Iridium Communications Inc.
Iridium Communications Inc. (Form: 10-Q, Received: 05/01/2014 07:01:21)

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 


 

FORM 10-Q

 


 

(Mark One)

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the Quarterly Period Ended March 31, 2014

 

OR

 

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

Commission File Number 001-33963

 


 

Iridium Communications Inc.

(Exact name of registrant as specified in its charter)

 


 

DELAWARE 26-1344998
(State of incorporation) (I.R.S. Employer Identification No.)
   
1750 Tysons Boulevard, Suite 1400, McLean, Virginia 22102
(Address of principal executive offices) (Zip code)

 

703-287-7400

(Registrant’s telephone number, including area code)

 


 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, and (2) has been subject to such filing requirements for the past 90 days.    Yes   x     No   ¨

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes   x     No   ¨

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

 

Large accelerated filer ¨ Accelerated filer x
Non-accelerated filer ¨ (Do not check if a smaller reporting company) Smaller reporting company ¨

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes   ¨     No   x

 

The number of shares of the registrant’s common stock, par value $0.001 per share, outstanding as of April 28, 2014 was 76,838,663.

 

 

 

 
 

 

IRIDIUM COMMUNICATIONS INC.

 

TABLE OF CONTENTS

 

Item No.   Page
     
Part I. Financial Information  
     
  Financial Statements  
     
  Condensed Consolidated Balance Sheets 3
     
  Condensed Consolidated Statements of Operations and Comprehensive Income 4
     
  Condensed Consolidated Statements of Cash Flows 5
     
  Notes to Condensed Consolidated Financial Statements 6
     
ITEM  2. Management’s Discussion and Analysis of Financial Condition and Results of Operations. 12
     
ITEM  3. Quantitative and Qualitative Disclosures About Market Risk. 19
     
ITEM  4. Controls and Procedures. 20
     
Part II. Other Information  
     
ITEM  1. Legal Proceedings. 20
     
ITEM  1A. Risk Factors. 20
     
ITEM  2. Unregistered Sales of Equity Securities and Use of Proceeds. 37
     
ITEM  3. Defaults Upon Senior Securities 37
     
ITEM  4. Mine Safety Disclosures 37
     
ITEM  5. Other Information. 37
     
ITEM  6. Exhibits. 37
     
  Signatures 38

 

2
 

 

PART I.

 

Iridium Communications Inc.

Condensed Consolidated Balance Sheets

(In thousands, except per share data)

 

    March 31, 2014     December 31, 2013  
    (Unaudited)        
Assets                
Current assets:                
Cash and cash equivalents   $ 184,484     $ 186,342  
Marketable securities     70,724       76,647  
Accounts receivable, net     58,356       54,758  
Inventory     29,385       29,532  
Deferred tax assets, net     4,989       9,076  
Income tax receivable     692       685  
Prepaid expenses and other current assets     12,852       12,518  
Total current assets     361,482       369,558  
Property and equipment, net     1,626,149       1,575,579  
Restricted cash     94,573       81,223  
Other assets     11,668       8,909  
Intangible assets, net     54,190       57,452  
Deferred financing costs     128,356       130,036  
Goodwill     87,039       87,039  
Total assets   $ 2,363,457     $ 2,309,796  
                 
Liabilities and stockholders' equity                
Current liabilities:                
Accounts payable   $ 6,437     $ 12,934  
Accrued expenses and other current liabilities     40,794       39,209  
Interest payable     20,047       7,989  
Deferred revenue     39,730       41,367  
Total current liabilities     107,008       101,499  
Accrued satellite operations and maintenance expense, net of current portion     16,054       16,389  
Credit facility     1,064,487       1,039,203  
Deferred tax liabilities, net     208,637       202,825  
Other long-term liabilities     10,960       10,385  
Total liabilities     1,407,146       1,370,301  
                 
Commitments and contingencies                
                 
Stockholders' equity                
Series A Preferred Stock, $0.0001 par value, 1,000 shares authorized, issued and outstanding     -       -  
Common stock, $0.001 par value, 300,000 shares authorized, 76,839 and 76,690 shares issued and outstanding, respectively     77       77  
Additional paid-in capital     803,069       801,262  
Retained earnings     153,638       138,845  
Accumulated other comprehensive loss, net of taxes     (473 )     (689 )
Total stockholders' equity     956,311       939,495  
Total liabilities and stockholders' equity   $ 2,363,457     $ 2,309,796  

 

See notes to unaudited condensed consolidated financial statements

 

3
 

  

Iridium Communications Inc.

Condensed Consolidated Statements of Operations and Comprehensive Income

(In thousands, except per share amounts)

(Unaudited)

 

    Three Months Ended  
    March 31,  
    2014     2013  
             
Revenue:                
Services   $ 73,430     $ 68,787  
Subscriber equipment     20,157       17,331  
Engineering and support services     4,445       3,071  
Total revenue     98,032       89,189  
                 
Operating expenses:                
Cost of services (exclusive of depreciation and amortization)     14,203       14,476  
Cost of subscriber equipment     13,912       11,120  
Research and development     2,121       1,659  
Selling, general and administrative     19,186       18,365  
Depreciation and amortization     20,266       18,231  
Total operating expenses     69,688       63,851  
                 
Operating income     28,344       25,338  
                 
Other income (expense):                
Interest income, net     637       637  
Undrawn credit facility fees     (1,499 )     (2,096 )
Other expense, net     (350 )     (1,396 )
Total other expense     (1,212 )     (2,855 )
Income before income taxes     27,132       22,483  
Provision for income taxes     (10,589 )     (7,549 )
Net income     16,543       14,934  
Series A Preferred Stock dividends     1,750       1,750  
Net income attributable to common stockholders   $ 14,793     $ 13,184  
                 
Weighted average shares outstanding - basic     77,082       76,768  
Weighted average shares outstanding - diluted     87,711       87,397  
Net income attributable to common stockholders per share - basic   $ 0.19     $ 0.17  
Net income attributable to common stockholders per share - diluted   $ 0.19     $ 0.17  
                 
Comprehensive income:                
Net income   $ 16,543     $ 14,934  
Foreign currency translation adjustments, net of tax     156       (78 )
Unrealized gain (loss) on marketable securities, net of tax     60       (9 )
Comprehensive income   $ 16,759     $ 14,847  

 

See notes to unaudited condensed consolidated financial statements

 

4
 

 

Iridium Communications Inc.

Condensed Consolidated Statements of Cash Flows

(In thousands)

(Unaudited)

 

    Three Months Ended March 31,  
    2014     2013  
             
Cash flows from operating activities:                
Net cash provided by operating activities   $ 42,465     $ 57,196  
                 
Cash flows from investing activities:                
Capital expenditures     (58,519 )     (19,244 )
Purchases of marketable securities     (10,123 )     (70,793 )
Sales and maturities of marketable securities     15,981       4,103  
Investment in equity method affiliate     -       (5,000 )
Net cash used in investing activities     (52,661 )     (90,934 )
                 
Cash flows from financing activities:                
Borrowings under the Credit Facility     25,284       -  
Payment of deferred financing fees     (1,828 )     (130 )
Change in restricted cash - Credit Facility     (13,350 )     (13,490 )
Proceeds from exercise of stock options     2       -  
Tax payment upon settlement of stock awards     (20 )     -  
Payment of Series A Preferred Stock dividends     (1,750 )     (1,750 )
Net cash provided by (used in) financing activities     8,338       (15,370 )
                 
Net decrease in cash and cash equivalents     (1,858 )     (49,108 )
Cash and cash equivalents, beginning of period     186,342       254,418  
Cash and cash equivalents, end of period   $ 184,484     $ 205,310  
                 
Supplemental cash flow information:                
Income taxes paid (refunded)   $ 229     $ (2,981 )
                 
Supplemental disclosure of non-cash investing activities:                
Property and equipment received but not paid for yet   $ 3,915     $ 20,409  
Interest capitalized but not paid   $ 20,047     $ 14,037  
Capitalized amortization of deferred financing costs   $ 3,508     $ 1,715  
Capitalized stock-based compensation   $ 293     $ 310  
                 
Supplemental disclosure of non-cash financing activities:                
Dividends accrued on Series A Preferred Stock   $ 292     $ 292  

 

See notes to unaudited condensed consolidated financial statements

 

5
 

 

Iridium Communications Inc.

Notes to Condensed Consolidated Financial Statements

 

1. Basis of Presentation and Principles of Consolidation

 

Iridium Communications Inc. (the “Company”) has prepared its condensed consolidated financial statements in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”). The accompanying condensed consolidated financial statements include the accounts of (i) the Company, (ii) its wholly owned subsidiaries, and (iii) all less than wholly owned subsidiaries that the Company controls. All material intercompany transactions and balances have been eliminated.

 

In the opinion of management, the condensed consolidated financial statements reflect all normal recurring adjustments that the Company considers necessary for the fair presentation of its results of operations and cash flows for the interim periods covered, and of the financial position of the Company at the date of the interim condensed consolidated balance sheet. The operating results for interim periods are not necessarily indicative of the operating results for the entire year. Certain information and footnote disclosures normally included in consolidated financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to instructions, rules and regulations prescribed by the U.S. Securities and Exchange Commission (“SEC”). While the Company believes that the disclosures are adequate to make the information not misleading, these interim condensed consolidated financial statements should be read in conjunction with the 2013 annual consolidated financial statements and notes included in its Form 10-K filed with the SEC on March 4, 2014.

 

2. Significant Accounting Policies

 

Warranty Expense

 

The Company provides the first end-user purchaser of its subscriber equipment a warranty for one to five years from the date of purchase by such first end-user, depending on the product. The Company maintains a warranty reserve based on historical experience of warranty costs and expected occurrences of warranty claims on equipment. Costs associated with warranties, including equipment replacements, repairs, freight, and program administration, are recorded as cost of subscriber equipment in the accompanying condensed consolidated statements of operations and comprehensive income. Changes in the warranty reserve during the three months ended March 31, 2014 were as follows:

 

    Three Months Ended  
  March 31, 2014  
    (in thousands)  
Balance at beginning of the period   $ 8,853  
Provision     2,409  
Utilization     (2,145 )
Balance at end of the period   $ 9,117  

 

Fair Value Measurements

 

The Company evaluates assets and liabilities subject to fair value measurements on a recurring and non-recurring basis to determine the appropriate level to classify them for each reporting period. This determination requires significant judgments to be made by management of the Company. The instruments identified as subject to fair value measurements on a recurring basis are cash and cash equivalents, marketable securities, prepaid expenses, deposits and other current assets, accounts receivable, accounts payable, accrued expenses and other current liabilities. Fair value is the price that would be received from the sale of an asset or paid to transfer a liability assuming an orderly transaction in the most advantageous market at the measurement date. U.S. GAAP establishes a hierarchical disclosure framework which prioritizes and ranks the level of observability of inputs used in measuring fair value. The fair value hierarchy consists of the following tiers:

 

Level 1, defined as observable inputs such as quoted prices in active markets for identical assets or liabilities;

 

Level 2, defined as observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities; and

 

Level 3, defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions.

 

6
 

 

As of March 31, 2014 and December 31, 2013, the carrying values of short-term financial instruments (primarily cash and cash equivalents, prepaid expenses, deposits and other current assets, accounts receivable, accounts payable, accrued expenses and other current liabilities and other obligations) approximate their fair values because of their short-term nature. The fair value of the Company’s investments in money market funds approximates its carrying value; such instruments are classified as Level 1 and are included in cash and cash equivalents on the accompanying condensed consolidated balance sheet. The fair value of the Company’s investments in commercial paper and short-term U.S. agency securities with original maturities of less than ninety days approximates their carrying value; such instruments are classified as Level 2 and are included in cash and cash equivalents on the accompanying condensed consolidated balance sheets.

 

The fair value of the Company’s investments in fixed-income debt securities and commercial paper with original maturities of greater than ninety days are obtained using similar investments traded on active securities exchanges and are classified as Level 2 and are included in marketable securities on the accompanying condensed consolidated balance sheets.

 

3. Cash and Cash Equivalents, Restricted Cash and Marketable Securities

 

Cash and Cash Equivalents

 

The Company considers all highly liquid investments with original maturities of ninety days or less to be cash equivalents. These investments, along with cash deposited in institutional money market funds, regular interest bearing and non-interest bearing depository accounts, are classified as cash and cash equivalents as of March 31, 2014 on the accompanying condensed consolidated balance sheet. The following table summarizes the Company’s cash and cash equivalents:

 

    March 31,     December 31,     Recurring Fair
    2014     2013     Value Measurement
    (in thousands)      
Cash and cash equivalents:                    
Cash   $ 79,704     $ 86,074      
Money market funds     88,780       88,769     Level 1
Commercial paper     16,000       11,499     Level 2
Total Cash and cash equivalents   $ 184,484     $ 186,342      

 

Restricted Cash

 

The Company is required to maintain a minimum cash reserve for debt service related to its $1.8 billion loan facility (the “Credit Facility”). As of March 31, 2014 and December 31, 2013, the Company’s restricted cash balance, which includes a minimum cash reserve for debt service related to the Credit Facility and the interest earned on these amounts, was $94.6 million and $81.2 million, respectively.

 

Marketable Securities

 

Marketable securities as of March 31, 2014 and December 31, 2013 consisted of fixed-income debt securities and commercial paper with an original maturity in excess of ninety days. These investments are classified as available-for-sale as of March 31, 2014 and are included in marketable securities within current assets on the accompanying condensed consolidated balance sheet. All investments are carried at fair value. Unrealized gains and losses, net of taxes, are reported as a component of other comprehensive income or loss. The specific identification method is used to determine the cost basis of the marketable securities sold. There were no material realized gains or losses on the sale of marketable securities for the three months ended March 31, 2014 and 2013. The Company regularly monitors and evaluates the fair value of its investments to identify other-than-temporary declines in value. The Company determined that no other-than-temporary declines in value existed at March 31, 2014.

 

7
 

 

The following table summarizes the Company’s marketable securities as of March 31, 2014 and December 31, 2013 :

 

    March 31,     December 31,     Recurring Fair
    2014     2013     Value Measurement
    (in thousands)      
Marketable securities:                    
Fixed-income debt securities   $ 53,091     $ 57,032     Level 2
Commercial paper     17,633       19,615     Level 2
Total Marketable securities   $ 70,724     $ 76,647      

 

The following tables present the contractual maturities of the Company’s marketable securities as of March 31, 2014 and December 31, 2013:

 

    As of March 31, 2014  
    Amortized     Unrealized     Estimated  
    Cost     Gain     Fair Value  
    (in thousands)  
Fixed-income debt securities:                        
Mature after one year and within three years   $ 53,011     $ 80     $ 53,091  
Commercial paper:                        
Mature within one year     17,633       -       17,633  
Total   $ 70,644     $ 80     $ 70,724  

 

    As of December 31, 2013  
    Amortized     Unrealized     Estimated  
    Cost     Loss     Fair Value  
    (in thousands)  
Fixed-income debt securities:                        
Mature within one year   $ 3,004     $ -     $ 3,004  
Mature after one year and within three years     54,044       (16 )     54,028  
Commercial paper:                        
Mature within one year     19,615       -       19,615  
Total   $ 76,663     $ (16 )   $ 76,647  

 

The Company’s gross and net-of-tax unrealized gain on marketable securities for the three months ended March 31, 2014 was approximately $96,000 and $60,000, respectively. The Company’s gross and net-of-tax unrealized loss on marketable securities for the three months ended March 31, 2013 was $14,000 and $9,000, respectively. The change in unrealized gain and loss on marketable securities, net of tax, is included within comprehensive income on the accompanying condensed consolidated statements of operations and comprehensive income.

 

4. Commitments and Contingencies

 

Commitments

 

Thales

 

In June 2010, the Company executed a primarily fixed-price full-scale development contract (the “FSD”) with Thales Alenia Space France (“Thales”) for the design and build of satellites for Iridium NEXT, the Company’s next-generation satellite constellation. The total price under the FSD is $2.3 billion, and the Company expects payment obligations under the FSD to extend into the fourth quarter of 2017. As of March 31, 2014, the Company had made aggregate payments of $1,118.6 million to Thales, including $950.8 million from borrowings under the Credit Facility, which were capitalized as construction in progress within property and equipment, net in the accompanying condensed consolidated balance sheet.

 

8
 

 

SpaceX

 

In March 2010, the Company entered into an agreement with Space Exploration Technologies Corp. (“SpaceX”) to secure SpaceX as the primary launch services provider for Iridium NEXT (the “SpaceX Agreement”). In August 2012, the Company entered into an amendment to the SpaceX Agreement (the “SpaceX Amendment”). The SpaceX Amendment reduced the number of contracted launches and increased the number of satellites to be carried on each launch vehicle. The maximum price under the SpaceX Amendment is $453.1 million. As of March 31, 2014, the Company had made aggregate payments of $85.4 million to SpaceX, which were capitalized as construction in progress within property and equipment, net in the accompanying condensed consolidated balance sheet. Aggregate payments to SpaceX include a $3.0 million refundable deposit made in the first quarter of 2014 for the reservation of additional future launches.

 

Kosmotras

 

In June 2011, the Company entered into an agreement with International Space Company Kosmotras (“Kosmotras”) as a supplemental launch service provider for Iridium NEXT (the “Kosmotras Agreement”). The Kosmotras Agreement provides for the purchase of up to six launches with options to purchase additional launches. Each launch can carry two satellites. In June 2013, the Company exercised an option for one launch to carry the first two Iridium NEXT satellites. If the Company does not exercise any additional options, the total cost under the contract including this single launch will be $51.8 million. As of March 31, 2014, the Company had made aggregate payments of $18.3 million to Kosmotras, which were capitalized within property and equipment, net in the accompanying condensed consolidated balance sheet. The option to purchase two dedicated launches expired as of December 31, 2013. By amendment dated April 21, 2014, the option to purchase the remaining three dedicated launches was extended through December 31, 2014.

 

Credit Facility

 

In October 2010, the Company entered into the Credit Facility with a syndicate of bank lenders (the “Lenders”). The Credit Facility was subsequently amended and restated in August 2012. The Company had borrowed an aggregate total of $1,064.5 million as of March 31, 2014. The unused portion of the Credit Facility as of March 31, 2014 was $735.5 million. Pursuant to the Credit Facility, the Company maintains a minimum cash reserve for repayment. As of March 31, 2014, the minimum required cash reserve balance was $94.5 million. This amount is included in restricted cash in the accompanying condensed consolidated balance sheet. This minimum cash reserve requirement will increase over the term of the Credit Facility and will be $189.0 million at the beginning of the repayment period, which is expected to begin in 2017.

 

Interest costs incurred under the Credit Facility were $12.0 million for the three months ended March 31, 2014. All interest costs incurred related to the Credit Facility have been capitalized during the construction period of the Iridium NEXT assets. The Company pays interest on each semi-annual due date through a combination of a cash payment and a deemed additional loan. The $12.0 million in interest incurred during the three months ended March 31, 2014 consisted of $3.7 million payable in cash and $8.3 million payable by deemed loans. There were no payments made during the three months ended March 31, 2014. Total interest payable associated with the Credit Facility was $20.0 million and is included in interest payable in the accompanying condensed consolidated balance sheet as of March 31, 2014.

 

The Company also pays a commitment fee of 0.80% per year, in semi-annual installments, on any undrawn portion of the Credit Facility. The total commitment fee payable on the undrawn portion of the Credit Facility was $3.1 million and is included in accrued expenses and other current liabilities in the accompanying condensed consolidated balance sheet as of March 31, 2014.

 

Contingencies

 

From time to time, in the normal course of business, the Company is party to various pending claims and lawsuits. The Company is not aware of any such actions that it would expect to have a material adverse impact on its business, financial results or financial condition.

 

5. Stock-Based Compensation

 

The Company accounts for stock-based compensation at fair value. The fair value of stock options is determined at the grant date using the Black-Scholes option pricing model. The fair value of restricted stock units (“RSUs”) is equal to the closing price of the underlying common stock on the grant date. The fair value of an award that is ultimately expected to vest is recognized on a straight-line basis over the requisite service or performance period and is classified in the accompanying condensed consolidated statements of operations and comprehensive income in a manner consistent with the classification of the recipient’s compensation. Stock-based awards to non-employee consultants are expensed at their fair value as services are provided according to the terms of their agreements and are classified in selling, general and administrative expenses in the accompanying condensed consolidated statements of operations and comprehensive income.

 

9
 

 

During 2012, the Company’s stockholders approved a stock incentive plan (the “2012 Stock Incentive Plan”) to provide stock-based awards, including nonqualified stock options, incentive stock options, restricted stock and other equity securities, as incentives and rewards for employees, consultants and non-employee directors. As of March 31, 2014, 13,416,019 shares of common stock were authorized for issuance as awards under the 2012 Stock Incentive Plan.

 

Members of the Company’s board of directors elected to receive a portion of their 2014 annual compensation in the form of equity awards, in an aggregate amount of approximately 112,000 stock options and 108,000 RSUs. These stock options and RSUs were granted in January 2014 and vest through the end of 2014, with 25% vesting on the last day of each calendar quarter. The estimated aggregate grant-date fair value of the stock options was $0.3 million. The estimated aggregate grant-date fair value of the RSUs was $0.7 million.

 

During the three months ended March 31, 2014, the Company granted approximately 823,000 stock options, 786,000 service-based RSUs, and 207,000 performance-based RSUs to its employees. Employee stock options and service-based RSUs generally vest over a four-year service period with 25% vesting on the first anniversary of the grant date and the remainder vesting ratably on a quarterly basis thereafter. The performance-based RSUs were awarded to the Company’s executives. Vesting of the performance-based RSUs is dependent upon the Company’s achievement of defined performance goals over a two-year measurement period. The number of performance-based RSUs that will ultimately vest may range from 0% to 150% of the original grant based on the level of achievement of the performance goals. If the Company achieves the performance goals, 50% of the RSU awards will vest at the end of two years and the remaining 50% will vest at the end of the third year, subject to continued service. The Company records stock-based compensation expense related to performance-based RSUs when it is considered probable that the performance conditions will be met. The estimated aggregate grant-date fair values of the stock options, service-based RSUs, and performance-based RSUs granted to employees during the three months ended March 31, 2014 were $2.3 million, $5.1 million, and $1.3 million, respectively.

 

6. Equity Transactions and Instruments

 

$7.00 Warrants

 

In connection with the Company’s initial public offering in February 2008, the Company sold 40.0 million units at a price of $10.00 per unit. Each unit consisted of one share of common stock and one common stock purchase warrant (a “$7.00 Warrant”). Each $7.00 Warrant entitled the holder to purchase from the Company one share of common stock at a price of $7.00 per share. On February 14, 2013, the remaining 655,499 outstanding and unexercised $7.00 Warrants expired in accordance with their terms.

 

$11.50 Warrants

 

On September 29, 2009, in connection with the acquisition of Iridium Holdings LLC, holders of approximately 14.4 million $7.00 Warrants exchanged their existing warrants for new warrants to purchase the Company’s common stock at an exercise price of $11.50 per share (the “$11.50 Warrants”).

 

The Company may redeem each of the $11.50 Warrants at a price of $0.01 upon 30 days prior notice, provided that the warrants are exercisable and the registration statement covering the common stock issuable upon exercise of the warrants remains effective and available, and provided further that such redemption can only be made if the closing price of the common stock is at least $18.00 per share for any 20 trading days within a 30-trading-day period ending on the third day prior to the date on which notice of redemption is given. If the registration statement is not still effective at the time of exercise, the holders of the $11.50 Warrants will not be entitled to exercise the warrants, and in no event (whether in the case of a registration statement not being effective or otherwise) will the Company be required to net cash settle any such warrant exercise. Consequently, the $11.50 Warrants may expire unexercised and unredeemed. The number of shares of the Company’s common stock issuable upon the exercise of each $11.50 Warrant is subject to adjustment from time to time upon the occurrence of specified events. As of March 31, 2014, 277,021 of the $11.50 Warrants remained outstanding. Any remaining outstanding $11.50 Warrants will expire in February 2015.

 

Series A Cumulative Convertible Perpetual Preferred Stock

 

The Company is authorized to issue 2.0 million shares of preferred stock with a par value of $0.0001 per share. In the fourth quarter of 2012, the Company issued 1.0 million shares of its 7.00% Series A Cumulative Convertible Perpetual Preferred Stock (the “Series A Preferred Stock”) in a private offering. The Company received proceeds of $96.5 million from the sale of the Series A Preferred Stock, net of the aggregate $3.5 million in initial purchaser discount and additional offering costs. The Company intends to use the net proceeds of the private offering to partially fund the construction and deployment of Iridium NEXT and for other general corporate purposes. The remaining 1.0 million authorized shares of preferred stock remain undesignated and unissued as of March 31, 2014.

 

10
 

 

Holders of Series A Preferred Stock are entitled to receive cumulative cash dividends at a rate of 7.00% per annum of the $100 liquidation preference per share (equivalent to an annual rate of $7.00 per share). Dividends are payable quarterly in arrears on each March 15, June 15, September 15 and December 15. The Series A Preferred Stock does not have a stated maturity date and is not subject to any sinking fund or mandatory redemption provisions. The Series A Preferred Stock ranks senior to the Company’s common stock with respect to dividend rights and rights upon the Company’s liquidation, dissolution or winding-up. Holders of Series A Preferred Stock generally have no voting rights except for limited voting rights if the Company fails to pay dividends for six or more quarterly periods (whether or not consecutive) and in other specified circumstances. Holders of Series A Preferred Stock may convert some or all of their outstanding Series A Preferred Stock initially at a conversion rate of 10.6022 shares of common stock per $100 liquidation preference, which is equivalent to an initial conversion price of approximately $9.43 per share of common stock (subject to adjustment in certain events).

 

In 2013, the Company paid $7.0 million in cash dividends to its holders of Series A Preferred Stock. In March 2014 and 2013, the Company paid cash dividends of $1.75 million to holders of the Series A Preferred Stock. As of March 31, 2014, we have accrued $0.3 million in cash dividends for the holders of the Series A Preferred Stock, which is included within accrued expenses and other current liabilities on the accompanying condensed consolidated balance sheet.

 

On or after October 3, 2017, the Company may, at its option, convert some or all of the Series A Preferred Stock into the number of shares of common stock that are issuable at the then-applicable conversion rate, subject to specified conditions. On or prior to October 3, 2017, the holders of Series A Preferred Stock will have a special right to convert some or all of the Series A Preferred Stock into shares of common stock in the event of fundamental changes described in the Certificate of Designations for the Series A Preferred Stock, subject to specified conditions and limitations. In certain circumstances, the Company may also elect to settle conversions in cash as a result of these fundamental changes.

 

7. Net Income Per Share

 

The computations of basic and diluted net income per share are set forth as follows:

 

    Three Months Ended March 31,  
    2014     2013  
    (in thousands, except per share data)  
Numerator:                
Net income attributable to common stockholders   $ 14,793     $ 13,184  
Net income allocated to participating securities     (19 )     (21 )
Numerator for basic net income per share     14,774       13,163  
Dividends on Series A Preferred Stock     1,750       1,750  
Numerator for diluted net income per share   $ 16,524     $ 14,913  
                 
Denominator:                
Denominator for basic net income per share - weighted  average outstanding common shares     77,082       76,768  
Dilutive effect of contingently issuable shares     27       27  
Dilutive effect of Series A Preferred Stock     10,602       10,602  
Denominator for diluted net income per share     87,711       87,397  
                 
Net income per share attributable to common stockholders - basic   $ 0.19     $ 0.17  
Net income per share attributable to common stockholders - diluted   $ 0.19     $ 0.17  

 

For the three months ended March 31, 2014, warrants to purchase 0.3 million shares of common stock and options to purchase 5.2 million shares of common stock were not included in the computation of diluted net income per share as the effect would be anti-dilutive. Additionally, for the three months ended March 31, 2014, 1.2 million unvested RSUs were excluded from the computation of basic and diluted net income per share.

 

For the three months ended March 31, 2013, warrants to purchase 0.6 million shares of common stock and options to purchase 5.3 million shares of common stock were not included in the computation of diluted net income per share as the effect would be anti-dilutive. Additionally, for the three months ended March 31, 2013, 0.8 million unvested RSUs were excluded from the computation of basic and diluted net income per share.

 

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

 

You should read the following discussion along with our Annual Report on Form 10-K for the fiscal year ended December 31, 2013, filed on March 4, 2014 with the Securities and Exchange Commission, or the SEC, as well as our condensed consolidated financial statements included in this Form 10-Q.

 

This report contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. For this purpose, any statements contained herein that are not statements of historical fact may be deemed to be forward-looking statements. Such forward-looking statements include those that express plans, anticipation, intent, contingencies, goals, targets or future development or otherwise are not statements of historical fact. Without limiting the foregoing, the words “believe,” “anticipate,” “plan,” “expect,” “intend” and similar expressions are intended to identify forward-looking statements. These forward-looking statements are based on our current expectations and projections about future events, and they are subject to risks and uncertainties, known and unknown, that could cause actual results and developments to differ materially from those expressed or implied in such statements. The important factors discussed under the caption “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2013 filed on March 4, 2014, and in this Quarterly Report, could cause actual results to differ materially from those indicated by forward-looking statements made herein. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

 

Overview of Our Business

 

We are engaged primarily in providing mobile voice and data communications services using a constellation of orbiting satellites. We are the second largest provider of satellite-based mobile voice and data communications services based on revenue, and the only commercial provider of communications services offering 100% global coverage. Our satellite network provides communications services to regions of the world where wireless or wireline networks do not exist or are impaired, including extremely remote or rural land areas, airways, open oceans, the polar regions and regions where the telecommunications infrastructure has been affected by political conflicts or natural disasters.

 

We provide voice and data communications services to businesses, the U.S. and foreign governments, non-governmental organizations and commercial end-users. We provide these services using our constellation of in-orbit satellites and related ground infrastructure, including a primary commercial gateway. We utilize an interlinked, mesh architecture to route traffic across the 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 through a wholesale distribution network, encompassing more than 70 service providers, more than 190 value-added resellers, or VARs, and more than 50 value-added manufacturers, who either sell directly to the end-user or indirectly through other service providers, VARs or dealers. These distributors often integrate our products and services with other complementary hardware and software and have developed a broad suite of applications for our products and services targeting specific vertical markets.

 

At March 31, 2014, we had approximately 674,000 billable subscribers worldwide, an increase of 9% from approximately 621,000 billable subscribers at March 31, 2013. We have a diverse customer base, with end-users in the following lines of business: land-based handset; machine-to-machine, or M2M; maritime; aviation; and government.

 

We recognize revenue from both the sale of equipment and the provision of services. We expect a higher proportion of our future revenue will be derived from service revenue than in the past. Revenues from providing voice and data service historically have generated higher gross margins than sales of subscriber equipment.

 

We are currently devoting a substantial part of our resources to develop Iridium NEXT, our next-generation satellite constellation, and on hardware and software upgrades to our ground infrastructure in preparation for Iridium NEXT, the development of new product and service offerings, upgrades to our current services, and upgrades to our information technology systems. We estimate the aggregate costs associated with the design, build and launch of Iridium NEXT and related infrastructure upgrades through 2017 to be approximately $3 billion. Our funding plan for these costs includes the substantial majority of the funds available under our $1.8 billion loan facility, or the Credit Facility, together with cash and marketable securities on hand, internally generated cash flows, including potential cash flows from hosted payloads and Iridium PRIME SM , and the proceeds from capital raises that we expect to be required in connection with the planned amendment to our Credit Facility. The remaining portion of the Credit Facility will be utilized for capitalized interest and COFACE insurance premiums. As discussed below in “Liquidity and Capital Resources,” we were in compliance with all our financial covenants as of March 31, 2014 and believe that our liquidity sources will provide sufficient funds for us to meet our liquidity requirements for at least the next twelve months. As previously reported, we expect to need modifications to our Credit Facility for some financial covenants with measurement dates beyond the next twelve months. For measurement dates beyond the next twelve months, we expect to need modifications to the Credit Facility from our lenders for our operational EBITDA covenant, primarily because of recent developments in our telephony business and challenges associated with our Iridium Pilot ® product, and our secondary payload cashflow covenant, primarily due to expected timing of payments.

 

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In addition, recent developments in our business, including the slowdown in our handset business and higher projected warranty claims on our Iridium Pilot terminals, reduced our estimates for operational EBITDA, for the twelve months ending June 30, 2014 and December 31, 2014. In addition, we now anticipate that payment of hosted payload fees from Aireon LLC will be later than previously expected when we amended the Credit Facility in August 2012. In order to remove any uncertainty regarding our covenant compliance while we work to get the longer-term modifications in place, we requested and received waivers from our Credit Facility lenders, providing us with additional headroom on our operational EBITDA covenant and hosted payload cash flow covenant for those periods. As adjusted by such waivers, we were in compliance with all our financial covenants as of December 31, 2013, the most recent measurement date. As of April 30, 2014, we had borrowed a total of $1,082.1 million under the Credit Facility. For more information about our sources of funding and the anticipated modifications to our Credit Facility, refer to “Liquidity and Capital Resources” below.

  

Material Trends and Uncertainties

 

Our industry and customer base has historically grown as a result of:

 

demand for remote and reliable mobile communications services;

 

increased demand for communications services by disaster and relief agencies, and emergency first responders;

 

a broad 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;

 

a general reduction in prices of mobile satellite services and subscriber equipment; and

 

geographic market expansion through the receipt of licenses to sell our services in additional countries.

 

Nonetheless, we face a number of challenges and uncertainties in operating our business, including:

 

our ability to develop Iridium NEXT and related ground infrastructure, and to develop new and innovative products and services for Iridium NEXT;

 

our ability to access the Credit Facility to meet our future capital requirements for the design, build and launch of the Iridium NEXT satellites, including our ability to negotiate modifications to the Credit Facility with our lenders and to obtain any required additional external debt or equity financing;

 

our ability to obtain sufficient internally generated cash flows, including potential cash flows from hosted payloads and Iridium PRIME, to fund a portion of the costs associated with Iridium NEXT and support ongoing business;

 

Aireon LLC’s ability to successfully develop and market its space-based automatic dependent surveillance-broadcast, or ADS-B, global aviation monitoring service to be carried as a hosted payload on the Iridium NEXT system and to raise the funds to pay its hosting fees to us;

 

our ability to maintain the health, capacity, control and level of service of our existing satellite network through the transition to Iridium NEXT;

 

changes in general economic, business and industry conditions;

 

our reliance on a single primary commercial gateway and a primary satellite network operations center;

 

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;

 

market acceptance of our products;

 

regulatory requirements in existing and new geographic markets;

 

rapid and significant technological changes in the telecommunications industry;

 

reliance on our wholesale distribution network to market and sell our products, services and applications effectively;

 

reliance on single-source suppliers for some of the components required in the manufacture of our end-user subscriber equipment and our ability to purchase parts that are periodically subject to shortages resulting from surges in demand, natural disasters or other events; and

 

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reliance on a few significant customers for a substantial portion of our revenue, as a result of which the loss or decline in business with any of these customers may negatively impact our revenue and collectability of related accounts receivable.

 

Comparison of Our Results of Operations for the Three Months Ended March 31, 2014 and 2013

 

    Three Months Ended March 31,              
          % of Total           % of Total     Change  
($ in thousands)   2014     Revenue     2013     Revenue     Dollars     Percent  
Revenue:                                                
Services   $ 73,430       75 %   $ 68,787       77 %   $ 4,643       7 %
Subscriber equipment     20,157       21 %     17,331       19 %     2,826       16 %
Engineering and support services     4,445       4 %     3,071       4 %     1,374       45 %
Total revenue     98,032       100 %     89,189       100 %     8,843       10 %
                                                 
Operating expenses:                                                
Cost of services (exclusive of depreciation  and amortization)     14,203       14 %     14,476       16 %     (273 )     (2 )%
Cost of subscriber equipment     13,912       14 %     11,120       12 %     2,792       25 %
Research and development     2,121       2 %     1,659       2 %     462       28 %
Selling, general and administrative     19,186       20 %     18,365       21 %     821       4 %
Depreciation and amortization     20,266       21 %     18,231       21 %     2,035       11 %
Total operating expenses     69,688       71 %     63,851       72 %     5,837       9 %
                                                 
Operating income     28,344       29 %     25,338       28 %     3,006       12 %
                                                 
Other income (expense):                                                
Interest income, net     637       1 %     637       1 %     -       0 %
Undrawn credit facility fees     (1,499 )     (2 )%     (2,096 )     (2 )%     597       (28 )%
Other expense, net     (350 )     0 %     (1,396 )     (2 )%     1,046       (75 )%
Total other expense     (1,212 )     (1 )%     (2,855 )     (3 )%     1,643       (58 )%
Income before income taxes     27,132       28 %     22,483       25 %     4,649       21 %
Provision for income taxes     (10,589 )     (11 )%     (7,549 )     (8 )%     (3,040 )     40 %
Net income   $ 16,543       17 %   $ 14,934       17 %   $ 1,609       11 %

 

Revenue

 

Total revenue increased 10% to $98.0 million for the three months ended March 31, 2014 compared to $89.2 million for the three months ended March 31, 2013. This increase in revenue was primarily due to an increase in service revenue, driven by a 9% year-over-year increase in billable subscribers and an increase in prepaid revenue resulting from the change in our prepaid airtime policy. Also contributing to the increase in total revenue was an increase in subscriber equipment sales due to increased unit sales and an increase in government-sponsored engineering and support contracts.

 

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Commercial Service Revenue

 

  Three Months Ended                    
    March 31, 2014     March 31, 2013     Change  
    (Revenue in millions and subscribers in thousands)  
          Billable                 Billable                 Billable        
    Revenue     Subscribers (1)     ARPU (2)     Revenue     Subscribers (1)     ARPU (2)     Revenue     Subscribers     ARPU  
Commercial voice and data   $ 43.9       338     $ 43     $ 42.4       332     $ 43     $ 1.5       6     $ -  
Commercial M2M data     13.5       283       16       11.3       238       16       2.2       45       -  
Total Commercial   $ 57.4       621             $ 53.7       570             $ 3.7       51          

 

(1) Billable subscriber numbers shown are at the end of the respective period.
(2) Average monthly revenue per unit, or ARPU, is calculated by dividing revenue in the respective period by the average of the number of billable subscribers at the beginning of the period and the number of billable subscribers at the end of the period and then dividing the result by the number of months in the period.

 

Commercial voice and data revenue increased due to a higher number of subscribers and to the combined effects of our 2013 targeted price increases and the change in our prepaid airtime policy which became effective at the end of 2013. Commercial M2M data revenue growth was driven principally by a 19% increase in billable subscribers. We anticipate continued growth in billable commercial subscribers for the remainder of 2014.

 

Government Service Revenue  

 

    Three Months Ended              
    March 31, 2014     March 31, 2013     Change  
    (Revenue in millions and subscribers in thousands)  
          Billable           Billable           Billable  
    Revenue     Subscribers (1)     Revenue     Subscribers (1)     Revenue     Subscribers  
Government service revenue   $ 16.0       53     $ 15.1       51     $ 0.9       2  

 

(1) Billable subscriber numbers shown are at the end of the respective period.

 

We provide Iridium airtime and airtime support to U.S. government and other authorized customers pursuant to a five-year Enhanced Mobile Satellite Services, or EMSS, contract managed by the Defense Information Systems Agency which we executed in October 2013. The EMSS contract replaced our previous EMSS contract which we originally entered into in April 2008. Under the terms of this new agreement, authorized customers utilize Iridium airtime services, provided through the U.S. Department of Defense’s, or DoD’s, dedicated gateway. These services include unlimited global secure and unsecure voice, low and high-speed data, paging, and Distributed Tactical Communications System, or DTCS, services for an unlimited number of DoD and other federal subscribers. DTCS is a service that provides beyond-line-of-sight, push-to-talk tactical radio service for user-defined groups. The fixed-price rates in each of the five contract years, which run from October 22 through the following October 21, are $64 million and $72 million in years one and two, respectively, and $88 million in each of the years three through five.

 

Government service revenues for the three months ended March 31, 2014 increased to $16.0 million from $15.1 million in the prior year period as a result of the execution of the new EMSS contract. Under this contract, revenue is a fixed monthly amount and is no longer based on subscribers or usage, allowing an unlimited number of users access to existing services. As we continue to innovate and better meet the needs of our customers, additional services not contemplated under the new EMSS contract may be provided in future periods at an amount mutually agreed upon by both parties. We anticipate government service revenue for 2014 will exceed 2013 government service revenue.

 

Subscriber Equipment Revenue

 

Subscriber equipment revenue increased 16%, or $2.8 million, for the three months ended March 31, 2014 compared to the prior year period. This increase was primarily due to higher sales of handsets and M2M devices. We anticipate subscriber equipment revenue for the full year 2014 to exceed full year 2013 due to higher overall unit sales.

 

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Engineering and Support Service Revenue

 

    Three Months Ended        
    March 31, 2014     March 31, 2013     Change  
    (In millions)  
Government   $ 3.8     $ 2.6     $ 1.2  
Commercial     0.6       0.5       0.1  
Total   $ 4.4     $ 3.1     $ 1.3  

 

Engineering and support service revenue increased by $1.3 million for the three months ended March 31, 2014 compared to the prior year period due to the execution of government-sponsored contracts during the second half of 2013 related to the DoD’s gateway modernization efforts as we transition to Iridium NEXT capabilities. We anticipate an increase in the scope of work for government contracts in 2014 resulting in overall growth in engineering and support service revenue compared to 2013.

 

Operating Expenses

 

Cost of Services (exclusive of depreciation and amortization)

 

Cost of services (exclusive of depreciation and amortization) includes the cost of network engineering and operations staff, including contractors, software maintenance, product support services and cost of services for government and commercial engineering and support service revenue.

 

Cost of services (exclusive of depreciation and amortization) decreased $0.3 million, or 2%, for the three months ended March 31, 2014 from the prior year period primarily due to a decline in support services related to our Iridium Pilot units and a decline in operations and maintenance costs relating to our existing constellation as we continue to focus on Iridium NEXT development efforts. This decrease is partially offset by an increase in scope of work for government-sponsored contracts and related costs.

 

Cost of Subscriber Equipment

 

Cost of subscriber equipment includes the direct costs of equipment sold, which consist of manufacturing costs, allocation of overhead, and warranty costs.

 

Cost of subscriber equipment increased by $2.8 million, or 25%, for the three months ended March 31, 2014 compared to the prior year period. This increase was primarily due to increased sales of handsets and M2M devices discussed above. In addition, increased costs per unit for the Iridium Pilot due to product enhancements contributed to an increase in cost of subscriber equipment.

 

Research and Development

 

Research and development expenses increased by $0.5 million, or 28%, for the three months ended March 31, 2014 compared to the prior year period due to new subscriber equipment product development and Iridium NEXT projects.

 

Depreciation and Amortization

 

Depreciation and amortization expense increased by $2.0 million, or 11%, for the three months ended March 31, 2014 compared to the prior year period, in part due to a $0.9 million impairment charge related to an in-orbit satellite with which we lost communication in January 2014. Additionally, property and equipment additions subsequent to March 31, 2013 for Iridium NEXT-related ground infrastructure resulted in a $1.0 million increase in depreciation expense.

 

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Other Income (Expense)

 

Undrawn Credit Facility Fees

 

Commitment fees on the undrawn portion of the Credit Facility were $1.5 million for the three months ended March 31, 2014 compared to $2.1 million for the prior year period. The decrease of the commitment fee is directly proportional to the increase in the amounts borrowed under the Credit Facility as we continue to finance the development of Iridium NEXT.

 

Other Expense, Net

 

Other expense, net, was $0.4 million for the three months ended March 31, 2014 compared to $1.4 million for the prior year period. This change primarily resulted from our share of the loss from our equity method investment in Aireon LLC. Aireon is accounted for as an equity method investment within our financial statements, and our investment is included within other assets on our accompanying condensed consolidated balance sheet.

 

Provision for Income Taxes

 

For the three months ended March 31, 2014, our income tax provision was $10.6 million compared to $7.5 million for the prior year period. The increase in the income tax provision and rate is primarily related to an increase in our income before income taxes combined with a benefit in 2013 for research and development tax credits related to 2012 and 2013. No such credit is permitted in 2014 as the related law expired as of December 31, 2013. As our current estimates change in future periods, the impact on the deferred tax assets and liabilities may change correspondingly.

 

Net Income

 

Net income was $16.5 million for the three months ended March 31, 2014, an increase of $1.6 million from the prior year period. This increase in net income was primarily driven by a $4.6 million increase in service revenue due to increased commercial billable subscribers, the favorable impact of the new EMSS contract, and a $1.4 million increase in engineering and support services revenue due to the execution of new government-sponsored contracts. These increases to net income were partially offset by a $2.0 million increase in depreciation due to Iridium NEXT-related asset additions and a current period impairment charge related to an in-orbit satellite with which we lost communication in January 2014. Additionally, the increases in net income were partially offset by a $3.0 million increase in income taxes primarily due to the increase in our income before income taxes combined with a benefit in 2013 for research and development tax credits which expired as of December 31, 2013.

 

Liquidity and Capital Resources

 

As of March 31, 2014, our total cash and cash equivalents balance was $184.5 million and our marketable securities balance was $70.7 million. Our principal sources of liquidity are cash, cash equivalents and marketable securities, internally generated cash flows, and the Credit Facility. Our principal liquidity requirements are to meet capital expenditure needs, principally the design, build and launch of Iridium NEXT, as well as for working capital, research and development expenses, and dividends payable on our Series A Preferred Stock.

 

We expect to utilize the Credit Facility to fund construction associated with the development of our Iridium NEXT satellites, capitalized interest and COFACE insurance premiums, however, we are in discussions with our Credit Facility lenders regarding modifications to the financial covenants and other amendments to the Credit Facility. Developments in our business during 2013, including the slowdown in our handset business and higher projected warranty claims on our Iridium Pilot terminals and the related impact on our maritime revenues, reduced our estimates for operational EBITDA. In addition, we now anticipate that payment of hosted payload fees from Aireon will be later than we expected when we last amended the Credit Facility in August 2012. To remove any uncertainty regarding our covenant compliance while we work to get the longer-term modifications in place, we requested and received waivers from our Credit Facility lenders, providing us with additional headroom on our operational EBITDA covenant for the twelve months ending June 30, 2014 and December 31, 2014 and waiving our hosted payload cash flow covenant for the twelve months ending December 31, 2014. We believe that our liquidity sources will provide sufficient funds for us to meet our liquidity requirements for at least the next 12 months. We expect to fund the remainder of the costs of Iridium NEXT from cash and marketable securities on hand, internally generated cash flows, including potential cash flows from hosted payloads and Iridium PRIME, and with additional external debt or equity financing that we expect to be required in connection with the planned amendment of the Credit Facility.

 

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The Credit Facility contains borrowing restrictions, including financial performance covenants and covenants relating to hosted payloads, and there can be no assurance that we will be able to continue to borrow funds under the Credit Facility. We expect to need modifications to the Credit Facility from our lenders for some of the financial covenants with measurement dates beyond the next twelve months, and there can be no assurance that the lenders will agree to such modifications. We expect to be required to raise additional capital as a condition to the planned amendment. There can also be no assurance that our internally generated cash flows, including those from hosted payloads on our Iridium NEXT satellites, will meet our current expectations. If we do not generate sufficient cash flows, or if the cost of implementing Iridium NEXT or the other elements of our business plan are higher than anticipated, we will need further external funding. Our ability to obtain additional funding may be adversely affected by a number of factors, including global economic conditions, and we cannot assure you that we will be able to obtain such funding on reasonable terms or at all. If we are not able to secure such funding in a timely manner, our ability to maintain our network, to design, build and launch Iridium NEXT and related ground infrastructure, products and services, and to pursue additional growth opportunities will be impaired, and we would likely need to delay some elements of our Iridium NEXT development. Our liquidity and our ability to fund our liquidity requirements are also dependent on our future financial performance, which is subject to general economic, financial, regulatory and other factors that are beyond our control.

 

Holders of Series A Preferred Stock are entitled to receive cumulative cash dividends at an annual rate of $7.00 per share. Dividends are payable quarterly in arrears on each March 15, June 15, September 15 and December 15. For each full quarter that the Series A Preferred Stock is outstanding, and assuming that no shares of Series A Preferred Stock have been converted into shares of our common stock, we would be required to pay cash dividends of $1.75 million. We expect that we would satisfy dividend requirements, if and when declared, from internally generated cash flows.

 

As of March 31, 2014, we had borrowed a total of $1,064.5 million under the Credit Facility. The unused portion of the Credit Facility as of March 31, 2014 was $735.5 million. Under the terms of the Credit Facility, we were required to maintain a minimum cash reserve for debt service of $94.5 million as of March 31, 2014, which is classified as restricted cash on the accompanying condensed consolidated balance sheet. This minimum cash reserve requirement will increase over the term of the Credit Facility to $189.0 million at the beginning of the repayment period, which is expected to be in 2017.

 

In addition to the minimum debt service levels, financial covenants under the Credit Facility include:

 

· an available cash balance of at least $25 million;

 

· a debt-to-equity ratio, which is calculated as the ratio of total net debt to the aggregate of total net debt and total stockholders’ equity, of no more than 0.7 to 1, measured each June 30 and December 31;

 

· specified maximum levels of annual capital expenditures (excluding expenditures on the construction of Iridium NEXT satellites) through the year ending December 31, 2024;

 

· specified minimum levels of consolidated operational earnings before interest, taxes, depreciation and amortization, or operational EBITDA, for the 12-month periods ending each December 31 and June 30 through June 30, 2017;

 

· specified minimum cash flow requirements from customers who have hosted payloads on our satellites during the 12-month periods ending each December 31 and June 30, beginning December 31, 2014 and ending on June 30, 2017;

 

· a debt service coverage ratio, measured during the repayment period, of not less than 1 to 1.5; and

 

· specified maximum leverage levels during the repayment period that decline from a ratio of 4.75 to 1 for the twelve months ending June 30, 2017 to a ratio of 2.5 to 1 for the twelve months ending June 30, 2025.

 

Our available cash balance, as defined by the Credit Facility, was $202.1 million as of March 31, 2014. Our debt-to-equity ratio was 0.48 to 1 as of December 31, 2013, the last point at which it was measured. We were also in compliance with the operational EBITDA and annual capital expenditure covenants set forth above as of December 31, 2013, the last point at which they were measured, as modified by the waivers from our Credit Facility lenders.

 

The covenants regarding capital expenditures, operational EBITDA and hosted payload cash flows are calculated in connection with a measurement, which we refer to as available cure amount, that is derived using a complex calculation based on overall cash flows, as adjusted by numerous measures specified in the Credit Facility. In a period in which our capital expenditures exceed, or our operational EBITDA or hosted payload cash flows falls short of, the amount specified in the respective covenant, we would be permitted to allocate available cure amount, if any, to prevent a breach of the applicable covenant. As of December 31, 2013, the last point at which it was measured, we had available cure amount of $0.7 million, though it was not required to maintain compliance with the covenants. We note that available cure amount, due to the complexity of its calculation, has fluctuated significantly from one measurement period to the next, and we expect that it will continue to do so.

 

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The covenants also place limitations on our ability and that of our subsidiaries to carry out mergers and acquisitions, dispose of assets, grant security interests, declare, make or pay dividends, enter into transactions with affiliates, fund payments under the full scale development contract, or FSD, with Thales Alenia Space France from our own resources, incur additional indebtedness, or make loans, guarantees or indemnities. If we are not in compliance with the financial covenants under the Credit Facility, after any opportunity to cure such non-compliance, or we otherwise experience an event of default under the Credit Facility, the lenders may require repayment in full of all principal and interest outstanding under the Credit Facility. It is unlikely we would have adequate funds to repay such amounts prior to the scheduled maturity of the Credit Facility. If we fail to repay such amounts, the lenders may foreclose on the assets we have pledged under the Credit Facility, which include substantially all of our assets and those of our domestic subsidiaries.

 

Cash Flows

 

The following section highlights our cash flows:

 

    Three Months Ended March 31,        
    2014     2013     Change  
    (in thousands)  
Cash provided by operating activities   $ 42,465     $ 57,196     $ (14,731 )
Cash used in investing activities   $ (52,661 )   $ (90,934 )   $ 38,273  
Cash provided by (used in) financing activities   $ 8,338     $ (15,370 )   $ 23,708  

 

Cash Flows from Operating Activities

 

Net cash provided by operating activities for the three months ended March 31, 2014 decreased by $14.7 million from the prior year period. The decrease was primarily due to the receipt of $7.0 million in hosted payload customer deposits and a $3.1 million tax refund received in the first quarter of 2013, both of which did not recur in 2014. Additionally, we made a $3.0 million refundable deposit in the first quarter of 2014 with one of our launch service providers.

 

Cash Flows from Investing Activities

 

Net cash used in investing activities for the three months ended March 31, 2014 decreased by $38.3 million compared to the prior year period primarily due to a $72.5 million decrease in the net purchase of securities. We began investing in marketable securities in March 2013. This decrease was partially offset by a $39.3 million increase in capital expenditures primarily related to Iridium NEXT.

 

Cash Flows from Financing Activities

 

Net cash provided by financing activities for the three months ended March 31, 2014 increased by $23.7 million from the prior year period primarily due to a $25.3 million increase in borrowings under the Credit Facility.

 

Off-Balance Sheet Arrangements

 

We do not currently have any off-balance sheet arrangements, as such term is defined in Item 303(a)(4)(ii) of the SEC’s Regulation S-K, that have or are reasonably likely to have a material current or future effect on our financial condition, results of operations, liquidity or capital resources.

 

Seasonality

 

Our results of operations have been subject to seasonal usage changes for commercial customers, and we expect that our results will be affected by similar seasonality effects in the future. March through October are typically the peak months for commercial voice services revenue and related subscriber equipment sales. Commercial M2M revenue has been less subject to seasonal usage changes, and revenue from our new fixed-price U.S. government contract will not be subject to seasonal fluctuations.

 

Recent Accounting Developments

 

None.

 

ITEM  3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

 

Interest income earned on our cash, cash equivalents and marketable securities balances is subject to interest rate fluctuations. For the three months ended March 31, 2014, a one-half percentage point increase or decrease in interest rates would not have had a material effect on our interest income.

 

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We had borrowed $1,064.5 million under the Credit Facility as of March 31, 2014. A portion of the draws we make under the Credit Facility bear interest at a floating rate equal to the London Interbank Offered Rate, or LIBOR, plus 1.95% and will, accordingly, subject us to interest rate fluctuations in future periods. Had the currently outstanding borrowings under the Credit Facility been outstanding throughout the three months ended March 31, 2014, a one-half percentage point increase or decrease in the LIBOR would have changed our interest cost by less than $0.2 million.

 

Financial instruments that potentially subject us to concentrations of credit risk consist primarily of cash and cash equivalents, marketable securities, accounts receivable and accounts payable. At times we maintain cash and cash equivalent deposit balances in excess of Federal Deposit Insurance Corporation limits, and we may have marketable securities balances in excess of Securities Investment Protection Corporation limits. However we maintain our cash, cash equivalents and marketable securities with financial institutions with high credit ratings. The majority of our cash is swept nightly into funds that invest in or are collateralized by U.S government-backed securities. During 2013, we invested in marketable securities consisting of fixed income and commercial paper debt instruments with fixed interest rates and maturity dates within three years of original purchase. Due to the credit quality and nature of these debt instruments, we do not believe there has been a significant change in our market risk exposure since December 31, 2013. Accounts receivable are due from both domestic and international customers. We perform credit evaluations of our customers’ financial condition and record reserves to provide for estimated credit losses. Accounts payable are owed to both domestic and international vendors.

 

ITEM  4. CONTROLS AND PROCEDURES.

 

Evaluation of Disclosure Controls and Procedures

 

Under the supervision and with the participation of our management, including our chief executive officer, who is our principal executive officer, and our chief financial officer, who is our principal financial officer, we conducted an evaluation of our disclosure controls and procedures, as such term is defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended, or the Exchange Act, as of the end of the period covered by this report. In evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints and that management is required to apply its judgment in evaluating the benefits of possible controls and procedures relative to their costs. In addition, the design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions; over time, controls may become inadequate because of changes in conditions, or the degree of compliance with policies or procedures may deteriorate. Because of the inherent limitations in a control system, misstatements due to error or fraud may occur and not be detected.

 

Based on this evaluation, our chief executive officer and our chief financial officer concluded that our disclosure controls and procedures were effective to provide reasonable assurance that information required to be disclosed by us in reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the U.S. Securities and Exchange Commission’s rules and forms, and is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosures.

 

Changes in Internal Control Over Financial Reporting

 

During the quarter ended March 31, 2014, there were no changes in our internal control over financial reporting, as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

PART II.

 

OTHER INFORMATION

 

ITEM  1. LEGAL PROCEEDINGS.

 

Neither we nor any of our subsidiaries are currently subject to any material legal proceeding, nor, to our knowledge, is any material legal proceeding threatened against us or any of our subsidiaries.

 

ITEM  1A. RISK FACTORS.

 

Our business is subject to risks and events that, if they occur, could adversely affect our financial condition and results of operations and the trading price of our securities. You should carefully consider the factors discussed below in connection with an investment in our securities.

 

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Our business plan depends on increased demand for mobile satellite services, among other factors.

 

Our business plan 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 our ability to sell products and services, develop and successfully market new products and services and could exert downward pressure on prices. Any decline in prices would decrease our revenue and profitability and negatively affect our ability to generate cash for capital expenditures, investments and other working capital needs.

 

Our ability to successfully implement our business plan will also depend on a number of other factors, including:

 

· our ability to maintain the health, capacity and control of our existing satellite constellation;

 

· our ability to complete the design, build and launch of Iridium NEXT and related ground infrastructure, products and services, and, once launched, our ability to maintain the health, capacity and control of the new satellite constellation;

 

· the level of market acceptance and demand for our products and services;

 

· our ability to introduce innovative new products and services that satisfy market demand, including new service offerings on Iridium NEXT;

 

· our ability to obtain additional business using our existing spectrum resources both in the United States and internationally;

 

· our ability to sell our products and services in additional countries;

 

· our ability to maintain our relationship with U.S. government customers, particularly the DoD;

 

· the ability of our distributors to market and distribute our products, services and applications effectively and their continued development of innovative and improved solutions and applications for our products and services;

 

· the effectiveness of our competitors in developing and offering similar services and products; and

 

· our ability to maintain competitive prices for our products and services and to control our costs.

 

Our business plan depends in large part on the success of our subsidiary, Aireon LLC, which is our primary hosted payload customer.

 

In June 2012, we announced our plans to host a payload being developed by our subsidiary, Aireon LLC, as our primary hosted payload on Iridium NEXT. We currently expect to rely on the cash flows generated from this hosted-payload arrangement with Aireon to satisfy a portion of our capital requirements for the development and deployment of Iridium NEXT. Aireon’s payload will be a satellite-based automatic dependent surveillance-broadcast, or ADS-B, system for global air traffic monitoring, and Aireon’s success will depend on its ability to successfully develop and manufacture this system. Deploying an ADS-B system on satellites is a new and unproven method for providing this service and will require significant technological development. Aireon will need to complete the development and manufacture of its ADS-B payloads in time to include them on our Iridium NEXT satellites, which we expect to begin launching in 2015.

 

In addition, Aireon’s success will depend on the development of the market for a space-based ADS-B service among Air Navigation Service Providers, or ANSPs, particularly the U.S. Federal Aviation Administration, or FAA. Aireon does not have a contract with the FAA to provide ADS-B services, and there can be no assurance that it will be successful in securing such a contract. The FAA’s financial commitment to Aireon to date has been limited to a $10 million contract for assistance in its analysis of space-based ADS-B, and no funds have been allocated by the FAA for a larger Aireon commitment. If Aireon is not successful in entering into a contract with the FAA for the provision of ADS-B services, it may not be able to make its hosting reimbursement payments to us when we currently anticipate or at all..

 

Aireon will itself require significant additional capital to complete the successful development, deployment and operation of its system. The Aireon LLC Agreement provides for the purchase by NAV CANADA Satellite and three other ANSP investors of additional membership interests in multiple tranches through late 2017 for an aggregate investment of up to $270 million. Each tranche, however, is subject to the satisfaction of various operational, commercial, regulatory and financial conditions, some of which will be out of our control, and the investors have significant discretion in the determination of whether those conditions have been met.

 

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The management of Aireon is not entirely within our control given the significant veto rights and other protective provisions provided to NAV CANADA and the other investors, and for accounting purposes we treat Aireon as a subsidiary that we do not control. Further, as the other investors continue to purchase additional equity interests, our ownership of Aireon will decrease, and eventually we expect that Aireon will no longer be a subsidiary. As a result, we may not be able to cause Aireon to take actions that we believe are necessary for its ultimate success.

 

If Aireon is not successful and fails to pay its hosting reimbursement costs, our ability to pursue our business plan would be compromised unless we were able to replace those amounts with capital from other sources. In addition, Aireon’s failure to pay our data fees and make the anticipated redemption of a portion of our equity interest would negatively affect our expected future results of operations.

 

We expect to need additional capital to design, build and launch Iridium NEXT and related ground infrastructure, products and services, and to pursue additional growth opportunities. If we fail to maintain access to sufficient capital, we will not be able to successfully implement our business plan.

 

Our business plan calls for the development of Iridium NEXT, the development of new product and service offerings, upgrades to our current services, hardware and software upgrades to maintain our ground infrastructure and upgrades to our business systems. We estimate the costs associated with the design, build and launch of Iridium NEXT and related ground infrastructure upgrades through 2017 to be approximately $3 billion. Our funding plan for these costs includes the substantial majority of the funds available under our $1.8 billion Credit Facility together with cash on hand, internally generated cash flows, including potential cash flows from hosted payloads and Iridium PRIME, and the proceeds from capital raises that we expect to be required in connection with the planned amendment to our Credit Facility.

 

Our ability to continue to make draws under the Credit Facility will depend upon our satisfaction of the borrowing conditions provided for in the Credit Facility at the time of the borrowing, some of which will be outside of our control. For more information, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Credit Facility” in our Annual Report on Form 10-K for the year ended December 31, 2013, or our 2013 Form 10-K.

 

There can also be no assurance that our internally generated cash flows will meet our current expectations, or that we will not encounter increased costs. For example, Aireon may be unable to pay its hosting reimbursement costs, and the market for Iridium PRIME may not develop as we expect. If internally generated cash flows, including potential cash from hosted payload arrangements or Iridium PRIME, are less than we expect, we might need to finance the remaining cost of Iridium NEXT by raising additional debt or equity financing. In addition, we may need additional capital to design and launch new products and services on Iridium NEXT. Such additional financing may not be available on favorable terms, or at all.

 

If we are unable to raise additional capital for one or more of these needs, our ability to maintain our network, design, build and launch Iridium NEXT and related ground infrastructure, develop new products and services and pursue additional growth opportunities will be impaired, which would significantly limit the development of our business and impair our ability to provide a commercially acceptable level of service. We may experience overall liquidity levels lower than our recent liquidity levels. Inadequate liquidity could compromise our ability to pursue our business plans and growth opportunities and make borrowings under the Credit Facility, delay the ultimate deployment of Iridium NEXT or otherwise impair our business and financial position.

 

If we fail to satisfy the ongoing borrowing conditions of the Credit Facility, or are unsuccessful in obtaining modifications to such conditions, we may be unable to fund Iridium NEXT.

 

We plan to use borrowings under the Credit Facility to partially fund the construction of our Iridium NEXT satellites, including borrowing to capitalize interest otherwise due under the Credit Facility. Our ability to continue to draw funds under the Credit Facility over time will depend on the satisfaction of borrowing conditions at the time of each draw, including:

 

· compliance with the covenants under the Credit Facility, including financial covenants and covenants relating to hosted payloads;

 

· accuracy of the representations we make under the Credit Facility;

 

· compliance with the other terms of the Credit Facility, including the absence of events of default; and

 

· maintenance of the insurance policy with COFACE.

 

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Some of these borrowing conditions may be outside of our control or otherwise difficult to satisfy. If we do not continue to satisfy those and other borrowing conditions under the Credit Facility and cannot obtain a waiver from the lenders, we would need to find other sources of financing. We would have to seek the permission of the lenders under the Credit Facility in order to obtain many alternative sources of financing, and there can be no assurance that we would have access to other sources of financing on acceptable terms, or at all.

 

If we default under the Credit Facility, the lenders may require immediate repayment in full of amounts borrowed or foreclose on our assets.

 

The Credit Facility contains events of default, including:

 

non-compliance with the covenants under the Credit Facility, including financial covenants and covenants relating to hosted payloads;

 

cross-default with other indebtedness;

 

insolvency of any obligor under the Credit Facility;

 

revocation of the COFACE policy;

 

failure to maintain our current satellite constellation or complete Iridium NEXT by a specified time; and

 

a determination by the lenders that we have experienced a material adverse change in our business.

 

Some of these events of default are outside of our control or otherwise difficult to satisfy. If we experience an event of default, the lenders may require repayment in full of all principal and interest outstanding under the Credit Facility. It is unlikely we would have adequate funds to repay such amounts prior to the scheduled maturity of the Credit Facility. If we fail to repay such amounts, the lenders may foreclose on the assets we have pledged under the Credit Facility, which includes substantially all of our assets and those of our domestic subsidiaries.

 

The Credit Facility restricts the manner in which we may operate our business, which may prevent us from successfully implementing our business plan.

 

The Credit Facility contains restrictions on the operation of our business, including limits on our ability to:

 

make capital expenditures;

 

carry out mergers and acquisitions;

 

dispose of, or grant liens on, our assets;

 

enter into transactions with our affiliates;

 

pay dividends or make distributions to our stockholders;

 

incur indebtedness;

 

prepay indebtedness; and

 

make loans, guarantees or indemnities.

 

The Credit Facility also prohibits us from paying dividends to holders of our preferred stock, including our series A preferred stock, if we are unable to certify that we anticipate being able to comply with the financial covenants of the Credit Facility for the next twelve months each time we declare a dividend. If we are unable to make that certification, we will not be able to pay the dividends on our outstanding preferred stock. If we do not pay dividends on our preferred stock for six quarterly periods (whether or not consecutive), the holders of the series A preferred stock will have the power to elect two members of our board of directors. The interests of the holders of our preferred stock may differ from those of our other stockholders. In addition, any dividend we fail to pay will accrue, and the holders of our series A preferred stock will be entitled to a preferential distribution of $100 per share plus all accrued and unpaid dividends before any distribution may be made to holders of our common stock in connection with any liquidation event.

 

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Complying with these restrictions may cause us to take actions that are not favorable to holders of our common stock and may make it more difficult for us to successfully execute our business plan and compete against companies who are not subject to such restrictions.

 

If we are unable to effectively develop and deploy Iridium NEXT before our current satellite constellation ceases to provide a commercially acceptable level of service, our business will suffer.

 

We are currently developing Iridium NEXT, which we expect to commence launching in 2015. While we expect our current satellite constellation to provide a commercially acceptable level of service through the transition to Iridium NEXT, we cannot guarantee it will do so. If we are unable to effectively deploy Iridium NEXT for any reason, whether as a result of insufficient funds, manufacturing or launch delays, launch failures, in-orbit satellite failures, inability to achieve or maintain orbital placement, failure of the satellites to perform as expected, interference between any hosted payload and our network, or delays in receiving regulatory approvals or otherwise, before our current constellation ceases to provide a commercially acceptable level of service, or if we experience backward compatibility problems with our new constellation once deployed, we would likely lose customers and business opportunities to our competitors, resulting in a potentially material decline in revenue and profitability and the inability to service our debt.

 

Iridium NEXT may not be completed on time, and the costs associated with it may be greater than expected.

 

We estimate that the costs associated with the design, build and launch of Iridium NEXT and related ground infrastructure upgrades through 2017 will be approximately $3 billion, although our actual costs could substantially exceed this estimate. We may not complete Iridium NEXT and related ground infrastructure on time, on budget or at all. We expect to delay our first launch, previously scheduled for the first quarter of 2015, to June of 2015 because of delays in software development by our satellite manufacturer. The design, manufacture and launch of satellite systems are highly complex and historically have been subject to delays and cost overruns. Development of Iridium NEXT may suffer from additional delays, interruptions or increased costs due to many factors, some of which may be beyond our control, including:

 

· lower than anticipated internally generated cash flows, including from Aireon and other hosted payloads;

 

· the failure to maintain our ability to make draws under the Credit Facility, including by reason of our failure to satisfy any ongoing financial or other condition to making draws;

 

· operating and other requirements imposed by the lenders under the Credit Facility;

 

· engineering or manufacturing performance falling below expected levels of output or efficiency;

 

· interference between any hosted payload and our network;

 

· complex integration of our ground segment with the Iridium NEXT satellites and the transition from our current constellation;

 

· 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;

 

· use of a new or unproven launch vehicle or the failure of the launch services provider to sustain its business;

 

· launch delays or failures or in-orbit satellite failures once launched or the decision to manufacture additional replacement satellites for future launches;

 

· labor disputes or disruptions in labor productivity or the unavailability of skilled labor;

 

· increases in the costs of materials;

 

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· changes in project scope;

 

· additional requirements imposed by changes in laws; or

 

· severe weather or catastrophic events, such as fires, earthquakes or storms.

 

In addition, there can be no assurance the ground infrastructure needed to complete Iridium NEXT will be completed on time, on budget or at all. If the design, manufacture and deployment of Iridium NEXT costs more or takes longer than we anticipate, our ability to continue to develop Iridium NEXT and related ground infrastructure could be compromised.

 

Our Iridium NEXT launch strategy includes an initial launch using a Russian launch services provider, which could be jeopardized by instability in the region or diplomatic sanctions, and in turn could result in a delay to our initial launch and additional launch and insurance costs.

 

Our strategy to launch our 72 Iridium NEXT satellites includes a planned first launch in June of 2015 of two satellites on a Dnepr launch vehicle under contract with International Space Company Kosmotras, or Kosmotras, a Russian launch services provider, with the remaining 70 satellites to be launched on seven Falcon 9 launch vehicles under contract with Space Exploration Technologies Corporation, or SpaceX. Many of Kosmotras’s operations are in Ukraine, a country that has recently experienced significant political instability. In addition, the United States has imposed restrictions on exports to Russia, which, if still in place next year, could affect our ability to launch our first two satellites on schedule. If we cannot launch the first two satellites on schedule, our first launch would likely be of ten satellites on the first of our SpaceX launches, currently planned for the second half of 2015, which launch out of the United States and would be unaffected by the delay. The loss of the ability to launch two satellites and test them before launching the next ten satellites would likely increase our insurance costs, and any alternative launch strategy for the first two satellites would likely increase our launch costs.

 

Loss of any Iridium NEXT satellite during launch or delays in our launch schedule could delay or impair our ability to offer our services or increase our costs, and launch insurance, to the extent available, will not fully cover this risk.

 

The launch of our Iridium NEXT satellites will be subject to the inherent risk of launch failures, which could result in the loss or destruction of one or more satellites. We have entered into our launch services agreement with SpaceX, pursuant to which SpaceX will provide launch services to us in connection with our deployment of Iridium NEXT. The SpaceX agreement contemplates seven launches of ten satellites each on SpaceX’s Falcon 9 launch vehicle over a two-year period. SpaceX is a rapidly growing company in a technically complicated industry and is working to meet an aggressive launch manifest. A failure by SpaceX to maintain its launch schedule could expose us to delay or the need to utilize an alternate launch services provider, which could substantially increase our launch costs. We have also entered into a launch services agreement with Kosmotras pursuant to which Kosmotras will provide supplemental or alternative launch services for Iridium NEXT. We have exercised an option to have Kosmotras launch the first two Iridium NEXT satellites. The use of Kosmotras to replace one or more of the contemplated SpaceX launches would increase our launch costs.

 

We are required under the terms of the Credit Facility to insure a portion of the launch of our Iridium NEXT satellites, and we expect to self-insure the remaining portion. Launch insurance currently costs approximately 4% to 11% of the insured value of the satellites launched, including launch costs, but costs may vary depending on market conditions and the safety record of the launch vehicle. In addition, we expect any launch insurance policies that we obtain to include specified exclusions, deductibles and material change limitations. Typically, these insurance policies contain exclusions customary in the industry for damage arising from acts of war, lasers and other similar potential risks. If launch insurance rates were to rise substantially, our 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 we 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 does not cover lost revenue.

 

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Our satellites have a limited life and may fail prematurely, which would cause our network to be compromised and materially and adversely affect our business, prospects and profitability.

 

Since we introduced commercial services in 2001, we have experienced ten satellite losses, most recently in January 2014. Nine of our satellites have failed in orbit, which has 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. Also, our satellites have already exceeded their original design lives. While actual useful life typically exceeds original design life, the useful lives of our satellites may be shorter than we expect, and additional satellites may fail or collide with space debris or other satellites in the future. Although to date we have had an in-orbit spare available to replace each lost satellite, we can provide no assurance that our in-orbit spare satellites will be sufficient to replace all future lost satellites, that we will be able to replace them in a timely manner, or that the spare satellite will provide the same level of performance as the lost satellite. As a result, while we expect our current constellation to provide a commercially acceptable level of service through the transition to Iridium NEXT, we cannot guarantee it will be able to do so. 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 our 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 our constellation has aged, some of our satellites have experienced individual component failures affecting their coverage or transmission capacity, and other satellites may experience such failures in the future, which could adversely affect the reliability of their service or result in total failure of the satellite. As a result, fewer than 66 of our current in-orbit satellites are fully functioning at any time. Although we do not incur any direct cash costs related to the failure of a satellite, if a satellite fails, we record an impairment charge in our statement of operations to reduce the remaining net book value of that satellite to zero, and any such impairment charges could significantly depress our net income for the period in which the failure occurs.

 

From time to time, we are advised by our 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 we are no longer able to provide a commercially acceptable level of service, our business and financial results and our reputation would be hurt and our ability to pursue our business plan would be compromised.

 

We may be required in the future to make further changes to our constellation to maintain or improve its performance. Any such changes may require prior Federal Communications Commission, or FCC, approval, and the FCC may subject the approval to other conditions that could be unfavorable to our business. In addition, from time to time we may reposition our satellites within the constellation in order to optimize our service, which could result in degraded service during the repositioning period. Although we have some ability to remedy some types of problems affecting the performance of our satellites remotely from the ground, the physical repair of our satellites in space is not feasible.

 

Our agreements with U.S. government customers, particularly the DoD, which represent a significant portion of our revenue, are subject to termination.

 

The U.S. government, through a dedicated gateway owned and operated by the DoD, has been and continues to be, directly and indirectly, our largest customer, representing 19% of our revenue for the year ended December 31, 2013, and 20% of our total revenue for the quarter ended March 31, 2014. We provide the majority of our services to the U.S. government pursuant to our Gateway Maintenance and Support Services, or GMSS, and EMSS contracts. We entered into new versions of these contracts in September 2013 and October 2013, respectively. The new GMSS contract provides for a one-year base term and up to four additional one-year options exercisable at the election of the U.S. government, and the new EMSS contract provides for a five-year term. The U.S. government may terminate these agreements, in whole or in part, at any time for its convenience. If the U.S. government terminates either of the agreements or decides not to exercise options under the GMSS agreement, we would lose a significant portion of our revenue.

 

We are dependent on intellectual property licensed from third parties to operate our constellation and sell our devices and for the enhancement of our existing products and services.

 

We license critical system technology, including software and systems, to operate and maintain our network as well as technical information for the design, manufacture and sale of our devices. This intellectual property is essential to our ability to continue to operate our constellation and sell our services, handsets and data devices. In addition, we are dependent on third parties to develop enhancements to our current products and services even in circumstances where we own the intellectual property. If any third-party owner of such intellectual property were to terminate any license agreement with us or cease to support and service this technology or perform development on our behalf, 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 be costly to develop and integrate, or could have lower quality or performance standards, which would adversely affect the quality of our products and services. In connection with the design, manufacture and operation of Iridium NEXT and related ground infrastructure and the development of new products and services to be offered on Iridium NEXT, we may be required to obtain additional intellectual property rights from third parties. We can offer no assurance that we will be able to obtain such intellectual property rights on commercially reasonable terms or at all. If we are unable to obtain such intellectual property rights on commercially reasonable terms, we may not be able to complete Iridium NEXT and related ground infrastructure on budget or at all or may not be able to develop new products and services to be offered on Iridium NEXT.

 

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Our products could fail to perform or could perform at reduced levels of service because of technological malfunctions or deficiencies or events outside of our control which would seriously harm our business and reputation.

 

Our products and services are subject to the risks inherent in a large-scale, complex telecommunications system employing advanced technology. Any disruption to our satellites, services, information systems or telecommunications infrastructure could result in the inability of our customers to receive our services for an indeterminate period of time. These customers include government agencies conducting mission-critical work throughout the world, as well as consumers and businesses located in remote areas of the world and operating under harsh environmental conditions where traditional telecommunications services may not be readily available. Any disruption to our services or extended periods of reduced levels of service could cause us to lose customers or revenue, result in delays or cancellations of future implementations of our products and services, result in failure to attract customers or result in litigation, customer service or repair work that would involve substantial costs and distract management from operating our business. The failure of any of the diverse elements of our system, including our satellites, our commercial gateway, or our satellite network operations center, to function as required could render our system unable to perform at the quality and capacity levels required for success. Any system failures, repeated product failures or shortened product life or extended reduced levels of service could reduce our sales, increase costs or result in warranty or liability claims or litigation, cause us to extend our warranty period and seriously harm our business.

 

As our product portfolio expands, our failure to manage growth effectively could impede our ability to execute our business plan, and we may experience increased costs or disruption in our operations.

 

We currently face a variety of challenges, including maintaining the infrastructure and systems necessary for us to operate as a public company and managing the growth of our business. As our product portfolio continues to expand, the responsibilities of our management team and other company resources also grow. Consequently, we may further strain our management and other company resources with the increased complexities and administrative burdens associated with a larger, more complex product portfolio. For example, we have in the past experienced quality issues in connection with the introduction of new products and services, and we may experience such issues in the future. Our failure to meet these challenges as a result of insufficient management or other resources could significantly impede our ability to execute our business plan. To properly manage our growth, we may need to hire and retain additional personnel, upgrade our existing operational management and financial and reporting systems, and improve our business processes and controls. Failure to effectively manage the expansion of our product portfolio in a cost-effective manner could result in declines in product and service quality and customer satisfaction, increased costs or disruption of our operations.

 

As we and our distributors expand our offerings to include more consumer-oriented devices, we are more likely to be subject to product liability claims, recalls or litigation, which could adversely affect our business and financial performance.

 

Through our network of distributors, we offer several products and services aimed at individual consumers, and we and our distributors continue to introduce additional products and services. These products and services, such as satellite handsets, personal locator devices and location-based services, may be used in isolated and dangerous locations, including emergency response situations, and users who suffer property damage, personal injury or death while using the product or service may seek to assert claims or bring lawsuits against us. We seek to limit our exposure to such claims through appropriate disclosures, indemnification provisions and disclaimers, but these steps may not be effective. We also maintain product liability insurance, but this insurance may not cover any particular claim or litigation, or the amount of insurance may be inadequate to cover the claims brought against us. Product liability insurance could become more expensive and difficult to maintain and might not be available on acceptable terms or at all. In addition, it is possible that our products would become the subject of a product recall as a result of a product defect. We do not maintain recall insurance, so any recall could have a significant effect on our financial results. In addition to the direct expenses of product liability claims, recalls and litigation, a claim, recall or litigation might cause us adverse publicity, which could harm our reputation and compromise our ability to sell our products in the future.

 

The collection, storage, transmission, use and disclosure of user data and personal information could give rise to liabilities or additional costs as a result of laws, governmental regulations and evolving views of personal privacy rights.

 

We transmit, and in some cases store, end user data, including personal information. In jurisdictions around the world, the transmission and storage of personal information is becoming increasingly subject to legislation and regulations intended to protect consumers’ privacy and security. The interpretation of privacy and data protection laws and regulations regarding the collection, storage, transmission, use and disclosure of such information in some jurisdictions is unclear and evolving. These laws may be interpreted and applied in conflicting ways from country to country and in a manner that is not consistent with our current data protection practices. Complying with these varying international requirements could cause us to incur additional costs and change our business practices. Because our services are accessible in many foreign jurisdictions, some of these jurisdictions may claim that we are required to comply with their laws, even where we have no local entity, employees or infrastructure. We could be forced to incur significant expenses if we were required to modify our products, our services or our existing security and privacy procedures in order to comply with new or expanded regulations.

 

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In addition, if end users allege that their personal information is not collected, stored, transmitted, used or disclosed appropriately or in accordance with our privacy policies or applicable laws, we could have liability to them, including claims and litigation resulting from such allegations. Any failure on our part to protect end users’ privacy and data could result in a loss of user confidence, hurt our reputation and ultimately result in the loss of users.

 

Our satellites may collide with space debris or another spacecraft, which could adversely affect the performance of our constellation.

 

In February 2009, we lost an operational satellite as a result of a collision with a non-operational Russian satellite. Although we have some ability to actively maneuver our satellites to avoid potential collisions with space debris or other spacecraft, this ability is limited by, among other factors, uncertainties and inaccuracies in the projected orbit location of and predicted conjunctions with debris objects tracked and cataloged by the U.S. government. Additionally, some space debris is too small to be tracked and therefore its orbital location is completely unknown; nevertheless, this debris is still large enough to potentially cause severe damage or a failure of our satellites should a collision occur. If our constellation experiences additional satellite collisions with space debris or other spacecraft, our service could be impaired.

 

The space debris created by the February 2009 satellite collision may cause damage to other spacecraft positioned in a similar orbital altitude.

 

The 2009 collision of one of our satellites with a non-operational Russian satellite created a space debris field concentrated in the orbital altitude where the collision occurred, and thus increased the risk of space debris damaging or interfering with the operation of our satellites, which travel in this orbital altitude, as well as satellites owned by third parties, such as U.S. or foreign governments or agencies and other satellite operators. Although there are tools used by us and providers of tracking services, such as the U.S. Joint Space Operations Center, to detect, track and identify space debris, we or third parties may not be able to maneuver the satellites away from such debris in a timely manner. Any such collision could potentially expose us to significant losses and liability if we were found to be at fault.

 

If we experience operational disruptions with respect to our commercial gateway or operations center, we may not be able to provide service to our customers.

 

Our commercial satellite network traffic is supported by a primary ground station gateway in Tempe, Arizona, and we operate our satellite constellation from our satellite network operations center in Leesburg, Virginia. Currently, we do not have a backup facility for our gateway, and we would not be able to immediately implement our backup to the Virginia operations center if that facility 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 could be unfavorable to our business. Our gateway and operations center may also experience service shutdowns or periods of reduced service in the future as a result of equipment failure, delays in deliveries or regulatory issues. Any such failure would impede our ability to provide service to our customers.

 

We do not maintain in-orbit insurance covering our losses from satellite failures or other operational problems affecting our constellation.

 

We do not maintain in-orbit insurance covering losses that might arise as a result of a satellite failure or other operational problems affecting our constellation. The terms of the Credit Facility, however, require us to obtain and maintain such insurance for the Iridium NEXT satellites for a period of 12 months after launch. We may not be able to obtain such insurance on acceptable terms, or at all. If we are not able to obtain in-orbit insurance on the terms required by the Credit Facility, we would be required to obtain a waiver under the Credit Facility of the requirement to maintain this insurance, but our lenders may be unwilling to grant such waiver, which would trigger an event of default under the Credit Facility and would likely accelerate repayment of all outstanding borrowings. Even if we obtain in-orbit insurance in the future, the coverage may not be sufficient to compensate us for satellite failures and other operational problems affecting our satellites, as it may either contain large deductible amounts or provide reimbursement only after a specified number of satellite failures. As a result, a failure of one or more of our satellites or the occurrence of equipment failures and other related problems could constitute an uninsured loss and could harm our financial condition.

 

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We may be negatively affected by current global economic conditions.

 

Our 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 or budgetary constraints. Reduced demand would cause a decline in our revenue and make it more difficult for us to operate profitably, potentially compromising our ability to pursue our business plan. While we expect the number of our subscribers and revenue to continue to grow, we expect the future growth rate will be slower than our historical growth and may not continue in every quarter of every year. We expect our future growth rate will be affected by the sluggish global economy, increased competition, maturation of the satellite communications industry and the difficulty in sustaining high growth rates as we increase in size. Any substantial appreciation of the U.S. dollar may also negatively affect our growth by increasing the cost of our products and services in foreign countries.

 

If we fail to maintain proper and effective internal controls, our ability to produce accurate financial statements on a timely basis could be impaired.

 

We are subject to the reporting requirements of the Securities Exchange Act of 1934, the Sarbanes-Oxley Act of 2002, the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 and the rules and regulations of the SEC and The Nasdaq Global Select Market. The Sarbanes-Oxley Act requires, among other things, that we maintain effective disclosure controls and procedures and internal controls over financial reporting. We perform system and process evaluation and testing of our internal controls over financial reporting to allow management to report on the effectiveness of our internal controls over financial reporting in our Annual Reports on Form 10-K, as required by Section 404 of the Sarbanes-Oxley Act. If we are not able to comply with the requirements of Section 404 of the Sarbanes-Oxley Act in a timely manner, or if we are unable to maintain proper and effective internal controls, we may not be able to produce timely and accurate financial statements, and we may conclude that our internal controls over financial reporting are not effective. If that were to happen, the market price of our stock could decline and we could be subject to sanctions or investigations by The Nasdaq Global Select Market, the SEC or other regulatory authorities.

 

Maintaining effective internal controls over financial reporting is necessary for us to produce reliable financial statements. In connection with the preparation of our quarterly report for the three months ended September 30, 2012, management discovered an error caused by a previously existing material weakness in internal controls over financial reporting relating to accounting for income taxes. This material weakness led to the need for the restatement of our financial statements for the years ended December 31, 2009, 2010 and 2011 and for the quarters ended December 31, 2009 through December 31, 2011. If we fail to maintain effective controls over financial reporting in the future, it could result in a material misstatement of our financial statements that would not be prevented or detected on a timely basis and which could cause investors and other users to lose confidence in our financial statements.

 

We could lose market share and revenue 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 communications services.

 

We face intense competition in all of our markets, which could result in a loss of customers and lower revenue and make it more difficult for us to enter new markets. We compete primarily on the basis of coverage, quality, portability and pricing of services and products.

 

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 some operators under financial pressure to expand their respective market share. In addition, we may face competition from new competitors, new technologies or new equipment. For example, we may face competition for our land-based services in the United States from incipient ancillary terrestrial component, or ATC, service providers who are currently raising capital and designing a satellite operating business and a terrestrial component around their spectrum holdings. In addition, some of our competitors have announced plans for the launch of additional satellites. As a result of competition, we may not be able to successfully retain our existing customers and attract new customers.

 

In addition to our satellite-based competitors, terrestrial voice and data service providers, both wireline and wireless, could further expand into rural and remote areas and provide the same general types of services and products that we provide through our satellite-based system. Although satellite communications services and terrestrial communications services are not perfect substitutes, the two compete in some markets and for some services. Consumers generally perceive terrestrial wireless voice communication products and services as cheaper and more convenient than those that are satellite-based. Many of our terrestrial competitors have greater resources, wider name recognition and newer technologies than we do. In addition, industry consolidation could hurt us by increasing the scale or scope of our competitors, thereby making it more difficult for us to compete.

 

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Some of the hardware and software we use in operating our gateway was designed and manufactured over ten years ago, and portions are becoming more difficult and expensive to service, upgrade or replace.

 

Some of the hardware and software we use in operating our 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 we maintain inventories of some spare parts, it nonetheless may be difficult or impossible to obtain all necessary replacement parts for the hardware. Our business plan contemplates updating or replacing some of the hardware and software in our network, but the age of our existing hardware and software may present us with technical and operational challenges that complicate or otherwise make it infeasible to carry out our planned upgrades and replacements, and the expenditure of resources, both from a monetary and human capital perspective, may exceed our estimates. If we are not able to suitably upgrade and replace our equipment, obsolescence of the technologies that we use could hurt our ability to provide our services and therefore to generate revenue.

 

Rapid and significant technological changes in the satellite communications industry may impair our competitive position and require us to make significant additional capital expenditures.

 

The satellite communications industry is subject to rapid advances and innovations in technology. We may face competition in the future from companies using new technologies and new satellite systems. New technology could render our 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 us include the deployment by our competitors of new satellites with greater power, flexibility, efficiency or capabilities than our current constellation or Iridium NEXT, as well as continuing improvements in terrestrial wireless technologies. For us to keep up with technological changes and remain competitive, we may need to make significant capital expenditures, including capital to design and launch new products and services on Iridium NEXT, which are not included in our current cost estimates. Customer acceptance of the products and services that we offer will continually be affected by technology-based differences in our product and service offerings compared to those of our competitors. New technologies may also be protected by patents or other intellectual property laws and therefore may not be available to us. Any failure on our part to implement new technology within our system may compromise our ability to compete.

 

Use by our competitors of L-band spectrum for terrestrial services could interfere with our services.

 

In February 2003, the FCC adopted ATC rules that permit satellite service providers to establish terrestrial wireless networks in previously satellite-only bands, subject to certain requirements intended to ensure that terrestrial services remain ancillary to primary satellite operations. In November 2012, Globalstar, Inc. filed a petition for rulemaking, asking the FCC to permit it to provide terrestrial service in L-band spectrum and to eliminate the requirements for primary satellite operations, which we are opposing. 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 in the 1.6 gigahertz band, which we use to provide our services, and such competition may make it difficult for us to obtain or retain the spectrum resources we require for our existing and future services. In addition, the FCC’s decision to permit ATC services was based on assumptions relating to the level of interference that the provision of ATC services would likely cause to other satellite service providers that 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 our satellites and devices, which may adversely affect our services. Outside the United States, other countries have implemented or are considering implementing regulations to facilitate ATC-like services.

 

Our networks and those of our third-party service providers may be vulnerable to security risks.

 

We expect the secure transmission of confidential information over public networks to continue to be a critical element of our ability to compete for business and protect our customers and our reputation. Our network and those of our third-party service providers and our 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 our operations, any of which could harm our reputation, cause demand for our products and services to fall and compromise our ability to pursue our business plans. Recently, there have been reported a number of significant, widespread security breaches that have compromised network integrity for many companies and governmental agencies, in some cases reportedly originating from outside the United States. In addition, there are reportedly private products available in the market today which attempt to unlawfully intercept communications made on our network. We 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, our customer contracts may not adequately protect us against liability to third parties with whom our customers conduct business. Although we have implemented and intend 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 availability, which could harm our business and our reputation.

 

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We are dependent on third parties to market and sell our products and services.

 

We rely on third-party distributors to market and sell our products and services to end users and to determine the prices end users pay. We also depend on our distributors to develop innovative and improved solutions and applications integrating our product and service offerings. As a result of these arrangements, we are dependent on the performance of our distributors to generate most of our revenue. Our distributors operate independently of us, and we have limited control over their operations, which exposes us to significant risks. Distributors may not commit the necessary resources to market and sell our products and services and may also market and sell competitive products and services. In addition, our distributors may not comply with the laws and regulatory requirements in their local jurisdictions, which could limit their ability to market or sell our products and services. If our distributors develop faulty or poorly performing products using our technology or services, we may be subject to claims, and our reputation could be harmed. If current or future distributors do not perform adequately, or if we are unable to locate competent distributors in particular countries and secure their services on favorable terms, we may be unable to increase or maintain our revenue in these markets or enter new markets, we may not realize our expected growth, and our brand image and reputation could be hurt.

 

In addition, we may lose distributors due to competition, consolidation, regulatory developments, business developments affecting our distributors or their customers, or for other reasons. In 2009, one of our largest competitors, Inmarsat, acquired our then largest distributor, Stratos Global Wireless, Inc., or Stratos. Inmarsat does not dedicate the same level of effort to distributing our products and services as did Stratos and may further reduce such efforts in the future. For example, Inmarsat has essentially stopped promoting sales of our handsets. In addition, in January 2014, Inmarsat acquired Globe Wireless, one of our service providers, and we can provide no assurance that Inmarsat will dedicate the same level of effort to distributing our products and services as Globe Wireless did. Any future consolidation of our distributors would further increase our reliance on a few key distributors of our services and the amount of volume discounts that we may have to give such distributors. Our two largest distributors, Airbus Defense and Space and Inmarsat, each represented 8% of our revenue for the year ended December 31, 2013 and our ten largest distributors represented, in the aggregate, 43% of our revenue for the year ended December 31, 2013. The loss of any of these distributors, or a decrease in the level of effort expended by any of them to promote our products and services, could reduce the distribution of our products and services as well as the development of new products and applications.

 

We rely on a limited number of key vendors for supply of equipment and services.

 

We rely on two single-source contracts for the manufacture of our current devices, including our mobile handsets, L-Band transceivers and short-burst data devices. Either of these manufacturers may choose to terminate its business relationship with us when its current contractual obligations are completed, or at such earlier time as contemplated by our current agreement. If a manufacturer terminates its relationship with us, we may not be able to find a replacement supplier in a timely manner, at an acceptable price, or at all. We are highly dependent on these manufacturers’ performance as the sole suppliers of our devices. We also utilize sole source suppliers for some of the component parts of our devices.

 

These manufacturers and suppliers may become capacity-constrained as a result of a surge in demand, a natural disaster or other event, resulting in a shortage or interruption in supplies or an inability to meet increased demand. Although we might be able to replace sole source suppliers, there could be a substantial period of time in which our products would not be available; any new relationship may involve higher costs and delays in development and delivery, and we might encounter technical challenges in successfully replicating the manufacturing processes. If our manufacturers or suppliers terminate their relationships with us, fail to provide equipment or services to us on a timely basis or fail to meet our performance expectations, we might be unable to provide products or services to our customers in a competitive manner, which could in turn negatively affect our financial results and our reputation.

 

In addition, we depend on Boeing to provide operations and maintenance services with respect to our satellite network, including engineering, systems analysis, integration and testing of new equipment and operations and maintenance services, from our technical support center in Chandler, Arizona and our satellite network operations center in Leesburg, Virginia. Technological competence is critical to our business and depends, to a significant degree, on the work of technically skilled personnel, such as our Boeing contractors. If Boeing’s performance falls below expected levels or if Boeing has difficulties retaining the personnel servicing our network, the operations of our satellite network could be compromised. In addition, if Boeing terminates its agreement with us, we may not be able to find a replacement provider on favorable terms or at all, which could impair the operations and performance of our network. Replacing Boeing as the operator of our satellite system could also trigger de-orbit rights held by the U.S. government, which, if exercised, would eliminate our ability to offer satellite communications services altogether.

 

We have been and may in the future become subject to claims that our products violate the patent or intellectual property rights of others, which could be costly and disruptive to us.

 

We operate in an industry that is susceptible to significant intellectual property litigation. As a result, we or our products may become subject to intellectual property infringement claims or litigation. The defense of intellectual property suits is both costly and time-consuming, even if ultimately successful, and may divert management’s attention from other business concerns. An adverse determination in litigation to which we may become a party could, among other things:

 

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subject us 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 us to cease using technology that is important to our business; or

 

prohibit us from selling some or all of our products or offering some or all of our services.

 

Conducting and expanding our operations outside the United States creates numerous risks, which may harm our operations and compromise our ability to expand our international operations.

 

We have significant operations outside the United States. According to our estimates, commercial data traffic originating outside the United States, excluding our broadband data service, or Iridium OpenPort ® , traffic, accounted for 67% of total commercial data traffic for the year ended December 31, 2013 and 77% of total commercial data traffic for the quarter ended March 31, 2014, while commercial voice traffic originating outside the United States, excluding Iridium OpenPort traffic, accounted for 90% of total commercial voice traffic for the year ended December 31, 2013 and 92% of total commercial voice traffic for the quarter ended March 31, 2014. We cannot provide the precise geographical distribution of revenue from end users because we do not contract directly with them. Instead, we determine the country in which we earn our revenue based on where we invoice our distributors. These distributors sell services directly or indirectly to end users, who may be located or use our products and services elsewhere. We and our distributors are also seeking authorization to sell our services in additional countries.

 

Conducting operations outside the United States involves numerous risks and, while expanding our international operations would advance our growth, it would also increase our exposure to these risks. For example, in 2013 we commenced the provision of satellite communications services in Russia through a local subsidiary and its authorized Russian service providers and secured a site and commenced construction on dedicated earth station facilities in Russia. The United States has recently imposed economic sanctions on Russia and might impose additional sanctions in the future. If such sanctions, or any Russian response to such sanctions, affects our operations in Russia, it could limit our growth in Russia or prevent us from continuing to operate there at all, which would reduce our revenues.

 

Other such risks include:

 

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 our products and services;

 

lack of recognition of our products and services;

 

unavailability of or difficulties in establishing relationships with distributors;

 

significant investments, including the development and deployment of dedicated gateways, as some 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 in other jurisdictions;

 

difficulties in obtaining required regulatory authorizations;

 

difficulties in enforcing legal rights in other jurisdictions;

 

local domestic ownership requirements;

 

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requirements that operational activities be performed in-country;

 

changing and conflicting national and local regulatory requirements; and

 

foreign currency exchange rates and exchange controls.

 

These risks could affect our ability to successfully compete and expand internationally.

 

Government organizations, foreign military and intelligence agencies, natural disaster aid associations and event-driven response agencies use our commercial voice and data satellite communications services. Accordingly, we may experience reductions in usage due to changing global circumstances, including as a result of changes in the nature of the conflicts in Afghanistan and Iraq, or continued reductions in U.S. and foreign personnel in those countries.

 

The prices for our products and services are typically denominated in U.S. dollars. Any appreciation of the U.S. dollar against other currencies will increase the cost of our products and services to our international customers and, as a result, may reduce the competitiveness of our international offerings and make it more difficult for us to grow internationally.

 

We are currently unable to offer service in important regions of the world due to regulatory requirements, which limits our growth.

 

Our ability to provide service in some regions is limited by local regulations. Some countries have specific regulatory requirements such as local domestic ownership requirements or requirements for physical gateways within their jurisdiction to connect traffic coming to and from their territory. While we have had discussions with parties in these countries to satisfy these regulatory requirements, we may not be able to 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 our ability to expand our product and service offerings in such areas and undermine our value for potential users who require service in these areas. Also, other countries where we already provide service may impose similar requirements, which could restrict our ability to continue to provide service in those countries. The inability to offer to sell our products and services in all major international markets could impair our international growth. In addition, the construction of such gateways in foreign countries may trigger and require us to comply with various U.S. regulatory requirements that could conflict with or contravene the laws or regulations of the local jurisdiction. Any of these developments could limit, delay or otherwise interfere with our ability to construct gateways or other infrastructure or network solutions around the world.

 

The U.S. government, Motorola Solutions and Boeing may unilaterally require us to de-orbit our current constellation upon the occurrence of specified events.

 

When Iridium Satellite purchased the assets of Iridium LLC, a non-affiliated debtor in possession, out of bankruptcy, Boeing, Motorola and the U.S. government required specified de-orbit rights as a way to control potential liability exposure arising from future operation of the constellation. As a result, Iridium Satellite, Boeing, Motorola and the U.S. government entered into an agreement giving the U.S. government the right, in its sole discretion, to require us to de-orbit our constellation upon the occurrence of specified events, including if more than four of our satellites have insufficient fuel to execute a 12-month de-orbit, which is currently the case. In addition, the U.S. government has the right to require us to de-orbit any of our 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. All of our functioning satellites have been in orbit for more than seven years.

 

Motorola Solutions, as successor to Motorola, and Boeing each also have the right to require us to de-orbit our constellation pursuant to our agreements with them upon the occurrence of specified events.

 

We cannot guarantee that the U.S. government, Motorola Solutions or Boeing will not unilaterally exercise their de-orbiting rights upon the occurrence of any of the specified events. If we were required to de-orbit our constellation, we would be unable to continue to provide mobile satellite communications services.

 

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We may be unable to obtain and maintain contractually required liability insurance, and the insurance we obtain may not cover all liabilities to which we may become subject.

 

Under our agreement with Motorola, we are 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 we and other specified parties may become liable to pay for bodily injury and 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 our satellite constellation. Our current policy has a one-year term, which expires on December 8, 2014, and excludes coverage for all third-party damages relating to the 2009 collision of our satellite with a non-operational Russian satellite. The price, terms and availability of insurance have fluctuated significantly since we 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 our 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. For example, our current de-orbit insurance covers only twelve months from attachment and therefore would not cover losses arising outside that timeframe. Our failure to renew our current in-orbit liability insurance policy or obtain a replacement policy would trigger de-orbit rights held by the U.S. government and Boeing described in the immediately preceding risk factor, which, if exercised, would eliminate our ability to provide mobile satellite communications services. In addition, even if we continue to maintain an in-orbit liability insurance policy, the coverage may not protect us against all third-party losses, which could be material.

 

Our current in-orbit liability insurance policy contains, and we expect any future policies would likewise contain, specified exclusions and material change limitations customary in the industry. These exclusions may relate to, among other things, losses resulting from in-orbit collisions such as the one we experienced in 2009, 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 our in-orbit liability insurance policy, we are required to purchase product liability insurance to cover the potential liability of Motorola Solutions, as the manufacturer of the satellites in our current constellation. We may not in the future be able to renew this product liability coverage on reasonable terms and conditions, or at all. Our failure to maintain this insurance could increase our exposure to third-party damages that may be caused by any of our satellites. If we are unable to obtain such insurance on commercially reasonable terms and the U.S. government has not agreed to cover the amounts that would have otherwise been paid by such insurance, Motorola Solutions could invoke its de-orbit rights which, if exercised, would eliminate our ability to provide mobile satellite communications services.

 

Wireless devices’ radio frequency emissions are the subject of regulation and litigation concerning their environmental effects, which includes alleged health and safety risks. As a result, we may be subject to new regulations, demand for our services may decrease, and we 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 antennas. Lawsuits have been filed against participants in the wireless industry alleging a number of adverse health consequences, including cancer, as a result of wireless phone usage. Other claims allege consumer harm from failures to disclose information about radio frequency emissions or aspects of the regulatory regimes governing those emissions. Although we have not been party to any such lawsuits, we may be exposed to such litigation in the future. While we comply with applicable standards for radio frequency emissions and power and do not believe that there is valid scientific evidence that use of our phones poses a health risk, courts or governmental agencies could determine otherwise. Any such finding could reduce our revenue and profitability and expose us 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. Any actual or perceived risk from radio frequency emissions could reduce the number of our subscribers and demand for our products and services.

 

Our business is subject to extensive government regulation, which mandates how we may operate our business and may increase our cost of providing services and slow our expansion into new markets.

 

Our ownership and operation of a satellite communications system and the sale of products that operate on that system are subject to significant regulation in the United States, including by the FCC, the U.S. Department of Commerce, or the Commerce Department, and others, and in foreign jurisdictions by similar local authorities. The rules and regulations of these U.S. and foreign authorities may change, and such authorities may adopt regulations that limit or restrict our operations as presently conducted or currently contemplated. Such authorities may also make changes in the licenses of our competitors that affect our spectrum. Such changes may significantly affect our business. Further, because regulations in each country are different, we may not be aware if some of our distribution partners or persons with whom we or they do business do not hold the requisite licenses and approvals. Our failure to provide services in accordance with the terms of our licenses or our failure to operate our satellites or ground stations as required by our licenses and applicable laws and government regulations could result in the imposition of government sanctions on us, including the suspension or cancellation of our licenses. Our failure or delay in obtaining the approvals required to operate in other countries would limit or delay our ability to expand our operations into those countries. Our failure to obtain industry-standard certifications for our products could compromise our ability to generate revenue and conduct our business in other countries. Any imposition of sanctions, loss of license or failure to obtain the authorizations necessary to use our assigned radio frequency spectrum and to distribute our products in the United States or foreign jurisdictions could cause us to lose sales, hurt our reputation and impair our ability to pursue our business plan.

 

34
 

 

In addition, one of our 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. A change in the manner in which we provide service, or a failure to comply with common carrier regulations or pay required fees, could result in sanctions including fines, loss of authorizations, or the denial of applications for new authorizations or the renewal of existing authorizations.

 

Security and emergency services regulations in the U.S. and other countries may affect our ability to operate our system and to expand into new markets.

 

Our operations are subject to regulations of the U.S. State Department’s Office of Defense Trade Controls relating to the export of satellites and related technical data, the U.S. Treasury Department’s Office of Foreign Assets Control relating to transactions involving entities sanctioned by the United States, and the Commerce Department’s Bureau of Industry and Security relating to our subscriber equipment. We are also required to provide U.S. and some foreign government law enforcement and security agencies with call interception services and related government assistance, in respect of which we face legal obligations and restrictions in various jurisdictions. Given our global operations and unique network architecture, these requirements and restrictions are not always easy to harmonize. In addition, some countries require providers of telecommunications services to connect specified emergency numbers to local emergency services. We have discussed and continue to discuss with authorities in various countries the procedures used to satisfy our obligations, and have had to, and may in the future need to, obtain amendments or waivers to licenses or obligations in various countries. Countries are not obligated to grant requested amendments or waivers, and there can be no assurance that relevant authorities will not suspend or revoke our licenses or take other legal actions to attempt to enforce the requirements of their respective jurisdictions.

 

These U.S. and foreign obligations and regulations may limit or delay our ability to offer products and services in a particular country. As new laws and regulations are issued, we may be required to modify our business plans or operations. In addition, changing and conflicting national and local regulatory requirements may cause us to be in compliance with local requirements in one country, while not being in compliance with the laws and regulations of another. If we fail to comply with regulations in the United States or any other country, we could be subject to sanctions that could make it difficult or impossible for us to operate in the United States or such other country.

 

If the FCC revokes, modifies or fails to renew or amend our licenses, our ability to operate will be harmed or eliminated.

 

We hold FCC licenses, specifically a license for our current satellite constellation, licenses for our U.S. gateway and other ground facilities and blanket earth station licenses for U.S. government customers and commercial subscribers, that are subject to revocation if we fail to satisfy specified conditions or to meet prescribed milestones. The FCC licenses are also subject to modification by the FCC. We have pending requests for renewal of our satellite constellation authorization and for replacement satellites. Our U.S. gateway earth station and the U.S. government customer and commercial subscriber earth station licenses expire between September 2018 and the year 2026. There can be no assurance that the FCC will renew the FCC licenses we hold. If the FCC revokes, modifies or fails to renew or amend the FCC licenses we hold, or if we fail to satisfy any of the conditions of our respective FCC licenses, we may not be able to continue to provide mobile satellite communications services.

 

Pursuing strategic transactions may cause us to incur additional risks.

 

We may pursue acquisitions, joint ventures or other strategic transactions from time to time. We may face costs and risks arising from any such transactions, including integrating a new business into our business or managing a joint venture. These risks may include adverse legal, organizational and financial consequences, loss of key customers and distributors and diversion of management’s time.

 

In addition, any major business combination or similar strategic transaction would require approval under the Credit Facility and may require significant external financing. Depending on market conditions, investor perceptions of our company and other factors, we might not be able to obtain approvals under the Credit Facility or financing 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.

 

35
 

 

Spectrum values historically have been volatile, which could cause the value of our business to fluctuate.

 

Our business plan is evolving, and it may in the future include forming strategic partnerships to maximize value for our spectrum, network assets and combined service offerings in the United States and internationally. Values that we may be able to realize from such partnerships will depend in part on the value placed on our spectrum authorizations. Valuations of spectrum in other frequency bands historically have been volatile, and we cannot predict at what amount a future partner may be willing to value our 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 of existing satellite or terrestrial spectrum allocations, for example by means of spectrum leasing or new spectrum sales, the availability of such additional spectrum could reduce the value of our spectrum authorizations and, as a result, the value of our business.

 

Our ability to operate our company effectively could be impaired if we lose members of our senior management team or key technical personnel.

 

We depend on the continued service of key managerial and technical personnel and personnel with security clearances, as well as our ability to continue to attract and retain highly qualified personnel. We compete for such personnel with other companies, government entities, academic institutions and other organizations. The unexpected loss or interruption of the services of such personnel could compromise our ability to effectively manage our operations, execute our business plan and meet our strategic objectives.

 

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 of Aireon to successfully develop and market its service;

 

failure to comply with the terms of the Credit Facility;

 

failure to maintain our ability to make draws under the Credit Facility;

 

actual or anticipated variations in our operating results, including termination or expiration of one or more of our key contracts, or a change in sales levels under one or more of our key contracts;

 

sales of a large number of shares of our common stock or the perception that such sales may occur;

 

dilutive effect of outstanding stock options;

 

changes in financial estimates by industry analysts, or our failure 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;

 

low trading volume; 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 our stock, the market for other 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.

 

36
 

 

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 and, because we currently intend to retain all cash we generate to fund the growth of our business and the Credit Facility restricts the payment of dividends, we do not expect to pay dividends on our common stock in the foreseeable future.

 

Our common stock ranks junior to the series A preferred stock with respect to dividends and amounts payable in the event of our liquidation.

 

Our common stock ranks junior to the series A preferred stock with respect to the payment of dividends and amounts payable in the event of our liquidation, dissolution or winding-up. This means that, unless accumulated dividends have been paid or set aside for payment on all outstanding shares of series A preferred stock for all past completed dividend periods, no dividends may be declared or paid on our common stock. Likewise, in the event of our voluntary or involuntary liquidation, dissolution or winding-up, no distribution of our assets may be made to holders of our common stock until we have paid to holders of the series A preferred stock the applicable liquidation preference plus accrued and unpaid dividends.

 

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.

 

None.

 

ITEM 3. DEFAULTS UPON SENIOR SECURITIES.

 

None.

 

ITEM 4. MINE SAFETY DISCLOSURES.

 

Not applicable.

 

ITEM 5. OTHER INFORMATION.

 

None.

 

ITEM 6. EXHIBITS.

 

See the exhibit index.

 

37
 

 

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

  IRIDIUM COMMUNICATIONS INC.
     
  By: /s/ Thomas J. Fitzpatrick
    Thomas J. Fitzpatrick
    Chief Financial Officer
    (as duly authorized officer and as principal
    financial officer of the registrant)

Date: May 1, 2014

 

38
 

 

EXHIBIT INDEX

 

Exhibit

 

 

Description

 

10.1†   Second Amended and Restated Limited Liability Company Agreement of Aireon LLC, between Aireon LLC; Iridium Satellite LLC; NAV CANADA; NAV CANADA Satellite, Inc.; Enav S.p.A.; ENAV North Atlantic LLC; Naviair; Naviair Surveillance A/S; and Irish Aviation Authority Limited, dated as of February 14, 2014.
     
10.2   Amendment No. 4 to the Contract for Launch Services No. IS-10-008 between Iridium Satellite LLC and Space Exploration Technologies Corp., dated as of January 27, 2014.
     
10.3††   Iridium Communications Inc. 2014 Executive Performance Bonus Plan.
     
10.4††   Performance Share Program established under the Iridium Communications Inc. 2012 Equity Incentive Plan, incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed with the SEC on March 3, 2014.
     
10.5††   Form of Performance Share Award Grant Notice and Performance Share Award Agreement for use in connection with the Performance Share Program established under the Iridium Communications Inc. 2012 Equity Incentive Plan, incorporated by reference to Exhibit 10.2 to the Registrant’s Current Report on Form 8-K filed with the SEC on March 3, 2014.
     
31.1   Certification of Principal Executive Officer pursuant to Rules 13a-14(a) and 15d-14(a) promulgated under the Securities Exchange Act of 1934, as adopted pursuant to section 302 of The Sarbanes-Oxley Act of 2002.
     
31.2   Certification of Principal Financial Officer pursuant to Rules 13a-14(a) and 15d-14(a) promulgated under the Securities Exchange Act of 1934, as adopted pursuant to section 302 of The Sarbanes-Oxley Act of 2002.
     
32.1*   Certifications of Principal Executive Officer and Principal Financial Officer pursuant to Rules 13a-14(b) and 15d-14(b) promulgated under the Securities Exchange Act of 1934 and 18 U.S.C. Section 1350, as adopted pursuant to section 906 of The Sarbanes-Oxley Act of 2002.
     
101**   The following financial information from the Registrant’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2014, filed with the Securities and Exchange Commission on May 1, 2014, formatted in XBRL (eXtensible Business Reporting Language):
   

(i)     Condensed Consolidated Balance Sheets at March 31, 2014 and December 31, 2013;

   

(ii)    Condensed Consolidated Statements of Operations and Comprehensive Income for the three months ended March 31, 2014 and 2013;

   

(iii)   Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2014 and 2013; and

   

(iv)   Notes to Condensed Consolidated Financial Statements.

 

Confidential treatment has been requested for certain portions omitted from this exhibit pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as amended. Confidential portions of this exhibit have been separately filed with the Securities and Exchange Commission.

 

†† Denotes compensatory plan, contract or arrangement.

 

* These certifications are being furnished solely to accompany this quarterly report pursuant to 18 U.S.C. Section 1350, and are not being filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and are not to be incorporated by reference into any filing of the registrant, whether made before or after the date hereof, regardless of any general incorporation language in such filing.

 

** Furnished electronically herewith. Pursuant to Rule 406T of Regulation S-T, the Interactive Data Files included in Exhibit 101 hereto are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, are deemed not filed for purposes of Section 18 of the Securities and Exchange Act of 1934, as amended, and otherwise are not subject to liability under those sections.

 

39

 

Exhibit 10.1  

 

 

Execution Version

___________________________________________

 

Aireon LLC

A Delaware Limited Liability Company

___________________________________________

 

SECOND AMENDED AND RESTATED LIMITED LIABILITY COMPANY AGREEMENT

 

Dated as of February 14, 2014

 

THE SECURITIES DESCRIBED IN THIS SECOND AMENDED AND RESTATED LIMITED LIABILITY COMPANY AGREEMENT HAVE NOT BEEN REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED, NOR REGISTERED OR QUALIFIED UNDER ANY OTHER APPLICABLE SECURITIES LAWS.  SUCH SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, DELIVERED AFTER SALE, TRANSFERRED, ASSIGNED, PLEDGED, HYPOTHICATED OR OTHERWISE DISPOSED OF AT ANY TIME UNLESS REGISTERED AND QUALIFIED UNDER APPLICABLE FEDERAL AND STATE SECURITIES LAWS OR UNLESS, IN THE OPINION OF COUNSEL SATISFACTORY TO THE COMPANY, SUCH REGISTRATION AND QUALIFICATION IS NOT REQUIRED.  ANY TRANSFER OF THE SECURITIES DESCRIBED IN THIS AGREEMENT IS FURTHER SUBJECT TO OTHER RESTRICTIONS, THE TERMS AND CONDITIONS OF WHICH ARE SET FORTH IN THIS AGREEMENT.

 

NO ACTION HAS BEEN OR WILL BE TAKEN IN ANY JURISDICTION OUTSIDE THE UNITED STATES OF AMERICA THAT WOULD PERMIT AN OFFERING OF THE INTERESTS, OR POSSESSION OR DISTRIBUTION OF OFFERING MATERIALS IN CONNECTION WITH THE ISSUANCE OF THESE INTERESTS, IN ANY COUNTRY OR JURISDICTION WHERE ACTION FOR THAT PURPOSE IS REQUIRED. IT IS THE RESPONSIBILITY OF ANY PERSON WISHING TO PURCHASE ANY OF THESE INTERESTS TO SATISFY HIMSELF, HERSELF OR ITSELF AS TO FULL OBSERVANCE OF THE LAWS OR REGULATIONS OF ANY RELEVANT TERRITORY OUTSIDE THE UNITED STATES OF AMERICA IN CONNECTION WITH ANY SUCH PURCHASE, INCLUDING OBTAINING ANY REQUIRED GOVERNMENTAL OR OTHER CONSENTS OR OBSERVING ANY OTHER APPLICABLE FORMALITIES.

 

*** Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

 

 

 

Interests in THE COMPANY are being offered to a limited number of institutional and sophisticated investors. Pursuant to section 11 of the Prospectus Order (Ministerial Order No. 1232 of October 22, 2007 on the prospectus requirements for offerings of a value above €2,500,000) issued in accordance with section 23(8) of the Danish Securities Trading Act (Consolidated Act No. 214 of April 2, 2008) the following types of offerings are exempted from prospectus registration requirements:

 

(a) offerings to accredited investors;

 

(b) offerings to non-accredited investors if the offer is directed at fewer than 100 private or legal persons in Denmark;

 

(c) offerings for which the value of each interest exceeds €50,000; or

 

(d) offerings where participation is conditional upon payment of more than €50,000 per investor.

 

This SECOND AMENDED AND RESTATED LIMITED LIABILITY COMPANY AGREEMENT may only be distributed to, and the offering may only be subscribed by, investors that satisfy one or more of the conditions set out above from (a) to (d). Accordingly, this SECOND AMENDED AND RESTATED LIMITED LIABILITY COMPANY AGREEMENT has not been and will not be registered with the Danish Financial Supervisory Authority or the Danish Commerce and Companies Agency under the relevant Danish acts and regulations on the offering in Denmark of Fund interests.

This DOCUMENT and the information contained herein is confidential and has been prepared and is intended for use on a confidential basis solely by those persons in Ireland to whom it is sent by. It may not be reproduced, redistributed or passed on to any other persons or published in whole or in any part for any purpose. It does not constitute an invitation to the public in Ireland or any section thereof to subscribe for or purchase any shares or other securities in any company and accordingly is not a prospectus within the meaning of the Prospectus Directive Regulations.

 

*** Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

 

- ii -
 

 

The Offer is being extended to a small number of persons resident in the Republic of Ireland by way of a private placement. Neither this document nor the Offer constitute an invitation to the public in Ireland or any section thereof to subscribe for or purchase INTERESTS and accordingly is not a prospectus within the meaning of the Prospectus Directive Regulations.

 

AIREON LLC IS NOT A UCITS FUND. IT HAS NOT BEEN NOR WILL IT BE REGISTERED WITH THE BANK OF ITALY AND THE Commissione Nazionale per le Società e la Borsa (CONSOB). ITALIAN AUTHORITIES FOR REGISTRATION. THE INTERESTS ARE OFFERED UPON THE EXPRESS REQUEST OF THE INVESTOR, WHO HAS DIRECTLY CONTACTED AIREON LLC OR ITS MEMBERS ON THE INVESTOR’S OWN INITIATIVE. NO ACTIVE MARKETING OF AIREON LLC HAS BEEN NOR WILL IT BE MADE IN ITALY AND THIS SECOND AMENDED AND RESTATED LIMITED LIABILITY COMPANY AGREEMENT HAS BEEN SENT TO THE INVESTOR AT THE INVESTOR’S REQUEST. THE INVESTOR ACKNOWLEDGES THE ABOVE AND HEREBY AGREES NOT TO TRANSFER ANY INTERESTS, NOR TO CIRCULATE THIS SECOND AMENDED AND RESTATED LIMITED LIABILITY COMPANY AGREEMENT TO OTHER ITALIAN INVESTORS UNLESS EXPRESSLY PERMITTED BY APPLICABLE LAW. THIS SECOND AMENDED AND RESTATED LIMITED LIABILITY COMPANY AGREEMENT AND OTHER OFFERING MATERIALS RELATING TO THE OFFER OF INTERESTS ARE STRICTLY CONFIDENTIAL AND MAY NOT BE DISTRIBUTED TO ANY PERSON OR ENTITY OTHER THAN THE RECIPIENTS HEREOF.

 

*** Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

 

- iii -
 

 

Table of Contents

 

    Page
     
Article 1 DEFINITIONS 1
   
Article 2 FORMATION OF LIMITED LIABILITY COMPANY 20
     
2.1 Formation and Tax Classification 20
     
2.2 Company Name 21
     
2.3 Term of Company 21
     
2.4 Purposes 21
     
2.5 Merger 21
     
Article 3 CAPITALIZATION; INTERESTS 21
     
3.1 Capital Contributions 21
     
3.2 Establishment and Determination of Capital Accounts 21
     
3.3 Negative Capital Accounts 21
     
3.4 Company Capital 22
     
3.5 Loans by Members 22
     
3.6 Interests 22
     
Article 4 DISTRIBUTIONS; ALLOCATIONS OF PROFITS AND LOSSES 36
     
4.1 Distributions and Payments 36
     
4.2 Allocation of Profits and Losses 38
     
4.3 Regulatory and Special Allocations 38
     
4.4 Tax Allocations; Code Section 704(c) 38
     
4.5 Tax Payments 39
     
Article 5 MEMBERS 39
     
5.1 Number 39
     
5.2 Members’ Voting Rights 39
     
5.3 Required Vote 39
     
5.4 Conversion Election 39
     
5.5 Effect of Incapacity 41
     
5.6 Representations and Warranties of Members, NAV CANADA and the Additional Investors 42
     
5.7 Investment Opportunities 45

 

*** Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

 

- i -
 

 

Table of Contents

(continued)

 

    Page
     
5.8 Confidentiality 45
     
5.9 Noncompetition 46
     
5.10 Non-Solicitation 46
     
5.11 Meetings 47
     
5.12 Admission of Additional Members 48
     
5.13 Rights to Information 49
     
5.14 Iridium Undertaking; Suspension of Iridium Payments 49
     
Article 6 BOARD OF DIRECTORS 49
     
6.1 Generally 49
     
6.2 Number of Directors 50
     
6.3 Tenure 52
     
6.4 Resignation; Removal 52
     
6.5 Vacancies 52
     
6.6 Meetings 52
     
6.7 Quorum and Transaction of Business 54
     
6.8 Directors Have No Exclusive Duty to Company 54
     
6.9 Exculpation of Directors 54
     
6.10 Creation of Committees 54
     
6.11 Reimbursement of Expenses; D&O Insurance 55
     
6.12 Certain Actions Requiring Prior Approval of Certain Directors 55
     
Article 7 OFFICERS 61
     
7.1 Appointment of Officers 61
     
7.2 Tenure and Duties of Officers 61
     
7.3 Tenure of Officers and Committee Members 62
     
7.4 Approval of Board of Directors 62
     
7.5 Strategic Advisory Committee 63
     
Article 8 LIABILITY; INDEMNIFICATION 63
     
8.1 Limited Liability 63
     
8.2 Indemnification 63

 

*** Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

 

- ii -
 

  

Table of Contents

(continued)

 

    Page
     
Article 9 ACCOUNTING 65
     
9.1 Fiscal Year 65
     
9.2 Books and Accounts 65
     
9.3 Tax Matters Partner 65
     
9.4 Tax Reports 66
     
9.5 Reserves 66
     
9.6 Company Funds 66
     
Article 10 DISSOLUTION; TERMINATION; SALE; CONVERSION 66
     
10.1 Dissolution 66
     
10.2 Merger or Sale of Interests 67
     
10.3 Conversion to Corporate Form 67
     
Article 11 TRANSFER RESTRICTIONS 69
     
11.1 In General 69
     
11.2 Right of First Refusal 70
     
Article 12 OTHER INVESTOR RIGHTS 72
     
12.1 NAV CANADA Protective Provisions 72
     
12.2 Information Rights 73
     
12.3 Drag Along Right 74
     
12.4 Tag-Along Rights 75
     
12.5 Preemptive Right 76
     
12.6 Registration Rights 77
     
12.7 Business Activity Qualifications 77
     
Article 13 MISCELLANEOUS 77
     
13.1 Offset 77
     
13.2 Notices 77
     
13.3 Word Meanings; Construction 78
     
13.4 Binding Provisions 78
     
13.5 Applicable Law 78
     
13.6 Severability of Provisions 78

 

*** Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

 

- iii -
 

  

Table of Contents

(continued)

 

    Page
     
13.7 Section Titles 78
     
13.8 Further Assurance 79
     
13.9 Directly or Indirectly 80
     
13.10 Counterparts 80
     
13.11 Effect of Waiver and Consent 80
     
13.12 Waiver of Certain Rights 80
     
13.13 Notice of Provisions 80
     
13.14 Entire Agreement 80
     
13.15 Amendments 81
     
13.16 Remedies 81

 

*** Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

 

- iv -
 

 

Second Amended and Restated Limited Liability Company Agreement
of
Aireon LLC
(A Delaware Limited Liability Company)

 

This Second Amended and Restated Limited Liability Company Agreement (this “ Agreement ”), of Aireon LLC (the “ Company ”), is dated and effective as of February 14, 2014 (the “ Second A&R Effective Date ”), by and among the Company, the Persons (as defined below) identified as the Members (as defined below) on the Member Register attached hereto as Schedule A and each other Person who becomes a member of the Company in accordance with the terms of this Agreement (collectively, the “ Members ”), NAV CANADA, Enav S.p.A. and Naviair. This Agreement amends and restates the Amended and Restated Limited Liability Company Agreement of the Company dated November 19, 2012 (the “ A&R Effective Date ”) and amended by that certain First Amendment dated as of June 27, 2013 (the “ Restated Agreement ”), which amended and restated that certain Limited Liability Company Agreement of the Company dated December 16, 2011. Upon execution of this Agreement by the parties set forth on the signature pages hereto, this Agreement shall replace the Restated Agreement in its entirety and the Restated Agreement shall be of no further force or effect. Any reference in this Agreement to a Member shall include such Member’s successors and permitted assigns to the extent such successors and permitted assigns have become Additional Members in accordance with the provisions of this Agreement.

 

RECITALS

 

WHEREAS, Iridium Satellite LLC formed the Company as a limited liability company pursuant to the Delaware Limited Liability Company Act (the “ Act ”); and

 

WHEREAS, pursuant to Section 13.15 of the Restated Agreement, the Members of the Company desire to amend and restate the Restated Agreement in its entirety as set forth herein in order to admit the Members set forth on Schedule A , set forth the ownership interests of the Members in the Company, the rights and obligations of the Members and the principles by which the Company will be operated and governed.

 

AGREEMENT

 

NOW, THEREFORE, in consideration of the mutual covenants contained herein and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties agree that the Restated Agreement is hereby amended and restated in its entirety as follows:

 

*** Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

 

 

 

Article 1
DEFINITIONS

 

As used in this Agreement, the following terms have the following meanings:

 

Accounting Firm ” means Ernst & Young or such other internationally recognized independent public accounting firm as shall be agreed upon by the Board of Directors from time to time.

 

Accounting Period means (i) the Company’s Fiscal Year if there are no changes in the Members’ respective interests in Company income, gain, loss or deductions during such Fiscal Year except on the first day thereof or (ii) any other period beginning on the first day of a Fiscal Year, or any other day during a Fiscal Year, upon which occurs a change in such respective interests, and ending on the last day of a Fiscal Year, or on the day preceding an earlier day upon which any change in such respective interest shall occur.

 

Accrued Dividend ” means, (i) with respect to any Preferred Interest issued on the A&R Effective Date, the Second A&R Effective Date or in connection with the Second Additional Investors Tranche Financing, the Third NAV CANADA Tranche Financing, the Third Additional Investors Tranche Financing, the Fourth NAV CANADA Tranche Financing, the Fourth Additional Investors Tranche Financing, the Fifth NAV CANADA Tranche Financing or the exercise of the Contingent B Financing Option (if any), (A) prior to January 1, 2016, zero (0), and (B) on or after January 1, 2016, an amount that would have accrued if the total amount of Unreturned Capital attributable to such Preferred Interest had been accruing daily at the rate of five percent (5%) per annum, from (and including) the date of issuance of such Preferred Interest until (and including) the date on which such Preferred Interest is converted into Common Interest or redeemed with full payment of applicable Redemption Price by the Company, (ii) with respect to any Preferred Interest issued in connection with the Second NAV CANADA Tranche Financing, (A) prior to January 1, 2016, zero (0), and (B) on or after January 1, 2016, an amount that would have accrued if the total amount of Unreturned Capital attributable to such Preferred Interest had been accruing daily at the rate of ten percent (10%) per annum, from (and including) the date of issuance of such Preferred Interest until (and including) the date on which such Preferred Interest is converted into Common Interest or redeemed with full payment of applicable Redemption Price by the Company, and (iii) with respect to any Non-Voting Preferred Interest issued, an amount that would have accrued if the total amount of Unreturned Capital attributable to such Non-Voting Preferred Interest had been accruing daily at the rate to be determined by the Board of Directors and reflected in the applicable Addendum of Designation attached to this Agreement, from (and including) the date of issuance of such Non-Voting Preferred Interest and thereafter.

 

Act ” means the Delaware Limited Liability Company Act, and any successor statute, as amended from time to time.

 

*** Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

 

2
 

 

Addendum of Designation ” means collectively or individually, any one or more addendums to this Agreement setting forth the rights and privileges of the holders of any series of Non-Voting Preferred Interests.

 

Additional Investors ” means collectively or individually, Enav, IAA, and Naviair.

 

Additional Investors Director ” has the meaning given such term in Section 6.2.1.

 

Additional Investors Financing ” means collectively or individually, the First Additional Investors Tranche Financing, the Second Additional Investors Tranche Financing, the Third Additional Investors Tranche Financing, and the Fourth Additional Investors Tranche Financing.

 

Additional Investors Subscription Agreements ” means collectively or individually, the Enav Subscription Agreement, the IAA Subscription Agreement, and the Naviair Subscription Agreement.

 

Additional Investors Subsidiary ” means collectively or individually, Enav US Subsidiary and the Naviair Subsidiary.

 

Additional Member ” means any Person who or which is admitted to the Company as an Additional Member pursuant to Section 5.12 of this Agreement.

 

Adjusted Capital Account ” means, with respect to any Member, the balance, if any, in such Member’s Capital Account as of the end of the relevant Taxable Year, after giving effect to the following adjustments:

 

(i)          Credit to the Capital Account any amount which such Member is obligated to restore pursuant to the terms of this Agreement or is deemed obligated to restore pursuant to Treasury Regulations Sections 1.704-1(b)(2)(ii)( c ), 1.704-2(g)(1) and 1.704-2(i); and

 

(ii)         Debit to such Capital Account the items described in Treasury Regulations Section 1.704-1(b)(2)(ii)( d ) (4) , (5) and (6) .

 

ADS-B Payload ” means the specially designed 1090 MHz Extended Squitter (1090 ES) ADS-B receiver payload to be hosted on the satellites in the Iridium NEXT Constellation.

 

Affiliate ” means, with respect to any Person, (i) any Person directly or indirectly controlling, controlled by or under common control with such Person, or (ii) any officer, director, general partner or trustee of such Person or any Person referred to in the foregoing clause (i). For purposes of this definition, “control,” when used with respect to any Person, means the power to direct the management and policies of such Person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise, and the terms “controlling” and “controlled” have meanings correlative to the foregoing.

 

*** Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

 

3
 

 

Agreement ” means this Second Amended and Restated Limited Liability Company Agreement, as executed and as may be amended, modified, supplemented or restated from time to time in accordance with the terms hereof, as the context requires.

 

Aireon Ground Segment ” has the meaning given such term in the Data Transmission Service Agreement No. [***], dated as of November 19, 2012, by and between Iridium and the Company.

 

Aireon System ” means the Space-based ADS-B data reception and delivery system which uses ADS-B Payloads, the Iridium NEXT Constellation infrastructure and Aireon Ground Segment for delivery of ADS-B data to customers.

 

“[***]” means the [***].

 

Asset Transfer ” has the meaning given such term in Section 6.12.1.3.

 

Available Cash ” means all cash on hand of the Company, less the sum of the following (to the extent paid or set aside by the Board of Directors): (i) all cash expenditures incurred incident to the normal operation of the Company’s business; (ii) such amounts set aside by the Board of Directors and deemed reasonably necessary for the proper operation of the Company’s business, including for working capital and to pay taxes, insurance, capital expenditures (current and future), debt service or other costs or expenses incident to the ownership or operation of the Company’s business; and (iii) financing proceeds, subject to (ii) above.

 

A&R Effective Date ” has the meaning given such term in the first paragraph of this Agreement.

 

Board of Directors ” has the meaning given such term in Section 6.1.

 

Book Value ” means, with respect to any Company asset, the adjusted basis of such asset for federal income tax purposes, except as follows:

 

(i) The initial Book Value of any Company asset contributed by a Member to the Company shall be the gross fair market value of such Company asset as of the date of such contribution;

 

(ii) The Book Value of each Company asset shall be adjusted to equal its respective gross fair market value upon the following events: (A) the acquisition of an additional interest in the Company by any new or existing Member in exchange for more than a de minimis Capital Contribution unless the Board of Directors determines that such adjustment is not necessary to reflect the relative economic interests of the Members in the Company; (B) the distribution by the Company to a Member of more than a de minimis amount of Company assets (other than cash) as consideration for all or parts of its Interests unless the Board of Directors determines that such adjustment is not necessary to reflect the relative economic interests of the Members in the Company; (C) the liquidation of the Company within the meaning of Treasury Regulations Section 1.704-1(b)(2)(ii)(g); and (D) in connection with and at the time of a grant of an interest in the Company (other than a de minimis interest) as consideration for the provision of services to or for the benefit of the Company by an existing Member acting in a Member capacity or by a new Member acting in a Member capacity or in anticipation of becoming a Member;

 

*** Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

 

4
 

 

(iii) The Book Value of a Company asset distributed to any Member shall be the fair market value (taking into account Section 7701(g) of the Code) of such Company asset as of the date of distribution thereof;

 

(iv) The Book Value of each Company asset shall be increased or decreased, as the case may be, to reflect any adjustments to the adjusted basis of such Company asset pursuant to Section 734(b) or Section 743(b) of the Code, but only to the extent that such adjustments are taken into account in determining Capital Account balances pursuant to Treasury Regulations Sections §1.704-1(b)(2)(iv)( m ); provided, that Book Values shall not be adjusted pursuant to this subparagraph (iv) to the extent that an adjustment pursuant to subparagraph (ii) above is made in conjunction with a transaction that would otherwise result in an adjustment pursuant to this subparagraph (iv); and

 

(v) If the Book Value of a Company asset has been determined or adjusted pursuant to subparagraphs (i), (ii), or (iv) above, such Book Value shall thereafter be adjusted to reflect the depreciation taken into account with respect to such Company asset for purposes of computing Net Income and Net Losses.

 

Budget ” means the budget of the Company attached hereto as Exhibit 3, as the same may be amended, approved or adopted by the Board of Directors in accordance with the terms hereof.

 

Business Day ” means any day other than a Saturday, Sunday or public holiday under the laws of the State of Delaware, the province of Ontario, Canada, Dublin, Ireland, Copenhagen, Denmark or Rome, Italy or other day on which banking institutions are authorized or obligated to close in the State of Delaware, the province of Ontario, Canada, Ireland, Denmark or Italy.

 

Capital Account ” has the meaning given such term in Section 3.2.

 

*** Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

 

5
 

 

Capital Contribution ” means the aggregate contributions of cash made and the Book Value of any property contributed by a Member to the Company pursuant to Article 3 as of the date in question, as shown opposite such Member’s name on the Member Register, as the same may be amended from time to time in accordance with the terms hereof.

 

Certificate ” means the Certificate of Formation filed with the Secretary of State of the State of Delaware on December 16, 2011.

 

Code ” means the Internal Revenue Code of 1986 and any successor statute, as amended from time to time.

 

Common Interests ” means Interests designated by the Board of Directors as “Common Interests”, and shall include former Preferred Interests for which a Conversion Election has been made.

 

Company ” has the meaning set forth in the first paragraph of this Agreement.

 

Company Officers ” has the meaning given such term in Section 7.1.

 

Contingent Financing ” has the meaning given such term in Section 3.6.4.

 

Contingent Financing Option A ” has the meaning given such term in Section 3.6.4.

 

Contingent Financing Option B ” has the meaning given such term in Section 3.6.4.

 

Conversion Election ” has the meaning given such term in Section 5.4.1.

 

Damages ” has the meaning given such term in Section 8.2.2.

 

“[***]” means the [***].

 

Director ” means each person designated as a Director of the Company pursuant to Article 6.

 

Dissolution ” has the meaning given such term in Section 10.1.

 

Dollars ” and “ $ ” means dollars in lawful currency of the United States.

 

Drag Along Buyer ” has the meaning given such term in Section 12.3.

 

Drag Along Holders ” has the meaning given such term in Section 12.3.

 

Drag Along Sale ” has the meaning given such term in Section 12.3.

 

Election Date ” has the meaning given such term in Section 5.4.2.

 

*** Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

 

6
 

 

Enav ” means Enav S.p.A.

 

Enav Director ” has the meaning given such term in Section 6.2.1.

 

Enav US Subsidiary ” means ENAV North Atlantic LLC, a Delaware corporation and wholly-owned subsidiary of Enav.

 

Enav Subscription Agreement ” means that certain Subscription Agreement, dated as of December 20, 2013 by and between Enav and the Company as may be amended from time to time in accordance with the terms hereof.

 

Excluded Company ” has the meaning given such term in the Iridium Credit Agreement.

 

FAA ” means the Federal Aviation Administration.

 

Fifth NAV CANADA Tranche Financing ” means the purchase by NAV CANADA through NAV CANADA US Subsidiary of the Fifth NAV CANADA Tranche Financing Interest for the Fifth NAV CANADA Tranche Financing Amount upon the satisfaction of the Fifth NAV CANADA Tranche Financing Conditions pursuant to the terms of this Agreement and the NAV CANADA Subscription Agreement.

 

Fifth NAV CANADA Tranche Financing Amount ” means $15,000,000.

 

Fifth NAV CANADA Tranche Financing Conditions ” means the following:

 

(i) [***];

 

(ii) [***];

 

(iii) [***];

 

(iv) [***]; and

 

(v) [***].

 

Fifth NAV CANADA Tranche Financing Final Tranche Date ” means [***].

 

Fifth NAV CANADA Tranche Financing Interest ” means an amount of Preferred Interests convertible into 2.8% of the Fully Diluted Company Voting Interests.

 

Fifth NAV CANADA Tranche Financing Target Date ” means [***], 2017.

 

Fifth NAV CANADA Tranche Post-Redemption Target Interest ” means 5.1%.

 

*** Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

 

7
 

 

Financing Tranches ” means, collectively or individually, the NAV CANADA Financings and the Additional Investors Financings.

 

First Additional Investors Tranche Financing ” shall occur on the Second A&R Effective Date.

 

First Additional Investors Tranche Post-Redemption Enav Target Interest ” means 5.21%.

 

First Additional Investors Tranche Post-Redemption IAA Target Interest ” means 2.5%.

 

First Additional Investors Tranche Post-Redemption Naviair Target Interest ” means 2.5%.

 

First NAV CANADA Tranche Financing ” means the subscription of Preferred Interest by NAV CANADA pursuant to the NAV CANADA Subscription Agreement on the A&R Effective Date.

 

First NAV CANADA Tranche Post-Redemption Target Interest ” means 5.1%.

 

First ROFR Sale Notice ” has the meaning given such term in Section 11.2.1.1.

 

Fiscal Year ” of the Company means the calendar year.

 

Fourth Additional Investors Tranche Financing ” means the purchase by the Additional Investors directly, with respect to IAA, or through the Additional Investors Subsidiaries of the Fourth Additional Investors Tranche Financing Interest for the Fourth Additional Investors Tranche Financing Amount upon the satisfaction of the Fifth NAV CANADA Tranche Financing Conditions pursuant to the terms of this Agreement and the Additional Investors Subscription Agreements.

 

Fourth Additional Investors Tranche Financing Amount ” means an aggregate amount equal to $12,000,000.

 

Fourth Additional Investors Tranche Financing Interest ” means an aggregate amount of Preferred Interests convertible into 2.82% of the Fully Diluted Company Voting Interests.

 

Fourth Additional Investors Tranche Financing Target Date ” means the date of the closing of the Fifth NAV CANADA Tranche Financing.

 

Fourth Additional Investors Tranche Post-Redemption Enav Target Interest ” means 1.25%.

 

*** Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

 

8
 

 

Fourth Additional Investors Tranche Post-Redemption IAA Target Interest ” means 0.6%.

 

Fourth Additional Investors Tranche Post-Redemption Naviair Target Interest ” means 0.6%.

 

Fourth NAV CANADA Tranche Financing ” means the purchase by NAV CANADA through NAV CANADA US Subsidiary of the Fourth NAV CANADA Tranche Financing Interest for the Fourth NAV CANADA Tranche Financing Amount upon the satisfaction of the Fourth NAV CANADA Tranche Financing Conditions pursuant to the terms of this Agreement and the NAV CANADA Subscription Agreement.

 

Fourth NAV CANADA Tranche Financing Amount ” means $15,000,000.

 

Fourth NAV CANADA Tranche Financing Conditions ” means the following:

 

(i) [***]:

 

(A) [***];

 

(B) [***]; and

 

(C) [***];

 

(ii) [***];

 

(iii) [***]; and

 

(iv) [***].

 

Fourth NAV CANADA Tranche Financing Final Tranche Date ” means [***].

 

Fourth NAV CANADA Tranche Financing Interest ” means an amount of Preferred Interests convertible into 1.66% of the Fully Diluted Company Voting Interests.

 

Fourth NAV CANADA Tranche Financing Target Date ” means [***], 2015.

 

Fourth NAV CANADA Tranche Post-Redemption Target Interest ” means 5.1%.

 

Fully Diluted Company Voting Interests ” means as of any date of determination, the total amount of Voting Interests issued and outstanding on such date assuming the full funding of all five tranches of financing by NAV CANADA US Subsidiary and the issuance of all Preferred Interests to NAV CANADA US Subsidiary in all such tranches and the issuance of all other Preferred Interests or Common Interests as contemplated by the Long-Term Operating Plan, plus, without duplication, the total amount of all other outstanding securities or obligations which are by their terms exercisable, convertible or exchangeable into Voting Interests. For purposes of this determination, all outstanding Preferred Interests shall be deemed to be converted into Common Interests in accordance with the terms hereof.

 

*** Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

 

9
 

 

Funded Enav Post-Redemption Target Percentage ” means the aggregate of (i) the First Additional Investor Financing Tranche Post-Redemption Enav Target Percentage and (ii) to the extent the applicable Financing Tranches are actually funded, the Second Additional Investor Financing Tranche Post-Redemption Enav Target Percentage, the Third Additional Investor Financing Tranche Post-Redemption Enav Target Percentage, and the Fourth Additional Investor Financing Tranche Post-Redemption Enav Target Percentage.

 

Funded IAA Post-Redemption Target Percentage ” means the aggregate of (i) the First Additional Investor Financing Tranche Post-Redemption IAA Target Percentage and (ii) to the extent the applicable Financing Tranches are actually funded, the Second Additional Investor Financing Tranche Post-Redemption IAA Target Percentage, the Third Additional Investor Financing Tranche Post-Redemption IAA Target Percentage, and the Fourth Additional Investor Financing Tranche Post-Redemption IAA Target Percentage.

 

Funded NAV CANADA Post-Redemption Target Percentage ” means the aggregate of (i) the First NAV CANADA Tranche Post-Redemption Target Percentage and the Second NAV CANADA Post-Redemption Target Percentage, and (ii) to the extent the applicable Financing Tranches are actually funded, the Third NAV CANADA Tranche Post-Redemption Target Percentage, the Fourth NAV CANADA Post-Redemption Target Percentage, and the Fifth NAV CANADA Tranche Post-Redemption Target Percentage.

 

Funded Naviair Post-Redemption Target Percentage ” means the aggregate of (i) the First Additional Investor Financing Tranche Post-Redemption Naviair Target Percentage and (ii) to the extent the applicable Financing Tranches are actually funded, the Second Additional Investor Financing Tranche Post-Redemption Naviair Target Percentage, the Third Additional Investor Financing Tranche Post-Redemption Naviair Target Percentage, and the Fourth Additional Investor Financing Tranche Post-Redemption Naviair Target Percentage.

 

Funded Post-Redemption Target Percentages ” means the aggregate of the Funded Enav Post-Redemption Target Percentage, the Funded IAA Post-Redemption Target Percentage, the Funded NAV CANADA Post-Redemption Target Percentage, and the Funded Naviair Post-Redemption Target Percentage.

 

GAAP ” means generally accepted accounting principles, consistently applied, as in effect from time to time in the United States.

 

IAA ” means Irish Aviation Authority Limited.

 

*** Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

 

10
 

 

IAA/Naviair Director ” has the meaning given such term in Section 6.2.1.

 

IAA Subscription Agreement ” means that certain Subscription Agreement, dated as of December 20, 2013, by and between IAA and the Company as may be amended from time to time in accordance with the terms hereof.

 

“[***]” means the [***].

 

Incapacity ” or “ Incapacitated ” has the meaning given such term in Section 5.5.

 

Indemnitee ” has the meaning given such term in Section 8.2.2.

 

Information Rights Holders ” has the meaning given such term in Section 12.2.1.

 

Insolvency Event ” means any of the following: (i) the filing of any insolvency, reorganization case or proceeding to consolidate or merge the Company with or into Iridium or any of its Affiliates or sell all or substantially all of the Company’s assets; (ii) instituting proceedings under any applicable insolvency law or to have the Company be adjudicated bankrupt or insolvent; (iii) seeking any relief under any law relating to relief from debts or the protection of debtors, or consent to the filing or the institution of bankruptcy or insolvency proceedings against the Company or file a petition seeking, or consent to, reorganization or relief with respect to the Company under any applicable federal or state law relating to bankruptcy or insolvency; or (iv) seek or consent to the appointment of a receiver, liquidator, assignee, trustee, sequestrator, custodian (or other similar official) of or for the Company or a substantial part of its property, or make any assignment for the benefit of creditors of the Company, or admit in writing the Company’s inability to pay its debts generally as they become due, or take action in furtherance of any of the foregoing.

 

Interest ” has the meaning given such term in Section 3.6.1.

 

Interest Equivalent ” means any security or obligation that is by its terms directly or indirectly convertible into or exchangeable or exercisable for Interests or other equity securities of the Company, and any option, warrant or other subscription or purchase right with respect to Interests or such other equity securities of the Company.

 

IPO Entity ” has the meaning given such term in Section 10.3.2.

 

Iridium ” means Iridium Satellite LLC and any Affiliate designated by them.

 

Iridium Credit Agreement ” means the COFACE Facility Agreement, dated as of October 4, 2010 and amended by that certain Supplemental Agreement dated as of August 1, 2012, by and among Iridium and the other parties named therein, as the same may be amended or restated from time to time in accordance with its terms.

 

*** Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

 

11
 

 

Iridium Director ” has the meaning given such term in Section 6.2.1.

 

Iridium NEXT Constellation ” means the constellation of operational low earth orbiting satellites being manufactured by Iridium pursuant to an agreement with Thales Alenia, with launches currently scheduled to commence in 2015, with operation currently scheduled to commence in late-2017.

 

LIBOR Rate ” means the rate per annum equal to the British Bankers Association LIBOR Rate (“ BBA LIBOR ”), as published by Reuters at approximately 11:00 a.m. (London time) five (5) Business Days following a Member’s Conversion Election or IPO Conversion, as applicable, for U.S. Dollar deposits with a term of one (1) month.

 

Liquidation Event ” means (a) a sale, lease or other transfer of all or substantially all of the assets of the Company, (b) a reorganization, merger or consolidation of the Company with or into any other limited liability company or entity, or an acquisition of the Company effected by an exchange of outstanding securities of the Company, in each case where the Members immediately prior to such transaction own immediately after such transaction less than fifty percent (50%) of the voting power of the equity securities of the surviving limited liability company or entity (or its parent), as applicable, (c) any sale of voting control or other transaction similar to those described in clause (b) above following which the Company’s Members immediately prior to such transaction no longer hold effective control of the Company following such transaction, whether through voting power, ownership, ability to elect a majority of the Board, or otherwise, or (d) liquidation, dissolution, shut down, cessation of business or any winding up of the Company or any Insolvency Event.

 

Long-Term Operating Plan ” means the operating plan of the Company through December 31, 2017 (or such later date as determined with the approval by the Board of Directors in accordance with this Agreement), attached hereto as Exhibit 2, as may be amended from time to time with the approval by the Board of Directors in accordance with the terms of this Agreement.

 

Majority-In-Interest of the Members ” means (i) when used with reference to a particular class of Interests, a group of Members whose aggregate Interests of such class at the time of determination exceed fifty percent (50%) of the total Interests of such class held by all the Members (or, where the context so requires, a specified subset thereof), as applicable, at such time and (ii) when used without reference to a particular class, a Member or a group of Members whose aggregate Common Interests at the time of determination exceed fifty percent (50%) of the total Common Interests of all the Members (or, where the context so requires, a specified subset thereof), as applicable, at such time (for purposes of determining the Majority-In-Interest of the Members in this clause (ii) at any time when there are Preferred Interests and Common Interests outstanding, all Preferred Interests shall be deemed to have converted to Common Interests in accordance with the terms hereof). Notwithstanding the foregoing, Non-Voting Preferred Interests shall not be included in determining Majority-In-Interest of the Members except as otherwise provided in Section 13.15.

 

*** Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

 

12
 

 

Mandatory Redemption ” has the meaning given such term in Section 3.6.6.1.

 

Mandatory Redemption Date ” has the meaning given such term in Section 3.6.6.1.2.

 

“[***]” means [***].

 

Member ” has the meaning given such term in the first paragraph of this Agreement.

 

Member Register ” means the Schedule A attached to this Agreement entitled “Member Register,” as such schedule may be amended by the Board of Directors from time to time in accordance with this Agreement.

 

“[***]” means [***].

 

NAV CANADA ” means NAV CANADA .

 

NAV CANADA US Subsidiary ” means NAV CANADA Satellite, Inc., a Delaware corporation and wholly-owned subsidiary of NAV CANADA.

 

NAV CANADA US Subsidiary Stockholder ” means, collectively, NAV CANADA and any Affiliate of NAV CANADA to whom NAV CANADA transfers any capital stock of NAV CANADA US Subsidiary.

 

NAV CANADA Director ” has the meaning given such term in Section 6.2.1.

 

NAV CANADA Financing ” means collectively or individually, the First NAV CANADA Tranche Financing, Second NAV CANADA Tranche Financing, Third NAV CANADA Tranche Financing, Fourth NAV CANADA Tranche Financing, and Fifth NAV CANADA Tranche Financing.

 

NAV CANADA Subscription Agreement ” means that certain A&R Subscription Agreement, dated as of the December 20, 2013, by and between NAV CANADA US Subsidiary and the Company as may be amended from time to time in accordance with the terms hereof.

 

Naviair ” means Naviair, an independent state owned company owned by the Kingdom of Denmark.

 

Naviair Subsidiary ” means Naviair Surveillance A/S, a limited liability company incorporated in the Kingdom of Denmark under company registration number (CVR-no.) 35 64 88 52 and a wholly-owned subsidiary of Naviair.

 

*** Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

 

13
 

 

Naviair Subscription Agreement ” means that certain Subscription Agreement, dated as of December 20, 2013, by and between Naviair and the Company as may be amended from time to time in accordance with the terms hereof.

 

Net Profit ” and “ Net Loss ” mean, for each Accounting Period, an amount equal to the Company’s taxable income or loss, respectively, for such Accounting Period, determined in accordance with Section 703(a) of the Code, which for this purpose shall include all items of income, gain, loss or deduction required to be stated separately pursuant to Section 703(a)(1) of the Code, with the following adjustments:

 

(i) The computation of all items of income, gain, loss and deduction shall include tax-exempt income and those items described in Treasury Regulations Section 1.704-1(b)(2)(iv)( i ) without regard to the fact that such items are not includable in gross income or are not deductible for federal income tax purposes.

 

(ii) If the Book Value of any Company property is adjusted pursuant to Treasury Regulations Section 1.704-1(b)(2)(iv)( e ) or ( f ), or Proposed Treasury Regulations Section 1.704(b)(2)(iv)(s), the amount of such adjustment shall be taken into account as gain or loss from the disposition of such property; provided, that if the Book Value of any Company property is adjusted pursuant to Treasury Regulations Section 1.704-1(b)(2)(iv)( f )(5)(i), the allocation of gain or loss shall be made immediately prior to the related acquisition of the interest in the Company.

 

(iii) Items of income, gain, loss or deduction attributable to the disposition of Company property having a Book Value that differs from its adjusted basis for tax purposes shall be computed by reference to the Book Value of such property.

 

(iv) Items of depreciation, amortization and other cost recovery deductions with respect to Company property having a Book Value that differs from its adjusted basis for tax purposes shall be computed by reference to the property’s Book Value in accordance with Treasury Regulations Section 1.704-1(b)(2)(iv)( g ).

 

(v) To the extent an adjustment to the adjusted tax basis of any Company property pursuant to Sections 732(d), 734(b) or 743(b) of the Code is required, pursuant to Treasury Regulations Section 1.704-1(b)(2)(iv)( m ), to be taken into account in determining Capital Accounts, the amount of such adjustment to the Capital Accounts shall be treated as an item of gain (if the adjustment increases the basis of the asset) or loss (if the adjustment decreases such basis).

 

*** Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

 

14
 

 

(vi) Notwithstanding any other provisions of this definition, any items that are specially allocated pursuant to Section 4.3 shall not be taken into account in computing Net Profits and Net Losses.

 

Non-Voting Preferred Interests ” means Interests designated by the Board of Directors as “Non-Voting Preferred Interests” with the rights and privileges (including the right to receive the Accrued Dividend on or after January 1, 2016) set forth in this Agreement, the applicable Addendum of Designation and held by those Persons designated by the Board of Directors from time to time and/or any of their respective Permitted Transferee.

 

“[***]” means the [***].

 

Overallotment Notice ” has the meaning given such term in Section 11.2.1.6.

 

Participating Members ” has the meaning given such term in Section 11.2.1.6.

 

Participating Members Overallotment Notice ” has the meaning given such term in Section 11.2.1.6.

 

Participation Rights ” has the meaning given such term in Section 3.6.8.

 

Payload ” means an ADS-B Payload to be owned and operated by the Company.

 

Payload Manufacturer ” means Harris Corporation.

 

Percentage Interest ” means, as to a Member holding a class of Interests, such Member’s Interests in such class, determined by dividing the Interests of such class owned by such Member by the total amount of Interests of such class then outstanding.

 

Permitted Issuances ” has the meaning given such term in Section 12.1.1.3.

 

Permitted Transferee ” has the meaning given such term in Section 11.1.1.1.

 

Person ” means a natural person, partnership (whether general or limited), limited liability company, trust, estate, association, corporation, custodian, nominee or any other individual or entity in its own or any representative capacity.

 

Plan ” has the meaning given such term in Section 3.6.8.

 

Pre-IPO Value ” means the per share price at which the common stock of the IPO Entity is reasonably and in good faith expected by the Board of Directors to be offered by the underwriters of the initial public offering of the IPO Entity.

 

Preemptive Holders ” has the meaning given such term in Section 12.5.

 

*** Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

 

15
 

 

Preemptive Purchase Notice ” has the meaning given such term in Section 12.5.1.

 

Preferred Interests ” means Interests designated by the Board of Directors as “Preferred Interests” with the rights and privileges (including the right to receive the Accrued Dividend on or after January 1, 2016) set forth in this Agreement and held by NAV CANADA US Subsidiary, the Additional Investors Subsidiaries, IAA and/or any of their respective Permitted Transferees and which have not been converted into Common Interests in accordance with the terms hereof.

 

Primary Business ” has the meaning given such term in Section 2.4.

 

Proprietary Information Agreement ” has the meaning given such term in Section 5.8.

 

Qualified IPO ” means a firm commitment underwritten offering of common stock or comparable equity securities of the IPO Entity pursuant to an effective registration statement under the Securities Act in which such common stock or comparable equity securities will be listed on a national securities exchange and the gross proceeds to the IPO Entity and selling Members (before underwriting discounts, commissions, and fees) equal at least Fifty million dollars ($50,000,000).

 

Redeemable Interest ” means the Preferred Interest of a Member which has made no Conversion Election with respect to such Preferred Interest prior to the applicable Redemption Date.

 

Redeemable Iridium Interests ” means an aggregate percentage of Common Interests held by Iridium equal to (i) the Funded Post-Redemption Target Percentages minus (ii) the aggregate percentage of all Fully Diluted Company Voting Interests actually held immediately prior to the Mandatory Iridium Redemption by NAV CANADA US Subsidiary, IAA and the Additional Investors Subsidiaries (or by any transferees of such Interests).

 

Redemption Date ” has the meaning given such term in Section 3.6.6.1.2.

 

Redemption Notice ” has the meaning given such term in Section 3.6.6.1.1.

 

Redemption Price ” has the meaning given such term in Section 3.6.6.2.

 

Redemption Price Non-Payment Event ” means a default in payment of the Redemption Price when due pursuant to the terms hereof.

 

Relation ” means an individual’s spouse, siblings, lineal ancestors or lineal descendants.

 

Reorganization Plan ” has the meaning given such term in Section 10.3.

 

ROFR Buy Notice ” has the meaning given such term in Section 11.2.1.5.

 

*** Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

 

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ROFR Seller ” has the meaning given such term in Section 11.2.1.1.

 

Sale ” has the meaning given such term in Section 6.12.1.2.

 

Scheduled Redemption Date ” has the meaning given such term in Section 3.6.6.1.1.

 

Scheduled Redemption Notice ” has the meaning given such term in Section 3.6.6.1.1.

 

Second Additional Investors Tranche Financing ” means the purchase by the Additional Investors directly, with respect to IAA, or through the Additional Investors Subsidiaries of the Second Additional Investors Tranche Financing Interest for the Second Additional Investors Tranche Financing Amount pursuant to the terms of this Agreement and the Additional Investors Subscription Agreements.

 

Second Additional Investors Tranche Financing Amount ” means an aggregate amount equal to $25,000,000.

 

Second Additional Investors Tranche Financing Interest ” means an aggregate amount of Preferred Interests convertible into 3.07% of the Fully Diluted Company Voting Interests.

 

Second Additional Investors Tranche Financing Target Date ” means the date of the closing (or the initial closing if the Company has requested two closings as provided in Section 3.6.3.2.1) of the Third NAV CANADA Tranche Financing.

 

Second Additional Investors Tranche Post-Redemption Enav Target Interest ” means 2.6%.

 

Second Additional Investors Tranche Post-Redemption IAA Target Interest ” means 1.25%.

 

Second Additional Investors Tranche Post-Redemption Naviair Target Interest ” means 1.25%.

 

Second A&R Effective Date ” has the meaning given such term in the first paragraph of this Agreement.

 

Second NAV CANADA Tranche Financing ” means the purchase by NAV CANADA through NAV CANADA US Subsidiary of the Second NAV CANADA Tranche Financing Interest for the Second NAV CANADA Tranche Financing Amount.

 

Second NAV CANADA Tranche Financing Amount ” means $40,000,000.

 

*** Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

 

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Second NAV CANADA Tranche Financing Interest ” means an amount of Preferred Interests convertible into 12.19% of the Fully Diluted Company Voting Interests.

 

Second NAV CANADA Tranche Post-Redemption Target Interest ” means 13.6%.

 

Second ROFR Sale Notice ” has the meaning given such term in Section 11.2.1.5.

 

Strategic Advisory Committee ” has the meaning given such term in Section 7.5.

 

Tag-Along Notice ” has the meaning given such term in Section 12.4.

 

Tag-Along Sale ” has the meaning given such term in Section 12.4.

 

Tag-Along Seller ” has the meaning given such term in Section 12.4.

 

Tagging Member ” has the meaning given such term in Section 12.4.1.

 

tax matters partner ” has the meaning given such term in Section 9.3.

 

Tax Payments ” has the meaning given such term in Section 4.5.

 

Third Additional Investors Tranche Financing ” means the purchase by the Additional Investors directly, with respect to IAA, or through the Additional Investors Subsidiaries of the Third Additional Investors Tranche Financing Interest for the Third Additional Investors Tranche Financing Amount pursuant to the terms of this Agreement and the Additional Investors Subscription Agreements.

 

Third Additional Investors Tranche Financing Amount ” means an aggregate amount equal to $33,000,000.

 

Third Additional Investors Tranche Financing Interest ” means an aggregate amount of Preferred Interests convertible into 6.32% of the Fully Diluted Company Voting Interests.

 

Third Additional Investors Tranche Financing Target Date ” means the date of the closing of the Fourth NAV CANADA Tranche Financing.

 

Third Additional Investors Tranche Post-Redemption Enav Target Interest ” means 3.44%.

 

Third Additional Investors Tranche Post-Redemption IAA Target Interest ” means 1.65%.

 

Third Additional Investors Tranche Post-Redemption Naviair Target Interest ” means 1.65%.

 

*** Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

 

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Third NAV CANADA Tranche Financing ” means the purchase by NAV CANADA through NAV CANADA US Subsidiary of the Third NAV CANADA Tranche Financing Interest for the Third NAV CANADA Tranche Financing Amount upon the satisfaction of the Third NAV CANADA Tranche Financing Conditions pursuant to the terms of this Agreement and the NAV CANADA Subscription Agreement.

 

Third NAV CANADA Tranche Financing Amount ” means $65,000,000.

 

Third NAV CANADA Tranche Financing Conditions ” means the following:

 

(i) [***]:

 

(A) [***];

 

(B) [***];

 

(C) [***];

 

(D) [***];

 

(E) [***];

 

(F) [***]; and

 

(G) [***]; and

 

(ii) [***].

 

Third NAV CANADA Tranche Financing Final Tranche Date ” means [***].

 

Third NAV CANADA Tranche Financing Interest ” means an amount of Preferred Interests convertible into 19.19% of the Fully Diluted Company Voting Interests.

 

Third NAV CANADA Tranche Financing Target Date ” means [***], 2014.

 

Third NAV CANADA Tranche Post-Redemption Target Interest ” means 22.1%.

 

Transfer ” means any sale (including, without limitation, a sale by a trustee or debtor in bankruptcy or arising out of any manner of creditor’s proceeding), assignment, transfer (including, without limitation, a transfer by will or intestate distribution or any court order for sale or transfer pursuant to a decree including, without limitation, a divorce decree), exchange, mortgage, pledge, foreclosure, execution, garnishment, attachment, sheriff’s sale, gift, or other disposition or encumbrance (whether voluntarily or involuntarily or by operation of law) of, or the granting of a security interest in, all or any portion of a Member’s Interest or other interests in the Company.

 

*** Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

 

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Treasury Regulations ” means the final and temporary regulations promulgated under the Code, as amended from time to time.

 

Trigger Event means (i) the delivery of a written notice by (x) NAV CANADA US Subsidiary or (y) any of the Additional Investors Subsidiaries or IAA to the Company, after delivery of the Trigger Event Notice by Iridium, notifying the Company that NAV CANADA US Subsidiary and/or such Additional Investors Subsidiary or IAA elect to have all of their respective Redeemable Interests redeemed pursuant to Section 3.6.6.1.2, or (ii) any facts, occurrence, circumstance, event, change or action that, in the good faith and reasonable determination of any NAV CANADA Director and an Additional Investors Director (such determination to be set forth in a written notice delivered to the Company and Iridium), would reasonably be expected to result in the Company (x) becoming subject to or a guarantor under the Iridium Credit Agreement or (y) for so long as the Company is a “Subsidiary” (as defined in the Iridium Credit Agreement) of Iridium, ceasing to be an Excluded Company.

 

Trigger Event Notice ” has the meaning given such term in Section 5.14.1.

 

Unpaid Dividend ”, with respect to a Member, means such Member’s Accrued Dividend, if any, less all distributions to such Member pursuant to Sections 4.1.1.1 and 4.1.2.1.

 

Unreturned Capital ” means, with respect to any Member, the excess of all cash Capital Contributions made by such Member over all distributions in cash and payments in cash received by such Member pursuant to Sections 3.6.6 and 4.1.2.2.

 

Voting Interests ” means Common Interests and Preferred Interests.

 

Other terms defined in this Agreement have the meanings so given them.

 

Article 2
FORMATION OF LIMITED LIABILITY COMPANY

 

2.1           Formation and Tax Classification . The Company has been formed as a limited liability company under and pursuant to the Act. Each Member represents and warrants that such Member is duly authorized to join in this Agreement and that the person executing this Agreement on its behalf is duly authorized to do so. The Members intend that the Company will be classified as a partnership for U.S. federal, state and local income and franchise tax purposes and each Member and the Company shall file all tax returns and shall otherwise take all tax positions in a manner consistent with such treatment. The Members intend that the Company shall not be a partnership (including, without limitation, a limited partnership) for any other purpose.

 

*** Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

 

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2.2           Company Name . The name of the Company is Aireon LLC. The business of the Company shall be conducted under such name or such other names as the Board of Directors may from time to time determine in accordance with the terms hereof.

 

2.3           Term of Company . The term of the Company shall commence on the date of the initial filing of the Certificate with the Secretary of State of the State of Delaware and shall continue until dissolved or otherwise terminated pursuant to this Agreement or the laws of the State of Delaware.

 

2.4           Purposes . The purpose of the Company is to own and operate the Aireon System (the “ Primary Business ”) and within and ancillary to the Primary Business to engage in any lawful act, activity or business for which a limited liability company may be formed under the Act.

 

2.5           Merger . Subject to the provisions of this Agreement, the Company may merge with, or consolidate into, another limited liability company (organized under the laws of the State of Delaware or any other state), a corporation (organized under the laws of the State of Delaware or any other state) or other business entity, regardless of whether the Company is the survivor of such merger or consolidation.

 

Article 3
CAPITALIZATION; INTERESTS

 

3.1           Capital Contributions . Prior to or concurrently with the execution of this Agreement, the Members have made the Capital Contributions as set forth in the Member Register attached hereto. On the date hereof, the Members own Interests in the class and the amounts set forth in the Member Register and have Percentage Interests in such class as set forth in the Member Register.  The amount of Interests and Percentage Interest shall be adjusted in the Member Register from time to time by the Board of Directors to the extent necessary to reflect accurately exchanges, redemptions, Capital Contributions, the issuance of additional Interests or similar events having an effect on a Member’s Percentage Interest occurring after the date hereof in accordance with the terms of this Agreement.

 

3.2           Establishment and Determination of Capital Accounts . A capital account (“ Capital Account ”) shall be established for each Member on the books of the Company and maintained in accordance with Treasury Regulations Section 1.704-1(b)(2)(iv). If any Interests (as defined herein) of a Member are Transferred in accordance with the terms of this Agreement, the transferee shall succeed to the Capital Account of the transferor to the extent the Capital Account related to such transferred Interests.

 

3.3           Negative Capital Accounts . Except as otherwise required by law, no Member shall be required to pay to the Company or any other Member any deficit or negative balance which may exist from time to time in such Member’s Capital Account.

 

*** Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

 

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3.4           Company Capital . No Member shall be paid interest on any Capital Contribution to the Company or on such Member’s Capital Account, and no Member shall have any right (a) to demand the return of such Member’s Capital Contribution or any other distribution from the Company (whether upon resignation, withdrawal or otherwise), except to the extent provided in Article 9 or Section 3.6.6 or (b) to cause a partition of the Company’s assets. For the avoidance of doubt, nothing in this Section 3.4 shall be construed to override or contradict other rights to dividend accrual, distributions or redemption payments expressly provided in this Agreement.

 

3.5           Loans by Members . No Member, as such, shall be required to lend any funds to the Company. Any Member may, with the approval of the Board of Directors, make loans to the Company, and any loan by a Member to the Company shall not be considered to be a Capital Contribution.

 

3.6           Interests .

 

3.6.1           Authorized Interests. The ownership interests of the Members in the Company are represented by “ Interests ”, including all benefits and rights to which the Members holding such Interests are entitled as provided in this Agreement or under the Act, including, without limitation, the right to receive distributions, allocations of profits and losses and to vote, together with all obligations of such Members holding such Interests to comply with the terms and provisions of this Agreement. The Company is authorized to issue three classes of Interests designated as “Preferred Interests”, “Non-Voting Preferred Interests” and “Common Interests” with the relative rights, benefits and obligations thereof as set forth in this Agreement.

 

3.6.2           Authorization and Issuance of Interests. Subject to any Member approval required by this Agreement (including Section 12.1) and subject to compliance with Section 12.5, the Board of Directors may, in accordance with the provisions hereof, issue Interests in addition to those issued on or prior to the date hereof and to fix and determine the relative rights, preferences, powers, privileges and restrictions of such Interests. The Board of Directors may, in accordance with the provisions hereof, determine the Capital Contribution, if any, required to be made for such newly issued Interests. Upon admission of an Additional Member, or increase or decrease in the Interest held by an existing Member, in accordance with this Agreement, the respective Interests of the other Members will be reduced or increased on a pro rata basis based on their respective ownership of Interests at the time of such admission or increase or decrease, as applicable.

 

3.6.3           NAV CANADA Financing. Notwithstanding anything in this Agreement to the contrary:

 

*** Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

 

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3.6.3.1            Second NAV CANADA Tranche Financing.

 

3.6.3.1.1            On June 27, 2013, NAV CANADA US Subsidiary purchased the Second NAV CANADA Tranche Financing Interest for the Second NAV CANADA Tranche Financing Amount.

 

3.6.3.2            Third NAV CANADA Tranche Financing.

 

3.6.3.2.1            Within five (5) Business Days of [***] written certification to NAV CANADA US Subsidiary that all of the Third NAV CANADA Tranche Financing Conditions that have not been waived by NAV CANADA US Subsidiary have been satisfied, NAV CANADA US Subsidiary shall purchase the Third NAV CANADA Tranche Financing Interest for the Third NAV CANADA Tranche Financing Amount, as specified in the Company’s notice accompanying its written certification, without further approval by the Board of Directors or any Member; provided that NAV CANADA US Subsidiary shall not be obligated to purchase the Third NAV CANADA Tranche Financing Interest unless (a) NAV CANADA US Subsidiary concurs that the Third NAV CANADA Tranche Financing Conditions have been satisfied in manner, form and substance reasonably satisfactory to NAV CANADA US Subsidiary, and/or waives, in its sole discretion, any Third NAV CANADA Tranche Financing Conditions that have not been so satisfied, (b) the applicable certifications are delivered on or after the Third NAV CANADA Tranche Financing Target Date, and (c) the applicable certifications are delivered no later than the Third NAV CANADA Tranche Financing Final Tranche Date. If the Company’s notice to NAV CANADA US Subsidiary indicates that only a portion of the Third NAV CANADA Tranche Financing Interests will be sold at the initial closing, then the Company shall be permitted to send a second notice to NAV CANADA US Subsidiary at any time thereafter with respect to the sale of the remaining portion of the Third NAV CANADA Tranche Financing Interests. Within thirty (30) days of the Company’s second notice to NAV CANADA US Subsidiary (or if no such notice has been sent to NAV CANADA US Subsidiary prior to the twelve (12) month anniversary of the date of the purchase of the first portion of the Third NAV CANADA Tranche Financing Interests, then on the twelve (12) month anniversary of the date of the purchase of the first portion of the Third NAV CANADA Tranche Financing Interests), NAV CANADA US Subsidiary shall purchase the remaining Third NAV CANADA Tranche Financing Interest for the remaining Third NAV CANADA Tranche Financing Amount, as specified in the Company’s second notice, without further approval by the Board of Directors or any Member.

 

*** Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

 

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3.6.3.2.2            In the event that the Third NAV CANADA Tranche Financing Conditions have not been satisfied by the Third NAV CANADA Tranche Financing Final Tranche Date, NAV CANADA US Subsidiary will, at its sole option and upon written notice to the Company that NAV CANADA US Subsidiary does not intend to fund the Third NAV CANADA Tranche Financing, be relieved of any obligation to fund the Third NAV CANADA Tranche Financing and any subsequent NAV CANADA Financing, and if NAV CANADA US Subsidiary delivers such written notice to the Company, NAV CANADA US Subsidiary shall thereafter have no right or obligation to purchase additional Interests in a NAV CANADA Financing or a Contingent Financing (it being understood that NAV CANADA US Subsidiary’s delivery of such notice, or any deemed delivery of such notice, shall not prevent (i) NAV CANADA US Subsidiary from exercising any preemptive rights pursuant to Section 12.5 or any rights pursuant to Section 12.1 (except as otherwise specifically provided for in Section 12.1) or (ii) NAV CANADA Director from exercise any approval or veto rights under Section 6.12 (except as otherwise specifically provided for in Section 6.12)). In the event that the Third NAV CANADA Tranche Financing Conditions have not been satisfied by the Third NAV CANADA Tranche Financing Final Tranche Date and NAV CANADA US Subsidiary has not delivered the foregoing notice within fifteen (15) Business Days of the Third NAV CANADA Tranche Financing Final Tranche Date, then such notice shall be deemed delivered to the Company and NAV CANADA US Subsidiary shall thereafter have no right or obligation to purchase additional Interests in a NAV CANADA Financing or a Contingent Financing.

 

3.6.3.2.3            The Company and Iridium shall use commercially reasonable efforts to ensure the satisfaction of the Third NAV CANADA Tranche Financing Conditions set forth above by the specified Third NAV CANADA Tranche Financing Target Dates, and in no event later than the Third NAV CANADA Tranche Financing Final Tranche Date. NAV CANADA US Subsidiary and NAV CANADA shall use commercially reasonable efforts to perform any task expressly or reasonably required to be performed by NAV CANADA US Subsidiary or NAV CANADA in connection with the completion of such Third NAV CANADA Tranche Financing Conditions. NAV CANADA US Subsidiary, NAV CANADA, Iridium and the Company agree to work together in good faith to attempt to complete all other operational and contractual objectives required for successful completion of the Third NAV CANADA Tranche Financing Conditions.

 

3.6.3.3            Fourth NAV CANADA Tranche Financing.

 

3.6.3.3.1            Within five (5) Business Days of [***] written certification to NAV CANADA US Subsidiary that all of the Fourth NAV CANADA Tranche Financing Conditions that have not been waived by NAV CANADA US Subsidiary have been satisfied, NAV CANADA US Subsidiary shall purchase the Fourth NAV CANADA Tranche Financing Interest for the Fourth NAV CANADA Tranche Financing Amount, without further approval by the Board of Directors or any Member; provided that NAV CANADA US Subsidiary shall not be obligated to purchase the Fourth NAV CANADA Tranche Financing Interest unless (a) NAV CANADA US Subsidiary concurs that the Fourth NAV CANADA Tranche Financing Conditions have been satisfied in manner, form and substance reasonably satisfactory to NAV CANADA US Subsidiary, and/or waives, in its sole discretion, any Fourth NAV CANADA Tranche Financing Conditions that have not been so satisfied, (b) the applicable certifications are delivered on or after the Fourth NAV CANADA Tranche Financing Target Date, and (c) the applicable certifications are delivered no later than the Fourth NAV CANADA Tranche Financing Final Tranche Date.

 

*** Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

 

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3.6.3.3.2            In the event that the Fourth NAV CANADA Tranche Financing Conditions have not been satisfied by the Fourth NAV CANADA Tranche Financing Final Tranche Date, NAV CANADA US Subsidiary will, at its sole option and upon written notice to the Company that NAV CANADA US Subsidiary does not intend to fund the Fourth NAV CANADA Tranche Financing, be relieved of any obligation to fund the Fourth NAV CANADA Tranche Financing and any subsequent NAV CANADA Financing, and if NAV CANADA US Subsidiary delivers such written notice to the Company, NAV CANADA US Subsidiary shall thereafter have no right or obligation to purchase additional Interests in a NAV CANADA Financing or a Contingent Financing (it being understood that NAV CANADA US Subsidiary’s delivery of such notice, or any deemed delivery of such notice, shall not prevent (i) NAV CANADA US Subsidiary from exercising any preemptive rights pursuant to Section 12.5 or any rights pursuant to Section 12.1 (except as otherwise specifically provided for in Section 12.1) or (ii) NAV CANADA Director from exercise any approval or veto rights under Section 6.12 (except as otherwise specifically provided for in Section 6.12)). In the event that the Fourth NAV CANADA Tranche Financing Conditions have not been satisfied by the Fourth NAV CANADA Tranche Financing Final Tranche Date and NAV CANADA US Subsidiary has not delivered the foregoing notice within fifteen (15) Business Days of the Fourth NAV CANADA Tranche Financing Final Tranche Date, then such notice shall be deemed delivered to the Company and NAV CANADA US Subsidiary shall thereafter have no right or obligation to purchase additional Interests in a NAV CANADA Financing or a Contingent Financing.

 

3.6.3.3.3            The Company and Iridium shall use commercially reasonable efforts to ensure the satisfaction of the Fourth NAV CANADA Tranche Financing Conditions set forth above by the specified Fourth NAV CANADA Tranche Financing Target Dates, and in no event later than the Fourth NAV CANADA Tranche Financing Final Tranche Date. NAV CANADA US Subsidiary and NAV CANADA shall use commercially reasonable efforts to perform any task expressly or reasonably required to be performed by NAV CANADA US Subsidiary or NAV CANADA in connection with the completion of such Fourth NAV CANADA Tranche Financing Conditions. NAV CANADA US Subsidiary, NAV CANADA, Iridium and the Company agree to work together in good faith to attempt to complete all other operational and contractual objectives required for successful completion of the Fourth NAV CANADA Tranche Financing Conditions.

 

3.6.3.4            Fifth NAV CANADA Tranche Financing.

 

3.6.3.4.1            Within five (5) Business Days of [***] written certification to NAV CANADA US Subsidiary that all of the Fifth NAV CANADA Tranche Financing Conditions that have not been waived by NAV CANADA US Subsidiary have been satisfied, NAV CANADA US Subsidiary shall purchase the Fifth NAV CANADA Tranche Financing Interest for the Fifth NAV CANADA Tranche Financing Amount, without further approval by the Board of Directors or any Member; provided that NAV CANADA US Subsidiary shall not be obligated to purchase the Fifth NAV CANADA Tranche Financing Interest unless (a) NAV CANADA US Subsidiary concurs that the Fifth NAV CANADA Tranche Financing Conditions have been satisfied in manner, form and substance reasonably satisfactory to NAV CANADA US Subsidiary, and/or waives, in its sole discretion, any Fifth NAV CANADA Tranche Financing Conditions that have not been so satisfied, (b) the applicable certifications are delivered on or after the Fifth NAV CANADA Tranche Financing Target Date, and (c) the applicable certifications are delivered no later than the Fifth NAV CANADA Tranche Financing Final Tranche Date.

 

*** Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

 

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3.6.3.4.2            In the event that the Fifth NAV CANADA Tranche Financing Conditions have not been satisfied by the Fifth NAV CANADA Tranche Financing Final Tranche Date, NAV CANADA US Subsidiary will, at its sole option and upon written notice to the Company that NAV CANADA US Subsidiary does not intend to fund the Fifth NAV CANADA Tranche Financing, be relieved of any obligation to fund the Fifth NAV CANADA Tranche Financing and any subsequent NAV CANADA Financing, and if NAV CANADA US Subsidiary delivers such written notice to the Company, NAV CANADA US Subsidiary shall thereafter have no right or obligation to purchase additional Interests in a NAV CANADA Financing or a Contingent Financing (it being understood that NAV CANADA US Subsidiary’s delivery of such notice, or any deemed delivery of such notice, shall not prevent (i) NAV CANADA US Subsidiary from exercising any preemptive rights pursuant to Section 12.5 or any rights pursuant to Section 12.1 (except as otherwise specifically provided for in Section 12.1) or (ii) NAV CANADA Director from exercise any approval or veto rights under Section 6.12 (except as otherwise specifically provided for in Section 6.12)). In the event that the Fifth NAV CANADA Tranche Financing Conditions have not been satisfied by the Fifth NAV CANADA Tranche Financing Final Tranche Date and NAV CANADA US Subsidiary has not delivered the foregoing notice within fifteen (15) Business Days of the Fifth NAV CANADA Tranche Financing Final Tranche Date, then such notice shall be deemed delivered to the Company and NAV CANADA US Subsidiary shall thereafter have no right or obligation to purchase additional Interests in a NAV CANADA Financing or a Contingent Financing.

 

3.6.3.4.3            The Company and Iridium shall use commercially reasonable efforts to ensure the satisfaction of the Fifth NAV CANADA Tranche Financing Conditions set forth above by the specified Fifth NAV CANADA Tranche Financing Target Dates, and in no event later than the Fifth NAV CANADA Tranche Financing Final Tranche Date. NAV CANADA US Subsidiary and NAV CANADA shall use commercially reasonable efforts to perform any task expressly or reasonably required to be performed by NAV CANADA US Subsidiary or NAV CANADA in connection with the completion of such Fifth NAV CANADA Tranche Financing Conditions. NAV CANADA US Subsidiary, NAV CANADA, Iridium and the Company agree to work together in good faith to attempt to complete all other operational and contractual objectives required for successful completion of the Fifth NAV CANADA Tranche Financing Conditions.

 

*** Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

 

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3.6.3.4.4            NAV CANADA hereby fully, irrevocably, absolutely and unconditionally guarantees, for the benefit of the Company, the prompt and complete payment and performance by NAV CANADA US Subsidiary of its obligations when due under this Agreement and the NAV CANADA Subscription Agreement (collectively, the “ NAV CANADA US Subsidiary Obligations ”) in accordance with the terms hereof. This guaranty shall be a full, unconditional, irrevocable, absolute and continuing guaranty of payment and performance of the obligations of NAV CANADA US Subsidiary. If NAV CANADA US Subsidiary fails to perform any NAV CANADA US Subsidiary Obligations requiring payment, in whole or in part, when such NAV CANADA US Subsidiary Obligations are due, NAV CANADA shall promptly pay such NAV CANADA US Subsidiary Obligations in lawful money of the United States. NAV CANADA shall pay such amount within five (5) Business Days of receipt of demand for payment from the Company. The Company may enforce their rights under this guaranty without first suing NAV CANADA US Subsidiary or joining NAV CANADA US Subsidiary in any suit against NAV CANADA, or enforcing any rights and remedies against NAV CANADA US Subsidiary or otherwise pursuing or asserting any claims or rights against NAV CANADA US Subsidiary or any other Person or entity or any of its or their property which may also be liable with respect to the matters for which NAV CANADA is liable hereunder.

 

3.6.4           Contingent Financing. If [***], then, if at any time and from time to time [***], the Company’s Board of Directors determines that it is in the best interest of the Company to obtain bridge financing (and NAV CANADA US Subsidiary has not prior to such time elected not to fund any NAV CANADA Financing in accordance with the terms of Section 3.6.3), then (i) the Company may obtain such bridge financing (the “ Contingent Financing Option A ”) [***], or (ii) if the Company is unable to obtain Contingent Financing Option A as described in the foregoing clause (i) of this Section 3.6.4, after the use of commercially reasonable efforts to obtain such Contingent Financing Option A, then NAV CANADA US Subsidiary shall have the option, exercisable at its sole discretion, to extend such additional financing to the Company (“ Contingent Financing Option B ”; together with Contingent Financing Option A, collectively or individually, a “ Contingent Financing ”), [***], in exchange for issuance by the Company of additional Preferred Interests, in an aggregate amount not to exceed 19% of the Fully Diluted Company Voting Interests, at a price equal to $[***] per basis point (i.e., one one-hundredth of one percent (.01%)) (for an aggregate amount of $[***] assuming full exercise of such option) (subject to any adjustment necessary for any Interest split, combination, reclassification or similar events).

 

3.6.5           Additional Investors Financing. Notwithstanding anything in this Agreement to the contrary:

 

3.6.5.1            Second Additional Investors Tranche Financing.

 

*** Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

 

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3.6.5.1.1            Within three (3) weeks following the Company’s notice to the Additional Investors Subsidiaries and IAA following the Second Additional Investors Tranche Financing Target Date that all of the Third NAV CANADA Tranche Financing Conditions that have not been waived by the relevant Additional Investor or Additional Investor Subsidiary have been satisfied and that NAV CANADA US Subsidiary has purchased the Third NAV CANADA Tranche Financing Interest (or such portion as it was requested by the Company to purchase in the initial notice sent under Section 3.6.3.2.1), the Additional Investors Subsidiaries and IAA shall purchase their respective portion (as indicated on Schedule B ) of the Second Additional Investors Tranche Financing Interest for their respective portion (as indicated on Schedule B ) of the Second Additional Investors Tranche Financing Amount, as specified in the Company’s notice, without further approval by the Board of Directors or any Member. If the Company’s initial notice to NAV CANADA US Subsidiary under Section 3.6.3.2.1 was for only a portion of the Third NAV CANADA Tranche Financing Amount, the Company’s initial notice to the Additional Investors Subsidiaries and IAA shall indicate that the same portion of the Second Additional Investors Tranche Financing Interests will be sold at the initial closing, and the Company shall then be permitted to send a second notice to the Additional Investors Subsidiaries and IAA at any time after the second notice to NAV CANADA US Subsidiary under Section 3.6.3.2.1 with respect to the sale of the respective remaining portions of the Second Additional Investors Tranche Financing Interests. Within thirty (30) days of the Company’s second notice to the Additional Investors Subsidiaries and IAA (or if no such notice has been sent to the Additional Investors Subsidiaries and IAA prior to the twelve (12) month anniversary of the date of the purchase of the first portion of the Second Additional Investors Tranche Financing Interests, then on the twelve (12) month anniversary of the date of the purchase of the first portion of the Second Additional Investors Tranche Financing Interests), the Additional Investors Subsidiaries and IAA shall purchase the respective remaining Second Additional Investors Tranche Financing Interest for the remaining Second Additional Investors Tranche Financing Amount, as specified in the Company’s second notice, without further approval by the Board of Directors or any Member.

 

3.6.5.1.2            In the event that the Third NAV CANADA Tranche Financing Conditions have not been satisfied or waived by the relevant Additional Investor or Additional Investor Subsidiary by the Third NAV CANADA Tranche Financing Final Tranche Date, each Additional Investors Subsidiary and IAA will, at its sole option and upon written notice to the Company that such Additional Investors Subsidiary or IAA does not intend to fund its portion of the Second Additional Investors Tranche Financing, be relieved of any obligation to fund its portion of the Second Additional Investors Tranche Financing and its portion of any subsequent Additional Investors Financing, and if such Additional Investors Subsidiary or IAA delivers such written notice to the Company, such Additional Investors Subsidiary or IAA shall thereafter have no right or obligation to purchase additional Interests in an Additional Investors Financing (it being understood that an Additional Investors Subsidiary’s or IAA’s delivery of such notice, or any deemed delivery of such notice, shall not prevent (i) such Additional Investors Subsidiary or IAA from exercising any preemptive rights pursuant to Section 12.5 or (ii) such Additional Investors Director from exercise any approval or veto rights under Section 6.12 (except as otherwise specifically provided for in Section 6.12)). In the event that the Third NAV CANADA Tranche Financing Conditions have not been satisfied or waived by the relevant Additional Investor or Additional Investor Subsidiary by the Third NAV CANADA Tranche Financing Final Tranche Date and an Additional Investors Subsidiary or IAA has not delivered the foregoing notice within fifteen (15) Business Days of the Third NAV CANADA Tranche Financing Final Tranche Date, then such notice shall be deemed delivered to the Company and such Additional Investors Subsidiary or IAA shall thereafter have no right or obligation to purchase additional Interests in an Additional Investors Financing.

 

*** Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

 

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3.6.5.2            Third Additional Investors Tranche Financing.

 

3.6.5.2.1            Within three (3) weeks following the Company’s notice to the Additional Investors Subsidiaries and IAA following the Third Additional Investors Tranche Financing Target Date that all of the Fourth NAV CANADA Tranche Financing Conditions that have not been waived by the relevant Additional Investor and Additional Investor Subsidiary have been satisfied and that NAV CANADA US Subsidiary has purchased the Fourth NAV CANADA Tranche Financing Interest, the Additional Investors Subsidiaries and IAA shall purchase their respective portion (as indicated on Schedule B ) of the Third Additional Investors Tranche Financing Interest for their respective portion (as indicated on Schedule B ) of the Third Additional Investors Tranche Financing Amount, as specified in the Company’s notice, without further approval by the Board of Directors or any Member.

 

3.6.5.2.2            In the event that the Fourth NAV CANADA Tranche Financing Conditions have not been satisfied or waived by the relevant Additional Investor or Additional Investor Subsidiary by the Fourth NAV CANADA Tranche Financing Final Tranche Date, each Additional Investors Subsidiary or IAA will, at its sole option and upon written notice to the Company that such Additional Investors Subsidiary or IAA does not intend to fund its portion of the Third Additional Investors Tranche Financing, be relieved of any obligation to fund its portion of the Third Additional Investors Tranche Financing and its portion of any subsequent Additional Investors Financing, and if such Additional Investors Subsidiary or IAA delivers such written notice to the Company, such Additional Investors Subsidiary or IAA shall thereafter have no right or obligation to purchase additional Interests in an Additional Investors Financing (it being understood that an Additional Investors Subsidiary’s or IAA’s delivery of such notice, or any deemed delivery of such notice, shall not prevent (i) such Additional Investors Subsidiary or IAA from exercising any preemptive rights pursuant to Section 12.5 or (ii) such Additional Investors Director from exercise any approval or veto rights under Section 6.12 (except as otherwise specifically provided for in Section 6.12)). In the event that the Fourth NAV CANADA Tranche Financing Conditions have not been satisfied or waived by the relevant Additional Investor or Additional Investor Subsidiary by the Fourth NAV CANADA Tranche Financing Final Tranche Date and an Additional Investors Subsidiary or IAA has not delivered the foregoing notice within fifteen (15) Business Days of the Fourth NAV CANADA Tranche Financing Final Tranche Date, then such notice shall be deemed delivered to the Company and such Additional Investors Subsidiary or IAA shall thereafter have no right or obligation to purchase additional Interests in an Additional Investors Financing.

 

*** Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

 

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3.6.5.3            Fourth Additional Investors Tranche Financing.

 

3.6.5.3.1            Within three (3) weeks following the Company’s notice to the Additional Investors Subsidiaries and IAA following the Fourth Additional Investors Tranche Financing Target Date that all of the Fifth NAV CANADA Tranche Financing Conditions that have not been waived by the relevant Additional Investor and Additional Investors Subsidiaries have been satisfied and that NAV CANADA US Subsidiary has purchased the Fifth NAV CANADA Tranche Financing Interest, the Additional Investors Subsidiaries and IAA shall purchase their respective portion (as indicated on Schedule B ) of the Fourth Additional Investors Tranche Financing Interest for their respective portion (as indicated on Schedule B ) of the Fourth Additional Investors Tranche Financing Amount, as specified in the Company’s notice, without further approval by the Board of Directors or any Member.

 

3.6.5.3.2            In the event that the Fifth NAV CANADA Tranche Financing Conditions have not been satisfied or waived by the relevant Additional Investor or Additional Investors Subsidiaries by the Fifth NAV CANADA Tranche Financing Final Tranche Date, each Additional Investors Subsidiary or IAA will, at its sole option and upon written notice to the Company that such Additional Investors Subsidiary or IAA does not intend to fund its portion of the Fourth Additional Investors Tranche Financing, be relieved of any obligation to fund its portion of the Fourth Additional Investors Tranche Financing and its portion of any subsequent Additional Investors Financing, and if such Additional Investors Subsidiary or IAA delivers such written notice to the Company, such Additional Investors Subsidiary or IAA shall thereafter have no right or obligation to purchase additional Interests in an Additional Investors Financing (it being understood that an Additional Investors Subsidiary’s or IAA’s delivery of such notice, or any deemed delivery of such notice, shall not prevent (i) such Additional Investors Subsidiary or IAA from exercising any preemptive rights pursuant to Section 12.5 or (ii) such Additional Investors Director from exercise any approval or veto rights under Section 6.12 (except as otherwise specifically provided for in Section 6.12)). In the event that the Fifth NAV CANADA Tranche Financing Conditions have not been satisfied or waived by the relevant Additional Investor or Additional Investors Subsidiaries by the Fifth NAV CANADA Tranche Financing Final Tranche Date and an Additional Investors Subsidiary or IAA has not delivered the foregoing notice within fifteen (15) Business Days of the Fifth NAV CANADA Tranche Financing Final Tranche Date, then such notice shall be deemed delivered to the Company and such Additional Investors Subsidiary or IAA shall thereafter have no right or obligation to purchase additional Interests in an Additional Investors Financing.

 

3.6.5.3.3            Enav hereby fully, irrevocably, absolutely and unconditionally guarantees, for the benefit of the Company, the prompt and complete payment and performance by Enav US Subsidiary of its obligations when due under this Agreement and the Enav Subscription Agreement (collectively, the “ Enav US Subsidiary Obligations ”) in accordance with the terms hereof. This guaranty shall be a full, unconditional, irrevocable, absolute and continuing guaranty of payment and performance of the obligations of Enav US Subsidiary. If Enav US Subsidiary fails to perform any Enav US Subsidiary Obligations requiring payment, in whole or in part, when such Enav US Subsidiary Obligations are due, Enav shall promptly pay such Enav US Subsidiary Obligations in lawful money of the United States. Enav shall pay such amount within five (5) Business Days of receipt of demand for payment from the Company. The Company may enforce their rights under this guaranty without first suing Enav US Subsidiary or joining Enav US Subsidiary in any suit against Enav, or enforcing any rights and remedies against Enav US Subsidiary or otherwise pursuing or asserting any claims or rights against Enav US Subsidiary or any other Person or entity or any of its or their property which may also be liable with respect to the matters for which Enav is liable hereunder.

 

*** Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

 

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3.6.5.3.4            [Reserved.]

 

3.6.5.3.5            Naviair hereby fully, irrevocably, absolutely and unconditionally guarantees, for the benefit of the Company, the prompt and complete payment and performance by Naviair Subsidiary of its obligations when due under this Agreement and the Naviair Subscription Agreement (collectively, the “ Naviair Subsidiary Obligations ”) in accordance with the terms hereof. This guaranty shall be a full, unconditional, irrevocable, absolute and continuing guaranty of payment and performance of the obligations of Naviair Subsidiary. If Naviair Subsidiary fails to perform any Naviair Subsidiary Obligations requiring payment, in whole or in part, when such Naviair Subsidiary Obligations are due, Naviair shall promptly pay such Naviair Subsidiary Obligations in lawful money of the United States. Naviair shall pay such amount within five (5) Business Days of receipt of demand for payment from the Company. The Company may enforce their rights under this guaranty without first suing Naviair Subsidiary or joining Naviair Subsidiary in any suit against Naviair, or enforcing any rights and remedies against Naviair Subsidiary or otherwise pursuing or asserting any claims or rights against Naviair Subsidiary or any other Person or entity or any of its or their property which may also be liable with respect to the matters for which Naviair is liable hereunder.

 

3.6.6           Mandatory Redemptions of Redeemable Interest.

 

3.6.6.1            The Company shall be obligated to redeem each Redeemable Interest (the “ Mandatory Redemption ”) as follows:

 

3.6.6.1.1            to the extent it may lawfully do so, the Company shall redeem for cash all of the Redeemable Interests in three (3) annual installments beginning on the eighth anniversary of the A&R Effective Date (November 19, 2020), and ending on the date two (2) years from such first redemption date (each a “ Scheduled Redemption Date ”). The Company shall effect such redemptions on (i) the first Scheduled Redemption Date by paying cash for one-third of the recipient Member’s Redeemable Interest equal to one-third of the sum of (a) the recipient Member’s Unreturned Capital plus (b) any Unpaid Dividends of the recipient Member attributable to such Member’s Redeemable Interest, as of such Scheduled Redemption Date, (ii) the second Scheduled Redemption Date by paying cash for one-half of the recipient Member’s remaining Redeemable Interest equal to one-half of the sum of (a) the recipient Member’s remaining Unreturned Capital plus (b) any remaining Unpaid Dividends of the recipient Member attributable to such Member’s remaining Redeemable Interest, as of such Scheduled Redemption Date, and (iii) the third Scheduled Redemption Date by paying cash for the recipient Member’s remaining Redeemable Interest equal to the sum of (a) the recipient Member’s remaining Unreturned Capital plus (b) any remaining Unpaid Dividends of the recipient Member attributable to such Member’s remaining Redeemable Interest, as of such Scheduled Redemption Date. At least thirty (30) days but no more than sixty (60) days prior to the first Scheduled Redemption Date, the Company shall send a notice (a “ Scheduled Redemption Notice ”) to all holders of Redeemable Interests setting forth (A) the Redemption Price payable for such Redeemable Interest; and (B) the manner in which such holders will receive the Redemption Price; or

 

*** Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

 

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3.6.6.1.2            upon the occurrence of a Trigger Event, the Company shall redeem for cash all of the Redeemable Interests on or prior to the second (2 nd ) Business Day after the occurrence of a Trigger Event (such date, the “ Mandatory Redemption Date ” and each of the Mandatory Redemption Date or a Scheduled Redemption Date, as applicable, a “ Redemption Date ”). The Company shall effect such redemption on the Mandatory Redemption Date by paying cash for all of the recipient Member’s Redeemable Interest equal to the sum of (a) the recipient Member’s Unreturned Capital plus (b) any Unpaid Dividends of the recipient Member attributable to such Member’s Redeemable Interest, as of the Mandatory Redemption Date.

 

3.6.6.2            The total amount to be paid for each Redeemable Interest is hereinafter referred to as the “ Redemption Price ” for such Redeemable Interest. The relative dollar amounts paid to each Member participating in the Mandatory Redemption shall be proportionate to the aggregate Redemption Price owed to each such Member.

 

3.6.6.3            On a Redemption Date, the Company shall pay the applicable Redemption Price to the Members holding Redeemable Interests.

 

3.6.6.4            If the assets of the Company available for redemption of the applicable Redeemable Interests by law or otherwise on the applicable Redemption Date are insufficient to redeem the applicable Redeemable Interests on the applicable Redemption Date, the holders of such Redeemable Interests shall share ratably in any assets available by law or otherwise for redemption of the Redeemable Interests in proportion to the amounts that would be payable with respect to the Percentage Interest owned by them if the Redeemable Interests to be so redeemed on such Redemption Date were redeemed in full. The Company shall in good faith use all reasonable efforts as expeditiously as possible to eliminate, or obtain an exception, waiver or exemption from, any and all restrictions under applicable law or otherwise that prevented the Company from paying any portion of the Redemption Price and redeeming all of the outstanding Redeemable Interests. At any time thereafter when additional funds of the Company are available by law for the redemption of the Redeemable Interests, such funds will be used, as soon as they become available, to redeem the balance of such Redeemable Interests to be so redeemed in accordance with the terms hereof or such portion thereof for which funds are available, on the basis set forth above. If funds are not available by law or otherwise for the payment in full of the Redemption Price for the Redeemable Interests to be so redeemed on the Redemption Date, then the Company shall be obliged to make such partial redemption so that the number of Redeemable Interests held by each holder shall be reduced in an amount that shall bear the same ratio to the actual number of Redeemable Interests required to be redeemed on such Redemption Date as the number of Redeemable Interests then held by such holder bears to the aggregate number of shares of Redeemable Interests then outstanding. If the Company fails to redeem the Redeemable Interests and pay the full Redemption Price for which redemption is required, then during the period from the Redemption Date through the date on which such Interests that the Company failed to redeem on the Redemption Date are actually redeemed and full payment of Redemption Price is made, Accrued Dividends on such unredeemed Interests shall continue to accrue and be cumulative as specified herein.

 

*** Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

 

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3.6.6.5            The Redemption Price of each Redeemable Interest shall be payable to the order of the person whose name appears on Schedule A attached hereto as the owner thereof. From and after the first Redemption Date, all rights of the holders of such Redeemable Interests (except the right to receive the Redemption Price (without interest)) shall cease and terminate with respect to such Redeemable Interests; provided that in the event that any applicable Redemption Price for a particular Redeemable Interest is not paid in full when due, as a result of a Redemption Price Non-Payment Event, the rights of the holder of such Redeemable Interest shall continue (including any entitlement to Accrued Dividends, if any) as to a ratable portion of such Redeemable Interest, which (as of any particular time) shall be equal to the product of such Redeemable Interest multiplied by a fraction, the numerator of which is that portion of the aggregate Redemption Price for such Redeemable Interest which has not been paid in full, and the denominator of which is the aggregate Redemption Price for such Redeemable Interest.

 

3.6.6.6            For the avoidance of doubt and notwithstanding anything to the contrary set forth in this Agreement, the obligation of the Company to pay the applicable Redemption Price on a Redemption Date shall not be affected by the fact that the Hosting Cost Reimbursements have not been paid in full or any default, deferral or failure of payment of Hosting Cost Reimbursements exists or has occurred under the Hosting Cost Reimbursement Agreement.

 

3.6.7           Mandatory Redemptions of Redeemable Iridium Interests.

 

3.6.7.1            The Company shall be obligated to redeem the Redeemable Iridium Interests (the “ Mandatory Iridium Redemption ”) as follows:

 

3.6.7.1.1            to the extent it may lawfully do so, the Company shall redeem for cash all of the Redeemable Iridium Interests as soon as sufficient funds are available following (a) (i) the closing of the Fourth Additional Investor Financing, or, (ii) if there is no Fourth Additional Investor Financing, the closing of the Fifth NAV CANADA Tranche Financing, or, (iii) if there is no Fourth Additional Investor Financing or Fifth NAV CANADA Tranche Financing, the Fifth NAV CANADA Tranche Financing Final Tranche Date, and (b) the payment of all Hosting Cost Reimbursements then due and owing under the Hosting Cost Reimbursement Agreement. The Company shall effect such redemption by paying cash for the Redeemable Iridium Interests equal to the full amount actually funded by the Additional Investors and the Additional Investors Subsidiaries in all Additional Investors Financings ($120,000,000 in the event that all of the Additional Investors Financings are fully funded).

 

*** Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

 

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3.6.7.2            The total amount to be paid for the Redeemable Iridium Interests is hereinafter referred to as the “ Iridium Redemption Price .”

 

3.6.7.3            If the assets of the Company available for redemption of the Redeemable Iridium Interests by law or otherwise are insufficient to redeem the Redeemable Iridium Interests, Iridium shall receive the portion of any assets available by law or otherwise for redemption of the Redeemable Iridium Interests. The Company shall in good faith use all reasonable efforts as expeditiously as possible to eliminate, or obtain an exception, waiver or exemption from, any and all restrictions under applicable law or otherwise that prevented the Company from paying any portion of the Iridium Redemption Price and redeeming all of the outstanding Redeemable Iridium Interests. At any time thereafter when additional funds of the Company are available by law for the redemption of the outstanding Redeemable Iridium Interests, such funds will be used, as soon as they become available, to redeem the balance of such Redeemable Iridium Interests to be so redeemed in accordance with the terms hereof or such portion thereof for which funds are available, on the basis set forth above. If funds are not available by law or otherwise for the payment in full of the Iridium Redemption Price for the Redeemable Iridium Interests to be so redeemed on any date, then the Company shall be obliged to make a partial redemption of the Redeemable Iridium Interests.

 

3.6.7.4            Subject to Sections 3.6.7.5 and 3.6.7.6 below, upon redemption of the Redeemable Iridium Interests,

 

3.6.7.4.1            Enav US Subsidiary’s Preferred Interests (or Common Interests, if such Member has made its Conversion Election) will be increased to the amount of Preferred Interests convertible into (or, if applicable, Common Interests equal to) the Funded Enav Post-Redemption Target Percentage; and

 

3.6.7.4.2            IAA’s Preferred Interests (or Common Interests, if such Member has made its Conversion Election) will be increased to the amount of Preferred Interests convertible into (or, if applicable, Common Interests equal to) the Funded IAA Post-Redemption Target Percentage; and

 

3.6.7.4.3            NAV CANADA US Subsidiary’s Preferred Interests (or Common Interests, if such Member has made its Conversion Election) will be increased to the amount of Preferred Interests convertible into (or, if applicable, Common Interests equal to) the Funded NAV CANADA Post-Redemption Target Percentage; and

 

*** Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

 

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3.6.7.4.4            Naviair Subsidiary’s Preferred Interests (or Common Interests, if such Member has made its Conversion Election) will be increased to the amount of Preferred Interests convertible into (or, if applicable, Common Interests equal to) the Funded Naviair Post-Redemption Target Percentage.

 

3.6.7.5            In the event of a partial redemption pursuant to Section 3.6.7.3, the increases provided for in Section 3.6.7.4 above shall be reduced on a pro rata basis to reflect the partial redemption. In the event that additional Members are admitted, the Parties shall in good faith negotiate adjustments to the post-redemption percentages set forth in this agreement.

 

3.6.7.6            In the event that NAV CANADA, any Additional Investor or any Additional Investor Subsidiary has, prior to the Mandatory Iridium Redemption, transferred all or a portion of its Interests in accordance with the terms of this Agreement, then upon the occurrence of the Mandatory Iridium Redemption, the transferee(s) shall receive all or such portion of the Interests provided for in Sections 3.6.7.4 and 3.6.7.5 on a pro rata basis based on the portion(s) so transferred.

 

3.6.7.7            For the avoidance of doubt and notwithstanding anything to the contrary set forth in this Agreement, except for Mandatory Redemptions or as set forth in Section 4.1.2, prior to the Mandatory Iridium Redemption of all Redeemable Iridium Interests, the Company shall not make any other redemption of Interests or any dividends or distributions to any Members.

 

3.6.8           Incentive Plan. Subject to approval by the Members holding Preferred Interests pursuant to Section 12.1, the Board of Directors may be authorized to create an incentive plan (the “ Plan ”) pursuant to which the Chief Executive Officer, subject to prior approval by the Board of Directors pursuant to Section 6.12.1.17, may grant non-voting, participation or profit sharing rights of the Company’s appreciated value to employees, directors and other service providers of the Company, subject to such vesting and other restrictions as the Board of Directors may deem appropriate (all such rights, “ Participation Rights ”). In no event shall any Participation Rights or other rights under such plan constitute Interests, Interest Equivalents or other equity of the Company.

 

3.6.9           Revision of Member Register upon Issuance of New Interests . When new Interests are issued as permitted by the terms of this Agreement, the Member Register shall be updated by the Board of Directors in accordance with the terms hereof to reflect such issuance.

 

3.6.10         Interest Certificates. The Interests shall be uncertificated.

 

*** Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

 

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Article 4
DISTRIBUTIONS; ALLOCATIONS OF PROFITS AND LOSSES

 

4.1           Distributions and Payments .

 

4.1.1           Distributions of Available Cash. Subject to the terms of this Agreement, if approved by the Board of Directors in accordance with Section 6.12.1, the Board of Directors shall cause the Company to distribute Available Cash with respect to a fiscal quarter or such shorter period of time as determined by the Board of Directors from time to time to the Members. Except as otherwise provided in Section 4.1.3, any such distributions of Available Cash shall be made to the Members in the following manner and priority:

 

4.1.1.1            First, to the Members holding Preferred Interests and Non-Voting Preferred Interests in proportion to their respective Unpaid Dividends, if any, until all Unpaid Dividends as of such date have been paid.

 

4.1.1.2            Then, to the Members holding Common Interests in proportion to their respective Percentage Interests as of the time of such distribution.

 

4.1.1.3            Notwithstanding anything to the contrary set forth herein, except pursuant to Section 4.1.2, in no event shall the Company make any distributions on any Common Interest prior to January 1, 2016.

 

4.1.2           Liquidation Event Distributions. After satisfaction or discharge of all the debts, liabilities and obligations of the Company (including, without limitation, all expenses incurred in the Liquidation Event and setting aside any reserves needed for contingent or deferred liabilities all as determined by the Board of Directors in accordance with Section 12), the remaining proceeds of a Liquidation Event available for distribution to the Members shall be distributed amongst the Members in the following manner and priority:

 

4.1.2.1            First, to the Members holding Preferred Interests and Non-Voting Preferred Interests in proportion to their respective Percentage Interests and Non-Voting Preferred Interests until each Member’s Unpaid Dividend, as of such date of distribution, is zero.

 

4.1.2.2            Then, to the Members holding Preferred Interests and Non-Voting Preferred Interests in proportion to their respective Percentage Interests, until each Member’s Unreturned Capital is zero.

 

4.1.2.3            Then, to the Members holding Common Interests in proportion to their respective Percentage Interests as of the time of such distribution.

 

4.1.3           Limitations on Distributions; Special Rules. Notwithstanding any other provision of this Agreement:

 

*** Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

 

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4.1.3.1            No distribution (including distributions in redemption of Interests or upon Dissolution) shall be made to any Member to the extent that, after giving effect to the distribution, all liabilities of the Company (other than liabilities to Members on account of their Interests) would exceed the fair market value of the Company’s assets.

 

4.1.3.2            In the event an Additional Member is admitted to the Company after the beginning of any particular fiscal period (including the beginning of a month), the Board of Directors may, in its sole discretion, allow such Additional Member to participate in all distributions attributable to such fiscal period, including distributions made prior to such Additional Member’s admission to the Company. The Board of Directors may effectuate such participation in whatever manner they deem appropriate, including, without limitation, by specially allocating subsequent distributions away from existing Members to such Additional Member, or by holding back a portion of prior distributions in anticipation of an Additional Member’s admission, and then making a special distribution of such held-back amounts solely to the Additional Member.

 

4.1.3.3            To the extent that the Board determines to distribute property in-kind, either pursuant to Section 4.1.1 or 4.1.2, such property’s fair market value shall be determined by the Board of Directors in good faith and any distribution which includes such in-kind property shall be apportioned in a manner such that the recipients of such distribution receive a proportionate share (based on the relative dollar amounts distributable to each such recipient in such distribution) of any cash and of the relative fair market value of each class or type of in-kind property constituting a part of such distribution, unless a different apportionment is agreed by each Member participating in such distribution. The value of such non-cash proceeds shall be equal to the fair market value of the non-cash proceeds at the time of the distribution as determined in good faith by the Board.

 

4.1.3.4            Except as otherwise provided in Section 5.4.5, the holder of a Common Interest which was formerly a Preferred Interest shall not be entitled to any adjustments in respect of previous distributions on Common Interests, and shall share only in such Member’s Common Interest percentage of any distributions made pursuant to Section 4.1.1.2 and 4.1.2.3 after such Member makes the Conversion Election.  The apportionment of any particular distribution made pursuant to Section 4.1.1.2 or 4.1.2.3 will be based on the Members’ respective Percentage Interest in Common Interest at the time of such distribution, regardless of whether a Member’s previous Percentage Interest in Common Interest was lower or higher.

 

4.1.3.5            Notwithstanding anything to the contrary herein, no Preferred Interest shall be entitled to receive distributions under both Section 4.1.2.2 and 4.1.2.3. Except as provided in Section 4.1.1.3, if a Preferred Interest is still eligible for a Conversion Election as of the date of a distribution pursuant to such Sections, the holder of such Preferred Interest shall be required to choose between (i) making a Conversion Election and receiving distributions (if any) pursuant to Section 4.1.2.3, and (ii) not making a Conversion Election and receiving distributions (if any) pursuant to Section 4.1.2.2.

 

*** Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

 

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4.1.3.6            For the avoidance of doubt, the Company’s obligation to pay any Unpaid Dividends pursuant to Section 5.4.4 shall have priority over any distribution pursuant to Section 4.1.

 

4.2           Allocation of Profits and Losses . After applying Section 4.3, the Company’s Net Profit and Net Loss (and, if determined by the Board in consultation with the Company’s tax advisors, individual component items thereof) for any Accounting Period shall be allocated among the Members in such a manner that, as of the end of such Accounting Period and to the extent possible with respect to each Member, each Member’s Adjusted Capital Account shall be equal to the respective net amounts, positive or negative, which would be distributed to them or for which they would be liable to the Company under this Agreement, determined as if the Company were to: (A) liquidate all of the assets of the Company for an amount equal to their Book Value and (B) distribute the proceeds of such liquidation in the manner described in Section 4.1.2 of this Agreement.

 

4.3           Regulatory and Special Allocations . Notwithstanding the provisions of Section 4.2, Net Profit, Net Loss and items thereof shall be allocated to the Members in the manner and to the extent required by the Treasury Regulations under Section 704 of the Code, including without limitation, the provisions thereof dealing with minimum gain chargebacks, partner minimum gain chargebacks, qualified income offsets, partnership nonrecourse deductions, partner nonrecourse deductions, forfeiture allocations, and the provisions dealing with deficit capital accounts in Sections 1.704-2(g)(1), 1.704-2(i)(5), and 1.704-1(b)(2)(ii)(d).

 

4.4           Tax Allocations; Code Section 704(c) . The income, gains, losses, deductions and expenses of the Company shall be allocated, for federal, state and local income tax purposes, among the Members in accordance with the allocation of such income, gains, losses, deductions and expenses among such Member for computing their Capital Accounts, except that if any such allocation is not permitted by the Code or other applicable law, the Company’s subsequent income, gains, losses, deductions and expenses shall be allocated among the Members for tax purposes to the extent permitted by the Code and other applicable law, so as to reflect as nearly as possible the allocation set forth herein in computing their Capital Accounts. Notwithstanding the previous sentence, such items shall be allocated among the Members in a different manner to the extent required by Code Section 704(c) and the Treasury Regulations thereunder (dealing with contributed property), Treasury Regulations Sections 1.704-1(b)(2)(iv)(f) (dealing with property having a book value different than its tax basis) and 1.704-1(b)(4)(ii) (dealing with tax credit items). The Members agree that, for purposes of Section 704(c) of the Code, (i) with respect to tax items attributable to property contributed to the Company on the A&R Effective Date of this Agreement and having a book value different than its tax basis, the Company will use the “remedial method” as described in Treasury Regulations Section 1.704-3(d), and (ii) with respect to tax items attributable to any other book-tax differences (whether from property contributed to the Company in the future, or resulting from revaluations of Company property), the Company will use the “traditional method” as described in Treasury Regulations Section 1.704-3(b) unless the Board in its reasonable discretion directs the Company to use a method other than the traditional method. Allocations pursuant to this Section 4.4 are solely for purposes of federal, state and local taxes and shall not affect, or in any way be taken into account in computing, any Member’s Capital Account or share of profits, losses, other items or distributions pursuant to any provisions of this Agreement.

 

*** Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

 

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4.5           Tax Payments . If and to the extent the Company is required by law (as determined in good faith by the Board of Directors) to make payments with respect to any Member in amounts required to discharge any legal obligation of the Company owed to any governmental authority with respect to any federal, state or local tax liability of such Member arising as a result of such Member’s interest in the Company (“ Tax Payments ”), then such Member shall be required to promptly pay to the Company an amount of cash equal to such Tax Payments, and the Company shall be entitled to withhold such amount from distributions, redemption or sale proceeds payable to such Member in the event such Member fails to promptly make such payment to the Company.

 

Article 5
MEMBERS

 

5.1           Number . The Company shall at all times have one or more Members, who shall constitute the “ members ” of the Company for all purposes of the Act.

 

5.2           Members’ Voting Rights . Except as otherwise provided herein (including Section 12.1), the Board of Directors may, but shall have no duty to, consult with the Members as to matters concerning the Company and its business and may take the advice and counsel of the Members so consulted into account when making decisions and acting with respect to such matters.

 

5.3           Required Vote . Subject to the other provisions contained herein, any action requiring the approval of the Members shall require the affirmative vote of a Majority-In-Interest of the Members in order to constitute the action of or approval by the Members. In the case of approval by the Members of a particular class of Interests, such approval shall require the affirmative vote of a Majority-In-Interest of the Members holding such class of Interests. Except as otherwise provided by law, any action or vote of the Members may be taken by a consent in writing setting forth the action or vote so taken and signed by Members holding the requisite Interests entitled to vote necessary to authorize or take such action.

 

5.4           Conversion Election .

 

5.4.1           Optional Conversion Election . Subject to and in compliance with the provisions of this Section 5.4, any Member holding Preferred Interests may at any time and from time to time elect to convert all or a portion of such Member’s Preferred Interests into Common Interests (each, a “ Conversion Election ”). That portion of a Preferred Interest for which a Conversion Election is made shall, upon delivery of the notice described in Section 5.4.2, automatically become a Common Interest without further action on the part of the holder or the Company.

 

*** Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

 

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5.4.2           Exercise of Conversion Election Privilege . To make a Conversion Election, a Member shall give written or electronic notice (including email, provided the following language appears in the subject line of the email: “AIREON FORMAL CONVERSION ELECTION NOTICE”, and via facsimile transmission) of such election to the Company at the principal office of the Company. Such notice shall also specify the portion of such Member’s Interest with respect to which the Conversion Election applies. The Business Day that the Company receives such written or electronic notice shall be the “ Election Date ” for such Member’s Conversion Election. Such Conversion Election shall be deemed effective as of the Election Date.

 

5.4.3           Mandatory Conversion Upon IPO . Subject to fulfilling the requirements set forth in Section 10.3, immediately prior to the initial public offering of the Company, all outstanding Preferred Interests shall convert into Common Interests (an “ IPO Conversion ”).

 

5.4.4           Treatment of Unpaid Dividends Upon Conversion Election . The Company will pay an electing Member’s Unpaid Dividend with respect to the portion of such Member’s Preferred Interest for which a Conversion Election or IPO Conversion, as applicable, is made within five (5) Business Days of such Member’s Conversion Election or IPO Conversion, as applicable; provided that if such payment by the Company would result in a default under the terms of any indebtedness of the Company or the Company is unable to pay such Accrued Dividends due to insufficient Available Cash, then such payment will be made within five (5) Business Days of the removal of such restriction, or the achievement of Available Cash, as applicable; provided that any such Unpaid Dividend shall accrue interest beginning on the 6 th Business Day after such Member’s Conversion Election or IPO Conversion, as applicable, at a rate equal to the lesser of (i) LIBOR, plus three and one-half percent 3.5%, or (ii) six percent (6.0%), per annum until fully paid.

 

5.4.5           Certain Adjustments to Preferred Interests . The Preferred Interests shall also be subject to adjustment as follows:

 

5.4.5.1            If the Company shall at any time or from time to time, prior to conversion of any Preferred Interests (x) make a distribution on the outstanding Common Interests payable in Interests, (y) subdivide, split or combine the outstanding Common Interests (with no corresponding subdivision, split or combination of the Preferred Interests), or (z) issue any Interests in a reclassification or recapitalization of the Common Interest, then, and in each such case, the Preferred Interests shall be adjusted (and any other appropriate actions shall be taken by the Company) so that the Members holding any Preferred Interest thereafter surrendered for conversion shall be entitled to receive the amount of Common Interests or other securities of the Company that such Member would have owned or would have been entitled to receive upon or by reason of any of the events described above, had such Preferred Interests been converted immediately prior to the occurrence of such event. An adjustment made pursuant to this Section 5.4.5.1 shall become effective retroactively (1) in the case of any such distribution, to a date immediately following the close of business on the record date for the determination of holders of Common Interest entitled to receive such distribution or (2) in the case of any such subdivision, split, combination, reclassification or recapitalization, to the close of business on the day upon which such action becomes effective.

 

*** Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

 

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5.4.5.2            In case of any merger or consolidation of the Company (other than a Liquidation Event) or any capital reorganization, reclassification or other change of outstanding Interests, the Company shall execute and deliver to each Member holding Preferred Interests, at least ten (10) Business Days prior to effecting such transaction, a certificate signed by a duly authorized officer of the Company, stating that each such Member holding Preferred Interest shall have the right to receive in such transaction, in exchange for each Preferred Interest, a security identical to (or not less favorable than) the Preferred Interest, and provision shall be made therefor in the agreement, if any, relating to such transaction. Any certificate delivered pursuant to this Section 5.4.5.2 shall provide for adjustments which shall be as nearly equivalent as may be practicable to the adjustments provided for in other paragraphs of this Section 5.4.5.

 

5.4.5.3            If the Company at any time or from time to time, prior to the conversion of any Preferred Interests, shall take any action affecting the Common Interests similar to or having an effect similar to any of the actions described in the foregoing paragraphs of this Sections 5.4.5 (but not including any action described in any such paragraphs), and the Board of Directors in good faith determines that it would be equitable in the circumstances to adjust the Preferred Interests as a result of such action, then, and in each such case, the Preferred Interests shall be adjusted in such manner and at such time as the Board of Directors in good faith determines would be equitable in the circumstances (such determination to be evidenced in a resolution, a copy of which shall be delivered to the Members holding Preferred Interests). Upon any adjustment of the Preferred Interests, the Company shall, within a reasonable period (not to exceed ten (10) days) following the transactions giving rise to such adjustment, deliver to each Member holding Preferred Interests a certificate, signed by a duly authorized officer of the Company, setting forth in reasonable detail the event requiring the adjustment and the method by which such adjustment was calculated and specifying the increased or decreased of the Preferred Interests then in effect following such adjustment.

 

5.5           Effect of Incapacity . Except as otherwise provided herein, the Incapacity of a Member shall not dissolve or terminate the Company. In the event of such Incapacity, the executor, administrator, guardian, trustee or other personal representative of the Incapacitated Member shall be deemed to be the assignee of such Member’s Interests and interest in capital and may, upon approval of the Board of Directors, become a Member. For purposes of this Section 5.5, “ Incapacity ” or “ Incapacitated ” means (i) with respect to a natural Person, the bankruptcy, death, incompetency or insanity of such individual, and (ii) with respect to any other Person, the bankruptcy, liquidation, dissolution or termination of such Person.

 

*** Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

 

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5.6           Representations and Warranties of Members, NAV CANADA and the Additional Investors .

 

5.6.1            Each Member hereby severally but not jointly represents and warrants to and acknowledges with the Company that:

 

5.6.1.1            such Member has such knowledge and experience in financial and business matters and is capable of evaluating the merits and risks of an investment in the Company and making an informed investment decision with respect thereto;

 

5.6.1.2            such Member is able to bear the economic and financial risk of an investment in the Company for an indefinite period of time;

 

5.6.1.3            such Member has sufficient funds and/or credit arrangements available to enable such Member to make the Capital Contributions contemplated by this Agreement ;

 

5.6.1.4            such Member is acquiring interests in the Company for investment only and not with a view to, or for resale in connection with, any distribution to the public or public offering thereof;

 

5.6.1.5            such Member has been provided with forecasts, models or projections relating to the Company and its future financial or operating performance prepared by the Company before acquiring any Interests in the Company; such Member acknowledges that there are uncertainties inherent in attempting to make such forecasts, models and/or projections, that such Member is familiar with such uncertainties and that such Member is taking full responsibility for making its own evaluation of the adequacy and accuracy of all forecasts, models and/or projections so furnished to it, including the reasonableness of the assumptions underlying such forecasts, models and/or projections;

 

5.6.1.6            the interests in the Company have not been registered under the securities laws of any jurisdiction and cannot be disposed of unless they are subsequently registered and/or qualified under applicable securities laws and the provisions of this Agreement have been complied with;

 

5.6.1.7            the execution, delivery and performance of this Agreement have been duly authorized by such Member and do not require such Member to obtain any consent or approval that has not been obtained and do not contravene or result in a default under any provision of any law or regulation applicable to such Member or other governing documents or any agreement or instrument to which such Member is a party or by which such Member is bound; and

 

*** Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

 

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5.6.1.8            assuming due authorization, execution and delivery of the other parties hereto, this Agreement is valid, binding and enforceable against such Member in accordance with its terms.

 

5.6.2            NAV CANADA hereby represents and warrants to and acknowledges with the Company that:

 

5.6.2.1            NAV CANADA is duly organized and validly existing under the laws of Canada and has all requisite power and authority to carry on its business as now conducted, to own and use the properties owned and used by it and to enter into this Agreement;

 

5.6.2.2            NAV CANADA is solvent and no receiver or receiver and manager has been appointed over any part of its assets and no such appointment has been threatened;

 

5.6.2.3            NAV CANADA is not in liquidation or statutory management and no proceedings have been brought or threatened and no resolution has been passed or other step taken for the purposes of appointing a liquidator of NAV CANADA;

 

5.6.2.4            the execution, delivery and performance of this Agreement by NAV CANADA have been duly authorized by NAV CANADA and do not require NAV CANADA to obtain any consent or approval that has not been obtained and do not contravene or result in a default under any provision of any law or regulation applicable to NAV CANADA or other governing documents or any agreement, instrument or deed or any writ, order or injunction, or judgment to which NAV CANADA is a party or is subject or by which NAV CANADA is bound; and

 

5.6.2.5            assuming due authorization, execution and delivery of the other parties hereto, this Agreement is valid, binding and enforceable against NAV CANADA in accordance with its terms.

 

5.6.3            Enav hereby represents and warrants to and acknowledges with the Company that:

 

5.6.3.1            Enav is duly organized and validly existing under the laws of the Italian Republic and has all requisite power and authority to carry on its business as now conducted, to own and use the properties owned and used by it and to enter into this Agreement;

 

5.6.3.2            Enav is solvent and no receiver or receiver and manager has been appointed over any part of its assets and no such appointment has been threatened;

 

*** Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

 

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5.6.3.3            Enav is not in liquidation or statutory management and no proceedings have been brought or threatened and no resolution has been passed or other step taken for the purposes of appointing a liquidator of Enav;

 

5.6.3.4            the execution, delivery and performance of this Agreement by Enav have been duly authorized by Enav and do not require Enav to obtain any consent or approval that has not been obtained and do not contravene or result in a default under any provision of any law or regulation applicable to Enav or other governing documents or any agreement, instrument or deed or any writ, order or injunction, or judgment to which Enav is a party or is subject or by which Enav is bound; and

 

5.6.3.5            assuming due authorization, execution and delivery of the other parties hereto, this Agreement is valid, binding and enforceable against Enav in accordance with its terms.

 

5.6.4            IAA hereby represents and warrants to and acknowledges with the Company that:

 

5.6.4.1            IAA is duly organized and validly existing under the laws of the Republic of Ireland and has all requisite power and authority to carry on its business as now conducted, to own and use the properties owned and used by it and to enter into this Agreement;

 

5.6.4.2            IAA is solvent and no receiver or receiver and manager has been appointed over any part of its assets and no such appointment has been threatened;

 

5.6.4.3            IAA is not in liquidation or statutory management and no proceedings have been brought or threatened and no resolution has been passed or other step taken for the purposes of appointing a liquidator of IAA;

 

5.6.4.4            the execution, delivery and performance of this Agreement by IAA have been duly authorized by IAA and do not require IAA to obtain any consent or approval that has not been obtained and do not contravene or result in a default under any provision of any law or regulation applicable to IAA or other governing documents or any agreement, instrument or deed or any writ, order or injunction, or judgment to which IAA is a party or is subject or by which IAA is bound; and

 

5.6.4.5            assuming due authorization, execution and delivery of the other parties hereto, this Agreement is valid, binding and enforceable against IAA in accordance with its terms.

 

5.6.5            Naviair hereby represents and warrants to and acknowledges with the Company that:

 

*** Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

 

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5.6.5.1            Naviair is duly organized and validly existing under the laws of the Kingdom of Denmark and has all requisite power and authority to carry on its business as now conducted, to own and use the properties owned and used by it and to enter into this Agreement;

 

5.6.5.2            Naviair is solvent and no receiver or receiver and manager has been appointed over any part of its assets and no such appointment has been threatened;

 

5.6.5.3            Naviair is not in liquidation or statutory management and no proceedings have been brought or threatened and no resolution has been passed or other step taken for the purposes of appointing a liquidator of Naviair;

 

5.6.5.4            the execution, delivery and performance of this Agreement by Naviair have been duly authorized by Naviair and do not require Naviair to obtain any consent or approval that has not been obtained and do not contravene or result in a default under any provision of any law or regulation applicable to Naviair or other governing documents or any agreement, instrument or deed or any writ, order or injunction, or judgment to which Naviair is a party or is subject or by which Naviair is bound; and

 

5.6.5.5            assuming due authorization, execution and delivery of the other parties hereto, this Agreement is valid, binding and enforceable against Naviair in accordance with its terms.

 

5.7           Investment Opportunities . No Member shall have any obligation to offer investment opportunities to the Company or any other Member.

 

5.8           Confidentiality . As to so much of the information and other material furnished under or in connection with this Agreement (whether furnished before, on or after the date hereof) as constitutes or contains confidential business, financial or other information of the Company or any subsidiary, each of the Members, NAV CANADA, each Additional Investor and the Company covenants for itself and its directors, managers, officers, members and partners, that it will not disclose (and will prevent its employees, counsel, accountants and other representatives from disclosing) such information except as authorized in writing in advance by the Board of Directors; provided, however , that each Member, NAV CANADA and each Additional Investor may disclose or deliver any information or other material disclosed to or received by it should such Member, NAV CANADA or such Additional Investor be advised by its counsel that such disclosure or delivery is required by law, regulation or judicial or administrative order. This obligation shall survive termination of this Agreement. The Members, NAV CANADA and each Additional Investor acknowledge that some or all Members, NAV CANADA and some or all of the Additional Investors may be subject to other written agreements with the Company concerning the confidentiality of proprietary information (a “ Proprietary Information Agreement ”). Each Member, NAV CANADA and each Additional Investor agrees to abide by any such Proprietary Information Agreement to which it is subject. Where the provisions of a Proprietary Information Agreement and this Section conflict, the Proprietary Information Agreement will control as to the obligations of the Member, NAV CANADA and each Additional Investor, as applicable, to which such Proprietary Information Agreement applies.

 

*** Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

 

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5.9           Noncompetition . Each Member, NAV CANADA and each Additional Investor agrees (i) not to engage in competition with the Company and/or any of its Affiliates, either directly or indirectly, in any manner or capacity, as adviser, principal, agent, affiliate, promoter, partner, officer, director, employee, stockholder, owner, co-owner, consultant, or member of any association or otherwise, in any phase of the Primary Business, and (ii) not to acquire, assume or participate in, directly or indirectly, any position, investment or interest in any company, person or entity that is, directly or indirectly, in competition with the Primary Business of the Company or any of its Affiliates except for passive investments of 1% or less of the outstanding voting securities of a company listed on the NYSE, AMEX or Nasdaq National Market; provided , however , that notwithstanding anything to the contrary set forth herein, nothing in this Section 5.9 shall be deemed to restrict or prohibit NAV CANADA or NAV CANADA US Subsidiary from, directly or indirectly, (i) engaging in any activities pursuant to any agreement, contract or other arrangement which NAV CANADA, NAV CANADA US Subsidiary or any of their respective predecessor entities is a party to or bound by as of the A&R Effective Date, or (ii) own, acquire, use and sell air traffic control surveillance data from radar, ADS-B and other technologies; provided , further, however , that notwithstanding anything to the contrary set forth herein, nothing in this Section 5.9 shall be deemed to restrict or prohibit Iridium from, directly or indirectly, engaging in any activities pursuant to any agreement, contract or other arrangement which Iridium or any of its respective predecessor entities is a party to or bound by as of the A&R Effective Date; provided , further, however , that notwithstanding anything to the contrary set forth herein, nothing in this Section 5.9 shall be deemed to restrict or prohibit any Additional Investor or its respective Additional Investors Subsidiary from, directly or indirectly, (i) engaging in any activities pursuant to any agreement, contract or other arrangement which such Additional Investor, its respective Additional Investors Subsidiary or any of their respective predecessor entities is a party to or bound by as of the date hereof, or (ii) own, acquire, use and sell air traffic control surveillance data from radar, ADS-B and other technologies. For the purpose of this Clause 5.9 it is agreed that any surveillance system that is not satellite-based shall not be deemed as competing with the Aireon business.

 

5.10         Non-Solicitation . Each Member, NAV CANADA and each Additional Investor severally but not jointly agrees for itself not to, directly or through others, solicit or attempt to solicit any employee, consultant, or independent contractor of the Company to terminate their relationship with the Company in order to become an employee, consultant or independent contractor to or for any other person or entity; provided that no Member shall be restricted from (i) making any general solicitation for employment that is not specifically directed at any such employee, consultant, or independent contractor, (ii) hiring any such employee, consultant, or independent contractor who responds to any such general solicitation (including by a bona fide search firm), or (iii) hiring any former employee, consultant, or independent contractor of the Company who has been terminated by the Company or any of its subsidiaries prior to commencement of employment discussions between such Member and such person.

 

*** Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

 

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5.11         Meetings .

 

5.11.1         Place of Meetings. Meetings of the Members shall be held at such place, either within or without the State of Delaware, as may be designated from time to time by the Board of Directors in the sole discretion of the Board of Directors.

 

5.11.2         Annual Meeting. The Board of Directors may elect to hold annual meetings of Members and shall have the authority to determine, in the sole discretion of the Board of Directors, which business shall be conducted at such meetings, including whether any matters will be submitted to a vote of Members.

 

5.11.3         Special Meetings.

 

5.11.3.1            Special meetings of the Members may be called, for any purpose or purposes, by the Board of Directors, and shall be held at such place, on such date, and at such time as the Board of Directors shall fix.

 

5.11.4         Notice of Meetings. Except as otherwise provided by law, written notice of each meeting of Members shall be given not less than ten (10) nor more than sixty (60) days before the date of the meeting to each Member entitled to vote at such meeting, such notice to specify the place, date and hour and purpose or purposes of the meeting. Notice of the time, place and purpose of any meeting of Members may be waived in writing, signed by the person entitled to notice thereof, either before or after such meeting, and will be waived by any Member by his attendance thereat in person or by proxy, except when the Member attends a meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened. Any Member so waiving notice of such meeting shall be bound by the proceedings of any such meeting in all respects as if due notice thereof had been given.

 

5.11.5         Quorum. At all meetings of Members, except where otherwise provided by statute or by the Certificate, or by this Agreement, the presence, in person or by proxy duly authorized, of a Majority-In-Interest of the Members in each class of Interests having the right to vote shall constitute a quorum for the transaction of business. In the absence of a quorum, any meeting of Members may be adjourned, from time to time in accordance with Section 5.11.6, but no other business shall be transacted at such meeting; provided , however , that if any meeting of the Members is adjourned or cancelled from failure to constitute a quorum, then such meeting shall be rescheduled in accordance with this Agreement to a date not less than five (5) nor more than fifteen (15) days after the originally scheduled meeting, and in this case, the Members agree that the number of Members who are present at such meeting shall constitute a quorum for all purposes. The Members present at a duly called or convened meeting, at which a quorum is present, may continue to transact business until adjournment, notwithstanding the withdrawal of enough Members to leave less than a quorum.

 

*** Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

 

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5.11.6      Adjournment and Notice of Adjourned Meetings. Any meeting of Members, whether annual or special, may be adjourned from time to time either by the Board of Directors or by the vote of a majority of the Interests casting votes, excluding abstentions. When a meeting is adjourned to another time or place, notice need not be given of the adjourned meeting if the time and place thereof are announced at the meeting at which the adjournment is taken. At the adjourned meeting, the Company may transact any business which might have been transacted at the original meeting. If the adjournment is for more than thirty (30) days or if after the adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each Member of record entitled to vote at the meeting.

 

5.11.7      Action Without Meeting.

 

5.11.7.1       Unless otherwise provided in the Certificate, any action required by statute to be taken at any annual or special meeting of the Members, or any action which may be taken at any annual or special meeting of the Members, may be taken without a meeting, without prior notice and without a vote, if a consent in writing, setting forth the action so taken, shall be signed by the holders of outstanding Interests having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all Interests entitled to vote thereon were present and voted.

 

5.11.8      Conduct of Meetings. The Board of Directors shall be entitled to make such rules or regulations for the calling and conduct of meetings of Members as the Board of Directors shall deem necessary, appropriate or convenient.

 

5.12         Admission of Additional Members . Subject to the terms of this Agreement, any Person may become an Additional Member of the Company by (A) the purchase of new Interests issued as permitted by the terms of this Agreement for such consideration as the Board of Directors shall determine in accordance with the terms of this Agreement or (B) the purchase of Interests of another Member in accordance with the terms of this Agreement. Each Additional Member shall: (i) agree to be bound by the provisions of this Agreement; (ii) execute and deliver such documents as the Board of Directors deem appropriate in connection therewith; and (iii) with respect to a purchase of new Interests pursuant to clause (A) of this Section 5.12, contribute to the Company the agreed upon Capital Contribution in exchange for the Interests purchased by such Additional Member.

 

5.12.1      Admission. Each Additional Member shall have all the rights and obligations of a Member holding the Interests purchased by such Additional Member as specified on the Member Register. The admission of Additional Members shall not be a cause for dissolution of the Company. Upon the admission of any Additional Members pursuant to this Section 5.12, the Member Register shall be appropriately amended.

 

*** Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

 

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5.13         Rights to Information . Members shall have the right to receive from the Chief Executive Officer, upon request, a copy of the Certificate and of this Agreement, as amended from time to time, and such other information regarding the Company as is required by the Act, subject to reasonable conditions and standards established by the Board of Directors or Chief Executive Officer as permitted by the Act, which may include, without limitation, withholding of, or restrictions on, the use of confidential information.

 

5.14         Iridium Undertaking; Suspension of Iridium Payments.

 

5.14.1       For so long as the Iridium Credit Agreement continues in effect and the Company is a “Subsidiary” (as defined in the Iridium Credit Agreement) of Iridium, Iridium shall, and shall cause its subsidiaries and Affiliates to, cause the Company (x) not to be subject to or become a guarantor under the Iridium Credit Agreement or (y) for so long as the Company is a “Subsidiary” (as defined in the Iridium Credit Agreement) of Iridium, to be an Excluded Company. Promptly after (and in no event later than the immediately following Business Day after) becoming aware of any actions, facts, conditions, circumstances or changes that would reasonably be expected to result in the Company (i) becoming subject to or a guarantor under the Iridium Credit Agreement or (ii) for so long as the Company is a “Subsidiary” (as defined in the Iridium Credit Agreement) of Iridium, ceasing to be an Excluded Company, Iridium shall deliver written notice to the Company, NAV CANADA US Subsidiary and the Additional Investors Subsidiaries (the “ Trigger Event Notice ”) setting forth in reasonable detail any such actions, facts, conditions, circumstances or changes.

 

5.14.2       Commencing upon the occurrence of the Trigger Event, the Company shall not make, and Iridium acknowledges, confirms and agrees that it shall not demand, receive or accept from the Company, directly or indirectly, any payment to Iridium or any of its Affiliates of any nature, whether as distributions, dividends, Hosting Cost Reimbursements or other fees or compensation pursuant to any agreement, arrangement or otherwise, until all applicable Redemption Price payable to Members holding Redeemable Interest pursuant to Section 3.6.6.1.2 has been paid in full.

 

Article 6

BOARD OF DIRECTORS

 

6.1           Generally . Except as specifically set forth in this Agreement, the Members hereby delegate all power and authority to manage the business and affairs of the Company to the Directors, who shall act as the managers of the Company subject to and in accordance with the terms of this Agreement. Such Directors shall constitute the “ Board of Directors ” and such term may be used in this Agreement to refer to such Directors. Such term is used for convenience only and is not intended by the parties to confer to the Board of Directors any additional power or authority other than that expressly and specifically conferred pursuant to and in accordance with the terms of this Agreement. The Directors shall in all cases act as a group through actions in meetings of the Board of Directors and shall have no authority to act individually. The Board of Directors may adopt such rules and procedures for the management of the Company not inconsistent with this Agreement or the Act. Any power not otherwise delegated pursuant to this Agreement or by the Board of Directors in accordance with the terms of this Agreement shall remain with the Board of Directors.

 

*** Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

 

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6.2           Number of Directors . The Board of Directors of the Company shall consist of eleven (11) Directors who shall be elected by the Members as follows:

 

6.2.1         From the date hereof until the closing of the Third NAV CANADA Tranche Financing, each Member agrees that such Member will vote all of its Interests at each election of Directors in favor of: (A) six (6) persons nominated by Iridium (each, an “ Iridium Director ”), for so long as Iridium holds at least 60% of the then Fully Diluted Company Voting Interests (provided that (i) if Iridium ceases to hold at least 60% of the Fully Diluted Company Voting Interests, but holds at least 40% of the Fully Diluted Company Voting Interests, then Iridium shall be entitled to designate only four (4) Iridium Directors, (ii) if Iridium ceases to hold at least 40% of the Fully Diluted Company Voting Interests, but holds at least 13% of the Fully Diluted Company Voting Interests, then Iridium shall be entitled to designate only two (2) Iridium Directors, and (iii) if Iridium ceases to hold at least 13% of the Fully Diluted Company Voting Interests, but holds at least 3% of the Fully Diluted Company Voting Interests, then Iridium shall be entitled to designate only one (1) Iridium Director); (B) three (3) persons nominated by NAV CANADA (each, a “ NAV CANADA Director ”), for so long as NAV CANADA US Subsidiary holds at least 15% of the Fully Diluted Company Voting Interests ( provided that if NAV CANADA US Subsidiary ceases to hold at least 15% of the Fully Diluted Company Voting Interests, but holds at least 3% of the Fully Diluted Company Voting Interests, then NAV CANADA shall be entitled to designate only one (1) NAV CANADA Director); (C) one (1) person nominated by Enav, for so long as Enav US Subsidiary holds at least 3% of the Fully Diluted Company Voting Interests (such person or any other person nominated by Enav to be a Director pursuant to this Section 6.2, an “ Enav Director ”); (D) one (1) person nominated by IAA and Naviair, collectively, for so long as IAA and Naviair Subsidiary collectively hold at least 3% of the Fully Diluted Company Voting Interests (such person or any other person nominated by IAA and Naviair, collectively, to be a Director pursuant to this Section 6.2, an “ IAA/Naviair Director ”, and together with the Enav Director, collectively or individually, pursuant to the terms hereof, referred to herein as the “ Additional Investors Directors ”).

 

*** Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

 

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6.2.2         From the closing of the Third NAV CANADA Tranche Financing until the closing of the Fifth NAV CANADA Tranche Financing, each Member agrees that such Member will vote all of its Interests at each election of Directors in favor of: (A) four (4) Iridium Directors, for so long as Iridium holds at least 40% of the Fully Diluted Company Voting Interests (provided that (i) if Iridium ceases to hold at least 40% of the Fully Diluted Company Voting Interests, but holds at least 13% of the Fully Diluted Company Voting Interests, then Iridium shall be entitled to designate only two (2) Iridium Directors, and (iii) if Iridium ceases to hold at least 13% of the Fully Diluted Company Voting Interests, but holds at least 5% of the Fully Diluted Company Voting Interests, then Iridium shall be entitled to designate only one (1) Iridium Director); (B) four (4) NAV CANADA Directors, for so long as NAV CANADA US Subsidiary holds at least 30% of the Fully Diluted Company Voting Interests ( provided that (i) if NAV CANADA US Subsidiary ceases to hold at least 30% of the Fully Diluted Company Voting Interests, but holds at least 15% of the Fully Diluted Company Voting Interests, then NAV CANADA shall be entitled to designate only three (3) NAV CANADA Director, and (ii) if NAV CANADA US Subsidiary ceases to hold at least 15% of the Fully Diluted Company Voting Interests, but holds at least 5% of the Fully Diluted Company Voting Interests, then NAV CANADA shall be entitled to designate only one (1) NAV CANADA Director); (C) one (1) Enav Director, for so long as Enav US Subsidiary holds at least 5% of the Fully Diluted Company Voting Interests; (D) one (1) IAA/Naviair Director, for so long as IAA and Naviair Subsidiary collectively hold at least 5% of the Fully Diluted Company Voting Interests; and (E) the Chief Executive Officer of the Company. For the avoidance of doubt, if the initial closing of the Third NAV CANADA Tranche Financing is a partial closing, the change in allocation of directors provided for in this Section 6.2.2 shall occur at the initial closing of the Third NAV CANADA Tranche Financing.

 

6.2.3         From the closing of the Fifth NAV CANADA Tranche Financing and thereafter, each Member agrees that such Member will vote all of its Interests at each election of Directors in favor of: (A) two (2) Iridium Directors, for so long as Iridium holds at least 13% of the Fully Diluted Company Voting Interests (provided that (i) if Iridium ceases to hold at least 13% of the Fully Diluted Company Voting Interests, but holds at least 5% of the Fully Diluted Company Voting Interests, then Iridium shall be entitled to designate only one (1) Iridium Director); (B) six (6) NAV CANADA Directors, for so long as NAV CANADA US Subsidiary holds at least 40% of the Fully Diluted Company Voting Interests ( provided that (i) if NAV CANADA US Subsidiary ceases to hold at least 40% of the Fully Diluted Company Voting Interests, but holds at least 30% of the Fully Diluted Company Voting Interests, then NAV CANADA shall be entitled to designate only four (4) NAV CANADA Directors, (ii) if NAV CANADA US Subsidiary ceases to hold at least 30% of the Fully Diluted Company Voting Interests, but holds at least 15% of the Fully Diluted Company Voting Interests, then NAV CANADA shall be entitled to designate only three (3) NAV CANADA Director, and (iii) if NAV CANADA US Subsidiary ceases to hold at least 15% of the Fully Diluted Company Voting Interests, but holds at least 5% of the Fully Diluted Company Voting Interests, then NAV CANADA shall be entitled to designate only one (1) NAV CANADA Director); (C) one (1) Enav Director, for so long as Enav US Subsidiary holds at least 5% of the Fully Diluted Company Voting Interests; (D) one (1) IAA/Naviair Director, for so long as IAA and Naviair Subsidiary collectively hold at least 5% of the Fully Diluted Company Voting Interests; and (E) the Chief Executive Officer of the Company.

 

*** Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

 

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6.2.4         In the event that any of Iridium, NAV CANADA or any Additional Investor ceases to be entitled to designate any Iridium Director, NAV CANADA Director or any Additional Investors Director described in the foregoing clauses of this Section 6.2, each Member agrees that such Member will vote all of its Interests at each election of Directors in favor of one or more individuals nominated by a Majority-In-Interest of the Members to replace such Iridium Director, NAV CANADA Director or Additional Investor, as applicable.

 

6.2.5         Except as specifically set forth in this Agreement and subject to Section 6.12.1.7, the number of authorized Directors may be changed from time to time upon the approval of a majority of the members of the Board of Directors.

 

6.3           Tenure . The Iridium Directors shall serve until the earlier of their respective (i) replacement by the Members, based upon Iridium’s nomination, in accordance with Section 6.2, (ii) resignation, or (iii) death. The NAV CANADA Directors shall serve until the earlier of their respective (i) replacement by the Members, based upon NAV CANADA’s nomination, in accordance with Section 6.2, (ii) resignation, or (iii) death. The Additional Investors Director(s) shall serve until the earlier of their respective (i) replacement by the Members, based upon the nomination by the applicable Additional Investor(s), in accordance with Section 6.2, (ii) resignation, or (iii) death. The Chief Executive Officer of the Company shall serve until the earlier of his or her respective (i) termination as the Chief Executive Officer of the Company for any reason or for no reason, (ii) removal or replacement by the Board of Directors of the Company, (iii) resignation, or (iv) death.

 

6.4           Resignation; Removal . A Director may resign at any time by giving written notice to the other Directors. The resignation of a Director shall take effect upon receipt of notice thereof or at such later time as shall be specified in such notice; unless otherwise specified therein, the acceptance of such resignation shall not be necessary to make it effective. A Director nominated by one or more Members pursuant to the terms of Section 6.2 may only be removed by those Members who appointed such Director in the first place.

 

6.5           Vacancies . Upon the resignation, retirement, death or removal of any Director, the Member who had the right to nominate such Director in the first place pursuant to Section 6.2 will designate a replacement Director.

 

6.6           Meetings .

 

6.6.1         Regular meetings of the Board of Directors shall be held at such times, mutually convenient places and dates as determined by the Board of Directors. The officers and other executives of the Company may attend meetings of the Board of Directors with the prior approval of the Board of Directors.

 

*** Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

 

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6.6.2         Directors may participate in a meeting through use of conference telephone or similar communication equipment, so long as all Directors participating in such meeting can hear one another. Such participation constitutes presence in person at such meeting.

 

6.6.3         Special meetings of the Board of Directors for any purpose may be called by any two (2) Directors.

 

6.6.4         Each Director shall receive notice of the date, time and place of all meetings of the Board of Directors at least ten (10) Business Days (twenty-four (24) hours if given personally by e-mail, or by facsimile; provided that if less than ten (10) Business Days’ notice is given, any matter voted upon at the meeting shall require the vote of at least one (1) NAV CANADA Director (to the extent there is a NAV CANADA Director), one (1) Iridium Director (to the extent there is an Iridium Director) and each Additional Investor Director (to the extent there is an Additional Investor Director)) before the meeting. Such notice shall be delivered in writing (which may be by e-mail, or by facsimile) to each Director. Such notice may be given by the Secretary of the Company or by the person or persons who called the meeting. Such notice shall specify the purpose of the meeting. Notice of any meeting of the Board of Directors need not be given to any Director who signs a waiver of notice of such meeting or a consent to holding the meeting, either before or after the meeting, or who attends the meeting without protesting prior to such meeting or at the commencement thereof. All such waivers, consents and approvals shall be filed with the records of the Company.

 

6.6.5         Meetings of the Board of Directors may be held at any place that has been designated in the notice of the meeting.

 

6.6.6         Any meeting of the Board of Directors, whether or not a quorum is present, may be adjourned to another time and place by the affirmative vote of at least a majority of the Directors present. If the meeting is adjourned for more than twenty-four (24) hours, notice of such adjournment to another time or place shall be given prior to the time of the adjourned meeting to the Directors who were not present at the time of the adjournment.

 

6.6.7         Any action required or permitted to be taken by the Board of Directors may be taken without a meeting of the Board of Directors, if the Directors required for taking such action consent in writing or by electronic transmission to such action; provided that notice of such action and written consent has been provided to all Directors. Such written consent or consents or transmission or transmissions shall be filed with the corporate records of the Company. Such action by written consent shall have the same force and effect as a vote of the Directors.

 

*** Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

 

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6.7           Quorum and Transaction of Business . The number of Directors that constitutes a quorum for the transaction of business at a properly noticed meeting of the Board of Directors shall be a majority of the number of Directors then in office; provided that a quorum shall include at least one (1) Director from at least three (3) out of the following four (4) categories: (a) one (1) Iridium Director (to the extent Iridium is entitled to nominate an Iridium Director), (b) one (1) NAV CANADA Director (to the extent NAV CANADA is entitled to nominate a NAV CANADA Director), (c) one (1) Enav Director (to the extent Enav is entitled to nominate an Enav Director), and (d) one (1) IAA/Naviair Director (to the extent IAA and Naviair, collectively, are entitled to nominate an IAA/Naviair Director); provided , however , that if any meeting of the Board of Directors is adjourned or cancelled from failure to constitute a quorum due to the absence thereat of any such categories of Directors, then such meeting shall be rescheduled in accordance with this Agreement to a date not less than five (5) nor more than fifteen (15) days after the originally scheduled meeting, and in this case, the Members agree that the number of Directors who are present at such second meeting shall constitute a quorum for all purposes. Except as required by the Act or as otherwise set forth in this Agreement (including, without limitation, Section 6.12), the affirmative vote of at least a majority of the Directors then in office shall constitute the act of the Directors.

 

6.8           Directors Have No Exclusive Duty to Company . The Directors shall not be required to manage the Company as their sole and exclusive function, and, subject to Section 5.10 of this Agreement, the Directors may have other business interests and may engage in other activities in addition to those relating to the Company. Neither the Company nor any Member shall have any right, by virtue of this Agreement, to share or participate in such other investments or activities of the Directors or to the income or proceeds derived therefrom.

 

6.9           Exculpation of Directors . Neither any Director nor any affiliate of any Director shall be liable to the Members for any act or failure to act pursuant to this Agreement, except where such act or failure to act constitutes a breach of this Agreement, gross negligence or willful misconduct and has not been expressly authorized by the Members. The Directors shall be entitled to rely upon the advice of legal counsel, the Accounting Firm and other experts, including financial advisors, and any act of or failure to act by the Directors in good faith reliance on such advice shall in no event subject the Directors or any such other person to liability to the Company or any Member.

 

6.10         Creation of Committees . The Board of Directors may create committees (including, without limitation, an audit committee) to assist the Board of Directors and the officers in the governance of areas of importance to the Company; provided that each such committee shall consist of at least one (1) Iridium Director (to the extent Iridium is entitled to nominate an Iridium Director), one (1) NAV CANADA Director (to the extent NAV CANADA is entitled to nominate a NAV CANADA Director), and one (1) Additional Investors Director (to the extent the Additional Investors are entitled to nominate an Additional Investors Director), unless such requirement is waived by Iridium, NAV CANADA or the Additional Investors, respectively, with respect to any such committee. Subject to the terms of this Agreement (including, without limitation, Section 6.12), such committees shall have such powers and perform such duties as may be prescribed by the resolution or resolutions creating such committees. Each member of any such committee shall be a Director.

 

*** Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

 

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6.11         Reimbursement of Expenses; D&O Insurance . The Company shall reimburse the Directors for all reasonable travel and accommodation expenses incurred in connection with the performance of their duties as Directors of the Company upon presentation of appropriate documentation therefor. The Company shall maintain after the date hereof a directors’ liability insurance policy that is reasonably acceptable to NAV CANADA.

 

6.12         Certain Actions Requiring Prior Approval of Certain Directors .

 

6.12.1       Notwithstanding anything to the contrary set forth herein and without limiting the general authority of the Board of Directors to manage the Company pursuant to Section 6.1 or the Act, the following actions and decisions, and all other actions and decisions necessary, advisable or appropriate in connection therewith, may only be taken or made at the direction, or with the approval or consent, of the Board of Directors including the approval or consent of at least one (1) Iridium Director (to the extent there is an Iridium Director), one (1) NAV CANADA Director (to the extent there is a NAV CANADA Director) and both Additional Investor Directors (to the extent there are two (2) Additional Investor Directors, and if there is only one (1) Additional Investor Director, the approval or consent of such Additional Investors Director shall be required):

 

6.12.1.1       The consolidation, liquidation, winding up or Dissolution of the Company pursuant to Article 10 or any other Liquidation Event;

 

6.12.1.2       The sale of all of the Interests or a merger of the Company with another entity, unless immediately following the merger (i) the Members control a majority of the voting securities of the surviving entity, and (ii) the control of the surviving entity by the Members is governed by this Agreement or an agreement with substantially the same governance rights for the Member (a “ Sale ”);

 

6.12.1.3       The sale, transfer, lease or other disposition of all or substantially all the assets of the Company (an “ Asset Transfer ”);

 

6.12.1.4       [Reserved]; and

 

6.12.1.5       The amendment, modification, waiver or repeal of any provision of this Agreement; provided that (i) [***], (ii) [***], (iii) [***], and (iv) [***]; and

 

6.12.1.6       Entering into an agreement to do any of the foregoing set forth in this Section 6.12.1.

 

*** Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

 

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6.12.2       Notwithstanding anything to the contrary set forth herein and without limiting the general authority of the Board of Directors to manage the Company pursuant to Section 6.1 or the Act, the following actions and decisions, and all other actions and decisions necessary, advisable or appropriate in connection therewith, may only be taken or made at the direction, or with the approval or consent, of at least sixty-six and two-thirds percent (66 2/3%) of the members of the Board of Directors present at a meeting, including (i) the approval or consent of at least one (1) Iridium Director (to the extent there is an Iridium Director), (ii) the approval or consent of at least one (1) NAV CANADA Director (to the extent there is a NAV CANADA Director), and (iii) the approval or consent of at least one (1) Additional Investors Director (to the extent there is an Additional Investors Director):

 

6.12.2.1       Change the Primary Business of the Company, enter new lines of business, or exit the current line of business;

 

6.12.2.2       Any change or changes to the Long-Term Operating Plan or any action that would reasonably be expected to result in a deviation (in aggregate on a gross basis) from the Long-Term Operating Plan of the Company resulting in a change or deviation of ten percent (10%) or more of operating expenses or capital expenditures (any such change or deviation shall be referred to as a “ Material Change to LTOP ”); provided that (i) [***]; (ii) [***], and (iii) [***]; provided, further, that (i) [***]; (ii) [***], and (iii) [***]; and

 

6.12.2.3       Entering into an agreement to do any of the foregoing set forth in this Section 6.12.2.

 

6.12.3       Notwithstanding anything to the contrary set forth herein and without limiting the general authority of the Board of Directors to manage the Company pursuant to Section 6.1 or the Act, the following actions and decisions, and all other actions and decisions necessary, advisable or appropriate in connection therewith, may only be taken or made at the direction, or with the approval or consent, of at least sixty-six and two-thirds percent (66 2/3%) of the members of the Board of Directors present at a meeting, including (i) until the Mandatory Iridium Redemption has occurred, the approval or consent of at least one (1) Iridium Director (to the extent there is an Iridium Director) and (ii) for so long as NAV CANADA US Subsidiary and its Affiliates collectively hold at least 50% of the Fully Diluted Company Voting Interests that it held as of the Second A&R Effective Date, at least one (1) NAV CANADA Director (to the extent there is a NAV CANADA Director):

 

6.12.3.1       Any change to the number of authorized Directors; provided however that, [***]; provided further however that, [***];

 

6.12.3.2       The issuance of any Interests or any Interest Equivalents by the Company not otherwise set forth in the Long-Term Operating Plan; provided that (i) [***]; (ii) [***], and (iii) [***]; provided, further, that (i) [***]; (ii) [***], and (iii) [***];

 

*** Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

 

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6.12.3.3       The conversion of the Company into another type of entity, including any Reorganization Plan; and

 

6.12.3.4       Entering into an agreement to do any of the foregoing set forth in this Section 6.12.3.

 

6.12.4       Notwithstanding anything to the contrary set forth herein and without limiting the general authority of the Board of Directors to manage the Company pursuant to Section 6.1 or the Act, the following actions and decisions, and all other actions and decisions necessary, advisable or appropriate in connection therewith, may only be taken or made at the direction, or with the approval or consent, of (i) until the Mandatory Iridium Redemption has occurred, at least sixty-six and two-thirds (66 2/3%) of the members of the Board of Directors present at a meeting, including the approval or consent of at least one (1) Iridium Director (to the extent there is an Iridium Director) and at least one (1) NAV CANADA Director (to the extent there is a NAV CANADA Director), and (iii) following the completion of the Mandatory Iridium Redemption, at least a majority of the members of the Board of Directors present at a meeting; provided however that with respect to any approvals related to actions set forth in Section 6.12.4.6 occurring after the Mandatory Iridium Redemption, shall require at least a majority of the disinterested members of the Board of Directors:

 

6.12.4.1       Any change to the Long-Term Operating Plan or any action that would reasonably be expected to result in any deviation from the Long-Term Operating Plan of the Company that would not constitute a Material Change to LTOP; provided that (i) [***]; (ii) [***], and (iii) [***]; provided, further, that (i) [***]; (ii) [***], and (iii) [***];

 

6.12.4.2       The adoption of a new Budget or any material change to the Budget or any action that would reasonably be expected to result in any material deviation from the Budget that would not result in a Material Change to LTOP; provided, that (i) [***]; (ii) [***], and (iii) [***]; provided, further, that (i) [***]; (ii) [***], and (iii) [***];

 

6.12.4.3       Capital expenditures of the Company exceeding those set forth in the Long-Term Operating Plan by more than five percent (5%) but less than ten percent (10%);

 

6.12.4.4       The incurring or guaranteeing of any indebtedness by the Company not otherwise set forth in the Long-Term Operating Plan or pledging or encumbering any material assets of the Company that would not result in a Material Change to LTOP; provided that (i) [***], and (ii) [***]; provided, further, that (i) [***], and (ii) [***];

 

6.12.4.5       The hiring or discharging of any executive officers of the Company;

 

*** Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

 

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6.12.4.6       The entering into, amendment or termination of any contract of the Company with any Member, officer, director, employee of the Company or their respective Affiliates;

 

6.12.4.7       The amount and timing of distributions other than distribution of Accrued Dividends, if any; provided that, (i) [***], (ii) [***], (iii) at any time prior to the consummation of the Fifth NAV CANADA Tranche Financing, any payment of Accrued Dividends shall require the approval of one (1) Iridium Director and one (1) NAV CANADA Director if at the time of such payment the Company has defaulted on or deferred any obligation to pay Hosting Cost Reimbursements (as such term is defined in the Hosting Cost Reimbursement Agreement No. IS-12-033 between the Company and Iridium dated as of November 19, 2012 (the “ Hosting Cost Reimbursement Agreement ”) under the Hosting Cost Reimbursement Agreement, and (iv) at any time after the consummation of the Fifth NAV CANADA Tranche Financing, any payment of Accrued Dividends shall require the approval of one (1) Iridium Director unless all Hosting Cost Reimbursements have been paid; provided further , that notwithstanding anything to the contrary in the foregoing provisos, the accrual of Accrued Dividends and the payment by the Company of Unpaid Dividends pursuant to Section 4.1.2 or upon IPO Conversion or Mandatory Redemption in accordance with the terms of this Agreement shall not be affected by the fact that the Hosting Cost Reimbursements have not been paid in full or any default, deferral or failure of payment of Hosting Cost Reimbursements exists or has occurred;

 

6.12.4.8       The adoption of, or amendment, modification, waiver or repeal of any provision of any incentive plan and the granting of, or the delegation of the power to grant, any rights under such plan; and

 

6.12.4.9       Entering into an agreement to do any of the foregoing set forth in this Section 6.12.4.

 

6.12.5       Notwithstanding anything to the contrary set forth herein and without limiting the general authority of the Board of Directors to manage the Company pursuant to Section 6.1 or the Act, the following actions and decisions, and all other actions and decisions necessary, advisable or appropriate in connection therewith, may only be taken or made at the direction, or with the approval or consent, of at least sixty-six and two-thirds (66 2/3%) of the members of the Board of Directors present at a meeting:

 

6.12.5.1       Any modifications to the composition of, responsibilities of or elimination of the Strategic Advisory Committee; provided that in no event shall such action be taken prior to the fourth anniversary of the Second A&R Effective Date; and

 

6.12.5.2       Entering into an agreement to do any of the foregoing set forth in this Section 6.12.5.

 

*** Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

 

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6.12.6       Notwithstanding anything to the contrary set forth herein and without limiting the general authority of the Board of Directors to manage the Company pursuant to Section 6.1 or the Act, the following actions and decisions, and all other actions and decisions necessary, advisable or appropriate in connection therewith, may only be taken or made at the direction, or with the approval or consent, of at least a majority of the members of the Board of Directors present at a meeting, including the approval or consent of at least one (1) Iridium Director (to the extent there is an Iridium Director) and at least one (1) NAV CANADA Director (to the extent there is a NAV CANADA Director):

 

6.12.6.1       The entering into, amendment or termination of any customer contract of the Company having more favorable pricing terms than the Company’s contracts with current customers (or any contract that establishes pricing for new services provided to or by the Company); and

 

6.12.6.2       Entering into an agreement to do any of the foregoing set forth in this Section 6.12.4.

 

6.12.7       Notwithstanding anything to the contrary set forth herein and without limiting the general authority of the Board of Directors to manage the Company pursuant to Section 6.1 or the Act, the following actions and decisions, and all other actions and decisions necessary, advisable or appropriate in connection therewith, may only be taken or made at the direction, or with the approval or consent, of the Board of Directors present at a meeting, including the approval or consent of at least one (1) Iridium Director (to the extent there is an Iridium Director), for so long as Iridium holds at least 50% of the Fully Diluted Company Voting Interests, and one (1) NAV CANADA Director (to the extent there is a NAV CANADA Director), for so long as NAV CANADA holds at least 30% of the Fully Diluted Company Voting Interests:

 

6.12.7.1       The selection of an appraiser to value the Company, any Interests or any Transferred Interest;

 

6.12.7.2       [Reserved];

 

6.12.7.3       The valuation of assets in a liquidation or Dissolution;

 

6.12.7.4       The removal and replacement of liquidators;

 

6.12.7.5       Distributions or payments to a Member in redemption of his/her/its Interests, other than the Mandatory Redemption and the Mandatory Iridium Redemption; and

 

6.12.7.6       Entering into an agreement to do any of the foregoing set forth in this Section 6.12.6;

 

*** Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

 

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6.12.8       After the closing of the Third NAV CANADA Tranche Financing, the following actions and decisions, and all other actions and decisions necessary, advisable or appropriate in connection therewith, may only be taken or made at the direction, or with the approval or consent, of the Board of Directors, including the approval or consent of at least one (1) NAV CANADA Director (to the extent there is a NAV CANADA Director), for so long as NAV CANADA holds at least 30% of the Fully Diluted Company Voting Interests:

 

6.12.8.1       Except as permitted under the Company’s investment policy (the “ Investment Policy ”), making any loan or advance to, or owning any stock or other securities of, any subsidiary or other corporation, partnership, or other entity unless it is wholly owned by the Company;

 

6.12.8.2       Making any loan or advance to any Person, including, any employee or Director, except advances for business expenses and similar expenditures in the ordinary course of business;

 

6.12.8.3       Except as permitted under the Company’s Investment Policy, making any acquisition of securities of a Person or all or a material amount of the assets of a business or Person for an aggregate consideration in excess of $25,000 or make any investment in securities or with any other Person in excess of $25,000;

 

6.12.8.4       Enter into or be a party to any transaction with any Director, officer or employee of the Company or any Affiliate or family member of any such Person;

 

6.12.8.5       Sell, transfer, license, pledge or encumber technology or intellectual property, other than licenses granted in the ordinary course of business, except for pledges or encumbrances in connection with the incurrence of debt by the Company approved pursuant to Section 6.12.4.4;

 

6.12.8.6       Initiate or settle any material suit, claim or cause of action;

 

6.12.8.7       Appointment or change to the Accounting Firm or changes to the accounting policies and procedures of the Company; and

 

6.12.8.8       Entering into an agreement to do any of the foregoing set forth in this Section 6.12.8.

 

6.12.9       Notwithstanding any provisions of this Section 6.12 or any other provisions of this Agreement to the contrary, any amendment, or waiver with respect to, the rights or obligations of the Members under the Agreement that would affect any Member in a manner materially, adversely and disproportionately different from the effects of such amendment or waiver on the other Members will require the approval of such Member so materially, adversely and disproportionately affected.

 

*** Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

 

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Article 7

OFFICERS

 

7.1           Appointment of Officers . The Board of Directors may appoint the Chief Executive Officer and President of the Company, which may be the same person. The Board of Directors may delegate their day-to-day management responsibilities to the Chief Executive Officer and President, and such officers shall have the authority set forth in any enabling resolutions by the Board of Directors. The Chief Executive Officer may appoint the other officers of the Company (collectively, with the Chief Executive Officer and President, the “ Company Officers ”) that may include, but shall not be limited to: (a) one or more Executive Vice Presidents or Vice Presidents; (b) Secretary; and (c) Treasurer or Chief Financial Officer. The Chief Executive Officer may delegate his day-to-day management responsibilities to any such officers, and such officers shall have the authority so delegated. Each officer shall have the same fiduciary duties that such officer would have if the Company were a Delaware corporation and such officer were a corresponding officer of that corporation.

 

7.2           Tenure and Duties of Officers . The Chief Executive Officer and President shall hold office at the pleasure of the Board of Directors and until their successors shall have been duly elected and qualified, unless sooner removed. The Chief Executive Officer and President may be removed at any time by the Board of Directors. All officers, other than the Chief Executive Officer and President, shall hold office at the pleasure of the Chief Executive Officer and until their successors shall have been duly elected and qualified, unless sooner removed. Any such officer may be removed at any time by the Chief Executive Officer. If the office of any officer becomes vacant for any reason, the vacancy may be filled by the Board of Directors or the Chief Executive Officer, as applicable, in accordance with Section 7.1.

 

7.2.1        Duties of Chief Executive Officer . The Chief Executive Officer shall, subject to the control of the Board of Directors, have general supervision, direction and control of the business and officers of the Company. The Chief Executive Officer shall perform other duties commonly incident to a president of a Delaware corporation and shall also perform such other duties and have such other powers as the Board of Directors shall designate from time to time. The Chief Executive Officer, if nominated by any Member pursuant to Section 6.2, may be a Director.

 

7.2.2        Duties of President . The President shall preside at all meetings of the Members and of the Board of Directors, unless the Chairman of the Board of Directors or the Chief Executive Officer has been appointed and is present. Unless some other officer has been elected Chief Executive Officer of the Company, the President shall be the chief executive officer of the corporation and shall, subject to the control of the Board of Directors, have general supervision, direction and control of the business and officers of the Company. The President shall perform other duties commonly incident to his office and shall also perform such other duties and have such other powers as the Board of Directors shall designate from time to time

 

*** Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

 

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7.2.3        Duties of Vice Presidents . The Vice Presidents may assume and perform the duties of the President in the absence or disability of the President or whenever the office of President is vacant. The Vice Presidents shall perform other duties commonly incident to a vice president of a Delaware corporation and shall also perform such other duties and have such other powers as the Board of Directors shall designate from time to time.

 

7.2.4        Duties of Secretary . The Secretary shall attend all meetings of the Members and the Board of Directors, and shall record all acts and proceedings thereof in the minute book of the Company. The Secretary shall give notice in conformity with this Agreement of all meetings of the Members and the Board of Directors requiring notice. The Secretary shall perform all other duties given him or her in this Agreement and other duties commonly incident to a secretary of a Delaware corporation and shall also perform such other duties and have such other powers as the Board of Directors shall designate from time to time. The President may direct any Assistant Secretary to assume and perform the duties of the Secretary in the absence or disability of the Secretary, and each Assistant Secretary shall perform other duties commonly incident to the office of assistant secretary in a Delaware corporation and shall also perform such other duties and have such other powers as the Board of Directors, the Chief Executive Officer, or the President shall designate from time to time.

 

7.2.5        Duties of Chief Financial Officer or Treasurer . The Chief Financial Officer or Treasurer shall keep or cause to be kept the books of account of the Company in a thorough and proper manner, and shall render statements of the financial affairs of the Company in such form and as often as required by this Agreement, the Board of Directors or the President. The Chief Financial Officer or Treasurer, subject to the order of the Board of Directors, shall have the custody of all funds and securities of the Company. The Chief Financial Officer or Treasurer shall perform other duties commonly incident to the office of Chief Financial Officer or Treasurer in a Delaware corporation and shall also perform such other duties and have such other powers as the Board of Directors or the President shall designate from time to time. The President may direct any Assistant Treasurer to assume and perform the duties of the Chief Financial Officer or Treasurer in the absence or disability of the Chief Financial Officer or Treasurer, and each Assistant Treasurer shall perform other duties commonly incident to the office the Chief Financial Officer or Treasurer of a Delaware corporation and shall also perform such other duties and have such other powers as the Board of Directors, the Chief Executive Officer, or the President shall designate from time to time.

 

7.3           Tenure of Officers and Committee Members . The officers, committee members shall hold office at the pleasure of the Board of Directors.

 

7.4           Approval of Board of Directors . No officer of the Company shall cause the Company to take any action without the approval of the Board of Directors if such action would require the approval of the Board of Directors pursuant to the terms of this Agreement or otherwise if the Company were a Delaware corporation.

 

*** Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

 

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7.5           Strategic Advisory Committee. Each of Iridium, NAV CANADA, Enav, IAA and Naviair will appoint one lead member to serve on a Strategic Advisory Committee (the “ Strategic Advisory Committee ”), which shall advise and support the Chief Executive Officer and management team of the Company on the creation of the Company’s strategic plan, its Long-Term Operating Plan and the Budget for approval by the Company’s Board of Directors. The Strategic Advisory Committee shall be advisory in nature only and shall be subject to the terms of this Agreement. The Strategic Advisory Committee shall meet two (2) times per year, unless additional meetings are requested by the Company’s Chief Executive Officer. All actions, consents or approvals of the Strategic Advisory Committee shall require a majority of its members serving at the time such action, consent or approval is taken, which actions, consents or approvals may be carried out by telephone, facsimile or electronic mail or other means reasonably acceptable to the Company’s Board of Directors. If, on or after the fourth anniversary of the date hereof, any Members find that the Strategic Advisory Committee is interfering with the responsibilities of the Company’s Chief Executive Officer or the Board of Directors in a manner that is not beneficial for the working of the Company, then the Board of Directors may elect to modify the composition of, responsibilities of or eliminate the Strategic Advisory Committee with the approval or consent, of at least sixty-six and two-thirds percent (66 2/3%) of the members of the Board of Directors of the Company, as provided in Section 6.12.5.1.

 

Article 8

LIABILITY; INDEMNIFICATION

 

8.1           Limited Liability . Except as otherwise provided by the Act, the debts, obligations and liabilities of the Company, whether arising in contract, tort or otherwise, shall be solely the debts, obligations and liabilities of the Company, and the Members and the Directors of the Company shall not be obligated personally for any such debt, obligation or liability of the Company solely by reason of being a Member or Director of the Company.

 

8.2           Indemnification .

 

8.2.1         No Director or Company Officer of the Company shall be liable, in damages or otherwise, to the Company or any Member for any act or omission performed or omitted to be performed by it in good faith (except for fraud or willful misconduct) pursuant to the authority granted to such Director or Company Officer of the Company by this Agreement or by the Act.

 

*** Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

 

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8.2.2         To the fullest extent permitted by the laws of the State of Delaware and any other applicable laws, the Company shall indemnify and hold harmless the Directors and each Company Officer (each, an “ Indemnitee ”), from and against any and all losses, claims, demands, costs, damages, liabilities (joint or several), expenses of any nature (including reasonable attorneys’ fees and disbursements), judgments, fines, settlements and other amounts (“ Damages ”) arising from any and all claims, demands, actions, suits or proceedings, whether civil, criminal, administrative or investigative, in which an Indemnitee may be involved, or threatened to be involved, as a party or otherwise, arising out of or incidental to the business of the Company, regardless of whether an Indemnitee continues to be a Director or an Company Officer or an agent of the Company at the time any such liability or expense is paid or incurred, except for any Damages based upon, arising from or in connection with any act or omission of an Indemnitee committed without authority granted pursuant to this Agreement or in bad faith or otherwise constituting fraud or willful misconduct.

 

8.2.3         Expenses (including reasonable attorneys’ fees and disbursements) incurred in defending any claim, demand, action, suit or proceeding, whether civil, criminal, administrative or investigative, subject to Section 8.2.2 hereof, may be paid (or caused to be paid) by the Company in advance of the final disposition of such claim, demand, action, suit or proceeding upon receipt of an undertaking by or on behalf of the Indemnitee to repay such amount if it shall ultimately be determined, by a court of competent jurisdiction from which no further appeal may be taken or the time for any appeal has lapsed (or otherwise, as the case may be), that the Indemnitee is not entitled to be indemnified by the Company as authorized hereunder or is not entitled to such expense reimbursement.

 

8.2.4         Any indemnification hereunder shall be satisfied only out of the assets of the Company, and the Members shall not be subject to personal liability by reason of these indemnification provisions.

 

8.2.5         The indemnification provided by this Section 8.2 shall be in addition to any other rights to which each Indemnitee may be entitled under any agreement or vote of the Members, as a matter of law or otherwise, both as to action in the Indemnitee’s capacity as a Member or as an officer, director, employee, shareholder, member or partner of a Member or of an Affiliate, and shall inure to the benefit of the heirs, successors, assigns, administrators and personal representatives of the Indemnitee.

 

8.2.6         The Company may purchase and maintain insurance on behalf of one (1) or more Indemnitees and other Persons against any liability which may be asserted against, or expense which may be incurred by, any such Person in connection with the Company’s activities, whether or not the Company would have the power to indemnify such Person against such liability under the provisions of this Agreement.

 

8.2.7         An Indemnitee shall not be denied indemnification in whole or in part under this Section 8.2 because the Indemnitee had an interest in the transaction with respect to which the indemnification applies if the transaction was otherwise permitted by the terms of this Agreement.

 

*** Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

 

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8.2.8         The provisions of this Section 8.2 are for the benefit of each Indemnitee and its heirs, successors, assigns, administrators and personal representatives, and shall not be deemed to create any rights for the benefit of any other Persons.

 

Article 9

ACCOUNTING

 

9.1           Fiscal Year . The Fiscal Year and taxable year of the Company shall be the calendar year, unless the Board of Directors in its discretion designates a different Fiscal Year.

 

9.2           Books and Accounts .

 

9.2.1         Complete and accurate books and accounts shall be kept and maintained for the Company at its principal place of business or at such other place as designated by the Board of Directors. Such books and accounts shall be kept on the cash or accrual basis, as the Board of Directors may select in accordance with GAAP and shall include separate accounts for each Member. A list of the names and addresses of the Members shall be maintained as part of the books and records of the Company. The books, records and accounts of the Company shall reflect the Company’s operations, income, gain, loss, cost, deduction, liability, assets and equity. The books and records of the Company shall be audited annually by the Accounting Firm.

 

9.2.2         All funds received by the Company shall be deposited in the name of the Company in such bank account or accounts as the Board of Directors may designate from time to time, and withdrawals therefrom shall be made upon the signature of the authorized signatory on behalf of the Company as the Board of Directors may designate from time to time. All deposits and other funds not needed in the operation of the Company’s business may, in the discretion of the Board of Directors, be invested as determined to be appropriate by the Board of Directors.

 

9.3           Tax Matters Partner . Iridium shall serve as the “ tax matters partner ” for purposes of Section 6231 of the Internal Revenue Code, provided that the tax matters partner shall be subject to the control of the Board of Directors and shall not undertake any action, including those expressly authorized under the Code and Treasury Regulations relating to the authority of a tax matters partner, unless expressly authorized by the Board of Directors. The tax matters partner will notify the Board of Directors promptly after the receipt of notice of commencement of any audit or other proceeding involving the Company, and the Board of Directors, NAV CANADA US Subsidiary and Iridium (to the extent that it is no longer tax matters partner) shall be entitled to participate fully in any such audit or other proceeding involving the Company. The Board of Directors may appoint a new tax matters partner at any time in its sole discretion. Promptly following the written request of the tax matters partner, the Company shall, to the fullest extent permitted by law, reimburse and indemnify the tax matters partner for all reasonable expenses, including reasonable legal and accounting fees, claims, liabilities, losses and damages incurred by the tax matters partner in connection with any administrative or judicial proceeding with respect to the tax liability of the Members.

 

*** Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

 

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9.4           Tax Reports . No less than seventy-five (75) days prior to the extended due date for the filing of the Company’s income tax return for each taxable year of the Company, the Company will provide to each Member a Form 1065 (Schedule K-1) reflecting the Member’s share of income, loss, credit and deductions for such taxable year. No more than sixty (60) days after the end of the Company’s tax year, the Company will provide to each Member K-1 estimates. On a periodic basis, the Company shall provide any information reasonably required by the Members, as determined by the Board of Directors, in order to comply with estimated tax requirements.

 

9.5            Reserves . Reasonable cash reserves may be established from time to time by the Chief Financial Officer or Treasurer, with the approval of the Board of Directors.

 

9.6           Company Funds . The Company may not commingle the Company’s funds with the funds of any Member, or the funds of any Relation or Affiliate of any Member.

 

Article 10

DISSOLUTION; TERMINATION; SALE; CONVERSION

 

10.1         Dissolution .

 

10.1.1       The Company shall survive in perpetuity and shall not be dissolved except upon the approval of the Board of Directors and any Member approval required under this Agreement, or upon a judicial decree of dissolution (a “ Dissolution ”). Dissolution of the Company shall be effective on the date of such event (unless otherwise specified in such approval), but the Company shall not terminate until the assets of the Company shall have been distributed as provided herein and a certificate of dissolution of the Company has been filed with the Secretary of State of the State of Delaware.

 

10.1.2       On Dissolution of the Company, a Person shall be designated by the Board of Directors to act as liquidator(s). The liquidator(s) shall proceed diligently to wind up the affairs of the Company and make final distributions as provided herein and in the Act. The costs of liquidation shall be borne as a Company expense. Until final distribution, the liquidator(s) shall continue to operate the Company properties with all of the power and authority of Members and the Board of Directors; provided, however , that such liquidator(s) may be removed and replaced at any time and for any reason by the Board of Directors. The steps to be accomplished by the liquidator(s) are as follows:

 

10.1.2.1       The liquidator(s) shall pay, satisfy or discharge from Company funds all of the debts, liabilities and obligations of the Company (including, without limitation, all expenses incurred in liquidation) or otherwise make adequate provision for payment and discharge thereof (including, without limitation, the establishment of a cash fund for contingent liabilities in such amount and for such term as the liquidator may reasonably determine).

 

*** Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

 

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10.1.2.2       All remaining assets of the Company shall be distributed to the Members in the manner and priority set forth in Section 4.1.2 of this Agreement.

 

10.1.3       On completion of the distribution of Company assets as provided herein, the Company is terminated, and shall conduct only such activities as are necessary to wind up its affairs. The liquidator shall file a certificate of cancellation with the Secretary of State of the State of Delaware, cancel any other relevant filings and take such other actions as may be necessary to terminate the Company.

 

10.2         Merger or Sale of Interests . In the event that the Board of Directors determines that it would be in the best interests of the Members to complete a Sale, the Board of Directors shall adopt a plan of merger or sale (the “ Sale Plan ”) to effectuate such transaction. If the requisite approval of the Members under this Agreement is obtained for such Sale Plan, then subject to this Section 10.2, each Member shall take whatever reasonable action is required under such Reorganization Plan to effect the transactions contemplated therein. Except as otherwise provided in a duly approved Sale Plan, in connection with such transaction each Member shall participate in the proceeds of such transaction in the manner and priority set forth in Section 4.1.2.

 

10.2.1       Notwithstanding the foregoing, the NAV CANADA US Subsidiary shall have the right in any transaction that otherwise would involve a disposition of all or a portion of the NAV CANADA US Subsidiary’s Interests to elect that the NAV CANADA US Subsidiary Stockholder sell all or a corresponding portion, as applicable, of its NAV CANADA US Subsidiary stock to the prospective buyer in lieu of a sale of the NAV CANADA US Subsidiary’s Interests.

 

10.3         Conversion to Corporate Form . In the event that the Board of Directors determines that it would be advisable for the Company to convert or reorganize into the corporate form of organization, the Board of Directors shall, on behalf of the Company, formulate a plan of conversion or reorganization (the “ Reorganization Plan ”) to effectuate such conversion. The Reorganization Plan shall only be approved by the Board of Directors to the extent that it is tax efficient for the Members. If the requisite Member approval is obtained for such Reorganization Plan, then subject to this Section 10.3, each Member shall take whatever reasonable action is required under such Reorganization Plan to effect the transactions contemplated therein. Except as otherwise provided in a duly approved Reorganization Plan, in such conversion:

 

10.3.1       Subject to Section 10.3.3, if such Reorganization Plan is other than in connection with an initial public offering of the Company, then:

 

*** Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

 

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10.3.1.1       Each Member shall receive, with respect to such Member’s Preferred Interests, convertible and redeemable preferred stock of the successor corporation equivalent to the fully-diluted Interests represented by such Member’s Preferred Interests immediately prior to the conversion and having a liquidation preference equal to the sum of such Member’s Unreturned Capital plus such Member’s accrued and unpaid Accrued Dividend, if any, as of such time, but, after satisfaction of such liquidation preference, no right to receive participating distributions along with the common stock on an as-converted basis;

 

10.3.1.2       Each Member shall receive, with respect to such Member’s Non-Voting Preferred Interests, non-voting preferred stock, with substantially the same rights and restrictions as set for in the applicable Addendum of Designation, of the successor corporation equivalent to the fully-diluted Interests represented by such Member’s Preferred Interests immediately prior to the conversion and having a liquidation preference equal to the sum of such Member’s Unreturned Capital plus such Member’s accrued and unpaid Accrued Dividend, if any, as of such time, but, after satisfaction of such liquidation preference, no right to receive participating distributions along with the common stock on an as-converted basis;

 

10.3.1.3       Each Member shall receive, with respect to such Member’s Common Interests, common stock of the successor corporation having the same fully-diluted percentage of rights to dividends and other distributions and rights to participate in the proceeds of any sale of shares equivalent to the fully-diluted Interests represented by such Member’s Common Interests immediately prior to the conversion, provided that , any such right shall be reduced or otherwise subordinated to preferred stock of the successor corporation; and

 

10.3.1.4       Each Member shall receive with respect to such Member’s Interests: (A) relative voting rights equivalent to those of such Interests; (B) the same restrictions on transfer as were applicable to such Interests prior to the conversion; (C) the same vesting, forfeiture and repurchase restrictions as were applicable to such Interests prior to the conversion; and (D) any other rights or restrictions as were applicable to such Interests prior to the conversion.

 

10.3.2       Subject to Section 10.3.3, if such Reorganization Plan is in connection with an initial public offering of the Company or a successor entity to the Company (the “ IPO Entity ”), then each Member will receive common stock (or comparable equity securities) of the IPO Entity equal to the number of shares of common stock such Member holding Non-Voting Preferred Interests, Preferred Interests or Common Interests would have received pursuant to Section 10.3.1.1 (upon conversion of such preferred stock issued pursuant thereto, and any Accrued Dividend shall be paid to such Members upon such conversion pursuant to Section 5.4.4) and 10.3.1.2, respectively. The voting rights, transfer restrictions, information rights and investor rights applicable to the Members after any such conversion in connection with an initial public offering shall be as set forth in this Agreement, or as otherwise approved by the Board and the Members in accordance with this Agreement.

 

*** Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

 

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10.3.3       Notwithstanding the foregoing, in the event of a conversion to corporate form, whether or not in connection with an initial public offering, NAV CANADA US Subsidiary shall have the right to effect a transaction that is treated as the contribution of NAV CANADA US Subsidiary stock by NAV CANADA US Subsidiary Stockholder to the successor corporation or IPO Entity, with the result that NAV CANADA US Subsidiary Stockholder shall hold directly interests in the successor corporation or IPO Entity, as applicable, and shall have the same rights, and be subject to the same restrictions, as NAV CANADA US Subsidiary would under Section 10.3.1 or Section 10.3.2 if NAV CANADA US Subsidiary stock were not contributed; provided that, to the extent practicable, NAV CANADA’s rights under this Section 10.3.3 shall be implemented in a manner that does not result in materially adverse tax consequences for the other Members.

 

Article 11

TRANSFER RESTRICTIONS

 

11.1         In General .

 

11.1.1       Each Member agrees not to make any Transfer of all or any Interests in the Company in contravention to the provisions of this Article 11, except that Transfers to a Permitted Transferee shall be permitted to the extent such Transfer(s) do not create a termination under Section 708(b)(1)(B) of the Code.

 

11.1.1.1       For an individual Member, a “ Permitted Transferee ” is such Member’s Relations or any entity established by such Member solely for the benefit of such Member and such Member’s Relations.

 

11.1.1.2       For a Member that is not an individual, a “ Permitted Transferee ” is another entity that is an Affiliate of such Member.

 

11.1.2       Any attempted Transfer by any Person of an interest or right, or any part thereof, in or in respect of the Company other than in accordance with this Article 11 shall be, and is hereby declared, null and void ab initio .

 

11.1.3       A Person to whom an interest in the Company is transferred in accordance with this Agreement has the right to be admitted to the Company as a Member only upon execution by the transferee of such instruments as the Board of Directors, may deem necessary or advisable to effect the admission of such transferee as a Member, including, without limitation, the written acceptance and adoption by such transferee of the provisions of this Agreement and any other agreement to which the transferring Member is bound with respect to the transferred interest.

 

*** Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

 

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11.2         Right of First Refusal .

 

11.2.1       Except for a Transfer to a Permitted Transferee, no Member shall Transfer any of the Interests or any right or interest therein except by a Transfer which meets the requirements hereinafter set forth in this Section 11.2:

 

11.2.1.1       If any Member (the “ ROFR Seller ”) desires to Transfer any of his/her/its Interests, then such Member shall first give written notice thereof to the Company (the “ First ROFR Sale Notice ”). The First ROFR Sale Notice shall name the proposed transferee and state the amount of Interests to be transferred, the proposed consideration, and all other terms and conditions of the proposed Transfer.

 

11.2.1.2       For forty-five (45) days following receipt of the First ROFR Sale Notice, the Company shall have the option to purchase all (but not less than all) of the Interests specified in the notice at the price and upon the terms set forth in such notice; provided, however, that, with the consent of the ROFR Seller, the Company shall have the option to purchase a lesser portion of the Interests specified in the First ROFR Sale Notice at the price and upon the terms set forth therein. In the event the Company elects to purchase all of the Interests or, with consent of the ROFR Seller, a lesser portion of the Interests, it shall give written notice to the ROFR Seller of its election and settlement for said Interests shall be made as provided below.

 

11.2.1.3       The Company may not assign its rights hereunder.

 

11.2.1.4       In the event the Company elects to acquire any of the Interests of the ROFR Seller as specified in the First ROFR Sale Notice, the Company shall so notify the ROFR Seller and settlement thereof shall be made in cash within forty-five (45) days after the Company receives the First ROFR Sale Notice; provided that if the terms of payment set forth in the First ROFR Sale Notice were other than cash against delivery, the Company shall pay for said Interests on the same terms and conditions set forth in the First ROFR Sale Notice but in any event, settlement thereof shall be made within forty-five (45) days after the Company receives the First ROFR Sale Notice.

 

11.2.1.5       In the event that the Company does not elect to acquire all of the Interests specified in the First ROFR Sale Notice, the ROFR Seller shall promptly give written notice (the “ Second ROFR Sale Notice ”) to the other Members holding Voting Interests, which shall set forth the amount of Interests not purchased by the Company and which shall include the terms of notice set forth in the First ROFR Sale Notice. Each other Member holding Voting Interests shall then have the right, exercisable upon written notice to the ROFR Seller (the “ ROFR Buy Notice ”) within thirty (30) days after the receipt of the Second ROFR Sale Notice, to purchase its pro rata portion of the Interests subject to the Second ROFR Sale Notice and on the same terms and conditions as set forth therein. The Members holding Voting Interests who so exercise their rights shall effect the purchase of the Interests, including payment of the purchase price, not more than fifteen (15) days after delivery of the ROFR Buy Notice. Each other Member holding Voting Interests shall be entitled to assign the rights under this Section 11.2 to any Affiliates of such Member.

 

*** Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

 

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11.2.1.6       In the event that not all of the other Members holding Voting Interests elect to purchase their pro rata share of the ROFR Seller’s Interests specified in the Second ROFR Sale Notice, then the ROFR Seller shall give written notice to each of the Members holding Voting Interests who so exercised their rights to purchase their pro rata portion (the “ Participating Members ”) within twenty (20) days following the expiration of the period of time for such Members holding Voting Interests to send the ROFR Buy Notice (the “ Overallotment Notice ”), which shall set forth the amount of Interests not purchased by the Company and the other Members holding Voting Interests, and shall offer such Participating Members the right to acquire such unsubscribed Interests. Each Participating Member shall have five (5) days after receipt of the Overallotment Notice to deliver a written notice to the ROFR Seller (the “ Participating Members Overallotment Notice ”) indicating the amount of unsubscribed Interests that such Participating Member desires to purchase, and each such Participating Member shall be entitled to purchase such amount of unsubscribed Interests on the same terms and conditions as set forth in the Second ROFR Sale Notice. In the event that the Participating Members desire, in the aggregate, to purchase in excess of the total amount of available unsubscribed Interests, then the amount of unsubscribed Interests that each Participating Member may purchase shall be reduced on a pro rata basis. The Participating Members shall then effect the purchase of the ROFR Seller’s Interests, including payment of the purchase price, not more than five (5) days after delivery of the Participating Members Overallotment Notice.

 

11.2.1.7       In the event the Company does not elect to acquire all of the Interests specified in the First ROFR Sale Notice, the other Members holding Voting Interests do not elect to acquire all of the Interests specified in the Second ROFR Sale Notice and the Participating Members do not elect to acquire all of the Interests specified in the Overallotment Notice, the ROFR Seller may, within the 60-day period following the expiration of the option rights granted to the Company, the other Members holding Voting Interests and the Participating Members herein, Transfer the Interests specified in the Overallotment Notice which were not acquired by either the Company, the other Members holding Voting Interests or the Participating Members as specified in the Overallotment Notice. All Interests so sold by said ROFR Seller shall continue to be subject to the provisions of this Agreement in the same manner as before said Transfer.

 

11.2.2       Any attempted Transfer by any Person of an interest or right, or any part thereof, in or in respect of the Company other than in accordance with this Section 11.2 shall be, and is hereby declared, null and void ab initio . The obligations under this Section 11.2 shall terminate upon the occurrence of a Qualified IPO or the consolidation, liquidation, winding up or Dissolution of the Company pursuant to Article 10.

 

*** Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

 

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Article 12

OTHER INVESTOR RIGHTS

 

12.1         NAV CANADA Protective Provisions .

 

12.1.1       Notwithstanding anything in this Agreement to the contrary, the Company will not take any of the following actions without the prior written approval of NAV CANADA US Subsidiary, for so long as NAV CANADA US Subsidiary and its Affiliates collectively hold Preferred Interests equal to at least 5% of the Fully Diluted Company Voting Interests:

 

12.1.1.1       any consolidation, liquidation, winding up or Dissolution of the Company pursuant to Article 10 or any other Liquidation Event;

 

12.1.1.2       any amendment, modification, waiver or repeal of any provision of this Agreement; provided that (i) [***]; and (ii) [***];

 

12.1.1.3       any creation or authorization of or issuance or authorization of the issuance of any other security of the Company, including any security convertible into or exercisable for any equity security, having rights, preferences or privileges senior to or pari passu with the Preferred Interests; provided , however , that this clause shall not apply to issuances of any securities in connection with the NAV CANADA Financing or the Additional Investors Financing as contemplated by the Long-Term Operating Plan and having the terms and conditions set forth in this Agreement, the NAV CANADA Subscription Agreement and the Additional Investors Subscription Agreements, as applicable (“ Permitted Issuances ”); provided further , that (i) [***]; and (ii) [***];

 

12.1.1.4       the purchase of or redemption of or making of any distribution (other than in accordance with, and as permitted by, this Agreement) on account of any equity of the Company in priority to or pari passu with any Accrued Dividends, other than securities or other interests repurchased from former employees or consultants in connection with the cessation of their employment/services at fair market value;

 

12.1.1.5       [Reserved];

 

12.1.1.6       any Asset Transfer;

 

12.1.1.7       any Sale;

 

12.1.1.8       the change to the number of authorized Directors; provided however that, with respect to any increase in the number of authorized Directors, if NAV CANADA US Subsidiary maintains a right to appoint a number of Directors proportionate to its Percentage Interest (rounded to the nearest whole number of Directors), (i) [***], and (ii) [***];

 

*** Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

 

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12.1.1.9       incurring or guaranteeing of any material indebtedness by the Company; provided that [***]; provided further that [***];

 

12.1.1.10     the adoption of, or amendment, modification, waiver or repeal of any provision of the Plan;

 

12.1.1.11     any registration of Common Interest or any equity securities of the Company (or any successor entity, including the IPO Entity) into which the Common Interest are convertible or exchangeable under the Securities Act or any other securities laws in any applicable jurisdictions pursuant to which the Company or any such successor entity proposes to conduct an initial public offering; and

 

12.1.1.12     entering into an agreement to do any of the foregoing set forth in Section 12.1.1.

 

12.2         Information Rights .

 

12.2.1       The Company shall, and shall cause each of its officers, Directors, employees, Accounting Firm, Affiliates and other representatives to provide Iridium, NAV CANADA US Subsidiary, Enav US Subsidiary, IAA, Naviair Subsidiary and each holder of more than 10% of the Fully Diluted Company Voting Interests, and their and its respective officers, directors, employees, accountants, Affiliates and representatives (the “ Information Rights Holders ”), reasonable access during normal business hours to the Company’s officers, Directors, employees, agents, properties, offices, books, contracts, reports, records, personnel and other facilities, and give them access to, such documents, financial date, records and information of the Company as Iridium, NAV CANADA US Subsidiary and any such holder of more than 10% of the Fully Diluted Company Voting Interests from time to time may reasonably request.

 

12.2.2       The Company will provide Iridium, NAV CANADA US Subsidiary and the Additional Investor Subsidiaries with the following materials for review:

 

12.2.2.1       Prior to the filing thereof, the Company’s federal and state income tax returns (and relevant schedules);