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IRIDIUM WORLD COMMUNICATIONS LTD - IRIDQ Securities Registration Statement (S-1) PROSPECTUS SUMMARY
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The following is an excerpt from a S-1 SEC Filing, filed by IRIDIUM WORLD COMMUNICATI ... on 3/17/1997.
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S-1
FORM S-1
PROSPECTUS SUMMARY
RISK FACTORS
USE OF PROCEEDS
DIVIDEND POLICY
DILUTION
CAPITALIZATION
SELECTED FINANCIAL DATA
BALANCE SHEET
BUSINESS
COMPETITION
EMPLOYEES
COMPENSATION TABLE
OPTIONS
BENEFICIAL OWNERS
Registrar and Transfer Agent
EXPERTS
BALANCE SHEET
NOTES TO FINANCIAL STATEMENT
BALANCE SHEET
CONSOLIDATED BALANCE SHEETS
STOCKHOLDERS EQUITY
CASH FLOW
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION(S)
EXHIBIT 3.1
EXHIBIT 3.2
EXHIBIT 10.1
EXHIBIT 11.1
COMPUTATIONS OF LOSS PER CLASS 1 INTEREST
EXHIBIT 23.1
Accountants' Consent
EXHIBIT 27.1
PROSPECTUS SUMMARY
The following summary information is qualified in its entirety by reference
to the detailed information and financial statements, including the notes
thereto, appearing elsewhere in this Prospectus. See the Glossary included as
Annex A hereto for the definitions of certain terms used in this Prospectus. On
February 26, 1997, the Company effected a 100 for 1 stock split (the "Stock
Split") of the Company's Class A Common Stock. Unless otherwise indicated all
information contained in this Prospectus reflects the Stock Split and assumes
that the over-allotment options granted to the Underwriters are not exercised.
THE COMPANY AND IRIDIUM
Iridium LLC ("Iridium") is developing and commercializing a global mobile
wireless communications system that will enable subscribers to send and receive
telephone calls virtually anywhere in the world -- all with one phone, one phone
number and one customer bill. The IRIDIUM communications system (the "IRIDIUM
System") will combine the convenience of terrestrial wireless systems with the
global reach of Iridium's satellite system. The IRIDIUM System encompasses four
components: the "space segment", which will include the low earth orbit
satellite constellation and the related control facilities; the ground stations
or "gateways", which will link the satellites to terrestrial communications
systems; the IRIDIUM subscriber equipment, which will provide mobile access to
the satellite system and terrestrial wireless systems; and the terrestrial
wireless interprotocol roaming infrastructure, which will facilitate roaming
among the IRIDIUM satellite system and multiple terrestrial wireless systems
that use different wireless protocols. Launch of the first IRIDIUM satellites is
expected to occur in May 1997, and Iridium expects to commence commercial
service in September 1998. The satellite constellation is being designed,
assembled and delivered in orbit by Motorola, Inc. ("Motorola"), a leading
international provider of wireless communications systems, phones and pagers,
semiconductors and other electronic equipment. Motorola is also the principal
investor in Iridium, having provided direct investments and guarantees totaling
over $1.26 billion, and a conditional commitment to guarantee up to an
additional $350 million of borrowings. Iridium's other strategic investors
include leading wireless communications service providers from around the world,
as well as experienced satellite manufacturers and experienced launch providers.
Iridium World Communications Ltd., a Bermuda company (the "Company"), is a
member of Iridium and is the issuer of the Class A Common Stock offered hereby.
Upon consummation of the Offerings and application of the net proceeds therefrom
to purchase Class 1 Membership Interests in Iridium ("Class 1 Interests"), the
Company is expected to own % of the outstanding Class 1 Interests ( %,
if the Underwriters' over-allotment options are exercised in full). See
"Dilution."
IRIDIUM SERVICES AND MARKET
Global mobile satellite service ("MSS") systems such as the IRIDIUM System
are designed to address two broad trends in the communications market: (i) the
worldwide growth in the demand for portable wireless communications -- according
to industry sources, the worldwide wireless communications market had
approximately 135 million subscribers at year-end 1996 and is estimated to grow
to over 400 million subscribers by year-end 2000; and (ii) the growing demand
for communications services to and from areas where landline or terrestrial
wireless service is not available or accessible. The IRIDIUM System architecture
and IRIDIUM voice, data, facsimile and paging services ("IRIDIUM Services") are
primarily designed to serve customers who place the greatest value on global
mobile communications services.
Iridium believes there is a significant market comprised of individuals and
businesses who need global communications capability and are willing to pay for
the convenience of a hand-held wireless phone or belt-worn pager. The
availability of terrestrial wireless communications service is often constrained
by the limited geographic coverage of terrestrial systems, the incompatibility
of differing wireless protocols or the absence of roaming agreements among
wireless operators. The combination of IRIDIUM Cellular Roaming Service
("ICRS"), IRIDIUM Satellite Services and IRIDIUM paging will extend wireless
access globally and allow customers of Iridium to be reached by phone or pager,
and to place phone calls from or to, virtually anywhere in the world with one
phone and one phone number. ICRS is expected to enable customers to roam on an
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international basis among terrestrial wireless networks, including those using
different protocols, that have roaming agreements with Iridium. IRIDIUM
Satellite Services will extend voice services to the regions of the world not
served by terrestrial systems. Iridium intends to offer global paging both in
combination with IRIDIUM voice services and as a stand-alone service. Iridium
believes that the signaling capabilities of the IRIDIUM System will enable
Iridium to track the location of a voice customer effectively and with minimal
customer cooperation, thereby allowing Iridium to direct pages and calls as
customers travel globally. Iridium also expects to offer, commencing in 1999, a
broad range of in-flight passenger communications services with participating
airlines, including global incoming and outgoing voice, data and facsimile
services. In addition, Iridium expects to market IRIDIUM Services to
governmental, industrial and rural users of wireless communications systems.
Iridium believes it will be the only wireless communications system in operation
prior to 2000 that will be able to offer this array of global communications
services. See "Risk Factors -- Consequences of Satellite Service Limitations and
IRIDIUM Phone and Pager Characteristics on Customer Acceptance."
To estimate potential demand for its services, Iridium has engaged in
extensive market analysis, including primary market research which involved
screening over 200,000 persons and interviewing more than 23,300 individuals
from 42 countries and 3,000 corporations with remote operations. Based on this
market analysis, Iridium has identified five target markets for IRIDIUM
Services: traveling professionals; corporate/industrial; government; rural; and
aeronautical. Iridium expects the traveling professional and
corporate/industrial markets will provide most of the demand for IRIDIUM
Services. Iridium believes that individuals in these markets are more likely to
need and have the ability to afford hand-held, global mobile communications
capability than, for example, individuals who live in remote areas outside
existing distribution channels for wireless communications.
Iridium estimates that the addressable traveling professional market, which
it defines as all employed adults living in urban areas who own a wireless phone
and travel at least four times per year beyond the coverage of their current
wireless phone, will include approximately 42 million individuals by 2002. The
global corporate/industrial addressable market, which consists of companies with
more than 1,000 employees in industries with operations that are likely to need
mobile satellite services, is estimated by Iridium to include over 8,800
companies by 2002. Iridium believes that its unique service package is
well-tailored to meet the demands of, and will give Iridium an advantage over
competing MSS systems in, these target markets. For a more detailed description
of Iridium's target markets see "Business -- The IRIDIUM Market," and for a
discussion of the forward looking nature of Iridium's estimates, and various of
the factors which could cause actual addressable markets to differ materially
from these estimates, see "Risk Factors -- Risk of Error in Forward Looking
Statements."
THE IRIDIUM SYSTEM
The satellite constellation of the IRIDIUM System, which will consist of 66
operational satellites arranged in six polar orbital planes, is being assembled
and delivered in orbit by Motorola pursuant to a fixed price contract, subject
to certain adjustments. Motorola also will operate and maintain the satellite
constellation for five years (extendible to seven years at Iridium's option)
under a fixed price contract, subject to certain adjustments. Iridium believes
the IRIDIUM System will have greater signal strength than other proposed MSS
systems, thereby allowing it to better serve hand-held phones and providing a
higher degree of in-building penetration for paging services. The IRIDIUM System
utilizes adaptations of proven technologies, including GSM cellular call
processing technology, intersatellite links, FDMA/TDMA radio transmission
technology, a 2,400 bps vocoder and business support software. The IRIDIUM
satellites will feature cross-link antennas allowing telephone calls and
signaling information to be passed globally from satellite to satellite. These
intersatellite links, which enable the satellites to function as switches in the
sky, will allow the IRIDIUM System to (i) select the optimal space-to-ground
path of each call, thereby enhancing system reliability and capacity while
reducing the costs associated with the use of terrestrial phone systems, (ii)
communicate with subscribers in all regions of the world (including mid-ocean
and remote areas) regardless of their proximity to a gateway, (iii) provide full
global service with a relatively small number of gateways, thereby lowering
total ground segment build-out and operating costs and (iv) provide enhanced
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ability to track the location of a voice customer, allowing Iridium to direct
calls and pages as customers travel globally. In addition, the communications,
station keeping and control systems of the IRIDIUM satellites can be upgraded,
maintained and reconfigured in orbit through the remote loading of software.
Iridium believes that its primary technological challenge in implementing the
IRIDIUM System is the integration of these proven technologies into a single
system.
Iridium expects to provide full global service initially through 11
gateways, although it will be able to provide full global service with fewer
gateways. Each of these 11 gateways will be owned, operated and financed by one
or more investors in Iridium or their affiliates.
IRIDIUM subscriber equipment will support voice, data and paging services.
Iridium expects that portable, hand-held IRIDIUM phones will be manufactured by
at least two experienced suppliers, Motorola and Kyocera Corporation
("Kyocera"), both of which have hand-held IRIDIUM phones under development. The
phones are expected to be available in satellite-only and "multi-mode" models.
The multi-mode phone being developed by Motorola uses changeable terrestrial
radio cassettes ("TRCs") which can be inserted into the phone. TRCs will be
developed for most major terrestrial wireless protocols so that with a single
multi-mode phone and the appropriate TRCs, a subscriber will be able to access
the IRIDIUM System and most terrestrial wireless systems. Kyocera's multi-mode
phone is expected to be configured as a satellite phone casing into which
terrestrial wireless phones using different protocols can be inserted. The
IRIDIUM belt-worn pager, to be manufactured by Motorola, will have the
capability to receive alphanumeric messages virtually anywhere in the world.
ICRS will support roaming among the two principal types of terrestrial
wireless protocols -- IS-41 (AMPS, NAMPS and CDMA) and GSM (GSM900, DCS1900 and
DCS1800). Roaming between these protocols requires cross protocol translation
which will be accomplished for ICRS through the IRIDIUM Interoperability Unit
("IIU"), being developed by Motorola. The IIU will permit system management
information, including customer authentication and location, to be relayed
between systems that use different technologies.
PRICING STRATEGY, DISTRIBUTION AND MARKETING
Iridium intends to implement a pricing strategy for its voice services
similar to the prevailing pricing structure for terrestrial wireless calls.
Prices for terrestrial wireless calls generally reflect two components -- a
charge based on the landline "dial-up" rate for a comparable call (primarily the
long distance charges) and a mobility premium for the convenience of wireless
service (including any roaming charges). Pricing for both IRIDIUM Satellite
Services and ICRS is expected to be based on this structure.
For international IRIDIUM Satellite Services calls, which Iridium expects
will constitute the majority of calls over the IRIDIUM satellite system, the
"dial-up" rate component will be designed to approximate the rates for
comparable landline point-to-point international long distance calls. Iridium
has analyzed and will continue to analyze published international direct dial
rates around the world as well as published international calling card rates of
many of the largest international telecommunications carriers in establishing
the "dial-up" rate component. Iridium intends to set the global mobility premium
with reference to the premium charged by other wireless services, including
cross-protocol international terrestrial wireless roaming services and competing
MSS systems.
Iridium will set the wholesale prices for its services to allow for a
suggested retail price that will approximate the "dial-up" plus mobility premium
price. Iridium's wholesale price will be designed to compensate Iridium, as the
network provider, and the originating and terminating gateways, as well as to
cover the PSTN tail charges. The home gateway will mark up the wholesale price
and the service provider will establish the final retail price. Iridium expects
that for international wireless calls, Iridium's suggested retail prices will be
competitive with other global MSS systems. In addition, from a regulatory
approval perspective in markets where the monopoly telecommunications provider
and the licensing authority are the same entity, a pricing strategy that takes
into account the "dial-up" alternatives allows Iridium to respond to concerns
that Iridium will capture the local monopoly provider's long-distance revenues
by undercutting terrestrial "dial-up" rates.
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For ICRS pricing, the "dial up" rate component is primarily the long
distance charge, if any, which will be passed through to the customer. The
mobility premium will be set to compensate the parties involved, primarily the
serving network for its airtime charges, the visited gateway for customer
authentication and Iridium for protocol translation services. The retail price
will include the markup of the home gateway and service provider. Iridium
believes that its ICRS suggested retail prices will be comparable to other
cross-protocol roaming services.
In addition to airtime charges, IRIDIUM subscribers will pay a monthly
subscription fee in the same manner that terrestrial wireless customers pay
monthly charges. Iridium will permit service providers that are wireless network
operators to offer IRIDIUM Services as additional features to their existing
wireless services, permitting their customers to remain customers of the
wireless network and to roam onto the IRIDIUM System. These customers will pay a
feature charge to Iridium for the roaming privilege that will be significantly
below the IRIDIUM monthly subscription fee, but they will pay an additional
roaming premium for calls made over the IRIDIUM System.
Initially, Iridium paging subscribers will pay a fixed monthly subscription
fee for unlimited paging. Iridium expects to implement per page pricing after
commencement of commercial operations, with the cost per page based, in part, on
the size of the geographic area covered by the page. The monthly paging
subscription fees will be reduced for persons who are also subscribers to
IRIDIUM voice services.
Iridium's distribution strategy reflects its role as a wholesaler of
IRIDIUM Services and is primarily designed to leverage off established retail
distribution channels by using existing distributors of wireless services as
IRIDIUM Service providers and marketing IRIDIUM Services to their customers.
Iridium will implement the distribution of IRIDIUM Services through its gateway
operators, all of which have agreed to become or to engage IRIDIUM service
providers within their exclusive gateway territories. IRIDIUM service providers
will generally have primary responsibility for marketing IRIDIUM Services within
their territories in accordance with marketing policies and programs established
by Iridium. They will also be responsible for customer service, billing and
collection. Iridium anticipates its gateway operators will generally seek to
utilize more than one method of distribution in their markets. Iridium expects
that its service providers also will include affinity partners (e.g., airlines,
hotels and car rental companies).
Iridium's marketing strategy is to position IRIDIUM as the premier brand in
global wireless communications services. Iridium believes that its principal
target markets -- traveling professional and corporate/industrial -- can be
accessed through established marketing channels, which will permit more
effective marketing compared to MSS systems targeting individuals in remote
areas where marketing opportunities and distribution channels are limited.
Iridium is coordinating with its gateway partners to determine the optimum
allocation of marketing expenditures based on the primary market research that
Iridium has conducted. Iridium plans to engage in direct marketing to certain
markets, such as the utility, oil and gas, mining and maritime industries.
Iridium believes that a coordinated and comprehensive global marketing strategy,
supported by its market research, will promote a consistent message and permit
Iridium to establish a global brand identity.
IRIDIUM'S INVESTOR GROUP
The IRIDIUM investor team includes enterprises from around the world with
skills and experience in developing, manufacturing, licensing and distributing
satellite and telecommunications products and services. Iridium's strategic
investors have collectively invested, or committed to invest, approximately
$3.24 billion in Iridium, including equity, debt, guarantees, conditional
commitments to provide guarantees and a reserve capital call. These investments
represent more than 74% of Iridium's projected total funding needs through the
end of September 1998, the month Iridium expects to commence commercial
operations, and approximately 65% of Iridium's projected total funding needs
through December 31, 1999, the last year in which Iridium projects negative cash
flow and a net increase in year-end borrowings. By partnering with strategic
investors, Iridium benefits from the development, manufacturing and launch
expertise of leading worldwide satellite development and launch organizations
and from the wireless telecommunications distribution and regulatory expertise
of leading telecommunications companies. The Iridium investor team includes
leading telecommuni-
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cations companies in North America (Motorola, Sprint and BCE Inc.), Europe (STET
and Vebacom) and Asia (DDI in Japan, UCOM in Thailand and Korea Mobile
Telecommunications). Iridium expects that these investors will use their
wireless communications sales and services organizations to market IRIDIUM
Services and equipment in their territories, which include their existing base
of approximately 14 million wireless subscribers. In addition, because of the
prominence of many of these investors, Iridium believes that their efforts to
obtain necessary regulatory approvals have been, and will continue to be, of
great importance. The investor team also includes organizations with significant
satellite communications development, manufacturing and launch expertise
including Raytheon, Lockheed Martin, Nuova Telespazio, Khrunichev and China
Aerospace. Iridium expects subscriber equipment for use with the IRIDIUM System
will be manufactured and sold by Motorola and Kyocera, two of the world's
leading manufacturers of wireless phones.
PROGRESS TO DATE
Iridium, Motorola and the various gateway owners have made substantial
progress in the development and implementation of the IRIDIUM System and related
activities and expect to commence global commercial service on schedule in
September 1998. Satellite hardware development is substantially complete. Eight
satellites have been produced, five are currently being assembled and additional
satellites are being produced at a rate expected to increase to approximately
five per month. The initial satellite launch that was scheduled to occur in
January 1997, but was postponed following the failure of a Delta II launch
vehicle, the same type of launch vehicle to be used by McDonnell Douglas for
Iridium satellites. Motorola has advised Iridium that it currently expects to
launch the first Iridium satellites in May 1997 and that, subject to certain
assumptions, including that McDonnell Douglas launches commence in May 1997, the
initial launch delay will not result in a delay in the scheduled September 1998
commercial activation date for the IRIDIUM System. See "Risk
Factors -- Potential for Delay and Cost Overruns" and "-- Satellite Launch
Risks."
Motorola has completed construction of most of the terrestrial facilities
necessary to command the in-space movements of the IRIDIUM System's satellites,
including the Master Control Facility and the associated tracking, telemetry and
command ("TT&C") facilities. The construction of the Iridium North America
(Tempe, Arizona) and Nippon Iridium Corporation (Matsumoto, Japan) gateway
facilities is substantially complete and the telecommunications equipment is
being installed at both locations. Equipment procurement has commenced for seven
other gateways pursuant to gateway equipment purchase agreements with Motorola.
Motorola has produced a functional, unminiaturized prototype of the IRIDIUM
phone, and Motorola has produced a functional prototype of the IRIDIUM belt-worn
pager. Iridium has also made substantial progress in the development of its
IRIDIUM business support systems, which will be used for the provision of its
billing and customer support functions. See "Risk Factors" for a description of
the risks that could impair the ability of Iridium to commence commercial
operations on schedule in September 1998.
Iridium has made significant progress to date in securing the worldwide
regulatory approvals necessary to build and operate the IRIDIUM System. At the
1992 World Administrative Radiocommunications Conference ("WARC-92"), the
International Telecommunications Union (the "ITU") allocated 16.5 MHz of
spectrum in the 1610-1626.5 MHz band to MSS systems. The U.S. Federal
Communications Commission (the "FCC") conditionally assigned the IRIDIUM System
exclusive use of 5.15 MHz of the 16.5 MHz for use in the United States. The
space segment of the IRIDIUM System has been licensed in the United States, and
coordination through the normal ITU process is in its final stage. No other
action is required from any other country to license the space segment. Three
final and four provisional licenses to build and operate gateways have been
received, including a final license with respect to the Iridium North America
gateway in Tempe, Arizona. Each country in which Iridium intends to operate must
authorize use of IRIDIUM subscriber equipment, including allocation of
subscriber link frequencies. The FCC has issued a license covering IRIDIUM
Satellite Services in the United States and seven additional countries have
granted conditional licenses for IRIDIUM Satellite Services in their respective
countries. Iridium's gateway owners are dedicating substantial effort to
obtaining licensing for IRIDIUM Satellite Services in the countries in their
service territories. See "Risk Factors -- Risks Associated with Licensing and
Spectrum Allocation" and
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"Regulation of Iridium" for a discussion of the conditions to these licenses and
the additional regulatory approvals outside the United States that remain to be
obtained.
THE COMPANY
The Company is organized to act as a member of Iridium and to have no other
business. The Company will use the net proceeds from the Offerings to acquire
Class 1 Interests. The purchase price of the Class 1 Interests is expected to be
$ per Class 1 Interest. Upon consummation of the Offerings and
application of the proceeds therefrom to purchase Class 1 Interests, the Company
is expected to own % of the outstanding Class 1 Interests ( % if the
Underwriters' over-allotment options are exercised in full). See "Dilution" and
"Governance of the Company and Relationship with Iridium."
BUSINESS STRATEGY
Iridium's strategy is to launch and operate the premier global mobile
wireless network. The key components of this strategy are set forth below:
Provide a unique service package to traveling professionals enabling them
to be reached and make calls virtually anywhere in the world. IRIDIUM Satellite
Services will complement terrestrial wireless services and provide the traveling
professional with communications capability in areas where terrestrial wireless
service is unavailable, inconvenient, of poor quality or unreliable. Iridium
intends to offer ICRS and global paging as complements to IRIDIUM Satellite
Services and as stand-alone services. Iridium believes that it will be the only
wireless communications system in operation prior to 2000 that will be able to
offer global mobile voice and paging services, including:
- Full global coverage. An IRIDIUM subscriber will generally have worldwide
wireless coverage wherever IRIDIUM Services are authorized, including
mid-ocean and remote areas. The availability of the IRIDIUM Satellite
Service will not be limited by the customer's proximity to a gateway.
Iridium believes this feature will make its Satellite Services
particularly well suited for aeronautical and shipping communications and
for service in land areas where LEO MSS systems using "bent pipe"
technology are not expected to have the more extensive gateway
infrastructure needed by such systems to provide global coverage.
- Convenient roaming onto terrestrial wireless networks. Iridium will offer
subscribers a combination of IRIDIUM Satellite Services and ICRS. With
the addition of ICRS, customers will be able to overcome (i) the
incompatibility of differing wireless protocols and (ii) the service
limitations of satellite-only voice services in buildings and urban
canyons. Iridium expects to be able to deliver all of its voice services
with one phone, one phone number and one customer bill.
- Global paging with belt-worn pagers. The IRIDIUM belt-worn pager will
have the capability of receiving alphanumeric messages of up to 63
characters and numeric messages of up to 20 digits virtually anywhere in
the world. With Iridium's global paging, users of IRIDIUM Satellite
Services or ICRS will generally be able to update their location on the
IRIDIUM System by briefly turning on their phone, thereby allowing the
IRIDIUM System to send a targeted page. Iridium believes that it will be
the first company, and the only company prior to 2000, which will offer
global paging to a belt-worn pager.
- Greater signal strength. The IRIDIUM System is designed to provide
greater signal strength than proposed competing MSS systems. Iridium
believes this greater signal strength will allow it to better serve
hand-held phones, and provide a higher degree of in-building signal
penetration for pagers, than competing MSS systems.
Be the first to market with a global wireless communications system.
Iridium plans to capitalize on the substantial design, development, fabrication
and testing efforts and financial investment to date of its strategic investors
to bring IRIDIUM Services to market at the earliest practicable date, which is
currently expected to
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be September 1998. Iridium believes that it will be the only wireless
communications system in operation prior to 2000 that will be able to offer
global mobile voice and paging services.
Adapt proven technologies through an industrial team led by Motorola. The
IRIDIUM System adapts proven technology, including GSM cellular call processing
technology, intersatellite links, FDMA/TDMA radio transmission technology, a
2,400 bps vocoder and business support software. Iridium believes that the
primary technological challenge is the integration of these proven technologies
into a single system. Motorola, the principal investor in Iridium, is a leading
international provider of wireless communications systems, cellular phones,
pagers, semiconductors and other electronic equipment. The industrial team
assembled by Motorola to build and deliver in orbit the IRIDIUM System consists
of major companies experienced in aerospace and telecommunications, including
Nuova Telespazio, Lockheed Martin, Raytheon, McDonnell Douglas, Khrunichev and
China Aerospace.
Capitalize on the strengths of its strategic investors. A number of
Iridium's strategic investors provide telecommunications services in various
parts of the world and have significant operating, regulatory and marketing
experience in their service territories. Iridium expects that its investors with
existing wireless communications sales and service organizations will use these
organizations to market and distribute IRIDIUM Services and equipment to
potential subscribers. Because of the prominence of many of these investors,
Iridium believes that their efforts to obtain the necessary regulatory approvals
have been, and will continue to be, of great importance.
Utilize existing wireless distribution channels. Iridium's strategy is to
target primarily traveling professionals, who are generally wireless phone
users. Iridium's strategy is to provide customers with an enhancement to their
existing terrestrial wireless service through existing marketing and
distribution channels rather than to focus on individuals who have no or limited
landline or wireless communications experience and live in areas where no
marketing and distribution channels currently exist.
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SOURCES AND USES OF FUNDS BY IRIDIUM
The following table describes the estimated sources and uses of funds by
Iridium from its inception through the end of September 1998 (the month Iridium
expects to commence commercial operations). Significant additional funds will be
needed to cover Iridium's cash needs prior to its generation of positive cash
flow from operations. The projection of total sources and total uses of funds is
forward-looking and could vary, perhaps substantially, from actual results, due
to events outside Iridium's control, including unexpected costs and unforeseen
delays. See "Risk Factors -- Risk of Error in Forward Looking Statements."
PRE-OPERATIONAL PERIOD(1)
(IN MILLIONS)
SOURCES OF FUNDS
- ------------------------------------
Class 1 Interests................... $1,616
Series A Class 2 Interests(2)....... 43
14 1/2% Senior Subordinated Notes
due 2006(3)....................... 238
Guaranteed Bank Facility(4)......... 750
------
Total.......................... 2,647
Estimated Net Proceeds to Iridium
from the Offerings(5)............. 186
------
Total after Offerings.......... 2,833
Reserve Capital Call(6)............. 243
Conditional Motorola Guarantee
Commitment(7)..................... 350
Additional funding
requirements(8)................... 935
------
Total Pre-operational
Sources...................... $4,361
======
USES OF FUNDS
- ------------------------------------
Space System Contract(9)............ $3,450
Terrestrial Network Development
Contract(10)...................... 188
Business support systems and other
expenditures(11).................. 175
Net interest and financing
costs(12)......................... 220
Net expenses and working
capital(12)(13)................... 328
------
Total Pre-operational net
uses......................... $4,361
======
(1) Assumes that the IRIDIUM System will commence commercial operations in
September 1998. Iridium anticipates total cash needs of $5.0 billion (net
of assumed revenues following commencement of commercial operations)
through year-end 1999, the last year in which Iridium projects negative
cash flow and a net increase in year-end borrowings. Many factors,
including Iridium's ability to generate significant revenues, could affect
this estimate. See "Risk Factors" and "Management's Discussion and Analysis
of Financial Condition and Results of Operations."
(2) The Series A Class 2 Interests pay a 14 1/2% in-kind dividend until 2001
and a 14 1/2% cash dividend thereafter. At the time when the Series A Class
2 Interests convert to a cash dividend, there will be 86,056 Series A Class
2 Interests outstanding convertible into 21,239 Class 1 Interests, subject
to customary anti-dilution adjustments.
(3) These Notes were issued with warrants to purchase 66,630 Class 1 Interests
at a price of $.01 per Interest.
(4) As of March 1, 1997, Iridium had drawn $645 million under a $750 million
borrowing facility with a syndicate of banks (the "Guaranteed Bank
Facility"). Borrowings under the Guaranteed Bank Facility are guaranteed by
Motorola. The Guaranteed Bank Facility matures in August 1998. Iridium
expects that it will be able to extend this facility through December 31,
2000. Motorola has conditionally committed to extend its guarantee to that
date if the Guaranteed Bank Facility is so extended. In connection with its
guarantee of the Guaranteed Bank Facility Motorola received a security
interest in substantially all of Iridium's assets. Motorola's compensation
for the $750 million guarantee is in the form of warrants to acquire
additional Class 1 Interests at $.01 per Class 1 Interest. The maximum
number of warrants to be issued as compensation for the $750 million
guarantee will be 150,000 (subject to anti-dilution adjustments) prior to
the commencement of commercial operations. If the Guaranteed Bank Facility
is extended, the yearly warrant compensation proposed by Motorola would be
up to 12,000 warrants to acquire Class 1 Interests at $.01 per Interest for
each $100 million of guarantee
10
13
commitments, beginning at the commencement of commercial operations
(subject to anti-dilution adjustments). The Class 1 Interests acquired upon
exercise of such warrants must be held for five years from the date of
issuance of such Interests. See "Dilution."
(5) Reflects the application of the estimated net proceeds of the Offerings to
the purchase from Iridium of Class 1 Interests at a price of $ per
Class 1 Interest. Expenses of the Offerings will be borne entirely by
Iridium.
(6) Seventeen of Iridium's investors have made varying reserve capital call
commitments to purchase Class 1 Interests at $1,000 per Class 1 Interest
for an aggregate purchase price of approximately $243 million (the "Reserve
Capital Call"). Iridium is required to exercise the Reserve Capital Call
under certain conditions, including in the event of a prospective funding
shortfall. See "Description of Iridium LLC Limited Liability Company
Agreement -- Capital Contributions; Reserve Capital Call."
(7) Motorola has made a conditional commitment to guarantee up to an additional
$350 million of borrowings under the Guaranteed Bank Facility, for which
Motorola would be compensated with additional warrants to purchase Class 1
Interests at $.01 per Class 1 Interest. The maximum number of warrants to
be issued as compensation for the additional $350 million guarantee, if
implemented, would be 50,000 (subject to anti-dilution adjustments) prior
to commencement of commercial operations. See "Dilution." Iridium is
seeking to amend the Guaranteed Bank Facility to permit such additional
borrowing. If the Guaranteed Bank Facility is extended beyond its August
1998 maturity date, Motorola has proposed additional warrant compensation
beginning at commencement of commercial operations as described in note (4)
above.
(8) Iridium currently expects to satisfy its additional funding requirements
through the incurrence of debt. It is likely that some portion of the
additional debt will need to be guaranteed or to be otherwise supported by
investors, vendors or others and that Iridium will be required to
compensate the guarantors or entities providing such credit support
including, possibly, through the issuance of warrants or other equity which
would be dilutive to the Company and its stockholders. There are currently
no agreements with Motorola or Iridium's other investors or vendors to
provide such credit support. It is possible that some portion of Iridium's
additional funding requirements may be met through the issuance of
additional equity. Although Iridium believes that it will be able to meet
its additional funding requirements, there can be no assurance that such
financing will be available on favorable terms, on a timely basis, or at
all. Among other things, the availability of any financing is subject to
market conditions at the time of any proposed financing. See "Risk
Factors -- Significant Additional Funding Needs" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
(9) As of March 1, 1997, Iridium had incurred $2,284 million of this amount.
(10) As of March 1, 1997, Iridium had incurred $64 million of this amount.
(11) As of March 1, 1997, Iridium had incurred $15 million of this amount.
(12) Based on assumed interest rates and borrowing levels. Actual interest and
financing costs will depend upon applicable interest rates and the amount
and timing of actual borrowings.
(13) Comprised of operating expenses of $587 million net of revenue provided by
net interest income of $13 million and working capital of $248 million.
11
14
THE OFFERINGS
Class A Common Stock offered by the
Company:
U.S. Offering..................... 8,000,000 shares
International Offering............ 2,000,000 shares
Total.......................... 10,000,000 shares
Class A Common Stock of the Company
to be outstanding immediately after
the Offerings..................... 10,000,000 shares(1)
Iridium Class 1 Interests to be
outstanding immediately after the
Offerings......................... Interests(1)(2)
Use of Proceeds..................... The estimated net proceeds of the
Offerings, including the net proceeds
from any exercise of the Underwriters'
over-allotment options, will be used by
the Company to purchase Class 1
Interests in Iridium pursuant to the
terms of the 1997 Subscription
Agreement described under "Governance
of the Company and Relationship with
Iridium -- 1997 Subscription
Agreement." Iridium will use the
proceeds from such sale of the Class 1
Interests primarily to make milestone
payments under the Space System
Contract and the Terrestrial Network
Development Contract and to a lesser
extent for other general corporate
purposes related to the
commercialization of the IRIDIUM
System. See "Use of Proceeds."
Voting Rights....................... All voting rights with respect to the
affairs of the Company, except as
otherwise required by law, are vested
in the holders of the Class A Common
Stock. See "Governance of the Company
and Relationship with Iridium" and
"Description of Capital Stock."
Proposed NASDAQ National Market
Symbol.............................. IRIDF
(1) Assumes the Underwriters' over-allotment options are not exercised. If the
over-allotment options are exercised in full, there will be 11,500,000
shares of Class A Common Stock, and Class 1 Interests, outstanding
immediately following the Offerings. Does not reflect the issuance of shares
of the Company's non-voting Class B Common Stock, par value $.01 per share
(the "Class B Common Stock"), to be issued in connection with the Company's
Global Ownership Program or the application of the proceeds therefrom to
acquire Class 1 Interests. Upon satisfaction of certain conditions, the
shares of Class B Common Stock may be exchanged for shares of Class A Common
Stock. There are no shares of Class B Common Stock outstanding. See
"Governance of the Company and Relationship with Iridium -- Global Ownership
Program" and "Description of Capital Stock."
(2) This amount does not give effect to the issuance of any Class 1 Interests
pursuant to options, warrants or convertible interests or pursuant to the
Reserve Capital Call. See "Dilution."
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