- The Washington Times - Friday, June 2, 2000

Iridium LLC's satellites might not burn up in the Earth's atmosphere after all.

The District of Columbia-based satellite telephone company has asked the U.S. Bankruptcy Court in Manhattan to approve the sale of its satellites to a New York investment bank for $50 million.

Castle Harlan Inc., which manages two investment funds worth more than $1 billion and has an ownership stake in 19 restaurant chains, manufacturing and transportation companies, would buy Iridium's satellites and other assets if a judge approves the deal.

"These guys have clear access to the assets," Iridium attorney Bob Beury said.

Gene Curcio, who owns privately held California telecommunications company Crescent Communications Inc., also bid $50 million for the network, his attorney said Tuesday.

The constellation of 66 active and six backup satellites is worth an estimated $5 billion.

Iridium called off the search for a buyer in March. But the company found more time to look for a buyer because of delays in getting approval from the National Aeronautics and Space Administration for its plan to destroy the satellites, Mr. Beury said.

"I think most people believed [the satellites] were useless and would come down. But people at Iridium were hoping, at least with their hearts and not their heads, that someone would find a use for them," he said.

Castle Harlan co-founder John K. Castle, a former chief executive of investment banking firm Donaldson, Lufkin & Jenrette, declined Thursday to talk about how the company will use the satellites.

Castle Harlan would not assume Iridium's mountain of debt. Iridium filed for Chapter 11 bankruptcy protection in August because it was unable to make payments on an estimated $4.4 billion in debts.

Iridium picked Castle Harlan from among four companies making offers.

The proposed deal is outlined in a court filing that shows the two companies came to terms on their plan May 26.

Money for the purchase would come from a $630 million fund managed by Castle Harlan.

A Castle Harlan spokesman declined to indicate whether former Iridium chief executive Edward Staiano will be brought on board to help run the new company. Mr. Staiano resigned in April 1999.

Neil Forrest, the attorney for Mr. Curcio, said rumors of Mr. Staiano's involvement with Castle Harlan have circulated for two weeks. But Mr. Forrest criticized the investment bank's decision to align itself with the former chief executive.

"I don't know why any interested party in this case would want to turn over operations to someone responsible for putting [Iridium] in this position in the first place," Mr. Forrest said.

If Castle Harlan tries to duplicate Iridium's plan, it is likely to fail, said J. Armand Musey, Banc of America Securities analyst.

"It's universally agreed that there's not enough of a market to do what Iridium did," he said.

The network of satellites supports both calling and paging services. Iridium mustered just 55,000 customers since the service started in November 1998.

A prospective buyer is likely to be required to put up as much as $60 million to fund a deorbiting project to destroy the satellites if their new owners fail to make the new business work.

"If someone's willing to assume liability for that, they could receive approval, but unless they do the judge isn't just going to hand over the satellites because he doesn't want a bunch of space junk flying around," Mr. Musey said.

Creditors and other groups that hoped to buy Iridium's assets have until Monday to file objections to the proposed deal with Castle Harlan.

A hearing is scheduled for June 7. If a judge accepts the motion to sell the assets to Castle Harlan and its non-binding letter of intent, the company gets 45 days to determine whether its business plan will work.

Iridium asked in its filing that a hearing be held July 31 to determine the winning bidder.

Mr. Forrest said Mr. Curcio will object to the sale to Castle Harlan.

David Stern, an attorney representing the group of unsecured creditors that claims Iridium owes it up to $3 billion, said it's still not clear whether they will challenge the deal because it's too early to know whether the plan would benefit creditors.

"Until you see the money, you never know if it's going to be beneficial," he said.

The proposal filed by Iridium gives others a chance to file rival bids for the satellites. But if another party outbids Castle Harlan, the investment company is entitled to a $2 million breakup fee, according to the terms of the proposed deal.

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