Based on the projections in Exhibit 5, how much was Iridium worth on a per share basis at the end of 1998?

Please read the case & spreadsheet and answer all follwing questions

(a) Based on the projections in Exhibit 5, how much was Iridium worth on a per share basis at the end of 1998? You may assume that the market risk premium is 7% and that Iridium’s marginal cost of debt is 8.55%.

(b) How confident are you in your answer in (a)? What are the most important determinants of value? What extra information would you try to acquire in real life?

(c) What caused Iridium to fail: was it a bad strategy, poor execution or bad luck?

(d) Please evaluate Iridium’s financial strategy: its target capital structure; type of capital raised; and sequence of raising capital.

(e) Why did Motorola finance Iridium with project debt instead of corporate debt?

(f) What key lesson regarding the financing of large, greenfield projects do you draw from this case? How would you apply it?

Hint: For this case, you will find it helpful to refer to the Overview of Project Finance and Infrastructure Finance –2014 Update (in the “Cases” folder).

Requirements: make sure your answers are accurate

9-200-039REV. APRIL 11, 2003________________________________________________________________________________________________________________Professor Benjamin Esty, Research Associate Fuaad A. Qureshi, and William Olson (MBA ‘00) prepared this case. It is based, in part, on ScottVuchetich’s (MBA ‘99) Faculty Sponsored Research project. HBS cases are developed solely as the basis for class discussion. Cases are notintended to serve as endorsements, sources of primary data, or illustrations of effective or ineffective management.Copyright © 2000 President and Fellows of Harvard College. To order copies or request permission to reproduce materials, call 1-800-545-7685,write Harvard Business School Publishing, Boston, MA 02163, or go to http://www.hbsp.harvard.edu. No part of this publication may bereproduced, stored in a retrieval system, used in a spreadsheet, or transmitted in any form or by any means—electronic, mechanical,photocopying, recording, or otherwise—without the permission of Harvard Business School.BENJAMIN ESTYIridium LLCOn Friday August 13, 1999, Iridium LLC filed for bankruptcy in the United States BankruptcyCourt in Delaware. The company, a $5.5 billion venture backed by Motorola, offered global phone,fax, and paging services via satellite, but had been having trouble attracting customers ever since itbegan commercial service in November 1998. In explaining the bankruptcy, some people blamedeverything: “Make a list of everything you can think of—technological glitches, marketing anddistribution mishaps, management turnover, etc.—and then just get to the bottom and check all of theabove.”1 Others, such as Mark Gercenstein, Iridium’s Vice President of Operations, highlighted thesystem’s technological complexity:More than 26 completely impossible things had to happen first, and in the right sequence(before we could begin operations)—like getting capital, access to the marketplace, globalspectrum, the same frequency band in every country of operations.2Most people, however, blamed Iridium’s marketing and sales efforts:True, Iridium committed so many marketing and sales mistakes that its experience couldform the basis of a textbook on how not to sell a product. Its phones started out costing $3,000,were the size of a brick, and didn’t work as promised. They weren’t available in stores whenIridium ran a $180 million advertising campaign. And Iridium’s prices, which ranged from$3.00 to $7.50 a call, were out of this world.3Yet bankruptcy was, after all, a financial problem. The protection afforded by Chapter 11 wouldgive Iridium an opportunity to rethink its competitive strategy and restructure its balance sheet. Therestructuring process, combined with a need to convince the bankruptcy judge that the company wasunlikely to go bankrupt again, required a thorough understanding of the relation between the firm’sfinancial strategy and its demise. For example, did it have too much leverage: was its target debt-to-total capital ratio of 60% too high? If not the amount of debt, perhaps it had the wrong kind of debt,or had raised it in the wrong sequence vis-à-vis equity. Answers to these questions were critical notonly to Iridium as it struggled to emerge from Chapter 11, but also to at least 14 other firms that werein the process of spending more than $40 billion on satellite communications systems (see Exhibit 1).This document is authorized for use only in Heather Tookes©s Corporate Finance Fall 2023 at Yale University from Aug 2023 to Feb 2024.

200-039Iridium LLC2The Global Telecommunications MarketIn 1999, the $835 billion market for telecommunications services consisted of three segments basedon the mode of transmission.a Wireline communication systems utilized terrestrial cable and fiber-optic technology to transmit voice and data signals. In contrast, wireless and satellite systems usedradio systems and satellites, respectively, for transmission, along with wireline infrastructure to routecalls. Exhibit 2 provides details on the size, historical growth rates, and expected future growth ratesof each segment.The satellite communications segment was further divided into Fixed Satellite Services (FSS) andMobile Satellite Services (MSS). The former used fixed stations on earth to transmit and receivesignals, while the latter utilized mobile receivers, such as hand-held phones, and one of three types ofsatellites (see Exhibits 3a and 3b). Geosynchronous Earth Orbit (GEO) satellites maintained fixedpositions relative to the earth, but were relatively inefficient at handling real-time voice and dataapplications because of the long time delay caused by sending signals over great distances. Locatedcloser to earth, Low Earth Orbit (LEO) satellites greatly reduced the propagation loss, time delay, andpower required for real-time communications yet required significantly more satellites becauseorbiting satellites covered only a small fraction of the earth. Medium Earth Orbit (MEO) satellites werebetween these two systems and helped to bridge the gaps in cellular networks in addition tohandling mobile satellite telephony.Without a doubt, the market for mobile satellite systems would be large, yet analysts disagreed onjust how large it would be. For example, Leslie Taylor Associates, a telecommunications consultingfirm, predicted a user base of 7 million to 12 million subscribers and revenues of $8 billion to $20billion by 2003.4 On the other hand, Forrester Research predicted that the global satellite marketwould be as much as $36 billion in 2005.5 Given the potential size of this market, analysts wereexcited by the prospect of companies capturing even a small part of it. CS First Boston analystCynthia Motz commented:. . . our take is that the dream behind global mobile communications via satellite is reallypretty impressive . . . why would one not consider an industry that is in its nascent stages ofdevelopment, (or a competitor like Iridium) that can do what no other player can do right now,. . . has high barriers to entry, and 70%-90% operating cash flow margins if it works?6Iridium LLCAccording to legend, the Iridium concept originated in 1986 when a Motorola executive and hiswife were vacationing in the Caribbean and she was unable to make a cellular phone call. Thispredicament spurred the idea of a global telecommunications system.7 At the time, Motorola wasdeveloping inter-satellite communications systems for military applications, but was searching fornew, commercial applications for its communications technology. Motorola engineers began to studythe feasibility of a global system in 1987. Shortly thereafter, Motorola unveiled the plans for a $3.4billion communications system named Iridium. The name came from its proposed constellation of 77satellites (later reduced to 66 satellites) which resembled the 77 electrons orbiting the elementIridium. In addition, the system would require 12 ground stations (gateways) located around theworld to link the satellites with ground lines. a This figure excludes equipment revenues associated with building and supporting these services (TelecommunicationsServices, U.S. Industry and Trade Outlook, 1999).This document is authorized for use only in Heather Tookes©s Corporate Finance Fall 2023 at Yale University from Aug 2023 to Feb 2024.

Iridium LLC200-0393The Iridium system differed from the existing, and most of the proposed, satellite systems whichused “bent pipe” technology. In a bent pipe system, calls were routed along ground lines to atransmitter, beamed up to a satellite, sent down to a receiver, and then routed using ground lines tothe other party. Whereas these systems kept most of their technology on the ground, Iridium put thetechnology in its satellites using “intra-satellite” technology. Consider a customer on top of Mt.Everest calling her children at home in New York. Her call would be transmitted directly to thenearest satellite, and then passed from satellite to satellite until it reached a ground station in Arizonawhere it would then connect to her home in New York using existing ground lines. If she placed acall to another Iridium user, the signal would be relayed from satellite to satellite, and beameddirectly to the recipient’s handset. A key requirement of the Iridium system was the need for directline-of-sight connection with a satellite. Thus, the phones could not be used indoors without a special,oversized antenna to boost signal strength.Seamless global operations were made possible by the fact that satellites transcended nationalboundaries. But to achieve a seamless system, Iridium had to obtain worldwide spectrum rights andnegotiate royalty agreements with local phone companies. In fact, Iridium had signed 256 operatingagreements with local providers in over 100 countries by July 1999.8 While these agreements covered90% of its targeted customer base, the company still had to negotiate agreements with another 140countries and territories.Iridium’s Financial ProjectionsIridium’s target customer consisted primarily of traveling professionals, corporate executives,government employees, and rural users in both developed and developing markets. Analystsregularly cited the figure of 1% of the global cellular market as the likely initial customer base ofsatellite phone users.9 Although the exact origin of this figure was not known, it quickly became themantra of all players in the industry. If Iridium were to capture 1% of the 225 million cellularsubscribers in 1998, and each one spent $1,000 annually, then Iridium would have revenues of $2.3billion per year. If the number of cellular subscribers continued to grow at 15% per year, then 1% ofthe market in 2004 would equal five million customers and revenues of more than $5 billion.Using similar analysis, Wall Street analysts made predictions about Iridium’s future revenues andcash flow. Exhibit 4a depicts how Thomas Watts, Merrill Lynch’s telecommunications/satelliteanalyst and the top-ranked analyst on Institutional Investor’s 1998 All America Research team, revisedhis revenue projections between 1997 and 1999.b As of May 1999, he was still predicting totalrevenues of $6.4 billion in 2005. Besides changing over time for specific analysts, revenue projectionsalso varied across analysts. Exhibit 4b shows the range of revenue projections made by five analystsat approximately the same time (year-end 1998). The revenue projections for 2005 ranged from a lowof $4.5 billion by CIBC Oppenheimer to a high of $6.9 billion by CS First Boston. Exhibit 5 presentsIridium’s cash flow projections and balance sheet data, as well as capital market data from year-end1998.Based on similar projections, and an assumed private market discount of 15% to 20% (only 8.5% ofIridium’s shares were publicly traded at the time), four out of the five analysts surveyed had buyrecommendations for Iridium: Salomon Smith Barney, CS First Boston, Merrill Lynch, and LehmanBrothers had price targets of $60, $57, $68, and $75, respectively, using free cash flow discount rates(i.e., weighted average costs of capital, WACCs) ranging from 17% to 25%. Only CIBC Oppenheimerhad a hold recommendation.10 John Coates, the bullish analyst at Salomon Smith Barney, wrote: b Merrill Lynch underwrote Iridium’s initial public offering (IPO) in July 1997.This document is authorized for use only in Heather Tookes©s Corporate Finance Fall 2023 at Yale University from Aug 2023 to Feb 2024.

200-039Iridium LLC4“Iridium presents a clear investment opportunity. . . . Accordingly, we reiterate our buy rating,maintain our $60 price target, and offer 10 reasons to buy the stock immediately.”11 Coates and theother analysts cited high margins, first mover advantages, strong partnership potential, and betterbreadth of coverage as reasons to invest in Iridium. They also cited uncertain demand, technology,competition, and regulation as the most important risks, and the company’s sizeable funding need asa potential threat to completion.Competition in the MSS SegmentAlthough INMARSAT had been providing commercial mobile satellite service since 1982, Iridiumconsidered three new companies as its main competition (see Table A). Globalstar, a $3.3 billion jointventure between Space Systems/Loral and Qualcomm, was expected to begin service in late 1999. Itsconstellation would offer low-cost communication services using bent-pipe technology and phonesthat were similar to today’s cellular units. Like Globalstar, ICO Global Communications wouldintegrate satellite technology with terrestrial networks using bent-pipe technology; unlike Globalstarand Iridium, it was a MEO system that required many fewer satellites. Inmarsat and Hughes foundedthe $4.5 billion system in 1995, and expected it to be operational by year-end 2000.While other systems promised global coverage, Ellipso proposed to cover only heavily populatedareas. Its satellites would follow elliptical orbits, focussing on high-potential regions, therebysignificantly reducing capital costs. As of 1999, Ellipso was still in early development with a targetlaunch date of late 2002. Like Iridium, these other systems were largely limited to outdoor use.Table AComparison of Mobile Satellite Service ProvidersIridiumGlobalstarICOEllipsoTotal cost ($ billions)$5.5$3.3$4.6$1.4Satellite life span5-8 years7-8 years12 years5 yearsOrbitLEOLEOMEOMEOInitial/expected cost per minute-Wholesale$0.50-$1.99$0.30$0.30-$0.50$0.33-Retail$3.00-$7.50$2.00-$4.00$1.50$1.00-$1.50Number of ground stations1250-80126-14Headset cost (initial)$3,000$750-$1500$700$750-$1000Number of satellites66481017Market share (estimate)200072.6%26.2%0.9%0.0%200535.4%26.6%23.5%8.3%Source:Project Finance International, July 29, 1998, Issue 150; CS First Boston, “The Sky’s the Limit,” December 23, 1998; SandraSugawara, “Battle in the Skies,” The Washington Post, October 18, 1993; casewriter estimates.Iridium’s Operating and Financing HistoryIridium’s operating and financing history prior to bankruptcy can be divided into threechronological phases: Research to June 1995, System Development to June 1998, and CommercialLaunch through July 1999, ending with the bankruptcy declaration in August 1999.This document is authorized for use only in Heather Tookes©s Corporate Finance Fall 2023 at Yale University from Aug 2023 to Feb 2024.

Iridium LLC200-0395Research: June 1990 to June 1995During its start-up phase, Motorola designed the system, developed the basic technology, andraised the initial equity needed to fund early development. Motorola unveiled the project in June1990 with simultaneous press conferences in Beijing, London, Melbourne, and New York. Thefollowing year, it incorporated Iridium as a separate company to build and operate the system. At thetime, Motorola was rated AA-, and had total assets of $9.4 billion, sales of $11.3 billion, and netincome of $454 million. In comparison, Iridium was initially expected to cost $3.4 billion, generaterevenues of $5 billion, and have assets of $4 billion by 2002.Between 1990 and 1993, Motorola invested $100 million in research and development. One of thecompany’s major achievements during these early years was reserving specific radio frequencies forthe system. In fact, 160 countries agreed to allocate a band of radio frequencies to LEO systems inMarch 1993.To fund actual development, Motorola decided to raise the initial capital from 21 strategicpartners including major telecommunications and aerospace firms such as Nippon Iridium Ltd. (ajoint venture between Kyocera and DDI Corporation), Telecom Italia, SK Telecom (South Korea),Sprint, Raytheon, and Lockheed Martin. The largest strategic partners, in terms of total investment,were entitled to board representation. Exhibit 6 shows the composition of Iridium’s board ofdirectors. Except for the two independent directors who received $20,000 per year, $2,500 perquarterly meeting, and 1,000 options, none of the other directors received compensation fromIridium.According to the financing plan, Iridium would raise $1.6 billion of equity followed by $1.8 billionof debt giving it a debt-to-total capital ratio of approximately 50%. By August 1993, Iridium hadobtained commitments for $800 million from its strategic partners, including a total of $270 millionfrom Motorola.12 It hoped to raise another $800 million from the strategic partners in 1995, at whichtime, Motorola’s ownership share would decline from 34% to 19%.13In reality, the second round of equity financing came sooner than expected. Iridium securedcommitments for another $734 million of equity in September 1994.14 Based on investor demand forthe equity and general interest in the project, Iridium’s bankers thought it could raise 60% of the totalcost in debt.15 The theory behind this target leverage ratio was that Iridium, once complete, wouldresemble a utility with high margins and steady cash flows. Exhibit 7 shows leverage ratios for avariety of industries as of year-end 1998. Exhibit 8 provides financial statistics for satellitecommunications companies as of year-end 1998. Exhibits 9a and 9b illustrate Iridium’s capitalstructure in terms of total capital invested and leverage (debt as a percentage of total capital),respectively, from 1993 to 1999.System Development: July 1995 to June 1998By mid 1995, most of the research was done and the company began developing the system.Motorola signed a Terrestrial Network Development Contract in 1995, under which it agreed todevelop the gateway hardware and software. As part of this effort, Iridium signed 12 gatewaycontracts in late 1995, but needed more money before it could create and launch the first satellites—each satellite cost approximately $13 million. With revenues still more than three years away, Iridiumdecided to issue $300 million of zero coupon bonds. Although zero coupon bonds were moreexpensive than cash-pay bonds by anywhere from 100 basis points (bps) to 300bps depending ontheir rating and market conditions, they were attractive to highly-leveraged firms with limited cashflow.This document is authorized for use only in Heather Tookes©s Corporate Finance Fall 2023 at Yale University from Aug 2023 to Feb 2024.

200-039Iridium LLC6When Iridium tried to market the bonds, however, it encountered resistance. Investors wanted thebonds to come with warrants, thereby raising the effective yield to approximately 25%, and acompletion guarantee from Motorola.16 These demands, combined with Standard & Poor’s CCC+rating on the issue, prompted Iridium to cancel the offering in September 1995, because itundervalued the company and its prospects. And so, Iridium proceeded with development fundedby its initial equity.Development proceeded at a steady pace throughout 1996, highlighted by an organizationalchange, a new chief executive officer (CEO) named Edward Staiano, and additional fund raising.Iridium converted from a corporation to a limited liability company named Iridium LLC, whichmeant its income would not be subject to U.S. taxation, but it would still provide limited liability forthe strategic partners. With money running out and a failed public offering behind it, managementdecided to raise debt from the strategic partners instead of the public markets. It sold $238 million often-year bonds with warrants in April 1996. For the first five years, the bonds accrued interest at arate of 14.5%; for the last five years, beginning in September 2001, they paid cash interest.17 But thiswas still not enough money and so Iridium signed a $750 million bank facility in August 1996.Because Motorola, by then a AA rated company, had agreed to guarantee this facility in exchange forClass 1 warrants, the banks priced the loan at the prime rate—technically, the interest rate was afunction of several indicator rates of which the prime rate was the best known.Iridium used the funds to pay for satellites and the first launch, which occurred on May 5, 1997.Over the next 12 months, it deployed a total of 47 satellites aboard U.S., Russian, and Chinese rockets.As Iridium was deploying satellites, it also began developing the handheld phone units through anagreement with Kyocera of Japan. One observer described the original phones as “a brick with abaguette sticking out of it.”18In addition to being a critical year for Iridium in terms of system development, it was also acritical year in terms of raising badly needed capital. Prior to 1997, Iridium had only been able to raisecapital from its strategic partners and banks. Yet in 1997 alone, it issued $240 million of equitythrough an initial public offering (IPO), issued three tranches of high-yield debt totaling $1.1 billion,and signed a $1 billion secured bank facility.Its first foray into the public markets occurred in June 1997, when Iridium World CommunicationsLtd. (IWCL), a Bermuda corporation, sold 12 million shares at $20.00 a piece—these sharesrepresented 8.5% of Iridium’s total outstanding shares (technically, the shares were called Class 1“interests”). IWCL’s creation, like Iridium LLC’s creation, was done for tax reasons: it precluded U.S.taxation of dividends paid to IWCL shareholders. Unlike its previous attempt to sell public bonds,investor demand was strong prompting management to increase the offer size from $200 million to$240 million. According to one source, Iridium could have sold $1 billion of equity.19The IPO’s success encouraged Iridium to issue $800 million of high-yield debt in two tranches,under Rule 144A, in July 1997. The Series A senior notes were priced to yield 13% and came withwarrants to purchase IWCL shares; the Series B senior notes required a higher yield (14%) becausethey did not come with warrants. Both were semi-annual, cash-pay bonds with an 8-year maturity;they were due in 2005. Initially rated B-, these bonds sold at an effective yield of almost 700bps overAaa rated bonds. Exhibit 10 depicts Iridium’s stock and bond prices since the IPO.Continued strength in the bond market allowed Iridium to issue a third series of senior notes inOctober 1997. The Series C notes sold at par with a coupon of 11.25%, a spread of 400bps over Aaa-rated bonds. A banker commented on Iridium’s second trip to the high-yield debt market in just overthree months: “The high yield market runs hot and cold. When it is available and pricingaggressively, you go for it. In a project this size, you get money whenever and wherever you can.”20This document is authorized for use only in Heather Tookes©s Corporate Finance Fall 2023 at Yale University from Aug 2023 to Feb 2024.

Iridium LLC200-0397Following this advice, Iridium established a two-year senior secured line of credit with asyndicate of banks in December 1997. The line consisted of a $350 million term loan and a $400million revolving line of credit, with an additional $250 million available on the revolving line inSeptember 1998, if Iridium achieved certain operating milestones. Prior to signing the loanagreement, Iridium conducted an “asset drop-down transaction” in which Iridium LLC transferredall of its assets and liabilities to a wholly owned subsidiary known as Iridium Operating LLC (seeExhibit 11). The purpose of this transaction was to pledge all of Iridium’s assets to the lendingsyndicate as security for the loan. In addition, the line was secured by a $243 million capital call onthe strategic partners. In other words, the banks could require the strategic partners to invest up to$243 million if default were imminent. While the pledge of assets and the capital call made thesecured debt cheaper than the public notes, it was, nevertheless, significantly more expensive thanthe guaranteed line of credit. It had a variable interest rate equal to prime plus 2.75%. Both linesmatured in September 1998, the scheduled commercial launch date, but could be extended until June30, 1999, by mutual agreement.Having created the gateways, deployed the first satellites and tested the system, Iridium began toprepare for commercial launch. It deployed the remaining 19 satellites in early 1998. Iridium’s perfectrecord in satellite deployment impressed industry experts who cited a 10% to 15% failure rate astypical, and pleased investors as the stock price soared to over $70 per share.21 Globalstar, in contrast,suffered a major setback in September 1998, when it lost 12 satellites in a single, failed launch.Iridium also began to court prominent customers for the launch. Its first major customer was the U.S.government, which purchased a high-capacity connection for military use.22 Also in preparation forthe launch, Iridium issued a fourth series of senior notes ($350 million of Series D notes) in May 1998.Like the previous high-yield issues, this one was rated B- and was due in 2005, but had a lowerinterest rate of 10.88%.Commercial Launch: July 1998 to July 1999Iridium announced the new service in July 1998, with a $140 million advertising campaign in 16languages across 45 countries with the slogan “Freedom to Communicate. Anytime, Anywhere.” c,23Iridium, however, quickly ran into trouble: it failed to answer over one million sales inquiries due tointernal confusion, and experienced logistical problems trying to distribute phones.24 These problemsforced Iridium to delay the start of commercial service by two months. Nevertheless, commercialservice began on November 1, 1998, with a phone call from Vice President Albert Gore at the WhiteHouse to Alexander Graham Bell’s great-grandson in Virginia.dWithin weeks, it became clear that Iridium was not attracting as many customers as it hadexpected, a fact that concerned the bankers and forced Iridium to negotiate new bank facilities inDecember 1998. Unfortunately, it was not a good time to raise capital in the wake of the financialcrisis in Russia, turmoil in Asia, and near collapse of Long-Term Capital Management (LTCM).Rather than replacing the bank loans with long-term debt as planned following launch, Iridium wasforced to renew its bank facilities. At the time, the banks reviewed the company’s strategic plans,hired independent consultants to review the projections, and conducted their own market analysis.Feeling satisfied with the results, the banks provided a new guaranteed facility and a new securedline of credit. The new guaranteed facility consisted of a $475 million term loan due in December2000, and a $275 million revolving credit facility expiring in December 2001. Once again, Motorola c Despite the quote on page 1, the advertising campaign cost approximately $140 million, not $180 million.d Vice President Gore greeted Gilbert M. Grosvenor with the famous words Bell uttered to his assistant in 1876: “Mr. Watson,come here, I want you.” (Iridium World Communications Annual Report 1998, p. 1.)This document is authorized for use only in Heather Tookes©s Corporate Finance Fall 2023 at Yale University from Aug 2023 to Feb 2024.

200-039Iridium LLC8guaranteed the full $750 million in exchange for warrants and cash payments based on the spreadbetween the bank loans and Iridium’s Series A and B bond rates.25 This guarantee allowed Iridium toborrow at the prime rate.Iridium also signed a new $800 million secured credit facility. The facility provided $800 million incash priced at prime plus 2.75%.26 In an effort to increase their security, the banks included a numberof new covenants on the loans that established quarterly milestones in terms of revenues andsubscriber levels. Table B (below) provides details on the new covenants.Table BCovenants on the New Secured Bank Facility, December 1998DateCumulativeCash Revenue($ millions)CumulativeAccrued Revenue($ millions)Number ofSatellite PhoneSubscribersNumber ofSystemSubscribers aMarch 31, 1999$ 4$ 3027,00052,000June 30, 19995015088,000213,000September 30, 1999220470173,000454,000Source:Iridium World Communications Ltd., 1998 Annual Report.aTotal system subscribers includes users of Iridium’s phone, fax, and paging services.With new bank loans, but lower than expected cash flow, management began to search for waysto conserve cash. For 1999, the firm projected aggregate cash needs of $1.65 billion to cover systemoperation, financing costs, working capital, and software development; the firm would need similaramounts annually for the next three years. Beginning in 2000, the firm would have to increase systemcapacity; the following year it would have to start replacing the satellite constellation assuming a 5-year useful life for the satellites. These two activities would require more than $6 billion of capitalexpenditures between 2000 and 2004 (see Exhibit 5). To reduce its immediate cash requirements,Iridium reached an agreement with Motorola to defer up to $400 million in contract payments.Exhibit 12 documents Iridium’s previous payments and future obligations to Motorola. In an effort toraise cash, Iridium conducted a secondary equity offering in January 1999, that raised an additional$240 million at a price of $37.38 per share. After this offering, IWCL’s

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