<PAGE>   1
 
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                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
 
                                   FORM 10-K
             ANNUAL REPORT PURSUANT TO SECTION 13 AND 15(D) OF THE
              SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR
                            ENDED DECEMBER 31, 1997
 
                       IRIDIUM WORLD COMMUNICATIONS LTD.
             (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
 
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<S>                                <C>                                <C>
             BERMUDA                            0-22637                           52-2025291
   (STATE OR OTHER JURISDICTION         (COMMISSION FILE NUMBER)               (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZATION)                                            IDENTIFICATION NO.)
</TABLE>
 
           CLARENDON HOUSE, 2 CHURCH STREET, HAMILTON HM 11, BERMUDA
                                 (441) 295-5950
  (ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
                   REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
 
                            ------------------------
 
                                  IRIDIUM LLC
             (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
 
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<S>                                <C>                                <C>
             DELAWARE                          0-22637-01                         52-1984342
   (STATE OR OTHER JURISDICTION         (COMMISSION FILE NUMBER)               (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZATION)                                            IDENTIFICATION NO.)
</TABLE>
 
                 1575 EYE STREET, N.W., WASHINGTON, D.C. 20005
                                 (202) 408-3800
  (ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
                   REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
 
                            ------------------------
 
                             IRIDIUM OPERATING LLC
             (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
 
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<S>                                <C>                                <C>
             DELAWARE                          0-22637-02                         52-2066319
   (STATE OR OTHER JURISDICTION         (COMMISSION FILE NUMBER)               (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZATION)                                            IDENTIFICATION NO.)
</TABLE>
 
                 1575 EYE STREET, N.W., WASHINGTON, D.C. 20005
                                 (202) 408-3800
  (ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
                   REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
 
                            ------------------------
 
                                 IRIDIUM IP LLC
             (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
 
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<S>                                <C>                                <C>
             DELAWARE                         333-31741-01                        52-2048736
   (STATE OR OTHER JURISDICTION         (COMMISSION FILE NUMBER)               (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZATION)                                            IDENTIFICATION NO.)
</TABLE>
 
                 1575 EYE STREET, N.W., WASHINGTON, D.C. 20005
                                 (202) 408-3800
  (ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
                   REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
 
THIS REGISTRANT MEETS THE CONDITIONS SET FORTH IN GENERAL INSTRUCTION (I)(1)(A)
    AND (B) OF FORM 10-K AND IS THEREFORE FILING THIS FORM WITH THE REDUCED
                               DISCLOSURE FORMAT.
                            ------------------------
<PAGE>   2
 
                              IRIDIUM ROAMING LLC
             (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
 
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<S>                                <C>                                <C>
             DELAWARE                         333-31741-02                        52-2048734
   (STATE OR OTHER JURISDICTION         (COMMISSION FILE NUMBER)               (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZATION)                                            IDENTIFICATION NO.)
</TABLE>
 
                 1575 EYE STREET, N.W., WASHINGTON, D.C. 20005
                                 (202) 408-3800
  (ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
                   REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
 
THIS REGISTRANT MEETS THE CONDITIONS SET FORTH IN GENERAL INSTRUCTION (I)(1)(a)
    AND (b) OF FORM 10-K AND IS THEREFORE FILING THIS FORM WITH THE REDUCED
                               DISCLOSURE FORMAT.
                            ------------------------
 
                          IRIDIUM CAPITAL CORPORATION
             (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
 
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<S>                                <C>                                <C>
             DELAWARE                         333-31741-03                        52-2048739
   (STATE OR OTHER JURISDICTION         (COMMISSION FILE NUMBER)               (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZATION)                                            IDENTIFICATION NO.)
</TABLE>
 
                 1575 EYE STREET, N.W., WASHINGTON, D.C. 20005
                                 (202) 408-3800
  (ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
                   REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
 
THIS REGISTRANT MEETS THE CONDITIONS SET FORTH IN GENERAL INSTRUCTION (I)(1)(a)
    AND (b) OF FORM 10-K AND IS THEREFORE FILING THIS FORM WITH THE REDUCED
                               DISCLOSURE FORMAT.
                            ------------------------
 
          SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
 
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<CAPTION>
                                             NAME OF EACH EXCHANGE
       TITLE OF EACH CLASS                    ON WHICH REGISTERED
       -------------------                   ---------------------
<S>                                          <C>
Iridium World Communications                 Nasdaq National Market
  Ltd............................
Class A Common Stock
($0.01 par value)
</TABLE>
 
     Iridium Operating LLC and Iridium Capital Corporation, as issuers, and
Iridium IP LLC and Iridium Roaming LLC, as guarantors, are required to file
reports required by Section 13 of the Act pursuant to Section 15(d) of the Act
in respect of the issuers (i) 13% Senior Notes due 2005, Series A and (ii) 14%
Senior Notes due 2005, Series B.
 
     Indicate by check mark whether the registrants (1) have filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrants were required to file such reports), and (2) have been subject to
such filing requirements for the past 90 days.  Yes [X]*  No [ ]
 
     Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrants' knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.  [X]
 
     The aggregate market value of the Iridium World Communications Ltd. voting
stock held by nonaffiliates of the registrants as of March 10, 1998 was
$621,456,021.
 
     At March 10, 1998, there were 12,008,812 shares of Iridium World
Communications Ltd. Class A Common Stock, ($0.01 par value per share)
outstanding.
---------------
* Iridium Capital Corporation, Iridium IP LLC and Iridium Roaming LLC became
  subject to the filing requirements of Section 15(d) on September 8, 1997.
  Iridium Operating LLC became subject to the filing requirements of Section
  15(d) on December 18, 1997.
                            ------------------------
 
                      DOCUMENTS INCORPORATED BY REFERENCE
                                     None.
 
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<PAGE>   3
 
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                                                                         PAGE
                                                                        NUMBER
                                                                        ------
<S>       <C>                                                           <C>
PART I
Item 1.   Business....................................................     2
Item 2.   Properties..................................................    29
Item 3.   Legal Proceedings...........................................    30
Item 4.   Submission of Matters to a Vote of Security Holders.........    30
PART II
Item 5.   Market for IWCL's Common Equity and Related Stockholder         30
            Matters...................................................
Item 6.   Selected Financial Data.....................................    32
Item 7.   Management's Discussion and Analysis of Financial Condition     34
            and Results of Operation..................................
Item 7A.  Quantitative and Qualitative Disclosures About Market           39
            Risk......................................................
Item 8.   Financial Statements and Supplementary Data.................    39
Item 9.   Changes in and Disagreements With Accountants On Accounting     39
            and Financial Disclosure..................................
PART III
Item 10.  Directors and Executive Officers of the Registrants.........    40
Item 11.  Executive Compensation......................................    47
Item 12.  Security Ownership of Certain Beneficial Owners and             51
            Management................................................
Item 13.  Certain Relationships and Related Transactions..............    53
PART IV
Item 14.  Exhibits, Financial Statement Schedules, and Reports on Form    56
            8-K.......................................................
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                                        1
<PAGE>   4
 
ITEM 1.  BUSINESS
 
INTRODUCTION
 
     This annual report is filed jointly by Iridium World Communications Ltd.
("IWCL"), Iridium LLC ("Parent"), Iridium Operating LLC ("Iridium"), Iridium
Capital Corporation ("Capital"), Iridium Roaming LLC ("Roaming") and Iridium IP
LLC ("IP").
 
     IWCL was incorporated by Parent as an exempted company under the Companies
Act 1981 of Bermuda on December 12, 1996. IWCL is organized to act as a member
of Parent and to have no other business. On June 13, 1997, IWCL consummated an
initial public offering (the "IWCL IPO") of 12,000,000 shares of its Class A
Common Stock, par value $0.01 per share (the "Class A Common Stock") and applied
the net proceeds of approximately $225 million to purchase 12,000,000 Class 1
Membership Interests in Parent. As of March 10, 1998, IWCL owned approximately
8.5% of the outstanding Class 1 Membership Interests in Parent.
 
     Parent was formed as a limited liability company pursuant to the provisions
of the Delaware Limited Liability Company Act (the "Delaware Act") on July 16,
1996. Parent's purpose is to acquire, own and manage the IRIDIUM communications
system (the "IRIDIUM System").
 
     Iridium was formed as a limited liability company pursuant to the
provisions of the Delaware Act on October 23, 1997. Iridium is a wholly-owned
subsidiary of Parent and has the same purpose as Parent.
 
     On December 18, 1997, Parent and Iridium effected an asset drop-down
transaction (the "Asset Drop-Down Transaction") pursuant to which substantially
all of the assets and liabilities of Parent were transferred to Iridium. The
Asset Drop-Down Transaction was effected for the purpose of providing the agent
for the secured lenders under Iridium's $1 billion Secured Bank Facility (as
defined) with an efficient means for obtaining a security interest in the
membership interests in Iridium.
 
     Capital is a Delaware corporation and a wholly-owned subsidiary of Iridium.
Capital has no business other than serving as a co-issuer of Iridium's $1.1
billion in aggregate principal amount of Senior Notes (as defined) and guarantor
of Iridium's Secured Bank Facility (as defined). Capital has no significant
assets and does not conduct any operations.
 
     Roaming, a Delaware limited liability company and a wholly-owned subsidiary
of Iridium, is the entity that enters into roaming agreements with other
wireless telecommunications providers on behalf of Iridium. IP, also a Delaware
limited liability company and a wholly-owned subsidiary of Iridium, holds the
worldwide trademark registrations of Iridium. Each of Roaming and IP is a
guarantor of the Senior Notes and the Secured Bank Facility. The Senior Notes
and the Secured Bank Facility also are guaranteed by a new wholly-owned
subsidiary of Iridium, Iridium Facilities Corporation, a Delaware Corporation
("Facilities"). Facilities is the entity which holds certain real property of
Iridium.
 
     IWCL acts as a member of Parent and has no other business. The business of
Iridium constitutes substantially all of Parent's business. The business of
Iridium is described below. Any reference below to Iridium relating to any event
prior to the Asset Drop-Down Transaction should be interpreted as a reference to
the Parent, as predecessor to Iridium.
 
BUSINESS SEGMENT
 
     Iridium operates in one industry segment, telecommunications.
 
FORWARD LOOKING STATEMENTS
 
     Iridium is a development stage company with no operating history.
Accordingly, many statements in this report are forward looking. Examples of
such forward looking statements include, but are not limited to, the statements
concerning operations, prospects, markets, technical capabilities, funding
needs, financing sources, pricing, launch schedule, commercial operations
schedule, estimates of the size of addressable markets for mobile satellite
services, estimates of customer counts, the last year in which Iridium will have
negative cash
 
                                        2
<PAGE>   5
 
flow and a net increase in year-end borrowings, and future regulatory approvals,
as well as information concerning expected characteristics of competing systems
and expected actions of third parties, including, but not limited to, systems
contractors, equipment suppliers, gateway operators, service providers and
roaming partners. These forward looking statements are based on a number of
assumptions and are inherently predictive and speculative. One or more of the
assumptions underlying such forward looking statements is likely to be
incorrect. Therefore, actual results may be materially different from those
expressed or implied by such statements.
 
     Factors which may cause IWCL's, the Parent's or Iridium's results to differ
materially from those expressed or implied by such forward looking statements
include, but are not limited to, (i) Iridium's absence of current revenues,
highly leveraged capital structure and significant additional funding needs,
(ii) delays and cost overruns related to the construction and deployment of the
IRIDIUM System, (iii) technological risks related to the development and
implementation of the various components of the IRIDIUM System, (iv) customer
acceptance of Iridium World Services, (v) satellite launch, operation and
maintenance risks, (vi) risks associated with the need to obtain operating
licenses in the numerous countries where Iridium assumes it will provide its
services, (vii) competition from satellite and terrestrial communications
services and (viii) Iridium's dependence on Motorola, Inc. ("Motorola") and
other members of the Parent for the construction and operation of the IRIDIUM
System and the distribution and marketing of Iridium World Services. These
factors, and other factors that may materially affect Iridium's operations, are
described in greater detail in the Securities and Exchange Commission filings of
IWCL, Parent and Iridium, including Exhibit 99 to this report.
 
OVERVIEW
 
     Iridium is developing and commercializing a global mobile wireless
communications system that will enable subscribers to send and receive telephone
calls virtually anywhere in the world, all with one phone, one phone number and
one customer bill. The IRIDIUM System will combine the convenience of
terrestrial wireless systems with the global reach of Iridium's satellite
system. As of March 1, 1998, Motorola had launched 51 Iridium satellites in ten
separate launches. Motorola has informed Iridium, however, that two of those 51
satellites are not functioning and will not become part of the constellation,
but that Iridium will not bear the financial impact of the loss of the two
satellites and that such loss will not affect the scheduled date for
commencement of commercial operations in September 1998. Iridium expects to
commence commercial service on September 23, 1998.
 
     Iridium believes there is a significant market comprised of individuals and
businesses who need global communications capability and are willing to pay for
the convenience of a hand-held wireless phone or belt-worn pager. The
availability of terrestrial wireless communications service is often constrained
by the limited geographic coverage of terrestrial systems, the incompatibility
of differing wireless protocols or the absence of roaming agreements among
wireless operators. The combination of Iridium World Cellular Services, Iridium
World Satellite Services and Iridium World Page Services will extend wireless
access globally and allow Iridium's customers to be reached by phone or pager,
and to place phone calls from or to, virtually anywhere in the world with one
phone and one phone number. Iridium World Cellular Services is expected to
enable customers to roam internationally among terrestrial wireless networks
using different protocols that have roaming agreements with Iridium. Iridium
World Satellite Services will extend voice services to the regions of the globe
not served by terrestrial systems. Iridium intends to offer global paging
(Iridium World Page Services) both in combination with Iridium voice services
and as a stand-alone service. The signaling capabilities of the IRIDIUM System
will enable Iridium to track a voice customer's location with minimal customer
cooperation, thereby allowing Iridium to direct pages and calls as customers
travel globally. Iridium also expects to offer, commencing in 1999, a broad
range of in-flight passenger communications services with participating
airlines, including global incoming and outgoing voice, data and facsimile
services. In addition, Iridium expects to market Iridium World Services to
governmental, industrial and rural users of wireless communications systems.
Iridium believes it will be the only wireless communications system in operation
prior to 2000 that will be able to offer this array of global communications
services.
 
                                        3
<PAGE>   6
 
     The IRIDIUM System encompasses four components: the "space segment," which
will include the low earth orbit satellite constellation and the related control
facilities; the ground stations or "gateways," which will link the satellites to
terrestrial communications systems; the Iridium subscriber equipment, which will
provide mobile access to the satellite system and terrestrial wireless systems;
and the terrestrial wireless interprotocol roaming infrastructure, which will
facilitate roaming among the Iridium satellite system and multiple terrestrial
wireless systems that use different wireless protocols. The satellite
constellation of the IRIDIUM System, which will consist of 66 operational
satellites arranged in six polar orbital planes, is being assembled and
delivered in orbit by Motorola pursuant to a fixed price contract, subject to
certain adjustments. Motorola also will operate and maintain the satellite
constellation for five years (extendible to seven years at Iridium's option).
Each of the gateways will be owned, operated and financed by one or more
investors in Iridium or their affiliates. Iridium expects that portable,
hand-held Iridium phones will be manufactured by at least two experienced
suppliers, Motorola and Kyocera, both of which have hand-held Iridium phones
under development. The phones are expected to be available in satellite only and
multi-mode models, with the multi-mode model allowing subscribers to access the
IRIDIUM System and most major terrestrial wireless systems using different
protocols with a single phone. Iridium World Cellular Services will support
roaming among the two principal types of terrestrial wireless protocols IS-41
(AMPS, NAMPS and CDMA) and GSM (GSM900). Roaming between these protocols
requires cross-protocol translation which will be accomplished for Iridium World
Cellular Services through the Iridium Interoperability Unit ("IIU"), being
developed under the direction of Motorola. The IIU will permit system management
information, including customer authentication and location, to be relayed
between systems using different technologies.
 
STRATEGY
 
     Iridium's strategy is to launch and operate the premier global mobile
wireless telephone network. The key components of this strategy are set forth
below:
 
      Provide a unique service package to traveling professionals enabling them
     to be reached and make calls virtually anywhere in the world.  Iridium
     World Satellite Services will complement terrestrial wireless services and
     provide the traveling professional with communications capability in areas
     where terrestrial wireless service is unavailable, inconvenient, of poor
     quality or unreliable. Iridium intends to offer Iridium World Cellular
     Services and Iridium World Page Services as complements to Iridium World
     Satellite Services and as stand-alone services. Iridium believes that it
     will be the only wireless communications system in operation prior to 2000
     that will be able to offer virtually global mobile voice and paging
     services, including:
 
      Global coverage.  An Iridium World Services subscriber will generally have
     worldwide wireless coverage wherever Iridium World Services are authorized,
     including mid-ocean and remote areas. The availability of the Iridium World
     Satellite Services will not be limited by the customer's proximity to a
     gateway. Iridium believes this feature will make its Iridium World
     Satellite Services particularly well suited for aeronautical and shipping
     communications and for service in land areas where LEO MSS systems using
     "bent pipe" technology are not expected to have the more extensive gateway
     infrastructure needed by such systems to provide global coverage.
 
      Convenient roaming onto terrestrial wireless networks.  Iridium will offer
     subscribers a combination of Iridium World Satellite Services and Iridium
     World Cellular Services. With the addition of Iridium World Cellular
     Services, customers will be able to overcome (i) the incompatibility of
     differing wireless protocols and (ii) the service limitations of
     satellite-only voice services in buildings and urban canyons. Iridium
     expects to be able to deliver all of its voice services with one phone, one
     phone number and one customer bill.
 
      Global paging with belt-worn pagers.  The Iridium belt-worn pager will
     have the capability of receiving alphanumeric messages of up to 200
     characters and numeric messages of up to 20 digits virtually anywhere in
     the world. With Iridium World Page Services, users of Iridium World
     Satellite Services or Iridium World Cellular Services will generally be
     able to update their location on the IRIDIUM System by briefly turning on
     their phone, thereby allowing the IRIDIUM System to send a targeted page.
     Iridium believes that it will be the first company, and the only company
     prior to 2000, which will offer global paging to a belt-worn pager.
                                        4
<PAGE>   7
 
      Greater signal strength.  The IRIDIUM System is designed to provide
     greater signal strength than proposed competing MSS systems. Iridium
     believes this greater signal strength will allow it to better serve
     hand-held phones, and provide a higher degree of in-building signal
     penetration for pagers, than competing MSS systems.
 
      Be the first to market with a global wireless communications
     system.  Iridium plans to capitalize on the substantial design,
     development, fabrication and testing efforts and financial investment to
     date of its strategic investors to bring the Iridium World Services to
     market at the earliest practicable date, which is currently expected to be
     September 1998. Iridium believes that it will be the only wireless
     communications system in operation prior to 2000 that will be able to offer
     global mobile voice and paging services in each country in which Iridium
     World Services are authorized.
 
      Adapt proven technologies through an industrial team led by Motorola.  The
     IRIDIUM System adapts proven technology, including GSM cellular call
     processing technology, intersatellite links, FDMA/TDMA radio transmission
     technology, a 2,400 bps vocoder and business support software. Iridium
     believes that the primary technological challenge is the integration of
     these proven technologies into a single system. Motorola, the principal
     investor in Iridium, is a leading international provider of wireless
     communications systems, cellular phones, pagers, semiconductors and other
     electronic equipment. The industrial team assembled by Motorola to build
     and deliver in orbit the IRIDIUM System consists of major companies
     experienced in aerospace and telecommunications, including Telespazio,
     Lockheed Martin, Raytheon, Boeing, Khrunichev and China Aerospace.
 
      Capitalize on the strengths of its strategic investors.  A number of
     Iridium's strategic investors provide telecommunications services in
     various parts of the world and have significant operating, regulatory and
     marketing experience in their service territories. Iridium expects that its
     investors with existing wireless communications sales and service
     organizations will use these organizations to market and distribute Iridium
     World Services and equipment to potential subscribers. Because of the
     prominence of many of these investors, Iridium believes that their efforts
     to obtain the necessary regulatory approvals have been, and will continue
     to be, of great importance.
 
      Utilize existing wireless distribution channels.  Iridium's strategy is to
     target primarily traveling professionals, who are generally wireless phone
     users. Iridium's strategy is to provide customers with an enhancement to
     their existing terrestrial wireless service through existing marketing and
     distribution channels rather than to focus on individuals who have no or
     limited landline or wireless communications experience and live in areas
     where no marketing and distribution channels currently exist.
 
IRIDIUM SERVICES
 
  GENERAL
 
     Iridium will provide global communications services primarily to
individuals who require the convenience of having a hand-held wireless phone and
belt-worn pager that can be used virtually anywhere. Iridium will offer Iridium
World Satellite Services to customers who need to send or receive telephone
calls in areas not currently served by terrestrial wireless services. Iridium
will offer Iridium World Cellular Services to customers who require wireless
communications but travel frequently to areas served by terrestrial wireless
services that are incompatible with their "home" wireless service. For customers
who require continuous wireless communications outside their terrestrial
wireless coverage areas, Iridium World Satellite Services and Iridium World
Cellular Services will be offered in combination as Iridium World Services,
which will allow the customer to switch conveniently between the Iridium
satellite system and any terrestrial wireless system that has a roaming
agreement with Iridium. Iridium expects to be able to deliver all of its voice
services with one phone, one phone number and one customer bill. Iridium also
intends to offer global paging (Iridium World Page Services) both in combination
with Iridium's voice services and as a stand-alone service.
 
                                        5
<PAGE>   8
 
  IRIDIUM WORLD SATELLITE SERVICES
 
     Because the IRIDIUM System will consist of a global network of satellites,
it will generally provide service to subscribers anywhere on the surface of the
Earth where Iridium Services are authorized. The IRIDIUM System is designed to
provide a satellite-mode link margin (signal strength) for voice communication
that averages approximately 16dB with an unobstructed view of the satellite,
which Iridium believes will be a significantly higher link margin than other
proposed MSS systems. Iridium believes its greater signal strength will allow it
to better serve portable, hand-held telephones than competing MSS systems.
Iridium also expects to be able to offer a full array of features including call
waiting, call hold, conference calling, call forwarding and call barring,
although certain of these features are not expected to be available until after
commencement of commercial operations.
 
  IRIDIUM WORLD CELLULAR SERVICES
 
     Iridium is planning to establish the broadest global terrestrial wireless
roaming service. To meet this goal, Iridium intends to enter into roaming
agreements with wireless service providers worldwide and to offer Iridium World
Cellular Services as a complement to Iridium World Satellite Services. Iridium's
business plan currently calls for roaming agreements covering networks in more
than 50 countries by the commencement of commercial operations in September
1998, with roaming agreements covering networks in more than 150 countries in
place by 2002. As of March 1, 1998, Roaming has entered into more than 90
roaming agreements. Iridium World Cellular Services will permit subscribers to
roam among terrestrial wireless networks that have roaming agreements with
Iridium, with Iridium essentially acting as the customer's "home" system or as
an interface between the visited wireless network and the customer's home
terrestrial wireless network, even if the visited and home networks use
differing cellular protocols (e.g., IS-41, including AMPS, NAMPS and CDMA; and
GSM900). With Iridium World Cellular Services, customers are expected to be able
to overcome (i) the coverage limitations of their "home" wireless network when
traveling to a city served by a wireless operator that does not have a roaming
agreement with the customer's home wireless network but does have one with
Iridium and (ii) the service limitations of satellite-only service when in
buildings and urban canyons, where terrestrial wireless service will typically
be available. Customers who travel between cities that are served by different
terrestrial wireless protocols but do not travel beyond the reach of terrestrial
wireless services will be able to realize the interprotocol benefits of Iridium
World Cellular Services with either Iridium's planned single phone that is
compatible with multiple protocols, or with a combination of cellular phones,
one for each protocol. The availability of Iridium World Cellular Services
depends upon the successful development of the IIU.
 
  IRIDIUM WORLD SERVICES
 
     Iridium intends to offer Iridium World Services to customers who require
both satellite and terrestrial wireless service while traveling outside of their
"home" territories. Iridium World Services will allow a customer to conveniently
use both the Iridium World Satellite Services and any terrestrial wireless
network that has a roaming agreement with Iridium. For Iridium World Services, a
user will require an Iridium phone and a phone that is compatible with the local
wireless protocol. To meet this requirement with a single phone, Motorola is
developing a multi-mode phone that will work alternatively with the IRIDIUM
System and most major terrestrial wireless systems, with the user able to adapt
the phone to the appropriate terrestrial protocol by inserting the corresponding
TRC into the phone (e.g. a GSM900-TRC in Europe or an AMPS-TRC in North
America). Kyocera is developing a multi-mode phone that is expected to be
configured as a satellite phone casing into which terrestrial wireless phones
using differing wireless protocols can be inserted. In addition, like Iridium
World Satellite Services and Iridium World Cellular Services customers, Iridium
World Services customers will be able to have one phone number, which can either
be an Iridium phone number (i.e., it will begin with "8816" or "8817," the
international country codes assigned to Iridium by the ITU) or the customer's
"home" cellular number.
 
                                        6
<PAGE>   9
 
  PAGING
 
     Iridium intends to offer global paging both as a stand-alone service
("Iridium World Page Services") and bundled with its voice service offerings.
Iridium believes that its bundled paging and voice service offering will be
particularly attractive to Iridium's principal target customer, the traveling
professional, who desires constant communication capability. The IRIDIUM pager
is expected to have a 26dB link margin and provide the ability to receive
alphanumeric messages of up to 200 characters and numeric messages of 20 digits.
Iridium believes it will be the first company, and the only company prior to
2000, that will be able to offer global paging to a belt-worn pager.
 
     To use the L-band capacity of the IRIDIUM System efficiently, a page will
be sent to specified message delivery areas ("MDAs"). Iridium intends to vary
the size of each MDA in light of demand, capacity and competition. Since the
pager is a one-way device and cannot tell the network its location, it is
anticipated that the subscriber will be required to choose up to three MDAs for
normal delivery of the message. It is anticipated that, when traveling,
subscribers will be able to update their MDAs via a touch-tone phone, operator
assistance or Internet access. An Iridium World Satellite Services or Iridium
World Cellular Services customer will have the benefit of "follow-me paging."
Unlike the pager, the Iridium satellite phone and cellular phones are two-way
devices and, when turned on, identify the location of the subscriber. With
"follow-me paging," customers will generally be able to register their location
by briefly turning on their Iridium phone (at no charge) or, in the case of
Iridium World Cellular Services customers, their terrestrial wireless phone. The
network then can identify the appropriate MDAs to send a page, without further
customer cooperation.
 
     Iridium expects that a caller who is unable to reach an Iridium customer,
because the phone is turned off or the customer is in a building or urban canyon
where satellite voice service is unavailable, will be given the option to send a
page, leave a voice-mail message for the customer or both. By this means,
Iridium expects to provide communications capability virtually anywhere in the
world.
 
  AERONAUTICAL SERVICES
 
     Iridium expects to offer cabin and flightdeck communications to and from
business and commercial aircraft commencing in 1999. This service is expected to
be an extension of Iridium's voice services, since airline passengers,
especially business travelers, have a heightened demand for telephone services
due to the isolated, restrictive, and often time-consuming nature of air travel.
Subscribers to Iridium World Satellite Services will not be able to use their
Iridium phone within aircraft due to regulatory constraints and the inability of
the voice signal to penetrate the exterior of the aircraft, although Iridium
pagers should be able to receive pages unless prohibited by the carrier.
Therefore, a specialized Iridium communications subsystem is expected to be
manufactured and sold to carriers to serve this market segment. Using this
communications subsystem, the IRIDIUM System would offer passengers (whether or
not they are Iridium subscribers) and the flight-deck global voice, data and
facsimile communications capability. This would extend cabin coverage beyond
traditional land-based air-to-ground services. Iridium believes it will be able
to provide aeronautical services with less voice delay and smaller exterior
equipment than competing satellite-based systems. Iridium has entered into a
non-binding memorandum of understanding with AlliedSignal to design and provide
these services and equipment and Iridium, Motorola and AlliedSignal are in the
process of negotiating definitive agreements.
 
     In December 1996, Motorola submitted a request to the FCC to authorize the
IRIDIUM System to provide Aeronautical Mobile-Satellite Route Service ("AMSRS")
in its authorized band. The IRIDIUM System is the only mobile satellite system,
licensed or in development, that can provide a communication capability that is
truly global, while using spectrum already allocated for AMSRS. Several parties
filed comments with and have petitioned the FCC to deny Motorola's application
to provide AMSRS service. Among other arguments, petitioners claim that the
AMSRS proposal is inconsistent with International Telecommunication Union and
FCC rules and allocations. In addition to FCC approval, approval is needed from
the FAA, which must certify that the avionics satisfy other international
certification requirements. There can be no assurance that the FCC application
will be granted, or that the avionics certification
 
                                        7
<PAGE>   10
 
requirements will be satisfied at all, or in a timely fashion. See "Regulation
of Iridium Licensing Status." Assuming all necessary authorizations are
obtained, Iridium expects to provide both the FCC required "safety"
communications capabilities to the flightdeck and passenger communications,
including voice and facsimile. An individual aircraft may be served by multiple
satellite communications carriers.
 
THE IRIDIUM MARKET
 
  GENERAL
 
     The market for Iridium World Services is the worldwide market for global
personal voice, paging and data communications. Iridium Services are targeted at
meeting the communications needs of users who (i) travel outside their "home"
wireless network to areas that are not served by terrestrial wireless systems or
are served only by local wireless standards that are incompatible with their
"home" wireless network standard, (ii) find it important to be able to make or
receive calls, or receive pages, at any time by means of a single phone or
belt-worn pager, with a single phone or pager number or (iii) are located where
terrestrial landline or wireless services are not available or do not offer an
attractive and convenient option.
 
     Global MSS systems such as the IRIDIUM System are designed to address two
broad trends in the communications market: (i) the worldwide growth in the
demand for portable wireless communications -- according to industry sources,
the worldwide wireless communications market had approximately 200 million
subscribers at year-end 1997 and is estimated to grow to over 400 million
subscribers by year-end 2000; and (ii) the growing demand for communications
services to and from areas where landline or terrestrial wireless service is not
available or accessible. The IRIDIUM System architecture and Iridium World
Services are primarily designed to serve customers who place the greatest value
on global mobile communications capability and have the ability to pay for
premium service. To estimate potential demand for its services, Iridium has
engaged in extensive market analysis, including primary market research which
involved screening over 200,000 persons and interviewing more than 23,300
individuals from 42 countries and 3,000 corporations with remote operations.
Based on this market analysis, Iridium has identified five target markets for
Iridium World Services: traveling professionals; corporate/industrial;
government; rural; and aeronautical. Iridium expects the traveling professional
and corporate/industrial markets will provide most of the demand for Iridium
World Services. Iridium expects that individuals in these markets are more
likely to need and have the ability to afford handheld, global mobile
communications capability than, for example, individuals who live in remote
areas outside existing distribution channels for wireless communications.
 
     Iridium estimates that the addressable traveling professional market, which
it defines as all employed adults living in urban areas who own a wireless phone
and travel at least four times per year beyond the coverage of their current
wireless phone, will include approximately 42 million individuals by 2002. The
global corporate/industrial addressable market, which consists of companies with
more than 1,000 employees in industries with operations that are likely to need
mobile satellite services, is estimated by Iridium to include over 8,800
companies by 2002. Iridium believes that its unique service package is
well-tailored to meet the demands of, and will give Iridium an advantage over
competing MSS systems in, these target markets. Iridium estimates that it will
have customer counts in the year 2002 in the range of 2.2 million to 2.5 million
for its satellite-based voice services, Iridium World Satellite Services
(satellite voice and paging) and Iridium World Service (the combination of
Iridium World Satellite Services and Iridium World Cellular Services), 1.0
million to 1.3 million for stand-alone Iridium World Cellular Services and
350,000 to 500,000 for stand-alone Iridium World Page Services. Iridium's
estimates of target markets and customer counts are based upon a number of
assumptions, one or more of which is likely to be incorrect. There can be no
assurance that actual target markets and actual customer counts for Iridium
World Services will not be materially different from Iridium's estimates or that
Iridium will not revise such estimates substantially from time to time.
 
  TARGET MARKETS
 
     Iridium believes that the traveling professional and corporate/industrial
communications markets will be its principal target markets.
 
                                        8
<PAGE>   11
 
     Traveling Professional.  Individuals in the traveling professional market
segment are expected to represent a major market opportunity for Iridium World
Services. Currently, the ability of terrestrial wireless service subscribers to
roam outside their home territory or region is limited by (i) the absence or
unavailability of local wireless service in many regions, particularly
lesser-developed regions of the world; (ii) the absence of roaming agreements
between the user's local wireless provider and the wireless providers in the
country or region in which the user is traveling; and (iii) the inability of the
user's phone to operate with wireless phone systems employing a different
wireless protocol than in the user's "home" wireless system. Iridium expects
that Iridium World Satellite Services, Iridium World Cellular Services and
Iridium World Page Services will appeal to traveling professionals as a logical
extension of their existing communications capabilities. Iridium believes
traveling professionals will use this increased capability to remain in contact
with their home or office and a substantial portion of these calls will be
international calls. The defining element for this segment is that the handset
purchase decision is made by the individual, with the Iridium account registered
in his or her name.
 
     Corporate/Industrial.  Iridium believes that the corporate/industrial
market segments constitute a significant opportunity for Iridium World Services.
The corporate sub-segment consists of national and multinational companies whose
executives travel outside of their home terrestrial wireless coverage area and
who will have a need for MSS services in the regular course of business. The
industrial sub-segment includes industries that are expected to demand MSS
services at remote industrial sites and on land and water transportation
vehicles, such as utilities, oil and mineral exploration, pipeline,
construction, engineering, fishing and forestry. For companies that have
multiple locations around the globe, or a requirement for remote fleet
management and communications, the IRIDIUM System is expected to provide a
single technical and operational communications solution regardless of location,
in contrast to MSS and terrestrial systems that cannot provide global coverage.
Iridium World Satellite Services are expected to be used in this market segment
for business communication and emergency backup communication. The defining
element for this group is that the handset purchase decision is made by the
business and that the end user is an employee of that business.
 
     Government.  Currently, governments are significant users of satellite
services, and Iridium anticipates that the coverage and portability
characteristics of Iridium World Satellite Services and Iridium World Page
Services will make them attractive for a variety of governmental applications.
The government communications addressable market is expected to encompass use of
MSS services by governmental departments and agencies and international
organizations for civilian and military applications, including law enforcement,
official travel and disaster relief. In addition, governments are expected to
demand MSS services for operations in areas where inadequate terrestrial
communication capability is common, such as for border patrols, customs
officials, communication with ships at sea and embassy communications.
 
     Aeronautical.  The worldwide aviation fleet is expected to number over
250,000 aircraft in the year 2002 with 44,000 aircraft expected to be users of
either satellite or terrestrial communications services. Unlike the
geostationary systems currently in use, the size and weight of the expected
Iridium aeronautical product line make it feasible to include aircraft from all
segments of the aviation industry in the addressable market for MSS services.
Iridium expects its satellite communications services to co-exist with existing
terrestrial aeronautical system installations, providing regional coverage in
areas not served by terrestrial networks, such as mid-ocean and remote areas.
 
     Rural.  The rural communications market segment for MSS systems is
comprised of two main subcategories: services to users based in (i) areas with
inadequate or inconvenient access to any telephone services, typically in
developing countries, and (ii) areas in which potential demand for terrestrial
wireless service exists but such services have yet to be deployed, or, if
deployed, are of poor quality, typically in rural areas of developed countries.
The variety of available subscriber equipment is expected to permit a range of
applications that would enable Iridium World Satellite Services to be a
precursor to a permanent wired or terrestrial wireless service in the geographic
area. Iridium World Satellite Services could also be used as a long-term
communications solution for those geographic areas around the world for which no
terrestrial system can be economically justified.
 
                                        9
<PAGE>   12
 
DISTRIBUTION AND MARKETING
 
     Iridium's distribution strategy reflects its role as a wholesaler of
Iridium World Services and is primarily designed to leverage off established
retail distribution channels by using existing distributors of wireless services
as Iridium service providers and marketing Iridium World Services to their
customers. Iridium will implement the distribution of Iridium World Services
through its gateway operators, all of which have agreed to become or engage
Iridium service providers within their exclusive gateway territories. Iridium
service providers will generally have primary responsibility for marketing
Iridium World Services within their territories. Iridium anticipates that
gateway operators will distribute Iridium World Services through their own
distribution channels or through, or in conjunction with, one or more existing
wireless service providers (including Iridium World Cellular Services roaming
partners). As of March 20, 1998, Iridium and its gateway operators currently had
distribution agreements with more than 80 such service providers.
 
     Iridium has targeted key markets and is in active discussions in
conjunction with its gateway operators to contract with entities to act as
service providers and roaming partners in each of these markets. Within each
market, Iridium is targeting those potential service providers and roaming
partners that can reach the targeted Iridium market segments in the most
effective manner. The ability to provide roaming capabilities onto terrestrial
wireless networks is a critical element of establishing a roaming relationship
between roaming partners and the IRIDIUM System. When acquiring a terrestrial
wireless carrier as a retail distribution access point, the benefit of the
incremental roaming revenue brought to that roaming partner from around the
world through the Iridium network relationships could prove to be important in
signing the roaming partner. Iridium World Services can also be easily added to
the terrestrial wireless providers' bundle of services offered to its customer
base.
 
     Iridium's marketing strategy is to position Iridium as the premier brand in
global wireless communications services. Iridium believes that its principal
target markets -- traveling professional and corporate/ industrial -- can be
accessed through established marketing channels, which will permit more
effective marketing compared to MSS systems targeting individuals in remote
areas where marketing opportunities and distribution channels are limited.
Iridium is coordinating with its gateway partners to determine the optimum
allocation of marketing expenditures based on the primary market research that
Iridium has conducted. Iridium plans to engage in direct marketing to certain
markets, such as the utility, oil and gas, mining and maritime industries.
Iridium believes that a coordinated and comprehensive global marketing strategy,
supported by its market research, will promote a consistent message and permit
Iridium to establish a global brand identity.
 
PRICING
 
     Iridium intends to implement a pricing strategy for its voice services
similar to the prevailing pricing structure for terrestrial wireless calls.
Prices for terrestrial wireless calls generally reflect two components: a charge
based on the landline "dial-up" rate for a comparable call (primarily the long
distance charges) and a mobility premium for the convenience of wireless service
(including any roaming charges). Pricing for both Iridium World Satellite
Services and Iridium World Cellular Services is expected to be based on this
structure.
 
     For international Iridium World Satellite Services calls, which Iridium
expects will constitute the majority of calls over the Iridium World Satellite
System, the "dial-up" rate component will be designed to approximate the rates
for comparable landline point-to-point international long distance calls.
Iridium has analyzed and will continue to analyze published international direct
dial rates around the world as well as published international calling card
rates of many of the largest international telecommunications carriers in
establishing the "dial-up" rate component. Iridium intends to set the global
mobility premium with reference to the premium charged by other wireless
services, including cross-protocol international terrestrial wireless roaming
services and competing MSS systems.
 
     Iridium will set the wholesale prices for its services to allow for a
suggested retail price that will approximate the "dial-up" plus mobility
premium. Iridium's wholesale price will be designed to compensate Iridium, as
the network provider, and the originating and terminating gateways, as well as
to cover the public
                                       10
<PAGE>   13
 
switched telephone network ("PSTN") tail charges. The home gateway will mark up
the wholesale price and the service provider will establish the final retail
price. Iridium expects that for international wireless calls, Iridium's
suggested retail prices will be competitive with other global MSS systems. In
addition, from a regulatory approval perspective in markets where the monopoly
telecommunications provider and the licensing authority are the same entity, a
pricing strategy that takes into account the "dial-up" alternatives allows
Iridium to respond to concerns that Iridium will capture the local monopoly
provider's long-distance revenues by undercutting terrestrial "dial-up" rates.
 
     For Iridium World Cellular Services pricing, the "dial up" rate component
is primarily the long distance charge, if any, which will be passed through to
the customer. The mobility premium will be set to compensate the parties
involved, primarily the serving network for its airtime charges, the visited
gateway for customer authentication and Iridium for protocol translation
services. The retail price will include the markup of the home gateway and
service provider. Iridium believes that its Iridium World Cellular Services
suggested retail prices will be comparable to other cross-protocol roaming
services.
 
     In addition to airtime charges, Iridium subscribers will pay a monthly
subscription fee in the same manner that terrestrial wireless customers pay
monthly charges. Iridium will permit service providers that are wireless network
operators to offer Iridium World Satellite Services as additional features to
their existing wireless services, permitting their customers to remain customers
of the wireless network and to roam onto the IRIDIUM System. These customers
will pay an additional roaming premium for calls made over the IRIDIUM System.
 
     Initially, Iridium World Page Services subscribers will pay a fixed monthly
subscription fee for unlimited paging. Iridium expects to implement per page
pricing after commencement of commercial operations, with the cost per page
based, in part, on the size of the geographic area covered by the page.
 
     While Iridium expects to compete with other MSS systems and other
cross-protocol roaming services, Iridium does not intend to compete with
terrestrial cellular telephone systems for the vast majority of personal
communications services, because, among other reasons, Iridium are expected to
be priced significantly higher than most terrestrial wireless services.
 
THE IRIDIUM SYSTEM
 
     The IRIDIUM System is comprised of four functional components: the space
segment, the gateways, the Iridium subscriber equipment and the terrestrial
wireless interprotocol roaming infrastructure. The space segment, which includes
the satellite constellation and the related ground control facilities, will
allow Iridium to route voice, data and paging communications virtually anywhere
in the world. The gateways will link the satellite constellation with
terrestrial communications systems and will provide other call-processing
services, such as subscriber validation and billing information collection. The
Iridium subscriber equipment, which is expected to include single-mode and
multi-mode, portable, hand-held phones, aeronautical equipment, including
installed phones, and belt-worn pagers, will allow subscribers to access the
IRIDIUM System or be contacted via the IRIDIUM System virtually anywhere in the
world. The terrestrial wireless interprotocol roaming infrastructure will
facilitate roaming among the IRIDIUM System and multiple terrestrial wireless
systems that use different wireless protocols. Iridium will own the space
segment and the interprotocol roaming infrastructure, gateway owners will own
and operate the gateways, and subscribers will own the subscriber equipment.
 
     Iridium believes that the capabilities of the IRIDIUM System will allow
Iridium to provide service features that Iridium's principal target markets,
traveling professional and corporate/industrial, will find desirable and that
will differentiate Iridium from its competitors. The number and distribution of
satellites in the Iridium constellation should allow Iridium to provide
virtually global coverage, including mid-ocean and remote area access to the
IRIDIUM System. Multi-mode phones are expected to allow Iridium World Services
subscribers to operate first with a local terrestrial cellular service (if one
having a roaming agreement in effect with Iridium is available) and then switch
to Iridium World Satellite Services if a terrestrial service cannot be accessed.
With Iridium World Page Services, a subscriber will be able to receive a
targeted page virtually anywhere in the world with minimal customer cooperation.
Iridium believes that its expected signal

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<PAGE>   14
 
strength will allow it to better serve hand-held phones and provide a higher
degree of in-building penetration for pagers than competing MSS systems. Iridium
believes that the 2,400 bps vocoder selected by Motorola will provide voice
quality that is acceptable to terrestrial wireless customers.
 
  SPACE SEGMENT
 
     The satellite constellation of the space segment will consist of a
constellation of 66 operational satellites arranged in six orbital planes in low
earth orbit. To minimize the cost of the constellation and reduce production
time, the design of the satellites emphasizes attributes which facilitate
production in large quantities. The satellites will be placed in six distinct
planes in near-polar orbit at an altitude of approximately 780 kilometers and
will circle the Earth approximately once every 100 minutes. Each satellite will
communicate with subscriber equipment on the ground using main mission antennas,
with gateways using gateway link antennas and with other Iridium satellites in
space using cross-link antennas.
 
     The main mission antennas will communicate with subscriber units through
tightly focused antenna beams forming a continuous pattern on the Earth's
surface. The main mission antenna subsystem of each satellite will include three
phased array antennas, each containing an array of transmit/receive modules.
Collectively, the 48 beams produced by a single satellite will combine to cover
a circular area with a diameter of approximately 4,340 kilometers. The IRIDIUM
System architecture will incorporate certain characteristics, such as call
hand-off, which will allow the space segment communications link with subscriber
equipment to be transferred from satellite to satellite as the satellites move
over the area where the subscriber is located.
 
     The cross-link antennas will permit satellites in the constellation to
communicate with one another. Each Iridium satellite will have four cross-link
antennas to allow it to communicate and route traffic to the two satellites that
are fore and aft of it in the same orbital plane as well as neighboring
satellites in the adjacent co-rotating orbital planes. This intersatellite
networking capability is a significant distinguishing feature of the IRIDIUM
System and provides a number of benefits. These intersatellite links, which
enable the satellites to function as switches in the sky, will allow the IRIDIUM
System to (i) select the optimal space-to-ground path of each call, thereby
enhancing system reliability and capacity while reducing the costs associated
with the use of terrestrial phone systems, (ii) service subscribers in all areas
(including, mid-ocean and remote areas) regardless of the proximity to a
gateway, (iii) provide full global service with a relatively small number of
gateways, thereby lowering total ground segment build-out and operating costs
and (iv) provide enhanced ability to track the location of a voice customer,
allowing Iridium to target calls and pages as customers travel globally.
 
     Operation of the satellites will be monitored, managed and controlled by
the system control segment. The master control facility is located in Virginia,
the back-up control facility is located in Italy, and the TT&C stations are
located in northern Canada and Hawaii, with an additional transportable
telemetry system currently located in Iceland. These facilities will manage the
performance and status of each of the individual satellites. The master control
facility will also manage the network by developing and distributing routing
tables for use by the satellites and gateways, directing traffic routing through
the network, and controlling cell formation by the satellites' main mission
antennas. In addition, the master control facility will manage the system
control segment itself by, for example, assigning earth terminals to satellites
and controlling data flow between the master and back-up control facilities.
 
     Implementation of the Space Segment.  The space segment of the IRIDIUM
System is being designed and constructed for Iridium by Motorola.
 
     As of March 1, 1998, Motorola had launched 51 Iridium satellites in ten
separate launches. Motorola has informed Iridium that two of those 51 satellites
are not functioning and will not become part of the constellation, but that
Iridium will not bear the financial impact of the loss of the two satellites and
that such loss will not affect the scheduled date for commencement of commercial
operations in September 1998. Under the Space System Contract, Motorola has
completed 42 of the 47 contract milestones. Contract milestone 30, initial
launch of Iridium satellites, was scheduled for completion in January 1997, but
the launch did not occur until May 5, 1997. The remaining five milestones relate
to the deployment, testing and completion of the space segment of the IRIDIUM
System, including the related ground control facilities. The space segment is

                                       12
<PAGE>   15
 
scheduled under the Space System Contract for completion on September 23, 1998.
Ground testing of satellite hardware has been substantially completed. Motorola
has completed construction of most of the terrestrial facilities necessary to
command the in-space movements of the satellites, including the master control
facilities and the associated TT&C facilities.
 
     Motorola has entered into subcontracts with suppliers for the provision of
major subsystems of the Space Segment. The principal Space Segment
subcontractors include:
 
  MANUFACTURERS
 
     Lockheed Martin Corporation.  Lockheed has designed and is manufacturing
the satellite bus. Lockheed is an investor in Parent.
 
     Raytheon Company.  Raytheon is providing the main mission satellite
antennas. Raytheon is an investor in Parent.
 
     Telespazio.  Telespazio is providing system engineering on system control
segment development and is expected to operate the back-up control facility.
Telespazio is an affiliate of Telecom Italia.
 
  LAUNCH PROVIDERS
 
     The requirements for the deployment of the initial satellite constellation
entail the placement into orbit of a large number of satellites in a relatively
short period of time, using conventional expendable launch vehicles. Based on
technical, commercial and other considerations, Motorola selected the following
three commercially offered launch systems for the deployment phase: Long March
2C through China Great Wall; Proton through Khrunichev; and Delta II through
Boeing.
 
     China Great Wall Industry Corporation.  China Great Wall has contracted
with Motorola to provide some of the launches for the initial deployment of the
space segment (and additional launches for the maintenance of the space segment)
utilizing its Long March 2C/SD vehicle, which launches two Iridium satellites
into orbit with each launch. An affiliate of China Great Wall, Iridium China
(Hong Kong) Ltd., is an investor in Parent.
 
     Khrunichev State Research and Production Space Center.  Khrunichev has
contracted to provide some of the launches for the initial deployment of the
space segment utilizing the Proton launch vehicle, which launches seven Iridium
satellites into orbit with each launch. Khrunichev is an investor in Parent and
has been allocated the Iridium gateway service territory for Russia and eight
other republics of the former Soviet Union.
 
     Boeing.  Boeing, the successor to McDonnell Douglas Corporation, has
contracted to provide the majority of the launches for the initial deployment of
the space segment utilizing the Delta II launch vehicle, which launches five
Iridium satellites into orbit with each launch.
 
     Under the Space System Contract and the Operations and Maintenance
Contract, Motorola has agreed to procure the necessary space segment launch
services, and to place into orbit, and maintain in orbit, the space segment. In
light of the magnitude of the launch services procurement, the risks inherent in
satellite launch activity and the potential impact on Iridium's business if the
provision of launch services fails (including the potential that launch service
problems could give rise to excusable delays under the space System Contract and
Operations and Maintenance Contract), Motorola has developed numerous space
segment launch scenarios using various combinations of available launch systems
to fit the requirements of the IRIDIUM System in terms of cost, reliability,
availability, technical performance, credibility of suppliers and other factors.
 
     The launch of the first five Iridium satellites occurred on May 5, 1997 on
a Delta II launch vehicle. This launch had been scheduled for January 1997 but
was delayed on four successive days and then postponed following a launch
failure involving the Delta II launch vehicle. Following the January 1997
failure of a Delta II launch vehicle, the United States government ordered a
halt to all further Delta II launches pending completion of an internal review
of the failure. That failure review was completed on May 2, 1997 and
 
                                       13
<PAGE>   16
 
concluded that the launch failure resulted from an explosion of one of the nine
solid rocket boosters attached to the first stage of the launch vehicle.
Thereafter, the launch suspension was lifted. The first launch of Iridium
satellites occurred on May 5, 1997 (following successive postponements on May 2,
May 3 and May 4 due to weather conditions and a faulty warning light). Motorola
has informed Iridium, however, that, notwithstanding the first launch
postponement, Motorola believes its launch schedule should permit Iridium to
meet its planned September 1998 commencement of commercial operations. This
current launch schedule assumes that there are no additional significant launch
delays and that all three launch providers -- Boeing, Khrunichev and China Great
Wall -- are able to provide launch services as currently planned. The current
launch schedule also creates risks because it has compressed the time otherwise
available for testing. As of March 1, 1998, Motorola had launched 51 Iridium
satellites in ten separate launches. Motorola has informed Iridium, however,
that two of those 51 satellites are not functioning and will not become part of
the constellation, but that Iridium will not bear the financial impact of the
loss of the two satellites and that such loss will not affect the scheduled
completion date for commercial service in September 1998. Motorola's current
launch plans contemplate five more launches of 21 satellites by May 1998, which
would complete the expected constellation of 66 satellites in mission orbit with
4 spare satellites in a lower parking orbit. There can be no assurance that
succeeding launches will proceed as currently contemplated or that the space
segment will be operational on schedule, and there can be no assurance that
problems will not occur with respect to other satellites, or that such problems
will not have an adverse affect on Iridium. In addition, no assurance can be
given that from time to time certain events will not occur that may require
Motorola to conclude that one or more satellites are not performing within the
necessary parameters for such satellite or satellites to be included in the
constellation, or that such a conclusion would not have an adverse effect on the
commercial activation schedule.
 
     Following the initial deployment of the satellite constellation, launch
services will be required in connection with the maintenance of the system. This
will entail the placement into orbit of satellites for the replacement of failed
or degraded satellites originally placed into orbit as part of the deployment
mission. The maintenance mission for satellite launch services may be performed
by a number of launch systems. Motorola has conducted technical and commercial
discussions with a number of potential suppliers and has selected a Long March
2C/SD launch vehicle for what it expects will be a minority portion of the
maintenance launch services. Motorola expects that a number of other launch
systems currently under development would satisfy the remaining requirements of
the maintenance mission. Motorola intends to select a supplier or suppliers for
the remaining maintenance launches based on technical, commercial and other
considerations.
 
     In addition, Motorola has constructed the master control facility located
in Virginia, the back-up control facility in Italy, two TT&C stations in
northern Canada and one TT&C station in Hawaii, with an additional transportable
telemetry system currently located in Iceland.
 
  GATEWAYS
 
     Gateway earth stations will provide call-processing services, such as
subscriber validation and the interconnection between the world's PSTNs and the
IRIDIUM System by connecting calls made through the IRIDIUM System to and from
the local PSTN generally through an international switching center. Gateways
will communicate with the space segment via gateway link antennas on the
satellites and ground-based antennas, or earth terminals, at each terrestrial
gateway facility. Each gateway facility will typically include three or four
antennas, a controller to manage communications with the constellation, an
operations center to perform local network management, a paging message
origination controller, and a switch that connects the gateway to the local
PSTN. Each gateway will also include a subscriber database used in
call-processing activities, such as subscriber validation. Gateways will
generate call detail records used in billing. Parent has authorized the issuance
of warrants to acquire up to 9,165,000 Class 1 Interests at a price of $.00013
per Class 1 Interest to gateway owners who complete construction and
installation of their gateways on schedule and who meet certain revenue criteria
thereafter. None of such warrants has been issued.
 
     Implementation of Gateways.  The success of Iridium is dependent upon the
efforts of its gateway owners, all of whom are investors, or affiliates of
investors, in Parent. Iridium is focusing considerable efforts on the
coordination of the development of the gateway infrastructure and business
systems.
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<PAGE>   17
 
     Iridium has assigned all of its gateway service territories to Parent's
equity investors or their affiliates. Iridium expects these gateway service
territories to be served initially by up to 12 gateways. Each gateway owner has
entered into a Gateway Authorization Agreement. The Gateway Authorization
Agreements obligate the gateway operators to use their reasonable best efforts
to perform, among other obligations, the following with respect to its
designated territory: (i) contract with Motorola to supply the gateway
equipment; (ii) provide gateway services; (iii) obtain all required governmental
licenses and permits necessary to construct and operate gateways; (iv) designate
Iridium service providers, which may include the gateway operator; (v) require
compliance by each service provider with established guidelines; and (vi)
support Iridium-approved positions at the WRC of the ITU.
 
     Under the Space System Contract, Motorola has agreed to (i) design and make
available to Iridium as proprietary information the gateway interface
specification, (ii) develop and sell Iridium gateway equipment and (iii) license
to responsible and competent suppliers of that equipment the rights to use the
information in that specification for certain purposes to the extent essential
to manufacture and sell Iridium gateways. Iridium does not anticipate that
companies other than Motorola will manufacture gateway equipment. In order to
assure timely development of the gateway equipment and to coordinate the
development effort, Iridium entered into the Terrestrial Network Development
Contract in 1995 which has allowed it to implement a more disciplined and
systematic development plan for the gateways and which Iridium believes will
increase the likelihood of a timely in-service date for the gateways. Under the
Terrestrial Network Development Contract, Motorola is designing and developing
the gateway hardware and software.
 
     Iridium and the gateway operators have established a schedule for the
construction of the necessary gateway facilities by the gateway operators. While
some gateway operators are behind in meeting some of the milestones in this
schedule, Iridium believes that up to 12 gateway facilities will be completed
and operational at the time commercial operations commence. The construction of
the 12 gateway facilities is substantially complete and the telecommunications
equipment has been installed at 10 locations. However, there can be no assurance
that one or more gateways will not fail to be completed by the commencement of
commercial operations, which could have a material effect on Iridium. In
particular, the China gateway has not commenced equipment procurement and the
Middle East-Africa gateway is significantly behind schedule with its equipment
procurement. While Iridium believes that it is possible that these two gateways
will be operational by the planned September 1998 commencement of commercial
operations, in order for them to do so they will need to move forward promptly,
including making certain overdue payments under their gateway equipment purchase
agreements with Motorola.
 
  SUBSCRIBER EQUIPMENT
 
     Subscribers will communicate via the system of satellites and gateways
using Iridium subscriber equipment that will provide one or more of voice,
paging, data, and facsimile services. Iridium expects that subscriber equipment
will be made available by at least two suppliers, Motorola and Kyocera. In
addition to portable, hand-held phones Iridium expects that vehicle-mounted,
transportable, fixed telephones, as well as simplex alphanumeric belt-worn
pagers will be made available. Based on information received from Motorola,
Iridium expects that Motorola's version of the portable, multi-mode, hand-held
phone will have an initial retail price of approximately $3,000, including one
TRC, and its version of the alphanumeric pager will have an initial retail price
of approximately $500. Iridium expects the price for subscriber equipment that
is manufactured by Kyocera to be similar to Motorola's.
 
     Iridium does not currently intend to manufacture or distribute Iridium
subscriber equipment or derive any income from the sale of Iridium subscriber
equipment. Such equipment is expected to be manufactured by existing
manufacturers of similar terrestrial subscriber equipment and to be distributed
by such manufacturers through gateway owners and operators, service providers
and other telecommunications equipment distributors. Iridium may, however, need
to take a greater role than currently expected in connection with the
distribution of Iridium subscriber equipment. That increased participation in
the distribution process may require that Iridium incur additional indebtedness
or contingent purchase obligations relating to Iridium subscriber equipment.
Motorola has committed substantial resources to develop, and plans to sell,
IRIDIUM subscriber equipment including portable, hand-held phones and belt-worn
pagers. Motorola has informed
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<PAGE>   18
 
Iridium that it has entered into a license agreement with Kyocera relating to
the basic intellectual property rights essential to develop and manufacture
personal voice subscriber equipment for use on the IRIDIUM System. This license
agreement does not obligate Kyocera to develop, manufacture or sell any Iridium
subscriber equipment. If other subscriber equipment manufacturers wish to
develop and sell Iridium subscriber equipment, they will be required to enter
into similar licensing agreements with Motorola.
 
     The IRIDIUM System phones are still under development, although a
functional unminiaturized prototype has been developed. Motorola has informed
Iridium that the portable, hand-held phone that Motorola has been developing is
expected to be larger and heavier than today's pocket-sized, hand-held cellular
telephones and is expected to have a longer and thicker antenna than hand-held
cellular telephones. Motorola has informed Iridium that the pager Motorola will
develop is expected to be slightly larger than today's standard alphanumeric
belt-worn pagers. The unminiaturized prototypes have been built using the same
or similar components expected to be used in the production model of the Iridium
phone. The prototypes have been built in a larger housing to facilitate testing
and problem solving.
 
  BUSINESS SUPPORT SYSTEMS
 
     The IRIDIUM System will be capable of supporting basic "back office"
business functions required by Iridium, gateway operators, and service
providers, including a clearinghouse operated by Iridium to calculate the
amounts owed to and from Iridium and each gateway operator in order to determine
net settlements of such amounts among such entities. These business support
functions include service provision, customer service, and billing and
collection, as well as clearing and settlements. These functions will be
provided by means of computer and manual processes at each gateway and service
provider location and, most likely, at a central processing point. The gateway
owners and operators will be required to license or purchase software and
equipment in order to exchange information with the clearinghouse and to handle
settlements with service providers, inter-exchange service providers, government
entities and others. Iridium has proposed to develop, and to provide to the
gateways, some of the required software and hardware. In addition, the gateways
will have to enter into settlement agreements with service providers, on behalf
of Iridium, in order to account for and settle the Iridium World Cellular
Services and the non-satellite service portions of the Iridium World Services.
The coordination of business support functions among Iridium, the gateways and
the service providers necessary to the provision of the Iridium World Services
is a large and complex undertaking which will require the establishment of
comprehensive data exchange capabilities and the negotiation and execution of
hundreds of settlement agreements with gateway operators and service providers.
 
  IRIDIUM WORLD CELLULAR SERVICES
 
     Iridium World Cellular Services allows different protocol-based networks to
communicate with each other. Protocol formats are the "language" by which
networks communicate. Similar protocol networks can communicate easily with one
another by sending signals between the networks in a standard language that is
understood by both networks. Different protocol networks require a translator in
order to communicate with each other.
 
     An Iridium World Cellular Services customer who roams onto a cellular
network that has a roaming agreement with Iridium will be recognized by the
visited network as an Iridium customer when the customer turns on his phone. The
visited network, using an Iridium gateway, will send a request for
authentication either terrestrially or over the IRIDIUM System to the IIU, the
protocol translation device that is being developed under the direction of
Motorola for Iridium. The IIU will search for the home location of the customer
and convert the signal to the appropriate protocol of the customer's home
network. The home network will authenticate the customer by signaling back to
the IIU which will then convert the signal back to the protocol of the visited
network and send the response in the appropriate protocol to the visited
network. When an Iridium World Cellular Services customer is called, the IRIDIUM
network will route the call to the visited network (which is expected to be
completed in seconds). The visited network will perform the necessary
authentication to allow the roaming customer to access the visited network as a
roaming customer and complete a call.
 
                                       16
<PAGE>   19
 
     An Iridium World Cellular Services customer can be "homed" on a cellular
network, in which case the customer's phone number will be his home cellular
phone number. Alternatively, the customer can be "homed" on the IRIDIUM System,
in which case the customer's phone number will begin with "8816" or "8817," the
international "country" codes assigned to Iridium. Customers "homed" on the
IRIDIUM System may pay a monthly subscription fee and a fee for calls made over
the IRIDIUM System. Customers "homed" on a cellular network may pay a feature
charge to Iridium that will be significantly below the monthly subscription fee,
but they may pay an additional roaming premium for calls made over the IRIDIUM
System (retail prices will be determined by the home network provider). In
general, customers who place a large number of Iridium satellite service calls
will have an incentive to be "homed" on the IRIDIUM System, while customers who
place a small number of Iridium World Satellite Services calls will have an
incentive to be "homed" on a terrestrial network.
 
     For inter-protocol terrestrial cellular roaming, a user must have a
telephone that operates with the visited network (e.g., a GSM phone if roaming
onto a GSM 900 network). An Iridium World Cellular Services customer will not be
required to own an Iridium phone. Subscribers will be able to use any
terrestrial wireless handset that can support a GSM SIM card or have an IS-41
handset that has been programmed for Iridium World Cellular Services service.
Motorola has indicated that it intends to develop TRCs compatible with most
major terrestrial wireless networks, although some (including CDMA) will be
developed and distributed after the commencement of commercial operations.
 
     Iridium's business plan currently calls for roaming agreements with
wireless operators in more than 50 countries by the commencement of commercial
operations in September 1998 expanding to approximately 150 countries by 2002.
As of March 1, 1998, Roaming had entered into more than 90 roaming agreements.
Many wireless systems as currently configured, including systems covering large
portions of South America, use a form of wireless technology that does not
permit sufficient anti-fraud security or certain international dialing and,
therefore, it is unlikely that Iridium will provide Iridium World Cellular
Services coverage in areas that are principally served by this type of
technology. Iridium World Cellular Services is not expected to be available
between certain IS-41 systems before 1999 or in Japan before 1999.
 
  PROGRESS TO DATE
 
     The following chart sets forth Iridium's past and projected development
milestones. Estimates for the commencement of service do not account for
potential delays. There can be no assurance that the IRIDIUM System will
commence commercial operations in September 1998 as planned.
 
     1987: IRIDIUM System conceived by Motorola
           Research and development begins
           
     1990: Planned IRIDIUM System announced worldwide
           FCC license application filed
           
     1991: Iridium, Inc. incorporated
           
     1992: Global MSS spectrum allocated at WARC-92
           Experimental license granted by FCC
           Full scale research and development by Motorola, Lockheed and
           Raytheon underway
           
     1993: Stock purchase agreements executed covering $800 million in
           equity commitments
           Space System Contract and Operations and Maintenance Contract become
           effective
           Key subcontracts signed by Iridium and Motorola
           System procurement and build-out commenced
           
     1994: IRIDIUM System preliminary design reviews completed
           Additional stock purchase agreements executed covering an additional
           $798 million
           Iridium satellite communications payload application-specific
           integrated circuits designed, fabricated and validated
           Gateway Authorization Agreements executed
 
                                       17
<PAGE>   20
 
     1995: Space Segment license awarded by FCC, subject to certain
           conditions
           IRIDIUM System critical design reviews completed
           Terrestrial Network Development Contract executed
           Nine Gateway Equipment Purchase Agreements executed
           Prototype phones available for lab testing
           Additional $300 million raised
 
     1996: Full-scale Iridium satellite manufacture begins
           $750 million Guaranteed Bank Facility established
           Kyocera begins development of Iridium phones
           Construction of gateways begins
 
     1997: First launch of Iridium satellites on a Delta II launch vehicle
           IWCL IPO completed
           $100 million SPI purchase of Class 1 Interests
           First launch of Iridium satellites on a Proton launch vehicle
           Offering of Units and Series B Notes completed
           Master control facility substantially complete
           Offering of Series C Notes completed
           $1 billion Secured Bank Facility established
           Two-thirds of satellite launches completed
           Gateway construction expected to continue and initial testing to 
           begin
           Prototype pagers tested with in-orbit satellites
           Limited voice testing with in-orbit satellites
           Significant progress in obtaining service providers, roaming
           agreements and L-band licenses
 
     1998: Satellite launches expected to be completed
           Gateway construction expected to be completed
           Subscriber trials expected to be completed
           Continued progress expected in obtaining service providers, roaming
           agreements and L-band licenses
           Commercial operations expected to begin
 
COMPETITION
 
     Certain sectors of the telecommunications industry are highly competitive
in the United States and other countries. The uncertainties and risks created by
this competition are intensified by the continuous technological advances that
characterize the industry, regulatory developments that affect competition and
alliances between industry participants. While no single existing wireless
communications system serves the global personal communications market today,
Iridium anticipates that more than one system will seek to serve this market in
some fashion in the future. Iridium believes that its most likely direct
competition will come from the planned ICO telecommunications service and from
one or more of the other FCC licensed MSS applicants -- Loral/Qualcomm
Partnership, L.P., on behalf of Globalstar, MCHI, on behalf of Ellipso, and
Constellation, on behalf of Aries.
 
     Iridium believes that its ability to compete successfully in the market for
global personal communications will depend primarily upon the timing of its
entry into the market, the technological qualities of the IRIDIUM System,
including its global coverage, signal strength, dependability and capacity and
the market appeal of Iridium's service offerings, including Iridium World
Cellular Services. Successful competition will also depend on the cost of
service to subscribers and the success of the marketing, distribution and
customer service efforts of gateway operators and service providers. Iridium
believes that it currently has an earlier planned full global service capability
than any of the licensed MSS applicants or ICO (based upon information contained
in their FCC filings or public announcements).
 
     While Iridium's system and proposed competing mobile satellite systems have
different planned technical capabilities, Iridium believes that the
distinguishing features of the IRIDIUM System will include: (i) its
 
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<PAGE>   21
 
higher signal strength for Iridium World Satellite Services which Iridium
believes will afford both better voice quality and signal penetration to
portable, hand-held phones and a higher degree of in-building penetration for
pagers; (ii) its intersatellite networking capability, which Iridium believes
will permit full global coverage, reduce the number of gateways required to
provide global coverage, enhance system reliability and capacity and reduce tail
charges incurred for the landline portion of telephone calls; and (iii) its
Iridium World Services offering, which will offer one number, one phone, one
bill, voice, fax and data communication and "follow-me paging" through either a
cellular or an Iridium phone number. Iridium believes that these distinguishing
features will make Iridium World Services better suited, compared with other
potential MSS competitors, to meet the global coverage and service quality
demanded from the high-end, traveling professional. In addition, Iridium
believes that it will be the first MSS system to offer global coverage in all
authorized jurisdictions.
 
  MOBILE SATELLITE SYSTEMS
 
     Inmarsat has announced plans for a 12-satellite, MEO system consisting of
ten operational and two spare satellites. This system is to operate in the 2 GHz
band and will be owned by a new Inmarsat affiliate, ICO. Many of the investors
in Inmarsat, including numerous state-owned telecommunications companies,
participate in the ownership of the new venture and ICO has announced the
receipt of significant equity commitments from these investors. Iridium believes
that ICO will be the most direct competitor to Iridium for the traveling
professional market. However, ICO has announced that the full constellation will
not be operational before the year 2000, which should provide Iridium with a
first-to-market advantage.
 
     Globalstar, a 48-satellite LEO system, has been proposed by Loral/Qualcomm.
It will offer both fixed and mobile telecommunications services. The Globalstar
system will employ CDMA digital modulation technology and Globalstar has
announced an expected in-service date in the first or second quarter of 1999.
The Globalstar system utilizes "bent pipe" technology and Globalstar has
indicated that it will require between 50 and 75 gateways to provide full global
land-based coverage of virtually all inhabited areas of the globe. The target
market for Globalstar, like the regional GEO systems described below, covers
persons who lack telephone service or are under served or not served by existing
or future cellular systems.
 
     Ellipso, a 17-satellite NGSO system, has been proposed by MCHI.
Constellation, a 54-satellite NGSO system, has been proposed by Constellation
Inc. Both systems would offer mobile satellite service globally and would use
CDMA digital modulation technology. The licenses for each of the Ellipso and
Constellation systems require that the system be fully operational by July 2003.
MCHI has announced that it intends to begin full operation of its system by the
year 2000, while Constellation has stated that it plans to begin operations in
2001.
 
     Iridium also expects to encounter competition from regional mobile
satellite systems, three of which have been launched and several of which are in
the planning stage, as well as from Inmarsat. In April 1995, AMSC launched a GEO
satellite covering the continental United States, Alaska, Hawaii, Puerto Rico,
the U.S. Virgin Islands and U.S. coastal waters to provide fixed and mobile
voice and data services to briefcase-sized mobile terminals and car-mounted
units. TMI, a spinoff of Telsat Canada, launched a virtually identical satellite
to AMSC's in 1996 to cover Canada and other parts of the Caribbean not served by
AMSC and to provide the same type of service to similar terminals. AMSC and TMI
subsequently agreed to transfer AMSC's to TMI's satellite. In addition, AMSC
announced plans to lease its satellite to ACTel, which plans to reposition the
satellite over Africa to offer MSS services there.
 
     Mobilesat, launched in 1994, is a GEO satellite covering Australia, New
Zealand and parts of the Pacific Basin which provides mobile and fixed, voice
and data services to briefcase-sized mobile terminals and car-mounted units.
ACeS has proposed a one- or two-satellite GEO satellite system covering Asia,
including Thailand, Indonesia and the Philippines, and offering mobile voice and
data telecommunications to briefcase-sized mobile terminals, car-mounted units
and hand-held units. APMT has proposed a two-satellite GEO satellite system
covering India, China and certain Southeast Asian nations, offering mobile
telecommunications to dual-mode, hand-held terminals. Satphone and Thuraya are
two consortia proposing GEO systems to serve the North Africa/Middle East
region, with dual-mode hand-held phones. EAST is a hybrid system
 
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<PAGE>   22
 
proposed by Matra-Marconi to provide fixed services, and mobile services to
hand-held units, with a GEO satellite covering Europe, the Middle East and
Africa. Afro-Asian Satellite Communications has proposed a two GEO satellite
system covering 55 countries in the Middle East, the Asia Pacific region and
eventually Africa, serving dual-mode, hand-held terminals. Elekon-Stir is a
proposed Russian LEO system consisting of seven satellites offering store and
forward mobile data services and with limited voice capabilities. Inmarsat
currently operates a world-wide GEO system that is capable of providing fixed
and mobile voice and data services to laptop-sized "Mini-M" terminals and to
briefcase-sized mobile terminals and car-mounted units.
 
     Other regional systems that may be established could also provide services
that compete with the Iridium World Satellite Services. The regional GEO systems
do not provide full global coverage and, therefore, are expected to generally
target persons not currently served by landline or cellular telephone service.
It is possible that one or more regional mobile satellite services could enter
into agreements to provide intersystem roaming that could be global or nearly
global in scope.
 
  LAND-BASED TELECOMMUNICATIONS SYSTEMS
 
     Iridium does not intend to compete with terrestrial cellular telephone
systems for the vast majority of personal communications services, because,
among other reasons, Iridium satellite voice services will be priced
significantly higher than most terrestrial wireless services, the IRIDIUM System
will lack the operational capacity to provide local service to large numbers of
subscribers in concentrated areas and Iridium's satellite system is not expected
to afford the same voice quality, signal strength, or ability to penetrate
various environments (such as buildings) as terrestrial wireless systems.
Rather, Iridium expects its subscribers to use Iridium World Satellite Services
in areas or situations where local cellular systems use a standard incompatible
with that of the users' home markets or where terrestrial service is
unavailable, inconvenient, of poor quality or unreliable. As terrestrial
cellular systems expand their geographical penetration, particularly outside of
major urban and suburban areas and improve the quality of coverage in
already-served areas, potential customers for Iridium World Satellite Services
and other satellite-based services will be lost. Moreover, the advent of near
global terrestrial cellular roaming described below will represent a significant
competitive threat to Iridium's satellite-based service and Iridium World
Cellular Services, particularly with respect to traveling professionals who
spend most of their time in regions that are well served by terrestrial-based
wireless services.
 
  TERRESTRIAL CELLULAR INTERPROTOCOL ROAMING SERVICES
 
     Iridium's Iridium World Cellular Services service offering, which will
allow Iridium subscribers to roam onto a variety of cellular networks, will face
competition from existing and future terrestrial cellular interprotocol roaming
services, which provide roaming services across similar cellular networks.
 
     GTE Mobilnet (GTE) and Deutsche Telekom Mobil ("DeTeMobil") of Germany
currently offer GlobalRoam, a two-way cellular roaming service between certain
North American AMPS cellular networks and GSM cellular networks in certain
countries where DeTeMobil has GSM roaming agreements. AT&T Wireless Services of
the United States and Vodafone of the United Kingdom offer CellCard, a service
which provides one-way roaming from certain North American AMPS networks to
certain GSM networks in certain countries which have roaming agreements with
Vodafone.
 
     Two other proposed MSS systems, ICO and Globalstar, and at least one
regional GEO, ACeS, have indicated that they may also offer some form of
dual-mode satellite/cellular service, which may include interprotocol roaming
capabilities such as those expected to be offered by Iridium.
 
     In addition, a number of rental services, primarily United States based,
provide cellular phones to persons traveling in countries with cellular
standards that differ from the traveler's home market. For example, Worldcell
provides United States based travelers GSM phones for travel to Europe, while
Shared Technologies Cellular, in conjunction with United Airlines, provides AMPS
phones for visitors to the United States. These businesses often have rental
locations at airports, hotels and auto rental locations and will also deliver
phones by mail service. These companies' services may compete with Iridium World
Cellular Services and Iridium World Satellite Services.
                                       20
<PAGE>   23
 
  PAGING
 
     In addition to competing with paging services offered by proposed regional
MSS systems, Iridium World Page Services will face competition from regional and
nationwide terrestrial paging services, and from M-Tel's SkyTel service which
currently provides paging services to over 20 countries around the world. SkyTel
operates by forwarding paging messages via international circuits to a foreign
paging network that subsequently transmits the message over its local network.
Also, in 1995 Inmarsat introduced an international satellite-based one-way
messaging service. Iridium believes that the relatively higher link margins of
the Iridium World Page Services will provide superior performance to any
proposed satellite paging systems and that Iridium will be the only global
paging service using a belt-worn pager before 2000.
 
  COMPETITION RELATED TO NEW TECHNOLOGIES AND NEW SATELLITE SYSTEMS
 
     Iridium may also face competition in the future from companies using new
technologies and new satellite systems which could render the IRIDIUM System
obsolete or less competitive. Such new technologies, even if not ultimately
successful, could have a material and adverse effect on Iridium as a result of
associated initial marketing efforts. Iridium's business could be materially and
adversely affected if competitors begin operations or existing
telecommunications service providers penetrate Iridium's target markets before
completion of the IRIDIUM System.
 
REGULATION OF IRIDIUM
 
  TELECOMMUNICATIONS REGULATION AND SPECTRUM ALLOCATION: OVERVIEW
 
     The allocation and use of the radio frequency spectrum for the provision of
communications services are subject to international and national regulation.
The implementation and operation of the IRIDIUM System, like those of all other
satellite and wireless systems, are dependent upon obtaining licenses and other
approvals.
 
     The international regulatory framework for spectrum allocation and use is
established by the International Telecommunication Union ("ITU"). The ITU, which
is composed of representatives from most of the countries of the world, meets
officially at conferences known as World Radio Conferences ("WRCs") (previously
known as World Administrative Radio Conferences or "WARCs") to decide the radio
services that should be permitted to operate in various radio bands and the
rules for operating in those bands.
 
     The national administration of each country decides how the radio
frequencies that the ITU has allocated to particular communications services
should be allocated and assigned domestically to specific radio systems. In
addition, the provision of communications services in most countries is subject
to regulatory controls by the national governments of each country.
 
     In the United States, the FCC is the regulatory agency responsible
domestically for allocating spectrum and for licensing and regulating
communication systems, facilities, and services. The FCC regulates satellites in
accordance with laws passed by the United States Congress, particularly the
Communications Act of 1934, as amended (the "Communications Act"), regulations
adopted pursuant to those laws, and judicial opinions rendered by U.S. courts.
 
  IRIDIUM SYSTEM LICENSING REQUIREMENTS
 
     The IRIDIUM System is being built with the capability to link phones to
Iridium satellites using up to 10.5 MHZ of spectrum in L-band frequencies from
1616-1626.5 MHZ on a bi-directional time division basis, Earth-to-space and
space-to-Earth. The system will also be capable of operating "feeder" links in
the frequencies 19.4-19.6 GHz and 29.1-29.3 GHz (connecting satellites to ground
earth station gateway facilities) and intersatellite links in the frequencies
23.18-23.38 GHz (linking the satellites in the constellation to each other).
 
     The licensing requirements for the IRIDIUM System include: (i) the FCC
license for the space segment; (ii) the licenses in each country where there is
a gateway or TT&C earth station; and (iii) the
 
                                       21
<PAGE>   24
 
licenses in each country for the Iridium subscriber equipment and service and
for the use of required frequencies. In addition, the IRIDIUM System must be
coordinated with other users of spectrum that have rights to use the same or
adjacent frequencies to the frequencies assigned to the IRIDIUM System. It is
only necessary for one country to license the space segment, which includes
authorizing the construction, launch, and operation of the satellites, including
the use of the intersatellite links and the operation of the primary satellite
control center in the country.
 
     The gateway earth stations provide the feeder link between the satellite
network and the PSTNs around the world. Iridium expects that Iridium gateways
will be located in at least eleven different countries during the first years of
operation. A radio license to operate a gateway earth station in a significant
portion of the 29.1-29.3 GHz (Uplink) and 19.4-19.6 GHz (Downlink) frequency
bands must be issued by the appropriate governmental authority of each of the
countries in which an Iridium gateway is to be located. Similar authorizations
may be obtained in the United States and Canada to operate TT&C earth stations.
 
     Each country in which Iridium intends to operate must authorize the use of
the frequencies linking the phones to the satellites, allowing communication
between end users and the satellite network. At a minimum, the IRIDIUM System
needs exclusive use of the frequencies 1621.35-1626.5 MHZ for this purpose, with
authority to operate bi-directionally within that band. In order to operate the
Iridium subscriber equipment in a country, Iridium or the manufacturers of
Iridium handsets must obtain from the country a certificate of type approval to
permit the operation of phones and pagers within the country. The licensing
procedures vary in different countries. Generally there are three aspects to the
required license(s): (i) authorization for the use of the frequencies requested;
(ii) authorization for the equipment to be marketed and used (including
subscriber equipment that may circulate from country to country); and (iii)
authorization for the service to be provided.
 
     Because of the global mobile nature of the service, each national
administration will be asked to grant a blanket or class license authorizing a
substantial number of handsets, recognize equipment that has been type approved
or certified by other countries and allow for the free circulation and
transborder roaming of terminal equipment.
 
  LICENSING STATUS
 
  General
 
     Iridium, Motorola, and the gateway owners have made substantial progress in
taking the regulatory steps needed for the IRIDIUM System to obtain the coverage
assumed in its business plan, but a significant number of additional regulatory
approvals outside the United States remain to be obtained. Each gateway must be
licensed by the jurisdiction in which it is located. Licenses have been granted
for the gateways in the United States (Tempe), Thailand (Bangkok), Taiwan
(Taipei), Korea (Seoul), Brazil (Rio De Janeiro), Japan (Nagano), Saudi Arabia
(Jeddah) and Italy (Fucino). The North American gateway operator has contracted
to build a second gateway in the United States. Additionally, experimental
licenses have been granted for the gateways in Russia (Moscow) and India
(Bombay) and permit the gateways to test their links between the Iridium
satellites and terrestrial services. In the case of China, approval has been
issued to China Aerospace Corporation, the parent company of Iridium China, and
the Ministry of Posts and Telecommunications (the "MPT") to proceed with the
establishment of a testing gateway for Iridium in China. The MPT will be
primarily responsible for construction, management and operation of the gateway,
and arrangements are being made between China Aerospace and the MPT to take
advantage of that decision. The licenses that have been received by the gateways
are subject to conditions that relate to the completion of construction and the
provision of technical information to regulatory authorities. Iridium expects
that the licenses its other gateways are seeking will have similar conditions.
There can be no assurance that the additional licenses necessary for Iridium to
obtain the service capability assumed in its business plan will be obtained on a
timely basis or at all. In addition, while Iridium believes the conditions
specified in the final gateway licenses that have been received can be
satisfied, there can be no assurance that such conditions will be satisfied or
that conditions to licenses received in the future will be satisfied.
 
     As of March 1, 1998, 51 administrations had given all or a substantial
portion of the authorizations necessary to operate the IRIDIUM System in their
territories. The 51 countries and territories are: the United
 
                                       22
<PAGE>   25
 
States, Italy, Argentina, Colombia, Honduras, Thailand, Malaysia, Guatemala,
Puerto Rico, Finland, Russia, El Salvador, Brazil, Japan, Philippines, South
Korea, Taiwan, Germany, Austria, Canada, Australia, Venezuela, Sweden, Norway,
Iceland, Uruguay, New Zealand, Chile, Senegal, Morocco, Afghanistan, Panama, San
Marino, Maldives, Micronesia, Cook Islands, American Samoa, Baker Island, Guam,
Jarvis Atoll, Johnston Atoll, Midway Islands, Northern Marianas, Palmyra Atoll,
United States Virgin Islands, Wake Island, Christmas Island, Cocos (Keeling)
Islands, Norfolk Island and Svalbard & Jan Mayen. Iridium is seeking licenses
throughout the world. However, Iridium and its gateway operators are placing
emphasis on obtaining approvals by September 1998 from the 70 to 90 countries
where Iridium expects substantially all of the demand for, and usage of, Iridium
World Services is likely to be generated.
 
     The licenses that have been received generally are subject to conditions
relating to, among other things, (i) confining operations to the scope of the
license; (ii) complying with applicable electronic surveillance laws and (iii)
the continued operation of the IRIDIUM System. While Iridium believes that all
required licenses will be obtained in a substantial majority of the countries it
is placing emphasis on by September 1998 and that the IRIDIUM System would be
able to satisfy the conditions specified in such licenses, there can be no
assurance that additional authorizations will be granted at all, or in a timely
manner, or without burdensome conditions. There can be no assurance that
sufficient licenses for Iridium to obtain the coverage assumed in its business
plan will be obtained on a timely basis or at all. Nor can there be any
assurance that Iridium will be able to secure additional spectrum, if needed. In
addition, while Iridium is not aware of any country that has indicated that it
will not provide a service license by the commencement of commercial operations,
the process of obtaining service licenses in each country of the world is
complex and certain gateway operators, in particular those with responsibility
for obtaining licenses in numerous countries such as Iridium Africa and Iridium
SudAmerica, have indicated that they may not receive regulatory approvals for
some of the countries of their territories at the anticipated commencement of
commercial operations in September 1998.
 
  Spectrum Allocation
 
     At the WARC-92, the ITU allocated to the MSS service: (i) on a primary
basis, 16.5 MHZ of spectrum in the 1610-1626.5 MHZ band (Earth-to-space); and
(ii) on a secondary basis, 12.7 MHZ of spectrum in the 1613.8-1626.5 MHZ band
(space-to-Earth). The ITU had previously authorized the other frequency bands
used in the IRIDIUM System for the purpose for which Iridium intends to use
them. At the 1995 World Radio Conference ("WRC 95"), the ITU defined the
coordination procedure for systems operating in the bands proposed to be used by
Iridium for its feeder links. The ITU's role in allocating frequencies necessary
for the operation of the first generation IRIDIUM System is now essentially
complete.
 
  United States Licensing
 
     The space segment of the IRIDIUM System, including the use of the
intersatellite frequency band (23.18 to 23.38 GHz), has already been licensed by
the FCC in the United States. The license has a term of ten years and contains
other conditions typical of satellite system licenses granted by the FCC. The
license term begins on the date the first satellite is in orbit and the first
transmission occurs. The license states that, absent extensions, the IRIDIUM
System must be fully constructed and operational by October 2002. Two applicants
have appealed the FCC decision which (i) found that they initially had failed to
establish the necessary financial qualifications, and gave them additional time
to demonstrate such qualifications; and (ii) granted licenses to the IRIDIUM
System and two other global MSS systems. The FCC subsequently waived the
financial qualification condition and granted these two applicants a license.
This appeal is being held in abeyance while the FCC considers an application for
review of its decision to waive the financial qualification condition. The
license for the IRIDIUM System remains in full force and effect while this
appeal is pending and Iridium expects that the FCC decision to issue a license
for the IRIDIUM System will be affirmed, although there can be no assurance that
the courts will do so.
 
     Although the FCC has stated that it will renew the IRIDIUM System
authorization unless extraordinary circumstances prevent it from doing so, there
can be no assurance that the IRIDIUM System license will be renewed.
 
                                       23
<PAGE>   26
 
     The IRIDIUM System license is held by Space System License, Inc., a wholly
owned subsidiary of Motorola, which is contractually bound to operate the system
for the exclusive benefit of Iridium. As a result, Motorola, rather than
Iridium, has the responsibility to construct, launch, operate and maintain the
IRIDIUM System in accordance with the terms of the license. Any request to renew
or modify the IRIDIUM System license must be filed and prosecuted by Motorola.
If the Space System Contract or the Operations and Maintenance Contract is ever
terminated or not renewed, Motorola would have to assign the Iridium license to
Iridium or a third party. Any such assignment would be subject to FCC approval.
 
     Under both the ITU's rules and the terms of the IRIDIUM System license, the
IRIDIUM System must be coordinated with all other domestic and foreign users of
the frequency bands assigned to the IRIDIUM System. The United States has
essentially completed the process of registering the Iridium space segment
operations with the ITU. It has submitted the advance publication and
coordination materials to the ITU and coordinated the use of the space segment
with all those administrations expressing concerns that the system might cause
or receive interference to their systems. On this basis, the United States has
requested the ITU to notify the IRIDIUM System in the ITU's Master Frequency
Register, which will give it a legal right to protection from interference from
future systems. The request has been published, and administrations that have
previously engaged in coordination with the United States regarding the IRIDIUM
System may file comments on the claim that coordination is complete. Any
comments will need to be resolved before the IRIDIUM System will be listed in
the Master Frequency Register. Iridium believes that coordination has been
completed successfully between the IRIDIUM System and all existing or planned
systems that have been identified under the coordination process. If further
coordination is required with any identified system, it is possible that such
coordination would not be completed prior to Iridium's projected commencement of
commercial operations. However, Iridium believes that failure to complete such
coordination would be unlikely to have a material adverse effect on Iridium.
There is no other action required from any other country to license the space
segment.
 
     Under the FCC's rules and the terms of the license, prior to commencing
operations Motorola must complete coordination with U.S. radio astronomy sites
and complete consultations with the Inmarsat and Intelsat systems. Both of these
have been accomplished. See "-- Consultations and Coordinations."
 
     In the United States, frequencies have been assigned to the IRIDIUM System
feeder links in the 29.1-29.25 and 19.4-19.6 GHz bands. The 29.1-29.25 GHz
frequencies are shared with the local multipoint distribution service ("LMDS"),
and the FCC has adopted restrictions on LMDS operations that are designed to
protect MSS feeder links from interference. The 19.4-19.6 GHz frequencies are
shared with terrestrial microwave stations and each gateway earth station must
be coordinated in advance with licensed microwave stations. The FCC recently
granted a license for the first IRIDIUM System gateway to be located in Tempe,
Arizona. Licenses have also been granted in the United States for authority to
construct and operate TT&C facilities in Arizona and Hawaii.
 
     The United States license authorizing construction, launch and operation of
the space segment includes the use of 1621.35 to 1626.5 MHZ radio frequency band
in the United States exclusively for the Iridium subscriber links. This
frequency assignment may be increased if no more than one CDMA satellite system
becomes operational in the adjacent frequency band. The FCC has issued a license
permitting 200,000 Iridium mobile phones to be used in the United States,
conditioned upon Motorola submitting a study showing its terminals will comply
with radiation hazard requirements. Iridium believes that Motorola will comply
with this requirement.
 
  Licensing Outside the United States
 
     In countries other than the United States, the remaining significant
regulatory steps include: (i) in each country in which a gateway or system
control terminal will be located, authorization to construct and operate those
facilities, including necessary gateway feeder link spectrum assignments, must
be obtained; (ii) in each country in which Iridium subscriber equipment will
operate, authority to market and operate that equipment with the IRIDIUM System,
and the use of the necessary user link spectrum, must be granted; and (iii)
coordination of the use of the frequencies to be used by the IRIDIUM System must
be achieved.
 
                                       24
<PAGE>   27
 
Applications for authorizations for gateway, subscriber and TT&C facilities are
in varying stages of processing in countries other than the United States and
there can be no assurance that these applications will be granted or that
sufficient spectrum for initial needs will be assigned. Of the gateway and
subscriber authorizations granted to date, several have conditions attached to
them concerning their operation and there can be no assurance that these
conditions will be satisfied. If the initial spectrum assignments prove
insufficient as demand increases over time, there is no assurance Iridium will
be able to obtain additional spectrum from the FCC or other administrations.
 
     Countries in Europe are approaching frequency assignments and licensing
issues on a regional basis. CEPT, an organization of forty-three countries in
greater Europe, has adopted recommendations regarding the frequency assignment
plan and the authorization process which it will recommend that member countries
follow. These recommendations are voluntary but 16 European countries have
adopted some or all of these recommendations and many other European
countries -- especially EU members -- are expected to follow these
recommendations. These recommendations currently give Iridium the opportunity to
obtain the spectrum it needs to operate initially in Europe. There is a risk
that Iridium may have to share this spectrum with other planned satellite
systems using an FDMA/TDMA access mode. Because European countries must follow
ITU procedures, which Iridium believes will protect Iridium's minimum spectrum
requirements, Iridium believes this risk is unlikely to occur. However, there
can be no assurance that Iridium will receive all the spectrum it needs to
operate in Europe.
 
     Iridium mobile subscriber equipment must be type accepted in many countries
in accordance with national, regional and/or internationally-recognized
standards relating to unwanted emissions, network controls, etc. At the 1996 ITU
World Telecommunication Policy Forum, the participating countries agreed to
start a process that has become known as the GMPCS memorandum of understanding
(the "GMPCS MOU"). Participating countries have concluded the development of a
first set of agreements covering the IRIDIUM System and the Iridium subscriber
equipment, which may facilitate (i) the free circulation of subscriber equipment
and (ii) universal handset type approvals. It is now necessary for countries to
implement these agreements. Absent such implementation, Iridium subscriber
equipment circulation from country to country would require numerous bilateral
agreements. While a first set of agreements has been developed, there can be no
assurance that countries will implement these agreements in time to benefit
Iridium.
 
     In connection with Iridium's efforts to obtain worldwide regulatory
approval for Iridium World Services, governmental, political and security
concerns have arisen. One such concern is that authorization of Iridium World
Services by many countries will be contingent upon Iridium providing such
countries with the ability to legally monitor calls made to or from such
countries. Iridium believes that it will be able to address the concerns of many
of these countries by the date commercial service is expected to begin and of
other countries after the expected commencement of commercial operations.
However, there can be no assurance that it will be able to do so or that the
emergence of governmental or political concerns will not impair the ability to
obtain licenses or the offering of Iridium World Services on a timely basis.
 
  Research and Development -- Licensing
 
     In September 1997, Iridium filed an application with the FCC for
authorization to operate a satellite system in the 2 GHz band. Such action is a
preliminary step in the research and development process and Iridium has made no
significant financial commitment to long-term enhancements.
 
  Consultations and Coordinations
 
     Intelsat and Inmarsat are international organizations that own and operate
satellite systems. International obligations undertaken by the nations which
have signed the international agreements creating Intelsat and Inmarsat,
including the United States, require the United States to consult with both
Intelsat and Inmarsat prior to authorizing any international satellite system to
ensure that the system will not cause significant economic or technical harm to
the Intelsat system or significant technical harm to the Inmarsat system. The
consultation with Intelsat and Inmarsat have been completed.
 
                                       25
<PAGE>   28
 
     Currently, the Russian global navigation satellite system, GLONASS,
operates in a frequency band that partially overlaps the 1610-1626.5 MHZ MSS
band. When operating co-channel with GLONASS, MSS systems are required to
coordinate their operations with the previously registered operations of
GLONASS. In addition, even when not operating co-channel, they are required to
protect GLONASS operations from harmful interference. Iridium believes that a
bilateral coordination agreement between Russia and the United States is in the
final stages of negotiation, under which Russia would agree to move the GLONASS
system's operations to frequencies below 1610 MHZ by January 1, 1999, and to
frequencies below approximately 1605 MHZ by the year 2005. The FCC has
conditioned the Iridium blanket subscriber license upon compliance with a level
of protection from interference to the GLONASS system. While that level of
protection has not been determined, Motorola has committed to meeting the most
stringent protection level requested by U.S. aviation interests. During the
three-month period between September 1, 1998, the month Iridium expects to
commence commercial operations, and January 1, 1999, the month the GLONASS
operational frequencies will shift from being below 1616 MHZ to being below 1610
MHZ, and during the interim period between 1999 and when GLONASS shifts to below
1605 MHZ, Iridium believes it will be able to satisfy any reasonable level of
protection that is required although there can be no assurance as to what level
of protection will be required. Iridium believes that it can meet the protection
requested for GLONASS when GLONASS shifts down in frequency to below 1605 MHZ by
January 1, 2005. Other administrations will also need to coordinate with the
Russian Federation concerning the level of protection that will be afforded to
GLONASS in their territory. In Russia itself, additional restrictions may be
imposed which may limit the amount of spectrum available to Iridium in Russia.
There can be no assurance that sufficient spectrum will be available to meet
subscriber demand in Russia or any other country that requires a higher level of
protection for GLONASS than the United States. Moreover, there can be no
assurance that CDMA systems will be able to meet the levels of protection
required for GLONASS, either in the United States, Russia or elsewhere. If such
systems do not meet the protection requirements, the FCC and/or other countries'
regulatory authorities might consider requests to reassign the CDMA systems to
higher frequencies within the 1610-1626.5 MHZ allocation in order to protect
GLONASS. This development might in turn reduce the amount of spectrum available
to Iridium. See "-- Competition."
 
     Under the FCC's rules, the IRIDIUM System also must protect U.S. radio
astronomy sites during periods when they are observing in the 1610.6-1613.8 MHZ
band. Coordination agreements have been reached with respect to all 15 U.S.
radio astronomy sites. There can be no assurance that the technical assumptions
underlying the coordination agreements with the U.S. radio astronomy sites will
not differ from the manner in which the IRIDIUM System performs once it is
operational.
 
     Other administrations may also require that the IRIDIUM System be
coordinated with radio astronomy sites that observe in the 1.6 GHz band. Iridium
believes there are approximately six other countries that have such radio
astronomy sites observing in that band where coordination has not yet been
completed. Iridium and Motorola have commenced coordination discussions with
most of these non-U.S. radio astronomy sites. While Iridium believes that it
will be able to demonstrate that Iridium's operations will not materially and
adversely affect the ability of radio astronomers at these sites to observe in
the 1.6 GHz band, there can be no assurance that these coordinations will be
concluded successfully or in a timely manner.
 
     In addition to potential interference between MSS systems and other users
of the 1.6 GHz band, there is a potential for intersystem interference among the
MSS systems themselves.
 
     Emissions standards have been developed in various international forums
which would limit out-of-band emissions into the IRIDIUM System to a level which
Iridium believes would not cause harmful interference to the operation of the
IRIDIUM System. These standards would apply to all CDMA MSS systems, including
any subsequent CDMA MSS systems which are authorized to use the 1610-1621.35 MHZ
band. There can be no assurance, however, that the standards adopted would not
cause harmful interference to the operation of the IRIDIUM System.
 
     The IRIDIUM System MSS downlinks operate on a secondary basis. Under the
rules of the ITU and the FCC, these secondary downlinks may not cause harmful
interference to any primary spectrum user that is operating co-frequency and
must accept any interference caused to them by such primary spectrum users. In
 
                                       26
<PAGE>   29
 
light of the secondary nature of IRIDIUM's MSS downlinks, the failure by an MSS
operator to implement an acceptable CDMA emissions mask could significantly
reduce the total capacity of the IRIDIUM System. Furthermore, the downlinks of
the IRIDIUM System may need to accept interference from Inmarsat terminals,
including Inmarsat aeronautical and land mobile terminals, when they are in the
vicinity of an Iridium terminal.
 
  UNITED STATES ELECTRONIC SURVEILLANCE LAWS
 
     The Communications Assistance for Law Enforcement Act of 1994 ("CALEA") was
enacted on October 25, 1994. CALEA requires that telecommunications carriers
deploy equipment, facilities and services that meet certain electronic
surveillance requirements identified in the statute. Penalties of $10,000 a day
for each wire tap order not fulfilled could be imposed under CALEA as well as an
order of compliance in the case of a failure to comply, and other unspecified
penalties, including injunctions, might otherwise be imposed. The U.S.
government has indicated that CALEA imposes requirements on the IRIDIUM System
similar to the requirements that the U.S. government has requested to be
implemented by the cellular industry. Discussions with the U.S. government are
ongoing to determine the extent of the IRIDIUM System's obligations and the
timing of the implementation of these requirements into the IRIDIUM System. It
is unknown whether an agreement will be reached with the U.S. government which
resolves these issues. Thus, there exists the possibility of a dispute over the
IRIDIUM System's obligations.
 
  UNITED STATES INTERNATIONAL TRAFFIC IN ARMS REGULATIONS; EXPORT
ADMINISTRATIONS ACT
 
     The United States International Traffic in Arms Regulations under the
United States Arms Export Control Act authorize the President of the United
States to control the export and import of articles and services that can be
used in the production of arms. Among other things, these regulations limit the
ability to export certain articles and related technical data to certain
nations. The scope of these regulations is very broad and extends to certain
spacecraft, including certain satellites. Certain information involved in the
performance of Iridium's operations will fall within the scope of these
regulations.
 
     The Export Administrations Act and the regulations thereunder control the
export and re-export of United States-origin technology and commodities capable
of both civilian and military applications (so-called "dual use" items). These
regulations may prohibit or limit export and re-export of certain
telecommunications equipment and related technology which are not affected by
the International Traffic in Arms Regulations by requiring a license from the
Department of Commerce before controlled items may be exported or re-exported to
certain destinations. Although these regulations should not affect Iridium's
ability to put the space segment in place, the export or re-export of Iridium
subscriber equipment as well as earth stations and related equipment and
technical data, may be subject to these regulations, if such equipment is
manufactured in the United States and then exported or re-exported. These
regulations may also affect the export, from one country outside the United
States to another, of United States-origin technical data or the direct products
of such technical data.
 
     Motorola has obtained authorization to export the Iridium satellites,
including associated launch support equipment, currently scheduled to be
launched in Kazakhstan on Khrunichev's Proton launch vehicle. Motorola has
obtained authorization needed to export the Iridium satellites, including
associated launch support equipment, currently scheduled for launch in China on
China Great Wall's Long March 2C launch vehicle.
 
  COMPETITION
 
     At the time that the FCC authorized the construction of the IRIDIUM System,
it also authorized one other competitive MSS systems to operate in the
1610-1626.5 MHZ band. This was the Globalstar System proposed by Loral/Qualcomm
Partnership, L.P. ("Loral/Qualcomm"). The Globalstar and IRIDIUM Systems were
the only big LEO systems initially licensed by the FCC. While the IRIDIUM System
was granted exclusive use of the 1621.35-1626.5 MHZ band in the United States,
Globalstar was granted shared use of the bands 1610-1621.35 MHZ and 2483.5-2500
MHZ. These systems were not mutually exclusive.
 
                                       27
<PAGE>   30
 
     At the same time the FCC authorized the IRIDIUM, Globalstar and Odyssey
systems, the FCC afforded three other applicants (that had initially failed to
establish their qualifications) additional time in which to demonstrate that
they were financially qualified. They were MCHI, Constellation, and American
Mobile Satellite Corporation ("AMSC"). In September 1996, AMSC chose not to
proceed and the FCC dismissed its application.
 
     MCHI and Constellation have filed challenges to the FCC's determination
that they were each not financially qualified, with the United States Court of
Appeals for the District of Columbia Circuit. These challenges include an appeal
from the FCC's decision to license the IRIDIUM, Globalstar and Odyssey Systems.
This court action has been placed in abeyance pending a final FCC decision on a
petition for review of the FCC's subsequent decision to waive the financial
qualifications rules and grant licenses to MCHI and Constellation.
 
     Following the submission of updated financial information by MCHI and
Constellation to the FCC, by Orders released July 1, 1997, the FCC's
International Bureau granted licenses for the Ellipso system proposed by MCHI
and the Aries system proposed by Constellation. These Orders, which are subject
to review by the full Commission, increase to four the number of U.S.-licensed
global MSS systems (including the IRIDIUM System) and may result in increased
competition for the IRIDIUM System. The licensing of these two Code Division
Multiple Access ("CDMA") systems reduces the possibility that only one CDMA
system will become operational in the 1610-1621.35 MHZ frequency band adjacent
to the IRIDIUM System's frequency assignment. This in turn reduces the
likelihood that the FCC will increase the frequency assignment for the IRIDIUM
System. In addition, MCHI's and Constellation's licenses may cause the CDMA
based global systems to have less capacity available for their use and thereby
make it more difficult for them to accept the protection levels required for
GLONASS, either in the United States, Russia or elsewhere. This could lead to
requests to reassign the CDMA systems to higher frequencies within the
1610-1626.5 MHZ allocation to protect GLONASS. This development might in turn
reduce the amount of spectrum available to Iridium. Furthermore, the possibility
that two more CDMA systems may become operational may increase the risk of
harmful interference into the IRIDIUM System's MSS downlinks.
 
     Competition with the IRIDIUM System is also expected from ICO, the private
company affiliated with Inmarsat to provide a mobile satellite service using
satellites to be positioned in medium earth orbit. ICO's system is expected to
become a significant competitor of the IRIDIUM System. ICO's proposed service
will not operate in the same set of user link frequencies in which the Iridium,
Globalstar and Odyssey systems are proposed to operate.
 
  INTERCONNECTION
 
     The IRIDIUM System is predicated upon an international dialing and
signaling model that treats the system as if it were a separate "country." Most
traffic moving to or from the IRIDIUM network will be considered as
international traffic. The Iridium gateway serves as the link between the
IRIDIUM System and the PSTNs within the gateway territory. Consistent with this
"country" model, an Iridium gateway needs to route traffic between the IRIDIUM
System and the international PSTNs. For a country to send a call originating on
its PSTN to the IRIDIUM System, it must send the call to the nearest IRIDIUM
gateway, which may be in a different country. Similarly, for the IRIDIUM System
to send an IRIDIUM System-originated call to a country's PSTN, it must send the
call through its gateway to the terminating PSTN. In both cases, Iridium
gateways need to interconnect to the PSTN. Thus, interconnection agreements need
to be established between the Iridium gateway operators and the local PSTN
operators in all countries served by the gateway. Some gateways may be required
to achieve carrier status in their countries of origin in order to enter into
such agreements.
 
     Every country should be able to send traffic from its PSTN to the nearest
Iridium gateway. Since the IRIDIUM System will be treated like a "country" with
a dedicated country code, each country will route traffic based on that country
code to the Iridium gateway. To route IRIDIUM System traffic properly, the
network operators in every country must program their international switches
(and domestic ones, if necessary) to include the Iridium country code and
signaling point codes.
 
                                       28
<PAGE>   31
 
  COUNTRY CODE
 
     The ITU Telecommunication Standardization Bureau ("TSB") is empowered to
allocate international dialing codes for countries, geographic areas and global
services. Although there are numerous three-digit "country codes" still
available for allocation, until recently such codes have generally been granted
only to countries and to geographic areas, in order to conserve this limited
resource. The TSB is advised on international code issues by its Study Group 2,
which is composed primarily of representatives of telecommunications service
organizations and representatives of government administrations. Iridium applied
to the TSB for a country code for the IRIDIUM System. ICO, Globalstar and
Odyssey submitted requests for country code resources, as well.
 
     In May 1996, Study Group 2 decided that these systems should share a
country code and allocated code "881" for this purpose. Each eligible system
will receive two values of the digit following the code 881. For example, the
IRIDIUM System will use codes 8816 and 8817, which will enable Iridium to
identify 200 million subscribers. The Director of the TSB has advised Iridium
that these codes have been assigned to the IRIDIUM System.
 
     The four-digit country code must be used by domestic and international
carriers in each country to route calls to the IRIDIUM System and to recognize
those calls for billing purposes as calls to the Iridium network. Although the
typical three-digit country code is supported by all carriers for the call
routing and billing systems, it is expected that some carriers will have to
modify their routing and billing systems, and in some cases, enhance their
switch capacity, to be able to route and bill for calls destined for the
four-digit codes assigned to the IRIDIUM System and other MSS systems. It is
possible that some carriers will not agree to make the necessary modifications,
to make them in a timely fashion, or to make them without Iridium and other MSS
system operators paying for some or all of the costs of such modifications. It
is generally expected that resistance to making the modifications is most likely
to occur in developing countries that employ less modern switching equipment.
 
RESEARCH AND DEVELOPMENT
 
     Iridium has engaged in preliminary discussions with Motorola regarding
possible long-term enhancements to the IRIDIUM System, including a possible
second generation of Iridium satellites, and in September 1997 Iridium filed an
application with the FCC for authorization to operate a satellite system in the
2GHz band. Such actions are preliminary steps in the research and development
process and Iridium has made no significant financial commitment to long-term
enhancements.
 
EMPLOYEES
 
     Pursuant to the Limited Liability Company Agreement of Iridium each officer
of Parent holds the same position with Iridium. There are 13 persons who are
executive officers of Parent and Iridium. Iridium has no employees other than
its officers. As of March 1, 1998, Parent had approximately 417 full-time
employees. None of Parent's employees are covered by a collective bargaining
agreement. Parent's management considers its relations with its officers and the
employees of Parent to be good.
 
ITEM 2.  PROPERTIES
 
     Motorola has constructed the master control facility on a 10.4 acre parcel
of land in Loudoun County, Virginia, TT&C facilities on leased or licensed land
in Yellowknife and Iqualuit, Northwest Territories, Canada and Oahu, Hawaii and
the backup control facility in Rome, Italy. Title to these properties is
scheduled to be passed to Iridium prior to the time Motorola completes the final
milestone under the Space System Contract.
 
     Parent leases its corporate headquarters office space in Washington, D.C.
The lease expires in May 2004, and has an option to renew for one three year
period. In addition, Parent leases office space in Reston, Virginia and
Chandler, Arizona. The leases expire in September 2004 and March 1998
respectively. The Reston,
 
                                       29
<PAGE>   32
 
Virginia lease has an option to renew for one five year period and the Chandler,
Arizona lease has an option to renew for a 3 month period.
 
     Iridium and Parent believe they have adequate facilities to operate their
businesses as currently contemplated.
 
ITEM 3.  LEGAL PROCEEDINGS
 
     None.
 
ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
 
     None.
 
ITEM 5. MARKET FOR IWCL'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
 
     IWCL was formed on December 12, 1996 for the purpose of acting as a member
of the Parent. On June 13, 1997, IWCL consummated an initial public offering of
12,000,000 shares of its Class A Common Stock, par value $.01 per share (the
"Class A Common Stock") and applied the net proceeds of approximately $225
million to purchase 12,000,000 Class 1 Membership Interests of Parent ("Class 1
Interests"). At March 10, 1998, there were 12,008,812 shares of Class A Common
Stock outstanding and IWCL owned 12,008,812 Class 1 Interests, constituting
approximately 8.5% of the outstanding Class 1 Interests.
 
     (A) Market Information
 
     The Class A Common Stock is traded on the Nasdaq National Market ("Nasdaq")
under the symbol "IRIDF". The following table sets forth the high and low sales
prices per share of Class A Common Stock as reported on the Nasdaq.
 
<TABLE>
<CAPTION>
                                                              MARKET PRICE
                                                              -------------
                                                              HIGH     LOW
                                                              -----    ----
<S>                                                           <C>      <C>
1997 quarter ended:
  June 30 (June 13 to June 30)..............................   22 3/8   18
  September 30..............................................   44 1/4   17
  December 31...............................................   54 1/8   32 7/8
January 1, 1998 to March 20, 1998...........................  30 7/8   54 5/8
</TABLE>
 
     On July 16, 1997, IWCL, the Parent and Capital, consummated a private
offering of (i) 300,000 units each consisting of (A) $1,000 principal amount of
13% Senior Notes due 2005 and, Series A of the Parent and Capital (the "Series A
Notes") and (B) one warrant ("Warrant") to purchase 5.2 shares of Class A Common
Stock and (ii) $500,000,000 aggregate principal amount of 14% Senior Notes due
2005, Series B of the Parent and Capital (the "Series B Notes") for aggregate
net proceeds to the Parent of approximately $746 million. The Series A Notes and
Series B Notes are guaranteed by IP, Roaming and Iridium Facilities Corporation
("Facilities"), a Delaware Corporation and a wholly-owned subsidiary of Iridium
which holds Iridium's real property.
 
     In the aggregate, the Warrants entitle the holders thereof to purchase
1,560,000 shares of Class A Common Stock. The exercise price of the Warrants is
$20.90 per share of Class A Common Stock. The Warrants are exercisable at any
time after July 11, 1998, subject to certain conditions. The Warrants expire on
July 15, 2005. In connection with the issuance of the Warrants, the Parent
issued to IWCL warrants to purchase Class 1 Interests (the "Parent Interest
Warrants") having the same tenor and terms as the Warrants. The Parent Interest
Warrants entitle IWCL to purchase, in the aggregate, a number of Class 1
Interests equal to the aggregate number of shares of Class A Common Stock issued
in respect of the Warrants, subject to anti-dilution adjustments. IWCL has
agreed, subject to anti-dilution adjustments, to exercise one such warrant for
each share of Class A Common Stock issued pursuant to the Warrants.
 
                                       30
<PAGE>   33
 
     On October 17, 1997, the Parent and Capital consummated a private offering
of $300,000,000 aggregate principal amount of 11.25% Senior Notes due 2005,
Series C of the Parent and Capital (the "Series C Notes" and together with the
Series A Notes and the Series B Notes, the "Senior Notes") for aggregate net
proceeds to the Parent of $293 million. The Series C Notes are guaranteed by IP,
Roaming and Facilities.
 
     On December 18, 1997, the Parent entered into an asset drop-down
transaction (the "Asset Drop-Down Transaction") with Iridium Operating LLC
("Iridium"), a newly formed Delaware limited liability company and a
wholly-owned subsidiary of the Parent. The purpose of the Asset Drop-Down
Transaction was to facilitate the pledge the assets held by the Parent in
connection with the establishment of secured bank financing. Pursuant to the
Asset Drop-Down Transaction, substantially all of the assets and liabilities of
the Parent were transferred to Iridium, including, without limitation, the
Senior Notes.
 
     (B) Holders of Class A Common Stock
 
     At March 10, 1998, there were approximately 560 holders of Iridium World
Communications Ltd's Class A Common Stock.
 
     (C) Dividend Policy
 
     IWCL has never declared or paid any dividends on its Class A Common Stock
and the Parent has never made distributions on its Class 1 Interests. IWCL and,
except as described below, the Parent do not currently anticipate paying any
such dividends or distributions until some time following the date on which the
Parent and its consolidated subsidiaries achieve a positive operating cash flow.
Cash distributions by Parent on its Class 1 Interests are expected to be
restricted, either directly or indirectly, by debt covenants of the Parent and
its subsidiaries, including Iridium, potentially long after the achievement of a
positive operating cash flow.
 
     IWCL's only assets are its Class 1 Interests and its Parent Interest
Warrants and IWCL has no independent means of generating revenues. The Parent's
interest in Iridium constitutes substantially all of the Parent's assets.
Accordingly, the ability of the Parent to pay any distributions on its Class 1
Interests, for all practical purposes, is dependent on the ability of Iridium to
pay distributions to the Parent. Iridium's agreements relating to indebtedness
significantly restrict its ability to pay distributions to the Parent. Such
restrictions are expected to be effective long after Iridium and its
consolidated subsidiaries achieve a positive operating cash flow. See
"Management's Discussion and Analysis of Operations and Financial Condition".
 
     The Parent has agreed to pay, and Iridium has agreed to reimburse Parent
for, IWCL's operating expenses, which expenses are not expected to be material,
and to advance funds to IWCL, under certain conditions, to enable IWCL to pay
any income tax liability that cannot be satisfied by distributions to IWCL on
the Class 1 Interests.
 
     The Limited Liability Company Agreement of the Parent requires the Parent
Board, to the extent of legally available funds, to declare and pay a pro rata
dividend in an amount which, when added to any prior dividends paid with respect
to the profits of the same year, is sufficient to ensure that each non-U.S.
member of Parent holding Class 1 Interests receives an amount equal to the
amount of such member's U.S. federal, state and local income tax liability
resulting from allocations of Parent's income to such member. To the extent
permitted by law and by agreements relating to indebtedness, the Parent intends
to distribute to holders of its Class 1 Interests, including IWCL, net cash, if
any, received from its operations, less amounts required to repay outstanding
indebtedness, satisfy other liabilities and fund capital expenditures and
contingencies. IWCL intends to distribute promptly, as dividends to its
shareholders, the distributions on Class 1 Interests, if any, made to IWCL by
the Parent, less any amounts required to be retained for payment of taxes, for
payment of liabilities and to fund contingencies.
 
                                       31
<PAGE>   34
 
ITEM 6.  SELECTED FINANCIAL DATA
 
IWCL
 
     The following selected financial data as of December 31, 1997 is derived
from IWCL's financial statements which have been audited by KPMG Peat Marwick
LLP, independent certified public accountants. The selected financial data
should be read in conjunction with "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the financial statements of
IWCL and notes thereto included herein.
 
<TABLE>
<CAPTION>
                                                                   YEAR ENDED
                                                               DECEMBER 31, 1997
                                                              --------------------
                                                              (IN THOUSANDS EXCEPT
                                                                PER SHARE DATA)
<S>                                                           <C>
STATEMENT OF LOSS DATA:
  Equity in loss of Iridium LLC.............................        $18,834
  Net loss..................................................         18,834
  Net loss per Class A Common Share.........................        $  2.79
</TABLE>
 
<TABLE>
<CAPTION>
                                                              DECEMBER 31, 1997
                                                              -----------------
                                                               (IN THOUSANDS)
<S>                                                           <C>
BALANCE SHEET DATA:
  Cash......................................................      $     --
  Investment in Iridium LLC.................................       223,922
  Total assets..............................................       223,922
  Stockholders' equity......................................       223,922
</TABLE>
 
IRIDIUM LLC
 
     The following selected financial data of Parent as of December 31, 1993,
1994, 1995, 1996 and 1997 and for the period January 1, 1993 to July 28, 1993
(predecessor company) and the period July 29, 1993 (the Initial Contribution
Date) to December 31, 1993, and the years ended December 31, 1994, 1995, 1996
and 1997, have been derived from the consolidated financial statements of Parent
(and its predecessor prior to the Initial Capital Contribution Date), which have
been audited by KPMG Peat Marwick LLP, independent certified public accountants.
The selected financial data set forth below should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the consolidated financial statements of Parent and notes
thereto included herein. Parent is the predecessor of Iridium, and has
transferred substantially all of its assets and liabilities to Iridium pursuant
to the Asset Transfer Agreement between Parent and Iridium.
<TABLE>
<CAPTION>
                                                     PERIOD PRIOR TO
                                                     INITIAL CAPITAL
                                                      CONTRIBUTION                   PERIODS FOLLOWING INITIAL
                                                         DATE(1)                     CAPITAL CONTRIBUTION DATE
                                                     ---------------   ------------------------------------------------------
                                                      JAN. 1, 1993     JULY 29, 1993            YEAR ENDED DEC. 31,
                                                           TO               TO         --------------------------------------
                                                      JULY 28, 1993    DEC. 31, 1993    1994      1995      1996       1997
                                                     ---------------   -------------   -------   -------   -------   --------
<S>                                                  <C>               <C>             <C>       <C>       <C>       <C>
                                                             (DOLLARS IN THOUSANDS EXCEPT PER CLASS 1 INTEREST DATA)
 
<CAPTION>
<S>                                                  <C>               <C>             <C>       <C>       <C>       <C>
CONSOLIDATED STATEMENT OF LOSS DATA:
  Revenues(2)......................................      $   --           $   --       $    --   $    --   $    --   $     --
  Sales, general and administrative................       5,309            7,141        17,561    27,187    71,404    296,598
  Interest income..................................          --              390         4,252     5,226     2,395      3,045
  Provision for income taxes.......................          --              173         1,525     1,684     4,589         --
                                                         ------           ------       -------   -------   -------   --------
  Net loss.........................................      $5,309           $6,924       $14,834   $23,645   $73,598   $293,553
                                                         ======           ======       =======   =======   =======   ========
  Net loss per Class 1 Interest....................      $   --           $  .43       $   .38   $   .27   $   .64   $   2.25
                                                         ======           ======       =======   =======   =======   ========
</TABLE>
 
                                       32
<PAGE>   35
<TABLE>
<CAPTION>
                                                                                    DECEMBER 31,
                                                             ----------------------------------------------------------
                                                               1993       1994        1995         1996         1997
                                                             --------   --------   ----------   ----------   ----------
<S>                                                          <C>        <C>        <C>          <C>          <C>
                                                                               (DOLLARS IN THOUSANDS)
 
<CAPTION>
<S>                                                          <C>        <C>        <C>          <C>          <C>
CONSOLIDATED BALANCE SHEET DATA:
  Cash and cash equivalents................................  $ 23,496   $202,391   $   51,332   $    1,889   $    9,040
  Restricted cash..........................................        --         --           --           --      350,220(3)
  System under construction................................   275,000    646,000    1,448,000    2,376,884    1,625,054
  Property and equipment, net..............................       320      1,522        1,264        2,065    1,626,326
  Total assets.............................................   299,886    851,809    1,505,383    2,434,081    3,645,687
  Long-term debt...........................................        --         --           --      735,904    1,537,590(4)
  Total members' equity (deficit)..........................  $294,308   $795,813   $1,404,610   $1,572,029   $1,634,637
</TABLE>
 
---------------
 
(1) These amounts reflect certain costs incurred by Motorola prior to July 29,
    1993, which were reimbursed by Iridium.
 
(2) Iridium is a development stage company and accordingly has no revenue for
    the periods presented.
 
(3) Restricted cash consists of the first stage of borrowings under the Secured
    Bank Facility. The funds were restricted subject to Iridium meeting certain
    milestones. Iridium successfully met the conditions for use of the first
    stage of borrowings ($350 million) in January 1998, and such funds were
    released.
 
(4) Does not include the $350 million of outstanding borrowings under the
    Secured Bank Facility. See note (3) above.
 
IRIDIUM OPERATING LLC
 
     The following selected financial data of Iridium has been derived from the
consolidated financial statements of Iridium as of December 31, 1993, 1994,
1995, 1996 and 1997 and for the period January 1, 1993 to July 28, 1993 and the
period July 29, 1993 (the Initial Contribution Date) to December 31, 1993, and
the years ended December 31, 1994, 1995, 1996 and 1997, which have been audited
by KPMG Peat Marwick LLP, independent certified public accountants. The selected
financial data set forth below should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the consolidated financial statements of Iridium and notes thereto included
herein. Parent is the predecessor of Iridium, and on December 18, 1997,
transferred substantially all of its assets and liabilities to Iridium pursuant
to the Asset Drop-Down Transaction.
<TABLE>
<CAPTION>
                                                     PERIOD PRIOR TO
                                                     INITIAL CAPITAL
                                                      CONTRIBUTION                   PERIODS FOLLOWING INITIAL
                                                         DATE(1)                     CAPITAL CONTRIBUTION DATE
                                                     ---------------   ------------------------------------------------------
                                                      JAN. 1, 1993     JULY 29, 1993            YEAR ENDED DEC. 31,
                                                           TO               TO         --------------------------------------
                                                      JULY 28, 1993    DEC. 31, 1993    1994      1995      1996       1997
                                                     ---------------   -------------   -------   -------   -------   --------
<S>                                                  <C>               <C>             <C>       <C>       <C>       <C>
                                                             (DOLLARS IN THOUSANDS EXCEPT PER CLASS 1 INTEREST DATA)
 
<CAPTION>
<S>                                                  <C>               <C>             <C>       <C>       <C>       <C>
CONSOLIDATED STATEMENT OF LOSS DATA:
  Revenues(2)......................................      $   --           $   --       $    --   $    --   $    --   $     --
  Sales, general and administrative................       5,309            7,141        17,561    27,187    71,404    296,446
  Interest income..................................          --              390         4,252     5,226     2,395      3,045
  Provision for income taxes.......................          --              173         1,525     1,684     4,589         --
                                                         ------           ------       -------   -------   -------   --------
  Net loss.........................................      $5,309           $6,924       $14,834   $23,645   $73,598   $293,401
                                                         ======           ======       =======   =======   =======   ========
OTHER DATA(3):
  Ratio of earnings to fixed charges(4)............          --               --            --        --        --         --
  Deficiency of earnings to cover fixed charges....      $5,309           $6,751       $13,309   $21,961   $97,136   $457,148
</TABLE>
 
                                       33
<PAGE>   36
<TABLE>
<CAPTION>
                                                                                    DECEMBER 31,
                                                             ----------------------------------------------------------
                                                               1993       1994        1995         1996         1997
                                                             --------   --------   ----------   ----------   ----------
<S>                                                          <C>        <C>        <C>          <C>          <C>
                                                                               (DOLLARS IN THOUSANDS)
 
<CAPTION>
<S>                                                          <C>        <C>        <C>          <C>          <C>
CONSOLIDATED BALANCE SHEET DATA:
  Cash and cash equivalents................................  $ 23,496   $202,391   $   51,332   $    1,889   $    5,940
  Restricted cash..........................................        --         --           --           --      350,220(5)
  System under construction................................   275,000    646,000    1,448,000    2,376,884    1,625,054
  Property and equipment, net..............................       320      1,522        1,264        2,065    1,526,326
  Total assets.............................................   299,886    851,809    1,505,383    2,434,081    3,642,587
  Long-term debt...........................................        --         --           --      735,904    1,537,590(6)
  Total members' equity (deficit)..........................  $294,308   $795,813   $1,404,610   $1,572,029   $1,631,537
</TABLE>
 
---------------
 
(1) These amounts reflect certain costs incurred by Motorola prior to July 29,
    1993, which were reimbursed by Iridium.
 
(2) Iridium is a development stage company and accordingly has no revenue for
    the periods presented.
 
(3) For purposes of determining the ratio of earnings to fixed charges, and the
    deficiency of earnings to cover fixed charges, "earnings" includes pre-tax
    income (loss) adjusted for fixed charges. "Fixed charges" consists of
    interest capitalized and that portion of operating lease rental expense
    (deemed to be one-third of rental expense) representative of interest.
 
(4) The ratios of earnings to fixed charges are not presented for each of 1993,
    1994, 1995, 1996 and 1997 because earnings were inadequate to cover fixed
    charges by approximately $12,060,000, $13,309,000, $21,961,000, $97,136,000
    and $457,148,000, respectively.
 
(5) Restricted cash consists of the first stage of borrowings under the Secured
    Bank Facility. The funds were restricted subject to Iridium meeting certain
    milestones. Iridium successfully met the conditions for use of the first
    stage of borrowings ($350 million) in January 1998, and such funds were
    released.
 
(6) Does not include the $350 million of outstanding borrowings under the
    Secured Bank Facility. See note (5) above.
 
ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATION
 
     IWCL is a member of Parent and has no other business. IWCL's sole assets
are its Class 1 Interests and its Parent Interest Warrants, and IWCL's results
of operations reflect its proportionate share of the results of operations of
Parent on an equity accounting basis. IWCL has no operations other than those
related to its interest in Parent and, indirectly, Iridium. Accordingly,
management's discussion and analysis addresses the financial condition and
results of operations of Parent and Iridium.
 
     On December 18, 1997, pursuant to the Asset Drop-Down Transaction, Parent
transferred substantially all of its assets and liabilities to Iridium.
Currently, Parent has no significant operations other than its management of
Iridium. Accordingly, the discussion below relates to Parent on an historical
basis (prior to December 18, 1997) and Iridium, as successor to Parent, from
December 18, 1997 forward. Unless otherwise specified, references to Iridium
relating to any action or event prior to the date of the Asset Drop-Down
Transaction should be construed as references to Parent, as predecessor of
Iridium. Each of Capital, Roaming, IP and Facilities is a wholly owned
subsidiary of Iridium, and has no significant assets and does not conduct any
significant operations.
 
     Iridium is currently devoting its entire efforts to establishing and
commercializing the IRIDIUM System. As such, Iridium's current principal
activities relate to managing the design, construction and development of the
system and preparing for its day-to-day operations.
 
LIQUIDITY AND CAPITAL RESOURCES
 
  Funding Requirements
 
     Iridium expects to commence commercial operations on September 23, 1998.
Iridium currently estimates that aggregate cash funding requirements from the
commencement of development (June 1991) through the anticipated commencement of
commercial operations will be approximately $4.4 billion. At year end 1996 and
1997, Iridium had expended approximately $2.40 billion (or 55%) and
approximately $3.42 billion (or 78%), respectively, of such $4.4 billion
estimate. Iridium estimates aggregate cash funding requirements of approximately
$5.3 billion (net of assumed revenues following commencement of commercial
operations) through year-end 1999, the last year in which Iridium projects
negative cash flow and a net increase in year-end borrowings. At year end 1996
and 1997, Iridium had expended, since inception, approximately $2.40 billion (or
45%) and approximately $3.42 billion (or 65%), respectively, of such $5.3
billion estimate.
 
                                       34
<PAGE>   37
 
While Iridium has raised sufficient funds to meet its expected pre-commercial
operations project costs, Iridium expects to require significant additional
funding after commencement of commercial operations. These projections of
aggregate funding needs are forward looking and could vary, perhaps
substantially, from actual results, due to events outside of the control of
Iridium, including without limitation unforeseen construction, systems
integration or regulatory delays, launch failures and lower than anticipated
customer demand.
 
     With respect to the development and construction of the IRIDIUM System,
Iridium and Motorola are parties to (i) the Space System Contract for the
design, development, production and delivery in orbit of the space segment, (ii)
the Terrestrial Network Development Contract to design the gateway hardware and
software, and (iii) the Operations and Maintenance Contract to provide
day-to-day management of the space segment after deployment and to monitor,
upgrade and replace hardware and software of the space segment as necessary to
maintain performance specifications. Substantially all of the initial capital
raised by Iridium is being used and will continue to be used to make payments to
Motorola under the Space System Contract and, to a lesser extent, the
Terrestrial Network Development Contract. The Space System Contract provides for
a fixed price of $3.45 billion (subject to certain adjustments), scheduled to be
paid by Iridium to Motorola over approximately a five-year period for completion
of milestones under the contract. Payments under the Operations and Maintenance
Contract will be payable quarterly and are expected to aggregate approximately
$2.88 billion over such contract's initial five-year term (assuming commencement
of commercial operations on September 23, 1998 and no excusable delays), in
addition to the cost of certain spare satellites at the completion of the
contract. The payments increase each year, ranging from quarterly payments of
$129.4 million in 1998 to $157.4 million in 2003 to $171.4 million in 2005. If
Iridium exercises its option to extend the Operations and Maintenance Contract
for an additional two years, the payments due for that two-year extension are
expected to aggregate approximately $1.33 billion (assuming commencement of
commercial operations on September 23, 1998 and no excusable delays). The
Terrestrial Network Development Contract provides for payments aggregating
approximately $284 million. As a result of technological developments, changes
in the product mix of Iridium World Services, and scheduling adjustments,
including the implementation of Iridium World Cellular Services into Iridium's
service offerings, there have been, and Iridium anticipates there will be,
amendments and interpretations of the Space System Contract, the Terrestrial
Network Development Contract and the Operations and Maintenance Contract and
other agreements and letters with Motorola which may increase the total costs of
these contracts. While Iridium's estimate of the cost of anticipated amendments
and interpretations is reflected in Iridium's estimates of its funding
requirements, there can be no assurance that any such amendments or
interpretations will not affect the price and terms of those agreements in a
manner not reflected in Iridium's funding estimates.
 
     Through February 1, 1998, the Parent and Iridium incurred expenditures
totaling $2.94 billion to Motorola under the Space System Contract in respect of
completed milestones and expenditures totaling $140 million under the
Terrestrial Network Development Contract. Based on estimates and the planned
schedule, Iridium's expected future cash requirements by year under the
contracts through December 31, 1999 are approximately as follows (in millions):
 
<TABLE>
<CAPTION>
                                                              1998    1999
                                                              ----    ----
<S>                                                           <C>     <C>
Space System Contract.......................................  $514      --
Terrestrial Network Development Contract....................    93    $ 63
Operations and Maintenance Contract.........................   129     537
</TABLE>
 
     Iridium will also require funds for working capital, business software
development, interest on anticipated borrowings, financing costs and operating
expenses until some time after the commencement of commercial operations. The
interest expense associated with the development and construction of the IRIDIUM
System increased significantly in calendar year 1997 as a result of a
substantial increase in debt financing. See "-- Sources of Funding". Iridium
expects interest expense will increase in calendar year 1998 as compared with
calendar years 1997 as a result of its financing plan. Prior to the receipt of
revenues from commercial operations, Iridium expects to service its interest
expense out of available cash and borrowings. From approximately the time of
commencement of commercial operations through approximately year-end 1999
 
                                       35
<PAGE>   38
 
(the last year in which Iridium projects negative cash flow and a net increase
in year-end outstanding borrowings) Iridium expects to service its interest
expense partly from available cash and bank facilities and partly from revenues
from operations. During commercialization, Iridium will be required to make
payments to Motorola under the Operations and Maintenance Contract. After
December 31, 1999, Iridium's obligations related to the Operations and
Maintenance Contract, funds needed for working capital, capital expenditures and
debt service are anticipated to be funded through operations.
 
SOURCES OF FUNDING
 
     As of February 1, 1998, Iridium had indirectly received $1.94 billion from
equity investments in the Parent, and has the right to receive approximately $49
million due from South Pacific Iridium Holdings Limited pursuant to the terms of
a definitive purchase agreement. Iridium's indebtedness for borrowed money
equaled approximately $2.0 billion, including $1.1 billion in aggregate
principal amount of Senior Notes (as defined), approximately $285 million of
borrowings under the $450 million Guaranteed Bank Facility (as defined) and
approximately $350 million of borrowings under the Secured Bank Facility (as
defined).
 
     On July 16, 1997, IWCL, Parent and Capital consummated a private offering
of (i) 300,000 units each consisting of (A) $1,000 principal amount of 13%
Senior Notes due 2005, Series A of the Parent and Capital (the "Series A Notes")
and (B) one warrant ("Warrant") to purchase 5.2 shares of Class A Common Stock
and (ii) $500,000,000 aggregate principal amount of 14% Senior Notes due 2005,
Series B of the Parent and Capital (the "Series B Notes") for aggregate net
proceeds to Parent of $746 million. On October 17, 1997, the Parent and Capital
consummated a private offering of $300,000,000 aggregate principal amount of
11.25% Senior Notes due 2005, Series C of the Parent and Capital (the "Series C
Notes" and together with the Series A Notes and the Series B Notes, the "Senior
Notes") for aggregate net proceeds to Parent of $293 million.
 
     As of February 1, 1998, Iridium had drawn $285 million under a $450 million
unsecured borrowing facility with a syndicate of banks (the "Guaranteed Bank
Facility"). Borrowings under the Guaranteed Bank Facility are guaranteed by
Motorola (the "Motorola Guarantee"). A portion of the proceeds of the Senior
Notes was used to permanently reduce the Guaranteed Bank Facility from $750
million to $450 million. Depending on market conditions, Iridium may make
additional senior note offerings in order to further reduce the Guaranteed Bank
Facility or for other purposes. The Guaranteed Bank Facility matures on June 30,
1999.
 
     On December 18, 1997, pursuant to the Asset Drop-Down Transaction,
substantially all of the assets and liabilities of Parent were transferred to
Iridium, including, without limitation, the Senior Notes and the Guaranteed Bank
Facility, and the Parent was released from such liabilities.
 
     Pursuant to the Memorandum of Understanding, dated July 11, 1997, between
Parent and Motorola, as modified to apply to Iridium in connection with the
Asset Drop-Down Transaction (the "Motorola MOU"), in addition to the Motorola
Guarantee, Motorola has conditionally agreed to guarantee up to $350 million of
additional indebtedness (including principal and interest) under the Guaranteed
Bank Facility or another credit facility on identical terms (the "Motorola
Additional Guarantee"), provided that borrowings under such additional
indebtedness are made on or prior to February 28, 1999. Pursuant to the Motorola
MOU, Motorola has agreed to extend the Motorola Guarantee (including the
Motorola Additional Guarantee, if committed) until after July 15, 2005, if the
Guaranteed Bank Facility is so extended. Iridium believes it would be able to
amend the Guaranteed Bank Facility to increase its amount to the extent of the
Motorola Additional Guarantee and to extend its maturity until after July 15,
2005, if it so requests. There can be no assurance, however, that the bank
lenders will agree to increase the amount of the Guaranteed Bank Facility or to
extend the term of the Guaranteed Bank Facility, if so requested by Iridium, or
that any such other identical credit facility would be available.
 
     Iridium has entered into a Credit Agreement with Chase Securities Inc., The
Chase Manhattan Bank, Barclays Bank PLC and Barclays Capital, the investment
banking division of Barclays Bank PLC, and a syndicate of lenders (the "Secured
Lenders") for a senior bank facility in a principal amount of $1.0 billion (the
"Secured Bank Facility"). As of February 1, 1998, Iridium had drawn $350 million
under this Secured Bank Facility. The availability of the Secured Bank Facility
is subject to significant conditions, including
                                       36
<PAGE>   39
 
technical conditions relating to the IRIDIUM System, conditions relating to
regulatory approvals and conditions relating to other financing sources. $250
million of the Secured Bank Facility is not available prior to the defined
commercial activation date. The Secured Bank Facility is secured by
substantially all of Iridium's assets. The Secured Bank Facility is further
secured by the Reserve Capital Call (as defined) of the Parent and all of the
membership interests in Iridium. In addition, each of Iridium's subsidiaries has
guaranteed Iridium's obligations thereunder. The Reserve Capital Call is the
contractual commitment by 17 of Parent's investors to purchase up to 18,206,550
Class 1 Interests at $13.33 per interest (an aggregate of approximately $243
million).
 
     Borrowings under the Secured Bank Facility mature on September 30, 1998,
subject to Iridium's right to extend such maturity until up to June 30, 1999, if
Iridium can demonstrate by July 1, 1998 that it has sufficient available or
committed funds for its budgeted project costs through such extended maturity.
Assuming approximately $445 million of borrowings under the Guaranteed Bank
Facility and $715 million of borrowings under the Secured Bank Facility, Iridium
expects to have sufficient cash to meet its anticipated funding requirements
through September 23, 1998, the date on which Iridium expects to commence
commercial operations. Iridium expects to seek other senior secured bank
financing in order to meet its expected funding requirements through at least
year-end 1999, the last year in which Iridium projects negative cash flow and a
net increase in year end borrowing.
 
     Additional financing may also need to be obtained through the issuance of
equity or debt securities in the public or private markets. The availability and
terms of any such financing are uncertain and are dependent, in part, on market
conditions existing at the time of any proposed financing. Iridium's estimated
funding requirements will increase, perhaps substantially, in the event of
unexpected cost increases or schedule delays. Additional equity financing, if
pursued, may be raised either privately from strategic or financial investors,
or through additional public offerings. Depending on market conditions, Iridium
may make additional senior note offerings.
 
     As a result of Iridium's outstanding debt and the expected incurrence of
significant additional indebtedness required to meet its capital requirements,
Iridium will have substantial indebtedness. The debt instruments governing
Iridium's indebtedness are likely to contain restrictions on, among other
things, the incurrence of indebtedness, the granting of liens and the payment of
cash dividends. Iridium's ability to meet all of its debt service obligations
when due will require it to generate significant cash flow from operations or,
if necessary, make additional borrowings to refinance its outstanding
indebtedness. No assurance can be made that Iridium will be able to generate
sufficient cash flow to meet its debt service obligations or that it will be
able to refinance indebtedness. In addition, the debt instruments governing
future indebtedness are likely to contain restrictions on, among other things,
the incurrence of indebtedness.
 
OPERATIONS
 
     Iridium is a development stage company and, as such, will not generate any
revenues from operations until the IRIDIUM System is constructed and deployed,
and commercial operations commence, which is currently anticipated to be in
September 1998. From the commencement of development (June 1991) through
year-end 1997, Iridium had expended approximately $3.42 billion on the
development, construction and commercialization of the IRIDIUM System,
representing 78% of Iridium's estimate of its cash funding requirements through
the anticipated commencement of commercial operations (September 23, 1998) and
65% of Iridium's estimate of its cash funding requirements (net of assumed
revenues following commencement of commercial operations) through year-end 1999,
the last year in which Iridium projects negative cash flow and a net increase in
year-end borrowings.
 
     To date, Iridium's only source of income has been interest income on the
cash and investment balances from the proceeds of equity commitments in Parent,
which amounted to approximately $15.3 million from July 29, 1993 (the "Initial
Capital Contribution Date") to December 31, 1997. During the same period,
Iridium recorded a net loss of approximately $413 million. In addition, during
the periods ended December 31, 1991 and 1992, and the period from January 1,
1993 to the Initial Capital Contribution Date, aggregate costs
 
                                       37
<PAGE>   40
 
of $14.8 million were incurred by Motorola. Such costs were paid by Parent to
Motorola pursuant to a reimbursement agreement.
 
     As a development stage company, Iridium has incurred losses since inception
of its predecessor companies and will continue to do so for the foreseeable
future. Iridium's ability to become profitable and generate positive cash flow
is dependent on the successful and timely commencement of the operation of the
IRIDIUM System, wide subscriber acceptance and numerous other factors.
 
CAPITALIZATION OF COSTS
 
     All payments by Iridium under the Space System Contract are being
capitalized. These capitalized costs are then depreciated over the five-year
estimated life of the satellites. Depreciation expense is realized on a
satellite-by-satellite basis, commencing with the delivery of each satellite to
its mission orbit. Depreciation related to the ground control stations commences
with the placement in service of each such station. Losses from satellite
failures for which Iridium has financial responsibility under its contractual
arrangements with Motorola are recognized currently. Motorola bears the risk of
loss for launch failures and satellite failures before a satellite is placed
into service. Iridium has obtained a satellite insurance policy to cover certain
costs associated with the loss of a satellite. Capitalized amounts under the
Space System Contract and the Terrestrial Network Development Contract
aggregated approximately $3.0 billion through December 31, 1997. In addition,
costs incurred in connection with the issuance by Parent of Class 1 Interests
are reflected as a reduction of Parent's additional paid-in capital and
Iridium's debt issuance costs are deferred and amortized over the term of the
related indebtedness. Payment of these costs and charges has resulted in
significant negative operating cash flow. Certain interest costs also will be
capitalized through the date of commencement of commercial operations.
 
     A portion of the payments made under the Operations and Maintenance
Contract will be capitalized and depreciated. The amount so capitalized will be
determined depending upon the number of replacement satellites put into service.
Any costs under the Operations and Maintenance Contract not capitalized will be
expensed.
 
OPERATING EXPENSES
 
     For the period from the Initial Capital Contribution Date through December
31, 1997, marketing, general and administrative expenses were approximately $420
million. During the period prior to the Initial Capital Contribution Date, total
accumulated expenditures of approximately $14.8 million were incurred, primarily
to reimburse Motorola for expenses associated with operating Iridium during the
period from its incorporation in 1991 through the Initial Capital Contribution
Date. Iridium expects a substantial increase in future operating expenditures
relating to sales, marketing and other costs associated with commercialization.
 
INTEREST EXPENSE
 
     Iridium expects to finance a significant portion of its capital
requirements through borrowings. As a result of these borrowings, Iridium will
have significant interest costs. Interest costs are being capitalized while the
IRIDIUM System is under construction and will be depreciated thereafter. This
has resulted in all interest costs being capitalized during 1995, 1996, and
1997. It is likely that a meaningful portion of interest cost will be expensed
in 1998 and all interest cost will be expensed beginning in 1999. Some portion
of interest expense will not be paid in cash, including the interest expense
related to Iridium's 14 1/2% Senior Subordinated Notes through March 1, 2001.
Such non-cash interest will be accrued and such accrual will increase
outstanding indebtedness on Iridium's and Parent's consolidated balance sheets.
 
INCOME TAXES
 
     Each of Parent and Iridium reports its income as a partnership for United
States federal income tax purposes and accordingly, is not expected to be
directly subject to U. S. federal income tax. Iridium may, however, be subject
to tax in some state, local or foreign jurisdictions on portions of its income.
IWCL is taxed directly.
                                       38
<PAGE>   41
 
YEAR 2000 CONSIDERATIONS
 
     In the next eighteen months, most companies using computer systems will be
confronted with the fact that many software application and operation programs
written in the past may not properly recognize calendar dates beginning in the
Year 2000. This issue could cause computers to shut down or provide incorrect
information. While Year 2000 considerations are not expected to materially
affect Iridium's internal operations, they may adversely affect Iridium's
suppliers, gateway operators, service providers and roaming partners. Iridium
has begun to ask its suppliers, gateway operators, service providers and roaming
partners about their progress in identifying and addressing problems that their
computer systems may face in correctly processing date information for the Year
2000. While Iridium expects that substantially all of its suppliers, gateway
operators, service providers and roaming partners will effectively address the
Year 2000 issue, there can be no assurance that the failure of such persons to
address effectively the issue will not have an adverse effect on Iridium's
results of operations.
 
NEW ACCOUNTING PRONOUNCEMENT
 
     In June 1997, the Financial Accounting Standards Board issued Statement No.
130, Reporting Comprehensive Income ("Statement 130"). Statement 130 establishes
standards for the reporting and display of comprehensive income and its
components in the consolidated financial statements. Parent is required to adopt
the provisions of Statement 130 for the year ending December 31, 1998. Earlier
application is permitted; however, upon adoption of Statement 130, Parent will
be required to reclassify previously reported annual and interim consolidated
financial statements. The disclosure of comprehensive income in accordance with
the provisions of Statement 130 will impact the manner of presentation of
Parent's consolidated financial statements as currently and previously reported.
 
ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 
     Not Applicable.
 
ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
 
     See Index to Financial Statements on page F-1.
 
ITEM 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
 
     None.
 
                                       39
<PAGE>   42
 
ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANTS
 
IWCL
 
     The following table information concerning the executive officers and
directors of IWCL as of March 1, 1998. The current members of the IWCL Board of
Directors were elected by Parent. Members of the IWCL Board of Directors will
hereafter be elected at the annual general meeting or at a special meeting of
stockholders. The exclusive right to elect members of the IWCL Board of
Directors is vested with the holders of Class A Common Stock.
 
<TABLE>
<CAPTION>
                   NAME                     AGE                     POSITION
                   ----                     ---                     --------
<S>                                         <C>    <C>
Edward F. Staiano.........................   61    Chairman of the Board and Chief Executive
                                                     Officer
Roy Grant.................................   40    Chief Financial Officer
Wayne Morgan..............................   53    Secretary
F. Thomas Tuttle..........................   55    Assistant Secretary
Alberto Finol.............................   62    Deputy Chairman and Director
Ulf Bohla.................................   53    Director
Robert W. Kinzie..........................   64    Director
Richard Lesher............................   63    Director
William Schreyer..........................   69    Director
Yoshiharu Yasuda..........................   57    Director
</TABLE>
 
PARENT AND IRIDIUM
 
     The following table sets forth information concerning the executive
officers and directors of Parent and Iridium as of March 1, 1998. Pursuant to
the limited liability company agreement of Iridium, each officer and director of
Parent holds the same position with Iridium. The directors of Parent and Iridium
are designated by the members of Parent and serve until a successor is
designated.
 
<TABLE>
<CAPTION>
                   NAME                     AGE                     POSITION
                   ----                     ---                     --------
<S>                                         <C>    <C>
Robert W. Kinzie(1).......................   64    Chairman
Edward F. Staiano.........................   61    Vice Chairman and Chief Executive Officer
Mauro Sentinelli..........................   51    Executive Vice President -- Marketing and
                                                     Distribution
Leo Mondale...............................   38    Senior Vice President -- Strategic
                                                   Planning and Business Development
O. Bruce Dale.............................   55    Vice President -- Network Operations
Lauri J. Fitz-Pegado......................   42    Vice President -- Global Gateway Relations
Mark Gercenstein..........................   46    Vice President -- Business Operations
Roy Grant.................................   40    Vice President -- Chief Financial Officer
Dale F. Hogg..............................   55    Vice President -- Human Resources
Francis Latapie...........................   56    Vice President -- Government Affairs
Larry G. Rands............................   57    Vice President -- Engineering
F. Thomas Tuttle..........................   55    Vice President, General Counsel and
                                                   Secretary
Richard L. Lesher(2)(3)(4)................   63    Vice President and Independent Company
                                                     Director
Aburizal Bakrie(4)........................   50    Director (designated by South Pacific
                                                   Iridium Holdings, Inc.)
Hasan M. Binladin(4)......................   49    Director (designated by Iridium Middle
                                                   East)
Ulf Bohla(1)(4)...........................   53    Director (designated by Vebacom Holdings,
                                                     Inc.)
Gordon J. Comerford(2)....................   60    Director (designated by Motorola)
Atilano de Oms Sobrinho(2)(4).............   54    Director (designated by Iridium
                                                   SudAmerica)
</TABLE>
 
                                       40
<PAGE>   43
 
<TABLE>
<CAPTION>
                   NAME                     AGE                     POSITION
                   ----                     ---                     --------
<S>                                         <C>    <C>
Robert A. Ferchat(4)......................   63    Director (designated by Iridium Canada)
Alberto Finol(1)(3)(4)....................   62    Director (designated by Iridium
                                                   SudAmerica)
Edward Gams(1)............................   49    Director (designated by Motorola)
Kazuo Inamori(4)..........................   66    Director (designated by Nippon Iridium)
Georg Kellinghusen(4).....................   50    Director (designated by Vebacom Holdings,
                                                     Inc.)
S.H. Khan(4)..............................   59    Director (designated by Iridium India)
Anatoly I. Kiselev(4).....................   58    Director (designated by Khrunichev)
John F. Mitchell(3).......................   70    Director (designated by Motorola)
Jung L. Mok(3)(4).........................   48    Director (designated by SK Telecom)
Giuseppe Morganti(1)(2)(4)................   65    Director (designated by Iridium Italia)
J. Michael Norris.........................   51    Director (designated by Motorola)
Yusai Okuyama(2)(4).......................   66    Director (designated by Nippon Iridium)
John A. Richardson........................   55    Director (designated by Iridium Africa)
John M. Scanlon...........................   56    Director (designated by Motorola)
Theodore H. Schell(1)(4)..................   53    Director (designated by Sprint)
William A. Schreyer(1)(4).................   69    Independent Company Director
Sribhumi Sukhanetr(1)(3)(4)...............   65    Director (designated by Thai Satellite)
Tao-Tsun Sun(2)(4)........................   47    Director (designated by Pacific Iridium
                                                     Telecommunications Corporation)
Yoshiharu Yasuda(1)(3)(4).................   57    Director (designated by Nippon Iridium)
Wang Mei Yue(3)(4)........................   56    Director (designated by Iridium China)
</TABLE>
 
---------------
(1) Members of the Banking and Financing Committee
(2) Members of the Audit Committee
(3) Members of the Compensation Committee
(4) Members of the Related Party Contracts Committee
 
CAPITAL
 
     The following table sets forth information concerning the executive
officers and directors of Capital as of March 1, 1998.
 
<TABLE>
<CAPTION>
NAME                                        AGE                     POSITION
----                                        ---                     --------
<S>                                         <C>    <C>
Robert W. Kinzie..........................   64    Director
Edward F. Staiano.........................   61    Chairman of the Board and Chief Executive
                                                     Officer
Roy Grant.................................   40    Chief Financial Officer
F. Thomas Tuttle..........................   55    Secretary
</TABLE>
 
  Executive Officers of IWCL, Parent, Iridium and Capital
 
     Set forth below is information concerning each director and executive
officer of IWCL, Parent, Iridium and Capital, including each individual's
principal occupation and employment. Unless otherwise indicated, each executive
officer holds office until a successor is duly elected and qualified. There are
no family relationships between any officers and directors of IWCL, Parent,
Iridium or Capital.
 
     Unless otherwise noted, dates of service refer to positions with Parent.
Each executive officer of Parent became an executive officer of Iridium, in the
same capacity, on December 18, 1997.
 
     EDWARD F. STAIANO -- Vice Chairman and Chief Executive Officer since
January 2, 1997 and Director since October 1994. Chairman of the Board of IWCL
since May 1997 and Chief Executive Officer of IWCL since March 1997. Chairman of
the Board and Chief Executive Office of Capital since June 18, 1997.
 
                                       41
<PAGE>   44
 
Dr. Staiano served Motorola as Executive Vice President, President and General
Manager of the General Systems Sector (comprised of the cellular subscriber
group, cellular infrastructure group, network ventures division, personal
communications and the computer group) from 1989 to December 1996.
 
     MAURO SENTINELLI -- Executive Vice President -- Marketing and Distribution
since August 1, 1997. Prior thereto, Mr. Sentinelli was Deputy Director General
in charge of Strategic Planning, Strategic Marketing and International Affairs
for Telecom Italia Mobile from 1995 to 1997 and Deputy Managing Director for
1994 to 1995. He joined SIP, Telecom Italia's predecessor, in 1974, and held
various positions in engineering, marketing and strategic planning. He became
head of Business Development of the Mobile Service Department in 1988 and
launched the company's cellular service.
 
     LEO MONDALE -- Senior Vice President -- Strategic Planning and Business
Development since January 1995. From July 1993 until January 1995, Mr. Mondale
served as Vice President, Government Affairs and Strategic Planning and from
January 1991 to July 1993 as Vice President -- International Relations of
Parent. From July 1, 1990 to January 31, 1992, he was Director of International
Relations for the Satellite Communications unit of Motorola. Before joining
Motorola, Mr. Mondale served as Vice President of the Fairchild Space & Defense
Corporation, where he was responsible for the international and commercial
activities of Fairchild Space from 1989 to 1990. Prior to joining Fairchild, Mr.
Mondale was Legal Counsel to the then Space Division of Matra, S.A. (now
Matra-Marconi Space, N.V.), based in Paris, France, following several years of
private legal practice in Washington, D.C.
 
     O. BRUCE DALE -- Vice President -- Network Operations since April 1995.
Prior thereto, Mr. Dale served in a number of positions at Bell Communications
Research ("Bellcore") including, General Manager, Service Assurance Systems and
General Manager, Planning & Engineering System from March 1993 to April 1995,
Vice President, Customer Service Center from January 1992 to March 1993, and
Assistant Vice President, Provisioning Systems Laboratory from January 1990 to
January 1992. From March 1982 to December 1989, Mr. Dale served as Director of
Data Network Systems Development Laboratory for AT&T Bell Laboratories.
 
     LAURI J. FITZ-PEGADO -- Vice President -- Global Gateway Relations since
May 1997. Prior thereto, Ms. Fitz-Pegado served at the U.S. Department of
Commerce as the Director General and Assistant Secretary of the U.S.&Foreign
Commercial Service (US&FCS) International Trade Administration from June 1994 to
June 1997 and as a Special Advisor to the Secretary of Commerce from June 1993
to June 1994. From June 1982 to June 1993, Ms. Fitz-Pegado worked at Hill &
Knowlton Public Affairs Worldwide, most recently as Managing Director and Senior
Vice president.
 
     MARK GERCENSTEIN -- Vice President -- Business Operations since August
1992. Prior thereto, Mr. Gercenstein was Director of Marketing of Motorola
Satellite Communications from 1990 to 1992. Prior to assuming that position, Mr.
Gercenstein held various marketing and engineering assignments at Motorola
Government Electronics Group from 1984 to 1990, Spar Aerospace from 1985 to 1987
and Bendix Aerospace from 1975 to 1982.
 
     ROY GRANT -- Vice President -- Chief Financial Officer since April 30, 1997
and Vice President -- Treasurer from November 1996 to July 1997. Chief Financial
Officer of IWCL since April 1997. Chief Financial Officer of Capital since June
18, 1997. Prior thereto, Mr. Grant served from 1992 to 1996 as Finance Director
for Edison Mission Energy, the largest independent power developer in the United
States. Mr. Grant also worked for Marriott Corporation from 1988 to 1992 in its
corporate and project finance areas and at American Airlines from 1980 to 1988,
most recently as its Managing Director -- Banking where he was responsible for
all of the airline's banking relationships.
 
     DALE F. HOGG -- Vice President -- Human Resources since August 1996 and
Director of Human Resources since August 1994. Prior thereto, Mr. Hogg was
Corporate Manager, Compensation and Global Staffing for W.R. Grace & Co. He
previously served from 1985 to 1991 as Regional Director, Human Resources for
the Coca-Cola Company, from 1982 to 1985 as Vice President for Warner
Communications and from 1980 to 1982 as Corporate Personnel Manager for the LTV
Corporation. He has also held Human Resources positions at The Williams
Companies and Rockwell International. Additionally, he served as news anchor for
a CBS affiliate from 1972 to 1980.
 
                                       42
<PAGE>   45
 
     FRANCIS LATAPIE -- Vice President -- Government Affairs since October 1996.
From January 1996 until October 1996, Mr. Latapie served as Executive Director,
Government Affairs of Parent. Prior thereto, Mr. Latapie worked for Intelsat
since 1974 in various management positions. From 1968 to 1974, Mr. Latapie was
Scientific Attache in the United States, representing the French Government in
all matters dealing with space and telecommunications.
 
     WAYNE MORGAN -- Secretary of IWCL. Mr. Morgan has been employed as a
corporate manager by Codan Services Ltd. In Bermuda since August 1996. Prior
thereto, Mr. Morgan served Johnson & Higgins (Bermuda) Limited from 1980 to 1996
in a number of positions including Vice President and Manager of Support
Services, Senior Vice President, Client Account Management and Senior Vice
President, Principal Branch Manager. Prior to joining Johnson & Higgins, Mr.
Morgan was the Deputy Accountant General for the Government of Bermuda from 1975
to 1980. Mr. Morgan has served as the Secretary of IWCL since December 1996.
 
     LARRY G. RANDS -- Vice President -- Engineering since August 1993. Mr.
Rands was employed by Motorola Satellite Communications as Assistant Manager
System Engineering from November 1991 through July 1993. Prior thereto, Mr.
Rands spent twelve years with COMSAT Corporation, where he served in several
management positions, most recently, Senior Director of System Engineering. He
has also held positions with CONTEL/ASC, RCA Laboratories, Rockwell
International and Hughes Aircraft.
 
     F. THOMAS TUTTLE -- Vice President -- General Counsel and Secretary since
April 1996. Mr. Tuttle had been employed by Parent as Assistant Secretary since
January 1994 and as Deputy General Counsel since November 1993. Assistant
Secretary of IWCL since December 1996. Secretary of Capital since June 18, 1997.
Prior thereto, Mr. Tuttle was in private law practice in Washington, D.C. from
1986 to 1994. Prior thereto, he served as Vice President, Regulatory and
Industry Relations with Satellite Business Systems and held senior legal
positions with COMSAT Corporation.
 
  Directors of IWCL, Parent, Iridium and Capital
 
     Unless otherwise noted, dates of service refer to directorships of Parent.
Each director of Parent became a director of Iridium on December 18, 1997.
 
     ROBERT W. KINZIE -- Chairman of the Board since October 1991; member of the
Banking and Financing Committee. Chief Executive Officer from October 1991 to
January 1, 1997. Director of IWCL since December 1996. Director of Iridium
Capital since June 18, 1997. Prior thereto, Mr. Kinzie was the Director of
Strategic Planning for Intelsat from 1987 to 1991. Prior to joining Intelsat,
Mr. Kinzie worked from 1966 to 1987 in a number of positions with COMSAT
Corporation including President, Communications Services Division and President
of COMSAT General Corporation. Prior to joining COMSAT Corporation in 1966, Mr.
Kinzie was an economist with the FCC from 1962 to 1965.
 
     RICHARD L. LESHER -- Vice Chairman of the Board and Independent Company
Director since June 1997; member of the Audit Committee, the Compensation
Committee and the Related Party Contracts Committee. Director of IWCL since June
1996. Dr. Lesher was appointed Vice Chairman of the Board and Independent
Company Director upon consummation of the IWCL IPO. Dr. Lesher served as the
President of the Chamber of Commerce of the United States, the world's largest
association of business organizations, from 1975 to 1997, when he retired.
 
     ABURIZAL BAKRIE -- Director since July 1997; member of the Related Party
Contracts Committee. Since 1992 Mr. Bakrie has been Chairman of the Bakrie Group
of Companies, a diversified corporation engaged in manufacturing, fabrication,
telecommunications, mining, real estate, financial services, agri-business and
trading activities. Mr. Bakrie is the President of ASEAN Chamber of Commerce and
Industry and President of the Indonesian Chamber of Commerce and Industry. Mr.
Bakrie has served as a member of the People's Consultative Assembly of the
Republic of Indonesia since 1987.
 
     HASAN M. BINLADIN -- Director since January 1996; member of the Related
Party Contracts Committee. During the past five years, Mr. Binladin has served
as Senior Vice President of the Saudi Binladin Group.
 
                                       43
<PAGE>   46
 
     ULF BOHLA -- Director since October 1994; member of the Banking and
Financing Committee and the Related Party Contracts Committee. Director of IWCL
since December 1996. Mr. Bohla has been the Chief Executive Officer of o.tel.o
communications GmbH & Co. since July 1, 1994 and is currently Chairman of the
Board of Directors of Vebacom Holdings, Inc. Prior thereto, he served in various
positions with IBM since 1970 including General Manager of Telecommunications at
IBM Europe from 1993 to June 1994, Vice President of International Marketing
Operations at IBM USA from 1991 to 1993 and Director of the North German region
at IBM Germany from 1989 to 1991.
 
     GORDON J. COMERFORD -- Director since July 1993; Chairman of the Audit
Committee. Mr. Comerford is a member of the Board of Directors of Iridium
SudAmerica Corporation and Iridium Canada, Inc. Mr. Comerford recently retired
from Motorola, where he served as a Senior Vice President since 1989. He joined
Motorola's communications sector in 1974 as a Director of Business Management
and became a Corporate Vice President in 1980.
 
     ATILANO DE OMS SOBRINHO -- Director since June 1996; member of the Audit
Committee and the Related Party Contracts Committee. Mr. Oms is Chairman of the
Board, President and CEO of Inepar S.A., a diversified Brazilian corporation
with operations in telecommunications, electrical current control equipment and
services, mass transport, vehicle distribution and financial markets. Mr. Oms is
a member of the Board of Directors SudAmerica and Iridium Brasil. He also serves
on the Boards of the National Confederation of Industries (CNI), ABINEE-National
Association of Electro-Electronic Industries and the Federation of Industries of
Parana State.
 
     ROBERT A. FERCHAT -- Director since January 1995; member of the Related
Party Contracts Committee. Mr. Ferchat has served as Chairman and Executive
Officer since May 1995 and as Chairman, President and Chief Executive Officer
from November 1994 to May 1995 at BCE Mobile Communications Inc. Prior thereto,
he served as Chairman, President and Chief Executive Officer of TMI
Communications, a satellite communications company, from 1992 to 1994. He also
served as President of Northern Telecom Canada Ltd. from 1985 to 1990. Mr.
Ferchat has also served as a director at BCE Mobile Communications Inc. since
1994.
 
     ALBERTO FINOL -- Director since July 1993; Chairman of the Banking and
Financing Committee; member of the Compensation Committee and the Related Party
Contracts Committee. Deputy Chairman and Director of IWCL since December 1996.
Mr. Finol has been the President of Ilapeca, a Venezuelan holding company with
interests in dairy products, supermarkets, pharmaceuticals and communications,
since 1990 and has served as a Director since 1966. He is the Chairman of
Iridium SudAmerica and the Chairman and a major shareholder of Iridium
Andes-Caribe Ltd., one of the owners of Iridium SudAmerica. He has also served
as the Director of Group Zuliano, a major Venezuelan petrochemical holding
group. He represented his native region of Zulia on the Venezuelan Congress from
1969 to 1993.
 
     EDWARD GAMS -- Director since July 1993; member of the Banking and
Financing Committee. Mr. Gams has served as Corporate Vice President and
Director of Investor Relations of Motorola since 1996 and Vice President and
Director of Investor Relations of Motorola since 1991. He was first employed by
Motorola in 1979, and has held a variety of positions in operational and
corporate finance, including service as Director of Corporate Financial Planning
from February 1991 to August 1991 and as manager of Corporate Financial Planning
from December 1989 to February 1991.
 
     KAZUO INAMORI -- Director since July 1993; member of the Related Party
Contracts Committee. Dr. Inamori has been Chairman of the Board of DDI
Corporation since 1984, of Kansai Cellular Telephone Co., Ltd. since 1988, of
Taitoh Corporation since 1990, of Nippon Iridium Corporation since 1993, of DDI
Tokyo Pocket Telephone Inc. since 1994, of DDI Kansai Pocket Telephone Co., Ltd.
since 1994, Kyocera Multimedia Corporation since 1995 and at Kyocera DDI
Institute of Future Telecommunications Inc. since 1996. Dr. Inamori established
Kyocera Corporation in 1959 and has been Chairman of the Board since 1986.
 
     GEORG KELLINGHUSEN -- Director since July 1997; member of the Related Party
Contracts Committee. Dr. Kellinghusen has been a member of the Board of Vebacom
GmbH since August 1996. From 1989 to 1996, Dr. Kellinghusen was affiliated with
Varta AG, most recently as the Chairman of the Board of
 
                                       44
<PAGE>   47
 
Varta-Bosch Autobatterien GmbH. Prior to joining Varta AG, Dr. Kellinghusen
served as Controller, Commercial Director and Director, German-Language Books
Production Division, for Bertelsmann AG.
 
     S.H. KHAN -- Director since October 1994; member of the Related Party
Contracts Committee. Mr. Khan has served as Chairman and Managing Director of
the Industrial Development Bank of India since December 1993. Prior thereto,
from 1966, he served in various positions with the Industrial Development Bank
of India, including Managing Director from February 1992 to December 1993 and
Executive Director from 1986 to 1992. He also serves as Chairman of the Small
Industries Development Bank of India, Credit Analysis & Research Ltd., National
Securities Depository Ltd. and National Stock Exchange of India Ltd. He is also
Director on the Boards of Export-Import Bank of India, IDBI Bank Ltd., Life
Insurance Corporation of India, General Insurance Corporation of India, Discount
and Finance House of India Ltd., Deposit Insurance and Credit Guarantee
Corporation and Securities Trading Corporation of India Ltd., India Growth Fund
Inc., as a Trustee of Unit Trust of India ("UTI"), and as a Member of the
Advisory Board of UTI Mutual Fund and India Fund.
 
     ANATOLY I. KISELEV -- Director since July 1993; member of the Related party
Contracts Committee. Mr. Kiselev has served as Director General of the facility
that has produced the Salyut, Almaz and Mir space stations, the Proton rocket,
and other spacecraft since 1993. Mr. Kiselev has been employed by Khrunichev,
and its predecessor organizations since 1956, including as Khrunichev Enterprise
Director from 1975 to 1993.
 
     JOHN F. MITCHELL -- Director since July 1993; Chairman of the Compensation
Committee since July 1993. Mr. Mitchell has served as Vice Chairman of the Board
of Motorola since 1988 and served as Officer of the Board from 1988 to 1995. He
was employed by Motorola from 1953 to 1995 and served as President from 1980 to
1986 and as Chief Operating Officer from 1986 to 1988.
 
     JUNG L. MOK -- Director since October 1994; member of the Compensation
Committee and the Related Party Contracts Committee. Mr. Mok has served as a
director and as the Senior Executive Vice President of SK Telecom since 1994.
Prior thereto, Mr. Mok served as Senior Managing Director and Chief Operating
Officer of Taehan Telecom Limited from 1991 to 1994 and as Managing Director at
USA, Inc. since 1989.
 
     GIUSEPPE MORGANTI -- Director since April 1996; member of the Banking and
Financing Committee, the Audit Committee and the Related Party Contracts
Committee. Since August 1996, Ing. Morganti has served as Chief Executive
Officer and Managing Director of Iridium Italia S.p.A. Ing. Morganti has been
with STET (now Telecom Italia) since 1984 in various management positions within
the Planning and Strategic Control Department, most recently as the head of the
Telecommunications Services Division.
 
     J. MICHAEL NORRIS -- Director since July 1996; Mr. Norris is a Senior Vice
President of Motorola and has been with Motorola for 24 years. He is currently
the Senior Vice President and General Manager of the Network Management Group,
responsible for all Motorola cellular joint ventures and IRIDIUM gateway
operations worldwide. He also sits on the boards of Hutchinson Telephone Company
Ltd. (Hong Kong), World Telecom Holding Company, Ltd. (Thailand) and Pelephone
(Israel).
 
     YUSAI OKUYAMA -- Director since July 1996; member of the Audit Committee
and Related Party Contracts Committee. Mr. Okuyama has been President of DDI
Corporation since 1993 and President of Nippon Iridium (Bermuda) Ltd. since
1995. Mr. Okuyama has been Chairman of the Board at seven of the DDI Pocket
Telephone Companies since 1994 and at five of the DDI Cellular Telephone
companies since 1995. Mr. Okuyama retired from MPT in 1989 as a deputy secretary
of MPT and served at MPT related enterprises as President before joining DDI
Corporation in 1993.
 
     JOHN A. RICHARDSON -- Director since March 1998; Mr. Richardson has been
the Chief Executive Officer of Iridium Africa since January 1998. He previously
was Chairman and CEO of Barclays-BZW Asia and prior thereto was CEO of Hutchison
Whampoa Ltd. from 1980 to 1985.
 
     JOHN M. SCANLON -- Director since January 1997. Mr. Scanlon is Executive
Vice President of Motorola and President of Motorola's Cellular Networks & Space
Sector. Mr. Scanlon joined Motorola in August 1990. Prior to joining Motorola,
Mr. Scanlon spent 24 years with AT&T, rising to the position of Group Vice
President. Mr. Scanlon is also a director of Media.Com.
 
                                       45
<PAGE>   48
 
     THEODORE H. SCHELL -- Director since July 1993; member of the Banking and
Financing Committee and the Related Party Contract Committee. Mr. Schell has
served as Senior Vice President -- Strategic Planning and Corporate Development
at Sprint since 1990. Prior thereto, he served as President and Chief Executive
Officer of RealCom Communications Corporation, an IBM subsidiary.
 
     WILLIAM A. SCHREYER -- Independent Company Director; member of the Banking
and Financing Committee and the Related Party Contracts Committee. Mr. Schreyer
was appointed Independent Company Director, upon consummation of the IWCL IPO in
June 1997. Director or IWCL since June 1997. Mr. Schreyer is Chairman Emeritus
of Merrill Lynch & Co., Inc. and has served as Chairman of the Board from April
1985 through June 1993 and as Chief Executive Officer from July 1984 through
April 1992. Mr. Schreyer is currently a Director of Callaway Golf Company, Deere
& Company, True North Communications Inc., Schering-Plough Corporation and
Willis Corroon Group.
 
     SRIBHUMI SUKHANETR -- Director since July 1993; member of the Banking and
Financing Committee, the Compensation Committee and the Related Party Contracts
Committee. Since 1992, Mr. Sukhanetr has been the Chairman of United
Communication Industry Co., Ltd. ("UCOM") and of Thai Satellite
Telecommunications Co., Ltd., a subsidiary of UCOM. Prior thereto, he served as
advisor to the Prime Minister's Office in Thailand from February 1991 to
September 1992 and as Permanent Secretary to the Ministry of Transport and
Communications from 1988 to February 1991.
 
     TAO-TSUN SUN -- Director since January 1994; member of the Audit Committee
and the Related Party Contracts Committee. Mr. Sun has been Executive Director
and President of Pacific Electric Wire & Cable Co., Ltd., the parent of Pacific
Iridium Telecommunications Corporation, since 1986. Since 1996, he has served as
Executive Director of Taiwan Electric Wire & Cable Ind. Assoc. and of Chinese
National Federation of Industries, and as Honorary Chairman of the Council for
Industry and Commercial Development. He has also served as Chairman of Taiwan
Aerospace Corporation since 1994, Executive Director of Walsin Lihwa Corp. and
Executive Vice Chairman of Charoong Thai Wire & Cable Co., Ltd. since 1993 and
Director of Pacific Construction Co., Ltd. since 1995.
 
     YOSHIHARU YASUDA -- Director since January 1996; member of the Banking and
Financing Committee, the Compensation Committee and the Related Party Contracts
Committee. Director of IWCL since December 1996. Mr. Yasuda is currently
President of Nippon Iridium Corporation and has been a Director since June 1995.
Mr. Yasuda was Vice President of Nippon Iridium Corporation from June 1996
through 1997. Mr. Yasuda was Director of DDI Corporation from 1992 to 1995.
Prior to joining DDI Corporation, Mr. Yasuda was with the Sanwa Research
Institute.
 
     WANG MEI YUE -- Director since October 1995; member of the Compensation
Committee and the Related Party Contracts Committee. Dr. Wang has served as
Chairman and President of Iridium China (Hong Kong) Ltd. since September 1995,
as Chairman and President of China Aerospace International Holdings Ltd., Hong
Kong since 1993 and as Chairman of China Southern Telecommunication Co., Ltd.
since 1991. From 1988 to 1993 Dr. Wang served as Vice Chairman of the Board at
Conic Investment Co. Ltd.
 
                                       46
<PAGE>   49
 
ITEM 11.  EXECUTIVE COMPENSATION
 
     The following table sets forth, as applicable, the compensation paid for
the fiscal years ended December 31, 1995, 1996 and 1997 to those persons who
were, at December 31, 1997, the Chief Executive Officer of Parent and Iridium
and the four next most highly compensated executive officers of Parent and
Iridium. Pursuant to the Iridium LLC Agreement, all officers of Parent are also
officers of Iridium. Pursuant to the Management Services Agreement, Iridium is
required to provide sufficient funds to Parent to, among other things, satisfy
Parent's obligations to its employees. IWCL does not have any salaried
employees. All executive officers of IWCL are executive officers of Parent and
Iridium, except for the Secretary who is a Bermuda resident, as required under
Bermuda law.
 
                           SUMMARY COMPENSATION TABLE
 
<TABLE>
<CAPTION>
                                                                                LONG-TERM
                                                                              COMPENSATION
                                                                          ---------------------
                                            ANNUAL COMPENSATION            NUMBER OF
                                     ----------------------------------    SECURITIES
                                                           OTHER ANNUAL    UNDERLYING     LTIP     ALL OTHER
NAME AND PRINCIPAL POSITION   YEAR    SALARY    BONUS(a)   COMPENSATION   OPTIONS/SARS   PAYOUT   COMPENSATION
---------------------------   ----   --------   --------   ------------   ------------   ------   ------------
<S>                           <C>    <C>        <C>        <C>            <C>            <C>      <C>
Edward F. Staiano...........  1997   $500,000         --     $187,827(b)    750,000       --        $ 4,750(c)
  Vice Chairman and Chief
  Executive Officer
Robert W. Kinzie............  1997   $368,424   $154,560           --        90,000       --        $ 8,462(d)
  Chairman & Former Chief     1996   $344,000   $117,669           --        90,000       --        $ 7,819
  Executive Officer           1995   $310,000   $102,000           --            --       --        $ 7,469
Mauro Sentinelli............  1997   $208,333         --           --        75,000       --        $24,803(e)
  Executive Vice
  President -- Marketing &
  Distribution
Leo Mondale.................  1997   $262,504   $110,000           --        67,500       --        $ 4,750(c)
  Senior Vice President --    1996   $220,561   $100,000           --        45,000       --        $ 4,500
  Strategic Planning &        1995   $190,000   $ 56,050           --            --       --        $ 4,500
  Business Development
Mark Gercenstein............  1997   $210,613   $ 88,729           --            --       --        $ 4,750(c)
  Vice President -- Business  1996   $201,692   $ 62,909           --        45,000       --        $ 4,500
  Operations                  1995   $176,250   $ 54,226           --            --       --        $ 4,500
</TABLE>
 
------------
(a) Through the fiscal year ending December 31, 1995 Parent maintained the
    Iridium Long Range Incentive Plan of 1993 (the "Plan"). The Plan was
    terminated as of December 31, 1995. Final awards for performance in Fiscal
    Year 1995 were determined by the Compensation Committee of the Parent Board
    in April 1996. The Iridium Option Plan (described under "-- Option Plan"
    below) was at that time substituted for the Plan. Under the Long Range
    Incentive Plan amounts were earned each year and credited to an account
    established for the participant. Amounts in each account earn interest at 1%
    over the prime rate until the end of the performance cycle which runs from
    1993 through 1998. The amounts in each account will become payable in fiscal
    year 1999, subject to forfeiture in the event the participant's employment
    with Iridium is terminated for any reason other than death, disability,
    retirement or a change from full-time to part-time employment.
 
(b) This amount includes amounts paid to Dr. Staiano for airplane expenses
    ($53,663), a salary gross-up to cover taxes incurred ($87,880), apartment
    ($38,447) and car lease ($7,837).
 
(c) Parent matching contributions to 401(k) plan.
 
(d) This amount includes the value of term life insurance provided to Mr. Kinzie
    ($3,712) and Parent's matching contribution to 401(k) plan ($4,750).
 
(e) This amount includes relocation expenses paid for Mr. Sentinelli ($20,053)
    and Parent's matching contribution to 401(k) plan ($4,750).
 
     On January 2, 1997, Edward F. Staiano became Chief Executive Officer of
Parent and Vice Chairman of the Parent Board. Pursuant to the terms of his
employment agreement, Dr. Staiano will receive a base salary
 
                                       47
<PAGE>   50
 
of $500,000 per year. In addition to base salary, Parent has agreed to provide
Dr. Staiano, at its expense, with a car, a furnished apartment in Washington,
D.C. and access to a corporate jet aircraft. Parent has agreed to provide
reimbursement for any tax liability created as a result of the use of those
items. Dr. Staiano was also awarded options to purchase 750,000 shares of Class
A Common Stock of IWCL at a price of $13.33 per share. The options vest, pro
rata, over a period of five years. Vested options may be exercised at any time
after a public offering. Dr. Staiano's options will continue to vest even if his
employment is terminated by Iridium, other than for cause, so long as he is not
retained or employed by a competitor. Dr. Staiano does not receive an annual
bonus or participate in Parent's retirement plans.
 
  Option Grants
 
     The following table sets forth the options granted for the fiscal year
ended December 31, 1997 for each named executive officer.
 
                     OPTIONS/SAR GRANTS IN LAST FISCAL YEAR
 
<TABLE>
<CAPTION>
                                     INDIVIDUAL GRANTS
                              -------------------------------                               POTENTIAL REALIZABLE VALUE
                               NUMBER OF     PERCENT OF TOTAL                               AT ASSUMED ANNUAL RATES OF
                               SECURITIES      OPTIONS/SARS                                STOCK PRICE APPRECIATION FOR
                               UNDERLYING       GRANTED TO      EXERCISE OF                       OPTION TERM(a)
                              OPTIONS/SARS      EMPLOYEES       BASE PRICE    EXPIRATION   ----------------------------
NAME                            GRANTED       IN FISCAL YEAR      ($/SH)         DATE         5%($)          10%($)
----                          ------------   ----------------   -----------   ----------   ------------   -------------
<S>                           <C>            <C>                <C>           <C>          <C>            <C>
Edward F. Staiano...........    750,000           53.20%          $13.33       1/12/07      $6,285,000     $15,930,000
Robert W. Kinzie............     90,000            6.38            13.33       4/14/07         754,200       1,911,600
Mauro Sentinelli............     75,000            5.32            13.33       7/31/07         628,500       1,593,000
Leo Mondale.................     67,500            4.79            13.33       4/14/07         565,650       1,433,700
Mark Gercenstein............         --              --               --            --              --              --
</TABLE>
 
---------------
(a) This figure is achieved by multiplying the number of Options by the Final
    Assumed Appreciated Stock Price at the end of the Option Term, and then
    subtracting the original cost of the Options, which is the number of Options
    multiplied by the Exercise or Base Price.
 
  Year End Option/SAR Table
 
     The following table shows certain information with respect to stock options
held as of December 31, 1997 by the named executive officers.
 
 AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR END OPTION/SAR
                                     VALUES
<TABLE>
<CAPTION>
 
                                                                                          NUMBER OF
                               SHARES                                                UNEXERCISED OPTIONS
                              ACQUIRED                                              AT FISCAL YEAR-END(a)
                                 ON      OPTIONS    VALUE     DATE OF   MONTHS   ---------------------------
NAME                   YEAR   EXERCISE   GRANTED   REALIZED   OPTION     HELD    EXERCISABLE   UNEXERCISABLE
----                   ----   --------   -------   --------   -------   ------   -----------   -------------
<S>                    <C>    <C>        <C>       <C>        <C>       <C>      <C>           <C>
Edward F. Staiano....  1997     --       750,000     --       1/13/97     11       137,500        612,500
Robert W. Kinzie.....  1997     --        90,000     --       4/15/97      8        46,500        133,500
Mauro Sentinelli.....  1997     --        75,000     --        8/1/97      5         5,000         70,000
Leo Mondale..........  1997     --        67,500     --       4/15/97      8        26,250         86,250
Mark Gercenstein.....  1997     --             0     --        1/1/96     23        17,250         27,750
</TABLE>
 
<TABLE>
<CAPTION>
                          VALUE OF UNEXERCISED
                              IN-THE-MONEY
                               OPTIONS/SAR
                          AT FISCAL YEAR-END(b)
                       ---------------------------
NAME                   EXERCISABLE   UNEXERCISABLE
----                   -----------   -------------
<S>                    <C>           <C>
Edward F. Staiano....  $5,018,750     $22,356,250
Robert W. Kinzie.....   1,697,250       4,872,750
Mauro Sentinelli.....     182,500       2,555,000
Leo Mondale..........     958,125       3,148,125
Mark Gercenstein.....     629,625       1,012,875
</TABLE>
 
---------------
(a) These figures include Options granted before fiscal year 1997.
(b) The closing price of Company Stock on the last day of fiscal year was $36.50
    per share.
 
                                       48
<PAGE>   51
 
  Compensation Committee Interlocks and Insider Participation
 
     The Compensation Committee of the Parent Board and the Iridium Board
determines the compensation of the executive officers of Parent and Iridium
consistent with guidelines established by the Parent Board and the Iridium
Board. The members of the Compensation Committee for the fiscal year ending
December 31, 1997 were Alberto Finol, Richard L. Lesher, George S. Medawar, John
F. Mitchell, Jung L. Mok, Sribhumi Sukhanetr, Wang Mei Yue and Yoshiharu Yasuda.
The Compensation Committee was chaired by Mr. Mitchell, formerly an executive
officer of Motorola, who continues to serve as Vice Chairman of the Board of
Directors of Motorola. Mr. Finol serves as the Deputy Chairman of IWCL.
 
  Pension Plan
 
<TABLE>
<CAPTION>
                                                          YEARS OF SERVICE
                                      --------------------------------------------------------
COMPENSATION                             15          20          25          30          35
------------                          --------    --------    --------    --------    --------
<S>                                   <C>         <C>         <C>         <C>         <C>
125,000.............................  $ 36,964    $ 49,286    $ 61,607    $ 76,929    $ 86,250
150,000.............................    45,000      60,000      75,000      90,000     105,000
175,000.............................    53,036      70,714      88,393     106,071     123,750
200,000.............................    61,071      81,429     101,786     122,143     142,500
225,000.............................    69,107      92,143     115,179     138,214     161,250
250,000.............................    77,143     102,857     128,571     154,286     180,000
300,000.............................    93,214     124,286     155,357     186,429     217,500
400,000.............................   125,357     167,143     208,929     250,714     292,500
450,000.............................   141,429     188,571     235,714     282,857     330,000
500,000.............................   157,500     210,000     262,500     315,000     367,500
</TABLE>
 
     Parent maintains the Parent Pension Plan (the "Pension Plan") for the
benefit of its employees. The Pension Plan is a defined benefit plan and is
qualified under the provisions of the U.S. Internal Revenue Code related to such
plans. Benefits payable under the Pension Plan are computed on the basis of a
single life annuity payable at age 65 and are subject to a partial offset by
Social Security payments. Compensation taken into account for purposes of
computing the benefits payable under the Pension Plan generally includes final
average salary, bonuses and qualified salary deferrals. Although the U.S.
Internal Revenue Code of 1986, as amended, limits the amount of covered
compensation under the Pension Plan to $150,000 subject to adjustment (the
"Compensation Cap"), the table above also reflects benefits payable under a
supplemental retirement income plan (the "Supplemental Plan") established by
Parent for the benefit of employees whose compensation exceeds the Compensation
Cap or whose benefit would be limited by Section 415 of the U.S. Internal
Revenue Code. Benefits under the Supplemental Plan are calculated in the same
manner as the Pension Plan. Under the Supplemental Plan, Parent will pay the
employee an amount which together with the amounts due under the Pension Plan
will equal what the employee would have received under the Pension Plan if the
Compensation Cap was not in effect. Mr. Staiano has one year of credited
service; Mr. Kinzie has six years of credited service; Mr. Sentinelli has zero
years of credited service; Mr. Mondale has seven years of credit service; and
Mr. Gercenstein has twelve years of credited service. Messrs. Kinzie, Mondale
and Gercenstein participate in the Pension Plan but do not participate in the
Supplemental Plan.
 
     Parent maintains a supplementary retirement plan for selected senior
officers. The plan provides for an annual income, normally beginning at age 60,
equal to the larger of (i) 40% of the participant's compensation (salary plus an
adjustment for bonuses) at retirement or (ii) the annual benefit calculated
using the formula under the Supplemental Plan, in either case reduced by any
amount payable under the Pension Plan. Regardless of which formula is used, the
total retirement income cannot exceed 70% of an individual's retiring salary. At
retirement a participant receives an annuity purchased by Iridium from an
insurance company sufficient to make the payments required. Parent also pays to
the participant or to the proper taxing authorities an amount sufficient to pay
the income taxes arising from the purchase of the annuity for the participant. A
participant also has the option of receiving a lump sum equal to the purchase
price of the annuity. As with the annuity Parent pays the income taxes arising
from the payment of the lump sum.
 
                                       49
<PAGE>   52
 
  Employment Arrangements
 
     On January 2, 1997, Edward F. Staiano became Chief Executive Officer and
Vice Chairman of the Parent Board. Pursuant to the terms of his employment
agreement, Dr. Staiano will receive a base salary of $500,000 per year. In
addition to base salary, Parent has agreed to provide Dr. Staiano, at its
expense, with a car, a furnished apartment in Washington, D.C. and access to a
corporate jet aircraft. Parent has agreed to provide reimbursement for any tax
liability created as a result of the use of those items. Dr. Staiano was also
awarded options to purchase 750,000 Class 1 Interests of Iridium at a price of
$13.33 per interest. The options vest, pro rata, over a period of five years.
Vested options may be exercised at any time after a public offering. Generally,
Dr. Staiano's options are subject to all of the provisions of the Option Plan
(described under "-- Option Plan" below) except that Dr. Staiano's options will
continue to vest even if his employment is terminated by Parent, other than for
cause, so long as he is not retained or employed by a competitor. Dr. Staiano
does not receive an annual bonus or participate in Parent's pension plans.
 
  Option Plan
 
     Parent has established a plan under which executive officers and managers
of Parent are awarded options to purchase Class A Common Stock ( the "Option
Plan" ). The Option Plan covers 2,625,000 shares of Class A Common Stock. The
Option Plan also permits the award of stock appreciation rights in connection
with any grant of options. As of March 1, 1998, options covering 2,557,085
shares of Class A Common Stock had been granted. Options to purchase 482,154
shares of Class A Common Stock were vested at March 1, 1998. As of that date no
stock appreciation awards had been granted. This amount of outstanding options
includes the options issued to Dr. Staiano when he joined Iridium. If an award
under the Option Plan expires, or is terminated, surrendered or canceled, the
shares of Class A Common Stock subject to such award are added to the number of
shares of Class A Common Stock available for awards under the Option Plan. Under
the Option Plan, option awards are made from time to time by the Compensation
Committee of the Parent Board.
 
     The right to exercise the options vests, pro rata, over a period of five
years, however, all options and stock appreciation rights become immediately
vested on a Change in Control (as defined in the Option Plan) and in the event
of a Change in Control, Parent is required to purchase each outstanding option
and stock appreciation right for an immediate lump sum payment equal to the
difference between (i) the higher of (x) the fair market value of a share of
Class A Common Stock immediately prior to payment or (y) the highest price
actually paid in connection with the Change in Control, and (ii) the exercise
price. A "Change in Control" is defined in the Option Plan as a sale by one or
more holders of 50% or more of the outstanding Class 1 Interests, other than in
connection with a Public Offering (as defined), to third parties who are not
holders of Class 1 Interests or affiliated with holders of Class 1 Interests and
following which the members of the Parent prior to the sale cease to constitute
a majority of the Parent Board.
 
     The plan was established in April 1996. Except for Dr. Staiano, under the
Option Plan, a participant whose employment is terminated by Parent forfeits any
unvested options. There are exceptions for death, retirement and certain other
situations. Dr. Staiano's options will continue to vest even if his employment
is terminated by Parent, other than for cause, so long as he is not retained or
employed by a competitor.
 
     IWCL has agreed that upon the exercise of any options, it will issue to
Parent, for delivery to an exercising option holder, the number of shares of
Class A Common Stock covered by the exercised options and Parent has agreed to
simultaneously deliver to IWCL a like number of Class 1 Interests, subject to
anti-dilution adjustments. The exercise price of the option will be paid to
Parent and will represent payment for the Class A Common Stock by the exercising
option holder and for the Class 1 Interests by IWCL. See "Certain Matters
Regarding Relationship Among IWCL, Parent and Iridium -- Share Issuance
Agreement."
 
SUBSIDIARIES OF IRIDIUM
 
     Iridium has four subsidiaries: Iridium Capital Corporation ("Capital"),
Iridium Roaming LLC ("Roaming"), Iridium IP LLC ("IP") and Iridium Facilities
Corporation ("Facilities"). Each of Roaming and IP is a Delaware limited
liability company, of which Iridium is the only member. Each of Capital and
Facilities is a
                                       50
<PAGE>   53
 
Delaware corporation and is a wholly owned subsidiary of Iridium. Pursuant to
the limited liability company agreement relating to each of Roaming and IP, the
power and authority to manage and conduct the business and affairs of such
company is vested in Iridium, acting through certain of the officers and
directors of Iridium listed above. Each of the directors and officers of Capital
and Facilities is an officer of Iridium.
 
ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
 
IRIDIUM WORLD COMMUNICATIONS LTD.
 
     There are no persons known by IWCL to own beneficially more than five
percent of its Class A Common Stock as of March 1, 1998. The following table
sets forth certain information regarding beneficial ownership of IWCL's Class A
Common Stock as of March 1, 1998 by the Directors and nominees, the named
executive officers in the Summary Compensation Table ("NEOs") and all Directors,
nominees and officers as a group.
 
<TABLE>
<CAPTION>
                                                   AMOUNT AND NATURE
                                                     OF BENEFICIAL      PERCENT OF
NAME OF INDIVIDUAL                                  OWNERSHIP(1)(2)      CLASS(1)
------------------                                 -----------------    ----------
<S>                                                <C>                  <C>
Robert W. Kinzie.................................         78,457(3)        *
Edward F. Staiano................................        250,000           2.05%
Mauro Sentinelli.................................         17,852           *
Leo Mondale......................................         41,792           *
Mark Gercenstein.................................         25,603           *
Alberto Finol....................................        127,900(4)        1.07%
Ulf Bohla........................................              0             --
Richard Lesher...................................          9,183           *
William Schreyer.................................         10,183           *
Yoshiharu Yasuda.................................          2,000           *
All Directors of IWCL and Executive Officers of                          
  IWCL and Parent as a Group.....................        681,030           5.47%
</TABLE>
 
---------------
 *  Represents holdings of less than one percent.
 
(1) Includes shares which, as of March 1, 1998, may be acquired within sixty
    days pursuant to the exercise of options (which shares are treated as
    outstanding for the purposes of determining beneficial ownership and
    computing the percentage set forth).
 
(2) Except as noted, all shares are owned directly with sole investment and
    voting power.
 
(3) Includes 1,500 shares owned by Mr. Kinzie's wife, as to which Mr. Kinzie
    disclaims beneficial ownership.
 
(4) Includes 122,900 shares owned by Mr. Finol's holding company and 5,000
    shares owned by Mr. Finol's wife. Mr. Finol disclaims beneficial ownership
    of the shares owned by his wife.
 
                                       51
<PAGE>   54
 
PARENT
 
     Iridium is wholly owned subsidiary of Parent. The following table sets
forth certain information regarding beneficial ownership of Parent's Class 1
Interests as of March 1, 1998 (i) by each person known by Parent to own
beneficially more than five percent of its Class 1 Interests and (ii) by all of
Iridium's executive officers and directors of Parent and Iridium (named in the
table under "Management" above) as a group.
 
<TABLE>
<CAPTION>
                                                              AMOUNT AND NATURE
                                                                OF BENEFICIAL      PERCENT OF
NAME AND ADDRESS OF BENEFICIAL OWNER                            OWNERSHIP(1)        CLASS(1)
------------------------------------                          -----------------    ----------
<S>                                                           <C>                  <C>
Motorola, Inc.(2)...........................................     39,898,493          27.40%
1303 East Algonquin Rd.
Schaumburg, IL 60196
 
Nippon Iridium (Bermuda) Limited(3).........................     15,750,000          11.15
c/o NIPPON IRIDIUM CORPORATION
Ichibancho FS Building 8
Ichibancho Chiyoda-ku
Tokyo 102 Japan
 
Vebacom Holdings, Inc.(4)...................................     12,427,875           8.80
c/o o.tel.o communications GmbH & Co.
Am Bonneshof 35
D-40474 Dusseldorf Germany
 
All Directors and Executive Officers as a Group(5)..........              0              0
</TABLE>
 
---------------
(1) Beneficial ownership is determined in accordance with the rules of the
    Commission and includes voting and investment power with respect to the
    Class 1 Interests. Class 1 Interests subject to options or warrants
    currently exercisable or exercisable within 60 days of the date of this Form
    10-K are deemed outstanding for computing the percentage ownership of the
    person holding such options or warrants, but are not deemed outstanding for
    computing the percentage of any other person.
 
(2) The Class 1 Interests beneficially owned by Motorola include 25,033,425
    Class 1 Interests held directly by Motorola and 4,365,068 Class 1 Interests
    issuable under a warrant to purchase Series M Class 2 Interests in Iridium
    which would be convertible into Class 1 Interests equal to 2.5% of the fully
    diluted number of Class 1 Interests outstanding at the time of exercise. The
    remaining Class 1 Interests shown in the table as being beneficially owned
    by Motorola consists of 5,250,000 Class 1 Interests held by Iridium Canada
    (33.3% of which is owned by a subsidiary of Motorola) and 5,250,000 Class 1
    Interests held by Iridium India Telecom (20% of which is owned by a
    subsidiary of Motorola). Although Motorola does not have the right to vote
    or dispose of the Class 1 Interests held by these companies, it may be
    deemed to beneficially own these interests because these companies cannot
    dispose of their Class 1 Interests without the consent of the applicable
    Motorola subsidiary. The beneficial ownership of Motorola does not include
    Class 1 Interests issuable under warrants to which Motorola will become
    entitled as a result of its guarantee of borrowings by Iridium or Class 1
    Interests that may be issued pursuant to the Reserve Capital Call.
 
(3) Nippon Iridium (Bermuda) Limited is a wholly owned subsidiary of Nippon
    Iridium Corporation, which is a consortium formed by DDI Corporation.
 
(4) Vebacom Holdings, Inc. is a wholly owned subsidiary of o.tel.o
    communications GmbH & Co., which is owned by VEBA Telecom GmbH and Lehman
    Brothers Bankhaus Aktiengesellschaft (as a fiduciary).
 
(5) No directors or executive officers of Parent own Class 1 Interests. As of
    March 1, 1998, the IWCL directors and the executive officers of IWCL and
    Parent owned an aggregate of 681,030 shares of Class A Common Stock and IWCL
    owned 681,030 Class 1 Interests in respect of such Class A Common Stock. Up
    to 2,625,000 shares of Class A Common Stock may be issued pursuant to the
    Option Plan. As of March 1, 1998, options covering an aggregate of 2,572,585
    shares of Class A Common Stock had been granted
                                       52
<PAGE>   55
 
    under the Option Plan. Options to purchase 482,487 shares of Class A Common
    Stock were vested at March 11, 1998.
 
ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
 
MOTOROLA RELATED MATTERS
 
     Motorola is one of the world's leading providers of electronic equipment,
systems, components and services. Its products include two-way radios, pagers,
cellular telephones and systems, semiconductors, defense and aerospace
electronics, automotive and industrial electronics and data communications and
information processing equipment.
 
     Motorola created and developed the concept of the IRIDIUM System and
Iridium's initial technical and business plans. Motorola is a founding investor,
has been allocated gateway service territories, shares a gateway service
territory and has additional interests in other entities which have been
allocated gateway service territories. Motorola is Parent's largest member,
owning directly and indirectly approximately 18% of the Class 1 Interests in
Iridium. The directors and officers of Parent and Iridium include numerous
current and former Motorola employees. Motorola is also Iridium's principal
supplier through the Space System Contract, the Operations and Maintenance
Contract and the Terrestrial Network Development Contract. See "Principal
Contracts for the Development of the IRIDIUM System."
 
     Under a Support Agreement, Motorola provides certain general and
administrative support to Iridium. On a cost reimbursable basis, Motorola has
provided payroll processing and related benefits to Iridium employees, processed
payment to certain contractors providing support to Iridium and has provided
other administrative support. The amount of the services provided by Motorola
has declined as Iridium's internal staff has increased. In 1997, total payments
to Motorola under the Support Agreement were approximately $648,000.
 
  Motorola MOU and Agreement Regarding Guarantee
 
     Motorola initially guaranteed up to $750 million of Parent's borrowings
(including principal and interest) under the Guaranteed Bank Facility pursuant
to the Motorola Guarantee. In connection with the execution and delivery of the
Motorola Guarantee, Motorola and Parent entered into an Agreement Regarding
Guarantee (the "Original Agreement Regarding Guarantee"), under which (among
other things) Parent agreed (i) to reimburse Motorola for any payment required
pursuant to the Motorola Guarantee, (ii) not to take certain actions without
Motorola's approval and (iii) to pay to Motorola, as compensation for the
Motorola Guarantee, warrants to purchase Class 1 Interests. In addition,
pursuant to the Original Agreement Regarding Guarantee, Motorola was granted the
right to appoint an additional Director on the Parent Board and as security for
Iridium's reimbursement obligation under the Original Agreement Regarding
Guarantee, Parent granted to Motorola a security interest in substantially all
of its assets.
 
     In connection with the offering of the Initial Senior Notes, Parent and
Motorola entered into a Memorandum of Understanding ("Motorola MOU") and amended
and restated the Original Agreement Regarding Guarantee (as so amended and
restated, the "Agreement Regarding Guarantee"). Pursuant to the Motorola MOU,
(i) Motorola agreed to consent to an amendment of the Guaranteed Bank Facility
(and to enter into related amendments to the Motorola Guarantee) in order to
extend the maturity of such Facility until after the Stated Maturity of the
Initial Senior Notes (which is the same date as the Stated Maturity of the
Notes); (ii) Motorola agreed to consent to an amendment to the Guaranteed Bank
Facility (or to entry into a new bank credit facility on the same terms) in
order to increase such Facility by (or to establish such new facility in the
amount of) $350 million -- the amount of the Motorola Additional
Guarantee -- and to document the Motorola Additional Guarantee; (iii) Parent
agreed that, to the extent the net proceeds to Iridium of senior note offerings
prior to December 31, 1997 exceed $650 million, it would apply such excess to a
prepayment of the Guaranteed Bank Facility and to a permanent reduction of the
commitments of the lenders thereunder (provided that such commitments need not
be reduced to an amount less than $275 million) (as a result, the commitment
under the Guaranteed Bank Facility was reduced from $750 million to $655 million
with the net proceeds of the Initial Senior Notes offering; for the purposes of
the
 
                                       53
<PAGE>   56
 
Original Offering only, Motorola waived this requirement upon Iridium's
permanent reduction of the Guaranteed Bank Facility and the corresponding
Motorola Guarantee by $205 million (to $450 million)); (iv) Motorola agreed to
release its security interest in Parent's assets granted pursuant to the
Original Agreement Regarding Guarantee; (v) Parent agreed to repay all amounts
outstanding under the Guaranteed Bank Facility and to terminate the commitments
of the lenders thereunder prior to or simultaneous with any optional redemption
of the Initial Senior Notes or the Notes; (vi) Motorola agreed to subordinate
certain of its claims to the claims of the lenders under the Secured Bank
Facility; (vii) Motorola agreed to allow Iridium to defer, at Iridium's option,
payment of approximately $96 million expected to be due to Motorola on September
30, 1998 and thereafter pursuant to the Terrestrial Network Development Contract
until after the Stated Maturity of the Initial Senior Notes (which is the same
date as the Stated Maturity of the Notes), with the amount deferred being
compensated as part of the Motorola Exposure (the amount of the deferral
pursuant to the Terrestrial Network Development Contract), including accrued
interest thereon, the "FOC Payment Deferral"); and (viii) during certain periods
in which the Motorola Exposure (as defined below) is less than $275 million and
Motorola has not been required to make payments on its guarantee of the
Guaranteed Bank Facility, Motorola will waive certain rights it holds in
connection with the Series B and Series C Class 2 Interests of Iridium (see
"Description of Iridium LLC Limited Liability Company Agreement"). In addition,
in the Motorola MOU Parent agreed that, in certain circumstances, it will not
have outstanding at any time until the maturity of the Guaranteed Bank Facility
(as extended as discussed above) (i) in excess of $1.7 billion in aggregate
principal amount of borrowed money indebtedness that is secured by assets of
Parent; (ii) in excess of $1.25 billion in aggregate principal amount (or
initial gross proceeds in the case of any senior notes issued at a discount) of
senior notes (including the Initial Senior Notes and the Notes), and (iii) total
indebtedness for borrowed money (which shall consist solely of amounts described
in clauses (i) and (ii) above) in excess of $2.95 billion. Certain of the
agreements of Motorola and Iridium in the Motorola MOU are subject to
conditions, including the consistency of definitive documents with the Motorola
MOU and the Agreement Regarding Guarantee. Motorola's agreement to provide the
Motorola Additional Guarantee is subject to the condition that the Parent LLC
Agreement be amended to provide Motorola with additional governance rights if
the Motorola Exposure exceeds $750 million. Some of the obligations of Parent
under the Motorola MOU were transferred to Iridium pursuant to the Asset
Drop-Down Transaction. In addition, the indebtedness for borrowed money
constraints described above apply to Parent, Iridium and Iridium's subsidiaries
on a consolidated basis.
 
     Under the Agreement Regarding Guarantee (and after giving effect to the
transfer of obligations under the Asset Drop-Down Transaction), (i) Iridium is
obligated to reimburse Motorola for any payment required pursuant to the
Motorola Guarantee or the Motorola Additional Guarantee; provided, that if the
Guaranteed Bank Facility is accelerated as a result of a Motorola-Based Default
(as defined in the Agreement Regarding Guarantee) such reimbursement will be
made on the same terms as provided in the Guaranteed Bank Facility or any other
relevant credit agreement; (ii) Iridium shall not, except in situations in which
the Motorola Exposure is $275 million or less and certain other conditions are
satisfied, take certain actions without Motorola's approval; and (iii) Parent
must pay to Motorola, as compensation for the Motorola Exposure, warrants to
purchase Class 1 Interests based on the amount and duration of the Motorola
Exposure. In the event the Motorola Exposure is $275 million or less and certain
other conditions are satisfied, then in lieu of such warrants to purchase Class
1 Interests, Iridium may pay to Motorola, as compensation for the Motorola
Exposure, (i) interest thereon at an interest rate equal to the excess of the
rate borne by the Initial Senior Notes over the rate applicable under the
Guaranteed Bank Facility or any other relevant credit agreement, and (ii) for
each day, the average daily warrant compensation payable to holders of senior
notes of Iridium multiplied by the Motorola Exposure (pro rata based on the
amount and duration of the Motorola Exposure compared with the amount and
duration of such senior notes).
 
     "Motorola Exposure" means the commitments of the lenders under the
Guaranteed Bank Facility, the payments made by Motorola pursuant to the Motorola
Guarantee or the Motorola Additional Guarantee (to the extent not repaid by
Iridium) and the Vendor Financing Amount. "Vendor Financing Amount" means the
amount of the FOC Payment Deferral (if such deferral is exercised) and any other
vendor financing provided by Motorola to or for the benefit of Iridium, other
than any vendor financing or payment deferral under the Terrestrial Network
Development Contract as in effect on the date of the Agreement Regarding
Guarantee.
                                       54
<PAGE>   57
 
  Motorola Conflicts of Interest
 
     Motorola has and may have various conflicts of interest with Iridium and
with other members of Parent. Motorola is the principal supplier to Iridium as
well as the actual or prospective supplier and licensor to gateway owners and
operators, service providers, subscriber equipment manufacturers and individual
subscribers. Motorola has asserted and may assert positions on the Space System
Contract, Operations and Maintenance Contract, the Terrestrial Network
Development Contract and the Guarantee Agreement that are contrary to those
asserted by Iridium. To help ameliorate these conflicts under the Space System
Contract, the Operations and Maintenance Contract and the Terrestrial Network
Development Contract, Iridium maintains a Related Party Contracts Committee of
the Iridium Board which consists of all Board members other than any Board
members who are directors, officers, employees or persons nominated to serve on
the Board of Directors by Motorola (so long as Motorola is a party to the Space
System Contract, the Operations and Maintenance Contract or the Terrestrial
Network Development Contract), Lockheed Martin or Raytheon (so long as Lockheed
Martin or Raytheon, as the case may be, are subcontractors to Motorola under the
Space System Contract or the Operations and Maintenance Contract). The Related
Party Contracts Committee has authority to review and monitor the Space System
Contract, the Operations and Maintenance Contract and the Terrestrial Network
Development Contract and, as it deems appropriate, cause Iridium to enforce its
rights thereunder and propose amendments and waivers to these contracts.
Iridium's payment obligations under these contracts comprised most of Iridium's
expenses and a portion of the proceeds of the Original Offering have been or
will be used primarily to make milestone payments under the Space System
Contract and the Terrestrial Network Development Contract.
 
     Motorola has been involved in the manufacture of components for satellites
for over thirty years. Motorola has informed Iridium that it has under
consideration possible future space-based data and communications systems and
ventures. Motorola has also informed Iridium that Motorola may decide to
undertake further development of one or more such systems or ventures but no
decision has been made as to whether Iridium would be a participant in any such
system or venture. It is possible that any such system could be competitive to
some degree with the IRIDIUM System. Motorola has agreed in the Space System
Contract that, without Iridium's consent, it will not produce for itself or
others a similar satellite-based space system of a global communication system
for commercial use prior to the earlier of July 31, 2003 or the termination date
of the Space System Contract. Subsidiaries of Motorola have applied to the FCC
for licenses to construct, launch and operate satellite-based systems designed
to provide fixed-broadband, fixed-data transmission.
 
OTHER MATTERS
 
     Iridium Services Deutschland, a wholly owned subsidiary of o.tel.o
communications GmbH & Co., the parent of Vebacom Holdings, Inc., a holder of
approximately 8.8% of the Class 1 Interests, was allocated a gateway service
territory consisting of several countries in or near Europe. Nippon Iridium
Corporation, an affiliate of Nippon Iridium (Bermuda) Corporation, a holder of
approximately 11.2% of the Class 1 Interests, was allocated the Japan gateway
service territory. Each of o.tel.o communications GmbH & Co. and Nippon Iridium
Corporation have entered into a Gateway Authorization Agreement, pursuant to
which they, or their affiliates, will operate their respective Gateway service
territory and provide gateway services. In addition, o.tel.o communications GmbH
& Co. and Nippon Iridium Corporation will serve as service providers to their
respective gateway territory and, as such, will be entitled to payments
associated with sales of IRIDIUM Services.
 
     Kyocera, an affiliate of Nippon Iridium Corporation, a holder of
approximately 11.2% of the Class 1 Interests, has entered into a license
agreement with Motorola with respect to the development and manufacture of
multi-mode phones for use with the IRIDIUM system. This license agreement does
not obligate Kyocera to develop, manufacture and sell multi-mode phones for use
with the IRIDIUM System. Iridium intends to enter into a contract with Motorola
to cover the expenses associated with testing the Kyocera subscriber equipment
with the IRIDIUM System, estimated to be $12.2 million.
 
                                       55
<PAGE>   58
 
     Certain of the directors of IWCL are, or have been within the past year,
executive officers of suppliers of Parent and Iridium. In addition, certain of
the directors of Parent and Iridium are executive officers of gateway owners and
service providers.
 
ITEM 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
 
     (a) The following are filed as a part of this Report on Form 10-K:
 
     (1) The following financial statements are included at the indicated page
in this Report.
 
<TABLE>
<CAPTION>
                                                              PAGE
                                                              ----
<S>                                                           <C>
Index to Financial Statements...............................   F-1
 
IRIDIUM WORLD COMMUNICATIONS LTD.
       Independent Auditors' Report.........................   F-2
       Balance Sheets.......................................   F-3
       Statements of Loss...................................   F-4
       Statements of Stockholders' Equity...................   F-5
       Statements of Cash Flows.............................   F-6
       Notes to Financial Statements........................   F-7
 
IRIDIUM LLC
       Independent Auditors' Report.........................  F-11
       Consolidated Balance Sheets..........................  F-12
       Consolidated Statements of Loss......................  F-13
       Consolidated Statements of Members' Equity
        (Deficit)...........................................  F-14
       Consolidated Statements of Cash Flows................  F-15
       Notes to Consolidated Financial Statements...........  F-16
 
IRIDIUM OPERATING LLC
       Independent Auditors' Report.........................  F-33
       Consolidated Balance Sheets..........................  F-34
       Consolidated Statements of Loss......................  F-35
       Consolidated Statements of Member's Equity
        (Deficit)...........................................  F-36
       Consolidated Statements of Cash Flows................  F-37
       Notes to Consolidated Financial Statements...........  F-38
</TABLE>
 
     (2) The following additional financial data are transmitted with this
Report and should be read in conjunction with the Consolidated Financial
Statements and Financial Statements in this Report. Schedules other than those
listed below have been omitted because they are inapplicable or are not
required.
 
<TABLE>
<CAPTION>
                                                              PAGE
                                                              ----
<S>                                                           <C>
       Independent Auditors' Report on Consolidated
        Financial Statement Schedule........................   S-1
       Schedule 1 -- Condensed Financial Information of
        Iridium LLC.........................................   S-2
</TABLE>
 
                                       56
<PAGE>   59
 
     (3) Exhibits
 
<TABLE>
<CAPTION>
EXHIBIT
NUMBER                       DESCRIPTION OF EXHIBIT
-------                      ----------------------
<S>       <C>
 3.1      Limited Liability Company Agreement of Iridium LLC, dated as
          of July 29, 1996, as amended: Incorporated by reference to
          Exhibit 10.1 to the Registration Statement on Form S-1 of
          Iridium World Communications Ltd. and Iridium LLC
          (Registration Nos. 333-23419 and 333-23419-01) (the "Form
          S-1").
 3.2      Articles of Incorporation of Iridium Capital Corporation:
          Incorporated by reference to Exhibit 3.2 of the Registration
          Statement on Form S-4 of Iridium LLC, Iridium Capital
          Corporation, Iridium Roaming LLC, and Iridium IP LLC
          (Registration Nos. 333-31741, -01, -02 and -03) (the "1997
          Form S-4").
 3.3      By-Laws of Iridium Capital Corporation: Incorporated by
          reference to Exhibit 3.3 to the 1997 Form S-4.
 3.4      Amended and Restated Limited Liability Company Agreement of
          Iridium Roaming LLC: Incorporated by reference to Exhibit
          3.4 to the Registration Statement on Form S-4 of Iridium
          Operating LLC, Iridium Capital Corporation, Iridium Roaming
          LLC and Iridium IP LLC (Registration No. 333-44349, -01,
          -02, -03 and -04) (the "1998 Form S-4").
 3.5      Amended and Restated Limited Liability Company Agreement of
          Iridium IP LLC: Incorporated by reference to Exhibit 3.5 to
          the 1998 Form S-4.
 3.6      Limited Liability Company Agreement of Iridium Operating
          LLC: Incorporated by reference to Exhibit 3.6 to the 1998
          Form S-4.
 3.7      Articles of Incorporation of Iridium Facilities
          Corporation.*
 3.8      By-Laws of Iridium Facilities Corporation.*
 3.9      Memorandum of Association of Iridium World Communications
          Ltd.: Incorporated by reference to Exhibit 3.1 to the Form
          S-1.
 3.10     By-Laws of Iridium World Communications Ltd.: Incorporated
          by reference to Exhibit 3.2 to the Form S-1.
 4.1.1    Indenture dated as of July 16, 1997 relating to Iridium
          LLC's and Iridium Capital Corporation's 13% Senior Notes due
          2005, Series A, and 13% Senior Notes due 2005, Series A/EN:
          Incorporated by reference to Exhibit 4.1 to the 1997 Form
          S-4.
 4.1.2    First Supplemental Indenture dated as of December 18, 1997
          relating to Iridium Operating LLC's and Iridium Capital
          Corporation's 13% Senior Notes due 2005, Series A, and 13%
          Senior Notes due 2005, Series A/EN: Incorporated by
          reference to Exhibit 4.1.2 to the 1998 Form S-4.
 4.1.3    Second Supplemental Indenture dated as of February 27, 1998
          relating to Iridium Operating LLC's and Iridium Capital
          Corporation's 13% Senior Notes due 2005, Series A, and 13%
          Senior Notes due 2005, Series A/EN.*
 4.2      Forms of Series A Note and Series A/EN Note: Incorporated by
          reference to Exhibit 4.1 to the 1997 Form S-4.
 4.3.1    Indenture dated as of July 16, 1997 relating to Iridium
          LLC's and Iridium Capital Corporation's 14% Senior Notes due
          2005, Series B, and 14% Senior Notes due 2005, Series B/EN:
          Incorporated by reference to Exhibit 4.2 to the 1997 Form
          S-4.
 4.3.2    First Supplemental Indenture dated as of December 18, 1997
          relating to Iridium Operating LLC's and Iridium Capital
          Corporation's 14% Senior Notes due 2005, Series B, and 14%
          Senior Notes due 2005, Series B/EN: Incorporated by
          reference to Exhibit 4.3.2 to the 1998 Form S-4.
 4.3.3    Second Supplemental Indenture dated as of February 27, 1998
          relating to Iridium Operating LLC's and Iridium Capital
          Corporation's 14% Senior Notes due 2005, Series B, and 14%
          Senior Notes due 2005, Series B/EN.*
 4.4      Forms of Series B Note and Series B/EN Note: Incorporated by
          reference to Exhibit 4.2 to the 1997 Form S-4.
 4.5.1    Indenture dated as of October 17, 1997 relating to Iridium
          LLC's and Iridium Capital Corporation's 11 1/4% Senior Notes
          due 2005, Series C: Incorporated by reference to Exhibit
          4.5.1 to the 1998 Form S-4.
 4.5.2    First Supplemental Indenture dated as of December 18, 1997
          relating to Iridium Operating LLC's and Iridium Capital
          Corporation's 11 1/4% Senior Notes due 2005, Series C:
          Incorporated by reference to Exhibit 4.5.2 to the 1998 Form
          S-4.
</TABLE>
 
                                       57
<PAGE>   60
 
<TABLE>
<CAPTION>
EXHIBIT
NUMBER                       DESCRIPTION OF EXHIBIT
-------                      ----------------------
<S>       <C>
4.5.3     Second Supplemental Indenture dated as of February 27, 1998
          relating to Iridium Operating LLC's and Iridium Capital
          Corporation's 11 1/4% Senior Notes due 2005, Series C.*
4.6       Forms of Series C Note and Series C/EN Note: contained in an
          exhibit to Exhibit 4.5.1: Incorporated by reference to
          Exhibit 4.6 to the 1998 Form S-4.
10.1      Form of Interest Exchange Agreement between IWCL and Iridium
          LLC: Incorporated by reference to Exhibit 10.2 to the Form
          S-1.
10.2      Form of amended and restated Management Services Agreement
          between IWCL, Iridium LLC and Iridium Operating LLC:
          Incorporated by reference to Exhibit 10.2 to the 1998 Form
          S-4.
10.3      Form of 1997 Subscription Agreement between IWCL and Iridium
          LLC: Incorporated by reference to Exhibit 10.4 to the Form
          S-1.
10.4      Space System Contract between Iridium LLC and Motorola, Inc.
          effective July 29, 1993, as amended and conformed on January
          14, 1997: Incorporated by reference to Exhibit 10.6 to the
          Form S-1.+
10.5      Communications System Operations & Maintenance Contract
          between Iridium LLC and Motorola, Inc. effective July 29,
          1993, as amended and conformed on January 14, 1997:
          Incorporated by reference to Exhibit 10.7 to the Form S-1.+
10.6      Terrestrial Network Development Contract between Iridium LLC
          and Motorola, Inc. effective January 1, 1993, as amended and
          conformed on January 14, 1997: Incorporated by reference to
          Exhibit 10.8 to the Form S-1.+
10.7      Amendment No. 3 to the Terrestrial Network Development
          Contract between Iridium LLC and Motorola, Inc. effective
          June 20, 1997: Incorporated by reference to Exhibit 10.7 to
          the 1997 Form S-4.+
10.8      Support Agreement between Iridium LLC and Motorola, Inc.:
          Incorporated by reference to Exhibit 10.9 to the Form S-1.
10.9      Agreement, executed as of December 16, 1996, between
          Andersen Consulting LLC and Iridium LLC relating to the
          development of business support systems: Incorporated by
          reference to Exhibit 10.10 to the Form S-1.+
10.10     14 1/2% Senior Subordinated Discount Notes Due 2006 of
          Iridium: Incorporated by reference to Exhibit 10.11 to the
          Form S-1.
10.11     Form of Warrant issued in respect of 14 1/2% Senior
          Subordinated Discount Notes: Incorporated by reference to
          Exhibit 10.13 to the Form S-1.
10.12     Warrant to purchase Series M Class 2 Interests dated July
          29, 1993, as amended: Incorporated by reference to Exhibit
          10.13 to the Form S-1.
10.13     Form of Gateway Authorization Agreement: Incorporated by
          reference to Exhibit 10.14 to the Form S-1.
10.14     Guaranteed Bank Facility: Incorporated by reference to
          Exhibit 10.15 to the Form S-1.
10.15     Amendment dated December 19, 1997 to Guaranteed Bank
          Facility.*
10.16     Motorola Agreement regarding Guarantee: Incorporated by
          reference to Exhibit 10.16 to the Form S-1.
10.17     Amended and Restated Agreement regarding Guarantee:
          Incorporated by reference to Exhibit 10.17 to the 1997 Form
          S-4.
10.18     Memorandum of Understanding with Motorola, Inc: Incorporated
          by reference to Exhibit 10.18 to the 1997 Form S-4.
10.19     Form of Share Issuance Agreement between IWCL and Iridium
          LLC: Incorporated by reference to Exhibit 10.17 to the Form
          S-1.
10.20     Purchase Agreement in respect of Series C Notes, dated
          October 9, 1997: Incorporated by reference to Exhibit 10.20
          to the 1998 Form S-4.
10.21     Exchange and Registration Rights Agreement: contained in an
          annex to Exhibit 10.20: Incorporated by reference to Exhibit
          10.21 to the 1998 Form S-4.
10.22     Iridium LLC Option Plan: Incorporated by reference to
          Exhibit 10.5 to the Form S-1.++
10.23     Iridium LLC Selected Senior Officers' Supplementary
          Retirement Plan: Incorporated by reference to Exhibit 10.27
          to the 1997 Form S-4.
</TABLE>
 
                                       58
<PAGE>   61
 
<TABLE>
<CAPTION>
EXHIBIT
NUMBER                       DESCRIPTION OF EXHIBIT
-------                      ----------------------
<S>       <C>
10.24     Agreement between Dr. Staiano and Iridium LLC: Incorporated
          by reference to Exhibit 10.28 to the 1997 Form S-4.
10.25     Asset Transfer Agreement: Incorporated by reference to
          Exhibit 10.25 to the 1998 Form S-4.
10.26     Consent of Arthur Andersen LLP to Contract Assignment:
          Incorporated by reference to Exhibit 10.26 to the 1998 Form
          S-4.
10.27     Consent of Motorola Inc. to Contract Assignment:
          Incorporated by reference to Exhibit 10.27 to the 1998 Form
          S-4.
10.28     Form of Credit Agreement among Iridium Operating LLC, Chase
          Securities Inc., Barclays Capital, The Chase Manhattan Bank
          and Barclays Bank PLC.*
10.29     Conditions Precedent to the Disbursement of the Term Loans
          under Section 2.01(a) of the Credit Agreement.*
10.30     Regulatory and Technical Conditions Precedent to
          availability of funding under the Credit Agreement.*
10.31     Form of Assignment and Acceptance under the Credit
          Agreement.*
10.32     Form of Pledge and Security Agreement among Iridium
          Operating LLC, each of the Subsidiaries and The Chase
          Manhattan Bank.*
10.33     Form of Parent Security Agreement between Iridium LLC and
          The Chase Manhattan Bank.*
10.34     Form of Subsidiary Guarantee Agreement between each of the
          Subsidiary Guarantors and The Chase Manhattan Bank.*
10.35     Form of Subsidiary Guarantee Assumption Agreement.*
10.36     Form of Depositary Agreement between Iridium Operating LLC
          and The Chase Manhattan Bank.*
10.37     Form of Motorola Consent under the Credit Agreement among
          Motorola, Iridium Operating LLC and The Chase Manhattan
          Bank.*
10.38     Form of Motorola Pledge Agreement between Motorola, Inc. and
          The Chase Manhattan Bank.*
10.39     Form of Progress Certificate (Pre-Commercial Activation)
          under the Credit Agreement.*
10.40     Form of Verification of Independent Technical Advisor under
          the Credit Agreement.*
10.41     Form of Progress Certificate (Post-Commercial Activation)
          under the Credit Agreement.*
10.42     Form of Borrowing Request under the Credit Agreement.*
11.1      Statement re Computation of Loss per Class A Common Share:
          Iridium World Communications Ltd.*
11.2      Statement re Computation of Loss per Class 1 Interest:
          Iridium LLC.*
12        Statement re Computation of Ratios: Iridium Operating LLC.*
21        Subsidiaries of the Registrants.*
23        Consent of KPMG Peat Marwick LLP.*
27.1      Financial Data Schedule -- Iridium World Communications,
          Ltd.*
27.2      Financial Data Schedule -- Iridium LLC*
27.3      Financial Data Schedule -- Iridium Operating LLC*
99        Certain Factors Which May Affect Forward Looking
          Statements.*
</TABLE>
 
     (b) Reports on Form 8-K
 
     Iridium LLC and Iridium World Communications Ltd. filed an 8-K on July 18,
1997 reporting that Motorola had advised Iridium LLC that it had lost contact
with one of the Iridium satellites. Iridium LLC and Iridium World Communications
Ltd. filed an 8-K on October 13, 1997 reporting that Iridium LLC and Iridium
Capital Corporation issued $300 million aggregate principal amount of 11 1/4%
Senior Notes due 2005, Series C in an unregistered offering.
 
     In addition, such Form 8-K reported that Motorola had informed Iridium LLC
that Motorola had experienced a problem with one of the Iridium satellites prior
to its attaining final orbit. Such Form 8-K also reported that Motorola had
advised Iridium LLC that (i) it factored satellite loss into its planning for
 
                                       59
<PAGE>   62
 
constellation deployment, (ii) it remained on course for commercial activation
in September 1998 and (iii) Iridium would not bear the financial risk for loss
of the satellite.
 
     Iridium LLC, Iridium Operating LLC and Iridium World Communications Ltd.
filed an 8-K on December 19, 1997 reporting that Iridium LLC entered into an
asset drop-down transaction with Iridium Operating LLC, a newly formed
wholly-owned subsidiary of Iridium LLC. Such Form 8-K also reported that, (i)
pursuant to the Asset Drop-Down Transaction, substantially all of the assets and
liabilities of Iridium LLC were transferred to Iridium Operating LLC, (ii) the
Asset Drop-Down Transaction was consummated in connection with establishment of
a $1,000,000,000 credit facility by Iridium Operating LLC and (iii) such credit
facility would be secured by a security interest in substantially all of the
assets of Iridium Operating LLC and in all of the membership interests in
Iridium Operating LLC.
 
                                       60
<PAGE>   63
 
                         INDEX TO FINANCIAL STATEMENTS
 
<TABLE>
<CAPTION>
                                                              PAGE
                                                              ----
<S>                                                           <C>
IRIDIUM WORLD COMMUNICATIONS LTD.
Independent Auditors' Report................................   F-2
Balance Sheets..............................................   F-3
Statements of Loss..........................................   F-4
Statements of Stockholders' Equity..........................   F-5
Statements of Cash Flows....................................   F-6
Notes to Financial Statements...............................   F-7
 
IRIDIUM LLC
Independent Auditors' Report................................  F-11
Consolidated Balance Sheets.................................  F-12
Consolidated Statements of Loss.............................  F-13
Consolidated Statements of Members' Equity (Deficit)........  F-14
Consolidated Statements of Cash Flows.......................  F-15
Notes to Consolidated Financial Statements..................  F-16
 
IRIDIUM OPERATING LLC
Independent Auditors' Report................................  F-33
Consolidated Balance Sheets.................................  F-34
Consolidated Statements of Loss.............................  F-35
Consolidated Statements of Member's Equity (Deficit)........  F-36
Consolidated Statements of Cash Flows.......................  F-37
Notes to Consolidated Financial Statements..................  F-38
</TABLE>
 
                                       F-1
<PAGE>   64
 
                          INDEPENDENT AUDITORS' REPORT
 
The Board of Directors and Stockholders
Iridium World Communications Ltd.:
 
     We have audited the accompanying balance sheets of Iridium World
Communications Ltd. as of December 31, 1997 and 1996, and the related statements
of loss, stockholders' equity, and cash flows for the year ended December 31,
1997 and for the period December 12, 1996 (inception) through December 31, 1996.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
 
     We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
 
     In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Iridium World Communications
Ltd. as of December 31, 1997 and 1996, and the results of its operations and its
cash flows for the year ended December 31, 1997, and for the period December 12,
1996 (inception) through December 31, 1996, in conformity with generally
accepted accounting principles.
 
                                                           KPMG Peat Marwick LLP
 
McLean, Virginia
January 16, 1998
 
                                       F-2
<PAGE>   65
 
                        IRIDIUM WORLD COMMUNICATIONS LTD
 
                                 BALANCE SHEETS
                        (IN THOUSANDS EXCEPT SHARE DATA)
 
<TABLE>
<CAPTION>
                                                                 DECEMBER 31,
                                                              -------------------
                                                               1996        1997
                                                              -------    --------
<S>                                                           <C>        <C>
                           ASSETS
Cash........................................................  $    --    $     --
Investment in Iridium LLC...................................       --     223,922
                                                              -------    --------
          Total Assets......................................  $    --    $223,922
                                                              =======    ========
 
            LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities.................................................  $    --    $     --
Stockholders' equity:
  Class B Common stock, non-voting, par value $0.01;
     2,500,000 shares authorized; none issued or
     outstanding............................................       --          --
  Class A Common stock, voting, par value $0.01; 50,000,000
     shares authorized; 1,200,000 and 12,003,262 issued and
     outstanding............................................       12         120
  Additional paid-in capital................................       --     242,636
  Subscription receivable...................................      (12)         --
  Accumulated deficit.......................................       --     (18,834)
                                                              -------    --------
                                                                   --     223,922
                                                              -------    --------
          Total liabilities and stockholders' equity........  $    --    $223,922
                                                              =======    ========
</TABLE>
 
   The accompanying notes are an integral part of these financial statements.
 
                                       F-3
<PAGE>   66
 
                       IRIDIUM WORLD COMMUNICATIONS LTD.
 
                               STATEMENTS OF LOSS
                        (IN THOUSANDS EXCEPT SHARE DATA)
 
<TABLE>
<CAPTION>
                                                                PERIOD FROM
                                                             DECEMBER 12, 1996
                                                              (INCEPTION) TO         YEAR ENDED
                                                             DECEMBER 31, 1996    DECEMBER 31, 1997
                                                             -----------------    -----------------
<S>                                                          <C>                  <C>
Equity in loss of Iridium LLC..............................     $       --           $   18,834
                                                                ----------           ----------
Loss before income taxes...................................             --               18,834
Income taxes...............................................             --                   --
                                                                ----------           ----------
Net loss...................................................     $       --           $   18,834
                                                                ==========           ==========
Net loss per Class A Common share -- basic and diluted.....     $       --           $     2.79
                                                                ----------           ----------
Weighted average shares used in computing net loss per
  Class A Common share -- basic and diluted................             --            6,739,726
                                                                ==========           ==========
</TABLE>
 
   The accompanying notes are an integral part of these financial statements.
 
                                       F-4
<PAGE>   67
 
                       IRIDIUM WORLD COMMUNICATIONS LTD.
 
                       STATEMENTS OF STOCKHOLDERS' EQUITY
                        (IN THOUSANDS EXCEPT SHARE DATA)
 
<TABLE>
<CAPTION>
                                         CLASS A
                                      COMMON STOCK       ADDITIONAL
                                   -------------------    PAID-IN     SUBSCRIPTION   ACCUMULATED
                                     SHARES     AMOUNT    CAPITAL      RECEIVABLE      DEFICIT      TOTAL
                                   ----------   ------   ----------   ------------   -----------   --------
<S>                                <C>          <C>      <C>          <C>            <C>           <C>
Inception, December 12, 1996.....          --    $ --     $     --        $ --        $     --     $     --
Class A Common Stock
  subscribed.....................   1,200,000      12           --         (12)             --           --
                                   ----------    ----     --------        ----        --------     --------
BALANCE, December 31, 1996.......   1,200,000      12           --         (12)             --           --
Retire subscribed Class A Common
  Stock..........................  (1,200,000)    (12)          --          12              --           --
Equity offering..................  12,000,000     120      225,480          --              --      225,600
Warrants issued in conjunction
  with Iridium LLC Series A
  Senior Notes...................          --      --       17,113          --              --       17,113
Exercise of stock options........       3,262      --           43          --              --           43
Net loss.........................          --      --           --          --         (18,834)     (18,834)
                                   ----------    ----     --------        ----        --------     --------
BALANCE, December 31, 1997.......  12,003,262    $120     $242,636        $ --        $(18,834)    $223,922
                                   ==========    ====     ========        ====        ========     ========
</TABLE>
 
   The accompanying notes are an integral part of these financial statements.
 
                                       F-5
<PAGE>   68
 
                       IRIDIUM WORLD COMMUNICATIONS LTD.
 
                            STATEMENTS OF CASH FLOWS
                                 (IN THOUSANDS)
 
<TABLE>
<CAPTION>
                                                                PERIOD FROM
                                                             DECEMBER 12, 1996
                                                              (INCEPTION) TO         YEAR ENDED
                                                             DECEMBER 31, 1996    DECEMBER 31, 1997
                                                             -----------------    -----------------
<S>                                                          <C>                  <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net loss.................................................      $      --            $ (18,834)
  Adjustments to reconcile net loss to net cash used in
     operating activities --
     Equity in loss of Iridium LLC.........................             --               18,834
                                                                 ---------            ---------
Net cash used in operating activities......................             --                   --
                                                                 ---------            ---------
CASH FLOWS FROM INVESTING ACTIVITIES :
  Investments in Iridium LLC...............................             --             (242,756)
                                                                 ---------            ---------
Net cash used in investing activities......................             --             (242,756)
                                                                 ---------            ---------
CASH FLOWS FROM FINANCING ACTIVITIES :
  Net proceeds from equity offering........................             --              225,600
  Proceeds from Warrants issued in conjunction with Iridium
     LLC, Series A Senior Notes............................             --               17,113
  Proceeds from Class A Common Stock subscribed............             --                   12
  Retirement and cancellation of Class A Common Stock......             --                  (12)
  Proceeds from exercise of stock options..................             --                   43
                                                                 ---------            ---------
          Net cash provided by financing activities........             --              242,756
                                                                 ---------            ---------
Increase (decrease) in cash................................             --                   --
CASH, beginning of period..................................             --                   --
                                                                 ---------            ---------
CASH, end of period........................................      $      --            $      --
                                                                 =========            =========
</TABLE>
 
   The accompanying notes are an integral part of these financial statements.
 
                                       F-6
<PAGE>   69
 
                       IRIDIUM WORLD COMMUNICATIONS LTD.
 
                         NOTES TO FINANCIAL STATEMENTS
 
1.  ORGANIZATION AND BUSINESS
 
     Iridium World Communications Ltd. ("IWCL") was incorporated under the laws
of Bermuda on December 12, 1996. At inception, IWCL was wholly owned by Iridium
LLC, a limited liability company. In June 1997, IWCL registered with the
Securities and Exchange Commission a total of 13,800,000 shares of its Class A
Common Stock ("Class A Common Stock") for sale in an initial public offering
(the "Offering"), and on June 13, 1997 IWCL consummated the Offering and issued
12,000,000 shares of Class A Common Stock. Pursuant to the 1997 Subscription
Agreement between IWCL and Iridium LLC, approximately $225 million in net
proceeds from the Offering were invested in Class 1 Membership Interests of
Iridium LLC ("Class 1 Interests"), at which time the outstanding shares of Class
A Common Stock held by Iridium LLC were retired, and IWCL became a member of
Iridium LLC.
 
     Iridium LLC through its wholly-owned subsidiary Iridium Operating LLC
("Iridium"), a Delaware limited liability company, is currently devoting
substantially all of its efforts to establishing and commercializing the IRIDIUM
communications system (the "IRIDIUM System").
 
     IWCL's sole asset is its investment in Iridium LLC. At December 31, 1997,
IWCL's investment was approximately 8.5% of the total outstanding Membership
Interests in Iridium LLC.
 
2.  SIGNIFICANT ACCOUNTING POLICIES
 
  Investment in Iridium LLC
 
     The investment in Iridium LLC is accounted for using the equity method. In
accordance with the equity method of accounting, IWCL's carrying amount of the
investment in an affiliate is initially recorded at cost and is increased to
reflect its share of the affiliate's income and is reduced to reflect its share
of the affiliate's losses each period since the initial investment.
 
     At December 31, 1997, Iridium LLC had total assets, total liabilities and
total members' equity of approximately $3,646,000,000, $2,011,000,000 and
$1,635,000,000, respectively. At December 31, 1996, Iridium LLC had total
assets, total liabilities and total members' equity of $2,434,000,000,
$862,000,000 and $1,572,000,000, respectively. Iridium LLC reported a net loss
of $293,553,000 and $73,598,000 for the years ended December 31, 1997 and 1996,
respectively.
 
  Management Estimates
 
     The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the reported
periods. Actual results could differ from those estimates.
 
  Income Taxes
 
     IWCL recognizes income taxes using the asset and liability method. Under
the asset and liability method, deferred tax assets and liabilities are
recognized for the future tax consequences attributable to differences between
the financial statement carrying amounts of existing assets and liabilities and
their respective tax bases. Deferred tax assets and liabilities are measured
using enacted tax rates expected to apply to taxable income in the years in
which those temporary differences are expected to be recovered or settled. The
effect on deferred tax assets and liabilities of a change in tax rates is
recognized in income in the period that includes the enactment date.
 
                                       F-7
<PAGE>   70
                       IRIDIUM WORLD COMMUNICATIONS LTD.
 
                  NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
 
3.  STOCKHOLDERS' EQUITY
 
     On July 16,1997, Iridium LLC and Iridium Capital Corporation, a wholly
owned subsidiary of Iridium, completed an offering (the "High Yield Offering")
of (i) 300,000 units, each consisting of $1,000 principal amount of Iridium LLC
13% Senior Notes due 2005, Series A ("Series A Notes"), and one IWCL Warrant,
representing the right to purchase 5.2 shares of Class A Common Stock of IWCL
and (ii) $500 million aggregate principal amount of Iridium LLC 14% Senior Notes
due 2005, Series B ("Series B Notes"). Iridium was subsequently substituted for
Iridium LLC as obligor under the Series A Notes and the Series B Notes. The
Series A Notes and Series B Notes are guaranteed by Iridium Roaming LLC and
Iridium IP LLC, also wholly-owned subsidiaries of Iridium. IWCL is not an
obligor or guarantor of the Series A Notes or Series B Notes. The IWCL Warrants
represent, in aggregate, the right to purchase 1,560,000 shares of Class A
Common Stock of IWCL. Approximately $17,113,000 of the proceeds of the High
Yield Offering was allocated to the fair value of the purchase price of the IWCL
Warrants. The exercise price of each IWCL Warrant is $20.90 per share. The IWCL
Warrants are exercisable at anytime on or after one year from the date of
original issuance and expire on July 15, 2005. Concurrent with the issuance of
the IWCL Warrants in the High Yield Offering, Iridium LLC issued to IWCL
1,560,000 LLC Interest Warrants, each exercisable for one Iridium LLC Class 1
Interest at an exercise price of $20.90 per LLC Interest Warrant. IWCL and
Iridium LLC have agreed that IWCL will exercise one LLC Interest Warrant upon
the exercise of each IWCL Warrant.
 
  Exchange Rights of Iridium LLC Members
 
     Concurrent with the Offering, IWCL and Iridium LLC executed an Interest
Exchange Agreement that conditionally permits holders of Class 1 Interests in
Iridium LLC to exchange those interests, subject to the restrictions on transfer
in the Iridium LLC Limited Liability Agreement, for shares of Class A Common
Stock in IWCL at a ratio of one share of Class A Common Stock for each Iridium
LLC Class 1 Interest, subject to anti-dilution adjustments. Under the Interest
Exchange Agreement no exchanges of Iridium LLC Class 1 Interests are permitted
until 90 days after Iridium LLC has achieved one full quarter of positive
earnings before interest, taxes, depreciation and amortization. In addition, no
exchange shall take place unless approved pursuant to authorization of Directors
representing at least 66 2/3% of the Iridium LLC Board of Directors.
 
  Global Ownership Program
 
     IWCL and Iridium LLC intend to commence a Global Ownership Program which is
designed to offer up to an aggregate of 2,500,000 shares of IWCL's Class B
Common Stock at a purchase price of $13.33 per share to certain governmental
telecommunication administrations and related entities as part of a
comprehensive program to enhance market access, improve the competitive standing
of the IRIDIUM System and achieve appropriate regulatory approvals. At the time
of issuance, purchasers of Class B Common Stock will be required to pay only an
amount equal to the per share par value of the Class B Common Stock; $.01 per
share. The balance of the purchase price will be payable through the withholding
of dividends, if any, which would otherwise be payable on the shares of Class B
Common Stock. A holder of Class B Common Stock may elect to pay the purchase
price in cash at any time. Class B Common Stock is convertible to Class A Common
Stock on a one-for-one basis, subject to anti-dilution adjustments, once certain
conditions are met, including full payment for the shares and expiration of a
minimum holding period. The proceeds generated from each sale of Class B Common
Stock will be used to purchase Class 1 Interests in Iridium LLC. The payment
terms with respect to such Iridium LLC Class 1 Interests will mirror the payment
terms on the Class B Common Stock. As of December 31, 1997, no shares of Class B
Common Stock had been issued under this program.
 
                                       F-8
<PAGE>   71
                       IRIDIUM WORLD COMMUNICATIONS LTD.
 
                  NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
 
  Share Issuance Agreement
 
     IWCL and Iridium LLC have also executed a Share Issuance Agreement which
provides that all net proceeds from future primary offerings of securities by
IWCL will be invested in Class 1 Interests in Iridium LLC.
 
  Voting Rights
 
     The holders of Class A Common Stock are entitled to one vote per share. The
holders of Class B Common Stock have no voting rights, except as required by
Bermuda law in connection with matters involving a variation in terms of the
Class B Common Stock.
 
  Participation in the Governance of Iridium
 
     Providing that IWCL's Interest in Iridium LLC represents five percent or
more of the total outstanding Class 1 Interests of Iridium LLC (which occurred
upon the consummation of the IWCL IPO), IWCL shall be entitled to designate two
Independent Company Directors as Directors of Iridium LLC.
 
  Stock Option Plan of Iridium LLC
 
     Iridium LLC has established a plan under which executive officers, managers
and independent directors of Iridium LLC are awarded options to purchase Class A
Common Stock of IWCL (the "Option Plan"). The Option Plan covers 2,625,000
shares of Class A Common Stock. The Option Plan also permits the award of stock
appreciation rights in connection with any grant of options. As of December 31,
1997, options covering 2,004,556 shares of Class A Common Stock are outstanding
with exercise prices ranging from $13.33 to $52.50. As of December 31, 1997,
there are 397,145 options exercisable at a weighted average exercise price of
$13.33. As of that date no stock appreciation rights had been granted. The right
to exercise the options vest, pro rata, over a period of five years. Pursuant to
the Share Issuance Agreement, IWCL has agreed that upon the exercise of any
options, it will issue to Iridium LLC, for delivery to an exercising option
holder, the number of shares of Class A Common Stock covered by the exercised
options and Iridium LLC has agreed to simultaneously deliver to IWCL a like
number of Iridium LLC Class 1 Interests, subject to anti-dilution adjustments.
The exercise price of the option is paid to Iridium LLC and represents payment
for the Class A Common Stock by the exercising option holder and for the Iridium
LLC Class 1 Interests by IWCL. During the year ended December 31, 1997, options
to acquire 3,262 shares of Class A Common Stock were exercised. IWCL issued such
shares in the names of the optionees and Iridium LLC issued 3,262 Class 1
Interests to IWCL.
 
  Management Services Agreement
 
     In connection with the IWCL IPO, Iridium LLC and IWCL entered into a
Management Services Agreement. Pursuant to the Management Services Agreement,
Iridium LLC has agreed to supervise and manage the day-to-day operations of
IWCL. Among other things, Iridium LLC is responsible for administering the
following functions of IWCL: treasury, accounting, legal, tax, insurance,
licenses and permits and securities law compliance. Iridium LLC receives no fees
or reimbursement from IWCL for its services to IWCL under the Management
Services Agreement. Operating costs incurred by IWCL during the period since
inception and paid for by Iridium LLC have not been significant.
 
4.  EARNINGS PER SHARE
 
     In February 1997, the Financial Accounting Standards Board issued Statement
No. 128, Earnings per Share("Statement 128"). Statement 128 supersedes
Accounting Principles Board Opinion No. 15, Earnings per Share ("APB 15") and
its related interpretations, and promulgates new accounting standards for the
 
                                       F-9
<PAGE>   72
                       IRIDIUM WORLD COMMUNICATIONS LTD.
 
                  NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
 
computation and manner of presentation of earnings (loss) per share data.
Statement 128 requires the presentation of basic and diluted earnings (loss) per
share data. Basic earnings (loss) per Class A Common share is calculated by
dividing net income (loss) by the weighted average number of Class A Common
shares outstanding during the period. Diluted earnings (loss) per share is
calculated by dividing net income (loss) by the weighted average number of Class
A Common shares and, to the extent dilutive, other potentially dilutive
securities outstanding during the period. Potentially dilutive securities are
comprised of warrants to purchase Class A Common Stock issued in conjunction
with the Series A Notes and stock options. Due to the loss incurred during the
year ended December 31, 1997, the impact of the warrants and stock options is
anti-dilutive and is not included in the diluted earnings (loss) per share
calculation. The adoption of Statement 128 had no effect on earnings (loss) per
share as previously presented.
 
5.  INCOME TAXES
 
     IWCL is subject to income taxation based on its ratable portion of Iridium
LLC's income or loss. During the year ended December 31, 1997 and the period
December 12, 1996 (inception) to December 31, 1996, IWCL recognized no current
or deferred income tax expense or benefit. As of December 31, 1997, IWCL's only
deferred tax asset relates entirely to its investment in Iridium LLC and
amounted to approximately $7,446,000 for which a full valuation allowance has
been established.
 
     In assessing the realizability of deferred tax assets, management considers
whether it is more likely than not that some portion or all of the deferred tax
asset will be realized. The ultimate realization of the deferred tax asset is
dependent upon the generation of future taxable income during the periods in
which temporary differences become deductible. Management considers scheduled
reversals of deferred tax liabilities, projected future taxable income, and tax
planning strategies that can be implemented in making this assessment.
 
                                      F-10
<PAGE>   73
 
                          INDEPENDENT AUDITORS' REPORT
 
The Board of Directors and Members
Iridium LLC and subsidiaries:
 
     We have audited the accompanying consolidated balance sheets of Iridium LLC
and subsidiaries (a development stage limited liability company) as of December
31, 1997 and 1996, and the related consolidated statements of loss, members'
equity (deficit), and cash flows for each of the years in the three-year period
ended December 31, 1997, and for the period June 14, 1991 (inception) through
December 31, 1997. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
 
     We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
 
     In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Iridium LLC
and subsidiaries (a development stage limited liability company) as of December
31, 1997 and 1996, and the results of their operations and their cash flows for
each of the years in the three-year period ended December 31, 1997, and for the
period June 14, 1991 (inception) through December 31, 1997, in conformity with
generally accepted accounting principles.
 
                                                           KPMG Peat Marwick LLP
 
McLean, Virginia
January 16, 1998
 
                                      F-11
<PAGE>   74
 
                                  IRIDIUM LLC
                (A DEVELOPMENT STAGE LIMITED LIABILITY COMPANY)
 
                          CONSOLIDATED BALANCE SHEETS
                   (IN THOUSANDS EXCEPT MEMBER INTEREST DATA)
 
<TABLE>
<CAPTION>
                                                                    DECEMBER 31,
                                                              ------------------------
                                                                 1996          1997
                                                              ----------    ----------
<S>                                                           <C>           <C>
                           ASSETS
Current assets:
  Cash and cash equivalents.................................  $    1,889    $    9,040
  Restricted cash (Note 2)..................................          --       350,220
  Due from affiliates.......................................       3,476        13,604
  Prepaid expenses and other current assets.................       7,154         6,612
                                                              ----------    ----------
          Total current assets..............................      12,519       379,476
Property and equipment, net (Note 4)........................       2,065     1,526,326
System under construction (Note 7)..........................   2,388,320     1,625,054
Other assets (Note 2).......................................      31,177       114,831
                                                              ----------    ----------
          Total assets......................................  $2,434,081    $3,645,687
                                                              ==========    ==========
              LIABILITIES AND MEMBERS' EQUITY
Current liabilities:
  Accounts payable and accrued expenses.....................  $   17,937    $  106,794
  Accounts payable to Member (Note 7).......................     100,563        10,601
  Bank facilities, current portion (Note 5).................          --       350,000
                                                              ----------    ----------
          Total current liabilities.........................     118,500       467,395
Bank facilities, net of current portion (Note 5)............     505,000       210,000
Long-term debt due to Members (Note 5)......................     230,904       273,302
Notes payable, $1,100,000 principal amount (Note 5).........          --     1,054,288
Other liabilities (Note 8)..................................       7,648         6,065
                                                              ----------    ----------
          Total liabilities.................................     862,052     2,011,050
                                                              ----------    ----------
Commitments and Contingencies (Notes 1, 3, 5, 7, 8 and 10)
Members' equity (Notes 1, 3, 5, 7 and 8):
  Class 2 Interests, authorized 50,000 interests for Series
     M; authorized an aggregate of 300,000 interests for
     Series A, Series B and Series C:
       Series M, convertible, no interests issued and
        outstanding.........................................          --            --
       Series A, redeemable, convertible, 46,977 and 39,907
        interests issued and outstanding; liquidation value
        of $46,977 and $39,907..............................      46,977        39,907
       Series B, redeemable, 1 interest issued and
        outstanding.........................................          --            --
       Series C, redeemable, 75 interests issued and
        outstanding.........................................          --            --
  Class 1 Interests, authorized 225,000,000 interests,
     120,836,025 and 141,222,442 interests issued and
     outstanding............................................   1,659,625     2,024,220
  Deferred Class 1 Interest compensation....................          --        (1,454)
  Adjustment for minimum pension liability (Note 8).........        (733)         (643)
  Deficit accumulated during the development stage..........    (133,840)     (427,393)
                                                              ----------    ----------
          Total members' equity.............................   1,572,029     1,634,637
                                                              ----------    ----------
          Total liabilities and members' equity.............  $2,434,081    $3,645,687
                                                              ==========    ==========
</TABLE>
 
  The accompanying notes are an integral part of these consolidated financial
                                  statements.

                                      F-12
<PAGE>   75
 
                                  IRIDIUM LLC
                (A DEVELOPMENT STAGE LIMITED LIABILITY COMPANY)
 
                        CONSOLIDATED STATEMENTS OF LOSS
                   (IN THOUSANDS EXCEPT MEMBER INTEREST DATA)
 
<TABLE>
<CAPTION>
                                                                                      PERIOD FROM
                                                YEAR ENDED DECEMBER 31,              JUNE 14, 1991
                                         --------------------------------------   (INCEPTION) THROUGH
                                            1995         1996          1997        DECEMBER 31, 1997
                                         ----------   -----------   -----------   -------------------
<S>                                      <C>          <C>           <C>           <C>
OPERATING EXPENSES
  Sales, general and administrative
     (Notes 5, 7, 8 and 10)............  $   26,436   $    70,730   $   177,474        $313,301
  Depreciation and amortization........         751           674       119,124         121,429
                                         ----------   -----------   -----------        --------
          Total operating expenses.....      27,187        71,404       296,598         434,730
OTHER INCOME
  Interest income......................       5,226         2,395         3,045          15,308
                                         ----------   -----------   -----------        --------
Loss before provision for income
  taxes................................      21,961        69,009       293,553         419,422
Provision for income taxes (Note 6)....       1,684         4,589            --           7,971
                                         ----------   -----------   -----------        --------
Net loss...............................  $   23,645   $    73,598   $   293,553        $427,393
                                         ==========   ===========   ===========        ========
Preferred dividend requirement (Note
  3)...................................          --         3,652         5,703
                                         ----------   -----------   -----------
Net loss applicable to Class 1
  Interests............................  $   23,645   $    77,250   $   299,256
                                         ==========   ===========   ===========
Net loss per Class 1 Interest -- basic
  and diluted..........................  $     0.27   $      0.64   $      2.25
                                         ==========   ===========   ===========
Weighted average interests used in
  computing net loss per Class 1
  Interest -- basic and diluted........  88,162,875   120,115,575   132,879,976
                                         ==========   ===========   ===========
</TABLE>
 
  The accompanying notes are an integral part of these consolidated financial
                                  statements.

                                      F-13
<PAGE>   76
 
                                  IRIDIUM LLC
                (A DEVELOPMENT STAGE LIMITED LIABILITY COMPANY)
 
              CONSOLIDATED STATEMENTS OF MEMBERS' EQUITY (DEFICIT)
                      (IN THOUSANDS EXCEPT INTEREST DATA)
<TABLE>
<CAPTION>
                                                     CLASS 2 INTERESTS,                                              ADJUSTMENT
                                                         ALL SERIES           CLASS 1 INTERESTS         DEFERRED        FOR
                                                    --------------------   ------------------------     CLASS 1       MINIMUM
                                                    NUMBER OF               NUMBER OF                   INTEREST      PENSION
                                                    INTERESTS    AMOUNT     INTERESTS      AMOUNT     COMPENSATION   LIABILITY
                                                    ---------   --------   -----------   ----------   ------------   ----------
<S>                                                 <C>         <C>        <C>           <C>          <C>            <C>
Inception June 14, 1991...........................        --    $     --            --   $       --     $    --       $    --
Net loss..........................................        --          --            --           --          --            --
                                                     -------    --------   -----------   ----------     -------       -------
BALANCE, December 31, 1991........................        --          --            --           --          --            --
Net loss..........................................        --          --            --           --          --            --
                                                     -------    --------   -----------   ----------     -------       -------
BALANCE, December 31, 1992........................        --          --            --           --          --            --
Net loss..........................................        --          --            --           --          --            --
                                                     -------    --------   -----------   ----------     -------       -------
BALANCE, July 29, 1993............................        --          --            --           --          --            --
Class 1 Interests subscribed, July 29, 1993.......        --          --    60,000,000           --          --            --
Subscribed Class 1 Interests issued for cash at
 $13.33 per interest..............................        --          --            --      324,167          --            --
Costs of raising equity...........................        --          --            --       (8,096)         --            --
Net loss..........................................        --          --            --           --          --            --
                                                     -------    --------   -----------   ----------     -------       -------
BALANCE, December 31, 1993........................        --          --    60,000,000      316,071          --            --
Class 1 Interests subscribed......................        --          --    59,458,350           --          --            --
Subscribed Class 1 Interests issued for cash at
 $13.33 per interest..............................        --          --            --      518,202          --            --
Costs of raising equity...........................        --          --            --       (1,863)         --            --
Net loss..........................................        --          --            --           --          --            --
                                                     -------    --------   -----------   ----------     -------       -------
BALANCE, December 31, 1994........................        --          --   119,458,350      832,410          --            --
Subscribed Class 1 Interests issued for cash at
 $13.33 per interest..............................        --          --            --      633,514          --            --
Costs of raising equity...........................        --          --            --           (7)         --            --
Net loss..........................................        --          --            --           --          --            --
Adjustment for minimum pension liability..........        --          --            --           --          --        (1,065)
                                                     -------    --------   -----------   ----------     -------       -------
BALANCE, December 31, 1995........................        --          --   119,458,350    1,465,917          --        (1,065)
Subscribed Class 1 Interests issued for cash at
 $13.33 per interest..............................        --          --     1,377,675      140,131          --            --
Class 2 Interests issued for cash at $13.33 per
 interest.........................................    43,401      43,325            --           --          --            --
Series A, Class 2 Interests issued in dividends...     3,652       3,652            --       (3,652)         --            --
Costs of raising equity...........................        --          --            --         (251)         --            --
Warrants to purchase Class 1 Interests issued in
 connection with 14.5% Senior subordinated
 notes............................................        --          --            --       31,761          --            --
Warrants to purchase Class 1 Interests issued in
 connection with debt guarantee...................        --          --            --       25,719          --            --
Net loss..........................................        --          --            --           --          --            --
Adjustment for minimum pension liability..........        --          --            --           --          --           332
                                                     -------    --------   -----------   ----------     -------       -------
BALANCE, December 31, 1996........................    47,053      46,977   120,836,025    1,659,625          --          (733)
Subscribed Class 1 Interests issued for cash at
 $13.33 per interest..............................        --          --     7,500,000       59,248          --            --
Exercise of employee stock options................        --          --         3,262           43          --            --
Initial Public offering...........................                          12,000,000      240,000          --            --
Class 2 Interests converted to Class 1
 Interests........................................   (12,773)    (12,773)      883,155       12,773          --            --
Series A, Class 2 Interests issued in dividends...     5,703       5,703            --       (5,703)         --            --
Costs of raising equity...........................        --          --            --      (16,100)         --            --
Warrants to purchase Class 1 Interests issued in
 connection with 13% Senior notes, Series A.......        --          --            --       17,113          --            --
Warrants to purchase Class 1 Interests issued in
 connection with debt guarantee...................        --          --            --       55,615          --            --
Deferred Class 1 Interests compensation...........        --          --            --        1,606      (1,454)           --
Net loss..........................................        --          --            --           --          --            --
Adjustment for minimum pension liability..........        --          --            --           --          --            90
                                                     -------    --------   -----------   ----------     -------       -------
BALANCE, December 31, 1997........................    39,983    $ 39,907   141,222,442   $2,024,220     $(1,454)      $  (643)
                                                     =======    ========   ===========   ==========     =======       =======
 
<CAPTION>
                                                      DEFICIT
                                                    ACCUMULATED
                                                    DURING THE
                                                    DEVELOPMENT
                                                       STAGE        TOTAL
                                                    -----------   ----------
<S>                                                 <C>           <C>
Inception June 14, 1991...........................   $      --    $       --
Net loss..........................................        (757)         (757)
                                                     ---------    ----------
BALANCE, December 31, 1991........................        (757)         (757)
Net loss..........................................      (8,773)       (8,773)
                                                     ---------    ----------
BALANCE, December 31, 1992........................      (9,530)       (9,530)
Net loss..........................................      (5,309)       (5,309)
                                                     ---------    ----------
BALANCE, July 29, 1993............................     (14,839)      (14,839)
Class 1 Interests subscribed, July 29, 1993.......          --            --
Subscribed Class 1 Interests issued for cash at
 $13.33 per interest..............................          --       324,167
Costs of raising equity...........................          --        (8,096)
Net loss..........................................      (6,924)       (6,924)
                                                     ---------    ----------
BALANCE, December 31, 1993........................     (21,763)      294,308
Class 1 Interests subscribed......................          --
Subscribed Class 1 Interests issued for cash at
 $13.33 per interest..............................          --       518,202
Costs of raising equity...........................          --        (1,863)
Net loss..........................................     (14,834)      (14,834)
                                                     ---------    ----------
BALANCE, December 31, 1994........................     (36,597)      795,813
Subscribed Class 1 Interests issued for cash at
 $13.33 per interest..............................          --       633,514
Costs of raising equity...........................          --            (7)
Net loss..........................................     (23,645)      (23,645)
Adjustment for minimum pension liability..........          --        (1,065)
                                                     ---------    ----------
BALANCE, December 31, 1995........................     (60,242)    1,404,610
Subscribed Class 1 Interests issued for cash at
 $13.33 per interest..............................          --       140,131
Class 2 Interests issued for cash at $13.33 per
 interest.........................................          --        43,325
Series A, Class 2 Interests issued in dividends...          --            --
Costs of raising equity...........................          --          (251)
Warrants to purchase Class 1 Interests issued in
 connection with 14.5% Senior subordinated
 notes............................................          --        31,761
Warrants to purchase Class 1 Interests issued in
 connection with debt guarantee...................          --        25,719
Net loss..........................................     (73,598)      (73,598)
Adjustment for minimum pension liability..........          --           332
                                                     ---------    ----------
BALANCE, December 31, 1996........................    (133,840)    1,572,029
Subscribed Class 1 Interests issued for cash at
 $13.33 per interest..............................          --        59,248
Exercise of employee stock options................          --            43
Initial Public offering...........................          --       240,000
Class 2 Interests converted to Class 1
 Interests........................................          --            --
Series A, Class 2 Interests issued in dividends...          --            --
Costs of raising equity...........................          --       (16,100)
Warrants to purchase Class 1 Interests issued in
 connection with 13% Senior notes, Series A.......          --        17,113
Warrants to purchase Class 1 Interests issued in
 connection with debt guarantee...................          --        55,615
Deferred Class 1 Interests compensation...........          --           152
Net loss..........................................    (293,553)     (293,553)
Adjustment for minimum pension liability..........          --            90
                                                     ---------    ----------
BALANCE, December 31, 1997........................   $(427,393)   $1,634,637
                                                     =========    ==========
</TABLE>
 
  The accompanying notes are an integral part of these consolidated financial
                                  statements.

                                      F-14
<PAGE>   77
 
                                  IRIDIUM LLC
                (A DEVELOPMENT STAGE LIMITED LIABILITY COMPANY)
 
                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (IN THOUSANDS)
 
<TABLE>
<CAPTION>
                                                                                               PERIOD FROM
                                                           YEAR ENDED DECEMBER 31,            JUNE 14, 1991
                                                      ----------------------------------   (INCEPTION) THROUGH
                                                        1995        1996         1997       DECEMBER 31, 1997
                                                      ---------   ---------   ----------   -------------------
<S>                                                   <C>         <C>         <C>          <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net loss..........................................  $ (23,645)  $ (73,598)  $ (293,553)      $  (427,393)
  Adjustments to reconcile net loss to net cash used
    in operating activities --
    Depreciation and amortization...................        751         674      119,124           121,429
    Expense recognized for warrants issued in
      connection with debt guarantee................         --      25,719       55,615            81,334
    Employee Class 1 Interests Compensation.........         --          --          152               152
    Loss on disposal of assets......................         --          --           87                87
    Changes in assets and liabilities:
      Decrease (Increase) in prepaid expenses and
         other current assets.......................       (171)     (6,281)         542            (6,612)
      Increase in due from affiliates...............         --      (3,476)     (10,128)          (13,604)
      Increase in other assets......................     (1,633)     (4,079)      (2,286)          (18,659)
      Increase in accounts payable and accrued
         expenses...................................      1,586      12,968       30,857            48,794
      (Decrease) Increase in other liabilities......      2,126       2,739       (1,493)            5,985
                                                      ---------   ---------   ----------       -----------
         Net cash used in operating activities......    (20,986)    (45,334)    (101,083)         (208,487)
                                                      ---------   ---------   ----------       -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
  Purchases of property and equipment...............       (493)     (1,475)     (18,885)          (23,255)
  Additions to system under construction............   (762,000)   (900,757)    (842,678)       (3,091,435)
                                                      ---------   ---------   ----------       -----------
         Net cash used in investing activities......   (762,493)   (902,232)    (861,563)       (3,114,690)
                                                      ---------   ---------   ----------       -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
  Net proceeds from issuance of Class 1 and Class 2
    Interests.......................................    633,514     183,205      283,191         1,932,319
  Net proceeds from issuance of senior notes and
    warrants........................................         --     238,453    1,039,189         1,277,642
  Borrowings under guaranteed bank line of credit...         --     505,000      655,000         1,160,000
  Payments under guaranteed bank line of credit.....         --          --     (950,000)         (950,000)
  Borrowings under senior secured line of credit....         --          --      350,000           350,000
  Increase in restricted cash.......................         --          --     (350,220)         (350,220)
  Deferred financing costs..........................     (1,094)    (28,535)     (57,363)          (87,524)
                                                      ---------   ---------   ----------       -----------
         Net cash provided by financing
           activities...............................    632,420     898,123      969,797         3,332,217
                                                      ---------   ---------   ----------       -----------
Increase (decrease) in cash and cash equivalents....   (151,059)    (49,443)       7,151             9,040
CASH AND CASH EQUIVALENTS,
  beginning of period...............................    202,391      51,332        1,889                --
                                                      ---------   ---------   ----------       -----------
CASH AND CASH EQUIVALENTS,
  end of period.....................................  $  51,332   $   1,889   $    9,040       $     9,040
                                                      =========   =========   ==========       ===========
</TABLE>
 
  The accompanying notes are an integral part of these consolidated financial
                                  statements.

                                      F-15
<PAGE>   78
 
                                  IRIDIUM LLC
                (A DEVELOPMENT STAGE LIMITED LIABILITY COMPANY)
 
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
1.  ORGANIZATION AND BUSINESS
 
     Iridium LLC (the "Parent") and its subsidiaries are devoting their present
efforts to developing and commercializing a global wireless system -- the
Iridium(R) Communications System (the "IRIDIUM System") -- that will enable
subscribers to send and receive telephone calls virtually anywhere in the
world -- all with one phone, one phone number and one customer bill.
 
     Iridium, Inc. was incorporated on June 14, 1991. Iridium, Inc. operated as
a wholly-owned subsidiary of Motorola, Inc. ("Motorola") until July 29, 1993. On
July 29, 1993, Iridium, Inc. closed on, and had its first capital draw under, a
private placement of shares of Common Stock, subscribed to by U. S. and foreign
investors. As a result of three private placements of equity, five supplemental
private placements with certain additional equity investors and proceeds
received from the initial public offering of common stock of Iridium World
Communications Ltd. ("IWCL") (See Note 3), Motorola's direct and indirect Class
1 Membership Interest in the Parent has been reduced to approximately 18% as of
December 31, 1997, before considering unexercised warrants held by Motorola.
 
     On July 29, 1996, the Parent was formed as a limited liability company,
under the terms and conditions of the limited liability agreement ("LLC
Agreement"), pursuant to the provisions of the Delaware limited liability
company act. Also on July 29, 1996, Iridium, Inc. was merged with and into the
Parent, with the Parent as the surviving entity. Concurrent with the merger, all
shares of Common Stock of Iridium, Inc. were exchanged for Class 1 membership
interests in the Parent ("Class 1 Interests").
 
     On December 18, 1997, the Parent entered into an asset drop-down
transaction (the "Asset Drop-Down Transaction") with Iridium Operating LLC
("Iridium"), a newly formed wholly-owned subsidiary of the Parent. Pursuant to
the Asset Drop-Down Transaction, substantially all of the assets and liabilities
of the Parent were transferred to Iridium, including, without limitation, all
liabilities with respect to the outstanding 13% Senior Notes due 2005, Series A
and 14% Senior Notes due 2005, Series B and the 11 1/4% Senior Notes due 2005,
Series C (collectively, the "Senior Notes"). Pursuant to the indentures relating
to the Senior Notes, Iridium has been substituted for the Parent, and the Parent
has been released from all obligations under the indentures relating to the
Senior Notes. All assets and liabilities were transferred to Iridium at the
Parent's carrying value. Accordingly, unless otherwise specified, references
within these notes to Iridium that relate to any action prior to the date of the
Asset Drop-Down Transaction should be construed as references to Parent, as
predecessor of Iridium. As a result of the Asset Drop-Down Transaction, the
Parent's only significant asset is its investment in Iridium.
 
     Iridium has contracted with Motorola to design, develop, produce and
deliver into orbit the space segment component of the IRIDIUM System. The
scheduled date for delivery of the $3.45 billion space segment is in 1998.
Iridium plans to begin its commercial operations in September 1998. During 1997,
46 of the 66 satellites in the IRIDIUM System were successfully placed in orbit.
 
     The Iridium Communications System is subject to regulation by the Federal
Communications Commission ("FCC"), and by foreign administrations and regulatory
bodies. On January 31, 1995, Motorola obtained a license from the FCC to
construct, launch and operate the IRIDIUM System, subject to certain conditions.
 
2.  SIGNIFICANT ACCOUNTING POLICIES
 
  Principles of Consolidation and Basis of Presentation
 
     The consolidated financial statements include the accounts of the Parent
and its wholly-owned subsidiary, Iridium, and Iridium's wholly-owned
subsidiaries, Iridium Capital Corporation, Iridium Roaming LLC and Iridium IP
LLC. All significant intercompany transactions have been eliminated.
 
                                      F-16
<PAGE>   79
                                  IRIDIUM LLC
                (A DEVELOPMENT STAGE LIMITED LIABILITY COMPANY)
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
  Development Stage Enterprise
 
     The Parent, through Iridium, is currently devoting its entire efforts to
establishing and commercializing the IRIDIUM System. On December 18, 1997, the
Parent and Iridium entered into an Asset Drop-Down Transaction whereby
substantially all of the assets and liabilities of the Parent were transferred
to Iridium. The purpose of the Asset Drop-Down Transaction was to facilitate the
pledge of substantially all of the assets of the Parent in connection with the
establishment of secured bank financing for the development and construction of
the IRIDIUM System. At December 31, 1997, the Parent's ownership interest in
Iridium constituted substantially all of the Parent's assets. Accordingly,
Iridium's current principal activities relate to managing the design,
construction and development of the system and preparing for its day-to-day
operations.
 
  Management Estimates
 
     The preparation of consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the consolidated
financial statements and the reported amounts of revenues and expenses during
the reporting periods. Actual results could differ from those estimates.
 
  Cash and Cash Equivalents
 
     The Parent considers all highly liquid investments with an original
maturity of three months or less at the date of purchase to be cash equivalents.
 
  Restricted Cash
 
     Restricted cash consists of the first stage of borrowing under the $1
billion secured credit facility with a syndicate of lenders, led by Chase
Securities, Inc., and Barclays Capital, a division of Barclays Bank PLC. The
funds are restricted subject to Iridium meeting specified milestones.
 
  Property and Equipment
 
     Property and equipment is carried at historical cost less accumulated
depreciation and amortization. Depreciation and amortization is calculated using
the straight-line method over the following estimated useful lives:
 
<TABLE>
<S>                                     <C>
Satellites in service.................  5 years
Furniture, fixtures and equipment.....  5 years
Leasehold improvements................  Shorter of 5 years or remaining lease term
</TABLE>
 
     The costs of constructing and placing satellites into service are
capitalized. Losses from satellite failures for which Iridium has financial
responsibility under its contractual arrangements with Motorola are recognized
currently. Motorola bears the risk of loss for launch failures and satellite
failures before a satellite is placed into service.
 
  System Under Construction
 
     System under construction includes all costs incurred related to the
construction of the space and ground components of the IRIDIUM System.
Depreciation expense is recognized on a satellite-by-satellite basis as the
satellites are placed into service following delivery of each satellite to its
mission orbit. Depreciation related to the ground control stations will commence
with the placement in service of each such station.
 
                                      F-17
<PAGE>   80
                                  IRIDIUM LLC
                (A DEVELOPMENT STAGE LIMITED LIABILITY COMPANY)
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
     Interest costs incurred during the construction of the IRIDIUM System are
capitalized. Total interest cost incurred and capitalized for the years ended
December 31, 1996 and 1997 was approximately $28,127,000 and $163,747,000,
respectively. Interest paid for the years ended December 31, 1996 and 1997 was
approximately $1,485,000 and $30,191,000, respectively. No interest was
incurred, paid or capitalized for the year ended December 31, 1995.
 
     During 1996, the Parent adopted Statement of Financial Accounting Standards
No. 121, Accounting for the Impairment of Long-lived Assets and for Long-lived
Assets to be Disposed of ("Statement 121"). Statement 121 requires that
long-lived assets to be held and used be reviewed for impairment whenever events
or changes in circumstances indicate that the carrying amount of an asset may
not be recoverable. An impairment loss is recognized when the undiscounted net
cash flows associated with the asset are less than the asset's carrying amount.
Impairment losses, if any, are measured as the excess of the carrying amount of
the asset over its estimated fair market value. The adoption of Statement 121
did not have a material impact on the Parent's results of operations for the
years ended December 31, 1996 and 1997.
 
  Member Interest-Based Compensation
 
     During 1996, the Parent adopted Statement of Financial Accounting Standards
No. 123, Accounting for Stock-Based Compensation ("Statement 123"), which
encourages, but does not require, the recognition of member interest-based
employee compensation at fair value. The Parent has elected to continue to
account for member interest-based employee compensation using the intrinsic
value method prescribed in Accounting Principles Board Opinion No. 25,
Accounting for Stock Issued to Employees and related interpretations.
Accordingly, compensation cost for options to purchase Class A Common Stock of
IWCL granted to employees is measured as the excess, if any, of the fair value
of Class 1 Interests at the date of the grant over the exercise price an
employee must pay to acquire the interest. Compensation expense, if any, is
recognized over the period earned by the employee and was $152,000 for the year
ended December 31, 1997. No compensation expense was recognized for the year
ended December 31, 1996 as all options to acquire Class 1 Interests were granted
at an exercise price equal to the fair market value as of the date of grant.
 
     Warrants or options to purchase member interests granted to other than
employees as consideration for goods or services rendered are recognized at fair
market value.
 
  Equity Issuance Costs
 
     The Parent classifies all costs incurred in connection with the issuance of
equity as a reduction of members' equity. These costs include fees paid to
investment bankers, attorneys and others in connection with the issuance of
equity.
 
  Deferred Financing Costs
 
     All costs incurred in connection with securing debt financing have been
deferred and are amortized over the terms of the related debt in a manner that
approximates the effective yield method. Costs for future debt financing are
also deferred and are included in other non-current assets in the accompanying
consolidated balance sheets. Total deferred financing costs are approximately
$30,200,000 and $113,394,000 at December 31, 1996 and 1997, respectively.
 
     During October 1995, the Parent withdrew an intended public offering of
certain subordinated debt financing. Accordingly, the Parent wrote-off
approximately $3,200,000 of deferred costs associated with the intended
financing. Such costs are included in operating expenses in the accompanying
consolidated statement of loss for the year ended December 31, 1995.
 
                                      F-18
<PAGE>   81
                                  IRIDIUM LLC
                (A DEVELOPMENT STAGE LIMITED LIABILITY COMPANY)
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
  Income Taxes
 
     Iridium, Inc. was subject to Federal, state and local income taxes
directly. As a result of the merger of Iridium, Inc. with and into the Parent,
the Parent became a limited liability company. As a limited liability company,
the Parent is no longer subject to U. S. federal income tax directly. Rather,
each Class 1 member is subject to U.S. federal income taxation based on its
ratable portion of the Parent's income or loss. However, the Parent's primary
operations are in the District of Columbia which does not recognize the limited
liability status for tax purposes. Accordingly, the Parent is subject to
District of Columbia franchise taxes directly. The Parent recognizes its
provision for income taxes under the asset and liability method. Under the asset
and liability method deferred tax assets and deferred tax liabilities are
recognized for the future tax consequences attributable to differences between
the financial statement carrying amounts of existing assets and liabilities and
their respective tax bases. Deferred tax assets and liabilities are measured
using tax rates expected to apply to taxable income in the years in which these
temporary differences are expected to be recovered or settled. The effect on
deferred tax assets and liabilities of a change in tax rates is recognized in
income in the period that includes the enactment date.
 
  Net Income (Loss) per Class 1 Interest
 
     In February 1997, the Financial Accounting Standards Board issued Statement
No. 128, Earnings per Share ("Statement 128"). Statement 128 supersedes
Accounting Principles Board Opinion No. 15, Earnings per Share ("APB 15") and
its related interpretations, and promulgates new accounting standards for the
computation and manner of presentation of the Parent's loss per Class 1 Interest
data. Statement 128 requires the presentation of basic and diluted earnings
(loss) per interest data. Basic earnings (loss) per Class 1 Interest is
calculated by dividing net income (loss), after considering required dividends
on Class 2 Interests, by the weighted average number of Class 1 Interests
outstanding during the period. Diluted earnings (loss) per share is calculated
by dividing net income (loss), after considering required dividends on Class 2
Interests, by the weighted average number of Class 1 Interests and, to the
extent dilutive, other potentially dilutive securities outstanding during the
period. Potentially dilutive securities are comprised of options, warrants, and
convertible Class 2 Interests. Due to the losses incurred during the years ended
December 31, 1995, 1996, and 1997, the impact of other potentially dilutive
securities is anti-dilutive and is not included in the diluted earnings (loss)
per Class 1 Interest calculation. The adoption of Statement 128 had no effect on
earnings (loss) per Class 1 Interest as previously presented.
 
  New Accounting Pronouncement
 
     In June 1997, the Financial Accounting Standards Board issued Statement No.
130, Reporting Comprehensive Income ("Statement 130"). Statement 130 establishes
standards for the reporting and display of comprehensive income and its
components in the consolidated financial statements. The Parent is required to
adopt the provisions of Statement 130 for the year ending December 31, 1998.
Earlier application is permitted; however, upon adoption of Statement 130, the
Parent will be required to reclassify previously reported annual and interim
consolidated financial statements. The disclosure of comprehensive income in
accordance with the provisions of Statement 130 will impact the manner of
presentation of the Parent's consolidated financial statements as currently and
previously reported.
 
  Reclassifications
 
     Certain 1995 and 1996 amounts have been reclassified to conform to the 1997
presentation.
 
                                      F-19
<PAGE>   82
                                  IRIDIUM LLC
                (A DEVELOPMENT STAGE LIMITED LIABILITY COMPANY)
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
3.  MEMBERS' EQUITY
 
  Classes of Membership Interests
 
     The members' interests in the Parent are divided into two classes: Class 1
Interests which represent the common equity and Class 2 Interests which
represent the preferred equity. The LLC Agreement authorizes the Parent to issue
225,000,000 Class 1 Interests, 50,000 Series M Class 2 Interests, and 300,000
additional Class 2 Interests. A description of each of the classes of membership
interests follows:
 
          CLASS 1 INTERESTS.  Subject to the rights of holders of any series of
     Class 2 Interests, all voting rights of the members are vested in the Class
     1 Interests. Each member is entitled to appoint one Director for each
     5,250,000 Class 1 Interests owned. Class 1 members may aggregate any or all
     of their Class 1 Interests with other Class 1 members and appoint one
     Director for each 5,250,000 Class 1 Interests owned in the aggregate. The
     members may manage the Parent only through their designated Directors and
     have no authority, in their capacity as members, to act on behalf of or
     bind the Parent.
 
          The LLC Agreement contains a reserve capital call provision under
     which certain members have agreed to purchase additional Class 1 Interests
     (the "Reserve Capital Call"). If the Board elects to exercise this option,
     the Parent could raise up to an additional $243 million for 18,206,550
     Class 1 Interests. However, the Reserve Capital Call is pledged to secure
     the Secured Bank Facility (See Note 5).
 
          SERIES M CLASS 2 INTERESTS.  Motorola owns a warrant to purchase
     Series M Class 2 Interests in an amount that is convertible into 2.5% of
     the outstanding Class 1 Interests at the time of exercise of the warrant
     (calculated on a fully diluted basis) at a price of $1,000 per Series M
     Class 2 Interest. Each Series M Class 2 Interest is non-voting and
     currently convertible into 75 Class 1 Interests. The initial Series M
     Conversion Price is $13.33, but is subject to anti-dilution adjustments
     from time to time. Dividends on Series M Class 2 Interests are cumulative
     and accrue at the rate of 8% per annum. No Series M Class 2 Interests are
     outstanding.
 
          SERIES A CLASS 2 INTERESTS.  The Series A Class 2 Interests are
     convertible preferred interests that pay dividends at a rate of 14 1/2% per
     annum. Dividends on the Series A Class 2 Interests are payable, either
     in-kind or in cash, at the option of the Parent, through February 28, 2001.
     Commencing March 1, 2001, dividends on the Series A Class 2 Interests are
     payable only in cash. Dividends on the Series A Class 2 Interests accrue
     whether or not they have been declared and whether or not there are profits
     or other funds of the Parent legally available for the payment of such
     dividends. No dividend may be declared and paid on the Class 1 Interests
     unless all accrued dividends on the Series A Class 2 Interests have been
     paid in full. The Series A Class 2 Interests are non-voting and convertible
     to Class 1 Interests at any time at the option of the holder. Currently
     each Series A Class 2 Interest may be converted into 18.51 Class 1
     Interests. The Series A Class 2 Interests are redeemable, at the option of
     the Parent, at anytime after March 1, 2001, subject to a premium if
     redeemed prior to March 1, 2005.
 
          SERIES B AND SERIES C CLASS 2 INTERESTS.  In connection with
     Motorola's guarantee of the $450 million credit facility (the "Guarantee
     Agreement") (See Note 5), the Parent issued to Motorola one Series B Class
     2 Interest and 75 Series C Class 2 Interests. The Series B Class 2 Interest
     and Series C Class 2 Interests do not pay any dividends. The Series B Class
     2 Interest entitles Motorola to one seat on the Board of Directors in
     addition to Directors it may appoint as the owner of Class 1 Interests and
     Series M Class 2 Interests. The Series C Class 2 Interests entitle Motorola
     to appoint a majority of the Board of Directors in the event of certain
     events of default. The Series B and Series C Class 2 Interests are
     redeemable at the option of the Parent at $.01 per interest upon the later
     of (i) the termination or expiration of the Guarantee Agreement and (ii)
     the reimbursement of any payments made by Motorola pursuant to the
     Guarantee Agreement (See Note 5).
 
                                      F-20
<PAGE>   83
                                  IRIDIUM LLC
                (A DEVELOPMENT STAGE LIMITED LIABILITY COMPANY)
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
     The LLC Agreement provides that the Parent may merge or consolidate with
one or more limited liability companies, corporations, or similar entities
provided that the transaction is approved by the Board of Directors and Class 1
members holding not less than 66 2/3% of the outstanding Class 1 Interests. In
the event of a merger, members who hold interests and do not vote in favor of,
or consent in writing to, the merger are entitled to appraisal and repurchase
rights of their interests as specified in the LLC Agreement.
 
  Dividend and Liquidation Rights
 
     Class 1 members are entitled to receive dividends, as and when declared by
the Board of Directors, in its discretion. Class 2 members are entitled to
receive dividends, if any, in accordance with the terms of the relevant series
of Class 2 Interests, as and when declared by the Board of Directors. The Class
2 Interests rank senior to the Class 1 Interests as to dividends and
distributions upon the liquidation, dissolution and winding-up of the Parent.
 
     The LLC Agreement requires the Board of Directors, to the extent of legally
available funds, to declare and pay a dividend sufficient to assure that each
non-U. S. Class 1 Member receives an amount at least equal to the amount of such
member's U. S. federal, state and local income tax liability resulting from
allocations of the Parent's taxable income to such member. Parent's only current
source of funds is from dividend distributions from Iridium, and Iridium is
required to declare and pay a dividend to the Parent in the same amount as
required by the LLC Agreement. However, Iridium is restricted by the terms of
certain of its debt obligations from declaring and paying dividends in excess of
those required to be made to the Parent.
 
     The LLC Agreement contains significant restrictions on the ability of a
member to transfer any interests in the Parent, including but not limited to the
conditions that: (i) a majority of the Directors approve the transfer, and (ii)
the transfer not result in any member beneficially owning, or having the right
to beneficially own, more than 45% of the outstanding Class 1 Interests.
 
  Exchange Rights of Iridium LLC Members
 
     Concurrent with the initial public offering, IWCL and Iridium LLC executed
an Interest Exchange Agreement that conditionally permits holders of Class 1
Interests in Iridium LLC to exchange those interests, subject to the
restrictions on transfer in the Iridium LLC Limited Liability Agreement, for
shares of Class A Common Stock in IWCL at a ratio of one share of Class A Common
Stock for each Iridium LLC Class 1 Interest, subject to anti-dilution
adjustments. Under the Interest Exchange Agreement no exchanges of Iridium LLC
Class 1 Interests are permitted until 90 days after Iridium has achieved one
full quarter of positive earnings before interest, taxes, depreciation and
amortization. In addition, no exchange shall take place unless approved pursuant
to authorization of Directors representing at least 66 2/3% of the Iridium LLC
Board of Directors.
 
  Global Ownership Program
 
     The Parent, in conjunction with IWCL, has commenced a Global Ownership
Program which is designed to offer up to an aggregate of 2,500,000 shares of
IWCL's Class B Common Stock at a purchase price of $13.33 per share to certain
governmental telecommunication administrations and related entities as part of a
comprehensive program to enhance market access, improve the competitive standing
of the IRIDIUM System and achieve appropriate regulatory approvals. As of
December 31, 1997, no shares had been issued under this program.
 
  Limitations on Liability
 
     Members are generally not liable for the debts, obligations or liabilities
of the Parent.
 
                                      F-21
<PAGE>   84
                                  IRIDIUM LLC
                (A DEVELOPMENT STAGE LIMITED LIABILITY COMPANY)
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
  Recent Equity Transactions
 
     On April 16, 1997, the LLC Agreement was amended to increase the authorized
number of Class 1 Interests from 3,000,000 to 225,000,000. On May 9, 1997, the
Parent effected a 75 for 1 subdivision of its Class 1 Membership Interests
whereby each existing Class 1 Interest was subdivided into 75 Class 1 Interests.
All interest and per interest data appearing in the consolidated financial
statements and notes thereto have been retroactively adjusted for the
subdivision.
 
     On May 9, 1997, the Parent entered into a definitive agreement with South
Pacific Iridium Holdings Limited ("SPI"), an affiliate of P. T. Bakrie
Communications Corporation, pursuant to which SPI acquired from Parent 7,500,000
Class 1 Interests at $13.33 per interest. The transaction closed on May 30, 1997
with 40% of the total purchase price paid on that date and the remainder due on
or before May 1998. Through December 31, 1997, the Parent has received an
aggregate of $59.2 million from SPI in satisfaction of the commitment.
 
     On June 13, 1997, IWCL, a wholly-owned subsidiary of the Parent as of that
date, consummated an initial public offering (the "Offering") of 12,000,000
shares of its Class A Common Stock which resulted in proceeds of approximately
$225 million to IWCL (expenses of the offering were paid by the Parent).
Pursuant to the 1997 Subscription Agreement between the Parent and IWCL, such
proceeds were used to purchase 12,000,000 Class 1 Interests in the Parent. Upon
consummation of the Offering, all of the outstanding shares of IWCL held by the
Parent were retired and cancelled, and IWCL became a member of the Parent.
 
4.  PROPERTY AND EQUIPMENT
 
     Property and equipment at December 31, 1996 and 1997, consists of the
following (in thousands):
 
<TABLE>
<CAPTION>
                                                         1996         1997
                                                        -------    ----------
<S>                                                     <C>        <C>
Space system in service...............................  $    --    $1,624,120
Office equipment and furniture........................    3,113        13,920
Trade show booth......................................      826            --
Leasehold improvements................................      405         8,424
                                                        -------    ----------
                                                          4,344     1,646,464
Less-accumulated depreciation and amortization........   (2,279)     (120,138)
                                                        -------    ----------
Property and equipment, net...........................  $ 2,065    $1,526,326
                                                        =======    ==========
</TABLE>
 
5.  DEBT
 
  Guaranteed Bank Facility
 
     On August 21, 1996, the Parent entered into a $750 million credit agreement
with a group of banks led by The Chase Manhattan Bank, NA and Barclays Bank,
PLC. On the same date, the Parent entered into the Guarantee Agreement whereby
Motorola agreed to guarantee the entire $750 million commitment amount (the
"Motorola Guarantee"). In connection with the Asset Drop-Down Transaction, the
Parent's obligations under the Guaranteed Bank Facility were assigned to
Iridium. The Guaranteed Bank Facility provides that Iridium may elect to borrow
amounts at the then current short-term Eurodollar rate plus  1/4% or at the then
current Base Rate (generally, the higher of the Federal Funds Rate as
established by the Federal Reserve Bank of New York plus 0.50% or The Chase
Manhattan Bank's prime commercial lending rate). Iridium also pays a commitment
fee of 1/10 of 1% on any unused portion of the $750 million credit facility.
Interest rates on the Guaranteed Bank Facility ranged from 5.63% to 8.50% during
1997 and from 5.75% to 5.94% during 1996. On July 21, 1997, the commitment of
the bank lenders under the Guaranteed Bank Facility was permanently
 
                                      F-22
<PAGE>   85
                                  IRIDIUM LLC
                (A DEVELOPMENT STAGE LIMITED LIABILITY COMPANY)
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
reduced from $750 million to $655 million. On October 22, 1997, the commitment
of the bank lenders under the Guaranteed Bank Facility was further permanently
reduced to $450 million. Depending on market conditions, Iridium may make
additional senior note offerings in order to further reduce the Guaranteed Bank
Facility. The Guaranteed Bank Facility matures on June 30, 1999.
 
     Under the Guarantee Agreement, the Parent is required to issue warrants to
Motorola to purchase up to 150,000 Class 1 Interests. As consideration for its
guarantee, Motorola earns 82,500 warrants for each year the $750 million
guarantee is outstanding. As a result of the permanent reductions in the
Guaranteed Bank Facility, the maximum number of warrants Motorola may earn as
compensation for their guarantee of that facility until maturity in June 1999 is
131,377 warrants to purchase approximately 9,853,275 Class 1 Interests. Warrants
earned are issued to Motorola on a quarterly basis. Each warrant entitles
Motorola to purchase 75 Class 1 Interests at an exercise price of $.01 per
interest, subject to anti-dilution adjustments. The warrants may be exercised
after five years from date of issuance and expire ten years from date of
issuance. Motorola earned 29,836 and 64,518 warrants to purchase Class 1
Interests in accordance with the Guarantee Agreement during the years ended
December 31, 1996 and 1997, respectively. The Parent recognized $25,719,000 and
$55,615,000 as an expense to reflect the fair market value of the warrants
earned by Motorola for the years ended December 31, 1996 and 1997, respectively.
At December 31, 1996 and 1997, $505,000,000 and $210,000,000, respectively, was
outstanding under the Guaranteed Bank Facility.
 
  Senior Secured Bank Line of Credit
 
     Iridium has entered into a Credit Agreement with Chase Securities Inc., The
Chase Manhattan Bank, Barclays Bank PLC and Barclays Capital, the investment
banking division of Barclays Bank PLC, and a syndicate of lenders (the "Secured
Lenders") for a senior bank facility in a principal amount of $1 billion (the
"Secured Bank Facility"), of which $250 million is not available for borrowings
prior to the commercial activation date. The Secured Bank Facility is secured by
substantially all of Iridium's assets. The Secured Bank Facility is further
secured by the Reserve Capital Call and all of the Parent's membership interests
in Iridium. The availability of the Secured Bank Facility is subject to
significant conditions, including technical conditions relating to the IRIDIUM
System, conditions relating to regulatory approvals and conditions relating to
other financing sources. Borrowings under the Secured Bank Facility mature on
September 30, 1998, subject to Iridium's right to extend such maturity until up
to June 30, 1999 if it can demonstrate by July 1, 1998 that it has sufficient
available or committed financing for its budgeted project costs through such
extended maturity. At December 31, 1997, $350,000,000 was outstanding under the
Secured Bank Facility.
 
  Notes Payable
 
     On July 16, 1997, the Parent, IWCL and Iridium Capital Corporation
completed an offering (the "High Yield Offering") of (i) 300,000 units, each
consisting of $1,000 principal amount of 13% Senior Notes due 2005, Series A
("Series A Notes"), and one IWCL Warrant representing the right to purchase 5.2
shares of Class A Common Stock of IWCL, and (ii) $500 million aggregate
principal amount of 14% Senior Notes due 2005, Series B ("Series B Notes").
Concurrent with the Asset Drop-Down Transaction, the Parent's obligations under
the Series A Notes and Series B Notes were assigned to Iridium. The Series A
Notes and Series B Notes are guaranteed by Iridium Roaming LLC and Iridium IP
LLC. The aggregate net proceeds received was approximately $746 million.
Interest on the Series A Notes and Series B Notes is payable in cash
semi-annually on January 15th and July 15th of each year, commencing on January
15, 1998. The notes are redeemable at the option of Iridium, in whole or in
part, at any time on or after July 15, 2002. The Series A and Series B Notes
mature on July 15, 2005. The IWCL Warrants represent, in aggregate, the right to
purchase 1,560,000 shares of Class A Common Stock of IWCL. The exercise price of
each IWCL Warrant is $20.90 per share. The IWCL Warrants are exercisable at any
time on or after one year from the date of the original issuance and expire on
July 15, 2005. Concurrent with the issuance of IWCL Warrants in the High

                                      F-23
<PAGE>   86
                                  IRIDIUM LLC
                (A DEVELOPMENT STAGE LIMITED LIABILITY COMPANY)
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
Yield Offering, the Parent issued to IWCL 1,560,000 LLC Interest Warrants, each
exercisable for one Class 1 Interest at an exercise price of $20.90 per LLC
Interest Warrant. IWCL and the Parent have agreed that one LLC Interest Warrant
must be exercised upon the exercise of each IWCL Warrant. Approximately
$17,113,000 of the proceeds of the High Yield Offering was allocated to the
purchase price of the LLC Interest Warrants.
 
     On October 17, 1997, the Parent and Iridium Capital Corporation completed
an offering of $300 million principal amount of 11 1/4% Senior Notes due 2005,
Series C ("Series C Notes"). Concurrent with the Asset Drop-Down Transaction,
the Parent's obligations under the Series C Notes were assigned to Iridium. The
Series C Notes are guaranteed by Iridium Roaming LLC and Iridium IP LLC. The net
proceeds received were approximately $293 million. Interest on the Series C
Notes is payable in cash semi-annually on January 15th and July 15th of each
year, commencing on January 15, 1998. The Series C Notes are redeemable at the
option of Iridium, in whole or in part, at any time on or after July 15, 2002.
The Series C Notes mature on July 15, 2005.
 
     Notes payable, net of discounts, for the year ended December 31, 1997
consists of the following (in thousands):
 
<TABLE>
<CAPTION>
                                                                 1997
                                                              ----------
<S>                                                           <C>
13% Senior Notes due 2005, Series A.........................  $  276,439
14% Senior Notes due 2005, Series B.........................     477,849
11 1/4% Senior Notes due 2005, Series C.....................     300,000
                                                              ----------
                                                              $1,054,288
                                                              ==========
</TABLE>
 
  Long-Term Debt Due to Members
 
     During 1996, the Parent sold units to certain of its members and their
affiliates; each unit consisting of $1,000 principal amount at maturity 14 1/2%
Senior Subordinated Discount Notes due 2006 (the "Notes") and one warrant to
purchase 10.40775 Class 1 Interests, for aggregate proceeds of approximately
$238,453,000. Concurrent with the Asset Drop-Down Transaction, the Parent's
obligations under the Notes were assigned to Iridium. The Notes are unsecured
and are subordinate to all senior debt of Iridium. The Notes fully accrete to an
aggregate face value of $480,150,000 on March 1, 2001 and mature on March 1,
2006. Each Note accrues cash interest at a rate of 14 1/2% per annum, payable
semi-annually commencing on September 1, 2001. The Notes will be subject to
redemption, at the option of Iridium, at any time on or after March 1, 2001. The
warrants entitle the holder to purchase Class 1 Interests at an exercise price
of $.01 per interest, are exercisable on March 1, 2001 and expire on March 1,
2006. The Parent recognized the estimated fair market value of these warrants of
$31,761,000 as an addition to members' equity.
 
6.  INCOME TAXES
 
     From inception through July 29, 1996, Iridium, Inc. was subject to U.S.
federal and state and local income taxes directly, and accordingly, recognized
provisions for income taxes for U.S. federal and for all state and local
jurisdictions. Subsequent to the merger of Iridium, Inc. into a limited
liability company, the Parent is no longer subject to U.S. federal income tax
directly; however, the Parent is subject to District of Columbia franchise
taxes.
 
                                      F-24
<PAGE>   87
                                  IRIDIUM LLC
                (A DEVELOPMENT STAGE LIMITED LIABILITY COMPANY)
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
     The Parent's provision for income taxes for the years ended December 31,
1995, 1996, and 1997 consists of the following (in thousands):
 
<TABLE>
<CAPTION>
                                                    1995      1996      1997
                                                   ------    ------    ------
<S>                                                <C>       <C>       <C>
Current
  -- Federal.....................................  $1,258    $3,435    $   --
  -- State and Local.............................     426     1,154        --
Deferred
  -- Federal.....................................      --        --        --
  -- State and Local.............................      --        --        --
                                                   ------    ------    ------
                                                   $1,684    $4,589    $   --
                                                   ======    ======    ======
</TABLE>
 
     The primary reconciling differences between income tax expense and the
amount of tax benefit that would be expected to result by applying the Federal
statutory rate of 35% to the loss before income taxes for the years ended
December 31, 1995 and the period from January 1, 1996 to July 29, 1996 (the date
of the merger of Iridium, Inc. into Iridium) relate primarily to the
capitalization for tax purposes of certain start-up expenditures, and state and
local taxes. The capitalization of start-up expenditures resulted in Iridium,
Inc.'s only significant deferred tax asset of $19,944,000 at December 31, 1995,
for which a 100% valuation allowance was established. Subsequent to the date of
the merger of Iridium, Inc. into the Parent, the Parent recognizes deferred
taxes for those jurisdictions for which the Parent is taxed directly, resulting
in a deferred tax asset for capitalized start-up expenditures of $4,774,000 and
$34,599,000 at December 31, 1996 and 1997, respectively, for which a 100%
valuation allowance has been established.
 
     In assessing the realizability of deferred tax assets, management considers
whether it is more likely than not that some portion or all of the deferred tax
asset will be realized. The ultimate realization of the deferred tax asset is
dependent upon the generation of future taxable income during the periods in
which temporary differences become deductible. Management considers scheduled
reversals of deferred tax liabilities, projected future taxable income, and tax
planning strategies that can be implemented in making this assessment.
 
7.  TRANSACTIONS WITH MEMBERS
 
  Management Services Agreement
 
     In connection with the IWCL IPO, the Parent and IWCL entered into a
Management Services Agreement. The Management Services Agreement was amended and
restated in connection with the Asset Drop-Down Transaction to add Iridium as a
party.
 
     Pursuant to the Management Services Agreement, the Parent has agreed to
supervise and manage the day-to-day activities of Iridium. Among other things,
the Parent is responsible for administering the following functions of Iridium:
contract administration (including the Space System Contract, the TNDC and the
O&M Contract), treasury, accounting, legal, tax, insurance, licenses and permits
and securities law compliance. The Parent similarly has agreed to supervise and
manage the day-to-day operations of IWCL. Among other things, the Parent is
responsible for administering the following functions of IWCL: treasury,
accounting, legal, tax, insurance, licenses and permits and securities law
compliance. In addition, Parent has agreed to advance funds to IWCL in the event
that IWCL does not have sufficient funds to pay income or similar taxes. The
Parent does not receive fees or reimbursement from IWCL for its services to IWCL
under the Management Services Agreement; however, the cost of such services
provided to IWCL to date is not significant.
 
     In return for such services, Iridium has agreed to provide sufficient
funds, on a cost reimbursable basis, to the Parent to enable the Parent to
manage the business and operations of each of Iridium and IWCL,
 
                                      F-25
<PAGE>   88
                                  IRIDIUM LLC
                (A DEVELOPMENT STAGE LIMITED LIABILITY COMPANY)
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
including payments of Parent's obligations to its employees, consultants and
directors, and payments for Parent's office space and equipment, sales, general
operating and administrative expenses, insurance and its obligations under
certain contracts.
 
  Support Agreement
 
     Under a Support Agreement, Motorola provides certain general and
administrative support to the Parent and its subsidiaries. On a cost
reimbursable basis, Motorola has provided payroll processing and related
benefits to the Parent employees, processed payments to certain contractors
providing support to the Parent, and provided other administrative support. In
connection with the Asset Drop-Down Transaction, the Parent assigned the Support
Agreement to Iridium. The amounts and nature of such costs for the years ended
December 31, 1995, 1996 and 1997 consist of the following (in thousands):
 
<TABLE>
<CAPTION>
                                                        1995    1996    1997
                                                        ----    ----    ----
<S>                                                     <C>     <C>     <C>
Consulting............................................  $603    $826    $643
Other.................................................     1      26       5
                                                        ----    ----    ----
                                                        $604    $852    $648
                                                        ====    ====    ====
</TABLE>
 
     As of December 31, 1996, and 1997, the balance payable to Motorola under
the Support Agreement was approximately $563,000 and $0, respectively.
 
  Space System Contract
 
     The Parent entered into the Space System Contract with Motorola to design,
develop, produce and deliver the Space Segment component of the IRIDIUM System.
In connection with the Asset Drop-Down Transaction, the Parent assigned the
Space System Contract to Iridium. Under this fixed priced contract, Motorola
will construct the space vehicles and place them into low-earth orbits for a
contract price of $3.45 billion (subject to certain adjustments). The scheduled
date of commencement of commercial operations is September 1998. For the years
ended December 31, 1995, 1996, and 1997, $802 million, $836 million, and $577
million, respectively, was incurred under the Space System Contract. Such costs
are capitalized as system under construction in the accompanying consolidated
balance sheets and are transferred to property and equipment as the underlying
assets are placed into service. As of December 31, 1996 and 1997, the balance
payable to Motorola under the Space System Contract was $100 million and $0,
respectively.
 
     The aggregate fixed and determinable portion of all remaining obligations
under the Space System Contract is $589 million expected to be payable in 1998.
 
  Terrestrial Network Development Contract
 
     The Parent entered into the Terrestrial Network Development Contract
("TNDC") with Motorola for an original amount of $160 million. In connection
with the Asset Drop-Down Transaction, the Parent assigned the TNDC to Iridium.
Under the TNDC, Motorola is designing and developing the terrestrial gateway
hardware and software. The payments under the original contract are tied to the
completion of milestones specified in the contract. During 1996, the TNDC was
amended to obligate Motorola to provide additional services and support under
the TNDC in exchange for an additional $18.9 million. In lieu of a cash payment
for the $18.9 million from Iridium, the Parent may, at its election, issue 5,545
warrants to purchase Class 1 Interests to Motorola. The warrants, if issued,
have an exercise price of $.01 and may be exercised beginning March 1, 2001 and
will expire on March 1, 2006. During 1997, the TNDC was further amended to
obligate Motorola to provide additional services and support bringing the total
contract price of the TNDC to $284 million. Certain of the Parent's members will
own the individual gateways and will have no obligation to
 
                                      F-26
<PAGE>   89
                                  IRIDIUM LLC
                (A DEVELOPMENT STAGE LIMITED LIABILITY COMPANY)
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
Iridium or the Parent for any of the amounts due to Motorola under the TNDC. For
the years ended December 31, 1996 and 1997, Iridium incurred $64 million and $74
million, respectively, under the TNDC. Such costs are capitalized as system
under construction in the accompanying consolidated balance sheets. As of
December 31, 1996 and 1997, the balance payable to Motorola under the TNDC was
$0 and $11 million, respectively.
 
     The aggregate fixed and determinable portion of all remaining obligations
under the TNDC, assuming that all obligations are settled in cash, is as follows
(in thousands):
 
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31,
------------------------
<S>                                                         <C>
  1998....................................................  $139,405
  1999....................................................     6,000
                                                            --------
                                                            $145,405
                                                            ========
</TABLE>
 
  Operations and Maintenance Contract
 
     To provide for the operations and maintenance of the space segment upon
completion of the Space System Contract, the Parent entered into the Operations
and Maintenance Contract ("O&M") with Motorola. In connection with the Asset
Drop-Down Transaction, the Parent assigned the O&M contract to Iridium. This
contract obligates Motorola for a period of five years after completion of the
final milestone under the Space System Contract to operate the Space System, and
to exert its best efforts to monitor, upgrade and replace hardware and software
of the space segment (including the individual space vehicles) at specified
levels, in exchange for specified quarterly payments. Such payments are expected
to begin in 1998 and to aggregate approximately $2.88 billion. During 1996, a
two-year option agreement was entered into for the extension of the O&M contract
with Motorola after the completion of the initial five-year term. If such option
is exercised, Iridium will be obligated to make quarterly payments expected to
aggregate an additional $1.33 billion. Upon commencement of the O&M, Iridium
will capitalize the portion of the costs incurred that pertain to hardware and
software components of the space segment that extend its useful life. The
portion of the costs of the O&M associated with day-to-day operations will be
expensed as incurred. Assuming that commercial operations commence in September
1998, the aggregate fixed and determinable portion of all obligations under the
O&M is expected to be as follows (in thousands):
 
<TABLE>
<CAPTION>
                                                             AMOUNT
YEAR ENDING DECEMBER 31,                                   ----------
<S>                                                        <C>
  1998...................................................  $  129,000
  1999...................................................     537,000
  2000...................................................     558,000
  2001...................................................     581,000
  2002...................................................     605,000
  2003...................................................     472,000
                                                           ----------
                                                           $2,882,000
                                                           ==========
</TABLE>
 
  Gateway Owners Incentives
 
     The Parent has agreed to issue warrants to purchase 300,000 Class 1
Interests to each gateway owner whose specified gateway activities are completed
on schedule, and warrants to purchase 7,500 Class 1 Interests for each $1
million of cumulative IRIDIUM System service revenue generated within 15 months
of commercial activation, but in no event will warrants to purchase more than an
aggregate of 9,165,000 Class 1 Interests be issued to all gateway owners. The
warrants will have terms identical to those issued to Motorola
 
                                      F-27
<PAGE>   90
                                  IRIDIUM LLC
                (A DEVELOPMENT STAGE LIMITED LIABILITY COMPANY)
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
under the Guarantee Agreement (see Note 5). IWCL and Iridium LLC have executed a
Share Issuance Agreement which provides that all net proceeds from future
primary offerings of securities by IWCL will be invested in Class 1 Interests in
Iridium LLC.
 
8.  EMPLOYEE BENEFITS
 
     The Parent has adopted a comprehensive performance incentive and retirement
benefit package. The performance incentive program became effective in 1993,
while the various retirement plans became effective on February 1, 1994.
 
  Incentive Programs
 
     The Parent has established short- and long-term incentive plans primarily
based on employee performance. Effective December 31, 1995, the Parent
terminated the long-term incentive plan. The remaining liability of the
long-term incentive plan is approximately $2,426,000 and $1,738,000 as of
December 31, 1996 and 1997, respectively, and is expected to be paid in 1999.
Under these plans, the Parent incurred expenses of approximately $1,300,000,
$1,252,000 and $3,412,000 for the years ended December 31, 1995, 1996, and 1997,
respectively.
 
  401(k) Employee Retirement Savings Plan
 
     The Parent adopted a 401(k) employee retirement savings plan in 1994
covering all employees. The Parent makes matching contributions to this
qualified plan on behalf of participating employees up to 3% of employees'
compensation. Employee contributions to the plan vest immediately. The Parent's
contributions vest ratably over a seven-year period, including service credit
for any prior employment with Motorola. Under this plan, the Parent has incurred
approximately $161,000, $288,000, and $558,000 during the years ended December
31, 1995, 1996 and 1997, respectively.
 
  Retirement Plans
 
     All employees of the Parent are covered by a non-contributory defined
benefit retirement plan. Vesting in plan benefits generally occurs after five
years. Benefits under the plan are based on years of credited service (including
any prior employment with Motorola), age at retirement and the average earnings
over the last four years. The plan is funded annually in accordance with the
Employee Retirement Income Security Act of 1974.
 
     In early 1995, the Parent adopted a non-qualified defined benefit plan
covering employees earnings in excess of the maximum amounts which may be
considered under the qualified plan, excluding those executives participating in
the supplemental executive plans described below, who also participate in the
qualified defined benefit plan.
 
  Supplemental Executive Plans
 
     The Parent maintains a non-qualified defined benefit plan for selected
senior officers. Vesting in these plans generally occurs upon the attainment of
age 55 with five years of service. Benefits under these plans are based on
average annual compensation prior to retirement. The Parent has also agreed to
provide for the payment of certain taxes associated with plan benefits. The
supplemental executive plans are not funded. The net periodic pension cost
recognized under the plans was approximately $1,256,000, $1,925,000, and
$2,420,000 for the years ended December 31, 1995, 1996, and 1997, respectively.
For the years ended December 31, 1996 and 1997, the amounts provided to cover
taxes associated with the plan benefits were $736,000 and $693,000,
respectively. In addition, the Parent recorded an additional minimum pension
liability
 
                                      F-28
<PAGE>   91
                                  IRIDIUM LLC
                (A DEVELOPMENT STAGE LIMITED LIABILITY COMPANY)
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
adjustment of $332,000 and $90,000 for the years ended December 31, 1996 and
1997, respectively, for its non-qualified plans. The additional minimum pension
liability is included as a reduction to members' equity.
 
  Summary of Defined Benefit Plans
 
     Pension cost for the qualified and non-qualified defined benefit plans in
total for the years ended December 31, 1995, 1996 and 1997, are as follows (in
thousands):
 
<TABLE>
<CAPTION>
                                             1995                        1996                        1997
                                   -------------------------   -------------------------   -------------------------
                                   QUALIFIED   NON-QUALIFIED   QUALIFIED   NON-QUALIFIED   QUALIFIED   NON-QUALIFIED
                                   ---------   -------------   ---------   -------------   ---------   -------------
<S>                                <C>         <C>             <C>         <C>             <C>         <C>
Service Cost.....................    $372          $377          $789         $  438        $1,292        $  512
Interest cost on projected
  benefit obligation.............      70           246           133            339           206           285
Actual return on assets..........     (66)           --           (82)            --          (138)           --
Amortization of actuarial loss...      --            --            --             51            --             6
Amortization of transition
  obligation.....................      19           238            19            238            19           238
                                     ----          ----          ----         ------        ------        ------
Net periodic cost................    $395          $861          $859         $1,066        $1,379        $1,041
                                     ====          ====          ====         ======        ======        ======
</TABLE>
 
     The following table describes the funded status of the plans at December
31, 1996 and 1997 (in thousands). The actuarial calculations were determined by
the Parent's consulting actuaries:
 
<TABLE>
<CAPTION>
                                                          1996                          1997
                                               --------------------------    --------------------------
                                               QUALIFIED    NON-QUALIFIED    QUALIFIED    NON-QUALIFIED
                                               ---------    -------------    ---------    -------------
<S>                                            <C>          <C>              <C>          <C>
Accumulated present value of obligations:
Accumulated benefit obligation, including
  vested benefits............................   $(1,828)       $(2,746)       $(3,334)       $(2,269)
                                                =======        =======        =======        =======
Projected benefit obligation for service
  rendered to date...........................   $(2,554)       $(5,179)       $(4,722)       $(5,039)
Plan assets at fair value....................     1,931             --          3,757             --
                                                -------        -------        -------        -------
Projected benefit obligation in excess of
  plan assets................................      (623)        (5,179)          (965)        (5,039)
Unrecognized transition obligation...........       320          2,360            302          2,123
Unrecognized net (gain) loss.................      (227)           609            118            870
                                                -------        -------        -------        -------
Accrued pension cost.........................      (530)        (2,210)          (545)        (2,046)
Adjustment required to recognize minimum
  liability..................................        --           (733)            --           (643)
                                                -------        -------        -------        -------
Pension liability............................   $  (530)       $(2,943)       $  (545)       $(2,689)
                                                =======        =======        =======        =======
Actuarial assumptions:
Discount rate................................       7.5%           7.5%             7%             7%
Long-term rate of return.....................         8%             8%             8%             8%
Salary increases.............................         5%           7.5%             5%           7.5%
</TABLE>
 
  Option Plan of Iridium LLC
 
     The Parent has established a plan under which executive officers and
managers of the Parent are awarded options to purchase Class A Common Stock (the
"Option Plan") of IWCL. The Option Plan covers 2,625,000 shares of Class A
Common Stock of IWCL. The Option Plan also permits the award of stock
appreciation rights in connection with any grant of options. As of December 31,
1997, options covering 2,004,556 shares of Class A Common Stock of IWCL had been
granted. As of that date, no stock appreciation
 
                                      F-29
<PAGE>   92
                                  IRIDIUM LLC
                (A DEVELOPMENT STAGE LIMITED LIABILITY COMPANY)
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
awards had been granted. The right to exercise the options vests, pro rata, over
a period of five years. Pursuant to the Share Issuance Agreement, IWCL has
agreed that upon the exercise of any options, it will issue to the Parent, for
delivery to an exercising option holder, the number of shares of Class A Common
Stock of IWCL covered by the exercised options and the Parent has agreed to
simultaneously deliver to IWCL a like number of Class 1 Interests, subject to
anti-dilution adjustments. The exercise price of the option will be paid to the
Parent and will represent payment for the Class A Common Stock by the exercising
option holder and for the Class 1 Interests by IWCL.
 
     As of December 31, 1996 and 1997, 2,625,000 Class 1 Interests have been
reserved for issuance to IWCL in connection with the Option Plan. As permitted
by Statement 123, the Parent applies the intrinsic value method in accounting
for compensation cost under this plan. Accordingly, no compensation expense is
recognized for options to acquire Class A Common Stock of IWCL granted at an
exercise price equal to or exceeding the fair market value as of the date of
grant. For the year ended December 31, 1997, the Parent recognized $152,000 in
compensation expense for options to acquire Class A Common Stock of IWCL granted
at an exercise price that was below fair market value at the date of grant. Had
compensation cost been determined consistent with the fair value method of
Statement 123, the Parent's net loss and net loss per Class 1 Interest would
have been increased to the pro forma amounts indicated below (in thousands
except per interest data) for the years ended December 31, 1996 and 1997:
 
<TABLE>
<CAPTION>
                                                          1996        1997
                                                        --------    ---------
<S>                                                     <C>         <C>
Net loss
  As reported.........................................  $(73,598)   $(293,553)
  Pro forma...........................................   (74,172)    (296,132)
Net loss per Class 1 Interest
  As reported.........................................  $    .64    $    2.25
  Pro forma...........................................       .65         2.27
</TABLE>
 
     During 1996 and 1997, the fair value of options granted are estimated on
the dates of the grants using the Black-Scholes Option Pricing Model with the
following weighted-average assumptions: dividend yield of 0.0%, expected
volatility of 45%, risk-free interest rates from 5.97% to 6.76%, and expected
life of five years. The effects on compensation cost as determined under
Statement 123 on net loss in 1996 and 1997 may not be representative of the
effects on pro forma net income (loss) for future periods. The weighted-average
contractual life for options outstanding at December 31, 1996 and 1997 was 9.39
and 8.92 years, respectively.
 
     A summary of the Parent's stock option activity, and related information
for the years ended December 31, 1996 and 1997 follows:
 
<TABLE>
<CAPTION>
                                                    1996                     1997
                                            ---------------------    ---------------------
                                                         WEIGHTED                 WEIGHTED
                                            INTERESTS    AVERAGE     INTERESTS    AVERAGE
                                              UNDER      EXERCISE      UNDER      EXERCISE
                                             OPTION       PRICE       OPTION       PRICE
                                            ---------    --------    ---------    --------
<S>                                         <C>          <C>         <C>          <C>
Outstanding -- beginning of year..........        --          --       729,750     $13.33
  Granted.................................   729,750      $13.33     1,309,775      14.24
  Exercised...............................        --          --        (3,262)     13.33
  Forfeited...............................        --          --       (31,707)     13.33
                                             -------      ------     ---------     ------
Outstanding -- end of year................   729,750      $13.33     2,004,556     $13.92
                                             =======      ======     =========     ======
Options exercisable at end of year........        --          --       397,145     $13.33
Weighted-average fair value of options
  granted during the year.................     $6.50                     $8.35
</TABLE>
 
                                      F-30
<PAGE>   93
                                  IRIDIUM LLC
                (A DEVELOPMENT STAGE LIMITED LIABILITY COMPANY)
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
     The range of exercise prices of options outstanding at December 31, 1997
was $13.33 to $52.50.
 
9.  FAIR VALUE OF FINANCIAL INSTRUMENTS
 
     The following table presents the carrying amounts and estimated fair values
of financial instruments as of December 31, 1996 and 1997 (in thousands):
 
<TABLE>
<CAPTION>
                                               1996                      1997
                                       --------------------    ------------------------
                                       CARRYING      FAIR       CARRYING        FAIR
                                        AMOUNT      VALUE        AMOUNT        VALUE
                                       --------    --------    ----------    ----------
<S>                                    <C>         <C>         <C>           <C>
Bank facilities......................  $505,000    $505,000    $  560,000    $  560,000
Long-term debt due to Members........   230,904     230,904       273,302       273,302
Senior Notes, Series A, B, and C.....        --          --     1,054,288     1,156,000
</TABLE>
 
     The fair value of long-term debt is estimated based on the current rates
offered for similar debt. The carrying amounts of due from affiliates and
accounts payable and accrued expenses approximate their fair market value as of
December 31, 1996 and 1997 because of the relatively short duration of these
assets.
 
10.  OPERATING LEASE COMMITMENTS
 
     The Parent leases its corporate headquarters office space and other office
space and equipment under non-cancelable operating lease agreements. The initial
lease term for the corporate headquarters office space is seven years. Future
minimum payments under all operating lease arrangements are as follows (in
thousands):
 
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31,                                     AMOUNT
------------------------                                     -------
<S>                                                          <C>
  1998.....................................................  $ 8,417
  1999.....................................................    8,459
  2000.....................................................    8,440
  2001.....................................................    5,755
  2002.....................................................    4,951
  2003 and beyond..........................................    7,985
                                                             -------
                                                             $44,007
                                                             =======
</TABLE>
 
     Rental expense under operating leases for the years ended December 31,
1995, 1996, and 1997 was approximately $1,025,000, $1,194,000, and $7,821,000,
respectively.
 
11.  QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
 
     In thousands, except member interest data:
 
     The following is a summary of results of operations for each of the fiscal
quarters during 1995:
 
<TABLE>
<CAPTION>
                                        FIRST     SECOND      THIRD     FOURTH      TOTAL
                                       QUARTER    QUARTER    QUARTER    QUARTER     YEAR
                                       -------    -------    -------    -------    -------
<S>                                    <C>        <C>        <C>        <C>        <C>
Operating expenses...................  $5,753     $6,083     $5,911     $9,440     $27,187
Net loss.............................   4,528      5,033      5,092      8,992      23,645
Net loss applicable to Class 1
  Interests..........................   4,528      5,033      5,092      8,992      23,645
Net loss per Class 1 Interest........    0.07       0.07       0.06       0.09        0.27
</TABLE>
 
                                      F-31
<PAGE>   94
                                  IRIDIUM LLC
                (A DEVELOPMENT STAGE LIMITED LIABILITY COMPANY)
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
     The following is a summary of results of operations for each of the fiscal
quarters during 1996:
 
<TABLE>
<CAPTION>
                                     FIRST     SECOND      THIRD     FOURTH      TOTAL
                                    QUARTER    QUARTER    QUARTER    QUARTER     YEAR
                                    -------    -------    -------    -------    -------
<S>                                 <C>        <C>        <C>        <C>        <C>
Operating expenses................  $8,410     $10,321    $19,621    $33,052    $71,404
Net loss..........................   7,663       9,840     24,232     31,863     73,598
Net loss applicable to Class 1
  Interests.......................   7,663      10,679     25,812     33,096     77,250
Net loss per Class 1 Interest.....    0.07        0.09       0.21       0.28       0.64
</TABLE>
 
     The following is a summary of results of operations for each of the fiscal
quarters during 1997:
 
<TABLE>
<CAPTION>
                                  FIRST     SECOND      THIRD      FOURTH      TOTAL
                                 QUARTER    QUARTER    QUARTER    QUARTER       YEAR
                                 -------    -------    -------    --------    --------
<S>                              <C>        <C>        <C>        <C>         <C>
Operating expenses.............  $36,054    $48,414    $84,997    $127,133    $296,598
Net loss.......................   35,928     47,926     84,095     125,604     293,553
Net loss applicable to Class 1
  Interests....................   37,602     49,242     85,412     127,000     299,256
Net loss per Class 1
  Interest.....................     0.31       0.40       0.60        0.90        2.25
</TABLE>
 
                                      F-32
<PAGE>   95
 
                          INDEPENDENT AUDITORS' REPORT
 
The Board of Directors and Member
Iridium Operating LLC and subsidiaries:
 
     We have audited the accompanying consolidated balance sheets of Iridium
Operating LLC and subsidiaries (a wholly-owned subsidiary of Iridium LLC) (a
development stage limited liability company) as of December 31, 1997 and 1996,
and the related consolidated statements of loss, member's equity (deficit), and
cash flows for each of the years in the three-year period ended December 31,
1997, and for the period June 14, 1991 (inception) through December 31, 1997.
These consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
 
     We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
 
     In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Iridium
Operating LLC and subsidiaries (a development stage limited liability company)
as of December 31, 1997 and 1996, and the results of their operations and their
cash flows for each of the years in the three-year period ended December 31,
1997, and for the period June 14, 1991 (inception) through December 31, 1997, in
conformity with generally accepted accounting principles.
 
                                                           KPMG Peat Marwick LLP
 
McLean, Virginia
January 16, 1998
 
                                      F-33
<PAGE>   96
 
                             IRIDIUM OPERATING LLC
                   (A WHOLLY-OWNED SUBSIDIARY OF IRIDIUM LLC)
                (A DEVELOPMENT STAGE LIMITED LIABILITY COMPANY)
 
                          CONSOLIDATED BALANCE SHEETS
                                 (IN THOUSANDS)
 
<TABLE>
<CAPTION>
                                                                    DECEMBER 31,
                                                              ------------------------
                                                                 1996          1997
                                                              ----------    ----------
<S>                                                           <C>           <C>
ASSETS
Current assets:
  Cash and cash equivalents.................................  $    1,889    $    5,940
  Restricted Cash (Note 2)..................................          --       350,220
  Due from affiliates.......................................       3,476        13,604
  Prepaid expenses and other current assets.................       7,154         6,612
                                                              ----------    ----------
          Total current assets..............................      12,519       376,376
Property and equipment, net (Note 4)........................       2,065     1,526,326
System under construction (Note 7)..........................   2,388,320     1,625,054
Other assets (Note 2).......................................      31,177       114,831
                                                              ----------    ----------
          Total assets......................................  $2,434,081    $3,642,587
                                                              ==========    ==========
LIABILITIES AND MEMBER'S EQUITY
Current liabilities:
  Accounts payable and accrued expenses.....................  $   17,937    $  106,794
  Accounts payable to Parent's Members (Note 7).............     100,563        10,601
  Bank facilities, current portion (Note 5).................          --       350,000
                                                              ----------    ----------
          Total current liabilities.........................     118,500       467,395
Bank facilities, net of current portion (Note 5)............     505,000       210,000
Long-term debt due to Parent's Members (Note 5).............     230,904       273,302
Notes payable, $1,100,000 principal amount (Note 5).........          --     1,054,288
Other liabilities (Note 8)..................................       7,648         6,065
                                                              ----------    ----------
          Total liabilities.................................     862,052     2,011,050
                                                              ----------    ----------
Commitments and Contingencies (Notes 1, 3, 5, 7, 8 and 10)
Member's equity (Notes 1 and 3):
  Member's Interest.........................................   1,706,602     2,059,421
  Deficit accumulated during the development stage..........    (133,840)     (427,241)
  Adjustment for minimum pension liability (Note 8).........        (733)         (643)
                                                              ----------    ----------
          Total member's equity.............................   1,572,029     1,631,537
                                                              ----------    ----------
          Total liabilities and member's equity.............  $2,434,081    $3,642,587
                                                              ==========    ==========
</TABLE>
 
  The accompanying notes are an integral part of these consolidated financial
                                  statements.

                                      F-34
<PAGE>   97
 
                             IRIDIUM OPERATING LLC
                   (A WHOLLY-OWNED SUBSIDIARY OF IRIDIUM LLC)
                (A DEVELOPMENT STAGE LIMITED LIABILITY COMPANY)
 
                        CONSOLIDATED STATEMENTS OF LOSS
                                 (IN THOUSANDS)
 
<TABLE>
<CAPTION>
                                                                                   PERIOD FROM
                                                YEAR ENDED DECEMBER 31,           JUNE 14, 1991
                                             ------------------------------    (INCEPTION) THROUGH
                                              1995       1996        1997       DECEMBER 31, 1997
                                             -------    -------    --------    -------------------
<S>                                          <C>        <C>        <C>         <C>
OPERATING EXPENSES
  Sales, general and administrative (Notes
     5, 7, 8 and 10).......................  $26,436    $70,730    $177,322         $313,149
  Depreciation and amortization............      751        674     119,124          121,429
                                             -------    -------    --------         --------
          Total operating expenses.........   27,187     71,404     296,446          434,578
OTHER INCOME
  Interest income..........................    5,226      2,395       3,045           15,308
                                             -------    -------    --------         --------
Loss before provision for income taxes.....   21,961     69,009     293,401          419,270
Provision for income taxes (Note 6)........    1,684      4,589          --            7,971
                                             -------    -------    --------         --------
Net loss...................................  $23,645    $73,598    $293,401         $427,241
                                             =======    =======    ========         ========
</TABLE>
 
  The accompanying notes are an integral part of these consolidated financial
                                  statements.

                                      F-35
<PAGE>   98
 
                             IRIDIUM OPERATING LLC
                (A DEVELOPMENT STAGE LIMITED LIABILITY COMPANY)
                   (A WHOLLY-OWNED SUBSIDIARY OF IRIDIUM LLC)
 
              CONSOLIDATED STATEMENTS OF MEMBER'S EQUITY (DEFICIT)
                                 (IN THOUSANDS)
 
<TABLE>
<CAPTION>
                                                           ADJUSTMENT      DEFICIT
                                                              FOR        ACCUMULATED
                                              MEMBER'S      MINIMUM      DURING THE
                                              INTEREST      PENSION      DEVELOPMENT
                                               AMOUNT      LIABILITY        STAGE         TOTAL
                                             ----------    ----------    -----------    ----------
<S>                                          <C>           <C>           <C>            <C>
Inception June 14, 1991....................  $       --     $    --       $      --     $       --
Net loss...................................          --          --            (757)          (757)
                                             ----------     -------       ---------     ----------
BALANCE, December 31, 1991.................          --          --            (757)          (757)
Net loss...................................          --          --          (8,773)        (8,773)
                                             ----------     -------       ---------     ----------
BALANCE, December 31, 1992.................          --          --          (9,530)        (9,530)
Net loss...................................          --          --          (5,309)        (5,309)
                                             ----------     -------       ---------     ----------
BALANCE, July 29, 1993.....................          --          --         (14,839)       (14,839)
Contributions by Parent....................     316,071          --              --        316,071
Net loss...................................          --          --          (6,924)        (6,924)
                                             ----------     -------       ---------     ----------
BALANCE, December 31, 1993.................     316,071          --         (21,763)       294,308
Contributions by Parent....................     516,339          --              --        516,339
Net loss...................................          --          --         (14,834)       (14,834)
                                             ----------     -------       ---------     ----------
BALANCE, December 31, 1994.................     832,410          --         (36,597)       795,813
Contributions by Parent....................     633,507          --              --        633,507
Net loss...................................          --          --         (23,645)       (23,645)
Adjustment for minimum pension liability...          --      (1,065)             --         (1,065)
                                             ----------     -------       ---------     ----------
BALANCE, December 31, 1995.................   1,465,917      (1,065)        (60,242)     1,404,610
Contributions by Parent....................     240,685          --              --        240,685
Net loss...................................          --          --         (73,598)       (73,598)
Adjustment for minimum pension liability...          --         332              --            332
                                             ----------     -------       ---------     ----------
BALANCE, December 31, 1996.................   1,706,602        (733)       (133,840)     1,572,029
Contributions by Parent....................     352,819          --              --        352,819
Net loss...................................          --          --        (293,401)      (293,401)
Adjustment for minimum pension liability...          --          90              --             90
                                             ----------     -------       ---------     ----------
BALANCE, December 31, 1997.................  $2,059,421     $  (643)      $(427,241)    $1,631,537
                                             ==========     =======       =========     ==========
</TABLE>
 
  The accompanying notes are an integral part of these consolidated financial
                                  statements.

                                      F-36
<PAGE>   99
 
                             IRIDIUM OPERATING LLC
                   (A WHOLLY-OWNED SUBSIDIARY OF IRIDIUM LLC)
                (A DEVELOPMENT STAGE LIMITED LIABILITY COMPANY)
 
                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (IN THOUSANDS)
 
<TABLE>
<CAPTION>
                                                                                            PERIOD FROM
                                                        YEAR ENDED DECEMBER 31,            JUNE 14, 1991
                                                   ----------------------------------   (INCEPTION) THROUGH
                                                     1995        1996         1997       DECEMBER 31, 1997
                                                   ---------   ---------   ----------   -------------------
<S>                                                <C>         <C>         <C>          <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net loss.......................................  $ (23,645)  $ (73,598)  $ (293,401)      $  (427,241)
  Adjustments to reconcile net loss to net cash
    used in operating activities --
    Depreciation and amortization................        751         674      119,124           121,429
    Expense recognized for warrants issued in
      connection with debt guarantee.............         --      25,719       55,615            81,334
    Loss on disposal of assets...................         --          --           87                87
    Changes in assets and liabilities:
      Decrease (Increase) in prepaid expenses and
         other current assets....................       (171)     (6,281)         542            (6,612)
      Increase in due from affiliates............         --      (3,476)     (10,128)          (13,604)
      Increase in other assets...................     (1,633)     (4,079)      (2,286)          (18,659)
      Increase in accounts payable and accrued
         expenses................................      1,586      12,968       30,857            48,794
      (Decrease) Increase in other liabilities...      2,126       2,739       (1,493)            5,985
                                                   ---------   ---------   ----------       -----------
         Net cash used in operating activities...    (20,986)    (45,334)    (101,083)         (208,487)
                                                   ---------   ---------   ----------       -----------
 
CASH FLOWS FROM INVESTING ACTIVITIES:
  Purchases of property and equipment............       (493)     (1,475)     (18,885)          (23,255)
  Additions to system under construction.........   (762,000)   (900,757)    (842,678)       (3,091,435)
                                                   ---------   ---------   ----------       -----------
         Net cash used in investing activities...   (762,493)   (902,232)    (861,563)       (3,114,690)
                                                   ---------   ---------   ----------       -----------
 
CASH FLOWS FROM FINANCING ACTIVITIES:
  Net proceeds from issuance of Parent's Class 1
    and Class 2 Interests........................    633,514     183,205      283,191         1,932,319
  Net proceeds from issuance of senior notes and
    warrants.....................................         --     238,453    1,039,189         1,277,642
  Borrowings under guaranteed bank line of
    credit.......................................         --     505,000      655,000         1,160,000
  Payments under guaranteed bank line of
    credit.......................................         --          --     (950,000)         (950,000)
  Borrowings under senior secured line of
    credit.......................................         --          --      350,000           350,000
  Restricted cash................................         --          --     (350,220)         (350,220)
  Deferred financing costs.......................     (1,094)    (28,535)     (57,363)          (87,524)
  Transfer to Parent.............................         --          --       (3,100)           (3,100)
                                                   ---------   ---------   ----------       -----------
         Net cash provided by financing
           activities............................    632,420     898,123      966,697         3,329,117
                                                   ---------   ---------   ----------       -----------
Increase (decrease) in cash and cash
  equivalents....................................   (151,059)    (49,443)       4,051             5,940
CASH AND CASH EQUIVALENTS, beginning of period...    202,391      51,332        1,889                --
                                                   ---------   ---------   ----------       -----------
CASH AND CASH EQUIVALENTS, end of period.........  $  51,332   $   1,889   $    5,940       $     5,940
                                                   =========   =========   ==========       ===========
</TABLE>
 
  The accompanying notes are an integral part of these consolidated financial
                                  statements.

                                      F-37
<PAGE>   100
 
                             IRIDIUM OPERATING LLC
                   (A WHOLLY-OWNED SUBSIDIARY OF IRIDIUM LLC)
                (A DEVELOPMENT STAGE LIMITED LIABILITY COMPANY)
 
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
1.  ORGANIZATION AND BUSINESS
 
     Iridium Operating LLC ("Iridium"), a wholly-owned subsidiary of Iridium LLC
(the "Parent") is devoting its present efforts to developing and commercializing
a global wireless system -- the Iridium(R) Communications System (the "IRIDIUM
System") -- that will enable subscribers to send and receive telephone calls
virtually anywhere in the world -- all with one phone, one phone number and one
customer bill.
 
     Iridium, Inc. was incorporated on June 14, 1991. Iridium, Inc. operated as
a wholly-owned subsidiary of Motorola, Inc. ("Motorola") until July 29, 1993. On
July 29, 1993, Iridium, Inc. closed on, and had its first capital draw under, a
private placement of shares of Common Stock, subscribed to by U. S. and foreign
investors. As a result of three private placements of equity, five supplemental
private placements with certain additional equity investors and proceeds
received from the initial public offering of common stock of Iridium World
Communications Ltd. ("IWCL") (See Note 3), Motorola's direct and indirect Class
1 Membership Interest in the Parent has been reduced to approximately 18% as of
December 31, 1997, before considering unexercised warrants held by Motorola.
 
     On July 29, 1996, the Parent was formed as a limited liability company,
under the terms and conditions of the limited liability agreement ("LLC
Agreement"), pursuant to the provisions of the Delaware limited liability
company act. Also on July 29, 1996, Iridium, Inc. was merged with and into the
Parent, with the Parent as the surviving entity. Concurrent with the merger, all
shares of Common Stock of Iridium, Inc. were exchanged for Class 1 membership
interests in the Parent ("Class 1 Interests").
 
     On December 18, 1997, the Parent entered into an asset drop-down
transaction ("the Asset Drop-Down Transaction") with Iridium Operating LLC
("Iridium"), a newly formed wholly-owned subsidiary of the Parent. Pursuant to
the Asset Drop-Down Transaction, substantially all of the assets and liabilities
of the Parent were transferred to Iridium, including, without limitation, all
liabilities with respect to the outstanding 13% Senior Notes due 2005, Series A
and 14% Senior Notes due 2005, Series B and the 11 1/4% Senior Notes due 2005,
Series C (collectively, the "Senior Notes"). Pursuant to the indentures relating
to the Senior Notes, Iridium has been substituted for the Parent, and the Parent
has been released from all obligations under the indentures relating to the
Senior Notes. All assets and liabilities were transferred to Iridium at the
Parent's carrying value. Accordingly, unless otherwise specified, references
within these notes to Iridium that relate to any action prior to the date of the
Asset Drop-Down Transaction should be construed as references to Parent, as
predecessor of Iridium. As a result of the Asset Drop-Down Transaction, the
Parent's only significant asset is its investment in Iridium.
 
     Iridium has contracted with Motorola to design, develop, produce and
deliver into orbit the space segment component of the IRIDIUM System. The
scheduled date for delivery of the $3.45 billion space segment is in 1998.
Iridium plans to begin its commercial operations in September 1998. During 1997,
46 of the 66 satellites in the IRIDIUM System were successfully placed in orbit.
 
     The Iridium Communications System is subject to regulation by the Federal
Communications Commission ("FCC"), and by foreign administrations and regulatory
bodies. On January 31, 1995, Motorola obtained a license from the FCC to
construct, launch and operate the IRIDIUM System, subject to certain conditions.
 
                                      F-38
<PAGE>   101
                             IRIDIUM OPERATING LLC
                   (A WHOLLY-OWNED SUBSIDIARY OF IRIDIUM LLC)
                (A DEVELOPMENT STAGE LIMITED LIABILITY COMPANY)
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
2.  SIGNIFICANT ACCOUNTING POLICIES
 
  Principles of Consolidation and Basis of Presentation
 
     The consolidated financial statements include the accounts of Iridium and
its wholly-owned subsidiaries, Iridium Capital Corporation, Iridium Roaming LLC
and Iridium IP LLC. All significant intercompany transactions have been
eliminated.
 
     The accompanying consolidated financial statements present the financial
position and results of operations of Iridium for all prior periods as if the
Asset Drop-Down Transaction with Iridium had occurred as of June 14, 1991
(inception).
 
  Development Stage Enterprise
 
     Iridium is currently devoting its entire efforts to establishing and
commercializing the IRIDIUM System. Accordingly, Iridium's current principal
activities relate to managing the design, construction and development of the
system and preparing for its day-to-day operations.
 
  Management Estimates
 
     The preparation of consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the consolidated
financial statements and the reported amounts of revenues and expenses during
the reporting periods. Actual results could differ from those estimates.
 
  Cash and Cash Equivalents
 
     Iridium considers all highly liquid investments with an original maturity
of three months or less at the date of purchase to be cash equivalents.
 
  Restricted Cash
 
     Restricted cash consists of the first stage of borrowing under the $1
billion secured credit facility with a syndicate of lenders, led by Chase
Securities, Inc., and Barclays Capital, a division of Barclays Bank PLC. The
funds are restricted subject to Iridium meeting specified milestones.
 
  Property and Equipment
 
     Property and equipment is carried at historical cost less accumulated
depreciation and amortization. Depreciation and amortization is calculated using
the straight-line method over the following estimated useful lives:
 
<TABLE>
<S>                                     <C>
Satellites in service.................  5 years
Furniture, fixtures and equipment.....  5 years
Leasehold improvements................  Shorter of 5 years or remaining lease term
</TABLE>
 
     The costs of constructing and placing satellites into service are
capitalized. Losses from satellite failures for which Iridium has financial
responsibility under its contractual arrangements with Motorola are recognized
currently. Motorola bears the risk of loss for launch failures and satellite
failures before a satellite is placed into service.
 
                                      F-39
<PAGE>   102
                             IRIDIUM OPERATING LLC
                   (A WHOLLY-OWNED SUBSIDIARY OF IRIDIUM LLC)
                (A DEVELOPMENT STAGE LIMITED LIABILITY COMPANY)
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
  System Under Construction
 
     System under construction includes all costs incurred related to the
construction of the space and ground components of the IRIDIUM System.
Depreciation expense is recognized on a satellite-by-satellite basis as the
satellites are placed into service following delivery of each satellite to its
mission orbit. Depreciation related to the ground control stations will commence
with the placement in service of each such station.
 
     Interest costs incurred during the construction of the IRIDIUM System are
capitalized. Total interest cost incurred and capitalized for the years ended
December 31, 1996 and 1997 was approximately $28,127,000 and $163,747,000,
respectively. Interest paid for the years ended December 31, 1996 and 1997 was
approximately $1,485,000 and $30,191,000, respectively. No interest was
incurred, paid or capitalized for the year ended December 31, 1995.
 
     During 1996, Iridium adopted Statement of Financial Accounting Standards
No. 121, Accounting for the Impairment of Long-lived Assets and for Long-lived
Assets to be Disposed of ("Statement 121"). Statement 121 requires that
long-lived assets to be held and used be reviewed for impairment whenever events
or changes in circumstances indicate that the carrying amount of an asset may
not be recoverable. An impairment loss is recognized when the undiscounted net
cash flows associated with the asset are less than the asset's carrying amount.
Impairment losses, if any, are measured as the excess of the carrying amount of
the asset over its estimated fair market value. The adoption of Statement 121
did not have a material impact on Iridium's results of operations for the years
ended December 31, 1996 and 1997.
 
  Deferred Financing Costs
 
     All costs incurred in connection with securing debt financing have been
deferred and are amortized over the terms of the related debt in a manner that
approximates the effective yield method. Costs for future debt financing are
also deferred and are included in other non-current assets in the accompanying
consolidated balance sheets. Total deferred financing costs are approximately
$30,200,000 and $113,394,000 at December 31, 1996 and 1997, respectively.
 
     During October 1995, the Parent withdrew an intended public offering of
certain subordinated debt financing. Accordingly, approximately $3,200,000 of
deferred costs associated with the intended financing were written off. Such
costs are included in operating expenses in the accompanying consolidated
statement of loss for the year ended December 31, 1995.
 
  Income Taxes
 
     Iridium files its Federal and state income tax returns as a member of the
consolidated returns of the Parent. Iridium, Inc. was subject to Federal, state
and local income taxes directly. As a result of the merger of Iridium, Inc. with
and into the Parent, the Parent became a limited liability company. As a limited
liability company, the Parent and Iridium are no longer subject to U. S. federal
income tax directly. Rather, each member in Iridium is subject to U.S. federal
income taxation based on its ratable portion of Iridium's income or loss.
However, Iridium's primary operations are in the District of Columbia which does
not recognize the limited liability status for tax purposes. Accordingly,
Iridium is subject to District of Columbia franchise taxes directly. Iridium
recognizes its provision for income taxes under the asset and liability method
as if it filed its income tax returns on a separate basis. Under the asset and
liability method, deferred tax assets and deferred tax liabilities are
recognized for the future tax consequences attributable to differences between
the financial statement carrying amounts of existing assets and liabilities and
their respective tax bases. Deferred tax assets and liabilities are measured
using tax rates expected to apply to taxable income in the years in which these
 
                                      F-40
<PAGE>   103
                             IRIDIUM OPERATING LLC
                   (A WHOLLY-OWNED SUBSIDIARY OF IRIDIUM LLC)
                (A DEVELOPMENT STAGE LIMITED LIABILITY COMPANY)
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
temporary differences are expected to be recovered or settled. The effect on
deferred tax assets and liabilities of a change in tax rates is recognized in
income in the period that includes the enactment date.
 
  New Accounting Pronouncement
 
     In June 1997, the Financial Accounting Standards Board issued Statement No.
130, Reporting Comprehensive Income ("Statement 130"). Statement 130 establishes
standards for the reporting and display of comprehensive income and its
components in the consolidated financial statements. Iridium is required to
adopt the provisions of Statement 130 for the year ending December 31, 1998.
Earlier application is permitted; however, upon adoption of Statement 130,
Iridium will be required to reclassify previously reported annual and interim
consolidated financial statements. The disclosure of comprehensive income in
accordance with the provisions of Statement 130 will impact the manner of
presentation of Iridium's consolidated financial statements as currently and
previously reported.
 
  Reclassifications
 
     Certain 1995 and 1996 amounts have been reclassified to conform to the 1997
presentation.
 
3.  MEMBER'S EQUITY
 
     The sole member of Iridium is the Parent and the Parent holds all
outstanding membership interests in Iridium. The limited liability company
agreement of Iridium provides that the members of the Parent may manage Iridium
only through their designated directors and have no authority in their capacity
as members to act on the behalf of Iridium. Parent is generally not liable for
the debts, obligations or liabilities of Iridium.
 
     Parent is entitled to receive dividends, as and when declared by the
Iridium Board of Directors, in its discretion. In the event that Parent is
required by the terms of the Parent's Limited Liability Agreement to declare or
pay a dividend to its members, Iridium is required to declare and pay a dividend
to the Parent in the same amount. Parent is currently required to declare and
pay a dividend sufficient to assure that each non-U.S. Class 1 Member of Parent
receives and amount at least equal to the amount of such member's U.S. federal,
state and local income tax liability resulting from allocations of Parent's
taxable income to such member. Iridium is presently restricted by the terms of
certain of its debt obligations from declaring or paying dividends to the Parent
in amounts in excess of those required to be made to the Parent.
 
     Parent is generally not liable for the debts, obligations or liabilities of
Iridium.
 
4.  PROPERTY AND EQUIPMENT
 
     Property and equipment at December 31, 1996 and 1997, consists of the
following (in thousands):
 
<TABLE>
<CAPTION>
                                                         1996         1997
                                                        -------    ----------
<S>                                                     <C>        <C>
Space system in service...............................  $    --    $1,624,120
Office equipment and furniture........................    3,113        13,920
Trade show booth......................................      826            --
Leasehold improvements................................      405         8,424
                                                        -------    ----------
                                                          4,344     1,646,464
Less -- accumulated depreciation and amortization.....   (2,279)     (120,138)
                                                        -------    ----------
Property and equipment, net...........................  $ 2,065    $1,526,326
                                                        =======    ==========
</TABLE>
 
                                      F-41
<PAGE>   104
                             IRIDIUM OPERATING LLC
                   (A WHOLLY-OWNED SUBSIDIARY OF IRIDIUM LLC)
                (A DEVELOPMENT STAGE LIMITED LIABILITY COMPANY)
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
5.  DEBT
 
  Guaranteed Bank Facility
 
     On August 21, 1996, the Parent entered into a $750 million credit agreement
with a group of banks led by The Chase Manhattan Bank, NA and Barclays Bank,
PLC. On the same date, the Parent entered into the Guarantee Agreement whereby
Motorola agreed to guarantee the entire $750 million commitment amount (the
"Motorola Guarantee"). In connection with the Asset Drop-Down Transaction, the
Parent's obligations under the Guaranteed Bank Facility were assigned to
Iridium. The Guaranteed Bank Facility provides that Iridium may elect to borrow
amounts at the then current short-term Eurodollar rate plus  1/4% or at the then
current Base Rate (generally, the higher of the Federal Funds Rate as
established by the Federal Reserve Bank of New York plus 0.50% or The Chase
Manhattan Bank's prime commercial lending rate). Iridium also pays a commitment
fee of 1/10 of 1% on any unused portion of the $750 million credit facility.
Interest rates on the Guaranteed Bank Facility ranged from 5.63% to 8.50 %
during 1997 and from 5.75% to 5.94% during 1996. On July 21, 1997, the
commitment of the bank lenders under the Guaranteed Bank Facility was
permanently reduced from $750 million to $655 million. On October 22, 1997, the
commitment of the bank lenders under the Guaranteed Bank Facility was further
permanently reduced to $450 million. Depending on market conditions, Iridium may
make additional senior note offerings in order to further reduce the Guaranteed
Bank Facility. The Guaranteed Bank Facility matures on June 30, 1999.
 
     Under the Guarantee Agreement, the Parent is required to issue warrants to
Motorola to purchase up to 150,000 Class 1 Interests. As consideration for its
guarantee, Motorola earns 82,500 warrants for each year the $750 million
guarantee is outstanding. As a result of the permanent reductions in the
Guaranteed Bank Facility, the maximum number of warrants Motorola may earn as
compensation for their guarantee of that facility until maturity in June 1999 is
131,377 warrants to purchase approximately 9,853,275 Class 1 Interests of
Parent. Warrants earned are issued to Motorola on a quarterly basis. Each
warrant entitles Motorola to purchase 75 Class 1 Interests at an exercise price
of $.01 per interest, subject to anti-dilution adjustments. The warrants may be
exercised after five years from date of issuance and expire ten years from date
of issuance. Motorola earned 29,836 and 64,518 warrants to purchase Class 1
Interests in accordance with the Guarantee Agreement during the years ended
December 31, 1996 and 1997, respectively. Iridium recognized $25,719,000 and
$55,615,000 as an expense in the accompanying consolidated statements of
operations to reflect the fair market value of the warrants earned by Motorola
for the years ended December 31, 1996 and 1997, respectively. At December 31,
1996 and 1997, $505,000,000 and $210,000,000, respectively, was outstanding
under the Guaranteed Bank Facility.
 
  Senior Secured Bank Line of Credit
 
     Iridium has entered into a Credit Agreement with Chase Securities Inc., The
Chase Manhattan Bank, Barclays Bank PLC and Barclays Capital, the investment
banking division of Barclays Bank PLC, and a syndicate of lenders (the "Secured
Lenders") for a senior bank facility in a principal amount of $1 billion (the
"Secured Bank Facility"), of which $250 million is not available for borrowings
prior to the commercial activation date. The Secured Bank Facility is secured by
substantially all of Iridium's assets. The Secured Bank Facility is further
secured by a $243 million Reserve Capital Call of the members of Parent and all
of the Parent's membership interests in Iridium. The availability of the Secured
Bank Facility is subject to significant conditions, including technical
conditions relating to the IRIDIUM System, conditions relating to regulatory
approvals and conditions relating to other financing sources. Borrowings under
the Secured Bank Facility mature on September 30, 1998, subject to Iridium's
right to extend such maturity until up to June 30, 1999 if it can demonstrate by
July 1, 1998 that it has sufficient available or committed financing for its
budgeted project costs through such extended maturity. At December 31, 1997,
$350,000,000 was outstanding under the Secured Bank Facility.

                                      F-42
<PAGE>   105
                             IRIDIUM OPERATING LLC
                   (A WHOLLY-OWNED SUBSIDIARY OF IRIDIUM LLC)
                (A DEVELOPMENT STAGE LIMITED LIABILITY COMPANY)
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
  Notes Payable
 
     On July 16, 1997, the Parent, IWCL and Iridium Capital Corporation
completed an offering (the "High Yield Offering") of (i) 300,000 units, each
consisting of $1,000 principal amount of 13% Senior Notes due 2005, Series A
("Series A Notes"), and one IWCL Warrant representing the right to purchase 5.2
shares of Class A Common Stock of IWCL, and (ii) $500 million aggregate
principal amount of 14% Senior Notes due 2005, Series B ("Series B Notes").
Concurrent with the Asset Drop-Down Transaction, the Parent's obligations under
the Series A Notes and Series B Notes were assigned to Iridium. The Series A
Notes and Series B Notes are guaranteed by Iridium Roaming LLC and Iridium IP
LLC. The aggregate net proceeds received was approximately $746 million.
Interest on the Series A Notes and Series B Notes is payable in cash
semi-annually on January 15th and July 15th of each year, commencing on January
15, 1998. The notes are redeemable at the option of Iridium, in whole or in
part, at any time on or after July 15, 2002. The Series A and Series B Notes
mature on July 15, 2005.
 
     On October 17, 1997, the Parent and Iridium Capital Corporation completed
an offering of $300 million principal amount of 11 1/4% Senior Notes due 2005,
Series C ("Series C Notes"). Concurrent with the Asset Drop-Down Transaction,
the Parent's obligations under the Series C Notes were assigned to Iridium. The
Series C Notes are guaranteed by Iridium Roaming LLC and Iridium IP LLC. The net
proceeds received were approximately $293 million. Interest on the Series C
Notes is payable in cash semi-annually on January 15th and July 15th of each
year, commencing on January 15, 1998. The Series C Notes are redeemable at the
option of Iridium, in whole or in part, at any time on or after July 15, 2002.
The Series C Notes mature on July 15, 2005.
 
     Notes payable, net of discounts, for the year ended December 31, 1997
consists of the following (in thousands):
 
<TABLE>
<CAPTION>
                                                                 1997
                                                              ----------
<S>                                                           <C>
13% Senior Notes due 2005, Series A.........................  $  276,439
14% Senior Notes due 2005, Series B.........................     477,849
11 1/4% Senior Notes due 2005, Series C.....................     300,000
                                                              ----------
                                                              $1,054,288
                                                              ==========
</TABLE>
 
  Long-Term Debt Due to Members of the Parent
 
     During 1996, the Parent sold units to certain of its members and their
affiliates; each unit consisting of $1,000 principal amount at maturity 14 1/2%
Senior Subordinated Discount Notes due 2006 (the "Notes") and one warrant to
purchase 10.40775 Class 1 Interests of the Parent, for aggregate proceeds of
approximately $238,453,000. Concurrent with the Asset Drop-Down Transaction, the
Parent's obligations under the Notes were assigned to Iridium. The Notes are
unsecured and are subordinate to all senior debt of Iridium. The Notes fully
accrete to an aggregate face value of $480,150,000 on March 1, 2001 and mature
on March 1, 2006. Each Note accrues cash interest at a rate of 14 1/2% per
annum, payable semi-annually commencing on September 1, 2001. The Notes will be
subject to redemption, at the option of Iridium, at any time on or after March
1, 2001.
 
6.  INCOME TAXES
 
     From inception through July 29, 1996, Iridium, Inc. was subject to U.S.
federal and state and local income taxes directly, and accordingly, recognized
provisions for income taxes for U.S. federal and for all state and local
jurisdictions. Subsequent to the merger of Iridium, Inc. into a limited
liability company, the Parent
 
                                      F-43
<PAGE>   106
                             IRIDIUM OPERATING LLC
                   (A WHOLLY-OWNED SUBSIDIARY OF IRIDIUM LLC)
                (A DEVELOPMENT STAGE LIMITED LIABILITY COMPANY)
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
and Iridium are no longer subject to U.S. federal income tax directly; however,
Iridium is subject to District of Columbia franchise taxes.
 
     Iridium's provision for income taxes for the years ended December 31, 1995,
1996, and 1997 consists of the following (in thousands):
 
<TABLE>
<CAPTION>
                                                    1995      1996      1997
                                                   ------    ------    ------
<S>                                                <C>       <C>       <C>
Current
  -- Federal.....................................  $1,258    $3,435    $   --
  -- State and Local.............................     426     1,154        --
Deferred
  -- Federal.....................................      --        --        --
  -- State and Local.............................      --        --        --
                                                   ------    ------    ------
                                                   $1,684    $4,589    $   --
                                                   ======    ======    ======
</TABLE>
 
     The primary reconciling differences between income tax expense and the
amount of tax benefit that would be expected to result by applying the Federal
statutory rate of 35% to the loss before income taxes for the years ended
December 31, 1995 and the period from January 1, 1996 to July 29, 1996 (the date
of the merger of Iridium, Inc. into the Parent) relate primarily to the
capitalization for tax purposes of certain start-up expenditures, and state and
local taxes. The capitalization of start-up expenditures resulted in Iridium
Inc.'s only significant deferred tax asset of $19,944,000 at December 31, 1995,
for which a 100% valuation allowance was established. Subsequent to the date of
the merger of Iridium, Inc. into the Parent, deferred taxes are recognized for
those jurisdictions for which the Parent and Iridium are taxed directly,
resulting in a deferred tax asset for capitalized start-up expenditures of
$4,774,000 and $34,599,000 at December 31, 1996 and 1997, respectively, for
which a 100% valuation allowance has been established.
 
     In assessing the realizability of deferred tax assets, management considers
whether it is more likely than not that some portion or all of the deferred tax
asset will be realized. The ultimate realization of the deferred tax asset is
dependent upon the generation of future taxable income during the periods in
which temporary differences become deductible. Management considers scheduled
reversals of deferred tax liabilities, projected future taxable income, and tax
planning strategies that can be implemented in making this assessment.
 
7.  TRANSACTIONS WITH MEMBERS OF THE PARENT
 
  Management Services Agreement
 
     In connection with the IWCL IPO, the Parent and IWCL entered into a
Management Services Agreement. The Management Services Agreement was amended and
restated in connection with the Asset Drop-Down Transaction to add Iridium as a
party.
 
     Pursuant to the Management Services Agreement, the Parent has agreed to
supervise and manage the day-to-day activities of Iridium. Among other things,
the Parent is responsible for administering the following functions of Iridium:
contract administration (including the Space System Contract, the TNDC and the
O&M Contract), treasury, accounting, legal, tax, insurance, licenses and permits
and securities law compliance. The Parent similarly has agreed to supervise and
manage the day-to-day operations of IWCL. Among other things, the Parent is
responsible for administering the following functions of IWCL: treasury,
accounting, legal, tax, insurance, licenses and permits and securities law
compliance. In addition, Parent has agreed to advance funds to IWCL in the event
that IWCL does not have sufficient funds to pay income or similar taxes. The
Parent does not receive fees or reimbursement from IWCL for its services to IWCL
under
 
                                      F-44
<PAGE>   107
                             IRIDIUM OPERATING LLC
                   (A WHOLLY-OWNED SUBSIDIARY OF IRIDIUM LLC)
                (A DEVELOPMENT STAGE LIMITED LIABILITY COMPANY)
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
the Management Services Agreement; however, the cost of such services provided
to IWCL to date is not significant.
 
     In return for such services, Iridium has agreed to provide sufficient
funds, on a cost reimbursable basis, to the Parent to enable the Parent to
manage the business and operations of each of Iridium and IWCL, including
payments of Parent's obligations to its employees, consultants and directors,
and payments for Parent's office space and equipment, sales, general operating
and administrative expenses, insurance and its obligations under certain
contracts.
 
  Support Agreement
 
     Under a Support Agreement, Motorola provides certain general and
administrative support to the Parent, Iridium and its subsidiaries. On a cost
reimbursable basis, Motorola has provided payroll processing and related
benefits to the Parent employees, processed payments to certain contractors
providing support to the Parent and Iridium, and provided other administrative
support. In connection with the Asset Drop-Down Transaction, the Parent assigned
the Support Agreement to Iridium. The amounts and nature of such costs for the
years ended December 31, 1995, 1996 and 1997 consist of the following (in
thousands):
 
<TABLE>
<CAPTION>
                                                        1995    1996    1997
                                                        ----    ----    ----
<S>                                                     <C>     <C>     <C>
Consulting............................................  $603    $826    $643
Other.................................................     1      26       5
                                                        ----    ----    ----
                                                        $604    $852    $648
                                                        ====    ====    ====
</TABLE>
 
     As of December 31, 1996, and 1997, the balance payable to Motorola under
the Support Agreement was approximately $563,000 and $0, respectively.
 
  Space System Contract
 
     The Parent entered into the Space System Contract with Motorola to design,
develop, produce and deliver the Space Segment component of the IRIDIUM System.
In connection with the Asset Drop-Down Transaction, the Parent assigned the
Space System Contract to Iridium. Under this fixed priced contract, Motorola
will construct the space vehicles and place them into low-earth orbits for a
contract price of $3.45 billion (subject to certain adjustments). The scheduled
date of commencement of commercial operations is September 1998. For the years
ended December 31, 1995, 1996, and 1997, $802 million, $836 million, and $577
million, respectively, was incurred under the Space System Contract. Such costs
are capitalized as system under construction in the accompanying consolidated
balance sheets and are transferred to property and equipment as the underlying
assets are placed into service. As of December 31, 1996 and 1997, the balance
payable to Motorola under the Space System Contract was $100 million and $0,
respectively.
 
     The aggregate fixed and determinable portion of all remaining obligations
under the Space System Contract is $589 million expected to be payable in 1998.
 
  Terrestrial Network Development Contract
 
     The Parent entered into the Terrestrial Network Development Contract
("TNDC") with Motorola for an original amount of $160 million. In connection
with the Asset Drop-Down Transaction, the Parent assigned the TNDC to Iridium.
Under the TNDC, Motorola is designing and developing the terrestrial gateway
hardware and software. The payments under the original contract are tied to the
completion of milestones specified in the contract. During 1996, the TNDC was
amended to obligate Motorola to provide additional services and support under
the TNDC in exchange for an additional $18.9 million. In lieu of a cash payment
 
                                      F-45
<PAGE>   108
                             IRIDIUM OPERATING LLC
                   (A WHOLLY-OWNED SUBSIDIARY OF IRIDIUM LLC)
                (A DEVELOPMENT STAGE LIMITED LIABILITY COMPANY)
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
for the $18.9 million from Iridium, the Parent may, at its election, issue 5,545
warrants to purchase Class 1 Interests of the Parent to Motorola. The warrants,
if issued, have an exercise price of $.01 and may be exercised beginning March
1, 2001 and will expire on March 1, 2006. During 1997, the TNDC was further
amended to obligate Motorola to provide additional services and support bringing
the total contract price of the TNDC to $284 million. Certain of the Parent's
members will own the individual gateways and will have no obligation to Iridium
or the Parent for any of the amounts due to Motorola under the TNDC. For the
years ended December 31, 1996 and 1997, Iridium incurred $64 million and $74
million, respectively, under the TNDC. Such costs are capitalized as system
under construction in the accompanying consolidated balance sheets. As of
December 31, 1996 and 1997, the balance payable to Motorola under the TNDC was
$0 and $11 million, respectively.
 
     The aggregate fixed and determinable portion of all remaining obligations
under the TNDC, assuming that all obligations are settled in cash, is as follow
(in thousands):
 
<TABLE>
<CAPTION>
                 YEAR ENDING DECEMBER 31,                    AMOUNT
                 ------------------------                   --------
<S>                                                         <C>
  1998....................................................  $139,405
  1999....................................................     6,000
                                                            --------
                                                            $145,405
                                                            ========
</TABLE>
 
  Operations and Maintenance Contract
 
     To provide for the operations and maintenance of the space segment upon
completion of the Space System Contract, the Parent entered into the Operations
and Maintenance Contract ("O&M") with Motorola. In connection with the Asset
Drop-Down Transaction, the Parent assigned the O&M contract to Iridium. This
contract obligates Motorola for a period of five years after completion of the
final milestone under the Space System Contract to operate the Space System, and
to exert its best efforts to monitor, upgrade and replace hardware and software
of the space segment (including the individual space vehicles) at specified
levels, in exchange for specified quarterly payments. Such payments are expected
to begin in 1998 and to aggregate approximately $2.88 billion. During 1996, a
two-year option agreement was entered into for the extension of the O&M contract
with Motorola after the completion of the initial five-year term. If such option
is exercised, Iridium will be obligated to make quarterly payments expected to
aggregate an additional $1.33 billion. Upon commencement of the O&M, Iridium
will capitalize the portion of the costs incurred that pertain to hardware and
software components of the space segment that extend its useful life. The
portion of the costs of the O&M associated with day-to-day operations will be
expensed as incurred. Assuming that commercial operations commence in September
1998, the aggregate fixed and determinable portion of all obligations under the
O&M is expected to be as follows (in thousands):
 
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31,                                     AMOUNT
------------------------                                   ----------
<S>                                                        <C>
  1998...................................................  $  129,000
  1999...................................................     537,000
  2000...................................................     558,000
  2001...................................................     581,000
  2002...................................................     605,000
  2003...................................................     472,000
                                                           ----------
                                                           $2,882,000
                                                           ==========
</TABLE>
 
                                      F-46
<PAGE>   109
                             IRIDIUM OPERATING LLC
                   (A WHOLLY-OWNED SUBSIDIARY OF IRIDIUM LLC)
                (A DEVELOPMENT STAGE LIMITED LIABILITY COMPANY)
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
8.  EMPLOYEE BENEFITS
 
     The Parent has adopted a comprehensive performance incentive and retirement
benefit package. Under the terms of the Management Services Agreement (See Note
7), Iridium has committed to reimburse the Parent for all costs associated with
employee benefits except for non-cash compensation related to employee stock
options. The performance incentive program became effective in 1993, while the
various retirement plans became effective on February 1, 1994.
 
  Incentive Programs
 
     The Parent has established short- and long-term incentive plans primarily
based on employee performance. Effective December 31, 1995, the Parent
terminated the long-term incentive plan. The remaining liability of the
long-term incentive plan is approximately $2,426,000 and $1,738,000 as of
December 31, 1996 and 1997, respectively, and is expected to be paid in 1999.
Under these plans, the Parent incurred expenses of approximately $1,300,000,
$1,252,000 and $3,412,000 for the years ended December 31, 1995, 1996, and 1997,
respectively.
 
  401(k) Employee Retirement Savings Plan
 
     The Parent adopted a 401(k) employee retirement savings plan in 1994
covering all employees. The Parent makes matching contributions to this
qualified plan on behalf of participating employees up to 3% of employees'
compensation. Employee contributions to the plan vest immediately. The Parent's
contributions vest ratably over a seven-year period, including service credit
for any prior employment with Motorola. Under this plan, the Parent has incurred
approximately $161,000, $288,000, and $558,000 during the years ended December
31, 1995, 1996 and 1997, respectively.
 
  Retirement Plans
 
     All employees of the Parent are covered by a non-contributory defined
benefit retirement plan. Vesting in plan benefits generally occurs after five
years. Benefits under the plan are based on years of credited service (including
any prior employment with Motorola), age at retirement and the average earnings
over the last four years. The plan is funded annually in accordance with the
Employee Retirement Income Security Act of 1974.
 
     In early 1995, the Parent adopted a non-qualified defined benefit plan
covering employees earnings in excess of the maximum amounts which may be
considered under the qualified plan, excluding those executives participating in
the supplemental executive plans described below, who also participate in the
qualified defined benefit plan.
 
  Supplemental Executive Plans
 
     The Parent maintains a non-qualified defined benefit plan for selected
senior officers. Vesting in these plans generally occurs upon the attainment of
age 55 with five years of service. Benefits under these plans are based on
average annual compensation prior to retirement. The Parent has also agreed to
provide for the payment of certain taxes associated with plan benefits. The
supplemental executive plans are not funded. The net periodic pension cost
recognized under the plans was approximately $1,256,000, $1,925,000, and
$2,420,000 for the years ended December 31, 1995, 1996, and 1997, respectively.
For the years ended December 31, 1996 and 1997, the amounts provided to cover
taxes associated with the plan benefits were $736,000 and $693,000,
respectively. In addition, an additional minimum pension liability adjustment of
$332,000 and $90,000 has been recorded for the years ended December 31, 1996 and
1997, respectively, for its non-qualified plans. The additional minimum pension
liability is included as a reduction to members' equity.
 
                                      F-47
<PAGE>   110
                             IRIDIUM OPERATING LLC
                   (A WHOLLY-OWNED SUBSIDIARY OF IRIDIUM LLC)
                (A DEVELOPMENT STAGE LIMITED LIABILITY COMPANY)
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
  Summary of Defined Benefit Plans
 
     Pension cost for the qualified and non-qualified defined benefit plans in
total for the years ended December 31, 1995, 1996 and 1997, are as follows (in
thousands):
 
<TABLE>
<CAPTION>
                                            1995                        1996                        1997
                                  -------------------------   -------------------------   -------------------------
                                  QUALIFIED   NON-QUALIFIED   QUALIFIED   NON-QUALIFIED   QUALIFIED   NON-QUALIFIED
                                  ---------   -------------   ---------   -------------   ---------   -------------
<S>                               <C>         <C>             <C>         <C>             <C>         <C>
Service Cost....................    $372          $377          $789         $  438        $1,292        $  512
Interest cost on projected
  benefit obligation............      70           246           133            339           206           285
Actual return on assets.........     (66)           --           (82)            --          (138)           --
Amortization of actuarial
  loss..........................      --            --            --             51            --             6
Amortization of transition
  obligation....................      19           238            19            238            19           238
                                    ----          ----          ----         ------        ------        ------
Net periodic cost...............    $395          $861          $859         $1,066        $1,379        $1,041
                                    ====          ====          ====         ======        ======        ======
</TABLE>
 
     The following table describes the funded status of the plans at December
31, 1996 and 1997 (in thousands). The actuarial calculations were determined by
the Parent's consulting actuaries:
 
<TABLE>
<CAPTION>
                                                  1996                          1997
                                       --------------------------    --------------------------
                                       QUALIFIED    NON-QUALIFIED    QUALIFIED    NON-QUALIFIED
                                       ---------    -------------    ---------    -------------
<S>                                    <C>          <C>              <C>          <C>
Accumulated present value of
  obligations:
Accumulated benefit obligation,
  including vested benefits..........   $(1,828)       $(2,746)       $(3,334)       $(2,269)
                                        =======        =======        =======        =======
Projected benefit obligation for
  service rendered to date...........   $(2,554)       $(5,179)       $(4,722)       $(5,039)
Plan assets at fair value............     1,931             --          3,757             --
                                        -------        -------        -------        -------
Projected benefit obligation in
  excess of plan assets..............      (623)        (5,179)          (965)        (5,039)
Unrecognized transition obligation...       320          2,360            302          2,123
Unrecognized net (gain) loss.........      (227)           609            118            870
                                        -------        -------        -------        -------
Accrued pension cost.................      (530)        (2,210)          (545)        (2,046)
Adjustment required to recognize
  minimum liability..................        --           (733)            --           (643)
                                        -------        -------        -------        -------
Pension liability....................   $  (530)       $(2,943)       $  (545)       $(2,689)
                                        =======        =======        =======        =======
Actuarial assumptions:
Discount rate........................       7.5%           7.5%             7%             7%
Long-term rate of return.............         8%             8%             8%             8%
Salary increases.....................         5%           7.5%             5%           7.5%
</TABLE>
 
                                      F-48
<PAGE>   111
                             IRIDIUM OPERATING LLC
                   (A WHOLLY-OWNED SUBSIDIARY OF IRIDIUM LLC)
                (A DEVELOPMENT STAGE LIMITED LIABILITY COMPANY)
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
9.  FAIR VALUE OF FINANCIAL INSTRUMENTS
 
     The following table presents the carrying amounts and estimated fair values
of financial instruments as of December 31, 1996 and 1997 (in thousands):
 
<TABLE>
<CAPTION>
                                               1996                      1997
                                       --------------------    ------------------------
                                       CARRYING      FAIR       CARRYING        FAIR
                                        AMOUNT      VALUE        AMOUNT        VALUE
                                       --------    --------    ----------    ----------
<S>                                    <C>         <C>         <C>           <C>
Bank facilities......................  $505,000    $505,000    $  560,000    $  560,000
Long-term debt due to Members........   230,904     230,904       273,302       273,302
Senior Notes, Series A, B, and C.....        --          --     1,054,288     1,156,000
</TABLE>
 
     The fair value of long-term debt is estimated based on the current rates
offered for similar debt. The carrying amounts of due from affiliates and
accounts payable and accrued expenses approximate their fair market value as of
December 31, 1996 and 1997 because of the relatively short duration of these
assets.
 
10.  OPERATING LEASE COMMITMENTS
 
     The Parent leases its corporate headquarters office space and other office
space and equipment under non-cancelable operating lease agreements. The initial
lease term for the corporate headquarters office space is seven years. Future
minimum payments under all operating lease arrangements are as follows (in
thousands):
 
<TABLE>
<CAPTION>
                 YEAR ENDING DECEMBER 31,                    AMOUNT
                 ------------------------                    -------
<S>                                                          <C>
  1998.....................................................  $ 8,417
  1999.....................................................    8,459
  2000.....................................................    8,440
  2001.....................................................    5,755
  2002.....................................................    4,951
  2003 and beyond..........................................    7,985
                                                             -------
                                                             $44,007
                                                             =======
</TABLE>
 
     Rental expense under operating leases for the years ended December 31,
1995, 1996, and 1997 was approximately $1,025,000, $1,194,000, and $7,821,000,
respectively.
 
11.  IRIDIUM SUBSIDIARIES
 
     The Series A Notes, Series B Notes and Series C Notes are co-issued by
Iridium and Iridium Capital Corporation ("Capital") and are fully and
unconditionally guaranteed, jointly and severally, on a senior unsecured basis
by Iridium Roaming LLC and Iridium IP LLC (collectively, the "Guarantor
Subsidiaries" and together with Capital, the "Iridium Subsidiaries"). Each of
the Iridium Subsidiaries is a wholly-owned subsidiary of Iridium and, as of
December 31, 1997, Iridium has no subsidiaries other than the Iridium
Subsidiaries. Capital was formed and capitalized by the Parent on June 16, 1997
(subscribed capital of $100). Iridium Roaming LLC was formed by the Parent on
June 15, 1997. Iridium IP LLC was formed by the Parent on February 28, 1997. In
connection with the Asset Drop-Down Transaction, Parent's interest in the
Iridium subsidiaries was transferred to Iridium.
 
     The following is summarized financial information of Capital as of December
31, 1997 and for the period from inception through December 31, 1997. Full
financial statements of Capital are not presented because management believes
they are not material to investors.
 
                                      F-49
<PAGE>   112
                             IRIDIUM OPERATING LLC
                   (A WHOLLY-OWNED SUBSIDIARY OF IRIDIUM LLC)
                (A DEVELOPMENT STAGE LIMITED LIABILITY COMPANY)
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
<TABLE>
<CAPTION>
                                                              DECEMBER 31, 1997
                                                              -----------------
<S>                                                           <C>
Current assets..............................................         $0
Total assets................................................          0
Current liabilities.........................................          0
Total liabilities...........................................          0
</TABLE>
 
<TABLE>
<CAPTION>
                                                              FOR THE PERIOD FROM
                                                               INCEPTION THROUGH
                                                               DECEMBER 31, 1997
                                                              -------------------
<S>                                                           <C>
Net revenues................................................          $0
Cost of services............................................           0
Net loss....................................................           0
</TABLE>
 
Iridium has recognized the obligations relating to the Series A Notes, the
Series B Notes and the Series C Notes because Iridium will have the operations
to service such obligations.
 
     The following is summarized financial information of the Guarantor
Subsidiaries as of December 31, 1997 and for the period from inception of each
of the Guarantor Subsidiaries through December 31, 1997. Full financial
statements of the Guarantor Subsidiaries are not presented because management
believes they are not material to investors.
 
<TABLE>
<CAPTION>
                                                              DECEMBER 31, 1997
                                                              -----------------
<S>                                                           <C>
Current assets..............................................         $0
Total assets................................................          0
Current liabilities.........................................          0
Total liabilities...........................................          0
</TABLE>
 
<TABLE>
<CAPTION>
                                                              FOR THE PERIOD FROM
                                                               INCEPTION THROUGH
                                                               DECEMBER 31, 1997
                                                              -------------------
<S>                                                           <C>
Net revenues................................................          $0
Cost of services............................................           0
Net loss....................................................           0
</TABLE>
 
12.  QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
 
     In thousands:
 
     The following is a summary of results of operations for each of the fiscal
quarters during 1995:
 
<TABLE>
<CAPTION>
                                  FIRST     SECOND      THIRD      FOURTH      TOTAL
                                 QUARTER    QUARTER    QUARTER    QUARTER       YEAR
                                 -------    -------    -------    --------    --------
<S>                              <C>        <C>        <C>        <C>         <C>
Operating expenses.............  $ 5,753    $ 6,083    $ 5,911    $  9,440    $ 27,187
Net loss.......................    4,528      5,033      5,092       8,992      23,645
</TABLE>
 
     The following is a summary of results of operations for each of the fiscal
quarters during 1996:
 
<TABLE>
<CAPTION>
                                  FIRST     SECOND      THIRD      FOURTH      TOTAL
                                 QUARTER    QUARTER    QUARTER    QUARTER       YEAR
                                 -------    -------    -------    --------    --------
<S>                              <C>        <C>        <C>        <C>         <C>
Operating expenses.............  $ 8,410    $10,321    $19,621    $ 33,052    $ 71,404
Net loss.......................    7,663      9,840     24,232      31,863      73,598
</TABLE>
 
                                      F-50
<PAGE>   113
                             IRIDIUM OPERATING LLC
                   (A WHOLLY-OWNED SUBSIDIARY OF IRIDIUM LLC)
                (A DEVELOPMENT STAGE LIMITED LIABILITY COMPANY)
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
     The following is a summary of results of operations for each of the fiscal
quarters during 1997:
 
<TABLE>
<CAPTION>
                                  FIRST     SECOND      THIRD      FOURTH      TOTAL
                                 QUARTER    QUARTER    QUARTER    QUARTER       YEAR
                                 -------    -------    -------    --------    --------
<S>                              <C>        <C>        <C>        <C>         <C>
Operating expenses.............  $36,054    $48,414    $84,959    $127,019    $296,446
Net loss.......................   35,928     47,926     84,057     125,490     293,401
</TABLE>
 
                                      F-51
<PAGE>   114
 
                          INDEPENDENT AUDITORS' REPORT
 
The Board of Directors and Members
Iridium LLC:
 
     Under date of January 16, 1998, we reported on the consolidated balance
sheets of Iridium LLC and subsidiaries (a development stage limited liability
company) as of December 31, 1997 and 1996, and the related consolidated
statements of loss, members' equity (deficit), and cash flows for each of the
years in the three-year period ended December 31, 1997, and for the period June
14, 1991 (inception) through December 31, 1997, as contained in the annual
report on Form 10-K for the year 1997. In connection with our audits of the
aforementioned consolidated financial statements, we also audited the related
financial statement schedule as listed in Item 14(a)2 in the annual report on
Form 10-K for the year 1997. This financial statement schedule is the
responsibility of the Company's management. Our responsibility is to express an
opinion on the financial statement schedule based on our audits.
 
     In our opinion, such financial statement schedule, when considered in
relation to the basic consolidated financial statements taken as a whole,
presents fairly, in all material respects, the information set forth therein.
 
                                                           KPMG Peat Marwick LLP
 
McLean, Virginia
January 16, 1998
 
                                       S-1
<PAGE>   115
 
                                                                      SCHEDULE 1
 
                                  IRIDIUM LLC
 
          SCHEDULE 1 -- CONDENSED FINANCIAL INFORMATION OF REGISTRANT
                                 (IN THOUSANDS)
 
Condensed Balance Sheets:
 
<TABLE>
<CAPTION>
                                                                AS OF DECEMBER 31,
                                                              -----------------------
                                                                 1996         1997
                                                              ----------   ----------
<S>                                                           <C>          <C>
Cash........................................................  $       --   $    3,100
Investment in Iridium Operating LLC.........................   1,572,029    1,631,537
                                                              ----------   ----------
          Total assets......................................   1,572,029    1,634,637
                                                              ==========   ==========
Liabilities
          Total liabilities.................................  $       --   $       --
Members' equity.............................................   1,572,029    1,634,637
                                                              ----------   ----------
          Total liabilities and members' equity.............   1,572,029    1,634,637
                                                              ==========   ==========
</TABLE>
 
Condensed Statements of Loss:
 
<TABLE>
<CAPTION>
                                                                                    PERIOD FROM
                                                    YEAR ENDED DECEMBER 31,        JUNE 14, 1991
                                                  ----------------------------    (INCEPTION) TO
                                                   1995      1996       1997     DECEMBER 31, 1997
                                                  -------   -------   --------   -----------------
<S>                                               <C>       <C>       <C>        <C>
Equity in loss of Iridium Operating LLC.........  $23,645   $73,598   $293,401       $427,241
                                                  -------   -------   --------       --------
Employee Class 1 Interests compensation.........       --        --        152            152
                                                  -------   -------   --------       --------
          Loss before income taxes..............   23,645    73,598    293,553        427,393
Income taxes....................................       --        --         --             --
                                                  -------   -------   --------       --------
          Net loss..............................  $23,645   $73,598   $293,553       $427,393
                                                  =======   =======   ========       ========
</TABLE>
 
Condensed Statements of Cash Flows:
 
<TABLE>
<CAPTION>
                                                                                   PERIOD FROM
                                                 YEAR ENDED DECEMBER 31,          JUNE 14, 1991
                                            ---------------------------------    (INCEPTION) TO
                                              1995        1996        1997      DECEMBER 31, 1997
                                            ---------   ---------   ---------   -----------------
<S>                                         <C>         <C>         <C>         <C>
Net loss..................................  $ (23,645)  $ (73,598)  $(293,553)     $  (427,393)
Adjustments to reconcile net loss to cash
  flows from operating activities:
  Employee Class 1 Interests
     compensation.........................         --          --         152              152
                                            ---------   ---------   ---------      -----------
  Equity in loss of Iridium Operating
     LLC..................................     23,645      73,598     293,401          427,241
                                            ---------   ---------   ---------      -----------
     Cash used in operating activities....         --          --          --               --
Cash flows used in investing
  activities --
  Investment in Iridium Operating LLC.....   (633,507)   (193,708)   (399,796)      (2,059,421)
Cash flows from financing activities
     Proceeds from equity transactions....    633,507     193,708     399,796        2,059,421
     Transfer from Iridium Operating
       LLC................................         --          --       3,100            3,100
                                            ---------   ---------   ---------      -----------
     Cash provided by financing
       activities.........................    633,507     193,708     402,896        2,062,521
                                            ---------   ---------   ---------      -----------
Net increase in cash and cash
  equivalents.............................         --          --       3,100            3,100
Cash and cash equivalents at beginning of
  period..................................         --          --          --               --
                                            ---------   ---------   ---------      -----------
Cash and cash equivalents at end of
  period..................................  $      --   $      --   $   3,100      $     3,100
                                            =========   =========   =========      ===========
</TABLE>
 
                                       S-2
<PAGE>   116
 
Note to Condensed Financial Statements of Registrant:
 
BASIS OF PRESENTATION
 
     The accompanying condensed financial statements represent the accounts of
Iridium LLC (a development stage limited liability company) on a stand-alone
basis. Substantially all footnote disclosures are omitted. Reference is made to
the audited consolidated financial statements and footnotes of Iridium LLC and
subsidiaries (a development stage limited liability company) as of December 31,
1997 and 1996, and for each of the years in the three-year period December 31,
1997, and for the period June 14, 1991 (inception) through December 31, 1997,
which appear in the 1997 Form 10-K.
 
                                       S-3
<PAGE>   117
 
                                   SIGNATURES
 
     Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, each of the Registrants has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
 
                                          IRIDIUM WORLD COMMUNICATIONS LTD.
 
                                          By:     /s/ EDWARD F. STAIANO
 
                                            ------------------------------------
                                            Edward F. Staiano
                                            Chairman and Chief Executive Officer
                                            Date: March 23, 1998
 
                                          IRIDIUM LLC
 
                                          By:     /s/ ROBERT W. KINZIE
 
                                            ------------------------------------
                                            Robert W. Kinzie
                                            Chairman
                                            Date: March 23, 1998
 
                                          IRIDIUM OPERATING LLC
 
                                          By:     /s/ EDWARD F. STAIANO
 
                                            ------------------------------------
                                            Edward F. Staiano
                                            Vice Chairman and Chief Executive
                                              Officer
                                            Date: March 23, 1998
 
                                          IRIDIUM CAPITAL CORPORATION
 
                                          By:     /s/ EDWARD F. STAIANO
 
                                            ------------------------------------
                                            Edward F. Staiano
                                            Chairman and Chief Executive Officer
                                            Date: March 23, 1998
 
                                          IRIDIUM ROAMING LLC
 
                                          By:     /s/ EDWARD F. STAIANO
 
                                            ------------------------------------
                                            Edward F. Staiano
                                            Acting Chief Executive Officer
                                            Date: March 23, 1998
 
                                          IRIDIUM IP LLC
 
                                          By:     /s/ EDWARD F. STAIANO
 
                                            ------------------------------------
                                            Edward F. Staiano
                                            Acting Chief Executive Officer
                                            Date: March 23, 1998
                                        i
<PAGE>   118
 
     Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed by the following persons in the capacities and on the
dates indicated.
 
<TABLE>
<CAPTION>
                   NAME                                      TITLE                          DATE
                   ----                                      -----                          ----
<C>                                         <S>                                        <C>
 
           /s/ ROBERT W. KINZIE             Director of Iridium World                  March 23, 1998
------------------------------------------    Communications Ltd.; Chairman of
             Robert W. Kinzie                 Iridium LLC and Iridium Operating
                                              LLC; Director of Iridium Capital
                                              Corporation
 
          /s/ EDWARD F. STAIANO             Chairman and Chief Executive Officer of    March 23, 1998
------------------------------------------    Iridium World Communications Ltd.;
            Edward F. Staiano                 Vice Chairman and Chief Executive
                                              Officer of Iridium LLC and Iridium
                                              Operating LLC; Chairman and Chief
                                              Executive Officer of Iridium Capital
                                              Corporation; Acting Chief Executive
                                              Officer of Iridium Roaming LLC and
                                              Iridium IP LLC
 
              /s/ ROY GRANT                 Chief Financial Officer of Iridium         March 23, 1998
------------------------------------------    World Communications Ltd.; Vice
                Roy Grant                     President-Chief Financial Officer of
                                              Iridium LLC and Iridium Operating
                                              LLC; Chief Financial Officer of
                                              Iridium Capital Corporation; Acting
                                              Chief Financial Officer of Iridium
                                              Roaming LLC and Iridium IP LLC
 
          /s/ HASAN M. BINLADIN             Director of Iridium LLC and Iridium        March 23, 1998
------------------------------------------    Operating LLC
            Hasan M. Binladin
 
              /s/ ULF BOHLA                 Director of Iridium World                  March 23, 1998
------------------------------------------    Communications Ltd., Iridium LLC and
                Ulf Bohla                     Iridium Operating LLC
 
         /s/ GORDON J. COMERFORD            Director of Iridium LLC and Iridium        March 23, 1998
------------------------------------------    Operating LLC
           Gordon J. Comerford
 
                                            Director of Iridium LLC and Iridium        March   , 1998
------------------------------------------    Operating LLC
         Atilano de Oms Sobrinho
 
                                            Director of Iridium LLC and Iridium        March   , 1998
------------------------------------------    Operating LLC
            Robert A. Ferchat
 
            /s/ ALBERTO FINOL               Deputy Chairman and Director of Iridium    March 23, 1998
------------------------------------------    World Communications Ltd.; Director
              Alberto Finol                   of Iridium LLC and Iridium Operating
                                              LLC
 
             /s/ EDWARD GAMS                Director of Iridium LLC and Iridium        March 23, 1998
------------------------------------------    Operating LLC
               Edward Gams
 
            /s/ KAZUO INAMORI               Director of Iridium LLC and Iridium        March 23, 1998
------------------------------------------    Operating LLC
              Kazuo Inamori
</TABLE>
 
                                       ii
<PAGE>   119
 
<TABLE>
<CAPTION>
                   NAME                                      TITLE                          DATE
                   ----                                      -----                          ----
<C>                                         <S>                                        <C>
 
         /s/ HARDIANTO K. KAMARGA           Director of Iridium LLC and Iridium        March 23, 1998
------------------------------------------    Operating LLC
           Hardianto K. Kamarga
 
          /s/ GEORG KELLINGHUSEN            Director of Iridium LLC and Iridium        March 23, 1998
------------------------------------------    Operating LLC
            Georg Kellinghusen
 
                                            Director of Iridium LLC and Iridium        March   , 1998
------------------------------------------    Operating LLC
                S. H. Khan
 
                                            Director of Iridium LLC and Iridium        March   , 1998
------------------------------------------    Operating LLC
            Anatoly I. Kiselev
 
          /s/ RICHARD L. LESHER             Director of Iridium World                  March 23, 1998
------------------------------------------    Communications Ltd.; Iridium LLC and
            Richard L. Lesher                 Iridium Operating LLC
 
           /s/ JOHN F. MITCHELL             Director of Iridium LLC and Iridium        March 23, 1998
------------------------------------------    Operating LLC
             John F. Mitchell
 
             /s/ JUNG L. MOK                Director of Iridium LLC and Iridium        March 23, 1998
------------------------------------------    Operating LLC
               Jung L. Mok
 
          /s/ GIUSEPPE MORGANTI             Director of Iridium LLC and Iridium        March 23, 1998
------------------------------------------    Operating LLC
            Giuseppe Morganti
 
          /s/ J. MICHAEL NORRIS             Director of Iridium LLC and Iridium        March 23, 1998
------------------------------------------    Operating LLC
            J. Michael Norris
 
            /s/ YUSAI OKUYAMA               Director of Iridium LLC and Iridium        March 23, 1998
------------------------------------------    Operating LLC
              Yusai Okuyama
 
          /s/ JOHN A. RICHARDSON            Director of Iridium LLC and Iridium        March 23, 1998
------------------------------------------    Operating LLC
            John A. Richardson
 
           /s/ JOHN M. SCANLON              Director of Iridium LLC and Iridium        March 23, 1998
------------------------------------------    Operating LLC
             John M. Scanlon
 
          /s/ THEODORE H. SCHELL            Director of Iridium LLC and Iridium        March 23, 1998
------------------------------------------    Operating LLC
            Theodore H. Schell
 
         /s/ WILLIAM A. SCHREYER            Director of Iridium World                  March 23, 1998
------------------------------------------    Communications Ltd.; Iridium LLC and
           William A. Schreyer                Iridium Operating LLC
 
                                            Director of Iridium LLC and Iridium        March   , 1998
------------------------------------------    Operating LLC
            Sribhumi Sukhanetr
 
             /s/ TAO-TSUN SUN               Director of Iridium LLC and Iridium        March 23, 1998
------------------------------------------    Operating LLC
               Tao-Tsun Sun
</TABLE>
 
                                       iii
<PAGE>   120
 
<TABLE>
<CAPTION>
                   NAME                                      TITLE                          DATE
                   ----                                      -----                          ----
<C>                                         <S>                                        <C>
           /s/ YOSHIHARU YASUDA             Director of Iridium World                  March 23, 1998
------------------------------------------    Communications Ltd., Iridium LLC and
             Yoshiharu Yasuda                 Iridium Operating LLC
 
                                            Director of Iridium LLC and Iridium        March   , 1998
------------------------------------------    Operating LLC
               Wang Mei Yue
</TABLE>
 
                                       iv
<PAGE>   121
 
                                 EXHIBIT INDEX
 
<TABLE>
<CAPTION>
EXHIBIT
NUMBER                       DESCRIPTION OF EXHIBIT
-------                      ----------------------
<S>       <C>
 3.1      Limited Liability Company Agreement of Iridium LLC, dated as
          of July 29, 1996, as amended: Incorporated by reference to
          Exhibit 10.1 to the Registration Statement on Form S-1 of
          Iridium World Communications Ltd. and Iridium LLC
          (Registration Nos. 333-23419 and 333-23419-01) (the "Form
          S-1").
 3.2      Articles of Incorporation of Iridium Capital Corporation:
          Incorporated by reference to Exhibit 3.2 of the Registration
          Statement on Form S-4 of Iridium LLC, Iridium Capital
          Corporation, Iridium Roaming LLC, and Iridium IP LLC
          (Registration Nos. 333-31741, -01, -02 and -03) (the "1997
          Form S-4").
 3.3      By-Laws of Iridium Capital Corporation: Incorporated by
          reference to Exhibit 3.3 to the 1997 Form S-4.
 3.4      Amended and Restated Limited Liability Company Agreement of
          Iridium Roaming LLC: Incorporated by reference to Exhibit
          3.4 to the Registration Statement on Form S-4 of Iridium
          Operating LLC, Iridium Capital Corporation, Iridium Roaming
          LLC and Iridium IP LLC (Registration No. 333-44349, -01, -02
          and -03) (the "1998 Form S-4").
 3.5      Amended and Restated Limited Liability Company Agreement of
          Iridium IP LLC: Incorporated by reference to Exhibit 3.5 to
          the 1998 Form S-4.
 3.6      Limited Liability Company Agreement of Iridium Operating
          LLC: Incorporated by reference to Exhibit 3.6 to the 1998
          Form S-4.
 3.7      Articles of Incorporation of Iridium Facilities
          Corporation.*
 3.8      By-Laws of Iridium Facilities Corporation.*
 3.9      Memorandum of Association of Iridium World Communications
          Ltd.: Incorporated by reference to Exhibit 3.1 to the Form
          S-1.
 3.10     By-Laws of Iridium World Communications Ltd.: Incorporated
          by reference to Exhibit 3.2 to the Form S-1.
 4.1.1    Indenture dated as of July 16, 1997 relating to Iridium
          LLC's and Iridium Capital Corporation's 13% Senior Notes due
          2005, Series A, and 13% Senior Notes due 2005, Series A/EN:
          Incorporated by reference to Exhibit 4.1 to the 1997 Form
          S-4.
 4.1.2    First Supplemental Indenture dated as of December 18, 1997
          relating to Iridium Operating LLC's and Iridium Capital
          Corporation's 13% Senior Notes due 2005, Series A, and 13%
          Senior Notes due 2005, Series A/EN: Incorporated by
          reference to Exhibit 4.1.2 to the 1998 Form S-4.
 4.1.3    Second Supplemental Indenture dated as of February 27, 1998
          relating to Iridium Operating LLC's and Iridium Capital
          Corporation's 13% Senior Notes due 2005, Series A, and 13%
          Senior Notes due 2005, Series A/EN.*
 4.2      Forms of Series A Note and Series A/EN Note: Incorporated by
          reference to Exhibit 4.1 to the 1997 Form S-4.
 4.3.1    Indenture dated as of July 16, 1997 relating to Iridium
          LLC's and Iridium Capital Corporation's 14% Senior Notes due
          2005, Series B, and 14% Senior Notes due 2005, Series B/EN:
          Incorporated by reference to Exhibit 4.2 to the 1997 Form
          S-4.
 4.3.2    First Supplemental Indenture dated as of December 18, 1997
          relating to Iridium Operating LLC's and Iridium Capital
          Corporation's 14% Senior Notes due 2005, Series B, and 14%
          Senior Notes due 2005, Series B/EN: Incorporated by
          reference to Exhibit 4.3.2 to the 1998 Form S-4.
 4.3.3    Second Supplemental Indenture dated as of February 27, 1998
          relating to Iridium Operating LLC's and Iridium Capital
          Corporation's 14% Senior Notes due 2005, Series B, and 14%
          Senior Notes due 2005, Series B/EN.*
 4.4      Forms of Series B Note and Series B/EN Note: Incorporated by
          reference to Exhibit 4.2 to the 1997 Form S-4.
 4.5.1    Indenture dated as of October 17, 1997 relating to Iridium
          LLC's and Iridium Capital Corporation's 11 1/4% Senior Notes
          due 2005, Series C: Incorporated by reference to Exhibit
          4.5.1 to the 1998 Form S-4.
 4.5.2    First Supplemental Indenture dated as of December 18, 1997
          relating to Iridium Operating LLC's and Iridium Capital
          Corporation's 11 1/4% Senior Notes due 2005, Series C:
          Incorporated by reference to Exhibit 4.5.2 to the 1998 Form
          S-4.
</TABLE>
<PAGE>   122
 
<TABLE>
<CAPTION>
EXHIBIT
NUMBER                       DESCRIPTION OF EXHIBIT
-------                      ----------------------
<S>       <C>
4.5.3     Second Supplemental Indenture dated as of February 27, 1998
          relating to Iridium Operating LLC's and Iridium Capital
          Corporation's 11 1/4% Senior Notes due 2005, Series C.*
4.6       Forms of Series C Note and Series C/EN Note: contained in an
          exhibit to Exhibit 4.5.1: Incorporated by reference to
          Exhibit 4.6 to the 1998 Form S-4.
10.1      Form of Interest Exchange Agreement between IWCL and Iridium
          LLC: Incorporated by reference to Exhibit 10.2 to the Form
          S-1.
10.2      Form of amended and restated Management Services Agreement
          between IWCL, Iridium LLC and Iridium Operating LLC:
          Incorporated by reference to Exhibit 10.2 to the 1998 Form
          S-4.
10.3      Form of 1997 Subscription Agreement between IWCL and Iridium
          LLC: Incorporated by reference to Exhibit 10.4 to the Form
          S-1.
10.4      Space System Contract between Iridium LLC and Motorola, Inc.
          effective July 29, 1993, as amended and conformed on January
          14, 1997: Incorporated by reference to Exhibit 10.6 to the
          Form S-1.+
10.5      Communications System Operations & Maintenance Contract
          between Iridium LLC and Motorola, Inc. effective July 29,
          1993, as amended and conformed on January 14, 1997:
          Incorporated by reference to Exhibit 10.7 to the Form S-1.+
10.6      Terrestrial Network Development Contract between Iridium LLC
          and Motorola, Inc. effective January 1, 1993, as amended and
          conformed on January 14, 1997: Incorporated by reference to
          Exhibit 10.8 to the Form S-1.+
10.7      Amendment No. 3 to the Terrestrial Network Development
          Contract between Iridium LLC and Motorola, Inc. effective
          June 20, 1997: Incorporated by reference to Exhibit 10.7 to
          the 1997 Form S-4.+
10.8      Support Agreement between Iridium LLC and Motorola, Inc.:
          Incorporated by reference to Exhibit 10.9 to the Form S-1.
10.9      Agreement, executed as of December 16, 1996, between
          Andersen Consulting LLC and Iridium LLC relating to the
          development of business support systems: Incorporated by
          reference to Exhibit 10.10 to the Form S-1.+
10.10     14 1/2% Senior Subordinated Discount Notes Due 2006 of
          Iridium: Incorporated by reference to Exhibit 10.11 to the
          Form S-1.
10.11     Form of Warrant issued in respect of 14 1/2% Senior
          Subordinated Discount Notes: Incorporated by reference to
          Exhibit 10.13 to the Form S-1.
10.12     Warrant to purchase Series M Class 2 Interests dated July
          29, 1993, as amended: Incorporated by reference to Exhibit
          10.13 to the Form S-1.
10.13     Form of Gateway Authorization Agreement: Incorporated by
          reference to Exhibit 10.14 to the Form S-1.
10.14     Guaranteed Bank Facility: Incorporated by reference to
          Exhibit 10.15 to the Form S-1.
10.15     Amendment dated December 19, 1997 to Guaranteed Bank
          Facility.*
10.16     Motorola Agreement regarding Guarantee: Incorporated by
          reference to Exhibit 10.16 to the Form S-1.
10.17     Amended and Restated Agreement regarding Guarantee:
          Incorporated by reference to Exhibit 10.17 to the 1997 Form
          S-4.
10.18     Memorandum of Understanding with Motorola, Inc: Incorporated
          by reference to Exhibit 10.18 to the 1997 Form S-4.
10.19     Form of Share Issuance Agreement between IWCL and Iridium
          LLC: Incorporated by reference to Exhibit 10.17 to the Form
          S-1.
10.20     Purchase Agreement in respect of Series C Notes, dated
          October 9, 1997: Incorporated by reference to Exhibit 10.20
          to the 1998 Form S-4.
10.21     Exchange and Registration Rights Agreement: contained in an
          annex to Exhibit 10.20: Incorporated by reference to Exhibit
          10.21 to the 1998 Form S-4.
10.22     Iridium LLC Option Plan: Incorporated by reference to
          Exhibit 10.5 to the Form S-1.++
10.23     Iridium LLC Selected Senior Officers' Supplementary
          Retirement Plan: Incorporated by reference to Exhibit 10.27
          to the 1997 Form S-4.
</TABLE>
<PAGE>   123
 
<TABLE>
<CAPTION>
EXHIBIT
NUMBER                       DESCRIPTION OF EXHIBIT
-------                      ----------------------
<S>       <C>
10.24     Agreement between Dr. Staiano and Iridium LLC: Incorporated
          by reference to Exhibit 10.28 to the 1997 Form S-4.
10.25     Asset Transfer Agreement: Incorporated by reference to
          Exhibit 10.25 to the 1998 Form S-4.
10.26     Consent of Arthur Andersen LLP to Contract Assignment:
          Incorporated by reference to Exhibit 10.26 to the 1998 Form
          S-4.
10.27     Consent of Motorola Inc. to Contract Assignment:
          Incorporated by reference to Exhibit 10.27 to the 1998 Form
          S-4.
10.28     Form of Credit Agreement among Iridium Operating LLC, Chase
          Securities Inc., Barclays Capital, The Chase Manhattan Bank
          and Barclays Bank PLC.*
10.29     Conditions Precedent to the Disbursement of the Term Loans
          under Section 2.01(a) of the Credit Agreement.*
10.30     Regulatory and Technical Conditions Precedent to
          availability of funding under the Credit Agreement.*
10.31     Form of Assignment and Acceptance under the Credit
          Agreement.*
10.32     Form of Pledge and Security Agreement among Iridium
          Operating LLC, each of the Subsidiaries and The Chase
          Manhattan Bank.*
10.33     Form of Parent Security Agreement between Iridium LLC and
          The Chase Manhattan Bank.*
10.34     Form of Subsidiary Guarantee Agreement between each of the
          Subsidiary Guarantors and The Chase Manhattan Bank.*
10.35     Form of Subsidiary Guarantee Assumption Agreement.*
10.36     Form of Depositary Agreement between Iridium Operating LLC
          and The Chase Manhattan Bank.*
10.37     Form of Motorola Consent under the Credit Agreement among
          Motorola, Iridium Operating LLC and The Chase Manhattan
          Bank.*
10.38     Form of Motorola Pledge Agreement between Motorola, Inc. and
          The Chase Manhattan Bank.*
10.39     Form of Progress Certificate (Pre-Commercial Activation)
          under the Credit Agreement.*
10.40     Form of Verification of Independent Technical Advisor under
          the Credit Agreement.*
10.41     Form of Progress Certificate (Post-Commercial Activation)
          under the Credit Agreement.*
10.42     Form of Borrowing Request under the Credit Agreement.*
11.1      Statement re Computation of Loss per Class A Common Share:
          Iridium World Communications Ltd.*
11.2      Statement re Computation of Loss per Class 1 Interest:
          Iridium LLC.*
12        Statement re Computation of Ratios: Iridium Operating LLC.*
21        Subsidiaries of the Registrants.*
23        Consent of KPMG Peat Marwick LLP.*
27.1      Financial Data Schedule -- Iridium World Communications,
          Ltd.*
27.2      Financial Data Schedule -- Iridium LLC*
27.3      Financial Data Schedule -- Iridium Operating LLC*
99        Certain Factors Which May Affect Forward Looking
          Statements.*
</TABLE>
 
---------------
 * Filed herewith.
 + Confidential treatment previously granted in connection with the Form S-1 or
the 1997 Form S-4.
++ Management Compensation Plan.