Chase Manhattan Bank v. Motorola, Inc.

• Decision Date: 11 February 2002
• Docket Number: No. 00 CIV 4838(AKH).,00 CIV 4838(AKH).
• Parties: The CHASE MANHATTAN BANK, Plaintiff, v. MOTOROLA, INC., Defendant.
• Court: U.S. District Court — Southern District of New York

184 F.Supp.2d 384

The CHASE MANHATTAN BANK, Plaintiff, v. MOTOROLA, INC., Defendant.

No. 00 CIV 4838(AKH).

United States District Court, S.D. New York.

February 11, 2002.

Barry R. Ostrager, David J. Woll, Mary Kay Vyskocil, Michelle A. Kisloff, Simpson, Thacher & Bartlett, New York City, for Plaintiff.

Joseph Serino, Jr., Kimberly Ziev Niehaus, Kirkland & Ellis, New York City, for Defendant.

FINDINGS OF FACT AND CONCLUSIONS OF LAW

HELLERSTEIN, District Judge.

I. FINDINGS OF FACT

1. This is a breach of contract action in which The Chase Manhattan Bank ("Chase") seeks to enforce a $300 million guarantee obligation by Motorola, Inc. ("Motorola"), pledged by Iridium Operating LLC ("Iridium") as collateral for an $800 million loan by Chase and a consortium of lenders represented by Chase (collectively, the "Lenders").

2. The following findings of fact and conclusions of law concern only Chase's claims in this suit. Motorola's counterclaim has not yet been tried by the parties, and I therefore will not address it here.

3. The scope of the issues properly within my jurisdiction was defined by my earlier decision, filed on March 29, 2001, denying Chase's motion to remand this case to the New York Supreme Court, from which it had been removed. The March 29 decision sets out the history of Iridium, the role of Chase as Collateral Agent and Administrative Agent for a consortium of participating banks, that only Chase has the right to seek enforcement against Motorola of its guarantee obligation, and that, in consequence, the diverse citizenship of Motorola and Chase is sufficient basis for the district court's jurisdiction.

A. Factual Background

4. In the 1980's, Motorola began to develop a global satellite communications system. The project was called "Iridium." Trial Tr. at 233. In 1993, Iridium was spun off from Motorola and became an independent company with outside investors. Trial Tr. at 102; Trial Tr. at 305.

5. Iridium was intended to be a global communications system that would utilize a traditional terrestrial network and a constellation of over sixty low-earth orbit satellites to allow subscribers to make and receive phone calls and pages anywhere in the world.

6. Iridium launched its commercial service on November 1, 1998, before all components of the system had been proved and before it was ready for full commercial launch. DX I3; Trial Tr. at 231; Trial Tr. at 519.

7. The banking relationship between Chase and Iridium developed in the mid-1990s. DX N9; Trial Tr. at 206. Chase participated in Iridium's significant financings. Chase was the Global Arranger for syndicated bank debt Iridium raised in 1996, 1997 and 1998; the lead manager for three high yield debt offerings by Iridium in 1997 and 1998; an underwriter for Iridium's public equity offerings; and a general financial advisor to the company. Trial Tr. at 206, 325-26, 486; DX I3.

B. 1998 Financing and Documents

8. On December 23, 1998, Chase and two syndicates of lenders extended loans totaling $1.55 billion to Iridium. One loan of $750 million, not in issue in this case, was extended through a Senior Guaranteed Credit Facility, and was guaranteed in full by Motorola. Ex. I3 at 10. A second loan of $800 million was extended through a Senior Secured Credit Agreement between Iridium and Chase (the "Loan"). Motorola's guarantee obligation in respect of this loan gives rise to the issues of this case.

9. Four contracts are relevant to the Loan, all executed on December 23, 1998:

(a) The Senior Secured Credit Agreement, executed by Iridium, Chase and the other members of the syndicate, PX 111;

(b) The Second Amended and Restated Memorandum of Understanding, executed by Iridium, Iridium LLC and Motorola (the "MOU"), PX 112;

(c) The Motorola Consent, executed by Iridium, Motorola and Chase, PX 113; and

(d) The Pledge and Security Agreement, executed by Iridium, several of its subsidiaries and Chase, PX 114.

The four agreements are interrelated, and reference each other and their respective terms and conditions.

10. Pursuant to the MOU, Iridium had the right to request Motorola to provide it with up to $300 million to secure the Loan (the "Motorola Guarantee"). Iridium made such request to Motorola, and Iridium thereupon pledged and assigned the Motorola Guarantee to the Lenders as Collateral for the Loan, and Motorola consented thereto, all as reflected by the agreements referred to above. See ¶ 9.

11. The Credit Agreement, PX 111, referring to the Motorola Guarantee and Iridium's pledge and assignment thereof, provides that "not later than seven Business Days after the occurrence of any Trigger Event, [Iridium] will require Motorola to perform the Motorola Guarantee (to the extent of a maximum amount of $300,000,000.") PX 111, § 8.09(a). A Trigger Event is defined as the occurrence of any one of several events, including (a) any Event of Default, or (b) Iridium's failure to achieve certain defined financial targets, including "cumulative adjusted accrued revenues" by February 28, 1999 of $25 million. Id., § 1.01 at 26-27.

12. The Motorola Consent, PX 113, sets out Chase's rights against Motorola with respect to Iridium's pledge of collateral: "to exercise all rights, powers and remedies of Iridium" against Motorola with respect to Motorola's Guarantee. PX 113, § 3.08(a). The Motorola Consent further provides that Motorola consents to the assignment by Iridium and acknowledges that Chase has the right to proceed directly against Motorola on Motorola's Guarantee. Id.

13. Section 3.08(a) of the Motorola Consent provides that

[a]t any time after the occurrence and during the continuation of any Event of Default, [Chase] shall have the right to exercise all rights, powers and remedies of Iridium under the MOU Agreements ... including without limitation the right to require Motorola to provide the Motorola Guarantee in a maximum amount of $300,000,000 pursuant to Section 1(e) of the Memorandum of Understanding .... Motorola agrees that [Chase] may exercise such rights, powers and/or remedies directly against Motorola under such circumstances ... so long as any Event of Default shall be continuing and Motorola has received written notice thereof from [Chase] ....

PX 113, § 3.08(a)

14. Section 3.08(b) of the Motorola Consent provides that

upon the occurrence of a Trigger Event, if Iridium shall fail to perform its obligations under Section 8.09 of the [ ] Credit Agreement, [Chase] may require, by written notice, Motorola to provide the Motorola Guarantee in accordance with Section 1(e) of the Memorandum of Understanding. Motorola agrees, upon receipt of such notice, promptly to so provide the Motorola Guarantee.

PX 113, § 3,08(b).

15. Section 3.09(c) of the Motorola Consent states that

[w]ithout limiting any other provision of this Agreement, Motorola will not amend, waive or otherwise modify, or agree to any amendment, waiver or modification, or terminate or cancel any provision under the MOU Agreements to the extent relating to its obligations under paragraph 1(e) of the Memorandum of Understanding without the prior written consent of [Chase].

PX 113, § 3.08(c).

16. Section 3.08(e) of the Motorola Consent provides that the Motorola Guarantee "shall terminate upon the earlier of the Guarantee Obligation Termination Date and the Guarantee Obligation Release Date." PX 113, § 3.08(e).

17. "Guarantee Obligation Termination Date," see PX 113 § 3.08(e), is defined (by reference to Section 8.09(b) of the Credit Agreement, see PX 113, § 1.01) as a date on which no Default under the Credit Agreement had occurred and was continuing, and Iridium "delivered to [Chase] a certificate of its chief financial officer in form and substance reasonable satisfactory to [Chase]" representing that as of such date:

(a) No Default under the Credit Agreement had occurred and was continuing;

(b) Iridium was in compliance with the requirements of Section 8.07 of the Credit Agreement, that is, Iridium was maintaining the "Iridium System" in a manner consistent with the achievement of the November 1998 "Financial Projections";

(c) Iridium had "committed or available finding" to meet all projected costs to the maturity date of the loan (December 29, 2000); and

(d) Iridium had received at least $250 million in proceeds from a public equity offering before February 28, 1999.

PX 111, § 8.09(b).

18. A "Default" is defined (by reference to the Credit Agreement) as "any event or condition which constitutes an Event of Default or which upon notice, lapse of time or both would, unless cured or waived, become an Event of Default." PX 111, § 1.01 at 7. An Event of Default would occur if, inter alia:

(a) "[A]ny representation or warranty made or deemed made by [Iridium] ... in any ... certificate ... furnished pursuant to or in connection with this Agreement or any other Credit Document ... shall prove to have been incorrect in any material respect when made or deemed made," PX 111, § 9.01(d); and

(b) "[Iridium] shall fail to observe or perform any covenant, condition or agreement contained in [inter alia] Article VII (other than Sections 7.06 and 7.09)." Id., § 9.01(e).

19. An Event of Default includes failing to meet Financial Covenants provided by Section 7.10 of the Credit Agreement. See PX 111, § 9.01(e). The Financial Covenants obligate Iridium to achieve minimum subscriber and minimum revenue goals by quarterly dates. PX 111, § 7.10. As of March 31, 1999, Iridium was to have at least $30 million cumulative accrued revenues, $4 million cumulative cash revenues, 52,000 total subscribers, and 27,000 Total Satellite Subscribers. Id., § 7.10(a). The Financial Covenants were the result of intense bargaining, and the parties regarded them as material. See, e.g., Trial Tr. at 281:4 — 284:18.

20. The "Financial Projections" provided in the Confidential Information Memorandum ("CIM") reflect quarterly revenue and subscriber goals set by Iridium management....