The Special Meeting (See page 108)

 

This proxy statement is being furnished to holders of GHQ’s common stock for use at the special meeting, and at any adjournments or postponements of that meeting.  At the special meeting, GHQ’s stockholders will be asked to consider and vote upon proposals (1) to approve the acquisition of Iridium Holdings pursuant to the transaction agreement and to approve the other transactions contemplated by the transaction agreement; (2) to approve a second amended and restated certificate of incorporation of GHQ, to be effective upon the closing of the acquisition; (3) to approve the issuance of shares of our common stock in the acquisition and related transactions; (4); to adopt a proposed stock incentive plan; and (5); to adopt a proposal to authorize the adjournment of the special meeting to a later date or dates, including, if necessary, to permit further solicitation and voting of proxies if there are insufficient votes at the time of the special meeting to adopt any of these proposals.  The special meeting will be held on        ,  2009, at 10:00 a.m., Eastern Daylight Time, at the Waldorf-Astoria Hotel, 301 Park Avenue, New York, NY.

 

Our board of directors has fixed the close of business on        , 2009 as the record date for the determination of stockholders entitled to notice of, and to vote at, the special meeting and at any adjournments or postponements thereof.  Record holders of GHQ warrants do not have voting rights.

 

Recommendation of Board of Directors and Reasons for the Acquisition

 

Our board of directors has unanimously approved the acquisition and related transactions, and unanimously recommends that our stockholders vote “FOR” each of our proposals.

 

The Parties

 

GHL Acquisition Corp. We are a blank check company formed on November 2, 2007 for the purpose of acquiring, through a merger, capital stock exchange, asset acquisition, stock purchase, reorganization or other similar business combination, one or more businesses or assets, which we refer to as our “initial business combination.”  Our efforts in identifying prospective target businesses have not been limited to a particular industry.  Instead, we focused on various industries and target businesses in the United States and Europe that would provide significant opportunities for growth.

 

On February 21, 2008, we completed our IPO, generating gross proceeds of approximately $400 million.  On February 21, 2008, we also consummated a private placement of 8.0 million warrants to our founding stockholder at $1.00 per warrant, generating gross proceeds of $8.0 million.  A total of approximately $400 million, including $375.6 million of the IPO proceeds net of the underwriters’ discounts and commissions and offering expenses, $16.4 million of deferred underwriting discounts and commissions and $8.0 million from the sale of warrants to our founding stockholder, was placed into a trust account at Wachovia Securities, LLC, with the American Stock Transfer & Trust Company serving as trustee.  Except for a portion of the interest income permitted to be released to us, the proceeds held in trust will not be released from the trust account until the earlier of the completion of our initial business combination and our liquidation.  Based on our certificate of incorporation, up to a total of $5.0 million of interest income, subject to adjustment, may be released to us to fund our working capital requirements and additional interest income may be released to fund tax obligations.  For the period from inception to March 31, 2009, approximately $4.3 million has been released to us in accordance with these terms.  As of March 31, 2009, the balance in the trust account was approximately $401.9 million.

 

 

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All of our activity to date relates to our formation, our IPO and efforts to identify prospective target businesses. We are not presently engaged in, and we will not engage in, any substantive commercial business until we consummate our initial business combination. If the proposals set forth in this proxy statement are not approved, the acquisition of Iridium Holdings will not be consummated and we will continue to search for businesses or assets to acquire. If we do not complete an initial business combination by February 14, 2010, our corporate existence will cease except for purposes of winding up our affairs and liquidating.

 

The GHQ units, common stock and warrants are traded on the NYSE Alternext U.S. under the symbols “GHQ.U,” “GHQ” and “GHQ.WS,” respectively.

 

Our executive offices are located at 300 Park Avenue, 23rd Floor, New York, New York 10022.  We file reports with the Securities and Exchange Commission (“SEC”), which are available free of charge at www.sec.gov.  For more information about GHQ, please see the section entitled “Information About GHQ.”

 

Iridium Holdings LLC.  Iridium Holdings is a leading provider of mobile voice and data communications services via satellite, and the only provider in the world offering 100% global coverage.  Based upon publicly available information and information provided by TMF Associates, Iridium Holdings is the second largest provider of mobile satellite services and related equipment with an estimated 25% market share of the principal industry players in 2008, based on revenue.

 

Iridium Holdings maintains a website at www.iridium.com.  For more information about Iridium Holdings, please see the section entitled “Information About Iridium Holdings.”

 

The Acquisition (see page 59)

 

GHQ is proposing to acquire Iridium Holdings pursuant to a transaction agreement that provides for the acquisition of 99.5% of the outstanding units of Iridium Holdings, with Iridium Holdings continuing as a subsidiary of GHQ.  Following the acquisition, GHQ will rename itself “Iridium Communications Inc.”

 

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Organizational Structure

 

The following diagram sets forth our organizational structure immediately following the acquisition of Iridium Holdings.

 

 

* Assuming that (i) no holders of our IPO shares vote against the acquisition proposal and properly exercise their rights to convert their shares into cash, (ii) no holders of GHQ warrants exercise their rights to acquire GHQ shares, and (iii) the conversion of the note by Greenhill Europe into 1,946,500 shares of common stock, in accordance with its terms.

 

** Includes Greenhill Europe’s holding of approximately 2.5% of the outstanding GHQ common stock as a result of the conversion of the note.

 

 

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Structure of the Acquisition (see page 92 and Annex A)

 

The transaction agreement provides that upon the closing of the acquisition, GHQ will own, directly or indirectly, all or substantially all of the units of Iridium Holdings, and Iridium Holdings will become a subsidiary of GHQ.  Equityholders owning approximately 99.5% of Iridium Holdings’ equity (including the equityholders of Baralonco and Syncom) have signed the transaction agreement.  As part of the acquisition, GHQ will acquire all of the equity of two of Iridium Holdings largest equityholders, Baralonco and Syncom.  For additional information, please see the section entitled “The Transaction Agreement.”

 

Consideration to be Paid in the Acquisition (see page 92)

 

The aggregate consideration to be paid in the acquisition and related transactions was based upon a total enterprise value for Iridium Holdings of $517.3 million (calculated as $77.1 million of cash to be paid to 100% of the Iridium Holdings’ equityholders plus $294.4 million of GHQ common stock to be issued to the Iridium Holdings’ equityholders based on a price per share of $10.00, plus net indebtedness of Iridium Holdings of $145.8 million as of December 31, 2008, including the $22.9 million convertible note held by Greenhill Europe).  Upon completion of the acquisition, the Sellers party to the transaction agreement will receive $76.7 million in cash, subject to certain adjustments, and GHQ will issue to such Sellers approximately 29.3 million shares of GHQ common stock.  The shares of common stock issued to the Sellers will not be registered under the Securities Act, in reliance upon the exemptions from the registration requirements as provided in Regulation D of the Securities Act of 1933, as amended (the “Securities Act”) and the representations and warranties of the Sellers that they are “accredited investors” within the meaning of Regulation D.

 

GHQ has agreed in the transaction agreement that it will cause the funds in our trust account to be disbursed at the closing of the acquisition:  (1) to pay the cash consideration to the Sellers; (2) pay the conversion price to any stockholders of GHQ who vote against the acquisition and properly exercise their conversion rights; (3) to pay deferred underwriting fees and commissions to the underwriters of our IPO; (4) to pay GHQ’s reasonable out-of-pocket documented third party fees and expenses that are incurred prior to the closing in connection with the transaction agreement and related transaction documents, to the extent not paid prior to the closing; and (5) prepay all or a portion of Iridium Holdings’ outstanding indebtedness.  GHQ will then contribute the funds remaining in our trust account to Iridium Holdings, and Iridium Holdings will use such funds for working capital and general corporate matters.

 

Additionally, 90 days following the closing of the acquisition, if Iridium Holdings has in effect a valid election under Section 754 of the Code with respect to the taxable year in which the closing of the acquisition occurs, GHQ will make a tax benefit payment of up to $25.2 million in aggregate to the Sellers (other than the sellers of the equity of Baralonco and Syncom) (based on a payment of $25.5 million to owners of 100% of the equity of Iridium Holdings) to compensate for the tax basis step-up.

 

Conditions to the Closing of the Acquisition (see page 101 and Annex A)

 

The obligation of GHQ, Iridium Holdings and the Sellers to complete the acquisition and related transactions is subject to the requirement that specified conditions must be satisfied or waived by the parties, including the following:

 

·

GHQ stockholder approval of the acquisition, the issuance of GHQ common stock to the Sellers, the amendment of the GHQ certificate of incorporation and the adoption of a stock incentive plan have been obtained and less than 30% of GHQ stockholders have voted against the acquisition and elected to convert their shares of GHQ common stock into cash;

 

·	no law or injunction shall prohibit the consummation of the transactions contemplated by the transaction agreement;

 

 

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·	the expiration or termination of any applicable waiting periods under the Hart-Scott-Rodino Antitrust Improvement Act of 1976 (the “HSR Act”) (early termination of the applicable waiting period was granted on October 10, 2008);

 

·	all FCC consents with respect to the transactions contemplated by the transaction agreement have been obtained; and

 

·

all actions by or in respect of filings with any other governmental authority required to permit the consummation of the transactions contemplated by the transaction agreement have been taken, made or obtained other than actions or filings the failure of which to take, make or obtain would not reasonably expected to have, individually or in the aggregate, a Material Adverse Effect on Iridium Holdings or GHQ.

 

The obligation of GHQ to complete the acquisition and related transactions is subject to the requirement that specified conditions must be satisfied or waived by GHQ, including the following:

 

·

Iridium Holdings’ and the Sellers’ representations and warranties must be true and correct in all respects (without giving effect to any limitations as to materiality or Iridium Holdings Material Adverse Effect contained therein) at and as of the closing of the acquisition (or, to the extent any such representation and warranty specifically states that it refers to an earlier date, and on as of such earlier date), except where the failures of such representations and warranties to be so true and correct, in the aggregate, would not reasonably be expected to have an Iridium Holdings Material Adverse Effect;

 

·	Iridium Holdings and the Sellers must have performed, in all material respects, their respective obligations to be performed at or prior to the closing of the acquisition;

 

·	each Seller which is receiving shares of GHQ common stock at the closing of the acquisition has executed and delivered the registration rights agreement;

 

·	the Sellers of Baralonco and Syncom which are receiving shares of GHQ common stock at the closing of the acquisition have executed and delivered pledge agreements;

 

·	the Sellers have effected the contribution of 100% of the issued and outstanding equity interests of Iridium Carrier Holdings LLC and Iridium Carrier Services LLC to Iridium Holdings;

 

·

GHQ has received a certification from Iridium Holdings certifying that 50% or more of the value of the gross assets of Iridium Holdings does not consist of U.S. real property interests, or that 90% or more of the value of the gross assets of Iridium Holdings does not consist of U.S. real property interests plus cash or cash equivalents;

 

·	GHQ has received a certification from Baralonco and Syncom that each of them is not, and has not been, a United States real property holding corporation as defined in the Code;

 

·

GHQ has received an affidavit by the custodians of the shares of Baralonco, substantially to the effect that in its capacity as custodian, each has actual knowledge of the ultimate beneficial owner of the shares who has been the ultimate beneficial owner of the shares of Baralonco from the date of Baralonco’s formation to the closing of the acquisition; and

 

·	Baralonco has delivered evidence to GHQ that it has repaid all of its outstanding debt and all other liabilities.

 

The obligation of Iridium Holdings and the Sellers to complete the acquisition and the related transactions is subject to the requirement that specified conditions must be satisfied or waived by Iridium Holdings and the Sellers, including the following:

 

 

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·

GHQ’s representations and warranties must be true and correct in all respects (without giving effect to any limitations as to materiality or GHQ Material Adverse Effect contained therein) at and as of the closing of the acquisition (or, to the extent any such representation and warranty specifically states that it refers to an earlier date, on and as of such earlier date), except where the failures of such representations and warranties to be so true and correct, in the aggregate, would not reasonably be expected to have a GHQ Material Adverse Effect;

 

·	GHQ must have performed, in all material respects, its obligations to be performed at or prior to the closing of the acquisition;

 

·	the current officers of GHQ have resigned and the current officers of Iridium Holdings have been duly appointed as officers of GHQ and the directors described above have been duly appointed as directors of GHQ;

 

·	GHQ has made appropriate arrangements to have the trust account disbursed to GHQ immediately prior to the closing of the acquisition;

 

·	GHQ and its affiliates have executed and delivered the registration rights agreement; and

 

·	GHQ has executed and delivered the pledge agreements.

 

Termination of Transaction Agreement (see page 103 and Annex A)

 

The transaction agreement may be terminated at any time prior to the closing of the acquisition in the following circumstances:

 

·	by mutual written consent of Iridium Holdings and GHQ;

 

·

by either Iridium Holdings or GHQ if the acquisition is not consummated by 75 days from April 28, 2009 (if all required regulatory approvals have been obtained) or February 14, 2010 (if the only condition to closing still not fulfilled as of 75 days from April 28, 2009, is the obtaining of all regulatory approvals) (the “End Date”);

 

·	by either Iridium Holdings or GHQ if any material law or final, non-appealable order prohibits the consummation of the transactions contemplated by the transaction agreement;

 

·

by either Iridium Holdings or GHQ if the stockholders of GHQ fail to approve at the GHQ special meeting or any adjournment thereof the adoption of the transaction agreement, the issuance of GHQ common stock to the Sellers, the amendment of GHQ’s certificate of incorporation and the adoption of the a stock incentive plan;

 

·

by GHQ if there has been a breach by Iridium Holdings or a Seller of any representation or warranty or failure to perform any covenant or obligation that would result in the failure of that party to satisfy a condition to the closing, and such condition is incapable of being satisfied by the End Date;

 

·	by Iridium Holdings if there has been a breach by GHQ of any representation or warranty or failure to perform any covenant or obligation that would result in the failure of GHQ to satisfy a condition to the closing, and such condition is incapable of being satisfied by the End Date; or

 

·	by Iridium Holdings if the special meeting has not been held within 90 days of this proxy statement being cleared by the SEC.

 

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The Second Amended and Restated Certificate of Incorporation of GHQ (See page 80 and Annex B)

 

Assuming the acquisition proposal is approved, GHQ’s stockholders are also being asked to approve the amendment and restatement of our certificate of incorporation, to be effective immediately prior to closing of the acquisition. The second amended and restated charter will, among other things:

 

·	change our name to “Iridium Communications Inc.”;

 

·	permit our continued existence after February 14, 2010;

 

·	increase the number of our authorized shares of common stock; and

 

·	eliminate the different classes of our board of directors.

 

We encourage you to read the second amended and restated certificate of incorporation of GHQ in its entirety.

The Issuance of Shares of Common Stock of GHQ (See page 82)

 

You are being asked to approve the issuance of up to 31,390,000 common shares as part of the consideration for the acquisition and related transactions.  As of the date of this proxy statement, there are 48,500,000 shares of GHQ’s common stock outstanding, so this issuance would represent more than 20% of our outstanding shares, which requires a stockholder vote under the NYSE Alternext U.S. Company Guide.

 

The Stock Incentive Plan (See page 83 and Annex E)

 

The stock incentive plan proposal proposes to reserve 8.0 million shares of our common stock for issuance in accordance with awards under the plan. We are proposing the stock incentive plan, which would be effective upon closing of the acquisition, as a means of securing and retaining key employees and others of outstanding ability and to motivate such individuals to exert their best efforts on behalf of GHQ (or “Iridium Communications Inc.” following the closing of the acquisition) and its affiliates by providing incentives through the grant of options to acquire shares of our common stock and, if so determined by the compensation committee of our board of directors, other stock-based awards and performance incentive awards.  GHQ believes that it will benefit from the added interest that these individuals will have in the welfare of GHQ as a result of their proprietary interest in GHQ’s success, see “Proposal IV—Adoption of the Stock Incentive Plan.”  Additionally, the stock incentive plan is attached as Annex E to this proxy statement. We encourage you to read the stock incentive plan in its entirety.

 

GHQ’s Founding Stockholder Ownership

 

As of May 28, 2009, our directors, Scott L. Bok, Robert H. Niehaus, Parker W. Rush, Thomas C. Canfield and Kevin P. Clarke, and our founding stockholder own 200,000, 200,000, 43,479, 43,479, 43,479 and 8,369,563 units of GHQ, respectively.  Messrs. Rush, Canfield and Clarke purchased their shares prior to our IPO.  Messrs. Bok and Niehaus purchased their units in the IPO.  In addition to the units of GHQ owned prior to the IPO, our founding stockholder purchased, concurrently with the IPO, for $8.0 million warrants to purchase up to 8.0 million shares of GHQ common stock at $1.00 per share. At the closing of the acquisition, our founding stockholder has agreed to forfeit the following GHQ securities which it currently owns:  (1) 1,441,176 shares of our common stock purchased as part of the unit purchase on November 31, 2007; (2) 8,369,563 warrants purchased as part of the unit purchase on November 13, 2007; and (3) 4.0 million warrants purchased in a private placement on February 21, 2008.

 

Consideration Offered to GHQ’s Stockholders

 

Existing GHQ stockholders will not receive any cash or property as a result of the acquisition, but instead will continue to hold their shares of GHQ common stock.  Upon completion of the acquisition, our stockholders collectively are expected to own approximately 60% of the outstanding shares of common stock of GHQ, assuming that (i) no GHQ stockholders vote against the acquisition proposal and properly exercise their conversion rights, (ii) no holders of GHQ warrants exercise their rights to acquire GHQ shares and (iii) the conversion of the note by Greenhill Europe into 1,946,500 shares of common stock of GHQ, in accordance with its terms.

 

 

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Conversion Rights (See page 111)

 

Each holder of IPO shares has a right to convert its IPO shares into cash if such holder votes against the acquisition proposal, the acquisition is completed and the holder properly exercises its conversion rights as described below. Such IPO shares would then be converted into cash at the per-share conversion price described below on the closing date of the acquisition.

 

Voting against the acquisition proposal alone will not result in the conversion of the IPO shares into a pro rata share of the trust account.  To convert IPO shares, the holder must also properly exercise his or her conversion rights by following the specific procedures for conversion set forth below and the acquisition must be completed.

 

We will not complete the acquisition and will not convert any IPO shares into cash if stockholders owning 30% or more of the IPO shares both vote against the acquisition proposal and properly exercise their conversion rights.  It is anticipated that the funds to be distributed to each holder who properly elects to convert any IPO shares will be distributed promptly after completion of the acquisition.

 

Holders of IPO shares who convert their IPO shares into cash would still have the right to exercise any warrants that they continue to hold and do not sell.

 

The actual per-share conversion price will be equal to the quotient determined by dividing (i) the amount then on deposit in the trust account (before payment of deferred underwriting discounts and commissions and including accrued interest net of income taxes on such interest and net of franchise taxes, after distribution of interest income on the trust account balance to us as described above), that has not been distributed to GHQ to cover its working capital expenses as set forth in GHQ’s certificate of incorporation (“certificate”), calculated as of two business days prior to the closing by (ii) the total number of IPO shares.  As of March 31, 2009 the per-share conversion price would have been approximately $10.01, without taking into account any interest or expenses accrued after such date.

 

Prior to exercising conversion rights, holders of IPO shares should verify the market price of the IPO shares as they may receive higher proceeds from the sale of the IPO shares in the public market than from exercising conversion rights if the market price per IPO share is higher than the conversion price.

 

To exercise conversion rights, a holder of IPO shares, whether being a record holder or holding the IPO shares in “street name,” must tender its IPO shares to our transfer agent, American Stock Transfer & Trust Company, and deliver written instructions to our transfer agent: (i) stating that the holder wishes to convert the IPO shares into a pro rata share of the trust account and (ii) confirming that the holder has held the IPO shares since the record date and will continue to hold them through the special meeting and the completion of the acquisition.

 

To tender IPO shares to our transfer agent, the holder must deliver its IPO shares either (i) at any time before the start of the special meeting (or any adjournment or postponement thereof), electronically using the Depository Trust Company’s DWAC (Deposit/Withdrawal At Custodian) system or (ii) at any time before the day of the special meeting (or any adjournment or postponement thereof), physically by delivering a share certificate.  Any holder who holds IPO shares in “street name” will have to coordinate with his or her bank or broker to arrange for the IPO shares to be delivered electronically or physically.  Any holder who desires to physically tender to our transfer agent IPO shares that are held in “street name” must instruct the account executive at his or her bank or broker to withdraw the IPO shares from the holder’s account and request that a physical certificate be issued in such holder’s name.  Our transfer agent will be available to assist with this process.

 

If a holder does not deliver written instructions and tenders his or her IPO shares (either electronically or physically) to our transfer agent in accordance with the above procedures, those IPO shares will not be converted into cash.

 

Any request for conversion, once made, may be withdrawn or revoked at any time before the start (in case of electronic tendering) or at any time before the day (in case of physical tendering) of our special meeting (or any adjournment or postponement thereof), in which case the IPO shares will be returned (electronically or physically) to such holder.  Holders of IPO shares who have exercised conversion rights may not thereafter withdraw or revoke their decision to convert their IPO shares into a pro rata portion of the trust account.

 

 

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If any holder tenders IPO shares (electronically or physically) and the acquisition is not completed, the IPO shares will not be converted into cash and they will be returned (electronically or physically) to such holder.

 

Interests of Certain Persons in the Acquisition (See page 91)

 

In considering the recommendation of GHQ’s board of directors to vote for our proposals, you should be aware that our executive officers and members of our board of directors have interests in the acquisition that are different from, or in addition to, the interests of GHQ’s stockholders generally. The members of our board of directors were aware of these differing interests and considered them, among other matters, in evaluating and negotiating the transaction agreement and in recommending to our stockholders that they vote in favor of the acquisition proposal and other proposals. These interests include, among other things:

 

·

Our directors, Messrs. Bok, Niehaus, Rush, Canfield and Clarke, and our founding stockholder own 200,000, 200,000, 43,479, 43,479, 43,479 and 8,369,563 units of GHQ, respectively. Each of Messrs. Rush, Canfield and Clarke purchased his units prior to our IPO for an aggregate price of $128.00 and had an aggregate market value of approximately $423,051, based upon the last sale price of $9.73 on the NYSE Alternext U.S. on May 28, 2009.  If our proposals are not approved and GHQ is unable to complete another business combination by February 14, 2010, GHQ will be required to liquidate. In such event, the 8.5 million units held by Messrs. Rush, Canfield and Clark and our founding stockholder will be worthless because Messrs. Rush, Canfield and Clarke and our founding stockholder have agreed that they will not receive any liquidation proceeds with respect to such shares. Accordingly, Messrs. Rush, Canfield and Clarke and our founding stockholder have a financial interest in the completion of the acquisition.  The 400,000 shares purchased by Messrs. Bok and Niehaus in the IPO would receive liquidation proceeds.  Messrs. Bok and Niehaus each purchased 200,000 units in the IPO.

 

·

In addition to the shares of GHQ common stock, our founding stockholder purchased for $8.0 million warrants to purchase up to 8.0 million shares of GHQ common stock at $1.00 per share.  These warrants have an exercise price of $7.00 per share.  If GHQ is unable to complete a business combination by February 14, 2010 and liquidates its assets, there will be no distribution with respect to these warrants, and the warrants will expire worthless.

 

·

Two of our directors, Messrs. Bok and Niehaus purchased units in our IPO.  In addition, Messrs. Bok and Niehaus own shares in our founding stockholder that give them indirect ownership interests in GHQ. Because of their indirect ownership interests, each of Messrs. Bok and Niehaus has financial interests in the completion of the acquisition in addition to their interests as holders of our units.

 

·

If the acquisition is completed, certain of our current directors will continue as directors of GHQ. These non-executive directors will be entitled to receive any cash fees, stock options, stock awards or other compensation arrangements that our board of directors determines to provide to our non-executive directors.

 

No Appraisal or Dissenters’ Rights

 

No appraisal or dissenters’ rights are available under Delaware law for holders of GHQ common stock in connection with the proposals described in this proxy statement.

 

Regulatory Matters

 

U.S. Antitrust.  Under the HSR Act and the rules that have been promulgated thereunder by the Federal Trade Commission (the “FTC”), the acquisition may not be consummated unless GHQ and Iridium Holdings furnish certain information to the Antitrust Division of the United States Department of Justice (the “Antitrust Division”) and the FTC and specified waiting period requirements have been satisfied.  Pursuant to the requirements of the HSR Act, GHQ and Iridium Holdings each filed a Notification and Report Forms with respect to the acquisition with the Antitrust Division and the FTC. GHQ filed its notification on October 3, 2008 and Iridium Holdings filed

 

 

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its notification on October 6, 2008.  Early termination of the waiting period applicable to the acquisition was granted by the FTC on October 10, 2008.

 

The Antitrust Division and the FTC frequently scrutinize the legality under the antitrust laws of transactions such as the acquisition.  At any time before or after consummation of the acquisition, the Antitrust Division or the FTC could take such action under the antitrust laws as it deems necessary or desirable in the public interest, including seeking to enjoin the completion of the acquisition or seeking the divestiture of substantial assets of GHQ or Iridium Holdings.  Private parties (including individual states) may also bring legal actions under the antitrust laws.  We do not believe that the consummation of the acquisition will result in a violation of any applicable antitrust laws.  However, there can be no assurance that a challenge to the acquisition on antitrust grounds will not be made or, if this challenge is made, what the result will be.  See “The Transaction Agreement—Conditions to the Closing” for certain conditions to the acquisition, including conditions with respect to litigation and certain governmental actions and “The Transaction Agreement—Termination” for certain termination rights pursuant to the transaction agreement in connection with legal prohibitions to completing the acquisition.

 

Foreign Competition Law Filings.  Iridium Holdings and its subsidiaries own property and conduct business in a number of foreign countries.  In connection with the acquisition, the laws of certain of these foreign countries may require the filing of information with, or the obtaining of the approval of, governmental authorities therein.  The parties do not believe that any such filings or approvals are required by these laws, but intend to take such action as they may require.

 

FCC Licenses.  Certain subsidiaries and affiliates of Iridium Holdings hold one or more licenses or authorizations (each an “FCC License” and collectively the “FCC Licenses”) issued by the FCC.  Under the Communications Act of 1934, as amended, and the rules and regulations of the FCC, prior to completion of the acquisition, the FCC must approve the transfer of control of these subsidiaries and affiliates and their FCC Licenses to GHQ.  Therefore, GHQ and each subsidiary or affiliate of Iridium Holdings that holds one or more FCC License must file an application with the FCC requesting such approval (each an “Application” and collectively the “Applications”).  The FCC will review each Application to determine whether GHQ’s control of the pertinent subsidiary or affiliate and its FCC Licenses would comply with applicable law and whether it would be consistent with the public interest, convenience and necessity.  GHQ and Iridium Holdings jointly filed the Applications with the FCC on October 21, 2008.

 

On November 26, 2008, the FCC issued a public notice (the “Public Notice”) announcing the filing of the Applications, summarizing the information contained therein, and inviting petitions to deny, oppositions and other comments by third parties with respect to the Applications.  On December 29, 2008, Cornell University (“Cornell”) and International Communications Group, Inc. (“ICG”) filed comments with respect to the Applications.  The commenters did not oppose the proposed transfer of control of Iridium Holdings but asked the FCC to adopt certain conditions in connection with its grant of the Applications.  Also, on December 29, 2008, Globalstar License LLC (“Globalstar License”) filed a petition to deny the Applications.

 

On January 12, 2009, GHQ and Iridium Holdings jointly filed a consolidated opposition and response with respect to the comments of Cornell and ICG and the petition to deny the Applications by Globalstar License.  The opposition and response asserted that the comments and petition to deny provide no basis for the FCC to deny, condition its approval or delay its consideration of the Applications.  On January 21, 2009, Globalstar License filed a reply to the opposition and response.  Pursuant to the Public Notice, the pleading cycle ended on January 12, 2009.  Parties may, however, continue to make ex parte submissions to the FCC until the FCC acts on the Applications, and on April 29, 2009, Rockwell Collins, Inc. (“Rockwell Collins”) filed an ex parte letter advocating the same general positions taken by ICG in its comments.  On March 12, 2009, GHQ and Iridium Holdings received a request for certain additional information from the FCC to assist in its review of the proposed foreign ownership of Iridium Carrier Services LLC.  GHQ and Iridium Holdings jointly submitted a response to the FCC’s request on June 2, 2009.

 

The FCC has developed an informal timetable for acting upon transfer of control applications.  Pursuant to this informal timetable, it will endeavor to take action on any such application (i.e., grant, deny, or designate the application for hearing) within 180 days from the initial public notice accepting the application for filing.  The FCC

 

 

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reserves the right to stop the 180-day “clock” at its discretion.  We cannot assure you that the FCC will act on the Applications in a timely manner or that the FCC will not deny the Applications or impose conditions on the parties in connection with granting its approval.

 

Other U.S. Regulatory Filings.  Iridium Holdings engages in several business areas that are regulated by the U.S. Government on national security grounds.  In particular, it is registered with the U.S. State Department as a manufacturer or exporter of satellite-related items that are controlled under the International Traffic in Arms Regulations (“ITAR”).  In connection with the acquisition, appropriate notice and other filings will be required to be made with the Departments of State and Defense.  On December 23, 2008, the Department of Justice, the Federal Bureau of Investigation, and the Department of Homeland Security (the “Executive Agencies”) asked the FCC to defer action on the Applications until such time that any national security, law enforcement, or public safety concerns raised by the proposed transaction have been addressed.  Such a request is routine in transactions involving satellite carriers or other providers of telecommunications services.  In order to address any such concerns, GHQ may be required to enter into a national security agreement with the Executive Agencies, compliance with which will be a condition of FCC grant of the FCC Applications.

 

Foreign Licenses and Authorizations.  Iridium Holdings, either directly or indirectly through certain of its subsidiaries and affiliates, provides communications services to subscribers in foreign countries in all regions of the world.  In many of these countries, Iridium Holdings, its subsidiaries and/or affiliates have received government licenses or other authorizations to provide such services.  In certain of these countries, completion of the acquisition may require either government approval or notification of the change in control over the pertinent licenses or authorizations.  No assurance can be given that, if any such approvals are required, they will be obtained.

 

General.  It is possible that governmental authorities having jurisdiction over GHQ and Iridium Holdings may seek regulatory concessions as conditions for granting approval of the acquisition.  A regulatory body’s approval may contain terms or impose conditions or restrictions relating or applying to, or requiring changes in or limitations on, the operation or ownership of any asset or business of GHQ, Iridium Holdings or any of their subsidiaries, or GHQ’s ownership of Iridium Holdings, or requiring asset divestitures, which conditional approval could reasonably be expected to result in a substantial detriment to GHQ, Iridium Holdings and their subsidiaries, taken as a whole, after the closing of the acquisition.  If this kind of approval occurs, in certain circumstances, GHQ can decline to close under the transaction agreement.  We can give no assurance that the required regulatory approvals will be obtained on terms that satisfy the conditions to closing of the acquisition or are within the time frame contemplated by GHQ and Iridium Holdings.  See “The Transaction Agreement—Conditions to the Closing” on page 101.

 

Risk Factors (See page 36)

 

In evaluating each of the proposals set forth in this proxy statement, you should carefully read this proxy statement and consider the factors discussed in the section entitled “Risk Factors.”

 

 

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SELECTED HISTORICAL FINANCIAL DATA OF GHQ

 

The following selected historical financial data as of December 31, 2007 and December 31, 2008, for the three months ended March 31, 2008 (unaudited) and March 31, 2009 (unaudited) and from November 2, 2007 (Inception) to March 31, 2009 (unaudited) was derived from the financial statements of GHQ and GHQ’s unaudited interim financial statements.  GHQ is a development stage enterprise. Interim results are not necessarily indicative of results for the full year.  The selected financial data below should be read in conjunction with GHQ’s financial statements and related notes beginning on page F-2 and “GHQ - Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in this proxy statement.

 

		Year Ended December 31								Three Months Ended March 31 (unaudited)								For the Period from November 2, 2007 (Inception) to March 31, 2009 (unaudited)
Statement of Operations Data:		2007				2008				2008				2009
Other income (interest)		$	---------			$	5,604,554			$	1,213,016			$	523,034			$	6,127,588
Total expenses			(3,812	)			2,592,185				112,267				462,733				3,058,730
Income before income taxes			(3,812	)			3,012,369				1,100,749				60,301				3,068,858
Provision for income taxes			-------				1,356,551				556,357				27,155				1,383,706
Net income (loss)			(3,812	)			1,655,818				544,392				33,146				1,685,152
Net income per share (basic and diluted)			(0.00	)			0.04				0.02				0.00
Weighted average shares outstanding (basic and diluted)			11,500,000				43,268,238				27,485,989				48,500,000
Balance Sheet Data:		As of December 31, 2007				As of December 31, 2008								As of March 31, 2009 (unaudited)
Total assets		$	500,000			$	403,150,260							$	403,363,785
Total liabilities			478,812				12,898,985								13,079,364
Common stock, subject to possible conversion (11,999,999 shares at conversion value)			-				119,987,999								119,987,999
Total stockholders’ equity			21,188				270,263,276								270,296,422
Total liabilities and stockholders’ equity			500,000				403,150,260								403,363,785

 

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SELECTED HISTORICAL FINANCIAL DATA OF IRIDIUM HOLDINGS

 

The following selected historical financial data for each of the three years in the period ended December 31, 2008 was derived from Iridium Holdings’ audited financial statements and the financial information for the three months ended March 31, 2008 and 2009 was derived from Iridium Holdings’ unaudited condensed consolidated financial statements included elsewhere in this proxy statement.  Iridium Holdings’ unaudited condensed consolidated financial statements reflect all adjustments necessary to state fairly its financial position at March 31, 2008 and 2009 and its income and cash flows for the three months ended March 31, 2008 and 2009.  The information for the years ended December 31, 2004 and 2005 was derived from Iridium Holdings’ audited financial statements not included in this proxy statement.  Interim results are not necessarily indicative of results for the full year and historical results are not necessarily indicative of results to be expected in any future period.  The selected financial data below should be read in conjunction with Iridium Holdings’ financial statements and related notes beginning on page F-30 and “Iridium Holdings—Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in this proxy statement.

 

		Years Ended December 31																				Three Months Ended March 31
Statement of Operations Data:		2004				2005				2006				2007				2008				2008				2009
Revenue:
Government Services			45,069				48,347				50,807				57,850				67,759				14,105				18,468
Commercial Services			49,611				60,690				77,661				101,172				133,247				29,044				36,818
Subscriber Equipment			26,811				78,663				83,944				101,879				119,938				31,151				20,503
Operating expenses:
Cost of subscriber equipment sales			26,463				62,802				60,068				62,439				67,570				18,397				11,315
Network and satellite operations and maintenance (a)			50,248				56,909				60,685				60,188				63,878				15,393				15,951
Selling, general and administrative(a)			32,487				30,135				33,468				46,350				55,105				11,340				14,665
Research and development			9,044				4,334				4,419				17,370				38,778				4,504				15,061
Depreciation and amortization			7,132				7,722				8,541				11,380				12,535				2,968				3,675
Transaction costs			-				-				-				-				7,959				236				697
Satellite system development refund			-				(14,000	)			-				-				-				-				-
Total operating expenses			125,374				147,902				167,181				197,727				245,825				52,838				61,364
Operating profit (loss)			(3,883	)			39,798				45,231				63,174				75,119				21,462				14,425
Other (expense) income:
Interest expense			(9,122	)			(5,106	)			(15,179	)			(21,771	)			(21,094	)			(5,169	)			(4,622	)
Interest expense recovered			-				2,526				-				-				-				-				-
Interest and other income			483				2,377				1,762				2,370				(146	)			429				(85	)
Total other (expense) income, net			(8,639	)			(203	)			(13,417	)			(19,401	)			(21,240	)			(4,740	)			(4,707	)
Net (loss) income			(12,522	)			39,595				31,814				43,773				53,879				16,722				9,718
Balance Sheet Data:		12/31/04				12/31/05				12/31/06				12/31/07				12/31/08				3/31/08				3/31/09
Total current assets			59,921				65,385				84,035				80,342				99,955				94,513				115,589
Total assets			150,514				129,397				161,525				167,581				189,169				175,282				203,037
Total long term obligations (b)			(119,781	)			(53,848	)			(208,225	)			(178,324	)			(155,845	)			(179,818	)			(148,288	)
Total members’ deficit			(90,008	)			(57,262	)			(121,189	)			(78,447	)			(62,230	)			(64,317	)			(51,467	)
Other Data:
Cash provided by (used in):
Operating activities			10,107				30,742				39,499				36,560				61,438				16,916				21,671
Investing activities			(1,608	)			(9,661	)			(9,467	)			(19,787	)			(13,913	)			(2,607	)			(2,283	)
Financing activities			(5,542	)			(18,887	)			(8,032	)			(26,526	)			(44,820	)			(2,946	)			(1,893	)
EBITDA (c)			3,554				49,595				54,243				74,732				86,163				24,424				18,032
Certain other items included in EBITDA (d)			-				-				-				1,777				22,072				1,899				9,538

 

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(a)

Iridium Holdings’ selected historical financial data for the year ended December 31, 2004 does not include a reclassification of operating expenses between “network and satellite operations and maintenance” and “selling, general and administrative.”  Therefore, Iridium Holdings’ selected historical financial data for the operating expenses described above for the year ended December 31, 2004 is not directly comparable to the selected historical financial data for subsequent periods.

 

(b)

Long-term obligations are presented net of an unamortized discount associated with a commitment fee to Motorola in connection with the transition services, products and assets agreement.  The balance of the unamortized discount was $3.0 million at December 31, 2004, $2.7 million at December 31, 2005, $2.3 million at December 31, 2006, $1.8 million at December 31, 2007, $1.3 million at December 31, 2008, $1.7 million at March 31, 2008 and $1.1 million at March 31, 2009.

 

(c)

“EBITDA” represents net income before interest expense, interest income, income tax provision and depreciation and amortization. EBITDA does not represent and should not be considered as an alternative to net income or cash flow from operations, as determined in accordance with United States generally accepted accounting principles (“GAAP”) and Iridium Holdings’ calculations thereof may not be comparable to similarly entitled measures reported by other companies.  Iridium Holdings presents EBITDA because it believes it is a useful indicator of its profitability. Iridium Holdings’ management uses EBITDA principally as a measure of its operating performance and believes that EBITDA is useful to investors because it is frequently used by securities analysts, investors and other interested parties in their evaluation of companies in industries similar to its own. Iridium Holdings also believes EBITDA is useful to its management and investors as a measure of comparative operating performance between time periods and among companies as it is reflective of changes in pricing decisions, cost controls and other factors that affect operating performance. Iridium Holdings’ management also uses EBITDA for planning purposes, including the preparation of its annual operating budget, financial projections and compensation plans.

 

EBITDA does not represent and should not be considered as an alternative to results of operations under GAAP and has significant limitations as an analytical tool. Although Iridium Holdings uses EBITDA as a measure to assess the performance of its business, the use of EBITDA is limited because it excludes certain material costs. For example, it does not include interest expense, which is a necessary element of its costs and ability to generate revenue, because Iridium Holdings has borrowed money in order to finance its operations. Because Iridium Holdings uses capital assets, depreciation expense is a necessary element of its costs and ability to generate revenue.  Because EBITDA does not account for these expenses, its utility as a measure of Iridium Holdings’ operating performance has material limitations. As a limited liability company that is treated as a partnership for federal income tax purposes, Iridium Holdings is generally not subject to federal income tax directly and therefore no adjustment is required for income taxes.  Because of these limitations Iridium Holdings’ management does not view EBITDA in isolation or as a primary performance measure and also uses other measures, such as net income, revenue and operating profit, to measure operating performance.  Iridium Holdings’ calculations of EBITDA may also differ from the calculation of EBITDA by its competitors and other companies and as such, its utility as a comparative measure is limited.

 

The following is a reconciliation of net (loss) income to EBITDA:

		Years Ended December 31																				Three Months Ended March 31
		2004				2005				2006				2007				2008				2008				2009
Net (loss) income			(12,522	)			39,595				31,814				43,773				53,879				16,722				9,718
Interest expense			9,122				5,106				15,179				21,771				21,094				5,169				4,622
Interest expense recovered			-				(2,526	)			-				-				-				-				-
Interest income			(178	)			(302	)			(1,291	)			(2,192	)			(1,345	)			(435	)			17
Depreciation and amortization			7,132				7,722				8,541				11,380				12,535				2,968				3,675
EBITDA			3,554				49,595				54,243				74,732				86,163				24,424				18,032

 

 

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(d)

The following table details certain items, which are included in EBITDA: non-recurring expenses relating to Iridium Holdings’ proposed transaction with GHQ and expenses incurred in the development of Iridium Holdings’ second generation constellation, Iridium NEXT. This table does not represent and should not be considered as an alternative to net income or cash flow from operations, as determined in accordance with GAAP and Iridium Holdings’ calculations thereof may not be comparable to similarly entitled measures reported by other companies. Iridium Holdings believes this table, when reviewed in connection with its presentation of EBITDA provides another useful tool to investors and its management for measuring comparative operating performance between time periods and among companies as it is further reflective of cost controls and other factors that affect operating performance. In addition to EBITDA, Iridium Holdings’ management assesses the adjustments presented in this table when preparing its annual operating budget, financial projections and compensation plans. Because of the significant expenses resulting from the abovementioned transaction and Iridium NEXT, Iridium Holdings believes that the presentation of the adjustments relating to acquisition and Iridium NEXT expenses enables its management and investors to assess the impact of such expenses on its operating performance and provides a consistent measure of its operating performance for periods subsequent to the transaction and the full deployment of Iridium NEXT.

 

This table is not intended to comply with GAAP and has significant limitations as an analytical tool, and you should not consider it in isolation, or as a substitute for analysis of Iridium Holdings’ results of operations under GAAP. Although Iridium Holdings uses this table as a financial measure to assess the performance of its business, the use of this table is limited because, in addition to the costs excluded in its presentation of EBITDA, it excludes certain material costs that Iridium Holdings has incurred over the periods presented. Because this table does not account for these expenses, its utility as a measure of Iridium Holdings’ operating performance has material limitations.

 

EBITDA, as defined above, was decreased by the following non-recurring and certain other items, each of which is further discussed below:

 

		Years Ended December 31																				Three Months Ended March 30
		2004				2005				2006				2007				2008				2008				2009
Non-recurring transaction expenses (1)			-				-				-				-				7,959				236				697
Iridium NEXT expenses (2)			-				-				-				1,777				14,113				1,663				8,841
Total			-				-				-				1,777				22,072				1,899				9,538

 

(1) Consists of non recurring legal, regulatory and accounting expenses relating to Iridium Holdings’ financing activities, including the proposed transaction with GHQ.

 

(2) Consists of expenses, net of customer revenues, incurred in connection with the design, manufacture and deployment of Iridium NEXT, including certain milestone payments paid to the two companies vying to serve as the prime system contractor. Iridium Holdings expects to incur such expenses through 2016 until the deployment of the new constellation, with the majority of these expenses incurred during the capital intensive launch phase between 2014 and 2016. In the future, Iridium Holdings may capitalize a portion of these costs.

 

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SELECTED UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL DATA

 

 

The following unaudited pro forma condensed combined balance sheet as of March 31, 2009 and the unaudited pro forma condensed combined statements of operations for the three months ended March 31, 2009 and for the year ended December 31, 2008 are based on the historical financial statements of GHQ and Iridium Holdings after giving effect to the acquisition in which GHQ will acquire Iridium Holdings.  The acquisition will be accounted for using the acquisition method of accounting in accordance with Financial Accounting Standards Board (“FASB”) Statement No. 141R, “Business Combinations” (“SFAS 141R”).

 

 

The unaudited pro forma condensed combined statements of operations for the three months ended March 31, 2009 and for the year ended December 31, 2008 give effect to the acquisition as if it had occurred on January 1, 2008. The unaudited pro forma condensed combined balance sheet as of March 31, 2009 assumes that the acquisition took place on March 31, 2009.

 

 

The unaudited condensed combined balance sheet and statement of operations as of and for the three months ended March 31, 2009 were derived from GHQ’s unaudited condensed financial statements and Iridium Holdings’ unaudited condensed consolidated financial statements as of and for the three months ended March 31, 2009.  The unaudited condensed statement of operations for the year ended December 31, 2008 was derived from GHQ’s and Iridium Holdings’ audited statements of income for the year ended December 31, 2008.

 

 

GHQ will consummate the acquisition only if (i) holders of a majority of the IPO shares voting in person or by proxy approve the acquisition and (ii) stockholders holding no more than 30% of the IPO shares less one share exercise their conversion rights. The unaudited pro forma condensed combined financial statements have been prepared using the assumptions below with respect to the number of outstanding shares of GHQ common stock:

 

 

•    Assuming Minimum Conversion: This presentation assumes that no GHQ stockholders seek to convert their IPO shares into a pro rata portion of the trust account;

 

•    Assuming Maximum Conversion: This presentation assumes that GHQ stockholders holding 30% of the IPO shares less one share (11,999,999 shares) vote against the acquisition and elect to exercise their conversion rights.

 

The pro forma condensed combined financial statements reflect management’s best estimate of the fair value of the tangible and intangible assets acquired and liabilities assumed based on a preliminary valuation study performed by an independent third party valuation firm based on information currently available.  As final valuations are performed, increases or decreases in the fair value of assets acquired and liabilities assumed will result in adjustments, which may be material, to the balance sheet and/or statement of operations.

 

As required, the unaudited pro forma condensed combined financial data includes adjustments which give effect to the events that are directly attributable to the acquisition, expected to have a continuing impact and are factually supportable.  Hence any planned adjustments affecting the balance sheet, statement of operations or changes in common stock outstanding, subsequent to the assumed closing date of the acquisition are not included.

 

The unaudited pro forma condensed combined financial statements are provided for informational purposes only and are subject to a number of uncertainties and assumptions and do not purport to represent what the companies’ actual performance or financial position would have been had the acquisition occurred on the dates indicated and does not purport to indicate the financial position or results of operations as of any future date or for any future period. Please refer to the following information in conjunction with the accompanying notes to these pro forma financial statements and the historical financial statements and the accompanying notes thereto and the sections entitled “GHQ Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Iridium Holdings Management’s Discussion and Analysis of Financial Condition and Results of Operations” in this proxy statement.

 

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		GHL Acquisition Corp.
		Unaudited Pro Forma Condensed Combined Balance Sheet
		As of March 31, 2009
		Historical
									Pro Forma Adjustments (assuming minimum									Combined Pro Forma (assuming minimum			Additional Pro Forma Adjustments (assuming maximum									Combined Pro Forma (assuming maximum
		GHQ				Iridium				conversion)								conversion)				conversion)								conversion)
										(In thousands)
Assets
Current assets:
Cash and cash equivalents		$	2			$	42,305			$	(101,871	)			A			$	242,986			$	(120,000	)			P			$	128,049
											401,902				B								5,063				C
											(8,175	)			C
											(1,827	)			C
											(80,000	)			D
											(9,350	)			E
Restricted cash			-				120												120												120
Accounts receivable			-				41,927												41,927												41,927
Inventory			-				27,254				9,885				G				37,139												37,139
Prepaid expenses and other current assets			83				3,983												4,066												4,066
Total current assets			85				115,589				210,564								326,238				(114,937	)							211,301
Property and equipment, net			-				62,231				349,534				H				411,765												411,765
Restricted cash, net of current portion			-				15,400												15,400												15,400
Deferred financing costs and other assets			-				9,817				(4,405	)			D				5,412												5,412
Investments held in trust at broker			401,902				-				(401,902	)			B				-												-
Deferred tax asset			1,377				-				1,401				I				2,778												2,778
Intangible assets			-				-				57,228				J				57,228												57,228
Goodwill			-				-				73,209				K				73,209												73,209
Total assets		$	403,364			$	203,037			$	285,628							$	892,029			$	(114,937	)						$	777,092
Liabilities
Current liabilities:
Accounts payable		$	-			$	6,746											$	6,746											$	6,746
Accrued expenses and other current liabilities			1,791				36,600												38,391												38,391
Credit facility, current portion			-				35,149				(3,753	)			D				16,396												16,396
											(15,000	)			D
Deferred revenue, current portion			-				27,721				(14,878	)			L				12,843												12,843
Deferred underwriter commissions			11,288				-				(11,288	)			C				-												-
Total current liabilities			13,079				106,216				(44,919	)							74,376				-								74,376
Accrued satellite operations and maintenance expense, net of current portion			-				9,279												9,279												9,279
Motorola payable			-				11,140				(740	)			F				10,400												10,400
Credit facility			-				99,878				(4,530	)			D				30,348												30,348
											(65,000	)			D
Convertible subordinated note							22,900												22,900												22,900
Other long-term liability			-				5,091				-								5,091												5,091
Income tax reserve			-				-				581				I				581												581
Deferred tax liability			-				-				69,624				I				69,624												69,624
Total liabilities			13,079				254,504				(44,984	)							222,599				-								222,599
Common stock subject to possible conversion			119,988				-				(119,988	)			M				-												-
Stockholders' equity
Common stock			49				-				29				N				78				(12	)			P				66
Additional paid-in capital			268,563				4,591				3,113				C				665,351				(119,988	)			P				550,426
											(1,827	)			C
											(9,350	)			E								5,063				C
											119,988				M
											284,864				N
											(4,591	)			O
Retained earnings/(accumulated deficit)			1,685				(53,779	)			53,779				O				1,685												1,685
Accumulated other comprehensive income (loss)			-				(2,279	)			2,279				O				-												-
Total parent stockholders' equity			270,297				(51,467	)			448,284								667,114				(114,937	)							552,177
Noncontrolling interest											2,316				V				2,316												2,316
Total stockholders' equity			270,297				(51,467	)			450,600								669,430				(114,937	)							554,493
Total liabilities and stockholders' equity		$	403,364			$	203,037			$	285,628							$	892,029			$	(114,937	)						$	777,092
See accompanying notes to the unaudited pro forma condensed combined financial statements.

 

 

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GHL Acquisition Corp. Unaudited Pro Forma Condensed Combined Statement of Operations For the Three Months Ended March 31, 2009
		Historical
		GHQ				Iridium				Pro Forma Adjustments (assuming minimum conversion)							Combined Pro Forma (assuming minimum conversion)							Additional Pro Forma Adjustments (assuming maximum conversion)							Combined Pro Forma (assuming maximum conversion)
		(Inthousands, except per share amounts)
Revenue:
Service		$	-			$	55,286			$	-						$	55,286													$	55,286
Subscriber equipment			-				20,503				-							20,503														20,503
Total revenue			-				75,789				-							75,789							-							75,789
Operating expenses:
Cost of subscriber equipment sales			-				11,315				-							11,315														11,315
Network operations and maintenance			-				15,951				-							15,951														15,951
Selling, general, and administrative			463				14,665				-							15,128														15,128
Depreciation and amortization			-				3,675				17,489			H				24,027														24,027
											2,863			J
Research and development			-				15,061				-							15,061														15,061
Transaction Costs			-				697				-							697														697
Total operating expenses			463				61,364				20,352							82,179							-							82,179
																																-
Operating profit (loss)			(463	)			14,425				(20,352	)						(6,390	)						-							(6,390	)
Other (expense) income:
Interest expense							(4,622	)			1,233			D				(3,389	)													(3,389	)
Interest and other income			523								(523	)		Q
			-				(85	)			(398	)		R				(483	)						(191	)		R				(674	)
Total other (expense) income, net			523				(4,707	)			312							(3,872	)						(191	)						(4,063	)
Income (loss) before provision for income taxes			60				9,718				(20,040	)						(10,262	)						(191	)						(10,453	)
Provision (benefit) for income taxes			27				-				(3,850	)		S				(3,822	)						(76	)		T				(3,898	)
Net income (loss)		$	33			$	9,718			$	(16,190	)					$	(6,440	)					$	(115	)					$	(6,555	)
Net income (loss) attributable to noncontrolling interest																		(32	)		V											(33	)		V
Net income (loss) attributable to controlling interest																	$	(6,408	)												$	(6,522	)
Weighted average shares outstanding - basic			48,500															76,400			U											64,400			U
Weighted average shares outstanding - diluted			48,500															76,400			U											64,400			U
Earnings (loss) per share - basic		$	0.00														$	(0.08	)												$	(0.10	)
Earnings (loss) per share - diluted		$	0.00														$	(0.08	)												$	(0.10	)

 

See accompanying notes to the unaudited pro forma condensed combined financial statements.

 

 

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		GHL Acquisition Corp. Unaudited Pro Forma Condensed Combined Statement of Operations For the Year Ended December 31, 2008
		Historical
		GHQ				Iridium				Pro Forma Adjustments (assuming minimum conversion)							Combined Pro Forma (assuming minimum conversion)							Additional Pro Forma Adjustments (assuming maximum conversion)							Combined Pro Forma (assuming maximum conversion)
		(In thousands, except per share amounts)
Revenue:
Service		$	-			$	201,006			$	-						$	201,006													$	201,006
Subscriber equipment			-				119,938				-							119,938														119,938
Total revenue			-				320,944				-							320,944							-							320,944
Operating expenses:
Cost of subscriber equipment sales			-				67,570				-							67,570														67,570
Network operations and maintenance			-				63,878				-							63,878														63,878
Selling, general, and administrative			2,592				55,105				-							57,697														57,697
Depreciation and amortization			-				12,535				69,910			H				93,895														93,895
											11,450			J
Research and development			-				38,778				-							38,778														38,778
Transaction Costs			-				7,959				-							7,959														7,959
Total operating expenses			2,592				245,825				81,360							329,777							-							329,777
																																-
Operating profit (loss)			(2,592	)			75,119				(81,360	)						(8,833	)						-							(8,833	)
Other (expense) income:
Interest expense							(21,094	)			6,941			D				(14,153	)													(14,153	)
Interest and other income			5,605								(5,605	)		Q
			-				(146	)			1,429			R				1,283							(747	)		R				536
Total other (expense) income, net			5,605				(21,240	)			2,765							(12,870	)						(747	)						(13,617	)
Income (loss) before provision for income taxes			3,013				53,879				(78,595	)						(21,703	)						(747	)						(22,450	)
Provision (benefit) for income taxes			1,357				-				(5,713	)		S				(4,357	)						(298	)		T				(4,655	)
Net income (loss)		$	1,656			$	53,879			$	(72,882	)					$	(17,346	)					$	(449	)					$	(17,795	)
Net income (loss) attributable to noncontrolling interest																		(87	)		V											(89	)		V
Net income (loss) attributable to controlling interest																	$	(17,259	)												$	(17,706	)
Weighted average shares outstanding - basic			43,268															76,400			U											64,400			U
Weighted average shares outstanding - diluted			43,268															76,400			U											64,400			U
Earnings (loss) per share - basic		$	0.04														$	(0.23	)												$	(0.28	)
Earnings (loss) per share - diluted		$	0.04														$	(0.23	)												$	(0.28	)

 

See accompanying notes to the unaudited pro forma condensed combined financial statements.

 

 

Notes to Unaudited Condensed Combined Pro Forma Financial Statements

1. Description of the Acquisition and Basis of Presentation

 

The Acquisition

On September 22, 2008, GHQ entered into a Transaction Agreement, as amended on April 28, 2009, with Iridium Holdings and its members whereby GHQ agreed to purchase 99.5% of Iridium Holdings member units (Class A and Class B) for 29.3 million shares of GHQ common stock, $76.7 million in cash, subject to certain adjustments, and, within 90 days of the closing of the acquisition, a tax benefit payment of $25.2 million in cash to sellers (other than the sellers of the equity of Baralonco and Syncom), if Iridium Holdings has in effect a valid IRC Section 754 election with respect to the taxable year in which the closing occurs. Upon the closing of the acquisition, Iridium Holdings will become a subsidiary of GHQ and GHQ will be renamed “Iridium Communications Inc.”

Pursuant to the Transaction Agreement, GHQ will acquire two entities, Baralonco and Syncom, which are holders of a significant number of Iridium Holdings units. After the closing of the acquisition, Baralonco and Syncom will become wholly-owned subsidiaries of GHQ. No pro forma adjustments have been made for the acquisition of Syncom and Baralonco because, although they currently have cash and certain immaterial assets and liabilities, the Transaction Agreement contemplates that these entities will have no assets or liabilities at the closing other than Iridium Holdings units. The only historical operations of these entities have been the ownership of Iridium Holdings units and, in the case of Baralonco, certain previously disposed investments.

 

 

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In connection with the terms of the acquisition, all outstanding equity awards of Iridium Holdings will immediately vest upon the closing of the acquisition.  The estimated reduction to Iridium Holdings’ equity at the close of the acquisition related to the accelerated vesting is approximately $3.2 million.  Following the closing of the acquisition, GHQ will record a compensation charge in the amount $1.3 million and a capital contribution related to the transfer at cost of founding stockholder’s units to certain of GHQ’s directors.  The impact of the acceleration of Iridium Holdings’ equity incentive awards and GHQ’s compensation charge and related capital contribution are not reflected in the pro forma condensed combined financial statements.

 

On October 24, 2008, Greenhill Europe purchased a convertible note for $22.9 million in cash from Iridium Holdings.  Greenhill Europe has the option to convert the convertible note into Class A units of Iridium Holdings upon the later of (i) October 24, 2009 and (ii) the earlier of closing of the acquisition pursuant to the transaction agreement or the termination of the transaction agreement.  The convertible note matures in seven years and bears interest at 5% per annum, compounded quarterly, beginning on April 24, 2009.  The pro forma condensed combined financial statements do not reflect the convertible note on an as-converted basis because the earliest date that Greenhill Europe can convert the convertible note is October 24, 2009.

 

In conjunction with the issuance of the convertible note, Iridium Holdings executed amendments to the first and second lien credit facilities, (the “Credit Amendments”) which were completed in October 2008.  Following the execution of the Credit Amendments a net distribution of $36.3 million was made to current Iridium Holdings unit holders.  Iridium Holdings also prepaid $22.0 million of the outstanding balance on the first lien term loan at the signing of the Credit Amendments.  The Credit Amendments provide for: (a) an increase in the applicable interest rate margin for Eurodollar loans by 75 basis points (5% for first lien and 9% for second lien); (b) an increase in permitted capital expenditures for 2009; (c) a prepayment of $80.0 million of the outstanding balance on the first lien term loan under the agreement by Iridium Holdings if the proposed transaction with GHQ is consummated ($15.0 million if stockholder approval is not obtained by June 29, 2009 or, if stockholder approval is obtained by June 29, 2009, the transaction is not consummated by September 30, 2009); and (d) an amendment to the definition of “Change of Control” under the agreement to include the public company in existence after the proposed transaction with GHQ.

 

Basis of Presentation

 

The unaudited pro forma condensed combined financial statements have been prepared based on GHQ’s and Iridium Holdings’ historical financial information.  Certain disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles in the United States have been condensed or omitted as permitted by SEC rules and regulations.

 

These unaudited pro forma condensed combined financial statements are not necessarily indicative of the results of operations that would have been achieved had the acquisition actually taken place at the dates indicated and do not purport to be indicative of future financial condition or operating results.

 

2. Acquisition Method

 

The pro forma condensed combined financial statements reflect the accounting for the transaction in accordance with SFAS 141R.  Under the acquisition method, the purchase price is allocated to the assets acquired and liabilities assumed based on their estimated fair values, with any excess of the purchase price over the estimated fair value of the identifiable net assets acquired recorded as goodwill.

 

The fair value of GHQ’s shares of common stock issued was calculated using GHQ’s closing stock price of $9.73 at May 28, 2009. Daily closing prices for GHQ's common stock have ranged between $8.60 and $9.75 since GHQ's common stock began to trade publicly on March 20, 2008. The consequence of a change in stock price to the bottom or top end of this range would adjust the fair value of GHQ’s common stock issued as a result of the transaction downward by $33.1 million or upward by $0.6 million, respectively, with the offsetting amount being recorded to goodwill.

 

The following represents the purchase price of the transaction (in millions):

 

 

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3. Pro Forma Adjustments and Assumptions

 

A)	Represents the cash component of the purchase price of $101.9 million consisting of a $76.7 million cash payment and $25.2 million of tax benefit payments.

 

B)

Reflects the release of $401.9 million of GHQ investments held in trust that will be available for the operating activities of the combined company and distributions related to the acquisition.  Possible uses for the remaining cash may include the pay down of amounts due under the credit facility and capital expenditures for the development and expansion of the combined company’s operations.

 

C)

Reflects original deferred underwriting commissions of $16.4 million as a liability of $11.3 million, with $5.1 million included in common stock subject to possible conversion.  The deferred underwriting commissions will be reduced pro rata as a result of the exercise of any stockholder conversion rights.  On June 2, 2009, the underwriter agreed to reduce the deferred underwriting commissions payable upon the closing of the acquisition by approximately $8.2 million.  Accordingly, the deferred underwriting commissions payable upon closing will range between approximately $3.1 million (assuming maximum conversion) to $8.2 million (assuming no conversion) depending upon the number of stockholders who exercise their conversion rights.  In addition, pursuant to an agreement dated June 2, 2009, GHQ will purchase 3.7 million warrants from the underwriter or its affiliate for $1.8 million.

D)

Reflects the required prepayment of $80.0 million ($15.0 million for current and $65.0 million for non-current portion) of the outstanding balance on the first lien term loan in connection with the closing of the acquisition and the write-off of $4.4 million of deferred financing costs.  Also, reflects the fair value adjustment to the credit facility of $3.8 million and $4.5 million (current and non-current portion, respectively).  The fair value of the credit facilities was derived by multiplying the face amount by the median of independent market data for debt trading on March 31, 2009.  The reduction in interest expense related to the pay down of the credit facility is $1.2 million and $6.9 million for the three months ended

 

 

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March 31, 2009 and the year ended December 31, 2008, respectively.  Interest expense has been calculated based on the revised interest rates set forth in the Credit Amendments.

 

E)	Reflects the payment of $9.4 million of fees to financial advisors payable upon the closing of the acquisition.  Depending upon the post-closing capitalization, the combined company will be required to pay up to an additional $4.0 million of fees to financial advisors.

 

F)	Reflects the preliminary fair value adjustment to the Motorola Inc. (“Motorola”) payable acquired, of $(0.7) million.

 

G)	Reflects the pro forma impact of the preliminary fair value adjustment to inventory acquired of $9.9 million.

 

H)	Reflects the pro forma impact of the acquired property and equipment of Iridium Holdings.  The preliminary fair value adjustment and related depreciation is as follows (in millions):

 

									Additional depreciation expense
									For the three		For the year
Historical						Fair value			months ended		ended December		Remaining
amounts			Fair value			adjustment			March 31, 2009		31, 2008		useful lives
$	62.23	$		411.76	$		349.53	$17.48		$69.91		5

I)

Reflects the pro forma adjustment to deferred taxes which represents the estimated impact of the pro forma adjustments at a statutory tax rate of approximately 38.4%.  A deferred tax liability of $69.6 million has been reflected based on the preliminary adjustment of $181.2 million (the excess of the preliminary book step up of $412 million and the preliminary tax step up of $230.8 million).  The book step up adjustment is determined based on the excess of the fair value of the assets ($621.4 million) over the book value of the assets ($209.4 million).  The tax step up of the assets is based upon IRC Section 743 and the tax gain that the sellers (other than the sellers of the equity of Baralonco or Syncom) will recognize in the transaction.  The book and tax step ups increase the basis of the assets. Under FAS 109 and FAS 141R, the difference between the book basis of the assets and the tax basis of the assets is treated as a deferred tax item.   A deferred tax asset adjustment of $1.4 million has been reflected based on the Iridium Holdings book-tax differences existing on the balance sheet date.  An income tax reserve of $0.6 million has been reflected.

 

J)	Reflects the pro forma impact of the identified intangible assets of Iridium Holdings which have been allocated to trade names, customer relationships, spectrum / license agreements, internally developed, internal use software and developed technology assuming remaining useful lives of five years.

 

           The preliminary fair value adjustment and related amortization is as follows (in millions):

 

								Amortization expense
								For the three		For the year
		Historical				Fair value		months ended		ended December		Remaining
Intangible		amounts		Fair value		adjustment		March 31, 2009		31, 2008		useful lives
Customer relationships		$0.00		$41.62		$41.62		$2.08		$8.32	5
Core/developed technology		$0.00		$5.65		$5.65		$0.28		$1.13	5
Spectrum / license agreements		$0.00		$5.38		$5.38		$0.27		$1.08	5
Trade names/marks		$0.00		$4.40		$4.40		$0.22		$0.88	5
Internally developed software		$0.00		$0.18		$0.18		$0.01		$0.04	5
Total		$0.00		$57.23		$57.23		$2.86		$11.45

 

K)	Reflects the pro forma adjustment to goodwill of $73.2  million, representing the excess of the purchase price over the fair value of net assets to be acquired.

 

L)

Reflects the preliminary fair value adjustment to deferred revenues of $(14.9) million.  The deferred revenue liability reflects fair value assumptions based on total costs to satisfy the legal performance obligation assumed by GHQ.  The fair value is calculated as the present value of direct and indirect costs

 

 

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required to service the obligation.  It also includes an estimated, normal profit margin of 18% based on the perspective of a market participant.  A risk-free rate of 4.5% was used to discount the aforementioned figures to present value given the fact that the obligation will be serviced over time (generally a one year period).

 

M)

Assuming minimum conversion, reflects the reclassification of common stock subject to conversion to permanent equity.  This amount, which immediately prior to this transaction was being held in trust, represents the value of 11,999,999 shares of common stock which may be converted into cash by GHQ stockholders at an estimated $10.00 conversion price.  The $10.00 conversion price was determined by forecasting the balance of GHQ's trust account at the time of the closing of the acquisition taking into account expected interest income on the trust account balance, applicable taxes, and the expenses and working capital needs of GHQ.

 

N)	Reflects the fair value of the 29.3 million shares issued as consideration for Iridium Holdings.  The shares were valued using GHQ’s closing market price of its common stock of $9.73 at May 28, 2009.

 

O)	Reflects the elimination of Iridium Holdings’ historical net equity of approximately $(51.5) million as a result of the acquisition.

 

P)

Represents maximum conversion and that GHQ stockholders holding 30% of the IPO shares less one share (11,999,999 shares) vote against the transaction and elect to exercise their conversion rights and convert their shares of common stock subject to conversion into cash at an estimated $10.00 conversion price.

 

Q)	Reflects the reduction of interest income related to the release of cash from trust which would no longer earn interest.

 

R)

Reflects the increase of interest income earned at an average annualized rate of 0.65% on the remaining cash after distributions and payments related to the acquisition are made of $0.4 million and $1.4 million for the three months ended March 31, 2009 and the year ended December 31, 2008, respectively, assuming minimum conversion.  Also, reflects the reduction of interest income of $(0.2) million and $(0.8) million for the three months ended March 31, 2009 and for the year ended December 31, 2008, respectively, assuming maximum conversion.

 

S)

Reflects an income tax benefit of $3.8 million and $5.7 million for the three months ended March 31, 2009 and for the year ended December 31, 2008, respectively, for the combined entity, assuming the transaction occurred on January 1, 2008.   The adjustments are calculated based on the difference between the income tax expense/(benefit) calculated under FAS 109 for the combined entity and the income tax expense/(benefit) recorded under FAS 109 in the separate entity financial statements.  In the separate entity financial statements, because Iridium Holdings is a partnership for tax purposes, the entity is not subject to income tax.  Consequently, no income tax expense has been recorded in its financial statements.  The combined entity will record income tax expense related to Iridium Holdings’ taxable income.

 

T)	Reflects an income tax benefit related to the pro forma adjustments to interest income and expense of $0.08 million and $0.3 million for the three months ended March 31, 2009 and for the year ended December 31, 2008, respectively, of the combined entity, assuming maximum conversion.

 

U)

Pro forma earnings per share (EPS), basic and diluted, are based on the following calculations of the number of shares of common stock.  Loss per share is computed by dividing net loss by the weighted-average number of shares of common stock outstanding during the period.  The effect of the 10.9 million shares underlying the outstanding warrants, calculated based on the treasury stock method and the 44.0 million warrants issued in connection with GHQ's IPO (net of the 4.0 million warrants which Greenhill has agreed to forfeit), have not been considered in diluted loss per share since the effect of the warrants would be anti-dilutive.

 

 

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		Minimum Conversion				Maximum Conversion
Basic and diluted shares (in millions) :
GHQ shares after IPO issuance			48.5				48.5
GHQ shares subject to redemption			0.0				-12.0
Issuance of GHQ shares as purchase consideration			29.3				29.3
Founder shares forfeited			-1.4				-1.4
Total			76.4				64.4

 

 

V)

Reflects 0.5% non-controlling interest of $2.3 million for the units of Iridium Holdings that GHQ is not acquiring pursuant to the transaction.  The fair value of the non-controlling interest was derived by considering the fair value of the acquired business as a whole and adjusting for an estimated control premium.

 

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CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS.

 

This proxy statement may contain statements about future events and expectations known as “forward-looking statements” within the meaning of Section 27A of the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”).  We have based these statements on current expectations and projections about future results.

 

The words “anticipates,” “may,” “can,” “believes,” “expects,” “projects,” “intends,” “likely,” “will,” “to be” and other expressions that are predictions of or indicate future events, trends or prospects and which do not relate to historical matters identify forward-looking statements.  These forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause the actual results, performance or achievements of GHQ and/or Iridium Holdings to differ materially from any future results, performance or achievements expressed or implied by such forward-looking statements.  All statements other than statements of historical fact are statements that could be deemed forward-looking statements.  These risks and uncertainties include, but are not limited to, uncertainties regarding the timing of the proposed transaction with Iridium Holdings, whether the transaction will be approved by GHQ’s stockholders, whether the closing conditions will be satisfied (including receipt of regulatory approvals), as well as industry and economic conditions, competitive, legal, governmental and technological factors.  There is no assurance that GHQ’s or Iridium Holdings’ expectations will be realized.  If one or more of these risks or uncertainties materialize, or if our underlying assumptions prove incorrect, actual results may vary materially from those expected, estimated or projected.

 

Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof.  Except for our ongoing obligations to disclose material information under the Federal securities laws, we undertake no obligation to release publicly any revisions to any forward-looking statements after the date they are made, whether as a result of new information, future events or otherwise.

 

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RISK FACTORS

 

You should carefully consider the risk factors described below, together with the other information contained in this proxy statement, before you decide whether to vote or instruct your vote to be cast to approve the acquisition proposal and the other proposals.  If any of the following events occur, our business, financial condition and operating results may be materially adversely affected.  In that event, the trading price of our securities could decline and you could lose all or part of your investment.  This proxy statement also contains forward-looking statements that involve risks and uncertainties.  Our actual results could differ materially from those anticipated in the forward-looking statements as a result of specific factors, including the risks described below.

 

For purpose of this Section, the term “Iridium Holdings” refers to Iridium Holdings LLC and its operating subsidiaries.

 

Risks Related to Iridium Holdings’ Business

 

The success of Iridium Holdings’ business plan depends on increased demand for mobile satellite services and its ability to successfully implement it.

 

The business plan of Iridium Holdings is predicated on growth in demand for mobile satellite services.  Demand for mobile satellite services may not grow, or may even shrink, either generally or in particular geographic markets, for particular types of services, or during particular time periods.  A lack of demand could impair its ability to sell its products and services, develop and successfully market new products and services, and/or could exert downward pressure on prices.  Any such decline would decrease its revenues and profitability and negatively affect its ability to generate cash for investments and other working capital needs.

 

The success of Iridium Holdings’ business plan will also depend on a number of other factors, including:

 

·	its ability to maintain the health, capacity and control of its existing satellite network;

 

·	its ability to contract for the design, construction, delivery and launch of its second-generation satellite constellation (Iridium NEXT) and, once launched, its ability to maintain the health, capacity and control of the satellite constellation;

 

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

 

·	its ability to introduce innovative new products and services that satisfy market demand;

 

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

 

·	its ability to maintain its relationship with U.S. government customers, particularly the Department of Defense (“DoD”);

 

·	the ability of Iridium Holdings’ distributors to market and distribute its products and services effectively and their continued development of innovative and improved solutions and applications integrating its product and service offerings;

 

·	the effectiveness of Iridium Holdings’ competitors in developing and offering similar services and products; and

 

·	its ability to maintain competitive prices for Iridium Holdings’ products and service offerings and control costs.

 

Iridium Holdings may be negatively affected by current global economic conditions and the related tightening of the credit markets.

 

Iridium Holdings’ operations and performance depend significantly on worldwide economic conditions.  Uncertainty about current global economic conditions poses a risk as individual consumers, businesses and

 

 

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governments may postpone spending in response to tighter credit, negative financial news, declines in income or asset values and/or budgetary constraints. Reduced demand for its products and services would adversely affect its business, financial condition and results of operations. While Iridium Holdings expects to continue to increase its number of subscribers and revenues, it expects its future growth rate will be slower than its historical growth. Iridium Holdings expects its future growth rate will be impacted by the current economic slowdown, increased competition, increasing subscribers deactivations, maturation of the satellite communications industry and the difficulty in sustaining high growth rates as Iridium Holdings increases in size. The recent appreciation of the U.S. dollar may also negatively impact its growth by increasing the cost of its products and services in foreign countries. Iridium Holdings also expects its subscriber equipment revenue to decrease in the future as it introduces lower priced units in order to drive an increase in its service revenues and due to an anticipated decrease in unit sales as a result of increased competition and the continued maturation of the market.

 

The recent global economic crisis and related tightening of credit markets has also made it more difficult and expensive to raise capital. Iridium Holdings’ ability to obtain additional capital to finance Iridium NEXT and other capital requirements may be adversely impacted by the continuation of these market conditions. If Iridium Holdings is unable to access additional capital on acceptable terms or at all, it may not be able to fully implement its business strategy which would limit the development of its business and its future growth.

 

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

 

Since Iridium Holdings reintroduced commercial services in 2001, six of its satellites have failed in orbit which have resulted in either the complete loss of the affected satellites or the loss of the ability of the satellite to carry traffic on the network, and one satellite was lost as a result of a collision with a non-operational Russian satellite.  In the future, additional satellites may fail or collide with space debris or other satellites.  In-orbit failure may result from various causes, including component failure, loss of power or fuel, inability to control positioning of the satellite, solar or other astronomical events, including solar radiation and flares, and space debris.  Other factors that could affect the useful lives of its satellites include the quality of construction, gradual degradation of solar panels and the durability of components.  Radiation induced failure of satellite components may result in damage to or loss of a satellite before the end of its expected life.  As a result, fewer than 66 of its in-orbit satellites may be fully functioning at any time.  As Iridium Holdings’ constellation has aged, some of its satellites have experienced individual component failures affecting their coverage and/or transmission capacity and other satellites may experience such failures in the future, adversely affecting the reliability of its service, which could adversely affect its results of operations, cash flow and financial condition.  Although Iridium Holdings does not incur any direct cash costs related to the failure of a satellite, if a satellite fails, Iridium Holdings records an impairment charge reflecting its net book value.

 

Iridium Holdings has categorized three types of anomalies among the satellites in its constellation that, if they materialize throughout the satellite constellation, have the potential for a significant operational impact. These include: (i) a non-recoverable anomalous short circuit in a satellite’s Integrated Bus Electronics (“IBE”); (ii) excessive power subsystem degradation resulting from satellite battery wear-out or excessive loss of solar array power output and (iii) failures to critical payload electronic parts arising from accumulated radiation total dose.

 

Iridium Holdings experienced its first satellite failure in July 2003.  This failure has been attributed to a non-recoverable anomalous short circuit in the satellite’s IBE.  Two additional satellites failed as a result of this anomaly in August 2005 and December 2006.  In part, as a response to this anomaly, Iridium Holdings has implemented several procedures across its constellation to attempt to mitigate the severity of a similar anomaly in the future and/or prevent it from resulting in mission-critical failures of its other satellites.  These procedures include reducing the peak operating temperature of the IBE during portions of the solar season, as well as modifying the on-board software of its satellites to immediately carry out certain autonomous actions upon detecting future occurrences of this type of anomaly. However, there can be no assurance such procedures will be effective.

 

Iridium Holdings has experienced three additional satellite failures unrelated to IBE short circuits.  In April 2005, one of its satellites failed as a result of a radiation-induced single event upset anomaly, which corrupted the satellite’s on-board time reference.  Accurate time reference is critical to determine a satellite’s ephemeris (its orbital location with respect to the earth), attitude (its pointing direction) and the sun’s position.  In December 2005, Iridium Holdings was unable to remedy a failure in the crosslink digital reference oscillator of another of its satellites, resulting in the satellite’s failure.  Failure of the digital reference oscillator disables the affected satellite’s

 

 

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crosslinks and, thus, its ability to communicate with the rest of the satellite constellation.  More recently, in July 2008, another of Iridium Holdings’ satellites experienced an attitude control anomaly as a result of sudden loss of communications between its IBE and its primary space vehicle and routing computer.  The nature of this anomaly coupled with the software state of the vehicle at the time (resulting from an on-board software fault response to a prior anomaly) resulted in the inability of the on-board software to correct the computer communications anomaly and control of the satellite was lost.

 

Iridium Holdings has experienced one satellite to satellite collision. On February 10, 2009, Iridium Holdings lost an operational satellite (SV33) as a result of a collision with a non-operational Russian satellite (Cosmos 2251).  If Iridium Holdings’ constellation experiences additional satellite failures and/or collisions, its ability to operate its business may be impaired, which would have a material adverse effect on Iridium Holdings’ business.

 

Iridium Holdings has been occasionally advised by its customers and others of temporary intermittent losses of signal cutting off calls in progress, preventing completions of calls when made or disrupting the transmission of data.  If the magnitude or frequency of such problems increase, they could materially adversely affect its business and its ability to complete its business plan.

 

Iridium Holdings may be required in the future to make further changes to its constellation to maintain or improve its performance. Any such changes may require prior FCC approval.  In addition, from time to time Iridium Holdings may reposition its satellites within the constellation in order to optimize its service, which could result in degraded service during the repositioning period.  Although there are some remote tools Iridium Holdings uses to remedy certain types of problems affecting the performance of its satellites, the physical repair of its satellites in space is not feasible.

 

Additional Iridium Holdings’ satellites may collide with space debris or another spacecraft, which could adversely affect the performance of its constellation and business.

 

On February 10, 2009, Iridium Holdings lost an operational satellite (SV33) as a result of a collision with a non-operational Russian satellite (Cosmos 2251).  Although Iridium Holdings has some ability to actively maneuver its satellites to avoid potential collisions with space debris or other spacecraft, this ability is limited by, among other factors, insufficient and unreliable data to predict potential collisions and the inaccuracy of conjunction assessments.  If Iridium Holdings’ constellation experiences additional satellite collisions with space debris or other spacecrafts, its ability to operate its constellation may be impaired and its business may suffer.

 

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

 

The collision of an Iridium Holdings satellite with a non-operational Russian satellite increased the amount of space debris in the orbital altitude where the collision occurred, and thus increased the risk of space debris damaging or interfering with the operation of satellites owned by third parties, such as U.S. or foreign governments or agencies and other satellite operators. Although there are tools used by Iridium Holdings and providers of tracking services (such as the U.S. Joint Space Operations Center) to detect, track and identify space debris, Iridium Holdings may not be able to maneuver Iridium Holdings' satellites in a timely manner.  Any such collision could potentially expose Iridium Holdings to significant liability.

 

If Iridium Holdings experiences operational disruptions with respect to its commercial gateway or operations center, Iridium Holdings may not be able to provide service to its customers.

 

Iridium Holdings’ commercial satellite network traffic is supported by a primary ground station gateway in Tempe, Arizona.  In addition, Iridium Holdings operates its satellite constellation from its satellite network operations center in Leesburg, Virginia.  Currently, Iridium Holdings does not have a back-up facility that could adequately replace its Arizona gateway or immediately replace its Virginia operations center if either experienced catastrophic failure.  Both facilities are subject to the risk of significant malfunctions or catastrophic loss due to unanticipated events and would be difficult to replace or repair and could require substantial lead-time to do so. Material changes in the operation of these facilities may be subject to prior FCC approval.  Iridium Holdings may also in the future experience service shutdowns or periods of reduced service as a result of regulatory issues,

 

 

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equipment failure or delays in deliveries.  Any such failure would impede its ability to provide service to its customers.

 

If Iridium Holdings is unable to effectively develop and deploy its second-generation satellite constellation before its current satellite constellation ceases to provide continuity of service, Iridium Holdings’ business will suffer.

 

Iridium Holdings is currently developing its second-generation satellite constellation, Iridium NEXT, which Iridium Holdings expects to commence launching in 2014.  While Iridium Holdings expects its current constellation to provide continuity of service through 2014, Iridium Holdings cannot guarantee it will provide continuity of service through the transition period to Iridium NEXT.  If Iridium Holdings is unable, for any reason, including manufacturing or launch delays, launch failures, in-orbit satellite failures, delays in receiving regulatory approvals or insufficient funds, to deploy Iridium NEXT before its current constellation ceases to provide continuity of service or if Iridium Holdings experiences backward compatibility problems with its new constellation once deployed, Iridium Holdings likely will lose customers, and will incur a decline in revenues and profitability as its ability to provide continuity of services is impaired.

 

Iridium Holdings’ second-generation satellite constellation may not be completed on time, and the costs associated with it may be greater than expected.

 

Iridium Holdings may not complete Iridium NEXT on time, on budget or at all.  Design, manufacture and launch of satellite systems are highly complex and historically have been subject to delays and cost over-runs.  Development of Iridium NEXT may suffer from delays, interruptions or increased costs due to many factors, some of which may be beyond its control, including:

 

·	lower than anticipated demand for mobile satellite services resulting in market prices that significantly impact its profitability;

 

·	lower than expected secondary payload funding;

 

·	its inability to access capital to finance Iridium NEXT on acceptable terms or at all;

 

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

 

·	denial or delays in receipt of regulatory approvals, or non-compliance with conditions imposed by regulatory approvals;

 

·	the breakdown or failure of equipment or systems;

 

·	non-performance by third-party contractors, including the prime system contractor;

 

·	licensing costs for necessary technology;

 

·	launch delays or failures, or in-orbit satellite failures once launched;

 

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

 

·	increases in the costs of materials;

 

·	changes in project scope;

 

·	additional requirements imposed by changes in laws; or

 

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

 

While Iridium Holdings plans to fund the majority of the costs associated with Iridium NEXT from internally generated cash flows and secondary payload funding as well as proceeds from its proposed transaction with GHQ, Iridium Holdings will need to raise additional debt or equity to finance the rest of such costs, including

 

 

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any amounts arising from cost-overruns or if internally generated funds or secondary payloads fundings are less than anticipated. Such capital may not be available to Iridium Holdings on acceptable terms or at all.

 

If any of the above events occur, they could have a material adverse effect on Iridium Holdings’ ability to continue to develop Iridium NEXT, which would materially adversely affect its business, financial condition and results of operations.

 

Iridium Holdings may not be able to launch its second-generation satellites successfully.  Loss of any such satellites during launch could delay or impair its ability to offer its services, and launch insurance, to the extent available, will not fully cover this risk.

 

The launch of Iridium Holdings’ second-generation satellites could be subject to delays and risks relating to launch, including launch failure or incorrect orbital placement, impairing its ability to offer continuity of services.  Iridium Holdings may insure all or a portion of the launch of its second-generation satellites.  Launch insurance currently costs approximately 10% to 20% of the insured value of the satellites launched (including launch costs), but may vary depending on market conditions and the safety record of the launch vehicle.  In addition, Iridium Holdings expects any launch insurance policies that it obtains to include specified exclusions, deductibles and material change limitations.  Typically, these insurance policies exclude coverage for damage arising from acts of war, lasers, and other similar potential risks for which exclusions are customary in the industry.  If launch insurance rates were to rise substantially, Iridium Holdings’ future launch costs could increase.  It is also possible that insurance could become unavailable or prohibitively expensive, either generally or for a specific launch vehicle, or that new insurance could be subject to broader exclusions on coverage or limitations on losses, in which event Iridium Holdings would bear the risk of launch failures.  Even if a lost satellite is fully insured, acquiring a replacement satellite may be difficult and time consuming and could delay the deployment of Iridium NEXT.  Furthermore, launch insurance typically does not cover lost revenue.

 

Iridium Holdings may need additional capital to maintain its network, develop, manufacture and launch Iridium NEXT and pursue additional growth opportunities.  If Iridium Holdings fails to obtain sufficient capital, it will not be able to successfully implement its business plan.

 

Iridium Holdings’ business plan calls for the development of Iridium NEXT, the development of new product and service offerings, upgrades to its current services, hardware and software upgrades to maintain its ground infrastructure and upgrades to its business systems.  While Iridium Holdings believes internally generated cash flows, proceeds from debt and equity offerings as well as its proposed transaction with GHQ and secondary payload funding will be sufficient to enable Iridium Holdings to fund its capital requirements, it may not be able to due to increased costs, lower revenues or inability to access additional financing.  If Iridium Holdings does not have such funds, its ability to maintain its network, develop, manufacture and launch Iridium NEXT and pursue additional growth opportunities will be impaired, which would adversely affect its business, results of operations and financial condition.

 

Iridium Holdings may be unable to obtain and maintain in-orbit liability insurance, and the insurance Iridium Holdings obtains may not cover all liabilities to which Iridium Holdings may become subject.

 

Pursuant to Iridium Holdings’ and Iridium Satellite’s transition services, products and asset agreement with Motorola, and the agreement between Iridium Satellite, The Boeing Company (“Boeing”), Motorola and the U.S. government, Iridium Satellite is required to maintain an in-orbit liability insurance policy with a de-orbiting endorsement.  The current policy (together with the de-orbiting endorsement) covers amounts that Iridium Satellite and certain other named parties may become liable to pay for bodily injury and/or property damages to third parties related to processing, maintaining and operating its satellite constellation and, in the case of the de-orbiting endorsement, de-orbiting its satellite constellation.  The current policy has a one-year term, which expires December 12, 2009.  The price, terms and availability of insurance have fluctuated significantly since Iridium Holdings began offering commercial satellite services.  The cost of obtaining insurance can vary as a result of either satellite failures or general conditions in the insurance industry.  Higher premiums on insurance policies would increase its costs.  In-orbit liability insurance policies on satellites may not continue to be available on commercially reasonable terms or at all.  In addition to higher premiums, insurance policies may provide for higher deductibles, shorter coverage periods and additional policy exclusions.  Iridium Holdings’ failure to renew its current in-orbit liability insurance policy or obtain a replacement policy would trigger certain de-orbit rights held by the U.S. government, Motorola and Boeing, adversely affecting its ability to provide continuity of services.  See “The U.S. government,

 

 

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Motorola and Boeing may unilaterally require Iridium Holdings to de-orbit its constellation upon the occurrence of certain events” below for more information.  In addition, even if Iridium Satellite continues to maintain any in-orbit liability insurance policy this insurance coverage may not protect it against all third-party losses, materially and adversely affecting its financial condition and results of operations if any such third-party losses were to occur.

 

Iridium Satellites’ current in-orbit liability insurance policies contain, and any future policies are expected to contain, specified exclusions and material change limitations customary in the industry.  These exclusions may relate to, among other things, losses resulting from acts of war, insurrection, terrorism or military action, government confiscation, strikes, riots, civil commotions, labor disturbances, sabotage, unauthorized use of the satellites and nuclear or radioactive contamination, as well as claims directly or indirectly occasioned as a result of noise, pollution, electrical and electromagnetic interference and interference with the use of property.

 

In addition to Iridium Satellites’ in-orbit liability insurance policy, Motorola maintains product liability insurance to cover its potential liability as manufacturer of the satellites.  Motorola may not in the future be able to renew its product liability coverage on reasonable terms and conditions, or at all.  Any failure to maintain such insurance could expose Iridium Holdings to third-party damages that may be caused by any of its satellites.

 

Iridium Holdings does not maintain in-orbit insurance covering losses from satellite failures or other operational problems affecting its constellation.

 

Iridium Holdings does not maintain in-orbit insurance covering losses that might arise as a result of a satellite failure or other operational problems affecting its constellation.  As a result, a failure of one or more if Iridium Holdings’ satellites or the occurrence of equipment failures and other related problems would constitute an uninsured loss and could have a material adverse effect on its financial condition and results of operations.

 

Iridium Holdings could lose market share and revenues as a result of increasing competition from companies in the wireless communications industry, including cellular and other satellite operators, and from the extension of land-based communication services.

 

Iridium Holdings faces intense competition in all of its markets, which could result in a loss of customers and lower revenues and make it more difficult for Iridium Holdings to enter new markets.  Iridium Holdings competes primarily on the basis of coverage, quality, portability and pricing of services and products.

 

There are currently seven other satellite operators providing services similar to Iridium Holdings’ on a global or regional basis: Inmarsat plc. (“Inmarsat”), Globalstar, Inc. (“Globalstar”), ORBCOMM Inc. (“Orbcomm”), Mobile Satellite Ventures, Mobile Satellite Ventures Canada, Thuraya Satellite Telecommunications Company (“Thuraya”) and Asia Cellular Satellites.  In addition, several regional mobile satellite services companies, including ICO Global Communication (Holdings) Limited (“ICO”), TerreStar Networks, Inc. (“TerreStar”) and Mobile Satellite Ventures are attempting to exploit their spectrum positions into a U.S. consumer mobile satellite services business.  The provision of satellite-based services and products is subject to downward price pressure when capacity exceeds demand or as a result of irrational pricing behavior by certain operators under financial pressure to expand their respective market share.  Certain satellite operators, for example, subsidize the prices of their products, such as satellite handsets.  In addition, Iridium Holdings may face competition from new competitors or new technologies, which may materially adversely affect its business plan.  For example, Iridium Holdings may face competition for its land-based services in the United States from incipient Ancillary Terrestrial Component (“ATC”) service providers who are currently raising capital and designing a satellite operating business and a terrestrial component around their spectrum holdings.  As a result of competition, Iridium Holdings may not be able to successfully retain its existing customers and attract new customers.

 

In addition to its satellite-based competitors, terrestrial voice and data service providers, both wireline and wireless, are expanding into rural and remote areas and providing the same general types of services and products that Iridium Holdings provides through its satellite-based system.  Although satellite communications services and terrestrial communications services are not perfect substitutes, the two compete in certain markets and for certain services.  Consumers generally perceive terrestrial wireless voice communication products and services as cheaper and more convenient than satellite-based ones.  Many of its terrestrial competitors have greater resources, wider name recognition and newer technologies than Iridium Holdings does.  In addition, industry consolidation could adversely affect Iridium Holdings by increasing the scale or scope of its competitors and thereby making it more difficult for Iridium Holdings to compete.

 

 

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Use by Iridium Holdings’ competitors of L-band spectrum for terrestrial services could interfere with its services.

 

In February 2003, the Federal Communication Commission, or FCC, adopted rules that permit satellite service providers to establish ATC networks.  ATC frequencies are designated in previously satellite-only bands at 1.5 GHz, 1.6 GHz, 2 GHz and 2.5 GHz.  The implementation of ATC services by satellite service providers in the United States or other countries may result in increased competition for the right to use L-band spectrum, which Iridium Holdings uses to provide its services, and such competition may make it difficult for Iridium Holdings to obtain or retain the spectrum resources Iridium Holdings requires for its existing and future services.  In addition, the FCC’s decision to permit ATC services was based on certain assumptions, particularly relating to the level of interference that the provision of ATC services would likely cause to other satellite service providers, which use the L-band spectrum.  If the FCC’s assumptions prove inaccurate, or the level of ATC services provided exceeds those estimated by the FCC, ATC services could interfere with its satellites and devices, which may adversely impact its services.  Outside the United States, other countries are actively considering implementing regulations to facilitate ATC services.

 

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

 

Much of the hardware and software utilized in operating Iridium Holdings’ gateway was designed and manufactured over ten years ago and portions are becoming obsolete.  As they continue to age, they may become less reliable and will be more difficult and expensive to service, upgrade or replace.  Although Iridium Holdings maintains inventories of certain spare parts, it nonetheless may be difficult or impossible to obtain all necessary replacement parts for the hardware.  Its business plan contemplates updating or replacing certain hardware and software in its network, but Iridium Holdings may not be successful in these efforts, and the cost may exceed its estimates.  Iridium Holdings may face competition in the future from companies using new technologies and new satellite systems.  The space and communications industries are subject to rapid advances and innovations in technology.  New technology could render its system obsolete or less competitive by satisfying customer demand in more attractive ways or through the introduction of incompatible standards.  Particular technological developments that could adversely affect Iridium Holdings include the deployment by its competitors of new satellites with greater power, greater flexibility, greater efficiency or greater capabilities, as well as continuing improvements in terrestrial wireless technologies.  For Iridium Holdings to keep up with technological changes and remain competitive, it may need to make significant capital expenditures.  Customer acceptance of the services and products that Iridium Holdings offers will continually be affected by technology-based differences in its product and service offerings.  New technologies may be protected by patents or other intellectual property laws and therefore may not be available to Iridium Holdings.

 

Sales to U.S. government customers, particularly the DoD, represent a significant portion of Iridium Holdings’ revenues.

 

The U.S. government, through a dedicated gateway owned and operated by the DoD, has been and continues to be Iridium Holdings’ largest customer, representing 21.1% and 24.4% of Iridium Holdings’ revenues for the year ended December 31, 2008 and the three months ended March 31, 2009, respectively.  Iridium Holdings provides the majority of its products and services to the U.S. government pursuant to two one-year agreements, both of which are renewable for three additional one-year terms.  The U.S. government may terminate these agreements, in whole or in part, at any time.  If the U.S. government terminates its agreements with Iridium Holdings or fails to renew such agreements, Iridium Holdings’ business, results of operations and financial condition could be materially and adversely affected.

 

In addition, Iridium Holdings’ relationship with the U.S. government is subject to the overall U.S. government budget and appropriation decisions and processes.  U.S. government budget decisions, including with respect to defense spending, are based on changing government priorities and objectives, which are driven by numerous factors, including geopolitical events and macroeconomic conditions, and are beyond Iridium Holdings’ control.  Significant changes to U.S. defense spending, including as a result of the resolution of the conflicts in Iraq and Afghanistan, could negatively impact Iridium Holdings’ business, results of operations and financial condition.

 

 

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Iridium Holdings is dependent on third parties to market and sell its products and services.

 

Iridium Holdings relies on third-party distributors to market and sell its products and services to end-users and to determine the prices end-users pay.  Iridium Holdings also depends on its distributors to develop innovative and improved solutions and applications integrating its product and service offerings.  As a result of these arrangements, Iridium Holdings is dependent on the performance of its distributors to generate substantially all of its revenues.  Its distributors operate independently of Iridium Holdings, and Iridium Holdings has limited control over their operations, which exposes Iridium Holdings to significant risks.  Distributors may not commit the necessary resources to market and sell Iridium Holdings’ products and services and may also market and sell competitive products and services.  In addition, its distributors may not comply with the laws and regulatory requirements in their local jurisdictions, which may limit their ability to market or sell Iridium Holdings’ products and services.  If current or future distributors do not perform adequately, or if Iridium Holdings is unable to locate competent distributors in particular countries and secure their services on favorable terms, or at all, Iridium Holdings may be unable to increase or maintain its revenues in these markets or enter new markets, and Iridium Holdings may not realize its expected growth, adversely affecting its profitability, liquidity and brand image.

 

In addition, Iridium Holdings may lose distributors due to competition, consolidation, regulatory developments, business developments affecting its partners or their customers, or for other reasons.  Any future consolidation of its distributors such as the acquisition of Stratos Global Corporation by Inmarsat, also increases its reliance on a few key distributors of its services and the amount of volume discounts that Iridium Holdings may have to give such distributors.  Iridium Holdings’ top ten distributors for the year ended December 31, 2008 and the three months ended March 31, 2009, accounted for, in the aggregate, approximately 52.0% and 46.0% of its total revenues of $320.9 million and $75.8 million, respectively.  The loss of any of these distributors could reduce the distribution of Iridium Holdings’ products and services as well the development of new product solutions and applications.

 

Iridium Holdings relies on a limited number of key vendors for timely supply of equipment and services.

 

Celestica Corporation (“Celestica”) is the manufacturer of all Iridium Holdings’ current and next generation devices, including its mobile handsets, L-Band transceivers and short burst data modems. Celestica may choose to terminate its business relationship with Iridium Holdings when its current contractual obligations are completed in January 1, 2010.  If Celestica terminates this relationship, Iridium Holdings may not be able to find a replacement supplier.  In addition, as its sole supplier, Iridium Holdings is very dependent on Celestica’s performance.  If Celestica has difficulty manufacturing or obtaining the necessary parts or material to manufacture Iridium Holdings’ products, its business would be materially affected.  Although Iridium Holdings may replace Celestica with another supplier, there could be a substantial period of time in which its products are not available and any new relationship may involve a significantly different cost structure, development schedule and delivery times.

 

In addition, Iridium Holdings depends on Boeing to provide operations and maintenance services with respect to its satellite network (including engineering, systems analysis and operations and maintenance services) from its technical support center in Chandler, Arizona and its satellite network operations center in Leesburg, Virginia.  Boeing provides these services pursuant to a long-term agreement that is concurrent with the expected useful life of its constellation.  Technological competence is critical to Iridium Holdings’ business and depends, to a significant degree, on the work of technically skilled employees, such as its Boeing contractors.  If Boeing’s performance falls below expected levels or if Boeing has difficulties retaining the employees or contractors servicing Iridium Holdings’ network, Iridium Holdings’ business would be materially affected.  In addition, if Boeing terminates its agreement with Iridium Holdings, Iridium Holdings may not be able to find a replacement provider on favorable terms or at all, which could materially and adversely affect the operations and performance of its network.  Boeing’s replacement as the operator of its satellite system could also trigger certain de-orbit rights held by the U.S. government, adversely affecting Iridium Holdings’ ability to offer continuity of services.  See “—The U.S. government, Motorola and Boeing may unilaterally require Iridium Holdings to de-orbit its constellation upon the occurrence of certain events” below for more information.

 

Iridium Holdings is dependent on intellectual property licensed from third parties.

 

Iridium Holdings licenses substantially all system technology, including software and systems to operate and maintain its network as well as technical information for the design and manufacture of its devices, from

 

 

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Motorola. Iridium Holdings maintains its licenses with Motorola pursuant to several long-term agreements. Iridium Holdings also licenses additional system technology from several other third parties.  If Motorola or any such third party were to cease to support and service this technology, or if Iridium Holdings is unable to renew such licenses on commercially reasonable terms or at all, it may be difficult, more expensive or impossible to obtain such services from alternative vendors.  Any substitute technology may also have lower quality or performance standards, which would adversely affect the quality of its products and services.

 

Iridium Holdings has been and may in the future become subject to claims that its products violate the patent or intellectual property rights of others, which could be costly and disruptive to Iridium Holdings.

 

Iridium Holdings operates in an industry that is susceptible to significant intellectual property litigation.  As a result, Iridium Holdings or its products may become subject to intellectual property infringement claims or litigation.  The defense of intellectual property suits, are both costly and time consuming and may divert management’s attention from other business concerns.  An adverse determination in litigation to which Iridium Holdings may become a party could, among other things:

 

·	subject Iridium Holdings to significant liabilities to third parties, including treble damages;

 

·	require disputed rights to be licensed from a third party for royalties that may be substantial;

 

·	require Iridium Holdings to cease using such technology; or

 

·	prohibit Iridium Holdings from selling certain of its products.

 

Any of these outcomes could have a material adverse effect on Iridium Holdings’ business, financial condition and results of operations.

 

Conducting and expanding its operations outside the United States involves special challenges that Iridium Holdings may not be able to meet and may adversely affect its business.

 

International revenues account for a significant proportion of Iridium Holdings’ total revenues, representing 51.4% of its total revenues for the year ended December 31, 2008 and 50.0% of its total revenues for the three months ended March 31, 2009.  Its major international markets include Canada and France.  Iridium Holdings is also focusing on opportunities in China, Russia, Mexico and India.  International operations and any foreign business expansion Iridium Holdings may undertake include numerous risks, including:

 

·	difficulties in penetrating new markets due to established and entrenched competitors;

 

·	difficulties in developing products and services that are tailored to the needs of local customers;

 

·	lack of local acceptance or knowledge of its products and services;

 

·	lack of recognition of its products and services;

 

·	unavailability of or difficulties in establishing relationships with distributors;

 

·	significant investments, including the development and deployment of dedicated gateways;

 

·	instability of international economies and governments;

 

·	changes in laws and policies affecting trade and investment in other jurisdictions;

 

·	exposure to varying legal standards, including intellectual property protection and foreign state ownership laws, in other jurisdictions;

 

·	difficulties in obtaining required regulatory authorizations;

 

·	difficulties in enforcing legal rights in other jurisdictions;

 

 

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·	changing and conflicting national and local regulatory requirements; and

 

·	foreign currency exchange rates and exchange controls.

 

These risks could affect Iridium Holdings’ ability to successfully compete and expand internationally, which may adversely affect its business.

 

The prices for all of its products and services are denominated in U.S. dollars.  Any appreciation of the U.S. dollar against other currencies will increase the cost of its products and services to its international customers and, as a result, may reduce the competitiveness of its international offerings and its international growth.

 

Iridium Holdings currently is unable to offer service in important regions of the world due to the absence of gateways in those areas, which is limiting its growth and its ability to compete.

 

Iridium Holdings’ ability to provide service in certain regions is limited by local regulations as certain countries, such as China, Russia and India, require physical gateways within their jurisdiction to connect traffic coming to and from their territory.  While Iridium Holdings is currently in discussions with parties in such countries to build or purchase additional gateways for integration into its network, Iridium Holdings may not be able to reach an agreement to develop such additional gateways or the cost of developing and deploying such gateways may be prohibitive, which could impair its ability to expand its product and service offerings in such areas and undermine its value for potential users who require service in these areas.

 

The U.S. government, Motorola and Boeing may unilaterally require Iridium Holdings to de-orbit its constellation upon the occurrence of certain events.

 

Pursuant to an agreement between Iridium Satellite, Boeing, Motorola and the U.S. government, the U.S. government obtained the right to, in its sole discretion, require Iridium Satellite to de-orbit the Iridium Holdings’ constellation upon the occurrence of any of the following with respect to Iridium Satellite LLC (“Iridium Satellite”): (a) its failure to pay certain insurance premiums or maintain insurance; (b) its bankruptcy; (c) its sale or the sale of any major asset in Iridium Holdings’ satellite system; (d) Boeing’s replacement as the operator of its satellite system; (e) its failure to provide certain notices as contemplated by the agreement; or (g) at any time after June 5, 2009, unless extended by the U.S. government. The U.S. government also has the right to require Iridium Holdings to de-orbit any of its individual functioning satellites (including in-orbit spares) that have been in orbit for more than seven years, unless the U.S. government grants a postponement.  As of May 28, 2009, all but two of Iridium Holdings’ functioning satellites have been on orbit for more than seven years.  Iridium Holdings is currently in discussions with the U.S. government to extend or remove the 2009 deadline.

 

Motorola also has the right to de-orbit the Iridium Holdings constellation pursuant to its transition services, products and asset agreement with Iridium Holdings and Iridium Satellite and pursuant to the operations and maintenance agreement between Iridium Constellation LLC (“Iridium Constellation”) and Boeing.  Under these agreements, Motorola may require the de-orbit of the Iridium Holdings constellation upon the occurrence of any of the following: (a) Iridium Holdings bankruptcy or the bankruptcy of Iridium Constellation or Iridium Satellite; (b) Iridium Satellite’s breach of the transition services, products and asset agreement; (c) Boeing’s breach of its operations and maintenance agreement and other related agreements with Iridium Constellation or its affiliates; (d) an order from the U.S. government requiring the de-orbiting of Iridium Holdings’ satellites; (e) Motorola’s determination that changes in law or regulation that may require it to incur certain costs relating to the operation, maintenance, re-orbiting or de-orbiting of Iridium Holdings’ constellation; or (f) Motorola’s failure to obtain on commercially reasonable terms, product liability insurance to cover its position as manufacturer of the satellites, provided the U.S. government has not agreed to cover what would have otherwise been paid by such policy.

 

Pursuant to Iridium Constellation’s operations and maintenance agreement with Boeing, Boeing similarly has the unilateral right to de-orbit of its constellation upon the occurrence of any of the following events: (a) Iridium Constellation’s or Iridium Satellite’s bankruptcy; (b) the existence of reasonable grounds for Boeing to question the financial stability of Iridium Constellation; (c) Iridium Constellation’s failure to maintain certain insurance policies; (d) Iridium Constellation’s failure to provide Boeing certain quarterly financial statements; (e) Iridium Constellation’s breach of the operations and maintenance agreement, including its payment obligation thereunder; or

 

 

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(f) changes in law or regulation that may increase the risks or costs associated with the operation and/or re-orbit process or the cost of operation and/or re-orbit of the constellation.

 

Iridium Holdings cannot guarantee that the U.S. government, Motorola and/or Boeing will not unilaterally exercise such de-orbiting rights upon the occurrence of any of the above events.  A decision by any of the U.S. government, Motorola or Boeing to de-orbit Iridium Holdings’ constellation would affect its ability to provide continuity of services, materially and adversely affecting its business, prospects and profitability.

 

Wireless devices may pose health and safety risks and, as a result, Iridium Holdings may be subject to new regulations, demand for its services may decrease and Iridium Holdings could face liability based on alleged health risks.

 

There has been adverse publicity concerning alleged health risks associated with radio frequency transmissions from portable hand-held telephones that have transmitting antennae.  Lawsuits have been filed against participants in the wireless industry alleging various adverse health consequences, including cancer, as a result of wireless phone usage.  The U.S. Supreme Court recently declined to review a lower federal court’s decision remanding for trial in state courts several cases alleging such injuries.  Although Iridium Holdings has not been party to any such lawsuits, Iridium Holdings may be exposed to such litigation in the future.  While Iridium Holdings complies with applicable standards for radio frequency emissions and power and does not believe that there is valid scientific evidence that use of its phones poses a health risk, courts or governmental agencies could find otherwise.  Any such finding could reduce its revenues and profitability and expose Iridium Holdings and other wireless providers to litigation, which, even if not successful, could be costly to defend.

 

If consumers’ health concerns over radio frequency emissions increase, they may be discouraged from using wireless handsets.  Further, government authorities might increase regulation of wireless handsets as a result of these health concerns.  The actual or perceived risk of radio frequency emissions could reduce the number of Iridium Holdings’ subscribers and demand for its products and services.

 

Iridium Holdings’ business is subject to extensive government regulation, which mandates how Iridium Holdings may operate its business and may increase its cost of providing services, slow its expansion into new markets and subject its services to additional competitive pressures or regulatory requirements.

 

Iridium Holdings’ ownership and operation of a satellite communication system is subject to significant regulation in the United States by the FCC and in foreign jurisdictions by similar local authorities.  The rules and regulations of the FCC or these foreign authorities may change and not continue to permit Iridium Holdings’ operations as presently conducted or as Iridium Holdings plans to conduct such operations.  Failure to provide services in accordance with the terms of its licenses or failure to operate its satellites or ground stations as required by its licenses and applicable laws and government regulations could result in the imposition of government sanctions on Iridium Holdings, up to and including cancellation of its licenses.

 

Iridium Holdings’ system must be authorized in each of the markets in which it provides its services.  Iridium Holdings may not be able to obtain or retain all regulatory approvals needed for its operations.  Regulatory changes, such as those resulting from judicial decisions or adoption of treaties, legislation or regulation in countries where Iridium Holdings operates or intends to operate, including the United States, may also significantly affect its business.  Because regulations in each country are different, Iridium Holdings may not be aware if some of its distribution partners and/or persons with which Iridium Holdings or they do business do not hold the requisite licenses and approvals.

 

Iridium Holdings’ current regulatory approvals could now be, or could become, insufficient in the view of domestic or foreign regulatory authorities, any additional necessary approvals may not be granted on a timely basis, or at all, in all jurisdictions in which Iridium Holdings wishes to offer services, and applicable restrictions in those jurisdictions could become unduly burdensome.

 

Iridium Holdings’ operations are subject to certain regulations of the United States State Department’s Office of Defense Trade Controls (i.e., the export of satellites and related technical data), United States Treasury Department’s Office of Foreign Assets Control (i.e., financial transactions) and the United States Commerce Department’s Bureau of Industry and Security (i.e., its gateway and phones).  Iridium Holdings is also required to provide certain U.S. and foreign government law enforcement and security agencies with call interception services.  

 

 

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These regulations may limit or delay Iridium Holdings’ ability to operate in a particular country.  As new laws and regulations are issued, Iridium Holdings may be required to modify its business plans or operations.  If Iridium Holdings fails to comply with these regulations in the United States or any other country, Iridium Holdings could be subject to sanctions that could affect, materially and adversely, its ability to operate in the United States or such other country.  Imposition of sanctions, losses of licenses and failure to obtain the authorizations necessary to use its assigned radio frequency spectrum and to distribute its products in certain countries could have a material adverse effect on Iridium Holdings’ ability to generate revenue and on its overall competitive position.

 

Pursuing strategic transactions may cause Iridium Holdings to incur additional risks.

 

Iridium Holdings may pursue acquisitions, joint ventures or other strategic transactions on an opportunistic basis, although no such transactions that would be financially significant to Iridium Holdings are probable at this time.  Iridium Holdings may face costs and risks arising from any such transactions, including integrating a new business into its business or managing a joint venture.  These may include legal, organizational, financial, loss of key customers and distributors, diversion of management’s time, and other costs and risks.

 

In addition, if Iridium Holdings were to choose to engage in any major business combination or similar strategic transaction, Iridium Holdings may require significant external financing in connection with the transaction.  Depending on market conditions, investor perceptions of Iridium Holdings and other factors, Iridium Holdings may not be able to obtain capital on acceptable terms, in acceptable amounts or at appropriate times to implement any such transaction.  Any such financing, if obtained, may further dilute existing stockholders.

 

Iridium Holdings indebtedness could impair its ability to react to changes in its business and may limit its ability to use debt to fund future capital needs.

 

As of March 31, 2009, Iridium Holdings had $169.1 million of indebtedness.  Its indebtedness could adversely affect its financial condition by, among others:

 

·	requiring Iridium Holdings to dedicate a substantial portion of its cash flow from operations to principal and interest payments on its debt, thereby reducing the availability of its cash flow to fund working capital, capital expenditures and other general corporate expenditures;

 

·	resulting in an event of default if Iridium Holdings fails to comply with the restrictive covenants contained in its credit agreements, which event of default could result in all of its debt becoming immediately due and payable;

 

·

increasing its vulnerability to adverse general economic or industry conditions because its debt could mature at a time when those conditions make it difficult to refinance and its cash flow is insufficient to repay the debt in full, forcing Iridium Holdings to sell assets at disadvantageous prices or to default on the debt, and because a decline in its profitability could cause Iridium Holdings to be unable to comply with the forward fixed charge coverage ratio in its credit agreement, resulting in a default on, and acceleration of, its debt;

 

·	limiting its flexibility in planning for, or reacting to, competition and/or changes in its business or its industry by limiting its ability to incur additional debt, to make acquisitions and divestitures or to engage in transactions that could be beneficial to Iridium Holdings;

 

·	restricting Iridium Holdings from making strategic acquisitions, introducing new products or services or exploiting business opportunities; and

 

·	placing Iridium Holdings at a competitive disadvantage relative to competitors that have less debt or greater financial resources.

 

Furthermore, if an event of default were to occur with respect to its credit agreements or other indebtedness, its creditors could accelerate the maturity of its indebtedness.  Iridium Holdings’ indebtedness under these credit agreements is secured by a lien on substantially all of its assets and the lenders could foreclose on these assets to repay the indebtedness.

 

 

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Iridium Holdings’ ability to make scheduled payments on or to refinance indebtedness obligations depends on its financial condition and operating performance, which are subject to prevailing economic and competitive conditions and to certain financial, business and other factors beyond its control.  Iridium Holdings may not be able to maintain a level of cash flows from operating activities sufficient to permit Iridium Holdings to pay the principal, premium, if any, and interest on its indebtedness.  If its cash flows and capital resources are insufficient to fund its debt service obligations, Iridium Holdings could face substantial liquidity problems and could be forced to sell assets, seek additional capital or seek to restructure or refinance its indebtedness.  These alternative measures may not be successful or feasible.  Its credit agreements restrict its ability to sell assets.  Even if Iridium Holdings could consummate those sales, the proceeds that Iridium Holdings realizes from them may not be adequate to meet any debt service obligations then due.

 

In October 2008, Iridium Holdings prepaid $22 million of indebtedness under its first lien credit facility.  In addition, Iridium Holdings has agreed to prepay another $80.0 million of the outstanding balance of its first lien credit facility at the closing of this transaction ($15.0 million if stockholder approval is not obtained by June 29, 2009 or, if stockholder approval is obtained by June 29, 2009, the transaction is not consummated by September 30, 2009).  Following these mandatory prepayments, approximately $55.0 million of indebtedness will be outstanding and all or a portion of this amount may be prepaid out of the trust proceeds.

 

Iridium Holdings may be able to incur additional indebtedness or other obligations in the future, which would exacerbate the risks discussed above.

 

While Iridium Holdings’ credit agreements limit its ability to incur additional debt, Iridium Holdings may still incur significant amounts of debt and other obligations.  For example, Iridium Holdings may need to incur a significant amount of debt to finance the development of Iridium NEXT.  To the extent additional debt or other obligations are added to its current debt levels, the substantial indebtedness risks described above would increase.

 

Restrictive covenants in Iridium Holdings’ credit agreements impose restrictions that may limit its operating and financial flexibility.

 

Iridium Holdings’ first and second lien credit agreements contain a number of significant restrictions and covenants that limit its ability to, among other things:

 

·	incur or guarantee additional indebtedness;

 

·	pay dividends or make distributions to its unitholders;

 

·	make investments, acquisitions or capital expenditures;

 

·	grant liens on its assets;

 

·	enter into transactions with its affiliates;

 

·	merge or consolidate with other entities or transfer all or substantially all of its assets; and

 

●	transfer or sell assets.

 

In addition, Iridium Holdings must maintain compliance with specified financial covenants.  Complying with these restrictive covenants, as well as those that may be contained in any agreements governing future indebtedness, may impair Iridium Holdings’ ability to finance its operations or capital needs or to take advantage of other favorable business opportunities. Iridium Holdings’ ability to comply with these restrictive covenants will depend on its future performance, which may be affected by events beyond its control. If Iridium Holdings violates any of these covenants and is unable to obtain waivers, Iridium Holdings would be in default under the agreement and payment of the indebtedness could be accelerated. The acceleration of its indebtedness under one agreement may permit acceleration of indebtedness under other agreements that contain cross-default or cross-acceleration provisions. If its indebtedness is accelerated, Iridium Holdings may not be able to repay its indebtedness or borrow sufficient funds to refinance it. Even if Iridium Holdings is able to obtain new financing, it may not be on commercially reasonable terms or on terms that are acceptable to Iridium Holdings. If its indebtedness is in default for any reason, its business, financial condition and results of operations could be materially and adversely affected.

 

 

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In addition, complying with these covenants may also cause Iridium Holdings to take actions that are not favorable to holders of the common stock and may make it more difficult for Iridium Holdings to successfully execute its business plan and compete against companies who are not subject to such restrictions.

 

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

 

Iridium Holdings’ business plan is evolving and it may in the future include forming strategic partnerships to maximize value for its spectrum, network assets and combined service offerings in the United States and internationally. Values that Iridium Holdings may be able to realize from such partnerships will depend in part on the value ascribed to its spectrum. Valuations of spectrum in other frequency bands historically have been volatile, and Iridium Holdings cannot predict at what amount a future partner may be willing to value its spectrum and other assets. In addition, to the extent that the FCC takes action that makes additional spectrum available or promotes the more flexible use or greater availability (e.g., via spectrum leasing or new spectrum sales) of existing satellite or terrestrial spectrum allocations, the availability of such additional spectrum could reduce the value of its spectrum authorizations and the value of Iridium Holdings’ business and the price of its common stock.

 

Iridium Holdings’ ability to operate its company effectively could be impaired if Iridium Holdings loses members of its senior management team or technical personnel.

 

Iridium Holdings depends on the continued service of key managerial and technical personnel, as well as its ability to continue to attract and retain highly qualified personnel.  Iridium Holdings competes for such personnel with other companies, academic institutions, government entities and other organizations.  In addition, after the proposed acquisition, few of Iridium Holdings’ employees will have equity interests in GHQ.  Any loss or interruption of the services of its key personnel could significantly reduce its ability to effectively manage its operations and meet its strategic objectives, because Iridium Holdings may be unable to find an appropriate replacement, if necessary.

 

If Iridium Holdings becomes subject to unanticipated foreign tax liabilities, it could materially increase its costs.

 

Iridium Holdings operates in various foreign tax jurisdictions. Iridium Holdings believes that it has complied in all material respects with its obligations to pay taxes in these jurisdictions. However, its position is subject to review and possible challenge by the taxing authorities of these jurisdictions. If the applicable taxing authorities were to challenge successfully Iridium Holdings’ current tax positions, or if there were changes in the manner in which Iridium Holdings conducts its activities, Iridium Holdings could become subject to material unanticipated tax liabilities. Iridium Holdings may also become subject to additional tax liabilities as a result of changes in tax laws, which could in certain circumstances have retroactive effect.

 

Risks Associated with the Proposed Acquisition

 

If the acquisition’s benefits do not meet the expectations of the marketplace, investors, financial analysts or industry analysts, the market price of our securities may decline.

 

The market price of our common stock may decline as a result of the acquisition if “Iridium Communications Inc.” (the post-acquisition entity) does not perform as expected or if we do not otherwise achieve the perceived benefits of the acquisition as rapidly as, or to the extent anticipated by, the marketplace, investors, financial analysts or industry analysts.  If such a decline in our stock price occurs, investors may experience a loss and we may not be able to raise future capital, if necessary, in the equity markets.

 

Upon the consummation of the acquisition, our stockholders will be solely dependent on a single business.

 

Upon the consummation of the acquisition, our stockholders will be solely dependent upon the performance of Iridium Holdings and its business.  Iridium Holdings will be subject to a number of risks that relate generally to the satellite industry and other risks that relate specifically to Iridium Holdings, including the risks relating to its industry and business explained above.

 

 

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A substantial number of new shares of GHQ common stock will be issued in connection with the acquisition and related transactions, which will result in substantial dilution of our current stockholders and could have an adverse effect on the market price of our shares.

 

We expect to issue an aggregate of approximately 29,443,500 shares of common stock in connection with the acquisition to the current owners of Iridium Holdings and will issue an additional 1,946,500 shares of GHQ common stock to Greenhill Europe, a subsidiary of Greenhill, when Greenhill Europe exercises its right to convert the convertible subordinated promissory note into shares of GHQ common stock.  As a result of these transactions, the ownership of our existing stockholders is expected to be reduced to approximately 60% and the owners of Iridium Holdings are expected to own approximately 40% of the outstanding shares of common stock of GHQ following the closing of the acquisition (including the conversion of the note by Greenhill Europe), assuming that (i) no holders of our IPO shares vote against the acquisition proposal and properly exercise their rights to convert their shares into cash, and (ii) no holders of warrants exercise their rights to acquire GHQ shares.

 

In addition, we have issued warrants to purchase approximately 44.1 million shares of our common stock to our founding stockholder and in our IPO, all of which warrants are currently outstanding (net of warrants that our founding stockholder has agreed to forfeit upon closing of the acquisition).  The warrants issued in our IPO will become exercisable upon the completion of our initial business combination, although such warrants may not be exercised unless we have an effective registration statement covering the shares of common stock issuable upon exercise of the warrants and a current prospectus relating to them is available.  The warrants issued to our founding stockholder will become exercisable upon the completion of our initial business combination if the last sales price of our common stock equals or exceeds $14.25 per share for any 20 trading days within any 30-trading-day period beginning 90 days after such initial business combination and there is an effective registration statement covering the shares of common stock issuable upon exercise of the warrants and a current prospectus relating to them is available.

 

Sales of substantial numbers of shares of GHQ common stock issued upon the exercise of the warrants in the public market could adversely affect the market price of such shares and warrants.  All of the sellers and we and our affiliates have agreed to a one-year “lock-up” for the shares of our common stock they will hold following the closing of the acquisition, except for underwritten secondary offerings approved by our Board of Directors anytime after six months from the closing of the acquisition.

 

If the stock incentive plan proposal is approved by our stockholders, GHQ will reserve 8.0 million shares of our common stock for the grant of incentive stock options, nonqualified stock options, stock appreciation rights and other stock-based awards (which includes restricted stock, restricted stock units and performance-based awards payable both in cash and in shares of our common stock) to eligible individuals under the plan.  Exercise of the stock options and stock rights by the eligible individuals will have a dilutive effect on our current stockholders and may adversely affect the market price of our shares of common stock.

 

The holders of our common stock issued in our IPO may vote against the proposed acquisition and exercise their rights to convert their shares to cash, thereby reducing the cash available to fund the acquisition and related transactions and provide working capital for Iridium Holdings after the acquisition.

 

The holders of our IPO shares have certain rights to convert their IPO shares into cash in connection with the completion of our initial business combination.  The actual per share conversion price will be equal to the aggregate amount then on deposit in the trust account (before payment of deferred underwriting discounts and commissions and including accrued interest, net of any income taxes payable on such interest, which shall be paid from the trust account, and net of interest income of up to $5.0 million on the trust account balance previously released to us to fund our working capital requirements), calculated as of two business days prior to the completion of the acquisition, divided by the total number of IPO shares.

 

If the holders of no more than 30% (minus one share) of the IPO shares vote against the acquisition and properly exercise their conversion rights, the acquisition may be completed (if our certificate, share issuance and stock incentive plan proposals are approved and the other conditions to closing the acquisition are satisfied or waived) but any cash required to convert the IPO shares would reduce the cash balances available to us to prepay certain Iridium Holdings debt, pay transaction expenses and conduct Iridium Holdings’ business after completion of the acquisition.