<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1998
Commission file number 0-23044
AMERICAN MOBILE SATELLITE CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 93-0976127
(State or other (I.R.S. Employer
jurisdiction of Identification No.)
incorporation or
organization)
10802 Parkridge Boulevard
Reston, VA 20191-5416
(Address of principal (Zip Code)
executive offices)
(703) 758-6000
(Registrant's telephone number,
including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such report(s)), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
Number of shares of Common Stock outstanding at July 31, 1998: 32,129,163
<PAGE>
PART I--FINANCIAL INFORMATION
Item 1. Financial Statements
AMERICAN MOBILE SATELLITE CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF LOSS
(in thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
1998 1997 1998 1997
---------- --------- --------- ---------
<S> <C> <C> <C> <C>
REVENUES
Services $16,670 $4,979 $23,088 $9,132
Sales of equipment 5,740 5,774 9,344 10,306
---------- --------- --------- ---------
Total Revenue 22,410 10,753 32,432 19,438
COSTS AND EXPENSES
Cost of service and operations 16,918 8,201 24,646 17,074
Cost of equipment sold 5,415 7,140 9,296 12,582
Sales and advertising 4,711 3,059 7,733 6,280
General and administrative 5,773 2,937 9,404 7,805
Depreciation and amortization 14,457 11,083 24,620 21,020
------ ------ ------ ------
Operating Loss (24,864) (21,667) (43,267) (45,323)
INTEREST EXPENSE (15,706) (5,281) (22,344) (9,651)
INTEREST AND OTHER INCOME 1,607 106 1,748 1,051
EQUITY IN LOSS OF AMRC -- -- (342) --
------ ------ ------ ------
NET LOSS ($38,963) ($26,842) ($64,205) ($53,923)
========== ========= ========= =========
BASIC AND DILUTED NET LOSS PER SHARE OF
COMMON STOCK ($1.23) ($1.07) ($2.25) ($2.15)
========== ========= ========= =========
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING DURING THE PERIOD (000'S) 31,719 25,120 28,502 25,115
========== ========= ========= =========
See notes to consolidated financial statements.
</TABLE>
<PAGE>
PART I-FINANCIAL INFORMATION
Item 1. Financial Statements (continued)
AMERICAN MOBILE SATELLITE CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997
---- ----
ASSETS
CURRENT ASSETS:
<S> <C> <C>
Cash and cash equivalents $8,944 $2,106
Inventory 37,887 40,321
Accounts receivable-trade, net 13,279 8,140
Restricted cash-current portion 41,038 --
Prepaid in-orbit insurance 1,993 4,564
Other current assets 20,602 9,608
------ -----
Total current assets 123,743 64,739
PROPERTY AND EQUIPMENT - NET 265,788 233,174
GOODWILL AND INTANGIBLES - NET 54,347 --
DEFERRED CHARGES AND OTHER ASSETS 34,554 13,534
RESTRICTED CASH - NON-CURRENT 83,970 --
------ --------
Total assets $562,402 $311,447
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued expenses $40,725 $35,861
Obligations under capital leases due within one year 3,687 798
Current portion of long-term debt 3,006 15,254
Other current liabilities 7,673 7,520
----- -----
Total current liabilities 55,091 59,433
LONG-TERM LIABILITIES:
Obligations under Bank Financing 122,000 198,000
Obligations under Senior Notes, net of discount 326,722 --
Capital lease obligations 10,163 3,147
Net assets acquired in excess of purchase price 2,376 2,725
Other long-term debt 1,003 1,364
Other long-term liabilities 563 647
------- -------
Total long-term liabilities 462,827 205,883
------- -------
Total liabilities 517,918 265,316
------- -------
STOCKHOLDERS' EQUITY
Preferred Stock, par value $0.01; no shares issued -- --
Common Stock, voting, par value $0.01 318 252
Additional paid-in capital 502,228 451,892
Common Stock purchase warrants 62,547 36,338
Unamortized guarantee warrants (37,640) (23,586)
Retained loss (482,969) (418,765)
--------- ---------
Total stockholders' equity 44,484 46,131
------ ---------
Total liabilities and stockholders' equity $562,402 $311,447
======== ========
</TABLE>
See notes to consolidated financial statements.
<PAGE>
PART I-FINANCIAL INFORMATION
Item 1. Financial Statements (continued)
AMERICAN MOBILE SATELLITE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
June 30
------------------------
1998 1997
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net loss ($64,205) ($53,923)
Adjustments to reconcile net loss to net cash used
in operating activities:
Amortization of guarantee warrants, debt discount and issuance costs 5,877 4,297
Depreciation and amortization 24,220 21,020
Equity in loss from AMRC 341 --
Amortization of interest rate swap 1,491 --
Changes in assets and liabilities:
Inventory 1,889 (7,426)
Prepaid in-orbit insurance 2,571 3,387
Trade accounts receivable 1,941 (2,142)
Other current assets 67 5,565
Accounts payable and accrued expenses 1,245 (8,558)
Deferred trade payables (7,680) --
Deferred items - net (124) 285
--------- ---------
Net cash used in operating activities (32,367) (37,495)
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment (5,558) (5,804)
Acquisition of ARDIS (51,440) --
Purchase of long-term, restricted cash securities (141,899) --
Investment in AMRC -- (1,500)
---------- ---------
Net cash used in investing activities (198,897) (7,304)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of Common Stock 236 141
Principal payments under capital leases (1,234) (1,882)
Proceeds from Bank Financing 24,000 --
Repayment of Bank Financing (100,000) --
Proceeds from bridge financing 10,000 --
Repayment of bridge financing (10,000) --
Proceeds from Senior Notes and Warrants 335,000 --
Payments on long-term debt (4,933) (5,225)
Proceeds from long-term debt -- 53,000
Debt issuance costs (14,967) (611)
-------- -------
Net cash provided by financing activities 238,102 45,423
Net increase (decrease) in cash and cash equivalents 6,838 624
CASH AND CASH EQUIVALENTS, beginning of period 2,106 2,182
------ ------
CASH AND CASH EQUIVALENTS, end of period $8,944 $2,806
====== ======
See notes to consolidated financial statements.
</TABLE>
<PAGE>
PART I-FINANCIAL INFORMATION
Item 1. Financial Statements (continued)
AMERICAN MOBILE SATELLITE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1998
(Unaudited)
1. Organization and Business
-------------------------
American Mobile Satellite Corporation (with its subsidiaries, "American Mobile"
or the "Company") was incorporated on May 3, 1988, by eight of the initial
applicants for the mobile satellite services license, following a determination
by the Federal Communications Commission ("FCC") that the public interest would
be best served by granting the license to a consortium of all willing, qualified
applicants. The FCC has authorized American Mobile to construct, launch, and
operate a mobile satellite services system (the "Satellite Network ") to provide
a full range of mobile voice and data services via satellite to land, air and
sea-based customers in a service area consisting of the continental United
States, Alaska, Hawaii, Puerto Rico, the U.S. Virgin Islands, U.S. coastal
waters, international waters and airspace and any foreign territory where the
local government has authorized the provision of service. In March 1991,
American Mobile Satellite Corporation transferred the mobile satellite services
license ("MSS license") to a wholly owned subsidiary, American Mobile Subsidiary
Corporation ("AMSC Subsidiary"). On April 7, 1995, the Company successfully
launched its first satellite ("MSAT-2"), from Cape Canaveral, Florida.
On March 31, 1998 the Company (through its newly-formed, wholly-owned
subsidiary, AMSC Acquisition Company, Inc. ("Acquisition Company")) acquired
ARDIS Company ("ARDIS"), a wholly-owned subsidiary of Motorola Inc. that owns
and operates a two-way wireless data communications network, for a purchase
price of approximately $50 million in cash and $50 million in the Company's
Common Stock and warrants (the "Purchase Price"). The Company, through the
acquisition of ARDIS, becomes a nationwide provider of wireless communications
services, including data, dispatch, and voice services, primarily to business
customers in the United States.
On October 16, 1997, American Mobile Radio Corporation, an indirect subsidiary
of American Mobile through its subsidiary AMRC Holdings, Inc. (together with
American Mobile Radio Corporation, "AMRC"), was awarded a license by the FCC to
provide satellite-based Digital Audio Radio Service ("DARS") throughout the
United States, following its successful $89.9 million bid at auction on April 2,
1997. AMRC has and will continue to receive funding for this business from an
independent source in exchange for debt and an equity interest in AMRC.
Accordingly, it is not expected that the development of this business will have
a material impact on the Company's financial position, results of operations, or
cash flows.
American Mobile is devoting its efforts to expanding a developing business. This
effort involves substantial risk, including successfully integrating ARDIS.
Specifically, future operating results will be subject to significant business,
economic, regulatory, technical, and competitive uncertainties and
contingencies. Depending on their extent and timing, these factors, individually
or in the aggregate, could have an adverse effect on the Company's financial
condition and future results of operations.
<PAGE>
2. Significant Accounting Policies
-------------------------------
Basis of Presentation
The unaudited consolidated condensed financial statements included herein have
been prepared pursuant to the rules and regulations of the Securities and
Exchange Commission. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted. While the Company believes
that the disclosures made are adequate to make the information not misleading,
these consolidated financial statements should be read in conjunction with the
consolidated financial statements and related notes included in the Company's
1997 Annual Report on Form 10-K
The consolidated balance sheet as of June 30, 1998, and the consolidated
statements of loss and cash flows for the three months and six months ended June
30, 1998 and 1997, have been prepared by the Company without audit. In the
opinion of management, all adjustments (consisting of normal recurring
adjustments) necessary to present fairly the financial position, result of
operations and cash flows at June 30, 1998, and for all periods presented have
been made. The balance sheet at December 31, 1997 has been taken from the
audited financial statements.
Acquisition
- -----------
The Company acquired ARDIS for a purchase price of approximately $50 million in
cash and $50 million in the Company's Common Stock (the "Purchase Price").
Approximately 1.5 million of the shares that were issuable to Motorola
(representing approximately $11.5 million) were contingent upon stockholder
approval at the May 20, 1998 annual meeting of shareholders. Such approval was
duly received and the remaining shares issued. The purchase method of accounting
for business combinations was used for the recording of the acquisition. The
operating results of ARDIS have only been included in the Company's consolidated
statements of loss from the date of acquisition. The Company's preliminary
estimate of the excess of the purchase price over the fair market value of net
assets acquired is $54.3 million. The Company has not yet specifically
identified amounts to assign to certain intangibles and licenses; changes in the
amounts allocated to such assets could result in changes to the amount of
goodwill recorded. A preliminary amortization period of twenty years has been
selected, which is expected in all material respects to be representative of the
amortization expense that will result from the ultimate allocation to the
specific intangible assets.
The unaudited pro forma results give effect to (i) the Acquisition, (ii) the
Offering and (iii) the New Bank Financing as if such transactions had been
consummated on January 1 of each of the periods presented.
<TABLE>
<CAPTION>
Six Months Ended
June 30,
(dollars in thousands, except per share data) 1998 1997
---- ----
<S> <C> <C>
Revenues $42,364 $41,239
Net loss ($77,812) ($81,770)
Loss per share ($2.45) ($2.58)
Weighted-average shares outstanding 31,708 31,636
</TABLE>
Net Loss Per Share
- ------------------
Basic and diluted loss per common share is based on the weighted-average number
of shares of Common Stock outstanding during the period. Stock options and
common stock purchase warrants are not reflected since their effect would be
antidilutive.
Recently Adopted Accounting Pronouncements
- ------------------------------------------
In June 1997, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards ("SFAS") No. 130, "Reporting Comprehensive
Income," and SFAS No. 131, "Disclosures about Segments of an Enterprise and
Related Information." The Company adopted both of these standards during the six
month period ended June 30, 1998.
<PAGE>
SFAS No. 130 requires "comprehensive income" and the components of "other
comprehensive income" to be reported in the financial statements and/or notes
thereto. Since the Company does not have any components of "other comprehensive
income," reported net income is the same as "total comprehensive income" for the
three months and six months ended June 30, 1997 and 1998.
SFAS No. 131 requires an entity to disclose financial and descriptive
information about its reportable operating segments. It also establishes
standards for related disclosures about products and services, geographic areas,
and major customers. SFAS No. 131 is not required for interim financial
reporting purposes during 1998. The Company is in the process of assessing the
additional disclosures, if any, required by SFAS No. 131. However, such adoption
will not impact the Company's results of operations or financial position, since
it relates only to disclosures.
Other
- -----
The Company paid approximately $9.4 million and $1.6 million in the six-month
periods ended June 30, 1998 and 1997, respectively, to related parties for
capital assets, service-related obligations, and payments under financing
agreements. Payments from related parties for communication services and
equipment purchases totaled $2.5 million in the six-month period ended June 30,
1998 and $1.2 million in the six-month period ended June 30, 1997. Total
indebtedness to related parties as of June 30, 1998 approximated $1.3 million.
3. Liquidity and Financing
-----------------------
$335 Million Unit Offering
- --------------------------
In connection with the acquisition of ARDIS, discussed above, the Company issued
$335 million of Units (the "Units") consisting of 12 1/4% Senior Notes due 2008
(the "Notes"), and Warrants to purchase shares of Common Stock of the Company.
Each Unit consists of $1,000 principal amount of Notes and one Warrant to
purchase 3.75749 shares of Common Stock at an exercise price of $12.51 per
share. A value of $8.5 million was assigned to the Warrants and is reflected in
the balance sheet as a debt discount. A portion of the net proceeds of the sale
of the Units were used to finance the Acquisition. In connection with the Notes,
the Company has purchased approximately $112.3 million of pledged securities
that are intended to provide for the payment of the first six interest payments
on the Notes. The Company incurred approximately $15 million in costs associated
with the placement of the Notes and the Acquisition.
Interest payments are due semi-annually, in arrears, beginning October 1, 1998.
Acquisition Company consummated its offer to exchange up to $335 million
aggregate principal amount of its registered 12 1/4 percent Senior Notes (due
2008, Series B) (the "New Notes") for outstanding unregistered 12 1/4 percent
Senior Notes (due 2008, Series A) (the "Old Notes"). The exchange expired at
5:00 p.m. (New York City time) on Friday, August 7, 1998. Holders tendered for
exchange $334.75 million aggregate principal amount of the Old Notes as of the
expiration of the offer. The Old Notes tendered for exchange constituted 99.93%
of the Old Notes outstanding.
The Notes contain covenants that, among other things, limit the ability of
Acquisition Company, Inc. and its Subsidiaries to incur additional indebtedness,
pay dividends or make other distributions, repurchase any capital stock or
subordinated indebtedness, make certain investments, create certain liens, enter
into certain transactions with affiliates, sell assets, enter into certain
mergers and consolidations, and enter into sale and leaseback transactions.
New Bank Financing
- ------------------
In connection with the Acquisition, the Company, the Acquisition Company and its
subsidiaries restructured the existing $200 million Bank Financing (the "Bank
Financing") to provide for two facilities: (i) the Revolving Credit Facility, a
$100 million unsecured five-year reducing revolving credit facility, and (ii)
the Term Loan Facility, a $100 million five-year, term loan facility with up to
three additional one-year extensions subject to the lenders' approval. The
Revolving Credit Facility bears an interest rate, generally, of 50 basis points
above LIBOR and is unsecured, with a negative pledge on the assets of the
Acquisition Company and its subsidiaries ranking pari passu with the Notes. The
Revolving Credit Facility will be reduced $10 million each quarter, beginning
with the quarter ending June 30, 2002, with the balance due on maturity of March
31, 2003. Borrowings under the Revolving Credit Facility are subject to certain
conditions beginning in the fourth quarter of 1998. In the event the Company is
unable to borrow amounts under the Revolving Credit Facility, the Company's cash
needs will significantly exceed its available resources, which would have a
material adverse effect on the Company. The revolving Credit Facility ranks pari
passu with the Notes. The Term Loan Facility is secured by the assets of the
Company, principally its stockholdings in AMRC and the Acquisition Company, and
<PAGE>
will be effectively subordinated to the Revolving Credit Facility and the Notes.
The New Bank Financing is severally guaranteed by Hughes Electronics Corporation
("Hughes"), Singapore Telecommunications Ltd. ("Singapore Telecom") and Baron
Capital Partners, L.P. (the "Bank Facility Guarantors"). In exchange for the
additional risks undertaken by the Bank Facility Guarantors in connection with
the New Bank Financing, the Company agreed to compensate the Bank Facility
Guarantors, principally in the form of 1 million additional warrants and
re-pricing of 5.5 million warrants previously issued (together, the "Guarantee
Warrants"). The Guarantee Warrants have an exercise price of $12.51 and have
been valued at approximately $17.7 million. As of July 31, 1998, the Company had
outstanding borrowings of $100 million of the Term Loan Facility at 6.1875%, and
$27 million under the Revolving Credit Facility at 6.1875%.
In connection with the New Bank Financing, the Company entered into an interest
rate swap agreement, with an implied annual rate of 6.51%. The swap agreement
reduces the impact of interest rate increases on the Term Loan Facility. The
Company paid a fee of approximately $17.9 million for the swap agreement. Under
the swap agreement, the Company will receive an amount equal to LIBOR plus 50
basis points, paid on a quarterly basis, on a notional amount of $100 million
until the termination date of March 31, 2001. The Company has reflected as an
asset the unamortized fee paid for the swap agreement in the accompanying
financial statements. The Company is exposed to a credit loss in the event of
non performance by the counter party under the swap agreement. The Company does
not believe there is a significant risk of non performance as the counter party
to the swap agreement is a major financial institution.
Motorola Vendor Financing
- -------------------------
Motorola has entered into an agreement with a subsidiary of Acquisition Company,
the ARDIS Company, to provide up to $10 million of vendor financing (the "Vendor
Financing Commitment"), which will be available to finance up to 75% of the
purchase price of additional network base stations. Loans under this facility
will bear interest at a rate equal to LIBOR plus 7.0% and will be guaranteed by
the Company and each subsidiary of the Acquisition Company. The terms of the
facility require that amounts borrowed be secured by the equipment purchased
therewith. No amounts were outstanding under this facility as of July 31, 1998.
Financing Summary
- -----------------
The Company believes the proceeds from the issuance of the Notes, net of cash
used for the Acquisition, together with the borrowings under the New Bank
Financing and the Vendor Financing Commitment, will be sufficient to fund
operating losses, capital expenditures, working capital, and scheduled principal
and interest payments on debt through 1998 and beyond; however, there can be no
assurance that the Company's current projections regarding the timing of its
ability to achieve positive operating cash flow will be accurate, and that the
Company will not need additional financing in the future.
AMRC
- ----
As previously mentioned (see "Organization and Business"), AMRC was a winning
bidder for, and on October 16, 1997, was awarded an FCC license to provide DARS
throughout the United States. AMRC has and will continue to receive funding for
this business from an independent source in exchange for debt and an equity
interest in AMRC. Accordingly, it is not expected that the development of this
business will have a material impact on the Company's financial position,
results of operations, or cash flows. The Company's equity interest in AMRC may,
however, even on a fully diluted basis, become a material asset of the Company.
Summarized unaudited financial information for AMRC as of June 30, 1998, and for
the six month periods ended June 30, 1998 and 1997, and for the period from
December 15, 1992 (date of inception) through June 30, 1998 is set forth below.
<PAGE>
<TABLE>
<CAPTION>
December 15, 1992
Six Months through
dollars in thousands Ended June 30, June 30,
-------------- --------
(unaudited) (unaudited)
1998 1997 1998
---- ---- ----
<S> <C> <C> <C>
Gross sales $ -- $ -- $ --
Operating expenses 8,132 51 9,242
Loss from operations 8,132 51 9,242
Interest expense ---- 219 549
Net loss 8,132 270 9,791
</TABLE>
<TABLE>
<CAPTION>
As of
As of June 30, December 31,
1998 1997
---- ----
(unaudited) (unaudited)
<S> <C> <C>
Current assets $ 598 $ --
Noncurrent assets 114,929 91,933
Current liabilities 108,584 82,949
Noncurrent liabilities 6,091 --
Total stockholders' equity 852 8,983
</TABLE>
Deferred Trade Payables
- -----------------------
In the last quarter of 1997 and the first quarter of 1998, the Company arranged
the financing of certain trade payables, and as of June 30, 1998, $4.0 million
of deferred trade payables were outstanding at rates ranging from 6.23% to 12%
and are generally payable by the end of 1998.
Purchase and Lease Agreement
- ----------------------------
As previously disclosed, the Company has entered into certain agreements to
acquire a one-half ownership interest in TMI Communications and Company, Limited
Partnership's ("TMI") satellite, MSAT-1, at a cost of $60 million payable over a
five-year period, as well as entered into a five-year lease of the Company's
satellite, MSAT-2, with African Continental Telecommunications Ltd. that
provides for aggregate lease payments to the Company of $182.5 million. Closing
under the agreements is subject to a number of conditions, including: a
successful financing by ACTEL of at least $120 million and completion of certain
satellite testing, inversion and relocation activities with respect to AMSC-1.
It is anticipated that the closing under both the purchase and lease agreements
will occur simultaneously in the third quarter of 1998.
Other
- -----
On July 2, 1998, American Mobile filed an application for authority to launch
and operate its second-generation mobile satellite system. This satellite is
intended to support the Company's existing satellite services and also allow the
provision of an expanded array of services, such as higher data rate services
and services to lower-power terminals. There can be no assurance that the FCC
will grant this application. If the Company proceeds with deployment of this
second-generation satellite system, the Company would be required to raise
substantial additional capital to finance this project.
<PAGE>
4. Legal and Regulatory Matters
----------------------------
Like other mobile service providers in the telecommunications industry, the
Company is subject to substantial domestic, foreign and international regulation
including the need for regulatory approvals to operate and expand the Satellite
Network and operate and modify subscriber equipment.
The ownership and operation of American Mobile's MSS system and ARDIS'
ground-based two-way wireless data system are subject to the rules and
regulations of the FCC, which acts under authority granted by the Communications
Act and related federal laws. Among other things, the FCC allocates portions of
the radio frequency spectrum to certain services and grants licenses to and
regulates individual entities using the spectrum. American Mobile and ARDIS
operate pursuant to various licenses granted by the FCC.
The successful operation of the Satellite Network is dependent on a number of
factors, including the amount of L-band spectrum made available to the Company
pursuant to an international coordination process. The United States is
currently engaged in an international process of coordinating the Company's
access to the spectrum that the FCC has assigned to the Company. While the
Company believes that substantial progress has been made in the coordination
process and expects that the United States government will be successful in
securing the necessary spectrum, the process is not yet complete. The inability
of the United States government to secure sufficient spectrum could have an
adverse effect on the Company's financial position, results of operations and
cash flows.
The Company has the necessary regulatory approvals, some of which are pursuant
to special temporary authority, to continue its operations as currently
contemplated. The Company has filed applications with the FCC and expects to
file applications in the future with respect to the continued operations, change
in operation and expansion of the Network and certain types of subscriber
equipment. Certain of its applications pertaining to future service have been
opposed. While the Company, for various reasons, believes that it will receive
the necessary approvals on a timely basis, there can be no assurance that the
requests will be granted, will be granted on a timely basis or will be granted
on conditions favorable to the Company. Any significant changes to the
applications resulting from the FCC's review process or any significant delay in
their approval could adversely affect the Company's financial position, results
of operations and cash flows.
There are applications now pending before the FCC to use the Inmarsat system and
TMI's Canadian-licensed system, both of which operate in the MSS L-band and have
satellite footprints covering the United States, to provide service in the
United States. American Mobile has opposed these filings. In addition to
providing additional competition to American Mobile, a grant of domestic
authority by the FCC to use any of these foreign systems may increase the demand
by these systems for spectrum in the international coordination process and
could adversely affect American Mobile's ability to coordinate its spectrum
access.
On July 20, 1998, the International Bureau of the FCC granted an application for
Special Temporary Authority to use TMI's space segment to conduct market tests
in the U.S. for the next six months using up to 500 mobile terminals. American
Mobile has asked the full Commission to review this decision and stay the
effectiveness of the temporary authorization. There can be no assurance that the
FCC will stay the effectiveness of this decision or rescind the International
Bureau's grant of Special Temporary Authority.
American Mobile is authorized to build, launch, and operate three geosynchronous
satellites in accordance with a specific schedule. American Mobile is not in
compliance with the schedule for commencement and construction of its second and
third satellites and has petitioned the FCC for changes to the schedule. Certain
of these extension requests have been opposed by third parties. The FCC has not
acted on American Mobile's requests. The FCC has the authority to revoke the
authorizations for the second and third satellites and in connection with such
revocation could exercise its authority to rescind American Mobile's license.
American Mobile believes that the exercise of such authority to rescind the
license is unlikely. The term of the license for each of American Mobile's three
authorized satellites is ten years, beginning when American Mobile certifies
that the respective satellite is operating in compliance with American Mobile's
license. The ten-year term of MSAT-2 began August 21, 1995. Although American
Mobile anticipates that the authorization to MSAT-2 is likely to be extended in
due course to correspond to the useful life of the satellite and a new license
granted for any replacement satellites, there is no assurance of such extension
or grants.
<PAGE>
On July 2, 1998, American Mobile filed an application for authority to launch
and operate its second-generation mobile satellite system. This satellite is
intended to support the Company's existing satellite services and, also, allow
the provision of an extended array of services, such as higher data rate
services and services to lower-power terminals. There is no guarantee that the
FCC will grant this application. The filing of the application does not commit
the Company to expend any resources toward this project; however, should the
Company decide to proceed with the construction of the follow-on satellite, the
Company would be required to raise substantial additional capital to fund this
project.
As a provider of interstate telecommunications services, the Company is required
to contribute to the FCC's universal service fund for certain of its services,
which supports the provision of telecommunication services to high-cost areas,
and establishes funding mechanisms to support the provision of service to
schools, libraries and rural health care providers. The regulation became
effective on January 1, 1998. This cost generally is not borne by the Company,
but passed on to its customers.
On June 5, 1996, the FCC waived its one-year construction requirement and
granted ARDIS extensions of time to complete buildouts of approximately 190
sites, as required to maintain previously granted licenses. The extended
construction deadlines vary by site until March 31, 1999. While management
believes that all buildouts will continue to be completed in a timely manner,
there can be no assurances that future delays will not occur. Failure to
complete the buildouts in a timely manner could result in a loss of licenses for
such sites from the FCC.
In 1992, a former director of American Mobile filed an Amended Complaint against
the Company alleging violations of the Communications Act of 1934, as amended,
and of the Sherman Act and breach of contract. The suit seeks damages for not
less than $100 million trebled under the antitrust laws plus punitive damages,
interest, attorneys fees and costs. In mid-1992, the Company filed its response
denying all allegations. The Company's motion for summary judgment, filed on
March 31, 1994, was denied on April 18, 1996. The trial in this matter is
currently scheduled for late 1998. Management believes that the ultimate outcome
of this matter will not be material to the Company's financial position, results
of operations or cash flows.
5. Other Matters
-------------
At June 30, 1998, the Company had remaining contractual commitments to purchase
both mobile data terminal inventory and mobile telephone inventory in the
maximum amount of $3.6 million over the next year. Additionally, the Company had
remaining contractual commitments in the amount of $1.7 million for the
development of certain next generation data terminal inventory. Contingent upon
the successful research and development efforts, the Company would have
additional contractual commitments for mobile communications data terminal
inventory in the amount of $31.2 million over a three-year period. The Company
has the right to terminate the research and development and inventory commitment
by paying cancellation fees of between $1 million and $2.5 million, depending on
when the termination option is exercised during the term of the contract.
6. AMSC Acquisition Company Financial Statements
---------------------------------------------
In connection with the Acquisition and related financing discussed above, the
Company formed a new wholly-owned subsidiary, AMSC Acquisition Company, Inc. The
Company transferred all of its inter-company notes receivables and its rights,
title and interests in AMSC Subsidiary Corporation, American Mobile Satellite
Sales Corporation, and AMSC Sales Corp. Ltd. (together with ARDIS, the
"Subsidiaries") to AMSC Acquisition Company, Inc., and AMSC Acquisition Company,
Inc. was the acquirer of ARDIS and the issuer of the $335 million of Senior
Notes. American Mobile Satellite Corporation ("Parent") is a guarantor of the
Senior Notes. The Senior Notes contain covenants that, among other things, limit
the ability of Acquisition Company, Inc. and its Subsidiaries to incur
additional indebtedness, pay dividends or make other distributions, repurchase
any capital stock or subordinated indebtedness, make certain investments, create
certain liens, enter into certain transactions with affiliates, sell assets,
enter into certain mergers and consolidations, and enter into sale and leaseback
transactions.
Acquisition Company is a holding company with no material operations. It holds
the Senior Notes and Revolving Credit Facility, both of which are fully and
unconditionally guaranteed on a joint and several basis by all of its
Subsidiaries.
<PAGE>
Separate company financial statements for AMSC Acquisition Company, Inc. have
not been prepared, as management believes the differences between the two
statements to be immaterial, and therefore not material information to the
investors.
Major differences between the financial statements of Parent and Acquisition
Company include (i) the Term Loan Facility which, as of the Acquisition, is an
obligation of Parent and, as such, the related debt and interest costs are not
included in the Acquisition Company financial statements for the periods ended
and as of June 30, 1998, as discussed in Note 3, and (ii) certain immaterial
intercompany management fees and expenses between the Parent and Acquisition
Company are not eliminated at the Acquisition Company level.
The combined condensed financial statements of Acquisition Company are set forth
below.
<PAGE>
AMSC Acquisition Company, Inc.
Consolidated Condensed Statements of Loss
(dollars in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
1998 1997 1998 1997
------ ------- ------- --------
REVENUES
<S> <C> <C> <C> <C>
Services $16,670 $4,979 $23,088 $9,132
Sales of equipment 5,740 5,774 9,344 10,306
------ ------ ------ ------
Total Revenues 22,410 10,753 32,432 19,438
COSTS AND EXPENSES:
Cost of service and operations 16,918 8,201 24,646 17,074
Cost of equipment sold 5,415 7,123 9,296 12,565
Sales and advertising 4,693 3,042 7,686 6,263
General and administrative 5,807 2,858 9,466 7,635
Depreciation and amortization 14,457 11,609 25,146 22,072
------- ------- -------- --------
Operating Loss (24,880) (22,080) (43,808) (46,171)
INTEREST AND OTHER INCOME 1,491 86 1,632 1,031
INTEREST EXPENSE (12,793) (12,650) (26,619) (24,272)
-------- -------- -------- --------
NET LOSS $(36,182) $(34,644) $(68,795) $(69,412)
========= ========= ========= =========
</TABLE>
<PAGE>
AMSC Acquisition Company, Inc.
Consolidated Condensed Balance Sheets
(dollars in thousands)
(Unaudited)
<TABLE>
<CAPTION>
June 30, December 31,
ASSETS 1998 1997
---- ----
CURRENT ASSETS:
<S> <C> <C>
Cash and cash equivalents $8,944 $2,106
Inventory 37,887 40,321
Accounts receivable-trade, net of allowance for doubtful accounts 13,279 8,140
Restricted cash-current portion 41,038 --
Prepaid in-orbit insurance 1,993 4,564
Other current assets 14,638 9,608
-------- -------
Total current assets 117,779 64,739
PROPERTY AND EQUIPMENT - NET 282,422 250,335
GOODWILL AND INTANGIBLE - NET 54,347 --
RESTRICTED CASH - Non-Current 63,157 --
DEFERRED CHARGES AND OTHER ASSETS - NET 49,371 36,722
-------- -------
Total assets $567,076 $351,796
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued expenses $40,644 $35,825
Obligations under capital leases due within one year 3,687 798
Current portion of long-term debt 3,006 15,254
Other current liabilities 7,673 7,520
-------- --------
Total current liabilities 55,010 59,397
DUE TO PARENT -- 441,836
LONG-TERM LIABILITIES:
Obligations under Bank Financing 22,000 198,000
Senior Notes, net of discount 326,722 --
Capital lease obligations 10,163 3,147
Other long-term debt 1,003 1,364
Net assets acquired in excess of purchase price 2,376 2,725
Other long-term liabilities 563 647
-------- --------
Total long-term liabilities 362,827 205,883
Total liabilities 417,837 707,116
-------- -------
STOCKHOLDERS' EQUITY 149,239 (355,320)
-------- ---------
Total liabilities and stockholders' equity $567,076 $351,796
========== ========
</TABLE>
<PAGE>
AMSC Acquisition Company, Inc.
Consolidated Condensed Statements of Cash Flows
(dollars in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
------------------------------
1998 1997
-------- ---------
CASH FLOWS USED IN OPERATING ACTIVITIES:
<S> <C> <C>
Net loss $(68,795) ($69,412)
Adjustments to reconcile net loss to net cash used in
operating activities:
Amortization of debt discount 5,318 4,297
Depreciation and amortization 24,747 22,072
Changes in assets and liabilities:
Inventory 1,889 (7,426)
Prepaid in-orbit insurance 2,571 3,387
Trade accounts receivable 1,941 (2,142)
Other current assets (48) 5,565
Accounts payable and accrued expenses 1,201 (8,536)
Deferred trade payables (7,680) --
Deferred items - net (124) 305
----- -------
Net cash used in operating activities (38,980) (51,890)
CASH FLOWS USED IN INVESTING ACTIVITIES:
Additions to property and equipment (5,558) (5,804)
Acquisition of ARDIS (51,440) --
Purchase of long-term restricted cash securities (113,747) --
--------- -------
Net cash used in investing activities (170,745) (5,804)
CASH FLOWS FROM FINANCING ACTIVITIES:
Funding (to) from Parent (21,303) 13,035
Principal payments under capital leases (1,234) (1,882)
Proceeds from Bank Financing 24,000 53,000
Repayment of Bank Financing (100,000) --
Proceeds from bridge financing 10,000 --
Repayment of bridge financing (10,000) --
Proceeds from Senior Notes 335,000 --
Payments on long-term debt (4,933) (5,225)
Debt issuance costs (14,967) (611)
-------- -------
Net cash provided by financing activities 216,563 58,317
Net increase (decrease) in cash and cash equivalents 6,838 623
CASH AND CASH EQUIVALENTS, beginning of period 2,106 2,182
------ ------
CASH AND CASH EQUIVALENTS, end of period $8,944 $2,805
======= ======
</TABLE>
<PAGE>
PART I-FINANCIAL STATEMENTS
Item 2. Management's Discussion and Analysis of
Interim Financial Condition and Results of Operations
This Quarterly Report on Form 10-Q includes "forward-looking statements" within
the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934. Such statements are identified by the use of
forward-looking words or phrases including, but not limited to, "believes,"
"intended," "will be positioned," "expects," "expected," "estimates,"
"anticipates" and "anticipated." These forward-looking statements are based on
the Company's current expectations. All statements other than statements of
historical facts included in this Annual Report, including those regarding the
Company's financial position, business strategy, projected costs and financing
needs, and plans and objectives of management for future operations, are
forward-looking statements. Although the Company believes that the expectations
reflected in such forward-looking statements are reasonable, there can be no
assurance that such expectations will prove to have been correct. Because
forward-looking statements involve risks and uncertainties, the Company's actual
results could differ materially. Important factors that could cause actual
results to differ materially from the Company's expectations ("Cautionary
Statements") are disclosed under "Business" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations," and elsewhere in
this Form 10-Q, including, without limitation, in conjunction with the
forward-looking statements included in this Form 10-Q. These forward-looking
statements represent the Company's judgment as of the date hereof and readers
are cautioned not to place undue reliance on these forward-looking statements.
All subsequent written and oral forward-looking statements attributable to the
Company or persons acting on behalf of the Company are expressly qualified in
their entirety by the Cautionary Statements. Readers should carefully review the
risk factors described in other documents the Company files from time to time
with the Securities and Exchange Commission, including the Form 10-K Annual
Report and Form 10-Q Quarterly Reports filed by the Company prior to and
subsequent to this Form 10-Q Quarterly Report and any Current Reports on Form
8-K and registration statements filed by the Company.
General
- -------
The following discussion and analysis provides information which management
believes is relevant to an assessment and understanding of the financial
condition and consolidated results of operations of American Mobile Satellite
Corporation (with its subsidiaries, "American Mobile" or the "Company"). The
discussion should be read in conjunction with the consolidated financial
statements and notes thereto.
American Mobile Satellite Corporation was incorporated in May 1988 and, until
1996, was a development stage company, engaged primarily in the design,
development, construction, deployment and financing of a mobile satellite
communication system. On March 31, 1998 the Company (through its newly-formed,
wholly-owned subsidiary, AMSC Acquisition Company, Inc.) acquired ARDIS Company
("ARDIS"), a wholly-owned subsidiary of Motorola Inc. that owns and operates a
two-way wireless data communications network, for a purchase price of
approximately $50 million in cash and $50 million in the Company's Common Stock
and warrants (the "Purchase Price"). With the acquisition of ARDIS, the Company
becomes a leading provider of nationwide wireless communications services,
including data, dispatch and voice services, primarily to business customers in
the United States. The Company offers a broad range of end-to-end wireless
solutions utilizing a seamless network consisting of the nation's largest, most
fully-deployed terrestrial wireless data network (the "ARDIS Network") and a
satellite in geosynchronous orbit (the "Satellite Network")(together, the
"Network").
In connection with the Acquisition, the Company and its subsidiaries entered
into agreements with respect to the following financings and refinancings: (1)
$335 million of Units; (2) the restructuring of its existing $200 million
Revolving Credit Facility and Term Loan Facility (collectively, the "New Bank
Financings"); and (3) $10 million commitment with respect to Motorola vendor
financing. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations - Liquidity and Capital Resources." Additionally, in
connection with the Acquisition and related financing, the Company transferred
all of its rights, title and interests in AMSC Subsidiary Corporation, American
Mobile Satellite Sales Corporation, and AMSC Sales Corp. Ltd. (together,
"American Mobile Subsidiaries") to Acquisition Company.
<PAGE>
On October 16, 1997, American Mobile Radio Corporation, an indirect subsidiary
of American Mobile through its subsidiary AMRC Holdings, Inc. (together with
American Mobile Radio Corporation, "AMRC"), was awarded a license by the FCC to
provide satellite-based Digital Audio Radio Service ("DARS") throughout the
United States, following its successful $89.9 million bid at auction on April 2,
1997. The operations and financing of AMRC are maintained separate and apart
from the operations and financing of American Mobile (see "Liquidity and
Financing").
Management believes the period to period comparison of the Company's financial
results are not necessarily meaningful and should not be relied upon as an
indication of future operating performance due to the Company's historically
high growth rate and the acquisition of ARDIS.
Overview
- --------
Each of American Mobile and ARDIS incurred significant operating losses and
negative cash flows in each year since it commenced operations, due primarily to
start-up costs, the costs of developing and building each network and the cost
of developing, selling and providing its respective products and services. The
Company is, and will continue to be, highly leveraged. As of June 30, 1998, the
Company had indebtedness of approximately $466.6 million.
The Company's future operating results could be adversely affected by a number
of uncertainties and factors, including (i) the timely completion and deployment
of future products and related services, including among other things,
availability of mobile telephones, data terminals and other equipment to be used
with the Network ("Subscriber Equipment") being manufactured by third parties
over which the Company has limited control, (ii) the market's acceptance of the
Company's services, (iii) the ability and the commitment of the Company's
distribution channels to market and distribute the Company's services, (iv) the
Company's ability to modify its organization, strategy and product mix to
maximize the market opportunities in light of changes therein, (v) competition
from existing companies that provide services using existing communications
technologies and the possibility of competition from companies using new
technology in the future, (vi) capacity constraints arising from the
reconfiguration of MSAT-2, subsequent anomalies affecting MSAT-2 and MSAT-1, or
the power management recommendation affecting both MSAT-2 and MSAT-1 previously
reported, (vii) additional technical anomalies that may occur within the
Satellite Network, including those relating to MSAT-1 and MSAT-2, which could
impact, among other things, the operation of the Satellite Network and the cost,
scope or availability of in-orbit insurance, (viii) subscriber equipment
inventory responsibilities and liabilities assumed by the Company including the
ability of the Company to realize the value of its inventory in a timely manner,
(ix) the Company's ability to secure additional financing as may be necessary,
(x) the Company's ability to respond and react to changes in its business and
the industry as a result of being highly leveraged, (xi) the ability of the
Company to successfully integrate ARDIS and to achieve certain business
synergies, and (xii) the ability of the Company to manage growth effectively.
As of June 30, 1998, there were approximately 91,700 units on the Network.
Quarter Ended June 30, 1998 and 1997
- ------------------------------------
Service revenues, which include both the Company's voice and data services,
approximated $16.7 million and $23.1 million for the three-month and six-month
periods ended June 30, 1998, respectively, which constitutes an $11.7 million
and $14.0 million increase over the three-month and six-month periods ended June
30, 1997, respectively. The significant increase in service revenues year over
year is primarily attributable to the income of the ARDIS data service. Absent
the acquisition of ARDIS on March 31, 1998, service revenues for the three-month
and six-month period ended June 30, 1998, respectively, increased 36% and 44%
year to year, from $5.0 million and $9.1 million for the three and six-month
periods ended June 10, 1997, to $6.7 million and $13.2 million for the three and
six-month periods ended June 30, 1998, respectively. Service revenue from voice
services increased 39% and 54% from approximately $2.4 million and $4.3 million
in the second quarter and six-months of 1997, respectively, to approximately
$3.5 million and $6.7 million in the comparable periods of 1998. The increases
were primarily a result of a 54% increase in voice customers during the first
half of 1998 as compared to the same period in 1997. Service revenue from the
Company's data services approximated $12.3 million and $14.5 million for the
three-month and six-month periods ended June 30, 1998, respectively, as compared
to $1.9 million and $3.5 million for the comparable periods of 1997. The dollar
increases of $10.4 million and $11.0 million are primarily a result of a 33%
increase in mobile data units during the first half of 1998 and $9.9 million
<PAGE>
from the ARDIS data service. Service revenue from capacity resellers, who handle
both voice and data services, approximated $852,000 in the second quarter of
1998 and $1.6 million for the six-months ended June 30, 1998, as compared to
$608,000 and $1.1 million for the same periods of 1997, an increase of $244,000
and $531,000, or 40% and 47%, respectively.
Revenue from the sale of mobile data terminals and mobile telephones decreased
10% from $10.3 million in the first half of 1997 to $9.3 million in the first
half of 1998 and, similarly, by 2% from $5.8 million to $5.7 million in the
second quarter of 1997 and 1998, respectively. The decrease was primarily
attributable to reduced sales of voice products, as well as certain price
reductions made in the first quarter of 1998. ARDIS equipment sales for the
second quarter were $384,000.
Cost of service and operations for the three-months and the six-months ended
June 30, 1998, which includes costs to support subscribers and to operate the
Network, was $16.9 million and $24.7 million compared to $8.2 million and $17.1
million for the same periods of 1997. Cost of service and operations, as a
percentage of revenues, was 76% for the second quarters of both 1998 and 1997
and 76% and 88% for the first six-months of 1998 and 1997, respectively. The
increase in cost of service and operations was primarily attributable to (i)
$9.1 million of ARDIS costs (ii) increased interconnect charges associated with
increased service usage offset by (iii) a reduction in information technology
costs affected by reducing the dependence on outside consultants. Absent the
acquisition of ARDIS on March 31, 1998, cost of service and operations for the
three-month and six-month period ended June 30, 1998, respectively, was $7.9
million and $15.6 million, and represented approximately 35% and 48% of revenue,
compared to $8.2 million and $17.1 million for the same periods in 1997.
The cost of equipment sold decreased 24% from $7.1 million for the three-months
ended June 30, 1997, to $5.4 million for the three-months ended June 30, 1998,
and 26% from $12.6 million for the six-month period ended June 30, 1997, to $9.3
million for the same period in 1998. The dollar decrease in the cost of
equipment sold was primarily attributable to (i) a corresponding decrease in
voice equipment sales and (ii) the impact of the inventory valuation allowance
recorded in the fourth quarter of 1997.
Sales and advertising expenses were $4.7 million and $7.7 million for the
three-months and the six-months ended June 30, 1998, respectively, compared to
$3.0 million and $6.3 million for the same periods in 1997. Sales and
advertising expenses as a percentage of revenue were 21% and 24% in the second
quarter and first half of 1998, respectively, as compared to 28% and 32% during
the same periods of 1997. The increase in sales and advertising expenses was
primarily attributable to ARDIS. Absent the acquisition of ARDIS on March 31,
1998, sales and advertising expenses for the three-month and six-month period
ended June 30, 1998 were $3.2 million and $6.3 million, respectively, and
represented 15% and 20% of revenue, respectively, compared to $3.0 million and
$6.3 million, or 28% and 32% of revenue, for the same periods in 1997.
General and administrative expenses for the three-months and the six-months
ended June 30, 1998, were $5.8 million and $9.4 million, respectively, compared
to $2.9 million and $7.8 million in the same periods of 1997. As a percentage of
revenue, general and administrative expenses represented 26% and 29% in the
second quarter and first half of 1998, respectively, compared to 27% and 40% in
the same periods of 1997. The increase in general and administrative expenses
for 1998 compared to 1997 was primarily attributable to $2.1 million of ARDIS
costs offset by a $741,000 reduction in personnel expenses as a result of
reduced headcount. Absent the acquisition of ARDIS on March 31, 1998, general
and administrative expenses for the three-month and six-month period ended June
30, 1998 were $3.6 million and $7.3 million, respectively, approximating 16% and
22% of revenue, compared to $2.9 million and $7.8 for the same periods in 1997.
Depreciation and amortization expense was $14.4 million and $24.6 million for
the three-months and the six-months ended June 30, 1998, respectively,
representing approximately 65% and 76% of revenue for the respective periods.
During the same periods of 1997 depreciation and amortization expense was $11.1
million and $21.0 million, approximating 103% and 108% of revenue. The increase
in depreciation and amortization expense was primarily attributable to the
addition of ARDIS assets and amortization of goodwill associated with the ARDIS
acquisition. Absent the acquisition of ARDIS on March 31, 1998, depreciation and
amortization expense for the three-month and six-month period ended June 30,
1998 was $10.4 million and $20.5 million, respectively, approximating 46% and
63% of revenue, compared to $11.1 million and $21.0 million for the same periods
in 1997.
Interest and other income was $1.6 million and $1.7 million for the second
quarter and first half of 1998, respectively, as compared to $86,000 and $1.0
million for the same periods in 1997. The increase was primarily a result of
interest earned on escrows required under the terms of the $335 million debt
offering at the end of the first quarter. The Company incurred $15.7 million and
$22.3 million of interest expense in the second quarter and first half of 1998
<PAGE>
compared to $5.3 million and $9.7 million for the same periods in 1997,
reflecting (i) the amortization of debt discount and debt offering costs in the
amount of $5.9 million in 1998, compared to $4.3 million in 1997 and (ii) higher
outstanding loan balances as compared to 1997.
Interest expense in the first half of 1998 was significant as a result of
borrowings under the Bank Financing, the amortization of borrowing costs
incurred in conjunction with securing the facility, and interest accrual on the
Notes issued in the ARDIS acquisition . It is anticipated that interest costs
will continue to be significant as a result of the Bank Financing, Bridge
Financing, and Acquisition, (see "Liquidity and Capital Resources").
Net capital expenditures, for the first half of 1998 for property and equipment
were $5.6 million compared to $5.8 million for the same period in 1997.
Liquidity and Capital Resources
- -------------------------------
$335 Million Unit Offering
- --------------------------
In connection with the Acquisition, discussed above, the Company issued $335
million of Units (the "Units") consisting of 12 1/4% Senior Notes due 2008 (the
"Notes"), and Warrants to purchase shares of Common Stock of the Company. Each
Unit consists of $1,000 principal amount of Notes and one Warrant to purchase
3.75749 shares of Common Stock at an exercise price of $12.51 per share. The
Warrants were valued at $8.5 million and are reflected in the balance sheet as a
debt discount. A portion of the net proceeds of the sale of the Units were used
to finance the Acquisition. In connection with the Notes, the Company has
purchased approximately $112.3 million of pledged securities that are intended
to provide for the payment of the first six interest payments on the Notes. The
Company incurred approximately $15 million in costs associated with the
placement of the Notes and the Acquisition. Interest payments are due
semi-annually, in arrears, beginning October 1, 1998.
Acquisition Company consummated its offer to exchange up to $335 million
aggregate principal amount of its registered 12 1/4 percent Senior Notes (due
2008, Series B) (the "New Notes") for outstanding unregistered 12 1/4 percent
Senior Notes (due 2008, Series A) (the "Old Notes"). The exchange expired at
5:00 p.m. (New York City time) on Friday, August 7, 1998. Holders tendered for
exchange $334.75 million aggregate principal amount of the Old Notes as of the
expiration of the offer. The Old Notes tendered for exchange constituted 99.93%
of the Old Notes outstanding.
The Notes contain covenants that, among other things, limit the ability of
Acquisition Company, Inc. and its Subsidiaries to incur additional indebtedness,
pay dividends or make other distributions, repurchase any capital stock or
subordinated indebtedness, make certain investments, create certain liens, enter
into certain transactions with affiliates, sell assets, enter into certain
mergers and consolidations, and enter into sale and leaseback transactions.
New Bank Financing
- ------------------
In connection with the Acquisition, the Company, the Acquisition Company and its
subsidiaries restructured the existing $200 million Bank Financing (the "Bank
Financing") to provide for two facilities: (i) the Revolving Credit Facility, a
$100 million unsecured five-year reducing revolving credit facility, and (ii)
the Term Loan Facility, a $100 million five-year, term loan facility with up to
three additional one-year extensions subject to the lenders' approval. The
Revolving Credit Facility bears an interest rate, generally, of 50 basis points
above LIBOR and is unsecured, with a negative pledge on the assets of the
Acquisition Company and its subsidiaries ranking pari passu with the Notes. The
Revolving Credit Facility will be reduced $10 million each quarter, beginning
with the quarter ending June 30, 2002, with the balance due on maturity of March
31, 2003. Borrowings under the Revolving Credit Facility are subject to certain
conditions beginning in the fourth quarter of 1998. In the event the Company is
unable to borrow amounts under the Revolving Credit Facility, the Company's cash
needs will significantly exceed its available resources, which would have a
material adverse effect on the Company. The revolving Credit Facility ranks pari
passu with the Notes. The Term Loan Facility is secured by the assets of the
Company, principally its stockholdings in AMRC and the Acquisition Company, and
will be effectively subordinated to the Revolving Credit Facility and the Notes.
The New Bank Financing is severally guaranteed by Hughes Electronics Corporation
("Hughes"), Singapore Telecommunications Ltd. ("Singapore Telecom") and Baron
Capital Partners, L.P. (the "Bank Facility Guarantors"). In exchange for the
additional risks undertaken by the Bank Facility Guarantors in connection with
the New Bank Financing, the Company agreed to compensate the Bank Facility
Guarantors, principally in the form of 1 million additional warrants and
re-pricing of 5.5 million warrants previously issued (together, the "Guarantee
Warrants"). The Guarantee Warrants have an exercise price of $12.51 and have
been valued at approximately $17.7 million. As of July 31, 1998, the Company had
outstanding borrowings of $100 million of the Term Loan Facility at 6.1875%, and
$27 million under the Revolving Credit Facility at 6.1875%.
<PAGE>
In connection with the New Bank Financing, the Company entered into an interest
rate swap agreement, with an implied annual rate of 6.51%. The swap agreement
reduces the impact of interest rate increases on the Term Loan Facility, and
fixes The Company paid a fee of approximately $17.9 million for the swap
agreement. Under the swap agreement, the Company will receive an amount equal to
LIBOR plus 50 basis points, paid on a quarterly basis, on a notional amount of
$100 million until the termination date of March 31, 2001. The Company has
reflected as an asset the unamortized fee paid for the swap agreement in the
accompanying financial statements. The Company is exposed to a credit loss in
the event of non performance by the counter party under the swap agreement. The
Company does not believe there is a significant risk of non performance as the
counter party to the swap agreement is a major financial institution.
Motorola Vendor Financing
- -------------------------
Motorola has entered into an agreement with a subsidiary of Acquisition Company,
the ARDIS Company, to provide up to $10 million of vendor financing (the "Vendor
Financing Commitment"), which will be available to finance up to 75% of the
purchase price of additional network base stations. Loans under this facility
will bear interest at a rate equal to LIBOR plus 7.0% and will be guaranteed by
the Company and each subsidiary of the Acquisition Company. The terms of the
facility require that amounts borrowed be secured by the equipment purchased
therewith. No amounts were outstanding under this facility as of July 31, 1998.
Financing Summary
- -----------------
The Company believes the proceeds from the issuance of the Notes, net of cash
used for the Acquisition, together with the borrowings under the New Bank
Financing and the Vendor Financing Commitment, will be sufficient to fund
operating losses, capital expenditures, working capital, and scheduled principal
and interest payments on debt through 1998 and beyond; however, there can be no
assurance that the Company's current projections regarding the timing of its
ability to achieve positive operating cash flow will be accurate, and that the
Company will not need additional financing in the future.
AMRC
- ----
As previously mentioned (see "Organization and Business"), AMRC was a winning
bidder for, and on October 16, 1997, was awarded an FCC license to provide DARS
throughout the United States. AMRC has and will continue to receive funding for
this business from an independent source in exchange for debt and an equity
interest in AMRC. Accordingly, it is not expected that the development of this
business will have a material impact on the Company's financial position,
results of operations, or cash flows. The Company's equity interest in AMRC may,
however, even on a fully diluted basis, become a material asset of the Company.
Deferred Trade Payables
- -----------------------
In the last quarter of 1997 and the first quarter of 1998, the Company arranged
the financing of certain trade payables, and as of June 30, 1998, $4.0 million
of deferred trade payables were outstanding at rates ranging from 6.23% to 12%
and are generally payable by the end of 1998.
Purchase and Lease of Satellite
- -------------------------------
As previously disclosed, the Company has entered into certain agreements to
acquire a one-half ownership interest in TMI Communications and Company, Limited
Partnership's ("TMI") satellite, MSAT-1, at a cost of $60 million payable over a
five-year period, as well as entered into five-year lease of the Company's
satellite, MSAT-2, with African Continental Telecommunications Ltd. that
provides for aggregate lease payments to the Company of $182.5 million. Closing
under the agreements is subject to a number of conditions, including: a
successful financing by ACTEL of at least $120 million and completion of certain
satellite testing, inversion and relocation activities with respect to AMSC-1.
It is anticipated that the closing under both the purchase and lease agreements
will occur simultaneously in the third quarter of 1998.
Other
- -----
At June 30, 1998, the Company had remaining contractual commitments to purchase
both mobile data terminal inventory and mobile telephone inventory in the
maximum amount of $3.6 million over the next year. Additionally, the Company had
remaining contractual commitments in the amount of $1.7 million for the
<PAGE>
development of certain next generation data terminal inventory. Contingent upon
the successful research and development efforts, the Company would have
additional contractual commitments for mobile communications data terminal
inventory in the amount of $31.2 million over a three-year period. The Company
has the right to terminate this the research and development and inventory
commitment by paying cancellation fees of between $1 million and $2.5 million,
depending on when the termination option is exercised during the term of the
contract.
On July 2, 1998, the Company filed an application with the Federal
Communications Commission ("FCC") to construct and launch a follow-on
geostationary mobile satellite for its business. The filing of the application
does not commit the Company to expend any resources toward this project;
however, should the Company decide to proceed with the construction of the
follow-on satellite, the Company would be required to raise substantial
additional capital to fund this project.
Cash used in operating activities for the first six months of 1998 was $32.4
million as compared to $37.5 million for the same period of 1997. The decrease
in cash used in operating activities was primarily attributable to reduced
inventory spending. Cash used by investing activities was $198.9 million for the
first six months of 1998 compared to $7.3 million during the first six months of
1997. The increase was primarily attributable to the acquisition of ARDIS and
the funding of certain escrows required in connection with the Acquisition and
issuance of Notes. Cash provided by financing activities was $238.1 million
during the first six months of 1998 as compared to $45.4 million during the
first six months of 1997, reflecting (i) the proceeds from the Notes, offset by
(ii) the repayment of a portion of the Bank Financing and (iii) payment of
financing fees associated with the acquisition of the Notes. As of June 30,
1998, the Company had $8.9 million of cash and cash equivalents and working
capital of $68.7 million.
Other Matters
- -------------
In June 1997, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards ("SFAS") No. 130, "Reporting Comprehensive
Income," and SFAS No. 131, "Disclosures about Segments of an Enterprise and
Related Information." The Company adopted both of these standards during the six
month periods ended June 30, 1998.
SFAS No. 130 requires "comprehensive income" and the components of "other
comprehensive income" to be reported in the financial statements and/or notes
thereto. Since the Company does not have any components of "other comprehensive
income," reported net income is the same as "total comprehensive income" for the
three months and six months ended June 30, 1997 and 1998.
SFAS No. 131 requires an entity to disclose financial and descriptive
information about its reportable operating segments. It also establishes
standards for related disclosures about products and services, geographic areas,
and major customers. SFAS No. 131 is not required for interim financial
reporting purposes during 1998. The Company is in the process of assessing the
additional disclosures, if any, required by SFAS No. 131. However, such adoption
will not impact the Company's results of operations or financial position, since
it relates only to disclosures.
<PAGE>
PART II - OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds
The Company believes the proceeds from the issuance of the Notes, net of cash
used for the Acquisition, together with the borrowings under the New Bank
Financing and the Vendor Financing Commitment, will be sufficient to fund
operating losses, capital expenditures, working capital, and scheduled principal
and interest payments on debt through 1998 and beyond; however, there can be no
assurance that the Company's current projections regarding the timing of its
ability to achieve positive operating cash flow will be accurate, and that the
Company will not need additional financing in the future.
<PAGE>
PART II -- OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
(a) At the annual meeting of the stockholders of AMSC held on May 20, 1998, the
matters described under (b) and (c) below were voted upon.
(b) The following nominees, constituting all of the Company's directors, were
elected to the Company's board of directors:
<TABLE>
<CAPTION>
Individual
Votes For Votes Withheld Withheld
<S> <C> <C> <C>
Douglas I. Brandon 28,215,889 1,201 1,163,388
Ho Siaw Hong 28,216,389 701 1,162,888
Pradeep P. Kaul 28,216,389 701 1,162,888
Billy J. Parrott 28,216,469 621 1,162,808
Gary M. Parsons 28,216,314 776 1,162,963
Andrew A. Quartner 28,215,989 1,101 1,163,288
Jack A. Shaw 28,216,669 421 1,162,608
Roderick M. Sherwood, III 27,986,600 230,490 1,392,677
Michael T. Smith 28,216,689 401 1,162,588
Yap Chee Keong 27,986,265 230,825 1,393,012
</TABLE>
On June 5, 1998 the Company reported on its Report on 8K dated June 1, 1998 that
Mr. Yap had resigned his position as director of the Company in connection with
his resignation of employment from Singapore Telecommunications, Ltd. As
indicated in that Report, the position vacated by Mr. Yap remains vacant until
such time as filled by a vote of the Board of Directors or the stockholders.
(c)(1) The vote on the ratification of Arthur Andersen LLP as independent
accountants for the Company for 1998 was 29,371,445 for, 7,732 against, 100
abstaining.
(2) The vote on the approval of an amendment to the Company's 1989 Stock
Option Plan to increase the number of shares authorized for issuance was
27,587,129 for, 1,787,564 against, 4,584 abstaining.
(3) The vote on the approval of the issuance of shares of the Company's
Common Stock to Motorola Inc. was 22,128,875 for, 28,195 against, 3,220
abstaining and 7,218,987 not voting (including the shares held by Motorola
Inc.).
<PAGE>
PART II - OTHER INFORMATION
Item 5. Other Information
If the Company does not receive notice at its principal executive offices on or
before March 13, 1999 of a stockholder proposal for consideration at the 1999
annual meeting of stockholders, the proxies named by the Company's Board of
Directors with respect to the meeting shall have discretionary voting authority
with respect to such proposal.
<PAGE>
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
3.1 - Restated Certificate of Incorporation of AMSC (as restated
effective May 1, 1996) (Incorporated by reference to Exhibit 3.1
to the Company's Annual Report on Form 10-K for the period ending
December 31,1997 (File No. 0-23044))
3.2 - Amended and Restated Bylaws of AMSC (as amended and restated
effective May 20, 1998) (Incorporated by reference to Exhibit 3.2
to the Company's Annual Report on Form 10-K for the fiscal year
ending December 31, 1997 (File No. 0-23044))
10.13 - Amended and Restated Stock Option Plan (as amended effective May
20, 1998) (Incorporated by reference to Exhibit 10.13 to the
Company's Registration Statement on Form S-8 (Reg. No.
333-53253))
10.67 - Credit Agreement by and between Motorola Inc. and ARDIS Company
dated June 17, 1998 (filed herewith)
11.1 - Computations of Earnings Per Common Share (filed herewith)
27.0 - Financial Data Schedule (filed herewith)
(b) Reports on Form 8-K:
On June 5, 1998, the Company filed a Current Report on Form 8-K, describing in
response to Item 5-Other Events, the resignation of director Yap Chee Keong.
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
AMERICAN MOBILE SATELLITE CORPORATION
(Registrant)
Date: August 14, 1998 By:/s/Stephen D. Peck
-------------------------------------
Stephen D. Peck
Vice President and Chief Financial Officer
(principal financial and accounting officer)
<PAGE>
EXHIBIT INDEX
Number Description
3.1 - Restated Certificate of Incorporation of AMSC (as restated
effective May 1, 1996) (Incorporated by reference to Exhibit 3.1
to the Company's Annual Report on Form 10-K for the period ending
December 31,1997 (File No. 0-23044))
3.2 - Amended and Restated Bylaws of AMSC (as amended and restated
effective May 20, 1998) (Incorporated by reference to Exhibit 3.2
to the Company's Annual Report on Form 10-K for the fiscal year
ending December 31, 1997 (File No. 0-23044))
10.13 - Amended and Restated Stock Option Plan (as amended effective May
20, 1998) (Incorporated by reference to Exhibit 10.13 to the
Company's Registration Statement on Form S-8 (Reg. No.
333-53253))
10.67 - Credit Agreement by and between Motorola Inc. and ARDIS Company
dated June 17, 1998 (filed herewith)
11.1 - Computations of Earnings Per Common Share (filed herewith)
27.0 - Financial Data Schedule (filed herewith)
<PAGE>
CREDIT AGREEMENT
THIS CREDIT AGREEMENT is entered into as of June 17, 1998 by and
between Motorola Inc., a Delaware corporation, (hereinafter "Motorola") and
ARDIS Company, a New York general partnership (the "Borrower" or "you").
You have asked Motorola to provide financing to you (the "Credit") for
the purchase of certain equipment from Motorola. Motorola is willing to provide
the Credit on the terms and conditions set forth in this Credit Agreement and
the attached Exhibits, which are part of this Credit Agreement. The terms and
conditions ("Terms and Conditions") attached to this Credit Agreement as Exhibit
"A" include definitions for many of the terms used below.
1. Amount of Credit; Note. The aggregate maximum principal amount of
-----------------------
Credit that may be drawn under this Credit Agreement shall be $10,000,000. You
may obtain Advances under this Credit Agreement until June 16, 2000, if, at the
time of requesting an Advance, you have complied with all Requirements for
Advances. Amounts repaid under this Credit Agreement may not be re-borrowed.
Motorola shall have no obligation, express or implied, to extend or to grant
additional credit after this Credit Agreement expires. The Credit shall be
evidenced by a promissory note ("Note") in substantially the form attached as
Exhibit "B" duly executed on behalf of the Borrower.
2. Drawdown Procedure. At the time you order equipment from Motorola,
-------------------
you will notify Motorola in writing on the purchase order that you intend to
finance the purchase with Motorola under this Credit Agreement, and will
identify the location (by State and county) at which each item of equipment may
be located during the term of this Agreement. By issuing that notice you will be
deemed to represent and warrant that all prior statements of your account are
correct. Upon shipment of each such item of equipment, provided that all
Requirements for Advances have been satisfied, if the Requirements for Advances
have been satisfied, Motorola shall thereupon be deemed to have made an Advance
equal to 75% of the purchase price of such item of equipment, and Motorola shall
make a notation on its books and records, and on the schedule to the Note,
showing such Advance. On each Quarterly Date during the term of this Credit
Agreement, the aggregate amount of the Advances made since the date hereof, or
if later, since the date of the most recent Quarterly Date, shall constitute a
Loan, which shall bear interest at the Applicable Rate and amortize as set forth
herein. You hereby irrevocably authorize Motorola at any time to endorse on the
Note (or record on its books and records) the date and amount of any Advances
made by Motorola to you, the outstanding balance of all Advances and Loans at
any time and each payment and prepayment of any principal plus interest accruing
thereon. Such endorsement or record shall be prima facie evidence of the
principal amount owing on the Note in any proceedings to enforce the payment
thereof; provided, that failure to record an Advance or any erroneous
recordation shall not affect Borrower's obligations to repay all sums actually
borrowed hereunder. No Advance or deemed Advance shall be permitted for any
payment of principal or interest due under the Note. You will receive from
Motorola, on or about the Thursday immediately preceding the last Monday of the
month, an itemized list of equipment provided to you during the most recent
monthly period. You will pay to Motorola, within thirty days from the invoice
date, the full amount of the purchase price for equipment and services shown on
such invoice, less the amount of any Advances made for the purchase of any such
equipment as provided above.
3. Interest Rate. You agree to pay interest to Motorola on the
--------------
principal amount of the Credit outstanding from time to time. If the Credit is
not in Default, you will pay interest each quarter in arrears at the Applicable
Rate. If, and as long as, the Credit is in Default, the interest rate will be
increased another three percent (3%) per annum above the Applicable Rate (the
"Default Rate") and will be payable upon demand. As detailed in the Terms and
Conditions, under no circumstances will you be required to pay an interest rate
or an amount of interest greater than the maximum interest allowed by applicable
law.
4. Repayment Terms. Motorola will send you quarterly invoices
---------------
showing principal and interest due. You agree to pay each invoice on or before
its due date. The principal portion of each Loan will be amortized over a three
year period beginning with the Quarterly Date on which such Loan commences, in
twelve consecutive equal quarterly installments. You agree to pay a late charge
equal to five percent (5%) of any principal amount payable by you for any
invoice payment not received by Motorola within ten days of the due date. Your
failure to pay an invoice within fifteen days of its due date constitutes an
Event of Default under this Credit Agreement.
5. Financial Information. Motorola has agreed to provide the Credit
---------------------
based on financial information you have prepared and supplied. Between the date
of the financial information and the date of this Credit Agreement, you confirm
that there has been no material, adverse change in your financial condition or
business operation. As described in the Terms and Conditions, you agree to give
Motorola updated financial information during the time the Credit is
outstanding.
6. Collateral. As security for the timely payment and performance of
----------
your Obligations, you hereby grant to Motorola a perfected, first priority
security interest and lien in the Collateral. At the time of delivery of each
purchase order as described in Section 2 above, you will deliver to Motorola an
executed Financing Statement on form UCC-1 substantially in the form of Exhibit
"E" to this Agreement for filing in each jurisdiction identified as a location
where the equipment ordered may be located during the term of the Agreement. You
hereby authorize Motorola to attach to each such Financing Statement a schedule
listing the serial numbers or other identifying information describing the
equipment shipped in accordance with the purchase order, and to file such
Financing Statements in each jurisdiction in which it deems such filing
necessary to perfect Motorola's security interest in the Collateral. You agree
to execute such other documents and take all reasonable actions requested by
Motorola, at your expense, to perfect and maintain the perfection of Motorola's
security interest in the Collateral.
The Credit will also be secured by the joint and several Guarantees of
the Guarantors listed on Exhibit "C", guaranteeing repayment of the Credit (in
accordance with Guarantee Agreements in the form attached as Exhibit "C").
7. Waiver of Jury Trial. YOU AND MOTOROLA AGREE THAT ANY CLAIM,
----------------------
COUNTERCLAIM, SETOFF, OR DEFENSE RELATING IN ANY WAY TO (A) THIS AGREEMENT
(INCLUDING ALL EXHIBITS AND ALL OTHER DOCUMENTS RELATING TO THIS AGREEMENT), OR
(B) ANY ACTION, OMISSION, COURSE OF CONDUCT, PRACTICE, OR TRANSACTION BY YOU OR
MOTOROLA (INCLUDING THE RESPECTIVE OFFICERS, DIRECTORS, EMPLOYEES, AGENTS,
ATTORNEYS, AND OTHER REPRESENTATIVES OF EACH) SHALL BE HEARD AND DETERMINED BY A
COURT WITHOUT A JURY. YOU AND MOTOROLA HAVE ENTERED INTO THIS AGREEMENT IN
RELIANCE UPON THIS PROVISION AS A MATERIAL TERM OF THE CREDIT.
8. Governing Law. Motorola's headquarters are in Schaumburg, Illinois;
-------------
this Credit Agreement will, if accepted and executed by Motorola, become a
contract in the State of Illinois and be governed by the law of Illinois,
without regard to its conflicts of law rules. Upon the occurrence of any Event
of Default, however, Motorola shall also have the right to enforce this Credit
Agreement and related collateral documents in accordance with the laws of any
jurisdiction in which an Obligor or Collateral may then be located, or in which
the law permits Motorola to bring suit.
9. No Other Agreements; Complete Review. You and Motorola acknowledge
-------------------------------------
and agree that this Credit Agreement and the other documents executed pursuant
to this Agreement collectively comprise the complete written agreement regarding
the Credit; there are no other understandings, inducements, representations,
negotiations, or promises of any kind other than those written here and those
made a part of this Credit Agreement. You and Motorola also acknowledge that
they have reviewed, with their own attorneys if desired, all the terms,
conditions, and provisions of this Credit Agreement and the attached Exhibits.
10. Limitation on Liability. In no event shall Motorola have any
-----------------------
liability under or in connection with this Credit Agreement or any exhibit
hereto for special, incidental, indirect, or consequential damages of any sort,
including (without limitation) lost profits. If you have previously obtained
financing from Motorola or otherwise purchased equipment or services from
Motorola:
(a) you hereby release Motorola and its officers, directors,
and employees from and against any claim, counterclaim, defense, setoff, or
other liability with respect to any transaction, course of dealing, or other
matter that arose or occurred before you signed this Credit Agreement, and
(b) you acknowledge that any prior credit terms or agreements,
whether written or oral (but excluding any open account arrangements), have now
been superseded and replaced by this Credit Agreement.
11. Absolute Obligation. ANY PRESENT OR FUTURE LAW TO THE CONTRARY
NOTWITHSTANDING, YOUR OBLIGATION TO PAY MOTOROLA ALL AMOUNTS DUE HEREUNDER IS
ABSOLUTELY UNCONDITIONAL. YOU SHALL NOT BE ENTITLED TO ANY ABATEMENT, REDUCTION,
SETOFF, COUNTERCLAIM, DEFENSE, INTERRUPTION, DEFERMENT, RECOUPMENT OR DEDUCTION
WITH RESPECT TO ANY PRINCIPAL OR INTEREST PAYMENT OR ANY OTHER SUM PAYABLE
HEREUNDER, NO MATTER HOW, WHEN OR AGAINST WHOM ASSERTED, ARISING OR CLAIMED, NOR
SHALL ANY OF YOUR OBLIGATIONS HEREUNDER BE AFFECTED FOR ANY REASON WHATSOEVER.
The foregoing shall not be deemed to amend or limit your right to make a claim
against Motorola for any obligation or liability that Motorola may otherwise
have to you under the Purchase Agreement.
12. Confidentiality. Neither you nor Motorola will disclose this Credit
---------------
Agreement or its terms to a third party except (a) insofar as the third party
has a "need to know" (as in the case of a party's accountants), in which case
the third party will be instructed to abide by this Paragraph 10, (b) in the
event disclosure is necessary to enforce the Credit Agreement or is compelled by
subpoena, requirement of law, or order of a court of competent jurisdiction, or
(c) by prior written consent of both parties.
<PAGE>
EXECUTED by the parties as of the date first set forth above:
Notice Address: ARDIS COMPANY
ARDIS Company
10802 Parkridge Boulevard
Reston, VA 20901-5416 By:/s/Walter V. Purnell Jr.
------------------------
Attn: President and Treasurer Walter V. Purnell Jr.
Tel.: (703) 758 6000 Its: President
Fax : (703) 758-6111
With a copy to:
ARDIS Company
300 Knightsbridge Parkway
Suite 500
Lincolnshire, IL 60069
Attn: Vice President and Executive Counsel
Tel.: (847) 913-4226
Fax: (847) 913-4755
Notice Address: MOTOROLA INC.
Motorola Credit Corporation
1303 East Algonquin Road
Schaumburg, Illinois 60196
Tel: (847) 725-4502 By:/s/Michael Faill
--------------------
Fax: (847) 725-5097
Its:Sr. Manager
Worldwide Customer Finance
With a copy to:
Motorola Paging Products Group
5401 N. Beach Street
Mail Stop S22313
Fort Worth, TX 76137
Attn: Customer Finance
Tel: (817) 245-2705
Fax: (817) 245-2236
<PAGE>
EXHIBITS
A Terms and Conditions
B Form of Promissory Note
C List of Guarantors and Form of Guarantee Agreement
D List of Subsidiaries of the Borrower
E Form of Financing Statement
F List of Assumed Names of the Borrower
<PAGE>
EXHIBIT A
TERMS AND CONDITIONS
The following terms and conditions are referred to as the "Terms and
Conditions" in, and have been made a part of, the Credit Agreement dated as of
June 17, 1998 between MOTOROLA INC. ("Motorola") and ARDIS COMPANY (the
"Borrower" or "you").
1. Definitions
Certain terms of the Credit Agreement and these Terms and Conditions
carry particular meanings when used with initial capital letters, as follows:
"Advance" means an extension of Credit made under the Credit Agreement
upon satisfaction of the conditions set forth in the Credit Agreement, including
these Terms and Conditions.
"Advance Date" means the date on which an Advance is made or deemed to
be made under the Credit Agreement.
"Agreement" and "Credit Agreement" mean the Credit Agreement described
above, these Terms and Conditions, and the other Exhibits attached to the Credit
Agreement.
"Applicable Rate" means: (i) from the date of an Advance until the
immediately following Quarterly Date, a rate of interest equal to thirteen
percent (13%) and (ii) from the Quarterly Date which constitutes the Borrowing
Date with respect to a Loan until the date of repayment in full of such Loan, a
rate of interest equal to LIBOR plus 7.0%. The Applicable Rate will be
calculated on the basis of a 365 or 366 day year, based upon the actual number
of days elapsed.
"Applicable Term" means thirty six months from the applicable Borrowing
Date for repayment of principal.
"Borrowing Date" means each Quarterly Date on which one or more
Advances shall become a Loan under the Credit Agreement.
"Business Day" means a day other than Saturday, Sunday or any other day
on which commercial banks in Illinois are authorized or required by law to
close.
"Code" means the Internal Revenue Code of 1986, as amended from time to
time.
"Collateral" means all of your right, title, and interest in and to any
equipment purchased by you from Motorola with proceeds from any Advance
hereunder, wherever located, whether now owned or hereafter acquired, including
all substitutions, accessions, replacements, or renewals, and all proceeds and
products with respect to any such property (including, without limitation, any
insurance proceeds).
"Default" means the occurrence of any of the events or conditions
specified in Section 6, whether or not such event has matured into an Event of
Default through the giving of notice, the lapse of time, or both.
"Escrowed Funds" means funds held in escrow with respect to amounts due
under the UPS Agreement as set forth in the letter agreement dated December 31,
1998 between American Mobile Satellite Corporation and Motorola.
"Event of Default" is defined in Section 6.
"FCC" means the Federal Communications Commission.
"Filing Jurisdiction" means, as to any item of Collateral, any
jurisdiction in which Borrower has notified Motorola that such item of
Collateral may be located, as required under Section 2 of the Agreement, and has
delivered Financing Statements to Motorola, as required under Section 6 of the
Agreement, and (after the date which is thirty (30) days following delivery of a
notice to Motorola under Section 4.8.4 hereof), such additional jurisdictions as
are identified in such notice with respect to such item of Collateral.
"GAAP" means Generally Accepted Accounting Principles in effect in the
United States of America from time to time.
"Governmental Authority" means any nation or government, any state or
other political subdivision thereof, and any entity exercising executive,
legislative, judicial, regulatory or administrative functions of or pertaining
to government.
"Guarantor" means each of the joint and several guarantors of the
Borrower's obligations as identified on Exhibit "C" to the Credit Agreement.
"Indebtedness" means at a particular time, your (i) indebtedness for
financed money or for the deferred purchase price of property or services with
respect to which such Person is liable, contingently or otherwise, as obligor,
guarantor or otherwise, or in respect of which you otherwise assure a creditor
against loss, and (ii) obligations under leases which have been or should be
recorded, in accordance with GAAP, as capital leases in respect of which
obligations you are liable, contingently or otherwise, as obligor, guarantor or
otherwise, or with respect to which obligations you assure a creditor against
loss.
"Lease Obligations" means as of the date of any determination thereof,
your rental commitments under leases, excluding only obligations under leases
which are classified as Indebtedness on your balance sheet.
"LIBOR" means the three month London Interbank Offered Rate (as
published in the Wall Street Journal) on Business Day immediately preceding the
Quarterly Date which is the first date of the period during which interest on a
Loan is being calculated.
"Lien" means any mortgage, deed of trust, pledge, hypothecation,
assignment, encumbrance, lien (statutory or other), security interest,
preferential payment arrangement or other security agreement or arrangement
(including, without limitation, any conditional sale or other title retention
agreement, any financing lease having the same economic effect as any of the
foregoing, and the filing of any financing statement under the Uniform
Commercial Code or comparable law of any jurisdiction).
"Loan" means the aggregate principal amount of Advances made during a
period ending on a Quarterly Date and beginning on either the Effective Date of
this Agreement or the immediately preceding Quarterly Date.
"Obligations" means all of each Obligor's obligations (a) for the
payment of money to Motorola, and (b) for the performance of any covenant, term,
provision, or requirement of the Agreement.
"Obligors" means you and each of the Guarantors obligated either
personally or through a pledge of property, for repayment of the Credit.
"Person" means an individual, partnership, corporation, limited
liability company, business trust, joint stock company, trust, unincorporated
association, joint venture, Governmental Authority or other entity of whatever
nature.
"Purchase Agreement" means the Master Purchase Agreement dated December
19, 1997 between Motorola Inc. and ARDIS Company.
"Requirement of Law" means as to any Person, the articles of
incorporation, by-laws or other organizational or governing documents of such
Person, and any law, or determination of any arbitrator or a court or other
Governmental Authority, in each case applicable to or binding upon such Person
or any of its properties or to which such Person or any of its property is
subject.
"Responsible Officer" means the chief executive officer or chief
financial officer of any corporation, or any other individual who is duly
authorized by the Person represented to perform the duties required by the
Agreement.
"UCC" means the Uniform Commercial Code as in effect in the
jurisdiction specified in the "governing law" provision of the Credit Agreement.
Any accounting terms not fully defined in the Agreement shall have the
meanings given to them under GAAP.
2. Principal and Interest
2.1 Statements. Motorola will invoice you quarterly for scheduled
----------
principal and interest payments under the Credit. You will make each payment on
its due date. If Motorola's statement of the balance or amount due does not
agree with your records, you will notify Motorola in writing of the amount shown
by your records within ten (10) Business Days of your receipt of Motorola's
statement. Absent such notification, or manifest error, Motorola's statement
shall be presumed to be correct. Nosuch notification shall suspend or affect
your duty to make timely payment.
2.2 Optional Prepayments. You may, at your option, on any Business
--------------------
Day, prepay the Credit, in whole or in part, upon at least seven (7) days'
written notice to Motorola specifying the date and amount of prepayment. Such
notice shall be irrevocable and the payment amount specified in such notice
shall be due and payable together with accrued interest to such date on the
principal amount being prepaid. The principal amount prepaid for any Advance
which has not become part of a Loan shall be $10,000 or an integral multiple
thereof or the total remaining amount outstanding. In the case of prepayment of
any Loan, the principal amount prepaid shall be the total remaining principal
amount of such Loan.
2.3 Effect of Prepayment. Any prepayment shall be applied to the
--------------------
installments of principal in inverse order of maturity. Any prepayment shall not
relieve you from the obligation of paying the current or any succeeding
installment until the Credit is repaid in full. Amounts prepaid may not be
reborrowed.
2.4 Maximum Interest Rate and Amount. Under no circumstances shall
--------------------------------
you or any Obligor be required to pay Motorola a rate or amount of interest
(together with all fees and charges which are treated as interest under
applicable law) that exceeds that permitted by applicable law. If any overcharge
occurs, (a) it is inadvertent, (b) you will immediately notify Motorola in
writing of such overcharge, and (c) the overcharge will be returned to you or
credited to principal, as Motorola may elect.
3. Representations and Warranties
In order to induce Motorola to enter into the Agreement and to provide
you with the Credit, you hereby represent and warrant to Motorola the following,
except as otherwise disclosed to Motorola in writing concurrently with the
execution of the Agreement:
3.1 Status. You are duly incorporated or formed, and validly existing
------
under the laws of the state of incorporation or formation. You have the power
and authority and the legal right to own and operate your property, to lease the
property you operate, and to conduct the business in which you are currently
engaged and in which you propose to engage, (b) are in compliance with all
Requirements of Law except to the extent that the failure to comply therewith
could not, in the aggregate, have a material adverse effect on your business,
operations, assets (taken in the aggregate) or financial condition, and could
not materially adversely affect your ability to perform your obligations under
the Agreement, and (c) have qualified to do business in all jurisdictions where
your ownership, lease or operation of property or the conduct of your business
requires such qualification or recording, except to the extent that the failure
to so qualify could not, in the aggregate, have a material adverse effect on
your business, operations, assets (taken in the aggregate) or financial
condition, and could not materially adversely affect your ability to perform
your obligations under any of the Agreements.
3.2 Power and Authority. You have the power, authority and legal right
-------------------
to execute, deliver and perform the Agreement and to borrow hereunder, and have
taken all necessary action to authorize the Credit on the terms and conditions
of this Agreement, and to authorize the execution, delivery and performance of
the Agreement and the related documents described therein. Where any
Governmental Authority, including without limitation any PUC, requires consents,
filings or authorizations prior to the Credit, you shall have obtained all such
consents, filings or authorizations. Other than such consents, filings or
authorizations, no consent or authorization or filing with, or other act by or
with respect to any Governmental Authority, is required in connection with the
Credit hereunder or with the execution, delivery, performance, validity or
enforceability of the Agreement. The Agreement has been duly executed and
delivered and constitutes your legal, valid and binding obligation, which
obligation shall be enforceable against you in accordance with the terms of the
Agreement, except as enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or similar laws affecting the enforcement
of creditors' rights generally and general equitable principles.
3.3 No Violations. The execution, delivery and performance of the
--------------
Agreement and the use of the proceeds of the Credit (i) will not violate, be in
conflict with, result in a breach of or constitute a default under, any
Requirement of Law or any of your contractual obligations, except to the extent
such violations, in the aggregate, could not have a material adverse effect on
(a) your business, operations, assets (taken in the aggregate) or financial
condition, or (b) your ability to perform your obligations under the Agreement,
and (ii) will not result in, or require, the creation or imposition of any Lien
on any of your properties or revenues pursuant to any Requirement of Law or
contractual obligation, other than pursuant to the Agreement. You are in
compliance with the Employee Retirement Income Security Act of 1974 as amended
from time to time (ERISA), and neither the execution nor the performance of the
Agreement by you will result in any violation of ERISA. Any benefit plan that is
subject to ERISA has been properly accounted for in your Financial Statements
attached to the Credit Agreement.
3.4 No Pending Actions. No litigation, investigation or proceedings of
------------------
or before any arbitrator or Governmental Authority is pending, or, to your
knowledge is threatened, against you or, against any of your properties or
revenues (a) with respect to the Agreement or any of the transactions
contemplated thereby, or (b) which is reasonably expected to be adversely
determined, and which, if adversely determined, could, individually or in the
aggregate, have a material adverse effect on your business, operations, assets
(taken in the aggregate) or financial condition.
3.5 No Defaults. You are not in default under or with respect to
-----------
any contractual obligation where such default could be materially adverse to
your business, operations, assets (taken in the aggregate) or financial
condition, or which could materially and adversely affect your ability to
perform your obligations under the Agreement. No Default or Event of Default has
occurred and is continuing.
3.6 Good Title. Any of your leases are in full force and effect,
----------
and you enjoy peaceful and undisturbed possession thereunder; you have a
recorded title in fee simple to all your owned real property, and good and
marketable title to all your other personal property.
3.7 Taxes. You have filed or caused to be filed all material tax
-----
returns which are required by law to be filed, and have paid all taxes shown to
be due and payable on said returns or on any assessment made by any Governmental
Authority (other than those the amount or validity of which is currently being
contested in good faith by appropriate proceedings and with respect to which
reserves in conformity with GAAP have been provided on your books); and no tax
Liens have been filed and, to your knowledge, no claims are being asserted with
respect to any such taxes, fees or other charges other than inchoate Liens for
taxes not yet due.
3.8 No Extending of Credit. Neither you nor any guarantor is
----------------------
engaged or will generally engage in the business of purchasing or selling Margin
Stock (as defined in Regulation G, T, U or X of the Board of Governors or of the
Federal Reserve System) extending credit for the purpose of purchasing Margin
Stock.
3.9 No Subsidiaries. Except as disclosed on Exhibit "D" to the
---------------
Credit Agreement, you have no subsidiaries and do not control, directly or
indirectly, any other business entity.
3.10 Patents, Trademarks, etc. You own or have the right to use
------------------------
all of the patents, trademarks, permits, service marks, trade names, copyrights,
licenses and franchises or rights with respect to the foregoing (collectively
"patents"), necessary for the conduct of your business as presently
contemplated, without any known conflict with the rights of others.
3.11 Information, Reports, etc. All information, reports and other
-------------------------
papers and data furnished to Motorola by you on or at any time after the date
hereof are or will be, at the time the same are so furnished, complete and
correct in all material respects; and all projections concerning your business
furnished by you, as supplemented, will be prepared or presented in good faith
by you and have a reasonable basis. No fact is known to you which materially and
adversely affects or in the future may (so far as you can reasonably foresee)
materially and adversely affect the business, operations, assets (taken as a
whole) or your financial condition which has not been set forth in the Financial
Statements or in such information, reports, papers and data.
3.12 Security Documents. The provisions of the Agreement are effective
------------------
to create in favor of Motorola a legal, valid and enforceable security interest
in all your right, title and interest in the Collateral in which a security
interest may be created under Article 9 of the Uniform Commercial Code; and when
(i) financing statements have been filed in the offices in the jurisdictions
listed in Exhibit "E" to the Agreement, and (ii) except for any further filing
or taking of possession which may be required under Section 9-306 of the UCC in
order to perfect a security interest in proceeds of the Collateral and any
taking of possession which may be required under the UCC in order to perfect a
security interest in instruments, the Agreement will create and grant a fully
perfected first Lien on, and security interest in the Collateral (including
proceeds) in which a security interest may be perfected under Article 9 of the
UCC.
3.13 Governmental Regulation. You hold sufficient FCC licenses for the
-----------------------
conduct of your business in each area in which you currently conduct your
business.
3.14 Assumed Names. You are not doing business under any fictitious or
-------------
assumed names, except as disclosed in Exhibit "F" to the Agreement.
3.15 Principal Place of Business. Your chief executive office and
---------------------------
principal place of business are located at the notice address shown next to your
signature block on the Credit Agreement. Your books and records with respect to
the Collateral are kept at this address.
3.16 Environmental and Safety Matters. You are in compliance in all
--------------------------------
material respects with all federal, state, local and other statutes, ordinances,
orders, judgments, rulings and regulations relating to the environment,
environmental regulation or control, employee health and safety, or the
generation, use, storage, disposal or transportation of toxic or hazardous
materials, substances or wastes (collectively, "Environmental Laws").
4. Affirmative Covenants
You hereby agree that, so long as the Credit remains in effect or any
amounts remain outstanding and unpaid or any other amount is owing to Motorola,
you shall do the following.
4.1 Financial Reporting.
-------------------
4.1.1. As soon available, but not later than 90 days after the
end of each fiscal year, commencing with the fiscal year ending December 31,
1998, you shall provide Motorola with a copy of the audited consolidated balance
sheets of the Borrower and the Guarantors as at the end of such year and the
related audited consolidated statements of income, stockholders' equity and cash
flows for such fiscal year, setting forth in each case in comparative form the
figures for the previous year, and accompanied by the opinion of Arthur Andersen
LLP or another nationally recognized independent public accounting firm, which
report shall state that such consolidated financial statements present fairly,
in all material respects, the financial position, results of operations and cash
flows for the periods indicated in conformity with GAAP applied on a basis
consistent with prior year.
4.1.2 As soon as available, but not later than 45 days after
the end of each of the first three fiscal quarters of each year, commencing with
the fiscal quarter ending on June 30, 1998, a copy of the unaudited consolidated
balance sheets of the Borrower and the Guarantors as of the end of such quarter
and the related consolidated statements of income, stockholders' equity and cash
flows for the period commencing on the first day and ending on the last day of
such quarter, and certified by an appropriate Responsible Officer as fairly
presenting, in all material respects, in accordance with GAAP (except for the
absence of footnote disclosure), the financial position and the results of
operations of the Borrower and the Guarantors.
4.1.3. As soon available, but not later than 90 days after the
end of each fiscal year, commencing with the fiscal year ending December 31,
1998, you shall provide Motorola with a copy of the unaudited balance sheet of
the Borrower as at the end of such year and the related unaudited statements of
income, owners equity and cash flows for such fiscal year, setting forth in each
case in comparative form the figures for the previous year, and certified by an
appropriate Responsible Officer as fairly presenting, in all material respects,
in accordance with GAAP, the financial position and the results of operations of
the Borrower..
4.1.4 As soon as available, but not later than 45 days after
the end of each of the first three fiscal quarters of each year, commencing with
the fiscal quarter ending on June 30, 1998, a copy of the unaudited balance
sheet of the Borrower as of the end of such quarter and the related statements
of income, owners equity and cash flows for the period commencing on the first
day and ending on the last day of such quarter, and certified by an appropriate
Responsible Officer as fairly presenting, in all material respects, in
accordance with GAAP (except for the absence of footnote disclosure), the
financial position and the results of operations of the Borrower.
4.2 Certificates: Other Information.
-------------------------------
4.2.1 Concurrently with the delivery of the items referred to
in Sections 4.1.1, and 4.1.2 above, you will deliver to Motorola a certificate
of the independent certified public accountants or of a Responsible Officer
certifying such financial statements or other items, as the case may be, and
stating that no Default or Event of Default has occurred and is continuing,
except as specified in such certificate.
Within five (5) days after the same are sent or filed, you will deliver to
Motorola (a) copies of all reports sent to the stockholders of American Mobile
Satellite Corporation covering such matters as are typically covered in annual
or quarterly reports, and (b) copies of each report on Form 8-K filed with the
Securities and Exchange Commission.
4.2.3 You shall further deliver promptly to Motorola such
additional financial and other information as Motorola may reasonably request
from time to time.
4.3 Discharge Obligations. You will pay, discharge or otherwise satisfy
---------------------
in the ordinary course of business (a) all Indebtedness, and (b) all other
obligations to the extent such obligations exceed, in the aggregate, $1,000,000,
except, in any such case, to the extent that (i) the amount or validity of any
such Indebtedness or other obligation is currently being contested in good faith
by appropriate proceedings, (ii) appropriate reserves in conformity with GAAP
have been provided on your books, and (iii) such matter does not involve any
risk of loss, forfeiture, or Lien on your assets.
4.4 Continuation of Business; Compliance. You will (a) continue to
---------------------------------------
engage in business of the same general type as now conducted by you, (b)
preserve and maintain in full force and effect your existence as a general
partnership and your good standing under the laws of your State of organization,
(c) preserve and maintain in full force and effect all rights, privileges
qualifications, permits, licenses and franchises necessary or desirable in the
normal conduct of your business, (d) use your reasonable efforts, in the
ordinary course and consistent with past practice, to preserve your business
organization and preserve the goodwill and business of the customers, suppliers
and others having business relations with you, and (e) preserve or renew all of
your registered trademarks, trade names and service marks, the non-preservation
of which could have a material adverse effect on your business, operations,
financial condition, or your ability to perform your obligations under the
Agreement.
4.5 Maintenance of Collateral. You will keep the Collateral in good
-------------------------
working order and condition, reasonable wear and tear excepted.
4.6 Insurance. You will maintain property insurance in amounts at
---------
least equal to the value of the Collateral with financially sound and reputable
insurance companies. The policies shall be in writing and shall name Motorola as
loss payee, but only to the extent of the balance outstanding from time to time
under the Agreement. You will furnish to Motorola, prior to the initial funding
under the Agreement and thereafter upon written request, full information as to
the insurance carried. In the event of loss involving any of the Collateral,
insurance proceeds will be used to repair (if you and Motorola agree in writing
that repairing the damage is feasible) the damaged Collateral. If Motorola
determines in good faith that the Collateral cannot be timely repaired, then all
such insurance proceeds shall be paid directly to Motorola, for application to
the amounts outstanding hereunder, unless Motorola agrees to accept replacement
Collateral.
4.7 Records; Access. You will keep proper books of record and account
---------------
in which full, true, and correct entries in conformity with GAAP and all
Requirements of Law shall be made to reflect truly the financial position and
the results of your operations. Upon reasonable notice, you will permit
representatives of Motorola to visit and inspect the Collateral and any of your
properties and examine and make extracts from and copies of any of your books
and records at any reasonable time during normal business hours and as may
reasonably be desired by Motorola, and to discuss your business, operations,
properties and financial and other condition.
4.8 Notices. You will, within the time periods set forth below, give
-------
written notice to Motorola of the occurrence of any of the following:
4.8.1 within five (5) Business Days of the occurrence thereof,
any Default or Event of Default;
4.8.2 within five (5) Business Days of the occurrence thereof,
any (i) material default or any material event of default under any contractual
obligation of yours which is material in relation to your business, operations,
assets (taken in the aggregate) or financial condition or (ii) any claim,
litigation, investigation, or proceeding which arises at any time involving you
which is reasonably anticipated to be adversely determined and which, if
adversely determined, would have a material adverse affect on your business,
operations, assets (taken in the aggregate) or financial condition;
4.8.3 within five (5) Business Days of the occurrence thereof,
any material adverse change in your business, operations, assets (taken in the
aggregate) or financial condition;
4.8.4 not less than thirty days prior to the occurrence
thereof, the movement of any portion of the Collateral, which notice shall
identify the jurisdiction (as to State and county) into which each item of
Collateral (identified by serial number) shall be moved;
4.8.5 not less than thirty days prior to the occurrence
thereof, the relocation of your principal place of business or chief executive
offices to any location; and
4.8.6 not less than thirty days prior to the occurrence
thereof, the change of your name or corporate structure, or your use of any
fictitious name or assumed name.
Each notice pursuant to Sections 4.8.1, 4.8.2, and 4.8.3 shall be accompanied by
a statement of a Responsible Officer setting forth details of the occurrence
referred to therein and stating what action you propose to take with respect
thereto. Prior to the occurrence of any event specified in to Sections 4.8.4,
4.8.5, or 4.8.6 you shall also execute and deliver to Motorola any documents
requested by Motorola to maintain the continuous perfection and priority of
Motorola's Liens and security interests.
5. Negative Covenants
You hereby agree that, so long as the Credit remains outstanding and
unpaid or any other amount is owing by you to Motorola, you will comply with the
following unless Motorola has consented in writing to your failure to so comply:
5.1 Liens. You will not create, incur, assume or suffer to exist,
-----
any Lien upon any of your property, assets, income or profits, whether now owned
or hereafter acquired except:
5.1.2 existing Liens, as have been disclosed in writing to
Motorola prior to the date hereof;
5.1.2 Liens for taxes not yet due or which are being contested
in good faith and by appropriate proceedings if (a) adequate reserves with
respect thereto are maintained on your books in accordance with GAAP (b) such
matter does not involve a risk of forfeiture;
5.1.3 carriers', warehousemen's, mechanics', materialmen's,
repairmen's, or other like Liens arising in the ordinary course of business
which are not overdue for a period of more than thirty (30) days or which (a)
are being contested in good faith and by appropriate proceedings, (b) have been
appropriately reserved against, and (c) carry no risk of forfeiture or loss of
legal rights;
5.1.4 pledges or deposits in connection with workmen's
compensation, unemployment insurance, and other social security legislation, in
the ordinary course of your business;
5.1.5 deposits to secure the performance of bids, trade
contracts (other than for Indebtedness), leases (other than capital leases),
statutory obligations, surety and appeal bonds, performance bonds and other
obligations of a like nature incurred in the ordinary course of business;
5.1.6 easements, rights-of-way, restrictions and other similar
encumbrances incurred in the ordinary course of business which, in the
aggregate, are not substantial in amount, and which do not in any case
materially detract from the value of the property subject thereto or interfere
with the ordinary conduct of your business;
5.1.7 Liens in favor of Motorola under the Agreement;
5.1.8 Liens on real or personal property given to secure the
purchase price thereof, for property acquired in the ordinary course of
business; and
5.1.9 other Liens which do not attach to the Collateral, not
exceeding $15,000,000 in the aggregate at any time.
5.2 Change of Status. You will not enter into any merger or
------------------
consolidation or amalgamation, will not liquidate, wind up or dissolve (or
suffer any liquidation or dissolution), and shall not convey, sell, lease,
assign, transfer or otherwise dispose of any of your property, business or
assets (including, without limitation, receivables and leasehold interests)
whether now owned or hereafter acquired (except the sale or other disposition of
assets for good consideration in the ordinary course of business) if any such
transaction might materially adversely affect your business, financial
condition, or your ability to perform your obligations under the Agreement.
5.3 Organization and Governing Documents. You will not amend,
---------------------------------------
supplement or otherwise modify or waive compliance with any provision of your
articles of incorporation or by-laws if you are a corporation, or partnership
agreement, if a partnership, if such amendment, supplement, modification or
waiver would have a material adverse effect on your business, operation, assets
(taken in the aggregate) or financial condition, or would otherwise materially
and adversely affect your ability to perform your obligations under the
Agreement.
5.4 FCC License. Except for the performance of agreements which
-----------
predate the Agreement, you will not transfer or attempt to transfer your FCC
licenses to operate any system to any Person other than in the ordinary course
of business.
5.5 Transactions with Affiliates. You will not use any of the
----------------------------
proceeds hereunder, or engage in the purchase of goods and services, directly or
indirectly, with any Affiliate on any basis other than arms'-length.
5.6 Subsidiaries. You will not form, create, or acquire any
------------
subsidiaries except those identified on Exhibit "D" to the Agreement.
5.7 Collateral. You will not at any time place or locate any of
----------
the Collateral, or cause or permit any of the Collateral to be located, at any
place other than a Filing Jurisdiction.
<PAGE>
6. Events of Default; Remedies
6.1 Events of Default. Any of the following events shall be
-----------------
considered an Event of Default, upon the occurrence of which Motorola may
exercise all remedies available at law together with all other rights and
remedies provided under the terms of this Section VI:
6.1.1 You shall fail to pay any principal or interest under
the Note within five (5) days of the due date, or shall fail to pay any other
amount payable under the Agreement within ten (10) days after Motorola gives
notice to you of such failure.
6.1.2 A representation or warranty made by you in the
Agreement, or which is contained in any certificate, document or financial or
other statements furnished at any time under or in connection therewith, shall
prove to have been incorrect in any material respect on or as of the date made;
provided that if such default is capable of being cured, you shall have thirty
days after notice of such default to remedy the default.
6.1.3 You shall default in the performance of any obligation
pursuant to Section 4.8 or Section 5.7 hereof.
6.1.4 You shall default in the observance or performance of
any other covenant or obligation contained in this Agreement or any exhibit
hereto, and such default shall continue unremedied for a period of thirty days
after Motorola giving notice to you of such default.
6.1.5 You shall (a) default in any payment of the principal
of or the interest on any item of Indebtedness covered by subsection (i) of the
definition of "Indebtedness" beyond the grace period, if any, provided in the
instrument or agreement under which such Indebtedness was created; or (b)
default in the observance or performance of any other agreement or condition
relating to any such Indebtedness or contained in any instrument or agreement
evidencing, securing or relating thereto.
6.1.6 The occurrence of any of the following:
(i) you shall commence any case, proceeding or
other action under any existing or future law of any jurisdiction, domestic or
foreign, relating to bankruptcy, insolvency, reorganization or relief of
debtors, (a) seeking to have an order for relief entered, or seeking
reorganization, arrangement, adjustment, winding-up, liquidation, dissolution,
composition or other relief with respect to you or your debts, or (b) seeking
appointment of a receiver, trustee, custodian or othe similar official for you
or for all or any substantial part of your assets; or you shall make a general
assignment for the benefit of your creditors;
(ii) there shall be commenced against you any case,
proceeding or other action of a nature referred to in clause (i) above which (a)
results in the entry of an order for relief or any such adjudication or
appointment and (b) remains undismissed, undischarged or unbonded for a period
of thirty days;
(iii) there shall be commenced against you any case,
proceeding or other action seeking issuance of a warrant of attachment,
execution, distraint or similar process against all or any substantial part of
your assets, which results in the entry of an order for any such relief which
shall not have been vacated, discharged, or stayed or bonded pending appeal,
within thirty days from the entry thereof;
(iv) you shall take any action in furtherance of, or
indicating your consent to, approval of, or acquiescence in, any of the acts set
forth in clause (i), (ii), or (iii) above;
(v) you shall generally not pay your debts as they
become due or shall be unable to pay such debts, or shall admit in writing your
inability to pay such debts; or
(vi) the occurrence of any of the foregoing events
with respect to any Guarantor of your obligations to Motorola.
6.1.7 One or more judgments or decrees shall be entered
against you involving in the aggregate a liability (not paid or fully covered by
insurance) of $50,000.00 or more, and all such judgments or decrees shall not
have been vacated, discharged, or stayed or bonded pending appeal within thirty
days from the entry thereof.
6.1.8 Any license materially necessary for your continuing
operation of your business or any other material authorization of any
Governmental Authority with respect to the conduct by you of your business and
operations, or with respect to the Agreement, (i) shall not be obtained as and
when required to permit you to conduct your business as then being conducted,
and which has a material adverse effect on your financial condition or and
adverse effect on your ability perform your obligations under the Agreement; or
(ii) shall cease to be in full force and effect. A license shall be deemed to
cease to be in full force and effect (a) when an order revoking or terminating
said license shall be issued and such order is no longer subject to further
administrative and judicial review, or (b) when any Government Authority having
jurisdiction over any such license shall, prior to the termination thereof,
decide not to renew such license and such decision shall not be subject to
further administrative or judicial review.
6.1.9 There shall occur a default under any Guarantee
Agreement executed in connection with the Credit Agreement.
6.1.10 You shall fail to pay any undisputed amount due to
Motorola on open account within thirty (30) days from an invoice therefor, and
such failure shall continue for ten (10) days after notice thereof by Motorola.
6.2 Remedies.
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6.2.1 Acceleration. Upon the occurrence and during the
------------
continuance of any Event of Default, in addition to all rights of a secured
creditor under Article 9 of the UCC, (a) if such event is an Event of Default
specified in clause (i) or (ii) of Section 6.1.5 above, all amounts owing by you
under this Agreement and under any other account relationship between you and
Motorola shall immediately become due and payable, and (b) if such event is any
other Event of Default, then Motorola may, by notice to you declare all amounts
owing by you under this Agreement or under any such other account relationship
to be due and payable, whereupon the same shall immediately become due and
payable.
6.2.2 Possession of Collateral. You agree, if an Event of
--------------------------
Default shall be existing and upon Motorola's request, to assemble, at your
expense, all equipment and other property constituting a part of the Collateral
at a convenient place acceptable to Motorola and to pay all costs of Motorola of
collection of all amounts due, and enforcement of all rights hereunder,
including reasonable attorney's fees and legal expenses, and expenses of any
repairs to any realty on other property to which any of such equipment may be
affixed. Upon an Event of Default Motorola may, to the fullest extent permitted
by applicable law, without notice, advertisement, hearing or process of law of
any kind, enter upon any premises where any of the equipment constituting part
of the Collateral may be located and take possession of and remove such
equipment.
6.2.3 Sale of Collateral. Without limiting the generality of
------------------
the foregoing, Motorola shall have all the rights and remedies of a secured
party under the UCC or other applicable law and Motorola may sell and deliver
any or all Collateral held by or for it at public or private sale, for cash,
upon credit, for future delivery or otherwise, at such prices and upon such
terms as Motorola deems advisable, in its sole discretion and/or collect, or
enforce the collection of, the Collateral. Motorola may buy any or all of the
Collateral at any such sale.
6.2.4 Standard of Care. Motorola shall exercise reasonable
----------------
care at all times in the custody and preservation of any of the Collateral in
its possession, and shall be deemed to have exercised such reasonable care if it
takes such action for the purpose you reasonably request in writing.
6.2.5 Advances to Protect Collateral. Motorola may (but
--------------------------------
shall not be obligated to) make advances to preserve, protect or obtain any of
the Collateral, including advances to pay taxes, insurance and the like, and all
such advances shall become a part of the Obligations owing to Motorola hereunder
and shall be repayable to Motorola with interest thereon from the date of such
advance until paid at the Default Rate set forth in this Agreement.
6.2.6 Notices, etc. Waived. Except as expressly provided in
--------------------
this Section VI, you expressly waive, to the fullest extent permitted by
applicable law, presentment, demand, protest, any and all notices of any kind,
advertisement, hearing or process of law in connection with the exercise by
Motorola of any of its rights and remedies upon the occurrence of an Event of
Default. If any notification of intended disposition of any of the Collateral is
required by law, such notification, if mailed, shall be deemed reasonably and
properly given if mailed at least five days before such disposition, postage
prepaid, addressed to Company either at the address shown below, or at your
address appearing on the records of Motorola.
6.2.7 Setoff. If any amount owing by you to Motorola shall
------
have become due and payable (by acceleration or otherwise), Motorola shall have
the right, in addition to all other rights and remedies available to it, without
notice to you, to setoff against such amounts any debt owing from Motorola to
you and any other funds held by Motorola in any manner for your account, it
being understood that the Escrowed Funds will in no event be available for
setoff under this provision. Such right shall exist whether or not Motorola
shall have given notice or made any demand hereunder, whether or not such debt
owing to you is matured or unmatured, and regardless of the existence or
adequacy of any collateral, guaranty or any other security, right or remedy
available to Motorola. You hereby consent to and confirm the foregoing
arrangements and confirm Motorola's rights of setoff.
6.2.8 Application of Proceeds. Any proceeds of any of the
-----------------------
Collateral shall be applied by Motorola toward the repayment of the Credit and
any of your other obligations to Motorola in the following priority: first,
towards expenses incurred in connection with the exercise of rights or remedies
with respect to any of the Collateral (including reasonable fees and legal
expenses); second, to accrued interest; and third, to the installments of
principal in inverse order of maturity thereof
6.2.9 No Further Advances. During the continuance of an Event
-------------------
of Default, Motorola shall have no obligation to make Advances to you.
6.3 General Authority. Subject to any requirements for governmental
------------------
approval, upon the occurrence and during the continuance of any Event of
Default, the rights, powers and privileges provided in this Section and all
other remedies available to Motorola under this Agreement or by statute or by
rule of law may be exercised by Motorola at any time from time to time whether
or not the Credit shall be due and payable, and whether or not Motorola shall
have instituted any foreclosure or other action for enforcement. For the purpose
of carrying out the provisions and exercising the rights, powers and privileges
granted by this Section 6, you hereby irrevocably constitute and appoint
Motorola your true and lawful attorney-in-fact to execute, acknowledge and
deliver any instruments and do and perform any acts such as are referred to in
this Section 6 in your name on your behalf in accordance with this Agreement and
any statute or rule of law. This power of attorney is a power coupled with an
interest and cannot be revoked.
6.4 Expenses. In addition to all other sums due to Motorola, you will
--------
pay Motorola, on demand, all reasonable costs and expenses (including reasonable
attorneys' fees and disbursements and court costs) incurred by Motorola at any
time in connection with (i) the enforcement or collection of any of the
Obligations, (ii) attempts to obtain possession of, liquidate, or collect on any
of the Collateral, (iii) the enforcement, protection or preservation of any of
Motorola's rights or remedies under this Agreement, or (iv) the completion,
construction, installation, operation, management or maintenance of any of your
systems by Motorola, its designee, or a receiver or trustee, whether pursuant to
this Section 6 or otherwise, or (v) the prosecution of any action or proceeding
brought against you or any of the Guarantors concerning any matter arising out
of or connected with this Agreement or any Collateral, including without
limitation any actions arising in, arising under or related to a case under the
Bankruptcy Reform Act of 1978, as amended, or any successor statute or similar
state law. All such amounts shall be payable on demand and shall accrue interest
at the Default Rate from the time of demand until paid in full. All such amounts
shall be part of the obligations due under the Agreement and payment thereof
shall be secured by all the Collateral.
7. Security Provisions
Your Obligations in connection with the Credit and this Agreement are secured by
the Collateral. These Obligations include, but are not limited to, principal,
interest, premium, charges, attorneys' fees, assessments, costs and future
Advances, whether direct or indirect, contingent or absolute, matured or
unmatured. You hereby grant to Motorola a continuing security interest in and
lien on the Collateral.
7.1 Priority of Security Interest. The security interest
-----------------------------
and lien granted by Borrower to Motorola pursuant to the Agreement is and shall
be a perfected, first priority continuing and indefeasible security interest in
the Collateral subject only to any Liens authorized by Motorola in writing.
8. Requirements for Advances
In order to draw down an Advance under the Credit Agreement, you must
have satisfied each of the following conditions precedent:
8.1 No Default or Event of Default shall have occurred and be
continuing.
8.2 You will have supplied Motorola with such articles of
incorporation, partnership agreements, by-laws, certificates of good standing or
qualification to do business, opinions of counsel, environmental certificates,
FCC licenses or compliance information, resolution, incumbency certificates,
insurance documents, and other "due diligence" information as Motorola may
reasonably request.
8.3 All financing statements, deliveries (including without limitation
share certificates), and other actions reasonably necessary to assure the
enforceability of this Agreement and the perfection of Motorola's security
interests in the Collateral and in the Equity Interests shall have been taken.
8.4 All proceedings, documents, and other legal matters pertaining to
this Agreement and the transactions contemplated herein shall be reasonably
satisfactory in form and substance to Motorola and to Motorola's counsel.
8.5 The requested Advance, when added to the existing principal
balance outstanding, must not exceed the maximum amount of Credit set forth in
the Credit Agreement. Amounts repaid may not be re-borrowed.
9. Other Terms
9.1 Amendments. No amendment, supplement or modification of this
----------
Agreement shall be binding on any party hereto unless made in writing and signed
by a duly authorized representative of such party.
9.2 Notices. All notices, requests and demands to or upon the
-------
respective parties hereto to be effective shall be in writing and, unless
otherwise expressly provided herein, shall be deemed to have been duly given or
made (i) when delivered by hand or (ii) the following Business Day when sent by
overnight delivery service, by courier, or (iii) the same day when transmitted
by facsimile and a confirmation of transmission printed by sender's facsimile
machine. A copy of any notice given by facsimile also shall be mailed, postage
prepaid, to the addressee. Notices to the respective parties hereto shall be
addressed to the parties at their addresses shown on the Credit Agreement.
9.3 Waiver.
------
9.3.1 Waiver by Consent. Motorola may execute and deliver to
-----------------
you from time to time, a written instrument waiving, on such terms and
conditions as Motorola may specify in such instrument, any of the requirements
of the Agreement or any Default or Event of Default and its consequences. In the
case of any waiver, you and Motorola shall be restored to their former positions
and rights hereunder and any Default or Event of Default waived shall be deemed
to be cured and not continuing; but no such waiver shall extend to any
subsequent or other Default or Event of Default, or impairment thereof.
9.3.2 No Implied Waiver: Rights are Cumulative. The failure to
----------------------------------------
exercise or the delay in exercising, on the part of Motorola, any right, remedy,
power or privilege under the Agreement, shall not operate as a waiver thereof;
the single or partial exercise of any right, remedy, power or privilege under
the Agreement shall not preclude any other or further exercise thereof or the
exercise of any other right, remedy, power or privilege. The rights, remedies,
powers and privileges herein provided are cumulative and not exclusive of any
rights, remedies, powers and privileges provided by law.
9.4 Survival. All agreements, covenants, representations, warranties
--------
and indemnities made under the Agreement and in any document, certificate or
statement delivered pursuant thereto or in connection herewith shall survive the
execution and delivery of this Agreement and the Note and the making of Advances
regardless of any investigation made by Motorola.
9.5 Indemnity. You hereby indemnify Motorola against any losses,
---------
claims, penalties, expenses, actions, suits, obligations, liabilities,
documentary stamp or transfer taxes (if applicable) and liens (and all costs and
expenses, including reasonable attorney's fees incurred in connection
therewith), which Motorola has sustained or incurred or may sustain or incur in
connection with any of the Collateral, or the enforcement of the Agreement, or
as a consequence of any default by you in the performance or observance of any
covenant or condition contained in this Agreement, including without limitation,
the breach of any representation or warranty, any failure by you to pay when due
(by acceleration or otherwise) any principal, interest, fee or any other amount
due hereunder, and any failure to comply with all applicable Requirements of Law
(collectively, "Claims"), except for any Claims determined by a court in a final
order to have been caused by Motorola's gross negligence or intentional
misconduct. Your obligations under this Section 9.5 shall be part of the
obligations secured hereby and shall be secured by the Collateral. You agree
that upon written notice by Motorola of the assertion of any Claims, you will,
at Motorola's option, either assume full responsibility for, or reimburse
Motorola for the reasonable costs and expenses of, the defense thereof, except
for any Claims caused by Motorola's gross negligence or intentional misconduct.
The provisions of this Section 9.5 shall survive the term of this Agreement.
9.6 Assignment. This Agreement shall be binding upon and inure to
----------
the benefit of you, Motorola, and their respective permitted successors and
assigns. This Agreement is not assumable by any successor or transferee of
yours; you may not assign or transfer any of your rights under this Agreement,
or delegate any of your duties under this Agreement, without prior written
consent of Motorola. Motorola may assign this Agreement, without notice to you
or your consent; provided that so long as no Event of Default exists, Motorola
shall not assign this Agreement to any entity that competes with you.
9.7 Counterpart Documents. This Agreement may be executed by one
- --------------------- or more of the parties to this Agreement in any number of
separate counterparts and all of said counterparts taken together shall be
deemed to constitute one and the same instrument.
9.8 FCC/PUC Approvals. The exercise of any rights hereunder by
-----------------
Motorola which may require FCC/PUC approval shall be subject to obtaining such
approval. Pending obtaining any such FCC/PUC approval, you will not do anything
with respect to such rights which is contrary to the interests of Motorola.
9.9 Severability. If any provision of this Agreement is found to
------------
be unenforceable for any reason whatsoever, such provision shall be deemed null
and void to the extent of such unenforceability but shall be deemed separable
from and shall not invalidate any other provision of this Agreement.
9.10 Captions. Captions to the various paragraphs of this Agreement
--------
are provided for convenience only and shall not be used to construe the
provisions of this Agreement.
9.11 Review of Information. You acknowledge and agree that any
---------------------
review or analysis by Motorola of financial information, operating information,
marketing data or other information provided to Motorola by you or on your
behalf at any time is and shall be conducted solely for Motorola's benefit and
internal use and that Motorola is under no duty or obligation to make the
results of such review or analysis available to you. You are not relying, and
will not rely, on Motorola for financial or business advice.
9.12 No Joint Venture; No Benefit to Non-Parties. Nothing in this
-------------------------------------------
Agreement shall be deemed to constitute any kind of partnership, joint venture
or fiduciary relationship between or among Motorola and any Obligor(s); further,
the Agreement is not intended to benefit any Person that is not a party to the
Agreement.
<PAGE>
EXHIBIT B
Amount: $10,000,000 Date: June 17, 1998
PROMISSORY NOTE
FOR VALUE RECEIVED, the undersigned (the "Borrower" or "you") hereby
promises to pay to the order of Motorola Inc. ("Motorola") a Delaware
corporation, at its principal offices at 1303 East Algonquin Road, Schaumburg,
Illinois 60196, the lesser of (i) the principal sum of Ten Million Dollars
($10,000,000), or (ii) the aggregate unpaid principal amount of Advances made by
Motorola to the Borrower under the Credit Agreement (the "Credit Agreement")
dated as of June 17, 1998 between the Borrower and Motorola, together with
interest on the entire principal balance from time to time outstanding
hereunder.
Interest shall accrue as of the date of this Note and shall be
calculated on the amount of each Advance outstanding from time to time at a rate
per annum equivalent to the Applicable Interest Rate (as defined in the Credit
Agreement). Interest shall be payable quarterly in arrears. The first interest
payment shall be due on the first day of the calendar quarter first following
the date hereof on which any amounts are outstanding hereunder, and on the date
of prepayment in full of any balance due hereunder. Interest shall be calculated
on a 365/366 day year basis for actual days elapsed. Upon the occurrence of an
Event of Default, the interest rate shall be increased by a further three
percent (3%) per annum above the rate otherwise applicable or (if lesser) the
maximum rate permitted by law. In no event shall the holder of this Note be
entitled to claim any sum or rate of interest in excess of the maximum allowed
by law. Any payment in excess of such maximum sum or amount of interest shall,
at the option of Motorola, be applied to reduce outstanding principal or shall
be refunded to Borrower.
Motorola shall record on its books or records all payments and
prepayments of principal and interest, the principal balance from time to time
outstanding and the respective dates and maturity dates thereof. The record
thereof, whether shown on such books or records, shall be prima facie evidence
as to all amounts owing under this Note; provided, however, that the failure of
Motorola to record any of the foregoing or any error in such notation shall not
limit or otherwise affect the obligation the Borrower to repay the entire Credit
under the Credit Agreement together with accrued interest thereon.
Principal shall be payable in accordance with the terms of Credit
Agreement.
This Note is the Promissory Note referred to in, and issued under, the
Credit Agreement, and Motorola is entitled to all of the benefits provided for
therein; reference is hereby made to the Credit Agreement for a statement of all
such benefits. Capitalized terms not defined in this
<PAGE>
Note shall have the meanings assigned to such terms in the Credit Agreement and
the exhibits attached thereto. Without limiting that reference, Motorola shall
be entitled to recover its attorney's fees and costs in connection with any
actions or proceedings taken to collect this Note after any Event of Default as
detailed in the Credit Agreement.
This Note shall be subject to, governed and construed according to the
laws of the State of Illinois, without regard to its provisions on the conflict
of laws. Whether or not executed in another jurisdiction, this Note shall become
effective upon delivery to Motorola at its headquarters in Illinois.
The maker hereby waives notice, protest, presentment, and notice of
dishonor to the full extent permitted by law. This Note evidences an
indebtedness incurred in connection with a commercial transaction rather than a
consumer or household debt.
YOU AND MOTOROLA AGREE THAT ANY CLAIM, COUNTERCLAIM, SETOFF, OR DEFENSE
RELATING IN ANY WAY TO THIS NOTE, OR TO THE MATTERS AND TRANSACTIONS GIVING RISE
TO THE ADVANCES AND INDEBTEDNESS EVIDENCED BY THIS NOTE, SHALL BE HEARD AND
DETERMINED BY A COURT WITHOUT A JURY.
ARDIS COMPANY
By:
---------------------------------------
Walter V. Purnell
Title:
------------------------------------
<PAGE>
EXHIBIT C
LIST OF GUARANTORS AND FORM OF GUARANTEE AGREEMENT
Guarantors
American Mobile Satellite Corporation
AMSC Acquisition Company
AMSC Subsidiary Corporation
<PAGE>
FORM OF
GUARANTEE AGREEMENT
This Agreement ("Guarantee Agreement") is effective as of June 17, 1998
and is given by ____________("Guarantor" or "you") to Motorola Inc., a Delaware
corporation ("Motorola").
Recitals
A. Guarantor is a __________ of ARDIS Company, a New York general
partnership (hereinafter referred to as the "Borrower");
B. Pursuant to a Credit Agreement of even date between Motorola
and the Borrower (the "Credit Agreement"), Motorola has agreed to provide
financing to enable the Borrower to purchase equipment and services from
Motorola;
C. The Borrower has executed, in favor of Motorola, a
promissory note (the "Note") in an aggregate principal amount of
U.S.$10,000,000, plus accrued interest;
D. Guarantor will receive direct and indirect benefits from the
financing provided by Motorola to Borrower; and
E Motorola's willingness to provide the financing contemplated
by the Credit Agreement is conditioned upon and subject to your guarantee of the
Borrower's obligations thereunder and under the Note.
Agreement
In order to induce Motorola to extend credit to the Borrower, Guarantor
does hereby covenant and agree as follows:
1. (a) Guarantor hereby absolutely, unconditionally and irrevocably,
jointly with any other guarantors, and severally, as a primary obligor and not
merely as a surety, guarantees the full and prompt payment of all obligations of
the Borrower under the Note and the Credit Agreement, including the entire
outstanding principal balance of the Note, together with accrued interest, and
with late charges and any other charges, attorneys' fees, costs and expenses
provided for under the Credit Agreement (the "Guaranteed Obligations"). Without
limiting the generality of the foregoing, Guarantor's obligations shall also
extend to all amounts which would be owed by the Borrower under the Credit
Agreement and the Note, or which would become payable under such documents, in
each case but for the fact that they are unenforceable, or not allowable due to
the existence of a bankruptcy, reorganization, or similar proceeding involving
the Borrower.
(b) Guarantor's obligations hereunder shall not be subject to
any reduction, limitation, impairment or termination for any reason, including
but not limited to, any claim of waiver, release, surrender, alteration or
compromise, and shall not be subject to any defense or setoff, counterclaim,
recoupment or termination whatsoever by reason of any of the following: (i) the
invalidity or unenforceability of the Note or the Credit Agreement or any part
thereof; (ii) any extension, modification or renewal of, or indulgence with
respect to, or substitutions for, the sum evidenced by the Note or the Credit
Agreement or any part thereof or any agreement relating thereto at any time;
(iii) any failure or omission to enforce any right, power or remedy against the
Borrower or any guarantor with respect to the Credit Agreement, the Note or any
part thereof; (iv) any waiver of any right, power or remedy or of any default
with respect to the Credit Agreement, the Note or any part thereof or any other
agreement relating thereto; or (v) any compromise, settlement, waiver or other
modification, or any release or surrender, whether or not knowingly given with
the consent of Motorola, with or without consideration, of the Credit Agreement,
the Note, any other guarantees with respect to the Credit Agreement, the Note or
any part thereof or any other obligation of any person or entity with respect to
the Credit Agreement, the Note or any part thereof. Guarantor will not exercise
any rights that it may have by way of subrogation under this Guarantee
Agreement, or otherwise, until all amounts owed to Motorola under the Credit
Agreement have been indefeasibly paid in full. Guarantor acknowledges that time
is of the essence of this Guarantee Agreement.
(c) This Guarantee Agreement shall be a continuing guarantee
and shall remain valid and in full force and effect as to all indebtedness of
the Borrower now or hereafter arising pursuant to and under the terms of the
Credit Agreement and the Note.
2. As long as any of the Guaranteed Obligations remain unpaid,
Guarantor agrees that this Guarantee Agreement shall be an absolute, present,
continuing, unlimited, unconditional and irrevocable guaranty of payment (and
not of collection). Suit may be brought and maintained against Guarantor by
Motorola to enforce any liability, obligation or duty guaranteed hereunder
without joinder of any other person or entity (including, but not limited to,
the Borrower). The liability of Guarantor under this Guarantee Agreement shall
not be deemed to be waived, released, discharged, impaired or affected by any
foreclosure, indulgence, or variation of terms of the Credit Agreement or the
Note or any part thereof, whether or not it might vary the risk of guaranty
under this Guarantee Agreement, including, without limitation, (i) any
alteration, amendment, acceleration, extension, modification, waiver or change
concerning the amount of time or manner of payment or performance of any of the
Guaranteed Obligations; (ii) any discharge or release of any of the obligations
securing the payment or performance thereof, whether or not in accordance with
the respective provisions thereof; (iii) bankruptcy, insolvency, reorganization,
liquidation or similar proceedings concerning the Borrower, Guarantor, or any
other guarantor of all or any part of the Borrower's debts to Motorola; (iv) the
addition or omission or delay in the enforcement of any right or remedy with
respect to any of the Guaranteed Obligations or with respect to this Guarantee
Agreement; or (v) the receipt, exchange, surrender or acquiescence in, any
default with respect to any of the Guaranteed Obligations.
3. Guarantor represents and warrants to Motorola as follows:
(a) Guarantor is a [relationship] of the Borrower;
(b) The execution, delivery and performance by Guarantor of
this Guarantee Agreement will not violate any agreements governing the
Guarantor, any provision of law or any order of any court or governmental agency
binding upon Guarantor or any of its property, or the terms of any instrument,
document or agreement to which Guarantor is a party, either individually or
jointly, with any other person, firm, entity or corporation or by which
Guarantor or any of the property of Guarantor is bound, or be in conflict with,
result in a breach of, or constitute (with giving of notice, the lapse of time
or both) a default under any such instrument, document or agreement, or result
in the creation or imposition of any lien upon any of the property or assets of
Guarantor;
(c) This Guarantee Agreement constitutes the valid and legally
binding obligation of Guarantor, enforceable in accordance with its terms,
except as enforceability thereof may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or similar laws affecting the enforcement
of creditors' rights generally and general equitable principles; and
(d) Guarantor has made an independent determination with
respect to the Borrower's capacity to repay the Note and the Borrower's future
business prospects; Guarantor has not relied on any financial information,
representation, or other communication from Motorola regarding such matters.
(e) Guarantor represents that except as disclosed on Schedule
A to this Guarantee Agreement, Guarantor has no outstanding guarantee
obligation, or any other direct or indirect contingent obligation in respect of
indebtedness of the Borrower or any other Person which is secured by a lien on
or pledge of any assets or rights of Guarantor (any such obligation excluding
those disclosed on Schedule A a "Secured Guarantee"); Guarantor covenants that
if at any time while any Guaranteed Obligations remain outstanding or
unsatisfied, Guarantor shall enter into any Secured Guarantee for the benefit of
any creditor, Guarantor shall cause its obligations under this Guarantee
Agreement to be secured on a pari passu basis with its obligations under such
Secured Guarantee.
4. (a) Guarantor will pay, discharge or otherwise satisfy in the
ordinary course of business (a) all Indebtedness, (b) all other obligations to
the extent such obligations exceed, in the aggregate, $1,000,000 and (c) all
obligations and amounts owing to the operator of the PSTN, except, in any such
case, to the extent that (i) the amount or validity of any such Indebtedness or
other obligation is currently being contested in good faith by appropriate
proceedings, (ii) appropriate reserves in conformity with GAAP have been
provided on your books, and (iii) such matter does not involve any risk of loss,
forfeiture, or Lien on your assets.
(b) Guarantor will (a) continue to engage in business of the same
general type as now conducted by it, (b) preserve and maintain in full force and
effect its corporate existence and good standing under the laws of its State of
incorporation, (c) preserve and maintain in full force and effect all rights,
privileges qualifications, permits, licenses and franchises necessary or
desirable in the normal conduct of its business, (d) use its reasonable efforts,
in the ordinary course and consistent with past practice, to its your business
organization and preserve the goodwill and business of the customers, suppliers
and others having business relations with it , and (e) preserve or renew all of
its registered trademarks, trade names and service marks, the non-preservation
of which could have a material adverse effect on its business, operations,
financial condition, or its ability to its your obligations hereunder.
(c) Guarantor will keep proper books of record and account in which
full, true, and correct entries in conformity with GAAP and all Requirements of
Law shall be made to reflect truly the financial position and the results its
operations. Upon reasonable notice, Guarantor will permit representatives of
Motorola to visit and inspect any of its properties and examine and make
extracts from and copies of any of its books and records at any reasonable time
during normal business hours and as often as may reasonably be desired by
Motorola, and to discuss Guarantor's business, operations, properties and
financial and other condition.
(d) So long as the Credit remains outstanding and unpaid or any other
amount is owing by Borrower to Motorola, Guarantor will comply with the
following unless Motorola has consented in writing to your failure to so comply:
(i). Guarantor will not enter into any merger or consolidation
or amalgamation, will not liquidate, wind up or dissolve (or suffer any
liquidation or dissolution), and shall not convey, sell, lease, assign, transfer
or otherwise dispose of any of its property, business or assets (including,
without limitation, receivables and leasehold interests) whether now owned or
hereafter acquired (except the sale or other disposition of assets for good
consideration in the ordinary course of business) if any such transaction might
materially adversely the Guarantor's business, financial condition, or its
ability to perform its obligations hereunder.
(ii) Guarantor will not amend, supplement or otherwise modify
or waive compliance with any provision of its articles of incorporation or
by-laws if such amendment, supplement, modification or waiver would have a
material adverse effect on its business, operation, assets (taken in the
aggregate) or financial condition, or would otherwise materially and adversely
affect its ability to perform its obligations hereunder.
(iii) Guarantor will not transfer or attempt to transfer its
FCC licenses to operate any paging system to any Person other than in the
ordinary course of business.
(iv) Guarantor will not engage in the purchase of goods and
services, directly or indirectly, on any basis other than arms'-length.
(v) Guarantor will not form, create, or acquire any
subsidiaries except those identified on Schedule 2 hereto.
5. This Guarantee Agreement is, and shall be deemed to be, a
contract entered into, under and pursuant to the substantive laws of the State
of Illinois, without regard to the conflict of laws rules thereof.
6. Guarantor agrees that if Motorola shall employ legal counsel
in order to successfully present, enforce or defend any or all of Motorola's
rights or remedies hereunder, then in any such event, Guarantor shall pay all
reasonable attorneys' fees and reasonable costs and expenses incurred by
Motorola in connection therewith.
7. All notices, requests, demands and other communications
hereunder shall be in writing and shall be deemed to have been given (a) when
hand delivered (or if delivery is refused, at the time of refusal) to the
address set forth below, (b) when received or refused as evidenced by the
delivery receipt if sent by Certified Mail, Return Receipt Requested, with
proper postage prepaid, addressed as set forth below, (c) when received or
refused as evidenced by the delivery receipt if sent by reputable international
courier, with delivery charges prepaid, addressed as set forth below, or (d)
when received as evidenced by the transmission report of the telecopy machine of
the transmitting party acknowledging a good transmission if sent by telecopy to
the number set forth below:
If to MOTOROLA INC. at: With a copy to:
Motorola Paging Products Group
1303 East Algonquin Road 5401 North Beach Street
Schaumburg, Illinois 60196 Fort Worth, Texas 76137
Attn: __________
Telephone: (817) ________
Telecopy: (817) 245-2236
If to the Guarantor, at: With a copy to:
- ----------------------------- -------------------------------
- ----------------------------- -------------------------------
- ----------------------------- -------------------------------
Telephone: ___________________ Telephone: ___________________
Telecopy: ___________________ Telecopy: ___________________
8. No modification or waiver of any provision of this Guarantee
Agreement shall be effective unless the same shall be in a writing signed by an
officer of Motorola and each other party whose rights or obligations are
affected thereby. No failure or any delay on the part of Motorola in exercising
any right, power or privilege hereunder shall operate as a waiver thereof; nor
shall a single or partial exercise of any right, power or privilege constitute
an election of remedy or otherwise preclude any other or future exercise thereof
or the exercise of any other right, power or privilege granted by this Guarantee
Agreement or by law. The rights, powers and privileges provided for herein are
cumulative of each other and of those provided for by law and none of them are
exclusive of any of the others or those provided for by law.
9. Subject to the restrictions on assignment contained herein, this
Guarantee Agreement shall be binding upon and inure to the benefit of the
parties hereto and their respective successors and permitted assigns. Motorola
shall have full right to assign its rights and delegate its obligations
hereunder or any interest herein in full, or in part, in connection with any
assignment (including but not limited to the sale of participations) of its
rights under the Credit Agreement. Guarantor shall have no right to assign any
of its rights or delegate any of its obligations hereunder to any other person
or entity without the prior written consent of an officer of Motorola.
10. Motorola shall endeavor to give Guarantor notice of default or non-
performance by the Borrower in connection with any breach of the Note or the
Credit Agreement, but no delay or failure by Motorola to give any such notice
shall in any way detract from, limit or release the Guarantor from any of
Guarantor's obligations under this Guarantee Agreement. The Guarantor hereby
waives presentment, protest, notice of protest and notice of either dishonor,
default or nonperformance in connection with any of Guarantor's obligations
under this Guarantee Agreement to the fullest extent it may lawfully do so, and
any and all demands and other notice of every kind that may be required to be
given by law.
11. Upon any determination that any provision hereof is invalid,
illegal or unenforceable in any respect, this Guarantee Agreement shall be
deemed to be modified accordingly so as to be valid and enforceable to the
maximum extent allowed by law and the remaining terms and provisions of this
Guarantee Agreement shall not be affected thereby and shall continue in full
force and effect.
12. This Guarantee Agreement shall be effective upon the date of
execution hereof and the obligations of the Guarantor shall continue, subject to
the next sentence, until the receipt by Motorola of payment in full of all
amounts due Motorola under the Credit Agreement. The obligations of Guarantor
under this Guarantee Agreement shall continue to be effective or shall be
reinstated, as applicable, if at any time any payment received by Motorola with
respect to any of the Guaranteed Obligations, or this Guarantee Agreement, is
rescinded or must be returned to the Borrower upon the insolvency, bankruptcy or
reorganization of the Borrower, and in each such case the rights of Motorola and
Guarantor's obligations under this Guarantee Agreement shall be treated as
though such payments were never made.
13.Guarantor hereby acknowledges that this Guarantee Agreement is given
in order to enhance the ability of the Borrower to perform its obligations to
Motorola under the Credit Agreement.
14.Nothing in this Guarantee Agreement or any of the other agreements
related to the financing of the Borrower's paging system shall be deemed to
constitute any kind of partnership, joint venture or other common enterprise
between Guarantor and Motorola or any kind of fiduciary relationship between
Motorola and Guarantor.
15.Motorola shall have no liability to Guarantor under or in connection
with the financing of the Borrower's paging system for any special, incidental,
indirect, consequential or punitive damages of any kind or nature, even if such
damages may be reasonably foreseeable.
16.Guarantor hereby subordinates, to all rights of Motorola as against
the Borrower, all rights to payment, claims, and other interests of Guarantor in
or against Borrower.
17. ANY SUIT, ACTION OR PROCEEDING AGAINST ANY PARTY WITH RESPECT TO
THIS AGREEMENT, OR ANY OTHER OBLIGATION OR ANY JUDGMENT ENTERED BY ANY COURT IN
RESPECT OF ANY THEREOF MAY BE BROUGHT IN THE APPROPRIATE COURT OF THE STATE OF
ILLINOIS, U.S.A., OR IN THE APPROPRIATE U.S. DISTRICT COURT IN THE STATE OF
ILLINOIS, U.S.A., AND EACH PARTY HERETO HEREBY IRREVOCABLY SUBMITS GENERALLY AND
UNCONDITIONALLY TO THE NONEXCLUSIVE JURISDICTION OF EACH SUCH COURT FOR THE
PURPOSE OF ANY SUCH SUIT, ACTION OR PROCEEDING. EACH PARTY HERETO AGREES THAT
SERVICE OF ALL WRITS, PROCESS AND SUMMONSES IN ANY SUCH SUIT, ACTION OR
PROCEEDING BROUGHT IN THE STATE OF ILLINOIS, U.S.A., MAY BE MADE UPON EACH PARTY
AT ITS RESPECTIVE ADDRESS ABOVE. EACH PARTY HERETO HEREBY IRREVOCABLY CONSENTS
TO THE SERVICE OF PROCESS IN ANY ACTION OR PROCEEDING IN SAID COURTS BY THE
MAILING THEREOF BY REGISTERED OR CERTIFIED MAIL, POSTAGE PREPAID, TO IT AT SUCH
ADDRESS. EACH PARTY HERETO HEREBY IRREVOCABLY WAIVES ANY OBJECTION WHICH IT MAY
NOW OR HEREAFTER HAVE TO THE LAYING OF VENUE OF ANY SUCH SUIT, ACTION OR
PROCEEDING BROUGHT IN ANY SUCH COURT AND HEREBY FURTHER IRREVOCABLY WAIVES ANY
CLAIM THAT ANY SUCH SUIT, ACTION OR PROCEEDING BROUGHT IN ANY SUCH COURT HAS
BEEN BROUGHT IN AN INCONVENIENT FORUM.
18. GUARANTOR AND MOTOROLA EACH HEREBY KNOWINGLY, VOLUNTARILY AND
INTENTIONALLY WAIVE THE RIGHT EITHER MIGHT HAVE TO A JURY TRIAL WITH RESPECT TO
ANY LITIGATION OR ACTION BASED HEREON, ARISING OUT OF, UNDER OR IN CONNECTION
WITH THIS GUARANTEE AGREEMENT OR THE NOTE, OR ANY COURSE OF CONDUCT, COURSE OF
DEALING, STATEMENTS (WHETHER VERBAL OR WRITTEN), OR ACTIONS OF ANY PARTY TO THIS
GUARANTEE AGREEMENT OR THE NOTE.
[GUARANTOR]
By:____________________________________
Its:___________________________________
<PAGE>
SCHEDULE 1 TO GUARANTEE
OF
[GUARANTOR]
Secured Guarantees as of June 17, 1998
<PAGE>
SCHEDULE 2 TO GUARANTEE
OF
[GUARANTOR]
Subsidiaries
<PAGE>
EXHIBIT D
LIST OF SUBSIDIARIES OF THE BORROWER
None.
<PAGE>
EXHIBIT E
FORM OF FINANCING STATEMENT
<PAGE>
EXHIBIT F
LIST OF ASSUMED NAMES OF THE BORROWER
None
<PAGE>
Exhibit 11.1
AMERICAN MOBILE SATELLITE CORPORATION
--------------------------------------
COMPUTATIONS OF EARNING PER COMMON SHARE
---------------------------------------
(in thousands, except per share amounts)
---------------------------------------
<TABLE>
<CAPTION>
Three Months Six Months
Ended June 30, Ended June 30,
1998 1997 1998 1997
---- ---- ---- ----
BASIC EARNINGS PER SHARE CALCULATION
<S> <C> <C> <C> <C>
Net Loss ($38,963) ($26,842) ($64,205) ($53,923)
========= ========= ========= =========
Net Loss per common share ($1.23) ($1.07) ($2.25) ($2.15)
======= ======= ======= =======
Weighted-average common shares 31,719 25,120 28,502 25,115
====== ====== ====== ======
outstanding
DILUTED EARNINGS PER SHARE CALCULATION
Net Loss ($38,963) ($26,842) ($64,205) ($53,923)
========= ========= ========= =========
Net Loss per common share ($1.21) ($1.07) ($2.24) ($2.14)
======= ======= ======= =======
Weighted-average common shares (1) 32,102 25,182 28,614 25,177
====== ====== ====== ======
(1) Calculated as follows:
Historical weighted average number of
shares outstanding 31,719 25,120 28,502 25,115
Assumed exercise of stock options -- -- 1 --
Assumed exercise of stock purchase 383 62 111 62
------- -------- -------- -------
warrants
32,102 25,182 28,614 25,177
====== ======= ====== ======
</TABLE>
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Company's unaudited Consolidated Statement of Loss, Consolidated Balance Sheet,
and Consolidated Statement of Cash Flows, in each case for the six months ended
June 30, 1998, and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<EXCHANGE-RATE> 1
<CASH> 8,944
<SECURITIES> 125,008
<RECEIVABLES> 13,279
<ALLOWANCES> 0
<INVENTORY> 41,038
<CURRENT-ASSETS> 123,743
<PP&E> 265,788
<DEPRECIATION> 0
<TOTAL-ASSETS> 562,402
<CURRENT-LIABILITIES> 55,091
<BONDS> 466,581
0
0
<COMMON> 318
<OTHER-SE> 44,166
<TOTAL-LIABILITY-AND-EQUITY> 562,402
<SALES> 5,740
<TOTAL-REVENUES> 22,410
<CGS> 5,415
<TOTAL-COSTS> 32,818
<OTHER-EXPENSES> 14,457
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 15,706
<INCOME-PRETAX> (38,963)
<INCOME-TAX> 0
<INCOME-CONTINUING> (38,963)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (38,963)
<EPS-PRIMARY> (1.23)
<EPS-DILUTED> 0
</TABLE>
