Iridium Communications Inc.
Iridium Communications Inc. (Form: 10-Q, Received: 07/31/2014 07:07:12)

 

 

 

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 June 30, 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 July 28, 2014 was 93,096,975.

 

 

 

 
 

 

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 16
     
ITEM  3. Quantitative and Qualitative Disclosures About Market Risk 28
     
ITEM  4. Controls and Procedures 29
     
Part II. Other Information  
     
ITEM  1. Legal Proceedings 29
     
ITEM  1A. Risk Factors 29
     
ITEM  2. Unregistered Sales of Equity Securities and Use of Proceeds 29
     
ITEM  3. Defaults Upon Senior Securities 29
     
ITEM  4. Mine Safety Disclosures 2 9
     
ITEM  5. Other Information 2 9
     
ITEM  6. Exhibits 30
     
  Signatures 31

 

2
 

   

PART I.

 

Iridium Communications Inc.

Condensed Consolidated Balance Sheets

(In thousands, except per share data)

 

    June 30, 2014     December 31, 2013  
    (Unaudited)        
Assets                
Current assets:                
Cash and cash equivalents   $ 336,328     $ 186,342  
Marketable securities     164,159       76,647  
Accounts receivable, net     70,261       54,758  
Inventory     28,830       29,532  
Deferred tax assets, net     5,017       9,076  
Income tax receivable     351       685  
Prepaid expenses and other current assets     11,498       12,518  
Total current assets     616,444       369,558  
Property and equipment, net     1,654,862       1,575,579  
Restricted cash     83,576       81,223  
Other assets     7,733       8,909  
Intangible assets, net     50,927       57,452  
Deferred financing costs     129,699       130,036  
Goodwill     87,039       87,039  
Total assets   $ 2,630,280     $ 2,309,796  
                 
Liabilities and stockholders' equity                
Current liabilities:                
Accounts payable   $ 15,872     $ 12,934  
Accrued expenses and other current liabilities     37,349       39,209  
Interest payable     8,706       7,989  
Deferred revenue     40,341       41,367  
Total current liabilities     102,268       101,499  
Accrued satellite operations and maintenance expense, net  of current portion     15,720       16,389  
Credit facility     1,084,425       1,039,203  
Deferred tax liabilities, net     219,017       202,825  
Other long-term liabilities     17,951       10,385  
Total liabilities     1,439,381       1,370,301  
                 
Commitments and contingencies                
                 
Stockholders' equity                
Series A Preferred Stock, $0.0001 par value, 1,000 shares authorized, issued and outstanding     -       -  
Series B Preferred Stock, $0.0001 par value, 500 and zero shares authorized, issued and outstanding, respectively     -       -  
Common stock, $0.001 par value, 300,000 shares authorized, 93,097 and 76,690 shares issued and outstanding, respectively     93       77  
Additional paid-in capital     1,025,198       801,262  
Retained earnings     165,805       138,845  
Accumulated other comprehensive loss, net of tax     (197 )     (689 )
Total stockholders' equity     1,190,899       939,495  
Total liabilities and stockholders' equity   $ 2,630,280     $ 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     Six Months Ended  
    June 30,     June 30,  
    2014     2013     2014     2013  
                         
Revenue:                                
Services   $ 76,217     $ 71,401     $ 149,647     $ 140,188  
Subscriber equipment     20,333       19,815       40,490       37,146  
Engineering and support services     5,971       3,468       10,416       6,539  
Total revenue     102,521       94,684       200,553       183,873  
                                 
Operating expenses:                                
Cost of services (exclusive of depreciation and amortization)     16,730       14,206       30,933       28,682  
Cost of subscriber equipment     13,268       12,893       27,180       24,013  
Research and development     4,645       1,741       6,766       3,400  
Selling, general and administrative     18,493       18,399       37,679       36,764  
Depreciation and amortization     19,672       18,597       39,938       36,828  
Total operating expenses     72,808       65,836       142,496       129,687  
                                 
Operating income     29,713       28,848       58,057       54,186  
                                 
Other income (expense):                                
Interest income, net     725       641       1,362       1,278  
Undrawn credit facility fees     (1,460 )     (2,020 )     (2,959 )     (4,116 )
Other expense, net     (3,789 )     (869 )     (4,139 )     (2,265 )
Total other expense     (4,524 )     (2,248 )     (5,736 )     (5,103 )
Income before income taxes     25,189       26,600       52,321       49,083  
Provision for income taxes     (10,170 )     (11,187 )     (20,759 )     (18,736 )
Net income     15,019       15,413       31,562       30,347  
Series A Preferred Stock dividends     1,750       1,750       3,500       3,500  
Series B Preferred Stock dividends     1,102       -       1,102       -  
Net income attributable to common stockholders   $ 12,167     $ 13,663     $ 26,960     $ 26,847  
                                 
Weighted average shares outstanding - basic     86,793       76,900       81,964       76,834  
Weighted average shares outstanding - diluted     95,653       87,530       86,444       87,477  
Net income attributable to common stockholders per share - basic   $ 0.14     $ 0.18     $ 0.33     $ 0.35  
Net income attributable to common stockholders per share - diluted   $ 0.14     $ 0.18     $ 0.32     $ 0.35  
                                 
Comprehensive income:                                
Net income   $ 15,019     $ 15,413     $ 31,562     $ 30,347  
Foreign currency translation adjustments, net of tax     274       (188 )     430       (261 )
Unrealized gain (loss) on marketable securities, net of tax     2       (271 )     62       (285 )
Comprehensive income   $ 15,295     $ 14,954     $ 32,054     $ 29,801  

 

See notes to unaudited condensed consolidated financial statements

 

4
 

  

Iridium Communications Inc.

Condensed Consolidated Statements of Cash Flows

(In thousands)

(Unaudited)

 

    Six Months Ended June 30,  
    2014     2013  
             
Cash flows from operating activities:                
Net cash provided by operating activities   $ 91,197     $ 100,262  
                 
Cash flows from investing activities:                
Capital expenditures     (108,073 )     (151,688 )
Purchases of marketable securities     (120,473 )     (91,393 )
Sales and maturities of marketable securities     32,740       11,993  
Investment in equity method affiliate     -       (5,000 )
Net cash used in investing activities     (195,806 )     (236,088 )
                 
Cash flows from financing activities:                
Borrowings under the Credit Facility     45,222       101,765  
Payment of deferred financing fees     (4,560 )     (6,540 )
Restricted cash deposits     (13,362 )     (13,494 )
Releases from restricted cash     11,009       -  
Proceeds from exercise of warrants     -       4  
Proceeds from exercise of stock options     173       21  
Tax payment upon settlement of stock awards     (37 )     -  
Payment of Series A Preferred Stock dividends     (3,500 )     (3,500 )
Proceeds from issuance of Series B Preferred Stock, net of issuance costs     120,753       -  
Proceeds from issuance of common stock, net of issuance costs     98,897       -  
Net cash provided by financing activities     254,595       78,256  
                 
Net increase (decrease) in cash and cash equivalents     149,986       (57,570 )
Cash and cash equivalents, beginning of period     186,342       254,418  
Cash and cash equivalents, end of period   $ 336,328     $ 196,848  
                 
Supplemental cash flow information:                
Interest paid   $ 7,271     $ 5,096  
Income taxes paid (refunded)   $ 273     $ (2,927 )
                 
Supplemental disclosure of non-cash investing activities:                
Property and equipment received but not paid for yet   $ 9,172     $ 10,646  
Interest capitalized but not paid   $ 8,706     $ 6,602  
Capitalized amortization of deferred financing costs   $ 4,897     $ 4,500  
Capitalized paid-in-kind interest   $ 16,542     $ 11,667  
Capitalized stock-based compensation   $ 597     $ 657  
                 
Supplemental disclosure of non-cash financing activities:                
Dividends accrued on Series A Preferred Stock   $ 292     $ 292  
Dividends accrued on Series B Preferred Stock   $ 1,102     $ -  

 

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 six months ended June 30, 2014 were as follows:

 

    Six Months Ended  
    June 30, 2014  
    (in thousands)  
Balance at beginning of the period   $ 8,853  
Provision     3,167  
Utilization     (3,672 )
Balance at end of the period   $ 8,348  

 

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
 

  

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 sheets. 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.

 

Recent Accounting Pronouncements

 

On May 28, 2014, the Financial Accounting Standards Board and the International Accounting Standards Board jointly issued a comprehensive new revenue recognition standard, Accounting Standards Update No. 2014-09 Revenue from Contracts with Customers (“ASU 2014-09”) that will supersede nearly all existing revenue recognition guidance under U.S. GAAP. ASU 2014-09 requires a company to recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. ASU 2014-09 is effective for public entities for annual and interim periods beginning after December 15, 2016. Early adoption is not permitted. ASU 2014-09 becomes effective for the Company in the first quarter of fiscal 2017. The Company has not yet selected a transition method and is currently evaluating the effect that ASU 2014-09 will have on the Company’s consolidated financial statements and related disclosures.

 

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 on the accompanying condensed consolidated balance sheet. The following table summarizes the Company’s cash and cash equivalents:

 

    June 30,     December 31,     Recurring Fair
    2014     2013     Value Measurement
    (in thousands)      
Cash and cash equivalents:                    
Cash   $ 209,538     $ 86,074      
Money market funds     88,619       88,769     Level 1
Commercial paper     38,171       11,499     Level 2
Total Cash and cash equivalents   $ 336,328     $ 186,342      

 

The increase in cash, cash equivalents, and marketable securities from December 31, 2013 to June 30, 2014 is due to the proceeds from the sale of the Company’s common stock and Series B Cumulative Perpetual Convertible Preferred Stock. For further discussion of the Company’s equity transactions, see the Equity Transactions and Instruments footnote below.

 

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 June 30, 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 $83.6 million and $81.2 million, respectively. For further discussion on the cash reserve for debt service related to the Credit Facility, see the Commitments and Contingencies footnote below.

 

7
 

  

Marketable Securities

 

Marketable securities consist 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 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 and six months ended June 30, 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 June 30, 2014.

 

The following table summarizes the Company’s marketable securities as of June 30, 2014 and December 31, 2013 :

 

    June 30,     December 31,     Recurring Fair
    2014     2013     Value Measurement
    (in thousands)      
Marketable securities:                    
Fixed-income debt securities   $ 114,383     $ 57,032     Level 2
Commercial paper     49,776       19,615     Level 2
Total Marketable securities   $ 164,159     $ 76,647      

 

The following tables present the contractual maturities of the Company’s marketable securities :

 

    As of June 30, 2014  
    Amortized     Unrealized     Estimated  
    Cost     Gain     Fair Value  
    (in thousands)  
Fixed-income debt securities:                        
Mature after one year and within three years   $ 114,300     $ 83     $ 114,383  
Commercial paper:                        
Mature within one year     49,776       -       49,776  
Total   $ 164,076     $ 83     $ 164,159  

 

    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 June 30, 2014 was approximately $3,000 and $2,000, respectively. The Company’s gross and net-of-tax unrealized loss on marketable securities for the three months ended June 30, 2013 was $271,000 and $169,000, respectively.

 

The Company’s gross and net-of-tax unrealized gain on marketable securities for the six months ended June 30, 2014 was approximately $99,000 and $62,000, respectively. The Company’s gross and net-of-tax unrealized loss on marketable securities for the six months ended June 30, 2013 was $285,000 and $178,000, 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.

 

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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 June 30, 2014, the Company had made aggregate payments of $1,122.0 million to Thales, of which $953.0 million were 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. The Company currently uses the Credit Facility to pay 85% of each invoice received from Thales under the FSD with the remaining 15% funded from cash on hand. Once the Credit Facility is fully drawn, the Company expects to pay 100% of each invoice received from Thales from cash and marketable securities on hand, and internally generated cash flow, including potential cash flows from hosted payloads and Iridium PRIME.

 

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 (as amended to date, the “SpaceX Agreement”). The maximum price under the SpaceX Agreement is $453.1 million. As of June 30, 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 June 30, 2014, the Company had made aggregate payments of $23.3 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. In May 2014, the Company entered into a supplemental agreement (the “Supplemental Agreement”) with the Lenders under the Credit Facility, to further amend and restate the Credit Facility. The Company had borrowed an aggregate total of $1,084.4 million as of June 30, 2014. The unused portion of the Credit Facility as of June 30, 2014 was $715.6 million. Pursuant to the Credit Facility, the Company maintains a minimum cash reserve for repayment. As of June 30, 2014, the minimum required cash reserve balance was $83.5 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 to $189.0 million in 2017.

 

Interest costs incurred under the Credit Facility were $12.5 million and $24.5 million for the three and six months ended June 30, 2014, respectively. All interest costs incurred related to the Credit Facility are 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 following table presents interest activity for the Credit Facility for the six months ended June 30, 2014 and 2013 payable via cash or deemed loan:

 

9
 

  

    Six Months Ended  
    June 30, 2014  
    Cash     Deemed Loan     Total  
    (In Thousands)  
Beginning interest payable   $ 2,435     $ 5,543     $ 7,978  
Interest incurred     7,499       17,042       24,541  
Interest payments     (7,271 )     (16,542 )     (23,813 )
Ending interest payable   $ 2,663     $ 6,043     $ 8,706  

 

    Six Months Ended  
    June 30, 2013  
    Cash     Deemed Loan     Total  
    (In Thousands)  
Beginning interest payable   $ 1,630     $ 3,734     $ 5,364  
Interest incurred     5,500       12,501       18,001  
Interest payments     (5,096 )     (11,667 )     (16,763 )
Ending interest payable   $ 2,034     $ 4,568     $ 6,602  

 

The Company also pays a commitment fee of 0.80% per year, in semi-annual installments, on any undrawn portion of the Credit Facility. During the three months ended June 30, 2014, the Company paid $3.2 million as a semi-annual installment of the commitment fee. The commitment fee payable on the undrawn portion of the Credit Facility as of June 30, 2014 was $1.4 million and is included in accrued expenses and other current liabilities in the accompanying condensed consolidated balance sheet.

 

The Supplemental Agreement includes revised financial covenant levels. The Supplemental Agreement also delays, until 2017, a portion of the contributions that the Company had been scheduled to make during 2014, 2015 and 2016 to the debt service reserve account that the Company is required to maintain under the Credit Facility. The Supplemental Agreement delays $22 million of the Company’s 2014 contributions, $22 million of the Company’s 2015 contributions and $32 million of the Company’s expected 2016 contributions, for a total of $76 million. As of March 31, 2014, prior to the execution of the Supplemental Agreement, the minimum required cash reserve balance was $94.5 million. As of June 30, 2014 after the execution of the Supplemental Agreement, the minimum required cash reserve balance was reduced to $83.5 million. As a result of this reduction, the Company released $11.0 million from restricted cash during the three months ended June 30, 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.

 

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 June 30, 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.

 

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During the six months ended June 30, 2014, the Company granted approximately 878,000 stock options and 786,000 service-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. In March 2014, the Company awarded approximately 207,000 performance-based RSUs to the Company’s executives (the “March 2014 RSUs”). Vesting of these March 2014 RSUs is dependent upon the Company’s achievement of defined performance goals over a two-year measurement period. The number of March 2014 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 March 2014 RSUs 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. In June 2014, the Company awarded approximately 323,000 performance-based RSUs to its executives and employees (the “June 2014 RSUs”). Vesting of the June 2014 RSUs is dependent upon the Company’s achievement of defined performance goals for the 2014 fiscal year. The level of achievement, if any, of performance goals will be determined by the compensation committee. The Company expects this determination to occur in the first quarter of 2015. 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, March 2014 RSUs, and June 2014 RSUs granted during the six months ended June 30, 2014 were $2.5 million, $5.1 million, $1.3 million, and $2.6 million, respectively.

 

In June 2014, the Company granted 45,000 stock options to non-employee consultants. The stock options granted to consultants are generally subject to service vesting and vest quarterly over a two-year service period. The fair value of the consultant options is the then-current fair value attributable to the vesting portions of the awards, calculated using the Black-Scholes option pricing model. The estimated aggregate grant-date fair value of the stock options granted to non-employee consultants during the three months ended June 30, 2014 was $0.2 million.

 

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 June 30, 2014, 277,021 of the $11.50 Warrants remained outstanding. Any remaining outstanding $11.50 Warrants will expire in February 2015.

 

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Preferred Stock

 

The Company is authorized to issue 2.0 million shares of preferred stock with a par value of $0.0001 per share. As described below, the Company issued 1.0 million shares of preferred stock in the fourth quarter of 2012 and 0.5 million shares of preferred stock in the second quarter of 2014. The remaining 0.5 million authorized shares of preferred stock remain undesignated and unissued as of June 30, 2014.

 

Series A Cumulative Convertible Perpetual Preferred Stock

 

In the fourth quarter of 2012, the Company issued 1.0 million shares of its 7.00% Series A Cumulative Perpetual Convertible 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 offering costs. The net proceeds of this offering are being used to partially fund the construction and deployment of Iridium NEXT and for other general corporate purposes.

 

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 and on parity with the Company’s Series B Cumulative Perpetual Convertible Preferred 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 at an initial 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. During the six months ended June 30, 2014, the Company paid cash dividends of $3.5 million to holders of the Series A Preferred Stock. As of June 30, 2014, the Company has 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.

 

Series B Cumulative Convertible Perpetual Preferred Stock

 

In May 2014, the Company issued 500,000 shares of its 6.75% Series B Cumulative Perpetual Convertible Preferred Stock (the “Series B Preferred Stock”) in an underwritten public offering at a price to the public of $250 per share. The purchase price received by the Company, equal to $242.50 per share, reflected an underwriting discount of $7.50 per share. The Company received proceeds of $120.8 million from the sale of the Series B Preferred Stock, net of the $3.8 million underwriter discount and $0.4 million of offering costs. The Company intends to use the net proceeds of this offering to partially fund the construction and deployment of Iridium NEXT and for other general corporate purposes.

 

Holders of Series B Preferred Stock are entitled to receive cumulative cash dividends at a rate of 6.75% per annum of the $250 liquidation preference per share (equivalent to an annual rate of $16.875 per share). Dividends are payable quarterly in arrears on each March 15, June 15, September 15 and December 15 beginning September 15, 2014. As of June 30, 2014, the Company has accrued $1.1 million for cash dividends payable to the holders of the Series B Preferred Stock, which is included within accrued expenses and other current liabilities on the accompanying condensed consolidated balance sheet. The Series B Preferred Stock does not have a stated maturity date and is not subject to any sinking fund or mandatory redemption provisions. The Series B Preferred Stock ranks senior to the Company’s common stock and pari passu with respect to the Company’s Series A Preferred Stock with respect to dividend rights and rights upon the Company’s voluntary or involuntary liquidation, dissolution or winding-up. Holders of Series B 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 B Preferred Stock may convert some or all of their outstanding Series B Preferred Stock at an initial conversion rate of 33.456 shares of common stock per $250 liquidation preference, which is equivalent to an initial conversion price of approximately $7.47 per share of common stock (subject to adjustment in certain events).

 

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On or after May 15, 2019, the Company may, at its option, convert some or all of the Series B 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 May 15, 2019, in the event of certain specified fundamental changes, holders of the Series B Preferred Stock will have the right to convert some or all of their shares of Series B Preferred Stock into the greater of (i) a number of shares of the Company’s common stock as subject to adjustment plus the make-whole premium, if any, and (ii) a number of shares of the Company’s common stock equal to the lesser of (a) the liquidation preference divided by the market value of the Company’s common stock on the effective date of such fundamental change and (b) 81.9672 (subject to adjustment). In certain circumstances, the Company may elect to cash settle any conversions in connection with a fundamental change.

 

Common Stock

 

Registered Direct Public Offering

 

In May 2014, the Company issued 7,692,308 shares of its common stock in a registered direct public offering to certain investment funds affiliated with Baron Capital Group Inc. (“Baron”) at a price of $6.50 per share for aggregate gross proceeds of $50.0 million. The Company received proceeds of $49.9 million from the sale of the common stock to Baron, net of offering costs of $0.1 million. The Company intends to use the proceeds from this offering for general corporate purposes, which may include capital expenditures, including construction and deployment of the Iridium NEXT system, working capital and general and administrative expenses.

 

Under the stock purchase agreement entered into with Baron, Baron was entitled to receive additional shares if, during the 90-day period following the date of the stock purchase agreement, the Company issued or sold securities below specified prices. As a result of the Company’s public offering of common stock, described below, and its public offering of Series B Preferred Stock, described above, the Company is obligated to deliver 504,413 additional shares of common stock to Baron. The shares will be issued on or about August 6, 2014.

 

Underwritten Public Offering

 

Concurrently with its public offering of Series B Preferred Stock in May 2014, the Company issued 8,483,608 shares of its common stock in an underwritten public offering, including 1,106,558 shares upon the underwriters’ exercise of their overallotment option in full, at a price to the public of $6.10 per share. The Company received proceeds of $49.0 million, net of the $2.6 million underwriting discount and $0.2 million of offering costs.

 

7. Net Income Per Share

 

The Company calculates basic net income per share by dividing net income attributable to common stockholders by the weighted-average number of shares of common stock outstanding during the period. Diluted net income per share takes into account the effect of potential dilutive common shares when the effect is dilutive. The effect of potential dilutive common shares, including common stock issuable upon exercise of outstanding stock options and stock purchase warrants, is computed using the treasury stock method. The effect of potential dilutive common shares from the conversion of the outstanding convertible preferred securities is computed using the as-if converted method at the stated conversion rate. The Company’s unvested RSUs contain non-forfeitable rights to dividends and therefore are considered to be participating securities in periods of net income. The calculation of basic and diluted net income per share excludes net income attributable to the unvested RSUs from the numerator and excludes the impact of unvested RSUs from the denominator.

 

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

 

    Three Months Ended June 30,  
    2014     2013  
    (in thousands, except per share data)  
Numerator:                
Net income attributable to common stockholders   $ 12,167     $ 13,663  
Net income allocated to participating securities     (11 )     (16 )
Numerator for basic net income per share     12,156       13,647  
Dividends on Series A Preferred Stock     -       1,750  
Dividends on Series B Preferred Stock     1,102       -  
Numerator for diluted net income per share   $ 13,258     $ 15,397  
                 
Denominator:                
Denominator for basic net income per share - weighted                
average outstanding common shares     86,793       76,900  
Dilutive effect of stock options     9       -  
Dilutive effect of contingently issuable shares     27       28  
Dilutive effect of Series A Preferred Stock     -       10,602  
Dilutive effect of Series B Preferred Stock     8,824       -  
Denominator for diluted net income per share     95,653       87,530  
                 
Net income per share attributable to common stockholders - basic   $ 0.14     $ 0.18  
Net income per share attributable to common stockholders - diluted   $ 0.14     $ 0.18  

 

For the three months ended June 30, 2014, warrants to purchase 0.3 million shares of common stock and options to purchase 4.3 million shares of common stock were not included in the computation of diluted net income per share as the effect would be anti-dilutive. In addition, 10.6 million shares of Series A Preferred Stock, which represent the weighted-average number of shares of common stock calculated using the as-if converted method, were also excluded from the calculation of diluted net income per share, as the effect would be anti-dilutive. For the three months ended June 30, 2014, 1.4 million unvested RSUs were excluded from the computation of basic and diluted net income per share.

 

For the three months ended June 30, 2013, warrants to purchase 0.3 million shares of common stock and options to purchase 5.1 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 June 30, 2013, 1.0 million unvested RSUs were excluded from the computation of basic and diluted net income per share.

 

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    Six Months Ended June 30,  
    2014     2013  
    (in thousands, except per share data)  
Numerator:                
Net income attributable to common stockholders   $ 26,960     $ 26,847  
Net income allocated to participating securities     (30 )     (37 )
Numerator for basic net income per share     26,930       26,810  
Dividends on Series A Preferred Stock     -       3,500  
Dividends on Series B Preferred Stock     1,102       -  
Numerator for diluted net income per share   $ 28,032     $ 30,310  
                 
Denominator:                
Denominator for basic net income per share - weighted                
average outstanding common shares     81,964       76,834  
Dilutive effect of stock options     4       -  
Dilutive effect of contingently issuable shares     40       41  
Dilutive effect of Series A Preferred Stock     -       10,602  
Dilutive effect of Series B Preferred Stock     4,436       -  
Denominator for diluted net income per share     86,444       87,477  
                 
Net income attributable to common stockholders per share - basic   $ 0.33     $ 0.35  
Net income attributable to common stockholders per share - diluted   $ 0.32     $ 0.35  

 

For the six months ended June 30, 2014, warrants to purchase 0.3 million shares of common stock and options to purchase 4.8 million shares of common stock were not included in the computation of diluted net income per share as the effect would be anti-dilutive. In addition, 10.6 million shares of Series A Preferred Stock, which represent the weighted-average number of shares of common stock calculated using the as-if converted method, were also excluded from the calculation of diluted net income per share, as the effect would be anti-dilutive. For the six months ended June 30, 2014, 1.3 million unvested RSUs were excluded from the computation of basic and diluted net income per share.

 

For the six months ended June 30, 2013, warrants to purchase 0.4 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 six months ended June 30, 2013, 0.9 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 Quarterly Report on Form 10-Q for the fiscal quarter ended March 31, 2014 filed on May 1, 2014, 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 185 value-added resellers, or VARs, and 55 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 June 30, 2014, we had approximately 705,000 billable subscribers worldwide, an increase of 9% from approximately 647,000 billable subscribers at June 30, 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, and internally generated cash flows, including potential cash flows from hosted payloads and Iridium PRIMESM. The remaining portion of the Credit Facility not used to develop Iridium NEXT is utilized for capitalized interest and COFACE insurance premiums paid to COFACE, the French export credit agency that insures the Credit Facility. As discussed below in “Liquidity and Capital Resources,” we were in compliance with all our financial covenants as of June 30, 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 of July 31, 2014, we had borrowed a total of $1,089.5 million under the Credit Facility. For more information about our sources of funding, refer to “Liquidity and Capital Resources” below.

 

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Recent Developments

 

Amendment and Restatement of the Credit Facility

 

In May 2014, we entered into a supplemental agreement, or the Supplemental Agreement, with the Lenders under the Credit Facility, to amend and restate the Credit Facility. The Supplemental Agreement includes revised financial covenant levels. The Supplemental Agreement also delays, until 2017, a portion of the contributions that we had been scheduled to make during 2014, 2015 and 2016 to the debt service reserve account that we are required to maintain under the Credit Facility. The Credit Facility delays $22 million of our 2014 contributions, $22 million of our 2015 contributions and $32 million of our expected 2016 contributions, for a total of $76 million. As of March 31, 2014, prior to the execution of the Supplemental Agreement, the minimum required cash reserve balance was $94.5 million. As of June 30, 2014, after the execution of the Supplemental Agreement, the minimum required cash reserve balance was reduced to $83.5 million. As a result of this reduction, $11.0 million was released from restricted cash during the three months ended June 30, 2014.

 

The Supplemental Agreement required us to raise at least $217.5 million through the sale of equity securities by July 31, 2014, with net proceeds of at least $200.0 million, in order for the amendment to become effective. The supplemental agreement allowed us to raise up to $150.0 million of the total in convertible preferred equity, with the remainder to be raised through sales of our common equity. There were no other conditions to the effectiveness of the Supplemental Agreement. The condition was satisfied on May 14, 2014 upon the closing of the sale of our common stock and Series B Cumulative Perpetual Convertible Preferred Stock, or Series B Preferred Stock.

 

Common Stock – Offerings

 

In May 2014, we issued 7,692,308 shares of our common stock in a registered direct public offering to certain investment funds affiliated with Baron Capital Group Inc., or Baron, at a price of $6.50 per share for aggregate gross proceeds of $50.0 million. We received proceeds of $49.9 million from the sale of the common stock to Baron, net of offering costs of $0.1 million. The settlement date of the offering was May 5, 2014.

 

Under the stock purchase agreement entered into with Baron, Baron was entitled to receive additional shares if, during the 90-day period following the date of the stock purchase agreement, we issued or sold securities below specified prices. As a result of our public offering of common stock and our public offering of Series B Preferred Stock, described below, we are obligated to deliver 504,413 additional shares of common stock to Baron. The shares will be issued on or about August 6, 2014.

 

Additionally, on May 14, 2014, we issued 8,483,608 shares of our common stock in an underwritten public offering, including 1,106,558 shares of common stock upon the underwriters’ election to exercise their overallotment option in full. The sale price to the underwriter, equal to $6.10 per share, reflected an aggregate underwriting discount of $2.6 million. We received proceeds of $49.0 million, which were net of the $2.6 million underwriting discount and $0.2 million of offering costs.

 

Series B Cumulative Convertible Perpetual Preferred Stock Offering

 

In May 2014, we issued 500,000 shares of our 6.75% Series B Preferred Stock in an underwritten public offering at a price to the public of $250 per share. The purchase price that we received, equal to $242.50 per share, reflected an underwriting discount of $7.50 per share. We received proceeds of $120.8 million from the sale of the Series B Preferred Stock which were net of the $3.8 million underwriter discount and $0.4 million of offering costs.

 

Holders of Series B Preferred Stock are entitled to receive cumulative cash dividends when, as and if declared from, and including, the date of original issue at a rate of 6.75% per annum of the $250 liquidation preference per share (equivalent to an annual rate of $16.875 per share). Dividends on our Series B Preferred Stock will be payable quarterly in arrears, beginning on September 15, 2014. The Series B Preferred Stock does not have a stated maturity date and is not subject to any sinking fund or mandatory redemption provisions. The Series B Preferred Stock ranks senior to our common stock and pari passu with respect to our Series A Preferred Stock with respect to dividend rights and rights upon our voluntary or involuntary liquidation, dissolution or winding-up. Holders of Series B Preferred Stock generally have no voting rights except for limited voting rights if we fail to pay dividends for six or more quarterly periods (whether or not consecutive) and in other specified circumstances.

 

Holders of Series B Preferred Stock may convert some or all of their outstanding Series B Preferred Stock initially at a conversion rate of 33.456 shares of common stock per $250 liquidation preference, which is equivalent to an initial conversion price of approximately $7.47 per share of common stock, subject to adjustment in certain events. Except as otherwise provided, the Series B Preferred Stock will be convertible only into shares of our common stock.

 

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On or after May 15, 2019, we may, at our option, convert some or all of the Series B 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 May 15, 2019, in the event of certain specified fundamental changes, holders of the Series B Preferred Stock will have the right to convert some or all of their shares of Series B Preferred Stock into the greater of (i) a number of shares of our common stock as subject to adjustment plus the make-whole premium, if any, and (ii) a number of shares of our common stock equal to the lesser of (a) the liquidation preference divided by the market value of the our common stock on the effective date of such fundamental change and (b) 81.9672 (subject to adjustment). In certain circumstances, we may elect to cash settle any conversions in connection with a fundamental change.

 

We intend to use the proceeds from the common stock and Series B Preferred Stock offerings for general corporate purposes, which may include capital expenditures, including development and deployment of the Iridium NEXT system, working capital and general and administrative expenses.

 

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 ability to offer 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;

 

our ability to generate sufficient internal 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;

 

Aireon’s ability to raise sufficient funds to pay 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 June 30, 2014 and 2013

 

    Three Months Ended June 30,              
          % of Total           % of Total     Change  
($ in thousands)   2014     Revenue     2013     Revenue     Dollars     Percent  
Revenue:                                                
Services   $ 76,217       74 %   $ 71,401       75 %   $ 4,816       7 %
Subscriber equipment     20,333       20 %     19,815       21 %     518       3 %
Engineering and support services     5,971       6 %     3,468       4 %     2,503       72 %
Total revenue     102,521       100 %     94,684       100 %     7,837       8 %
                                                 
Operating expenses:                                                
Cost of services (exclusive of depreciation and amortization)     16,730       16 %     14,206       15 %     2,524       18 %
Cost of subscriber equipment     13,268       13 %     12,893       14 %     375       3 %
Research and development     4,645       5 %     1,741       2 %     2,904       167 %
Selling, general and administrative     18,493       18 %     18,399       19 %     94       1 %
Depreciation and amortization     19,672       19 %     18,597       20 %     1,075       6 %
Total operating expenses     72,808       71 %     65,836       70 %     6,972       11 %
                                                 
Operating income     29,713       29 %     28,848       30 %     865       3 %
                                                 
Other income (expense):                                                
Interest income, net     725       1 %     641       1 %     84       13 %
Undrawn credit facility fees     (1,460 )     (1 )%     (2,020 )     (2 )%     560       (28 )%
Other expense, net     (3,789 )     (4 )%     (869 )     (1 )%     (2,920 )     336 %
Total other expense     (4,524 )     (4 )%     (2,248 )     (2 )%     (2,276 )     101 %
Income before income taxes     25,189       25 %     26,600       28 %     (1,411 )     (5 )%
Provision for income taxes     (10,170 )     (10 )%     (11,187 )     (12 )%     1,017       (9 )%
Net income   $ 15,019       15 %   $ 15,413       16 %   $ (394 )     (3 )%

 

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Revenue

 

Total revenue increased 8% to $102.5 million for the three months ended June 30, 2014 compared to $94.7 million for the three months ended June 30, 2013. This increase in revenue was primarily due to an increase in service revenue, driven by a 9% year-over-year increase in commercial 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 government-sponsored engineering and support service contracts and an increase in government service revenue.

 

Commercial Service Revenue  

 

    Three Months Ended                    
    June 30, 2014     June 30, 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   $ 45.7       352     $ 44     $ 44.7       343     $ 44     $ 1.0       9     $ -  
Commercial M2M data     14.5       298       17       12.3       253       17       2.2       45       -  
Total Commercial   $ 60.2       650             $ 57.0       596             $ 3.2       54          

 

(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 the change in our prepaid airtime policy, which became effective at the end of 2013. Commercial M2M data revenue growth was driven principally by an 18% increase in billable subscribers. We anticipate continued growth in billable commercial subscribers for the remainder of 2014.

 

Government Service Revenue

 

    Three Months Ended              
    June 30, 2014     June 30, 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       55     $ 14.4       51     $ 1.6       4  

 

(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 June 30, 2014 increased to $16.0 million from $14.4 million in the prior year period as a result 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 the full year 2014 will exceed full year 2013 government service revenue.

 

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Subscriber Equipment Revenue

 

Subscriber equipment revenue increased 3%, or $0.5 million, for the three months ended June 30, 2014 compared to the prior year period. This increase was primarily due to higher unit sales of L-Band transceivers and M2M devices, somewhat offset by targeted lower pricing on these products designed to achieve the higher volumes we experienced. We anticipate subscriber equipment revenue for the full year 2014 to exceed full year 2013 due to higher overall unit sales.

 

Engineering and Support Service Revenue

 

    Three Months Ended        
    June 30, 2014     June 30, 2013     Change  
    (In millions)  
Government   $ 5.5     $ 2.8     $ 2.7  
Commercial     0.5       0.7       (0.2 )
Total   $ 6.0     $ 3.5     $ 2.5  

 

Engineering and support service revenue increased by $2.5 million for the three months ended June 30, 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) increased $2.5 million, or 18%, for the three months ended June 30, 2014 from the prior year period primarily due to 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 $0.4 million, or 3%, for the three months ended June 30, 2014 compared to the prior year period. This increase was primarily due to the increase in unit sales as described above. In addition, the cost per unit for the Iridium Pilot ® terminals increased over the comparative period as we implemented product quality improvements. Partially offsetting these increases was a $1.9 million decline in the warranty provision for our Iridium Pilot terminals compared to the prior year period.

 

Research and Development

 

Research and development expenses increased by $2.9 million, or 167%, for the three months ended June 30, 2014 compared to the prior year period due to Iridium NEXT projects including development costs associated with enabling faster data speeds on our terminal equipment.

 

Depreciation and Amortization

 

Depreciation and amortization expense increased by $1.1 million, or 6%, for the three months ended June 30, 2014 compared to the prior year period due to additions to property and equipment for ground infrastructure compatible with Iridium NEXT.

 

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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 June 30, 2014 compared to $2.0 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 $3.8 million for the three months ended June 30, 2014 compared to $0.9 million for the prior year period. This change primarily resulted from our share of the loss from our 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. As of June 30, 2014, due to our cumulative recognition of our share of Aireon’s reported losses, our investment balance in Aireon was zero. To the extent that Aireon continues to incur losses, we will suspend recognition of these losses on our condensed consolidated statement of operations until such time that future Aireon income exceeds cumulative accrued preferred dividends and accumulated suspended losses.

 

Provision for Income Taxes

 

For the three months ended June 30, 2014, our income tax provision was $10.2 million compared to $11.2 million for the prior year period.  The decrease in the income tax provision and rate is primarily a result of lower tax expense in the current period compared to the previous period for valuation allowance on certain state net operating losses. The valuation allowance serves to appropriately reflect the realizability of the state net operating loss carryforward deferred tax asset. 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 $15.0 million for the three months ended June 30, 2014, a decrease of $0.4 million from the prior year period. This decrease in net income was driven by a $2.9 million increase in research and development costs primarily for Iridium NEXT projects, a $2.9 million increase in other expenses related to our share of the loss from our investment in Aireon, and a $1.1 million increase in depreciation expense due to additions to property and equipment for ground infrastructure compatible with Iridium NEXT. These decreases to net income were partially offset by a $4.8 million increase in service revenue due to increased commercial billable subscribers and the favorable impact of the new EMSS contract, and a $1.1 million decrease in our provision for income taxes due to the estimated realizability of our state net operating loss carryforwards.

 

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Comparison of Our Results of Operations for the Six Months Ended June 30, 2014 and 2013

 

    Six Months Ended June 30,              
          % of Total           % of Total     Change  
($ in thousands)   2014     Revenue     2013     Revenue     Dollars     Percent  
Revenue:                                                
Services   $ 149,647       75 %   $ 140,188       76 %   $ 9,459       7 %
Subscriber equipment     40,490       20 %     37,146       20 %     3,344       9 %
Engineering and support services     10,416       5 %     6,539       4 %     3,877       59 %
Total revenue     200,553       100 %     183,873       100 %     16,680       9 %
                                                 
Operating expenses:                                                
Cost of services (exclusive of depreciation and amortization)     30,933       15 %     28,682       16 %     2,251       8 %
Cost of subscriber equipment     27,180       14 %     24,013       13 %     3,167       13 %
Research and development     6,766       3 %     3,400       2 %     3,366       99 %
Selling, general and administrative     37,679       19 %     36,764       20 %     915       2 %
Depreciation and amortization     39,938       20 %     36,828       20 %     3,110       8 %
Total operating expenses     142,496       71 %     129,687       71 %     12,809       10 %
                                                 
Operating income     58,057       29 %     54,186       29 %     3,871       7 %
                                                 
Other income (expense):                                                
Interest income, net     1,362       1 %     1,278       1 %     84       7 %
Undrawn credit facility fees     (2,959 )     (2 )%     (4,116 )     (2 )%     1,157       (28 )%
Other expense, net     (4,139 )     (2 )%     (2,265 )     (1 )%     (1,874 )     83 %
Total other expense     (5,736 )     (3 )%     (5,103 )     (2 )%     (633 )     12 %
Income before income taxes     52,321       26 %     49,083       27 %     3,238       7 %
Provision for income taxes     (20,759 )     (10 )%     (18,736 )     (10 )%     (2,023 )     11 %
Net income   $ 31,562       16 %   $ 30,347       17 %   $ 1,215       4 %

 

Revenue

 

Total revenue increased 9% to $200.6 million for the six months ended June 30, 2014 compared to $183.9 million for the six months ended June 30, 2013. This increase in revenue was primarily due to an increase in service revenue, driven by a 9% year-over-year increase in commercial billable subscribers and an increase in government service revenue. 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  

 

    Six Months Ended                    
    June 30, 2014     June 30, 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   $ 89.6       352     $ 43     $ 87.1       343     $ 43     $ 2.5       9     $ -  
Commercial M2M data     28.0       298       16       23.6       253       16       4.4       45       -  
Total Commercial   $ 117.6       650             $ 110.7       596             $ 6.9       54          

 

(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 the change in our prepaid airtime policy, which became effective at the end of 2013. Commercial M2M data revenue growth was driven principally by an 18% increase in billable subscribers.

 

Government Service Revenue  

 

    Six Months Ended              
    June 30, 2014     June 30, 2013     Change  
    (Revenue in millions and subscribers in thousands)  
          Billable           Billable           Billable  
    Revenue     Subscribers (1)     Revenue     Subscribers (1)     Revenue     Subscribers  
Government service revenue   $ 32.0       55     $ 29.5       51     $ 2.5       4  

 

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

 

Government service revenues for the six months ended June 30, 2014 increased to $32.0 million from $29.5 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.

 

Subscriber Equipment Revenue

 

Subscriber equipment revenue increased 9%, or $3.3 million, for the six months ended June 30, 2014 compared to the prior year period. This increase was primarily due to higher unit sales of L-Band transceivers and M2M devices, somewhat offset by targeted lower pricing on these products designed to achieve the higher volumes we experienced. 

 

Engineering and Support Service Revenue

 

    Six Months Ended        
    June 30, 2014     June 30, 2013     Change  
    (In millions)  
Government   $ 9.4     $ 5.3     $ 4.1  
Commercial     1.0       1.2       (0.2 )
Total   $ 10.4     $ 6.5     $ 3.9  

 

Engineering and support service revenue increased by $3.9 million for the six months ended June 30, 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.

 

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Operating Expenses

 

Cost of Services (exclusive of depreciation and amortization)

 

Cost of services (exclusive of depreciation and amortization) increased $2.3 million, or 8%, for the six months ended June 30, 2014 from the prior year period primarily due to an increase in scope of work for government-sponsored contracts and related costs.

 

Cost of Subscriber Equipment

 

Cost of subscriber equipment increased by $3.2 million, or 13%, for the six months ended June 30, 2014 compared to the prior year period. This increase was primarily due to the increase in unit sales as described above. In addition, the cost per unit for the Iridium Pilot ® terminals increased over the comparative period as we implemented product quality improvements. Partially offsetting these increases was a $1.9 million decline in the warranty provision for our Iridium Pilot terminals compared to the prior year period.

 

Research and Development

 

Research and development expenses increased by $3.4 million, or 99%, for the six months ended June 30, 2014 compared to the prior year period due to Iridium NEXT projects including development costs associated with enabling faster data speeds on our terminal equipment.

 

Depreciation and Amortization

 

Depreciation and amortization expense increased by $3.1 million, or 8%, for the six months ended June 30, 2014 compared to the prior year period primarily due to additions to property and equipment for ground infrastructure compatible with Iridium NEXT.

 

Other Income (Expense)

 

Undrawn Credit Facility Fees

 

Commitment fees on the undrawn portion of the Credit Facility were $3.0 million for the six months ended June 30, 2014 compared to $4.1 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 $4.1 million for the six months ended June 30, 2014 compared to $2.3 million for the prior year period. This change primarily resulted from our share of the loss from our equity method investment in Aireon.

 

Provision for Income Taxes

 

For the six months ended June 30, 2014, our income tax provision was $20.8 million compared to $18.7 million for the prior year period. The increase in the rate and income tax provision is primarily related to the increase in our income before income taxes partially offset by lower tax expense in the current period compared to the prior year period for valuation allowance on certain state net operating losses. The valuation allowance serves to appropriately reflect the realizability of the state net operating loss carryforward deferred tax asset. 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 $31.6 million for the six months ended June 30, 2014, an increase of $1.2 million from the prior year period. This increase in net income was driven by a $9.5 million increase in service revenue due to increased commercial billable subscribers and the favorable impact of the new EMSS contract, a $3.9 million increase in engineering and support services revenue due to the execution of new government-sponsored contracts, and a $1.2 million decrease commitment fees on the undrawn portion of the Credit Facility. These increases to net income were partially offset by a $3.4 million increase in research and development costs primarily for Iridium NEXT projects, a $2.3 million increase in costs of services related to the increase in scope of work for government-sponsored contracts, a $3.1 million increase in depreciation expense due to additions to property and equipment for ground infrastructure compatible with Iridium NEXT, a $1.9 million increase in other expenses primarily related to our share of the loss from our investment in Aireon, and a $2.0 million increase in our provision for income taxes.

 

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Liquidity and Capital Resources

 

As of June 30, 2014, our total cash and cash equivalents balance was $336.3 million, and our marketable securities balance was $164.2 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 and Series B Preferred Stock.

 

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 Credit Facility, together with cash and marketable securities on hand, and internally generated cash flows, including potential cash flows from hosted payloads and Iridium PRIME. We currently use the Credit Facility to pay 85% of each invoice we receive from Thales Alenia Space France, or Thales, under their contract for the development and construction of our Iridium NEXT satellites, with the remaining 15% funded from cash, cash equivalents and marketable securities on hand. We also utilize the Credit Facility to fund a portion of the interest under the Credit Facility and COFACE insurance premiums. Once the Credit Facility is fully drawn, we expect to pay 100% of each invoice we receive from Thales and all interest on the Credit Facility from cash and marketable securities on hand, and internally generated cash flows, including potential cash flows from hosted payloads and Iridium PRIME. We believe that our liquidity sources will provide sufficient funds for us to meet our liquidity requirements for at least the next 12 months.

 

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. 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 may 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 will satisfy dividend requirements, if and when declared, from internally generated cash flows.

 

Holders of Series B Preferred Stock are entitled to receive cumulative cash dividends at an annual rate of $16.875 per share. Dividends are payable quarterly in arrears on each March 15, June 15, September 15 and December 15, beginning September 15, 2014. For each full quarter that the Series B Preferred Stock is outstanding, and assuming that no shares of Series B Preferred Stock have been converted into shares of our common stock, we would be required to pay cash dividends of $2.1 million. We expect that we will satisfy dividend requirements, if and when declared, from internally generated cash flows.

 

As of June 30, 2014, we had borrowed a total of $1,084.4 million under the Credit Facility. The unused portion of the Credit Facility as of June 30, 2014 was $715.6 million. Under the terms of the Credit Facility, a minimum cash reserve for debt service of $83.5 million as of June 30, 2014 was maintained and 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 in 2017. For more information about our cash reserves, see “Recent Developments—Amendment and Restatement of the Credit Facility” above.

 

In addition to the minimum debt service levels, financial covenants under the Credit Facility, as amended and restated in May 2014, 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;

 

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· 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 December 31, 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 June 30, 2016 and ending on December 31, 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 4.73 to 1 for the twelve months ending June 30, 2018 to a ratio of 2.36 to 1 for the twelve months ending December 31, 2024.

 

Our available cash balance, as defined by the Credit Facility, was $386.1 million as of June 30, 2014. Our debt-to-equity ratio was 0.39 to 1 as of June 30, 2014. We were in compliance with the operational EBITDA covenant set forth above as of June 30, 2014. We were also in compliance with the annual capital expenditure covenants set forth above as of December 31, 2013, the last point at which they were measured.

 

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 June 30, 2014, we had no available cure amount, though none was 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.

 

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 table summarizes our cash flows:

 

    Six Months Ended June 30,        
    2014     2013     Change  
    (in thousands)  
Cash provided by operating activities   $ 91,197     $ 100,262     $ (9,065 )
Cash used in investing activities   $ (195,806 )   $ (236,088 )   $ 40,282  
Cash provided by financing activities   $ 254,595     $ 78,256     $ 176,339  

 

Cash Flows from Operating Activities

 

Net cash provided by operating activities for the six months ended June 30, 2014 decreased by $9.1 million from the prior year period. This decrease was principally due to the timing of cash collections for customer-related receivables, primarily driven by our increase in equipment sales.

 

Cash Flows from Investing Activities

 

Net cash used in investing activities for the six months ended June 30, 2014 decreased by $40.3 million compared to the prior year period primarily due to a $43.6 million decrease in capital expenditures primarily related to Iridium NEXT.

 

27
 

  

Cash Flows from Financing Activities

 

Net cash provided by financing activities for the six months ended June 30, 2014 increased by $176.3 million from the prior year period primarily due to receipt of net proceeds of $219.7 million from the sale of our common stock and Series B Preferred Stock during the second quarter of 2014. This increase was partially offset by a $56.5 million decrease 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

 

On May 28, 2014, the Financial Accounting Standards Board and the International Accounting Standards Board jointly issued a comprehensive new revenue recognition standard, Accounting Standards Update No. 2014-09 Revenue from Contracts with Customers or ASU 2014-09, that will supersede nearly all existing revenue recognition guidance under U.S. GAAP. ASU 2014-09 requires a company to recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. ASU 2014-09 is effective for public entities for annual and interim periods beginning after December 15, 2016. Early adoption is not permitted. ASU 2014-09 becomes effective for us in the first quarter of fiscal 2017. We have not yet selected a transition method, and we are currently evaluating the effect that ASU 2014-09 will have on our consolidated financial statements and related disclosures.

 

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 June 30, 2014, a one-half percentage point increase or decrease in interest rates would not have had a material effect on our interest income.

 

We had borrowed $1,084.4 million under the Credit Facility as of June 30, 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 June 30, 2014, a one-half percentage point increase or decrease in the LIBOR would have changed our interest cost by less than $0.1 million for the three months ended June 30, 2014.

 

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.

 

We also currently hold marketable securities consisting of commercial paper and fixed-income debt securities. As of June 30, 2014, a 100 basis point change in interest rates would not have a material impact on the fair value of our marketable securities.

 

28
 

  

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, as of the end of the period covered by this report, 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 June 30, 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. In addition to the other information set forth in this quarterly report on Form 10-Q, you should carefully consider the factors discussed in “Part II, Item 1A. Risk Factors” of our Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2014, filed with the Securities and Exchange Commission on May 1, 2014.

 

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.

 

29
 

  

ITEM 6. EXHIBITS.

 

See the exhibit index.

 

30
 

  

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: July 31, 2014

 

31
 

  

EXHIBIT INDEX

 

Exhibit   Description
     
3.1   Certificate of Designations of Iridium Communications Inc. filed on May 14, 2014 with the Secretary of State of the State of Delaware designating the preferences, limitations, voting powers and relative rights of the 6.75% Series B Cumulative Perpetual Convertible Preferred Stock, incorporated by reference to Exhibit 3.1 to the Registrant’s Registration Statement on Form 8-A filed with the SEC on May 14, 2014.
     
10.1†   Supplemental Agreement dated as of May 2, 2014 between Iridium Satellite LLC and Société Générale, as COFACE Agent, amending and restating the COFACE Facility Agreement among Iridium Satellite LLC, the Registrant, Iridium Holdings LLC, SE Licensing LLC, Iridium Carrier Holdings LLC, Iridium Carrier Services LLC, Syncom-Iridium Holdings Corp., Iridium Constellation LLC and Iridium Government Services LLC; Deutsche Bank AG (Paris Branch), Banco Santander SA, Société Générale, Natixis, Mediobanca International (Luxembourg) S.A., BNP Paribas, Crédit Industriel et Commercial, Intesa Sanpaolo S.p.A. (Paris Branch) and Unicredit Bank Austria AG; Deutsche Bank Trust Company Americas as the security agent and U.S. collateral agent; and Société Générale as the COFACE agent, dated as of October 4, 2010, as amended and restated on 1 August 2012, as amended on 26 July 2013 and as amended on 30 October 2013.
     
10.2†   Amendment No. 4 to Contract for Launch Services No. IS-11-032 between Iridium Satellite LLC and International Space Company Kosmotras, dated as of April 21, 2014.
     
10.3†   Amendment No. 5 to Contract for Launch Services No. IS-11-032 between Iridium Satellite LLC and International Space Company Kosmotras, dated as of June 20, 2014.
     
10.4   Stock Purchase Agreement, dated as of May 2, 2014, by and among Iridium Communications Inc. and Baron Growth Fund, VY Baron Growth Portfolio and LVIP Baron Growth Opportunities Fund, incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed with the SEC on May 5, 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 June 30, 2014, filed with the Securities and Exchange Commission on July 31, 2014, formatted in XBRL (eXtensible Business Reporting Language):

(i)      Condensed Consolidated Balance Sheets at June 30, 2014 and December 31, 2013;

(ii)     Condensed Consolidated Statements of Operations and Comprehensive Income for the three and six months ended June 30, 2014 and 2013;

(iii)    Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 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.

 

* 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.

 

32
 

  

** 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.

 

33

 

Exhibit 10-1

  

EXECUTION VERSION

 

SUPPLEMENTAL AGREEMENT

 

Dated _____ 2 _ May _________ 2014

 

BETWEEN

 

IRIDIUM SATELLITE LLC

as Borrower

 

and

 

SOCIÉTÉ GÉNÉRALE

as COFACE Agent

 

relating to a COFACE Facility Agreement

dated 4 October 2010

as amended and restated on 1 August 2012

as amended on 26 July 2013

as amended on 30 October 2013

and as amended and restated on the Effective Date (as defined herein)

 

 

Allen & Overy LLP 

 

CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR PORTIONS OF THIS EXHIBIT. THE COPY FILED HEREWITH OMITS THE INFORMATION SUBJECT TO A CONFIDENTIALITY REQUEST. OMISSIONS ARE DESIGNATED [***]. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
 

 

contents

 

Clause   Page
     
1. Interpretation 1
2. Waiver 2
3. Amendments 2
4. Representations 3
5. Fees 4
6. Consents 4
7. Miscellaneous 4
8. Governing law 5
9. Enforcement 5
     
Schedule    
     
1. Amended and Restated COFACE Facility Agreement   9  

   

CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR PORTIONS OF THIS EXHIBIT. THE COPY FILED HEREWITH OMITS THE INFORMATION SUBJECT TO A CONFIDENTIALITY REQUEST. OMISSIONS ARE DESIGNATED [***]. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
 

 

THIS AGREEMENT is dated _____ 2 _ MAY ________ 2014

 

BETWEEN :

 

(1) IRIDIUM COMMUNICATIONS INC. , a Delaware corporation (the Parent );

 

(2) IRIDIUM SATELLITE LLC , a Delaware limited liability company, as borrower (the  Borrower );

 

(3) THE GUARANTORS under and as defined in the COFACE Facility Agreement (defined below); and

 

(4) SOCIÉTÉ GÉNÉRALE as agent of the other Finance Parties (in this capacity the COFACE Agent ).

 

BACKGROUND

 

(a) We refer to the COFACE Facility Agreement.

 

(b) COFACE and the Lenders have consented to the amendments and waivers to the COFACE Facility Agreement contemplated by this Agreement. Accordingly, the COFACE Agent is authorised to execute this Agreement on behalf of the Finance Parties.

 

IT IS AGREED as follows:

 

1. Interpretation

 

1.1 Definitions

 

(a) In this Agreement:

 

Additional Capital Raising means, on and subject to the terms of this Agreement, the raising by the Parent of the Additional Capital Raising Required Amount from a Capital Raising by way of:

 

(i) common equity; and

 

(ii) the Additional Permitted PIYC Capital Raising,

 

the gross proceeds thereof being in an amount not less than US$217,500,000.

 

Additional Capital Raising Required Amount means, in respect of the Additional Capital Raising, net proceeds (being proceeds less all Taxes and reasonable costs and expenses incurred by the Parent in connection therewith) in an amount not less than US$200,000,000.

 

Additional Permitted PIYC Capital Raising means a Capital Raising by the Parent in an aggregate amount up to (but not exceeding) US$150,000,000 in the form of perpetual preferred equity instruments, provided that:

 

(i) such Capital Raising does not lead to a Change of Control of the Parent (on a diluted or undiluted basis or on a converted or non-converted basis);

 

1
CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR PORTIONS OF THIS EXHIBIT. THE COPY FILED HEREWITH OMITS THE INFORMATION SUBJECT TO A CONFIDENTIALITY REQUEST. OMISSIONS ARE DESIGNATED [***]. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
 

 

(ii) the rate of distributions payable on such Capital Raising does not exceed [***] per cent per annum;

 

(iii) the preferred equity instruments used in such Capital Raising do not [***] and, for the avoidance of doubt, [***]; and

 

(iv) [***] in respect of such Capital Raising are [***] subject to and in accordance with Delaware law.

 

Amended and Restated COFACE Facility Agreement means the COFACE Facility Agreement as amended and restated by this Agreement and attached hereto as Schedule 1 (Amended and Restated COFACE Facility Agreement).

 

COFACE Facility Agreement means the COFACE Facility Agreement between among others the Parent, the Borrower, the Guarantors and the COFACE Agent dated 4 October 2010.

 

Effective Date means the date the COFACE Agent notifies the Borrower and the Lenders of its receipt of all the evidence set out in Clause 3(b) (Amendments) in form and substance satisfactory to the COFACE Agent (for and on behalf of the Lenders) in accordance with this Agreement.

 

(b) Capitalised terms defined in the COFACE Facility Agreement have, unless expressly defined in this Agreement, the same meaning in this Agreement.

 

1.2 Construction

 

The principles of construction set out in clause 1.2 of the COFACE Facility Agreement will have effect as if set out in this Agreement.

 

2. Waiver

 

The Lenders hereby confirm their approval of a waiver until the earlier of (a) 31 July 2014 and (b) the Effective Date of the provisions set forth in clauses 23.21 (Dividends and share redemption) and 23.23 (Share capital) of the COFACE Facility Agreement solely to the extent necessary for the Parent to complete the Additional Capital Raising on and subject to the terms of this Agreement, such that the Additional Capital Raising Required Amount is unconditionally available to the NEXT Group by no later than 31 July 2014.

 

3. Amendments

 

(a) Subject to paragraph (b) below, the COFACE Facility Agreement will be amended from the Effective Date so that it reads as if it were restated in the form set out in Schedule 1 (Amended and Restated COFACE Facility Agreement).

 

(b) The COFACE Facility Agreement will not be amended in the manner contemplated by this Agreement unless the COFACE Agent receives evidence from the Borrower in form and substance satisfactory to it (for and on behalf of the COFACE Lenders) by no later than 31 July 2014 confirming that:

 

(i) the Parent has completed the Additional Capital Raising; and

 

2
CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR PORTIONS OF THIS EXHIBIT. THE COPY FILED HEREWITH OMITS THE INFORMATION SUBJECT TO A CONFIDENTIALITY REQUEST. OMISSIONS ARE DESIGNATED [***]. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
 

 

(ii) the Additional Capital Raising Required Amount is unconditionally available to the NEXT Group by no later than 31 July 2014.

 

(c) The COFACE Agent must notify the Borrower and the Lenders of its receipt such evidence as as soon as reasonably practicable.

 

4. Representations

 

4.1 Representations

 

The representations set out in this Clause are made by each Obligor on the date of this Agreement to each Finance Party.

 

4.2 Powers and authority

 

It has the power to enter into, perform and deliver, and has taken all necessary action to authorise the entry into, performance and delivery of, this Agreement and the transactions contemplated by this Agreement.

 

4.3 Legal validity

 

Subject to the Legal Reservations, the obligations expressed to be assumed by it in this Agreement to which it is a party are legal, valid, binding and enforceable obligations.

 

4.4 Non-conflict

 

The entry into and performance by it of, and the transactions contemplated by, this Agreement do not and will not conflict with:

 

(a) any law or regulation applicable to it;

 

(b) its constitutional documents; or

 

(c) any agreement or instrument binding upon it or any of its assets or constitute a default of termination event (however described) under any such agreement or instrument where such circumstance has or is reasonably likely to have a Material Adverse Effect.

 

4.5 Authorisations

 

All authorisations required by it in connection with the entry into, performance, validity and enforceability of, and the transactions contemplated by, this Agreement have been obtained or effected (as appropriate) and are in full force and effect.

 

4.6 Governing law and enforcement

 

(a) Subject to the Legal Reservations, the choice of governing law of this Agreement will be recognised and enforced in its Relevant Jurisdictions.

 

(b) Subject to the Legal Reservations, any judgment obtained in relation to this Agreement will be recognised and enforced in its Relevant Jurisdictions.

 

3
CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR PORTIONS OF THIS EXHIBIT. THE COPY FILED HEREWITH OMITS THE INFORMATION SUBJECT TO A CONFIDENTIALITY REQUEST. OMISSIONS ARE DESIGNATED [***]. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
 

 

4.7 Credit Agreement

 

Unless a representation and warranty set out in clause 20 (Representations) of the COFACE Facility Agreement is expressed to be given at a specific date, each Obligor makes the representations and warranties set out in clause 20 (Representations) of the COFACE Facility Agreement (other than the representations and warranties in clauses 20.14(a), (b) and (c) (Original Financial Statements), 20.18 (Taxation) and 20.24 (Shares and Material Companies) of the COFACE Facility Agreement) on the date of this Agreement and on the Effective Date, in each case as if references to the COFACE Facility Agreement are references to the COFACE Facility Agreement, as amended and restated by this Agreement, with reference to the facts and circumstances then existing, provided that, in the case of those representations and warranties contained in clause 20.13 (No misleading information) of the COFACE Facility Agreement, such representations and warranties are made with respect to any information delivered under or in connection with this Agreement.

 

5. Fees

 

(a) The Borrower must on the date of this Agreement, pay to the COFACE Agent for the account of the Lenders (pro rata to their Commitments) a fee of $ [***] ( [***] ).

 

(b) The fee described in paragraph (a) above once paid is non-refundable and non-creditable against other fees payable in connection with the COFACE Facility Agreement.

 

6. Consents

 

Each Obligor:

 

(a) agrees to the amendment and restatement of the COFACE Facility Agreement as contemplated by this Agreement; and

 

(b) with effect from the Effective Date, confirms that any guarantee or security given by it or created under a Finance Document will:

 

(i) continue in full force and effect; and

 

(ii) extend to the liabilities and obligations of the Obligors to the Finance Parties under the Finance Documents as amended by this Agreement.

 

7. Miscellaneous

 

(a) Each of this Agreement and the Amended and Restated COFACE Facility Agreement is a Finance Document.

 

(b) Subject to the terms of this Agreement, the COFACE Facility Agreement will remain in full force and effect and, from the Effective Date, the COFACE Facility Agreement and this Agreement will be read and construed as one document.

 

(c) Each Finance Party reserves any other right or remedy it may have now or subsequently. This Agreement does not constitute a waiver of any right or remedy other than in relation to the specific waiver expressly given under this Agreement.

 

(d) Nothing in this Agreement shall affect the rights of any Finance Party in respect of the occurrence of any other Default or Event of Default which is continuing and which has not been remedied or waived in accordance with the terms of the Finance Documents or which arises on or after the date of this Agreement.

 

4
CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR PORTIONS OF THIS EXHIBIT. THE COPY FILED HEREWITH OMITS THE INFORMATION SUBJECT TO A CONFIDENTIALITY REQUEST. OMISSIONS ARE DESIGNATED [***]. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
 

 

8. Governing law

 

This Agreement and any non-contractual obligations arising out of or in connection with it are governed by English law.

 

9. Enforcement

 

9.1 Jurisdiction of English courts

 

(a) The courts of England have exclusive jurisdiction to settle any dispute arising out of or in connection with this Agreement (including a dispute relating to the existence, validity or termination of this Agreement) (a Dispute ).

 

(b) The Parties agree that the courts of England are the most appropriate and convenient courts to settle Disputes and accordingly no Party will argue to the contrary.

 

(c) This Clause 9.1 is for the benefit of the Finance Parties and Secured Parties only. As a result, no Finance Party or Secured Party shall be prevented from taking proceedings relating to a Dispute in any other courts with jurisdiction. To the extent allowed by law, the Finance Parties and Secured Parties may take concurrent proceedings in any number of jurisdictions.

 

9.2 Arbitration

 

(a) Notwithstanding the above terms of this Clause, if the COFACE Agent so elects in writing, any dispute, difference, claim or controversy arising out of or in connection with this Agreement, including any question regarding its existence, validity, interpretation, breach or termination, shall be referred to and finally resolved by arbitration under the London Court of International Arbitration Rules (for the purposes of this Subclause, the Rules ).

 

(b) The Rules are incorporated by reference into this Clause and capitalised terms used in this Clause which are not otherwise defined in this Agreement, have the meaning given to them in the Rules. Any requirement in the Rules to take account of the nationality of a person considered for appointment as an arbitrator shall be disapplied and a person shall be nominated or appointed as an arbitrator (including as Chairman) regardless of his or her nationality.

 

(c) The number of arbitrators shall be three. The parties agree that the London Court of International Arbitration shall appoint the Arbitral Tribunal without regard to any party's nomination.

 

(d) Each Obligor and each Finance Party:

 

(i) expressly agrees and consents to this procedure for nominating and appointing the Arbitral Tribunal; and

 

(ii) irrevocably and unconditionally waives any right to choose its own arbitrator.

 

(e) The seat, or legal place of arbitration, shall be London. The language used in the arbitral proceedings shall be English.

 

5
CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR PORTIONS OF THIS EXHIBIT. THE COPY FILED HEREWITH OMITS THE INFORMATION SUBJECT TO A CONFIDENTIALITY REQUEST. OMISSIONS ARE DESIGNATED [***]. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
 

 

9.3 Waiver of trial by jury

 

EACH PARTY WAIVES ANY RIGHT IT MAY HAVE TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION IN CONNECTION WITH ANY FINANCE DOCUMENT OR ANY TRANSACTION CONTEMPLATED BY ANY FINANCE DOCUMENT. THIS AGREEMENT MAY BE FILED AS A WRITTEN CONSENT TO TRIAL BY THE COURT.

 

This Agreement has been entered into on the date stated at the beginning of this Agreement.

 

6
CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR PORTIONS OF THIS EXHIBIT. THE COPY FILED HEREWITH OMITS THE INFORMATION SUBJECT TO A CONFIDENTIALITY REQUEST. OMISSIONS ARE DESIGNATED [***]. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
 

  

SCHEDULE 1

 

AMENDED AND Restated COFACE Facility Agreement

 

COFACE FACILITY AGREEMENT

 

DATED 4 OCTOBER 2010

as amended and Restated on August 1, 2012,

Amended on July 26, 2013,

Amended on October 30, 2013,

and amended and restated on the fourth amendment effective

date (AS DEFINED HEREIN)

 

For

 

IRIDIUM SATELLITE LLC

 

arranged by

 

DEUTSCHE BANK AG (PARIS BRANCH)

BANCO SANTANDER SA

SOCIÉTÉ GÉNÉRALE

NATIXIS

MEDIOBANCA INTERNATIONAL (LUXEMBOURG) S.A.

 

as Mandated Lead Arrangers and Bookrunners

 

and

 

BNP PARIBAS

CRÉDIT INDUSTRIEL ET COMMERCIAL

INTESA SANPAOLO S.p.A. (PARIS BRANCH)

UNICREDIT BANK AUSTRIA AG

 

as Lead Arrangers

 

with

 

SOCIÉTÉ GÉNÉRALE

as COFACE Agent

 

and

 

DEUTSCHE BANK TRUST COMPANY AMERICAS

as Security Agent and U.S. Collateral Agent

 

1
CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR PORTIONS OF THIS EXHIBIT. THE COPY FILED HEREWITH OMITS THE INFORMATION SUBJECT TO A CONFIDENTIALITY REQUEST. OMISSIONS ARE DESIGNATED [***]. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
 

 

Contents

 

Clause   Page
     
1. Definitions and Interpretation 4
2. The Facility 50
3. Purpose 53
4. Conditions of Utilisation 54
5. Utilisation – Loans 55
6. Repayment 57
7. Illegality, Voluntary Prepayment and Cancellation 59
8. Mandatory Prepayment 61
9. Restrictions 64
10. Interest 66
11. Interest Periods 67
12. Changes to the Calculation of Interest 68
13. Fees 69
14. Tax Gross Up and Indemnities 70
15. Increased Costs 73
16. Other Indemnities 74
17. Mitigation by the Lenders 76
18. Costs and Expenses 76
19. Guarantee and Indemnity 78
20. Representations 82
21. Information Undertakings 90
22. Financial Covenants 97
23. General Undertakings 101
24. Events of Default 116
25. Changes to the Lenders 123
26. Changes to the Obligors 127
27. Role of the Administrative Parties 127
28. Conduct of Business by the Finance Parties 135
29. Sharing Among the Finance Parties 135
30. Payment Mechanics 136
31. Set-Off 139
32. Notices 139
33. Calculations and Certificates 142
34. Partial Invalidity 142
35. Remedies and Waivers 142
36. Amendments and Waivers 142
37. Confidentiality 145
38. Counterparts 148
39. Governing Law 148
40. Enforcement 148
41. Complete agreement 150
42. USA Patriot Act 150

 

2
CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR PORTIONS OF THIS EXHIBIT. THE COPY FILED HEREWITH OMITS THE INFORMATION SUBJECT TO A CONFIDENTIALITY REQUEST. OMISSIONS ARE DESIGNATED [***]. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
 

 

Schedules   Page
     
2. The Original Parties 151
  Part 1          The Original Obligors 151
  Part 2          The Original Lenders 152
3. Conditions Precedent 153
  Part 1          Conditions Precedent to Initial Utilisation 153
  Part 2          Conditions Precedent required to be delivered by an Additional Guarantor 158
4. Requests and Notices 159
  Part 1          Form of Reimbursement Request 159
  Part 2          Form of Supplier's Confirmation 162
  Part 3          Form of Disbursement Request 164
  Part 4          Form of Supplier's Confirmation 166
5. Form of Budget 168
6. Form of Promissory Notes 172
7. Form of Joint Interest Mandate 173
8. Mandatory Cost Formula 176
9. Form of Transfer Certificate 179
10. Form of Assignment Agreement 182
11. Form of Accession Deed 185
12. Form of Resignation Letter 186
13. Form of Compliance Certificate 187
14. Form of Auditors' Report 189
15. LMA Form of Confidentiality Undertaking 190
16. Timetables 195
17. Existing Guarantees 196
18. Existing Liens 197
19. Communications Licences 198
20. Existing Financial Indebtedness 199
21. Group Structure Chart 200
22. Insurance 202
23. Back-Up Launch Strategy 216
24. Secondary Payload Heads of Terms 217
25. Milestones 218
26. Shares and Material Companies 219
27. Form of Secondary Payload Status Report 220
28. Existing Joint Ventures 221
29. Security Agent 222
     
Signatories 230

  

3
CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR PORTIONS OF THIS EXHIBIT. THE COPY FILED HEREWITH OMITS THE INFORMATION SUBJECT TO A CONFIDENTIALITY REQUEST. OMISSIONS ARE DESIGNATED [***]. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
 

 

THIS AGREEMENT is dated 4 October 2010, as amended and restated on the Fourth Amendment Effective Date (as defined below) and made

 

BETWEEN :

 

(1) IRIDIUM COMMUNICATIONS INC. , a Delaware corporation (the Parent );

 

(2) IRIDIUM SATELLITE LLC , a Delaware limited liability company, as borrower (the Borrower );

 

(3) THE SUBSIDIARIES of the Parent listed in Part 1 of Schedule 1 as original guarantors (together with the Parent, the Original Guarantors );

 

(4) DEUTSCHE BANK AG (PARIS BRANCH), BANCO SANTANDER SA, SOCIÉTÉ GÉNÉRALE, NATIXIS, and MEDIOBANCA INTERNATIONAL (LUXEMBOURG) S.A. as mandated lead arrangers and bookrunners (the  Mandated Lead Arrangers and Bookrunners );

 

(5) BNP PARIBAS, CRÉDIT INDUSTRIEL ET COMMERCIAL, INTESA SANPAOLO S.p.A. (PARIS BRANCH) and UNICREDIT BANK AUSTRIA AG as lead arrangers (the Lead Arrangers );

 

(6) THE FINANCIAL INSTITUTIONS listed in Part 2 of Schedule 1 as lenders (the Original Lenders );

 

(7) SOCIÉTÉ GÉNÉRALE as agent of the other Finance Parties (the COFACE Agent ); and

 

(8) DEUTSCHE BANK TRUST COMPANY AMERICAS as security agent and trustee for the Secured Parties (in this capacity the Security Agent ) and as agent for the Finance Parties under the Motorola Intercreditor Agreement (in this capacity the U.S. Collateral Agent ).

 

IT IS AGREED as follows:

 

1. Definitions and Interpretation

 

1.1 Definitions

 

In this Agreement:

 

Acceptable Bank means:

 

(a) a bank or financial institution which has a rating for its long-term unsecured and non credit-enhanced debt obligations of A- or higher by Standard & Poor's Rating Services or Fitch Ratings Ltd or A3 or higher by Moody's Investor Services Limited or a comparable rating from an internationally recognised credit rating agency; or

 

(b) any other bank or financial institution approved by the COFACE Agent.

 

Acceptable Launch Insurance Proposal has the meaning given in Clause 8.3 (Launch Insurance Proceeds).

 

Accession Deed means a document substantially in the form set out in Schedule 10 (Form of Accession Deed).

 

4
CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR PORTIONS OF THIS EXHIBIT. THE COPY FILED HEREWITH OMITS THE INFORMATION SUBJECT TO A CONFIDENTIALITY REQUEST. OMISSIONS ARE DESIGNATED [***]. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
 

 

Account Bank means the Security Agent in its capacity as account bank for the Finance Parties.

 

Accounting Principles means GAAP.

 

Accounting Reference Date means 31 December of any given year.

 

Additional Cost Rate has the meaning given to it in Schedule 7 (Mandatory Cost Formula).

 

Additional Guarantor means any Material Company which becomes an Additional Guarantor in accordance with Clause 23.30 (Additional Guarantors and resignation of Guarantors).

 

Administrative Party means any Mandated Lead Arranger and Bookrunner, any Lead Arranger and any Agent.

 

Adviser means the Technical Adviser, the Insurance Adviser or any other adviser appointed under this Agreement.

 

Affiliate means, in relation to any person, any other person that, directly or indirectly, controls, is controlled by or is under common control with such person; and for purposes of this definition, the term “ control ” (including the terms “ controlling ”, “ controlled by ” and “ under common control with ”) of a person shall mean the possession, direct or indirect, of the power to vote more than 50% of the securities having ordinary voting power for the election of directors (or persons performing similar functions) of such person or to direct or cause the direction of the management and policies of such person, whether through the ownership of such securities, by contract or otherwise.

 

Agent means the COFACE Agent, the Security Agent or the U.S. Collateral Agent.

 

Aireon Equity Injection means (i) an investment in an aggregate amount of no more than $12,500,000 (whether in cash, tangible or intangible property) in the Excluded Company made by any member of the NEXT Group, by way of an issuance of Aireon Equity Instruments by the Excluded Company to such member of the NEXT Group, (ii) any other investment in an aggregate amount of no more than $15,000,000 in the Excluded Company made by any member of the NEXT Group by way of issuance of Aireon Equity Instruments to such member of the NEXT Group, made with the proceeds of a Capital Raising specifically for that purpose and (iii) an investment in the Excluded Company made by any member of the NEXT Group, by way of issuance of Aireon Equity Instruments by the Excluded Company to such member of the NEXT Group in exchange for a corresponding value of no more than $ [***] of Airtime Credits pursuant to and in accordance with the Airtime Credits Agreement.

 

Aireon Equity Instruments means equity-linked instruments, capital stock, shares or other equivalent instruments, subordinated debt or other securities issued by the Excluded Company to any member of the NEXT Group including any additional contribution made in respect of such instruments, subordinated debt or other securities, which are subject to Transaction Security (until disposed of in accordance with the terms of this Agreement) in favour of the Security Agent.

 

Aireon Investment Agreement means that certain investment agreement to be entered into among the Excluded Company, the Borrower and the other investors in the Excluded Company with respect to each of their investments in the Excluded Company.

 

Aireon Proceeds means all dividends, charges, fees, distributions or other proceeds received in cash by any member of the NEXT Group from time to time solely in respect of any Aireon Equity Instruments, including any Disposal Proceeds (in each case, after deducting any reasonable expenses incurred by any member of the NEXT Group in connection with such proceeds or Taxes paid or incurred by any member of the NEXT Group in connection with such proceeds or the ownership of such Aireon Equity Instruments).

 

5
CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR PORTIONS OF THIS EXHIBIT. THE COPY FILED HEREWITH OMITS THE INFORMATION SUBJECT TO A CONFIDENTIALITY REQUEST. OMISSIONS ARE DESIGNATED [***]. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
 

 

Aireon System Debt means any Financial Indebtedness incurred by the Excluded Company in connection with the Aireon System Project (including any transaction incidental and in support of the Aireon System Project) provided that the provider of the Financial Indebtedness to the Excluded Company has (and has confirmed in writing to the Borrower and the COFACE Agent that it has) no recourse against any member of the NEXT Group or any of the NEXT Group's assets.

 

Aireon System Document means:

 

(a) the Secondary Payload Contracts (including the hosting agreement, the data services agreement and the hosted payload operations center agreement) to be entered into between the Excluded Company and the Borrower;

 

(b) the management services contract to be entered into between the Excluded Company and the Borrower or any other NEXT Group member;

 

(c) the Airtime Credits Agreement;

 

(d) the Aireon Investment Agreement; and

 

(e) any agreement, document or instrument incidental to any of the documents listed in clauses (a) to (d) above and notified to the COFACE Agent by the Borrower.

 

Aireon System Project means the design, financing, construction, deployment and operation of a satellite-based global aviation monitoring system, which uses Automatic Dependent Surveillance-Broadcast technology for the purposes of providing secondary payload services in connection and compliance with the NEXT System.

 

Airtime Credit means a credit (valued at an arm’s-length rate) for airtime minutes, data fees, access fees or licensing fees with respect to services on Block One or the NEXT Constellation and associated ground infrastructure.

 

Airtime Credits Agreement means any agreement or arrangement entered into between the Excluded Company and any member of the NEXT Group pursuant to which such member of the NEXT Group has agreed, in exchange for Aireon Equity Instruments, to provide and make available to the Excluded Company from time to time Airtime Credits, in an aggregate amount of up to $ [***] , for application as discharge of the Aireon System Debt owed to Harris Corporation by the Excluded Company, provided that, under no circumstances will Harris Corporation have any recourse to any member of the NEXT Group or any of the NEXT Group's assets in respect of such Aireon System Debt.

 

Ancillary Cashflows means, for any Calculation Date, the aggregate (without double-counting) (adding (if positive) or deducting (if negative)) of:

 

(a) an amount equal to the aggregate of (i) the net cash proceeds from the exercise of the Existing Warrants received by the Parent, and (ii) all Excluded Capital Raising Proceeds (other than in respect of the Non Eligible Capital Raising) received by the Parent (or of a newly-formed subsidiary of the Parent which is not a shareholder of any member of the Group) and allocated for such purpose (and not previously utilised for any other purpose), in each case on or prior to that Calculation Date; and

 

6
CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR PORTIONS OF THIS EXHIBIT. THE COPY FILED HEREWITH OMITS THE INFORMATION SUBJECT TO A CONFIDENTIALITY REQUEST. OMISSIONS ARE DESIGNATED [***]. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
 

 

(b) the difference (positive or negative) between:

 

(i) Cumulative Cashflow for that Calculation Date, and

 

(ii) the Cumulative Cashflow level in the Base Case for that Calculation Date (without taking into account any amounts of Capital Expenditure in respect of the Satellite Supply Contract, the Launch Services Contract or the Launch Insurance premia projected in the Base Case to be paid prior to such Calculation Date, but not actually paid, due to a delay or postponement under the Satellite Supply Contract, the Launch Services Contract or the Launch Insurance premia (as the case may be)); and

 

(c) the difference (positive or negative) between:

 

(i) the cumulative Secondary Payload Cashflows received (directly or indirectly) by any Obligor on or prior to that Calculation Date, and

 

(ii) the cumulative level of Secondary Payload Cashflows in the Base Case at that Calculation Date,

 

( provided that the amount of any positive difference to be taken into account for any Calculation Date may not exceed the amount (if any) by which the total amount of committed Secondary Payload Cashflows payable to the Obligors pursuant to binding Secondary Payload Contracts as at that Calculation Date exceeds $ [***] million).

 

Annual Financial Statements means the financial statements for a Financial Year delivered pursuant to paragraph (a) of Clause 21.1 (Financial statements).

 

Assignment Agreement means an agreement substantially in the form set out in Schedule 9 (Form of Assignment Agreement) or any other form agreed between the relevant assignor and assignee.

 

Auditors means one of PricewaterhouseCoopers LLP, Ernst & Young LLP, KPMG LLP or Deloitte & Touche LLP or any other firm approved in advance by the COFACE Agent (such approval not to be unreasonably withheld, conditioned or delayed).

 

Authorisation means an authorisation, consent, approval, resolution, licence, exemption, filing, notarisation or registration (including each Communications Licence).

 

Authorization to Proceed means the Authorization to Proceed between the Borrower and TAS dated 1 June 2010.

 

Availability Period means the period from the Initial CP Satisfaction Date until the earlier of:

 

(a) the date falling 5 months after the In-Orbit Acceptance in respect of the [***] Satellite (as confirmed by the Technical Adviser); and

 

(b) the Longstop Availability Date.

 

Available Cash means, at any time, (i) cash in hand or at bank and (in the latter case) credited to an account with an Acceptable Bank in the name of a member of the NEXT Group and to which a member of the NEXT Group is alone (or together with other members of the NEXT Group) beneficially entitled and for so long as:

 

(a) that cash is repayable on demand within 10 days after the relevant date of calculation;

 

7
CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR PORTIONS OF THIS EXHIBIT. THE COPY FILED HEREWITH OMITS THE INFORMATION SUBJECT TO A CONFIDENTIALITY REQUEST. OMISSIONS ARE DESIGNATED [***]. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
 

 

(b) repayment of that cash is not contingent on the prior discharge of any other indebtedness of any member of the NEXT Group or of any other person whatsoever or on the satisfaction of any other condition;

 

(c) there is no security over that cash except for liens granted or permitted under the Finance Documents or other security constituted by a netting or set-off arrangement entered into by members of the NEXT Group in the ordinary course of their banking arrangements; and

 

(d) the cash is freely available to be applied in repayment or prepayment of the Facility as and when due and payable,

 

and (ii) Cash Equivalent Investments (and excluding, for the avoidance of doubt, any amounts standing to the credit of the Debt Service Reserve Account).

 

Available Commitment means, in relation to a Tranche, a Lender's Commitment under that Tranche minus (subject as set out below):

 

(a) its participation in any outstanding Utilisations under that Tranche; and

 

(b) in relation to any proposed Utilisation under that Tranche, its participation in any other Utilisations under that Tranche that are due to be made on or before the proposed Utilisation Date.

 

Available Cure Amount means, in respect of a Calculation Date:

 

(a) the amount of Ancillary Cashflows at such Calculation Date (without double counting and without giving effect to the Available Cure Amount in respect of the then current Calculation Date),

 

minus :

 

(b) in respect of each election by the Borrower to allocate the Available Cure Amount to a Relevant Financial Covenant in accordance with Clause 22.1(a)(iii) (22.1(a)(iii) ( Capital Expenditure ), (b)(i) ( Consolidated Operational EBITDA ) or (b)(ii) ( Secondary Payload Cashflows ), the aggregate of all amounts previously required to meet the relevant levels in the Base Case at each Calculation Date in respect of which the Borrower elected to allocate an Available Cure Amount to a Relevant Financial Covenant,

 

in each case, as certified in the relevant Compliance Certificate delivered in accordance with Clause 21.2 (Provision and contents of Compliance Certificate) (and provided , for the avoidance of doubt, that any Available Cure Amount or portion thereof that has been allocated to cure a Relevant Financial Covenant may not be allocated to cure another Relevant Financial Covenant);

 

provided, however, notwithstanding anything to the contrary herein, if at any time the calculation of the Available Cure Amount results in a negative number, the Available Cure Amount shall be deemed to equal zero.

 

Available Facility means the aggregate for the time being of each Lender's Available Commitment.

 

Average Call Establishment Rate means, at any time, an up to date [***] day average of the call establishment rate as measured by an autodialer located at the SNOC (in continuous operation) using [***] call attempts with a [***] wait time between each successful call and where such call establishment rate is calculated by dividing (i) the number of Calls Connected by (ii) the number of Call Attempts.

 

8
CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR PORTIONS OF THIS EXHIBIT. THE COPY FILED HEREWITH OMITS THE INFORMATION SUBJECT TO A CONFIDENTIALITY REQUEST. OMISSIONS ARE DESIGNATED [***]. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
 

 

The [***] day average will be measured based upon the previous [***] contiguous days. A complete data set, including each call record providing each Call Attempt and Call Connected for that [***] day period, if requested, will be supplied by the Borrower to the Technical Adviser. This data set may (or, if otherwise reasonably requested by the Borrower, shall) be reviewed by the Technical Adviser in order to identify and acknowledge any issues or incidents that are not indicative of the Iridium system performance (including but not limited to any power failures of the “Iridium Subscriber Unit” phone, anomalies attributable to autodialer resets, SNOC information technology issues and severe weather conditions) (any such issues or incidents, collectively, the Non-Iridium System Performance Issues ). The Non-Iridium System Performance Issues will be removed from the data set upon the mutual concurrence of the Technical Adviser and the COFACE Agent (acting on the instructions of the Majority Lenders), in consultation with the Borrower.

 

Base Case means the base case financial model for the NEXT System in an agreed form showing the projected operating results and cash flow for the period commencing on the Signing Date and ending on the Final Maturity Date, reviewed and approved by the Lenders prior to the Signing Date, as updated by the COFACE Agent within 10 Business Days after the Initial CP Satisfaction Date using the USD/EUR exchange rate confirmed to the COFACE Agent pursuant to paragraph 21 of Part 1 of Schedule 2 (Conditions Precedent) to give effect to the final USD value of the Satellite Supply Contract and notified to the Borrower and the Original Lenders, as further amended, reviewed and approved by the Lenders prior to the First Amendment Effective Date.

 

Base Rate means:

 

(a) in respect of Tranche A, CIRR; and

 

(b) in respect of Tranche B, LIBOR.

 

Base Reference Bank Rate means the arithmetic mean of the rates (rounded upwards to four decimal places) as supplied to the COFACE Agent at its request by the Base Reference Banks as the rate at which the relevant Base Reference Bank could borrow funds in the Relevant Interbank Market in the relevant currency and for the relevant period, were it to do so by asking for and then accepting interbank offers for deposits in reasonable market size in that currency and for that period.

 

Base Reference Banks means the principal London offices of Société Générale, Deutsche Bank AG and BNP Paribas or such other banks as may be appointed by the COFACE Agent in consultation with the Borrower.

 

Block One means the NEXT Group’s existing mobile satellite telecommunications system including a constellation of 66 satellites plus spares (at the date of this Agreement).

 

BOA Revenue Account means the Borrower's revenue account held with Bank of America with account number [***] into which the Borrower's main revenues are paid (and any replacement account of such account).

 

Boeing means The Boeing Company.

 

Boeing O&M Agreement means the amended and restated operations and maintenance agreement between ICLLC and Boeing dated 28 May 2010.

 

9
CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR PORTIONS OF THIS EXHIBIT. THE COPY FILED HEREWITH OMITS THE INFORMATION SUBJECT TO A CONFIDENTIALITY REQUEST. OMISSIONS ARE DESIGNATED [***]. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
 

 

Borrower shall have the meaning given to it in the preamble hereto.

 

Break Costs means the amount (if any) by which:

 

(a) the interest which a Lender should have received for the period from the date of receipt of all or any part of its participation in a Loan or Unpaid Sum to the last day of the current Interest Period in respect of that Loan or Unpaid Sum, had the principal amount or Unpaid Sum received been paid on the last day of that Interest Period;

 

exceeds:

 

(b) the amount which that Lender would be able to obtain by placing an amount equal to the principal amount or Unpaid Sum received by it on deposit with a leading bank in the Relevant Interbank Market for a period starting on the Business Day following receipt or recovery and ending on the last day of the current Interest Period.

 

Budget means any budget delivered by the Borrower to the COFACE Agent pursuant to Clause 21.4 (Budget and Business Plan).

 

Business Acquisition means the acquisition or incorporation of a company or any shares or securities or a business or undertaking (or, in each case, any interest in any of them).

 

Business Day means a day (other than a Saturday or Sunday) on which banks and trust institutions are open for general business in London, Paris and New York.

 

Business Plan means each Business Plan delivered by the Borrower to the COFACE Agent pursuant to Clause 21.4 (Budget and Business Plan).

 

Calculation Date means each 30 June and 31 December.

 

Calculation Period means each period of 12 months ending or commencing (as applicable) on each Calculation Date.

 

Call Attempts means the number of calls made by an autodialer located at the SNOC (using [***] second calls with a [***] wait time between each successful call) to dial a call to the Tempe Gateway digital answering system.

 

Calls Connected means the number of calls that have been “connected” and where “connected” is determined by (i) the Tempe Gateway digital answering system answering the call, (ii) the “Iridium Subscriber Unit” phone receiving an acknowledgment of the call connected from the Tempe Gateway digital answering system, and (iii) the autodialers receiving an acknowledgment of the call connected from the “Iridium Subscriber Unit” phone.

 

Capital Expenditure means any expenditure or obligation in respect of expenditure which, in accordance with the Accounting Principles, is treated as capital expenditure (which shall, for the avoidance of doubt, include NEXT Expenses and the Aireon Equity Injection made solely pursuant to clause (i) of the definition thereof, whether treated as capital expenditure or operational expenditure) and including the capital element of any expenditure or obligation incurred in connection with a Finance Lease, but excluding any capitalised interest.

 

Capital Raising means any capital increase, issue of equity-linked instruments (excluding the Existing Warrants), capital stock, shares or other equivalent instruments, subordinated debt or other securities by any member of the NEXT Group to any person other than a member of the Group.

 

10
CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR PORTIONS OF THIS EXHIBIT. THE COPY FILED HEREWITH OMITS THE INFORMATION SUBJECT TO A CONFIDENTIALITY REQUEST. OMISSIONS ARE DESIGNATED [***]. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
 

 

Capital Raising Proceeds means the consideration receivable by any member of the NEXT Group for any Capital Raising made by any member of the NEXT Group after deducting any reasonable expenses which are incurred by any member of the NEXT Group with respect to that Capital Raising to persons who are not members of the Group.

 

Cash Available for Debt Service means, for each Calculation Period:

 

(a) Cashflow in respect of that Calculation Period;

 

plus :

 

(b) Available Cash on balance sheet on the first day of such Calculation Period.

 

Cash Equivalent Investments means at any time:

 

(a) certificates of deposit maturing within one year after the relevant date of calculation and issued by an Acceptable Bank;

 

(b) any investment in marketable debt obligations issued or guaranteed by the government of the United States of America, the United Kingdom, any member state of the European Economic Area or any Participating Member State or by an instrumentality or agency of any of them having an equivalent credit rating, maturing within one year after the relevant date of calculation and not convertible or exchangeable to any other security;

 

(c) commercial paper not convertible or exchangeable to any other security:

 

(i) for which a recognised trading market exists;

 

(ii) issued by an issuer incorporated in the United States of America, the United Kingdom, any member state of the European Economic Area or any Participating Member State;

 

(iii) which matures within one year after the relevant date of calculation; and

 

(iv) which has a credit rating of either A-1 or higher by Standard & Poor's Rating Services or F1 or higher by Fitch Ratings Ltd or P-1 or higher by Moody's Investor Services Limited, or, if no rating is available in respect of the commercial paper, the issuer of which has, in respect of its long-term unsecured and non-credit enhanced debt obligations, an equivalent rating;

 

(d) any investment in money market funds which (i) have a credit rating of either A-1 or higher by Standard & Poor's Rating Services or F1 or higher by Fitch Ratings Ltd or P-1 or higher by Moody's Investor Services Limited, and (ii) which invest substantially all their assets in securities of the types described in paragraphs (a) to (c) above; or

 

(e) any other debt security approved by the Majority Lenders,

 

in each case, denominated in Dollars and which can be turned into cash on not more than 30 days' notice and to which any Obligor is alone (or together with other Obligors beneficially entitled at that time and which is not issued or guaranteed by any member of the NEXT Group or subject to any Security (other than Security arising under the Transaction Security Documents).

 

11
CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR PORTIONS OF THIS EXHIBIT. THE COPY FILED HEREWITH OMITS THE INFORMATION SUBJECT TO A CONFIDENTIALITY REQUEST. OMISSIONS ARE DESIGNATED [***]. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
 

 

Cashflow means, in respect of any Calculation Period, Consolidated Operational EBITDA for that Calculation Period after:

 

(a) adding the amount of any decrease (and deducting the amount of any increase) in Working Capital for that Calculation Period;

 

(b) adding the amount of any cash receipts during that Calculation Period in respect of any Tax rebates or credits and deducting the amount actually paid or due and payable in respect of Taxes during that Calculation Period by any member of the NEXT Group (in each case, to the extent not taken into account in paragraph (a) above);

 

(c) adding (to the extent not already taken into account in determining EBITDA) the amount of any dividends or other profit distributions received in cash by any member of the NEXT Group during that Calculation Period from any entity which is itself not a member of the NEXT Group and deducting (to the extent not already deducted in determining EBITDA) the amount of any dividends paid in cash during the Calculation Period to minority shareholders in members of the NEXT Group;

 

(d) deducting:

 

(i) the amount of any Capital Expenditure actually made during that Calculation Period by any member of the NEXT Group (not including any amount of such Capital Expenditure financed with Utilisations under the Facility); and

 

(ii) the aggregate of any cash consideration paid for, or the cash cost of, any Business Acquisitions and the amount of any Joint Venture investments in cash,

 

except (in each case) to the extent funded from Relevant Proceeds; and

 

(e) deducting the amount of any other cash items during that Calculation Period to the extent not taken into account in establishing Consolidated Operational EBITDA (including, for the avoidance of doubt, any dividends or other distributions paid in cash by the Parent during that Calculation Period),

 

and so that no amount shall be added (or deducted) more than once.

 

Change of Control means:

 

(a) any "person" or "group" (within the meaning of Rule 13(d) of the Securities Exchange Act of 1934 and the related rules of the U.S. Securities and Exchange Commission) gains the right to direct or cause the direction of the management and policies of the Parent, whether through ownership of voting securities, by contract or otherwise; or

 

(b) the acquisition of ownership, directly or indirectly, beneficially or of record, by any other "person" or "group" (within the meaning of Rule 13(d) of the Securities Exchange Act of 1934 and the related rules of the U.S. Securities and Exchange Commission), of equity interests representing more than 50% of the aggregate ordinary voting power represented by the issued and outstanding equity interests in the Parent; or

 

(c) occupation of a majority of the seats (other than vacant seats) on the board of directors of the Parent by persons who were neither (i) nominated by the board of directors of the Parent or a committee thereof nor (ii) appointed by directors so nominated; or

 

12
CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR PORTIONS OF THIS EXHIBIT. THE COPY FILED HEREWITH OMITS THE INFORMATION SUBJECT TO A CONFIDENTIALITY REQUEST. OMISSIONS ARE DESIGNATED [***]. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
 

 

(d) except to the extent otherwise required by applicable law (or pursuant to local requirements in the ordinary course of business) in the case of a Local Partner Entity, the Parent ceases to own, directly or indirectly, 100% of the equity interests and voting rights in each Obligor.

 

For the purposes of this definition, equity interests means shares of capital stock, partnership interests, membership interests in a corporation, partnership or limited liability company, beneficial interests in a trust or other equity ownership interests in a person, and any warrants, options or other rights entitling the holder to purchase or acquire any such equity interest.

 

Charged Property means all of the assets of the Obligors which from time to time are, or are expressed to be, the subject of the Transaction Security.

 

CIRR means 3.56 (three point five six) per cent. per annum, being the commercial interest reference rate determined according to articles 15 to 17 of the OECD Arrangement on Guidelines for Officially Supported Export Credits and notified by COFACE to the COFACE Agent.

 

Code means the United States Internal Revenue Code of 1986, as amended.

 

COFACE means the Compagnie Française d’Assurance pour le Commerce Extérieur, a French société anonyme with a share capital of one hundred and eighteen million three hundred and six thousand and fifty-six Euros and ninety-nine cents (€118,306,056.99), whose registered office is at La Défense, 10-12 Cours Michelet, 92800, Puteaux, France and which is registered with the Registre du Commerce et des Societés of Nanterre under number 552 069 791.

 

COFACE Agent shall have meaning given to it in the preamble hereto.

 

COFACE Eligible Content means the part of the Satellite Supply Contract and the Authorization to Proceed which is eligible for cover under the COFACE Insurance Policy and is therefore recognised as being eligible by the French Authorities to be financed by this Agreement.

 

COFACE Insurance Policy means the export credit insurance policy granted by COFACE in favour of the Lenders covering 95 per cent. of the commercial and political risk in respect of the Facility, executed by COFACE, the COFACE Agent and the Original Lenders and delivered pursuant to ‎Schedule 2 (Conditions Precedent).

 

COFACE Premium means the premium payable to COFACE pursuant to the COFACE Insurance Policy.

 

COFACE Premium Letter means the letter dated on or around the date of this Agreement from the COFACE Agent to the Borrower setting out the amount of the COFACE Premium and the COFACE Premium Percentage.

 

COFACE Premium Percentage has the meaning given to that term in Clause 2.5 (COFACE Premium).

 

COFACE Premium Proportional Amount has the meaning given to that term in Clause 2.5 (COFACE Premium).

 

Commitment means a Tranche A Commitment or a Tranche B Commitment.

 

Communications Act means the United States Communications Act of 1934 (47 U.S.C. 151, et seq.).

 

13
CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR PORTIONS OF THIS EXHIBIT. THE COPY FILED HEREWITH OMITS THE INFORMATION SUBJECT TO A CONFIDENTIALITY REQUEST. OMISSIONS ARE DESIGNATED [***]. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
 

 

Communications Licences means all Material Communications Licences and any other licences, permits, authorisations or certificates (including those for special temporary authority under the Communications Act) to construct, own, operate or promote the telecommunications business of the NEXT Group (including, without limitation, the launch and operation of Satellites and the operation of Gateways) as granted by the FCC (and any other Governmental Authority), and all extensions, additions and renewals thereto or thereof.

 

Compliance Certificate means a certificate substantially in the form set out in Schedule 12 (Form of Compliance Certificate).

 

Confidential Information means all information relating to the Parent, any Obligor, the Group, the NEXT System, the Finance Documents or the Facility of which a Finance Party becomes aware in its capacity as, or for the purpose of becoming, a Finance Party or which is received by a Finance Party in relation to, or for the purpose of becoming a Finance Party under, the Finance Documents or the Facility from either:

 

(a) any member of the Group, or any of its advisers; or

 

(b) another Finance Party, if the information was obtained by that Finance Party directly or indirectly from any member of the Group or any of its advisers,

 

in whatever form, and includes information given orally and any document, electronic file or any other way of representing or recording information which contains or is derived or copied from such information but excludes information that:

 

(i) is or becomes public information other than as a direct or indirect result of any breach by that Finance Party of Clause 37 (Confidentiality); or

 

(ii) is identified in writing at the time of delivery as non-confidential by any member of the Group or any of its advisers; or

 

(iii) is known by that Finance Party before the date the information is disclosed to it in accordance with paragraphs (a) or (b) above or is lawfully obtained by that Finance Party after that date, from a source which is, as far as that Finance Party is aware, unconnected with the Group and which, in either case, as far as that Finance Party is aware, has not been obtained in breach of, and is not otherwise subject to, any obligation of confidentiality.

 

Confidentiality Undertaking means a confidentiality undertaking substantially in a recommended form of the LMA as set out in Schedule 14 (LMA Form of Confidentiality Undertaking) or in any other form agreed between the Borrower and the COFACE Agent.

 

Consolidated EBITDA means, in relation to a Calculation Period, EBIT for that Calculation Period after adding back any depreciation and amortisation and taking no account of any charge for impairment or any reversal of any previous impairment charge made in the period.

 

Consolidated Operational EBITDA means Consolidated EBITDA excluding NEXT Expenses and any Aireon Equity Injection, stock-based compensation expenses, transaction expenses associated with the acquisition by the Parent of Iridium Holdings LLC, impact of purchase accounting adjustments, change in the fair value of warrants, and other standard non-cash items determined in accordance with the Accounting Principles.

 

14
CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR PORTIONS OF THIS EXHIBIT. THE COPY FILED HEREWITH OMITS THE INFORMATION SUBJECT TO A CONFIDENTIALITY REQUEST. OMISSIONS ARE DESIGNATED [***]. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
 

 

Contract Amount means the total amount payable by the Borrower in Dollars to the Supplier under the Satellite Supply Contract (including, for the avoidance of doubt, amounts payable under the Authorization to Proceed) (being an amount in aggregate of up to $2,297,529,385, where the final amount shall be calculated using the USD/EUR exchange rate confirmed to the COFACE Agent pursuant to paragraph 21 of Schedule 2 (Conditions Precedent) and notified by the COFACE Agent to the Original Lenders within 10 Business Days after the Initial CP Satisfaction Date).

 

Cumulative Cashflow means, at any Calculation Date, the aggregate (without double-counting) of all Cashflow for each Calculation Period ending on or prior to that Calculation Date.

 

Current Assets means amounts reported as such in the consolidated financial statements of the Parent delivered pursuant to Clause 21.1 (Financial statements) but excluding amounts in respect of:

 

(a) Exceptional Items and other non-operating items;

 

(b) insurance claims to the extent relating to non-current assets; and

 

(c) any interest owing to any member of the NEXT Group.

 

Current Liabilities means amounts reported as such in the consolidated financial statements of the Parent delivered pursuant to Clause 21.1 (Financial statements) but excluding amounts in respect of:

 

(a) liabilities for Financial Indebtedness and Finance Charges;

 

(b) Exceptional Items and other non-operating items;

 

(c) liabilities to the extent covered by insurance claims; and

 

(d) liabilities in relation to dividends declared but not paid by the Parent or by a member of the NEXT Group in favour of a person which is not a member of the NEXT Group.

 

Debt Service means, in respect of any Calculation Period, the aggregate of:

 

(a) Finance Charges for that Calculation Period;

 

(b) the aggregate of all scheduled repayments of Financial Indebtedness falling due during that Calculation Period but excluding:

 

(i) any amounts falling due under any overdraft or revolving facility and which were available for simultaneous redrawing according to the terms of that facility;

 

(ii) any such obligations owed to any member of the NEXT Group; and

 

(c) the amount of the capital element of any payments in respect of that Calculation Period payable under any Finance Lease entered into by any member of the NEXT Group,

 

and so that no amount shall be included more than once.

 

Debt Service Cover Ratio or DSCR means, in respect of a Calculation Period ending on a Calculation Date, the ratio of:

 

(a) Cash Available for Debt Service in respect of that Calculation Period;

 

to

 

15
CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR PORTIONS OF THIS EXHIBIT. THE COPY FILED HEREWITH OMITS THE INFORMATION SUBJECT TO A CONFIDENTIALITY REQUEST. OMISSIONS ARE DESIGNATED [***]. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
 

 

(b) Debt Service falling due in that Calculation Period.

 

Debt Service Reserve Account means the non-interest-bearing account designated as such:

 

(a) held by the Borrower with the Account Bank;

 

(b) subject to Security in favour of the Security Agent which Security is in form and substance satisfactory to the COFACE Agent and Security Agent; and

 

(c) from which no withdrawals may be made by any members of the NEXT Group except as contemplated by this Agreement,

 

(as the same may be redesignated, substituted or replaced from time to time).

 

Debt to Equity Ratio means, in respect of a Calculation Period, the ratio of Total Net Debt to the aggregate of Total Net Debt and Shareholders' Equity, as reported in the consolidated balance sheet of the Parent delivered pursuant to Clause 21.1 (Financial statements) on the last day of that Calculation Period.

 

Default means an Event of Default or any event or circumstance specified in Clause 24 (Events of Default) which would (with the expiry of a grace period, the giving of notice, the making of any determination under the Finance Documents or any combination of any of the foregoing) be an Event of Default.

 

Delegate means any delegate, agent, attorney or co-trustee appointed by the Security Agent or the U.S. Collateral Agent.

 

Delisting means the Parent ceasing to have all of its common stock listed on the NASDAQ, the New York Stock Exchange or any successor thereof.

 

Disbursement Request means a disbursement request signed by the Borrower, substantially in the form set out in Part 3 of Schedule 3 (Requests and Notices).

 

Disposal means a sale, lease, licence, transfer, loan or other disposal by a person of any asset, undertaking or business (whether by a voluntary or involuntary single transaction or series of transactions).

 

Disposal Proceeds means the consideration receivable by any member of the NEXT Group for the Disposal of Aireon Equity Instruments made by any member of the NEXT Group to persons who are not members of the NEXT Group.

 

Disruption Event means either or both of:

 

(a) a material disruption to those payment or communications systems or to those financial markets which are, in each case, required to operate in order for payments to be made in connection with the Facility (or otherwise in order for the transactions contemplated by the Finance Documents to be carried out) which disruption is not caused by, and is beyond the control of, any of the Parties; or

 

(b) the occurrence of any other event which results in a disruption (of a technical or systems-related nature) to the treasury or payments operations of a Party preventing that, or any other Party:

 

16
CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR PORTIONS OF THIS EXHIBIT. THE COPY FILED HEREWITH OMITS THE INFORMATION SUBJECT TO A CONFIDENTIALITY REQUEST. OMISSIONS ARE DESIGNATED [***]. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
 

 

(i) from performing its payment obligations under the Finance Documents; or

 

(ii) from communicating with other Parties in accordance with the terms of the Finance Documents,

 

and which (in either such case) is not caused by, and is beyond the control of, the Party whose operations are disrupted.

 

Dollars , $ or U.S. Dollars means the lawful currency of the United States.

 

Down Payment means, in relation to any Utilisation, the first fifteen per cent. (15%) of the aggregate amount payable by the Borrower to the Supplier pursuant to the invoices under the Satellite Supply Contract or the Authorization to Proceed which are to be financed (or, in the case of the Authorization to Proceed, of which the reimbursement to the Borrower is to be financed) with that Utilisation.

 

EBIT means, in respect of any Calculation Period, the consolidated operating profit from continuing operations of the NEXT Group as reported in the consolidated financial statements of the Parent delivered pursuant to Clause 21.1 (Financial statements):

 

(a) before deducting any income tax provision or adding any income tax benefit;

 

(b) before deducting any interest, commission, fees, discounts, prepayment fees, premiums or charges and other finance payments whether paid, payable or capitalised by any member of the NEXT Group (calculated on a consolidated basis) in respect of that Calculation Period;

 

(c) not including any amount of Secondary Payload Cashflows;

 

(d) not including any interest expense during that Calculation Period owing to any member of the NEXT Group;

 

(e) before taking into account any Exceptional Items;

 

(f) after deducting the amount of any profit (or adding back the amount of any loss) of any member of the NEXT Group which is attributable to minority interests;

 

(g) ( after deducting the amount of any profit of any Joint Venture to the extent that the amount of the profit included in the financial statements delivered pursuant to Clause 21.1 (Financial statements) exceeds the amount actually received in cash by members of the NEXT Group through distributions by the Joint Venture); and

 

(h) before taking into account any gain or loss arising from an upward or downward revaluation of any other asset at any time after the date as at which the latest financial statements of the Group were prepared,

 

in each case, to the extent added, deducted or taken into account, as the case may be, for the purposes of determining operating profits of the NEXT Group before taxation.

 

Environment means humans, animals, plants and all other living organisms including the ecological systems of which they form part and the following media:

 

(a) air (including, without limitation, air within natural or man-made structures, whether above or below ground);

 

17
CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR PORTIONS OF THIS EXHIBIT. THE COPY FILED HEREWITH OMITS THE INFORMATION SUBJECT TO A CONFIDENTIALITY REQUEST. OMISSIONS ARE DESIGNATED [***]. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
 

 

(b) water (including, without limitation, territorial, coastal and inland waters, water under or within land and water in drains and sewers); and

 

(c) land (including, without limitation, land under water).

 

Environmental Claim means any claim, action, proceeding, formal notice or investigation by any person in respect of any Environmental Law.

 

Environmental Law means any applicable law or regulation which relates to:

 

(a) the pollution or protection of the Environment;

 

(b) the conditions of the workplace; or

 

(c) the generation, handling, storage, use, release or spillage of any substance which, alone or in combination with any other, is capable of causing harm to the Environment, including, without limitation, any waste.

 

Environmental Permits means any permit and other Authorisation and the filing of any notification, registration, report or assessment required under any Environmental Law for the operation of the business of any member of the NEXT Group conducted on or from the properties owned or used by any member of the NEXT Group.

 

ERISA means the United States Employee Retirement Income Security Act of 1974.

 

ERISA Affiliate means any person treated as a single employer with any Obligor for the purpose of section 414 of the Code.

 

European Economic Area means the member states of the European Union together with Iceland, Norway and Liechtenstein.

 

Event of Default means any event or circumstance specified as such in Clause 24 (Events of Default).

 

Exceptional Items means extraordinary items as defined by the Accounting Principles and reported as such in the consolidated statement of operations of the Parent delivered pursuant to Clause 21.1 (Financial statements) and those items arising on:

 

(a) the restructuring of the activities of an entity and reversals of any provisions for the cost of restructuring;

 

(b) disposals, revaluations or impairment of non-current assets; and

 

(c) disposals of assets associated with discontinued operations.

 

Excess Launch Insurance Proceeds has the meaning given in Clause 8.3 (Launch Insurance Proceeds).

 

Excluded Capital Raising Proceeds means:

 

(a) at any time prior to the Repayment Period, any Capital Raising Proceeds in respect of a Capital Raising by the Parent (or of a newly-formed subsidiary of the Parent which is not a shareholder of any member of the Group); and

 

18
CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR PORTIONS OF THIS EXHIBIT. THE COPY FILED HEREWITH OMITS THE INFORMATION SUBJECT TO A CONFIDENTIALITY REQUEST. OMISSIONS ARE DESIGNATED [***]. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
 

 

(b) at any time during the Repayment Period, Capital Raising Proceeds in respect of a Capital Raising by the Parent (or of a newly-formed subsidiary of the Parent which is not a shareholder of any member of the Group) which (i) the Borrower notifies the COFACE Agent it is committed to apply and are applied within 12 months of receipt in payment of Capital Expenditure in respect of the NEXT System, or (ii) which the Borrower elects to allocate to a Relevant Financial Covenant in accordance with Clause 22.1(a)(iii) ( Capital Expenditure ), (b)(i) ( Consolidated Operational EBITDA ) or (b)(ii) (Secondary Payload Cashflows).

 

Excluded Company means Aireon LLC, a Delaware limited liability company, and any successor entity thereto, provided that it is and remains at all times:

 

(a) a Ring Fenced Company and, so long as it is a Subsidiary of a member of the NEXT Group, does not own by itself or together with any member of the NEXT Group any Subsidiaries;

 

(b) a bankruptcy remote, single purpose vehicle whose sole business comprises the Aireon System Project and any transaction incidental to and in support of such project; and

 

(c) has no Financial Indebtedness other than the Aireon System Debt.

 

Excluded Insurance Proceeds means (i) any Launch Insurance Proceeds, and (ii) any other Insurance Proceeds which the Borrower notifies the COFACE Agent it is committed to apply:

 

(a) to meet a third party claim;

 

(b) to cover operating losses in respect of which the relevant insurance claim was made; or

 

(c) in the replacement, reinstatement and/or repair of the assets or otherwise in amelioration of the loss in respect of which the relevant insurance claim was made,

 

in each case as soon as possible (but in any event within 12 months, or such longer period as the Majority Lenders may agree) after receipt.

 

Existing Warrants means the Parent's 13.6 million of $7.00 warrants and 14.4 million of $11.50 warrants exercisable until February 2013 and February 2015, respectively, with ticker symbols IRDMW and IRDMZ.

 

Expropriation means any seizure, expropriation, nationalisation, intervention or other similar action by or on behalf of any Governmental Authority or other person in relation to any Obligor or Material Company or any of its assets, or the nationalisation, confiscation or requisitioning of all or any part of the assets comprising the NEXT System.

 

Expropriation Proceeds means all value (whether in the form of money, securities, property or otherwise) paid by any Governmental Authority or other person to any member of NEXT Group as compensation for or in respect of an Expropriation.

 

External Local Partner shall have the meaning given to it in the definition of Local Partner Entity.

 

Facility means the term loan facility made available under this Agreement in two Tranches as described in Clause 2.1 (The Facility).

 

19
CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR PORTIONS OF THIS EXHIBIT. THE COPY FILED HEREWITH OMITS THE INFORMATION SUBJECT TO A CONFIDENTIALITY REQUEST. OMISSIONS ARE DESIGNATED [***]. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
 

 

Facility Office means:

 

(a) in respect of a Lender, the office or offices notified by that Lender to the COFACE Agent in writing on or before the date it becomes a Lender (or, following that date, by not less than five Business Days' written notice) as the office or offices through which it will perform its obligations under this Agreement; or

 

(b) in respect of any other Finance Party, the office in the jurisdiction in which it is resident for tax purposes.

 

FCC means the United States Federal Communications Commission.

 

FCC Licenses means any authorisation, order, license or permit issued by the FCC.

 

Fee Letter means:

 

(a) any letter or letters dated on or about the date of this Agreement between any Administrative Party and the Borrower) setting out any of the fees referred to in Clause 13 (Fees); and

 

(b) any agreement setting out fees payable to a Finance Party under any other Finance Document.

 

Final Maturity Date means the date falling 7 years after the Starting Point of Repayment.

 

Finance Charges means, for any Calculation Period, the aggregate amount of the accrued interest, commission, fees, discounts, prepayment fees, premiums or charges and other finance payments in respect of Financial Indebtedness whether paid or payable by any member of the NEXT Group (calculated on a consolidated basis) in respect of that Calculation Period:

 

(a) including any upfront fees or costs;

 

(b) including the interest (but not the capital) element of payments in respect of Finance Leases;

 

(c) including any commission, fees, discounts and other finance payments payable by (and deducting any such amounts payable to) any member of the NEXT Group under any interest rate hedging arrangement; and

 

(d) taking no account of any unrealised gains or losses on any derivative instruments other than any derivative instruments which are accounted for on a hedge accounting basis,

 

and so that no amount shall be added (or deducted) more than once.

 

Finance Document means:

 

(a) this Agreement;

 

(b) any Accession Deed;

 

(c) any Fee Letter;

 

(d) any Subordination Agreement;

 

(e) any Resignation Letter;

 

(f) the Motorola Intercreditor Agreement;

 

20
CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR PORTIONS OF THIS EXHIBIT. THE COPY FILED HEREWITH OMITS THE INFORMATION SUBJECT TO A CONFIDENTIALITY REQUEST. OMISSIONS ARE DESIGNATED [***]. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
 

 

(g) the COFACE Insurance Policy;

 

(h) the COFACE Premium Letter;

 

(i) any Promissory Note;

 

(j) any Transaction Security Document;

 

and any other document designated as a "Finance Document" by the COFACE Agent and the Borrower.

 

Finance Lease means any lease or hire purchase contract which would, in accordance with the Accounting Principles, be treated as a finance or capital lease.

 

Finance Party means an Administrative Party or a Lender.

 

Financial Covenant means each of the covenants set out in Clause 22.1 (Financial condition).

 

Financial Indebtedness means any indebtedness for or in respect of:

 

(a) moneys borrowed and debit balances at banks or other financial institutions;

 

(b) any acceptance under any acceptance credit or bill discounting facility (or dematerialised equivalent);

 

(c) any note purchase facility or the issue of bonds (but not Trade Instruments), notes, debentures, loan stock or any similar instrument;

 

(d) the amount of any liability in respect of Finance Leases;

 

(e) receivables sold or discounted (other than any receivables to the extent they are sold on a non-recourse basis and meet any requirement for de-recognition under the Accounting Principles);

 

(f) any Treasury Transaction (and, when calculating the value of that Treasury Transaction, only the marked to market value (or, if any actual amount is due as a result of the termination or close-out of that Treasury Transaction, that amount) shall be taken into account);

 

(g) any counter-indemnity obligation in respect of a guarantee, bond, standby or documentary letter of credit or any other instrument issued by a bank or financial institution in respect of an underlying liability (but not, in any case, Trade Instruments) of an entity which is not a member of the NEXT Group which liability would fall within one of the other paragraphs of this definition;

 

(h) any amount raised by the issue of redeemable shares which are redeemable (other than at the option of the issuer) before the Final Maturity Date or are otherwise classified as Financial Indebtedness under the Accounting Principles);

 

(i) any amount of any liability under an advance or deferred purchase agreement if (i) one of the primary reasons behind entering into the agreement is to raise finance or to finance the acquisition or construction of the asset or service in question or (ii) the agreement is in respect of the supply of assets or services and payment is due more than 90 days after the date of supply;

 

21
CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR PORTIONS OF THIS EXHIBIT. THE COPY FILED HEREWITH OMITS THE INFORMATION SUBJECT TO A CONFIDENTIALITY REQUEST. OMISSIONS ARE DESIGNATED [***]. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
 

 

(j) any amount raised under any other transaction (including any forward sale or purchase, sale and sale back or sale and leaseback agreement) having the commercial effect of a borrowing or otherwise classified as Financial Indebtedness under the Accounting Principles; and

 

(k) the amount of any liability in respect of any guarantee for any of the items referred to in paragraphs (a) to (j) above.

 

Financial Quarter means the period commencing on the day after one Quarter Date and ending on the next Quarter Date.

 

Financial Year means the annual accounting period of the Group ending on or about 31 December in each year.

 

First Amendment Effective Date has the meaning ascribed to the term Effective Date in the First Supplemental Agreement.

 

First Repayment Date means the date falling six (6) months after the Starting Point of Repayment.

 

First Supplemental Agreement means the supplemental agreement dated 1 August 2012 between the COFACE Agent and the Borrower relating to certain amendments and waivers to this Agreement.

 

First Utilisation Date means the date on which the first Loan under the Facility is made by the Lenders to the Borrower.

 

Foreign Transferee Subsidiary means any direct or indirect wholly owned Subsidiary of the Parent:

 

(i) that is a member of the NEXT Group and is incorporated or organized (as applicable) under the laws of any jurisdiction other than the United States or any state or territory thereof and is a “controlled foreign corporation” (within the meaning of Section 957 of the Code); and

 

(ii) where one or more of its direct shareholders is an Obligor or are Obligors which has or have:

 

(A) granted Transaction Security over no less than 65% in aggregate of the outstanding shares or other ownership interests in such wholly owned Subsidiary;

 

(B) delivered to the COFACE Agent the Transaction Security Documents duly executed by it and the Security Agent (together with all such notices, documents, instruments or filings set forth in Part 2 of Schedule 2 (Conditions Precedent) (as if references to an ‘Additional Guarantor’ were references to such direct shareholder(s) and references to ‘Accession Deed’ were references to the Transaction Security Documents and provided further that, but subject to paragraph (ii)(A) above, the proviso in paragraph 11 shall not apply)) as are required by the COFACE Agent to be given, executed, made or delivered; and

 

(C) taken all such action that is necessary to protect, perfect or give priority to such Transaction Security.

 

22
CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR PORTIONS OF THIS EXHIBIT. THE COPY FILED HEREWITH OMITS THE INFORMATION SUBJECT TO A CONFIDENTIALITY REQUEST. OMISSIONS ARE DESIGNATED [***]. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
 

 

For the avoidance of doubt, such wholly owned Subsidiary will become a Foreign Transferee Subsidiary on the date the COFACE Agent has received all of the documents and other evidence listed in (ii) (A), (B) and (C) above, in form and substance reasonably satisfactory to it. The COFACE Agent shall notify the Borrower and the Lenders promptly upon being so satisfied.

 

Fourth Amendment Effective Date has the meaning ascribed to the term Effective Date in the Fourth Supplemental Agreement.

 

Fourth Supplemental Agreement means the supplemental agreement dated 2 May 2014 between the COFACE Agent and the Borrower relating to certain amendments and waivers to this Agreement.

 

French Authority means:

 

(a) the Direction générale du Trésor et de la politique économique of the French Ministry of Economy and Finance, any successors thereto, and

 

(b) any legislative, administrative or other governmental agency, department, commission, board, bureau or any other regulatory authority or, instrumentality thereof and any governmental authorities of the Republic of France having jurisdiction over and responsibility for the provision, management or regulation of their terms, conditions and issuance of export credits in or for the Republic of France including, inter alia, such entities to whom authority in respect of extension or administration of export financing matters have been delegated.

 

GAAP means generally accepted accounting principles in the United States of America as in effect from time to time.

 

Gateway means any earth station (gateway) licenced for operation by the FCC or by a Governmental Authority outside the United States that performs or is predominantly used for voice or data call processing operations, connecting subscriber communications to the public switched telephone network, supporting subscriber billing or information functions and is owned and operated by a member of the NEXT Group (and excluding, for the avoidance of doubt, any facilities used solely for telemetry, tracking and command).

 

Good Faith Contest means, with respect to the payment of Taxes or any related claims or liabilities by any person, the satisfaction of each of the following conditions: (i) the validity, timing or amount thereof is being diligently contested in good faith by such person by appropriate proceedings timely instituted, (ii) in the case of Taxes or related claims and liabilities of the Borrower, the Borrower has established adequate cash reserves with respect to the contested items in accordance with the Accounting Principles applicable to it, and (iii) such contest or proceedings and any resultant failure to pay or discharge the claimed or assessed amount do not and would not otherwise reasonably be expected to result in a Material Adverse Effect.

 

Government Revenue Contract means that certain Airtime Contract, dated as of March 31, 2008, by and between Iridium Government Services LLC and the Defense Information Systems Agency, as such contract may have been amended, amended and restated, supplemented or otherwise modified from time to time.

 

Governmental Authority means any agency, authority, central bank, court, department, government, legislature, minister, ministry, official or public person (whether autonomous or not and whether or not local or regional) of, or of the government of, any state or supranational organisation.

 

23
CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR PORTIONS OF THIS EXHIBIT. THE COPY FILED HEREWITH OMITS THE INFORMATION SUBJECT TO A CONFIDENTIALITY REQUEST. OMISSIONS ARE DESIGNATED [***]. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
 

 

Group means the Parent and each of its Subsidiaries from time to time.

 

Group Structure Chart means the group structure chart as set out in Schedule 20 (Group Structure Chart).

 

Guarantor means an Original Guarantor or an Additional Guarantor, unless it has ceased to be a Guarantor in accordance with Clause 23.30 (Additional Guarantors and resignation of Guarantors).

 

ICLLC means Iridium Constellation LLC, a Delaware limited liability company.

 

IDC means the IDC Component interest capitalised during construction in accordance with Clause 10.3 (Capitalisation during construction).

 

IDC Component means:

 

(a) in respect of Tranche A, CIRR; and

 

(b) in respect of Tranche B, the sum of LIBOR plus 0.55 per cent. per annum.

 

Indemnification Contract means that certain Indemnification Contract, dated as of December 5, 2000, by and among the Borrower, Boeing, Motorola and the United States.

 

Independent Director means a director of the Excluded Company, whose vote is separate and independent from that of any board member of the NEXT Group members and whose vote is needed before the filing of any insolvency, reorganization case or proceeding to consolidate or merge the Excluded Company with or into any member of the NEXT Group or sell all or substantially all of its assets or to institute proceedings under any applicable insolvency law or to have the Excluded Company be adjudicated bankrupt or insolvent, to seek 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 Excluded Company or file a petition seeking, or consent to, reorganization or relief with respect to the Excluded Company under any applicable federal or state law relating to bankruptcy or insolvency, to seek or consent to the appointment of a receiver, liquidator, assignee, trustee, sequestrator, custodian (or other similar official) of or for the Excluded Company or a substantial part of its property, or make any assignment for the benefit of creditors of the Excluded Company, or admit in writing the Excluded Company's inability to pay its debts generally as they become due, or take action in furtherance of any of the foregoing.

 

In-Orbit Acceptance means, with respect to a Satellite, the acceptance of that Satellite (including, for the avoidance of doubt, any provisional qualified acceptance of that Satellite, but not including any deemed acceptance resulting from the loss or constructive loss of that Satellite on or after the launch thereof) in orbit by the Borrower in accordance with the Satellite Supply Contract has occurred.

 

Initial CP Satisfaction Date means the date on which the COFACE Agent gives the notification under Clause 4.1.

 

Insurance means the insurance cover effected or maintained by the Borrower pursuant to Schedule 21 (Insurance).

 

Insurance Adviser means Jardine Lloyd Thompson Ltd or any replacement thereof.

 

Insurance Proceeds means the proceeds of any insurance claim under any insurance maintained by any member of the NEXT Group and after deducting any reasonable expenses in relation to that claim which are incurred by any member of the NEXT Group to persons who are not members of the NEXT Group.

 

24
CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR PORTIONS OF THIS EXHIBIT. THE COPY FILED HEREWITH OMITS THE INFORMATION SUBJECT TO A CONFIDENTIALITY REQUEST. OMISSIONS ARE DESIGNATED [***]. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
 

 

Intellectual Property means:

 

(a) any patents, trade marks, service marks, designs, business names, copyrights, database rights, design rights, domain names, moral rights, inventions, confidential information, knowhow and other intellectual property rights and interests (which may now or in the future subsist), whether registered or unregistered; and

 

(b) the benefit of all applications and rights to use such assets of each member of the NEXT Group (which may now or in the future subsist).

 

Interest Payment Date means:

 

(a) prior to the date falling six months after the Starting Point of Repayment (being the First Repayment Date), each date falling at six (6) month intervals from the First Utilisation Date; and

 

(b) the First Repayment Date; and

 

(c) after the First Repayment Date, each date falling at six (6) month intervals from the First Repayment Date.

 

Interest Period means, in relation to a Loan, each period determined in accordance with Clause 11 (Interest Periods) and, in relation to an Unpaid Sum, each period determined in accordance with Clause 10.4 (Default interest).

 

Iridium Group Partner shall have the meaning given to it in the definition of Local Partner Entity.

 

IRS means the United States Internal Revenue Service.

 

Joint Interest Mandate means the mandate granted by the Borrower to the COFACE Agent substantially in the form set out in Schedule 6 (Form of Joint Interest Mandate).

 

Joint Venture means any joint venture entity that is not a Subsidiary of any member of the NEXT Group, whether a company, unincorporated firm, undertaking, association, joint venture or partnership or any other entity in which any member or members of the NEXT Group controls or owns less than or equal to 50% of voting rights or share capital.

 

Key Assets means assets which are necessary and required in order to carry out the business and operations of the NEXT Group as a whole in all material respects in accordance with the Base Case (including, for the avoidance of doubt, subject to the restrictions and limitations set forth in Clause 23.30 (Additional Guarantors and resignation of Guarantors), all equity interests in each Material Company).

 

Launch Insurance means the insurance to be procured by the Borrower and/or any other Obligors in respect of claims relating to the launch of the Satellites as and to the extent set out in Schedule 21 (Insurance).

 

Launch Insurance Proceeds means the proceeds of any insurance claim under any Launch Insurance maintained by any member of the NEXT Group after deducting any reasonable expenses in relation to that claim which are incurred by any member of the NEXT Group to persons who are not members of the NEXT Group.

 

25
CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR PORTIONS OF THIS EXHIBIT. THE COPY FILED HEREWITH OMITS THE INFORMATION SUBJECT TO A CONFIDENTIALITY REQUEST. OMISSIONS ARE DESIGNATED [***]. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
 

 

Launch Services Contract means:

 

(a) the SpaceX Launch Contract; and

 

(b) any other launch services contract with an alternative launch services provider (including any committed fixed price proposal and/or any option in respect of such launch services contract) to be provided or entered into pursuant to Schedule 22 (Back-Up Launch Strategy).

 

Launch Services Provider means SpaceX or any other launch services provider party to a Launch Services Contract.

 

Lead Arrangers shall have the meaning given to it in the preamble hereto.

 

Legal Opinion means any legal opinion delivered to the COFACE Agent under Clause 4.1 (Initial conditions precedent).

 

Legal Reservations means:

 

(a) the principle that equitable remedies may be granted or refused at the discretion of a court and the limitation of enforcement by laws relating to insolvency, reorganisation and other laws generally affecting the rights of creditors;

 

(b) the time barring of claims under the Limitation Acts, the possibility that an undertaking to assume liability for or indemnify a person against non-payment of UK stamp duty may be void and defences of set-off or counterclaim;

 

(c) similar principles, rights and defences under the laws of any Relevant Jurisdiction; and

 

(d) any other matters which are set out as qualifications or reservations as to matters of law of general application in the Legal Opinions.

 

Lender means:

 

(a) any Original Lender; and

 

(b) any bank, financial institution, trust, fund or other entity which has become a Party as a Lender in accordance with Clause 25 (Changes to the Lenders),

 

which in each case has not ceased to be a Lender in accordance with the terms of this Agreement.

 

Lenders’ Environmental and Social Policies and Guidelines means the International Finance Corporation's Performance Standards on Environmental and Social Sustainability, dated April 30, 2006 (other than Performance Standard 1 - Social Impact and Environmental Assessment and Management Systems specified therein), that are applicable to the NEXT Group and which are valid and in force as at the Signing Date and required by the Lenders.

 

Leverage means, in respect of any Calculation Period, the ratio of Total Net Debt on the last day of that Calculation Period to Consolidated Operational EBITDA in respect of that Calculation Period.

 

26
CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR PORTIONS OF THIS EXHIBIT. THE COPY FILED HEREWITH OMITS THE INFORMATION SUBJECT TO A CONFIDENTIALITY REQUEST. OMISSIONS ARE DESIGNATED [***]. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
 

 

LIBOR means, in relation to any Loan:

 

(a) the applicable Screen Rate; or

 

(b) (if no Screen Rate is available for the currency or Interest Period of that Loan) the Base Reference Bank Rate,

 

as of the Specified Time on the Quotation Day for the currency of that Loan and a period comparable to the Interest Period of that Loan, provided that , if the period from the beginning of the Interest Period or from the date of Utilisation until the end of the Interest Period is:

 

(i) a period shorter than one (1) Month, the reference shall be one (1) Month; or

 

(ii) a period longer than one (1) Month and which does not correspond to an exact number of Months, the relevant rate shall be determined by using a linear interpolation of the LIBOR according to usual practice in the international monetary market.

 

Limitation Acts means the Limitation Act 1980 and the Foreign Limitation Periods Act 1984.

 

LMA means the Loan Market Association.

 

Loan means a Tranche A Loan or a Tranche B Loan.

 

Local Partner Entity means a Subsidiary of, or a Joint Venture with, a member of the NEXT Group (the Iridium Group Partner ) where such Subsidiary or Joint Venture is organised or carrying on business in a jurisdiction where applicable law (or local requirements in the ordinary course of business) requires a proportion of the ownership interests and/or control of such Subsidiary or Joint Venture to be held by a person or persons (each an External Local Partner ) resident, domiciled or incorporated (or the equivalent) in that jurisdiction.

 

Lock-Up Period means any period after NEXT System Completion during which:

 

(a) the DSCR for either of the last two Calculation Periods (as set out in the two most recent Compliance Certificates) is less than [***] (or would be less than [***] based on a pro forma calculation taking into account the proposed dividend or distribution in the determination of Cash Available for Debt Service); or

 

(b) Leverage (as set out in the most recent Compliance Certificate) is greater than [***] (or would be greater than [***] based on a pro forma calculation taking into account the proposed dividend or distribution); or

 

(c) the amount standing to the credit of the Debt Service Reserve Account is less than the Required DSRA Balance; or

 

(d) the Average Call Establishment Rate is below [***] per cent.

 

Longstop Availability Date means [***] .

 

Majority Lenders means a Lender or Lenders whose Commitments (drawn and undrawn) aggregate more than 66⅔% of the Total Commitments (or, if the Total Commitments have been reduced to zero, aggregated more than 66⅔% of the Total Commitments immediately prior to that reduction).

 

Mandated Lead Arrangers and Bookrunners shall have meaning given to it in the preamble hereto.

 

27
CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR PORTIONS OF THIS EXHIBIT. THE COPY FILED HEREWITH OMITS THE INFORMATION SUBJECT TO A CONFIDENTIALITY REQUEST. OMISSIONS ARE DESIGNATED [***]. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
 

 

Mandatory Cost means the percentage rate per annum calculated by the COFACE Agent in accordance with Schedule 7 (Mandatory Cost Formula).

 

Mandatory Prepayment Account means the non-interest-bearing account:

 

(a) held by the Borrower with the Account Bank;

 

(b) subject to Security in favour of the Security Agent which Security is in form and substance satisfactory to the COFACE Agent and Security Agent; and

 

(c) from which no withdrawals may be made by any members of the Group except as contemplated by this Agreement,

 

(as the same may be redesignated, substituted or replaced from time to time).

 

Margin means:

 

(a) in relation to Tranche A, 1.40 (one point four zero) per cent. per annum; and

 

(b) in relation to Tranche B, 1.95 (one point nine five) per cent. per annum.

 

Material Adverse Effect means a material adverse effect on:

 

(a) the business, operations, property, liabilities or financial condition of (i) the Borrower, or (ii) the Obligors or the NEXT Group taken as a whole;

 

(b) the economic or technical viability of the NEXT System;

 

(c) the ability of any member of the NEXT Group to perform or comply with any material obligation under any NEXT System Document to which it is party;

 

(d) the ability of any Obligor to perform or comply with its payment or other material obligations under any Finance Document;

 

(e) the validity or enforceability of, or the material rights or remedies of the Finance Parties under any relevant Finance Document; or

 

(f) the validity, priority or enforceability of any security created purported to be created by the Transaction Security Documents.

 

Material Communications Licence means (i) the FCC space station authorisation granted to Motorola Satellite Communications Inc. on 31 January 1995 and assigned to the Borrower (including, for the avoidance of doubt, any renewal or replacement thereof), (ii) each Communications Licence in respect of any Gateway and (iii) any other Communications Licence where the loss, revocation, modification, non-renewal, suspension or termination of such Communications Licence has or could reasonably be expected to have a Material Adverse Effect (and including, for the avoidance of doubt, each of the licences set forth on Schedule 18 (Communications Licences)).

 

Material Company means, at any time:

 

(a) a member of the NEXT Group that holds shares in an Obligor or one or more Material Communications Licences or Key Assets;

 

28
CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR PORTIONS OF THIS EXHIBIT. THE COPY FILED HEREWITH OMITS THE INFORMATION SUBJECT TO A CONFIDENTIALITY REQUEST. OMISSIONS ARE DESIGNATED [***]. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
 

 

(b) a Subsidiary, other than the Excluded Company, of the Parent which has earnings before interest, tax, depreciation and amortisation calculated on the same basis as Consolidated EBITDA representing 5% or more of Consolidated EBITDA, or has gross assets, net assets or turnover (excluding intra-group items) representing 5%, or more of the gross assets, net assets or turnover of the Group, calculated on a consolidated basis; or

 

(c) any Foreign Transferee Subsidiary.

 

Compliance with the conditions set out in paragraph (b) shall be determined by reference to the most recent Compliance Certificate supplied by the Borrower and/or the latest audited consolidated financial statements of the Group. However, if a Subsidiary has been acquired since the date as at which the latest audited consolidated financial statements of the Group were prepared, the financial statements shall be adjusted to give pro forma effect to the acquisition of that Subsidiary (that adjustment being certified by an authorized officer of the Borrower as representing an accurate reflection of the revised Consolidated EBITDA, gross assets, net assets or turnover of the NEXT Group).

 

If there is a dispute as to whether a Subsidiary is or is not a Material Company, a determination by the COFACE Agent (acting reasonably) shall, in the absence of manifest error, be conclusive and binding on all Parties.

 

Material NEXT System Documents means:

 

(a) the Satellite Supply Contract and the Authorization to Proceed;

 

(b) any Launch Services Contract;

 

(c) the Boeing O&M Agreement;

 

(d) the NEXT Support Services Agreement;

 

(e) the Motorola Settlement and Release;

 

(f) the Motorola IP Rights Agreement; and

 

(g) any Re-Launch Contract.

 

Material Transaction Party means:

 

(a) the Supplier; and

 

(b) each Launch Services Provider.

 

Milestone means each milestone set out in Schedule 24 (Milestones).

 

Month means a period starting on one day in a calendar month and ending on the numerically corresponding day in the next calendar month, except that:

 

(a) if the numerically corresponding day is not a Business Day, that period shall end on the next Business Day in that calendar month in which that period is to end if there is one, or if there is not, on the immediately preceding Business Day; and

 

29
CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR PORTIONS OF THIS EXHIBIT. THE COPY FILED HEREWITH OMITS THE INFORMATION SUBJECT TO A CONFIDENTIALITY REQUEST. OMISSIONS ARE DESIGNATED [***]. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
 

 

(b) if there is no numerically corresponding day in the calendar month in which that period is to end, that period shall end on the last Business Day in that calendar month.

 

The above rules will only apply to the last Month of any period.

 

Motorola means Motorola, Inc.

 

Motorola Intercreditor Agreement means that certain priority and collateral agency agreement dated as of 30 September 2010 by and among the Borrower, Motorola and the U.S. Collateral Agent, and to which the COFACE Agent (on behalf of the Lenders) is to accede as a party.

 

Motorola IP Rights Agreement means the Intellectual Property Rights Agreement between the Borrower and Motorola dated 11 December 2000 (including as amended by that certain System Intellectual Property Rights Amendment and Agreement, dated as of 30 September 2010, by and between Motorola and the Borrower).

 

Motorola Settlement Agreements means:

 

(a) that certain Settlement Agreement and Mutual Release, dated as of 30 September 2010, by and among Motorola, the Borrower, Iridium Holdings LLC and the Parent (the Motorola Settlement and Release );

 

(b) that certain Supplemental Subscriber Equipment Technology Amendment and Agreement, dated as of 30 September 2010, by and between Motorola and the Borrower; and

 

(c) the Transition Services Agreement.

 

NEXT Constellation means the LEO constellation of 66 Satellites and 6 in-orbit spare Satellites to be procured and launched under the NEXT System Documents and the 9 ground spare Satellites to be procured under the NEXT System Documents.

 

NEXT Expenses means expenses incurred in connection with the development, procurement, financing and launch of the NEXT System which are treated as capital expenditure under and in accordance with the Base Case, regardless of treatment as a capital expenditure or an operational expenditure pursuant to the Accounting Principles.

 

NEXT Group means the Parent and each of its Subsidiaries from time to time excluding the Excluded Company.

 

NEXT Support Services Agreement means that certain agreement, dated as of 28 May 2010, by and between the Borrower and Boeing relating to the operations and maintenance of the NEXT Constellation.

 

NEXT System means the development, procurement, launch and operation of the NEXT Constellation and associated ground infrastructure.

 

NEXT System Completion means:

 

(a) the In-Orbit Acceptance of [***] Satellites under the Satellite Supply Contract has occurred; and

 

30
CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR PORTIONS OF THIS EXHIBIT. THE COPY FILED HEREWITH OMITS THE INFORMATION SUBJECT TO A CONFIDENTIALITY REQUEST. OMISSIONS ARE DESIGNATED [***]. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
 

 

(b) all costs and expenses (identified in the Base Case) incurred or payable by the NEXT Group in implementing the NEXT System that are then due and owing under the Satellite Supply Contract and the Launch Services Contract have been paid.

 

NEXT System Completion Longstop Date means [***] .

 

NEXT System Documents means:

 

(a) each Material NEXT System Document;

 

(b) the Motorola Settlement Agreements;

 

(c) each Gateway and/or TTAC ground station operation and maintenance agreement;

 

(d) each Secondary Payload Contract;

 

(e) the Aireon System Documents; and

 

(f) any other material contract, licence or authorisation entered into by any member of the NEXT Group in respect of the NEXT System and designated as such by the Borrower and the COFACE Agent.

 

Non Eligible Capital Raising means:

 

(a) the Permitted PIYC Capital Raising; and

 

(b) any other Capital Raising, the proceeds of which are invested in the Excluded Company (for the avoidance of doubt, this will include any investment described in paragraph (i) and (ii) of the definition of Aireon Equity Injection).

 

Obligor means the Borrower or a Guarantor.

 

OECD Common Approaches means the OECD Revised Council Recommendation on Common Approaches on the Environment and Officially Supported Export Credits (TAD/ECG (2007) 9) dated 12 June 2007.

 

Original Financial Statements means the Parent’s audited financial statements for its Financial Year ended 31 December 2009.

 

Original Guarantors shall have meaning given to it in the preamble hereto.

 

Original Lenders shall have meaning given to it in the preamble hereto.

 

Original Obligor means the Borrower or an Original Guarantor.

 

Participating Member State means any member state of the European Communities that adopts or had adopted the euro as its lawful currency in accordance with legislation of the European Community relating to Economic and Monetary Union.

 

Party means a party to this Agreement.

 

31
CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR PORTIONS OF THIS EXHIBIT. THE COPY FILED HEREWITH OMITS THE INFORMATION SUBJECT TO A CONFIDENTIALITY REQUEST. OMISSIONS ARE DESIGNATED [***]. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
 

 

Permitted Acquisition/Investment means:

 

(a) acquisitions of assets, inventory/stock in trade, investments in debt securities or money market funds or other similar instruments for cash management purposes and the holding of investments in Subsidiaries and Permitted Joint Ventures in existence on the Signing Date, in each case in the ordinary course of business;

 

(b) the incorporation or formation of a company, corporation, partnership or other similar entity (in each case with limited liability) which on incorporation or formation is wholly-owned by a member of the Group; and

 

(c) an acquisition of (i) at least 50% of the ownership interests of a company, corporation, partnership or other similar entity (in each case with limited liability), or (ii) a Permitted Joint Venture, or (iii) a business or undertaking carried on as a going concern where:

 

(i) no Default is continuing on the closing date for the acquisition/investment or would occur as a result of the acquisition/investment; and

 

(ii) the company, corporation, partnership or other similar entity, business or undertaking is:

 

(A) cash-flow positive (or, if the EBITDA of the company, business or undertaking is negative, the aggregate negative EBITDA of all such acquired companies, businesses or undertakings does not exceed $2,000,000 on the date of acquisition); and

 

(B) (if acquired prior to NEXT System Completion) free of debt; and

 

(C) engaged in a Permitted Business or a component thereof;

 

(iii) the consideration (including associated costs and expenses for the acquisition and any Financial Indebtedness or other assumed actual or contingent liability, in each case remaining in the acquired company, corporation, partnership or other similar entity (or any such business)) at the date of acquisition (when aggregated with the consideration for any other Permitted Acquisition/Investment) does not exceed in aggregate:

 

(A) $ [***] or its equivalent in any Financial Year of the Parent prior to NEXT System Completion; or

 

(B) $ [***] or its equivalent in total (excluding acquisitions/investments made after NEXT System Completion and funded with proceeds of share issues by the Parent in an aggregate amount not exceeding $ [***] ); and

 

(iv) based on a pro forma calculation taking into account the proposed acquisition, the Financial Covenants would be complied with for the following 12-month period (taking into account any reasonably expected synergies); and

 

(d) the incorporation or formation of the Excluded Company and any investment in the Excluded Company made by way of an Aireon Equity Injection in connection with the Aireon System Project (including any transaction incidental and in support of the Aireon System Project).

 

32
CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR PORTIONS OF THIS EXHIBIT. THE COPY FILED HEREWITH OMITS THE INFORMATION SUBJECT TO A CONFIDENTIALITY REQUEST. OMISSIONS ARE DESIGNATED [***]. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
 

 

Permitted Business means the provision of telecommunications services via mobile satellite services (and not geostationary satellites) and related terrestrial infrastructure, and any other business reasonably incidental thereto (including (without duplication of the foregoing) any complementary terrestrial telecommunication services and the operation, sale, purchase, lease, manufacture, design or procurement of associated equipment, technology, services and applications used directly or indirectly in connection with the provision of telecommunications services) and any other business of the NEXT Group existing as of the date hereof; provided that, for the avoidance of doubt, with respect to any member of the NEXT Group, the ownership of any equity interests in the Excluded Company, the holding of any Aireon Equity Instruments, the entering into and consummation of the Aireon System Documents by such member of the NEXT Group and any other transactions incidental to the foregoing shall be considered a Permitted Business.

 

Permitted Carry Forward Amount has the meaning given to it in Clause 22.1 (Financial condition).

 

Permitted Disposal means any sale, lease, licence, transfer or other disposal which, except in the case of paragraph (b) and paragraph (m), is on arm's length terms:

 

(a) of inventory, trading stock or cash made by any member of the NEXT Group in the ordinary course of trading of the disposing entity;

 

(b) of any asset by a member of the NEXT Group (the Disposing Company ) to another member of the NEXT Group (the Acquiring Company ), but if:

 

(i) the Disposing Company is an Obligor, the Acquiring Company must also be an Obligor, or if the Disposing Company is a Foreign Transferee Subsidiary, the Acquiring Company must also be a Foreign Transferee Subsidiary or an Obligor;

 

(ii) the Disposing Company had given Security over the asset, the Acquiring Company must give equivalent Security over that asset; and

 

(iii) the Disposing Company is a Guarantor, the Acquiring Company must be a Guarantor guaranteeing at all times an amount no less than that guaranteed by the Disposing Company;

 

(c) of any shares of a member of the NEXT Group (other than an Obligor or Material Company) which is to become a Local Partner Entity to a person that is to become an External Local Partner, but only up to the minimum extent required by the applicable law (or local requirements in the ordinary course of business) of the relevant jurisdiction, and provided , where the Iridium Group Partner will hold less than 50% of the shares and voting rights, the Iridium Group Partner uses its best efforts to retain de facto economic and management control (including by way of non-voting shares or call options), to the extent permitted by the applicable law (or local requirements in the ordinary course of business) of the relevant jurisdiction;

 

(d) of assets in exchange for other assets comparable or superior as to type, value and quality in the ordinary course of trading of the disposing entity;

 

(e) of obsolete or redundant vehicles, plant and equipment;

 

(f) of investments in listed shares, debt securities, money market funds or other similar instruments for cash or in exchange for other similar investments;

 

(g) to a Permitted Joint Venture, to the extent permitted by Clause 23.9 (Joint Ventures);

 

33
CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR PORTIONS OF THIS EXHIBIT. THE COPY FILED HEREWITH OMITS THE INFORMATION SUBJECT TO A CONFIDENTIALITY REQUEST. OMISSIONS ARE DESIGNATED [***]. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
 

 

(h) arising as a result of any Permitted Security;

 

(i) the sale or discount without recourse of accounts receivable arising in the ordinary course of trading in connection with the compromise or settlement thereof;

 

(j) any lease, sub-licence, sale or exchange of unused spectrum or (in the case of an exchange) used spectrum subject to a Communications Licence, in each case on arms' length terms to the extent permitted by applicable law and the terms of the relevant Communications Licence and provided such arrangement could not reasonably be expected to have a Material Adverse Effect;

 

(k) of assets (other than shares in a Material Company or an Obligor) for cash where the higher of the book value and net consideration receivable (when aggregated with the higher of the book value and net consideration receivable for any other sale, lease, licence, transfer or other disposal not allowed under the preceding paragraphs or as a Permitted Transaction) does not exceed $15,000,000 (or its equivalent) in total during the term of this Agreement and does not exceed $5,000,000 (or its equivalent) in any Financial Year of the Parent;

 

(l) subject to clause 23.33 (Aireon Transaction) of any Aireon Equity Instrument by a member of the NEXT Group; and

 

(m) of any equipment or assets (including, without limitation, any Gateway, upgrades to ground systems or services in connection thereto) by any Obligor or Foreign Transferee Subsidiary to any Foreign Transferee Subsidiary or an Obligor as a capital contribution, for cash consideration or otherwise to the extent permitted by the Finance Documents; provided that:

 

(i) such equipment or assets (including, without limitation, any Gateway, upgrades to ground systems or services in connection thereto) was developed and/or acquired for the purposes of, or in connection with, operating and maintaining, upgrading, improving or otherwise enhancing the Borrower’s global network (including, without limitation, any ground stations, TTACs and other associated ground infrastructure) and/or in connection with or related to the geographic expansion and growth of the Borrower’s Permitted Business; and

 

(ii) with respect to each Financial Year specified in column 1 below, the aggregate book value at the time of disposal (as determined according to the Accounting Principles) of such equipment or assets (including, without limitation, any Gateway, or upgrades to ground systems or services in connection thereto) sold, leased, licensed, transferred or otherwise disposed of during such Financial Year pursuant to this paragraph (m) does not exceed the amount specified in column 2 below opposite such Financial Year (in the aggregate and on a cumulative basis):

 

Column 1
Financial Year Ending
  Column 2
Permitted Disposal
Amount
 
12/31/2013   $ 50,000,000  
12/31/2014   $ 60,000,000  
12/31/2015   $ 70,000,000  
12/31/2016   $ 80,000,000  
12/31/2017   $ 90,000,000  
12/31/2018   $ 100,000,000  

 

34
CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR PORTIONS OF THIS EXHIBIT. THE COPY FILED HEREWITH OMITS THE INFORMATION SUBJECT TO A CONFIDENTIALITY REQUEST. OMISSIONS ARE DESIGNATED [***]. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
 

 

Permitted Distribution means:

 

(a) the payment of a dividend by any member of the NEXT Group to the Parent or to any of the Parent’s direct or indirect wholly-owned Subsidiaries;

 

(b) the payment by any Local Partner Entity of a dividend out of distributable profits to its External Local Partner(s) (where the proportional share is paid simultaneously to the Iridium Group Partner) but in an amount not exceeding $ [***] in respect of each External Local Partner in the aggregate in any given year; and

 

(c) the payment by the Parent of dividends or other distributions on share capital or Permitted PIK Debt or repayment of shareholder loans, provided that:

 

(i) (A) subject to paragraph (B) below, such payment does not occur prior to NEXT System Completion (and the COFACE Agent has received Compliance Certificates for the first two Calculation Periods following the First Repayment Date) or during any Lock-Up Period thereafter; or

 

(A) such payment is of dividends in respect of the Permitted PIYC Capital Raising, provided that, prior to such payment: (x) a Budget in effect for the fiscal year during which the payment is to be made shall have projected the availability of funds for, and included the making of, such dividend payments without a breach of the then-applicable Financial Covenants , and (y) an authorised officer of the Parent shall have, no later than 2 Business Days prior to the date of declaration of such dividends, delivered a certificate to the COFACE Agent certifying compliance with each of the Financial Covenants as at the latest Calculation Date and each Calculation Date falling in the next 12 month period on a pro forma basis taking into account the payment of such dividends, such payment to be made prior to the next Calculation Date; and

 

(ii) no Default is outstanding (or would result from the payment of such dividends).

 

Permitted Financial Indebtedness means Financial Indebtedness:

 

(a) arising under a Permitted Treasury Transaction;

 

(b) arising under a Permitted Loan or a Permitted Guarantee;

 

(c) incurred under the Finance Documents;

 

(d) of the Parent (or of a newly-formed subsidiary of the Parent which is not a shareholder of any member of the NEXT Group) which:

 

(i) does not fall due for repayment (in whole or in part), or, require payment of interest in cash, prior to NEXT System Completion; and

 

(ii) is fully subordinated to the indebtedness under the Finance Documents (structurally and/or contractually pursuant to a Subordination Agreement); and

 

(iii) has an average life higher than the residual average life of the COFACE Facility (tested at the date such debt is issued or incurred),

 

35
CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR PORTIONS OF THIS EXHIBIT. THE COPY FILED HEREWITH OMITS THE INFORMATION SUBJECT TO A CONFIDENTIALITY REQUEST. OMISSIONS ARE DESIGNATED [***]. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
 

 

in each case, with a maturity date falling at least 12 months after the Final Maturity Date, and where, based on a pro forma calculation (including an updated Business Plan) taking into account the proposed indebtedness, the Financial Covenants would be complied with (such Financial Indebtedness, Permitted PIK Debt );

 

(e) in respect of amounts due to trade creditors, in each case arising in the ordinary and customary course of business being not more than 90 days past due (unless disputed in good faith) and not to exceed, at any time, in aggregate $ [***] (or its equivalent in other currencies);

 

(f) of any member of the NEXT Group to any other member of the NEXT Group which is fully subordinated to the indebtedness under the Finance Documents pursuant to a Subordination Agreement (and, where the debtor of such Financial Indebtedness is not an Obligor, in an aggregate amount not exceeding $15,000,000 (including an aggregate amount of not more than $5,000,000 in respect of Financial Indebtedness incurred after the Signing Date));

 

(g) outstanding on the Signing Date as set out in Schedule 19 (Existing Financial Indebtedness);

 

(h) on an unsecured basis for working capital / treasury purposes and debt assumed pursuant to any Permitted Acquisition/Investment, in aggregate not exceeding $100,000,000; and

 

(i) such other indebtedness specifically approved by the Majority Lenders in writing.

 

Permitted Guarantee means:

 

(a) the endorsement of negotiable instruments in the ordinary course of trade;

 

(b) any performance guarantee, including any Trade Instrument or similar bond, guaranteeing performance by a member of the NEXT Group under any contract or license entered into in the ordinary course of trade;

 

(c) to the extent required to provide an unqualified auditors opinion, any shareholder support to maintain the solvency of a wholly-owned Subsidiary of the Parent which is not a Material Company in respect of obligations owed by that Subsidiary to a member of the NEXT Group;

 

(d) any guarantee of a Permitted Joint Venture to the extent permitted by Clause 23.9 (Joint Ventures);

 

(e) any guarantee permitted under Clause 23.22 (Financial Indebtedness);

 

(f) any guarantee given in respect of the netting or set-off arrangements permitted pursuant to paragraph (b) of the definition of Permitted Security;

 

(g) any indemnity given in the ordinary course of the documentation of an acquisition or disposal transaction which is a Permitted Acquisition/Investment or Permitted Disposal where the indemnity is in a customary form and subject to customary limitations;

 

(h) any guarantee given by the Parent or Iridium Holdings LLC in favor of Motorola pursuant to the Motorola Settlement Agreements and the debt and security documents related thereto; and

 

36
CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR PORTIONS OF THIS EXHIBIT. THE COPY FILED HEREWITH OMITS THE INFORMATION SUBJECT TO A CONFIDENTIALITY REQUEST. OMISSIONS ARE DESIGNATED [***]. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
 

 

(i) any guarantee outstanding on the Signing Date as set out on Schedule 16 (Existing Guarantees).

 

Permitted Joint Venture means:

 

(a) any investment in any Joint Venture (other than the Excluded Company) where:

 

(i) the Joint Venture is a company, corporation, partnership or other similar entity (in each case where, to the extent such Joint Venture is not an entity with limited liability, the member of the NEXT Group making such investment is a newly-formed company, corporation, partnership or other similar entity with limited liability, whose sole purpose is to make such investment and whose sole asset is such investment, and which is otherwise appropriately ring-fenced) engaged in a Permitted Business or a component thereof; and

 

(ii) in any financial year of the Borrower, the aggregate (the Joint Venture Investment ) of:

 

(A) all amounts subscribed for shares in, lent to, or invested in all such Joint Ventures by any member of the NEXT Group;

 

(B) the contingent liabilities of any member of the NEXT Group under any guarantee given in respect of the liabilities of any such Joint Venture; and

 

(C) the book value of any assets transferred by any member of the NEXT Group to any such Joint Venture,

 

when aggregated with the total purchase price in respect of other Permitted Acquisitions/Investments in that Financial Year permitted pursuant to paragraph (c)(iii) of the definition of Permitted Acquisition/Investment does not exceed the thresholds set out therein;

 

(b) any Joint Venture in existence on the Signing Date as set out on Schedule 27 (Existing Joint Ventures); and

 

(c) to the extent constituting a Joint Venture, the Excluded Company and any investment in the Excluded Company made by way of an Aireon Equity Injection.

 

Permitted Loan means:

 

(a) any trade credit extended by any member of the NEXT Group to its customers on normal commercial terms and in the ordinary course of its trading activities;

 

(b) Financial Indebtedness which is referred to in the definition of, or otherwise constitutes, Permitted Financial Indebtedness (except under paragraph (b) of that definition);

 

(c) a loan made to a Permitted Joint Venture to the extent permitted under Clause 23.9 (Joint Ventures);

 

(d) a loan made by a member of the NEXT Group to an employee or director of any member of the NEXT Group if the amount of that loan when aggregated with the amount of all loans to employees and directors by members of the NEXT Group does not exceed $1,000,000 (or its equivalent) at any time;

 

37
CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR PORTIONS OF THIS EXHIBIT. THE COPY FILED HEREWITH OMITS THE INFORMATION SUBJECT TO A CONFIDENTIALITY REQUEST. OMISSIONS ARE DESIGNATED [***]. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
 

 

(e) a loan made by a member of the NEXT Group to another member of the NEXT Group (and, where the debtor of such Loan is not an Obligor, in an aggregate amount not exceeding $15,000,000 (including an aggregate amount of not more than $5,000,000 in respect of loans made available after the Signing Date); and

 

(f) to the extent considered a loan, including pursuant to a subordinated loan, an Aireon Equity Injection made by a member of the NEXT Group.

 

Permitted PIK Debt has the meaning given in the definition of Permitted Financial Indebtedness.

 

Permitted PIYC Capital Raising means the Capital Raisings by the Parent in an aggregate amount up to (but not exceeding) $250,000,000 (including the Additional Permitted PIYC Capital Raising) in the form of perpetual preferred equity instruments, provided that:

 

(a) such Capital Raising does not lead to a Change of Control of the Parent (on a diluted or undiluted basis or on a converted or non-converted basis);

 

(b) the rate of distributions payable on such Capital Raising does not exceed [***] per cent per annum;

 

(c) the preferred equity instruments used in such Capital Raising do not [***] and, for the avoidance of doubt, [***] ; and

 

(d) [***] in respect of such Capital Raising are [***] subject to and in accordance with Delaware law.

 

Permitted Security means:

 

(a) any lien arising by operation of law and in the ordinary course of trading and not as a result of any default or omission by any member of the NEXT Group;

 

(b) any netting or set-off arrangement entered into by any member of the NEXT Group in the ordinary course of its banking arrangements for the purpose of netting debit and credit balances of members of the NEXT Group but only so long as (i) such arrangement does not permit credit balances of Obligors to be netted or set off against debit balances of members of the NEXT Group which are not Obligors and (ii) such arrangement does not give rise to other Security over the assets of Obligors in support of liabilities of members of the NEXT Group which are not Obligors;

 

(c) any payment or close out netting or set-off arrangement pursuant to any Treasury Transaction or foreign exchange transaction entered into by a member of the NEXT Group which constitutes Permitted Financial Indebtedness, excluding any Security or Quasi-Security under a credit support arrangement;

 

(d) any Security or Quasi-Security arising under any retention of title, hire purchase or conditional sale arrangement or arrangements having similar effect in respect of goods supplied to a member of the NEXT Group in the ordinary course of trading and on the supplier's standard or usual terms and not arising as a result of any default or omission by any member of the NEXT Group;

 

(e) any Quasi-Security arising as a result of a disposal which is a Permitted Disposal;

 

38
CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR PORTIONS OF THIS EXHIBIT. THE COPY FILED HEREWITH OMITS THE INFORMATION SUBJECT TO A CONFIDENTIALITY REQUEST. OMISSIONS ARE DESIGNATED [***]. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
 

 

(f) the "Motorola Collateral" (subject to and as defined in the Motorola Intercreditor Agreement);

 

(g) any cash collateral granted in the ordinary course of business in support of the obligations of any member of the NEXT Group in respect of any Trade Instrument; or

 

(h) outstanding on the Signing Date as set out in Schedule 17 (Existing Liens).

 

Permitted Share Issue means:

 

(a) the issue of shares by the Parent to a third party (including any person that is not a member of the Group), paid for in full in cash upon issue or as consideration for a Permitted Acquisition/Investment, and which by their terms are not redeemable and where such issue does not lead to a Change of Control of the Parent;

 

(b) the Permitted PIYC Capital Raising;

 

(c) the issue of shares by a member of the NEXT Group which is a Subsidiary to its parent where (if the existing shares of the Subsidiary are the subject of the Transaction Security) the newly-issued shares also become subject to the Transaction Security on the same or equivalent terms; or

 

(d) the issue of shares by a member of the NEXT Group (other than an Obligor or Material Company) which is to become a Local Partner Entity to a person that is to become an External Local Partner, but only up to the minimum extent required by the applicable law (or local requirements in the ordinary course of business) of the relevant jurisdiction, and provided , where the Iridium Group Partner will hold less than 50% of the shares and voting rights, the Iridium Group Partner uses its best efforts to retain de facto economic and management control (including by way of non-voting shares or call options), to the extent permitted by the applicable law (or local requirements in the ordinary course of business) of the relevant jurisdiction.

 

Permitted Transaction means:

 

(a) any disposal required, Financial Indebtedness incurred, guarantee, indemnity or Security or Quasi-Security given, or other transaction arising, under the Finance Documents;

 

(b) the solvent liquidation or reorganisation of any member of the NEXT Group which is not an Obligor so long as any payments or assets distributed as a result of such liquidation or reorganisation are distributed to other members of the NEXT Group;

 

(c) the capitalisation of Financial Indebtedness owing by a wholly-owned Subsidiary of the Parent which is not a Material Company to a member of the NEXT Group in order to maintain the solvency of that Subsidiary;

 

(d) any merger or consolidation by any member of the NEXT Group with or into any other member of the NEXT Group ( provided that in the case of any merger or consolidation by an Obligor with or into any other member of the NEXT Group that is not an Obligor, the Obligor shall be the surviving entity, and the COFACE Agent receives such evidence and/or legal opinions as is reasonably satisfactory to it that the Obligor is the surviving entity and that notwithstanding such amalgamation, demerger, merger or reconstruction, the Finance Documents to which it is party shall remain at all times its legal, valid and binding obligations, enforceable in accordance with their terms and the amalgamation, demerger, merger or reconstruction shall not adversely affect any Transaction Security granted by the Obligor);

 

39
CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR PORTIONS OF THIS EXHIBIT. THE COPY FILED HEREWITH OMITS THE INFORMATION SUBJECT TO A CONFIDENTIALITY REQUEST. OMISSIONS ARE DESIGNATED [***]. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
 

 

(e) transactions (other than (i) any sale, lease, license, transfer or other disposal and (ii) the granting or creation of Security or the incurring or permitting to subsist of Financial Indebtedness) conducted in the ordinary course of trading on arm's length terms.

 

Permitted Treasury Transaction means:

 

(a) any Treasury Transaction to be entered into by the Borrower for the purpose of protecting against interest rate fluctuations with respect to Tranche B of the Facility; and

 

(b) any Treasury Transactions entered into in the ordinary course of business and not for speculative purposes to hedge or mitigate risks to which any Obligor or any member of the NEXT Group is exposed in the conduct of its business or the management of its liabilities.

 

Plan means an employee benefit plan as defined in section 3(3) of ERISA, which is subject to the provisions of Title IV of ERISA:

 

(a) maintained by any Obligor or any ERISA Affiliate; or

 

(b) to which any Obligor or any ERISA Affiliate is required to make any payment or contribution.

 

Promissory Notes means the Promissory Notes of Principal and the Promissory Notes of Interest.

 

Promissory Notes of Interest mean the promissory notes on account of interest issued or to be issued by the Borrower pursuant to the provisions of Clause 6.2 (Promissory Notes) in the form set out in Schedule 5 (Form of Promissory Notes).

 

Promissory Notes of Principal mean the promissory notes on account of principal issued or to be issued by the Borrower pursuant to the provisions of Clause 6.2 (Promissory Notes) in the form set out in Schedule 5 (Form of Promissory Notes).

 

Protected Party means a Finance Party which is or will be subject to any liability or required to make any payment for or on account of Tax in relation to a sum received or receivable (or any sum deemed for the purposes of Tax to be received or receivable) under a Finance Document.

 

Qualifying Lender has the meaning given to that term in Clause 14 (Tax Gross Up and Indemnities).

 

Quarter Date means each of 31 March, 30 June, 30 September and 31 December.

 

Quarterly Financial Statements means the financial statements delivered pursuant to paragraph (b)(i) of Clause 21.1 (Financial statements).

 

Quasi-Security has the meaning given to that term in Clause 23.15 (Negative pledge).

 

Quotation Day means, in relation to any period for which an interest rate is to be determined, two Business Days before the first day of that period, unless market practice differs in the Relevant Interbank Market for a currency, in which case the Quotation Day for that currency will be determined by the COFACE Agent in accordance with market practice in the Relevant Interbank Market (and if quotations would normally be given by leading banks in the Relevant Interbank Market on more than one day, the Quotation Day will be the last of those days).

 

40
CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR PORTIONS OF THIS EXHIBIT. THE COPY FILED HEREWITH OMITS THE INFORMATION SUBJECT TO A CONFIDENTIALITY REQUEST. OMISSIONS ARE DESIGNATED [***]. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
 

 

Receiver means a receiver or receiver and manager or administrative receiver of the whole or any part of the Charged Property.

 

Reimbursement Request means a reimbursement request signed by the Borrower, substantially in the form set out in Part 1 of Schedule 3 (Requests and Notices).

 

Re-Launch Contracts has the meaning given in Clause 8.3 (Launch Insurance Proceeds).

 

Relevant Financial Covenant means each of the Financial Covenants described in paragraphs 22.1(a)(iii) ( Capital Expenditure ), (b)(i) ( Consolidated Operational EBITDA ) or (b)(ii) (Secondary Payload Cashflows).

 

Relevant Interbank Market means the London interbank market.

 

Relevant Jurisdiction means, in relation to an Obligor:

 

(a) its jurisdiction of incorporation or organization; and

 

(b) any jurisdiction relevant for the granting or perfection of a security interest over any asset subject to or intended to be subject to the Transaction Security.

 

Relevant Launch Insurance Proceeds has the meaning given in Clause 8.3 (Launch Insurance Proceeds).

 

Relevant Proceeds means Excluded Capital Raising Proceeds or Excluded Insurance Proceeds.

 

Reliance Parties means each Administrative Party, each Original Lender, COFACE, and each person which becomes a Lender.

 

Repayment Date means each of:

 

(a) the First Repayment Date;

 

(b) after the First Repayment Date but prior to the Final Maturity Date, each date falling six (6) months after the preceding Repayment Date; and

 

(c) the Final Maturity Date.

 

Repayment Instalment means each scheduled instalment for repayment of the Loans.

 

Repayment Period means the period from the First Repayment Date until the Final Maturity Date.

 

Repeating Representations means each of the representations set out in Clause 20.2 (Status) to Clause 20.5 (Power and authority), Clause 20.9 (Governing law and enforcement), paragraph (a) of Clause 20.12 (No default), Clause 20.13 (No misleading information), Clause 20.14 (Original Financial Statements), paragraphs (b) and (c) of Clause 20.16 (No breach of laws), Clause 20.21 (Good title to assets) to Clause 20.23 (Legal and beneficial ownership), and Clause 20.28 (Compliance with United States laws).

 

41
CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR PORTIONS OF THIS EXHIBIT. THE COPY FILED HEREWITH OMITS THE INFORMATION SUBJECT TO A CONFIDENTIALITY REQUEST. OMISSIONS ARE DESIGNATED [***]. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
 

 

Reportable Event means:

 

(a) an event specified as such in section 4043 of ERISA or any related regulation, other than an event in relation to which the requirement to give notice of that event is waived by any regulation; or

 

(b) a failure to meet the minimum funding standard under section 412 of the Code or section 302 of ERISA, whether or not there has been any waiver of notice or waiver of the minimum funding standard under section 412 of the Code.

 

Representative means any delegate, agent, manager, administrator, nominee, attorney, trustee or custodian.

 

Resignation Letter means a letter substantially in the form set out in Schedule 11 (Form of Resignation Letter).

 

Revenue Accounts means (i) the BOA Revenue Account, or any replacement of such account with an Acceptable Bank in the U.S., and (ii) such other revenue accounts of the Obligors as are subject to the Transaction Security which, when taken together with the BOA Revenue Account, constitute the accounts into which the consolidated revenues of the NEXT Group are received in accordance with Clause 23.27 (Revenue Accounts).

 

Ring Fenced Company means a company that:

 

(a) has a limited business purpose;

 

(b) is of limited liability;

 

(c) does not carry on any trade with, or otherwise contract or deal with a member of the NEXT Group other than the Aireon System Documents and any other arms-length transaction, undertaken in good faith for its bona fide business purposes;

 

(d) except for any other arms-length transactions, does not make any loan to or grant any financial accommodation to any member of the NEXT Group;

 

(e) does not incur any Financial Indebtedness from, or have any other liability to, any member of the NEXT Group, other than the Aireon Equity Injection ,the Aireon System Documents or any other arms-length transactions;

 

(f) except for the Aireon System Documents or any other arms-length transactions, no member of the NEXT Group sells, transfers, leases out, lends or otherwise disposes of any assets to it;

 

(g) does not benefit from any guarantee or Security or participation or purchase arrangements from any member of the NEXT Group in relation to any of its obligations;

 

(h) has separate insurance and is not named as a loss payee with respect to the insurances effected or procured by any member of the NEXT Group;

 

(i) is a separate entity, at all times holds itself out to the public and all other members of the NEXT Group as a legal entity separate from the members of the NEXT Group and corrects any known material misunderstanding as to its separate identity;

 

(j) maintains books, records and bank accounts separate from the members of the NEXT Group;

 

42
CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR PORTIONS OF THIS EXHIBIT. THE COPY FILED HEREWITH OMITS THE INFORMATION SUBJECT TO A CONFIDENTIALITY REQUEST. OMISSIONS ARE DESIGNATED [***]. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
 

  

(k) except for any consolidation with the NEXT Group as may be required by the Accounting Principles, maintains separate financial statements showing its assets and liabilities separate and apart from those of any members of the NEXT Group;
     
(l) files its own tax returns, if any, as may be required under applicable law;
     
(m) conducts its business in its own name and complies with all formalities necessary to maintain its separate existence;
     
(n) pays its own liabilities and expenses out of its own funds including the proceeds of the Aireon Equity Injection;
     
(o) observes all organisational formalities including all material formalities as an entity separate and distinct from the members of the NEXT Group;
     
(p) maintains arm's-length relationships with the members of the NEXT Group;
     
(q) does not guarantee or become obligated for the debts of any members of the NEXT Group or hold out its credit as being available to satisfy the obligations of members of the NEXT Group;
     
(r) does not grant Security over its assets for the benefit of any member of the NEXT Group;
     
(s) without prejudice to paragraph (x) below, does not commingle assets with those of the members of the NEXT Group;
     
(t) uses separate stationery, invoices and checks;
     
(u) maintains a sufficient number of employees or contractors in light of its contemplated business operations;
     
(v) maintains adequate capital in light of its then contemplated business operations;
     
(w) on and following the date falling three (3) months after the First Amendment Effective Date, has a board of directors that at all times has at least 2 (two) Independent Directors; and
     
(x) on and following the date falling three (3) months after the First Amendment Effective Date, allocates fairly and reasonably on an arm's length basis any overhead for shared office space and employees with the members of the NEXT Group, including any overhead and employees shared from the First Amendment Effective Date.

 

Satellite Supply Contract means the Full Scale System Development Contract between TAS and the Borrower dated 1 June 2010.

 

Satellites means the satellites supplied or to be supplied by TAS under the Satellite Supply Contract (whether or not delivered or in orbit).

 

Scheduled Completion Date means [***] .

 

Screen Rate means, in relation to LIBOR, the British Bankers' Association Interest Settlement Rate for the relevant currency and period displayed on the appropriate page of the Reuters screen. If the agreed page is replaced or service ceases to be available, the COFACE Agent may specify another page or service displaying the appropriate rate after consultation with the Borrower and the Lenders.

 

43
CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR PORTIONS OF THIS EXHIBIT. THE COPY FILED HEREWITH OMITS THE INFORMATION SUBJECT TO A CONFIDENTIALITY REQUEST. OMISSIONS ARE DESIGNATED [***]. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
 

 

Secondary Payload Cashflows means all cash proceeds (net of tax) payable to any member of the NEXT Group under the Secondary Payload Contracts (to the extent such proceeds are non-refundable) (but excluding any cash proceeds payable to any member of the NEXT Group under any Secondary Payload Contract (i) that are paid (or are payable) to TAS by such member of the NEXT Group and (ii) that are paid in respect of the provision of on-going services, including but not limited to operation and maintenance services and data services when such secondary payload is in-orbit).

 

Secondary Payload Contract means each contract for the provision of secondary payload services in connection with the NEXT System entered into or to be entered into by a member of the Group.

 

Secondary Payload Heads of Terms means the heads of terms for Secondary Payload Contracts set out in Schedule 23 (Secondary Payload Heads of Terms).

 

Secondary Payload Status Report shall have the meaning given to it in Clause 21.6(a)(ii) (NEXT System Documents).

 

Secured Parties means each Finance Party from time to time party to this Agreement, any Receiver or Delegate.

 

Security means a mortgage, charge, pledge, lien or other security interest securing any obligation of any person or any other agreement or arrangement having a similar effect.

 

Security Agent shall have meaning given to it in the preamble hereto.

 

Shareholders' Equity means, in relation to any Calculation Period, the stockholders’ equity in the NEXT Group, as presented in the consolidated financial statements of the Parent most recently delivered pursuant to Clause 21.1 (Financial statements).

 

Signing Date means the date of this Agreement.

 

SNOC means the Satellite Network Operations Center in Leesburg, Virginia.

 

Solvent means, with respect to any person at any time, that (a) (i) the sum of such person's debts is not greater than all of such person's property, at a fair valuation, and (ii) such person is generally paying its debts as they become due; (b) the present fair salable value of the value of all of the property of such person is greater than the amount that will be required to pay such person's probable liability on such person's existing debts (including contingent debts) as they become absolute and matured; (c) such person is not engaged in a business or a transaction, and is not about to engage in a business or a transaction, for which such person’s property would constitute unreasonably small capital; and (d) such person does not intend to incur, and does not believe that such person would incur, debts that would be beyond such person's ability to pay as such debts mature.

 

SpaceX means Space Exploration Technologies Corp.

 

SpaceX Launch Contract means the Launch Services Contract dated 19 March 2010 between the Borrower and SpaceX as amended pursuant to an amendment no.1 dated 17 September 2010 and an amendment no.2 dated 19 July 2012.

 

Specified Time means a time determined in accordance with Schedule 15 (Timetables).

 

Starting Point of Repayment means the date falling on the earlier of (i) 30th September 2017 and (ii) In Orbit Acceptance in respect of the [***] Satellite (as confirmed by the Technical Adviser).

 

44
CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR PORTIONS OF THIS EXHIBIT. THE COPY FILED HEREWITH OMITS THE INFORMATION SUBJECT TO A CONFIDENTIALITY REQUEST. OMISSIONS ARE DESIGNATED [***]. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
 

 

Subordination Agreement means:

 

(a) the subordination agreement dated on or about the date of this Agreement and made between, among others, the Parent, Iridium Holdings LLC, the Borrower, and the COFACE Agent; and
     
(b) each other subordination agreement entered into from time to time by the COFACE Agent with one or more creditors of an Obligor, in substantially similar form (or otherwise in form and substance reasonably satisfactory to the COFACE Agent).

 

Subsidiary means, with respect to any person, any corporation, limited liability company, partnership or other entity ( Other Person ) controlled by such person, by such person and one or more other Subsidiaries of such person, or by one or more other Subsidiaries of such person, and for purposes of this definition, the term “ control ” (including the terms “ controlling ” and “ controlled by ”) of a person shall mean the possession, direct or indirect, of the power to vote more than 50% of the securities having ordinary voting power for the election of directors (or persons performing similar functions) of such person or to direct or cause the direction of the management and policies of such person, whether through the ownership of such securities, by contract or otherwise.

 

Supplier means TAS.

 

Supplier's Confirmation means a notice substantially in the form of Part 2 or 4 (as applicable) (Form of Supplier's Confirmation) of Schedule 3 (Requests and Notices).

 

TAS means Thales Alenia Space SA.

 

Tax means any tax, levy, impost, duty or other charge or withholding of a similar nature (including any penalty or interest payable in connection with any failure to pay or any delay in paying any of the same) imposed by a Governmental Authority.

 

Tax Credit means a credit against, relief or remission for, or repayment of, any Tax.

 

Tax Deduction means a deduction or withholding for or on account of Tax from a payment under a Finance Document.

 

Tax Payment means either the increase in a payment made by an Obligor to a Finance Party under Clause 14.2 (Tax gross-up) or a payment under Clause 14.3 (Tax indemnity).

 

Technical Adviser means The Aerospace Corporation (upon its appointment pursuant to paragraph 26 of Part 1 of Schedule 2 (Conditions Precedent to Initial Utilisation)) or any replacement thereof.

 

Technical Adviser's Quarterly Report means each quarterly progress report in relation to the NEXT System delivered by the Technical Adviser to the COFACE Agent, which report shall include verification by the Technical Adviser of Block One health and progress of construction, launch, installation and operation of NEXT System (including sign off on the results of tests relating to the In-Orbit Acceptance of each Satellite, the reasonableness of any provisional qualified acceptance of any Satellite, and certification as to Milestones) and the progress of the interface between the Aireon System Project and the NEXT System (in particular, any modifications or adjustments requested by the Excluded Company (and agreed to by the Borrower) to the NEXT System in connection with the Aireon System Project which could reasonably be expected to result in a delay to Milestones), and a copy of which shall be delivered by the COFACE Agent to the Borrower promptly upon receipt.

 

45
CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR PORTIONS OF THIS EXHIBIT. THE COPY FILED HEREWITH OMITS THE INFORMATION SUBJECT TO A CONFIDENTIALITY REQUEST. OMISSIONS ARE DESIGNATED [***]. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
 

 

Technical Report means the technical report prepared by the Technical Adviser dated 9 June 2010 and as updated for the Initial CP Satisfaction Date.

 

Tempe Gateway means the Borrower’s commercial Gateway located in Tempe, Arizona.

 

Total Commitments means the aggregate of the Total Tranche A Commitments and the Total Tranche B Commitments, being $1,800,000,000 at the date of this Agreement.

 

Total Net Debt means, at any time, the aggregate amount of all obligations of members of the NEXT Group for or in respect of Financial Indebtedness as reported in the consolidated financial statements of the Parent delivered pursuant to Clause 21.1 (Financial statements):

 

(a) excluding any such obligations owed to any other member of the NEXT Group;

 

(b) including , in the case of Finance Leases only, their capitalised value; and

 

(c) deducting the aggregate amount of cash (as shown in consolidated financial statements of the Parent delivered pursuant to Clause 21.1 (Financial statements)) (excluding, for the avoidance of doubt, any amounts standing to the credit of the Debt Service Reserve Account) held by any member of the NEXT Group at that time,

 

and so that no amount shall be included or excluded more than once.

 

Total Tranche A Commitments means the aggregate of the Tranche A Commitments, being $1,537,500,000 at the date of this Agreement.

 

Total Tranche B Commitments means the aggregate of the Tranche B Commitments, being $262,500,000 at the date of this Agreement.

 

Trade Instruments means any performance bonds, advance payment bonds or letters of credit issued in respect of the obligations of any member of the NEXT Group arising in the ordinary course of trading of that member of the NEXT Group.

 

Tranche means Tranche A or Tranche B.

 

Tranche A means the tranche of the Facility designated as Tranche A and made available under this Agreement as described in Clause 2.1(a) (The Facility).

 

Tranche A Commitment means:

 

(a) in relation to an Original Lender, the amount set opposite its name under the heading "Tranche A Commitment" in Part 2 of Schedule 1 (The Original Parties) and the amount of any other Tranche A Commitment transferred to it under this Agreement; and

 

(b) in relation to any other Lender, the amount of any Tranche A Commitment transferred to it under this Agreement,

 

to the extent not cancelled, reduced or transferred by it under this Agreement.

 

Tranche A Loan means a loan made or to be made under Tranche A of the Facility or the principal amount outstanding for the time being of that loan.

 

46
CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR PORTIONS OF THIS EXHIBIT. THE COPY FILED HEREWITH OMITS THE INFORMATION SUBJECT TO A CONFIDENTIALITY REQUEST. OMISSIONS ARE DESIGNATED [***]. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
 

 

Tranche B means the tranche of the Facility designated as Tranche B and made available under this Agreement as described in Clause 2.1(b) (The Facility).

 

Tranche B Commitment means:

 

(a) in relation to an Original Lender, the amount set opposite its name under the heading "Tranche B Commitment" in Part 2 of Schedule 1 (The Original Parties) and the amount of any other Tranche B Commitment transferred to it under this Agreement; and

 

(b) in relation to any other Lender, the amount of any Tranche B Commitment transferred to it under this Agreement,

 

to the extent not cancelled, reduced or transferred by it under this Agreement.

 

Tranche B Loan means a loan made or to be made under Tranche B of the Facility or the principal amount outstanding for the time being of that loan.