of Iridium LLC, free and clear of any Lien (as such number may be adjusted from time to time by stock splits, stock dividends, recapitalization or other similar transactions), or Iridium LLC shall cease to be the sole member of the Company;". 2.15. Schedule IV of the Credit Agreement (and the title of Schedule IV in the index to the Credit Agreement) shall be deleted in its entirety and replaced with "[Intentionally Left Blank]". 2.16. Each reference in the Credit Agreement or the Revolving Credit Notes to (a) "this Agreement", "the Credit Agreement" or words of similar import shall be deemed to refer to the Credit Agreement as amended by this Amendment No. 1, (b) "the Motorola Guarantee" or words of similar import shall be deemed to refer to the Motorola Guarantee Agreement as amended by Amendment No. 1 thereto dated as of the date hereof and (c) "the Company" shall be deemed to refer to Iridium Operating LLC. SECTION 3. Representations and Warranties. The Company represents and warrants to the Lenders that: Amendment No. 1 9 -9- (a) The representations and warranties set forth in Section 7 of the Credit Agreement are true and complete on the date hereof as if made on and as of the date hereof and as if each reference in said Section 7 to "this Agreement" included reference to the Credit Agreement as amended by this Amendment No. 1 and as if each reference to any Schedule to the Credit Agreement included a reference to said Schedule as amended or supplemented with the information set forth in Attachment 1 to this Amendment No. 1 (except that any representation and warranty that is expressly made "as of the date hereof", which shall be deemed to mean "as of August 21, 1996", shall be true and complete as of such date); (b) Each of the Company and Iridium LLC had the full power and authority and legal right to execute and deliver the Asset Transfer Agreement, dated as of December 18, 1997, between Iridium LLC and the Company (the "Asset Transfer Agreement"), pursuant to which Iridium LLC has transferred substantially all of its assets and liabilities to the Company and the Company has assumed all of the obligations of Iridium LLC under the Credit Agreement and the Revolving Credit Notes, and to perform its obligations thereunder. The execution, delivery and performance by the Company and Iridium LLC of the Asset Transfer Agreement and the consummation of the transactions contemplated thereby have been duly authorized by all necessary corporate action on the part of the Company and Iridium LLC. The execution, delivery and performance by the Company and Iridium LLC of the Asset Transfer Agreement and the consummation of the Asset Transfer described therein do not and will not (a) require any consent or approval of any Person that has not already been obtained and that remains in full force and effect, (b) violate any material provision of any Government Rule or any order, writ, judgment, decree, determination or award having applicability to the Company, Iridium LLC or any of their respective Subsidiaries, (c) violate any provision of the charter documents of Iridium LLC or the Company, (d) result in a breach or constitute a default under any material indenture or agreement to which the Company, Iridium LLC or any of their respective Subsidiaries is a party or by which any of their respective property is bound or affected or (e) result in or require the creation or imposition of any Lien upon or with respect to any of the properties or assets now owned or hereafter acquired by such Person (other than Liens permitted under Section 8.06). The transfer of assets and liabilities under the Asset Transfer Agreement has been given effect and all of the assets of Amendment No. 1 10 -10- Iridium LLC required to be transferred by Iridium LLC to the Company under the Asset Transfer Agreement have been so transferred prior to the date hereof; and (c) No Default has occurred and is continuing as of the date hereof. SECTION 4. Conditions Precedent to Effectiveness. As provided in Section 2 hereof, the amendments to the Credit Agreement set forth in such Section 2 shall become effective as of the date hereof upon satisfaction of the following conditions precedent (the "Effective Date"): 4.01. Execution by Parties. This Amendment No. 1 shall have been executed and delivered by each of the parties hereto, and Motorola shall have consented hereto by executing a counterpart of this Amendment No. 1 on the signature line provided below. 4.02. Amendment to Motorola Guarantee Agreement. Motorola and the Administrative Agent shall have executed and delivered an amendment to the Motorola Guarantee Agreement in substantially the form of Exhibit A hereto, and each of the conditions precedent set forth in such amendment shall have been satisfied or (with the consent of the Majority Lenders) waived in accordance with the terms thereof. 4.03. Corporate Action. The Administrative Agent shall have received evidence of all action taken by the Company authorizing the execution, delivery and performance of this Amendment No. 1. 4.04. Representations and Warranties. Each of the representation and warranties made by the Company in Section 3 of this Amendment No. 1 shall be true and correct on and as of the Effective Date, with the same force and effect as if made on and as of the Effective Date, and the Administrative Agent shall have received a certificate of a senior officer of the Company dated as of the Effective Date to the effect set forth in clauses (a), (b) and (c) of said Section 3. 4.05. Opinion of Counsel to the Company and its Subsidiaries. The Administrative Agent shall have received an opinion of counsel to the Company satisfactory to the Administrative Agent, dated as of the Effective Date, in form and substance satisfactory to the Administrative Agent. Amendment No. 1 11 -11- 4.06. Interim Credit Agreement. The Credit Agreement dated as of the date hereof among the Company, the lenders party thereto, Chase Securities Inc. and Barclays Capital, the investment banking division of Barclays Bank PLC, each in its capacity as Global Arranger in respect thereof, Chase as Administrative Agent and Barclays Bank PLC as Documentation Agent thereunder, providing for loans to be made by said lenders to the Company not exceeding $1,000,000,000 in aggregate principal amount, shall have been executed and delivered by each of the parties thereto. 4.07. Payments. The Administrative Agent shall have received evidence of: (i) payment in full of all commitment fees payable under the Existing Credit Agreement accrued to but not including the Effective Date; (ii) payment of all interest in the Loans accrued to but not including the Effective Date; and (iii) payment of "break funding" costs payable under section 5.05 of the Credit Agreement associated with the termination of the Interest Periods with respect to the Loans outstanding and the other adjustments being made as of the Effective Date as contemplated by Section 2.04 above to the extent necessary to effect the reallocation referred to in such Section 2.04. 4.08. Assignment and Assumption Agreement. Immediately prior to the Effective Date, in the event that any Lender under the Credit Agreement prior to giving effect to this Amendment No. 1 is not contemplated to be a Lender under the Credit Agreement after giving effect to this Amendment No. 1 (each a "Departing Lender"), each Departing Lender shall have executed and delivered an Assignment and Assumption Agreement with one or more Lenders (to be designated) that are continuing as Lenders under the Credit Agreement after giving effect to this Amendment No. 1 pursuant to which all of the Loans and Commitments of such Departing Lender are assigned to such continuing Lender(s), and evidence of receipt by such Departing Lender pursuant to such Assignment and Assumption Agreement of an amount equal to the principal of the Loan held by it and all other amounts owing to it under the Credit Agreement as of the Effective Date. SECTION 5. Miscellaneous. Amendment No. 1 12 -12- 5.01. Assumption of Liability. By its execution and delivery of this Amendment No. 1, the Company confirms that it has assumed all of the obligations of Iridium LLC as borrower under the Credit Agreement and the Revolving Credit Notes in connection with the transfer of assets referred to in the first recital of this Amendment No. 1 and hereby agrees with the Lenders and the Agents that it assumes, accepts, is obligated and otherwise agrees to pay and perform all of such obligations in accordance with the terms of the Credit Agreement and the Revolving Credit Notes as amended hereby. Upon the effectiveness of the assumption of liability by the Company pursuant to this Section 5.01, Iridium LLC shall be released from any obligation under the Credit Agreement, and the Revolving Credit Notes, as amended hereby. 5.02. Consent to Amendment No. 1 to Motorola Guarantee Agreement. Each of the Lenders hereby authorizes the Administrative Agent to execute and deliver on its behalf an amendment to the Motorola Guarantee Agreement substantially in the form of Exhibit A hereto. 5.03. Binding Effect. Except as herein provided, the Credit Agreement shall remain unchanged and in full force and effect. 5.04. Counterparts. This Amendment No. 1 may be executed in any number of counterparts, each of which shall be identical and all of which, when taken together, shall constitute one and the same instrument, and any of the parties hereto may execute this Amendment No 1 by signing any such counterpart. 5.05. Governing Law. This Amendment No. 1 shall be governed by and construed in accordance with the law of the State of New York. Amendment No. 1 13 -13- IRIDIUM OPERATING LLC By /s/ Roy Grant ------------------------------- Name: Roy Grant Title: Vice President and Chief Financial Officer LENDERS ------- THE CHASE MANHATTAN BANK By /s/ Bruce Borden ------------------------------ Name: Bruce Borden Title: Vice President BARCLAYS BANK PLC By /s/ John Giannone ------------------------------ Name: John Giannone Title: Director ABN AMRO BANK N.V. By /s/ Thomas M. Toerpe ------------------------------ Name: Thomas M. Toerpe Title: Vice President By /s/ Roxana Sopala ------------------------------ Name: Roxana Sopala Title: Vice President Amendment No. 1 14 -14- BANK OF AMERICA By /s/ R. Vernon Howard, Jr. -------------------------------------------- Name: R. Vernon Howard, Jr. Title: Managing Director BANK OF MONTREAL By /s/ W.T. Calder -------------------------------------------- Name: W.T. Calder Title: Director THE BANK OF NEW YORK By /s/ James W. Whitaker -------------------------------------------- Name: James W. Whitaker Title: Vice President THE BANK OF NOVA SCOTIA By /s/ F.C.H. Ashby -------------------------------------------- Name: F.C.H. Ashby Title: Senior Manager Loan Operations THE BANK OF TOKYO-MITSUBISHI, LTD., CHICAGO BRANCH By /s/ Hajime Watanabe -------------------------------------------- Name: Hajime Watanabe Title: Deputy General Manager Amendment No. 1 15 -15- BANQUE NATIONALE DE PARIS By /s/ Frederick H. Moryl -------------------------------------------- Name: Frederick H. Moryl Title: Senior Vice President BAYERISCHE HYPOTHEKEN-UND WECHSEL-BANK AKTIENGESELLSCHAFT, NEW YORK BRANCH By /s/ Chr. Walter -------------------------------------------- Name: Chr. Walter Title: Vice President By /s/ Andreas Vick -------------------------------------------- Name: Andreas Vick Title: Vice President CICB INC. By /s/ Mathew Jones -------------------------------------------- Name: Mathew Jones Title: Authorized Signatory CITIBANK, N.A. By /s/ Anita J. Brickell -------------------------------------------- Name: Anita J. Brickell Title: Attorney-in-Fact Amendment No. 1 16 -16- CREDIT LYONNAIS CHICAGO BRANCH By /s/ Nigel R. Carter -------------------------------------------- Name: Nigel R. Carter Title: Vice President DRESDNER BANK AG, NEW YORK AND GRAND CAYMAN BRANCHES By /s/ Thomas Lake -------------------------------------------- Name: Thomas Lake Title: Vice President By /s/ Michael E. Terry -------------------------------------------- Name: Michael E. Terry Title: Assistant Vice President THE FIRST NATIONAL BANK OF CHICAGO By /s/ Allison McCloskey -------------------------------------------- Name: Allison McCloskey Title: Authorized Agent THE MITSUBISHI TRUST AND BANKING CORPORATION By /s/ Toshihiro Hayashi -------------------------------------------- Name: Toshihiro Hayashi Title: Senior Vice President Amendment No. 1 17 -17- ROYAL BANK OF CANADA By /s/ John P. Page -------------------------------------------- Name: John P. Page Title: Senior Manager THE SANWA BANK, LIMITED NEW YORK BRANCH By /s/ David A. Leech -------------------------------------------- Name: David A. Leech Title: Vice President SOCIETE GENERALE By /s/ Seth F. Asofsky -------------------------------------------- Name: Seth F. Asofsky Title: Vice President TORONTO-DOMINION (NEW YORK), INC. By /s/ Debbie A. Greene -------------------------------------------- Name: Debbie A. Greene Title: Vice President Amendment No. 1 18 -18- UNION BANK OF SWITZERLAND, NEW YORK BRANCH By /s/ Robert H. Riley III -------------------------------------------- Name: Robert H. Riley III Title: Managing Director By /s/ David G. Dickinson, Jr. -------------------------------------------- Name: David G. Dickinson, Jr. Title: Assistant Treasurer WESTDEUTSCHE LANDESBANK GIROZENTRALE, NEW YORK BRANCH By /s/ Sal Bathnelli -------------------------------------------- Name: Sal Bathnelli Title: Vice President By /s/ Lisa Walker -------------------------------------------- Name: Lisa Walker Title: Associate THE ASAHI BANK, LTD. By /s/ Douglas E. Price -------------------------------------------- Name: Douglas E. Price Title: Senior Vice President Amendment No. 1 19 -19- AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED By /s/ Roy Marsden -------------------------------------------- Name: Roy Marsden Title: EVP-Americas BANCA COMMERCIALE ITALIANA - NEW YORK BRANCH By /s/ Karen Purelis -------------------------------------------- Name: Karen Purelis Title: Vice President By /s/ T. Gallonetto -------------------------------------------- Name: T. Gallonetto Title: Assistant Vice President BANCA CRT S.p.A. By /s/ Robert P. DeSantes -------------------------------------------- Name: Robert P. DeSantes Title: First Vice President Head of Corporate Banking By /s/ Eric S. Salar -------------------------------------------- Name: Eric S. Salar Title: Vice President BANCA MONTE DEI PASCHI DI SIENA SPA By /s/ G. Natalicchi -------------------------------------------- Name: G. Natalicchi Title: Senior Vice President & General Manager By /s/ Brian R. Landy -------------------------------------------- Name: Brian R. Landy Title: Vice President Amendment No. 1 20 -20- BANCA NAZIONALE DEL LAVORO S.p.A. - NEW YORK BRANCH By /s/ Mr. Carlo Vecchi -------------------------------------------- Name: Mr. Carlo Vecchi Title: Senior Vice President By /s/ Mr. Roberto Mancone -------------------------------------------- Name: Mr. Roberto Mancone Title: Assistant Vice President Senior Loan Officer BANK AUSTRIA AKTIENGESELLSCHAFT By /s/ J. Anthony Seay -------------------------------------------- Name: J. Anthony Seay Title: Vice President Bank Austria By /s/ Jonathan B. Bakker -------------------------------------------- Name: Jonathan B. Bakker Title: Vice President Bank Austria BAYERISCHE LANDESBANK GIROZENTRALE CAYMAN ISLANDS BRANCH By /s/ Peter Obermann -------------------------------------------- Name: Peter Obermann Title: Senior Vice President By /s/ Alexander Kohnert -------------------------------------------- Name: Alexander Kohnert Title: Vice President Amendment No. 1 21 -21- BHF-BANK AKTIENGESELLSCHAFT By /s/ John Sykes -------------------------------------------- Name: John Sykes Title: Assistant Vice President By /s/ Ralph Della Rocca -------------------------------------------- Name: Ralph Della Rocca Title: Assistant Treasurer CREDIT AGRICOLE INDOSUEZ By /s/ David Pouhl -------------------------------------------- Name: David Pouhl Title: First Vice President - Head of Corporate Banking Chicago By /s/ Katherine L. Abbott -------------------------------------------- Name: Katherine L. Abbott Title: First Vice President COMPAGNIE FINANCIERE DE CIC ET DE L'UNION EUROPEENNE By /s/ Eric Longuet -------------------------------------------- Name: Eric Longuet Title: Vice President By /s/ Marie-Rose Sensenbrenner -------------------------------------------- Name: Marie-Rose Sensenbrenner Title: Vice President Amendment No. 1 22 -22- COOPERATIEVE CENTRALE RAIFFEISEN-BOERENLEENBANK B.A., "RABOBANK NEDERLAND", NEW YORK BRANCH By /s/ Alan E. McLintock -------------------------------------------- Name: Alan E. McLintock Title: Vice President By /s/ W. Pieter C. Kodde -------------------------------------------- Name: W. Pieter C. Kodde Title: Vice President THE DAI-ICHI KANGYO BANK, LTD. By /s/ Seiichiro Ino -------------------------------------------- Name: Seiichiro Ino Title: Vice President EXPORT DEVELOPMENT CORPORATION By /s/ Peter Foran -------------------------------------------- Name: Peter Foran Title: Vice President Information Technologies Team By /s/ Robert Forbes -------------------------------------------- Name: Robert Forbes Title: Director Financial Services THE FUJI BANK, LIMITED By /s/ Takeo Kada -------------------------------------------- Name: Takeo Kada Title: Senior Vice President Amendment No. 1 23 -23- GULF INTERNATIONAL BANK B.S.C. By /s/ Thomas E. Fitzherbert -------------------------------------------- Name: Thomas E. Fitzherbert Title: Vice President By /s/ Abdel-Fai Tah Tahoun -------------------------------------------- Name: Abdel-Fai Tah Tahoun Title: Senior Vice President ISTITUTO BANCARIO SAN PAOLO DI TORINO S.P.A. By /s/ Timm Reynolds -------------------------------------------- Name: Timm Reynolds Title: Senior Vice President By /s/ Carlo Persico -------------------------------------------- Name: Carlo Persico Title: Deputy General Manager KB FINANCIAL SERVICES (IRELAND) By /s/ Cormac O Rourke -------------------------------------------- Name: Cormac O Rourke Title: General Manager By /s/ Brian Dunne -------------------------------------------- Name: Brian Dunne Title: Associate Director LANDESBANK HESSEN-THURINGEN GIROZENTRALE By /s/ Dorothy A. Lacher -------------------------------------------- Name: Dorothy A. Lacher Title: SVP, Manager - Structured Finance By /s/ Michael Novack -------------------------------------------- Name: Michael Novack Title: Assistant Vice President Structured Finance Amendment No. 1 24 -24- MERITA BANK LTD- NEW YORK BRANCH By /s/ Charles J. Lansdown -------------------------------------------- Name: Charles J. Lansdown Title: Vice President By /s/ Eric I. Mann -------------------------------------------- Name: Eric I. Mann Title: Vice President THE MITSUI TRUST AND BANKING COMPANY, LIMITED By /s/ Eiichi Akama -------------------------------------------- Name: Eiichi Akama Title: Vice President THE NORTHERN TRUST COMPANY By /s/ Keith M. O'Donnell -------------------------------------------- Name: Keith M. O'Donnell Title: Commercial Banking Officer PNC BANK, NATIONAL ASSOCIATION By /s/ Keith R. White -------------------------------------------- Name: Keith R. White Title: Assistant Vice President Amendment No. 1 25 -25- THE SUMITOMO TRUST & BANKING CO., LTD. NEW YORK BRANCH By /s/ Suraj P. Bhatia -------------------------------------------- Name: Suraj P. Bhatia Title: Senior Vice President Manager, Corporate Finance Dept. SWISS BANK CORPORATION, STAMFORD BRANCH By /s/ Reyo Jenal -------------------------------------------- Name: Reyo Jenal Title: Director - Banking Finance By /s/ Dorothy L. McKinley -------------------------------------------- Name: Dorothy L. McKinley Title: Associate Director Banking Products Support, N.A. THE TOKAI BANK, LIMITED By /s/ Kaoru Oda -------------------------------------------- Name: Kaoru Oda Title: Assistant General Manager UNION BANK OF CALIFORNIA, N.A. By /s/ Kristina M. Mouzakis -------------------------------------------- Name: Kristina M. Mouzakis Title: Assistant Vice President Amendment No. 1 26 -26- YASUDA TRUST & BANKING CO., LTD. By /s/ Rohn Laudenschlager -------------------------------------------- Name: Rohn Laudenschlager Title: Senior Vice President ADMINISTRATIVE AGENT -------------------- THE CHASE MANHATTAN BANK By /s/ Bruce Borden -------------------------------------------- Name: Bruce Borden Title: Vice President Amendment No. 1 27 -27- AGREED AND ACCEPTED: MOTOROLA, INC. By /s/ Garth L. Milne ----------------------------------------------- Name: Garth L. Milne Title: Senior Vice President and Treasurer 28 SCHEDULE I Commitments
Lenders Amount - ------- ------ THE CHASE MANHATTAN BANK $15,500,000 BARCLAYS BANK PLC 15,500,000 ABN AMRO BANK N.V. 12,000,000 BANK OF AMERICA 12,000,000 THE BANK OF TOKYO-MITSUBISHI, LTD., CHICAGO BRANCH 12,000,000 BANQUE NATIONALE DE PARIS 12,000,000 BAYERISHCE HYPOTHEKEN-UND WECHSEL- BANK AKTIENGESELLSCHAFT, NEW YORK BRANCH 12,000,000 CIBC INC. 12,000,000 CITIBANK, N.A. 12,000,000 DRESDNER BANK AG, NEW YORK AND GRAND CAYMAN BRANCHES 12,000,000 THE FIRST NATIONAL BANK OF CHICAGO 12,000,000 THE MITSUBISHI TRUST AND BANKING CORPORATON 12,000,000 ROYAL BANK OF CANADA 12,000,000 THE SANWA BANK, LIMITED NEW YORK BRANCH 12,000,000 BANCA CRT S.P.A. 9,000,000 BANCA COMMERCIALE ITALIANA- NEW YORK BRANCH 9,000,000 BAYERISCHE LANDESBANK GIROZENTRALE CAYMAN ISLANDS BRANCH 9,000,000 BHF-BANK AKTIENGESELLSCHAFT 9,000,000
Schedule I 29 CREDIT LYONNAIS CHICAGO BRANCH 9,000,000 EXPORT DEVELOPMENT CORPORATION 9,000,000 THE FUJI BANK, LIMITED 9,000,000 ISTITUTO BANCARIO SAN PAOLO DI TORINO S.P.A. 9,000,000 KB FINANCIAL SERVICES (IRELAND) 9,000,000 LANDESBANK HESSEN-THCRINGEN GIROZENTRALE 9,000,000 MERITA BANK LTD. - NEW YORK BRANCH 9,000,000 BANCA MONTE DEI PASCHI DI SIENA SPA 9,000,000 THE NORTHERN TRUST COMPANY 9,000,000 COOPERATIEVE CENTRALE RAIFFEISEN- BOERENLEENBAK B.A., "RABOBANK NEDERLAND", NEW YORK BRANCH 6,000,000 THE SUMITOMO TRUST & BANKING CO., LTD., NEW YORK BRANCH 9,000,000 THE TOKAI BANK, LIMITED 9,000,000 BANCA NAZIONALE DEL LAVORO S.P.A. - NEW YORK BRANCH 8,000,000 BANK OF MONTREAL 8,000,000 THE BANK OF NEW YORK 8,000,000 THE BANK OF NOVA SCOTIA 8,000,000 SOCIETE GENERALE 8,000,000 TORONTO-DOMINION (NEW YORK), INC. 8,000,000 UNION BANK OF SWITZERLAND, NEW YORK BRANCH 8,000,000 THE ASAHI BANK, LTD. 6,000,000 AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED 6,000,000 BANK AUSTRIA AKTIENGESELLSCHAFT 6,000,000
Schedule I 30 COMPAGNIE FINANCIERE DE CIC ET DE L'UNION EUROPEENE 6,000,000 CREDIT AGRICOLE INDOSUEZ 6,000,000 THE DA-ICHI KANGYO BANK, LTD. 6,000,000 GULF INTERNATIONAL BANK B.S.C. 6,000,000 THE MITSUI TRUST AND BANKING COMPANY, LIMITED 6,000,000 PNC BANK, NATIONAL ASSOCIATION 6,000,000 SWISS BANK CORPORATION, NEW YORK BRANCH 6,000,000 UNION BANK OF CALIFORNIA, N.A. 6,000,000 WESTDEUTSCHE LANDESBANK GIROZENTRALE, NEW YORK BRANCH 6,000,000 YASUDA TRUST & BANKING CO., LTD. 6,000,000 ============ $450,000,000
Schedule I EX-10.28 8 FORM OF CREDIT AGREEMENT 1 EXHIBIT 10.28 IRIDIUM OPERATING LLC CREDIT AGREEMENT dated as of December 19, 1997 $1,000,000,000 CHASE SECURITIES INC. and BARCLAYS CAPITAL, the investment banking division of BARCLAYS BANK PLC, as Global Arrangers, THE CHASE MANHATTAN BANK, as Administrative Agent and Collateral Agent and BARCLAYS BANK PLC, as Documentation Agent 2 ARTICLE I DEFINITIONS SECTION 1.01. Defined Terms........................................................................... 1 SECTION 1.02. Classification of Loans and Borrowings. ................................................ 28 SECTION 1.03. Terms Generally......................................................................... 29 SECTION 1.04. Accounting Terms; GAAP.................................................................. 29 ARTICLE II THE CREDITS SECTION 2.01. The Commitments......................................................................... 29 SECTION 2.02. Loans and Borrowings.................................................................... 30 SECTION 2.03. Requests for Borrowings................................................................. 31 SECTION 2.04. Funding of Borrowings................................................................... 32 SECTION 2.05. Interest Elections...................................................................... 32 SECTION 2.06. Termination and Reduction of the Commitments............................................ 33 SECTION 2.07. Repayment of Loans; Evidence of Debt.................................................... 34 SECTION 2.08. Optional Prepayment of Loans............................................................ 35 SECTION 2.09. Mandatory Prepayments and Reductions of Commitments..................................... 36 SECTION 2.10. Fees.................................................................................... 38 SECTION 2.11. Interest................................................................................ 39 SECTION 2.12. Alternate Rate of Interest.............................................................. 39 SECTION 2.13. Increased Costs......................................................................... 40 SECTION 2.14. Break Funding Payments.................................................................. 42 SECTION 2.15. Taxes................................................................................... 42 SECTION 2.16. Payments Generally; Pro Rata Treatment; Sharing of Set-offs............................. 44 SECTION 2.17. Mitigation Obligations; Replacement of Lenders.......................................... 45 SECTION 2.18. Extension of Commitment Termination Date................................................ 46 ARTICLE III REPRESENTATIONS AND WARRANTIES SECTION 3.01. Organization; Qualification............................................................. 48 SECTION 3.02. Powers.................................................................................. 48 SECTION 3.03. Authorization........................................................................... 48 SECTION 3.04. No Conflicts............................................................................ 48 SECTION 3.05. Enforceability.......................................................................... 49 SECTION 3.06. Government Approvals.................................................................... 49 SECTION 3.07. Financial Condition; No Material Adverse Change......................................... 50 SECTION 3.08. Properties.............................................................................. 51 SECTION 3.09. Proceedings............................................................................. 52
- i - 3 SECTION 3.10. Environmental Matters................................................................... 52 SECTION 3.11. Investment and Holding Company Status................................................... 53 SECTION 3.12. Taxes................................................................................... 53 SECTION 3.13. ERISA................................................................................... 53 SECTION 3.14. Disclosure.............................................................................. 53 SECTION 3.15. Use of Credit........................................................................... 54 SECTION 3.16. Debt Agreements......................................................................... 54 SECTION 3.17. Liens................................................................................... 54 SECTION 3.18. Capitalization.......................................................................... 54 SECTION 3.19. Subsidiaries............................................................................ 55 SECTION 3.20. Investments............................................................................. 55 SECTION 3.21. Restrictive Agreements.................................................................. 55 SECTION 3.22. Business................................................................................ 55 SECTION 3.23. Collateral; Security Interests.......................................................... 55 SECTION 3.24. Sufficiency of Project Documents........................................................ 56 SECTION 3.25. Employee Matters........................................................................ 57 SECTION 3.26. Other Project Parties................................................................... 57 SECTION 3.27. Asset Transfer.......................................................................... 57 SECTION 3.28. Absence of Immunity..................................................................... 58 ARTICLE IV CONDITIONS SECTION 4.01. Pre-Funding of Term Loans............................................................... 58 SECTION 4.02. Disbursement of Term Loans from the Pre-Funding Account................................. 59 SECTION 4.03. Pre-Commercial Activation Revolving Loans............................................... 59 SECTION 4.04. Post-Commercial Activation Loans........................................................ 60 ARTICLE V INFORMATION SECTION 5.01. Financial Statements and Other Information.............................................. 61 SECTION 5.02. Notices of Material Events.............................................................. 62 SECTION 5.03. Notices under Principal Project Documents............................................... 63 ARTICLE VI AFFIRMATIVE COVENANTS SECTION 6.01. Maintenance of Existence................................................................ 63 SECTION 6.02. Maintenance of Properties............................................................... 64 SECTION 6.03. Taxes................................................................................... 64 SECTION 6.04. Compliance with Laws.................................................................... 64 SECTION 6.05. Government Approvals.................................................................... 64 SECTION 6.06. Environmental Compliance................................................................ 65
- ii - 4 SECTION 6.07. Books and Records....................................................................... 65 SECTION 6.08. Inspection Rights....................................................................... 65 SECTION 6.09. Use of Proceeds......................................................................... 66 SECTION 6.10. Collateral; Security Interests.......................................................... 66 SECTION 6.11. Certain Obligations Respecting Subsidiaries............................................. 70 SECTION 6.12. License Subsidiaries.................................................................... 71 ARTICLE VII NEGATIVE COVENANTS SECTION 7.01. Indebtedness............................................................................ 71 SECTION 7.02. Liens................................................................................... 73 SECTION 7.03. Mergers, Consolidations, Etc............................................................ 73 SECTION 7.04. Sale of Assets.......................................................................... 73 SECTION 7.05. Purchase of Assets...................................................................... 73 SECTION 7.06. Investments............................................................................. 74 SECTION 7.07. Restricted Payments..................................................................... 74 SECTION 7.08. Transactions with Affiliates............................................................ 74 SECTION 7.09. Restrictive Agreements.................................................................. 75 SECTION 7.10. Leverage Ratio.......................................................................... 76 SECTION 7.11. Operating Leases........................................................................ 76 SECTION 7.12. Sales and Lease-Backs................................................................... 76 SECTION 7.13. Subordinated Obligations................................................................ 76 SECTION 7.14. Other Debt Obligations.................................................................. 77 SECTION 7.15. Organizational Documents................................................................ 77 SECTION 7.16. Nature of Business...................................................................... 78 SECTION 7.17. Fiscal Year............................................................................. 78 ARTICLE VIII CERTAIN PROJECT-RELATED COVENANTS SECTION 8.01. Project Insurance....................................................................... 78 SECTION 8.02. Accounts................................................................................ 80 SECTION 8.03. Approved Budget; Financial Projections.................................................. 81 SECTION 8.04. Adequate Financing...................................................................... 81 SECTION 8.05. Principal Project Documents............................................................. 81 SECTION 8.06. Other Project Documents................................................................. 83 SECTION 8.07. Restoration; Completion; Commercial Activation.......................................... 84 ARTICLE IX EVENTS OF DEFAULT SECTION 9.01. Iridium Events of Defaults.............................................................. 85
- iii - 5 SECTION 9.02. Motorola Events of Default.............................................................. 88 SECTION 9.03. Other Project Parties' Events of Default................................................ 91 SECTION 9.04. Other Events of Default................................................................. 92 ARTICLE X THE AGENTS AND GLOBAL ARRANGERS ARTICLE XI MISCELLANEOUS SECTION 11.01. Notices................................................................................ 96 SECTION 11.02. Waivers; Amendments.................................................................... 97 SECTION 11.03. Expenses; Indemnity; Damage Waiver..................................................... 98 SECTION 11.04. Successors and Assigns................................................................. 99 SECTION 11.05. Survival............................................................................... 102 SECTION 11.06. Counterparts; Integration.............................................................. 102 SECTION 11.07. Severability........................................................................... 102 SECTION 11.08. Right of Setoff........................................................................ 102 SECTION 11.09. Governing Law; Jurisdiction; Consent to Service of Process............................. 103 SECTION 11.10. WAIVER OF JURY TRIAL................................................................... 104 SECTION 11.11. Headings............................................................................... 104 SECTION 11.12. Confidentiality........................................................................ 105 SECTION 11.13. Effective Date......................................................................... 106 SECTION 11.14. No Third Party Beneficiaries........................................................... 106
- iv - 6 SCHEDULE I - Commitments SCHEDULE II - Real Property SCHEDULE III - Litigation SCHEDULE IV - Environmental Matters SCHEDULE V - Indebtedness SCHEDULE VI - Liens SCHEDULE VII - Subsidiaries SCHEDULE VIII - Investments SCHEDULE IX - Restrictive Agreements SCHEDULE X - Employee Matters SCHEDULE XI - Affiliate Agreements APPENDIX 1 - Initial Approved Budget APPENDIX 2 - Conditions Precedent ANNEX A - Regulatory and Technical Conditions Precedent APPENDIX 3 - Insurance Program EXHIBIT A - Form of Assignment and Acceptance EXHIBIT B - Form of Security Agreement EXHIBIT C - Form of Parent Security Agreement EXHIBIT D - Form of Subsidiary Guarantee Agreement EXHIBIT E - Form of Subsidiary Guarantee Assumption Agreement EXHIBIT F - Form of Depositary Agreement EXHIBIT G - Form of Motorola Consent EXHIBIT H - Form of Motorola Pledge Agreement EXHIBIT I-1 - Form of Progress Certificate (Pre-Commercial Activation) EXHIBIT I-2 - Form of Verification of Independent Technical Advisor EXHIBIT I-3 - Form of Progress Certificate (Post-Commercial Activation) EXHIBIT J - Form of Borrowing Request - v - 7 CREDIT AGREEMENT dated as of December 19, 1997 among: IRIDIUM OPERATING LLC, a limited liability company duly organized and validly existing under the laws of the State of Delaware (the "Company"); each of the lenders that is a signatory hereto identified under the caption "LENDERS" on the signature pages hereto and each lender that becomes a "Lender" after the date hereof pursuant to Section 11.04(b) (individually, a "Lender" and, collectively, the "Lenders"); CHASE SECURITIES INC. and BARCLAYS CAPITAL, the investment banking division of BARCLAYS BANK PLC ("Barclays Capital"), each in its capacity as arranger in respect of this Agreement (each in such capacity, together with its successors in such capacity, a "Global Arranger" and, collectively, the "Global Arrangers"); THE CHASE MANHATTAN BANK, as administrative agent for the Lenders (in such capacity, together with its successors in such capacity, the "Administrative Agent") and as collateral agent (the "Collateral Agent"); and BARCLAYS BANK PLC, as documentation agent for the Lenders (in such capacity, together with its successors in such capacity, the "Documentation Agent"). The Company has requested that the Lenders make loans to the Company in an aggregate principal amount not exceeding $1,000,000,000 at any one time outstanding for the purpose of financing certain of the costs of development of the Company's global mobile wireless communications system, and the Lenders are prepared to make such loans upon the terms and conditions hereof. Accordingly, the parties hereto agree as follows: ARTICLE I DEFINITIONS SECTION 1.01. Defined Terms. As used in this Agreement, the following terms have the meanings specified below: "ABR", when used in reference to any Loan or Borrowing, refers to whether such Loan, or the Loans comprising such Borrowing, are bearing interest at a rate determined by reference to the Alternate Base Rate. "Adjusted LIBO Rate" means, with respect to any Eurodollar Borrowing for any Interest Period, an interest rate per annum (rounded upwards, if necessary, to the next 1/16 of Credit Agreement 8 - 2 - 1%) equal to (a) the LIBO Rate for such Interest Period multiplied by (b) the Statutory Reserve Rate. "Administrative Agent" means The Chase Manhattan Bank, in its capacity as administrative agent for the Lenders hereunder and under the other Credit Documents (or certain of them). "Administrative Questionnaire" means an Administrative Questionnaire in a form supplied by the Administrative Agent. "Affected Property" means, with respect to any Event of Loss, the property of the Company or any of its Subsidiaries lost, destroyed, damaged, condemned (including, without limitation, through a Condemnation) or otherwise taken as a result of such Event of Loss. "Affiliate" means, with respect to a specified Person, another Person that directly, or indirectly through one or more intermediaries, Controls or is Controlled by or is under common Control with the Person specified. Notwithstanding the foregoing, no individual shall be an Affiliate solely by reason of his or her being a director, officer or employee of the Company or any of its Subsidiaries. "Agents" means the Administrative Agent, the Collateral Agent and the Documentation Agent. "Agreement Regarding Guarantee" means the Amended and Restated Agreement Regarding Guarantee dated as of July 11, 1997, amending and restating the Agreement Regarding Guarantee dated as of August 21, 1996, between Motorola and Iridium. "Alternate Base Rate" means, for any day, a rate per annum equal to the greater of (a) the Prime Rate in effect on such day and (b) the Federal Funds Effective Rate in effect on such day plus 1/2 of 1%. Any change in the Alternate Base Rate due to a change in the Prime Rate or the Federal Funds Effective Rate shall be effective from and including the effective date of such change in the Prime Rate or the Federal Funds Effective Rate, respectively. "Applicable Margin" means, with respect to ABR Loans, 1-1/2% and with respect to Eurodollar Loans, 2-3/4%, provided that, as of each of October 1, 1998, January 1, 1999 and April 1, 1999, the Applicable Margin for each Type of Loans shall be increased by 1/2 of 1% as of each such date. "Applicable Percentage" means, with respect to any Lender, the percentage of the total Commitments represented by such Lender's aggregate Commitments. If the Term Commitments or Revolving Commitments (as the case may be) have terminated or expired, the Credit Agreement 9 - 3 - Applicable Percentages shall be determined based upon the applicable Commitments most recently in effect, giving effect to any assignments. "Approved Budget" means the Initial Approved Budget, each other budget of Project Costs adopted or approved after the date of this Agreement that covers at least the Budget Period, and each amendment thereof or supplement thereto, subject to Section 2.18 or 8.03(a). "Asset Transfer" means the transfer by Iridium LLC of substantially all of its assets to the Company pursuant to the Asset Transfer Agreement. "Asset Transfer Agreement" means the Asset Transfer Agreement dated as of December 18, 1997 between Iridium LLC and the Company. "Assignment and Acceptance" means an assignment and acceptance entered into by a Lender and an assignee (with the consent of any party whose consent is required by Section 11.04), and accepted by the Administrative Agent, in the form of Exhibit A or any other form approved by the Administrative Agent and the Company. "Average Life" means, as of the date of determination with respect to any Indebtedness, the quotient obtained by dividing (a) the sum of the products of the number of years from the date of determination to the dates of each successive scheduled principal payment of such Indebtedness multiplied by the amount of such payment by (b) the sum of all such payments. "Barclays" means Barclays Bank PLC. "Board" means the Board of Governors of the Federal Reserve System of the United States of America. "board of directors" means, with respect to the Company or Iridium LLC, its board of directors or any committee thereof duly authorized by such board of directors to take action on its behalf. "Borrowing" means Loans of the same Class and Type, made, converted or continued on the same date and, in the case of Eurodollar Loans, as to which a single Interest Period is in effect. "Borrowing Request" means a request by the Company for a Borrowing in accordance with Section 2.03, substantially in the form of Exhibit J. "Budget Period" means the period from and including January 1, 1998 to and including the Commitment Termination Date. Credit Agreement 10 - 4 - "Business Day" means any day that is not a Saturday, Sunday or other day on which commercial banks in New York City are authorized or required by law to remain closed; provided that, when used in connection with a Eurodollar Loan, the term "Business Day" shall also exclude any day on which banks are not open for dealings in Dollar deposits in the London interbank market. "Capital Expenditures" means, for any period, expenditures (including the aggregate amount of Capital Lease Obligations incurred during such period) made by the Company or any of its Subsidiaries to acquire or construct fixed assets, plant and equipment (including renewals, improvements and replacements, but excluding Restorations and other repairs) during such period computed in accordance with GAAP. "Capital Lease Obligations" of any Person means the obligations of such Person to pay rent or other amounts under any lease of (or other arrangement conveying the right to use) real or personal property, or a combination thereof, which obligations are required to be classified and accounted for as capital leases on a balance sheet of such Person under GAAP, and the amount of such obligations shall be the capitalized amount thereof determined in accordance with GAAP. "Chase" means The Chase Manhattan Bank. "Change in Law" means (a) the adoption of any law, rule or regulation after the date of this Agreement, (b) any change in any law, rule or regulation or in the interpretation or application thereof by any Government Authority after the date of this Agreement or (c) compliance by any Lender (or, for purposes of Section 2.13(b), by any lending office of such Lender or by such Lender's holding company, if any) with any request, guideline or directive (whether or not having the force of law) of any Government Authority made or issued after the date of this Agreement. "Change Order" means any change, modification or variation in (a) the Description of Work (as referred to in Article 2 of the Space System Contract) and the related Statement of Work (contained in Exhibit B to the Space System Contract) made pursuant to Article 10 of the Space System Contract or any amendment thereto or (b) the Description of Work (as referred to in Article 2 of the Terrestrial Network Development Contract) or any amendment thereto. "Class", when used in reference to any Loan or Borrowing, refers to whether such Loan, or the Loans comprising such Borrowing, are Revolving Loans or Term Loans, and, when used in reference to any Commitment, refers to whether such Commitment is a Revolving Commitment or a Term Commitment. Credit Agreement 11 - 5 - "Closing Date" means the date on which (a) all of the conditions set forth in Section 4.01 shall have been satisfied or waived pursuant to Section 11.02 and (b) all of the conditions set forth in Section 4.02 shall have been satisfied or waived pursuant to Section 11.02. "Collateral" means the "Collateral" as such term is defined in the respective Security Documents. "Collateral Agent" means Chase in its capacity as collateral agent under the Security Documents (or certain of them). "Commercial Activation" means the date on which the Company commences generally available commercial service on the IRIDIUM System, provided that the following shall have also been completed: (a) subscriber trials with at least five gateways; and (b) the first productions runs of the subscriber units and message termination devices for the IRIDIUM System. "Commitment" means a Revolving Commitment or Term Commitment, or any combination thereof (as the context requires). "Commitment Termination Date" means September 30, 1998, as the same may be extended pursuant to Section 2.18. "Company LLC Agreement" means the Limited Liability Company Agreement of Iridium Operating LLC dated as of December 18, 1997 pursuant to which the Company is organized. "Condemnation" means the condemnation or seizure by a Government Authority of, or requisition or taking by a Government Authority of title to, all or any portion of the property of the Company or any of its Subsidiaries under power of eminent domain or otherwise. "Condemnation Proceeds" means all compensation, awards, damages and other payments received by the Company or any of its Subsidiaries as a result of any Condemnation. "Control" means the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of a Person, whether through the ability to exercise voting power, by contract or otherwise. "Controlling" has the meaning correlative to the term "Control." "Controlled" has the meaning correlative to the term "Control." Credit Agreement 12 - 6 - "Credit Documents" means, collectively, this Agreement, the promissory notes (if any) issued hereunder, the Security Documents, the Subsidiary Guarantee Agreement and the Motorola Agreements. "Credit Parties" means, collectively, the Company and each of the Subsidiary Guarantors. "Debt Incurrence" means the incurrence by the Company or any of its Subsidiaries of any Indebtedness. "Default" means any event or condition which constitutes an Event of Default or which upon notice, lapse of time or both would, unless cured or waived, become an Event of Default. "Depositary Agreement" means the Deposit, Disbursement and Account Control Agreement substantially in the form of Exhibit F between the Company, the Collateral Agent and the Depositary Bank. "Depositary Bank" means Chase in its capacity as depositary bank under the Depositary Agreement. "Development" means the designing, development, acquisition, construction, manufacture, installation, leasing, licensing, testing, completion, delivery, acceptance, activation, operation, maintenance, restoration, improvement, use and ownership of the Project and the financing thereof (whether through the issuance of debt or equity securities or otherwise). "Dispose" has the meaning correlative to the term "Disposition." "Disposition" means any sale, assignment, transfer or other disposition of assets (whether now owned or hereafter acquired) of the Company or any of its Subsidiaries by the Company or any of its Subsidiaries to any other Person (other than any such sale, assignment, transfer or other disposition constituting an Event of Loss). "Dollars" or "$" refers to lawful money of the United States of America. "Domestic Subsidiary" means each Subsidiary of the Company that is organized under the laws of the United States of America or any political subdivision thereof. "Environmental Claim" means, with respect to any Person, any written notice, claim, administrative, regulatory or judicial action, suit, judgment, written demand or other written communication by any other Person alleging or asserting such Person's liability for investigatory costs, cleanup costs, governmental response costs, damages to natural resources or Credit Agreement 13 - 7 - other property of such Person, personal injuries, fines, penalties or other actions arising out of, based on or resulting from (a) the presence, Use, threatened Release or Release into the environment of any Hazardous Material at any location, whether or not owned by such Person or (b) any fact, circumstance, condition or occurrence forming the basis of any violation, or alleged violation, of any Environmental Law or other failure, or alleged failure, to comply with the requirements of any Environmental Law. "Environmental Laws" means all laws, rules, regulations, codes, ordinances, orders, decrees, judgments, injunctions, notices or binding agreements issued, promulgated or entered into by any Government Authority, relating in any way to the environment, preservation or reclamation of natural resources, the management, release or threatened release of any Hazardous Material or to environmental health and safety matters. "Equity Issuance" means (a) any issuance or sale by the Company or any of its Subsidiaries of (i) any of its membership interests, capital stock or other equity interests, (ii) any warrants or options exercisable in respect thereof or (iii) any other security or instrument representing an equity interest in the Company or any of its Subsidiaries (but excluding, in the case of any convertible security, the equity interests of any Person other than the Company or any of its Subsidiaries into which such convertible security is convertible) or (b) the receipt by the Company or any of its Subsidiaries after the date hereof of any capital contribution (whether or not evidenced by any equity security issued by the recipient of such contribution). "ERISA" means the Employee Retirement Income Security Act of 1974, as amended from time to time. "ERISA Affiliate" means any trade or business (whether or not incorporated) that, together with the Company, is treated as a single employer under Section 414(b) or (c) of the U.S. Tax Code, or, solely for purposes of Section 302 of ERISA and Section 412 of the U.S. Tax Code, is treated as a single employer under Section 414 of the U.S. Tax Code. "ERISA Event" means (a) any "reportable event", as defined in Section 4043 of ERISA or the regulations issued thereunder with respect to a Plan (other than an event for which the 30-day notice period is waived); (b) the existence with respect to any Plan of an "accumulated funding deficiency" (as defined in Section 412 of the U.S. Tax Code or Section 302 of ERISA), whether or not waived; (c) the filing pursuant to Section 412(d) of the U.S. Tax Code or Section 303(d) of ERISA of an application for a waiver of the minimum funding standard with respect to any Plan; (d) the incurrence by the Company or any of its ERISA Affiliates of any liability under Title IV of ERISA with respect to the termination of any Plan; (e) the receipt by the Company or any ERISA Affiliate from the PBGC or a plan administrator of any notice relating to an intention to terminate any Plan or Plans or to appoint a trustee to administer any Plan; (f) the incurrence by the Company or any of its ERISA Affiliates of any liability with respect to the withdrawal or partial withdrawal from any Plan or Multiemployer Plan; or (g) the receipt by the Credit Agreement 14 - 8 - Company or any ERISA Affiliate of any notice, or the receipt by any Multiemployer Plan from the Company or any ERISA Affiliate of any notice, concerning the imposition of Withdrawal Liability or a determination that a Multiemployer Plan is, or is expected to be, insolvent or in reorganization, within the meaning of Title IV of ERISA. "Eurodollar", when used in reference to any Loan or Borrowing, refers to whether such Loan, or the Loans comprising such Borrowing, are bearing interest at a rate determined by reference to the Adjusted LIBO Rate. "Event of Default" has the meaning assigned to such term in Article IX. "Event of Loss" means, with respect to any property of the Company or any of its Subsidiaries, any loss of, destruction of or damage to, or any condemnation (including, without limitation, a Condemnation) or other taking by a Government Authority of, such property of the Company or any such Subsidiary. "Excluded Debt Incurrence" means Indebtedness incurred by the Company or its Subsidiaries under one of the specified clauses of Section 7.01 (other than clause (i) thereof). "Excluded Disposition" means any Disposition permitted under one of the specified clauses of Section 7.04 (other than clause (b) thereof). "Excluded Equity Issuance" means (a) any issuance or sale of capital stock or other equity interests by any Subsidiary of the Company to the Company or any Wholly Owned Subsidiary of the Company, (b) any capital contribution by the Company or any Wholly Owned Subsidiary of the Company to any Subsidiary of the Company, (c) any capital contribution made by Iridium LLC in the Company from the proceeds of additional membership interests issued by Iridium LLC pursuant to the Reserve Capital Call Obligations or (d) any other Equity Issuance to the extent the proceeds thereof are used, or are committed to be used (and are actually so used within 180 days of such issuance), to pay Project Costs for the Budget Period. "Excluded Taxes" means, with respect to the Administrative Agent, any Lender or any other recipient of any payment to be made by or on account of any obligation of the Company hereunder, (a) income or franchise taxes imposed on (or measured by) its net income by the United States of America, or by the jurisdiction under the laws of which such recipient is organized or in which its principal office is located or, in the case of any Lender, in which its applicable lending office is located, (b) any branch profits taxes imposed by the United States of America or any similar tax imposed by any other jurisdiction in which the Company is located and (c) in the case of a Foreign Lender (other than an assignee pursuant to a request by the Company under Section 2.17(b)), any withholding tax that is imposed on amounts payable to such Foreign Lender at the time such Foreign Lender becomes a party to this Agreement or is attributable to such Foreign Lender's failure or inability to comply with Section 2.15(e), except to the extent that Credit Agreement 15 - 9 - such Foreign Lender's assignor (if any) was entitled, at the time of assignment, to receive additional amounts from the Company with respect to such withholding tax pursuant to Section 2.15(a). "Exposure" means, with respect to any Lender at any time, the aggregate outstanding principal amount of such Lender's Loans at such time. "FCC" means the U.S. Federal Communications Commission. "FCC License" means the authorization of the FCC held by Motorola Satellite Communications, Inc. as of the date of this Agreement with respect to the construction, launch and operation of the IRIDIUM System as set forth in FCC's Orders and Authorizations DA 95-131, released January 31, 1995, DA 95-372 released February 28, 1995, FCC 96-279, released June 27, 1996, and DA 96-1789, released October 30, 1996. "Federal Funds Effective Rate" means, for any day, the weighted average (rounded upwards, if necessary, to the next 1/100 of 1%) of the rates on overnight Federal funds transactions with members of the Federal Reserve System arranged by Federal funds brokers, as published on the next succeeding Business Day by the Federal Reserve Bank of New York, or, if such rate is not so published for any day that is a Business Day, the average (rounded upwards, if necessary, to the next 1/100 of 1%) of the quotations for such day for such transactions received by the Administrative Agent from three Federal funds brokers of recognized standing selected by it. "Foreign Lender" means any Lender organized under the laws of a jurisdiction other than the United States of America, any State thereof or the District of Columbia. "Foreign Subsidiary" means any Subsidiary of the Company other than a Domestic Subsidiary. "Gateway Authorization Agreements" means each gateway authorization agreement between the investor party thereto and the Company (as transferee of Iridium LLC). "GAAP" means generally accepted accounting principles in the United States of America, as in effect from time to time. "General Receipt & Disbursement Account" has the meaning assigned to such term in the Depositary Agreement. "Government Approval" means any authorization, consent, approval, license, lease, ruling, permit, concession, grant, franchise, agreement, tariff, rate, certification, exemption, filing or registration by or with any Government Authority relating to the Development of the Credit Agreement 16 - 10 - Project, the execution, delivery and performance of the Transaction Documents, the creation, perfection and enforcement of the Liens contemplated by the Security Documents and the other transactions contemplated hereby. "Government Authority" means the government of any nation or any political subdivision thereof, whether state, territory, province or otherwise, and any agency, authority, instrumentality, regulatory body, court, central bank or other entity exercising executive, legislative, judicial, taxing, regulatory or administrative powers or functions of or pertaining to government. "Government Rule" means any statute, law, regulation, ordinance, rule, judgment, order, decree, injunction, permit, concession, grant, franchise, license, agreement, directive, environmental guideline, policy, restriction or rule of common law, requirement of, or other governmental restriction or any similar form of decision of or determination by, or any interpretation or administration of any of the foregoing by, any Government Authority, whether now or hereafter in effect. "Guarantee" of or by any Person (the "guarantor") means any obligation, contingent or otherwise, of the guarantor guaranteeing or having the economic effect of guaranteeing any Indebtedness or other obligation of any other Person (the "primary obligor") in any manner, whether directly or indirectly, and including any direct or indirect obligation of the guarantor (a) to purchase or pay (or advance or supply funds for the purchase or payment of) such Indebtedness or other obligation or to purchase (or to advance or supply funds for the purchase of) any security for the payment thereof, (b) to purchase or lease property, securities or services for the purpose of assuring the owner of such Indebtedness or other obligation of the payment thereof, (c) to maintain working capital, equity capital or any other financial statement condition or liquidity of the primary obligor so as to enable the primary obligor to pay such Indebtedness or other obligation or (d) as an account party in respect of any letter of credit or letter of guaranty issued to support such Indebtedness or obligation; provided that the term "Guarantee" shall not include endorsements for collection or deposit in the ordinary course of business. "Hazardous Materials" means all explosive or radioactive substances or wastes and all hazardous or toxic substances, wastes or other pollutants, including petroleum or petroleum distillates, asbestos or asbestos containing materials, polychlorinated biphenyls, radon gas, infectious or medical wastes and all other hazardous substances or wastes of any nature regulated as such pursuant to any applicable Environmental Law. "Hedging Agreement" means any interest rate protection agreement, foreign currency exchange agreement, commodity price protection agreement or other interest or currency exchange rate or commodity price hedging arrangement. Credit Agreement 17 - 11 - "IBSS Agreement" means the Master Agreement executed on or about December 16, 1996 between the Company (as transferee of Iridium LLC) and Andersen Consulting, LLP, with respect to the Iridium Business Support System. "Impair" has a meaning correlative to the term "Impairment." "Impairment" means, with respect to any Project Document or Government Approval, any rescission, termination, cancellation, repeal, invalidity, suspension (other than by reason of an "excusable delay" (as such term is used in any of the Principal Project Documents) to the extent such suspension by reason of such excusable delay is expressly permitted by such Principal Project Document), withdrawal, withholding, injunction, inability to satisfy stated conditions to effectiveness or amendment, modification or supplementation (other than, in the case of a Project Document, any such amendment, modification or supplementation permitted by Section 8.05 or 8.06 and, in the case of a Government Approval, any such amendment, modification or supplementation permitted by Section 6.05 and, in the case of the FCC License, the transfer thereof to a Subsidiary of Motorola or to the Company as contemplated in the Motorola Consent) of such Project Document or Government Approval in whole or in part, which (in any case) is adverse to the interests of any Project Party or the Lenders. "Indebtedness" of any Person means, without duplication, (a) all obligations of such Person for borrowed money or with respect to deposits or advances of any kind, (b) all obligations of such Person evidenced by bonds, debentures, notes or similar instruments, (c) all obligations of such Person under conditional sale or other title retention agreements relating to property acquired by such Person, (d) all obligations of such Person in respect of the deferred purchase price of property or services (excluding trade accounts payable or accrued liabilities arising in the ordinary course of business that are not overdue by more than 30 days or that are being contested in good faith), (e) all Indebtedness of others secured by (or for which the holder of such Indebtedness has an existing right, contingent or otherwise, to be secured by) any Lien on property owned or acquired by such Person, whether or not the Indebtedness secured thereby has been assumed, (f) all Guarantees by such Person of Indebtedness of others, (g) all Capital Lease Obligations of such Person, (h) all obligations, contingent or otherwise, of such Person as an account party in respect of letters of credit and letters of guaranty (excluding any ordinary trade credit) and (i) all obligations, contingent or otherwise, of such Person in respect of bankers' acceptances. The Indebtedness of any Person shall include, without duplication, the Indebtedness of any other entity (including any partnership in which such Person is a general partner) to the extent such Person is liable therefor as a result of such Person's ownership interest in or other relationship with such entity, except to the extent the terms of such Indebtedness provide that such Person is not liable therefor. Indebtedness shall refer to, in the case of Indebtedness issued at a discount, the accreted value thereof. "Indemnified Taxes" means Taxes other than Excluded Taxes. Credit Agreement 18 - 12 - "Independent Advisors" means the Independent Insurance Advisor, the Independent Market Consultant and the Independent Technical Advisor. "Independent Insurance Advisor" means Sedgwick James of New Jersey, Inc., or any other Person from time to time appointed by the Global Arrangers with the consent of the Company to act as insurance advisor for and on behalf of the Lenders for the purposes of this Agreement and the transactions contemplated hereby. "Independent Market Consultant" means Coopers & Lybrand, L.L.P., or any other Person from time to time appointed by the Global Arrangers with the consent of the Company to act as advisor with respect to the potential market for the Company's voice and paging services for and on behalf of the Lenders for the purposes of this Agreement and the transactions contemplated hereby. "Independent Technical Advisor" means Arthur D. Little, Inc., or any other Person from time to time appointed by the Administrative Agent with the consent of the Company to act as technical advisor for and on behalf of the Lenders for the purposes of this Agreement and the transactions contemplated hereby. "Information Memorandum" means the Confidential Information Memorandum dated October 1997 with respect to the credit facilities provided for in this Agreement. "Initial Approved Budget" means the budget for Project Costs for the fiscal year ending December 31, 1998, approved on October 15, 1997 by the board of directors of Iridium LLC and attached as Appendix 1. "Intellectual Property" means patents, patent rights, patent applications, licenses, inventions, know-how, copyrights, trademarks, trademark registrations, service marks, service mark registrations, trade names or other intellectual property, including trade secrets and other unpatented and/or unpatentable proprietary or confidential information, systems or procedures, but excluding any Government Approvals. "Interest Election Request" means a request by the Company to convert or continue a Borrowing in accordance with Section 2.05. "Interest Payment Date" means (a) with respect to any ABR Loan, each Quarterly Date and (b) with respect to any Eurodollar Loan, the last day of the Interest Period applicable to the Borrowing of which such Loan is a part and, in the case of a Eurodollar Borrowing with an Interest Period of more than three months' duration, each day prior to the last day of such Interest Period that occurs at intervals of three months' duration after the first day of such Interest Period. Credit Agreement 19 - 13 - "Interest Period" means, with respect to any Eurodollar Borrowing, the period commencing on the date of such Borrowing and ending on the numerically corresponding day in the calendar month that is one, two, three or six months thereafter, as the Company may elect; provided that (i) if any Interest Period would end on a day other than a Business Day, such Interest Period shall be extended to the next succeeding Business Day unless such next succeeding Business Day would fall in the next calendar month, in which case such Interest Period shall end on the next preceding Business Day and (ii) any Interest Period that commences on the last Business Day of a calendar month (or on a day for which there is no numerically corresponding day in the last calendar month of such Interest Period) shall end on the last Business Day of the last calendar month of such Interest Period. For purposes hereof, the date of a Borrowing initially shall be the date on which such Borrowing is made and thereafter shall be the effective date of the most recent conversion or continuation of such Borrowing. "Investment" means, for any Person, (a) the acquisition (whether for cash, property, services or securities) of capital stock, bonds, notes, debentures, partnership or other ownership interests or other securities of any other Person or any agreement to make any such acquisition (including, without limitation, any "short sale" or any sale of any securities at a time when such securities are not owned by the Person entering into such sale), (b) the making of any deposit with, or advance, loan or other extension of credit to, any other Person (including the purchase of property from another Person subject to an understanding or agreement, contingent or otherwise, to resell such property to such Person), but excluding any such advance, loan or extension of credit having a term not exceeding 180 days arising in connection with the sale of inventory or supplies by such Person in the ordinary course of business, (c) the entering into of any Guarantee of, or other contingent obligation with respect to, Indebtedness or other liability of any other Person and (without duplication) any amount committed to be advanced, lent or extended to such Person and (d) the entering into of any Hedging Agreement. "Iridium Capital" means Iridium Capital Corporation, a Delaware corporation. "Iridium Financial Projections" means the financial projections of Iridium LLC and its Subsidiaries contained in Section 10 of the Information Memorandum. "Iridium IP" means Iridium IP LLC, a Delaware limited liability company. "Iridium LLC" means Iridium LLC, a Delaware limited liability company. "Iridium LLC Agreement" means the Limited Liability Company Agreement of Iridium LLC dated as of July 29, 1996, pursuant to which Iridium LLC is organized. "Iridium LLC Members" means each of the holders from time to time of membership interests of Iridium LLC. Credit Agreement 20 - 14 - "Iridium Roaming" means Iridium Roaming LLC, a Delaware limited liability company. "IRIDIUM System" means the Company's global mobile wireless communications system as described in the Information Memorandum. "ITU" means the International Telecommunication Union. "Lenders" means the Persons listed on Schedule I and any other Person that shall have become a party hereto pursuant to an Assignment and Acceptance, other than any such Person that ceases to be a party hereto pursuant to an Assignment and Acceptance. "LIBO Rate" means, with respect to any Eurodollar Borrowing for any Interest Period, the rate appearing on Page 3750 of the Dow Jones Markets Service (or on any successor or substitute page of such Service, or any successor to or substitute for such Service, providing rate quotations comparable to those currently provided on such page of such Service, as determined by the Administrative Agent from time to time for purposes of providing quotations of interest rates applicable to Dollar deposits in the London interbank market) at approximately 11:00 a.m., London time, two Business Days prior to the commencement of such Interest Period, as the rate for Dollar deposits with a maturity comparable to such Interest Period. In the event that such rate is not available at such time for any reason, then the LIBO Rate with respect to such Eurodollar Borrowing for such Interest Period shall be the rate at which Dollar deposits of $5,000,000 and for a maturity comparable to such Interest Period are offered by the principal London office of the Administrative Agent in immediately available funds in the London interbank market at approximately 11:00 a.m., London time, two Business Days prior to the commencement of such Interest Period. "License Subsidiary" shall mean any Subsidiary of the Company established for the purpose of holding a Telecommunications Approval pursuant to Section 6.12. "Lien" means, with respect to any asset, (a) any mortgage, deed of trust, lien, pledge, hypothecation, encumbrance, charge or security interest in, on or of such asset and (b) the interest of a vendor or a lessor under any conditional sale agreement, capital lease or title retention agreement (or any financing lease having substantially the same economic effect as any of the foregoing) relating to such asset. "LLC Agreements" means the Company LLC Agreement and the Iridium LLC Agreement. "Loans" means the loans made by the Lenders to the Company pursuant to this Agreement. Credit Agreement 21 - 15 - "Loss Proceeds" means, with respect to any Event of Loss, insurance proceeds, condemnation awards (including, without limitation, Condemnation Proceeds) or other compensation, awards, damages and other payments or relief (exclusive, in each case, of the proceeds of liability insurance and business interruption insurance and other payments for interruption of operations) with respect to any Event of Loss. "Management Services Agreement" means the Amended and Restated Management Services Agreement dated as of December 18, 1997 among, Iridium World Communications Ltd., Iridium LLC and the Company with respect to the provision of management, personnel and administrative services by Iridium LLC to the Company. "Margin Stock" means "margin stock" within the meaning of Regulations G, T, U and X of the Board. "Material Adverse Effect" means a material adverse effect on (a) the business, operations, assets, condition (financial or otherwise) or prospects of the Company and any of its Subsidiaries taken as a whole, (b) the ability of the Credit Parties (taken as a whole) to perform their respective obligations under any Credit Document to which any of them is a party, (c) the validity or enforceability of the Liens under any Security Document or on the Collateral thereunder or the validity or enforceability of the Credit Documents, (d) the ability of Motorola to perform its obligations under any Motorola Agreement or Principal Project Document to which it is a party or (e) the Development or timely achievement of completion of the Project. "Maturity Date" means the Commitment Termination Date. "Moody's" means Moody's Investors Service, Inc. (or any successor to the rating business thereof). "Mortgaged Properties" has the meaning assigned to such term in Section 6.10. "Mortgages" means, collectively, one or more instruments of mortgages, deeds of trust or similar instruments in favor of the Collateral Agent (and/or one or more trustees or other Persons designated therein), in form and substance satisfactory to the Administrative Agent, executed and delivered by the Company or one of its Subsidiaries pursuant to Article IV or Section 6.10. "Motorola" means Motorola, Inc., a Delaware corporation. "Motorola Agreements" means, collectively, the Motorola Consent and the Motorola Pledge Agreement. Credit Agreement 22 - 16 - "Motorola Consent" means the Consent and Agreement substantially in the form of Exhibit G between Motorola, the Company, the Administrative Agent and the Collateral Agent. "Motorola Default" means any Event of Default under Section 9.02. "Motorola Domestic Subsidiary" means any Subsidiary of Motorola, except any such Subsidiary (a) that neither transacts any substantial business nor regularly maintains any substantial portion of its fixed assets within the United States of America or (b) which is engaged primarily in financing operations of Motorola or its Subsidiaries outside the United States of America. "Motorola Guarantee Agreement" means, collectively, (a) the Guarantee Agreement dated as of August 21, 1996 between Motorola and Chase, as administrative agent under the Motorola Guaranteed Credit Agreement, (b) any guarantee issued by Motorola in respect of the Indebtedness permitted under Section 7.01(c), and (c) any guarantee issued by Motorola in connection with any Refinancing of any of the Indebtedness referred to in clause (a) or (b) of this definition (or any subsequent Refinancing thereof). "Motorola Guaranteed Credit Agreement" means the Credit Agreement dated as of August 21, 1996 between the Company (as transferee of Iridium LLC), the lenders party thereto, Chase Securities Inc. and Barclays Capital, the investment banking division of Barclays, as global arrangers in connection therewith, Chase as the administrative agent and Barclays as the documentation agent thereunder, providing for loans in an aggregate principal amount not exceeding $450,000,000 as of the date hereof. "Motorola Pledge Agreement" means the Pledge Agreement substantially in the form of Exhibit H between Motorola (or, if applicable, the Subsidiary of Motorola directly owning the capital stock of the Subsidiary of Motorola that holds the FCC License at the time of execution and delivery of the Motorola Pledge Agreement pursuant to Article IV) and the Collateral Agent. "Motorola's Net Worth" has the meaning assigned to such term in clause (g) of Section 9.02. "Motorola Vendor Financing" means the FOC Payments (as defined in the Memorandum of Understanding dated as of July 11, 1997 between Motorola and Iridium LLC as in effect on the date hereof) to the extent that a deferral thereof is made pursuant to Section 6 thereof. "Multiemployer Plan" means a multiemployer plan as defined in Section 4001(a)(3) of ERISA. Credit Agreement 23 - 17 - "Net Available Proceeds" means: (a) in the case of any Disposition, the amount of Net Cash Payments received by the Company and its Subsidiaries in connection with such Disposition; (b) in the case of any Event of Loss, the aggregate amount of the Loss Proceeds received by the Company and its Subsidiaries in respect of such Event of Loss, net of reasonable expenses incurred by the Company and its Subsidiaries in connection therewith; (c) in the case of any Equity Issuance, the aggregate amount of all cash received by the Company and its Subsidiaries in respect of such Equity Issuance, net of reasonable expenses incurred by the Company and its Subsidiaries in connection therewith; (d) in the case of any Debt Incurrence, the aggregate amount of all cash received by the Company and its Subsidiaries in respect of such Debt Incurrence, net of reasonable expenses incurred by the Company and its Subsidiaries in connection therewith; and (e) in the case of any Project Document Claim, the aggregate amount of all cash received by the Company and its Subsidiaries in respect of such Project Document Claim, net of reasonable expenses incurred by the Company and its Subsidiaries in connection with the collection thereof. "Net Cash Payments" means, with respect to any Disposition, the aggregate amount of all cash payments received by the Company and its Subsidiaries directly or indirectly in connection with such Disposition (or thereafter received in respect of any non-cash consideration paid to the Company or any of its Subsidiaries in connection with such Disposition); provided that Net Cash Payments shall be net of (a) the amount of any legal, title and recording tax expenses, commissions and other fees and expenses paid or payable by the Company and its Subsidiaries in connection with such Disposition and (b) any repayments (and any reasonable expenses in connection therewith) by the Company or any of its Subsidiaries of Indebtedness to the extent that (i) such Indebtedness is secured by a Lien on the property that is the subject of such Disposition and (ii) the transferee of (or holder of a Lien on) such property requires that such Indebtedness be repaid as a condition to the purchase of such property. "O&M Contract" means the Operations and Maintenance Contract, effective July 29, 1993, between Motorola and the Company (as transferee of Iridium LLC). "Operation and Maintenance Expenses" means, for any period, the sum, computed without duplication, of the following: all (a) expenses of administering and operating the Project and of maintaining it in good repair and operating condition payable during such period plus (b) direct operating and maintenance costs of the Project (including, without limitation, all payments due and payable under the O&M Contract, the Terrestrial Network Development Contract and Credit Agreement 24 - 18 - other relevant Project Documents) payable during such period, plus (c) insurance costs of the Company and its Subsidiaries during such period, plus (d) property taxes due and payable by the Company and its Subsidiaries during such period, plus (e) sales, use and excise taxes, value added taxes, taxes on telecommunications services and other similar taxes due and payable by the Company and its Subsidiaries during such period, plus (f) franchise taxes due and payable by the Company and its Subsidiaries during such period, plus (g) income Taxes due and payable by the Company and its Subsidiaries during such period, plus (h) costs and fees incurred by the Company and its Subsidiaries in connection with obtaining and maintaining in effect the Government Approvals during such period, plus (i) legal, accounting, engineering and other professional fees incurred in connection with any of the foregoing items during such period, plus (j) marketing and sales expenses (including associated commissions) of the Company and its Subsidiaries during such period, plus (k) general and administrative expenses of the Company and its Subsidiaries for such period plus (l) all fees payable to the Agents, the Global Arrangers or the Lenders or any of their respective Affiliates hereunder or in connection with the transactions contemplated hereby during such period plus (m) Capital Expenditures during such period plus (n) all payments due and payable by the Company to Iridium LLC under the Management Services Agreement. "Other Project Document" means any contract or other written agreement (other than the Credit Documents and the Principal Project Documents) entered into or assumed by the Company or any of its Subsidiaries with respect to the Development of the Project, including, without limitation, the Management Services Agreement. "Other Subordinated Debt" means Indebtedness of the Company (in respect of which any of its Subsidiaries may be a guarantor on a subordinated basis or in respect of which, in the case of any Subsidiary that is a co-obligor of the Senior Notes, such Subsidiary may be a co-obligor on a subordinated basis) that is subordinated in right of payment to the obligations of the Company to pay principal of and interest on the Loans and all other amounts owing hereunder and the obligations of the Company under any Hedging Agreements entered into with any of the Lenders in respect of the Loans and that shall (a) (i) have a maturity date no earlier than the maturity of the Senior Notes, (ii) not provide for any amortization or redemption at any time prior to the maturity of the Senior Notes (other than on terms comparable to the Senior Notes), (iii) contain subordination provisions which, in the reasonable judgment of the Administrative Agent, are consistent with subordination provisions for a comparable offering of senior subordinated notes and (iv) contain other terms and conditions (including, without limitation, covenants and events of default, but excluding terms as to pricing) not more favorable to the Company than the terms of the Senior Notes or (b) otherwise be approved by the Required Lenders. "Other Taxes" means any and all present or future stamp or documentary taxes or any other excise or property taxes, charges or similar levies arising from any payment made under any Credit Document or from the execution, delivery or enforcement of, or otherwise with respect to, any Credit Document. Credit Agreement 25 - 19 - "Parent Security Agreement" means a Pledge and Security Agreement substantially in the form of Exhibit C between Iridium LLC and the Administrative Agent. "PBGC" means the Pension Benefit Guaranty Corporation referred to and defined in ERISA and any successor entity performing similar functions. "Permitted Investments" means: (a) 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 of America is pledged and which have a remaining Average Life of not more than 365 days from the date of acquisition thereof; (b) investments in commercial paper maturing not more than 270 days after the date of acquisition thereof and having, at such date of acquisition, a credit rating of at least P-1 from S&P or A-1 from Moody's (or such similar equivalent rating by at least one "nationally recognized statistical rating organization" (as defined in Rule 436 under the Securities Act of 1933, as amended)); (c) investments in certificates of deposit, banker's acceptances and time deposits maturing not more than 270 days after the date of acquisition thereof issued or guaranteed by or placed with, and money market deposit accounts issued or offered by, any commercial bank or trust company organized under the laws of the United States of America or any State thereof or any other country which is a member of the Organization for Economic Cooperation and Development, in each case which has a combined capital, surplus and undivided profits of not less than $500,000,000 or its equivalent in foreign currency, and whose debt is rated at least A- by S&P or A-3 by Moody's (or such similar equivalent rating by a "nationally recognized statistical rating organization" (as defined above)); (d) repurchase obligations with a term of not more than 7 days for securities described in clause (a) of this definition and entered into with a financial institution which has a combined capital, surplus and undivided profits of not less than $500,000,000 or its equivalent in foreign currency, and whose debt is rated at least A- by from S&P or A-3 by Moody's (or such similar equivalent rating by a "nationally recognized statistical rating organization" (as defined above)); and (e) any mutual or similar fund investing exclusively in Permitted Investments of the type described in clauses (a), (b) and/or (c) above. "Permitted Liens" means: Credit Agreement 26 - 20 - (a) Liens created pursuant to the Security Documents; (b) Liens imposed by any Government Authority for taxes, assessments or charges not yet due or that are being contested in good faith and by appropriate proceedings if, in the opinion of the Company, adequate reserves with respect thereto are maintained on the books of the Company or the affected Subsidiary, as the case may be, in accordance with GAAP; (c) carriers', warehousemen's, mechanics', materialmen's, repairmen's, landlords' or other like Liens arising in the ordinary course of business that are not overdue for a period of more than 30 days or that are being contested in good faith and by appropriate proceedings; (d) Liens securing judgments but only to the extent for an amount and for a period not resulting in an Event of Default; (e) pledges or deposits under worker's compensation, unemployment insurance and other social security legislation; (f) deposits to secure the performance of bids, trade contracts (other than for Indebtedness), leases, utilities, statutory obligations, surety and appeal bonds, performance bonds and other obligations of a like nature incurred in the ordinary course of business; (g) easements, rights-of-way, restrictions and other similar encumbrances incurred in the ordinary course of business and encumbrances consisting of zoning restrictions, easements, licenses, restrictions on the use of property or minor defects, irregularities or imperfections in title, and encumbrances and statutory Liens, that, in the aggregate, are not material in amount, and that do not in any case materially detract from the value of the property subject thereto or interfere with the ordinary conduct of the business of the Company and its Subsidiaries; (h) Liens in favor of any Government Authority to secure progress, advance or other payments, or pursuant to any contract, license, permit or provision of any statute; (i) bankers' Liens arising out of or with respect to the credit balance maintained by the Company in one or more deposit accounts; (j) Liens on Property to secure the payment of all or any part of the purchase price or construction cost thereof or to secure any Indebtedness incurred prior to, at the time of, or within 180 days after, the acquisition of such Property, the completion of any construction or the commencement of full operation, for the purpose of financing all or Credit Agreement 27 - 21 - any part of the purchase price or construction cost thereof, provided that such Lien shall not apply to any other property or asset of the Company or its Subsidiaries; (k) any Lien on any property or asset of the Company or any of its Subsidiaries existing on the date hereof and set forth in Schedule VI; provided that (i) such Lien shall not apply to any other property or asset of the Company or any of its Subsidiaries and (ii) such Lien shall secure only those obligations which it secures on the date hereof (and any Refinancing of such obligations provided the amount secured by such Lien shall not exceed the amount of such obligations being Refinanced); (l) Liens in connection with any Capital Lease Obligation permitted under Section 7.01(j); and (m) Liens arising in connection with the Iridium clearinghouse function (as described in Article IV of the Gateway Authorization Agreements). "Person" means any natural person, corporation, limited liability company, trust, joint venture, association, company, partnership, Government Authority or other entity. "Plan" means any employee pension benefit plan (other than a Multiemployer Plan) subject to the provisions of Title IV of ERISA or Section 412 of the U.S. Tax Code or Section 302 of ERISA, and in respect of which the Company or any ERISA Affiliate is (or, if such plan were terminated, would under Section 4069 of ERISA be deemed to be) an "employer" as defined in Section 3(5) of ERISA. "Post-Default Rate" has the meaning assigned to such term in Section 2.11(c). "Pre-Funding Account" has the meaning assigned to such term in the Depositary Agreement. "Pre-Funding Borrowing Date" means the date, on or before December 19, 1997 on or prior to which the Company shall have satisfied the conditions precedent set forth in Section 4.01 and on which the Term Lenders shall make the Term Loans under Section 2.01(a). "Prime Rate" means the rate of interest per annum publicly announced from time to time by Chase as its prime rate in effect at its principal office in New York City; each change in the Prime Rate shall be effective from and including the date such change is publicly announced as being effective. Credit Agreement 28 - 22 - "Principal Project Documents" means (a) the Space System Contract, (b) the O&M Contract, (c) the Terrestrial Network Development Contract, (d) all Gateway Authorization Agreements and (e) the IBSS Agreement. "Progress Certificate" means a Progress Certificate, substantially in the form of Exhibit I-1 or I-3, as applicable, duly completed and signed by a Responsible Officer. "Project" shall mean the IRIDIUM(R) global wireless communications system described in the Information Memorandum and all systems, property and businesses and activities related thereto. "Project Accounts" has the meaning assigned to such term in the Depositary Agreement. "Project Costs" means, for any period, all costs and expenses incurred or to be incurred by the Company and it Subsidiaries during such period in connection with the Development of the Project or any portion thereof, including, without limitation, all interest on and other regularly scheduled payments of Indebtedness permitted hereunder payable during such period, Operation and Maintenance Expenses for such period, and expenses (including, without limitation, all legal fees and related disbursements) reasonably incurred in such period by the Company and its Subsidiaries in connection with the preparation, negotiation, execution and delivery of any of the Transaction Documents. "Project Document Claim" means any payment by any Project Party (other than the Company or any of its Subsidiaries) to the Company or any of its Subsidiaries under any Principal Project Document in respect of liquidated damages, warranty payments, indemnity payments or other similar amounts. "Project Documents" means the Principal Project Documents and the Other Project Documents. "Project Party" means each Person (other than a Secured Party) from time to time party to a Transaction Document. "Quarterly Dates" means the 15th day of March, June, September and December in each year (or, if any such day is not a Business Day, the next Business Day), the first of which shall be the first such day after the date hereof. "Refinance" means, with respect to any Indebtedness, to refinance, extend, renew, refund, repay, prepay, redeem, defease or retire, or to issue Indebtedness in exchange or replacement for such Indebtedness. Credit Agreement 29 - 23 - "Refinanced" has a meaning correlative to the term "Refinance." "Refinancing" has a meaning correlative to the term "Refinance." "Register" has the meaning set forth in Section 11.04(c). "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 (a) 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 (b) any other activities that are reasonably related to the provision of telecommunications services and businesses. "Related Parties" means, with respect to any specified Person, such Person's Affiliates and the respective directors, officers, employees, agents and advisors of such Person and such Person's Affiliates. "Release" means, with respect to any Hazardous Material, any release, spill, emission, emanation, leaking, pumping, injection, deposit, disposal, discharge, dispersal, leaching or migration of such Hazardous Material into the indoor or outdoor environment, including, without limitation, the movement of such Hazardous Material through ambient air, soil, surface water, ground water, wetlands, land or subsurface strata. "Required Lenders" means, at any time, Lenders having Revolving Exposures, Term Loans and unused Commitments representing more than 50% of the sum of the total Revolving Exposures, outstanding Term Loans and unused Commitments at such time. "Reserve Capital Call Obligations" means the obligations of 17 of the Iridium LLC Members to purchase up to 18,206,550 of additional Class 1 Interests of Iridium LLC at a price of $13.33 per interest pursuant to Section 4.02 of the Iridium LLC Agreement. "Responsible Officer" means, with respect to the Company, its chief executive officer, chief financial officer or general counsel or any senior vice president of the Company or, with respect to any Borrowing Request and Sections 2.09(a), 2.09(e), 5.02 and 8.01(d), any vice president of the Company. "Restoration" has a meaning correlative to the term "Restore." "Restore" means, with respect to any Affected Property, to rebuild, repair, restore or replace such Affected Property. Credit Agreement 30 - 24 - "Restricted Payment" means distributions of the Company (in cash, property or obligations) on, or other payments on account of, or the setting apart of money for a sinking or other analogous fund for, or the purchase, redemption, retirement or other acquisition of, any portion of any membership or other equity interest in the Company or of any warrants, options or other rights to acquire any such membership or equity interest (or to make any payments to any Person where the amount thereof is calculated with reference to fair market or equity value of the Company or any Subsidiary). "Revolving Commitment" means, with respect to each Revolving Lender, the commitment, if any, of such Lender to make Revolving Loans, expressed as an amount representing the maximum aggregate amount of such Lender's Revolving Exposure hereunder, as such commitment may be (a) reduced from time to time pursuant to Section 2.06 or 2.09 and (b) reduced or increased from time to time pursuant to assignments by or to such Lender pursuant to Section 11.04. The initial amount of each Revolving Lender's Revolving Commitment is set forth on Schedule I, or in the Assignment and Acceptance pursuant to which such Lender shall have assumed its Revolving Commitment, as applicable. The initial aggregate amount of the Lenders' Revolving Commitments is $650,000,000. "Revolving Exposure" means, with respect to any Revolving Lender at any time, the outstanding principal amount of such Lender's Revolving Loans at such time. "Revolving Lenders" means a Lender with a Revolving Commitment or, if the Revolving Commitments have terminated or expired, a Lender with Revolving Exposure. "Revolving Loan" means a Loan made pursuant to Section 2.01(b). "Revolving Percentage" means, at any time, the percentage of the aggregate sum of the Revolving Commitments and Term Commitments at such time represented by the aggregate Revolving Commitments at such time. "S&P" means the Standard & Poor's Ratings Services (or any successor to the rating business thereof). "Scheduled Commercial Activation Date" means September 23, 1998. "SEC" means the Securities and Exchange Commission. "Secured Parties" means the Agents and the Lenders. "Security Agreement" means a Pledge and Security Agreement substantially in the form of Exhibit B between the Company, the Subsidiary Guarantors and the Collateral Agent. Credit Agreement 31 - 25 - "Security Documents" means, collectively, the Security Agreement, the Parent Security Agreement, the Mortgages, the Depositary Agreement, the Motorola Pledge Agreement, the consents and agreements referred to in Section VI of Part B of Appendix 2 and all Uniform Commercial Code financing statements or other filings and/or recordings required by any thereof to be filed or made, as the case may be, with respect to the security interests in or Liens on the property created pursuant to any thereof. "Senior Note Indentures" means, collectively, the Series A Note Indenture, the Series B Note Indenture and the Series C Note Indenture. "Senior Notes" means, collectively, the Series A Senior Notes, the Series B Senior Notes and the Series C Senior Notes. "Senior Subordinated Notes" means the Indebtedness of the Company (as transferee of Iridium LLC) in respect of the 14 1/2% Senior Subordinated Discount Notes due 2006 in an aggregate fully accreted principal amount at the maturity of $480,000,000. "Series A Note Indenture" means the Indenture dated as of July 16, 1997 among the Company (as transferee of Iridium LLC), Iridium Capital, Iridium IP, Iridium Roaming and State Street Bank and Trust Company, as trustee thereunder, in respect of the Series A Senior Notes. "Series A Senior Notes" means 13% Senior Notes due 2005, Series A and Series A/EN issued by Iridium LLC (which has assigned its obligations thereunder to the Company) and Iridium Capital, as co-obligors, under the Series A Note Indenture in an aggregate original principal amount of $300,000,000, and the guarantees thereof by the Subsidiaries pursuant to the Series A Note Indenture. "Series B Note Indenture" means the Note Indenture dated as of July 16, 1997 among the Company (as transferee of Iridium LLC), Iridium Capital, Iridium IP, Iridium Roaming and State Street Bank and Trust Company, as trustee thereunder, in respect of the Series B Senior Notes. "Series B Senior Notes" means 14% Senior Notes due 2005, Series B and Series B/EN issued by Iridium LLC (which has assigned its obligations thereunder to the Company) and Iridium Capital, as co-obligors, under the Series B Note Indenture in an aggregate original principal amount of $500,000,000, and the guarantees thereof pursuant to the Series B Note Indenture. "Series C Note Indenture" means the Indenture dated as of October 17, 1997 among the Company (as transferee of Iridium LLC), Iridium Capital, Iridium IP, Iridium Roaming Credit Agreement 32 - 26 - and State Street Bank and Trust Company, as trustee thereunder, in respect of the Series C Senior Notes. "Series C Senior Notes" means 11-1/4% Senior Notes due 2005, Series C and Series C/EN issued by Iridium LLC (which has assigned its obligations thereunder to the Company) and Iridium Capital, as co-obligors, under the Series C Note Indenture in an aggregate original principal amount of $300,000,000, and the guarantees thereof pursuant to the Series C Note Indenture. "Space System Contract" means the Space System Contract, dated, effective as of July 29, 1993, between the Company (as transferee of Iridium LLC) and Motorola. "Statutory Reserve Rate" means a fraction (expressed as a decimal), the numerator of which is the number one and the denominator of which is the number one minus the aggregate of the maximum reserve percentages (including any marginal, special, emergency or supplemental reserves) expressed as a decimal established by the Board to which the Administrative Agent is subject for eurocurrency funding (currently referred to as "Eurocurrency Liabilities" in Regulation D of the Board). Such reserve percentages shall include those imposed pursuant to such Regulation D. Eurodollar Loans shall be deemed to constitute eurocurrency funding and to be subject to such reserve requirements without benefit of or credit for proration, exemptions or offsets that may be available from time to time to any Lender under such Regulation D or any comparable regulation. The Statutory Reserve Rate shall be adjusted automatically on and as of the effective date of any change in any reserve percentage. "Subordinated Obligations" means, collectively, (a) the Senior Subordinated Notes, (b) Other Subordinated Debt, (c) the Company's financial obligations in respect of any and all claims and rights by Motorola against the Company arising as a result of Motorola's performance of its obligations under the Motorola Guarantee Agreement, whether by subrogation, contribution, reimbursement or otherwise, and including, without limitation, any and all obligations owing by Iridium under Section 1 (other than the obligations relating to compensation in the form of equity interests or warrants therefor) of the Agreement Regarding Guarantee, and (d) any and all obligations owing by the Company to Motorola in respect of the Motorola Vendor Financing. "Subsidiary" means, with respect to any Person (the "parent") at any date, any corporation, limited liability company, partnership, association or other entity the accounts of which would be consolidated with those of the parent in the parent's consolidated financial statements if such financial statements were prepared in accordance with GAAP as of such date, as well as any other corporation, limited liability company, partnership, association or other entity (a) of which securities or other ownership interests representing more than 50% of the equity or more than 50% of the ordinary voting power or, in the case of a partnership, more than 50% of the general partnership interests are, as of such date, owned, controlled or held, or (b) that is, as Credit Agreement 33 - 27 - of such date, otherwise Controlled, by the parent or one or more subsidiaries of the parent or by the parent and one or more subsidiaries of the parent. Unless otherwise specified, "Subsidiary" means a subsidiary of the Company. "Subsidiary Guarantee Agreement" means a Subsidiary Guarantee Agreement substantially in the form of Exhibit D between one or more Subsidiary Guarantors and the Administrative Agent. "Subsidiary Guarantee Assumption Agreement" means a Guarantee Assumption Agreement substantially in the form of Exhibit E by an entity that, pursuant to Section 6.11, is required to become a "Subsidiary Guarantor" hereunder in favor of the Administrative Agent. "Subsidiary Guarantor" means, as of the date hereof, each Subsidiary identified in Schedule VII and, thereafter, each other Subsidiary which becomes a Subsidiary Guarantor in accordance with Section 6.11. "Taxes" means, with respect to any Person, all taxes, withholdings, assessments, imposts, duties, governmental fees, governmental charges or levies imposed directly or indirectly on such Person or its income, profits or property by any Government Authority. "Telecommunications Approvals" means all Government Approvals of any applicable telecommunications authority (including all local and national telecommunications approvals and licenses, including FCC licenses, and compliance with ITU procedures and requirements) relating to the Development of the Project, including, without limitation, for spectrum allocation, Ka-band, L-band, interconnection, type approval, trans-border roaming and other business operations of the Company and its Subsidiaries. "Term Commitment" means, with respect to each Term Lender, the commitment, if any, of such Lender to make Term Loans, expressed as an amount representing the maximum aggregate amount of such Lender's Term Exposure hereunder, as such commitment may be (a) reduced from time to time pursuant to Section 2.06 or 2.09 and (b) reduced or increased from time to time pursuant to assignments by or to such Lender pursuant to Section 11.04. The initial amount of each Term Lender's Term Commitment is set forth on Schedule I, or in the Assignment and Acceptance pursuant to which such Lender shall have assumed its Term Commitment, as applicable. The initial aggregate amount of the Lenders' Term Commitments is $350,000,000. "Term Exposure" means, with respect to any Term Lender at any time, the outstanding principal amount of such Lender's Term Loans at such time. "Term Lender" means a Lender with a Term Commitment or, if the Term Commitments have terminated or expired, a Lender with Term Exposure. Credit Agreement 34 - 28 - "Term Loan" means a Loan made pursuant to Section 2.01(a). "Term Percentage" means, at any time, the percentage of the aggregate sum of the Revolving Commitments and Term Commitments at such time represented by the aggregate Term Commitments at such time. "Terrestrial Network Development Contract" means the Terrestrial Network Development Contract, effective January 1, 1993, between the Company (as transferee of Iridium LLC) and Motorola. "Transaction Documents" means the Credit Documents, the Project Documents and the LLC Agreements. "Type", when used in reference to any Loan or Borrowing, refers to whether the rate of interest on such Loan, or on the Loans comprising such Borrowing, is determined by reference to the Adjusted LIBO Rate or the Alternate Base Rate. "U.S. Bankruptcy Code" shall mean the United States Federal Bankruptcy Code of 1978, as amended from time to time. "U.S. Tax Code" shall mean the Internal Revenue Code of 1986, as amended from time to time. "Use" shall mean, with respect to any Hazardous Material and with respect to any Person, the generation, manufacture, processing, distribution, handling, use, treatment, recycling or storage of such Hazardous Material or transportation to or from the property of such Person of such Hazardous Material. "Wholly Owned Subsidiary" means, with respect to any Person, any Subsidiary all of the capital stock or other equity interests of which are owned by such Person (other than, in the case of a corporation, directors' qualifying shares and shares or equity interests required to be held by foreign nationals, in each case to the extent mandated by applicable law). "Withdrawal Liability" means liability to a Multiemployer Plan as a result of a complete or partial withdrawal from such Multiemployer Plan, as such terms are defined in Part I of Subtitle E of Title IV of ERISA. SECTION 1.02. Classification of Loans and Borrowings. For purposes of this Agreement, Loans may be classified and referred to by Class (e.g., a "Revolving Loan") or by Type (e.g., a "Eurodollar Loan") or by Class and Type (e.g., an "ABR Revolving Loan"). Borrowings also may be classified and referred to by Type (e.g., a "Eurodollar Borrowing") or by Class and Type (e.g., an "ABR Revolving Borrowing"). Credit Agreement 35 - 29 - SECTION 1.03. Terms Generally. The definitions of terms herein shall apply equally to the singular and plural forms of the terms defined. Whenever the context may require, any pronoun shall include the corresponding masculine, feminine and neuter forms. The words "include", "includes" and "including" shall be deemed to be followed by the phrase "without limitation". The word "will" shall be construed to have the same meaning and effect as the word "shall". Unless the context requires otherwise (a) any definition of or reference to any agreement, instrument or other document herein shall be construed as referring to such agreement, instrument or other document as from time to time amended, supplemented or otherwise modified, including an amendment and restatement thereof, but subject to any restrictions on such amendments, supplements or modifications set forth herein, (b) any reference herein to any Person shall be construed to include such Person's successors and assigns or, in the case of any Government Authority, any entity succeeding to any or all of the functions of such Government Authority, (c) the words "herein", "hereof" and "hereunder", and words of similar import, shall be construed to refer to this Agreement in its entirety and not to any particular provision hereof, (d) all references herein to Articles, Sections, Exhibits and Schedules shall be construed to refer to Articles and Sections of, and Exhibits and Schedules to, this Agreement and (e) the words "asset" and "property" shall be construed to have the same meaning and effect and to refer to any and all tangible and intangible assets and properties, including cash, securities, accounts and contract rights. SECTION 1.04. Accounting Terms; GAAP. Except as otherwise expressly provided herein, all terms of an accounting or financial nature shall be construed in accordance with GAAP, as in effect from time to time; provided that, if the Company notifies the Administrative Agent that the Company requests an amendment to any provision hereof to eliminate the effect of any change occurring after the date hereof in GAAP or in the application thereof on the operation of such provision (or if the Administrative Agent notifies the Company that the Required Lenders request an amendment to any provision hereof for such purpose), regardless of whether any such notice is given before or after such change in GAAP or in the application thereof, then such provision shall be interpreted on the basis of GAAP as in effect and applied immediately before such change shall have become effective until such notice shall have been withdrawn or such provision amended in accordance herewith. ARTICLE II THE CREDITS SECTION 2.01. The Commitments. (a) Subject to the satisfaction of the conditions precedent set forth in Section 4.01 and the conditions of this Section 2.01, the Company agrees to request, and each Term Lender agrees to make, a Term Loan in the full amount of such Term Lender's Term Commitment in effect as of the Pre-Funding Borrowing Date to the Company on the Pre-Funding Borrowing Date; provided that the proceeds of such Term Loans shall be deposited into the Pre-Funding Account and held and/or disbursed by the Credit Agreement 36 - 30 - Depositary Bank solely in accordance with Section 4.04(b) of the Depositary Agreement. The Company shall notify each Term Lender of the expected Pre-Funding Borrowing Date not less than one Business Day prior thereto by delivering a Borrowing Request to the Administrative Agent (or, if the Company intends to borrow Eurodollar Term Loans on such date, three Business Days prior thereto). Amounts prepaid in respect of Term Loans may not be reborrowed. (b) Subject to the terms and conditions set forth herein, each Revolving Lender agrees to make Revolving Loans to the Company from time to time during the period from and including the Closing Date to but excluding the earlier of the Commitment Termination Date and the date of termination of the Revolving Commitments in an aggregate principal amount that will not result in (i) such Revolving Lender's Revolving Exposure exceeding such Lender's Revolving Commitment or (ii) the total Revolving Exposures exceeding the total Revolving Commitments; provided that no Revolving Loans shall be made to the Company until such time as Term Loans have been made to the Company in accordance with Section 2.01(a) and the conditions precedent to the disbursement of the proceeds of such Term Loans set forth in Section 4.02 have been satisfied or waived in accordance with the terms thereof. Within the foregoing limits and subject to the terms and conditions set forth herein, the Company may borrow, prepay and reborrow Revolving Loans. SECTION 2.02. Loans and Borrowings. (a) Each Loan shall be made as part of a Borrowing consisting of Loans of the same Class and Type made by the applicable Lenders ratably in accordance with their respective Commitments of the applicable Class. The failure of any Lender to make any Loan required to be made by it shall not relieve any other Lender of its obligations hereunder; provided that the Commitments of the Lenders are several and no Lender shall be responsible for any other Lender's failure to make Loans as required. (b) Subject to Section 2.12, each Borrowing shall be comprised entirely of ABR Loans or Eurodollar Loans as the Company may request in accordance herewith. Each Lender at its option may make any Eurodollar Loan by causing any domestic or foreign branch or affiliate of such Lender to make such Loan; provided that any exercise of such option shall not affect the obligation of the Company to repay such Loan or any additional amount with respect thereto in accordance with the terms of this Agreement. (c) At the commencement of each Interest Period for any Eurodollar Borrowing, such Borrowing shall be in an aggregate principal amount of $10,000,000 or a larger multiple of $1,000,000. At the time that each ABR Borrowing is made, such Borrowing shall be in an aggregate principal amount equal to $10,000,000 or a larger multiple of $1,000,000; provided that an ABR Borrowing may be in an aggregate principal amount that is equal to the entire unused balance of the total Commitments. Borrowings of more than one Type may be Credit Agreement 37 - 31 - outstanding at the same time; provided that there shall not at any time be more than a total of twelve Eurodollar Borrowings outstanding. (d) Notwithstanding any other provision of this Agreement, the Company shall not be entitled to request, or to elect to convert or continue, any Borrowing if the Interest Period requested with respect thereto would end after the Maturity Date. SECTION 2.03. Requests for Borrowings. To request a Borrowing, the Company shall notify the Administrative Agent of such request by telephone (a) in the case of a Eurodollar Borrowing, not later than 10:00 a.m., New York City time, three Business Days before the date of the proposed Borrowing or (b) in the case of an ABR Borrowing, not later than 10:00 a.m., New York City time, the date of the proposed Borrowing. Each such telephonic Borrowing Request shall be irrevocable and shall be confirmed promptly by hand delivery or telecopy to the Administrative Agent of a written Borrowing Request signed by a Responsible Officer. Each such telephonic and written Borrowing Request shall specify the following information in compliance with Section 2.02: (i) whether the requested Borrowing is to be a Revolving Borrowing or a Term Borrowing; (ii) the aggregate principal amount of the requested Borrowing; (iii) the date of such Borrowing, which shall be a Business Day; (iv) whether such Borrowing is to be an ABR Borrowing or a Eurodollar Borrowing; and (v) in the case of a Eurodollar Borrowing, the initial Interest Period to be applicable thereto, which shall be a period contemplated by the definition of the term "Interest Period". If no election as to the Type of Borrowing is specified, then the requested Borrowing shall be an ABR Borrowing. If no Interest Period is specified with respect to any requested Eurodollar Borrowing, then the Company shall be deemed to have selected an Interest Period of one month's duration. Promptly, and in any event at least one hour prior to the time each Lender shall make its Loans hereunder, following receipt of a Borrowing Request in accordance with this Section, the Administrative Agent shall advise each Lender and the Collateral Agent of the details thereof and of the amount of such Lender's Loan to be made as part of the requested Borrowing. Credit Agreement 38 - 32 - SECTION 2.04. Funding of Borrowings. (a) Each Lender shall make each Loan to be made by it hereunder on the proposed date thereof by wire transfer of immediately available funds by 12:00 noon, New York City time, to the account of the Administrative Agent most recently designated by it for such purpose by notice to the Lenders. The Administrative Agent will make such Loans available to the Company by promptly crediting the amounts so received, in like funds, to the General Receipt & Disbursement Account. (b) Unless the Administrative Agent shall have received notice from a Lender prior to the proposed date of any Borrowing that such Lender will not make available to the Administrative Agent such Lender's share of such Borrowing, the Administrative Agent may assume that such Lender has made such share available on such date in accordance with paragraph (a) of this Section and may, in reliance upon such assumption, make available to the Company a corresponding amount. In such event, if a Lender has not in fact made its share of the applicable Borrowing available to the Administrative Agent, then the applicable Lender and the Company severally agree to pay to the Administrative Agent forthwith on demand such corresponding amount with interest thereon, for each day from and including the date such amount is made available to the Company to but excluding the date of payment to the Administrative Agent, at (i) in the case of such Lender, the Federal Funds Effective Rate or (ii) in the case of the Company, the interest rate applicable to ABR Loans. If such Lender pays such amount to the Administrative Agent, then such amount shall constitute such Lender's Loan included in such Borrowing. SECTION 2.05. Interest Elections. (a) Each Borrowing initially shall be of the Type specified in the applicable Borrowing Request, and in the case of a Eurodollar Borrowing, shall have an initial Interest Period as specified in such Borrowing Request. Thereafter, the Company may elect to convert such Borrowing to a different Type or to continue such Borrowing and, in the case of a Eurodollar Borrowing, may elect Interest Periods therefor, all as provided in this Section. The Company may elect different options with respect to different portions of the affected Borrowing, in which case each such portion shall be allocated ratably among the Lenders holding the Loans comprising such Borrowing, and the Loans comprising each such portion shall be considered a separate Borrowing. (b) To make an election pursuant to this Section, the Company shall notify the Administrative Agent of such election by telephone by the time that a Borrowing Request would be required under Section 2.03 if the Company were requesting a Borrowing of the Type resulting from such election to be made on the effective date of such election. Each such telephonic Interest Election Request shall be irrevocable and shall be confirmed promptly by delivery or Credit Agreement 39 - 33 - telecopy to the Administrative Agent of a written Interest Election Request in a form approved by the Administrative Agent and signed by the Company. (c) Each telephonic and written Interest Election Request shall specify the following information in compliance with Section 2.02: (i) the Borrowing to which such Interest Election Request applies and, if different options are being elected with respect to different portions thereof, the portions thereof to be allocated to each resulting Borrowing (in which case the information to be specified pursuant to clauses (iii) and (iv) of this paragraph shall be specified for each resulting Borrowing); (ii) the effective date of the election made pursuant to such Interest Election Request, which shall be a Business Day; (iii) whether the resulting Borrowing is to be an ABR Borrowing or a Eurodollar Borrowing; and (iv) if the resulting Borrowing is a Eurodollar Borrowing, the Interest Period to be applicable thereto after giving effect to such election, which shall be a period contemplated by the definition of the term "Interest Period". If any such Interest Election Request requests a Eurodollar Borrowing but does not specify an Interest Period, then the Company shall be deemed to have selected an Interest Period of one month's duration. (d) Promptly following receipt of an Interest Election Request, the Administrative Agent shall advise each Lender of the details thereof and of such Lender's portion of each resulting Borrowing. (e) If the Company fails to deliver a timely Interest Election Request with respect to a Eurodollar Borrowing prior to the end of the Interest Period applicable thereto, then, unless such Borrowing is repaid as provided herein, at the end of such Interest Period such Borrowing shall be converted to an ABR Borrowing. Notwithstanding any contrary provision hereof, if an Event of Default has occurred and is continuing and the Administrative Agent, at the request of the Required Lenders, so notifies the Company, then, so long as an Event of Default is continuing (i) no outstanding Borrowing may be converted to or continued as a Eurodollar Borrowing and (ii) unless repaid, each Eurodollar Borrowing shall be converted to an ABR Borrowing at the end of the Interest Period applicable thereto. Credit Agreement 40 - 34 - SECTION 2.06. Termination and Reduction of the Commitments. (a) Unless previously terminated, the Term Commitments and the Revolving Commitments shall terminate on the Commitment Termination Date. (b) The Company may at any time terminate, or from time to time reduce, the Commitments of either Class; provided that (i) each reduction of the Commitments pursuant to this Section shall be in an amount that is $25,000,000 or a larger multiple of $1,000,000, (ii) the Company shall not terminate or reduce the Term Commitments except to the extent required under Section 2.09, (iii) the Company shall not terminate or reduce the Revolving Commitments if, after giving effect to any concurrent prepayment of the Revolving Loans in accordance with Section 2.08, the total Revolving Exposures would exceed the total Revolving Commitments, and (iv) each request for each such reduction shall be accompanied by a certificate of a Responsible Officer demonstrating (to the reasonable satisfaction of the Administrative Agent) compliance by the Company with Section 8.04 after giving effect to such reduction. (c) The Company shall notify the Administrative Agent and the Collateral Agent of any election to terminate or reduce the Commitments of either Class under paragraph (b) of this Section at least three Business Days prior to the effective date of such termination or reduction, specifying such election and the effective date thereof. Promptly following receipt of any notice, the Administrative Agent shall advise the Lenders of the contents thereof. Each notice delivered by the Company pursuant to this Section shall be irrevocable; provided that a notice of termination of the Commitments of either Class delivered by the Company may state that such notice is conditioned upon the effectiveness of other credit facilities or upon the issuance of other indebtedness, in which case such notice may be revoked by the Company (by notice to the Administrative Agent on or prior to the specified effective date) if such condition is not satisfied. (d) The Commitments shall reduce automatically on the date of any prepayment of Loans made pursuant to this Section or Section 2.09 in an amount equal to the amount of such prepayment. (e) Any termination or reduction of the Commitments shall be permanent. Each reduction of the Commitments of a Class shall be made ratably among the Lenders with respect to such Class in accordance with their respective Commitments. SECTION 2.07. Repayment of Loans; Evidence of Debt. (a) The Company hereby unconditionally promises to pay to the Administrative Agent for the account of each Lender the then unpaid principal amount of each Loan of such Lender on the Maturity Date. Credit Agreement 41 - 35 - (b) Each Lender shall maintain in accordance with its usual practice an account or accounts evidencing the indebtedness of the Company to such Lender resulting from each Loan made by such Lender, including the amounts of principal and interest payable and paid to such Lender from time to time hereunder. (c) The Administrative Agent shall maintain accounts in which it shall record (i) the amount of each Loan made hereunder, the Type and Class thereof and the Interest Period applicable thereto, (ii) the amount of any principal or interest due and payable or to become due and payable from the Company to each Lender hereunder and (iii) the amount of any sum received by the Administrative Agent hereunder for the account of the Lenders and each Lender's share thereof. (d) The entries made in the accounts maintained pursuant to paragraph (b) or (c) of this Section shall be prima facie evidence of the existence and amounts of the obligations recorded therein; provided that the failure of any Lender or the Administrative Agent to maintain such accounts or any error therein shall not in any manner affect the obligation of the Company to repay the Loans in accordance with the terms of this Agreement. (e) Any Lender may request that Loans made by it be evidenced by a promissory note. In such event, the Company shall prepare, execute and deliver to such Lender a promissory note payable to the order of such Lender (or, if requested by such Lender, to such Lender and its registered assigns) and in a form approved by the Administrative Agent and the Company. SECTION 2.08. Optional Prepayment of Loans. (a) The Company shall have the right at any time and from time to time to prepay any Borrowing of either Class in whole or in part, subject to the requirements of this Section and provided that each such prepayment that is not a prepayment of a Borrowing in whole shall be in an aggregate principal amount not less than $10,000,000. (b) Prior to any optional prepayment of Borrowings hereunder, the Company shall select the Borrowing or Borrowings to be prepaid and shall specify such selection in the notice of such prepayment pursuant to paragraph (c) of this Section; provided that each prepayment of Borrowings of either Class shall be applied to prepay any outstanding ABR Borrowings of such Class before any Eurodollar Borrowings of such Class. If the Company fails to make a timely selection of the Borrowing or Borrowings to be prepaid, such prepayment shall be applied, first, to prepay any outstanding ABR Borrowings of the applicable Class and, second, to Eurodollar Borrowings of such Class in the order of the remaining duration of their respective Interest Periods (the Borrowing with the shortest remaining Interest Period to be prepaid first). (c) The Company shall notify the Administrative Agent and the Collateral Agent by telephone (confirmed by telecopy) of any optional prepayment hereunder (i) in the case of Credit Agreement 42 - 36 - prepayment of a Eurodollar Borrowing, not later than 10:00 a.m., New York City time, three Business Days before the date of repayment or (ii) in the case of prepayment of an ABR Borrowing, not later than 10:00 a.m., New York City time, the date of prepayment. Each such notice shall be irrevocable and shall specify the prepayment date and the principal amount of each Borrowing or portion thereof to be prepaid; provided that, if a notice of prepayment is given in connection with a conditional notice of termination of the Commitments as contemplated by Section 2.06, then such notice of prepayment may be revoked if such notice of termination is revoked in accordance with Section 2.06. Promptly following receipt of any such notice relating to a Borrowing, the Administrative Agent shall advise the Lenders of the contents thereof. Each partial prepayment of any Borrowing shall be in an amount that would be permitted in the case of an advance of a Borrowing of the same Type as provided in Section 2.02. Each prepayment of a Borrowing shall be applied ratably to the Loans included in the prepaid Borrowing. Prepayments shall be accompanied by accrued interest to the extent required by Section 2.11. SECTION 2.09. Mandatory Prepayments and Reductions of Commitments. (a) Dispositions. Without limiting the obligation of the Company to obtain the consent of the Required Lenders pursuant to Section 7.04 to any Disposition not otherwise permitted hereunder, in the event that the Net Available Proceeds of any Disposition other than any Excluded Disposition (herein, the "Current Disposition"), and of all prior Dispositions (other than any Excluded Disposition) as to which neither a prepayment nor a reduction of Commitments has yet been made under this paragraph, shall exceed $5,000,000 then, promptly upon the occurrence of the Current Disposition, the Company will deliver to the Administrative Agent a statement, certified by a Responsible Officer, in form and detail reasonably satisfactory to the Administrative Agent, of the amount of the Net Available Proceeds of the Current Disposition and of all such prior Dispositions and, within 30 Business Days after the receipt of the Net Available Proceeds of the Current Disposition, the Company shall prepay the Loans, and/or the Commitments shall be subject to automatic reduction, in an aggregate amount equal to 100% of the Net Available Proceeds of the Current Disposition and such prior Dispositions in the manner and to the extent specified in paragraph (f) of this Section. (b) Equity Issuance. Within 30 Business Days after any Equity Issuance (other than any Excluded Equity Issuance), the Company shall prepay the Loans, and/or the Commitments shall be subject to automatic reduction, in an aggregate amount equal to 100% of the Net Available Proceeds of such Equity Issuance in the manner and to the extent specified in paragraph (f) of this Section. (c) Debt Incurrence. Without limiting the obligation of the Company to obtain the consent of the Required Lenders pursuant to Section 7.01 to any incurrence of Indebtedness by the Company or any of its Subsidiaries not otherwise permitted hereunder, within 30 Business Days after any Debt Incurrence (other than any Excluded Debt Incurrence), the Company shall prepay the Loans, and/or the Commitments shall be subject to automatic reduction, in an Credit Agreement 43 - 37 - aggregate amount equal to 100% of the Net Available Proceeds of such Debt Incurrence in the manner and to the extent specified in paragraph (f) of this Section. (d) Event of Loss. Within 30 Business Days after receipt of the Net Available Proceeds of an Event of Loss (other than an Event of Loss (i) as to which the Net Available Proceeds thereof, together with the Net Available Proceeds of all previous Events of Loss covered by this clause (i) and not theretofore applied to either a prepayment hereunder or to the Restoration of the Affected Property, do not exceed $5,000,000 or (ii) as to which, unless an Event of Default shall have occurred and be continuing, the Company shall have notified the Collateral Agent pursuant to Section 4.02(b)(ii) of the Depositary Agreement that it intends to Restore the Affected Property with respect to such Event of Loss), the Company shall prepay the Loans and/or the Commitments shall be subject to automatic reduction, in an aggregate amount equal to 100% of the Net Available Proceeds of such Event of Loss and of such previous Events of Loss in the manner and to the extent specified in paragraph (f) of this Section. (e) Project Document Claims. In the event that the Net Available Proceeds of any Project Document Claim (herein, the "Current Payment"), and of all prior amounts received by the Company in respect of Project Document Claims as to which neither a prepayment nor a reduction of Commitments has yet been made under this paragraph, shall exceed $5,000,000 in the aggregate then, promptly upon the receipt of the Current Payment, the Company will deliver to the Administrative Agent a statement, certified by a Responsible Officer, in form and detail reasonably satisfactory to the Administrative Agent, of the aggregate amount of the Current Payment and of all such prior payments and, within 30 Business Days after receipt of the Net Available Proceeds of the Current Payment, will prepay the Loans, and/or the Commitments shall be subject to automatic reduction, in an aggregate amount equal to 100% of the Net Available Proceeds of the Current Payment and such prior payments in the manner and to the extent specified in paragraph (f) of this Section. (f) Application. Prepayments and/or reductions of Commitments described in the foregoing paragraphs of this Section shall be applied ratably as between the Term Commitments and the Revolving Commitment and with respect to the respective Commitments, as follows: (i) the aggregate amount of the Term Commitments shall be reduced by an amount equal to the Term Percentage of the amount of such prepayment and/or reduction (and to the extent that, after giving effect to such reduction, the sum of the Term Exposures would exceed the Term Commitments, the Company shall prepay Term Loans in an aggregate amount equal to such excess); and (ii) the aggregate amount of the Revolving Commitments shall be reduced by an amount equal to the Revolving Percentage of such prepayment and/or reduction (and to the extent that, after giving effect to such reduction, the sum of the Revolving Exposures Credit Agreement 44 - 38 - would exceed the Revolving Commitments, the Company shall prepay Revolving Loans in an aggregate amount equal to such excess). (g) Selection of Borrowings to be Prepaid. Prior to any mandatory prepayment of Borrowings under this Section, the Company shall select the Borrowing or Borrowings of each Class to be prepaid and shall specify such selection in a notice to the Administrative Agent not less than three Business Days prior to the date of such prepayment; provided that each prepayment of Borrowings of either Class shall be applied to prepay any outstanding ABR Borrowings of such Class before any other Borrowings of such Class. If the Company fails to make a timely selection of the Borrowing or Borrowings to be prepaid, such prepayment shall be applied, first, to prepay any outstanding ABR Borrowings of the applicable Class and, second, to other Borrowings of such Class in the order of the remaining duration of their respective Interest Periods (the Borrowing with the shortest remaining Interest Period to be prepaid first). (h) Payment into Project Accounts. Nothing in this Section shall be deemed to limit any obligation of the Company or any of its Subsidiaries hereunder or under the Depositary Agreement to deposit (or cause to be deposited), promptly upon receipt, the proceeds in respect of any Disposition, Equity Issuance, Debt Incurrence, Event of Loss or Project Document Claim in the appropriate Project Account in accordance with the Depositary Agreement. SECTION 2.10. Fees. (a) The Company agrees to pay to the Administrative Agent for the account of each Lender a commitment fee, which shall accrue at a rate per annum equal to 1/2 of 1% on the average daily unused amount of the Commitment of such Lender during the period from and including the date hereof to but excluding the earlier of (i) the date such Commitment terminates and (ii) the Commitment Termination Date. Accrued commitment fees shall be payable on each Quarterly Date and on the earlier of the date the Commitment terminates and the Maturity Date, commencing on the first such date to occur after the date hereof. All commitment fees shall be computed on the basis of a year of 360 days and shall be payable for the actual number of days elapsed (including the first day but excluding the last day). (b) The Company agrees to pay to each Agent, for its own account, fees payable in the amounts and at the times separately agreed upon between the Company and such Agent. (c) All fees payable hereunder shall be paid on the due date thereof, in immediately available funds, to the Administrative Agent for distribution, in the case of commitment fees, to the Lenders entitled thereto. Fees paid shall not be refundable under any circumstances. Credit Agreement 45 - 39 - SECTION 2.11. Interest. (a) The Loans comprising each ABR Borrowing shall bear interest at a rate per annum equal to the Alternate Base Rate plus the Applicable Margin. (b) The Loans comprising each Eurodollar Borrowing shall bear interest at a rate per annum equal to the Adjusted LIBO Rate for the Interest Period in effect for such Borrowing plus the Applicable Margin. (c) Notwithstanding the foregoing, if any principal of or interest on any Loan or any fee or other amount payable by the Company hereunder is not paid when due, whether at stated maturity, upon acceleration, by mandatory prepayment or otherwise, such overdue amount shall bear interest, after as well as before judgment, at a rate per annum (the "Post-Default Rate") equal to 2% plus the rate applicable to ABR Loans as provided in paragraph (a) of this Section. (d) Accrued interest on each Loan shall be payable in arrears on each Interest Payment Date for such Loan and upon termination of the applicable Commitments; provided that (i) interest accrued pursuant to paragraph (c) of this Section shall be payable on demand, (ii) in the event of any prepayment of any Loan (other than a prepayment of an ABR Loan prior to the Maturity Date), accrued interest on the principal amount prepaid shall be payable on the date of such prepayment and (iii) in the event of any conversion of any Eurodollar Borrowing prior to the end of the current Interest Period therefor, accrued interest on such Loan shall be payable on the effective date of such conversion. (e) All interest hereunder shall be computed on the basis of a year of 360 days, except that interest computed by reference to the Alternate Base Rate at times when the Alternate Base Rate is based on the Prime Rate shall be computed on the basis of a year of 365 days (or 366 days in a leap year), and in each case shall be payable for the actual number of days elapsed (including the first day but excluding the last day). The applicable Alternate Base Rate or Adjusted LIBO Rate shall be determined by the Administrative Agent, and such determination shall be conclusive absent manifest error. SECTION 2.12. Alternate Rate of Interest. If prior to the commencement of any Interest Period for a Eurodollar Borrowing: (a) the Administrative Agent determines (which determination shall be conclusive absent manifest error) that adequate and reasonable means do not exist for ascertaining the Adjusted LIBO Rate for such Interest Period; or (b) the Administrative Agent is advised by the Required Lenders that the Adjusted LIBO Rate for such Interest Period will not adequately and fairly reflect the cost to such Credit Agreement 46 - 40 - Lenders of making or maintaining their Loans included in such Borrowing for such Interest Period; then the Administrative Agent shall give notice thereof to the Company and the Lenders by telephone or telecopy as promptly as practicable thereafter and, until the Administrative Agent notifies the Company and the Lenders that the circumstances giving rise to such notice no longer exist, (i) any Interest Election Request that requests the conversion of any Borrowing to, or continuation of any Borrowing as, a Eurodollar Borrowing shall be ineffective and (ii) if any Borrowing Request requests a Eurodollar Borrowing, such Borrowing shall be made as an ABR Borrowing; provided that if the circumstances giving rise to such notice affect only one Type of Borrowings, then the other Type of Borrowings shall be permitted. SECTION 2.13. Increased Costs. (a) If any Change in Law shall: (i) impose, modify or deem applicable any reserve, special deposit or similar requirement against assets of, deposits with or for the account of, or credit extended by, any Lender (except any such reserve requirement reflected in the Adjusted LIBO Rate); or (ii) impose on any Lender or the London interbank market any other condition affecting this Agreement or Eurodollar Loans made by such Lender; and the result of any of the foregoing shall be to increase the cost to such Lenders of making or maintaining any Eurodollar Loan (or of maintaining its obligation to make any such Loan) or to reduce the amount of any sum received or receivable by such Lender hereunder (whether of principal, interest or otherwise), then the Company will pay to such Lender such additional amount or amounts as will compensate such Lender for such additional costs incurred or reduction suffered. Without limiting the rights and obligations of the Lenders and the Company under Section 2.17, if any Lender requests compensation from the Company under this Section, the Company may, by notice to such Lender (with a copy to the Administrative Agent), suspend the obligation of such Lender thereafter to make or continue Eurodollar Loans, or to convert ABR Loans into Eurodollar Loans, until the Change in Law giving rise to such request ceases to be in effect; provided that such suspension shall not affect the right of such Lender to receive the compensation so requested. If the obligation of any Lender to make Eurodollar Loans or to continue, or to convert ABR Loans into, Eurodollar Loans shall be suspended pursuant to the preceding sentence, such Lender's Eurodollar Loans shall be automatically converted into ABR Loans on the last day(s) of the then current Interest Period(s) for Eurodollar Loans and, unless Credit Agreement 47 - 41 - and until such Lender gives notice as provided below that the Change in Law is no longer in effect: (x) to the extent that such Lender's Eurodollar Loans have been so converted, all payments and prepayments of principal that would otherwise be applied to such Lender's Eurodollar Loans shall be applied instead to its ABR Loans; and (y) all Loans that would otherwise be made or continued by such Lender as Eurodollar Loans shall be made or continued instead as ABR Loans, and all ABR Loans of such Lender that would otherwise be converted into Eurodollar Loans shall remain as ABR Loans. If such Lender gives notice to the Company with a copy to the Administrative Agent that the Change in Law that gave rise to the conversion of such Lender's Eurodollar Loans pursuant to this Section is no longer in effect at a time when Eurodollar Loans made by other Lenders are outstanding, such Lender's ABR Loans shall be automatically converted, on the first day(s) of the next succeeding Interest Period(s) for such outstanding Eurodollar Loans, to the extent necessary so that, after giving effect thereto, all ABR and Eurodollar Loans of the same Class are allocated among the Lenders ratably (as to principal amounts, Types and Interest Periods) in accordance with their respective Commitments with respect to such Class. (b) If any Lender determines that any Change in Law regarding capital requirements has or would have the effect of reducing the rate of return on such Lender's capital or on the capital of such Lender's holding company, if any, as a consequence of this Agreement or the Loans made by such Lender to a level below that which such Lender or such Lender's holding company could have achieved but for such Change in Law (taking into consideration such Lender's policies and the policies of such Lender's holding company with respect to capital adequacy), then from time to time the Company will pay to such Lender such additional amount or amounts as will compensate such Lender or such Lender's holding company for any such reduction suffered. (c) A certificate of a Lender setting forth the amount or amounts necessary to compensate such Lender or its holding company, as the case may be, as specified in paragraph (a) or (b) of this Section shall be delivered to the Company and shall be conclusive absent manifest error. The Company shall pay such Lender the amount shown as due on any such certificate within 10 days after receipt thereof. (d) Failure or delay on the part of any Lender to demand compensation pursuant to this Section shall not constitute a waiver of such Lender's right to demand such compensation; provided that the Company shall not be required to compensate a Lender pursuant to this Section for any increased costs or reductions incurred more than six months prior to the date that such Lender notifies the Company of the Change in Law giving rise to such increased costs or Credit Agreement 48 - 42 - reductions and of such Lender's intention to claim compensation therefor; provided, further, that, if the Change in Law giving rise to such increased costs or reductions is retroactive, then the six-month period referred to above shall be extended to include the period of retroactive effect thereof. SECTION 2.14. Break Funding Payments. In the event of (a) the payment of any principal of any Eurodollar Loan other than on the last day of an Interest Period applicable thereto (including as a result of an Event of Default or in connection with any mandatory prepayment pursuant to Section 2.09), (b) the conversion of any Eurodollar Loan other than on the last day of the Interest Period applicable thereto, (c) the failure to borrow, convert, continue or prepay any Eurodollar Loan on the date specified in any notice delivered pursuant hereto (regardless of whether such notice is permitted to be revocable under Section 2.08(c) and is revoked in accordance herewith), or (d) the assignment of any Eurodollar Loan other than on the last day of the Interest Period applicable thereto as a result of a request by the Company pursuant to Section 2.17, then, in any such event, the Company shall compensate each Lender for the loss (other than lost profit), cost and expense attributable to such event. In the case of a Eurodollar Loan, the loss to any Lender attributable to any such event shall be deemed to include an amount determined by such Lender to be equal to the excess, if any, of (i) the amount of interest that such Lender would pay for a deposit equal to the principal amount of such Loan for the period from the date of such payment, conversion, failure or assignment to the last day of the then current Interest Period for such Loan (or, in the case of a failure to borrow, convert or continue, the duration of the Interest Period that would have resulted from such borrowing, conversion or continuation) if the interest rate payable on such deposit were equal to the Adjusted LIBO Rate for such Interest Period, over (ii) the amount of interest that such Lender would earn on such principal amount for such period if such Lender were to invest such principal amount for such period at the interest rate that would be bid by such Lender (or, if not so bid by the Lender, by an affiliate of such Lender) for Dollar deposits from other banks in the eurodollar market at the commencement of such period. A certificate of any Lender setting forth any amount or amounts that such Lender is entitled to receive pursuant to this Section shall be delivered to the Company and shall be conclusive absent manifest error. The Company shall pay such Lender the amount shown as due on any such certificate within 10 days after receipt thereof. SECTION 2.15. Taxes. (a) Any and all payments by or on account of any obligation of the Company hereunder or under any other Credit Document shall be made free and clear of and without deduction for any Indemnified Taxes or Other Taxes; provided that if the Company shall be required to deduct any Indemnified Taxes or Other Taxes from such payments, then (i) the sum payable shall be increased as necessary so that after making all required deductions (including deductions applicable to additional sums payable under this Section) the Administrative Agent or Lender (as the case may be) receives an amount equal to the sum it would have received had no such deductions been made, (ii) the Company shall make such deductions and (iii) the Company Credit Agreement 49 - 43 - shall pay the full amount deducted to the relevant Government Authority in accordance with any applicable Government Rule. (b) In addition, the Company shall pay any Other Taxes to the relevant Government Authority in accordance with any applicable Government Rule. (c) The Company shall indemnify the Administrative Agent and each Lender, within 10 days after written demand therefor, for the full amount of any Indemnified Taxes or Other Taxes (including Indemnified Taxes or Other Taxes imposed or asserted on or attributable to amounts payable under this Section) paid by the Administrative Agent or such Lender, as the case may be, and any penalties, interest and reasonable expenses arising therefrom or with respect thereto, whether or not such Indemnified Taxes or Other Taxes were correctly or legally imposed or asserted by the relevant Government Authority. A certificate as to the amount of such payment or liability delivered to the Company by a Lender, or by the Administrative Agent on its own behalf or on behalf of a Lender, shall be conclusive absent manifest error. (d) As soon as practicable after any payment of Indemnified Taxes or Other Taxes by the Company to a Government Authority, the Company shall deliver to the Administrative Agent the original or a certified copy of a receipt issued by such Government Authority evidencing such payment, a copy of the return reporting such payment or other evidence of such payment reasonably satisfactory to the Administrative Agent. (e) Each Foreign Lender shall (i) deliver to the Company and the Administrative Agent (x) on or before the date on which it becomes a Lender (A) (1) two properly completed and duly executed copies of United States Internal Revenue Service Form 1001 or 4224 (or successor applicable form, as the case may be) claiming complete exemption from United States withholding tax with respect to payments by the Company under this Agreement and the other Credit Documents and (2) a duly completed United States Internal Revenue Service Form W-8 or W-9 certifying that such Lender is entitled to an exemption from United States backup withholding tax or (B), in the case of a Lender not treated as a bank for regulatory, tax or other legal purposes in any jurisdiction, (1) a certificate under penalties of perjury that such Lender is not (x) a bank, a shareholder of the Company or a controlled foreign corporation related to the Company for purposes of section 881(c)(3) of the Code or (y) a conduit entity within the meaning of United States Treasury Regulations section 1.881-3 and (2) two duly completed Internal Revenue Service Forms W-8, and (y) two further copies of any such form or certification on or before the date that any such form or certification expires or becomes obsolete and after the occurrence of any event requiring a change in the most recent form previously delivered; and (ii) obtain such extensions of time for filing and complete such forms or certifications as may reasonably be requested by the Company or the Administrative Agent; provided, however, that the Lender shall not be required to perform the obligations under this paragraph if any change in treaty, law or regulation has occurred prior to the date on which any such delivery would otherwise be required which renders all such forms inapplicable or which would prevent such Credit Agreement 50 - 44 - Lender from duly completing and delivering any such form with respect to it and such Lender so advises the Company and the Administrative Agent. SECTION 2.16. Payments Generally; Pro Rata Treatment; Sharing of Set-offs. (a) The Company shall make each payment required to be made by it hereunder (whether of principal, interest or fees, or under Section 2.13, 2.14 or 2.15, or otherwise) or under any other Credit Document (except to the extent otherwise provided therein) prior to 1:00 p.m., New York City time, on the date when due, in immediately available funds, without set-off or counterclaim. Any amounts received after such time on any date may, in the discretion of the Administrative Agent, be deemed to have been received on the next succeeding Business Day for purposes of calculating interest thereon. All such payments shall be made to the Administrative Agent at its offices at 270 Park Avenue, New York, New York, except as otherwise expressly provided in the relevant Credit Document, and except that payments pursuant to Sections 2.13, 2.14, 2.15 and 11.03 shall be made directly to the Persons entitled thereto. The Administrative Agent shall distribute any such payments received by it for the account of any other Person to the appropriate recipient promptly following receipt thereof. If any payment hereunder shall be due on a day that is not a Business Day, the date for payment shall be extended to the next succeeding Business Day and, in the case of any payment accruing interest, interest thereon shall be payable for the period of such extension. All payments hereunder or under any other Credit Document (except to the extent otherwise provided therein) shall be made in Dollars. (b) If at any time insufficient funds are received by and available to the Administrative Agent to pay fully all amounts of principal, interest and fees then due hereunder, such funds shall be applied (i) first, to pay interest and fees then due hereunder, ratably among the parties entitled thereto in accordance with the amounts of interest and fees then due to such parties, and (ii) second, to pay principal then due hereunder, ratably among the parties entitled thereto in accordance with the amounts of principal then due to such parties. (c) If any Lender shall, by exercising any right of set-off or counterclaim or otherwise, obtain payment in respect of any principal of or interest on any of its Loans resulting in such Lender receiving payment of a greater proportion of the aggregate amount of its Loans and accrued interest thereon than the proportion received by any other Lender, then the Lender receiving such greater proportion shall purchase (for cash at face value) participations in the Loans of other Lenders to the extent necessary so that the benefit of all such payments shall be shared by the Lenders ratably in accordance with the aggregate amount of principal of and accrued interest on their respective Loans; provided that (i) if any such participations are purchased and all or any portion of the payment giving rise thereto is recovered, such participations shall be rescinded and the purchase price restored to the extent of such recovery, without interest, and (ii) the provisions of this paragraph shall not be construed to apply to any payment made by the Company pursuant to and in accordance with the express terms of this Agreement or any payment obtained by a Lender as consideration for the assignment of or sale of Credit Agreement 51 - 45 - a participation in any of its Loans to any assignee or participant, other than to the Company or any Subsidiary or Affiliate thereof (as to which the provisions of this paragraph shall apply). The Company consents to the foregoing and agrees, to the extent it may effectively do so under applicable Government Rule, that any Lender acquiring a participation pursuant to the foregoing arrangements may exercise against the Company rights of set-off and counterclaim with respect to such participation as fully as if such Lender were a direct creditor of the Company in the amount of such participation. (d) Unless the Administrative Agent shall have received notice from the Company prior to the date on which any payment is due to the Administrative Agent for the account of the Lenders hereunder that the Company will not make such payment, the Administrative Agent may assume that the Company has made such payment on such date in accordance herewith and may, in reliance upon such assumption, distribute to the Lenders the amount due. In such event, if the Company has not in fact made such payment, then each of the Lenders severally agrees to repay to the Administrative Agent forthwith on demand the amount so distributed to such Lender with interest thereon, for each day from and including the date such amount is distributed to it to but excluding the date of payment to the Administrative Agent, at the Federal Funds Effective Rate. (e) If any Lender shall fail to make any payment required to be made by it pursuant to Section 2.04(b) or 2.16(d), then the Administrative Agent may, in its discretion (notwithstanding any contrary provision hereof), apply any amounts thereafter received by the Administrative Agent for the account of such Lender to satisfy such Lender's obligations under such Sections until all such unsatisfied obligations are fully paid. SECTION 2.17. Mitigation Obligations; Replacement of Lenders. (a) If any Lender requests compensation under Section 2.13, or if the Company is required to pay any additional amount to any Lender or any Government Authority for the account of any Lender pursuant to Section 2.15, then such Lender shall use reasonable efforts to designate a different lending office for funding or booking its Loans hereunder or to assign its rights and obligations hereunder to another of its offices, branches or affiliates, if, in the judgment of such Lender, such designation or assignment (i) would eliminate or reduce amounts payable pursuant to Section 2.13 or 2.15, as the case may be, in the future and (ii) would not subject such Lender to any unreimbursed cost or expense and would not otherwise be disadvantageous to such Lender. The Company hereby agrees to pay all reasonable costs and expenses incurred by any Lender in connection with any such designation or assignment. (b) If any Lender requests compensation under Section 2.13, or if the Company is required to pay any additional amount to any Lender or any Government Authority for the account of any Lender pursuant to Section 2.15, or if any Lender defaults in its obligation to fund Loans hereunder, then the Company may, at its sole expense, upon notice to such Lender and the Administrative Agent, require such Lender to assign and delegate, without recourse (in Credit Agreement 52 - 46 - accordance with and subject to the restrictions contained in Section 11.04), all its interests, rights and obligations under this Agreement to an assignee that shall assume such obligations (which assignee may be another Lender, if a Lender accepts such assignment); provided that (i) the Company shall have received the prior written consent of the Administrative Agent, which consent shall not unreasonably be withheld, (ii) such Lender shall have received payment of an amount equal to the outstanding principal of its Loans, accrued interest thereon, accrued fees and all other amounts payable to it hereunder, from the assignee (to the extent of such outstanding principal and accrued interest and fees) or the Company (in the case of all other amounts) and (iii) in the case of any such assignment resulting from a claim for compensation under Section 2.13 or payments required to be made pursuant to Section 2.15, such assignment will result in a reduction in such compensation or payments. A Lender shall not be required to make any such assignment and delegation if, prior thereto, as a result of a waiver by such Lender or otherwise, the circumstances entitling the Company to require such assignment and delegation cease to apply. SECTION 2.18. Extension of Commitment Termination Date. (a) The Company may, at any time prior to July 1, 1998, request in writing to the Administrative Agent (the "Extension Request") an extension of the Commitment Termination Date to the last Business Day of any calendar month occurring after September 30, 1998 (the "Existing Commitment Termination Date"), but in no event later than June 30, 1999. The date on which such request is received by the Administrative Agent is herein called the "Request Date". The Extension Request shall be signed by a Responsible Officer and: (i) specify the date to which the Existing Commitment Termination is requested to be extended (the "Proposed Commitment Termination Date"); (ii) contain a certification by such Responsible Officer to the effect that, as of the Request Date: (x) no Event of Default shall have occurred and be continuing; and (y) the Company is in compliance with the requirements of Section 8.04 for the period from and including the Request Date to and including the Proposed Commitment Termination Date based upon the Project Costs for such period specified in then current Approved Budget (as amended or supplemented under clause (iii) below, if applicable) (and setting forth, in detail reasonably satisfactory to the Administrative Agent, the basis for such compliance together with any other documentation reasonably requested by the Administrative Agent to demonstrate such compliance); and Credit Agreement 53 - 47 - (iii) if the Proposed Commitment Termination Date shall be later than December 31, 1998, be accompanied by an amended or supplemental budget, as approved by the board of directors of the Company, setting forth the Project Costs projected to be payable by Company and its Subsidiaries during the period from January 1, 1998 to and including the Proposed Commitment Termination Date (and, upon the effectiveness of such extension as provided below, such amended budget or supplemental budget shall be deemed an "Approved Budget" for purposes of this Agreement). The Administrative Agent shall promptly upon receipt of the Extension Request forward a copy thereof to each Lender. (b) The extension of the Existing Commitment Termination Date requested in the Extension Request shall be effective if the Administrative Agent shall (i) be reasonably satisfied that each of the matters set forth in clause (ii) of paragraph (a) above shall be true and correct as of the Request Date and (ii) have received the amended or supplemental budget required under clause (iii) of paragraph (a) above, if applicable (provided, however, that if the basis for the Company's certification as to compliance with Section 8.04 under clause (ii)(y) of paragraph (a) above includes any written financing commitment (other than a financing commitment which has theretofore been approved by the Required Lenders for purposes of complying with Section 8.04), the acceptability of such commitment for purposes of satisfying the requirement of such clause (ii)(y) shall be determined by the Required Lenders). The Administrative Agent (and, if applicable, the Required Lenders) agree to make such determination within 30 days of the Request Date, provided that if no such determination shall be made on or prior to such date, such request shall be deemed denied. If the conditions to such extension are determined to be satisfied as provided above, the Administrative Agent shall notify the Company and the Lenders as to such extension whereupon the Commitment Termination Date shall be the date set forth in such Extension Request for all purposes of this Agreement. (c) The Company shall not have the right to extend the Commitment Termination Date pursuant to this Section more than once. ARTICLE III REPRESENTATIONS AND WARRANTIES The Company represents and warrants to the Lenders that: SECTION 3.01. Organization; Qualification. Each of the Company and its Subsidiaries is a limited liability company, corporation, partnership or other entity duly organized, validly existing and in good standing under the laws of the jurisdiction of its organization, and is qualified to do business and is in good standing in all jurisdictions in which the nature of the business conducted by it makes such qualification necessary and where failure so to qualify could Credit Agreement 54 - 48 - reasonably be expected (either individually or in the aggregate) to result in a Material Adverse Effect. SECTION 3.02. Powers. Each of the Company and its Subsidiaries has all requisite corporate or other power to own its assets and carry on its business as now being or as proposed to be conducted; provided that no representation or warranty is made under this Section 3.02 with respect to any Government Approvals. SECTION 3.03. Authorization. The Company and each of its Subsidiaries has full power, authority and legal right to execute and deliver each of the Credit Documents and Principal Project Documents to which it is a party and to perform its obligations thereunder. The execution, delivery and performance by the Company and each of its Subsidiaries of each of the Credit Documents and Principal Project Documents to which it is a party and the consummation of the transactions contemplated thereby have been duly authorized by all necessary corporate action on the part of the Company or such Subsidiary. SECTION 3.04. No Conflicts. The execution, delivery and performance by the Company and each of its Subsidiaries of the Credit Documents and Principal Project Documents to which it is a party and the consummation of the transactions contemplated thereby do not and will not (a) require any consent or approval of the membership committee or board of directors (as the case may be) or any shareholders or members of the Company or any of its Subsidiaries or any other Person that has not been obtained and each such consent and approval that has been obtained is adequate for its intended purpose and is in full force and effect, (b) violate any material provision of any Government Rule or any order, writ, judgment, decree, determination or award having applicability to the Company or any of its Subsidiaries or the Project, (c) violate any provision of the Company LLC Agreement (in the case of the Company) or the certificate of incorporation or by-laws (or the applicable constitutive documents) of any of the Company's Subsidiaries, (d) result in a breach of or constitute a default under any Credit Document or Principal Project Documents to which it is a party or any material indenture or loan or credit agreement or any other material agreement or instrument to which the Company or any of its Subsidiaries is a party or by which it or its properties and assets is or are bound or affected or (e) result in or require the creation or imposition of any Lien (other than Permitted Liens) upon or with respect to any of their respective properties and assets now owned or hereafter acquired. SECTION 3.05. Enforceability. Each of the Credit Documents (in each case, from and after the date of execution and delivery thereof by the parties thereto) and Principal Project Documents to which the Company or any of its Subsidiaries is a party has been duly executed and delivered by the Company or such Subsidiary and constitutes the legal, valid and binding obligation of the Company or such Subsidiary enforceable against the Company or such Subsidiary in accordance with its terms, except as the enforceability thereof may be limited by (a) applicable bankruptcy, insolvency, reorganization, fraudulent transfer, moratorium or other similar laws affecting the enforcement of creditors' rights generally and (b) the application of Credit Agreement 55 - 49 - general principles of equity (regardless of whether such enforceability is considered in a proceeding at law or in equity). SECTION 3.06. Government Approvals. (a) All Telecommunications Approvals required to be obtained by the Company or any of its Subsidiaries for the current stage of the Development of the Project have been duly obtained, are validly issued, are in full force and effect, are held in the name or extend to the benefit of the Company or one of its Subsidiaries and are free from any conditions or requirements that the Company could not reasonably be expected to satisfy on or prior to the date such Telecommunications Approval is required for the appropriate stage of the Development of the Project or to be fully effective. (b) To the best knowledge of the Company, all other Telecommunications Approvals required to be obtained by any Person (other than the Company or any of it Subsidiaries) for the current stage of the Development of the Project have been duly obtained, are validly issued, are in full force and effect, are held in the name or extend to the benefit of such other Person and are free from any conditions or requirements that the Company could not reasonably expect such other Person to satisfy on or prior to the date such Telecommunications Approval is required for the appropriate stage of the Development of the Project or to be fully effective. (c) All Government Approvals (other than Telecommunications Approvals) required to be obtained by the Company or any of its Subsidiaries for the current stage of the Development of the Project have been duly obtained, are validly issued, are in full force and effect, are held in the name or extend to the benefit of the Company or one of its Subsidiaries and are free from any conditions or requirements that the Company could not reasonably be expected to satisfy on or prior to the date such Government Approval is required for the appropriate stage of the Development of the Project or to be fully effective. (d) To the best knowledge of the Company, all other Government Approvals (other than Telecommunications Approvals) required to be obtained by any Person (other than the Company or any of it Subsidiaries) for the current stage of the Development of the Project have been duly obtained, are validly issued, are in full force and effect, are held in the name or extend to the benefit of the relevant Person and are free from any conditions or requirements that the Company could not reasonably expect such other Person to satisfy on or prior to the date such Government Approval is required for the appropriate stage of the Development of the Project or to be fully effective. (e) The Company has no reasonable basis to believe that any Government Approval required for the Development of the Project that has not been obtained or has not become final and non-appealable as of the date hereof: Credit Agreement 56 - 50 - (i) will not be obtained in due course on or prior to the commencement of the appropriate stage of Development of the Project, unless the failure to obtain such Government Approval could not reasonably be expected to result in a Material Adverse Effect; (ii) will contain any conditions or requirements compliance with which could reasonably be expected to result in a Material Adverse Effect; or (iii) will be subject to an appeal the outcome of which could reasonably be expected to result in a Material Adverse Effect. (f) The Project, if constructed and operated in accordance with the requirements of the Principal Project Documents, will in all material respects conform to and comply with all applicable covenants, conditions, restrictions and reservations in all Government Approvals required for the Development of the Project and all Government Rules applicable thereto. (g) Neither the Company nor any of its Subsidiaries is in violation in any material respect of any Government Rule applicable to any of the Credit Parties in connection with the Development of the Project or any Government Approval required for the Development of the Project and obtained by any of the Credit Parties. To the best knowledge of the Company, no Person (other than the Credit Parties) is in violation of any Government Rule applicable to it in connection with the Development of the Project or any Government Approval required for the Development of the Project and obtained by such Person, the violation of which could reasonably be expected to result in a Material Adverse Effect. SECTION 3.07. Financial Condition; No Material Adverse Change. (a) The Company has heretofore furnished to the Lenders the consolidated balance sheet and statements of income, stockholders' equity and cash flows for Iridium LLC (i) as of and for the fiscal year ended December 31, 1996, reported on by KPMG Peat Marwick LLP, independent public accountants and (ii) as of and for the fiscal quarter and the portion of the fiscal year ended September 30, 1997, certified by the chief financial officer of Iridium LLC. Such financial statements present fairly, in all material respects, the consolidated financial position and results of operations and cash flows of Iridium LLC and its Subsidiaries as of such dates and for such periods in accordance with GAAP, subject to year-end audit adjustments and the absence of footnotes in the case of the statements referred to in clause (ii) above. (b) Since December 31, 1996 (and giving effect to the Asset Transfer as of such date), there has been no change in the business, assets, operations, prospects or condition, financial or otherwise, of Iridium LLC and its Subsidiaries, taken as a whole, that (either individually or in the aggregate) could reasonably be expected to result in a Material Adverse Effect. Credit Agreement 57 - 51 - SECTION 3.08. Properties. (a) Each of the Company and its Subsidiaries owns and has, or when acquired will own and have, good, legal and marketable title to its property which it purports to own (other than its leasehold or licensed properties) free and clear of all Liens other than Permitted Liens. (b) Each of the Company and its Subsidiaries is, or when leases creating leasehold properties are executed will be, lawfully possessed of a valid and subsisting leasehold estate in and to its leasehold properties which it purports to lease free and clear of all Liens other than Permitted Liens. (c) Each of the Company and its Subsidiaries enjoys, and will enjoy, peaceful and undisturbed possession of, or a license to use, all property (subject only to Permitted Liens) that are necessary for the current stage of Development of the Project. (d) Each of the Company and its Subsidiaries owns or possesses, or is licensed to use (or believes it can acquire on reasonable terms), all material Intellectual Property necessary for the Development of the Project or (to the extent not required to be obtained on or prior to the date hereof) will be obtained in due course when so necessary, and licenses, contracts or other agreements in respect of such Intellectual Property are (or when obtained, will be) final and are (or will be) in full force and effect. To the best knowledge of the Company, the use thereof by the Company and its Subsidiaries does not infringe upon, or conflict with, the rights of any other Person. (e) Set forth on Part A of Schedule II is a list, as of the date hereof, of all of the real property interests held by the Company and its Subsidiaries, indicating in each case whether the respective property is owned or leased, the identity of the owner or lessee, the location of the respective property and the approximate value of such property. Part B of Schedule II sets forth real property interests which the Company or any of its Subsidiaries reasonably expects as of the date hereof will be acquired prior to the Commitment Termination Date, indicating in each case the estimated date of acquisition thereof, whether the respective property will be owned or leased, the identity of the intended owner or lessee and the location and estimated value of such property. SECTION 3.09. Proceedings. Except as described in Schedule III, there is no action, suit or proceeding at law or in equity or by or before any Government Authority, arbitral tribunal or other similar body now pending or, to the best knowledge of the Company, threatened against the Company or any of its Subsidiaries or any of their respective property (including, without limitation, the Project), which could reasonably be expected to result in a Material Adverse Effect. SECTION 3.10. Environmental Matters. Except as described in Schedule IV, neither the Company nor any of its Subsidiaries (a) has failed to comply, in any material respect, Credit Agreement 58 - 52 - with any Environmental Law or to obtain, maintain or comply, in any material respect, with any permit, license or other approval required under any Environmental Law or (b) has received notice of any Environmental Claim that could reasonably be expected to result in liability to the Company or any of its Subsidiaries in excess of $2,000,000. Except as set forth in Schedule IV: (i) there are no facts, circumstances, conditions or occurrences regarding the Project that could reasonably be expected (x) to form the basis of an Environmental Claim arising with respect to or relating to any property of the Company or any of its Subsidiaries associated with the Project, (y) to cause the Project (or any property of the Company or any of its Subsidiaries associated therewith) to be subject to any restrictions on ownership, occupancy, use or transferability under any Environmental Law or (z) to require the filing or recording of any notice, registration, permit or disclosure documents under any Environmental Law other than routine filings or recordings; (ii) there are no past, pending or, to the best knowledge of the Company, threatened Environmental Claims arising with respect to or relating to any property of the Company or any of its Subsidiaries associated with the Project; (iii) to the best knowledge of the Company, Hazardous Materials have not at any time been used or Released at, on, under or from any property of the Company or any of its Subsidiaries associated with the Project in a manner that creates any risk of any material liability under applicable Environmental Laws or that otherwise could reasonably be expected to result in a Material Adverse Effect; and (iv) There have been no environmental investigations, studies, audits, assessments, reviews or other analyses conducted by or which are in the possession of the Company in relation to any property of the Company or any of its Subsidiaries associated with the Project which have not been provided to the Administrative Agent. SECTION 3.11. Investment and Holding Company Status. Neither the Company nor any of its Subsidiaries is (a) an "investment company" or a company "controlled" by a company registered as an "investment company", as such terms are defined in the Investment Company Act of 1940 or (b) a "holding company", or an "affiliate" of a company registered as a "holding company" or a "subsidiary company" of a company registered as a "holding company", within the meaning of the Public Utility Holding Company Act of 1935. SECTION 3.12. Taxes. Each of the Company and its Subsidiaries has filed or caused to be filed all tax returns that are required to be filed, and has paid all Taxes shown to be due and payable on said returns or on any assessments made against the Company or any of its Subsidiaries or any of their respective property (other than Taxes the payment of which is not yet Credit Agreement 59 - 53 - due or which is being contested in good faith by appropriate proceedings and for which such Person has set aside on its books adequate reserves), and no tax Liens (other than Permitted Liens) have been filed and no claims are being asserted with respect to any such Taxes. The charges, accruals and reserves on the books of the Company and its Subsidiaries in respect of Taxes and other governmental charges are, in the opinion of the Company, adequate. SECTION 3.13. ERISA. No ERISA Event has occurred or is reasonably expected to occur that, when taken together with all other such ERISA Events for which liability is reasonably expected to occur, could reasonably be expected to result in a Material Adverse Effect. As of the date hereof, the Company does not have any Plans and is not obligated or required to contribute to any Plan or Multiemployer Plan. SECTION 3.14. Disclosure. The information, reports, financial statements, exhibits and schedules (other than projections) furnished in writing by or on behalf of the Company to any Agent or any Lender in connection with the negotiation, preparation or delivery of this Agreement and the other Credit Documents or included herein or therein or delivered pursuant hereto or thereto (other than projections), when taken as a whole (together with the Information Memorandum, but excluding the reports contained in Section 9 thereof (Technical Due Diligence Report and Marketing Due Diligence Report) which were not prepared by the Company) and after giving effect to the Asset Transfer, do not contain any untrue statement of material fact or omit to state any material fact necessary to make the statements herein or therein, in light of the circumstances under which they were made (including the time of the making of such statements), not misleading, except that the Asset Transfer was not described therein. The projections, estimates and/or pro forma financial statements (including, without limitation the Iridium Financial Projections) furnished by or on behalf of the Company to the Agents or any Lender in connection with the negotiation, execution and delivery of this Agreement and the other Credit Documents or included herein or therein or delivered pursuant hereto or thereto, have been prepared by the Company in good faith on the basis of information and assumptions that the Company believed to be reasonable as of the date of such information. All written information furnished after the date hereof by the Company and its Subsidiaries to the Agents and the Lenders in connection with this Agreement and the other Credit Documents and the transactions contemplated hereby and thereby will not contain any untrue statement of material fact or omit to state any material fact necessary to make the statements therein, in light of the circumstances under which they were made, not misleading, or (in the case of projections, estimates and pro forma financial statements) will be prepared in good faith on the basis of information and assumptions believed by the Company to be reasonable as of the date of such information. There is no fact known to the Company that could reasonably be likely to result in a Material Adverse Effect that has not been disclosed herein, in the other Credit Documents, in the Information Memorandum or in a report, financial statement, exhibit, schedule, disclosure letter or other writing furnished to the Lenders for use in connection with the transactions contemplated hereby or thereby. Credit Agreement 60 - 54 - SECTION 3.15. Use of Credit. Neither the Company nor any of its Subsidiaries is engaged principally, or as one of its important activities, in the business of extending credit for the purpose, whether immediate, incidental or ultimate, of buying or carrying Margin Stock, and no part of the proceeds of any Loan hereunder will be used to buy or carry any Margin Stock and the proceeds of the Loans hereunder shall be used in accordance with Section 6.09. SECTION 3.16. Debt Agreements. Schedule V is a complete and correct list of each credit agreement, loan agreement, indenture, purchase agreement, guarantee, letter of credit or other arrangement providing for or otherwise relating to any Indebtedness or any extension of credit (or commitment for any extension of credit) to, or guarantee by, the Company or any of its Subsidiaries outstanding on the date hereof, and the aggregate principal amount outstanding or that may become outstanding under the then current terms of each such arrangement is as of the date hereof correctly described in Schedule V. SECTION 3.17. Liens. Schedule VI is a complete and correct list of each Lien securing Indebtedness of the Company or any of its Subsidiaries outstanding on the date hereof, and the aggregate Indebtedness secured (or that may be secured) by each such Lien and the property covered by each such Lien is as of the date hereof correctly described in Schedule VI. SECTION 3.18. Capitalization. The Company has heretofore delivered to the Lenders a true and complete copy of the Company LLC Agreement. The only member of the Company on the date hereof is Iridium LLC. The membership and other ownership interests in the Company are legally owned solely by Iridium LLC, and all such interests have been validly issued and are fully paid-in and non-assessable (except for the restriction contained in Section 6.07 of the Delaware LLC Act). The Company does not have outstanding any securities convertible into or exchangeable for any of its membership interests or other ownership interests in or any rights to subscribe for or to purchase, or any warrants or options for the purchase of, or any agreements providing for the issuance (contingent or otherwise) of, or any calls, commitments or claims of any character relating to, any such membership interests or other ownership interests. SECTION 3.19. Subsidiaries. Schedule VII is a complete and correct list of all of the Subsidiaries of the Company as of the date hereof, together with, for each such Subsidiary, (a) the jurisdiction of organization of such Subsidiary, (b) each Person holding equity interests in such Subsidiary and (c) the nature of the equity interests held by each such Person and the percentage of ownership of such Subsidiary represented by such equity interests. Except as disclosed in Schedule VII, (i) each of the Company and its Subsidiaries owns, free and clear of Liens, and has the unencumbered right to vote, all outstanding ownership interests in each Person shown to be held by it in Schedule VII, (ii) all of such issued and outstanding equity interests are validly issued, fully paid and nonassessable and (iii) there are no outstanding subscriptions, options, warrants, commitments, preemptive rights or agreements of any kind (including, without limitation, any shareholders' or voting trust agreements) for the issuance, sale, registration or Credit Agreement 61 - 55 - voting of, or securities convertible into, any additional shares of equity interests of any type in, such Person. SECTION 3.20. Investments. Schedule VIII is a complete and correct list of all Investments (other than Investments disclosed in Schedule VII and Permitted Investments existing as of the date hereof) held by the Company or any of its Subsidiaries in any Person on the date hereof and, for each such Investment, (a) the identity of the Person or Persons holding such Investment and (b) the nature of such Investment. Except as disclosed in Schedule VIII, each of the Company and its Subsidiaries owns all such Investments as of the date hereof, free and clear of all Liens other than Permitted Liens. SECTION 3.21. Restrictive Agreements. None of the Subsidiaries of the Company is, on the date hereof, subject to any indenture, agreement, instrument or other arrangement of the type described in Section 7.09 (other than as permitted thereunder). SECTION 3.22. Business. Neither the Company nor any of its Subsidiaries has conducted any business other than any business associated with or related to the Development of the Project or any Related Business. SECTION 3.23. Collateral; Security Interests. As of the Closing Date and at all times thereafter, the provisions of the Security Documents to which any Credit Party is a party are effective to create, in favor of the Collateral Agent for the benefit of the Secured Parties, a legal, valid and enforceable Lien on and security interest in all of the then existing Collateral purported to be covered thereby. Except as set forth in the Security Documents, as of the Closing Date and at all times thereafter, all necessary and appropriate filings (including filings for the purpose of recording) have been made in all necessary and appropriate public offices (in the case of such Collateral consisting of satellites, in accordance with the Security Agreement) and all other necessary and appropriate action has been taken, so that each such Security Document creates a perfected Lien on and security interest in all right, title, estate and interest of the Company or any of its Subsidiaries in the then existing Collateral covered thereby, free and clear of all Liens (other than Permitted Liens), and all necessary and appropriate consents to the creation, perfection and enforcement of such Liens have been obtained from each of the parties to the Principal Project Documents. No mortgage or financing statement or other instrument or recordation covering all or any part of the then existing Collateral purported to be covered by the Security Documents is on file in any recording office, except such as may have been filed in favor of the Collateral Agent for the benefit of the Secured Parties or in respect of any Permitted Lien. SECTION 3.24. Sufficiency of Project Documents. (a) The Administrative Agent has received a certified copy of each Principal Project Document in effect on the date hereof and each amendment, modification or supplement thereto. Credit Agreement 62 - 56 - (b) Except as permitted pursuant to, or not prohibited by, Section 8.05 or 8.06, since the date hereof none of the Project Documents has been amended, modified or supplemented or has been materially Impaired and all of the Project Documents are in full force and effect (except to the extent any such Project Document has expired or terminated in accordance with its terms). (c) All conditions precedent to the obligations of the respective parties under the Project Documents have been satisfied or waived except for such conditions precedent which are not required to be satisfied until a later stage of Development of the Project, and the Company has no reason to believe that any such condition precedent cannot be satisfied on or prior to the commencement of the appropriate stage of Development of the Project. (d) No Credit Party is in default in the performance of any material covenant or obligation set forth in or otherwise in default in any material respect under any Principal Project Document to which it is a party. No Credit Party is in default in the performance of any covenant or obligation set forth in or otherwise in default under any Other Project Document to which it is a party, the effect of which could reasonably be expected to result in a Material Adverse Effect. (e) To the best knowledge of the Company, no Project Party (other than any Credit Party) is in default in the performance of any material covenant or obligation set forth in or otherwise in default in any material respect under any Principal Project Document to which it is a party. To the best knowledge of the Company, no such Project Party is in default in the performance of any covenant or obligation set forth in or is otherwise in default under any Other Project Document to which it is a party, the effect of which could reasonably be expected to result in a Material Adverse Effect. SECTION 3.25. Employee Matters. Except as set forth on Schedule X, (a) on the date hereof, neither Company nor any of its Subsidiaries nor any of their respective employees is subject to any collective bargaining agreement, (b) on the date hereof, no petition for certification or union election is pending with respect to the employees of the Company or any of its Subsidiaries and no union or collective bargaining unit has sought such certification or recognition with respect to the employees of any such Person and (c) there are no strikes, slowdowns, work stoppages or controversies pending or, to the knowledge of Company, threatened between the Company or any of its Subsidiaries and their respective employees relating to the Project, other than any thereof which could not reasonably be expected to result in a Material Adverse Effect. SECTION 3.26. Other Project Parties. (a) To the best knowledge of the Company, (i) the execution, delivery and performance by each Project Party (other than the Credit Parties and Motorola) of each of the Transaction Documents to which it is a party and the consummation of the transactions Credit Agreement 63 - 57 - contemplated thereby have been duly authorized by all necessary corporate or other action on the part of such other Project Party, (ii) each such other Project Party has the full power, authority and legal right to execute and deliver each of the Transaction Documents to which it is a party and to perform its obligations thereunder, (iii) the execution, delivery and performance by each such other Project Party of each of the Transaction Documents to which it is a party and the consummation of the transactions contemplated thereby have been duly authorized by all necessary corporate or other action on the part of such other Project Party, and (iv) each of the Project Documents to which any such other Project Party is a party has been duly executed and delivered by such other Project Party and constitutes the legal, valid and binding obligation of such other Project Party enforceable against such other Project Party in accordance with its terms, except as the enforceability thereof may be limited by (a) applicable bankruptcy, insolvency, reorganization, fraudulent transfer, moratorium or other similar laws affecting the enforcement of creditors' rights generally and (b) the application of general principles of equity (regardless of whether such enforceability is considered in a proceeding at law or in equity), unless the failure of the accuracy of any of the representations and warranties contained in clauses (i) through (iv) above could not reasonably be expected to result in a Material Adverse Effect. (b) To the best knowledge of the Company, there is no action, suit or proceeding at law or in equity or by or before any Government Authority, arbitral tribunal or other body now pending or threatened against or affecting any such other Project Party or any of its property which could reasonably be expected to result in a Material Adverse Effect. SECTION 3.27. Asset Transfer. Each of the Company and Iridium LLC has the full power and authority and legal right to execute and deliver the Asset Transfer Agreement and to perform its obligations thereunder. The execution, delivery and performance by the Company and Iridium LLC of the Asset Transfer Agreement and the consummation of the transactions contemplated thereby have been duly authorized by all necessary corporate action of the part of the Company and Iridium LLC. The execution, delivery and performance by the Company and Iridium LLC of the Asset Transfer Agreement and the consummation of the Asset Transfer do not and will not (a) require any consent or approval of any Person that has not already been obtained and that remains in full force and effect, (b) violate any material provision of any Government Rule or any order, writ, judgment, decree, determination or award having applicability to the Company, Iridium LLC or any of their respective Subsidiaries, (c) violate any provision of the LLC Agreements, (d) result in a breach or constitute a default under any material indenture or agreement to which the Company, Iridium LLC or any of their respective Subsidiaries is a party or by which any of their respective property is bound or affected or (e) result in or require the creation or imposition of any Lien upon or with respect to any of the properties or assets now owned or hereafter acquired by such Person. The Asset Transfer has been given effect and all of the assets of Iridium LLC required to be transferred by Iridium LLC to the Company under the Asset Transfer Agreement have been so transferred prior to the date hereof. Credit Agreement 64 - 58 - SECTION 3.28. Absence of Immunity. Neither the Company nor any of its property or revenue is entitled to any right of immunity in any jurisdiction from suit, court jurisdiction, judgment, attachment, set-off or execution of a judgment or from any other legal process or remedy relating to the obligations of the Company under this Agreement or any other Credit Document. ARTICLE IV CONDITIONS SECTION 4.01. Pre-Funding of Term Loans. The obligations of each Term Lender to make its Term Loan in accordance with Section 2.01(a) is subject to the satisfaction of the following conditions precedent: (a) the conditions set forth in Part A of Appendix 2 (and receipt by the Administrative Agent of each of the documents listed therein), each of which shall be in form and substance satisfactory to the Administrative Agent (or such condition shall have been waived in accordance with Section 11.02); and (b) the conditions precedent that: (i) the representations and warranties of the Company set forth in this Agreement and of the Company and each other Credit Party in each of the other Credit Documents then in effect to which it is a party, and, to the best knowledge of the Company, of each other Project Party in each of the Credit Documents then in effect to which it is a party, shall be true and correct on and as of the date of such Loans (or, if stated to have been made solely as of an earlier date, were true and correct as of such earlier date); and (ii) at the time of and immediately after giving effect to the making of such Loans, no Default shall have occurred and be continuing. SECTION 4.02. Disbursement of Term Loans from the Pre-Funding Account. The proceeds of the Term Loans shall be disbursed to the Company pursuant to Section 4.04(b) of the Depositary Agreement upon the satisfaction of the following conditions precedent: (a) the conditions set forth in Part B of Appendix 2 (and receipt by the Administrative Agent of each of the documents listed therein), each of which shall be in form and substance satisfactory to the Administrative Agent (or such condition shall have been waived in accordance with Section 11.02); and (b) the conditions precedent that: Credit Agreement 65 - 59 - (i) the representations and warranties of the Company set forth in this Agreement and of the Company and each other Credit Party in each of the other Credit Documents to which it is a party, and, to the best knowledge of the Company, of each other Project Party in each of the Credit Documents to which it is a party, shall be true and correct on and as of the date on which such proceeds are so disbursed (or, if stated to have been made solely as of an earlier date, were true and correct as of such earlier date); and (ii) at the time of and immediately after giving effect to such disbursement, no Default shall have occurred and be continuing. SECTION 4.03. Pre-Commercial Activation Revolving Loans. The obligation of each Revolving Lender to make each Revolving Loan on the occasion of each Borrowing, but not exceeding $400,000,000 of Revolving Loans in aggregate outstanding principal amount, is subject to the satisfaction on the date of such Loan of: (a) the conditions set forth in Part C of Appendix 2 (and receipt by the Administrative Agent of each of the documents listed therein), each of which shall be in form and substance satisfactory to the Administrative Agent (or such condition shall have been waived in accordance with Section 11.02); and (b) the conditions precedent that: (i) the representations and warranties of the Company set forth in this Agreement and of the Company and each other Credit Party in each of the other Credit Documents to which it is a party, and, to the best knowledge of the Company, of each other Project Party in each of the Credit Documents to which it is a party, shall be true and correct on and as of the date of such Borrowing (or, if stated to have been made solely as of an earlier date, were true and correct as of such earlier date); and (ii) at the time of and immediately after giving effect to such Borrowing, no Default shall have occurred and be continuing. Each such Borrowing shall be deemed to constitute a representation and warranty by the Company on the date thereof as to the matters specified in clause (b) above. SECTION 4.04. Post-Commercial Activation Loans. The obligation of each Revolving Lender to make each Revolving Loan on the occasion of each Borrowing, in excess of $400,000,000 of Revolving Loans in aggregate outstanding principal amount, is subject to the satisfaction of the following conditions precedent: Credit Agreement 66 - 60 - (a) the Commitment Termination Date shall have been extended pursuant to Section 2.18 to a date not earlier than October 31, 1998; (b) the conditions set forth in Part D of Appendix 2 (and receipt by the Administrative Agent of each of the documents listed therein), each of which shall be in form and substance satisfactory to the Administrative Agent (and to the extent specified therein, to each Lender) (or such condition shall have been waived in accordance with Section 11.02); and (c) the conditions precedent that: (i) the representations and warranties of the Company set forth in this Agreement and of the Company and each other Credit Party in each of the other Credit Documents to which it is a party, and, to the best knowledge of the Company, of each other Project Party in each of the Credit Documents to which it is a party, shall be true and correct on and as of the date of such Borrowing (or, if stated to have been made solely as of an earlier date, were true and correct as of such earlier date); and (ii) at the time of and immediately after giving effect to such Borrowing, no Default shall have occurred and be continuing. Each such Borrowing shall be deemed to constitute a representation and warranty by the Company on the date thereof as to the matters specified in clause (c) above. ARTICLE V INFORMATION Until the Commitments have expired or been terminated and the principal of and interest on each Loan and all fees payable hereunder shall have been paid in full, the Company covenants and agrees with the Lenders that: SECTION 5.01. Financial Statements and Other Information. The Company will furnish to the Administrative Agent and each Lender: (a) within 120 days after the end of each fiscal year of the Company, the audited consolidated balance sheet and related statements of operations, members' equity and cash flows of the Company and its Subsidiaries as of the end of and for such year, setting forth in each case in comparative form the figures for the previous fiscal year, all reported on by KPMG Peat Marwick LLP or other independent public accountants of recognized national standing (without a "going concern" or like qualification or exception and without any Credit Agreement 67 - 61 - qualification or exception as to the scope of such audit) to the effect that such consolidated financial statements present fairly in all material respects the financial condition and results of operations of the Company and its Subsidiaries on a consolidated basis in accordance with GAAP consistently applied; (b) within 60 days after the end of each of the first three fiscal quarters of each fiscal year of the Company, the consolidated balance sheet and related statements of operations, members' equity and cash flows of the Company and its Subsidiaries as of the end of and for such fiscal quarter and the then elapsed portion of the fiscal year, setting forth in each case in comparative form the figures for (or, in the case of the balance sheet, as of the end of) the corresponding period or periods of the previous fiscal year, all certified by a Responsible Officer as presenting fairly in all material respects the financial condition and results of operations of the Company and its Subsidiaries on a consolidated basis in accordance with GAAP consistently applied, subject to normal year-end audit adjustments and the absence of footnotes; (c) concurrently with any delivery of financial statements under clause (a) or (b) of this Section, a certificate of a Responsible Officer (i) certifying as to whether a Default has occurred and, if a Default has occurred, specifying the details thereof and any action taken or proposed to be taken with respect thereto, (ii) setting forth reasonably detailed calculations demonstrating compliance with Sections 7.01, 7.06, 7.07, 7.10, 7.11 and 8.04, and (iii) stating whether any change in GAAP or in the application thereof has occurred since the date of the most recent audited financial statements delivered to the Administrative Agent pursuant hereto and, if any such change has occurred, specifying the effect of such change on the financial statements accompanying such certificate; (d) concurrently with any delivery of financial statements under clause (a) of this Section, a certificate of the accounting firm that reported on such financial statements stating whether they obtained knowledge during the course of their examination of such financial statements of any Default (which certificate may be limited to the extent required by accounting rules or guidelines); (e) promptly upon receipt, copies of all formal accountants' letters received by the Company's management in respect of the Company; (f) within 10 days after the end of each month, a reconciliation of the actual Project Costs expended during such month versus the budgeted amount thereof for such month as set forth in the Approved Budget, broken down by the following six categories: Space System Contract; O&M Contract; Terrestrial Network Development Contract; Debt Service and Other Financing Costs; Business Support Systems and Fixed Asset Expenditures; and Operating Expenditures, Satellite Insurance and Other; Credit Agreement 68 - 62 - (g) promptly after the same become publicly available, copies of all periodic and other reports, proxy statements and other materials filed by the Company or any of its Subsidiaries, with the SEC, or with any national securities exchange, or distributed by the Company to its members generally; (h) promptly upon receipt, copies of any notice of default received by the Company or any of its Subsidiaries under any instrument or agreement evidencing or providing for Indebtedness (other than this Agreement) and any notice of acceleration of any such Indebtedness and, if the Company or any Subsidiary gives any such notice of default, a copy thereof simultaneously therewith; and (i) promptly following any request therefor, such other information regarding the operations, business affairs and financial condition of the Company or any of its Subsidiaries, the Project (including, without limitation, information as to the Government Approvals required for the Development of the Project) or compliance with the terms of this Agreement and the other Credit Documents, as the Administrative Agent or any Lender (through the Administrative Agent) may reasonably request. SECTION 5.02. Notices of Material Events. The Company will furnish, or will cause to be furnished, to the Administrative Agent and each Lender prompt written notice of the following: (a) the Company or any Subsidiary becoming aware of the occurrence of any Default; (b) the filing or commencement of any action, suit or proceeding by or before any arbitrator or Government Authority against or affecting the Company or any of its Subsidiaries that, if adversely determined, could reasonably be expected to result in a Material Adverse Effect; (c) the occurrence of any ERISA Event that, alone or together with any other ERISA Events that have occurred, could reasonably be expected to result in liability of the Company and its Subsidiaries in an aggregate amount exceeding $2,000,000; (d) any material fire, explosion, accident, strike, lockout or other labor dispute, drought, storm, hail, earthquake, embargo, act of God or of the public enemy or other casualty (whether or not covered by insurance) affecting the Project or the business or property of the Company or any of its Subsidiaries (unless notice thereof shall be required to be furnished pursuant to Section 8.01(g)); and (e) any other circumstance, act or condition (including, without limitation, the adoption, amendment or repeal of any Government Rule applicable to the Project or the Credit Agreement 69 - 63 - Impairment of any Government Approval or notice (whether formal or informal, written or oral) of the failure to comply with the terms and conditions of any Government Approval) which could reasonably be expected to result in a Material Adverse Effect. Each notice delivered under this Section shall be accompanied by a statement of a Responsible Officer setting forth the details of the event or development requiring such notice and any action taken or proposed to be taken with respect thereto. SECTION 5.03. Notices under Principal Project Documents. The Company will furnish to the Administrative Agent and each Lender promptly upon their becoming available, copies of all material notices or material documents received or delivered by the Company pursuant to any Principal Project Document (including, without limitation, any notice or other document relating to a failure by the Company to perform any of its covenants or obligations under such Principal Project Document but excluding notices and other communications given or received by the Company in the ordinary course of administration or performance of such Principal Project Document). ARTICLE VI AFFIRMATIVE COVENANTS SECTION 6.01. Maintenance of Existence. The Company will, and will cause each of its Subsidiaries to, preserve and maintain (a) its legal existence and (b) all of its material licenses, rights, privileges and franchises required for the Development of the Project and the due performance of all of its obligations and the exercise of all of its rights under the Principal Project Documents to which it is party, provided that nothing in this Section shall prohibit any transaction expressly permitted under Section 7.03. SECTION 6.02. Maintenance of Properties. The Company will, and will cause each of its Subsidiaries to, keep and maintain all property material to the conduct of its business in good working order and condition, ordinary wear and tear excepted. SECTION 6.03. Taxes. The Company will, and will cause each of its Subsidiaries to, (a) pay and discharge, or effectively provide for, all Taxes imposed on the Company or on its income or profits or on any of its property prior to the date on which penalties for the failure to pay or discharge such Taxes attach thereto, provided that the Company shall have the right to contest in good faith by appropriate proceedings the validity or amount of any such Tax, and (b) promptly pay any valid, final judgment enforcing any such Tax and cause the same to be satisfied of record. Credit Agreement 70 - 64 - SECTION 6.04. Compliance with Laws. The Company will, and will cause each of its Subsidiaries to, comply in all material respects with all applicable Government Rules applicable to it or its property. SECTION 6.05. Government Approvals. (a) The Company will, and will cause each of its Subsidiaries to, comply in all material respects with, all Government Approvals obtained by it and required for the Development of the Project as shall now or hereafter be necessary under applicable Government Rules. (b) The Company will not, and will not permit any of its Subsidiaries to, take any legal or administrative action that seeks to amend, supplement or modify in any material adverse respect any Government Approval obtained by the Company or any of its Subsidiaries and required for the Development of the Project. To the extent the Company has the contractual or legal right to prevent such action, the Company will not permit any other Person to take any legal or administrative action that seeks to amend, supplement or modify any Government Approval required for the Development of the Project if such action could reasonably be expected to result in a Material Adverse Effect. (c) If any Government Approval obtained by the Company or any of its Subsidiaries and required for the Development of the Project is materially Impaired, the Company will diligently and timely (i) make all filings, (ii) pursue all remedies and appeals which the Company determines, in good faith, to be necessary or appropriate and (iii) take such other lawful action, in each case, as shall be necessary or, in the good faith opinion of the Company, desirable to (x) prevent such Impairment from becoming final and non-appealable or otherwise irrevocable, (y) postpone the effectiveness of such Impairment and (y) cause such Impairment to be revoked or amended or modified so as to eliminate the reasonable possibility of such Impairment. To the extent the Company has the contractual or legal right to do so, if any Government Approval obtained by any Person (other than the Company or any of its Subsidiaries) and required for the Development of the Project is materially Impaired, the Company will diligently and timely, and will cause such Person diligently and timely to, (i) make all filings, (ii) pursue all remedies and appeals which the Company determines, in good faith, to be necessary or appropriate and (iii) take such other lawful action, in each case, as shall be necessary or, in the good faith opinion of the Company, desirable to (x) prevent such Impairment from becoming final and non-appealable or otherwise irrevocable, (y) postpone the effectiveness of such Impairment and (y) cause such Impairment to be revoked or amended or modified so as to eliminate the reasonable possibility of such Impairment, unless in each case such Impairment could not reasonably be expected to result in a Material Adverse Effect. SECTION 6.06. Environmental Compliance. Credit Agreement 71 - 65 - (a) The Company shall not Use or Release, or permit the Use or Release of, Hazardous Materials on any property of the Company or any of its Subsidiaries other than in accordance with the requirements of all applicable Environmental Laws. (b) To the extent required by Environmental Laws, the Company shall conduct and complete any investigation, assessment, study, sampling and testing and undertake any cleanup, removal, remedial or other action necessary to remove and clean up all Hazardous Materials Released at, on, in, under or from any property of the Company or any of its Subsidiaries associated with the Project, in accordance with the requirements of all applicable Environmental Laws. (c) The Company shall deliver to the Administrative Agent promptly upon obtaining knowledge of any fact, circumstance, condition or occurrence that could reasonably be expected to form the basis of an Environmental Claim in excess of $2,000,000 arising with respect to or relating to any property of the Company or any of its Subsidiaries associated with the Project, a notice thereof describing the same in reasonable detail and, together with such notice or as soon thereafter as possible, a description of the action that the Company has taken or proposes to take with respect thereto and, thereafter, from time to time such detailed reports with respect thereto as the Administrative Agent may reasonably request. SECTION 6.07. Books and Records. The Company will, and will cause each of its Subsidiaries to, keep proper books of record and account in accordance with GAAP in which full, true and correct entries are made of all dealings and transactions in relation to its business and activities. SECTION 6.08. Inspection Rights. Subject to the confidentiality requirements set forth in Section 11.12, the Company will, and will cause each of its Subsidiaries to, permit representatives of the Global Arrangers, the Agents or any Lender (including, without limitation, any Independent Advisor, at the reasonable request of the Global Arrangers), upon reasonable prior notice to the Company unless a Default shall have occurred and is continuing, to visit and inspect its property, to examine, copy or make excerpts from its books, records and documents and to discuss its affairs, finances and accounts with its principal officers, engineers and independent accountants, all at such reasonable times during normal business hours and at such intervals as such representatives may reasonably request. The Company hereby authorizes each of its principal officers, engineers and independent accountants to discuss the Company's affairs, finances and accounts as contemplated by this Section. SECTION 6.09. Use of Proceeds. The proceeds of the Loans on the occasion of each Borrowing will be used solely to pay (a) Project Costs for the Budget Period not exceeding an aggregate amount equal to the sum of the aggregate Project Costs for such period as set forth in the Initial Approved Budget (as such budget may be amended or supplemented pursuant to Section 2.18) plus $75,000,000 and (b) fees and expenses reasonably incurred by the Company Credit Agreement 72 - 66 - under, or in connection with the execution and delivery of, the Credit Documents. No part of the proceeds of any Loan will be used, whether directly or indirectly, for any purpose that entails a violation of any of the Regulations of the Board, including Regulations G, U and X. Notwithstanding anything to the contrary contained in this Section, neither any of the Agents nor any of the Lenders shall have any responsibility as to the use of any proceeds of the Loans by the Company. SECTION 6.10. Collateral; Security Interests. (a) Except as may be provided in the Security Documents and subject to any Disposition permitted under Section 7.04, the Company will, and will cause each of its Subsidiaries to, at all times after the Closing Date: (i) take, or cause to be taken, all action required (x) to maintain good, legal and marketable title to the Collateral purported to be pledged by it pursuant to the Security Documents to which it is party (other than any leasehold properties covered thereby) free and clear of all Liens other than Permitted Liens and (y) to remain lawfully possessed of a valid and subsisting leasehold estate in and to any leasehold properties purported to be pledged by it pursuant to such Security Documents free and clear of all Liens other than Permitted Liens; (ii) at all times, maintain and preserve the Liens created on the Collateral purported to be pledged by it pursuant to such Security Documents and the first priority thereof (subject to Permitted Liens); and (iii) cause all such Security Documents to be in full force and effect. (b) Except as may be provided in the Security Documents and subject to any Disposition permitted under Section 7.04, the Company will, and will cause each Subsidiary Guarantor to, execute any and all further documents, financing statements, agreements and instruments, and take all such further actions (including the filing and recording of financing statements, fixture filings, mortgages, deeds of trust and other documents), which may be required under any applicable law, or which any Agent or the Required Lenders may reasonably request, to effectuate the transactions contemplated by the Credit Documents then in effect or (after the Closing Date) to grant, preserve, protect or perfect the Liens created or intended to be created by the Security Documents to which any Credit Party is a party or the validity or priority of any such Lien, all at the expense of the Company. Without limiting the foregoing, the Company shall promptly discharge, at its own cost and expense, any Lien (other than Permitted Liens) on the Collateral purported to be pledged by it pursuant to such a Security Document. (c) If any assets (including any real property or improvements thereto or any interest therein, including any leasehold interests, having a value in excess of $10,000,000, other than the real property interests identified in Part B of Schedule II as to which the Company agrees to execute and deliver a Mortgage), are acquired by the Company or any Domestic Subsidiary after the Closing Date (other than assets constituting Collateral under the Security Agreement), the Company will notify the Administrative Agent thereof (unless such assets were acquired by the Company or its Subsidiary in the ordinary course of its business), and the Company will cause Credit Agreement 73 - 67 - such assets (in the case of any real property including leasehold interests, upon the request of the Required Lenders) to be subjected to a Lien under the relevant Security Documents, and will take, and cause its Domestic Subsidiaries to take, such actions as shall be necessary or reasonably requested by the Administrative Agent to grant and perfect such Liens, including actions described in paragraph (b) of this Section, all at the expense of the Company. If the Required Lenders shall have reasonably requested a mortgage, deed of trust or similar instrument to be delivered in respect of any such real property, fixtures and/or leasehold interests in respect of real property, the Company shall deliver, or cause to be delivered, the following documents and/or satisfy the following conditions (in each case to the reasonable satisfaction of the Administrative Agent): (i) The following documents each of which shall be duly executed (and, where appropriate, acknowledged) by the party or parties thereto and delivered to the Administrative Agent: (A) one or more Mortgages covering the subject real property, fixtures and/or leasehold interests (the "Mortgaged Properties"), in recordable form (in such number of copies as the Administrative Agent shall have requested); (B) with respect to the Mortgaged Properties, one or more mortgagee policies of title insurance on A.L.T.A. forms reasonably satisfactory to the Administrative Agent and issued by one or more title companies satisfactory to the Administrative Agent (the "Title Companies"), insuring the validity and priority of the Liens created under each such Mortgage for and in amounts reasonably satisfactory to the Administrative Agent, subject only to such exceptions as are reasonably satisfactory to the Administrative Agent, and, to the extent necessary under applicable law, for filing in the appropriate county land office(s), Uniform Commercial Code financing statements covering fixtures relating to the Mortgaged Properties, in each case appropriately completed and duly executed; (C) with respect to the Mortgaged Properties, as-built surveys of recent date of each facility to be covered by each such Mortgage, showing such matters as may be reasonably required by the Administrative Agent, which surveys shall be in form and content reasonably acceptable to the Administrative Agent, and certified to the Administrative Agent, the Lenders and the Title Companies, and shall have been prepared by a registered surveyor reasonably acceptable to the Administrative Agent; (D) if reasonably requested by the Administrative Agent, certified copies of certificates of occupancy (or, if it is not the practice to issue certificates of occupancy in the jurisdiction in which the facilities to be covered by such Mortgage are located, then such other evidence reasonably satisfactory to the Credit Agreement 74 - 68 - Administrative Agent) permitting the fully functioning operation and occupancy of each such facility, zoning correspondence and such other permits necessary for the use and operation of each such facility issued by the respective governmental authorities having jurisdiction over each such facility; (E) Uniform Commercial Code searches in each of the jurisdictions (both state and county levels) where the Mortgaged Properties are located; (F) if reasonably requested by the Administrative Agent, appraisals as of recent date of each of the Mortgaged Properties (including the facilities and other improvements located thereon and machinery and equipment), such appraisals to be prepared by an appraiser, and to use a methodology, acceptable to the Administrative Agent, or other evidence of the value of such Mortgaged Properties reasonably satisfactory to the Administrative Agent; (G) if reasonably requested by the Administrative Agent, an environmental survey and assessment of recent date prepared by a firm of licensed engineers (familiar with the identification of toxic and hazardous substances) in form and substance satisfactory to the Administrative Agent, such environmental survey and assessment to be based upon physical on-site inspections by such firm of the sites comprising the Mortgaged Properties and the related facilities, whether owned, operated or leased by the Company and its Subsidiaries, as well as a historical review of the uses of such sites and facilities and of the business and operations of the Company and to provide that the Lenders may rely on the results of such audits; (H) in the case of any leasehold interests covered by the Mortgages, such estoppels, consents, subordination agreements and other agreements from the lessor, the holder of a fee mortgage or a sublessee, as the Administrative Agent may reasonably request; (I) evidence reasonably satisfactory to the Administrative Agent of the existence of insurance with respect to such Mortgaged Properties that complies with the requirements of Section 8.01, and that such insurance is in full force and effect and that all premiums then due and payable thereon have been paid; (J) opinions, each dated on or about the date the conditions set forth in this Section are satisfied, of local counsel in the respective jurisdictions in which such Mortgaged Properties are located, in form and substance reasonably satisfactory to the Administrative Agent (and the Company hereby instructs such counsel to deliver such opinion(s) to the Lenders and the Agents); and Credit Agreement 75 - 69 - (K) such other documents and evidence relating to the foregoing conditions as the Administrative Agent or the Required Lenders (through the Administrative Agent) may reasonably request. (ii) The Company shall have paid to the Title Companies all expenses and premiums of the Title Companies in connection with the issuance of such policies and in addition shall have paid to the Title Companies an amount equal to the recording and stamp taxes payable in connection with recording each Mortgage and the Uniform Commercial Code financing statements in the appropriate county land office or state recording office, as the case may be. (iii) If any Property which is to be subject to a Mortgage or similar instrument under this Section is located in any jurisdiction other than the United States of America or any State thereof, in lieu of the conditions specified above in this Section the Company or the relevant Subsidiary, as the case may be, shall comply with such similar conditions and requirements that are appropriate for such jurisdiction and provide similar protections to the interests of the Lenders as the Administrative Agent may reasonably request. (iv) The Company shall have paid or reimbursed Administrative Agent for all reasonable out-of-pocket costs and expenses not theretofore paid or reimbursed in connection with the foregoing, including, without limitation, the reasonable fees and expenses of counsel, in connection with the negotiation, preparation, execution and delivery of the documents contemplated by this Section. SECTION 6.11. Certain Obligations Respecting Subsidiaries. (a) The Company will, and will cause each of its Subsidiaries to, take such action from time to time as shall be necessary to ensure that each Subsidiary of the Company is, directly or indirectly, a Wholly Owned Subsidiary (subject to Section 7.03). (b) After the Closing Date, the Company will take such action, and will cause each of its Subsidiaries to take such action, from time to time as shall be necessary to ensure that (i) 100% of the outstanding equity interests of each Domestic Subsidiary owned by the Company or any other Domestic Subsidiary and (ii) 65% of the outstanding equity interests of each Foreign Subsidiary owned by the Company or any Domestic Subsidiary is pledged to the Collateral Agent pursuant to the Security Agreement. Subject to and in furtherance of the foregoing, in the event that any additional shares of capital stock or other certificated equity interests shall be issued by any such Subsidiary after the Closing Date, the Company agrees forthwith to deliver to the Collateral Agent pursuant to the Security Agreement the certificates evidencing such shares of stock or equity interests, as the case may be, accompanied by undated stock (or transfer, as the case may be) powers executed in blank and to take such other action as the Collateral Agent shall request to perfect the security interest created therein pursuant to the Security Agreement. Credit Agreement 76 - 70 - (c) After the Closing Date, the Company will take such action, and will cause each of its Domestic Subsidiaries to take such action, from time to time as shall be necessary to ensure that all Domestic Subsidiaries of the Company which are directly owned by the Company or another Domestic Subsidiary are "Subsidiary Guarantors" under the Subsidiary Guarantee Agreement, and have assigned to the Collateral Agent for the benefit of the Secured Parties all of its right, title and interest in any Collateral held by such Domestic Subsidiary to the extent required herein or in any Security Document to which it is a party. Without limiting the generality of the foregoing, in the event that the Company or any of its Domestic Subsidiaries shall form or acquire any new Domestic Subsidiary after the Closing Date that shall constitute a Subsidiary hereunder, the Company or such Domestic Subsidiary, as the case may be, will cause such new Subsidiary to after the Closing Date: (i) become a "Subsidiary Guarantor" under the Subsidiary Guarantee Agreement, and an "Obligor" under the Security Agreement pursuant to a Subsidiary Guarantee Assumption Agreement; (ii) cause such Subsidiary to take such action (including, without limitation, delivering such certificated equity interests and executing and delivering such Uniform Commercial Code financing statements, if applicable) as shall be necessary to create and perfect valid and enforceable first priority Liens on substantially all of the personal property of such new Subsidiary, to the extent required herein or in any Security Document to which it is a party; and (iii) deliver such proof of corporate or other action, incumbency of officers, opinions of counsel and other documents as is consistent with those delivered by the Subsidiaries of the Company pursuant to Article IV or as reasonably requested by the Administrative Agent. SECTION 6.12. License Subsidiaries. The Company will take such action, and will cause each of its Subsidiaries to take such action, as shall be necessary so that, from and after the transfer of the FCC License by Motorola pursuant to Section 18.H of the Space System Contract, the FCC License and the other Telecommunications Approvals (if any) identified on Schedule II or III from time to time issued to the Company or any of its Subsidiaries will be held by a separate License Subsidiary. Anything in this Agreement to the contrary notwithstanding, the Company will not permit any License Subsidiary to: (i) sell, assign or otherwise dispose of the FCC License or any other Telecommunications Approval held by it; (ii) create, assume, incur or suffer to exist any Lien on any of its properties or any Indebtedness; or (iii) engage in any business or other transaction other than holding the Telecommunications Approval(s) held by it and activities reasonably incidental thereto. Credit Agreement 77 - 71 - ARTICLE VII NEGATIVE COVENANTS Until the Commitments have expired or terminated and the principal of and interest on each Loan and all fees payable hereunder have been paid in full, the Company covenants and agrees with the Lenders that: SECTION 7.01. Indebtedness. The Company will not, and will not permit any of its Subsidiaries to, create, incur, assume or permit to exist any Indebtedness, except: (a) Indebtedness created hereunder and the other Credit Documents; (b) Indebtedness under the Motorola Guaranteed Credit Agreement (or the Agreement Regarding Guarantee) not exceeding $450,000,000 in aggregate principal amount outstanding at any one time (and, without duplication, any Subordinated Obligations owing to Motorola in respect thereof referred to in clause (c) of the definition of "Subordinated Obligations"); (c) additional unsecured Indebtedness of the Company guaranteed by Motorola not exceeding $350,000,000 in aggregate principal amount outstanding at any one time, which may be incurred under the Motorola Guaranteed Credit Agreement or a new credit agreement, or any Guarantee thereof by any Subsidiary (and, without duplication, any Subordinated Obligations owing to Motorola in respect thereof referred to in clause (c) of the definition of "Subordinated Obligations"); (d) the Senior Notes; (e) additional unsecured, senior Indebtedness of the Company, which shall (A) (i) have a maturity date no earlier than the maturity of the Senior Notes, (ii) not provide for any amortization or redemption at any time prior to the maturity of the Senior Notes (other than on terms comparable to the Senior Notes and other than, if such Indebtedness is convertible into equity, a right in favor of the Company to redeem at par such Indebtedness in the event that the holder of such Indebtedness does not so convert, provided that the Company does not exercise any such right) and (iii) contain other terms and conditions (including, without limitation, covenants and events of default, but excluding terms as to pricing) not more restrictive than the terms of the Senior Notes or (B) otherwise be approved by the Required Lenders. (f) the Senior Subordinated Notes; (g) any Motorola Vendor Financing; Credit Agreement 78 - 72 - (h) Other Subordinated Debt not exceeding $300,000,000 in aggregate principal amount at any time outstanding, provided that the proceeds thereof are used, or are committed to be used (and are actually so used within 180 days of the date of issuance of such Indebtedness), to pay Project Costs for the Budget Period; (i) any additional Other Subordinated Debt (other than that referred to in clause (h) above), provided that the Net Available Proceeds thereof are used to reduce the Commitments and prepay the Loans pursuant to Section 2.09(c); (j) Indebtedness in respect of Capital Lease Obligations not exceeding $10,000,000 in aggregate principal amount outstanding at any one time; (k) obligations of the Company in respect of the Space System Contract, the O&M Contract and the Terrestrial Network Development Contract; and (l) Indebtedness incurred to Refinance any Indebtedness under clauses (b), (c) and (g) above, provided that (i) such Refinancing Indebtedness does not exceed the amount of Indebtedness being so Refinanced and (ii) the terms of such Refinancing Indebtedness comply with the requirements of Indebtedness permitted under clause (e) above or of Other Subordinated Indebtedness; provided that the sum of the aggregate outstanding principal amount of Indebtedness permitted under clauses (b), (c), (d) and (e) above (and any Refinancing thereof permitted under clause (l) above) shall not exceed (i) at any time prior to the aggregate principal amount of the Revolving Loans outstanding hereunder exceeding $400,000,000, $2,100,000,000 and (ii) at any time from and after the aggregate principal amount of the Revolving Loans outstanding hereunder exceeding $400,000,000, $1,900,000,000 (provided that if the aggregate principal amount of such Indebtedness under this clause (ii) exceeds $1,850,000,000, at least $100,000,000 of such Indebtedness shall consist of Indebtedness of the type referred to in clause (b) or (c) above). SECTION 7.02. Liens. The Company will not, and will not permit any of its Subsidiaries to, create, incur, assume or permit to exist any Lien on any property or asset now owned or hereafter acquired by it, or assign or sell any income or revenues (including accounts receivable) or rights in respect of any thereof, except for Permitted Liens. SECTION 7.03. Mergers, Consolidations, Etc. The Company will not, and will not permit any of its Subsidiaries to, enter into any transaction of merger, consolidation or amalgamation, or liquidate, wind up or dissolve itself (or suffer any liquidation of dissolution), or convey, transfer or lease its property substantially as an entirety to any person, except that (a) any Subsidiary (other than a License Subsidiary) may enter into any such transaction with the Company, so long as the Company is the surviving entity and (b) any Subsidiary (other than a License Subsidiary) may enter into any such transaction with any other Subsidiary (other than a Credit Agreement 79 - 73 - License Subsidiary), provided that no Domestic Subsidiary may merge with or into any Foreign Subsidiary unless the Domestic Subsidiary is the surviving entity of such merger. SECTION 7.04. Sale of Assets. The Company will not, and will not permit any of its Subsidiaries to, Dispose of any assets, except: (a) sales of communications and related services and equipment in the ordinary course of business; (b) sales of obsolete assets or assets no longer used or useful in the ordinary course of the business of the Company and its Subsidiaries; and (c) sales of Permitted Investments on or prior to the maturity thereof in accordance with the Depositary Agreement. SECTION 7.05. Purchase of Assets. The Company will not, and will not permit any of its Subsidiaries to, purchase any assets, except: (a) the purchase of assets in connection with the Development of the Project in accordance with the Project Documents; (b) the purchase of assets in connection with the Restoration of Affected Property; and (c) Investments permitted under Section 7.06. SECTION 7.06. Investments. The Company will not, and will not permit any of its Subsidiaries to, make or permit to remain outstanding any Investments, except: (a) Investments outstanding on the date hereof and identified in Schedule VIII; (b) deposit and other accounts permitted to be maintained by the Company pursuant to Section 8.02; (c) Permitted Investments; (d) Hedging Agreements entered into by the Company in the ordinary course of business and not for speculative purposes; and (e) other Investments in an aggregate outstanding amount not at any time exceeding $5,000,000 (measured by the amount of each such Investment as of the time Credit Agreement 80 - 74 - such Investment is made), provided that such Investments are made only in Related Businesses. SECTION 7.07. Restricted Payments. The Company will not make, or agree to pay or make, directly or indirectly, any Restricted Payment, except: (a) so long as no Default shall have occurred and be continuing, distributions to Iridium LLC to enable Iridium LLC to make distributions to the Iridium LLC Members pursuant to Section 3.07(c) of the Iridium LLC Agreement with respect to each such Member's U.S. income tax liability (if any); and (b) any distribution to Iridium LLC to enable Iridium LLC to redeem fractional interests of its equity interests following the exercise of any warrants, options or other rights to acquire any equity interests in Iridium LLC by the holders thereof. Nothing herein shall be deemed to prohibit the payment of dividends by any Subsidiary of the Company to the Company or to any other Subsidiary of the Company. SECTION 7.08. Transactions with Affiliates. The Company will not, and will not permit any of its Subsidiaries to, sell, lease or otherwise transfer any property or assets to, or purchase, lease or otherwise acquire any property or assets from, or otherwise engage in any other transactions with, any of its Affiliates, except: (a) transactions on terms which, in the opinion of the Company, are not less favorable to the Company or such Subsidiary than could be obtained on an arm's-length basis from unrelated third parties; (b) transactions between or among the Company and its Subsidiaries not involving any other Affiliate; (c) any Restricted Payment permitted by Section 7.07; (d) the Company and its Subsidiaries may enter into, engage in the transactions contemplated by, and perform its obligations under, the Project Documents to which it is a party; (e) a transaction pursuant to any of the agreements specified in Schedule XI, including any amendment thereto after the date hereof, provided that the terms of such amendment are not less favorable to the Company and its Subsidiaries than the terms of the relevant agreement prior to such amendment; and Credit Agreement 81 - 75 - (f) other transactions with Affiliates not permitted under any of the foregoing clauses (a) through (e) that involve aggregate consideration of less than $10,000,000. SECTION 7.09. Restrictive Agreements. The Company will not, and will not permit any of its Subsidiaries to, directly or indirectly, enter into, incur or permit to exist any agreement or other arrangement that prohibits, restricts or imposes any condition upon (a) the ability of the Company or any Subsidiary to create, incur or permit to exist any Lien upon any of its property or assets or to sell, transfer or otherwise dispose of its assets, (b) the ability of any Subsidiary to (i) pay dividends or other distributions with respect to any shares of its equity interests, (ii) make or repay loans or advances to the Company or any other Subsidiary or (iii) Guarantee Indebtedness of the Company or any other Subsidiary under any of the Credit Documents or (c) the ability of the Company or any Subsidiary to enter into amendments, modifications, supplements or waivers of any of the Credit Documents or Principal Project Documents; provided that (i) the foregoing shall not apply to restrictions and conditions imposed by any applicable Government Rule or by any Credit Document, (ii) the foregoing shall not apply to (A) restrictions and conditions existing on the date hereof in the Motorola Guaranteed Credit Agreement, the Senior Note Indentures or otherwise identified on Schedule IX (but shall apply to any amendment or modification thereof expanding the scope of any such restriction or condition) or (B) any comparable restrictions and conditions contained in any agreement or instrument relating to Indebtedness permitted under clause (c), (e), (g), (h), (i), (j), (k) or (l) (to the extent the Indebtedness being Refinanced pursuant to such clause (l) contains any such restriction or condition) of Section 7.01, (iii) the foregoing shall not apply to customary restrictions and conditions contained in agreements relating to the sale of a Subsidiary pending such sale, provided that such restrictions and conditions apply only to the Subsidiary that is to be sold and such sale is permitted hereunder, (iv) clause (a) of the foregoing shall not apply to restrictions or conditions imposed by any agreement relating to secured Indebtedness permitted by this Agreement if such restrictions or conditions apply only to the property or assets securing such Indebtedness and (v) clause (a) of the foregoing shall not apply to customary provisions in leases restricting the assignment thereof. SECTION 7.10. Leverage Ratio. The Company will not at any time permit the ratio of (a) the aggregate principal amount of Indebtedness (or accreted value, in the case of Indebtedness issued at a discount) of the Company and its Subsidiaries to (b) the sum of (i) Indebtedness as calculated in clause (a) above and (ii) $1,982,000,000 plus the aggregate proceeds received by Iridium LLC or any Subsidiary in respect of the issuance of capital stock of Iridium LLC to exceed 0.667:1.0. SECTION 7.11. Operating Leases. The Company will not, and will not permit any of its Subsidiaries to, become or remain liable in any way, whether directly or by assignment or as a guarantor or other surety, for the obligations of the lessee under any operating lease (other than intercompany leases between Company and its Subsidiaries), if the aggregate amount of all Credit Agreement 82 - 76 - rents paid by the Company and its Subsidiaries under all such operating leases would exceed $25,000,000 in any fiscal year of the Company. SECTION 7.12. Sales and Lease-Backs. The Company will not, and will not permit any of its Subsidiaries to, become or remain liable as lessee or as guarantor or other surety with respect to any lease of any property whether real or personal or mixed or whether now owned or hereafter acquired that the Company or any of its Subsidiaries has sold or transferred or intends to sell or transfer to any other Person. SECTION 7.13. Subordinated Obligations. (a) The Company will not, and will not permit any of its Subsidiaries to, purchase, redeem, retire or otherwise acquire for value, or set apart any money for a sinking, defeasance or other analogous fund for the purchase, redemption, retirement or other acquisition of, or make any voluntary payment or prepayment of the principal of or interest on, or any other amount owing in respect of, any of the Subordinated Obligations, except (i) regularly scheduled payments, prepayments or redemptions of principal and interest in respect thereof required to be made pursuant to the instruments evidencing such Subordinated Obligation (and subject to the subordination provisions applicable thereto) and (ii) any Refinancing thereof to the extent permitted under Section 7.01(l). (b) The Company will not consent to any modification, supplement or waiver of any of the provisions of any agreement, instrument or other document evidencing or relating to any Subordinated Obligation without the prior consent of the Administrative Agent (acting with the approval of the Required Lenders). The Company shall provide the Administrative Agent with prior written notice of each proposed modification, supplement or waiver in respect of any instrument or agreement evidencing or providing for any Subordinated Obligation (and the Administrative Agent shall promptly provide copies thereof to each Lender). Promptly following the effectiveness of each such modification, supplement or waiver, the Company shall provide the Administrative Agent with a copy thereof as executed and delivered by the parties thereto (and the Administrative Agent shall promptly provide a copy thereof to each Lender). SECTION 7.14. Other Debt Obligations. (a) The Company will not, and will not permit any of its Subsidiaries to, purchase, redeem, retire or otherwise acquire for value, or set apart any money for a sinking, defeasance or other analogous fund for the purchase, redemption, retirement or other acquisition of, or make any voluntary payment or prepayment of the principal of or interest on, or any other amount owing in respect of, any of the Senior Notes or Indebtedness permitted under Section 7.01(e), except regularly scheduled payments of interest in respect thereof required pursuant to the instruments evidencing such Indebtedness. Credit Agreement 83 - 77 - (b) The Company will not consent to any modification, supplement or waiver of any of the provisions of any agreement, instrument or other document evidencing or relating to any of the Motorola Guaranteed Credit Agreement (other than Amendment No. 1 thereto dated on or about the date hereof), the Senior Notes, Indebtedness permitted under Section 7.01(c) or (e) or any Refinancing of any thereof, in each case which could reasonably be expected to be materially adverse to the interests of the Lenders, without the prior consent of the Administrative Agent (acting with the approval of the Required Lenders), provided that no such consent will be required for (i) any reduction of the commitments under the Motorola Guaranteed Credit Agreement, (ii) any Indebtedness incurred pursuant to Section 7.01(c) or (iii) any Refinancing of the Motorola Guaranteed Credit Agreement permitted under Section 7.01(l). (c) The Company shall provide the Administrative Agent with prior written notice of each proposed modification, supplement or waiver in respect of the instrument or agreement evidencing or providing for the Senior Notes or other Indebtedness referred to in clause (b) above (and the Administrative Agent shall promptly provide copies thereof to each Lender). Promptly following the effectiveness of each such modification, supplement or waiver, the Company shall provide the Administrative Agent with a copy thereof as executed and delivered by the parties thereto (and the Administrative Agent shall promptly provide a copy thereof to each Lender). SECTION 7.15. Organizational Documents. The Company will not, and will not permit any of its Subsidiaries to, consent to any modification, supplement or waiver of any of the provisions of the Company LLC Agreement, the charter or by-laws of any Subsidiary, in each case which could reasonably be expected to be materially adverse to the interests of the Lenders, without the prior consent of the Administrative Agent (acting with the approval of the Required Lenders). The Company shall provide the Administrative Agent with prior written notice of each proposed modification, supplement or waiver in respect of thereof not less than 10 Business Days prior to the proposed effective date thereof (and the Administrative Agent shall promptly provide copies thereof to each Lender). Promptly following the effectiveness of each such modification, supplement or waiver, the Company shall provide the Administrative Agent with a copy thereof as executed and delivered by the parties thereto (and the Administrative Agent shall promptly provide a copy thereof to each Lender). SECTION 7.16. Nature of Business. The Company will not, and will not permit any of its Subsidiaries to, engage in any business, activities or transactions other than in connection with the Development of the Project and any Related Business. SECTION 7.17. Fiscal Year. To enable the ready and consistent determination of compliance with the covenants set forth herein, the Company shall not change the last day of its fiscal year from December 31, or the last days of the first three fiscal quarters in each of its fiscal years from March 31, June 30 or September 30, respectively. ARTICLE VIII Credit Agreement 84 - 78 - CERTAIN PROJECT-RELATED COVENANTS Until the Commitments have expired or terminated and the principal of and interest on each Loan and all fees payable hereunder have been paid in full, the Company covenants and agrees with the Lenders that: SECTION 8.01. Project Insurance. (a) Insurance Maintained by Motorola. The Company will cause Motorola to procure at its own expense and maintain in full force and effect at all times the insurance required by the Space System Contract and the O&M Contract. The Company will, or will cause Motorola to, upon request from time to time, deliver to the Administrative Agent such evidence of such insurance as may be reasonably requested by the Administrative Agent (or any Lender through the Administrative Agent). The Company will cause each other Project Party to a Principal Project Document to procure at its own expense and maintain in full force and effect at all times the insurance, if any, required by such Project Document. (b) Insurance Maintained by the Company. The Company will, and will cause each of its Subsidiaries to, maintain insurance with financially sound and reputable insurance companies, and with respect to property and risks of a character usually maintained by entities engaged in the same or similar business similarly situated, against loss, damage and liability of the kinds and in the amounts customarily maintained by such entities. Without limiting the foregoing, the Company will procure at its own expense and maintain in full force and effect at all times, with financially sound and reputable insurance companies, the insurance set forth in Appendix 3. In addition to the insurance coverage otherwise required by this paragraph (b), the Company will at all times maintain the insurance coverage required of it under the terms of each of the Project Documents. The Company will not obtain or carry separate insurance concurrent in form or contributing in the event of loss with that required by this Section unless the Administrative Agent is the named insured thereunder, with loss payable as provided herein. The Company will immediately notify the Administrative Agent whenever any such separate insurance is obtained and shall deliver to the Administrative Agent copies of the certificates evidencing the same. (c) Certain Insurance Policy Provisions. All policies of insurance required to be maintained pursuant to this Section covering loss or damage to any property shall provide that (i) there shall be no recourse against the Secured Parties for payment of premiums or other amounts with respect thereto, (ii) the insurer is required to provide the Administrative Agent with at least 30 days' (or ten days' in the case of nonpayment of premiums) prior notice of reduction in coverage or amount (other than a reduction in coverage or amount resulting from a payment thereunder), cancellation or non-renewal of any policy and (iii) the proceeds of all policies (other than in respect of professional liability, aircraft liability, pollution legal liability, comprehensive general liability, workers' compensation and comprehensive automobile liability insurance) shall be payable to the Collateral Agent pursuant to a standard first mortgagee endorsement, without Credit Agreement 85 - 79 - contribution, substantially equivalent to the New York standard mortgagee endorsement. The Administrative Agent and the Lender shall be named as additional insureds on all such liability policies. All policies (other than in respect of professional liability, aircraft liability, pollution legal liability, comprehensive general liability, comprehensive automobile liability and workers' compensation insurance) shall insure the interests of the Secured Parties regardless of any breach or violation by the Company of warranties, declarations or conditions contained in such policies, any action or inaction of the Company or others, or any foreclosure relating to the Project or any change in ownership of all or any portion of the Project. The Company shall comply with the orders, rules and regulations of the American Insurance Association or any other body now or hereafter constituted exercising similar functions which are at any time applicable to the Project (except any thereof the non-compliance with which could not reasonably be expected to result in a Material Adverse Effect or which could not adversely effect the availability or the effectiveness of insurance coverage required by this Section). (d) Copies of Insurance Certificates. The Company will deliver to the Administrative Agent, within 30 days after the end of each fiscal year of the Company, a certificate of a Responsible Officer: (i) confirming that all insurance policies in respect of the Project required pursuant to this Section are in force on the date thereof; (ii) confirming the names of the insurers issuing such policies; (iii) confirming the amounts and expiration date or dates of such policies; (iv) including copies of certificates evidencing such policies marked "premium paid" or accompanied by other evidence of such payment reasonably satisfactory to the Administrative Agent; and (v) stating that such policies comply with the requirements of this Section. Such certificate shall be accompanied by a certificate of a nationally recognized independent insurance broker reasonably satisfactory to the Administrative Agent (an "Acceptable Insurance Broker"), to the effect specified in the foregoing clauses of this paragraph (d). (e) Copies of Insurance Policies. Promptly upon receipt thereof after the Closing Date, the Company will deliver to the Administrative Agent a duplicate, certified by an Acceptable Insurance Broker, of each policy of insurance required to be in effect hereunder, bearing a notation evidencing payment of the premium therefor or accompanied by other proof of payment reasonably satisfactory to the Administrative Agent. Not less than 15 days prior to the expiration date of any policy of insurance required to be in effect hereunder, the Company shall deliver to the Administrative Agent a certificate of insurance with respect to each renewal policy, Credit Agreement 86 - 80 - certified by an Acceptable Insurance Broker, bearing a notation evidencing payment of the premium therefor or accompanied by other proof of payment reasonably satisfactory to the Administrative Agent. Promptly after receipt thereof by the Company, the Company shall deliver to the Administrative Agent a duplicate, certified by an Acceptable Insurance Broker, of each such renewal policy. (f) Right to Procure Insurance. In the event the Company fails, or fails to cause Motorola, to procure or maintain the full insurance coverage required by this Section, the Administrative Agent and the Required Lenders, upon 10 days' prior notice (unless such insurance coverage would lapse within such period, in which event notice should be given as soon as reasonably possible) to the Company of any such failure, may (but shall not be obligated to) take out the required policies of insurance and pay the premiums on the same. All amounts so advanced therefor by the Administrative Agent and the Lenders shall become an additional obligation of the Company to the Administrative Agent and the Lenders, and the Company shall forthwith pay such amounts to the Administrative Agent, together with interest thereon at the Post-Default Rate from the date so advanced. (g) Notice of Event of Loss or Change in Insurance Coverage. The Company shall promptly notify the Administrative Agent and each Lender upon obtaining knowledge of any Event of Loss that could reasonably be expected to result in loss or damage exceeding $2,000,000. The Administrative Agent shall promptly notify each Lender of each written notice received by it with respect to the cancellation of, adverse change in, or default under, any insurance policy required to be maintained in accordance with this Section. SECTION 8.02. Accounts. The Company will not, and will not permit any of its Subsidiaries to, maintain any deposit or other similar account with any financial institution other than Permitted Investments and as permitted or contemplated under the Depositary Agreement. SECTION 8.03. Approved Budget; Financial Projections. (a) The Company will not amend or modify the Initial Approved Budget, or adopt or approve any replacement or new budget for Project Costs covering the Budget Period or any amendment or supplement thereto, without the prior written consent of the Required Lenders, unless such amendment or modification would not cause the aggregate Project Costs for the Budget Period to exceed the sum of the aggregate Project Costs for such period as set forth in the Initial Approved Budget (as such budget may be amended or supplemented pursuant to Section 2.18) plus $75,000,000. The Company will furnish the Administrative Agent and the Lenders with certified copies of each Approved Budget or any amendment or supplement thereto promptly following the adoption thereof by the board of directors or approval thereof by the Company. Credit Agreement 87 - 81 - (b) If at any time after the date hereof the Company shall prepare and have approved by the board of directors of the Company financial projections for the Project it shall promptly furnish a copy thereof to the Administrative Agent and the Lenders, together with a certificate of a Responsible Officer that such projections have been prepared by the Company in good faith on the basis of information and assumptions that the Company believed to be reasonable as of the date of such projections. SECTION 8.04. Adequate Financing. The Company will at all times have and maintain (a) available cash or Permitted Investments (valued at the face amount thereof), (b) undrawn commitments under fully executed financing agreements and/or (c) written financing commitments (of which the terms and conditions relating to the availability thereof shall be reasonably acceptable to the Required Lenders) from one or more lenders and/or other entities to provide financing, in an aggregate amount sufficient to provide for the payment of the aggregate Project Costs for the Budget Period under the Approved Budget, provided that the written commitment of Motorola to provide its unconditional guarantee in respect of an additional $350,000,000 of Indebtedness of the Company shall be deemed to be acceptable to the Lenders for purposes of this Section and Section 2.18. SECTION 8.05. Principal Project Documents. (a) Performance of Obligations and Enforcement of Rights. The Company will, and will cause each of its Subsidiaries to, (i) perform and observe in all material respects all of its covenants and obligations contained in each of the Principal Project Documents to which it is a party, (ii) take all reasonable and necessary action to prevent the termination or cancellation of any Principal Project Documents other than in accordance with the terms thereof and (iii) use commercially reasonable efforts to enforce against the relevant Project Party thereto each material covenant or obligation of such Principal Project Document in accordance with its terms. Anything in the foregoing to the contrary notwithstanding, the Company shall pay, or cause to be paid, when due, all claims for labor, material, supplies or services (under the Principal Project Documents or otherwise) that, if unpaid could by law result in a Lien on the property of the Company or any Subsidiary, other than a Permitted Lien; provided that the Company shall have the right to contest in good faith by appropriate proceedings diligently conducted the validity or amount of such claim, so long as adequate reserves have been established with respect thereto in accordance with GAAP. (b) Cancellation; Termination; Amendments, Etc. The Company will not, without the prior consent of the Required Lenders, (i) cancel or terminate any Principal Project Document to which it is a party or consent to or accept any cancellation or termination thereof, (ii) sell, assign (other than pursuant to the Security Documents) or otherwise dispose of (by operation of law or otherwise) any part of its interest in any Principal Project Document, (iii) waive any default under, or breach of, any Principal Project Document or waive, fail to use commercially reasonable efforts to enforce, forgive, compromise, settle, adjust or release any Credit Agreement 88 - 82 - right, interest or entitlement, howsoever arising, under, or in respect of any Principal Project Document or in any way vary, or agree to the variation of, any provision of such Principal Project Document or of the performance of any covenant or obligation by any Person under any Principal Project Document, (iv) exercise any right to initiate an arbitration proceeding under any Principal Project Document or take any action with respect to any arbitration proceeding initiated by any other Project Party or compelled by the provisions of any Principal Project Document, (v) petition, request or take any other legal or administrative action that seeks, or may reasonably be expected, to materially Impair any Principal Project Document, (vi) consent, or agree to consent, to any Person party to a Principal Project Document to assign or delegate its right under such Principal Project Document, or (vii) amend, supplement or modify any Principal Project Document (other than pursuant to a Change Order), unless (x) the monetary obligations of the Company or its Subsidiaries under such Principal Project Document after giving effect to such amendment, supplement or modification, together with any additional Project Costs resulting from any action under this Section or Section 8.06, would not cause the aggregate Project Costs for the Budget Period to exceed the sum of the aggregate Project Costs for such period as set forth in the Initial Approved Budget (as such budget may be amended or supplemented pursuant to Section 2.18) plus $75,000,000 or (y) the performance by the Company or any of its Subsidiaries of any non-monetary obligations under such Project Document after giving effect to such amendment, supplement or modification could not reasonably be expected to result in a Material Adverse Effect. Promptly after the execution and delivery thereof, the Company shall furnish the Administrative Agent and the Lenders with certified copies of all amendments, supplements or modifications of any Principal Project Document. (c) Change Orders. Notwithstanding the foregoing clause (b), the Company may not issue or accept any Change Order unless the Company has provided at least 20 Business Days' prior notice thereof to the Administrative Agent and the Independent Technical Advisor and certified to the effect that such Change Order: (i) does not change the Statement of Work (as set forth in the Space System Contract) or the Description of Work (as set forth in the Terrestrial Network Development Contract) in any material adverse respect, (ii) the cost of such Change Order (together with the cost of all Change Orders made since the date of this Agreement) will not cause the aggregate Project Costs for the Budget Period to exceed the sum of the aggregate Project Costs for such period as set forth in the Initial Approved Budget (as such budget may be amended or supplemented pursuant to Section 2.18) plus $75,000,000 (and specifying the cost of such Change Order in such certification), (iii) will not result in a delay of Commercial Activation beyond December 23, 1998, (iv) does not result in any material reduction of Motorola's obligations under the Space System Contract and the Terrestrial Network Development Contract, the tests contemplated thereby or the conditions pursuant to which any such payment is required to be made, (v) does not result in a material acceleration of the existing payment obligations of the Company and (vi) could not reasonably be expected to result in a Material Adverse Effect. Promptly following delivery of such notice the Company will provide to the Administrative Agent and the Independent Technical Advisor a briefing, in reasonable detail, conducted by representatives of the Company and/or Motorola who are informed as to the matters covered by Credit Agreement 89 - 83 - the briefing, regarding the proposed Change Order and the impact thereof on the Development of the Project. SECTION 8.06. Other Project Documents. (a) Additional Project Documents; Additional Project Costs. The Company will not, and will not permit any of its Subsidiaries to, enter into any Other Project Document, or otherwise incur any other obligation or expend any amount in respect of Project Costs during the Budget Period, without the prior consent of the Required Lenders, unless (i) the monetary obligations of the Company or such Subsidiary under such Other Project Document or the incurrence of such obligation or the expenditure of such amount, as the case may be, together with any additional Project Costs resulting from any action under this Section 8.06 or Section 8.05, would not cause the aggregate Project Costs for the Budget Period to exceed the sum of the aggregate Project Costs for such period as set forth in the Initial Approved Budget (as such budget may be amended or supplemented pursuant to Section 2.18) plus $75,000,000 or (ii) the performance by the Company or such Subsidiary of any non-monetary obligations under such Other Project Document could not reasonably be expected to result in a Material Adverse Effect. (b) Cancellation; Termination; Amendments, Etc. The Company will not, without the prior consent of the Required Lenders: (i) cancel or terminate any Other Project Document to which it is a party or consent to or accept any cancellation or termination thereof, (ii) sell, assign (other than pursuant to the Security Documents) or otherwise dispose of (by operation of law or otherwise) any part of its interest in any Other Project Document, (iii) waive any default under, or breach of, any Other Project Document or waive, fail to enforce, forgive, compromise, settle, adjust or release any right, interest or entitlement, howsoever arising, under, or in respect of any Other Project Document or in any way vary, or agree to the variation of, any provision of such Other Project Document or of the performance of any covenant or obligation by any Person under any Project Document, (iv) exercise any right to initiate an arbitration proceeding under any Project Document or take any action with respect to any arbitration proceeding initiated by any other Person or compelled by the provisions of any Other Project Document (except, in each case, upon instructions of the Required Lenders), (v) petition, request or take any other legal or administrative action that seeks, or may reasonably be expected, to Impair any Other Project Document or amend, modify or supplement any Project Document, (vi) amend, supplement or modify any Other Project Document or (vii) consent, or agree to consent, to any Person party to any Other Project Document assigning or delegating its rights and obligations under such Other Project Document, unless (in the case of any of the actions covered in clauses (i) through (vii) above) the taking of such action, or omitting to take such action, (x) together with any additional Project Costs resulting from any actions under this Section and Section 8.05, would not cause the aggregate Project Costs for the Budget Period to exceed the sum of the aggregate Project Costs for such period as set forth in the Initial Approved Budget (as such budget may be amended or supplemented pursuant to Section 2.18) plus $75,000,000 or (y) could not reasonably be expected to result in a Material Adverse Effect. Upon request of the Administrative Agent, the Company Credit Agreement 90 - 84 - shall furnish the Administrative Agent and the Lenders with certified copies of each Other Project Document and all amendments, supplements or modifications thereto. (c) Performance of Obligations and Enforcement of Rights. The Company will, and will cause each of its Subsidiaries to, (i) perform and observe all of its covenants and obligations contained in each of the Other Project Documents to which it is a party, (ii) take all reasonable and necessary action to prevent the termination or cancellation of any Other Project Documents other than in accordance with the terms thereof and (iii) enforce against the relevant party thereto each covenant or obligation of such Other Project Document other than in accordance with its terms, unless, in the case of each of clauses (i) through (iii) above, the failure to take any such action could not reasonably be expected to result in a Material Adverse Effect. SECTION 8.07. Restoration; Completion; Commercial Activation. (a) Subject to Section 4.02(b) of the Depositary Agreement and Section 2.09(d), the Company shall have the right to Restore any of its property that is the subject of an Event of Loss (whether or not insured against or insurable), provided that in the event that the Company elects not to restore any such property the Net Available Proceeds of such Event of Loss (if any) shall be required to be applied in accordance with Section 2.09(d). (b) The Company will use all reasonable efforts to cause the Project to be duly constructed and completed in all material respects in accordance with the terms of the Principal Project Documents. (c) The Company will use all reasonable efforts to cause Commercial Activation to occur not later than December 23, 1998. ARTICLE IX EVENTS OF DEFAULT If any of the following events ("Events of Default") shall occur: SECTION 9.01. Iridium Events of Defaults. (a) the Company shall fail to pay any principal of any Loan when and as the same shall become due and payable, whether at the due date thereof or at a date fixed for prepayment thereof or otherwise; or (b) the Company shall fail to pay any interest on any Loan or any fee under this Agreement or under any other Credit Document when and as the same shall become due and Credit Agreement 91 - 85 - payable, whether at the due date thereof or at a date fixed for prepayment thereof or otherwise and such default shall continue unremedied for three or more Business Days; or (c) the Company shall fail to pay any other amount (other than the amounts covered under clause (a) or (b) above) payable under this Agreement or under any other Credit Document when and as the same shall become due and payable, whether at the due date thereof or at a date fixed for prepayment thereof or otherwise and such default shall continue unremedied for fifteen or more days; or (d) any representation or warranty made or deemed made by the Company or any of its Subsidiaries or Iridium LLC in or pursuant to with this Agreement or any other Credit Document to which it is a party or any amendment or modification hereof or thereof, or in any report, certificate, financial statement or other document furnished pursuant to or in connection with this Agreement or any other Credit Document or any amendment or modification hereof or thereof, shall prove to have been incorrect in any material respect when made or deemed made; or (e) the Company shall fail to observe or perform any covenant, condition or agreement contained in Section 5.02(a) or 6.01 (with respect to the Company's existence) or in Article VII (other than Sections 7.06 and 7.09) or VIII (other than Section 8.01); or (f) the Company shall default in the performance of any of its obligations contained in Section 4.01(d) of the Depositary Agreement; after the Closing Date the Company or any other Credit Party shall default in the performance of any of its obligations contained in Section 4.04(d) of the Security Agreement; or (g) any Credit Party or Iridium LLC shall fail to observe or perform any covenant, condition or agreement contained in this Agreement (in the case of the Company) (other than those specified in clauses (a) through (f) above (inclusive) of this Section) or any other Credit Document to which it is a party and such failure shall continue unremedied for a period of 30 days after notice thereof from the Administrative Agent (given at the request of any Lender) to the Company; or (h) the Company or any of its Subsidiaries or Iridium LLC shall default in the payment when due (after the expiration of applicable grace periods) of any principal of or interest on any of its other Indebtedness having an outstanding principal amount of $10,000,000 individually or in the aggregate; or any event specified in any note, agreement, indenture or other document evidencing or relating to any such Indebtedness shall occur if the effect of such event is to cause, or (with the giving of any notice or the lapse of time or both) to permit the holder or holders of such Indebtedness (or a trustee or agent on behalf of such holder or holders) to cause, such Indebtedness to become due, or to be prepaid in full (whether by redemption, purchase, offer to purchase or otherwise), prior to its stated maturity or to have the interest rate thereon reset to Credit Agreement 92 - 86 - a level so that securities evidencing such Indebtedness trade at a level specified in relation to the par value thereof; or (i) the Company or one or more of its Subsidiaries or Iridium LLC shall (i) apply for or consent to the appointment of, or the taking of possession by, a receiver, custodian, trustee, examiner or liquidator of itself or of all or a substantial part of its Property, (ii) make a general assignment for the benefit of its creditors, (iii) commence a voluntary case under the U. S. Bankruptcy Code, (iv) file a petition seeking to take advantage of any other law relating to bankruptcy, insolvency, reorganization, liquidation, dissolution, arrangement or winding-up, or composition or readjustment of debts, (v) fail to controvert in a timely and appropriate manner, or acquiesce in writing to, any petition filed against it in an involuntary case under the U.S. Bankruptcy Code or (vi) take any corporate or other analogous action for the purpose of effecting any of the foregoing; or (j) a proceeding or case shall be commenced, without the application or consent of the Company or one or more Subsidiaries or Iridium LLC in any court of competent jurisdiction, seeking (i) its reorganization, liquidation, dissolution, arrangement or winding-up, or the composition or readjustment of its debts, (ii) the appointment of a receiver, custodian, trustee, examiner, liquidator or the like of the Company or such Subsidiary or Iridium LLC, as the case may be, or of all or any substantial part of its Property or (iii) similar relief in respect of the Company or such Subsidiary or Iridium LLC, as the case may be, under any law relating to bankruptcy, insolvency, reorganization, winding-up, or composition or adjustment of debts, and such proceeding or case shall continue undismissed, or an order, judgment or decree approving or ordering any of the foregoing shall be entered and continue unstayed and in effect, for a period of 60 or more days; or an order for relief against the Company or one or more Subsidiaries or Iridium LLC shall be entered in an involuntary case under the U.S. Bankruptcy Code; or (k) a final judgment or judgments for the payment of money of $10,000,000 or more in the aggregate (exclusive of judgment amounts fully covered by insurance where the insurer has admitted liability in respect of such judgment) shall be rendered by one or more courts, administrative tribunals or other bodies having jurisdiction against the Company or any of its Subsidiaries or Iridium LLC and the same shall not be discharged (or provision shall not be made for such discharge), or a stay of execution thereof shall not be procured, within 30 days from the date of entry thereof and the Company, the relevant Subsidiary or Iridium LLC, as the case may be, shall not, within said period of 30 days, or such longer period during which execution of the same shall have been stayed, appeal therefrom and cause the execution thereof to be stayed during such appeal; or (l) an ERISA Event shall have occurred which, when taken together with all other ERISA Events that have occurred, could reasonably be expected to result in a Material Adverse Effect; or Credit Agreement 93 - 87 - (m) the Company or any of its Subsidiaries or Iridium LLC shall be terminated, dissolved or liquidated (as a matter of law or otherwise) or proceedings shall be commenced by any Person (including the Company) seeking the termination, dissolution or liquidation of the Company or such Subsidiary or Iridium LLC, as the case may be, other than as permitted under Section 7.03; or (n) an Environmental Claim arising with respect to the Project shall have been asserted against the Project or any Credit Party or Iridium LLC which could reasonably be expected to result in a Material Adverse Effect; or (o) the Company or any of its Subsidiaries shall fail to obtain (or obtain the benefit of), renew, maintain or comply in all material respects with the FCC License (from and after the transfer thereof by Motorola to the Company pursuant to the Space System Contract), any other Telecommunications Approval or any other Government Approval required for the Development of the Project; or the FCC License (from and after the transfer thereof by Motorola to the Company pursuant to the Space System Contract) or any such Telecommunications Approval or any other Government Approval shall be materially Impaired in whole or in part or shall cease to be in full force and effect; or any action, suit, proceeding or investigation shall be commenced by or before any Government Authority which could reasonably be expected to result in such Impairment and (in any case) such Impairment could reasonably be expected to result in a Material Adverse Effect; or (p) the Liens created by the Security Documents shall at any time after the Closing Date not constitute a valid and perfected Lien on the Collateral intended to be covered thereby (to the extent perfection by filing, registration, recordation or possession is required herein or therein) in favor of the Collateral Agent, free and clear of all other Liens (other than Permitted Liens); or (q) any material provision of any Credit Document or Principal Project Document to which any Credit Party or Iridium LLC is a party shall at any time for any reason cease to be valid and binding or in full force and effect (except, in the case of any of the Credit Documents, for expiration or termination in accordance with its respective terms); or any such Credit Document or Principal Project Document shall be materially Impaired in whole or part; or the validity or enforceability of any such Credit Document or Principal Project Document shall be contested by any Credit Party or Iridium LLC, as the case may be; or any Credit Party shall deny that it has any or further liability or obligation under any such Credit Document or Principal Project Document; or (r) any material provision of any Transaction Document to which any Credit Party or Iridium LLC is a party shall at any time for any reason cease to be valid and binding or in full force and effect; or any such Transaction Document shall be Impaired in whole or part; or the validity or enforceability of any such Transaction Document shall be contested by any Credit Party or Iridium LLC; or any Credit Party or Iridium LLC shall deny that it has any or further liability or Credit Agreement 94 - 88 - obligation under any such Transaction Document; and (in any case) such event could reasonably be expected to result in a Material Adverse Effect; or (s) Iridium LLC shall cease to be the sole member of the Company or any Subsidiary of the Company shall cease to be a Wholly Owned Subsidiary; SECTION 9.02. Motorola Events of Default. (a) any representation or warranty made or deemed made by Motorola in or pursuant to any Motorola Agreement or any amendment or modification thereof, or in any report, certificate, financial statement or other document furnished by Motorola pursuant thereto or in connection therewith (including, without limitation, each written statement furnished to the Independent Technical Advisor pursuant to Section 5.05 of the Motorola Consent) shall prove to have been incorrect in any material respect when made or deemed made; or (b) Motorola shall fail to observe or perform any covenant, condition or agreement contained in Articles IV, V and VI of the Motorola Consent; or (c) Motorola shall fail to observe or perform any material covenant, condition or agreement (including, without limitation, any payment obligation of Motorola) contained in any of the Motorola Agreements or the Principal Project Documents to which Motorola is a party (other than those specified in clause (a) and (b) above of this Section) and such failure shall continue unremedied for a period of 30 days after notice thereof from the Administrative Agent (given at the request of any Lender) to the Company and Motorola; or (d) Motorola or any of the Motorola Domestic Subsidiaries shall (i) apply for or consent to the appointment of, or the taking of possession by, a receiver, custodian, trustee, examiner or liquidator of itself or of all or a substantial part of its property, (ii) make a general assignment for the benefit of its creditors, (iii) commence a voluntary case under the U. S. Bankruptcy Code, (iv) file a petition seeking to take advantage of any other law relating to bankruptcy, insolvency, reorganization, liquidation, dissolution, arrangement or winding-up, or composition or readjustment of debts, (v) fail to controvert in a timely and appropriate manner, or acquiesce in writing to, any petition filed against it in an involuntary case under the U.S. Bankruptcy Code or (vi) take any corporate or other analogous action for the purpose of effecting any of the foregoing; or (e) a proceeding or case shall be commenced, without the application or consent of Motorola, against Motorola or any of the Motorola Domestic Subsidiaries, in any court of competent jurisdiction, seeking (i) its reorganization, liquidation, dissolution, arrangement or winding-up, or the composition or readjustment of its debts, (ii) the appointment of a receiver, custodian, trustee, examiner, liquidator or the like of Motorola or such Motorola Domestic Subsidiary or of all or any substantial part of its property or (iii) similar relief in respect of Credit Agreement 95 - 89 - Motorola or such Motorola Domestic Subsidiary under any law relating to bankruptcy, insolvency, reorganization, winding-up, or composition or adjustment of debts, and such proceeding or case shall continue undismissed, or an order, judgment or decree approving or ordering any of the foregoing shall be entered and continue unstayed and in effect, for a period of 60 or more days; or an order for relief against Motorola or such Motorola Domestic Subsidiary shall be entered in an involuntary case under the U.S. Bankruptcy Code; or (f) Motorola or any of the Motorola Domestic Subsidiaries shall admit in writing its inability to, or be generally unable to, pay its debts as such debts become due; or (g) Motorola or any of the Motorola Domestic Subsidiaries shall default in the payment when due (after the expiration of applicable grace periods) of any principal of or interest on any of its Indebtedness aggregating in amount at least equal to 3% of the amount of total stockholders' equity for Motorola and its consolidated Subsidiaries (determined on a consolidated basis without duplication in accordance with generally accepted accounting principles) as at the last day of the most recently completed fiscal quarter of Motorola ("Motorola's Net Worth"); or any event specified in any note, agreement, indenture or other document evidencing or relating to any such Indebtedness shall occur if the effect of such event is to cause, or (with the giving of any notice or the lapse of time or both) to permit the holder or holders of such Indebtedness (or a trustee or agent on behalf of such holder or holders) to cause, such Indebtedness to become due, or to be prepaid in full (whether by redemption, purchase, offer to purchase or otherwise), prior to its stated maturity or to have the interest rate thereon reset to a level so that securities evidencing such Indebtedness trade at a level specified in relation to the par value thereof; or (h) a final judgment or judgments for the payment of money in excess of 3% of Motorola's Net Worth (exclusive of judgment amounts fully covered by insurance where the insurer has admitted liability in respect of such judgment) shall be rendered by one or more courts, administrative tribunals or other bodies having jurisdiction against the Motorola or any of the Motorola Domestic Subsidiaries and the same shall not be discharged (or provision shall not be made for such discharge), or a stay of execution thereof shall not be procured, within 60 days from the date of entry thereof and Motorola or the relevant Motorola Domestic Subsidiary shall not, within said period of 60 days, or such longer period during which execution of the same shall have been stayed, appeal therefrom and cause the execution thereof to be stayed during such appeal; or (i) Motorola shall fail to obtain, renew, maintain or comply in all material respects with the FCC License (at all times prior to the transfer thereof to the Company pursuant to the Space System Contract); or the FCC License shall be materially Impaired or shall cease to be in full force and effect; or any action, suit, proceeding or investigation shall be commenced by or before any Government Authority which could reasonably be expected to result in such Impairment and (in any case) such Impairment could reasonably be expected to result in a Material Adverse Effect; or Credit Agreement 96 - 90 - (j) at any time after the execution and delivery of the Motorola Pledge Agreement but prior to the transfer of the FCC License by Motorola to the Company pursuant to the Space System Contract, the Liens created by the Motorola Pledge Agreement shall cease to constitute a valid and perfected Lien on the Collateral intended to be covered thereby (to the extent perfection by filing, registration, recordation or possession is required herein or therein) in favor of the Collateral Agent, free and clear of all other Liens; or (k) any material provision of any Motorola Agreement or any Principal Project Document to which Motorola is a party shall at any time for any reason cease to be valid and binding or in full force and effect; or any Motorola Agreement (excluding the Motorola Pledge Agreement, prior to the date of the execution and delivery thereof) or any such Principal Project Document shall be materially Impaired in whole or part; or the validity or enforceability of any Motorola Agreement (excluding the Motorola Pledge Agreement, prior to the date of execution and delivery thereof) or any such Principal Project Document shall be contested by Motorola; or Motorola shall deny that it has any or further liability or obligation under any Motorola Agreement (excluding the Motorola Pledge Agreement, prior to the date of execution and delivery thereof) or any such Principal Project Document; or (l) any gateway equipment purchase agreement and/or agreement for the manufacture and delivery of handsets and/or paging units shall at any time for any reason cease to be valid and binding or in full force and effect, or the validity or enforceability of any such agreement shall be contested by Motorola or Motorola shall deny that it has any or further liability or obligation under any such agreement, and (in any case) such event could reasonably be expected to result in a Material Adverse Effect; SECTION 9.03. Other Project Parties' Events of Default. (a) any Project Party (other than the Credit Parties, Iridium LLC, Motorola and the Secured Parties) (each an "Other Project Party") shall fail to pay to the Company or any of its Subsidiaries when due any amount payable by such Other Project Party under any Transaction Document to which it is a party or any Iridium LLC Member shall fail to pay when due any amount in respect of its Reserve Capital Call Obligations; or (b) any representation or warranty made or deemed made by any Other Project Party in or pursuant to any Transaction Document to which it is a party or any amendment or modification thereof, or in any report, certificate, financial statement or other document furnished pursuant to or in connection with this Agreement or any such Transaction Document or any amendment or modification hereof or thereof, shall prove to have been incorrect in any material respect when made or deemed made; or (c) any Other Project Party shall fail to observe or perform any covenant, condition or agreement contained in any Transaction Document to which it is a party and such Credit Agreement 97 - 91 - failure shall continue unremedied for a period of 30 days after notice thereof from the Administrative Agent (given at the request of any Lender) to the Company and such Other Project Party; or (d) a proceeding or case shall be commenced, without the application or consent of any Other Project Party or its parent company in any court of competent jurisdiction, seeking (i) its reorganization, liquidation, dissolution, arrangement or winding-up, or the composition or readjustment of its debts, (ii) the appointment of a receiver, custodian, trustee, examiner, liquidator or the like of such Other Project Party or of all or any substantial part of its property or (iii) similar relief in respect of such Other Project Party under any law relating to bankruptcy, insolvency, reorganization, winding-up, or composition or adjustment of debts, and such proceeding or case shall continue undismissed, or an order, judgment or decree approving or ordering any of the foregoing shall be entered and continue unstayed and in effect, for a period of 60 or more days; or an order for relief against such Other Project Party shall be entered in an involuntary case under applicable law; or (e) any Other Project Party shall fail to obtain, renew, maintain or comply in all material respects with any Telecommunications Approval or any other Government Approval that is required by the terms of any Transaction Document to which it is a party to be obtained and/or maintained by such Other Project Party and is necessary for the Development of the Project; or any such Telecommunications Approval or any such other Government Approval shall be Impaired or shall cease to be in full force and effect; or any action, suit, proceeding or investigation shall be commenced by or before any Government Authority which could reasonably be expected to result in such Impairment and such action, suit or proceeding is reasonably likely to be successful; or (f) any material provision of any Transaction Document to which any Other Project Party is a party shall at any time for any reason cease to be valid and binding or in full force and effect; or any such Transaction Document shall be Impaired in whole or part; or the validity or enforceability of any such Transaction Document shall be contested by any Other Project Party or any Government Authority; or any Other Project Party shall deny that it has any or further liability or obligation under any such Transaction Document; provided that, in the case of each event under this Section 9.03, such event shall not be an Event of Default unless the occurrence of such event could reasonably be expected to result in a Material Adverse Effect; SECTION 9.04. Other Events of Default. (a) an announcement by the Company of a decision to abandon or indefinitely defer the construction or completion of the Project or the abandonment or indefinite deferral of the construction or operation of the Project; or Credit Agreement 98 - 92 - (b) a material portion of the Project shall be permanently condemned or seized or title thereto shall be permanently requisitioned or taken by any Government Authority under power of eminent domain or otherwise; or a material portion of the Project shall be temporarily condemned or seized or title thereto shall be temporarily requisitioned or taken by any Government Authority under power of eminent domain or otherwise and such temporary condemnation, seizure, requisition or taking shall last for at least 90 days and could reasonably be expected to result in a Material Adverse Effect; or (c) any Event of Loss (other than under Section 9.04(b)) shall have occurred with respect to a material portion of the Iridium satellite constellation or the Project and such Event of Loss could reasonably be expected to result in a Material Adverse Effect; then, and in every such event under Sections 9.01, 9.02, 9.03 and 9.04 (other than an event with respect to any Credit Party or Iridium LLC described in clause (i) or (j) of Section 9.01, and at any time thereafter during the continuance of such event, the Administrative Agent may, and at the request of the Required Lenders shall, by notice to the Company, take either or both of the following actions, at the same or different times: (i) terminate the Commitments, and thereupon the Commitments shall terminate immediately, and (ii) declare the Loans then outstanding to be due and payable in whole (or in part, in which case any principal not so declared to be due and payable may thereafter be declared to be due and payable), and thereupon the principal of the Loans so declared to be due and payable, together with accrued interest thereon and all fees and other obligations of the Credit Parties accrued hereunder and under the other Credit Documents, shall become due and payable immediately, without presentment, demand, protest or other notice of any kind, all of which are hereby waived by each Credit Party; and in case of any event with respect to any Credit Party or Iridium LLC described in such clause (i) or (j), the Commitments shall automatically terminate and the principal of the Loans then outstanding, together with accrued interest thereon and all fees and other obligations of the Credit Parties accrued hereunder, shall automatically become due and payable, without presentment, demand, protest or other notice of any kind, all of which are hereby waived by each Credit Party. ARTICLE X THE AGENTS AND GLOBAL ARRANGERS Each of the Lenders hereby irrevocably appoints (a) the Administrative Agent as its agent hereunder and under the other Credit Documents to which it is a party and authorizes the Administrative Agent to take such actions on its behalf and to exercise such powers as are delegated to the Administrative Agent by the terms hereof or thereof, together with such actions and powers as are reasonably incidental thereto and (b) the Collateral Agent as its agent under the Credit Documents to which it is a party and authorizes the Collateral Agent to take such actions on its behalf and to exercise such powers as are delegated to the Collateral Agent by the terms thereof, together with such actions and powers as are reasonably incidental thereto. Credit Agreement 99 - 93 - The bank serving as the Administrative Agent or the Collateral Agent hereunder or thereunder shall have the same rights and powers in its capacity as a Lender as any other Lender and may exercise the same as though it were not the Administrative Agent or Collateral Agent (as the case may be), and such bank and its Affiliates may accept deposits from, lend money to and generally engage in any kind of business with the Company or any Subsidiary or other Affiliate thereof as if it were not the Administrative Agent or Collateral Agent (as the case may be) hereunder. None of the Agents shall have any duties or obligations except those expressly set forth herein and in the other Credit Documents. Without limiting the generality of the foregoing, (a) no Agent shall be subject to any fiduciary or other implied duties, regardless of whether a Default has occurred and is continuing, (b) no Agent shall have any duty to take any discretionary action or exercise any discretionary powers, except discretionary rights and powers expressly contemplated hereby or by the other Credit Documents that (in the case of the Administrative Agent or the Collateral Agent) such Agent is required to exercise in writing by the Required Lenders, and (c) except as expressly set forth herein and in the other Credit Documents, no Agent shall have any duty to disclose, nor shall any Agent be liable for the failure to disclose, any information relating to the Company or any of its Subsidiaries that is communicated to or obtained by the bank serving as an Agent or any of its Affiliates in any capacity. None of the Agents shall be liable for any action taken or not taken by it with the consent or at the request of the Required Lenders or in the absence of its own gross negligence or wilful misconduct. None of the Agents shall be deemed to have knowledge of any Default unless and until written notice thereof is given to such Agent by the Company or a Lender, and none of the Agents shall be responsible for or have any duty to ascertain or inquire into (i) any statement, warranty or representation made in or in connection with this Agreement or any other Credit Document, (ii) the contents of any certificate, report or other document delivered hereunder or thereunder or in connection herewith or therewith, (iii) the performance or observance of any of the covenants, agreements or other terms or conditions set forth herein or therein, (iv) the validity, enforceability, effectiveness or genuineness of this Agreement, any other Credit Document or any other agreement, instrument or document, or (v) the satisfaction of any condition set forth in Article IV or elsewhere herein or therein, other than (in the case of the Administrative Agent) to confirm receipt of items expressly required to be delivered to the Administrative Agent. Notwithstanding anything herein to the contrary, neither the Documentation Agent nor Global Arrangers, in their respective capacities as such, shall have any duties, responsibilities or liabilities whatsoever under this Agreement or the other Credit Documents. Each Agent shall be entitled to rely upon, and shall not incur any liability for relying upon, any notice, request, certificate, consent, statement, instrument, document or other writing believed by it to be genuine and to have been signed or sent by the proper Person. Each Agent also may rely upon any statement made to it orally or by telephone and believed by it to be made by the proper Person, and shall not incur any liability for relying thereon. Each Agent may consult with legal counsel (who may be counsel for a Credit Party), independent accountants and Credit Agreement 100 - 94 - other experts selected by the Administrative Agent, and shall not be liable for any action taken or not taken by it in accordance with the advice of any such counsel, accountants or experts. Each Agent may perform any and all its duties and exercise its rights and powers by or through any one or more sub-agents appointed by it in good faith. Each Agent and any such sub-agent may perform any and all its duties and exercise its rights and powers through their respective Related Parties. The exculpatory provisions of the preceding paragraphs shall apply to any such sub-agent and to the Related Parties of each Agent and any such sub-agent, and shall apply to their respective activities in connection with the syndication of the credit facilities provided for herein as well as activities as Agent. Subject to the appointment and acceptance of a successor Administrative Agent or Collateral Agent as provided in this paragraph, the Administrative Agent or the Collateral Agent may resign at any time by notifying the Lenders and the Company. Upon any such resignation, the Required Lenders shall have the right to appoint a successor thereto with the prior consent of the Company (which consent shall not be unreasonably withheld or delayed). If no successor shall have been so appointed by the Required Lenders and shall have accepted such appointment within 30 days after the retiring Administrative Agent or Collateral Agent (as the case may be) gives notice of its resignation, then the retiring Administrative Agent or Collateral Agent (as the case may be) may, on behalf of the Lenders, appoint a successor Administrative Agent or Collateral Agent (as the case may be) which shall be a bank with an office in New York, New York with a combined capital and surplus of at least $500,000,000, or an Affiliate of any such bank. Upon the acceptance of its appointment as Administrative Agent or Collateral Agent (as the case may be) hereunder by a successor, such successor shall succeed to and become vested with all the rights, powers, privileges and duties of the retiring Administrative Agent or Collateral Agent (as the case may be) and the retiring Administrative Agent or Collateral Agent (as the case may be) shall be discharged from its duties and obligations hereunder. The fees payable by the Company to a successor Administrative Agent or Collateral Agent (as the case may be) shall be the same as those payable to its predecessor unless otherwise agreed between the Company and such successor. After the Administrative Agent's or Collateral Agent's (as the case may be) resignation hereunder, the provisions of this Article and Section 11.03 shall continue in effect for its benefit in respect of any actions taken or omitted to be taken by it while it was acting as Administrative Agent or Collateral Agent (as the case may be). Each Lender acknowledges that it has, independently and without reliance upon the Agents, the Global Arrangers or any other Lender and based on such documents and information as it has deemed appropriate, made its own credit analysis and decision to enter into this Agreement. Each Lender also acknowledges that it will, independently and without reliance upon the Agents, the Global Arrangers or any other Lender and based on such documents and information as it shall from time to time deem appropriate, continue to make its own decisions in taking or not taking action under or based upon this Agreement, any other Credit Document or any related agreement or any document furnished hereunder or thereunder. Credit Agreement 101 - 95 - Except as otherwise provided in Section 11.02(b) with respect to this Agreement, the Administrative Agent and/or the Collateral Agent (as the case may be) may, with the prior consent of the Required Lenders (but not otherwise), consent to any modification, supplement or waiver under any of the Credit Documents or grant any consent thereunder, provided that, without the prior consent of each Lender, the Administrative Agent and/or Collateral Agent (as the case may be) shall not (except as provided herein or in the Security Documents) (i) release all or any part of the Collateral or otherwise terminate any Lien relating thereto under any Security Document providing for collateral security, (ii) agree to additional obligations being secured by such Collateral or alter the relative priorities of the obligations entitled to the benefits of the Liens created under the Security Documents, (iii) release any Subsidiary Guarantor under the Subsidiary Guarantee Agreement from its guarantee obligations thereunder or (iv) without limiting any of the foregoing clauses, agree to any modification or the termination or release of the Reserve Capital Call Obligations, except that no such consent shall be required, and the Administrative Agent or Collateral Agent (as the case may be) is hereby authorized, to release any Lien covering property and/or to release any such Subsidiary Guarantor that is the subject of either a disposition of property permitted hereunder or a disposition to which the Required Lenders have consented. ARTICLE XI MISCELLANEOUS SECTION 11.01. Notices. Except in the case of notices and other communications expressly permitted to be given by telephone, all notices and other communications provided for herein shall be in writing and shall be delivered by hand or overnight courier service, mailed by certified or registered mail or sent by telecopy, as follows: (a) if to the Company, to: Iridium Operating LLC 1575 Eye Street, N.W., Washington, D.C. 20005 Attention: General Counsel (Telecopy No.: 202-408-3761); (b) if to the Administrative Agent, to: The Chase Manhattan Bank 1 Chase Manhattan Plaza 8th Floor New York, New York 10081 Attention: Loan and Agency Services Group (Telecopy No.: (212) 552-5658); Credit Agreement 102 - 96 - with a copy to: The Chase Manhattan Bank 270 Park Avenue New York, New York 10017 Attention: Ann Kearns, 37th Floor (Telecopy No.: (212) 270-0858); (c) if to the Documentation Agent, to: Barclays Bank PLC 222 Broadway New York, New York 10038 Attention: Peter Yetman (Telecopy No.: (212) 412-7511); (d) if to the Global Arrangers, to: Chase Securities Inc. 270 Park Avenue New York, New York 10017 Attention: Ronald Lepes (Telecopy No.: (212) 270-6125) and Barclays Capital, the investment banking division of Barclays Bank PLC 222 Broadway New York, New York 10038 Attention: Peter Feltman (Telecopy No.: (212) 412-7511) (e) if to a Lender, to it at its address (or telecopy number) set forth in its Administrative Questionnaire. Any party hereto may change its address or telecopy number for notices and other communications hereunder by notice to the other parties hereto. All notices and other communications given to any party hereto in accordance with the provisions of this Agreement shall be deemed to have been given on the date of receipt. Credit Agreement 103 - 97 - SECTION 11.02. Waivers; Amendments. (a) No failure or delay by any Agent or any Lender in exercising any right or power hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any such right or power, or any abandonment or discontinuance of steps to enforce such a right or power, preclude any other or further exercise thereof or the exercise of any other right or power. The rights and remedies of the Agents and the Lenders hereunder are cumulative and are not exclusive of any rights or remedies that they would otherwise have. No waiver of any provision of this Agreement or consent to any departure by any Credit Party therefrom shall in any event be effective unless the same shall be permitted by paragraph (b) of this Section, and then such waiver or consent shall be effective only in the specific instance and for the purpose for which given. Without limiting the generality of the foregoing, the making of a Loan shall not be construed as a waiver of any Default, regardless of whether any Agent or any Lender may have had notice or knowledge of such Default at the time. (b) Neither this Agreement nor any provision hereof may be waived, amended or modified except pursuant to an agreement or agreements in writing entered into by the Company and the Required Lenders or by the Company and the Administrative Agent with the consent of the Required Lenders; provided that no such agreement shall (i) increase the Commitment of any Lender without the written consent of such Lender, (ii) reduce the principal amount of any Loan or reduce the rate of interest thereon, or reduce any fees payable hereunder, without the prior written consent of each Lender affected thereby, (iii) postpone the scheduled date of payment (including any payment under Section 2.09) of the principal amount of any Loan, or any interest thereon, or any fees payable hereunder, or reduce the amount of, waive or excuse any such payment, or postpone the scheduled date of expiration of any Commitment, without the written consent of each Lender affected thereby (other than the extension of the Commitment Termination Date under Section 2.18), (iv) change Section 2.16(b) or (c) in a manner that would alter the pro rata sharing of payments required thereby, without the written consent of each Lender, or (v) change any of the provisions of this Section or the definition of the term "Required Lenders" or any other provision hereof specifying the number or percentage of Lenders required to waive, amend or modify any rights hereunder or make any determination or grant any consent hereunder, without the written consent of each Lender; provided, further, that no such agreement shall amend, modify or otherwise affect the rights or duties of any Agent hereunder or under any other Credit Document without the prior written consent of such Agent. SECTION 11.03. Expenses; Indemnity; Damage Waiver. (a) The Company shall pay (i) all reasonable out-of-pocket expenses incurred by the Global Arrangers and the Agents, including the reasonable fees, charges and disbursements of Milbank, Tweed, Hadley & McCloy, special New York counsel to the Global Arrangers and the Agents, in connection with the syndication of the credit facilities provided for herein, the preparation, negotiation, execution, delivery and administration of this Agreement and the other Credit Agreement 104 - 98 - Credit Documents or any amendments, modifications or waivers of the provisions hereof or thereof (whether or not the transactions contemplated hereby or thereby shall be consummated), (ii) all reasonable out-of-pocket expenses incurred by any Agent or any Lender, including the fees, charges and disbursements of such special New York counsel and/or any other counsel selected by the Global Arrangers, the Agents or the Required Lenders, in connection with the enforcement or protection of its rights in connection with this Agreement and the other Credit Documents, including its rights under this Section, or in connection with the Loans made hereunder, including in connection with any workout, restructuring or negotiations in respect thereof, (iii) all reasonable out-of-pocket costs and expenses of the Administrative Agent (including the fees, charges and disbursements of said special New York counsel) incurred in connection with the negotiation, preparation, execution and delivery of any waiver or amendment of, or supplement or modification to, any of the Credit Documents, (iv) and all reasonable costs, expenses, taxes, assessments and other charges incurred in connection with any filing, registration, recording or perfection of any security interest contemplated by any Security Document or any other document referred to therein and (v) all transfer, stamp, documentary or other similar taxes, assessments or charges, if any, upon any of the Credit Documents. (b) The Company shall indemnify the Global Arrangers, the Agents and each Lender, and each Related Party of any of the foregoing Persons (each such Person being called an "Indemnitee") against, and to hold each Indemnitee harmless from, any and all losses, claims, damages, liabilities and related expenses, including the fees, charges and disbursements of any counsel for any Indemnitee, incurred by or asserted against any Indemnitee arising out of, in connection with, or as a result of (i) the execution or delivery of this Agreement or any agreement or instrument contemplated hereby, the performance by the parties hereto of their respective obligations hereunder or the consummation of the transactions contemplated hereby, (ii) any Loan or the use of the proceeds therefrom, (iii) any actual or alleged presence or Release of Hazardous Materials on or from any property owned or operated by the Company or any of its Subsidiaries, or any Environmental Claim related in any way to the Company or any of its Subsidiaries, or (iv) any actual or prospective claim, litigation, investigation or proceeding relating to any of the foregoing, whether based on contract, tort or any other theory and regardless of whether any Indemnitee is a party thereto; provided that such indemnity shall not, as to any Indemnitee, be available to the extent that such losses, claims, damages, liabilities or related expenses are determined by a court of competent jurisdiction by final and nonappealable judgment to have resulted from the gross negligence or wilful misconduct of such Indemnitee. (c) To the extent that the Company fails to pay any amount required to be paid by it to any Agent under paragraph (a) or (b) of this Section, each Lender severally agrees to pay to such Agent such Lender's Applicable Percentage (determined as of the time that the applicable unreimbursed expense or indemnity payment is sought) of such unpaid amount; provided that the unreimbursed expense or indemnified loss, claim, damage, liability or related expense, as the case may be, was incurred by or asserted against such Agent in its capacity as such. Credit Agreement 105 - 99 - (d) To the extent permitted by applicable Government Rule, the Company shall not assert, and hereby waives, any claim against any Indemnitee, on any theory of liability, for special, indirect, consequential or punitive damages (as opposed to direct or actual damages) arising out of, in connection with, or as a result of, this Agreement or any agreement or instrument contemplated hereby, any Loan or the use of the proceeds thereof. (e) All amounts due under this Section shall be payable promptly after written demand therefor. SECTION 11.04. Successors and Assigns. (a) The provisions of this Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns permitted hereby, except that the Company may not assign or otherwise transfer any of its rights or obligations hereunder without the prior written consent of each Lender (and any attempted assignment or transfer by the Company without such consent shall be null and void). Nothing in this Agreement, expressed or implied, shall be construed to confer upon any Person (other than the parties hereto, their respective successors and assigns permitted hereby and, to the extent expressly contemplated hereby, the Related Parties of each of the Administrative Agent and the Lenders) any legal or equitable right, remedy or claim under or by reason of this Agreement. (b) Any Lender may assign to one or more assignees all or a portion of its rights and obligations under this Agreement (including all or a portion of its Commitment and the Loans at the time owing to it); provided that (i) except in the case of an assignment to a Lender or an affiliate of a Lender or, in the case of a Lender that is an investment fund, to another investment fund with the same investment advisor as such Lender, each of the Company and the Administrative Agent must give their prior written consent to such assignment (which consent shall not be unreasonably withheld), (ii) except in the case of an assignment to a Lender or an Affiliate of a Lender or an assignment of the entire remaining amount of the assigning Lender's Commitment, the amount of the Commitment of the assigning Lender subject to each such assignment shall not be less than $5,000,000 and, after giving effect to such assignment, the assigning Lender's Commitment and Loans shall not be less than $5,000,000, in each case determined as of the date the Assignment and Acceptance with respect to such assignment is delivered to the Administrative Agent, unless each of the Company and the Administrative Agent otherwise consent, (iii) each partial assignment shall be made as an assignment of a proportionate part of all the assigning Lender's rights and obligations under this Agreement, (iv) the parties to each assignment shall execute and deliver to the Administrative Agent an Assignment and Acceptance, together with a processing and recordation fee of $3,500 for such assignment (except that in the case of contemporaneous assignments to assignees that are investment funds with the same investment advisor, such fee shall be payable with respect to one assignment only), and (v) the assignee, if it shall not be a Lender, shall deliver to the Administrative Agent an Administrative Questionnaire; provided, further, that any consent of the Company otherwise Credit Agreement 106 - 100 - required under this paragraph shall not be required if an Event of Default under clause (j) of Section 9.01 has occurred and is continuing. Upon acceptance and recording pursuant to paragraph (d) of this Section, from and after the effective date specified in each Assignment and Acceptance, the assignee thereunder shall be a party hereto and, to the extent of the interest assigned by such Assignment and Acceptance, have the rights and obligations of a Lender under this Agreement, and the assigning Lender thereunder shall, to the extent of the interest assigned by such Assignment and Acceptance, be released from its obligations under this Agreement (and, in the case of an Assignment and Acceptance covering all of the assigning Lender's rights and obligations under this Agreement, such Lender shall cease to be a party hereto but shall continue to be entitled to the benefits of Sections 2.13, 2.14, 2.15 and 11.03). Any assignment or transfer by a Lender of rights or obligations under this Agreement that does not comply with this paragraph shall be treated for purposes of this Agreement as a sale by such Lender of a participation in such rights and obligations in accordance with paragraph (e) of this Section. (c) The Administrative Agent, acting for this purpose as an agent of the Company, shall maintain at one of its offices in The City of New York a copy of each Assignment and Acceptance delivered to it and a register for the recordation of the names and addresses of the Lenders, and the Commitment of, and principal amount of the Loans owing to, each Lender pursuant to the terms hereof from time to time (the "Register"). The entries in the Register shall be conclusive, and the Company, the Administrative Agent and the Lenders may treat each Person whose name is recorded in the Register pursuant to the terms hereof as a Lender hereunder for all purposes of this Agreement, notwithstanding notice to the contrary. The Register shall be available for inspection by the Company and any Lender, at any reasonable time and from time to time upon reasonable prior notice. (d) Upon its receipt of a duly completed Assignment and Acceptance executed by an assigning Lender and an assignee, the assignee's completed Administrative Questionnaire (unless the assignee shall already be a Lender hereunder), the processing and recordation fee referred to in paragraph (b) of this Section and any written consent to such assignment required by paragraph (b) of this Section, the Administrative Agent shall accept such Assignment and Acceptance and record the information contained therein in the Register. No assignment shall be effective for purposes of this Agreement unless it has been recorded in the Register as provided in this paragraph. (e) Any Lender may, without the consent of the Company or the Administrative Agent, sell participations to one or more banks or other entities (a "Participant") in all or a portion of such Lender's rights and obligations under this Agreement and the other Credit Documents (including all or a portion of its Commitment and the Loans owing to it); provided that (i) such Lender's obligations under this Agreement and the other Credit Documents shall remain unchanged, (ii) such Lender shall remain solely responsible to the other parties hereto for the performance of such obligations and (iii) the Company, the Administrative Agent and the other Lenders shall continue to deal solely and directly with such Lender in connection with such Credit Agreement 107 - 101 - Lender's rights and obligations under this Agreement and the other Credit Documents. Any agreement or instrument pursuant to which a Lender sells such a participation shall provide that such Lender shall retain the sole right to enforce this Agreement and the other Credit Documents and to approve any amendment, modification or waiver of any provision of this Agreement or any other Credit Document; provided that such agreement or instrument may provide that such Lender will not, without the consent of the Participant, agree to any amendment, modification or waiver described in the first proviso to Section 11.02(b) that affects such Participant. Subject to paragraph (f) of this Section, the Company agrees that each Participant shall be entitled to the benefits of Sections 2.13, 2.14 and 2.15 to the same extent as if it were a Lender and had acquired its interest by assignment pursuant to paragraph (b) of this Section. (f) A Participant shall not be entitled to receive any greater payment under Section 2.13 or 2.15 than the applicable Lender would have been entitled to receive with respect to the participation sold to such Participant, unless the sale of the participation to such Participant is made with the Company's prior written consent. A Participant that would be a Foreign Lender if it were a Lender shall not be entitled to the benefits of Section 2.15 unless the Company is notified of the participation sold to such Participant and such Participant agrees, for the benefit of the Company, to comply with Section 2.15(e) as though it were a Lender. (g) Any Lender may at any time pledge or assign a security interest in all or any portion of its rights under this Agreement to secure obligations of such Lender, including any such pledge or assignment to a Federal Reserve Bank, and this Section shall not apply to any such pledge or assignment of a security interest; provided that no such pledge or assignment of a security interest shall release a Lender from any of its obligations hereunder or substitute any such assignee for such Lender as a party hereto. SECTION 11.05. Survival. All covenants, agreements, representations and warranties made by the Company herein and in the certificates or other instruments delivered in connection with or pursuant to this Agreement shall be considered to have been relied upon by the other parties hereto and shall survive the execution and delivery of this Agreement and the making of any Loans, regardless of any investigation made by any such other party or on its behalf and notwithstanding that the Administrative Agent or any Lender may have had notice or knowledge of any Default or incorrect representation or warranty at the time any credit is extended hereunder, and shall continue in full force and effect as long as the principal of or any accrued interest on any Loan or any fee or any other amount payable under this Agreement is outstanding and unpaid and so long as the Commitments have not expired or terminated. The provisions of Sections 2.13, 2.14, 2.15, 3.03 and 11.03 and Article X shall survive and remain in full force and effect regardless of the consummation of the transactions contemplated hereby, the repayment of the Loans, the expiration or termination of the Commitments or the termination of this Agreement or any provision hereof. Credit Agreement 108 - 102 - SECTION 11.06. Counterparts; Integration. This Agreement may be executed in counterparts (and by different parties hereto on different counterparts), each of which shall constitute an original, but all of which when taken together shall constitute a single contract. This Agreement and any separate letter agreements with respect to fees payable to the Global Arrangers and/or the Agents constitute the entire contract among the parties relating to the subject matter hereof and supersede any and all previous agreements and understandings, oral or written, relating to the subject matter hereof. SECTION 11.07. Severability. Any provision of this Agreement held to be invalid, illegal or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such invalidity, illegality or unenforceability without affecting the validity, legality and enforceability of the remaining provisions hereof; and the invalidity of a particular provision in a particular jurisdiction shall not invalidate such provision in any other jurisdiction. SECTION 11.08. Right of Setoff. If an Event of Default shall have occurred and be continuing, each Lender is hereby authorized at any time and from time to time, to the fullest extent permitted by law, to set off and apply any and all deposits (general or special, time or demand, provisional or final) at any time held and other indebtedness at any time owing by such Lender to or for the credit or the account of any Credit Party against any of and all the obligations of any Credit Party now or hereafter existing under this Agreement held by such Lender, irrespective of whether or not such Lender shall have made any demand under this Agreement and although such obligations may be unmatured. The rights of each Lender under this Section are in addition to other rights and remedies (including other rights of setoff) which such Lender may have. SECTION 11.09. Governing Law; Jurisdiction; Consent to Service of Process. (a) This Agreement shall be construed in accordance with and governed by the law of the State of New York. (b) The Company hereby irrevocably and unconditionally submits, for itself and its property, to the nonexclusive jurisdiction of the Supreme Court of the State of New York sitting in New York County and of the United States District Court of the Southern District of New York, and any appellate court from any thereof, in any action or proceeding arising out of or relating to this Agreement or any other Credit Document to which it is a party, or for recognition or enforcement of any judgment, and each of the parties hereto hereby irrevocably and unconditionally agrees that all claims in respect of any such action or proceeding may be heard and determined in such New York State or, to the extent permitted by law, in such Federal court. Each of the parties hereto agrees that a final judgment in any such action or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by law. Nothing in this Agreement shall affect any right that the Administrative Credit Agreement 109 - 103 - Agent or any Lender may otherwise have to bring any action or proceeding relating to this Agreement against the Company or its properties in the courts of any jurisdiction. (c) The Company hereby irrevocably appoints CT Corporation (the "Process Agent") with an office on the date hereof at 1633 Broadway, New York, New York 10019 as its agent to receive on behalf of it and its property service of copies of the summons and complaint and any other process which may be served in any such suit, action or proceeding. Such service may be made by mailing or delivering a copy of such process to the Company, in care of the Process Agent at the Process Agent's above address and the Company hereby irrevocably authorizes and directs the Process Agent to receive such service on its behalf. The Administrative Agent and each Lender agree to mail to the Company at its address provided under Section 11.01 a copy of any summons, complaint, or other process mailed or delivered by it to the Company in care of the Process Agent. As an alternate method of service, the Company also irrevocably consents to the service of any and all process in any such suit, action or proceeding by mailing of copies of such process to it at its address provided under Section 11.01. All mailings under this Section shall be by certified mail, return receipt requested. Nothing in this Agreement will affect the right of any party to this Agreement to serve process in any other manner permitted by law. (d) The Company hereby irrevocably and unconditionally waives, to the fullest extent it may legally and effectively do so, any objection which it may now or hereafter have to the laying of venue of any suit, action or proceeding arising out of or relating to this Agreement in any court referred to in paragraph (b) of this Section. Each of the parties hereto hereby irrevocably waives, to the fullest extent permitted by law, the defense of an inconvenient forum to the maintenance of such action or proceeding in any such court. (e) To the extent that the Company may be or become entitled, in any jurisdiction in which judicial proceedings may at any time be commenced with respect to this Agreement or any other Credit Document, to claim for itself or its property or revenues any immunity from suit, court jurisdiction, attachment prior to judgment, attachment in aid of execution of a judgment, execution of a judgment or from any other legal process or remedy relating to its obligations under this Agreement or any other Credit Agreement and to the extent that in any such jurisdiction there may be attributed such an immunity (whether or not claimed), the Company hereby irrevocably agrees not to claim and hereby irrevocably waives such immunity to the fullest extent permitted by the laws of such jurisdiction. SECTION 11.10. WAIVER OF JURY TRIAL. EACH PARTY HERETO HEREBY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN ANY LEGAL PROCEEDING DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY (WHETHER BASED ON CONTRACT, TORT OR ANY OTHER THEORY). EACH PARTY HERETO (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS Credit Agreement 110 - 104 - REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND (B) ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HERETO HAVE BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION. SECTION 11.11. Headings. Article and Section headings and the Table of Contents used herein are for convenience of reference only, are not part of this Agreement and shall not affect the construction of, or be taken into consideration in interpreting, this Agreement. SECTION 11.12. Confidentiality. (a) The Company acknowledges that from time to time financial advisory, investment banking and other services may be offered or provided to the Company or one or more of its Subsidiaries (in connection with this Agreement or otherwise) by any Lender or by one or more subsidiaries or affiliates of such Lender. The Company hereby agrees that, in the event any such services are provided to the Company or any of its Subsidiaries, each Lender providing such services is authorized to share any information delivered to such Lender by the Company and its Subsidiaries pursuant to this Agreement, or in connection with the decision of such Lender to enter into this Agreement, to any such subsidiary or affiliate providing such services, provided that any such subsidiary or affiliate receiving such information agrees to be bound by the provisions of paragraph (b) of this Section as if it were a Lender hereunder. Such authorization shall survive the repayment of the Loans and the termination of the Commitments. (b) Each Lender, each Agent and each Global Arranger agrees (on behalf of itself and each of its affiliates, directors, officers, employees and representatives) to restrict dissemination of any Confidential Information (as defined below) only to those of its directors, officers, employees and representatives who are involved in the evaluation of such information, and to use reasonable precautions to keep such information confidential, in accordance with its customary procedures for handling confidential information of the same nature and in accordance with safe and sound banking practices. For purposes of this Agreement, "Confidential Information" shall mean any non-public information supplied to it by the Company, including its contractors, consultants or sponsors, pursuant to this Agreement or by Motorola in connection with this Agreement or any Motorola Agreement, that is identified (in writing, in the case of written information) by the Company or Motorola, as the case may be, as being confidential at the time the same is delivered to the Lenders, the Agents or the Global Arrangers, provided that nothing herein shall limit the disclosure of any such information by any Lender, Agent or Global Arranger (i) after such information shall have become public (other than through a violation of this Section by such Lender, Agent or Global Arranger), (ii) to the extent required by statute, rule, regulation or judicial process, (iii) to counsel or other experts for any of the Lenders, Agents or Global Arrangers, provided that such counsel or experts shall be bound by the requirements of this paragraph (b) with respect to any such information, (iv) to bank examiners (or any other Credit Agreement 111 - 105 - regulatory authority having jurisdiction over any Lender, Agent or Global Arranger), or to auditors or accountants, (v) to any Global Arranger, any Agent or any other Lender (or to any of their respective affiliates, provided that any such disclosure to any such affiliate shall be made on a "need to know" basis only for use by such affiliates (and each of its officers, directors and employees) solely in connection with the transactions contemplated by this Agreement and each such affiliate (and each of its officers, directors and employees) shall agree (for the benefit of the Company and Motorola) to be bound to keep such information confidential on the same terms as set forth in this Section), (vi) in connection with any litigation to which any one or more of the Lenders, the Global Arrangers or the Agents is a party, or in connection with the enforcement of rights or remedies hereunder or under any other Credit Document, provided that the party intending to make such disclosure shall use reasonable efforts to cooperate with the Company or with Motorola, as the case may be, to reasonably minimize the extent of any such disclosure or to obtain confidential treatment of information to be disclosed, (vii) to a subsidiary or affiliate of such Lender as provided in paragraph (a) of this Section or (viii) to any assignee or participant (or prospective assignee or participant) so long as such assignee or participant (or prospective assignee or participant) first executes and delivers to the respective Lender, the Company and Motorola a confidentiality agreement containing provisions substantially the same as those in this Section; provided, further, that in no event shall any Lender, Agent or Global Arranger be obligated or required to return any materials furnished by the Company or Motorola hereunder or under the Motorola Consent, respectively, except to the extent it has agreed to do so in writing in conjunction with the receipt of such information. The obligations of any assignee that has executed a confidentiality agreement as provided above shall be superseded by this Section on the date upon which such assignee becomes a Lender hereunder pursuant to Section 11.04(b). SECTION 11.13. Effective Date. This Agreement shall become effective upon the date, which shall not be later than December 19, 1997, of (a) receipt by the Administrative Agent of one or more counterparts of this Agreement executed by each of the parties hereto (or evidence satisfactory to the Administrative Agent of such execution and delivery) and (b) the payment by the Company of such fees or other amounts as the Company shall have agreed to pay to any Lender or any Agent, including, without limitation, the reasonable fees, charges and disbursements of Milbank, Tweed, Hadley & McCloy, special New York counsel to the Global Arrangers and the Agents, and of the Independent Advisors, in connection with the negotiation, preparation, execution and delivery of this Agreement and the other Credit Documents (to the extent that statements for such fees and other amounts have been delivered to the Company). From and after such effective date, this Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns. The Administrative Agent shall promptly notify the Company and the Lenders of such effective date, and such notice shall be conclusive and binding on all parties hereto. Delivery of an executed counterpart of a signature page of this Agreement by telecopy shall be effective as delivery of a manually executed counterpart of this Agreement. Credit Agreement 112 - 106 - SECTION 11.14. No Third Party Beneficiaries. The agreement of the Lenders to make the Loans to the Company on the terms and conditions set forth herein are solely for the benefit of the Company, and no other Person (including, without limitation, any other Credit Party or any contractor, subcontractor, supplier or materialman furnishing supplies, goods or services to or for the benefit of the Project) shall have any rights hereunder or, as against any Agent or any Lender, under any other Transaction Document, or with respect to the Loans or the proceeds thereof. Credit Agreement 113 - 107 - IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed by their respective authorized officers as of the day and year first above written. IRIDIUM OPERATING LLC By_________________________ Name: Title: Credit Agreement 114 - 108 - LENDERS THE CHASE MANHATTAN BANK By_________________________ Name: Title: BARCLAYS BANK PLC By_________________________ Name: Title: [COMPLETE FOR EACH OTHER LENDER.] [NAME OF LENDER] By_________________________ Name: Title: Credit Agreement 115 - 109 - GLOBAL ARRANGERS CHASE SECURITIES INC., as a Global Arranger By_________________________ Name: Title: BARCLAYS CAPITAL, a division of BARCLAYS BANK PLC, as a Global Arranger By_________________________ Name: Title: Credit Agreement 116 - 110 - ADMINISTRATIVE AGENT THE CHASE MANHATTAN BANK By_________________________ Name: Title: DOCUMENTATION AGENT BARCLAYS BANK PLC By_________________________ Name: Credit Agreement 117 SCHEDULE I Commitments Schedule I - Commitments 118 SCHEDULE II Real Property Schedule II - Real Property 119 SCHEDULE III Litigation Schedule III - Litigation 120 SCHEDULE IV Environmental Matters Schedule IV - Environmental Matters 121 SCHEDULE V Indebtedness Schedule V - Indebtedness 122 SCHEDULE VI Liens Schedule VI - Liens 123 SCHEDULE VII Subsidiaries Schedule VII - Subsidiaries 124 SCHEDULE VIII Investments Schedule VIII - Investments 125 SCHEDULE IX Restrictive Agreements Schedule IX - Restrictive Agreements 126 SCHEDULE X Employee Matters Schedule X - Employee Matters 127 SCHEDULE XI Affiliate Agreements Schedule XI - Affiliate Agreements 128 APPENDIX 1 Initial Approved Budget Appendix 1 - Initial Approved Budget 129 APPENDIX 2 Conditions Precedent (See Exhibit 10.29 to this Registration Statement) Appendix 2 - Conditions Precedent 130 APPENDIX 3 Insurance Program Appendix 3 - Insurance Program 131 EXHIBIT A Form of Assignment and Acceptance (See Exhibit 10.31 to this Registration Statement) Assignment and Acceptance 132 EXHIBIT B Form of Security Agreement (See Exhibit 10.32 to this Registration Statement) Security Agreement 133 EXHIBIT C Form of Parent Security Agreement (See Exhibit 10.33 to this Registration Statement) Parent Security Agreement 134 EXHIBIT D Form of Subsidiary Guarantee Agreement (See Exhibit 10.34 to this Registration Statement) Subsidiary Guarantee Agreement 135 EXHIBIT E Form of Subsidiary Guarantee Assumption Agreement (See Exhibit 10.35 to this Registration Statement) Subsidiary Guarantee Assumption Agreement 136 EXHIBIT F Form of Depositary Agreement (See Exhibit 10.36 to this Registration Statement) Depositary Agreement 137 EXHIBIT G Form of Motorola Consent (See Exhibit 10.37 to this Registration Statement) Motorola Consent 138 EXHIBIT H Form of Motorola Pledge Agreement (See Exhibit 10.38 to this Registration Statement) Motorola Pledge Agreement 139 EXHIBIT I-1 Form of Progress Certificate (Pre-Commercial Activation) (See Exhibit 10.39 to this Registration Statement) Progress Certificate (Pre-Commercial Activation) 140 EXHIBIT I-2 Form of Verification of Independent Technical Advisor (See Exhibit 10.40 to this Registration Statement) Verification of Independent Technical Advisor 141 EXHIBIT I-3 Form of Progress Certificate (Post-Commercial Activation) (See Exhibit 10.41 to this Registration Statement) Progress Certificate (Post-Commercial Activation) 142 EXHIBIT J Form of Borrowing Request (See Exhibit 10.42 to this Registration Statement) Borrowing Request EX-10.29 9 CONDITIONS PRECEDENT 1 EXHIBIT 10.29 APPENDIX 2 to Credit Agreement CONDITIONS PRECEDENT PART A: CONDITIONS PRECEDENT TO THE DISBURSEMENT OF THE TERM LOANS UNDER SECTION 2.01(a) 1. Credit Agreement. This Agreement, duly executed and delivered by each of the Company, the Agents and the Lenders, and this Agreement shall have become effective pursuant to Section 11.13. 2. Borrowing Request. A Borrowing Request with respect to such Term Loans. 3. Depositary Agreement. The Depositary Agreement, duly executed and delivered by the Company, the Collateral Agent and the Depositary Bank. 4. Filings, Registrations and Recordings. Evidence that all filings (including applicable Uniform Commercial Code financing statements), recordings, registrations and similar action under the Depositary Agreement have been duly made in order to create a first priority security interest in the Collateral covered thereby (except as may be provided therein) and that the payment of all filing, recordation, registration and similar fees and all taxes and other similar charges in connection therewith and with the execution and delivery of the Depositary Agreement has been made, or arrangements for any of the foregoing satisfactory to the Collateral Agent have been made. 5. Management Services Agreement. A certified copy of the Management Services Agreement as in effect, duly executed and delivered by Iridium World Communications Ltd., Iridium LLC and the Company. 6. Asset Transfer Agreement. The Asset Transfer Agreement, duly executed and delivered by Iridium LLC and the Company, and evidence that the transfer of substantially all of the assets of Iridium LLC to the Company contemplated thereby has been effected pursuant thereto. Appendix 2 - Conditions Precedent 2 - 2 - PART B: CONDITIONS PRECEDENT TO THE DISBURSEMENT OF THE TERM LOANS FROM THE PRE-FUNDING ACCOUNT I. DOCUMENTS AND INFORMATION TO BE DELIVERED BY THE CREDIT PARTIES 1. Security Agreement. The Security Agreement, duly executed and delivered by the Company, the Subsidiary Guarantors and the Collateral Agent. 2. Subsidiary Guarantee Agreement. The Subsidiary Guarantee Agreement, duly executed and delivered by each Subsidiary Guarantor and the Administrative Agent. 3. Promissory Notes. If requested by any Lender, the promissory notes or promissory notes for such Lender each duly executed and delivered by the Company. 4. Mortgages. The Mortgage(s) with respect to each parcel of real property or leasehold interest of the Company or any of its Subsidiaries identified on Part A of Schedule II to the Credit Agreement required to be subject to a Mortgage as of the Closing Date, each duly executed and delivered by the Company or the relevant Subsidiary, as the case may be. 5. Financial Statements. Copies of the most recent audited and (if any) unaudited consolidated financial statements of the Company required to delivered under Section 5.01 of the Credit Agreement. 6. Company Secretary's Certificate. A certificate of the Secretary or an Assistant Secretary of the Company, dated the Closing Date, as to: (i) the Company LLC Agreement; (ii) resolutions relating to the execution, delivery and performance by the Company of the Credit Documents to which it is a party; and (iii) incumbency and specimen signatures of each officer of the Company executing any such Credit Document (and the Agents and each Lender may conclusively rely on such officer's certificate until it receives notice in writing from the Company). 7. Subsidiary Secretary's Certificate. A certificate of the Secretary or an Assistant Secretary of each Subsidiary, dated the Closing Date, as to: (i) the limited liability company or charter; (ii) resolutions relating to the execution, delivery and performance by such Subsidiary of the Credit Documents to which it is a party; (iii) incumbency and specimen signature of each officer of the Subsidiary executing any such Credit Document (and the Agents and each Lender may conclusively rely on such officer's certificate until it receives notice in writing from such Subsidiary). 8. Company Responsible Officer's Certificate. A certificate of a Responsible Officer, dated the Closing Date, as to: Appendix 2 - Conditions Precedent 3 - 3 - (i) the accuracy of the representations and warranties made by the Company and its Subsidiaries in the Credit Documents to which any of them is a party; (ii) to the best knowledge of the Company, the accuracy of the representations and warranties made by each other Project Party in each Credit Document to which it is a party; (iii) the absence of any Default; (iv) the insurance obtained by the Company being in accordance with the insurance requirements under Section 8.01, and that such insurance is in full force and effect and all insurance premiums and deposits then due and payable thereon have been paid or made; (v) (i) the Senior Subordinated Notes shall be outstanding as of the Closing Date and (ii) (x) the Company shall have outstanding unsecured senior debt of at least $1,900,000,000 in aggregate principal amount (of which up to $350,000,000 may consist of Motorola's commitment to issue its Guarantee of the Company's senior unsecured Indebtedness up to $350,000,000 (inclusive of principal, interest and other amounts)) and (y) the net cash proceeds thereof have been (or in the case of such commitment, will be) applied by the Company to the payment of Project Costs. 9. Subscriber Units. A letter from Motorola to Iridium as to the supply of subscriber units in sufficient quantities to cover at least the projected level of subscribers for the first year of commercial operation for the Project and at a price consistent with achievement of the Financial Projections. 10. Insurance. Certificates of insurance from the Company's insurance brokers showing that (i) the Agents and the Lenders are additional insureds under all liability insurance policies of the Company and (ii) The Chase Manhattan Bank, as Collateral Agent, is named as loss payee under all casualty insurance policies of the Company (including, without limitation, the in-orbit insurance policies referred to in Appendix 3) and (if requested by the Administrative Agent) true and complete copy of the insurance policies required to be in effect as of the Closing Date. 11. Stock Certificates. If the equity interests of any of the Subsidiaries pledged to the Collateral Agent under any Security Document to which any Credit Party is a party are evidenced by a certificate, the Collateral Agent shall have received such certificate(s) together with in each case an undated stock power executed in blank, in order to create a first priority perfected security interest in such equity interests. 12. Filings, Registrations and Recordings. Evidence that all filings (including, applicable, Uniform Commercial Code financing statements), recordings, Appendix 2 - Conditions Precedent 4 - 4 - registrations and similar action under each Security Document to which any Credit Party is a party as of the Closing Date have been duly made in order to create a first priority security interest in the Collateral covered by such Security Document (except as may be provided therein) and that the payment of all filing, recordation, registration and similar fees and all taxes and other similar charges in connection therewith and with the execution and delivery of each such Security Document has been made, or arrangements for any of the foregoing satisfactory to the Collateral Agent have been made. 13. UCC Searches, Etc. Satisfactory results of UCC, tax and judgment lien searches in each jurisdiction reasonably requested by the Administrative Agent and under the names of the Company, Iridium LLC and each other name reasonably requested by the Administrative Agent. 14. Title Insurance, Etc. The issuance of a mortgagee title insurance policy in respect of each of the properties subject to the Mortgage(s) being entered into as of the Closing Date, together with delivery of each of the related documentation that complies with the requirements of Section 6.10(c). 15. Process Agent. Letter from one or more persons satisfactory to the Administrative Agent accepting its appointment as process agent in New York for each Credit Party under the relevant Credit Documents. 16. Payment of Fees and Expenses. Evidence that the Company shall have paid such fees, expenses and other amounts as the Company shall have agreed to pay to any Lender or any Agent on or prior to the Closing Date, including, without limitation, the reasonable fees, charges and disbursements of Milbank, Tweed, Hadley & McCloy, special New York counsel to the Global Arrangers and the Agents, and of each of the Independent Advisors (to the extent that statements for such fees and other amounts have been delivered to the Company). 17. Opinions of Counsel. The opinions of counsel to the Credit Parties referred to below in Section VII of this Part A. 18. Other Documents. Receipt of such other documents, certificates, instruments and information as the Administrative Agent or special counsel to the Global Arrangers may reasonably request. Appendix 2 - Conditions Precedent 5 - 5 - II. DOCUMENTS AND INFORMATION TO BE DELIVERED BY IRIDIUM LLC 1. Parent Security Agreement. The Parent Security Agreement, duly executed and delivered by Iridium LLC and the Collateral Agent. 2. Financial Statements. Copies of the most recent audited and (if any) unaudited consolidated financial statements of Iridium LLC referred to in Section 4.01 of the Parent Security Agreement and unaudited quarterly consolidated financial statements of Iridium LLC for each quarterly period ended subsequent to such audited financial statements. 3. Iridium LLC Secretary's Certificate A certificate of the Secretary or an Assistant Secretary of Iridium LLC, dated the Closing Date, as to: (i) the Iridium LLC Agreement as amended and in effect on the Closing Date (including an amendment thereto pursuant to which the Iridium LLC Members have consented to the assignment of the rights in favor of Iridium LLC with respect to the Reserve Capital Call Obligations pursuant to the Parent Security Agreement); (ii) resolutions relating to the execution, delivery and performance by Iridium LLC of the Credit Documents to which it is a party; and (iii) incumbency and specimen signatures of each officer of Iridium LLC executing any such Credit Document (and the Agents and each Lender may conclusively rely on such officer's certificate until it receives notice in writing from Iridium LLC). 4. Iridium LLC Responsible Officer's Certificate. A certificate of a senior officer of Iridium LLC, dated the Closing Date, as to: (i) the accuracy of the representations and warranties made by Iridium LLC in each Credit Document to which it is a party; (ii) the absence of any Default relating to Iridium LLC; and (iii) prior to the Closing Date, receipt by Iridium LLC of aggregate net cash proceeds from the issuance of equity of at least $1,985,000,000 (of which up to $50,000,000 may consist of a receivable from P.T. Bakrie Communications) and that such cash proceeds have been fully applied by the Company to the payment of Project Costs. 5. Stock Certificates. If the equity interests of the Company pledged to the Collateral Agent under the Parent Security Agreement are evidenced by a certificate, the Collateral Agent shall have received such certificate(s) together with in each case an undated stock power executed in blank, in order to create a first priority perfected security interest in such equity interests. Appendix 2 - Conditions Precedent 6 - 6 - 6. Filings, Registrations and Recordings. Evidence that all filings (including, applicable, Uniform Commercial Code financing statements), recordings, registrations and similar action under the Parent Security Agreement have been duly made in order to create a first priority security interest in the Collateral covered by the Parent Security Agreement (except as may be provided therein) and that the payment of all filing, recordation, registration and similar fees and all taxes and other similar charges in connection therewith and with the execution and delivery of the Parent Security Agreement has been made, or arrangements for any of the foregoing satisfactory to the Collateral Agent have been made. 7. Process Agent. Letter from one or more persons satisfactory to the Administrative Agent accepting its appointment as process agent in New York for Iridium LLC under the relevant Credit Documents. Appendix 2 - Conditions Precedent 7 - 7 - III. DOCUMENTS AND INFORMATION TO BE DELIVERED BY MOTOROLA 1. Motorola Consent. The Motorola Consent, duly executed and delivered by each of Motorola, the Company, the Administrative Agent and the Collateral Agent. 2. Motorola Pledge Agreement. If required by Section 4.01 of the Motorola Consent to be executed and delivered as of the Closing Date, the Motorola Pledge Agreement, duly executed and delivered by Motorola and the Collateral Agent. 3. Stock Certificates. At the time of the entering into of the Motorola Pledge Agreement, the stock certificate evidencing the capital stock of the Subsidiary of Motorola holding the FCC License pledged under the Motorola Pledge Agreement, together with an undated stock power executed in blank, and Motorola shall have taken all other action under the Motorola Pledge Agreement reasonably requested by the Collateral Agent in order to create a first priority security interest in the Collateral covered thereby. 4. FCC License. A certified copy of the FCC License. 5. Insurance. Evidence that the Lenders and the Agents shall be additional insureds under the liability insurance policy of Motorola and its Subsidiaries specifically procured in connection with the Development of the Project. 6. Financial Statements of Motorola. Copies of the consolidated financial statements of Motorola referred to in Section 2.02 of the Motorola Consent. 7. Senior Officer's Certificate. A certificate of a senior officer of Motorola certifying as to: (i) the accuracy of the representations and warranties made by Motorola in the Credit Documents to which it is party; and (ii) the absence of any Motorola Default. 8. Secretary's Certificate. An officer's certificate of the Secretary or an Assistant Secretary of Motorola, dated the Closing Date, as to: (i) the charter and by-laws of Motorola; (ii) the resolutions relating to the execution, delivery and performance by Motorola of the Credit Documents to which it is a party; and (iii) the incumbency and specimen signatures of each officer of Motorola executing any such Credit Document (and the Agents and each Lender may conclusively rely on such officer's certificate until it receives notice in writing from Motorola). 9. Opinions of Counsel. The opinions of counsel to Motorola referred to below in Section VII of this Part A. Appendix 2 - Conditions Precedent 8 - 8 - IV. PRINCIPAL PROJECT DOCUMENTS AND CERTAIN OTHER DOCUMENTS 1. Space System Contract. A certified copy of the Space System Contract as amended and in effect on the Closing Date, duly executed and delivered by each of the parties thereto. 2. Terrestrial Network Development Contract. A certified copy of the Terrestrial Network Development Contract as amended and in effect on the Closing Date, duly executed and delivered by each of the parties thereto. 3. O&M Contract. A certified copy of the O&M Contract as amended and in effect on the Closing Date, duly executed and delivered by each of the parties thereto. 4. Gateway Authorization Agreements. Certified copies of each Gateway Authorization Agreement as amended and in effect on the Closing Date, in each case duly executed and delivered by each of the parties thereto. 5. IBSS Agreement. A certified copy of the IBSS Agreement as amended and in effect on the Closing Date, duly executed and delivered by each of the parties thereto. Appendix 2 - Conditions Precedent 9 - 9 - V. INDEPENDENT ADVISORS REPORTS 1. Technical Advisor. A copy of the report of Arthur D. Little, Inc., the Independent Technical Advisor, dated October 8, 1997 (delivered in connection with the Information Memorandum). 2. Market Consultant. A copy of the report of Coopers & Lybrand L.L.P., the Independent Market Consultant, appearing in Section 9 of the Information Memorandum. 3. Insurance Advisor. A written report of Sedgwick James of New Jersey, Inc., the Independent Insurance Advisor, dated on or prior to the Closing Date, as to the adequacy of the insurance program of the Company and its Subsidiaries and confirming compliance thereof with the insurance requirements under Section 8.01. Appendix 2 - Conditions Precedent 10 - 10 - VI. CERTAIN OTHER DOCUMENTS AND INFORMATION 1. Assignment Consents. A consent to the assignment by the Company of its rights in each Principal Project Document pursuant to the Security Agreement, duly executed and delivered by each Project Party party thereto (other than the Credit Parties. Motorola and the Secured Parties), in form and substance satisfactory to the Administrative Agent. 2. Certain Project Parties' Financial Statements. Copies of the audited financial statements of each Person (if available, otherwise unaudited and certified by a senior financial officer of such party) obligated in respect of the Reserve Capital Call Obligations, for the two most recent fiscal years and unaudited quarterly financial statements of such party for each quarterly period ended subsequent to the date of such audited financial statements, but only to the extent that the Company, using reasonable efforts has been able to obtain the same. Appendix 2 - Conditions Precedent 11 - 11 - VII. LEGAL OPINIONS 1. Opinion(s) of Counsel to the Credit Parties and Iridium LLC. Opinions of counsel to the Credit Parties in form and substance satisfactory to the Administrative Agent. 2. Opinion of Counsel to Motorola. Opinions of counsel to Motorola in form and substance satisfactory to the Administrative Agent. 3. Opinion of Milbank, Tweed, Hadley & McCloy. An opinion of Milbank, Tweed, Hadley & McCloy, special New York counsel to the Global Arrangers and the Agents, in form and substance satisfactory to the Administrative Agent. 4. Other Opinions. If any Mortgage is being executed and delivered as of the Closing Date, an opinion of counsel to the Company or the relevant Subsidiary in the jurisdiction where the property subject to such Mortgage is located in form and substance satisfactory to the Administrative Agent. Appendix 2 - Conditions Precedent 12 - 12 - VIII. TECHNICAL AND REGULATORY CONDITIONS 1. Progress Certificate.(1) A Progress Certificate, substantially in the form of Exhibit I-1, duly completed and executed by a Responsible Officer, certifying (in the form specified in Exhibit I-1 and the basis for which certifications shall be satisfactory to the Administrative Agent) as to: (i) achievement of, or satisfaction with, each of the technical requirements for "Stage 1" as specified in Annex A to this Appendix 2 that are required to be met on or prior to the Closing Date; (ii) minimum regulatory approvals and PSTN access for "Stage 1" as specified in Attachment 3 of Annex A to this Appendix 2 required to be achieved on or prior to the Closing Date (and providing and/or attaching the legal opinions and other information and/or documentation with respect thereto contemplated by Exhibit I-1); and (iii) the Company's compliance with the requirements of Section 8.04 as of the Closing Date. 2. Verification of Independent Technical Advisor. A certificate of the Independent Technical Advisor, in the form of Exhibit I-2, duly completed and executed, with respect to the achievement of, or satisfaction with, each of the technical requirements for "Stage 1" as specified in Annex A to this Appendix 2 that are required to be met on or prior to the Closing Date (and attaching copies of the related statements of Motorola referred to therein). - -------- (1) This Progress Certificate, fully competed (including completed schedules together with all relevant attachments) other than the execution and dating of this Certificate, shall be required to be delivered to the Administrative Agent not less than 5 Business Days prior to the date of the Borrowing Request. Appendix 2 - Conditions Precedent 13 - 13 - PART C: CONDITIONS PRECEDENT TO PRE-COMMERCIAL ACTIVATION REVOLVING LOANS (I.E. REVOLVING LOANS UP TO BUT NOT EXCEEDING THE FIRST $400,000,000)(2) 1. Borrowing Request. A Borrowing Request with respect to such Borrowing. 2. Progress Certificate. A Progress Certificate,(3) substantially in the form of Exhibit I-1, duly completed and executed by a Responsible Officer, certifying (in the form specified in Exhibit I-1 and the basis for which certifications shall be satisfactory to the Administrative Agent) as to: (i) achievement of, or satisfaction with, each of the technical requirements for "Stage 2" or "Stage 3", as applicable to such Borrowing, as specified in Annex A to this Appendix 2 that are required to be met on or prior to the date of such Borrowing; (ii) minimum regulatory approvals for "Stage 2" or "Stage 3", as applicable to such Borrowing, as specified in Attachment 3 of Annex A to this Appendix 2 required to be achieved on or prior to the date of such Borrowing (and providing and/or attaching the legal opinions and other information and/or documentation with respect thereto contemplated by Exhibit I-1); and (iii) the Company's compliance with the requirements of Section 8.04 as of the date of such Borrowing. - -------- (2) The conditions precedent set forth below in this Part C shall be satisfied in connection with each Borrowing under "Stages 2 and 3" (as such Stages are identified in Annex A to this Appendix 2). In connection with any Borrowing under each such Stage other than the first Borrowing thereunder, in lieu of items 2 and 3 above, the Company may provide a certificate of a Responsible Officer, in form and substance satisfactory to the Administrative Agent, that the technical and regulatory conditions precedent for such Stage, as certified to by the Company in the Progress Certificate delivered for such initial Borrowing, remain satisfied as of the date of such Borrowing (together with, to the extent the Company shall be relying on information that differs from the information that served as the basis for the certifications in such initial Progress Certificate, such other information (and any related documentation) in a form satisfactory to the Administrative Agent and consistent with the requirements for such initial Progress Certificate). (3) This Progress Certificate, fully competed (including completed schedules together with all relevant attachments) other than the execution and dating of this Certificate, shall be required to be delivered to the Administrative Agent not less than 5 Business Days prior to the date of the Borrowing Request. Appendix 2 - Conditions Precedent 14 - 14 - 3. Verification of Independent Technical Advisor. A certificate of the Independent Technical Advisor, substantially in the form of Exhibit I-2, duly completed and executed, with respect to the achievement of, or satisfaction with, each of the technical requirements for "Stage 2" or "Stage 3", as applicable to such Borrowing, as specified in Annex A to this Appendix 2 that are required to be met on or prior to the date of such Borrowing (and attaching copies of the related statements of Motorola referred to therein). Appendix 2 - Conditions Precedent 15 - 15 - PART D: CONDITIONS PRECEDENT TO POST-COMMERCIAL ACTIVATION REVOLVING LOANS (I.E. REVOLVING LOANS IN EXCESS OF $400,000,000)(4) 1. Borrowing Request. A Borrowing Request with respect to such Borrowing. 2. Commercial Activation. Evidence that Commercial Activation shall have occurred. 3. Progress Certificate. A Progress Certificate,(5) substantially in the form of Exhibit I-3, duly completed and executed by a Responsible Officer, certifying (in the form specified in Exhibit I-3 and the basis for which certifications shall be satisfactory to the Administrative Agent) as to: (i) all regulatory approvals (including PSTN access) necessary for commercial operation in each of the countries specified in Attachment 3 of Annex A to this Appendix 2 (and providing and/or attaching the legal opinions and other information and/or documentation with respect thereto contemplated by Exhibit I-3); and (ii) the Company's compliance with the requirements of Section 8.04 as of the date of such Borrowing. - -------- (4) The conditions precedent set forth below in this Part D shall be satisfied in connection with each Borrowing under the "Post-Commercial Activation Stage" (as such Stage is identified in Annex A to this Appendix 2). In connection with any Borrowing under such Stage other than the first Borrowing thereunder, in lieu of item 3 above, the Company may provide a certificate of a Responsible Officer, in form and substance satisfactory to the Administrative Agent, that the technical and regulatory conditions precedent for such Stage, as certified to by the Company in the Progress Certificate delivered for such initial Borrowing, remain satisfied as of the date of such Borrowing (together with, to the extent the Company shall be relying on information that differs from the information that served as the basis for the certifications in such initial Progress Certificate, such other information (and any related documentation) in a form satisfactory to the Administrative Agent and consistent with the requirements for such initial Progress Certificate). (5) This Progress Certificate, fully competed (including completed schedules together with all relevant attachments) other than the execution and dating of this Certificate, shall be required to be delivered to the Administrative Agent not less than 5 Business Days prior to the date of the Borrowing Request. Appendix 2 - Conditions Precedent EX-10.30 10 REGULATORY AND TECHNICAL CONDITIONS PRECEDENT 1 EXHIBIT 10.30 ANNEX A to APPENDIX 2 REGULATORY AND TECHNICAL CONDITIONS PRECEDENT The conditions precedent set forth in this Annex A to availability of funding under the Credit Agreement fall into two areas, regulatory and technical. Availability under the Credit Agreement will occur during the following four stages: Stage 1: January 1, 1998 ($350,000,000) Stage 2: April 1, 1998 ($200,000,000) Stage 3: August 1, 1998 ($200,000,000) Stage 4 (Post-Commercial Activation): October 1, 1998 ($250,000,000)
If the Company and its contractors satisfy all conditions precedent to funding for a particular stage, amounts up to the specified amount for such stage can be drawn down in one or more Borrowings under the Credit Agreement. All conditions precedent are treated on a cumulative basis within each stage. The dates specified above are merely the dates by which it is anticipated that such conditions will be satisfied. The first three stages above are tied to certain planned regulatory accomplishments and the timing of specific milestones within various project contracts. Examples of such contracts include the Space System Contract, the Terrestrial Network Development Contract, and billing system, ICRS interworking unit, control system and other contracts. The Independent Technical Advisor, Arthur D. Little, Inc., has divided the technical milestones into seven categories within each of the three stages. Specific milestones/technical tests (described as "phase tests") are discussed below within each stage. The fourth stage above is tied to certain planned regulatory accomplishments following Commercial Activation. The following paragraphs detail the specific regulatory and technical conditions precedent that are required to be satisfied in order to draw funds under the Credit Agreement at each stage. Annex A to Appendix 2 2 - 2 - STAGE 1 - $350 MILLION AVAILABILITY ON OR ABOUT JANUARY 1, 1998 Regulatory Conditions Precedent: The Company will need to obtain the Stage 1 regulatory approvals as required by Attachment 3. Technical Conditions Precedent: Category 1 Constellation Implementation Milestones 38-39 have been successfully achieved in the Space System Contract. There are at least 33 operational satellites in mission orbit, and the following specific tests (details of which can be found within the Satcom test documentation) have been successfully completed: Phase 0 Testing: First Flight -- Basic command and control of satellites demonstrated, including successful testing of secondary and feeder links. Phase B Testing: L-Band capability demonstrated, allowing on-orbit testing of L-Band functionality and performance, and hand-offs between beams and channels in a satellite. Phase A/C Testing: Satellite cross-link, feeder-link and routing are functional and successfully tested. Phase D/E Testing: Demonstration that the Iridium Subscriber Unit (ISU) can establish a voice call through the constellation and hold a conversation (basic telephony) with an engineering gateway, and that the IRIDIUM system can also support cross-link and hand-offs between satellites. Attachment 1 provides a graphical presentation of the "phase tests" embodied within this category. Category 2 Gateway Implementation Milestones 4-5 have been successfully achieved in the Terrestrial Network Development Contract. Gateway designs are verified with release 1.0 hardware and software in an engineering gateway. Annex A to Appendix 2 3 - 3 - Release 1.0 hardware is installed and operating using test software in the Iridium North America (INA) Gateway. Category 3 Systems Control Segment The Master Control Facility is fully operational for satellite launch and control using version 3.5 of system control software. Category 4 Iridium Business Support Systems (IBSS) Version 1.0 of the IBSS (comprising IBS 1.0 and GBS 0.9), supporting basic telephony services, has been developed and product tested. Category 5 Iridium Interoperability Unit (IIU) IIU 2.0 acceptance test successfully completed at Aldiscon Lab. Category 6 Iridium Subscriber Units (ISUs) and Message Termination Devices (MTDs) Prototype, non-miniaturized ISUs and MTDs are available for testing the IRIDIUM network. Category 7 Voice, Messaging and ICRS Testing and Demonstration Program This category encompasses demonstrations of the release 1.0 of the Company's basic service offerings -- voice telephony of adequate quality via satellite, as well as Iridium Cellular Roaming Services (ICRS). Early-stage demonstration utilizing on-orbit satellites, an engineering gateway and prototype ISUs of satellite-based voice telephony including call set-up, satellite cross-links, and hand-offs between satellites. No interconnection between the engineering gateway and PSTN is required. Early-stage, laboratory-based demonstration of messaging capability consisting of two parts: (1) the ability of an engineering gateway to accept and process messages up to the Message Termination Controller interface; and (2) the ability to deliver a simulated message from an on-orbit satellite to a prototype MTD. Neither of the above requires the use of the Message Termination Controller. Annex A to Appendix 2 4 - 4 - Simulations, updated as appropriate with pertinent test results, have been completed that demonstrate that the IRIDIUM network design provides planned level of capacity in accordance with the Iridium Business Plan (Version 2.0, March 31, 1997). Annex A to Appendix 2 5 - 5 - STAGE 2 - $200 MILLION AVAILABILITY ON OR ABOUT APRIL 1, 1998 Regulatory Conditions Precedent: The Company will need to obtain the Stage 2 regulatory approvals as required by Attachment 3. Technical Conditions Precedent: Category 1 Constellation Implementation Milestone 42 has been successfully achieved in the Space System Contract. There are at least 44 operational satellites in mission orbit, and the following specific test (details of which can be found within the Satcom test documentation) has been successfully completed: Phase F Testing: There are multiple engineering gateways available for testing with network management functionality available. Category 2 Gateway Implementation Milestone 6 has been successfully achieved in the Terrestrial Network Development Contract. At least three gateways are installed, functional and pass conditional acceptance for release 1.0 service. Category 3 Systems Control Segment The Master Control Facility integration and tests are successfully completed for all facility functions. Category 4 Iridium Business Support Systems (IBSS) Annex A to Appendix 2 6 - 6 - Version 1.5 of the IBSS (comprising IBS 1.5 and GBS 1.0), supporting basic and planned supplementary telephony, messaging and ICRS services, has been successfully developed and product tested. Category 5 Iridium Interoperability Unit (IIU) IIU is installed, functional and successfully tested. Category 6 Iridium Subscriber Units (ISUs) and Message Termination Devices (MTDs) Full functionality ISUs and MTDs are available for testing (miniaturization not required). Category 7 Voice, Messaging and ICRS Testing and Demonstration Program Satellite-based voice telephony of adequate quality and messaging demonstrated utilizing on-orbit satellites, multiple gateways, and fully functional ISUs and MTDs (miniaturization not required). Link margin level tests (i.e., strength of signal to the ISU/MTD from the satellite) have been successfully completed, and the results comply with specifications. A successful ICRS demonstration of roaming among the IRIDIUM network, GSM and IS-41 protocol networks, using signalling network simulators, has been completed. Annex A to Appendix 2 7 - 7 - STAGE 3 - $200 MILLION AVAILABILITY ON OR ABOUT AUGUST 1, 1998 Regulatory Conditions Precedent: The Company will need to obtain the Stage 3 regulatory approvals as required by Attachment 3. Technical Conditions Precedent: Category 1 Constellation Implementation Milestones 46 and 47 have been successfully achieved in the Space System Contract. The constellation is ready to support commercial service (at least 65 operational satellites in mission orbit), and the following specific tests (details of which can be found within the Satcom test documentation) have been successfully completed: Phase G Testing: The Iridium network successfully interfaces with the Iridium Business System (record, rate & bill calls). Phase H Testing: The Iridium network can send and receive pages, as well as voice mailbox functionality. There is upgraded network management capability, as well as resource management capability for the paging function. Category 2 Gateway Implementation Milestones 7-9 have been successfully achieved in the Terrestrial Network Development Contract. At least seven gateways are deployed and commissioned by the Company (only four offering messaging services). Category 3 Systems Control Segment The Systems Control Segment, including the Backup Control Facility, is fully operational. Annex A to Appendix 2 8 - 8 - Category 4 Iridium Business Support Systems (IBSS) IBSS is deployed and operational at the Master Control Facility (IBS) and the operational gateways (GBS). Category 5 Iridium Interoperability Unit (IIU) IIU interconnected and tested with at least one IS-41 and one GSM cellular network. Category 6 Iridium Subscriber Units (ISUs) and Message Termination Devices (MTDs) Final manufacturable forms of the handset and pager (function and form) are available. Category 7 Voice, Messaging and ICRS Testing and Demonstration Program Satellite-based voice telephony of adequate quality, satellite-based messaging with at least four gateways, and ICRS are fully functional. Voice subscriber trials have commenced and are working satisfactorily. Simulations, updated as appropriate with pertinent test results, have been completed that demonstrate that the IRIDIUM network as completed provides planned level of capacity in accordance with the Iridium Business Plan (Version 2.0, March 31, 1997). Attachment 2 is a chart that summarizes the technical conditions precedent for the Credit Agreement. Annex A to Appendix 2 9 ATTACHMENT 2 to ANNEX A to APPENDIX 2 TECHNICAL CONDITIONS PRECEDENT CHART
STAGE 1 STAGE 2 STAGE 3 CATEGORY TESTS/MILESTONES TESTS/MILESTONES TESTS/MILESTONES (FIRST $350 MILLION) (NEXT $200 MILLION) (NEXT $200 MILLION) -------------------- -------------------- ------------------- 1. CONSTELLATION Milestones 38 and 39 Milestone 42 completed Milestones 46 and 47 IMPLEMENTATION completed (per SSC); at (per SSC); at least 44 completed (per SSC); least 33 operational operational satellites in constellation ready to satellites in mission orbit mission orbit support commercial service (at least 65 operational satellites in mission orbit) Phase 0, B, D/E & A/C Phase F testing completed Phase G & H testing testing completed completed 2. GATEWAY Milestones 4 and 5 (per Milestone 6 completed (per Milestones 7, 8 and 9 (per IMPLEMENTATION TNDC) completed; gateway TNDC); at least 3 gateways TNDC) completed; at least design verified with release installed, functional and 7 gateways deployed and 1.0 hardware and software pass conditional acceptance commissioned (only 4 in an engineering gateway; for release 1.0 service offering messaging release 1.0 hardware ` services) installed and operating using test software in INA Gateway 3. SYSTEMS CONTROL Master Control Facility for Master Control Facility Systems Control Segment, SEGMENT satellite launch and control integration and tests including Backup Control using version 3.5 of system completed for all facility Facility, fully operational control software functions 4. IRIDIUM BUSINESS IBSS version 1.0 developed IBSS version 1.5 IBSS deployed and SUPPORT SYSTEMS and product tested successfully developed and operational at Master (IBSS) product tested Control Facility and operational gateways 5. IRIDIUM IIU 2.0 acceptance test IIU installed, functional and IIU interconnected with at INTEROPERABILITY successfully completed at successfully tested at INA least one IS-41 and one UNIT (IIU) Aldiscon lab Gateway GSM cellular network 6. IRIDIUM Prototypes, non- Full functionality Final manufacturable forms SUBSCRIBER UNIT miniaturized available for subscriber units available of subscriber units (function AND MESSAGE testing IRIDIUM network for testing (miniaturization and form) available TERMINATION not required) DEVICE
Annex A to Appendix 2 10 - 2 - 7. VOICE, MESSAGING Early demonstration of Satellite-based voice Satellite-based voice AND ICRS voice telephony in a telephony of adequate telephony, satellite TESTING AND laboratory setting, including quality and messaging messaging service with at DEMONSTRATION call set-up, satellite cross- demonstrated using on-orbit least 4 gateways, and ICRS PROGRAM links, and hand-offs satellites, multiple fully functional between satellites. No gateways, and fully interconnection between the functional ISUs and MTDs Voice subscriber trials engineering gateway and (miniaturization not commenced and working PSTN is required. required) satisfactorily Early demonstration of Link margin level tests Simulations, updated as messaging in a laboratory completed for voice appropriate with pertinent setting, consisting of two telephony and messaging, test results, completed that parts: (1) ability of an and results comply with demonstrate that the engineering gateway to specifications IRIDIUM network as accept and process completed provides planned messages up to the Message ICRS demonstration of level of capacity in Termination Controller roaming among IRIDIUM accordance with the Iridium interface; and (2) ability to system, IS-41 and GSM Business Plan. deliver a simulated message protocol networks using from an on-orbit satellite to signalling network a prototype MTD. Neither simulators of the above requires the use of the Message Termination Controller. Simulations, updated as appropriate with pertinent test results, completed that demonstrate that the IRIDIUM network design provides planned level of capacity in accordance with the Iridium Business Plan.
Annex A to Appendix 2 11 - 3 - ATTACHMENT 3 to ANNEX A to APPENDIX 2 REGULATORY CONDITIONS PRECEDENT CHART
STAGE 1 STAGE 2 STAGE 3 POST-COMMERCIAL ------- ------- ------- --------------- ACTIVATION STAGE ---------------- 1. PERCENTAGE OF IRIDIUM 33% 50% 66% 72.5%(1) BUSINESS PLAN REVENUES REPRESENTED BY JURISDICTIONS FOR WHICH L-BAND SPECTRUM LICENSES HAVE BEEN OBTAINED (OF WHICH COUNTRIES REPRESENTING AT LEAST 75% OF SUCH REVENUES SHALL ALSO HAVE SERVICE PROVIDER AND/OR ROAMING AGREEMENTS IN PLACE) 2. MINIMUM NUMBER OF 20 50 75 85 SERVICE PROVIDER AGREEMENTS 3. MINIMUM NUMBER 40 60 75 85 OF ROAMING AGREEMENTS 4. MINIMUM NUMBER 40 60 75 85(2) OF COUNTRIES REPRESENTED BY SERVICE PROVIDER AND/OR ROAMING AGREEMENTS(3)
- -------- (1) For Commercial Activation the Company will have commenced generally available services on the IRIDIUM System in at least a substantial portion of those countries whose revenues are used to satisfy this requirement. (2) For purposes of satisfying this requirement for the Post-Commercial Activation Stage, with respect to each of the 85 countries the Company shall have obtained all necessary Government Approvals (including, but not limited to, L-band spectrum licenses) for commercial operation in such country and be able offering commercial services according to the minimum requirements of the service provider and/or roaming agreements for such country. (3) For purposes of satisfying the requirement under item 4 above as to a minimum number of countries represented by service provider and/or roaming agreements, execution of satisfactory roaming agreements and service provider agreements (including, if then made available under such agreements, pricing terms) with "qualified" service providers (defined as PTTs, national cellular operators and other entities acceptable to the Administrative Agent) will be required, and for any country to be counted toward such requirement such (continued) Annex A to Appendix 2 12 - 4 - 5. MINIMUM NUMBER OF NON-GATEWAY 0 25 50 60 COUNTRIES FOR PSTN ACCESS - -------------- (...continued) agreement(s) for such country, collectively, are required to provide a "national" (i.e. covering at least 75% of such country's population) sales distribution for IRIDIUM services in that country. Annex A to Appendix 2 EX-10.31 11 FORM OF ASSIGNMENT AND ACCEPTANCE 1 EXHIBIT 10.31 (EXHIBIT A TO THE CREDIT AGREEMENT) [FORM OF ASSIGNMENT AND ACCEPTANCE] ASSIGNMENT AND ACCEPTANCE Reference is made to the Credit Agreement dated as of December 19, 1997 (as amended, supplemented or otherwise modified and in effect on date hereof, the "Credit Agreement") among Iridium Operating LLC, a Delaware limited liability company, the lenders named therein, the Global Arrangers, The Chase Manhattan Bank, as administrative agent for such lenders and or collateral agent, and Barclays Capital, the investment banking division of Barclays Bank PLC, as documentation agent thereunder. Terms defined in the Credit Agreement are used herein with the same meanings. The Assignor named below hereby sells and assigns, without recourse, to the Assignee named below, and the Assignee hereby purchases and assumes, without recourse, from the Assignor, effective as of the Assignment Date set forth below, the interests set forth below (the "Assigned Interest") in the Assignor's rights and obligations under the Credit Agreement, including, without limitation, the interests set forth below in the Commitment of the Assignor on the Assignment Date and Loans owing to the Assignor which are outstanding on the Assignment Date, together with unpaid interest accrued on the assigned Loans to the Assignment Date, and the amount, if any, set forth below of the fees accrued to the Assignment Date for the account of the Assignor. The Assignee hereby acknowledges receipt of a copy of the Credit Agreement. From and after the Assignment Date (i) the Assignee shall be a party to and be bound by the provisions of the Credit Agreement and, to the extent of the interests assigned by this Assignment and Acceptance, have the rights and obligations of a Lender thereunder and (ii) the Assignor shall, to the extent of the interests assigned by this Assignment and Acceptance, relinquish its rights and be released from its obligations under the Credit Agreement. The Assignor (a) makes no representation or warranty and assumes no responsibility with respect to any statements, warranties or representations made in or in connection with the Credit Agreement or the execution, legality, validity, enforceability, genuineness, sufficiency or value of the Credit Agreement, any other Credit Document or any instrument or document furnished pursuant thereto, other than that it has not created any adverse claim upon the interest being assigned by it hereunder and that such interest is free and clear of any adverse claim; and (b) makes no representation or warranty and assumes no responsibility with respect to the financial condition of the Company, any of its Subsidiaries or any other Project Party or the performance or observance by the Company, any of its Subsidiaries or any other Project Party of any of their respective obligations under the Credit Agreement or any other Transaction Document or any other instrument or document furnished pursuant hereto or thereto. The Assignee (a) represents and warrants that it is legally authorized to enter into this Assignment and Acceptance; (b) confirms that it has received such documents and Assignment and Acceptance 2 - 2 - information as it has deemed appropriate to make its own credit analysis and decision to enter into this Assignment and Acceptance; (c) agrees that it will, independently and without reliance upon the Assignor, the Agents or any other person that has become a Lender and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under the Credit Agreement; and (d) appoints and authorizes (i) the Administrative Agent to take such action as agent on its behalf and to exercise such powers under the Credit Agreement and the other Credit Documents to which it is a party as are delegated to the Administrative Agent by the terms thereof and (ii) the Collateral Agent to take such action as agent on its behalf and to exercise such powers under the Credit Documents to which it is a party as are delegated to the Collateral Agent by the terms thereof, together, in each case, with such powers as are incidental thereto. This Assignment and Acceptance is being delivered to the Administrative Agent together with (i) if the Assignee is a Foreign Lender, any documentation required to be delivered by the Assignee pursuant to Section 2.15(e) of the Credit Agreement, duly completed and executed by the Assignee, and (ii) if the Assignee is not already a Lender under the Credit Agreement, an administrative questionnaire in the form supplied by the Administrative Agent, duly completed by the Assignee. The [Assignee/Assignor] shall pay the fee payable to the Administrative Agent pursuant to Section 11.04(b) of the Credit Agreement. This Assignment and Acceptance shall be governed by and construed in accordance with the laws of the State of New York. Assignment and Acceptance 3 - 3 - Date of Assignment: Legal Name of Assignor: Legal Name of Assignee: Assignee's Address for Notices: Effective Date of Assignment ("Assignment Date"): Percentage Assigned of Facility/Commitment (set forth, to at least 8 decimals, as a percentage of the Facility and the aggregate Commitments Principal Amount of all Lenders Facility Assigned thereunder Commitment Assigned: $ Loans: % Fees Assigned (if any): The terms set forth above are hereby agreed to as of [_____________]: [NAME OF ASSIGNOR], as Assignor By_____________________________ Name: Title: [NAME OF ASSIGNEE], as Assignee Assignment and Acceptance 4 - 4 - By______________________________ Name: Title: Assignment and Acceptance 5 - 5 - The undersigned hereby consent to the within assignment:(1) IRIDIUM OPERATING LLC By_________________________ Name: Title: THE CHASE MANHATTAN BANK, as Administrative Agent By_________________________ Name: Title: - -------- (1) Consents to be included to the extent required by Section 11.04(b) of the Credit Agreement. Assignment and Acceptance EX-10.32 12 FORM OF PLEDGE AND SECURITY AGREEMENT 1 EXHIBIT 10.32 (EXHIBIT B TO THE CREDIT AGREEMENT) PLEDGE AND SECURITY AGREEMENT PLEDGE AND SECURITY AGREEMENT dated as of [___________, 199_] between: IRIDIUM OPERATING LLC, a limited liability company duly organized and validly existing under the laws of the State of Delaware (the "Company"); each of the Subsidiaries of the Company identified under the caption "SUBSIDIARY GUARANTORS" on the signature pages hereof (individually, a "Subsidiary Guarantor" and, collectively, the "Subsidiary Guarantors" and, together with the Company, the "Obligors"); and THE CHASE MANHATTAN BANK, as collateral agent hereunder for the lenders party to the Credit Agreement referred to below (in such capacity, together with its successors in such capacity, the "Collateral Agent"). The Company, the Subsidiary Guarantors, certain lenders, the Global Arrangers, the Collateral Agent, The Chase Manhattan Bank, as the Administrative Agent, and Barclays Capital, the investment banking division of Barclays Bank PLC, as the Documentation Agent, are parties to a Credit Agreement dated as of December 19, 1997 (as modified, supplemented or otherwise modified and in effect from time to time, the "Credit Agreement"), providing, subject to the terms and conditions thereof, for loans to be made by said lenders to the Company in an aggregate principal amount not exceeding $1,000,000,000. To induce said lenders to enter into the Credit Agreement and to extend credit thereunder, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, each Obligor has agreed to pledge and grant a security interest in the Collateral (as hereinafter defined) as security for the Secured Obligations (as so defined). Accordingly, the parties hereto agree as follows: ARTICLE I DEFINITIONS SECTION 1.01. Defined Terms. Capitalized terms used but not defined herein shall have their respective meanings in the Credit Agreement. In addition, as used herein: "Accounts" has the meaning assigned to such term in paragraph (g) of Article III. "Assigned Agreement" has the meaning assigned to such term in paragraph (e) of Article III. "Collateral" has the meaning assigned to such term in Article III. Security Agreement 2 - 2 - "Copyright Collateral" means all Copyrights, whether now owned or hereafter acquired by any Obligor, including each Copyright identified in Annex 2. "Copyrights" has the meaning assigned to such term in paragraph (o) of Article III. "Documents" has the meaning assigned to such term in paragraph (n) of Article III. "Equipment" has the meaning assigned to such term in paragraph (j) of Article III. "Hawaiian TTAC License" means the License Agreement dated December 1, 1993 between the Estate of James Campbell, as Licensor, and Motorola, Inc., as Licensee, relating to all that certain real property consisting of approximately 250,034 square feet or 5.74 acres, said property being a portion of Lot 46, comprising 118, 207 acres, located in Kaunala, District of Koolauloa, City and County of Honolulu, State of Hawaii, as shown on Map 7, filed in the Office of the Assistant Registrar of the land court of the Sate of Hawaii with Land Court application No. 1095 of the Trustees under the Will and of the Estate of James Campbell, deceased, being a portion of the land(s) described in Certificate of Title No. 17,854 issued to the Trustees under the Will and of the Estate of James Campbell, deceased. "Instruments" has the meaning assigned to such term in paragraph (h) of Article III. "Intellectual Property" means, collectively, all Copyright Collateral, all Patent Collateral, all Trademark Collateral and all of the Collateral referred to in paragraphs (r), (s) and (u) of Article III. "Inventory" has the meaning assigned to such term in paragraph (l) of Article III. "Iridium Clearing Account" has the meaning assigned to such term in the Depositary Agreement. "Patent Collateral" means all Patents, whether now owned or hereafter acquired by any Obligor, including each Patent identified in Annex 3. "Patents" has the meaning assigned to such term in paragraph (p) of Article III. Security Agreement 3 - 3 - "Pledged Collateral" has the meaning assigned to such term in paragraph (d) of Article III. "Pledged Interests" has the meaning assigned to such term in paragraph (b) of Article III. "Pledged Stock" has the meaning assigned to such term in paragraph (a) of Article III. "Rolling Stock" has the meaning assigned to such term in paragraph (k) of Article III. "Secured Obligations" means, collectively, (a) in the case of the Company, the principal of and interest on the Loans, all other amounts from time to time owing to the Lenders or the Agents by the Company under the Credit Documents (including, without limitation, hereunder) and (b) in the case of each Subsidiary Guarantor, all obligations of such Subsidiary Guarantor hereunder and under the Subsidiary Guarantee Agreement. "Secured Parties" means, collectively, the Lenders, the Collateral Agent and the other Agents. "Trademark Collateral" means all Trademarks, whether now owned or hereafter acquired by any Obligor, including each Trademark identified in Annex 4. Notwithstanding the foregoing, the Trademark Collateral does not and shall not include any Trademark which would be rendered invalid, abandoned, void or unenforceable by reason of its being included as part of the Trademark Collateral. "Trademarks" has the meaning assigned to such term in paragraph (q) of Article III. "Uniform Commercial Code" means the Uniform Commercial Code as in effect from time to time in the State of New York. SECTION 1.02. Terms Generally. The definitions of terms herein shall apply equally to the singular and plural forms of the terms defined. Whenever the context may require, any pronoun shall include the corresponding masculine, feminine and neuter forms. The words "include", "includes" and "including" shall be deemed to be followed by the phrase "without limitation". The word "will" shall be construed to have the same meaning and effect as the word "shall". Unless the context requires otherwise (a) any definition of or reference to any agreement, Security Agreement 4 - 4 - instrument or other document herein shall be construed as referring to such agreement, instrument or other document as from time to time amended, supplemented or otherwise modified, including an amendment and restatement thereof, but subject to any restrictions on such amendments, supplements or modifications set forth herein, (b) any reference herein to any Person shall be construed to include such Person's successors and assigns or, in the case of any Governmental Authority, any entity succeeding to any or all of the functions of such Governmental Authority, (c) the words "herein", "hereof" and "hereunder", and words of similar import, shall be construed to refer to this Agreement in its entirety and not to any particular provision hereof, (d) all references herein to Sections and Annexes shall be construed to refer to Sections of, and Annexes to, this Agreement and (e) the words "asset" and "property" shall be construed to have the same meaning and effect and to refer to any and all tangible and intangible assets and properties, including cash, securities, accounts and contract rights. ARTICLE II REPRESENTATIONS AND WARRANTIES Each Obligor represents and warrants to the Secured Parties that: (a) Such Obligor is the sole beneficial owner of the Collateral in which it purports to grant a security interest pursuant to Article III and no Lien exists or will exist upon such Collateral at any time (and no right or option to acquire the same exists in favor of any other Person), except for Liens permitted under Section 7.02 of the Credit Agreement and except for the pledge and security interest in favor of the Collateral Agent for the benefit of the Lenders created or provided for herein, which pledge and security interest constitute a first priority perfected pledge and security interest in and to all of such Collateral (other than Intellectual Property registered or otherwise located outside of the United States of America and except as permitted under Section 7.02 of the Credit Agreement). (b) Each of the Pledged Stock and the Pledged Interests identified under the name of such Obligor in Annex 1 is, and all other Pledged Stock and Pledged Interests in which such Obligor shall hereafter grant a security interest pursuant to Article III will be, duly authorized, validly existing, fully paid and non-assessable and none of the Pledged Collateral is or will be subject to any contractual restriction, or any restriction under the charter, by-laws or other organizational documents of the respective issuer thereof, upon the transfer of such Pledged Collateral (except for any such restriction contained herein or in the Credit Agreement or as required by law). Security Agreement 5 - 5 - (c) The Pledged Stock and the Pledged Interests identified in Annex 1 constitutes all (or, in the case of any Foreign Subsidiary, 66%) of the issued and outstanding ownership interests of the issuer thereof on the date hereof (whether or not registered in the name of any Obligor) and said Annex 1 correctly identifies, as at the date hereof, the respective issuers thereof, the type or class and par value of such ownership interests (if any), the respective number of shares or units thereof, and registered owners thereof. (d) Annexes 2, 3 and 4, respectively, set forth under the name of such Obligor a complete and correct list of all Copyrights, Patents and Trademarks owned by such Obligor on the date hereof; except pursuant to licenses and other user agreements entered into by such Obligor in the ordinary course of business, that are listed in Annex 5, such Obligor owns and possesses the right to use, and has done nothing to authorize or enable any other Person to use, any Copyright, Patent or Trademark listed in said Annexes 2, 3 and 4, and all registrations listed in said Annexes 2, 3 and 4 are valid and in full force and effect; except as may be set forth in said Annex 5, such Obligor owns and possesses the right to use all Copyrights, Patents and Trademarks. (e) Annex 5 sets forth a complete and correct list of all material licenses and other user agreements included in the Intellectual Property on the date hereof. (f) To such Obligor's knowledge, (i) except as set forth in Annex 5, there is no violation by others of any right of such Obligor with respect to any Copyright, Patent or Trademark listed in Annexes 2, 3 and 4, respectively, under the name of such Obligor and (ii) such Obligor is not infringing in any respect upon any Copyright, Patent or Trademark of any other Person; and no proceedings have been instituted or are pending against such Obligor or, to such Obligor's knowledge, threatened, and no claim against such Obligor has been received by such Obligor, alleging any such violation, except as may be set forth in said Annex 5. (g) Such Obligor does not own any Trademarks registered in the United States of America to which the last sentence of the definition of Trademark Collateral applies. ARTICLE III COLLATERAL As collateral security for the prompt payment in full when due (whether at stated maturity, by acceleration or otherwise) of the Secured Obligations, each Obligor hereby pledges, assigns, hypothecates and transfers to the Collateral Agent for the equal and ratable benefit of the Security Agreement 6 - 6 - Secured Parties, and grants to the Collateral Agent for the equal and ratable benefit of the Secured Parties a Lien on and security interest in, all of such Obligor's right, title and interest in the following property, whether now owned by such Obligor or hereafter acquired and whether now existing or hereafter coming into existence (all being collectively referred to herein as "Collateral"): (a) all shares of capital stock or other evidence of beneficial interest of whatever class of any corporation, including, without limitation, the shares of capital stock of each corporation identified in Annex 1, now or hereafter owned by such Obligor, in each case together with the certificates evidencing the same, but in the case of a Foreign Subsidiary only to the extent set forth in Section 4.04(a)(i) (collectively, the "Pledged Stock"); (b) all membership or other ownership interests of such Obligor in any limited liability company, all limited partnership interests in any limited partnership, all general partnership interests in any general partnership, all joint venture interests in any joint venture and all other equity or ownership interests of any Person of whatever kind or nature, including, without limitation, the membership interests of the limited liability companies identified in Annex 1, now or hereafter owned by such Obligor, in each case together with the certificates (if any) evidencing the same, including, without limitation, all of the right, title and interest of such Obligor as a member, partner or other equity holder in, to and under any agreement or other instrument organizing or forming such entity, as said agreement or instrument may be amended, supplemented or modified and in effect from time to time, and (i) all rights of such Obligor to receive moneys due but unpaid and to become due under or pursuant to such agreement or instrument, (ii) all rights of such Obligor to participate in the operation or management of such entity and to take actions or consent to actions in accordance with the provisions of such agreement or instrument, (iii) all rights of such Obligor to property of such entity, (iv) all rights of such Obligor to receive proceeds of any insurance, bond, indemnity, warranty or guaranty with respect to such agreement or instrument, (v) all claims of such Obligor for damages arising out of or for breach of or default under such agreement or instrument and (vi) all rights of such Obligor to terminate, amend, supplement, modify or waive performance under such agreement or instrument, to perform thereunder and to compel performance and otherwise to exercise all remedies thereunder, but in the case of a Foreign Subsidiary only to the extent set forth in Section 4.04(a)(i) (collectively, the "Pledged Interests"), and any right, title and interest of the Company in, to and under the Company LLC Agreement; (c) all shares, interests, securities, moneys or other property representing a dividend on any of the Pledged Stock or the Pledged Interests, or representing a distribution or return of capital upon or in respect of the Pledged Stock or the Pledged Security Agreement 7 - 7 - Interests, or resulting from a split-up, revision, reclassification or other like change of the Pledged Stock or the Pledged Interests or otherwise received in exchange therefor, and all options, warrants and similar rights issued to the holders of, or otherwise in respect of, the Pledged Stock or the Pledged Interests; (d) without affecting the obligations of such Obligor under any provision prohibiting such action hereunder or under the Credit Agreement, in the event of any consolidation or merger of a Subsidiary in which one of the Obligors is not the surviving entity, all ownership interests of whatever class owned by such Obligor of the successor entity formed by or resulting from such consolidation or merger (the Pledged Stock and the Pledged Interests, together with all shares, interests, securities, moneys or property as may from time to time be pledged hereunder pursuant to clause (a), (b) or (c) above and this clause (d) being herein, and the proceeds of and to any such property and, to the extent related to any such property or such proceeds, all books, correspondence, credit files, records, invoices and other papers, collectively called the "Pledged Collateral"); (e) all contracts and agreements to which such Obligor is a party and other similar consensual obligations owed to such Obligor including, without limitation, the following: (i) the Space System Contract; (ii) the O&M Contract; (iii) the Terrestrial Network Development Contract; (iv) each Gateway Authorization Agreement; (v) the IBSS Agreement; and (vi) the Management Services Agreement. (said contracts, agreements and obligations, as so amended, supplemented renewed or modified, including any such replacement or substitution contracts, agreements and obligations, being, individually, an "Assigned Agreement", and, collectively, the "Assigned Agreements"), including, without limitation, (1) all rights of such Obligor to receive moneys due and to become due under or pursuant to the Assigned Agreements, (2) all rights to receive property, assets, services or other performance thereunder, (3) all rights of such Obligor to receive return of any premiums for or proceeds of any insurance, Security Agreement 8 - 8 - payment and/or performance bond, indemnity, warranty or guaranty with respect to the Assigned Agreements or to receive condemnation proceeds thereof, (4) all claims of such Obligor for damages arising out of or for breach of or default under the Assigned Agreements and (5) all rights of such Obligor to terminate, amend, supplement, modify or waive performance under the Assigned Agreements, to perform thereunder and to compel performance and otherwise to exercise all remedies thereunder, in each case as such contract, agreement and obligation may be amended, supplemented, renewed or otherwise modified, including, without limitation, any agreement, contract or document replacing or substituting for such contract, agreement or obligation from time to time; (f) all Government Approvals (including, without limitation, the FCC License) now or hereafter held in the name, or for the benefit, of the Company or any of its Subsidiaries, provided that any such Government Approval which by its terms or by operation of law would become void, voidable, terminable or revocable if mortgaged, pledged or assigned hereunder or if a security interest therein was granted hereunder are expressly excepted and excluded from the Lien and terms of this Agreement to the extent necessary so as to avoid such voidness, avoidability, terminability or revocability, but such security interest does include, to the maximum extent permitted by law, all rights of such Obligor incident or appurtenant to such Government Approval and the right of such Obligor to receive all proceeds derived from or in connection with the sale, assignment or transfer of such Government Approval; (g) all accounts and general intangibles (each as defined in the Uniform Commercial Code) of such Obligor constituting any right of such Obligor to the payment of money, including, without limitation, all moneys due and to become due to such Obligor under or in respect of the Assigned Agreements, Government Approvals, franchises, licenses, permits, subscriptions or other agreements or at law or in equity (whether or not earned by performance and whether arising directly or indirectly and including claims for reimbursement, contribution, indemnity and subrogation), rights of such Obligor to receive payments from any other source but excluding the Pledged Collateral, and all tax refunds (such accounts, general intangibles and moneys due and to become due being herein called collectively "Accounts"); (h) all instruments, chattel paper or letters of credit (each as defined in the Uniform Commercial Code) of such Obligor evidencing, representing, arising from or existing in respect of, relating to, securing or otherwise supporting the payment of, any of the Accounts, including (but not limited to) promissory notes, drafts, bills of exchange and trade acceptances (herein collectively called "Instruments"); Security Agreement 9 - 9 - (i) all other accounts or general intangibles of such Obligor not constituting Accounts to the extent not otherwise specifically excluded in this Article III; (j) all equipment (as such term is defined in the Uniform Commercial Code) of such Obligor including, without limitation, all machinery, apparatus, installation facilities, satellites and other tangible personal property of such Obligor of any nature whatsoever, wherever located, and whether on earth or in orbit (herein collectively called "Equipment"); (k) all automobiles, trucks, tractors, trailers and other rolling stock or moveable personal property, including, without limitation, rolling stock for which the title thereto is evidenced by a certificate of title issued by the United States of America or any State thereof which permits or requires a Lien thereon to be evidenced upon such title (herein collectively called "Rolling Stock"); (l) all inventory (as such term is defined in the Uniform Commercial Code) in all of its forms, wherever located (including, without limitation: (i) spare parts inventory, consumable supplies inventory and maintenance materials inventory and raw materials and work in progress therefor, finished goods thereof, and materials used or consumed in the manufacture or production thereof, (ii) goods in which such Obligor has an interest in mass or a joint or other interest or right of any kind and (iii) goods which are returned to or repossessed by such Obligor), and all accessions thereto and products thereof and documentation therefor (herein collectively called "Inventory"); (m) all rights, claims and benefits of such Obligor against any Person arising out of, relating to or in connection with Inventory or Equipment purchased by such Obligor, including, without limitation, any such rights, claims or benefits against any Person storing or transporting such Inventory or Equipment; (n) all documents of title (as defined in the Uniform Commercial Code) or other receipts of such Obligor covering, evidencing or representing Inventory or Equipment (herein collectively called "Documents"); (o) all copyrights, copyright registrations and applications for copyright registrations, including, without limitation, all renewals and extensions thereof, the right to recover for all past, present and future infringements thereof, and all other rights of any kind whatsoever accruing thereunder or pertaining thereto (herein collectively called "Copyrights"); Security Agreement 10 - 10 - (p) all patents and patent applications, including, without limitation, the inventions and improvements described and claimed therein together with the reissues, divisions, continuations, renewals, extensions and continuations-in-part thereof, all income, royalties, damages and payments now or hereafter due and/or payable under and with respect thereto, including, without limitation, damages and payments for all past, present and future infringements thereof, the right to sue for past, present and future infringements thereof, and all rights corresponding thereto throughout the world (herein collectively called "Patents"); (q) all trade names, trademarks and service marks, logos, trademark and service mark registrations, and applications for trademark and service mark registrations (including, without limitation, all renewals of trademark and service mark registrations, and all rights corresponding thereto throughout the world, but excluding any such registration that would be rendered invalid, abandoned, void or unenforceable by reason of its being included as part of the Collateral), the right to recover for all past, present and future infringements thereof, all other rights of any kind whatsoever accruing thereunder or pertaining thereto, together, in each case, with the product lines and goodwill of the business connected with the use of, and symbolized by, each such trade name, trademark and service mark (herein collectively called "Trademarks"); (r) all inventions, processes, production methods, proprietary information, know-how and trade secrets used in or relating to the Project, and all licenses or user or other agreements granted to such Obligor with respect to any of the foregoing in each case whether now or hereafter owned or used including, without limitation, the material licenses or other agreements with respect to any of the Copyright Collateral, Patent Collateral or Trademark Collateral listed in Annex 5; (s) all causes of action, claims and warranties now or hereafter owned or acquired by such Obligor in respect of any of the items listed in subsection (r) or (t) of this Article III or any of the Copyright Collateral, Patent Collateral or Trademark Collateral; (t) all information, customer lists, identification of suppliers, data, plans, blueprints, designs, models, recorded knowledge, surveys, architectural, structural, mechanical and engineering plans and specifications, studies, reports and drawings, test reports, manuals, material standards, processing standards, performance standards, catalogs, computer and automatic machinery software and programs, all accounting information and all media in which or on which any information or knowledge or data or records may be recorded or stored and all computer programs used for the compilation or Security Agreement 11 - 11 - printout of such information, knowledge, records or data, prepared by or on behalf of such Obligor for the Development of the Project or any part thereof; (u) the Project Accounts (as such term is defined in the Depositary Agreement), and all balances in each thereof and all instruments, certificates and notes in respect of Permitted Investments of such balances held or maintained from time to time in each thereof; (v) all other general or special deposit accounts, including any demand, time, savings, passbook or similar account maintained by such Obligor with any bank, trust company, savings and loan association, credit union or similar organization, and all money, cash, securities and other properties of such Obligor deposited in any such account; (w) all leases of personal property, whether such Obligor is the lessor or the lessee thereunder, excluding leases of automobiles, fax machines, copiers, typewriters and similar office equipment, but specifically including (except as specifically excluded above in this clause (w) and regardless of whether such items would constitute office equipment) computers, computer peripherals, telephone equipment, telephone switches, and all other types of communications equipment; (x) all insurance policies (except, in the case of any insurance policy not required to be maintained under Section 8.01 of the Credit Agreement, to the extent the transfer or assignment of such insurance policy would render such insurance policy void), whether owned by or payable to such Obligor, insuring against any risks whatsoever (including, without limitation, casualty, property damage, liability and death), including, without limitation, all such policies required to be maintained under Section 8.01 of the Credit Agreement with respect to any in-orbit satellite or other property of such Obligor, all loss proceeds and other amounts payable to such Obligor thereunder, any indemnity, warranty or guaranty in respect of the property insured thereby, and all eminent domain or similar proceeds or awards with respect thereto and all other rights of such Obligor with respect thereto; (y) to the extent the same constitutes personal property, the Hawaiian TTAC License; (z) all other tangible and intangible personal property and fixtures of such Obligor (except to the extent expressly excluded above); Security Agreement 12 - 12 - (aa) all books, correspondence, credit files, records, invoices, ledgers and other papers of every kind and nature, including without limitation all tapes, cards, computer runs and other papers and documents in the possession or under the control of such Obligor or any computer bureau or service company from time to time acting for such Obligor; and (bb) all proceeds, products, offspring, rents, profits, royalties, revenues, issues, income, benefits, accessions, additions, substitutions and replacements of and to any of the property of such Obligor described in the preceding clauses of this Section (including, without limitation, all causes of action, claims and warranties now or hereafter held by any Obligor in respect of any of the items listed above). Notwithstanding anything in this Article III to the contrary, the Collateral shall not include the Iridium Clearing Account and any cash or other property held therein or credited thereto from time to time. ARTICLE IV REMEDIES In furtherance of the grant of the pledge and security interest pursuant to Article III, the Obligors hereby jointly and severally agree with the Secured Parties as follows: SECTION 4.01. Delivery and Other Perfection. Each Obligor shall: (a) if any of the shares, interests, securities, moneys or property required to be pledged by such Obligor under clauses (a), (b) (c) and (d) of Article III are received by such Obligor, forthwith either (i) transfer and deliver to the Collateral Agent such shares or securities so received by such Obligor (together with the certificates for any such shares and securities duly endorsed in blank or accompanied by undated stock powers duly executed in blank), all of which thereafter shall be held by the Collateral Agent, pursuant to the terms of this Agreement, as part of the Collateral, (ii) with respect to any Pledged Collateral that is not evidenced by a certificate, execute and deliver written instructions to the issuer thereof to register the Lien created hereunder in such Pledged Collateral in the registration books maintained by such issuer for such purpose and cause the respective Obligor to execute and deliver to the Collateral Agent a written confirmation to the effect that the Lien created hereunder in such Pledged Collateral has been duly registered in such registration books, all in form and substance satisfactory to the Collateral Agent or (iii) take such other action as the Collateral Agent shall deem necessary or appropriate to Security Agreement 13 - 13 - duly perfect the Lien created hereunder in such shares, interests, securities, moneys or property in said clauses (a), (b), (c) and (d); (b) deliver and pledge to the Collateral Agent any and all Instruments, endorsed and/or accompanied by such instruments of assignment and transfer in such form and substance as the Collateral Agent may reasonably request; provided that so long as no Event of Default shall have occurred and be continuing, such Obligor may retain for collection in the ordinary course any Instruments, Accounts or General Intangibles received by such Obligor and the Collateral Agent shall, promptly upon request of such Obligor through the Company, make appropriate arrangements for making any Instrument pledged by such Obligor available to such Obligor for purposes of presentation, collection or renewal (any such arrangement to be effected, to the extent reasonably deemed appropriate by the Collateral Agent, against a trust receipt or like document); (c) give, execute, deliver, file and/or record any financing statement, notice, instrument, document, agreement or other papers that may be necessary or desirable (in the judgment of the Collateral Agent) to create, preserve, perfect or validate the security interest granted pursuant hereto or to enable the Collateral Agent to exercise and enforce its rights hereunder with respect to such pledge and security interest (it being understood that the provisions of this Section will apply to all Collateral, whether personal property or real property, whether tangible or intangible, and wherever located and whenever acquired, including, without limitation, Collateral located outside the United States or in space), including, without limitation, causing any or all of the Pledged Collateral to be transferred of record into the name of the Collateral Agent or its nominee (and the Collateral Agent agrees that if any Pledged Collateral is transferred into its name or the name of its nominee, the Collateral Agent will thereafter promptly give to the respective Obligor copies of any notices and communications received by it with respect to the Pledged Collateral pledged by such Obligor hereunder), provided that notices to account debtors [or unaffiliated parties] in respect of any Accounts, Instruments or other Collateral referred to in clause (i) of Article III shall be subject to the provisions of clause (h) below; (d) keep full and accurate books and records in accordance with generally accepted business practices relating to the Collateral, and stamp or otherwise mark such books and records in such manner as the Collateral Agent may reasonably require in order to reflect the security interests granted by this Agreement; (e) furnish to the Collateral Agent from time to time (but, unless an Event of Default shall have occurred and be continuing, no more frequently than quarterly) statements and schedules identifying and describing any changes since the preceding such Security Agreement 14 - 14 - statement or schedule regarding the Copyright Collateral, the Patent Collateral and the Trademark Collateral, respectively, and such other reports in connection with the Copyright Collateral, the Patent Collateral and the Trademark Collateral, as the Collateral Agent may reasonably request, all in reasonable detail; (f) promptly upon request of the Collateral Agent, following receipt by the Collateral Agent of any statements, schedules or reports pursuant to clause (e) above, modify this Agreement by amending Annexes 2, 3 and/or 4, as the case may be, to include any Copyright, Patent or Trademark that becomes part of the Collateral under this Agreement; (g) permit representatives of the Collateral Agent, upon reasonable notice, at any time during normal business hours to inspect and make abstracts from its books and records pertaining to the Collateral, and permit representatives of the Collateral Agent to be present at such Obligor's place of business to receive copies of all communications and remittances relating to the Collateral, and forward copies of any notices or communications received by such Obligor with respect to the Collateral, all in such manner as the Collateral Agent may require; and (h) upon the occurrence and during the continuance of any Event of Default, upon request of the Collateral Agent, promptly notify (and such Obligor hereby authorizes the Collateral Agent so to notify) each account debtor in respect of any Accounts or Instruments that such Collateral has been assigned to the Collateral Agent hereunder, and that any payments due or to become due in respect of such Collateral are to be made directly to the Depositary Agent for deposit into the General Receipt & Disbursement Account pursuant to the Depositary Agreement. SECTION 4.02. Other Financing Statements and Liens. Except as otherwise permitted under Section 7.02 of the Credit Agreement, without the prior written consent of the Collateral Agent, no Obligor shall file or suffer to be on file, or authorize or permit to be filed or to be on file, in any jurisdiction, any financing statement or like instrument with respect to the Collateral in which the Collateral Agent is not named as the sole secured party for the benefit of the Lenders. SECTION 4.03. Preservation of Rights. The Collateral Agent shall not be required to take steps necessary to preserve any rights against prior parties to any of the Collateral. Security Agreement 15 - 15 - SECTION 4.04. Special Provisions Relating to Certain Collateral. (a) Pledged Collateral. (i) The Obligors will cause the Pledged Collateral to constitute at all times 100% of the aggregate ownership interests of each Subsidiary of the Company (other than any Foreign Subsidiary or any Domestic Subsidiary directly owned by any Foreign Subsidiary) then outstanding and, in the case of each Foreign Subsidiary directly owned by the Company and/or by any other Obligor which is a Domestic Subsidiary, 65% of the total number of shares or other ownership interests having ordinary voting power for the election of the board of directors (or equivalent body) of such Foreign Subsidiary and 100% of each other class or type of ownership interests of such Foreign Subsidiary. (ii) So long as no Event of Default shall have occurred and be continuing, the Obligors shall have the right to exercise all voting, consensual and other powers of ownership pertaining to the Pledged Collateral, provided that each Obligor agrees that it will not vote the Pledged Collateral pledged by it hereunder in any manner that is inconsistent with the terms of this Agreement, the Credit Agreement or any such other instrument or agreement; and the Collateral Agent shall execute and deliver to the Obligors or cause to be executed and delivered to the Obligors all such proxies, powers of attorney, dividend and other orders, and all such instruments, without recourse, as the Obligors may reasonably request for the purpose of enabling the Obligors to exercise the rights and powers that they are entitled to exercise pursuant to this paragraph (a)(ii). (iii) No Subsidiary of the Company shall be restricted from declaring and paying to any Obligor any dividends or distributions in respect of its ownership interests held by the Obligor, provided that all such dividends and distributions shall be paid directly to the Depositary Agent for deposit into the General Receipt & Disbursement Account and shall be held therein and/or applied for the purposes permitted under the Depositary Agreement. If, notwithstanding the foregoing, such dividends or distributions shall be paid to any Obligor, the same shall be held by such Obligor in trust for the Collateral Agent and the other Secured Parties, segregated from the other funds of such Obligor, and be turned over to the Depositary Agent for deposit into the aforesaid account. (b) Assigned and Other Agreements. Anything herein to the contrary notwithstanding, each Obligor party to any Assigned Agreement or other relevant agreement shall remain liable under such Assigned Agreement or other agreement to the extent set forth therein to perform all of its duties and obligations thereunder to the same extent as if this Agreement had not been executed. The exercise by the Collateral Agent of any of the rights hereunder shall not Security Agreement 16 - 16 - release any Obligor from any of its duties or obligations under any Assigned Agreement or any such other agreement, except to the extent provided therein or any consent and agreement relating thereto and upon foreclosure and assignment of such Assigned Agreement. Neither the Collateral Agent nor any of the other Secured Parties shall have any obligation or liability under any Assigned Agreement or such other agreement, by reason of the existence of this Agreement, nor shall the Collateral Agent, nor any of the other Secured Parties, be obligated to perform any of the obligations or duties of any Obligor thereunder or to take action to collect or enforce any claim for payment assigned hereunder, except to the extent provided therein or any such consent and agreement. If any Obligor fails to perform any agreement contained herein or in any of the Assigned Agreements or other agreements constituting part of the Collateral required to be performed by such Obligor, within 30 days after receipt by the Company of written notice from the Collateral Agent informing it of such failure, the Collateral Agent may itself perform, or cause the performance of, such agreement, and the expenses of the Collateral Agent incurred in connection therewith shall be payable by the Company and shall be Secured Obligations entitled to the benefits of the collateral security provided pursuant to Article III. (c) Intellectual Property. (i) For the purpose of enabling the Collateral Agent to exercise rights and remedies under Section 4.05 at such time as the Collateral Agent shall be lawfully entitled to exercise such rights and remedies, and for no other purpose, each Obligor hereby grants to the Collateral Agent, to the extent assignable, an irrevocable, non-exclusive license (exercisable without payment of royalty or other compensation to such Obligor) to use, assign, license or sublicense any of the Intellectual Property now owned or hereafter acquired by such Obligor, wherever the same may be located, including in such license reasonable access to all media in which any of the licensed items may be recorded or stored and to all computer programs used for the compilation or printout thereof. (ii) Notwithstanding anything contained herein to the contrary, but subject to the provisions of Section 7.04 of the Credit Agreement that limit the right of the Obligors to dispose of their property, so long as no Event of Default shall have occurred and be continuing, the Obligors will be permitted to exploit, use, enjoy, protect, license, sublicense, assign, sell, dispose of or take other actions with respect to the Intellectual Property in the ordinary course of the business of the Obligors. In furtherance of the foregoing, unless an Event of Default shall have occurred and be continuing the Collateral Agent shall from time to time, upon the request of the respective Obligor through the Company, execute and deliver any instruments, certificates or other documents, in the form so requested, that such Obligor through the Company shall have certified are appropriate (in their judgment) to allow them to take any action permitted above Security Agreement 17 - 17 - (including relinquishment of the license provided pursuant to paragraph (i) immediately above as to any specific Intellectual Property). Further, upon the payment in full of all of the Secured Obligations and cancellation or termination of the Commitments or earlier expiration of this Agreement or release of the Collateral, the Collateral Agent shall grant back to the Obligors the license granted pursuant to said paragraph (i). The exercise of rights and remedies under Section 4.05 by the Collateral Agent shall not terminate the rights of the holders of any licenses or sublicenses theretofore granted by the Obligors in accordance with the first sentence of this paragraph (ii). (d) FCC License. The Company agrees to request a transfer of the FCC License to a wholly-owned Subsidiary of the Company pursuant to Section 18.H of the Space System Contract at the earliest time as the Company reasonably believes that it can satisfy the qualifications of an FCC licensee under applicable law and FCC regulations and policy. Upon such transfer the FCC License shall be held in the name of such Subsidiary and, subject to Section 5.13 and any restriction under any then effective Government Rule, the Company shall forthwith comply with the requirements of Section 4.01 in order to provide the Collateral Agent a first priority perfected security interest in all of the ownership interests of such Subsidiary and the requirements of Section 6.12 of the Credit Agreement with respect to such Subsidiary. If the Company shall fail for any reason to make such request at such time and such failure shall continue unremedied for a period of 30 days or any Event of Default shall have occurred and be continuing, the Collateral Agent is hereby authorized to make such request and the Company will take any action that the Collateral Agent shall reasonably request in order to facilitate such transfer to a Subsidiary of the Company as contemplated hereby. Notwithstanding anything herein or in the Credit Agreement to the contrary, the Company will not create, incur, assume or permit to exist any Lien on the ownership interests of such Subsidiary or the assets thereof, including, without limitation, the FCC License (except any Permitted Lien). If there shall be a change in law, or the rules or policies of the FCC which would permit the granting of a security interest in the FCC License prior to or after the date of the transfer of the FCC License as contemplated herein, the Company will, and will cause its relevant License Subsidiary to, take such action as the Administrative Agent may reasonably request (including, without limitation an amendment to this Agreement or the execution and delivery of a new Security Agreement), in order to create a first priority perfected security interest in the FCC License in favor of the Collateral Agent for the benefit of the Secured Parties. (e) Satellites. Each Obligor agrees and acknowledges that the Collateral includes satellites and that the Collateral Agent intends to perfect its security interest in and Lien on all such satellites. Without limiting in any respect any other provisions of this Agreement, each Obligor agrees to assist the Collateral Agent in achieving such perfection through whatever method or methods the Collateral Agent may from time to time reasonably request, including Security Agreement 18 - 18 - (i) filing UCC financing statements on the basis that satellites constitute "mobile goods" under the Uniform Commercial Code, (ii) filing UCC financing statements or other Lien perfection documents in each jurisdiction in which any satellite is manufactured, integrated or processed, from where any satellite is launched, from where it is controlled or in which it may from time to time be deemed located to the extent such filing in such jurisdiction is reasonably required in order to perfect and maintain the perfection of the Collateral Agent's security interests therein and Liens thereon, (iii) taking all actions required to be consistent with present and future practices of third-party creditors intending to perfect security interests in satellites owned by United States persons launched from the United States or from any other location from which the satellites for the IRIDIUM System are intended to be launched, and (iv) taking all actions reasonably required from time to time to create, maintain and perfect security interests in satellites (both before and after launch and while in orbit) as specified in any United States, foreign or international law, regulation, convention or treaty relating to the creation, perfection and/or priority of security interests and Liens in satellites that is applicable to satellites of the type deployed in the IRIDIUM System. (f) Rolling Stock. At any time after the occurrence and during the continuance of an Event of Default, each Obligor shall, upon the request of the Collateral Agent, deliver to the Collateral Agent originals of the certificates of title or ownership for the Rolling Stock owned by it with a fair market value in excess of $100,000 with the Collateral Agent listed as lienholder and take such other action as the Collateral Agent shall reasonably deem appropriate to perfect the security interest created hereunder in all such Rolling Stock. Upon the sale of any such Rolling Stock permitted under the Credit Agreement, so long as no Event of Default shall have occurred and be continuing, upon the request of any Obligor, the Collateral Agent shall execute and deliver to such Obligor such instruments as such Obligor shall reasonably request to remove the notation of the Collateral Agent as lienholder on the certificate of title or ownership for any such Rolling Stock; provided that any such instruments shall be delivered, and the release effective only upon receipt by the Collateral Agent of a certificate from such Obligor stating that the Rolling Stock the lien on which is to be released is to be sold or has suffered a casualty loss (with title thereto passing to the casualty insurance company therefor in settlement of the claim for such loss). (g) Governmental Collateral. The Company shall notify the Collateral Agent of any Collateral which constitutes a claim against the United States or any foreign government or state or any instrumentality, agency or subdivision thereof, the assignment of which claim is restricted by applicable law or requires particular procedures. Upon the request of the Collateral Agent, the relevant Obligor will take all reasonable actions required to comply, to the Collateral Agent's satisfaction, with such legal requirements and procedures applicable with respect to such Collateral, including, without limitation, the Assignment of Claims Act of 1940, as amended, or any similar applicable law. Security Agreement 19 - 19 - SECTION 4.05. Events of Default. During the period during which an Event of Default shall have occurred and be continuing: (a) each Obligor shall, at the request of the Collateral Agent, assemble the Collateral owned by it at such place or places, reasonably convenient to both the Collateral Agent and such Obligor, designated in its request; (b) the Collateral Agent may make any reasonable compromise or settlement deemed desirable with respect to any of the Collateral and may extend the time of payment, arrange for payment in installments, or otherwise modify the terms of, any of the Collateral; (c) the Collateral Agent shall have all of the rights and remedies with respect to the Collateral of a secured party under the Uniform Commercial Code (whether or not said Code is in effect in the jurisdiction where the rights and remedies are asserted) and such additional rights and remedies to which a secured party is entitled under the laws in effect in any jurisdiction where any rights and remedies hereunder may be asserted, including, without limitation, the right, to the maximum extent permitted by law, to exercise all voting, consensual and other powers of ownership pertaining to the Collateral as if the Collateral Agent were the sole and absolute owner thereof (and each Obligor agrees to take all such action as may be reasonably necessary to give effect to such right); (d) the Collateral Agent in its discretion may, in its name or in the name of the Obligors or otherwise, demand, sue for, collect or receive any money or property at any time payable or receivable on account of or in exchange for any of the Collateral, but shall be under no obligation to do so; and (e) the Collateral Agent may, upon 30 days' prior written notice to the Obligors of the time and place, with respect to the Collateral or any part thereof that shall then be or shall thereafter come into the possession, custody or control of the Secured Parties or any of their respective agents, sell, lease, assign or otherwise dispose of all or any part of such Collateral, at such place or places as the Collateral Agent deems best, and for cash or for credit or for future delivery, at public or private sale, without demand of performance or notice of intention to effect any such disposition or of the time or place thereof (except such notice as is required above or by applicable statute and cannot be waived), and any Secured Party or anyone else may be the purchaser, lessee, assignee or recipient of any or all of the Collateral so disposed of at any public sale (or, to the extent permitted by law, at any private sale) and thereafter hold the same absolutely, free from any claim or right of whatsoever kind, including any right or equity of redemption (statutory or otherwise), of Security Agreement 20 - 20 - the Obligors, any such demand, notice and right or equity being hereby expressly waived and released. In the event of any sale, assignment, or other disposition of any of the Trademark Collateral, the goodwill connected with and symbolized by the Trademark Collateral subject to such disposition shall be included, and the Obligors shall supply to the Collateral Agent or its designee, for inclusion in such sale, assignment or other disposition, all Intellectual Property relating to such Trademark Collateral. The Collateral Agent may, without notice or publication, adjourn any public or private sale or cause the same to be adjourned from time to time by announcement at the time and place fixed for the sale, and such sale may be made at any time or place to which the sale may be so adjourned. Notwithstanding anything herein or in any other Security Document to the contrary, neither the Collateral Agent nor any of the other Secured Parties shall sell, lease, assign or otherwise dispose, or cause the sale, lease, assignment or other disposition, of all or any part of the Collateral pursuant to this Agreement unless not less than 10 days prior thereto the Collateral Agent shall have made a demand (or caused a demand to be made) in respect of the Reserve Capital Call Obligations in accordance with Section 4.02 of the Iridium LLC Agreement, provided that (i) nothing herein shall be construed to limit the rights of the Collateral Agent to exercise any other remedies hereunder prior to any such sale, lease, assignment or other disposition or from and after any event affecting any Credit Party or Iridium LLC described in clause (i) or (j) of Section 9.01 of the Credit Agreement and (ii) the requirement of this paragraph shall not apply if the aggregate outstanding amount in respect of the Loans (net of any cash balances in the Project Accounts) shall exceed the aggregate amount of the Reserve Capital Call Obligations. The proceeds of each collection, sale or other disposition under this Section, including by virtue of the exercise of the license granted to the Collateral Agent in Section 4.04(b), shall be applied in accordance with Section 4.09. Any such sale or other disposition under this Section shall be conducted in a commercially reasonable manner. The Obligors recognize that, by reason of certain prohibitions contained in the Securities Act of 1933, as amended, and applicable state securities laws, the Collateral Agent may be compelled, with respect to any sale of all or any part of the Collateral, to limit purchasers to those who will agree, among other things, to acquire the Collateral for their own account, for investment and not with a view to the distribution or resale thereof. The Obligors acknowledge that any such private sales may be at prices and on terms less favorable to the Collateral Agent than those obtainable through a public sale without such restrictions, and, notwithstanding such circumstances, agree that any such private sale shall be deemed to have been made in a commercially reasonable manner and that the Collateral Agent shall have no obligation to engage in public sales and no obligation to delay the sale of any Collateral for the period of time necessary to permit the respective issuer thereof to register it for public sale. Security Agreement 21 - 21 - SECTION 4.06. Deficiency. If the proceeds of sale, collection or other realization of or upon the Collateral pursuant to Section 4.05 are insufficient to cover the costs and expenses of such realization and the payment in full of the Secured Obligations, the Obligors shall remain (in the case of each Subsidiary Obligor, jointly and severally) liable for any deficiency. SECTION 4.07. Removals, Etc. Without at least 30 days' prior written notice to the Collateral Agent, no Obligor shall (i) maintain the original or "master" copies of any of its books and records with respect to the Collateral at any office or maintain its principal place of business at any place, or (except with respect to Collateral in the possession of the Collateral Agent) permit any property to be located anywhere other than at one of the locations identified in Annex 6 under its name (other than satellites in orbit), (ii) change its name from the name shown on the signature pages hereto or (iii) adopt or do business under any name other than a name beginning with the word "Iridium". SECTION 4.08. Private Sale. No Secured Party shall incur any liability as a result of the sale of the Collateral, or any part thereof, at any private sale pursuant to Section 4.05 conducted in a commercially reasonable manner. Each Obligor hereby waives any claims against the Secured Parties arising by reason of the fact that the price at which the Collateral may have been sold at such a private sale was less than the price that might have been obtained at a public sale or was less than the aggregate amount of the Secured Obligations, even if the Collateral Agent accepts the first offer received and does not offer the Collateral to more than one offeree. SECTION 4.09. Application of Proceeds. Except as otherwise herein expressly provided, the proceeds of any collection, sale or other realization of all or any part of the Collateral pursuant hereto, and any other cash at the time held by the Collateral Agent under this Agreement, shall be applied by the Collateral Agent: First, to the payment of the costs and expenses of such collection, sale or other realization, including reasonable out-of-pocket costs and expenses of the Collateral Agent and the reasonable fees and expenses of its agents and counsel, and all reasonable expenses incurred and advances made by the Collateral Agent in connection therewith; Next, to the payment in full of the Secured Obligations, in each case equally and ratably in accordance with the respective amounts thereof then due and owing or as the Lenders holding the same may otherwise agree; and Finally, to the payment to the respective Obligor, or their respective successors or assigns, or as a court of competent jurisdiction may direct, of any surplus then remaining. Security Agreement 22 - 22 - As used in this Article, "proceeds" of Collateral means cash, securities and other property realized in respect of, and distributions in kind of, Collateral, including any thereof received under any reorganization, liquidation or adjustment of debt of the Obligors or any issuer of or obligor on any of the Collateral. SECTION 4.10. Attorney-in-Fact. Without limiting any rights or powers granted by this Agreement to the Collateral Agent while no Event of Default has occurred and is continuing, upon the occurrence and during the continuance of any Event of Default the Collateral Agent is hereby appointed the attorney-in-fact of each Obligor for the purpose of carrying out the provisions hereof and taking any action and executing any instruments that the Collateral Agent may reasonably deem necessary or advisable to accomplish the purposes hereof, which appointment as attorney-in-fact is irrevocable and coupled with an interest. Without limiting the generality of the foregoing, so long as the Collateral Agent shall be entitled under this Article IV to make collections in respect of the Collateral, the Collateral Agent shall have the right and power to receive, endorse and collect all checks made payable to the order of any Obligor representing any dividend, payment or other distribution in respect of the Collateral or any part thereof and to give full discharge for the same. SECTION 4.11. Perfection. Prior to or concurrently with the execution and delivery of this Agreement, each Obligor shall (i) file such financing statements and other documents in such offices as the Collateral Agent may reasonably request to perfect the security interests granted by Article III, (ii) take any action (including establishing satisfactory control arrangements) as the Collateral Agent may reasonably request to perfect the pledge of any ownership interests for purposes of Article 8 of the Uniform Commercial Code and/or (iii) deliver to the Collateral Agent all certificates identified in Annex 1, accompanied by undated stock or transfer powers duly executed in blank. SECTION 4.12. Release of Collateral; Termination. (a) Upon any disposition of property permitted under the Credit Documents or any disposition to which the Required Lenders have consented or upon any disposition in connection with any Event of Loss, the Lien on such property shall be released, and the Collateral Agent shall promptly execute and deliver, at the expense of the relevant Obligor, such release and/or other documents related thereto as reasonably requested by such Obligor. (b) When all Secured Obligations shall have been paid in full and the Commitments of the Lenders under the Credit Agreement shall have expired or been terminated, this Agreement shall terminate, and the Collateral Agent shall forthwith cause to be assigned, transferred and delivered, against receipt but without any recourse, warranty or representation Security Agreement 23 - 23 - whatsoever, any remaining Collateral and money received in respect thereof, to or on the order of the respective Obligor and to be released and canceled all licenses and rights referred to in Section 4.04(c). The Collateral Agent shall also execute and deliver to the respective Obligor upon such termination such Uniform Commercial Code termination statements and such other documentation as shall be reasonably requested by the respective Obligor to effect the termination and release of the Liens on the Collateral. SECTION 4.13. Further Assurances. Each Obligor agrees that, from time to time upon the written request of the Collateral Agent, such Obligor will execute and deliver such further documents and do such other acts and things as the Collateral Agent may reasonably request in order fully to effect the purposes of this Agreement. Without limiting the foregoing, each Obligor hereby authorizes the Collateral Agent to file one or more financing or continuation statements, and amendments thereto, relative to all or any part of the Collateral without the signature of such Obligor where permitted by law, provided that copies of any such statement or amendment thereto shall promptly be delivered to the Company. ARTICLE V MISCELLANEOUS SECTION 5.01. No Waiver. No failure on the part of the Collateral Agent or any other Secured Party to exercise, and no course of dealing with respect to, and no delay in exercising, any right, power or remedy hereunder shall operate as a waiver thereof; nor shall any single or partial exercise by the Collateral Agent or any other Secured Party of any right, power or remedy hereunder preclude any other or further exercise thereof or the exercise of any other right, power or remedy. The remedies herein are cumulative and are not exclusive of any remedies provided by law. SECTION 5.02. Notices. All notices, requests, consents and demands hereunder shall be in writing and telecopied or delivered to the intended recipient at (i) in the case of each Obligor, the "Address for Notices" for the Company specified pursuant to Section 11.01 of the Credit Agreement and (ii) in the case of the Collateral Agent, at the "Address for Notices" for the Administrative Agent specified in Section 11.01 of the Credit Agreement, and shall be deemed to have been given at the times specified in said Section 11.01. SECTION 5.03. Expenses. (a) The Obligors jointly and severally agree to reimburse each of the Lenders and the Collateral Agent for all reasonable costs and expenses of the Lenders and the Collateral Agent Security Agreement 24 - 24 - (including, without limitation, the reasonable fees and expenses of legal counsel) in connection with (i) any Event of Default and any enforcement or collection proceeding resulting therefrom, including, without limitation, all manner of participation in or other involvement with (w) performance by the Collateral Agent of any obligations of the Obligors in respect of the Collateral that the Obligors have failed or refused to perform, (x) bankruptcy, insolvency, receivership, foreclosure, winding up or liquidation proceedings, or any actual or attempted sale, or any exchange, enforcement, collection, compromise or settlement in respect of any of the Collateral, and for the care of the Collateral and defending or asserting rights and claims of the Collateral Agent in respect thereof, by litigation or otherwise, including expenses of insurance, (y) judicial or regulatory proceedings and (z) workout, restructuring or other negotiations or proceedings (whether or not the workout, restructuring or transaction contemplated thereby is consummated) and (ii) the enforcement of this Section, and all such costs and expenses shall be Secured Obligations entitled to the benefits of the collateral security provided pursuant to Article III. (b) The Company will pay all filing, registration and recording fees or refiling, re-registration and re-recording fees, and all expenses incident to the execution and delivery of this Agreement, any agreement supplemental hereto and any instruments of further assurance, and all federal, state, county and municipal stamp taxes and other taxes, duties, imposts, assessments and charges arising out of or in connection with the execution and delivery of this Agreement, any agreement supplemental hereto and any instruments of further assurance. (c) The Company will pay, before any fine, penalty, interest or cost attaches thereto, all taxes, assessments and other governmental or non-governmental charges or levies now or hereafter assessed or levied against the Collateral or upon the Liens provided for herein (except for taxes and assessments not then delinquent or which the Company may, pursuant to the provisions of Section 6.03 of the Credit Agreement, permit to remain unpaid) as well as pay, or cause to be paid, all claims for labor, materials or supplies which, if unpaid, might by law become a Lien (other than a Lien permitted under Section 7.02 of the Credit Agreement) thereon, and will retain copies of, and, upon request, permit the Collateral Agent to examine, receipts showing payment of any of the foregoing. SECTION 5.04. Amendments, Etc. The terms of this Agreement may be waived, altered or amended only by an instrument in writing duly executed by each Obligor and the Collateral Agent. Any such amendment or waiver shall be binding upon the Collateral Agent, each other Secured Party and each Obligor. SECTION 5.05. Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of the respective successors and assigns of each Obligor, the Collateral Security Agreement 25 - 25 - Agent and each other Secured Party provided, however, that no Obligor shall assign or transfer its rights hereunder without the prior written consent of the Collateral Agent. SECTION 5.06. Captions. The caption and section headings used herein are for convenience of reference only, are not part of this Agreement and shall not affect the construction of, or be taken into consideration in interpreting, this Agreement. SECTION 5.07. Counterparts. This Agreement may be executed in counterparts (and by different parties hereto on different counterparts), each of which shall constitute an original, but all of which when taken together shall constitute a single contract. SECTION 5.08. Governing Law; Jurisdiction; Consent to Service of Process. (a) This Agreement shall be construed in accordance with and governed by the law of the State of New York. (b) Each Obligor hereby irrevocably and unconditionally submits, for itself and its property, to the nonexclusive jurisdiction of the Supreme Court of the State of New York sitting in New York County and of the United States District Court of the Southern District of New York, and any appellate court from any thereof, in any action or proceeding arising out of or relating to this Agreement, or for recognition or enforcement of any judgment, and each of the parties hereto hereby irrevocably and unconditionally agrees that all claims in respect of any such action or proceeding may be heard and determined in such New York State or, to the extent permitted by law, in such Federal court. Each of the parties hereto agrees that a final judgment in any such action or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by law. Nothing in this Agreement shall affect any right that the Collateral Agent or any other Secured Party may otherwise have to bring any action or proceeding relating to this Agreement against any Obligor or its properties in the courts of any jurisdiction. (c) Each Obligor hereby irrevocably and unconditionally waives, to the fullest extent it may legally and effectively do so, any objection which it may now or hereafter have to the laying of venue of any suit, action or proceeding arising out of or relating to this Agreement in any court referred to in paragraph (b) of this Section. Each of the parties hereto hereby irrevocably waives, to the fullest extent permitted by law, the defense of an inconvenient forum to the maintenance of such action or proceeding in any such court. (d) To the extent that any Obligor may be or become entitled, in any jurisdiction in which judicial proceedings may at any time be commenced with respect to this Agreement, to Security Agreement 26 - 26 - claim for itself or its property or revenues any immunity from suit, court jurisdiction, attachment prior to judgment, attachment in aid of execution of a judgment, execution of a judgment or from any other legal process or remedy relating to its obligations under this Agreement and to the extent that in any such jurisdiction there may be attributed such an immunity (whether or not claimed), such Obligor hereby irrevocably agrees not to claim and hereby irrevocably waives such immunity to the fullest extent permitted by the laws of such jurisdiction. SECTION 5.09. WAIVER OF JURY TRIAL. EACH PARTY HERETO HEREBY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN ANY LEGAL PROCEEDING DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY (WHETHER BASED ON CONTRACT, TORT OR ANY OTHER THEORY). EACH PARTY HERETO (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND (B) ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HERETO HAVE BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION. SECTION 5.10. No Third Party Beneficiaries. The agreements of the parties hereto are solely for the benefit of the Obligors, the Collateral Agent and the other Secured Parties, and no other Person (including, without limitation, any other Credit Party, any contractor, subcontractor, supplier or materialman furnishing supplies, goods or services to or for the benefit of the Project or any other creditor of the Company or any of its Subsidiaries) shall have any rights hereunder. SECTION 5.11. Agents and Attorneys-in-Fact. The Collateral Agent may employ agents and attorneys-in-fact in connection herewith and shall not be responsible for the negligence or misconduct of any such agents or attorneys-in-fact selected by it in good faith. SECTION 5.12. Severability. Any provision of this Agreement held to be invalid, illegal or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such invalidity, illegality or unenforceability without affecting the validity, legality and enforceability of the remaining provisions hereof; and the invalidity of a particular provision in a particular jurisdiction shall not invalidate such provision in any other jurisdiction. SECTION 5.13. FCC Approval. Notwithstanding any other provision of this Agreement, from and after the transfer of the FCC License to the Company or any of its Security Agreement 27 - 27 - Subsidiaries pursuant to Section 18.H of the Space System Contract, no action shall be taken hereunder by the Collateral Agent or any other Secured Party with respect to any item of Collateral that would constitute or result in any assignment of the FCC License or any change of control of the holder of the FCC License, if, under then existing applicable law, regulations and FCC policies, such assignment or change of control would require the prior approval of the FCC. The Company agrees to take, or to cause its Subsidiaries to take, at the Company's expense, any action that the Collateral Agent may reasonably request in order to obtain from the FCC such approval as may be necessary (a) to enable the Collateral Agent to exercise and enjoy the full rights and benefits granted to the Collateral Agent by this Agreement and each other agreement, instrument and document delivered to the Collateral Agent in connection herewith and (b) for any action or transaction contemplated by this Agreement for which such approval is or shall be required by law, and specifically, without limitation, upon request by the Collateral Agent, to prepare, sign and file with the FCC the assignor's or transferor's portion of any application or applications for consent to the assignment of any license or transfer of control necessary or appropriate under the FCC's rules and regulations, or for approval of any sale of the Collateral provided by this Agreement by or on behalf of the Collateral Agent or assumption by the Collateral Agent of voting rights relating thereto effected in accordance with the terms hereof. Security Agreement 28 - 28 - IN WITNESS WHEREOF, the parties hereto have caused this Pledge and Security Agreement to be duly executed and delivered as of the day and year first above written. COMPANY IRIDIUM OPERATING LLC By ------------------------------------ Title: Security Agreement 29 - 29 - SUBSIDIARY GUARANTORS IRIDIUM CAPITAL CORPORATION By ------------------------------------ Title: IRIDIUM IP LLC By ------------------------------------ Title: IRIDIUM ROAMING LLC By ------------------------------------ Title: [INSERT SIGNATURE LINE FOR EACH OTHER SUBSIDIARY GUARANTOR:] [NAME OF SUBSIDIARY GUARANTOR] By ------------------------------------ Title: Security Agreement 30 - 30 - COLLATERAL AGENT THE CHASE MANHATTAN BANK, as Collateral Agent By ------------------------------------ Title: Security Agreement 31 ANNEX 1 PLEDGED COLLATERAL [See Sections 2(b) and (c) and 3(a) and (b)]
Type or Class of Number of Certificate Registered Ownership Shares or Issuer Nos. (if any) Owner Interests Interests [to be inserted]
Annex 1 to Security Agreement 32 ANNEX 2 LIST OF COPYRIGHTS, COPYRIGHT REGISTRATIONS AND APPLICATIONS FOR COPYRIGHT REGISTRATIONS [See Section 2(d)] [Complete for each Obligor:] [NAME OF OBLIGOR] Title Date Filed Registration No. Effective Date Annex 2 to Security Agreement 33 ANNEX 3 LIST OF PATENTS AND PATENT APPLICATIONS [See Section 2(d)] [Complete for each Obligor:] [NAME OF OBLIGOR] File Patent Country Registration No. Date Annex 3 to Security Agreement 34 ANNEX 4 LIST OF TRADE NAMES, TRADEMARKS, SERVICES MARKS, TRADEMARK AND SERVICE MARK REGISTRATIONS AND APPLICATIONS FOR TRADEMARK AND SERVICE MARK REGISTRATIONS [See Section 2(d)] U.S. TRADEMARKS [Complete for each Obligor:] [NAME OF OBLIGOR] Application (A) Registration (R) Registration Mark or Series No. (S) or Filing Date Annex 4 to Security Agreement 35 - 2 - FOREIGN TRADEMARKS [Complete for each Obligor:] [NAME OF OBLIGOR] Application (A) Registration or Mark Registration (R) Country Filing Date (F) Annex 4 to Security Agreement 36 ANNEX 5 LIST OF CONTRACTS, LICENSES AND OTHER AGREEMENTS [See Section 2(d), (e) and (f)] [Complete for each Obligor:] [NAME OF OBLIGOR] Annex 5 to Security Agreement 37 ANNEX 6 LIST OF LOCATIONS [See Section 5.07] [Complete for each Obligor:] [NAME OF OBLIGOR] Annex 6 to Security Agreement EX-10.33 13 FORM OF PLEDGE AND SECURITY AGREEMENT 1 EXHIBIT 10.33 (EXHIBIT C TO THE CREDIT AGREEMENT) PLEDGE AND SECURITY AGREEMENT PLEDGE AND SECURITY AGREEMENT dated as of [___________, 199_] between: IRIDIUM LLC, a limited liability company duly organized and validly existing under the laws of the State of Delaware ("Iridium LLC"); and THE CHASE MANHATTAN BANK, as collateral agent for the Secured Parties referred to below (in such capacity, together with its successors in such capacity, the "Collateral Agent"). Iridium Operating LLC (the "Company"), a Delaware limited liability company and wholly-owned Subsidiary of Iridium LLC, certain lenders, the collateral agent and The Chase Manhattan Bank as Administrative Agent and Barclays Capital, the investment banking division of Barclays Bank PLC, as Documentation Agent are parties to a Credit Agreement dated as of December 19, 1997 (as modified, supplemented or otherwise modified and in effect from time to time, the "Credit Agreement"), providing, subject to the terms and conditions thereof, for loans to be made by said lenders to the Company in an aggregate principal amount not exceeding $1,000,000,000. To induce said lenders to enter into the Credit Agreement and to extend credit thereunder and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Iridium LLC has agreed to pledge and grant a security interest in the Collateral (as hereinafter defined) as security for the Secured Obligations (as so defined). Accordingly, the parties hereto agree as follows: ARTICLE I DEFINITIONS SECTION 1.01. Defined Terms. Capitalized terms used but not defined herein shall have their respective meanings in the Credit Agreement. In addition, as used herein: "Asset Transfer" means the transfer by Iridium LLC of substantially all of its assets to the Company pursuant to the Asset Transfer Agreement. "Asset Transfer Agreement" means the Asset Transfer Agreement dated as of December 18, 1997 between Iridium LLC and the Company. "Collateral" has the meaning assigned to such term in Section 3.01. "Iridium LLC Agreement" means the Limited Liability Company Agreement of Iridium LLC dated as of July 29, 1996, pursuant to which Iridium LLC is organized. Parent Security Agreement 2 - 2 - "Iridium LLC Members" means each of the holders from time to time of membership interests of Iridium LLC. "IWCL" means Iridium World Communications Ltd. "Management Services Agreement" means the Amended and Restated Management Services Agreement dated as of December 18, 1997 among IWCL, Iridium LLC and the Company with respect to, among other things, the provision of management, personnel and administrative services by Iridium LLC to the Company. "Material Adverse Effect" means a material adverse effect on (a) the business, operations, assets, condition (financial or otherwise) or prospects of the Company and any of its Subsidiaries taken as a whole, (b) the ability of Iridium LLC to perform its obligations hereunder or under the Management Services Agreement, (c) the validity or enforceability of the Liens under any Security Document (including without limitation the Liens created hereunder) or on the Collateral thereunder or hereunder or the validity or enforceability thereof or hereof or (d) the Development or timely achievement of completion of the Project. "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 (a) 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 (b) any other activities that are reasonably related to the provision of telecommunications services and businesses. For avoidance of doubt, "Related Business" shall include any business or activities carried out by Iridium or any Unrelated Subsidiary in connection with the development of the next generation Iridium global wireless communications system. "Reserve Capital Call Obligations" means the obligations of certain of the Iridium LLC Members (as identified in Annex D to the Iridium LLC Agreement) to purchase up to a total of 18,206,550 of additional Class 1 Interests of Iridium LLC at a price of $13.33 per interest pursuant to Section 4.02 of the Iridium LLC Agreement. "Responsible Officer" means the chief executive officer, chief financial officer or general counsel or any senior vice president of Iridium LLC or, with respect to Section 4.02, any vice president of Iridium LLC. Parent Security Agreement 3 - 3 - "Secured Obligations" means collectively, (a) all obligations of the Company in respect of principal of and interest on the Loans and all other amounts owing by the Company and its Subsidiaries to the Lenders or the Agents under the Credit Agreement and the other Credit Documents and (b) all obligations of Iridium LLC to the Collateral Agent and other Secured Parties hereunder. "Secured Parties" means the Agents (including the Collateral Agent) and the Lenders. "Uniform Commercial Code" means the Uniform Commercial Code as in effect from time to time in the State of New York. "Unrelated Subsidiary" means a Subsidiary of Iridium LLC (other than the Company) that is not a Subsidiary of the Company and which is engaged in a Related Business. SECTION 1.02. Terms Generally. The definitions of terms herein shall apply equally to the singular and plural forms of the terms defined. Whenever the context may require, any pronoun shall include the corresponding masculine, feminine and neuter forms. The words "include", "includes" and "including" shall be deemed to be followed by the phrase "without limitation". The word "will" shall be construed to have the same meaning and effect as the word "shall". Unless the context requires otherwise (a) any definition of or reference to any agreement, instrument or other document herein shall be construed as referring to such agreement, instrument or other document as from time to time amended, supplemented or otherwise modified, including an amendment and restatement thereof, but subject to any restrictions on such amendments, supplements or modifications set forth herein, (b) any reference herein to any Person shall be construed to include such Person's successors and assigns or, in the case of any Government Authority, any entity succeeding to any or all of the functions of such Government Authority, (c) the words "herein", "hereof" and "hereunder", and words of similar import, shall be construed to refer to this Agreement in its entirety and not to any particular provision hereof, (d) all references herein to Sections and Annexes shall be construed to refer to Sections of, and Annexes to, this Agreement and (e) the words "asset" and "property" shall be construed to have the same meaning and effect and to refer to any and all tangible and intangible assets and properties, including cash, securities, accounts and contract rights. Parent Security Agreement 4 - 4 - ARTICLE II REPRESENTATIONS AND WARRANTIES Iridium LLC represents and warrants to the Secured Parties that: SECTION 2.01. Corporate Existence. Iridium LLC: (a) is a limited liability company duly organized and validly existing under the laws of the State of Delaware; (b) has all requisite corporate or other power, and has all material governmental licenses, authorizations, consents and approvals necessary to own its assets and carry on its business as now being or as proposed to be conducted; and (c) is qualified to do business in all jurisdictions in which the nature of the business conducted by it makes such qualification necessary and where failure so to qualify could (either individually or in the aggregate) reasonably to be expected to result in a Material Adverse Effect. SECTION 2.02. No Breach. None of the execution and delivery of this Agreement, the consummation of the transactions herein contemplated or compliance with the terms and provisions hereof will conflict with or result in a breach of, or require any consent under, the Iridium LLC Agreement or the Company LLC Agreement, or any applicable law or regulation, or any material order, writ, injunction or decree of any court or governmental authority or agency, or any material agreement or instrument to which Iridium LLC or any of its Subsidiaries is a party or by which any of them is bound or to which any of them is subject, or constitute a default under any such agreement or instrument, or (except for Permitted Liens) result in the creation or imposition of any Lien upon any of the Collateral pursuant to the terms of any such agreement or instrument. SECTION 2.03. Action. Iridium LLC has all necessary limited liability company power and authority to execute, deliver and perform its obligations under this Agreement; the execution, delivery and performance by Iridium LLC of this Agreement have been duly authorized by all necessary action on its part; and this Agreement has been duly and validly executed and delivered by Iridium LLC and constitutes its legal, valid and binding obligation, enforceable against Iridium LLC in accordance with its terms, except as such enforceability may be limited by (a) bankruptcy, insolvency, reorganization, moratorium or other similar laws of general applicability affecting the enforcement of creditors' rights and (b) the application of general principles of equity (regardless of whether considered in a proceeding in equity or at law). SECTION 2.04. Approvals. No authorizations, approvals or consents of, and no filings or registrations with, any Government Authority are necessary for the execution, delivery or performance by Iridium LLC of this Agreement or for the validity or enforceability Parent Security Agreement 5 - 5 - hereof, except (i) for filings and recordings in respect of the Liens created pursuant hereto and (ii) that, at any time after the transfer of the FCC License to the Company or any of its Subsidiaries pursuant to the Space System Contract, the exercise of certain remedies hereunder may require the prior approval of the FCC. SECTION 2.05. Financial Condition. Iridium LLC has heretofore furnished to the Lenders the consolidated balance sheet and statements of income, stockholders' equity and cash flows for Iridium LLC (i) as of and for the fiscal year ended December 31, 1996, reported on by KPMG Peat Marwick LLP, independent public accountants and (ii) as of and for the fiscal quarter and the portion of the fiscal year ended September 30, 1997, certified by the chief financial officer of Iridium LLC. Such financial statements present fairly, in all material respects, the consolidated financial position and results of operations and cash flows of Iridium LLC and its Subsidiaries as of such dates and for such periods in accordance with GAAP, subject to year-end audit adjustments and the absence of footnotes in the case of the statements referred to in clause (ii) above. Since December 31, 1996 (and giving effect to the Asset Transfer as of such date), there has been no change in the business, assets, operations, prospects or condition, financial or otherwise, of Iridium LLC and its Subsidiaries, taken as a whole, that (either individually or in the aggregate) could reasonably be expected to result in a Material Adverse Effect. SECTION 2.06. Proceedings. Except as described in Schedule V to the Credit Agreement, there is no action, suit or proceeding at law or in equity or by or before any Government Authority, arbitral tribunal or other similar body now pending or, to the best knowledge of Iridium LLC, threatened against Iridium LLC or any of its Subsidiaries or any of their respective property (including, without limitation, the Project), which has resulted in, or could reasonably be expected to result in, a Material Adverse Effect. SECTION 2.07. Investment and Holding Company Status. Iridium LLC is not (a) an "investment company" or a company "controlled" by a company registered as an "investment company", as such terms are defined in the Investment Company Act of 1940 or (b) a "holding company", or an "affiliate" of a company registered as a "holding company" or a "subsidiary company" of a company registered as a "holding company", within the meaning of the Public Utility Holding Company Act of 1935. SECTION 2.08. Taxes. Iridium LLC has filed or caused to be filed all tax returns that are required to be filed, and has paid all Taxes shown to be due and payable on said returns or on any assessments made against Iridium LLC or any of its property (other than Taxes (i) the payment of which is not yet due or which are being contested in good faith by appropriate proceedings and for which such Person has set aside on its books adequate reserves or (ii) the failure of which to pay could not reasonably be expected to result in a Material Parent Security Agreement 6 - 6 - Adverse Effect), and no tax Liens have been filed (a) with respect to any of the Collateral (other than Permitted Liens) or (b) that would have a Material Adverse Effect, and no claims are being asserted with respect to any such Taxes. The charges, accruals and reserves on the books of Iridium LLC in respect of Taxes and other governmental charges are, in the opinion of Iridium LLC, adequate. SECTION 2.09. ERISA. No ERISA Event has occurred or is reasonably expected to occur that, when taken together with all other such ERISA Events for which liability is reasonably expected to occur, could reasonably be expected to result in a Material Adverse Effect. SECTION 2.10. Capitalization. Iridium LLC has heretofore delivered to the Lenders a true and complete copy of the Iridium LLC Agreement. The members of Iridium LLC on the date hereof are those identified in Schedule I. SECTION 2.11. Asset Transfer. Iridium LLC has the full power and authority and legal right to execute and deliver the Asset Transfer Agreement and to perform its obligations thereunder. The execution, delivery and performance by Iridium LLC of the Asset Transfer Agreement and the consummation of the transactions contemplated thereby have been duly authorized by all necessary corporate action of the part of Iridium LLC. The execution, delivery and performance by Iridium LLC of the Asset Transfer Agreement and the consummation of the Asset Transfer do not and will not (a) require any consent or approval of any Person that has not already been obtained and that remains in full force and effect, (b) violate any material provision of any Government Rule or any order, writ, judgment, decree, determination or award having applicability to Iridium LLC or any of its Subsidiaries, (c) violate any provision of the Iridium LLC Agreement, (d) result in a breach or constitute a default under any material indenture or agreement to which Iridium LLC or any of its Subsidiaries is a party or by which any of their respective property is bound or affected or (e) result in or require the creation or imposition of any Lien upon or with respect to any of the properties or assets now owned or hereafter acquired by such Person. The Asset Transfer has been given effect and all of the assets of Iridium LLC required to be transferred by Iridium LLC to the Company under the Asset Transfer Agreement have been so transferred prior to the date hereof. SECTION 2.12. Collateral. (a) Iridium LLC has all right, title and interest in, to and under, and is the record owner of, the Collateral in which it purports to grant a security interest pursuant to Section 3.01 and no Lien exists or will exist upon the Collateral at any time (and no right or option to acquire the same exists in favor of any other Person), except for the pledge and Parent Security Agreement 7 - 7 - security interest in favor of the Collateral Agent for the benefit of the Secured Parties created or provided for herein, which pledge and security interest constitute a first priority perfected pledge and security interest in and to all of the Collateral (except for Permitted Liens). (b) The membership interests of the Company identified in Annex 1 are, and all other membership interests of the Company in which Iridium LLC shall hereafter grant a security interest pursuant to Section 3.01 will be, duly authorized, validly existing, fully paid and non-assessable (except as provided in Section 6.07 of the Delaware LLC Act). Except for any restriction contained herein, there does not exist any contractual restriction on (i) the sale, assignment, transfer or disposition by the Collateral Agent of any of the membership interests of the Company pledged hereunder in connection with the exercise by the Collateral Agent of its remedies hereunder, (ii) the admission of any transferee of such membership interests as a member of the Company or (iii) otherwise on the exercise by the Collateral Agent of any of its remedies hereunder in respect of such membership interests. (c) The membership interests of the Company identified in Annex 1 constitute all of the ownership interests of the Company issued and outstanding on the date hereof (whether or not registered in the name of Iridium LLC) and Iridium LLC is the owner of all such ownership interests. ARTICLE III PLEDGE AND SECURITY INTEREST SECTION 3.01. Pledge. As collateral security for the prompt payment in full when due (whether at stated maturity, by acceleration or otherwise) of the Secured Obligations now existing or hereafter arising, Iridium LLC hereby pledges, assigns, hypothecates and transfers to the Collateral Agent for the equal and ratable benefit of the Secured Parties, and hereby grants to the Collateral Agent for the equal and ratable benefit of the Secured Parties a Lien on and security interest in, all of Iridium LLC's right, title and interest in, to and under the following, whether now owned by Iridium LLC or hereafter acquired and whether now existing or hereafter coming into existence and wherever located (all being collectively referred to herein as the "Collateral"): (a) all of its membership interests in the Company together with the certificate or certificates (if any) evidencing the same and all of its right, title and interest in, to and under the Company LLC Agreement, including, without limitation, (i) all rights of Iridium LLC to receive moneys due but unpaid and to become due thereunder or pursuant thereto, (ii) all rights of Iridium LLC to participate in the operation or management of the Company and to take actions or consent to actions in Parent Security Agreement 8 - 8 - accordance with the provisions thereof, (iii) all rights of Iridium LLC pursuant thereto to property of the Company, (iv) all rights of Iridium LLC to receive proceeds of any insurance, bond, indemnity, warranty or guaranty with respect thereto, (v) all claims of Iridium LLC for damages arising out of or for breach of or default thereunder and (vi) all rights of Iridium LLC to terminate, amend, supplement, modify or waive performance under any of the terms provisions of the Company LLC Agreement, to perform thereunder and to compel performance and otherwise to exercise all remedies thereunder; (b) all shares, interests, securities, moneys or property representing a dividend upon, or representing a distribution or return of capital upon or with respect to, such membership interests or resulting from a split-up, revision, reclassification or other like change thereof or otherwise received in exchange therefor, and any subscription warrants, rights or options issued to the holders of, or otherwise in respect of thereof; (c) without affecting the obligations of Iridium LLC under any provision prohibiting such action hereunder, in the event of any consolidation or merger of the Company in which the Company is not the surviving entity, all ownership interests of whatever class owned by Iridium LLC of the successor entity formed by or resulting from such consolidation or merger (such membership interests, together with all shares, interests, securities, moneys or property as may from time to time be pledged hereunder pursuant to clause (a) or (b) above and this clause (c) being herein, and the proceeds of and to any such property and, to the extent related to any such property or such proceeds, all books, correspondence, credit files, records, invoices and other papers, collectively called the "Member Collateral"); (d) all rights of Iridium LLC (including rights delegated to its directors or officers) in respect of the Reserve Capital Call Obligations, including, without limitation, all rights to compel performance of the Reserve Capital Call Obligations, to terminate, amend, supplement, modify or waive performance thereof and otherwise to exercise rights and remedies in respect thereof (but not including any indemnity rights which any of the directors or officers of Iridium LLC may have relating to the Reserve Capital Call Obligations); and (e) all proceeds, products, offspring, rents, profits, royalties, revenues, issues, income, benefits, accessions, additions, substitutions and replacements of and to any and all of the property of Iridium LLC described in the preceding clauses of this Section and, to the extent related to any such property, all books, correspondence, credit files, records, invoices and other papers. Parent Security Agreement 9 - 9 - SECTION 3.02. Member Remains Liable. Anything herein to the contrary notwithstanding, Iridium LLC shall remain liable under the Company LLC Agreement to the extent set forth therein to perform all of its duties and obligations thereunder to the same extent as if this Agreement had not been executed. The exercise by the Collateral Agent of any of the rights hereunder shall not release Iridium LLC from any of its duties or obligations under the Company LLC Agreement. The Collateral Agent shall not have any obligation or liability under the Company LLC Agreement by reason of this Agreement, nor shall the Collateral Agent be obligated to perform any of the obligations or duties of Iridium LLC thereunder or to take any action to collect or enforce any claim for payment assigned hereunder. In the event that the Collateral Agent on behalf of the Secured Parties or its designee(s) succeeds to Iridium LLC's interest in, to and under the membership interests of the Company whether by foreclosure or otherwise, the Collateral Agent on behalf of the Secured Parties or its designee(s) shall assume liability for all of the obligations of Iridium LLC as a member under the Company LLC Agreement, provided that such liability shall not include any liability for claims against Iridium LLC arising from Iridium LLC's failure to perform during the period prior to the Collateral Agent's or such designee(s)' succession to Iridium LLC's interest in, to and under such membership interests. ARTICLE IV COVENANTS Iridium LLC agrees that, until the payment and satisfaction in full of the Secured Obligations and the expiration or termination of the Commitments of the Lenders under the Credit Agreement: SECTION 4.01. Financial Statements and Other Information. Iridium LLC will furnish to the Administrative Agent and each Lender (but, in the case of clauses (a) through (d) below, only if at such time Iridium LLC shall be required to prepare financial statements of the type referred to below for filing with the SEC): (a) within 120 days after the end of each fiscal year of Iridium LLC, the audited consolidated balance sheet and related statements of operations, members' equity and cash flows of Iridium LLC and its Subsidiaries as of the end of and for such year, setting forth in each case in comparative form the figures for the previous fiscal year, all reported on by KPMG Peat Marwick LLP or other independent public accountants of recognized national standing (without a "going concern" or like qualification or exception and without any qualification or exception as to the scope of such audit) to the effect that such consolidated financial statements present fairly in all Parent Security Agreement 10 - 10 - material respects the financial condition and results of operations of Iridium LLC and its Subsidiaries on a consolidated basis in accordance with GAAP consistently applied; (b) within 60 days after the end of each of the first three fiscal quarters of each fiscal year of Iridium LLC, the consolidated balance sheet and related statements of operations, members' equity and cash flows of Iridium LLC and its Subsidiaries as of the end of and for such fiscal quarter and the then elapsed portion of the fiscal year, setting forth in each case in comparative form the figures for (or, in the case of the balance sheet, as of the end of) the corresponding period or periods of the previous fiscal year, all certified by a Responsible Officer as presenting fairly in all material respects the financial condition and results of operations of Iridium LLC and its Subsidiaries on a consolidated basis in accordance with GAAP consistently applied, subject to normal year-end audit adjustments and the absence of footnotes; (c) concurrently with any delivery of financial statements under clause (a) or (b) of this Section, a certificate of a Responsible Officer stating whether any change in GAAP or in the application thereof has occurred since the date of the most recent audited financial statements delivered to the Administrative Agent pursuant hereto and, if any such change has occurred, specifying the effect of such change on the financial statements accompanying such certificate; (d) promptly upon receipt, copies of all formal accountants' letters received by Iridium LLC's management in respect of Iridium LLC (other than any such letters relating solely to Unrelated Subsidiaries); (e) promptly after the same become publicly available, copies of all periodic and other reports, proxy statements and other materials filed by IWCL or Iridium LLC with the SEC or any national securities exchange or distributed by Iridium LLC to its members generally; and (f) promptly following any request therefor, such other information regarding the operations, business affairs and financial condition of Iridium LLC (but excluding any information not included under Section 4.06), as the Administrative Agent or any Lender (through the Administrative Agent) may reasonably request. SECTION 4.02. Notices of Material Events. Iridium LLC will furnish, or will cause to be furnished, to the Administrative Agent and each Lender prompt written notice of: (a) Iridium LLC becoming aware of the occurrence of any Default relating to Iridium LLC; Parent Security Agreement 11 - 11 - (b) the filing or commencement of any action, suit or proceeding by or before any arbitrator or Government Authority against or affecting Iridium LLC that, if adversely determined, could reasonably be expected to result in a Material Adverse Effect; (c) the occurrence of any ERISA Event that, alone or together with any other ERISA Events that have occurred, could reasonably be expected to result in liability of Iridium LLC and its Subsidiaries in an aggregate amount exceeding $2,000,000; and (d) any other circumstance, act or condition relating to Iridium LLC which could reasonably be expected to result in a Material Adverse Effect. Each notice delivered under this Section shall be accompanied by a statement of a Responsible Officer setting forth the details of the event or development requiring such notice and any action taken or proposed to be taken with respect thereto. SECTION 4.03. Maintenance of Existence. Iridium LLC will preserve and maintain (a) its legal existence and (b) all of its licenses, Government Approvals, rights, privileges, franchises and property (if any) which are material to the Development of the Project and the due performance of all of its obligations and the exercise of all of its rights under the Transaction Documents to which it is party, provided that nothing in this Section shall be construed to prohibit any transaction permitted under this Article IV. SECTION 4.04. Taxes. Iridium LLC will (a) pay and discharge, or effectively provide for, all Taxes that are imposed on Iridium LLC or on its income or profits or on any of its property prior to the date on which penalties for the failure to pay or discharge such Taxes attach thereto, other than Taxes the failure of which to pay could not reasonably be expected to have a Material Adverse Effect, provided that Iridium LLC shall have the right to contest in good faith by appropriate proceedings the validity or amount of any such Tax, and (b) promptly pay any valid, final judgment enforcing any such Tax and cause the same to be satisfied of record. SECTION 4.05. Compliance with Laws; Government Approvals. Iridium LLC will comply in all respects with all applicable Government Rules applicable to it or its property and all Government Approvals now or hereafter held by it, unless the failure to so comply could not reasonably be expected to have a Material Adverse Effect. SECTION 4.06. Inspection Rights. Subject to the same confidentiality requirements set forth in Section 11.12 of the Credit Agreement that are applicable to the Company, Iridium LLC will permit representatives of any of the Global Arrangers, the Agents Parent Security Agreement 12 - 12 - or the Lenders (including, without limitation, any Independent Advisor, at the reasonable request of the Global Arrangers), upon reasonable prior notice to Iridium LLC unless a Default shall have occurred and is continuing, to visit and inspect its property, to examine, copy or make excerpts from its books, records and documents and to discuss its affairs, finances and accounts with its principal officers, engineers and independent accountants to the extent such property, books, records, documents, affairs, finances and accounts relate to the business or operation of Company, the Development of the Project or the Collateral hereunder, all at such reasonable times during normal business hours and at such intervals as such representatives may reasonably request. Iridium LLC hereby authorizes each of its principal officers, engineers and independent accountants to discuss Iridium LLC's affairs, finances and accounts as contemplated by this Section. SECTION 4.07. Indebtedness. Iridium LLC will not create, incur, assume or permit to exist any Indebtedness of Iridium LLC, except: (a) Indebtedness (including Capital Lease Obligations) incurred in the ordinary course of business of Iridium LLC in the performance of its duties under the Management Services Agreement or otherwise in carrying out its activities in connection with the Development of the Project; (b) other Indebtedness of Iridium LLC, provided that (i) the proceeds of such Indebtedness (or, in the case of any Indebtedness of an Unrelated Subsidiary that is Guaranteed by Iridium LLC, such Indebtedness) shall be used in the business of an Unrelated Subsidiary, (ii) such Indebtedness shall not have a maturity earlier than one year after the Maturity Date or provide any amortization or redemption of principal prior to such date, (iii) such Indebtedness shall not place any limitations on the activities of the Company and its Subsidiaries or the activities of Iridium LLC in connection with the Development of the Project, (iv) such Indebtedness may contain such other terms and conditions (including, without limitation, covenants and events of default, but excluding terms as to pricing) applicable to Iridium LLC that are not more restrictive than the terms set forth in the Credit Agreement (assuming such terms were applicable to Iridium LLC) and (v) such Indebtedness may not be secured by a Lien on any property of Iridium LLC other than the equity interests of such Unrelated Subsidiary; and (c) other Indebtedness not exceeding $10,000,000 in the aggregate principal amount outstanding at any one time; provided that this Section shall not (A) be construed to restrict the ability of any Unrelated Subsidiary to incur or have outstanding any Indebtedness and (B) apply to any Indebtedness incurred by any Unrelated Subsidiary that is secured by a pledge of the equity interests of such Unrelated Subsidiary (and no other property of Iridium LLC) and is not Guaranteed by Iridium LLC. SECTION 4.08. Liens. Iridium LLC will not create, incur, assume or suffer to exist any Lien on any property, except (a) the Liens created pursuant to this Agreement and (b) any other Lien that could not reasonably be expected to have a Material Adverse Effect. Parent Security Agreement 13 - 13 - SECTION 4.09. Membership Interests. Iridium LLC will not consent to, or take any other action to effect, (a) the creation of any other membership or other ownership interest in the Company (other than the membership interests in the Company outstanding as of the date hereof) or (b) (except for any restriction contained herein) the creation of any contractual restriction on (i) the sale, assignment, transfer or the disposition by the Collateral Agent of any of the membership interests of the Company pledged hereunder in connection with the exercise by the Collateral Agent of its remedies hereunder, (ii) the admission of any transferee of such membership interests as a member of the Company or (iii) otherwise on the exercise by the Collateral Agent of any of its remedies hereunder in respect of such membership interests. SECTION 4.10. Mergers, Consolidations, Etc. Iridium LLC will not enter into any transaction of merger, consolidation or amalgamation, or liquidate, wind up or dissolve itself (or suffer any liquidation of dissolution), or convey, transfer or lease its property substantially as an entirety to any person. SECTION 4.11. Investments. Iridium LLC will not make or permit to remain outstanding any Investments other than (a) the investment in the membership interests of the Company, (b) Permitted Investments and (c) equity investments in Unrelated Subsidiaries or other Persons engaged in any Related Business that are made from the proceeds of the additional membership interests issued by Iridium LLC or of Indebtedness of Iridium LLC permitted under Section 4.07. SECTION 4.12. Transactions with Affiliates. Iridium LLC will not sell, lease or otherwise transfer any property or assets to, or purchase, lease or otherwise acquire any property or assets from, or otherwise engage in any other transactions with, any of its Affiliates, except (a) transactions on terms which, in the opinion of Iridium LLC, are not less favorable to Iridium LLC than could be obtained on an arm's-length basis from unrelated third parties and (b) transaction which could not reasonably be expected to have a Material Adverse Effect. SECTION 4.13. Nature of Business. Iridium LLC will not engage in any business, activities or transactions other than in connection with the Development of the Project and any Related Business. Without limiting the foregoing, Iridium LLC will take from time to time all necessary action to ensure that the Development of the Project is carried out in all substantial respects by the Company and its Subsidiaries and that at all times substantially all of the assets related to the Development of the Project that are owned or held by Iridium LLC and its Subsidiaries are owned or held by the Company and its Subsidiaries. Parent Security Agreement 14 - 14 - SECTION 4.14. Company LLC Agreement. Iridium LLC will not (a) cancel or terminate the Company LLC Agreement or consent to or accept any cancellation or termination thereof, (b) amend, supplement or otherwise modify the Company LLC Agreement in a manner that would be materially adverse to the interests of the Lenders under the Credit Documents or materially adversely affect the rights or remedies of the Collateral Agent hereunder or the Collateral or (c) petition, request or take any other legal or administrative action that seeks, or may reasonably be expected, to rescind, terminate, amend, modify or suspend in any way prohibited under clause (b) above the Company LLC Agreement, without the prior consent of the Administrative Agent (acting with the approval of the Required Lenders). Iridium LLC shall provide the Administrative Agent with prior written notice of each proposed modification, supplement or waiver in respect of thereof not less than 10 Business Days prior to the proposed effective date thereof (and the Administrative Agent shall promptly provide copies thereof to each Lender). Promptly following the effectiveness of each such modification, supplement or waiver, Iridium LLC shall provide the Administrative Agent with a copy thereof as executed and delivered by the parties thereto (and the Administrative Agent shall promptly provide a copy thereof to each Lender). SECTION 4.15. Iridium LLC Agreement. (a) Iridium LLC will not (i) take any action, or permit any action to be taken, to effect (x) the cancellation or termination of the Iridium LLC Agreement or (y) any amendment, supplement or otherwise modification of the Iridium LLC Agreement in a manner that would be materially adverse to the interests of the Lenders under the Credit Documents or materially adversely affect the rights or remedies of the Collateral Agent hereunder or the Collateral or (ii) petition, request or take any other legal or administrative action that seeks, or may reasonably be expected, to rescind, terminate, amend, modify or suspend in any way prohibited under clause (i) above the Iridium LLC Agreement, without the prior consent of the Administrative Agent (acting with the approval of the Required Lenders). Iridium LLC shall provide the Administrative Agent with prior written notice of each proposed modification, supplement or waiver in respect of thereof not less than 10 Business Days prior to the proposed effective date thereof (and the Administrative Agent shall promptly provide copies thereof to each Lender). Promptly following the effectiveness of each such modification, supplement or waiver, Iridium LLC shall provide the Administrative Agent with a copy thereof as executed and delivered by the parties thereto (and the Administrative Agent shall promptly provide a copy thereof to each Lender). (b) Iridium LLC will not approve, consent to or otherwise permit, or take any other action to effect, the transfer of any membership interests of Iridium LLC if such transfer would violate Section 5.01 of the Motorola Consent. Parent Security Agreement 15 - 15 - (c) Neither Iridium LLC nor any of its directors or officers will exercise any rights under the Iridium LLC Agreement with respect to the Reserve Capital Call Obligations unless directed so to do by the Administrative Agent (acting upon the instructions of the Required Lenders). Upon payment by any Iridium LLC Member of all or any part of the Reserve Capital Call Obligations payable by such member to the Collateral Agent pursuant to Section 4.02 of the Iridium LLC Agreement, such payment will constitute a capital contribution by such member to Iridium LLC and Iridium LLC will be deemed to have made a capital contribution in the same amount in the Company. SECTION 4.16. Project Costs. If Iridium LLC shall issue any equity securities or incur any Indebtedness after the date hereof the proceeds of which are intended to be used to pay for Project Costs, Iridium LLC will make a capital contribution in the Company in the amount of such net proceeds promptly following such issuance or incurrence, as the case may be. SECTION 4.17. Restrictive Agreements. Iridium LLC will not enter into, incur or permit to exist any agreement or other arrangement that prohibits, restricts or imposes any condition upon (a) the ability of the Company or any of its Subsidiaries to create, incur or permit to exist any Lien upon any of its property or assets or to sell, transfer or otherwise dispose of its assets, (b) the ability of any such Subsidiary to (i) pay dividends or other distributions with respect to any shares of its equity interests, (ii) make or repay loans or advances to the Company or any other Subsidiary of the Company or (iii) Guarantee Indebtedness of the Company or any such other Subsidiary under any of the Credit Documents or (c) the ability of the Company or any such Subsidiary to enter into amendments, modifications, supplements or waivers of any of the Credit Documents or Principal Project Documents; provided that (i) the foregoing shall not apply to restrictions and conditions imposed by any applicable Government Rule or by any Credit Document, (ii) the foregoing shall not apply to (A) restrictions and conditions existing on the date hereof in the Motorola Guaranteed Credit Agreement, the Senior Note Indentures or otherwise identified on Schedule IX to the Credit Agreement (but shall apply to any amendment or modification thereof expanding the scope of any such restriction or condition) or (B) any comparable restrictions and conditions contained in any agreement or instrument relating to Indebtedness permitted under clause (c), (e), (g), (h), (i), (j), (k) or (l) (to the extent the Indebtedness being Refinanced pursuant to such clause (l) contains any such restriction or condition) of Section 7.01 of the Credit Agreement, (iii) the foregoing shall not apply to customary restrictions and conditions contained in agreements relating to the sale of a Subsidiary pending such sale, provided that such restrictions and conditions apply only to the Subsidiary that is to be sold and such sale is permitted hereunder, (iv) clause (a) of the foregoing shall not apply to restrictions or conditions imposed by any agreement relating to secured Indebtedness permitted by this Agreement if such restrictions or conditions apply only to the property or assets Parent Security Agreement 16 - 16 - securing such Indebtedness and (v) clause (a) of the foregoing shall not apply to customary provisions in leases restricting the assignment thereof. ARTICLE V REMEDIES In furtherance of the grant of the pledge and security interest pursuant to Section 3.01, Iridium LLC hereby agrees with the Secured Parties as follows: SECTION 5.01. Delivery and Other Perfection. Iridium LLC shall: (a) if any of the shares, interests, securities, moneys or property required to be pledged by Iridium LLC under clauses (a), (b) and (c) of Section 3.01 are received by Iridium LLC, forthwith either (i) transfer and deliver to the Collateral Agent such shares or securities so received by Iridium LLC (together with the certificates for any such shares and securities duly endorsed in blank or accompanied by undated stock powers duly executed in blank), all of which thereafter shall be held by the Collateral Agent, pursuant to the terms of this Agreement, as part of the Collateral, (ii) with respect to any Member Collateral that is not evidenced by a certificate, execute and deliver written instructions to the issuer thereof to register the Lien created hereunder in such Member Collateral in the registration books maintained by such issuer for such purpose and cause Iridium LLC to execute and deliver to the Collateral Agent a written confirmation to the effect that the Lien created hereunder in such Member Collateral has been duly registered in such registration books, all in form and substance satisfactory to the Collateral Agent or (iii) take such other action as the Collateral Agent shall deem necessary or appropriate to duly perfect the Lien created hereunder in such shares, interests, securities, moneys or property in said clauses (a), (b) and (c); (b) give, execute, deliver, file and/or record any financing statement, notice, instrument, document, agreement or other papers that may be necessary or desirable (in the judgment of the Collateral Agent) to create, preserve, perfect or validate the security interest granted pursuant hereto or to enable the Collateral Agent to exercise and enforce its rights hereunder with respect to such pledge and security interest, including, without limitation, causing any or all of the Collateral which is represented by a certificate to be transferred of record into the name of the Collateral Agent or its nominee (and the Collateral Agent agrees that if any Collateral is transferred into its name or the name of its nominee, the Collateral Agent will thereafter promptly give to Iridium LLC copies of any notices and communications received by it with respect to the Collateral pledged by Iridium LLC hereunder); Parent Security Agreement 17 - 17 - (c) keep full and accurate books and records relating to the Collateral, and stamp or otherwise mark such books and records in such manner as the Collateral Agent may reasonably require in order to reflect the security interests granted by this Agreement; and (d) permit representatives of the Collateral Agent, upon reasonable notice, at any time during normal business hours to inspect and make abstracts from its books and records pertaining to the Collateral, all in such manner as the Collateral Agent may require. SECTION 5.02. Other Financing Statements and Liens. Without the prior written consent of the Collateral Agent, Iridium LLC shall not file or suffer to be on file, or authorize or permit to be filed or to be on file, in any jurisdiction, any financing statement or like instrument with respect to the Collateral in which the Collateral Agent is not named as the sole secured party for the benefit of the Secured Parties. SECTION 5.03. Preservation of Rights. The Collateral Agent shall not be required to take steps necessary to preserve any rights against prior parties to any of the Collateral. SECTION 5.04. Collateral. (a) Iridium LLC will cause to be pledged hereunder at all times 100% of the aggregate ownership interests of the Company then outstanding. (b) So long as no Event of Default shall have occurred and be continuing, Iridium LLC shall have the right to exercise all voting, consensual and other powers of ownership pertaining to the Member Collateral, provided that Iridium LLC agrees that it will not vote the Collateral in any manner that is inconsistent with the terms of this Agreement, the Credit Agreement or any other instrument or agreement referred to herein or therein; and the Collateral Agent shall execute and deliver to Iridium LLC or cause to be executed and delivered to Iridium LLC all such proxies, powers of attorney, dividend and other orders, and all such instruments, without recourse, as Iridium LLC may reasonably request for the purpose of enabling Iridium LLC to exercise the rights and powers that they are entitled to exercise pursuant to this paragraph (b). (c) Except as permitted under, and subject to any conditions set forth in, Section 7.07 of the Credit Agreement, no distributions, dividends or other payments shall be paid by the Company to Iridium LLC in its capacity as a member of the Company, and Iridium LLC shall not be entitled to receive and retain any such distribution, dividends or Parent Security Agreement 18 - 18 - other payments, in respect of the Collateral; provided that nothing herein shall be construed to limit the payment by the Company to Iridium LLC of the Iridium Management Expenses under, and as defined in, the Management Services Agreement. In the event that, notwithstanding the foregoing, Iridium LLC shall receive any such distribution, dividend or other payment, Iridium LLC shall hold the same in trust for the Collateral Agent and the other Secured Parties, segregated from other funds of Iridium LLC and forthwith turn over the same to the Collateral Agent in the exact form received by Iridium LLC for deposit into the appropriate Project Account pursuant to the Depositary Agreement. (d) Without limiting any other rights of the Collateral Agent under this Agreement (but subject to the second paragraph of Section 5.05), upon and during the continuance of any Event of Default, the Collateral Agent may (but shall not be obligated to) make a demand for payment in respect of the Reserve Capital Call Obligations in accordance with Section 4.02 of the Iridium LLC Agreement, without notice to or consent from or any other action required to be taken by Iridium LLC. SECTION 5.05. Events of Default, Etc. During the period during which an Event of Default shall have occurred and be continuing: (a) the Collateral Agent shall have all of the rights and remedies with respect to the Collateral of a secured party under the Uniform Commercial Code (whether or not said Code is in effect in the jurisdiction where the rights and remedies are asserted) and such additional rights and remedies to which a secured party is entitled under the laws in effect in any jurisdiction where any rights and remedies hereunder may be asserted, including, without limitation, the right, to the maximum extent permitted by law, to exercise all voting, consensual and other powers of ownership pertaining to the Collateral as if the Collateral Agent were the sole and absolute owner thereof (and Iridium LLC agrees to take all such action as may be reasonably necessary to give effect to such right); (b) the Collateral Agent in its discretion may, in its name or in the name of Iridium LLC or otherwise, demand, sue for, collect or receive any money or property at any time payable or receivable on account of or in exchange for any of the Collateral, but shall be under no obligation to do so; and (c) the Collateral Agent may, upon 30 days' prior written notice to Iridium LLC of the time and place, with respect to the Collateral or any part thereof that shall then be or shall thereafter come into the possession, custody or control of the Secured Parties or any of their respective agents, sell, lease, assign or otherwise dispose of all or any part of the Collateral, at such place or places as the Collateral Agent deems best, Parent Security Agreement 19 - 19 - and for cash or for credit or for future delivery, at public or private sale, without demand of performance or notice of intention to effect any such disposition or of the time or place thereof (except such notice as is required above or by applicable statute and cannot be waived), and any Secured Party or anyone else may be the purchaser, lessee, assignee or recipient of any or all of the Collateral so disposed of at any public sale (or, to the extent permitted by law, at any private sale) and thereafter hold the same absolutely, free from any claim or right of whatsoever kind, including any right or equity of redemption (statutory or otherwise), of Iridium LLC, any such demand, notice and right or equity being hereby expressly waived and released. The Collateral Agent may, without notice or publication, adjourn any public or private sale or cause the same to be adjourned from time to time by announcement at the time and place fixed for the sale, and such sale may be made at any time or place to which the sale may be so adjourned. Notwithstanding anything herein or in any other Security Document to the contrary, neither the Collateral Agent nor any of the other Secured Parties shall sell, lease, assign or otherwise dispose, or cause the sale, lease, assignment or other disposition, of all or any part of the Collateral (other than the rights of Iridium LLC in respect of the Reserve Capital Call Obligations) pursuant to this Agreement unless not less than 10 days prior thereto the Collateral Agent shall have made a demand (or caused a demand to be made) in respect of the Reserve Capital Call Obligations in accordance with Section 4.02 of the Iridium LLC Agreement, provided that (i) nothing herein shall be construed to limit the rights of the Collateral Agent to exercise any other right or remedies hereunder prior to any such sale, lease, assignment or other disposition or from and after any event affecting any Credit Party or Iridium LLC described in clause (i) or (j) of Section 9.01 of the Credit Agreement and (ii) the requirement of this paragraph shall not apply if the aggregate outstanding amount in respect of the Loans (net of any cash balances in the Project Accounts) shall exceed the aggregate amount of the Reserve Capital Call Obligations. The proceeds of each collection, sale or other disposition under this Section shall be applied in accordance with Section 5.08. Iridium LLC recognizes that, by reason of certain prohibitions contained in the Securities Act of 1933, as amended, and applicable state securities laws, the Collateral Agent may be compelled, with respect to any sale of all or any part of the Collateral, to limit purchasers to those who will agree, among other things, to acquire the Collateral for their own account, for investment and not with a view to the distribution or resale thereof. Iridium LLC acknowledges that any such private sales may be at prices and on terms less favorable to the Collateral Agent than those obtainable through a public sale without such restrictions, and, notwithstanding such circumstances, agrees that any such private sale shall be deemed to have Parent Security Agreement 20 - 20 - been made in a commercially reasonable manner and that the Collateral Agent shall have no obligation to engage in public sales and no obligation to delay the sale of any Collateral for the period of time necessary to permit Iridium LLC or the issuer of such Collateral to register it for public sale. SECTION 5.06. Removals, Etc. Without at least 30 days' prior written notice to the Collateral Agent, Iridium LLC shall not (i) maintain any of its books and records with respect to the Collateral at any office or maintain its principal place of business at any place other than at the address indicated beneath its signature hereto or (ii) change its corporate name, or the name under which it does business, from the name shown on the signature pages hereto. SECTION 5.07. Private Sale. No Secured Party shall incur any liability as a result of the sale of the Collateral, or any part thereof, at any private sale pursuant to Section 5.05 conducted in a commercially reasonable manner. Iridium LLC hereby waives any claims against the Secured Parties arising by reason of the fact that the price at which the Collateral may have been sold at such a private sale was less than the price that might have been obtained at a public sale or was less than the aggregate amount of the Secured Obligations, even if the Collateral Agent accepts the first offer received and does not offer Collateral to more than one offeree. SECTION 5.08. Application of Proceeds. Except as otherwise herein expressly provided, the proceeds of any collection, sale or other realization of all or any part of the Collateral pursuant hereto, and any other cash at the time held by the Collateral Agent under this Agreement, shall be applied by the Collateral Agent: First, to the payment of the costs and expenses of such collection, sale or other realization, including reasonable out-of-pocket costs and expenses of the Collateral Agent and the reasonable fees and expenses of its agents and counsel, and all reasonable expenses incurred and advances made by the Collateral Agent in connection therewith; Next, to the payment in full of the Secured Obligations, in each case equally and ratably in accordance with the respective amounts thereof then due and owing or as the Lenders holding the same may otherwise agree; and Finally, to the payment to Iridium LLC, or its successors or assigns, or as a court of competent jurisdiction may direct, of any surplus then remaining. Parent Security Agreement 21 - 21 - As used in this Article V, "proceeds" of Collateral shall mean cash, securities and other property realized in respect of, and distributions in kind of, the Collateral, including any thereof received under any reorganization, liquidation or adjustment of debt of Iridium LLC or any issuer of or obligor on any of the Collateral. SECTION 5.09. Attorney-in-Fact. Without limiting any rights or powers granted by this Agreement to the Collateral Agent while no Event of Default has occurred and is continuing, upon the occurrence and during the continuance of any Event of Default the Collateral Agent is hereby appointed the attorney-in-fact of Iridium LLC for the purpose of carrying out the provisions hereof and taking any action and executing any instruments that the Collateral Agent may reasonably deem necessary or advisable to accomplish the purposes hereof, which appointment as attorney-in-fact is irrevocable and coupled with an interest. Without limiting the generality of the foregoing, so long as the Collateral Agent shall be entitled under this Article to make collections in respect of the Collateral, the Collateral Agent shall have the right and power to receive, endorse and collect all checks made payable to the order of Iridium LLC representing any dividend, payment or other distribution in respect of the Collateral or any part thereof and to give full discharge for the same. SECTION 5.10. Perfection. Prior to or concurrently with the execution and delivery of this Agreement, Iridium LLC shall take such action, including without limitation filing UCC financing statements, establishing control arrangements (within the meaning of Article 8 of the UCC) and delivering to the Collateral Agent any certificates representing the Collateral (accompanied by undated stock or transfer powers duly executed in blank) as the Collateral Agent may reasonably request to perfect the security interests granted pursuant to Section 3.01. SECTION 5.11. Termination. When all Secured Obligations shall have been paid in full and the Commitments of the Lenders under the Credit Agreement shall have expired or been terminated, this Agreement shall terminate and all rights to the Collateral shall revert to Iridium LLC, and the Collateral Agent shall forthwith cause to be assigned, transferred and delivered, against receipt but without any recourse, warranty or representation whatsoever, any remaining Collateral and money received in respect thereof, to or on the order of Iridium LLC. SECTION 5.12. Further Assurances. Iridium LLC agrees that, from time to time upon the written request of the Collateral Agent, Iridium LLC will execute and deliver such further documents and do such other acts and things as the Collateral Agent may reasonably request in order fully to effect the purposes of this Agreement. Parent Security Agreement 22 - 22 - ARTICLE VI CONSENT AND AGREEMENT Iridium LLC hereby acknowledges and agrees: SECTION 6.01. Iridium LLC hereby acknowledges notice and receipt of the Security Agreement and consents to the assignment by the Company of all its rights in and under the Management Services Agreement pursuant to the Security Agreement. SECTION 6.02. In connection with any exercise by the Collateral Agent of any of its remedies under the Security Agreement, the Collateral Agent shall be entitled to exercise any and all rights of the Company under the Management Services Agreement in accordance with its terms, and Iridium LLC shall comply in all respects with such exercise. Without limiting the foregoing, in connection with the exercise by the Collateral Agent of such remedies, the Collateral Agent shall have the full right and power to enforce directly against Iridium LLC all obligations of Iridium LLC owing to the Company under the Management Services Agreement and otherwise to exercise all remedies of the Company thereunder and to make all demands and give all notices and make all requests required or permitted to be made by the Company under the Management Services Agreement. The Collateral Agent shall have the right, but not the obligation, to cure all defaults of the Company and to pay all sums owing by the Company under the Management Services Agreement in accordance with this Article. SECTION 6.03. Iridium LLC will not, without the prior written consent of the Collateral Agent, (i) cancel or terminate, or suspend performance under, or exercise any right to consent to or accept any cancellation, termination or suspension of, the Management Services Agreement, unless prior thereto Iridium LLC shall have delivered to the Collateral Agent written notice stating that it intends to take such action on a date not less than 90 days after the date of such notice, specifying the nature of the default or other event under the Management Services Agreement entitling Iridium LLC to take such action (and, in the case of a payment default by the Company, specifying the amount thereof) and permitting the Collateral Agent to cure such payment default by making a payment equal to the amount in default or by performing or causing to be performed any other obligation in default, (ii) transfer, sell, assign, delegate or otherwise dispose of any part of its interests in the Management Services Agreement, or (iii) petition, request or take any other legal or administrative action which seeks, or may reasonably be expected, to rescind, terminate or suspend or amend or modify the Management Services Agreement or any part thereof in any manner prohibited by clause (i) or (ii) above. In furtherance of clause (i) of the immediately preceding sentence, Iridium LLC agrees that, notwithstanding anything contained in the Management Services Agreement to the contrary, upon the occurrence of a default by the Parent Security Agreement 23 - 23 - Company under such Management Services Agreement entitling Iridium LLC to cancel or terminate such Management Services Agreement or to suspend performance thereunder, Iridium LLC will not take any action to cancel or terminate, or suspend performance under, such Management Services Agreement if, within a 90-day period after the date on which the Collateral Agent shall have received notice of such default from Iridium LLC, the Collateral Agent commences steps to cure such default and/or otherwise to institute enforcement proceedings to acquire the Company's interest in the Management Services Agreement or the Project and thereafter the Collateral Agent diligently pursues such steps or proceedings and all payment defaults of the Company under the Management Services Agreement have been cured within such 90-day period. Effective upon any transfer of the Company's interest in the Management Services Agreement to any other Person, Iridium LLC will grant the relevant transferee a reasonable period of time to cure such default (but, in no event with respect to any payment default, exceeding a maximum of 90 days after receipt of notice of such payment default by the Collateral Agent, as contemplated above). Except as provided in Section 6.05, no curing or attempt to cure any of the Company's defaults under the Management Services Agreement shall be construed as an assumption by the Collateral Agent or any other Secured Party of any covenants, agreements or obligations of the Company under the Management Services Agreement and neither the Collateral Agent nor any other Secured Party shall have any obligation to Iridium LLC for the performance of any obligation under the Management Services Agreement. In connection with any cure pursuant to this Section of the Company's default(s) under the Management Services Agreement or any assumption by any Person of the Company's liabilities thereunder, only those obligations and liabilities arising expressly under the Management Services Agreement shall be required to be cured or assumed, as the case may be. Notwithstanding anything in this Agreement to the contrary, no provision of this Agreement shall be intended to restrict in any way any merger or consolidation to which Iridium LLC is a party or the sale of all or substantially all of the assets of Iridium LLC and its Subsidiaries, provided that, in connection with any such transaction, if Iridium LLC is not the surviving entity of such transaction, the surviving entity or purchaser, as the case may be, expressly assumes in writing the obligations of Iridium LLC under the Management Services Agreement. Notwithstanding anything herein to the contrary, the restrictions under this Article shall not apply to any of the arrangements between Iridium LLC and IWCL as set forth in the Management Services Agreement. SECTION 6.04. Iridium LLC shall deliver to the Administrative Agent at the address provided for in Section 11.01 of the Credit Agreement, or at such other address as the Administrative Agent may designate in writing from time to time to Iridium LLC, promptly following the delivery thereof to the Company, a copy of each material notice from Iridium LLC to the Company under the Management Services Agreement other than periodic demands for payment not then overdue. Promptly following its receipt thereof, Iridium LLC will Parent Security Agreement 24 - 24 - deliver to the Administrative Agent at the address specified above a copy of each material notice from the Company to Iridium LLC under the Management Services Agreement. SECTION 6.05. Iridium LLC agrees that, in connection with the exercise by the Collateral Agent of its remedies under the Security Agreement with respect to the Management Services Agreement, Iridium LLC shall recognize the Collateral Agent as the Company for purposes of the Management Services Agreement in accordance with this Agreement. In the event that the Collateral Agent succeeds to the Company's interests under the Management Services Agreement in accordance with the Security Agreement, the Collateral Agent shall assume liability for all of the Company's obligations under the Management Services Agreement, provided, however, that such liability shall not include any liability for claims of Iridium LLC against the Company arising from the Company's failure to perform during the period prior to the Collateral Agent's succession to the Company's interests under the Management Services Agreement other than the payments obligations of the Company expressly provided for in the Management Services Agreement. Except as otherwise set forth in the immediately preceding sentence, none of the Secured Parties shall be liable for the performance or observance or any of the obligations or duties of the Company under any of the Management Services Agreement, nor shall the assignment of the Management Services Agreement by the Company to the Collateral Agent pursuant to the Security Agreement give rise to any duties or obligations whatsoever on the part of any of the Secured Parties owing to Iridium LLC. If the Collateral Agent succeeds to the Company's interests under the Management Services Agreement pursuant to the Security Agreement, Iridium LLC and the Collateral Agent shall negotiate in good faith an equitable adjustment to the amounts payable thereunder to compensate Iridium LLC for any additional costs reasonably incurred by Iridium LLC following the failure of the Company to perform its obligations that resulted in the enforcement by the Collateral Agent of its remedies under the Security Agreement until the date on which the Collateral Agent shall have assumed the obligations of the Company under the Management Services Agreement. Notwithstanding the foregoing, Iridium LLC shall not be relieved of its obligations to perform under the Management Services Agreement as a result of the parties' failure to agree upon an equitable adjustment to the amounts payable thereunder. SECTION 6.06. In the event that (i) the Management Services Agreement is rejected by a trustee, liquidator, debtor-in-possession or similar entity or person in any bankruptcy, insolvency or other similar proceeding involving the Company or (ii) the Management Services Agreement is terminated as a result of any bankruptcy, insolvency or similar proceeding involving the Company and, if within 90 days after such rejection, the Collateral Agent shall so request and shall certify in writing to Iridium LLC that it intends to perform the obligations of the Company as and to the extent required under the Management Services Agreement (as if it had not been rejected or terminated, but otherwise only to the extent such obligations would be undertaken had such person or entity succeeded to the Parent Security Agreement 25 - 25 - Company thereunder pursuant to Section 6.07, Iridium LLC will execute and deliver to the Collateral Agent a new agreement amending or replacing the original affected Management Services Agreement which shall be for the balance of the remaining term under such affected Management Services Agreement before giving effect to such rejection or termination and shall contain the same conditions, agreements, terms, provisions and limitations as such affected Management Services Agreement (except for any requirements which have been fulfilled by the Company and Iridium LLC prior to such rejection or termination or which are not required to be undertaken by such person or entity). If the Collateral Agent and Iridium LLC enter into such a new agreement in accordance with this Section, Iridium LLC and the Collateral Agent shall negotiate in good faith an equitable adjustment to the amounts payable thereunder to compensate Iridium LLC for any additional costs reasonably incurred by Iridium LLC during the period from and including the date such bankruptcy, insolvency or similar proceeding was commenced to and including the date on which the Collateral Agent shall certify in writing that it intends to perform the obligations of the Company with respect to such new agreement. Notwithstanding the foregoing provisions, Iridium LLC shall not be relieved of its obligations to perform under such new agreement as result of the parties' failure to agree upon such an equitable adjustment. References in this Agreement to a "Management Services Agreement" shall be deemed also to refer to the new Management Services Agreement in replacement thereof. SECTION 6.07. In connection with the exercise by the Collateral Agent of its remedies under the Security Agreement, the Collateral Agent may assign its rights and interests and the rights and interests of the Company under the Management Services Agreement to any other Person, provided that such Person shall assume all of the obligations of the Company under the Management Services Agreement(s) and shall have obtained all Government Approvals (if any) necessary to perform such obligations. Upon such assignment and assumption, the Collateral Agent shall be relieved of all obligations (if any) under the Management Services Agreement(s) arising after such assignment and assumption. SECTION 6.08. Designees and Transferees. It is acknowledged and agreed that the Collateral Agent may employ agents and attorneys-in-fact in exercising its remedies under the Security Agreement, and in that connection may designate another entity to take action on behalf of the Collateral Agent including, but not limited to, the enforcement of and/or acquisition of the Company's rights in the Management Services Agreement or otherwise in respect of the Project. It is further acknowledged and agreed that in connection with the exercise by the Collateral Agent of such remedies, the Collateral Agent may cause the Company's rights in any or all of the Management Services Agreement (and/or other assets associated with the Project) to be transferred or assigned to a third party pursuant to the Security Agreement (a "transferee"). The provisions of this Article are intended to benefit the Collateral Agent, its agents, attorneys-in-fact and designees (collectively, the "designees") and Parent Security Agreement 26 - 26 - each transferee. Accordingly, unless the context otherwise requires, references to "Collateral Agent" or "Administrative Agent" in this Article shall be deemed to include references to designees and transferees thereof permitted pursuant to the Security Agreement (regardless of whether so expressly provided herein), and all actions permitted to be taken by the Collateral Agent or the Administrative Agent, as the case may be, under this Agreement may be taken by any such designee or transferee, as appropriate. ARTICLE VII MISCELLANEOUS SECTION 7.01. No Waiver. No failure on the part of the Collateral Agent or any other Secured Party to exercise, and no course of dealing with respect to, and no delay in exercising, any right, power or remedy hereunder shall operate as a waiver thereof; nor shall any single or partial exercise by the Collateral Agent or any other Secured Party of any right, power or remedy hereunder preclude any other or further exercise thereof or the exercise of any other right, power or remedy. The remedies herein are cumulative and are not exclusive of any remedies provided by law. SECTION 7.02. Notices. All notices, requests, consents and demands hereunder shall be in writing and telecopied or delivered to the intended recipient at the "Address for Notices" specified beneath its name on the signature pages hereof or, as to any party, at such other address as shall be designated by such party in a notice to each other party. Except as otherwise provided in this Agreement, all such communications shall be deemed to have been duly given when transmitted by telecopier or personally delivered or, in the case of a mailed notice, upon receipt, in each case given or addressed as aforesaid. SECTION 7.03. Expenses. Iridium LLC agrees to reimburse each of the Lenders and the Collateral Agent for all reasonable costs and expenses of the Lenders and the Collateral Agent (including, without limitation, the reasonable fees and expenses of legal counsel) in connection with (a) any Event of Default and any enforcement or collection proceeding resulting therefrom, including, without limitation, all manner of participation in or other involvement with (i) performance by the Collateral Agent of any obligations of Iridium LLC in respect of the Collateral that Iridium LLC have failed or refused to perform, (ii) bankruptcy, insolvency, receivership, foreclosure, winding up or liquidation proceedings, or any actual or attempted sale, or any exchange, enforcement, collection, compromise or settlement in respect of any of the Collateral, and for the care of the Collateral and defending or asserting rights and claims of the Collateral Agent in respect thereof, by litigation or otherwise, (iii) judicial or regulatory proceedings and (iv) workout, restructuring or other negotiations or proceedings (whether or not the workout, restructuring or transaction Parent Security Agreement 27 - 27 - contemplated thereby is consummated) and (b) the enforcement of this Section, and all such costs and expenses shall be Secured Obligations entitled to the benefits of the collateral security provided pursuant to Section 3.01. SECTION 7.04. Amendments, Etc. The terms of this Agreement may be waived, altered or amended only by an instrument in writing duly executed by Iridium LLC and the Collateral Agent. Any such amendment or waiver shall be binding upon the Collateral Agent, each other Secured Party and Iridium LLC. SECTION 7.05. Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of the respective successors and assigns of Iridium LLC, the Collateral Agent and each other Secured Party, provided, however, that Iridium LLC shall not assign or transfer its rights hereunder without the prior written consent of the Collateral Agent. SECTION 7.06. Captions. The caption and section headings used herein are for convenience of reference only, are not part of this Agreement and shall not affect the construction of, or be taken into consideration in interpreting, this Agreement. SECTION 7.07. Counterparts. This Agreement may be executed in counterparts (and by different parties hereto on different counterparts), each of which shall constitute an original, but all of which when taken together shall constitute a single contract. SECTION 7.08. Governing Law; Jurisdiction; Consent to Service of Process. (a) This Agreement shall be construed in accordance with and governed by the law of the State of New York. (b) Iridium LLC hereby irrevocably and unconditionally submits, for itself and its property, to the nonexclusive jurisdiction of the Supreme Court of the State of New York sitting in New York County and of the United States District Court of the Southern District of New York, and any appellate court from any thereof, in any action or proceeding arising out of or relating to this Agreement, or for recognition or enforcement of any judgment, and each of the parties hereto hereby irrevocably and unconditionally agrees that all claims in respect of any such action or proceeding may be heard and determined in such New York State or, to the extent permitted by law, in such Federal court. Each of the parties hereto agrees that a final judgment in any such action or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by law. Nothing in this Agreement shall affect any right that the Collateral Agent or any other Secured Party may otherwise have to bring any action or proceeding relating to this Agreement against Iridium LLC or its properties in the courts of any jurisdiction. Parent Security Agreement 28 - 28 - (c) Iridium LLC hereby irrevocably appoints CT Corporation (the "Process Agent") with an office on the date hereof at 1633 Broadway New York, New York 10019 as its agent to receive on behalf of it and its property service of copies of the summons and complaint and any other process which may be served in any such suit, action or proceeding. Such service may be made by mailing or delivering a copy of such process to Iridium LLC, in care of the Process Agent at the Process Agent's above address and Iridium LLC hereby irrevocably authorizes and directs the Process Agent to receive such service on its behalf. The Administrative Agent and each Lender agree to mail to Iridium LLC at its address provided under Section 7.02 a copy of any summons, complaint, or other process mailed or delivered by it to Iridium LLC in care of the Process Agent. As an alternate method of service, Iridium LLC also irrevocably consents to the service of any and all process in any such suit, action or proceeding by mailing of copies of such process to it at its address provided under Section 7.02. All mailings under this Section shall be by certified mail, return receipt requested. Nothing in this Agreement will affect the right of any party to this Agreement to serve process in any other manner permitted by law. (d) Iridium LLC hereby irrevocably and unconditionally waives, to the fullest extent it may legally and effectively do so, any objection which it may now or hereafter have to the laying of venue of any suit, action or proceeding arising out of or relating to this Agreement in any court referred to in paragraph (b) of this Section. Each of the parties hereto hereby irrevocably waives, to the fullest extent permitted by law, the defense of an inconvenient forum to the maintenance of such action or proceeding in any such court. (e) To the extent that Iridium LLC may be or become entitled, in any jurisdiction in which judicial proceedings may at any time be commenced with respect to this Agreement, to claim for itself or its property or revenues any immunity from suit, court jurisdiction, attachment prior to judgment, attachment in aid of execution of a judgment, execution of a judgment or from any other legal process or remedy relating to its obligations under this Agreement and to the extent that in any such jurisdiction there may be attributed such an immunity (whether or not claimed), Iridium LLC hereby irrevocably agrees not to claim and hereby irrevocably waives such immunity to the fullest extent permitted by the laws of such jurisdiction. SECTION 7.09. WAIVER OF JURY TRIAL. EACH PARTY HERETO HEREBY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN ANY LEGAL PROCEEDING DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY (WHETHER BASED ON CONTRACT, TORT OR ANY OTHER THEORY). EACH PARTY HERETO (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY Parent Security Agreement 29 - 29 - OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND (B) ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HERETO HAVE BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION. SECTION 7.10. No Third Party Beneficiaries. The agreements of the parties hereto are solely for the benefit of Iridium LLC, the Collateral Agent and the other Secured Parties, and no other Person shall have any rights hereunder. SECTION 7.11. Agents and Attorneys-in-Fact. The Collateral Agent may employ agents and attorneys-in-fact in connection herewith and shall not be responsible for the negligence or misconduct of any such agents or attorneys-in-fact selected by it in good faith. SECTION 7.12. Severability. Any provision of this Agreement held to be invalid, illegal or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such invalidity, illegality or unenforceability without affecting the validity, legality and enforceability of the remaining provisions hereof; and the invalidity of a particular provision in a particular jurisdiction shall not invalidate such provision in any other jurisdiction. SECTION 7.13. Security Interest Absolute. The rights and remedies of the Collateral Agent hereunder, the Liens created hereby and the obligations of Iridium LLC hereunder are absolute, irrevocable and unconditional, irrespective of: (a) the validity or enforceability of any of the Secured Obligations, any LLC Agreement, any Credit Document or any other agreement or instrument relating thereto (other than this Agreement); (b) any amendment to, waiver of, consent to or departure from, or failure to exercise any right, remedy, power or privileges under or in respect of, any of the Secured Obligations, any LLC Agreement, any Credit Document or any other agreement or instrument relating thereto (other than this Agreement); (c) the acceleration of the maturity of any of the Secured Obligations or any other modification of the time of payment thereof; (d) any substitution, release or exchange of any other security for or guarantee of any of the Secured Obligations or the failure to create, preserve, validate, Parent Security Agreement 30 - 30 - perfect or protect any other Lien granted to, or purported to be granted to, or in favor of, the Collateral Agent or any other Secured Party; or (e) any other event or circumstance whatsoever which might otherwise constitute a legal or equitable discharge of a surety or a guarantor, it being the intent of this Section that the obligations of Iridium LLC hereunder shall be absolute, irrevocable and unconditional under any and all circumstances. SECTION 7.14. Subrogation. Iridium LLC shall not exercise, and hereby irrevocably waives, any claim, right or remedy that it may now have or may hereafter acquire against the Company arising under or in connection with this Agreement, including, without limitation, any claim, right or remedy of subrogation, contribution, reimbursement, exoneration, indemnification or participation arising under contract, by Government Rule or otherwise in any claim, right or remedy of the Collateral Agent or any other Secured Party against the Company or any other Person or any Collateral which the Collateral Agent or any other Secured Party may now have or may hereafter acquire until such time as all of the Secured Obligations have been paid in full. If, notwithstanding the preceding sentence, any amount shall be paid to Iridium LLC on account of such claim, right or remedy at any time when any of the Secured Obligations shall not have been paid in full, such amount shall be held by Iridium LLC in trust for the Collateral Agent and the other Secured Parties, segregated from other funds of Iridium LLC, and be turned over to the Collateral Agent in the exact form received by Iridium LLC (duly endorsed by Iridium LLC to the Collateral Agent, if required), to be applied against the Secured Obligations, whether matured or unmatured, in accordance with this Agreement. SECTION 7.15. Reinstatement. This Agreement and the Lien created hereunder shall automatically be reinstated if and to the extent that for any reason any payment by or on behalf of the Company in respect of the Secured Obligations is rescinded or must otherwise be restored by any holder of the Secured Obligations, whether as a result of any proceedings in bankruptcy or reorganization or otherwise, and Iridium LLC shall indemnify the Collateral Agent and each other Secured Party on demand for all reasonable costs and expenses (including, without limitation, reasonable fees of counsel) incurred by the Collateral Agent or such other Secured Party in connection with such rescission or restoration. SECTION 7.16. FCC Approval. Notwithstanding any other provision of this Agreement, from and after the transfer of the FCC License to the Company or any of its Subsidiaries pursuant to Section 18.H of the Space System Contract, no action shall be taken hereunder by the Collateral Agent or any other Secured Party with respect to any of the membership interests of the Company that would constitute or result in any assignment of the FCC License or any change of control of the holder of the FCC License, if, under then Parent Security Agreement 31 - 31 - existing applicable law, regulations and FCC policies, such assignment or change of control would require the prior approval of the FCC. Iridium LLC agrees to take, at its expense, any action that the Collateral Agent may reasonably request in order to obtain from the FCC such approval as may be necessary (a) to enable the Collateral Agent to exercise and enjoy the full rights and benefits granted to the Collateral Agent by this Agreement and (b) for any action or transaction contemplated by this Agreement for which such approval is or shall be required by law, and specifically, without limitation, upon request by the Collateral Agent, to prepare, sign and file with the FCC the assignor's or transferor's portion of any application or applications for consent to the assignment of any license or transfer of control necessary or appropriate under the FCC's rules, regulations and policies, or for approval of any sale of the membership interests of the Company provided by this Agreement by or on behalf of the Collateral Agent or any assumption by the Collateral Agent of voting rights relating thereto effected in accordance with the terms hereof. Parent Security Agreement 32 - 32 - IN WITNESS WHEREOF, the parties hereto have caused this Pledge and Security Agreement to be duly executed and delivered as of the day and year first above written. PLEDGOR IRIDIUM LLC By ________________________ Name: Title: Address for Notices: Telecopier No.: Telephone No.: Attention: Parent Security Agreement 33 - 33 - COLLATERAL AGENT THE CHASE MANHATTAN BANK, as Collateral Agent By ________________________ Name: Title: Address for Notices: The Chase Manhattan Bank, as Collateral Agent 1 Chase Manhattan Plaza 8th Floor New York, New York 10081 Attention: Loan and Agency Services Group with a copy to: The Chase Manhattan Bank 270 Park Avenue New York, New York 10017 Attention: ______________________ Parent Security Agreement 34 ANNEX 1 Membership Interests [See Section 2.05(b) and (c)] Type of Certificate Membership Number of No(s). Interests Units (if any) --------- ----- -------- Annex 1 to Parent Security Agreement Parent Security Agreement 35 SCHEDULE I Iridium LLC Members Type of Name Interests Percentage ---- --------- ---------- Schedule I Parent Security Agreement EX-10.34 14 FORM OF SUBSIDIARY GUARANTEE AGREEMENT 1 EXHIBIT 10.34 (EXHIBIT D TO THE CREDIT AGREEMENT) SUBSIDIARY GUARANTEE AGREEMENT GUARANTEE AGREEMENT dated as of [__________, 199_] between: each of the entities identified under the caption "SUBSIDIARY GUARANTOR" on the signature pages hereto or which shall become a Subsidiary Guarantor for purposes hereof pursuant to Section 6.11 of the Credit Agreement referred to below (each individually, a "Subsidiary Guarantor" and, collectively, the "Subsidiary Guarantors"); and THE CHASE MANHATTAN BANK, as administrative agent for the lenders party to the Credit Agreement referred to below (in such capacity, together with its successors in such capacity, the "Administrative Agent"). Iridium Operating LLC, a Delaware limited liability company (the "Company"), certain lenders, the Administrative Agent, The Chase Manhattan Bank, as Collateral Agent, and Barclays Capital, the investment banking division of Barclays Bank PLC, as Documentation Agent are parties to a Credit Agreement dated as of December 19, 1997 (as modified, supplemented or otherwise modified and in effect from time to time, the "Credit Agreement"), providing, subject to the terms and conditions thereof, for loans to be made by said lenders to the Company in an aggregate principal amount not exceeding $1,000,000,000. To induce said lenders to enter into the Credit Agreement and to extend credit thereunder, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, each Subsidiary Guarantor has agreed to guarantee the Guaranteed Obligations (as hereinafter defined). Accordingly, the parties hereto agree as follows: ARTICLE I DEFINITIONS SECTION 1.01. Defined Terms. Capitalized terms used but not defined herein shall have their respective defined meanings in the Credit Agreement. SECTION 1.02. Terms Generally. The definitions of terms herein shall apply equally to the singular and plural forms of the terms defined. Whenever the context may require, any pronoun shall include the corresponding masculine, feminine and neuter forms. The words "include", "includes" and "including" shall be deemed to be followed by the phrase "without limitation". The word "will" shall be construed to have the same meaning and effect as the word "shall". Unless the context requires otherwise (a) any definition of or reference to any agreement, instrument or other document herein shall be construed as referring to such agreement, instrument or other document as from time to time amended, supplemented or otherwise modified, including an amendment and restatement thereof, but subject to any restrictions on such amendments, Subsidiary Guarantee Agreement 2 - 2 - supplements or modifications set forth herein, (b) any reference herein to any Person shall be construed to include such Person's successors and assigns or, in the case of any Governmental Authority, any entity succeeding to any or all of the functions of such Governmental Authority, (c) the words "herein", "hereof" and "hereunder", and words of similar import, shall be construed to refer to this Agreement in its entirety and not to any particular provision hereof, (d) all references herein to Articles and Sections shall be construed to refer to Articles and Sections of this Agreement and (e) the words "asset" and "property" shall be construed to have the same meaning and effect and to refer to any and all tangible and intangible assets and properties, including cash, securities, accounts and contract rights. ARTICLE II GUARANTEE SECTION 2.01. The Guarantee. The Subsidiary Guarantors hereby jointly and severally guarantee to each Lender and each Agent and their respective successors and assigns the prompt payment in full when due (whether at stated maturity, by acceleration or otherwise) of the principal of and interest on the Loans made by the Lenders to the Company and all other amounts from time to time owing to the Lenders or the Agents by the Company under the Credit Agreement and the other Credit Document, in each case strictly in accordance with the terms thereof (such obligations being herein collectively called the "Guaranteed Obligations"). The Subsidiary Guarantors hereby further jointly and severally agree that if the Company shall fail to pay in full when due (whether at stated maturity, by acceleration or otherwise) any of the Guaranteed Obligations, the Subsidiary Guarantors will promptly pay the same, without any demand or notice whatsoever, and that in the case of any extension of time of payment or renewal of any of the Guaranteed Obligations, the same will be promptly paid in full when due (whether at extended maturity, by acceleration or otherwise) in accordance with the terms of such extension or renewal. SECTION 2.02. Obligations Unconditional. The obligations of the Subsidiary Guarantors under Section 2.01 are absolute and unconditional, joint and several, irrespective of the value, genuineness, validity, regularity or enforceability of the Credit Agreement, any other Credit Document or any other agreement or instrument referred to herein or therein, or any substitution, release or exchange of any other guarantee of or security for any of the Guaranteed Obligations, and, to the fullest extent permitted by applicable law, irrespective of any other circumstance whatsoever that might otherwise constitute a legal or equitable discharge or defense of a surety or guarantor, it being the intent of this Article II that the obligations of the Subsidiary Guarantors hereunder shall be absolute and unconditional, joint and several, under any and all circumstances. Without limiting the generality of the foregoing, it is agreed that the occurrence of Subsidiary Guarantee Agreement 3 - 3 - any one or more of the following shall not alter or impair the liability of the Subsidiary Guarantors hereunder which shall remain absolute and unconditional as described above: (i) at any time or from time to time, without notice to the Subsidiary Guarantors, the time for any performance of or compliance with any of the Guaranteed Obligations shall be extended, or such performance or compliance shall be waived; (ii) any of the acts mentioned in any of the provisions of the Credit Agreement, any other Credit Document or any other agreement or instrument referred to herein or therein shall be done or omitted; (iii) the maturity of any of the Guaranteed Obligations shall be accelerated, or any of the Guaranteed Obligations shall be modified, supplemented or amended in any respect, or any right under the Credit Agreement, any other Credit Document or any other agreement or instrument referred to herein or therein shall be waived or any other guarantee of any of the Guaranteed Obligations or any security therefor shall be released or exchanged in whole or in part or otherwise dealt with; or (iv) any lien or security interest granted to, or in favor of, any Agent or any Lender or Lenders as security for any of the Guaranteed Obligations shall fail to be perfected. The Subsidiary Guarantors hereby expressly waive diligence, presentment, demand of payment, protest and all notices whatsoever, and any requirement that any Agent or Lender exhaust any right, power or remedy or proceed against the Company under the Credit Agreement, any other Credit Document or any other agreement or instrument referred to herein or therein, or against any other Person under any other guarantee of, or security for, any of the Guaranteed Obligations. SECTION 2.03. Reinstatement. The obligations of the Subsidiary Guarantors under this Article II shall be automatically reinstated if and to the extent that for any reason any payment by or on behalf of the Company in respect of the Guaranteed Obligations is rescinded or must be otherwise restored by any holder of any of the Guaranteed Obligations, whether as a result of any proceedings in bankruptcy or reorganization or otherwise, and the Subsidiary Guarantors jointly and severally agree that they will indemnify the Administrative Agent and each Lender on demand for all reasonable costs and expenses (including, without limitation, fees of counsel) incurred by the Administrative Agent or such Lender in connection with such rescission or restoration, including any such costs and expenses incurred in defending against any claim alleging that such payment constituted a preference, fraudulent transfer or similar payment under any bankruptcy, insolvency or similar law. Subsidiary Guarantee Agreement 4 - 4 - SECTION 2.04. Subrogation. The Subsidiary Guarantors hereby jointly and severally agree that until the payment and satisfaction in full of all Guaranteed Obligations and the expiration or termination of the Commitments of the Lenders under the Credit Agreement they shall not exercise any right or remedy arising by reason of any performance by them of their guarantee in Section 2.01, whether by subrogation or otherwise, against the Company or any other guarantor of any of the Guaranteed Obligations or any security for any of the Guaranteed Obligations. SECTION 2.05. Remedies. The Subsidiary Guarantors jointly and severally agree that, as between the Subsidiary Guarantors and the Lenders, the obligations of the Company under the Credit Agreement may be declared to be forthwith due and payable as provided in Article IX of the Credit Agreement (and shall be deemed to have become automatically due and payable in the circumstances provided in said Article IX) for purposes of Section 2.01 notwithstanding any stay, injunction or other prohibition preventing such declaration (or such obligations from becoming automatically due and payable) as against the Company and that, in the event of such declaration (or such obligations being deemed to have become automatically due and payable), such obligations (whether or not due and payable by the Company) shall forthwith become due and payable by the Subsidiary Guarantors for purposes of Section 2.01. SECTION 2.06. Instrument for the Payment of Money. Each Subsidiary Guarantor hereby acknowledges that the guarantee in this Article II constitutes an instrument for the payment of money, and consents and agrees that any Lender or the Administrative Agent, at its sole option, in the event of a dispute by such Subsidiary Guarantor in the payment of any moneys due hereunder, shall have the right to bring motion-action under New York CPLR Section 3213. SECTION 2.07. Continuing Guarantee. The guarantee in this Article II is a continuing guarantee, and shall apply to all Guaranteed Obligations whenever arising. SECTION 2.08. Rights of Contribution. The Subsidiary Guarantors hereby agree, as between themselves, that if any Subsidiary Guarantor shall become an Excess Funding Subsidiary Guarantor (as defined below) by reason of the payment by such Subsidiary Guarantor of any Guaranteed Obligations, each other Subsidiary Guarantor shall, on demand of such Excess Funding Subsidiary Guarantor (but subject to the next sentence), pay to such Excess Funding Subsidiary Guarantor an amount equal to such Subsidiary Guarantor's Pro Rata Share (as defined below and determined, for this purpose, without reference to the Properties, debts and liabilities of such Excess Funding Subsidiary Guarantor) of the Excess Payment (as defined below) in respect of such Guaranteed Obligations. The payment obligation of a Subsidiary Guarantor to any Excess Funding Subsidiary Guarantor under this Section shall be subordinate and subject in Subsidiary Guarantee Agreement 5 - 5 - right of payment to the prior payment in full of the obligations of such Subsidiary Guarantor under the other provisions of this Article II and such Excess Funding Subsidiary Guarantor shall not exercise any right or remedy with respect to such excess until payment and satisfaction in full of all of such obligations. For purposes of this Section, (i) "Excess Funding Subsidiary Guarantor" shall mean, in respect of any Guaranteed Obligations, a Subsidiary Guarantor that has paid an amount in excess of its Pro Rata Share of such Guaranteed Obligations, (ii) "Excess Payment" shall mean, in respect of any Guaranteed Obligations, the amount paid by an Excess Funding Subsidiary Guarantor in excess of its Pro Rata Share of such Guaranteed Obligations and (iii) "Pro Rata Share" shall mean, for any Subsidiary Guarantor, the ratio (expressed as a percentage) of (x) the amount by which the aggregate fair saleable value of all Properties of such Subsidiary Guarantor (excluding any shares of stock of any other Subsidiary Guarantor) exceeds the amount of all the debts and liabilities of such Subsidiary Guarantor (including contingent, subordinated, unmatured and unliquidated liabilities, but excluding the obligations of such Subsidiary Guarantor hereunder and any obligations of any other Subsidiary Guarantor that have been Guaranteed by such Subsidiary Guarantor) to (y) the amount by which the aggregate fair saleable value of all Properties of all of the Subsidiary Guarantors exceeds the amount of all the debts and liabilities (including contingent, subordinated, unmatured and unliquidated liabilities, but excluding the obligations of the Subsidiary Guarantors hereunder) of all of the Subsidiary Guarantors, determined (A) with respect to any Subsidiary Guarantor that is a party hereto on the date hereof, as of the date hereof, and (B) with respect to any other Subsidiary Guarantor, as of the date such Subsidiary Guarantor becomes a Subsidiary Guarantor hereunder. SECTION 2.09. General Limitation on Guarantee Obligations. In any action or proceeding involving any state corporate law, or any state or Federal bankruptcy, insolvency, reorganization or other law affecting the rights of creditors generally, if the obligations of any Subsidiary Guarantor under Section 2.01 would otherwise, taking into account the provisions of Section 2.08, be held or determined to be void, invalid or unenforceable, or subordinated to the claims of any other creditors, on account of the amount of its liability under Section 2.01, then, notwithstanding any other provision hereof to the contrary, the amount of such liability shall, without any further action by such Subsidiary Guarantor, the Administrative Agent, the Lenders or any other Person, be automatically limited and reduced to the highest amount that is valid and enforceable and not subordinated to the claims of other creditors as determined in such action or proceeding. ARTICLE III REPRESENTATIONS AND WARRANTIES Subsidiary Guarantee Agreement 6 - 6 - Each Subsidiary Guarantor represents and warrants to the Lenders and the Administrative Agent that: SECTION 3.01. Corporate Existence. Such Subsidiary Guarantor: (a) is a corporation, limited liability company, partnership or other entity duly organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation; (b) has all requisite corporate power to own its assets and carry on its business as now being or as proposed to be conducted; and (c) is qualified to do business and is in good standing in all jurisdictions in which the nature of the business conducted by it makes such qualification necessary and where failure so to qualify could reasonably be likely (either individually or in the aggregate) to have a Material Adverse Effect. SECTION 3.02. No Conflicts. None of the execution and delivery of this Agreement and the Security Agreement, the consummation of the transactions herein or therein contemplated or compliance with the terms and provisions hereof or thereof will conflict with or result in a breach of, or require any consent under, the charter, by-laws or other organizational documents of such Subsidiary Guarantor, or any applicable law or regulation, or any order, writ, injunction or decree of any court or governmental authority or agency, or any agreement or instrument to which such Subsidiary Guarantor is a party or by which any of them is bound or to which any of them is subject, or constitute a default under any such agreement or instrument, or result in the creation or imposition of any Lien upon any of the revenues or assets of such Subsidiary Guarantor pursuant to the terms of any such agreement or instrument. SECTION 3.03. Corporate Action. Such Subsidiary Guarantor has all necessary corporate power and authority to execute, deliver and perform its obligations under this Agreement and the Security Agreement; the execution, delivery and performance by such Subsidiary Guarantor of this Agreement and the Security Agreement have been duly authorized by all necessary corporate action on its part; and each of this Agreement and the Security Agreement has been duly and validly executed and delivered by such Subsidiary Guarantor and constitutes its legal, valid and binding obligation, enforceable in accordance with its respective terms. SECTION 3.04. Approvals. No authorizations, approvals or consents of, and no filings or registrations with, any Governmental Authority are necessary for the execution, delivery or performance by such Subsidiary Guarantor of this Agreement or the Security Agreement or for the validity or enforceability hereof or thereof. Subsidiary Guarantee Agreement 7 - 7 - ARTICLE IV MISCELLANEOUS SECTION 4.01. No Waiver. No failure on the part of the Administrative Agent or any Lender to exercise, and no course of dealing with respect to, and no delay in exercising, any right, power or remedy hereunder shall operate as a waiver thereof; nor shall any single or partial exercise by the Administrative Agent or any Lender of any right, power or remedy hereunder preclude any other or further exercise thereof or the exercise of any other right, power or remedy. The remedies herein are cumulative and are not exclusive of any remedies provided by law. SECTION 4.02. Notices. All notices, requests, consents and demands hereunder shall be in writing and telecopied or delivered to the intended recipient at its respective address specified in Section 11.01 of the Credit Agreement (or, in the case of the Subsidiary Guarantors, such address of the Company) or, as to any party, at such other address as shall be designated by such party in a notice to each other party. Except as otherwise provided in this Agreement, all such communications shall be deemed to have been duly given when transmitted by telecopier or personally delivered or, in the case of a mailed notice, upon receipt, in each case given or addressed as aforesaid. SECTION 4.03. Expenses. The Subsidiary Guarantors jointly and severally agree to reimburse each of the Lenders and the Administrative Agent for all reasonable costs and expenses of the Lenders and the Administrative Agent (including, without limitation, the reasonable fees and expenses of legal counsel) in connection with (i) any Event of Default and any enforcement or collection proceeding resulting therefrom, including, without limitation, all manner of participation in or other involvement with (x) bankruptcy, insolvency, receivership, foreclosure, winding up or liquidation proceedings, (y) judicial or regulatory proceedings and (z) workout, restructuring or other negotiations or proceedings (whether or not the workout, restructuring or transaction contemplated thereby is consummated) and (ii) the enforcement of this Section. SECTION 4.04. Amendments, Etc. The terms of this Agreement may be waived, altered or amended only by an instrument in writing duly executed by each Subsidiary Guarantor and the Administrative Agent. Any such amendment or waiver shall be binding upon the Administrative Agent, each Lender, each holder of any of the Guaranteed Obligations and each Subsidiary Guarantor. SECTION 4.05. Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of the respective successors and assigns of each Subsidiary Guarantor, the Subsidiary Guarantee Agreement 8 - 8 - Administrative Agent, the Lenders and each holder of any of the Guaranteed Obligations, provided, however, that no Subsidiary Guarantor shall assign or transfer its rights hereunder without the prior written consent of the Administrative Agent. SECTION 4.06. Captions. The captions and section headings used herein are for convenience of reference only, are not part of this Agreement and shall not effect construction of, or be taken into consideration, in the interpreting of this Agreement. SECTION 4.07. Counterparts. This Agreement may be executed in counterparts (and by different parties hereto on different counterparts), each of which shall constitute an original, but all of which when taken together shall constitute a single contract. SECTION 4.08. Governing Law; Jurisdiction; Consent to Service of Process. (a) This Agreement shall be construed in accordance with and governed by the law of the State of New York. (b) Each Subsidiary Guarantor hereby irrevocably and unconditionally submits, for itself and its property, to the nonexclusive jurisdiction of the Supreme Court of the State of New York sitting in New York County and of the United States District Court of the Southern District of New York, and any appellate court from any thereof, in any action or proceeding arising out of or relating to this Agreement or any other Credit Document to which it is a party, or for recognition or enforcement of any judgment, and each of the parties hereto hereby irrevocably and unconditionally agrees that all claims in respect of any such action or proceeding may be heard and determined in such New York State or, to the extent permitted by law, in such Federal court. Each of the parties hereto agrees that a final judgment in any such action or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by law. Nothing in this Agreement shall affect any right that the Administrative Agent or any Lender may otherwise have to bring any action or proceeding relating to this Agreement against any Subsidiary Guarantor or its properties in the courts of any jurisdiction. (c) Each Subsidiary Guarantor hereby irrevocably appoints CT Corporation (the "Process Agent") with an office on the date hereof at 1633 Broadway, New York, New York 10019 as its agent to receive on behalf of it and its property service of copies of the summons and complaint and any other process which may be served in any such suit, action or proceeding. Such service may be made by mailing or delivering a copy of such process to any Subsidiary Guarantor, in care of the Process Agent at the Process Agent's above address and each Subsidiary Guarantor hereby irrevocably authorizes and directs the Process Agent to receive such service on its behalf. The Administrative Agent and each Lender agree to mail to each Subsidiary Guarantor Subsidiary Guarantee Agreement 9 - 9 - at its address provided under Section 4.02 a copy of any summons, complaint, or other process mailed or delivered by it to such Subsidiary Guarantor in care of the Process Agent. As an alternate method of service, each Subsidiary Guarantor also irrevocably consents to the service of any and all process in any such suit, action or proceeding by mailing of copies of such process to it at its address provided under Section 4.02. All mailings under this Section shall be by certified mail, return receipt requested. Nothing in this Agreement will affect the right of any party to this Agreement to serve process in any other manner permitted by law. (d) Each Subsidiary Guarantor hereby irrevocably and unconditionally waives, to the fullest extent it may legally and effectively do so, any objection which it may now or hereafter have to the laying of venue of any suit, action or proceeding arising out of or relating to this Agreement in any court referred to in paragraph (b) of this Section. Each of the parties hereto hereby irrevocably waives, to the fullest extent permitted by law, the defense of an inconvenient forum to the maintenance of such action or proceeding in any such court. (e) To the extent that any Subsidiary Guarantor may be or become entitled, in any jurisdiction in which judicial proceedings may at any time be commenced with respect to this Agreement, to claim for itself or its property or revenues any immunity from suit, court jurisdiction, attachment prior to judgment, attachment in aid of execution of a judgment, execution of a judgment or from any other legal process or remedy relating to its obligations under this Agreement and to the extent that in any such jurisdiction there may be attributed such an immunity (whether or not claimed), such Subsidiary Guarantor hereby irrevocably agrees not to claim and hereby irrevocably waives such immunity to the fullest extent permitted by the laws of such jurisdiction. SECTION 4.09. WAIVER OF JURY TRIAL. EACH PARTY HERETO HEREBY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN ANY LEGAL PROCEEDING DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY (WHETHER BASED ON CONTRACT, TORT OR ANY OTHER THEORY). EACH PARTY HERETO (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND (B) ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HERETO HAVE BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION. Subsidiary Guarantee Agreement 10 - 10 - SECTION 4.10. No Third Party Beneficiaries. The agreements of the parties hereto are solely for the benefit of the Subsidiary Guarantors, the Administrative Agent and the Lenders, and no other Person (including, without limitation, any other Credit Party, any contractor, subcontractor, supplier or materialman furnishing supplies, goods or services to or for the benefit of the Project or any other creditor of the Company or any of its Subsidiaries) shall have any rights hereunder. SECTION 4.11. Severability. Any provision of this Agreement held to be invalid, illegal or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such invalidity, illegality or unenforceability without affecting the validity, legality and enforceability of the remaining provisions hereof; and the invalidity of a particular provision in a particular jurisdiction shall not invalidate such provision in any other jurisdiction. Subsidiary Guarantee Agreement 11 - 11 - IN WITNESS WHEREOF, the parties hereto have caused this Guarantee Agreement to be duly executed and delivered as of the day and year first above written. SUBSIDIARY GUARANTORS IRIDIUM CAPITAL CORPORATION By ________________________ Name: Title: IRIDIUM IP LLC By ________________________ Name: Title: IRIDIUM ROAMING LLC By ________________________ Name: Title: Subsidiary Guarantee Agreement 12 - 12 - [REPEAT FOR EACH OTHER SUBSIDIARY GUARANTOR (IF ANY):] [NAME OF GUARANTOR] By ________________________ Name: Title: Subsidiary Guarantee Agreement 13 - 13 - ADMINISTRATIVE AGENT THE CHASE MANHATTAN BANK, as Administrative Agent By ________________________ Name: Title: Subsidiary Guarantee Agreement EX-10.35 15 FORM OF SUBSIDIARY GUARANTEE ASSUMPTION AGREEMENT 1 EXHIBIT 10.35 (EXHIBIT E TO THE CREDIT AGREEMENT) [FORM OF GUARANTEE ASSUMPTION AGREEMENT] GUARANTEE ASSUMPTION AGREEMENT GUARANTEE ASSUMPTION AGREEMENT dated as of [_______________, 199_], by [_______________________], a [______________ corporation/limited liability company/partnership] (the "Additional Subsidiary Guarantor"), in favor of THE CHASE MANHATTAN BANK, as administrative agent for the lenders party to the Credit Agreement referred to below (in such capacity together with its successors in such capacity, the "Administrative Agent"). Iridium Operating LLC, a Delaware limited liability company, certain lenders named therein (the "Lenders"), the Global Arrangers, the Administrative Agent and the Documentation Agent are parties to a Credit Agreement dated as of December 19, 1997 (as modified, supplemented or otherwise modified and in effect from time to time, the "Credit Agreement", the terms defined therein and not otherwise defined herein being used as therein defined). Pursuant to Section 6.11 of the Credit Agreement, the Additional Subsidiary Guarantor hereby agrees to become a "Subsidiary Guarantor" for all purposes of the Subsidiary Guarantee Agreement, and an "Obligor" for all purposes of the Security Agreement. Without limiting the generality of the foregoing, the Additional Subsidiary Guarantor hereby, jointly and severally with the other Subsidiary Guarantors, guarantees to each Lender and each Agent and their respective successors and assigns the prompt payment in full when due (whether at stated maturity, by acceleration or otherwise) of all Guaranteed Obligations (as defined in the Subsidiary Guarantee Agreement) in the same manner and to the same extent as is provided in Article II of the Subsidiary Guarantee Agreement. In addition, the Additional Subsidiary Guarantor hereby makes the representations and warranties set forth in Article III of the Subsidiary Guarantee Agreement, and in Article II of the Security Agreement, with respect to itself and its obligations under this Agreement (with any reference in said Sections to the Credit Documents being deemed to include a reference to this Agreement). In addition, Annexes 1, 2, 3, 4, 5 and 6 to the Security Agreement shall be deemed to be supplemented in respect of the Additional Subsidiary Guarantor as specified in Appendix A hereto. Guarantee Assumption Agreement 2 - 2 - IN WITNESS WHEREOF, the Additional Subsidiary Guarantor has caused this Guarantee Assumption Agreement to be duly executed and delivered as of the day and year first above written. [ADDITIONAL SUBSIDIARY GUARANTOR] By_______________________ Title: Accepted and Agreed: THE CHASE MANHATTAN BANK, as Administrative Agent By_________________________ Title: Guarantee Assumption Agreement 3 - 3 - Appendix A to Guarantee Assumption Agreement Supplement to Annex 1: [To be completed] Supplement to Annex 2: [To be completed] Supplement to Annex 3: [To be completed] Supplement to Annex 4: [To be completed] Supplement to Annex 5: [To be completed] Supplement to Annex 6: [To be completed] Guarantee Assumption Agreement EX-10.36 16 FORM OF DEPOSITARY AGREEMENT 1 EXHIBIT 10.36 (EXHIBIT F TO THE CREDIT AGREEMENT) DEPOSIT, DISBURSEMENT AND ACCOUNT CONTROL AGREEMENT dated as of December 19, 1997 between: IRIDIUM OPERATING LLC, a Delaware limited liability company (the "Company"); THE CHASE MANHATTAN BANK ("Chase"), in its capacity as collateral agent under the Credit Agreement and the other Credit Documents referred to below (together with its successors and permitted assigns in such capacity, the "Collateral Agent"); and THE CHASE MANHATTAN BANK in its capacity as depositary bank (together with its successors in such capacity, the "Depositary Bank"). R E C I T A L S WHEREAS, the Company (as transferee of Iridium LLC) is currently developing the Iridium global mobile wireless communications system (the "Project"); WHEREAS, to finance a portion of the costs of the Project, the Company, the Global Arrangers named therein, the Lenders parties thereto, the Collateral Agent, Chase, in its capacity as the Administrative Agent, and Barclays Bank PLC, in its capacity as the Documentation Agent, have entered into the Credit Agreement dated as of December 19, 1997 (as amended, supplemented or otherwise modified and in effect from time to time, the "Credit Agreement"), providing, subject to the terms and conditions thereof, for the Lenders to make loans to the Company in an aggregate principal amount not exceeding $1,000,000,000; WHEREAS, the obligations of the Company under the Credit Agreement and the other Credit Documents (as defined in the Credit Agreement) will be secured by certain of the assets of the Company pursuant to certain of the Security Documents; WHEREAS, the Collateral Agent and the Company desire to appoint the Depositary Bank to act as depositary bank with respect to the various Project Accounts (as defined below) established with the corporate trust department of the Depositary Bank at its office at 450 West 33rd Street, 15th Floor, New York, New York 10001 pursuant to this Agreement; and WHEREAS, the Depositary Bank has agreed to establish and maintain the Project Accounts in accordance with this Agreement; NOW THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: Depositary Agreement 2 - 2 - ARTICLE I DEFINITIONS SECTION 1.01. Defined Terms. Capitalized terms used herein and not otherwise defined herein shall have the meanings assigned thereto in the Credit Agreement, whether specifically set forth therein or by reference to another document. Unless otherwise stated, any reference in this Agreement to any Person shall include its permitted successors and assigns and, in the case of any Government Authority, any Person succeeding to its functions and capacities. In addition, as used herein the following terms shall have the following respective meanings (all terms defined in this Section and in the other provisions of this Agreement in the singular to have the same meanings when used in the plural and vice versa): "Authorized Officer" means (a) with respect to the Company, any Responsible Officer the names (and specimen signatures) of which shall be specified in writing from time to time by the Company to the Depositary Bank and (b) with respect to the Collateral Agent, any officer or other representative of the Collateral Agent designated in writing to the Depositary Bank to act for the Collateral Agent for purposes of this Agreement. "General Receipt & Disbursement Account" means the account entitled "Iridium General Receipt & Disbursement Account" established and maintained by the Depositary Bank. "Iridium Clearing Account" means one or more Dollar accounts (including, without limitation, the Iridium Sub-Clearing Account) of the Company established and maintained with depository institutions that may be located in the United States of America or offshore and will be used for the purpose of settling payments due to the Company and its Subsidiaries from, and payments due by the Company and its Subsidiaries to, other parties in connection with the operation of the IRIDIUM System, all as generally contemplated by Article VI of the Gateway Authorization Agreements. "Iridium Sub-Clearing Account" means one or more accounts that are part of the Iridium Clearing Account and hold moneys paid from time to time to the Company or any of its Subsidiaries as a result of the settlement process effected through the Iridium Clearing Account. "Loss Proceeds Account" means the account entitled "Iridium Loss Proceeds Account" established and maintained by the Depositary Bank. "Permitted Investments" means: (a) 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 Depositary Agreement 3 - 3 - United States of America is pledged and which have a remaining Average Life of not more than 365 days from the date of acquisition thereof; (b) investments in commercial paper maturing not more than 270 days after the date of acquisition thereof and having, at such date of acquisition, a credit rating of at least P-1 from S&P or A-1 from Moody's (or such similar equivalent rating by at least one "nationally recognized statistical rating organization" (as defined in Rule 436 under the Securities Act of 1933, as amended)); (c) investments in certificates of deposit, banker's acceptances and time deposits maturing not more than 270 days after the date of acquisition thereof issued or guaranteed by or placed with, and money market deposit accounts issued or offered by, any commercial bank or trust company organized under the laws of the United States of America or any State thereof or any other country which is a member of the Organization for Economic Cooperation and Development, in each case which has a combined capital, surplus and undivided profits of not less than $500,000,000 or its equivalent in foreign currency, and whose debt is rated at least A- by S&P or A-3 by Moody's (or such similar equivalent rating by a "nationally recognized statistical rating organization" (as defined above); (d) repurchase obligations with a term of not more than 7 days for securities described in clause (a) of this definition and entered into with a financial institution which has a combined capital, surplus and undivided profits of not less than $500,000,000 or its equivalent in foreign currency, and whose debt is rated at least A- by from S&P or A-3 by Moody's (or such similar equivalent rating by a "nationally recognized statistical rating organization" (as defined above); and (e) any mutual or similar fund investing exclusively in Permitted Investments of the type described in clauses (a), (b) and/or (c) above. "Pre-Funding Account" means the account entitled "Iridium Pre-Funding Account" established and maintained by the Depositary Bank. "Prepayment Account" means the account entitled "Iridium Prepayment Account" established and maintained by the Depositary Bank. "Project Accounts" means the accounts specified in Section 3.01. "Responsible Officer" means the chief executive officer, chief financial officer, general counsel, any senior vice president or any vice president of the Company. Depositary Agreement 4 - 4 - "Restoration Sub-Account" means the "Iridium Restoration Sub-Account" established and maintained by the Depositary Bank. "Secured Obligations" has the meaning assigned to such term in the Security Agreement. "Termination Date" means the date on which the Collateral Agent shall advise the Depositary Bank in writing that all principal of and interest on the Loans and all other amounts owing by the Company or any of its Subsidiaries under the Credit Agreement and the other Credit Documents have been paid in full and that the Commitments have expired or terminated. SECTION 1.02. Uniform Commercial Code. As used herein, the term "UCC" shall mean the Uniform Commercial Code as in effect in the State of New York. All terms defined in the UCC shall have the respective meanings given to those terms in the UCC, except where the context otherwise requires. SECTION 1.03. Terms Generally. The definitions of terms herein shall apply equally to the singular and plural forms of the terms defined. Whenever the context may require, any pronoun shall include the corresponding masculine, feminine and neuter forms. The words "include", "includes" and "including" shall be deemed to be followed by the phrase "without limitation". The word "will" shall be construed to have the same meaning and effect as the word "shall". Unless the context requires otherwise (a) any definition of or reference to any agreement, instrument or other document herein shall be construed as referring to such agreement, instrument or other document as from time to time amended, supplemented or otherwise modified, including an amendment and restatement thereof, but subject to any restrictions on such amendments, supplements or modifications set forth herein, (b) any reference herein to any Person shall be construed to include such Person's successors and assigns or, in the case of any Government Authority, any successor or other entity that performs equivalent functions in whole or in part, (c) the words "herein", "hereof" and "hereunder", and words of similar import, shall be construed to refer to this Agreement in its entirety and not to any particular provision hereof, (d) all references herein to Articles, Sections, Exhibits and Schedules shall be construed to refer to Articles and Sections of, and Exhibits and Schedules to, this Agreement and (e) the words "asset" and "property" shall be construed to have the same meaning and effect and to refer to any and all tangible and intangible assets and properties, including cash, securities, accounts and contract rights. Depositary Agreement 5 - 5 - ARTICLE II ACCEPTANCE OF APPOINTMENT AS COLLATERAL AGENT AND DEPOSITARY BANK SECTION 2.01. Acceptance of Appointment as Collateral Agent . Chase does hereby agree to serve as Collateral Agent for the benefit of the Secured Parties under this Agreement. SECTION 2.02. Depositary Bank. (a) Acceptance of Appointment of Depositary Bank. Chase hereby agrees to act as Depositary Bank under this Agreement. The Company and the Collateral Agent hereby acknowledge and agree that the Depositary Bank shall act as Depositary Bank under this Agreement. (b) Confirmation and Agreement. The Depositary Bank acknowledges, confirms and agrees that (i) the Depositary Bank has established the Project Accounts as set forth in Section 3.01, (ii) each Project Account is a securities account, (iii) the Company is the entitlement holder of the Project Accounts other than the Pre-Funding Account, which shall be held in the name of the Collateral Agent, (iv) all cash and other property delivered to the Depositary Bank pursuant to this Agreement or the other Security Documents will be promptly credited to a Project Account, (v) all securities in registered form or payable to, or to order of a person, and credited to any Project Account shall be registered in the name of, payable to or to the order of, or specially indorsed to, the Depositary Bank or in blank, or credited to another securities account maintained in the name of the Depositary Bank, and in no case will any securities credited to any Project Account be registered in the name of, payable to or to the order of, or specially indorsed to, the Company except to the extent the foregoing have been specially indorsed by the Company to the Depositary Bank or in blank, (vi) the Depositary Bank shall promptly comply with all instructions of the Collateral Agent and, to the limited extent set forth in Section 2.03, the Company in connection with the transfer or withdrawal of amounts in the Project Accounts and (vii) the Depositary Bank shall not change the name or account number of any Project Account without the prior written consent of the Collateral Agent and at least 5 Business Days prior notice to the Company. (c) Financial Assets Election. Each of the Company, the Collateral Agent and the Depositary Bank agrees that each item of property (whether cash, a security, an instrument or obligation, share, participation, interest or any other property whatsoever) credited to any Project Account shall be treated as a financial asset under Article 8 of the UCC. (d) Entitlement Orders. Anything herein to the contrary notwithstanding, the Company irrevocably agrees that the Depositary Bank may, and the Depositary Bank agrees that Depositary Agreement 6 - 6 - it shall, comply with entitlement orders originated by the Collateral Agent and relating to any Project Account without further consent by the Company or any other Person and without regard to whether the Collateral Agent is, under the terms and conditions of this Agreement, entitled to give such entitlement orders. If there is any conflict between entitlement orders originated by the Company and entitlement orders originated by the Collateral Agent, the latter shall control. (e) Subordination of Lien; Waiver of Set-Off. In the event that the Depositary Bank has or subsequently obtains by agreement, operation of law or otherwise a lien or security interest in any Project Account or any security entitlement credited thereto, the Depositary Bank agrees that such lien or security interest shall be subordinate to the lien and security interest of the Collateral Agent. The financial assets standing to the credit of the Project Accounts will not be subject to deduction, set-off, banker's lien, or any other right in favor of any Person other than the Collateral Agent (except the amount of any checks which have been credited to any Project Account but are subsequently returned unpaid because of uncollected or insufficient funds). (f) No Other Agreements. None of the Depositary Bank, the Collateral Agent or the Company has entered into any agreement with respect to the Project Accounts or any financial assets credited to any Project Account other than this Agreement, in the case of the parties hereto, and the Credit Agreement and the Security Agreement, in the case of the Company and the Collateral Agent and agreements to which payments are to be made into the Project Accounts. The Depositary Bank has not entered into any agreement with the Company or any other Person purporting to limit or condition the obligation of the Depositary Bank to comply with entitlement orders originated by the Collateral Agent in accordance with Section 2.02(d). In the event of any conflict between this Agreement (or any portion hereof) or any other Security Document or any other agreement now existing or hereafter entered into (other than the Credit Agreement), the terms of this Agreement shall prevail for purposes hereof. (g) Notice of Adverse Claims. Except for the claims and interest of the Collateral Agent and the Company in each of the Project Accounts, the Depositary Bank does not know of any claim to, or interest in, any Project Account or in any financial asset credited thereto. If any Person asserts any lien, encumbrance or adverse claim (including any writ, garnishment, judgment, warrant of attachment, execution or similar process) against any Project Account or in any financial asset credited thereto, the Depositary Bank will promptly notify the Collateral Agent and the Company thereof. (h) Rights and Powers of the Collateral Agent. The agreement hereunder of the Depositary Bank to comply with entitlement orders of the Collateral Agent is irrevocable during the term of this Agreement and has been made in order to perfect the lien upon and security interests in the Project Accounts in favor of the Collateral Agent and will be affected by neither the bankruptcy of the Company nor the lapse of time. Depositary Agreement 7 - 7 - SECTION 2.03. Limitation on Company's Rights. Until the Termination Date, the Company shall not have any rights to withdraw cash or other property held in or credited to the Project Accounts, except for the right to give instructions to the Depositary Bank to make withdrawals of moneys held in the Project Accounts as permitted by this Agreement and the right to direct the investment of moneys held in the Project Accounts as permitted by Section 5.03. Without limiting the foregoing (but notwithstanding anything to the contrary herein or in any other Credit Document), the Company will have no rights in or any claim whatsoever on any cash or other property held in or credited to the Pre-Funding Account prior to satisfaction of the conditions precedent set forth in Section 4.02 of the Credit Agreement and the transfer thereof to the General Receipt & Disbursement Account pursuant to Section 4.04(b). ARTICLE III ESTABLISHMENT OF THE PROJECT ACCOUNTS SECTION 3.01. Establishment of the Project Accounts. The Depositary Bank has established the following special, segregated securities accounts (the "Project Accounts") which (except as expressly provided herein) shall be maintained at all times until the termination of this Agreement: (1) the General Receipt & Disbursement Account; (2) the Loss Proceeds Account; (3) the Prepayment Account; and (4) the Pre-Funding Account. The Depositary Bank has established the Restoration Sub-Account within the Loss Proceeds Account. In the event that, in accordance with this Agreement, the Depositary Bank is required to segregate certain moneys in any Project Account from any other amounts on deposit in such Project Account pending transfer or withdrawal in accordance with this Agreement, the Depositary Bank shall (subject to Section 5.03) either (i) hold such moneys in such Project Account for use solely for such transfer or withdrawal or (ii) if requested in a certificate of an Authorized Officer of the Collateral Agent, create a separate sub-account for such purpose. For ease of administration or if deemed advisable or necessary by the Collateral Agent to give effect to the purposes of this Agreement, the Depositary Bank may, with the consent of the Collateral Agent and upon notice to the Company and the Collateral Agent, establish other sub-accounts within any Project Account. SECTION 3.02. Lien and Security Interest, Etc. As collateral security for the prompt payment in full when due of the Secured Obligations, the Company hereby pledges, Depositary Agreement 8 - 8 - assigns, hypothecates and transfers to the Collateral Agent for the equal and ratable benefit of the Secured Parties, and hereby grants to the Collateral Agent for the equal and ratable benefit of the Secured Parties a lien on and security interest in, all of the Company's right, title and interest, whether now owned or hereafter acquired, in and to (i) each Project Account and (ii) all cash, investments, securities or other property at any time on deposit in or credited to any Project Account, including all income or gain earned thereon and any proceeds thereof. For avoidance of doubt, the security interests purported to be created by this Agreement and the Security Agreement do not include the Iridium Clearing Account or any cash or other property on deposit therein or credited thereto. SECTION 3.03. Termination. This Agreement shall remain in full force and effect until the Termination Date. ARTICLE IV OPERATION OF THE PROJECT ACCOUNTS SECTION 4.01. General Receipt & Disbursement Account. (a) Deposits into General Receipt & Disbursement Account. The Company agrees, and will take all necessary action to ensure, that the following amounts shall be deposited directly into the General Receipt & Disbursement Account: (i) all proceeds of the Loans under the Credit Agreement (other than the proceeds of the Term Loans made pursuant to Section 2.01(a) of the Credit Agreement, which initially shall be deposited into the Pre-Funding Account); (ii) all proceeds of the loans under the Motorola Guaranteed Credit Agreement made after the date of this Agreement; (iii) all amounts transferred from the Loss Proceeds Account pursuant to Section 4.02(b)(iii); (iv) all amounts transferred from the Prepayment Account pursuant to Section 4.03(b)(iii); (v) all amounts transferred from the Pre-Funding Account pursuant to Section 4.04(b)(i); (vi) all dividends or other distributions, or other payments, in cash by any Subsidiary of the Company to the Company; Depositary Agreement 9 - 9 - (vii) any income from the investment of moneys in the Project Accounts pursuant to Section 5.03; (viii) all other income (howsoever earned), revenue (howsoever generated) and proceeds of any nature whatsoever received by the Company or any of its Subsidiaries (but excluding (i) any amounts required or permitted by this Agreement to be deposited to another Project Account and (ii) any amounts which are held in, or to be credited to, the Iridium Clearing Account, or any interest earned with respect to such amount while so held in the Iridium Clearing Account (other than the Iridium Sub-Clearing Account to the extent provided in clause (ix) below)); and (ix) all amounts in the Iridium Sub-Clearing Account to the extent required to be transferred to the General Receipt & Disbursement Account pursuant to Section 4.01(d). (b) Disbursements from General Receipt & Disbursement Account. Except as otherwise provided in this Agreement, the amounts held in the General Receipt & Disbursement Account shall be applied solely for the payment of Project Costs. All moneys withdrawn from the General Receipt & Disbursement Account shall be withdrawn in accordance with the disbursement procedures set forth below: (i) The Company may request the withdrawal of moneys in the General Receipt & Disbursement Account for the purpose of paying Project Costs or to transfer funds to one or more of the Local Accounts. Upon receipt of instructions from an Authorized Officer of the Company requesting a withdrawal of funds from the General Receipt & Disbursement Account, the Depositary Bank shall effect such withdrawal and either pay such funds to the intended payee(s) thereof or transfer such funds to a Local Account, in each case as specified in such instructions. The Company will furnish a copy of each such instruction to the Collateral Agent. All funds held in the General Receipt & Disbursement Account shall be used by the Company from time to time to make payment of Project Costs as the Company shall direct, but in any event all payments in respect of the Space System Contract, the Terrestrial Network Development Contract and the O&M Contract and all payments in respect of Indebtedness of the Company and its Subsidiaries will be made from funds in the General Receipt & Disbursement Account. (ii) If at any time the amount available to be applied to the payment of any of the Company's obligations under clause (i) above is insufficient to pay in full all amounts required to be paid thereunder, the Depositary Bank shall promptly advise the Company (with a copy to the Collateral Agents) of such insufficiency and shall not make payment of any amounts unless and until the Company has specified in writing to the Depositary Bank the payee(s) and amount(s) to be so paid with the amounts available. Depositary Agreement 10 - 10 - (iii) Notwithstanding anything herein to the contrary, the amount of any proceeds of workers' compensation insurance, comprehensive general liability insurance and comprehensive automobile liability insurance received by the Company and deposited into the General Receipt & Disbursement Account which is required to be paid over by the Company to any Person other than the Company or any of its Subsidiaries shall be, upon receipt of a written request from an Authorized Officer of the Company that such proceeds that have been deposited into the General Receipt & Disbursement Account are required to be so paid over, promptly disbursed to the Company, whereupon such proceeds shall be paid over by the Company to the Person(s) entitled thereto. (c) Local Accounts. In addition to the Project Accounts, the Company may at any time from and after the date hereof establish and maintain one or more other deposit accounts (each hereinafter referred to as a "Local Account") with (i) The Chase Manhattan Bank (or such other commercial bank which shall from time to time act as the Collateral Agent hereunder) (the "Chase Local Account") and (ii) any other depository institution designated by the Company located in the United States of America (the "Other Local Account"); provided that (x) the maximum aggregate amount of cash or other property at any time held in or credited to the Other Local Account shall be $7,500,000; and (y) each Local Account shall be and at all times remain subject to the security interest created under this Agreement and the Security Agreement, and the Company shall cause each such depositary institution therefor to execute and deliver such acknowledgment, agreement or other documentation, and/or establish such control arrangements, as the Collateral Agent may reasonably request to give effect to the purposes of this Section. All funds held in the Local Accounts may be used by the Company from time to time to make payment of Project Costs as the Company shall direct (subject to the last sentence of Section 4.01(b)(i)). The Local Accounts shall not constitute Project Accounts and, except as provided in this Section 4.01(c), shall not be subject to the terms of this Agreement. (d) Iridium Clearing Account. Notwithstanding anything herein to the contrary, no cash or other property in the Iridium Clearing Account shall be required to be deposited into any of the Project Accounts (nor shall the Secured Parties have any interest in such cash or other property), except as provided in this paragraph. So long as no Event of Default shall have occurred and be continuing, the Company will cause, within two Business Days following the last day of each calendar month, all cash and other property held in or credited to the Iridium Sub-Clearing Account as of such last day to be transferred into the General Receipt & Disbursement Account. Upon deposit into the General Receipt & Disbursement Account, such cash and other property may be withdrawn in accordance with the provisions of Section 4.01(b). If at any time an Event of Default shall have occurred and be continuing, the Depositary Bank, upon direction of an Authorized Officer of the Collateral Agent, shall direct the Company to, and upon receipt of any such direction the Company will, immediately transfer all cash or other property then held in or credited to the Iridium Sub-Clearing Account to the General Receipt & Disbursement Account and, thereafter so long as any Event of Default shall continue, will sweep all cash and other Depositary Agreement 11 - 11 - property on a periodic basis (as directed by the Collateral Agent) from the Iridium Sub-Clearing Account into the General Receipt & Disbursement Account. SECTION 4.02. Loss Proceeds Account. (a) Deposits into Loss Proceeds Account. The Company agrees, and will take all necessary action to ensure, that all Loss Proceeds in respect of each Event of Loss payable to or received by the Company or any of its Subsidiaries shall be deposited directly into the Loss Proceeds Account. (b) Disbursements from Loss Proceeds Account. (i) The Depositary Bank shall, subject to Section 5.04, from time to time upon instructions of the Collateral Agent transfer the amounts on deposit in the Loss Proceeds Account to the Administrative Agent for application to a prepayment of the Loans at the times and in the amounts in accordance with Section 2.09(d) of the Credit Agreement. (ii) If the Company wishes to apply any Loss Proceeds deposited to the Loss Proceeds Account to the Restoration of the property affected by an Event of Loss, the Company shall give written notice thereof to the Depositary Bank (with a copy to the Collateral Agent) prior to the date 20 Business Days following receipt of such Loss Proceeds by delivering a certificate of an Authorized Officer of the Company to that effect and specifying that portion of such Loss Proceeds that the Company intends to use for such Restoration. Upon receipt of such notice, the Depositary Bank will segregate in the Restoration Sub-Account such portion of the Loss Proceeds. Thereafter, the Company shall, upon request to the Depositary Bank, be permitted to withdraw from time to time all and any portion of such amounts from the Restoration Sub-Account to make expenditures in respect of such Restoration. Upon receipt of each such request, the Depositary Bank shall withdraw and transfer from the Restoration Sub-Account and shall remit to the Company (or such payee(s) as the Company shall direct) the amount specified in such request, and (if remitted to the Company), the Company shall remit to the relevant payees the amounts the Company receives. Upon completion of such Restoration, the Company shall advise the Depositary Bank and the Collateral Agent thereof, and the Depositary Bank shall transfer any portion of such amount remaining in the Restoration Sub-Account in respect of the relevant Event of Loss to the Loss Proceeds Account for application to a prepayment of the Loans to the extent required by Section 2.09(d) of the Credit Agreement or otherwise as provided in this Section. (iii) Notwithstanding anything herein to the contrary, any amounts payable by the Company or any of its Subsidiaries with respect to fees, costs, taxes or other amounts specified in determining the Net Available Proceeds of any Event of Loss shall, upon a Depositary Agreement 12 - 12 - written request of the Company, be remitted to the Company for payment to the applicable payee(s) thereof. For avoidance of doubt, if any such amount is deducted from proceeds to the Company or any of its Subsidiaries before the receipt thereof, it shall not be a violation of Section 4.02(a). SECTION 4.03. Prepayment Account. (a) Deposits into Prepayment Account. The Company agrees, and will take all necessary action to ensure, that the following amounts shall be deposited directly into the Prepayment Account: (i) all proceeds of any Disposition received by the Company or any of its Subsidiaries; (ii) all proceeds of any Equity Issuance (other than an Excluded Equity Issuance) received by the Company or any of its Subsidiaries (including, without limitation, all amounts paid (or deemed paid) by Iridium LLC as a capital contribution in the Company in respect of the Reserve Capital Call Obligations); (iii) all proceeds of any Debt Incurrence (other than an Excluded Debt Issuance) received by the Company or any of its Subsidiaries; (iv) all proceeds of any Project Document Claim; and (v) all other amounts collected or received by the Collateral Agent or by any other Secured Party in respect of any exercise of Security Agreement Remedies with respect to the Collateral under the Security Documents. (b) Disbursements from Prepayment Account. (i) The Depositary Bank shall, subject to Section 5.04, from time to time upon instructions of the Collateral Agent transfer the amounts on deposit in the Prepayment Account to the Administrative Agent for application to a prepayment of the Loans at the times and in the amounts in accordance with Section 2.09 of the Credit Agreement. (ii) Subject to Section 5.04, the Depositary Bank shall, at the written instructions of an Authorized Officer of the Collateral Agent, transfer to the General Receipt & Disbursement Account any amounts deposited in the Prepayment Account to the extent (x) not required to be applied to the prepayment of outstanding Loans pursuant to Section 2.09 of the Credit Agreement and (y) not used for the Restoration of property affected by Depositary Agreement 13 - 13 - the relevant Event of Loss or for fees, costs, taxes or other such amounts, as permitted under Section 4.02(b)(iii), as determined by the Collateral Agent. (iii) Notwithstanding anything herein to the contrary, any amounts payable by the Company or any of its Subsidiaries with respect to fees, costs, taxes or other amounts specified in determining the Net Cash Proceeds or the Net Available Proceeds, as the case may be, of any Disposition, Equity Issuance, Debt Incurrence or Project Document Claim shall, upon the written request of an Authorized Officer of the Company, be remitted to the Company for payment to the applicable payee(s) thereof. For avoidance of doubt, if any such amount is deducted from proceeds to the Company or any of its Subsidiaries before the receipt thereof, it shall not be a violation of Section 4.03(a). (iv) Notwithstanding anything herein to the contrary, any amounts referred to in clause (v) of paragraph (a) above shall be applied to the payment of the Secured Obligations (as defined in the relevant Security Documents) in accordance with the terms of the respective Security Document under which such amounts were received as directed by the Collateral Agent, and upon receiving such direction the Depositary Bank shall pay such amount as so directed. (c) Instructions to Project Parties. The Company hereby acknowledges that it has irrevocably instructed each Project Party that is a party to each Principal Project Document to make all payments that may be made to or received by the Company thereunder directly to the Depositary Bank for deposit into the Prepayment Account and that such payment will be credited to the Prepayment Account in accordance with the terms of this Agreement. SECTION 4.04. Pre-Funding Account. (a) Deposits into Pre-Funding Account. The Company agrees that the proceeds of the Term Loans made pursuant to Section 2.01(a) of the Credit Agreement shall be deposited by the Term Lenders into the Pre-Funding Account. (b) Disbursements from Pre-Funding Account. (i) Upon written notification by the Collateral Agent to the Depositary Bank that the conditions precedent set forth in Section 4.02 of the Credit Agreement have been satisfied, the Depositary Bank shall transfer all cash and other property held in or credited to the Pre-Funding Account as of the relevant date to the General Receipt & Disbursement Account. Upon such transfer, the Pre-Funding Account will be closed and no longer used under this Agreement. Depositary Agreement 14 - 14 - (ii) If prior to the transfer of moneys in the Pre-Funding Account pursuant to clause (i) above the Collateral Agent shall notify the Depositary Bank that the Commitments have been terminated, the Depositary Bank shall immediately liquidate all investments in respect of funds held in or credited to the Pre-Funding Account and transfer all cash to the Administrative Agent for application to the prepayment of the Term Loans on a pro rata basis to the Term Lenders holding the outstanding Term Loans. ARTICLE V OTHER ACCOUNT MATTERS SECTION 5.01. Remittances to the Company or the Collateral Agent. (a) In the event that any payments or other amounts required pursuant to this Agreement to be deposited directly into one of the Project Accounts are remitted instead to the Company or any of its Subsidiaries, the Company shall (or shall cause any such Subsidiary to) promptly remit such payments or other amounts, in the form received, with any necessary endorsements, to the Depositary Bank for deposit into the relevant Project Account as provided herein and, pending such remittance to the Depositary Bank, the Company shall (or shall cause any such Subsidiary to) segregate such payments and other amounts from all other funds of the Company (or such Subsidiary, as the case may be) and hold the same in trust for the Secured Parties. (b) In the event that any payments or other amounts required pursuant to this Agreement to be deposited directly into one of the Project Accounts are remitted instead to the Collateral Agent, the Collateral Agent shall promptly remit such payments or other amounts, in the form received, with any necessary endorsements, to the Depositary Bank for deposit to the relevant Project Account as provided herein. SECTION 5.02. Right of Withdrawal. Except as specifically set forth in this Agreement, the Company shall have no right of withdrawal in respect of any of the Project Accounts. SECTION 5.03. Permitted Investments. (a) Moneys held in any Project Account shall be invested and reinvested in Permitted Investments at the written direction (which may be in the form of a standing instruction) of an Authorized Officer of the Company; provided, however, that at any time when (i) the Depositary Bank shall have received written notice from the Collateral Agent that an Event of Default shall have occurred and be continuing or (ii) an Authorized Officer of the Company has not timely furnished such a written direction or, after a request by the Depositary Bank, has not so Depositary Agreement 15 - 15 - confirmed a standing instruction to the Depositary Bank, the Depositary Bank shall invest such moneys only in Permitted Investments described in clause (e) of the definition thereof that have a maturity of 30 days or less. Any written direction of an Authorized Officer of the Company with respect to the investment or reinvestment of moneys held in any Project Account shall direct investment or reinvestment only in Permitted Investments. All Permitted Investments shall be credited to the relevant Project Account and shall comply with Section 2.02(b)(v) hereof. (b) Earnings on Permitted Investments held in each Project Account (other than the Pre-Funding Account) shall be deposited upon receipt in the General Receipt & Disbursement Account as provided in Section 4.01(a). Earnings on Permitted Investments held in the Pre-Funding Account shall be deposited in the Pre-Funding Account. (c) The Depositary Bank shall have no liability for any loss resulting from any investment contemplated by this Section other than by reason of its bad faith, intentional misconduct or gross negligence. (d) The Depositary Bank may sell or liquidate any Permitted Investment (without regard to maturity date) whenever the Depositary Bank reasonably deems it necessary to make any deposit, transfer or distribution required by this Agreement (using reasonable efforts to minimize the costs or losses resulting from such liquidation), provided that the Depositary Bank shall not be liable to any Person for any loss suffered because of such sale or liquidation or by any delay in liquidation other than by reason of its bad faith, intentional misconduct or gross negligence. (e) For purposes of any income tax payable on account of any income or gain on an investment, such income or gain shall be for the account of the Company. (f) Each of the parties hereto acknowledges that in connection with Permitted Investments of the type described in clause (c) of the definition of "Permitted Investments" for which the Depositary Bank or an affiliate of the Depositary Bank serves as an investment advisor, administrator, shareholder, servicing agent and/or custodian or subcustodian (i) the Depositary Bank or an affiliate of the Depositary Bank charges and collects fees and expenses from such funds for services rendered, (ii) the Depositary Bank charges and collects fees and expenses for services rendered pursuant to the standard terms and conditions and (iii) services performed for such Permitted Investments and pursuant to the standard terms and conditions may converge at any time. Each of the parties hereto hereby specifically authorizes the Depositary Bank or an affiliate of the Depositary Bank to charge and collect all fees and expenses from such funds for services rendered to such funds, in addition to any fees and expenses the Depositary Bank may charge and collect for services rendered pursuant to the standard terms and conditions. Depositary Agreement 16 - 16 - SECTION 5.04. Defaults. Notwithstanding anything contained in this Agreement to the contrary, upon receiving notice from the Collateral Agent of the occurrence and during the continuation of an Event of Default, the Depositary Bank shall accept all notices and instructions required to be given to the Depositary Bank pursuant to the terms of this Agreement only from the Collateral Agent and not from any other Person, and, notwithstanding anything herein to the contrary, the Depositary Bank shall not withdraw, transfer, pay or otherwise distribute any moneys in any of the Project Accounts except pursuant to such notices and instructions from the Collateral Agent (it being understood that, upon and during the continuance of an Event of Default, the Collateral Agent may direct any or all of the moneys in the Project Accounts to be applied to pay when due any of the Secured Obligations). No amounts from time to time held in each Project Account shall constitute payment of any Indebtedness or any other obligation of the Company until applied as herein provided. SECTION 5.05. Identification of Amounts. In the event the Depositary Bank receives moneys without adequate identification or adequate instruction with respect to the proper Project Account in which such moneys are to be deposited, the Depositary Bank shall deposit such moneys into the General Receipt & Disbursement Account and segregate such moneys from all other amounts on deposit in the General Receipt & Disbursement Account and notify the Company of the receipt of such moneys. Upon receipt of instructions of an Authorized Officer of the Company as to identification of such moneys, the Depositary Bank shall transfer such moneys from the General Receipt & Disbursement Account to the Project Account as so instructed by the Company. SECTION 5.06. Other Transfers. If at any time any amount required hereby to be deposited into a particular Project Account is deposited into another Project Account, the Depositary Bank shall have the right to transfer such amount to the proper Project Account. SECTION 5.07. Account Balance Statements. The Depositary Bank shall, on a monthly basis, provide to the Collateral Agent and the Company, account statements in respect of each of the Project Accounts, sub-accounts and amounts segregated in any of the Project Accounts or sub-accounts. Such account statement shall also include deposits, withdrawals and transfers from and to each Project Account and sub-account and any segregated amounts. At such other times as the Collateral Agent or the Company may from time to time reasonably request (but not more frequently than once each week unless an Event of Default shall have occurred and is continuing), the Depositary Bank shall provide written informal account information regarding (a) cash and other items credited to each of the Project Accounts, sub-accounts and, to the extent reasonably available, amounts segregated in any of the Project Accounts or sub-accounts and (b) deposits, withdrawals and transfers from and to any Project Account, sub-account and, to the extent reasonably available, segregated amounts. ARTICLE VI Depositary Agreement 17 - 17 - THE DEPOSITARY BANK SECTION 6.01. Tax Identification. The Company shall on the signature page of this Agreement provide the Depositary Bank with its Tax Identification Number (TIN) as assigned by the Internal Revenue Service. All interest or other income earned hereunder shall be allocated and paid as provided herein and reported by the recipient to the Internal Revenue Service as having been so allocated and paid. SECTION 6.02. Action. (a) The Depositary Bank may rely and shall be protected in acting or refraining from acting upon any written notice, instruction or request furnished to it hereunder (or, as contemplated in this Agreement, any telephonic notice, instruction or request) and believed by it to be genuine and to have been signed or presented by an Authorized Officer of the proper party or parties. The Depositary Bank shall be under no duty to inquire into or investigate the validity, accuracy or content of any such notice, instruction or request. The Depositary Bank shall have no duty to solicit any payments which may be due it hereunder. (b) The Depositary Bank shall not be liable for any action taken or omitted by it in good faith unless a court of competent jurisdiction determines that the Depositary Bank's gross negligence, intentional misconduct or bad faith was the primary cause of any loss to any such party. In the administration of the Project Accounts hereunder, the Depositary Bank may execute any of its powers and perform its duties hereunder directly or through agents or attorneys and may consult with counsel, accountants and other skilled persons to be selected and retained by it. The Depositary Bank shall not be liable for anything done, suffered or omitted in good faith by it in accordance with the advice or opinion of any such counsel, accountants or other skilled persons. (c) The duties and responsibilities of the Depositary Bank hereunder shall be determined solely by the express provisions of this Agreement, and no other or further duties or responsibilities shall be implied. The Depositary Bank shall not have any liability under, nor duty to inquire into the terms and provisions of, any agreement or instructions, other than as provided in the Agreement. (d) In the event that the Depositary Bank shall be uncertain as to its duties or rights hereunder or shall receive notice, instructions or requests from any party hereto which, in its opinion, conflict with any of the provisions of this Agreement, it shall be entitled to refrain from taking any action and its sole obligation shall be to keep safely all property held by it until it shall be directed otherwise in writing by all of the other parties hereto or by a final order or judgment of a court of competent jurisdiction. Depositary Agreement 18 - 18 - SECTION 6.03. Resignation. Subject to the appointment and acceptance of a successor Depositary Bank, the Depositary Bank may resign and be discharged from its duties or obligations hereunder by giving notice in writing to the Collateral Agent and the Company of such resignation specifying a date when such resignation shall take effect. Upon receipt of such notice, the Collateral Agent shall have the right to designate a successor Depositary Bank which shall be a Lender and a bank with an office in New York, New York and a combined capital and surplus of at least $500,000,000, with the prior consent of the Company (which consent shall not be unreasonably withheld). If no successor shall have been so designated and shall have accepted such designation within 30 days of the retiring Depositary Bank's giving notice of such resignation, the retiring Depositary Bank may appoint its successor provided such appointed successor is a Lender and a bank with an office in the New York, New York with a combined capital surplus of at least $500,000,000. Upon acceptance by a successor Depositary Bank of its appointment hereunder, the retiring Depositary Bank shall be discharged from its duties and obligations hereunder. In connection with its resignation hereunder, the Depositary Bank shall have the right to withhold an amount equal to the amount due and owing to the Depositary Bank plus any costs and expenses the Depositary Bank shall reasonably believe may be incurred by the Depositary Bank in connection with its resignation. SECTION 6.04. Compensation. The Company hereby agrees to (i) pay the Depositary Bank upon execution of this Agreement reasonable compensation for the services to be rendered hereunder, as described in a written schedule provided from time to time by the Depositary Bank to the Company and (ii) pay or reimburse the Depositary Bank upon request for all expenses, disbursements and advances, including reasonable attorney's fees, incurred or made by it in connection with the preparation, execution, performance, delivery modification, and termination of this Agreement. SECTION 6.05. Indemnification. The Company hereby agrees to indemnify the Depositary Bank for, and to hold it harmless against, any loss, liability or expense arising out of or in connection with this Agreement and carrying out its duties hereunder, including the costs and expenses of defending itself against any claim of liability, except for costs and expenses resulting from the gross negligence, intentional misconduct or bad faith of the Depositary Bank. Anything in this Agreement to the contrary notwithstanding, in no event shall the Depositary Bank be liable for special, indirect or consequential loss or damage of any kind whatsoever (including but not limited to lost profits), even if the Depositary Bank has been advised of the likelihood of such loss or damage and regardless of the form of action. SECTION 6.06. Transfer Instructions. (a) In the event funds transfer instructions are given, whether in writing, by telecopier or otherwise, the Depositary Bank is authorized to seek confirmation of such instructions by telephone call-back to an Authorized Person, and the Depositary Bank may rely upon the confirmations of anyone purporting to be the person or persons so designated. The persons and telephone numbers for call-backs may be Depositary Agreement 19 - 19 - changed only in a writing actually received and acknowledged by the Depositary Bank. The parties to this Agreement acknowledge that such security procedure is commercially reasonable. (b) It is understood that, with respect to any funds transfer, the Depositary Bank may rely solely upon any account numbers or similar identifying number provided by either of the other parties hereto to identify (i) the intended payee, (ii) such payee's bank, or (iii) an intermediary bank through which such funds transfer is to be made. The Depositary Bank may apply any of the funds for any payment order it executes using any such identifying number, even where its use may result in a person other than the intended payee being paid, or the transfer of funds to a bank other than the intended payee's bank or an intermediary bank designated. ARTICLE VII MISCELLANEOUS SECTION 7.01. No Waiver. No failure on the part of the Collateral Agent or any of its agents to exercise and no delay in exercising, and no course of dealing with respect to, any right, power or remedy hereunder shall operate as a waiver thereof, and no single or partial exercise by the Collateral Agent or any of its agents of any right, power or remedy hereunder shall preclude any other or further exercise thereof or the exercise of any other right, power or remedy. The remedies provided herein are cumulative and are not exclusive of any remedies provided by law. SECTION 7.02. Notices. All notices, requests and other communications provided for herein (including, without limitation, any modifications of, or waivers or consents under, this Agreement) shall be given or made in writing (including, without limitation, by telex or telecopy) and delivered (a) if to the Depositary Bank, the Company or the Collateral Agent, at the "Address for Notices" specified beneath its name on the signature page hereof or (b) as to any party, at such other address as shall be designated by such party in a notice to each other party. Except as otherwise provided in this Agreement, all such communications shall be deemed to have been duly given when transmitted by telex or telecopier or personally delivered or, in the case of a mailed notice, upon receipt, in each case given or addressed as aforesaid. SECTION 7.03. Amendments, Etc. The terms of this Agreement may be waived, altered or amended only by an instrument in writing duly executed by the Company, the Collateral Agent and the Depositary Bank. Any such amendment or waiver shall be binding upon the Collateral Agent, each other Secured Party and the Company. SECTION 7.04. Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of the respective successors and assigns of the Company, the Collateral Depositary Agreement 20 - 20 - Agent and the Depositary Bank; provided, however, that the Company shall not assign or transfer its rights hereunder without the prior written consent of the Collateral Agent. SECTION 7.05. Captions. The caption and section headings used herein are for convenience of reference only, are not part of this Agreement and shall not affect the construction of, or be taken into consideration in interpreting, this Agreement. SECTION 7.06. Counterparts. This Agreement may be executed in counterparts (and by different parties hereto on different counterparts), each of which shall constitute an original, but all of which when taken together shall constitute a single contract. SECTION 7.07. Governing Law. This Agreement shall be construed in accordance with and governed by the law of the State of New York, except as required by mandatory provisions of law and except to the extent that the validity or perfection of the lien and security interest hereunder, or the remedies hereunder, are governed by the law of any jurisdiction other than the State of New York. Regardless of any provision in any other agreement, for purposes of the UCC, the "securities intermediary's jurisdiction" of the Depositary Bank with respect to the Project Accounts is the State of New York. SECTION 7.08. WAIVER OF JURY TRIAL. EACH PARTY HERETO HEREBY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN ANY LEGAL PROCEEDING DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY (WHETHER BASED ON CONTRACT, TORT OR ANY OTHER THEORY). EACH PARTY HERETO (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND (B) ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HERETO HAVE BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION. SECTION 7.09. No Third Party Beneficiaries. The agreements of the parties hereto are solely for the benefit of the Company, the Collateral Agent, the Depositary Bank and the other Secured Parties, and no other Person (including, without limitation, any other Credit Party, any contractor, subcontractor, supplier or materialman furnishing supplies, goods or services to or for the benefit of the Project or any other creditor of the Company or any of its Subsidiaries) shall have any rights hereunder. Depositary Agreement 21 - 21 - SECTION 7.10. Agents and Attorneys-in-Fact. The Collateral Agent may employ agents and attorneys-in-fact in connection herewith and shall not be responsible for the negligence or misconduct of any such agents or attorneys-in-fact selected by it in good faith. SECTION 7.11. Severability. Any provision of this Agreement held to be invalid, illegal or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such invalidity, illegality or unenforceability without affecting the validity, legality and enforceability of the remaining provisions hereof; and the invalidity of a particular provision in a particular jurisdiction shall not invalidate such provision in any other jurisdiction. SECTION 7.12. Reinstatement. This Agreement and any Lien created hereunder shall automatically be reinstated if and to the extent that for any reason any payment by or on behalf of the Company in respect of the Secured Obligations is rescinded or must otherwise be restored by any holder of the Secured Obligations, whether as a result of any proceedings in bankruptcy or reorganization or otherwise. Depositary Agreement 22 - 22 - IN WITNESS WHEREOF, the parties hereto have caused this Deposit, Disbursement and Account Control Agreement to be duly executed and delivered as of the day and year first above written. IRIDIUM OPERATING LLC By__________________________ Name: Title: Address for Notices: Iridium Operating LLC 1575 Eye Street, N.W., Washington, D.C. 20005 Attention: General Counsel (Telecopy No.: 202-408-3761) Tax Identification No.: ____________ Depositary Agreement 23 - 23 - THE CHASE MANHATTAN BANK, as Collateral Agent By__________________________ Name: Title: Address for Notices: Attention: Telephone: Telecopier: Depositary Agreement 24 - 24 - THE CHASE MANHATTAN BANK, as Depositary Bank By_____________________________ Name: Title: Address for Notices: 450 West 33rd Street 15th Floor New York, New York 10001 Attention: Corporate Trust Telephone: 212-946-3013 Telecopier: 212-946-8177/8178 Depositary Agreement EX-10.37 17 FORM OF MOTOROLA CONSENT 1 EXHIBIT 10.37 (EXHIBIT G TO THE CREDIT AGREEMENT) MOTOROLA CONSENT CONSENT AND AGREEMENT dated as of [__________, 199_] among: MOTOROLA, INC., a Delaware corporation ("Motorola"); IRIDIUM OPERATING LLC, a Delaware limited liability company ("Iridium"); and THE CHASE MANHATTAN BANK ("Chase"), as administrative agent for the lenders or other financial institutions or entities party, as lenders, to the Credit Agreement referred to below (the "Lenders") (in such capacity, together with its successors in such capacity, the "Administrative Agent"), and as collateral agent for the Lenders under the Security Documents (in such capacity, together with its successors in such capacity, the "Collateral Agent"). Iridium, certain lenders (each, a "Lender" and, collectively, the "Lenders"), the Collateral Agent, Chase Securities Inc. and Barclays Capital, the investment banking division of Barclays Bank PLC ("Barclays"), as Global Arrangers (collectively, the "Global Arrangers"), the Administrative Agent, and Barclays as the Documentation Agent are parties to a certain Credit Agreement dated as of December 19, 1997 (as amended and modified and in effect from time to time, the "Credit Agreement"), providing, subject to the terms and conditions thereof, for loans to be made by the Lenders to Iridium in an aggregate principal amount not exceeding $1,000,000,000. To induce the Lenders to enter into the Credit Agreement and to extend credit thereunder, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Motorola and Iridium have agreed to enter into this Agreement, and Motorola has agreed to enter into the Motorola Pledge Agreement, for the benefit of the Agents and the Lenders. Accordingly, the parties hereto agree as follows: ARTICLE I DEFINITIONS SECTION 1.01. Definitions and Other Terms. Capitalized terms used herein and not otherwise defined herein shall have the meanings assigned thereto in the Credit Agreement. As used herein, the following terms shall have the following meanings (all terms defined in this Section or in other provisions of this Agreement to have the same meanings when used in the plural and vice versa): "FCC License" means the authorization granted by the FCC in respect of the construction, launch and operation of the IRIDIUM System, as set forth in the FCC's Orders and 2 - 2 - Authorizations DA 95-131, released January 31, 1995, DA 95-372, released February 28, 1995, FCC 96-279, released June 27, 1996, and DA 96-1789, released October 30, 1996. "Material Motorola Domestic Subsidiary" means, at any time, any Motorola Domestic Subsidiary that as of such time meets the definition of a "significant subsidiary" contained as of the date hereof in Regulation S-X of the SEC. "Motorola Assigned Agreements" means, collectively, (a) the Space System Contract, (b) the Terrestrial Network Development Contract and (c) the O&M Contract. "Motorola Domestic Subsidiary" means any Subsidiary of Motorola, except any such Subsidiary (a) that neither transacts any substantial business nor regularly maintains any substantial portion of its fixed assets within the United States of America or (b) which is engaged primarily in financing operations of Motorola or its Subsidiaries outside the United States of America. "Motorola Subordinated Claims" means (a) any claim or right of Motorola against Iridium or any of its property arising as a result of any payment by Motorola of any amount under the Motorola Guarantee Agreement, whether by subrogation, contribution, reimbursement or otherwise, and including without limitation all obligations owing by Iridium to Motorola under Section 1 of the Agreement Regarding Guarantee and (b) all obligations owing by Iridium to Motorola in respect of the Motorola Vendor Financing. "Motorola Vendor Financing" means the FOC Payments (as defined in the the Memorandum of Understanding dated as of the July 11, 1997 between Motorola and Iridium LLC as in effect on the date hereof) to the extent that a deferral thereof is made pursuant to the Section 6 thereof. "Security Agreement Remedies" mean the remedies of the Collateral Agent under the Security Agreement. "Senior Bank Debt" means the following obligations of Iridium: (a) all principal of the loans outstanding under the Senior Credit Agreement, all interest thereon (including any interest accruing after the date of any filing by Iridium of any petition in bankruptcy or the commencing of any bankruptcy, insolvency or similar proceedings with respect to Iridium whether or not the same is allowed as a claim in any such proceeding) and all other amounts outstanding under the Senior Credit Agreement and the other Senior Credit Documents, including, without limitation, all expenses, indemnities, premiums, penalties and fees payable by Iridium from time to time thereunder; Motorola Consent 3 - 3 - (b) all obligations of Iridium owing from time to time to any holder of Senior Bank Debt of the type described in clause (a) above, or any refinancing, replacement or refunding thereof permitted under clause (c) below, in respect of any Hedging Agreement entered into between Iridium and such holder; and (c) any and all refinancings, replacements or refundings of any or all of the foregoing amounts effected through one or more secured credit facilities having a maturity not later than July 15, 2005 and (together with all other secured debt of Iridium) not exceeding $1,700,000,000 in aggregate principal amount. "Senior Bank Debt Representative" means (a) the Administrative Agent from time to time under the Credit Agreement (which, as of the date hereof, is Chase) and (b) at any time following the refinancing, replacement or refunding of the Credit Agreement, the entity acting in the capacity as administrative agent for the lenders (or exercising the equivalent functions) under such refinancing, replacement or refunding. "Senior Credit Agreement" means the Credit Agreement, and/or any refinancing, refunding, extension or renewal thereof, whether in whole or part and whether or not with any of the lenders then party to the outstanding Senior Credit Agreement, in each case as amended or modified and in effect from time to time. "Senior Credit Documents" means the Senior Credit Agreement and any and all guarantees, security agreements, pledge agreements, mortgages, and other instruments and agreements providing for or evidencing Senior Bank Debt, in each case as modified or supplemented and in effect from time to time. "Space Segment" has the definition provided in the Space System Contract. "Subsidiary" means, with respect to any Person, any corporation, partnership, limited liability company or other entity of which at least a majority of the securities or other ownership interests having by the terms thereof ordinary voting power to elect a majority of the board of directors or other persons performing similar functions of such corporation, partnership, limited liability company or other entity (irrespective of whether or not at the time securities or other ownership interests of any other class or classes of such corporation, partnership, limited liability company or other entity shall have or might have voting power by reason of the happening of any contingency) is at the time directly or indirectly owned or controlled by such Person or one or more Subsidiaries of such Person or by such Person and one or more Subsidiaries of such Person. SECTION 1.02. Terms Generally. The definitions of terms herein shall apply equally to the singular and plural forms of the terms defined. Whenever the context may require, Motorola Consent 4 - 4 - any pronoun shall include the corresponding masculine, feminine and neuter forms. The words "include", "includes" and "including" shall be deemed to be followed by the phrase "without limitation". The word "will" shall be construed to have the same meaning and effect as the word "shall". Unless the context requires otherwise (a) any definition of or reference to any agreement, instrument or other document herein shall be construed as referring to such agreement, instrument or other document as from time to time amended, supplemented or otherwise modified, including an amendment and restatement thereof, but subject to any restrictions on such amendments, supplements or modifications set forth herein, (b) any reference herein to any Person shall be construed to include such Person's successors and assigns or, in the case of any Governmental Authority, any successor or other entity that performs equivalent functions in whole or in part, (c) the words "herein", "hereof" and "hereunder", and words of similar import, shall be construed to refer to this Agreement in its entirety and not to any particular provision hereof, (d) all references herein to Articles, Sections and Schedules shall be construed to refer to Articles and Sections of, and Schedules to, this Agreement and (e) the words "asset" and "property" shall be construed to have the same meaning and effect and to refer to any and all tangible and intangible assets and properties, including cash, securities, accounts and contract rights. ARTICLE II REPRESENTATIONS AND WARRANTIES Motorola represents and warrants to the Lenders and the Agents that: SECTION 2.01. Corporate Existence. Motorola (a) is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware; (b) has all requisite corporate or other power, and has all material governmental licenses, authorizations, consents and approvals necessary, to own its assets and carry on its business as now being or as proposed to be conducted; and (c) is qualified to do business and is in good standing in all jurisdictions in which the nature of the business conducted by it makes such qualification necessary and where failure so to qualify could reasonably be likely to (either individually or in the aggregate) have a material adverse effect on the ability of Motorola to perform any of its obligations under the Credit Documents and the Principal Project Documents to which it is a party. SECTION 2.02. Financial Condition.(1) Motorola has heretofore furnished to each of the Lenders the consolidated balance sheet of Motorola and its consolidated Subsidiaries as at (1) This representation is to be updated as appropriate to the date of execution of this Agreement to refer to the latest available annual audited and unaudited quarterly consolidated financial statements of Motorola. Motorola Consent 5 - 5 - December 31, 1996 and the related statements of consolidated earnings, stockholders' equity and cash flows of Motorola and its consolidated Subsidiaries for the fiscal year ended on said date, with the opinion thereon of KPMG Peat Marwick, and the unaudited consolidated balance sheet of Motorola and its Subsidiaries as at the end of the [_______] fiscal quarter of Motorola's 1997 fiscal year and the related statements of consolidated earnings, stockholders' equity and cash flows of Motorola and its consolidated Subsidiaries for the [______]-month period ended on such date. All such financial statements present fairly, in all material respects, the financial condition of Motorola and its consolidated Subsidiaries as at said dates and the results of their operations for the fiscal year and [six/nine]-month period ended on said dates (subject, in the case of such financial statements as at the end of such [________]-month period to normal year-end audit adjustments), all in conformity with generally accepted accounting principles. Since December 31, 1996, there has been no material adverse change in the consolidated business, operations or financial condition taken as a whole of Motorola and its consolidated Subsidiaries from that set forth in said financial statements as at said date. SECTION 2.03. Litigation. Except as disclosed in Motorola's Report on Form 10-K filed with the SEC for the fiscal year ended December 31, 1996 or in Motorola's Reports on Form 10-Q filed with the SEC during 1997 prior to the date hereof, each of which has been delivered to the Lenders prior to the date hereof, there are no legal or arbitral proceedings, or any proceedings by or before any governmental or regulatory authority or agency, now pending or (to the knowledge of Motorola) threatened against Motorola or any of the Material Motorola Domestic Subsidiaries which if adversely determined, (either individually or in the aggregate) could reasonably be likely to have a material adverse effect on the ability of Motorola to perform any of its obligations under the Credit Documents and the Principal Project Documents to which it is a party. SECTION 2.04. No Breach. None of the execution and delivery of any of the Motorola Agreements, the consummation of the transactions contemplated thereby or compliance with the terms and provisions thereof will conflict with or result in a breach of, or require any consent under, the charter or by-laws of Motorola, or any applicable law or regulation or any order, writ, judgment, decree, determination or award having applicability to Motorola or any of its Subsidiaries, or any agreement or instrument to which Motorola or any of the Material Motorola Domestic Subsidiaries is a party, or by which any of them or any of their respective property is bound or to which any of them is subject, or constitute a default under any such agreement or instrument. SECTION 2.05. Action. Motorola has all necessary corporate power, authority and legal right to execute, deliver and perform each of its obligations under the Motorola Agreements and the Motorola Assigned Agreements. The execution, delivery and performance by Motorola of each of the Motorola Agreements and the Motorola Assigned Agreements, and the consummation of the transactions contemplated thereby, have been duly authorized by all Motorola Consent 6 - 6 - necessary corporate action on its part. Each of the Motorola Agreements and the Motorola Assigned Agreements has been duly and validly executed and delivered by Motorola and constitutes its legal, valid and binding obligation, enforceable against it in accordance with its respective terms, except as such enforceability may be limited by bankruptcy, insolvency, reorganization, moratorium or similar laws of general applicability affecting the enforcement of creditors' rights. SECTION 2.06. Approvals. No authorizations, approvals or consents of, and no filings or registrations with, any governmental or regulatory authority or agency, any securities exchange or any other Person are necessary for the execution, delivery or performance by Motorola of any of the Motorola Agreements or the Motorola Assigned Agreements or for the legality, validity or enforceability hereof or thereof, except that the exercise of remedies under the Motorola Pledge Agreement may require prior approval of the FCC. SECTION 2.07. Motorola Assigned Agreements. As of the date hereof, Motorola is not in default under any of its material covenants or obligations under the Motorola Assigned Agreements and each of the Motorola Assigned Agreements is in full force and effect. Iridium or Motorola has furnished to the Administrative Agent true and complete copies of each of the Motorola Assigned Agreements as in effect on the date hereof. As of the date hereof, no event or condition exists which would either immediately or with the passage of any applicable grace period or giving of notice, or both, enable Motorola to terminate, or suspend performance of its obligations under, any of the Motorola Assigned Agreements. SECTION 2.08 No Motorola Default. No Motorola Default has occurred and is continuing. SECTION 2.09 FCC License. The FCC License is validly issued, as of the date hereof in the name of [________________________](2), a Delaware corporation and a wholly owned Subsidiary of Motorola, and the FCC License will, at all times prior to the transfer thereof to Iridium pursuant to the Space System Contract, be held by a wholly owned Subsidiary of Motorola. Except as described in Schedule 1, the FCC License is a final and non-appealable order of the FCC and in full force and effect, and Motorola is in compliance with all material terms and conditions applicable to, or set forth in, the FCC License and with all material provisions of any Government Rule applicable thereto. Except (i) in connection with any of the gateways in which Motorola is an investor, (ii) the tracking, telemetry and command stations and (iii) otherwise as described in Schedule 1, Motorola is not responsible for obtaining any other Telecommunications Approval in connection with the Development of the Project. Except as set forth in Schedule 1, there is not now pending or, to the knowledge of Motorola, threatened any - -------- 2 Insert name of FCC License holder as of the date of this Agreement. Motorola Consent 7 - 7 - petition, complaint, objection (whether formal or informal), investigation, or any other proceeding before the FCC or any other Government Authority of competent jurisdiction relating to the FCC License or the IRIDIUM System. ARTICLE III CONSENT AND AGREEMENT Motorola hereby acknowledges and agrees: SECTION 3.01. Motorola hereby acknowledges notice and receipt of the Security Agreement and consents to the assignment by Iridium of all its rights in and under each of the Motorola Assigned Agreements pursuant to the Security Agreement and any and all moneys payable by Motorola to Iridium under any of the Motorola Assigned Agreements. SECTION 3.02. In connection with any exercise by the Collateral Agent of the Security Agreement Remedies, the Collateral Agent shall be entitled to exercise any and all rights of Iridium under each of the Motorola Assigned Agreements in accordance with their respective terms, and Motorola shall comply in all respects with such exercise. Without limiting the foregoing, in connection with the exercise by the Collateral Agent of the Security Agreement Remedies, the Collateral Agent shall have the full right and power to enforce directly against Motorola all obligations of Motorola owing to Iridium under each Motorola Assigned Agreement and otherwise to exercise all remedies of Iridium thereunder and to make all demands and give all notices and make all requests required or permitted to be made by Iridium under each Motorola Assigned Agreement. The Collateral Agent shall have the right, but not the obligation, to cure all defaults of Iridium and to pay all sums owing by Iridium under any Motorola Assigned Agreement in accordance with this Agreement. SECTION 3.03. Motorola will not, without the prior written consent of the Collateral Agent, (i) cancel or terminate, or suspend performance under, or exercise any right to consent to or accept any cancellation, termination or suspension of, any Motorola Assigned Agreement, unless prior thereto Motorola shall have delivered to the Collateral Agent written notice stating that it intends to take such action on a date not less than 30 days after the date of such notice, specifying the nature of the default or other event under such Motorola Assigned Agreement entitling Motorola to take such action (and, in the case of a payment default by Iridium, specifying the amount thereof) and permitting the Collateral Agent to cure such payment default by making a payment equal to the amount in default or by performing or causing to be performed any other obligation in default, (ii) transfer, sell, assign, delegate or otherwise dispose of any part of its interests in any of the Motorola Assigned Agreement, or (iii) petition, request or take any other legal or administrative action which seeks, or may reasonably be expected, to rescind, terminate or suspend or amend or modify any Motorola Assigned Agreement or any part Motorola Consent 8 - 8 - thereof. In furtherance of clause (i) of the immediately preceding sentence, Motorola agrees that, notwithstanding anything contained in any Motorola Assigned Agreement to the contrary, upon the occurrence of a default by Iridium under such Motorola Assigned Agreement entitling Motorola to cancel or terminate such Motorola Assigned Agreement or to suspend performance thereunder, Motorola will not take any action to cancel or terminate, or suspend performance under, such Motorola Assigned Agreement if, within a 30-day period after the date on which the Collateral Agent shall have received notice of such default from Motorola, the Collateral Agent commences steps to cure such default and/or otherwise to institute enforcement proceedings to acquire Iridium's interest in such Motorola Assigned Agreement or the Project and thereafter the Collateral Agent diligently pursues such steps or proceedings and all payment defaults of Iridium under such Motorola Assigned Agreement have been cured within such 30-day period. Effective upon any transfer of Iridium's interest in such Motorola Assigned Agreement to any other Person, Motorola will grant the relevant transferee a reasonable period of time to cure such default (but, in no event with respect to any payment default, exceeding a maximum of 30 days after receipt of notice of such payment default by the Collateral Agent, as contemplated above). Except as provided in Section 3.05, no curing or attempt to cure any of Iridium's defaults under any Motorola Assigned Agreement shall be construed as an assumption by the Collateral Agent or any other Secured Party of any covenants, agreements or obligations of Iridium under such Motorola Assigned Agreement and neither the Collateral Agent nor any other Secured Party shall have any obligation to Motorola for the performance of any obligation under any Motorola Assigned Agreement. In connection with any cure pursuant to this Section of Iridium's default(s) under any Motorola Assigned Agreement or any assumption by any Person of Iridium's liabilities thereunder, only those obligations and liabilities arising expressly under such Motorola Assigned Agreement shall be required to be cured or assumed, as the case may be. Notwithstanding anything in this Agreement to the contrary, no provision of this Agreement shall be intended to restrict in any way any merger or consolidation to which Motorola is a party or the sale of all or substantially all of the assets of Motorola and its Subsidiaries, provided that, in connection with any such transaction if Motorola is not the surviving entity of such transaction, the surviving entity or purchaser, as the case may be, expressly assumes in writing the obligations of Motorola under the Motorola Assigned Agreements and the Motorola Agreements, as applicable. SECTION 3.04. Motorola shall deliver to the Administrative Agent at the address provided for in Section 11.01 of the Credit Agreement, or at such other address as the Administrative Agent may designate in writing from time to time to Motorola, promptly following the delivery thereof to Iridium, a copy of each notice from Motorola to Iridium under any Motorola Assigned Agreement of default, termination, arbitration, force majeure or any event giving rise to a right to terminate or cancel such Motorola Assigned Agreement or suspend performance thereunder or of any indemnity payment to be made by Iridium which is in an amount of at least $2,000,000. Promptly following its receipt thereof, Motorola will deliver to the Administrative Agent at the address specified above a copy of each notice from Iridium to Motorola under any Motorola Assigned Agreement of default, termination, arbitration or force Motorola Consent 9 - 9 - majeure or of any indemnity payment to be made by Motorola which is in an amount of at least $2,000,000. Notwithstanding anything herein to the contrary, Motorola shall not be liable for any failure to provide, or delay in providing, any notice or other information to the Collateral Agent under this Section 3.04. SECTION 3.05. Motorola agrees that, in connection with the exercise by the Collateral Agent of the Security Agreement Remedies with respect to any Motorola Assigned Agreement, Motorola shall recognize the Collateral Agent as Iridium for purposes of such Motorola Assigned Agreement in accordance with this Agreement. In the event that the Collateral Agent succeeds to Iridium's interests under any Motorola Assigned Agreement in accordance with the Security Agreement, the Collateral Agent shall assume liability for all of Iridium's obligations under such Motorola Assigned Agreement, provided, however, that such liability shall not include any liability for claims of Motorola against Iridium arising from Iridium's failure to perform during the period prior to the Collateral Agent's succession to Iridium's interests under such Motorola Assigned Agreement other than the payments obligations of Iridium expressly provided for in such Motorola Assigned Agreement. Except as otherwise set forth in the immediately preceding sentence, none of the Secured Parties shall be liable for the performance or observance or any of the obligations or duties of Iridium under any of the Motorola Assigned Agreements, nor shall the assignment of the Motorola Assigned Agreements by Iridium to the Collateral Agent pursuant to the Security Agreement give rise to any duties or obligations whatsoever on the part of any of the Secured Parties owing to Motorola. If the Collateral Agent succeeds to Iridium's interests under any Motorola Assigned Agreement pursuant to the Security Agreement, Motorola and the Collateral Agent shall negotiate in good faith an equitable adjustment to the milestone and/or scheduled completion dates and/or the prices or amounts payable thereunder to compensate Motorola for any additional costs reasonably and necessarily incurred by Motorola following the failure of Iridium to perform its obligations that resulted in the enforcement by the Collateral Agent of the Security Agreement Remedies until the date on which the Collateral Agent shall have assumed the obligations of Iridium under such Motorola Assigned Agreement. Notwithstanding the foregoing, Motorola shall not be relieved of its obligations to perform under any Motorola Assigned Agreement as a result of the parties' failure to agree upon an equitable adjustment to the milestone and/or scheduled completion dates and/or the prices or amounts payable thereunder and such failure shall be subject to resolution in accordance with the dispute resolution procedures set forth in such Motorola Assigned Agreement. SECTION 3.06. In the event that (i) any Motorola Assigned Agreement is rejected by a trustee, liquidator, debtor-in-possession or similar entity or person in any bankruptcy, insolvency or other similar proceeding involving Iridium or (ii) any Motorola Assigned Agreement is terminated as a result of any bankruptcy, insolvency or similar proceeding involving Iridium and, if within 90 days after such rejection, the Collateral Agent shall so request and shall certify in writing to Motorola that it intends to perform the obligations of Iridium as and Motorola Consent 10 - 10 - to the extent required under such Motorola Assigned Agreement (as if it had not been rejected or terminated, but otherwise only to the extent such obligations would be undertaken had such person or entity succeeded to Iridium thereunder pursuant to Section 3.07), Motorola will execute and deliver to the Collateral Agent a new agreement amending or replacing the original affected Motorola Assigned Agreement which shall be for the balance of the remaining term under such affected Motorola Assigned Agreement before giving effect to such rejection or termination and shall contain the same conditions, agreements, terms, provisions and limitations as such affected Motorola Assigned Agreement (except for any requirements which have been fulfilled by Iridium and Motorola prior to such rejection or termination or which are not required to be undertaken by such person or entity). If the Collateral Agent and Motorola enter into such a new agreement in accordance with this Section, Motorola and the Collateral Agent shall negotiate in good faith an equitable adjustment to the milestone and/or scheduled completion dates and/or the prices or amounts payable thereunder to compensate Motorola for any additional costs reasonably and necessarily incurred by Motorola during the period from and including the date such bankruptcy, insolvency or similar proceeding was commenced to and including the date on which the Collateral Agent shall certify in writing that it intends to perform the obligations of Iridium with respect to such new agreement. Notwithstanding the foregoing provisions, Motorola shall not be relieved of its obligations to perform under such new agreement as result of the parties' failure to agree upon an equitable adjustment to the milestone and/or scheduled completion dates and such failure shall be subject to resolution in accordance with the disputes resolution procedures set forth therein. References in this Agreement to a "Motorola Assigned Agreement" shall be deemed also to refer to the new Motorola Assigned Agreement in replacement thereof. SECTION 3.07. In connection with the exercise by the Collateral Agent of the Security Agreement Remedies, the Collateral Agent may assign its rights and interests and the rights and interests of Iridium under any or all of the Motorola Assigned Agreements to any other Person, provided that such Person shall assume all of the obligations of Iridium under such Motorola Assigned Agreement(s) and shall have obtained all Government Approvals (if any) necessary to perform such obligations. Upon such assignment and assumption, the Collateral Agent shall be relieved of all obligations (if any) under such Motorola Assigned Agreement(s) arising after such assignment and assumption. In the event that the Collateral Agent or its designee or any transferee of the interests of the Collateral Agent in any or all of the Motorola Assigned Agreements or otherwise in respect of the Project shall assume or be liable under any of the Motorola Assigned Agreements (as contemplated in Section 3.05 or 3.06), liability in respect of any and all obligations of any such party under such Motorola Assigned Agreement shall be limited solely to such party's interest in the Project (and any officer, director, employee, shareholder or agent thereof shall have no liability with respect thereto). Motorola Consent 11 - 11 - ARTICLE IV SPECIAL AGREEMENTS RELATING TO MOTOROLA ASSIGNED AGREEMENTS Motorola hereby further acknowledges and agrees that, prior to the transfer of the FCC License to Iridium: SECTION 4.01. FCC License. (a) Without limiting the provisions of Section 3, Motorola consents to the assignment by Iridium to the Collateral Agent of all of its rights in and to the Space System Contract pursuant to the Security Agreement, including, without limitation, the right of Iridium under Section 18.H of the Space System Contract to require, subject to certain conditions set forth therein, the transfer of the FCC License to Iridium (or a Subsidiary of Iridium designated for that purpose) by Motorola. Iridium agrees to request a transfer of the FCC License pursuant to said Section 18.H at the earliest time as Iridium reasonably believes that it can satisfy the qualifications of an FCC licensee under applicable law and FCC regulations and policies. Motorola agrees that (i) if Iridium fails to so request a transfer (or send a notice to the Collateral Agent stating that it believes the conditions to such request have not been satisfied within 30 days after notice from the Collateral Agent to Iridium and Motorola requesting Iridium to request such a transfer) or (ii) an Event of Default shall have occurred and be continuing, the Collateral Agent shall be entitled to enforce the rights of Iridium under said Section 18.H in accordance with its terms and, in that connection, may request such transfer or may direct Iridium to request such transfer, subject to the FCC approval to be jointly applied for by the parties. Motorola agrees to comply as promptly as practicable with any such request under said Section 18.H, whether made by Iridium or (as authorized by this paragraph) the Collateral Agent, provided that the conditions to such transfer set forth in said Section 18.H have been satisfied. Without limiting the foregoing, in the event that, as a result of the exercise by the Collateral Agent of the Security Agreement Remedies, Iridium's interest in the Space System Contract is (or is to be) transferred to another Person, Motorola agrees to comply with its obligation under such Section 18.H with respect to the transfer of the FCC License and, if directed by the Collateral Agent or such Person, to use all reasonable efforts to apply to the FCC for consent to transfer the FCC License to such Person, subject to satisfaction of all of the conditions set forth in said Section 18.H (and assuming any such condition relating to Iridium shall be complied with by such Person). To the extent Motorola is not obligated under the Space System Contract to pay for the costs and expenses associated with any such transfer, Iridium will pay such costs and expenses. (b) Motorola will not, and will not permit any of its Subsidiaries to, sell or otherwise dispose (by whatever means) of, or create or suffer to exist any Lien on, the FCC License or the capital stock of the Subsidiary of Motorola which holds the FCC License, nor shall such Subsidiary be party to any merger or consolidation or take any action to dissolve or liquidate Motorola Consent 12 - 12 - itself, other than (i) a transfer of the FCC License in accordance with Section 18.H of the Space System Contract and (ii) the creation of the Lien on such capital stock or the FCC License pursuant to the Motorola Pledge Agreement or this Agreement. If as of the date of this Agreement the FCC License is held by Motorola Satellite Communications, Inc. ("MSC") and MSC shall hold assets other than the FCC License, Motorola agrees, within 45 days thereafter, to cause the FCC License to be transferred to another wholly-owned Subsidiary of Motorola, which will not have any other assets or engage in any business or enter into any transaction, including, without limitation, the incurrence of any liabilities of any kind whatsoever, other than the holding and ownership of the FCC License and any activities reasonably incidental thereto and as provided in any Motorola Assigned Agreement or Motorola Agreement and, within 5 Business Days after such transfer becomes effective, Motorola or its appropriate Subsidiary will enter into the Motorola Pledge Agreement for the purpose of pledging the capital stock of the Subsidiary of Motorola holding the FCC License thereunder and satisfy the other conditions precedent with respect thereto contemplated by Section 4.01 of the Credit Agreement. If for any reason such transfer shall not occur by the expiration of such 45-day period, then Motorola will, or will cause its appropriate Subsidiary to, enter into the Motorola Pledge Agreement within 5 Business Days thereafter and pledge the capital stock of MSC thereunder, and thereafter if at any time the FCC License is transferred to another Subsidiary of Motorola such pledge of MSC stock shall be released and the capital stock of the Subsidiary then holding the FCC License shall be pledged pursuant to the Motorola Pledge Agreement (as may be required to be amended to give effect to the purposes of this Section, as reasonably requested by the Collateral Agent). Iridium will be responsible for all costs and expenses associated with the perfection of the security interests under the Motorola Pledge Agreement. (c) Motorola agrees that it will not take any action or omit to take any action that could reasonably be expected to result in the material Impairment of the FCC License, unless such action or inaction would not violate its obligations with respect to the FCC License under Article 18 of the Space System Contract. (d) If there shall be a change in law, or the rules or policies of the FCC which would permit the granting of a security interest in the FCC License after the date hereof, upon the request of the Collateral Agent (and at the expense of Iridium), Motorola will, and will cause the Subsidiary of Motorola which holds the FCC License to, execute and deliver all such instruments and documents, and to take such other actions, as shall be necessary or appropriate, or that the Collateral Agent may reasonably request, in order to create a first priority perfected security interest in the FCC License in favor of the Collateral Agent for the benefit of the Secured Parties. Motorola Consent 13 - 13 - SECTION 4.02. Intellectual Property Rights. (a) Motorola acknowledges that in connection with the Development of the Project Motorola has granted, and will grant, to Iridium rights in certain intellectual property owned or held by Motorola and its Subsidiaries on the terms (but only to the extent) provided in Article 14 of the Space System Contract and Article 11 of the O&M Contract (collectively, the "Motorola Intellectual Property"). Without limiting any other provision of this Agreement (including, without limitation, Section 3), Motorola consents to the assignment by Iridium to the Collateral Agent of all of Iridium's rights in and to the Motorola Intellectual Property pursuant to the Security Agreement. (b) In furtherance of the foregoing, Motorola agrees that (i) for any period during which the Collateral Agent shall be exercising its Security Agreement Remedies (including in the event that the Collateral Agent or any of its designees shall succeed to Iridium's interest in the Space System Contract and/or the O&M Contract) or (ii) in the event that, as a result of the exercise by the Collateral Agent of the Security Agreement Remedies, Iridium's rights in the Space System Contract and/or the O&M Contract are transferred to another Person, Motorola hereby grants to the Collateral Agent or the relevant transferee, as the case may be (herein, including any designee, each a "Licensee") a license to access, use and maintain, and (if deemed by the relevant Licensee reasonably necessary for the operation of the Space Segment, to modify and enhance) all Motorola Intellectual Property on the same terms as are applicable to Iridium (except as otherwise expressly provided herein) or otherwise on terms reasonably acceptable to Motorola and the relevant Licensee; provided that (i) no fee, royalty or other amount shall be required to be paid by any Licensee to Motorola with respect thereto (except as expressly set forth in the Motorola Assigned Agreements), (ii) any Licensee shall be entitled to use the Motorola Intellectual Property for so long as such Licensee is operating the Space Segment, but solely in connection with the operation of the Space Segment and for no other purpose and (iii) except as set forth herein (including, without limitation, the last sentence of this paragraph (b)), without the prior written consent of Motorola, no Licensee shall be permitted to assign, license or otherwise transfer to any other Person any of its rights in the Motorola Intellectual Property (and any such assignment, license or transfer in violation of this clause shall be null and void). Without limiting the foregoing, each Licensee shall be permitted to sublicense the Motorola Intellectual Property to any of its respective subcontractors, agents or affiliates, provided that any such sublicensee shall be subject to the same terms and conditions set forth in this Section as are applicable to such Licensee. (c) In the event that at any time after the date hereof other intellectual property rights (other than the Motorola Intellectual Property) which are then owned or held by Motorola or any of its Subsidiaries are required for the operation of the Space Segment, Motorola shall promptly notify the Collateral Agent or, following a transfer of Iridium's rights in the Space System Contract and/or the O&M Contract to any other Person, such other Person and will Motorola Consent 14 - 14 - license, or cause to be licensed, to the Collateral Agent or such other Person, as the case may be, such other intellectual property rights on the same terms and conditions as shall be applicable hereunder to the Motorola Intellectual Property, and such other intellectual property rights shall be deemed to be Motorola Intellectual Property for purposes of the agreements contained in this Section 4.02. (d) Motorola agrees, solely for the benefit of the Collateral Agent or any other Licensee, not to assert against the Collateral Agent or any other Licensee any violation of the terms of any intellectual property rights (including, without limitation, the Motorola Intellectual Property) now or hereafter owned or held by Motorola (i) by the Collateral Agent in connection with its exercise of the Security Agreement Remedies or (ii) by any other Licensee in connection with its operation and maintenance of the Space Segment, but only for so long as the license or permitted use under this Section 4.02 is effective as provided in paragraph (b) above. (e) Upon the reasonable request of the Collateral Agent in connection with the exercise of the Security Agreement Remedies or, from and after the transfer of Iridium's rights in the Space System Contract and/or the O&M Contract, any other Licensee, Motorola agrees to deliver to the Collateral Agent or such other Licensee copies of all software documentation required to be delivered by Motorola under the Motorola Assigned Agreements, subject to the terms and conditions of the Motorola Assigned Agreements. (f) Upon exercise of the license granted herein to the Collateral Agent or any other Licensee, Motorola will provide technical assistance services and training upon the reasonable request (and at the cost) of the Collateral Agent in connection with its exercise of the Security Agreement Remedies or any other Licensee, as the case may be. To the extent any filing, registration or similar action under applicable Government Rule is required with respect to the use of the Motorola Intellectual Property by any Licensee, Motorola agrees to use all reasonable efforts to make all necessary filings or registration, or to take other similar action, at the cost of Iridium (at any time prior to the transfer of Iridium's rights in the Space System Contract to any Licensee) or otherwise at the cost of such Licensee, in order to provide to such Licensee the full intended benefits of the license granted herein. (g) Motorola hereby agrees to indemnify and hold harmless the Collateral Agent and each other Licensee on the same terms and conditions (including, without limitation, the same limitations, which shall be applicable to the Collateral Agent and each other Licensee in the aggregate) (mutatis mutandis) as set forth in Article 15 of the Space System Contract and Article 12 of the O&M Contract (as if each reference therein to "Buyer" or "Owner" referred to the Collateral Agent or such other Licensee, as the case may be), provided that notwithstanding anything herein to the contrary, neither the Collateral Agent nor any other Licensee shall assume any liability for the obligations of Iridium under the Space System Contract or the O&M Contract Motorola Consent 15 - 15 - unless and until such entity shall have expressly assumed any such obligations in connection with the exercise of the Security Agreement Remedies. ARTICLE V OTHER AGREEMENTS Motorola hereby further acknowledges and agrees that, so long as this Agreement remains in effect: SECTION 5.01. Minimum Ownership. Motorola will be at all times, directly or through a wholly-owned Subsidiary, the record and beneficial owner of at least 13,266,713 Class 1 Interests of Iridium LLC, free and clear of any Lien (as such number may be adjusted from time to time by stock splits, stock dividends, recapitalizations or other similar transactions). SECTION 5.02. Non-Compete. Motorola will not produce for itself or others a commercial satellite-based space system of a global communications system similar to the IRIDIUM System, which satellite-based space system provides direct coverage to the entire earth and is designed to principally provide direct voice service to and from hand-held, fully portable subscriber units no larger than the first-generation IRIDIUM handheld voice units; provided that: (a) nothing in this Section shall be construed to prohibit Motorola from producing satellite-based space systems for Iridium or any successor or related entity; and (b) notwithstanding anything in this Agreement to the contrary, the agreement of Motorola under this Section shall terminate and be of no further force and effect upon the earliest to occur of (i) the date on which this Agreement shall terminate pursuant to Section 7.13, (ii) the date on which the Space System Contract shall be terminated in accordance with the terms thereof (but in no event earlier than December 31, 1999) and (iii) July 31, 2003. SECTION 5.03. Conditions Precedent. In order to satisfy certain of the conditions precedent specified in Section 4.02 of the Credit Agreement, Motorola agrees to deliver the documents specified in Section III of Part B of Appendix 2 to the Credit Agreement. SECTION 5.04. Payments. Motorola hereby acknowledges and agrees that all payments to be made by Motorola to Iridium under the Motorola Assigned Agreements shall be made in lawful money of the United States of America, directly to the Collateral Agent, for deposit into the Prepayment Account (details of which account shall be provided in writing to Motorola by the Collateral Agent) or to such other Person and/or at such other address as the Collateral Agent may from time to time specify in writing to Motorola, for application by the Collateral Agent in the manner contemplated by the Depositary Agreement, and shall be accompanied by a notice from Motorola stating that such payments are made under the applicable Motorola Assigned Agreement and identifying the relevant provision thereof which such payment Motorola Consent 16 - 16 - was made. Iridium hereby irrevocably authorizes and directs Motorola to make such payments in respect of each Motorola Assigned Agreement as provided above and the Collateral Agent (to the extent owed any payments under such Motorola Assigned Agreement by virtue of this Agreement) and Iridium confirms that any such payment made in the manner herein provided will constitute a valid discharge of the relevant payment obligations of Motorola under such Motorola Assigned Agreement, provided that the Collateral Agent shall have no liability or responsibility hereunder for determining the correctness of the amount of any payment made or required to be made by Motorola under Motorola Assigned Agreement. Motorola will not, without the prior written consent of the Collateral Agent, make any payments to or for the benefit of Iridium under any of the Motorola Assigned Agreements except in accordance with this Section. SECTION 5.05. Cooperation with the Independent Technical Advisor. Subject to the confidentiality requirements set forth in Section 7.12, Motorola will use all reasonable efforts to cooperate with the Independent Technical Advisor to provide information, and to allow reasonable access to, and inspection of, the facilities of Motorola or any of its Subsidiaries used in the Development of the Project and to allow reasonable access to the relevant senior representatives of Motorola who are principally involved therewith, for the purpose of ensuring that the Independent Technical Advisor shall be informed as to the progress of the completion of the Project and the achievement of the technical conditions precedent set forth in Appendix A to Appendix 2 of the Credit Agreement (the "Technical Conditions"). Without limiting the foregoing, the Company and Motorola agree to hold at least one meeting per calendar month, at a time and location to be mutually agreed upon by Motorola, Iridium and the Independent Technical Advisor, which shall be attended by appropriate senior representatives of Motorola, Iridium and the Independent Technical Advisor for the primary purpose of providing the Independent Technical Advisor with an update as to the progress achieved by Motorola since the date of the last such meeting (the "Relevant Period") in satisfying the Technical Conditions. In connection with each such meeting Motorola will present to the Independent Technical Advisor a briefing, in reasonable detail, conducted by representatives of Motorola who are informed as to the matters covered by the briefing, setting forth the results of such tests or milestones associated with the Technical Conditions that are pertinent to the current stage of financing. In connection with each such briefing Motorola shall provide to the Independent Technical Advisor a statement in writing identifying the Technical Conditions that, in Motorola's view, have been completed during the Relevant Period and copies of test cases and test reports referenced in the briefing. The test reports shall be accompanied by "pointers" which identify the relevant sections of the report, including those sections which identify any qualifications or discrepancies (if any) that have been encountered in performing such tests. Motorola and Iridium further acknowledge and agree that in order to enable the Independent Technical Advisor to determine whether or not it is able to provide the verification contemplated to be provided under the Credit Agreement by the Independent Technical Advisor with respect to satisfaction of the Technical Conditions, it may be necessary for the Independent Technical Advisor to witness certain tests that are reasonably necessary for the validation by the Independent Technical Advisor of completion of the Technical Motorola Consent 17 - 17 - Conditions. Motorola and Iridium agree to determine in good faith with the Independent Technical Advisor which tests will be so witnessed and Motorola will provide reasonable prior notice as to the time and location of each such test to the Independent Technical Advisor. SECTION 5.06. Designees and Transferees. It is acknowledged and agreed that the Collateral Agent may employ agents and attorneys-in-fact in exercising the Security Agreement Remedies, and in that connection may designate another entity to take action on behalf of the Collateral Agent including, but not limited to, the enforcement of and/or acquisition of Iridium's rights in any or all of the Motorola Assigned Agreements or otherwise in respect of the Project. It is further acknowledged and agreed that in connection with the exercise by the Collateral Agent of the Securities Agreement Remedies, the Collateral Agent may cause Iridium's rights in any or all of the Motorola Assigned Agreements (and/or other assets associated with the Project) to be transferred or assigned to a third party pursuant to the Security Agreement (a "transferee"). The provisions of this Agreement (including, without limitation, in Articles III and IV and this Article) are intended to benefit the Collateral Agent, its agents, attorneys-in-fact and designees (collectively, the "designees") and each transferee. Accordingly, unless the context otherwise requires, references to "Collateral Agent" or "Administrative Agent" shall be deemed to include references to designees and transferees thereof permitted pursuant to the Security Documents (regardless of whether so expressly provided herein), and all actions permitted to be taken by the Collateral Agent or the Administrative Agent, as the case may be, under this Agreement may be taken by any such designee or transferee, as appropriate. ARTICLE VI SUBORDINATION SECTION 6.01. Agreement to Subordinate. Motorola covenants and agrees, and Iridium likewise covenants and agrees, that, to the extent and in the manner hereinafter set forth in this Section, the payment of the Motorola Subordinated Claims is hereby expressly made subordinate and subject in right of payment to the prior indefeasible payment in full in cash of all Senior Bank Debt. In further of the foregoing, Motorola and Iridium agree that no payment shall be made by Iridium, nor accepted by Motorola, on account of the Motorola Subordinated Claims unless and until all Senior Bank Debt shall have been paid in full in cash and all commitments of the holders of Senior Bank Debt to make loans under the Senior Credit Agreement shall have expired or terminated. In the event that, notwithstanding the foregoing (but subject to Section 6.02 in the circumstances described therein), Motorola shall have received any payment prohibited by the foregoing provisions of this Section, then and in such event such payment shall be held in trust for the holders of the Senior Bank Debt and paid over or delivered forthwith to the Senior Bank Debt Representative for application to the Senior Bank Debt remaining unpaid after giving effect to any concurrent payment of or distribution to or for the holders of Senior Bank Debt. Motorola Consent 18 - 18 - SECTION 6.02. Bankruptcy, Liquidation, Dissolution, Etc. In the event of (a) any insolvency or bankruptcy case or proceeding, or any receivership, liquidation, reorganization or other similar case or proceeding in connection therewith, relative to Iridium or to its creditors, as such, or to its assets, or (b) any liquidation, dissolution or other winding up of Iridium, whether voluntary or involuntary and whether or not involving insolvency or bankruptcy, or (c) any assignment for the benefit of creditors or any other marshalling of assets and liabilities of Iridium, then and in any such event: (i) the holders of Senior Bank Debt shall be entitled to receive payment in full in cash of all amounts due or to become due on or in respect of all Senior Bank Debt, before Motorola is entitled to receive any payment on account of the Motorola Subordinated Claims; and (ii) any payment or distribution of assets of Iridium of any kind or character, whether in cash, property or securities, by set-off or otherwise, to which Motorola would be entitled but for the provisions of this Agreement, including any such payment or distribution which may be payable or deliverable by reason of the payment of any other Indebtedness of Iridium being subordinated to the payment of the Motorola Subordinated Claims shall be paid by the liquidating trustee or agent or other person making such payment or distribution, whether a trustee in bankruptcy, a receiver or liquidating trustee or otherwise, directly to the holders of Senior Bank Debt or the Senior Bank Debt Representative or to the trustee or trustees under any indenture under which any instruments evidencing any of such Senior Bank Debt may have been issued, ratably according to the aggregate amounts remaining unpaid on account of the Senior Bank Debt held or represented by each such holder, to the extent necessary to make payment in full in cash of all Senior Bank Debt remaining unpaid, after giving effect to any concurrent payment or distribution to or for the holders of such Senior Bank Debt; and (iii) in the event that, notwithstanding the foregoing provisions of this Section, Motorola shall have received any such payment or distribution of assets of Iridium of any kind or character, whether in cash, property or securities, including any such payment or distribution which may be payable or deliverable by reason of the payment of any other Indebtedness of Iridium being subordinated to the payment of the Motorola Subordinated Claims before all Senior Bank Debt is paid in full in cash, then and in such event such payment or distribution shall be held in trust for the holders of Senior Bank Debt and paid over or delivered forthwith to the trustee in bankruptcy, receiver, liquidating trustee, custodian, assignee, agent or other Person making payment or distribution of assets of Iridium for application to the payment of all Senior Bank Debt remaining unpaid, to the extent necessary to pay all Senior Bank Debt in full in cash, after giving effect to any concurrent payment or distribution to or for the holders of Senior Bank Debt. Motorola Consent 19 - 19 - If Motorola shall have failed to file proper claims or proofs of claim with respect to the Motorola Subordinated Claims in any proceeding of the type referred to in the first sentence of this Section prior to 30 days before the expiration of the time to file such claims or proofs of claim, Motorola hereby appoints and empowers the Senior Bank Debt Representative (i) to file such claims or proofs of claim and/or (ii) if Motorola shall fail to vote any such claim at least 15 days prior to the expiration of the time to vote such claim, to vote such claim; provided that the Senior Bank Debt Representative shall have no obligation to file and/or vote any such claim. If the Senior Bank Debt Representative votes any such claim in accordance with the provisions of this paragraph Motorola shall not be entitled to modify, revoke or withdraw such vote. Motorola shall execute and deliver, at the expense of the holders of the Senior Bank Debt, such agreements, instruments and documents as the holders of the Senior Bank Debt the Senior Bank Debt Representative may reasonably request to carry out the intent of this paragraph. SECTION 6.03. Subrogation. Subject to the payment in full in cash of all Senior Bank Debt and the expiration or termination of the commitments of the holders of Senior Bank Debt to make extensions of credit under the Senior Credit Agreement, Motorola shall be subrogated to the rights of the holders of Senior Bank Debt to receive payments and distributions of cash, property and securities applicable to the Senior Bank Debt until the Motorola Subordinated Claims shall be paid in full. For purposes of such subrogation, no payments or distributions to the holders of Senior Bank Debt of any cash, property or securities to which Motorola would be entitled except for the provisions of this Section, and no payments over pursuant to the provisions of this Section to the holders of Senior Bank Debt by Motorola shall, as among Iridium, its creditors (other than holders of Senior Bank Debt), and Motorola be deemed to be a payment or distribution by Iridium to or on account of the Senior Bank Debt. SECTION 6.04. Provisions Solely to Define Relative Rights. The provisions of this Section are and are intended solely for the purpose of defining the relative rights of Motorola as the holder of the Motorola Subordinated Claims, on the one hand, and the holders of Senior Bank Debt, on the other hand. Nothing contained in this Section or elsewhere in this Agreement is intended to or shall (a) impair, as among Iridium, its creditors (other than holders of Senior Bank Debt) and Motorola, the obligation of Iridium, which is absolute and unconditional, to pay to Motorola the Motorola Subordinated Claims as and when the same shall become due and payable in accordance with their respective terms, or (b) affect the relative rights against Iridium of Motorola and creditors of Iridium (other than the holders of Senior Bank Debt). SECTION 6.05. No Waiver of Subordination Provisions. No right of any present or future holder of any Senior Bank Debt to enforce subordination as herein provided shall at any time in any way be prejudiced or impaired by any act or failure to act on the part of Iridium or by any act or failure to act, in good faith, by any such holder, or by any non-compliance by Iridium with the terms, provisions and covenants of this Agreement, regardless of any knowledge thereof any such holder may have or be otherwise charged with. Without in any way limiting the Motorola Consent 20 - 20 - generality of the foregoing sentence, the holders of Senior Bank Debt may (except as provided in Section 6.08), at any time and from time to time, without the consent of or notice to Motorola, without incurring responsibility to Motorola and without impairing or releasing the subordination provided in this Section or the obligations hereunder of Motorola to the holders of Senior Bank Debt, do any one or more of the following: (i) change the manner, place or terms of payment or extend the time of payment of, or renew or alter, Senior Bank Debt or any instrument evidencing the same or any agreement under which Senior Bank Debt is outstanding; (ii) sell, exchange, release or otherwise deal with any property pledged, mortgaged or otherwise securing Senior Bank Debt, or waive any provision thereof or the occurrence of any default thereunder; (iii) release any Person liable in any manner for the collection of Senior Bank Debt; and (iv) exercise or refrain from exercising any rights against Iridium and any other Person. SECTION 6.06. Limitations on Remedies. Notwithstanding anything contained herein to the contrary, prior to the payment of all Senior Bank Debt in full in cash and the expiration or termination of the commitments of the holders of Senior Bank Debt to make extensions of credit under the Senior Credit Agreement, Motorola will not ask, demand, claim or sue for payment of, or take any other action to collect, any of the Motorola Subordinated Claims, whether by set-off or in any other manner, and, without limiting the foregoing, Motorola will not (i) initiate any judicial proceeding or action to collect all or any portion of the Motorola Subordinated Claims or (ii) file or join with others in filing a petition against Iridium or any of its Subsidiaries under any bankruptcy or similar law; provided that, notwithstanding the foregoing, Motorola shall be permitted to commence judicial proceedings against Iridium to the extent (but only to the extent) necessary to avoid being barred by any relevant statute of limitations from pursuing any such right or remedy against Iridium and thereafter shall take only such action in connection with such proceeding as shall be reasonably necessary to preserve such right or remedy. Motorola agrees to notify the Administrative Agent of the commencement of any such proceeding and of any material development in connection therewith. SECTION 6.07. Covenants Relating to Motorola Subordinated Claims. Motorola covenants and agrees with the Lenders and the Administrative Agent that, until the payment and satisfaction in full of the Senior Bank Debt and the expiration or termination of the Commitments of the Lenders under the Credit Agreement: Motorola Consent 21 - 21 - (a) the Motorola Subordinated Claims shall be unsecured obligations of Iridium (and not of any of Iridium's Subsidiaries), and Motorola will not ask, demand, take or receive any property of Iridium or any of its Subsidiaries as security for all or any portion of the Motorola Subordinated Claims; (b) Motorola agrees that it does not, and will not, have or acquire any claim against any Subsidiary of Iridium with respect to any of the Motorola Subordinated Claims; (c) Motorola will not, without the prior written consent of the Administrative Agent, assign or otherwise transfer, in whole or in part, or encumber any of its rights or obligations in respect of the Motorola Subordinated Claims (other than in connection with any transaction permitted under the last sentence of Section 3.03); (d) Motorola will not, without the prior written consent of the Administrative Agent, amend or otherwise modify the provisions of the Motorola Subordinated Claims or any Motorola Guarantee Agreement in any way which could reasonably be expected to be adverse to the interests of the holders of Senior Bank Debt under this Agreement. (e) Motorola will promptly following the request of the Administrative Agent execute and deliver such further documents and do such other acts and things as the Administrative Agent or any Lender may reasonably request from time to time in order to more fully effect the purposes of this Section. SECTION 6.08. Modification of the Credit Agreement. Notwithstanding anything herein or in the Credit Agreement to the contrary, no amendment or modification to the Credit Agreement or any refinancing thereof shall be effective as against Motorola for purposes of the subordination provisions set forth in this Article (and the related definitions) without the prior written consent thereto by Motorola if such amendment, modification or refinancing (a) increases the aggregate commitments under the Senior Credit Agreement to an aggregate amount in excess of $1,700,000,000, (b) alters in any material respect the types of obligations that constitute Senior Debt, (c) extends the maturity of the Loans under the Senior Credit Agreement beyond July 15, 2005 or (d) modifies any of the subordination provisions set forth in this Article. ARTICLE VII MISCELLANEOUS SECTION 7.01. No Waiver. No failure on the part of any Agent or any Lender to exercise, and no course of dealing with respect to, and no delay in exercising, any right, power or remedy hereunder shall operate as a waiver thereof; nor shall any single or partial exercise by Motorola Consent 22 - 22 - any Agent or any Lender of any right, power or remedy hereunder preclude any other or further exercise thereof or the exercise of any other right, power or remedy. The remedies herein are cumulative and are not exclusive of any remedies provided by law. SECTION 7.02. Notices. All notices, requests, consents and demands hereunder shall be in writing and telecopied or delivered to the intended recipient at the "Address for Notices" specified beneath its name on the signature pages hereof or, as to either party, at such other address as shall be designated by such party in a notice to the other party. Except as otherwise provided in this Agreement, all such communications shall be deemed to have been duly given when transmitted by telecopier or personally delivered or, in the case of a mailed notice, upon receipt, in each case given or addressed as aforesaid. SECTION 7.03. Expenses. Motorola agrees to reimburse each of the Lenders and the Agents for all reasonable out-of-pocket costs and expenses of the Lenders and the Agents (including, without limitation, the reasonable fees and expenses of legal counsel) in connection with (a) any default by Motorola in the performance of any of its obligations hereunder and any enforcement or collection proceeding resulting therefrom, including, without limitation, all manner of participation in or other involvement with (i) bankruptcy, insolvency, receivership, foreclosure, winding up or liquidation proceedings, (ii) judicial or regulatory proceedings and (iii) workout, restructuring or other negotiations or proceedings (whether or not the workout, restructuring or transaction contemplated thereby is consummated) and (b) the enforcement of this Section. SECTION 7.04. Amendments. The terms of this Agreement may be amended or modified only by an instrument in writing duly executed by Motorola, Iridium and the Administrative Agent and the Collateral Agent, and any provision of this Agreement may be waived by the Administrative Agent acting with the consent of such Lenders. Any such amendment or waiver shall be binding upon Motorola, Iridium, each Agent, each Lender and (in the case of any amendment or waiver relating to Article VI or any related definitions or terms) any other holder of Senior Bank Debt. Any waiver shall be effective only for the specified purpose for which it was given. SECTION 7.05. Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of the respective successors and assigns of Motorola, Iridium, the Agents and the Lenders, provided, however, that Motorola shall not assign or transfer any of its rights or obligations hereunder without the prior written consent of the Administrative Agent. The agreements of the parties hereto are solely for the benefit of Motorola, the Agents and the other Secured Parties, and no person or entity (other than the foregoing parties and their respective permitted successors and assigns) shall have any rights hereunder. Motorola Consent 23 - 23 - SECTION 7.06. Captions. The captions and section headings appearing herein are included solely for convenience of reference and are not intended to affect the interpretation of any provision of this Agreement. SECTION 7.07. Counterparts. This Agreement may be executed in any number of counterparts, all of which taken together shall constitute one and the same instrument and either of the parties hereto may execute this Agreement by signing any such counterpart. SECTION 7.08. Governing Law; Submission to Jurisdiction. This Agreement shall be governed by, and construed in accordance with, the law of the State of New York. Motorola hereby submits to the nonexclusive jurisdiction of the United States District Court for the Southern District of New York and of the Supreme Court of the State of New York sitting in New York County (including its Appellate Division), and of any other appellate court in the State of New York, for the purposes of all legal proceedings arising out of or relating to this Agreement or the transactions contemplated hereby. Motorola hereby irrevocably waives, to the fullest extent permitted by applicable law, any objection that it may now or hereafter have to the laying of the venue of any such proceeding brought in such a court and any claim that any such proceeding brought in such a court has been brought in an inconvenient forum. Motorola irrevocably consents to the service of any and all process in any such suit, action or proceeding by mailing of copies of such process to it at its address provided under Section 7.02. All mailings under this Section shall be by certified mail, return receipt requested. Nothing in this Agreement will affect the right of any party to this Agreement to serve process in any other manner permitted by law. SECTION 7.09. Waiver of Jury Trial. EACH OF MOTOROLA, IRIDIUM, THE ADMINISTRATIVE AGENT AND THE COLLATERAL AGENT (IN EACH CASE, ON BEHALF OF ITSELF AND THE LENDERS) HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY. SECTION 7.10. Agents and Attorneys-in-Fact. Each Agent may employ agents and attorneys-in-fact in connection herewith and shall not be responsible for the negligence or misconduct of any such agents or attorneys-in-fact selected by it in good faith. SECTION 7.11. Severability. If any provision hereof is invalid and unenforceable in any jurisdiction, then, to the fullest extent permitted by law, (a) the other provisions hereof shall remain in full force and effect in such jurisdiction and shall be liberally construed in favor of the Agents and the Lenders in order to carry out the intentions of the parties hereto as nearly as may Motorola Consent 24 - 24 - be possible and (b) the invalidity or unenforceability of any provision hereof in any jurisdiction shall not affect the validity or enforceability of such provision in any other jurisdiction. SECTION 7.12. Confidentiality. (a) Motorola acknowledges that from time to time financial advisory, investment banking and other services may be offered or provided to Motorola or one or more of its Subsidiaries (in connection with this Agreement or otherwise) by any Lender or by one or more subsidiaries or affiliates of such Lender. Motorola hereby agrees that, in the event any such services are provided to Motorola or any of its Subsidiaries, each Lender providing such services is authorized to share any information delivered to such Lender by Motorola and its Subsidiaries pursuant to the Credit Documents, or in connection with the decision of such Lender to enter into the Credit Agreement, to any such subsidiary or affiliate providing such services, provided that any such subsidiary or affiliate receiving such information agrees to be bound by the provisions of paragraph (b) of this Section as if it were a Lender hereunder. Such authorization shall survive the repayment of the Loans and the termination of the Commitments. (b) Each Agent agrees on behalf of itself, each Lender and each Global Arranger (and on behalf of their respective affiliates, directors, officers, employees and representatives) to restrict dissemination of any Confidential Information (as defined below) only to those of its directors, officers, employees and representatives who are involved in the evaluation of such information, and to use reasonable precautions to keep such information confidential, in accordance with its customary procedures for handling confidential information of the same nature and in accordance with safe and sound banking practices. For purposes of the Credit Documents, "Confidential Information" shall mean any non-public information supplied to it by Motorola pursuant to this Agreement or any other Motorola Agreement, that is identified (in writing, in the case of written information) by Motorola as being confidential at the time the same is delivered to the Lenders, the Agents or the Global Arrangers, provided that nothing herein shall limit the disclosure of any such information by any Lender, any Agent or any Global Arranger (i) after such information shall have become public (other than through a violation of this Section by such Lender, any Agent or any Global Arranger), (ii) to the extent required by statute, rule, regulation or judicial process, (iii) to counsel or other experts for any of the Lenders, Agents or Global Arrangers, provided that such counsel or experts shall be bound by the requirements of this paragraph (b) with respect to any such information, (iv) to bank examiners (or any other regulatory authority having jurisdiction over any Lender, any Agent or any Global Arranger), or to auditors or accountants, (v) to any Global Arranger, any Agent or any Lender (or to any of their respective affiliates, provided that any such disclosure to any such affiliate shall be made on a "need to know" basis only for use by such affiliates (and each of its officers, directors and employees) solely in connection with the transactions contemplated by the Credit Documents and each such affiliate (and each of its officers, directors and employees) shall agree (for the benefit of the Company and Motorola) to be bound to keep such information confidential on the same terms Motorola Consent 25 - 25 - as set forth in this Section), (vi) in connection with any litigation to which any one or more of the Lenders, the Global Arrangers or the Agents is a party, or in connection with the enforcement of rights or remedies hereunder or under any other Credit Document, provided that the party intending to make such disclosure shall use reasonable efforts to cooperate with Motorola to reasonably minimize the extent of any such disclosure or to obtain confidential treatment of information to be disclosed, (vii) to a subsidiary or affiliate of such Lender as provided in paragraph (a) of this Section or (viii) to any assignee or participant (or prospective assignee or participant) so long as such assignee or participant (or prospective assignee or participant) first executes and delivers to the respective Lender and Motorola a confidentiality agreement containing provisions substantially the same as those in this Section; provided, further, that in no event shall any Lender, any Agent or any Global Arranger be obligated or required to return any materials furnished by Motorola hereunder or under any other Motorola Agreement, except to the extent it has agreed to do so in writing in conjunction with the receipt of such information. The obligations of any assignee that has executed a confidentiality agreement as provided above shall be superseded by this Section on the date upon which such assignee becomes a Lender hereunder pursuant to Section 11.04(b) of the Credit Agreement. SECTION 7.13. Effective Date; Termination. This Agreement shall become effective upon the execution and delivery of one or more counterparts hereof by each of the parties hereto and (except as otherwise provided in clause (b) of Section 5.02) shall continue in effect until payment in full of all principal of and interest on the Loans and all other amounts owing to the Lenders and the Agents under the Credit Agreements and the other Credit Document and the expiration or termination of the Commitments, whereupon this Agreement shall terminate. If, at any time, all or part of any payment with respect to the Loans (or, in the case of Article VI, the Senior Bank Debt) theretofore made by Iridium or any other Person is rescinded or must otherwise be returned by the holders thereof for any reason whatsoever (including, without limitation, the bankruptcy, insolvency, reorganization or similar action involving Iridium or such other Person), this Agreement (except as otherwise provided in clause (b) of Section 5.02) shall continue to be effective or be reinstated, as the case may be, all as though such payment had not been made. IN WITNESS WHEREOF, the parties hereto have caused this Consent and Agreement to be duly executed and delivered as of the day and year first above written. MOTOROLA, INC. By ________________________ Title: Motorola Consent 26 - 26 - Address for Notices: Motorola, Inc. Corporate Offices 1303 East Algonquin Road Schaumburg, Illinois 60196 Attention: Treasurer Telecopier No.: 847-576-4768 Telephone No.: 847-576-5069 with copies to: Motorola, Inc. Corporate Offices 1303 East Algonquin Road Schaumburg, Illinois 60196 Attention: Corporate Secretary Telecopier No.: 847-576-2818 Telephone No.: 847-576-5008 and Motorola, Inc. 425 North Martingdale Road Schaumburg, Illinois 60173 Attention: Vice President - Law Department, Iridium Matters Telecopier No.: 847-435-3328 Telephone No.: 847-435-3325 Motorola Consent 27 - 27 - IRIDIUM OPERATING LLC By ________________________ Title: Motorola Consent 28 - 28 - THE CHASE MANHATTAN BANK, as Administrative Agent By ________________________ Title: THE CHASE MANHATTAN BANK, as Collateral Agent By ________________________ Title: Motorola Consent 29 SCHEDULE 1 Governmental Approvals and Proceedings [to be completed by Motorola] EX-10.38 18 FORM OF MOTOROLA PLEDGE AGREEMENT 1 EXHIBIT 10.38 (EXHIBIT H TO THE CREDIT AGREEMENT) PLEDGE AGREEMENT PLEDGE AGREEMENT dated as of [___________, 199_] between: MOTOROLA, INC.(1), a corporation duly organized and validly existing under the laws of the State of Delaware (the "Pledgor"); and THE CHASE MANHATTAN BANK, as collateral agent for the lenders party to the Credit Agreement referred to below (in such capacity, together with its successors in such capacity, the "Collateral Agent"). Iridium Operating LLC, a Delaware limited liability company (the "Company"), certain lenders, the Collateral Agent, The Chase Manhattan Bank, as Administrative Agent, and Barclays Capital, the investment banking division of Barclays Bank PLC, as Documentation Agent thereunder are parties to a Credit Agreement dated as of December [__], 1997 (as modified, supplemented or otherwise modified and in effect from time to time, the "Credit Agreement"), providing, subject to the terms and conditions thereof, for loans to be made by said lenders to the Company in an aggregate principal amount not exceeding $1,000,000,000. To induce said lenders to enter into the Credit Agreement and to extend credit thereunder, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Pledgor has agreed to pledge and grant a security interest in the Collateral (as hereinafter defined) as security for the Secured Obligations (as so defined). Accordingly, the parties hereto agree as follows: ARTICLE I DEFINITIONS SECTION 1.01. Defined Terms. Capitalized terms used but not defined herein shall have their respective defined meanings in the Credit Agreement. In addition, as used herein: "Collateral" has the meaning assigned to such term in Article III. "Secured Obligations" shall mean, collectively, (a) all obligations of the Company in respect of principal of and interest on the Loans and all other amounts owing under the Credit Agreement and the other Credit Documents to which it is a party, (b) all obligations of each Subsidiary of the Company under Credit Document to which it is a party and (c) all obligations of the Pledgor to the Collateral Agent hereunder. - ---------- (1) If applicable, the pledgor will be the Subsidiary of Motorola that directly owes the Subsidiary holding the FCC License. Motorola Pledge Agreement 2 - 2 - "Secured Parties" means the Lenders, the Collateral Agent and the other Agents. "Uniform Commercial Code" shall mean the Uniform Commercial Code as in effect from time to time in the State of New York. SECTION 1.02. Terms Generally. The definitions of terms herein shall apply equally to the singular and plural forms of the terms defined. Whenever the context may require, any pronoun shall include the corresponding masculine, feminine and neuter forms. The words "include", "includes" and "including" shall be deemed to be followed by the phrase "without limitation". The word "will" shall be construed to have the same meaning and effect as the word "shall". Unless the context requires otherwise (a) any definition of or reference to any agreement, instrument or other document herein shall be construed as referring to such agreement, instrument or other document as from time to time amended, supplemented or otherwise modified, including an amendment and restatement thereof, but subject to any restrictions on such amendments, supplements or modifications set forth herein, (b) any reference herein to any Person shall be construed to include such Person's successors and assigns or, in the case of any Governmental Authority, any entity succeeding to any or all of the functions of such Governmental Authority, (c) the words "herein", "hereof" and "hereunder", and words of similar import, shall be construed to refer to this Agreement in its entirety and not to any particular provision hereof, (d) all references herein to Articles, Sections and Annexes shall be construed to refer to Articles and Sections of, and Annexes to, this Agreement and (e) the words "asset" and "property" shall be construed to have the same meaning and effect and to refer to any and all tangible and intangible assets and properties, including cash, securities, accounts and contract rights. ARTICLE II REPRESENTATIONS AND WARRANTIES The Pledgor represents and warrants to the Secured Parties that: (a) The Pledgor has all right, title and interest in, to and under, and is the record owner of, the Collateral in which it purports to grant a security interest pursuant to Section 3 and no Lien exists or will exist upon the Collateral at any time (and no right or option to acquire the same exists in favor of any other Person), except for the pledge and security interest in favor of the Collateral Agent for the benefit of the Lenders created or provided for herein, which pledge and security interest constitute a first priority perfected pledge and security interest in and to all of the Collateral. Motorola Pledge Agreement 3 - 3 - (b) The Pledged Stock represented by the certificates identified in Annex 1 is, and all other Pledged Stock in which the Pledgor shall hereafter grant a security interest pursuant to Article III will be, duly authorized, validly existing, fully paid and non-assessable and none of such Pledged Stock is or will be subject to any contractual restriction, or any restriction under the charter or by-laws of the issuer of the Pledged Stock, upon the transfer of such Pledged Stock (except for any such restriction contained herein). (c) The Pledged Stock represented by the certificates identified in Annex 1 constitutes all of the issued and outstanding shares of capital stock of any class of the issuer of the Pledged Stock beneficially owned by the Pledgor on the date hereof (whether or not registered in the name of the Pledgor) and Annex 1 correctly identifies, as at the date hereof, the respective class and par value of the shares comprising such Pledged Stock and the respective number of shares (and registered owners thereof) represented by each such certificate. ARTICLE III PLEDGE As collateral security for the prompt payment in full when due (whether at stated maturity, by acceleration or otherwise) of the Secured Obligations now existing or hereafter arising, the Pledgor hereby pledges, assigns, hypothecates and transfers to the Collateral Agent for the equal and ratable benefit of the Secured Parties, and hereby grants to the Collateral Agent for the equal and ratable benefit of the Secured Parties a Lien on and security interest in, all of the Pledgor's right, title and interest in, to and under the following, whether now owned by the Pledgor or hereafter acquired and whether now existing or hereafter coming into existence and wherever located (all being collectively referred to herein as "Collateral"): (a) the shares of common stock of [__________](2) represented by the certificate(s) identified in Annex 1 and all other shares of capital stock of whatever class of such issuer, now or hereafter owned by the Pledgor, in each case together with the certificates evidencing the same or, if the Pledgor shall at any time transfer the FCC License to another Subsidiary, the shares of common stock of such Subsidiary and all other shares of capital stock of whatever class of such Subsidiary (collectively, the "Pledged Stock"); - ---------- (2) Insert name of the Motorola Subsidiary holding the FCC License as of the date hereof. Motorola Pledge Agreement 4 - 4 - (b) all shares, securities, moneys or property representing a dividend on any of the Pledged Stock, or representing a distribution or return of capital upon or in respect of the Pledged Stock, or resulting from a split-up, revision, reclassification or other like change of the Pledged Stock or otherwise received in exchange therefor, and any subscription warrants, rights or options issued to the holders of, or otherwise in respect of, the Pledged Stock; (c) without affecting the obligations of the Pledgor under any provision prohibiting such action hereunder or under any other Motorola Agreement, in the event of any consolidation or merger in which the issuer of the Pledged Stock is not the surviving corporation, all shares of each class of the capital stock of the successor corporation (unless such successor corporation is the Pledgor itself) formed by or resulting from such consolidation or merger; and (d) all proceeds, products, offspring, rents, revenues, issues, profits, royalties, income, benefits, accessions, additions, substitutions and replacements of and to any of the property of the Pledgor described in the preceding clauses of this Section and, to the extent related to any property described in said clauses or such proceeds, all books, correspondence, credit files, records, invoices and other papers. ARTICLE IV REMEDIES In furtherance of the grant of the pledge and security interest pursuant to Article III, the Pledgor hereby agrees with the Secured Parties as follows: SECTION 4.01. Delivery and Other Perfection. The Pledgor shall: (a) if any of the shares, securities, moneys or property required to be pledged by the Pledgor under Article III are received by the Pledgor, forthwith either (x) transfer and deliver to the Collateral Agent such shares or securities so received by the Pledgor (together with the certificates for any such shares and securities duly endorsed in blank or accompanied by undated stock powers duly executed in blank), all of which thereafter shall be held by the Collateral Agent, pursuant to the terms of this Agreement, as part of the Collateral or (y) take such other action as the Agent shall deem necessary or appropriate to duly perfect the Lien created hereunder in such shares, securities, moneys or property in Article III; Motorola Pledge Agreement 5 - 5 - (b) give, execute, deliver, file and/or record any financing statement, notice, instrument, document, agreement or other papers that may be necessary or desirable (in the judgment of the Collateral Agent) to create, preserve, perfect or validate the security interest granted pursuant hereto or to enable the Collateral Agent to exercise and enforce its rights hereunder with respect to such pledge and security interest, including, without limitation, causing any or all of the Collateral to be transferred of record into the name of the Collateral Agent or its nominee (and the Collateral Agent agrees that if any Collateral is transferred into its name or the name of its nominee, the Collateral Agent will thereafter promptly give to the Pledgor copies of any notices and communications received by it with respect to the Collateral pledged by the Pledgor hereunder); (c) keep full and accurate books and records relating to the Collateral, and stamp or otherwise mark such books and records in such manner as the Collateral Agent may reasonably require in order to reflect the security interests granted by this Agreement; and (d) permit representatives of the Collateral Agent, upon reasonable notice, at any time during normal business hours to inspect and make abstracts from its books and records pertaining to the Collateral, all in such manner as the Collateral Agent may require. SECTION 4.02. Other Financing Statements and Liens. Without the prior written consent of the Collateral Agent, the Pledgor shall not file or suffer to be on file, or authorize or permit to be filed or to be on file, in any jurisdiction, any financing statement or like instrument with respect to the Collateral in which the Collateral Agent is not named as the sole secured party for the benefit of the Secured Parties. SECTION 4.03. Preservation of Rights. The Collateral Agent shall not be required to take steps necessary to preserve any rights against prior parties to any of the Collateral. SECTION 4.04. Pledged Stock. (a) The Pledgor will cause the Collateral to constitute at all times 100% of the total number of shares of each class of capital stock then outstanding of the Subsidiary of the Pledgor holding the FCC License. (b) Except as expressly permitted under the Motorola Consent, the Pledgor (i) will not create, incur, assume or suffer to exist any Lien upon, or sell, assign, transfer or otherwise dispose of all or any part of, the Collateral or (ii) consent to the creation of any restriction Motorola Pledge Agreement 6 - 6 - applicable to the Collateral Agent on the sale, assignment, transfer or other disposition by the Collateral Agent of any of the Collateral (except as provided in this Agreement). SECTION 4.05. Events of Default, Etc. During the period during which an Event of Default shall have occurred and be continuing: (a) the Collateral Agent shall have all of the rights and remedies with respect to the Collateral of a secured party under the Uniform Commercial Code (whether or not said Code is in effect in the jurisdiction where the rights and remedies are asserted) and such additional rights and remedies to which a secured party is entitled under the laws in effect in any jurisdiction where any rights and remedies hereunder may be asserted, including, without limitation, the right, to the maximum extent permitted by law, to exercise all voting, consensual and other powers of ownership pertaining to the Collateral as if the Collateral Agent were the sole and absolute owner thereof (and the Pledgor agrees to take all such action as may be appropriate to give effect to such right); (b) the Collateral Agent in its discretion may, in its name or in the name of the Pledgor or otherwise, demand, sue for, collect or receive any money or property at any time payable or receivable on account of or in exchange for any of the Collateral, but shall be under no obligation to do so; and (c) the Collateral Agent may, upon 30 days' prior written notice to the Pledgor of the time and place, with respect to the Collateral or any part thereof that shall then be or shall thereafter come into the possession, custody or control of the Secured Parties or any of their respective agents, sell, lease, assign or otherwise dispose of all or any part of the Collateral, at such place or places as the Collateral Agent deems best, and for cash or for credit or for future delivery, at public or private sale, without demand of performance or notice of intention to effect any such disposition or of the time or place thereof (except such notice as is required above or by applicable statute and cannot be waived), and any Secured Party or anyone else may be the purchaser, lessee, assignee or recipient of any or all of the Collateral so disposed of at any public sale (or, to the extent permitted by law, at any private sale) and thereafter hold the same absolutely, free from any claim or right of whatsoever kind, including any right or equity of redemption (statutory or otherwise), of the Pledgor, any such demand, notice and right or equity being hereby expressly waived and released. The Collateral Agent may, without notice or publication, adjourn any public or private sale or cause the same to be adjourned from time to time by announcement at the time and place fixed for the sale, and such sale may be made at any time or place to which the sale may be so adjourned. Motorola Pledge Agreement 7 - 7 - The proceeds of each collection, sale or other disposition under this Section shall be applied in accordance with Section 4.08. The Pledgor recognize that, by reason of certain prohibitions contained in the Securities Act of 1933, as amended, and applicable state securities laws, the Collateral Agent may be compelled, with respect to any sale of all or any part of the Collateral, to limit purchasers to those who will agree, among other things, to acquire the Collateral for their own account, for investment and not with a view to the distribution or resale thereof. The Pledgor acknowledge that any such private sales may be at prices and on terms less favorable to the Collateral Agent than those obtainable through a public sale without such restrictions, and, notwithstanding such circumstances, agree that any such private sale shall be deemed to have been made in a commercially reasonable manner and that the Collateral Agent shall have no obligation to engage in public sales and no obligation to delay the sale of any Collateral for the period of time necessary to permit the Company or issuer thereof to register it for public sale. SECTION 4.06. Removals, Etc. Without at least 30 days' prior written notice to the Collateral Agent, the Pledgor shall not (i) maintain any of its books and records with respect to the Collateral at any office or maintain its principal place of business at any place other than at the address indicated beneath its signature hereto or (ii) change its corporate name, or the name under which it does business, from the name shown on the signature pages hereto. SECTION 4.07. Private Sale. No Secured Party shall incur any liability as a result of the sale of the Collateral, or any part thereof, at any private sale pursuant to Section 4.05 conducted in a commercially reasonable manner. The Pledgor hereby waives any claims against the Secured Parties arising by reason of the fact that the price at which the Collateral may have been sold at such a private sale was less than the price that might have been obtained at a public sale or was less than the aggregate amount of the Secured Obligations, even if the Collateral Agent accepts the first offer received and does not offer the Collateral to more than one offeree. SECTION 4.08. Application of Proceeds. Except as otherwise herein expressly provided, the proceeds of any collection, sale or other realization of all or any part of the Collateral pursuant hereto, and any other cash at the time held by the Collateral Agent under this Agreement, shall be applied by the Collateral Agent: First, to the payment of the costs and expenses of such collection, sale or other realization, including reasonable out-of-pocket costs and expenses of the Collateral Agent and the reasonable fees and expenses of its agents and counsel, and all reasonable expenses incurred and advances made by the Collateral Agent in connection therewith; Motorola Pledge Agreement 8 - 8 - Next, to the payment in full of the Secured Obligations, in each case equally and ratably in accordance with the respective amounts thereof then due and owing or as the Lenders holding the same may otherwise agree; and Finally, to the payment to the Pledgor, or its successors or assigns, or as a court of competent jurisdiction may direct, of any surplus then remaining. As used in this Article IV, "proceeds" of Collateral shall mean cash, securities and other property realized in respect of, and distributions in kind of, Collateral, including any thereof received under any reorganization, liquidation or adjustment of debt of the Pledgor or any issuer of or obligor on any of the Collateral. SECTION 4.09. Attorney-in-Fact. Without limiting any rights or powers granted by this Agreement to the Collateral Agent while no Event of Default has occurred and is continuing, upon the occurrence and during the continuance of any Event of Default the Collateral Agent is hereby appointed the attorney-in-fact of the Pledgor for the purpose of carrying out the provisions hereof and taking any action and executing any instruments that the Collateral Agent may deem necessary or advisable to accomplish the purposes hereof, which appointment as attorney-in-fact is irrevocable and coupled with an interest. Without limiting the generality of the foregoing, so long as the Collateral Agent shall be entitled under this Article IV to make collections in respect of the Collateral, the Collateral Agent shall have the right and power to receive, endorse and collect all checks made payable to the order of the Pledgor representing any dividend, payment or other distribution in respect of the Collateral or any part thereof and to give full discharge for the same. SECTION 4.10. Perfection. Prior to or concurrently with the execution and delivery of this Agreement, the Pledgor shall (i) file such financing statements and other documents in such offices as the Collateral Agent may request to perfect the security interests granted in Article III and (ii) deliver to the Collateral Agent any certificates representing the Collateral, accompanied by undated stock powers duly executed in blank. SECTION 4.11. Termination. Upon the earlier of (a) the date on which all Secured Obligations shall have been paid in full and the Commitments of the Lenders under the Credit Agreement shall have expired or been terminated and (b) the effective date of the transfer of the FCC License to the Company or any of its Subsidiaries pursuant to Section 18.H of the Space System Contract, this Agreement shall terminate and all rights to the Collateral shall revert to the Pledgor, and the Collateral Agent shall forthwith cause to be assigned, transferred and delivered, against receipt but without any recourse, warranty or representation whatsoever, any remaining Collateral and money received in respect thereof, to or on the order of the Pledgor. Motorola Pledge Agreement 9 - 9 - SECTION 4.12. Further Assurances. The Pledgor agrees that, from time to time upon the written request of the Collateral Agent, the Pledgor will execute and deliver such further documents and do such other acts and things as the Collateral Agent may reasonably request in order fully to effect the purposes of this Agreement. ARTICLE V MISCELLANEOUS SECTION 5.01. No Waiver. No failure on the part of the Collateral Agent or any other Secured Party to exercise, and no course of dealing with respect to, and no delay in exercising, any right, power or remedy hereunder shall operate as a waiver thereof; nor shall any single or partial exercise by the Collateral Agent or any other Secured Party of any right, power or remedy hereunder preclude any other or further exercise thereof or the exercise of any other right, power or remedy. The remedies herein are cumulative and are not exclusive of any remedies provided by law. SECTION 5.02. Notices. All notices, requests, consents and demands hereunder shall be in writing and telecopied or delivered to the intended recipient at the "Address for Notices" specified beneath its name on the signature pages hereof or, as to any party, at such other address as shall be designated by such party in a notice to each other party. Except as otherwise provided in this Agreement, all such communications shall be deemed to have been duly given when transmitted by telecopier or personally delivered or, in the case of a mailed notice, upon receipt, in each case given or addressed as aforesaid. SECTION 5.03. Expenses. The Pledgor agrees to reimburse each of the Lenders and the Collateral Agent for all reasonable costs and expenses of the Lenders and the Collateral Agent (including, without limitation, the reasonable fees and expenses of legal counsel) in connection with (a) any enforcement proceeding hereunder, including, without limitation, all manner of participation in or other involvement with (i) performance by the Collateral Agent of any obligations of the Pledgor in respect of the Collateral that the Pledgor have failed or refused to perform, (ii) bankruptcy, insolvency, receivership, foreclosure, winding up or liquidation proceedings, or any actual or attempted sale, or any exchange, enforcement, collection, compromise or settlement in respect of any of the Collateral, and for the care of the Collateral and defending or asserting rights and claims of the Collateral Agent in respect thereof, by litigation or otherwise, (iii) judicial or regulatory proceedings and (iv) workout, restructuring or other negotiations or proceedings (whether or not the workout, restructuring or transaction contemplated thereby is consummated) and (b) the enforcement of this Section, and all such costs Motorola Pledge Agreement 10 - 10 - and expenses shall be Secured Obligations entitled to the benefits of the collateral security provided pursuant to Article III. SECTION 5.04. Amendments, Etc. The terms of this Agreement may be waived, altered or amended only by an instrument in writing duly executed by the Pledgor and the Collateral Agent. Any such amendment or waiver shall be binding upon the Collateral Agent, each other Secured Party and the Pledgor. SECTION 5.05. Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of the respective successors and assigns of the Pledgor, the Collateral Agent and each other Secured Party, provided, however, that the Pledgor shall not assign or transfer its rights hereunder without the prior written consent of the Collateral Agent. SECTION 5.06. Captions. The caption and section headings used herein are for convenience of reference only, are not part of this Agreement and shall not affect the construction of, or be taken into consideration in interpreting, this Agreement. SECTION 5.07. Counterparts. This Agreement may be executed in counterparts (and by different parties hereto on different counterparts), each of which shall constitute an original, but all of which when taken together shall constitute a single contract. SECTION 5.08. Governing Law; Jurisdiction; Consent to Service of Process. (a) This Agreement shall be construed in accordance with and governed by the law of the State of New York. (b) The Pledgor hereby irrevocably and unconditionally submits, for itself and its property, to the nonexclusive jurisdiction of the Supreme Court of the State of New York sitting in New York County and of the United States District Court of the Southern District of New York, and any appellate court from any thereof, in any action or proceeding arising out of or relating to this Agreement, or for recognition or enforcement of any judgment, and each of the parties hereto hereby irrevocably and unconditionally agrees that all claims in respect of any such action or proceeding may be heard and determined in such New York State or, to the extent permitted by law, in such Federal court. Each of the parties hereto agrees that a final judgment in any such action or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by law. Nothing in this Agreement shall affect any right that the Collateral Agent or any other Secured Party may otherwise have to bring any action or proceeding relating to this Agreement against the Pledgor or its properties in the courts of any jurisdiction. Motorola Pledge Agreement 11 - 11 - (c) The Pledgor hereby irrevocably and unconditionally waives, to the fullest extent it may legally and effectively do so, any objection which it may now or hereafter have to the laying of venue of any suit, action or proceeding arising out of or relating to this Agreement in any court referred to in paragraph (b) of this Section. Each of the parties hereto hereby irrevocably waives, to the fullest extent permitted by law, the defense of an inconvenient forum to the maintenance of such action or proceeding in any such court. (d) To the extent that the Pledgor may be or become entitled, in any jurisdiction in which judicial proceedings may at any time be commenced with respect to this Agreement, to claim for itself or its property or revenues any immunity from suit, court jurisdiction, attachment prior to judgment, attachment in aid of execution of a judgment, execution of a judgment or from any other legal process or remedy relating to its obligations under this Agreement and to the extent that in any such jurisdiction there may be attributed such an immunity (whether or not claimed), the Pledgor hereby irrevocably agrees not to claim and hereby irrevocably waives such immunity to the fullest extent permitted by the laws of such jurisdiction. SECTION 5.09. WAIVER OF JURY TRIAL. EACH PARTY HERETO HEREBY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN ANY LEGAL PROCEEDING DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY (WHETHER BASED ON CONTRACT, TORT OR ANY OTHER THEORY). EACH PARTY HERETO (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND (B) ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HERETO HAVE BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION. SECTION 5.10. No Third Party Beneficiaries. The agreements of the parties hereto are solely for the benefit of the Pledgor, the Collateral Agent and the other Secured Parties, and no other Person (including, without limitation, the Company) shall have any rights hereunder. SECTION 5.11. Agents and Attorneys-in-Fact. The Collateral Agent may employ agents and attorneys-in-fact in connection herewith and shall not be responsible for the negligence or misconduct of any such agents or attorneys-in-fact selected by it in good faith. Motorola Pledge Agreement 12 - 12 - SECTION 5.12. Severability. Any provision of this Agreement held to be invalid, illegal or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such invalidity, illegality or unenforceability without affecting the validity, legality and enforceability of the remaining provisions hereof; and the invalidity of a particular provision in a particular jurisdiction shall not invalidate such provision in any other jurisdiction. SECTION 5.13. Security Interest Absolute. The rights and remedies of the Collateral Agent hereunder, the Liens created hereby and the obligations of the Pledgor hereunder are absolute, irrevocable and unconditional, irrespective of: (a) the validity or enforceability of any of the Secured Obligations or any Credit Document or any other agreement or instrument relating thereto; (b) any amendment to, waiver of, consent to or departure from, or failure to exercise any right, remedy, power or privileges under or in respect of, any of the Secured Obligations, any Credit Document or any other agreement or instrument relating thereto; (c) the acceleration of the maturity of any of the Secured Obligations or any other modification of the time of payment thereof; (d) any substitution, release or exchange of any other security for or guarantee of any of the Secured Obligations or the failure to create, preserve, validate, perfect or protect any other Lien granted to, or purported to be granted to, or in favor of, the Collateral Agent or any other Secured Party; or (e) any other event or circumstance whatsoever which might otherwise constitute a legal or equitable discharge of a surety or a guarantor, it being the intent of this Section that the obligations of the Pledgor hereunder shall be absolute, irrevocable and unconditional under any and all circumstances. SECTION 5.14. Subrogation. The Pledgor shall not exercise, and hereby irrevocably waives, any claim, right or remedy that it may now have or may hereafter acquire against the Company arising under or in connection with this Agreement, including, without limitation, any claim, right or remedy of subrogation, contribution, reimbursement, exoneration, indemnification or participation arising under contract, by Government Rule or otherwise in any claim, right or remedy of the Collateral Agent or any other Secured Party against the Company or any other Person or any Collateral which the Collateral Agent or any other Secured Party may now have or may hereafter acquire. If, notwithstanding the preceding sentence, any amount shall be paid to the Pledgor on account of such claim, right or remedy at any time when any of the Motorola Pledge Agreement 13 - 13 - Secured Obligations shall not have been paid in full, such amount shall be held by the Pledgor in trust for the Collateral Agent and the other Secured Parties, segregated from other funds of the Pledgor, and be turned over to the Collateral Agent in the exact form received by the Pledgor (duly endorsed by the Pledgor to the Collateral Agent, if required), to be applied against the Secured Obligations, whether matured or unmatured, in accordance with this Agreement and the Depositary Agreement. SECTION 5.15. Reinstatement. This Agreement and the Lien created hereunder shall automatically be reinstated if and to the extent that for any reason any payment by or on behalf of the Company in respect of the Secured Obligations is rescinded or must otherwise be restored by any holder of the Secured Obligations, whether as a result of any proceedings in bankruptcy or reorganization or otherwise, and the Pledgor shall indemnify the Collateral Agent and each other Secured Party on demand for all reasonable costs and expenses (including, without limitation, fees of counsel) incurred by the Collateral Agent or such other Secured Party in connection with such rescission or restoration. SECTION 5.16. FCC Approval. Notwithstanding any other provision of this Agreement, no action shall be taken hereunder by the Collateral Agent or any Lender with respect to any item of Collateral that would constitute or result in any assignment of the FCC License or any change of control of the holder of the FCC License without first obtaining prior approval of the FCC, if, under then existing law, regulations and FCC policies, such assignment or change of control would require the prior approval of the FCC. The Pledgor agrees to take (or to cause the Pledgor's Subsidiary which holds the FCC License to take), at its expense, any action that the Collateral Agent may reasonably request in order to obtain from the FCC such approval as may be necessary (a) to enable the Collateral Agent to exercise and enjoy the full rights and benefits granted to the Collateral Agent by this Agreement and (b) for any action or transaction contemplated by this Agreement for which such approval is or shall be required by law, and specifically, without limitation, upon request by the Collateral Agent, to prepare, sign and file with the FCC the assignor's or transferor's portion of any application or applications for consent to the assignment of any license or transfer of control necessary or appropriate under the FCC's rules and regulations, or for approval of any sale of the Collateral provided by this Agreement by or on behalf of the Collateral Agent or any assumption by the Collateral Agent of voting rights relating thereto effected in accordance with the terms hereof. Motorola Pledge Agreement 14 - 14 - IN WITNESS WHEREOF, the parties hereto have caused this Pledge Agreement to be duly executed and delivered as of the day and year first above written. PLEDGOR MOTOROLA, INC. By ________________________ Name: Title: Address for Notices: Telecopier No.: Telephone No.: Attention: Motorola Pledge Agreement 15 - 15 - COLLATERAL AGENT THE CHASE MANHATTAN BANK, as Collateral Agent By ________________________ Name: Title: Address for Notices: The Chase Manhattan Bank, as Collateral Agent Agent Bank Services 1 Chase Manhattan Plaza 8th Floor New York, New York 10081 Attention: _______________ with a copy to: The Chase Manhattan Bank 270 Park Avenue New York, New York 10017 Attention: _______________ Motorola Pledge Agreement 16 ANNEX 1 PLEDGED STOCK [See Section 2(b) and (c)] Certificate Registered Issuer No. Owner Number of Shares - ------ ----------- ---------- ---------------- [__] Motorola, Inc. [____] shares of common stock, [no] par value [$________] Annex 1 to Motorola Pledge Agreement EX-10.39 19 FORM OF PROGRESS CERTIFICATE 1 EXHIBIT 10.39 (EXHIBIT I-1 TO THE CREDIT AGREEMENT) PROGRESS CERTIFICATE The Chase Manhattan Bank, as Administrative Agent 1 Chase Manhattan Plaza 8th Floor New York, NY 10017 Attention: Loan and Agency Services Group Reference is made herein to the Credit Agreement (as amended, supplemented and otherwise modified and in effect from time to time, the "Credit Agreement") dated as of December 19, 1997 among Iridium Operating LLC, a Delaware limited liability company (the "Company"), the lenders party thereto, Chase Securities Inc. and Barclays Capital, the investment banking division of Barclays Bank PLC, as Global Arrangers, The Chase Manhattan Bank, as Administrative Agent and as Collateral Agent, and Barclays Bank PLC, as Documentation Agent. Capitalized terms used but not defined herein have the meanings given to such terms in the Credit Agreement. This Certificate is being delivered to the Administrative Agent pursuant to Article IV of the Credit Agreement. In connection with the transfer of funds from the Pre-Funding Account to the General Receipt & Disbursement Account (the "Borrowing Date"), the undersigned hereby certifies that: 1. Commercial Activation is expected to occur not later than December 23, 1998. 2. Each of the technical requirements specified in Annex A to Appendix 2 to the Credit Agreement that is required to be satisfied for Stage 1 (as identified in said Annex A) on or prior to the Borrowing Date has been, and remains, substantially completed as of the Borrowing Date. Prior to the date of this Certificate, Motorola delivered to the Independent Technical Advisor and the Company its statement(s) pursuant to Section 5.05 of the Motorola Consent that certain of such technical requirements have been satisfactorily completed, and the Company has no reason to believe that such statements are not true. 3. (a) Each of the regulatory requirements specified in Annex A to Appendix 2 to the Credit Agreement that is required to be satisfied for Stage 1 (as referred to in said Annex A) on or prior to the Borrowing Date has been, and remains, satisfied as of the Borrowing Date. Set forth in Schedule I to this Progress Certificate is, as of the Borrowing Date, (i) a list of countries for which L-based spectrum licenses ("L-band Licenses") for the Project have been obtained (each a "L-band License Country") and for which a legal opinion satisfying the requirement under paragraph 4(b) below is attached, (ii) a list of service provider agreements which have been entered into and continue in 2 - 2 - effect, (iii) a list of roaming agreements which have been entered into and continue in effect (in the case of the agreements referred to in clauses (ii) and (iii), specifying the date and counterparty or counterparties of each such agreement and the jurisdiction), (iv) a list of non-gateway countries for which agreements are in place for the interconnection of the IRIDIUM System with the PSTN in that country and (v) a list of countries for which the existing service provider agreements and/or roaming agreements provide national sales distribution for IRIDIUM services. (b) Attached hereto are copies of the opinions of legal counsel for each for each L-band License Country (other than those previously delivered to the Administrative Agent with a Progress Certificate) confirming, each as of a recent date, that the L-band License in such country has been obtained. The Company is not aware of, nor does it have any reason to believe that there has occurred, any adverse change in the status of any such L-band License. (c) As shown on Schedule I to this Progress Certificate, as of the Borrowing Date, (i) the L-band License Countries constitute countries projected to generate at least 33% of the Company's revenues as set forth in the Iridium Financial Projections, (ii) not less than 75% of the revenues referred to in sub-clause (i) above are projected to be from countries for which service provider agreements and/or roaming agreements providing for a national sales distribution for the IRIDIUM services (in compliance with the requirements set forth in Attachment 3 to Annex A to Appendix 2) are currently in effect. 4. The Company is in compliance with its obligations under Section 8.04 of the Credit Agreement as of the Borrowing Date. Set forth in Schedule II to this Project Certificate is a list of the sources of funding currently committed or available to the Company that satisfy the requirements of said Section 8.04. 3 - 3 - IN WITNESS WHEREOF, the Company has caused this Progress Certificate to be executed by a Responsible Officer this ____ day of January, 1998. IRIDIUM OPERATING LLC By:____________________________________ 4 Schedule I to Progress Certificate Regulatory Conditions 1. Countries with L-band spectrum licenses Country % of Iridium Business Plan Revenues ----- ------------- Totals: % 5 - 2 - Schedule I to Progress Certificate 2. Service Provider Agreements Country Counterparty Date ------- ------------ ---- TOTAL NUMBER OF SERVICE PROVIDER AGREEMENTS: 6 - 3 - Schedule I to Progress Certificate 3. Roaming Agreements Country Counterparty Date ------- ------------ ---- TOTAL NUMBER OF ROAMING AGREEMENTS: 7 - 4 - Schedule I to Progress Certificate 4. PSTN Access in Non-Gateway Countries Country TOTAL: ______ 8 - 5 - Schedule I to Progress Certificate 5. Countries with National Sales Distribution Network Country TOTAL: ______ 9 Schedule II to Progress Certificate Funding Sources [To be completed by the Company] EX-10.40 20 FORM OF VERIFICATION OF INDEPENDENT TECHNICAL ADV. 1 EXHIBIT 10.40 (EXHIBIT I-2 TO THE CREDIT AGREEMENT) [LETTERHEAD OF ARTHUR D. LITTLE, INC.] [_________, 199_](1) The Lenders party to the below-mentioned Credit Agreement The Chase Manhattan Bank, as Administrative Agent 1 Chase Manhattan Plaza 8th Floor New York, NY 10017 Attention: Loan and Agency Services Group Ladies and Gentlemen: Reference is made herein to the Credit Agreement (as amended, supplemented and otherwise modified and in effect from time to time, the "Credit Agreement") dated as of December 19, 1997 among Iridium Operating LLC, a Delaware limited liability company (the "Company"), the lenders party thereto, Chase Securities Inc. and Barclays Capital, the investment banking division of Barclays Bank PLC, as Global Arrangers, The Chase Manhattan Bank, as Administrative Agent and as Collateral Agent, and Barclays Bank PLC, as Documentation Agent. Capitalized terms used but not defined in this letter have the meanings given to such terms in the Credit Agreement. This letter is being delivered to the Administrative Agent pursuant to Article IV of the Credit Agreement. We are delivering this letter to the Lenders in our role as Independent Technical Advisor for the Lenders under the Credit Agreement in connection with a Borrowing requested to be made by the Company on [_________], 1998(2) (the "Borrowing"). In connection with the Borrowing we have been requested to assist you in reviewing the Company's achievement of or satisfaction with the technical conditions precedent specified in Annex A to Appendix 2 to the Credit Agreement and as elaborated in a testing and performance monitoring program mutually ___________ 1 This letter shall be dated the date of the relevant Borrowing. 2 Insert the date of the Borrowing to which this verification relates, as reflected in the related Borrowing Request. Independent Technical Advisor Verification 2 - 2 - agreed between the Company, Motorola, ourselves and the Global Arrangers (the "Technical Conditions"). Prior to the date hereof, we have attended one or more monthly meetings with the Company and Motorola for the purpose of reviewing the progress achieved to date by the Company and Motorola in satisfying the Technical Conditions. At these meetings we have been provided information by the Company and Motorola, and have made inquiries of Company and Motorola personnel present at such meetings, regarding the satisfaction of the Technical Conditions applicable to the Borrowing. At or following each such meeting the Company and Motorola have delivered to us their respective statements specifically enumerating the Technical Conditions that, in their respective view, have been completed in accordance with the requirements of the Credit Agreement as of the date of each such statement (copies of such statements being attached hereto). The information we have received and the access we have been given to Motorola and Company personnel at these meetings and otherwise are sufficient to provide a reasonable basis for us to form a view regarding the satisfaction of the Technical Conditions applicable to the Borrowing. Except as noted on the attachment to this letter, nothing has come to our attention in the course of these meetings or otherwise that would cast doubt on the acceptability of the positions being taken by Motorola and the Company as to the satisfaction of the Technical Conditions applicable to the Borrowing. Based upon the foregoing, in our professional judgment we believe as of the date hereof that: 1. the Technical Conditions which are required by the terms of Annex A to Appendix 2 to the Credit Agreement to be satisfied on or prior to the date of the Borrowing have been substantially completed (and each such condition (if any) that has not been fully completed at this time is noted on the attachment to this letter, provided that, in our view, the failure to have so completed any such condition is not material to the current stage of Development of the Project and Motorola has a satisfactory plan for completing such condition within an appropriate time period); and 2. Commercial Activation is expected to occur by December 23, 1998. Very truly yours, ARTHUR D. LITTLE, INC. By____________________ Name: Title: Independent Technical Advisor Verification EX-10.41 21 FORM OF PROGRESS CERTIFICATE 1 EXHIBIT 10.41 (EXHIBIT I-3 TO THE CREDIT AGREEMENT) [FORM OF PROGRESS CERTIFICATE] PROGRESS CERTIFICATE The Chase Manhattan Bank, as Administrative Agent 1 Chase Manhattan Plaza 8th Floor New York, NY 10017 Attention: Loan and Agency Services Group Reference is made herein to the Credit Agreement (as amended, supplemented and otherwise modified and in effect from time to time, the "Credit Agreement") dated as of December [__], 1997 among Iridium Operating LLC, a Delaware limited liability company (the "Company"), the lenders party thereto, Chase Securities Inc. and Barclays Capital, the investment banking division of Barclays Bank PLC, as Global Arrangers, The Chase Manhattan Bank, as Administrative Agent and as Collateral Agent, and Barclays Bank PLC, as Documentation Agent. Capitalized terms used but not defined herein have the meanings given to such terms in the Credit Agreement. This Certificate is being delivered to the Administrative Agent pursuant to Article IV of the Credit Agreement. In connection with the Borrowing by the Company of Loans (the "Borrowing") on [INSERT DATE OF BORROWING AS REFLECTED IN THE RELATED BORROWING REQUEST] (the "Borrowing Date"), the undersigned hereby certifies that: 1. Commercial Activation has occurred. 2. (a) Each of the regulatory requirements specified in Annex A to Appendix 2 to the Credit Agreement that is required to be satisfied for the "Post-Commercial Activation Stage (as referred to in said Annex A) on or prior to the Borrowing Date has been, and remains, satisfied as of the Borrowing Date. Set forth in Schedule I to this Progress Certificate is, as of the Borrowing Date, (i) a list of countries for which L-based spectrum licenses ("L-band Licenses") for the Project have been obtained (each a "L-band License Country") and for which a legal opinion satisfying the requirement under paragraph 3(b) below is attached, (ii) a list of service provider agreements which have been entered into and continue in effect, (iii) a list of roaming agreements which have been entered into and continue in effect (in the case of the agreements referred to in clauses (ii) and (iii), specifying the date and counterparty or counterparties of each such agreement and the jurisdiction), (iv) a list of non-gateway countries for which agreements are in place for the Progress Certificate (Post-Commercial Activation) 2 - 2 - interconnection of the IRIDIUM system with the PSTN in that country and (v) a list of countries for which the existing service provider agreements and/or roaming agreements provide national sales distribution for IRIDIUM services. (b) Attached hereto are copies of the opinions of legal counsel for each for each L-band License Country (other than those previously delivered to the Administrative Agent with a Progress Certificate) confirming, each as of a recent date, that the L-band License in such country has been obtained. The Company is not aware of, nor does it have any reason to believe that there has occurred, any adverse change in the status of any such L-band License. (c) As shown on Schedule I to this Progress Certificate, as of the Borrowing Date, (i) the L-band License Countries constitute countries projected to generate at least 72.5% of the Company's revenues as set forth in the Iridium Financial Projections, (ii) not less than 75% of the revenues referred to in sub-clause (i) above are projected to be from countries for which service provider agreements and/or roaming agreements providing for a national sales distribution for the IRIDIUM services (in compliance with the requirements set forth in Attachment 3 to Annex A to Appendix 2) are currently in effect. (d) With respect to each of the countries listed in Part 4 of Schedule I to this Progress Certificate all Governmental Approvals necessary for commercial operation of the IRIDIUM System in such countries have been received, attached hereto is evidence thereof. 4. The Company is in compliance with its obligations under Section 8.04 of the Credit Agreement as of the Borrowing Date. Set forth in Schedule II to this Project Certificate is a list of the sources of funding currently committed or available to the Company that satisfy the requirements of said Section 8.04. Progress Certificate (Post-Commercial Activation) 3 - 3 - IN WITNESS WHEREOF, the Company has caused this Progress Certificate to be executed by a Responsible Officer this [__] day of [________], 1998(1). IRIDIUM OPERATING LLC By:________________________________ Its [_________________] _______________ 1 Each Progress Certificate is to be dated the date of the relevant Borrowing. Progress Certificate (Post-Commercial Activation) 4 Schedule I to Progress Certificate Regulatory Conditions 1. Countries with L-band spectrum licenses Country % of Iridium Business Plan Revenues ----- ------------- Totals: % Progress Certificate (Post-Commercial Activation) 5 2 Schedule I to Progress Certificate 2. Service Provider Agreements Country Counterparty Date TOTAL NUMBER OF SERVICE PROVIDER AGREEMENTS: Progress Certificate (Post-Commercial Activation) 6 -3- Schedule I to Progress Certificate 3. Roaming Agreements Country Counterparty Date TOTAL NUMBER OF ROAMING AGREEMENTS: Progress Certificate (Post-Commercial Activation) 7 - 4 - Schedule I to Progress Certificate 4. PSTN Access In Non-Gateway Countries Country TOTAL: ______ Progress Certificate (Post-Commercial Activation) 8 - 5 - Schedule I to Progress Certificate 5. Countries with National Sales Distribution Network Country TOTAL: ______ Progress Certificate (Post-Commercial Activation) 9 Schedule II to Progress Certificate Funding Sources [To be completed by the Company] Progress Certificate (Post-Commercial Activation) EX-10.42 22 FORM OF BORROWING REQUEST 1 EXHIBIT 10.42 (EXHIBIT J TO THE CREDIT AGREEMENT) [FORM OF BORROWING REQUEST] BORROWING REQUEST Reference is made to the Credit Agreement dated as of December 19, 1997 (as amended, supplemented or otherwise modified and in effect from time to time, the "Credit Agreement") among Iridium Operating LLC, a Delaware limited liability company (the "Company"), the lenders party thereto as Lenders (the "Lenders"), Chase Securities Inc. and Barclays Capital, the investment banking division of Barclays Bank PLC, as the Global Arrangers, The Chase Manhattan Bank, as Administrative Agent (the "Administrative Agent") and as Collateral Agent and Barclays Bank PLC, as Documentation Agent. Unless otherwise defined in this Certificate, capitalized terms used but not defined herein shall have the meanings given to such terms in the Credit Agreement. The Company hereby requests a Borrowing from Lenders under the Credit Agreement as follows: 1. The aggregate principal amount of such Borrowing: $__________ 2. The date of such Borrowing: ____________, 199_ 3. Such Borrowing is a (check one): __ ABR Borrowing __ Eurodollar Borrowing 4. If such Borrowing is a Eurodollar Borrowing, the initial Interest Period therefor is _______ month(s). The undersigned officer, in his/her capacity as an officer of the Company, and Company certify that: (i) the representations and warranties of the Company set forth in the Credit Agreement and of the Company and each other Credit Party set forth in each of the other Credit Documents to which it is a party are true and correct on and as of the date hereof to the same extent as though made on and as of the date hereof, except to the extent such representations and warranties are stated to have been made solely as of an earlier date, in which case such representations and warranties were true and correct on and as of such earlier date; (ii) to the best knowledge of the Company, the representations and warranties of each Project Party (other than any Credit Party) set forth in each of the Credit Documents to which such other Project Party is a party are true and correct on and as of the date hereof to the same extent as though made on and as of the date hereof, except to the Borrowing Request 2 - 2 - extent such representations and warranties are stated to have been made solely as of an earlier date, in which case such representations and warranties were true and correct on and as of such earlier date; (iii) at time of and immediately after giving effect to such Borrowing, no Default has occurred and is continuing; (iv) after giving effect to such Borrowing, the aggregate Exposure of the Lenders will not exceed the Commitments; (v) each condition precedent specified in Appendix 2 to the Credit Agreement that is required to be satisfied on or prior to the date of such Borrowing has been satisfied as of the date hereof (or will be satisfied on the date of such Borrowing); (vi) the proceeds of the Loans from the Borrowing will be used for the payment of the Project Costs within 30 days after the Borrowing Date within the categories specified in Schedule I; and (vii) the aggregate Project Costs for the Budget Period do not exceed an aggregate amount equal to the aggregate Project Costs for such period set forth in the Initial Approved Budget plus $75,000,000. Dated: ________, 199_ IRIDIUM OPERATING LLC By___________________ Name: Title: Borrowing Request 3 Schedule I to Borrowing Request Project Costs Category Amount 1. Space System Contract $____________ 2. O&M Contract $____________ 3. Terrestrial Network Development Contract $____________ 4. Debt Service and Other Financing Costs $____________ 5. Other $____________ TOTAL: $____________ Borrowing Request EX-11.1 23 COMPUTAION OF LOSS - IRIDIUM WORLD COMMUNICATIONS 1 EXHIBIT 11.1 IRIDIUM WORLD COMMUNICATIONS LTD. COMPUTATION OF LOSS PER CLASS A COMMON SHARE (IN THOUSANDS EXCEPT SHARE DATA)
PERIOD FROM DECEMBER 12, 1996 (INCEPTION) TO DECEMBER 31, 1996 1997 ----------------- ---------- Net loss applicable to Class A Common shares Net loss.................................................... $-- $ 18,834 --- ---------- Net loss applicable to Class A Common shares................ $-- $ 18,834 === ========== AVERAGE NUMBER OF CLASS A COMMON SHARES: Average number of Class A Common shares outstanding......... 6,739,726 Diluted adjustments(2): Assumed exercise of options and warrants............... -- 1,507,712 === ========== Average number of Class A Common shares assumed to be outstanding, assuming dilution............................ -- 8,247,438 === ========== NET LOSS PER CLASS A COMMON SHARE: Basic(1).................................................... $-- $ 2.79 Diluted(2).................................................. $-- $ 2.28
- --------------- (1) The assumed exercise of options and warrants in periods of net loss are anti-dilutive and are not included in the computation and presentation of loss per Class A Common share. (2) The assumed exercise of options and warrants are anti-dilutive but are included in the calculation of diluted loss per Class A Common share in accordance with Regulation S-K, Item 601 (a) (11). EX-11.2 24 COMPUTATION OF LOSS - IRIDIUM LLC 1 EXHIBIT 11.2 IRIDIUM LLC (A DEVELOPMENT STAGE LIMITED LIABILITY COMPANY) COMPUTATION OF LOSS PER CLASS 1 INTEREST (IN THOUSANDS EXCEPT MEMBER INTEREST DATA)
YEARS ENDED DECEMBER 31, --------------------------------------------- 1995 1996 1997 ----------- ----------- ----------- NET LOSS APPLICABLE TO CLASS 1 INTERESTS: Net loss............................................. $ 23,645 $ 73,598 $ 293,553 Preferred dividend requirement....................... -- 3,652 5,703 ----------- ----------- ----------- Net loss applicable to Class 1 Interests............. $ 23,645 $ 77,250 $ 299,256 =========== =========== =========== AVERAGE NUMBER OF CLASS 1 INTERESTS: Average number of Class 1 Interests outstanding...... 88,162,875 120,115,575 132,879,976 Diluted adjustments(2): Subscribed but unissued Class 1 Interests.......... 30,920,475 433,425 -- Assumed exercise of options and warrants........... 919,350 4,937,925 13,642,459 Assumed conversion of Series A Class 2 Interest.... -- 801,975 869,544 ----------- ----------- ----------- Average number of Class 1 Interests assumed to be outstanding, assuming dilution..................... 120,002,700 126,288,900 147,391,979 =========== =========== =========== NET LOSS PER CLASS 1 INTEREST: Basic(1)............................................. $ 0.27 $ 0.64 $ 2.25 Diluted(2)........................................... $ 0.20 $ 0.61 $ 2.03
- --------------- (1) The assumed exercise of options and warrants in periods of net loss are anti-dilutive and are not included in the computation and presentation of basic loss per Class 1 Interest. (2) The assumed exercise of options, warrants, and conversion of Series A Class 2 Interest are anti-dilutive but are included in the calculation of diluted loss per Class 1 Interest in accordance with Regulation S-K, Item 601 (a) (11). EX-12 25 COMPUTATION OF RATIOS - IRIDIUM OPERATING 1 EXHIBIT 12 IRIDIUM OPERATING LLC (A WHOLLY-OWNED SUBSIDIARY OF IRIDIUM LLC) (A DEVELOPMENT STAGE LIMITED LIABILITY COMPANY) COMPUTATION OF RATIOS OF EARNINGS TO FIXED CHARGES ($ IN THOUSANDS)
PERIODS FOLLOWING INITIAL CAPITAL CONTRIBUTION DATE --------------------------------------------------------- YEAR ENDED JULY 29, 1993 TO DECEMBER 31, DECEMBER 31, JANUARY 1, 1993 DECEMBER 31, --------------------------- 1992 TO JULY 28, 1993 1993 1994 1995 1996 1997 ------------ ---------------- ---------------- ------- ------- ------- -------- Fixed charges: Capitalized Interest.............. -- -- -- -- -- 28,127 163,747 Portion of rent expense representative of interest(1)... -- -- 54 264 342 398 2,607 ------ ------ ------ ------- ------- ------- -------- Total fixed charges......... -- -- 54 264 342 28,525 166,354 ====== ====== ====== ======= ======= ======= ======== Earnings: Loss before income taxes.......... (8,773) (5,309) (6,751) (13,309) (21,961) (69,009) (293,401) Fixed charges, less capitalized interest........................ -- -- 54 264 342 398 2,607 ------ ------ ------ ------- ------- ------- -------- Earnings adjusted for fixed charges....................... (8,773) (5,309) (6,697) (13,045) (21,619) (68,611) (290,744) ====== ====== ====== ======= ======= ======= ======== Ratio of earnings to fixed charges........................... -- -- -- -- -- -- -- Deficiency in earnings to cover fixed charges..................... 8,773 5,309 6,751 13,309 21,961 97,136 457,148
- --------------- (1) One-third of rent expense is deemed to be representative of interest. EX-21 26 SUBSIDIARIES OF THE REGISTRANTS 1 EXHIBIT 21 SUBSIDIARIES OF THE REGISTRANTS Subsidiaries of Iridium World Communications Ltd.: None Subsidiaries of Iridium LLC: Iridium Operating LLC Subsidiaries of Iridium Operating LLC: Iridium Capital Corporation Iridium Roaming LLC Iridium IP LLC Iridium Facilities Corporation Subsidiaries of Iridium Capital Corporation: None Subsidiaries of Iridium Roaming LLC: None Subsidiaries of Iridium IP LLC: None EX-23 27 CONSENT OF KPMG PEAT MARWICK LLP 1 EXHIBIT 23 ACCOUNTANTS' CONSENT The Boards of Directors Iridium World Communications Ltd., Iridium LLC, and Iridium Operating LLC: We consent to incorporation by reference in the registration statements (Nos. 333-23419 and 333-23419-01) on Form S-8 of Iridium World Communications Ltd. and Iridium LLC of our reports dated January 16, 1998, relating to (i) the balance sheets of Iridium World Communications Ltd. as of December 31, 1997 and 1996, and the related statements of loss, stockholders' equity, and cash flows for the year ended December 31, 1997, and for the period December 12, 1996 (inception) through December 31, 1996, (ii) the consolidated balance sheets of Iridium LLC and subsidiaries as of December 31, 1997 and 1996, and the related consolidated statements of loss, members' equity (deficit), and cash flows for each of the years in the three-year period ended December 31, 1997, and the period June 14, 1991 (inception) through December 31, 1997, (iii) the consolidated balance sheets of Iridium Operating LLC and subsidiaries 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 the period June 14, 1991 (inception) through December 31, 1997, and (iv) the related financial statement schedule of Iridium LLC, which reports appear in the December 31, 1997 annual report on Form 10-K of Iridium World Communications Ltd., Iridium LLC, and Iridium Operating LLC. KPMG Peat Marwick LLP McLean, Virginia March 23, 1998 EX-27.1 28 FINANCIAL DATA SCHEDULE - IRIDIUM WORLD COMM. WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
5 This schedule contains summary financial information extracted from Iridium World Communications Ltd. financial statements for the year ended December 31, 1997 and is qualified in its entirety by reference to such financial statements. 1,000 YEAR DEC-31-1997 JAN-01-1997 DEC-31-1997 0 0 0 0 0 0 0 0 223,922 0 0 0 0 120 223,802 223,922 0 0 0 0 0 0 0 0 0 0 0 0 0 (18,834) (2.79) (2.79)
EX-27.2 29 FINANCIAL DATA SCHEDULE - IRIDIUM LLC
5 This schedule contains summary financial information extracted from Iridium LLC's financial statements for the year ended December 31, 1997 and is qualified in its entirety by reference to such financial statements. 0000948421 IRIDIUM LLC 1,000 YEAR DEC-31-1997 JAN-01-1997 DEC-31-1997 9,040 0 0 0 0 379,476 3,271,518 120,138 3,645,687 467,395 1,327,590 0 39,907 2,024,220 (429,490) 3,645,687 0 0 0 0 296,598 0 0 (293,553) 0 (293,553) 0 0 0 (293,553) (2.25) (2.25)
EX-27.3 30 FINANCIAL DATA SCHEDULE- IRIDIUM OPERATING LLC
5 This schedule contains summary financial information extracted from Iridium Operating LLC's financial statements for the year ended December 31, 1997 and is qualified in its entirety by reference to such financial statements. 0001051721 IRIDIUM OPERATING LLC 1,000 YEAR DEC-31-1997 JAN-01-1997 DEC-31-1997 5,940 0 0 0 0 379,476 3,271,518 120,138 3,645,687 467,395 1,327,590 0 0 2,059,421 (427,884) 3,642,587 0 0 0 0 296,446 0 0 (293,401) 0 (293,401) 0 0 0 (293,401) 0 0
EX-99 31 FACTORS WHICH MAY AFFECT FORWARD LOOKING STMNTS 1 EXHIBIT 99 CERTAIN FACTORS WHICH MAY AFFECT FORWARD LOOKING STATEMENTS The following risk factors should be carefully considered by prospective investors in Iridium World Communications Ltd., Iridium LLC or Iridium Operating LLC. Iridium World Communications Ltd. acts as a member of Iridium LLC and has no other business. The business of Iridium Operating LLC ("Iridium") constitutes substantially all of Iridium LLC's business. The business of Iridium is discussed below. DEVELOPMENT STAGE COMPANY; ABSENCE OF REVENUES Iridium is a development stage enterprise with no operating history. Prospective investors have no operating and financial data about the IRIDIUM System on which to base an evaluation of the IRIDIUM System's performance or an investment in IWCL, Parent or Iridium. Iridium expects to realize significant net losses at least until some time after the IRIDIUM System commences commercial operations, which is currently anticipated to be September 23, 1998. The completion and maintenance of the IRIDIUM System and implementation of commercial service will require significant additional expenditures of funds. Iridium currently has no source of revenues other than nominal interest income. No assurances can be given that, or when, the IRIDIUM System will become commercially operational, or that, or when, Iridium will have revenues from operations or become profitable. SIGNIFICANT ADDITIONAL FUNDING NEEDS Iridium anticipates total cash funding requirements of approximately $4.4 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. Based on funds raised or conditionally committed as of March 1, 1998, Iridium expects to have sufficient cash to meet its anticipated funding requirements through September 23, 1998, the date on which Iridium expects to commence commercial operations. Iridium expects to seek other senior secured bank financing in order to meet its expected funding requirements through at least year-end 1999, the last year in which Iridium projects negative cash flow and a net increase in year-end borrowings. There can be no assurance, however, that conditionally committed funds will be available to Iridium, or that any such other bank financing will be obtained by Iridium on terms and conditions acceptable to it, and, if any of such financing is unavailable, there can be no assurance that Iridium will be able to obtain alternative financing on terms and conditions acceptable to it. Iridium's estimated funding requirements do not reflect any contingency amounts and therefore those requirements will increase, perhaps substantially, in the event of unexpected cost increases or schedule delays. RISK OF HIGHLY LEVERAGED CAPITAL STRUCTURE Iridium is a development stage company with a highly leveraged capital structure and expects to incur substantial additional indebtedness, including secured indebtedness. The amount of debt needed to finance the IRIDIUM System could be increased by one or more factors outside the control of Iridium, including cost increases related to the acquisition of the IRIDIUM System, a delay in the delivery date of the system, a failure of the demand for the Iridium World Services to materialize as expected (or a delay in the development thereof) and increases in prevailing market interest rates. Iridium currently has no significant income-producing assets from which to service its indebtedness. Iridium's current and future debt service requirements could have important consequences to investors in IWCL, Parent or Iridium, including the following: (i) Iridium's limited ability to obtain additional financing for future working capital needs or for other purposes; (ii) a substantial portion of Iridium's cash flow from operations will be dedicated to the payment of principal and interest on its indebtedness, thereby reducing 2 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 its debt instruments. Among other things, such covenants limit or prohibit Iridium and its subsidiaries from incurring additional indebtedness, creating liens on their assets, making certain loans, investments or guarantees, issuing preferred stock, declaring or paying dividends and distributions, making certain asset or stock dispositions and entering into transactions with affiliates and related persons. Moreover, a failure to comply with the terms of any agreements with respect to outstanding or additional financing could result in an event of default under such agreements, which could result in the acceleration of the related debt and acceleration of debt under other debt agreements that may contain cross-acceleration or cross-default provisions. POTENTIAL FOR DELAY AND COST OVERRUNS Iridium's business plan assumes the IRIDIUM System will commence commercial operations on September 23, 1998. Motorola's construction schedule for the satellites in the IRIDIUM System requires an unprecedented rate of satellite assembly for commercial telecommunications systems. A significant delay in the delivery of the satellites needed for the space segment would materially and adversely affect Iridium's operations. A significant delay in the date the IRIDIUM System becomes fully operational would harm the competitive position of Iridium by eroding the timing advantages Iridium currently anticipates, would delay the generation of revenue by Iridium and might significantly affect Iridium's ability to pay interest on, and the principal of, its indebtedness. The operation of the IRIDIUM System is dependent on the successful construction and operation of gateways and the timely availability of necessary regulatory licenses and approvals. Iridium closely monitors the progress of each gateway and currently expects that 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, two gateways, the China gateway and the Middle East-Africa gateway, are significantly behind schedule with equipment procurement for their gateways. Prior to commencement of commercial operations, Iridium must develop and, in conjunction with each of the gateway owners, integrate and test software related to the operation of the IRIDIUM System, including the business support systems. A significant delay in the development, deployment or implementation of such software systems would have a material adverse effect on Iridium. Significant delay in the development, manufacture and sale of phones and pagers would have a material adverse effect on Iridium. Because there is no current market for Iridium World Services and subscriber equipment, the financial incentive for manufacturers to produce significant quantities of subscriber equipment in advance is limited. Moreover, there is a risk that demand for Iridium World Services will not materialize in a timely manner. TECHNOLOGY AND TECHNOLOGY IMPLEMENTATION RISKS; INABILITY TO FULLY TEST PRIOR TO SPACE DEPLOYMENT To build the IRIDIUM System, Motorola and its subcontractors must integrate a number of sophisticated technologies. The integration of this array of diverse technologies is a complex task which has not previously been attempted and is further complicated by the fact that a significant portion of the hardware components associated with the IRIDIUM System will be in space. Despite the extensive testing of the components of the IRIDIUM System on the ground, the nature and complexity of the system is such that final confirmation of the ability of the system to function in the intended manner, including the ability of the IRIDIUM System to handle the anticipated number of calls each day, cannot be confirmed until a substantial portion of the system is deployed in space. Errors involving hardware or software components in space may result in service limitations and corresponding reductions in revenue. 3 Implementation and operation of the IRIDIUM System, including the business support systems necessary for such tasks as customer billing and subscriber authentication, are also significantly dependent on software which has been, is being or will have to be developed, integrated and tested and which would have to be reprogrammed if errors require changes. Iridium believes that the development of the software for the IRIDIUM System, including the space segment, is one of the largest and most complex software creation and integration tasks ever undertaken in a commercial satellite communications program. No assurance can be given that the software necessary to Iridium's business will be completed when required, including integration and testing, or that such software will function as required. The Iridium subscriber equipment is also an essential component critical to the successful commercial operation of the IRIDIUM System. An inability to successfully develop and manufacture subscriber equipment in sufficient numbers could delay commencement of commercial operations or limit the capacity of the system and the quality of services offered. Such limitations could affect subscriber acceptance of Iridium World Services and as a result could materially and adversely affect Iridium. There can be no assurance that Motorola or any other manufacturer will be able to develop on a timely basis, or at all, portable, hand-held phones or belt-worn pagers that meet Iridium's expectations and which can be mass produced at economical prices. CONSEQUENCES OF SATELLITE SERVICE LIMITATIONS ON CUSTOMER ACCEPTANCE Iridium's ability to generate sufficient operating revenues will depend upon customer acceptance of and satisfaction with Iridium World Services, which in turn will depend upon a variety of factors, including the price and technical capabilities of the Iridium World Services and equipment, and the extent, availability and price of alternative telecommunications services. 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. The Iridium World Page Services will also be unable to provide service in certain environments where terrestrial paging generally would. There can be no assurance that (i) Iridium's expectation will be correct as to subscribers' willingness to accept service limitations, higher prices and heavier hand-held phones and larger pagers than those to which such subscribers may otherwise be accustomed in order to have the ability to make and receive calls on a worldwide basis with a single phone or to receive pages on a satellite pager or (ii) that the service limitations will not result in significantly lower sales or lower usage of Iridium World Services than Iridium anticipates. The IRIDIUM System has not been designed to provide high-speed data and facsimile transmission capability. As a result, Iridium expects that the appeal of Iridium facsimile and data services will be limited. SATELLITE LAUNCH RISKS In order for the IRIDIUM System to be fully operational under its current specifications and timetable, Iridium anticipates the need for Motorola to successfully launch 21 additional satellites in five more launches by May 1998, which would complete the expected constellation of 66 satellites in mission orbit with four spare satellites in a lower parking orbit. Moreover, to maintain the system, additional satellites are expected to be launched each year. No other commercial satellite communications system has required this number of launches to become fully deployed and operational. There can be no assurance that Iridium's satellites will be 4 successfully deployed in a timely manner or that launch failures will not occur and materially and adversely affect Iridium. The risk of a material and adverse effect associated with an Iridium launch failure is exacerbated by the fact that each launch vehicle will contain multiple satellites. Impact of Excusable Delays The terms of the Space System Contract provide that Motorola will bear the responsibility of launching the satellites that comprise the space segment. Nevertheless, Iridium retains the risk of cost overruns and delays associated with excusable delays, including delays in launch provider schedules due to prior delays of launches of non-Iridium satellites, and the risk of economic damage due to any delay or reduced performance beyond the limited remedies provided by the Space System Contract. LIMITED LIFE OF SATELLITES; COST OF MAINTAINING THE SPACE SEGMENT; RISK OF SATELLITE FAILURE OR DAMAGE A significant portion of Iridium's tangible assets will be represented by the satellites in the space segment. Iridium's business plan currently assumes that the satellites will have a useful life of five years from their respective launch dates. There can be no assurance that any satellite will actually achieve such a useful life. Maintaining the space segment is a complex undertaking which has not previously been attempted on a commercial basis. The cost of maintaining the space segment and the risk of loss of satellites are significant. Iridium has entered into an Operations and Maintenance Contract with Motorola which provides for the operation and maintenance of the space segment for its first five years of operation at an aggregate cost to Iridium of approximately $2.88 billion, assuming the space segment is delivered in September 1998 and assuming no excusable delay occurs. Iridium has the option to extend the Operations and Maintenance Contract for an additional two years for additional aggregate payments aggregating $1.33 billion (based on the same assumption) and assuming no excusable delay occurs. Under the Operations and Maintenance Contract, Iridium will bear the risk of damage to satellites by the acts of third parties (including but not limited to the degradation or complete loss of any satellite due to contact with space debris of any size or character). Satellites operating in the low earth orbit region, such as the Iridium satellites, face a higher risk of damage from space debris than satellites operating in geostationary orbit. Motorola has experienced the loss of two of the 51 Iridium satellites launched during the development of the IRIDIUM System. Premature failure or interruption of one or more satellites, including temporary losses, that for whatever reason are not promptly corrected or replaced, could, among other things, cause gaps in service availability, significantly degrade service quality, increase costs in the event Iridium is liable, and result in loss of revenue for the period that service is compromised and, as a result, could materially and adversely affect Iridium. RISKS ASSOCIATED WITH LICENSING AND SPECTRUM ALLOCATION The operation of the IRIDIUM System is and will continue to be subject to United States and international regulation. This regulation is pervasive and largely outside Iridium's direct control. Iridium, Motorola and the various gateway owners have made substantial progress in receiving the authorizations necessary to operate the IRIDIUM System, but a significant number of regulatory authorizations remain to be obtained, including (1) in each country in which a gateway or system control terminal will be located, an authorization to construct and operate those facilities, including necessary gateway link spectrum assignments, (2) in each country in which Iridium subscriber equipment will be operated, authority to market and operate that equipment with the IRIDIUM System, user link spectrum assignments, and authorization to offer Iridium communications services and (3) international coordination of the IRIDIUM System under the auspices of the International Telecommunications Union ("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. 5 COMPETITIVE RISKS Certain sectors of the telecommunications industry are highly competitive in the United States and in other countries. The uncertainties and risks created by this competition are intensified by the continuous technological advances that characterize the industry, regulatory developments which affect competition and alliances between industry participants. While no single wireless communications system serves the global personal communications market today, Iridium anticipates that more than one system will serve this market in some fashion in the future. Iridium's business plan assumes that Iridium will be able to charge a global mobility premium, over the cost of a hypothetical terrestrial-based call, for its Satellite Services. If the market will not support such a premium, Iridium's ability to compete may be materially adversely affected. Also, the IRIDIUM System will lack the operational capacity to provide local service to large numbers of subscribers in concentrated areas and the IRIDIUM System will not afford the same voice quality, signal strength and degree of building penetration in areas that are served by mature terrestrial wireless voice or paging systems. RELIANCE ON MOTOROLA, GATEWAY OWNERS AND OTHER THIRD PARTIES Construction and Operation of the IRIDIUM System Iridium does not independently have and does not intend to acquire, except by contracting with other parties, the ability to design, develop or produce the components of the IRIDIUM System or to launch the constellation of satellites or to operate and maintain the system once it is fully deployed. Motorola has agreed to provide these services to Iridium under the Space System Contract, the Operations and Maintenance Contract and the Terrestrial Network Development Contract. Thus, Iridium currently relies on Motorola to perform these critical tasks. Iridium has obtained commitments from its investors who are gateway operators that they will use their reasonable best efforts to perform certain critical functions including: obtaining the necessary licenses, if any, from the jurisdictions in their gateway territories; constructing and operating the gateways; connecting the IRIDIUM System to public switched telephone networks ("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. In particular, the China gateway and the Middle East-Africa gateway are substantially behind schedule. 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'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. In addition, Iridium may need to take a greater role than currently expected in connection with the distribution of Iridium subscriber equipment. That increased participation in the distribution process may require that Iridium incur additional indebtedness or contingent purchase obligations relating to Iridium subscriber equipment. RISKS ASSOCIATED WITH PRINCIPAL SUPPLY CONTRACTS Space System Contract Iridium and Motorola are parties to the Space System Contract which provides for the payment by Iridium to Motorola of $3.45 billion (subject to certain adjustments) for the design, development, production and delivery in orbit of the space segment. Furthermore, Motorola's aggregate liability under the Space 6 System Contract and related contracts with Iridium in the event the system is not operational is subject to the Motorola Liability Limitations (defined below) and in no event is Motorola required under the contract to refund amounts previously paid by Iridium to Motorola. In addition, subject to certain exceptions, Iridium bears the risk, including additional costs, if any, resulting from excusable delays under the Space System Contract, as well as certain of the risks of loss for satellites once placed in orbit. The Space System Contract provides that, to the extent Motorola has any liability to Iridium under the contract for any costs, damages, claims or losses whatsoever arising out of or related to such contract, or any such liability under the Operations and Maintenance Contract, the Terrestrial Network Development Contract or any other contract executed between Iridium and Motorola in connection with the IRIDIUM System, or any provisions of any of the foregoing, whether pursued as a breach of contract or as a tort or other cause of action and whether accruing before or after completion of all the work required under the contracts, such liability shall be limited to $100 million in the aggregate (the "Motorola Liability Limitations"). Operations and Maintenance Contract Iridium and Motorola are parties to the Operations and Maintenance Contract, which obligates Motorola for a period of five years after completion of the final milestone under the Space System Contract to operate the 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. The Operations and Maintenance Contract contains provisions relating to indemnification, excusable delays, insurance, permits and licenses, waivers of rights, events of default and other matters similar to those contained in the Space System Contract. Motorola's liability under the Operations and Maintenance Contract is subject to the Motorola Liability Limitations. In the event that the Space System Contract is terminated for whatever reason, the Operations and Maintenance Contract will also terminate. Terrestrial Network Development Contract Iridium is also a party to the Terrestrial Network Development Contract with Motorola, pursuant to which Motorola is obligated to design and develop the gateway hardware and software, and license Iridium to use and permit others to use intellectual property developed under the contract to procure the development and manufacture of gateways from sources other than Motorola. Motorola will be paid a total of approximately $284 million under the contract in increments tied to the completion of milestones, including those relating to acceptance tests of the completed gateway design. Motorola's liability under the Terrestrial Network Development Contract is subject to the Motorola Liability Limitations and the contract contains provisions relating to excusable delays, waivers of rights, events of default and other matters similar to those contained in the Space System Contract and the Operations and Maintenance Contract. RISK ASSOCIATED WITH INTERNATIONAL OPERATIONS AND DEVELOPING MARKETS Iridium expects that its telecommunications services will be available in almost every country. As a result, Iridium and its gateway operators and service providers will be subject to certain multinational operational risks, such as changes in domestic and foreign government regulations and telecommunications standards, licensing requirements, tariffs or taxes and other trade barriers, price, wage and exchange controls, political, social and economic instability, inflation, and interest rate and currency fluctuations. There can be no assurance that Iridium, its gateway operators or service providers will not be adversely affected by such multinational risks. LIMITED SATELLITE CAPACITY To provide commercially adequate service, ensure user acceptance and operate successfully, the IRIDIUM System will have to provide minimum levels of availability of Iridium World Satellite Services, 7 which will depend upon system capacity. Various factors, including usage patterns, will have a significant impact on the capacity of the IRIDIUM System for a particular geographic area and on a system-wide basis. Most important among these are usage patterns and spectrum allocation. Iridium could experience unexpected usage patterns which could exceed the capacity of the IRIDIUM System through one or several gateways. If Iridium faces significant capacity issues, its ability to increase its spectrum assignment in any market is subject to significant regulatory hurdles. There can be no assurance that the necessary spectrum assignments will occur or that adverse and unanticipated usage patterns will not materialize. Failure to achieve a commercially viable capacity level for any reason, including but not limited to those mentioned in this section, would materially and adversely affect Iridium. CONFLICTS OF INTEREST WITH MOTOROLA Motorola has and will have various conflicts of interest with Iridium. Motorola is the creator and developer of the concept of the IRIDIUM System, the principal supplier to Iridium, a founding investor of Iridium (through its predecessors), a gateway owner, Iridium LLC's largest Class 1 Interest holder, a holder of warrants to acquire Class 1 Interests and a warrant to acquire Series M Class 2 Interests and the guarantor of Iridium's borrowings under its Guaranteed Bank Facility. Although Motorola does not by itself control the Iridium Board and is not permitted to participate in decisions or other actions by Iridium with respect to the Space System Contract, Operations and Maintenance Contract and the Terrestrial Network Development Contract, Motorola, through its position as (i) the indirect holder of the largest ownership interest in Iridium, (ii) potentially the largest holder of Class A Common Stock (through exchanges of Class 1 Interests for shares of Class A Common Stock), (iii) the guarantor under the Motorola Guarantee and, if issued, the Motorola Additional Guarantee and (iv) the principal supplier to Iridium, could in certain situations exercise significant influence over Iridium. For example, in addition to its representation on the Iridium Board, Motorola could have control over Iridium as or similar to that of a creditor through its position as a guarantor under the Guaranteed Bank Facility. Motorola and Iridium entered into the Space System Contract, the Operations and Maintenance Contract and the Terrestrial Network Development Contract after extensive negotiations. The predecessor of Iridium under those contracts, however, was a wholly owned subsidiary of Motorola at the time the Space System Contract and Operations and Maintenance Contract were negotiated and therefore these negotiations were not conducted on an arm's-length basis. Moreover, although these agreements provide for specific prices, Motorola's obligations and liabilities thereunder are subject to certain limitations which allocate various risks to Iridium and may have the effect of increasing the price paid by Iridium. Iridium's payment obligations under these agreements are expected to comprise most of its expenses. CONFLICTS OF INTEREST WITH GATEWAY OWNERS The Iridium Board consists of representatives of certain of the world's leading telecommunications companies. Almost all of the members of the Iridium Board have been appointed by investors in Iridium who also are gateway owners and service providers. Because Iridium will be a supplier to the gateways and the service providers, the interests of Iridium are expected to conflict in certain respects with the interests of the gateway owners and the service providers. For example, this conflict of interest will be relevant in setting the wholesale prices that Iridium will charge for airtime and other Iridium World Services. 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 8 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. 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. -----END PRIVACY-ENHANCED MESSAGE-----