**UNITED STATES**

**SECURITIES AND EXCHANGECOMMISSION**

**Washington,D.C. 20549**

----

**FORM 10-K**

----

| **(Mark One)**                                       |   |                                                                                                    |
|------------------------------------------------------|--------|---------------------------------------------------------------------------------------------------------|
| x                                                    |   | **ANNUAL REPORT PURSUANT TO SECTION 13 OR  15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**     |
| **For the fiscal year ended December 31, 2006** |
| **or**                                               |
| **o**                                                |   | **TRANSITION REPORT PURSUANT TO  SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934** |

 

**For the transition periodfrom                      to                      **

**Commission File Number 000-52006**

----

**ICO GLOBAL COMMUNICATIONS(HOLDINGS) LIMITED**

(Exact name of registrantas specified in its charter)

| **Delaware**                                                     |   | **98-0221142**                     |
|------------------------------------------------------------------|--------|------------------------------------|
| (State or other  jurisdiction of  incorporation or organization) |   | (IRS Employer  Identification No.) |

 

**Plaza America TowerI, 11700 Plaza America Drive, Suite 1010, Reston, Virginia 20190**

(Address of principalexecutive offices including zip code)

**(703) 964-1400**

(Registrant’s telephonenumber, including area code)

**Securities registeredpursuant to Section 12(b) of the Act:**

| ** **                  | **Title of each class** | ** **                |   | ** ** | **Name of each exchange on which  registered** | ** ** |
|-----------------------------|-------------------------|---------------------------|--------|------------|------------------------------------------------|------------|
| Class A  common stock, |                    | The  Nasdaq Global Market |
| par value $0.01  per share  |                    |                      |

 

**Securities registeredpursuant to Section 12(g) of the Act:**

None

Indicate by check mark ifthe registrant is a well-known seasoned issuer, as defined in Rule 405 ofthe Securities Act. Yes o    No x

Indicate by check mark ifthe registrant is not required to file reports pursuant to Section 13 or Section 15(d) ofthe Act. Yes o    No x

Indicate by check markwhether the registrant (1) has filed all reports required to be filed by Section 13or 15(d) of the Securities Exchange Act of 1934 during the preceding 12months (or for such shorter period that the registrant was required to filesuch reports), and (2) has been subject to such filing requirements forthe past 90 days. Yes x    No o

Indicate by check mark ifdisclosure of delinquent filers pursuant to Item 405 of Regulation S-K isnot contained herein, and will not be contained, to the best of registrant’sknowledge, in definitive proxy or information statements incorporated byreference in Part III of this Form 10-K or any amendment tothis Form 10-K. x

Indicateby check mark whether the registrant is a large accelerated filer, anaccelerated filer, or a non-accelerated filer. See definition of “acceleratedfiler and large accelerated filer” in Rule 12b-2 of the ExchangeAct.

| Large accelerated  filer o | Accelerated  filer o | Non-accelerated filer x |
|---------------------------------|---------------------------|-----------------------------------|

 

Indicate by check markwhether the registrant is a shell company (as defined in Rule 12b-2of the Exchange Act). Yes o  No x.

As of June 30, 2006,the aggregate market value of common stock held by non-affiliates of theregistrant was approximately $573,031,153.

As of March 1, 2007,the registrant had 143,306,660 shares of Class A common stock and54,840,000 shares of Class B common stock outstanding.

**DOCUMENTS INCORPORATED BYREFERENCE**

Portions of the Registrant’sDefinitive Proxy Statement for its 2007 Annual Meeting of Stockholders areincorporated by reference in Part III of this Form 10-K.

 

----

**ICO GLOBAL COMMUNICATIONS (HOLDINGS) LIMITED**

**2006 ANNUAL REPORTON FORM 10-K**

**TABLEOF CONTENTS**

| ** **        | ** ** | ** **                                                                                                              | ** ** | **Page** | ** ** |
|-------------------|------------|-------------------------------------------------------------------------------------------------------------------------|------------|----------|------------|
| **PART I**   |       |                                                                                                                    |       |     |       |   |   |
| Item 1.           |       | Business                                                                                                                |       |     | 1          |   |   |
| Item  1A.         |       | Risk  Factors                                                                                                           |       |     | 16         |   |   |
| Item 1B.          |       | Unresolved Staff Comments                                                                                               |       |     | 27         |   |   |
| Item 2.           |       | Properties                                                                                                              |       |     | 27         |   |   |
| Item  3.          |       | Legal  Proceedings                                                                                                      |       |     | 28         |   |   |
| Item 4.           |       | Submission of Matters to a Vote of Security Holders                                                                     |       |     | 28         |   |   |
| **PART II**  |       |                                                                                                                    |       |     |       |
| Item 5.           |       | Market for Registrant’s Common Equity,  Related Stockholder Matters and Issuer Purchases of Equity Securities |       |     | 29         |   |   |
| Item 6.           |       | Selected Financial Data                                                                                                 |       |     | 30         |   |   |
| Item 7.           |       | Management’s Discussion and Analysis of Financial  Condition and Results of Operations                             |       |     | 31         |   |   |
| Item 7A.          |       | Quantitative and Qualitative Disclosures About Market  Risk                                                             |       |     | 47         |   |   |
| Item 8.           |       | Financial Statements and Supplementary Data                                                                             |       |     | 48         |   |   |
| Item 9.           |       | Changes in and Disagreements with Accountants on  Accounting and Financial Disclosure                                   |       |     | 80         |   |   |
| Item 9A.          |       | Controls and Procedures                                                                                                 |       |     | 80         |   |   |
| Item  9B.         |       | Other  Information                                                                                                      |       |     | 81         |   |   |
| **PART III** |       |                                                                                                                    |       |     |       |
| Item 10.          |       | Directors, Executive Officers and Corporate Governance.                                                                 |       |     | 82         |   |   |
| Item 11.          |       | Executive Compensation                                                                                                  |       |     | 82         |   |   |
| Item 12.          |       | Security Ownership of Certain Beneficial Owners and  Management and Related Stockholder Matters                         |       |     | 82         |   |   |
| Item 13.          |       | Certain Relationships and Related Transactions, and  Director Independence                                              |       |     | 82         |   |   |
| Item 14.          |       | Principal Accounting Fees and Services                                                                                  |       |     | 82         |   |   |
| **PART IV**  |       |                                                                                                                    |       |     |       |
| Item 15.          |       | Exhibits, Financial Statement Schedules                                                                                 |       |     | 83         |   |   |
| Signatures        |       |                                                                                                                    |       | 87       |       |   |
|                   |            |                                                                                                                         |            |          |            |  |  |  |

 

----

**PART I**

**Item 1.**                        Business.

This Annual Report on Form 10-Kcontains certain forward-looking statements regarding future events and ourfuture operating results that are subject to the safe harbors created under theSecurities Act of 1933, as amended (“Securities Act”), and the SecuritiesExchange Act of 1934, as amended (“Exchange Act”). Readers are cautioned thatthese forward-looking statements are only predictions and are subject to risks,uncertainties and assumptions that are difficult to predict, including thoseidentified below, under “Risk Factors.” Actual events or results could differmaterially due to a number of factors, including those described herein and inthe documents incorporated herein by reference.

**Overview**

ICO Global Communications (Holdings) Limited is anext-generation mobile satellite service (“MSS”) operator. We are authorized tooffer MSS services throughout the United States using a geosynchronous earthorbit (“GEO”) satellite. We have the opportunity in the future to seek authorization from the U.S. FederalCommunications Commission (“FCC”) to integrate an ancillary terrestrialcomponent (“ATC”) into our MSS system in order to provide integrated satelliteand terrestrial services. Unlike satellite-only MSS systems, which have historicallyappealed to a niche market, we believe that integrated MSS/ATC services may bemore likely to appeal to a mass market of consumers and businesses. At thepresent time, we are focusing most of our resources on developing our U.S. MSSsystem. We are also authorized to operate a medium earth orbit (“MEO”)satellite system globally in compliance with regulations promulgated by theUnited Kingdom and by the InternationalTelecommunication Union (“ITU”), an international organization within theUnited Nations system.

In this annual report, weuse the terms “ICO,” the “Company,” “we,” “our” and “us” to refer to ICO GlobalCommunications (Holdings) Limited and its subsidiaries and, where the contextindicates, its predecessor corporation. For various historical, operational andregulatory reasons, we have many subsidiaries through which we hold our assetsand conduct our operations. For example, our U.S. operations are conductedthrough our majority owned subsidiary, ICO North America, Inc. (“ICO NorthAmerica”), and its subsidiaries. We have included a chart with a summary of ourorganizational structure on page 14.

**History andDevelopment of Our Business**

*Pre-reorganization.*   Wewere incorporated in the State of Delaware in 2000 in order to purchase theassets and assume certain liabilities of ICO Global Communication (Holdings)Limited, a Bermuda company (“Old ICO”). Our predecessor company, Old ICO, wasestablished in 1995 to provide global, mobile communications services using aMEO satellite network. Old ICO’s original business plan was based on a globalMEO satellite system designed to provide voice and data service to awide-ranging customer base, including traditional mobile phone users,aeronautical and maritime vessels and semi-fixed installations.

On August 27, 1999, Old ICO filed for protectionfrom its creditors under Chapter 11 of the United States Bankruptcy Code andcommenced related bankruptcy proceedings in Bermuda and the Cayman Islands withrespect to certain of Old ICO’s subsidiaries. From its inception in 1995through to May 16, 2000, Old ICO had recorded an aggregate net loss of$592.6 million and had capitalized approximately $2.6 billion of costs relatingto the construction of its MEO satellites, procurement of launch vehicles and aground station network.

On October 31, 1999, Eagle River Investments, LLCand its affiliates (collectively “Eagle River”), executed a binding letteragreement with Old ICO. Pursuant to the binding letter agreement, Eagle Riverand several other investors advanced $225 million to Old ICO under adebtor-in-possession credit 

1

----

agreement. From February 9through May 16, 2000, an Eagle River affiliate, ICO Global Limited,advanced Old ICO an additional $275 million under a separatedebtor-in-possession credit agreement.

On May 3,2000, the United States Bankruptcy Court approved Old ICO’s plan ofreorganization. We subsequently raised $122.9 million from outside investorsand $577.1 million from Eagle River to fund our acquisition of the assets andassumption of certain liabilities of Old ICO. On May 17, 2000, when OldICO’s plan of reorganization became effective, the following transactionsoccurred:

·       Weacquired the assets and assumed certain liabilities from Old ICO in exchangefor:

·        $117.6million in cash;

·        43million shares of our Class A common stock which were issued to Old ICO’sformer creditors and shareholders;

·        Warrantsto purchase 20 million shares of our Class A common stock at $30 per sharewhich were issued to Old ICO’s former creditors;

·        Warrantsto purchase 30 million shares of our Class A common stock at $45 per sharewhich were issued to Old ICO’s former shareholders;

·       The$225 million in advances by Eagle River and the other investors were convertedinto 50 million shares of our Class A common stock; and

·       The$275 million in advances by ICO Global Limited were converted into 31 millionshares of our Class B common stock.

Subsequent to May 17, 2000, a group of Old ICOsales and distribution partners received 1.8 million shares of our Class Acommon stock, and Old ICO’s former creditors received an additional 700,000shares of our Class A common stock in connection with the bankruptcysettlement.

As a result of the events described above, followingthe reorganization, Eagle River, directly and indirectly through its control ofICO Global Limited, held a controlling interest in us. Effective November 28,2001, one of our wholly-owned subsidiaries and ICO Global Limited merged with0.93 shares of our capital stock exchanged for each outstanding share of ICOGlobal Limited capital stock. As a result of the merger, we issued 25,128,321shares of our Class A common stock and 55,800,000 shares of our Class Bcommon stock to the shareholders of ICO Global Limited, including Eagle River.

As of December 31, 2006, we had 143,306,660shares of Class A common stock (which has one vote per share) and54,840,000 shares of Class B common stock (which has ten votes per share)outstanding. Eagle River remains our controlling shareholder, with an economicinterest of 33.5% and a voting interest of 68.8%.

*Post-reorganization.*   Afterthe reorganization, we established a new management team who oversaw theconstruction of our MEO satellites and ground systems and developed ourtechnical plan for the MEO satellite system. Following the launch failure ofour first MEO satellite in March of 2000 as well as disagreements with themanufacturer and launch manager of our MEO satellites, which disagreements arethe subject of litigation commenced in 2004, we significantly curtailedconstruction activity on our MEO satellite system. Despite the curtailment ofsatellite construction activity, we continue to explore the potentialdevelopment of a MEO business plan outside of North America.

As we focused on our MSS strategy for the UnitedStates, we devised and introduced to the FCC the concept of using MSS spectrumfor ATC in order to address service coverage and economic limitations inherentto the MSS business plan. This ATC capability would allow us full access tourban customers by overcoming signal blockage related to buildings or terrainand capacity limitations inherent in satellite communications, thereby givingus greater flexibility to provide integrated satellite-terrestrial services.

2

----

In February 2003, the FCC issued an orderestablishing rules permitting MSS operators to seek authorization tointegrate ATC into their networks. Additionally, in May 2005, the FCCgranted our request to modify our reservation of spectrum for the provision ofMSS in the United States using a GEO satellite system rather than a MEOsatellite system. Finally, on December 8, 2005, the FCC increased theassignment to us of 2 GHz MSS spectrum from 8 MHz to 20 MHz due in part tothe inability of six of the eight original MSS 2 GHz licensees to meetregulatory milestones and other matters. We believe these developments willgreatly improve our ability to provide more robust services in the UnitedStates, which will enhance the economic viability of our business plan andproposed services.

In December 2004, we formed a new subsidiary, ICONorth America, to develop an advanced hybrid mobile satellite service/ancillaryterrestrial component system (the “MSS/ATC System”), using a GEO satellite,designed to provide voice, video, data and Internet service throughout theUnited States to a wide variety of devices and handsets designed to takeadvantage of mobility. In August 2005, ICO North America issued $650million aggregate principal amount of convertible notes (“7.5% Notes”) to fundthe development of our MSS/ATC System, and, in February 2006, it sold tocertain of its note holders 323,000 shares of Class A common stock (lessthan 1% of the outstanding shares of such stock) and stock options (exercisableat $4.25 per share) to purchase an additional 3,250,000 shares of Class Acommon stock (approximately 1.5% on a fully diluted share basis).

On July 12, 2006 ourregistration statement under the Exchange Act became effective with the U.S. Securitiesand Exchange Commission (“SEC”) and on September 13, 2006 our stock, whichhad previously traded on pink sheets, began trading on the NASDAQ Global StockMarket under the symbol “ICOG.”

**BusinessOpportunity and Strategy**

Weare a next-generation MSS operator. We are authorized to offerubiquitous MSS throughout the United States and are developing an advanced hybridsatellite-terrestrial system. We also continue to explore thedevelopment of a business plan outside ofNorth America that would utilize both our physical and regulatory MEOassets. We are adevelopment stage company and donot plan to be in commercial service for any part of 2007.

***North America***

*IndustryOverview.**  *Thewireless communications sector has been among the strongest growth sectors inthe communications industry in recent years. It has also been a sector markedby rapid change and development, as consumers communicate more, in additionalways, and content providers increasingly seek to reach consumers with mobileapplications. We believe this sector presents significant opportunities for thecreation of new businesses to serve consumers’ mobile communications andentertainment needs. In addition, as a result of the growth of wireless trafficdue to rapid subscriber growth, increasing usage of wireless voice services andaccelerating adoption of mobile video, data and other high-bandwidthapplications, we anticipate that existing and potential wireless serviceproviders will need to significantly increase their network capacity.

MSS operators have historically struggled to gainmass-market penetration and profitability despite broad geographic coverage andemergency service capabilities. We believe that this has been due in part tolimitations on MSS urban service coverage. Without ATC, it may be challenging for MSS systems to reliably servedensely populated areas because the satellite’s signal may be blocked by highrise structures and may not penetrate into buildings. In order to createa more efficient use of satellite spectrum, encourage the broad deployment ofadvanced satellite services and provide for emergency services and broad ruralwireless coverage, the FCC permits MSS operators, such as ourselves, to seekauthorization to integrate ATC into their networks, and thus use their assignedMSS spectrum for both terrestrial and satellite use.

3

----

We believe that MSS operators with the capability ofintegrating ATC into their networks can be a key factor in addressing certainneeds of the U.S. wireless communications sector. For example, the ability tooffer traditional cellular service together with satellite services, such asemergency capabilities when terrestrial networks are not functioning due tonatural disasters, local service interruptions or acts of terrorism, willenable MSS operators and their potential partners to create realdifferentiation in their product and service offerings. Likewise, an MSSoperator may be able to offer two way data and voice services along withmulticast broadband data and video services from its satellite segment. Suchofferings can be augmented with an appropriate number of terrestrial towers forenhanced interactivity and multicast coverage.

MSS operators in the United States have traditionallyoffered satellite-only services to a small number of users. As a result of thelimited demand generated by this niche market, mass production of handsets anduser devices has not occurred. The latest generation of satellites, however,allows for the use of smaller user devices than has historically been possible,particularly with respect to the size of the satellite reflector (antenna),which transmits signals to, and receives signals from, the user. We expect thisdevelopment will allow for devices whose size and functionality fits more withthe mass market demand of consumers and businesses today. In addition,satellite advancement provides more flexibility in terms of networkarchitectures, such as ground-based beam forming (“GBBF”), which allows theoperator to incorporate multiple services on the same satellite platform.

*OurStrategy.**  *Weintend to capitalize on the rapid growth of the wireless sector in the UnitedStates by building a hybrid satellite-terrestrial system to offer ubiquitoussatellite and terrestrial wireless service throughout the United States. Webelieve we have the ability, on a stand-alone basis or together with a partner,to offer integrated satellite and terrestrial solutions in the 2 GHz band to a massmarket customer base. These advanced satellites also allow for enhancedconnectivity and throughput to end user devices that was not previouslypossible. Because the 2 GHz band is contiguous with the advanced wirelessservices (“AWS”) band and near the existing cellular personal communicationsservice (“PCS”) band, we believe device manufacturers should be able to developdevices and terrestrial networks in a cost-effective manner for use in the 2 GHzspectrum band. The devices could include traditional cellular phone typedevices, car kits with antennas to provide mobile multicast video and/orwireless data to automobiles, notebook computer network interface cards, orother broadband or narrowband data modems and antennas.

In 2007, we will continue the development of ourMSS/ATC System. These activities include the continuation of construction ofour GEO satellite by our contractor, Space Systems/Loral, Inc. (“Loral”),and the associated ground systems. We have procured launch services on an AtlasV launch vehicle for our GEO satellite, with a launch slot of November 2007.We plan to also continue our development expenditures for the terrestrialnetwork and user devices that will work with our MSS/ATC System. In 2007, weexpect to have a limited number of devices which will utilize standard cellulartechnology for trial in the United States as well as for use to and from ourGEO satellite. We also expect to sign agreements with other vendors to morefully develop other technologies which would permit video and data multicastingand voice and data interactivity from the satellite, as well as integratedservices for the terrestrial segment. We also expect to increase the number ofemployees focused on technical, engineering, legal, finance and administrativefunctions as we prepare for trials of these technologies in 2008.

Our MSS/ATC System is being designed to utilize the 20MHz of nationwide spectrum in the 2 GHz band that the FCC has assigned to us.We believe our 20 MHz of nationwide spectrum will allow us to provide robustservices to our future U.S. customers, as well as public safety agencies. Ourposition in the 2 GHz spectrum band is advantageous for several reasons,including the fact that it is contiguousto the existing AWS band and near the existing PCS band, which mayfacilitate integration with existing PCS and future AWS networks and systems.In addition, no other service providers are interleaved within the band,substantially reducing the potential for interference and the need for guardbands to protect from this 

4

----

intraband interference. Weanticipate that we will be the first to offer integrated MSS/ATC services inthe 2 GHz band. The same 20 MHz frequency band allocated for 2 GHz MSS in theUnited States is also designated for MSS use in Canada, and would also beadjacent to bands proposed for AWS and near existing PCS bands. We expect tofile an application to provide MSS service to significant portions of Canada inthe near future. Under FCC policy and the terms of our MSS authorization,because we expect to initiate our MSS service first, we will be the first tochoose our spectrum position within the 2 GHz band in the United States.

Our MSS/ATC System is being designed to be capable ofsupporting a full set of mass-market service offerings to urban and rural U.S.customers, including voice, video, Internet and telematics (vehicle tracking),while addressing growing national security and public safety service needs byproviding a service offering to supplement existing terrestrial networks. OurGEO satellite architecture is flexible and is expected to be compatible withwidely used, existing radio protocols,****includingW-CDMA, GSM, DVB, CDMA and OFDM, and to be able to support communications witha wide variety of user devices and handsets, many similar in size to existingcellular phones. This system architecture should provide us with many optionsfor the creation of integrated MSS/ATC offerings.

We believe that ourMSS/ATC System should be able to leverage the following strengths to capitalizeon the growing demand for wireless services. The system is being designed to:

·       supporta full portfolio of mass-market wireless services, including traditional voice,text messaging, e-mail and other narrowband applications;

·       supporta variety of broadband applications, including multicast data and/or video fromthe satellite segment as well as two way broadband depending upon the level ofterrestrial segment deployment;

·       providea nationwide integrated satellite-terrestrial service enabling ubiquitouscoverage, with a terrestrial network of a scope and size to enable enhancedcoverage and capacity;

·       utilizeportable devices (such as laptops or PDAs) and handsets (such as currentcellular phones) to broaden the consumer acceptance of our services;

·       supporta wide variety of radio protocols, such as CDMA, GSM, DVB or OFDM, allowing forthe integration of a wide variety of services and devices; and

·       leveragethe proximity to the PCS and AWS spectrum with a flexible network architecturefacilitating integration with terrestrial partners.

*BusinessModel and Potential Customers.**  *Weare in the process of having our GEO satellite and the associated groundsystems constructed. Our GEO satellite is scheduled to be launched in November 2007,and we expect to certify our MSS system as operational by December 31,2007 in compliance with FCC milestones under the authorization. We currentlyexpect that we will develop the infrastructure required for our MSS/ATC Systemeither alone or together with one or more strategic partners.

We are preparing to demonstrate the operational statusof our MSS system in 2007, with more robust trials and operations in 2008. Weexpect to sign agreements with vendors in 2007 to more fully develop and deploytechnology which would permit video and data multicasting and voice and datainteractivity from the satellite, as well as related and integrated servicesfrom the terrestrial segment. In 2007, we expect to commence the constructionof a terrestrial network, including the leasing of towers, the installation ofradio equipment and the provisioning of a ground network to connect theterrestrial network. We expect to continue to hire personnel and devoteresources in areas such as customer service and billing, marketing, andcustomer fulfillment. We expect that the commencement of full scale commercialservice operations will require substantial additional capital.

5

----

Given our MSS/ATC System’s potential for ubiquitousnationwide mobile service combined with a terrestrial network, and the FCC’sassignment to us of 20 MHz of spectrum in the 2 GHz band, we anticipate that asignificant number of companies can be our potential strategic partners. We arecurrently in discussions with senior executives of several strategic partnercandidates, including current or potential telecommunications service providerswho would be able to complement our MSS offerings. These potential partners,together with us, could augment their current system capacity, expand theirnetwork footprint and offer other value-added satellite-based solutions and/orintroduce wireless capability to their product portfolio. We currently expectthat those companies will generally fall under the broad categories of cellularand PCS providers, satellite radio providers, cable TV service providers,satellite TV service providers and wireless broadband providers. In addition,we anticipate that international telecommunication companies seeking a U.S.operation may be potential partners. At this point, we do not know how suchdiscussions will ultimately proceed and whether we will reach any agreementwith any of the potential partners.

*Competition.**  *There are currently six companies, including us, whoare authorized by the FCC to offer MSS services in the three ATC-eligible MSSspectrum bands, the 2 GHz band, the L-band (1.6 GHz band) and the Big LEO (lowearth orbit) band (1.6 / 2.4 GHz band). These spectrum bands exhibit markeddifferences in frequency location, bandwidth and interference issues.

There are currently two operators, TerreStar/TMI andus, authorized to offer MSS services in the 2 GHz band, each with 20 MHzof spectrum. TerreStar/TMI has announced plans to launch a satellite systemwith coverage of the United States and Canada that is expected to communicatewith handsets similar to current mobile devices, and it may also seek to formpartnerships with companies in the telecommunications industry. Under FCCpolicy and license terms, the first of us or TerreStar/TMI to launch asatellite may select which of the two 10 MHz blocks in each of the 2 GHz uplinkand downlink frequency bands that it will use to provide MSS. We believe thatwe are positioned to be the first to launch a satellite for the 2 GHzband.

There are currently two entities that have U.S.authorization to provide MSS services in the L-band, Mobile Satellite Venturesand Inmarsat Global Ltd. To date, Mobile Satellite Ventures is the only MSS providerin the L-band to have received ATC authorization. Mobile Satellite Venturescurrently provides MSS using two GEO satellites, and has announced plans todevelop an integrated satellite and terrestrial service. Inmarsat operates aglobal MSS system and has announced that it intends to file for ATCauthorization for a satellite that will eventually have geographic coverage ofthe United States.

Globalstar LLC and Iridium Satellite LLC are bothlicensed and operational in the Big LEO band; however, to date, only Globalstarhas applied for and received ATC authorization. Both Globalstar and Iridiumprovide voice and data services using dozens of LEO satellites. Iridium’scoverage is nearly global, and Globalstar covers numerous countries.

We expect that thecompetition for customers and strategic partners will increase as the entitiesdescribed above continue with their respective business plans. We believe thatcompetition will be based in part on the ability to support a full set ofsatellite and terrestrial service offerings, time to market and productofferings, as well as the ability to use spectrum in the most efficient manner.

***Outside of North America***

We are authorized to operate a MEO satellite systemglobally outside of the United States (with the exception of two Middle Easterncountries) in the 2 GHz band in compliance with regulations promulgated by theUnited Kingdom and by the ITU. We have inorbit one MEO satellite, which currently provides data gathering services foran agency of the U.S. government. We have ten additional MEO satellites instorage, most of which are in advanced stages of completion. We arecurrently using two gateway ground stations equipped with five antennas each,one located in the United States and the other 

6

----

in Germany, to monitor theMEO satellite in orbit. In addition, we have other gateways around the worldwhich we believe could be made active with reasonable efforts to enhancecoverage of our global system.

In recent years the wireless communications sector hasbeen among the strongest growth sectors in the communications industryglobally. In many markets, the amount of wireless traffic has grown at ratesgreater than in the United States. We anticipate that existing and potentialwireless service providers will likely need to significantly increase theirnetwork capacity in order to maintain quality voice and data services while atthe same time satisfying the growing consumer demand for enhanced and combinedmobile and satellite service offerings.

We continue to explore thepotential development of a MEO business plan outside of North America. Such a business planwill likely involve coordination with global and/or regional wireless operatorsas distribution partners. We have had preliminary discussions with a number ofpotential partners for the development of the MEO satellite system who couldprovide funding for the development of the MEO satellite system or otherstrategic assets to complement our physical and regulatory MEO assets. At thispoint, we do not know how such discussions will ultimately proceed and whetherwe will reach any agreement with any of the potential partners.

**Regulation**

Our ownership andoperation of satellite and wireless communication systems is subject toregulation from the FCC, the ITU and U.K. Office of Communications (“Ofcom”).

***Federal Communications Commission***

The FCC generally regulates the construction, launchand operation of satellites, the use of satellite spectrum at particularorbital locations, the licensing of earth stations and mobile terminals, andthe provision of satellite services in the United States. In 2001, the FCCauthorized us to provide MSS in the United States using a MEO satellite system.In May 2005, the FCC granted our request to modify our reservation of spectrumfor the provision of MSS in the United States using a GEO satellite systemrather than a MEO satellite system. A network that combines satellite serviceswith ATC will require a separate ATC authorization from the FCC as well asadditional FCC authorizations to cover terrestrial facilities used to provideMSS/ATC services, including licenses and equipment certifications for theMSS/ATC handsets and other end-user equipment, as well as any gateway groundstation located in the United States.

*MSSAuthorization.**  *The FCChas allocated a total of 40 MHz of spectrum in the 2 GHz band for the provisionof MSS. On December 8, 2005, the FCC increased the assignment of 2 GHz MSSspectrum to us from 8 MHz to 20 MHz, with geographic coverage of all 50 statesin the United States, as well as Puerto Rico and the U.S. Virgin Islands.

FCC authorizations to provide MSS are subject tovarious regulatory milestones relating to the construction, launch andoperation of MSS satellites. The FCC milestone requirements are intended toensure the rapid delivery of service to the public and to prevent the “warehousing”of spectrum. The FCC milestones that we were originally required to  meet in order to preserve our FCCauthorization to provide 2 GHz MSS included the launching of a GEO satellite byJuly 1, 2007 and our certification of our MSS system as operational by July 17,2007. In November 2006, we filed a request with the FCCto extend the remaining milestone dates in our authorization for theconstruction and launch of our satellite to accommodate manufacture anddelivery issues encountered by subcontractors for our satellite manufacturer,Loral. We requested that the launch of our satellite be extended until November 30,2007 and certification that the MSS system is operational be extended until December 31,2007. In February 2007, the FCC granted us our requested extensionof the remaining milestone dates. Failure to comply with any of the FCCmilestones could result in a cancellation of the 2 GHz MSS authorization, 

7

----

unless a milestone waiveror extension is obtained. To date, we have certified to the FCC that we havemet the first eight FCC milestones and we are required to meet four additionalFCC milestones. We have a particularly aggressive schedule for the constructionand launch of our GEO satellite.

In addition, our use of the 2 GHz band is subject tosuccessful relocation of incumbent broadcast auxiliary service,cable television relay service and local television transmission service(collectively “BAS”) users and other users in the uplink portion of our band.The FCC’s rules require new entrants to the 2 GHz band, including 2 GHzMSS licensees, to relocate incumbent BAS users. Sprint Nextel, a new entrant inthe 2 GHz band, is also required to relocate incumbent BAS users in the 1990-2025MHz band, which includes the 2 GHz MSS uplink band, and may be entitled to andhas indicated that it intends to seek an as yet undetermined amount ofreimbursement of eligible clearing costs from 2 GHz MSS licensees on a *pro rata*basis. On March 7, 2007, Sprint Nextel filedan annual report with the FCC indicating the progress in relocating the BASoperations has been delayed. 2 GHz MSS licensees also must relocate incumbentmicrowave users in the 2 GHz MSS downlink band at 2180-2200 MHz orreimburse other parties for their costs of relocating those incumbent users. Wehave begun the implementation planning for this process. Relocation ofincumbent users in the 2 GHz band remains a complex undertaking with thepotential to delay the launch of commercial MSS operations.

*ATC Authorization.**  *ATC authorization enables the integration of asatellite-based service with terrestrial wireless services, resulting in ahybrid MSS/ATC system. The FCC regulates the ability to provide ATC-relatedservices, and authorization for such use is predicated on compliance with andachievement of various regulatory milestones relating to the construction,launch and operation of the underlying MSS system. An MSS operator seeking toprovide ATC must separately apply for ATC authorization and meet “gatingcriteria” related to the operation of its MSS system as a pre-condition toobtaining an ATC authorization, including the following:

·       theMSS system must be capable of providing continuous satellite service;

·       forGEO systems, MSS coverage must include all 50 states, Puerto Rico and the U.S.Virgin Islands, unless it is not technically possible;

·       MSSmust be commercially available (i.e., offered to the general public for a fee);

·       ATCservice may be provided using only the spectrum assigned to the MSS licensee;

·       theoperator is required to establish that its MSS and ATC services are fullyintegrated either by (i) offering dual-mode MSS/ATC user terminals toprovide both MSS and ATC services or (ii) making a substantial showingdemonstrating that the MSS operator will offer an integrated MSS/ATC service;

·       forGEO systems, a spare satellite must be maintained on the ground within one yearafter commencing ATC service and must be launched into orbit during the nextcommercially reasonable launch window following a satellite failure; and

·       ATC-onlysubscriptions are prohibited.

ATC applications generally will not be granted untilall the gating criteria are met, although an MSS licensee can apply for ATCauthorization prior to meeting all of the gating criteria. We believe that wewill apply for ATC authorization in 2007.

To provide MSS/ATC services in the United States, we must alsoapply for separate FCC authorizations to cover terrestrial facilities used toprovide the services, including licenses and equipment certifications for theMSS/ATC handsets and other end-user equipment.

8

----

***International Telecommunication Union***

The ITU regulates on aglobal basis the use of radio frequency bands and orbital locations used bysatellite networks to provide communications services. The use of spectrum andorbital resources by us and other satellite networks must be coordinatedpursuant to the ITU’s Radio Regulations in order to avoid interference amongthe respective networks. Under ITU rules, our MEO satellite system is deemed tohave been brought into use and therefore is entitled to internationalrecognition and legal protection and interference protection. However, thisstatus is subject to ongoing due diligence requirements in the construction ofour MEO satellite system. ByJune 1, 2012, the ICO North America GEO system is required under ITU rules tobe brought into use and coordinated with those national administrations whosesatellite systems have superior ITU rights and who have communicatedcoordination requests to the ITU with respect to the ICO North America GEOsystem. If we fail to complete coordination with such administrations andsystems prior to the launch of the ICO North America GEO system, the GEO systemmay be prohibited under ITU rules from providing coverage to countrieswith whom coordination requests are outstanding. We do not anticipate anyissues in meeting these requirements.

***U.K. Office of Communications***

Our satellites are permitted to operate subject tocompliance with regulations promulgated by the United Kingdom through Ofcom andthe U.K. Department of Trade and Industry. The MEO satellite system was firstfiled at the ITU by the United Kingdom in 1994. Handsets to be used in the MEO satellitesystem for the provision of MSS were authorized in a 1999 U.K. statute. In2005, the ICO North America GEO system satellite was authorized for filing atthe ITU by the United Kingdom, and the United Kingdom has formally requestedcoordination with other national administrations for the GEO system. UnderUnited Nations treaties, only nations have full standing as ITU members, andtherefore we must rely on the United Kingdom to represent our interests there,including regulatory filings and coordination of our spectrum use and orbitallocation with all other potentially affected satellite operators that arerepresented by their respective national administrations.

Ofcom submits andmaintains ITU filings on our behalf pursuant to our continuing compliance withU.K. due diligence requirements for each our our MEO and GEO systems, respectively.U.K. due diligence requirements include obligations to proceed with ourbusiness plans and to comply with Ofcom and ITU requirements related to filingsmade and activities undertaken on our behalf. These activities may includeEuropean Commission proceedings and may also include Conference ofEuropean Posts and Telecommunications (“CEPT”) decisions as they are developedfor the provision of MSS in the 2 GHz band in Europe. For example, we havecertified that the MEO satellite system has met seven of the eight milestonesspecified in the 1997 CEPT decisions that provisioned spectrum in Europe for 2GHz MSS systems. U.K. due diligence obligations require that we meet the finalmilestone by providing commercial services in Europe, which may require thelaunch of additional MEO satellite satellites. The precise requirements andtiming that may be imposed by Ofcom in this regard are still to be determined. Ofcom has requested, however, thatwe continue to meet our due diligence requirements, and has requested thatconcrete steps be taken by us in the near future toward the deployment ofcommercial service on our MEO system in order to maintain Ofcom’s support forus in international forums. In addition, we must diligently participatein international coordination meetings arranged by Ofcom and coordinate withother national administrations in good faith.

**Our Planned Systemsand Operations**

***MSS/ATC System***

We are working closely with several industry-leadingvendors to design and build our MSS/ATC System for North America. To date, wehave certified that we have met the first eight FCC milestones. 

9

----

These milestones aredesigned to measure our progress toward having our MSS system certified asoperational by December 31, 2007 in accordance with the milestoneschedule.

Our MSS/ATC Systeminfrastructure is expected to include the following:

·       oneorbiting GEO satellite, which will utilize a “bent pipe” architecture, wherethe satellite “reflects” the signals between the end-user equipment and thegateway ground station;

·       GBBF equipment that isexpected to be located at the gateway ground station;

·       aland-based transmitting/receiving station utilizing large gateway feederlinkantennas, with the gateway ground station connecting to our network throughhigh-speed interconnection links and providing the interface between thesatellite and the network;

·       acore switching/routing segment, consisting of equipment used to route voice,video and data traffic between our network and the public data, telephone,Internet and mobile network, and integrated with the satellite and ATCsegments;

·       anATC terrestrial network that will provide terrestrial wireless communicationsservices that will be fully integrated with the satellite segment to provideubiquitous national coverage to end users; and

·       end-userequipment capable of supporting satellite-only and dual-mode(satellite/terrestrial) services.

*GEOSatellite.**  *We havecontracted with Loral to construct our GEO satellite, with the contractmirroring the prescribed milestone dates set by the FCC. In addition, we havecontracted with Loral for the construction and integration with the GEOsatellite of the GBBF equipment for the gateway segment. In November 2006,we filed a request with the FCC to extend the remaining milestone dates in ourauthorization for the construction and launch of our satellite to accommodatemanufacture and delivery issues encountered by subcontractors for Loral. Werequested that the launch milestone for our satellite be extended until November 30,2007 and certification that the MSS system is operational milestone be extendeduntil December 31, 2007. In February 2007, the FCC granted usour requested extension of the remaining milestone dates. The satellite is approximately90% complete as of December 31, 2006. Our GEO satellite design is based ona Loral 1300 standard satellite platform that has been optimized for GEOMSS/ATC communications requirements. It features an expected 15-yearservice life and has a 12-meter unfurlable reflector (antenna) thatfocuses the 2 GHz signals on North America.

We have contracted withLockheed Martin Commercial Launch Services, Inc. (“Lockheed”) toprovide launch services on an Atlas V launch vehicle. In February 2007, weselected, in coordination with Lockheed, our launch slot as November 2007.

The GEO satellite is designed to enable us to providecontinuous service coverage primarily in all 50 states in the United States, aswell as Puerto Rico and the U.S. Virgin Islands. If appropriate regulatoryapproval is granted by other countries, the GEO satellite is capable ofproviding service outside of the United States, throughout many parts of NorthAmerica.

The FCC originallyauthorized us to operate our GEO satellite at an orbital slot at 91° west longitude.We determined that this orbital slot could present coordination challenges withother GEO satellites operated at or near 91° west longitude. We therefore submitted an ITU filing for operationat the 93° west longitude orbital slot, and negotiated with the party whoformerly held the first priority rights, for purposes of the ITU rules, at thisorbital location in order to allow us to have first priority rights at 93° west longitude. On December 19, 2006, the FCC granted our application to modify our 2 GHzMSS authorization to change the orbital location of our GEO satellite from 91° west longitude to 92.85° west longitude.

10

----

The FCC will require us to maintain a spare satelliteon the ground within one year after commencing ATC service. The spare satellitemust be launched into orbit during the next commercially reasonable launchwindow following a satellite failure. The spare satellite is not a requirementfor the provision of MSS-only services. We may use our 93° west longitude orbital slot for this second satellite.

*Ground-BasedBeam Forming Equipment.*   GBBF equipment isexpected to be located at the gateway ground station and at four geographicallydispersed sites in the continental United States. GBBF is a method ofprocessing the communication signals at the gateway in a manner such that thesatellite can dynamically form up to 250 spot beams of varying sizes throughoutour coverage area in both the uplink and downlink paths.

*GatewaySegment.**  *Thegateway segment of our MSS/ATC System is under construction in North Las Vegas,Nevada, and we expect it will be fully operational by the end of 2007. Thegateway will consist of a large gateway feederlink antenna, along with theequipment necessary to communicate with the satellite. The gateway groundstation will track the GEO satellite with the gateway antenna and will managetraffic routing and satellite telemetry, tracking and command between theground and satellite antennas so as to maintain uninterrupted communications. Aredundant gateway antenna and associated ground equipment may be implemented asneeded.

We will own the gateway segment equipment and havecontracted for the hosting of this equipment and for its operations andmaintenance.

*CoreSwitching/Routing Segment.**  *Thecore switching/routing segment will include the equipment needed to directcalls, route data and video traffic, provide application services and managethe network. In addition, network management applications are expected tomanage integration and coordination of the MSS and ATC segments. Together, allof the core switching/routing components are expected to ensure that switchingand radio capacity is used efficiently to provide integrated servicesthroughout our MSS/ATC System. We are currently in the process of identifying vendorsand partners to design, build and operate the core switching/routing segmentand network operations centers. We believe that there are several vendors andpartners who can meet our specifications in this regard.

*ATCSegment.**  *The ATCsegment will provide terrestrial wireless communications service that, whenfully built out and integrated with the satellite segment, will provideintegrated services to end users and offer ubiquitous national coverage throughwhich communications will be possible nearly everywhere. Together, the MSS andATC segments are expected to share the 20 MHz of nationwide spectrum. Ourintegrated MSS/ATC System is expected to include MSS radio equipment that willbe co-located with the gateway segment equipment and ATC base stations that areexpected to be deployed throughout the service area. These, together withdual-mode or other integrated devices, are expected to be capable of providingintegrated end-user services and efficiently utilize the spectrum.

*End-UserDevices.**  *In orderto provide integrated services that maximize the benefits of the combination ofsatellite and terrestrial components, we intend to work with one or more userdevice or handset platform manufacturers and potentially one or moreterrestrial ATC partners to design and develop MSS/ATC capable devices. Amongthese is a lightweight mass-market handset similar to existing cellular phonesand PDAs or a modem like device capable of communicating with any number ofexisting mass market user devices such as laptops or DVD screens. We believe a dual-mode(terrestrial/satellite) mobile device that is comparable to current terrestrialmobile phones can be constructed with relatively little additional hardwareexpense. We also may develop several different types of handsets and othermobile devices for specific applications, such as homeland defense, telematics,mobile video, maritime, and aeronautical. We are in discussions with severalmanufacturers and believe that such dual-mode devices can be manufactured.

11

----

*Satellite Risk Management**.*   We havecommenced the process to obtain underwritten commitments for our launch andin-orbit satellite insurance coverage. Launch insurance policies typicallycover claims arising from events that take place during the launch of thesatellite through subsequent in-orbit testing and operations, including thereplacement value of the launch vehicle, the partial or full loss of thesatellite during launch, the failure of a satellite to obtain proper orbit andthe failure of a satellite to perform in accordance with design specificationsduring the policy period, as well as insurance on the cost of such insurance.Insurance policies include customary commercial satellite insurance exclusionsand/or deductibles and material change limitations, including exclusions oncoverage for damage arising from acts of war and other similar potential risksin addition to exclusions for certain types of problems affecting the satellitethat were known at the time the policy was written. We anticipate that, as iscommon in the industry, we will not insure against business interruption, lostrevenues or delay of revenues in the event of a total or partial loss of thecommunications capacity or life of the satellite. We expect that the cost ofsuch insurance will be in the range of $40 to $60 million.

***Our MEO Satellite System***

In addition to our planned MSS/ATC System, we are alsopursuing the development of a MEO satellite system outside of North America. Following one launch failure in March 2000,as well as disagreements with the manufacturer and launch manager of our MEOsatellites, which disagreements are the subject of litigation commenced in2004, and the issuance in 2003 of the FCC’s order establishing rules permittingMSS operators in the United States toseek authorization to integrate ATC into their networks, we haveaccelerated the development of our MSS/ATC System in North America using a GEOsatellite. In 2004, we gave notice of the termination of the construction andlaunch agreements for our MEO satellites. In 2003, we decided that we would nolonger provide full funding to certain of our subsidiaries to pay the operatorsof gateways for the MEO satellite system unless the agreements with suchoperators were restructured to reduce service levels and payment obligations.As a result, eight of the ten operators have terminated their agreements, fiveof which have been successfully renegotiated and our obligations in four ofthese have been satisfied and thereunder released, and in the last case apayment plan agreed. In the other three gateways where the agreements have beenterminated, there has not been a settlement reached yet. In the case of the twogateways that have not been terminated, one has been extended and the other onewe continue to perform under as previously agreed.

We have in orbit one MEO satellite launched in June 2001,referred to as “F2,” which currently provides data gathering services for anagency of the U.S. government. Primary satellite control is provided under anagreement with Intelsat Corporation, with backup satellite control provided byus in Slough, United Kingdom. We are required to have the capability ofcontrolling F2 from the United Kingdom as part of our U.K. authorization. Weare currently using two gateway ground stations each equipped with fiveantennas to monitor F2. We also own a facility in Itaborai, Brazil, on whichcertain gateway equipment for the MEO satellite system is located, but is notcurrently operational.

In addition, we have ten MEO satellites in storageunder an agreement with Boeing Satellite Systems International, Inc.(“BSSI”), most of which were in advanced stages of completion prior to thetermination of work under the MEO satellite agreements. The MEO satellites,including F2, are a modified Hughes 601 and Hughes 702 design and have adesigned in-orbit life of 12 years. The satellites feature active S-bandantennas capable of forming up to 490 beams for satellite-user links and C-bandhardware for satellite-ground station links. We are in the process ofrelocating our satellites to another storage facility.

The regulatory regime whichgoverns our MEO satellite systemis likely to change in the next year, and there is considerable uncertainty asto how legacy systems, such as our MEO satellite system, would be treated under any new regulatory regime. In addition, weare currently in litigation with the sole manufacturer of our MEO satellites.As a consequence of these substantial uncertainties, in late 2004 we concludedthat there was no reliable business plan that would predictably value our MEO satellitesystem. 

12

----

Wehave written down the assets related to our MEO satellite system to zero for accounting purposes on ourconsolidated financial statements*.*

However, we continue toexplore the potential development of a MEO business plan outside of North America. We continue to holddiscussions with a number of potential partners who could provide funding fordevelopment of the MEO satellite systemor other strategic assets to complement our physical and regulatory MEO assets.At this point, we do not know how such discussions will ultimately proceed andwhether we will reach any agreement with any of the potential partners. In addition to pursuing the development of theMEO satellite system, we may also pursue the integration of ATC-like componentsinto our MEO satellite system to the extent permitted by applicable foreignregulatory authorities in the future. Such integration has recently beenapproved in Europe, where its principal spectrum regulatory body adopted adecision designating 2 GHz spectrum for MSS systems, including thosesupplemented by integrated terrestrial operations (a complementary groundcomponent).

13

----

**SummaryOrganizational Chart**

The following chartis a summary of the organizational structure of our company as of December 31,2006. For various historical, operational and regulatory reasons, we have manysubsidiaries through which we hold our assets and conduct our operations. Thischart only lists our primary subsidiaries. Many of these subsidiaries wereformed in connection with the development of the MSS/ATC System. Unlessotherwise indicated, each entity is wholly-owned by its parent entity.

----

*                    ICO NorthAmerica has outstanding 7.5% Notes. If all of the 7.5% Notes are converted, theCompany’s equity interest in ICO North America would be decreased toapproximately 56%.

*ICOGlobal Communications (Operations) Limited* ispermitted to operate a MEO satellite system globally in compliance withregulations promulgated by the United Kingdom and by the ITU. Our operationsoutside of North America are primarily conducted by this subsidiary and itssubsidiaries.

*ICONorth America, Inc.* was formed to develop theMSS/ATC System, and all of our operations in North America are conducted bythis subsidiary and its subsidiaries. ICO North America is funding the MSS/ATCSystem, in part, through the issuance of the 7.5% Notes.

*ICOSatellite Services Limited and ICO Services Limited* arethe subsidiaries through which ICO North America holds a 100% interest in ICOSatellite Services G.P.

14

----

*ICOSatellite Services G.P.* was assigned 8 MHz of 2 GHzspectrum by the FCC for the provision of MSS in the United States. The FCCgranted ICO Satellite Services G.P.’s request in May 2005 to modify itsreservation of spectrum for the provision of MSS in the United States using aGEO satellite system rather than a MEO satellite system. ICO Satellite ServicesG.P. transferred the FCC authorization to New ICO Satellite Services G.P. in December 2005.ICO Satellite Services G.P. is also the assignee of the contract between ICOSatellite Management, LLC and Loral for construction of a GEO satellite and theGBBF equipment for use in the MSS/ATC System. In March 2006, ICO SatelliteServices G.P. entered into an agreement with Lockheed to provide launchservices on an Atlas V launch vehicle. ICO Satellite Services G.P, also holdsthe contract for the construction and operation of our gateway in North Las Vegas,as well as other contracts for the operation of the MSS/ATC System. ICOSatellite Services G.P. owns a 99.99% interest in New ICO Satellite ServicesG.P.

*SSGUK Limited* owns a 0.01% interest in New ICO SatelliteServices G.P.

*NewICO Satellite Services G.P.* holds the U.S. FCCauthorization. It acquired the FCC authorization from ICO Satellite ServicesG.P. in December 2005. The FCC increased the assignment of 2 GHz MSSspectrum to 20 MHz on December 8, 2005.

*ICO Satellite North America Limited* was formed to hold the U.K. regulatory instrumentsfor our ICO North America GEO satellite system.

***Financial Information About Geographic Areas***

Mostof our assets and current development activities relate to our business inNorth America. The following table contains the location of our long-lived assetsas of December 31, 2006 and 2005 (in thousands):

| ** **    | ** ** | **December 31,** | ** ** |
|---------------|------------|-----------------------|------------|
| ** **    | ** ** | **2006**              | ** ** | **2005** | ** ** |
| United States |       | $                     | 318,936    |   | $ | 117,391 |   |
| Foreign       |       | —                |       | — |   |
|          |       | $                     | 318,936    |   | $ | 117,391 |   |

 

**IntellectualProperty**

We hold 27 granted U.S.patents, representing a total of 506 patent claims. For our MSS/ATC System, thepatents and applications cover features such as various frequency reuseschemes, different terrestrial and satellite air interfaces, dual-mode userdevices, network control and frequency planning, among others. We hold 29granted foreign patents, representing a total of 811 issued claims worldwide.Assuming that all maintenance fees and annuities continue to be paid, thepatents expire on various dates from 2016 until 2022. “ICO” and the associatedICO corporate logo are our registered trademarks in the United States, and wemaintain trademarks in approximately 35 foreign jurisdictions.

**Employees**

As of December 31,2006, we had a total of 27 employees, including executive officers. We havealso engaged consultants for the purpose of providing human resources,accounting services, strategy, regulatory and certain engineering specialties.We recently hired several employees in the technical, administrative, legal,and operating fields. Our employees are not subject to any collectivebargaining agreements.

15

----

**AvailableInformation**

The address of our website is www.ico.com. You canfind additional information about us and our business on our website. We makeavailable on this website, free of charge, our annual reports on Form 10-K,quarterly reports on Form 10-Q, current reports on Form 8-K,and amendments to those reports, as soon as reasonably practicable after weelectronically file or furnish such materials to the SEC. You may read and copythis Form 10-K at the SEC’s public reference room at 100 F Street,NE,  Washington, DC 20549-0102.Information on the operation of the public reference room can be obtained bycalling the SEC at 1-800-SEC-0330. These filings are alsoaccessible on the SEC’s website at www.sec.gov.

We also make available onour website in a printable format the charters for certain of our various Boardof Director committees, including the Audit Committee and CompensationCommittee, and our Code of Conduct and Ethics in addition to our Certificate ofIncorporation and Bylaws. This information is available in print without chargeto any stockholder who requests it by sending a request to ICO GlobalCommunications (Holdings) Limited, 11700 Plaza America Drive, Suite 1010,Reston, VA 20190, Attn: Corporate Secretary. The material on our website is notincorporated into or a part of this Form 10-K.

**Item 1A.**                RiskFactors.

*The risks below address some of the factors that mayaffect our future operating results and financial performance. If any of thefollowing risks, or other risks not presently known to us or that we currentlybelieve not to be significant, develop into actual events, then our business,financial condition, results of operations or prospects could be materiallyadversely affected.*

**Risks Related to Our Business**

***We have no significant operations, revenues oroperating cash flow and will need additional liquidity to fund our operationsand fully fund all necessary capital expenditures.***

We were restructured in a bankruptcy and, since May 2000,have had no significant operations or revenues and do not generate any cashfrom operations. With the exception of gains recognized on certain contractsettlements in 2005, we have incurred net losses since May 2000. We expectto have losses for the foreseeable future. We continue to incur expenses, whichmust be funded out of cash reserves or the proceeds, if any, of futurefinancings.

The implementation of our business plan, including theconstruction and launch of a satellite system and the necessary terrestrialcomponents of the MSS/ATC System, will require significant funding. It isunclear when, or if, we will be able to generate sufficient cash fromoperations to cover our expenses and fund capital expenditures beyond thoserequired to complete the MSS portion of the MSS/ATC System. Our current assetswill not be sufficient to fund our expenses through deployment of theintegrated MSS/ATC System and commencement of revenue-generating operations. Wewould need substantial additional capital if we determine to develop thenecessary ATC ground infrastructure alone, rather than with strategic partners.We expect that the additional funding needed for the type and scope of ATCservice we would pursue without strategic partners would range from approximately$300 million to $800 million, depending on the business or consumer marketwe choose to serve, the type and extent of ATC infrastructure necessary toserve such market and the geographic scope of our service area. Moreover, theindenture governing the 7.5% Notes due 2009, restricts our ability to incuradditional indebtedness and to sell, lease, transfer or encumber any of ourassets. There is no assurance that we will be able to obtain the additionalfunding required in the amounts or at the time the funds are required.

16

----

***We may not besuccessful in implementing our business plan and this failure would have amaterial effect on our financial condition and ability to generate revenuesfrom operations and realize earnings.***

Our business plan contemplates building an MSS/ATC Systemserving all 50 states in the UnitedStates, as well as Puerto Rico and the U.S. Virgin Islands. Neither wenor any other company in the past has offered service over such an integratedsatellite and ATC network. There are no assurances that we will be able todevelop such a network in the timetable or within the total costs projected, orthat we will be able to successfully sell the services provided by such anetwork. We are substantially dependent on the efforts of certain of our suppliers,in particular Loral and Lockheed, to develop and deliver the satellite andother material components of our planned MSS/ATC System, and there are noreadily available substitutes for these suppliers. We presently have limitedoperations other than development of our MSS/ATC System and delays in thedelivery or deployment of the satellite will be harmful to the implementationof our business plan and, as a consequence, our financial condition and abilityto commence revenue-generating operations and realize earnings.

***There are significant risks associated with building,launching and operating the satellite contemplated under our business plan.***

Our business plan contemplatesoperating one GEO satellite, exposing us to risks inherent in satellite launchand operations, including possible delivery delays, launch failure, incorrectorbital placement or failure of the satellite to perform as specified. A delayin delivery of the satellite could cause us to miss our scheduled launch date.Such a delay could be caused by many factors, including unanticipated delays indesigning the satellite to our specifications, unavailability of components,the performance of subcontractors and other similar design and constructionissues. A launch failure would result in significant delays in the deploymentof the GEO satellite because of the need both to construct a replacementsatellite, which can take 27 months or longer, and to obtain another launchopportunity. Such significant delays could materially and adversely affect ouroperations. Launch vehicles may also underperform, failing to place the GEOsatellite in the desired orbital location. Even if we are able to place the GEOsatellite into service by using its onboard propulsion systems to reach thedesired orbital location, the satellite’s useful life could be reduced.Satellites generally are subject to significant operational risks while inorbit. These risks include malfunctions, commonly referred to as anomalies,which can occur as a result of various factors, such as satellite manufacturers’errors, problems with the power or control systems of the satellites andgeneral failures resulting from operating satellites in the harsh environmentof space. We suffered launch failure with one of our MEO satellites, andanother satellite in the MEO satellite system that was successfully launchedexperienced an anomaly in orbit that delayed functionality for several months.

While we have previous experience in launching andoperating satellites and expect to obtain insurance for the launch and on-goingoperations of the satellite, such insurance will not fully cover all losses wemay experience. We may face delay and/or financial loss in the case of adisruption in the GEO satellite’s construction or operation. We may not alwaysbe able to obtain insurance at reasonable rates or to cover all the possiblesources of failures. We have not yet determined what the cost of obtaining suchinsurance, as well as insurance on the cost of such insurance, will be, butexpect it to range from approximately $40 million to $60 million. Theoccurrence of a launch failure could materially adversely affect our ability toinsure the subsequent launch of our satellites at commercially reasonablepremiums, as premiums may rise significantly following the occurrence of alaunch failure depending on the cause of such failure. Once launched, we may beunable to obtain and maintain insurance for our GEO satellite, and theinsurance we obtain will not cover all losses we may experience. We do not expectto insure against business interruption, lost revenues or delay of revenues.Also, any insurance we obtain will likely contain certain customary exclusionsand material change limitations that would limit our coverage.

A launch or operational failure of the satellite mayalso endanger our FCC authorization to provide MSS using the 2 GHz spectrum inthe event that satellite services cannot be promptly or fully initiated or 

17

----

restored. The loss of ourMSS authorization would eliminate the value of our spectrum assignment andability to generate revenues from commercial MSS/ATC System operations, whichwould have a material adverse effect on our financial condition. See “RegulatoryRisks—Our 2 GHz MSS authorization is subject to significant implementation milestones.”

In the fourth quarter of 2006, we were informed by our satellitemanufacturer, Loral, that it projected a delay in delivery of the GEOsatellite. As a result, we requested an extension from the FCC of our remainingmilestones. The FCC granted us our requested extension of the remainingmilestone dates in February 2007. However, there can be no assurance that there willnot be further delays in completion of our satellite. Any additional futuredelays may require us to seek additional regulatory extensions.

***There are significant technological risks associatedwith development of our MSS/ATC System.***

The successful development of our MSS/ATC System willrequire us, through our subsidiaries and together with our suppliers andpartners, to develop several new systems. These include the integrated MSS andATC systems, dual direction GBBF for communications between the satellite andterrestrial equipment, and the development of mass-market dual mode devicesthat will meet the FCC’s requirements, none of which exists today. AlthoughGBBF has been used for satellites before, to the best of our knowledge, it hasnever been implemented in both directions to the extent planned for the GEOsatellite. Also, the GEO satellite may operate at lower signal strength thanother satellites, increasing the challenge of developing a suitable dual modedevice. Each of these developments represents unique challenges that may impactschedule and development cost. In addition, the end-user devices and the newnetwork infrastructure may be at a cost disadvantage, due to lack ofmanufacturing scale. This may place us at a cost disadvantage with respect toother terrestrial carriers.

Other parties may have patents or pending patentapplications related to integrated MSS/ATC System technology. Those parties mayclaim that our products or services infringe their intellectual property rightsand bring suit against us for infringement of patent or other intellectualproperty rights. Although we believe that we do not (and we do not intend to),we may be found to infringe on or otherwise violate the intellectual propertyrights of others. If our products or services are found to infringe orotherwise violate the intellectual property rights of others, we may need toobtain licenses from those parties or design around such rights, increasingdevelopment costs and potentially making the system’s operation less efficient.We may not be able to obtain the necessary licenses on commercially reasonableterms, or at all, or to design around such rights. In addition, if a courtfinds that we infringe or otherwise violate the intellectual property rights ofothers, we could be required to pay substantial damages or be enjoined frommaking, using or selling the infringing product or technology. We could also beenjoined while an infringement suit was pending. Any such claim, suit ordetermination could have a material adverse effect on the operation of the MSS/ATCSystem or our competitive position and ability to generate revenues.

Further, we will have to license hardware and softwarefor our MSS/ATC System and products. There can be no assurance that thenecessary licenses will be available on acceptable commercial terms. Failure toobtain such licenses or other rights could have a material adverse effect onthe operation of the MSS/ATC System and our ability to remain competitive andgenerate revenues from operations.

***The success of our business plan may depend on ourability to form strategic partnerships to develop our MSS/ATC System under theconstraints of various regulatory requirements.***

Our business plan contemplates that we may formstrategic partnerships with parties who are able to complement our satelliteofferings and benefit from our satellite and/or terrestrial network components.We currently have no strategic partners for our MSS/ATC System, and there canbe no assurances that we will be able to form such partnerships on attractiveterms. Further, such partnerships may be subject to various regulatoryrequirements on operation and ownership of satellite and terrestrial assetsthat may significantly impact the value to a third party of entering into astrategic relationship with us.

18

----

***We face significant competition from companies thatare larger or have greater resources.***

We face significant competition from companies thatare larger or have greater resources than us, and from companies that mayintroduce new technologies and new wireless spectrum. While we plan to be oneof the first companies to offer integrated satellite and ATC-based terrestrialservices, in parts of our business we will face competition from manywell-established and well-financed competitors, including existingcellular/personal communications service operators who have large establishedcustomer bases. Many of these competitors have substantially greater access tocapital and have significantly more operating experience than we do. Further,due to their larger size, many of these competitors enjoy economies of scalebenefits that are not available to us.

We may also face competition from other MSS operatorsplanning to offer MSS/ATC services. In addition, the FCC could make additionalwireless spectrum available to new or existing competitors. For example, in2006 the FCC auctioned 90 MHz ofspectrum designated for advanced wireless services, which includes a variety ofwireless services such as Third Generation, or 3G, mobile broadband andadvanced terrestrial wireless services. The FCC has designated additionalspectrum for advanced wireless services, but has not yet adopted licensing orservice rules for that spectrum.

In addition, the FCC has been directed by U.S.Congress to auction another 60 MHz of spectrum in the 700 MHz band no laterthan January 28, 2008, although the spectrum will not become available foruse any earlier than February 2009.

We may also face competition from the entry of newcompetitors or from companies with new technologies, and we cannot at this timeproject the impact that this would have on our business plan or our futureresults of operations.

***We may be unable to protect the proprietaryinformation and intellectual property rights that our operations and futuregrowth will depend on.***

The success of our business plan depends, in part, onour ability to develop or acquire technical know-how and remain currenton new technological developments. As a result, our ability to competeeffectively will depend, in part, on our ability to protect our proprietarytechnologies and systems designs. While we have attempted to safeguard andmaintain our proprietary rights, we do not know whether we have been or will besuccessful in doing so. We rely on patents, trademarks, copyrights, tradesecret laws and policies and procedures related to confidentiality to protectour technology, products and services. Some of our technology, products andservices, however, are not covered by any of these protections.

We do not know whether any of our pending patentapplications will be issued or, in the case of patents issued or to be issued,that the claims allowed are or will be sufficiently broad to protect ourintellectual property. Even if all of our patent applications are issued andare sufficiently broad, our patents may be challenged, invalidated orcircumvented. In addition, we do not know whether we will be successful inmaintaining the rights to our granted trademarks and these trademark rights maybe challenged. Moreover, patent and trademark applications filed in foreigncountries may be subject to laws, rules and procedures that aresubstantially different from those of the United States, and any resultingforeign patents may be difficult and expensive to enforce. We could, therefore,incur substantial costs and diversion of resources in prosecuting patent andtrademark infringement suits or otherwise protecting our intellectual propertyrights, which could have a material adverse effect on our financial conditionand results of operations, regardless of the final outcome. Despite our effortsto protect our proprietary rights, there can be no assurance that we will besuccessful in doing so or that our competitors will not independently developor patent technologies equivalent or superior to our technologies.

We also rely upon unpatented proprietary technologyand other trade secrets. While it is our policy to enter into confidentialityagreements with our employees and third parties to protect our proprietaryexpertise and other trade secrets, these agreements may not be enforceable,and, even if they are legally 

19

----

enforceable, we may nothave adequate remedies for breaches of such agreements. The failure of ourpatents or confidentiality agreements to protect our proprietary technology ortrade secrets could have an adverse effect on our results of operations.

We may be unable to determine when third parties areusing our intellectual property rights without our authorization. Theunremedied use of our intellectual property rights or the legitimatedevelopment or acquisition of intellectual property similar to ours by thirdparties could reduce or eliminate any competitive advantage we have as a resultof our intellectual property, adversely affecting our financial condition andresults of operations. If we must take legal action to protect, defend orenforce our intellectual property rights, any suits or proceedings could resultin significant costs and diversion of our resources and management’s attention,and there is a risk that we may not prevail in any such suits or proceedings.

***We are currently being audited by the Internal RevenueService for a tax year in which we realized a sizeable gain that was offset bylosses.***

For U.S. federal income tax purposes, we realized again of more than $300 million on the disposition of certain securities in2003. This gain was offset by losses incurred in connection with theabandonment of certain assets related to our MEO satellite system during thesame year. We are currently being audited for tax year 2003 by the InternalRevenue Service (“IRS”) regarding both the recognition of the losses inconnection with the impairment of our MEO assets and the timing of the gain onthe disposition of the relevant securities, which were sold through a variableforward contract. While we believe that we properly treated and reported allitems of gain and loss, the disallowance of the deductions claimed could resultin a tax liability of up to $128 million (not including any penalties thatmight be imposed) if the gain cannot be offset by net operating losses fromprevious or subsequent years.

***We are engaged in litigation with The Boeing Companyand BSSI and expect to incur material expenses in pursuing this litigation.***

We are engaged in litigation with The Boeing Companyand BSSI, arising out of agreements for the development, construction andlaunch of MEO satellites for our subsidiary, ICO Global Communications(Operations) Limited. We have asserted cross-claims that we believe aremeritorious in this litigation, but affirmative claims of BSSI are stillpending. While BSSI’s allegations are unproven and it has not specified theamount of monetary relief it is seeking, BSSI alleges that it suffered a lossof a material amount of revenues that it would have otherwise realized had it performedunder the agreements. From August 2004 through December 31, 2006, wehave spent approximately $10 million in pursuing this litigation and expectthat we will continue to incur costs at a similar rate through the duration ofthe litigation. Due to the uncertain nature of litigation and the many factorsbeyond our control, we could incur greater costs as the litigation proceeds.

***We are in the process of terminating most of our MEOgateway agreements and may incur additional material expenses in terminatingthese agreements.***

Certain of oursubsidiaries had agreements with ten operators of gateways for our MEO satellitesystem. As a result, eight of the ten operators have terminated theiragreements, five of which have been successfully renegotiated and ourobligations in four of these have been satisfied and thereunder released, andin the last case, a payment plan agreed. In the other three gateways where theagreements have been terminated, there has not been a settlement reached yet.In the case of the two gateways that have not been terminated, one has beenextended and the other we continue to perform as previously agreed. We havediscontinued the funding of certain of the gateway agreements and maydiscontinue the funding of certain of our subsidiaries who are parties to thegateway agreements. There can be no assurance that there will not be costsassociated with further terminations or that the operators of gateways will nottry to hold us liable for these agreements. As of December 31, 2006, wehad an accrued liability of $45.6 million 

20

----

relatedto these unsettled agreements. If we are unable to terminate and settle theremaining agreements on favorable terms, the cash required to settle the entireamount may have a material adverse effect on our financial condition.

***Our auditorsidentified material weaknesses in our internal controls during their audit ofour financial statements. If we are unable to successfully address thesematerial weaknesses in our internal controls, or other control deficiencies,our ability to provide timely and accurate financial statements could beadversely affected.***

In connection with theiraudit of our financial statements for the years ended December 31, 2003,2004 and 2005, our independent auditors identified material weaknesses in ourinternal controls. Certain of these were matters that could, in our auditor’sjudgment, adversely affect our ability to record, process, summarize and reportfinancial data. The comments and recommendations provided by our auditorsincluded, but were not limited to: the need to employ additional financialreporting staff with adequate technical training and experience in connectionwith the preparation of consolidated financial statements on a timely basis andthe need to improve control procedures with respect to recording journalentries.

During 2006, ourmanagement, with the participation of our chief executive officer and seniorvice president—finance, developed and implemented a plan to address thesematerial weaknesses that included the hiring of additional qualified technicalaccounting personnel, performing additional reviews of journal entries andaccount reconciliations, and performing an assessment of our current accountingand reporting policies and procedures. We believe the steps taken during 2006to be effective in remediating the material weaknesses described above as ofDecember 31, 2006. However, a material weakness regarding reviewprocedures with respect to income tax accounting was identified during thecourse of the audit of our financial statements for 2006. This inadequatereview process, including a need for dedicated internal tax personnel,contributed to our inability to identify material misstatements in our 2005 and2006 income tax note disclosures.

If we do not havesufficient adequately trained and experienced tax accounting personnel, we maybe unable to prepare our financial statements on time and may not accuratelyreflect our performance or condition, which may adversely affect our businessand compliance with SEC reporting obligations.

**Regulatory Risks**

***Our 2 GHz MSS authorization is subject tosignificant implementation milestones.***

A significant component of our businessstrategy is to offer integrated MSS and ATC service. However, under FCC regulations,we are required to adhere to significant implementation milestones to maintainauthorization to use our assigned MSS spectrum in the United States. To date,we have certified to the FCC that we have met the first eight FCC milestones.We are required to meet four additional FCC milestones, including satellitelaunch milestone by November 30, 2007, and certification that the MSSsystem is operational milestone by December 31, 2007. If we fail to meet amilestone, and we are unable to obtain a waiver or extension, we could lose ourMSS authorization. The loss of our MSS authorization would have a materialadverse effect on our business prospects, financial condition and results ofoperations, and would be an event of default under the indenture governing the7.5% Notes.

***We are subject tosignificant U.S. and international governmental regulation.***

Our ownership and operation of satellite and wirelesscommunication systems is subject to regulation by the FCC, ITU and Ofcom. Ingeneral, laws, policies and regulations affecting the satellite and wirelesscommunications industries are subject to change in response to industrydevelopments, new technology or political considerations. Legislators orregulatory authorities in the United States, the United Kingdom and at the ITUare considering or may consider, or may in the future adopt, new laws, policiesand regulations or changes to existing regulations regarding a variety ofmatters that could, directly or indirectly, affect our operations or increasethe cost of providing services over our MSS/ATC System.

21

----

FCC authorizations to provide MSS are subject tovarious regulatory milestones relating to the construction, launch, andoperation of MSS satellites, which constitute the satellite system component ofan integrated MSS/ATC network. Authorizations to provide ATC-related servicesare predicated on compliance with, and achievement of, various rules andregulatory milestones relating to the construction, launch and operation of theunderlying MSS system. Failure to comply with relevant FCC rules or milestones,or with the terms of FCC authorizations granted to us to provide MSS or ATCservices, could result in a cancellation of the MSS or ATC authorization,unless a waiver of the rules or an extension of such milestones isobtained.

Ofcom submits and maintains ITU filings on our behalf,pursuant to our continuing compliance with U.K. due diligence requirements,which include obligations to proceed apace with our business plans and tocomply with Ofcom and ITU requirements related to filings made and activities undertakenon our behalf. For example, in the event that Ofcom finds that ICO NorthAmerica is not developing its satellite system consistent with Ofcom’s duediligence requirements, Ofcom may elect to permit a competitiveU.K. filing for its orbital location or refuse to further support ITUfilings made on its behalf for that system, resulting in cancellation of theITU filings. If Ofcom were to permit the competitive U.K. system to deploy atthe ICO North America orbital location, future operations of the MSS/ATC Systemmay be significantly compromised as a result of difficulty of frequencycoordination with the competing U.K. system. If Ofcom were to indicate that itwas withdrawing support for ICO North America’s satellite system, it may have amaterial adverse effect on our ability to deploy the MSS/ATC System, generaterevenues and remain competitive. We are subject to similar requirements withrespect to the development of the MEO satellite system. In the event that Ofcomfinds that our MEO satellite system is not developing consistent with Ofcom’sdue diligence requirements, Ofcom may refuse to further support ITU filingsmade on its behalf for that system, resulting in cancellation of the ITUfilings.

U.K. law imposes anindemnification requirement on us and ICO North America in the event itssatellite causes damage to another satellite in flight. Though we have obtainedthird party insurance for this risk, there can be no assurance that we will beable to collect this insurance or that it will be adequate.

The ITU regulates the useof radio frequency bands and orbital locations used by satellite networks toprovide communications services. The use of spectrum and orbital resources byus and other satellite networks must be coordinated pursuant to the ITU’s RadioRegulations in order to avoid interference among the respective networks.

By June 1, 2012, ourGEO satellite system is required under ITU rules to be brought into useand coordinated with those national administrations whose satellite systemshave superior ITU rights. If the system is not brought into use by June 1,2012, the ITU would automatically cancel the ITU filings for that system, whichcould have a material adverse effect on our ability to deploy the GEO satellitesystem. Further, if we fail to complete coordination with such administrationsand systems prior to the launch of the system, the system may be prohibitedunder ITU rules from providing coverage to countries served by thosesatellite systems.

Increased competition forspectrum and orbital locations may make it difficult and costly for us toobtain or retain the right to use the spectrum and orbital resources requiredfor our operations. In the future, we may not be able to coordinate oursatellite operations successfully under international telecommunicationsregulations and may not be able to obtain or retain spectrum and orbitalresources required to provide future services.

***In order tomaintain our U.K. authorization to operate our MEO satellite system, we mayneed to secure additional satellite contracts and funding.***

We have in orbit one MEOsatellite launched in June 2001, which currently provides data gatheringservices for an agency of the U.S. Government. In order to maintain ability tooperate the MEO satellite system in compliance with U.K. regulations, we mustmeet U.K. due diligence requirements, which include compliance with EuropeanCommission rules and may include compliance with Conference of European 

22

----

Postsand Telecommunications decisions as they are developed for the provision of MSSin the 2 GHz band. We have certified that the MEO satellite system has metseven of the eight milestones specified in the 1997 Conference of EuropeanPosts and Telecommunications decisions that provisioned spectrum in Europe for2 GHz MSS systems. A new regulatory framework with new milestones is currentlybeing contemplated, and there is considerable uncertainty as to how legacysystems, such as our MEO satellite system, would be treated under any newregulatory regime. Ofcomhas requested, however, that we continue to meet our due diligencerequirements, and has requested that concrete steps be taken by us in the nearfuture toward the deployment of commercial service on our MEO satellite system in order to maintain Ofcom’ssupport for us in international forums. Ofcom could initiate proceduresto cancel the ITU filing if our efforts do not satisfy Ofcom’s requirements. Wedo not currently have the funding required to launch additional MEO satellites.If we were required to launch additional MEO satellites in order to maintainthe U.K. authorization, but were unable to secure the additional fundingrequired for the completion of construction and launch of those satellites, orif we are required but unable to comply with any new regulatory milestonesimposed, it could lead to the loss of our U.K. MEO authorization, which couldhave a material adverse effect on our ability to develop and operate the MEOsatellite system.

***We have not yetapplied for ATC authorization and, if we are not successful in receivingauthorization, it could have a material adverse effect on our ability to deploythe integrated MSS/ATC System.***

We have not yet applied tothe FCC for ATC authorization, and there are no assurances that the FCC wouldgrant any such authorization request. We must apply for ATC authorizationseparately from any satellite authorization, and we cannot be granted ATCauthorization until we have met certain ATC gating criteria, including arequirement to have a spare satellite on the ground available within one yearof commencing ATC service. We also must apply for separate FCC authorizationsto cover terrestrial facilities used to provide MSS/ATC services, includinglicenses and equipment certifications for the mobile handsets and other end-userequipment. If we are unsuccessful inreceiving ATC authorization from the FCC, it could have a materialadverse effect on our ability to deploy and generate revenues from theoperation of the integrated MSS/ATC System and realize earnings.

***Our use of the 2GHz band is subject to successful relocation of incumbent users.***

There are currentlyincumbent users operating services in certain portions of the 2 GHz band. Ouroperations in the 2 GHz band are subject to successful relocation of incumbentBAS users and other users in the uplink band. The FCC’s rules require newentrants to the 2 GHz band, including 2 GHz MSS licensees, to relocateincumbent BAS users. Sprint Nextel, a new entrant in the 2 GHz band, is alsorequired to relocate incumbent BAS users in the 2 GHz MSS uplink band, and maybe entitled to and has indicated that it intends to seek reimbursement ofeligible clearing costs from 2 GHz MSS licensees, including us. We do notpresently know the amount of our portion or the timing of the reimbursement,but believe that payment of this amount could have a material adverse effect onour financial condition and results of operations.

In addition, onMarch 7, 2007, Sprint Nextel filed an annual report with the FCCindicating that progress in relocating the BAS operations has been delayed. Dueto the complex nature of the BAS relocation and the need to work closely withan outside party, Sprint Nextel, there is a risk that delays in makingsufficient progress in the relocation effort will delay the start of commercialMSS operations. Any such delay would negatively impact our revenues during theperiod of the delay and potentially delay the deployment of the integratedMSS/ATC System.

New entrants to the 2 GHzband also must relocate microwave incumbent users in the 2 GHz MSS downlinkband or reimburse other parties for their costs of relocating those incumbentusers. There can be no assurances that we will be successful in clearing all ofthe necessary microwave incumbents in a timely manner, so as to not delay theoperation of our MSS/ATC System.

***Our spectrumassignment is subject to pending petitions for FCC reconsideration.***

23

----

On December 8, 2005,the FCC increased the assignment to us of 2 GHz MSS spectrum from 8 MHz to 20MHz. Our spectrum assignment is subject to pending petitions forreconsideration of this FCC decision, and is conditioned upon any reinstatementof a cancelled Globalstar LLC 2 GHz MSS authorization. FCC reinstatement of theGlobalstar authorization would likely result in a reduction in the amount ofspectrum assigned to us. Any reduction in our spectrum assignment could reduceits value and adversely affect the implementation of our business plan and ourfinancial condition and competitive position.

***Any changes incontrol of certain of our subsidiaries are subject to prior FCC approval.***

Any investment in oursubsidiaries that hold various FCC assignments and authorizations that couldresult in a change of control of those subsidiaries would be subject to priorFCC approval. A request for FCC approval would involve a lengthy review periodprior to consummation of the change of control. There can be no assurance thatan FCC approval could be obtained in a reasonably timely fashion, and the FCCcould impose new or additional license conditions as part of such a review.

**Risks Related tothe ICO North America 7.5% Notes**

***Our primarysubsidiary, ICO North America, has a substantial amount of indebtedness, whichcould adversely affect our ability to execute our business plan and to obtainadditional financing, and the terms of the indenture may restrict ICO NorthAmerica’s current and future operations.***

As of December 31,2006, ICO North America had $650 million of 7.5% notes outstanding. Thissubstantial debt could have significant consequences, including, but notlimited to:

·       requiringICO North America to dedicate a substantial portion of its assets and cashflow, if any, to pay principal and interest on the 7.5% Notes, reducing thefunds available for working capital, capital expenditures, payment ofdividends, acquisitions and other general corporate purposes;

·       limitingour ability to raise future financing for working capital, capitalexpenditures, acquisitions, debt service requirements or other purposes, andpotentially subjecting us to restrictive covenants;

·       limitingour flexibility in planning for, and reacting to, changes in our business andindustry;

·       makingus more vulnerable to adverse changes in general economic, industry andcompetitive conditions and adverse changes in government regulation; and

·       placingus at a disadvantage compared to our competitors who have less debt.

Inparticular, the indenture governing the 7.5% Notes contains a number ofrestrictive covenants that impose significant operating restrictions that maylimit ICO North America and its subsidiaries’ ability to engage in acts thatmay be in their long-term best interests. In addition, the indenture includescovenants restricting, among other things, ICO North America and itssubsidiaries’ ability to:

·       makeinvestments;

·       incurliens;

·       incuradditional debt (including guarantees and capital lease obligations) or issuepreferred stock;

·       paydividends (other than in the form of stock) on their capital stock, makeredemptions or purchases of their capital stock or our capital stock, or makeother payments to us;

·       usethe proceeds of certain asset sales that are not applied or invested in acertain manner within one year to repay the 7.5% Notes;

·       engagein mergers, consolidations, acquisitions and sales of substantially all theirassets;

·       changethe business conducted;

·       enterinto transactions with affiliates (including the Company); and

·       sell,lease or transfer the right to use their assets outside of the ordinary courseof business or sell any capital stock of the subsidiaries.

24

----

A breach of any of therestrictive covenants could result in an event of default under the indenture.If an event of default occurs, the indenture trustee or the holders of 25% ofthe aggregate principal amount of the outstanding 7.5% Notes may elect todeclare the notes, together with the funds held in escrow to meet the firsttwo-years’ interest obligation, to be immediately due and payable and toenforce the guarantees of ICO North America’s subsidiaries, to enforce theirsecurity interest or to enforce our pledge of ICO North America’s capitalstock. If the 7.5% Notes were accelerated, ICO North America and itssubsidiaries’ assets may not be sufficient to repay the notes.

***ICO North America does not generate sufficient cash tomake future interest payments and repay its 7.5% Notes.***

As a development stage company, ICO North America doesnot generate any operational cash flow. Under the terms of its 7.5% Notes, itis required to keep in escrow sufficient funds to meet the first four scheduledsemi-annual interest payments. However, its ability to make future interestpayments and repay the 7.5% Notes upon maturity in August 2009 will dependon its ability to generate operating cash and/or raise additional financing.

***The 7.5% Notes aresecured by a security interest in substantially all of ICO North America andits subsidiaries’ assets and by our pledge of its capital stock.***

ICO North America’s 7.5%Notes are secured by a first priority security interest in substantially all ofthe assets of ICO North America and its present and future subsidiaries to theextent permitted by law and by a first priority pledge by us of ICO NorthAmerica’s capital stock, subject to certain exceptions. ICO North America andits subsidiaries currently hold substantially all of our assets. In addition,the 7.5% Notes are fully and unconditionally guaranteed by all of ICO NorthAmerica’s present and future subsidiaries, and those guarantees are secured bya pledge of substantially all of the guarantors’ assets to the extent permittedby law.

***ICO North Americamay not have the ability to finance the change of control repurchase offerrequired by the indenture governing its 7.5% Notes.***

Upon the occurrence ofcertain events, including a change in control of ICO North America, as thatterm is defined in the indenture governing the 7.5% Notes, or a transactionpursuant to which any person holds an amount of our capital stock thatrepresents more votes in the election of our directors than is represented bythe capital stock held by Eagle River, ICO North America is required to make anoffer to repurchase the 7.5% Notes in cash at a purchase price equal to 107.5%of the aggregate principal amount, plus any unpaid interest and a pro ratashare of the funds held in escrow to meet the interest obligation through thesecond anniversary of issuance.

The source of funds forany such repurchase would be any available cash or cash generated from ICONorth America’s operations or other sources, including borrowings, sales ofequity or funds provided by a new controlling person or entity. There is noassurance that sufficient funds will be available to ICO North America at thetime of any change of control event to repurchase all tendered notes pursuantto this requirement.

***The 7.5% Notes areconvertible into shares of ICO North America’s common stock, and, if converted,our ownership of ICO North America would be reduced to approximately 56%.***

Holders of ICO NorthAmerica’s 7.5% Notes may convert their notes into shares of ICO North America’sClass A common stock at any time. If all of the 7.5% Notes were converted,our ownership interest in ICO North America would be reduced to approximately56%. Presently, we hold over 99% of the capital stock of ICO North America and,therefore, have significant discretion over the conduct of its operations,subject only to the restrictions contained in the indenture governing the 7.5%Notes and our obligations to minority stockholders of ICO North America. Whilewe would remain its controlling stockholder even if all of the note holderschoose to convert, our influence over the operations of ICO North America wouldbe limited to our ability to elect its directors, which would mean that ourinterests in its operations would be balanced against any competing interestsof the Class A common stock holders, 

25

----

possiblyresulting in delays in the implementation of, and changes to, the business planfor our primary subsidiary, ICO North America. In addition, under the terms ofthe 7.5% Notes, if we do not complete an Initial Public Offering for ICO NorthAmerica by August 15, 2007, our ownership interest of ICO North Americawould be further reduced by approximately one percent if all of the 7.5% Noteswere converted.

***The annual interest rate on the 7.5% Notes increasesif our GEO satellite and its associated systems are not certified asoperational by August 15, 2008.***

If our GEO satellite and its associated systems arenot certified as operational by August 15, 2008, the annual interest rateon the 7.5% Notes increases by 1.5% initially and by an additional 1.5% every30 days until certification is achieved, up to a maximum annual interest rateof 13.5%, and all payments on the 7.5% Notes are required to be paid in cash.If ICO North America did not have sufficient earnings to service the increasedinterest payments on the notes, it might be required to reduce capitalexpenditures, borrow more money or sell capital stock, which it may not be ableto do. If this were to occur, it would adversely affect our ability to developour MSS/ATC System and commence revenue-generating operations of the integratedMSS/ATC System and, as a consequence, our financial condition.

**Risks Related to Our Class A Common Stock**

***Future sales of ourClass A common stock could depress the market price.***

The market price of our Class Acommon stock could decline as a result of sales of a large number of shares.Most of our Class A common stock that is held by non-affiliates can besold without limitation under Rule 144(k) and certain holders of our Class Acommon stock are able to sell their shares in compliance with Rule 144. Inaddition, certain holders of our Class A common stock have the ability tocause us to register the resale of their shares, including, in the case ofEagle River, shares of Class A common stock acquired upon conversion oftheir Class B common stock. These sales might also make it more difficultfor us to sell shares in the future at a time and price that we deemappropriate.

***The interests ofour controlling stockholder may conflict with your interests as a holder of ourClass A common stock.***

EagleRiver controls approximately 69% of the voting power of our outstanding capitalstock. As a result, Eagle River has control over the outcome of mattersrequiring stockholder approval, including:

·       theelection of our directors;

·       amendmentsto our charter or certain amendments to our bylaws; and

·       theadoption or prevention of mergers, consolidations or the sale of all orsubstantially all of our assets or the assets of our subsidiaries.

Eagle River also will beable to delay, prevent or cause a change of control of us. Among other effects,if a change in control transaction resulted in any person holding capital stockrepresenting more votes in the election of directors than the number of votes representedby the capital stock held by Eagle River, the consummation of such a change incontrol would also trigger the requirement that ICO North America offer torepurchase its 7.5% Notes pursuant to the terms of the indenture.

Eagle River has madesignificant investments in other telecommunications companies and may in thefuture make additional investments. Some of these companies may compete withus. Eagle River is not obligated to advise us of any investment or businessopportunities of which it is aware, and they are not restricted or prohibitedfrom competing with us.

Craig O. McCaw, ourChairman, is the Chairman, Chief Executive Officer and sole member of EagleRiver Investments, LLC.

***We are a “controlledcompany” within the meaning of the NASD Marketplace Rules and, as aresult, will qualify for, and intend to rely on, exemptions from certaincorporate governance requirements.***

Eagle River controlsapproximately 69% of the voting power of our outstanding capital stock. As aresult, we are a “controlled company” within the meaning of the Nasdaq GlobalMarket corporate 

26

----

governancestandards. Under the NASD Marketplace Rules, a company of which more than 50%of the voting power is held by another company is a “controlled company” andmay elect not to comply with certain Nasdaq Global Market corporate governancerequirements, including (1) the requirement that a majority of the boardof directors consist of independent directors, (2) the requirement thatthe compensation of officers be determined, or recommended to the board ofdirectors for determination, by a majority of the independent directors or acompensation committee comprised solely of independent directors and (3) therequirement that director nominees be selected, or recommended for the board ofdirectors’ selection, by a majority of the independent directors or anominating committee comprised solely of independent directors with a writtencharter or board resolution addressing the nomination process. We havecurrently elected to utilize these exemptions. As a result, you do not have thesame protections afforded to shareholders of companies that are subject to allof the Nasdaq Global Market corporate governance requirements.

***Certain provisionsin our Restated Certificate of Incorporation may discourage takeovers, whichcould affect the rights of holders of our Class A common stock.***

Our Restated Certificateof Incorporation provides that we will take all necessary and appropriateaction to protect certain rights of our common stockholders that are set forthin the Restated Certificate of Incorporation, including voting, dividend andconversion rights and their rights in the event of a liquidation, merger,consolidation or sale of substantially all of our assets. It also provides thatwe will not avoid or seek to avoid the observance or performance of thoserights by charter amendment, entry into an inconsistent agreement orreorganization, recapitalization, transfer of assets, consolidation, merger,dissolution or the issuance or sale of securities. In particular, these rightsinclude our Class B common stockholder’s right to ten votes per share onmatters submitted to a vote of our stockholders and option to convert eachshare of Class B common stock into one share of Class A common stock.

***We do not expect topay dividends on our Class A common stock for the foreseeable future.***

We have never paid a cashdividend on shares of our equity securities, and do not intend to pay any dividendson our Class A common shares during the foreseeable future. Since we wererestructured in a bankruptcy in May 2000, we have had no significantoperations or revenues and have incurred net losses (other than in 2005, butdue solely to the recognition of an accounting gain in that year). We continueto incur expenses, which must be funded out of cash reserves or the proceeds(if any) of future financings. We expect to have losses for the foreseeablefuture.

Our current plan is tofocus most of our resources on the development of our MSS/ATC System. ICO NorthAmerica is at an early stage of development and does not have anyrevenue-generating operations. Its ability to generate cash in the future willdepend on its ability to successfully develop the MSS/ATC System and implementand manage projected growth and development. There are no assurances that ICONorth America will be successful in these endeavors.

In addition, ICO NorthAmerica and its subsidiaries are prohibited from paying cash dividends on theircapital stock and from purchasing or redeeming their capital stock (unlessfunded by a contemporaneous sale of capital stock) under the terms of theindenture governing ICO North America’s 7.5% Notes.

**Item1B.**               Unresolved StaffComments.

None.

**Item2.**                        Properties.

Our corporate headquartersare located in Reston, Virginia, where we occupy approximately 7,508 squarefeet of space under a sublease. The sublease on our headquarters continuesthrough May 30, 2012. Upon expiration of our various leases, we do notanticipate any difficulty in obtaining renewals or alternative space.

27

----

Thefollowing table lists our leased properties, both in the United States and inthe United Kingdom: 

| **Location**               | ** ** | **Operation**                | ** ** | **Lease Term**                  | ** ** | **Square Footage  (Approx.)** |
|----------------------------|------------|------------------------------|------------|---------------------------------|------------|-------------------------------|
| Reston, VA                 |       | U.S. Corporate  Headquarters |       | Expires May 30, 2012       |       | 7,508                         |
| Lafayette, CA              |       | Corporate Offices            |       | Expires December 31,  2007 |       | 1,344                         |
| El Segundo, CA             |       | Space Segment Engineering    |       | Expires May 31, 2009       |       | 1,948                         |
| Kirkland, WA               |       | Finance/Human Resources      |       | Expires October 31,  2008  |       | 1,460                         |
| Kirkland, WA               |       | Finance/Human Resources      |       | Month-to-Month                  |       | 1,576                         |
| Washington, DC             |       | Regulatory                   |       | Month-to-Month                  |       | 1,195                         |
| Slough, Berkshire, U.K.    |       | U.K. Registered Office(1)    |       | Expires June 26,  2011     |       | 4,070                         |
| Slough, Berkshire, U.K.    |       | Archive Warehouse            |       | Expires June 23,  2007     |       | 2,570                         |
| Hounslow,  Middlesex, U.K. |       | Service Offices              |       | Month-to-Month                  |       |    300         |

----

(1)           Also serves as the backup satellitecontrol center for our MEO satellite.

In addition, we ownapproximately 42 acres in Itaborai, Brazil, on which certain gateway equipmentfor our MEO satellite system is located.

We believe our facilitiesare adequate for our current business and operations.

**Item3.**                        LegalProceedings.

***In***response to our demand forarbitration, in August 2004, Boeing Satellite Systems International, Inc.(“BSSI”) filed an action in the Superior Court of the State of California, inand for the County of Los Angeles, seeking a judicial declaration that we hadterminated our contractual agreements with BSSI, and thereby extinguished allof our rights and claims against BSSI arising out of or relating to thedevelopment, construction and launch of our MEO satellite system. In response,we filed a cross-complaint seeking damages from BSSI for breach of theparties’ agreements and for other wrongful, tortuous conduct. Subsequently, wealso filed a cross-complaint against The Boeing Company, BSSI’s corporateparent, alleging wrongful, tortuous conduct that also damaged us. BSSIrecently filed a cross complaint against us seeking unspecified monetary reliefand, on December 1, 2006, the court denied BSSI’s motion to dismiss ourtrade secret claim. On August 24, 2006, the court denied BSSI’s motionsfor summary judgment and summary adjudication. A trial date has been set for September 4,2007. We believe that our claims are meritorious and we are vigorouslypursuing a prompt resolution. The ultimate resolution is uncertain and weanticipate that the expense of pursuing this litigation will be material.

***In***December 2005, Deutsche Telekom (“DT”)initiated arbitration with the International Chamber of Commerce againstone of our indirect subsidiaries, ICO Global Communications Holding BV (“ICO BV”),seeking in excess of $10 million under a contract forthe development and operation of a gateway located in Usingen,Germany. In January 2007, DT and ICO BV reached a resolution with regardsto the dispute concerning this gateway and entered into a settlement agreementpursuant to which ICO BV has agreed to pay DT an agreed-upon amount over thenext two years. The arbitration proceedings between the parties have beenconcluded through a final award memorializing the settlement agreement.

In December 2006,Ellipso, Inc. (“Ellipso”) filed an action in the Superior Court of theDistrict of Columbia seeking damages in excess of $100 million from us andour subsidiary, ICO Global Limited, for breach of contract, breach of warrantyand fraud. We recently filed a Motion to Dismiss in this case. We believe thatEllipso’s claims are without merit. We intend to vigorously defend ourselvesagainst Ellipso. Management currently believes that this lawsuit will not havea material adverse effect on our financial condition or results of operations.

**Item4.**                        Submissionof Matters to a Vote of Security Holders.

No matters were submittedto a vote of our security holders during the quarter ended December 31,2006.

28

----

**PART II**

**Item 5.**                        Marketfor Registrant’s Common Equity, Related Stockholder Matters and IssuerPurchases of Equity Securities.

*Market for Our Class ACommon Stock*

Effective September 13, 2006, our Class Acommon stock trades on the Nasdaq Global Market under the symbol “ICOG.” Priorto this date, our Class A common stock traded in the over-the-countermarket under the symbol “ICOHA” and was quoted in the “pink sheets,” anelectronic quotation system. Pink sheet bid quotations reflect inter-dealerprices, without adjustments for mark-ups, mark-downs, or commissions, and maynot necessarily represent actual transactions. In the past our stock has beentraded in low daily volumes and, to our belief, by just a limited number ofinvestors, and the historic bid quotations in the table below may not beindicative of the future trading price of our Class A common stock.

Thetable below sets forth the high and low closing bid quotations of our Class Acommon stock in U.S. dollars for each of the periods presented. Stock pricesfor the period from September 13, 2006 through December 31, 2006,represent amounts published on the Nasdaq Global Market, and prices for theperiod January 1, 2005 through September 12, 2006, represent amountsas published by Pink Sheets LLC. 

| ** **     | ** ** | **2006** | ** ** | **2005** | ** ** |
|----------------|------------|----------|------------|----------|------------|
| ** **     | ** ** | **High** | ** ** | **Low**  | ** ** | **High** | ** ** | **Low** | ** ** |
| **Period**     |       |     |       |     |       |   |   |   |   |
| First Quarter  |       | $6.05    |       | $5.35    |       | $3.48 |   | $0.40 |   |
| Second Quarter |       | $5.90    |       | $4.52    |       | $4.15 |   | $2.06 |   |
| Third Quarter  |       | $6.18    |       | $4.70    |       | $5.57 |   | $3.45 |   |
| Fourth Quarter |       | $5.90    |       | $4.50    |       | $6.31 |   | $3.76 |   |

 

As of March 1, 2007,there were approximately 332 record holders of our Class A common stock.

*Market for Our Class BCommon Stock*

There is no establishedtrading market for our Class B common stock, of which we have 54,840,000shares outstanding with two holders of record, and 1,625,000****shares underlying outstanding Class B common stockoptions. Each share of Class B common stock is convertible at any time atthe option of its holders into one share of Class A common stock.

*Dividends*

We have never paid a dividend on shares of our equitysecurities. We do not intend to pay any dividends on our common shares duringthe foreseeable future. It is anticipated that earnings, if any, fromoperations will be used to finance growth. We do not have independentoperations, and our ability to pay any dividends will be dependent on theability of our subsidiaries to transfer funds to us in the form of cashdividends. As discussed under “Item 7—Management’s Discussion and Analysisof Financial Condition and Results of Operations—Liquidity and CapitalResources,” ICO North America and its subsidiaries are prohibited from payingcash dividends on their capital stock and from purchasing or redeeming theircapital stock (unless funded by a contemporaneous sale of capital stock) underthe terms of the indenture governing ICO North America’s 7.5% Notes due 2009.

29

----

*Unregistered Salesof Equity Securities and Use of Proceeds*

Managementbelieves that the securities issuances described in the table below were exemptfrom the registration requirements of the Securities Act pursuant to Section 4(2) asa transaction not involving any public offering. The number of investors waslimited, the investors were either accredited or otherwise qualified and had accessto material information about the registrant, and restrictions were placed onthe resale of the securities sold.

| Date                  | ** ** | ** **                | ** ** | **Title** | ** ** | **Number  of shares** | ** ** | **Consideration**          | ** ** | **Recipient** |
|-----------------------|------------|---------------------------|------------|-----------|------------|-----------------------|------------|----------------------------|------------|---------------|
| December 5, 2006 |       | Class A common stock |       | 25,000    |       | —                |       | Eagle River, Inc. (1) |

----

(1)          Issued as compensationfor advisory services performed from September 1, 2006 through November 30,2006.

*Issuer Purchases ofEquity Securities*

None.

**Item 6.**                        SelectedFinancial Data.

Thefollowing selected consolidated financial data should be read in conjunctionwith Item 7, “Management’s Discussion and Analysis of Financial Conditionand Results of Operations” and our consolidated financial statements andaccompanying notes included in this Form 10-K for the year ended December 31,2006.

| ** **                                        | ** ** | **Year Ended December 31,**                         | ** ** |
|---------------------------------------------------|------------|--------------------------------------------------------------------|------------|
| ** **                                        | ** ** | **2006**                                                           | ** ** | **2005** | ** ** | **2004** | ** ** | **2003** | ** ** | **2002** | ** ** |
| ** **                                        | ** ** | **(in thousands, except per share data)** | ** ** |
| Operating expenses:                               |       |                                                               |       |   |   |   |   |   |   |   |   |
| General and administrative (1)                    |       | $                                                                  | 36,100     |   | $ | 27,850 |   | $ | 28,011 |   | $ | 52,492 |   | $ | 81,743 |   |
| Research and development                          |       | 6,603                                                              |       | 570 |   | — |   | — |   | — |   |
| Contract settlements (2)                          |       | —                                                             |       | (74,955 | ) | — |   | — |   | — |   |
| (Gain) loss on disposal of assets                 |       | (8                                                                 | )          | (2,030 | ) | — |   | — |   | 12,527 |   |
| Impairment of property under construction (3)     |       | —                                                             |       | — |   | 865,191 |   | 165,417 |   | 392,066 |   |
| Operating income (loss)                           |       | (42,695                                                            | )          | 48,565 |   | (893,202 | ) | (217,909 | ) | (486,336 | ) |
| Net interest income (expense)                     |       | (22,128                                                            | )          | (14,450 | ) | (9,087 | ) | (15,852 | ) | (38,878 | ) |
| Other income  (expense)                           |       | 853                                                                |       | 76 |   | 220 |   | (1,430 | ) | (434 | ) |
| Income (loss)  before income taxes                |       | (63,970                                                            | )          | 34,191 |   | (902,069 | ) | (235,191 | ) | (525,648 | ) |
| Income tax benefit (expense)                      |       | (202                                                               | )          | (785 | ) | (429 | ) | 1,043 |   | 114,133 |   |
| Net income (loss)                                 |       | $                                                                  | (64,172    | ) | $ | 33,406 |   | $ | (902,498 | ) | $ | (234,148 | ) | $ | (411,515 | ) |
| Basic income (loss) per share                     |       | $                                                                  | (0.32      | ) | $ | 0.17 |   | $ | (4.64 | ) | $ | (1.20 | ) | $ | (2.12 | ) |
| Diluted income  (loss) per share                  |       | $                                                                  | (0.32      | ) | $ | 0.17 |   | $ | (4.64 | ) | $ | (1.20 | ) | $ | (2.12 | ) |
| Total assets                                      |       | $                                                                  | 643,517    |   | $ | 714,775 |   | $ | 54,960 |   | $ | 994,941 |   | $ | 1,569,070 |   |
| Long-term obligations,  including current portion |       | $                                                                  | 667,618    |   | $ | 667,191 |   | $ | 68,492 |   | $ | 105,639 |   | $ | 106,423 |   |

----

(1)          The decrease in generaland administrative expenses from 2002 to 2003 is primarily due to thetermination of a ground segment supply agreement, the relocation of ourheadquarters from London to the United States and staff reductions. General andadministrative expenses continued to decrease 

30

----

through 2005 as wecurtailed further spending on the MEO satellite system. The increase in generaland administrative expenses in 2006 primarily reflects non-cash stock-basedcompensation recorded with the adoption of Statement of Financial AccountingStandards No. 123 (revised 2004), *Share-BasedPayment*.

(2)          Certain of oursubsidiaries had agreements with ten operators of gateways for our MEO satellitesystem. Eight of the ten operators have terminated their agreements with us anddiscontinued providing the requisite level of services. We have continued toaccrue expenses according to our subsidiaries’ contractual obligation untilsuch obligations have been released and the operator has ceased providingservices, although in most instances our subsidiaries have suspended orsignificantly reduced actual payments to the operators. In 2005, upon reachingsettlement with four operators, pursuant to which the operators’ claims werelegally released, we eliminated the accrued liability and recognized a gain oncontract settlements of $75 million.

(3)          In 2002, we identifiedcertain assets that were no longer expected to be utilized in the future designof the MEO satellite system. As a result, we recorded an impairment charge of$392.1 million, of which approximately $83.1 million related to spacesegment property under construction assets and $309 million related to groundproperty under construction assets.

In 2003, as part of our continued effort to findalternative strategies to our original MEO business model and to reduce thecost of deploying the MEO satellite system, we amended our MEO satellitecontract with Boeing Satellite Systems International, Inc. andsimultaneously determined we did not need all of our gateways to economicallydeploy the MEO satellite system. As a result of this decision, property underconstruction related to the launch services contract and property at certaingateways was determined to have no future value for accounting purposes,resulting in an impairment charge of $165.4 million in 2003.

In December 2004, our Board of Directorsdetermined to significantly curtail further construction on our MEO satellitesystem. As a result of this decision, the remaining property under constructionrelated to the MEO satellite system, which included the satellites and theremaining equipment at various gateways, were determined to have no futurevalue, resulting in an impairment charge of $865.2 million in 2004.

**Item 7.        Management’s Discussion and Analysis ofFinancial Condition and Results of Operations**

The following discussionand analysis should be read in conjunction with our consolidated financialstatements and accompanying notes included elsewhere in this Form 10-K.

**Special NoteRegarding Forward-Looking Statements**

With the exception ofhistorical facts, the statements contained in this management’s discussion andanalysis are “forward-looking” statements. All of these forward-lookingstatements are subject to risks and uncertainties that could cause our actualresults to differ materially from those contemplated by the relevantforward-looking statements. Factors that might cause or contribute to such adifference include, but are not limited to, those discussed under Item 1A. of Part I,“—Risk Factors,”  “—Risks andUncertainties” below, and elsewhere in this Form 10-K. Theforward-looking statements included in this document are made only as of thedate of this report, and we undertake no obligation to publicly update theseforward-looking statements to reflect subsequent events or circumstances.

**Overview**

We are a next-generation MSS operator. We intend tocapitalize on the rapid growth of the wireless sector by building a hybridMSS/ATC System to offer ubiquitous satellite and terrestrial wireless servicethroughout the United States. We are authorized to offer MSS services in theUnited States using a GEO 

31

----

satellite. We have theopportunity in the future to seek authorization from the FCC to integrate ATCinto the MSS system in order to provide integrated satellite and terrestrialservices and are developing an advanced hybrid satellite terrestrial system.Our MSS/ATC System is designed to provide voice, data and Internet servicethroughout the United States to a wide variety of devices and handsets,including ones similar to existing cellular phones.

We are not currently generating revenue fromoperations. The net losses we have funded and capital expenditures we have madesince December 31, 2004 primarily relate to the development of our MSS/ATCSystem. We expect that our current resources will be sufficient to fund thedevelopment of this system through 2007. We are focusing our efforts on meetingour planned satellite construction and launch schedule, much of which ismandated by the FCC, while maintaining system development expenses at our plannedlevels.

On November 9, 2006, we filed a request with theFCC to extend the remaining four milestone dates in our authorization for theconstruction and launch of our GEO satellite. The extension was needed toaccommodate manufacture and delivery issues encountered by subcontractors forour satellite manufacturer, Loral. We requested that the launch of our GEOsatellite be extended until November 30, 2007 (rather than July 1,2007, the milestone date previously specified by the FCC) and that the other remainingmilestone dates be extended as well. On February 2, 2007, the FCC grantedour request for extension of the remaining milestone dates. Although ourrequest was granted, there can there be no assurance that we or Loral willsuccessfully achieve the new milestone dates.

We are preparing to demonstrate the operational statusof our system in 2007, with more robust trials and operations in 2008. Weexpect to sign agreements with vendors in 2007 to more fully develop technologywhich would permit video and data multicasting and voice and data interactivityfrom the satellite, as well as related integrated services for the terrestrialsegment. In 2007, we expect to commence the construction of a terrestrialnetwork, including the leasing of towers, the installation of radio equipmentand the provisioning of a ground network to connect the terrestrial network. Weexpect to continue to hire personnel and devote resources in areas such ascustomer service and billing, marketing, and customer fulfillment. We expectthat the commencement of full scale commercial MSS/ATC service operations wouldrequire substantial additional capital.

We may offer our services to strategic serviceproviders who could incorporate our capabilities to offer integrated satelliteand terrestrial services to their customers. Accordingly, we are meeting withpotential strategic partners as well as exploring alternative sources ofcapital. To provide ATC service, we must separately apply to the FCC for ATCauthorization, which we expect to do in 2007, and meet certain “gatingcriteria,” which include the provision of commercial MSS service, as apre-condition to obtaining an ATC authorization.

We are also permitted to operate a MEO satellitesystem globally in compliance with regulations promulgated by the UnitedKingdom and the ITU. Some of these regulations date back to 1997, and theseregulations are currently under reconsideration in Europe. There isconsiderable uncertainty as to how legacy systems, such as our MEO satellitesystem, would be treated in any new regulatory regime. Also, while we haveconstructed and launched one MEO satellite, we significantly curtailedconstruction activity on our MEO satellite system following one launch failurein 2000, as well as disagreements with the manufacturer and launch manager ofour MEO satellites. The disagreements led to litigation that commenced in 2004.As a result of these disagreements as well as the regulatory uncertaintiessurrounding our MEO satellite system, we significantly curtailed furtherconstruction of our MEO satellite system.

As a result of the decision to significantly curtailfurther MEO satellite construction, the MEO satellite system has been writtendown to its fair value of zero. Despite the curtailment of construction of ourMEO satellite system and the considerable uncertainty as to the cost andeffectiveness of restarting the 

32

----

MEO satellite program withour current manufacturer, we continue to explore the potential development of aMEO business plan outside of North America.

We are considered adevelopment stage enterprise as defined in Statement of Financial AccountingStandards (“SFAS”) No. 7, *Accounting and Reportingby Development Stage Enterprises,* and are not currently generatingrevenue from operations. There is no assurance that we will be able to obtainthe funding necessary to complete the construction of our MSS/ATC System, fundour future working capital requirements, or achieve positive cash flow fromoperations. These and other uncertainties that could materially affect ourresults of operations or liquidity in the future are discussed in greaterdetail under “—Risks and Uncertainties” below. In the event that we are notable to realize our assets in the ordinary course of business and are forced torealize the assets by divestment, there is no assurance that the carrying valueof the assets could be recovered. Our losses to date have been primarily fundedby proceeds from the issuance of various forms of capital and by proceeds fromthe sale of ICO North America’s 7.5% Notes. Management plans to sustainoperations with existing funds and through additional third-party equity ordebt financing when necessary.

**Critical AccountingPolicies**

The accounting policies described below are consideredcritical in preparing our consolidated financial statements. Criticalaccounting policies require difficult, subjective or complex judgments, oftenas a result of the need to make estimates about the effect of matters that areinherently uncertain. The judgments and uncertainties affecting the applicationof these policies include significant estimates and assumptions made by ususing information available at the time the estimates are made. Actual resultscould differ materially from those estimates.

*Impairmentof Long-Lived Assets.**  *Pursuantto SFAS No. 144, *Accounting for theImpairment or Disposal of Long-Lived Assets*(“SFAS 144”), the carrying values of long-lived assets arereviewed whenever events or changes in circumstances indicate that theircarrying value may not be recoverable. Management considers whether specificevents have occurred in determining whether long-lived assets areimpaired at each balance sheet date or whenever events or changes incircumstances indicate that the carrying value of an asset may not berecoverable. The determination of whether impairment exists is based on any excessof the carrying value over the expected future cash flows. Any resultingimpairment charge is measured based on the difference between the carryingvalue of the asset and its fair value, as estimated through expected futurecash flows, discounted at a market rate of return for a similar investment.Beginning in 2001 and continuing through the end of 2004, we recordedsubstantial impairments of property under construction related to our MEOsatellite system.

*ContractSettlements.**  *Ourpolicy with respect to a contract in dispute is to continue to record operatingexpenses and liabilities according to our contractual obligation until suchcontract is terminated. Upon termination, and prior to settlement, we continueto accrue estimated late payment fees and interest expense, as applicable. Uponreaching settlement, whereby the other party’s claims are legally released, wewill extinguish our recorded liability, resulting in the recognition of a gainor loss on contract settlement. We recorded a $75 million gain on contractsettlements during 2005.

*Share-Based Payment.**  *In the first quarter of 2006, weadopted SFAS No. 123 (revised 2004), *Share-Based Payment*(“SFAS 123(R)”). The statement is a revision of SFAS No. 123, *Accounting for Stock Based Compensation* (“SFAS 123”)and supersedes Accounting Principles Board Opinion No. 25, *Accounting for Stock Issued to Employees*.The statement focuses primarily on accounting for transactions in which weobtain employee services in share-based payment transactions. This statementrequires us to measure the cost of employee services received in exchange foran award of equity instruments based on the grant-date fair value of the award.We adopted this statement using the modified prospective method and recordedstock-based compensation expense of $6.9 million in general and administrativeexpenses on our 

33

----

consolidatedstatements of operations for the year ended December 31, 2006. Determiningthe appropriate fair-value model and calculating the fair value of share-basedawards at the date of grant requires judgment. We use the Black-Scholes optionpricing model (“Black-Scholes”) to estimate the fair value of employee stockoptions, consistent with the provisions of SFAS 123(R). Option pricing models,including Black-Scholes, also require the use of input assumptions, including risk-freeinterest rate, expected term, expected dividend yield, expected volatility, andexpected forfeiture rate. The risk-free interest rate assumption is based uponU.S. Treasury bond interest rates appropriate for the term of our employeestock options. The expected term is based on historical employee exercisebehavior. The expected dividend yield assumption is based on our history andexpectation of dividend payments. The expected volatility assumption is basedupon our historical stock price volatility, which we believe is a reasonableindicator of expected volatility. The expected forfeiture rate is based on ourhistorical rate of forfeitures due to voluntary terminations and the fact thatwe have a limited number of employees, many of whom are critical to us. As of December 31,2006, the balance of stock-based compensation cost to be expensed in futureperiods related to unvested share-based awards, as adjusted for expectedforfeitures, is approximately $16.4 million. The period over which the unearnedstock-based compensation is expected to be recognized is approximately 3.8 years.

Prior to January 1,2006, we elected to apply the disclosure-only provisions of SFAS 123, and todelay full adoption of SFAS 123 and its revision, SFAS 123(R), untilthe first quarter of 2006. Had we accounted for our restricted stock awards andstock options under the fair value methodology of SFAS 123 and SFAS 123(R),we would have recognized additional compensation expense for the years ended December 31,2005 and 2004 of $510,000 and $13,000, respectively.

*Income Taxes.**  *We must make certain estimates andjudgments in determining income tax expense for financial statement purposes.These estimates and judgments occur in the calculation of tax credits, taxbenefits and deductions. Significant changes to these estimates may result inan increase or decrease to our tax provision in a subsequent period.

We must assess thelikelihood that we will be able to recover our deferred tax assets. If recoveryis not likely, we must record a valuation allowance against the deferred taxassets that we estimate will not ultimately be recoverable. Since ourutilization of our deferred tax assets is dependent upon future taxable incomethat is not assured, we have recorded a valuation allowance equal to the amountof the deferred tax assets recorded in our consolidated financial statements.However, should there be a change in our ability to recover our deferred taxassets, our tax provision would decrease in the period in which we determinedthat the recovery was likely.

In addition, thecalculation of our tax liabilities involves dealing with uncertainties in theapplication of complex tax regulations. We assess potential liabilities foranticipated tax audit issues in the U.S. and other tax jurisdictions as well asforeign tax obligations based on our estimate of whether, and the extent towhich, additional liabilities are probable. If we ultimately determine thatpayment of these amounts is unnecessary, we reverse the liability and recognizea tax benefit during the period in which we determine that the liability is nolonger necessary. We record an additional charge in our provision for taxes inthe period in which we determine that the recorded tax liability is less thanwe expect the ultimate assessment to be.

*Contingencies.*   Theoutcomes of legal proceedings and claims brought against us are subject tosignificant uncertainty. SFAS No. 5, *Accounting forContingencies*, requires that an estimated loss from a losscontingency such as a legal proceeding or claim should be accrued by a chargeto income if it is probable that an asset has been impaired or a liability hasbeen incurred and the amount of the loss can be reasonably estimated.Disclosure of a contingency is required if there is at least a reasonablepossibility that a loss has been incurred. In determining whether a loss shouldbe accrued we evaluate, among other factors, the degree of probability of anunfavorable outcome and the ability to make a reasonable estimate 

34

----

of the amount ofloss. Changes in these factors could materially impact our financial positionor our results of operations.

**Recent Accounting Pronouncements**

In February 2006, the Financial Accounting Standards Board (“FASB”)issued SFAS No. 155, *Accounting for Certain HybridFinancial Instruments*(“SFAS 155”). This statement amends SFAS No. 133,*Accounting for Derivative Instruments and HedgingActivities* and SFAS No. 140, *Accountingfor Transfers and Servicing of Financial Assets and Extinguishments ofLiabilities* to simplify and make more consistent the accounting forcertain financial instruments. This statement permits fair value remeasurementfor any hybrid financial instrument with an embedded derivative that otherwisewould require bifurcation, provided that the whole instrument is accounted foron a fair value basis and establishes a requirement to evaluate interests insecuritized financial assets to identify interests that are freestandingderivatives or that are hybrid financial instruments that contain an embeddedderivative requiring bifurcation. This statement also allows a qualifyingspecial purpose entity to hold a derivative financial instrument that pertainsto a beneficial interest. SFAS 155 is effective for all financialinstruments acquired or issued after December 31, 2006. Earlier adoptionis permitted as of the beginning of an entity’s fiscal year, provided theentity has not yet issued financial statements for any interim period for thatfiscal year. We do not expect the adoption of this statement to have an impacton our financial position, results of operations or cash flows.

In June 2006, theFASB issued Interpretation No. 48, *Accounting for Uncertaintyin Income Taxes—An Interpretation of FASB Statement No. 109* (“FIN 48”).FIN 48 prescribes a recognition threshold and measurement attribute forthe financial statement recognition and measurement of a tax position taken orexpected to be taken in a tax return. FIN 48 also provides guidance onderecognition, classification, interest and penalties, accounting in interimperiods, disclosure, and transition. FIN 48 is effective for fiscal yearsbeginning after December 15, 2006, and the provisions of FIN 48 willbe applied to all tax positions upon initial adoption of the Interpretation. Weare currently evaluating the potential impact that the adoption of FIN 48will have on our consolidated financial statements.

In September 2006,the FASB issued SFAS No. 157, *FairValue Measurements*(“SFAS 157”). This statement clarifies thedefinition of fair value, establishes a framework for measuring fair value, andexpands the disclosures on fair value measurements. SFAS 157 is effectivefor fiscal years beginning after November 15, 2007. We have not determinedthe impact, if any, the adoption of this statement will have on ourconsolidated financial statements.

In February 2007, theFASB issued SFAS No. 159, *The Fair Value Option forFinancial Assets and Financial Liabilities—Including an amendment of FASBStatement No. 115* (“SFAS 159”). SFAS 159 permitsentities to choose to measure eligible items at fair value at specifiedelection dates and report unrealized gains and losses on items for which thefair value option has been elected in earnings at each subsequent reportingdate. SFAS 159 is effective for fiscal years beginning afterNovember 15, 2007. We have not determined the impact, if any, the adoptionof this statement will have on our consolidated financial statements.

**Recent SEC Releases**

In September 2006,the SEC staff released Staff Accounting Bulletin (“SAB”) No. 108, *Considering the Effects of Prior Year Misstatements when QuantifyingMisstatements in Current Year Financial Statements*(“SAB 108”).SAB 108**provides guidance on quantifying andevaluating the materiality of unrecorded misstatements and is effective forannual financial statements with fiscal years ending after November 15,2006. As discussed in Note 3 to our consolidated financial statements, werecorded an adjustment to our January 1, 2006 beginning deficitaccumulated during the development stage and to the schedule of deferred taxassets in Note 10 in accordance with SAB 108.

35

----

**Results ofOperations**

Thefollowing table is provided to facilitate the discussion of our results ofoperations for each of the three years in the period ended December 31,2006 (in thousands): 

| ** **                                 | ** ** | **Year ended December 31,** | ** ** |
|--------------------------------------------|------------|--------------------------------------------|------------|
| ** **                                 | ** ** | **2006**                                   | ** ** | **2005** | ** ** | **2004** | ** ** |
| General and administrative  expenses       |       | $                                          | 36,100     |   | $ | 27,850 |   | $ | 28,011 |   |
| Research and  development expenses         |       | 6,603                                      |       | 570 |   | — |   |
| Contract  settlements                      |       | —                                     |       | (74,955 | ) | — |   |
| Gain on disposal  of assets                |       | (8                                         | )          | (2,030 | ) | — |   |
| Impairment of  property under construction |       | —                                     |       | — |   | 865,191 |   |
| Interest income                            |       | (19,292                                    | )          | (9,503 | ) | (1,413 | ) |
| Interest expense                           |       | 41,420                                     |       | 23,953 |   | 10,500 | ** ** |
| Other income                               |       | 853                                        |       | 76 |   | 220 | ** ** |
| Income tax expense                         |       | (202                                       | )          | (785 | ) | (429 | ) |
|                                            |            |                                            |            |  |  |  |  |  |  |  |

                                                                                                             

*General and AdministrativeExpenses.**  *Generaland administrative expenses are primarily comprised of executive, finance andadministrative personnel costs, including stock-based compensation, storage andsatellite tracking expenses under our satellite access node (“SAN”) agreements,office facilities and related costs and professional fees.

General and administrativeexpenses were $36.1 million for the year ended December 31, 2006, comparedto $27.9 million for the year ended December 31, 2005. The slightincrease is primarily due to higher expenses associated with professional fees,compensation expenses related to the hiring of additional employees and $6.9 millionin non-cash stock-based compensation recorded with the adoption ofSFAS 123(R), partially offset by a decrease in SAN expenses for our MEOsatellite system due to the cancellation of certain SAN operating agreements(see “*Contract Settlements*” below).

General and administrativeexpenses were $27.9 million for the year ended December 31, 2005, comparedto $28 million for the year ended December 31, 2004. The decrease isprimarily due to a reduction in our workforce which reduced base salaries andbenefits by $1.3 million, a decrease in rent expense of $3.7 milliondue to the cancellation of a lease agreement for our U.K. headquarters in November2004 and a decrease in expenses recognized under SAN agreements of $2.8 milliondue to the termination of contracts for the MEO satellite system. Thesedecreases were partially offset by a $5.2 million increase in professionalfees in 2005 due to the formation of ICO North America, legal fees associatedwith the Boeing litigation and certain legal, accounting and auditing feesrelated to compliance with the covenants of the 7.5% Notes. In addition, werecognized an increase in bonus expense and consulting fees in connection withthe issuance of the 7.5% Notes.

We expect general andadministrative expenses to continue to increase in future periods due to thehiring of additional personnel necessary to support the development of ourMSS/ATC System.

*Research and DevelopmentExpenses.**  *Researchand development expenses principally consist of third-party engineering,consulting and development costs associated with technology being consideredfor use in the MSS/ATC System.

Research and developmentexpenses were $6.6 million for the year ended December 31, 2006, comparedto $570,000 for the year ended December 31, 2005. This increase isprimarily due to additional design and development activities related to theground network portion of our MSS/ATC System. We did not incur any research anddevelopment costs during the year ended December 31, 2004. 

We expect future researchand development costs to increase as the pace of the design and development ofour ground network increases.

36

----

*Contract Settlements.**  *As explained more fully in Note 6 to our consolidatedfinancial statements, in 2002, due to a delay in the deployment of the MEO satellitesystem, we initiated negotiations with SAN operators to defer certain of thepayment obligations and reduce the service levels and associated expense undernon-cancelable agreements that initially expire in various years through 2010.These negotiations were unsuccessful.

In 2003, we determinedthat we did not need all of our SANs to economically deploy the MEO satellite system.Additionally, our Board of Directors decided to no longer provide funding tocertain of our subsidiaries to pay SAN operators unless we received additionalfunding or the contracts with such operators were restructured to obtain asubstantial cost savings. In December 2004, our Board of Directors decidedto significantly curtail further construction of our global MEO satellitesystem, which further increased the likelihood that the SANs would not beutilized in a timely fashion in the contemplated MEO satellite system.

As a result of ourdecisions, eight of ten SAN operators have terminated their agreements from2004 to 2006 and discontinued providing the requisite level of services. Wehave continued to accrue operating expenses and liabilities according to oursubsidiaries’ contractual obligation until such obligations have been releasedand the operator has ceased providing services, although in most instances oursubsidiaries have suspended or significantly reduced actual payments to theoperators. Subsequent to the date of termination, we have continued to accruelate payment fees, if applicable, and interest expense. In 2005, upon reachingsettlement with four operators, whereby the operators’ claims were legallyreleased, we eliminated the related liabilities and recognized a gain oncontract settlements of $75 million. As of December 31, 2006, we havean accrued liability of $45.6 million related to unsettled agreements. Wewill pursue settlement with regard to the agreements that have been terminatedbut for which our subsidiaries’ obligations have not been released; however,the financial impact of settling the remaining agreements cannot be determinedat this time.

*Gain on Disposal ofAssets.**  *In May 2005,we settled an outstanding $2 million obligation to a vendor in exchangefor certain specialized communications equipment from two of our SANs, whichhad a net book value of zero. The gain on disposal of assets for the year endedDecember 31, 2006 was nominal.

*Impairment of Propertyunder Construction.**  *The MEO satellitesystem was designed to provideglobal, mobile communications services using a MEO satellite constellation andassociated ground network that included several satellites and up to eleven SANs locatedthroughout the world. In 2003, as part of our continued effort to findalternative strategies to our original MEO business model and to reduce thecost of deploying the MEO satellite system, we amended our MEO satellitecontract and simultaneously determined that we did not need all of our SANs toeconomically deploy the MEO satellite system. As a result of this decision, certain property under constructionrelated to the satellite launch services contract and property at certain SANswas determined to have no future value and an impairment charge was recorded in2003. In December 2004, our Board of Directors determined to significantlycurtail further construction on our MEO satellite system. As a result of thisdecision, the remaining property under construction related to the MEOsatellite system, which included the satellites and the remaining equipment atvarious SANs, was determined to have no future value, resulting in animpairment charge of $865.2 million in 2004. We did not incur anyimpairment charges for the years ended December 31, 2006 or 2005.

*Interest Income.**  *Interest income was $19.3 million for the yearended December 31, 2006, compared to $9.5 million for the year ended December 31,2005. Interest income in both periods was primarily attributable to interestearned on the investment of the proceeds of the 7.5% Notes issued in August 2005.Interest income of $1.4 million for the year ended December 31, 2004primarily reflects interest earned on our cash and cash equivalent balancesduring the period as we did not have any other investments in 2004.

We expect interest incometo decrease in future periods as our cash, cash equivalents, andavailable-for-sale investments balances decrease as we develop our MSS/ATCSystem.

37

----

*Interest Expense.**  *Interest expense was $41.4 million for the yearended December 31, 2006, compared to $24 million for the year ended December 31,2005. Interest expense for the year ended December 31, 2006 was comprisedof interest on the 7.5% Notes of $48.7 million, amortization of debtissuance costs of $6.7 million and interest expense related to the SANagreements recorded as capital lease obligations of $2.9 million,partially offset by interest costs associated with the construction of our MSS/ATCSystem totaling $16.9 million that were capitalized to the satellitesystem under construction. Interest expense for the year ended December 31,2005 consisted of $18.2 million of interest on the 7.5% Notes, $2.4 millionof amortization of debt issuance costs and interest expense related to the SANagreements recorded as capital lease obligations of $4.6 million,partially offset by capitalized interest costs associated with the constructionof our MSS/ATC System totaling $1.2 million. Interest expense in 2004 wasalmost entirely attributable to interest on capital lease obligationsassociated with the SAN agreements.

We expect interest expensein future periods to remain comparable with amounts reported in 2006.

*Other Income.*   Otherincome is comprised primarily of gains and losses on foreign currencytransactions. Other income for the years ended December 31, 2006, 2005 and2004 was nominal.

*Income Tax Expense.**  *Incometax expense was $202,000, $785,000 and $429,000 for the years ended December 31,2006, 2005 and 2004, respectively. This income tax expense represents the taxon income of certain of our U.K. and Netherland entities that generated taxableincome on a stand-alone basis.

**Liquidity and Capital Resources**

*Overview.**  **Substantially all of our capitalexpenditures and liquidity requirements since December 2004 have beenrelated to the development of our MSS/ATC System. As described in more detailbelow in “—Future Funding Requirements” and “—Contractual Obligations,” ourprimary expected cash needs for 2007 are for the construction and launch of theGEO satellite that will be part of our MSS/ATC System and related developmentcosts for the MSS portion of the MSS/ATC System.*

We have funded our cashneeds with the net proceeds from the 7.5% Notes issued in August 2005. The7.5% Notes are described below under “—Long-Term Obligations.”

*Cash Flows.**  *Thefollowing table is provided to facilitate the discussion of our liquidity andcapital resources for the years ended December 31, 2006 and December 31,2005 (in thousands):

| ** **                                            | ** ** | **Year ended December 31,** | ** ** |
|-------------------------------------------------------|------------|--------------------------------------------|------------|
| ** **                                            | ** ** | **2006**                                   | ** ** | **2005** | ** ** |
| Net cash provided by  (used in):                      |       |                                       |       |   |   |
| Operating activities                                  |       | $                                          | (61,920    | ) | $ | (22,849 | ) |
| Investing activities                                  |       | 39,022                                     |       | (477,074 | ) |
| Financing activities                                  |       | 9,963                                      |       | 620,460 |   |
| Effect of foreign  exchange rate changes on cash      |       | 484                                        |       | 2,422 |   |
| Net increase  (decrease) in cash and cash equivalents |       | (12,451                                    | )          | 122,959 |   |
| Cash and cash  equivalents—beginning of period   |       | 175,510                                    |       | 52,551 |   |
| Cash and cash  equivalents—end of period         |       | $                                          | 163,059    |   | $ | 175,510 |   |

 

Cash, cash equivalents and available-for-saleinvestments were $239.7 million at December 31, 2006 compared to$471.7 million at December 31, 2005. As explained more fully below,the decrease in our liquidity during 2006 is due primarily to capitalexpenditures related to our satellite system under construction and thepurchase of first priority rights to use a desired orbital slot for our GEOsatellite. We believe that our cash, cash equivalents and available-for-salesecurities will be sufficient to fund our operational and capital requirementsuntil at least the end of 2007.

Cash used in operating activities was $61.9 millionfor the year ended December 31, 2006 compared to $22.8 million foryear ended December 31, 2005. For the year ended December 31, 2006,cash used in 

38

----

operating activitiesconsisted primarily of our net loss of $64.2 million and a decrease inaccrued interest payable of $14.2 million partially offset by variousnon-cash items included in our net loss. Cash used in operating activities forthe year ended December 31, 2005 consisted primarily of net income of$33.4 million offset by contract settlements of $75 million and othernon-cash items included in net income.

Cash provided by investing activities was $39 millionfor the year ended December 31, 2006 compared to cash used in investingactivities of $477.1 million for the year ended December 31, 2005.For the year ended December 31, 2006, the primary source of cash providedby investing activities was net sales and maturities of available-for-sale andrestricted investment securities of $264.5 million, partially offset by capitalexpenditures of $212.1 million related to the satellite system underconstruction and $14 million for the purchase of first priority rights touse a desired orbital slot for our GEO satellite. Cash used in investingactivities for the year ended December 31, 2005 consisted primarily of$386.9 million of net purchases of available-for-sale securities andrestricted investments and $88.2 million of capital purchases related tothe satellite system under construction.

Cash provided by financing activities was $10 millionfor the year ended December 31, 2006 compared to $620.5 million for theyear ended December 31, 2005. Cash provided by financing activities forthe year ended December 31, 2006 was primarily attributable to the sale ofICO North America Class A common stock and options to purchase shares ofICO North America Class A common stock of $9.9 million to certain holdersof our 7.5% Notes. For the year ended December 31, 2005, cash provided byfinancing activities consisted of $620.4 million of net proceeds from theissuance of the 7.5% Notes.

*Long-TermObligations.*   As of December 31, 2006, wehad long-term obligations, including the current portion of such obligations,of $667.6 million, consisting of $650 million associated with ICO NorthAmerica’s outstanding 7.5% Notes, and amounts payable under capital leases of$17.6 million.

In August 2005, ICO North America issued the 7.5%Notes due in August 2009. The proceeds from issuance of these 7.5% Notes wereapproximately $526.8 million, net of $93.6 million deposited into anescrow account, as required by the indenture, to provide for the payment, infull, of the first four scheduled semi-annual interest payments on the 7.5%Notes, and net of debt issuance costs of $29.6 million. Subject to thesatisfaction of certain conditions and to certain exceptions, commencing February 15,2008, ICO North America has the option of paying interest with additional notesin lieu of cash at an increased rate of 8.5% per annum. In the event that the GEOsatellite and its associated systems are not certified as operational by August 15,2008, the interest rate on the 7.5% Notes would increase by 1.5% initially andby an additional 1.5% every 30 days until certification were achieved, up to amaximum annual interest rate of 13.5%, and all interest payments on the 7.5%Notes would then be required to be paid in cash.

The 7.5% Notes are secured by a first prioritysecurity interest in substantially all of the assets of ICO North America andits present and future subsidiaries to the extent permitted by law and by afirst priority pledge by us of ICO North America’s capital stock, subject tocertain exceptions. In addition, the 7.5% Notes are fully and unconditionallyguaranteed by all of ICO North America’s present and future subsidiaries, andthose guarantees are secured by a pledge of substantially all of the guarantors’assets to the extent permitted by law. In addition, ICO North America and itssubsidiaries are prohibited under the indenture from incurring liens on anyasset owned or acquired in the future with certain exceptions.

The 7.5% Notes were issued under an indenturecontaining various covenants restricting the operations of ICO North Americaand its subsidiaries, including prohibiting the payment of dividends on theircapital stock, other than stock dividends and payments to ICO North America orits subsidiaries, and prohibiting ICO North America and its subsidiaries frompurchases, redemptions or other acquisitions of their capital stock or ourcapital stock, unless funded by a contemporaneous sale of capital stock.

ICO North America and its subsidiaries are alsoprohibited from issuing preferred stock and incurring, issuing or guaranteeingany indebtedness (including capital lease obligations) other than: 

39

----

indebtedness under aworking capital facility not to exceed $40 million; additional notes issued asinterest on the 7.5% Notes; refinancings of indebtedness permitted under theindenture; indebtedness between or among ICO North America and itssubsidiaries; hedging obligations and certain other indebtedness incurred inthe ordinary course of business; and subordinated indebtedness not to exceed$200 million, provided there is not a default under the indenture, ICO NorthAmerica first offers any subordinated indebtedness to the holders of its 7.5%Notes, the subordinated indebtedness matures at least 91 days after, and bearsa cash interest rate of not more than the 7.5% Notes and that a portion of theproceeds equal to the first two years’ cash interest are deposited into anescrow account.

The indenture also restricts ICO North America and itssubsidiaries’ ability to sell, lease or transfer the right to use their assetsoutside the ordinary course of business, other than a sale of substantially allof the assets of ICO North America and its subsidiaries, and to sell thesubsidiaries’ capital stock, in each case in transactions exceeding $1 million,and also places restrictions on the use of proceeds from any permitted sales orleases. The indenture also contains restrictions on ICO North America’s and itssubsidiaries’ transactions with us and their other affiliates (with theexception of certain enumerated transactions, requiring that payments,purchases or sales or other transfers of properties or assets and anycontracts, loans, guarantees or other transactions are on terms no lessfavorable than with an unrelated third party and, in the case a transaction ora series of transactions involving over $10 million, the consent of theholders of a majority of the 7.5% Notes), as well as restrictions on mergers,consolidations or sales of substantially all of the assets of ICO North Americaand its subsidiaries. The indenture also restricts investments by ICO NorthAmerica and its subsidiaries, including investments in another company unlesssuch other company is merged into or becomes a subsidiary of ICO North Americaor one of its subsidiaries.

An event of default occurs under the indenture if: (i) ICONorth America defaults on the payment of principal or premium on the 7.5% Noteseither at maturity or redemption or defaults for 30 days on the payment of anyinterest on the 7.5% Notes; (ii) ICO North America or any of itssubsidiaries breach certain of the restrictive covenants described above; (iii) ICONorth America or any of its subsidiaries fails, after 30 days’ notice, toobserve or perform any other covenant, representation, warranty or otheragreement in the indenture, the 7.5% Notes, the guarantees of the subsidiariesor any of the pledge or security agreements securing the 7.5% Notes orguarantees; (iv) ICO North America or any of its subsidiaries defaults onany mortgage, indenture or other lending instrument due to a default in thepayment of principal, interest or premium or the default results in theacceleration of $10 million or more of indebtedness; (v) final judgment(s) forover $10 million entered by court(s) of competent jurisdictionagainst ICO North America or any of its subsidiaries remain undischarged,unstayed or unpaid for 60 days; (vi) any MSS/ATC FCC authorization of ICONorth America or its subsidiaries is revoked, cancelled or relinquished andsuch action cannot be appealed; (vii) except as permitted under theindenture, any note guarantee of ICO North America’s subsidiaries is held by acourt to be unenforceable or invalid or the guarantor denies its obligationsunder its guarantee; (viii) except as permitted under the indenture, anypledge or security agreement or pledge or security interest for collateral inexcess of $25 million securing the 7.5% Notes or guarantees is held by acourt to be unenforceable or invalid; or (ix) certain events ofbankruptcy, insolvency or reorganization occur.

If an event of default occurs (other than an event ofbankruptcy, insolvency or reorganization), the indenture trustee or the holdersof 25% of the aggregate principal amount of the outstanding 7.5% Notes mayelect to declare the 7.5% Notes, together with the funds held in escrow to meetthe first two-years’ interest obligation, to be immediately due and payable andto enforce the guarantees of ICO North America’s subsidiaries, to enforce theirsecurity interest or to enforce our pledge of ICO North America’s capitalstock. If an event of default due to an event of bankruptcy, insolvency orreorganization occurs, all outstanding 7.5% Notes plus any remaining escrowedinterest are immediately due and payable.

40

----

Holders may convert their 7.5% Notes at any time and,upon the occurrence of certain events, the 7.5% Notes will automaticallyconvert into shares of ICO North America’s Class A common stock at a rateof $4.25 per share of Class A common stock, subject to certainadjustments. The holders presently have the authority to designate one directorto the ICO North America board of directors. Further, ICO North America isrequired to offer to repurchase the 7.5% Notes in cash at a purchase priceequal to 107.5% of the aggregate principal amount, plus a pro rata portion ofthe escrowed interest and any accrued and unpaid interest, upon the occurrenceof certain events, including a change in control of ICO North America. A changein control for purposes of the repurchase provision includes: (i) a saleof substantially all of the assets of ICO North America and its subsidiaries,other than to Eagle River; (ii) a transaction (before an initial publicoffering of ICO North America’s Class A common stock) pursuant to which weand Eagle River cease to own ICO North America capital stock representing atleast 50.1% of the possible votes in the election of directors (“votingpower”); (iii) a transaction (following a Class A common stock IPO)after which a person holds capital stock representing more ICO North Americavoting power than Eagle River holds; or (iv) a transaction pursuant towhich any person holds an amount of our capital stock that represents morevotes in the election of our directors than is represented by our capital stockheld by Eagle River.

*FutureFunding Requirements.*   TheMSS portion of our MSS/ATC System is required to be certified as operational byDecember 31, 2007. We expect that the total funding needed to developthe MSS portion of our MSS/ATC System will be approximately $525 million to$600****million, of which approximately $350 millionhad been spent through December 31, 2006. The remaining estimated funding amountsinclude approximately $125 million related to the design, construction,delivery and launch of our GEO satellite, the delivery of certain gatewaysegment equipment and further development of the terrestrial network and userdevices. Launch insurance of approximately $40 million to $60 millionand general and administrative expenses account for the remainder of theestimated future funding requirements.

We plan to fund the remaining portion of the MSSsystem development requirements through cash, cash equivalents andavailable-for-sale investments, of which we had approximately $240 million asof December 31, 2006. To the extent necessary and to preserve our reservesof current assets, ICO North America may seek to secure a working capitalfacility and incur a limited amount of additional indebtedness in order toprovide additional funds to complete the MSS portion. Based on our current cashresources, we do not anticipate making material capital expenditures during2007, other than in connection with the development of our MSS/ATC System.

We believe that our cash, cash equivalents and available-for-saleinvestments will be sufficient to fund our operational and capital requirementsuntil at least the end of 2007. In addition, our restricted investments as ofDecember 31, 2006 of $48.7 million will be sufficient to fund full paymentof the interest under our 7.5% Notes through the August 2007 payment. Thisassumes continued compliance with the provisions of the indenture governing the7.5% Notes and the absence of a change in control repurchase offer under theindenture. For periods beyond the end of 2007, we will likely seek additionalfinancing through offerings of equity or debt securities or agreements withstrategic partners. If we were todevelop the incremental ATC portion of our MSS/ATC System without a strategicpartner, we would require substantial additional capital. The categoryof business or consumer market we choose to serve, the type and extent of ATCinfrastructure necessary to serve such market and the geographic scope of ourservice area will affect the amount of capital needed for the terrestrial ATCportion of our MSS/ATC System. We expect that the additional funding needed forthe type and scope of commercial service we would pursue without strategicpartners would range from approximately $300 million to $800 million, dependingon the business or consumer market we choose to serve, the type and extent ofinfrastructure necessary to serve such market and the geographic scope of ourservice area. We cannot be assured that we will be able to obtain additionalfinancing on acceptable terms or at all. Within one year after commencing ATCservice, the FCC will require us to maintain on the ground a spare satellite,which is estimated to cost between 

41

----

$180 million and $225million. The spare satellite is not a requirement for the provision of MSS onlyservices.

Prior to July 1,2005, our contributions to ICO North America had been in the form of equity.Any future financings by ICO North America and its subsidiaries, includingintercompany loans, would need to be in compliance with the restrictionscontained in the indenture governing the 7.5% Notes.

**Risks andUncertainties**

Certain risks anduncertainties that could materially affect our future results of operations orliquidity are discussed under Item 1A. of Part I, “—Risk Factors” inthis Form 10-K. In particular, these risks and uncertaintiesinclude, but are not limited to, the following matters:

·       Weoperate in a heavily regulated industry, and our rights to offer our plannedservices are tied to meeting significant milestones or otherwise satisfying ourregulators. In the United States, we have met eight FCC milestones and ourright to use our assigned MSS spectrum to provide service is conditioned on ourcompletion of four additional FCC milestones. In February 2007, the FCCgranted our request to extend the remaining milestone dates in our authorization forthe construction and launch of our GEO satellite to accommodate manufacture anddelivery issues encountered by subcontractors for our satellite manufacturer,Loral. There can be no assurance that we or Loral will achieve the newmilestone dates. If we fail to meet a milestone and we are unable toobtain a waiver or extension, we could lose our MSS authorization, and a lossof our MSS authorization would be an event of default under the indenturegoverning the 7.5% Notes. Substantially all of the $525 million to $600million we anticipated needing to develop the MSS portion of our MSS/ATC Systemwill be used to complete the tasks to permit us to meet the 2007 milestones.

·       Thereare many risks inherent to building, launching and maintaining a satellite. Weintend to obtain launch vehicle and satellite insurance and maintain in-orbitinsurance coverage. These costs through 2007 are included in our estimatedcosts for completing the MSS portion of our MSS/ATC System. We expect theinsurance policies to include customary satellite insurance exclusions and/ordeductibles and material change limitations. We anticipate that, as is commonin the industry, we will not insure against business interruption, lostrevenues or delay of revenues in the event of a total or partial loss of thecommunications capacity or life of the satellite. Accordingly, we would not befully insured for all of the potential losses that may be incurred in the eventof a satellite launch failure or other satellite malfunction. In addition, ourbusiness plan contemplates operating one satellite, and a launch failure wouldresult in significant delays in the deployment of the satellite due to the needto construct a replacement, which can take 27 months or longer, and toobtain a launch opportunity for the replacement satellite. If we were unable toobtain a waiver or extension from the FCC, we could lose our MSS authorization,and a loss of our MSS authorization would be an event of default under theindenture governing the 7.5% Notes. In addition, in the event that the GEO satelliteand its associated systems are not certified as operational by August 15,2008, the annual interest rate on the 7.5% Notes will increase by 1.5%initially and by an additional 1.5% every 30 days until certification isachieved, up to a maximum annual interest rate of 13.5%, and all interestpayments on the 7.5% Notes will be required to be paid in cash.

·       Webelieve we have sufficient capital resources to complete and certify to the FCCthat the MSS portion of our MSS/ATC System is operational. We may seekpotential strategic partners to assist us in developing the ATC portion of ourMSS/ATC System. If we chose to complete our MSS/ATC System without partners, wewould need to raise substantial additional funding through equity and/or debtofferings. The category of business or consumer market we choose to serve, thetype and extent of ATC infrastructure necessary to serve such market and thegeographic scope of our 

42

----

service area will affectthe amount of capital needed for the terrestrial ATC portion of our MSS/ATCSystem. We expect that the additional funding needed for the type and scope ofATC service we would pursue without strategic partners would range fromapproximately $300 million to $800 million. To provide ATC service, wemust separately apply to the FCC for ATC authorization, which we expect to doin 2007, and meet certain “gating criteria,” which include the provision ofcommercial MSS service, as a pre-condition to obtaining ATC authorization.

·       ForU.S. federal income tax purposes, we realized a gain of more the $300 millionon the disposition of certain securities in 2003. This gain was offset bylosses incurred in connection with the abandonment of certain assets related toour MEO satellite system in the same year. The IRS is currently auditing our2003 tax year in which these transactions occurred. The audit involves both therecognition of the losses in connection with the impairment of our MEO assetsand the timing of the gain on the disposition of the relevant securities, whichwere sold through a variable forward contract. To the extent the IRS disallowsthe deductions claimed, we could face a tax liability ranging fromapproximately $12 million to $128 million (not including any penaltiesthat might be imposed).

·       Weare engaged in litigation with The Boeing Company and BSSI arising out ofagreements for the development and launch of our MEO satellites. BSSI’sallegations are unproven and it has not specified the amount of monetary reliefit is seeking. We have asserted cross-claims that we believe are meritorious.From August 2004 through December 31, 2006, we have incurredapproximately $10 million in pursuing this litigation and expect that wewill continue to incur substantial costs through the duration of thelitigation. Due to the uncertain nature of litigation and the many factorsbeyond our control, we could incur greater costs as the litigation proceeds.

·       Thereis considerable uncertainty as to how legacy MEO satellite systems, such asours, would be treated in any new regulatory regime in Europe. Europeanregulators are currently considering new rules for the S-band, and Ofcom has requested that wecontinue to meet our due diligence requirements toward the deployment ofcommercial service on our MEO satellite system in order to maintain Ofcom’s support for us ininternational forums.If we are unable to preserve our claim to priority and legacyrights, we will be entitled to pursue international S-band operations on thesame terms as all other operators. Depending on the development of a MEObusiness plan and the associated costs (including the costs to comply with thefinal milestone or any new milestones imposed), as well as the success ofdiscussions with potential partners who could provide the funding for thedevelopment of the MEO satellite system, we may or may not proceed with thedevelopment of our physical and regulatory MEO assets.

We are subject toadditional risks and uncertainties discussed under Item 1A. of Part I,“—Risk Factors” included in this Form 10-K, that could adverselyaffect the planned development, operation or commercialization of our MSS/ATCSystem and our costs, competitive position, financial condition and ability torealize earnings.

43

----

**Contractual Obligations**

Ourprimary contractual obligations include our long-term debt as well as paymentsand other obligations under our primary agreements for the design, manufactureand launch of our GEO satellite and procurement of equipment and other servicesfor our gateway system. In the table below, we set forth our contractualobligations as of December 31, 2006 (in millions):

| ** **                         | ** ** | **Years ending December 31,** | ** ** |
|------------------------------------|------------|----------------------------------------------|------------|
| ** **                         | ** ** | **Total**                                    | ** ** | **2007** | ** ** | **2008-2009** | ** ** | **2010-2011** | ** ** | **2012 and  Thereafter** | ** ** |
| Long-term debt  obligations(1)     |       | $                                            | 796.3      |   | $ | 48.8 |   |   | $ | 747.5 |   |   |   | $ | — |   |   |   | $ | — |   |   |
| Capital lease  obligations         |       | 25.8                                         |       | 19.8 |   |   | 4.6 |   |   |   | 1.4 |   |   |   | — |   |   |
| SAN operating  lease obligations   |       | 6.3                                          |       | 1.3 |   |   | 4.3 |   |   |   | 0.7 |   |   |   | — |   |   |
| Other operating  lease obligations |       | 1.9                                          |       | 0.4 |   |   | 0.7 |   |   |   | 0.7 |   |   |   | 0.1 |   |   |
| Purchase  obligations(2)           |       | 111.7                                        |       | 70.3 |   |   | 5.7 |   |   |   | 4.5 |   |   |   | 31.2 |   |   |
| Total                              |       | $                                            | 942.0      |   | $ | 140.6 |   |   | $ | 762.8 |   |   |   | $ | 7.3 |   |   |   | $ | 31.3 |   |   |

----

(1)          Assumes all interestpayments on our 7.5% Notes are made in cash and at an interest rate of 7.5%.Subject to the satisfaction of certain conditions and to certain exceptions,for the period from August 16, 2007 through August 15, 2009, we havethe option of paying interest with additional notes in lieu of cash at anincreased rate of 8.5% per annum. In the event that our GEO satellite and itsassociated systems are not certified as operational by August 15, 2008,the interest rate on the 7.5% Notes increases by 1.5% initially and by anadditional 1.5% every 30 days until certification is achieved, up to a maximumannual interest rate of 13.5%, and all payments on the 7.5% Notes are requiredto be paid in cash.

(2)          As of December 31,2006, we had remaining payments of approximately $86.9 million that are payablebased on the achievement of certain construction, delivery and deploymentmilestones related to the development of the MSS/ATC System, which are expectedto occur in 2007. These remaining payments relate to the agreements describedbelow as well as other secondary agreements related to the development of theMSS/ATC System. Additional payments of $23.2 million related to in-orbitsatellite performance incentives, including interest, related to our GEOsatellite are payable over 15 years from 2007 through 2022. In addition tothese remaining payments, we have purchase commitments of approximately $1.6million related to our MEO satellite system.

***Through our***majority ownedsubsidiary ICO North America, we have an agreement with Loral, to design,develop, manufacture, test and deliver one GEO satellite and to develop, testand implement certain ground-based systems related to the operation of thesatellite. The satellite is expected to be delivered to permit a launch by November 30,2007. We also retain an option through December 31, 2008 to purchase oneadditional GEO satellite.

We may terminate the satellite contract for ourconvenience in whole (meaning as to the whole of the then remaining work) or inpart. In the case of termination in whole, our liabilities are stipulated in anagreed-upon termination liability schedule that approximates the total amountspaid or payable by us at the time of termination. If the satellite portion ofthe contract is terminated, we are required to terminate the contract in wholeincluding the ground-based beam forming. The same stipulated terminationliability schedule would be applicable if Loral terminates the contract due toour default.

In general, title to and risk of loss of the satellitepasses from Loral to us at the time of intentional ignition of the launchvehicle. Title to the ground-based systems passes to us when such systems havebeen proven operable at the gateway. Loral is responsible for maintainingproperty insurance against the risk of loss or damage to the satellite up tothe moment risk of loss passes to us. With certain exceptions, Loral isresponsible for securing all licenses, approvals and consents as may berequired for performance of the 

44

----

satellite contract.Subject to certain exceptions, we bear the risk (including additional costs, ifany) resulting from excusable delays under the satellite contract, as well asrisk of loss for the satellite from the time of intentional ignition of thelaunch vehicle. There can be no assurance that events constituting excusabledelays will not arise or, if any event constituting excusable delay does arise,that it will be resolved on terms that are not materially adverse to us.

Upon a specified default by Loral, including theinexcusable delay beyond an agreed-upon period of delivery of the satellite, wemay, subject to certain exceptions, terminate the contract. Under thetermination for default, Loral shall refund to us all payments made plusinterest thereon from the date payment was received by Loral to the date therefund was received by us. In addition, Loral shall be required to pay anyliquidated damages for delays that have accrued up to the date of notice oftermination for default. Liquidated damages may be available from Loral forfailure to meet the FCC satellite construction implementation milestones andfor late delivery of the satellite. In the event of default by Loral, there canbe no assurance that we will be able to find a substitute provider in a timelymanner or on economically acceptable terms.

On March 10, 2006, we entered into an agreementwith Lockheed for the provision of launch services for our GEO satellite. In February 2007,we selected, in coordination with Lockheed, our launch slot as November 2007.We have purchased launch risk protection insurance from Lockheed, providing fora payment to us in the event of a launch failure after launch due to the launchvehicle. We also retain an option to require Lockheed to provide a replacementlaunch in the event that we determine that the initial launch resulted in asatellite failure within the first six months after launch.

We may terminate the launch services contract for anyreason for our convenience. In the case of termination, our liabilities arestipulated in an agreed-upon termination liability schedule. The samestipulated termination liability schedule would be applicable if Lockheedterminates the contract due to our default, including default due to our delaybeyond an agreed-upon maximum postponement period for the launch service. At notime do we obtain title to or ownership in the launch vehicle. The launchvehicle remains the property of Lockheed. With certain exceptions, Lockheed isresponsible for securing all licenses, approvals and consents as may berequired for performance of the launch services contract.

Upon a specified default by Lockheed, including Lockheed’sdelay beyond an agreed maximum postponement period for the launch service, wemay, subject to certain exceptions, terminate the contract. Under thetermination for default, Lockheed shall refund to us all payments made by us.In addition, Lockheed shall be required to pay any liquidated damages fordelays that have accrued up to the date of notice of termination for default.In the event of default by Lockheed, there can be no assurance that we will beable to find a substitute launch services provider in a timely manner or oneconomically acceptable terms.

On May 10, 2006, we entered into an agreementwith Hughes Network Systems, LLC (“HNS”) to provide gateway services includingthe design, manufacture, delivery, and test of the radio frequency subsystem,the gateway system controller, the gateway control network and the gatewaysystem inter connections. The gateway will be located at the HNS facilityin North Las Vegas, Nevada and is scheduled to be delivered in June 2007.We retain an option to purchase a diverse site radio frequency terminal alongwith an associated diverse site facility.

We may terminate this agreement with HNS for anyreason for our convenience. In the case of termination, our liabilities arestipulated in an agreed-upon termination liability schedule that approximatesthe total amounts paid or payable by us at the time of termination. The samestipulated termination liability schedule would be applicable if HNS terminatesthe contract due to our default. HNS is responsible for securing all licenses,approvals and consents as may be required for performance of the gateway contract.In general, title to and risk of loss of the gateway passes from HNS to us whensuch systems have been proven acceptable.

45

----

Upon a specified default by HNS, including HNS’s delaybeyond the agreed delivery dates for completion of the gateway, we may, subjectto certain exceptions, terminate the contract. Under the termination fordefault, HNS is required to refund to us all payments made by us. In addition,HNS is required to pay any liquidated damages for delays that have accrued upto the date of notice of termination for default. In the event of default byHNS, there can be no assurance that we will be able to find a substitutegateway provider in a timely manner or on economically acceptable terms.

In addition, we arerequired, under the terms of the indenture governing the 7.5% Notes, to obtainlaunch insurance and maintain in-orbit insurance coverage, each in an amountequal to the full replacement cost of the GEO satellite. We have not yetdetermined what the cost of obtaining such insurance will be, but expect thelaunch insurance to range from approximately $40 million to$60 million.

**Inflation**

The impact of inflation onour consolidated financial condition and results of operations was notsignificant during any of the years presented.

**Off-Balance SheetArrangements**

We do not have anyoff-balance sheet arrangements.

46

----

**Item 7A.**                Quantitativeand Qualitative Disclosures About Market Risks.

We have assessed our vulnerability to certain marketrisks, including interest rate risk associated with our available-for-salesecurities, long-term debt, accounts payable, capital lease obligations, andcash and cash equivalents and foreign currency risk associated with our capitallease obligations and cash held in foreign currencies.

Our investment portfolio consists of fixed income debtsecurities, including money market funds, commercial paper, governmentobligations and corporate bonds, with a fair value of approximately$288.5 million as of December 31, 2006 and $537.6 million as of December 31,2005. The primary objective of our investments in fixed income securities is topreserve principal, while maximizing returns and minimizing risk, and ourpolicies require that we make these investments in short-term, highly-ratedsecurities. For available-for-sale securities, unrealized gains and losses arerecorded in other comprehensive income. Losses will not be realized in theconsolidated statement of operations unless the individual securities are soldprior to recovery or determined to be other-than-temporarily impaired. Wemanage our interest rate risk by purchasing securities with maturities thatcorrespond to our liquidity needs for operations, capital expenditures and debtservice. Due to the short-term nature of these investments (less than 180 days)and our investment policies and procedures, we have determined that the riskassociated with interest rate fluctuations related to these financialinstruments is not material to us.

Our convertible long-term debt bears interest at afixed rate of 7.5%, matures on August 15, 2009 and has a fair value ofapproximately $721.5 million as of December 31, 2006 and approximately$903.5 million as of December 31, 2005.

Our primary foreign currency exposure relates to cashbalances in foreign currencies. Due to the small balances we hold, we havedetermined that the risk associated with foreign currency fluctuations is notmaterial to us. We do not enter into any hedging or derivative transactions tomanage our exposure to foreign currency risk.

47

----

**Item 8.**                           Financial Statements and SupplementaryData.

**REPORTOF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**

To the Board of Directors and Stockholders of ICO Global Communications (Holdings) Limited and Subsidiaries Kirkland, Washington

We have audited the accompanying consolidated balancesheets of ICO Global Communications (Holdings) Limited and subsidiaries (adevelopment-stage enterprise) (the “Company”) as of December 31, 2006 and2005, and the related consolidated statements of operations, stockholders’equity (deficiency in assets), statements of comprehensive income (loss), and cashflows for each of the three years in the period ended December 31, 2006,and the period from February 9, 2000 (inception) to December 31,2006. Our audits also included the financial statement schedule listed in theindex at Item 15. These consolidated financial statements and the financialstatement schedule are the responsibility of the Company’s management. Ourresponsibility is to express an opinion on these financial statements based onour audits. The Company’s financial statements as of and for the year endedDecember 31, 2002, and for the period from February 9, 2000 (date ofinception) through December 31, 2002, were audited by other auditors whosereport, dated November 21, 2003 (except for the second paragraph which isdated May 15, 2006), expressed an unqualified opinion on those statements.The financial statements for the period February 9, 2000 (date ofinception) through December 31, 2002, reflect a net loss of $756,209,000of the related total for the period from February 9, 2000 (date of inception)through December 31, 2006. The other auditors’ report has been furnishedto us, and our opinion, insofar as it relates to the amounts included for suchprior period, is based solely on the report of such other auditors.

We conducted our audits in accordance with thestandards of the Public Company Accounting Oversight Board (United States).Those standards require that we plan and perform the audit to obtain reasonableassurance about whether the financial statements are free of materialmisstatement. The Company is not required to have, nor were we engaged toperform, an audit of its internal control over financial reporting. Our auditsincluded consideration of internal control over financial reporting as a basisfor designing audit procedures that are appropriate in the circumstance, butnot for the purpose of expressing an opinion on the effectiveness of theCompany’s internal control over financial reporting. Accordingly, we express nosuch opinion*.* An audit alsoincludes examining, on a test basis, evidence supporting the amounts anddisclosures in the financial statements, assessing the accounting principlesused and significant estimates made by management, as well as evaluating theoverall financial statement presentation. We believe that our audits and thereport of other auditors provide a reasonable basis for our opinion.

In our opinion, based on our audits and the report ofother auditors, such financial statements present fairly, in all materialrespects, the financial position of the Company as of December 31, 2006and 2005, and the results of its operations and its cash flows for each of thethree years in the period ended December 31, 2006, and for the period fromFebruary 9, 2000 (date of inception) to December 31, 2006, inconformity with accounting principles generally accepted in the United Statesof America.

As discussed in Note 3, the Company adopted theprovisions of Statement of Financial Accounting Standards No. 123(R), *Share-Based Payment*, on January 1,2006.

As discussed in Note 3 to the consolidatedfinancial statements, on December 31, 2006, the Company initially appliedthe provisions of Staff Accounting Bulletin No. 108, *Consideringthe Effects of Prior Year Misstatements when Quantifying Misstatements inCurrent Year Financial Statements*, and recorded a cumulative effectadjustment to beginning accumulated deficit at January 1, 2006 andadjustments to deferred tax assets and valuation allowance as ofDecember 31, 2005.

The Company is in the development stage as of December 31,2006. As discussed in Note 2 to the financial statements, successful completionof the Company’s development program and, ultimately, the attainment ofprofitable operations are dependent upon future events, including obtainingadequate financing to fulfill its development activities, obtaining regulatoryapproval, and achieving a level of sales adequate to support the Company’s coststructure.

/s/ DELOITTE & TOUCHELLP

Seattle, WashingtonApril 2, 2007

48

----

**Report ofIndependent Registered Public Accountants**

To****the Board ofDirectors and Stockholdersof ICO Global Communications (Holdings) Limited and Subsidiaries:

In our opinion, the accompanying consolidatedstatements of operations, of changes in stockholders’ equity and cash flowspresent fairly, in all material respects, the financial position of ICO GlobalCommunications (Holdings) Limited and its subsidiaries (a development stageenterprise) (the “Company”) and the results of their operations and their cashflows cumulatively, for the period from February 9, 2000 (date ofinception) to December 31, 2002 in conformity with accounting principlesgenerally accepted in the United States of America. These financial statementsare the responsibility of the Company’s management. Our responsibility is toexpress an opinion on these financial statements based on our audits. Weconducted our audits of these statements in accordance with the standards ofthe Public Company Accounting Oversight Board (United States). Those standardsrequire that we plan and perform the audit to obtain reasonable assurance aboutwhether the financial statements are free of material misstatement. An auditincludes examining, on a test basis, evidence supporting the amounts anddisclosures in the financial statements, assessing the accounting principlesused and significant estimates made by management, and evaluating the overallfinancial statement presentation. We believe that our audits provide areasonable basis for our opinion.

In our opinion dated November 21, 2003 on theconsolidated financial statements referred to above, we included a paragraph ofemphasis describing conditions that raised substantial doubt about theCompany’s ability to continue as a going concern through November 21,2004. We have removed this paragraph from our report as this date has passed.

/s/ PricewaterhouseCoopers LLP

Seattle, WashingtonNovember 21, 2003, except for the second paragraph above as to which thedate is May 15, 2006

 

49

----

**ICO GlobalCommunications (Holdings) Limited(A Development Stage Enterprise)**

**ConsolidatedBalance Sheets(In thousands, except share data)**

| ** **                                                                                                                                                                 | ** ** | **December 31,** | ** ** | **December 31,** | ** ** |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-----------------------|------------|-----------------------|------------|
| ** **                                                                                                                                                                 | ** ** | **2006**              | ** ** | **2005**              | ** ** |
| **ASSETS**                                                                                                                                                                 |       |
| Current assets:                                                                                                                                                            |       |                  |       |                  |       |
| Cash and cash  equivalents                                                                                                                                                 |       | $                     | 163,059    |                  | $          | 175,510 |   |
| Restricted cash                                                                                                                                                            |       | 825                   |       | 1,650                 |       |
| Available-for-sale  investments                                                                                                                                            |       | 76,680                |       | 296,163               |       |
| Restricted investments                                                                                                                                                     |       | 48,734                |       | 48,707                |       |
| Prepaid expenses and  other current assets                                                                                                                                 |       | 807                   |       | 2,002                 |       |
| Total current assets                                                                                                                                                       |       | 290,105               |       | 524,032               |       |
| Property in service—net  of accumulated depreciation of $186 and $32, respectively                                                                                    |       | 373                   |       | 323                   |       |
| Satellite system under  construction                                                                                                                                       |       | 318,563               |       | 117,068               |       |
| Restricted investments                                                                                                                                                     |       | —                |       | 46,226                |       |
| Debt issuance costs—net  of accumulated amortization of $9,083 and $2,432, respectively                                                                               |       | 20,476                |       | 27,126                |       |
| Other assets                                                                                                                                                               |       | 14,000                |       | —                |       |
| Total                                                                                                                                                                      |       | $                     | 643,517    |                  | $          | 714,775 |   |
| **LIABILITIES  AND STOCKHOLDERS’ EQUITY (DEFICIENCY IN ASSETS)**                                                                                                      |       |
| Current liabilities:                                                                                                                                                       |       |                  |       |                  |       |
| Accounts payable                                                                                                                                                           |       | $                     | 623        |                  | $          | 1,084 |   |
| Accrued satellite system  construction payable                                                                                                                             |       | 43                    |       | 27,595                |       |
| Accrued expenses                                                                                                                                                           |       | 20,748                |       | 18,863                |       |
| Accrued interest                                                                                                                                                           |       | 29,161                |       | 25,950                |       |
| Income tax payable                                                                                                                                                         |       | 908                   |       | 1,240                 |       |
| Current portion of  capital lease obligations                                                                                                                              |       | 13,023                |       | 9,623                 |       |
| Total current  liabilities                                                                                                                                                 |       | 64,506                |       | 84,355                |       |
| Capital lease  obligations, less current portion                                                                                                                           |       | 4,595                 |       | 7,568                 |       |
| Convertible long-term  debt                                                                                                                                                |       | 650,000               |       | 650,000               |       |
| Total liabilities                                                                                                                                                          |       | 719,101               |       | 741,923               |       |
| Commitments and contingencies (Note 8)                                                                                                                                     |       |                  |       |                  |       |
| Stockholders’ equity (deficiency in assets):                                                                                                                          |       |                  |       |                  |       |
| Preferred stock, $.01  par value, 75,000,000 shares authorized, no shares issued or outstanding                                                                            |       | —                |       | —                |       |
| Class A common  stock, $.01 par value, 900,000,000 shares authorized, 201,275,552 and  200,203,884 shares issued, and 143,306,660 and 142,234,992 outstanding         |       | 2,013                 |       | 2,002                 |       |
| Class B convertible  common stock, $.01 par value, 150,000,000 shares authorized, 85,843,382 and  86,489,882 shares issued, and 54,840,000 and 55,486,500 outstanding |       | 858                   |       | 868                   |       |
| Additional paid-in  capital                                                                                                                                                |       | 2,714,989             |       | 2,699,856             |       |
| Treasury stock,  57,968,892 shares of Class A common stock and 31,003,382 shares of  Class B convertible common stock common stock                               |       | (877,489              | )          | (877,489              | )          |
| Deferred stock-based  compensation                                                                                                                                         |       | —                |       | (2,063                | )          |
| Accumulated other  comprehensive income                                                                                                                                    |       | 6,273                 |       | 9,127                 |       |
| Deficit accumulated  during the development stage                                                                                                                          |       | (1,922,228            | )          | (1,859,449            | )          |
| Total stockholders’  equity (deficiency in assets)                                                                                                                    |       | (75,584               | )          | (27,148               | )          |
| Total                                                                                                                                                                      |       | $                     | 643,517    |                  | $          | 714,775 |   |

 

The accompanying notes are an integral part of these consolidated financial statements.

50

----

**ICO GlobalCommunications (Holdings) Limited(A Development Stage Enterprise)**

**ConsolidatedStatements of Operations(In thousands, except share and per share data)**

| ** **                                                                           | ** ** | **Year ended December 31,** | ** ** | **February 9,  2000  (inception)to  December 31,  2006** | ** ** |
|--------------------------------------------------------------------------------------|------------|--------------------------------------------|------------|--------------------------------------------------------------------|------------|
| ** **                                                                           | ** ** | **2006**                                   | ** ** | **2005**                                                           | ** ** | **2004** | ** ** | **(development  stage period)** | ** ** |
| Operating expenses :                                                                 |       |                                       |       |                                                               |       |   |   |   |   |
| General and administrative                                                           |       | $                                          | 36,100     |                                                               | $          | 27,850 |   | $ | 28,011 |   | $ | 575,608 |   |
| Research and development                                                             |       | 6,603                                      |       | 570                                                                |       | — |   | 69,330 |   |
| Contract settlements                                                                 |       | —                                     |       | (74,955                                                            | )          | — |   | (74,955 | ) |
| Impairment of property under construction                                            |       | —                                     |       | —                                                             |       | 865,191 |   | 1,438,304 |   |
| (Gain) loss on disposal of assets                                                    |       | (8                                         | )          | (2,030                                                             | )          | — |   | 11,100 |   |
| Total operating expenses                                                             |       | 42,695                                     |       | (48,565                                                            | )          | 893,202 |   | 2,019,387 |   |
| Operating income (loss)                                                              |       | (42,695                                    | )          | 48,565                                                             |       | (893,202 | ) | (2,019,387 | ) |
| Interest income                                                                      |       | 19,292                                     |       | 9,503                                                              |       | 1,413 |   | 121,366 |   |
| Interest expense                                                                     |       | (41,420                                    | )          | (23,953                                                            | )          | (10,500 | ) | (148,007 | ) |
| Other income                                                                         |       | 853                                        |       | 76                                                                 |       | 220 |   | 3,725 |   |
| Income (loss)  before income taxes                                                   |       | (63,970                                    | )          | 34,191                                                             |       | (902,069 | ) | (2,042,303 | ) |
| Income tax benefit (expense)                                                         |       | (202)                                      |       | (785                                                               | )          | (429 | ) | 120,626 |   |
| Net income (loss) before cumulative effect of change  in accounting principle        |       | (64,172                                    | )          | 33,406                                                             |       | (902,498 | ) | (1,921,677 | ) |
| Cumulative effect  of change in accounting principle                                 |       | —                                     |       | —                                                             |       | — |   | (1,944 | ) |
| Net income (loss)                                                                    |       | $                                          | (64,172    | )                                                                  | $          | 33,406 |   | $ | (902,498 | ) | $ | (1,923,621 | ) |
| Basic income (loss) per  share:                                                      |       |                                       |       |                                                               |       |   |   |   |   |
| Income (loss) before cumulative effect of change in  accounting principle            |       | $                                          | (0.32      | )                                                                  | $          | 0.17 |   | $ | (4.64 | ) | $ | (9.98 | ) |
| Cumulative effect of change in accounting principle                                  |       | —                                     |       | —                                                             |       | — |   | (0.01 | ) |
| Basic income (loss) per share                                                        |       | $                                          | (0.32      | )                                                                  | $          | 0.17 |   | $ | (4.64 | ) | $ | (9.99 | ) |
| Diluted income (loss)  per share:                                                    |       |                                       |       |                                                               |       |   |   |   |   |
| Income (loss) before cumulative effect of change in  accounting principle            |       | $                                          | (0.32      | )                                                                  | $          | 0.17 |   | $ | (4.64 | ) | $ | (9.98 | ) |
| Cumulative effect of change in accounting principle                                  |       | —                                     |       | —                                                             |       | — |   | (0.01 | ) |
| Diluted income (loss) per share                                                      |       | $                                          | (0.32      | )                                                                  | $          | 0.17 |   | $ | (4.64 | ) | $ | (9.99 | ) |
| Weighted average  shares outstanding used to compute basic income (loss) per share   |       | 197,617,799                                |       | 194,889,804                                                        |       | 194,653,602 |   | 192,557,545 |   |
| Weighted average shares  outstanding used to compute diluted income (loss) per share |       | 197,617,799                                |       | 200,077,147                                                        |       | 194,653,602 |   | 192,557,545 |   |

 

The accompanying notes are an integral part of these consolidated financial statements.

51

----

**ICO GlobalCommunications (Holdings) Limited(A Development Stage Enterprise)**

**ConsolidatedStatements of Comprehensive Income (Loss)(In thousands)**

| ** **                                        | ** ** | **Year ended December 31,** | ** ** | **February 9, 2000  (inception) to  December 31, 2006  (development** | ** ** |
|---------------------------------------------------|------------|--------------------------------------------|------------|------------------------------------------------------------------------------------------------|------------|
| ** **                                        | ** ** | **2006**                                   | ** ** | **2005**                                                                                       | ** ** | **2004** | ** ** | **stage period)** | ** ** |
| Net income (loss)                                 |       | $                                          | (64,172    | )                                                                                              | $          | 33,406 |   | $ | (902,498 | ) |   | $ | (1,923,621 | ) |   |
| Other comprehensive  income (loss):               |       |                                       |       |                                                                                           |       |   |   |   |   |   |   |
| Unrealized gain (loss) on investments, net of tax |       | 57                                         |       | (75                                                                                            | )          | (178 | ) |   | (18 | ) |   |
| Cumulative translation adjustments                |       | (2,911                                     | )          | 496                                                                                            |       | 720 |   |   | 6,291 |   |   |
| Comprehensive income  (loss)                      |       | $                                          | (67,026    | )                                                                                              | $          | 33,827 |   | $ | (901,956 | ) |   | $ | (1,917,348 | ) |   |

 

The accompanying notes are an integral part of these consolidated financial statements.

52

----

**ICO Global Communications (Holdings) Limited (A Development Stage Enterprise) Consolidated Statements of Cash Flows (In thousands, except share data)**

| ** **                                                                            | ** ** | **Year ended December 31,** | ** ** | **February 9, 2000   (inception) to   December 31, 2006   (development** | ** ** |
|---------------------------------------------------------------------------------------|------------|--------------------------------------------|------------|---------------------------------------------------------------------------------------------------|------------|
| ** **                                                                            | ** ** | **2006**                                   | ** ** | **2005**                                                                                          | ** ** | **2004** | ** ** | **stage period)** | ** ** |
| Operating activities:                                                                 |       |                                       |       |                                                                                              |       |   |   |   |   |   |   |
| Net  income (loss)                                                                    |       | $                                          | (64,172    | )                                                                                                 | $          | 33,406 |   | $ | (902,498 | ) |   | $ | (1,923,621 | ) |   |
| Adjustments to reconcile net  income (loss) to net cash used in operating activities: |       |                                       |       |                                                                                              |       |   |   |   |   |   |   |
| Stock-based  compensation                                                             |       | 6,900                                      |       | 307                                                                                               |       | — |   |   | 26,535 |   |   |
| Depreciation                                                                          |       | 152                                        |       | 32                                                                                                |       | — |   |   | 3,463 |   |   |
| Amortization  of debt issuance costs                                                  |       | 6,651                                      |       | 2,432                                                                                             |       | — |   |   | 9,083 |   |   |
| Unrealized  foreign exchange (gain) loss                                              |       | (755                                       | )          | (2,673                                                                                            | )          | 70 |   |   | (5,142 | ) |   |
| (Gain)  loss on disposal of assets                                                    |       | (8                                         | )          | (2,030                                                                                            | )          | — |   |   | 11,100 |   |   |
| Impairment  of property under construction                                            |       | —                                     |       | —                                                                                            |       | 865,191 |   |   | 1,438,304 |   |   |
| Gain  on contract settlements                                                         |       | —                                     |       | (74,955                                                                                           | )          | — |   |   | (74,955 | ) |   |
| Gain  on Nextel share-pledge derivative                                               |       | —                                     |       | —                                                                                            |       | — |   |   | (9,168 | ) |   |
| Deferred  tax credit                                                                  |       | —                                     |       | —                                                                                            |       | — |   |   | (121,928 | ) |   |
| Other  than temporary loss on marketable securities available for sale                |       | —                                     |       | —                                                                                            |       | — |   |   | 689 |   |   |
| Amortization  of capitalized SAN operator incentive                                   |       | —                                     |       | —                                                                                            |       | — |   |   | 2,593 |   |   |
| Cost  of issuance of shares to distribution partners                                  |       | —                                     |       | —                                                                                            |       | — |   |   | 37,440 |   |   |
| Other                                                                                 |       | —                                     |       | —                                                                                            |       | (75 | ) |   | 30,573 |   |   |
| Changes in:                                                                           |       |                                       |       |                                                                                              |       |   |   |   |   |   |   |
| Prepaid expenses and other current assets                                             |       | 1,261                                      |       | 486                                                                                               |       | 9,995 |   |   | 49,474 |   |   |
| Accrued interest income                                                               |       | 1,205                                      |       | (4,319                                                                                            | )          | — |   |   | (3,114 | ) |   |
| Accounts payable                                                                      |       | (467                                       | )          | 908                                                                                               |       | (2,492 | ) |   | (325 | ) |   |
| Accrued interest payable                                                              |       | (14,169                                    | )          | 21,288                                                                                            |       | 5,050 |   |   | 63,462 |   |   |
| Other accrued expenses                                                                |       | 1,482                                      |       | 2,269                                                                                             |       | (3,551 | ) |   | 59,371 |   |   |
| Net cash used in operating activities                                                 |       | (61,920                                    | )          | (22,849                                                                                           | )          | (28,310 | ) |   | (406,166 | ) |   |
| Investing activities:                                                                 |       |                                       |       |                                                                                              |       |   |   |   |   |   |   |
| Proceeds  from launch insurance                                                       |       | —                                     |       | —                                                                                            |       | — |   |   | 225,000 |   |   |
| Debtor  in possession advance in relation to Old ICO                                  |       | —                                     |       | —                                                                                            |       | — |   |   | (275,000 | ) |   |
| Acquisition  of net assets of Old ICO                                                 |       | —                                     |       | —                                                                                            |       | — |   |   | (117,590 | ) |   |
| Cash  received from Old ICO at acquisition                                            |       | —                                     |       | —                                                                                            |       | — |   |   | 107,436 |   |   |
| Restricted  cash                                                                      |       | 825                                        |       | (1,650                                                                                            | )          | 1,673 |   |   | (5,899 | ) |   |
| Purchases  of satellite system under construction                                     |       | (212,143                                   | )          | (88,245                                                                                           | )          | — |   |   | (300,388 | ) |   |
| Purchases  of property under construction                                             |       | —                                     |       | —                                                                                            |       | — |   |   | (497,890 | ) |   |
| Purchases  of property in service                                                     |       | (202                                       | )          | (357                                                                                              | )          | — |   |   | (2,032 | ) |   |
| Investments  in unconsolidated subsidiaries                                           |       | —                                     |       | —                                                                                            |       | — |   |   | (2,373 | ) |   |
| Purchases  of other assets                                                            |       | (14,000                                    | )          | —                                                                                            |       | — |   |   | (14,000 | ) |   |
| Purchases  of available-for-sale investments                                          |       | (536,270                                   | )          | (336,342                                                                                          | )          | — |   |   | (3,730,891 | ) |   |
| Maturities  and sales of available-for-sale investments                               |       | 753,419                                    |       | 43,073                                                                                            |       | 450 |   |   | 3,655,219 |   |   |
| Maturities  and sales of restricted investments                                       |       | 48,035                                     |       | —                                                                                            |       | — |   |   | 48,035 |   |   |
| Purchases  of restricted investments                                                  |       | (650                                       | )          | (93,583                                                                                           | )          | — |   |   | (94,233 | ) |   |
| Proceeds  from contract amendments                                                    |       | —                                     |       | —                                                                                            |       | — |   |   | 44,434 |   |   |
| Proceeds  from sale of assets                                                         |       | 8                                          |       | 30                                                                                                |       | 1,944 |   |   | 12,106 |   |   |
| Net cash provided by (used in) investing activities                                   |       | 39,022                                     |       | (477,074                                                                                          | )          | 4,067 |   |   | (948,066 | ) |   |
| Financing activities:                                                                 |       |                                       |       |                                                                                              |       |   |   |   |   |   |   |
| Net  proceeds from issuance of common stock                                           |       | 43                                         |       | 18                                                                                                |       | — |   |   | 597,918 |   |   |
| Proceeds  from issuance of convertible notes                                          |       | —                                     |       | 650,000                                                                                           |       | — |   |   | 650,000 |   |   |
| Debt  issuance costs                                                                  |       | —                                     |       | (29,558                                                                                           | )          | — |   |   | (29,558 | ) |   |
| Proceeds  from sale of subsidiary stock and stock options                             |       | 9,920                                      |       | —                                                                                            |       | — |   |   | 9,920 |   |   |
| Advances  from affiliates                                                             |       | —                                     |       | —                                                                                            |       | — |   |   | 324,395 |   |   |
| Repayment  of advances from affiliates                                                |       | —                                     |       | —                                                                                            |       | — |   |   | (324,395 | ) |   |
| Repayment  of note payable to Eagle River                                             |       | —                                     |       | —                                                                                            |       | (37,500 | ) |   | (37,500 | ) |   |
| Repayment  of operator financing                                                      |       | —                                     |       | —                                                                                            |       | — |   |   | (5,727 | ) |   |
| Proceeds  from pledge of Nextel shares                                                |       | —                                     |       | —                                                                                            |       | — |   |   | 351,600 |   |   |
| Net  proceeds from loan from Teledesic LLC                                            |       | —                                     |       | —                                                                                            |       | — |   |   | 20,000 |   |   |
| Acquisition  of ICO shares from minority interest stockholder                         |       | —                                     |       | —                                                                                            |       | — |   |   | (30,868 | ) |   |
| Net cash provided by (used in) financing activities                                   |       | 9,963                                      |       | 620,460                                                                                           |       | (37,500 | ) |   | 1,525,785 |   |   |
| Effect of foreign exchange rate changes on cash                                       |       | 484                                        |       | 2,422                                                                                             |       | 11,359 |   |   | (8,494 | ) |   |
| Net increase (decrease) in cash and cash equivalents                                  |       | (12,451                                    | )          | 122,959                                                                                           |       | (50,384 | ) |   | 163,059 |   |   |
| Cash and cash equivalents—beginning of period                                    |       | 175,510                                    |       | 52,551                                                                                            |       | 102,935 |   |   | — |   |   |
| Cash and cash equivalents—end of period                                          |       | $                                          | 163,059    |                                                                                              | $          | 175,510 |   | $ | 52,551 |   |   | $ | 163,059 |   |   |

(continued)

53

----

**ICO Global Communications (Holdings) Limited (A Development Stage Enterprise) Consolidated Statements of Cash Flows (Continued) (In thousands, except share data)**

 

| ** **                                                                                                            | ** ** | ** **                                 | ** ** | ** **       | ** ** | ** ** | ** ** | **February 9, 2000**  | ** ** |
|-----------------------------------------------------------------------------------------------------------------------|------------|--------------------------------------------|------------|------------------|------------|------------|------------|---------------------------------|------------|
| ** **                                                                                                            | ** ** | ** **                                 | ** ** | ** **       | ** ** | ** ** | ** ** | **(inception) to**         | ** ** |
| ** **                                                                                                            | ** ** | ** **                                 | ** ** | ** **       | ** ** | ** ** | ** ** | **December 31, 2006** | ** ** |
| ** **                                                                                                            | ** ** | **Year ended December 31,** | ** ** | **(development** | ** ** |
| ** **                                                                                                            | ** ** | **2006**                                   | ** ** | **2005**         | ** ** | **2004**   | ** ** | **stage period)**          | ** ** |
| Supplemental disclosures:                                                                                             |       |                                       |       |             |       |       |       |                            |       |   |   |
| Income taxes paid                                                                                                     |       | $                                          | 139        |             | $          | 101        |       | $                               | 375        |   |   | $ | 7,427 |   |   |
| Interest paid                                                                                                         |       | 48,750                                     |       | —           |       | 5,375      |       |                            | 101,652    |   |   |
| Capitalized interest                                                                                                  |       | 16,904                                     |       | 1,228            |       | —     |       |                            | 18,132     |   |   |
| Supplemental disclosure  of non-cash activities:                                                                      |       |                                       |       |             |       |       |       |                            |       |   |   |
| Issuance of Class A  common shares in respect of investment in Ellipso, Inc.                                |       | —                                     |       | —           |       | —     |       |                            | 6,863      |   |   |
| Issuance of Class B  common shares in respect of investment in Ellipso, Inc.                                |       | —                                     |       | —           |       | —     |       |                            | 74         |   |   |
| Issuance of Class A  common shares in respect of investment in Constellation Communications  Holdings, Inc. |       | —                                     |       | —           |       | —     |       |                            | 904        |   |   |
| Increase (decrease) in  accrued satellite system construction payable                                                 |       | (27,552                                    | )          | 27,595           |       | —     |       |                            | 43         |   |   |
| Equipment acquired in  capital lease agreements                                                                       |       | —                                     |       | —           |       | —     |       |                            | 42,096     |   |   |
| Issuance of warrants for  the repayment of debt                                                                       |       | —                                     |       | —           |       | —     |       |                            | 4,950      |   |   |
| The following securities  of ICO arose from the acquisition of Old ICO’s net assets:                             |       |                                       |       |             |       |       |       |                            |       |   |   |
| 93,700,041  Class A common shares and options to acquire Class A common shares  issued                      |       | —                                     |       | —           |       | —     |       |                            | 679,873    |   |   |
| 31,003,382  Class B common shares issued                                                                         |       | —                                     |       | —           |       | —     |       |                            | 275,000    |   |   |
| 1,600,000  Class A common shares issued to distribution partners                                                 |       | —                                     |       | —           |       | —     |       |                            | 16,720     |   |   |
| 200,000  Class A common shares committed to distribution partners                                                |       | —                                     |       | —           |       | —     |       |                            | 2,090      |   |   |
| 50,000,000  warrants issued to acquire Class A common shares                                                     |       | —                                     |       | —           |       | —     |       |                            | 180,000    |   |   |
|                                                                                                                       |            |                                            |            |                  |            |            |            |                                 |            |  |  |  |  |  |  |

 

(concluded)

The accompanying notes are an integral part of these consolidated financial statements

54

----

**ICO Global Communications (Holdings) Limited (A Development Stage Enterprise) Consolidated Statements of Changes in Stockholders’ Equity (Deficiency in Assets) (In thousands, except share data)**

| ** **                                                                                      | ** ** | ** **                   | ** **  | ** **                   | ** ** | ** **   | ** **  | ** **                | ** ** | ** **                            | ** ** | ** **                                    | ** ** | ** **                                  | ** ** | **Deficit** | ** ** | **Total**           | ** ** |
|-------------------------------------------------------------------------------------------------|------------|------------------------------|-------------|------------------------------|------------|--------------|-------------|---------------------------|------------|---------------------------------------|------------|-----------------------------------------------|------------|---------------------------------------------|------------|-------------|------------|---------------------|------------|
| ** **                                                                                      | ** ** | **Common stock**        | ** **  | **Additional  paid-in**      | ** ** | **Treasury** | ** **  | **Deferred  stock-based** | ** ** | **Accumulated  other  comprehensive** | ** ** | **accumulated  during the  development** | ** ** | **stockholders’  equity  (deficiency** | ** ** |
| ** **                                                                                      | ** ** | **Class A shares** | ** **  | **Class B shares** | ** ** | **Amount**   | ** **  | **capital**               | ** ** | **stock**                             | ** ** | **compensation**                              | ** ** | **income (loss)**                      | ** ** | **stage**   | ** ** | **in assets)** | ** ** |
| Balance at  inception, February 9, 2000                                                    |       |                         | —      |                         |       |         | —      |                      |       |                                  | $          | —                                        |       |                                        |       | $           | —     |                |       | $ | — |   |   | $ | — |   |   |   | $ | — |   |   |   | $ |   — |    |    |    | $ | — |   |   |
| Issuance of  Class B common stock for shares of Nextel Communications, Inc.           |       |                         | —      |                         |       |         | 36,345,786  |                      |       |                                  | 363        |                                          |       |                                        | 401,152    |        |       | —              |       |   | — |   |   |   | — |   |   |   | — |   |   |   | 401,515 |   |   |
| Deferred tax  liability associated with Nextel Communications, Inc. share contribution     |       |                         | —      |                         |       |         | —      |                      |       |                                  | —     |                                          |       |                                        | (124,420   | )           |       | —              |       |   | — |   |   |   | — |   |   |   | — |   |   |   | (124,420 | ) |   |
| Initial issuance  of Class A common stock for cash                                         |       |                         | 222         |                         |       |         | —      |                      |       |                                  | 1          |                                          |       |                                        | —     |        |       | —              |       |   | — |   |   |   | — |   |   |   | — |   |   |   | 1 |   |   |
| Issuance of securities to  acquire assets of Old ICO:                                           |       |                         |        |                         |       |         |        |                      |       |                                  |       |                                          |       |                                        |       |        |       |                |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Issuance of Class A common stock                                                           |       |                         | 160,000,040 |                         |       |         | —      |                      |       |                                  | 1,600      |                                          |       |                                        | 1,372,813  |        |       | —              |       |   | — |   |   |   | — |   |   |   | — |   |   |   | 1,374,413 |   |   |
| Issuance of Class B common stock                                                           |       |                         | —      |                         |       |         | 31,003,382  |                      |       |                                  | 310        |                                          |       |                                        | 274,690    |        |       | —              |       |   | — |   |   |   | — |   |   |   | — |   |   |   | 275,000 |   |   |
| Issuance of Class A common stock to distribution  partners                                 |       |                         | 1,550,000   |                         |       |         | —      |                      |       |                                  | 16         |                                          |       |                                        | 16,181     |        |       | —              |       |   | — |   |   |   | — |   |   |   | — |   |   |   | 16,197 |   |   |
| Issuance of warrants                                                                            |       |                         | —      |                         |       |         | —      |                      |       |                                  | —     |                                          |       |                                        | 180,000    |        |       | —              |       |   | — |   |   |   | — |   |   |   | — |   |   |   | 180,000 |   |   |
| Issuance of  Class A common stock and options                                              |       |                         | 24,920,353  |                         |       |         | —      |                      |       |                                  | 249        |                                          |       |                                        | 267,712    |        |       | —              |       |   | — |   |   |   | — |   |   |   | — |   |   |   | 267,961 |   |   |
| Issuance of  Class B common stock and options                                              |       |                         | —      |                         |       |         | 19,454,214  |                      |       |                                  | 195        |                                          |       |                                        | 208,990    |        |       | —              |       |   | — |   |   |   | — |   |   |   | — |   |   |   | 209,185 |   |   |
| Cost of issuance  of common stock                                                               |       |                         | —      |                         |       |         | —      |                      |       |                                  | —     |                                          |       |                                        | (3,211     | )           |       | —              |       |   | — |   |   |   | — |   |   |   | — |   |   |   | (3,211 | ) |   |
| Stock-based  compensation                                                                       |       |                         | 69,750      |                         |       |         | —      |                      |       |                                  | 1          |                                          |       |                                        | 749        |        |       | —              |       |   | — |   |   |   | — |   |   |   | — |   |   |   | 750 |   |   |
| Other compensation                                                                              |       |                         | —      |                         |       |         | —      |                      |       |                                  | —     |                                          |       |                                        | 18,436     |        |       | —              |       |   | — |   |   |   | — |   |   |   | — |   |   |   | 18,436 |   |   |
| Other comprehensive  loss                                                                       |       |                         | —      |                         |       |         | —      |                      |       |                                  | —     |                                          |       |                                        | —     |        |       | —              |       |   | — |   |   |   | (26,326 | ) |   |   | — |   |   |   | (26,326 | ) |   |
| Net loss                                                                                        |       |                         | —      |                         |       |         | —      |                      |       |                                  | —     |                                          |       |                                        | —     |        |       | —              |       |   | — |   |   |   | — |   |   |   | (118,794 | ) |   |   | (118,794 | ) |   |
| Treasury stock                                                                                  |       |                         | (57,968,892 | )                            |       |         | (31,003,382 | )                         |       |                                  | —     |                                          |       |                                        | —     |        |       | (877,489            | )          |   | — |   |   |   | — |   |   |   | — |   |   |   | (877,489 | ) |   |
| Balance,  December 31, 2000                                                                |       |                         | 128,571,473 |                         |       |         | 55,800,000  |                      |       |                                  | 2,735      |                                          |       |                                        | 2,613,092  |        |       | (877,489            | )          |   | — |   |   |   | (26,326 | ) |   |   | (118,794 | ) |   |   | 1,593,218 |   |   |
| Issuance of Class A common stock and options to  acquire Ellipso Class A common stock |       |                         | 492,611     |                         |       |         | —      |                      |       |                                  | 5          |                                          |       |                                        | 3,833      |        |       | —              |       |   | — |   |   |   | — |   |   |   | — |   |   |   | 3,838 |   |   |
| Issuance of  securities to acquire assets of Old ICO:                                           |       |                         |        |                         |       |         |        |                      |       |                                  |       |                                          |       |                                        |       |        |       |                |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Issuance of Class A common stock to Old ICO creditors                                      |       |                         | 700,000     |                         |       |         | —      |                      |       |                                  | 7          |                                          |       |                                        | 5,453      |        |       | —              |       |   | — |   |   |   | — |   |   |   | — |   |   |   | 5,460 |   |   |
| Issuance of Class A common stock to distributors  and SAN operators                        |       |                         | 6,750,000   |                         |       |         | —      |                      |       |                                  | 68         |                                          |       |                                        | 52,715     |        |       | —              |       |   | — |   |   |   | — |   |   |   | — |   |   |   | 52,783 |   |   |
| Issuance of  Class A common stock                                                          |       |                         | 138,218     |                         |       |         | —      |                      |       |                                  | 1          |                                          |       |                                        | 1,507      |        |       | —              |       |   | — |   |   |   | — |   |   |   | — |   |   |   | 1,508 |   |   |
| Cost of issuance  of common stock                                                               |       |                         | —      |                         |       |         | —      |                      |       |                                  | —     |                                          |       |                                        | (176       | )           |       | —              |       |   | — |   |   |   | — |   |   |   | — |   |   |   | (176 | ) |   |
| Other  comprehensive loss                                                                       |       |                         | —      |                         |       |         | —      |                      |       |                                  | —     |                                          |       |                                        | —     |        |       | —              |       |   | — |   |   |   | (8,036 | ) |   |   | — |   |   |   | (8,036 | ) |   |
| Net loss                                                                                        |       |                         | —      |                         |       |         | —      |                      |       |                                  | —     |                                          |       |                                        | —     |        |       | —              |       |   | — |   |   |   | — |   |   |   | (225,900 | ) |   |   | (225,900 | ) |   |
| Balance, December 31, 2001                                                                 |       |                         | 136,652,302 |                         |       |         | 55,800,000  |                      |       |                                  | $          | 2,816                                         |       |                                        |       | $           | 2,676,424  |                |       | $ | (877,489 | ) |   | $ | — |   |   |   | $ | (34,362 | ) |   |   | $ | (344,694 | ) |   |   | $ | 1,422,695 |   |   |

 

(continued)

55

----

**ICO Global Communications (Holdings) Limited (A Development Stage Enterprise) Consolidated Statements of Changes in Stockholders’ Equity (Deficiency in Assets) (Continued) (In thousands, except share data)**

| ** **                                                                                                                 | ** ** | **Common stock**        | ** **  | **Additional  paid-in**      | ** ** | **Treasury** | ** ** | **Deferred  stock-based** | ** ** | **Accumulated  other  comprehensive** | ** ** | **Deficit  accumulated  during the  development** | ** ** | **Total  stockholders’  equity  (deficiency** | ** ** |
|----------------------------------------------------------------------------------------------------------------------------|------------|------------------------------|-------------|------------------------------|------------|--------------|------------|---------------------------|------------|---------------------------------------|------------|--------------------------------------------------------|------------|----------------------------------------------------|------------|
| ** **                                                                                                                 | ** ** | **Class A shares** | ** **  | **Class B shares** | ** ** | **Amount**   | ** ** | **capital**               | ** ** | **stock**                             | ** ** | **compensation**                                       | ** ** | **income (loss)**                             | ** ** | **stage** | ** ** | **in assets)** | ** ** |
| Balance,  December 31, 2001                                                                                           |       |                         | 136,652,302 |                         |       |         | 55,800,000 |                      |       |                                  | $          | 2,816                                                  |       |                                               |       | $ | 2,676,424 |   |   | $ | (877,489) |   |   | $ | — |   |   |   | $ | (34,362) |   |   |   | $ | (344,694 | ) |   |   | $ | 1,422,695 |   |   |
| Issuance of Class A  common stock to acquire CCI Series A preferred stock and common  stock                 |       |                         | 583,253     |                         |       |         | —     |                      |       |                                  | 5          |                                                   |       |                                               | 899        |   |   | — |   |   | — |   |   |   | — |   |   |   | — |   |   |   | 904 |   |   |
| Issuance of Class A  and Class B common stock to acquire Ellipso Series A preferred  stock and common stock |       |                         | 1,571,547   |                         |       |         | 46,500     |                      |       |                                  | 15         |                                                   |       |                                               | 2,574      |   |   | — |   |   | — |   |   |   | — |   |   |   | — |   |   |   | 2,589 |   |   |
| Issuance of warrants to  refinance debt                                                                                    |       |                         | —      |                         |       |         | —     |                      |       |                                  | —     |                                                   |       |                                               | 4,950      |   |   | — |   |   | — |   |   |   | — |   |   |   | — |   |   |   | 4,950 |   |   |
| Settlement of Teledesic  note payable                                                                                      |       |                         | —      |                         |       |         | —     |                      |       |                                  | —     |                                                   |       |                                               | 12,514     |   |   | — |   |   | — |   |   |   | — |   |   |   | — |   |   |   | 12,514 |   |   |
| Stock-based compensation                                                                                                   |       |                         | —      |                         |       |         | —     |                      |       |                                  | —     |                                                   |       |                                               | 141        |   |   | — |   |   | — |   |   |   | — |   |   |   | — |   |   |   | 141 |   |   |
| Other comprehensive  income                                                                                                |       |                         | —      |                         |       |         | —     |                      |       |                                  | —     |                                                   |       |                                               | —     |   |   | — |   |   | — |   |   |   | 6,912 |   |   |   | — |   |   |   | 6,912 |   |   |
| Net loss                                                                                                                   |       |                         | —      |                         |       |         | —     |                      |       |                                  | —     |                                                   |       |                                               | —     |   |   | — |   |   | — |   |   |   | — |   |   |   | (411,515 | ) |   |   | (411,515 | ) |   |
| Balance,  December 31, 2002                                                                                           |       |                         | 138,807,102 |                         |       |         | 55,846,500 |                      |       |                                  | 2,836      |                                                   |       |                                               | 2,697,502  |   |   | (877,489) |   |   | — |   |   |   | (27,450) |   |   |   | (756,209 | ) |   |   | 1,039,190 |   |   |
| Other comprehensive  income                                                                                                |       |                         | —      |                         |       |         | —     |                      |       |                                  | —     |                                                   |       |                                               | —     |   |   | — |   |   | — |   |   |   | 35,614 |   |   |   | — |   |   |   | 35,614 |   |   |
| Net loss                                                                                                                   |       |                         | —      |                         |       |         | —     |                      |       |                                  | —     |                                                   |       |                                               | —     |   |   | — |   |   | — |   |   |   | — |   |   |   | (234,148 | ) |   |   | (234,148 | ) |   |
| Balance,  December 31, 2003                                                                                           |       |                         | 138,807,102 |                         |       |         | 55,846,500 |                      |       |                                  | 2,836      |                                                   |       |                                               | 2,697,502  |   |   | (877,489) |   |   | — |   |   |   | 8,164 |   |   |   | (990,357 | ) |   |   | 840,656 |   |   |
| Other comprehensive  income                                                                                                |       |                         | —      |                         |       |         | —     |                      |       |                                  | —     |                                                   |       |                                               | —     |   |   | — |   |   | — |   |   |   | 542 |   |   |   | — |   |   |   | 542 |   |   |
| Net loss                                                                                                                   |       |                         | —      |                         |       |         | —     |                      |       |                                  | —     |                                                   |       |                                               | —     |   |   | — |   |   | — |   |   |   | — |   |   |   | (902,498 | ) |   |   | (902,498 | ) |   |
| Balance,  December 31, 2004                                                                                           |       |                         | 138,807,102 |                         |       |         | 55,846,500 |                      |       |                                  | 2,836      |                                                   |       |                                               | 2,697,502  |   |   | (877,489) |   |   | — |   |   |   | 8,706 |   |   |   | (1,892,855 | ) |   |   | (61,300 | ) |   |
| Issuance of Class A  common stock from exercise of warrants                                                           |       |                         | 1,827,890   |                         |       |         | —     |                      |       |                                  | 18         |                                                   |       |                                               | —     |   |   | — |   |   | — |   |   |   | — |   |   |   | — |   |   |   | 18 |   |   |
| Issuance of restricted  Class A common stock                                                                          |       |                         | 600,000     |                         |       |         | —     |                      |       |                                  | 6          |                                                   |       |                                               | 2,364      |   |   | — |   |   | (2,370) |   |   |   | — |   |   |   | — |   |   |   | — |   |   |
| Issuance of restricted  Class A common stock dividend                                                                 |       |                         | 1,000,000   |                         |       |         | —     |                      |       |                                  | 10         |                                                   |       |                                               | (10)       |   |   | — |   |   | — |   |   |   | — |   |   |   | — |   |   |   | — |   |   |
| Amortization of  stock-based compensation                                                                                  |       |                         | —      |                         |       |         | —     |                      |       |                                  | —     |                                                   |       |                                               | —     |   |   | — |   |   | 307 |   |   |   | — |   |   |   | — |   |   |   | 307 |   |   |
| Other comprehensive  income                                                                                                |       |                         | —      |                         |       |         | —     |                      |       |                                  | —     |                                                   |       |                                               | —     |   |   | — |   |   | — |   |   |   | 421 |   |   |   | — |   |   |   | 421 |   |   |
| Net income                                                                                                                 |       |                         | —      |                         |       |         | —     |                      |       |                                  | —     |                                                   |       |                                               | —     |   |   | — |   |   | — |   |   |   | — |   |   |   | 33,406 |   |   |   | 33,406 |   |   |
| Balance,  December 31, 2005                                                                                           |       |                         | 142,234,992 |                         |       |         | 55,846,500 |                      |       |                                  | $          | 2,870                                                  |       |                                               |       | $ | 2,699,856 |   |   | $ | (877,489) |   |   | $ | (2,063) |   |   |   | $ | 9,127 |   |   |   | $ | (1,859,449 | ) |   |   | $ | (27,148 | ) |   |

 

(continued)

56

----

**ICO Global Communications (Holdings) Limited (A Development Stage Enterprise) Consolidated Statements of Changes in Stockholders’ Equity (Deficiency in Assets) (Continued) (In thousands, except share data)**

 

|                                                                                                       | ** ** | **Common stock**        | ** **  | **Additional   paid-in**     | ** ** | **Treasury** | ** **  | **Deferred   stock-based** | ** ** | **Accumulated   other   comprehensive** | ** ** | **Deficit   accumulated   during the   development** | ** ** | **Total   stockholders’   equity**

**(deficiency** | ** ** |
|-------------------------------------------------------------------------------------------------------|------------|------------------------------|-------------|------------------------------|------------|--------------|-------------|----------------------------|------------|-----------------------------------------|------------|-----------------------------------------------------------|------------|----------------------------------------------------------|------------|
| ** **                                                                                            | ** ** | **Class A shares** | ** **  | **Class B shares** | ** ** | **Amount**   | ** **  | **capital**                | ** ** | **stock**                               | ** ** | **compensation**                                          | ** ** | **income (loss)**                                   | ** ** | **stage** | ** ** | **in assets)** | ** ** |
| Balance, December 31, 2005                                                                       |       |                         | 142,234,992 |                         |       |         | 55,846,500  |                       |       |                                    | $          | 2,870                                                     |       |                                                     | $          | 2,699,856 |   | $ | (877,489) |   |   | $ | (2,063) |   |   |   | $ | 9,127 |   |   | $ | (1,859,449 | ) |   | $ |   (27,148 | ) |   |
| Adjustment to  beginning accumulated deficit (Note 3)                                                 |       |                         | —      |                         |       |         | —      |                       |       |                                    | —     |                                                      |       | —                                                   |       | — |   |   | — |   |   |   | — |   |   | 1,393 |   |   | 1,393 |   |   |
| Reclassification of deferred stock-based  compensation recorded upon adoption of SFAS No. 123(R) |       |                         | —      |                         |       |         | —      |                       |       |                                    | —     |                                                      |       | (2,063)                                                  |       | — |   |   | 2,063 |   |   |   | — |   |   | — |   |   | — |   |   |
| Gain on sale of  subsidiary stock and stock options                                                   |       |                         | —      |                         |       |         | —      |                       |       |                                    | —     |                                                      |       | 9,920                                                    |       | — |   |   | — |   |   |   | — |   |   | — |   |   | 9,920 |   |   |
| Issuance of Class A common stock                                                                 |       |                         | 97,551      |                         |       |         | —      |                       |       |                                    | 1          |                                                      |       | 527                                                      |       | — |   |   | — |   |   |   | — |   |   | — |   |   | 528 |   |   |
| Class A  shares withheld at vesting in order to cover income tax withholding  obligations        |       |                         | (33,800)    |                         |       |         | —      |                       |       |                                    | —     |                                                      |       | (194)                                                    |       | — |   |   | — |   |   |   | — |   |   | — |   |   | (194 | ) |   |
| Conversion of Class B common stock                                                               |       |                         | 1,006,500   |                         |       |         | (1,006,500) |                       |       |                                    | —     |                                                      |       | —                                                   |       | — |   |   | — |   |   |   | — |   |   | — |   |   | — |   |   |
| Issuance of  Class A common stock from exercise of warrants                                      |       |                         | 1,417       |                         |       |         | —      |                       |       |                                    | —     |                                                      |       | 43                                                       |       | — |   |   | — |   |   |   | — |   |   | — |   |   | 43 |   |   |
| Stock-based compensation                                                                              |       |                         | —      |                         |       |         | —      |                       |       |                                    | —     |                                                      |       | 6,900                                                    |       | — |   |   | — |   |   |   | — |   |   | — |   |   | 6,900 |   |   |
| Other  comprehensive loss                                                                             |       |                         | —      |                         |       |         | —      |                       |       |                                    | —     |                                                      |       | —                                                   |       | — |   |   | — |   |   |   | (2,854 | ) |   | — |   |   | (2,854 | ) |   |
| Net loss                                                                                              |       |                         | —      |                         |       |         | —      |                       |       |                                    | —     |                                                      |       | —                                                   |       | — |   |   | — |   |   |   | — |   |   | (64,172 | ) |   | (64,172 | ) |   |
| Balance,  December 31, 2006                                                                      |       |                         | 143,306,660 |                         |       |         | 54,840,000  |                       |       |                                    | $          | 2,871                                                     |       |                                                     | $          | 2,714,989 |   | $ | (877,489) |   |   | $ | — |   |   |   | $ | 6,273 |   |   | $ | (1,922,228 | ) |   | $ |   (75,584 | ) |   |
|                                                                                                  |       |                         |        |                         |       |         |        |                       |       |                                    |       |                                                      |       |                                                     |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |

 

(concluded)

The accompanying notes are an integral part of these consolidatedfinancial statements.

57

----

**ICO GlobalCommunications (Holdings) Limited(A Development Stage Enterprise)**

**Notes toConsolidated Financial Statements**

**1.**   Organizationand Business

ICO Global Communications (Holdings) Limited (“ICO”)is a next-generation mobile satellite service (“MSS”) operator authorizedthrough its majority owned subsidiary, ICO North America, Inc. (“ICO NorthAmerica”), by the FederalCommunications Commission (“FCC”) to offer ubiquitous MSS throughout theUnited States using a geosynchronous earth orbit (“GEO”) satellite. ICO is alsopermitted to operate a medium earth orbit (“MEO”) satellite system globallyoutside the United States (with the exception of two Middle Easterncountries) in compliance with regulations promulgated by the United Kingdom andby the InternationalTelecommunication Union.

ICO was incorporated in the State of Delaware in 2000to purchase the assets and assume certain liabilities of ICO GlobalCommunications (Holdings) Limited (“Old ICO”), a Bermuda corporation, on itsemergence from Chapter 11 bankruptcy. Effective November 28, 2001, ICO mergedwith ICO Global Limited (“IGL”), a holding company which was formed on February 9,2000. ICO and IGL were under the common control of Eagle River Investments, LLCand its affiliates (collectively referred to as “Eagle River”) prior to theirmerger. Accounting principles generally accepted in the United States ofAmerica require the merger of entities under common control to be accounted forin a manner similar to pooling-of-interests accounting. The assets, liabilitiesand stockholders’ equity (deficiency in assets) for IGL and ICO were recordedat historical cost as of the effective date of the transaction. Theconsolidated financial statements include the accounts of ICO, a developmentstage enterprise, and its subsidiaries (collectively referred to as the “Company”).The consolidated statements of operations, of comprehensive income (loss), ofcash flows and of changes in stockholders’ equity (deficiency in assets) havebeen prepared to include the activity for IGL and ICO from February 9,2000, the date of inception of IGL, through December 31, 2006. As of December 31,2006, Eagle River remains ICO’s controlling shareholder with an economicinterest of approximately 34% and a voting interest of approximately 69%.

Following the purchase of assets and assumption ofcertain liabilities of Old ICO, the Company established a new management teamwho oversaw the construction of the MEO satellites and ground systems anddeveloped the technical plan for the MEO satellite system. Following one launchfailure in March 2000, as well as disagreements with the manufacturer andlaunch manager of its MEO satellites, which disagreements are the subject oflitigation commenced in 2004, the Company significantly curtailed constructionactivity on its MEO satellite system.

In order to address service coverage and economiclimitations inherent to the MSS business plan, the Company devised andintroduced to the FCC the concept of using MSS spectrum for ancillaryterrestrial use. This capability would allow the Company full access to urbancustomers by overcoming signal blockage related to buildings or terrain andcapacity limitations inherent in satellite communications, thereby giving theCompany greater flexibility to provide integrated satellite-terrestrialservices. In February 2003, the FCC issued an order establishing rules permittingMSS operators to seek authorization to integrate an ancillary terrestrialcomponent (“ATC”) into their networks. Additionally, in May 2005, the FCCgranted the Company’s request to modify its reservation of spectrum for theprovision of MSS in the United States using a GEO satellite system rather thana MEO satellite system. Finally, on December 8, 2005, the FCC increasedthe assignment to the Company of 2 GHz MSS spectrum from 8 MHz to 20 MHz.

In December 2004, theCompany formed a new wholly-owned subsidiary, ICO North America, to develop anadvanced hybrid mobile satellite service/ancillary terrestrial component system(the “MSS/ATC System”), using a GEO satellite, designed to provide voice, dataand Internet service throughout the United States to a wide variety of devicesand handsets, including ones similar in size to existing cellular 

58

----

phones.In August 2005, ICO North America issued $650 million aggregate principalamount of convertible notes (the “7.5% Notes”) to fund the development of theMSS/ATC System, and, in February 2006, it sold 323,000 shares of Class Acommon stock and stock options to purchase an additional 3,250,000 shares of Class Acommon stock to certain holders of its 7.5% Notes, resulting in net proceeds of$9.9 million.

**2.**   DevelopmentStage Enterprise

The Company is a development stage enterprise asdefined in Statement of Financial Accounting Standards (“SFAS”) No. 7, *Accounting and Reporting by Development Stage Enterprises,*and will continue to be so until it commences commercial operations. The developmentstage is from February 9, 2000 (inception) through December 31, 2006(see Note 1).

As the Company is notcurrently generating revenue from operations, there is no assurance that theCompany will be able to obtain the funding necessary to complete theconstruction of the MSS/ATC System, fund its future working capitalrequirements, or achieve positive cash flow from operations. In addition, theCompany operates in a heavily regulated industry, and its rights to offer itsplanned services are tied to meeting significant milestones or otherwisesatisfying its regulators. In November 2006, the Company requested anextension from the FCC of the remaining milestone dates in itsauthorization for the construction and launch of its satellite to accommodatemanufacture and delivery issues encountered by subcontractors of its satellitemanufacturer. On February 2, 2007, the FCC granted the Company’srequest to extend the remaining four milestone dates in its authorization forthe construction and launch of its GEO satellite. Launch of the Company’s GEOsatellite has been extended until November 30, 2007 (rather than July 1,2007) and required certification that its MSS system is operational has beenextended until December 31, 2007 (rather than July 17, 2007). TheCompany’s two remaining milestones, which are technical benchmarks leading tothe satellite launch, were also extended to April 30, 2007 (rather than January 1,2007) and June 15, 2007 (rather than March 1, 2007), respectively. Ifthe Company fails to meet a milestone and is unable to obtain a waiver orextension, the Company could lose its MSS authorization, and a loss of its MSSauthorization would be an event of default under the indenture governing the7.5% Notes (see Note 7). In the event that the Company is not able to realizeits assets in the ordinary course of business, and is forced to realize theassets by divestment, there is no assurance that the carrying value of theassets could be recovered.

**3.**   Summaryof Significant Accounting Policies

***Principles ofConsolidation and Basis of Presentation—******The***consolidatedfinancial statements of the Company include its results of operations for theyears ended December 31, 2006, 2005 and 2004, and the development stageperiod from February 9, 2000 (inception) to December 31, 2006. Theseconsolidated financial statements include all of the assets, liabilities andresults of operations of the Company and its subsidiaries, all of which arewholly-owned. All significant intercompany transactions and balances have beeneliminated in consolidation. All information in these financial statements isin U.S. dollars. These financial statements have been prepared in accordancewith accounting principles generally accepted in the United States of America.

***Segment Information—******The Company operates in andreports on one segment (satellite telecommunications) based upon the provisionsof SFAS No. 131,******Disclosureabout Segments of an Enterprise and Related Information******. The net book value of allforeign long-lived assets was zero as of December 31, 2006 and 2005.***

***Risks andUncertainties—******The***Companyis subject to the risks and challenges of other companies in the developmentstage, including dependence on key individuals, successful development andmarketing of its 

59

----

products and services,competition from substitute products and services, and larger companies withgreater financial, technical and marketing resources.

***Use of Estimates—******The preparation of financialstatements requires management to make estimates and assumptions that affectthe reported amounts of assets and liabilities and disclosure of contingentassets and liabilities at the date of the financial statements and the reportedamounts of revenues and expenses during the reporting period. Significantestimates are used when accounting for depreciation, taxes, contingencies,asset useful lives and valuation of stock compensation awards, among others.Actual results could differ from those estimates. Estimates are evaluated on anongoing basis.***

***Cash and Cash Equivalents—******Cash***andcash equivalents is defined as short-term highly liquid investments withoriginal maturities from the date of purchase of 90 days or less. Cash andcash equivalents is comprised of the following (in thousands):

| ** **          | ** ** | **December 31,** | ** ** |
|---------------------|------------|-----------------------|------------|
| ** **          | ** ** | **2006**              | ** ** | **2005** | ** ** |
| Cash                |       | $                     | 23,148     |   | $ | 20,821 |   |
| Money market  funds |       | 20,192                |       | 7,877 |   |
| Commercial paper    |       | 119,719               |       | 146,812 |   |
|                |       | $                     | 163,059    |   | $ | 175,510 |   |

 

***Restricted Cash—******As***of December 31,2006 and 2005, the Company had restricted cash of $825,000 and $1.7 million,respectively, related to a bond which is held pursuant to conditions of theCompany’s FCC authorization to operate in the MSS spectrum.

***Available-for-SaleInvestments—******The***Company’sinvestments are primarily held in commercial paper, corporate bonds and notesand U.S. government and agency securities, and are classified asavailable-for-sale and are reported at fair value based upon quoted marketprices. Investments generally mature or are sold within six months from thepurchase date and are classified as current assets in the consolidated balancesheets. Realized gains and losses on investments are determined using thespecific identification method and are included in interest income in theconsolidated statements of operations. The Company includes any unrealizedgains or losses on investments, net of tax, in stockholders’ equity (deficiencyin assets) as a component of accumulated other comprehensive income. TheCompany does not hold any derivative financial instruments in its investmentportfolio.

***RestrictedInvestments—******The***Company’srestricted investments consist of U.S. Treasury securities held as collateralfor future interest payments related to the 7.5% Notes. The maturity dates ofthese investments correspond with interest payment dates as specified in the7.5% Notes. These investments are classified as held-to-maturity and arereported at amortized cost. As of December 31, 2006, all of the Company’srestricted investments mature in 2007 and are classified as current. As of December 31,2005, restricted investments with maturity dates during 2006 are classified ascurrent and restricted investments with maturity dates in 2007 are classifiedas non current. Gross unrealized losses on restricted investments at December 31,2006 and 2005 were $178,000 and $304,000, respectively.

***Property in Service—******Property***inservice, net of accumulated depreciation, consists of computer equipment,software and furniture and fixtures and is depreciated using the straight-linemethod based on estimated useful lives of three to five years. Significantadditions and improvements to property in service are capitalized. Repair andmaintenance costs are expensed as incurred.

***Satellite SystemUnder Construction—******Satellite***systemunder construction represents payments made and accrued for third-partyconstruction and engineering costs incurred in the design, manufacture, testand launch of the MSS/ATC System. Satellite system under construction will beclassified as property in service when placed into service and will bedepreciated using the straight-line method based on an 

60

----

anticipated useful life of10 to 15 years. Only the costs of constructing successfully deployed satelliteswill be transferred to property in service. Losses resulting from anyunsuccessful launches or satellite failures will be recognized as those eventsoccur, and insurance proceeds, if any, related to such losses will be recordedwhen their realization becomes determinable.

***CapitalizedInterest—******The***Companycapitalizes interest costs associated with the construction of the MSS/ATCSystem. Interest capitalized to satellite system under construction for theyears ended December 31, 2006 and 2005 was $16.9 million and $1.2 million,respectively.

***Impairment ofLong-Lived Assets—***Pursuant to SFAS No. 144, *Accounting for the Impairment or Disposal of Long-Lived*Assets(“SFAS 144”), the carrying values of long-lived assets are reviewed wheneverevents or changes in circumstances indicate that their carrying value may notbe recoverable. Management considers whether specific events have occurred indetermining whether long-lived assets are impaired at each balance sheetdate orwhenever events or changes in circumstances indicate that the carrying value ofan asset may not be recoverable. The determination of whether impairmentexists is based on any excess of the carrying value over the expected futurecash flows. Any resulting impairment charge is measured based on the differencebetween the carrying value of the asset and its fair value, as estimatedthrough expected future cash flows, discounted at a market rate of return for asimilar investment. The Company recorded substantial impairments of propertyunder construction for the year ended December 31, 2004 (see Note 5).

***Debt Issuance Costs—******Costs***incurredin connection with the issuance of the 7.5% Notes have been capitalized and areincluded in debt issuance costs on the consolidated balance sheets. These costsare being amortized using the effective interest method from issuance in August 2005through maturity in August 2009. Amortization of debt issuance costs isincluded in interest expense on the consolidated statements of operations andtotaled $6.7 million and $2.4 million for the years ended December 31,2006 and 2005, respectively.

***Other Assets—******Other assets represents paymentsmade to acquire first priority rights to use a desired orbital slot for theCompany’s GEO satellite. The Company currently intends to utilize such slotwhen it deploys its first satellite to be used in the MSS/ATC System. TheCompany expects to amortize such costs over the estimated useful life of itssatellite system under construction, currently anticipated to be 10 to 15years.***

***Fair Value ofFinancial Instruments—******Financial***instrumentsinclude cash and cash equivalents, available-for-sale investments, restrictedinvestments, accounts payable, convertible notes and certain other accruedliabilities. The fair values of available-for-sale investments are assessedusing current market quotations from major investment brokers. The carryingamounts of these available-for-sale investments are adjusted to fair valuemonthly. The fair value of convertible notes is based on available market prices.The carrying amounts of all other financial instruments are reasonableestimates of their fair values due to their short-term nature.

***Revenue Recognition—******The***Companyis a development stage enterprise and does not currently have any revenue fromoperations.

***ContractSettlements—******The***Company’spolicy with respect to a contract in dispute is to continue to record operatingexpenses and liabilities according to its contractual obligation until suchcontract is terminated. Upon termination, and prior to settlement, the Companycontinues to accrue estimated late payment fees and interest expense, asapplicable. Upon reaching settlement, whereby the other party’s claims arelegally released, the Company will extinguish its recorded liability, resultingin the recognition of a gain or loss on contract settlement. The Companyrecorded substantial gains on contract settlements for the year ended December 31,2005 (see Note 6).

61

----

***Share-Based Payment—******On***January 1,2006, the Company adopted SFAS No. 123 (revised 2004), *Share-Based Payment* (“SFAS 123(R)”) using the modifiedprospective transition method. SFAS 123(R) requires the measurement of allshare-based payment awards made to employees and directors, including stockoptions and restricted stock awards, based on estimated fair values on the dateof grant and recognition of compensation cost over the service period forawards expected to vest. SFAS 123(R) supersedes the Company’s previousaccounting under Accounting Principles Board (“APB”) Opinion No. 25, *Accounting for Stock Issued to Employees* (“APB 25”),for periods beginning in fiscal year 2006. In March 2005, the U.S. Securitiesand Exchange Commission (“SEC”) issued Staff Accounting Bulletin (“SAB”) No. 107,*Share-Based Payment* (“SAB 107”) relatingto SFAS 123(R). The Company has applied the provisions of SAB 107 in itsadoption of SFAS 123(R).

The Company records stock-based compensation expenseon stock options and restricted stock awards issued to employees, directors andcertain contractors and consultants. Stock-based compensation expenserecognized in the Company’s consolidated statements of operations for the yearended December 31, 2006 includes compensation expense for share-basedpayment awards granted prior to, but not yet vested as of December 31,2005, based on the grant date fair value estimated in accordance with the proforma provisions of SFAS No. 123,*Accounting for Stock-Based Compensation*(“SFAS 123”) and compensation expense for share-based payment awardsgranted subsequent to December 31, 2005, based on the grant date fairvalue estimated in accordance with the provisions of SFAS 123(R). Stock-basedcompensation expense recognized in the Company’s consolidated statements ofoperations for the year ended December 31, 2006 is based on awards ultimatelyexpected to vest. SFAS 123(R) requires forfeitures to be estimated at thetime of grant and revised, if necessary, in subsequent periods if actualforfeitures differ from those estimates.

For the year ended December 31, 2006, stock-basedcompensation expense related to outstanding stock options and restricted stockawards recognized under SFAS 123(R) was $6.9 million, net of income taxesof $0, and is included in general and administrative expenses on theconsolidated statements of operations.

Prior to the adoption ofSFAS 123(R), the Company accounted for its stock-based awards using theintrinsic value method in accordance with APB 25 as permitted under SFAS 123.Under the intrinsic value method, no stock-based compensation expense for stockoption grants was recognized for the year ended December 31, 2005 as the exercise price ofstock options granted during 2005 was equal to or greater than the fair marketvalue of the underlying stock at the date of grant. There were no stock optionsgranted in 2004.

*ValuationAssumptions for Stock Options*

SFAS 123(R) requires companies to estimate thefair value of share-based payment awards on the date of grant using anoption-pricing model. The Company uses the Black-Scholes option-pricing model (“Black-Scholes”)as its method of valuation under SFAS 123(R) based on the single optionaward approach. This fair value is amortized on a straight-line basis over therequisite service periods of the awards, which is generally the vesting period.The Company also used Black-Scholes for its pro forma disclosures requiredunder SFAS 123 for periods prior to 2006.

The fair value of share-based payment awards on thedate of grant as determined by Black-Scholes is affected by the Company’s stockprice as well as other assumptions. These assumptions include, but are notlimited to, the expected stock price volatility over the term of the awards andactual and projected employee stock option exercise behaviors.

62

----

Theweighted average grant date fair value of employee stock options granted duringthe years ended December 31, 2006 and 2005 was estimated using Black-Scholeswith the following assumptions:

| ** **                | ** ** | **Year ended   December 31,** | ** ** |
|---------------------------|------------|----------------------------------------------|------------|
| ** **                | ** ** | **2006**                                     | ** ** | **2005** | ** ** |
| Expected  volatility      |       |                                         | 37         | % |   |   | 40 | % |   |
| Risk-free  interest rate  |       |                                         | 4.8        | % |   |   | 4.5 | % |   |
| Expected dividend  yield  |       |                                         | 0          | % |   |   | 0 | % |   |
| Expected  forfeiture rate |       |                                         | 0          | % |   |   | 0 | % |   |
| Expected term in years    |       |                                         | 10         |   |   |   | 10 |   |   |

 

The expected volatilityassumption was based upon the Company’s historical stock price volatilityduring the limited amount of time substantial information about the Company hasbeen available to the general public, as well as a review of the expectedvolatility of other entities similar to the Company, which the Company believesis a reasonable indicator of expected volatility. The risk-free interest rateassumption is based upon U.S. Treasury bond interest rates appropriate for theterm of the Company’s employee stock options. The expected dividend yieldassumption is based on the Company’s history and expectation of dividendpayments. The expected forfeiture rate is based on the Company’s historicalrate of forfeitures due to voluntary terminations and the fact that the Companyhas a limited number of employees, many of whom are critical to the Company,and expectations for forfeitures in the future. The expected term is based onemployee exercise behavior.

***StockOption Activity***

TheCompany’s stock option activity for the year ended December 31, 2006 issummarized as follows:

| ** **                                  | ** ** | ** **         | ** ** | ** **              | ** ** | **Weighted**            | ** ** | **Aggregate**           | ** ** |
|---------------------------------------------|------------|--------------------|------------|-------------------------|------------|-------------------------|------------|-------------------------|------------|
| ** **                                  | ** ** | ** **         | ** ** | **Weighted**            | ** ** | **average**             | ** ** | **intrinsic**           | ** ** |
| ** **                                  | ** ** | **Number of** | ** ** | **average**             | ** ** | **remaining life** | ** ** | **value**               | ** ** |
| ** **                                  | ** ** | **options**        | ** ** | **exercise price** | ** ** | **(in years)**     | ** ** | **(in thousands)** | ** ** |
| Outstanding at January 1,  2006   |       | 6,739,573          |       |                    | $          | 4.80                    |       |                    |       | — |   |   |   | — |   |   |
| Granted                                     |       | 2,745,250          |       |                    | $          | 5.61                    |       |                    |       | — |   |   |   | — |   |   |
| Outstanding at December 31,  2006 |       | 9,484,823          |       |                    | $          | 5.04                    |       |                    |       | 8.46 |   |   |   | $ | 2,584 |   |   |
| Exercisable at  December 31, 2006      |       | 2,743,073          |       |                    | $          | 5.62                    |       |                    |       | 7.60 |   |   |   | $ | 1,285 |   |   |

 

The aggregate intrinsic value in the table aboverepresents total pretax intrinsic value (i.e., the difference between theCompany’s closing stock price on the last trading day of fiscal 2006 and theexercise price, times the number of shares) that would have been received bythe option holders had all option holders exercised their stock options onDecember 31, 2006.

The weighted average grant date fair value of stockoptions granted during the year ended December 31, 2006 is $3.10 per shareand the fair value of these stock options is $8.5 million. The stock optionsvest over four years.

63

----

At December 31,2006, the balance of stock-based compensation cost to be expensed in futureperiods related to unvested share-based awards, as adjusted for expectedforfeitures, is as follows (in millions):

| **Years ending  December 31,** | ** ** | ** ** | ** ** | ** ** | ** ** |
|------------------------------------------|------------|------------|------------|------------|------------|
| 2007                                     |       | $          | 5.3        |       |
| 2008                                     |       | 5.2        |       |
| 2009                                     |       | 4.8        |       |
| 2010                                     |       | 1.1        |       |
|                                     |       | $          | 16.4       |       |

 

The period over which theunearned stock-based compensation expense is expected to be recognized isapproximately 3.8 years.

*Fair Value Disclosures Prior to Adoption of  SFAS 123(R)*

Priorto January 1, 2006, the Company elected to apply the disclosure-onlyprovisions of SFAS 123. The Company applied APB 25 and relatedinterpretations in accounting for its stock-based compensation plans. Had theCompany accounted for its stock options and restricted stock awards under thefair value method consistent with the methodology of SFAS 123, the Company’snet income (loss) would have reflected the following pro forma amounts (inthousands, except share and per share data):

| ** **                                                                                         | ** ** | **Year ended December 31,** | ** ** |
|----------------------------------------------------------------------------------------------------|------------|--------------------------------------------|------------|
| ** **                                                                                         | ** ** | **2005**                                   | ** ** | **2004** | ** ** |
| Net income  (loss), as reported                                                                    |       | $                                          | 33,406     |   | $ | (902,498 | ) |
| Add: stock-based  compensation expense recorded                                                    |       | 307                                        |       | — |   |
| Deduct:  stock-based compensation expense determined under fair value based method for  all awards |       | (817                                       | )          | (13 | ) |
| Pro forma net  income (loss)                                                                       |       | $                                          | 32,896     |   | $ | (902,511 | ) |
| Earnings (loss) per  share:                                                                        |       |                                       |       |   |   |
| Basic—as reported                                                                             |       | $                                          | 0.17       |   | $ | (4.64 | ) |
| Basic—pro forma                                                                               |       | $                                          | 0.17       |   | $ | (4.64 | ) |
| Diluted—as reported                                                                           |       | $                                          | 0.17       |   | $ | (4.64 | ) |
| Diluted—pro forma                                                                             |       | $                                          | 0.16       |   | $ | (4.64 | ) |
| Weighted average common  shares outstanding:                                                       |       |                                       |       |   |   |
| Basic                                                                                              |       | 194,889,804                                |       | 194,653,602 |   |
| Diluted                                                                                            |       | 199,937,433                                |       | 194,653,602 |   |

 

***Research and Development Costs—******Research***anddevelopment costs, consisting of third-party engineering, consulting anddevelopment costs associated with technology being considered for use in theMSS/ATC System, are expensed as incurred. The Company reviews each of itsresearch and development projects to determine if technological feasibility hasbeen achieved, at which point, future development costs associated with that projectare capitalized.

***Foreign Currency Translation and Foreign CurrencyTransactions—******The***reportingcurrency for the Company’s operations is U.S. dollars. The Company translatesthe activities of its foreign subsidiaries during the period at the average exchangerate prevailing during the period. Assets and liabilities denominated inforeign currencies are restated at the exchange rates prevailing at the balancesheet date. Translation adjustments resulting from these processes arerecognized as a component of accumulated other comprehensive income (loss). Forthe years ended December 31, 2006, 2005 and 2004, gains on intercompany foreigncurrency transactions of $8.6 million, $9 million and $5.5 million,respectively, have been excluded from net income (loss) and reported as acomponent of accumulated other comprehensive income. 

64

----

Gains and losses on foreign currency transactions arerecognized as a component of other income (expense) in the consolidatedstatements of operations in the period in which they occur.

***Income Taxes—******The***Companyaccounts for income taxes using the asset and liability method under SFAS No. 109,*Accounting for Income Taxes*. Deferredtax assets and liabilities are recognized for the future tax consequencesattributable to differences between the financial statement carrying amounts ofexisting assets and liabilities and their respective tax bases. Deferred taxassets and liabilities are measured using enacted tax rates expected to applyto taxable income in the years in which those temporary differences areexpected to reverse. The effect on deferred tax assets and liabilities of achange in tax rates is recognized in the period that includes the enactmentdate. A valuation allowance against deferred tax assets is recorded when it ismore likely than not that the assets will not be realized.

***Accumulated Other Comprehensive Income—******The Company’s accumulated othercomprehensive income consists of unrealized gains and losses onavailable-for-sale investments, net of tax, and cumulative translationadjustments. Accumulated other comprehensive income as of December 31,2006 consisted of cumulative translation adjustments of $6.3 million, lessunrealized losses on available-for-sale investments of $18,000. Accumulatedother comprehensive income as of December 31, 2005 consisted of cumulativetranslation adjustments of $9.2 million, less unrealized losses onavailable-for-sale investments of $75,000.***

***Earnings Per Share—******Basic***earningsper share is calculated based on the weighted average number of shares thatwere outstanding during the period. Diluted earnings per share is calculated bydividing income or loss allocable to common shareholders by the weightedaverage common shares outstanding plus dilutive potential common stock.Dilutive potential common stock includes unvested restricted stock, stockoptions and warrants, the dilutive effect of which is calculated using thetreasury stock method. Prior to satisfaction of all conditions of vesting,unvested restricted stock is considered contingently issuable consistent withSFAS No. 128, *Earnings Per Share*,and is excluded from weighted average common shares outstanding.

Thefollowing table sets forth the computation of basic and diluted earnings pershare (in thousands, except share and per share data):

| ** **                                                           | ** ** | **Year ended December 31,** | ** ** |
|----------------------------------------------------------------------|------------|--------------------------------------------|------------|
| ** **                                                           | ** ** | **2006**                                   | ** ** | **2005** | ** ** | **2004** | ** ** |
| Net income (loss)                                                    |       | $                                          | (64,172    | ) | $ | 33,406 |   | $ | (902,498 | ) |
| Weighted average common  shares outstanding                          |       | 198,108,210                                |       | 194,965,420 |   | 194,653,602 |   |
| Less: unvested restricted  stock                                     |       | (490,411                                   | )          | (75,616 | ) | — |   |
| Shares used for  computation of basic earnings per share             |       | 197,617,799                                |       | 194,889,804 |   | 194,653,602 |   |
| Add: dilutive unvested  restricted stock, stock options and warrants |       | —                                     |       | 5,187,343 |   | — |   |
| Shares used for  computation of diluted earnings per share(1)        |       | 197,617,799                                |       | 200,077,147 |   | 194,653,602 |   |
| Basic earnings (loss)  per share                                     |       | $                                          | (0.32      | ) | $ | 0.17 |   | $ | (4.64 | ) |
| Diluted earnings (loss) per share                                    |       | $                                          | (0.32      | ) | $ | 0.17 |   | $ | (4.64 | ) |

----

(1)          The effect of certainstock options and warrants was anti-dilutive, and they were not included in thecalculation of diluted earnings per share. Anti-dilutive options and warrantstotaled 12,656,933, 49,510,697 and 110,695,697 as of December 31, 2006,2005 and 2004, respectively.

***Cumulative Effectof a Change in Accounting Principle—******In***2001, inaccordance with the transition provisions of SFAS No. 133, *Accounting for Derivative Instruments and Hedging Activities*(“SFAS133”), the Company recorded the cumulative effect of a change in accounting principleassociated with a derivative share pledge agreement with a bank. The sharepledge agreement contained a call-spread derivative whereby the pledgeliability was adjusted when the fair value of the pledged shares was not withinthe call spread. The cumulative effect represents the initial valuation of thiscall-spread derivative and the 

65

----

revaluation of theassociated pledge liability, net of tax. This derivative share pledge agreementwas settled in March 2003.

***Recently IssuedAccounting Standards—******In***February 2006,the Financial Accounting StandardsBoard (“FASB”) issued SFAS No. 155, *Accountingfor Certain Hybrid Financial Instruments*(“SFAS 155”). Thisstatement amends SFAS 133 and SFAS No. 140, *Accountingfor Transfers and Servicing of Financial Assets and Extinguishments ofLiabilities* to simplify and make more consistent the accounting forcertain financial instruments. This statement permits fair value remeasurementfor any hybrid financial instrument with an embedded derivative that otherwise wouldrequire bifurcation, provided that the whole instrument is accounted for on afair value basis and establishes a requirement to evaluate interests insecuritized financial assets to identify interests that are freestandingderivatives or that are hybrid financial instruments that contain an embeddedderivative requiring bifurcation. This statement also allows a qualifyingspecial purpose entity to hold a derivative financial instrument that pertainsto a beneficial interest. SFAS 155 is effective for all financialinstruments acquired or issued after December 31, 2006. Earlier adoptionis permitted as of the beginning of an entity’s fiscal year, provided theentity has not yet issued financial statements for any interim period for thatfiscal year. The Company does not expect the adoption of this statement to havean impact on its financial position, results of operations or cash flows.

In June 2006, the FASB issued Interpretation No. 48,*Accounting for Uncertainty in Income Taxes—AnInterpretation of FASB Statement No. 109* (“FIN 48”). FIN 48prescribes a recognition threshold and measurement attribute for the financialstatement recognition and measurement of a tax position taken or expected to betaken in a tax return. FIN 48 also provides guidance on derecognition,classification, interest and penalties, accounting in interim periods,disclosure, and transition. FIN 48 is effective for fiscal years beginningafter December 15, 2006, and the provisions of FIN 48 will be applied toall tax positions upon initial adoption of the Interpretation. The Company iscurrently evaluating the potential impact that the adoption of FIN 48 will haveon its consolidated financial statements.

In September 2006, the FASB issued SFAS No. 157,*Fair Value Measurements*(“SFAS157”). This statement clarifies the definition of fair value, establishes aframework for measuring fair value, and expands the disclosures on fair valuemeasurements. SFAS 157 is effective for fiscal years beginning after November 15,2007. The Company has not determined the impact, if any, the adoption of thisstatement will have on its consolidated financial statements.

In February 2007, the FASB issued SFAS No. 159,*The Fair Value Option for Financial Assets andFinancial Liabilities—Including an amendment of FASB Statement No. 115*(“SFAS159”). SFAS 159 permits entities to choose to measure eligible items atfair value at specified election dates and report unrealized gains and losseson items for which the fair value option has been elected in earnings at eachsubsequent reporting date. SFAS 159 is effective for fiscal yearsbeginning after November 15, 2007. The Company has not determined theimpact, if any, the adoption of this statement will have on its consolidatedfinancial statements.

***Initial Applicationof Staff Accounting Bulletin No. 108—***In September 2006, the SEC staffreleased SAB No. 108, Consideringthe Effects of Prior Year Misstatements when Quantifying Misstatements inCurrent Year Financial Statements (“SAB 108”). SAB 108 provides guidance on quantifying andevaluating the materiality of unrecorded misstatements and is effective forannual financial statements with fiscal years ending after November 15, 2006.

At December 31, 2006,the Company applied SAB 108 to errors in its previously issued financialstatements pertaining to the accounting treatment of cumulative translationadjustments and intercompany foreign exchange gains (losses) upon theliquidation of certain of the Company’s foreign subsidiaries. These errorsarose because cumulative translation adjustments recorded in accumulated othercomprehensive income were not recognized as a component of operating income(loss) in the period in which a subsidiary was substantially liquidated. Thisresulted in the overstatement of the inception to date 

66

----

operatingloss of $1.4 million related to 2004. Based on an analysis of the errorsperformed in accordance with SAB 108, the Company concluded that theeffect of the errors is not material to any of the individual periods’ incomestatements or balance sheets in 2004 or 2005. A cumulative translationadjustment of approximately $4.4 million related to subsidiaries that weresubstantially liquidated in 2004 was incorrectly recorded as a component ofother income (expense) for the three months ended March 31, 2006 and has beenincluded in the amounts discussed above. The cumulative effect has beenrecorded as an adjustment to the beginning deficit accumulated during thedevelopment stage as follows (in thousands): 

| Deficit  accumulated during the development stage, January 1, 2006, as reported |   | $     | (1,859,449 | ) |
|---------------------------------------------------------------------------------|--------|-------|------------|---|
| Cumulative effect  adjustment                                                   |   | 1,393 |       |
| Deficit accumulated  during the development stage, January 1, 2006, as restated |   | $     | (1,858,056 | ) |

 

In addition, the Companyidentified that certain components of its deferred tax assets andliabilities disclosed in its notes to the December 31, 2005 consolidatedfinancial statements were misstated primarily due to its treatment of impairmentlosses arising in 2002 and 2004, clerical errors and a reduction in tax ratesfor certain foreign corporations.  Given that the Company has a fullvaluation allowance on its deferred tax assets, there was no impact on theconsolidated balance sheets, or on the consolidated statements of operations,comprehensive income (loss), or stockholders’ equity. The components of theCompany’s deferred tax assets and liabilities as of December 31, 2005 have beenrestated in Note 10 as follows:

| ** **                             | ** ** | **December 31, 2005**  | ** ** |
|----------------------------------------|------------|----------------------------------|------------|
| ** **                             | ** ** | **As previously  reported** | ** ** | **As restated** | ** ** |
| Deferred tax assets:                   |       |                             |       |   |   |
| Net operating losses                   |       | $                                | 69,918     |   | $ | 124,091 |   |
| Impaired assets/basis differences      |       | 809,234                          |       | 740,737 |   |
| Section 195 costs                 |       | 137,323                          |       | 102,680 |   |
| Accrued expenses and other             |       | 14,453                           |       | 23,948 |   |
|                                   |       | 1,030,928                        |       | 991,456 |   |
| Valuation  allowance                   |       | (1,030,493                       | )          | (991,456 | ) |
| Net deferred tax  assets               |       | 435                              |       | — |   |
| Deferred tax  liabilities:             |       |                             |       |   |   |
| Accumulated other comprehensive income |       | (435                             | )          | — |   |
| Net deferred tax asset  (liability)    |       | $                                | —     |   | $ | — |   |

 

67

----

Inaddition, certain components of the reconciliation of the federal statutoryincome tax rate of 34% to the Company’s effective income tax rate for the yearsended  December 31, 2005 and 2004have been restated as follows:

| ** **                                                       | ** ** | **Year ended December 31,** | ** ** |
|------------------------------------------------------------------|------------|--------------------------------------------|------------|
| ** **                                                       | ** ** | **2005**                                   | ** ** | **2004** | ** ** |
| ** **                                                       | ** ** | **As previously**                     | ** ** | ** ** | ** ** | **As previously** | ** ** | **As** | ** ** |
| ** **                                                       | ** ** | **reported**                               | ** ** | **As restated** | ** ** | **reported** | ** ** | **restated** | ** ** |
| Statutory tax  rate                                              |       |                                       | 34.00      | % |   |   | 34.00 | % |   |   | (34.00 | )% |   |   | (34.00 | )% |   |
| Income (loss) before  income taxes                               |       |                                       |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Permanent  differences, including non-deductible built-in losses |       |                                       | 0.05       |   |   |   | 16.15 |   |   |   | 0.46 |   |   |   | 0.57 |   |   |
| Change in  valuation allowance                                   |       |                                       | (46.80     | ) |   |   | (62.90 | ) |   |   | 32.91 |   |   |   | 34.95 |   |   |
| Increase in NOL  carryforward                                    |       |                                       | 0.00       |   |   |   | 0.00 |   |   |   | 0.00 |   |   |   | (2.15 | ) |   |
| Other                                                            |       |                                       | 15.05      |   |   |   | 15.05 |   |   |   | 0.68 |   |   |   | 0.68 |   |   |
| Effective tax rate                                               |       |                                       | 2.30       | % |   |   | 2.30 | % |   |   | 0.05 | % |   |   | 0.05 | % |   |

 

**4.**   Available-for-SaleInvestments

The amortized cost(including accrued interest), gross unrealized gains and losses and fair valueof available-for-sale investments, by major security type, are as follows(in thousands):

| ** **                            | ** ** | **December 31, 2006** | ** ** |
|---------------------------------------|------------|---------------------------------|------------|
| ** **                            | ** ** | **Amortized  cost**             | ** ** | **Gross  unrealized  gains** | ** ** | **Gross  unrealized  losses** | ** ** | **Fair  value** | ** ** |
| Commercial paper                      |       |                            | $          | 65,363 |   |   |   | $ | — |   |   |   | $ | (19 | ) |   | $ | 65,344 |   |
| U.S. government and agency securities |       |                            | 11,335     |   |   |   | 2 |   |   |   | (1 | ) |   | 11,336 |   |
|                                  |       |                            | $          | 76,698 |   |   |   | $ | 2 |   |   |   | $ | (20 | ) |   | $ | 76,680 |   |

 

| ** **                            | ** ** | **December 31, 2005** | ** ** |
|---------------------------------------|------------|---------------------------------|------------|
| ** **                            | ** ** | ** **                      | ** ** | **Gross** | ** ** | **Gross** | ** ** | ** ** | ** ** |
| ** **                            | ** ** | **Amortized**                   | ** ** | **unrealized** | ** ** | **unrealized** | ** ** | **Fair** | ** ** |
| ** **                            | ** ** | **cost**                        | ** ** | **gains** | ** ** | **losses** | ** ** | **value** | ** ** |
| Commercial paper                      |       | $                               | 257,989    |   |   | $ | — |   |   |   | $ | (63 | ) |   | $ | 257,926 |   |
| U.S. government and agency securities |       | 26,006                          |       |   | — |   |   |   | (4 | ) |   | 26,002 |   |
| Corporate notes and bonds             |       | 12,243                          |       |   | — |   |   |   | (8 | ) |   | 12,235 |   |
|                                  |       | $                               | 296,238    |   |   | $ | — |   |   |   | $ | (75 | ) |   | $ | 296,163 |   |

 

The following tablesummarizes the fair value and gross unrealized losses of the Company’savailable-for-sale investments in an unrealized loss position, aggregated byinvestment type, as of December 31, 2006 (in thousands): 

| ** **                             | ** ** | ** ** | ** ** | **Gross**      | ** ** |
|----------------------------------------|------------|------------|------------|----------------|------------|
| ** **                             | ** ** | **Fair**   | ** ** | **unrealized** | ** ** |
| ** **                             | ** ** | **value**  | ** ** | **losses**     | ** ** |
| Commercial paper                       |       | $          | 65,344     |           |       | $ | (19 | ) |   |
| U.S. government and  agency securities |       | 7,636      |       |           | (1         | ) |   |
|                                   |       | $          | 72,980     |           |       | $ | (20 | ) |   |

 

 

68

----

Consistent with theguidance provided for in Emerging Issues Task Force Issue No. 03-01, *The Meaning of Other-Than-Temporary Impairment and Its Application toCertain Investments,*and FASB Staff Position FAS115-1 and 124-1, *The Meaning of Other-Than-Temporary Impairment and Its Application to CertainInvestments*, the Company evaluates its investments forother-than-temporary impairment. At December 31, 2006, individual securitieswith a fair value below the cost basis were evaluated to determine if they wereother-than-temporarily impaired. These securities were determined to be onlytemporarily impaired because the decline in value was related to changes inmarket interest rates and the Company has the ability and intent to hold thesesecurities until they recover. No securities have been in a continuousunrealized loss position for 12 months or longer.

**5.**   Impairmentof Long-Lived Assets

Old ICO was established in 1995 to provide global,mobile communications services using a MEO satellite system that includedseveral satellites and up to eleven satellite access nodes (“SAN”) locatedthroughout the world. Following the Company’s purchase of assets and assumptionof certain liabilities of Old ICO on its emergence from bankruptcy, the Companyestablished a new management team who oversaw the construction of the MEOsatellites and ground systems and developed the technical plan for the MEO satellitesystem.

In 2003, as part of the Company’s continued effort tofind alternative strategies to its original MEO business model and to reducethe cost of deploying its MEO satellite system, the Company amended itssatellite contract and simultaneously determined it did not need all of its SANsites to economically deploy the MEO satellite system. As a result, certainproperty under construction related to the satellite launch services contractand property at certain SAN sites were written down to their fair value of $0.

In December 2004, theCompany’s Board of Directors determined to discontinue the pursuit of a MEO satellitesystem using existing MEO assets. As a result of this decision, all remainingproperty under construction related to the MEO satellite system, which includedthe satellites and the remaining assets at various SAN sites, was written downto its fair value of $0, resulting in an impairment charge of $865.2 million in2004 which is included in impairment of property under construction in theconsolidated statements of operations.

**6.**   SatelliteAccess Node Agreements and Contract Settlements

As part of the ground infrastructure for its MEOsatellite system, the Company established SAN sites in eleven countriesthroughout the world. One SAN, in Brazil, is owned and operated by the Company.Prior to 2000, the Company entered into noncancellable agreements with tenvendors (“SAN Operators”) that own and operate the Company’s SAN sites. All ofthe agreements provide for varying levels of support required to operate theSAN sites (“SAN Operating Agreements”). Additionally, certain of the agreementsrequire the repayment of certain up-front infrastructure costs incurred on theCompany’s behalf (“SAN Infrastructure Agreements”). Both the SAN OperatingAgreements and the SAN Infrastructure Agreements were scheduled to expire invarious years through 2010 and are payable in U.S. and non-U.S. currencies. TheSAN Infrastructure Agreements represent capital leases payable with initialinterest rates ranging from 8.5% to 20.0%.

In 2002, due to a delay in the deployment of the MEOsatellite system, the Company attempted to enter into negotiations with the SANOperators to defer certain of the payment obligations and reduce the servicelevels and associated expense of the SAN operational support. Thesenegotiations were unsuccessful and did not result in any significantmodifications to the agreements with the SAN Operators.

The Company continued to explore its strategicalternatives and, in 2003, determined that it only needed some, not all, of theSAN sites to economically deploy the MEO satellite system. Additionally, theCompany’s Board of Directors decided that the Company would no longer providefunding to its 

69

----

subsidiaries to pay SANOperators, with the exception of its U.S. SAN Operator, unless the Companyreceived additional funding or the contracts with such operators wererestructured to obtain a substantial cost savings. In December 2004, theCompany’s Board of Directors determined to significantly curtail furtherconstruction on its MEO satellite system, which further increased thelikelihood that the SAN sites would not be utilized in a timely fashion in thecontemplated MEO satellite system. As a result of the Company’s decisions,eight of the ten SAN Operators terminated their agreements with the Companyfrom 2004 to 2006 and discontinued providing the requisite level of services.The Company accrues operating expenses until the related agreement isterminated and the SAN Operator has ceased providing services. Certain of theterminated agreements were settled in exchange for a nominal level ofconsideration, including cash and the transfer of certain SAN assets. Certainof the terminated agreements have not been settled and remain outstanding.

Subsequent to the date of termination, the Company hascontinued to accrue estimated late payment fees, if applicable, and theinterest expense on the capital leases in effect pursuant to the SANInfrastructure Agreements. Upon reaching settlement with the SAN Operator wherethe SAN Operator’s claims are legally released, the Company has written off theliability, resulting in the recognition of a gain on contract settlement.

Thefollowing represents a summary of transactional activity with the variousSAN Operators (in thousands):

| ** **                                                 | ** ** | **Year ended December 31,** | ** ** |
|------------------------------------------------------------|------------|--------------------------------------------|------------|
| ** **                                                 | ** ** | **2006**                                   | ** ** | **2005** | ** ** | **2004** | ** ** |
| Total SAN  liability, beginning of period                  |       | $                                          | 40,097     |   | $ | 111,372 |   | $ | 95,016 |   |
| Expense  recognized under SAN Operating Agreements         |       | 2,634                                      |       | 3,802 |   | 6,623 |   |
| Interest expense  related to SAN Infrastructure Agreements |       | 2,871                                      |       | 4,564 |   | 9,946 |   |
| Payments made to  SAN Operators                            |       | (763                                       | )          | (4,054 | ) | (762 | ) |
| Gain recognized  on SAN contract settlements               |       | —                                     |       | (74,955 | ) | — |   |
| Effect of changes  in foreign currency exchange rates      |       | 752                                        |       | (632 | ) | 549 |   |
| Total SAN  liability, end of period                        |       | $                                          | 45,591     |   | $ | 40,097 |   | $ | 111,372 |   |

 

Thetotal SAN liability is comprised of the following amounts which are included inthe following line items on the consolidated balance sheets (in thousands):

| ** **                                       | ** ** | **December 31,** | ** ** |
|--------------------------------------------------|------------|-----------------------|------------|
| ** **                                       | ** ** | **2006**              | ** ** | **2005** | ** ** |
| Accrued expenses                                 |       | $                     | 16,977     |   | $ | 15,107 |   |
| Accrued interest                                 |       | 10,996                |       | 7,799 |   |
| Current portion  of capital lease obligations    |       | 13,023                |       | 9,623 |   |
| Capital lease  obligations, less current portion |       | 4,595                 |       | 7,568 |   |
|                                             |       | $                     | 45,591     |   | $ | 40,097 |   |

 

**7.**   ConvertibleLong-Term Debt

In August 2005, ICO North America completed thesale of $650 million aggregate principal amount of convertible notes toQualified Institutional Buyers pursuant to the exemption from the registrationrequirements of the Securities Act of 1933, as amended, provided by Rule 144Athereunder. As required by the indenture governing the 7.5% Notes, ICO NorthAmerica used $93.6 million of the net proceeds to purchase U.S. Treasurysecurities to provide for the payment, in full, of the first four scheduledinterest payments. These securities, which were deposited into an escrowaccount, are reflected as restricted 

70

----

investments on theconsolidated balance sheets. The remaining proceeds from the sale of the 7.5%Notes of $526.8 million, net of debt issuance costs of $29.6 million, arebeing used to develop the MSS/ATC System and to fund operating expenses.

The 7.5% Notes mature in August 2009 and bearinterest at a rate of 7.5% per year, payable semi annually in arrears in cashon February 15 and August 15. Subject to certain exceptions, for theperiod from August 16, 2007 through August 15, 2009, ICO NorthAmerica has the option of paying accrued interest due with additional notes inlieu of cash at an increased interest rate of 8.5% per annum. ICO North America’sGEO satellite and its associated systems must be certified as operational by August 15,2008 or the coupon increases by 150 basis points for every 30 days, untilcertification is achieved, up to a maximum of 13.5% per annum.

Under FCC regulations, ICO North America is requiredto adhere to significant implementation milestones to maintain authorization touse its assigned MSS spectrum in the United States. These milestones include asatellite launch by November 30, 2007 and certification that the MSSsystem is operational by December 31, 2007. In the event that ICO NorthAmerica does not meet a milestone, it may be deemed to be in violation ofapplicable FCC regulations and may be subject to automatic cancellation of itsauthorization to utilize its assigned 2 GHz spectrum. The cancellation of theMSS authorization would be an event of default under the indenture governingthe 7.5% Notes. In such a situation, the outstanding principal amount of the7.5% Notes, plus certain funds held in escrow, becomes due immediately.

The 7.5% Notes are convertible, at the option of theholder, into ICO North America’s Class A common stock at a conversionprice of $4.25 per share, subject to adjustment pursuant to the indenture.Additionally, the 7.5% Notes will automatically convert into shares of ICONorth America’s Class A common stock upon a qualifying private offering orsale, a qualifying public offering of ICO North America’s common stock or uponwritten consent of holders owning two-thirds of the 7.5% Notes. The 7.5% Notescontain an embedded beneficial conversion feature contingent upon theoccurrence of certain future events, including the issuance of ICO NorthAmerica Class A common stock or the issuance of options or warrants topurchase ICO North America Class A common stock. The fair value of theembedded conversion feature will be measured at the time such events occur.Holders of the 7.5% Notes also have the right of first offer on any equitysecurities of ICO North America subject to certain exemptions and conditions.

The 7.5% Notes contain covenants, including, but notlimited to, restrictions on ICO North America’s future indebtedness and thepayment of dividends. In addition, all of ICO North America’s stock is pledgedand all of its existing and future assets are held as collateral for the 7.5%Notes. As of December 31, 2006, ICO North America is in compliance withall of the covenants.

The 7.5% Notes are carriedat cost on the consolidated balance sheets. The aggregate fair value of the7.5% Notes as of December 31, 2006 and 2005 is approximately $721.5million and $903.5 million, respectively.

**8.**   Commitmentsand Contingencies

***PurchaseCommitments—******The***Company,through its majority owned subsidiary ICO North America, has an agreement withSpace Systems/Loral, Inc. (“Loral”) to design, develop, manufacture, testand deliver one GEO satellite and to develop, test and implement certain ground-basedsystems related to the operation of the satellite. The satellite is expected tobe delivered to permit a launch by November 30, 2007. The Company alsoretains an option through December 31, 2008 to purchase one additional GEOsatellite.

71

----

The satellite contract may be terminated by theCompany for its convenience in whole (meaning as to the whole of the thenremaining work) or in part. In the case of termination in whole, the Company’sliabilities are stipulated in an agreed-upon termination liability schedulethat approximates the total amounts paid or payable by the Company at the timeof termination. If the satellite portion of the contract is terminated, theCompany is required to terminate the contract in whole including the ground-basedbeam forming. The same stipulated termination liability schedule would beapplicable if Loral terminates the contract due to the Company’s default.

In general, title to and risk of loss of the satellitepasses from Loral to the Company at the time of intentional ignition of thelaunch vehicle. Title to the ground-based systems passes to the Company whensuch systems have been proven operable at the gateway to be used by theCompany. Loral is responsible for maintaining property insurance against therisk of loss or damage to the satellite up to the moment risk of loss passes tothe Company. With certain exceptions, Loral is responsible for securing alllicenses, approvals and consents as may be required for performance of thesatellite contract. Subject to certain exceptions, the Company bears the risk(including additional costs, if any) resulting from excusable delays under thesatellite contract, as well as risk of loss for the satellite from the time ofintentional ignition of the launch vehicle.

Upon a specified default by Loral, including theinexcusable delay beyond an agreed-upon period of delivery of the satellite,the Company may, subject to certain exceptions, terminate the contract. Underthe termination for default, Loral shall refund to the Company all paymentsmade plus interest thereon from the date payment was received by Loral to thedate the refund was received by the Company. In addition, Loral shall berequired to pay any liquidated damages for delays that have accrued up to thedate of notice of termination for default. Liquidated damages may be availablefrom Loral for failure to meet the FCC satellite construction implementationmilestones and for late delivery of the satellite.

On March 10, 2006, the Company entered into anagreement with Lockheed Martin Commercial Launch Services, Inc. (“Lockheed”)for the provision of launch services for its GEO satellite. The launch periodestablished for launch of the satellite commences on August 23, 2007. TheCompany has purchased launch risk protection insurance from Lockheed, providingfor a payment to the Company in the event of a launch failure due to the launchvehicle. The Company also retains an option to require Lockheed to provide areplacement launch in the event that the Company determines that the initiallaunch resulted in a satellite failure within the first six months afterlaunch.

The launch services contract may be terminated for anyreason by the Company for its convenience. In the case of termination, theCompany’s liabilities are stipulated in an agreed-upon termination liabilityschedule. The same stipulated termination liability schedule would beapplicable if Lockheed terminates the contract due to the Company’s default,including default due to the Company’s delay beyond an agreed-upon maximumpostponement period for the launch service. At no time does the Company obtaintitle to or ownership in the launch vehicle. The launch vehicle remains theproperty of Lockheed. With certain exceptions, Lockheed is responsible forsecuring all licenses, approvals and consents as may be required forperformance of the launch services contract.

Upon a specified default by Lockheed, including Lockheed’sdelay beyond an agreed maximum postponement period for the launch service, theCompany may, subject to certain exceptions, terminate the contract. Under thetermination for default, Lockheed shall refund to the Company all payments madeby the Company. In addition, Lockheed shall be required to pay any liquidateddamages for delays that have accrued up to the date of notice of terminationfor default.

On May 10, 2006, the Company entered into anagreement with Hughes Network Systems, LLC (“HNS”) to provide gateway servicesincluding the design, manufacture, delivery, and test of the radio frequencysubsystem, the gateway system controller, the gateway control network and thegateway system interconnections. The gateway will be located at the HNSfacility in North Las Vegas, Nevada and is 

72

----

scheduled to be deliveredin June 2007. The Company retains an option to purchase a diverse siteradio frequency terminal along with an associated diverse site facility.

This agreement with HNS may be terminated for anyreason by the Company for its convenience. In the case of termination, theCompany’s liabilities are stipulated in an agreed-upon termination liabilityschedule that approximates the total amounts paid or payable by the Company atthe time of termination. The same stipulated termination liability schedulewould be applicable if HNS terminates the contract due to the Company’sdefault. HNS is responsible for securing all licenses, approvals and consentsas may be required for performance of the gateway contract. In general, titleto and risk of loss of the gateway passes from HNS to the Company when suchsystems have been proven acceptable.

Upon a specified default by HNS, including HNS’s delaybeyond the agreed-upon delivery dates for completion of the gateway, theCompany may, subject to certain exceptions, terminate the contract. Under thetermination for default, HNS is required to refund to the Company all paymentsmade by the Company. In addition, HNS is required to pay any liquidated damagesfor delays that have accrued up to the date of notice of termination fordefault.

As of December 31, 2006, the Company hadremaining payments of approximately $86.9 million that are payable based on theachievement of certain construction, delivery and deployment milestones relatedto the development of the MSS/ATC System, which are expected to occur in 2007.These remaining payments relate to the agreements above as well as othersecondary agreements related to the development of the MSS/ATC System.Additional payments of $23.2 million related to in-orbit satellite performanceincentives, including interest, related to the Company’s GEO satellite arepayable over 15 years from 2007 through 2022. In addition to theseremaining payments, the Company has purchase commitments of approximately $1.6million related to its MEO satellite system.

***Lease and OperatingCommitments—******The***Companyhas entered into agreements with ten SAN Operators that own and operatesubstantially all of the Company’s MEO SAN sites. Such agreements require therepayment of certain up-front capital asset costs incurred by each SAN Operatorin establishing the initial infrastructure for the SAN, as well as payments forongoing operations and related expenses incurred at each SAN site. The Companycontinues to have lease and operating commitments under some of theseagreements (see Note 6).

The Company leases office space and office equipmentunder noncancellable rental agreements accounted for as operating leases. Thetotal rental expense under operating leases was approximately $533,000,$345,000 and $4 million for the years ended December 31, 2006, 2005 and2004, respectively, and is included in general and administrative expenses inthe Company’s consolidated statements of operations. Rent expense in 2004includes $2 million of settlement costs related to the early termination of anoncancellable lease agreement.

73

----

At December 31,2006, the scheduled future minimum payments under the Company’s lease andoperating agreements, based on the exchange rates in effect as of December 31,2006, were as follows (in thousands):

| ** **                                       | ** ** | **SAN**            | ** ** | **SAN**       | ** ** | **Other**     | ** ** |
|--------------------------------------------------|------------|--------------------|------------|---------------|------------|---------------|------------|
| ** **                                       | ** ** | **infrastructure** | ** ** | **operating** | ** ** | **operating** | ** ** |
| ** **                                       | ** ** | **agreements**     | ** ** | **expenses**  | ** ** | **leases**    | ** ** |
| 2007                                             |       |               | $          | 19,840        |       |          |       | $ | 1,286 |   |   |   | $ | 435 |   |   |
| 2008                                             |       |               | 2,260      |          |       |          | 2,965      |   |   |   | 356 |   |   |
| 2009                                             |       |               | 2,260      |          |       |          | 1,337      |   |   |   | 323 |   |   |
| 2010                                             |       |               | 1,411      |          |       |          | 736        |   |   |   | 329 |   |   |
| 2011                                             |       |               | —     |          |       |          | —     |   |   |   | 308 |   |   |
| Thereafter                                       |       |               | —     |          |       |          | —     |   |   |   | 114 |   |   |
| Total minimum  payments                          |       |               | 25,771     |          |       |          | $          | 6,324 |   |   |   | $ | 1,865 |   |   |
| Less amount  representing interest               |       |               | (8,153     | )             |       |          |       |   |   |   |   |   |   |
| Present value of  capital lease payments         |       |               | 17,618     |          |       |          |       |   |   |   |   |   |   |
| Less: current  portion of capital leases         |       |               | (13,023    | )             |       |          |       |   |   |   |   |   |   |
| Capital lease  obligations, less current portion |       |               | $          | 4,595         |       |          |       |   |   |   |   |   |   |   |

 

There were no assets that related to capital leases asof December 31, 2006 and 2005 as a result of impairments (see Note 5).

***Internal RevenueService Audit—******For***U.S.federal income tax purposes, the Company realized a gain of more than $300million on the disposition of certain securities in 2003. This gain was offsetby losses incurred in connection with the Company’s MEO satellite system. TheCompany is currently being audited for tax year 2003 by the Internal RevenueService. The audit involves both the recognition of the losses in connectionwith the impairment of the Company’s MEO assets and the timing of the gain onthe disposition of the relevant securities, which were sold through a variableforward contract. While the Company believes it properly treated and reportedall items of gain and loss, it is possible that the Company could have a taxliability ranging from approximately $12 million to $128 million, notincluding any penalties that may be imposed. Since the tax liability is notprobable at this time, no amount has been recorded in the Company’sconsolidated financial statements.

***Boeing Litigation—******In***responseto the Company’s demand for arbitration, in August 2004 Boeing SatelliteSystems International, Inc. (“BSSI”) filed an action in the Superior Courtof the State of California, in and for the County of Los Angeles, seeking ajudicial declaration that the Company had terminated its contractual agreementswith BSSI, and thereby extinguished all of the Company’s rights and claims againstBSSI arising out of or relating to the development, construction and launch ofthe Company’s MEO satellite system. In response, the Company filed across-complaint seeking damages from BSSI for breach of the parties’agreements and for other wrongful, tortuous conduct. Subsequently, theCompany also filed a cross-complaint against The Boeing Company, BSSI’scorporate parent, alleging wrongful, tortuous conduct that also damagedthe Company. BSSI recently filed a cross complaint against the Company seekingunspecified monetary relief. On August 24, 2006, the court denied BSSI’smotions for summary judgment and summary adjudication and, on December 1,2006, the court denied BSSI’s motion to dismiss the Company’s trade secretclaim. A trial date has been set for September 4, 2007. The Companybelieves that its claims are meritorious and is vigorously pursuing aprompt resolution. The ultimate resolution is uncertain and the Companyanticipates that the expense of pursuing this litigation will be material.

***Deutsche TelekomArbitration—******In***December 2005,Deutsche Telekom (“DT”) initiated arbitration with theInternational Chamber of Commerce against an indirect subsidiary of theCompany, ICO Global Communications Holding BV (“ICO BV”), seeking in excess of$10 million under a contract 

74

----

for the developmentand operation of a SAN located in Usingen, Germany. In January 2007,DT and ICO BV reached a resolution regarding the dispute concerning pastpayments for this SAN and entered into a settlement agreement pursuant to whichICO BV has agreed to pay DT an agreed-upon amount over the next twoyears. This amount is included in accrued expenses on the Company’sconsolidated balance sheet. The arbitration proceedings between the parties havebeen concluded through a final award memorializing the settlement agreement.

***Ellipso, Inc.—******In*********December 2006, Ellipso, Inc.(“Ellipso”) filed an action in the Superior Court of the District of Columbiaseeking damages in excess of $100 million from the Company and itssubsidiary, ICO Global Limited, for breach of contract, breach of warranty andfraud. The Company recently filed a Motion to Dismiss in this case. The Companybelieves that Ellipso’s claims are without merit. The Company intends tovigorously defend itself against Ellipso. Management currently believes thatthis lawsuit will not have a material adverse effect on the Company’s financialcondition or results of operations.

***Other—******In***theopinion of management, except for those matters described above and inNote 6, litigation, contingent liabilities and claims against the Companyin the normal course of business are not expected to involve any judgments orsettlements that would be material to the Company’s financial condition,results of operations or cash flows.

**9.**   Stockholders’Equity (Deficiency in Assets)

***Common Stock—******The***Company’sRestated Certificate of Incorporation authorizes two classes of common stock, Class Aand Class B. The rights of the holders of shares of Class A commonstock and Class B common stock are identical, except with respect tovoting and conversion. Holders of shares of Class A common stock areentitled to one vote per share. Holders of shares of Class B common stockare entitled to ten votes per share. The Class B common stock isconvertible at any time at the option of its holder into shares of Class Acommon stock. Each share of Class B common stock is convertible into oneshare of Class A common stock. Additionally, subject to certainexceptions, shares of Class B common stock will automatically convert intoshares of Class A common stock if the shares of Class B common stockare sold or transferred. Class A common stock is not convertible. As of December 31,2006, Eagle River remains the Company’s controlling shareholder with aneconomic interest of approximately 33.5% and a voting interest of approximately68.8%

***Stock IncentivePlan—******The***2000Stock Incentive Plan (the “Plan”) was adopted following stockholder approval onMay 10, 2000 and was subsequently amended and restated on August 9,2000 and November 17, 2005. The Plan authorizes the grant of incentivestock options, as well as stock awards, to Company employees, board members,contractors and consultants. The Company’s Board of Directors has authorized atotal of 13 million shares of its common stock for the issuance of stockoptions and stock awards under the Plan, subject to adjustments for changes inthe Company’s capital structure.

Under the Plan, stock options by default vest andbecome exercisable over a four year period, with 25% vesting after one year and1/48th vesting each month thereafter, and havegenerally been granted on a vesting schedule of 25% per year. Stock options generallyexpire 10 years after the date of grant or up to 90 days after termination ofemployment, which ever occurs earlier. Additionally, until two years after aninitial public offering by the Company, all shares acquired under the Plan aresubject to market standoff provisions, which prevent the sale of the sharesuntil up to 180 days after a public offering of the Company’s stock.

A total of 13,887,573 shares of common stock have beenauthorized for issuance, consisting of 13 million shares authorized under thePlan, 665,000 shares authorized outside of the Plan, but with similar terms andconditions as the Plan, and 222,573 shares assumed by the Company pursuant toits merger with 

75

----

IGL (see Note 1). As of December 31,2006, 3,802,750 shares were reserved and remain available for grant under thePlan.

76

----

For the years ended December 31, 2006 and 2005,the Company granted 2,745,250 and 5,865,000 options, respectively, to purchasecommon stock. In accordance with SFAS 123(R), the Company recognizedcompensation expense of $5 million related to these stock options for the yearended December 31, 2006. No compensation expense was recognized in 2005 asthe options to purchase the common stock were granted with an exercise pricegreater than the grant date fair value of the underlying common stock. TheCompany did not grant any stock options in 2004.

Asummary of stock option activity for the Company for the years endedDecember 31, 2006, 2005 and 2004 is as follows:

| ** **                          | ** ** | **2006**           | ** ** | **2005**                | ** ** | **2004**           | ** ** |
|-------------------------------------|------------|--------------------|------------|-------------------------|------------|--------------------|------------|
| ** **                          | ** ** | ** **         | ** ** | **Weighted**            | ** ** | ** **         | ** ** | **Weighted** | ** ** | ** ** | ** ** | **Weighted** | ** ** |
| ** **                          | ** ** | **Number of** | ** ** | **average**             | ** ** | **Number of** | ** ** | **average** | ** ** | **Number of** | ** ** | **average** | ** ** |
| ** **                          | ** ** | **options**        | ** ** | **exercise price** | ** ** | **options**        | ** ** | **exercise price** | ** ** | **options** | ** ** | **exercise price** | ** ** |
| Outstanding at  beginning of period |       | 6,739,573          |       |                    | $          | 4.80               |       |   | 874,573 |   |   | $ | 8.52 |   |   | 1,044,573 |   |   | $ | 8.83 |   |   |
| Granted                             |       | 2,745,250          |       |                    | 5.61       |               |       | 5,865,000 |   |   | 4.25 |   |   | — |   |   | — |   |   |
| Exercised                           |       | —             |       |                    | —     |               |       | — |   |   | — |   |   | — |   |   | — |   |   |
| Cancelled                           |       | —             |       |                    | —     |               |       | — |   |   | — |   |   | (170,000 | ) |   | 10.45 |   |   |
| Outstanding at  end of period       |       | 9,484,823          |       |                    | 5.04       |               |       | 6,739,573 |   |   | 4.80 |   |   | 874,573 |   |   | 8.52 |   |   |
| Exercisable at  end of period       |       | 2,743,073          |       |                    | $          | 5.62               |       |   | 874,573 |   |   | $ | 8.52 |   |   | 874,573 |   |   | $ | 8.52 |   |   |

 

Thefollowing table summarizes significant ranges of outstanding and exercisable stockoptions as of December 31, 2006: 

| ** **                                 | ** ** | **Outstanding options** | ** ** | **Exercisable options** | ** ** |
|--------------------------------------------|------------|------------------------------|------------|------------------------------|------------|
| ** **                                 | ** ** | ** **                   | ** ** | ** **                   | ** ** | **Weighted average** | ** ** | ** ** | ** ** | ** ** | ** ** |
| ** **                                 | ** ** | **Number of**           | ** ** | **Weighted average**    | ** ** | **remaining life** | ** ** | **Number of** | ** ** | **Weighted average** | ** ** |
| **Range of exercise price** | ** ** | ** **                   | ** ** | **options**                  | ** ** | **exercise price** | ** ** | **(in years)** | ** ** | **options** | ** ** | **exercise price** | ** ** |
| $0.75                                      |       | 185,000                      |       |                         | $          | 0.75 |   |   |   | 5.6 |   |   | 185,000 |   |   | $ | 0.75 |   |   |
| $4.25                                      |       | 5,865,000                    |       |                         | 4.25       |   |   |   | 8.9 |   |   | 1,806,000 |   |   | 4.25 |   |   |
| $4.65 — $5.90                         |       | 2,745,250                    |       |                         | 5.61       |   |   |   | 9.6 |   |   | 62,500 |   |   | 4.75 |   |   |
| $10.45 — $10.92                       |       | 689,573                      |       |                         | 10.60      |   |   |   | 4.7 |   |   | 689,573 |   |   | 10.60 |   |   |
|                                       |       | 9,484,823                    |       |                         | $          | 5.04 |   |   |   | 8.5 |   |   | 2,743,073 |   |   | $ | 5.62 |   |   |
|                                            |            |                              |            |                              |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

***Restricted StockAwards—******In***November 2005,the Company granted 1,600,000 shares of restricted Class A common stock toEagle River and certain employees and board members. Of these shares, onemillion were granted to Eagle River and treated as a stock dividend. Theremaining 600,000 shares, granted pursuant to the Plan, had a grant date fairvalue of $2.4 million and are being charged to expense over the respectivevesting period. Restricted stock awards of 1,500,000 shares vested onOctober 12, 2006. The remaining 100,000 shares vest in two equal installments,on July 14, 2007 and 2008. For the years ended December 31, 2006 and2005, the Company recognized compensation expense of $1.9 million and $307,000,respectively, related to its restricted stock awards. Based on the vestingterms of these restricted stock awards, the Company expects to recognizeadditional compensation expense of approximately $136,000 in 2007 and $38,000in 2008.

***Warrants—******In***connectionwith the initial financing of the Company upon emergence from bankruptcy, aswell as the settlement of long-term debt, the Company issued warrants topurchase the Company’s Class A common stock. Each warrant containsprovisions for the adjustment of the exercise price and the number of sharesissuable upon the exercise of the warrant in the event of certain dilutivetransactions. Unexercised warrants to purchase an aggregate 48.8 million sharesexpired in August 2006. As of 

76

----

December 31,2006, warrants to purchase a total of 3.2 million shares of the Company’s Class Acommon stock are outstanding, with an exercise price of $0.01 per share, andexpire on December 12, 2012.

***Sale of Subsidiary Stock and Stock Options—******In*********February 2006, ICO NorthAmerica sold 323,000 shares of its Class A common stock and options topurchase 3,250,000 shares of its Class A common stock to certain holdersof the 7.5% Notes in exchange for $9.9 million. As ICO North America is adevelopment stage enterprise with a deficiency in assets, and there is noobligation for continued capital contributions, the entire $9.9 million of proceedsis classified as additional paid-in capital.

**10.**   Income Taxes

The Company’s income taxexpense for the years ended December 31, 2006, 2005 and 2004 was $202,000,$785,000 and $429,000, respectively, which consisted entirely of current foreigntax.

Areconciliation of the federal statutory income tax rate of 34% to the Company’seffective income tax rate is as follows:

| ** **                                                       | ** ** | **Year ended December 31,** | ** ** |
|------------------------------------------------------------------|------------|--------------------------------------------|------------|
| ** **                                                       | ** ** | **2006**                                   | ** ** | **2005** | ** ** | **2004** | ** ** |
| Statutory tax  rate                                              |       | (34.00                                     | )%         | 34.00 | % | (34.00 | )% |
| Permanent  differences, including non-deductible built-in losses |       | (2.18                                      | )          | 16.15 |   | 0.57 |   |
| Change in  valuation allowance                                   |       | 37.68                                      |       | (62.90 | ) | 34.95 |   |
| Increase in NOL  carryforward                                    |       | 0.00                                       | %          | 0.00 | % | (2.15 | )% |
| Other                                                            |       | (1.18                                      | )          | 15.05 |   | 0.68 |   |
| Effective tax  rate                                              |       | 0.32                                       | %          | 2.30 | % | 0.05 | % |

 

Thesignificant components of the Company’s net deferred tax assets and liabilitiesare as follows (in thousands):

| ** **                        | ** ** | **December 31,** | ** ** | **December 31,** | ** ** |
|-----------------------------------|------------|-----------------------|------------|-----------------------|------------|
| ** **                        | ** ** | **2006**              | ** ** | **2005**              | ** ** |
| Deferred tax  assets:             |       |                  |       |                  |       |   |   |
| Net operating losses              |       | $                     | 123,206    |                  |       | $ | 124,091 |   |   |
| Impaired assets/basis differences |       | 743,489               |       |                  | 740,737    |   |   |
| Section 195 costs            |       | 121,687               |       |                  | 102,680    |   |   |
| Accrued expenses and other        |       | 27,177                |       |                  | 23,948     |   |   |
|                              |       | 1,015,559             |       |                  | 991,456    |   |   |
| Valuation  allowance              |       | (1,015,559            | )          |                  | (991,456   | ) |   |
| Net deferred tax  assets          |       | $                     | —     |                  |       | $ | — |   |   |

 

At December 31, 2006, the Company had tax netoperating loss carryforwards of approximately $362 million, which begin toexpire in 2020. Of the Company’s total net operating loss carryforwards, $46 millionrelates to a formerly non-controlled subsidiary. The loss carryforwardsassociated with this subsidiary are subject to limitation under Section 382of the Internal Revenue Code. The remaining net operating carryforwards couldbe subject to limitation under Section 382 if future stock offerings orequity transactions give rise for an ownership change as defined for purposesof Section 382.

Since the Company’s utilization of deferred tax assetsis dependent upon future taxable income that is not assured, a valuationallowance equal to the amount of the deferred tax assets has been provided.

No deferred U.S. federal income taxes have beenprovided for the undistributed earnings on non-U.S. subsidiaries to the extentthat they are permanently reinvested in the Company’s non-U.S. operations. Itis 

77

----

not practical to determinethe amount of the additional tax that may be payable in the event theseearnings are repatriated.

**11.**   EmployeeBenefits

The Company provides its employees with medical anddental benefits, insurance arrangements to cover death in service, long-termdisability and personal accident, as well as a defined contribution retirementplan. For the years ended December 31, 2006, 2005 and 2004, the expenserelated to contributions by the Company under the defined contributionretirement plan was $472,000, $329,000 and $395,000, respectively.

**12.**   RelatedParties

The Company considers its related parties to be itsprincipal shareholders and their affiliates. As described in Note 1, theCompany’s acquisition of the assets and the assumption of certain liabilitiesof Old ICO occurred following investments from Eagle River as well as otheroutside investors.

***Eagle River—******Eagle River is the Company’s***controllingshareholder with an economic interest of approximately 34% and a votinginterest of approximately 69%.

In 2002, the Company entered into a month-to-monthagreement with Eagle River to provide office space and administrative supportto the Company in Kirkland, Washington. Total payments made to Eagle Riverunder this agreement were $57,000, $116,000 and $143,000 for the years ended December 31,2006, 2005 and 2004, respectively.

In 2002, the Company entered into a $37.5 million loanagreement with Eagle River bearing interest at 12% per annum. In 2004, theCompany repaid the principal, along with accrued interest of $5.4 million. Inconnection with this loan agreement, the Company issued warrants to Eagle Riverto purchase an aggregate of three million shares of its Class Acommon stock at a weighted-average exercise price of $0.01 per share. All suchwarrants remain outstanding at December 31, 2006 and are exercisablethrough December 12, 2012.

In January 2004, the Company entered into anagreement with an employee of Eagle River to provide the Company withinformation technology support. Total payments under this agreement were$109,000 and $54,000 for the years ended December 31, 2005 and 2004, respectively.The respective employee terminated employment with Eagle River in 2005.

In November 2005, the Company entered into anagreement with Eagle River to provide advisory services to the Company. Thisagreement has an annual fee of $500,000 and is payable in quarterlyinstallments in stock or cash, at the Company’s option. From November 11,2005 through December 31, 2006, the Company has elected to make allpayments in Class A common stock and has issued 97,551 shares asconsideration. As of December 31, 2006, the Company owes Eagle Riverapproximately $42,000 pursuant to the advisory services agreement which isincluded in accrued expenses in the accompanying consolidated balance sheets.

In November 2005, the Company granted one millionshares of restricted Class A common stock to Eagle River which has beentreated as a stock dividend.

***Davis WrightTremaine—******A*********principal of Eagle River, who isalso a board member of the Company, is the spouse of a partner at the law firmDavis Wright Tremaine which provides the Company with ongoing legal services.Total payments made to Davis Wright Tremaine were $1.3 million and $1.5 millionfor the year ended December 31, 2006 and 2005, respectively. Totalpayments made from April 2004, the date the individual was appointed aprincipal of Eagle River, to December 31, 2004, were $931,000.

**13.**   QuarterlyFinancial Data (Unaudited)

Thefollowing tables contain selected unaudited statement of operations informationfor each quarter of the years ended December 31, 2006 and 2005. Theinformation reflects all normal recurring adjustments 

78

----

necessary for a fair presentation of the informationfor the periods presented. The operating results for any quarter are notnecessarily indicative of results for any future period. Unaudited quarterlyresults were as follows (in thousands, except per share data):

| ** **                       | ** ** | **Three months ended** | ** ** |
|----------------------------------|------------|----------------------------------|------------|
| ** **                       | ** ** | **March 31,**               | ** ** | **June 30,** | ** ** | **September 30,** | ** ** | **December 31,** | ** ** |
| ** **                       | ** ** | **2006(1)**                      | ** ** | **2006** | ** ** | **2006** | ** ** | **2006** | ** ** |
| ** **                       | ** ** | **(restated)**                   | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Net income (loss)                |       | $                                | (15,041    | ) | $ | (15,576 | ) |   | $ | (17,182 | ) |   |   | $ | (16,373 | ) |   |
| Basic income  (loss) per share   |       | $                                | (0.08      | ) | $ | (0.08 | ) |   | $ | (0.09 | ) |   |   | $ | (0.07 | ) |   |
| Diluted income (loss)  per share |       | $                                | (0.08      | ) | $ | (0.08 | ) |   | $ | (0.09 | ) |   |   | $ | (0.07 | ) |   |

 

| ** **                       | ** ** | **Three months ended** | ** ** |
|----------------------------------|------------|----------------------------------|------------|
| ** **                       | ** ** | **March 31,**               | ** ** | **June 30,** | ** ** | **September 30,** | ** ** | **December 31,** | ** ** |
| ** **                       | ** ** | **2005**                         | ** ** | **2005** | ** ** | **2005** | ** ** | **2005** | ** ** |
| Net income (loss)                |       |                             | $          | 874 |   |   | $ | 59,446 |   |   | $ | (12,042 | ) |   |   | $ | (14,872 | ) |   |
| Basic income  (loss) per share   |       |                             | $          | — |   |   | $ | 0.31 |   |   | $ | (0.06 | ) |   |   | $ | (0.08 | ) |   |
| Diluted income (loss)  per share |       |                             | $          | — |   |   | $ | 0.30 |   |   | $ | (0.06 | ) |   |   | $ | (0.08 | ) |   |

----

(1)          During the financialclose process for the year ended December 31, 2006, management determinedthat a cumulative translation adjustment of $4.4 million, which related tocertain subsidiaries substantially liquidated in 2004, was recorded incorrectlyas a component of other income (expense). This amount is included as acomponent of the Company’s adjustment to its beginning deficit accumulatedduring the development stage as discussed in Note 3.

Thefinancial statements for the three months ended March 31, 2006 have beenrestated to reflect the effect of the $4.4 million adjustment as follows (inthousands, except per share data):

| ** **                                 | ** ** | **Three months ended  March 31, 2006** | ** ** |
|--------------------------------------------|------------|------------------------------------------------------------|------------|
| ** **                                 | ** ** | **As previously  reported**                           | ** ** | **As  restated** | ** ** |
| Other income  (expense)                    |       |                                                       | $          | (3,592 | ) |   | $ | 774 |   |
| Income (loss)  before income taxes         |       |                                                       | (19,367    | ) |   | (15,001 | ) |
| Net income (loss)                          |       |                                                       | (19,407    | ) |   | (15,041 | ) |
| Cumulative  translation adjustments        |       |                                                       | 3,810      |   |   | (556 | ) |
| Comprehensive  income (loss)               |       |                                                       | (15,561    | ) |   | (15,561 | ) |
| Basic and diluted income  (loss) per share |       |                                                       | (0.10      | ) |   | (0.08 | ) |
|                                            |            |                                                            |            |  |  |  |  |  |  |

 

79

----

**Item9.**                        Changes inand Disagreements with Accountants on Accounting and Financial Disclosure.

None.

**Item9A.**                Controls andProcedures.

*Evaluation ofDisclosure Controls and Procedures*

Our management, with the participation of our chiefexecutive officer and senior vice president—finance, evaluated theeffectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and15d-15(e) under the Exchange Act) as of December 31, 2006.These disclosure controls and procedures ensure that information required to bedisclosed by a company in the reports that it files or submits under theExchange Act is recorded, processed, summarized and reported, within the timeperiods specified in the Securities and Exchange Commission’s rules andforms. Disclosure controls and procedures include, without limitation, controlsand procedures designed to ensure that information required to be disclosed bya company in the reports that it files or submits under the Exchange Act isaccumulated and communicated to the company’s management, including itsprincipal executive and principal financial officers, as appropriate to allowtimely decisions regarding required disclosure. Our management recognizes thatany controls and procedures, no matter how well designed and operated, canprovide only reasonable assurance of achieving their objectives and managementnecessarily applies its judgment in evaluating the cost-benefit relationship ofpossible controls and procedures. As of December 31, 2006, based on theevaluation of our disclosure controls and procedures, our chief executiveofficer and senior vice president—finance concluded that, as of such date, ourdisclosure controls and procedures were not effective because of the materialweakness described below.

*Changes in InternalControl Over Financial Reporting*

During the third quarter of 2005, in connection with theaudit of our financial statements for the years ended December 31, 2005,2004 and 2003, our independent auditors identified material weaknesses in theinternal controls over our ability to produce financial statements free frommaterial misstatements. A material weakness is a control deficiency, orcombination of control deficiencies, that results in more than a remotelikelihood that a material misstatement of the annual or interim financialstatements will not be prevented or detected. For these periods, ourindependent registered public accounting firm reported a lack of sufficientqualified technical accounting personnel and deficiencies in our financialclosing and reporting process including, but not limited to, adequate controlsregarding appropriate segregation of duties and proper levels of review relatedto the recording of journal entries. Many of the deficiencies noted were due tothe small size of our accounting and finance staff which led to theconcentration of duties in our individual staff members. We believe thesedeficiencies had existed since the fourth quarter of 2002 when we significantlyreduced our accounting and finance staff.

During 2006, our management, with the participation ofour chief executive officer and senior vice president—finance, developed andimplemented a plan to address these material weaknesses that included thehiring of additional qualified technical accounting personnel, performingadditional reviews of journal entries and account reconciliations andperforming an assessment of our current accounting and reporting policies andprocedures. We have hired three additional full-time employees in theaccounting/finance department including a controller, assistant controller andaccounting manager. We have also designed and implemented several new policiesand procedures in an effort to strengthen our internal control over financialreporting, specifically controls associated with preparation and review ofjournal entries, account reconciliations and financial statements. In addition,we engaged an outside consulting firm to assist us with our compliance projectpursuant to Section 404 of the Sarbanes-Oxley Act of 2002 (“Section 404”).We believe the steps taken during 2006 to be effective in remediating thematerial weaknesses described above as of December 31, 2006. However, amaterial weakness regarding review procedures with respect to income taxaccounting was identified during the course of the audit of our financialstatements for 2006.

80

----

Except as described above, there have been no othersignificant changes in our internal control over financial reporting during thefourth quarter of 2006 that have materially affected, or are reasonably likelyto materially affect, our internal control over financial reporting.

*Section 404Compliance Project*

Beginning with the year ending December 31, 2007,Section 404 will require us to include management’s report on our internalcontrol over financial reporting in our Annual Report on Form 10-K.The internal control report must contain: (1) a statement of management’sresponsibility for establishing and maintaining adequate internal control overour financial reporting; (2) a statement identifying the framework used bymanagement to conduct the required evaluation of the effectiveness of ourinternal control over financial reporting; (3) management’s assessment ofthe effectiveness of our internal control over financial reporting as of theend of our most recent fiscal year, including a statement as to whether or notour internal control over financial reporting is effective; and (4) astatement that our registered independent public accounting firm has issued anattestation report on management’s assessment of our internal control overfinancial reporting.

In order to achieve compliance with Section 404within the prescribed period, management has commenced a Section 404compliance project under which management has engaged outside consultants andadopted a detailed project work plan to assess the adequacy of our internalcontrol over financial reporting, remediate any control deficiencies that maybe identified, validate through testing that controls are functioning asdocumented and implement a continuous reporting and improvement process forinternal control over financial reporting.

**Item 9B.**               OtherInformation.

None.

81

----

**PART III**

**Item 10.**                 Directors,Executive Officers and Corporate Governance.

(a)   Theinformation regarding our directors required by this item is incorporated byreference to the section entitled “Election of Directors” in our ProxyStatement for our 2007 Annual Meeting of Stockholders.

(b)   Theinformation regarding our executive officers required by this item isincorporated by reference to the section entitled “Executive Officers” in ourProxy Statement for our 2007 Annual Meeting of Stockholders.

(c)   The information regarding our Code of Ethics required by this itemis incorporated by reference to the section entitled “Election of Directors—CorporateGovernance” in our Proxy Statement for our 2007 Annual Meeting of Stockholders.

**Item 11.**                 ExecutiveCompensation.

The information requiredby this item is incorporated by reference to the section entitled “ExecutiveCompensation” in our Proxy Statement for our 2007 Annual Meeting ofStockholders.

**Item 12.**                 SecurityOwnership of Certain Beneficial Owners and Management and Related StockholderMatters.

The information requiredby this item is incorporated by reference to the sections entitled “SecurityOwnership of Certain Beneficial Owners and Management” and “SecuritiesAuthorized for Issuance Under Equity Compensation Plans” in our Proxy Statementfor our 2007 Annual Meeting of Stockholders.

**Item 13.**                 CertainRelationships and Related Transactions, and Director Independence.

The information requiredby this item is incorporated by reference to the sections entitled “CertainRelationships and Related Transactions” and “Independence of the Board ofDirectors” in our Proxy Statement for our 2007 Annual Meeting of Stockholders.

**Item 14.**                 PrincipalAccounting Fees and Services.

The information required by this item is incorporatedby reference to the section entitled “Ratification of Independent RegisteredPublic Accounting Firm” in our Proxy Statement for our 2007 Annual Meeting ofStockholders.

 

82

----

**Item 15.**                 Exhibits,Financial Statement Schedules.

*(a)**          Documentsfiled as part of this report*

*(1) Index to consolidated financial statements*

|                                                                                         | ** ** | **Page** |
|-----------------------------------------------------------------------------------------|------------|----------|
| Reports of Independent  Registered Public Accounting Firms                              |       | 48       |
| Consolidated Balance  Sheets                                                            |       | 50       |
| Consolidated Statements  of Operations                                                  |       | 51       |
| Consolidated Statements  of Comprehensive Income (Loss)                                 |       | 52       |
| Consolidated Statements  of Cash Flows                                                  |       | 53       |
| Consolidated Statements  of Changes in Stockholders’ Equity (Deficiency in Assets) |       | 55       |
| Notes to Consolidated Financial Statements                                              |       | 58       |

 

*(2) Index to financial statement schedules*

|                                                                | ** ** | **Page** |
|----------------------------------------------------------------|------------|----------|
| Schedule I—Condensed Financial Information of  Registrant |       | 88       |

 

83

----

All other consolidatedfinancial statements schedules not listed above have been omitted because theyare not applicable or are not required or the information required to be setforth in the schedules is included in the consolidated financial statements orthe accompanying notes.

*(3)   Exhibits*

| Exhibit No. | ** ** | ** **                                                                                                                                           | ** ** | **Description of Exhibit** |
|------------------|------------|------------------------------------------------------------------------------------------------------------------------------------------------------|------------|----------------------------|
| 3.1 (1)          |       | Restated Certificate of  Incorporation of ICO                                                                                                        |
| 3.2 (1)          |       | Restated Bylaws  of ICO                                                                                                                              |
| 3.3 (3)          |       | Amendment to  Restated Bylaws of ICO                                                                                                                 |
| 4.1(1)           |       | Form of  Certificate representing ICO Class A common stock                                                                                 |
| 4.2(1)           |       | Indenture, dated  August 15, 2005, among ICO North America, its subsidiaries and The Bank  of New York, as trustee                              |
| 4.3(1)           |       | Form of ICO  North America 7.5% Convertible Senior Secured Note due 2009 (included in Exhibit 4.2)                                         |
| 4.4(1)           |       | First  Supplemental Indenture, dated November 30, 2005, among ICO North  America, its subsidiaries and The Bank of New York, as trustee         |
| 4.5(4)           |       | Second  Supplemental Indenture, dated December 22, 2006, among ICO North  America, its subsidiaries and The Bank of New York, as trustee        |
| 10.1†(2)    |       | Space Segment  Contract, dated November 29, 2005, between ICO Satellite Management LLC  and Space Systems/Loral, Inc.                      |
| 10.2†(2)    |       | Launch Services  Contract, dated March 10, 2006, between ICO Satellite Services G.P. and  Lockheed Martin Commercial Launch Services, Inc. |
| 10.3(1)          |       | Advisory Services  Agreement, dated November 11, 2005, between ICO and Eagle  River, Inc.                                                  |
| 10.4(1)          |       | Restricted Stock  Grant Agreement, effective November 11, 2005, between ICO and Eagle River  Investments, LLC                                   |
| 10.5(1)          |       | Registration  Rights Agreement, dated April 29, 2000, between New Satco  Holdings, Inc. and Eagle River Investments, LLC                   |
| 10.6(1)          |       | Registration  Rights Agreement, dated July 26, 2000, between ICO-Teledesic Global  Limited and CDR-Satco, LLC                                   |
| 10.7(1)          |       | Registration  Rights Agreement, dated July 17, 2000, between ICO-Teledesic Global  Limited and Cascade Investment, L.L.C.                       |
| 10.8(1)          |       | Warrant  Agreement, dated December 12, 2002, between ICO and Eagle River  Investments, LLC                                                 |
| 10.9(1)          |       | Registration  Rights Agreement, dated December 12, 2002, between ICO and Eagle River  Investments, LLC                                          |
| 10.10(1)         |       | Assignment of  Warrants, dated December 19, 2003, among ICO, The Boeing Company and  Teledesic LLC                                              |
| 10.11(1)         |       | Registration  Rights Agreement, dated December 12, 2002, between ICO and Teledesic LLC                                                          |
| 10.12(1)         |       | Registration  Rights Agreement, dated July 2002, between ICO and CCI International  N.V.                                                        |
| 10.13(1)         |       | Registration  Rights Agreement, dated October 2, 2002, between ICO and Ellipso Private  Holdings, Inc.                                     |

84

----

 

| 10.14(1)  |   | Indemnification  Agreement, dated August 11, 2000, between ICO-Teledesic Global Limited  and Eagle River Investments, LLC                                                                                                              |
|-----------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 10.15(1)  |   | Indemnification  Agreement, dated July 26, 2000, among ICO-Teledesic Global Limited,  CDR-Satco, L.L.C., Clayton, Dubilier & Rice, Inc. and The  Clayton, Dubilier & Rice Fund VI Limited Partnership           |
| 10.16(1)  |   | Indemnification  Agreement, dated July 17, 2000, between ICO-Teledesic Global Limited and  Cascade Investment, LLC                                                                                                                     |
| 10.17(1)  |   | Pledge Agreement,  dated as of August 15, 2005, between ICO and The Bank of New York, as  collateral agent                                                                                                                             |
| 10.18(1)  |   | Security and  Pledge Agreement, dated as of August 15, 2005, among ICO North America,  ICO Satellite Management LLC, ICO Satellite Services GP, ICO Global  Communications (Canada) Inc. and The Bank of New York, as collateral agent |
| 10.19(1)  |   | Collateral Trust  Agreement, dated as of August 15, 2005, among ICO, ICO North America,  the guarantors and lenders party thereto and The Bank of New York, as  collateral agent and indenture trustee                                 |
| 10.20+(1) |   | Amended and  Restated ICO 2000 Stock Incentive Plan                                                                                                                                                                                         |
| 10.21+(1) |   | Form of  Class A Common Stock Option Agreement under ICO 2000 Stock Incentive  Plan                                                                                                                                               |
| 10.22+(1) |   | Form of  Class B Common Stock Option Agreement under ICO 2000 Stock Incentive  Plan                                                                                                                                               |
| 10.23+(1) |   | Form of  Restricted Stock Agreement under ICO 2000 Stock Incentive Plan                                                                                                                                                                |
| 10.24+(1) |   | ICO-Teledesic  Global Limited 2000 Stock Incentive Plan                                                                                                                                                                                     |
| 10.25+(1) |   | ICO Global  Communications (Holdings) Limited Stock Option Letter Agreement with Craig  Jorgens dated August 8, 2002                                                                                                                   |
| 10.26+(1) |   | ICO Global  Communications (Holdings) Limited Stock Option Letter Agreement with Craig  Jorgens dated August 8, 2002                                                                                                                   |
| 10.27+(1) |   | Board  Compensation Policy                                                                                                                                                                                                                  |
| 10.28+(1) |   | Employment Letter  Agreement, effective November 1, 2005, between ICO and  J. Timothy Bryan                                                                                                                                  |
| 10.29+(1) |   | Employment  Agreement, dated June 1, 2002, between ICO Satellite Services GP and  David Bagley                                                                                                                                    |
| 10.30+(1) |   | Employment  Agreement, dated September 1, 2002, between ICO Satellite Services GP  and Suzanne Hutchings Malloy                                                                                                                        |
| 10.31+(1) |   | Employment  Agreement, dated July 22, 2002, between ICO Satellite Services GP and  Dennis Schmitt                                                                                                                                 |
| 10.32+(1) |   | Employment  Agreement, dated June 23, 2000, between ICO Satellite Services GP and  Robert Day                                                                                                                                     |
| 10.33+(1) |   | Services  Agreement, as amended, between ICO and Dennis Schmitt                                                                                                                                                                             |
| 10.34+(1) |   | Employment Letter  Agreement, dated December 16, 2005, between ICO Satellite Services GP  and David Zufall                                                                                                                        |
| 10.35+(1) |   | Consulting  Services Agreement, dated March 1, 2006, between ICO and R. Gerard  Salemme                                                                                                                                                |
| 10.36+*   |   | Employment Letter  Agreement, effective April 1, 2006, between ICO and Donna P. Alderman                                                                                                                                               |

85

----

 

| 10.37+(1) |   | Employment Letter  Agreement, dated April 19, 2006, between ICO and Craig Jorgens                                                                                                |
|-----------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 10.38+(1) |   | Employment Letter  Agreement, dated April 19, 2006, between ICO and John Flynn                                                                                                   |
| 10.39(4)  |   | Collateral Trust  Joinder, dated as of December 22, 2006, by ICO Satellite North America  Limited                                                                                |
| 21.1*     |   | List of  Subsidiaries                                                                                                                                                                 |
| 23.1*     |   | Consent of  Deloitte & Touche, LLP, Independent Registered Public Accounting  Firm                                                                                           |
| 23.2*     |   | Consent of PricewaterhouseCoopers  LLP, Independent Registered Public Accounting Firm                                                                                                 |
| 31.1*     |   | Certification of  the principal executive officer required by Rule 13a-14(a) or  Rule 15d-14(a).                                                                       |
| 31.2*     |   | Certification of  the principal financial and accounting officer required by Rule 13a-14(a) or  Rule 15d-14(a).                                                        |
| 32.1*     |   | Certifications required  by Rule 13a-14(b) or Rule 15d-14(b) and  Section 1350 of Chapter 63 of Title 18 of the United States Code (18  U.S.C. § 1350). |

----

*                    Filed herewith.

+                Managementcontract or compensatory plan or arrangement.

†                     Portionsof this exhibit have been omitted pursuant to a request for confidentialtreatment and this exhibit has been filed separately with the SEC.

(1)          Filed as the likenumbered Exhibit to the Registrant’s registration statement on Form 10-12G(File No. 000-52006), filed with the SEC on May 15, 2006, asamended, and incorporated herein by reference.

(2)          Filed as the likenumbered Exhibit to the Registrant’s registration statement on Form 10-12G/A(File No. 000-52006), filed with the SEC on August 17, 2006, asamended, and incorporated herein by reference

(3)          Filed as Exhibit 3.1to the Registrant’s current report on Form 8-K, filed with the SECon December 20, 2006, and incorporated herein by reference.

(4)          Filed as the likenumbered Exhibit to the Registrant’s current report on Form 8-K,filed with the SEC on December 28, 2006, and incorporated herein byreference.

86

----

**SIGNATURES**

Pursuant to the requirements of Section 13 or 15(d) ofthe Securities Exchange Act of 1934, the registrant has duly caused this reportto be signed on its behalf by the undersigned, thereunto duly authorized. 

|                          | ** ** | **ICO GLOBAL COMMUNICATIONS  (HOLDINGS) LIMITED** |
|--------------------------|------------|---------------------------------------------------|
|                     | ** ** | ** **                                        |   |                     (Registrant) |
| Date: April 2, 2007 |       | By:                                               |   | /s/  J. TIMOTHY BRYAN |
|                     |       |                                              |   | J. Timothy Bryan |
|                     | * *   | * *                                          | * * | *Chief Executive Officer (Principal Executive  Officer)* |

 

KNOWALL PERSONS BY THESE PRESENTS, that each person whose signature appears belowconstitutes and appoints J. Timothy Bryan and Dennis Schmitt, and each of them,as his true and lawful attorneys-in-fact and agents, with full power ofsubstitution for him, and in his name in any and all capacities, to sign any andall amendments to this Annual Report on Form 10-K, and to file thesame, with exhibits thereto and other documents in connection therewith, withthe Securities and Exchange Commission, granting unto said attorneys-in-factand agents, and each of them, full power and authority to do and perform eachand every act and thing requisite and necessary to be done therewith, as fullyto all intents and purposes as he might or could do in person, hereby ratifyingand confirming all that said attorneys-in-fact and agents, and any of them orhis or her substitute or substitutes, may lawfully do or cause to be done byvirtue hereof.

Pursuant to therequirements of the Securities Act of 1934, this report has been signed by thefollowing persons on behalf of the Registrant in the capacities indicated on April 2,2007:

| Signature                                     | ** ** | **Title**                                  | ** ** | **Date**           |
|-----------------------------------------------|------------|--------------------------------------------|------------|--------------------|
|                                          |       |                                       |       |               |
| /s/    J.  Timothy Bryan  |       | Chief Executive Officer and Director       |       | April 2, 2007 |
| J. Timothy Bryan                              |       | (Principal Executive Officer)              |       |               |
| /s/    Dennis  Schmitt    |       | Senior Vice President,  Finance (Principal |       | April 2, 2007 |
| Dennis Schmitt                                |       | Financial and Accounting Officer)          |       |               |
| /s/    Craig  O. McCaw    |       | Director                                   |       | April 2, 2007 |
| Craig O. McCaw                                |       |                                       |       |               |
| /s/    Donna  P. Alderman |       | Director                                   |       | April 2, 2007 |
| Donna P. Alderman                             |       |                                       |       |               |
| /s/    Samuel  L. Ginn    |       | Director                                   |       | April 2, 2007 |
| Samuel L. Ginn                                |       |                                       |       |               |
| /s/    Barry  L. Rowan    |       | Director                                   |       | April 2, 2007 |
| Barry Rowan                                   |       |                                       |       |               |
| /s/    R.  Gerard Salemme |       | Director                                   |       | April 2, 2007 |
| R. Gerard Salemme                             |       |                                       |       |               |
| /s/    David  Wasserman   |       | Director                                   |       | April 2, 2007 |
| David Wasserman                               |       |                                       |       |               |
| /s/    Benjamin  G. Wolff |       | Director                                   |       | April 2, 2007 |
| Benjamin G. Wolff                             |       |                                       |       |               |

 

87

----

**ICO GlobalCommunications (Holdings) Limited(Parent Only)Schedule I—Condensed Financial Information of RegistrantCondensed Balance Sheets(In thousands)**

| ** **                                               | ** ** | **December 31,** | ** ** | **December 31,** | ** ** |
|----------------------------------------------------------|------------|-----------------------|------------|-----------------------|------------|
| ** **                                               | ** ** | **2006**              | ** ** | **2005**              | ** ** |
| **ASSETS**                                               | ** ** |                  | ** ** | ** **            |       |   | ** ** | ** ** |   |
| Current assets:                                          |       |                  |       |                  |       |   |   |   |   |
| Cash and cash equivalents                                |       |                  | $          | 21,844                |       |   |   | $ | 20,543 |   |   |
| Restricted cash                                          |       |                  | 825        |                  |       |   | 1,650 |   |   |
| Prepaid expenses and other current assets                |       |                  | 150        |                  |       |   | 118 |   |   |
| Total current assets                                     |       |                  | 22,819     |                  |       |   | 22,311 |   |   |
| Property in  service, net                                |       |                  | 10         |                  |       |   | — |   |   |
| Total                                                    |       |                  | $          | 22,829                |       |   |   | $ | 22,311 |   |   |
| **LIABILITIES AND DEFICIENCY IN ASSETS**                 | ** ** |                  | ** ** | ** **            |       |   | ** ** | ** ** |   |
| Accounts payable and accrued expenses                    |       |                  | $          | 375                   |       |   |   | $ | 1,232 |   |   |
| Investments in  and advances from (to) subsidiaries, net |       |                  | 98,038     |                  |       |   | 48,227 |   |   |
| Deficiency in  assets                                    |       |                  | (75,584    | )                     |       |   | (27,148 | ) |   |
| Total                                                    |       |                  | $          | 22,829                |       |   |   | $ | 22,311 |   |   |

 

 

 

 

 

The accompanying notes are an integral part of these condensed financial statements.

88

----

**ICO GlobalCommunications (Holdings) Limited(Parent Only)Schedule I—Condensed Financial Information of RegistrantCondensed Statements of Operations and Comprehensive Income (Loss)**(In thousands)

| ** **                                    | ** ** | **Year ended December 31,** | ** ** |
|-----------------------------------------------|------------|--------------------------------------------|------------|
| ** **                                    | ** ** | **2006**                                   | ** ** | **2005** | ** ** | **2004** | ** ** |
| Operating expenses :                          |       |                                       |       |   |   |   |   |
| General and administrative                    |       | $                                          | 7,745      |   | $ | 3,725 |   | $ | 3,003 |   |
| Other income (expense):                       |       |                                       |       |   |   |   |   |
| Interest income                               |       | 924                                        |       | 1,006 |   | 772 |   |
| Intercompany expense (Note 2)                 |       | (2,309                                     | )          | (2,283 | ) | (6,593 | ) |
| Equity in net income (losses) of subsidiaries |       | (54,978                                    | )          | 38,411 |   | (893,656 | ) |
| Other                                         |       | (64                                        | )          | (3 | ) | (18 | ) |
| Net income (loss)                             |       | (64,172                                    | )          | 33,406 |   | (902,498 | ) |
| Other comprehensive  income (loss):           |       |                                       |       |   |   |   |   |
| Unrealized gain (loss) on investments         |       | 57                                         |       | (75 | ) | (178 | ) |
| Cumulative translation adjustments            |       | (2,911                                     | )          | 496 |   | 720 |   |
| Comprehensive income  (loss)                  |       | $                                          | (67,026    | ) | $ | 33,827 |   | $ | (901,956 | ) |

 

 

 

 

 

The accompanying notes are an integral part of these condensed financial statements.

89

----

**ICO GlobalCommunications (Holdings) Limited(Parent Only)Schedule I—Condensed Financial Information of RegistrantCondensed Statements of Cash Flows**(In thousands)

| ** **                                                                           | ** ** | **Year ended December 31,** | ** ** |
|--------------------------------------------------------------------------------------|------------|--------------------------------------------|------------|
| ** **                                                                           | ** ** | **2006**                                   | ** ** | **2005** | ** ** | **2004** | ** ** |
| Operating activities:                                                                |       |                                       |       |   |   |   |   |
| Net income (loss)                                                                    |       | $                                          | (64,172    | ) | $ | 33,406 |   | $ | (902,498 | ) |
| Adjustments to reconcile net income (loss) to net  cash used in operating activities |       | 59,425                                     |       | (35,022 | ) | 901,320 |   |
| Net cash used in operating activities                                                |       | (4,747                                     | )          | (1,616 | ) | (1,178 | ) |
| Investing activities:                                                                |       |                                       |       |   |   |   |   |
| Investments in and advances from (to) subsidiaries                                   |       | 5,191                                      |       | (28,519 | ) | (48,679 | ) |
| Restricted cash                                                                      |       | 825                                        |       | (1,650 | ) | — |   |
| Purchases of property in service                                                     |       | (11                                        | )          | — |   | — |   |
| Net cash provided by (used in) operating activities                                  |       | 6,005                                      |       | (30,169 | ) | (48,679 | ) |
| Financing activities:                                                                |       |                                       |       |   |   |   |   |
| Issuance of Class A common stock                                                |       | 43                                         |       | 18 |   | — |   |
| Net cash provided financing activities                                               |       | 43                                         |       | 18 |   | — |   |
| Net increase  (decrease) in cash and cash equivalents                                |       | 1,301                                      |       | (31,767 | ) | (49,857 | ) |
| Cash and cash  equivalents—beginning of period                                  |       | 20,543                                     |       | 52,310 |   | 102,167 |   |
| Cash and cash  equivalents—end of period                                        |       | $                                          | 21,844     |   | $ | 20,543 |   | $ | 52,310 |   |

 

 

 

 

The accompanying notes are an integral part of these condensed financial statements.

90

----

**ICO GlobalCommunications (Holdings) Limited(Parent Only)Schedule I—Condensed Financial Information of RegistrantNotes to Condensed Financial Statements**

1. For accounting policiesand other information, see the notes to the consolidated financial statementsof ICO Global Communications (Holdings) Limited (“ICO Parent”) and subsidiaries(collectively, the “Company”), included elsewhere herein. ICO Parent accountsfor its wholly-owned subsidiaries under the equity method of accounting.

2. Certain subsidiaries ofICO Parent charge ICO Parent for certain services performed on its behalf. Forthe years ended December 31, 2006, 2005 and 2004, the expense related tosuch services was $2.3 million, $2.3 million and $6.6 million,respectively.

3. For the years ended December 31,2006 and 2005, an ICO Parent subsidiary agreed to pay ICO Parent $6.3 millionand $9.9 million, respectively, for certain restricted stock awards and stock optionsthat ICO Parent issued to employees and board members for services to beperformed on behalf of that subsidiary. These amounts were remitted to ICOParent in 2006. ICO Parent is required to make a capital contribution tothe subsidiary for any securities that ultimately fail to vest.

91

----

**Index to Exhibits**

| Exhibit No. | ** ** | ** **                                                                                                                                                                                                                        | ** ** | **Description of Exhibit** |
|------------------|------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|----------------------------|
| 3.1 (1)          |       | Restated Certificate of  Incorporation of ICO                                                                                                                                                                                     |
| 3.2 (1)          |       | Restated Bylaws  of ICO                                                                                                                                                                                                           |
| 3.3 (3)          |       | Amendment to  Restated Bylaws of ICO                                                                                                                                                                                              |
| 4.1(1)           |       | Form of  Certificate representing ICO Class A common stock                                                                                                                                                              |
| 4.2(1)           |       | Indenture, dated  August 15, 2005, among ICO North America, its subsidiaries and The Bank  of New York, as trustee                                                                                                           |
| 4.3(1)           |       | Form of ICO  North America 7.5% Convertible Senior Secured Note due 2009 (included in  Exhibit 4.2)                                                                                                                     |
| 4.4(1)           |       | First  Supplemental Indenture, dated November 30, 2005, among ICO North  America, its subsidiaries and The Bank of New York, as trustee                                                                                      |
| 4.5(4)           |       | Second  Supplemental Indenture, dated December 22, 2006, among ICO North  America, its subsidiaries and The Bank of New York, as trustee                                                                                     |
| 10.1†(2)    |       | Space Segment  Contract, dated November 29, 2005, between ICO Satellite Management LLC  and Space Systems/Loral, Inc.                                                                                                   |
| 10.2†(2)    |       | Launch Services  Contract, dated March 10, 2006, between ICO Satellite Services G.P. and Lockheed  Martin Commercial Launch Services, Inc.                                                                              |
| 10.3(1)          |       | Advisory Services  Agreement, dated November 11, 2005, between ICO and Eagle  River, Inc.                                                                                                                               |
| 10.4(1)          |       | Restricted Stock  Grant Agreement, effective November 11, 2005, between ICO and Eagle  River Investments, LLC                                                                                                                |
| 10.5(1)          |       | Registration  Rights Agreement, dated April 29, 2000, between New Satco  Holdings, Inc. and Eagle River Investments, LLC                                                                                                |
| 10.6(1)          |       | Registration  Rights Agreement, dated July 26, 2000, between ICO-Teledesic Global  Limited and CDR-Satco, LLC                                                                                                                |
| 10.7(1)          |       | Registration  Rights Agreement, dated July 17, 2000, between ICO-Teledesic Global  Limited and Cascade Investment, L.L.C.                                                                                                    |
| 10.8(1)          |       | Warrant  Agreement, dated December 12, 2002, between ICO and Eagle River  Investments, LLC                                                                                                                              |
| 10.9(1)          |       | Registration Rights  Agreement, dated December 12, 2002, between ICO and Eagle River  Investments, LLC                                                                                                                       |
| 10.10(1)         |       | Assignment of  Warrants, dated December 19, 2003, among ICO, The Boeing Company and  Teledesic LLC                                                                                                                           |
| 10.11(1)         |       | Registration  Rights Agreement, dated December 12, 2002, between ICO and Teledesic LLC                                                                                                                                       |
| 10.12(1)         |       | Registration  Rights Agreement, dated July 2002, between ICO and CCI International  N.V.                                                                                                                                     |
| 10.13(1)         |       | Registration  Rights Agreement, dated October 2, 2002, between ICO and Ellipso Private  Holdings, Inc.                                                                                                                  |
| 10.14(1)         |       | Indemnification  Agreement, dated August 11, 2000, between ICO-Teledesic Global Limited  and Eagle River Investments, LLC                                                                                                    |
| 10.15(1)         |       | Indemnification  Agreement, dated July 26, 2000, among ICO-Teledesic Global Limited,  CDR-Satco, L.L.C., Clayton, Dubilier & Rice, Inc. and The  Clayton, Dubilier & Rice Fund VI Limited Partnership |

92

----

 

| 10.16(1)  |   | Indemnification  Agreement, dated July 17, 2000, between ICO-Teledesic Global Limited and  Cascade Investment, LLC                                                                                                                     |
|-----------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 10.17(1)  |   | Pledge Agreement,  dated as of August 15, 2005, between ICO and The Bank of New York, as  collateral agent                                                                                                                             |
| 10.18(1)  |   | Security and  Pledge Agreement, dated as of August 15, 2005, among ICO North America,  ICO Satellite Management LLC, ICO Satellite Services GP, ICO Global  Communications (Canada) Inc. and The Bank of New York, as collateral agent |
| 10.19(1)  |   | Collateral Trust  Agreement, dated as of August 15, 2005, among ICO, ICO North America,  the guarantors and lenders party thereto and The Bank of New York, as  collateral agent and indenture trustee                                 |
| 10.20+(1) |   | Amended and  Restated ICO 2000 Stock Incentive Plan                                                                                                                                                                                         |
| 10.21+(1) |   | Form of  Class A Common Stock Option Agreement under ICO 2000 Stock Incentive  Plan                                                                                                                                               |
| 10.22+(1) |   | Form of  Class B Common Stock Option Agreement under ICO 2000 Stock Incentive  Plan                                                                                                                                               |
| 10.23+(1) |   | Form of  Restricted Stock Agreement under ICO 2000 Stock Incentive Plan                                                                                                                                                                |
| 10.24+(1) |   | ICO-Teledesic  Global Limited 2000 Stock Incentive Plan                                                                                                                                                                                     |
| 10.25+(1) |   | ICO Global  Communications (Holdings) Limited Stock Option Letter Agreement with Craig  Jorgens dated August 8, 2002                                                                                                                   |
| 10.26+(1) |   | ICO Global  Communications (Holdings) Limited Stock Option Letter Agreement with Craig  Jorgens dated August 8, 2002                                                                                                                   |
| 10.27+(1) |   | Board  Compensation Policy                                                                                                                                                                                                                  |
| 10.28+(1) |   | Employment Letter  Agreement, effective November 1, 2005, between ICO and J. Timothy Bryan                                                                                                                                   |
| 10.29+(1) |   | Employment  Agreement, dated June 1, 2002, between ICO Satellite Services GP and  David Bagley                                                                                                                                    |
| 10.30+(1) |   | Employment  Agreement, dated September 1, 2002, between ICO Satellite Services GP  and Suzanne Hutchings Malloy                                                                                                                        |
| 10.31+(1) |   | Employment  Agreement, dated July 22, 2002, between ICO Satellite Services GP and  Dennis Schmitt                                                                                                                                 |
| 10.32+(1) |   | Employment  Agreement, dated June 23, 2000, between ICO Satellite Services GP and  Robert Day                                                                                                                                     |
| 10.33+(1) |   | Services  Agreement, as amended, between ICO and Dennis Schmitt                                                                                                                                                                             |
| 10.34+(1) |   | Employment Letter  Agreement, dated December 16, 2005, between ICO Satellite Services GP  and David Zufall                                                                                                                        |
| 10.35+(1) |   | Consulting  Services Agreement, dated March 1, 2006, between ICO and R. Gerard  Salemme                                                                                                                                                |
| 10.36+*   |   | Employment Letter  Agreement, effective April 1, 2006, between ICO and Donna P. Alderman                                                                                                                                               |
| 10.37+(1) |   | Employment Letter  Agreement, dated April 19, 2006, between ICO and Craig Jorgens                                                                                                                                                      |
| 10.38+(1) |   | Employment Letter  Agreement, dated April 19, 2006, between ICO and John Flynn                                                                                                                                                         |
| 10.39(4)  |   | Collateral Trust  Joinder, dated as of December 22, 2006, by ICO Satellite North America  Limited                                                                                                                                      |
| 21.1*     |   | List of  Subsidiaries                                                                                                                                                                                                                       |
| 23.1*     |   | Consent of  Deloitte & Touche, LLP, Independent Registered Public Accounting  Firm                                                                                                                                                 |

93

----

 

| 23.2* |   | Consent of PricewaterhouseCoopers  LLP, Independent Registered Public Accounting Firm                                                                                                 |
|-------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 31.1* |   | Certification of  the principal executive officer required by Rule 13a-14(a) or  Rule 15d-14(a).                                                                       |
| 31.2* |   | Certification of  the principal financial and accounting officer required by Rule 13a-14(a) or  Rule 15d-14(a).                                                        |
| 32.1* |   | Certifications required  by Rule 13a-14(b) or Rule 15d-14(b) and  Section 1350 of Chapter 63 of Title 18 of the United States Code (18  U.S.C. § 1350). |

----

*                    FiledHerewith.

+                Managementcontract or compensatory plan or arrangement.

†                    Portions ofthis exhibit have been omitted pursuant to a request for confidential treatmentand this exhibit has been filed separately with the SEC.

(1)          Filed as the likenumbered Exhibit to the Registrant’s registration statement on Form 10-12G(File No. 000-52006), filed with the SEC on May 15, 2006, asamended, and incorporated herein by reference.

(2)          Filed as the likenumbered Exhibit to the Registrant’s registration statement on Form 10-12G/A(File No. 000-52006), filed with the SEC on August 17, 2006, asamended, and incorporated herein by reference

(3)          Filed as Exhibit 3.1to the Registrant’s current report on Form 8-K, filed with the SECon December 20, 2006, and incorporated herein by reference.

(4)          Filed as the likenumbered Exhibit to the Registrant’s current report on Form 8-K,filed with the SEC on December 28, 2006, and incorporated herein byreference.

94

----