Motorola settles satellite phone lawsuit
One of Motorola Inc.'s longest running legal cases was settled this week, ending its saga with Iridium LLC, a failed satellite communications company.
The settlement was filed in U.S. Bankruptcy Court in Manhattan in New York, which said Iridium will distribute $16 million to unsecured creditors on claims of $1.6 billion -- a 1 percent recovery.
"Motorola is pleased this matter is now concluded," Motorola spokeswoman Jennifer Erickson said Wednesday. "This settlement resolves all of Motorola's remaining exposure to claims against the company arising out of Iridium's bankruptcy proceedings."
The settlement "represents the best opportunity for Iridium creditors to finally receive some recovery from these estates, without risk of further protracted litigation," Iridium said in court documents.
According to the filing, lawyers for the creditors agreed to "voluntarily" reduce their expense claims so creditors may get a recovery. The company said their claim will be about $29 million.
Greg Danilow, a lawyer with New York-based Weil Gotshal & Manges, which represented the unsecured creditors, didn't immediately return a call seeking comment.
Iridium's bankruptcy estate will have $53.6 million to distribute, including $20 million in cash and a $33.6 million payment to secured lenders. Motorola agreed to drop a $675 million administrative claim and to withdraw objections to the bankruptcy.
Why did Motorola do this?
"While Motorola's claims are nominally substantial, there is relatively very little in the estate to pay those claims, and there are other creditors with competing claims to the funds in the estate," said Erickson.
Iridium LLC, a revolutionary satellite communications company, and its system were developed by Motorola and launched in 1998. The $5 billion satellite phone network attracted few subscribers and nose-dived into bankruptcy the following year.
Motorola developed the Iridium concept as a way to provide mobile phone service anywhere in the world through a network of more than 60 orbiting satellites.
But subscribers weren't jumping for it, due to cost and quality of service issues, and great strides in Motorola's own cellular technology were nudging it aside.
In 1999, Iridium defaulted on loans totaling about $1.5 billion and filed for bankruptcy protection.
In 2000, a new group of investors led by Dan Colussy formed Iridium Satellite LLC and acquired all the assets for around $25 million. They pumped in another $100 million to get operations going again.