The
information in this prospectus supplement is not complete and
may be changed. A registration statement relating to these
securities has been declared effective by the Securities and
Exchange Commission. We are not using this preliminary
prospectus supplement or the accompanying prospectus to offer to
sell these securities or to solicit offers to buy these
securities in any place where the offer or sale is not
permitted.
Filed
pursuant to rule 424(B)(2)
File no. 333-159673
PRELIMINARY
PROSPECTUS SUPPLEMENT
(To prospectus dated August 31, 2009)
16,000,000 Shares
GHL
Acquisition Corp.
Common
Stock
We are offering 16,000,000 shares of our common stock,
par value $0.001 per share. The closing of this offering is
conditioned on the completion of our proposed acquisition (the
“Acquisition”) of Iridium Holdings LLC (“Iridium
Holdings”). As a result, any shares you purchase pursuant
to this offering will not be entitled to vote in connection with
the Acquisition or receive any proceeds from the trust account
if we do not consummate an initial business combination by
February 14, 2010. We will receive all of the net proceeds
from the sale of such shares. Our common stock is traded on the
NYSE Amex under the symbol “GHQ.” We intend to delist
the shares of our common stock on the NYSE Amex and seek to have
the shares of our common stock approved for listing on the
Nasdaq Stock Market (“NASDAQ”) following the pricing
of this offering.
On September 2, 2009, the reported last sale price of
our common stock on the NYSE Amex was $10.00 per share.
If we are unable to complete the Acquisition prior to the
scheduled closing of this offering, no shares of common stock
will be sold and delivered in this offering. As a result, you
are advised not to sell shares of common stock to be acquired in
this offering prior to the closing of this offering as secondary
trades in the shares of common stock offered hereby will not
settle if this offering does not close.
You should consider the risks which we have described in
“Risk Factors” beginning on
page S-18
before buying shares of our common stock.
Per
Share
Total
Public offering price
$
$
Underwriting discounts and commissions
$
$
Proceeds, before expenses, to us
$
$
The underwriters may purchase up to an additional
2,400,000 shares from us at the public offering price, less
the underwriting discount, within 40 days from the date of
this prospectus supplement to cover over-allotments.
Neither the Securities and Exchange Commission nor any state
securities commission has approved or disapproved of these
securities or determined if this prospectus supplement or the
accompanying prospectus is truthful or complete. Any
representation to the contrary is a criminal offense.
The underwriters expect to deliver the shares to purchasers
on or
before ,
2009.
You should rely only on the information contained in or
incorporated by reference in this prospectus supplement or the
accompanying prospectus. Neither we nor the underwriters have
authorized anyone to provide you with different information from
that contained in this prospectus supplement and the
accompanying prospectus. We are not making an offer of the
shares of common stock covered by this prospectus supplement in
any jurisdiction where the offer is not permitted. You should
not assume that the information contained in or incorporated by
reference in this prospectus supplement or the accompanying
prospectus is accurate as of any date other than the dates on
the front covers of those documents.
Except as otherwise specified, the terms the
“Company,”“we,”“us” and
“our” refer to GHL Acquisition Corp. (to be renamed
Iridium Communications Inc. following the Acquisition), a
Delaware corporation, and, except for periods prior to the date
of completion of the Acquisition, Iridium Holdings and its
subsidiaries. References to “GHQ” refer to GHL
Acquisition Corp. prior to the completion of the Acquisition and
references to “Iridium Holdings” refer to Iridium
Holdings LLC and its subsidiaries prior to the completion of the
Acquisition. References to “Greenhill” or our
“founding stockholder” refer to Greenhill &
Co., Inc. References to “initial stockholders” refer
to Greenhill and its permitted transferees. References to
“public stockholders” refer to purchasers of shares of
our common stock in our initial public offering
(“IPO”) or in the secondary market, including our
founding stockholder, officers or directors and their affiliates
to the extent they purchased or acquired shares in the IPO or in
the secondary market.
This document is in two parts. The first part is this prospectus
supplement, which describes the specific terms of this offering
of our common stock. The second part, the accompanying
prospectus, gives more general information about the securities
we may offer from time to time. If there is any inconsistency
between the information in this prospectus supplement and the
accompanying prospectus, you should rely on the information in
this prospectus supplement.
You should carefully read both this prospectus supplement and
the accompanying prospectus, together with additional
information described under the heading “Where You Can Find
More Information” before deciding to invest in the common
stock being offered.
Information contained in this prospectus supplement and
accompanying prospectus concerning the mobile satellite services
industry, the domestic and international markets for Iridium
Holdings’ products, services and applications, the historic
growth rate and the future of the mobile satellite services
market and of Iridium Holdings’ market share or position in
any vertical market is based on Iridium Holdings’ internal
estimates and research as well as on industry and general
publications, studies, surveys and forecasts conducted by third
parties, including Euroconsult, GSM Association &
Europa Technologies, Northern Sky Research and TMF Associates,
on assumptions that Iridium Holdings has made that are based on
that data and other similar sources as well as its knowledge of
the markets for its products, services and applications.
While Iridium Holdings has informed us that it believes each of
these publications, studies, surveys and forecasts are reliable,
Iridium Holdings has not independently verified the market and
industry data provided by third parties or by industry or
general publications. Similarly, while Iridium Holdings believes
its internal estimates and research are reliable and the market
definitions are appropriate, neither such research nor these
definitions have been verified by any independent source, and
neither we nor Iridium Holdings make any representation or
warranty as to the accuracy and completeness of such estimates
and information.
For purposes of this prospectus supplement and accompanying
prospectus, when we discuss Iridium Holdings’ position in
the market for mobile satellite services, its market position is
based on its total revenues in relation to the revenues of the
principal industry players in 2008. For purposes of this
prospectus supplement and accompanying prospectus,
“principal industry players” are defined as Iridium
Holdings, Inmarsat plc. (“Inmarsat”), Globalstar, Inc.
(“Globalstar”), Thuraya Satellite Telecommunications
Company (“Thuraya”), SkyTerra Communications
(“SkyTerra”), Orbcomm Inc. (“Orbcomm”), ICO
Global Communication (Holdings) Limited (“ICO”) and
TerreStar Networks, Inc. (“TerreStar”).
This prospectus supplement and the accompanying prospectus,
including the documents incorporated by reference herein and
therein, contain forward-looking statements within the meaning
of the “safe harbor” provisions of the Private
Securities Litigation Reform Act of 1995. In some cases you can
identify these statements by forward-looking words such as
“may,”“might,”“will,”“will
likely result,”“should,”“anticipates,”“expects,”“intends,”“plans,”“seeks,”“estimates,”“potential,”“continue,”“believes” and similar
expressions, although some forward-looking statements are
expressed differently.
These forward-looking statements are based on current
expectations and assumptions that are subject to risks and
uncertainties that may cause our actual results, performance or
achievements to differ materially from any expected future
results, performance or achievements expressed or implied by
such forward-looking statements. All statements other than
statements of historical fact are statements that could be
deemed forward-looking statements. These risks and uncertainties
include, but are not limited to:
•
whether the Acquisition will be approved by our stockholders;
•
whether the closing conditions of the Acquisition and this
offering will be satisfied;
•
the level and type of demand for Iridium Holdings’ products
and services;
•
Iridium Holdings’ ability to maintain the health, capacity,
control and level of service of its satellite network;
•
Iridium Holdings’ ability to cost-effectively design,
construct and launch Iridium NEXT;
•
Iridium Holdings’ ability to obtain capital to meet its
future capital requirements, in particular the funding for
Iridium NEXT and related ground infrastructure, products and
services;
•
changes in general economic, business and industry conditions;
•
Iridium Holdings’ and its distributors’ ability to
introduce innovative products, services and applications that
satisfy market demand;
•
the ability of Iridium Holdings’ distributors to market and
sell Iridium Holdings’ products, services and applications
effectively;
•
the ability of Iridium Holdings’ competitors to develop and
offer similar services and products;
•
Iridium Holdings’ ability to maintain its relationship with
U.S. government customers, particularly the Department of
Defense (“DoD”);
•
denials or delays in receipt of regulatory approvals or
non-compliance with conditions imposed by regulatory authorities;
•
legal, regulatory and tax developments, including additional
requirements imposed by changes in domestic and foreign laws and
regulations; and
•
rapid and significant technological changes in the
telecommunications industry.
There is no assurance that our expectations will be realized. If
one or more of these risks or uncertainties materialize, or if
our underlying assumptions prove incorrect, actual results may
vary materially from those expected, estimated or projected.
Such risks and uncertainties also include those set forth under
“Risk Factors” starting on
page S-18
and those described under “Risk Factors” in
Part I, Item 1A of our Annual Report on
Form 10-K
for the year ended December 31, 2008, as amended, and
incorporated herein by reference. Our forward-looking statements
speak only as of the time they are made and do not necessarily
reflect our outlook at any other point in time. Except as
required by law or regulation, we undertake no obligation to
update publicly any forward-looking statements, whether as a
result of new information, future events or for any other reason.
This summary highlights information contained elsewhere in
this prospectus supplement and the accompanying prospectus. It
does not contain all of the information you should consider
before making an investment decision. You should read the entire
prospectus supplement, the accompanying prospectus, the
documents incorporated by reference and the other documents to
which we refer for a more complete understanding of this
offering. Please read the information set forth under the
heading “Risk Factors” on
page S-18
and the information set forth under “Risk Factors” in
Part I, Item 1A of our Annual Report on
Form 10-K
for the year ended December 31, 2008, as amended,
incorporated by reference in this prospectus supplement, for
more information about important factors that you should
consider before buying our common stock in this offering.
For purposes of “—Iridium Holdings LLC” in this
summary, the terms “we,”“us” and
“our” refer to Iridium Holdings LLC and its
subsidiaries.
Iridium
Holdings LLC
Our
Business
We are the second largest provider of mobile voice and data
communications services via satellite, and the only provider of
mobile satellite communications services offering 100% global
coverage. Our satellite network provides communications services
to regions of the world where existing wireless or wireline
networks do not exist or are impaired, including extremely
remote or rural land areas, open ocean, the Polar Regions
(defined as those regions at or above 70 degrees latitude) and
regions where the telecommunications infrastructure has been
affected by political conflicts or natural disasters. Demand for
our mobile satellite services and products is growing as a
result of the increasing need for reliable communications
services in all locations.
We offer voice and data communications services to the
U.S. and foreign governments, businesses, non-governmental
organizations and consumers via our constellation of 66 in-orbit
satellites, seven in-orbit spares and related ground
infrastructure, including a primary commercial gateway. We
utilize an interlinked mesh architecture to route traffic across
our satellite constellation using radio frequency crosslinks.
This unique architecture minimizes the need for ground
facilities to support the constellation, which facilitates the
global reach of our services and allows us to offer services in
countries and regions where we have no physical presence.
The U.S. government, directly and indirectly, has been and
continues to be our largest customer, generating
$67.8 million, or 21.1%, of our total revenues for the year
ended December 31, 2008, and $36.6 million, or 23.1%,
of our total revenues for the six months ended June 30,2009. The Department of Defense (DoD) owns and operates a
dedicated gateway that is only compatible with our satellite
network. The U.S. Army, Navy, Air Force and Marines, as
well as other nations’ military forces, use our voice and
data services for a variety of mission-critical applications,
including for combat, training and daily operations. In addition
to voice and data products used by soldiers for primary and
backup communications solutions, our products and related
applications are installed in ground vehicles, unmanned aerial
vehicles, helicopters and aircraft and used for command and
control and situational awareness purposes. Our satellite
network provides the DoD with a secure communication system
because traffic is routed across our satellite constellation
before being brought down to earth via the dedicated, secure DoD
gateway, thus reducing the risk of electronic jamming and
eavesdropping. Since our inception, the DoD has made significant
investments to build a dedicated gateway in Hawaii and to
purchase our handsets and devices, all of which are only
compatible with our satellite network. The DoD would have to
incur significant time and expense to replicate our network
architecture and replace our voice and data services with a
competing service provider.
Our commercial end-user base, which we view as our primary
growth engine, is very diverse and includes the emergency
services, maritime, government, utilities, oil and gas, mining,
leisure, forestry, construction and transportation markets. Many
of our end-users increasingly view our
products and services as critical to their daily operations and
integral to their communications and business infrastructure.
For example, multinational corporations in various sectors use
our services for business telephony, email and data transfer
services and to provide pay telephony services for employees in
communities inadequately served by terrestrial networks. Ship
crews and passengers use our services to send and receive email
and data files as well as facsimiles, and to receive electronic
newspapers, weather reports, emergency bulletins and electronic
charts. Shipping operators use our services to manage inventory
on board ships and to transmit data, such as course, speed and
fuel stock. Aviation-based end- users use our services for
air-to-ground
telephony and data communications.
We sell our products and services to commercial end-users
exclusively through a wholesale distribution network,
encompassing approximately 65 service providers, 110 value-added
resellers and 45 value-added manufacturers, who either sell
directly to the end-user or indirectly through other service
providers, value-added resellers or dealers. These distributors
often integrate our products and services with other
complementary hardware and software and have developed over 200
unique applications for our products and services targeting
specific vertical markets. We expect that demand for our
services will increase as more applications are developed for
our products and services.
We and our partners have a history of developing innovative
products, services and applications to expand our markets. These
innovations have driven our market expansion and increased
service revenue. For example, in 2005 we introduced the Iridium
9601 short burst data modem, which is typically used in
tracking, sensor and data applications and systems. In
October 2008, we began offering the Iridium OpenPort
terminal, specifically engineered for maritime voice and data
use, including high bandwidth and flexible configuration
options. We believe that the relatively low cost and high
functionality of the Iridium OpenPort terminal will allow us to
expand and further penetrate the maritime market. In addition,
pursuant to a DoD funded research and development contract, we
are also developing new services, such as “Netted
Iridium,” which provides
push-to-talk
capability and is being used today by soldiers in the field for
improved
“over-the-horizon”
tactical communications capability. We and our partners also
design innovative applications for our products and services
which are tailored to the specific needs of end-users in various
industries. For example, oil-field service companies, like
Schlumberger Limited, use our services to run applications that
allow remote monitoring and operation of equipment and
facilities, such as oil pipelines and offshore drilling
platforms.
At December 31, 2008 and June 30, 2009, we had
approximately 320,000 and 347,000 subscribers worldwide,
respectively, representing a 36.6% and 23.9% increase compared
to December 31, 2007 and June 30, 2008, respectively.
Over the five-year period from December 31, 2003 to
December 31, 2008, our subscriber base grew from 94,000 to
320,000, a compound annual growth rate of 27.8%. Total revenues
increased from $260.9 million in 2007 to
$320.9 million in 2008.
Market
Opportunity
Northern Sky Research estimated that in 2008, the total market
for mobile satellite services was $1.7 billion, of which
58% was derived from land-based applications, 33% was derived
from maritime applications, and 9% was derived from
aviation-related applications. Northern Sky Research indicated
at that time that it expected mobile satellite services
wholesale revenues to grow at a compound annual growth rate of
12% over the five-year period from 2010 to 2015. Growth in
demand for mobile satellite services is driven by the increasing
demand for global coverage, the declining cost of satellite
voice and data communications devices and services, the smaller
size of handsets and the introduction of new applications
tailored to the specific needs of end-users.
We believe that the rapid growth of the terrestrial wireless
industry over the last decade is evidence of the increasing
demand for mobile communication services and believe our network
offers solutions for satisfying such demand in situations where
terrestrial-based service is unavailable. Despite significant
penetration and competition, terrestrial wireless systems cover
only a small fraction of the earth’s surface and are mainly
focused on populated areas. Terrestrial wireless coverage is
limited or non-existent over oceans, many rural areas and other
remote regions where ships, airplanes and other assets are
located
and/or
travel. By offering mobile communications services with global
voice and data coverage, mobile satellite service providers
address the demand for reliable voice and data connectivity in
locations not served by wireline and wireless terrestrial
networks.
Demand for
machine-to-machine
products and services has been growing rapidly as they enable
enterprise end-users to maintain contact with remote assets.
This connectivity provides a wide range of potential benefits
including increasing supply chain efficiency, increasing
productivity, diagnosing equipment breakdowns and reducing the
risk of theft. We believe there is a significant growth
opportunity for cost-effective mobile satellite services in this
market and anticipate that the increased adoption of existing
machine-to-machine
applications and the development of new ones will foster
increased demand.
In addition, we believe increased demand for higher-speed,
low-cost data services, continued development of innovative
cost-effective applications and regulatory mandates will drive
increased demand in the maritime and aviation markets. For
example, we believe the recent introduction of Iridium OpenPort
presents a cost-effective, high speed communication alternative
to end-users in the maritime market which we expect will
increase our market share in the maritime communications sector.
There are significant barriers to entry to the mobile satellite
services industry, including the cost and difficulty associated
with obtaining spectrum licenses, successfully building and
launching a satellite network and establishing a distribution
network. There is also significant lead-time associated with
obtaining the required spectrum licenses, building the satellite
constellation, deploying the ground network technology,
developing a network of strategic partners and establishing an
end-user base. Another barrier to entry is that mobile satellite
service products typically only work with a single network and
as a result it is expensive and difficult for end-users to
switch satellite service providers. For example, we believe that
the owners of business aircraft who have installed our voice
equipment are less likely to switch to a competing provider due
to the inconvenience and expense of replacing our equipment.
Our
Competitive Strengths
•
Only provider with 100% global coverage. Our
satellite network operates in a low earth orbit, or LEO, and
offers 100% global coverage. In contrast, geosynchronous, or
GEO, satellite systems are only able to cover approximately 70%
of the earth’s surface as they are generally positioned at
the Equator. In addition, none of our LEO competitors offer 100%
global coverage. Our satellite network relies on an interlinked
mesh architecture to transmit signals, which reduces the need
for multiple ground stations and facilitates the global reach of
our services. Other satellite service providers use a bent pipe
architecture that requires voice and data transmissions to be
immediately routed to nearby ground stations, which limits their
ability to provide global coverage. As a result, we believe that
we are well-positioned to capture the growth in our industry
from end-users who require reliable communications service in
all locations.
•
High quality and reliable voice and data
services. We believe we offer high quality and reliable
voice and data services. The LEO design of our satellite
constellation produces minimal transmission delays relative to
GEO systems due to its relatively close proximity
to earth and the shorter distance our signals have to travel.
Additionally, LEO systems have smaller handset antenna
requirements and are less prone to signal blockage caused by
terrain than GEO satellite networks. Our primary LEO-based
competitor has publicly announced that it has experienced
satellite failures and other problems impacting its
constellation that are affecting and will continue to affect its
ability to provide commercially acceptable two-way voice and
data service for the foreseeable future.
•
Solutions for a broad range of vertical markets. We
have created additional demand for our products and services and
expanded our target market by partnering with our distributors
to develop new products, services and applications. The
specialized needs of our global end-users span many markets,
including emergency services, maritime, government, utilities,
oil and gas, mining, leisure, forestry, construction and
transportation. Our communication solutions have become an
integral part of the communications and business infrastructure
of many of our end-users. In many cases, our service provides
the only connectivity solution for these applications, and our
products are often integrated by the original manufacturers or
in the aftermarket into expensive machinery, such as military
equipment and sophisticated monitoring devices.
•
Strategic relationship with the DoD. The
U.S. government is our largest customer, and we have had a
strategic relationship with the DoD since our inception in late
2000. We provide the DoD, as well as other U.S. government
agencies, with mission-critical mobile satellite products and
services. Our satellite handsets are one of the few commercial
handsets available on the market that are capable of Type I
encryption accredited by the United States National Security
Agency for “Top Secret” communications. In addition,
the DoD has made significant investments to build a dedicated
gateway in Hawaii to allow DoD users to access our network on a
secure basis. This gateway is only compatible with our satellite
network.
•
Large, value-added wholesale distribution
network. We sell our products and services to
commercial end-users exclusively through a wholesale
distribution network of approximately 65 service providers, 110
value-added resellers and 45 value-added manufacturers. By
relying on distributors to manage end-user sales, we believe
that our model leverages their expertise in marketing to their
target customers while lowering overall customer acquisition
costs and mitigating certain risks such as consumer credit risk.
Our distributors further support our growth by developing new
applications and solutions for our products and services, often
combining our products with other technologies, such as GPS and
terrestrial wireless technology, to provide integrated
communications solutions for their target customers.
Our
Business and Growth Strategies
•
Develop new products and services for commercial markets to
further expand and penetrate our target markets. We
expect to continue to develop, together with our partners,
tailor-made products, services and applications targeted to the
maritime, aviation, land-based handset, and
machine-to-machine
markets. We believe these markets represent an attractive
opportunity for subscriber growth and increased airtime usage.
We expect the development of a netted
(push-to-talk)
application to provide us in the future with potential new
commercial applications in public safety, fishing and field
worker communications. The high integrity GPS service
(“iGPS”) technology we have developed with a partner
is expected to enable new commercial applications in enhanced
navigation services such as precision farming, high accuracy
navigation for oil and gas exploration and construction
services. In addition, our partners regularly develop
specialized end-user applications targeted at specific markets.
Develop new services for the DoD. We are developing
additional capabilities for our network to enhance its utility
to the DoD. In conjunction with the Marine Corps Warfighting
Lab, we are currently expanding the capabilities of our
satellite handsets to permit netted
(push-to-talk)
group calling radio services, providing
over-the-horizon
user-defined tactical radio networks to DoD users. We are also
developing capabilities that will enable iGPS service, which is
expected to be used as an embedded component in several DoD
applications. These and other services in development provide us
with opportunities to increase revenue from the DoD, our anchor
customer. In addition, we expect that our Iridium NEXT satellite
constellation will incorporate unique features and capabilities
tailored to meet the specific needs of the DoD.
•
Leverage our fixed cost infrastructure by growing our service
revenues. Our business model is characterized by high
fixed costs, primarily costs associated with designing,
building, launching and maintaining our satellite constellation.
However, the incremental cost of providing service to additional
end-users is relatively low. We believe that service revenues
will be our largest source of future growth and profits and
intend to focus on growing both our commercial and government
service revenues in order to leverage our fixed cost
infrastructure.
•
Expand our geographic sales reach. Our products and
services are offered in over 100 countries. While our
network can be used throughout the world, we are not currently
licensed to sell our products and services directly in certain
countries, including Russia, China, Mexico, South Africa and
India. We are currently in discussions with regulatory officials
in these and other countries to obtain licenses and, to the
extent we are successful in obtaining such licenses, we believe
the expanded reach of our product and service distribution
platform will accelerate our growth.
•
Develop Iridium NEXT constellation. We are
developing our next-generation satellite constellation, Iridium
NEXT, which we expect to begin launching in 2014. Iridium NEXT
will be backward compatible with our current system and will
replace the existing constellation with a more powerful
satellite network, which we anticipate will have more than twice
the capacity. Iridium NEXT will maintain our current
system’s unique attributes, including the capability to
upload new software, while providing new and enhanced
capabilities, such as higher data speeds and increased capacity.
In addition, Iridium NEXT will be designed to host secondary
payloads which we expect to defray a portion of the capital
expenditures related to Iridium NEXT as well as to generate
recurring revenues. We believe Iridium NEXT’s increased
capabilities will expand our target markets by enabling us to
offer a broader range of products and services, including a
wider array of broadband data services.
The
Acquisition
General
We expect to acquire Iridium Holdings pursuant to a transaction
agreement dated as of September 22, 2008 among GHQ, Iridium
Holdings and the holders of Iridium Holdings’ units, as
amended on April 28, 2009 (the “Transaction
Agreement”) to which 100% of the holders of outstanding
units of Iridium Holdings are now a party, with Iridium Holdings
continuing as our subsidiary. Following the Acquisition, we plan
to rename ourselves “Iridium Communications Inc.”
Stockholder
Approval of Initial Business Combination and Other Closing
Conditions
The affirmative vote of stockholders owning a majority of the
shares sold in our IPO voting in person or by proxy at the
special meeting is required to approve our initial business
combination.
However, our initial business combination will not be approved
if the holders of 30% or more of the shares sold in our IPO vote
against our initial business combination and properly exercise
their rights to convert such shares sold in our IPO into cash.
In connection with this vote, our founding stockholder, officers
and directors, to the extent they own our common stock, have
agreed to vote their shares in accordance with the majority of
the shares of common stock voted by the public stockholders. The
shares of common stock offered pursuant to this prospectus
supplement will not be entitled to vote in connection with the
initial business combination.
The closing of the Acquisition is subject to a number of
conditions set forth in the Transaction Agreement, including the
affirmative vote of holders of a majority of the outstanding
shares of our common stock to approve our proposed certificate
of incorporation and the affirmative vote of holders of a
majority of the outstanding shares of our common stock
represented in person or by proxy at the special meeting and
entitled to vote thereon to approve the issuance of additional
shares of our common stock in connection with our initial
business combination and the adoption of a stock incentive plan.
For more information about the closing conditions to the
Acquisition, please see the section entitled “The
Transaction Agreement—Conditions to the Closing of the
Acquisition” in our Proxy Statement on Schedule 14A
filed with the Securities and Exchange Commission (the
“SEC”) on August 28, 2009.
Founders’
Securities Forfeiture, Deferred Underwriting Commission, Forward
Purchases and Warrant Repurchases and Exchanges
On September 22, 2008, we entered into a letter agreement
with Greenhill whereby Greenhill agreed to forfeit at the
closing of the Acquisition the following securities which it
currently owns: (1) 1,441,176 shares of our common
stock purchased as part of the unit purchase on
November 31, 2007; (2) 8,369,563 warrants purchased as
part of the unit purchase on November 31, 2007; and
(3) 2,000,000 warrants purchased in a private placement on
February 21, 2008. On April 28, 2009, we entered into
a second letter agreement with Greenhill whereby Greenhill has
agreed to forfeit at the closing of the Acquisition an
additional 2,000,000 warrants purchased in a private placement
on February 21, 2008.
On June 2, 2009, we entered into an agreement with Banc of
America Securities LLC (“Banc of America”), the
underwriter of our IPO, and its affiliate, pursuant to which
Banc of America Securities LLC has agreed to reduce the deferred
underwriting commission payable upon the closing of the
Acquisition by approximately $8.2 million (the
“Deferred Underwriting Commission Forfeiture”). In
addition, Banc of America or its affiliate agreed to sell to us,
immediately after the closing of the Acquisition, approximately
3.7 million of our warrants for approximately
$1.8 million (the “Banc of America Warrant
Repurchase”).
We recently initiated discussions with a limited number of
stockholders about their willingness to enter into agreements to
allow us to repurchase from them, subject to the closing of the
Acquisition, specified amounts of our outstanding common stock
(“Forward Purchases”). We believe the stockholders we
have approached have invested in our common stock based on
investment strategies that are focused on fixed income like
returns rather than our underlying business and growth prospects
following completion of the Acquisition. We expect these
investors, based on their investment strategies, would seek to
exit their investment in us in connection with or shortly
following the closing of the Acquisition. We believe it is
important for us to develop a stockholder base with a longer
term view, interested in and knowledgeable about our underlying
business and growth prospects and believe that the combination
of Forward Purchases and this offering will permit us to
accelerate this transition.
On September 2, 2009, we announced that we had entered into
agreements with certain of our stockholders as a result of which
10,395,763 shares of our common stock will be repurchased
upon closing of the Acquisition. The agreements provide that the
shares will be repurchased for a price per share equal to the
greater of $10.10 per share and the price per share
of our common stock in this offering. The sellers of the shares
have also granted us a proxy over the shares to be repurchased,
and we intend to vote the repurchased shares in favor of the
Acquisition at the special meeting of shareholders scheduled for
September 23, 2009. The shares subject to these agreements
represent approximately 26.0% of the 40 million shares of
common stock eligible to vote on the Acquisition proposal at the
special meeting. We expect to continue to discuss additional
Forward Purchases with other holders of our common stock. As in
the case of the repurchases we announced on September 2,2009, we expect that the purchase price for any Forward Purchase
would be at least equal to the amount the stockholder could
receive by voting against the Acquisition and exercising
conversion rights. Similarly, as in the case of the repurchases
described above, we expect that, since any Forward Purchases
will be conditioned upon the closing of the Acquisition,
stockholders agreeing to enter into additional Forward Purchases
will be required to grant us a proxy to vote their shares of
common stock at the special meeting or will agree to vote in
favor of the Acquisition. We will report any additional Forward
Purchases we enter into on a Current Report on
Form 8-K
(which will be incorporated by reference herein) within the
requisite time period disclosing the Forward Purchases if and
when we do enter into additional Forward Purchases. We intend to
use a portion of the net proceeds from this offering to effect
the Forward Purchases.
On July 29, 2009, we entered into agreements (the
“Warrant Purchase Agreements”) to repurchase
and/or
restructure approximately 26.8 million warrants issued in
our IPO in privately negotiated transactions (the
“Exchanges”) from certain of our warrant holders (the
“Warrantholders”), subject to the closing of the
Acquisition. We negotiated to repurchase
and/or
restructure these warrants to reduce significantly the magnitude
of the potential dilution to our stockholders and potential
short selling in connection with and following the consummation
of the Acquisition. As part of the Exchanges, we have agreed to:
•
Purchase approximately 12.4 million existing warrants
issued in our IPO for a total of approximately $3.1 million
of cash and approximately $12.4 million of our common
stock, with the number of shares of our common stock to be
determined based on the offering price per share of our common
stock sold in this offering (provided that the price per share
of our common stock in this offering shall be deemed to be the
lesser of (x) the actual price in this offering and
(y) $10.00 per share of our common stock).
•
Restructure approximately 14.4 million existing warrants
issued in our IPO to (i) increase their exercise price to
115% of the price per share of our common stock sold by us in
this offering (provided that the price per share of our common
stock in this offering shall be deemed to be the lesser of
(x) the actual price in this offering and (y) $10.00
per share of our common stock), (ii) extend their exercise
period by two years to February 2015 and (iii) increase the
price of our common stock at which we can redeem the
restructured warrants to $18.00.
•
Enter into a new warrant agreement for the restructured warrants
with terms substantially similar to the terms set forth in the
warrant agreement with respect to the existing warrants issued
in our IPO, except as set forth above.
•
File with the SEC, as soon as practicable following the issuance
of the restructured warrants, but in no event later than 15
business days following the issuance of the restructured
warrants, a resale registration statement to allow for the
resale of shares of our common stock issued in connection with
the Exchanges, the restructured warrants and the shares of our
common stock underlying such restructured warrants (“Resale
Registration Statement”). If the Resale Registration
Statement is not declared effective by the SEC within 30
business days following the issuance of the restructured
warrants, the Warrantholders have the right to sell to us, for
cash, the restructured warrants for a price
equal to the difference between the weighted average price of
the shares of our common stock during a certain period over the
exercise price of the restructured warrants.
In connection with the restructuring of the warrants, Greenhill
has agreed to exchange 4.0 million warrants held by it into
the restructured warrants described above. Our current chairman
and chief executive officer, Scott L. Bok, and our current
senior vice president, Robert H. Niehaus, have also agreed to
exchange 0.4 million warrants purchased by them in our IPO
into the restructured warrants described above.
GHL
Acquisition Corp.
General
We are a blank check company formed on November 2, 2007 for
the purpose of effecting an acquisition, through a merger,
capital stock exchange, asset acquisition, stock purchase,
reorganization or other similar business combination with one or
more businesses or assets, which we refer to as our
“initial business combination.”
We completed our IPO on February 21, 2008 of
40,000,000 units and recorded gross proceeds of
approximately $408.0 million, consisting of
$400.0 million from the IPO and $8.0 million from the
sale of private placement warrants to our founding stockholder
Greenhill. Upon the closing of the IPO, we paid
$6.9 million of underwriting fees and placed
$400.0 million of the total proceeds into a trust account.
The remaining approximately $1.1 million was used to pay
offering costs. Each unit consists of one share of common stock,
$0.001 par value per share, and one warrant to purchase one
share of our common stock at an initial exercise price of $7.00
per share, subject to adjustment. The units were sold at an
offering price of $10.00 per unit.
We are not presently engaged in, and will not engage in, any
substantive commercial business until the completion of our
initial business combination. We intend to utilize the funds
held in our trust account and our common stock in effecting the
Acquisition.
Liquidation
if No Business Combination
Our amended and restated certificate of incorporation provides
that we will continue in existence only until February 14,2010. If we complete the Acquisition, we will amend this
provision in order to permit for our continued existence. If we
do not complete an initial business combination by
February 14, 2010, our corporate existence will cease
except for the purpose of winding up our affairs and liquidating
pursuant to Section 278 of Delaware General Corporation Law.
Additional
Information
Our principal executive offices are located at 300 Park Avenue,
23rd Floor, New York, New York10022 and our telephone
number is
(212) 372-4180.
Following the Acquisition, our principal executive offices will
be located at 6707 Democracy Boulevard, Suite 300,
Bethesda, Maryland20817 and our telephone number will be
(301) 571-6200.
83,351,492 shares of common stock (85,751,492 shares
if the underwriters’ option to purchase additional shares
is exercised in full).
Use of proceeds
We expect to receive $149,400,000 in net proceeds from this
offering (based on an assumed offering price of $10.00 per share
of common stock, which was the closing price for our common
stock on the NYSE Amex on September 2, 2009), or
$173,400,000 if the underwriters exercise their over-allotment
option in full. We intend to use the net proceeds from this
offering to effect the Forward Purchases, the Exchanges and for
general corporate purposes. See “Use of Proceeds” on
page S-49.
Condition to closing
The closing of this offering is contingent upon the completion
of the Acquisition.
NYSE Amex symbol
Our common stock is listed on the NYSE Amex under the trading
symbol “GHQ.” We intend to delist the shares of our
common stock on the NYSE Amex and seek to have the shares of our
common stock approved for listing on NASDAQ following the
pricing of this offering.
(1)
The number of shares of our common
stock to be outstanding after this offering assumes that no
stockholders vote against the Acquisition and seek to convert
their IPO shares into a pro rata portion of the trust account.
This number is based on 48,500,000 shares of our common
stock outstanding as of September 2, 2009 and includes
(i) the issuance of approximately 30,688,431 shares of
our common stock in connection with the Acquisition and the
Exchanges, assuming 1,244,931 shares of our common stock
are issued in the Exchanges, (ii) the forfeiture of
1,441,176 shares of our common stock by Greenhill at the
closing of the Acquisition and (iii) the Forward Purchase
of 10,395,763 shares of our common stock pursuant to the
agreements we announced on September 2, 2009. In addition,
this number excludes (i) the conversion of the
$22.9 million note held by Greenhill & Co. Europe
Holdings Limited (“Greenhill Europe”), a subsidiary of
Greenhill, into 1,946,500 shares of our common stock and
(ii) approximately 28,025,629 shares of our common
stock issuable upon exercise of 28,025,629 warrants outstanding
after the Acquisition and the Exchanges.
The following summary historical financial data for each of the
three years in the period ended December 31, 2008 was
derived from Iridium Holdings’ audited financial statements
and the financial information for the six months ended
June 30, 2008 and 2009 was derived from Iridium
Holdings’ unaudited condensed consolidated financial
statements. Iridium Holdings’ unaudited condensed
consolidated financial statements reflect all adjustments
necessary to state fairly its financial position at
June 30, 2008 and 2009 and its income and cash flows for
the six months ended June 30, 2008 and 2009. The
information for the years ended December 31, 2004 and 2005
was derived from Iridium Holdings’ audited financial
statements. As described in footnote (a) below, the
consolidated balance sheet as of December 31, 2008 and the
consolidated statements of income for the years ended
December 31, 2008 and 2007 have been restated to give
effect to certain reclassification adjustments. Interim results
are not necessarily indicative of results for the full year and
historical results are not necessarily indicative of results to
be expected in any future period. The summary financial data
below should be read in conjunction with Iridium Holdings’
financial statements and related notes beginning on
page F-33
of our Proxy Statement on Schedule 14A filed with the SEC
on August 28, 2009 and “Management’s Discussion
and Analysis of Financial Condition and Results of Operations
for Iridium Holdings” included in this prospectus
supplement. The summary financial data is historical data for
Iridium Holdings on a stand alone basis. The following summary
financial data below is not necessarily indicative of future
results and should be read in conjunction with the
“Unaudited Pro Forma Condensed Combined Financial
Data” included in this prospectus supplement.
For financial data of GHQ, please see “Selected Historical
Financial Data of GHQ” in GHQ’s Proxy Statement on
Schedule 14A filed with the SEC on August 28, 2009.
For the year ended
December 31, 2008, the balance sheet has been restated to
reclassify as prepaid expenses and other current assets a
$1.4 million receivable from an insurer that was previously
classified as a reduction of the related claim liability
included in accrued expenses and other current liabilities. In
addition, in the restated consolidated statements of income for
the years ended December 31, 2008 and 2007, Iridium
Holdings has reclassified $6.0 million and
$3.4 million, respectively, of research and development
costs related to government funded research and development
service contracts as cost of services (exclusive of depreciation
and amortization). These reclassifications have no impact on
income from operations or net income.
(b)
Iridium Holdings’ summary
historical financial data for the year ended December 31,2004 does not include a reclassification of operating expenses
between “cost of sales and services” and
“selling, general and administrative.” Therefore,
Iridium Holdings’ summary historical financial data for the
operating expenses described above for the year ended
December 31, 2004 is not directly comparable to the summary
historical financial data for subsequent periods.
(c)
“EBITDA” represents net
income before interest expense, interest income, income tax
provision and depreciation and amortization. EBITDA does not
represent and should not be considered as an alternative to net
income or cash flow from operations, as determined in accordance
with GAAP and Iridium Holdings’ calculations thereof may
not be comparable to similarly entitled measures reported by
other companies. Iridium Holdings presents EBITDA because it
believes it is a useful indicator of its profitability. Iridium
Holdings’ management uses EBITDA principally as a measure
of its operating performance and believes that EBITDA is useful
to investors because it is frequently used by securities
analysts, investors and other interested parties in their
evaluation of companies in industries similar to its own.
Iridium Holdings also believes EBITDA is useful to its
management and investors as a measure of comparative operating
performance between time periods and among companies as it is
reflective of changes in pricing decisions, cost controls and
other factors that affect operating performance. Iridium
Holdings’ management also uses EBITDA for planning
purposes, including the preparation of its annual operating
budget, financial projections and compensation plans.
EBITDA does not represent and should not be considered as an
alternative to results of operations under GAAP and has
significant limitations as an analytical tool. Although Iridium
Holdings uses EBITDA as a measure to assess the performance of
its business, the use of EBITDA is limited because it excludes
certain material costs. For example, it does
not include interest expense, which
is a necessary element of its costs and ability to generate
revenue, because Iridium Holdings has borrowed money in order to
finance its operations. Because Iridium Holdings uses capital
assets, depreciation expense is a necessary element of its costs
and ability to generate revenue. Because EBITDA does not account
for these expenses, its utility as a measure of Iridium
Holdings’ operating performance has material limitations.
As a limited liability company that is treated as a partnership
for federal income tax purposes, Iridium Holdings is generally
not subject to federal income tax directly and therefore no
adjustment is required for income taxes. Because of these
limitations, Iridium Holdings’ management does not view
EBITDA in isolation or as a primary performance measure and also
uses other measures, such as net income, revenue and operating
profit, to measure operating performance.
The following is a reconciliation of EBITDA to net income:
The following table details certain
items, which are included in EBITDA: non-recurring expenses
relating the Acquisition and expenses incurred in the
development of Iridium Holdings’ second generation
constellation, Iridium NEXT. This table does not represent and
should not be considered as an alternative to net income or cash
flow from operations, as determined in accordance with GAAP and
Iridium Holdings’ calculations thereof may not be
comparable to similarly entitled measures reported by other
companies. Iridium Holdings believes this table, when reviewed
in connection with its presentation of EBITDA provides another
useful tool to investors and its management for measuring
comparative operating performance between time periods and among
companies as it is further reflective of cost controls and other
factors that affect operating performance. In addition to
EBITDA, Iridium Holdings’ management assesses the
adjustments presented in this table when preparing its annual
operating budget, financial projections and compensation plans.
Because of the significant expenses resulting from the above
mentioned Acquisition and Iridium NEXT, Iridium Holdings
believes that the presentation of the adjustments relating to
acquisition and Iridium NEXT expenses enables its management and
investors to assess the impact of such expenses on its operating
performance and provides a consistent measure of its operating
performance for periods subsequent to the Acquisition and the
full deployment of Iridium NEXT.
This table is not intended to comply with GAAP and has
significant limitations as an analytical tool, and you should
not consider it in isolation, or as a substitute for analysis of
Iridium Holdings’ results of operations as calculated under
GAAP. Although Iridium Holdings uses this table as a financial
measure to assess the performance of its business, the use of
this table is limited because, in addition to the costs excluded
in its presentation of EBITDA, it excludes certain material
costs that Iridium Holdings has incurred over the periods
presented. Because this table does not account for these
expenses, its utility as a measure of Iridium Holdings’
operating performance has material limitations.
EBITDA, as defined above, was decreased by the following
non-recurring and certain other items, each of which is further
discussed below:
Consists of non-recurring legal,
regulatory and accounting expenses resulting from the
Acquisition.
(2)
Consist of expenses, net of
customer revenues, incurred in connection with the design,
manufacture and deployment of Iridium NEXT, including certain
milestone payments paid to the two companies vying to serve as
the prime system contractor. Iridium Holdings expects to incur
such expenses through 2016 until the deployment of the new
constellation, with the majority of these expenses incurred
during the capital intensive launch phase between 2013 and 2016.
In the future, Iridium Holdings may capitalize a portion of
these costs.
(e)
Long-term obligations are presented
net of an unamortized discount associated with a commitment fee
to Motorola Inc. (“Motorola”) in connection with the
transition services, products and assets agreement. The balance
of the unamortized discount was $3.0 million at
December 31, 2004, $2.7 million at December 31,2005, $2.3 million at December 31, 2006,
$1.8 million at December 31, 2007, $1.3 million
at December 31, 2008, $1.5 million at June 30,2008, and $1.0 million at June 30, 2009.
SUMMARY
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL DATA
The following summary of the unaudited pro forma condensed
combined financial information is intended to provide you with a
picture of what our business might have looked like had the
Acquisition been completed on June 30, 2009 (in the case of
the pro forma condensed combined balance sheets) or as of
January 1, 2008 (in the case of the pro forma condensed
statements of operations for the year ended December 31,2008 and for the six-month period ended June 30, 2009).
However, you should not rely on the summary unaudited pro forma
combined financial information as being indicative of the
historical results that would have occurred had the Acquisition
occurred or the future results that may be achieved after the
Acquisition. The following summary of the unaudited condensed
combined financial information has been derived from and should
be read in conjunction with, the “Unaudited Pro Forma
Condensed Combined Financial Data” and related notes
appearing elsewhere in this document.
The following summary information has been prepared using two
different levels of assumptions with respect to the number of
outstanding shares of our common stock, as follows:
•
Assuming Minimum Conversion: This presentation assumes that no
GHQ stockholders seek to convert their IPO shares into a pro
rata portion of the trust account; and
•
Assuming Maximum Conversion: This presentation assumes that GHQ
stockholders holding 30% of the IPO shares less one share
(11,999,999 shares) vote against the Acquisition and elect
to exercise their conversion rights.
“EBITDA” represents net
income before interest expense, interest income, income tax
provision and depreciation and amortization. EBITDA does not
represent and should not be considered as an alternative to net
income or cash flow from operations, as determined in accordance
with GAAP and Iridium Holdings’ calculations thereof may
not be comparable to similarly entitled measures reported by
other companies. Iridium Holdings presents EBITDA because it
believes it is a useful indicator of its profitability. Iridium
Holdings’ management uses EBITDA principally as a measure
of its operating performance and believes that EBITDA is useful
to investors because it is frequently used by securities
analysts, investors and other interested parties in their
evaluation of companies in industries similar to its own.
Iridium Holdings also believes EBITDA is useful to its
management and investors as a measure of comparative operating
performance between time periods and among companies as it is
reflective of changes in pricing decisions, cost controls and
other factors that affect operating performance. Iridium
Holdings’ management also uses EBITDA for planning
purposes, including the preparation of its annual operating
budget, financial projections and compensation plans.
EBITDA does not represent and should not be considered as an
alternative to results of operations under GAAP and has
significant limitations as an analytical tool. Although Iridium
Holdings uses EBITDA as a measure to assess the performance of
its business, the use of EBITDA is limited because it excludes
certain material costs. For example, it does not include
interest expense, which is a necessary element of its costs and
ability to generate revenue, because Iridium Holdings has
borrowed money in order to finance its operations. Because
Iridium Holdings uses capital assets, depreciation expense is a
necessary element of its costs and ability to generate revenue.
Because EBITDA does not account for these expenses, its utility
as a measure of Iridium Holdings’ operating performance has
material limitations. Because of these limitations, Iridium
Holdings’ management does not view EBITDA in isolation or
as a primary performance measure and also uses other measures,
such as net income, revenue and operating profit, to measure
operating performance. As a corporation, however, Iridium
Communications Inc. will be subject to federal income tax and
therefore an adjustment is made for income taxes.
The following is a reconciliation of net (loss) income to EBITDA:
The following table details certain
items, which are included in EBITDA: non-recurring expenses
relating to the Acquisition and expenses incurred in the
development of Iridium NEXT. This table does not represent and
should not be considered as an alternative to net income or cash
flow from operations, as determined in accordance with GAAP and
Iridium Holdings’ calculations thereof may not be
comparable to similarly entitled measures reported by other
companies. Iridium Holdings believes this table, when reviewed
in connection with its presentation of EBITDA provides another
useful tool to investors and its management for measuring
comparative operating performance between time periods and among
companies as it is further reflective of cost controls and other
factors that affect operating performance. In addition to
EBITDA, Iridium Holdings’ management assesses the
adjustments presented in this table when preparing its annual
operating budget, financial projections and compensation plans.
Because of the significant expenses resulting from the above
mentioned Acquisition and Iridium NEXT, Iridium Holdings
believes that the presentation of the adjustments relating to
acquisition and Iridium NEXT expenses enables its management and
investors to assess the impact of such expenses on its operating
performance and provides a consistent measure of its operating
performance for periods subsequent to the Acquisition and the
full deployment of Iridium NEXT.
This table is not intended to comply with GAAP and has
significant limitations as an analytical tool, and you should
not consider it in isolation, or as a substitute for analysis of
Iridium Holdings’ results of operations as calculated under
GAAP. Although Iridium Holdings uses this table as a financial
measure to assess the performance of its business, the use of
this table is limited because, in addition to the costs excluded
in its presentation of EBITDA, it excludes certain material
costs that Iridium Holdings has incurred over the periods
presented. Because this table does not account for these
expenses, its utility as a measure of Iridium Holdings’
operating performance has material limitations.
Consists of non-recurring legal,
regulatory and accounting expenses resulting from the
Acquisition.
(2)
Consist of expenses, net of
customer revenues, incurred in connection with the design,
manufacture and deployment of Iridium NEXT, including certain
milestone payments paid to the two companies vying to serve as
the prime system contractor. Iridium Holdings expects to incur
such expenses through 2016 until the deployment of the new
constellation, with the majority of these expenses incurred
during the capital intensive launch phase between 2013 and 2016.
In the future, Iridium Holdings may capitalize a portion of
these costs.
An investment in our common stock involves certain risks. You
should carefully consider the risks described below and the
risks disclosed in Part I, Item 1A of our Annual
Report on
Form 10-K
for the year ended December 31, 2008, as amended, as well
as the other information included or incorporated by reference
in this prospectus supplement and the accompanying prospectus,
before making an investment decision. If any of the following
events occur, our business, financial condition and operating
results may be materially adversely affected. In that event, the
market or trading price of our common stock could decline and
you could lose all or part of your investment. This prospectus
supplement also contains forward-looking statements that involve
risks and uncertainties. Our actual results could differ
materially from those anticipated in the forward-looking
statements as a result of specific factors, including the risks
described below.
Risks
Associated with this Offering
This offering is conditioned upon the closing of the
Acquisition, and we may be unable to complete the
Acquisition.
Completion of the Acquisition is subject to the satisfaction of
a number of conditions, including, among other things,
stockholder approval of the Acquisition, the issuance of our
common stock to the sellers and the amendment of our certificate
of incorporation. Accordingly, we may be unable to complete the
Acquisition when we expect to or at all.
If we are unable to complete the Acquisition prior to the
scheduled closing of this offering, no shares of common stock
will be sold and delivered in this offering. As a result,
investors are advised not to sell shares of common stock to be
acquired in this offering prior to the closing of this offering
as secondary trades in the shares of common stock offered hereby
will not settle if this offering does not close.
Registration rights may have an adverse effect on the
market price of our common stock.
We have granted registration rights in connection with the
restructured warrants and shares of our common stock to be
issued in the Exchanges, which require us to file a shelf
registration statement as soon as practicable following the
issuance of the restructured warrants, but in no event later
than 15 business days following the issuance of the restructured
warrants. This shelf registration statement will be required to
cover the sale of 14,368,525 restructured warrants,
14,368,525 shares of our common stock underlying such
restructured warrants and 1,244,931 shares of our common
stock issued in the Exchanges. We expect to issue the
restructured warrants immediately following the closing of the
Acquisition. If the shelf registration statement is not declared
effective by the SEC within 30 business days following the
issuance of the restructured warrants, the Warrantholders have
the right to sell to us, for cash, the restructured warrants for
a price equal to the difference between the weighted average
price of the shares of our common stock during a certain period
over the exercise price of the restructured warrants.
In addition, as soon as practicable following closing of
Acquisition, we intend to file a shelf registration statement to
permit holders of 13,526,667 warrants to convert such warrants
and receive 13,526,667 shares of our common stock. We also
intend to file a shelf registration statement to provide for the
resale of 3,655,500 shares of our common stock currently
held by Banc of America, the underwriter of our IPO.
At the closing of the Acquisition, we will also enter into a
registration rights agreement with each seller of Iridium
Holdings units, our founding stockholder and our other initial
stockholders. Greenhill Europe has agreed to become a party to
this registration rights agreement
upon its conversion of the $22.9 million note it holds into
shares of our common stock, which may occur no earlier than
October 24, 2009. Pursuant to this registration rights
agreement, such persons will be granted certain registration
rights with respect to the registration of
38,448,824 shares of common stock and 130,437 warrants,
which includes shares of our common stock received by holders of
Iridium Holdings units in the Acquisition, shares of our common
stock and warrants held by our founding and initial stockholders
and the common stock issuable upon conversion of the note held
by Greenhill Europe. Under this registration rights agreement,
we will be required to file a shelf registration statement as
soon as reasonably practicable after the closing of the
Acquisition and related transactions, with a view to such
registration statement becoming effective six months from the
date of the closing of the Acquisition. However, pursuant to an
underwriting agreement
dated ,
2009, we have agreed not to file this registration statement for
a period of 90 days after the date of this prospectus
supplement.
Certain holders of the registration rights, subject to certain
limitations, may exercise a demand registration right in order
to permit such holders to sell their registrable shares of
common stock in an underwritten public offering under the shelf
registration statement. Whenever we propose to register any of
our securities under the Securities Act, holders of registration
rights will have the right to request the inclusion of their
registrable shares of common stock in such registration.
Each seller of Iridium Holdings units who receives shares of our
common stock at the closing of the Acquisition, our founding
stockholder and our other initial stockholders have agreed to a
one-year
“lock-up”
for the shares of our common stock they will hold following the
closing of the Acquisition, except for underwritten secondary
offerings approved by our Board of Directors anytime after six
months from the closing of the Acquisition. Greenhill Europe has
agreed to enter into a similar one-year
“lock-up,”
also subject to the exception described above, commencing on the
date it converts the $22.9 million note it holds into
shares of our common stock and enters into the registration
rights agreement described above. In addition, we, each of our
directors and our executive officers, and certain of our
stockholders, have agreed to a
lock-up for
a period of 90 days after the date of this prospectus
supplement. These
lock-ups
limit, to an extent, the volume of our shares available for
public trading, which may have an adverse effect on the market
for our common stock.
The resale of shares of our common stock in the public market
upon exercise of these registration rights could adversely
affect the market price of our common stock or impact our
ability to raise additional equity capital.
The price of our common stock after the Acquisition might
be less than what you agreed to pay for your shares of common
stock prior to the Acquisition.
The market price of our common stock may decline as a result of
the Acquisition if, among other things:
•
the market for common shares of companies in the satellite
industry is volatile;
•
we do not perform as expected;
•
there are mergers, consolidations or strategic alliances in the
satellite industry;
•
the market valuations of our industry peers decline;
•
market conditions in the satellite industry fluctuate;
•
there are adverse actual or anticipated changes in economic,
political or market conditions;
we do not achieve the perceived benefits of the Acquisition as
rapidly as, or to the extent anticipated by, financial or
industry analysts;
•
the effect of the Acquisition on our financial results is not
consistent with the expectations of financial or industry
analysts;
•
the capital markets are in a distressed state; or
•
stockholders with registration rights exercise such registration
rights and sell a large number of shares of our common stock.
The market price of our common stock may decline in reaction to
events that affect other companies in our industry even if those
events do not directly affect us. If the market price of our
common stock declines, our stockholders may experience a loss
and we may not be able to raise additional capital in the
future, if necessary, in the equity markets.
If the Acquisition’s benefits do not meet the
expectations of the marketplace, investors, financial analysts
or industry analysts, the market price of our securities may
decline.
The market price of our common stock may decline as a result of
the Acquisition if we do not perform as expected or if we do not
otherwise achieve the perceived benefits of the Acquisition as
rapidly as, or to the extent anticipated by, the marketplace,
investors, financial analysts or industry analysts. If the
market price of our common stock declines, our stockholders may
experience a loss and we may not be able to raise future
capital, if necessary, in the equity markets.
Risks
Related to Iridium Holdings’ Business
Iridium Holdings’ business plan depends on both
increased demand for mobile satellite services and its ability
to successfully implement it.
The business plan of Iridium Holdings is predicated on growth in
demand for mobile satellite services. Demand for mobile
satellite services may not grow, or may even contract, either
generally or in particular geographic markets, for particular
types of services or during particular time periods. A lack of
demand could impair Iridium Holdings’ ability to sell its
products and services, develop and successfully market new
products and services
and/or could
exert downward pressure on prices. Any such decline would
decrease its revenues and profitability and negatively affect
its ability to generate cash for investments and other working
capital needs.
The ability of Iridium Holdings to successfully implement its
business plan will also depend on a number of other factors,
including:
•
its ability to maintain the health, capacity and control of its
existing satellite network;
•
its ability to contract for the design, construction, delivery
and launch of Iridium NEXT and related ground infrastructure,
products and services, and, once launched, its ability to
maintain the health, capacity and control of such satellite
constellation;
•
the level of market acceptance and demand for its products and
services;
•
its ability to introduce innovative new products and services
that satisfy market demand;
•
its ability to obtain additional business using its existing
spectrum resources both in the United States and internationally;
•
its ability to sell its products and services in additional
countries;
its ability to maintain its relationship with
U.S. government customers, particularly the DoD;
•
the ability of Iridium Holdings’ distributors to market and
distribute its products, services and applications effectively
and their continued development of innovative and improved
solutions and applications for its products and services;
•
the effectiveness of Iridium Holdings’ competitors in
developing and offering similar services and products; and
•
its ability to maintain competitive prices for Iridium
Holdings’ products and services and control costs.
Iridium Holdings will need additional capital to develop,
manufacture and launch Iridium NEXT and related ground
infrastructure, products and services, and pursue additional
growth opportunities. If Iridium Holdings fails to obtain
sufficient capital, it will not be able to successfully
implement its business plan.
Iridium Holdings’ business plan calls for the development
of Iridium NEXT, the development of new product and service
offerings, upgrades to its current services, hardware and
software upgrades to maintain its ground infrastructure and
upgrades to its business systems. Iridium Holdings estimates the
gross costs associated with designing, building and launching
Iridium NEXT and related infrastructure upgrades to be
approximately $2.7 billion. Iridium Holdings expects to
fund a majority of these costs from internally generated cash
flows, revenues from secondary payloads and proceeds from debt
and equity offerings as well as the Acquisition. However, there
can be no assurance that Iridium Holdings will be able to obtain
sufficient capital to implement its business plan, due to
increased costs, lower revenues or inability to obtain
additional financing. If Iridium Holdings does not obtain such
funds, its ability to maintain its network, develop, manufacture
and launch Iridium NEXT and related ground infrastructure,
products and services, and pursue additional growth
opportunities will be impaired, which would adversely affect its
business, results of operations and financial condition.
The recent global economic crisis and related tightening of
credit markets has also made it more difficult and expensive to
raise capital. Iridium Holdings’ ability to obtain
additional capital to finance Iridium NEXT and related ground
infrastructure, products and services, and other capital
requirements may be adversely impacted by the continuation of
these market conditions. If Iridium Holdings is unable to obtain
additional capital on acceptable terms or at all, it may not be
able to fully implement its business plan, which would limit the
development of its business and its future growth and have a
material adverse effect on Iridium Holdings’ business,
financial condition, results of operations and liquidity.
Iridium Holdings’ satellites have a limited life and
may fail prematurely, which would cause its network to be
compromised and materially and adversely affect its business,
prospects and profitability.
Since Iridium Holdings reintroduced commercial services in 2001,
six of its satellites have failed in orbit which have resulted
in either the complete loss of the affected satellites or the
loss of the ability of the satellite to carry traffic on the
network, and one satellite was lost as a result of a collision
with a non-operational Russian satellite. While Iridium Holdings
expects its current constellation to provide a
commercially-acceptable level of service through 2014, it cannot
guarantee it will be able to provide such level of service
through 2014 or through the transition period to Iridium NEXT.
Also, Iridium Holdings’ satellites have so far exceeded
their original design lives and the actual useful lives of its
satellites may be shorter than Iridium Holdings expects. In
addition, additional satellites may fail or collide with space
debris or other satellites
in the future, and Iridium Holdings cannot assure you that its
seven in-orbit spares will be sufficient to replace such
satellites or that it will be able to replace them in a timely
manner.
In-orbit failure may result from various causes, including
component failure, loss of power or fuel, inability to control
positioning of the satellite, solar or other astronomical
events, including solar radiation and flares and space debris.
Other factors that could affect the useful lives of its
satellites include the quality of construction, gradual
degradation of solar panels and the durability of components.
Radiation induced failure of satellite components may result in
damage to or loss of a satellite before the end of its expected
life. As a result, fewer than 66 of its in-orbit satellites may
be fully functioning at any time. As Iridium Holdings’
constellation has aged, some of its satellites have experienced
individual component failures affecting their coverage
and/or
transmission capacity and other satellites may experience such
failures in the future, adversely affecting the reliability of
its service, which may adversely affect Iridium Holdings’
business, financial condition, results of operations and
liquidity. Although Iridium Holdings does not incur any direct
cash costs related to the failure of a satellite, if a satellite
fails, Iridium Holdings records an impairment charge reflecting
its net book value.
Iridium Holdings has categorized three types of anomalies among
the satellites in its constellation that, if they materialize
throughout the satellite constellation, have the potential for a
significant operational impact. These include: (i) a
non-recoverable anomalous short circuit in a satellite’s
Integrated Bus Electronics (“IBE”);
(ii) excessive power subsystem degradation resulting from
satellite battery wear-out or excessive loss of solar array
power output; and (iii) failures in critical payload
electronic parts arising from accumulated radiation exposure.
Iridium Holdings experienced its first satellite failure in July
2003. This failure was attributed to a non-recoverable anomalous
short circuit in the satellite’s IBE. Two additional
satellites failed as a result of this anomaly in August 2005 and
December 2006. In part, as a response to this anomaly, Iridium
Holdings has implemented several procedures across its
constellation to attempt to mitigate the severity of a similar
anomaly in the future
and/or
prevent it from resulting in mission-critical failures of its
other satellites. These procedures include reducing the peak
operating temperature of the IBE during portions of the solar
season, as well as modifying the on-board software of its
satellites to immediately carry out certain autonomous actions
upon detecting future occurrences of this type of anomaly.
However, there can be no assurance such procedures will be
effective.
Iridium Holdings has experienced three additional satellite
failures unrelated to IBE short circuits. In April 2005, one of
its satellites failed as a result of a radiation-induced single
event upset anomaly, which corrupted the satellite’s
on-board time reference. Accurate time reference is critical to
determine a satellite’s ephemeris (its orbital location
with respect to the earth), attitude (its pointing direction)
and the sun’s position. In December 2005, Iridium Holdings
was unable to remedy a failure in the crosslink digital
reference oscillator of another of its satellites, resulting in
the satellite’s failure. Failure of the digital reference
oscillator disables the affected satellite’s crosslinks
and, thus, its ability to communicate with the rest of the
satellite constellation. More recently, in July 2008, another of
Iridium Holdings’ satellites experienced an attitude
control anomaly as a result of sudden loss of communications
between its IBE and its primary space vehicle and routing
computer. The nature of this anomaly coupled with the software
state of the vehicle at the time (resulting from an on-board
software fault response to a prior anomaly) resulted in the
inability of the on-board software to correct the computer
communications anomaly and control of the satellite was lost.
Iridium Holdings has been occasionally advised by its customers
and end-users of temporary intermittent losses of signal cutting
off calls in progress, preventing completions of calls when made
or disrupting the transmission of data. If the magnitude or
frequency of such problems increase and Iridium Holdings is no
longer able to provide a commercially-acceptable level of
service, its business and its ability to complete its business
plan would be materially and adversely affected.
Iridium Holdings may be required in the future to make further
changes to its constellation to maintain or improve its
performance. Any such changes may require prior FCC approval and
the FCC might not give such approval or may subject the approval
to other conditions that will have a material adverse effect on
Iridium Holdings’ business. In addition, from time to time
Iridium Holdings may reposition its satellites within the
constellation in order to optimize its service, which could
result in degraded service during the repositioning period.
Although there are some remote tools Iridium Holdings uses to
remedy certain types of problems affecting the performance of
its satellites, the physical repair of its satellites in space
is not feasible.
Additional Iridium Holdings’ satellites may collide
with space debris or another spacecraft, which could adversely
affect the performance of its constellation and business.
On February 10, 2009, Iridium Holdings lost an operational
satellite (SV33) as a result of a collision with a
non-operational Russian satellite (Cosmos 2251). Although
Iridium Holdings has some ability to actively maneuver its
satellites to avoid potential collisions with space debris or
other spacecraft, this ability is limited by, among other
factors, insufficient and unreliable data to predict potential
collisions and the inaccuracy of conjunction assessments. If
Iridium Holdings’ constellation experiences additional
satellite collisions with space debris or other spacecrafts, its
ability to operate its constellation may be impaired and its
business may suffer.
The space debris created by the recent satellite collision
may cause damage to other spacecraft positioned in a similar
orbital altitude.
The collision of an Iridium Holdings satellite with a
non-operational Russian satellite created a space debris field
in the orbital altitude where the collision occurred, and thus
increased the risk of space debris damaging or interfering with
the operation of Iridium Holdings’ satellites which travel
in this orbital altitude and satellites owned by third parties,
such as U.S. or foreign governments or agencies and other
satellite operators. Although there are tools used by Iridium
Holdings and providers of tracking services (such as the
U.S. Joint Space Operations Center) to detect, track and
identify space debris, Iridium Holdings or third parties may not
be able to maneuver their satellites away from such debris in a
timely manner. Any such collision could potentially expose
Iridium Holdings to significant losses and liability.
If Iridium Holdings experiences operational disruptions
with respect to its commercial gateway or operations center,
Iridium Holdings may not be able to provide service to its
customers.
Iridium Holdings’ commercial satellite network traffic is
supported by a primary ground station gateway in Tempe, Arizona.
In addition, Iridium Holdings operates its satellite
constellation from its satellite network operations center in
Leesburg, Virginia. Currently, Iridium Holdings’
back-up
facilities would not be able to quickly and fully replace its
Arizona gateway and Virginia operations center if either
experienced a catastrophic failure. Both facilities are subject
to the risk of significant malfunctions or catastrophic loss due
to unanticipated events and would be difficult to replace or
repair and could require substantial lead-time to do so.
Material changes in the operation of these facilities may be
subject to prior FCC approval and the FCC might not give such
approval or may subject the approval to other conditions that
will have a material adverse effect on Iridium Holdings’
business. Iridium Holdings may also experience service shutdowns
or periods of reduced service in the future as a result of
regulatory issues, equipment failure or delays in deliveries.
Any such failure would impede its ability to provide service to
its customers, which would have a material adverse effect on its
business, financial condition and results of operations.
If Iridium Holdings is unable to effectively develop and
deploy Iridium NEXT before its current satellite constellation
ceases to provide a commercially acceptable level of service,
Iridium Holdings’ business will suffer.
Iridium Holdings is currently developing Iridium NEXT which
Iridium Holdings expects to commence launching in 2014. While
Iridium Holdings expects its current constellation to provide a
commercially acceptable level of service through 2014, Iridium
Holdings cannot guarantee it will provide a commercially
acceptable level of service through 2014 or through the
transition period to Iridium NEXT. If Iridium Holdings is
unable, for any reason, including manufacturing or launch
delays, launch failures, in-orbit satellite failures, inability
to achieve
and/or
maintain orbital placement, delays in receiving regulatory
approvals or insufficient funds, to deploy Iridium NEXT before
its current constellation ceases to provide a commercially
acceptable level of service or if Iridium Holdings experiences
backward compatibility problems with its new constellation once
deployed, Iridium Holdings will likely lose customers and
business opportunities to its competitors, resulting in a
decline in revenues and profitability as its ability to provide
a commercially acceptable level of service is impaired.
Iridium NEXT may not be completed on time, and the costs
associated with it may be greater than expected.
Iridium Holdings estimates the gross costs associated with
designing, building and launching Iridium NEXT and related
infrastructure upgrades to be approximately $2.7 billion.
Iridium Holdings may not complete Iridium NEXT and related
infrastructure, products and services on time, on budget or at
all. Design, manufacture and launch of satellite systems are
highly complex and historically have been subject to delays and
cost over-runs. Development of Iridium NEXT may suffer from
delays, interruptions or increased costs due to many factors,
some of which may be beyond its control, including:
•
lower than anticipated demand for mobile satellite services;
•
lower than expected secondary payload funding;
•
its inability to obtain capital to finance Iridium NEXT and
related ground infrastructure, products and services on
acceptable terms or at all;
•
engineering
and/or
manufacturing performance falling below expected levels of
output or efficiency;
•
denial or delays in receipt of regulatory approvals or
non-compliance with conditions imposed by regulatory authorities;
•
the breakdown or failure of equipment or systems;
•
non-performance by third-party contractors, including the prime
system contractor;
•
the inability to license necessary technology on commercially
reasonable terms or at all;
•
launch delays or failures or in-orbit satellite failures once
launched;
•
labor disputes or disruptions in labor productivity or the
unavailability of skilled labor;
additional requirements imposed by changes in laws; or
•
severe weather or catastrophic events such as fires,
earthquakes, storms or explosions.
While Iridium Holdings expects to fund a majority of the costs
associated with Iridium NEXT from internally generated cash
flows and secondary payload funding as well as proceeds from the
Acquisition, Iridium Holdings will need to raise additional debt
or equity to finance the rest of such costs, including amounts
arising from cost-overruns or if internally generated funds or
secondary payloads funding are less than anticipated. Such
capital may not be available to Iridium Holdings on acceptable
terms or at all.
If any of the above events occur, they could have a material
adverse effect on Iridium Holdings’ ability to continue to
develop Iridium NEXT and related infrastructure, products and
services, which would materially adversely affect its business,
financial condition and results of operations.
Loss of any second-generation satellite during launch
could delay or impair Iridium Holdings’ ability to offer
its services, and launch insurance, to the extent available,
will not fully cover this risk.
The launch of Iridium Holdings’ second-generation
satellites could be subject to delays and risks (See
“—If Iridium Holdings is unable to effectively develop
and deploy Iridium NEXT before its current satellite
constellation ceases to provide a commercially acceptable level
of service, Iridium Holdings’ business will suffer”
above for more information). Iridium Holdings expects to insure
a portion of the launch of its second-generation satellites and
self-insure the remaining portion. Launch insurance currently
costs approximately 10% to 20% of the insured value of the
satellites launched (including launch costs), but may vary
depending on market conditions and the safety record of the
launch vehicle. In addition, Iridium Holdings expects any launch
insurance policies that it obtains to include specified
exclusions, deductibles and material change limitations.
Typically, these insurance policies exclude coverage for damage
arising from acts of war, lasers and other similar potential
risks for which exclusions are customary in the industry. If
launch insurance rates were to rise substantially, Iridium
Holdings’ future launch costs could increase. It is also
possible that insurance could become unavailable or
prohibitively expensive, either generally or for a specific
launch vehicle or that new insurance could be subject to broader
exclusions on coverage or limitations on losses, in which event
Iridium Holdings would bear the risk of launch failures. Even if
a lost satellite is fully insured, acquiring a replacement
satellite may be difficult and time consuming and could delay
the deployment of Iridium NEXT. Furthermore, launch insurance
typically does not cover lost revenue.
Iridium Holdings may be unable to obtain and maintain
in-orbit liability insurance, and the insurance Iridium Holdings
obtains may not cover all liabilities to which Iridium Holdings
may become subject.
Pursuant to Iridium Holdings’ and Iridium Satellite
LLC’s transition services, products and asset agreement
with Motorola, and the agreement between Iridium Satellite LLC
(“Iridium Satellite”), The Boeing Company
(“Boeing”), Motorola and the U.S. government,
Iridium Satellite is required to maintain an in-orbit liability
insurance policy with a de-orbiting endorsement. The current
policy (together with the de-orbiting endorsement) covers
amounts that Iridium Satellite and certain other named parties
may become liable to pay for bodily injury
and/or
property damages to third parties related to processing,
maintaining and operating its satellite constellation and, in
the case of the de-orbiting endorsement, de-orbiting its
satellite constellation. The current policy has a one-year term,
which expires December 12, 2009. The price, terms and
availability of insurance have fluctuated significantly since
Iridium Holdings began offering commercial satellite services.
The cost of obtaining insurance can vary as a result of either
satellite failures or general conditions in the insurance
industry. Higher premiums on
insurance policies would increase its cost. In-orbit liability
insurance policies on satellites may not continue to be
available on commercially reasonable terms or at all. In
addition to higher premiums, insurance policies may provide for
higher deductibles, shorter coverage periods and additional
policy exclusions. Iridium Holdings’ failure to renew its
current in-orbit liability insurance policy or obtain a
replacement policy would trigger certain de-orbit rights held by
the U.S. government, Motorola and Boeing, adversely
affecting its ability to provide commercially-acceptable level
of services. See “—The U.S. government, Motorolaand Boeing may unilaterally require Iridium Holdings to de-orbitits constellation upon the occurrence of certain events”
below for more information. In addition, even if Iridium
Satellite continues to maintain any in-orbit liability insurance
policy, the coverage may not protect it against all third-party
losses, materially and adversely affecting its financial
condition and results of operations if any such third-party
losses were to occur.
Iridium Satellite’s current in-orbit liability insurance
policies contain, and any future policies are expected to
contain, specified exclusions and material change limitations
customary in the industry. These exclusions may relate to, among
other things, losses resulting from acts of war, insurrection,
terrorism or military action, government confiscation, strikes,
riots, civil commotions, labor disturbances, sabotage,
unauthorized use of the satellites and nuclear or radioactive
contamination, as well as claims directly or indirectly
occasioned as a result of noise, pollution, electrical and
electromagnetic interference and interference with the use of
property.
In addition to Iridium Satellite’s in-orbit liability
insurance policy, Motorola maintains product liability insurance
to cover its potential liability as manufacturer of the
satellites. Motorola may not in the future be able to renew its
product liability coverage on reasonable terms and conditions,
or at all. Any failure to maintain such insurance could expose
Iridium Holdings to third-party damages that may be caused by
any of its satellites.
Iridium Holdings does not maintain in-orbit insurance
covering losses from satellite failures or other operational
problems affecting its constellation.
Iridium Holdings does not maintain in-orbit insurance covering
losses that might arise as a result of a satellite failure or
other operational problems affecting its constellation. Even if
Iridium Holdings obtains in-orbit insurance in the future, the
coverage may not be sufficient to compensate Iridium Holdings
for satellite failures and other operational problems affecting
its satellites. As a result, a failure of one or more if Iridium
Holdings’ satellites or the occurrence of equipment
failures and other related problems would constitute an
uninsured loss and could have a material adverse effect on its
financial condition and results of operations.
Iridium
Holdings may be negatively affected by current global economic
conditions.
Iridium Holdings’ operations and performance depend
significantly on worldwide economic conditions. Uncertainty
about current global economic conditions poses a risk as
individual consumers, businesses and governments may postpone
spending in response to tighter credit, negative financial news,
declines in income or asset values
and/or
budgetary constraints. Reduced demand for Iridium Holdings’
products and services would adversely affect its business,
financial condition and results of operations. While Iridium
Holdings expects the number of its subscribers and revenues to
continue to grow, it expects the future growth rate will be
slower than its historical growth. Iridium Holdings expects its
future growth rate will be impacted by the current economic
slowdown, increased competition, maturation of the satellite
communications industry and the difficulty in sustaining high
growth rates as Iridium Holdings increases in size. The recent
appreciation of the U.S. dollar may also negatively impact
its growth by increasing the cost of its products and services
in foreign countries.
Iridium Holdings could lose market share and revenues as a
result of increasing competition from companies in the wireless
communications industry, including cellular and other satellite
operators, and from the extension of land-based communication
services.
Iridium Holdings faces intense competition in all of its
markets, which could result in a loss of customers and lower
revenues and make it more difficult for Iridium Holdings to
enter new markets. Iridium Holdings competes primarily on the
basis of coverage, quality, portability and pricing of services
and products.
There are currently six other satellite operators providing
services similar to Iridium Holdings’ on a global or
regional basis: Inmarsat, Globalstar, Orbcomm, SkyTerra, Thuraya
and Asia Cellular Satellites. In addition, several regional
mobile satellite services companies, including ICO, TerreStar
and SkyTerra are attempting to exploit their spectrum positions
into a U.S. consumer mobile satellite services business.
The provision of satellite-based services and products is
subject to downward price pressure when capacity exceeds demand
or as a result of aggressive discounting by certain operators
under financial pressure to expand their respective market
share. Certain satellite operators, for example, subsidize the
prices of their products, such as satellite handsets. In
addition, Iridium Holdings may face competition from new
competitors or new technologies, which may materially adversely
affect its business plan. For example, Iridium Holdings may face
competition for its land-based services in the United States
from incipient Ancillary Terrestrial Component (“ATC”)
service providers who are currently raising capital and
designing a satellite operating business and a terrestrial
component around their spectrum holdings. As a result of
competition, Iridium Holdings may not be able to successfully
retain its existing customers and attract new customers.
In addition to its satellite-based competitors, terrestrial
voice and data service providers, both wireline and wireless,
are expanding into rural and remote areas and providing the same
general types of services and products that Iridium Holdings
provides through its satellite-based system. Although satellite
communications services and terrestrial communications services
are not perfect substitutes, the two compete in certain markets
and for certain services. Consumers generally perceive
terrestrial wireless voice communication products and services
as cheaper and more convenient than satellite-based ones. Many
of its terrestrial competitors have greater resources, wider
name recognition and newer technologies than Iridium Holdings
does. In addition, industry consolidation could adversely affect
Iridium Holdings by increasing the scale or scope of its
competitors and thereby making it more difficult for Iridium
Holdings to compete.
Rapid and significant technological changes in the
satellite communications industry may impair Iridium
Holdings’ competitive position and require Iridium Holdings
to make significant additional capital expenditures.
Much of the hardware and software utilized in operating Iridium
Holdings’ gateway was designed and manufactured over ten
years ago and portions are becoming obsolete. As they continue
to age, they may become less reliable and will be more difficult
and expensive to service, upgrade or replace. Although Iridium
Holdings maintains inventories of certain spare parts, it
nonetheless may be difficult or impossible to obtain all
necessary replacement parts for the hardware. Its business plan
contemplates updating or replacing certain hardware and software
in its network, but Iridium Holdings may not be successful in
these efforts, and the cost may exceed its estimates. The space
and communications industries are subject to rapid advances and
innovations in technology. Iridium Holdings may face competition
in the future from companies using new technologies and new
satellite systems. New technology could render its system
obsolete or less competitive by satisfying customer demand in
more attractive ways or through the introduction of incompatible
standards. Particular technological developments that could
adversely affect Iridium Holdings include the deployment by its
competitors of new satellites with greater power, flexibility,
efficiency or capabilities than Iridium Holdings’ current
constellation and Iridium NEXT, as well as continuing
improvements in terrestrial wireless technologies. For Iridium
Holdings to keep up with technological changes and remain
competitive, it may need to make significant capital
expenditures. Customer acceptance of the products and services
that Iridium Holdings offers will continually be affected by
technology-based differences in its product and service
offerings compared to those of its competitors. New technologies
may be protected by patents or other intellectual property laws
and therefore may not be available to Iridium Holdings. Any
failure by Iridium Holdings to implement new technology within
its system may have a material adverse effect on its business,
results of operations and financial condition.
Use by Iridium Holdings’ competitors of L-band
spectrum for terrestrial services could interfere with its
services.
In February 2003, the FCC, adopted rules that permit satellite
service providers to establish ATC networks. ATC frequencies are
designated in previously satellite-only bands at 1.5 GHz,
1.6 GHz, 2 GHz and 2.5 GHz. The implementation of
ATC services by satellite service providers in the United States
or other countries may result in increased competition for the
right to use L-band spectrum, which Iridium Holdings uses to
provide its services, and such competition may make it difficult
for Iridium Holdings to obtain or retain the spectrum resources
Iridium Holdings requires for its existing and future services.
In addition, the FCC’s decision to permit ATC services was
based on certain assumptions, particularly relating to the level
of interference that the provision of ATC services would likely
cause to other satellite service providers, which use the L-band
spectrum. If the FCC’s assumptions prove inaccurate, or the
level of ATC services provided exceeds those estimated by the
FCC, ATC services could interfere with Iridium Holdings’
satellites and devices, which may adversely impact its services.
Outside the United States, other countries are actively
considering implementing regulations to facilitate ATC services.
Iridium Holdings’ networks and those of its
third-party service providers may be vulnerable to security
risks.
Iridium Holdings expects the secure transmission of confidential
information over public networks to continue to be a critical
element of its operations. Iridium Holdings’ network and
those of its third-party service providers and its customers may
be vulnerable to unauthorized access, computer viruses and other
security problems. Persons who circumvent security measures
could wrongfully obtain or use information on the network or
cause interruptions, delays or malfunctions in its operations,
any of which could have a material adverse effect on Iridium
Holdings’ business, financial condition and results of
operations. Iridium Holdings may be required to expend
significant resources to protect against the threat of security
breaches or to alleviate problems, including reputational harm
and litigation, caused by any breaches. In addition, Iridium
Holdings’ customer contracts, in general, do not contain
provisions which would protect it against liability to
third-parties with whom its customers conduct business. Although
Iridium Holdings has implemented and intends to continue to
implement industry-standard security measures, these measures
may prove to be inadequate and result in system failures and
delays that could lower network operations center availability
and have a material adverse effect on Iridium Holdings’
business, financial condition and results of operations.
Sales to U.S. government customers, particularly the
DoD, represent a significant portion of Iridium Holdings’
revenues.
The U.S. government, through a dedicated gateway owned and
operated by the DoD, has been and continues to be, directly and
indirectly, Iridium Holdings’ largest customer,
representing approximately 21.1% and 23.1% of Iridium
Holdings’ revenues for the year ended December 31,2008 and the six months ended June 30, 2009, respectively.
Iridium Holdings provides the
majority of its services to the U.S. government pursuant to
two one-year agreements, both of which are renewable for three
additional one-year terms. The U.S. government may
terminate these agreements, in whole or in part, at any time. If
the U.S. government terminates its agreements with Iridium
Holdings or fails to renew such agreements, Iridium
Holdings’ business, financial condition and results of
operations could be materially and adversely affected.
Iridium Holdings’ relationship with the
U.S. government is subject to the overall
U.S. government budget and appropriation decisions and
processes. U.S. government budget decisions, including with
respect to defense spending, are based on changing government
priorities and objectives, which are driven by numerous factors,
including geopolitical events and macroeconomic conditions, and
are beyond Iridium Holdings’ control. Significant changes
to U.S. defense spending, including as a result of the
resolution of the conflicts in Iraq and Afghanistan, could
negatively impact Iridium Holdings’ business, financial
condition and results of operations.
Iridium Holdings is dependent on third parties to market
and sell its products and services.
Iridium Holdings relies on third-party distributors to market
and sell its products and services to end-users and to determine
the prices end-users pay. Iridium Holdings also depends on its
distributors to develop innovative and improved solutions and
applications integrating its product and service offerings. As a
result of these arrangements, Iridium Holdings is dependent on
the performance of its distributors to generate substantially
all of its revenues. Its distributors operate independently of
Iridium Holdings, and Iridium Holdings has limited control over
their operations, which exposes Iridium Holdings to significant
risks. Distributors may not commit the necessary resources to
market and sell Iridium Holdings’ products and services and
may also market and sell competitive products and services. In
addition, its distributors may not comply with the laws and
regulatory requirements in their local jurisdictions, which may
limit their ability to market or sell Iridium Holdings’
products and services. If current or future distributors do not
perform adequately, or if Iridium Holdings is unable to locate
competent distributors in particular countries and secure their
services on favorable terms, or at all, Iridium Holdings may be
unable to increase or maintain its revenues in these markets or
enter new markets, and Iridium Holdings may not realize its
expected growth, adversely affecting its profitability,
liquidity and brand image.
In addition, Iridium Holdings may lose distributors due to
competition, consolidation, regulatory developments, business
developments affecting its partners or their customers or for
other reasons. Any future consolidation of its distributors or
the acquisition of a distributor by a competitor, such as the
acquisition of Stratos Global Corporation, one of Iridium
Holdings’ largest distributors, by Inmarsat, one of Iridium
Holdings’ main competitors, also increases its reliance on
a few key distributors of its services and the amount of volume
discounts that Iridium Holdings may have to give such
distributors. Iridium Holdings’ top ten distributors for
the year ended December 31, 2008 and the six months ended
June 30, 2009, accounted for, in the aggregate,
approximately 52.0% and 47.2% of its total revenues,
respectively. The loss of any of these distributors could reduce
the distribution of Iridium Holdings’ products and services
as well the development of new product solutions and
applications, which may have a material adverse effect on
Iridium Holdings’ business, financial condition and results
of operations.
Iridium Holdings relies on a limited number of key vendors
for timely supply of equipment and services.
Celestica Corporation (“Celestica”) is the
manufacturer of all of Iridium Holdings’ current and next
generation devices, including its mobile handsets, L-Band
transceivers and short burst data modems. Celestica may choose
to terminate its business relationship with Iridium Holdings
when
its current contractual obligations are completed in
January 1, 2010. If Celestica terminates this relationship,
Iridium Holdings may not be able to find a replacement supplier.
In addition, as its sole supplier, Iridium Holdings is very
dependent on Celestica’s performance. If Celestica has
difficulty manufacturing or obtaining the necessary parts or
material to manufacture Iridium Holdings’ products, its
business would be materially affected. Although Iridium Holdings
may replace Celestica with another supplier, there could be a
substantial period of time in which its products are not
available and any new relationship may involve a significantly
different cost structure, development schedule and delivery
times.
In addition, Iridium Holdings depends on Boeing to provide
operations and maintenance services with respect to its
satellite network (including engineering, systems analysis and
operations and maintenance services) from Iridium Holdings’
technical support center in Chandler, Arizona and its satellite
network operations center in Leesburg, Virginia. Boeing provides
these services pursuant to a long-term agreement that is
concurrent with the expected useful life of Iridium
Holdings’ constellation. Technological competence is
critical to Iridium Holdings’ business and depends, to a
significant degree, on the work of technically skilled
employees, such as its Boeing contractors. If Boeing’s
performance falls below expected levels or if Boeing has
difficulties retaining the employees or contractors servicing
Iridium Holdings’ network, Iridium Holdings’ business
would be materially, adversely affected. In addition, if Boeing
terminates its agreement with Iridium Holdings, Iridium Holdings
may not be able to find a replacement provider on favorable
terms or at all, which could materially and adversely affect the
operations and performance of its network. A replacement of
Boeing as the operator of Iridium Holdings’ satellite
system could also trigger certain de-orbit rights held by the
U.S. government, adversely affecting Iridium Holdings’
ability to offer satellite communications services. See
“—The U.S. government, Motorola and Boeing mayunilaterally require Iridium Holdings to de-orbit itsconstellation upon the occurrence of certain events” below
for more information.
Iridium Holdings’ agreements with Motorola contain
potential payment provisions which may apply to the Acquisition;
and Iridium Holdings and Motorola are in discussions with
respect to such provisions, the outcome of which is
uncertain.
The Transition Services, Products and Asset Agreement
(“TSA”) with Motorola provides for the payment to
Motorola of $7.25 million plus certain accrued interest
upon the occurrence of a “triggering event.” A
“triggering event” means the first to occur of:
(a) a “change of control,” (b) the
consummation of an initial public offering by Iridium Holdings,
(c) a sale of all or a material portion of the assets of
Iridium Holdings or (d) December 11, 2010. A
“change of control” means, subject to certain
exceptions, the occurrence of any of the following events:
(a) any initial investor, together with such person’s
affiliates, shall have acquired beneficial ownership of
interests entitling the holders thereof to more than 50% of the
income of, or the liquidation proceeds from, Iridium Holdings;
(b) any person who is not an initial investor, together
with such person’s affiliates and with other persons
constituting a “group” (within the meaning of
Section 13(d) or 14(d) of the Securities Exchange Act of
1934, as amended) shall have acquired beneficial ownership of
interests entitling the holders thereof to more than 50% of the
income of, or the liquidation proceeds from, Iridium Holdings;
or (c) Iridium Holdings shall cease to own 100% of the
equity interests of Iridium Satellite. Iridium Holdings has been
accruing this future payment obligation in its historical
financial statements.
The Senior Subordinated Term Loan Agreement (the “Note
Agreement”) with Motorola also has certain future payment
obligations. Under the Note Agreement, Iridium Holdings is
required to pay Motorola a commitment fee of $5.0 million
upon the earlier of December 11, 2010 and the occurrence of
a “triggering event.” Iridium Holdings has been
accruing this future payment obligation in its historical
financial statements.
Furthermore, in the event of a “distribution event,”
Iridium Holdings is required to pay Motorola a loan success fee
equal to the amount that a holder of Class B units in
Iridium Holdings constituting 5% of the total number of issued
and outstanding units (both Class A and B) would have
received in the distribution event. A “distribution
event” means the (a) direct or indirect
(i) payment of any dividend or other distribution (in the
form of cash or otherwise) in respect of the equity interests of
Iridium Holdings or (ii) purchase, conversion, redemption
or other acquisition for value or otherwise by Iridium Holdings
of any equity interest in Iridium Holdings or (b) initial
public or any secondary offering by Iridium Holdings in which
any holders of equity interests in Iridium Holdings are afforded
the opportunity to participate as a selling equity holder in
such offering.
In addition to the above obligations, upon the first to occur of
(a) any “change of control” or (b) the sale
of all or a material portion of the assets of Iridium Holdings,
Iridium Holdings is required to pay a cash amount equal to the
lesser of (i) an amount to be determined based on a
multiple of earnings before interest, taxes, depreciation, and
amortization less capital contributions not returned to
Class A Unit holders and the amount of the
$5.0 million commitment fee discussed above which has been
or is concurrently being paid and (ii) the value of the
consideration that a holder of Class B Units in Iridium
Holdings constituting 5% of the total number of issued and
outstanding units (both Class A and B) would receive
in the transaction.
Iridium Holdings believes that it is unclear whether and how any
of the foregoing provisions were intended to apply to a
transaction such as the Acquisition. As a result, Iridium
Holdings contacted Motorola to discuss deleting these provisions
and Motorola has responded that it believes that, in
consideration for deleting these provisions, it should receive
approximately $3.9 million in cash and 1.5 million
shares of our common stock and acceleration of the
$12.3 million outstanding payment obligations (plus
$1.9 million of accrued interest and $1.3 million of
certain other potential fees) under the TSA and Note Agreement.
Iridium Holdings and Motorola are continuing to discuss an
appropriate resolution under these provisions of the TSA and
Note Agreement, but there can be no assurances as to whether
these provisions will be deleted and how much consideration will
be paid to Motorola.
Iridium Holdings is dependent on intellectual property
licensed from Motorola and other third parties.
Iridium Holdings licenses substantially all system technology,
including software and systems to operate and maintain its
network as well as technical information for the design and
manufacture of its devices, from Motorola. Iridium Holdings
maintains its licenses with Motorola pursuant to several
long-term agreements. These agreements can be terminated by
Motorola upon: (i) any material change to certain portions
of the certificate of formation and operating agreement of the
Iridium Holdings’ subsidiary that is party to the
agreements; (ii) any change of control (as defined in the
TSA); (iii) the commencement by Iridium Holdings of any
voluntary bankruptcy proceeding; or (iv) the material
failure of Iridium Holdings to perform or comply with any
provision of the agreements. Motorola has assigned a portion of
the patents comprising these licenses to a third-party. Iridium
Holdings also licenses additional system technology from several
other third parties. If Motorola or any such third party were to
terminate any license agreement or cease to support and service
this technology, or if Iridium Holdings is unable to renew such
licenses on commercially reasonable terms or at all, it may be
difficult, more expensive or impossible to obtain such services
from alternative vendors. Any substitute technology may also
have lower quality or performance standards, which would
adversely affect the quality of Iridium Holdings’ products
and services. For more information, see “Risk
Factors—Iridium Holdings’ agreements with Motorola
contain potential payment provisions which may apply to the
Acquisition; and Iridium Holdings and Motorola are in
discussions with respect to such provisions, the outcome of
which is uncertain.”
In connection with the design, manufacture and operation of
Iridium NEXT and related ground infrastructure, products and
services, Iridium Holdings may be required to obtain
certain additional intellectual property rights from Motorola
and other third parties, including, potentially, a third party
to whom Motorola has advised Iridium Holdings that it has
transferred certain patents rights associated with the existing
Iridium network. There can be no assurance that Iridium Holdings
will be able to obtain such intellectual property rights on
commercially reasonable terms or at all. If Iridium Holdings is
unable to obtain such intellectual property rights or is unable
to obtain such rights on commercially reasonable terms, Iridium
Holdings may not complete Iridium NEXT and related ground
infrastructure, products and services on budget or at all.
Iridium Holdings has been and may in the future become
subject to claims that its products violate the patent or
intellectual property rights of others, which could be costly
and disruptive to Iridium Holdings.
Iridium Holdings operates in an industry that is susceptible to
significant intellectual property litigation. As a result,
Iridium Holdings or its products may become subject to
intellectual property infringement claims or litigation. The
defense of intellectual property suits, even if frivolous, is
both costly and time consuming and may divert management’s
attention from other business concerns. An adverse determination
in litigation to which Iridium Holdings may become a party
could, among other things:
•
subject Iridium Holdings to significant liabilities to third
parties, including treble damages;
•
require disputed rights to be licensed from a third party for
royalties that may be substantial;
•
require Iridium Holdings to cease using such technology; or
•
prohibit Iridium Holdings from selling certain of its products
or offering certain of its services.
Any of these outcomes may have a material adverse effect on
Iridium Holdings’ business, financial condition and results
of operations.
Conducting and expanding its operations outside the United
States involves special challenges that Iridium Holdings may not
be able to meet which may adversely affect its business.
Iridium Holdings determines the country in which it earns its
revenues based on where it invoices its distributors. These
distributors sell services directly or indirectly to end-users,
who may be located or use Iridium Holdings’ products and
services elsewhere. Iridium Holdings cannot provide the
geographical distribution of end-users, because it does not
contract directly with them. According to Iridium Holdings’
estimates, commercial data traffic originating outside the
U.S. accounted for 74.7% of its total data traffic for the
year ended December 31, 2008 and 69.9% of its total data
traffic for the six months ended June 30, 2009, while
commercial voice traffic originating outside the
U.S. accounted for 90.1% of its total voice traffic for the
year ended December 31, 2008 and 90.6% of its total voice
traffic for the six months ended June 30, 2009. Iridium
Holdings is also seeking authorization to offer to sell its
services in China, Russia, Mexico, India and South Africa. While
expanding its international operations would advance Iridium
Holdings’ growth, it would also increase numerous risks,
including:
•
difficulties in penetrating new markets due to established and
entrenched competitors;
difficulties in developing products and services that are
tailored to the needs of local customers;
•
lack of local acceptance or knowledge of its products and
services;
•
lack of recognition of its products and services;
•
unavailability of or difficulties in establishing relationships
with distributors;
•
significant investments, including the development and
deployment of dedicated gateways as certain countries require
physical gateways within their jurisdiction to connect the
traffic coming to and from their territory;
•
instability of international economies and governments;
•
changes in laws and policies affecting trade and investment in
other jurisdictions;
•
exposure to varying legal standards, including intellectual
property protection and foreign state ownership laws, in other
jurisdictions;
•
difficulties in obtaining required regulatory authorizations;
•
difficulties in enforcing legal rights in other jurisdictions;
•
changing and conflicting national and local regulatory
requirements; and
•
foreign currency exchange rates and exchange controls.
These risks could affect Iridium Holdings’ ability to
successfully compete and expand internationally, which may
adversely affect its business, financial condition and results
of operations.
The prices for most of its products and services are denominated
in U.S. dollars. Any appreciation of the U.S. dollar
against other currencies will increase the cost of its products
and services to its international customers and, as a result,
may reduce the competitiveness of its international offerings
and its international growth.
Iridium Holdings currently is unable to offer service in
important regions of the world due to regulatory requirements,
which is limiting its growth and its ability to compete.
Iridium Holdings’ ability to provide service in certain
regions is limited by local regulations as certain countries,
such as China, Russia and India, have specific regulatory
requirements such as local ownership requirements
and/or
requiring physical gateways within their jurisdiction to connect
traffic coming to and from their territory. While Iridium
Holdings is currently in discussions with parties in such
countries to satisfy these regulatory requirements, Iridium
Holdings may not be able find an acceptable local partner or
reach an agreement to develop additional gateways or the cost of
developing and deploying such gateways may be prohibitive, which
could impair its ability to expand its product and service
offerings in such areas and undermine its value for potential
users who require service in these areas. The inability to offer
to sell its products and services in all major international
markets may have a material adverse effect on its business,
financial condition and results of operations. In addition, the
construction of such gateways in foreign countries may require
Iridium Holdings to comply with certain U.S. regulatory
requirements which may contravene the laws or regulations of the
local jurisdiction.
The U.S. government, Motorola and Boeing may
unilaterally require Iridium Holdings to de-orbit its
constellation upon the occurrence of certain events.
When Iridium Satellite purchased the assets of Iridium LLC out
of bankruptcy, Boeing, Motorola and the US government insisted
on having certain de-orbit rights as a way to control potential
liability risk arising from future operation of the
constellation, and provide for the U.S. government’s
obligation to indemnify Motorola. As a result, an agreement was
entered into among Iridium Satellite, Boeing, Motorola and the
U.S. government, the U.S. government obtained the
right to, in its sole discretion, require Iridium Holdings to
de-orbit its constellation upon the occurrence of any of the
following with respect to Iridium Satellite: (a) its
failure to pay certain insurance premiums or maintain insurance;
(b) its bankruptcy; (c) its sale or the sale of any
major asset in Iridium Holdings’ satellite system;
(d) Boeing’s replacement as the operator of Iridium
Holdings’ satellite system; (e) its failure to provide
certain notices as contemplated by the agreement; or (f) at
any time after June 5, 2009, unless extended by the
U.S. government. The U.S. government also has the
right to require Iridium Holdings to de-orbit any of its
individual functioning satellites (including in-orbit spares)
that have been in orbit for more than seven years, unless the
U.S. government grants a postponement. As of August 2009,
all of Iridium Holdings’ functioning satellites have been
on orbit for more than seven years. Iridium Holdings is
currently in discussion with the U.S. government to extend
the 2009 deadline.
Motorola also has the right to de-orbit Iridium Holdings’
constellation pursuant to its transition services, products and
asset agreement with Iridium Holdings and Iridium Satellite and
pursuant to the operations and maintenance agreement between
Iridium Constellation LLC (“Iridium Constellation”)
and Boeing. Under these agreements, Motorola may require the
de-orbit of the Iridium Holdings constellation upon the
occurrence of any of the following: (a) the bankruptcy of
Iridium Holdings, Iridium Constellation or Iridium Satellite;
(b) Iridium Satellite’s breach of the transition
services, products and asset agreement; (c) Boeing’s
breach of its operations and maintenance agreement and other
related agreements with Iridium Constellation or its affiliates;
(d) an order from the U.S. government requiring the
de-orbiting of Iridium Holdings’ satellites;
(e) Motorola’s determination that changes in law or
regulation that may require it to incur certain costs relating
to the operation, maintenance, re-orbiting or de-orbiting of
Iridium Holdings’ constellation; or
(f) Motorola’s failure to obtain on commercially
reasonable terms, product liability insurance to cover its
position as manufacturer of the satellites, provided the
U.S. government has not agreed to cover what would have
otherwise been paid by such policy.
Pursuant to Iridium Constellation’s operations and
maintenance agreement with Boeing, Boeing similarly has the
unilateral right to de-orbit Iridium Holdings’
constellation upon the occurrence of any of the following
events: (a) Iridium Constellation’s or Iridium
Satellite’s bankruptcy; (b) the existence of
reasonable grounds for Boeing to question the financial
stability of Iridium Constellation; (c) Iridium
Constellation’s failure to maintain certain insurance
policies; (d) Iridium Constellation’s failure to
provide Boeing certain quarterly financial statements;
(e) Iridium Constellation’s breach of the operations
and maintenance agreement, including its payment obligation
thereunder; or (f) changes in law or regulation that may
increase the risks or costs associated with the operation
and/or
re-orbit process or the cost of operation
and/or
re-orbit of the constellation.
Iridium Holdings cannot guarantee that the U.S. government,
Motorola
and/or
Boeing will not unilaterally exercise such de-orbiting rights
upon the occurrence of any of the above events. A decision by
any of the U.S. government, Motorola or Boeing to de-orbit
Iridium Holdings’ constellation would affect its ability to
provide satellite communications services, materially and
adversely affecting its business, prospects and profitability.
Wireless devices may pose health and safety risks and, as
a result, Iridium Holdings may be subject to new regulations,
demand for its services may decrease and Iridium Holdings could
face liability based on alleged health risks.
There has been adverse publicity concerning alleged health risks
associated with radio frequency transmissions from portable
hand-held telephones that have transmitting antennae. Lawsuits
have been filed against participants in the wireless industry
alleging various adverse health consequences, including cancer,
as a result of wireless phone usage. Although Iridium Holdings
has not been party to any such lawsuits, Iridium Holdings may be
exposed to such litigation in the future. While Iridium Holdings
complies with applicable standards for radio frequency emissions
and power and does not believe that there is valid scientific
evidence that use of its phones poses a health risk, courts or
governmental agencies could find otherwise. Any such finding
could reduce its revenues and profitability and expose Iridium
Holdings and other wireless providers to litigation, which, even
if frivolous or unsuccessful, could be costly to defend.
If consumers’ health concerns over radio frequency
emissions increase, they may be discouraged from using wireless
handsets. Further, government authorities might increase
regulation of wireless handsets as a result of these health
concerns. The actual or perceived risk of radio frequency
emissions could reduce the number of Iridium Holdings’
subscribers and demand for its products and services, which may
have a material adverse effect on its business, financial
condition and results of operations.
Iridium Holdings’ business is subject to extensive
government regulation, which mandates how Iridium Holdings may
operate its business and may increase its cost of providing
services, slow its expansion into new markets and subject its
services to additional competitive pressures or regulatory
requirements.
Iridium Holdings’ ownership and operation of a satellite
communication system is subject to significant regulation in the
United States by the FCC and in foreign jurisdictions by similar
local authorities. The rules and regulations of the FCC or these
foreign authorities may change and such authorities may adopt
regulations that limit or restrict Iridium Holdings’
operations as presently conducted or as Iridium Holdings plans
to conduct such operations. Such authorities may also make
changes in the licenses of Iridium Holdings’ competitors
that impact Iridium Holdings’ spectrum. Failure to provide
services in accordance with the terms of its licenses or failure
to operate its satellites or ground stations as required by its
licenses and applicable laws and government regulations could
result in the imposition of government sanctions on Iridium
Holdings, including the suspension or cancellation of its
licenses.
Iridium Holdings and its affiliates must pay FCC filing and
annual filing fees in connection with their licenses. One of
Iridium Holdings’ subsidiaries, Iridium Carrier Services
LLC, holds a common carrier radio license and is thus subject to
regulation as a common carrier, including limitations and prior
approval requirements with respect to direct or indirect foreign
ownership. This subsidiary currently qualifies for exemptions
from certain common carrier regulations, such as being required
to file certain reports or pay certain fees. A change in the
manner in which Iridium Holdings provides service or a failure
to comply with common carrier regulation or pay required fees
can result in sanctions including fines, loss of authorizations,
or the denial of applications for new authorizations or the
renewal of existing authorizations.
Iridium Holdings’ system must be authorized in each of the
markets in which it provides its services. Iridium Holdings may
not be able to obtain or retain all regulatory approvals needed
for its operations. Regulatory changes, such as those resulting
from judicial decisions or adoption of treaties, legislation or
regulation in countries where Iridium Holdings currently offers
products and services or intends to offer products and services,
including the United States, may also
significantly affect its business. Because regulations in each
country are different, Iridium Holdings may not be aware if some
of its distribution partners
and/or
persons with which Iridium Holdings or they do business do not
hold the requisite licenses and approvals.
Iridium Holdings’ current regulatory approvals could now
be, or could become, insufficient in the view of domestic or
foreign regulatory authorities, any additional necessary
approvals may not be granted on a timely basis, or at all, in
jurisdictions in which Iridium Holdings currently plans to offer
products and services, and applicable restrictions in those
jurisdictions could become unduly burdensome, which may have a
material adverse effect on its business, financial condition and
results of operations.
Iridium Holdings’ operations are subject to certain
regulations of the U.S. State Department’s Office of
Defense Trade Controls (i.e., the export of satellites and
related technical data), U.S. Treasury Department’s
Office of Foreign Assets Control (i.e., financial transactions)
and the U.S. Commerce Department’s Bureau of Industry and
Security (i.e. its phones). Iridium Holdings is also required to
provide certain U.S. and foreign government law enforcement
and security agencies with call interception services. In the
course of seeking regulatory approval of the Acquisition,
Iridium Holdings discussed with the U.S. Department of
Justice (“DOJ”) certain procedures used by Iridium
Holdings to satisfy its respective call interception obligations
under licenses issued by the Australian and Canadian
authorities. Iridium Holdings has informed the DOJ and notified
the Australian and Canadian authorities that Iridium Holdings
has discontinued such procedures until such time as the DOJ
expressly authorizes their use. There can be no assurance that
the discontinued procedures will be permitted to be reinstated
or will not result in legal liability for Iridium Holdings.
Iridium Holdings is currently in discussions with the Australian
and Canadian authorities to obtain amendments or waivers to its
licenses in those countries. Neither Australia nor Canada is
obligated to grant such amendments or waivers and there can be
no assurance that Australian and Canadian authorities will not
suspend or revoke Iridium Holdings’ licenses or take other
legal actions.
The above-cited U.S. and foreign obligations and
regulations may limit or delay Iridium Holdings’ ability to
offer products and services in a particular country. As new laws
and regulations are issued, Iridium Holdings may be required to
modify its business plans or operations. If Iridium Holdings
fails to comply with these regulations in the United States or
any other country, Iridium Holdings could be subject to
sanctions that could affect, materially and adversely, its
ability to operate in the United States or such other country.
In addition, changing and conflicting national and local
regulatory requirements may cause Iridium Holdings to be in
compliance with local requirements in one country, while not
being in compliance with the laws and regulations of another.
Imposition of sanctions, losses of licenses and failure to
obtain the authorizations necessary to use its assigned radio
frequency spectrum and to distribute its products in certain
countries could have a material adverse effect on Iridium
Holdings’ business, financial condition and results of
operations.
Iridium Holdings’ business would be negatively
impacted if the FCC revokes, modifies or fails to renew or amend
its licenses.
FCC licenses held by Iridium Holdings and its affiliates—a
license for the satellite constellation, licenses for its
U.S. gateways and blanket earth station licenses for
U.S. government customers and commercial
subscribers—are subject to revocation if Iridium Holdings
and its affiliates fail to satisfy certain conditions or to meet
certain prescribed milestones. The FCC licenses are also subject
to modification by the FCC. While the FCC satellite
constellation license is valid until 2013, Iridium Holdings and
its affiliates are required, slightly more than three years
prior to the expiration of the FCC satellite constellation
license, to apply for a license renewal with the FCC. The
U.S. gateway earth station licenses expire between 2011 and
2022 and the U.S. government customer and commercial
subscribers’ earth station licenses will expire in 2021.
Renewal applications for earth station licenses must be filed
between 30 and 90 days prior to expiration. There can be no
assurance that the FCC will renew Iridium Holdings and its
affiliates’ FCC licenses. If the FCC revokes, modifies or
fails to renew FCC licenses held by Iridium Holdings and its
affiliates, or if Iridium Holdings and its affiliates fail to
satisfy any of the conditions of their respective FCC licenses,
Iridium Holdings may not be able to continue to provide
satellite communications services.
Pursuing strategic transactions may cause Iridium Holdings
to incur additional risks.
Iridium Holdings may pursue acquisitions, joint ventures or
other strategic transactions, although no such transactions that
would be financially significant to Iridium Holdings are
probable at this time. Iridium Holdings may face costs and risks
arising from any such transactions, including integrating a new
business into its business or managing a joint venture. These
risks may include legal, organizational, financial, loss of key
customers and distributors and diversion of management’s
time.
In addition, if Iridium Holdings were to choose to engage in any
major business combination or similar strategic transaction,
Iridium Holdings may require significant external financing in
connection with the transaction. Depending on market conditions,
investor perceptions of Iridium Holdings and other factors,
Iridium Holdings may not be able to obtain capital on acceptable
terms, in acceptable amounts or at appropriate times to
implement any such transaction. Any such financing, if obtained,
may further dilute existing stockholders.
Iridium Holdings current and future indebtedness could
impair its ability to react to changes in its business and may
limit its ability to use debt to fund future capital
needs.
As of June 30, 2009, Iridium Holdings had
$154.3 million of indebtedness (including
$120.0 million outstanding under its credit agreements).
Iridium Holdings may use a portion of the funds in our trust
account at the closing of the Acquisition to prepay all or a
portion of Iridium Holdings’ outstanding indebtedness under
its credit agreements after the closing of the Acquisition of
approximately $55 million (in addition to the
$65 million required to be repaid at closing pursuant to
the terms of the credit agreements). While Iridium
Holdings’ credit agreements limit its ability to incur
additional debt, Iridium Holdings may still incur significant
amounts of debt and other obligations. For example, Iridium
Holdings may need to incur a significant amount of debt to
finance the development of Iridium NEXT and related ground
infrastructure, products and services. If Iridium Holdings
incurs other indebtedness following the closing of the
Acquisition, such indebtedness could adversely affect its
financial condition by, among others:
•
requiring Iridium Holdings to dedicate a substantial portion of
its cash flow from operations to principal and interest payments
on its debt, thereby reducing the availability of its cash flow
to fund working capital, capital expenditures and other general
corporate expenditures;
•
potentially exposing Iridium Holdings to increased interest
costs with respect to its floating rate debt;
•
resulting in an event of default if Iridium Holdings fails to
comply with the restrictive covenants contained in its credit
agreements, which event of default could result in all of its
debt becoming immediately due and payable;
•
increasing its vulnerability to adverse general economic or
industry conditions because its debt could mature at a time when
those conditions make it difficult to refinance and its cash
flow is insufficient to repay the debt in full, forcing Iridium
Holdings to sell assets at disadvantageous prices or to default
on the debt, and because a decline in its profitability
could cause Iridium Holdings to be unable to comply with the
forward fixed charge coverage ratio in its credit agreement,
resulting in a default on, and acceleration of, its debt;
•
limiting its flexibility in planning for, or reacting to,
competition
and/or
changes in its business or its industry by limiting its ability
to incur additional debt, to make acquisitions and divestitures
or to engage in transactions that could be beneficial to Iridium
Holdings;
•
restricting Iridium Holdings from making strategic acquisitions,
introducing new products or services or exploiting business
opportunities; and
•
placing Iridium Holdings at a competitive disadvantage relative
to competitors that have less debt or greater financial
resources.
To the extent additional debt or other obligations are incurred,
the risks described above would increase.
Furthermore, if an event of default were to occur with respect
to its credit agreements or other indebtedness, its creditors
could accelerate the maturity of its indebtedness. Iridium
Holdings’ indebtedness under these credit agreements is
secured by a lien on substantially all of its assets and the
lenders could foreclose on these assets to repay the
indebtedness.
Iridium Holdings’ ability to make scheduled payments on or
to refinance indebtedness obligations depends on its financial
condition and operating performance, which are subject to
prevailing economic and competitive conditions and to certain
financial, business and other factors beyond its control.
Iridium Holdings may not be able to maintain a level of cash
flows from operating activities sufficient to permit Iridium
Holdings to pay the principal, premium, if any, and interest on
its indebtedness. If its cash flows and capital resources are
insufficient to fund its debt service obligations, Iridium
Holdings could face substantial liquidity problems and could be
forced to sell assets, seek additional capital or seek to
restructure or refinance its indebtedness. These alternative
measures may not be successful or feasible. Its credit
agreements restrict its ability to sell assets. Even if Iridium
Holdings could consummate those sales, the proceeds that Iridium
Holdings realizes from them may not be adequate to meet any debt
service obligations then due.
Restrictive covenants in Iridium Holdings’ credit
agreements impose restrictions that may limit its operating and
financial flexibility.
Iridium Holdings’ first and second lien credit agreements
contain a number of significant restrictions and covenants that
limit its ability to, among other things:
•
incur or guarantee additional indebtedness;
•
pay dividends or make distributions to its unitholders;
•
make investments, acquisitions or capital expenditures;
•
grant liens on its assets;
•
enter into transactions with its affiliates;
•
merge or consolidate with other entities or transfer all or
substantially all of its assets; and
In addition, Iridium Holdings must maintain compliance with
specified financial covenants. Complying with these restrictive
covenants, as well as those that may be contained in any
agreements governing any future indebtedness, may impair Iridium
Holdings’ ability to finance its operations or capital
needs or to take advantage of other favorable business
opportunities. Iridium Holdings’ ability to comply with
these restrictive covenants will depend on its future
performance, which may be affected by events beyond its control.
If Iridium Holdings violates any of these covenants and is
unable to obtain waivers, Iridium Holdings would be in default
under the agreement and payment of the indebtedness could be
accelerated. The acceleration of its indebtedness under one
agreement may permit acceleration of indebtedness under other
agreements that contain cross-default or cross-acceleration
provisions. If its indebtedness is accelerated, Iridium Holdings
may not be able to repay its indebtedness or borrow sufficient
funds to refinance it. Even if Iridium Holdings is able to
obtain new financing, it may not be on commercially reasonable
terms or on terms that are acceptable to Iridium Holdings. If
its indebtedness is in default for any reason, Iridium
Holdings’ business, financial condition and results of
operations may be materially and adversely affected. In
addition, complying with these covenants may cause Iridium
Holdings to take actions that are not favorable to holders of
its securities and may make it more difficult for Iridium
Holdings to successfully execute its business plan and compete
against companies who are not subject to such restrictions.
Spectrum values historically have been volatile, which
could cause the value of Iridium Holdings to fluctuate.
Iridium Holdings’ business plan is evolving and it may in
the future include forming strategic partnerships to maximize
value for its spectrum, network assets and combined service
offerings in the United States and internationally. Values that
Iridium Holdings may be able to realize from such partnerships
will depend in part on the value ascribed to its spectrum.
Valuations of spectrum in other frequency bands historically
have been volatile, and Iridium Holdings cannot predict at what
amount a future partner may be willing to value its spectrum and
other assets. In addition, to the extent that the FCC takes
action that makes additional spectrum available or promotes the
more flexible use or greater availability (e.g., via spectrum
leasing or new spectrum sales) of existing satellite or
terrestrial spectrum allocations, the availability of such
additional spectrum could reduce the value of Iridium
Holdings’ spectrum authorizations and the value of its
business.
Iridium Holdings’ ability to operate its company
effectively could be impaired if Iridium Holdings loses members
of its senior management team or key technical personnel.
Iridium Holdings depends on the continued service of key
managerial and technical personnel, as well as its ability to
continue to attract and retain highly qualified personnel.
Following the closing of the Acquisition, Iridium Holdings
expects to maintain its current executive management team. The
success of the Acquisition will be dependent upon the continued
service of a relatively small group of key executives. Iridium
Holdings competes for such personnel with other companies,
academic institutions, government entities and other
organizations. The unexpected loss or interruption of the
services of such personnel could adversely affect its ability to
effectively manage its operations, execute its business plan and
meet its strategic objectives.
Iridium Holdings has never operated as a public company
and has not been required to maintain disclosure controls and
procedures and internal controls over financial reporting as it
will be required as a public company. Fulfilling Iridium
Holdings’ obligations as a public company after the
Acquisition will be expensive and time consuming.
Iridium Holdings, as a private company, has not been required to
prepare or file periodic and other reports with the SEC under
applicable federal securities laws, to comply with the
requirements of the federal securities laws applicable to public
companies, or to document and assess the effectiveness of its
internal control procedures in order to satisfy the requirements
of Section 404 of the Sarbanes-Oxley Act of 2002
(“Sarbanes-Oxley”). Although Iridium Holdings has
maintained certain disclosure controls and procedures and
internal controls over financial reporting with respect to its
activities, Iridium Holdings has not been required to establish
and maintain such disclosure controls and procedures and
internal controls over financial reporting as it will be
required under the federal securities laws for a public company.
Deficiencies in controls may affect Iridium Holdings’
ability to close its financial reporting on a timely basis or
report accurate numbers, which could adversely affect its
financial results or investors’ confidence and its ability
to access external financing.
For the year ended December 31, 2008, the balance sheet has
been restated to reclassify as prepaid expenses and other
current assets a $1.4 million receivable from an insurer
that was previously classified as a reduction of the related
claim liability included in accrued expenses and other current
liabilities. In addition, in the restated consolidated
statements of income for the years ended December 31, 2008
and 2007, Iridium Holdings has reclassified $6.0 million
and $3.4 million, respectively, of research and development
costs related to government funded research and development
service contracts as cost of services (exclusive of depreciation
and amortization). These reclassifications have no impact on
income from operations or net income.
In addition, under Sarbanes-Oxley and the related rules and
regulations of the SEC, Iridium Holdings will be required to
implement additional corporate governance practices and adhere
to a variety of reporting requirements and accounting rules.
Compliance with these obligations will require significant time
and resources from Iridium Holdings’ management, finance
and accounting staff and will significantly increase its legal,
insurance and financial compliance costs. As a result of the
increased costs associated with being a public operating company
after the Acquisition, the operating income as a percentage of
revenue of Iridium Holdings’ operations will likely be
lower after the Acquisition than if it had remained a private
company, which may adversely affect Iridium Holdings’
business, financial condition, results of operations and
liquidity. In addition, our actual operating costs as a public
company may exceed our projected operating costs as set forth in
our pro forma financial statements. See “—Unaudited
Pro Forma Condensed Combined Financial Data.”
If Iridium Holdings becomes subject to unanticipated
foreign tax liabilities, it could materially increase its
costs.
Iridium Holdings operates in various foreign tax jurisdictions.
Iridium Holdings believes that it has complied in all material
respects with its obligations to pay taxes in these
jurisdictions. However, its position is subject to review and
possible challenge by the taxing authorities of these
jurisdictions. If the applicable taxing authorities were to
challenge successfully Iridium Holdings’ current tax
positions or if there were changes in the manner in which
Iridium Holdings conducts its activities, Iridium Holdings could
become subject to material unanticipated tax liabilities.
Iridium Holdings may also become subject to additional tax
liabilities as a result of changes in tax laws, which could in
certain circumstances have retroactive effect.
Risks
Associated with the Acquisition
A substantial number of new shares of our common stock
will be issued in connection with the Acquisition, the Exchanges
and related transactions, which will result in substantial
dilution of our current stockholders and could have an adverse
effect on the market price of our shares.
We expect to issue an aggregate of approximately
29,443,500 shares of our common stock to the current owners
of Iridium Holdings in connection with the Acquisition and to
issue an additional 1,946,500 shares of our common stock to
Greenhill Europe when it exercises its right
to convert the convertible subordinated promissory note into
shares of our common stock. We also expect to issue as part of
the consideration for the Exchanges, a number of shares of our
common stock equal to $12,449,308 divided by the actual price
per share in this offering; provided that such price shall be
deemed to be no greater than $10.00 per share. As a result of
these transactions, and giving effect to this offering,
following the closing of the Acquisition, the ownership of our
existing stockholders is expected to be reduced to approximately
44.4% of the outstanding shares of our common stock, the owners
of Iridium Holdings are expected to own approximately 34.5%,
Greenhill Europe is expected to own approximately 2.3% as a
result of the conversion of the note by Greenhill Europe and
investors in this offering are expected to own approximately
18.8% of the outstanding shares of our common stock, assuming
(i) no holders of our IPO shares vote against the
Acquisition proposal and, accordingly, properly exercise their
rights to convert their shares into cash, (ii) no holders
of warrants exercise their rights to acquire our shares, (iii)
the number of shares of our common stock issued in connection
with the Exchanges is 1,244,931, (iv) we complete the
Forward Purchase of 10,395,763 shares of our common stock
pursuant to the agreements we announced on September 2,2009 and (v) we sell in this offering the number of shares of
our common stock listed on the cover of this prospectus
supplement (not including the underwriters’ over-allotment
option). Assuming the maximum number of our stockholders holding
IPO shares (30% minus one share) vote against the Acquisition
proposal and properly exercise their rights to convert their
shares into cash, the current stockholders are expected to own
approximately 35.3% of the outstanding shares of our common
stock, the current owners of Iridium Holdings are expected to
own approximately 40.2% of the outstanding shares of our common
stock, Greenhill Europe is expected to own approximately 2.7% of
the outstanding shares of our common stock and investors in this
offering are expected to own approximately 21.8% of the
outstanding shares of our common stock.
In addition, we issued warrants to purchase
44,130,437 shares of our common stock to our founding
stockholder and in our IPO (net of warrants that our founding
stockholder has agreed to forfeit upon closing of the
Acquisition). In the Exchanges, we will (i) repurchase
12,449,308 of our outstanding warrants, (ii) restructure
14,368,525 of our outstanding warrants and (iii) issue
14,368,525 restructured warrants (including 4,000,000
restructured warrants to our founding stockholder). The
remaining 13,657,104 warrants outstanding following these
transactions and the 14,368,525 restructured warrants will
become exercisable upon the completion of our initial business
combination, although the warrants issued in the IPO, the
warrants held by GHQ’s independent directors and any
restructured warrants sold pursuant to a resale registration
statement may not be exercised unless we have an effective
registration statement covering the shares of common stock
issuable upon exercise of the warrants and a current prospectus
relating to them is available.
Sales of substantial numbers of shares of our common stock
issued upon the exercise of the warrants in the public market
could adversely affect the market price of our shares and
warrants. All of the sellers named in the Transaction Agreement
(“Sellers” or “sellers”) and the initial
stockholders have agreed to a one-year
“lock-up”
for the shares of our common stock they will hold following the
closing of the Acquisition, except for underwritten secondary
offerings approved by our Board of Directors anytime after six
months from the closing of the Acquisition. In addition, we,
each of our directors and our executive officers, and certain of
our stockholders, have agreed to a
lock-up for
a period of 90 days after the date of this prospectus
supplement. While none of our other stockholders or
warrantholders are subject to a
lock-up,
these
lock-ups
limit, to an extent, the volume of our shares available for
public trading, which may have an adverse effect on the market
price of our common stock. Upon the termination, expiration or
waiver of the
lock-ups, a
total of 38,448,824 shares of our common stock will become
available to trade on the public markets (including the
conversion of the note by Greenhill Europe), which may have a
material adverse effect on the market price of our common stock.
If the stock incentive plan proposal described in our Proxy
Statement on Schedule 14A filed with the SEC on
August 28, 2009 is approved by our stockholders, we will
reserve 8.0 million shares
of our common stock for the grant of incentive stock options,
nonqualified stock options, stock appreciation rights and other
stock-based awards (which includes restricted stock, restricted
stock units and performance-based awards payable both in cash
and in shares of our common stock) to eligible individuals under
the plan. Exercise of the stock options and stock rights by the
eligible individuals will have a dilutive effect on our current
stockholders and may adversely affect the market price of our
shares of common stock.
The holders of our common stock issued in our IPO may vote
against the Acquisition and exercise their rights to convert
their shares to cash, thereby reducing the cash available to
fund the Acquisition and related transactions and provide
working capital for us after the Acquisition.
The holders of our IPO shares have certain rights to convert
their IPO shares into cash in connection with the completion of
our initial business combination. The actual per share
conversion price will be equal to the aggregate amount then on
deposit in the trust account (before payment of deferred
underwriting discounts and commissions and including accrued
interest, net of any income taxes payable on such interest,
which shall be paid from the trust account, and net of interest
income of up to $5.0 million on the trust account balance
previously released to us to fund our working capital
requirements), calculated as of two business days prior to the
completion of the initial business combination, divided by the
total number of IPO shares. As of June 30, 2009, the
per-share conversion price would have been approximately $10.02
without taking into account any interest or expenses accrued
after such date, but we estimate that the pro rata amount to be
received by holders of the IPO shares who vote against the
Acquisition and properly exercise their conversion right will be
approximately $10.00 at the time of the closing of the
Acquisition. Any additional amounts will only be payable to such
holders of IPO shares in the future once GHQ has completed the
filing of its tax returns in respect of the years 2008 and 2009
and received any refunds which may be due to it for such years.
If the holders of no more than 30% (minus one share) of the IPO
shares vote against the Acquisition and properly exercise their
conversion rights, the Acquisition may be completed (if our
proposed certificate of incorporation, the issuance of
additional shares of common stock in connection with our initial
business combination and our new stock incentive plan are
approved and the other conditions to closing the Acquisition are
satisfied or waived) but any cash required to convert the IPO
shares would reduce the cash balances available to us to prepay
certain Iridium Holdings debt, pay transaction expenses and
conduct Iridium Holdings’ business after completion of the
Acquisition, which may have a material adverse effect on our
financial condition and results of operation.
Because our initial stockholders and directors will not
participate in liquidation distributions if we do not complete a
business combination by February 14, 2010, our initial
stockholders, directors and management team may have conflicts
of interest in approving the Acquisition.
Our initial stockholders have waived their rights to receive any
liquidation proceeds with respect to the founding
stockholder’s shares if we fail to complete a business
combination by February 14, 2010 and thereafter liquidate.
Accordingly, their shares of common stock and warrants to
purchase common stock will be worthless if we do not complete
the Acquisition or another business combination by
February 14, 2010. Because Messrs. Bok, Niehaus and
Rodriguez have ownership interests in Greenhill and consequently
an indirect ownership interest in our founding stockholder and
us, they also have a conflict of interest in determining whether
Iridium Holdings is an appropriate target business for us and
our stockholders. These ownership interests may influence their
motivation in identifying and selecting Iridium Holdings as an
appropriate target business for our initial business combination
and in timely completing the Acquisition. The exercise of
discretion by our officers and directors in identifying and
selecting one or more
suitable target businesses may result in a conflict of interest
when determining whether the terms, conditions and timing of the
Acquisition are appropriate and in our stockholders’ best
interest.
The exercise of our directors’ and officers’
discretion in agreeing to changes or waivers in the terms of the
Acquisition may result in a conflict of interest when
determining whether such changes to the terms of the Acquisition
or waivers of conditions are appropriate and in our
stockholders’ best interest.
In the period leading up to the closing of the Acquisition,
events may occur that, pursuant to the Transaction Agreement,
would require us to agree to further amendments to the
Transaction Agreement, to consent to certain actions taken by
Iridium Holdings or to waive rights that we are entitled to
under the Transaction Agreement. Such events could arise because
of changes in the course of Iridium Holdings’ business or
industry, a request by Iridium Holdings to undertake actions
that would otherwise be prohibited by the terms of the
Transaction Agreement or the occurrence of other events that
would have a material adverse effect on Iridium Holdings’
business and would entitle us to terminate the Transaction
Agreement. In any of such circumstances, it would be within our
discretion, acting through our board of directors, to grant our
consent or waive our rights. The existence of the financial and
personal interests of the directors described in the preceding
risk factor may result in a conflict of interest on the part of
one or more of the directors between what he may believe is best
for our company and what he may believe is best for himself in
determining whether or not to take the requested action.
If Iridium Holdings has breached any of its
representations, warranties or covenants set forth in the
Transaction Agreement, we may not have a remedy for losses
arising therefrom.
None of Iridium Holdings, its owners or any other persons will
indemnify us for any losses we realize as a result of any breach
by Iridium Holdings of any of its representations, warranties or
covenants set forth in the Transaction Agreement. Moreover, none
of representations, warranties or pre-closing covenants of
Iridium Holdings contained in the Transaction Agreement will
survive the closing of the Acquisition, so our rights to pursue
a remedy for breach of any such representations, warranties or
pre-closing covenants will terminate upon the closing of the
Acquisition. Any losses realized in connection with the breach
of any representation, warranty, or covenant by Iridium Holdings
may have a material adverse effect on our financial condition
and results of operation.
If any of the Sellers have breached any of their
representations, warranties or covenants set forth in the
Transaction Agreement, our remedies for losses may be limited
and we may be limited in our ability to collect for such
losses.
Each Seller has agreed to indemnify us for breaches of its
individual representations, warranties and covenants, subject to
certain limitations, including that each Seller’s maximum
liability for all indemnification claims against it will not
exceed the sum of (i) the cash consideration received by
such Seller and (ii) the product of the number of shares of
our common stock received by such Seller and $10.00. Except for
the pledge arrangements we have entered into with the sellers of
the “blocker” holding companies (described below),
there are no escrow or other similar arrangements with any of
the Sellers and, in the event we suffer losses from a breach of
a Seller’s representations, warranties or covenants, there
can be no assurances that such Seller will have the cash
consideration or shares of our common stock received by such
Seller, or other available assets, to compensate us for our
losses. Any losses realized in connection with the breach of any
representation, warranty or covenant by any seller may have a
material adverse effect on our financial condition and results
of operations.
Certain Sellers under the Transaction Agreement hold their
interests in Iridium Holdings shares via “blocker”
corporations, and in those circumstances we are purchasing
ownership of those “blocker” corporations (Baralonco
and Syncom) instead of directly purchasing the Iridium
Holdings units held by such “blocker” corporations.
After the closing of the Acquisition, Baralonco and Syncom will
become our wholly-owned subsidiaries. Each of the sellers of
Baralonco and Syncom have agreed to indemnify us for the
pre-closing tax liabilities of Baralonco and Syncom
respectively, subject to certain limitations. The maximum
liability for the seller of Syncom shall not exceed
$3.0 million and the maximum liability for the seller of
Baralonco shall not exceed $15.0 million. In support of
their respective indemnity obligations under the Transaction
Agreement, the seller of Syncom has agreed to pledge
300,000 shares of our common stock it will receive at
closing of the Acquisition for a period of nine months
post-closing and the seller of Baralonco has agreed to pledge
1.5 million shares of our common stock it will receive at
closing of the Acquisition for a period of two years
post-closing. These pledged shares may not fully cover all
pre-closing tax liabilities of Baralonco and Syncom. The failure
of the pledged shares to fully cover any pre-closing tax
liabilities of Baralonco or Syncom may have a material adverse
effect on our financial condition and results of operations.
The transaction costs associated with the Acquisition will
be substantial, whether or not the Acquisition is
completed.
We have already incurred significant costs, and expect to incur
significant additional costs, associated with the Acquisition,
whether or not the Acquisition is completed. These costs will
reduce the amount of cash otherwise available for the payment of
Iridium Holdings’ debt and other corporate purposes. We
estimate that we will incur direct transaction costs of
approximately $12.3 million associated with the Acquisition
and related transactions. There is no assurance that the actual
costs may not exceed these estimates. Any actual costs incurred
by our company in excess of our estimates may have a material
adverse effect on our financial condition and results of
operations.
The completion of the Acquisition could result in
disruptions in business, loss of clients or contracts or other
adverse effects to Iridium Holdings’ business
operations.
The completion of the Acquisition may cause disruptions,
including potential loss of clients and other business partners,
in the business of Iridium Holdings, which could have material
adverse effects on the combined post-closing company’s
business and operations. Although we believe that Iridium
Holdings’ business relationships are and will remain stable
following the Acquisition, Iridium Holdings’ clients and
other business partners, in response to the completion of the
Acquisition, may adversely change or terminate their
relationships with us following the closing of the Acquisition,
which could have a material adverse effect on our business or
that of Iridium Holdings following the closing of the
Acquisition.
The completion and timing of the Acquisition is subject to
the receipt of approvals from government entities.
Completion of the Acquisition is conditioned upon, among other
things, the receipt of certain regulatory approvals, including
antitrust approval under the
Hart-Scott-Rodino
Antitrust Improvement Act of 1976, as amended, which was
obtained on October 10, 2008, and the approval of the FCC,
which was received on August 14, 2009. FCC approval was
conditioned on compliance by Iridium Holdings, Iridium Carrier
Holdings LLC, GHQ, and their respective subsidiaries and
affiliates with the commitments and undertakings set forth in
the National Security Agreement. The FCC’s Order approving
the Acquisition was effective immediately upon release, but is
subject to reconsideration by the International Bureau
and/or
review by the FCC. If no third party seeks reconsideration or
review and the International Bureau does not act to reconsider
the Order on its own motion by September 14, 2009, and the
FCC does not act to review the Order on its own motion by
September 23, 2009, the Order will become a final order and
thus will no longer be subject to reconsideration or review. No
assurance can be given that the Order will not be subject to
reconsideration or review prior to its becoming a final order.
The
FCC also noted in the Order that the record did not contain
sufficient information to determine whether a previous
investment by Baralonco Limited in Iridium Carrier Services LLC,
at the time it was made, fell within the parameters specified in
the FCC’s order in 2002 authorizing foreign investment in
Iridium (the “2002 order”). Accordingly, the FCC
stated that its grant of the Applications is without prejudice
to any enforcement action by the FCC for non-compliance with the
Communications Act of 1934, as amended, the FCC’s rules and
regulations, and the 2002 order. See “Iridium Holdings
Business—Regulatory Matters.”
We have entered into and may enter into future agreements
to repurchase shares of common stock from a limited number of
our stockholders and the purchase price paid may be higher than
what other stockholders could receive either by voting against
the Acquisition and exercising conversion rights or selling
their shares in the market.
On September 2, 2009, we announced that we had entered into
agreements through privately negotiated transactions with
certain of our stockholders as a result of which
10,395,763 shares of our common stock will be repurchased
upon closing of the Acquisition. The agreements provide that we
will repurchase the shares for a price per share equal to the
greater of $10.10 per share and the price per share of our
common stock in this offering. Prior to the closing of the
Acquisition, we may enter into additional Forward Purchases.
Consummation of all Forward Purchases will be subject to the
closing of the Acquisition. The Forward Purchases we have
entered into to date have, and any future Forward Purchases are
expected to involve the repurchase of specified amounts of our
outstanding common stock from a limited number of our
stockholders who we believe are focused on fixed income like
returns and would seek to exit their investment in us in
connection with or shortly following the closing of the
Acquisition. We expect that the purchase price for the Forward
Purchases would be at least equal to the amount those
stockholders could receive by voting against the Acquisition and
exercising conversion rights and the purchase price may be
higher than what other stockholders could receive either by
voting against the Acquisition and exercising conversion rights
or selling their shares in the market.
After we complete the Acquisition, our only material
assets will be the units of Iridium Holdings, and we will
accordingly be dependent upon distributions from Iridium
Holdings to pay our expenses and taxes.
After the completion of the Acquisition, we will be a holding
company and will conduct all of our operations through our
subsidiary, Iridium Holdings and its subsidiaries. We will have
no material assets other than our direct and indirect ownership
of Iridium Holdings’ units, and no independent means of
generating revenue. To the extent we need funds and Iridium
Holdings is restricted from making distributions under
applicable law or regulation or any other agreement, or is
otherwise unable to provide such funds, we may have difficulty
meeting our corporate obligations, which would materially
adversely affect our business, liquidity, financial condition
and results of operations.
Risks
Associated with Our Securities
An active trading market for our common stock may not
develop, and you may not be able to sell your common stock at or
above your purchase price.
An active trading market for shares of our common stock may not
develop or be sustained following the Acquisition and this
offering. We intend to seek to have shares of our common stock
approved for listing on NASDAQ following the pricing of this
offering. If an active trading market does not develop, you may
have difficulty selling your shares of common stock at an
attractive price. You may not be able to sell your common stock
at or above your purchase price, or at any other price or at the
time that you would like to sell.
The market price of our common stock may be
volatile.
The trading price of our common stock may be subject to
substantial fluctuations. Factors affecting the trading price of
our common stock may include:
•
failure in the performance of our current or future satellites
or a delay in the launch of Iridium NEXT;
•
failure to obtain adequate financing in a timely manner;
•
actual or anticipated variations in our operating results,
including termination or expiration of one or more of our key
contracts, or a change in purchasing levels under one or more of
our key contracts;
•
stockholders with registration rights exercising such
registration rights and selling a large number of shares of our
common stock;
•
changes in financial estimates by industry analysts, or any
failure by us to meet or exceed any such estimates, or changes
in the recommendations of any industry analysts that elect to
follow our common stock or the common stock of our competitors;
•
actual or anticipated changes in economic, political or market
conditions, such as recessions or international currency
fluctuations;
•
actual or anticipated changes in the regulatory environment
affecting our industry;
•
changes in the market valuations of our competitors; and
•
announcements by our competitors regarding significant new
products or services or significant acquisitions, strategic
partnerships, divestitures, joint ventures or other strategic
initiatives.
The trading price of our common stock might also decline in
reaction to events that affect other companies in our industry
even if these events do not directly affect us. If the market
for stocks in our industry, or the stock market in general,
experiences a loss of investor confidence, the trading price of
our common stock could decline for reasons unrelated to our
business, financial condition or results of operations. In
addition, the trading volume for our common stock has been low.
Sales of significant amounts of shares of our common stock in
the public market could lower the market price of our stock.
We may refuse to sell and deliver securities to a
particular investor or investors in order to comply with
limitations imposed on us by the FCC.
It is possible that purchases of securities in this offering by
certain investors would result in the occurrence of an FCC
Limitation (as defined under “Notice to Investors”).
If we determine that the sale of securities to any investor
would result in an FCC Limitation, we may exercise our right
under our proposed second amended and restated certificate of
incorporation to restrict ownership of our common stock by such
investor. Our proposed second amended and restated certificate
of incorporation also gives us the right to request from our
stockholders or proposed stockholders (by transfer of stock or
otherwise), certain information, including information relating
to such stockholder’s or proposed stockholder’s
citizenship, affiliations and ownership or interest in other
companies, if we believe that such stockholder’s or
proposed stockholder’s ownership of our securities may
result in an FCC Limitation. If we do not receive the
information we request from any stockholder or proposed
stockholder or conclude that a person’s ownership or
proposed ownership or the exercise by any person of any
ownership right may result in an FCC Limitation, we will have
the right to, and until we determine in our sole discretion that
no
FCC Limitation will occur: (i) refuse to permit a transfer
of stock to a proposed stockholder; (ii) suspend rights of
stock or equity ownership which could cause an FCC Limitation;
and/or
(iii) redeem our common stock or preferred stock held by
any person.
We intend to delist our securities on the NYSE Amex, and
NASDAQ may not approve our listing application or may
subsequently delist our securities, which could make it more
difficult for our stockholders to sell their securities and
subject us to additional trading restrictions.
Our securities are currently listed on the NYSE Amex. We intend
to voluntarily delist our securities on the NYSE Amex and seek
to have our securities approved for listing on NASDAQ following
the pricing of this offering. We cannot assure you that our
securities will be approved for listing on NASDAQ or that NASDAQ
will not subsequently delist our securities. Additionally, until
such time as we voluntarily delist from the NYSE Amex in
connection with the Acquisition, the NYSE Amex may require us to
file a new initial listing application and meet its initial
listing requirements as opposed to its more lenient continued
listing requirements. We cannot assure you that we will be able
to meet those initial listing requirements at that time.
If we fail to have our securities listed on NASDAQ, and if the
NYSE Amex delists our securities from trading, our stockholders
may face significant consequences including:
•
limited availability for market quotations for our
securities; and
•
reduced liquidity with respect to our securities.
In addition, we will face a decreased ability to issue
additional securities or obtain additional financing in the
future, which will have a material adverse effect on our
business, financial condition and results of operations.
We do not expect to pay dividends on our common stock in
the foreseeable future.
We do not currently pay cash dividends on our common stock. Any
future dividend payments are within the discretion of our board
of directors and will depend on, among other things, our results
of operations, working capital requirements, capital expenditure
requirements, financial condition, contractual restrictions,
business opportunities, anticipated cash needs, provisions of
applicable law and other factors that our board of directors may
deem relevant. We may not generate sufficient cash from
operations in the future to pay dividends on our common stock.
We may issue shares of preferred stock or debt securities
with greater rights than our common stock.
Our proposed second amended and restated certificate of
incorporation authorizes our board of directors to issue one or
more series of preferred stock and set the terms of the
preferred stock without seeking any further approval from
holders of our common stock. Pursuant to our proposed second
amended and restated certificate of incorporation, there are
2.0 million shares of preferred stock authorized but none
issued. Any preferred stock that is issued may rank ahead of our
common stock in terms of dividends, priority and liquidation
premiums and may have greater voting rights than holders of our
common stock. In addition, we may issue debt securities that
accrue interest and have priority over our common stock with
respect to liquidations.
If persons engage in short sales of our common stock, the
price of our common stock may decline.
Selling short is a technique used by a stockholder to take
advantage of an anticipated decline in the price of a security.
A significant number of short sales or a large volume of other
sales within a relatively short period of time can create
downward pressure on the market price of a
security. There are a significant number of warrants outstanding
and holders of warrants also may engage in short sales. Further
sales of common stock could cause even greater declines in the
price of our common stock due to the number of additional shares
available in the market, which could encourage short sales that
could further undermine the value of our common stock. Holders
of our securities could, therefore, experience a decline in the
value of their investment as a result of short sales of our
common stock.
If securities or industry analysts do not publish research
or publish inaccurate or unfavorable research about us after the
Acquisition, our stock price and trading volume could
decline.
After the Acquisition, the trading market for our common stock
will depend in part on the research and reports that securities
or industry analysts publish about us, including securities
analysts employed by our underwriters who are currently
prohibited under rules of FINRA from publishing research about
us, Iridium Holdings or its business for a limited period of
time. If no analysts elect to provide research coverage about
us, or if one or more of the analysts who elect to cover us, if
any, downgrades our stock or publishes inaccurate or unfavorable
research about us our stock price would likely decline. If one
or more of the analysts who elect to cover us, if any, ceases
coverage of our company or fails to publish reports on us
regularly, demand for our stock could decrease, which could
cause our stock price and trading volume to decline.
Provisions in our proposed second amended and restated
certificate of incorporation and amended and restated bylaws may
discourage takeovers, which could affect the rights of holders
of our common stock.
Provisions of our proposed second amended and restated
certificate of incorporation and amended and restated bylaws
could hamper a third party’s acquisition of our company or
discourage a third party from attempting to acquire control of
our company. These provisions include the ability of our board
of directors to issue preferred stock with voting rights or with
rights senior to those of the common stock without any further
vote or action by the holders of our common stock. In addition,
our amended and restated bylaws do not authorize our
stockholders to call special meetings of stockholders or to fill
vacancies on our board of directors. These provisions also could
make it more difficult for any of our stockholders to elect
directors and take other corporate actions, and could limit the
price that investors might be willing to pay in the future for
shares of our common stock.
We expect the net proceeds from the sale of our common stock to
be approximately $149,400,000 (based on an assumed offering
price of $10.00 per share of common stock, which was the closing
price for our common stock on the NYSE Amex on September 2,2009), or $173,400,000 if the underwriters exercise in full
their option to purchase additional shares of common stock,
after deducting the underwriting discounts and the estimated
expenses of the offering payable by us.
We intend to use the net proceeds from this offering to effect
the Forward Purchases, in connection with the Exchanges and for
general corporate purposes.
Our common stock is listed on the NYSE Amex under the symbol
“GHQ.” The following table sets forth, for the
quarters shown, the range of high and low composite prices of
our common stock as reported on the NYSE Amex since our common
stock commenced public trading on March 20, 2008. The last
reported sales price of our common stock on the NYSE Amex on
September 2, 2009 was $10.00 per share.
As of September 2, 2009, there was one holder of record of
our common stock. We intend to seek to have the shares of our
common stock approved for listing on NASDAQ following the
pricing of this offering.
Since our IPO and the listing of our shares on the NYSE Amex, we
have not paid dividends on our common stock and do not intend to
pay any dividends prior to the completion of the Acquisition.
After we complete the Acquisition, the payment of dividends will
depend on our revenues and earnings, if any, our capital
requirements and our general financial condition. The payment of
dividends after the Acquisition will be within the discretion of
our board of directors at that time. Our board of directors
currently intends to retain any earnings for use in our business
operations and, accordingly, we do not anticipate that our board
of directors will declare any dividends in the foreseeable
future. In addition, our ability to pay dividends may be limited
by restrictions contained in our debt agreements.
The following table sets forth our capitalization as of
June 30, 2009 on an actual basis and as adjusted to give
effect to (i) the issuance of approximately
30,688,431 shares of our common stock in connection with
the Acquisition and the Exchanges, assuming
1,244,931 shares of our common stock are issued in the
Exchanges, (ii) the forfeiture of 1,441,176 founding
stockholder’s shares, 8,369,533 founder warrants and
4,000,000 private placement warrants, (iii) the Deferred
Underwriting Commission Forfeiture and (iv) the Banc of
America Warrant Repurchase (collectively, the
“Transactions”) and as further adjusted to give effect
to this offering and the Forward Purchase of
10,395,763 shares of our common stock pursuant to the
agreements we announced on September 2, 2009. For purposes
of calculating this information, we have assumed no exercise of
our current warrants and restructured warrants and have not
given effect to the conversion of the $22.9 million note
held by Greenhill Europe into 1,946,500 shares of our
common stock. We made two alternative sets of assumptions:
•
Assuming Minimum Conversion: This presentation assumes that no
GHQ stockholders seek to convert their IPO shares into a pro
rata portion of the trust account; and
•
Assuming Maximum Conversion: This presentation assumes that GHQ
stockholders holding 30% of the IPO shares less one share
(11,999,999 shares) vote against the Acquisition and elect
to exercise their conversion rights.
See “Prospectus Supplement Summary—The
Acquisition—Stockholder Approval of Initial Business
Combination and other Closing Conditions.”
You should read the information set forth in the table below in
conjunction with our “Unaudited Pro Forma Condensed
Combined Financial Data” and “Management’s
Discussion and Analysis of Financial Condition and Results of
Operations for Iridium Holdings” included elsewhere in this
prospectus supplement, “Management’s Discussion and
Analysis of Financial Condition and Results of Operations”
and the financial statements and notes thereto set forth in
GHQ’s Annual Report on
Form 10-K
for the fiscal year ended December 31, 2008, as amended,
and our Quarterly Report on
Form 10-Q
for the quarter ended June 30, 2009, as amended, and
Iridium Holdings’ financial statements and related notes
beginning on
page F-33
of our Proxy Statement on Schedule 14A filed with the SEC
on August 28, 2009.
Preferred stock, $0.0001 par value, 1.0 million shares
authorized; none issued or outstanding (c)
—
—
—
—
—
Common stock, $0.001 par value, 200.0 million shares
authorized; 48.5 million shares issued and
outstanding (c)
49
79
85
67
73
Additional paid-in capital
274,911
656,411
700,808
541,486
585,883
Retained earnings
1,668
1,668
1,668
1,668
1,668
Total stockholders’ equity
276,628
658,158
702,561
543,221
587,624
Total capitalization
$
276,628
$
731,601
$
776,004
$
616,664
$
661,067
(a)
Assumes an offering price of $10.00
per share of common stock, which was the closing price for our
common stock on the NYSE Amex on September 2, 2009, other
than for purposes of the Forward Purchases, which assume a
purchase price of $10.10 per share of common stock, an
underwriting discount of 6.0% and estimated expenses of the
offering payable by us of $1.0 million.
(b)
This includes the
$22.9 million note held by Greenhill Europe, which is
convertible into 1,946,500 shares of our common stock. The
earliest date that Greenhill Europe can convert the convertible
note is October 24, 2009.
(c)
Following the Acquisition, our
proposed second amended and restated certificate will become
effective, which authorizes the issuance of 300.0 million
shares of common stock, par value $0.001, and 2.0 million
shares of preferred stock, par value $0.0001.
The following selected historical financial data for each of the
three years in the period ended December 31, 2008 was
derived from Iridium Holdings’ audited financial statements
and the financial information for the six months ended
June 30, 2008 and 2009 was derived from Iridium
Holdings’ unaudited condensed consolidated financial
statements. Iridium Holdings’ unaudited condensed
consolidated financial statements reflect all adjustments
necessary to state fairly its financial position at
June 30, 2008 and 2009 and its income and cash flows for
the six months ended June 30, 2008 and 2009. The
information for the years ended December 31, 2004 and 2005
was derived from Iridium Holdings’ audited financial
statements. As described in footnote (a) below, the
consolidated balance sheet as of December 31, 2008 and the
consolidated statements of income for the years ended
December 31, 2008 and 2007 have been restated to give
effect to certain reclassification adjustments. Interim results
are not necessarily indicative of results for the full year and
historical results are not necessarily indicative of results to
be expected in any future period. The selected financial data
below should be read in conjunction with Iridium Holdings’
financial statements and related notes beginning on
page F-33
of GHQ’s Proxy Statement on Schedule 14A filed with
the SEC on August 28, 2009 and “Management’s
Discussion and Analysis of Financial Condition and Results of
Operations for Iridium Holdings” included in this
prospectus supplement. The selected financial data is historical
data for Iridium Holdings on a stand alone basis. The following
selected financial data below is not necessarily indicative of
future results and should be read in conjunction with the
“Unaudited Pro Forma Condensed Combined Financial
Data” included in this prospectus supplement.
For financial data of GHQ, please see “Selected Historical
Financial Data of GHQ” in GHQ’s Proxy Statement on
Schedule 14A filed with the SEC on August 28, 2009.
For the year ended
December 31, 2008, the balance sheet has been restated to
reclassify as prepaid expenses and other current assets a
$1.4 million receivable from an insurer that was previously
classified as a reduction of the related claim liability
included in accrued expenses and other current liabilities. In
addition, in the restated consolidated statements of income for
the years ended December 31, 2008 and 2007, Iridium
Holdings has reclassified $6.0 million and
$3.4 million, respectively, of research and development
costs related to government funded research and development
service contracts as cost of services (exclusive of depreciation
and amortization). These reclassifications have no impact on
income from operations or net income.
(b)
Iridium Holdings’ selected
historical financial data for the year ended December 31,2004 does not include a reclassification of operating expenses
between “cost of services (exclusive of depreciation and
amortization)” and “selling, general and
administrative.” Therefore, Iridium Holdings’ selected
historical financial data for the operating expenses described
above for the year ended December 31, 2004 is not directly
comparable to the selected historical financial data for
subsequent periods.
(c)
Long-term obligations are presented
net of an unamortized discount associated with a commitment fee
to Motorola in connection with the transition services, products
and assets agreement. The balance of the unamortized discount
was $3.0 million at December 31, 2004,
$2.7 million at December 31, 2005, $2.3 million
at December 31, 2006, $1.8 million at
December 31, 2007, $1.3 million at December 31,2008, $1.5 million at June 30, 2008, and
$1.0 million at June 30, 2009.
(d)
“EBITDA” represents net
income before interest expense, interest income, income tax
provision and depreciation and amortization. EBITDA does not
represent and should not be considered as an alternative to net
income or cash flow from operations, as determined in accordance
with GAAP and Iridium Holdings’ calculations thereof may
not be comparable to similarly entitled measures reported by
other companies. Iridium Holdings presents EBITDA because it
believes it is a useful indicator of its profitability. Iridium
Holdings’ management uses EBITDA principally as a measure
of its operating performance and believes that EBITDA is useful
to investors because it is frequently used by securities
analysts, investors and other interested parties in their
evaluation of companies in industries similar to its own.
Iridium Holdings also believes EBITDA is useful to its
management and investors as a measure of comparative operating
performance between time periods and among companies as it is
reflective of changes in pricing decisions, cost controls and
other factors that affect operating performance. Iridium
Holdings’ management also uses EBITDA for planning
purposes, including the preparation of its annual operating
budget, financial projections and compensation plans.
EBITDA does not represent and
should not be considered as an alternative to results of
operations under GAAP and has significant limitations as an
analytical tool. Although Iridium Holdings uses EBITDA as a
measure to assess the performance of its business, the use of
EBITDA is limited because it excludes certain material costs.
For example, it does not include interest expense, which is a
necessary element of its costs and ability to generate revenue,
because Iridium Holdings has borrowed money in order to finance
its operations. Because Iridium Holdings uses capital assets,
depreciation expense is a necessary element of its costs and
ability to generate revenue. Because EBITDA does not account for
these expenses, its utility as a measure of
Iridium Holdings’ operating
performance has material limitations. As a limited liability
company that is treated as a partnership for federal income tax
purposes, Iridium Holdings is generally not subject to federal
income tax directly and therefore no adjustment is required for
income taxes. Because of these limitations, Iridium
Holdings’ management does not view EBITDA in isolation or
as a primary performance measure and also uses other measures,
such as net income, revenue and operating profit, to measure
operating performance.
The following is a reconciliation of EBITDA to net income:
The following table details certain
items, which are included in EBITDA: non-recurring expenses
relating to the Acquisition and expenses incurred in the
development of Iridium Holdings’ second generation
constellation, Iridium NEXT. This table does not represent and
should not be considered as an alternative to net income or cash
flow from operations, as determined in accordance with GAAP and
Iridium Holdings’ calculations thereof may not be
comparable to similarly entitled measures reported by other
companies. Iridium Holdings believes this table, when reviewed
in connection with its presentation of EBITDA provides another
useful tool to investors and its management for measuring
comparative operating performance between time periods and among
companies as it is further reflective of cost controls and other
factors that affect operating performance. In addition to
EBITDA, Iridium Holdings’ management assesses the
adjustments presented in this table when preparing its annual
operating budget, financial projections and compensation plans.
Because of the significant expenses resulting from the above
mentioned Acquisition and Iridium NEXT, Iridium Holdings
believes that the presentation of the adjustments relating to
acquisition and Iridium NEXT expenses enables its management and
investors to assess the impact of such expenses on its operating
performance and provides a consistent measure of its operating
performance for periods subsequent to the Acquisition and the
full deployment of Iridium NEXT.
This table is not intended to
comply with GAAP and has significant limitations as an
analytical tool, and you should not consider it in isolation, or
as a substitute for analysis of Iridium Holdings’ results
of operations as calculated under GAAP. Although Iridium
Holdings uses this table as a financial measure to assess the
performance of its business, the use of this table is limited
because, in addition to the costs excluded in its presentation
of EBITDA, it excludes certain material costs that Iridium
Holdings has incurred over the periods presented. Because this
table does not account for these expenses, its utility as a
measure of Iridium Holdings’ operating performance has
material limitations.
EBITDA, as defined above, was
decreased by the following non-recurring and certain other
items, each of which is further discussed below:
Consists of non-recurring legal,
regulatory and accounting expenses resulting from the
Acquisition.
(2)
Consist of expenses, net of
customer revenues, incurred in connection with the design,
manufacture and deployment of Iridium NEXT, including certain
milestone payments paid to the two companies vying to serve as
the prime system contractor. Iridium Holdings expects to incur
such expenses through 2016 until the deployment of the new
constellation, with the majority of these expenses incurred
during the capital intensive launch phase between 2013 and 2016.
In the future, Iridium Holdings may capitalize a portion of
these costs.
The following unaudited pro forma condensed combined balance
sheet as of June 30, 2009 and the unaudited pro forma
condensed combined statements of operations for the six months
ended June 30, 2009 and for the year ended
December 31, 2008 are based on the historical financial
statements of GHQ and Iridium Holdings after giving effect to
the Acquisition. The Acquisition will be accounted for using the
acquisition method of accounting.
The unaudited pro forma condensed combined statements of
operations for the six months ended June 30, 2009 and for
the year ended December 31, 2008 give effect to the
Acquisition as if it had occurred on January 1, 2008. The
unaudited pro forma condensed combined balance sheet as of
June 30, 2009 assumes that the Acquisition took place on
June 30, 2009.
The unaudited condensed combined balance sheet and statement of
operations as of and for the six months ended June 30, 2009
were derived from GHQ’s unaudited condensed financial
statements and Iridium Holdings’ unaudited condensed
consolidated financial statements as of and for the six months
ended June 30, 2009. The unaudited condensed statement of
operations for the year ended December 31, 2008 was derived
from GHQ’s and Iridium Holdings’ audited statements of
income for the year ended December 31, 2008. See the
financial statements and notes thereto set forth in GHQ’s
Annual Report on
Form 10-K
for the fiscal year ended December 31, 2008, as amended,
and GHQ’s Quarterly Report on
Form 10-Q
for the quarter ended June 30, 2009, as amended, and
Iridium Holdings’ financial statements and related notes
beginning on
page F-33
of GHQ’s Proxy Statement on Schedule 14A filed with
the SEC on August 28, 2009.
GHQ will consummate the Acquisition only if (i) holders of
a majority of the IPO shares voting in person or by proxy
approve the Acquisition and (ii) stockholders holding no
more than 30% of the IPO shares less one share exercise their
conversion rights. The unaudited pro forma condensed combined
financial statements have been prepared using the assumptions
below with respect to the number of outstanding shares of our
common stock:
•
Assuming Minimum Conversion: This presentation assumes that no
GHQ stockholders seek to convert their IPO shares into a pro
rata portion of the trust account; and
•
Assuming Maximum Conversion: This presentation assumes that GHQ
stockholders holding 30% of the IPO shares less one share
(11,999,999 shares) vote against the Acquisition and elect
to exercise their conversion rights.
The pro forma condensed combined financial statements reflect
management’s best estimate of the fair value of the
tangible and intangible assets acquired and liabilities assumed
based on a preliminary valuation study performed by an
independent third-party valuation firm based on information
currently available. As final valuations are performed,
increases or decreases in the fair value of assets acquired and
liabilities assumed will result in adjustments, which may be
material, to the balance sheet
and/or
statement of operations.
As required, the unaudited pro forma condensed combined
financial data includes adjustments which give effect to the
events that are directly attributable to the Acquisition,
expected to have a continuing impact and are factually
supportable. Hence any planned adjustments affecting the balance
sheet, statement of operations or changes in common stock
outstanding, subsequent to the assumed closing date of the
Acquisition are not included. In particular, the unaudited pro
forma condensed combined financial data does not reflect any pro
forma adjustments relating to Forward Purchases. See
“Summary—Founders’ Securities Forfeiture,
Deferred Underwriting Commission, Forward Purchases and Warrant
Repurchases and Exchanges.”
The unaudited pro forma condensed combined financial statements
are provided for informational purposes only and are subject to
a number of uncertainties and assumptions and do not purport to
represent what the companies’ actual performance or
financial position would have been had the Acquisition occurred
on the dates indicated and does not purport to indicate the
financial position or results of operations as of any future
date or for any future period. Please refer to the following
information in conjunction with the accompanying notes to these
pro forma financial statements, “Management’s
Discussion and Analysis of Financial Condition and Results of
Operations for Iridium Holdings” included elsewhere in this
prospectus supplement, “Management’s Discussion and
Analysis of Financial Condition and Results of Operations”
and the financial statements and notes thereto set forth in
GHQ’s Annual Report on
Form 10-K
for the fiscal year ended December 31, 2008, as amended,
and our Quarterly Report on
Form 10-Q
for the quarter ended June 30, 2009, as amended, and
Iridium Holdings’ financial statements and related notes
beginning on
page F-33
of our Proxy Statement on Schedule 14A filed with the SEC
on August 28, 2009.
Notes to
Unaudited Condensed Combined Pro Forma Financial
Statements
1.
Description
of the Acquisition and Basis of Presentation
The
Acquisition
On September 22, 2008, GHQ entered into a Transaction
Agreement, as amended on April 28, 2009, with Iridium
Holdings and its members whereby GHQ agreed to purchase,
directly or indirectly, 100% of Iridium Holdings member units
(Class A and Class B) for 29.4 million
shares of our common stock, $77.1 million in cash, subject
to certain adjustments, and, within 90 days of the closing
of the Acquisition, a tax benefit payment of $25.5 million
in cash to sellers (other than the sellers of the equity of
Baralonco and Syncom), if Iridium Holdings has in effect a valid
IRC Section 754 election with respect to the taxable year
in which the closing occurs. Upon the closing of the
Acquisition, Iridium Holdings will become a subsidiary of GHQ
and GHQ will be renamed “Iridium Communications Inc.”
Pursuant to the Transaction Agreement, GHQ will acquire two
entities, Baralonco and Syncom, which are holders of a
significant number of Iridium Holdings units. After the closing
of the Acquisition, Baralonco and Syncom will become
wholly-owned subsidiaries of GHQ. No pro forma adjustments have
been made for the acquisition of Syncom and Baralonco because,
although they currently have cash and certain immaterial assets
and liabilities, the Transaction Agreement contemplates that
these entities will have no assets or liabilities at the closing
other than units of Iridium Holdings. The only historical
operations of these entities have been the ownership of units of
Iridium Holdings and, in the case of Baralonco, certain
previously disposed investments.
In connection with the terms of the Acquisition, all outstanding
equity awards of Iridium Holdings will immediately vest upon the
closing of the Acquisition. The estimated reduction to Iridium
Holdings’ equity at the close of the Acquisition related to
the accelerated vesting is approximately $2.6 million.
Following the closing of the Acquisition, GHQ will record a
compensation charge in the amount $1.3 million and a
capital contribution related to the transfer at cost of the
founding stockholder’s units to certain of GHQ’s
directors. The impact of the acceleration of Iridium
Holdings’ equity incentive awards and GHQ’s
compensation charge and related capital contribution are not
reflected in the pro forma condensed combined financial
statements.
On October 24, 2008, Greenhill Europe purchased a
convertible note for $22.9 million in cash from Iridium
Holdings. Greenhill Europe has the option to convert the
convertible note into Class A units of Iridium Holdings
(which are exchangeable into shares of our common stock) upon
the later of (i) October 24, 2009 and (ii) the
earlier of closing of the Acquisition pursuant to the
Transaction Agreement or the termination of the Transaction
Agreement. In addition, in the event of (a) a change of
control of Iridium Holdings (as defined in the note) or
(b) the termination of the Transaction Agreement, after
January 31, 2013, Greenhill Europe has the right to redeem
the note in full. The convertible note matures in seven years
and bears interest at 5% per annum, compounded quarterly,
beginning on April 24, 2009. The pro forma condensed
combined financial statements do not reflect the convertible
note on an as-converted basis because the earliest date that
Greenhill Europe can convert the convertible note is
October 24, 2009.
In conjunction with the issuance of the convertible note,
Iridium Holdings executed amendments to the first and second
lien credit facilities (the “Credit Amendments”),
which were completed in October 2008. Following the execution of
the Credit Amendments, a net distribution of $36.3 million
was made to current Iridium Holdings unit holders. Iridium
Holdings also prepaid $22.0 million of the outstanding
balance on the first lien term loan at the signing of the Credit
Amendments. The Credit Amendments provide for: (a) an
increase in the applicable interest rate margin for Eurodollar
loans by 75 basis points (5% for first lien and 9%
for second lien); (b) an increase in permitted capital
expenditures for 2009; (c) a prepayment of
$80.0 million of the outstanding balance on the first lien
term loan under the agreement by Iridium Holdings if the
Acquisition is consummated (as required by the Credit
Amendments, $15.0 million of this amount was prepaid on
June 11, 2009 because stockholder approval was not obtained
by June 29, 2009); and (d) an amendment to the
definition of “Change of Control” under the agreement
to include the public company in existence after the Acquisition.
On June 2, 2009, GHQ entered into an agreement with Banc of
America, the underwriter of GHQ’s IPO offering, and its
affiliate, pursuant to which Banc of America has agreed to
reduce the deferred underwriting commission payable upon the
closing of the Acquisition by approximately $8.2 million.
Accordingly, the deferred underwriting commissions payable upon
closing by GHQ to Banc of America will range between
approximately $3.1 million (assuming maximum conversion) to
$8.2 million (assuming no conversion) depending upon the
number of stockholders who exercise their conversion rights. In
addition, Banc of America or its affiliate agreed to sell to
GHQ, immediately after the closing of the Acquisition,
approximately 3.7 million of GHQ warrants for approximately
$1.8 million.
On July 29, 2009, GHQ entered into Warrant Purchase
Agreements to repurchase
and/or
restructure approximately 26.8 million warrants issued in
GHQ’s IPO and to the founding stockholder, in privately
negotiated transactions, from certain of our Warrantholders,
subject to the closing of the Acquisition. As part of the
Warrant Purchase Agreements, GHQ agreed to purchase
approximately 12.4 million existing warrants issued in our
IPO for a total of approximately $3.1 million of cash and
approximately $12.4 million worth of our common stock, with
the number of shares of our common stock to be determined based
on the offering price per share of our common stock sold in this
offering (provided that the price per share of our common stock
in this offering shall be deemed to be the lesser of
(x) the actual price in this offering and (y) $10.00
per share of our common stock) and to restructure approximately
14.4 million existing warrants issued in GHQ’s IPO and
to enter into a new warrant agreement with respect to the
restructured warrants.
Basis of
Presentation
The unaudited pro forma condensed combined financial statements
have been prepared based on GHQ’s and Iridium
Holdings’ historical financial information. Certain
disclosures normally included in financial statements prepared
in accordance with generally accepted accounting principles in
the United States have been condensed or omitted as permitted by
SEC rules and regulations.
These unaudited pro forma condensed combined financial
statements are not necessarily indicative of the results of
operations that would have been achieved had the Acquisition
actually taken place at the dates indicated and do not purport
to be indicative of future financial condition or operating
results.
2.
Acquisition
Method
The pro forma condensed combined financial statements reflect
accounting for the Acquisition in accordance with the
acquisition method of accounting. Under the acquisition method,
the purchase price is allocated to the assets acquired and
liabilities assumed based on their estimated fair values, with
any excess of the purchase price over the estimated fair value
of the identifiable net assets acquired recorded as goodwill.
The fair value of GHQ’s shares of common stock issued was
calculated using GHQ’s closing stock price of $9.81 at
August 3, 2009. Daily closing prices for GHQ’s common
stock have ranged between $8.60 and $9.83 since GHQ’s
common stock began to trade publicly on March 20, 2008
through August 3, 2009. The consequence of a change in
stock price to the bottom or top end of
this range would adjust the fair value of GHQ’s common
stock issued as a result of the Acquisition downward by
$35.6 million or upward by $0.6 million, respectively,
with the offsetting amount being recorded to goodwill.
The following represents the purchase price of the Acquisition
(in millions):
Value of 29.4 million GHQ shares issued
$
288.8
Cash consideration
102.6
Purchase price
$
391.4
The following represents the allocation of the purchase price
(in millions):
Purchase price
$
391.4
Assets acquired and liabilities assumed:
Assets:
Property and equipment
$
390.1
Current assets
123.3
Goodwill
77.1
Identifiable intangible assets
54.2
Other assets
18.9
Total assets
$
663.6
Liabilities:
Senior term loan facility
$
(115.5
)
Deferred tax liability
(71.3
)
Other liabilities
(85.4
)
Total liabilities
$
(272.2
)
Net Assets
$
391.4
3.
Pro Forma
Adjustments and Assumptions
A)
Represents the cash component of the purchase price of
$102.6 million, consisting of a $77.1 million cash
payment and $25.5 million of tax benefit payments.
B)
Reflects the release of $400.9 million of GHQ investments
held in trust that will be available for the operating
activities of the combined company and distributions related to
the Acquisition. Possible uses for the remaining cash may
include the pay down of amounts due under the credit facilities
and capital expenditures for the development and expansion of
the combined company’s operations.
C)
Reflects revised deferred underwriting commissions of
$8.2 million as a liability of $3.1 million, with
$5.1 million included in common stock subject to possible
conversion. The deferred underwriting commissions will be
reduced pro rata as a result of the exercise of any stockholder
conversion rights. Accordingly, the deferred underwriting
commissions payable upon closing will range between
approximately $3.1 million (assuming maximum conversion) to
$8.2 million (assuming minimum conversion) depending upon
the number of stockholders who exercise their conversion rights.
D)
Pursuant to an agreement dated June 2, 2009 and conditioned
upon the closing of the Acquisition, GHQ will purchase
approximately 3.7 million warrants from Banc of America or
its affiliate for approximately $1.8 million. In addition,
GHQ has entered into agreements, conditioned upon the closing of
the Acquisition, to purchase approximately 12.4 million
warrants from current holders at a price of $1.25 consisting of
$0.25 in cash (or
approximately $3.1 million) and $1.00 in stock (in value
based on the lesser of the price per share of our common stock
in this offering and $10.00 per share). Combined, these
agreements would result in a cash reduction of
$4.9 million, an issuance of approximately 1.2 million
shares of common stock (based on an assumed offering price of
$10.00 per share) and a reduction of 16.1 million
outstanding warrants.
Also, pursuant to the Warrant Purchase Agreements, conditioned
upon the closing of the Acquisition, GHQ and current warrant
holders will restructure approximately 14.4 million
warrants to (i) increase the exercise price from $7.00 to
the lesser of 115% of the price per share of our common stock in
this offering and $11.50 per share; (ii) extend the
expiration date an additional two years to February 14,2015; and (iii) increase the price of our common stock at
which GHQ can redeem the restructured warrants to $18.00.
Included in this restructuring, Greenhill & Co., Inc.
has agreed to exchange 4.0 million warrants held by it into
the restructured warrants as described above. Also included in
this restructuring, GHQ’s chairman and chief executive
officer, Scott L. Bok, and its senior vice president, Robert H.
Niehaus, agreed to exchange 0.4 million warrants purchased
by them in GHQ’s IPO into the restructured warrants as
described above. No pro forma adjustments are required in
connection with the restructured warrants.
E)
Reflects the required prepayment of $65.0 million for
non-current portion of the outstanding balance on the first lien
term loan in connection with the closing of the Acquisition and
the write-off of $3.7 million of deferred financing costs.
Also, reflects the fair value adjustment to the credit
facilities of $0.1 million and $4.3 million (current
and non-current portion, respectively). The fair value of the
credit facilities was derived by multiplying the face amount by
the median of independent market data for debt trading on
June 30, 2009. The reduction in interest expense related to
the pay down of the credit facilities is $2.3 million and
$6.9 million for the six months ended June 30, 2009
and the year ended December 31, 2008, respectively.
Interest expense has been calculated based on the revised
interest rates set forth in the Credit Amendments.
F)
Reflects the payment of $11.4 million of fees to financial
advisors payable upon the closing of the Acquisition. Depending
upon the post-closing capitalization, the combined company will
be required to pay up to an additional $2.0 million of fees
to financial advisors.
G)
Reflects the pro forma impact of the preliminary fair value
adjustment to inventory acquired of $8.8 million.
H)
Reflects the pro forma impact of the acquired property and
equipment of Iridium Holdings. The preliminary fair value
adjustment and related depreciation is as follows (in millions):
Additional depreciation expense
For the six months
For the year
Historical
Fair value
ended June 30,
ended December
Remaining
amounts
Fair value
adjustment
2009
31, 2008
useful lives
$60.88
$
390.09
$
329.22
$
32.92
$
65.84
5
I)
Reflects the pro forma adjustment to deferred taxes which
represents the estimated impact of the pro forma adjustments at
a statutory tax rate of approximately 38.4%. A deferred tax
liability of $71.3 million has been reflected based on the
preliminary adjustment of $182.1 million (the excess of the
preliminary book step up of $464.1 million and the
preliminary tax step up of $282.0 million, plus the Iridium
Holdings book tax differences existing on the balance sheet
date). The book step up adjustment is determined based on the
excess of the fair value of the assets ($663.6 million)
over the book value of the assets ($199.5 million). The tax
step up of the assets is based upon IRC Section 743 and the
tax gain that the sellers (other than the sellers of the equity
of Baralonco or Syncom) will recognize in the Acquisition. The
book and tax step ups increase the basis of the assets. Under
FAS 109 and FAS 141R, the difference between the book
basis of the assets and the tax basis of the assets is treated
as a deferred tax item. A deferred tax asset adjustment of
$(1.5) million has
been reflected based on the elimination of the GHQ Acquisition
deferred tax asset that is no longer recoverable once the
business combination occurs. An income tax reserve of
$0.6 million has been reflected.
J)
Reflects the pro forma impact of the identified intangible
assets of Iridium Holdings which have been allocated to trade
names, customer relationships, spectrum / license agreements,
internally developed, internal use software and developed
technology assuming remaining useful lives of five years.
The preliminary fair value adjustment and related amortization
is as follows (in millions):
Amortization expense
For the six months
For the year
Historical
Fair value
ended June 30,
ended December
Remaining
Intangible
amounts
Fair value
adjustment
2009
31, 2008
useful lives
Customer relationships
$
0.00
$
39.43
$
39.43
$
3.94
$
7.89
5
Core/developed technology
$
0.00
$
5.35
$
5.35
$
0.53
$
1.07
5
Spectrum/license agreements
$
0.00
$
5.10
$
5.10
$
0.51
$
1.02
5
Trade names/marks
$
0.00
$
4.16
$
4.16
$
0.42
$
0.83
5
Internally developed software
$
0.00
$
0.17
$
0.17
$
0.02
$
0.03
5
Total
$
0.00
$
54.21
$
54.21
$
5.42
$
10.84
K)
Reflects the pro forma adjustment to goodwill of
$78.2 million, representing the excess of the purchase
price over the fair value of net assets to be acquired.
L)
Reflects the preliminary fair value adjustment to deferred
revenues of $(15.3) million. The deferred revenue liability
reflects fair value assumptions based on total costs to satisfy
the legal performance obligation assumed by GHQ. The fair value
is calculated as the present value of direct and indirect costs
required to service the obligation. It also includes an
estimated, normal profit margin of 18% based on the perspective
of a market participant. A risk-free rate of 4.5% was used
to discount the aforementioned figures to present value given
the fact that the obligation will be serviced over time
(generally a one-year period).
M)
Assuming minimum conversion, reflects the reclassification of
common stock subject to conversion to permanent equity. This
amount, which immediately prior to the Acquisition was being
held in trust, represents the value of 11,999,999 shares of
common stock, which may be converted into cash by GHQ
stockholders at an estimated $10.00 conversion price. The $10.00
conversion price was determined by forecasting the balance of
GHQ’s trust account at the time of the closing of the
Acquisition taking into account expected interest income on the
trust account balance, applicable taxes, and the expenses and
working capital needs of GHQ.
N)
Reflects the fair value of the 29.4 million shares to be
issued as consideration for Iridium Holdings. The shares were
valued using GHQ’s closing market price of its common stock
of $9.81 at August 3, 2009.
O)
Reflects the elimination of Iridium Holdings’ historical
net equity of approximately $(21.6) million as a result of
the Acquisition.
P)
Represents maximum conversion and that GHQ stockholders holding
30% of the IPO shares less one share (11,999,999 shares)
vote against the Acquisition and elect to exercise their
conversion rights and convert their shares of common stock
subject to conversion into cash at an estimated $10.00
conversion price.
Q)
Reflects the reduction of interest income related to the release
of cash from trust which would no longer earn interest.
R)
Reflects the increase of interest income earned at an average
annualized rate of 0.65% on the remaining cash after
distributions and payments related to the Acquisition are made
of $0.7 million and $1.5 million for the six months
ended June 30, 2009 and the year ended
December 31, 2008, respectively, assuming minimum
conversion. Also, reflects the reduction of interest income of
$(0.4) million and $(0.8) million for the six months
ended June 30, 2009 and for the year ended
December 31, 2008, respectively, assuming maximum
conversion.
S)
Reflects an income tax expense of $1.4 million and income
tax benefit of $2.5 million for the six months ended
June 30, 2009 and for the year ended December 31,2008, respectively, for the combined entity, assuming the
Acquisition occurred on January 1, 2008. The adjustments
are calculated based on the difference between the income tax
expense/(benefit) calculated under FAS 109 for the combined
entity and the income tax expense/(benefit) recorded under
FAS 109 in the separate entity financial statements. In the
separate entity financial statements, because Iridium Holdings
is a partnership for tax purposes, the entity is not subject to
income tax. Consequently, no income tax expense has been
recorded in its financial statements. The combined entity will
record income tax expense related to Iridium Holdings’
taxable income.
T)
Reflects an income tax benefit related to the pro forma
adjustments to interest income and expense of $0.1 million
and $0.3 million for the six months ended June 30,2009 and for the year ended December 31, 2008,
respectively, of the combined entity, assuming maximum
conversion.
U)
Pro forma earnings (loss) per share (EPS), basic and diluted,
are based on the following calculations of the number of shares
of common stock. Earnings (loss) per share is computed by
dividing net income (loss) by the weighted-average number of
shares of common stock outstanding during the period.
At the closing of the Acquisition, after giving effect to the
Exchanges described in footnote D above, there will be
approximately 13.7 million GHQ warrants outstanding with an
exercise price of $7.00 and approximately 14.4 million
restructured warrants outstanding with an exercise price equal
to the lesser of 115% of the price per share of our common stock
in this offering and $11.50 per share. The effect of the
14.4 million restructured warrants has not been considered
in these pro forma financial statements because the warrants are
out of the money.
The table below details the computation of basic weighted
average shares outstanding for the year ended December 31,2008 and the six months ended June 30, 2009 and the diluted
weighted average shares outstanding for the six months ended
June 30, 2009.
For the year ended December 31, 2008, there is a net loss.
Accordingly, EPS, basic and diluted, was determined using basic
average shares and the effects of the GHQ warrants with a $7.00
exercise price and the convertible note on an as-converted basis
have not been considered in diluted loss per share because the
warrants and convertible note would be anti-dilutive.
Issuance of GHQ shares as purchase consideration to Iridium
Sellers
29.4
29.4
Issuance of shares to Motorola (see note V below)
1.5
1.5
Founder shares forfeited
-1.4
-1.4
Issuance to current warrantholders as purchase consideration
1.2
1.2
Weighted average shares outstanding — basic
79.2
67.2
Effect of GHQ warrants with $7.00 exercise price (based on
treasury stock method)
4.1
4.1
Effect of convertible note on as-converted basis
1.9
1.9
Weighted average shares outstanding — diluted
85.2
73.2
V)
Iridium Holdings’ agreements with Motorola require
potential payments to be made to Motorola upon the occurrence of
a triggering event, distribution event, change of control or
other specified transactions. Iridium Holdings believes that it
is unclear whether and how any of the foregoing provisions were
intended to apply to a transaction such as the Acquisition. As a
result, Iridium Holdings contacted Motorola to discuss deleting
these provisions and Motorola has responded that it believes
that, in consideration for deleting these provisions, it should
receive approximately $3.9 million in cash and
1.5 million shares of our common stock and acceleration of
the $12.3 million of outstanding payment obligations (plus
$1.9 million of accrued interest and $1.3 million of
certain other potential fees) under the Transition Services,
Product and Asset Agreement (“TSA”) with Motorola and
the Senior Subordinated Term Loan Agreement (the “Note
Agreement”) with Motorola (of which $11.4 million had
been accrued on Iridium Holdings’ historical financial
statements as of June 30, 2009). Iridium Holdings and
Motorola are continuing to discuss an appropriate resolution
under these provisions of the Motorola agreements. Given the
uncertainty of the outcome of the discussions, the unaudited pro
forma condensed combined financial statements reflect
adjustments based on Motorola’s latest proposal. For more
information, see “Risk Factors—Iridium Holdings’
agreements with Motorola contain potential payment provisions
which may apply to the Acquisition; and Iridium Holdings and
Motorola are in discussions with respect to such provisions, the
outcome of which is uncertain.”
The following discussion and analysis of financial condition
and results of our operations relates to periods prior to the
closing of the Acquisition. Accordingly, the following
discussion and analysis of historical periods does not reflect
the significant impact that the Acquisition will have on us.
You should read the following discussion and analysis of our
financial condition and results of operations in conjunction
with our audited and unaudited consolidated financial statements
and the related notes beginning on
page F-33
of our Proxy Statement on Schedule 14A filed with the SEC
on August 28, 2009. The following discussion may contain
predictions, estimates and other forward-looking statements that
involve a number of risks and uncertainties, including those
discussed under “Risk Factors” and elsewhere in this
prospectus supplement. These risks could cause our actual
results to differ materially from any future performance
suggested below and also from the results suggested by the
“Unaudited Pro Forma Condensed Combined Financial
Data.” Accordingly, you should read “Information
Concerning Forward-Looking Statements,”“Risk
Factors” and “Unaudited Pro Forma Condensed Combined
Financial Data” appearing elsewhere in this prospectus
supplement.
For purposes of this Section, the terms “we,”“us” and “our” refer to Iridium Holdings LLC
and its subsidiaries.
Overview
We are the second largest provider of mobile voice and data
communications services via satellite, and the only provider of
mobile satellite communications services offering 100% global
coverage. Our satellite network provides communications services
to regions of the world where existing wireless or wireline
networks do not exist or are impaired, including extremely
remote or rural land areas, open ocean, the Polar Regions and
regions where the telecommunications infrastructure has been
affected by political conflicts or natural disasters. Demand for
our mobile satellite services and products is growing as a
result of the increasing need for reliable communications
services in all locations.
We offer voice and data communications services to the
U.S. and foreign governments, businesses, non-governmental
organizations and consumers via our constellation of 66 in-orbit
satellites, seven in-orbit spares and related ground
infrastructure, including a primary commercial gateway. We
utilize an interlinked mesh architecture to route traffic across
our satellite constellation using radio frequency crosslinks.
This unique architecture minimizes the need for ground
facilities to support the constellation, which facilitates the
global reach of our services and allows us to offer services in
countries and regions where we have no physical presence.
We sell our products and services to commercial end-users
exclusively through a wholesale distribution network,
encompassing approximately 65 service providers, 110 value-added
resellers and 45 value-added manufacturers, who either sell
directly to the end-user or indirectly through other service
providers, value-added resellers or dealers. These distributors
often integrate our products and services with other
complementary hardware and software and have developed over 200
unique applications for our products and services targeting
specific vertical markets. We expect that demand for our
services will increase as more applications are developed for
our products and services.
At June 30, 2009, our product and service solutions had
approximately 347,000 subscribers worldwide, which represented a
23.9% increase since June 30, 2008. Our subscriber base has
grown consistently since we reintroduced commercial services in
2001, growing at a compound annual growth rate of 40.1% between
December 31, 2001 (when we had approximately 30,000
subscribers worldwide) and December 31, 2008 (when we had
approximately 320,000 subscribers worldwide), and at a compound
annual growth rate of 27.8% between December 31, 2003 (when
we had approximately 94,000 subscribers worldwide) and
December 31, 2008. We have a diverse customer base,
including end-users in the following vertical markets:
land-based handset, maritime, aviation, asset tracking and
monitoring, or
machine-to-machine,
and government.
We expect continued growth in revenue from both commercial
services and U.S. government services in the future,
although we anticipate growth in U.S. government revenue to
be more moderate than growth from commercial revenue sources.
While we expect to continue to increase our number of
subscribers and revenue, we expect our future growth rate will
be slower than our historical growth rate. We expect our future
growth rate will be impacted by the current general economic
slowdown, increased competition over time, gradual maturation of
the satellite communications industry and the difficulty in
sustaining high growth rates as we increase in size. The recent
appreciation of the U.S. dollar may also negatively impact
our growth by increasing the cost of our products and services
in foreign countries. We also expect our subscriber equipment
revenue to decrease in the future as we decreases our price per
unit in order to drive an increase in our services revenue and
as a result of increased competition and the continued
maturation of the market.
We are the successor to Iridium LLC, a Delaware limited
liability company formed in 1996 by Motorola and several other
partners. Motorola launched Iridium LLC with the mission of
providing global mobile satellite services through a network of
66 LEO satellites, which was completed and deployed for a cost
of approximately $3.4 billion. Motorola invested
significantly in research and development, the acquisition of
spectrum and global licenses and in market development efforts
during the development of the constellation. Beginning in 1997,
after seven years of planning and development, Iridium LLC
successfully launched its constellation, including active
satellites and in-orbit spares. In November 1998, Iridium LLC
began offering commercial services principally focused on the
retail consumer market, launching the first commercially
available global satellite phone services. On August 13,1999, Iridium LLC filed voluntary petitions under
Chapter 11 of the Bankruptcy Code in the United States
Bankruptcy Court for the District of Delaware. Iridium LLC
remained in possession of its assets and properties and
continued to operate its businesses as a
debtor-in-possession.
On December 7, 2000, Iridium Holdings, our wholly owned
subsidiary, Iridium Satellite, and Iridium Constellation, a
wholly-owned subsidiary of Iridium Satellite, were organized as
limited liability companies under the laws of the State of
Delaware. On December 11, 2000, we acquired Iridium
LLC’s operating assets, including the satellite
constellation, certain portions of the terrestrial network,
ground spare satellites and real property. In addition, we also
acquired from Motorola, either outright or by license, the
intellectual property rights necessary to operate the system and
produce related equipment and took assignment of applicable
licenses from the FCC. In connection with the acquisition of
these assets, we entered into a transition services, products
and asset agreement with Motorola and an operations and
maintenance agreement with Boeing relating to the operations of
the constellation. We were also awarded our first services
contract with the DoD at this time. In March 2001, we
reintroduced commercial satellite services through our
subsidiary, Iridium Satellite. In 2002, we launched an
additional seven spare satellites into orbit.
On September 22, 2008, GHQ entered into a Transaction
Agreement, as amended on April 28, 2009, with us and our
members whereby GHQ agreed to purchase 100% of our member units
(Class A and Class B) for 29.4 million
shares of our common stock, $77.1 million in cash, subject
to certain adjustments, and, within 90 days of the closing
of the Acquisition, a tax benefit payment of $25.5 million
in cash to sellers (other than the sellers of the equity of
Baralonco and Syncom), if we have in effect a valid election
under Section 754 of the Internal Revenue Code of 1986, as
amended (the “Code”) with respect to the taxable year
in which the closing occurs. Upon
the closing of the Acquisition, we will become a subsidiary of
GHQ and GHQ will be renamed “Iridium Communications
Inc.” and continue as a publicly traded corporation.
The Acquisition will be accounted for as a business combination
and will be accounted for under the acquisition method of
accounting. Under the acquisition method of accounting, the
purchase price will be allocated to the tangible and
identifiable intangible assets acquired and liabilities assumed
based on their respective fair value, with the remainder being
allocated to goodwill. See “—Unaudited Pro Forma
Condensed Combined Financial Data.”
The impact of acquisition accounting is expected to result in an
increase in the carrying value of inventory, property and
equipment and intangible assets, and a decrease in deferred
revenue. Based on preliminary estimates, which are subject to
material revision, we expect the carrying value of inventory,
property and equipment, and intangible assets to increase by
approximately $8.8 million, $329.2 million and
$54.2 million, respectively, depreciation and amortization
expense to increase and commercial revenue to decrease as a
result of these acquisition accounting adjustments. We also
expect the increase in our carrying value of inventory will
increase the cost of subscriber equipment sales in future
periods. The effect of these adjustments on depreciation and
amortization will be to increase operating expenses and thereby
reduce operating profit and operating profit margin in future
periods, while the effect of these adjustments on cost of
subscriber equipment sales and commercial revenue will be to
increase operating expenses and thereby reduce operating profit
and operating profit margin for a period of up to
24 months. See “—Unaudited Pro Forma Condensed
Combined Financial Data.”
We will also record significant transaction-related expenses
during the quarter when the Acquisition closes, including an
estimated $2.6 million related to the accelerated vesting
of equity incentive awards for certain employees. In addition,
we have recorded $9.9 million of transaction costs and
expects to incur approximately $11.7 million of additional
transaction costs. We made a required prepayment, under our
first lien credit agreement of $15.0 million in June 2009
and will be required to prepay $65.0 million on closing of
the Acquisition which will cause interest expense to decrease in
the short term. However, our interest expense is expected to
increase significantly above historical levels in the future
when we incur additional debt to fund, in part, Iridium NEXT.
Additionally, following the closing of the Acquisition, GHQ will
record a compensation charge in the amount $1.3 million and
a capital contribution related to the transfer at cost of
founding stockholder’s units to certain of GHQ’s
directors. After the completion of the Acquisition, we will also
incur income taxes as we will no longer be treated as a
partnership for federal income tax purposes.
As discussed in Note 2 to the financial statements on
page F-40
of our Proxy Statement on Schedule 14A filed with the SEC
on August 28, 2009, the consolidated balance sheet as of
December 31, 2008 and the consolidated statements of income
for the years ended December 31, 2008 and 2007 have been
restated to give effect to certain reclassification adjustments.
For the year ended December 31, 2008, the balance sheet has
been restated to reclassify as prepaid expenses and other
current assets a $1.4 million receivable from an insurer
that was previously classified as a reduction of the related
claim liability included in accrued expenses and other current
liabilities. In addition, in the restated consolidated
statements of income for the years ended December 31, 2008
and 2007, we have reclassified $6.0 million and
$3.4 million, respectively, of research and development
costs related to government funded research and development
service contracts as cost of services (exclusive of depreciation
and amortization). These reclassifications have no impact on
income from operations or net income.
Material
Trends and Uncertainties
Both our industry and our customer base have been growing
rapidly as a result of:
•
demand for remote and reliable mobile communications services;
increased demand for communications services by the DoD and
disaster and relief agencies and emergency first responders;
•
a broad and expanding wholesale distribution network with access
to diverse and geographically dispersed niche markets;
•
a growing number of new products and services and related
applications;
•
improved data transmission speeds for mobile satellite service
offerings;
•
regulatory mandates requiring the use of mobile satellite
services, particularly among maritime end-users;
•
a general reduction in prices of mobile satellite services
equipment; and
•
the receipt of licenses in additional countries.
Nonetheless, we face a number of challenges and uncertainties,
including:
•
our ability to maintain the health, capacity, control and level
of service of our satellite network;
•
our ability to obtain capital and external funding to meet our
future capital requirements, on acceptable terms or at all-in
particular the funding for developing Iridium NEXT and related
ground infrastructure, products and services;
•
changes in general economic, business and industry conditions;
•
our reliance on a single primary gateway and satellite network
operations center;
•
the competition from other mobile satellite service providers
and, to a lesser extent, from the expansion of terrestrial based
cellular phone systems and related pricing pressures;
•
our ability to maintain our relationship with
U.S. government customers, particularly the DoD;
•
rapid and significant technological changes in the
telecommunications industry; and
•
reliance on our wholesale distribution network to market and
sell our products, services and applications effectively.
For more information, see “Material Trends and
Uncertainties” under the caption “Iridium Holdings
Management Discussion and Analysis of Financial Condition and
Results of Operations” in GHQ’s Proxy Statement on
Schedule 14A filed on August 28, 2009, incorporated by
reference herein.
We earn revenue primarily from: (i) the sale of commercial
mobile satellite services to third-party distributors, who
provide our product and service solutions to end-users, either
directly or indirectly through dealers; (ii) the sale of
mobile satellite services to U.S. government customers,
particularly the DoD; and (iii) sales of related voice and
data equipment capable of accessing our network.
From 2006 to 2008, our revenue increased at a compound annual
growth rate of 22.9%. Our revenue grew during that time
primarily due to:
•
increased overall subscribers resulting from heightened demand
for mobile satellite services across all vertical markets,
including emerging global markets, accelerated by increased
demand from U.S. government and relief agencies in the wake
of Hurricanes Katrina, Rita, Wilma and Ike, the Asian tsunami
and other natural disasters. Our total subscribers grew at a
compound annual growth rate of 35.5% during the period, from
174,219 on December 31, 2006 to 319,874 on
December 31, 2008;
•
the introduction of new product and service offerings,
particularly our Iridium 9601 short burst data modem and related
machine-to-machine
services, as well as the continued development of innovative and
value-added solutions and applications integrating our product
and service offerings by our distributors. Sales of our short
burst data modems grew from 14,650 in 2006 to 42,600 in 2008;
•
increased U.S. government revenue resulting from greater
demand from the DoD related to global security concerns. Our
U.S. government revenue grew at a compound annual growth
rate of 15.5% during the period, from $50.8 million in 2006
to $67.8 million in 2008;
•
increased subscriber growth resulting from the degradation of
Globalstar’s voice and data services as a result of
satellite failures and other problems relating to its
constellation, particularly in the North American market. We
view Globalstar as our primary competitor in North
America; and
•
an increase in access fees for our commercial services as well
as an increase in user fees for our U.S. government
customers.
During this period, a significant portion of our revenue was
generated from sales of voice and data equipment to our
distributors, including service providers, value-added resellers
and value added-manufacturers. U.S. government customers
purchase our equipment and related applications indirectly
through such distributors. Such revenue also includes previously
deferred equipment revenue. Through December 31, 2004, we
considered the sale of our equipment and services as a single
unit of accounting due primarily to the fact that our equipment
was not considered to have stand-alone value to end-users. As a
result, when equipment was sold, revenue from these transactions
was deferred and recognized ratably over the four-year estimated
average life of the end-user relationship. See
“—Critical Accounting Policies and
Estimates—Revenue Recognition—Contracts with multiple
elements.” The last year we recognized previously deferred
equipment revenue was 2008. From 2006 to 2008, revenue from
subscriber equipment sales have decreased from 39.5% of total
revenue in 2006 to 37.4% of total revenue in 2008, and from
41.8% of total revenue for the six months ended June 30,2006 to 28.4% for the six months ended June 30, 2009,
primarily as a result of the change of the method of accounting
for subscriber equipment described above. We also expect our
subscriber equipment revenue to
decrease in the future as we decreases our price per unit, which
will more than offset the increase in unit sales.
Commercial mobile satellite services to our third-party
distributors, which include mobile voice and data services and
machine-to-machine
services, account for the second largest portion of our total
revenue in 2006 and 2007 and the largest portion in 2008. Our
commercial services revenue increased in absolute terms between
2006 and 2008. In addition, commercial revenue increased as a
percentage of total revenue from approximately 36.6% to 41.5% of
our total revenue during the period. Such revenue represented
48.4% of our total revenue for the first six months of 2009.
However, as a result of the acquisition accounting adjustment to
commercial revenue in connection with the Acquisition, prepaid
voice service revenue is expected to decrease.
This increase in the proportion of commercial services revenue
relative to our other sources of revenue from 2006 to 2008 is
principally attributable to a growth in commercial subscribers,
and the associated access and usage fees, as well as an increase
in monthly access fees in August 2006 for voice subscribers by
$5.00 per month. The proportion of total revenue from subscriber
equipment sales during this period decreased slightly, primarily
as a result of a change of the method of accounting for
subscriber equipment. The Iridium 9601 short burst data modem
has exhibited continued growth in sales since its introduction
in 2005 accounting for a greater proportion of total equipment
sales.
We derive our remaining revenue from sales of mobile satellite
services and other related services to U.S. government
customers. These services include mission critical mobile
satellite services to all branches of the U.S. armed forces
as well as services for other U.S. and international
government agencies. Our U.S. government revenue is derived
from both our agreements with DISA as well as other contract
revenue related to research and development projects with the
DoD, including assessing the feasibility of incorporating
secondary payloads in Iridium NEXT, and other
U.S. government agencies (either directly or through a
prime contractor). Such revenue does not include services to
U.S. and international government agencies, including the
DoD, purchased through our distributors and offered through our
commercial gateway. Because we do not contract for services on
our commercial gateway directly with the U.S. or
international governments, we cannot determine the amount of
U.S. and international government revenue derived from our
commercial gateway. U.S. government service revenue also
increased in absolute terms from 2006 to 2008 but decreased as a
percentage of total revenue from approximately 23.9% to 21.1%
during the period. Such revenue represented 23.1% of our total
revenue for the first six months of 2009.
We expect continued growth in revenue from commercial services
and U.S. government services in the future, although we
anticipate growth in U.S. government revenue to be more
moderate than growth from commercial revenue sources.
Since 2006, the geographic distribution of our revenue between
U.S. and international revenue has remained relatively
stable with international revenue constituting approximately
51.7% of our revenue between 2006 and 2008. We allocate revenue
geographically based on where we invoice our distributors, whom
we bill for mobile satellite services and related equipment
sales. These distributors sell services directly or indirectly
to end-users, who may be located elsewhere. It is not possible
for us to provide the geographical distribution of end-users, as
we do not contract directly with them. U.S. revenue
accounted for approximately 48.3% of our revenue between 2006
and 2008.
The table below sets forth the geographic distribution of our
revenue for the periods indicated based on the location we
invoice our distributors and not the location of our end-users
(who may be located or utilize the service elsewhere).
No other country represents more than 10% of our revenue for any
of the periods indicated.
Nearly all of our revenue is invoiced in U.S. dollars.
The table below estimates the percentage of our commercial voice
and data traffic originating outside the U.S. for the years
ended December 31, 2006, 2007 and 2008, and the six months
ended June 30, 2009.
Our operating expenses are comprised principally of:
•
Cost of subscriber equipment sales, which includes both cost of
current year subscriber equipment sales and cost of recognizing
previously deferred subscriber equipment sales. Cost of current
year subscriber equipment sales is the recognition of the
average carrying cost of inventory into expense when equipment
is sold. Until sold, inventory is recorded as an asset on our
balance sheet. Cost of recognizing previously deferred
subscriber equipment sales is the recognition of costs related
to equipment sales from previous years. Inventory consists of
subscriber equipment, which includes satellite handsets, L-Band
transceivers, and data devices, and a selection of accessories
for our devices, including holsters, earbud remotes and charging
units, to be sold to customers to access our services. We
outsource manufacturing of satellite handsets, L-Band
transceivers and data devices and purchase accessories from
third-party suppliers. Our cost of inventory also includes an
allocation of overhead (including salary and benefits of our
logistics personnel, which manage our relationships with our
vendors and prepare inventory for sale), raw materials, scrap,
shrinkage, tooling and freight are included as cost components
of these manufactured items. In addition, as a result of the
acquisition accounting adjustments in connection with the
Acquisition, we expect to increase the carrying value of our
inventory, which will increase the cost of subscriber equipment
sales in future periods;
Cost of services (exclusive of depreciation and amortization),
which are costs directly related to the operation and
maintenance of our network, such as satellite tracking and
monitoring, gateway monitoring, trouble shooting and
sub-system
maintenance, and costs for providing engineering and support
services to commercial and government customers. The majority of
these expenses relate to payments under our operations and
maintenance agreement with Boeing. These expenses also include
variable telecommunication termination costs, which are the
costs paid to telecommunications providers to originate and
terminate voice or data calls from customers using our network
to terrestrial wireline or wireless networks. We have concluded
that costs for government engineering and support services
should be classified as cost of services (exclusive of
depreciation and amortization). Some of these costs were
previously classified as research and development costs. We have
reclassified these amounts in the consolidated statements of
income for the years ended December 31, 2008 and 2007.
Personnel expenses for our Operations Group, which oversees the
operation of our satellite network, are similarly included in
network and satellite operations and maintenance expenses. Since
we expect continued growth in revenue from commercial and
U.S. government services in the future, we also expect
costs of services to increase;
•
Depreciation and amortization, which represent the depreciation
of our space and ground facilities, property, plant and
equipment. Because the acquisition cost of these assets was
substantially below their historic cost or replacement cost,
current depreciation and amortization costs are substantially
lower for GAAP purposes, thereby increasing net income. As we
begin to capitalize our expenditures in connection with Iridium
NEXT, especially to procure and launch our second-generation
satellite constellation, we expect GAAP depreciation to increase
substantially starting in 2014 and 2015 after we launch the
first set of satellites. In addition, as a result of the
application of acquisition accounting in connection with the
Acquisition, our depreciation and amortization expense will
increase in future periods following the consummation of the
Acquisition;
•
Selling, general and administrative expenses, which are the
salaries, commissions and other personnel-related expenses for
employees engaged in sales and marketing and the marketing costs
of our business. This also includes expenses for our executive,
finance, legal, regulatory, administrative, information
technology and human resource departments. Since we expect
continued growth in revenue from commercial and
U.S. government services in the future, we also expect
selling, general and administrative expenses to increase as
well, although at a slower rate than our anticipated revenue
growth; and
•
Research and development expenses, which represent expenses
incurred in the development, design and testing of new products
and services, product and service enhancements and new
applications for our existing products and services. Currently,
this also includes all expenses relating to the development of
Iridium NEXT, including certain milestone payments paid to the
two companies vying to serve as the prime system contractor.
From 2006 to 2008, our operating expenses have grown primarily
due to:
•
increased cost of subscriber equipment sales due to subscriber
growth and the related sales of our voice and data devices;
•
increased cost of services (exclusive of depreciation and
amortization) expenses due to new government research and
development services contracts awarded. Our network
costs, network and operations and maintenance expenses have been
fairly consistent over the past three fiscal years;
•
increased research and development expenses resulting from
investments in new products and services, such as our Iridium
9601 short burst data modem and related
machine-to-machine
services, the Iridium 9555 next generation satellite handset and
L-Band
transceiver and Iridium OpenPort, as well the development of
Iridium NEXT;
•
increased personnel and related costs to support our growth,
principally as a result of a 25.9% increase in our total
employees during the period, from 101 in 2006 to 160 in
2008; and
•
increased administrative and related costs, including licensing,
regulatory and legal expenses, to support our growth and the
Acquisition.
Most of our service contracts with third parties are denominated
in U.S. dollars; however, we entered into a development
agreement with a third party manufacturer, which is denominated
in pounds sterling. Expenses under this contract amounted to
$27.2 million from 2006 to 2008 (based on the average
exchange rate for the period of US$1.90 per £1.00), and as
such, do not account for a significant proportion of our total
operating expenses during the period. We have entered into
foreign currency forward exchange contracts in an attempt to
manage our exposure to pounds sterling relating to this
agreement; such forward exchange contracts do not qualify for
hedge accounting.
Operating
Profit (Loss)
Our operating profit has grown over the past three years due
primarily to increased services and subscriber equipment revenue
resulting from the growth in equipment sales, particularly our
satellite handsets, and an increase in overall subscribers.
Although the proportion of satellite handset sales relative to
sales of our other devices decreased from 2006 to 2008, sales of
our handsets grew in absolute terms during the period,
contributing significantly to growth in our operating profit.
These increases in operating profit were partially offset by
increased cost of sales, research and development expenses and
selling, general and administrative expenses as described above.
As a percentage of total revenue, operating profit has also
increased during this period. We expect equipment sales to
decline both as a result of lower prices and the potential for a
decrease in the number of units sold, which may have a negative
effect on future profitability.
Interest
Expense
Interest expense consists primarily of interest and fees on
borrowings under our first and second lien credit agreements and
convertible note, as well as certain payments related to our
agreements with Motorola, including our transition services,
products and asset agreement and a senior subordinated term
loan. Principal and interest on the senior subordinated term
loan with Motorola were paid in full in May 2005; however we
continue to accrue certain deferred payment obligations under
such documents. We expect our interest expenses to decrease
significantly in the short term because we prepaid in June 2009
$15.0 million, under our first lien credit agreement, and
are required to prepay $65.0 million on closing of the
Acquisition. See “—Liquidity and Capital
Resources—Cash and Indebtedness” below. In October
2008, we prepaid $22.0 million of outstanding borrowings in
connection with an amendment to our first lien credit facility.
We anticipate we will incur significant debt in the future to
finance NEXT and other capital requirements, and as a result,
interest expense may increase significantly in the future.
Interest and other income is comprised of interest income earned
on our cash and cash equivalents and short-term investments,
consisting primarily of certain investments that have
contractual maturities of no greater than nine months at the
time of purchase. Other income and expense includes gains and
losses on our foreign exchange forward contracts related to our
agreement with Cambridge Consulting. Prior to 2007,
miscellaneous revenue related to call intercept services
provided pursuant to subpoenas received from various
U.S. and foreign government agencies was recorded under
other income. In 2007, this revenue was reclassified and is now
recorded as commercial services revenue.
Income
Taxes
As a limited liability company that is treated as a partnership
for federal and state income tax purposes, we are generally not
subject to federal or state income tax directly. However, we
will be subject to such federal and state taxes in the future
upon the consummation of the Acquisition, and expect income tax
expenses to significantly increase in future periods.
Net
Income
From 2006 to 2008, our net income has increased as a result of
the factors cited above. In future periods, we expect our net
income to be affected by the changes to research and
development, depreciation, amortization and interest expense and
income taxes, as discussed above.
Critical
Accounting Policies and Estimates
Our discussion and analysis of our financial condition and
results of operations are based upon our consolidated financial
statements, which have been prepared in accordance with
accounting principles generally accepted in the United States.
The preparation of these financial statements requires us to
make estimates and judgments that affect the reported amounts of
assets, liabilities, revenue and expenses, and related
disclosure of contingent assets and liabilities. On an ongoing
basis, we evaluate our estimates including those related to
revenue recognition, property and equipment, long-lived assets,
inventory, interest rate swaps, income taxes and equity-based
compensation. We base our estimates on historical experience and
on various other assumptions that are believed to be reasonable
under the circumstances. Actual results may differ from these
estimates under different assumptions or conditions.
The accounting policies we believe to be most critical to
understanding our financial results and condition and that
require complex and subjective management judgments are
discussed below. Refer to the notes to our consolidated
financial statements for a full discussion of our significant
accounting policies.
Revenue
Recognition
We derive our revenue primarily as a wholesaler of satellite
communications products and services. The primary types of
revenue include (i) airtime revenue (both fixed- and
flat-rate, as well as usage-based) and (ii) subscriber
equipment sales revenue. Additionally, we generate sales by
providing engineering and support services to commercial and
government customers.
Wholesaler
of satellite communications products and services
Pursuant to wholesale agreements, we sell our products and
services to service providers who, in turn, sell the products
and services to other distributors or directly to the end users.
Generally, we recognize revenue when services are performed or
delivery has occurred, evidence of an arrangement exists, the
fee is fixed or determinable, and collection is probable, as
follows:
At times, we sell voice and data equipment (or subscriber
equipment) through multi-element contracts that bundle
subscriber equipment along with airtime services. We follow the
guidance contained in Emerging Issues Task Force
(“EITF”)
00-21 when
we sell subscriber equipment and airtime services in bundled
arrangements. Pursuant to
EITF 00-21,
we allocate the bundled contract price among the various
contract deliverables based on each deliverable’s relative
fair value. We determine vendor specific objective evidence of
fair value by assessing sales prices of subscriber equipment and
airtime services when they are sold to customers on a
stand-alone basis.
Prior to 2005, we considered the sale of bundled subscriber
equipment and services as a single unit of accounting due
primarily to the fact that our subscriber equipment was not
considered to have stand-alone value to end-users. As a result,
when subscriber equipment was sold, revenue from these
transactions was deferred and recognized ratably over the
four-year estimated average life of the end-user relationship.
Services
revenue sold on a stand-alone basis
Services revenue is generated from our service providers through
usage of our satellite system and through fixed monthly access
fees per user charged by us to each service provider. Revenue
for usage is recognized when usage occurs and revenue for the
fixed-per-user
access fee is recognized ratably over the period in which the
services are provided to the end-user. Revenue from prepaid
services is recognized when usage occurs or when the
customer’s right to access the unused prepaid services
expires. We do not offer refund privileges for unused prepaid
services. Deferred prepaid services revenue and access fees are
typically earned and recognized as income within one year of
customer prepayment.
Subscriber
equipment sold on a stand-alone basis
We recognize subscriber equipment sales and the related costs
when equipment title (and the risks and rewards of ownership)
passes to the customer.
Services
and subscriber equipment sold to the U.S. government
We provide airtime to U.S. government subscribers through
(i) fixed monthly fees on a per user basis for airtime
services and usage for voice, (ii) fixed monthly fee per
user for paging services and (iii) a tiered pricing plan
(based on usage) per device for data services. Revenue related
to the services provided under this contract is recognized
ratably over the periods in which the services are provided;
costs are expensed as incurred. The U.S. government
purchases its equipment from a third-party service provider and
not directly from us.
Engineering
and Support Services to Commercial and Government
Customers
Government
engineering and support services
We currently are a party to a contract with the
U.S. government pursuant to which we provide maintenance
services to the U.S. government’s dedicated gateway in
Hawaii. Revenue related to the services provided under this
contract is recognized ratably over the periods in which the
services are provided; costs are expensed as incurred.
Other
government and commercial engineering and support
services
We also provide certain engineering services to assist customers
in developing new technologies for use on our satellite system.
The revenue associated with these services is recorded when the
services are rendered, typically on a percentage of completion
method of accounting based on our estimate of total costs
expected to complete the contract; costs are expensed as
incurred. Revenue on cost-plus-fixed-fee contracts is recognized
to the extent of estimated costs incurred plus the applicable
fees earned. We consider fixed fees under cost-plus-fixed-fee
contracts to be earned in proportion to the allowable costs
incurred in performance of the contract.
Inventory
Inventory consists of subscriber equipment, which includes
handsets, L-Band transceivers and data devices, related
accessories to be sold to customers to access our services and
raw materials from a third party manufacturer. We outsource
manufacturing of handsets, L-Band transceivers, and data devices
to a third party manufacturer and purchases accessories from
third party suppliers. Our cost of inventory includes an
allocation of overhead (including salaries and benefits of
employees directly involved in bringing inventory to our
existing condition, scrap, tooling, and freight). All
inventories are valued using the average cost method, and are
carried at the lower of cost or market.
Warranty
Expense
We generally provide our customers a warranty on subscriber
equipment for one year from the date of activation, with the
exception of the Iridium OpenPort product which has a two-year
standard warranty. Warranties are accounted for such that an
accrual is made when it is estimable and probable that a loss
has been incurred. A warranty reserve is maintained based on
historical experience of warranty costs and expected occurrences
of warranty coverage on equipment. Costs associated with
warranties are recorded as cost of subscriber equipment sales
and include equipment replacements, repairs and program
administration.
Financial
Instruments
The condensed consolidated balance sheets include various
financial instruments (primarily cash and cash equivalents,
restricted cash, accounts receivable, accounts payable, accrued
expenses and other liabilities, long-term debt, derivative
instruments, and other obligations).
Convertible
Subordinated Promissory Note
In October 2008, we issued to Greenhill Europe, a
$22.9 million 5% convertible subordinated note due October
2015. We have determined that the embedded derivatives contained
in the promissory note (including the conversion option, the
holder’s put options and our call option) do not require
separate accounting and that there were no beneficial conversion
features associated with the note pursuant to
EITF 98-5,
Accounting for Convertible Securities with Beneficial Conversion
Features or Contingently Adjustable Conversion Ratios.
Accordingly, we are accounting for the note pursuant to the
guidance contained in Accounting Principal Board’s Opinion
No. 14, Accounting for Convertible Debt and Debt Issued
with Stock Purchase Warrants.
Interest on the note began accruing in April 2009 at 5% per
year. We are recording periodic interest cost using the
effective interest rate method.
Accounting
for Equity-Based Compensation
We use SFAS No. 123(R), Accounting for Stock-Based
Compensation, for all share-based payments granted. We use the
Black-Scholes option-pricing model (Black-Scholes) as our method
of valuation under SFAS No. 123(R). This fair value is
then amortized on a straight-line basis over the requisite
service periods of the awards, which is generally the vesting
period. The fair value of equity-based payment awards on the
date of grant as determined by the Black-Scholes model is
affected by our assumptions. These assumptions include, but are
not limited to, the expected stock price volatility over the
term of the awards and expected forfeitures. The fair value of
employee interests was estimated using the Black-Scholes model.
There have been no grants in 2009.
The expected volatility assumption was based on a review of the
expected volatility of publicly traded entities similar to us,
which we believe is a reasonable indicator of our expected
volatility. The risk-free interest rate assumption is based upon
U.S. Treasury Bond interest rates with terms similar to the
expected term of the award. The dividend yield assumption is
based on our history of not declaring and paying dividends. The
expected term is based on our best estimate for the period of
time for which the instrument is expected to be outstanding.
Given the limited number of employees who have been granted
equity interests, we have estimated there will be no forfeitures.
Under Statement No. 123(R), a nonpublic entity can make a
policy decision of whether to measure all of its liabilities
incurred under share-based payment arrangements at fair value or
to measure all such liabilities at intrinsic value. Our policy
is to measure all liabilities under SFAS No. 123(R)
using the intrinsic method. This intrinsic value is then
amortized on a straight-line basis over the requisite service
periods of the awards, which is generally the vesting periods.
Long-Lived
Assets
We assess the impairment of long-lived assets when indicators of
impairment are present. Recoverability of assets is measured by
comparing the carrying amounts of the assets to the future
undiscounted cash flows expected to be generated by the assets.
Any impairment loss would be measured as the excess of the
assets’ carrying amount over their fair value. Fair value
is based on market prices where available, an estimate of market
value, or various valuation techniques.
The carrying value of a satellite lost as a result of an
in-orbit failure would be charged to operations upon the
occurrence of the loss. In February 2009, we lost the use of a
satellite and recorded an impairment charge of
$0.1 million, which represented the carrying value of the
satellite.
Comparison
of Results of Operations for the Six-Months Ended June 30,2009 and 2008
Revenue. Total revenue increased by
$2.5 million, or approximately 1.6%, to $158.5 million
for the six months ended June 30, 2009 from
$156.0 million for the same period in 2008, due principally
to increased commercial services revenue and increased revenue
from the iGPS contract as well as the renewal by us of our
service agreements with the U.S. government and the related
fee increases. These increases were offset by a decline in
subscriber equipment revenue. Total subscribers increased 23.7%
during the period, from 280,242 at June 30, 2008 to 346,675
at June 30, 2009.
Government Services Revenue. Government
services revenue increased by $6.7 million, or
approximately 22.4%, to $36.6 million for the six months
ended June 30, 2009 from $29.9 million for the same
period in 2008. This growth was driven by an increase in revenue
relating to engineering and support agreements from the iGPS
contract and U.S. government agencies. The remaining growth
was primarily attributable to an increase in user fees and
higher gateway maintenance revenue as provided in our recently
renewed agreements with the U.S. government, which became
effective April 1, 2008. As a percentage of total revenue,
government services
revenue increased from 19.2% for the six months ended
June 30, 2008 to 23.1% for the same period in 2009.
Commercial Services Revenue. Commercial
services revenue increased by $15.0 million, or
approximately 24.3%, to $76.8 million for the six months
ended June 30, 2009 from $61.8 million for the same
period in 2008, due principally to growth of commercial
subscribers and the associated access and usage fees. In
addition, this increase in subscribers and related increase in
commercial services revenue was primarily the result of greater
demand for our
machine-to-machine
and pre-paid services. As a percentage of total revenue,
commercial services revenue increased from 39.6% for the six
months ended June 30, 2008 to 48.5% for the same period in
2009.
Subscriber Equipment Sales. Subscriber
equipment sales decreased by $19.2 million, or
approximately 29.9%, to $45.1 million for the six months
ended June 30, 2009 from $64.3 million for the same
period in 2008. Decreased subscriber equipment sales were driven
principally by reduced demand for satellite handsets caused by
the current economic downturn and the change of the method of
accounting for subscriber equipment sales. As a result, the
proportion of satellite handset sales relative to sales of our
other lower priced devices decreased during the period
contributing significantly to the decline in our revenue for
subscriber equipment sales. Until the introduction of our
Iridium OpenPort terminals, our satellite handsets had been our
highest priced devices. In addition to decreased sales, we
recognized $3.4 million of previously deferred revenue
under EITF-0021 in the first six months of 2008. As a percentage
of total revenue, subscriber equipment sales decreased from
41.2% for the six months ended June 30, 2008 to 28.5% for
the same period in 2009.
Operating Expenses. Total operating
expenses decreased by $0.2 million, or approximately 0.2%,
to $111.4 million for the six months ended June 30,2009 from $111.6 million for the same period in 2008. This
decrease was due primarily to lower cost of subscriber equipment
due to a decrease in sales of our voice and data devices,
particularly our satellite handsets. This decrease was partially
offset by increased research and development expenses related to
the development of Iridium NEXT, increased costs relating to
several engineering and support agreements, including the iGPS
contract and contracts with U.S. government agencies, legal
fees related to the Iridium NEXT contract and increased software
and maintenance costs. As a percentage of total revenue,
operating expenses decreased from 71.5% for the six months ended
June 30, 2008 to 70.3% for the same period in 2009.
Cost of Subscriber Equipment Sales. Cost of
sales decreased by $13.9 million, or approximately 37.8%,
to $22.9 million for the six months ended June 30,2009 from $36.8 million for the same period in 2008,
primarily as a result of the decrease in sales of our voice and
data devices, particularly our satellite handsets as noted
above. In addition to decreased sales, we recognized
$2.7 million of previously deferred subscriber equipment
cost of sales under EITF-0021 in the first six months of 2008.
All previously deferred expense was recognized during 2008. As a
percentage of total revenue, cost of subscriber equipment sales
decreased from 23.6% for the six months ended June 30, 2008
to 14.4% for the same period in 2009.
Cost of Services (exclusive of depreciation and
amortization). Cost of services (exclusive of
depreciation and amortization) expenses increased by
$5.8 million, or approximately 18.1%, to $37.9 million
for the six months ended June 30, 2009 from
$32.1 million for the same period in 2008, primarily as a
result of increased costs associated with revenue relating to
research and development agreements related to the iGPS contract
and with U.S. government agencies and increased operations
and maintenance expenses with respect to our satellite network
due to the annual price escalation in our operations and
maintenance agreement with Boeing. As a percentage of total
revenue, cost of services (exclusive of depreciation and
amortization) expenses
increased from 20.6% for the six months ended June 30, 2008
to 23.9% for the same period in 2009.
Depreciation and Amortization. Depreciation
and amortization expenses increased by $1.4 million, or
approximately 24.1%, to $7.2 million for the six months
ended June 30, 2009 from $5.8 million for the same
period in 2008, primarily as a result of additional depreciation
associated with new equipment placed in service, primarily
equipment for our satellite network operations center and
gateway. As a percentage of total revenue, depreciation and
amortization expenses increased from 3.7% for the six months
ended June 30, 2008 to 4.5% for the same period in 2009.
Selling, General and Administrative. Selling,
general and administrative expenses increased by
$2.7 million, or approximately 10.6%, to $28.1 million
for the six months ended June 30, 2009 from
$25.4 million for the same period in 2008, primarily as a
result of higher licensing, software maintenance costs for
billing and corporate systems and legal expenses in 2009
resulting from business expansion and the Iridium NEXT project.
As a percentage of total revenue, selling, general and
administrative expenses increased from 16.3% for the six months
ended June 30, 2008 to 17.7% for the same period in 2009.
Research and Development. Research and
development expenses increased by $2.4 million, or
approximately 22.0%, to $13.3 million for the six months
ended June 30, 2009 from $10.9 million for the same
period in 2008, as a result of increased expenses related to
investments in new subscriber equipment and services, primarily
Iridium NEXT, partially offset by the reversal of a prime
contractor development effort bonus accrual for Iridium NEXT for
which specific criteria was not met by either contractor. As a
percentage of total revenue, research and development expenses
increased from 7.0% for the six months ended June 30, 2008
to 8.4% for the same period in 2009.
Transaction costs. Transaction costs increased
by $1.4 million or approximately 233.3%, to
$2.0 million for the six months ended June 30, 2009
from $0.6 million for the same period in 2008. This
increase is primarily the result of increased legal and
consulting fees as we continue to work towards the completion of
the Acquisition.
Operating Profit. Operating profit increased
by $2.7 million, or approximately 6.1%, to
$47.1 million for the six months ended June 30, 2009
from $44.4 million for the same period in 2008. This
increase was due primarily to increased commercial and
government services revenue as described above, partially offset
by decreased subscriber equipment revenue, particularly our
satellite handsets, and an increase in research and development
costs related to Iridium NEXT. As a percentage of total revenue,
operating profit increased from 28.5% for the six months ended
June 30, 2008 to 29.7% for the same period in 2009.
Interest Expense. Interest expense decreased
by $0.6 million, or approximately 6.1%, to
$9.2 million for the six months ended June 30, 2009
from $9.8 million for the same period in 2008. This
decrease resulted from lower outstanding balances on our first
lien credit agreements, lower interest rate on both the first
and second credit lien agreements and no loan success fee
payments were made to Motorola in 2009 under the term loan
agreement because we made no distributions in 2009.
Interest and Other Income. Interest and other
income decreased by $0.4 million, or approximately 50.0%,
to $0.4 million for the six months ended June 30, 2009
from $0.8 million for the same period in 2008. This
decrease was due to lower interest income resulting from a
decrease in the interest rate earned on our cash and cash
equivalents and short term investments, slightly offset by
increased foreign currency losses.
Net Income. Our net income increased by
$2.9 million, or approximately 8.2%, to $38.3 million
for the six months ended June 30, 2009 from
$35.4 million for the same period in 2008, as a result of
the factors described above. As a percentage of total revenue,
net income increased from 22.7% for the six months ended
June 30, 2008 to 24.2% for the same period in 2009.
Comparison
of Results of Operations for the Years Ended December 31,2008 and 2007
Revenue. Total revenue increased by
$60.0 million, or approximately 23.0%, to
$320.9 million for the year ended December 31, 2008
from $260.9 million for 2007, due principally to a growth
in total subscribers, an increase of commercial services, an
increase in our subscriber equipment sales and increased
contract revenue from the DoD as well as the renewal of our
service agreements with the U.S. government and the related
fee increases. Total subscribers increased 36.6% during the
period, from 234,162 at December 31, 2007 to 319,874 at
December 31, 2008.
Government Services Revenue. Government
services revenue increased by $10.0 million, or
approximately 17.3%, to $67.8 million for the year ended
December 31, 2008 from $57.8 million for 2007. This
growth was driven by an increase in contract revenue relating to
several research and development agreements with the iGPS
contract and other U.S. government agencies, including
secondary payload research. The remaining growth was
attributable to a 5.0% increase in user fees and higher gateway
maintenance revenue as provided in our recently renewed
agreements with the U.S. government, which became effective
April 1, 2008. As a percentage of total revenue, government
services revenue decreased from 22.2% for the year ended
December 31, 2007 to 21.1% for the same period in 2008.
Commercial Services Revenue. Commercial
services revenue increased by $32.0 million, or
approximately 31.6%, to $133.2 million for the year ended
December 31, 2008 from $101.2 million for 2007, due
principally to growth in subscribers and associated usage and
access fees resulting from increased overall demand, accelerated
by the popularity of our
machine-to-machine
services and customer defections from Globalstar. The increase
in commercial services revenue was offset by lower revenue from
usage fees resulting from an increase in the proportion of
machine-to-machine
services relative to voice services, as
machine-to-machine
services account for lower average revenue per unit than voice
services. As a percentage of total revenue, commercial services
revenue increased from 38.8% for the year ended
December 31, 2007 to 41.5% for the same period in 2008.
Subscriber Equipment Sales. Subscriber
equipment sales increased by $18.0 million, or
approximately 17.7%, to $119.9 million for the year ended
December 31, 2008 from $101.9 million for 2007.
Increased subscriber equipment sales were driven principally by
subscriber growth and the related increased in sales of our
satellite handsets and Iridium 9601 short burst data modem.
Sales of our Iridium 9601 short burst data modem continued to
exhibit strong growth. Although the proportion of satellites
handset sales relative to sales of our other lower priced
devices decreased during the period, sales of our higher priced
handsets grew in absolute terms, contributing significantly to
growth in our revenue from subscriber equipment sales. Until the
introduction of our Iridium OpenPort terminals, our satellite
handsets have been our highest priced devices. As a percentage
of total revenue, subscriber equipment sales decreased from
39.1% for the year ended December 31, 2007 to 37.4% for the
same period in 2008.
Operating Expenses. Total operating
expenses increased by $48.1 million, or approximately
24.3%, to $245.8 million for the year ended
December 31, 2008 from $197.7 million for 2007. This
increase was due primarily to increased costs of sales resulting
from a growth in sales of our voice and data devices as well as
increased research and development expenses related to the
development of new subscriber equipment and services and Iridium
NEXT. Total operating expenses for the period also increased as
a result of higher selling, general and administrative expenses
resulting from the Acquisition in the third quarter of 2008 and
increased personnel expenses from growth in total employees
resulting from our expansion. As a percentage of total revenue,
operating expenses increased from 75.8% for the year ended
December 31, 2007 to 76.6% for the same period in 2008.
Cost of Subscriber Equipment Sales. Cost of
subscriber equipment sales increased by $5.2 million, or
approximately 8.3%, to $67.6 million for the year ended
December 31, 2008 from $62.4 million for 2007
primarily as a result of subscriber growth and the related
increase in sales of our voice and data devices, particularly
our satellite handsets. Our handsets have the highest production
costs of all our devices, except for Iridium OpenPort. This
increase in costs of sales was offset by a decrease in the cost
of recognizing previously deferred subscriber equipment sales of
$8.4 million, or approximately 71.2%, to $3.4 million
for the period ended December 31, 2008, from
$11.8 million in 2007. Effective January 1, 2005, we
began recognizing equipment sales and related costs when
equipment title passes to the customer. As a percentage of total
revenue, cost of sales decreased from 23.9% for the year ended
December 31, 2007 to 21.1% for the same period in 2008.
Cost of Services (exclusive of depreciation and
amortization). Cost of services (exclusive of
depreciation and amortization) expenses increased by
$6.3 million, or approximately 9.9%, to $69.9 million
for the year ended December 31, 2008 from
$63.6 million for 2007, primarily as a result of increased
maintenance expenses with respect to our satellite network due
to the annual price escalation clause in our operations and
maintenance agreement with Boeing, higher fees for software
licensing and maintenance, increased expenses related to
research and development services related to the iGPS contract
and with U.S. government agencies, an increase in variable
network costs, including termination costs, and increased
personnel expenses related to the growth of our Operations
Group. As a percentage of total revenue, cost of services
(exclusive of depreciation and amortization) expenses decreased
from 24.4% for the year ended December 31, 2007 to 21.8%
for the same period in 2008.
Depreciation and Amortization. Depreciation
and amortization expenses increased by $1.1 million, or
approximately 9.6%, to $12.5 million for the year ended
December 31, 2008 from $11.4 million for 2007,
primarily as a result of additional depreciation associated with
new equipment placed in service, including a new satellite earth
station facility in Norway and certain equipment for our
satellite network operations center and gateway. As a percentage
of total revenue, depreciation and amortization expenses
decreased from 4.4% for the year ended December 31, 2007 to
3.9% for the same period in 2008.
Selling, General and Administrative. Selling,
general and administrative expenses increased by
$8.8 million, or approximately 19.0%, to $55.1 million
for the year ended December 31, 2008 from
$46.3 million for 2007, primarily as a result of higher
legal, regulatory and accounting expenses in 2008 resulting from
our increased personnel and other administrative expenses
related to our growth and pursuit of expansion opportunities. As
a percentage of total revenue, selling, general and
administrative expenses decreased from 17.7% for the year ended
December 31, 2007 to 17.2% for the same period in 2008.
Research and Development. Research and
development expenses increased by $18.8 million, or
approximately 134.3%, to $32.8 million for the year ended
December 31, 2008 from $14.0 million for 2007,
primarily as a result of increased expenses related to
investments in new subscriber equipment and services, including
our next generation satellite handset, L-Band transceiver and
short burst data modem and Iridium OpenPort, as well as the
development of Iridium NEXT. As a percentage of total revenue,
research and development expenses increased from 5.4% for the
year ended December 31, 2007 to 10.2% for the same period
in 2008.
Transaction costs. Transaction costs were
$7.9 million for the year ended December 31, 2008. The
costs primarily include legal, accounting and consulting fees as
we worked towards completing the Acquisition.
Operating Profit. Operating profit increased
by $11.9 million, or approximately 18.8%, to
$75.1 million for the period ended December 31, 2008
from $63.2 million for 2007. This increase was due
primarily to increased services and subscriber equipment revenue
resulting from growth in equipment sales, particularly our
satellite handsets and an increase in total subscribers.
Although the proportion of satellites handset sales relative to
sales of our other devices decreased during the period, as
discussed above, handsets sales grew in absolute terms,
contributing significantly to growth in our operating profit.
This increase in operating profit were partially offset by
increased cost of sales, research and development expenses and
selling, general and administrative expenses as described above.
As a percentage of total revenue, operating profit decreased
slightly from 24.2% for the year ended December 31, 2007 to
23.4% for the same period in 2008.
Interest Expense. Interest expense decreased
by $0.7 million, or approximately 3.2%, to
$21.1 million for the year ended December 31, 2008
from $21.8 million for 2007. This decrease resulted from
lower outstanding balances on our first and second lien credit
agreements.
Interest and Other Income. Interest and other
income decreased by $2.5 million, or approximately 104.2%,
to ($0.1) million for the year ended December 31, 2008
from $2.4 million for 2007. This decrease was due to lower
interest income resulting from a decrease in the interest earned
on our cash and cash equivalents and short term investments
offset by increased foreign currency losses.
Net Income. Our net income increased by
$10.1 million, or approximately 23.1%, to
$53.9 million for the year ended December 31, 2008
from $43.8 million for 2007, as a result of the factors
described above. As a percentage of total revenue, net income
remained consistent at 16.8% for the year ended
December 31, 2007 compared to the same period in 2008.
Comparison
of Results of Operations for the Years Ended December 31,2007 and 2006
Revenue. Total revenue increased by
$48.5 million, or approximately 22.8%, to
$260.9 million for the year ended December 31, 2007
from $212.4 million for the year ended December 31,2006, due principally to a growth in total subscribers, an
increase of commercial services, an increase in our subscriber
equipment sales and increased contract revenue from the DoD.
Total subscribers increased 34.0% during the period, from
174,219 at December 31, 2006 to 234,162 at
December 31, 2007.
Government Services Revenue. Government
services revenue increased by $7.0 million, or
approximately 13.8%, to $57.8 million for the year ended
December 31, 2007 from $50.8 million in 2006. This
growth was driven by an increase in contract revenue from an
agreement with a prime contractor of the U.S. government to
assess the feasibility of incorporating secondary payloads in
Iridium NEXT as well as an increase in the number of
subscribers. As a percentage of total revenue, government
services revenue decreased from 23.9% for the year ended
December 31, 2006 to 22.2% for the same period in 2007.
Commercial Services Revenue. Commercial
services revenue increased by $23.5 million, or
approximately 30.2%, to $101.2 million for the year ended
December 31, 2007 from $77.7 million for 2006. This
growth was driven by a growth in subscribers and associated
access and usage fees resulting from increased overall demand,
accelerated by the popularity of our
machine-to-machine
services and customer defections from Globalstar. Further
contributing to this increase, in August 2006, we increased
monthly access fees for voice subscribers by $5 per
month. As a percentage of total revenue, commercial services
revenue increased from 36.6% for the year ended
December 31, 2006 to 38.8% for the same period in 2007.
Subscriber Equipment Sales. Subscriber
equipment sales increased by $18.0 million, or
approximately 21.54%, to $101.9 million for the year ended
December 31, 2007 from $83.9 million for 2006.
Increased subscriber equipment sales were driven principally by
subscriber growth and the related increase in sales of our
satellite handsets and Iridium 9601 short burst data modem.
Sales of our higher priced handsets also grew, contributing
significantly to growth in our revenue from subscriber equipment
sales. As a percentage of total revenue, subscriber equipment
sales decreased from 39.5% for the year ended December 31,2006 to 39.1% for the same period in 2007.
Operating Expenses. Total operating expenses
increased by $30.5 million, or approximately 18.2%, to
$197.7 million for the year ended December 31, 2007
from $167.2 million for 2006. This increase was due
primarily to increased research and development expenses related
to the development of new subscriber equipment and services as
well as increased costs of sales resulting from a growth in
sales of our voice and data devices. Total operating expenses
for the period also increased as a result of higher personnel
and other administrative expenses largely from growth in total
employees resulting from our expansion. As a percentage of total
revenue, operating expenses decreased from 78.7% for the year
ended December 31, 2006 to 75.8% for the same period in
2007.
Cost of Subscriber Equipment Sales. Cost of
subscriber equipment sales increased by $2.3 million, or
approximately 3.8%, to $62.4 million for the year ended
December 31, 2007 from $60.1 million for 2006,
primarily as a result of subscriber growth and the related
increase in sales of our voice and data devices, particularly
our higher cost satellite handsets. This increase was offset by
a decrease in the cost of recognizing previously deferred
subscriber equipment sales, which decreased by
$9.5 million, or approximately 44.4%, to $11.8 million
for the year ended December 31, 2007 from
$21.3 million for 2006. As a percentage of total revenue,
cost of subscriber equipment sales decreased from 28.3% for the
year ended December 31, 2006 to 23.9% for the same period
in 2007.
Cost of Services (exclusive of depreciation and
amortization). Cost of services (exclusive of
depreciation and amortization) expenses increased by
$2.9 million, or approximately 4.8%, to $63.6 million
for the year ended December 31, 2007 from
$60.7 million for 2006, primarily as a result of increased
expenses related to the above mentioned research and development
contract with the U.S. government, increased maintenance
expenses with respect to our satellite network due to the annual
price escalation clause in our operations and maintenance
agreement with Boeing, an increase in variable network costs,
including termination costs and higher personnel expenses
related to the growth of our Operations Group, partially offset
by a decrease in the amount of consulting expenditures incurred
related to our current satellite system. As a percentage of
total revenue, network and satellite operations and maintenance
expenses decreased from 28.6% for the year ended
December 31, 2006 to 24.4% for the same period in 2007.
Depreciation and Amortization. Depreciation
and amortization expenses increased by $2.9 million, or
approximately 34.1%, to $11.4 million for the year ended
December 31, 2007 from $8.5 million for 2006,
primarily as a result of additional depreciation associated with
new equipment placed in service in 2007, including equipment
upgrades at our satellite network operations center and
technical support center as well as business systems, including
a new data warehouse and call intercept system. As a percentage
of total revenue, depreciation and amortization expenses
increased from 4.0% for the year ended December 31, 2006 to
4.4% for the same period in 2007.
Selling, General and Administrative. Selling,
general and administrative expenses increased by
$12.8 million, or approximately 38.2%, to
$46.3 million for the year ended December 31, 2007
from $33.5 million for 2006, primarily as a result of
increased personnel and other administrative expenses to
accompany our growth. As a percentage of total revenue, selling,
general and administrative expenses increased from 15.8% for the
year ended December 31, 2006 to 17.7% for the same period
in 2007.
Research and Development. Research and
development expenses increased by $9.6 million, or
approximately 218.2%, to $14.0 million for the year ended
December 31, 2007 from $4.4 million for 2006,
primarily as a result of expenditures related to the development
of new subscriber equipment and services, including our next
generation satellite handset and L-Band transceiver and Iridium
OpenPort. As a percentage of total revenue, research and
development expenses increased from 2.1% for the year ended
December 31, 2006 to 5.4% for the same period in 2007.
Operating Profit. Operating profit increased
by $18.0 million, or approximately 39.8%, to
$63.2 million for the year ended December 31, 2007
from $45.2 million for 2006. This increase was due
primarily to increased services and subscriber equipment revenue
resulting from growth in equipment sales, particularly our
satellite handsets, and an increase in total subscribers. As
discussed above, handsets sales grew during the period,
contributing significantly to growth in our operating profit.
The increase in operating profit were partially offset by
increased cost of sales, research and development expenses and
selling, general and administrative expenses as described above.
As a percentage of total revenue, operating profit increased
from 21.3% for the year ended December 31, 2006 to 24.2%
for the same period in 2007.
Interest Expense. Interest expense increased
by $6.6 million, or approximately 43.4%, to
$21.8 million for the year ended December 31, 2007
from $15.2 million for 2006. This increase resulted from
recognizing a full year of interest expense associated with our
first and second lien credit agreements, which we entered into
in July 2006.
Interest and Other Income. Interest and other
income increased by $0.6 million, or approximately 33.3%,
to $2.4 million for the year ended December 31, 2007
from $1.8 million for 2006. This increase resulted from
higher interest income resulting from increased cash balances on
hand. This increase was offset by a decrease in other income due
to lower revenue from intercept services provided pursuant to
U.S. government subpoenas, which were reclassified as
commercial services revenue in 2007.
Net Income. Our net income increased by
$12.0 million, or approximately 37.7%, to
$43.8 million for the year ended December 31, 2007
from $31.8 million for 2006, as a result of the factors
described above. As a percentage of total revenue, net income
increased from 15.0% for the year ended December 31, 2006
to 16.8% for the same period in 2007.
Liquidity
and Capital Resources
Our principal sources of liquidity are existing cash, internally
generated cash flow and borrowings under our first and second
lien credit agreements. We will also receive cash from the GHQ
trust account upon the consummation of the Acquisition. We
believe that these sources will provide sufficient liquidity for
us to meet our liquidity requirements for the next
12 months. We plan to fund a majority of the costs
associated with Iridium NEXT from internally generated cash
flows and secondary payload funding, as well as proceeds from
the Acquisition. We expect to finance the remaining cost of
Iridium NEXT with additional debt
and/or
equity financing. If future internally generated cash flows and
revenue from hosting secondary payloads are below expectations
or the cost of developing Iridium NEXT is higher than
anticipated, we will require additional external funding. Since
we have not yet entered into an agreement with a prime
contractor for Iridium NEXT, the timing of our payments under
any such agreement is uncertain.
If the timing or amount of our payments under our agreement with
our prime contractor are due sooner than expected or are larger
than expected, we may not have sufficient liquidity for the
foreseeable future.
Our principal liquidity requirements are to meet our working
capital, research and development and capital expenditure needs,
including the development of Iridium NEXT, and to service our
debt. In addition, we paid $15.0 million in June 2009, and
will be required to prepay $65.0 million under our first
lien credit facility on closing of the Acquisition. We will,
however, require additional liquidity as we continue to execute
our business strategy. Our liquidity and our ability to fund our
liquidity requirements is also dependent on our future financial
performance, which is subject to general economic, financial,
regulatory and other factors that are beyond our control. We
anticipate that we will require additional liquidity and we will
raise additional debt
and/or
equity financing. Our ability to obtain additional liquidity may
be adversely impacted by a number of factors, including the
recent global economic crisis and related tightening of the
credit markets. We cannot assure you that we will be able to
obtain such additional liquidity on reasonable terms, or at all.
In addition, pursuant to Iridium Constellation’s operations
and maintenance agreement with Boeing, Iridium Satellite has
issued to Boeing a $15.4 million cash-collateralized letter
of credit as collateral for certain obligations under this
agreement, which is included in the long-term restricted cash in
the consolidated balance sheets.
Cash
Flows
The following table shows our consolidated cash flows from
operating, investing and financing activities for the years
ended December 31, 2006, 2007 and 2008 and the six months
ended June 30, 2009 and 2008:
Net increase (decrease) in cash and cash equivalents
$
2.7
$
(9.8
)
$
22.0
$
15.7
$
19.8
Cash
Flows Provided by Operating Activities
Net cash provided by operating activities for the six months
ended June 30, 2009 increased to $37.4 million from
$33.5 million for the same period in 2008. This increase
was attributable primarily to an increase in net income of
$2.9 million, and an increase in non-cash adjustments of
$1.3 million, slightly offset by a decrease in working
capital of $0.3 million.
Net cash provided by operating activities for the year ended
December 31, 2008 increased to $61.4 million from
$36.6 million for 2007. This increase was attributable
primarily to a $10.1 million increase in net income, a
$11.1 million increase in working capital and a
$3.6 million increase in non-cash adjustments during the
period. The increase in working capital primarily relates to a
payment made to Boeing in 2007 in connection with our purchase
of their right to receive distributions, which consequentially
reduced our working capital for that period, as well as an
increase in deferred revenue resulting from higher sales of our
prepaid services and
an increase in accounts payable due to the timing of payments to
vendors. The increase in non-cash adjustments consists primarily
of increases in depreciation and amortization and increases in
equity and profits interest compensation.
Net cash provided by operating activities for the year ended
2007 decreased to $36.6 million from $39.5 million for
2006. This decrease was attributable primarily to a
$21.6 million decrease in working capital partially offset
by a $12.0 million increase in net income and a
$6.7 million increase in non-cash adjustments during the
period. The decrease in working capital is the result of the
above mentioned 2007 payment to Boeing. Adjustments for non-cash
items increased during the period due to increases in
depreciation and amortization and increases in equity and
profits interest compensation.
Cash
Flows Used in Investing Activities
Net cash used in investing activities for the six months ended
June 30, 2009 decreased to $4.8 million from
$5.9 million for the same period in 2008. This decrease was
attributable primarily to lower development expenses related to
our new high-speed data services, Iridium OpenPort, which was
recently introduced.
Net cash used in investing activities for the year ended
December 31, 2008 decreased to $13.9 million from
$19.8 million for 2007. This decrease was attributable
primarily to lower development expenses related to our new
high-speed data services, Iridium OpenPort.
Net cash used in investing activities for the year ended
December 31, 2007 increased to $19.8 million from
$9.5 million for 2006. This increase was attributable
primarily to increased development expenses related to Iridium
OpenPort as well as the procurement and implementation of a more
robust customer billing system.
Cash
Flows Used in Financing Activities
Net cash used in financing activities for the six months ended
June 30, 2009 increased to $16.9 million from
$7.8 million for the same period in 2008. This increase was
attributable primarily to principal payments of
$16.9 million on our first lien credit agreement, partially
offset by cash distributions of $5.7 million to current
investors and principal payments of $2.1 million on our
first lien credit agreement made in the first six months of
2008. Net cash used in financing activities for the year ended
December 31, 2008 increased to $44.8 million from
$26.5 million for 2007. This increase was attributable
primarily to principal payments of $27.5 million on our
first lien credit agreement, and cash distributions to our
current investors partially offset by proceeds from the issuance
of a convertible subordinated note to Greenhill Europe.
Net cash used in financing activities for the year ended
December 31, 2007 increased to $26.5 million from
$8.0 million for 2006. This increase was attributable
primarily to increased debt payments resulting from our first
and second lien credit agreements, which we entered into in July
2006.
Capital
Expenditures
Our capital expenditures consisted primarily of the hardware and
software upgrades to maintain our ground infrastructure and a
portion of the expenses related to the development of Iridium
OpenPort. These also include upgrades to our business systems,
including upgrades to our billing system to enable customer
billing of us. Once a prime contractor is selected for Iridium
NEXT, and a full scale development contract is signed, we expect
that the majority of our future capital expenditures will relate
to the development of Iridium NEXT through 2016.
Our capital expenditures were $9.5 million,
$19.8 million, $13.9 million and $4.8 million in
2006, 2007, 2008 and the first six months of 2009, respectively.
We plan to fund a majority of the costs associated with Iridium
NEXT from internally generated cash flows and secondary payload
funding, as well as proceeds from the Acquisition expects to
finance the remaining cost of Iridium NEXT with additional debt
and/or
equity financing. If future internally generated cash flows and
revenue from hosting secondary payloads are below expectations
or the cost of developing Iridium NEXT is higher than
anticipated, we will require additional external funding.
On July 27, 2006, we entered into a $170.0 million
first lien credit agreement and $40.0 million second lien
credit agreement. The agreements include a $98.0 million
four-year first lien Tranche A term loan, a
$62.0 million five-year first lien Tranche B term
loan, a $40.0 million six-year second lien term loan and a
$10.0 million three-year first lien revolving credit
facility. As of June 30, 2009, we had $25.5 million
outstanding under our Tranche A term loan,
$54.5 million outstanding under our Tranche B term
loan, $40.0 million outstanding under the second lien term
loan and we had no borrowings and availability of
$5.0 million under our revolving credit facility, which has
subsequently expired on July 27, 2009.
The following table sets forth the amounts outstanding under our
Tranche A term loan, our Tranche B term loan, our
second lien term loan and our revolving credit facility, the
effective interest rates on such outstanding amounts and amounts
available for additional borrowing thereunder as of
June 30, 2009.
Amount Available
Effective
Amount
for Additional
First and Second Lien Credit Agreements
Interest Rate
Outstanding
Borrowing
(In millions)
Tranche A Term Loan
6.04
%
$
25.5
$
0.0
Tranche B Term Loan
6.04
%
54.5
0.0
Second Lien Term Loan
10.04
%
40.0
0.0
Revolving Credit Facility(1)
6.04
%
—
5.0
Total
$
120.0
$
5.0
(1)
On October 5, 2008, Lehman Brothers Inc., a subsidiary of
Lehman Brothers Holdings Inc., filed for protection under
Chapter 11 of the Federal Bankruptcy Code in the U.S.
Bankruptcy Court for the Southern District of New York. Lehman
Brothers Inc. is a joint lead arranger under our revolving
credit facility and had, as of June 30, 2009, committed to
provide $5.0 million under our $10.0 million revolving
credit facility. We currently do not expect to be able to draw
on the $5.0 million and, as a result, we have
$5.0 million available under the revolving credit facility,
which has subsequently expired on July 27, 2009. We do not
believe, however, that this reduction in availability will have
a material adverse effect on our liquidity and capital resources.
First
Lien Tranche A Term Loan
Our $98.0 million first lien Tranche A term loan bears
interest at the Eurodollar base interest rate plus 5.0% and
requires quarterly principal and interest payments. Quarterly
principal payments on the loan range from $0.1 million to
$6.7 million. The term loan matures on June 30,
2010. In October 2008, upon execution of the amendment to the
first lien credit agreement, we prepaid $22.0 million of
the outstanding Tranche A balance. Due to this payment, no
additional principal payments were required until June 2009. In
June 2009, we prepaid an additional $10.5 million of the
outstanding Tranche A balance. We can prepay the term loan,
in whole or in part, at par.
First
Lien Tranche B Term Loan
Our $62.0 million first lien Tranche B term loan bears
interest at the Eurodollar base interest rate plus 5.0% and
requires quarterly principal and interest payments. Quarterly
principal payments start on September 30, 2010 in the
amount of $13.3 million. The term loan matures on
July 27, 2011. In June 2009, we prepaid $4.5 million
of the outstanding Tranche B balance. We can prepay the
term loan, in whole or in part, at par.
Second
Lien Term Loan
Our $40.0 million second lien term loan bears interest at
the Eurodollar base interest rate plus 9.0% and requires
quarterly interest payments. The term loan matures on
July 27, 2012, at which time the entire $40.0 million
principal amount is due. We can prepay the term loan, in whole
or in part, at par, provided that no amounts remain outstanding
under our first lien Tranche A and B term loans.
First
Lien Revolving Credit Facility
Our $10.0 million first lien revolving credit facility
matured on July 27, 2009. We paid an up-front fee of 2.0%
on the revolving facility of $200,000 and were required to pay a
quarterly commitment fee in respect of the unutilized
commitments at an initial rate equal to 0.5% per annum on the
available balance of the commitment. On October 5, 2008,
Lehman Brothers Inc., a subsidiary of Lehman Brothers Holdings
Inc., filed for protection under Chapter 11 of the Federal
Bankruptcy Code in the U.S. Bankruptcy Court for the
Southern District of New York. Lehman Brothers Inc. is a joint
lead arranger under our revolving credit facility and had, as of
June 30, 2009, committed to provide $5.0 million under
our $10.0 million revolving credit facility. As of
July 27, 2009, the ability to draw on this revolving credit
facility expired.
Our first and second lien credit agreements also contain certain
customary covenants, agreements and events of default, including
restrictions on our ability to incur indebtedness, grant liens,
pay dividends, merge or sell all of our assets, dispose of our
property, use funds for capital expenditures, make investments,
make optional payments or modify debt instruments, or enter into
sale and leaseback transactions, or enter into new lines of
business, among others. In addition, our first and second lien
credit agreements require us to maintain compliance with
specified financial covenants. We must also maintain hedge
agreements in order to provide interest rate protection on a
minimum of 50% of the aggregate principal amounts outstanding
under the term loans during the first three years of the credit
agreement. As of June 30, 2009, we were in compliance with
all of our financial covenants specified in our first and second
lien credit facilities.
The indebtedness under our first and second lien credit
agreements is secured by a pledge on all of our tangible and
intangible assets.
On October 17, 2008, we entered into an amendment to each
of our first and second lien credit agreements with our
respective lenders. The amendment to our first lien credit
agreement provides for, among other things: (a) an increase
in the applicable interest rate margin for Eurodollar loans by
75 basis points to 5%; (b) an increase in permitted
capital expenditures for 2008 and 2009; (c) distributions
of up to $37.9 million to our members in 2008; (d) a
prepayment of $80.0 million of the outstanding balance
under the agreement by us if the Acquisition is
consummated ($15.0 million if stockholder approval was not
obtained by June 29, 2009 or, if stockholder approval was
obtained by June 29, 2009, the Acquisition was not
consummated by September 30, 2009); and (e) an
amendment to the definition of “Change of Control”
under the agreement to include the public company in existence
after the Acquisition. Upon execution of the amendment to our
first lien credit agreement, we prepaid $22.0 million of
our outstanding balance under our first lien credit agreement.
In June 2009, we prepaid $15.0 million of outstanding
balance on the First Lien as required by the amendment.
The amendment to our second lien credit agreement similarly
provides for, among other things: (a) an increase in the
applicable interest rate margin for Eurodollar loans by
75 basis points to 9%; (b) an increase in permitted
capital expenditures for 2008 and 2009; (c) distributions
of up to $37.9 million to our members in 2008; and
(d) an amendment to the definition of “Change of
Control” under the agreement to include the public company
in existence after the Acquisition.
Convertible
Subordinated Promissory Note
Concurrently with the signing of the Transaction Agreement,
Greenhill Europe entered into an agreement with us to purchase a
$22.9 million convertible subordinated promissory note. The
closing of the purchase of the note occurred on October 24,2008, following the execution of the amendments to the first and
second lien credit facilities described above. Under the terms
of the note, Greenhill Europe has the option to convert the note
into our units upon the later to occur of
(a) October 24, 2009 and (b) the closing or the
termination of the Transaction Agreement. If the closing occurs
after October 24, 2009, upon the exercise of its conversion
rights, Greenhill Europe will be entitled to receive
1.947 million shares of our common stock. If the closing
occurs prior to September 22, 2009, GHQ and Greenhill
Europe will enter into an agreement which will entitle Greenhill
Europe to exchange each of our units into which the note is
convertible for 23.1936 shares of our common stock, subject
to certain adjustments. A portion of the $22.9 million in
cash proceeds from the issuance of the note and an additional
$15.0 million in cash from us was distributed to certain
holders of our units in November 2008.
Cash
from the GHQ Trust Account
GHQ’s only significant asset is approximately
$400.9 million in cash, which is held in a trust account
pending completion of the Acquisition. GHQ will use
$77.1 million of the trust account balance to pay unit
holders, up to $8.2 million to pay the deferred
underwriting commissions and discounts, up to $3.0 million
to pay transaction expenses and $4.9 million in costs
related to warrants. GHQ may also be required to use up to
$120.0 million of the trust account balance to pay holders
of GHQ IPO shares who elect to convert into a portion of the
trust account. In addition, 90 days following the closing
of the Acquisition, if we make a valid election under
Section 754 of the Code with respect to the taxable year in
which the closing of the Acquisition occurs, GHQ will make a tax
benefit payment of up to $25.5 million in aggregate out of
the trust account funds to sellers (other than the sellers of
the equity of Baralonco and Syncom) of our units to compensate
them for the tax basis
step-up.
Iridium Communications Inc., the combined enterprise, will have
an increase of approximately $167.3 million to
$282.2 million in cash, depending on the number of holders
of GHQ IPO shares who elect to convert into a portion of the
trust account, following the consummation of the Acquisition. As
a result, in addition to the $65.0 million required to be
prepaid at the closing of the Acquisition, we will be able to
prepay all or a portion of our remaining outstanding debt
balance, although we have not yet decided to do so.
The following table summarizes our outstanding contractual
obligations as of December 31, 2008:
Less than 1
More Than
Contractual
Obligations:
Year
1-3 Years
3-5 Years
5 Years
Total
(In millions)
Long-term debt obligations (1)
$
81.9
(2)
$
15.0
$
40.0
$
0.0
$
136.9
Operating lease obligations (3)
1.8
3.9
3.7
2.0
11.4
Motorola payment obligations
—
12.3
(4)
—
—
12.3
Unconditional purchase obligations (5)
83.8
100.0
100.1
0.0
283.9
Total(6)
$
167.5
$
131.2
$
143.8
$
2.0
$
444.5
(1)
Our long-term debt obligations are comprised of principal
payments due under our first and second lien credit agreements.
The table does not reflect interest payments required to be made
under these credit facilities and related swap agreements,
including $14.4 million that is required to be paid in
2009, assuming no prepayment of such credit facilities. Interest
payments are expected to decline in future years as the
outstanding debt reduces.
The $22.9 million note held by Greenhill Europe is not
included in the table above. We believe the note will be
converted into shares of our common stock upon the later of
October 24, 2009 and the closing of the Acquisition, and
therefore, the note will not result in a cash payment.
(2)
This table reflects our required prepayment of
$80.0 million of the outstanding balance under our credit
agreements if we consummate the Acquisition ($15.0 million
of this amount was prepaid in June 2009 because stockholder
approval was not obtained by June 29, 2009).
(3)
On August 17, 2009, we signed a lease for
21,573 square feet of office space in McLean, Virginia,
which will serve as our new principal headquarters. Since this
lease was executed after December 31, 2008, the payment
obligations under the lease were not reflected on the table
above. The initial term of the lease is 122 months from the
rent commencement date, which shall be the earlier to occur of
(i) the substantial completion of improvements in the
leased property by us, and (ii) 180 days following the
lease commencement date (expected to be October 1, 2009),
subject to delays. The monthly rent for the first twelve months
is $93,762, which will be subject to annual increases. During
its 122 month-period, the amount to be paid under this
lease is approximately $12.7 million.
(4)
The table above reflects $12.3 million of payment
obligations (not including $1.1 million of accrued
interest) due on December 11, 2010 to Motorola pursuant to
the TSA and Note Agreement, which may be accelerated if the
Acquisition qualifies as a triggering event. In addition, we may
be required to make an additional payment of cash and/or stock
if the Acquisition qualifies as a triggering event, distribution
event, change of control or other specified transaction under
the TSA and Note Agreement. Such payment is not reflected in the
table above. For more information, see “Risk
Factors—Iridium Holdings’ agreements with Motorola
contain potential payment provisions which may apply to the
Acquisition; and Iridium Holdings and Motorola are in
discussions with respect to such provisions, the outcome of
which is uncertain,” and Note 5 of the “Unaudited
Pro Forma Condensed Combined Financial Data.”
(5)
Our unconditional purchase obligations include payments under
our operations and maintenance agreement with Boeing, our
agreement with Celestica for the manufacturing of our devices
and various commitments with other vendors.
Certain bonus payments shall be payable to Lockheed Martin
Corporation and Thales Alenia Space if certain milestones are
reached in connection with the design proposals for Iridium
NEXT. As of December 31, 2008, no bonus payments to
Lockheed Martin Corporation or Thales Alenia Space were due. In
2009, management concluded that we were not required to pay such
bonus payments as Lockheed Martin Corporation or Thales Alenia
Space have not met the required conditions.
Off-Balance
Sheet Transactions
We do not currently have, nor have we had in the last three
years, any relationships with unconsolidated entities or
financial partnerships, such as entities referred to as
structured finance or special purpose entities, which would have
been established for the purpose of facilitating off-balance
sheet arrangements or other contractually narrow or limited
purposes.
Seasonality
Our results of operations are subject to seasonal usage changes
for our commercial customers. April through October are
typically our peak months for commercial services revenue and
subscriber equipment sales. Our U.S. government revenue is
less subject to seasonal usage changes since a portion of the
U.S. government revenue is derived from fixed fees per user
rather than usage fees.
Recent
Accounting Pronouncements
In June 2006, the FASB issued FASB Interpretation (FIN)
No. 48, Accounting for Uncertainty in Income
Taxes—an Interpretation of FASB Statement No. 109,
or FIN No. 48. FIN No. 48 applies to
taxes based substantially on income. The FASB deferred the
effective date of FIN No. 48 for certain non-public
enterprises to annual periods beginning after December 15,2008. We will adopt the provisions of FIN No. 48
effective January 1, 2009. Because we are not subject to
federal or state income tax in the United States, and our
foreign affiliate operations are immaterial, the adoption of
FIN No. 48 is not expected to have a material impact
on our financial statements.
In February 2007, the FASB issued SFAS No. 159, The
Fair Value Option for Financial Assets and Financial
Liabilities, including an amendment of FASB Statement
No. 115, or SFAS No. 159.
SFAS No. 159 permits entities to choose to measure
many financial instruments and certain other items at fair value
that are not currently required to be measured at fair value.
Unrealized gains and losses on items for which the fair value
option has been elected are reported in earnings.
SFAS No. 159 does not affect any existing accounting
literature that requires certain assets and liabilities to be
carried at fair value. We have chosen not to adopt the
alternative provided in this statement.
In December 2007, the FASB issued SFAS No. 141R,
Business Combinations, or SFAS No. 141R.
SFAS 141R requires the acquiring entity in a business
combination to record all assets acquired and liabilities
assumed at their respective acquisition-date fair values,
changes the recognition of assets acquired and liabilities
assumed arising from contingencies, changes the recognition and
measurement of contingent consideration, and requires the
expensing of acquisition-related costs as incurred.
SFAS No. 141R also requires additional disclosure of
information surrounding a business combination, such that users
of the entity’s financial statements can fully understand
the nature and financial impact of the business combination.
SFAS No. 141R applies prospectively to business
combinations for which the acquisition date is on or after the
beginning of the first annual reporting period beginning on or
after December 15, 2008. The provisions of
SFAS No. 141R will only impact us if we are a party to
a business combination.
In March 2008, the FASB issued SFAS No. 161,
Disclosures about Derivative Instruments and Hedging
Activities—an amendment of FASB Statement No. 133,
or SFAS No. 161. SFAS No. 161 requires
enhanced disclosures about the objectives of derivative
instruments and hedging activities, the method of accounting for
such instruments under SFAS No. 133 and its related
interpretations, and a tabular disclosure of the effects of such
instruments and related hedged items on an entity’s
financial position, financial performance and cash flows.
SFAS No. 161 is effective for fiscal years beginning
after November 15, 2008, as such, will be effective
beginning in our fiscal year 2009. We adopted
SFAS No. 161 in the first quarter of 2009 and the
adoption did not have a material impact on our consolidated
financial results.
In May 2008, the FASB issued SFAS No. 162, The
Hierarchy of Generally Accepted Accounting Principles, or
SFAS No. 162. SFAS No. 162 identifies the
sources of accounting principles and the framework for selecting
the principles to be used in the preparation of financial
statements of nongovernmental entities that are presented in
conformity with U.S. GAAP. SFAS No. 162 will
become effective 60 days following the SEC’s approval
of the Public Company Accounting Oversight Board (PCAOB)
amendments to AU Section 411, The Meaning of Present
Fairly in Conformity With Generally Accepted Accounting
Principles. Our adoption of SFAS No. 162 will not
have a material impact on our financial statements.
In April 2009, the FASB issued FASB Staff Position
(“FSP”)
FAS 141R-1,
Accounting for Assets Acquired and Liabilities Assumed in a
Business Combination That Arise from Contingencies
(“FSP
No. 141R-1”),
to amend and clarify the initial recognition and measurement,
subsequent measurement and accounting, and related disclosures
arising from contingencies in a business combination under
SFAS 141R. Under the new guidance, assets acquired and
liabilities assumed in a business combination that arise from
contingencies should be recognized at fair value on the
acquisition date if fair value can be determined during the
measurement period. If fair value cannot be determined,
companies should typically account for the acquired
contingencies using existing guidance. FSP
No. 141R-1
has the same effective date as SFAS No. 141R, which
applies prospectively to business combinations for which the
acquisition date is on or after the beginning of the first
annual reporting period beginning on or after December 15,2008. The provisions of FSP
No. 141R-1
will impact us only if we are a party to a business combination.
In April 2009, the FASB issued FSP
No. 107-1,
Interim Disclosures about Fair Value of Financial Instruments
(“FSP
No. 107-1”),
which amends FSP No. 107, Disclosures about Fair Value
of Financial Instruments, and APB Opinion No. 28,
Interim Financial Reporting. FSP
No. 107-1
requires disclosures about fair value of financial instruments
in financial statements for interim reporting periods and in
annual financial statements of publicly-traded companies. This
FSP also requires entities to disclose the method(s) and
significant assumptions used to estimate the fair value of
financial instruments in financial statements on an interim and
annual basis and to highlight any changes from prior periods.
The effective date for this FSP is interim and annual periods
ending after June 15, 2009. We adopted
FSP 107-1
in the second quarter of 2009 and the adoption did not have a
material impact on our financial statements other than a
disclosure.
In April 2009, the FASB issued FSP
No. FAS 115-2
and
FAS 124-2,
Recognition and Presentation of
Other-Than-Temporary
Impairments (“FSP
No. 115-2/124-2”).
FSP
No. 115-2/124-2
amends the
other-than-temporary
impairment guidance for debt securities to make the guidance
more operational and to improve the presentation and disclosure
of
other-than-temporary
impairments on debt and equity securities. FSP
No. 115-2/124-2
is effective for interim and annual periods ending after
June 15, 2009. We adopted FSP
No. 115-2/124-2
in the second quarter of 2009 and the adoption did not have a
material impact on our financial statements.
In May 2009, the FASB issued SFAS No. 165,
Subsequent Events (“SFAS No. 165”),
which establishes general standards of accounting for and
disclosure of events that occur after the
balance sheet date but before financial statements are issued or
are available to be issued. SFAS No. 165 applies
prospectively to both interim and annual financial periods
ending after June 15, 2009. We adopted
SFAS No. 165 in the second quarter of 2009 and the
adoption did not have a material impact on our financial
statements other than disclosures.
In June 2009, the FASB issued SFAS No. 167,
Amendments to FASB Interpretation No. 46(R)
(“FAS No. 167”). The standard requires
an analysis to determine whether a variable interest gives a
company a controlling financial interest in a variable interest
entity. It also requires an ongoing reassessment and eliminates
the quantitative approach previously required for determining
whether the company is the primary beneficiary. The standard is
effective January 1, 2010. We are currently evaluating the
requirements of this standard.
Quantitative
and Qualitative Disclosure Regarding Market Risk
We are exposed to interest rate risk in connection with our
variable rate debt under our first and second lien credit
agreements, under which loans bear interest at a floating rate
based on a Eurodollar applicable borrowing margin. For variable
rate debt, interest rate changes generally do not affect the
fair value of the debt instrument, but do impact future earnings
and cash flows, assuming other factors are held constant. Based
on our $136.9 million outstanding borrowing on the term
debt available under our credit agreements at December 31,2008, and without giving effect to the hedging arrangement
described below, a 1.0% change in interest rates would result in
a change to interest expense of approximately $1.4 million
annually. In June 2009, we prepaid $15.0 million under our
credit agreements because stockholder approval for the
Acquisition was not obtained by June 29, 2009. Currently,
based on our $120.0 million outstanding borrowing on the
term debt available under our credit agreements, and without
giving effect to the hedging arrangement described in the next
sentence, a 1.0% change in interest rates would result in a
change to interest expense of approximately $1.2 million
annually. As required by our credit agreements, we currently
maintain two interest rate swap agreements with respect to
$86.0 million portion of the principal amount to hedge a
portion of our interest rate risk.
For purposes of this Section, the terms “we,”“us” and “our” refer to Iridium Holdings LLC
and its subsidiaries.
Business
We are the second largest provider of mobile voice and data
communications services via satellite, and the only provider of
mobile satellite communications services offering 100% global
coverage. Our satellite network provides communications services
to regions of the world where existing wireless or wireline
networks do not exist or are impaired, including extremely
remote or rural land areas, open ocean, the Polar Regions and
regions where the telecommunications infrastructure has been
affected by political conflicts or natural disasters. Demand for
our mobile satellite services and products is growing as a
result of the increasing need for reliable communications
services in all locations.
We offer voice and data communications services to the
U.S. and foreign governments, businesses, non-governmental
organizations and consumers via our constellation of 66 in-orbit
satellites, seven in-orbit spares and related ground
infrastructure, including a primary commercial gateway. We
utilize an interlinked mesh architecture to route traffic across
our satellite constellation using radio frequency crosslinks.
This unique architecture minimizes the need for ground
facilities to support the constellation, which facilitates the
global reach of our services and allows us to offer services in
countries and regions where we have no physical presence.
The U.S. government, directly and indirectly, has been and
continues to be our largest customer, generating
$67.8 million, or 21.1%, of our total revenues for the year
ended December 31, 2008, and $36.6 million, or 23.1%,
of our total revenues for the six months ended June 30,2009. The DoD owns and operates a dedicated gateway that is only
compatible with our satellite network. The U.S. Army, Navy,
Air Force and Marines, as well as other nations’ military
forces, use our voice and data services for a variety of
mission-critical applications, including for combat, training
and daily operations. In addition to voice and data products
used by soldiers for primary and backup communications
solutions, our products and related applications are installed
in ground vehicles, unmanned aerial vehicles, helicopters and
aircraft and used for command and control and situational
awareness purposes. Our satellite network provides the DoD with
a secure communication system because traffic is routed across
our satellite constellation before being brought down to earth
via the dedicated, secure DoD gateway, thus reducing the risk of
electronic jamming and eavesdropping. Since our inception, the
DoD has made significant investments to build a dedicated
gateway in Hawaii and to purchase our handsets and devices, all
of which are only compatible with our satellite network. The DoD
would have to incur significant time and expense to replicate
our network architecture and replace our voice and data services
with a competing service provider.
Our commercial end-user base, which we view as our primary
growth engine, is very diverse and includes the emergency
services, maritime, government, utilities, oil and gas, mining,
leisure, forestry, construction and transportation markets. Many
of our end-users increasingly view our products and services as
critical to their daily operations and integral to their
communications and business infrastructure. For example,
multinational corporations in various sectors use our services
for business telephony, email and data transfer services and to
provide pay telephony services for employees in communities
inadequately served by terrestrial networks. Ship crews and
passengers use our services to send and receive email and data
files as well as facsimiles, and to receive electronic
newspapers, weather reports, emergency bulletins and electronic
charts. Shipping operators use our services to manage inventory
on board ships and to transmit data, such as course, speed and
fuel stock. Aviation-based end-users use our services for
air-to-ground
telephony and data communications.
We sell our products and services to commercial end-users
exclusively through a wholesale distribution network,
encompassing approximately 65 service providers, 110 value-added
resellers and 45 value-added manufacturers, who either sell
directly to the end-user or indirectly through other service
providers, value-added resellers or dealers. These distributors
often integrate our products and services with other
complementary hardware and software and have developed over 200
unique applications for our products and services targeting
specific vertical markets. We expect that demand for our
services will increase as more applications are developed for
our products and services.
We and our partners have a history of developing innovative
products, services and applications to expand our markets. These
innovations have driven our market expansion and increased
service revenue. For example, in 2005 we introduced the Iridium
9601 short burst data modem, which is typically used in
tracking, sensor and data applications and systems. In October
2008, we began offering the Iridium OpenPort terminal,
specifically engineered for maritime voice and data use,
including high bandwidth and flexible configuration options. We
believe that the relatively low cost and high functionality of
the Iridium OpenPort terminal will allow us to expand and
further penetrate the maritime market. In addition, pursuant to
a DoD funded research and development contract, we are also
developing new services, such as “Netted Iridium,”
which provides
push-to-talk
capability and is being used today by soldiers in the field for
improved
“over-the-horizon”
tactical communications capability. We and our partners also
design innovative applications for our products and services
which are tailored to the specific needs of end-users in various
industries. For example, oil-field service companies, like
Schlumberger Limited, use our services to run applications that
allow remote monitoring and operation of equipment and
facilities, such as oil pipelines and offshore drilling
platforms.
At December 31, 2008 and June 30, 2009, we had
approximately 320, 000 and 347,000 subscribers worldwide,
respectively, representing a 36.6% and 23.9% increase compared
to December 31, 2007 and June 30, 2008, respectively.
Over the five-year period from December 31, 2003 to
December 31, 2008, our subscriber base grew from 94,000 to
320,000, a compound annual growth rate of 27.8%. Total revenues
increased from $260.9 million in 2007 to
$320.9 million in 2008.
Industry
We compete in the mobile satellite services sector of the global
communications industry. Mobile satellite services operators
provide voice and data services using a network of satellites
and ground facilities. Mobile satellite services are usually
complementary to, and interconnected with, other forms of
terrestrial communications services and infrastructure and are
intended to respond to users’ desires for connectivity in
all locations. Customers typically use satellite voice and data
communications in situations where existing terrestrial wireline
and wireless communications networks do not exist or are
impaired. Further, many regions of the world benefit from
satellite networks, such as rural and developing areas that lack
adequate wireless or wireline networks, and ocean and Polar
Regions where few alternatives exist, and regions where the
telecommunications infrastructure has been affected by political
conflicts and natural disasters.
Worldwide, government organizations, military and intelligence
agencies, natural disaster aid associations, event-driven
response agencies and corporate security teams depend on mobile
and fixed voice and data communications services on a regular
basis. Businesses with global operations require reliable
communications services when operating in remote locations
around the world. Mobile satellite services users span the
emergency services, maritime, government, utilities, oil and
gas, mining, leisure, forestry, construction and transportation
sectors, among others. Many existing customers increasingly view
satellite communications services as critical to their daily
operations.
We believe that the increasing penetration and continued growth
of the terrestrial wireless industry provide a significant
market opportunity for the mobile satellite services industry.
According to GSM Association & Europa Technologies,
there were 3.5 billion global cellular subscribers served
by 1,050 networks throughout the world as of January 2009. We
believe that growth in the terrestrial wireless industry has
increased awareness for the need for reliable, mobile voice and
data communication services among customers. In addition,
despite significant penetration and competition, terrestrial
wireless systems only serve a small fraction of the earth’s
surface and are focused mainly in those areas where people live,
excluding oceans and other remote regions where ships, airplanes
and other remote assets are located. By offering mobile
communications services with global voice and data coverage,
mobile satellite service providers address the increasing demand
from governments, businesses and individuals for connectivity
and reliability in locations not consistently served by wireline
and wireless terrestrial networks. In a 2009 report, Northern
Sky Research indicated that it expected mobile satellite
services wholesale revenues to grow at a compound annual growth
rate of 12% over the five-year period from 2010 to 2015.
The mobile satellite services industry also benefits from the
continued development of innovative, lower cost technology and
applications integrating mobile satellite products and services.
Growth in demand for mobile satellite voice services is driven
in large part by the declining cost of these services, the
diminishing size and lower costs of voice, data and
machine-to-machine
devices, as well as the rollout of new applications tailored to
the specific needs of customers across a variety of markets.
Communications industry sectors include:
•
mobile satellite services, which provide customers with voice
and data connectivity to mobile and fixed devices using ground
facilities and networks of geostationary satellites, or GEO
(located approximately 22,300 miles above the earth’s
surface), medium earth orbit satellites (located between
approximately 6,400 and 10,000 miles above the earth’s
surface), or low earth orbit satellites, or LEO (located between
approximately 300 and 1,000 miles above the earth’s
surface), such as our satellite constellation;
•
fixed satellite services, which use GEO satellites to provide
customers with broadband communications links between fixed
points on the earth’s surface; and
•
terrestrial services, which use a terrestrial network to provide
wireless or wireline connectivity and are complementary to
satellite services.
Within the major satellite sectors, fixed satellite services and
mobile satellite services operators differ significantly from
each other with respect to size of antenna, types of services
offered and quality of services. Fixed satellite services
providers, such as Intelsat Ltd., Eutelsat S.A. Communications
and SES S.A. are characterized by large, often stationary or
“fixed,” ground terminals that send and receive
high-bandwidth signals to and from the satellite network for
video and high speed data customers and international telephone
markets. On the other hand, mobile satellite services providers,
such as us, Inmarsat, Globalstar, and Orbcomm focus more on
voice and data services, where mobility or small sized terminals
are essential.
A LEO system, such as the system we currently operate, has lower
transmission delays than a GEO system such as that operated by
Inmarsat due to the shorter distance signals have to travel,
which enables the use of smaller antennas on devices. We believe
the interlinked mesh architecture of our constellation combined
with the global footprint of our satellites provides us with a
unique advantage over other LEO satellite operators like
Globalstar and Orbcomm, allowing us to route voice and data
transmissions to and from anywhere on the earth’s surface
via a single gateway. As a result, we are the only mobile
satellite services operator offering real-time, low latency
services with 100% global coverage. Furthermore, we are the only
mobile satellite
service provider with full coverage of the Polar Regions, which
represented approximately 11% of our traffic between 2006 and
2008.
Our
Competitive Strengths
•
Only provider with 100% global coverage. Our
satellite network operates in a LEO and offers 100% global
coverage. In contrast, GEO satellite systems are only able to
cover approximately 70% of the earth’s surface as they are
generally positioned at the Equator. In addition, none of our
LEO competitors offer 100% global coverage. Our satellite
network relies on an interlinked mesh architecture to transmit
signals, which reduces the need for multiple ground stations and
facilitates the global reach of our services. Other satellite
service providers use a bent pipe architecture that requires
voice and data transmissions to be immediately routed to nearby
ground stations, which limits their ability to provide global
coverage. As a result, we believe that we are well-positioned to
capture the growth in our industry from end-users who require
reliable communications service in all locations.
•
High quality and reliable voice and data
services. We believe we offer high quality and reliable
voice and data services. The LEO design of our satellite
constellation produces minimal transmission delays relative to
GEO systems due to its relatively close proximity to earth and
the shorter distance our signals have to travel. Additionally,
LEO systems have smaller handset antenna requirements and are
less prone to signal blockage caused by terrain than GEO
satellite networks. Our primary LEO-based competitor has
publicly announced that it has experienced satellite failures
and other problems impacting its constellation that are
affecting and will continue to affect its ability to provide
commercially acceptable two-way voice and data service for the
foreseeable future.
•
Solutions for a broad range of vertical markets. We
have created additional demand for our products and services and
expanded our target market by partnering with our distributors
to develop new products, services and applications. The
specialized needs of our global end-users span many markets,
including emergency services, maritime, government, utilities,
oil and gas, mining, leisure, forestry, construction and
transportation. Our communication solutions have become an
integral part of the communications and business infrastructure
of many of our end-users. In many cases, our service provides
the only connectivity solution for these applications, and our
products are often integrated by the original manufacturers or
in the aftermarket into expensive machinery, such as military
equipment and sophisticated monitoring devices.
•
Strategic relationship with the DoD. The
U.S. government is our largest customer, and we have had a
strategic relationship with the DoD since our inception in late
2000. We provide the DoD, as well as other U.S. government
agencies, with mission-critical mobile satellite products and
services. Our satellite handsets are one of the few commercial
handsets available on the market that are capable of Type I
encryption accredited by the United States National Security
Agency for “Top Secret” communications. In addition,
the DoD has made significant investments to build a dedicated
gateway in Hawaii to allow DoD users to access our network on a
secure basis. This gateway is only compatible with our satellite
network.
•
Large, value-added wholesale distribution
network. We sell our products and services to
commercial end-users exclusively through a wholesale
distribution network of approximately 65 service providers, 110
value-added resellers and 45 value-added manufacturers. By
relying on distributors to manage end-user sales, we believe
that our model leverages their expertise in marketing to their
target customers while lowering
overall customer acquisition costs and mitigating certain risks
such as consumer credit risk. Our distributors further support
our growth by developing new applications and solutions for our
products and services, often combining our products with other
technologies, such as GPS and terrestrial wireless technology,
to provide integrated communications solutions for their target
customers.
Our
Business and Growth Strategies
•
Develop new products and services for commercial markets to
further expand and penetrate our target markets. We expect
to continue to develop, together with our partners, tailor-made
products, services and applications targeted to the maritime,
aviation, land-based handset, and
machine-to-machine
markets. We believe these markets represent an attractive
opportunity for subscriber growth and increased airtime usage.
We expect the development of a netted
(push-to-talk)
application to provide us in the future with potential new
commercial applications in public safety, fishing and field
worker communications. The high integrity GPS service
(“iGPS”) technology we have developed with a partner
is expected to enable new commercial applications in enhanced
navigation services such as precision farming, high accuracy
navigation for oil and gas exploration and construction
services. In addition, our partners regularly develop
specialized end-user applications targeted at specific markets.
•
Develop new services for the DoD. We are developing
additional capabilities for our network to enhance its utility
to the DoD. In conjunction with the Marine Corps Warfighting
Lab, we are currently expanding the capabilities of our
satellite handsets to permit netted
(push-to-talk)
group calling radio services, providing
over-the-horizon
user-defined tactical radio networks to DoD users. We are also
developing capabilities that will enable iGPS service, which is
expected to be used as an embedded component in several DoD
applications. These and other services in development provide us
with opportunities to increase revenue from the DoD, our anchor
customer. In addition, we expect that our Iridium NEXT satellite
constellation will incorporate unique features and capabilities
tailored to meet the specific needs of the DoD.
•
Leverage our fixed cost infrastructure by growing our service
revenues. Our business model is characterized by high
fixed costs, primarily costs associated with designing,
building, launching and maintaining our satellite constellation.
However, the incremental cost of providing service to additional
end-users is relatively low. We believe that service revenues
will be our largest source of future growth and profits and
intend to focus on growing both our commercial and government
service revenues in order to leverage our fixed cost
infrastructure.
•
Expand our geographic sales reach. Our products and
services are offered in over 100 countries. While our network
can be used throughout the world, we are not currently licensed
to sell our products and services directly in certain countries,
including Russia, China, Mexico, South Africa and India. We are
currently in discussions with regulatory officials in these and
other countries to obtain licenses and, to the extent we are
successful in obtaining such licenses, we believe the expanded
reach of our product and service distribution platform will
accelerate our growth.
•
Develop Iridium NEXT constellation. We are
developing our next-generation satellite constellation, Iridium
NEXT, which we expect to begin launching in 2014. Iridium NEXT
will be backward compatible with our current system and will
replace the existing constellation with a more powerful
satellite network, which we anticipate will have more than twice
the capacity. Iridium NEXT will maintain our current
system’s unique attributes, including the capability to
upload new software, while providing new and
enhanced capabilities, such as higher data speeds and increased
capacity. In addition, Iridium NEXT will be designed to host
secondary payloads which we expect to defray a portion of the
capital expenditures related to Iridium NEXT as well as to
generate recurring revenues. We believe Iridium NEXT’s
increased capabilities will expand our target markets by
enabling us to offer a broader range of products and services,
including a wider array of broadband data services.
History
We are the successor to Iridium LLC, a Delaware limited
liability company formed in 1996 by Motorola and several other
partners. Motorola launched Iridium LLC with the mission of
providing global mobile satellite services through a network of
66 LEO satellites, which was completed and deployed for a cost
of approximately $3.4 billion. Motorola invested
significantly in research and development, the acquisition of
spectrum and global licenses and in market development efforts
during the development of the constellation. Beginning in 1997,
after seven years of planning and development, Iridium LLC
successfully launched its constellation, including active
satellites and in-orbit spares. In November 1998, Iridium LLC
began offering commercial services principally focused on the
retail consumer market, launching the first commercially
available global satellite phone service. On August 13,1999, Iridium LLC filed voluntary petitions under
Chapter 11 of the Bankruptcy Code in the United States
Bankruptcy Court for the District of Delaware. Iridium LLC
remained in possession of its assets and properties and
continued to operate its businesses as a
debtor-in-possession.
On December 7, 2000, Iridium Holdings LLC, its wholly owned
subsidiary, Iridium Satellite, and Iridium Constellation, a
wholly owned subsidiary of Iridium Satellite, were organized as
limited liability companies under the laws of the State of
Delaware. On December 11, 2000, we acquired Iridium
LLC’s operating assets, including the satellite
constellation, certain portions of the terrestrial network,
ground spare satellites and real property. In addition, we also
acquired from Motorola, either outright or by license, the
intellectual property rights necessary to operate the system and
produce related equipment and took assignment of applicable
licenses from the FCC. In connection with the acquisition of
these assets, we entered into a transition services, products
and asset agreement with Motorola and an operations and
maintenance agreement with Boeing relating to the operations of
our constellation. We were also awarded our first services
contract with the DoD. In March 2001, we reintroduced commercial
satellite services through our subsidiary, Iridium Satellite. In
2002, we launched into orbit an additional seven spare
satellites.
Distribution
Channels
We sell our products and services to our commercial customers
exclusively through a wholesale distribution network of
approximately 65 service providers, 110 value-added resellers
and 45 value-added manufacturers. These distributors sell our
products and services to the end-user, either directly or
indirectly through service providers, value-added resellers or
dealers. Our distributors often integrate our products and
services with other complementary hardware and software and have
developed over 200 unique solutions targeting our main vertical
markets. We also sell our services directly to
U.S. government customers, including the DoD, pursuant to
fixed-fee arrangements. The U.S. government and
international government agencies purchase additional services
as well as our products and related applications through our
network of distributors.
We provide our distributors with certain support services,
including assistance with coordinating end-user sales, strategic
planning and training, as well as helping them respond to new
opportunities for our products and services. We have
representatives covering three regions around the world to
better manage our distributor relationships: the Americas, which
includes North, South and Central America; Asia Pacific, which
includes Australia and Asia; and Europe,
Russia, the Middle East and Africa. We also maintain various
online management tools that allow us to communicate efficiently
with our distributors. We similarly provide support services to
our U.S. government customers. By relying on our
distributors to manage end-user sales, we believe our model
reduces certain risks and costs related to our business, such as
consumer credit risk and sales and marketing costs, while
providing us with a broad and expanding distribution network for
our products and services with access to diverse and
geographically dispersed niche markets. We are also able to rely
on the specialized expertise of our distributors, who continue
to develop innovative and improved solutions and applications
integrating our product and service offerings, providing us with
a unique platform to support our growth.
Commercial
Markets
We view our commercial end-user base as our primary growth
engine. Our service providers and value-added resellers are the
main distribution channel for our products and services in the
commercial markets. Service providers and resellers purchase our
products and services and market them directly to their
customers or indirectly through independent dealers. They are
each responsible for customer billing, end-user customer care,
managing credit risk and maintaining all customer account
information. If our service providers or value-added resellers
provide our services through dealers, these dealers will often
provide such services directly to the end-user. Service
providers typically purchase our most basic products and
services, such as mobile voice services and related satellite
handsets, and offers additional services such as voice mail.
Unlike service providers, our resellers provide a broader array
of value-added services specifically targeted to the niche
markets they serve, integrating our handsets, transceivers,
high-speed data devices and short burst data modems with other
hardware and software to create packaged solutions for
end-users. Examples of these applications include cockpit voice
and data solutions for use by the aviation sector and voice,
data and tracking applications for industrial customers, the DoD
and other U.S. and international government agencies. Many
of our resellers specialize in niche vertical markets such as
maritime, aviation,
machine-to-machine
and government markets where high-use customers with specialized
needs are concentrated. Our principal service providers include
dedicated satellite service providers such as Vizada and Stratos
Global Corporation, as well as some of the largest
telecommunications companies in the world, such as Telstra
Corporation, KDDI Corporation and the SingTel Group. Our
principal resellers include ARINC Incorporated, Blue Sky
Network, EADS N.V., General Dynamics Corporation, Honeywell
International Inc., NAL Research Corporation and Zunibal S.A.
We also sell our products to value-added manufacturers, which
integrate our transceivers and short burst data devices into
their propriety hardware and software. These manufacturers
produce specialized equipment, including integrated ship
communication systems and secure satellite handsets, such as
handsets with National Security Agency Type I encryption
capability, which they offer to end-users in maritime,
government and
machine-to-machine
markets. As with our service providers and resellers,
manufacturers sell their product solutions either directly or
through other distributors, including some of our service
providers and resellers, for customer sales. These manufacturers
sell services on the product solutions to endorsers only through
other distributors. Our principal manufacturers include AirCell
Inc., ITT Corporation, General Dynamics Corporation and
Thrane & Thrane A/S.
In addition to resellers and manufacturers, we maintain
relationships with approximately 30 value-added developers. We
typically license these companies with technical information on
our products, which they then use to develop new software and
hardware that complements our products and services in line with
the specifications of our resellers and manufacturers. These
products include airline tracking and flight management
applications and crew email applications for the maritime
industry. We believe that working with value-added developers
allows us to create new platforms for our products and services
and increases our market opportunity while reducing
our overall research and development expenses. Our principal
value-added developers include Active Web Solutions, Boeing,
Global Marine Networks and Ontec Co. Ltd.
We maintain a stable pricing model for our commercial products
and services with a consistent wholesale rate structure. Under
our distribution agreements, we charge our distributors
wholesale rates for commercial products and services, based on
volume of data transmitted or duration of voice calls according
to the types of services they distribute to end-users, subject
to discount arrangements. We also charge fixed monthly access
fees per subscriber for certain services. Our distributors are
in turn responsible for setting their own pricing to their
customers. Our agreements with distributors typically have terms
of one year and are automatically renewable for additional one
year terms, subject to termination rights. This model results in
attractive margins for airtime usage, monthly access fees and
subscriber equipment sales. We believe this model provides
incentives for distributors to focus on selling our commercial
product and service portfolio and developing additional
applications. An additional benefit of this model is simplicity.
This efficient model lessens back office complexities and costs
and allows distributors to remain focused on revenue generation.
Vizada and Stratos Global Corporation represented 14.9% and
12.6% of our revenues for the year ended December 31, 2008,
and 11.9% and 10.0% of our revenue for the six months ended
June 30, 2009, respectively. During April 2009, Inmarsat,
one of our main competitors, acquired Stratos Global
Corporation. No other distributor represented more than 10.0% of
our revenue for the year ended December 31, 2008 or the six
months ended June 30, 2009.
Government
Markets
We provide mission critical mobile satellite products and
services to all military branches of the DoD as well as other
U.S. government customers. Military forces contribute
significantly and increasingly to the demand for mobile
satellite product and service solutions. These users require
voice and two way data capability with global coverage, low
latency, mobility and security and often have no alternate
terrestrial communication capability, or rely on mobile
satellite services as an important backup system. We believe we
are well positioned to take advantage of increased demand from
such users. Our Iridium 9505A satellite handsets are one of the
few commercial handsets available on the market that are capable
of Type I encryption accredited by the National Security Agency
for “Top Secret” communications. In addition, the DoD
has made significant investments to build a dedicated gateway in
Hawaii and in purchasing our handsets and devices to be used on
our system, all of which are only compatible with our satellite
network.
We provide airtime and airtime support to U.S. government
customers pursuant to an Enhanced Mobile Satellite Services
(EMSS) contract managed by the Defense Information Systems
Agency (“DISA”), which administers the contract on
behalf of DoD and other U.S. government and international
customers authorized by DoD to use EMSS services. The contract,
entered into in April 2008, provides for a one-year base term
and up to four additional one-year options exercisable at the
election of the U.S. government. In March 2009, prior to
the expiration of the initial one-year base term agreement, the
U.S. government elected to exercise the first of the four
additional one-year options. The current term of the EMSS
contract will expire on March 31, 2010, subject to further
extension by the U.S. government as described above. Under
this agreement, we provide U.S. government customers bulk
access to our airtime services through the DoD’s dedicated
gateway, receiving from subscribers (i) fixed monthly fees
on a per user basis for airtime services and voice usage,
(ii) fixed monthly fee per user for paging services, and
(iii) a tiered pricing plan, based on usage per device for
data services. The U.S. government is not required to
guarantee a minimum number of users pursuant to this agreement.
Services furnished under the agreement include voice, data,
messaging and paging services. We do not sell our products and
related applications directly to U.S. government customers
under the existing
agreement. These products are sold to U.S. government
customers through our network of distributors, which typically
integrate them with other products and technologies.
We also provide maintenance services to the DoD’s dedicated
gateway in Hawaii pursuant to the Gateway Maintenance and
Support Services Agreement (GMSSA) which is a separate contract
managed by DISA, which also was entered into in April 2008. As
with the EMSS contract, GMSSA provides for a one-year base term
and up to four additional one-year options exercisable at the
election of the U.S. government. In March 2009, prior to
the expiration of the initial one-year base term on
March 31, 2009, the U.S. government elected to
exercise the first of the four additional one-year options. The
current term of the maintenance contract will expire on
March 31, 2010, subject to further extension by the
U.S. government as described above. The
U.S. government may terminate either of these contracts, in
whole or in part, at any time.
U.S. government services accounted for approximately 21.1%
and 23.1% of our total revenues for the year ended
December 31, 2008 and the six months ended June 30,2009, respectively. Our U.S. government revenue includes
only revenue derived from our two agreements with the DISA as
well as other contract revenue related to research and
development projects with the DoD. Such revenues do not include
services to U.S. government agencies, including the DoD and
the Federal Emergency Management Agency (“FEMA”),
purchased through our distributors and offered through our
commercial gateway. They also do not include revenues from
services to most
non-U.S. government
agencies worldwide, including defense agencies. We consider such
services commercial services, as they are provided through our
commercial gateway. Although we cannot determine the amount of
U.S. government revenues derived from our commercial
gateway, we do not believe that such revenues are material.
Vertical
Markets
The specialized needs of our global customers span many markets.
Our system is able to offer our customers cost-effective
communications solutions with 100% global coverage in areas
underserved or unserved by existing telecommunications
infrastructures. Our mission critical communication solutions
have become an integral part of the communications and business
infrastructure of our end-users. In many cases, our service is
the only connectivity for these critical applications or is used
to complement terrestrial applications to provide a full
extension to their mobile communications solutions.
Our current principal markets include land-based handset,
maritime, aviation,
machine-to-machine
and government.
Land-based
Handset
We are one of the leading global providers of mobile satellite
communications services to the land-based handset sector,
providing handset services to areas not served or inconsistently
served by existing terrestrial communications networks. As of
March 2009, TMF Associates estimates that approximately 632,000
satellite handsets were in operation worldwide. Mining,
forestry, construction, oil and gas, utilities, heavy industry
and transport companies as well as public safety and disaster
relief agencies constitute the largest land-based handset
end-users. We believe that increasing demand for mobile
communications devices operating outside the coverage of
terrestrial networks, combined with our small, lightweight,
durable handsets with 100% global coverage, including our
recently launched next generation handsets, will allow us to
continue to capitalize on growth opportunities among such users.
Voice and data: Multinational corporations in
various sectors use our services for business telephony, email
and data transfer services and to provide pay telephony
services for employees in communities inadequately served by
terrestrial networks. Oil and gas and mining companies, for
example, provide their personnel with our equipment solutions to
survey new drilling and mining opportunities and for conducting
routine operations in remote areas that are not served by
cellular communications networks. In addition, a number of
recreational, scientific and other outdoor segments rely on our
mobile satellite handsets and services for use when beyond
terrestrial wireless coverage;
•
Mobile and remote office connectivity: A variety of
enterprises use our services to access voice calls, data, email,
internet and corporate network connections;
•
Public safety and disaster relief: Relief agencies,
such as FEMA, have built our products and services into their
emergency response plans, particularly in the aftermath of
Hurricanes Katrina, Rita, Wilma and Ike, the Asian tsunami and
other natural disasters. These agencies generate significant
demand for both our voice and data products, especially during
the late summer months in anticipation of the hurricane season
in North America. Government responses to natural disasters
continue to increase demand for our products and services in
this sector; and
•
Public telephone infrastructure: Telecommunications
providers use our services to satisfy regulatory mandates to
provide communications services to rural populations currently
not served by terrestrial infrastructure. Telstra Corporation,
for example, uses our services to comply with its obligations to
provide communications services to customers in certain remote
parts of Australia.
Maritime
The maritime market is one of our most significant market
opportunities. Currently, our principal competitor in this
market is Inmarsat. End-users of our services in the maritime
sector include companies engaged in merchant shipping, passenger
transport, fishing, energy and leisure. Merchant shipping
accounts for a significant portion of our maritime revenues, as
those ships spend the majority of their time at sea away from
coastal areas and out of reach of terrestrial communication
services. Our products and services targeting the maritime
market are high value with high average revenue per subscriber
with multiple users utilizing a single device. Once a system is
installed on a vessel, it typically generates a long-term
recurring revenue stream from the customer.
We believe increased regulatory mandates and increased demand
for higher-speed, low-cost data services will allow us to
capitalize on significant growth opportunities in this growing
market. We expect the recent introduction of our new high-speed
data service, Iridium OpenPort, which offers speeds of up to 128
kilobits per second (“kbps”) and up to three voice
lines, will present a cost competitive, high speed communication
alternative to end-users in the maritime market, which will
allow us to more effectively compete with Inmarsat’s strong
position in the maritime data sector.
Maritime end-users utilize our satellite communications services
for the following:
•
Data and information applications: Ship crews and
passengers use our services to send and receive email and data
files as well as facsimiles, and to receive other information
services such as electronic newspapers, weather reports,
emergency bulletins and electronic charts. We believe the
introduction of Iridium OpenPort will provide a particularly
attractive alternative for shipping operators looking for cost
savings, and for luxury yachts, tug boats and other fishing and
cruising vessels for which traditional marine satellite systems
have typically been too costly;
Voice services for passengers and crew: Maritime
global voice services are used for both vessel operations and
social communications for crew welfare. Merchant shipping
operators, such as Stolt-Nielsen S.A., increasingly use our
services to provide phone cards and or payphones for crew use
with preferential rates during off peak times during the day;
•
Vessel management, procurement and asset
tracking: Shipping operators, such as Exmar
Shipmanagement N.V., Lauritzen Fleet Management A/S and Zodiac
Shipping Ltd., use our services to manage inventory on board
ships and to transmit data, such as course, speed and fuel
stock. Our services can be integrated with a global positioning
system to provide a position reporting capability. Many fishing
vessels are required by law to carry terminals using approved
mobile satellite services for tracking purposes as well as to
monitor catches and to ensure compliance with geographic fishing
restrictions. European Union regulations, for example, require
EU-registered fishing vessels of over 15 meters to carry
terminals for the purpose of positional reporting of those
vessels. Furthermore, new security regulations in certain
jurisdictions are expected to require tracking of merchant
vessels in territorial waters which will drive further
growth; and
•
Safety applications: Ships in distress, including
potential piracy, hijack or terrorist activity, rely on mobile
satellite voice and data services. The Ship Security and Alert
Systems (“SSAS”) regulations were adopted by the
International Maritime Organization (“IMO”) to enhance
maritime security in response to the increasing threat from
terrorism and piracy. After July 1, 2004, most deep-sea
passenger and cargo ships must be fitted with a device that can
send an alert message containing the ship’s ID and position
whenever the ship is under threat or has been compromised. We
and our partners are developing several solutions to meeting
this requirement for merchant vessels. The Global Maritime
Distress and Safety System (“GMDSS”) is an application
built to alert a maritime rescue coordination center of their
situation and position, which then coordinates rescue efforts
among ships in the area. The IMO requires all cargo vessels over
300 gross tons and certain passenger vessels, irrespective
of size, that travel in international waters to carry distress
and safety terminals that use GMDSS applications. Our products
and services are currently not certified to be used in GMDSS
applications. However, we are currently working on obtaining
such certification and expect to offer such services once these
are obtained.
Aviation
We are one of the leading global providers of mobile satellite
communications services to the aviation sector. In the aviation
sector, our satellite communications services are used
principally by corporate jets, corporate and government
helicopter fleets, specialized general aviation fleets, such as
medevac companies and fire suppression and other specialized
transport fleets, and high-end personal aircraft. Increasingly,
our services are being employed by airline operators for
passenger and cockpit voice services and safety applications.
Our voice and data devices from our manufacturers and developers
have become factory options for a range of airframe
manufacturers and fractional operators in business aviation and
air transport, such as NetJets Inc., Gulfstream Aerospace
Corporation, Bombardier Inc., Cessna Aircraft Company and
Embraer, and have become standard equipment on some of their
aircraft fleets. Our devices are also installed in the
aftermarket on a variety of aircraft. As of June 30, 2009,
we estimate that approximately 22,000 active our systems were
installed on aircraft.
According to Euroconsult, there were approximately 338,000
commercial airplanes, business jets, helicopters and high-end
general aviation aircraft in active use around the world as of
December 31, 2006. Based on internal studies and public
documents, we estimate that approximately 10% of such aircraft
have installed mobile satellite systems as of June 30,
2009. We believe the low level of penetration in this market,
combined with recent regulatory changes and the continued
development of innovative, cost-effective applications by our
distributors, will provide us with significant growth
opportunities in the future.
Aviation operational communications: Aircraft crew
and airline ground operations use our services for
air-to-ground
telephony and data communications. This includes the automatic
reporting of an aircraft’s position and mission critical
condition data to the ground and controller-pilot data link
communication for clearance and information services. We provide
critical communications applications for airlines and air
transport customers such as Continental Airlines, Cathay Pacific
Airways and El Al Airlines. Many of these operators rely on our
services and applications because there is no other
communications service available to them in areas such as the
Polar Regions. We maintain relationships with ARINC Incorporated
and SITA, two of the leading providers of voice and data network
communications service and applications to the airline sector,
which integrate our products and services into their offerings;
•
Aviation passenger communications: Commercial and
private fleet aircraft passengers use our services for
air-to-ground
telephony, fax services and data communications. Operators are
currently using our services to allow passengers to email using
their own Wi-Fi enabled mobile phones, including Blackberry
devices or other similar smartphones, without causing
interference to aircraft controls. We believe our
distributors’ small, lightweight cost-effective solutions
offer an attractive alternative for airlines and operators,
particularly small fleet operators;
•
Rotary and general aviation applications: We are
also a major supplier for rotary aviation applications to
end-users including medevac, law enforcement, oil and gas, and
corporate work fleets, among others. Companies such as Air
Logistics, EagleMed and Air Evac Lifeteam rely on applications
from our distributors for traditional voice communications,
fleet monitoring and management and real time flight
diagnostics; and
•
Air traffic control communications (“safety
applications”): In November 2007, the
International Civil Aviation Organization (“ICAO”),
approved standards and recommended practices allowing us to
provide Aeronautical Mobile Satellite (Route) Services to
commercial aircraft on long-haul routes, many of which fly over
the Polar Regions. The ICAO decision permits member states to
approve our equipment for communications on transoceanic
flights, pending certification. The first certification trials
are currently underway. Upon receiving such certification,
aircraft crew and air traffic controllers will be able to use
our services for data and voice communication between the flight
deck and ground based control facilities. We are the only
provider capable of offering such critical flight safety
applications around the entire globe, including the Polar
Regions. We believe this particular sector of the market will
present us with significant growth prospects, as our services
and applications will serve as a lower cost alternative to the
current aging high frequency radio systems that are more
expensive to operate.
Machine-to-Machine
We are one of the leading providers of satellite-based
machine-to-machine
services.
Machine-to-machine
services and related devices have exhibited strong growth since
their introduction and we believe the significant
under-penetration of this market presents considerable
opportunities for future growth. As with land-based handsets,
our largest
machine-to-machine
users include mining, construction, oil and gas, utilities,
heavy industry, forestry and transport companies as well as
public safety and disaster relief agencies. We believe
the increasing demand for automated data collection processes
from mobile and remote assets operating outside the coverage of
terrestrial wireline and wireless networks as well as the
continued push to integrate the operation of such assets into
enterprise management and information technology systems will
continue increasing demand for our
machine-to-machine
applications.
Transportation fleet management: Our global coverage
permits our products and services to be used to monitor the
location of transport fleets, hours of service and engine
telemetry data, as well as to conduct two-way communications
with drivers around the entire world. Long distance drivers need
reliable communication with both dispatchers and their
destinations to coordinate changing business needs, and our
satellite network provides continuous communications coverage
while they are in transit. We expect the push for more
efficient, cost-effective and safer fleet operations as well as
the imposition of regulatory mandates related to driver safety,
such as drive time monitoring, will continue driving demand for
our services in this area;
•
Fixed-asset monitoring: Multinational corporations,
such as oil-field service companies like Schlumberger Limited
and Conoco Phillips, use our services to run applications that
allow remote monitoring and operation of equipment and
facilities around the globe, such as oil pipelines and off-shore
drilling platforms;
•
Asset tracking: Leveraging
machine-to-machine
applications developed by several of our distributors, companies
use our services and related devices to track assets, including
personnel, for logistics, theft-prevention and safety purposes.
Transportation companies, such as Horizon Lines, Inc., for
example, employ
machine-to-machine
applications developed by Impeva Labs, Inc. to track containers
while in transit. Premier GPS Inc. similarly develops
applications that allow companies to monitor the safety of
personnel operating in remote regions of Canada;
•
Resource management: Our global coverage and data
throughput capabilities support natural resource management
applications such as fishing management systems. Zunibal S.A.,
one of our resellers, has developed applications for the fishing
industry to assist fishing fleets in pursuing more efficient
fishing practices; and
•
Scientific data monitoring: The global coverage of
our network supports many scientific data collection
applications such as the Argo float program of the National
Oceanographic and Atmospheric Administration (“NOAA”).
This program relies on our
machine-to-machine
services to collect climate data from buoys located throughout
the world’s oceans for monitoring and analysis. We believe
the increased need for monitoring climate and environmental data
associated with global climate change and our impact on the
planet will increase demand for such services.
Government
As discussed under government markets, we are one of the leading
global providers of mobile satellite communications services to
the U.S. government, principally, the DoD. We provide
mission critical mobile satellite products and services to all
branches of the U.S. armed forces. In addition to voice
products used by soldiers for primary and backup communication
solutions, our products and related applications are installed
on ground vehicles, unmanned aerial vehicles, aircraft and
helicopters, embedded in unattended sensors and used for command
and control and situational awareness. Global security concerns
continue to increase demand for our products and services in
this sector. See “—U.S. Government Services”
for more information.
At June 30, 2009, we had approximately 347,000 subscribers
worldwide (93.4% of which were generating monthly access or
usage fees, while the remaining 6.6% were subscribers who
maintained a suspended account at the time but were not
generating any fees). We expect that, in the future, a higher
percentage of our subscribers will generate fees as we intend to
begin charging a nominal monthly fee for suspended accounts. Our
principal services are mobile satellite services, including
mobile voice and data services and
machine-to-machine
services. Sales of our commercial services collectively
accounted for approximately 41.5% and 48.5% of our total
revenues for the year ended December 31, 2008 and the six
months ended June 30, 2009, respectively. We also sell
related voice and data equipment to our customers, which
accounted for approximately 37.4% and 28.5% of our total
revenues for the year ended December 31, 2008 and the six
months ended June 30, 2009, respectively. In addition, we
offer services to U.S. government customers, including the
DoD. U.S. government services accounted for approximately
21.1% and 23.1% of our total revenue for the year ended
December 31, 2008 and the six months ended June 30,2009, respectively.
Our
Commercial Services
Post-paid
Mobile Voice and Data Satellite Communications
Services
We sell our mobile voice and data services to service providers
and resellers who in turn offer such services to end-users,
either directly or indirectly through dealers, through various
packaged solutions such as monthly plans with differing price
levels that vary depending upon expected usage. In exchange for
these services, we typically charge service providers and
resellers a monthly access fee per subscriber as well as usage
fees for airtime minutes used by their respective subscribers. A
small number of our post-paid customers purchase monthly blocks
of airtime minutes which must be used in a given month or are
forfeited.
Prepaid
Mobile Voice Satellite Communications Services
We also offer mobile voice services to service providers and
resellers through prepaid plans. Service providers and resellers
pay us in advance for blocks of airtime minutes with expiration
periods in various configurations, typically one year. Unused
minutes are forfeited at the applicable expiration date. These
services are then typically sold to subscribers in the form of
prepaid scratch cards and
e-vouchers
that enable subscribers to use our services on a per minute
basis. We believe service providers and resellers are drawn to
these services as they enable greater cost control, since they
eliminate the need for monthly billings and reduce collection
costs, and can be sold in cash economies where credit is not
readily available. Our distributors often offer our prepaid
mobile voice services through fixed devices to subscribers in
rural villages, at remote industrial, commercial and residential
sites and on ships at sea, among other places. Fixed voice
satellite communications services are in many cases an
attractive alternative to handheld mobile satellite
communications services in situations where multiple users will
access the service within a defined geographic area and
terrestrial wireline or wireless service is not available. Fixed
phones, for example, can be configured as pay phones (installed
at a central location, for example, in a rural village or
maritime vessel) that accept prepaid scratch cards and
e-vouchers.
High-Speed
Data Services
We recently introduced our new high-speed data maritime service,
Iridium OpenPort, which offers maritime end-users speeds of up
to 128 kbps and up to three voice lines which can be used
simultaneously without interference. Data rates on this service
can easily be adjusted up or down at any time without making
hardware or software changes, giving subscribers options that
allow them to balance needs for data transmission speeds against
cost considerations on a real-time basis. In conjunction with
our distributors, we intend to develop additional services that
will
permit service provider and resellers to offer complete
integrated solutions for
ship-to-shore
crew calling, email and
IP-based
data communications. We believe Iridium OpenPort, our first
high-speed data service in the maritime market, offers a
competitive alternative to other marine satellite services that
offer fewer features at higher costs, allowing us to grow our
share of this sector. For our Iridium OpenPort service, we
typically charge service providers and resellers a monthly
access fee per subscriber as well as usage fees for airtime
minutes used by the respective subscribers above their monthly
quotas. We plan to introduce additional high-speed data products
and services in the future.
Machine-to-Machine
Services
Introduced in 2003, our
machine-to-machine
services are designed to address the market need for a small and
cost-effective solution for sending and receiving data (such as
location) from fixed and mobile assets in remote locations to a
central monitoring station. This service operates through a
two-way short burst data transmission between our network and a
telemetry unit, which may be located, for example, on a
container in transit or a buoy monitoring oceanographic
conditions. The small size of the units makes them attractive
for use in applications such as tracking asset shipments,
monitoring unattended remote assets, including oil and gas
assets, vehicle tracking and mobile security. We sell our
machine-to-machine
services to our distributors who in turn offer such services to
end-users such as various U.S. and international
governmental agencies, including NOAA, as well as commercial and
other entities such as Schlumberger Limited, Continental
Airlines and Conoco Phillips. As with our mobile voice and data
offerings, we typically charge service providers and resellers a
monthly access fee per subscriber as well as usage fees for
airtime minutes used by their respective subscribers.
Other
Services
In addition to access and usage fees, we generate revenue from
several ancillary services related to our core service offerings
such as inbound connections from the public switched telephone
networks (“PSTN”), short message services
(“SMS”), subscriber identity module (“SIM”)
activation, customer reactivation and other peripheral services.
We also provide certain research and development services to
assist customers in developing new technologies compatible with
our system which we may leverage for use in commercial service
and product offerings in the future. We charge our distributors
certain fees for these services.
In the future, we expect to provide secondary payload services
to customers during the life of our next-generation
constellation, Iridium NEXT, which will replace our current
satellite constellation. Currently, we are providing research
and development services to potential secondary payload
customers.
U.S.
Government Services
We provide U.S. government customers bulk access to our
services, including voice, data, messaging and paging services,
as well as maintenance services for the DoD’s dedicated
gateway in Hawaii. We provide airtime to U.S. government
subscribers through (i) fixed monthly fees on a per user
basis for airtime services and usage for voice, (ii) fixed
monthly fee per user for paging services and (iii) a tiered
pricing plan (based on usage) per device for data services.
U.S. government customers also rely on our voice and data
products, which they purchase from our network of distributors.
Resellers and manufacturers typically integrate our products
with other products, which they then offer to
U.S. government customers as customized product solutions.
To conform with U.S. government regulations, we ensure
devices sold to our
distributors for use in certain U.S. government
applications are manufactured by Celestica wholly in the United
States. Such customized voice and data solutions include:
•
personnel tracking devices, such as personal locator beacons;
•
asset tracking devices for equipment, vehicles and aircraft;
•
over-the-horizon
(beyond line of sight) fighter aircraft communications
applications;
•
submarine communications applications;
•
specialized communications solutions for high-value individuals;
•
command and control and data backhaul options for unmanned
aerial vehicles; and
•
specialized, secure, mobile communications and data devices for
the military and intelligence community, such as secure
satellite handsets with Type I encryption capability.
We, with funding support from the DoD, continue to invest in
research and development to develop new products and
applications for use by all branches of the U.S. armed
forces. In conjunction with the Marine Corps Warfighting Lab, we
are currently expanding the capabilities of our satellite
handsets to permit netted
(push-to-talk)
group calling radio services, providing
over-the-horizon
user-defined tactical radio nets to DoD users. This development
program has been fully funded by the DoD. We expect the
development of the Netted Group Calling application to provide
us with the potential for future new commercial applications in
public safety, fishing and field worker communications. In
conjunction with Boeing and with funding from the
U.S. government, we are also developing an iGPS service,
which will be used as an embedded component in several DoD
applications. Our iGPS technology is expected to provide
centimeter level accuracy and important anti-jamming capability
for GPS signals. We expect the development of iGPS to provide us
the potential for new commercial applications in enhanced
navigation services such as precision farming, high accuracy
navigation for oil and gas exploration and construction services.
Our
Products
We offer a broad array of voice and data equipment products for
customers that work on all points of the globe. Our devices must
be outside, within direct view of satellites, to be able to
properly access our network.
Satellite
Handsets
Our principal product offering has been our Iridium 9505A
satellite handset phone, which is similar in functionality to an
ordinary cellular phone but with the solid, durable feel that
many satellite phone users demand. This phone weighs 13.2 ounces
and is capable of up to three hours of talk time without being
recharged. The Iridium 9505A provides voice, SMS and data
connectivity. We believe our reputation for industrial strength
products is critical for customers, many of whom are located in
the most inhospitable spots on the planet and require tough and
reliable communications equipment.
In October 2008, we launched our next generation satellite
handset, the Iridium 9555. This new model introduces several new
features, including a larger, brighter screen, improved SMS and
email capabilities, integrated antenna and speakerphone and is
smaller, lighter (weighing 9.4 ounces) and more user friendly
than the Iridium 9505A model. The Iridium 9555 also offers up to
four hours of talk time. The new model maintains the industrial
feel of our predecessors, with a rugged housing to protect its
sophisticated satellite transceiver. We believe the Iridium 9555
satellite handset is a significant improvement over our
earlier-generation equipment and that our advantages will drive
increased adoption from prospective users.
Voice and
Data Modems
We also offer a combined voice transceiver and data modem which
our distributors integrate into a variety of communications
solutions that are deployed in different applications around the
world. Our Iridium 9522A L-Band transceiver is effectively the
core of our Iridium 9505A satellite handset without a key pad,
display, earpiece and microphone. Our principal customers for
our Iridium 9522A L-Band transceivers are value-added
manufacturers who integrate it into specialized devices that
access our network. These specialized products are often the
highest generators of traffic on our network. On-board crew
calling terminals built around the Iridium 9522A, which are used
as payphones on maritime vessels, for example, have 10 to 20
times the average usage of a handheld phone, in part because
they are shared across a large group of users. The Iridium 9522A
has also been integrated into mobile data applications providing
email services on maritime vessels.
In November 2008, we launched our next generation transceiver,
our Iridium 9522B L-Band transceiver. This new model is smaller
and less expensive than our previous Iridium 9522A model, which
allows our customers to integrate it into smaller devices while
improving our margins as well as the margins of our
distributors. The Iridium 9522B is functionally equivalent to
the Iridium 9522A, which will allow our distributors to easily
integrate it into existing applications.
High-Speed
Data Devices
In October 2008, we began shipping our Iridium OpenPort
high-speed data terminal to our customers. This device provides
dynamic allocation of three independent telephone lines and a
high-speed data port configurable from 9.6 to 128 kbps. All
voice and data capabilities can be used at the same time. The
terminal relies on a relatively compact omni-directional antenna
array about the size of a typical small-boat radar dome and
contains no moving parts, which greatly reduces cabling,
maintenance and repair costs. Our principal customers for
Iridium OpenPort are our value-added resellers who integrate the
device with their own hardware and software products to provide
a suite of customer-focused voice and
IP-based
data packages for ship business, crew calling and email. We
believe the low cost of our OpenPort terminal, combined with our
high bandwidth and flexible configuration options, will allow us
to grow our share of the existing maritime market while opening
up new market sectors, such as luxury yachts, tug boats and
other fishing and cruising vessels for which traditional marine
satellite systems have typically been too costly. We expect to
launch additional enhanced high-speed data devices in the future.
Machine-to-Machine
Data Devices
In 2005, we introduced our Iridium 9601 short burst data modem,
which provides our
machine-to-machine
services. The Iridium 9601 is a small data device with two-way
transmission capable of sending packet data to and from any
point in the world with low latency. Our principal customers for
our Iridium 9601 data modems are value-added resellers and
manufacturers, who embed the Iridium 9601 into their tracking,
sensor, and data applications and systems, such as asset
tracking systems. The Iridium 9601 is often combined with a GPS
receiver to provide location information across our system to
customer applications. In addition, an increasing number of
resellers and manufacturers are including a terrestrial global
system for mobile communication (“GSM”) packet radio
service modem in their applications to provide low cost cellular
data transmission when available. These applications are used by
end-users that require the ability to transfer large volumes of
data but operate in areas with inconsistent cellular
coverage. We provide gap-filler coverage for such applications
allowing such users to operate anywhere on the globe in
locations where cellular coverage is unavailable or unreliable.
Device
Manufacturing
Currently, we contract with Cambridge Consulting Ltd.
(“Cambridge Consulting”) to develop all of our
devices, which are manufactured by Celestica in facilities in
Malaysia and the United States. We maintain long-term agreements
with both Cambridge Consulting and Celestica, which are set to
expire on October 1, 2009 and January 1, 2010,
respectively. Pursuant to the contract with Celestica, we may be
required to purchase excess materials from Celestica at cost
plus a contractual markup if the materials are not used in
production within the periods specified in the agreement.
Celestica will then generally repurchase such materials from us
at the same price paid by us, as required for the production of
the devices. Our agreement with Celestica is automatically
renewable for additional one year terms unless terminated by
either party. We provide limited warranties to first end-users
for a period of one year from the time of sale on all devices,
except for OpenPort devices that have a two year warranty period
for first end-users.
In addition to our principal products, we also offer a selection
of accessories for our devices, including holsters, earbuds,
portable auxiliary antenna, antenna adaptors, USB data cables
and charging units, among others. We purchase these products
from several third-party suppliers off the shelf at market
prices and, as such, do not maintain any long-term agreements
with such suppliers.
We currently have sufficient inventory of all our voice and data
devices to meet our customers’ demands.
Our
Spectrum
We hold licenses to use 8.725 MHz of continuous spectrum in
the L-Band, which operates at 1.6 GHz, and allows for
two-way communication between our devices and our satellites. In
addition, for feeder and inter-satellite links, we are
authorized to use 600 MHz of
Ka-Band and
K-Band
spectrum. Of this spectrum, we use 200 MHz of K-Band
spectrum for
satellite-to-satellite
communications, and 400 MHz of
Ka-Band
spectrum for two-way communication between our satellites and
our gateways. Our spectrum position is globally coordinated and
recorded by the International Telecommunication Union
(“ITU”). Our products and services are offered in over
100 countries and we continue to seek authorizations in
additional countries. Access to this spectrum enables us to
design satellites, network and terrestrial infrastructure
enhancements cost effectively because each product and service
can be deployed and sold worldwide. This broad spectrum
assignment also enhances our ability to capitalize on existing
and emerging wireless and broadcast applications.
The FCC initially licensed us to operate on 5.15 MHz of the
10.5 MHz of spectrum which Motorola originally designed our
system to operate within and later increased our license
spectrum to include an additional 3.1 MHz on a shared basis
with Globalstar. In November 2007, an FCC order increased our
exclusive spectrum to 7.775 MHz with an additional
0.95 MHz shared with Globalstar. On May 1, 2009, the
U.S. Court of Appeals for the D.C. Circuit denied a
petition for review filed by Globalstar of the FCC’s
decision to reallocate L-band spectrum from Globalstar to us.
The FCC’s reallocation decision became final and
non-reviewable on July 30, 2009, because Globalstar did not
seek rehearing en banc with the U.S. Court of Appeals for
the D.C. Circuit or files a petition for certiorari with the
U.S. Supreme Court. Globalstar has also filed a petition
before the FCC asking for reconsideration of the global effects
of the license modification, contending that the FCC’s
decision should not have affected Globalstar’s operations
outside of the United States. We have opposed the
reconsideration request as without merit, and no decision has
been issued by the FCC. The disposition by the U.S. Court
of Appeals for the D.C. Circuit does not directly impact
Globalstar’s pending petition for reconsideration of the
FCC
decision to modify Globalstar’s license on a global basis.
Notwithstanding these challenges by Globalstar at the FCC,
modifications to our and Globalstar’s licenses consistent
with the November 2007 spectrum change took effect on a global
basis on December 14, 2008, in accordance with federal law.
After the modifications became effective, Globalstar filed
before the FCC a request for waivers and special temporary
authority to continue operating on spectrum licensed to us in
certain gateways outside of the United States. We filed a
petition to deny the waiver and special temporary authority
requests on January 21, 2009. Briefing on the petition was
completed by February 9, 2009, but the FCC has not yet
taken any action.
Our use of satellite spectrum is subject to the frequency rules
and regulations of the ITU. The ITU is the United Nations
organization responsible for worldwide co-operation in the
telecommunications sector. In order to protect satellite systems
from harmful radio frequency interference from other satellite
systems, the ITU maintains a Master International Frequency
Register of radio frequency assignments. Each ITU administration
is required to give notice of, coordinate and record its
proposed use of radio frequency assignments with the ITU’s
Radiocommunication Bureau. The coordination negotiations are
conducted by the national administrations with the assistance of
satellite operators. When the coordination process is completed,
the ITU formally notifies all proposed users of frequencies and
orbital locations in order to protect the recorded assignments
from subsequent nonconforming or interfering uses by member
states of the ITU. Only member states have full standing within
this inter-governmental organization.
Filings to the ITU for our current constellation have been made
on our behalf by the United States. We have coordinated
frequencies in the mobile satellite services spectrum at
L-band
(1.6 GHz) for communication between our satellites and
end-user devices, frequencies in the
Ka-Band
(19.4 GHz to 19.6 GHz and 29.1 to 29.3 GHz) for
communications between us and the gateways and our satellites,
as well as frequencies in the K-Band (23 GHz) for our
inter-satellite links.
The ITU controls the assignment of country codes used for
placing telephone calls between different countries. Our network
is assigned the 8816 and 8817 country codes, and uses these
numbers for calling and communications between terminals.
Domestic
and Foreign Revenue
We supply services and products to customers in a number of
foreign countries. We allocate revenues geographically based on
where we invoice our distributors, whom we bill for mobile
satellite services and related equipment sales. These
distributors sell services directly or indirectly to end-users,
who may be located elsewhere. It is not possible for us to
provide the geographical distribution of end-users, as we do not
contract directly with them. Nearly all of our revenues are
invoiced in U.S. dollars. U.S. revenues accounted for
approximately 48.3% of our revenues between 2006 and 2008. The
table below sets forth the percentage of our revenues by country
for the period indicated:
For more information about our revenue from sales to foreign and
domestic customers, see Note 6 to our consolidated
financial statements contained herein.
Traffic
Originating Outside the U.S.
A significant portion of our voice and data traffic originates
outside the U.S. The table below estimates the percentage
of our commercial voice and data traffic originating outside the
U.S. for the years ended December 31, 2006, 2007 and
2008, and the six months ended June 30, 2009.
Our satellite network includes 66 in-orbit LEO satellites, in
addition to seven in-orbit spares. We also maintain a
non-service in-orbit spare which we use for testing purposes.
The satellites operate in six orbital planes of eleven vehicles
each in nearly circular polar orbits. Our satellites orbit at an
altitude of approximately 483 miles (778 kilometers) above
the earth and travel at 16,689 mph resulting in a complete orbit
of the earth approximately every 100 minutes. The design of our
constellation ensures that generally at least one satellite is
visible to subscribers from any point on the earth’s
surface, covering all of the world’s population. While our
constellation offers 100% global coverage, satellite services
are not available in locations where a satellite signal cannot
be transmitted or received or when the device does not have a
direct line of sight to a satellite (e.g. inside a building).
Our constellation is unique in its usage of radio frequency
crosslinks between its satellites. These crosslinks enable each
satellite to communicate with up to four other satellites in
space—two in the same orbital plane and two in adjacent
planes. All of our traffic is routed between satellites, which
minimizes the ground infrastructure necessary to support the
constellation. This interlinked architecture enables a single
ground station gateway to support all commercial traffic
globally. This allows the satellite that is then passing over
the ground station to transmit all traffic to and from the rest
of the satellite constellation to terrestrial-based networks
such as the public switch telecommunication network.
We believe our interlinked satellite infrastructure provides
several advantages over networks that rely on terrestrial
gateways like Globalstar’s and Orbcomm’s networks. We
have the only satellite network with 100% global coverage, and
our constellation is less vulnerable to single points of
failure, since traffic can be routed around any one satellite
problem to complete the communications path. In addition, the
lack of ground stations increases the security of our
constellation, a factor that makes our network particularly
attractive to government institutions and large enterprises that
require secure voice and data communications. The low orbit of
our constellation also allows our network to operate with low
latency due to the proximity of our satellites to the earth.
All of our satellites are virtually identical in design and
functionality, which allows satellite diversity for mitigation
of service gaps from individual satellite outages. Each
satellite has a high degree of on-board subsystem redundancy, an
on-board fault detection system and isolation and recovery for
safe and quick risk mitigation. Our ability to reconfigure the
orbital location of each satellite provides us with operating
flexibility and commercially-acceptable level of service. If a
satellite should fail or become unusable in most cases, we can
also reposition one of our in-orbit
spare satellites to take over its functions. If there is an
in-orbit spare located in the orbital plane of the failed
satellite, such repositioning can be accomplished within days
with minimal impact on our services. If there is no in-orbit
spare located in the relevant orbital plane, redeploying an
in-orbit spare into the affected plane will take at least one
year. The design of our space and ground control system
facilitates the real time intervention and management of the
satellite constellation and service upgrades via software
enhancements.
Our commercial gateway is located in Tempe, Arizona. This
gateway has multiple antennas that communicate with our
satellites and pass calls seamlessly between gateway antennas
and satellites as the satellites traverse the gateway, thereby
connecting signals from the terminals of end-users to our
gateways. Additional gateways can be added to the network to
enable dedicated communications links that are not dependant on
localized terrestrial telecommunications infrastructure where
subscribers are using our services. Such gateways would be able
to generate and control all user information pertaining to our
registered users, such as user identity, geo-location and call
detail records. The DoD owns and operates a dedicated gateway in
Hawaii for U.S government users to take advantage of this unique
capability. This gateway provides an interface between voice and
data devices and the Defense Information Systems Network,
providing DoD users with secure communications capabilities. We
are also in discussions with parties in countries that require
physical gateways within their jurisdiction to build or
reactivate additional gateways to connect the traffic to the
constellation coming to and from their territory, including
China and Russia.
We operate our satellite constellation from our satellite
network operations center in Leesburg, Virginia. This facility
manages the performance and status of each of our satellites,
developing and distributing routing tables for use by the
satellites and gateways, directing traffic routing through the
network and controlling the formation of coverage areas by the
satellites’ main mission antennas. We also operate
telemetry, tracking, and control stations and satellite earth
station facilities in Fairbanks, Alaska and Chandler, Arizona in
the United States, and northern Canada and Norway. The Alaskan
ground station also provides earth terminal backup capability
for the Tempe Gateway.
From time to time, individual satellites in our constellation
experience operating problems that may result in a temporary
satellite outage, but due to satellite diversity within our
constellation, the individual satellite outages typically do not
negatively affect our customers’ use of our system for a
prolonged period. In addition, most system processing related to
our service is performed using software onboard each satellite
instead of on the ground. We believe this has provided us with
significant flexibility and has contributed to the longevity of
the system by enabling engineers to develop additional
functionality and software-based solutions to occasional faults
and anomalies in the system.
We have experienced six satellite failures since we reintroduced
commercial satellite services in 2001 which have resulted in the
complete loss of the affected satellites or the loss of the
ability of the satellite to carry traffic on the network. We
experienced our first satellite failure in July 2003. This
failure has been attributed to a non-recoverable anomalous short
circuit in the satellite’s IBE. Two additional satellites
failed as a result of this anomaly in August 2005 and December
2006. In part, as a response to this anomaly, we have
implemented several procedures across the constellation to
attempt to mitigate the severity of a similar anomaly in the
future
and/or
prevent it from resulting in mission-critical failures of our
other satellites. These procedures include reducing the peak
operating temperature of the IBE during portions of the solar
season, as well as modifying the on-board software of our
satellites to immediately carry out certain autonomous actions
upon detecting future occurrences of this type of anomaly.
We have experienced three additional satellite failures
unrelated to IBE short circuits. In April 2005, one of our
satellites failed as a result of a radiation-induced single
event upset
anomaly, which corrupted the satellite’s on-board time
reference. Accurate time reference is critical to determine a
satellite’s ephemeris (its orbital location with respect to
the earth), attitude (its pointing direction) and the sun’s
position. In December 2005, we were unable to remedy a failure
in the crosslink digital reference oscillator of another of our
satellites, resulting in the satellite’s failure. Failure
of the digital reference oscillator disables the affected
satellite’s crosslinks and, thus, its ability to
communicate with the rest of the satellite constellation. More
recently, in July 2008, another of our satellites experienced an
attitude control anomaly as a result of sudden loss of
communications between its IBE and its primary space vehicle and
routing computer. The nature of this anomaly coupled with the
software state of the vehicle at the time (resulting from an
on-board software fault response to a prior anomaly) resulted in
the inability of the on-board software to correct the computer
communications anomaly and control of the satellite was lost.
We have experienced one satellite to satellite collision. On
February 10, 2009, we lost an operational satellite (SV33)
as a result of a collision with a non-operational Russian
satellite (Cosmos 2251). On March 4, 2009, we completed the
replacement of SV33 with an in-orbit spare. The unique
architecture of our fully-meshed network of 66 satellites
enabled the commercially-acceptable level of service to
customers with only limited service disruption while the
in-orbit spare was prepared and maneuvered into the
constellation.
We have categorized three types of anomalies among the
satellites in our constellation that, if they materialize
throughout the satellite constellation, have the potential for a
significant operational impact. These include: (a) a
non-recoverable anomalous short circuit in a satellite’s
IBE, as discussed above; (b) excessive power subsystem
degradation resulting from satellite battery wear-out or
excessive loss of solar array power output and (c) failures
to critical payload electronic parts arising from accumulated
radiation total dose.
Based on the failures and anomalies we have experienced to date,
and considering the potential for future anomalies related to
the three categories discussed above, we believe our in-space
constellation will provide commercially-acceptable level of
service through 2014. In addition, we believe our constellation
can be operationally functional with less than 66 satellites
while experiencing some service degradation. We expect to be
able to mitigate satellite failures through the use of the
remaining seven in-orbit spares, the implementation of software
solutions, and by landing communications traffic at our ground
station in Alaska and backhauling traffic to the Tempe gateway
for processing and termination. However, there can be no
assurance that our satellites will not fail faster than expected
or that we will be able to mitigate any future failures.
In addition to our seven spare satellites, we own spare parts
for certain equipment in our gateway and Telemetry, Tracking and
Control Station (“TTACs”). We selectively replace
parts for our gateway and TTACs as necessary and maintain an
inventory of spare parts which we continuously monitor. In
addition, when we do not have necessary spares in inventory or
such spares become obsolete, we rely on third parties to develop
necessary parts.
We use the services of third-party Boeing contractors to operate
our constellation pursuant to a long-term operations and
maintenance agreement with Boeing. Under the terms of this
agreement, Boeing provides operations and maintenance services
with respect to our satellite network (including engineering,
systems analysis and operations and maintenance services) from
our technical support center in our Chandler, Arizona control
station and our satellite network operations center in Leesburg,
Virginia. The life of the agreement runs concurrent with the
estimated useful life of our constellation.
Pursuant to our transition services, products and asset
agreement with Motorola, the original system architect and prior
owner, and a separate agreement with the U.S. government,
we are required to maintain an in-orbit liability insurance
policy with a de-orbiting endorsement to cover
the de-orbiting of our satellite constellation in the amount of
$500.0 million per occurrence, and $1.0 billion
annually. The current policy (together with the de-orbiting
endorsement) covers amounts that we and certain other named
parties may become liable to pay for bodily injury
and/or
property damages to third parties related to processing,
maintaining and operating our satellite constellation and, in
the case of the de-orbiting endorsement, de-orbiting the
satellite constellation. The policy covers us, the
U.S. government, Boeing, as operator of our system,
Motorola and other named beneficiaries. The policy has been
renewed annually since the expiration of the original
policy’s three-year term in 2003. The current policy has a
one-year term, which expires December 12, 2009. In
addition, Motorola maintains a separate $1.0 billion
product liability policy to cover its potential liability as
manufacturer of the satellites. We pay the premium for
Motorola’s policy.
In addition, we do not maintain in-orbit insurance covering
losses from satellite failures or other operational problems
affecting our constellation.
Constellation
De-Orbiting Rights
When Iridium Satellite purchased the assets of Iridium LLC out
of bankruptcy, Boeing, Motorola and the US government insisted
on having certain de-orbit rights as a way to control potential
liability risk arising from future operation of the
constellation and provide for the U.S. government’s
obligation to indemnify Motorola. As a result, an agreement was
entered into among Iridium Satellite, Boeing, Motorola and the
U.S. government, the U.S. government obtained the
right to, in its sole discretion, require us to de-orbit our
constellation upon the occurrence of any of the following with
respect to Iridium Satellite: (a) its failure to pay
certain insurance premiums or maintain insurance; (b) its
bankruptcy; (c) its sale or the sale of any major asset in
its satellite system; (d) Boeing’s replacement as the
operator of its satellite system; (e) its failure to
provide certain notices as contemplated by the agreement; or
(f) at any time after June 5, 2009, unless extended by
the U.S. government. The U.S. government also has the
right to require us to de-orbit any of our individual
functioning satellites (including in-orbit spares) that has been
in orbit for more than seven years, unless the
U.S. government grants a postponement. As of August 2009,
all of our functioning satellites have been in orbit for more
than seven years. We are currently in discussion with the
U.S. government to extend the 2009 deadline.
Motorola also has the right to de-orbit our constellation
pursuant to the transition services, products and asset
agreement with us and Iridium Satellite and pursuant to the
operations and maintenance agreement between Iridium
Constellation and Boeing. Under these agreements, Motorola may
require the de-orbit of our constellation upon the occurrence of
any of the following: (a) our bankruptcy or the bankruptcy
of Iridium Constellation or Iridium Satellite; (b) our
breach of the transition services, products and asset agreement;
(c) Boeing’s breach of its operations and maintenance
agreement and other related agreements with Iridium
Constellation or its affiliates; (d) an order from the
U.S. government requiring the de-orbiting of our
satellites; (e) Motorola’s determination that changes
in law or regulation that may require it to incur certain costs
relating to the operation, maintenance, re-orbiting or
de-orbiting of our constellation; or (f) Motorola’s
failure to obtain, on commercially reasonable terms, product
liability insurance to cover its position as manufacturer of the
satellites, provided the U.S. government has not agreed to
cover what would have otherwise been paid by such policy.
Pursuant to the operations and maintenance agreement between
Iridium Constellation and Boeing, Boeing similarly has the
unilateral right to de-orbit our constellation upon the
occurrence of any of the following events: (a) Iridium
Constellation’s or Iridium Satellite’s bankruptcy;
(b) the existence of reasonable grounds for Boeing to
question the financial stability of Iridium Constellation;
(c) Iridium Constellation’s failure to maintain
certain insurance policies; (d) Iridium
Constellation’s failure to provide Boeing certain quarterly
financial statements; (e) Iridium Constellation’s breach of
the operations and maintenance agreement, including its
payment obligation thereunder; or (f) changes in law or
regulation that may increase the risks or costs associated with
the operation
and/or
re-orbit process or the cost of operation
and/or
re-orbit of the constellation. Pursuant to an orbital debris
mitigation plan filed with the FCC and incorporated into our
space station license in 2001, we are required to lower each
satellite to an orbit with a perigee of approximately 250
kilometers as it reaches the end of its useful life and
coordinate these orbit-lowering maneuvers with the United States
Space Command. We have applied to modify our license to conform
these requirements to the less stringent de-orbit standards
adopted by the FCC in 2004 for all new satellite applications.
Our modification application remains pending.
Iridium
NEXT
Our satellites have so far exceeded their original design lives
and we are currently developing our next-generation satellite
constellation, Iridium NEXT, which we expect to commence
launching in 2014. The current constellation is expected to
provide commercially-accepted level of service until 2014. We
anticipate that Iridium NEXT will have more than twice the
capacity of our existing satellite constellation. The new
satellite constellation will be backward compatible with our
first generation system and will replace the existing
constellation with what we believe will be a more powerful and
capable satellite network. We believe Iridium NEXT’s
increased capabilities will expand our target markets by
enabling us to offer a broader range of products and services,
including a wider array of broadband data services.
Iridium NEXT will maintain the current system’s unique
attributes, including LEO architecture, the capability to upload
new software, global coverage, low latency and high
availability, and will continue to support existing applications
and equipment, while providing new and enhanced capabilities,
such as:
•
higher speeds and greater flexibility for core voice and data
services;
•
the ability to host lower cost, private network gateways,
providing greater control of voice and data traffic; and
•
regional broadcast capabilities, enabling global paging and
point-to-multi-point
broadcasting of data services to select groups.
In addition, Iridium NEXT will be designed to host secondary
payloads for U.S. and international government and
commercial customers, including remote sensing and climate
monitoring applications. We expect these secondary payloads to
defray a portion of capital expenditures related to Iridium NEXT
and generate recurring revenues.
In 2007, we conducted a request for information with over
60 companies for the development and launch of the new
system. We have since narrowed our search for a prime system
contractor to two companies, Lockheed Martin Corporation and
Thales Alenia Space. These companies are currently working with
input from our engineers to design a system that satisfies our
technical, timing and cost requirements. We expect to enter into
a definitive agreement with a prime contractor for the design,
manufacture and deployment of our new constellation by the end
of 2009 or in early 2010. We estimate the gross costs associated
with Iridium NEXT and related infrastructure upgrades to be
approximately $2.7 billion, including the manufacture of
satellites, launch costs and gateway infrastructure upgrades. We
expect to fund a majority of these costs from internally
generated cash flows, including potential revenues from
secondary payloads, and proceeds from the Acquisition. We expect
to finance the remaining cost by raising additional debt
and/or
equity financing.
The global communications industry is highly competitive. We
currently face substantial competition from other service
providers that offer a range of mobile and fixed communications
options. Our most direct competition comes from other global
mobile satellite services providers. Currently, our principal
global mobile satellite services competitors are Inmarsat,
Globalstar and Orbcomm. We compete primarily on the basis of
coverage, quality, mobility and pricing of services and products.
Our main competitor, United Kingdom-based Inmarsat, has been a
provider of communications services, including voice and data
services, since 1982. Inmarsat owns and operates a fleet of GEO
satellites. Unlike LEO satellites, GEO satellites orbit the
earth at approximately 22,300 miles above the equator and
are able to cover approximately 70% of the earth’s surface.
GEO operators require substantially larger and more expensive
antennas, and typically have higher transmission delays than LEO
operators. Due to its GEO system, Inmarsat’s coverage area
extends and covers most bodies of water except for a majority of
the Polar Regions. Accordingly, Inmarsat is the leading provider
of satellite communications services to the maritime sector.
Inmarsat also offers land-based and aviation communications
services. During April 2009, Inmarsat acquired Stratos Global
Corporation, one of our main distributors and in July 2009, it
completed its long-term distribution and product development
agreements with SkyWave Mobile Communications. Inmarsat
generally does not sell directly to end-users.
U.S.-based
Globalstar owns and operates a fleet of LEO satellites.
Globalstar began commercial services in 2000. In addition,
Globalstar’s service is available only on a multi-regional
basis as a result of its bent pipe architecture, which requires
that voice and data transmissions be routed from satellites
immediately to nearby ground stations. This design requires the
use of multiple ground stations, which are impractical in
extreme latitudes or over oceans. Unlike Inmarsat and us,
Globalstar sells a higher percentage of its products and
services directly to end-users. Globalstar has recently
indicated that satellite failures and other problems affecting
its constellation are affecting and will continue to affect its
ability to provide two-way services in the future. Globalstar is
also in the process of building its second-generation satellite
constellation, which is expected to be launched between 2010 and
2014. In July 2009, Globalstar announced it has completed the
financing of approximately $738.0 million for its second
generation of satellite constellation, supported by credit
insurance from Coface, the export credit agency acting on behalf
of the French government.
U.S.-based
Orbcomm also provides commercial services using a fleet of LEO
satellites. Like Globalstar, Orbcomm’s network also has a
bent pipe architecture, which limits its coverage area.
Orbcomm’s principal focus is low-cost data and
machine-to-machine
services, where it directly competes with our
machine-to-machine
offerings. Orbcomm’s services generally have a certain
amount of latency, which may limit their use in certain mission
critical applications. It does not offer voice service or
high-speed data services. Orbcomm is similarly developing its
second-generation satellite constellation. In addition, in July
2009, Orbcomm announced it has reached an agreement with a third
party to incorporate Code Division Multiple Access
(CDMA)-based terrestrial wireless services to its satellite and
GSM services. Orbcomm expects to make CDMA-based wireless
services available to its customers beginning in August 2009.
We compete with regional mobile satellite communications
services in several geographic markets. In these cases, the
majority of our competitors’ customers require regional,
not global, mobile voice and data services, so our competitors
present a viable alternative to our services. All of these
competitors operate GEO satellites. Our regional mobile
satellite services competitors currently include Thuraya,
principally in Europe, the Middle East, Africa, Australia and
several countries in Asia; and SkyTerra in the Americas. In
addition, several regional mobile satellite services companies,
including ICO, TerreStar and SkyTerra, are attempting to exploit
their
spectrum positions into a U.S. consumer mobile satellite
services business; however such operators currently offer
limited or no services. In July 2009, TerreStar launched its
satellite TerreStar 1 and had its first
end-to-end
phone call completed.
We compete indirectly with terrestrial wireline (landline) and
wireless communications networks. We provide service in areas
that are inadequately covered by these ground systems. To the
extent that terrestrial communications companies invest in
underdeveloped areas, we will face increased competition in
those areas. We believe that local telephone companies currently
are reluctant to invest in new switches, landlines and cellular
towers to expand their networks in rural and remote areas due to
high costs and limited usage. Many of the underdeveloped areas
are sparsely populated so it would be difficult to generate the
necessary returns on the capital expenditures required to build
terrestrial wireless networks in such areas. We believes that
our solutions offer a cost-effective and reliable alternative to
terrestrial-based wireline and wireless systems and that
continued growth and utilization will allow us to further lower
costs to consumers.
We will also face competition for our land-based services in the
United States from incipient ATC services providers. In February
2003, the FCC adopted rules that permit satellite service
providers to establish ATC networks. ATC authorization enables
the integration of a satellite-based service with terrestrial
wireless services, resulting in a hybrid mobile satellite
services/ATC network designed to provide advanced services and
broad coverage throughout the United States. The ATC network
would extend satellite services to urban areas and inside
buildings where satellite services currently are impractical.
Outside the United States, other countries are considering
implementing regulations to facilitate ATC services.
The mobile satellite services industry has significant barriers
to entry, including the cost and difficulty associated with
obtaining spectrum licenses and successfully building and
launching a satellite network. In addition to cost, there is a
significant amount of lead-time associated with obtaining the
required licenses, building the satellite constellation and
deploying the ground network technology.
Regulatory
Matters
U.S. Antitrust. Under the HSR Act and the rules
that have been promulgated thereunder by the Federal Trade
Commission (the “FTC”), the Acquisition may not be
consummated unless GHQ and we furnish certain information to the
Antitrust Division of the United States Department of Justice
(the “Antitrust Division”) and the FTC and specified
waiting period requirements have been satisfied. Pursuant to the
requirements of the HSR Act, GHQ and we each filed a
Notification and Report Forms with respect to the Acquisition
with the Antitrust Division and the FTC. GHQ filed its
notification on October 3, 2008 and we filed our
notification on October 6, 2008. Early termination of the
waiting period applicable to the Acquisition was granted by the
FTC on October 10, 2008.
The Antitrust Division and the FTC frequently scrutinize the
legality under the antitrust laws of transactions such as the
Acquisition. At any time before or after consummation of the
Acquisition, the Antitrust Division or the FTC could take such
action under the antitrust laws as it deems necessary or
desirable in the public interest, including seeking to enjoin
the completion of the Acquisition or seeking the divestiture of
substantial assets of GHQ or us. Private parties (including
individual states) may also bring legal actions under the
antitrust laws. We do not believe that the consummation of the
Acquisition will result in a violation of any applicable
antitrust laws. However, there can be no assurance that a
challenge to the Acquisition on antitrust grounds will not be
made or, if this challenge is made, what the result will be. See
the sections in GHQ’s Proxy Statement on Schedule 14A
filed with the SEC on August 28, 2009 entitled “The
Transaction Agreement—Conditions to the Closing” for
certain conditions to the Acquisition,
including conditions with respect to litigation and certain
governmental actions and “The Transaction
Agreement—Termination” for certain termination rights
pursuant to the Transaction Agreement in connection with legal
prohibitions to completing the Acquisition.
Foreign Competition Law Filings. We and our
subsidiaries own property and conduct business in a number of
foreign countries. In connection with the Acquisition, the laws
of certain of these foreign countries may require the filing of
information with, or the obtaining of the approval of,
governmental authorities therein. The parties do not believe
that any such filings or approvals are required by these laws,
but intend to take such action as they may require.
FCC Licenses. Certain of our subsidiaries and
affiliates of hold one or more licenses or authorizations (each
an “FCC License” and collectively the “FCC
Licenses”) issued by the FCC. Under the Communications Act
of 1934, as amended, and the rules and regulations of the FCC,
prior to completion of the Acquisition, the FCC must approve the
transfer of control of these subsidiaries and affiliates and
their FCC Licenses to GHQ. Therefore, on October 21, 2008,
GHQ and each of our subsidiaries or affiliates that holds one or
more FCC Licenses jointly filed an application with the FCC
requesting such approval (each an “Application” and
collectively the “Applications”).
Globalstar License LLC (“Globalstar License”) filed a
petition to deny the Applications. Cornell University
(“Cornell”), International Communications Group, Inc.
(“ICG”) and Rockwell Collins, Inc.
(“Rockwell”) filed comments with respect to the
Applications. The commenters did not oppose the proposed
transfer of control of us but asked the FCC to adopt certain
conditions in connection with its grant of the Applications. The
comments and requests for conditions filed by ICG and Rockwell
Collins were subsequently withdrawn.
On August 14, 2009, the International Bureau of the FCC,
acting on delegated authority, denied Globalstar License’s
petition to deny and Cornell’s request for conditions and
granted the Applications (the “Order”). Grant of the
Applications was conditioned on compliance by us, Iridium
Carrier Holdings LLC, GHQ, and their respective subsidiaries and
affiliates with the commitments and undertakings set forth in
the National Security Agreement dated August 17, 2001,
previously filed with the FCC, among Iridium Holdings LLC,
Iridium Satellite LLC, Iridium Carrier Holdings LLC and Iridium
Carrier Services, LLC, on the one hand, and the DOJ and the
Federal Bureau of Investigation (“FBI”), on the other
(the “National Security Agreement”). The Order was
effective immediately upon release but is subject to
reconsideration by the International Bureau
and/or
review by the FCC. If no third party seeks reconsideration or
review and the International Bureau does not act to reconsider
the Order on its own motion by September 14, 2009, and the
FCC does not act to review the Order on its own motion by
September 23, 2009, the Order will become a final order and
thus will no longer be subject to reconsideration or review. No
assurance can be given that the Order will not be subject to
reconsideration or review prior to its becoming a final order.
The FCC also noted in the Order that the record did not contain
sufficient information to determine whether a previous
investment by Baralonco Limited in Iridium Carrier Services LLC,
at the time it was made, fell within the parameters specified in
the FCC’s 2002 order authorizing foreign investment in us.
Accordingly, the FCC stated that its grant of the Applications
is without prejudice to any enforcement action by the FCC for
non-compliance with the Communications Act of 1934, as amended,
the FCC’s rules and regulations, and the 2002 order.
Foreign Licenses and Authorizations. We, either
directly or indirectly through certain of our subsidiaries and
affiliates, provide communications services to subscribers in
foreign countries in all regions of the world. In many of these
countries, we, our subsidiaries
and/or
affiliates have received government licenses or other
authorizations to provide such services. In certain of these
countries, completion of the Acquisition may require either
government approval or notification
of the change in control over the pertinent licenses or
authorizations. No assurance can be given that, if any such
approvals are required, they will be obtained.
General. It is possible that governmental
authorities having jurisdiction over GHQ and us may seek
regulatory concessions as conditions for granting approval of
the Acquisition. A regulatory body’s approval may contain
terms or impose conditions or restrictions relating or applying
to, or requiring changes in or limitations on, the operation or
ownership of any asset or business of GHQ, us or any of their
subsidiaries, or GHQ’s ownership of us, or requiring asset
divestitures, which conditional approval could reasonably be
expected to result in a substantial detriment to GHQ, us and
their subsidiaries, taken as a whole, after the closing of the
Acquisition. If this kind of approval occurs, in certain
circumstances, GHQ can decline to close under the Transaction
Agreement. We can give no assurance that the required regulatory
approvals will be obtained on terms that satisfy the conditions
to closing of the Acquisition or are within the time frame
contemplated by GHQ and us. See the section entitled “The
Transaction Agreement—Conditions to the Closing of the
Acquisition” in GHQ’s Proxy Statement on
Schedule 14A filed with the SEC on August 28, 2009.
Employees
As of June 30, 2009, we had 168 full-time employees,
none of whom is subject to any collective bargaining agreement.
We consider our employee relations to be good.
Properties
Our principal headquarters are located in Bethesda, Maryland,
where we currently lease 13,417 square feet of office
space. On August 17, 2009, we signed a lease for
21,573 square feet of office space in McLean, Virginia,
which will serve as our new principal headquarters. We do not
expect to occupy the new headquarters before the first quarter
of 2010. We also own or lease the facilities described in the
following table:
Approximate
Location
Country
Square Feet
Facilities
Owned/Leased
Chandler, Arizona
USA
129,303
Technical Support Center, Distribution Center and Warehouse
Leased
Leesburg, Virginia
USA
40,434
Satellite Network Operations Center
Owned
Tempe, Arizona
USA
30,985
Gateway Earth Station
Owned Building on Leased Land
Tempe, Arizona
USA
25,457
Operations and Finance Centers
Leased
Fairbanks, Alaska
USA
3,960
Satellite Earth Station Facility
Owned
Svalbard
Norway
1,800
Satellite Earth Station Facility
Owned Building on Leased Land
Yellowknife, Northwest Territories
Canada
1,750
Telemetry, Tracking and Control Station
Owned Building on Leased Land
Iqaluit, Nunavut
Canada
1,750
Telemetry, Tracking and Control Station
Owned Building on Leased Land
Intellectual
Property
At June 30, 2009, we held eight U.S. patents with no
additional U.S. patents pending and no foreign patents with
two additional foreign patents pending. These patents cover
several aspects
of our satellite system, our global network and our devices. We
continue to maintain all of our important patents.
In addition to our owned intellectual property, we also license
substantially all system technology, including software and
systems to operate and maintain our network as well as technical
information for the design and manufacture of our devices, from
Motorola. We maintain our licenses with Motorola pursuant to
several long-term agreements. Pursuant to one of these
agreements, we pay a royalty equal to 2% of the manufacturing
costs of subscriber equipment. These agreements can be
terminated by Motorola upon: (i) any material change to
certain portions of the certificate of formation and operating
agreement of the our subsidiary that is party to the agreements;
(ii) any change of control (as defined in the TSA);
(iii) the commencement by us of any voluntary bankruptcy
proceeding; or (iv) the material failure of us to perform
or comply with any provision of the agreements. Motorola has
assigned a portion of the patents that comprise these licenses
to a third-party. We also license other system technology from
additional third parties. We expect to license additional
technology from Motorola and other third parties in connection
with the development of Iridium NEXT and related ground
infrastructure, products and services.
If Motorola or any such third party were to terminate any
license agreement or cease to support and service this
technology, or if we are unable to renew such licenses on
commercially reasonable terms or at all, it may be difficult,
more expensive or impossible to obtain such services from
alternative vendors. Any substitute technology may also have
lower quality or performance standards, which would adversely
affect the quality of our products and services. For more
information, see “Risk Factors—Iridium Holdings’
agreements with Motorola contain potential payment provisions
which may apply to the Acquisition; and Iridium Holdings and
Motorola are in discussions with respect to such provisions, the
outcome of which is uncertain” and “Risk
Factors—Iridium Holdings is dependent on intellectual
property licensed from Motorola and other third parties.”
Legal
Proceedings
From time to time, we are involved in various litigation matters
involving ordinary and routine claims incidental to our
business. Management currently believes that the outcome of
these proceedings, either individually or in the aggregate, will
not have a material adverse effect on our business, results of
operations or financial condition.
As of the completion of the Acquisition, our board of directors,
executive officers and significant employees of will be as set
forth below:
Name
Age
Position
Matthew J. Desch
51
Director and Chief Executive Officer
Eric H. Morrison
44
Chief Financial Officer
John S. Brunette
50
Chief Legal and Administrative Officer
Greg Ewert
47
Executive Vice President, Sales, Global Distribution Channels
Lt. Gen. John H. Campbell, (ret.)
62
Executive Vice President, Government Programs
Don L. Thoma
48
Executive Vice President, Marketing
John Roddy
55
Executive Vice President, Ground Operations and Product
Development
Lee F. Demitry
56
Executive Vice President, “Iridium NEXT”
Robert H. Niehaus
54
Director and Chairman
Scott L. Bok
50
Director
Thomas C. Canfield
53
Director
Parker W. Rush
50
Director
Alvin B. Krongard
72
Director
Steven Pfeiffer
62
Director
Terry Jones
62
Director
J. Darrel Barros
48
Director
The board of
directors shall also include a representative of Baralonco.
Management
Executive
Officers
Matthew J. Desch, Age 51, Director and Chief Executive
Officer. Mr. Desch has more than 27 years of
experience in telecommunications management, and more than
16 years in the global wireless business. Mr. Desch
joined Iridium Holdings in 2006 as its Chief Executive Officer.
Previously, he was CEO of Telcordia Technologies, a telecom
software services provider, from
2002-2005.
Prior to Telcordia, he spent 13 years at Nortel Networks,
most recently as president for its fast-growing wireless
networks business where he was responsible for its global
carrier customers in Europe, the Middle East, Asia and Latin
America. Mr. Desch served on the board of directors of
Starent Networks and Airspan Networks. He has a Bachelor of
Science in computer science from The Ohio State University and a
Master of Business Administration from the University of Chicago.
Eric H. Morrison, Age 44, Chief Financial Officer.
Mr. Morrison has been CFO of Iridium Holdings since 2006.
Prior to becoming CFO, Mr. Morrison served as Vice
President, Finance and Treasurer of Iridium Satellite from
2004-2006.
Mr. Morrison has worked on the Iridium program over the
last 14 years. He was the controller, and was later
promoted to CFO, at Iridium North America. Even before he joined
Iridium North America, Mr. Morrison worked on the Iridium
program at Motorola. While at Motorola, he was part of the
negotiation and management team on the Raytheon Main Mission
Antenna and Khrunichev launch vehicle contracts and served as
the lead accountant for the satellite manufacturing facility. He
graduated with a Master of Business Administration and a Master
of Accountancy from the University of Illinois at
Urbana-Champaign. He graduated from Southern Illinois University
with a Bachelor’s degree in finance and he is also a
certified public accountant.
John S. Brunette, Age 50, Chief Legal and Administrative
Officer. Mr. Brunette was appointed to his current position
in 2007. Mr. Brunette provides a broad-based business and
legal perspective on a wide range of strategic, tactical,
operational and administrative matters. Prior to joining Iridium
Holdings, Mr. Brunette served as a consultant to technology
start up companies from
2006-2007.
Mr. Brunette was previously with Teleglobe Inc., a global
voice and data services provider, where he served as CEO until
2005. From
1998-2002,
prior to his appointment as CEO, he was Teleglobe’s
executive vice president, chief legal and administrative
officer. Mr. Brunette was also at MCI Communications
Corporation for twelve years where he led the company’s
corporate legal group. He began his career with the Satellite
Business Services division of IBM Corporation until MCI acquired
it in 1986. He holds both a Bachelor of Arts and a Juris
Doctorate from The Catholic University of America and is a
member of the Maryland State Bar Association.
Significant
Employees
Greg Ewert, Age 47, Executive Vice President Global
Distribution Channels. Mr. Ewert joined Iridium Holdings in
2004 and is responsible for marketing and business development
for Iridium Holdings and its relationship with its distribution
channels. He is also responsible for the product management for
Iridium Holdings’ new product offerings. Mr. Ewert
brings 19 years of experience at senior-level positions in
the global communications industry. Prior to joining Iridium
Holdings from
2002-2004,
he served as Executive Vice President for Marketing, Sales,
Product Development, Business Development and Customer Service
for COMSAT International. Prior to COMSAT from
1998-2002,
he held executive positions within Teleglobe Inc., ranging from
Senior Vice President of Global Data Services to Vice President
and General Manager of Carrier and Emerging Markets. Before
Teleglobe, he worked for Sprint from
1987-1997,
where he held various positions including President of Sprint
International of Canada. He holds a Bachelor’s degree in
Finance from Canisius College, Buffalo, New York.
Lt. Gen. John H. Campbell, (ret.), Age 62, Executive Vice
President Government Programs. General John Campbell,
U.S. Air Force (Retired), joined Iridium Holdings in 2006
from Applied Research Associates (ARA), where he served as
Principal, Defense and Intelligence, since 2004. General
Campbell is responsible for all aspects of Iridium
Holdings’ relationship with its U.S. government
customers. General Campbell joined ARA after retiring from the
United States Air Force after a
32-year
career. In the United States Air Force, General Campbell served
in a variety of operational and staff assignments around the
world. From 1998 to 2000, he was Vice Director of the Defense
Information Systems Agency (DISA) and as the first commander of
the Joint Task Force - Computer Network Defense. From 1997 to
1998, he served on the Joint Staff as Deputy Director for
Operations. Between 1971 and 1997, General Campbell served
around the world in a variety of operational assignments as an
F-15 and F-16 fighter pilot and commander. General Campbell is
the recipient of numerous military and intelligence community
awards, including the Defense Distinguished Service Medal, the
Legion of Merit, the Air Medal, the National Imagery and Mapping
Agency Award, the National Reconnaissance Distinguished Medal,
and the National Security Agency Award. He is a graduate of the
University of Kentucky with a degree in Computer Science and a
Masters of Business Administration.
Don L. Thoma, Age 48, Executive Vice President Marketing.
Mr. Thoma was appointed to his current position in 2008.
Mr. Thoma is responsible for leading new Iridium Holdings
corporate initiatives such as Iridium NEXT. He brings to Iridium
a strong and versatile background in both management and
business development. Prior to joining Iridium Holdings, from
2001-2002,
he served as Vice President of Marketing and Business
Development for ObjectVideo, Inc. Prior to working at
ObjectVideo, from
1992-2000,
he held various positions of responsibility for ORBCOMM, ranging
from Senior Director of Transportation to Founder and General
Manager of the Vantage Tracking Solutions business unit and Vice
President, Business Development. Prior to ORBCOMM, from
1988-1990,
he was the director of integration and launch operations for
Orbital Sciences Corporation. Previously, he served as a Captain
in the United States Air Force Space
Division from
1983-1988.
He holds a Bachelor’s degree in Aeronautical Engineering
from the Rensselaer Polytechnic Institute, a Master’s
degree in Aerospace Engineering from the University of Southern
California and a Masters of Business Administration from the
Harvard Business School.
John Roddy, Age 55, Executive Vice President Ground
Operations and Product Development. Mr. Roddy joined
Iridium Holdings in 2006, bringing with him more than
27 years of telecommunications industry experience.
Mr. Roddy is responsible for developing Iridium
Holdings’ corporate operations model and program management
culture. Prior to joining Iridium Holdings, Mr. Roddy held
numerous executive positions at Telcordia Technologies including
President, Telcordia Global Services from
2003-2006;
Senior Vice President, Global Operations; and Chief Information
Officer. Mr. Roddy built the Global Services business,
implemented the company’s global operations capability, and
rebuilt its IT organization as part of a major company
transition. Prior to joining Telcordia Technologies, at Nortel
Networks, he was Vice President and General Manager of the
Carrier Professional Services Business Unit serving the CLEC and
new market entrants from
1999-2001.
Prior to that, he was Vice President, Technology and Director,
Ottawa Laboratories for Public Carrier Networks from
1997-1998.
He also held the position of Vice President, Canadian Technical
Services and Global Product Support from
1993-1996,
responsible for the engineering, installation and
emergency/field services of the switching and transmission
product lines for the carrier customers. He began his
telecommunications career in sales and marketing, holding varied
positions including Product Manager, Dynamic Routing; Regional
Sales Director; and Director of Services Marketing. He holds a
Master of Business Administration from McMaster University,
Hamilton, Canada.
Lee F. Demitry, Age 56, Executive Vice President
“Iridium NEXT.” Mr. Demitry is responsible for
the development and introduction of Iridium NEXT as well as the
ongoing support of the existing constellation. He has
30 years of experience in aerospace and satellite
technology, 20 years of which were in the U.S. Air
Force and 10 in the private sector. Mr. Demitry has worked
on and successfully led some of the most complex and advanced
space and satellite programs within the United States
Government. He has experience in systems engineering, program
management, systems procurement and contracts. Prior to joining
Iridium Holdings, from
1998-2007,
Mr. Demitry was the Vice President of Engineering at
GeoEye, where he led an extended organization in developing,
deploying and maintaining a $700 million enterprise
consisting of commercial imaging satellites, production and
mission planning systems, and global ground stations. He holds a
Masters of Science in Astronautical Engineering from the
Massachusetts Institute of Technology, and a Master’s
degree and Masters of Business Administration from Golden Gate
University. Mr. Demitry served in the United States Air
Force until he retired as a Colonel (select).
Directors
Robert H. Niehaus, Age 54, Director and Chairman.
Mr. Niehaus has been the Chairman of Greenhill Capital
Partners since June 2000. Mr. Niehaus has been a member of
Greenhill’s Management Committee since its formation in
January 2004. Mr. Niehaus joined Greenhill in January 2000
as a managing director to begin the formation of Greenhill
Capital Partners. Prior to joining Greenhill, Mr. Niehaus
spent 17 years at Morgan Stanley & Co., where he
was a managing director in the merchant banking department from
1990 to 1999. Mr. Niehaus was vice chairman and a director
of the Morgan Stanley Leveraged Equity Fund II, L.P., a
$2.2 billion private equity investment fund, from 1992 to
1999, and was vice chairman and a director of Morgan Stanley
Capital Partners III, L.P., a $1.8 billion private equity
investment fund, from 1994 to 1999. Mr. Niehaus was also
the chief operating officer of Morgan Stanley’s merchant
banking department from 1996 to 1998. Mr. Niehaus is a
director of Heartland Payment Systems, Inc. and other private
companies. Mr. Niehaus is a graduate of Princeton
University and the Harvard Business School, from which he
graduated with high distinction as a Baker Scholar.
Scott L. Bok, Age 50, Director. Mr. Bok has served as
Greenhill’s Co-Chief Executive Officer since October 2007,
served as its Co-President between 2004 and 2007 and has been a
member of Greenhill’s Management Committee since its
formation in January 2004. In addition, Mr. Bok has been a
director of Greenhill since its incorporation in March 2004.
From January 2004 until October 2007, Mr. Bok was
Greenhill’s U.S. President. From 2001 until the
formation of Greenhill’s Management Committee, Mr. Bok
participated on the two-person administrative committee
responsible for managing Greenhill’s operations.
Mr. Bok has also served as a Senior Member of Greenhill
Capital Partners since its formation. Mr. Bok joined
Greenhill as a managing director in February 1997. Before
joining Greenhill, Mr. Bok was a managing director in the
mergers, acquisitions and restructuring department of Morgan
Stanley & Co., where he worked from 1986 to 1997,
based in New York and London. From 1984 to 1986, Mr. Bok
practiced mergers and acquisitions and securities law in New
York with Wachtell, Lipton, Rosen & Katz. Mr. Bok
is a member of the board of directors of various private
companies. Mr. Bok is also a member of the Investment
Committee of Greenhill Capital Partners. Mr. Bok is a cum
laude graduate of the University of Pennsylvania’s Wharton
School. He holds a Juris Doctorate, cum laude, from the
University of Pennsylvania Law School, where he was an editor of
the law review.
Thomas C. Canfield, Age 53, Director. Mr. Canfield has
served as Senior Vice President and General Counsel of Spirit
Airlines since October 2007. Previously, Mr. Canfield was
General Counsel of Point Blank Solutions, Inc. and was Chief
Executive Officer and Plan Administrator for AT&T Latin
America Corp. Prior to assuming those roles, Mr. Canfield
was General Counsel and Secretary of AT&T Latin America
following its acquisition with FirstCom Corporation.
Mr. Canfield became General Counsel of FirstCom in May
2000. Prior to joining FirstCom, Mr. Canfield was Counsel
in the New York office of Debevoise & Plimpton LLP,
where for nine years he practiced in the areas of corporate,
securities and international transactions. Mr. Canfield
also is a member of the Boards of Directors of Tricom SA and
Birch Telecom Inc.
Parker W. Rush, Age 50, Director. Mr. Rush has served
as the President and Chief Executive Officer and as a member of
the Board of Directors of Republic Companies, Inc., a provider
of property and casualty insurance, since December 2003. Prior
to his employment with Republic, Mr. Rush served as a
Senior Vice President and Managing Director at The Chubb Group
of Insurance Companies in charge of the Southern U.S. based
in Dallas, Texas and in various other capacities since February
1980.
Alvin B. Krongard, Age 72, Director. Mr. Krongard is
the Former CEO and Chairman of the Board of Alex. Brown
Incorporated, the nation’s oldest investment banking firm.
Mr. Krongard also served as Vice Chairman of the Board of
Bankers Trust in addition to holding other financial industry
posts. He has served as Counselor to the Director of the
U.S. Central Intelligence Agency (CIA), then as Executive
Director of the CIA. Mr. Krongard received a B.A. degree
with honors from Princeton University and a Juris Doctorate
degree with honors from the University of Maryland School of
Law. He served three years of active duty as an infantry officer
with the U.S. Marine Corps.
Steven Pfeiffer, Age 62, Director. Mr. Pfeiffer has
been a partner in the law firm of Fulbright & Jaworski
LLP since 1983 and has served as the elected Chair of the
firm’s Executive Committee since 2003. He previously served
as the
Partner-In-Charge
of the Washington, DC and London offices, and headed the
firm’s International Department. In addition to serving on
the Board of Iridium Holdings, Mr. Pfeiffer is a
Non-Executive Director of Barloworld Limited in South Africa,
Chairman Emeritus of Wesleyan University, a trustee of The
Africa-America
Institute in New York, a Director of Project HOPE in
Washington, D.C., and a Director of the NAACP Legal Defense
and Educational Fund, Inc. Mr. Pfeiffer received a B.A.
degree from Wesleyan University in Middletown, Connecticut and
studied at Oxford University as a Rhodes Scholar, completing a
B.A. and a M.A. in jurisprudence. He also holds a M.A. in Area
Studies (Africa) from the School
of Oriental and African Studies of the University of London and
holds a Juris Doctorate from Yale University. Mr. Pfeiffer
served as an officer on active and reserve duty in the United
States Navy.
Terry Jones, Age 62, Director. Mr. Jones is a General
Partner in Syncom Funds, a venture capital firm. Prior to
joining Syncom in 1978, he was co-founding stockholder and Vice
President of Kiambere Savings and Loan in Nairobi, and a
Lecturer at the University of Nairobi. He also worked as a
Senior Electrical Engineer for Westinghouse Aerospace and Litton
Industries. He is a member of the board of directors for several
Syncom portfolio companies including Radio One, Inc., Iridium
Holdings and TV One LLC. He formerly served on the Board of the
Southern African Enterprise Development Fund, a presidential
appointment, and is on the Board of Trustees of Spellman
College. Mr. Jones received a B.S. degree in Electrical
Engineering from Trinity College, an M.S. degree in Electrical
Engineering from George Washington University and a Masters of
Business Administration from Harvard University.
J. Darrel Barros, Age 48, Director. Mr. Barros is
the President of Syndicated Communications, Inc., a private
equity fund focused on media and communications. Prior to
joining the SCI team, he was President of VGC, PC, a Washington,
DC based law firm specializing in private equity and early-stage
investments. Mr. Barros also served as a corporate and
securities attorney in the venture capital practice group of DLA
Piper US LLP. He is currently Executive Chairman of Haven Media
Group, LLC, a music-media company, and Chairman of Prestige
Resort Properties, Inc., a resort and hospitality company.
Mr. Barros is also a director of TMX Interactive, Simplink
Corporation and Maya Cinemas. Mr. Barros received a B.S.
degree from Tufts University, a Master in Business
Administration from the Amos Tuck School of Business in
Dartmouth College, and a Juris Doctorate degree from the
University of Michigan.
The following table sets forth, (1) as of September 2,2009, the actual beneficial ownership of our common stock and
(2) the expected beneficial ownership of our common stock
immediately following completion of the Acquisition by
(a) each person owning (or expected to own) greater than 5%
of our outstanding common stock; (b) each current director
and executive officer of GHQ; (c) each current director and
executive officer as a group prior to the Acquisition;
(d) each person that is expected to be a director or named
executive officer following the completion of the Acquisition;
and (e) each person that is expected to be a director or
executive officer following completion of the Acquisition as a
group. For purposes of calculating this information, we have
made two alternative sets of assumptions:
•
Assuming Minimum Conversion: This presentation assumes that no
GHQ stockholders seek to convert their IPO shares into a pro
rata portion of the trust account; and
•
Assuming Maximum Conversion: This presentation assumes that GHQ
stockholders holding 30% of the IPO shares less one share
(11,999,999 shares) vote against the Acquisition and elect
to exercise their conversion rights.
See “Prospectus Supplement Summary—The
Acquisition—Stockholder Approval of Initial Business
Combination and other Closing Conditions.”
The unaudited pro forma financial statements contain important
information regarding the assumptions used in calculating this
information. See “Unaudited Pro Forma Condensed
Consolidated Financial Data.”
After the Acquisition **
Assuming Minimum
Assuming Maximum
Before the Acquisition*
Conversion
Conversion
Name and Address of Beneficial
Number of
Number of
Number of
Owner and Management
shares
% (1)
shares
%
shares (2)
% (2)
Before the
Acquisition
Executive Officers and Directors(3)
Greenhill & Co., Inc. (4)
8,369,563
17.3%
12,874,887
12.0%
12,874,887
13.5
%
Parker W. Rush
43,479
**
86,958
***
86,958
***
Kevin P. Clarke
43,479
**
86,958
***
86,958
***
Thomas C. Canfield
43,479
**
86,958
***
86,958
***
Harold J. Rodriguez, Jr. (4)(5)
15,000
**
30,000
***
30,000
***
Robert H. Niehaus (4)
398,276
**
598,276
***
598,276
***
Scott L. Bok (4)
525,800
1.1%
725,800
***
725,800
***
All executive officers and directors as a group
(6 individuals)
Syndicated Communications Venture Partners IV, L.P(9)
—
—
4,030,824
3.7%
4,030,824
4.2
%
Syndicated Communications, Inc.(9)
—
—
5,280,539
4.9%
5,280,539
5.5
%
Baralonco Limited(10)
—
—
10,647,997
9.9%
10,647,997
11.1
%
All directors and executive officers as a group
1,069,513
2.2%
2,518,522
2.3%
2,518,522
2.6
%
*
Figures before the Acquisition
assume no exercise of our warrants since such warrants become
exercisable only at the closing of the Acquisition. In addition,
figures before the Acquisition do not give effect to (i) the
forfeiture of common stock or warrants by our founding
stockholder, (ii) the conversion of the note by Greenhill
Europe, (iii) the Exchanges, (iv) this offering and (v) any
Forward Purchases.
**
Figures after the Acquisition
assume (i) the exercise of our current warrants and
restructured warrants, (ii) the forfeiture of 1,441,176
founding stockholder’s shares, 8,369,533 founder warrants
and 4,000,000 private placement warrants, (iii) the
conversion of the $22.9 million note held by Greenhill
Europe into 1,946,500 shares of our common stock,
(iv) the repurchase of 3,655,500 current warrants from Banc
of America and (v) the Exchanges (assuming
1,244,931 shares are issued in connection with the
Exchanges). In addition, figures after the Acquisition do not
give effect to this offering and any Forward Purchases.
***
Less than 1% of the outstanding
shares of common stock.
(1)
Reflects the sale of
48,500,000 units under certain purchase agreements and in
our IPO.
(2)
Assumes 11,999,999 shares are
converted but that none of the holders listed on this table
converted their shares.
(3)
Unless otherwise indicated, the
business address of each of the individuals is 300 Park Avenue,
23rd Floor, New York, New York10022.
(4)
Mr. Bok is our Chairman and
Chief Executive Officer and is the Co-Chief Executive Officer
and a managing director of Greenhill. Mr. Niehaus is our
Senior Vice President and is Chairman of Greenhill Capital
Partners and a managing director of Greenhill.
Mr. Rodriguez is our Chief Financial Officer and is Chief
Administrative Officer, Chief Compliance Officer, and a managing
director of Greenhill.
(5)
These shares are held by Jacquelyn
F. Rodriguez.
(6)
Derived from Schedule 13F
filed by Bank of America Corporation reporting power to vote or
direct the vote over and shared power to dispose or direct the
disposition of 3,655,500 units. Reflects repurchase by GHQ,
upon the closing of the Acquisition, of all 3,655,500 warrants
associated with those units, pursuant to an agreement dated
June 2, 2009. The business address of such reporting person
is 100 North Tryon Street, Floor 25, Bank of America Corporate
Center, Charlotte, NC28255.
(7)
Derived from Schedule 13F
filed by Citigroup Incorporated reporting power to vote or
direct the vote over and shared power to dispose or direct the
disposition of 1,509,800 units and an additional
1,046,128 shares. The business address of such reporting
person is 399 Park Avenue, New York, NY10043. Adjusted to
reflect warrants participating in the July 29, 2009 warrant
restructuring.
(8)
Derived from Schedule 13F
filed by Millennium Management LLC reporting power to vote over
and dispose or direct the disposition of 1,915,000 shares
and based upon July 29, 2009 warrant restructuring
documentation. Address: 666 Fifth Avenue, 8th Floor, NewYork, NY10103.
The following discussion of shares of our common stock eligible
for future resale gives effect to (i) the issuance of
shares of our common stock as purchase consideration to the
Iridium Sellers in the Acquisition, (2) the forfeiture of
1,441,176 shares of our common stock by our founding
stockholder, (3) the issuance of 1,244,931 shares of
our common stock issued in connection with the Exchanges,
(4) this offering (not including the underwriters’
option to purchase additional shares) and (5) the Forward
Purchase of 10,395,763 shares of our common stock pursuant to
the agreements we announced on September 2, 2009. This
discussion does not reflect, unless otherwise indicated, the
convertible note on an as converted basis because the earliest
date that Greenhill Europe can convert the convertible note is
October 24, 2009. In addition, this discussion assumes that
no GHQ stockholders seek to convert their IPO shares into a pro
rata portion of the trust account. See “Prospectus
Supplement Summary—The Acquisition—Stockholder
Approval of Initial Business Combination and other Closing
Conditions.”
Upon completion of the transactions described above, we will
have 83,351,492 shares of common stock outstanding, of
which 45,604,237 shares will be freely tradable without
restriction or further registration under the Securities Act,
except for any shares purchased by one of our affiliates within
the meaning of Rule 144 under the Securities Act. All of
the remaining 37,747,255 shares will be restricted
securities under Rule 144, in that they were issued in
private transactions not involving a public offering and
36,502,324 of these restricted shares of common stock are
subject to a one-year
“lock-up
agreement,” as described below. In addition, shares of our
common stock are subject to a
90-day
lock-up
agreement and we have granted certain registration rights, as
described below.
Rule 144
The SEC has adopted amendments to Rule 144 which became
effective on February 15, 2008 and apply to securities
acquired both before and after that date. Under these
amendments, a person who has beneficially owned restricted
shares of our common stock for at least six months would be
entitled to sell their securities provided that (i) such
person is not deemed to have been one of our affiliates at the
time of, or at any time during the three months preceding, a
sale and (ii) we are subject to the Exchange Act periodic
reporting requirements for at least three months before the sale.
Persons who have beneficially owned restricted shares of our
common stock for at least six months but who are our affiliates
at the time of, or at any time during the three months
preceding, a sale, would be subject to additional restrictions,
by which such person would be entitled to sell within any
three-month period only a number of securities that does not
exceed the greater of either of the following:
•
1% of the total number of securities of the same class then
outstanding; or
•
the average weekly trading volume of such securities during the
four calendar weeks preceding the filing of a notice on
Form 144 with respect to the sale;
provided, in each case, that we are subject to the
Exchange Act periodic reporting requirements for at least three
months before the sale. Such sales must also comply with the
manner of sale and notice provisions of Rule 144.
Restrictions
on the Use of Rule 144 by Shell Companies or Former Shell
Companies
Historically, the SEC staff has taken the position that
Rule 144 is not available for the resale of securities
initially issued by companies that are, or previously were,
blank check companies like us, to their promoters or affiliates
despite technical compliance with the requirements of
Rule 144. The SEC has codified and expanded this position
in the amendments discussed above
by prohibiting the use of Rule 144 for resale of securities
issued by any shell companies (other than business combination
related shell companies) or any issuer that has been at any time
previously a shell company. The SEC has provided an important
exception to this prohibition, however, if the following
conditions are met:
•
the issuer of the securities that was formerly a shell company
has ceased to be a shell company;
•
the issuer of the securities is subject to the reporting
requirements of Section 13 or 15(d) of the Exchange Act;
•
the issuer of the securities has filed all Exchange Act reports
and material required to be filed, as applicable, during the
preceding 12 months (or such shorter period that the issuer
was required to file such reports and materials), other than
Form 8-K
reports; and
•
at least one year has elapsed from the time that the issuer
filed current Form 10 type information with the SEC
reflecting its status as an entity that is not a shell company.
As a result, if all of these conditions are met, our initial
stockholders, the Warrantholders who receive shares of our
common stock in the Exchanges and the sellers of Iridium
Holdings units who receive shares of our common stock at the
closing of the Acquisition will be able to sell their restricted
shares of our common stock pursuant to Rule 144 without
registration one year after we have completed the Acquisition.
Registration
Rights
We have granted registration rights in connection with the
restructured warrants and shares of our common stock to be
issued in the Exchanges, which require us to file a shelf
registration statement as soon as practicable following the
issuance of the restructured warrants, but in no event later
than 15 business days following the issuance of the restructured
warrants. This shelf registration statement will be required to
cover the sale of 14,368,525 restructured warrants,
14,368,525 shares of our common stock underlying such
restructured warrants and 1,244,931 shares of our common
stock issued in the Exchanges. We expect to issue the
restructured warrants immediately following the closing of the
Acquisition. If the shelf registration statement is not declared
effective by the SEC within 30 business days following the
issuance of the restructured warrants, the Warrantholders have
the right to sell to us, for cash, the restructured warrants for
a price equal to the difference between the weighted average
price of the shares of our common stock during a certain period
over the exercise price of the restructured warrants.
In addition, as soon as practicable following closing of
Acquisition, we intend to file a shelf registration statement to
permit holders of 13,526,667 warrants to convert such warrants
and receive 13,526,667 shares of our common stock. We also
intend to file a shelf registration statement to provide for the
resale of 3,655,500 shares of our common stock currently
held by Banc of America, the underwriter of our IPO.
At the closing of the Acquisition, we will also enter into a
registration rights agreement with each seller of Iridium
Holdings units, our founding stockholder and our other initial
stockholders. Greenhill Europe has agreed to become a party to
this registration rights agreement upon its conversion of the
$22.9 million note it holds into shares of our common
stock, which may occur no earlier than October 24, 2009.
Pursuant to this registration rights agreement, such persons
will be granted certain registration rights with respect to the
registration of 38,448,824 shares of common stock and
130,437 warrants, which includes shares of our common stock
received by holders of Iridium Holdings units in the
Acquisition, shares of our common stock and warrants held by our
founding and initial stockholders and the common stock issuable
upon conversion of the note held by Greenhill Europe. Under this
registration rights agreement,
we will be required to file a shelf registration statement as
soon as reasonably practicable after the closing of the
Acquisition and related transactions, with a view to such
registration statement becoming effective six months from the
date of the closing of the Acquisition. However, pursuant to an
underwriting agreement
dated ,
2009, we have agreed not to file this registration statement for
a period of 90 days after the date of this prospectus
supplement.
Certain holders of the registration rights, subject to certain
limitations, may exercise a demand registration right in order
to permit such holders to sell their registrable shares of
common stock in an underwritten public offering under the shelf
registration statement. Whenever we propose to register any of
our securities under the Securities Act, holders of registration
rights will have the right to request the inclusion of their
registrable shares of common stock in such registration.
The resale of shares of our common stock in the public market
upon exercise of these registration rights could adversely
affect the market price of our common stock or impact our
ability to raise additional equity capital. Except as set forth
below, our stockholders and warrantholders are not subject to
any
“lock-ups”
restricting the transfer of the securities held by them.
Lock-Up
Agreements
Each seller of Iridium Holdings units who receives shares of our
common stock at the closing of the Acquisition, our founding
stockholder and our other initial stockholders have agreed to a
one-year
“lock-up”
for the shares of our common stock they will hold following the
closing of the Acquisition, except for underwritten secondary
offerings approved by our Board of Directors anytime after six
months from the closing of the Acquisition. Greenhill Europe has
agreed to enter into a similar one-year
“lock-up,”
also subject to the exception described above, commencing on the
date it converts the $22.9 million note it holds into
shares of our common stock and enters into the registration
rights agreement described above. These
lock-ups
limit, to an extent, the volume of our shares available for
public trading, which may have an adverse effect on the market
for our common stock. Upon the termination, expiration or waiver
of the
lock-ups, a
total of 36,502,324 shares of our common stock (or
38,448,824 shares including the shares of our common stock
issuable upon conversion of Greenhill Europe’s
$22.9 million note) will become available to trade on the
public markets, which may have a material adverse effect on the
market for our common stock.
In addition, in connection with this offering, we, each of our
directors and our executive officers, and certain of our
stockholders, have agreed to a
lock-up for
a period of 90 days after the date of this prospectus
supplement. See “Underwriting.”
The following is a discussion of certain U.S. federal
income and estate tax consequences of the ownership and
disposition of common stock by a beneficial owner that is a
“Non-U.S. Holder.”
Except where noted, this summary deals only with common stock
that is held as a capital asset by a
Non-U.S. Holder.
A
“Non-U.S. Holder”
is a person or entity that, for U.S. federal income tax
purposes, is a:
•
non-resident alien individual, other than certain former
citizens and residents of the United States subject to tax as
expatriates;
•
foreign corporation; or
•
foreign estate or trust.
A
“Non-U.S. Holder”
does not include an individual who is present in the United
States for 183 days or more in the taxable year of
disposition. Such an individual is urged to consult his or her
own tax advisor regarding the U.S. federal income tax
consequences of the sale, exchange or other disposition of
common stock.
If a partnership holds our common stock, the tax treatment of a
partner will generally depend on the status of the partner and
the activities of the partnership. Partnerships holding our
common stock and partners in such partnerships should consult
their own tax advisors.
This discussion is based on current provisions of the Code,
Treasury regulations, judicial opinions, published positions of
the U.S. Internal Revenue Service (the “IRS”) and
other applicable authorities, all of which are subject to
change, possibly with retroactive effect. This discussion does
not address all aspects of U.S. federal income and estate
taxation that may be relevant to
Non-U.S. Holders
in light of their particular circumstances and does not address
any tax consequences arising under the laws of any state, local
or foreign jurisdiction.
WE URGE PROSPECTIVE HOLDERS OF COMMON STOCK TO CONSULT THEIR TAX
ADVISORS REGARDING THEIR PARTICULAR U.S. FEDERAL, STATE,
AND LOCAL AND
NON-U.S. INCOME,
ESTATE AND OTHER TAX CONSIDERATIONS.
Dividends
Dividends paid to a
Non-U.S. Holder
of common stock generally will be subject to withholding tax at
a 30% rate or a reduced rate specified by an applicable income
tax treaty. In order to obtain a reduced rate of withholding, a
Non-U.S. Holder
will be required to provide an IRS
Form W-8BEN
certifying its entitlement to benefits under a treaty. Special
certification and other requirements apply to certain
Non-U.S. Holders
that are pass-through entities rather than corporations or
individuals.
The withholding tax does not apply to dividends paid to a
Non-U.S. Holder
who provides a
Form W-8ECI,
certifying that the dividends are effectively connected with the
Non-U.S. Holder’s
conduct of a trade or business within the United States.
Instead, the dividends will be taxable as Effectively Connected
Income, as described below under “—Gain on Sale of
Other Disposition of Common Stock.”
A
Non-U.S. Holder
of common stock may obtain a refund or credit of excess amounts
withheld by filing an appropriate claim with the IRS.
Subject to the discussion below concerning backup withholding, a
Non-U.S. Holder
generally will not be subject to U.S. federal income tax on
any gain realized on a sale or other disposition of our common
stock, unless:
•
the gain is effectively connected with the holder’s conduct
of a trade or business within the United States (and, if an
applicable income tax treaty so provides, is attributable to a
U.S. permanent establishment maintained by the holder)
(“Effectively Connected Income”); or
•
we are or have been a “United States real property holding
corporation” for U.S. federal income tax purposes and
the holder holds or has held, actually or constructively, more
than 5% of our Common Stock at any time during the five-year
period ending on the date of the disposition.
We believe that we are not, and do not anticipate becoming, a
United States real property holding corporation.
Effectively Connected Income generally will be subject to
U.S. federal income tax, net of certain deductions, at the
same rates applicable to U.S. persons, subject to an
applicable treaty providing otherwise. If a
Non-U.S. Holder
is a corporation, the branch profits tax also may apply with
respect to such income at a 30% rate or such lower rate as may
be specified by an applicable income tax treaty.
Information
Reporting and Backup Withholding
Information returns will be filed with the IRS in connection
with payments of dividends on our common stock. Unless a
Non-U.S. Holder
complies with certification procedures to establish that it is
not a United States person, information returns may be filed
with the IRS in connection with a sale or other disposition of
common stock and the
Non-U.S. Holder
may be subject to U.S. backup withholding on dividends and
proceeds from a sale or other disposition of common stock. The
certification procedures required to claim a reduced rate of
withholding under a treaty will satisfy the certification
requirements necessary to avoid backup withholding as well.
The amount of any backup withholding from a payment to a holder
will be allowed as a credit against a
Non-U.S. Holder’s
U.S. federal income tax liability and may entitle the
holder to a refund, provided that the required information is
furnished to the IRS in a timely manner.
U.S.
Federal Estate Tax
Individuals who are
Non-U.S. Holders
at the time of their death and entities the property of which is
potentially includible in such an individual’s gross estate
for U.S. federal estate tax purposes (for example, a trust
funded by such an individual and with respect to which the
individual has retained certain interests or powers), should
note that, absent an applicable treaty benefit, the common stock
will be treated as U.S. situs property subject to
U.S. federal estate tax.
Under the terms and subject to the conditions contained in an
underwriting agreement
dated ,
2009, the underwriters named below, for whom Raymond
James & Associates, Inc., RBC Capital Markets
Corporation and Stifel, Nicolaus & Company,
Incorporated are acting as representatives, have severally
agreed to purchase, and we have agreed to sell to them, the
number of shares of our common stock set forth opposite their
names below:
Number of
Underwriters
Firm Shares
Raymond James & Associates, Inc.
RBC Capital Markets Corporation
Stifel, Nicolaus & Company, Incorporated
Total
16,000,000
The underwriters are offering the shares of common stock subject
to their acceptance of the shares from us and subject to prior
sale and subject to the closing of the Acquisition. The
underwriting agreement provides that the obligation of the
underwriters to purchase and accept delivery of the common stock
offered by this prospectus supplement are subject to approval of
certain legal matters by its counsel and to other conditions set
forth in the underwriting agreement. The underwriters are
obligated to purchase and accept delivery of all of the shares
of common stock offered by this prospectus supplement, if any
are purchased, other than those covered by the option to
purchase additional shares described below.
Contingent
Nature of Offering
This offering is conditioned upon the closing of the
Acquisition. The closing of the Acquisition is subject to the
satisfaction of a number of conditions, including, among other
things, stockholder approval of the Acquisition, the issuance of
our common stock to the sellers at the closing of the
Acquisition, the amendment of our certificate of incorporation
and the receipt of certain regulatory approvals. If we are
unable to complete the Acquisition prior to the scheduled
closing of this offering, no shares of common stock will be sold
and delivered in this offering. As a result, investors are
advised not to sell shares of common stock to be acquired in
this offering prior to the closing of this offering, as
secondary trades in the shares of common stock will not settle
if this offering does not close. See “Prospectus Supplement
Summary—The Acquisition” and “Risk
Factors—This offering is conditioned upon the closing of
the Acquisition, and we may be unable to complete the
Acquisition.”
Option to
Purchase Additional Shares
We have granted the underwriters an option, exercisable within
40 days after the date of this prospectus supplement, to
purchase from time to time up to an aggregate of 2,400,000
additional shares of common stock, at the same price per share
as they are paying for the shares shown in the table above. If
the underwriters exercise their option to purchase any of the
additional 2,400,000 shares, each underwriter, subject to
certain conditions, will become obligated to purchase a number
of additional shares proportionate to that underwriter’s
initial purchase commitment as indicated in the table above. If
purchased, these additional shares will be sold by the
underwriters on the same terms as those on which the shares
offered by this prospectus supplement are being sold.
Commission
and Discounts
The underwriters propose to offer the common stock directly to
the public at the public offering price indicated on the cover
page of this prospectus supplement and to various dealers at
that price less a concession not to exceed
$ per share. After this offering,
the public offering
price, concession and reallowance to dealers may be reduced by
the underwriters. No reduction will change the amount of
proceeds to be received by us as indicated on the cover page of
this prospectus supplement. The shares of common stock are
offered by the underwriters as stated in this prospectus
supplement, subject to receipt and acceptance by them and
subject to their right to reject any order in whole or in part.
The following table summarizes the underwriting compensation to
be paid to the underwriters by us. These amounts assume both no
exercise and full exercise of the underwriters’ option to
purchase additional shares. We estimate that the total expenses
payable by us in connection with this offering, other than the
underwriting discount referred to below, will be approximately
$ .
Total
No Exercise of
Full Exercise of
Over-allotment
Over-allotment
Per Share
Option
Option
Public offering price
$
$
$
Underwriting discount
$
$
$
Proceeds, before expenses, to us
$
$
$
Indemnification
We and Iridium Holdings have agreed to indemnify the
underwriters against certain liabilities, including liabilities
under the Securities Act, and the Exchange Act, or to contribute
to payments the underwriters may be required to make because of
any of those liabilities.
Lock-up
Agreements
Subject to specified exceptions, each of our directors and our
executive officers, and certain of our stockholders, have agreed
for a period of 90 days after the date of this prospectus
supplement, not to directly or indirectly, without the prior
written consent of Raymond James & Associates, Inc.
(1) offer, sell, contract to sell, pledge, grant any option
to purchase or otherwise dispose of any stock, options, warrants
or other securities of the Company, or any securities
convertible into or exercisable or exchangeable for, or any
rights to purchase or otherwise acquire, any stock, options,
warrants or other securities of the Company held by such person
or entity or acquired by such person or entity after the date of
the lock-up
agreement or that may be beneficially owned by the person or
entity, or (2) exercise or seek to exercise or effectuate
in any manner any rights of any nature that the person or the
entity has or may have hereafter to require us to register under
the Securities Act, the sale, transfer or other disposition of
any of the securities held or deemed to be beneficially owned by
the person or entity, or to otherwise participate as a selling
securityholder in any manner in any registration by us under the
Securities Act.
In addition we have agreed that for a period of 90 days
after the date of this prospectus supplement, we will not
directly or indirectly: (1) offer for sale, sell, pledge,
or otherwise dispose of (or enter into any transaction or device
that is designed to, or could be expected to, result in the
disposition by any person at any time in the future of) any
shares of common stock or securities convertible into or
exchangeable for common stock, (2) enter into any swap or
other derivatives transaction that transfers to another, in
whole or in part, any of the economic benefits or risks of
ownership of such shares of common stock, whether any such
transaction described in clause (1) or (2) above is to
be settled by delivery of common stock or other securities, in
cash or otherwise or (3) publicly disclose the intention to
do any of the foregoing, in each case without the prior written
consent of Raymond James & Associates, Inc. The
foregoing restrictions shall not apply to: (a) the offer
and sale of shares of common stock to the underwriters pursuant
to the underwriting agreement, (b) the grant or the
exercise of stock options or other securities convertible into
or exchangeable for shares of common stock granted pursuant to
existing GHQ
stock option, stock bonus or other stock plans or arrangements
in and as contemplated for Iridium Holdings’ officers
following the closing of the Acquisition (including, but not
limited to GHQ’s 401(k) plan and the 2009 Stock Incentive
Plan), (c) the conversion into shares of common stock of
the promissory note, which Greenhill Europe purchased from
Iridium Holdings on or about October 24, 2008, (d) the
offer and sale of shares of common stock or warrants as
consideration for the purchase or exchange of the Company’s
warrants from certain warrantholders in the Exchanges and the
Forward Purchases, (e) the exercise of currently
outstanding warrants, warrants issued in the Exchanges or
securities convertible into or exchangeable for shares of our
common stock, (f) the issuance of shares of common stock to
holders of common units in Iridium Holdings in connection with
the Acquisition and (g) the issuance of common stock or warrants
to Motorola or any third party to which Motorola has assigned
its intellectual property rights under certain license
agreements between Motorola and Iridium Holdings (the
“Motorola Assignee”); provided that Motorola and/or
the Motorola Assignee agree to similar
lock-up
agreements for the remainder of the
90-day
lock-up
period.
We have also agreed not to file, or cause to be filed, during
the 90-day
lock-up
period any registration statement, including any amendments to a
registration statement, with respect to the registration of any
shares of common stock or securities convertible, exercisable or
exchangeable into common stock or any other securities other
than (i) a resale registration statement that allows for
the resale of 14,368,525 restructured warrants issued in
connection with the Exchanges, 14,368,525 shares of our
common stock underlying such restructured warrants and
1,244,931 shares of our common stock issued in the
Exchanges, (ii) a shelf registration statement to permit
holders of 13,526,667 warrants to convert such warrants and
receive 13,526,667 shares of our common stock and (iii) a
shelf registration statement to provide for the resale of
3,655,500 shares of our common stock currently held by Banc
of America.
The 90-day
lock-up
periods described in the preceding paragraphs will automatically
be extended if (1) during the last 17 days of the
90-day
lock-up
periods, we issue an earnings release or material news or a
material event relating to us occurs or (2) prior to the
expiration of the
lock-up
periods, we announce that we will release earnings results
during the
16-day
period beginning on the last day of the
lock-up
periods, then the
lock-up
periods shall automatically be extended and the restrictions
described above shall continue to apply until the expiration of
the 18-day
period beginning on the issuance of the earnings release or the
announcement of the material news or the occurrence of the
material event, as applicable, unless Raymond James &
Associates, Inc. waives, in writing, such extension. Raymond
James & Associates, Inc. may release any of the
securities subject to these
lock-up
agreements at any time without notice.
Price
Stabilization, Short Positions and Penalty Bids
Until this offering is completed, rules of the SEC may limit the
ability of the underwriters and certain selling group members to
bid for and purchase shares of our common stock. As an exception
to these rules, the underwriters may engage in certain
transactions that stabilize the price of our common stock. These
transactions may include short sales, stabilizing transactions,
purchases to cover positions created by short sales and passive
market making. A short sale is covered if the short position is
no greater than the number of shares available for purchase by
the underwriters under the option to purchase additional shares.
The underwriters can close out a covered short sale by
exercising the option to purchase additional shares or
purchasing shares in the open market. In determining the source
of shares to close out a covered short sale, the underwriters
will consider, among other things, the open market price of
shares compared to the price available under the option to
purchase additional shares. The underwriters may also sell
shares in excess of the option to purchase additional shares,
creating a naked short position. The underwriters must close out
any naked short position by purchasing shares in the open
market. A naked short position is more likely to be created if
the underwriters are concerned that there may be downward
pressure on the price of the common stock in the open market
after pricing that
could adversely affect investors who purchase in the offering.
As an additional means of facilitating the offering, the
underwriters may bid for, and purchase, shares of common stock
in the open market to stabilize the price of the common stock.
The underwriting syndicate may also reclaim selling concessions
allowed to an underwriter or a dealer for distributing the
common stock in the offering, if the syndicate repurchases
previously distributed common stock to cover syndicate short
positions or to stabilize the price of the common stock. These
activities may raise or maintain the market price of the common
stock above independent market levels or prevent or retard a
decline in the market price of the common stock.
In connection with this transaction, the underwriters may engage
in passive market making transactions in the common stock on the
NYSE Amex or NASDAQ, as applicable, prior to the pricing and
completion of this offering. Passive market making is permitted
by SEC Regulation M and consists of displaying bids on the
NYSE Amex or NASDAQ, as applicable, no higher than the bid
prices of independent market makers and making purchases at
prices no higher than these independent bids and effected in
response to order flow. Net purchases by a passive market maker
on each day are limited to a specified percentage of the passive
market maker’s average daily trading volume in the common
stock during a specified period and must be discontinued when
such limit is reached. Passive market making may cause the price
of the common stock to be higher than the price that otherwise
would exist in the open market in the absence of such
transactions.
The underwriters also may impose a penalty bid. This occurs when
a particular underwriter repays to the other underwriter a
portion of the underwriting discount received by it because the
representatives have repurchased shares sold by or for the
account of such underwriter in stabilizing or short covering
transactions.
These activities by the underwriters may stabilize, maintain or
otherwise affect the market price of our common stock. As a
result the price of our common stock may be higher than the
price that otherwise might exist in the open market. The
underwriters are not required to engage in these activities. If
these activities are commenced, they may be discontinued by the
underwriters without notice at any time. These transactions may
be effected on the NYSE Amex, NASDAQ or otherwise.
Electronic
Distribution
A prospectus supplement in electronic format may be made
available on websites or through other online services
maintained by the underwriters of the offering, or by their
affiliates. Other than the prospectus supplement in electronic
format, the information on the underwriters’ websites and
any information contained in any other website maintained by the
underwriters is not part of the prospectus supplement or the
registration statement of which this prospectus supplement forms
a part, has not been approved
and/or
endorsed by us or the underwriters in their capacity as
underwriters and should not be relied upon by investors.
Listing
Our common stock is listed on the NYSE Amex under the symbol
“GHQ.” We intend to delist the shares of our common
stock on the NYSE Amex and seek to have the shares of our common
stock approved for listing on the NASDAQ following the pricing
of this offering.
Selling
Restrictions
Public
Offer Selling Restrictions Under the Prospectus
Directive
In relation to each member state of the European Economic Area
that has implemented the Prospectus Directive (each, a relevant
member state), with effect from and including the date on
which the Prospectus Directive is implemented in that relevant
member state (the relevant implementation date), an offer of
securities described in this prospectus supplement and the
accompanying prospectus may not be made to the public in that
relevant member state other than:
•
to any legal entity that is authorized or regulated to operate
in the financial markets, or, if not so authorized or regulated,
whose corporate purpose is solely to invest in securities;
•
to any legal entity that has two or more of (1) an average
of at least 250 employees during the last financial year,
(2) a total balance sheet of more than €43,000,000 and
(3) an annual net turnover of more than €50,000,000,
as shown in its last annual or consolidated accounts;
•
to fewer than 100 natural or legal persons (other than qualified
investors as defined in the Prospectus Directive), subject to
obtaining the prior consent of the representatives; or
•
in any other circumstances that do not require the publication
of a prospectus pursuant to Article 3 of the Prospectus
Directive;
provided that no such offer of securities shall require us or
any underwriter to publish a prospectus supplement pursuant to
Article 3 of the Prospectus Directive.
For purposes of this provision, the expression of an “offer
to securities to the public” in any relevant member state
means the communication in any form and by any means of
sufficient information on the terms of the offer and the
securities to be offered so as to enable an investor to decide
to purchase or subscribe the securities, as the expression may
be varied in that member state by any measure implementing the
Prospectus Directive in that member state, and the expression
“Prospectus Directive” means Directive 2003/71/EC and
includes any relevant implementing measure in each relevant
member state.
The sellers of the securities have not authorized and do not
authorize the making of any offer of securities through any
financial intermediary on their behalf, other than offers made
by the underwriters with a view to the final placement of the
securities as contemplated in this prospectus supplement and the
accompanying prospectus. Accordingly, no purchaser of the
securities, other than the underwriters, is authorized to make
any further offer of the securities on behalf of the sellers of
the securities or the underwriters.
United
Kingdom
This prospectus supplement and the accompanying prospectus are
only being distributed to, and are only directed at, persons in
the United Kingdom that are qualified investors within the
meaning of Article (2)(1)(e) of the Prospectus Directive
(“Qualified Investors”) that are also
(i) investment professionals falling under
Article 19(5) of the Financial Services and Markets Act
2000 (Financial Promotion) Order 2005 (the “Order”) or
(ii) high net worth entities, and other persons to whom it
may lawfully be communicated, falling within
Article 49(2)(a) to (d) of the Order (all such persons
together being referred to as “relevant persons”).
This prospectus supplement and the accompanying prospectus and
their contents are confidential and should not be distributed,
published or reproduced (in whole or in part) or disclosed by
recipients to any other persons in the United Kingdom. Any
person in the United Kingdom that is not a relevant person
should not act or rely on this prospectus supplement and the
accompanying prospectus or any of their contents.
Each of the underwriters and their affiliates have provided, and
may in the future provide, various investment banking, financial
advisory and other financial services to us and our affiliates
for which they have received, and in the future may receive,
advisory or transaction fees, as applicable, plus
out-of-pocket
expenses of the nature and in amounts customary in the industry
for these financial services. We expect to continue to use any
one or more of the underwriters for various services in the
future.
Under our proposed second amended and restated certificate of
incorporation, we will have the right to restrict the ownership
or proposed ownership of our common stock or preferred stock by
any person, if such ownership or proposed ownership: (i) is
or could be inconsistent with, or in violation of, any provision
of the Communications Act of 1934 and the rules and regulations
promulgated thereunder (“FCC Laws”); (ii) will or
may limit or impair our business activities under the FCC Laws;
or (iii) will or could subject us to any specific rule,
regulation or policy under the FCC Laws, to which we were not
subject prior to such ownership or proposed ownership
(collectively, “FCC Limitation”).
Our proposed second amended and restated certificate of
incorporation also gives us the right to request from our
stockholders or proposed stockholders (by transfer of stock or
otherwise), certain information, including information relating
to such stockholder’s or proposed stockholder’s
citizenship, affiliations and ownership or interest in other
companies, if we believe that such stockholder’s or
proposed stockholder’s ownership of our securities may
result in an FCC Limitation.
If we do not receive the information we request from any
stockholder or proposed stockholder or conclude that a
person’s ownership or proposed ownership or the exercise by
any person of any ownership right may result in an FCC
Limitation, we will have the right to, and until we determine in
our sole discretion that no FCC Limitation will occur:
(i) refuse to permit a transfer of stock to a proposed
stockholder; (ii) suspend rights of stock or equity
ownership which could cause an FCC Limitation;
and/or
(iii) redeem our common stock or preferred stock held by
any person.
The validity of the shares of our common stock offered hereby
will be passed on for us by Davis Polk & Wardwell LLP,
New York, New York. Certain legal matters with respect to this
offering relating to Iridium Holdings will be passed upon for
Iridium Holdings by Simpson Thacher & Bartlett LLP,
New York, New York. The underwriters are being represented by
Morrison & Foerster LLP, New York, New York.
GHQ’s financial statements as of December 31, 2008,
and the related statements of operations, changes in
stockholders’ equity, and cash flows for the year ended
December 31, 2008, and for the period from November 2,2007 (inception) to December 31, 2008 have been audited by
Ernst & Young LLP, an independent registered public
accounting firm, as stated in their report, which is
incorporated herein by reference, from GHQ’s Annual Report
on
Form 10-K
for the year ended December 31, 2008. Such financial
statements have been so incorporated in reliance upon the report
of such firm given upon their authority as experts in accounting
and auditing.
GHQ’s financial statements as of December 31, 2007,
and the related statements of operations, changes in
stockholder’s equity, and cash flows for the period from
November 2, 2007 (inception) to December 31, 2007 have
been audited by Eisner LLP, an independent registered public
accounting firm, as stated in their report, which is
incorporated herein by reference, from GHQ’s Annual Report
on
Form 10-K
for the year ended December 31, 2008. Such financial
statements have been so incorporated in reliance upon the report
of such firm given upon their authority as experts in accounting
and auditing.
The consolidated financial statements of Iridium Holdings as of
December 31, 2008 and 2007 and for each of the three years
in the period ended December 31, 2008 appearing in our
Proxy Statement on Schedule 14A (filed with the SEC on
August 28, 2009) have been audited by
Ernst & Young LLP, independent auditors, as set forth
in their report thereon, included therein, and incorporated
herein by reference. Such consolidated financial statements are
incorporated herein by reference in reliance upon such report
given on the authority of such firm as experts in accounting and
auditing.
We file annual, quarterly and current reports, proxy statements
and other information with the SEC under the Securities Exchange
Act of 1934, as amended. You may read and copy this information
at the following location of the SEC:
Public Reference Room
100 F Street, N.E.
Room 1580
Washington, D.C. 20549
You may also obtain copies of this information by mail from the
Public Reference Section of the SEC, 100 F Street,
N.E., Room 1580, Washington, D.C. 20549, at prescribed
rates. You may obtain information on the operation of the
SEC’s Public Reference Room by calling the SEC at
1-800-SEC-0330.
The SEC also maintains an Internet worldwide web site that
contains reports, proxy statements and other information about
issuers like us who file electronically with the SEC. The
address of the site is
http://www.sec.gov.
The SEC allows us to “incorporate by reference”
information into this prospectus supplement. This means that we
can disclose important information to you by referring you to
another document filed separately with the SEC. The information
incorporated by reference is considered to be a part of this
prospectus supplement, except for any information superseded by
information that is included directly in this prospectus
supplement or incorporated by reference subsequent to the date
of this prospectus supplement.
Iridium Holdings, as a private company, has not been required to
prepare or file periodic and other reports with the SEC; all SEC
filings are those of GHQ.
This prospectus supplement incorporates by reference the
documents listed below and any future filings that we make with
the SEC under Section 13(a), 13(c), 14 or 15(d) of the
Securities Exchange Act of 1934, as amended (other than
information in the documents or filings that is deemed to have
been furnished and not filed), until this offering has been
completed.
Documents incorporated by reference are available from the SEC
as described above or from us without charge, excluding any
exhibits to those documents unless the exhibit is specifically
incorporated by reference as an exhibit in this document. You
can obtain documents incorporated by reference in this
prospectus supplement by requesting them in writing or by
telephone at the following address:
We may, upon the completion of our proposed acquisition of
Iridium Holdings, sell common stock, preferred stock and debt
securities from time to time in amounts, at prices and on terms
that will be determined at the time of any such offering.
Each time our securities are offered pursuant to this
prospectus, we will provide a prospectus supplement and attach
it to this prospectus. The prospectus supplement will contain
more specific information about the offering. The prospectus
supplement may also add, update or change information contained
in this prospectus. This prospectus may not be used to offer or
sell our securities without a prospectus supplement describing
the method and terms of the offering.
We may sell our securities directly or to or through
underwriters, to other purchasers
and/or
through agents. If any underwriters are involved in the sale of
our securities offered by this prospectus and any prospectus
supplement, their names, and any applicable purchase price, fee,
commission or discount arrangement between us and them will be
set forth, or will be calculable from the information set forth,
in the applicable prospectus supplement.
Our common stock is listed on the NYSE Amex under the trading
symbol “GHQ.” In connection with our proposed
acquisition of Iridium Holdings, we intend to apply for listing
on the Nasdaq Stock Market (“Nasdaq”).
We urge you to carefully read this prospectus and the
accompanying prospectus supplement, together with the documents
we incorporate by reference, before you invest in our securities.
Investing in these securities involves certain risks. See
“Risk Factors” in the documents which are incorporated
by reference herein.
Neither the Securities and Exchange Commission nor any state
securities commission has approved or disapproved of these
securities, or determined if this prospectus is truthful or
complete. Any representation to the contrary is a criminal
offense.
You should rely only on the information contained in or
incorporated by reference in this prospectus or any related
prospectus supplement. We have not authorized anyone to provide
you with different information. We are not making an offer of
these securities in any state where the offer is not permitted.
You should not assume that the information contained in or
incorporated by reference in this prospectus is accurate as of
any date other than the date on the front of this prospectus.
The terms “the Company,”“we,”“us” and “our” refer to GHL Acquisition
Corp. (to be renamed Iridium Communications Inc. following the
acquisition of Iridium Holdings), a Delaware corporation,
including, except for periods prior to the date of completion of
the acquisition, our subsidiary, Iridium Holdings. References to
“GHQ” refer to GHL Acquisition Corp. prior to the
completion of the acquisition of Iridium Holdings and references
to “Iridium Holdings” refer to Iridium Holdings LLC
and its subsidiaries prior to the completion of the acquisition.
References to “Greenhill” or our “founding
stockholder” refer to Greenhill & Co., Inc.
References to “initial stockholders” refer to
Greenhill and its permitted transferees. References to
“public stockholders” refer to purchasers of shares of
our common stock in our initial public offering or in the
secondary market, including our founding stockholder, officers
or directors and their affiliates to the extent they purchased
or acquired shares in the initial public offering or in the
secondary market.
This prospectus is part of a registration statement that we
filed with the Securities and Exchange Commission, or the
“SEC,” utilizing a “shelf” registration
process. Under this shelf process, we may, from time to time,
offer or sell any combination of the securities described in
this prospectus in one or more offerings. This prospectus
provides you with a general description of the securities we may
offer. Each time we sell securities, we will provide a
prospectus supplement that will contain specific information
about the terms of that offering. The prospectus supplement may
also add, update or change information contained in this
prospectus. You should carefully read both this prospectus and
any applicable prospectus supplement together with additional
information described under the heading “Where You Can Find
More Information” before deciding to invest in any of the
securities being offered.
We have filed or incorporated by reference exhibits to the
registration statement of which this prospectus forms a part.
You should read the exhibits carefully for provisions that may
be important to you.
This prospectus and other documents incorporated by reference in
this prospectus contain forward-looking statements within the
meaning of the “safe harbor” provisions of the Private
Securities Litigation Reform Act of 1995. In some cases you can
identify these statements by forward-looking words such as
“may,”“might,”“should,”“anticipates,”“expects,”“intends,”“plans,”“seeks,”“estimates,”“potential,”“continue,”“believes” and similar
expressions, although some forward-looking statements are
expressed differently.
These forward-looking statements involve known and unknown
risks, uncertainties and other factors that may cause the actual
results, performance or achievements of us
and/or
Iridium Holdings LLC (“Iridium Holdings”) to differ
materially from any future results, performance or achievements
expressed or implied by such forward-looking statements. All
statements other than statements of historical fact are
statements that could be deemed forward-looking statements.
These risks and uncertainties include, but are not limited to,
uncertainties regarding the timing of the proposed transaction
with Iridium Holdings, whether the transaction will be approved
by GHQ’s stockholders, whether the closing conditions will
be satisfied (including receipt of regulatory approvals), as
well as industry and economic conditions, competitive, legal,
governmental and technological factors. There is no assurance
that our or Iridium Holdings’ expectations will be
realized. If one or more of these risks or uncertainties
materialize, or if our underlying assumptions prove incorrect,
actual results may vary materially from those expected,
estimated or projected.
Such risks and uncertainties also include those set forth under
“Risk Factors” in Part I, Item 1A of our
Annual Report on
Form 10-K
for the year ended December 31, 2008 and in our Preliminary
Proxy Statement on Schedule 14A filed on August 27,2009, each incorporated herein by reference. Our forward-looking
statements speak only as of the time they are made and do not
necessarily reflect our outlook at any other point in time. We
undertake no obligation to update publicly any forward-looking
statements, whether as a result of new information, future
events or for any other reason. However, readers should
carefully review the risk factors set forth in other reports or
documents we file from time to time with the SEC.
We are presently a blank check company formed on
November 2, 2007 for the purpose of effecting an
acquisition, through a merger capital stock exchange, asset
acquisition, stock purchase, reorganization or other similar
business combination with one or more businesses or assets,
which we refer to as our “initial business
combination.”
We completed our initial public offering on February 21,2008 of 40,000,000 units and recorded gross proceeds of
approximately $408.0 million, consisting of
$400 million from the initial public offering and
$8.0 million from the sale of private placement warrants to
our founding stockholder Greenhill. Upon the closing of the
initial public offering, we paid $6.9 million of
underwriting fees and placed $400.0 million of the total
proceeds into a trust account. The remaining approximately
$1.1 million was used to pay offering costs. Each unit
consists of one share of common stock, $0.001 par value per
share, and one warrant to purchase one share of our common stock
at an initial exercise price of $7.00 per share, subject to
adjustment. The units were sold at an offering price of $10.00
per unit.
We are not presently engaged in, and will not engage in, any
substantive commercial business until the completion of our
initial business combination. We intend to utilize the funds
held in our trust account and our common stock in effecting the
acquisition of Iridium Holdings, as described below.
Liquidation
if No Business Combination
Our certificate presently provides that we will continue in
existence only until February 14, 2010. If our certificate
proposal is approved and we complete the proposed acquisition of
Iridium Holdings, we will amend this provision in order to
permit for our continued existence. If we do not complete an
initial business combination by February 14, 2010, our
corporate existence will cease except for the purpose of winding
up our affairs and liquidating pursuant to Section 278 of
Delaware General Corporation Law.
The
Acquisition
General
We expect to acquire Iridium Holdings pursuant to a transaction
agreement that provides for the acquisition, directly or
indirectly, of all of the outstanding units of Iridium Holdings,
with Iridium Holdings continuing as a subsidiary of ours.
Following the acquisition, we plan to rename ourselves
“Iridium Communications Inc.” Our offering of
securities under this prospectus is contingent upon our
successful acquisition of Iridium Holdings.
Stockholder
Approval of Initial Business Combination and Other Closing
Conditions
The affirmative vote of stockholders owning a majority of the
shares sold in our initial public offering voting in person or
by proxy at the special meeting is required to approve our
initial business combination. However, our initial business
combination will not be approved if the holders of 30% or more
of the shares sold in our initial public offering vote against
our initial business combination and properly exercise their
rights to convert such shares sold in our initial public
offering into cash. In connection with this vote, our founding
stockholder, officers and directors, to the extent they own our
common stock, have agreed to vote their shares in accordance
with the majority of the shares of common stock voted by the
public stockholders. The shares of common stock offered pursuant
to this prospectus will not be entitled to vote in connection
with the initial business combination.
The closing of our acquisition of Iridium Holdings is subject to
a number of conditions set forth in the transaction agreement.
For more information about the closing conditions to the
acquisition, please see the section entitled “The
Transaction Agreement — Conditions to the Closing of
the Acquisition” in our Preliminary Proxy Statement on
Schedule 14A filed on August 27, 2009.
Iridium
Holdings LLC
Iridium Holdings is the second largest provider of mobile voice
and data communications services via satellite, and the only
provider of mobile satellite communications services offering
100% global coverage. Iridium Holdings’ satellite network
provides communication services to regions of the world where
existing wireless or wireline networks do not exist or are
impaired, including extremely remote or rural land areas, open
ocean, the Polar Regions and regions where the
telecommunications infrastructure has been affected by political
conflicts or natural disasters. Demand for Iridium
Holdings’ mobile satellite services and products is growing
as a result of the increasing need for reliable communication
services in all locations. Iridium Holdings offers voice and
data communications services to the U.S. and foreign
governments, businesses, non-governmental organizations and
consumers via its constellation of 66 in-orbit satellites, seven
in-orbit spares and related ground infrastructure, including a
primary commercial gateway. The U.S. government, directly
and indirectly, has been and continues to be Iridium
Holdings’ largest customer, generating $67.8 million,
or 21.1%, of its total revenues for the year ended
December 31, 2008, and $36.6 million, or 23.1%, of its
total revenues for the six months ended June 30, 2009.
Additional
Information
Our principal executive offices are located at 300 Park Avenue,
23rd Floor, New York, New York10022 and our telephone
number is
(212) 372-4180.
Following the acquisition of Iridium Holdings, our principal
executive offices will be located at 6707 Democracy Boulevard
Suite 300, Bethesda, Maryland20817 and our telephone
number will be
(301) 571-6200.
We may sell the securities in one or more of the following ways
(or in any combination) from time to time:
•
through underwriters or dealers;
•
directly to a limited number of purchasers or to a single
purchaser; or
•
through agents.
The prospectus supplement will state the terms of the offering
of the securities, including:
•
the name or names of any underwriters, dealers or agents and the
amounts of securities underwritten or purchased by them;
•
the purchase price of such securities and the proceeds to be
received by us, if any;
•
any underwriting discounts or agency fees and other items
constituting underwriters’ or agents’ compensation;
•
any initial public offering price;
•
any discounts or concessions allowed or reallowed or paid to
dealers; and
•
any securities exchanges on which the securities may be listed.
Any initial public offering price and any discounts or
concessions allowed or reallowed or paid to dealers may be
changed from time to time.
If we use underwriters in the sale, the securities will be
acquired by the underwriters for their own account and may be
resold from time to time in one or more transactions, including:
•
negotiated transactions;
•
at a fixed public offering price or prices, which may be changed;
•
at market prices prevailing at the time of sale;
•
at prices related to prevailing market prices; or
•
at negotiated prices.
Unless otherwise stated in a prospectus supplement, the
obligations of the underwriters to purchase any securities will
be conditioned on customary closing conditions and the
underwriters will be obligated to purchase all of such series of
securities, if any are purchased.
We may sell the securities through agents from time to time. The
prospectus supplement will name any agent involved in the offer
or sale of the securities and any commissions we pay to them.
Generally, any agent will be acting on a best efforts basis for
the period of its appointment.
We may authorize underwriters, dealers or agents to solicit
offers by certain purchasers to purchase the securities from us
at the public offering price set forth in the prospectus
supplement pursuant to delayed delivery contracts providing for
payment and delivery on a specified date in the future. The
contracts will be subject only to those conditions set forth in
the prospectus supplement, and the prospectus supplement will
set forth any commissions we pay for solicitation of these
contracts.
Underwriters and agents may be entitled under agreements entered
into with us to indemnification by us against certain civil
liabilities, including liabilities under the Securities Act of
1933 (the “Securities Act”), or
to contribution with respect to payments which the underwriters
or agents may be required to make. Underwriters and agents may
be customers of, engage in transactions with, or perform
services for us and our affiliates in the ordinary course of
business.
Each series of securities other than the common stock, which is
currently listed on the NYSE Amex, will be a new issue of
securities and will have no established trading market. Any
underwriters to whom securities are sold for public offering and
sale may make a market in the securities, but such underwriters
will not be obligated to do so and may discontinue any market
making at any time without notice. The securities, other than
the common stock, may or may not be listed on a national
securities exchange.
As of the date of this prospectus, we have had no fixed charges
since our inception, and accordingly no ratios are shown for the
six months ended June 30, 2009, the year ended
December 31, 2008 and the period from November 2, 2007
(inception) to December 31, 2007. In addition, as of the
date of this prospectus, we have not issued any preferred stock.
The following is a summary of the material terms of our
securities following the completion of our proposed acquisition
of Iridium Holdings and is not intended to be a complete summary
of the rights and preferences of such securities. We urge you to
read our proposed certificate in its entirety for a complete
description of the rights and preferences of our securities
following the acquisition of Iridium Holdings. The proposed
amendments to our certificate are described in
“Proposal II — Approval of the Amended and
Restated Certificate of Incorporation” and the full text of
the proposed second and amended certificate is attached as
Annex B to our Preliminary Proxy Statement on
Schedule 14A filed on August 27, 2009.
Authorized
and Outstanding Stock
Our proposed second amended and restated certificate authorizes
the issuance of 300,000,000 shares of common stock, par
value $0.001, and 2,000,000 shares of preferred stock, par
value of $0.0001. As of August 27, 2009, there were
48,500,000 shares of common stock outstanding and no shares
of preferred stock outstanding. The outstanding shares of our
common stock are, and the shares of our common stock issued in
the acquisition of Iridium Holdings will be, duly authorized,
validly issued, fully paid and non-assessable.
Units
Each of our units consists of one share of common stock and one
warrant. Each warrant entitles the holder to purchase one share
of common stock at an exercise price of $7.00 per share of
common stock, subject to adjustment. Our units commenced trading
on February 15, 2008.
Common
Stock
Holders of our common stock are entitled to one vote for each
share held of record on all matters to be voted on by
stockholders. Holders of common stock have exclusive voting
rights for the election of our directors and all other matters
requiring stockholder action, except with respect to amendments
to our certificate that alter or change the powers, preferences,
rights or other terms of any outstanding preferred stock if the
holders of such affected series of preferred stock are entitled
to vote on such an amendment.
Holders of our common stock are entitled to receive such
dividends, if any, as may be declared from time to time by our
board of directors in its discretion out of funds legally
available therefor. The payment of dividends, if ever, on the
common stock is subject to the prior payment of dividends on any
outstanding preferred stock, of which there is currently none.
We have not paid any dividends on our common stock to date. The
payment of dividends in the future will depend on our revenues
and earnings, if any, capital requirements and general financial
condition after our initial business combination is completed.
The payment of any dividends subsequent to a business
combination will be within the discretion of our then-board of
directors. It is the intention of our present board of directors
to retain any earnings for use in our business operations and,
accordingly, we do not anticipate the board declaring any
dividends in the foreseeable future.
In the event of any voluntary or involuntary liquidation,
dissolution or winding up and after payment or provision for
payment of our debts and other liabilities and of the
preferential and other amounts, if any, to which the holders of
any preferred stock will be entitled, the holders of all
outstanding common shares will be entitled to receive our
remaining assets available for distribution ratably in
proportion to the number of common shares held by each
stockholder.
Our proposed certificate allows us to restrict the ownership or
proposed ownership of our common stock or preferred stock by any
person, if such ownership or proposed ownership: (i) is or
could be inconsistent with, or in violation of, any provision of
laws of the Federal Communications Commission (“FCC”);
(ii) will or may limit or impair our business activities
under the FCC laws; or (iii) will or could subject us to
any
specific rule, regulation or policy under the FCC laws, to which
we were not subject prior to such ownership or proposed
ownership (collectively, “FCC Limitation”).
Our proposed certificate also gives us the right to request from
our stockholders or proposed stockholders (by transfer of stock
or otherwise), certain information, including information
relating to such stockholder’s or proposed
stockholder’s citizenship, affiliations and ownership or
interest in other companies, if we believe that such
stockholder’s or proposed stockholder’s ownership of
our securities may result in an FCC Limitation.
If we do not receive the information we request from any
specific stockholder or conclude that a person’s ownership
or proposed ownership or the exercise by any person of any
ownership right may result in an FCC Limitation, we will have
the right to, and until we determine in our sole discretion that
no FCC Limitation will occur: (i) refuse to permit a
transfer of stock to a proposed stockholder; (ii) suspend
rights of stock or equity ownership which could cause an FCC
Limitation;
and/or
(iii) redeem our common stock or preferred stock held by
any person.
Holders of our common stock have no conversion, preemptive or
other subscription rights and there are no sinking fund or
redemption provisions applicable to the common stock.
Founding
Stockholder’s Units
On November 13, 2007, our founding stockholder purchased an
aggregate of 11,500,000 of our units for $25,000 in cash, at a
purchase price of approximately $0.003 per unit. On
January 10, 2008, we canceled 1,725,000 units, which
were surrendered by our founding stockholder in a
recapitalization, leaving our founding stockholder with a total
of 9,775,000 units (of which 1,275,000 were subject to
forfeiture). On February 1, 2008, our founding stockholder
transferred at cost an aggregate of 150,000 of these founding
stockholder’s units to Thomas C. Canfield, Kevin P. Clarke
and Parker W. Rush (of which 19,563 were forfeited because the
underwriter did not exercise the over-allotment option), each of
whom is a director. Of the 9,775,000 of our units purchased,
1,275,000 units were forfeited on March 27, 2008,
following the expiration of the over-allotment option granted to
the underwriters in our initial public offering. Pursuant to a
letter agreement, dated September 22, 2008, our founding
stockholder has agreed to forfeit 1,441,176 shares of
common stock and 8,369,563 warrants obtained in the
November 13, 2007 unit purchase, upon the closing of
the acquisition of Iridium Holdings. Therefore, upon the closing
of the acquisition, our founding stockholder will own
6,928,387 shares (not including any shares that may result
from conversion of the convertible note which
Greenhill & Co. Europe Limited purchased from Iridium
Holdings on October 24, 2008).
Warrants
Public
Stockholders’ Warrants
We sold 40.0 million warrants in the initial public
offering, which will remain outstanding following the closing of
the acquisition of Iridium Holdings. The warrants started
trading separately as of the opening of trading on
March 20, 2008. Each warrant entitles the registered holder
to purchase one share of our common stock at a price of $7.00
per share, subject to adjustment, as discussed below, at any
time commencing on the completion of our initial business
combination, provided that we have an effective registration
statement under the Securities Act covering the shares of common
stock issuable upon exercise of the warrants and a current
prospectus relating to them is available.
The warrants will expire on February 14, 2013 at
5:00 p.m., New York time, or earlier upon redemption. Once
the warrants become exercisable, we may call the warrants for
redemption, in whole and not in part, at a redemption price of
$0.01 per warrant if, and only if, the reported last sale price
of our common stock equals or exceeds $14.25 per share for any
20 trading days within a 30-trading-day period ending on the
third business day prior to the date on which the notice of
redemption is given, and only if on the date we give notice of
redemption and during the entire period thereafter until the
time we redeem the warrants we have an effective registration
statement covering the shares of common stock issuable upon
exercise of the warrants and a current prospectus relating to
them is available.
If the foregoing conditions are satisfied and we issue a notice
of redemption, each warrant holder can exercise his or her
warrant prior to the scheduled redemption date. However, there
is no guarantee that the price of the common stock will exceed
the $14.25 trigger price or the $7.00 exercise price after the
redemption notice is issued.
The exercise price and number of shares of common stock issuable
on exercise of the warrants may be adjusted in certain
circumstances including in the event of a stock dividend, or our
recapitalization, reorganization, acquisition or consolidation.
However, the exercise price and number of shares of common stock
issuable on exercise of the warrants will not be adjusted for
issuances of common stock at a price below the warrant exercise
price.
The warrants may be exercised upon surrender of the warrant
certificate on or prior to the expiration date at the offices of
the warrant agent, with the exercise form on the reverse side of
the warrant certificate completed and executed as indicated,
accompanied by full payment of the exercise price, by certified
check payable to us, for the number of warrants being exercised.
Holders of warrants will not be entitled to a net cash
settlement upon exercise of the warrants. Warrant holders do not
have the rights or privileges of holders of common stock,
including voting rights, until they exercise their warrants and
receive shares of common stock. After the issuance of shares of
common stock upon exercise of the warrants, each holder will be
entitled to one vote for each share held of record on all
matters to be voted on by stockholders.
No warrants will be exercisable unless at the time of exercise
we have an effective registration statement under the Securities
Act covering the shares of common stock issuable upon exercise
of the warrants and a current prospectus relating to them is
available. Under the warrant agreement, we have agreed to use
our best efforts to have an effective registration statement
covering shares of common stock issuable on exercise of the
warrants and to maintain a current prospectus relating to the
common stock from the date the warrants become exercisable to
the date the warrants expire or are redeemed.
Founding
Stockholder’s Warrants
In addition to the warrants obtained in the unit purchase
described above, our founding stockholder purchased 8,000,000
warrants in a private placement that closed simultaneously with
the closing of our initial public offering. Pursuant to letter
agreements, dated September 22, 2008 and April 28,2009, our founding stockholder has agreed to forfeit upon the
closing of the acquisition of Iridium Holdings, 4,000,000 of the
founding stockholder’s warrants originally purchased in the
private placement. Therefore, upon the closing of the
acquisition of Iridium Holdings, there will be 4,000,000
warrants outstanding held by our founding stockholder, which our
founding stockholder has agreed to exchange, immediately
thereafter, for restructured warrants as set forth below.
In addition, upon the closing of the acquisition of Iridium
Holdings, there will be 130,437 warrants outstanding that our
founding stockholder obtained in the unit purchase described
above and transferred to our directors, Messrs. Rush,
Canfield and Clarke. These warrants will only become exercisable
upon the closing of the acquisition of Iridium Holdings, if the
last sales price of our common stock equals or exceeds $14.25
per share for any 20 trading days within any 30 trading day
period beginning 90 days after the closing of the
acquisition and if there is an effective registration statement
covering the shares of our common stock issuable upon exercise
of the warrants and a current prospectus relating to them is
available.
Deferred
Underwriting Commission Forfeiture, Forward Purchases and
Warrant Repurchases and Exchanges
On June 2, 2009, we entered into an agreement with Banc of
America Securities LLC, the underwriter of our initial public
offering, and its affiliate, pursuant to which Banc of America
Securities LLC has agreed to reduce the deferred underwriting
commissions payable upon the closing of the acquisition of
Iridium Holdings by approximately $8.2 million. In
addition, Banc of America Securities LLC or its affiliate agreed
to sell to us, immediately after the closing of the acquisition
of Iridium Holdings, 3,655,500 of our warrants for $1,827,750.
Prior to the closing of the acquisition of Iridium Holdings, we
may, in privately negotiated transactions, enter into agreements
to repurchase, subject to the closing of the acquisition of
Iridium Holdings, specified amounts of our outstanding common
stock (“Forward Purchases”), from a limited number of
our stockholders who have invested in our common stock based on
investment strategies that we believe are focused on fixed
income like returns rather than the underlying business and
growth prospects of the Company following completion of the
acquisition of Iridium Holdings. We expect these investors,
based on their investment strategies, would seek to exit their
investment in us in connection with or shortly following the
closing of the acquisition of Iridium Holdings. We believe it is
important for the Company to develop a stockholder base with a
longer term view, interested in and knowledgeable about the
Company’s underlying business and growth prospects and
believe that the combination of Forward Purchases and the first
offering under this prospectus (the “Future Offering”)
will permit us to accelerate this transition. We recently
initiated discussions with a limited number of stockholders
about their willingness to enter into Forward Purchases. We
expect that the purchase price for any Forward Purchase would be
at least equal to the amount the stockholder could receive by
voting against the acquisition and exercising conversion rights.
We also expect that, since any Forward Purchases will be
conditioned upon the closing of the acquisition of Iridium
Holdings, a stockholder agreeing to enter into a Forward
Purchase would be required to agree to vote in favor of the
acquisition. We have not entered into any Forward Purchases but
intend to file a Current Report on
Form 8-K
within the requisite time period disclosing the Forward Purchase
if and when we do enter into a Forward Purchase.
On July 29, 2009, we entered into agreements to repurchase
and/or
restructure 26,817,833 warrants issued in our initial public
offering in privately negotiated transactions (the
“Exchanges”) from certain of our warrant holders (the
“Warrantholders”), subject to the closing of the
acquisition of Iridium Holdings. We negotiated to repurchase
and/or
restructure these warrants to reduce significantly the magnitude
of the potential dilution to our stockholders and potential
short selling in connection with and following consummation of
the acquisition of Iridium Holdings. As part of the Exchanges,
we have agreed:
•
to purchase 12,449,308 existing warrants issued in our initial
public offering for a total of $3,112,327 of cash and
$12,449,308 of our common stock, with the number of shares of
our common stock to be determined based on the offering price
per share of our common stock sold in the Future Offering
(provided that the price per share of our common stock in the
Future Offering shall be deemed to be the lesser of (x) the
actual price in this offering and (y) $10.00 per share of
our common stock);
•
to restructure 14,368,525 existing warrants and to enter into a
new warrant agreement with respect to the restructured warrants
with terms substantially similar to the terms set forth in the
warrant agreement with respect to the existing warrants issued
in our initial public offering, with the exception that
(i) the exercise price of the restructured warrants will be
115% of the price per share of our common stock sold by us in
the Future Offering (provided that the price per share of our
common stock in the Future Offering shall be deemed to be the
lesser of (x) the actual price in the Future Offering and
(y) $10.00 per share of our common stock), (ii) the
exercise period for the restructured warrants will be extended
by two years to February 2015, and (iii) the price of our
common stock at which we can redeem the restructured warrants
will be increased to $18.00; and
•
to file with the SEC, as soon as practicable following the
issuance of the restructured warrants, but in no event later
than 15 business days following the issuance of the restructured
warrants, a resale registration statement to allow for the
resale of restructured warrants and the shares of our common
stock underlying such restructured warrants. If the resale
registration statement for the restructured warrants is not
declared effective by the SEC within 30 business days following
the issuance of the restructured warrants, the Warrantholders
have the right to sell to us, for cash, the restructured
warrants for a price equal to the difference between the
weighted average price of the shares of our common stock during
a certain period over the exercise price of the restructured
warrants. We expect to issue the restructured warrants
immediately following the closing of the acquisition of Iridium
Holdings
As set forth above, our founding stockholder has agreed to
exchange 4,000,000 warrants held by it into restructured
warrants. In addition, our current chairman and chief executive
officer, Scott L. Bok, and our
current senior vice president, Robert H. Niehaus, have agreed to
exchange 400,000 warrants purchased by them in our initial
public offering into the restructured warrants.
Upon the closing of the acquisition of Iridium Holdings, giving
effect of the foregoing transactions, including the purchase of
warrants from Banc of America Securities LLC and its affiliate
and the warrant restructuring, there will be 13,657,104 warrants
outstanding with an exercise price of $7.00 and 14,368,525
warrants outstanding with the exercise price for the
restructured warrants as set forth above.
Registration
Rights
As set forth above, we have granted registration rights in
connection with the restructured warrants to be issued in the
Exchanges, which require us to file a resale registration
statement as soon as practicable following the issuance of the
restructured warrants, but in no event later than 15 business
days following the issuance of the restructured warrants. See
“Description of Common Stock and Warrants —
Warrant Repurchases and Exchanges and Deferred Underwriting
Commission Forfeiture.”
At the closing of the acquisition of Iridium Holdings, we will
also enter into a registration rights agreement with certain
persons receiving shares of our common stock in the proposed
acquisition of Iridium Holdings, our founding stockholder and
our other initial stockholders, pursuant to which each such
person will be granted certain registration rights with respect
to the shares of our common stock and warrants held by them at
that time and will be subject to certain transfer restrictions.
Under this registration rights agreement, we will be required to
file a shelf registration statement as soon as reasonably
practicable after the closing of the proposed acquisition of
Iridium Holdings, with a view to such registration statement
becoming effective six months from the date of the closing of
the acquisition. See “Other Transaction
Agreements — Registration Rights Agreement” in
our Preliminary Proxy Statement on Schedule 14A filed on
August 27, 2009. Such registration rights agreement will
supersede the existing registration rights agreement to which
our founding stockholder and our other initial stockholders are
parties.
We are also obligated to register approximately 3.7 million
shares currently held by an underwriter in our initial public
offering for resale.
Our
Transfer Agent and Warrant Agent
The transfer agent for the shares of our common stock, warrants
and units is American Stock Transfer &
Trust Company.
Listing
Currently, our units, common stock and our warrants are listed
on the NYSE Amex under the symbols “GHQ.U,”“GHQ” and “GHQ.WS,” respectively. In
connection with our proposed acquisition of Iridium Holdings, we
intend to apply for listing on the Nasdaq.
Our proposed certificate provides that up to
2,000,000 shares of preferred stock may be issued from time
to time in one or more classes or series without stockholder
approval. Our board of directors is authorized to fix the voting
rights, if any, designations, powers, preferences, the relative,
participating, optional or other special rights and any
qualifications, limitations and restrictions thereof, including
dividend rights, terms of redemption, conversion rights and
liquidation preferences, applicable to the shares of each
series. Our board of directors may, without stockholder
approval, issue preferred stock with voting and other rights
that could adversely affect the voting power and other rights of
the holders of the common stock and could have anti-takeover
effects. The ability of our board of directors to issue
preferred stock without stockholder approval could have the
effect of delaying, deferring or preventing a change of control
of us or the removal of existing management. We have no
preferred stock outstanding at the date hereof. Although we do
not currently intend to issue any shares of preferred stock, we
cannot assure you that we will not do so in the future.
This prospectus describes certain general terms and provisions
of the debt securities. We will issue debt securities that will
be senior debt under the senior debt indenture between us and a
designated trustee, as senior debt trustee. We will issue debt
securities that will be subordinated debt under the subordinated
debt indenture between us and a designated trustee, as
subordinated debt trustee. This prospectus refers to the senior
debt indenture and the subordinated debt indenture individually
as the indenture and collectively as the indentures. This
prospectus refers to the senior debt trustee and the
subordinated debt trustee individually as the trustee and
collectively as the trustees. When we offer to sell a particular
series of debt securities, we will describe the specific terms
for the securities in a supplement to this prospectus. The
prospectus supplement will also indicate whether the general
terms and provisions described in this prospectus apply to a
particular series of debt securities.
We have summarized certain terms and provisions of the
indentures. The summary is not complete. The indentures have
been incorporated by reference as an exhibit to the registration
statement for these securities that we have filed with the SEC.
You should read the indentures for the provisions which may be
important to you. The indentures are subject to and governed by
the Trust Indenture Act of 1939, as amended. The indentures
are substantially identical, except for the provisions relating
to subordination. See “— Subordinated Debt.”
Neither indenture will limit the amount of debt securities which
we may issue. We may issue debt securities up to an aggregate
principal amount as we may authorize from time to time. The
prospectus supplement will describe the terms of any debt
securities being offered, including:
•
classification as senior or subordinated debt securities;
•
ranking of the specific series of debt securities relative to
other outstanding indebtedness, including subsidiaries’
debt;
•
if the debt securities are subordinated, the aggregate amount of
outstanding indebtedness, as of a recent date, that is senior to
the subordinated securities, and any limitation on the issuance
of additional senior indebtedness;
•
the designation, aggregate principal amount and authorized
denominations;
•
the maturity date;
•
the interest rate, if any, and the method for calculating the
interest rate;
•
the interest payment dates and the record dates for the interest
payments;
•
any mandatory or optional redemption terms or prepayment,
conversion, sinking fund or exchangeability or convertibility
provisions;
•
the place where we will pay principal and interest;
if other than denominations of $1,000 or multiples of $1,000,
the denominations the debt securities will be issued in;
•
whether the debt securities will be issued in the form of global
securities or certificates;
•
additional provisions, if any, relating to the defeasance of the
debt securities;
•
the currency or currencies, if other than the currency of the
United States, in which principal and interest will be paid;
•
any United States federal income tax consequences;
•
the dates on which premium, if any, will be paid;
•
our right, if any, to defer payment of interest and the maximum
length of this deferral period;
•
any listing on a securities exchange;
•
the initial public offering price; and
•
other specific terms, including any additional events of default
or covenants.
Senior
Debt
We will issue under the senior debt indenture the debt
securities that will constitute part of our senior debt. These
senior debt securities will rank equally and pari passu with all
other unsecured and unsubordinated debt of the Company.
Subordinated
Debt
We will issue under the subordinated debt indenture the debt
securities that will constitute part of our subordinated debt.
These subordinated debt securities will be subordinate and
junior in right of payment, to the extent and in the manner set
forth in the subordinated debt indenture, to all “senior
indebtedness” of the Company. The subordinated debt
indenture defines “senior indebtedness” the principal
of (and premium, if any) and interest on all debt of the Company
whether created, incurred or assumed before, on or after the
date of the subordinated debt indenture. “Senior
indebtedness” does not include nonrecourse obligations, the
subordinated debt securities, redeemable stock or any other
obligations specifically designated as being subordinate in
right of payment to senior indebtedness. See the subordinated
debt indenture, section 1.01.
In general, the holders of all senior indebtedness are first
entitled to receive payment of the full amount unpaid on senior
indebtedness before the holders of any of the subordinated debt
securities or coupons are entitled to receive a payment on
account of the principal or interest on the indebtedness
evidenced by the subordinated debt securities in certain events.
These events include:
•
any insolvency or bankruptcy proceedings, or any receivership,
liquidation, reorganization or other similar proceedings which
concern the Company or a substantial part of its property;
•
a default having occurred for the payment of principal, premium,
if any, or interest on or other monetary amounts due and payable
on any senior indebtedness or any other default having occurred
concerning any senior indebtedness, which permits the holder or
holders of any senior indebtedness to accelerate the maturity of
any senior indebtedness with notice or lapse of time, or both.
Such an event of default must have continued beyond the period
of grace, if any, provided for such event of default, and such
an event of default shall not have been cured or waived or shall
not have ceased to exist; or
•
the principal of, and accrued interest on, any series of the
subordinated debt securities having been declared due and
payable upon an event of default pursuant to section 6.01
of the subordinated debt indenture. This declaration must not
have been rescinded and annulled as provided in the subordinated
debt indenture.
If this prospectus is being delivered in connection with a
series of subordinated debt securities, the accompanying
prospectus supplement or the information incorporated in this
prospectus by reference will set forth the approximate amount of
senior indebtedness outstanding as of the end of the most recent
fiscal quarter.
Events of
Default
When we use the term “Event of Default” in the
indentures with respect to the debt securities of any series,
here are some examples of what we mean:
(1)
default in the payment of the principal of any debt security of
such series when the same becomes due and payable at maturity,
upon acceleration, redemption or mandatory repurchase, including
as a sinking fund installment, or otherwise;
(2)
default in the payment of interest on any debt security of such
series when the same becomes due and payable, and such default
continues for a period of 30 days;
(3)
default in the performance of or breaches of any other covenant
or agreement of the Company in either indenture with respect to
any debt security of such series or in the debt security of such
series and such default or breach continues for a period of 30
consecutive days or more after written notice to the Company by
the trustee or to the Company and the trustee by the holders of
25% or more in aggregate principal amount of the debt securities
of all series affected thereby specifying such default or breach
and requiring it to be remedied and stating that such notice is
a “Notice of Default” under the indenture;
(4)
certain events of bankruptcy, insolvency, reorganization,
administration or similar proceedings with respect to the
Company or any material subsidiary; and
(5)
any other Events of Default set forth in the prospectus
supplement.
If an Event of Default (other than an Event of Default specified
in clause (4) with respect to the Company) under each
indenture occurs with respect to the debt securities of any
series and is continuing, then the trustee or the holders of at
least 25% in principal amount of the outstanding debt securities
of that series may by written notice, and the trustee at the
request of the holders of not less than 25% in principal amount
of the outstanding debt securities of such series will, require
us to repay immediately the entire principal amount of the
outstanding debt securities of that series (or such lesser
amount as may be provided in the terms of the securities),
together with all accrued and unpaid interest and premium, if
any.
If an Event of Default under the indenture specified in
clause (4) with respect to the Company occurs and is
continuing, then the entire principal amount of the outstanding
debt securities (or such lesser amount as may be provided in the
terms of the securities) will automatically become due
immediately and payable without any declaration or other act on
the part of the trustee or any holder.
After a declaration of acceleration or any automatic
acceleration under clause (4) described above, the holders
of a majority in principal amount of outstanding debt securities
of any series may rescind this accelerated payment requirement
if all existing Events of Default, except for nonpayment of the
principal and interest on the debt securities of that series
that has become due solely as a result of the accelerated
payment requirement, have been cured or waived and if the
rescission of acceleration would not conflict with any judgment
or decree. The holders of a majority in principal amount of the
outstanding debt securities of any series also have the right to
waive past defaults, except a default in paying principal or
interest on any outstanding debt security, or in respect of a
covenant or a provision that cannot be modified or amended
without the consent of all holders of the debt securities of
that series.
Holders of at least 25% in principal amount of the outstanding
debt securities of a series may seek to institute a proceeding
only after they have made written request, and offered
reasonable indemnity, to the trustee to institute a proceeding
and the trustee has failed to do so within 60 days after it
received this notice. In addition, within this 60- day period
the trustee must not have received directions inconsistent with
this written request by holders of a majority in principal
amount of the outstanding debt securities of that series.
These limitations do not apply, however, to a suit instituted by
a holder of a debt security for the enforcement of the payment
of principal, interest or any premium on or after the due dates
for such payment.
During the existence of an Event of Default, the trustee is
required to exercise the rights and powers vested in it under
the indenture and use the same degree of care and skill in its
exercise as a prudent person would under the circumstances in
the conduct of that person’s own affairs. If an Event of
Default has occurred and is continuing, the trustee is not under
any obligation to exercise any of its rights or powers at the
request or direction of any of the holders unless the holders
have offered to the trustee reasonable security or indemnity.
Subject to certain provisions, the holders of a majority in
principal amount of the outstanding debt securities of any
series have the right to direct the time, method and place of
conducting any proceeding for any remedy available to the
trustee, or exercising any trust, or power conferred on the
trustee.
The trustee will, within 90 days after any Default occurs,
give notice of the Default to the holders of the debt securities
of that series, unless the Default was already cured or waived.
Unless there is a default in paying principal, interest or any
premium when due, the trustee can withhold giving notice to the
holders if it determines in good faith that the withholding of
notice is in the interest of the holders.
We are required to furnish to each trustee an annual statement
as to compliance with all conditions and covenants under the
indenture.
Modification
and Waiver
Each indenture may be amended or modified without the consent of
any holder of debt securities in order to:
•
cure ambiguities, defects or inconsistencies;
•
provide for the assumption of our obligations in the case of a
merger or consolidation;
•
establish the form or forms of debt securities of any series;
•
maintain the qualification of the indenture under the
Trust Indenture Act;
•
evidence and provide for the acceptance of appointment under the
indenture with respect to the debt securities of any or all
series by a successor trustee and to add to or change any of the
provisions of each indenture as shall be necessary to provide
for or facilitate the administration of the trusts hereunder by
more than one trustee;
•
provide for uncertificated or unregistered debt
securities; and
•
make any change that does not materially and adversely affect
the rights of any holder.
Other amendments and modifications of each indenture or the debt
securities issued may be made with the consent of the holders of
not less than a majority of the aggregate principal amount of
the outstanding debt securities of each series affected by the
amendment or modification. However, no modification or amendment
may, without the consent of the holder of each outstanding debt
security affected:
•
change the stated maturity of the principal of, or any sinking
fund obligation or any installment of interest on, such
holder’s debt security,
•
reduce the principal amount thereof or the rate of interest
thereon;
•
reduce the above stated percentage of outstanding debt
securities the consent of whose holders is necessary to modify
or amend the indenture with respect to the debt securities of
the relevant series; and
•
reduce the percentage in principal amount of outstanding debt
securities of the relevant series the consent of whose holders
is required for any supplemental indenture or for any waiver of
compliance with certain provisions of the indenture or certain
defaults and their consequences provided for in the indenture.
We will not consolidate or combine with or merge with or into
or, directly or indirectly, sell, assign, convey, lease,
transfer or otherwise dispose of all or substantially all of our
properties and assets to any person or persons in a single
transaction or through a series of transactions, unless:
•
we shall be the continuing person or, if we are not the
continuing person, the resulting, surviving or transferee person
(the “surviving entity”) is a company organized and
existing under the laws of the United States or any State or
territory;
•
the surviving entity will expressly assume all of our
obligations under the debt securities and each indenture, and
will, if required by law to effectuate the assumption, execute
supplemental indentures which will be delivered to the trustees
and will be in form and substance reasonably satisfactory to the
trustees;
•
immediately after giving effect to such transaction or series of
transactions on a pro forma basis, no default has occurred and
is continuing; and
•
we or the surviving entity will have delivered to the trustee an
officers’ certificate and opinion of counsel stating that
the transaction or series of transactions and a supplemental
indenture, if any, complies with this covenant and that all
conditions precedent in the indenture relating to the
transaction or series of transactions have been satisfied.
If any consolidation or merger or any sale, assignment,
conveyance, lease, transfer or other disposition of all or
substantially all of our assets occurs in accordance with the
indentures, the successor corporation will succeed to, and be
substituted for, and may exercise every right and power of the
Company under the indentures with the same effect as if such
successor corporation had been named as the Company. Except for
(1) any lease or (2) any sale, assignment, conveyance,
transfer, lease or other disposition to certain subsidiaries of
the Company, we will be discharged from all obligations and
covenants under the indentures and the debt securities.
Satisfaction,
Discharge and Covenant Defeasance
We may terminate our obligations under each indenture, when:
•
either:
•
all debt securities of any series issued that have been
authenticated and delivered have been delivered to the trustee
for cancellation; or
•
all the debt securities of any series issued that have not been
delivered to the trustee for cancellation will become due and
payable within one year (a “Discharge”) and we have
made irrevocable arrangements satisfactory to the trustee for
the giving of notice of redemption by such trustee in our name,
and at our expense and we have irrevocably deposited or caused
to be deposited with the trustee sufficient funds to pay and
discharge the entire indebtedness on the series of debt
securities to pay principal, interest and any premium;
•
we have paid or caused to be paid all other sums then due and
payable under such indenture; and
•
we have delivered to the trustee an officers’ certificate
and an opinion of counsel, each stating that all conditions
precedent under such indenture relating to the satisfaction and
discharge of such indenture have been complied with.
We may elect to have our obligations under each indenture
discharged with respect to the outstanding debt securities of
any series (“legal defeasance”). Legal defeasance
means that we will be deemed to have
paid and discharged the entire indebtedness represented by the
outstanding debt securities of such series under such indenture,
except for:
•
the rights of holders of the debt securities to receive
principal, interest and any premium when due;
•
our obligations with respect to the debt securities concerning
issuing temporary debt securities, registration of transfer of
debt securities, the Company’s right of optional
redemption, mutilated, defaced, destroyed, lost or stolen debt
securities and the maintenance of an office or agency for
payment for security payments held in trust;
•
the rights, obligations and immunities of the trustee; and
In addition, we may elect to have our obligations released with
respect to certain covenants in each indenture (“covenant
defeasance”). Any omission to comply with these obligations
will not constitute a default or an event of default with
respect to the debt securities of any series. In the event
covenant defeasance occurs, certain events, not including
non-payment, bankruptcy and insolvency events, described under
“Events of Default” will no longer constitute an event
of default for that series.
In order to exercise either legal defeasance or covenant
defeasance with respect to outstanding debt securities of any
series:
•
we must irrevocably have deposited or caused to be deposited
with the trustee as trust funds for the purpose of making the
following payments, specifically pledged as security for, and
dedicated solely to the benefits of the holders of the debt
securities of a series:
•
money in an amount;
•
U.S. Government Obligations; or
•
a combination of money and U.S. Government Obligations,
in each case sufficient without reinvestment, in the written
opinion of an internationally recognized firm of independent
public accountants to pay and discharge, and which shall be
applied by the trustee to pay and discharge, all of the
principal, interest and any premium at due date or maturity or
if we have made irrevocable arrangements satisfactory to the
trustee for the giving of notice of redemption by the trustee in
our name and at our expense, the redemption date;
•
in the case of legal defeasance, we have delivered to the
trustee an opinion of counsel stating that, under then
applicable Federal income tax law, the holders of the debt
securities of that series will not recognize gain or loss for
federal income tax purposes as a result of the deposit,
defeasance and discharge to be effected and will be subject to
the same federal income tax as would be the case if the deposit,
defeasance and discharge did not occur;
•
in the case of covenant defeasance, we have delivered to the
trustee an opinion of counsel to the effect that the holders of
the debt securities of that series will not recognize gain or
loss for U.S. federal income tax purposes as a result of
the deposit and covenant defeasance to be effected and will be
subject to the same federal income tax as would be the case if
the deposit and covenant defeasance did not occur;
•
no default with respect to the outstanding debt securities of
that series has occurred and is continuing at the time of such
deposit after giving effect to the deposit or, in the case of
legal defeasance, no default relating to bankruptcy or
insolvency has occurred and is continuing at any time on or
before the 123rd day after the date of such deposit, it
being understood that this condition is not deemed satisfied
until after the 123rd day;
•
we must have delivered to the trustee an opinion of counsel to
the effect that
(1)
the creation of the defeasance trust does not violate the
Investment Company Act of 1940 and
after the 123rd day following the deposit, the trust funds
will not be subject to the effect of any applicable bankruptcy,
insolvency, reorganization or similar laws affecting
creditors’ rights generally;
•
if at such time the debt securities of such series are listed on
a national securities exchange, the Company has delivered to the
trustee an opinion of counsel to the effect that the debt
securities of such series will not be delisted as a result of
such deposit, defeasance and discharge;
•
we have delivered to the trustee an officers’ certificate
and an opinion of counsel stating that all conditions precedent
with respect to the defeasance or covenant defeasance have been
complied with; and
•
if the debt securities of such series are to be redeemed prior
to the final maturity thereof (other than from mandatory sinking
fund payments or analogous payments), notice of such redemption
shall have been duly given pursuant to the indenture or
provision therefor satisfactory to the trustee shall have been
made.
Each debt security will be represented either by a certificate
issued in definitive form to a particular investor or by one or
more global securities representing the entire issuance of
securities. Certificated securities in definitive form and
global securities will be issued in registered form. Definitive
securities name you or your nominee as the owner of the
security, and in order to transfer or exchange these securities
or to receive payments other than interest or other interim
payments, you or your nominee must physically deliver the
securities to the trustee, registrar, paying agent or other
agent, as applicable. Global securities name a depositary or its
nominee as the owner of the debt securities represented by these
global securities. The depositary maintains a computerized
system that will reflect each investor’s beneficial
ownership of the securities through an account maintained by the
investor with its broker/dealer, bank, trust company or other
representative, as we explain more fully below.
Registered
global securities
We may issue the registered debt securities in the form of one
or more fully registered global securities that will be
deposited with a depositary or its nominee identified in the
applicable prospectus supplement and registered in the name of
that depositary or nominee. In those cases, one or more
registered global securities will be issued in a denomination or
aggregate denominations equal to the portion of the aggregate
principal or face amount of the securities to be represented by
registered global securities. Unless and until it is exchanged
in whole for securities in definitive registered form, a
registered global security may not be transferred except as a
whole by and among the depositary for the registered global
security, the nominees of the depositary or any successors of
the depositary or those nominees.
If not described below, any specific terms of the depositary
arrangement with respect to any securities to be represented by
a registered global security will be described in the prospectus
supplement relating to those securities. We anticipate that the
following provisions will apply to all depositary arrangements.
Ownership of beneficial interests in a registered global
security will be limited to persons, called participants, that
have accounts with the depositary or persons that may hold
interests through participants. Upon the issuance of a
registered global security, the depositary will credit, on its
book-entry registration and transfer system, the
participants’ accounts with the respective principal or
face amounts of the securities beneficially owned by the
participants. Any dealers, underwriters or agents participating
in the distribution of the securities will designate the
accounts to be credited. Ownership of beneficial interests in a
registered global security will be shown on, and the transfer of
ownership interests will be effected only through, records
maintained by the depositary, with respect to interests of
participants, and on the records of participants, with respect
to interests of persons holding through participants. The laws
of some states may require that some purchasers of securities
take physical delivery of these securities in definitive form.
These laws may impair your ability to own, transfer or pledge
beneficial interests in registered global securities.
So long as the depositary, or its nominee, is the registered
owner of a registered global security, that depositary or its
nominee, as the case may be, will be considered the sole owner
or holder of the securities represented by the registered global
security for all purposes under the applicable indenture. Except
as described below, owners of beneficial interests in a
registered global security will not be entitled to have the
securities represented by the registered global security
registered in their names, will not receive or be entitled to
receive physical delivery of the securities in definitive form
and will not be considered the owners or holders of the
securities under the applicable indenture. Accordingly, each
person owning a beneficial interest in a registered global
security must rely on the procedures of the depositary for that
registered global security and, if that person is not a
participant, on the procedures of the participant through which
the person owns its interest, to exercise any rights of a holder
under the applicable indenture. We understand that under
existing industry practices, if we request any action of holders
or if an owner of a beneficial interest in a registered global
security desires to give or take any action that a holder is
entitled to give or take under the applicable indenture, the
depositary for the registered global security would authorize
the participants holding the relevant beneficial interests to
give or take that action, and the participants would authorize
beneficial owners owning
through them to give or take that action or would otherwise act
upon the instructions of beneficial owners holding through them.
Principal, premium, if any, and interest payments on debt
securities represented by a registered global security
registered in the name of a depositary or its nominee will be
made to the depositary or its nominee, as the case may be, as
the registered owner of the registered global security. None of
GHQ, the trustees or any other agent of GHQ or agent of the
trustees will have any responsibility or liability for any
aspect of the records relating to payments made on account of
beneficial ownership interests in the registered global security
or for maintaining, supervising or reviewing any records
relating to those beneficial ownership interests.
We expect that the depositary for any of the securities
represented by a registered global security, upon receipt of any
payment of principal, premium, interest or other distribution of
underlying securities or other property to holders on that
registered global security, will immediately credit
participants’ accounts in amounts proportionate to their
respective beneficial interests in that registered global
security as shown on the records of the depositary. We also
expect that payments by participants to owners of beneficial
interests in a registered global security held through
participants will be governed by standing customer instructions
and customary practices, as is now the case with the securities
held for the accounts of customers or registered in “street
name,” and will be the responsibility of those participants.
If the depositary for any of these securities represented by a
registered global security is at any time unwilling or unable to
continue as depositary or ceases to be a clearing agency
registered under the Securities Exchange Act of 1934, and a
successor depositary registered as a clearing agency under the
Securities Exchange Act of 1934 is not appointed by us within
90 days, we will issue securities in definitive form in
exchange for the registered global security that had been held
by the depositary. Any securities issued in definitive form in
exchange for a registered global security will be registered in
the name or names that the depositary gives to the relevant
trustee or other relevant agent of ours or theirs. It is
expected that the depositary’s instructions will be based
upon directions received by the depositary from participants
with respect to ownership of beneficial interests in the
registered global security that had been held by the depositary.
Our financial statements as of December 31, 2008, and the
related statements of operations, changes in stockholders’
equity, and cash flows for the year ended December 31,2008, and for the period from November 2, 2007 (inception)
to December 31, 2008 have been audited by Ernst &
Young LLP, an independent registered public accounting firm, as
stated in their report, which is incorporated herein by
reference, from our Annual Report on
Form 10-K
for the year ended December 31, 2008. Such financial
statements have been so incorporated in reliance upon the report
of such firm given upon their authority as experts in accounting
and auditing.
Our financial statements as of December 31, 2007, and the
related statements of operations, changes in stockholder’s
equity, and cash flows for the period from November 2, 2007
(inception) to December 31, 2007 have been audited by
Eisner LLP, an independent registered public accounting firm, as
stated in their report, which is incorporated herein by
reference, from our Annual Report on
Form 10-K
for the year ended December 31, 2008. Such financial
statements have been so incorporated in reliance upon the report
of such firm given upon their authority as experts in accounting
and auditing.
The consolidated financial statements of Iridium Holdings LLC as
of December 31, 2008 and 2007 and for each of the three
years in the period ended December 31, 2008 appearing in
our Preliminary Proxy Statement on Schedule 14A (filed with
the Securities and Exchange Commission on August 27,2009) have been audited by Ernst & Young LLP,
independent auditors, as set forth in their report thereon,
included therein, and incorporated herein by reference. Such
consolidated financial statements are incorporated herein by
reference in reliance upon such report given on the authority of
such firm as experts in accounting and auditing.
We file annual, quarterly and current reports, proxy statements
and other information with the Securities and Exchange
Commission under the Securities Exchange Act of 1934, as
amended. You may read and copy this information at the following
location of the Securities and Exchange Commission:
Public
Reference Room
100 F Street, N.E.
Room 1580
Washington, D.C. 20549
You may also obtain copies of this information by mail from the
Public Reference Section of the Securities and Exchange
Commission, 100 F Street, N.E., Room 1580,
Washington, D.C. 20549, at prescribed rates. You may obtain
information on the operation of the Securities and Exchange
Commission’s Public Reference Room by calling the
Securities and Exchange Commission at
1-800-SEC-0330.
The Securities and Exchange Commission also maintains an
Internet worldwide web site that contains reports, proxy
statements and other information about issuers like us who file
electronically with the Securities and Exchange Commission. The
address of the site is
http://www.sec.gov.
The Securities and Exchange Commission allows us to
“incorporate by reference” information into this
document. This means that we can disclose important information
to you by referring you to another document filed separately
with the Securities and Exchange Commission. The information
incorporated by reference is considered to be a part of this
document, except for any information superseded by information
that is included directly in this document or incorporated by
reference subsequent to the date of this document.
This prospectus incorporates by reference the documents listed
below and any future filings that we make with the Securities
and Exchange Commission under Section 13(a), 13(c), 14 or
15(d) of the Securities Exchange Act of 1934, as amended (other
than information in the documents or filings that is deemed to
have been furnished and not filed), until all the securities
offered under this prospectus are sold.
GHL Acquisition Corp. Securities and Exchange Commission
Filings
Documents incorporated by reference are available from the
Securities and Exchange Commission as described above or from us
without charge, excluding any exhibits to those documents unless
the exhibit is specifically incorporated by reference as an
exhibit in this document. You can obtain documents incorporated
by reference in this document by requesting them in writing or
by telephone at the following address:
