SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1997
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 executive offices) (Zip Code)
Registrant's telephone number, including area code: (703) 758-6000
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $0.01 per value per share
(Title of class)
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
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendments to
this Form 10-K. X
The aggregate market value of shares of Common Stock held by non-affiliates at
March 27, 1998 was approximately $142,757,227.
Number of shares of Common Stock outstanding at March 27, 1998: 25,176,726.
This Annual Report on Form 10-K omits certain supplemental financial information
required by Rule 3-09 of Regulation S-X.
DOCUMENTS INCORPORATED BY REFERENCE
Certain information in the Company's definitive Proxy Statement for its 1998
Annual Meeting of Stockholders is incorporated by reference in Part III of this
Form 10-K.
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AMERICAN MOBILE SATELLITE CORPORATION
1997 Annual Report on Form 10-K
PART I
This Annual Report on Form 10-K 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 Annual Report, including, without limitation, in conjunction with the
forward-looking statements included in this Annual Report. 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 Current Report on
Form 8-K filed on March 9, 1998, and Form 10-Q Quarterly Reports to be filed by
the Company subsequent to this Form 10-K Annual Report and any Current Reports
on Form 8-K and registration statements filed by the Company.
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Item 1. Business.
Overview
American Mobile Satellite Corporation (the "Company" or "American Mobile"),
through its subsidiaries, is a leading provider of nationwide wireless
communications services, including data, dispatch, and voice services, primarily
to business customers in the United States. On March 31, 1998, American Mobile
acquired ARDIS Company ("ARDIS") from Motorola, Inc. ("Motorola"), and combined
the ARDIS terrestrial-based business with the satellite-based business operated
through its subsidiary AMSC Subsidiary Corporation. The Company's combined
network 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 and a satellite in geosynchronous orbit.
American Mobile
American Mobile, a leading provider of nationwide mobile data and voice dispatch
service, operates North America's first high-powered, satellite-based digital
mobile communications system. American Mobile provides a broad range of
integrated end-to-end wireless solutions to land, sea and air-based customers in
a service area (the "Service Area") consisting of the continental United States,
Alaska, Hawaii, Puerto Rico, the U.S. Virgin Islands and U.S. coastal waters and
airspace.
American Mobile provides data service through two network configurations, either
a "satellite-only" service network or a "multi-mode" terrestrial and satellite
service network. American Mobile's satellite-only data communications system
provides data services primarily to long-haul trucking customers. The Company's
multi-mode communications system uses the Company's terrestrial and satellite
networks to provide "least-cost routing" for customers' two-way data
communications by actively seeking connections to the lower cost terrestrial
network before automatically using the Company's satellite network, thereby
providing cost-effective nationwide coverage.
In addition to providing data service, American Mobile offers two forms of
mobile voice communications service: nationwide dispatch service and satellite
telephone service. American Mobile is the only company that offers a nationwide
dispatch service which allows multiple users located anywhere in American
Mobile's extensive service area to share a single connection for
point-to-multipoint communication using push-to-talk handsets. American Mobile
markets its nationwide dispatch service primarily to field services users with
wide-area fleet communications needs. American Mobile's satellite telephone
service provides traditional voice, fax and data service through satellite
terminals that are similar to cellular phones. American Mobile markets its
satellite telephone service primarily to maritime users, including both
commercial and recreational vessels, as well as other market segments such as
government and public safety organizations.
As of December 31, 1997, American Mobile had approximately 32,400 units
operating on its network.
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ARDIS
ARDIS, a leading provider of nationwide wireless data service, markets its
service primarily to business customers with a need for reliable, two-way
wireless data communications in the field services and transportation markets.
The ARDIS wireless data network provides the widest breadth of coverage of any
single provider of terrestrial wireless service in the United States. The
network incorporates approximately 1,700 radio towers (base stations) that
provide service to 425 of the largest cities and towns in the United States,
including virtually all metropolitan areas. The network was designed and built
using Motorola technology to provide reliable two-way data communications, deep
in-building penetration and efficient frequency usage. The extensive coverage
and deep in-building penetration provided by the ARDIS network is attractive to
customers who desire a single service provider whose nationwide scope extends
from large metropolitan areas to smaller cities and towns. Customers use
applications such as service call dispatch, asset tracking, and peer-to-peer
communications to achieve critical business objectives resulting in increased
productivity, profitability and customer satisfaction.
As of December 31, 1997, ARDIS had approximately 55,400 units (including
approximately 6,500 units, common to both American Mobile and ARDIS) operating
on its network.
AMRC
American Mobile Radio Corporation, a subsidiary of AMRC Holdings, Inc. (together
with American Mobile Radio Corporation, "AMRC") has been granted a license from
the Federal Communications Commission (the "FCC") to construct, launch and
operate a domestic satellite system for the provision of satellite-based digital
audio radio service ("DARS"). AMRC made a payment of $90 million to fully pay
for its DARS license in October 1997. The Company currently owns 80% of the
capital stock of AMRC. The remainder of AMRC is owned by WorldSpace, Inc.
("WorldSpace"), a leading international DARS company that is planning to provide
DARS service to Latin America, Africa and Asia. Through its investment in AMRC,
WorldSpace has an option to increase its ownership in AMRC to 72%, subject to
FCC approval. It is anticipated that the proceeds resulting from the exercise of
the option will not be available to the Company. As previously reported, on
March 20, 1998, AMRC entered into an agreement with Hughes Space and
Communications International, Inc. to build two new generation, high-powered
HS-702 geostationary orbit satellites for its digital radio service, with
service anticipated to begin in the year 2000.
History
The Company, a Delaware corporation, was incorporated in May 1988 by eight of
the initial applicants for the first mobile satellite services license,
following a determination by the FCC that the public interest would best be
served by granting the license to a consortium composed of all willing and
qualified
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applicants. In March 1991, the Company transferred the mobile satellite services
license to its wholly owned subsidiary, AMSC Subsidiary Corporation.
In August 1989, the FCC authorized the Company to construct, launch and operate
a mobile satellite communications system. For the system's mobile links, the FCC
assigned to the Company the exclusive license to 30 MHz of L-band spectrum,
subject to international frequency coordination. L-band spectrum is considered
advantageous for mobile communications services because it is less affected by
radio propagation difficulties than are higher frequencies. The FCC licensed the
Company to provide a full range of mobile voice, data and dispatch
communications services via satellite to land, air and sea-based customers in
the Service Area.
The Acquisition
On March 31, 1998, the Company acquired ARDIS (the "Acquisition") in accordance
with a purchase agreement (the "Purchase Agreement") entered into with Motorola
on December 31, 1997. Subject to certain purchase price adjustment provisions,
the Company acquired ARDIS for a purchase price of $100 million (the "Purchase
Price") paid as follows: (i) $50 million in cash, paid at the closing of the
Acquisition; (ii) approximately $38 million in shares of the Company's Common
Stock, paid at the closing of the Acquisition; and (iii) approximately $12
million in shares of the Company's Common Stock and warrants for shares of
Company's Common Stock only if, at the annual meeting of Company's stockholders,
the stockholders approve the issuance of the additional shares and warrants to
Motorola. The holders of approximately 76% of Company's Common Stock outstanding
and entitled to vote thereon have agreed with Motorola that they will vote for
approval of such issuance.
In connection with the Acquisition, the Company and its subsidiaries entered
into agreements with respect to three financings and refinancings: (1) $335
million of Units consisting of 12 1/4% Senior Notes due 2008 and Warrants to
purchase shares of Common Stock of the Company; (2) a $100 million Revolving
Credit Facility and a $100 million Term Loan Facility (collectively, the "New
Bank Financing"); and (3) a $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."
Upon completion of the Acquisition, ARDIS became a wholly-owned subsidiary of
AMSC Acquisition Company, Inc. ("Acquisition Company"). In connection with the
Acquisition, the Company also transferred all of its rights, title and interest
in three additional subsidiaries -- American Mobile Satellite Sales Corporation,
AMSC Subsidiary Corporation and AMSC Sales Corporation, Ltd. -- to Acquisition
Company. As a result, each of these entities is a wholly-owned subsidiary of
Acquisition Company that, in turn, operates as a wholly-owned subsidiary of the
Company. The Company continues to retain its direct ownership interest in AMRC.
The full benefits of a combination of American Mobile and ARDIS as a result of
the Acquisition will require the integration of each company's administrative,
finance, sales and marketing organizations, the coordination of each company's
sales efforts and the implementation of appropriate operational, financial and
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management systems and controls. There can be no assurance that the Company will
be able to integrate the operations of American Mobile and the ARDIS network
successfully or, if successful, that such integration will yield the expected
benefits to the Company.
The Network
Following the Acquisition, the Company's integrated network consists of (i) a
satellite in geosychronous orbit with coverage of the continental United States,
Alaska, Hawaii, Puerto Rico, the U.S. Virgin Islands and U.S. coastal waters and
airspace, and (ii) the largest two-way terrestrial data network in the United
States with coverage of over 425 of the largest cities and towns in the United
States, including virtually all metropolitan areas. The network provides a wide
range of mobile data and voice services in multi-mode and single-mode
configurations.
Users of the Company's terrestrial and satellite communications network access
the network through subscriber units that may be portable, mobile or stationary
devices. Generally, subscriber units enable either data or voice communications
and are designed to operate over either the terrestrial data-only network or the
satellite network, which provide both voice and data communications. In
addition, the Company's multi-mode subscriber equipment is designed to provide
least-cost routing of data messages over both the terrestrial and satellite
networks.
Subscriber units receive and transmit wireless data or voice messages from
either terrestrial base stations or the Company's satellite, MSAT-2. Terrestrial
messages are routed to their destination via Company-owned data switches, which
connect to the public data network. Satellite messages are routed to their
destination via satellite data and voice switches, located at the Company's
headquarters, which connect to the public data and switched voice networks. A
data switch located in Cedar Rapids links the terrestrial and satellite networks
for the delivery of the Company's multi-mode data service.
The Company's terrestrial network delivers superior in-building penetration,
completion rates and response times compared to other wireless data networks
through the use of a patented single frequency reuse ("SFR") technology
developed by Motorola. SFR technology enables multiple base stations in a given
area to use the same frequency. As a result, a message sent by a subscriber can
be received by a number of base stations. This technology contrasts with more
commonly used multiple frequency reuse ("MFR") systems which provide for only
one transmission path for a given message at a particular frequency. In
comparison with MFR systems, the Company's technology provides superior
in-building penetration and response times and enables the Company to
incrementally deploy additional capacity as required, instead of in larger
increments as required by most wireless networks.
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Business Strategy
The Company's objective is to maximize its revenues by delivering value-added
services to end users in specific market segments. To meet this objective and to
capitalize upon the competitive advantages resulting from the combination of
American Mobile and ARDIS, the Company intends to: (i) offer business customers
a broad range of nationwide wireless service and end-to-end data solutions; (ii)
integrate and leverage the advantages of its nationwide terrestrial and
satellite data networks; (iii) enhance market penetration by lowering customers'
"total cost of ownership;" and (iv) expand the use of alternate distribution
channels to accelerate network loading.
Offer Business Customers a Broad Range of Nationwide Wireless Solutions. The
Company believes its corporate customers prefer a single-source service provider
capable of delivering a broad range of efficient and cost effective solutions to
meet their need for mobile wireless communications. The Company believes that it
has and will continue to have a unique strategic advantage in being able to
provide one-stop shopping across a broad range of products, including two-way
paging and advanced messaging, packaged e-mail and LAN solutions, custom data
applications, dual mode terrestrial/satellite data, and satellite voice and
dispatch functions.
Integrate and Leverage Network Advantages. The Company has spent over a decade
developing and deploying its nationwide terrestrial and satellite networks and
now seeks to accelerate growth by leveraging its integrated network. Unlike many
competitors with plans to build out limited city-wide or regional terrestrial
networks or to launch satellites, the Company's technology infrastructure is in
place and operational today, with future network expansion requirements arising
primarily from increased customer demand. The Company believes that this
integrated terrestrial/satellite network provides key competitive advantages
currently unmatched by any competitor: virtually 100% nationwide geographic
coverage, guaranteed message delivery, and, in the areas covered by the ARDIS
network, deep in-building penetration. By integrating the operations of its
terrestrial and satellite networks, the Company expects to achieve operating
efficiencies and economies of scale that it believes will lead to improved
operating margins.
Enhance Market Penetration By Reducing Customers' "Total Cost of Ownership."
Historically, the most significant obstacle to the implementation of
enterprise-wide wireless data applications has been the relatively high total
cost of ownership. The total cost of ownership is comprised of three primary
elements: the cost of the subscriber unit, the required investment in software
development, and the monthly cost of network access and usage. In most of the
Company's applications, the monthly cost of network access and usage has been
the least prohibitive of these elements. Until recently, subscriber unit costs
in excess of $3,000 and custom software investments of up to several million
dollars were common. By working with business partners and vendors, and making
strategic software investments, the Company has succeeded in significantly
lowering customers' total cost of ownership. New subscriber units, including
low-cost two-way messaging units and laptop modem cards, are now available for
$500 or less and substantial development work is underway with several of the
Company's vendors to accelerate reductions of equipment cost, unit weight and
size. In the future, the Company expects that the increased subscriber unit
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volumes associated with recent large contract awards will lead to additional
unit price reductions. In addition, customers can now use off-the-shelf software
applications that are relatively inexpensive, or in the case of the Company's
two-way messaging service, free. The Company believes that these lower price
points will accelerate the adoption of the Company's services in its historical
markets, and will enable the Company to develop new markets, such as wireless
point-of-sale and telemetry.
Expand Alternate Distribution Channels. The Company sells it service primarily
through a direct sales force and resellers. In order to accelerate network
loading, the Company expects to expand its use of indirect distribution
channels. To date, the Company has entered into agreements with resellers to
penetrate markets where such resellers have a market presence and significantly
greater resources than the Company, including dedicated sales personnel. In
addition, the Company is in the process of establishing relationships with
existing paging companies, paging resellers, and other targeted distribution
partners to market two-way guaranteed messaging services. The Company believes
that the resale of its network is an alternative that paging companies will
consider when assessing a move from one-way to two-way messaging because it may
reduce or eliminate the need for additional investment in network
infrastructure. The Company intends to utilize paging companies and other
similar partners with well established distribution capabilities to develop
markets outside of the Company's historical market segments.
Marketing and Distribution
The Company markets its services through four primary distribution channels:
direct sales, vertical resellers, horizontal resellers and dealers.
Direct Sales
The Company has a direct sales force who focus on the requirements of business
customers. This sales organization is comprised of a national accounts group
that profiles and targets specific Fortune 500 accounts, and a network of
regionally based representatives who specialize in specific industry segments.
Sales to national account targets generally require a sustained marketing effort
lasting several months. Prior to making a buying decision, a majority of the
accounts exercise a due diligence process where competitive alternatives are
evaluated. The Company's employees often assist in developing justification
studies, application design support, hardware testing, planning and training.
Vertical Resellers
In order to penetrate quickly certain market segments characterized by
specialized technical requirements and/or unique business applications, the
Company leverages the capabilities of specialized distribution partners. These
relationships enable the Company to penetrate new market segments without
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investing in the product, training and development requirements typically
associated with entry into a new market segment.
The Company's resale arrangements are specifically designed to accelerate entry
into the wireless telemetry (utility and alarm monitoring), point-of-sale,
maritime and government market segments. These business partners are responsible
for development of the end-user solutions, and purchase capacity on the
Company's data network.
Value added service providers ("VASPs") represent one of the Company's primary
distribution channels for maritime satellite telephony. VASPs purchase bulk
minutes, resell at a margin, set the price, take risk of collection and perform
all service and billing functions.
The Company currently utilizes three specialized government resellers, one of
which has included the Company's products on the general services administration
schedule. The Company intends to expand the distribution opportunities for its
terrestrial data products by also including them in these programs.
The Company also has various private network customers ("PNCs") that purchase
bulk satellite capacity from the Company in the form of dedicated capacity
increments or channels. PNCs use this capacity to support their own proprietary
networks and products, and maintain all associated business risks and
responsibilities.
Horizontal Resellers
The Company utilizes a series of resale relationships designed to reach a large
segment of the mobile workforce that does not require integration with
centralized systems, but still has a broad need for two-way messaging and
wireless e-mail access. Because these applications are generic across numerous
industries, the segment is horizontally addressable, and requires some level of
retail presence. To achieve this presence, the Company is in the process of
establishing relationships with existing paging companies, paging resellers and
other targeted distribution partners to market two-way guaranteed messaging
services. The Company also maintains relationships with manufacturers of
personal handheld computing devices, who include the Company's marketing
material with the device packaging to provide the purchaser the option of
wirelessly enabling a handheld computing device.
Dealer Channels
The Company also uses land mobile and maritime dealers who distribute the
Company's nationwide dispatch and satellite telephony products. These dealers
typically have strong business relationships with regional public safety
entities, as well as with smaller field service fleets and maritime users. The
Company believes that opportunities exist to capitalize on the strengths of this
channel by introducing a low cost terrestrial data device with minimum
integration requirements. Typically these dealers serve as agents for sales and
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service and do not set pricing or provide billing and collection services. These
dealers are generally compensated with a modest percentage of the service
revenue for which they are responsible.
Customer Concentration
After giving pro forma effect to the Acquisition, three existing customers, IBM,
NCR and Pitney Bowes, accounted for 26%, 7% and 5%, respectively, of the
Company's recurring service revenue for the twelve months ended December 31,
1997. The loss of one or more of such customers, or any event, occurrence or
development which adversely affects the relationship between the Company and
such customer could have a material adverse effect upon the Company.
Equipment; Supplier Relationships
The Company has contracts with multiple vendors to supply equipment
configurations designed to operate on each of its operating platforms. These
devices are designed to meet the requirements of specific end-user applications.
The Company continues to pursue enhancements to these devices that will result
in additional desirable features and reduced cost of ownership. Although many of
the components of the Company's products are available from a number of
different suppliers, the Company does rely upon a few key suppliers.
In connection with its mobile data communications service, the Company presently
has an agreement with Trimble Navigation, Limited to supply its satellite data
unit. In addition, multi-mode data terminals are sourced from Rockwell Collins,
Inc. The Company also has contracted with Vistar, Inc., a Canadian company, for
the development of a new multi-mode terminal. The new terminal will incorporate
design changes that will simplify the installation process and allow for the
addition of enhancements in a modular fashion. The Company believes that the
price of multi-mode terminals will continue to decline in the coming years.
There are currently over 30 different types of subscriber units available from
15 manufacturers that can operate on the terrestrial network. Examples of
portable subscriber units include ruggedized laptop computers, small external
modems, handheld or palmtop "assistants," pen based "tablets," and two-way
messaging devices, such as the RIM Interactive PagerTM. Significant developers
of devices that are compatible with the network include Motorola, RIM and
Itronix. Motorola and RIM manufacture modems designed to be integrated into
handheld field service terminals, telemetry devices, utility monitoring and
security systems as well as other computing systems. RIM recently has developed
the Interactive PagerTM that supports the Company's two-way messaging service.
Itronix manufactures the XC-6000, a fully ruggedized laptop computer with a
standard keyboard and an integrated wireless modem.
Mobile satellite voice telephones are offered in a number of different
configurations that deliver a variety of features and options to meet specific
market needs. Mobile satellite telephones are currently available in land mobile
vehicle installed, fixed site, maritime, aeronautical, dual mode voice/direct to
home satellite television and fully transportable (i.e., battery powered and
packaged in a briefcase) configurations. Subscriber equipment for satellite
telephone service and nationwide dispatch service includes data interface ports
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to allow connection to communications accessories such as personal computers,
and global positioning satellite ("GPS") tracking devices. Recent enhancements
allow users to utilize the dispatch product remotely from the vehicle, via a
wireless tether. American Mobile continues to add enhancements based upon
customer requirements, and has several initiatives that could result in the
reduced cost of end-user devices. The primary suppliers for the voice equipment
are Westinghouse Electric, Inc. ("Westinghouse") and Mitsubishi Electric
Corporation.
Tandem computer provides the ARDIS network switching computers under a
multi-year lease that extends through the year 2000, while AT&T provides network
services including a nationwide wireline data network, and leased sites which
house regional ARDIS switching equipment. The Company also has a relationship
with AT&T as its vendor for switched inbound and outbound public switched
telephone network services. The satellite system terminates calls from its
telephone product via both the AT&T and Sprint networks.
ARDIS has executed multiple agreements with Motorola that provide for certain
continued support from Motorola with respect to: supply and support for the
ARDIS DataTAC network infrastructure; ongoing maintenance and service of the
ARDIS base stations; and lease administration services for approximately 37% of
ARDIS' base station site leases. Additionally, Motorola is expected to continue
to manufacture modems compatible with the ARDIS network infrastructure for use
in end-user devices.
Hughes Network Systems Ltd, of the United Kingdom, manufactures and supports the
key component to the Company's multi-mode and satellite messaging products,
which is the Land Earth Station ("LES"). There are currently four LES's
operational. The platform for the Company's voice products, the communications
ground segment ("CGS"), depends upon products from multiple vendors, most of
which are generally commercially available. Northern Telecom manufactures and
supports the core voice switch. Digital Equipment Corporation supplies the
computing platform that runs the CGS.
American Mobile jointly owns certain patents, technical data and other
intellectual property, including the final mobile terminal performance
specification ("FMPS"), developed by Westinghouse, with the Canadian mobile
satellite service provider, TMI Communications and Company, Limited Partnership
("TMI"). The Company separately owns other patents, technical data and other
intellectual property developed by Westinghouse at the Company's sole expense.
Certain of the intellectual property used in the development of the CGS is owned
by Westinghouse or licensed from others. The Company believes its ownership of
and rights to intellectual property relating to the CGS is sufficient for its
business purposes.
The ARDIS network, and certain of its competitive strengths such as deep
in-building penetration, is based upon SFR technology. Motorola holds the patent
for SFR technology. ARDIS has entered into support agreements with Motorola to
provide for certain support of the operations of the ARDIS network.
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However, there can be no assurance that Motorola will not enter into
arrangements with the Company's competitors, or that if it does, such
arrangements would not have a material adverse effect on the Company.
Satellite Lease and Purchase Agreement
As previously reported, on December 4, 1997, the Company entered into an
agreement with African Continental Telecommunications Ltd. ("ACTEL") to lease
the Company's satellite, "MSAT-2," (the "Satellite Lease agreement") for
deployment over sub-Saharan Africa. The five-year lease provides for aggregate
payments to the Company of $182.5 million. Simultaneously, the Company agreed
with TMI to acquire a one-half ownership interest in TMI's satellite, "MSAT-1,"
(the "Satellite Purchase Agreement") at an aggregate cost to the Company of $60
million, payable in equal installments over a five-year period; certain
additional payments to TMI of up to one-half of additional net payments received
are contemplated in the event that additional benefits are realized by the
Company with respect to MSAT-2 after the initial five-year lease term. Under the
Satellite Purchase Agreement, TMI and the Company will each own a 50% undivided
ownership interest in MSAT-1, will be jointly responsible for the operation of
MSAT-1, and will share certain satellite operating expenses, but will otherwise
maintain their separate business operations.
The Satellite Purchase Agreement and Satellite Lease Agreement are separate
transactions and reflect separate sets of obligations for the Company. While the
Company believes that if ACTEL defaults under the Satellite Lease Agreement, the
Company would be able to achieve the return of MSAT-2 from ACTEL to its
operation in the United States and terminate its payment obligations to TMI
under the Satellite Purchase Agreement, there can be no assurances that such
actions can be achieved. In addition, there can be no assurances that the
agreements will operate in parallel, or that the Company will not be met with
certain completion or transactional risks under the Satellite Lease Agreement.
If it is necessary for the Company to make payments under the Satellite Purchase
Agreement at a time when it is not receiving payments under the Satellite Lease
Agreement, the Company could be materially and adversely affected.
Closing under the Satellite Purchase Agreement and Satellite Lease Agreement is
subject to a number of conditions, including: United States and Canadian
regulatory approvals; a successful financing by ACTEL of at least $120 million;
completion of certain satellite testing, inversion and relocation activities
with respect to American Mobile's satellite, to support the contemplated
services over Africa; receipt of various government authorizations from
Gibraltar, South Africa and other jurisdictions to support satellite relocation,
including authorizations with respect to orbital slot and spectrum coordination;
and completion of certain system development activities sufficient to support
satellite redeployment. On March 13, 1998, the FCC provided approval of the
transactions; Canadian government coordination and approvals remain outstanding.
It is anticipated that the closing under both agreements will occur
simultaneously in the spring of 1998. It is anticipated that the net proceeds of
the Satellite Lease Agreement and Satellite Purchase Agreement will be used
primarily to repay the Company's Revolving Credit Facility, as well as to
provide the Company with additional liquidity. In addition, any amounts repaid
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from the net proceeds of the Satellite Lease Agreement and Satellite Purchase
Agreement would reduce the commitment available to the Company under the
Revolving Credit Facility. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity and Capital
Resources." While it is anticipated that these transactions would improve the
leverage of and provide additional liquidity to the Company, there can be no
assurance that such transactions will be consummated simultaneously, or at all.
Satellite Back-up and Technology
The Company presently has an agreement with TMI, the Canadian mobile satellite
licensee, for reciprocal backup, restoral and excess capacity usage ("Backup
Capacity") on the other party's satellite in the event of a satellite failure or
a need for excess capacity. In the event that the lease and redeployment of
MSAT-2 is consummated, the Company will no longer have available Backup Capacity
from MSAT-1. Each of MSAT-2 and MSAT-1 has in the past experienced certain
technological anomalies, most recently with respect to MSAT-2 in January 1998
and MSAT-1 in February 1998. While recent anomalies have involved either spare
components or ones which have not had a material impact on the Company, there
can be no assurance that either of the satellites will not experience subsequent
anomalies that could adversely affect the Company's financial condition, results
of operations and cash flows. In the event that MSAT-1 experiences anomalies of
this type or other types at a time when the Company has no back-up capacity,
there would be a material adverse effect on the Company. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations -
Liquidity and Capital Resources."
The Company, as well as TMI, has received a current recommendation from a
subcontractor to its satellite manufacturer that, pending further results from
an ongoing investigation, the satellite should be operated at modified power
management levels. The Company and its satellite manufacturer are investigating
the basis, if any, for this recommendation. Based on the information available
to date, management believes that, even if maintained, the current power
management recommendation would not have a material negative effect on the
Company's business plan within the next three to five years, based on
anticipated traffic patterns and anticipated subscriber levels. In the event
that traffic patterns or subscriber levels materially exceed those anticipated,
the power management recommendation, if maintained, could have a material impact
on the Company's long-term business plan.
MSAT-2 has an expected remaining service life of approximately eight years and
the expected remaining life of MSAT-1 is approximately ten years. This expected
remaining service life of each satellite may be affected by a number of factors.
For example, random failure of satellite components could result in damage to or
loss of MSAT-2 or MSAT-1. It is also possible that either satellite could be
damaged by electromagnetic storms or collisions with other objects, although
such occurrences are rare. Although the Company believes that the actual service
lives of both satellites may exceed their expected service lives, there can be
no assurance that MSAT-2's or MSAT-1's expected service life will be exceeded or
achieved. Although the Company has obtained in-orbit insurance against a failure
of MSAT-2 in the amount of $184 million, such insurance includes a variety of
deductibles, performance margins and exclusions and it is unlikely that any
recovery under such insurance would fully compensate the Company for losses it
would sustain in such event. Further, the proceeds from the in-orbit insurance
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must be used to repay the outstanding balance of the New Bank Financing and the
remaining proceeds, if any, would be insufficient to construct, launch and
insure the launch of a replacement satellite. There can be no assurance that
additional financing will be available to construct, launch and insure a
replacement satellite or, if available, will be available on terms favorable to
the Company. At present, there is no insurance policy in effect for MSAT-1.
Although there can be no assurance, the Company believes that it will be able to
obtain insurance with respect to its interest in MSAT-1 in connection with the
Satellite Purchase Agreement on terms substantially similar to those presently
in effect for MSAT-2. In addition, the in-orbit insurance policy is subject to
annual renewal, and there is no assurance that insurance on favorable terms and
at commercially reasonable rates will remain available for coverage of MSAT-2,
or be available for coverage of MSAT-1.
In the event that, following the satellite lease, MSAT-1 ceases to operate, the
Company would have several options to replace the lost capacity, through the
lease or purchase of capacity on certain Inmarsat satellites, or the launch of a
new satellite. However, each of these options would require substantial
lead-time and significant financing. As a result, any such delay or need for
significant funds would result in a material adverse effect on the Company.
Competition
The wireless communications industry is highly competitive and is characterized
by frequent technological innovation. The Company competes on the basis of
providing comprehensive, end-to-end solutions and a premium level of service in
the markets it serves. End-to-end solutions have been assembled working with a
select group of business partners who develop and manufacture software,
middleware and hardware components. The Company differentiates itself and
provides a premium level of service due to its unmatched geographic coverage,
in-building penetration, guaranteed message delivery, and guaranteed
reliability.
The Company competes with a full array of companies, from small startups to
Fortune 500 companies. Many of these competitors have financial, technical and
marketing resources in excess of the Company's. Because the Company competes in
several market segments with a broad range of services, competing technologies
may address one or more of the market segments. The Company has identified six
major classes of technologies or services that offer capabilities competitive
with the Company's services: Terrestrial Packetized Data; Cellular/PCS;
Specialized Mobile Radio ("SMR")/Enhanced Specialized Mobile Radio ("ESMR");
Private Systems; Paging/Narrowband PCS; and Mobile Satellite Services.
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Terrestrial Packetized Data. Companies using packetized data technologies
provide wireless data services that compete directly with a number of the
Company's data products. Packetized data technology relies on radio frequencies
to transmit short-burst data messages. Primary competitors using this technology
include RAM Mobile Data ("RAM"), Metricom, Teletrac and Cellnet. RAM, a
wholly-owned subsidiary of BellSouth enterprises, operates a terrestrial-only
network that provides data services to customers primarily in the field service,
transportation and utility industries. The Company believes that its network
provides broader coverage, and superior in-building penetration compared to
RAM's network. In addition, the Company is upgrading its network in major cities
so that it will operate at faster speeds than the RAM network. Metricom's
Ricochet service provides wireless, mobile access to the Internet, private
intranets, local area networks and e-mail. Metricom currently offers its service
in limited regions comprised of San Francisco, Seattle, Houston and Washington,
D.C. Teletrac provides primarily location and vehicle monitoring and two-way
data transfer services in major metropolitan areas and Cellnet provides wireless
meter reading services.
Cellular and PCS. Cellular and PCS services compete with the Company's satellite
and terrestrial voice and data services, and presently serve the majority of
mobile communications users in the United States, with approximately 55,000,000
units. Cellular and PCS systems operated by approximately 1,500 companies
collectively provide service throughout most of the United States, with no
single competitor providing the breadth of coverage that is available through
the Company's network. Cellular Digital Packet Data ("CDPD"), the cellular
industry's standard packet data service, is available principally in
metropolitan areas containing approximately 44% of the nation's population at
the end of 1997. PCS carriers, many of which offer short message capabilities
and expect to offer larger capacity packet data services in the near future,
presently offer service which in the aggregate covers approximately 60% of the
U.S. population.
Most cellular and PCS providers have structured their services and distribution
principally to meet switched voice service requirements of broad-market users.
However, HighwayMaster Communications, Inc. offers data and voice communications
to the long-haul trucking industry through the application of its proprietary
messaging and billing technologies to circuit-switched cellular capacity which
it purchases in bulk from a number of large cellular carriers. Differences in
equipment and service pricing and product characteristics result in minimal
direct competition between the Company's voice products and most other cellular
carriers.
Specialized Mobile Radio (SMR) and Enhanced Specialized Mobile Radio (ESMR)
Services. Within the limitations of available spectrum and technology, SMR
operators compete with the Company's voice dispatch services by providing mobile
communications services, including mobile telephone, dispatch, paging and
limited data services. For certain applications, such as mobile telephone
interconnect, SMR systems presently are less expensive than the Company's
services, although the shared channel configuration and the economics of these
systems have traditionally caused SMR systems to be less frequently utilized for
voice telephone services.
SMR radio services have been expanding rapidly over the past ten years and
converting from analog to digital technology. ESMR systems compete with the
Company's voice and data dispatch services in metropolitan areas. NEXTEL
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Communications, Inc. ("Nextel") provides ESMR services in numerous large
metropolitan service areas in the United States and is the leading provider of
SMR using digital technology, frequency reuse and lower power transmitters to
transform its current SMR service into cellular-like services, including voice
telephone services. Geotek Communications, Inc. ("Geotek") offers voice and data
communication networks for the trunked mobile radio market. Targeted primarily
to small and medium-sized businesses managing fleets of vehicles and mobile
workforces, Geotek is focused on providing metropolitan area voice and data
services. Currently, Geotek's service is available in 11 markets. Neither Nextel
nor Geotek provide nationwide voice dispatch or data services comparable to
those offered by the Company.
Private Land Mobile Frequencies. Individual companies that have chosen to
develop their own private wireless data network constitute a large percentage of
the wireless marketplace for corporate fleets. An example of such a customer is
Federal Express. While these companies already have made significant investments
in their systems, in some cases recurring maintenance, upgrade and expansion
costs, coupled with recent steps by the FCC to charge private system owners for
the use of the radio frequencies, have caused these organizations to turn to
commercial providers such as the Company.
Narrowband PCS/Enhanced Paging. There are a large number of paging companies
that offer messaging services on a regional or nationwide basis. Despite the low
cost of one-way paging, most traditional paging services do not provide
full-function two-way communications. Although some paging companies, such as
MTel, have begun to offer limited time-delayed two-way messaging services,
initial challenges in coverage, responsiveness and throughput currently limit
their adoption by the Company's targeted business customers.
Mobile Satellite Services. The Company's voice and data services face
competition from a number of companies that are selling or are developing
services using a variety of satellite technologies. The principal alternative
satellite-based communications system available to the trucking market is
Qualcomm Incorporated's ("Qualcomm") OmniTracs nationwide data service. Qualcomm
currently provides low-speed mobile data services using terminals which are
priced competitively with the Company's satellite-only terminals. Qualcomm's
OmniTracs service does not provide a terrestrial communications path or
least-cost routing capabilities similar to the Company's multi-mode product. As
a result, transmissions to and from a vehicle must be routed exclusively over a
satellite network and are subject to line of sight blocking and higher
transmission costs, limiting the product's functionality and cost-effectiveness
in segments that require urban coverage or large volumes of data transmission.
NORCOM Networks Inc. ("NORCOM") is in the process of commercially deploying a
satellite-based packet data service that competes with the Company's data
services in the transportation and field service segments. NORCOM currently
purchases channel capacity on the Company's satellite over which it operates its
network, and combines its satellite data service product with terrestrial
services provided by RAM and by the Company.
The Company's satellite services also compete for mobile maritime subscribers
with TMI, a Canadian company operating a satellite comparable to MSAT-2, and
with Inmarsat, a consortium of 70 countries
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that is authorized to provide maritime voice and data services along the North
American coasts. Because Inmarsat's current system operates at a much lower
power level than does the Company's satellite, its mobile terminals must be
equipped with antenna systems that are larger and more expensive than those
required for the Company's network. The Inmarsat system also has per minute
charges significantly higher than those charged by the Company. Comsat, the U.S.
signatory for Inmarsat, applied to the FCC for authority to provide mobile
satellite services ("MSS") in the United States through Inmarsat facilities.
TMI, which is technically capable of providing service within the United States,
has also announced its intention to provide MSS to domestic customers over
MSAT-1. Although the FCC has consistently denied Comsat's application, most
recently on January 9, 1998, there can be no assurances that Comsat, TMI, or any
other satellite provider, will not become authorized to provide MSS in the
United States (See "Regulation").
Recently, several Low Earth Orbit ("LEO") and Medium Earth Orbit ("MEO")
satellite systems have been announced or have commenced deployment. Examples of
these systems, which are more complex and costly than the Company's
geosynchronous network, include Iridium LLC; Globalstar Telecommunications, LTD,
and ICO Global. When deployed, these systems will offer certain advantages over
the Company's voice telephony service, including the ability to support small
handheld telephones and, in certain instances, reduced transmission delay.
However, the Company does not expect that these systems will provide a
nationwide dispatch service or support data service in excess of 2,400 bps.
Moreover, these companies are focused primarily on consumer-oriented and global
traveler applications and not the business markets which are the focus of the
Company. Further, because these companies will deploy satellite systems, they
are not expected to compete against urban in-building data services provided by
the Company.
In addition to relatively complex LEO systems designed to provide mobile voice
services, there are a number of proposals for relatively simple "little" LEO
systems that would provide only low-speed packet data services. These systems,
including ORBCOMM Global, L.P., Final Analysis and LEO One USA, have access to
comparatively limited spectrum and are expected to compete for customers who
require specialty applications such as asset tracking services for unpowered
trailers.
Regulation
American Mobile's satellite system and ARDIS' ground-based two-way wireless data
system are regulated to varying degrees at the federal, state, and local levels.
Various legislative and regulatory proposals under consideration from time to
time by Congress and the FCC have in the past materially affected and may in the
future materially affect the telecommunications industry in general, and
American Mobile and ARDIS in particular. In addition, many aspects of regulation
at the federal, state and local level currently are subject to judicial review
or are the subject of administrative or legislative proposals to modify, repeal,
or adopt new laws and administrative regulations and policies. The following is
a summary of significant laws, regulations and policies affecting the operation
of American Mobile's and ARDIS' businesses.
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General
The ownership and operation of American Mobile's 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 that spectrum. American Mobile and ARDIS operate
pursuant to various licenses granted by the FCC.
Both American Mobile and ARDIS are Commercial Mobile Radio Service ("CMRS")
providers and therefore are regulated as common carriers. The companies must
offer service at just and reasonable rates on a first-come, first-serve basis,
without any unjust or unreasonable discrimination, and they are subject to the
FCC's complaint processes. The FCC has forborne from applying numerous common
carrier provisions of the Communications Act to CMRS providers. In particular,
American Mobile and ARDIS are not subject to traditional public utility
rate-of-return regulation, and the companies are not required to file tariffs
with the FCC for their domestic services.
As providers of interstate telecommunications services, American Mobile and
ARDIS are required to contribute to the FCC's universal service fund, which
supports the provision of telecommunications services to high-cost areas, and
establishes funding mechanisms to support the provision of service to schools,
libraries, and rural health care providers. Under the FCC's current rules,
American Mobile and ARDIS are required to contribute a percentage of their
end-user telecommunications revenues resulting from the sale of
telecommunications services. The extent of this obligation is subject to change.
A number of parties have filed petitions for review of the FCC's universal
service policy and these appeals have been consolidated in the U.S. Court of
Appeals for the Fifth Circuit. Both companies may also be required to contribute
to state universal service programs. The requirement to make these payments, the
amount of which in some cases may be subject to change and is not yet
determined, may have a material adverse impact on the conduct of their
businesses.
American Mobile and ARDIS are subject to the Communications Assistance for Law
Enforcement Act ("CALEA"). Under CALEA, American Mobile and ARDIS must ensure
that law enforcement agencies can intercept certain communications transmitted
over their networks. American Mobile and ARDIS must also ensure that law
enforcement agencies are able to access certain call-identifying information
relating to communications over their networks. The companies must comply with
the CALEA requirements and any rules subsequently promulgated by October 25,
1998 or face possible sanctions, including substantial fines and possible
imprisonment of company officials. The FCC currently has a proceeding underway
to establish rules for the implementation of these requirements. This proceeding
primarily addresses record-keeping and security-related issues. The
telecommunications industry, which has been charged with establishing detailed
technical standards for compliance with CALEA's requirements, has not yet been
able to adopt final standards that are acceptable to law enforcement. While both
Congress and the FCC have the authority to extend the compliance deadline, both
have thus far declined to do so. It is not clear whether the companies will be
able to comply with CALEA's requirements or will be able to do so in a timely
manner. CALEA establishes a federal fund to compensate telecommunications
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carriers for all reasonable costs directly associated with modifications
performed by carriers in connection with equipment, facilities, and services
installed or deployed on or before January 1, 1995. For equipment, facilities,
and services deployed after January 1, 1995, the CALEA fund is supposed to
compensate carriers for any reasonable costs associated with modifications
required to make compliance "reasonably achievable." It is possible that all
necessary modifications will not qualify for this compensation and that the
available funds will not be sufficient to reimburse the companies. The
requirement to comply with CALEA could have a material adverse effect on the
conduct of their businesses.
As a matter of general regulation by the FCC, both of the companies are subject
to, among other things, payment of regulatory fees, restrictions on the level of
radio frequency emissions of their systems' mobile terminals and base stations,
and "rate integration" regulations requiring that providers of interstate
interexchange telecommunications services charge the same rates for these
services in every state, including Puerto Rico and the U.S. Virgin Islands. Any
of these regulations may have an adverse impact on the conduct of their
businesses.
The FCC licenses of American Mobile and ARDIS are subject to restrictions in the
Communications Act that (i) certain FCC licenses may not be held by a
corporation of which more than 20% of its capital stock is directly owned of
record or voted by non-U.S. citizens or entities or their representatives and
(ii) that no such FCC license may be held by a corporation controlled by another
corporation ("indirect ownership") if more than 25% of the controlling
corporation's capital stock is owned of record or voted by non-U.S. citizens or
entities or their representatives, if the FCC finds that the public interest is
served by the refusal or revocation of such license. However, with the
implementation of the Basic Telecommunications Agreement ("BTA"), negotiated
under the auspices of the World Trade Organization ("WTO") and to which the
United States is a party, the FCC will presume that indirect ownership interests
in excess of 25% by non-U.S. citizens or entities will be permissible to the
extent that the ownership interests are from WTO-member countries. The BTA took
effect on February 5, 1998, and the FCC's implementing regulations took effect
on February 9, 1998.
American Mobile
American Mobile is licensed by the FCC to provide a broad range of mobile voice,
data and dispatch 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 and U.S. coastal waters and airspace.
American Mobile is also authorized to provide fixed site voice and data services
via satellite to locations within this service area, so long as such services
remain incidental to American Mobile's mobile communications services. American
Mobile is authorized to build, launch and operate three geosynchronous
satellites in accordance with a specified 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
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a 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 authorizations are likely to be extended in due
course to correspond to the useful lives of the satellites and that new licenses
will be granted for replacement satellites, there is no assurance of such
extension or grant.
American Mobile's current foreign ownership level, for which the indirect
ownership limits are applicable, is approximately 21%. Singapore, which is the
domicile of Singapore Telecom, one of American Mobile's largest shareholders, is
a WTO-member country.
On March 12, 1998, the FCC granted American Mobile's application requesting the
modification of its license to permit American Mobile to implement the Satellite
Purchase Agreement and Satellite Lease Agreement. This proceeding was contested,
and the opponents to this application may seek review of this grant. In
addition, this grant is conditioned upon and subject to modification as
necessary to comply with any subsequent agreement between representatives of the
governments of Canada and the United States concerning shared use of MSAT-1.
MSAT-2, like MSAT-1, is designed to be able to operate over the
1530-1559/1631.5-1660.5 MHz bands (the "L-band"). American Mobile is currently
licensed to operate in the 1544-1559/1645-1660.5 MHz bands (the "upper L-band").
The FCC has designated American Mobile as the licensee for both MSS and
Aeronautical Mobile Satellite (Route) Service ("AMS(R)S"). AMS(R)S includes
satellite communications related to air traffic control, as well as aeronautical
safety-related operational and administrative functions. As a condition to its
authorization, American Mobile is required by the FCC to be capable of providing
priority and preemptive access for AMS(R)S traffic in the upper L-band and to be
interoperable with and capable of transferring AMS(R)S traffic to international
and foreign systems providing such service. American Mobile currently
anticipates it will be able to meet these requirements without any material
adverse effect on its business. If American Mobile is unable to meet these
requirements, the FCC may authorize and give priority spectrum access to one or
more additional satellite systems that meet the specified requirements.
American Mobile has applied for authorization to operate in the additional
1530-1544/1631.5-1645.5 MHz bands (the "lower L-band"). If American Mobile is
assigned spectrum in the lower L-band, it will be required by the FCC to provide
similar priority and preemptive access in that spectrum to maritime distress and
safety communications. With respect to its mobile voice terminals, American
Mobile currently anticipates it will be able to meet this requirement without
any material adverse effect on its business. The Federal Aviation Administration
("FAA") filed comments, however, in connection with American Mobile's
application to operate up to 30,000 mobile data terminals that were transitioned
from leased space segment to MSAT-2 in late 1995, stating its concern that the
mobile data terminals cannot be operated in compliance with American Mobile's
obligation to provide priority and preemptive access in the upper L-band. The
FAA has proposed that American Mobile operate the mobile data terminals in the
lower L-band. American Mobile has received successive six-month grants of
special temporary authority ("STA"), under a two-year waiver of the FCC's rules
on priority and preemptive access, to operate up to 15,100 mobile data terminals
in the lower L-band. This number was increased to 33,100 terminals pursuant to
American Mobile's acquisition of the mobile data equipment and services
previously licensed to Rockwell. The two-year waiver expired on August 1, 1997,
but remains in effect while American Mobile's request for a two-year extension
of that waiver is pending at the FCC. American Mobile will need additional
authority to increase the number of mobile data terminals that it is authorized
to operate if it is to fulfill contracts with GE Logisticom and others. American
Mobile will also need permission from the FCC to operate mobile data terminals
with a different transmission design than those operated under its current lower
L-band authorization. Transmissions from these terminals require a wider band
width than do transmissions from American Mobile's existing terminals. There can
be no assurance that American Mobile will continue to receive authority to
operate these new mobile data terminals or any other additional mobile data
terminals in the lower L-band.
American Mobile's mobile terminal authorizations are subject to compliance with
certain requirements regarding interference protection to the Global Positioning
System ("GPS"). With the consent of the FAA, the FCC granted American Mobile's
application subject to certain conditions, including that the grant may be
modified after the interference issue is studied. The FCC is now considering a
proposal from the National Telecommunications and Information Administration to
impose more stringent limits on the out-of-band emissions from certain mobile
terminals, including those used in connection with American Mobile's system, in
order to protect GPS and the Russian Global Navigation Satellite System
("Glonass"). This proposal would require that mobile terminals used on American
Mobile's system be manufactured according to a new design by 2002, and that
existing terminals and any terminals not meeting the new specifications be
retired or retrofitted by 2005. American Mobile has opposed this proposal. If
adopted by the FCC, this policy could have a material adverse effect on American
Mobile's business.
American Mobile's license authorizes MSAT-2 to operate using certain telemetry,
transfer and control frequencies in the Ku-band, and, under the Satellite
Purchase Agreement, American Mobile would operate MSAT-1 using similar
frequencies. American Mobile operates MSAT-2 at the 101 degrees W.L. orbital
location, and, under the Satellite Purchase Agreement, would also operate MSAT-1
at 101 degrees W.L. GE American Communications, Inc. ("GE American"), also
operates a satellite at the 101 degrees W.L. orbital location. American Mobile
and GE American have an agreement covering both MSAT-1 and MSAT-2 that may
require American Mobile to modify its operations or make certain payments to GE
American if American Mobile's operations cause interference to those of GE
American. While there can be no assurances, the Company does not anticipate any
interference in the operations of either MSAT-1 or MSAT-2 and those of GE
American.
American Mobile's subscriber equipment will operate in L-band frequencies that
are limited in available bandwidth. The feeder-link earth stations and the
network communications controller of the CGS operate in the more plentiful fixed
satellite service Ku-band frequencies. Of the 30 MHz in the upper L-band
frequencies, American Mobile is currently licensed to operate in the
1544-1559/1645.5-1660.5 MHz bands. Of the 30 MHz assigned to American Mobile by
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the FCC, one MHz is limited to AMS(R)S and one-way paging and two MHz are
limited to distress and safety communications. American Mobile does not plan to
operate on these three MHz of bandwidth.
In June 1996, the FCC issued a notice of proposed rulemaking proposing to assign
to American Mobile the first 28 MHz of internationally coordinated L-band
spectrum from either the upper or lower portion of the MSS L-band. Under the
FCC's proposal, American Mobile would have first priority access to use the
lower L-band spectrum as necessary to compensate for spectrum unavailable for
coordination in the upper L-band. In the event the United States is able to
coordinate more than 28 MHz of L-band spectrum, the FCC has proposed allowing
other applicants to apply for assignment of those frequencies. Certain entities
have filed with the FCC petitions to deny American Mobile's application and
comments opposing the assignment of additional frequencies to American Mobile.
While there can be no assurances, American Mobile believes the FCC is likely to
grant American Mobile's application.
In the Ku-band frequencies, American Mobile is currently licensed to operate
MSAT-2 using 200 MHz within the bands 10.75-10.95 GHz for downlink transmissions
and 13.0-13.15 GHz and 13.2-13.25 GHz for uplink transmissions. American Mobile
has applied for authority to operate using an additional 200 MHz of spectrum
within the same bands.
Spectrum availability, particularly in the L-band, is a function not only of how
much spectrum is assigned to American Mobile by the FCC, but also the extent to
which the same frequencies are used by other systems in the North American
region, and the manner of such use. All spectrum use must be coordinated with
other parties that are providing or plan to provide mobile satellite-based
communications in the same geographical region using the same spectrum. At this
time, the other parties with which spectrum use must be coordinated include
Canada, Mexico, the Russian Federation and Inmarsat.
Use of the spectrum is determined through a series of negotiations between the
United States government and the other user agencies, pursuant to the rules and
regulations of the International Telecommunication Union ("ITU"). For the past
several years, each of the countries and international organizations that have
used or will use L-band frequencies within the North American region have been
meeting regularly to negotiate and coordinate their current and future use of
that spectrum. American Mobile estimates that international coordination will
make approximately 20 MHz of L-band spectrum available to the United States for
MSAT-2. Since the coordination process involves many parties and there is
uncertainty about the total outcome, the actual amount of spectrum available may
be more or less than that estimated. In addition, the proposed Satellite Sharing
Agreement may make the coordination of spectrum for American Mobile's system
more difficult. Some of the spectrum that may be available to American Mobile
may include a portion of the 28 MHz lower L-band spectrum adjacent to the
frequencies already assigned to American Mobile by the FCC.
The ITU's Radio Regulations include a table of frequency allocations that
prescribe the permitted uses of the radio spectrum. As a result of the ITU
satellite plan for parts of the Ku-band, there also may be restrictions on
American Mobile's ability to deploy feederlink earth stations in Alaska, Hawaii,
Puerto Rico, and the U.S. Virgin Islands.
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During the course of the licensing process for American Mobile and several times
since, the FCC has stated that there is only enough spectrum in the MSS L-band
for the FCC to authorize a single MSS system to provide service in the United
States. In 1995, however, Comsat applied for authority to provide MSS in the
United States in the L-band over the Inmarsat satellite system. Comsat
subsequently filed an application seeking a blanket authorization for the
operation of 5,000 mobile terminals in the United States, as well as a request
for an STA to operate 50 mobile terminals in the United States. On January 9,
1998, the FCC denied Comsat's request for an STA and required that Comsat amend
its underlying applications to conform with the requirements established in the
FCC's November 1997 order on market access by foreign-licensed satellite
systems. This order conforms the FCC's regulations with the BTA and makes it
easier for foreign satellite systems from WTO-member countries to access the
United States market, while at the same time making clear that the FCC may deny
access to such satellite applicants on the basis of spectrum availability,
applicants' technical, legal, or financial qualifications, or foreign or
domestic policy factors. The order also requires Comsat to make an appropriate
waiver of immunity from any suit as part of any application to provide domestic
services over Inmarsat's system. On January 12, 1998, Comsat filed an appeal of
this order with the U.S. Court of Appeals for the D.C. Circuit, and American
Mobile is opposing this appeal as an intervenor. On February 6, 1998, Comsat
filed an application for review of the FCC's denial of its request for an STA,
and a petition for waiver of the FCC's new market access rules to permit it to
offer MSS on a temporary basis in the United States. American Mobile has opposed
these filings.
In its January 9, 1998 denial of Comsat's STA request, the FCC stated that it
would be willing to authorize Comsat to provide international service if Comsat
amended its blanket license application to show that service through its
terminals and Inmarsat's MSS system could be limited to international traffic.
Comsat has amended its application in order to make this showing. American
Mobile has opposed this application. In addition, Comsat has applied for
authority under Section 214 of the Communications Act to provide satellite
paging and tracking services in the United States. American Mobile has also
opposed this application.
TMI, which is technically capable of providing service within the United States,
has also announced its intentions to provide MSS to domestic customers over
MSAT-1. On February 10, 1998, the FCC granted a thirty-day STA to SatCom
Systems, Inc. for the testing of up to 30 mobile terminals in the United States
using TMI's system. On March 10, 1998, SatCom filed a request for an additional
STA of 90 days for further testing, and also requested that the scope of this
STA be expanded to permit it to operate up to 500 mobile terminals for 180 days
on a private carrier so that it may conduct U.S. marketing trials. SatCom
simultaneously filed an application for a blanket license to operate up to
25,000 mobile terminals in the United States over MSAT-1 on a permanent basis.
American Mobile will oppose SatCom's request for an expanded STA to operate up
to 500 mobile terminals for 180 days and SatCom's application for permanent
authority to operate mobile terminals in the United States.
On January 30, 1998, Kitcomm Satellite Communications Ltd. ("Kitcomm") filed a
letter of intent with the FCC to provide MSS to U.S. customers over its proposed
foreign-licensed satellite system. Kitcomm proposes to provide two-way remote
data collection, tracing, and messaging services over a global system in the
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lower L-band at 1525-1530/1626.5-1631 MHz. In order to provide domestic service,
Kitcomm will also have to request authority to operate mobile terminals in the
United States. American Mobile will oppose any FCC application by Kitcomm that
would reduce the spectrum available to American Mobile either directly or as a
result of international frequency coordination.
In addition to providing additional competition to American Mobile, a grant of
domestic authority by the FCC to one of these foreign systems would
significantly increase the demand for spectrum in the international coordination
process and could adversely affect American Mobile's business.
American Mobile is operating under waivers of certain FCC rules. In 1996, the
FCC issued an order requiring all CMRS providers to offer what are known as
"enhanced 9-1-1 services" including the ability to automatically locate the
position of all transmitting mobile terminals. American Mobile would not have
been able to offer this automatic location information without adding
substantially to the cost of its mobile equipment and reconfiguring its CGS
software. The FCC decided not to impose specific new requirements on MSS
providers, including American Mobile, at that time. The FCC did state its
expectation that such providers eventually would be required to provide
"appropriate access to emergency services." A decision to impose this
requirement on MSS providers could have a material adverse effect on American
Mobile.
The FCC enacted "rate integration" regulations requiring that providers of
interstate interexchange telecommunications services charge the same rates for
these services in every state, including Puerto Rico and the U.S. Virgin
Islands. American Mobile has opposed the imposition of this rate integration
requirement on its MSS system, so that it may preserve the flexibility to charge
more for service in areas covered by satellite beams that require more satellite
power. The FCC has denied American Mobile's request for a permanent exemption
from its rate integration requirement, but has not yet ruled on American
Mobile's request for a temporary waiver of a year or more. The FCC has granted
American Mobile an interim waiver from its rate integration requirement until
its decision on American Mobile's temporary waiver request.
ARDIS
ARDIS' wireless data network consists of base stations licensed in the Business
Radio and Specialized Mobile Radio Service, all operating in the 800 MHz
frequency band. The ARDIS system is interconnected with the public switched
network.
The FCC's licensing regime in effect when it issued ARDIS' licenses provided for
the issuance of individual licenses for specific channels at specific sites.
With respect to the part of the band in which all of ARDIS' base stations
operate, however, the FCC has implemented a new licensing regime. The new
licensing regime involves the auctioning of licenses for specific channels for
wide geographic areas, within which the licensee will have substantial
flexibility to operate any number of base stations, including base stations that
may operate on the same channels as incumbent licensees such as ARDIS. The FCC
has proposed to conduct the auctions for additional channel capacity of the kind
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used by ARDIS beginning in the third quarter of 1998. The FCC proposes to
prohibit the new geographic licensees from causing interference to incumbents,
but there is concern that such interference may occur and that practical
application of these rules is uncertain.
ARDIS believes that it has licenses for sufficient channels to meet its current
needs for capacity. To the extent that it needs additional capacity, it may be
required to either participate in the upcoming auctions or acquire channels from
other licensees. As part of its new licensing regime, the FCC permits a
wide-area geographic licensee, with prior FCC approval, to sell a portion of its
geographic area to another entity. This partitioning authority may increase
ARDIS' flexibility to operate additional base stations, but the practical
utility of this option is uncertain at this time.
ARDIS operates its system under a number of waivers of the FCC's technical
rules, including rules on station identification, for-profit use of excess
capacity, system loading, and multiple station ownership. Several of these
waivers were first obtained individually by IBM and Motorola, which operated
separate wireless data systems until forming the ARDIS joint venture in 1990.
The FCC incorporated a number of these waivers into its regulations when it
implemented Congress' statutory provision creating the CMRS classification, and
ARDIS no longer requires those waivers. On June 5, 1996, the FCC waived its
one-year construction requirement and granted ARDIS extensions of time to
complete the buildouts of approximately 190 sites, as required to maintain
previously granted licenses. As of March 25, 1998, ARDIS intends but has yet to
construct 104 of these sites. The extended construction deadlines vary by site
between June 27, 1998 and March 31, 1999. Failure to complete the buildouts in a
timely manner could result in a loss of licenses for such sites from the FCC. In
addition, at 11 of 104 uncompleted sites ARDIS is required to erect a new tower,
and there is no assurance that local zoning regulations will not affect the
timetable for the completion of these sites.
The foregoing does not purport to describe all present and proposed federal,
state, and local regulation and legislation relating to the industries in which
American Mobile and ARDIS operate. Other existing federal, state, and local
regulations currently are the subject of a variety of judicial proceedings,
legislative hearings, and administrative and legislative proposal which could
change, in varying degrees, the manner in which American Mobile and ARDIS
operate. Neither the outcome of these proceedings nor their impact on American
Mobile's and ARDIS' operations can be predicted at this time.
ARDIS Acquisition
On March 3, 1998, the FCC granted authority for the transfer of control of all
authorizations held by ARDIS to the Company, thereby permitting ARDIS and
American Mobile to consummate the Acquisition. Interested parties have until
April 2, 1998 to appeal or ask for reconsideration of this grant, and the FCC
has until April 13, 1998 to reconsider this grant on its own motion. If these
dates are reached without any challenge or FCC reconsideration of this grant,
this grant will become final and not subject to appeal. In the event that the
FCC takes action that prevents American Mobile from operating ARDIS as
contemplated, American Mobile has the right to rescind the Acquisition (an
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"Unwind") by providing notice to Motorola within 30 days of the receipt of such
adverse order. In the event of an Unwind, the Purchase Price would be returned
to American Mobile and American Mobile's ownership interests in ARDIS would be
returned to Motorola. While the Company does not believe that such an Unwind
will occur, were it to occur, such an Unwind would have a material adverse
effect on the Company.
Year 2000 Compliance
The Company has implemented a Year 2000 program to ensure that the Company's
computer systems, applications, subscriber units, communications processors and
back office support systems will function properly beyond 1998. The Company has
assessed how it may be impacted by Year 2000 and has formulated and commenced
implementation of a comprehensive plan to address known issues as they relate to
its information systems. Vendors that provide critical products and services to
the Company are included in this assessment plan. The plan, as it relates to
information systems, includes a combination of modification, upgrade and
replacement.
If necessary modifications and conversions by the Company and those with which
it conducts business are not completed in a timely manner, Year 2000
non-compliance may have a material adverse effect on the Company's operations.
While there can be no assurances, the Company estimates that the cost of Year
2000 compliance for its information system will not have a material adverse
effect on the future consolidated results of the operations of the Company. The
Company is not yet able to estimate the cost of Year 2000 compliance with
respect to third party suppliers; however, based on a preliminary review,
management does not expect that such costs will have a material adverse effect
on the Company's financial condition, results of operations and cash flow.
Employees
At March 31, 1998, the Company had approximately 477 employees. None of the
Company's employees is represented by a labor union. The Company considers its
relations with its employees to be good.
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Item 2. Properties.
The Company leases approximately 94,000 square feet at its headquarters office
space and network operations center in Reston, Virginia. The lease has a term
which runs through August 3, 2003 (which may be extended at the Company's
election for an additional five years). In addition, the Company leases a
back-up Ku-band radio frequency facility in Alexandria, Virginia. The Company
also leases approximately 86,000 square feet of space for an operations center
in Lincolnshire, Illinois, the lease for which expires December 31, 2000, and
approximately 7,800 square feet for a remote data center in Lexington, Kentucky,
the lease for which expires April 30, 2001. The Company also leases site space
for approximately 1,700 base stations across the country under one- to five-year
lease contracts with renewal provisions. The Company anticipates that it will be
able to gain access to additional base station sites when necessary on
acceptable terms.
Item 3. Legal Proceedings.
In 1992, a former director of American Mobile filed an Amended Complaint against
American Mobile alleging violations of the Communications Act 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, American Mobile filed its response
denying all allegations. American Mobile's motion for summary judgment, filed on
June 30, 1994, was denied on April 18, 1996. The trial in this matter,
previously set for December 1997, has been postponed to a date to be determined
in 1998. Management believes that the complaint is without merit, and the
ultimate outcome of this matter will not be material to the Company's financial
position, results of operations, or its cash flow.
Item 4. Submission of Matters to a Vote of Security Holders.
No matters were submitted to a vote of the Company's Stockholders during the
fourth quarter of fiscal 1997.
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PART II
Items 5, 6, 7 and 8.
The information called for by Items 5 through 8 of Part II is presented in a
separate section of this Annual Report on Form 10-K commencing on the page
numbers specified below:
Form 10-K Item Page
Item 5 - Market for the Registrant's
Common Equity and Related Matters F-49
Item 6 - Selected Financial Data F-50
Item 7- Management's Discussion and Analysis
of Financial Condition and Results of Operations F-1
Item 8 - Financial Statements and Supplementary Data F-15
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
None.
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PART III
Items 10, 11, 12 and 13.
The information called for by Part III (Items 10, 11, 12 and 13) is incorporated
herein by reference from the material included under the captions "Nominees,"
"Executive Officers," "Executive Compensation," "Security Ownership of Certain
Beneficial Owners and Management," "Agreements Among Stockholders,"
"Compensation and Stock Option Committee Interlocks and Insider Participation"
and "Section 16(a) Beneficial Ownership Reporting Compliance" in the Company's
definitive proxy statement (to be filed) for its Annual Meeting of Stockholders
to be held May 20, 1998 (the "Proxy Statement"). The Proxy Statement is being
prepared and will be filed with the Securities and Exchange Commission pursuant
to Regulation 14A on or about April 10, 1998, and furnished to the Company's
Stockholders, on or about April 25, 1998.
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PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
(a) 1. Financial Statements.
The following consolidated financial statements of the Company and its
subsidiaries are included in a separate section of this Annual Report on Form
10-K commencing on the page numbers specified below:
INDEX
Management's Discussion and Analysis of Financial Condition
and Results of Operations.......................................F - 1
Report of Independent Public Accountants..................................F - 15
Consolidated Statements of Loss...........................................F - 16
Consolidated Balance Sheets...............................................F - 17
Consolidated Statements of Stockholders' Equity...........................F - 18
Consolidated Statements of Cash Flows.....................................F - 19
Notes to Consolidated Financial Statements................................F - 20
Quarterly Financial Data..................................................F - 49
Selected Financial Data...................................................F - 50
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2. Financial Statement Schedules.
Financial Statement Schedules not included with the one listed below have been
omitted because they are not required or not applicable, or because the required
information is shown in the financial statements or notes thereto.
I. Condensed Financial
Information of Registrant.................................Page S-1
2. Exhibits
3.1 - Restated Certificate of Incorporation of AMSC (as restated
effective May 1, 1996) (Incorporated by reference to Exhibit
3.1a to the Company's Quarterly Report on Form 10-Q filed
for the periods ending March 31, 1996 and June 30, 1996
(File No. 0-23044))
3.2 - Amended and Restated Bylaws of AMSC (as amended and restated
effective February 29, 1996)(Incorporated by reference to
Exhibit 3.2 to the Company's Quarterly Report on Form 10-Q
filed for the period ending June, 1996 (File No. 0- 23044))
9.1 - Amended and Restated Stockholders' Agreement dated as of
December 1, 1993, between AMSC and certain holders of its
capital stock (Incorporated by reference to Exhibit 9.1 to
the Company's Registration Statement on Form S-1 (Reg. No.
33- 70468)) 10.3 - Contract for an MSAT Spacecraft, dated
December 7, 1990 between AMSC and Hughes Aircraft Company,
amended June 15, 1993 (Amendment Nos. 1 through 4) and
further amended November 11, 1993 (Amendment No. 5), between
AMSC Subsidiary Corporation, as assignee of AMSC, and Hughes
Aircraft Company (Incorporated by reference to Exhibit 10.3
to the Company's Registration Statement on Form S-1 (Reg.
No. 33-70468))
10.3a - Amendment No. 6 to the AMSC Hughes MSAT Spacecraft Contract,
dated October 11, 1994, between AMSC Subsidiary Corporation,
as assignee to AMSC, and Hughes Aircraft Company
(Incorporated by reference to Exhibit 10.3a to the Company's
Annual Report on Form 10-K for the fiscal year ended
December 31, 1994 (File No. 0-23044))
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10.3b - Mutual Final Release, dated October 11, 1994, between AMSC
Subsidiary Corporation, Hughes Aircraft, Spar Aerospace
Limited and Lockheed Missiles & Space Company, Inc.
(Incorporated by reference to Exhibit 10.3b to the Company's
Annual Report on Form 10-K for the fiscal year ended
December 31, 1994 (File No. 0-23044))
10.3c - Amendment No. 7 to the AMSC Hughes MSAT Spacecraft Contract,
dated October 11, 1994, between AMSC Subsidiary Corporation,
as assignee to AMSC, and Hughes Aircraft Company (filed
herewith)
10.7 - Memorandum of Agreement for Satellite Capacity, dated
February 17, 1992, between AMSC Subsidiary Corporation and
Telesat Mobile Inc., as amended by Amending Agreement dated
October 18, 1993 among AMSC, AMSC Subsidiary Corporation and
TMI Communications and Company, Limited Partnership, as
successor in interest to Telesat Mobile Inc., and as further
amended by letter agreement dated October 18, 1993
(Incorporated by reference to Exhibit 10.7 to the Company's
Registration Statement on Form S-1 (Reg. No. 33-70468))
10.11 - Right of First Offer Agreement dated as of November 30, 1993
among AMSC, Hughes Communications Satellite Services, Inc.,
Singapore Telecommunications Ltd., Satellite Communications
Investments Corporation, Space Technologies Investments,
Inc., Satellite Mobile Telephone Company L.P., Transit
Communications, Inc., MTel Space Technologies, L.P. and MTel
Space Technologies Corporation (Incorporated by reference to
Exhibit 10.11 to the Company's Registration Statement on
Form S-1 (Reg. No. 33-70468))
10.13* - Amended and Restated Stock Option Plan (as amended effective
May 21, 1997) (Incorporated by reference to Exhibit 10.13 to
the Company's Registration Statement on Form S-8 (Reg.
No.333-30099))
10.13b* - Amended Form of Employee Stock Option Agreement
(Incorporated by reference to Exhibit 10.3b to the Company's
Annual Report on Form 10-K for the fiscal year ended
December 31, 1994 (File No. 0-23044))
10.13c* - Form of Restricted Stock Agreement (filed herewith)
10.1 - [Reserved.]
10.15 - [Reserved.]
10.16 - [Reserved.]
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10.17 - Mobile Terminal Production Agreement, dated October 6, 1992,
between AMSC Subsidiary Corporation and Westinghouse
Electric Corporation acting through Westinghouse Electronic
Systems Company (Incorporated by reference to Exhibit 10.17
to the Company's Registration Statement on Form S-1 (Reg.
No. 33-70468))
10.17a - Amendment No. 1 to Mobile Terminal Production Agreement,
dated November 21, 1994, between AMSC Subsidiary Corporation
and Westinghouse Electric Corporation acting through
Westinghouse Electronic Systems Company (Incorporated by
reference to Exhibit 10.17a to the Company's Annual Report
on Form 10-K for the fiscal year ended December 31, 1994
(File No. 0-23044))
10.17b - Amendment No. 2 to Mobile Terminal Production Agreement,
dated January 23, 1995, between AMSC Subsidiary Corporation
and Westinghouse Electric Corporation acting through
Westinghouse Electronic Systems Company (Incorporated by
reference to Exhibit 10.17b to the Company's Annual Report
on Form 10-K for the fiscal year ended December 31, 1994
(File No. 0-23044))
10.17c - Amendment No. 3 to Mobile Terminal Production Agreement,
dated March 21, 1995, between AMSC Subsidiary Corporation
and Westinghouse Electric Corporation acting through
Westinghouse Electronic Systems Company (Incorporated by
reference to Exhibit 10.17c the Company's Annual Report on
Form 10-K for the fiscal year ended December 31, 1994 (File
No. 0-23044))
10.18 - Mobile Terminal Production Contract, dated November 30,
1992, between AMSC Subsidiary Corporation and Mitsubishi
Electric Corporation (Incorporated by reference to Exhibit
10.18 to the Company's Registration Statement on Form S-1
(Reg. No. 33-70468))
10.18a - Addendum Number One dated June 29, 1994, to Mobile Terminal
Production Contract between AMSC Subsidiary Corporation and
Mitsubishi Electric Corporation (Incorporated by reference
to Exhibit 10.18a to the Company's Quarterly Report on Form
10-Q filed for the period ending June 30, 1994 (File
No.0-23044))
10.18b - Memorandum of Agreement, dated November 30, 1994, between
AMSC Subsidiary Corporation and Mitsubishi Electric
Corporation (Incorporated by reference to Exhibit 10.18b to
the Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1994 (File No. 0-23044))
10.19 - Codec License Agreement, dated February 2, 1993 and amended
March 26, 1993, between AMSC Subsidiary Corporation and
Digital Voice Systems, Inc. (Incorporated by reference to
Exhibit 10.19 to the Company's Registration Statement on
Form S-1 (Reg. No. 33-70468))
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10.20 - Deed of Lease at Reston, Virginia, dated February 4, 1993
and amended June 21, 1993, between AMSC Subsidiary
Corporation and Trust Company of the West as Trustee
(Incorporated by reference to Exhibit 10.20 to the Company's
Registration Statement on Form S-1 (Reg. No. 33-70468))
10.20a - Amendment No. 4 to Deed of Lease, dated October 7, 1994,
between AMSC Subsidiary Corporation and Trust Company of the
West as Trustee (Incorporated by reference to Exhibit 10.20a
to the Company's Annual Report on Form 10-K for the fiscal
year ended December 31, 1994 (File No. 0-23044))
10.21 - Authorized Service Provider Agreement, dated March 1, 1993,
between AMSC Subsidiary Corporation and McCaw Cellular
Communications, Inc. (Incorporated by reference to Exhibit
10.21 to the Company's Registration Statement on Form S-1
(Reg. No. 33-70468))
10.23 - Term Loan Agreement dated May 28, 1993, between AMSC
Subsidiary Corporation and Northern Telecom Finance
Corporation, amended by letter agreement dated October 14,
1993 between AMSC Subsidiary Corporation and Northern
Telecom Finance Corporation. (Incorporated by reference to
Exhibit 10.23 to the Company's Registration Statement on
Form S-1 (Reg. No. 33-70468))
10.23a - First Amendment to Term Loan Agreement dated as of April 8,
1994, between AMSC Subsidiary Corporation and Northern
Telecom Finance Corporation (Incorporated by reference to
Exhibit 10.23a to the Company's Quarterly Report on Form
10-Q filed for the period ending June 30, 1994 (File No.
0-23044))
10.23b - Second Amendment to Term Loan Agreement, dated August 1,
1995, between AMSC Subsidiary Corporation and Northern
Telecom Finance Corporation. (Incorporated by reference to
Exhibit 10.23b to the Company's Quarterly Report on Form
10-Q filed for the period ending September 30, 1995 (File
No. 0-23044))
10.23c - Third Amendment to Term Loan Agreement, dated November 7,
1995, between AMSC Subsidiary Corporation and Northern
Telecom Finance Corporation (Incorporated by reference to
Exhibit 10.23c to the Company's Quarterly Report on Form
10-Q filed for the period ending September 30, 1996 (File
No. 0-23044))
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10.23d - Fourth Amendment to Term Loan Agreement, dated October 1,
1996, between AMSC Subsidiary Corporation and Northern
Telecom Finance Corporation (Incorporated by reference to
Exhibit 10.23d to the Company's Quarterly Report on Form
10-Q filed for the period ending September 30, 1996 (File
No. 0-23044))
10.23e - Fifth Amendment to Term Loan Agreement, dated December 19,
1997, between AMSC Subsidiary Corporation and NTFC Capital
Corporation (formerly known as Northern Telecom Finance
Corporation) (filed herewith)
10.24a - Volume Purchasing Agreement, dated March 10, 1995, between
AMSC Subsidiary Corporation and TNL Navigation Limited
(Incorporated by reference to Exhibit 10.24a to the
Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1994 (File No. 0-23044))
10.24b - First Amendment to Volume Purchasing Agreement, dated March
10, 1995, between Trimble Navigation Limited and AMSC
(Incorporated by reference to Exhibit 10.24b to the
Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1996 (File No. 0-23044))
10.24c - Second Amendment to Volume Purchasing Agreement, dated
January 28, 1997, between Trimble Navigation Limited and
AMSC (Incorporated by reference to Exhibit 10.24c to the
Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1996 (File No. 0-23044))
10.24d - Third Amendment to Volume Purchasing Agreement, dated August
29, 1997, between Trimble Navigation Limited and AMSC (filed
herewith)
10.25 - Master Lease Agreement, dated June 23, 1993, between AMSC
Subsidiary Corporation and Digital Equipment Corporation and
Amendment to Master Lease Agreement between AMSC Subsidiary
Corporation and Digital Equipment Corporation dated August
2, 1993 (Incorporated by reference to Exhibit 10.25 to the
Company's Registration Statement on Form S-1 (Reg. No.
33-70468))
10.26 - [Reserved]
10.27 - Telemetry, Tracking and Control Satellite Service Agreement,
dated as of August 5, 1993, between AMSC Subsidiary
Corporation and Hughes Communications Satellite Services,
Inc. (Incorporated by reference to Exhibit 10.27 to the
Company's Registration Statement on Form S-1 (Reg. No.
33-70468))
10.28 - [Reserved]
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10.29 - [Reserved]
10.30 - Agreement dated October 11, 1993, among AMSC, Hughes
Communications Satellite Services, Inc., Singapore
Telecommunications Ltd., Space Technologies Investments,
Inc., MTel Space Technologies Corporation and MTel Space
Technologies, L.P. (Incorporated by reference to Exhibit
10.30 to the Company's Registration Statement on Form S-1
(Reg. No. 33-70468))
10.31 - [Reserved]
10.32 - Agreement for Cooperation in Joint Procurement of MSS
Systems, dated September 19, 1988, between American Mobile
Satellite Consortium Inc. and Telesat Mobile Inc.
(Incorporated by reference to Exhibit 10.32 to the Company's
Registration Statement on Form S-1 (Reg. No. 33-70468))
10.33 - Joint Operating Agreement, dated April 25, 1990, between
AMSC and Telesat Mobile Inc. as amended by Amending
Agreement dated October 18, 1993 among AMSC, AMSC Subsidiary
Corporation and TMI Communications and Company, Limited
Partnership, as successor in interest to Telesat Mobile Inc.
(Incorporated by reference to Exhibit 10.33 to the Company's
Registration Statement on Form S-1 (Reg. No. 33-70468))
10.34* - Employee Stock Purchase Plan (Incorporated by reference to
Exhibit 10.34 to the Company's Registration Statement on
Form S-1 (Reg. No. 33-70468))
10.35 - Agreement dated as of December 14, 1992 between AMSC
Subsidiary Corporation and GTE Spacenet Corporation
(Incorporated by reference to Exhibit 10.35 to the Company's
Registration Statement on Form S-1 (Reg. No. 33-70468))
10.35a - Amendment No. 1 dated as of November 7, 1997 to the
Agreement dated as of December 14, 1992, by GTE Spacenet
Corporation and AMSC Subsidiary Corporation (filed herewith)
10.36a - Master Agreement dated March 30, 1994, between Washington
International Teleport, Inc., and AMSC (Incorporated by
reference to Exhibit 10.36a to the Company's Annual Report
on Form 10-K for the fiscal year ended December 31, 1993
(File No. 0-23044))
10.36b - Contract Amendment No. A001, dated July 1, 1994, between
Washington International Teleport, Inc., and AMSC
(Incorporated by reference to Exhibit 10.36b to the
Company's Quarterly Report on Form 10-Q filed for the period
ending September 30, 1994 (File No. 0-23044))
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10.36c - Contract Amendment No. A002, dated July 1, 1994, between
Washington International Teleport, Inc., and AMSC
(Incorporated by reference to Exhibit 10.36c to the
Company's Quarterly Report on Form 10-Q filed for the period
ending September 30, 1994 (File No. 0-23044))
10.37 - [Reserved.]
10.3 - [Reserved.]
10.39 - [Reserved.]
10.40 - [Reserved.]
10.41* - Form of Directors and Officers Indemnification Agreement
(Incorporated by reference to Exhibit 10.41 to the Company's
Annual Report on Form 10-K for the fiscal year ended
December 31, 1993 (File No. 0-23044))
10.42 - DTE Design, Development, and Manufacturing Agreement, dated
September 28, 1994, between AMSC Subsidiary Corporation and
Omnidata International, Inc. (Incorporated by reference to
Exhibit 10.42 to the Company's Annual Report on Form 10-K
for the fiscal year ended December 31, 1994 (File No.
0-23044))
10.43 - [Reserved.]
10.44 - CAL Corporation Agreement for the development of the
aeronautical MSAT terminal, dated December 22, 1994, between
AMSC Subsidiary Corporation and CAL Corporation
(Incorporated by reference to Exhibit 10.44 to the Company's
Annual Report on Form 10-K for the fiscal year ended
December 31, 1994 (File No. 0- 23044))
10.45 - Contract for System Enhancement, dated February 1, 1994,
between AMSC Subsidiary Corporation and Westinghouse
Electric Corporation acting through Westinghouse Electronic
Systems Company (Incorporated by reference to Exhibit 10.45
to the Company's Annual Report on Form 10-K for the fiscal
year ended December 31, 1994 (File No. 0-23044))
10.46 - Agreement for the Manufacture, Delivery and Installation of
Satellite Communications Equipment Supporting 6 TDMs per LES
and working to AMSC Satellite, dated November 21, 1994,
between Hughes Network Systems Limited and AMSC Subsidiary
Corporation (Incorporated by reference to Exhibit 10.46 to
the Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1994 (File No. 0-23044))
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10.46a - Amendment One to Agreement Number 742-94, dated December 15,
1994, between Hughes Network Systems Limited and AMSC
Subsidiary Corporation (Incorporated by reference to Exhibit
10.46a to the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1994 (File No. 0-23044))
10.47 - [Reserved.]
10.48 - [Reserved.]
10.49 - General Services Agreement between AMSC Subsidiary
Corporation and AT&T Corp., acting though its Network
Systems Group, dated April 4, 1995 (certain attachments have
not been provided and will be furnished to the Commission
upon request) (Incorporated by reference to Exhibit 10.49 to
the Company's Quarterly Report on Form 10-Q filed for the
period ending June 30, 1995 (File No. 0-23044))
10.51 - Agreement for Development of High-Gain Maritime Mobile
Terminals between AMSC and KVH Industries, Inc. dated
September 19, 1995. (Incorporated by reference to Exhibit
10.51 to the Company's Annual Report on Form 10-K filed for
the period ended December 31, 1996 (File No. 0-23044))
10.52 - Private Voice Network Service, Satellite Telephone Service,
Facsimile, and Circuit Switched Data Service Agreement
between AMSC and AT&T Corporation dated October 17, 1995.
(Incorporated by reference to Exhibit 10.52 to the Company's
Annual Report on Form 10-K filed for the period ended
December 31, 1996 (File No. 0-23044))
10.53* - 1994 Stock Option Plan for Non-Employee Directors.
(Incorporated by reference to Exhibit 10.53 to the Company's
Annual Report on Form 10-K filed for the period ended
December 31, 1996 (File No. 0-23044))
10.54* - Form of Executive Agreements (Incorporated by reference to
Exhibit 10.54 to the Company's Annual Report on Form 10-K
filed for the period ending December 31, 1996 (File No.
0-23044))
10.55 - $150,000,000 Credit Agreement dated as of June 28, 1996,
among AMSC Subsidiary Corporation, American Mobile Satellite
Corporation, the Banks Listed Therein, Morgan Guaranty Trust
Company of New York, as Documentation Agent, and Toronto
Dominion (Texas), Inc., as Administrative Agent.
(Incorporated by reference to Exhibit 10.55 to the Company's
Quarterly Report on Form 10-Q filed for the period ended
June 30, 1996 (File No. 0-23044))
- 36 -
<PAGE>
10.56 - $75,000,000 Credit Agreement dated as of June 28, 1996,
among AMSC Subsidiary Corporation, American Mobile Satellite
Corporation, the Banks Listed Therein, Morgan Guaranty Trust
Company of New York, as Documentation Agent, and Toronto
Dominion (Texas), Inc., as Administrative Agent.
(Incorporated by reference to Exhibit 10.56 to the Company's
Quarterly Report on Form 10-Q filed for the period ended
June 30, 1996 (File No. 0-23044))
10.57 - Guaranty Issuance Agreement dated as of June 28, 1996, by
and among Hughes Electronics Corporation, Singapore
Telecommunications Ltd., Baron Capital Partners, L.P., AMSC
Subsidiary Corporation and American Mobile Satellite
Corporation (Incorporated by reference to Exhibit XII to the
Amended and Restated Schedule 13D dated July 1, 1996, filed
by Hughes Communications Satellite Services, Inc., Hughes
Communications, Inc., Hughes Aircraft Company, Hughes
Electronics Corporation and General Motors Corporation with
respect to shares of Common Stock, $.01 par value, of
American Mobile Satellite Corporation). (Incorporated by
reference to Exhibit 10.57 to the Company's Quarterly Report
on Form 10-Q filed for the period ended June 30, 1996 (File
No. 0-23044))
10.57a - Amendment No. 1 to Guaranty Issuance Agreement, dated as of
March 27, 1997 (Incorporated by reference to Exhibit 10.57a
to the Company's Annual Report on Form 10-K filed for the
period ending December 31, 1996 (File No. 0- 23044))
10.58 - Guaranty dated as of June 28, 1996, made by Hughes
Electronics Corporation to Toronto Dominion (Texas), Inc.,
as Administrative Agent. (Incorporated by reference to
Exhibit 10.58 to the Company's Quarterly Report on Form 10-Q
filed for the period ended June 30, 1996 (File No. 0-23044))
10.59 - Warrant No. 1 for the Purchase of 3,750,000 Shares (subject
to adjustment) of Common Stock of American Mobile Satellite
Corporation issued to Hughes Electronics Corporation, dated
June 28, 1996 (Incorporated by reference to Exhibit XIII to
the Amended and Restated Schedule 13D dated July 1, 1996,
filed by Hughes Communications Satellite Services, Inc.,
Hughes Communications, Inc., Hughes Aircraft Company, Hughes
Electronics Corporation and General Motors Corporation with
respect to shares of Common Stock, $.01 par value, of
American Mobile Satellite Corporation). (Incorporated by
reference to Exhibit 10.57 to the Company's Quarterly Report
on Form 10-Q filed for the period ended June 30, 1996 (File
No. 0-23044))
- 37 -
<PAGE>
10.60 - Registration Rights Agreement dated as of June 28, 1996,
among American Mobile Satellite Corporation, Hughes
Electronics Corporation, Singapore Telecommunications Ltd.,
and Baron Capital Partners, L.P. (Incorporated by reference
to Exhibit XIV to the Amended and Restated Schedule 13D
dated July 1, 1996, filed by Hughes Communications Satellite
Services, Inc., Hughes Communications, Inc., Hughes Aircraft
Company, Hughes Electronics Corporation and General Motors
Corporation with respect to shares of Common Stock, $.01 par
value, of American Mobile Satellite Corporation).
(Incorporated by reference to Exhibit 10.57 to the Company's
Quarterly Report on Form 10-Q filed for the period ended
June 30, 1996 (File No. 0-23044))
10.61 - Asset Sale Agreement dated as of November 22, 1996, by and
among Rockwell Collins, Inc. American Mobile Satellite
Corporation and AMSC Subsidiary Corporation (Incorporated by
reference to Exhibit 10.61 to the Company's Current Report
on Form 8-K dated November 22, 1996, and filed on December
9, 1996 (File No. 0-23044))
10.62 - Satellite Lease Agreement for the AMSC-1 Satellite, dated as
of December 2, 1997, By and Among AMSC Subsidiary
Corporation, American Mobile Satellite Corporation and
African Continental Telecommunications Ltd. (Incorporated by
reference to Exhibit 10.61 to the Company's Current Report
on Form 8-K dated December 4, 1997 (File No. 0-23044))
10.63 - Satellite Purchase Agreement, dated as of December 2, 1997,
by and Among TMI Communications and Company, Limited
Partnership and AMSC Subsidiary Corporation and American
Mobile Satellite Corporation. (Incorporated by reference to
Exhibit 10.61 to the Company's Current Report on Form 8-K
dated December 4, 1997 (File No. 0-23044))
10.64 - Bridge Loan Agreement, dated as of December 30, 1997, made
by and among AMSC Subsidiary Corporation, American Mobile
Satellite Corporation and Hughes Communications Satellite
Services, Inc. (filed herewith)
10.64a - Pledge Agreement dated as of December 30, 1997, made by
American Mobile Satellite Corporation to Hughes
Communications Satellite Services, Inc. (filed herewith)
10.64b - Term Note for $10,000,000 dated December 30, 1997 (filed
herewith)
- 38 -
<PAGE>
10.65 - Stock Purchase Agreement for the Acquisition of Motorola
ARDIS Acquisition, Inc. and Motorola ARDIS, Inc. by AMSC
Acquisition Company, Inc., a Wholly- Owned Subsidiary of
American Mobile Satellite Corporation, Dated as of December
31, 1997 (filed herewith)
10.66 - Participation Rights Agreement by and among Motorola, Inc.,
American Mobile Satellite Corporation, and the parties
listed on Schedule A, dated as of December 31, 1997 (filed
herewith)
11.1 - Computation of Net Loss Per Share (filed herewith)
21.1 - Subsidiaries of American Mobile (filed herewith)
23.1 - Consent of Arthur Andersen LLP (filed herewith)
27.1 - Financial Data Schedule (filed herewith)
- ------------------------------------
*Management contract or compensatory plan or arrangement required to be filed as
an exhibit to this report pursuant to Item 14(c) of this report.
- 39 -
<PAGE>
(b) Reports on Form 8-K:
On December 8, 1997, the Company filed a Current Report on Form 8-K,
describing in response to Item 5-Other Events, regarding the Company
entering into two simultaneous transactions: (i) Satellite Lease
Agreement for the AMSC-1 Satellite, By and Among AMSC Subsidiary
Corporation, American Mobile Satellite Corporation and African
Continental Telecommunications and (ii) Satellite Purchase Agreement,
By and Among TMI Communications and Company, Limited Partnership and
AMSC Subsidiary Corporation and American Mobile Satellite Corporation.
On January 5, 1998, the Company filed a Current Report on Form 8-K,
describing in response to Item 5-Other Events, in the form of a press
release, regarding the Company entering into two agreements: (i)
Bridge Loan Agreement with Hughes Communications Satellite Services,
Inc. and (ii) Stock Purchase Agreement with Motorola, Inc. for the
acquisition of ARDIS Company.
On January 13, 1998, the Company filed an Amendment to its Current
Report on Form 8-K/A amending and restating under Item 7 - Financial
Statements, Pro Forma Financial Information and Exhibits the financial
statements to American Mobile's acquisition previously filed on
February 6, 1997. On January 22, 1998, the Company filed a Current
Report on Form 8-K, describing in response to Item 5-Other Events, the
resignation of director David A. Juliano and the election of Douglas
I. Brandon to fill the vacancy created by Mr. Juliano's resignation.
On March 9, 1998, the Company filed a Current Report on Form 8-K,
describing in response to Item 5-Other Events, an excerpt of a
financing document of American Mobile Satellite Corporation and its
subsidiary, AMSC Acquisition Company, Inc.
- 40 -
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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
By /s/ Gary M. Parsons
Gary M. Parsons
Chief Executive Officer and
Chairman of the Board
Date: March 31, 1998
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
/s/Gary M. Parsons Chief Executive Officer March 31, 1998
Gary M. Parsons Chairman of the Board
(principal executive officer)
/s/Stephen D. Peck Vice President and Chief March 31, 1998
Stephen D. Peck Financial Officer
(principal financial and
accounting officer)
/s/Douglas I. Brandon Director March 31, 1998
Douglas I. Brandon
/s/Steven D. Dorfman Director March 31, 1998
Steven D. Dorfman
/s/Ho Siaw Hong Director March 31, 1998
Ho Siaw Hong
______________________ Director March 31, 1998
Billy J. Parrott
- 41 -
<PAGE>
/s/Andrew A. Quartner Director March 31, 1998
Andrew A. Quartner
/s/Jack A. Shaw Director March 31, 1998
Jack A. Shaw
/s/Roderick M. Sherwood, III Director March 31, 1998
Roderick M. Sherwood, III
_______________________ Director March 31, 1998
Michael T. Smith
/s/Yap Chee Keong Director March 31, 1998
Yap Chee Keong
/s/Albert L. Zesiger Director March 31, 1998
Albert L. Zesiger
-42-
<PAGE>
INDEX
Management's Discussion and Analysis of Financial Condition
and Results of Operations.......................................F - 1
Report of Independent Public Accountants..................................F - 15
Consolidated Statements of Loss...........................................F - 16
Consolidated Balance Sheets...............................................F - 17
Consolidated Statements of Stockholders' Equity...........................F - 18
Consolidated Statements of Cash Flows.....................................F - 19
Notes to Consolidated Financial Statements................................F - 20
Quarterly Financial Data..................................................F - 49
Selected Financial Data...................................................F - 50
F-i
<PAGE>
Management's Discussion and Analysis of Financial Condition
and Results of Operations
This Annual Report on Form 10-K 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 Annual Report, including, without limitation, in conjunction with the
forward-looking statements included in this Annual Report. 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 Current Report on
Form 8-K filed on March 9, 1998, and Form 10-Q Quarterly Reports to be filed by
the Company subsequent to this Form 10-K Annual 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 December 31, 1997, the Company entered into a Stock
Purchase Agreement (the "Purchase Agreement") with Motorola, Inc. ("Motorola"),
for the acquisition (the "Acquisition") of ARDIS Company ("ARDIS"), a
wholly-owned subsidiary of Motorola that owns and operates a two-way wireless
data communications network. On March 3, 1998, the FCC granted consent to
consummate the Acquisition. On March 31, 1998, the Acquisition and related
F-1
<PAGE>
financing were completed. See "Liquidity and Capital Resources." 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 will offer 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."
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. American Mobile has entered into an agreement with WorldSpace, Inc.
("WorldSpace"), by which WorldSpace has acquired a 20% participation in AMRC. In
connection with the DARS auction, AMRC has also arranged for financing of the
FCC license fees as well as for initial working capital needs, which financing
has included the issuance of options. Under the terms of AMRC's financing and
contingent on FCC approval, exercise of the outstanding issued options could
result in the dilution of American Mobile's ownership interest in AMRC to 28%.
Additionally, the agreement gives WorldSpace certain participation rights which
provide for their participation in significant business decisions in the
ordinary course of business. As a result, AMRC is carried on the equity method.
The operations and financing of AMRC are maintained separate and apart from the
operations and financing of American Mobile (see "Liquidity and Financing").
On December 4, 1997, the Company entered into an agreement with African
Continental Telecommunications Ltd. ("ACTEL") to lease the Company's satellite,
"MSAT-2" (the "Satellite Lease Agreement") for deployment over sub-Saharan
Africa. Simultaneously, the Company agreed with TMI Communications and Company
Limited Partnership ("TMI") to acquire a one-half ownership interest in TMI's
satellite, "MSAT-1" (the "Satellite Purchase Agreement"). See Item I. "Business
- -- Satellite Lease and Purchase Agreement", "-Satellite Back-up and Technology,"
and Management's Discussion and Analysis of Financial Condition and Results of
Operations - Liquidity and Capital Resources."
In late 1996 the Company expanded its mobile data business through the
acquisition of Rockwell International Corporation's ("Rockwell") dual mode
mobile messaging and global positioning and monitoring service for commercial
trucking fleets ("MCSS"). In the transaction, the Company assumed Rockwell's
existing customer contracts, and acquired Rockwell's system infrastructure for
F-2
<PAGE>
delivering their mobile data product, as well as Rockwell's rights to the
multi-mode, satellite-terrestrial product. The assets of the business were
acquired through the assumption of the various contracts and obligations of
Rockwell relating to the business; no additional payments were made to Rockwell
under the terms of the Asset Sale Agreement dated as of November 22, 1996. See
"Liquidity and Capital Resources."
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 MCSS and ARDIS.
Overview
Each of American Mobile and ARDIS has 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 December 31, 1997,
on a pro forma basis, the Company would have had indebtedness of approximately
$454.9 million, assuming the Acquisition, the issuance of the $335 million of
Units, and restructuring of the bank financing (see "Recent Financing Activity")
occurred on December 31, 1997.
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.
F-3
<PAGE>
The Company's operating results and capital and liquidity needs have been
materially affected by delays experienced in the acquisition of subscribers and
the related equipment sales. As a result, the Company shifted from a consumer
focus to a business to business focus in late 1996. Such shift has caused the
Company to refocus certain business resources and to re-organize the sales and
marketing organization. The impact of this delay has substantially decreased the
Company's anticipated revenues and increased the Company's capital and liquidity
needs. No assurance can be given that additional delays relating to the
acquisition of subscribers and delayed equipment sales will not be encountered
in the future and not have an adverse impact on the Company.
As of December 31, 1997, there were approximately 32,400 units on the Satellite
Network.
Years Ended December 31, 1997 and 1996
Service revenues, which include both the Company's voice and data services,
approximated $20.7 million for 1997 as compared to $9.2 million for 1996 and
represents a 125% increase year over year. Service revenue from voice services
increased 100% from approximately $5.0 million in 1996 to approximately $10.0
million in 1997. The $5.0 million increase was primarily a result of a 101%
increase in voice customers during 1997. Service revenue from the Company's data
services approximated $7.6 million in 1997, as compared to $2.3 million for
1996, an increase of $5.4 million or 245%. The increase was primarily a result
of additional revenue from dual mode subscribers added as a result of the
acquisition, on November 1996, of Rockwell's dual mode mobile messaging and
global positioning and monitoring service, as compared to the revenue received
in 1996 for satellite capacity leased by Rockwell. Service revenue from capacity
resellers, who handle both voice and data services, approximated $2.8 million in
1997, as compared to $1.8 million in 1996, an increase of $1.0 million or 56%.
As of December 31, 1997 and 1996, receivables relating to service revenues were
$3.6 million and $1.8 million, respectively.
Revenue from the sale of mobile data terminals and mobile telephones increased
27% from $18.5 million in 1996 to $23.5 million in 1997. The increase was
primarily attributable to increased equipment sales of the dual-mode mobile
messaging product, discussed above. As of December 31, 1997 and 1996,
receivables relating to equipment revenue were $5.9 million and $5.8 million
respectively.
Cost of service and operations for 1997, which includes costs to support
subscribers and to operate the Satellite Network, were $32.0 million for 1997
and $30.5 million for 1996. Cost of service and operations for 1997 and 1996, as
a percentage of revenues, were 72% and 110%, respectively. The increase in cost
of service and operations was primarily attributable to (i) increased
interconnect charges associated with increased service usage by customers, and
(ii) the additional cost associated with supporting the dual mode mobile
messaging product discussed above, offset by a reduction in information
technology costs affected by dramatically reducing the dependence on outside
consultants.
F-4
<PAGE>
The cost of equipment sold increased 26% from $31.9 million in 1996 to $40.3
million in 1997. The dollar increase in the cost of equipment sold is primarily
attributable to (i) increased sales as a result of the acquisition of the dual
mode messaging product, (ii) an increase of $600,000 in inventory carrying costs
as certain subscriber equipment contracts were fulfilled, and (iii) a $12.0
million write down of inventory to net realizable value in 1997 as compared to
$11.1 million write down and reconfiguration charges in 1996.
Sales and advertising expenses were $12.1 million in 1997, compared to $24.5
million in 1996. Sales and advertising expenses as a percentage of revenue were
27% in 1997 and 88% in 1996. The decrease of sales and advertising expenses was
primarily attributable to (i) a more focused approach to advertising as the
company has moved from consumer markets to targeted business-to-business sales,
and the resulting reduction in print advertising, (ii) increased costs in the
first quarter of 1996 for the development of collateral material needed to
support the sales effort, and (iii) costs incurred in the first quarter of 1996
associated with the formal launch of service.
General and administrative expenses for 1997 were $14.8 million, compared to
$17.5 million in 1996. As a percentage of revenue, general and administrative
expenses represented 34% in 1997 and 63% in 1996. The decrease in general and
administrative expenses for 1997 compared to 1996 was primarily attributable to
reductions made in staffing as a result of a management restructuring in the
third quarter of 1996 and the associated severance costs.
Depreciation and amortization expense was $42.4 million and $43.4 million in
1997 and 1996, respectively, representing approximately 96% and 156% of revenue
for 1997 and 1996, respectively. The overall dollar and percentage decrease in
depreciation and amortization expense was attributable to the reduction of the
carrying value of the satellite as a result of the resolution, in August 1996,
of claims under the Company's satellite insurance contracts and policies and the
receipt of approximately $66.0 million, offset by a $1.0 million one-time
charge, in the second quarter of 1997, associated with increased amortization in
accordance with SFAS No.86 of certain cost associated with software development
for the mobile data product.
Interest income was $247,000 in 1997 compared to $552,000 in 1996. The decrease
was a result of lower average cash balances. The Company incurred $21.6 million
of interest expense in 1997 compared to $15.2 million of interest expense in
1996 reflecting (i) the amortization of debt discount and debt offering costs in
the amount of $9.4 million in 1997, compared to $5.7 million in 1996, and (ii)
higher outstanding loan balances as compared to 1996. During 1997, the Company
received other income in the amount of $875,000 representing proceeds from the
licensing of certain technology associated with the Satellite Network.
Interest expense in 1997 was significant as a result of borrowings under the
Bank Financing, as well as the amortization of borrowing costs incurred in
F-5
<PAGE>
conjunction with securing the facility. 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, including additions financed through vendor financing
arrangements, for 1997 for property and equipment were $8.8 million compared to
capital reductions of $51.0 million in 1996. The $59.4 million increase was
largely attributable to (i) the net proceeds in 1996 of $66.0 million from the
resolution of the claims under the Company's satellite insurance contracts and
policies (see "Liquidity and Capital Resources") and (ii) the decrease in asset
acquisitions associated with the final build-out of the communications ground
segment (the "CGS").
Years Ended December 31, 1996 and 1995
Service revenues, which include both the Company's voice and data services,
approximated $9.2 million for 1996 as compared to $6.9 million for 1995 which
represents a 33% increase year over year. Service revenue from voice services
approximated $5.0 million in 1996, including approximately $1.3 million
attributable to satellite capacity leased to TMI, under a commitment which was
completed in May 1996. Service revenue from the Company's data and position
location services ("Mobile Data Communication Service") approximated $2.2
million in 1996, as compared to $1.7 for 1995, an increase of $500,000 or 29%.
Service revenue from capacity resellers who handle both voice and data services,
approximated $1.8 million in 1996, as compared to $5.2 million in 1995, a
decrease of $3.4 million or 65%. Prior to 1996, the Company provided its Mobile
Data Communication Service using satellite capacity leased from the
Communications Satellite Corporation ("COMSAT"), the cost of which was passed
through to one customer (Rockwell). The decrease in revenue from capacity
resellers reflects the reduced revenue from Rockwell resulting from lower
billings for the use of the lower cost MSAT-2 versus billings attributable to
the leased COMSAT satellite applied on a pass-through basis. As previously
discussed, the Company acquired the dual mode mobile messaging and global
positioning and monitoring service of Rockwell in November 1996. At December 31,
1996 and 1995, receivables relating to service revenues were $1.8 and $405,000,
respectively.
Revenue from the sale of mobile data terminals and mobile telephones increased
from $1.9 million in 1995 to $18.5 million in 1996, primarily attributable to
(i) the Company's introduction of certain voice products in the fourth quarter
of 1995 and the resulting sale of mobile telephones, and (ii) the increased
availability of mobile data terminals in 1996 compared to 1995 following a
contract signed with a mobile data terminal manufacturer in February 1995.
The Company's costs and expenses have primarily increased in connection with the
start of full commercial service in December 1995. Cost of service and
operations for 1996, which includes costs to support subscribers and to operate
the Satellite Network, were $30.5 million for 1996, an increase of $6.5 million
from 1995. Cost of service and operations for 1996 and 1995, as a percentage of
revenue were 110% and 272%, respectively. The dollar increase in cost of service
F-6
<PAGE>
and operations was primarily attributable to (i) additional personnel and
related costs to support both existing and anticipated customer demand, (ii)
increased costs associated with the on-going maintenance of the Company's
billing systems and the CGS, and (iii) $6.5 million of insurance expense for
in-orbit insurance coverage for MSAT-2, offset by the elimination of COMSAT
lease expense reflecting the transition of the Company's customers from the
leased satellite to MSAT-2.
The cost of equipment sold increased to $31.9 million in 1996 from $4.7 million
in 1995. The increase in cost of equipment sold is primarily attributable to (i)
the Company's introduction of certain voice products in the fourth quarter of
1995 and the resulting sale of mobile telephones, (ii) the availability of
mobile data terminals in 1996 compared to 1995, (iii) a $4.2 million charge in
1996 for the reconfiguration of certain components to better meet customer
requirements, and (iv) a $6.9 million write down of inventory to net realizable
value in 1996.
Sales and advertising expenses were $24.5 million in 1996, compared to $22.8
million in 1995. Sales and advertising expenses as a percentage of revenue were
88% in 1996 and 259% in 1995. The increase of sales and advertising expenses was
primarily attributable to (i) additional head count and personnel related costs
associated with the increase in sales staff, and (ii) increased costs directly
associated with the increase in subscriber acquisition programs, offset by a
$1.4 million charge, in 1995, associated with the reacquisition of defective
equipment located at a customer site and settlement of related disputes.
General and administrative expenses for 1996 were $17.5 million, an increase of
$0.8 million as compared to 1995. As a percentage of revenue, general and
administrative expenses represented 63% in 1996 and 190% in 1995. The dollar
increase in general and administrative expenses for 1996 compared to 1995 was
primarily attributable to (i) approximately $675,000 of severance costs
associated with a management restructuring and (ii) an increase in facilities
rents and utilities of $236,000. The decrease of general and administrative
expenses as a percentage of operating expenses was attributable to the overall
increase in operating expenses.
Depreciation and amortization expense was $43.4 million and $11.2 million in
1996 and 1995, respectively, representing approximately 156% and 128% of revenue
for 1996 and 1995, respectively. The increase in depreciation and amortization
expense was attributable to the commencement of depreciation of both MSAT-2 and
related assets and the CGS in the fourth quarter of 1995.
Interest and other income was $552,000 in 1996 compared to $4.5 million in 1995.
The decrease was a result of lower average cash balances. The Company incurred
$15.2 million of interest expense in 1996 compared to $916,000 of interest
expense in 1995 reflecting (i) the discontinuation of interest cost
capitalization as a result of substantially completing the Satellite Network in
the fourth quarter of 1995, (ii) the amortization of debt discount and debt
offering costs (including Guarantee Warrants (see "Liquidity and Capital
Resources")) relating to the Bridge Financing and Bank Financing (see "Liquidity
and Capital Resources"), and (iii) higher outstanding loan balances as compared
to 1995.
F-7
<PAGE>
Net capital reductions, including additions financed through vendor financing
arrangements, for 1996 for property and equipment were $51.0 million compared to
capital expenditures of $86.7 million in 1995. The decrease was largely
attributable to (i) the net proceeds of $66.0 million from the resolution of the
claims under the Company's satellite insurance contracts and policies (see
"Liquidity and Capital Resources"), (ii) the purchase, in the first quarter of
1995, of launch insurance at a cost to the Company of $42.8 million in
connection with the Company's launch contract with Martin Marietta Commercial
Launch Services, Inc., and (iii) the decrease in construction activity as
certain components of the CGS were completed.
Liquidity and Capital Resources
Adequate liquidity and capital are critical to the ability of the Company to
continue as a going concern and to fund subscriber acquisition programs
necessary to reach cash positive and profitable operations. To satisfy its
ongoing financing needs, the Company, on June 28, 1996, established a $219
million debt facility (the "Bank Financing"), of which $200 million is available
and fully guaranteed by certain American Mobile shareholders (the "Guarantors").
As of December 31, 1997, the Bank Financing consisted of: (i) a $144 million
five-year, multi-draw term loan facility (the "Term Loan Facility") with
quarterly payments commencing March 31, 1999 through and including June 30,
2001, and (ii) a $56 million five-year revolving credit facility with a bullet
maturity on June 30, 2001 (the "Working Capital Facility"). Proceeds from the
Bank Financing were used to repay the Company's interim financing and to
refinance short-term vendor financing, and for general working capital purposes.
As previously reported, the Company, on March 27, 1997, reached an agreement
with the Guarantors to eliminate all covenant tests in exchange for additional
warrants and a repricing of warrants previously issued (together, the "Guarantee
Warrants"). As a result of the repricing, the Guarantee Warrants were revalued
at $21.9 million. As of March 20, 1998, the Company had drawn down $144.0
million of the Term Loan Facility at annual interest rates ranging from 6.025%
to 6.0875% and $56.0 million of the Working Capital Facility at annual interest
rates ranging from 6.025% to 6.2125%.
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.
In the last quarter of 1997, the Company arranged the financing of certain trade
payables, and as of December 31, 1997, $11.7 million of deferred trade payables
were outstanding at rates ranging from 6.23% to 14% and are generally payable by
the end of 1998.
F-8
<PAGE>
On December 4, 1997, the Company entered into two simultaneous transactions. The
Company agreed with TMI to acquire a one-half ownership interest in TMI's
satellite, MSAT-1, at a cost of $60 million payable in equal installments over a
five-year period (the "Satellite Purchase Agreement"); certain additional
payments to TMI are contemplated in the event that additional benefits are
realized by the Company. Under the Satellite Purchase Agreement, TMI and
American Mobile will each own a 50% undivided ownership interest in the Shared
Satellite, will jointly be responsible for the operation of the Shared
Satellite, and will share certain satellite operating expenses, but will
otherwise maintain their separate business operations.
Simultaneously, the Company entered into an agreement (the "Satellite Lease
Agreement") with African Continental Telecommunications Ltd. ("ACTEL"), for the
lease of MSAT-2, for deployment over sub-Saharan Africa. The five-year lease
provides for aggregate lease payments to the Company of $182.5 million. The
lease includes a renewal option through the end of the life of MSAT-2, on the
same lease terms, at ACTEL's election exercisable 2 1/2 years prior to the end
of the initial lease term.
Closing under the Satellite Purchase Agreement and Satellite Lease Agreement is
subject to a number of conditions, including: United States and Canadian
regulatory approvals, a successful financing by ACTEL of at least $120 million,
completion of certain satellite testing, inversion and relocation activities
with respect to MSAT-2, to support the contemplated services over Africa;
receipt of various government authorizations from Gibraltar, South Africa and
other jurisdictions to support satellite relocation, including authorizations
with respect to orbital slot and spectrum coordination; and completion of
certain system development activities sufficient to support satellite
redeployment. On March 13, 1998, the FCC provided approval of the transactions;
Canadian government coordination and approvals remain outstanding. It is
anticipated that the closing under both the purchase and lease agreements will
occur simultaneously in the spring of 1998.
On December 31, 1997, the Company entered into a Bridge Loan Agreement (the
"Bridge Loan") with Hughes Communications Satellite Services, Inc. ("Hughes") in
the principal amount of up to $10 million, secured by a pledge of the Company's
interest in its 80%-owned subsidiary, AMRC Holdings, Inc. The Bridge Loan bore
an annual interest rate of 12%, had a maturity date of March 31, 1999, and
required mandatory repayment in the event net proceeds are received from any
asset disposition, lease agreement, financing or equity transaction of the
Company. The Bridge Loan was drawn down in full, and repaid on March 31, 1998,
with a portion of the proceeds of the Notes (described below).
Recent Financing Activity
$335 Million Unit Offering
In connection with the Acquisition, the Company issued $335 million of Units
(the "Units") consisting of 12 1/4% Senior Notes due 2008 (the "Notes"), and
F-9
<PAGE>
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 portion of the net
proceeds of the sale of the Units were used to finance the Acquisition. The
Notes are fully guaranteed by American Mobile Satellite Corporation.
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 will rank 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"). The lenders' placement fee for the New Bank
Financing is approximately $500,000.
The Revolving Credit Facility
The Revolving Credit Facility bears an interest rate, generally, of 50 basis
points above London Interbank Offered Rate ("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. Certain proceeds received by the
Acquisition Company would be required to repay and reduce the Revolving Credit
Facility, unless otherwise waived by the lenders and the Bank Facility
Guarantors: (1) 100% of excess cash flow obtained by the Acquisition Company;
(2) the first $25.0 million net proceeds of the lease or sale of MSAT-2 received
by the Acquisition Company, and thereafter 75% of the remaining proceeds
received from such lease or sale (the remaining 25% may be retained by the
Acquisition Company for business operations); (3) 100% of the proceeds of any
other asset sales by the Acquisition Company; (4) 50% of the net proceeds of any
offerings of the Acquisition Company's equity (the remaining 50% to be retained
by the Acquisition Company for business operations); and (5) 100% of any major
casualty proceeds. At such time as the Revolving Credit Facility is repaid in
full, and subject to satisfaction of the restrictive payments provisions of the
Notes, any prepayment amounts that would otherwise have been used to prepay the
Revolving Credit Facility will be dividended to the Company.
F-10
<PAGE>
The Term Loan Facility
The Term Loan Facility bears an interest rate, generally, of 50 basis points
above LIBOR and is secured by the assets of the Company, principally its
stockholdings in AMRC and the Acquisition Company. The Term Loan Agreement does
not include any scheduled amortization until maturity, but does contain certain
provisions for prepayment based on certain proceeds received by the Company,
unless otherwise waived by the Banks and the Bank Facility Guarantors: (1) 100%
of excess cash flow obtained by the Company; (2) the first $25.0 million net
proceeds of the lease or sale of MSAT-2 received by the Company, and thereafter
75% of the remaining proceeds received from such lease or sale (the remaining
25% to be retained by the Acquisition Company for business operations); (3) 100%
of the proceeds of any other asset sales by the Company; (4) 50% of the net
proceeds of any equity offerings of the Company (the remaining 50% to be
retained by the Company for business operations); and (5) 100% of any major
casualty proceeds of the Company. To the extent that the Term Loan Facility is
repaid, the aforementioned proceeds that would otherwise have been used to repay
the Term Loan Facility will be used to repay and reduce the commitment under the
Revolving Credit Facility.
The Guarantees
In connection with the New Bank Financing, the Bank Facility Guarantors have
agreed to extend separate guarantees of the obligations of each of the
Acquisition Company and the Company to the Banks, which on a several basis
aggregate to $200 million. In their agreement with each of the Acquisition
Company and the Company (the "Guarantee Issuance Agreement"), the Bank Facility
Guarantors have agreed to make their guarantees available for the New Bank
Financing. The Guarantee Issuance Agreement will include certain additional
agreements of the Acquisition Company and of the Company including with respect
to financial performance of the Acquisition Company relating to the ratio of
debt to EBITDA and service revenue, which, if not met, could, if not waived,
limit the Acquisition Company's ability to draw down on additional amounts under
the Revolving Credit Facility and result in a default under the New Bank
Financing beginning in 1999. In exchange for the additional risks undertaken by
the Bank Facility Guarantors in connection with the New Bank Financing, the
Company has agreed to compensate the Bank Facility Guarantors, principally in
the form of 1 million additional warrants and repricing and extending the
expiration date of 5.5 million warrants previously issued (together, the "New
Guarantee Warrants"). The New Guarantee Warrants will be on the same pricing
terms as those issued as part of the Units. The Bank Facility Guarantors will
have certain demand and piggy-back registration rights with regard to the
unregistered shares of the Company's Common Stock held by them or issuable upon
exercise of the Guarantee Warrants.
Further, in connection with the Guarantee Issuance Agreement, the Company has
agreed to reimburse the Bank Facility Guarantors in the event that the
Guarantors are required to make payment under the Revolving Credit Facility
F-11
<PAGE>
guarantees, and, in connection with this Reimbursement Commitment has provided
the Bank Facility Guarantors a junior security interest with respect to the
assets of the Company, principally its stockholdings in AMRC and the Acquisition
Company.
Motorola Vendor Financing
Motorola has agreed to provide the Acquisition Company with up to $10.0 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 such facility will require that amounts borrowed be
secured by the equipment purchased therewith. This commitment is subject to
customary conditions, including due diligence, and there can be no assurance
that the facility will be obtained by the Acquisition Company on these terms or
at all.
Summary of Recent Financing
The Company believes the proceeds from the issuance of the Notes, together with
the borrowings under the New Bank Financing and the Vendor Financing Commitment,
will be sufficient to pay the cash portion of the Acquisition and fund operating
losses, capital expenditures, working capital, and scheduled principal and
interest payments on debt through the time when the Company expects to generate
positive free cash flow (operating cash flow less capital expenditures);
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. See "Overview."
At December 31, 1997, the Company had remaining contractual commitments to
purchase both mobile data terminal inventory and mobile telephone inventory
approximating $6.3 million. (See Note 10 to the consolidated financial
statements).
All wholly owned subsidiaries of the Company are subject to financing agreements
that limit the amount of cash dividends and loans that can be advanced to the
Company. At December 31, 1997, all of these subsidiaries' net assets were
restricted under these agreements. These restrictions will have an impact on
American Mobile's ability to pay dividends.
Cash used in operating activities was $50.9 million for 1997 compared to $113.6
million for 1996. The decrease in cash used in operating activities was
primarily attributable to (i) decreased operating losses, and (ii) decreased
inventory and accounts receivable balances. Cash used by investing activities
was $10.2 million for 1997 compared to cash provided by investing activities of
$50.9 million in 1996. The $61.1 decrease was primarily attributable to the
proceeds in the amount of $66.0 million from the settlement of the Company's
claims under its satellite insurance contracts and policies, offset by a general
F-12
<PAGE>
reduction in capital expenditures. Cash provided by financing activities was
$61.1 million in 1997 compared to cash used of $56.0 million in 1996, reflecting
the proceeds from the Bank Financing, offset by the repayment of certain vendor
financing and other long-term debt. Proceeds from the sale of debt securities
and Common Stock were $284,000 and $2.9 million for 1997 and 1996, respectively.
Payments on long-term debt and capital leases were $8.8 million and $63.2
million for 1997 and 1996, respectively. In addition, the Company incurred $10.8
million of debt issuance costs associated with the placement of the Bank
Financing in 1996, as compared to $1.5 million in 1997. As of December 31, 1997,
the Company had $2.1 million of cash and cash equivalents and working capital of
$5.3 million.
Regulation
The ownership and operations of the Company's communication systems are subject
to significant regulation by the FCC, which acts under authority granted by the
Communications Act of 1934, as amended (the "Communications Act"), and related
federal laws. A number of the Company's licenses are subject to renewal by the
FCC and, with respect to the Company's satellite operations, are subject to
international frequency coordination. In addition, current FCC regulations
generally limit the ownership and control of American Mobile by non-U.S.
citizens or entities to 25%. There can be no assurances that the rules and
regulations of the FCC will continue to support the Company's operations as
presently conducted and contemplated to be conducted in the future, or that all
existing licenses will be renewed and requisite frequencies coordinated. See
"Part I, Item 1. Business - Regulation".
On June 5, 1996, the FCC granted ARDIS extensions of time to complete the
buildouts of 190 antenna sites, as required to maintain previously granted
licenses. As of March 25, 1998, approximately 104 of the sites remain to be
constructed by expiration dates that range between June 27, 1998 to March 31,
1999. Management estimates that $5.2 million will be necessary to achieve timely
buildouts of the network, including $5.0 million in 1998. Failure to obtain such
capital or to complete the buildouts in a timely manner could result in loss of
licenses for such sites from the FCC, loss of customers, as well as the
incurrence of penalties under a customer contract, which would have a material
adverse effect on the Company.
Other Matters
As previously reported, the satellite has, in the past, experienced certain
technological anomalies, most significantly with respect to its eastern beam
which resulted in the Company's receipt of $66.0 million of insurance proceeds
as discussed above (see "Liquidity and Capital Resources"). There can be no
assurance that the satellite will not experience subsequent anomalies that could
adversely impact the Company's financial condition, results of operations and
cash flows. See "Part I, Item 1. Business-Satellite Back-up and Technology".
F-13
<PAGE>
Regarding the year 2000 compliance issue for information systems, the Company
has recognized the need to ensure that its computer operations and operating
systems will not be adversely affected by the upcoming calender year 2000 and is
cognizant of the time sensitive nature of the problem. The Company has assessed
how it may be impacted by year 2000 and has formulated and commenced
implementation of a comprehensive plan to address known issues as they relate to
its information systems. The plan, as it relates to information systems,
includes a combination of modification, upgrade and replacement. The Company
estimates that the cost of year 2000 compliance for its information systems will
not have a material adverse affect on the future consolidated results of the
operations of the Company. The Company is not yet able to estimate the cost of
year 2000 compliance with respect to third party suppliers; however, based on a
preliminary review, management does not expect that such costs will have a
material adverse effect on the Company's financial condition, results of
operations and cash flow.
Accounting Standards
In March 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings per
Share." This Statement governs the calculation of Earnings per Share ("EPS"),
and requires that EPS calculations be presented as Basic Earnings per Share and
Diluted Earnings per Share. The impact of adopting the Statement is not material
to the financial statements.
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive Income"
governing the reporting and display of comprehensive income and its components,
and SFAS No. 131, "Disclosures about Segments of an Enterprise and Related
Information" requiring that public businesses report financial and descriptive
information about its reportable operating segments. Both Statements are
applicable to reporting periods beginning after December 15, 1997. The impact of
adopting the Statements is not expected to be material to the financial
statements.
F-14
<PAGE>
Report of Independent Public Accountants
To American Mobile Satellite Corporation:
We have audited the accompanying consolidated balance sheets of American Mobile
Satellite Corporation (a Delaware corporation) and Subsidiaries as of December
31, 1997 and 1996, and the related consolidated statements of loss,
stockholders' equity and cash flows for each of the three years in the period
ended December 31, 1997. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform an audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosure in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of American Mobile Satellite
Corporation and Subsidiaries as of December 31, 1997 and 1996, and the results
of their operations and their cash flows for each of the three years in the
period ended December 31, 1997, in conformity with generally accepted accounting
principles.
/s/Arthur Andersen LLP
Washington, D.C.
March 31, 1998
F-15
<PAGE>
<TABLE>
American Mobile Satellite Corporation and Subsidiaries
Consolidated Statements of Loss (dollars in thousands, except per share data)
for the years ended December 31, 1997, 1996, and 1995
<CAPTION>
Years Ended December 31
----------------------------------------------
<S> <C> <C> <C>
1997 1996 1995
REVENUES
Services $20,684 $9,201 $6,873
Sales of equipment 23,530 18,529 1,924
------ ------ ------
Total Revenues 44,214 27,730 8,797
COSTS AND EXPENSES:
Cost of service and operations 31,959 30,471 23,948
Cost of equipment sold 40,335 31,903 4,676
Sales and advertising 12,066 24,541 22,775
General and administrative 14,819 17,464 16,681
Depreciation and amortization 42,430 43,390 11,218
------ ------ ------
Operating Loss (97,395) (120,039) (70,501)
INTEREST EXPENSE (21,633) (15,151) (916)
INTEREST AND OTHER INCOME 1,122 552 4,500
EQUITY IN LOSS OF AMRC (1,301) -- --
-------- -------- -----
NET LOSS ($119,207) ($134,638) ($66,917)
========== ========== =========
BASIC AND DILUTED LOSS PER SHARE OF COMMON STOCK ($4.74) ($5.38) ($2.69)
WEIGHTED-AVERAGE COMMON SHARES
OUTSTANDING DURING THE PERIOD (000's) 25,131 25,041 24,900
The accompanying notes are an integral part of these consolidated financial
statements.
</TABLE>
F-16
<PAGE>
<TABLE>
American Mobile Satellite Corporation and Subsidiaries
Consolidated Balance Sheets (dollars in thousands, except per share data) as of
December 31, 1997 and 1996
<CAPTION>
<S> <C> <C>
ASSETS 1997 1996
---- ----
CURRENT ASSETS:
Cash and cash equivalents $2,106 $2,182
Inventory 40,321 38,034
Prepaid in-orbit insurance 4,564 5,080
Accounts receivable-trade, net of allowance for doubtful accounts 8,140 6,603
of $1,930 in 1997 and $1,548 in 1996
Other current assets 9,608 14,247
------ ------
Total current assets 64,739 66,146
PROPERTY AND EQUIPMENT IN SERVICE - NET
(gross balances include $135,586 and $134,737 purchased from
related parties through 1997 and 1996 respectively) 233,174 267,863
DEFERRED CHARGES AND OTHER ASSETS:
(net of accumulated amortization of $14,096 in 1997 and
$10,597 in 1996)
(gross balances include $3,000 paid to related parties in 1996) 13,534 16,164
------- ------
Total assets $311,447 $350,173
------------ ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued expenses $35,861 $42,625
Obligations under capital leases due within one year 798 3,931
Current portion of long-term debt 15,254 11,113
Other current liabilities 7,520 --
------- -------
Total current liabilities 59,433 57,669
LONG-TERM LIABILITIES:
Obligations under Bank Financing 198,000 127,000
Capital lease obligations 3,147 2,557
Net assets acquired in excess of purchase price (Note 12) 2,725 3,395
Other long-term debt 1,364 --
Other long-term liabilities 647 852
----- ---
Total long-term liabilities 205,883 133,804
------- -------
Total liabilities 265,316 191,473
COMMITMENTS (Note 9 and 10)
STOCKHOLDERS' EQUITY:
Preferred Stock, par value $0.01: authorized 200,000 shares;
no shares issued -- --
Common Stock, voting, par value $0.01: authorized 75,000,000 shares;
25,159,311 shares issued and outstanding in 1997; 25,097,577 shares
issued and outstanding in 1996 252 251
Additional paid-in capital 451,892 451,259
Common Stock purchase warrants 36,338 23,848
Unamortized guarantee warrants (23,586) (17,100)
Retained loss (418,765) (299,558)
--------- ---------
Total stockholders' equity 46,131 158,700
------ -------
Total liabilities and stockholders' equity $311,447 $350,173
------------------------------------------ ======== ========
The accompanying notes are an integral part of these consolidated financial
statements.
</TABLE>
F-17
<PAGE>
<TABLE>
American Mobile Satellite Corporation and Subsidiaries
Consolidated Statements of Stockholders' Equity (dollars in thousands, except
per share data) for the period from January 1, 1995 through December 31, 1997
<CAPTION>
Common Stock Additional Common Stock Unamortized
Shares Par Paid-in Purchase Guarantee Retained
Value Capital Warrants Warrants Loss Total
<S> <C> <C> <C> <C> <C> <C> <C>
- ------
BALANCE, December 31, 1994 24,798,755 $248 $445,859 $3,440 -- ($98,003) $351,544
Common Stock issued in January under
Stock Purchase Plan 8,707 -- 94 -- -- -- 94
Common Stock issued in April pursuant
to Launch Services Contract 81,909 1 1,719 -- -- -- 1,720
Common Stock issued throughout the year
for exercise of stock options and award 32,026 1 518 -- -- -- 519
of bonus stock
Common Stock issued in July under Stock 22,170 -- 238 -- -- -- 238
Purchase Plan
Common Stock issued in March, June,
September and December under the 401(k)
Savings Plan 17,563 -- 329 -- -- -- 329
Net Loss -- -- -- -- -- (66,917) (66,917)
---------- --- ------- ----- ----- --------- --------
BALANCE, December 31, 1995 24,961,130 250 448,757 3,440 -- (164,920) 287,527
Common Stock issued in January under
Stock Purchase Plan 13,432 -- 294 -- -- -- 294
Common Stock purchase warrants issued
in January for Bridge Financing -- -- -- 2,253 -- -- 2,253
Common Stock issued for exercise of
stock options and award of bonus stock 37,320 -- 612 -- -- -- 612
Common Stock issued upon exercise of Warrants 37,500 1 844 (845) -- -- --
Common Stock purchase warrants issued in -- -- -- 19,000 (19,000) -- --
July for Bank Financing
Amortization of guarantee warrants -- -- -- -- 1,900 -- 1,900
Common Stock issued in July under Stock 25,934 -- 341 -- -- -- 341
Purchase Plan
Common Stock issued in March, June,
September and December under the 401(k)
Savings Plan 22,261 -- 411 -- -- -- 411
Net Loss -- -- -- -- -- (134,638) (134,638)
---------- --- ------- ----- ----- --------- ---------
BALANCE, December 31, 1996 25,097,577 251 451,259 23,848 (17,100) (299,558) 158,700
Common stock issued in March, June,
September, October, and December under
the 401K Saving Plan 31,684 1 349 -- -- -- 350
Common stock issued in January and
July under the Stock Purchase Plan 29,930 -- 283 -- -- -- 283
Common Stock issued throughout award
of bonus stock 120 -- 1 -- -- -- 1
Stock Purchase Warrants Revaluation -- -- -- 12,490 (12,490) -- --
Amortization of Stock Purchase
Warrants -- -- -- -- 6,004 -- 6,004
Net Loss -- -- -- -- -- (119,207) (119,207)
---------- --- ------- ----- ----- --------- ---------
BALANCE, December 31, 1997 25,159,311 $252 $451,892 $36,338 ($23,586) ($418,765) $46,131
========== ==== ======== ======= ========= ========== =======
The accompanying notes are an integral part of these consolidated financial
statements.
</TABLE>
F-18
<PAGE>
<TABLE>
American Mobile Satellite Corporation and Subsidiaries
Consolidated Statements of Cash Flows (dollars in thousands) for the years ended
December 31, 1997, 1996, and 1995
<CAPTION>
Years Ended December 31
----------------------------------
1997 1996 1995
---- ---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C> <C>
Net loss ($119,207) ($134,638) ($66,917)
Adjustments to reconcile net loss to net cash used in operating activities:
Amortization of guarantee warrants, debt discount, and debt issuance costs 9,350 5,721 --
Depreciation and amortization 42,430 43,307 11,218
Equity in loss from AMRC 1,301 -- --
Changes in assets and liabilities:
Inventory (2,287) (27,482) (10,438)
Prepaid in-orbit insurance 516 (257) (4,823)
Trade accounts receivable (1,537) (5,229) 218
Other current assets 4,639 1,970 (4,230)
Accounts payable and accrued expenses (5,820) 1,672 23,414
Deferred trade payables 11,685 -- --
Deferred items - net 8,038 1,347 (1,730)
-------- --------- --------
Net cash used in operating activities (50,892) (113,589) (53,288)
CASH FLOWS FROM INVESTING ACTIVITIES:
Insurance proceeds applied to equipment -- 66,000 --
Additions to property and equipment (8,598) (14,054) (83,776)
Proceeds from sales of short-term investments -- -- 28,717
Deferred charges and other assets -- (1,000) (169)
Investment in AMRC (1,643) -- --
------- ------ --------
Net cash provided by (used in) investing activities (10,241) 50,946 (55,228)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of Common Stock 284 1,247 2,569
Principal payments under capital leases (2,576) (3,994) (538)
Proceeds from short-term borrowings -- 70,000 --
Payments on short-term borrowings -- (70,000) --
Proceeds from Bank Financing 71,000 127,000 --
Proceeds from debt issuance -- 1,700 7,630
Payments on long-term debt (6,180) (59,190) (28,486)
Debt issuance costs (1,471) (10,803) (1,081)
------- ------- --------
Net cash provided by (used in) financing activities 61,057 55,960 (19,906)
Net decrease in cash and cash equivalents (76) (6,683) (128,422)
CASH AND CASH EQUIVALENTS, beginning of period 2,182 8,865 137,287
------ ------- ---------
CASH AND CASH EQUIVALENTS, end of period $2,106 $2,182 $8,865
====== ====== ======
Supplemental Cash Flow Information
Interest Payments $11,785 $8,293 $5,574
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-19
<PAGE>
AMERICAN MOBILE SATELLITE CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
as of December 31, 1997, 1996 and 1995
1. ORGANIZATION, BUSINESS AND LIQUIDITY
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.
In late 1996, the Company expanded its mobile data business through the
acquisition of Rockwell International Corporation's ("Rockwell") dual mode
mobile messaging and global positioning and monitoring service for commercial
trucking fleets. Rockwell was a private network customer of the Company which
had purchased capacity from the Company on MSAT-2. See Note 12.
On December 31, 1997, the Company entered into a Stock Purchase Agreement (the
"Purchase Agreement") with Motorola, Inc. ("Motorola"), for the acquisition (the
"Acquisition") of ARDIS Company ("ARDIS"), a wholly-owned subsidiary of Motorola
that owns and operates a two-way wireless data communications network. Subject
to certain purchase price adjustment provisions, the Company will acquire ARDIS
for a purchase price of $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, intends to create a nationwide provider of wireless
communications services, including data, dispatch, and voice services, primarily
to business customers in the United States. See Note 15.
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,
F-20
<PAGE>
1997. American Mobile has entered into an agreement with WorldSpace, Inc.
("WorldSpace"), by which WorldSpace has acquired a 20% participation in AMRC,
which can dilute the Company's interest in AMRC to 28%. In connection with the
DARS auction, AMRC has also arranged for financing of the FCC license fees as
well as for initial working capital needs, which financing has included the
issuance of options. 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. See Note 2.
F-21
<PAGE>
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.
Liquidity and Financing Requirements
Adequate liquidity and capital are critical to the ability of the Company to
continue as a going concern and to fund subscriber acquisition programs
necessary to reach cash positive and profitable operations. The Company expects
to continue to make significant capital outlays for the foreseeable future to
fund interest expense, capital expenditures and working capital prior to the
time that it begins to generate positive cash flow from operations and for the
foreseeable future thereafter. To fund its operations through the first quarter
of 1998, the Company (i) borrowed all remaining amounts available under the Bank
Financing, (ii) entered into a $10 million Bridge Loan Agreement (the "Bridge
Loan") with Hughes Communications Satellite Services, Inc. ("Hughes"), and (iii)
arranged the financing of $11.7 million of deferred trade payables. See Note 7.
The Company currently believes that the net proceeds from the sale of the $335
million in Notes and warrants, together with the borrowings under the $200
million New Bank Financing, the Motorola financing, and the proceeds from the
Satellite Lease Agreement (all discussed below) will be sufficient to meet the
Company's currently anticipated capital expenditures, operating losses, working
capital and debt service requirements through 1998 and beyond. However, if the
Company's cash flows from operations are less than projected, the Company may
not meet its financial performance agreements under the Guaranty Issuance
Agreement and, if such conditions are not met or waived, the Company would not
have access to additional funds under the Revolving Credit Facility. See Note
15. In addition, even in the event that the Company has access to such funds, it
may require additional debt or equity financing in amounts that could be
substantial. The type, timing and terms of financing selected by the Company
will be dependent upon the Company's cash needs, the availability of other
financing sources and the prevailing conditions in the financial markets. There
can be no assurance that any such sources will be available to the Company at
any given time or as to the favorableness of the terms on which such sources may
be available.
In connection with the ARDIS Acquisition, the Company raised $335 million in
cash proceeds from the private issuance of units ("Units") consisting of 12 1/4%
Senior Notes ("Notes") due 2008 and one warrant to purchase 3.75749 shares of
Common Stock of the Company for each $1,000 principal amount of Notes, and
restructured its existing Bank Financing the "New Bank Financing"). The New Bank
Financing of $200 million will consist of a $100 million unsecured five-year
reducing Revolving Credit Facility maturing March 31, 2003 and a $100 million
F-22
<PAGE>
five-year Term Loan Facility with up to three additional one-year extensions
subject to lender approval. Additionally, Motorola has agreed to provide the
Company with 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 base stations needed to meet ARDIS' buildout requirements under
certain customer contracts. See Note 15.
On December 4, 1997, the Company entered into two simultaneous transactions. The
Company agreed with TMI to acquire a one-half ownership interest in TMI's
satellite, MSAT-1, at a cost of $60 million payable in equal installments over a
five-year period (the "Satellite Purchase Agreement"); certain additional
payments to TMI are contemplated in the event that additional benefits are
realized by the Company. Simultaneously, the Company entered into an agreement
(the "Satellite Lease Agreement") with African Continental Telecommunications
Ltd. ("ACTEL"), for the lease of MSAT-2, for deployment over sub-Saharan Africa.
The five-year lease provides for aggregate lease payments to the Company of
$182.5 million. The lease includes a renewal option through the end of the life
of MSAT-2. Closing under the Satellite Purchase Agreement and Satellite Lease
Agreement is subject to a number of conditions. It is anticipated that the
closing under both leasing agreements will occur simultaneously in the spring of
1998. See Note 10.
2. SIGNIFICANT ACCOUNTING POLICIES
Development Stage Company
Consistent with Statement of Financial Accounting Standards ("SFAS") No. 7,
"Accounting and Reporting by Development Stage Enterprises," the Company ceased
to be considered a development stage company in the fourth quarter of 1996 with
the generation of significant revenue from its voice products and services.
Accounting Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles (GAAP) requires management to make estimates and
assumptions that affect the reported amount of assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates. The Company's most significant estimates relate to the valuation of
inventory and committed inventory purchases and the allowance for doubtful
accounts receivable.
Consolidation
The consolidated financial statements include the accounts of American Mobile
and seven of its wholly owned subsidiaries, one of which is inactive. All
significant inter-company transactions and accounts have been eliminated. As
discussed in Note 1, AMRC, was awarded a license to provide digital audio radio
service ("DARS") and entered into an agreement with World Space, Inc. ("World
F-23
<PAGE>
Space"), whereby World Space has acquired a 20% participation in AMRC, and the
exercise of outstanding issued options could reduce American Mobile's ownership
interest in AMRC to 28%. Additionally, the agreement gives WorldSpace certain
participative rights which provide for their participation in significant
business decisions that would be made in the ordinary course of business;
therefore, in accordance with Emerging Issues Task Force ("EITF") No. 96-16, the
Company's investment in AMRC is carried on the equity method.
The following represents the unaudited summary financial information of AMRC as
of December 31,1997. AMRC had no material activity prior to 1997.
(In thousands)
Current assets $ -- Gross sales $ --
Noncurrent assets 91,901 Operating expense 1,110
Current liabilities -- Interest expense 518
Noncurrent liabilities 84,387 Net loss 1,628
Total stockholders' equity 7,514
Cash and Cash Equivalents
The Company considers highly liquid investments with remaining maturities of 90
days or less at the time of acquisition to be cash equivalents.
Inventories
Inventories, which consist primarily of finished goods, are stated at the lower
of cost or market. Cost is determined using the weighted average cost method.
The Company periodically assesses the market value of its inventory, based on
sales trends and forecasts and technological changes and records a charge to
current period income when such factors indicate that a reduction to net
realizable value is appropriate. For purposes of evaluating the net realizable
value of inventory, management considers both inventory on hand and inventory
which it has committed to purchase. During 1997 and 1996, the Company recorded
charges to Cost of Equipment Sold in the amount of $12.0 million and $11.1
million, respectively, related to the realizability of the Company's inventory
investment.
Fair Value of Financial Instruments
SFAS No. 107, "Disclosures about Fair Value of Financial Instruments," requires
disclosures of the fair value of certain financial instruments. For purposes of
F-24
<PAGE>
this disclosure, the fair value of a financial instrument is the amount at which
the instrument could be exchanged in a current transaction between willing
parties. Cash and cash equivalents, trade accounts receivable and accounts
payable approximate fair value because of the relatively short maturity of these
instruments. As a result of the Guarantees (see Note 7) associated with the Bank
Financing, it is not practicable to estimate the fair value of this facility.
The fair value of other debt approximates carrying value because the related
debt has variable interest costs based on current market rates or are short-term
in nature.
Concentrations of Credit Risk
Financial instruments which potentially subject the Company to concentrations of
credit risk consist principally of temporary cash investments, short-term
investments and accounts receivable. The Company places its temporary cash
investments and short-term investments in debt securities such as commercial
paper, time deposits, certificates of deposit, bankers acceptances, and
marketable direct obligations of the United States Treasury. The Company's
intent is to hold its investments in debt securities to maturity. To date, the
majority of the Company's business has been transacted with telecommunications,
natural resources and transportation companies, including maritime and trucking
companies located throughout the United States. The Company grants credit based
on an evaluation of the customer's financial condition, generally without
requiring collateral or deposits. Exposure to losses on trade accounts
receivable, for both service and for inventory sales, is principally dependent
on each customer's financial condition. The Company anticipates that its credit
risk with respect to trade accounts receivable in the future will continue to be
diversified due to the large number of customers expected to comprise the
Company's base and their expected dispersion across many different industries
and geographies.
Software Development Costs
The Company capitalizes costs related to the development of certain software to
be used with its mobile messaging and position location service (the "Mobile
Data Communications Service") product. The Company commenced amortization of
these costs in the first quarter of 1996. These costs will be amortized over
three years. As of December 31, 1997 and 1996, net capitalized software
development costs were $1.8 million and $3.6 million, respectively, and are
included in property and equipment in the accompanying balance sheets.
Deferred Charges and Other Assets
Other assets primarily consist of unamortized financing costs and debt issue
costs associated with the existing vendor financing arrangements and the Bank
Financing. The Company had $11.8 million and $14.9 million of unamortized
financing costs recorded at December 31, 1997 and 1996, respectively. Financing
costs are amortized over the term of the related facility using the straight
line method, which approximates the effective interest method.
F-25
<PAGE>
Revenue Recognition
The Company recognizes service revenue when communications services have been
rendered. Equipment sales are recognized upon shipment of products and customer
acceptance, if required.
Research and Development Costs
Research and development costs are expensed as incurred. Such costs include
internal research and development activities and expenses associated with
external product development agreements. The Company did not incur any research
and development cost for 1997, and incurred approximately $57,000 and $1.8
million for 1996 and 1995, respectively.
Advertising Costs
Advertising costs are charged to operations in the year incurred and totaled
$3.4 million, $6.0 million, and $6.5 million for 1997, 1996, and 1995
respectively.
Stock Based Compensation
The Company accounts for employee stock options using the method of accounting
prescribed by APB Opinion No. 25, "Accounting for Stock Issued to Employees."
Generally, no expense is recognized related to the Company's stock options
because the option's exercise price is set at the stock's fair market value on
the date the option is granted. Effective January 1, 1996, the Company adopted
SFAS No. 123 by making the required footnote disclosures (see Note 5).
Assessment of Asset Impairment
SFAS No. 121 "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed of" requires that impairment losses for such
assets be based upon the fair value of the assets, and was adopted by the
Company as the primary basis by which the Company measures impairment of the
Satellite Network and its related components. Adoption of this Statement has not
resulted in the recording of a provision for impairment of long-lived assets,
but there can be no assurance that a material provision for impairment will not
be required in the future.
Loss Per Share
In 1997, the Company adopted SFAS No. 128, "Earnings Per Share." SFAS No. 128
requires dual presentation of basic and diluted earnings per share on the face
of the income statement for all periods presented. Basic earnings per share
excludes dilution and is computed by dividing income available to common
stockholders by the weighted-average number of common shares outstanding for the
period.
F-26
<PAGE>
Diluted earnings per share reflects the potential dilution that could occur if
securities or other contracts to issued common stock were exercised or converted
into common stock. Options and warrants to purchase shares of common stock were
not included in the computation of loss per share as the effect would be
antidilutive. As a result, the basic and diluted earnings per share amounts are
identical.
3. STOCKHOLDERS' EQUITY
The Company has authorized 200,000 shares of Preferred Stock and 75,000,000
shares of Common Stock. The par value per share is $0.01 for each class of
stock. For each share held, Common stockholders are entitled to one vote on
matters submitted to the stockholders. Cumulative voting applies for all
elections of directors of the Company.
The Preferred Stock may be issued in one or more series at the discretion of the
Board of Directors (the "Board"), without stockholder approval. The Board is
authorized to determine the number of shares in each series and all
designations, rights, preferences, and limitations on the shares in each series,
including, but not limited to, determining whether dividends will be cumulative
or non-cumulative.
Certain controlling stockholders of the Company have entered into a
Stockholders' Agreement (the "Agreement") which contains provisions relating to
the election of directors, procedures for maintaining compliance with the FCC's
alien ownership restrictions, certain restrictions on the transfer, sale and
exchange of Common Stock, and procedures for appointing directors to the
Executive Committee of the Board, among others. The Agreement continues in
effect until terminated by an affirmative vote of holders of three-fourths of
the Company's Common Stock held by parties to the Agreement. Other matters
relating to the Company's governance of the Company are set forth in the
Certificate of Incorporation and Bylaws.
As of December 31, 1997, the Company had reserved Common Stock for future
issuance as detailed below.
Shares issuable upon exercise of warrants 6,474,596
Amended and Restated Stock Option Plan for Employees 3,429,326
Stock Option Plan for Non-Employee Directors 50,000
Employee Stock Purchase Plan 190,137
Defined Contribution Plan 103,492
-------
Total 10,247,551
==========
4. PROPERTY AND EQUIPMENT
Property and equipment is recorded at cost and depreciated over its useful life
using the straight line method. Assets recorded as capital leases are amortized
over the shorter of their useful lives or the term of the lease.
F-27
<PAGE>
The estimated useful lives of office furniture and equipment vary from 2-10
years, and the Communications Ground Segment ("CGS") is depreciated over 8
years.
The Company is depreciating the Space Segment over its estimated useful life of
10 years, which was based on several factors, including current conditions and
the estimated remaining fuel of MSAT-2. The original estimated useful live is
periodically reviewed using current Telemetry Tracking and Control ("TT&C")
data. To date, no significant change in the original estimated useful life has
resulted. The telecommunications industry is subject to rapid technological
change which may require the Company to revise the estimated useful lives of
MSAT-2 and the CGS or to adjust their carrying amounts. The Company has also
capitalized certain costs to develop and implement its computerized billing
system. These costs are included in property and equipment and are depreciated
over 8 years. Certain amounts from 1996 have been restated in the summary below.
The costs of constructing and putting satellites into service are capitalized in
the financial statements and depreciated over the estimated useful life of the
satellite. A total failure of the satellite from unsuccessful launches and/or in
orbit anomalies would result in a current write-down of the satellite value.
Partial satellite failures are recognized currently to the extent such losses
are deemed abnormal to the operation of the satellite. A partial failure which
is deemed normal would not result in a loss of satellite capacity beyond what is
considered normal satellite wear and tear and thus, a write down would not be
required. Additionally, all future incentive arrangements relating to the
construction of satellites will be capitalized at launch.
Property and equipment consists of the following:
December 31
(in thousands) 1997 1996
Space Segment $187,976 $187,386
Ground Segment 109,691 104,559
Office equipment and furniture 19,305 16,684
Mobile Data Communications Service 21,118 21,014
------ ------
338,090 329,643
Less accumulated depreciation and amortization 104,916 61,780
------- ------
Property and equipment, net $233,174 $267,863
======== ========
5. STOCK OPTIONS
The Company has two active stock option plans. The American Mobile Satellite
Corporation 1989 Amended and Restated Stock Option Plan for Employees (the
"Plan") permits the grant of non-statutory options and the award of bonus stock
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<PAGE>
up to a total of 3.5 million shares of Common Stock. Under the Plan, the
exercise price and vesting schedule for options is determined by the
Compensation Committee of the Board, which was established to administer the
Plan. Generally, options vest over a three year period and will have an exercise
price not less than the fair market value of a share on the date the option is
granted or have a term greater than ten years. In March 1997, the Company
repriced certain employee stock options to $13.00 per share. No other terms of
the options were modified.
The Company also has a Stock Option Plan for Non-Employee Directors (the
"Director Plan") which provides for the grant of options up to a total of 50,000
shares of Common Stock. Directors receive an initial option to purchase 1,000
shares of Common Stock, with annual option grants to purchase 500 shares of
Common Stock. Options under the Director Plan can be exercised at a price equal
to the fair market value of the stock on the date of the grant and are fully
vested and immediately exercisable on the date of grant. Each Director Plan
option expires on the earlier of (i) ten years from the date of grant or (ii)
seven months after the Director's termination.
In January 1998, the Board of Directors granted 356,111 shares of restricted
stock to senior management for the first time. These grants include both a
three-year vesting schedule as well as specific corporate performance targets.
Unless waived by the Board of Directors, failure to meet a required performance
target would prevent the vesting of the restricted shares.
Information regarding the Company's stock option plans is summarized below:
<TABLE>
<CAPTION>
Weighted Average
Available Granted and Option Price Per
for Grant Outstanding Share
<S> <C> <C> <C>
Balance, December 31, 1994 349,878 407,776 $18.60
Additional shares authorized for grant 50,000 --- --
Granted (275,480) 275,480 16.88
Exercised and awarded -- (32,026) 16.10
Forfeited 60,380 (60,380) 18.50
------ --------
Balance, December 31, 1995 184,778 590,850 17.94
Additional shares authorized for grant 1,241,138 -- --
Granted (1,565,272) 1,565,272 18.37
Exercised and awarded -- (37,320) 16.41
Forfeited and canceled 623,356 (623,356) 23.23
------- ---------
Balance, December 31, 1996 484,000 1,495,446 16.22
Additional shares authorized for grant 1,500,000 -- --
Granted (1,292,443) 1,292,443 12.67
Exercised and awarded -- (120) 10.28
Forfeited 1,104,828 (1,104,828) 17.15
--------- -----------
Balance, December 31, 1997 1,796,385 1,682,941 $13.08
========= ===========
</TABLE>
F-29
<PAGE>
<TABLE>
Options Exercisable at December 31:
<CAPTION>
Options Average
Exercise Price
<S> <C> <C>
1997 595,432 $14.39
1996 276,804 $17.97
1995 219,272 $18.31
1994 175,471 $17.73
</TABLE>
The Company accounts for stock compensation costs in accordance with the
provisions of Accounting Principles Board Opinion No. 25, "Accounting for Stock
Issued to Employees." Had compensation cost been determined based on the fair
value at the grant dates for awards under the Company's stock plans in
accordance with SFAS No. 123, the net loss would have been increased by $5.3
million ($.21 per share) and $2.3 million ($.09 per share) in 1997 and 1996,
respectively. As required by SFAS No. 123, the fair value of each option grant
is estimated on the date of grant using the Black-Scholes option pricing model
with the following assumptions for 1997 and 1996: no historical dividend yield;
an expected life of 10 years; historical volatility of 65% in 1997 and 45% in
1996, 45% and a risk-free rate of return ranging from 5.71% to 6.44%. Exercise
prices for options outstanding as of December 31, 1997, are as follows:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
Number Weighted Number
Outstanding as Average Weighted Exercisable as of Weighted
Range of of December 31, Remaining Average December 31, Average
Exercise Prices 1997 Contractual Life Exercise Price 1997 Exercise Price
<S> <C> <C> <C> <C> <C>
9.06 - 12.00 471,500 8.82 $11.45 132,160 $11.84
12.50 - 12.81 476,585 9.07 12.74 -- 0.00
13.00 - 13.00 549,808 7.64 13.00 278,224 13.00
14.62 - 26.25 185,048 5.47 18.29 185,048 18.29
------- -------
$9.06 - $26.25 1,682,941 8.14 $13.08 595,432 $14.39
========= =======
</TABLE>
6. INCOME TAXES
The Company accounts for income taxes under the liability method as required in
the Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes." Under the liability method, deferred income taxes are recognized for the
tax consequences of "temporary differences" by applying enacted statutory tax
laws and rates applicable to future years to differences between the financial
statement carrying amounts and the tax bases of existing assets and liabilities.
Under this method, the effect on deferred taxes of a change in tax rates is
recognized in income in the period that includes the enactment date. Potential
tax benefits, related to net operating losses and temporary differences, have
been recorded as an asset, and a valuation allowance for the same amount has
been established. The Company has paid no income taxes since inception.
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<PAGE>
The following is a summary of the Company's net deferred tax assets.
<TABLE>
December 31
<CAPTION>
(in thousands) 1997 1996
<S> <C> <C>
Net Operating Loss for Income Tax Purposes $217,918 $170,710
Deferred Taxes Related to Temporary Differences:
Tangible asset bases, lives and depreciation methods (65,898) (64,889)
Other 8,700 6,229
----- -----
Total deferred tax asset 160,720 112,050
Less valuation allowance (160,720) (112,050)
--------- ---------
Net deferred tax asset $ -- $ --
========= =========
</TABLE>
Significant timing differences affecting deferred taxes in 1997 were the
treatment of costs associated with the Space Segment for financial reporting
purposes compared to tax purposes. As of December 31, 1997, the Company had net
operating loss carryforwards ("NOLs") of $542 million. The NOLs expire in years
2004 through 2012. These NOL carryforwards are subject to certain limitations if
there is determined to be a substantial change in ownership as defined in the
Internal Revenue Code.
7. LONG-TERM DEBT
December 31
(in thousands) 1997 1996
Bank Financing $198,000 $127,000
Deferred Payment Agreement -- 5,180
Deferred Trade Payables 11,685 --
Term Loan Agreement 4,933 5,933
----- -----
214,618 138,113
Less current maturities 15,254 11,113
------ ------
Long-term debt $199,364 $127,000
======== ========
Bank Financing - Term Loan and Working Capital Facility
On June 28, 1996, established a $219 million debt facility (the "Bank
Financing"), of which $200 million is available and fully guaranteed by certain
American Mobile shareholders. As of December 31, 1997, the Bank Financing
consisted of: (i) a $144 million five-year, multi-draw term loan facility (the
"Term Loan Facility") with quarterly payments commencing March 31, 1999 through
and including June 30, 2001, and (ii) a $56 million five-year revolving credit
facility with a bullet maturity on June 30, 2001 (the "Working Capital
Facility"). Proceeds from the Bank Financing were used to repay the Company's
interim financing and to refinance short-term Vendor Financing, and will be used
F-31
<PAGE>
for general working capital purposes. As of March 20, 1998, the Company had
drawn down $144.0 million of the Term Loan Facility at annual interest rates
ranging from 6.025% to 6.0875% and $56.0 million of the Working Capital Facility
at annual interest rates ranging from 6.025% to 6.2125%. The Company, on March
27, 1997, reached an agreement with the Guarantors to eliminate all covenant
tests in exchange for additional warrants and a repricing of warrants previously
issued (together, the "Guarantee Warrants"). As a result of the repricing, the
Guarantee Warrants were revalued at $21.9 million, effective March 27,1997 and
are being amortized over the remaining life of the guarantee. On March 31, 1998,
in connection with the Acquisition, the Bank Financing was restructured. See
Note 15.
Deferred Trade Payables
In the last quarter of 1997, the Company arranged the financing of certain trade
payables. As of December 31, 1997, $11.7 million of deferred trade payables were
outstanding at rates ranging from 6.23% to 14% and are generally payable by the
end of 1998.
Bridge Loan
On December 31, 1997, the Company entered into a Bridge Loan with Hughes
Communications Satellite Services, Inc. ("Hughes") in the principal amount of up
to $10 million, secured by a pledge of the Company's interest in its 80%-owned
subsidiary, AMRC. The Bridge Loan bears an annual interest rate of 12% and has a
maturity date of March 31, 1999, and requires mandatory repayment in the event
net proceeds are received from any asset disposition, lease agreement, financing
or equity transaction of the Company. The Bridge Loan was drawn in full and
subsequently repaid in full on March 31, 1998, with a portion of the proceeds
from the Notes. No further borrowing is available under the Bridge Loan. See
Note 15.
Term Loan Agreement
The Company entered into a Term Loan Agreement (the "Loan Agreement") with
Northern Telecom to finance the purchase of certain equipment to be used in the
ground segment. The Loan Agreement provided for principal borrowings up to $7.5
million plus $1.1 million for accrued interest. In September 1996, the Company
arranged to reduce the interest rate from LIBOR plus 4.5% to a floating rate of
LIBOR plus 2.5% through maturity and to defer amounts due under the Loan
Agreement to1997. In December 1997, the Loan Agreement was amended to increase
the interest rate to LIBOR plus 4.5%, effective January 1, 1998, and to defer a
portion of principal payments until April 1, 1998. As of December 31, 1997, $4.9
million was outstanding at an annual interest rate of 8.156%.
F-32
<PAGE>
Deferred Payment Agreement
In 1992, the Company entered into a contract ("CGS Contract") with Westinghouse
Electric Corporation ("Westinghouse") pursuant to which Westinghouse was
responsible for designing and constructing the Ground Segment and developing the
final specification for mobile telephones. In connection with the CGS Contract,
Westinghouse agreed to defer payment, including interest thereon, under certain
terms and conditions, for the basic purchase price and for change orders and
options elected by the Company (the "Deferred Payment Agreement"). During 1997,
the remaining $5.2 million obligation under the Deferred Payment Agreement was
fully repaid.
Interest Costs
The Company incurred interest costs of approximately $21.6 million, $15.1
million, and $5.6 million in 1997, 1996, and 1995, respectively. All interest
costs incurred through September 30, 1995 were capitalized as part of the
Company's construction activities. The capitalization of interest was
discontinued in the fourth quarter of 1995 when the Satellite Network was deemed
substantially complete and ready for its intended use. Interest cost paid, net
of amounts capitalized, was $ 327,000 in 1995.
Assets Pledged and Secured
All wholly owned subsidiaries of the Company are subject to financing agreements
that limit the amount of cash dividends and loans that can be advanced to the
Company. At December 31, 1997, all of the subsidiaries' net assets were
restricted under these agreements. These restrictions will have an impact on
American Mobile Satellite Corporation's ability to pay dividends.
Covenants
The debt agreements and related Guarantee Agreements entered into by the Company
contain various restrictions, covenants, defaults, and requirements customarily
found in such financing agreements. Among other restrictions, these provisions
include limitations on cash dividends, restrictions on transactions between
American Mobile and its subsidiaries, restrictions on capital acquisitions,
material adverse change clauses, and maintenance of specified insurance
policies.
8. RELATED PARTIES
In 1990, following a competitive bid process, American Mobile signed contracts
with Hughes Aircraft, the parent company of Hughes Communications Satellite
Services ("Hughes Communications"), an American Mobile stockholder, to construct
MSAT-2 (the "Satellite Construction Contract"). The contract contains flight
performance incentives payable by the Company to Hughes Aircraft if MSAT-2
performs according to the contract. The total incentives owed, if earned, will
F-33
<PAGE>
be $7.1 million, plus interest, with payment amounts otherwise due deferred
until second quarter 1998. The costs of the incentives are capitalized in the
period earned. The Company also in 1990 selected HNS Ltd., an affiliate of
Hughes Aircraft, to design, manufacture, and implement the Company's Mobile Data
Communications Service. In 1991, the Company entered into an agreement with
Hughes Communications to provide assistance in the launch services procurement
process and certain other management services through the launch date.
Additionally, in 1996, Hughes loaned the Company $10.0 million as part of its
participation in the Interim Financing. On December 31, 1997, the Company
entered into a Bridge Loan Agreement (the "Bridge Loan") with Hughes
Communications in the principal amount of up to $10 million (see Note 7).
The Company has entered into various transactions and agreements with affiliates
of AT&T Wireless Services, Inc. ("AT&T Wireless"), an American Mobile
stockholder. The arrangements include the purchase of satellite capacity and
equipment by AT&T, the purchase by American Mobile of certain equipment for use
in the Satellite Network, the leasing of certain office equipment, and the
engagement of AT&T to be one of the Company's long-distance providers.
Additionally, the Company sublet certain office space to AT&T Wireless through
September 1996. The following table presents a summary of related party
transactions.
<TABLE>
<CAPTION>
Years Ended December 31
(in thousands) 1997 1996 1995
<S> <C> <C> <C>
Payments made to (from) related parties:
Additions to property under construction $ -- $ -- $3,029
Additions to property and equipment in service 200 2,847 265
Proceeds from debt issuance -- (10,000) --
Payments on debt obligations 292 20,926 251
Payment for Guarantees -- 3,000 --
Operating expenses 2,706 3,817 1,453
Satellite capacity/airtime revenue (2,836) (1,276) --
Sublease income -- (205) (239)
Other -- -- (506)
-------- -------- -------
Net payments to related parties $ 362 $19,109 $4,253
======== ======== =======
Due to (from) related parties:
Mobile Data Communications Service Financing $ -- $ -- $7,180
Capital leases 249 446 631
Operating expenses 1,209 185 708
Satellite capacity/airtime revenue (495) (416) --
Capital acquisitions 2,120 1,584 1,924
----- ----- -----
Net amounts due to related parties $ 3,083 $1,799 $10,443
======== ======== ========
</TABLE>
F-34
<PAGE>
9. LEASES
Capital Leases
The Company leases certain office equipment and Ground Segment equipment under
agreements accounted for as capital leases. Assets recorded as capital leases in
the accompanying balance sheets include the following:
December 31
(in thousands) 1997 1996
Ground Segment equipment $7,263 $7,263
Office equipment 4,033 4,088
Less accumulated amortization 4,750 2,826
----- -----
Total $6,546 $8,525
====== ======
Amortization of the Ground Segment equipment began with the commencement of full
commercial service in December 1995.
In January 1996, the Company refinanced certain computer hardware components
under a sale/leaseback arrangement. The Company received proceeds in the amount
of $1.7 million. The transaction was accounted for as a financing, wherein the
property remains on the books and continues to be depreciated. A financing
obligation representing the proceeds was recorded, and is reduced based on
payments under the lease. The sale/leaseback has a three-year term and had a
balance of approximately $93,000 at December 31, 1997.
Operating Leases
The Company leases certain facilities and equipment under arrangements accounted
for as operating leases. Certain of these arrangements have renewal terms. The
office lease has an original lease term of ten years expiring in 2003, with a
renewal option, and escalation clauses. Total rent expense, under all operating
leases, approximated $2.9 million, $2.5 million, and $10.6 million in 1997,
1996, and 1995, respectively.
F-35
<PAGE>
At December 31, 1997, minimum future lease payments under noncancellable
operating and capital leases are as follows:
Operating Capital
Leases Leases
(in thousands)
1998 $2,188 $1,200
1999 2,114 2,124
2000 2,044 1,351
2001 2,085 --
2002 2,131 --
thereafter 2,155 --
- ---------- ----- -----
Total $12,717 $4,675
=======
Less: Interest 730
-----
$3,945
======
10. OPERATING AGREEMENTS AND COMMITMENTS
Joint Operating and Satellite Capacity Agreements
On December 4, 1997, the Company entered into two simultaneous transactions. The
Company agreed with TMI to acquire a one-half ownership interest in TMI's
satellite, MSAT-1, at a cost of $60 million payable in equal installments over a
five-year period (the "Satellite Purchase Agreement"); certain additional
payments to TMI are contemplated in the event that additional benefits are
realized by the Company. Under the Satellite Purchase Agreement, TMI and
American Mobile will each own a 50% undivided ownership interest in the Shared
Satellite, will jointly be responsible for the operation of the Shared
Satellite, and will share certain satellite operating expenses, but will
otherwise maintain their separate business operations. Simultaneously, the
Company entered into an agreement (the "Satellite Lease Agreement") with African
Continental Telecommunications Ltd. ("ACTEL"), for the lease of MSAT-2, for
deployment over sub-Saharan Africa. The five-year lease provides for aggregate
lease payments to the Company of $182.5 million. The lease includes a renewal
option through the end of the life of MSAT-2, on the same lease terms, at
ACTEL's election exercisable 2 1/2 years prior to the end of the initial lease
term.
Should the Satellite Purchase Agreement and Satellite Lease Agreement not be
consummated, the Company and TMI will remain parties to a Joint Operating
Agreement and a Satellite Capacity Agreement under which the parties agree to
provide, among other things, emergency backup and restoral services to each
party during any period in which the other's satellite is not functioning
properly. Additionally, each party will be entitled to lease excess capacity
from the other party's satellite under specified terms and conditions. The
implementation of these agreements requires regulatory approvals by the FCC and
F-36
<PAGE>
Industry Canada (formerly Canada's Department of Industry and Science). The
Company has received, and expects to continue to seek approvals contemplated
under these agreements on a timely basis.
Commitments
At December 31, 1997, the Company had remaining contractual commitments to
purchase both mobile data terminal inventory and mobile telephone inventory
approximating $6.3 million.
The aggregate fixed and determinable portion of all inventory commitments and
obligations for other fixed contracts for the next five years is as follows.
(in thousands)
1998 $7,011
1999 1,802
2000 426
---
Total $9,239
======
Additionally, the Company may enter into additional commitments that may require
the purchase of mobile telephone and mobile terminal inventory in amounts that
could be material to the Company's financial condition.
The Company entered an agreement with a vendor, whereby the Company would incur
extra licensing fees, up to a total maximum potential of $4.1 million, upon the
voice subscriber base reaching certain levels. Management does not believe that
the subscriber levels outlined in the license will be met.
11. EMPLOYEE BENEFITS
Defined Contribution Plan
The Company sponsors a 401(k) defined contribution plan ("401(k) Savings Plan")
in which all employees can participate. Effective January 1, 1995, the 401(k)
Savings Plan provides for a Company match of employee contributions, in the form
of Common Stock, limited to the fair market value of up to one-half of the
employee's contribution not to exceed 6% of an employee's salary. The Company's
matching expense was $350,000 for 1997, $411,000 for 1996 and $329,000 for 1995.
F-37
<PAGE>
Employee Stock Purchase Plan
In December 1993, the Company adopted the Employee Stock Purchase Plan ("Stock
Purchase Plan") to allow eligible employees to purchase shares of the Company's
Common Stock at 85% of the lower of market value on the first and last business
day of the six-month option period. An aggregate of 29,930, 39,366 and 30,877
shares of Common Stock were issued under the Stock Purchase Plan in 1997, 1996,
and 1995, respectively.
12. BUSINESS ACQUISITION
On November 22, 1996, the Company acquired the assets of Rockwell Collins, Inc.
("Rockwell") relating to its Land Transportation Electronics Mobile
Communications Satellite Service business (the "Business") through which
Rockwell had sold mobile messaging hardware and services to commercial trucking
fleets. The assets of the Business were acquired from Rockwell through the
assumption by the Company of the various contracts and obligations of Rockwell
relating to the Business; no additional direct payments were made or are to be
made under the terms of the Asset Sale Agreement, dated as of November 22, 1996.
The assets of the business acquired from Rockwell include tangible equipment,
completed inventory and future inventory deliveries to be used in connection
with fulfilling the contracts transferred with the Business. The Company intends
to continue such use in operating the Business.
The purchase method of accounting for business combinations was used. The
operating results of the Business have been included in the Company's
consolidated statements of loss from the date of acquisition and were
insignificant in 1996. The fair value of the assets acquired was $9.5 million
and liabilities assumed totaled $6.1 million. The fair value of assets acquired
in excess of purchase price arising from the acquisition in the amount of $3.4
million is being amortized over five years on a straight line basis. Assets
acquired included inventory deliveries, fixed assets, and other miscellaneous
items.
The pro forma results below (unaudited) assume the acquisition occurred at the
beginning of the year ended December 31, 1996 (dollars in thousands, except per
share data).
1996
Revenue $33,333
Net Loss (148,434)
Loss per share (5.93)
F-38
<PAGE>
13. LEGAL AND REGULATORY AND OTHER MATTERS
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 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.
The Company's license requires that it comply with a construction and launch
schedule specified by the FCC for each of the three authorized satellites. The
second and third satellites are not in compliance with the schedule for
commencement of construction. The Company has asked the FCC to grant extensions
of the deadlines for the second and third satellites. Certain of these extension
requests have been opposed by third parties. The FCC has not acted on the
Company'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 the Company's license. The Company believes
that the exercise of such authority to rescind the license is unlikely.
As a provider of interstate telecommunications services, the Company is required
to contribute to the FCC's universal service fund, 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 is not born by the Company, but is passed on to its customers as is
universally practiced in the industry.
F-39
<PAGE>
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,
previously set for December 1997, has been postponed to a date to be determined
in 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.
Other Matters
As previously reported, the satellite has, in the past, experienced certain
technological anomalies, most significantly with respect to its eastern beam. On
August 1, 1996, the Company reached a resolution of the claims under its
satellite insurance contracts and policies and received proceeds in the amount
of $66.0 million which were used to repay the Working Capital Facility and
portions of the Term Loan Facility and the Vendor Financing. Based on certain
engineering studies and the design of the satellite, the Company believes that
the insurance proceeds reflected the actual cost of damage sustained to the
satellite, and, as a result, the carrying value of the satellite was reduced by
the net insurance proceeds, which resulted in a reduction of future depreciation
charges beginning in the third quarter of 1996. There can be no assurance that
the satellite will not experience subsequent anomalies that could adversely
impact the Company's financial condition, results of operations and cash flows.
The Company has received a current recommendation from a subcontractor to its
satellite manufacturer that, pending further results from an ongoing
investigation, the satellite should be operated at modified power management
levels. The Company and its satellite manufacturer are investigating the basis,
if any, for this recommendation. Based on the information available to date,
management believes that, even if maintained, the current power management
recommendation would not have a material negative effect on the Company's
business plan within the next three to five years, based on anticipated traffic
patterns and anticipated subscriber levels. In the event that traffic patterns
or subscriber levels materially exceed those anticipated, the power management
recommendation, if maintained, could have a material impact on the Company's
long-term business plan.
F-40
<PAGE>
14. SUPPLEMENTAL CASH FLOW INFORMATION
<TABLE>
<CAPTION>
Years Ended December 31
(in thousands) 1997 1996 1995
<S> <C> <C> <C>
Noncash investing and financing activities:
Leased asset and related obligations $182 $284 $1,351
Issuance of Common Stock purchase warrants 12,490 21,253 --
Issuance of Common Stock upon exercise of Common
Stock purchase warrants -- 845 --
Vendor financing for property under construction -- -- 7,561
Vendor financing for property in service -- 2,440 4,560
Issuance of Common Stock under the Defined Contribution Plan 349 411 329
Net assets acquired as a result of Business Acquisition (Note 12) -- 3,488 --
</TABLE>
NOTE 15 - SUBSEQUENT EVENTS
During the first quarter of 1998, the Company entered into a series of
transactions. These transactions, some of which contain certain contingencies to
closing, include the acquisition of ARDIS and related $335 million financing;
the restructuring of the Bank Financing; and a commitment by Motorola to provide
the Company with up to $10 million of vendor financing related to the build out
of the ARDIS network.
Stock Purchase Agreement and Related Financing
As discussed in Note 1, on December 31, 1997, the Company entered into a Stock
Purchase Agreement with Motorola for the acquisition of ARDIS, a Motorola
subsidiary that owns and operates a two-way wireless data communications
network. Subject to certain post-acquisition purchase price reduction
provisions, the Company would acquire ARDIS for a purchase price of $50 million
in cash and $50 million in the Company's stock and warrants. The transaction was
subject to certain governmental approvals, including FCC approvals to transfer
the ARDIS licenses to the Company, and was subject to the completion of a
financing by the Company in an amount sufficient to fund the transactions
contemplated under the Stock Purchase Agreement. On March 3, 1998, the FCC
granted consent to consummate the Acquisition, and on March 31, 1998, the
Acquisition was consummated.
$335 Million Unit Offering
In connection with the Acquisition, the Company formed a new wholly-owned
subsidiary ("Acquisition Company") to hold the stock of all current wholly-owned
operating subsidiaries, acquire ARDIS, and issue $335 million of Units
consisting of 12 1/4% Senior Notes due 2008 of Acquisition Company, and Warrants
to purchase shares of Common Stock of the Company. Each Unit consists of $1,000
F-41
<PAGE>
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 portion of the net proceeds of
the sale of the Units were used to finance the Acquisition. The Notes are fully
guaranteed by American Mobile Satellite Corporation. The terms of the Notes
require that the Company purchase a portfolio of U.S. government securities
(approximately $113 million), which will provide funds sufficient to pay in full
when due the first six scheduled semi-annual interest payments on the Notes. The
Company intends to use the remaining proceeds from the Notes to fund certain
required escrows, repay the Bridge Loan, repay certain deferred obligations, pay
expenses associated with the Acquisition and the $335 Million Unit Offering, to
repay the Revolving Credit Facility under the Bank Financing, and for working
capital requirements.
New Bank Financing
In connection with the Acquisition, the Company, the Acquisition Company and its
subsidiaries restructured the existing $200 million Bank Financing to provide
for the New Bank Financing: (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 will be the obligation of Acquisition Company and will rank pari
passu with the Notes. The Term Loan Facility will be the obligation of American
Mobile Satellite Corporation and is secured by the stockholdings 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, Singapore Telecom and Baron
Capital Partners, L.P. (the "Bank Facility Guarantors"). The Banks' placement
fee for the New Bank Financing is approximately $500,000.
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. Certain proceeds received by the Acquisition Company would be required
to repay and reduce the Revolving Credit Facility, unless otherwise waived by
the Banks and the Bank Facility Guarantors: (1) 100% of excess cash flow
obtained by the Acquisition Company; (2) the first $25.0 million net proceeds of
the lease or sale of MSAT-2 received by the Acquisition Company, and thereafter
75% of the remaining proceeds received from such lease or sale (the remaining
25% may be retained by the Acquisition Company for business operations); (3)
100% of the proceeds of any other asset sales by the Acquisition Company; (4)
50% of the net proceeds of any offerings of the Acquisition Company's equity
(the remaining 50% to be retained by the Acquisition Company for business
operations); and (5) 100% of any major casualty proceeds. At such time as the
Revolving Credit Facility is repaid in full, and subject to satisfaction of the
restrictive payments provisions of the Notes, any prepayment amounts that would
otherwise have been used to prepay the Revolving Credit Facility will be
dividended to the Company.
The Term Loan Facility bears an interest rate, generally, of 50 basis points
above LIBOR and is secured by the assets of the Company, principally its
F-42
<PAGE>
stockholdings in AMRC and the Acquisition Company. The Term Loan Agreement does
not include any scheduled amortization until maturity, but does contain certain
provisions for prepayment based on certain proceeds received by the Company,
unless otherwise waived by the Banks and the Bank Facility Guarantors: (1) 100%
of excess cash flow obtained by the Company; (2) the first $25.0 million net
proceeds of the lease or sale of MSAT-2 received by the Company, and thereafter
75% of the remaining proceeds received from such lease or sale (the remaining
25% to be retained by the Acquisition Company for business operations); (3) 100%
of the proceeds of any other asset sales by the Company; (4) 50% of the net
proceeds of any equity offerings of the Company (the remaining 50% to be
retained by the Company for business operations); and (5) 100% of any major
casualty proceeds of the Company. To the extent that the Term Loan Facility is
repaid, the aforementioned proceeds that would otherwise have been used to repay
the Term Loan Facility will be used to repay and reduce the commitment under the
Revolving Credit Facility.
The Guarantees
In connection with the New Bank Financing, the Bank Facility Guarantors have
agreed to extend separate guarantees of the obligations of each of the
Acquisition Company and the Company to the Banks, which on a several basis
aggregate to $200 million. In their agreement with each of the Acquisition
Company and the Company (the "Guarantee Issuance Agreement"), the Bank Facility
Guarantors have agreed to make their guarantees available for the New Bank
Financing. The Guarantee Issuance Agreement will include certain additional
agreements of the Acquisition Company and of the Company including with respect
to financial performance of the Acquisition Company relating to the ratio of
debt to EBITDA and service revenue, which, if not met, could, if not waived,
limit the Acquisition Company's ability to draw down on additional amounts under
the Revolving Credit Facility and result in a default under the New Bank
Financing beginning in 1999. In exchange for the additional risks undertaken by
the Bank Facility Guarantors in connection with the New Bank Financing, the
Company has agreed to compensate the Bank Facility Guarantors, principally in
the form of 1 million additional warrants and repricing and extending the
expiration date of 5.5 million warrants previously issued (together, the "New
Guarantee Warrants"). The New Guarantee Warrants will be on terms substantially
similar, including with regard to pricing, as those issued as part of the Units.
Further, in connection with the Guarantee Issuance Agreement, the Company has
agreed to reimburse the Bank Facility Guarantors in the event that the
Guarantors are required to make payment under the Revolving Credit Facility
guarantees, and, in connection with this Reimbursement Commitment has provided
the Bank Facility Guarantors a junior security interest with respect to the
assets of the Company, principally its stockholdings in AMRC and the Acquisition
Company.
Motorola Vendor Financing
Motorola has agreed to provide the Acquisition Company with up to $10.0 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
F-43
<PAGE>
Company. The terms of such facility will require that amounts borrowed be
secured by the equipment purchased therewith. This commitment is subject to
customary conditions, including due diligence, and there can be no assurance
that the facility will be obtained by the Acquisition Company on these terms or
at all.
NOTE 16 - FINANCIAL STATEMENTS OF SUBSIDIARIES
In connection with the Acquisition and related financing discussed in Note 15,
the Company formed a new wholly-owned subsidiary, AMSC Acquisition Company, Inc.
The Company intends to transfer 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 AMSC Acquisition
Company, Inc.
AMSC Acquisition Company, Inc. will be the acquirer of ARDIS and the issuer of
the $335 million of Senior Notes. American Mobile Satellite Corporation
("Parent") will guarantee the Senior Notes. The Senior Notes will contain
covenants that, among other things, limit the ability of AMSC Acquisition
Company, Inc. 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.
The combined condensed financial statements of American Mobile Subsidiaries are
set forth below.
F-44
<PAGE>
American Mobile Subsidiaries
Combined Statements of Loss
(dollars in thousands)
for the years ended December 31, 1997, 1996, and 1995
<TABLE>
<CAPTION>
Years Ended December 31
1997 1996 1995
REVENUES
<S> <C> <C> <C>
Services $20,684 $9,201 $6,873
Sales of equipment 23,530 18,529 1,924
------ ------- ------
Total Revenues 44,214 27,730 8,797
COSTS AND EXPENSES:
Cost of service and operations 31,959 30 471 23,863
Cost of equipment sold 40,335 31,903 4,676
Sales and advertising 12,030 24,541 22,683
General and administrative 14,890 16,212 17,285
Depreciation and amortization 44,535 45,496 11,568
------ ------ ------
Operating Loss (99,535) (120,893) (71,278)
INTEREST AND OTHER INCOME 1,122 552 1,242
INTEREST EXPENSE (51,153) (44,636) (3,305)
-------- -------- -------
NET LOSS $(149,566) $(164,977) $(73,341)
========= ======== =======
</TABLE>
F-45
<PAGE>
American Mobile Subsidiaries
Combined Balance Sheets
(dollars in thousands)
as of December 31, 1997 and 1996
<TABLE>
<CAPTION>
ASSETS 1997 1996
CURRENT ASSETS:
<S> <C> <C>
Cash and cash equivalents $2,106 $2,182
Inventory 40,321 38,034
Prepaid in-orbit insurance 4,564 5,080
Accounts receivable-trade, net
of allowance for doubtful accounts 8,140 6,603
Other current assets 9,608 14,247
----- ------
Total current assets 64,739 66,146
PROPERTY AND EQUIPMENT - NET 250,335 287,127
DEFERRED CHARGES AND OTHER ASSETS: 36,722 33,264
------ ------
Total assets $351,796 $386,537
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued expenses $35,825 $42,612
Obligations under capital leases due
within one year 798 3,931
Current portion of long-term debt 15,254 11,113
Other current liabilities 7,520 --
----- ------
Total current liabilities 59,397 57,656
DUE TO PARENT 441,836 400,831
LONG-TERM LIABILITIES:
Obligations under Bank Financing 198,000 127,000
Capital lease obligations 3,147 2,557
Net assets acquired in excess
of purchase price (Note 12) 2,725 3,395
Other long-term liabilities 2,011 852
------- -------
Total long-term liabilities 205,883 133,804
------- -------
Total liabilities 707,116 592,291
------- -------
STOCKHOLDERS' EQUITY: (355,320) (205,754)
------- -------
Total liabilities and
stockholders' equity $351,796 $386,537
======== ========
</TABLE>
F-46
<PAGE>
American Mobile Subsidiaries
Combined Statements of Stockholders' Equity
(dollars in thousands)
for the period from January 1, 1995 through December 31, 1997
Total
BALANCE, December 31, 1994 $ 32,564
Net Loss (73,341)
--------
BALANCE, December 31, 1995 (40,777)
Net Loss (164,977)
--------
BALANCE, December 31, 1996 (205,754)
Net Loss (149,566)
--------
BALANCE, December 31, 1997 $ (355,320)
=========
F-47
<PAGE>
American Mobile Subsidiaries
Combined Statements of Cash Flows
(dollars in thousands)
for the years ended December 31, 1997, 1996, and 1995
<TABLE>
<CAPTION>
Years Ended December 31
------------------------------------------
1997 1996 1995
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C> <C>
Net loss $(149,566) $(164,977) $(73,341)
Adjustments to reconcile net loss to net cash used in
operating activities:
Amortization of debt discount 9,350 5,721 --
Depreciation and amortization 44,535 45,413 11,568
Changes in assets and liabilities:
Inventory (2,287) (27,482) (10,438)
Prepaid in-orbit insurance 516 (257) (4,823)
Trade accounts receivable (1,537) (5,229) 218
Other current assets 4,639 1,970 (5,280)
Accounts payable and accrued expenses (5,844) 1,668 23,414
Deferred trade payables 11,685 -- --
Deferred items - net 8,038 1,347 (1,730)
----- ----- -------
Net cash used in operating activities (80,471) (141,826) (60,412)
-------- --------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Insurance proceeds applied to equipment in service -- 66,000 --
Additions to property and equipment (8,598) (14,054) (83,776)
Purchases of short-term investments -- (1,000) --
Deferred charges and other assets -- -- (169)
------ ------ --------
Net cash provided by (used in) investing activities (8,598) 50,946 (83,945)
------- ------ --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Funding from Parent 28,220 29,485 164,835
Principal payments under capital leases (2,576) (3,994) (538)
Proceeds from short-term borrowings -- 70,000 --
Payments on short-term borrowings -- (70,000) --
Proceeds from Bank Financing 71,000 127,000 --
Proceeds from debt issuance -- 1,700 7,630
Payments on long-term debt (6,180) (59,190) (28,486)
Debt issuance costs (1,471) (10,803) (1,081)
------- -------- -------
Net cash provided by (used in) financing activities 88,993 84,198 142,360
Net decrease in cash and cash equivalents (76) (6,682) (1,997)
CASH AND CASH EQUIVALENTS, beginning of period 2,182 8,864 10,861
----- ----- ------
CASH AND CASH EQUIVALENTS, end of period $2,106 $2,182 $8,864
====== ====== ======
</TABLE>
F-48
<PAGE>
QUARTERLY FINANCIAL DATA (unaudited)
(dollars in thousands, except for per share data)
<TABLE>
<CAPTION>
1997-quarters 1996-quarters
1st 2nd 3rd 4th 1st 2nd 3rd 4th
--- --- --- --- --- --- --- ---
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues $8,685 $10,753 $10,795 $13,981 $4,369 $6,749 $7,405 $9,207
Operating expenses(1) 32,341 32,420 30,617 46,231 31,371 45,747 33,914 36,737
Loss from operations (23,656) (21,667) (19,822) (32,250) (27,002) (38,998) (26,509) (27,530)
Interest and other
income (expense) (3,425) (5,175) (6,442) (6,770) (2,875) (4,511) (3,493) (3,720)
Net Loss (27,081) (26,842) (26,264) (39,020) (29,877) (43,509) (30,002) (31,250)
Net loss per common share (2) $(1.08) $(1.07) $(1.04) $(1.55) $(1.20) $(1.74) $(1.20) $(1.24)
Weighted-average common shares
outstanding during the
period (000s) 25,109 25,120 25,145 25,151 24,995 25,012 25,065 25,092
Market price per share (3)
High $14.75 $12.13 $10.88 $10.75 $33.25 $20.00 $17.50 $14.62
Low $9.37 $8.50 $6.23 $6.28 $16.00 $15.00 $10.75 $9.25
</TABLE>
(1) Operating expenses include charges of approximately $12 million in the
fourth quarter of 1997 and $11.1 million in the second quarter of 1996
related to the realizability of the Company's inventory investment.
(2) Loss per share calculations for each of the quarters are based on the
weighted average number of shares outstanding for each of the periods, and
the sum of the quarters may not necessarily be equal to the full year loss
per share amount.
(3) The Company's Common Stock is listed under the symbol SKYC on the Nasdaq
National Market System. The Company's Common Stock was not publicly traded
prior to December 14, 1993. The quarterly high and low sales price
represents the closing price in the Nasdaq National Market System. The
quotations represent inter-dealer quotations, without retail markups,
markdowns or commissions, and may not necessarily represent actual
transactions. As of February 28, 1998, there were 251 stockholders of
record of the Company's Common Stock.
F-49
<PAGE>
Selected Financial Data
Set forth below is the selected financial data for the Company for the five
fiscal years ended December 31, 1997:
<TABLE>
<CAPTION>
(dollars in thousands, except for per share data)
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Revenues $44,214 $27,730 $8,797 $5,240 $852
Net Loss $(119,207) $(134,638) $(66,917) $(21,103) $(25,180)
Net Loss per Common Share $(4.74) $(5.38) $(2.69) $(0.86) $(2.49)
Dividends on Common Stock (1) None None None None None
Consolidated Balance Sheet Data:
Cash and Cash Equivalents $2,106 $2,182 $8,865 $137,287 $243,060
Property Under Construction -- -- -- 263,505 204,740
Total Assets 311,447 350,173 398,351 448,674 460,382
Current Liabilities 59,433 57,669 104,772 37,251 36,309
Long-Term Obligations 205,883 133,804 6,052 59,879 56,703
Stockholders' Equity 46,131 158,700 287,527 351,544 367,370
</TABLE>
(1) The Company has paid no dividends on its Common Stock since inception
and does not plan to pay dividends on its Common Stock in the
foreseeable future. In addition, the payment of dividends is subject to
restrictions described in Note 7 to the financial statements and
discussed in Management's Discussion and Analysis.
F-50
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To American Mobile Satellite Corporation
We have audited in accordance with generally accepted auditing standards, the
consolidated financial statements of American Mobile Satellite Corporation and
Subsidiaries (a Delaware corporation) included in this Form 10-K and have issued
our report thereon dated March 31, 1998. Our audits were made for the purpose of
forming an opinion on the basic financial statements taken as a whole. The
schedule listed in the index is the responsibility of the Company's management
and is presented for purposes of complying with the Securities and Exchange
Commission's rules and is not part of the basic financial statements. The
schedule has been subjected to the auditing procedures applied in the audits of
the basic financial statements and, in our opinion, fairly states in all
material respects the financial data required to be set forth therein in
relation to the basic financial statements taken as a whole.
/s/ Arthur Andersen LLP
Washington, D.C.
March 31, 1998
<PAGE>
SCHEDULE I
AMERICAN MOBILE SATELLITE CORPORATION
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
(Parent Company Only)
Condensed Balance Sheets
<TABLE>
<CAPTION>
December 31,
1997 1996
(in thousands of dollars)
ASSETS
<S> <C> <C>
Investment in and amounts due from subsidiaries $ 46,168 $158,713
--------- --------
Total assets $ 46,168 $158,713
========= ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable and accrued expenses $37 $13
--- ---
Stockholders' Equity
Preferred Stock -- --
Common Stock 252 251
Additional paid-in capital 451,892 451,259
Common stock purchase warrants 36,338 23,848
Unamortized stock purchase warrants (23,586) (17,100)
Accumulated loss (418,765) (299,558)
--------- ---------
Total Stockholders' Equity 46,131 158,700
------ -------
Total Liabilities and Stockholders' Equity $ 46,168 $158,713
========= ========
</TABLE>
The accompanying notes are an integral part of this condensed financial
information.
S-1
<PAGE>
SCHEDULE I
AMERICAN MOBILE SATELLITE CORPORATION
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
(Parent Company Only)
Condensed Statements of Loss
<TABLE>
<CAPTION>
For the Years Ended December 31,
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Management fees from wholly-owned subsidiary $1,200 $1,200 $1,200
------ ------ ------
Operating Expenses
Engineering operations -- -- 87
Sales and marketing 36 -- 91
General and administrative 1,129 2,452 595
----- ----- ----
Total operating expenses 1,165 2,452 773
----- ----- ----
Income (loss) from operations 35 (1,252) 427
Interest income -- -- 3,258
Interest expenses (6,005) (1,900) --
Equity loss in AMRC (1,301) -- --
--------- --------- ---------
(Loss) income before net loss of Acquisition Company (7,271) (3,152) 3,685
Net loss of Acquisition Company - Note A (111,936) (131,486) (70,602)
--------- --------- --------
Net Loss $(119,207) $(134,638) $(66,917)
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of this condensed financial
information.
S-2
<PAGE>
SCHEDULE I
AMERICAN MOBILE SATELLITE CORPORATION
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
(Parent Company Only)
<TABLE>
Condensed Statements of Cash Flows
<CAPTION>
For the Years Ended December 31,
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Cash Provided from Operating Activities $ 59 $1,424 $5,067
Investing Activities
Advances to and investment in subsidiaries (343) (2,672) (162,778)
Sales of short-term investments, net -- -- 28,717
------ ------- --------
Cash (used in) investing activities (343) (2,672) (134,061)
Financing Activities
Proceeds from sale of Common Stock 284 1,248 2,569
----- ----- -----
Cash Provided by Financing Activities 284 1,248 2,569
----- ----- -----
(Decrease) increase for the period -- -- (126,425)
Beginning of period -- -- 126,425
----- ----- -----
End of period $ -- $ -- $ --
====== ======= ========
</TABLE>
The accompanying notes are an integral part of this condensed financial
information.
S-3
<PAGE>
SCHEDULE I
AMERICAN MOBILE SATELLITE CORPORATION
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
(Parent Company Only)
Notes to Condensed Financial Statements
The condensed financial information should be read in conjunction with the
consolidated financial statements.
Note A -- Background and Basis of Presentation
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.
In late 1996, the Company expanded its mobile data business through the
acquisition of Rockwell International Corporation's ("Rockwell") dual mode
mobile messaging and global positioning and monitoring service for commercial
trucking fleets. Rockwell was a private network customer of the Company which
had purchased capacity from the Company on MSAT-2.
On December 31, 1997, the Company entered into a Stock Purchase Agreement (the
"Purchase Agreement") with Motorola, Inc. ("Motorola"), for the acquisition (the
"Acquisition") of ARDIS Company ("ARDIS"), a wholly-owned subsidiary of Motorola
that owns and operates a two-way wireless data communications network. Subject
to certain purchase price adjustment provisions, the Company will acquire ARDIS
for a purchase price of $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, intends to create 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,
S-4
<PAGE>
1997. American Mobile has entered into an agreement with WorldSpace, Inc.
("WorldSpace"), by which WorldSpace has acquired a 20% participation in AMRC. In
connection with the DARS auction, AMRC has also arranged for financing of the
FCC license fees as well as for initial working capital needs, which financing
has included the issuance of options. 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.
In the parent Company-only financial statements, the Company's investment in
subsidiaries is stated at cost less losses of subsidiaries. The net loss of
subsidiaries is included in these financial statements using the equity method.
The parent Company-only statements exclude inter-company interest. The Company
has entered into various transactions with its subsidiaries which are eliminated
in the December 31, 1997 audited consolidated financial statements and are
summarized as follows:
1997 1996 1995
Investment in and amounts
due from subsidiaries $46,167 $158,713 $287,527
Management fees 1,200 1,200 1,200
Interest income 29,520 29,485 23,445
Note B -- Investment in Subsidiaries
As stated in Note A, the Company records its investment in subsidiaries on the
equity method. In connection with the Acquisition, the Company formed a new
wholly-owned subsidiary ("Acquisition Company") to hold the stock of all current
wholly-owned operating subsidiaries. The Acquisition Company has six
wholly-owned subsidiaries. Additionally, the Company has an equity investment in
AMRC. The recoverability of such investment is subject to the risks associated
with expanding a developing business, 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 Subsidiaries' financial
condition and future results of operations.
Adequate liquidity and capital are critical to the ability of the Acquisition
Company to continue as a going concern and to fund subscriber acquisition
programs necessary to reach cash positive and profitable operations. The
Acquisition Company expects to continue to make significant capital outlays for
the foreseeable future to fund interest expense, capital expenditures and
working capital prior to the time that it begins to generate positive cash flow
from operations and for the foreseeable future thereafter. The Acquisition
Company currently believes that the net proceeds from the sale of the $335
million in Notes and warrants, together with the borrowings under the $200
million New Bank Financing, the Motorola financing, and the proceeds from the
Satellite Lease Agreement (all discussed below) will be sufficient to meet the
Acquisition Company's currently anticipated capital expenditures, operating
losses, working capital and debt service requirements through 1998 and beyond.
S-5
<PAGE>
However, if the Acquisition Company's cash flows from operations are less than
projected, the Acquisition Company may not meet its financial performance
agreements under the Guaranty Issuance Agreement and, if such conditions are not
met or waived, the Acquisition Company would not have access to additional funds
under the Revolving Credit Facility. In addition, even in the event that the
Acquisition Company has access to such funds, it may require additional debt or
equity financing in amounts that could be substantial. The type, timing and
terms of financing selected by the Acquisition Company will be dependent upon
the Acquisition Company's cash needs, the availability of other financing
sources and the prevailing conditions in the financial markets. There can be no
assurance that any such sources will be available to the Acquisition Company at
any given time or as to the favorableness of the terms on which such sources may
be available.
In connection with the ARDIS Acquisition, the Company raised $335 million in
cash proceeds from the private issuance of units ("Units") consisting of 12 1/4
% Senior Notes ("Notes") due 2008 and one warrant to purchase 3.75749 shares of
Common Stock of the Company for each $1,000 principal amount of Notes. The Notes
are fully guaranteed by American Mobile Satellite Corporation. Additionally, the
existing Bank Financing was restructured. The New Bank Financing of $200 million
will consist of a $100 million unsecured five-year reducing Revolving Credit
Facility maturing March 31, 2003 and a $100 million five-year Term Loan Facility
with up to three additional one-year extensions subject to lender approval. The
Revolving Credit Facility will be the obligation of Acquisition Company and will
rank pari passu with the Notes. The Term Loan Facility will be the obligation of
American Mobile Satellite Corporation and is secured by the stockholdings 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"). Additionally, Motorola
has agreed to provide the Company with 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 base stations needed to meet ARDIS'
buildout requirements under certain customer contracts. Loans under this
facility will bear interest at a rate equal to LIBOR plus 7.0%. This commitment
is subject to customary conditions, including due diligence, and there can be no
assurance that the facility will be obtained by Acquisition Company on these
terms or at all.
On December 4, 1997, the Company and one of its wholly-owned subsidiaries (AMSC
Subsidiary) entered into two simultaneous transactions. The Company agreed with
TMI to acquire a one-half ownership interest in TMI's satellite, MSAT-1, at a
cost of $60 million payable in equal installments over a five-year period (the
"Satellite Purchase Agreement"); certain additional payments to TMI are
contemplated in the event that additional benefits are realized by the Company.
Simultaneously, the Company entered into an agreement (the "Satellite Lease
Agreement") with African Continental Telecommunications Ltd. ("ACTEL"), for the
lease of MSAT-2, for deployment over sub-Saharan Africa. The five-year lease
provides for aggregate lease payments to the Company of $182.5 million. The
lease includes a renewal option through the end of the life of MSAT-2, on the
same lease terms, at ACTEL's election exercisable 2 1/2 years prior to the end
of the initial lease term. Closing under the Satellite Purchase Agreement and
Satellite Lease Agreement is subject to a number of conditions. It is
anticipated that the closing under both leasing agreements will occur
simultaneously in the spring of 1998.
S-6
<PAGE>
Note C -- Guarantee
The Company has guaranteed various obligations of Acquisition Company. These
guaranteed obligations include amounts borrowed under the New Bank Financing,
ground segment financing agreements and obligations of Acquisition Company and
its subsidiaries under an office lease agreement and various capital equipment
leases.
Note D -- Legal Matters
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,
previously set for December 1997, has been postponed to a date to be determined
in 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.
S-7
<PAGE>
Exhibit 10.3c
---------------
Revised by Amendment 7
AMENDMENT NO.7
TO THE AMSC/HUGHES
MSAT SPACECRAFT CONTRACT
This Amendment No. 7 to the MSAT Spacecraft AMSC-S/C-11/90-001 dated 10 December
1990 (the Contract) as amended, is made effective this 2nd day of December
1997 by and between:
AMSC SUBSIDIARY CORPORATION, as assignee of AMERICAN MOBILE SATELLITE
CORPORATION, (hereinafter referred to as "AMSC"), a company incorporated under
the laws of the State of Delaware, having its principle place of business in the
Reston, Virginia, U.S.A.
AND
HUGHES SPACE AND COMMUNICATIONS COMPANY, (hereinafter referred to as
"Contractor" or "HUGHES"), a company organized and existing under the laws of
Delaware with its principal place of business located in El Segundo, California,
USA.
WHEREAS, AMSC and HUGHES have heretofore entered into the Contract for provision
of a satellite and other items therein; and,
WHEREAS, AMSC has decided it will lease the M2 Spacecraft ("Spacecraft" or
"Satellite") to African Continental Telcommunications Ltd. (hereinafter
referred to as "ACTEL" or "Lessee"); and,
WHEREAS, pursuant to AMSC's request, HUGHES will enter into a separate contract
with Telesat Canada (hereinafter referred to as "Telesat" or "Operator"), for
software and procedures so that Telesat, as AMSC's satellite operator, can
invert and roll the Spacecraft, and,
WHEREAS, AMSC and HUGHES have agreed to amend the terms of the Contract to
reflect the impact of AMSC's lease of the Satellite with ACTEL and HUGHES
entering into a separate contract with Telesat; and
WHEREAS, AMSC and HUGHES had previously agreed to modify the Contract with the
approval of a revised MSAT IRD with Atlas and certain Engineering Change
Requests (ECRs), and the Parties now wish to incorporate this IRD and the
following ECRs as an administrative matter: ECRs 456346-58, 456415-65,
456348-75, 456349-76, 456350-77, 456351-97, 456352-98A, into the Common Test
Plan; and TMI has approved the same ECRs to change the MSAT IRD with Atlas into
their Assignment Agreement and to make the same related adjustments in the
Common Technical Specification and Common Test Plan of the TMI/SPAR//HUGHES
Assignment Agreement; and
NOW, THEREFORE, in consideration of the mutual benefit to be derived, the
Parties hereto agree that the Contract is amended as follows:
Revise the Contract terms and conditions by substituting the attached
pages dated November 1997 for the existing pages and adding new pages as
follows:
4, 20, 20A, 39A, 74A, 74B, 74C
Revise the Attachment 2 Technical Specification for Satellite by
substituting the attached pages attached October 1995 for the existing pages as
follows:
Appendix A, pages 9 and 13
<PAGE>
Revise the Attachment 4 Test Plan by substituting the attached pages
dated October 1995 for the existing pages and adding new pages as follows:
2-4, 2-5, 4-6, 4-7, 4-7A, 4-8, 5-5, 5-6
A-3, A-11A, A-11B, A-11C, A-14, A-15, A-17A, A-17B, A-20, A-20A C-1,
C-33, C-34, C-35, C-36, C-37, C-45, C-49
For purposes of clarity and traceability, each of the substitute pages above
(except for the Payment Plan,) have been annotated to reflect the deleted text,
shown with a "strike through" () and/or change bar in the right hand margin
(example |); and, the new text, shown by underling (example), italics (example),
a different font (example example) and/or by a change bar in the right margin
(example |). Each page is also designated with "Revised Amendment 7" in the
upper right hand corner.
There is no modification to this Contract except as expressly set forth above.
<PAGE>
Revised by Amendment 7
IN WITNESS WHEREOF, the Parties hereto have executed this Amendment No. 7 to the
MSAT Contract AMSC-S/C-11/90-001.
AMSC SUBSIDIARY CORPORATION HUGHES SPACE &
COMMUNICATIONS COMPANY
By: /s/Randy Segal By: /s/Patrice Gray Mitchell
-------------- ------------------------
(Signed) (Signed)
Randy Segal Patrice Gray Mitchell
----------- ---------------------
(Printed or Typed) (Printed or Typed)
Title: Vice President Title: Manager, Commercial/
International Contracts
<PAGE>
Revised by Amendment 7
TERMS AND CONDITIONS REVISIONS
AMENDMENT NO. 7
To
AMSC/HUGHES MSAT CONTRACT
NOVEMBER 1997
<PAGE>
Revised by Amendment 7
and made a part of this Contract.
"Contract Price" means the total amount expressed in this Contract to be
payable to the Contractor for the satisfactory performance of the Work, such
Contract Price to include, where applicable, all charges for Worker's
Compensation insurance, charges for insurance, shipping costs and all other
assessments, except only as specifically excluded in Article 4.0.
"Day" means a continuous 24-hour period commencing a 12:00 midnight
(Greenwich Mean Time).
"Designated Launch Site" means the launch facility provided by the Launch
Agency.
"Equipment" means individual assemblies, parts thereof and complete
systems.
"Financing Entity" means an institution or other entity which lends
money or otherwise provides financing to AMSC for payment of amounts due under
this Contract.
"Intentional Ignition" means the deliberate, intentional ignition of the
first stage of any launch vehicle for the purpose of launching the Spacecraft
into orbit.
"Launch Agency" means the organization selected by AMSC to perform launch
services, including furnishing the launch vehicle, launch support, Equipment and
facilities for the purpose of launching the Spacecraft into orbit.
"Properly Operated Satellite" means a Satellite which is being monitored
and commanded in accordance with the written directives and instructions
furnished to AMSC by Contractor in the Recommended Satellite Operating
Procedures and any formal amendments thereto under this Contract or under the
Software Development and License Contract between Hughes and Telesat.
<PAGE>
Revised by Amendment 7
Performance Incentive Payments commensurate with the profits
generated by the Spacecraft.
Impact to Incentives due to the Inversion of the Satellite
AMSC shall have Telesat perform the relocation and inversion of
the Satellite. Telesat shall then operate the Satellite in an
inverted position. If the Satellite fails during the inversion
and/or relocation procedures or within six (6) months of
completion of the inversion and relocation procedure provided
that the Satellite is exposed to both the Summer and Winter
solstices ("the Period"), Hughes shall be entitled to payment of
the PIPs, plus interest for each regularly scheduled period from
May 1995 through the 3650th day thereafter. If there is an
anomaly during this Period, it shall be deemed to have been
caused by the Spacecraft inversion and there shall be no
reduction in the PIPs to be paid over the lifetime of the
Satellite, unless AMSC to can prove to Hughes' satisfaction that
it was not caused by the inversion. The issue of whether Hughes
is satisfied with AMSC's claim shall not be subject to dispute or
arbitration. If there is an anomaly on the Satellite after the
Period, the basic contract provisions shall apply and this
Paragraph 7.1(3) shall no longer be applicable.
Extended Life Incentives. Following the THREE THOUSAND SIX
HUNDRED AND FIFTY (3,650) day period in 7.1(2) above, the
Contractor shall receive Extended Life Incentive Payments of TWO
THOUSAND AND SEVENTY-FIVE U.S. DOLLARS (US$2,075.00) plus
interest per day, plus SEVEN HUNDRED AND NINETY-SEVEN CANADIAN
DOLLARS (C$797.00) plus interest per day, subject to the
reductions in accordance with Paragraphs 7.1(2)(c) and 7.1(2)(d).
-------------------------
7.2 All Performance Incentive Payments made pursuant to this Article
includes interest accrued from the time that the Spacecraft begins earning
Performance Incentives. An Interest Accrual Factor (IAF) shall be applied to
each payment in accordance with the following formula.
(APRn + 1.0) x 60
Fn = + 1
---------------------------------
365
16.6 LIMITATION OF LIABILITY FOR HUGHES' WORK ON THE SPACECRAFT INVERSION
HUGHES MAKES NO WARRANTY, EXPRESS OR IMPLIED, TO AMSC, TELESAT OR ANY OTHER
PERSON OR ENTITY CONCERNING THE SPACECRAFT INVERSION AND RELOCATION OR THE
PERFORMANCE OF THE SATELLITE. AMSC SHALL INDEMNIFY AND HOLD HARMLESS HUGHES FROM
AND AGAINST ANY LOSS, DAMAGE, LIABILITY OR EXPENSE (INCLUDING ATTORNEY'S FEES
AND OTHER EXPENSES OF INVESTIGATING OR DEFENDING CLAIMS) RESULTING FROM (I) ANY
REPRESENTATION MADE BY AMSC TO ANY THIRD PARTY RELATING TO THIS WORK; AND (II)
ANY CLAIMS MADE BY ANY THIRD PARTY RELATING TO THIS WORK.
- -------------------------------------------------------------------------------
<PAGE>
Revised by Amendment 7
ARTICLE 42: OTHER CONDITIONS RELATING TO THE INVERSION AND OPERATION OF THE
SATELLITE
42.1 Export Licenses
AMSC shall obtain all necessary USG export licenses for the Satellite
and/or technical data prior to leasing the Satellite to ACTEL and authorizing
Telesat to operate the Satellite. Upon AMSC's request, HUGHES will provide
limited assistance to AMSC in processing such license applications.
42.1 Transfer of Hughes' Proprietary Information
(a) AMSC agrees that the Lessee and the Operator ("Receiving Parties")
shall enter into a written agreement with AMSC ("Agreement") to protect any
Hughes Proprietary Information ("Proprietary Information") which was
provided under this Contract and which AMSC provides to the Lessee or
Operator. The Receiving Parties shall keep Proprietary Information in
confidence and not disclose to any person or entity, any of the Proprietary
Information, except as otherwise provided below. This Agreement shall
require that the Receiving Parties exercise the same degree of care to
guard against unauthorized disclosure or use of such Proprietary
Information as Receiving Parties employ with respect to their own
Proprietary Information of like importance, but in no event, less than a
reasonable degree of care. This Agreement shall also require that the
Receiving Parties make the Proprietary Information available only to those
of their employees or agents having a "need to know" in order to operate or
maintain the Satellite; and further, that each of their employees or agents
shall be advised that they are obligated to protect the Proprietary
Information in a manner consistent with the Agreement.
<PAGE>
Revised by Amendment 7
The Receiving Parties shall not be liable for the disclosure or use of
Proprietary Information if the same is:
in or enters the public domain, other than by breach of this Agreement;
known to the Receiving Parties at the time of first receipt, or thereafter
becomes known to the Receiving Parties without similar restrictions from a
source other than Hughes, as evidenced by written records;
developed by the Receiving Parties independent of any disclosure hereunder
as evidenced by written records.
In the event AMSC, the Lessee or Operator of the Satellite is acquired by a
competitor of Hughes, the Parties agree that Hughes would be irreparably harmed
if any competitor of Hughes, as determined by Hughes in its reasonable
discretion, were to acquire access to any of the intellectual property,
Proprietary Information or other technology, data or inventions covered under
the Contract (collectively, the "Intellectual Property"), regardless of whether
such competitor has an ownership interest in AMSC, the Lessee or Operator.
Accordingly, the Parties agree that no competitor of Hughes shall be given
access to any of the Intellectual Property, and that should a competitor obtain
control of AMSC, the Lessee or the Operator or otherwise be an assignee or
transferee of AMSC, the Lessee or the Operator, Hughes may take any and all
reasonable steps to safeguard and protect its Intellectual Property.
Notwithstanding any provisions of the Contract requiring arbitration, the
foregoing agreement may be enforced by Hughes by entry of injunctive relief, in
addition to all other remedies available to Hughes under the Contract,
applicable law or otherwise.
<PAGE>
Revised by Amendment 7
42.2 A condition precedent to the effectiveness of this Amendment 7 shall
be a binding agreement between AMSC and ACTEL for the lease of the Satellite and
a binding agreement between AMSC and Telesat for the inversion, relocation and
operation of the Satellite.
<PAGE>
Exhibit 10.13c
--------------
EXECUTIVE:
AWARD NO. 1998 -
DATE OF GRANT:
NUMBER OF SHARES:
AMERICAN MOBILE SATELLITE CORPORATION
1989 STOCK OPTION PLAN
* * *
RESTRICTED STOCK AGREEMENT
1. Definitions. In this Agreement, terms with initial capitals shall have
-----------
the meanings provided in the Plan, except as follows:
"Agreement" means this Restricted Stock Agreement.
"Awarded Shares" means the shares of Common Stock awarded to the Executive
pursuant to Section 2 hereof
A "Change of Control" means the occurrence of any of the following events:
any Person or Persons acting together, excluding employee benefit plans of the
Corporation, are or become the "beneficial owner" (as defined in Rules 13d-3 and
13d-5 under the Exchange Act or any successor provisions thereto except that a
Person that has the right to acquire securities of the Corporation shall be
deemed to be the "beneficial owner" of such securities whether or not such right
is immediately exercisable), directly or indirectly, of securities of the
Corporation representing forty percent (40%) or more of the combined voting
power of the Corporation's then outstanding securities determined as if all
rights of such Person or Persons to acquire such securities had been exercised
immediately prior to such determination whether or not such rights are then
immediately exercisable;
the Corporation's shareholders approve (or, in the event no approval of the
Corporation's shareholders is required, the Corporation consummates) a merger,
consolidation, share exchange, division or other reorganization or transaction
of the Corporation (a "Fundamental Transaction") with any other corporation,
other than a Fundamental Transaction which would result in the voting securities
of the Corporation outstanding immediately prior thereto continuing to represent
(either by remaining outstanding or by being converted into voting securities of
the surviving entity) at least eighty percent (80%) of the combined voting power
immediately after such Fundamental Transaction of (I) the Corporation's
outstanding securities, (ii) the surviving entity's outstanding securities, or
(iii) in the case of a division, the outstanding securities of each entity
resulting from the division, in each case determined as if all rights to acquire
such securities had been exercised immediately prior to such determination,
whether or not such rights are then immediately exercisable;
the shareholders of the Corporation approve a plan of complete liquidation
or winding-up of the Corporation or an agreement for the sale or disposition (in
one transaction or a series of transactions) of all or substantially all of the
Corporation's assets; or
during any period of twenty-four consecutive months, individuals who at the
beginning of such period constituted the Board (including for this purpose any
new director whose election or nomination for election by the Corporation's
shareholders was approved by a vote of at least two-thirds (2/3) of the
directors then still in office who were directors at the beginning of such
period) cease for any reason to constitute at least a majority of the Board.
"Date of Expiration" means, subject to the provisions of Section 3 of
this Agreement, ten (10) years after the Date of Grant.
"Date of Grant" means the date set forth as the "Date of Grant" on page 1
of this Agreement.
"Disability" means permanent and total disability of the Executive.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Executive" means the person identified as the "Executive" on page 1 of
this Agreement.
"Involuntary Termination" means termination by the Corporation or a
Subsidiary of the Executive's employment with the Corporation or a Subsidiary
or, in connection with or following a Change of Control, a substantial reduction
by the Corporation or Subsidiary in the salary, benefits or position of the
Executive, but does not include any such termination or substantial reduction as
a result of Termination for Good Cause.
"Person" shall have the meaning given in Section 3(a)(9) of the
Exchange Act and shall also include any syndicate or group deemed to be a
"person" under Section 13(d)(3) of the Exchange Act.
"Plan" means the American Mobile Satellite Corporation 1989 Stock Option
Plan.
"Restriction Period" means the period beginning on the Date of Award and
ending on (i) the first anniversary of the Date of Grant, with respect to
33-1/3% of the Awarded Shares (rounded to the nearest whole number of shares),
(ii) the second anniversary of the Date of Grant, with respect to an additional
33-1/3% of the Awarded Shares (rounded to the nearest whole number of shares),
and (iii) the third anniversary of the Date of Grant, with respect to the
remaining Awarded Shares; provided, however, that unless the Committee, in its
sole discretion, determines otherwise, the Restriction Period shall not
terminate with respect to any Awarded Shares prior to the earlier of either (A)
the date that the "Start Date" shall have occurred under the terms of the
Corporation's Satellite Lease Agreement with African Continental
Telecommunications, Ltd. ("ACTEL"), dated as of December 2, 1997 or (B) the
first date after the date hereof on which the Corporation becomes earnings
before interest, taxes, depreciation and amortization (EBITDA) "break-even."
Notwithstanding the foregoing, the Restriction Period shall immediately
terminate with respect to all Awarded Shares in the event of [the Executive's
Involuntary Termination in connection with, or within two years following,]*
a Change of Control.
*Bracketed language omitted in Chief Executive Officer Agreement.
"Termination for Good Cause" means termination as a result of the
commission of a felony by the Executive.
2. Award of Restricted Shares. The Corporation hereby awards to the
-- --------------------------
Executive a total of shares of Common Stock ("Awarded Shares") pursuant
------
to Section 9 of the Plan. During the Restriction Period, each certificate
representing Awarded Shares shall be held by the Corporation or its designee and
shall contain the following legend:
"This certificate and the shares of stock represented hereby are subject to
the terms and conditions (including the risks of forfeiture and restrictions
against transfer) contained in the American Mobile Satellite Corporation 1989
Stock Option Plan and an Agreement entered into between the registered owner and
American Mobile Satellite Corporation. Release from such terms and conditions
shall be made only in accordance with the provisions of the Plan and the
Agreement, a copy of each of which is on file in the office of the Secretary of
American Mobile Satellite Corporation."
3. Terms, Conditions and Restrictions. Awarded Shares shall be subject to
-----------------------------------
the terms, conditions and restrictions contained in the Plan, are as follows:
Prohibitions Against Sale, Assignment, etc. Awarded Shares, the right to
----------------------------------------------
vote Awarded Shares and the right to receive dividends thereon may not be sold,
assigned, transferred, exchanged, pledged, hypothecated or otherwise encumbered
during the Restriction Period with respect to such Awarded Shares except as
provided in the Plan.
Forfeiture. In the event of either (a) the Executive's termination of
----------
employment with the Corporation prior to the lapse of the Restricted Period
other than by reason of death or Disability of the Executive or in connection
with, or within two years following, a Change of Control or (b) the occurrence
of the Date of Expiration prior to the lapse of the Restriction Period with
respect to particular Awarded Shares, such Awarded Shares shall be forfeited by
the Executive to the Corporation and neither the Executive nor any successors,
heirs, assigns or personal representatives of the Executive shall thereafter
have any further rights or interest in such Awarded Shares or the certificates
representing such Awarded Shares.
Termination of Restrictions. In the event the Restriction Period shall
-----------------------------
terminate with respect to particular Awarded Shares and such Awarded Shares
shall not theretofore have been forfeited to the Corporation, then the
Corporation shall reissue the certificate representing such Awarded Shares
without the legend referred to in Section 2 of this Agreement and shall deliver
such certificate to the Executive or his legal representative.
Effect of Death or Disability. If the Executive's employment is terminated
-----------------------------
during the Restriction Period due to death or Disability, the Executive shall,
as of the date of such death or Disability, be deemed to have remained employed
by the Corporation until the third anniversary of the Date of Grant for purposes
of Section 1(l) hereto.
Withholding. The Corporation's obligation to deliver shares of Common Stock
-----------
upon the termination of the Restriction Period with respect to any Awarded
Shares shall be subject to the satisfaction of applicable federal, state and
local tax withholding requirements. The Executive may satisfy any such
withholding tax obligation by either of the following means or by a combination
of such means: (a) tendering a cash payment; or (b) authorizing the Corporation
to withhold shares of Common Stock from the reissued shares otherwise issuable
to the Executive as the result of the termination of the Restriction Period with
respect to any Awarded Shares. For purposes of this Section 3(e), shares of
Common Stock that are withheld to satisfy applicable withholding taxes shall be
valued at their Fair Market Value.
4. Rights as Stockholder. Except as provided in Section 3 hereof, the
----------------------
Executive shall have all the rights and privileges of a stockholder with respect
to the Awarded Shares, including (but not limited to) the right to vote the
Awarded Shares and the right to receive dividends. All such rights and
privileges shall cease upon forfeiture of the Awarded Shares.
5. Subject to the Plan. The Awarded Shares and this Agreement are subject
-------------------
to the terms and conditions of the Plan, which are incorporated herein by
reference and made a part hereof, but the terms of the Plan shall not be
considered an enlargement of any benefits under this Agreement. In addition, the
Awarded Shares and this Agreement are subject to any rules and regulations
promulgated by the Committee in accordance with its authority under the Plan.
6. Employment. Neither the grant or issuance of Awarded Shares pursuant to
----------
this Agreement nor any term or provision of this Agreement shall constitute or
be evidence of any understanding, express or implied, on the part of the
Corporation or any Subsidiary to employ the Executive for any period.
<PAGE>
IN WITNESS WHEREOF, the Corporation has caused this Agreement to be
signed on its behalf effective as of the Date of Grant.
ATTEST: AMERICAN MOBILE
SATELLITE CORPORATION
By:
---------------------------
---------------------------
EXECUTIVE
<PAGE>
FIFTH AMENDMENT TO TERM AGREEMENT
THIS FIFTH AMENDMENT TO TERM LOAN AGREEMENT ("Amendment") dated as of
December 19th, 1997, by and between AMSC SUBSIDIARY CORPORATION, a Delaware
corporation ("Borrower"), with offices at 10802 Parkridge Boulevard, Reston,
Virginia 22091, and NTFC CAPITAL CORPORATION, a Delaware corporation (formerly
known as Northern Telecom Finance Corporation) ("Lender"), with offices at 220
Athens Way, Nashville, Tennessee 37228.
BACKGROUND
A. Borrower and Lender executed that certain Term Loan Agreement dated
as of May 28, 1993, as amended by the First Amendment to Term Loan Agreement
dated as of April 8, 1994, the Second Amendment to Term Loan Agreement dated as
of August 1, 1995, the Third Amendment to Term Loan Agreement dated as of
November 7, 1995 and a Fourth Amendment dated as of October 1, 1996 (as so
amended, the "Original Loan Agreement") providing for certain loans to be made
to Borrower by Lender (the "Loans"). The Loans are represented by the Amended
and Restated Equipment Note dated as of October 1, 1996, amending and restating
the Note originally dated as of May 28, 1993 and as previously amended and
restated as of April 8, 1994 (as so amended, the "Original Note").
B. Borrower has requested Lender to make certain changes in the payment
schedule, and Lender is willing to make such changes, on the terms and
conditions set forth herein.
NOW, THEREFORE, in consideration of the premises and for other good and
valuable consideration, the receipt and adequacy of which are hereby
acknowledged, the parties hereto agree as follows:
1. Definitions: All capitalized terms used herein which are not
otherwise defined shall have the meanings given to such terms in the Original
Loan Agreement, as amended hereby.
2. Amendment to Section 1.01. Section 1.01 of the Original Loan
Agreement is hereby amended by amending each of the following definitions to
read in its entirety as follows:
"Interest Payment Date": the First Interest Payment
date for the Loan and (a) the first Business Day of each
calendar month thereafter until September 30, 1996, (b) the
first day of each Interest Period from October 1, 1996 through
October 1, 1997, and (c) December 31, 1997 and (d) February 1,
1998, March 1, 1998 and April 1, 1998.
"Interest Rate": a variable interest rate equal to
(a) LIBOR plus 4.5% through and including September 30, 1996,
(b) LIBOR plus 2.5% form and after October 1, 1996, and (c)
LIBOR plus 4.5% from and after December 31, 1997, in each case
adjusted on the first day of each Interest Period.
<PAGE>
"Maturity Date": April 1, 1998, on which principal,
interest, premium, expenses, fees, penalties and other amounts
due under the Note shall be finally due and payable.
3. Amendment to Section 2.05. Section 2.05 of the Original Loan
Agreement is hereby amended to read in its entirety as follows:
2.05. Principal Payments. Borrower shall make the
principal payment in the amount of One Million Dollars
($1,000,000) on December 31, 1997. Thereafter, the entire
outstanding principal amount of the Note and all accrued but
unpaid interest and all other unpaid amounts due thereunder
shall be paid on the Maturity Date.
4. Amended and Restated Note. Contemporaneously with the execution of
this Amendment, Borrower shall execute an Amended and Restated Note to
incorporate the terms hereof, in form and substance satisfactory to Lender.
5. Representations and Warranties of Borrower. The Borrower represents
and warrants to Lender that the Borrower has not executed any other deeds of
trust, mortgages, security agreements or financing statements in favor of any
other person or entity affecting the Collateral; that no person or entity has
any rights to claim a lien upon the Collateral superior to the lien of Lender;
that no Default or Event of Default has occurred under the Original Loan
Agreement (except Defaults and Events of Default that are waived herein); and
that no event has occurred and no claim, offset or other condition exists which
would relieve the Borrower of any of its obligations to Lender under the
Original Loan Agreement or other documents executed by the Borrower in
connection therewith.
6. Lender's Fees and Expenses. Borrower shall pay to Lender, on demand,
all costs and expenses, including reasonable legal fees, incurred by Lender in
connection with the preparation, negotiation, execution or implementation of
this Amendment.
7. Full Force and Effect. Except as specifically modified herein, the
Original Loan Agreement shall continue in full force and effect as written, and
nothing herein is intended to, nor shall it, release, diminish or waive the
rights of the parties under the Original Loan Agreement, the Note or other Loan
Documents.
8. Possible Extension. Borrower has represented to Lender that Borrower
expects to complete certain financing by March 31, 1998. If such financing is
not completed by that date, but Borrower can demonstrate to Lender's
satisfaction that significant progress (as determined by Lender) has been made
towards such completion and that such financing is scheduled and anticipated to
be completed in the immediate future, and if no other Default or Event of
Default has then occurred, Lender will consider extending the maturity due to
not later than May 1, 1998, subject to the execution of such documentation as
Lender may deem necessary to implement or evidence such extension. Lender's
agreement to consider extending the maturity date is not a commitment to do so,
and Lender shall make any such decision in its sole and absolute discretion.
<PAGE>
9. Counterparts. This Amendment may be executed in any number of
counterparts (by facsimile transmission or otherwise) and by the different
parties hereto on separate counterparts, each of which, when so executed, shall
be deemed an original, but all such counterparts shall constitute but one and
the same instrument.
IN WITNESS WHEREOF, this Fifth Amendment to the Term Loan Agreement has
been executed as of the day first above written by the parties' authorized
representatives.
LENDER: BORROWER:
NTFC CAPITAL CORPORATION AMSC SUBSIDIARY CORPORATION
By: /s/Henry Craig By: /s/Richard J. Burnheimer
-------------- ------------------------
Title: VP-Chief Credit Officer Title: Vice President & Treasurer
------------------------- --------------------------
<PAGE>
AMENDED AND RESTATED NOTE
$5,933,095.61 Originally dated as of: May 28, 1993
Previously Amended and Restated as of: April 8, 1994
Amended and Restated as of October 1, 1996
Amended and Restated as of December 19, 1997
FOR VALUE RECEIVED, AMSC SUBSIDIARY CORPORATION ("Borrower"), promises
to pay to the order of NORTHERN TELECOM FINANCE CORPORATION (the "Lender") at
its offices located at 220 Athens Way, Nashville, Tennessee, 37228, or to such
other Person and such other location specified in writing by the holder hereof,
in lawful money of the United States of America an din immediately available
funds the principal amount of Five Million Nine Hundred Thirty-Three Thousand
Ninety Five Dollars and Sixty-One Cents ($5,933,095.61), together with interest
thereon and other amounts due as provided below. Notations on the Schedules
attached hereto are for convenience only, and the failure of the Lender to make
any notation on any Schedule, or any incorrect notation by the Lender on any
Schedule, shall not diminish the obligations of the Borrower under this Note.
This Note shall mature on April 1, 1998 (the "Maturity Date").
The "Initial Payment Date" means the first Business Day of the calendar
month following the month in which the Termination Date falls. The "Termination
Date" means the earliest of the following three dates: (a) December 31, 1994,
but only if Final Acceptance (as defined in the Loan Agreement) ("Final
Acceptance") has occurred on or before such date; or (b) the last day of the
month of the date of Final Acceptance occurs between January 1, 1995 and
February 28, 1995; and (c) March 31, 1995.
This Note has been made and delivered pursuant to that certain Term
Loan Agreement dated as of May 28, 1993 by and between the Borrower and the
Lender, as amended by the First Amendment to Term Loan Agreement dated as of
August 1, 1995, the Third Amendment to Term Loan Agreement dated as of November
7, 1995, the Fourth Amendment to Term Loan Agreement dated October 1, 1996 and
the Fifth Amendment to Term Loan Agreement of even date herewith (as the same
may be modified, amended or supplemented from time to time, the "Loan
Agreement") and is the Note described in Section 2.03(a) thereof. Any term not
otherwise defined in this Note shall have the meaning ascribed to it in the Loan
Agreement. Reference is made to the Loan Agreement, which among other things
provides for the acceleration of the maturity hereof upon the occurrence of
certain events and for prepayments in certain circumstances and upon certain
terms and conditions. This Note is secured by the Collateral described in the
Security Documents.
All advances hereunder shall bear interest at the Interest Rate (as
defined below) from the date of such Advance until such amount is due and
payable (whether on any Payment Date, at the Maturity Date, by acceleration, or
otherwise).
The "Interest Rate" shall be a variable interest rate equal to (a)
LIBOR plus 4.5% through and including September 30, 1996, and (b) LIBOR plus
2.5% from and after October 1, 1996, through and including December 31, 1997,
and (c) LIBOR plus 4.5% thereafter, in each case adjusted on the first day of
each Interest Period.
<PAGE>
"LIBOR": in respect of any Interest Period, the rate of interest per
annum shall be the rate quoted in the "money rates" column of The Wall Street
Journal for the three-month LIBOR (London Interbank Offered Rates). This rate is
to be determined on the second Business Day before the commencement of such
Interest Period (each such second Business Day before the commencement of an
Interest Period being hereinafter referred to as an "Interest Determination
Date").
"Interest Period": each three (3) calendar month period beginning
January 1, April 1, July 1 and October 1 of each calendar year provided that:
(A) if any Interest Period pertaining to a Loan would otherwise end on
a day which is not a Business Day, that Interest Period shall be extended to the
next succeeding Business Day unless the result of such extension would be to
carry such Interest Period into another calendar month, in which event such
Interest Period shall end on the immediately preceding Business Day;
(B) any Interest Period pertaining to a Loan that begins on the last
Business Day of a calendar month (or on a day for which there is no numerically
corresponding day in the calendar month at the end of such Interest Period)
shall end on the last Business Day of the last calendar month of such Interest
Period;
(C) no Interest Period shall extend beyond the Maturity Date; and
(D) no Interest Period shall extend beyond any date upon which is due
any scheduled principal payment in respect of the Loan unless the aggregate
principal amount of the Loan is equal to or in excess of the amount of such
principal payment.
Interest shall accrue at the Interest Rate on all principal amounts
outstanding hereunder. Commencing on January 1, 1997, interest shall be payable
quarterly in arrears, on the first day of each Interest Period until October 1,
1997 and on December 31, 1997. Thereafter, accrued interest shall be payable
monthly in arrears on February 1, 1998, March 1, 1998 and April 1, 1998.
Interest shall also be payable on the date of any prepayment of this Loan
pursuant to Section 2.07 of the Loan Agreement for the portion of the Loan so
prepaid and upon payment (including prepayment) in full thereof and, after the
occurrence and during the continuance of any Event of Default, interest shall be
payable on demand.
<PAGE>
Borrower shall make one payment of principal in the amount of One
Million Dollars ($1,000,000) on December 31, 1997 and thereafter all outstanding
principal, together with all accrued interest and all other amounts otherwise
payable hereunder, shall be due and payable on the Maturity Date.
Notwithstanding the foregoing, if the Borrower shall fail to pay any
then due principal amount or interest or other amount payable by the Borrower
under the Loan Agreement or under this Note within ten (10) days after the due
date, such amount shall bear interest from the original due date at a rate per
annum that is equal to the lesser of (i) five percent (5%) higher than the then
applicable Interest Rate or (ii) the maximum permissible interest rate under
applicable Law until such overdue principal amount, interest or other amount is
paid in full (both before and after judgment) whether or not any notice of
default in the payment thereof has been delivered under the Loan Agreement.
Notwithstanding any provision of this Note or the Loan Agreement to the
contrary, it is the intent of the Lender and the Borrower that the Lender or any
subsequent holder of this Note shall never be entitled to receive, collect,
reserve or apply, as interest, any amount in excess of the maximum rate of
interest permitted to be charged by applicable Law, as amended or enacted, from
time to time. In the event Lender, or any subsequent holder of this Note, ever
receives, collects, reserves or applies, as interest, any such excess, such
amount which would be excessive interest shall be deemed a partial prepayment of
principal and treated as such, or, if the principal indebtedness and all other
amounts due are paid in full, any remaining excess funds shall immediately be
paid to the Borrower. In determining whether or not the interest paid or
payable, under any specific contingency, exceeds the highest lawful rate, the
Bor rower and the Lender shall, to the maximum extent permitted under applicable
law, (a) exclude voluntary prepayments and the effects thereof as it may relate
to any fees charged by the Lender, and (b) amortize, prorate, allocate, and
spread, in equal parts, the total amount of interest throughout the entire term
of the Note; provided that if the Note is paid and performed in full prior to
the end of the full contemplated term hereof, and if the interest received for
the actual period of existence hereof exceeds the maximum lawful rate, the
Lender or any subsequent holder of the Note shall refund to the Borrower the
amount of such excess or credit the amount of such excess against the principal
portion of the Note, as of the date it was received, and, in such event, the
Lender shall not be subject to any penalties provided by any laws for
contracting for, charging, reserving or receiving interest in excess of the
maximum lawful rate.
Upon the occurrence of any one or more Events of Default specified in
the Loan Agreement, all amounts then remaining unpaid on this Note shall be, or
may be declared to be, immediately due and payable as provided in the Loan
Agreement, without further notice, at the option of the holder hereof. The
holder may waive any Event of Default before or after the same has been declared
and restore this Note to full force and effect without impairing any rights
hereunder, such right of waiver being a continuing one, but one waiver not
implying any additional or subsequent waiver.
Demand, presentment, notice and protest are expressly waived, except
for notices otherwise expressly required in the Loan Agreement.
In the event this Note is placed in the hands of one or more attorneys
for collection or enforcement or protection of the holder's rights described in
the Loan Agreement, the Borrower agrees to pay all reasonable attorney's fees
and all court and other out-of-pocket costs incurred by the holder hereof (which
shall be due on demand).
This Note may be prepaid in accordance with the provisions of Section
2.07 of the Loan Agreement.
<PAGE>
This Note is governed by and shall be construed in accordance with the
internal laws of the State of New York.
This Note may not be changed, extended or terminated except in writing.
This Note may be assigned in accordance with Section 8.18 of the Loan
Agreement. In the event of any conflict between this Note and the Loan
Agreement, the provisions of the Loan Agreement shall control.
This Amended and Restated Note is an amendment, modification and
restatement of that certain Note in the original principal amount of $3,750,000
(plus capitalized interest), dated as of May 28, 1993, issued by Borrower to
Lender, previously amended and restated by an Amended and Restated Equipment
Note in the original principal amount of $7,500,000 (plus capitalized interest)
dated as of April 8, 1994 and by an Amended and Restated Note in the principal
amount of $5,933,095.61 dated October 1, 1996 (as previously amended, the
"Original Note"). The principal amount of this Note is the outstanding principal
amount of the Original Note, including interest capitalized and added to
principal as provided therein. This Note is not a novation, release or discharge
of the indebtedness evidenced by the Original Note.
Executed as of December 19th, 1997.
AMSC SUBSIDIARY CORPORATION
By:/s/Richard J. Burnheimer
------------------------
Title: Vice President & Treasurer
--------------------------
Exhibit 10.24d
--------------
Addendum No. 3
to
VOLUME PURCHASE AGREEMENT
This Addendum No. 3 to VOLUME PURCHASE AGREEMENT (this "Addendum") is
hereby entered into by AMSC Subsidiary Corporation ("AMSC") and TRIMBLE
NAVIGATION LIMITED ("TRIMBLE") on the date last indicated below.
RECITALS
A. TRIMBLE and AMSC entered into a certain VOLUME PURCHASE AGREEMENT dated
March 10, 1995, as amended on December 19, 1995 and later on January
29, 1997 (collectively, the "Agreement").
B. TRIMBLE and AMSC intend to further amend the Agreement to reduce the
shipment rate of Galaxy Production Units (as defined in the Agreement).
C. TRIMBLE and AMSC therefore hereby modify the Agreement as follows:
ADDENDUM
1. REDUCTION OF SHIPMENT RATE
Beginning August 1997, Trimble will reduce the number of Galaxy
Production Units shipped to AMSC from five hundred (500) Galaxy
Production Units per month to two hundred fifty (250) Galaxy Production
Units per month, and AMSC shall purchase such units at such rate, until
AMSC has purchased the number of such Galaxy Production Units required
by the Agreement.
2. PRICES
Prices for Units shipped to AMSC through November 1997 shall remain
unchanged at one thousand six hundred seventy five U.S. Dollars
($1,675). Beginning with the Galaxy Production Units shipped to AMSC in
December, 1997 the price per unit will increase to one thousand seven
hundred fifty U.S. Dollars ($1,750).
3. PREPAYMENT
3.1 In accordance with the Agreement, AMSC has prepaid Trimble one
million six hundred seventy five thousand U.S. Dollars
($1,675,000) for Galaxy Production Units scheduled to be
shipped through at the rate of five hundred (500) Galaxy
Production Units per month for the months of August and
September, 1997. Due to the reduction in shipment rate as
provided above, this prepaid amount shall be sufficient to
prepay for shipment through November, 1997.
3.2 The prepayment due for December, 1997 shipment of two hundred
fifty (250) Galaxy Production Units shall be prepaid as
follows:
3.2.1 Two hundred eighteen thousand seven hundred fifty
U.S. Dollars ($218,750) shall be paid on or before
October 15, 1997, and
3.2.2 Two hundred eighteen thousand seven hundred fifty
U.S. Dollars ($218,750) shall be paid on or before
November 1, 1997.
Trimble's obligation to ship the December, 1997 Galaxy
Production Units is conditioned upon
<PAGE>
Trimble's timely receipt of such prepayments.
3.3 Beginning November 15, 1997, AMSC will continue to prepay
Trimble for Galaxy Production Units on or before the 15th of
each month for the shipment two months later (e.g., the
payment for the two hundred fifty (250) Galaxy Production
Units to be shipped January, 1997 shall be due and payable on
or before November 15, 1997.) Trimble's obligation to ship the
Galaxy Production Units is conditioned upon Trimble's timely
receipt of such prepayments.
4. INCREASE OF SHIPMENT RATE
4.1 Upon forty-five (45) days prior written notice, AMSC may
instruct Trimble to resume shipping at a rate of five hundred
(500) Galaxy Production Units per month on a sustained basis.
Such instruction shall be irrevocable.
4.2 Upon such instruction to increase the shipment rate to five
hundred (500) Galaxy Production Units per month and as a
condition of Trimble's obligation to ship such Galaxy
Production Units:
4.2.1 At least forty-five days prior to the first day of
the month in which Trimble makes the first increased
shipment. AMSC shall make a prepayment to Trimble of
eight hundred thirty seven thousand five hundred U.S.
Dollars ($837,500);
4.2.2 AMSC shall make prepayments of eight hundred thirty
seven thousand five hundred U.S. Dollars (:$837,500)
on or before the 15th of each month; and
4.2.3 The price of each Galaxy Production Unit shall be one
thousand six hundred seventy five U.S. Dollars
($1,675).
5. RATIFICATION OF THE AGREEMENT
In all other respects, TRIMBLE and AMSC hereby ratify and affirm the
Agreement.
WITH INTENT TO BE BOUND, TRIMBLE and AMSC have signed this Amendment on the
dates written below.
TRIMBLE NAVIGATION LIMITED AMSC SUBSIDIARY CORPORATION
Signature: /s/Tom Ellis /s/Stephen D. Peck
------------ ------------------
Typed
Name: Tom Ellis Stephen D. Peck
Title: Vice President, Mobile Position Chief Financial Officer
& Communications
Date: 8/28/97 8/29/97
------- -------
Exhibit 10.35a
--------------
AMENDMENT NO. 1
TO AGREEMENT ENTERED INTO AS OF DECEMBER 14, 1992
BY GTE SPACENET CORPORATION AND AMSC SUBSIDIARY CORPORATION
Reference is made to the Agreement entered into as of December 14,
1992, by GTE Spacenet Corporation (as assumed by GE American Communications,
Inc.) ("Americom") and AMSC Subsidiary Corporation ("AMSC") with respect to
conduct of certain satellite operations on a non-interference basis (the
"Agreement"). Capitalized terms used herein without definition shall have the
respective meanings set forth in this Agreement.
WHEREAS, AMSC is considering a transaction whereby the satellite it
operates at 101 degrees W.L. may have modified telemetry carrier parameters from
those anticipated in the Agreement;
WHEREAS, AMSC has discussed these potential technical changes with
Americom, and Americom has indicated that such changes could be accommodated in
the Agreement.
NOW THEREFORE, the parties agree to amend the Agreement as follows:
1. Exhibits 1 and 2 to the Agreement shall be amended to provide an
alternative Frequency (MHz) for the Telemetry Carrier Parameters, at either
11700.5, 11702.75, or 11701.0 in accordance with the attached revised Exhibits 1
and 2.
2. Americom recognizes that AMSC's discussions include the potential
sharing of ownership and use of AMSC-1, and may include a substitute satellite
to be located at 101 degrees W.L., consistent with revised Exhibits 1 and 2.
Americom agrees that such shared ownership and use and substitution is
consistent with the terms of the Agreement, as amended herein.
3. The information provided herein shall be subject to the provisions
of Section 7.9 of the Agreement.
4. Except as expressly modified herein, the Agreement shall remain in
full force and effect.
IN WITNESS THEREOF, the parties have entered into this amendment as of
the 7th day of November, 1997.
AMSC SUBSIDIARY CORPORATION GE AMERICAN
COMMUNICATIONS, INC.
/s/ Randy Segal /s/ Philip V. Otero
By: Randy Segal By: Philip V. Otero
--------------- -------------------
Title: Vice President and Title: Sr. Vice President
General Counsel
<PAGE>
Exhibit 1
<TABLE>
<CAPTION>
AMSC TELEMETRY, TRACKING AND COMMAND PARAMETERS
<S> <C> <C> <C>
COMMAND PARAMETERS Frequency 1 Frequency 2 Units
Frequency 14449.5 14000.5 MHz
Maximum Flux Density -85.0 -100.0 dBW/m2
Antenna Coverage Omni North America
Polarization Vertical Horizontal
Modulation FM FM
Peak Deviation 300 300 kHz
Occupied Bandwidth 1 1 MHz
Emission Designator 700KF9D 700KF9D
TELEMETRY CARRIER PARAMETERS
Frequency 11701.0 11700.5 or MHz
11702.75*
Antenna: Switchable between omni and directive
Modulation Phase, 1 radian Phase, 1 radian
Occupied Bandwidth 100 100 kHz
Emission Designator 138KGXD
Frequency Stability +/-50 +/-50 kHz
SATELLITE TELEMETRY ANTENNA PARAMETERS:
If uses TMI Satellite currently at 106.5 degrees
Antenna Omni Directive
Polarization Horizontal Vertical
Peak EIRP 7.4 dBW 17.5 dBW
SATELLITE TELEMETRY ANTENNA PARAMETERS:
If continue to use AMSC-1
Antenna Omni Directive
Polarization Horizontal Vertical
Antenna 9 dBW 11 dBW
TT&C EARTH STATION CHARACTERISTICS
A. FOR 8 METER ANTENNA DIAMETER TT&C EARTH STATION:
Antenna Diameter 8 meters
On Axis Receive Gain 58.5 dBi
On Axis Transmit Gain 59.5 dBi
Off Axis Gain 29-25*LOG (theta) dBi
for theta greater than
or equal to 1 degree
G/T 34 dB/K
Polarization Linear
B. FOR 11 METER ANTENNA DIAMETER TT&C EARTH STATION:
Antenna Diameter 11 meters
On Axis Receive Gain 60 dBi
On Axis Transmit Gain 61 dBi
Off Axis Gain 29-25*LOG (theta) dBi
for theta greater than
or equal to 1 degree
G/T 37 dB/K
Polarization Linear
</TABLE>
* The telemetry transmitter tuned to 11702.75 MHz will operate only through the
omni antenna after GE American Communications Inc. begins operating a
replacement for its current satellite at 101 degrees West. The maximum EIRP
radiated on this frequency at horizontal polarization will be +7.5 dBW in a 100
kHx bandwith.
<PAGE>
Exhibit 2
--------------------------------------------------
GE TRANMISSION PARAMETERS
EARTH-TO-SPACE DIRECTION
Maximum, co-polarized power flux density in 1 MHz toward the
satellite at 101 degrees West:
-130dBW/m2 at 14000.5 MHz
-115dBW/m2 at 14499.5 MHz
SPACE-TO-EARTH DIRECTION
Maximum, satellite co-polarized EIRP in 100 kHz
-20dBW at 11700.5 MHz and 11701.0 MHz
Maximum, satellite co-polarized EIRP in 100 kHz toward:
Allan Park, Ontario, Canada; and Edmunton, Alberta, Canada
-15.6dBW at 11702.75 MHz
<PAGE>
Exhibit 10.64
-------------
BRIDGE LOAN AGREEMENT
BRIDGE LOAN AGREEMENT, dated as of December 30, 1997, (this
"Agreement") made by and among AMSC Subsidiary Corporation, a Delaware
corporation dually incorporated as a Virginia Public Service corporation (the
"Borrower"), American Mobile Satellite Corporation, a Delaware corporation (the
"Parent Guarantor") and Hughes Communications Satellite Services, Inc., a
California corporation (the "Lender").
W I T N E S S E T H :
WHEREAS, the Borrower has requested that the Lender make
secured bridge term loans to the Borrower in an aggregate principal amount of up
to $10,000,000 which the Borrower will use for general corporate purposes; and
WHEREAS, the Lender has agreed to make secured bridge term
loans to the Borrower, but only upon the terms and subject to the conditions
contained herein.
NOW, THEREFORE, in consideration of the premises and of the
mutual covenants herein contained and for other good and valuable consideration,
the receipt of which is hereby acknowledged, the parties hereto agree as
follows:
1. Defined Terms. The following terms when used in this
Agreement shall have the following meanings (such meanings being equally
applicable to both the singular and plural forms of the terms defined):
"Agreement" shall mean this Bridge Loan Agreement, as the same
may be amended, modified or otherwise supplemented from time to time
and shall refer to this Agreement as in effect on the date such
reference becomes operative.
"AMRC" shall mean American Mobile Radio Corporation, a
Delaware corporation.
"AMSC Pledge Agreement" shall mean the Pledge Agreement, dated
as of the date hereof, executed by the Parent Guarantor, as such
agreement may be amended, supplemented or otherwise modified from time
to time, pursuant to which the Parent Guarantor shall pledge to the
Lender the Pledged Collateral referred to therein, including the common
stock of AMRC Holdings, Inc. owned by the Parent Guarantor, to secure
the Secured Obligations of the Borrower.
"Business Day" shall mean any day that is not a Saturday, a
Sunday or a day on which banks are required or permitted to be closed
in the States of New York or California.
"Closing Date" shall mean the date hereof.
<PAGE>
"Corporation" shall mean each of the Borrower, the Parent
Guarantor and AMRC Holdings, Inc.
"Event of Default" shall have the meaning specified in
Section 6(a) hereof.
"Governmental Authority" shall mean any nation or gov ernment,
any state or other political subdivision thereof, any central bank (or
similar monetary or regulatory authority) thereof, any entity
exercising executive, legislative, judicial, regulatory or
administrative functions of or pertaining to government, and any
corporation or other entity owned or controlled, through stock or
capital ownership or otherwise, by any of the foregoing.
"hereby," "herein," "hereof," "hereunder" and words of similar
import refer to this Agreement as a whole (including, without
limitation, any schedules hereto) and not merely to the specific
section, paragraph or clause in which the respective word appears.
"Lender" shall mean Hughes Communications Satellite
Services, Inc. or its successors or assigns.
"Lien" shall mean any mortgage or deed of trust, pledge,
hypothecation, assignment, deposit arrangement, lien, charge, claim,
security interest, easement or encumbrance, or prefer ence, priority or
other security agreement or preferential arrangement of any kind or
nature whatsoever (including, without limitation, any lease or title
retention agreement, any financing lease having substantially the same
economic effect as any of the foregoing, and the filing of, or
agreement to give, any financing statement perfecting a security
interest under the UCC or comparable law of any jurisdiction).
"Loan" shall have the meaning specified in Section 2(a)
hereof.
"Loan Documents" shall mean this Agreement, the Term Note and
the AMSC Pledge Agreement.
2
<PAGE>
"Material Adverse Effect" shall mean a material adverse change
in, or a material adverse effect upon, any of (a) the operations,
business, properties, condition (financial or otherwise) of either the
Parent Guarantor or the Borrower and its Subsidiaries taken as a whole;
(b) the ability or prospective ability of the Parent Guarantor, or the
Borrower to perform under any Loan Document; (c) the legality,
validity, binding effect or enforceability of any Loan Document; (d)
the perfection or priority of any Lien granted the Lender under the
AMSC Pledge Agreement; or (e) the Pledged Collateral.
"Maturity Date" shall mean March 31, 1999.
"Maximum Commitment Amount" shall mean $10,000,000.
"Maximum Term Loan Amount" shall mean the maximum aggregate
principal amount of Term Loans outstanding as of such date as set forth
in Schedule I hereto.
"Morgan Credit Agreement" shall mean the $150,000,000 Credit
Agreement, dated as of June 28, 1996 among AMSC Subsidiary Corporation,
American Mobile Satellite Corporation, the banks listed therein, Morgan
Guaranty Trust Company of New York, as Documentation Agent, and Toronto
Dominion (Texas), Inc., as Administrative Agent, as amended from time
to time and giving effect to any waivers granted thereunder.
"Net Proceeds" shall mean for any asset disposition, lease
agreement, financing or equity transaction the aggregate cash proceeds
received by the Parent Guarantor or any of its Subsidiaries in respect
of such transaction (including any non-cash proceeds thereof that are
thereafter sold or disposed of for, or otherwise give rise to, cash),
net of direct out-of-pocket costs of the Parent Guarantor or its
Subsidiaries relating to such transaction.
"Person" shall mean any individual, sole proprietorship,
partnership, joint venture, trust, unincorporated organization,
association, corporation, institution, public benefit corporation,
entity or government (whether federal, state, county, city, municipal
or otherwise, including, without limitation, any instrumentality,
division, agency, body or department thereof).
3
<PAGE>
"Pledged Collateral" shall mean all property and interests in
property and proceeds thereof now owned or hereafter acquired by the
Parent Guarantor in or upon which a Lien is granted under the AMSC
Pledge Agreement.
"Pledged Shares" shall mean the capital stock covered by the
AMSC Pledge Agreement.
"Projections" shall mean the financial projections covering
the months December, 1997 through March, 1999, inclusive, heretofore
delivered to the Lender by the Borrower, referred to in Section
3(a)(vi).
"Requirement of Law" means, as to any Person, any law
(statutory or common), treaty, rule or regulation or determination of
an arbitrator or of a Governmental Authority, in each case applicable
to or binding upon the Person or any of its property or to which the
Person or any of its property is subject; in any case, non-compliance
with which by either of the Parent Guarantor or the Borrower or their
Subsidiaries could reasonably be expected to have a Material Adverse
Effect.
"Secured Obligations" shall mean all of the unpaid principal
amount of, and accrued interest on, the Term Note, and all amounts
payable to Lender under this Agreement and the AMSC Pledge Agreement
together with all costs of the Lender, including, without limitation,
reasonable attorneys' fees, incurred in connection with the enforcement
of any of its rights and remedies hereunder and thereunder.
"Subsidiary" shall mean, with respect to any Person, (a) any
corporation of which an aggregate of more than 50% of the outstanding
stock having ordinary voting power to elect a majority of the board of
directors of such corporation (irrespective of whether, at the time,
stock of any other class or classes of such corporation shall have or
might have voting power by reason of the happening of any contingency)
is at the time, directly or indirectly, owned legally or beneficially
by such Person and/or one or more Subsidiaries of such Person, and (b)
any partnership in which such Person and/or one or more Subsidiaries of
such Person shall have an interest (whether in the form of voting or
participation in profits or capital contribution) of more than 50%.
4
<PAGE>
"Term Note" shall have the meaning specified in Section
2(a) hereof.
"UCC" shall mean the Uniform Commercial Code as the same may,
from time to time, be in effect in the State of New York; provided,
however, in the event that, by reason of mandatory provisions of law,
any or all of the attachment, perfection or priority of the Lender's
security interest in any Pledged Collateral is governed by the Uniform
Commercial Code as in effect in a jurisdiction other than the State of
New York, the term "UCC" shall mean the Uniform Commercial Code as in
effect in such other jurisdiction for purposes of the provisions hereof
relating to such attachment, perfection or priority and for purposes of
definitions related to such provisions.
2. Loan Provisions
(a) Loans. On the terms and subject to the conditions
contained in this Agreement, the Lender agrees to make term loans (the "Term
Loans") to the Borrower from time to time from the Closing Date until March 31,
1998; provided that the aggregate amount of the Term Loans shall not on any date
exceed the Maximum Term Loan Amount for such date set forth in Schedule I
hereto. The Borrower shall give Lender at least three Business Days prior
written notice of each Loan, specifying the amount and date thereof. Each Loan
will be at least $100,000 or a larger multiple thereof.
The Term Loans shall collectively be referred to as the "Loan"
and the Loan shall be evidenced by a promissory note, substantially in the form
attached hereto as Exhibit A ("Term Note"), to be executed and delivered by the
Borrower on the Closing Date.
(b) Payments. (i) All payments and prepayments made on each
Term Loan shall be made in lawful money of the United States of America in
immediately available funds no later than 12 o'clock Noon, New York, New York
time, at Bank of America, Concord, California, Account No. 12356-06628, Account
Name: Hughes Electronics Corp., ABA No. 121000358, or such other place as the
Lender shall designate on the date such payment is due in writing to the
Borrower.
(ii) If any payments or prepayment on a Term Loan shall
become due on a day which is not a Business Day, such
payment or prepayment shall be made on the next succeeding
Business Day and such extension of time shall in such case
be included in computing interest in connection with such
payment or prepayment.
5
<PAGE>
(iii) All payments made by the Borrower hereunder shall
be made without setoff, counterclaim or other defense.
(c) Repayment of Principal. The principal amount of each Term
Loan shall be payable, together with accrued and unpaid interest thereon, on the
Maturity Date.
(d) Mandatory Prepayment. If on or after the Closing Date, the
Parent Guarantor or any of its Subsidiaries (other than AMRC or AMRC Holdings,
Inc.) shall receive Net Proceeds from any asset disposition, lease agreement,
financing or equity transaction, Borrower shall immediately apply all such Net
Proceeds to prepay the Loan. Any amounts so prepaid may not be reborrowed.
(e) Optional Prepayment. The Borrower may, at any time upon
notice to the Lender stating the proposed date and aggregate principal amount of
the prepayment, prepay, without penalty or premium, the outstanding principal
amount of the Loan in whole or in part, together with accrued interest to the
date of such prepayment on the principal amount prepaid; provided, however, that
each partial prepayment shall be in an aggregate principal amount not less than
$100,000 or integral multiples of $100,000 in excess thereof. Any amounts
prepaid may not be reborrowed. Upon the giving of such notice of prepayment, the
principal amount of the Loan specified to be prepaid shall become due and
payable on the date specified for such prepayment.
(f) Interest. The Borrower shall pay interest on the
outstanding principal amount of each Term Loan for each day from and including
the date such Term Loan is made to but excluding the date such Term Loan is paid
in full to the Lender, monthly in arrears on the last Business Day of each month
("Interest Payment Date") commencing on the first such date after the date of
the initial Term Loan, at a rate equal to 12% per annum, based on a 360-day year
of twelve 30-day months for the actual number of days elapsed; provided that
while an Event of Default is continuing each Term Loan and all amounts due
hereunder shall bear interest at a rate of 14% per annum.
6
<PAGE>
(g) Proceeds. The Borrower shall apply the proceeds of each
Term Loan for general corporate purposes. None of such proceeds shall be used
directly or indirectly for the purpose of buying or carrying "margin stock"
within the meaning of Regulation G of the Federal Reserve Board.
3. Conditions Precedent.
(a) Conditions Precedent to Initial Term Loan. The obligation
of the Lender to make its initial Term Loan to the Borrower is subject to
satisfaction of the conditions precedent that the Lender shall have received, on
the Closing Date, the following, in form and substance satisfactory to the
Lender:
(i) Counterparts of this Agreement duly executed by the
Parent Guarantor, the Borrower and the Lender.
(ii) Term Note of the Borrower dated the Closing Date
payable to the order of the Lender in a principal amount
equal to the Maximum Commitment Amount.
(iii) A copy of the articles or certificate of
incorporation (or other organizational documents) of the
Parent Guarantor, the Borrower, AMRC Holdings, Inc. and
AMRC, certified as of a recent date by the Secretary of
State of the state of incorporation of such entity, together
with certificates of such officials attesting to the good
standing of such entity.
(iv) An executed copy of a favorable opinion of counsel
to the Borrower as to matters as the Lender may reasonably
request.
(v) The AMSC Pledge Agreement, duly executed by the
Parent Guarantor, together with:
(A) certificates representing the Pledged Shares,
together with undated stock powers for such certificates,
executed in blank; and
(B) evidence that all other actions necessary, or in
the opinion of the Lender, desirable to perfect and protect
the Lien created by the aforementioned AMSC Pledge
7
<PAGE>
Agreement have been taken including the filing of UCC
financing statements.
(vi) Projections by the Borrower of (i) the
consolidated results of operations and changes in financial
position of Borrower and its Subsidiaries on a monthly
basis, from December 1997 through March 1999, inclusive, and
(ii) the consolidated balance sheet of the Borrower and its
Subsidiaries as of the last day of each month during such
period based upon all information known to the Borrower
which is pertinent thereto; such Projections shall have been
made by the Borrower on a reasonable basis and in good
faith.
(vii) Balance sheet, income statement and statement of
cash flow of the Borrower and its Subsidiaries, which
financial statements shall present fairly, in all material
respects, the financial position of the Borrower and its
Subsidiaries as at September 30, 1997.
(viii) A certificate, signed by an officer of the
Borrower, stating that on the Closing Date the following
statements are true and correct with respect to the Borrower
and its Subsidiaries:
(A) All necessary approvals from Governmental
Authorities and all necessary approvals from third parties
required to be obtained in connection with the making and
performance of this Agreement and the AMSC Pledge Agreement
and the transactions contemplated hereby have been obtained
and remain in effect.
(B) There exists no judgment, order, injunction or
other restraint prohibiting or imposing materially adverse
conditions upon the Loan and the transactions contemplated
hereby.
(C) There exists no claim, action, suit,
investigation or proceeding (including, without limitation,
shareholder or derivative litigation) pending or, to the
knowledge of the Borrower or any of its Subsidiaries,
threatened in any court or before any arbitrator or
Governmental Authority which relates to, the Loan and the
transactions contemplated hereby or which has
8
<PAGE>
a reasonable likelihood of having a material adverse effect on
the Loan and the transactions contemplated hereby or a
Material Adverse Effect.
(D) There shall not occur as a result of the making
and performance of this Agreement and the AMSC Pledge
Agreement and the transactions contemplated hereby a default
(or any event which with the giving of notice or lapse of time
or both would be a default) under contractual obligations of
or relating to any Corporation.
(ix) Such additional documents, information (including
financial information) and materials as the Lender may
reasonably request.
(b) Conditions Precedent to Each Term Loan. The obligation of
the Lender to make any Term Loan (including the initial Term Loan) to the
Borrower shall be subject to the further conditions precedent that:
(i) The following statements shall be true on the date
of such Term Loan, before and after giving effect thereto
and to the application of the proceeds therefrom (and the
acceptance by the Borrower of the proceeds of such Term Loan
shall constitute a representation and warranty by the
Borrower that on the date of such Term Loan such statements
are true):
(A) The representations and warranties of the Parent
Guarantor, the Borrower and its Subsidiaries contained in
Section 4 hereof are correct on and as of such date as though
made on and as of such date;
(B) No Event of Default or event which with lapse of
time or lack of notice would have become an Event of Default
has occurred and is continuing or will result from the Term
Loan being made on such date; and
(C) The financial performance of the Borrower and its
Subsidiaries shall be not less than as set forth in the
Projections provided by the Borrower pursuant to Section
3(a)(vi) hereof.
9
<PAGE>
(ii) The making of the such Term Loan on such date does
not violate any Requirement of Law and is not enjoined,
temporarily, preliminarily or permanently.
(iii) The Lender shall have received such additional
documents, information and materials as the Lender may
reasonably request.
4. Representations and Warranties. Each of the Parent
Guarantor, the Borrower and its Subsidiaries hereby represents and warrants that
as of the Closing Date:
(a) Each Corporation is duly incorporated, validly existing
and in good standing under the laws of its jurisdiction of incorporation and has
the requisite corporate power to make and perform the Loan Documents to which it
is a party and each Loan Document has been duly authorized, executed and
delivered by each Corporation party thereto and constitutes a legal, valid and
binding obligation of such Corporation enforceable in accordance with its terms.
(b) The execution, delivery and performance of each Loan
Document by each Corporation party thereto does not: (i) contravene its or any
of its Subsidiaries' respective certificate of incorporation or by-laws or other
comparable governing documents, (ii) violate any other applicable Requirement of
Law, or any order or decree of any Governmental Authority or arbitrator, (iii)
conflict with or result in the breach of, or constitute a default under, or
result in or permit the termination or acceleration of, any of its contractual
obligations or any contractual obligations of its Subsidiaries or (iv) result in
the creation or imposition of any Lien upon any of its property or the property
of any of its Subsidiaries, other than those in favor of the Lender pursuant to
the AMSC Pledge Agreement; and
(c) The execution, delivery and performance by the
Corporations of the Loan Documents and the transactions contemplated hereby and
thereby does not and will not require the consent of, authorization by, approval
of, notice to, or filing or registration with, any Governmental Authority or any
other Person, other than those which have been, prior to the Closing Date,
delivered to the Lender.
10
<PAGE>
(d) The Projections delivered to the Lender were prepared by
the Borrower on a reasonable basis and in good faith.
(e) There exists no claim, action, suit, investigation or
proceeding (including, without limitation, shareholder or derivative litigation)
pending or, to the knowledge of the Borrower or any of its Subsidiaries,
threatened in any court or before any arbitrator or Governmental Authority which
relates to, the Loan and the transactions contemplated hereby or which has a
reasonable likelihood of having a material adverse effect on the Loan and the
transactions contemplated hereby or a Material Adverse Effect.
(f) The representations and warranties made in Sections 4.7,
4.8, 4.9, 4.11, 4.12, 4.13, 4.14, 4.16 and 4.17 of the Morgan Credit Agreement
by the Borrower and the Parent Guarantor are correct (with references therein to
"the Agreement" meaning this Agreement, to "Loan Documents" meaning Loan
Documents as defined herein and to the "Banks" or the "Agents" meaning the
Lender) as though made to the Lender with respect to each Term Loan and this
Agreement.
5. Covenants. Each of the Parent Guarantor and the Borrower
covenants and agrees with the Lender that from and after the date of this
Agreement and until the Secured Obligations are fully satisfied such parties
shall comply with its covenants made in Article 5 of the Morgan Credit Agreement
(as such Agreement is in effect on the date hereof without giving effect to any
amendments or waiver thereof after the date hereof and with references therein
to "the Agreement" meaning this Agreement, to "Loan Documents" meaning Loan
Documents as defined herein and to the "Banks" or the "Agents" meaning the
Lender) as though such covenants were made by such party to the Lender with
respect to the Loan and this Agreement; provided that the failure to comply with
any of the provisions of Sections 5.28 through 5.32 or the proviso in Section
5.33 of the Morgan Credit Agreement shall not constitute a breach hereunder so
long as such failure to comply is not an Event of Default under the Morgan
Credit Agreement.
11
<PAGE>
6. Events of Default; Rights and Remedies
(a) The occurrence of any one or more of the following events
(regardless of the reason thereof) shall constitute an "Event of Default"
hereunder:
(i) The Borrower shall fail to make any payment of
principal of, or interest on, the Term Note when due and
payable or declared due and payable.
(ii) The Borrower shall fail or neglect to perform,
keep or observe any other provision of this Agreement or any
Loan Document and the same shall remain unremedied for a
period ending thirty (30) days after the Borrower shall
receive written notice of any such failure from the Lender.
(iii) Any representation or warranty of any corporation
herein or in any Loan Document shall be untrue or incorrect
in any material respect, as of the date when made or deemed
made.
(iv) Any "Event of Default" shall occur under the
Morgan Credit Agreement.
(v) A case or proceeding shall have been commenced
against any Corporation or AMRC in a court having competent
jurisdiction seeking a decree or order in respect of such
Corporation or AMRC, (A) under title 11 of the United States
Code, as now constituted or hereafter amended, or any other
applicable federal, state or foreign bankruptcy or other
similar law, (B) appointing a custodian, receiver,
liquidator, assignee, trustee or sequestrator (or similar
official) of such Corporation or AMRC or of any substantial
part of its properties, or (C) ordering the winding-up or
liquidation of the affairs of such Corporation or AMRC and
such case or proceeding shall remain undismissed or unstayed
for sixty (60) consecutive days or such court shall enter a
decree or order granting the relief sought in such case or
proceeding.
(vi) Any Corporation or AMRC shall (A) file a petition
seeking relief under title 11 of the United States Code, as
now constituted or hereafter amended, or any other
applicable federal, state or foreign bankruptcy or other
similar law, (B) consent to the institution of proceedings
thereunder or to the filing of any such petition or to the
appointment of or taking possession by a custodian,
receiver, liquidator, assignee, trustee or sequestrator (or
similar official) of any Corporation or AMRC or of any
substantial part of its properties, (C) fail generally to
pay its debts as such debts become due, or (D) take any
corporate action in furtherance of any such action.
12
<PAGE>
(b) Rights and Remedies Upon Event of Default .
------------------------------------------
If any Event of Default specified in Section 6(a) shall have occurred and be
continuing, the Lender may by notice to the Borrower terminate its commitment to
make Term Loans hereunder and/or declare the Secured Obligations to be forthwith
due and payable, whereupon all such Secured Obligations shall become and be due
and payable, without presentment, demand, protest or further notice of any kind,
all of which are expressly waived by the Borrower; provided, however, that upon
-------- -------
the occurrence of an Event of Default specified in Section 6(a)(v) or (vi)
hereof, such commitment to make Term Loans shall automatically terminate and
such Secured Obligations shall automatically become due and payable without
declaration, notice or demand by the Lender.
7. Parent Guaranty.
(a) The Parent Guaranty. The Parent Guarantor hereby
unconditionally guarantees the full and punctual payment (whether at stated
maturity, upon acceleration or otherwise) of the principal of and interest on
the Term Note issued by the Borrower pursuant to this Agreement, and the full
and punctual payment of all other Secured Obligations. Upon failure by the
Borrower to pay punctually any such amount, the Parent Guarantor shall forthwith
on demand pay the amount not so paid at the place and in the manner specified in
this Agreement.
(b) Guaranty Unconditional. The obligations of the Parent
Guarantor hereunder shall be unconditional and absolute and, without limiting
the generality of the foregoing, shall not be released, discharged or otherwise
affected by:
(i) any extension, renewal, settlement, compromise,
waiver or release in respect of any obligation of the
Borrower under this Agreement or the Term Note, by operation
of law or otherwise;
13
<PAGE>
(ii) any modification or amendment of or supplement to
this Agreement or the Term Note or any Loan Document;
(iii) any release, impairment, non-perfection or
invalidity of any direct or indirect security for any
obligation of the Borrower under this Agreement or the Term
Note;
(iv) any change in the corporate existence, structure
or ownership of any Corporation, or any insolvency,
bankruptcy, reorganization or other similar proceeding
affecting any Corporation or its assets or any resulting
release or discharge of any obligation of the Borrower
contained in this Agreement or the Term Note;
(v) the existence of any claim, set-off or other rights
which the Parent Guarantor may have at any time against the
Borrower, the Lender or any other Person, whether in
connection herewith or any unrelated transactions, provided
that nothing herein shall prevent the assertion of any such
claim by separate suit or compulsory counterclaim;
(vi) any invalidity or unenforceability relating to or
against the Borrower for any reason of this Agreement or the
Term Note, or any provision of applicable law or regulation
purporting to prohibit the payment by the Borrower of the
principal of or interest on the Term Note or any other
amount payable by the Borrower under this Agreement; or
(vii) any other act or omission to act or delay of any
kind by the Borrower, the Lender or any other Person or any
other circumstance whatsoever which might, but for the
provisions of this paragraph, constitute a legal or
equitable discharge of the Parent Guarantor's obligations
hereunder.
(c) Discharge Only Upon Payments In Full; Reinstatement In
Certain Circumstances. The Parent Guarantor's obligations hereunder shall remain
in full force and effect until the principal of and interest on the Term Note
and all Secured Obligations shall have been paid in full. If at any time any
payment of the principal of or interest on the Term Note or any Secured
Obligations is rescinded or must be otherwise restored or returned upon the
insolvency, bankruptcy or reorganization of the Borrower or otherwise, the
Parent Guarantor's obligations hereunder with respect to such payment shall be
reinstated at such time as though such payment had been due but not made at such
time.
14
<PAGE>
(d) Waiver by the Parent Guarantor. The Parent Guarantor
irrevocably waives acceptance hereof, presentment, demand, protest and any
notice not provided for herein, as well as any requirement that at any time any
action be taken by any Person against the Borrower or any other Person.
(e) Subrogation. Until such time as all principal of and
interest on the Term Note issued by the Borrower pursuant to this Agreement and
all Secured Obligations have indefeasibly been paid in full, the Parent
Guarantor shall not assert any rights to which it may be entitled, by operation
of law or otherwise, upon making any payment hereunder to be subrogated to the
rights of the payee against the Borrower with respect to such payment or against
any direct or indirect security therefor, or otherwise to be reimbursed,
indemnified or exonerated by or for the account of the Borrower in respect
thereof.
(f) Stay of Acceleration. If acceleration of the time for
payment of any amount payable by the Borrower under this Agreement or the Term
Note is stayed upon insolvency, bankruptcy or reorganization of the Borrower,
all such amounts otherwise subject to acceleration under the terms of this
Agreement shall nonetheless be payable by the Parent Guarantor hereunder
forthwith on demand by the Lender.
8. Reinstatement. This Agreement shall remain in full force
and effect and continue to be effective should any petition be filed by or
against the Borrower for liquidation or reorganization, should the Borrower
become insolvent or make an assignment for the benefit of creditors or should a
receiver or trustee be appointed for all or any significant part of any of the
Borrower's assets, and shall continue to be effective or be reinstated, as the
case may be, if at any time payment and performance of the Secured Obligations,
or any part thereof, is, pursuant to applicable law, rescinded or reduced in
amount, or must otherwise be restored or returned by any obligee of the Secured
Obligations, whether as a "voidable preference", "fraudulent conveyance", or
otherwise, all as though such payment or performance had not been made. In the
event that any payment, or any part thereof, is rescinded, reduced, restored or
returned, the Secured Obligations shall be reinstated and deemed reduced only by
such amount paid and not so rescinded, reduced, restored or returned.
15
<PAGE>
9. Notices. Except as otherwise provided herein, whenever it
is provided herein that any notice, demand, request, consent, approval,
declaration or other communication shall or may be given to or served upon any
of the parties by any other party, or whenever any of the parties desires to
give or serve upon any other communication with respect to this Agreement, each
such notice, demand, request, consent, approval, declaration or other
communication shall be in writing and either shall be delivered in person with
receipt acknowledged or sent by registered or certified mail, return receipt
requested, postage prepaid, or by telecopy and confirmed by telecopy answerback
addressed as follows:
(a) If to the Lender, at:
Hughes Communications Satellite Services, Inc.
c/o Hughes Electronics Corp.
7200 Hughes Terrace
Los Angeles, California 90045
Attention: Craig R. Valiza,
Telecopy: (310) 568-6051
with a copy to:
Attention: Amnon Carr, Assistant Treasurer
Telecopy: (310) 348-8791
(b) If to the Borrower, at:
AMSC Subsidiary Corporation
10802 Parkridge Boulevard
Reston, Virginia 20191
Attention: Treasurer
General Counsel
Telecopy: Treasurer: (703) 716-6366
General Counsel: (703) 758-6134
16
<PAGE>
or at such other address as may be substituted by notice given as herein
provided. The giving of any notice required hereunder may be waived in writing
by the party entitled to receive such notice. Every notice, demand, request,
consent, approval, declaration or other communication hereunder shall be deemed
to have been duly given or served on the date on which personally delivered,
with receipt acknowledged, telecopied and confirmed by telecopy answerback or
three (3) Business Days after the same shall have been deposited in the United
States mail. Failure or delay in delivering copies of any notice, demand,
request, consent, approval, declaration or other communication to the persons
designated above to receive copies shall in no way adversely affect the
effectiveness of such notice, demand, request, consent, approval, declaration or
other communication.
10. Severability. Any provision of this Agreement which is
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
11. No Waiver. The Lender shall not by any act, delay,
omission or otherwise be deemed to have waived any of its rights or remedies
hereunder, and no waiver shall be valid unless in writing, signed by the Lender,
and then only to the extent therein set forth. A waiver by the Lender of any
right or remedy hereunder on any one occasion shall not be construed as a bar to
any right or remedy which the Lender would otherwise have had on any future
occasion. No failure to exercise nor any delay in exercising on the part of the
Lender, any right, power or privilege hereunder, shall operate as a waiver
thereof, nor shall any single or partial exercise of any right, power or
privilege hereunder preclude any other or future exercise thereof or the
exercise of any other right, power or privilege. None of the terms or provisions
of this Agreement may be waived, altered, modified or amended except by an
instrument in writing, duly executed by the Lender and by the Borrower and the
Parent Guarantor.
12. Amendments. This Agreement, the Term Note and the other
Loan Documents constitute the complete agreement between the parties with
respect to the subject matter hereof and may not be modified, altered or amended
except by an agreement in writing signed by the Borrower and the Lender. No
amendment or waiver of any provision of this Agreement or the Term Note, no
consent to any departure by the Borrower therefrom, nor release of any Pledged
Collateral, shall in any event be effective unless the same shall be in writing
signed by the Lender.
17
<PAGE>
13. Assignments; Successors and Assigns; Governing Law.
(a) The Borrower and the Parent Guarantor may not sell, assign
or transfer any of this Agreement or any portion thereof, including, without
limitation, its rights, title, interests, remedies, powers and duties hereunder
or thereunder, without the prior written consent of the Lender.
(b) This Agreement and all obligations of the Borrower and the
Parent Guarantor hereunder shall be binding upon the successors and assigns of
the Borrower and the Parent Guarantor, and shall, together with the rights and
remedies of the Lender hereunder, inure to the benefit of the Lender, all future
holders of the Term Note and their respective successors and assigns. No sales
of participations, other sales, assignments, transfers or other dispositions of
any agreement governing or instrument evidencing the Secured Obligations or any
portion thereof or interest therein shall in any manner affect the security
interest granted to the Lender under any Loan Document.
(c) This Agreement shall be governed by, and be construed and
interpreted in accordance with, the laws of the State of New York, without
regard to the provisions thereof relating to conflict of laws.
14. Survival. The representations and warranties of each of
the Parent Guarantor and the Borrower in this Agreement shall survive the
execution, delivery and acceptance hereof by the parties hereto and the closing
of the transactions described herein or re lated hereto.
15. Remedies Cumulative. The Lender's rights and remedies
under this Agreement shall be cumulative and nonexclusive of any other rights
and remedies which the Lender may have under any other agreement, including
without limitation, the Term Note or the AMSC Pledge Agreement, by operation of
law or otherwise.
18
<PAGE>
16. WAIVER OF JURY TRIAL. EACH OF THE PARENT GUARANTOR AND THE
BORROWER WAIVES ALL RIGHT TO TRIAL BY JURY IN ANY ACTION OR PROCEEDING TO
ENFORCE OR DEFEND ANY RIGHTS OR REMEDIES HEREUNDER, UNDER THIS AGREEMENT, UNDER
THE TERM NOTE UNDER THE AMSC PLEDGE AGREEMENT OR RELATING TO EACH OF THE
FOREGOING.
17. Section Titles. The Section titles contained in this
Agreement are and shall be without substantive meaning or content of any kind
whatsoever and are not a part of the agreement between the parties hereto.
18. Counterparts. This Agreement may be executed in any
number of counterparts, which shall, collectively and separately,
constitute one agreement.
19
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be executed and delivered by its duly authorized officer on the
date first set forth above.
AMERICAN MOBILE SATELLITE CORPORATION
By:/s/Gary M. Parsons
------------------
Name: Gary Parsons
------------
Title: CEO, President
--------------
AMSC SUBSIDIARY CORPORATION
By:/s/Gary M. Parsons
------------------
Name: Gary Parsons
------------
Title: CEO, President
--------------
HUGHES COMMUNICATIONS SATELLITE
SERVICES, INC.
By:/s/Amnon Carr
-------------
Name: Amnon Carr
----------
Title: Assistant Treasurer
-------------------
<PAGE>
Schedule I
TERM LOANS
<TABLE>
<CAPTION>
Date Maximum Term Loan Amount
<S> <C>
Prior to and including $ 0
January 4, 1998
January 5, 1998 to and $ 1,000,000
including January 11, 1998
January 12, 1998 to and $ 2,000,000
including January 18, 1998
January 19, 1998 to and $ 3,000,000
including January 25, 1998
January 26, 1998 to and $ 4,000,000
including February 1, 1998
February 2, 1998 to and $ 8,000,000
including February 8, 1998
February 9, 1998 and thereafter $10,000,000
</TABLE>
<PAGE>
EXHIBIT A
AMSC SUBSIDIARY CORPORATION
Term Note
$10,000,000 New York, New York
December 30, 1997
FOR VALUE RECEIVED, the undersigned, a Delaware corporation
dually incorporated as a Virginia Public Service corporation (the "Borrower"),
hereby PROMISES TO PAY to the order of HUGHES COMMUNICATIONS SATELLITE SERVICES,
INC., a Delaware company (the "Lender"), its successors or assigns, in lawful
money of the United States of America and in immediately available funds, the
amount of TEN MILLION DOLLARS ($10,000,000) (or, if less, the unpaid principal
amount of Loans made by Lender to the Borrower under the Loan Agreement referred
to below) on the Maturity Date and to pay interest from and after the date
hereof on the unpaid principal amount hereof at the rates and on the dates
provided in the Loan Agreement referred to below.
This Note is issued pursuant to that certain Bridge Loan
Agreement, dated as of December 30, 1997, by and among the Borrower, American
Mobile Satellite Corporation and Lender, (as such agreement may be amended,
modified or otherwise supplemented from time to time, the "Loan Agreement"), and
is entitled to the benefit and security as provided for therein, to which
reference is hereby made for a statement of all of the terms and conditions
under which the loans evidenced hereby are made. All capitalized terms, unless
otherwise defined herein, shall have the meanings ascribed to them in the Loan
Agreement.
If any payment on this Note becomes due and payable on a day
other than a Business Day, the maturity thereof shall be extended to the next
succeeding Business Day and, with respect to payments of principal, interest
thereon shall be payable at the then applicable rate during such extension.
Upon and after the occurrence of an Event of Default, without
demand, notice or legal process of any kind, this Note may be declared, and
immediately shall become, or may automatically (without any notice) become, due
and payable.
<PAGE>
Demand, presentment, protest and notice of nonpayment and
protest are hereby waived by the Borrower.
This Note has been delivered and accepted at New York, New
York and shall be interpreted, governed by and construed in accordance with, the
laws of the State of New York.
AMSC SUBSIDIARY CORPORATION
By:
Name:
Title:
<PAGE>
Exhibit 10.64a
--------------
PLEDGE AGREEMENT
PLEDGE AGREEMENT, dated as of December 30, 1997, made by
American Mobile Satellite Corporation, a Delaware corporation (the "Pledgor"),
to Hughes Communications Satellite Services, Inc., a California corporation (the
"Secured Party").
W I T N E S S E T H:
WHEREAS, each of the Pledgor, as Parent Guarantor, AMSC
Subsidiary Corporation, a Delaware corporation dually incorporated as a Virginia
Public Service corporation (the "Borrower"), and the Secured Party, as Lender,
have entered into a Bridge Loan Agreement, dated as of December 30, 1997 (said
Agreement, as it may be amended or otherwise modified from time to time, being
the "Bridge Loan Agreement" and capitalized terms not defined herein but defined
therein being used herein as therein defined);
WHEREAS, the Pledgor is the legal and beneficial owner of
eighty percent (80%) of the issued and outstanding shares of common stock of
AMRC Holdings, Inc., a Delaware corporation ("AMRC Holdings") as described in
Schedule I hereto (the "Pledged Shares"); and
WHEREAS, it is a condition precedent under the Bridge Loan
Agreement to the making of the Loan that the Pledgor shall have made the pledge
contemplated by this Agreement.
NOW, THEREFORE, in consideration of the premises and in order
to induce the Secured Party to make the Loan, the Pledgor hereby agrees with the
Secured Party as follows:
SECTION 1. Pledge. (a) The Pledgor hereby pledges
to the Secured Party, and grants to the Secured Party, a
security interest in, the following (the "Pledged Collateral"):
(i) all of the Pledged Shares;
(ii) all additional shares of stock or other securities
of AMRC Holdings from time to time acquired by the Pledgor
in any manner and all shares of stock or other securities of
AMRC Holdings held by or owned by any Person who, after the
date of this Agreement, becomes, as a result of any
occurrence, a Subsidiary of the Pledgor (any such shares
being "Additional Shares");
(iii) the certificates representing the shares referred
to in clauses (i) and (ii) above; and
<PAGE>
(iv) all dividends, cash, instruments and other
property or proceeds, from time to time received, receivable
or otherwise distributed in respect of or in exchange for
any or all of the foregoing.
(b) Upon payment in full of the Secured Obligations under the
Bridge Loan Agreement, the pledge and security interest granted pursuant to this
Section 1 shall terminate. Upon such termination, the Secured Party shall
execute and deliver to the Pledgor, at the Pledgor's sole expense, such
documents as the Pledgor shall reasonably request to evidence the termination of
such pledges or security interests or the release of all Pledged Collateral, as
the case may be.
SECTION 2. Security for Obligations. This Agreement secures
and the Pledged Collateral is security for the full and prompt payment when due
(whether at stated maturity, by acceleration or otherwise) of, and the
performance of, the Secured Obligations of the Borrower under (and as defined
in) the Bridge Loan Agreement.
SECTION 3. Delivery of Pledged Collateral. All certificates or
instruments representing or evidencing the Pledged Collateral shall be delivered
to and held by or on behalf of the Secured Party pursuant hereto and shall be in
suitable form for transfer by delivery, or shall be accompanied by duly executed
instruments of transfer or assignment in blank, all in form and substance
satisfactory to the Secured Party. The Secured Party shall have the right, at
any time in its discretion and without notice to the Pledgor, to transfer to or
to register in its name or in the name of any of its nominees any or all of the
Pledged Collateral; provided, however, that notwithstanding anything contained
herein to the contrary, any such transfer or registration in the name of a
nominee shall be subject to the assumption by such transferee or nominee of the
terms and conditions of the AMRC Holdings Shareholders' Agreement, as described
in Section 7(a)(i)(E) below. In addition, the Secured Party shall have the right
at any time to exchange certificates or instruments representing or evidencing
any of the Pledged Collateral for certificates or instruments of smaller or
larger denominations.
SECTION 4. Representations and Warranties. The Pledgor makes
the following representations:
(a) The Pledged Shares (i) have been duly authorized and
validly issued; (ii) are fully paid and non-assessable; and (iii) constitute
eighty percent (80%) of the issued and outstanding shares of AMRC Holdings.
(b) The Pledgor is the legal and beneficial owner of the
Pledged Collateral free and clear of any Lien, except for the Lien and security
interest created by this Agreement.
<PAGE>
(c) The pledge of the Pledged Shares pursuant to this
Agreement creates a valid and perfected first priority security interest in the
Pledged Collateral, securing the payment of all of the Secured Obligations.
(d) No consent, authorization, approval, or other action by,
and no notice to or filing with, any Governmental Authority or third party is
required either (i) for the pledge by the Pledgor of the Pledged Collateral
pursuant to this Agreement or for the due execution, delivery or performance of
this Agreement by the Pledgor, or (ii) for the exercise by the Secured Party of
the rights provided for in this Agreement or of the remedies in respect of the
Pledged Collateral pursuant to this Agreement, except as may be required by the
rules and regulations of the Federal Communications Commission (the "FCC") from
time to time in effect in connection with the disposition of, exercise of voting
rights with respect to, or transfer of control of, the Pledged Collateral, or by
laws affecting the offering and sale of securities generally, and except for any
written consent of other shareholders required under Section 2.01(a) of the
Shareholders' Agreement, dated as of May 16, 1997, by and among the Pledgor,
WorldSpace, Inc. and the Parent Guarantor.
SECTION 5. Further Assurances, Etc. (a) The Pledgor agrees
that at any time and from time to time, at the cost and expense of the Pledgor,
the Pledgor will promptly execute and deliver all further instruments and
documents, and take all further action, that may be necessary or desirable, or
that the Secured Party may request, in order to perfect and protect the Lien and
security interest granted or purported to be granted hereby or to enable the
Secured Party to exercise and enforce its rights and remedies hereunder with
respect to any Pledged Collateral.
(b) The Pledgor agrees to defend the title to the Pledged
Collateral and the Lien thereon and security interest therein of the Secured
Party against the claim of any other Person and to maintain and preserve such
Lien and security interest until indefeasible payment in full of all of the
Secured Obligations.
SECTION 6. Voting Rights; Dividends; Etc.
(a) As long as no Event of Default or event which with lapse
of time or lack of notice would have become an Event of Default shall have
occurred and be continuing (or, in the case of subsection (a)(i) of this Section
6, as long as no notice thereof shall have been given by the Secured Party to
the Pledgor):
<PAGE>
(i) The Pledgor shall be entitled to exercise any and
all voting and other consensual rights pertaining to the
Pledged Collateral or any part thereof for any purpose not
inconsistent with the terms of this Agreement or any other
Loan Document; provided, however, that the Pledgor shall not
exercise or shall refrain from exercising any such right if,
in the Secured Party's judgment, exercised reasonably, such
action would have a material adverse effect on the value of
the Pledged Collateral or any part thereof; and provided,
further, that the Pledgor shall give the Secured Party at
least five Business Days' written notice of the manner in
which it intends to exercise, or its reasons for refraining
from exercising, any such right.
(ii) The Pledgor shall not be entitled to receive or
retain (A) any cash dividends paid in respect of the Pledged
Collateral, or (B) any other dividends paid in respect of
the Pledged Collateral, including, without limitation, any
of the following:
(x) dividends paid or payable in respect of,
and instruments and other property received,
receivable or otherwise distributed in respect of, or
in exchange for, any Pledged
Collateral,
(y) dividends and other distributions paid
or payable in cash in respect of any Pledged
Collateral in connection with a partial or total
liquidation or dissolution or in connection with a
reduction of capital, capital surplus or
paid-in-surplus, and
(z) cash paid, payable or otherwise
distributed in redemption of, or in exchange for, any
Pledged Collateral,
all of which, together with any cash dividends received by the
Pledgor in violation of clause (A) of this clause (ii), shall
be forthwith delivered to the Secured Party to hold as Pledged
Collateral and shall, if received by the Pledgor, be received
in trust for the benefit of the Secured Party, be segregated
from the other property or funds of the Pledgor, and be
forthwith delivered to the Secured Party as Pledged Collateral
in the same form as so received (with any necessary
indorsement).
(b) Upon the occurrence and during the continuance of an Event
of Default:
(i) Upon notice by the Secured Party to the Pledgor,
all rights of the Pledgor to exercise the voting and other
consensual rights which it would otherwise be entitled to
exercise pursuant to Section 6(a)(i) above shall cease, and
all such rights shall thereupon become vested in the Secured
Party who shall thereupon have the sole right to exercise
such voting and other consensual rights.
<PAGE>
(ii) The Pledgor shall, if necessary to permit the
Secured Party to exercise the voting and other rights which
it may be entitled to exercise pursuant to Section 6(b)(i)
above and to receive all dividends and distributions which
it may be entitled to receive under Section 6(b)(ii) above,
execute and deliver to the Secured Party, from time to time
and upon written notice of the Secured Party, appropriate
proxies, dividend payment orders and other instruments as
the Secured Party may reasonably request. The foregoing
shall not in any way limit the Secured Party's power and
authority granted pursuant to Section 8 hereof.
SECTION 7. Transfers and Other Liens; Additional Shares. (a)
The Pledgor agrees that it will not (i) sell or otherwise dispose of any of the
Pledged Collateral, or grant any option or warrant with respect to, any of the
Pledged Col lateral, other than those options which may be granted to
WorldSpace, Inc., a Maryland corporation ("WorldSpace"), pursuant to:
(A) the Participation Agreement, dated as of March 14, 1997, by
and between WorldSpace, American Mobile Radio Corporation, a
Delaware corporation ("AMRC"), and Pledgor;
(B) the Memorandum of Understanding, dated as of April 15, 1997,
by and between WorldSpace, AMRC and Pledgor;
(C) the Bridge, Additional Amounts and Working Capital Credit
Facility, dated as of May 16, 1997, among AMRC Holdings, AMRC,
Pledgor and WorldSpace;
(D) the Stock Subscription and Exchange Agreement, dated as of May
16, 1997, by and between WorldSpace, AMRC Holdings, AMRC and
Pledgor;
(E) the Shareholders' Agreement, dated as of May 16, 1997, by and
between AMRC Holdings, WorldSpace and Pledgor (the "AMRC
Holdings Shareholders' Agreement");
(F) the Bridge Option, dated as of May __, 1997, between AMRC
Holdings and WorldSpace;
(G) the Additional Amounts Option, dated as of May 16, 1997,
between AMRC and WorldSpace;
(H) the Working Capital Option, dated as of May 16, 1997, between
AMRC Holdings and WorldSpace; and
<PAGE>
(I) the Security Agreement, dated as of May 16, 1997, between AMRC
Holdings and WorldSpace
(collectively, the "Existing WorldSpace Arrangements"),
or (ii) create or permit to exist any Lien upon or with respect to any of the
Pledged Collateral, except for the Lien and the security interest created
pursuant to this Agreement.
(b) The Pledgor agrees that it will (i) not vote any of the
Pledged Shares in favor of the issuance of any shares of stock or other
securities of AMRC Holdings in addition to or in substitution for the Pledged
Shares, (A) except with the written consent of the Secured Party, to the
Pledgor, and (B) except for any shares to be issued pursuant to the Existing
WorldSpace Arrangements, (ii) pledge hereunder, immediately upon its acquisition
(directly or indirectly) thereof, any and all Additional Shares, and (iii)
promptly (and in any event within two Business Days) deliver to the Secured
Party a Pledge Amendment, duly executed by the Pledgor or any other owner of
Additional Shares, in substantially the form of Schedule II hereto (a "Pledge
Amendment"), in respect of the Additional Shares, together with all certificates
or instruments representing or evidencing the same. The Pledgor hereby (i)
authorizes the Secured Party to attach each Pledge Amendment to this Pledge
Agreement, (ii) agrees that all Additional Shares listed on any Pledge Amendment
delivered to the Secured Party shall for all purposes hereunder constitute
Pledged Shares, and (iii) is deemed to have made, with respect to any and all
Additional Shares pledged by the Pledgor, upon such delivery, the
representations and warranties contained in Section 4 hereof with respect to
such Pledged Collateral.
SECTION 8. Secured Party Appointed Attorney-in-Fact and Proxy.
The Pledgor hereby irrevocably constitutes and appoints the Secured Party and
any officer or agent thereof, with full power of substitution, as its true and
lawful attorney-in-fact and proxy with full irrevocable power and authority in
the place and stead of the Pledgor and in the name of the Pledgor or in its own
name, from time to time in the Secured Party's discretion, exercised reasonably,
for the purpose of carrying out the terms of this Agreement, to take any and all
appropriate action and to execute and deliver any and all documents and
instruments which the Secured Party may deem necessary or advisable to
accomplish the purposes of this Agreement, including, without limitation, to
receive, indorse and collect all instruments made payable to the Pledgor
representing any dividend or other distribution or payment in respect of the
Pledged Collateral or any part thereof, to give full discharge for the same and
to vote or grant any consent in respect of the Pledged Shares authorized by
Section 6(b) hereof. The Pledgor hereby ratifies, to the extent permitted by
law, all that any said attorney shall lawfully do or cause to be done by virtue
hereof. This power, being coupled with an interest, is irrevocable until the
Secured Obligations are paid in full.
<PAGE>
SECTION 9. Secured Party May Perform. If the Pledgor fails to
perform any agreement contained herein, the Secured Party may itself perform, or
cause performance of, such agreement, and the expenses of the Secured Party
incurred in connection therewith shall be payable by the Pledgor under Section
12 hereof and constitute Secured Obligations secured hereby.
SECTION 10. Reasonable Care. The Secured Party shall be deemed
to have exercised reasonable care in the custody and preservation of the Pledged
Collateral in its possession if the Pledged Collateral is accorded treatment
substantially equal to that which the Secured Party accords its own property of
a similar nature, it being understood that the Secured Party shall not be
responsible for (i) ascertaining or taking action with respect to calls,
conversions, exchanges, maturities, tenders or other matters relative to any
Pledged Collateral, whether or not the Secured Party has or is deemed to have
knowledge of any such matter, or (ii) taking any necessary steps to preserve
rights against any Person with respect to any Pledged Collateral.
SECTION 11. Remedies upon Event of Default. If any Event of
Default shall have occurred and be continuing, the Secured Party may, subject to
the rules and regulations of the FCC from time to time in effect, if applicable,
exercise any or all of the followings rights, remedies and recourses which may
now or hereafter exist in equity or at law:
(a) The Secured Party may exercise in respect of the Pledged
Collateral, in addition to other rights and remedies provided for herein or
otherwise available to it, all the rights and remedies of a secured party after
default under the Uniform Commercial Code in effect in the State of New York at
that time, and the Secured Party may also, without notice except as specified
below, sell the Pledged Collateral or any part thereof in one or more parcels at
public or private sale, at any exchange, broker's board or at any office of the
Secured Party or elsewhere, for cash, on credit or for future delivery, and upon
such other terms as the Secured Party may deem commercially reasonable; except
that, notwithstanding anything contained herein to the contrary, the right of
the Secured Party to sell and assign or otherwise transfer any of the Pledged
Collateral shall be subject, at all times, to the terms and conditions of the
AMRC Holdings Shareholders' Agreement. The Pledgor agrees that, to the extent
notice of sale shall be required by law, at least ten days' notice to the
Pledgor of the time and place of any public sale or the time after which any
private sale is to be made shall constitute reasonable notification. The Secured
Party shall not be obligated to make any sale of Pledged Collateral regardless
of notice of sale having been given. The Secured Party may adjourn any public or
<PAGE>
private sale from time to time by announcement at the time and place fixed
therefor, and such sale may, without further notice, be made at the time and
place to which it was so adjourned. The Pledgor hereby waives any claims against
the Secured Party arising by reason of the fact that the price at which any
Pledged Collateral may have been sold at such a private sale was less than the
price which might have been obtained at a public sale, even if the Secured Party
accepts the first offer received and does not offer such Pledged Collateral to
more than one offeree.
(b) The Secured Party may elect to obtain (at the Pledgor's
expense) the advice of any independent nationally-known investment banking firm
with respect to the method and manner of sale or other disposition of any of the
Pledged Collateral, the best price reasonably obtainable therefor, the
consideration of cash and/or credit terms, or any other details concerning such
sale or disposition.
(c) If the Secured Party shall determine to exercise its right
to sell all or any of the Pledged Collateral pursuant to this Section 11, the
Pledgor agrees that, upon request of the Secured Party, the Pledgor will, at its
own cost and expense:
(i) execute and deliver, and use its best efforts to
cause the issuer of the Pledged Shares and its directors and
officers to execute and deliver, all such instruments and
documents, and do or cause to be done all such other acts
and things, as may be necessary or, in the opinion of the
Secured Party, necessary or advisable to register such
Pledged Shares under the provisions of the Securities Act of
1933, as from time to time amended (the "Securities Act"),
and to cause the registration statement relating thereto to
become effective and to remain effective for such period as
prospectuses are required by law to be furnished, and to
make all amendments and supplements thereto and to the
related prospectus which, in the opinion of the Secured
Party, are necessary or advisable, all in conformity with
the requirements of the Securities Act and the rules and
regulations of the Securities and Exchange Commission
("SEC") applicable thereto;
(ii) use its best efforts to qualify the Pledged
Collateral under the state securities or "Blue Sky" laws and
to obtain all necessary governmental approvals for the sale
of the Pledged Collateral, as requested by the Secured
Party;
(iii) make available to its security holders, as soon
as practicable, an earning statement which will satisfy the
provisions of section 11(a) of the Securities Act; and
<PAGE>
(iv) do or cause to be done all such other acts and
things as may be necessary to make such sale of the Pledged
Collateral or any part thereof valid and binding and in
compliance with applicable law.
The Pledgor further acknowledges the impossibility of ascertaining the amount of
damages which would be suffered by the Secured Party by reason of the failure by
the Pledgor to perform any of the covenants contained in this Section 11 and,
consequently, agrees that, if the Pledgor shall fail to perform any of such
covenants, it shall pay, as liquidated damages and not as a penalty, an amount
equal to the value of the Pledged Collateral on the date the Secured Party shall
demand compliance with this Section.
(d) The Pledgor recognizes that, by reason of the
aforementioned requirements and certain prohibitions contained in the Securities
Act and applicable state securities laws, the Secured Party may, at its option,
elect not to require the Pledgor to register all or any part of the Pledged
Collateral and may therefore be compelled, with respect to any sale of all or
any part of the Pledged Collateral, to limit purchasers to those who will agree,
among other things, to acquire such securities for their own account, for
investment, and not with a view to the distribution or resale thereof. The
Pledgor acknowledges and agrees that any such sale may result in prices and
other terms less favorable to the seller than if such sale were a public sale
without such restrictions and, notwithstanding such circumstances, agrees that
any such sale shall be deemed to have been made in a commercially reasonable
manner. The Secured Party shall be under no obligation to delay the sale of any
of the Pledged Collateral for the period of time necessary to permit the Pledgor
to register such securities for public sale under the Securities Act, or under
applicable state securities laws, even if the Pledgor would agree to do so.
(e) If the Secured Party determines to exercise its right to
sell any or all of the Pledged Collateral, upon written request, the Pledgor
shall, from time to time, furnish to the Secured Party all such information as
the Secured Party may request in order to determine the number of shares and
other instruments included in the Pledged Collateral which may be sold by the
Secured Party as exempt transactions under the Securities Act and rules of the
SEC thereunder, as the same are from time to time in effect.
(f) Any cash held by the Secured Party as Pledged Collateral
and all cash proceeds received by the Secured Party in respect of any sale of,
collection from, or other realiza tion upon all or any part of the Pledged
Collateral shall be applied by the Secured Party:
<PAGE>
First, to the payment of the costs and expenses of such sale,
including, without limitation, reasonable expenses of the Secured Party and its
agents including the fees and expenses of its counsel, and all expenses,
liabilities and advances made or incurred by the Secured Party in connection
therewith or pursuant to Section 9 hereof;
Next, toward the payment in full of the Secured Obligations;
and
Finally, after payment in full of all of the Secured
Obligations, to the payment to the Pledgor, or its successors or assigns, or to
whomsoever may be lawfully entitled to receive the same as a court of competent
jurisdiction may direct.
SECTION 12. Expenses. The Pledgor will upon demand pay to the
Secured Party the amount of any and all reasonable expenses, including, without
limitation, the reasonable fees and expenses of the Secured Party's counsel and
of any experts and agents, which the Secured Party may incur in connection with
(i) the administration of this Agreement, (ii) the custody or preservation of,
sale of, collection from, or other realiza tion upon, any of the Pledged
Collateral, (iii) the exercise or enforcement of any of the rights and remedies
hereunder of the Secured Party, or (iv) the failure by the Pledgor to perform or
observe any of the provisions hereof.
SECTION 13. Security Interest Absolute. All rights of the
Secured Party and security interests hereunder, and all obligations of the
Pledgor hereunder, shall be absolute and unconditional irrespective of:
(i) any lack of validity or enforceability of any
provision of the Bridge Loan Agreement or any other Loan
Document or any other agreement or instrument relating
thereto;
(ii) any change in the time, manner or place of payment
of, or in any other term of, or any increase in the amount
of, all or any of the Secured Obligations, or any other
amendment or waiver of any term of, or any consent to any
departure from any requirement of, the Bridge Loan Agreement
or any other Loan Document;
(iii) any exchange, release or non-perfection of any
Lien on any other collateral, or any release or amendment or
waiver of any term of any guaranty of, or consent to
departure from any requirement of any guaranty of, all or
any of the Secured Obligations; or
(iv) any other circumstance which might otherwise
constitute a defense available to, or a discharge of, a
borrower or a pledgor (other than payment in full of the
Secured Obligations).
<PAGE>
SECTION 14. Amendments, Etc. No amendment or waiver of any
provision of this Agreement nor consent to any departure by the Pledgor herefrom
shall in any event be effective unless the same shall be in writing, approved by
the Secured Party and signed by the Secured Party, and then such waiver or
consent shall be effective only in the specific instance and for the specific
purpose for which given.
SECTION 15. Addresses for Notices. All notices and other
communications provided for hereunder shall be in writing (including telecopy
communication) and mailed, telecopied (with a subsequent hard copy mailed or
delivered by hand, Federal Express or any other nationally recognized courier
service) or delivered by hand, Federal Express or any other nationally
recognized courier service, if to the Pledgor or the Secured Party, addressed to
the Pledgor or the Secured Party at its address specified in the Bridge Loan
Agreement, or, as to each party, at such other address as shall be designated by
such party in a written notice to each other party complying as to delivery with
the terms of this Section. All such notices and other communications shall, when
mailed, telecopied or delivered, be effective when deposited in the mails,
telecopied with confirmation of receipt, or delivered by hand, Federal Express
or such other courier service to the addressee or its agent, respectively.
SECTION 16. Continuing Security Interest; Transfer of Notes or
Obligations. This Pledge Agreement shall create a continuing security interest
in the Pledged Collateral and shall (i) remain in full force and effect until
indefeasible payment in full of the Secured Obligations, (ii) be binding upon
the Pledgor, its successors and assigns, and (iii) inure, together with the
rights and remedies of the Secured Party hereunder, to the benefit of and be
enforceable by the Secured Party and its respective successors, transferees and
assigns, subject to and upon the terms and conditions set forth in the AMRC
Shareholders' Agreement. Upon the payment in full of the Secured Obligations,
the Pledgor shall be entitled to the return, promptly as practicable, upon its
request and at its expense, of such of the Pledged Collateral as shall not have
been sold or otherwise applied pursuant to the terms hereof.
SECTION 17. Governing Law; Severability; Terms. This Agreement
shall be governed by, and be construed and interpreted in accordance with, the
law of the State of New York (but without giving effect to principles of
conflicts of laws). Wherever possible, each provision of this Agreement shall be
interpreted in such manner as to be effective and valid under applicable law,
but if any provision of this Agreement shall be prohibited by or invalid under
applicable law, such provision shall be ineffective only to the extent of such
prohibition or invalidity and without invalidating the remaining provisions of
this Agreement. Unless otherwise defined herein or in the Bridge Loan Agreement,
terms defined in Article 9 of the Uniform Commercial Code as in effect in the
State of New York are used herein as therein defined.
<PAGE>
SECTION 18. Submission to Jurisdiction; Jury Trial; Judgment.
(a) Any legal action or proceeding with respect to this Agreement or any
document related hereto may be brought in the courts of the State of New York or
the United States of America for the southern district of New York, and, by
execution and delivery of this Agreement, the Pledgor hereby accepts for itself
and in respect of its property, generally and unconditionally, the jurisdiction
of the aforesaid courts. The Pledgor hereby irrevocably waives any objection,
including, without limitation, any objection to the laying of venue or based on
the grounds of forum non conveniens, which the Pledgor may now or hereafter have
to the bringing of any such action or proceeding in such respective
jurisdictions and consents to the granting of such legal or equitable relief as
is deemed appropriate by the court.
(b) To the extent that the Pledgor has or hereafter may
acquire any immunity from jurisdiction of any court or from any legal process
(whether through service or notice, attachment prior to judgment, attachment in
aid of execution, execution or otherwise) with respect to itself or its
property, the Pledgor hereby irrevocably waives to the fullest extent permitted
by law such immunity in respect of its obligations under this Agreement and the
other Loan Documents. The Pledgor waives to the fullest extent permitted by law
any right it may have to trial by jury in respect of any litigation based on,
arising out of, under or in connection with this Agreement or any other Loan
Document, or any course of conduct, course of dealing, verbal or written
statement or other action of any Loan Party or the Secured Party.
SECTION 19. Section Titles. The Section titles contained in
this Agreement are and shall be without substantive meaning or content of any
kind whatsoever and are not part of this Agreement.
<PAGE>
IN WITNESS WHEREOF, the Pledgor has caused this Agreement to
be duly executed and delivered by its duly authorized officer on the date first
above written.
AMERICAN MOBILE SATELLITE
CORPORATION
By:/s/Gary M. Parsons
------------------
Name: Gary M. Parsons
Title: CEO, President
Accepted and Acknowledged:
HUGHES COMMUNICATIONS SATELLITE
SERVICES, INC.
By:/s/Amnon Carr
Name: Amnon Carr
Title: Assistant Treasurer
<PAGE>
SCHEDULE I TO PLEDGE AGREEMENT
Attached to and forming a part of that certain Pledge Agreement, dated
as of December 30, 1997, by American Mobile Satellite Corporation to Hughes
Communications Satellite Services, Inc.
Stock
Class Certificate Number of
Stock Issuer of Stock No(s). Par Value Shares
AMRC Holdings, Common 001 $0.10 100
Inc.
<PAGE>
SCHEDULE II TO PLEDGE AGREEMENT
PLEDGE AMENDMENT
This Pledge Amendment, dated , , is delivered
----
pursuant to Section 7 of the Pledge Agreement referred to below. The
undersigned hereby agrees that this Pledge Amendment may be attached to
the Pledge Agreement, dated as of December 30, 1997, between the
undersigned and Hughes Communications Satellite Services, Inc., as
Secured Party referred to therein and that the Additional Shares listed
on this Pledge Amendment shall be and become part of the Pledged
Collateral referred to in the Pledge Agreement and shall secure all
Secured Obligations of the undersigned. The terms defined in the Pledge
Agreement or Bridge Loan Agreement are being used herein as therein
defined.
[AMERICAN MOBILE SATELLITE
CORPORATION][ ]
By:
Name:
Title:
Stock
Class Certificate Number of
Stock Issuer of Stock No(s). Par Value Shares
Exhibit 10.64b
--------------
AMSC SUBSIDIARY CORPORATION
Term Note
$10,000,000 New York, New York
December 30, 1997
FOR VALUE RECEIVED, the undersigned, a Delaware corporation
dually incorporated as a Virginia Public Service corporation (the "Borrower"),
hereby PROMISES TO PAY to the order of HUGHES COMMUNICATIONS SATELLITE SERVICES,
INC., a Delaware company (the "Lender"), its successors or assigns, in lawful
money of the United States of America and in immediately available funds, the
amount of TEN MILLION DOLLARS ($10,000,000) (or, if less, the unpaid principal
amount of Loans made by Lender to the Borrower under the Loan Agreement referred
to below) on the Maturity Date and to pay interest from and after the date
hereof on the unpaid principal amount hereof at the rates and on the dates
provided in the Loan Agreement referred to below.
This Note is issued pursuant to that certain Bridge Loan
Agreement, dated as of December 30, 1997, by and among the Borrower, American
Mobile Satellite Corporation and Lender, (as such agreement may be amended,
modified or otherwise supplemented from time to time, the "Loan Agreement"), and
is entitled to the benefit and security as provided for therein, to which
reference is hereby made for a statement of all of the terms and conditions
under which the loans evidenced hereby are made. All capitalized terms, unless
otherwise defined herein, shall have the meanings ascribed to them in the Loan
Agreement.
If any payment on this Note becomes due and payable on a day
other than a Business Day, the maturity thereof shall be extended to the next
succeeding Business Day and, with respect to payments of principal, interest
thereon shall be payable at the then applicable rate during such extension.
Upon and after the occurrence of an Event of Default, without
demand, notice or legal process of any kind, this Note may be declared, and
immediately shall become, or may automatically (without any notice) become, due
and payable.
Demand, presentment, protest and notice of nonpayment and
protest are hereby waived by the Borrower.
<PAGE>
This Note has been delivered and accepted at New York, New
York and shall be interpreted, governed by and construed in accordance with, the
laws of the State of New York.
AMSC SUBSIDIARY CORPORATION
By:/s/Gary M. Parsons
Name: Gary M. Parsons
Title: CEO, President
<PAGE>
EXHIBIT 10.65
-------------
STOCK PURCHASE AGREEMENT
FOR THE ACQUISITION OF
MOTOROLA ARDIS ACQUISITION, INC.
AND
MOTOROLA ARDIS, INC.
BY
AMSC ACQUISITION COMPANY, INC.
A WHOLLY-OWNED SUBSIDIARY
OF
AMERICAN MOBILE SATELLITE CORPORATION
Dated as of December 31, 1997
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE 1. DEFINITIONS.................................................. 1
ARTICLE 2. MERGER, PURCHASE AND SALE OF SHARES.......................... 13
Section 2.1 Merger, Purchase and Sale
of Shares ....................... 13
Section 2.2 MAI Purchase Price and MAA
Purchase Price......................... 14
Section 2.3 Purchase Price Adjustments............. 14
Section 2.4 Post-Closing Purchase Price
Adjustment............................. 15
Section 2.5 Closing Place, Date and Time........... 17
Section 2.6 FCC Authorization and Final Order...... 17
Section 2.7 Deliveries at Closing.................. 18
Section 2.8 Deliveries Post-Closing................ 20
ARTICLE 3. REPRESENTATIONS AND WARRANTIES
OF SELLER................................................ 20
Section 3.1 Organization and Good Standing......... 20
Section 3.2 Authority; No Required Consents
or Governmental Authorizations;
No Breach of Statute or Contract;
Enforceability......................... 21
Section 3.3 Ownership of Shares.................... 23
Section 3.4 Capitalization of MAA, MAI
and the Subsidiaries................... 23
Section 3.5 Corporate Records...................... 23
Section 3.6 Employee Benefit Plans................. 24
Section 3.7 Broker's or Finder's Fees.............. 26
Section 3.8 Financial Statements................... 26
Section 3.9 Accounts Receivable.................... 27
Section 3.10 Absence of Undisclosed
Liabilities............................ 27
Section 3.11 Existing Condition..................... 28
Section 3.12 Title to Properties; Leasehold
Interests.............................. 30
Section 3.13 Condition of Tangible Assets........... 30
Section 3.14 Books of Account....................... 31
Section 3.15 Litigation............................. 31
Section 3.16 Compliance with Law.................... 31
Section 3.17 Environmental Matters.................. 32
Section 3.18 Insurance.............................. 32
Section 3.19 Contracts and Commitments.............. 33
Section 3.20 Additional Information................. 34
Section 3.21 Intellectual Property.................. 35
Section 3.22 No Third Party Options................. 37
Section 3.23 Tariffs; FCC Licenses;
Non-FCC Authorizations................. 37
Section 3.24 Officer and Employee Compensation...... 39
Section 3.25 Indebtedness........................... 39
Section 3.26 Access; Sophistication; etc............ 39
Section 3.27 Investment Representation.............. 40
ARTICLE 4. REPRESENTATIONS AND WARRANTIES OF
AMSC AND PURCHASER....................................... 41
Section 4.1 Organization and Good Standing......... 41
Section 4.2 Authority; No Required Consents
or Governmental Authorizations
or Breach of Statute or
Contract; Enforceability............... 41
Section 4.3 Broker's or Finder's Fees.............. 43
Section 4.4 Access; Sophistication; etc............ 43
Section 4.5 Investment Representation.............. 43
Section 4.6 SEC Filings; Financial
Statements............................. 44
Section 4.7 Absence of Certain Changes............. 45
Section 4.8 Absence of Undisclosed
Liabilities............................ 45
Section 4.9 Litigation............................. 45
ARTICLE 5. CERTAIN AGREEMENTS........................................... 46
Section 5.1 Conduct of the Business................ 46
Section 5.2 Access to Information.................. 49
Section 5.3 Efforts; Further Assurances;........... 49
Permits
Section 5.4 Books and Records...................... 50
Section 5.5 Governmental Regulatory
Approvals.............................. 50
Section 5.6 FCC Consent............................ 51
Section 5.7 HSR Act Review......................... 51
Section 5.8 Registration Rights.................... 51
Section 5.9 Lock-up................................ 51
Section 5.10 Nonsolicitation........................ 52
Section 5.11 IBM Contract Renewal................... 52
Section 5.12 UPS Contract........................... 52
Section 5.13 Escrow Agreement....................... 52
Section 5.14 Employee Transition.................... 53
Section 5.15 Updated Disclosure Schedule............ 53
Section 5.16 Nextel Proceeds........................ 53
Section 5.17 Non-Vendor Intercompany Financing
Arrangements........................... 53
Section 5.18 Intercompany Agreements................ 54
ARTICLE 6. CONDITIONS TO CLOSING........................................ 54
Section 6.1 Conditions to Obligation of
Purchaser.............................. 54
Section 6.2 Conditions to Obligations of
Seller.. ..................... 56
ARTICLE 7. INDEMNIFICATION.............................................. 58
Section 7.1 Indemnification by Seller.............. 58
Section 7.2 Indemnification by AMSC................ 59
Section 7.3 Limitations on Indemnification for
Breaches of Representations and
Warranties............................. 59
Section 7.4 Survival of Representations and
Warranties............................. 60
Section 7.5 Method of Asserting Claims............. 60
Section 7.6 Method of Payment...................... 62
Section 7.7 Limitation of Recourse................. 63
Section 7.8 Acknowledgment by Seller, Purchaser
and AMSC ....................... 63
ARTICLE 8. TAX MATTERS.................................................. 64
Section 8.1 Seller's Tax Representations
and Warranties......................... 64
Section 8.2 AMSC's Tax Representations
and Warranties......................... 66
Section 8.3 Tax Returns, Audits, Contests, Etc.;
Tax Cooperation; Tax Sharing
Agreements; Tax Records................ 68
Section 8.4 Asset Purchase Treatment
for MAI Shares......................... 72
Section 8.5 Tax-Free Reorganization
Treatment.............................. 76
Section 8.6 Transfer Taxes......................... 76
Section 8.7 General Tax Indemnifications........... 76
Section 8.8 Exclusive Remedy for Taxes............. 81
Section 8.9 Survival and Purchase Price
Adjustment............................. 81
ARTICLE 9. TERMINATION OF AGREEMENT; PAYMENT OF
EXPENSES; WAIVER OF CONDITIONS........................... 82
Section 9.1 Termination Pre-Agreement.............. 82
Section 9.2 Termination Post-Closing............... 83
Section 9.3 Payment of Expenses; Waiver of
Conditions............................. 84
ARTICLE 10. MISCELLANEOUS............................................... 84
Section 10.1 Amendments............................. 84
Section 10.2 Further Instruments and
Assurances............................. 84
Section 10.3 Public Announcements................... 85
Section 10.4 Governing Law.......................... 85
Section 10.5 Notices ....................... 85
Section 10.6 Assignment and Binding Effect.......... 86
Section 10.7 Entire Agreement....................... 86
Section 10.8 Severability........................... 87
Section 10.9 Counterparts........................... 87
Section 10.10 No Third Party Beneficiaries........... 87
Section 10.11 Delays or Omissions.................... 87
Section 10.12 Construction........................... 87
Section 10.13 Knowledge Standard..................... 88
Section 10.14 Expenses ....................... 88
<PAGE>
EXHIBITS
Exhibit
A AMSC Warrants
B Registration Rights Agreement
<PAGE>
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (this "Agreement") is dated as of
December 31, 1997 and is entered into by and among MOTOROLA, INC., a Delaware
corporation ("Seller"), MOTOROLA ARDIS ACQUISITION, INC. a Delaware corporation
("MAA"), and MOTOROLA ARDIS, INC. a Delaware corporation ("MAI"), and American
Mobile Satellite Corporation, a Delaware corporation ("AMSC"), and AMSC
Acquisition Company, Inc., a Delaware corporation ("Purchaser").
ARTICLE 1. DEFINITIONS.
Section 1.1 Definitions.
-----------
"Acquisition Proposal" has the meaning set forth in Section 5.9.
"Adverse Legal Opinion" has the meaning set forth in Section 2.6(a).
"Affiliate" shall mean with respect to any Person, any other Person
that is directly or indirectly controlling, controlled by or under common
control with such Person or entity or any of its subsidiaries, and the term
"control" (including the terms "controlled by" and "under common control with")
means having, directly or indirectly, the power to direct or cause the direction
of the management and policies of a Person, whether through ownership of voting
securities or by contract or otherwise
"Affiliated Group" shall mean an "affiliated group" as defined in
Section 1504(a) of the Code.
"Agreement" has the meaning set forth in the introductory paragraph
hereof.
"AMSC Common Stock" shall mean the common stock, par value $0.01
per share, of AMSC.
"AMSC Group" shall mean any Affiliated Group including AMSC, any
successor thereof or, if such Affiliated Group shall cease to exist, AMSC and
any successors thereto.
"AMSC Shareholder Approval" has the meaning set forth in Section
2.7(a)(iv).
"AMSC Warrants" shall mean warrants issued by AMSC to Seller
substantially in the form attached hereto as Exhibit A.
"ARDIS" means ARDIS Company.
"ARDIS Balance Sheet" shall mean the unaudited consolidated balance
sheet of ARDIS Holding as of September 30, 1997.
"ARDIS Balance Sheet Date" has the meaning set forth in Section 3.8.
"ARDIS Holding" means ARDIS Holding Company.
"Benefit Plan" shall mean any plan, agreement, arrangement or
commitment which is an employment or consulting agreement, executive or
incentive compensation plan, bonus plan, retention bonus plan, deferred
compensation agreement, employee pension, profit sharing, savings or retirement
plan, employee stock option or stock purchase plan, group life, health,
disability, sick pay or accident insurance or other employee benefit plan,
agreement, arrangement or commitment, including, without limitation, severance,
holiday, vacation, Christmas or other bonus plans (including, but not limited
to, employee benefit plans, as defined in Section 3(3) of ERISA), maintained for
the benefit of any employee or director or former employee or former director of
MAA, MAI or any of the Subsidiaries whether or not maintained by MAA, MAI or any
of the Subsidiaries or with respect to which MAA, MAI or any of the Subsidiaries
makes or has any obligation to make contributions.
"Books and Records" shall mean all of MAA's, MAI's and each of the
Subsidiaries' customer or subscriber lists and records, accounts and billing
records (including a copy of the detailed general ledger and the summary trial
balances, where available), detailed continuing property records, equipment
records, plans, blueprints, specifications, designs, drawings, surveys,
engineering reports, personnel records (where applicable) and all other
documents, computer data and records (including records and files on computer
disks or stored electronically) relating to the Subsidiaries.
"Business Day" means any day other than Saturday, Sunday or a day
that constitutes a legal holiday in the State of Illinois or the District of
Columbia.
"CERCLA" shall mean the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended.
"Claim Notice" has the meaning set forth in Section 7.5(a).
"Closing" has the meaning set forth in Section 2.5.
"Closing Cash Payment" has the meaning set forth in Section 2.3.
"Closing Date" has the meaning set forth in Section 2.5.
"Closing Financial Statements" shall mean (i) the unaudited
consolidated income statement and statement of cash flows for ARDIS Holding for
the period from January 1, 1998 through the Closing Date and (ii) the unaudited
consolidated balance sheet for ARDIS Holding effective as of the Closing Date.
"Closing Stock Payment" has the meaning set forth in Section 2.3.
"Closing Working Capital" has the meaning set forth in Section 2.3.
"Code" shall mean the Internal Revenue Code of 1986, as amended.
"Collateral Agreements" shall mean the Registration Rights
Agreement, the Escrow Agreement and all such other agreements entered into by
the parties hereto in connection with the transactions contemplated hereby.
"Common Stock" shall mean the common stock, par value $.01 per
share, of MAA and the common stock, par value $.01 per share, of MAI.
"Companies" shall mean MAA, MAI and the Subsidiaries.
"Company" shall mean any one of the Companies.
"Consideration Shares" has the meaning set forth in Section 2.2.
"Control" shall mean the power to direct the management and
policies of a Person, directly or indirectly, whether through the ownership of
voting securities, by contract or otherwise; and the terms "controlling" and
"controlled" shall have meanings correlative to the foregoing.
"Cumulative Temporary Differences" means the differences between
the bases in assets and liabilities for Financial Statement and income Tax
purposes that will result in the recognition of different amounts of income and
expense for Financial Statement and income Tax purposes in future periods.
"Disclosure Schedule" shall mean the Disclosure Schedule, including
the Introduction thereto, delivered simultaneously herewith by Seller and dated
as of even date herewith.
"Environmental Conditions" shall mean any and all acts, omissions,
events, circumstances, and conditions, including any pollution, contamination,
degradation, damage, or injury caused by, related to, or arising from or in
connection with the generation, use, handling, treatment, storage, disposal,
discharge, emission or release of Hazardous Materials.
"Environmental Laws" shall mean all federal, state, local or
municipal laws, rules, regulations, statutes, and ordinances and orders of any
Governmental Entity relating to (a) the control of any potential pollutant, or
protection of the air, water or land, (b) solid, gaseous or liquid waste
generation, handling, treatment, storage, disposal or transportation, and (c)
exposure to hazardous, toxic or other substances alleged to be harmful.
"Environmental Laws" shall include the Clean Air Act, the Clean Water Act, the
Resource Conservation and Recovery Act, the Superfund Amendments and
Reauthorization Act, the Toxic Substances Control Act, the Safe Drinking Water
Act, and the CERCLA, and shall also include all state, local and municipal laws,
rules, regulations, statutes, ordinances and orders dealing with the subject
matter of the above listed federal statutes or promulgated by any governmental
or quasi-governmental agency thereunder in order to carry out the purposes of
any federal, state, local or municipal law.
"Environmental Liabilities" shall mean any and all liabilities,
responsibilities, claims, suits, losses, costs (including remedial, removal,
response, abatement, clean-up, investigative and/or monitoring costs and any
other related costs and expenses), other causes of action recognized now or at
any later time, damages, settlements, expenses, charges, assessments, liens,
penalties, fines, pre-judgment and post-judgment interest, attorneys' fees and
other legal costs incurred or imposed (a) pursuant to any agreement, order,
notice of responsibility, directive (including directive embodied in
Environmental Laws), injunction, judgment or similar documents (including
settlements) arising out of, in connection with, or under Environmental Laws,
(b) pursuant to any claim by a Governmental Entity or other Person for personal
injury, property damage, damage to natural resources, remediation, or payment or
reimbursement of response costs incurred or expended by such Governmental Entity
or Person pursuant to common law or statute, or (c) as a result of Environmental
Conditions.
"ERISA" shall mean the Employee Retirement Income Security Act of
1974, as amended.
"ERISA Affiliate" shall mean any person, firm or entity (whether or
not incorporated) which, by reason of its relationship with MAA, MAI or any of
the Subsidiaries, is required to be aggregated with MAA, MAI or any of the
Subsidiaries under Sections 414(b), (c) or (m) of the Code or which, together
with MAA, MAI or any of the Subsidiaries, is a member of a controlled group
within the meaning of Section 4001(a) of ERISA.
"Escrow Agent" shall mean a national banking association, trust
company or similar entity mutually acceptable to the parties.
"Escrow Agreement" shall mean an escrow agreement by and among
Seller, Purchaser, AMSC and the Escrow Agent containing such terms as are usual
and customary for similar documents used in similar circumstances, and
containing specifically the following terms:
(a) Upon consummation of the financing contemplated under Section
6.1(l) hereof, Purchaser shall deposit all of the net proceeds
thereof with the Escrow Agent (the "Escrowed Funds");
(b) Prior to the Closing, the Escrowed Funds shall be maintained
for the benefit of Purchaser, with the interest accruing thereon
until the Closing Date being allocated to Purchaser;
(c) Upon Closing, (i) the MAI Purchase Price portion of the
Escrowed Funds shall be maintained for the benefit of Seller,
with the interest accruing on such amount beginning as of the
Closing Date being allocated to Seller (the "Seller Escrowed
Funds"), and (ii) the remainder of the Escrowed Funds (including
any interest accrued on the Escrowed Funds prior to the Closing
Date) shall be maintained for the benefit of Purchaser, with the
interest accruing on such remaining amount of Escrowed Funds
beginning as of the Closing Date being allocated to Purchaser
(the "Purchaser Escrowed Funds");
(d) Upon issuance of a Final Order from the FCC granting consent
with respect to the FCC Authorization, the Seller Escrowed Funds
shall be released to Seller and the Purchaser Escrowed Funds
shall be released to Purchaser;
(e) In the event of a termination of this Agreement pursuant to
Article 9, all of the Escrowed Funds (including all interest
accrued thereon) shall be released to Purchaser.
"Estimated Working Capital" has the meaning set forth in Section
2.3.
"FCC" shall mean the Federal Communications Commission.
"FCC Authorization" has the meaning set forth in Section 2.6(a).
"FCC Consents" has the meaning set forth in Section 5.6.
"FCC Licenses" shall mean all licenses, certificates, permits or
other authorizations granted to MAA, MAI or any of the Subsidiaries by the FCC
that are used in the conduct of the business of MAA, MAI or the Subsidiaries.
"Final Order" shall mean an action or decision as to which: (1) no
request for a stay is pending, no stay is in effect, and any deadline for filing
such request that may be designated by statute or regulation has passed; (2) no
petition for rehearing or reconsideration or application for review is pending
and the time for filing any such petition or application has passed; (3) the FCC
(or comparable body exercising jurisdiction) does not have the action or
decision under reconsideration on its own motion and the specified time for
initiating such reconsideration has passed; and (4) no appeal is pending or in
effect and any deadline for filing any such appeal that may be designated by
statute or rule has passed.
"Final Payment" has the meaning set forth in Section 2.4.
"Financial Statements" shall mean the consolidated balance sheets
of ARDIS Holding as of December 31, 1997, December 31, 1996, and December 31,
1995, the related statements of income and retained earnings and notes thereto
for the 12-month periods then ended, examined by Price Waterhouse, LLP (or, in
the case of those for 1997, KPMG Peat Marwick), independent certified public
accountants, and the unaudited consolidated balance sheet of ARDIS Holding as of
September 30, 1997 and the related consolidated statements of income and
retained earnings for the 9-month period then ended.
"GAAP" shall mean generally accepted accounting principles,
consistently applied.
"Governmental Entity" shall mean any public body or authority,
including courts of competent jurisdiction, domestic or foreign.
"Hazardous Materials" shall mean any (a) petroleum or petroleum
products, (b) hazardous substances as defined by ss. 101(14) of CERCLA and (c)
any other chemical, substance or waste that is regulated by any Governmental
Entity under any Environmental Law.
"HSR Act" shall mean the Hart-Scott-Rodino Antitrust Improvements
Act of 1976, as amended.
"Indemnification Threshold Amount" has the meaning set forth in
Section 7.3(a).
"Indemnitee" has the meaning set forth in Section 7.5.
"Indemnitor" has the meaning set forth in Section 7.5.
"Intellectual Property" shall mean all of the following throughout
the universe: (i) patents and patent applications and all forms and equivalents
thereof, including divisions, continuations, continuations-in-part, utility
patents, design patents, extensions, reissued and reexamined patents, patents of
addition, confirmation patents, importation patents, registration patents, and
inventor's certificates; (ii) rights to file patent applications and other
interests in inventions and discoveries, whether reduced to practice or not, on
which no patent application has been filed; (iii) copyrights and all related and
equivalent rights, including copyright registrations, applications for copyright
registration, moral rights, and neighboring rights; (iv) common law and other
trademarks, trade names, trade dress, and service marks, and registrations and
applications for registration thereof; (v) rights in industrial designs, mask
works, and registrations and applications for registration thereof; (vi) trade
secrets; (vii) methods, processes, computer software, designs, drawings,
laboratory notebooks, technical data, research and development data, know-how,
market reports, consumer investigations, product surveys, distribution methods,
and customer lists; (viii) licenses to or under and shop rights in any of the
foregoing; and (ix) all other proprietary information; provided, however, that
the term "Intellectual Property" shall not include any generally available
"off-the-shelf" software purchased for use in the day-to-day operations of the
Companies.
"Interim Financial Statement" shall mean the ARDIS Balance Sheet
and the related consolidated statements of income and retained earnings and
notes thereto for the 9-month period then ended.
"Lien" shall mean, with respect to any asset, any mortgage, lien,
pledge, charge, security interest or encumbrance of any kind in respect of such
asset.
"Litigation" shall mean, with respect to any Person, any action,
claim, demand, suit, proceeding, citation, summons, subpoena, inquiry or
investigation of any nature, civil, criminal, regulatory or otherwise, in law or
in equity, pending or threatened against, by or affecting such Person or any of
its properties or assets, by or before any court, tribunal, arbitrator or other
Governmental Entity.
"Lock-up Period" has the meaning set forth in Section 5.9.
"Losses" has the meaning set forth in Section 7.1.
"MAA Purchase Price" has the meaning set forth in Section 2.2(B).
"MAA Shares" shall mean all of the shares of capital stock of MAA
outstanding immediately prior to the Closing.
"MAI Purchase Price" has the meaning set forth in Section 2.2(A).
"MAI Shares" shall mean all of the shares of capital stock of MAI
outstanding immediately prior to the Closing.
"Management Employee" shall mean the key managers of ARDIS, to be
designated by Seller prior to the time Purchaser's obligations to Seller arise
under the last sentence of Section 5.14 herein, not to exceed 12 employees.
"Market Value" shall mean the average of the closing prices of the
AMSC Common Stock on the Nasdaq Stock Market (National Market System) for the 20
trading days immediately preceding the date of such calculation.
"Material Adverse Effect" shall mean a material adverse effect on
MAA, MAI and the Subsidiaries, taken as a whole.
"Material Adverse Change" shall mean a material adverse change in
the business, operation, assets, properties, or condition (financial or
otherwise) of MAI, MAA and the Subsidiaries, taken as a whole.
"Merger" has the meaning set forth in Section 2.1(a).
"Merger Sub" shall mean a wholly-owned subsidiary of AMSC
established for the purpose of consummating the Merger with MAA.
"Multiemployer Plan" shall mean each Benefit Plan that is a
multiemployer plan, as defined in Section 3(37) of ERISA.
"NASD" has the meaning set forth in Section 2.7(a)(iv).
"Non-FCC Authorizations" shall mean all licenses, certificates,
permits, franchises, or other authorizations (other than FCC Licenses) granted
to MAA, MAI or any of the Subsidiaries by Governmental Entities that are used in
or relate to the conduct of the business of MAA, MAI or any of the Subsidiaries,
including, without limitation, those from any state public service commission,
public utility commission or similar state agency.
"Nonsolicitation Period" has the meaning set forth in Section 5.10.
"Notice Period" has the meaning set forth in Section 7.5(b).
"Other Subsidiaries" shall mean the Subsidiaries other than ARDIS.
"Other Tax Costs" means liabilities, costs and expenses (including
reasonable expenses of investigation and reasonable attorneys' fees and
expenses) arising out of or incidental to the imposition, assessment or
assertion of Taxes; provided, however, that expenses for investigation and
attorneys' fees incurred prior to the time the indemnified party notifies the
indemnifying party of its claim for indemnification shall not constitute Other
Tax Costs if the indemnifying party acknowledges in writing within fifteen (15)
days of the time of such notice that it assumes full and complete financial
responsibility for the issue or issues for which indemnification is sought; and
further provided, that Other Tax Costs shall not include any expenses for
investigation or attorney fees incurred subsequent to the notification referred
to in the preceding clause of this definition provided the indemnifying party
timely makes the written acknowledgment described in such clause and is actively
handling the matter with respect to which indemnification is acknowledged.
"Permitted Lien" shall mean (a) tax Liens with respect to taxes not
yet due and payable; or which are being contested in good faith by appropriate
proceedings and for which appropriate reserves (as determined in accordance with
and to the extent required by GAAP) have been established on the books of any
Subsidiary with respect thereto; (b) deposits or pledges made in connection with
or to secure payment of utilities or similar services, workers' compensation,
unemployment insurance, old age pensions or other social security obligations;
(c) interests or title of a lessor under any lease, mechanics', materialmen's or
contractors' Liens or any similar Lien or restriction for amounts not yet due
and payable; (d) easements, rights-of-way, restrictions and other similar
charges and encumbrances not materially interfering with the ordinary conduct of
the business of the Subsidiaries or detracting from the value of the assets of
its Subsidiaries; (e) other Liens, imperfections in title, charges, easements,
restrictions and encumbrances; which, individually or in the aggregate, do not
detract from the value in any material respect, or materially interfere with the
present use of the property subject thereto or affected thereby.
"Person" shall mean an individual, a corporation, a partnership, a
limited liability company, an association, a trust or other entity or
organization, including a government or political subdivision or an agency or
instrumentality thereof.
"Purchaser" has the meaning set forth in the introductory paragraph
hereof.
"Real Property" has the meaning set forth in Section 3.20(a).
"Realty Rights" shall mean those certain easements, privileges,
right-of-way agreements, surface use rights, servitudes, and other real property
interests necessary for access to or which are ancillary or appurtenant to the
use and enjoyment of other Real Property or the operation of the business of
MAA, MAI or the Subsidiaries.
"Reconciliation Adjustment in Favor of Purchaser" has the meaning
set forth in Section 2.4.
"Reconciliation Adjustment in Favor of Seller" has the meaning set
forth in Section 2.4.
"Registration Rights Agreement" has the meaning set forth in
Section 5.8.
"Regulatory Approvals" has the meaning set forth in Section 5.5.
"Required Consents" has the meaning set forth in Section 3.2(b).
"Securities Act" shall mean the Securities Act of 1933, as amended.
"Seller" has the meaning set forth in the introductory paragraph
hereof.
"Seller Group" shall mean any Affiliated Group including Seller or
any successor thereof or, if such Affiliated Group shall cease to exist, Seller
and any successors thereto.
"Severance Package" has the meaning set forth in Section 5.14.
"Shares" shall mean all of the MAA Shares and MAI Shares.
"Short Taxable Year" shall mean any Taxable Year that either begins
or ends on the Closing Date or begins on the date immediately after the Closing
Date, in either case by reason of the purchase and sale of the Shares.
"Split Period" means a taxable period that begins on or before the
Closing Date and ends after the Closing Date.
"State" means any state of the United States of America, the
District of Columbia, or a local jurisdiction thereof.
"Subsidiaries" shall mean ARDIS, ARDIS Holding, Radio Data Network
Holding Corporation, and each corporation, limited liability company and
partnership identified as such in Section 3.1 of the Disclosure Schedule.
"Tax" or "Taxes" shall mean all taxes, however denominated,
including any interest, penalties or additions to tax or other additional
amounts that may become payable in respect thereof, imposed by any federal,
State, local or foreign government or any agency or political subdivision of any
such government, which taxes shall include, without limiting the generality of
the foregoing, all net or gross income taxes, payroll and employee taxes
(including withholding, payroll and employment taxes required to be withheld
with respect to income paid to employees), withholding taxes, unemployment
insurance taxes, social security (or similar) taxes, disability taxes,
registration taxes, sales and use taxes, excise taxes, franchise taxes, gross
receipts taxes, occupation taxes, premium taxes, windfall profits taxes,
environmental taxes (including taxes under Code Section 59A), real and personal
property taxes, ad valorem taxes, stamp taxes, value added taxes, alternative or
add-on minimum taxes, transfer taxes, profits taxes, licenses, estimated taxes,
severance taxes, duties (custom and others), workers' compensation taxes, and
other taxes, customs, duties, fees, assessments, charges or obligations of the
same or of a similar nature, whether arising before, on or after the Closing
Date.
"Tax Returns" shall mean all returns, declarations, reports,
estimates, and information statements and returns relating to Taxes, including
but not limited to, original returns and filings, amended returns, claims for
refunds, and information returns, and any schedules or attachments to any of the
foregoing.
"Taxable Year" shall mean any taxable year or any other taxable
period (including any Short Taxable Year) with respect to which any Tax may be
imposed under any applicable statute, rule or regulation.
"Threshold Amount" shall mean an amount resulting from an adverse
effect on the financial condition, assets or results of operations of MAA, MAI
or any of the Subsidiaries exceeding $50,000.
"UPS Contract" has the meaning set forth in Section 5.12.
"Working Capital Schedule" has the meaning set forth in Section
2.4(a).
ARTICLE 2. MERGER, PURCHASE AND SALE OF SHARES.
Section 2.1 Merger, Purchase and Sale of Shares. On the Closing
-----------------------------------
Date, on the terms and subject to the conditions hereinafter set forth:
(a) AMSC shall cause Merger Sub to be merged with and into
MAA (the "Merger") such that (i) each issued and outstanding share of capital
stock of Merger Sub prior to the Merger shall be converted into one MAA Share,
and (ii) any MAA Shares issued and outstanding prior to the Merger shall be
converted into the right to receive the MAA Purchase Price to be delivered in
exchange therefor, such that following the Merger, MAA shall be a wholly-owned
subsidiary of AMSC. The certificate of incorporation of Merger Sub, as in effect
on the date of the Merger shall be the certificate of incorporation of MAA.
Immediately following the Merger, AMSC shall transfer all of the MAA Shares to
Purchaser.
(b) Seller shall sell, assign, transfer and deliver to
Purchaser, and Purchaser shall purchase, all of the MAI Shares free and clear of
all Liens, subject to release by the Escrow Agent of the MAI Purchase Price to
Seller, pursuant to the terms of the Escrow Agreement.
Section 2.2 MAI Purchase Price and MAA Purchase Price. The purchase
-----------------------------------------
prices to be paid by AMSC and Purchaser for the MAI Shares and the MAA Shares
shall be paid on the Closing Date as follows: (A) for the MAI Shares, by
depositing with the Escrow Agent Fifty Million Dollars ($50,000,000) in
immediately available funds, subject to adjustment pursuant to Sections 2.3 and
2.4 below (the "MAI Purchase Price"), payable by the Escrow Agent to Seller upon
receipt by the parties of a Final Order from the FCC with respect to the FCC
Authorization; and (B) with respect to the MAA Shares acquired pursuant to the
terms of Section 2.1(a), by AMSC delivering to Seller 6,549,217 shares of AMSC
Common Stock (the "Consideration Shares") having, in the aggregate, a Market
Value as of the date hereof of Fifty Million Dollars ($50,000,000), subject to
adjustment pursuant to Sections 2.3 and 2.4 below (the "MAA Purchase Price"), to
Seller; provided, however, that the total number of Consideration Shares shall
not exceed 19.95% of the total number of shares of AMSC Common Stock outstanding
as of the Closing Date (including the Consideration Shares), and, in such case,
AMSC shall also deliver to Seller, AMSC Warrants to purchase that number of
shares of AMSC Common Stock equal to the difference between (i) the number of
Consideration Shares which would be delivered but for this proviso and (ii) that
number of shares equal to 19.95% of the total number of shares of AMSC Common
Stock outstanding as of the Closing Date.
Section 2.3 Purchase Price Adjustments. The MAI Purchase Price and
--------------------------
the MAA Purchase Price shall each be decreased by 50% of the negative difference
between the Closing Working Capital and $7,300,000. Seller shall estimate the
Closing Working Capital in good faith (the "Estimated Working Capital") and
deliver such estimate to Buyer not less than five Business Days prior to the
Closing Date. At Closing, (i) the cash payment of the MAI Purchase Price shall
be $50,000,000 minus 50% of the negative difference between the Estimated
Working Capital and $7,300,000 (the "Closing Cash Payment"), and (ii) the shares
of AMSC Common Stock delivered in payment of the MAA Purchase Price shall be
6,549,217 minus such number of shares having, in the aggregate, a Market Value
as of the date hereof equal to 50% of the negative difference between the
Estimated Working Capital and $7,300,000 (the "Closing Stock Payment"). For
purposes of this Agreement, the term "Closing Working Capital" shall mean the
lesser of $7,300,000 and the actual working capital of ARDIS, on a consolidated
basis, as of the Closing Date determined from the books and records of ARDIS in
accordance with past practice and, to the extent not inconsistent therewith,
GAAP; provided, however, that in no event shall the proceeds referenced in
Section 5.16 hereof be included in the calculation of the Closing Working
Capital.
Section 2.4 Post-Closing Purchase Price Adjustment.
--------------------------------------
(a) Not more than 60 days after the Closing, Purchaser
shall prepare and deliver to Seller a schedule (the "Working Capital Schedule")
showing (i) the calculation of the actual Closing Working Capital of ARDIS; (ii)
the amount, if any, by which the Closing Working Capital exceeds the Estimated
Working Capital (a "Reconciliation Adjustment in Favor of Seller"); and (iii)
the amount, if any, by which the Estimated Working Capital is less than the
Closing Working Capital (a "Reconciliation Adjustment in Favor of Purchaser").
(b) The proposed actual Closing Working Capital shown in
the Working Capital Schedule shall become final and binding upon the parties
unless, within 30 days of delivery of the Working Capital Schedule, Seller shall
notify Purchaser of its objection thereto. If within 30 days following the
receipt of such notice by Seller any of such differences shall not have been
resolved, such unresolved issues shall be referred to a nationally recognized
firm of independent certified public accountants, mutually acceptable to the
parties, for resolution, whose opinion thereon and the resulting actual Closing
Working Capital shall be final, binding and not subject to any appeal. The fees
and expenses of such public accounting firm shall be paid one-half by Purchaser
and one-half by Seller.
(c) On the applicable date referred to in Section 2.4(d),
(i) if there is a Reconciliation Adjustment in Favor of Seller, Purchaser shall
(x) pay to Seller a cash amount equal to 50% of the Reconciliation Adjustment in
Favor of Seller and (y) deliver to the Seller a certificate evidencing such
number of shares of AMSC Common Stock having, in aggregate, a Market Value on
the Closing Date equal to 50% of the Reconciliation Adjustment in Favor of
Seller; and (ii) if there is a Reconciliation Adjustment in Favor of Purchaser,
Seller shall (i) pay to Purchaser a cash amount equal to 50% of the
Reconciliation Adjustment in Favor of Purchaser and (y) deliver to the Purchaser
a stock certificate endorsed in blank such number of shares of AMSC Common Stock
having, in aggregate, a Market Value on the Closing Date equal to 50% of the
Reconciliation Adjustment in Favor of Purchaser. Any such payment is hereinafter
referred to as a "Final Payment." In the event that the Escrow Agent holds any
cash at the time of the Final Payment, such payment to the Seller or such
payment by the Seller, as applicable, shall instead be made to or by the Escrow
Agent. Notwithstanding the foregoing, in the event that any issuance to Seller
of shares of AMSC Common Stock under this Section 2.4 would, when taken together
with the issuance to Seller of shares of AMSC Common Stock under Section 2.2,
cause the number of such shares issued to Seller in the aggregate to exceed
19.95% of the total number of shares of AMSC Common Stock outstanding as of the
date of the proposed issuance of shares under this Section 2.4(c) (including the
shares to be so issued), AMSC shall deliver to Seller AMSC Warrants to purchase
that number of shares of AMSC Common Stock equal to the difference between (i)
the number of total shares which would be delivered pursuant to Section 2.2 and
this Section 2.4 but for this sentence and (ii) that number of shares equal to
19.95% of the total number of shares of AMSC Common Stock outstanding as of the
Closing Date.
(d) Any Final Payment shall be made as follows: (i) the
cash portion of any Final Payment shall be made by wire transfer of immediately
available funds within 5 Business Days after its determination in accordance
with this Section 2.4, to an account specified by the party to receive such
Final Payment; and (ii) the portion of any Final Payment payable in AMSC Common
Stock shall be made by transferring the stock certificate(s) representing such
shares (and, if applicable, stock powers executed in blank), within five
Business Days after its determination in accordance with this Section 2.4, to
the party to receive such Final Payment. All such shares shall be delivered free
and clear of any Liens.
Section 2.5 Closing Place, Date and Time. The closing of the
------------------------------
purchase and sale of the Shares (the "Closing") shall take place at the offices
of Arnold & Porter, 555 12th Street, N.W., Washington, D.C. 20004 or at such
other place as Seller and Purchaser may agree, upon the effective date of the
FCC Authorization, or if Seller and Purchaser otherwise agree, then the Closing
shall take place at such later time and date as may be mutually agreed upon in
writing by the Seller and Purchaser. All transactions shall be deemed to take
effect at close of business, local time, on the effective date of the FCC
Authorization or such other time and date as may be mutually agreed upon by
Seller and Purchaser (such time and date or such other time and date being
referred to herein as the "Closing Date").
Section 2.6 FCC Authorization and Final Order.
---------------------------------
(a) FCC Authorization. Upon grant of a consent by the FCC
-----------------
sufficient to authorize transfer of the Shares to Purchaser and to permit
Purchaser to operate the businesses of ARDIS and the Other Subsidiaries (the
"FCC Authorization"), and satisfaction or waiver of the representations,
warranties and covenants herein, the parties shall hold the Closing on the
Closing Date; provided, however, that in the event either Seller or Purchaser
obtains an opinion of legal counsel, in substance and in form, and from counsel,
reasonably satisfactory to the other party, that there exists a material
likelihood that the FCC will issue an adverse Final Order with respect to the
FCC Authorization (an "Adverse Legal Opinion"), the Closing shall not take place
until receipt of a Final Order of the FCC.
(b) Favorable Final Order. Upon receipt by the parties
----------------------
of a Final Order from the FCC granting consent with respect to the FCC
Authorization, the MAI Purchase Price shall be released by the Escrow Agent to
the Seller in accordance with the terms of the Escrow Agreement.
Section 2.7 Deliveries at the Closing.
-------------------------
(a) At the Closing, Purchaser and AMSC shall deliver the
following:
(i) to the Escrow Agent, the MAI Purchase Price
in immediately available funds, pursuant to the terms of the Escrow Agreement;
(ii) to the Seller, the MAA Purchase Price,
represented by one or more certificates evidencing AMSC Common Stock and, if
applicable, AMSC Warrants;
(iii) to Seller, certified copies of resolutions
duly adopted by AMSC and Purchaser constituting all necessary corporate
authorization for the consummation by AMSC and Purchaser of the transactions
contemplated by this Agreement;
(iv) to Seller, certified copies of meeting
minutes and resolutions duly adopted by the shareholders of AMSC Common Stock
approving the transactions contemplated herein, as and to the extent required
under the Rules of the National Association of Securities Dealers, Inc. ("NASD")
(the "AMSC Shareholder Approval");
(v) to Seller, the certificate required by
Section 6.2(d);
(vi) to Seller, certificates of incumbency for
all relevant officers or directors of AMSC and Purchaser executing this
Agreement and any other documents pursuant to this Agreement;
(vii) to Seller, an opinion or opinions of counsel
to AMSC and Purchaser in form and substance reasonably satisfactory, including
opinions with respect to the due organization and good standing of AMSC and
Purchaser, due authorization of AMSC and Purchaser to consummate and perform
their respective obligations under the Agreement and Collateral Agreements, and
the due authorization and valid issuance of the AMSC Common Stock to Seller;
(viii) to Seller, an executed Registration Rights
Agreement; and
(ix) to Seller, such other documents, instruments,
certificates and writings as reasonably may be requested by Seller at least
three Business Days prior to the Closing.
(b) At the Closing, Seller shall deliver the following:
(i) to the Purchaser, the stock certificates
representing all of the Shares, endorsed in blank or accompanied by duly
executed instruments of transfer;
(ii) to AMSC and Purchaser, the certificates
required by Section 6.1(d);
(iii) to AMSC and Purchaser, certified copies of
the certificate of incorporation and by-laws or comparable organizational
documents of MAA, MAI and each of the Subsidiaries and evidence of good standing
of each in its respective jurisdiction of incorporation and in each jurisdiction
where each is qualified to transact business as a foreign corporation;
(iv) to AMSC and Purchaser, the written
resignations effective as of the Closing Date of all directors and officers of
MAA, MAI and each of the Subsidiaries;
(v) to AMSC and Purchaser, the minute books,
corporate seals and stock ledger, or analogous documents, of MAA, MAI and each
of the Subsidiaries together with certificates evidencing all of the outstanding
shares of stock, or other comparable evidence of ownership interest, issued by
each of the Subsidiaries;
(vi) to AMSC and Purchaser, an opinion or opinions
of counsel to Seller in form and substance reasonably satisfactory, including
opinions with respect to the due organization and good standing of Seller, MAA,
MAI and the Subsidiaries, due authorization of Seller, MAI and MAA to consummate
and perform their respective obligations under the Agreement and Collateral
Agreements, and the due authorization and valid issuance of the MAA Shares and
MAI Shares to Seller;
(vii) to AMSC and Purchaser, such other documents,
instruments, certificates and writings as reasonably may be requested by AMSC or
Purchaser at least three Business Days prior to the Closing.
Section 2.8 Deliveries Post-Closing. Within 15 Business Days of
-----------------------
the Closing Date, Seller shall deliver to Purchaser the Closing Financial
Statements.
ARTICLE 3. REPRESENTATIONS AND WARRANTIES
OF SELLER
Seller hereby represents and warrants as follows to Purchaser and
AMSC:
Section 3.1 Organization and Good Standing.
------------------------------
(a) MAA, MAI and each of the Subsidiaries are duly
organized, validly existing and in good standing under the laws of their
respective jurisdictions of organization and each has the full corporate or
partnership power to conduct its business as presently conducted and to own and
operate the assets and properties now owned and operated by it. Section 3.1(a)
of the Disclosure Schedule sets forth the full name of each of the Subsidiaries
and the state of organization of MAA, MAI and each of the Subsidiaries and each
other jurisdiction in which MAA, MAI or the Subsidiaries is qualified to do
business. Except as set forth in Section 3.1(a) of the Disclosure Schedule, MAA
and MAI and each of the Subsidiaries is duly qualified to do business and is in
good standing in each jurisdiction in which qualification is required as set
forth in Section 3.1(a) of the Disclosure Schedule except, in each case, to the
extent that the failure to be so qualified is not reasonably expected to have a
Material Adverse Effect.
(b) Neither MAA nor MAI has any subsidiaries or owns any
shares of any corporation or has any ownership or other investment interest,
either of record, beneficially, or equitably, in any association, partnership,
joint venture or other legal entity other than the 50% general partnership
interest each of MAA and MAI owns in ARDIS Holding. ARDIS Holding does not own
any subsidiaries or own any shares of any corporation and does not have any
ownership or other investment interest, either of record, beneficially, or
equitably, in any association, partnership, joint venture or other legal entity
other than its ownership of all of the issued and outstanding stock of Radio
Data Network Holding Corporation and its ownership of all of the issued and
outstanding general partnership interest in ARDIS which is not owned by Radio
Data Network Holding Corporation. Radio Data Network Holding Corporation does
not own any subsidiaries or own any shares of any corporation and does not have
any ownership or other investment interest, either of record, beneficially, or
equitably, in any association, partnership, joint venture or other legal entity
other than its ownership of all of the issued and outstanding general
partnership interest in ARDIS which is not owned by ARDIS Holding. ARDIS does
not own any subsidiaries or own any shares of any corporation and does not have
any ownership or other investment interest, either of record, beneficially, or
equitably, in any association, partnership, joint venture or other legal entity.
(c) Section 3.1(c) of the Disclosure Schedule lists the
directors and officers of MAA, MAI and each of the Subsidiaries. Seller has
caused to be delivered to Purchaser true and complete copies of the certificate
of incorporation and bylaws of MAA and MAI, the comparable organizational
documents of each of the Subsidiaries, and, to the extent that they relate to
the period from January 1, 1995 to the date hereof, the records of meetings of
their respective stockholders, members or partners, as the case may be, board of
directors, managers and any committees of their respective board of directors or
managers, and all of the stock record books for all periods of MAA and MAI.
Neither MAA, MAI nor any of the Subsidiaries is in default under or in violation
of any provision of its certificate of incorporation, bylaws or comparable
organizational documents.
Section 3.2 Authority; No Required Consents or Governmental
-----------------------------------------------------
Authorizations; No Breach of Statute or Contract; Enforceability.
- ----------------------------------------------------------------
(a) Seller, MAA and MAI each has the full power and lawful
authority to execute and deliver this Agreement and all Collateral Agreements
related hereto and to consummate and perform the transactions contemplated
hereby in the manner herein provided. The execution and delivery of this
Agreement and all Collateral Agreements related hereto by Seller, MAA and MAI
and the consummation and performance by Seller, MAA and MAI of the transactions
contemplated hereby in the manner herein provided have been duly and validly
authorized by all necessary corporate action.
(b) Except as set forth in Section 3.2(b) of the Disclosure
Schedule (each such item being a "Required Consent"), and except for approvals,
consents or authorizations of, or filings with or notices to any governmental
agency or body or any other third party that may be required in connection with
the issuance of AMSC Common Stock or AMSC Warrants as contemplated hereby,
neither the execution and delivery by Seller, MAA and MAI of this Agreement or
all Collateral Agreements related hereto nor the consummation and performance by
Seller, MAA and MAI of the transactions contemplated hereby in the manner herein
provided (i) requires the approval, consent or authorization of, or any filing
with or notice to, any federal, state, local or other governmental agency or
body or any other third party, other than (A) approvals, consents,
authorizations, filings or notices of a character such that a failure to obtain
them would, reasonably be expected to have a Material Adverse Effect or
otherwise hinder the consummation of the transactions contemplated hereby and
(B) approvals, consents, authorizations, filings or notices which have been
obtained, made or given, or (ii) conflicts with or will result in an uncured or
unwaived breach or violation of any term or provision of, constitutes a default
under or will cause the acceleration of any payments pursuant to (A) the
certificates of incorporation, charters or By-laws, or comparable organizational
documents of MAA, MAI or any of the Subsidiaries, (B) any indenture, mortgage,
deed of trust, lease, note or note agreement or any other agreement or
instrument to which Seller, MAA, MAI or any of the Subsidiaries is a party or by
which Seller, MAA, MAI or any of the Subsidiaries or any of their assets or
properties is bound, (C) any governmental license, franchise, permit or other
authorization held by Seller, MAA, MAI or any of the Subsidiaries or (D) any
law, judgment, order, writ, injunction, decree, award, rule or regulation of any
court, arbitrator or governmental agency or body applicable to Seller, MAA, MAI
or any of the Subsidiaries the breach or violation of which would, singly or in
the aggregate, reasonably be expected to have a Material Adverse Effect or
otherwise prevent the consummation of the transactions contemplated hereby.
(c) This Agreement constitutes, and all Collateral
Agreements related hereto will be, when executed and delivered by Purchaser,
assuming the enforceability of this Agreement and such Collateral Agreements
upon Purchaser, valid and binding obligations of Seller, MAA and MAI, and will
be enforceable against Seller, MAA and MAI in accordance with their terms,
subject to applicable bankruptcy, insolvency, moratorium or other similar laws
affecting the rights of creditors generally.
Section 3.3 Ownership of Shares. The Shares are owned by Seller
-------------------
beneficially and of record, free and clear of all Liens.
Section 3.4 Capitalization of MAA, MAI and the Subsidiaries. The
------------------------------------------------
authorized capital stock of MAA consists of 1,000 shares of Common Stock, 1,000
of which shares are issued and are outstanding on the date hereof. The
authorized capital stock of MAI consists of 1,000 shares of Common Stock, 1,000
of which shares are issued and are outstanding on the date hereof. All of the
Shares have been duly authorized, are validly issued and outstanding, and are
fully paid and nonassessable. They are owned beneficially and of record as shown
in Section 3.4 of the Disclosure Schedule. There are no preemptive rights with
respect to any of the Shares. The authorized capital stock of each of the
corporate Subsidiaries and the ownership of each Subsidiary's respective capital
interests, are as shown in Section 3.4 of the Disclosure Schedule. The
percentage ownership interests in each of the non-corporate Subsidiaries are as
shown in Section 3.4 of the Disclosure Schedule. All of the outstanding
ownership interests of the Subsidiaries have been duly authorized, validly
issued and are fully paid and nonassessable. There are no preemptive rights with
respect to any such ownership interests. Except as shown in Section 3.4 of the
Disclosure Schedule, each of MAA and MAI owns their respective interests in each
Subsidiary beneficially and of record free and clear of all Liens. There are no
outstanding agreements, subscriptions, options, warrants, convertible
securities, calls, commitments or rights of any kind (contingent or otherwise)
pertaining to the issuance or purchase of any securities of MAA, MAI or any of
the Subsidiaries.
Section 3.5 Corporate Records. Purchaser and AMSC have been
------------------
provided with current, correct and complete copies of all charter documents or
partnership agreements, as the case may be, of MAA, MAI and the Subsidiaries,
respectively, including all amendments thereto and restatements thereof. The
stock record books, or comparable ownership record books, of MAA, MAI and of
each of the Subsidiaries, respectively, are also current, correct and complete
and reflects the issuance of all of the Shares to Seller. All existing minutes
of meetings and resolutions of MAA, MAI and the Subsidiaries have been provided
to Purchaser and AMSC and are correct, and there have been no other actions or
proceedings of MAA's, MAI's or any Subsidiary's shareholders, members or
partners, as the case may be, or boards of directors, managers or committees
thereof of a nature which would have to be disclosed under this Agreement that
has not been so disclosed.
Section 3.6 Employee Benefit Plans.
----------------------
(a) Section 3.6(a) of the Disclosure Schedule contains a
true and complete list of the Benefit Plans. Neither MAA, MAI, nor any
Subsidiary has any formal plan or commitment, whether legally binding or not, to
create any additional plan or modify or change any existing Benefit Plan that
would affect any employee or director or former employee or former director of
MAA, MAI or any Subsidiary.
(b) With respect to each of the Benefit Plans, Seller
has heretofore delivered to AMSC true and complete copies of each of the
following documents: (i) the Benefit Plan and related documents (including all
amendments thereto); (ii) the two most recent annual reports, financial
statements, and actuarial reports, if any; (iii) the most recent summary plan
description, together with each summary of material modifications, required
under ERISA with respect to such Benefit Plan, and all material employee
communications relating to such Benefit Plan; and (iv) the most recent
determination letter received from the IRS with respect to each Benefit Plan
that is intended to be qualified under the Code and all material communications
to or from the IRS or any other governmental or regulatory authority relating to
each Benefit Plan.
(c) No liability under Title IV of ERISA has been
incurred by ARDIS or any ERISA Affiliate that has not been satisfied in full,
and no condition exists that presents a material risk to MAA, MAI or any
Subsidiary of incurring a liability under such Title. None of the Benefit Plans
is subject to Title IV of ERISA.
(d) Neither MAA, MAI nor any Subsidiary, nor any of the
Benefit Plans, nor any trust created thereunder, nor any trustee or
administrator thereof has engaged in a prohibited transaction (within the
meaning of Section 406 of ERISA and Section 4975 of the Code) in connection with
which MAA, MAI, or any Subsidiary could incur, either directly or indirectly,
liability for either a civil penalty assessed pursuant to Section 409 or 502(i)
of ERISA or a tax imposed pursuant to Section 4975 or 4976 of the Code or any
other liability or cost.
(e) Full payment has been made, or will be made in
accordance with Section 404(a)(6) of the Code, of all amounts that ARDIS or any
ERISA Affiliate is required to pay under Section 412 of the Code or under the
terms of the Benefit Plans, and all amounts that have not been paid by MAA, MAI
or any Subsidiary under the Benefit Plans are properly accrued through the
Closing Date and recorded on the Closing Financial Statements.
(f) None of the Benefit Plans is a Multiemployer Plan,
a "multiple employer welfare arrangement," as such term is defined in Section
3(40) of ERISA, or a single employer plan that has two or more contributing
sponsors, at least two of whom are not under common control, within the meaning
of Section 4063(a) of ERISA.
(g) Each of the Benefit Plans that is intended to be
"qualified" within the meaning of Section 401(a) of the Code is so qualified,
and a determination letter to that effect has been issued by the IRS with
respect to each such Benefit Plan. Each of the Benefit Plans that is intended to
satisfy the requirements of Section 125 or 501(c)(9) of the Code satisfies such
requirements. Each of the Benefit Plans has been operated and administered in
all material respects in accordance with its terms and applicable laws,
including but not limited to ERISA and the Code.
(h) There are no actions, suits or claims pending, or,
to the knowledge of Sellers, threatened or anticipated (other than routine
claims for benefits) against any Benefit Plan, the assets of any Benefit Plan or
against ARDIS or any ERISA Affiliate with respect to any Benefit Plan. There is
no judgment, decree, injunction, rule or order of any court, governmental body,
commission, agency or arbitrator outstanding against or in favor of any Benefit
Plan or any fiduciary thereof (other than rules of general applicability). There
are no pending or threatened audits or investigations by any governmental body,
commission or agency involving any Benefit Plan.
(i) No Benefit Plan provides benefits, including
without limitation death or medical benefits (whether or not insured), with
respect to current or former employees or directors after retirement or other
termination of service (other than (i) coverage mandated by applicable law, (ii)
death benefit or retirement benefits under any "employee pension plan," as that
term is defined in Section 3(2) of ERISA, (iii) deferred compensation benefits
accrued as liabilities on the ARDIS Balance Sheet or (iv) benefits, the full
cost of which is borne by the current or former employee or director (or his
beneficiary)).
(j) None of the assets of the Benefit Plans (i)
constitute employer real property or employer securities (within the meaning of
Section 407(d) of ERISA), or (ii) are invested in any property, security or
other ownership interest that is not publicly traded.
(k) The consummation of the transactions contemplated
by this Agreement will not (i) entitle any current or former employee or
director of MAA, MAI, or any Subsidiary to severance pay, unemployment
compensation or any similar payment, or (ii) accelerate the time of payment or
vesting, or increase the amount, of any compensation due to any such current or
former employee or director, or (iii) renew or extend the term of any agreement
regarding compensation for any such current or former employee or director. On
and after January 1, 1997, except as set forth on Section 3.6(k) of the
Disclosure Schedule no employee or former employee of MAA, MAI or any of the
Subsidiaries has become covered by, or a participant in, the ARDIS Supplemental
Executive Retirement Plan, Long-Term Incentive Plan, or Retention Bonus Plan.
Section 3.7 Broker's or Finder's Fees. No agent, broker,
----------------------------
investment banker, person or firm acting on behalf of Seller or under its
authority is or will be entitled, directly or indirectly, to collect from or
otherwise hold Purchaser, AMSC, MAA, MAI or any of the Subsidiaries liable for
any broker's or finder's fee or any other commission or similar fee in
connection with any of the transactions contemplated herein.
Section 3.8 Financial Statements. (a) The Financial Statements are
--------------------
complete copies of all of which have been delivered to Purchaser, present fairly
in all material respects the financial position and assets and liabilities of
ARDIS Holding as of their respective dates, and the results of its operations
for the fiscal periods then ended, in conformity with GAAP provided, however,
that the Interim Financial Statements are subject to normal, year-end adjustment
and lack footnotes and other presentation items. On the Closing Date, the
consolidated balance sheet of ARDIS Holding as of December 31, 1997, the related
consolidated statements of income and retained earnings and notes thereto for
the 12-month period then ended, examined by KPMG Peat Marwick, independent
certified public accountants, a complete copy of which shall have been delivered
to Purchaser prior to the Closing Date, shall present fairly in all material
respects the financial position and assets and liabilities of ARDIS Holding as
of December 31, 1997, and the results of its operations for the fiscal period
then ended, in conformity with GAAP. All references in this Agreement to the
"ARDIS Balance Sheet Date" shall be deemed to refer to September 30, 1997;
provided, however, that on the Closing Date all references in this Agreement to
the "ARDIS Balance Sheet Date" shall be deemed to refer to the audited December
31, 1997.
(b) Neither Seller nor any other Person regularly compiles,
maintains or prepares financial statements for MAI or MAA. Each of MAA, MAI,
ARDIS Holding and Radio Data Network Holding Corporation undertakes no regular
financial or business activities and has no material assets other than its
ownership interests in the Subsidiaries.
Section 3.9 Accounts Receivable. All accounts receivable included in
--------------------
the calculation of the actual Closing Working Capital pursuant to Section 2.4
will have arisen only in the ordinary course of business, consistent with past
practice, and will not be subject to defenses, set-offs or counterclaims. All of
such accounts receivable are generally due within 30 days after being accrued on
the books of ARDIS. The allowance for such doubtful accounts in the calculation
of the actual Closing Working Capital pursuant to Section 2.4 has been
determined in accordance with GAAP.
Section 3.10 Absence of Undisclosed Liabilities. Except as disclosed
-----------------------------------
in Section 3.10 of the Disclosure Schedule or elsewhere in this Agreement or the
Disclosure Schedule, neither MAA nor MAI has any liabilities or obligations,
either accrued, absolute, contingent or otherwise. Except as disclosed in
Section 3.10 of the Disclosure Schedule or elsewhere in this Agreement or the
Disclosure Schedule, none of the Subsidiaries has any liabilities or
obligations, either accrued, absolute, contingent or otherwise, except:
(a) those liabilities or obligations set forth on the ARDIS
Balance Sheet and not heretofore paid or discharged;
(b) liabilities arising in the ordinary course of business
under any agreement, contract, commitment, lease or plan specifically disclosed
on the Disclosure Schedule or not required to be disclosed because of the term
or amount involved or otherwise; and
(c) those liabilities or obligations incurred, consistently
with past business practice, in or as a result of the normal and ordinary course
of business since the ARDIS Balance Sheet Date.
For purposes of this Section, the term "liabilities" shall include,
without limitation, any direct or indirect indebtedness, guaranty, endorsement,
claim, loss, damage, deficiency, cost, expense, obligation or responsibility,
known or unknown, fixed or unfixed, choate or inchoate, liquidated or
unliquidated, secured or unsecured.
Section 3.11 Existing Condition. Except as disclosed in Section
-------------------
3.11 of the Disclosure Schedule, since December 31, 1996 in the case of MAA and
MAI and since the ARDIS Balance Sheet Date in the case of the Subsidiaries,
neither MAA, MAI nor any of the Subsidiaries has:
(a) declared, set aside or paid any dividend or made or
agreed to make any other distribution or payment in respect of its capital
shares or redeemed, purchased or otherwise acquired or agreed to redeem,
purchase or acquire any of its capital shares;
(b) incurred any liabilities, other than liabilities
incurred in the ordinary course of business consistent with past practice, or
discharged or satisfied any lien or encumbrance, or paid any liabilities, other
than in the ordinary course of business consistent with past practice, or failed
to pay or discharge when due any liabilities of which the failure to pay or
discharge has caused or is reasonably expected to cause a Material Adverse
Effect;
(c) sold, assigned or transferred any of its assets or
properties except in the ordinary course of business consistent with past
practice;
(d) created, incurred, assumed or guaranteed any
indebtedness for money borrowed, or mortgaged, pledged or subjected to any Lien,
conditional sales contract or other encumbrance of any nature whatsoever any of
its assets or properties, other than Permitted Liens;
(e) made or suffered any material amendment or any
termination of any material agreement, contract, commitment, lease or plan to
which it is a party or by which it is bound, or cancelled, modified or waived
any debts or claims held by it, other than in the ordinary course of business
consistent with past practice;
(f) suffered any damage, destruction or loss, whether or not
covered by insurance which has had a Material Adverse Effect or suffered any
repeated, recurring or prolonged shortage, cessation or interruption of supplies
or utility services required to conduct its business and operations;
(g) suffered any Material Adverse Change after taking into
account all disclosures set forth on the Disclosure Schedule;
(h) received notice or has knowledge of any actual or
threatened labor, union organizing effort, strike or other occurrence, event or
condition or any similar character which has had or could reasonably be expected
to have a Material Adverse Effect;
(i) received any notice or has any knowledge of any basis
for assertions of liability, claims, causes of action, charges, suits,
complaints, administrative proceedings, government investigations or
proceedings, arbitrations or other proceedings pending or threatened against
MAA, MAI or any of the Subsidiaries relating to any current or former employee
or director of MAA, MAI or any of the Subsidiaries, or any federal, state or
local laws and regulations thereunder or the common law relating to employment
or employment practices of MAA, MAI or any of the Subsidiaries;
(j) made any capital expenditure or capital addition or
betterment except such as may be involved in ordinary repair, maintenance and
replacement of its assets;
(k) increased the salaries or other compensation of, or made
any advance (excluding advances for ordinary and necessary business expenses) or
loan to, any of its shareholders, partners, directors, officers or employees, or
made any increase in, or any addition to, other benefits to which any of its
shareholders, partners, directors, officers or employees may be entitled other
than in the ordinary cause of business;
(l) changed any of the accounting principles followed by it
or the methods of applying such principles; or
(m) entered into any transaction other than as contemplated
by this Agreement or in the ordinary course of business consistent with past
practice.
Section 3.12 Title to Properties; Leasehold Interests. MAA, MAI and
----------------------------------------
each of the Subsidiaries has valid title to all of its properties and assets,
real, personal and mixed, including all Real Property, and all of such
properties and assets free and clear of all Liens, except Permitted Liens and
those items disclosed in Section 3.12 of the Disclosure Schedule. All leases,
licenses, permits and authorizations in any manner related to the real or
personal properties used by MAA, MAI or any of the Subsidiaries and all other
instruments, documents and agreements pursuant to which MAA, MAI or any of the
Subsidiaries has obtained the right to use any real or personal property are in
good standing, valid and effective in accordance with their respective terms,
and there is not under any of such instruments, documents or agreements any
existing default or event which with notice or lapse of time, or both, would
constitute a default and in respect of which MAA, MAI or any of the Subsidiaries
has not taken adequate steps to prevent a default from occurring.
Section 3.13 Condition of Tangible Assets. All buildings,
-------------------------------
structures, facilities, automobiles, trucks, other vehicles, machinery,
equipment and other material items of tangible personal property owned or
operated by MAA, MAI or any of the Subsidiaries are usable in the regular and
ordinary course of business of MAA, MAI or the Subsidiaries and conform in all
material respects to all applicable laws, ordinances, codes, rules and
regulations relating to their construction, use and operation. The failure, if
any, of such buildings, structures, facilities, automobiles, trucks, other
vehicles, machinery, equipment and other material items of tangible personal
property to be in good operating condition, subject to normal wear and
maintenance, is not reasonably expected to have a Material Adverse Effect.
Section 3.14 Books of Account. The books of account of ARDIS
-----------------
reflect all of its items of income and expense, and all of its assets,
liabilities and accruals required to be reflected therein, in accordance with
GAAP.
Section 3.15 Litigation. Except as listed in Section 3.15 of the
----------
Disclosure Schedule, no litigation, arbitration, investigation or other
proceeding of or before any court, arbitrator or governmental or regulatory
official, body or authority is pending or, to the knowledge of Seller,
threatened against MAA, MAI or any of the Subsidiaries or their assets,
properties or business, or the transactions contemplated by this Agreement.
Other than as listed in Section 3.15 of the Disclosure Schedule, neither MAA,
MAI nor any of the Subsidiaries is a party to or subject to the provisions of
any judgment, order, writ, injunction, decree or award of any court, arbitrator
or governmental or regulatory official, body or authority.
Section 3.16 Compliance with Law. MAA, MAI and each of the
---------------------
Subsidiaries has complied with each, and is not in violation of any, law,
ordinance, or governmental rule or regulation to which they or their business,
operations, assets or properties are subject and has not failed to obtain or to
adhere to the requirements of any license, permit or authorization necessary to
the ownership of its assets and properties or to the conduct of its business,
which noncompliance, violation or failure to obtain or adhere to would
reasonably be expected to have a Material Adverse Effect. Neither MAA, MAI, any
of the Subsidiaries nor any officer, employee or agent thereof, or consultant
thereto has unlawfully offered, paid, or agreed to pay, directly or indirectly,
any money or anything of value to, or for the benefit of, any individual who is
or was a candidate for public office, or an official or employee of any
governmental or regulatory body or authority or an officer or employee of any
client, customer or supplier of MAA, MAI or any of the Subsidiaries.
Section 3.17 Environmental Matters. Section 3.17 of the Disclosure
---------------------
Schedule contains an accurate and complete description of all Environmental
Liabilities, investigations, actions, proceedings of whatsoever nature, whether
pending or to Seller's knowledge threatened, involving MAA, MAI or any of the
Subsidiaries or their respective properties, assets, operations or businesses
arising under any Environmental Law. Except as specified in Section 3.17 of the
Disclosure Schedule: (a) the business of MAA, MAI and the Subsidiaries, the
methods and means employed by MAA, MAI and the Subsidiaries in the operation
thereof (including all operations and conditions at or in the properties of MAA,
MAI and the Subsidiaries), and the assets owned, leased, held or operated by
MAA, MAI and the Subsidiaries, comply in all material respects with all
Environmental Laws; (b) MAA, MAI and the Subsidiaries have obtained all permits
under Environmental Laws necessary to their operations, and all such permits are
in good standing and MAA, MAI and the Subsidiaries are in compliance with all
material terms and conditions of such permits; and (c) neither MAA, MAI nor any
of the Subsidiaries has received (i) any written claim or notice of violation,
lien, complaint, suit, order or other written claim or notice to the effect that
it is or may be liable to any Person as a result of (A) the environmental
condition of any of their respective properties or any other property, or (B)
the release or threatened release of any Hazardous Materials, or (ii) any letter
or request for information under Section 104 of CERCLA or comparable state laws,
and to Seller's knowledge, none of the operations of MAA, MAI or the
Subsidiaries are the subject of any federal or state investigation evaluating
whether any remedial action is needed to respond to a release or threatened
release, of any Hazardous Material at MAA's, MAI's or the Subsidiaries'
properties or at any other location, including any location to which MAA, MAI or
the Subsidiaries have transported, or arranged for the transportation of, any
Hazardous Materials.
Section 3.18 Insurance. Section 3.18 of the Disclosure Schedule
---------
contains a correct and complete list of all insurance policies or binders of
insurance held by or on behalf ARDIS relating to its business or any of its
assets or properties (specifying the insurer, the amount of the coverage, the
type of insurance, the risks insured and any pending claims thereunder). The
policies and binders listed in Section 3.18 of the Disclosure Schedule hereto
are duly in force as of the date hereof. There is no default with respect to any
material provision contained in any such policy or binder, nor has there been
any failure to give any notice or present any claim under any such policy or
binder in a timely fashion or in the manner or detail required by the policy or
binder. There are no outstanding unpaid premiums or claims. No notice of
cancellation or nonrenewal with respect to, or disallowance of any claim under,
any such policy or binder has been received by MAA, MAI or any of the
Subsidiaries. Section 3.18 of the Disclosure Schedule also contains a true and
complete description of all outstanding bonds and other surety arrangements
issued or entered into in connection with the business and operations of MAA,
MAI or any of the Subsidiaries.
Section 3.19 Contracts and Commitments. Except as listed and
---------------------------
described in Section 3.19 of the Disclosure Schedule, neither MAA, MAI nor any
of the Subsidiaries is a party to any written or oral:
(a) agreement, contract or commitment with any present or
former shareholder, director, officer, employee or consultant or for the
employment of any person, including any consultant pursuant to which payments
thereunder are obligations of MAA, MAI or any Subsidiary which are not payable
by Seller;
(b) agreement, contract, commitment or arrangement with any
labor union or other representative of employees;
(c) agreement, contract, commitment for the future purchase
of, or payment for, supplies or products, or for the performance of services by
a third party, involving in any one case $50,000 or more;
(d) agreement, contract, commitment to sell or supply
products or to perform services, having with respect to revenues to be delivered
or potential liabilities reasonably to be incurred in any one case $100,000 or
more on an annual basis;
(e) agreement, contract, commitment not otherwise listed on
the Disclosure Schedule and continuing over a period of more than twelve months
from the date hereof or exceeding $100,000 in value;
(f) lease for office space under which MAA, MAI or any of
the Subsidiaries is either the lessor or lessee;
(g) agreement, contract or commitment for any charitable or
political contribution;
(h) agreement, contract, or commitment for any capital
expenditure in excess of $100,000;
(i) agreement, contract or commitment limiting or
restraining it from engaging or competing in any lines of business with any
person, and neither Seller nor any officer or employee of ARDIS is subject to
any such agreement, contract or commitment which would prohibit them from
continuing their employment in the same capacity as that in which they currently
perform services for ARDIS; or
(j) agreement, contract or commitment by or between MAA, MAI
or any of the Subsidiaries and Seller or any Affiliate of Seller (other than
MAA, MAI or any of the Subsidiaries).
Except as may be disclosed in Section 3.19 of the Disclosure
Schedule, to Seller's knowledge, each of the agreements, contracts, commitments,
leases and other instruments, documents and undertakings listed on the
Disclosure Schedule is in full force and effect; Seller, MAI, MAA or the
Subsidiaries which are parties thereto, and, to the knowledge of Seller, all
other parties thereto are in compliance with the provisions thereof and are not
in default in the performance, observance or fulfillment of any material
obligation, covenant or condition contained therein and no event has occurred
which with or without the giving of notice or lapse of time, or both, would
constitute a default thereunder by MAI, MAA or the Subsidiaries or, to the
knowledge of Seller, by any other parties thereto; and, except as may be
disclosed on the Disclosure Schedule, to the knowledge of Seller, no such
agreement, contract, commitment, lease or other instrument, document or
undertaking, in the reasonable opinion of Seller, contains any contractual
requirement with which there is a reasonable likelihood MAA, MAI, the
Subsidiaries or any other party thereto will be unable to comply, assuming that
MAA, MAI and the Subsidiaries continue in all material respects to be in the
same financial condition as they are as of the date hereof.
Section 3.20 Additional Information. Section 3.20 of the
------------------------
Disclosure Schedule, to the extent not described elsewhere in the Disclosure
Schedule, contains accurate lists and summary descriptions of the following:
(a) all real property and interests in real property
(including Realty Rights) owned, leased or otherwise held by MAA, MAI or any of
the Subsidiaries other than antennae and transmitter sites (collectively, "Real
Property") as of the date hereof which listing shall be updated as of the
Closing, specifying which are owned, which are leased and which constitute
Realty Rights and, (i) with respect to the owned Real Property, if any,
specifying its cost or original value and the net book value as of the ARDIS
Balance Sheet Date and (ii) with respect to leased or otherwise held Real
Property, the current term of ownership and rental rate applicable thereto;
(b) all machinery, vehicles and equipment owned by MAA, MAI
or the Subsidiaries which has an original cost of at least $50,000, specifying
the cost thereof and the net book value thereof as of the ARDIS Balance Sheet
Date;
(c) the names of all present officers and directors of MAA,
MAI and each of the Subsidiaries;
(d) the names and addresses of every bank and other
financial institution in which MAA, MAI or any of the Subsidiaries maintains an
account (whether checking, savings or otherwise), lock box or safe deposit box,
and the account numbers and names of persons having signing authority or other
access thereto;
(e) the names of all persons authorized to borrow money or
incur indebtedness for borrowed money on behalf of MAA, MAI or any of the
Subsidiaries or obligate MAA, MAI or any of the Subsidiaries as a guarantor with
respect to indebtedness for borrowed money; and
(f) the names of all persons holding powers of attorney from
MAA, MAI or any of the Subsidiaries and a summary statement of the terms
thereof.
Section 3.21 Intellectual Property.
---------------------
(a) Section 3.21(a) of the Disclosure Schedule accurately
lists all of the Intellectual Property owned by MAA, MAI or any of the
Subsidiaries which has been duly registered with, filed in or issued by, as the
case may be, the United States Patent and Trademark Office, U.S. Copyright
Office, or any similar governmental agency in any foreign country, as indicated
in Section 3.21(a) of the Disclosure Schedule. Unless otherwise indicated in
such Section 3.21(a), MAA, MAI or the Subsidiaries own the entire right, title
and interest in and to such Intellectual Property (including, without
limitation, the exclusive right to use and license the same). Except as set
forth in Section 3.21(a) of the Disclosure Schedule, neither MAA, MAI nor any of
the Subsidiaries has granted, any license or other right with respect to such
Intellectual Property which does or which will, subsequent to the Closing,
permit or enable any Person other than MAA, MAI or the Subsidiaries to use such
Intellectual Property. To the knowledge of Seller, no such Intellectual Property
or MAA's, MAI's or the Subsidiaries' use thereof, infringes or violates the
rights of third parties. To the knowledge of Seller, MAA and MAI, except as
indicated in Section 3.21(a) of the Disclosure Schedule, no Person is infringing
upon any of the Intellectual Property listed in Section 3.21(a) of the
Disclosure Schedule.
(b) Set forth in Section 3.21(b) of the Disclosure Schedule
is a list of all Intellectual Property owned by third parties which is licensed
to, or otherwise used in the business of, MAA, MAI or any of the Subsidiaries.
All such Intellectual Property is licensed pursuant to valid written agreements.
MAA's, MAI's or the Subsidiaries use of such listed Intellectual Property owned
by Seller or any of its Affiliates (other than MAA, MAI or the Subsidiaries),
does not infringe or violate the rights of third parties. Except only as set
forth in Section 3.21(b) of the Disclosure Schedule, there is no pending or
threatened written claim against MAA, MAI or any of the Subsidiaries, or to
Seller's knowledge, the licensors of such licensed Intellectual Property
asserting that any of such licensed Intellectual Property, or MAA's, MAI's or
the Subsidiaries' use thereof, infringes or violates the rights of third parties
or that MAA, MAI or any of the Subsidiaries is in breach of any such agreement.
(c) To the knowledge of Seller, MAA, MAI and the
Subsidiaries own or have the right to use all Intellectual Property used in
their businesses as conducted on the date hereof. Upon consummation of the
transactions contemplated by this Agreement, MAA, MAI and the Subsidiaries will
be entitled to continue to use all Intellectual Property used in the business of
MAA, MAI or the Subsidiaries as it is used to conduct their business as of the
Closing Date without any limitation, impairment or alteration thereof and
without the payment of any fees or license or other payments. Section 3.21(c) of
the Disclosure Schedule lists all written notices or claims received by MAA, MAI
or any of the Subsidiaries which claim infringement by MAA, MAI or the
Subsidiaries of any Intellectual Property which is claimed to be owned by any
other person. To the knowledge of Seller, there is no basis for any such claim
listed in Section 3.21(c) of the Disclosure Schedule.
Section 3.22 No Third Party Options. There are no existing
-------------------------
agreements, options, commitments or rights with, to or in any person to acquire
any of MAA, MAI or any of the Subsidiaries' assets or properties or any interest
therein, except for this Agreement and those contracts entered into in the
normal course of business consistent with past practice for the sale of MAA's
MAI's or any Subsidiary's products or services.
Section 3.23 Tariffs; FCC Licenses; Non-FCC Authorizations.
---------------------------------------------
(a) Section 3.23(a) of the Disclosure Schedule lists each
tariff applicable to MAA, MAI or any of the Subsidiaries as of the date hereof,
a true and correct copy of each of which has been or will be provided to
Purchaser. Except as otherwise set forth in Section 3.23(a) of the Disclosure
Schedule, (i) such tariffs stand in full force and effect, and there is no
outstanding notice of cancellation or termination or, to Seller's knowledge, any
threatened cancellation or termination in connection therewith, (ii) neither
MAA, MAI nor any of the Subsidiaries is subject to, any restrictions or
conditions applicable to such tariffs that limit or would limit the operation of
its business (other than restrictions or conditions generally applicable to
tariffs of that type). Neither MAA, MAI nor any of the Subsidiaries is in
violation under the terms and conditions of any of its tariffs in any manner
which could reasonably be expected to result in a Threshold Amount with respect
to MAA, MAI or any of the Subsidiaries. Except as set forth in Section 3.23(a)
of the Disclosure Schedule, there are no applications by MAA, MAI or any of the
Subsidiaries or to Seller's knowledge, complaints, filings, orders or petitions
by others or proceedings pending or threatened before the appropriate regulatory
authority relating to the business or operations or regulatory tariffs of MAA,
MAI or any of the Subsidiaries as of the date hereof.
(b) Section 3.23(b) of the Disclosure Schedule lists each
FCC License held by MAA, MAI or any of the Subsidiaries as of the date hereof
which list shall be updated as of the Closing Date. Except as otherwise set
forth in Section 3.23(b) of the Disclosure Schedule, such FCC Licenses
constitute all FCC Licenses necessary for the conduct of the business of MAA,
MAI and each of the Subsidiaries as conducted and as anticipated as of the date
hereof to be conducted in the 12 month period following the date hereof and
thereafter as contemplated in material respects under the UPS Contract. Except
as otherwise set forth in Section 3.23(b) of the Disclosure Schedule, each such
FCC License is in full force and effect, and there is no outstanding notice of
cancellation or termination or, to Seller's knowledge, any threatened
cancellation or termination in connection therewith. None of such FCC Licenses
is subject to any restrictions or conditions except as set forth on Section
3.23(b) of the Disclosure Schedule that limit the operations of MAA, MAI or any
of the Subsidiaries (other than restrictions or conditions generally applicable
to licenses of that type). Subject to the Communications Act of 1934, as
amended, and the regulations thereunder, the FCC Licenses are free from all
security interests, liens, claims, or encumbrances of any nature whatsoever.
Except as set forth in Section 3.23(b) of the Disclosure Schedule, there are no
applications by MAA, MAI or any of its Subsidiaries or, to Seller's knowledge,
complaints or petitions by others or proceedings pending or threatened before
the FCC relating to the business or FCC Licenses of MAA, MAI or any of the
Subsidiaries as of the date hereof or which could reasonably be expected to
result in a Threshold Amount with respect to MAA, MAI or any of the Subsidiaries
as of the Closing Date.
(c) Section 3.23(c) of the Disclosure Schedule lists all
material Non-FCC Authorizations necessary for the conduct of the business of
MAA, MAI and each of the Subsidiaries as of the date hereof which list shall be
updated as of the Closing Date. Except as otherwise set forth in Section 3.23(c)
of the Disclosure Schedule, each such material Non-FCC Authorization is in full
force and effect. No event has occurred with respect to any such material
Non-FCC Authorization which (i) permits, or after notice or lapse of time or
both would permit, revocation or termination thereof, or (ii) would result in
any other impairment of the rights of the holder of such Non-FCC Authorization.
Section 3.24 Officer and Employee Compensation. Section 3.24 of
---------------------------------
the Disclosure Schedule lists each officer and employee of MAA, MAI and each of
the Subsidiaries and such officer's or employee's corresponding annual
compensation amount payable by any of MAA, MAI or any such Subsidiary as of
December 31, 1997.
Section 3.25 Indebtedness. Neither MAA, MAI nor any of the
------------
Subsidiaries is subject to any note, debenture, bond, conditional sale or
equipment trust agreement, letter of credit agreement, loan agreement, or other
contract or commitment for the borrowing or lending of money (including, without
limitation, loans to or from officers, directors, shareholders, or any members
of their immediate families), any non-vendor financing arrangement with Seller
or any Affiliate of Seller (other than the Subsidiaries), or any agreement or
arrangement for a line of credit, or guarantee, pledge or undertaking of the
indebtedness of any other Person.
Section 3.26 Access; Sophistication; etc.
----------------------------
(a) Purchaser and AMSC have furnished to Seller copies of
their respective most recent financial statements and Seller in agreeing to
accept the AMSC Common Stock has reviewed such documents and has relied only on
(i) the statements and information contained therein and (ii) the
representations, warranties, terms and conditions of this Agreement.
(b) Seller acknowledges that all documents, books and
records requested by Seller pertaining to Purchaser and AMSC have been made
available for inspection by Seller and its agents and representatives; that
Seller and its agents and representatives have had a reasonable opportunity to
ask questions of and receive answers from Purchaser and AMSC or officers or
employees acting on behalf of Purchaser and AMSC concerning the terms and
conditions of the AMSC Common Stock and the business and prospects of Purchaser
and AMSC. Seller and its respective agents and representatives have such
knowledge and experience in financial and business matters as to enable them to
utilize the information made available to them in connection with the
transactions contemplated hereby, to evaluate the merits and risks of accepting
the AMSC Common Stock and to make an informed decision with respect thereto and
such an evaluation and informed decision have been made.
Section 3.27 Investment Representation. Seller is acquiring the
--------------------------
shares of AMSC Common Stock to be received by Seller upon consummation of the
sale of Seller's Shares to Purchaser for its own account for investment only and
not with a view to making a distribution thereof within the meaning of the
Securities Act of 1933, as amended. Seller agrees that it will not sell or
transfer such shares of AMSC Common Stock, except in accordance with the terms
of the legend set forth below, unless such shares are subsequently registered or
an exemption from registration is available. Seller is aware that the shares of
AMSC Common Stock it is receiving have not been registered under the Securities
Act of 1933, as amended, or any state or other jurisdiction's securities laws,
and that the shares of AMSC Common Stock must be held indefinitely unless
subsequently registered or an exemption from such registration is available.
Seller is aware that it will not be readily able to liquidate its shares of AMSC
Common Stock. Seller understands and agrees that the shares of AMSC Common Stock
to be received by Seller will bear legends substantially to the effect set forth
below and that a stop transfer order may be placed with respect thereto.
THE SHARES OF COMMON STOCK REPRESENTED BY THIS CERTIFICATE HAVE
BEEN ACQUIRED FOR INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933 OR THE SECURITIES LAWS OF ANY STATE, AND MAY NOT BE OFFERED FOR
SALE, SOLD OR OTHERWISE TRANSFERRED UNLESS REGISTRATION STATEMENTS UNDER SUCH
LAWS ARE THEN IN EFFECT OR UNLESS AN EXEMPTION FROM THE REGISTRATION
REQUIREMENTS THEREOF IS THEN APPLICABLE TO SUCH OFFER OR SALE.
The shares of Common Stock represented by this certificate may
not be sold, transferred, assigned, pledged, hypothecated or otherwise disposed
of except in accordance with the terms of the Registration Rights Agreement
dated as of , 1998, a copy of which is on file at the office of the Corporation.
ARTICLE 4. REPRESENTATIONS AND WARRANTIES OF AMSC AND PURCHASER
AMSC and Purchaser each hereby represents and warrants to Seller as
follows:
Section 4.1 Organization and Good Standing. Each of AMSC and
---------------------------------
Purchaser is a corporation duly organized, validly existing and in good standing
under the laws of Delaware and has full corporate power to conduct its business
as presently or then conducted and to own and operate the assets and properties
now or then owned and operated by it.
Section 4.2 Authority; No Required Consents or Governmental
-----------------------------------------------------
Authorizations or Breach of Statute or Contract; Enforceability.
- ---------------------------------------------------------------
(a) Each of AMSC and Purchaser has the full corporate power
and lawful authority to execute and deliver this Agreement and to consummate and
perform the transactions contemplated hereby in the manner herein provided. The
execution and delivery of this Agreement by AMSC and Purchaser and the
consummation and performance by AMSC and Purchaser of the transactions
contemplated hereby in the manner herein provided has been duly and validly
authorized by all necessary corporate or other action.
(b) The AMSC Common Stock when issued to Seller will be duly
authorized, validly issued free and clear of all liens, pledges, claims,
security interests, options or other encumbrances of any nature whatsoever.
(c) Except for the applicable requirements of the HSR Act,
the AMSC Shareholder Approval and, to the knowledge of AMSC and Purchaser, the
Required Consents, neither the execution and delivery by AMSC and Purchaser of
this Agreement nor the consummation and performance by AMSC and Purchaser of the
transactions contemplated hereby in the manner herein provided (i) requires the
approval, consent or authorization of, or any filing with or notice to, any
federal, state, provincial, local or other governmental agency or body or any
other third party, other than (A) approvals, consents, authorizations, filings
or notices of a character such that a failure to obtain, file or give them would
not singly or in the aggregate have a material adverse effect on AMSC and
Purchaser or otherwise impair or affect the validity of this Agreement or
prevent or hinder the consummation of the transactions contemplated hereby and
(B) approvals, consents, authorizations, filings or notices which have been
obtained, made or given, or (ii) conflicts with or will result in the uncured
and unwaived breach or violation of any term or provision of, constitutes a
default under or will cause the acceleration of any payments pursuant to (A) the
Certificates of Incorporation or By-laws of AMSC and Purchaser, (B) any material
indenture, mortgage, deed of trust, lease, note or note agreement or any other
agreement or instrument to which either AMSC or Purchaser is a party or by which
either AMSC or Purchaser or any of their respective assets or properties are
bound, (C) any material governmental license, franchise, permit or other
authorization held by either AMSC or Purchaser or (D) any law, judgment, order,
writ, injunction, decree, award, rule or regulation of any court, arbitrator or
governmental agency or body applicable to either AMSC or Purchaser.
(d) This Agreement, when executed and delivered by Seller,
MAA and MAI and assuming the enforceability of this Agreement upon Seller will
be the valid and binding obligations of AMSC and Purchaser, and will be
enforceable against AMSC and Purchaser in accordance with its terms, subject to
bankruptcy, insolvency or other laws affecting the rights of creditors
generally.
(e) Except as set forth on Schedule 4.2, there are no (i)
statutory, contractual or other preemptive rights with respect to the issuance
or transfer of any shares of AMSC Common Stock or other securities of AMSC; (ii)
outstanding options, warrants or rights to purchase, repurchase or otherwise
subscribe for any equity securities, any securities convertible into or
exchangeable for its capital stock or other ownership interests of AMSC (other
than the issuance of AMSC Common Stock pursuant to this Agreement); (iii)
obligations of AMSC, whether absolute or contingent, to issue or repurchase any
shares of equity securities or other ownership interests or to share or make any
payments based on its revenues, profits or net income; (iv) indebtedness or
securities directly or indirectly convertible into any equity securities of
AMSC; or (v) voting trusts, proxies, or any other agreements, restrictions or
understandings with respect to the voting of the capital shares of AMSC or to
any other aspect of AMSC's affairs (including any registration rights).
Section 4.3 Broker's or Finder's Fees. No agent, broker,
----------------------------
investment banker, person or firm acting on behalf of Purchaser, AMSC or under
their authority is or will be entitled, directly or indirectly, to collect from
or otherwise hold Seller, MAA, or MAI liable for any broker's or finder's fee or
any other commission or similar fee in connection with any of the transactions
contemplated herein.
Section 4.4 Access; Sophistication; etc.
----------------------------
(a) Seller, MAA and MAI have furnished to AMSC and Purchaser
copies of their respective most recent financial statements and AMSC and
Purchaser in agreeing to accept the Shares reviewed such documents and have
relied only on (i) the statements and information contained therein and (ii) the
representations, warranties, terms and conditions of this Agreement.
(b) Each of AMSC and Purchaser acknowledges that all
documents, books and records requested by AMSC or Purchaser pertaining to MAA,
MAI and the Subsidiaries have been made available for inspection by AMSC and
Purchaser and their agents and representatives; that AMSC and Purchaser and
their agents and representatives have had a reasonable opportunity to ask
questions of and receive answers from Seller, MAA, MAI and the Subsidiaries or
officers or employees acting on behalf of Seller, MAA, MAI or the Subsidiaries
concerning the terms and conditions of the Shares and the business and prospects
of MAI, MAA and the Subsidiaries. AMSC and Purchaser and their respective agents
and representatives have such knowledge and experience in financial and business
matters as to enable them to utilize the information made available to them in
connection with the transactions contemplated hereby, to evaluate the merits and
risks of accepting the Shares and to make an informed decision with respect
thereto and such an evaluation and informed decision have been made.
Section 4.5 Investment Representation. Purchaser is acquiring the
--------------------------
Shares to be received by Purchaser upon consummation of the transactions
contemplated herein for its own account for investment only and not with a view
to making a distribution thereof within the meaning of the Securities Act of
1933, as amended. Purchaser agrees that it will not sell or transfer such
Shares, except in accordance with the terms of the legend set forth below.
Purchaser is aware that the Shares it is receiving have not been registered
under the Securities Act of 1933, as amended, or any state or other
jurisdiction's securities laws, and that the Shares must be held indefinitely
unless subsequently registered or an exemption from such registration is
available. Purchaser is aware that it will not be readily able to liquidate its
Shares. Purchaser understands and agrees that the Shares to be received by
Purchaser will bear a legend substantially to the effect set forth below and
that a stop transfer order may be placed with respect thereto.
THESE SHARES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED, OR ANY APPLICABLE SECURITIES LAW OF ANY
JURISDICTION AND MAY NOT BE TRANSFERRED UNTIL (A) A REGISTRATION
STATEMENT UNDER SUCH SECURITIES ACT AND SUCH APPLICABLE SECURITIES
LAWS SHALL HAVE BECOME EFFECTIVE WITH REGARD THERETO OR (B) IN THE
OPINION OF COUNSEL REASONABLY ACCEPTABLE TO THE COMPANY,
REGISTRATION UNDER SUCH SECURITIES ACT AND SUCH APPLICABLE
SECURITIES LAWS IS NOT REQUIRED IN CONNECTION WITH SUCH PROPOSED
TRANSFER.
Section 4.6 SEC Filings; Financial Statements.
---------------------------------
(a) AMSC has made available to Seller a complete and
accurate copy of each report, schedule, registration statement and definitive
proxy statement filed by AMSC with the SEC on or after January 1, 1996 (the
"AMSC SEC Reports"), which are all the forms, reports and documents required to
be filed by AMSC with the SEC since such date. The AMSC SEC Reports complied
with the requirements of the Securities Act or the Exchange Act, as the case may
be at the times they were filed (or if amended or superseded by a filing prior
to the date of this Agreement then or the date of such filing).
(b) Each of the sets of consolidated financial statements
(including, in case, any notes thereto) contained in the AMSC SEC Reports was
prepared in accordance with GAAP applied on a consistent basis throughout the
periods involved and fairly presents in all material respects the consolidated
financial position of AMSC and its material subsidiaries as at the respective
dates thereof and the consolidated results of their operations and cash flows
for the periods indicated, except that the unaudited interim financial
statements were or are subject to normal year-end audit adjustments.
(c) AMSC has previously furnished to Seller a complete and
correct copy of any amendments or modifications that have not yet been filed
with the SEC but that are required to be filed in agreements, documents, or
other instruments which previously had been filed by AMSC with the SEC pursuant
to the Securities Act or the Exchange Act.
Section 4.7 Absence of Certain Changes or Events. Since September
------------------------------------
30, 1997, there has not been (a) any change, or any development or combination
of developments of which management of AMSC has knowledge, which has had or
would reasonably be expected to have a material adverse effect on AMSC or (b)
any damages, destruction or loss, whether or not covered by insurance which has
had or would reasonably be expected to have a material adverse effect on AMSC.
Section 4.8 Absence of Undisclosed Liabilities. Except as
--------------------------------------
disclosed in the AMSC SEC Reports or in this Agreement, neither AMSC nor any of
its Subsidiaries has liabilities or obligations, either accrued, absolute,
contingent or otherwise, except:
(a) those liabilities or obligations set forth on the latest
balance sheet in the AMSC SEC Reports and not heretofore paid or discharged;
(b) liabilities arising in the ordinary course of business
under any agreement, contract, commitment, lease or plan; and
(c) those liabilities or obligations incurred, consistently
with past business practice, in or as a result of the normal and ordinary course
of business since the date of the latest balance sheet set forth in the AMSC SEC
Reports. For purposes of this Section, the term "liabilities" shall include,
without limitation, any direct or indirect indebtedness, guaranty, endorsement,
claim, loss, damage, deficiency, cost, expense, obligation or responsibility,
known or unknown, fixed or unfixed, choate or inchoate, liquidated or
unliquidated, secured or unsecured.
Section 4.9 Litigation. Except as described in the AMSC SEC
----------
Reports, no material litigation, arbitration, investigation, or other proceeding
of or before any court, arbitrator or governmental or regulatory official, body
or authority is pending or, to the knowledge of AMSC, threatened against AMSC or
any of its Subsidiaries. Other than as so described, neither AMSC nor any of its
Subsidiaries is a party to or subject to the provisions of any judgment, order,
writ, injunction or decre
ARTICLE 5. CERTAIN AGREEMENTS
Section 5.1 Conduct of the Business. From the date hereof until the
-----------------------
Closing Date, except as otherwise contemplated by this Agreement or disclosed in
the Disclosure Schedule, Seller shall, and shall cause MAA, MAI, ARDIS and each
of the Other Subsidiaries to, conduct their respective businesses in the
ordinary course consistent with past practice and in such manner that, at the
Closing, the representations and warranties of Seller shall be true and correct
in all material respects, and until issuance of a Final Order, AMSC and
Purchaser shall conduct the business of ARDIS in good faith. Without limiting
the generality of the foregoing, except as otherwise contemplated by this
Agreement, from the date hereof until the Closing Date, without the prior
written consent of AMSC and Purchaser, Seller will not permit MAA, MAI or any of
the Subsidiaries to:
(a) issue, deliver, sell, dispose of, pledge or otherwise
encumber, or authorize or propose the issuance, sale, disposition or pledge or
other encumbrance of (x) any additional partnership interests or shares of their
capital stock of any class, or any securities or rights convertible into,
exchangeable for, or evidencing the right to subscribe for any partnership
interests or shares of their capital stock, or any rights, warrants, options,
calls, commitments or any other agreements of any character to purchase or
acquire any partnership interests or shares of their capital stock or any
securities or rights convertible into, exchangeable for, or evidencing the right
to subscribe for, any partnership interests or shares of their capital stock, or
(y) any other securities in respect of, in lieu of, or in substitution for,
partnership interests or shares outstanding on the date hereof;
(b) redeem, purchase or otherwise acquire, or propose to
redeem, purchase or otherwise acquire, any of their outstanding securities or,
in the case of MAA or MAI, to pay any dividends (except for cash dividends) or
make any other distributions to their respective shareholders;
(c) split, combine, subdivide or reclassify any shares of
their capital stock;
(d) (i) grant any increases in the compensation of any of
their directors, officers or employees, except in the ordinary course of
business, (ii) pay or agree to pay any pension, retirement allowance or other
material employee benefit not required by any of the existing benefit,
severance, pension or employment plans, agreements or arrangements as in effect
on the date hereof to any such director, officer or key employees, whether past
or present, (iii) enter into any new or materially amend any existing employment
agreement with any such director, officer or key employee, (iv) enter into any
new or materially amend any existing severance agreement with any such director,
officer or key employee, or (v) except as may be required to comply with
applicable law, become obligated under any new Multiemployer Plan, Benefit Plan,
severance plan or arrangement, which was not in existence on the date hereof or
amend by any such plan or arrangement in existence on the date hereof if the
effect thereof would be to enhance benefits thereunder;
(e) adopt a plan of complete or partial liquidation,
dissolution, merger, consolidation, restructuring, recapitalization or other
reorganization of MAA, MAI or any of the Subsidiaries;
(f) make any acquisition by means of merger, consolidation
or otherwise;
(g) adopt any amendments to their Partnership Agreement,
Certificate of Incorporation, charter or By-Laws;
(h) incur any indebtedness for borrowed money or guarantee
any such indebtedness or make any loans, advances or capital contributions to,
or investments in, any other Person (other than to any of the Subsidiaries or
loans to their respective employees, in the ordinary course of business);
(i) engage in the conduct of any business other than
telecommunications and related businesses;
(j) enter into any agreement providing for acceleration of
payment or performance or other consequence as a result of a change of control
of MAA, MAI or any of the Subsidiaries;
(k) operate in other than the usual, regular and ordinary
course and in accordance with past practices and, to the extent consistent with
such operation and with the other covenants contained herein, to use its good
faith efforts to continue normal purchasing, payments of accounts payable,
rental, leasing, renewal, financing, marketing, advertising, promotional and
maintenance expenditures with respect to the business of MAA, MAI and the
Subsidiaries; provided, Seller shall not on behalf of MAA, MAI or any of the
Subsidiaries, and shall not permit MAA, MAI or any of the Subsidiaries to,
accelerate or delay any payment of accounts payable, or bill any customer in
advance beyond existing and usual contractual terms for services to be performed
after the date hereof;
(l) except as otherwise contemplated in this Agreement, fail
to maintain all authorizations and licenses materially necessary for the conduct
by MAA, MAI or the Subsidiaries of their respective businesses in accordance
with past custom and practice, including but not limited to failure to proceed
with any actions necessary to ensure the build-outs referenced in the two FCC
orders, each dated June 5, 1996, granting extensions of time to commence
services (No. 7110-02);
(m) fail to maintain all insurance policies and binders
shown in Section 3.18 of the Disclosure Schedule unless new or replacement
insurance policies or binders with similar coverage are obtained;
(n) submit or file with, except as otherwise contemplated in
this Agreement, or otherwise voluntarily participate as a party to any
stipulation, pleading, filing or other proceeding with the FCC, any state public
service commission, public utility commission or similar state agency, or any
other regulatory authority with jurisdiction over MAA, MAI or the Subsidiaries
where such stipulation, pleading, filing or other proceeding could reasonably be
expected to result in a Threshold Amount with respect to MAA, MAI or any of the
Subsidiaries or fail to notify AMSC promptly of any involuntary participation in
any of the foregoing;
(o) enter into any contract, agreement, commitment or other
binding arrangement that would result in a liability or financial commitment
which in the aggregate exceeds $25,000, other than amounts reflected on MAA, MAI
or any Subsidiary's capital or operating budgets; or
(p) authorize, recommend, propose or announce an intention
to do any of the foregoing, or enter into any contract, agreement, commitment or
arrangement to do any of the foregoing.
Section 5.2 Access to Information. Subject to applicable law,
-----------------------
Seller, MAA and MAI will give AMSC and Purchaser, their counsel, financial
advisors, auditors and other authorized representatives reasonable access during
business hours after reasonable notice to the offices, properties, books and
records of MAA, MAI and each of the Subsidiaries and will instruct the
employees, counsel and financial advisors of Seller, MAA, MAI and the
Subsidiaries to cooperate with AMSC and Purchaser in theinvestigation of MAA,
MAI and the Subsidiaries.
Section 5.3 Efforts; Further Assurances; Permits.
------------------------------------
(a) Subject to the terms and conditions of this Agreement,
each party will use all commercially reasonable efforts to take, or cause to be
taken, all actions and to do, or cause to be done, all things necessary or
desirable under applicable laws and regulations to consummate the transactions
contemplated by this Agreement, including, without limitation, preparing and
making any filings required to be made under applicable law. Each of the parties
shall furnish to the other parties such necessary information and reasonable
assistance as such other party may request in connection with the foregoing.
(b) In case at any time after the Closing Date any further
action is necessary or desirable to carry out the purposes of this Agreement,
AMSC, Purchaser and Seller shall, and Seller shall cause the proper officers
and/or directors of MAA, MAI and the Subsidiaries to, take all such necessary or
desirable action.
(c) Upon AMSC's or Purchaser's request, Seller will use, and
will cause MAA, MAI and the Subsidiaries to use, commercially reasonable efforts
to assist AMSC and Purchaser in obtaining any permits, licenses or other
authorizations necessary for AMSC's and Purchaser's operation of MAA, MAI and
the Subsidiaries consistent with past practice after the Closing Date.
(d) In the event that at any time, any order, decree or
injunction shall be entered which prevents or delays the consummation of any of
the transactions contemplated by this Agreement, each party shall promptly use
its best efforts to cause such order, decree or injunction to be reversed,
vacated or modified in order to permit such transactions to proceed as
expeditiously as possible.
Section 5.4 Books and Records. AMSC, Purchaser and Seller agree to
-----------------
retain for a period of three years or longer if otherwise required by law after
the Closing Date, any and all Books and Records (hard copy, electronic or
otherwise) related to MAA, MAI and the Subsidiaries and in the possession of
Seller, MAA, MAI or the Subsidiaries for all periods through the Closing Date or
related to the transactions contemplated hereby. Notwithstanding the foregoing,
either party may notify the other of its desire to discontinue retention of
specified documents in accordance with applicable record retention requirements
during such period upon thirty days' written notice and such party may elect to
assume custody thereof. In the event any party needs access to such Books and
Records for purposes of verifying any representations and warranties contained
in this Agreement, responding to inquiries from Governmental Entities,
indemnifying, defending and holding harmless other parties hereto, in accordance
with applicable provisions of this Agreement or any other legitimate business
purpose, each party will allow representatives of the other parties access to
such books and records upon reasonable notice during regular business hours for
the sole purpose of obtaining information for use as aforesaid and will permit
such other party to make such extracts and copies thereof as may be necessary or
convenient and, if required for such purpose, to have access to and possession
of original documents.
Within 15 Business Days after the Closing Date, Seller shall provide to
Purchaser the Closing Financial Statements.
Section 5.5 Governmental Regulatory Approvals. As promptly as
-----------------------------------
practicable after the date hereof, AMSC, Purchaser and Seller shall, and Seller
shall cause MAA, MAI and the Subsidiaries to, file the required applications and
notices with the appropriate Governmental Entities as necessary for consummation
of the transactions contemplated by this Agreement (the "Regulatory Approvals").
To the extent transferable, Seller will transfer any existing Non-FCC
Authorizations to Purchaser. Each party agrees to use its best efforts to obtain
the Regulatory Approvals and the parties agree to cooperate fully with each
other and with all Governmental Entities to obtain the Regulatory Approvals at
the earliest practicable date.
Section 5.6 FCC Consent. As promptly as practicable after the
-----------
execution of this Agreement, the parties shall file all appropriate applications
and requests with the FCC seeking, and shall use their best efforts to obtain,
(i) the FCC's consent to the transfer of control of the licensed Subsidiaries to
Purchaser under the FCC Licenses (as listed in Section 3.23(b) of the Disclosure
Schedule), and (ii) any necessary FCC waivers (all such consents or waivers are
collectively referred to as "FCC Consents").
Section 5.7 HSR Act Review. As promptly as practicable after the
--------------
execution of this Agreement, the parties will make such filings as may be
required by the HSR Act with respect to the sale contemplated by this Agreement.
Thereafter, the parties will file as promptly as practicable any supplemental
information that may be requested by the U.S. Federal Trade Commission or the
U.S. Department of Justice pursuant to the HSR Act. The parties agree to
cooperate in seeking early termination of the waiting periods under the HSR Act.
Section 5.8 Registration Rights. The Seller and AMSC shall execute
-------------------
a registration rights agreement, substantially in the form attached hereto as
Exhibit B (the "Registration Rights Agreement").
Section 5.9 Lock-up. Seller hereby agrees not to transfer, except
-------
to a wholly-owned Affiliate of Seller and except pursuant to a Piggyback
Registration under the Registration Rights Agreement (as defined therein) and
except pursuant to Section 1 of that certain Participation Rights Agreement of
even date herewith, any shares of AMSC Common Stock now owned or hereafter
acquired by Seller during the one year period beginning on the Closing Date (the
"Lock-up Period"). Seller further agrees, during the Lock-up Period, not to (nor
will it permit any agent or Affiliate of Seller to) solicit, initiate or
encourage any Acquisition Proposal or furnish any information to, or cooperate
with, any Person, corporation, firm, or other entity with respect to an
Acquisition Proposal, unless Seller obtains prior written consent from AMSC. As
used herein, "Acquisition Proposal" means a proposal for a merger or other
business combination involving AMSC or for the acquisition of a substantial
equity interest in, or a substantial portion of the assets of, AMSC. Seller
shall promptly communicate to AMSC the terms of any Acquisition Proposal which
it may receive during such Lock-up Period.
Section 5.10 Nonsolicitation. During the period beginning on the
---------------
date hereof and ending on the one-year anniversary of the Closing Date (the
"Nonsolicitation Period"), Seller shall not, nor shall Seller permit any of its
officers, directors, employees, Person it Controls, agents or other
representatives to, directly or indirectly, without prior written consent of
AMSC, (i) actively solicit any employee of, or (ii) actively solicit any
employee who, within the six months prior to the date of such solicitation or
hiring, had been an employee of, MAA, MAI or any of the Subsidiaries unless such
employee's employment was terminated by or at the request of MAA, MAI or any
Subsidiary. It is understood that generic advertising shall not constitute
"active solicitation" for purposes of this Section 5.10. AMSC and Purchaser may
seek injunctive relief to prevent any such violations during the Nonsolicitation
Period and also may seek monetary damages in respect of any violations of this
Section 5.10.
Nothing in this Section 5.10 shall prevent Seller or any Person it controls from
hiring any such employee so long as such hiring is not the result of the
solicitation prohibited under this Section 5.10.
Section 5.11 IBM Contract Renewal. Seller shall deliver to AMSC
--------------------
and Purchaser a fully executed renewal of the services contract by and between
ARDIS and International Business Machines in substance and form reasonably
satisfactory to Purchaser.
Section 5.12 UPS Contract. Seller shall deliver to AMSC and
-------------
Purchaser a fully executed services contract by and between ARDIS and United
Parcel Service, substantially in substance and form as signed by UPS and
previously provided to Purchaser (the "UPS Contract").
Section 5.13 Escrow Agreement. AMSC, Purchaser and Seller shall
----------------
have executed the Escrow Agreement.
Section 5.14 Employee Transition. Purchaser shall provide, as a
--------------------
general matter, compensation, benefits and continued employment generally
comparable in the aggregate to those received by the employees of ARDIS prior to
the Closing, consistent with Purchaser and AMSC's financial, structuring, and
organizational considerations, including existing AMSC employee compensation
considerations. Promptly after the date hereof and prior to the Closing, these
compensation benefits and employment provisions will be presented to Seller. In
the event that Purchaser terminates the employment of a Management Employee
within 12 months after the Closing Date, Purchaser shall provide such Management
Employee with the Severance Package (as defined below). Promptly after the date
hereof and prior to the Closing, the substantial terms of the severance package
for Management Employees shall (i) be presented to Seller and be reasonably
acceptable to Seller and (ii) shall contain standard terms generally offered to
management employees of similarly situated companies (the "Severance Package").
Section 5.15 Updated Disclosure Schedule. From the date hereof
---------------------------
until the Closing Date, Seller shall disclose to Purchaser and AMSC in writing
any material variances from the representations and warranties contained in
Article 3 or Article 8 hereof promptly upon discovery thereof, and such
disclosures shall update the Disclosure Schedule for purposes of Articles 3, 7
and 8.
Section 5.16 Nextel Proceeds. ARDIS has entered into an Asset
---------------
Purchase Agreement by and between ARDIS and Nextel West Corp., dated July 11,
1997, which provides for the acquisition of certain ARDIS business assets. The
right of ARDIS to receive any and all proceeds under such agreement shall be
deemed for all purposes to be assigned to Seller and (i) prior to the Closing,
Seller shall be entitled to collect and keep such proceeds for its own account
(and cause ARDIS to cooperate in such regard) and (ii) prior to Closing, Seller
may cause the Company to assign to Seller for payment from Nextel West Corp. the
proceeds from such agreement.
Section 5.17 Non-Vendor Intercompany Financing Arrangements. Any
------------------------------------------------
non-vendor financing arrangement existing as of the Closing between Seller or
any Seller Affiliate (other than the Subsidiaries), on the one hand, and MAA or
MAI, on the other hand, is hereby cancelled and extinguished without any further
obligations related thereto on the part of MAA or MAI. I.
Section 5.18 Intercompany Agreements. Notwithstanding anything to
-----------------------
the contrary in any agreement between Ardis or Motorola entered into at any time
prior to the Closing Date:
(a) For the purpose of each such agreement, Seller hereby
consents to the transactions contemplated by this Agreement.
(b) All such agreements shall continue in full force and
effect notwithstanding the transactions contemplated by this Agreement. Without
limiting the generality of the foregoing, any provision limiting the application
of any such agreement to ARDIS while it remains a subsidiary of Seller shall be
without force or effect.
(c) After the Closing Date, ARDIS may assign or otherwise
transfer any or all of its rights under any such agreements to AMSC or any
Affiliate of AMSC that holds substantially all the assets of ARDIS, and if ARDIS
does so, such agreements shall continue in full force and effect notwithstanding
such transfer.
ARTICLE 6. CONDITIONS TO CLOSING
Section 6.1 Conditions to Obligation of Purchaser. The obligation
-------------------------------------
of Purchaser to purchase the Shares shall be subject to the satisfaction or
waiver by Purchaser of the following conditions:
(a) Representations and Warranties of Seller to be True.
---------------------------------------------------
The representations and warranties of Seller herein contained shall be true and
correct in all material respects on the date hereof and at the Closing Date with
the same effect as though made at such time, except (i) insofar as any of such
representations and warranties are given as of a particular date and relate
solely to a particular date or period, and (ii) to the extent any of such
representations and warranties have been waived hereunder or affected by the
transactions contemplated or permitted herein. Seller shall have performed, or
caused MAA, MAI and the Subsidiaries to perform, in all material respects all
obligations and complied in all material respects with all covenants and
conditions required by this Agreement to be performed or complied with by them
at or prior to the Closing Date.
(b) No Injunction or Other Governmental Action. (i) No
-----------------------------------------------
preliminary or permanent injunction, decree or other order issued by any court
of competent jurisdiction or by any governmental or regulatory body or any
statute, rule, regulation or executive order promulgated or enacted by any
Governmental Entity after the date of this Agreement which prohibits the
consummation of the transactions contemplated hereby shall be in effect; and
(ii) no governmental agency or body shall have instituted any suit, action, or
legal or administrative proceeding to restrain, enjoin or otherwise question the
validity or legality of the transactions contemplated by this Agreement and no
order or decree so restraining or enjoining such transactions shall be in
effect.
(c) Statutory Requirements; Regulatory Approvals;
------------------------------------------------------
Contractual Consents. (i) All required waiting periods under the HSR Act shall
- ---------------------
have expired or been terminated; (ii) all Regulatory Approvals and all other
authorizations, consents, orders or approvals of, or declarations or filings
with, or expirations or terminations of waiting periods imposed by, the FCC, any
state public service commission, public utility commission or similar state
agency, or other Governmental Entities necessary to effect the transactions
contemplated by this Agreement shall have occurred, been filed or been obtained
and become Final Orders, provided, that nothing in this paragraph shall be
deemed to prohibit Closing upon issuance of the FCC Authorization pursuant to
the terms set forth in Section 2.6(a); and (iii) all other Required Consents
shall have been obtained and shall be in full force and effect.
(d) Certificate. Seller shall have delivered to Purchaser a
-----------
certificate to the effect that each of the conditions specified above in Section
6.1(a)-(c) has been satisfied in all respects;
(e) Escrow Agreement. Seller and the Escrow Agent shall have
----------------
executed the Escrow Agreement.
(f) IBM Contract Renewal. Seller shall have delivered a
----------------------
fully executed renewal of the services contract by and between ARDIS and
International Business Machines in substance and form reasonably satisfactory to
Purchaser.
(g) UPS Contract. Seller shall have delivered a fully
-------------
executed services contract by and between ARDIS and United Parcel Service
substantially in substance and form as signed by UPS and previously provided to
Purchaser.
(h) Directors and Non-Employee Officers. Purchaser and AMSC
-----------------------------------
shall have received the resignations, effective as of the Closing, of all
directors and non-employee officers of MAA, MAI and each of the Subsidiaries.
(i) AMSC Shareholder Approval. Purchaser shall have received
-------------------------
AMSC Shareholder Approval as and to the extent required.
(j) Deliveries. All actions to be taken by Seller, MAA
----------
and MAI in connection with consummation of the transactions contemplated hereby
and all certificates, opinions, instruments, and other documents required to
effect the transactions contemplated hereby will be reasonably satisfactory in
form and substance to Purchaser. Each of the deliveries required under Section
2.7(b) shall have been prepared to the reasonable satisfaction of Purchaser and
AMSC and their counsel.
(k) No Material Adverse Change. Since the date of this
-----------------------------
Agreement, there shall not have been any Material Adverse Change.
(l) Financing. Purchaser shall have obtained, on terms and
---------
conditions reasonably satisfactory to it, financing in the capital markets
sufficient to consummate the transactions contemplated hereby.
Purchaser may waive any condition specified in this Section 6.1 if
Purchaser executes a writing so stating at or prior to Closing.
Section 6.2 Conditions to Obligations of Seller. The obligation
-----------------------------------
of Seller to sell the Shares shall be subject to the satisfaction or waiver by
Seller of the following conditions:
(a) Representations and Warranties of Purchaser and AMSC to
-------------------------------------------------------
Be True. The representations and warranties of Purchaser and AMSC herein
- -------
contained shall be true and correct in all material respects on the date hereof
and at the Closing Date with the same effect as though made at such time, except
(i) insofar as any of such representations and warranties are given as of a
particular date and relate solely to a particular date or period, and (ii) to
the extent any of such representations and warranties have been waived hereunder
or affected by the transactions contemplated or permitted herein. AMSC and
Purchaser shall have performed in all material respects all obligations and
complied in all material respects with all covenants and conditions required by
this Agreement to be performed or complied with by them at or prior to the
Closing Date.
(b) No Injunction or Other Governmental Action. (i) No
-----------------------------------------------
preliminary or permanent injunction or other order issued by any court of
competent jurisdiction or by any governmental or regulatory body nor any
statute, rule, regulation or executive order promulgated or enacted by any
Governmental Entity after the date of this Agreement which prohibits the
consummation of the transactions contemplated hereby shall be in effect; and
(ii) no governmental agency or body shall have instituted any suit, action, or
legal or administrative proceeding to restrain, enjoin or otherwise question the
validity or legality of the transactions contemplated by this Agreement and no
order or decree so restraining or enjoining such transactions shall be in
effect.
(c) Statutory Requirements; Regulatory Approvals. (i) All
----------------------------------------------
required waiting periods under the HSR Act shall have expired or been
terminated; (ii) all Regulatory Approvals and all other authorizations,
consents, orders or approvals of, or declarations or filings with, or
expirations or terminations of waiting periods imposed by, the FCC, any state
public service commission, public utility commission or similar state agency, or
other Governmental Entities necessary to effect the transactions contemplated by
this Agreement shall have occurred, been filed or been obtained and become Final
Orders, provided, that nothing in this paragraph shall be deemed to prohibit
Closing upon issuance of the FCC Authorization pursuant to the terms set forth
in Section 2.6(a); and (iii) all other Required Consents shall have been
obtained and shall be in full force and effect.
(d) Certificate. Purchaser shall have delivered to Seller a
-----------
certificate to the effect that each of the conditions specified above in Section
6.2(a)-(c) has been satisfied in all respects.
(e) Registration Rights. AMSC shall have executed the
--------------------
Registration Rights Agreement.
(f) Escrow Agreement. Purchaser, AMSC and the Escrow Agent
----------------
shall have executed the Escrow Agreement on or prior to the date hereof.
(g) Deliveries. All actions to be taken by Purchaser and
----------
AMSC in connection with consummation of the transactions contemplated hereby and
all certificates, opinions, instruments, and other documents required to effect
the transactions contemplated hereby will be reasonably satisfactory in form and
substance to Seller. The deliveries required under Section 2.7(a) shall have
been prepared to the reasonable satisfaction of Seller and its counsel.
(h) Minimum Stock Price. The Market Value of AMSC Common
---------------------
Stock as of the Closing Date shall be at least 70% of the Market Value as of the
date hereof, after taking into account all stock splits, reverse stock splits
and similar adjustments to the number of shares of AMSC Common Stock outstanding
on the date hereof.
ARTICLE 7. INDEMNIFICATION
Section 7.1 Indemnification by Seller. Seller shall indemnify,
-------------------------
defend and hold Purchaser and their Affiliates harmless from and against any and
all liabilities, losses, damages, costs and expenses (collectively, "Losses")
asserted against, imposed on, or incurred or suffered by Purchaser, MAA, MAI or
the Subsidiaries as a result of any of the following:
(a) the inaccuracy of any representation or the breach of
any warranty set forth in Article 3 or in any agreement or certificate executed
and delivered by Seller pursuant to this Agreement;
(b) the non-fulfillment of any unwaived covenant or
agreement on the part of Seller set forth in this Agreement or in any agreement
or certificate executed and delivered pursuant to this Agreement; and
(c) any and all actions, suits, claims, proceedings,
investigations, audits, examinations, demands, assessments, fines, judgments,
settlements, interest, penalties, costs, remedial actions and other expenses
(including without limitation reasonable audit, engineering, consulting and
legal fees) pertaining to or arising out of any of the foregoing.
Section 7.2 Indemnification by AMSC. AMSC shall indemnify, defend
-----------------------
and hold Seller and its Affiliates harmless from and against any and all Losses
asserted against, imposed on, or incurred or suffered by Seller or such
Affiliates as a result of any of the following:
(a) the inaccuracy of any representation or the breach of
any warranty set forth in Article 4 or in any agreement or certificate executed
and delivered by AMSC or Purchaser pursuant to this Agreement;
(b) the nonfulfillment of any unwaived covenant or agreement
on the part of AMSC or Purchaser set forth in this Agreement or in any agreement
or certificate executed and delivered pursuant to this Agreement; and
(c) any and all actions, suits, claims, proceedings,
investigations, audits, examinations, demands, assessments, fines, judgments,
settlements, interest, penalties, costs, remedial actions and other expenses
(including without limitation reasonable audit, engineering, consulting and
legal fees) pertaining to or arising out of any of the foregoing.
Section 7.3 Limitations on Indemnification for Breaches of
---------------------------------------------------
Representations and Warranties.
- ------------------------------
The following indemnification provisions shall apply to all
breaches of representations, warranties or covenants by Seller (including those
in Article 8), except those contained in Sections 3.1, 3.2, 3.3, 3.4, or 3.5 or
as otherwise specifically provided in this Agreement, and all breaches of
representations, warranties or covenants of Purchaser and AMSC (including those
in Article 8), except those contained in Sections 4.1 and 4.2 or as otherwise
specifically provided in this Agreement:
(a) No Indemnitor shall be liable for indemnification until
the total amount of Losses incurred by the Indemnitee exceeds $300,000 (the
"Indemnification Threshold Amount") provided that if the Indemnification
Threshold Amount is exceeded with respect to Losses for which an Indemnitor has
an indemnification obligation under this Article 7 or Article 8, then such
Indemnitor's obligation shall include the full amount of such Losses as if the
limitation contained in this subsection (a) did not exist.
(b) Except as provided under Section 7.3(c), no Indemnitor
shall be liable for indemnification payments under any provision of this
Agreement to the extent such aggregate indemnification payments by such
Indemnitor exceed $10,000,000.
(c) Notwithstanding any other provision in this Agreement,
there shall be no limit for indemnification payments with respect to any breach
of the representations and warranties contained in Section 3.25 or pursuant to
Section 8.7(i) hereof.
Section 7.4 Survival of Representations and Warranties. The
---------------------------------------------
representations and warranties of the parties hereto shall survive the Closing
and shall, except as otherwise specifically set forth in this Agreement, expire
two years after the Closing Date, except as otherwise specifically provided in
this Agreement. Notwithstanding the preceding, the representations and
warranties set forth in Sections 3.7, 3.8, 3.9, 3.10 (except for the
representations and warranties pursuant to the first sentence of such Section
3.10, the survival period of which shall be two years), 3.11, 3.12, 3.13, 3.14,
3.15, 3.17, 3.18, 3.20, 3.24, 3.25, 3.26, 3.27, 4.3, 4.4, 4.5, 4.6, 4.7, 4.8 and
4.9 shall expire one year after the date hereof.
Section 7.5 Method of Asserting Claims. All claims for
-------------------------------
indemnification by a party entitled to be indemnified hereunder (an
"Indemnitee") by another party hereto (an "Indemnitor"), except for claims
relating to Taxes which shall be governed by the provisions of Article 8, shall
be asserted and resolved as follows:
(a) In the event that any claim or demand for which an
Indemnitee may claim indemnity is asserted against or sought to be collected
from an Indemnitee by a third party, the Indemnitee shall notify the Indemnitor
within 20 days following the receipt by the Indemnitee of such claim or demand,
specifying the nature of such claim or demand and the amount or the estimated
amount thereof to the extent then feasible (which estimate shall not be
conclusive of the final amount of such claim and demand) (the "Claim Notice").
Failure of an Indemnitee to so notify an Indemnitor within such 20-day period
shall not relieve an Indemnitor of its obligation to indemnify the Indemnitee
for such claim or demand except to the extent that the delay in giving notice of
such claim or demand in fact materially prejudices (i) the defense of such claim
or demand where the Indemnitor has the right to control such defense or (ii)
participation in the defense of such claim or demand where the Indemnitor has a
right of participation. Any party hereto against whom a claim or demand is
asserted by a third party shall, without prejudice to any right of
indemnification hereunder, appropriately respond to such claim or demand
(whether by answer, denial, request for extension of time or other action) to
such claim or demand within any applicable time period, so as to preserve any
rights or remedies it or any other party may have against the person making such
claim or demand.
(b) An Indemnitor shall have thirty (30) days from the date
on which the Claim Notice is duly given (the "Notice Period") to notify an
Indemnitee (i) whether or not it disputes the liability of the Indemnitor to the
Indemnitee hereunder with respect to such claim or demand and (ii) whether or
not the Indemnitor desires, at its sole cost and expense, to defend the
Indemnitee against such claim or demand. If an Indemnitor does not notify an
Indemnitee within the Notice Period that it disputes its liability to the
Indemnitee, the Indemnitor shall be liable for the amount of any resulting
Losses.
(c) In the event an Indemnitor notifies an Indemnitee within
the Notice Period that it desires to defend the Indemnitee against such a claim
against or demand from the Indemnitee, then except as hereinafter provided the
Indemnitor shall defend, at its sole cost and expense, the Indemnitee by
appropriate proceedings, shall use its best efforts to settle or prosecute such
proceedings to a final conclusion in such a manner as to avoid any risk of the
Indemnitee (or MAA, MAI or the Subsidiaries, if a Purchaser is the Indemnitee)
becoming subject to any injunctive or other equitable order or relief or to
liability for any other matter, and shall control the conduct of such defense;
provided, however, that the Indemnitor shall not, without the prior written
consent of the Indemnitee, consent to the entry of any judgment against the
Indemnitee or enter into any settlement or compromise which does not include, as
an unconditional term thereof, the giving by the claimant or plaintiff to the
Indemnitee of a release, in form and substance reasonably satisfactory to the
Indemnitee, from all liability in respect of such claim or litigation. If the
Indemnitee desires to participate in, but not control, any such defense or
settlement, it may do so at its sole cost and expense.
(d) Prior to an Indemnitor's settling any claim or demand
the defense of which it has assumed control, the Indemnitor shall obtain the
Indemnitee's approval, confirmed in writing in accordance with the notice
provisions hereof, which approval shall not be unreasonably withheld or delayed.
If an Indemnitee notifies an Indemnitor of its disapproval of such settlement,
the Indemnitee shall thereupon become liable, from and after the date of its
disapproval, for the amount of any award, judgment, costs or expenses (including
attorney fees) in excess of the proposed settlement amount and shall have the
right to elect to control the defense of such claim at its sole cost and
expense.
(e) In the event an Indemnitee should have a claim against
an Indemnitor hereunder which does not involve a claim or demand being asserted
against or sought to be collected from the Indemnitee (or MAA, MAI or the
Subsidiaries, if a Purchaser is the Indemnitee) by a third party, the Indemnitee
shall promptly send a Claim Notice with respect to such claim to the Indemnitor.
If the Indemnitor does not notify the Indemnitee within the Notice Period that
it disputes such claim, the Indemnitor shall be liable for the amount of any
resulting Losses.
Section 7.6 Method of Payment. Any indemnification payment by
------------------
Purchaser to Seller pursuant to this Article 7 or Article 8 shall be made in
immediately available funds. Any indemnification payment by Seller to Purchaser
pursuant to this Article 7 or Article 8 shall be made (i) first, in AMSC Common
Stock received by Seller pursuant to this Agreement, and (ii) second, to the
extent such indemnification payment amount exceeds the aggregate Market Value of
the AMSC Common Stock held by Seller, in immediately available funds; provided,
however, that any indemnification payments by Seller to Purchaser with respect
to any breach of the representations and warranties contained in Section 3.25 or
pursuant to Section 8.7(i) shall be made in immediately available funds. For
purposes of any indemnification payment made by Seller pursuant to the
immediately preceding sentence, the Market Value of the AMSC Common Stock shall
be calculated as the higher of (A) the Market Value as of the date hereof, and
(B) the Market Value as of the date of such indemnification payment.
Section 7.7 Limitation of Recourse.
----------------------
(a) Following the Closing, except with respect to claims
based upon fraud, the indemnification provided by Article 7 or Article 8 shall
be the sole and exclusive remedy for any Losses of any party hereto with respect
to any misrepresentation or inaccuracy in, or breach of, any representations or
warranties or any breach or failure in performance prior to Closing of any
covenants or agreements made by any party in this Agreement or in any exhibit or
schedules hereto or any certificate delivered hereunder.
(b) No claim shall be brought or maintained by AMSC or
Purchaser or their respective successors or permitted assigns against any
officer, director or employee (present or former) of any of the Companies or
Seller, or by Seller or its respective successors or permitted assigns against
any officer, director or employee (present or former) of Purchaser or AMSC, and
no recourse shall be brought or granted against any such persons, by virtue of
or based upon any alleged misrepresentation or inaccuracy in or breach of any of
the representations, warranties or covenants of any of the Companies or Seller
on the one hand, or Purchaser or AMSC on the other hand, set forth or contained
in this Agreement or any exhibit or schedule hereto or any certificate delivered
hereunder, except to the extent that the same shall have been the result of
fraud by any such Person (and in the event of such fraud, such recourse shall be
brought or granted solely against the Person or Persons committing such fraud).
Section 7.8 Acknowledgment by Seller, Purchaser and AMSC. Seller,
---------------------------------------------
Purchaser and AMSC each hereby acknowledges that it has conducted to its
satisfaction, an independent investigation and verification of the financial
condition, results of operations, assets, liabilities, properties and projected
operations of AMSC and the Companies, respectively, and in making their
respective determination to proceed with the transactions contemplated by this
Agreement, (i) Seller has relied on the results of its own independent
investigation and verification and the representations and warranties of AMSC
and Purchaser expressly and specifically set forth in this Agreement, and (ii)
Purchaser and AMSC have each relied on the results of their own independent
investigation and verification and the representations and warranties of Seller
and the Companies expressly and specifically set forth in this Agreement. SUCH
REPRESENTATIONS AND WARRANTIES BY SELLER AND THE COMPANIES ON THE ONE HAND, AND
BY AMSC AND PURCHASER ON THE OTHER HAND, CONSTITUTE THE SOLE AND EXCLUSIVE
REPRESENTATIONS AND WARRANTIES OF SUCH PARTIES TO THE OTHER PARTIES IN
CONNECTION WITH THE TRANSACTIONS CONTEMPLATED HEREBY, AND EACH PARTY
UNDERSTANDS, ACKNOWLEDGES AND AGREES THAT ALL OTHER REPRESENTATIONS AND
WARRANTIES OF ANY KIND OR NATURE EXPRESSED OR IMPLIED (INCLUDING, BUT NOT
LIMITED TO, ANY RELATING TO THE FUTURE OR HISTORICAL FINANCIAL CONDITION,
RESULTS OF OPERATIONS, ASSETS OR LIABILITIES OF THE COMPANIES) ARE SPECIFICALLY
DISCLAIMED BY SELLER AND THE COMPANIES AND OF AMSC ARE SPECIFICALLY DISCLAIMED
BY AMSC AND PURCHASER.
ARTICLE 8. TAX MATTERS
Section 8.1 Seller's Tax Representations and Warranties. Seller
-------------------------------------------
hereby represents and warrants to AMSC that:
(a) For the period from its incorporation through the
Closing Date, MAI was and will remain a member of the Seller Group and was and
will be included in the consolidated federal income tax returns of the Seller
Group.
(b) For the period from its incorporation through the
Closing Date, MAA was and will remain a member of the Seller Group and was and
will be included in the consolidated federal income tax returns of the Seller
Group.
(c) For the period from their formation through the Closing
Date, each of ARDIS Holding and ARDIS was and will remain a partnership for
federal and State income Tax purposes.
(d) Except as set forth on Section 8.1(d) of the Disclosure
Schedule, all Tax Returns required to have been filed by the Companies and any
affiliated, consolidated, combined, unitary or other groups of which any Company
is, will be (at any time on or prior to the Closing Date) or was a member have
been or will be filed timely and are or will be accurate and correct in all
material respects insofar as they relate to the Companies, and, insofar as they
relate to the Companies, all Taxes due and payable (for taxable periods ending
on or before the Closing Date and for that portion of any Split Period ending on
the Closing Date) by any Company and any affiliated, consolidated, combined,
unitary or other groups of which any Company is, will be (at any time on or
prior to the Closing Date) or was a member (i) have been or will be paid or (ii)
adequate reserves and/or liabilities have been or will be established for such
Taxes on the financial books and records of the Companies.
(e) Each of the Companies has established (and through the
Closing Date will establish) on its Financial Statements and other financial
books and records reserves and/or liabilities that are adequate for the payment
of all Taxes not yet due and payable for taxable periods ending on or before the
Closing Date and for that portion of any Split Period ending on the Closing
Date.
(f) Prior to the Closing Date, each of the Companies will
pay Taxes at such times and in such manner as are consistent with its past
practices.
(g) Except as set forth on Section 8.1(g) of the Disclosure
Schedule, no waivers of statutes of limitation have been given or requested with
respect to any Tax Returns covering any Company or any Taxes payable by any
Company.
(h) Except as set forth on Section 8.1(h) of the Disclosure
Schedule or for matters that have been resolved, no deficiency or adjustment for
any unpaid Taxes of any Company has been proposed, asserted or assessed.
(i) There are no Liens with respect to Taxes (except for
such Liens for Taxes as are disclosed in Section 3.12 of the Disclosure Schedule
and except for Liens for Taxes, assessments or other governmental charges not
yet delinquent) upon any of the properties or assets, real, personal or mixed,
tangible or intangible, of the Companies.
(j) Except as set forth on Section 8.1(j) of the Disclosure
Schedule, no Company (i) is or will become a party to any agreement providing
for the allocation or sharing of, or indemnification for, Taxes, or (ii) is or
prior to the Closing will become required to include in income any adjustment in
tax periods ending after the Closing Date pursuant to Section 481(a) of the
Code.
(k) No formal or informal plan of liquidation has been
adopted by any Company.
(l) Except as set forth on Section 8.1(l) of the Disclosure
Schedule, neither Seller nor any Company: (i) has filed a consent pursuant to
Section 341(f) of the Code or agreed to have Section 341(f)(2) of the Code apply
to any disposition of a subsection (f) asset (as such term is defined in Section
341(f)(4) of the Code) owned by a Company; and (ii) has executed or entered into
a closing agreement affecting a Company pursuant to Section 7121 of the Code or
any predecessor provision thereof or any similar provision of State, local or
foreign law.
(m) Within twenty (20) days after the date of this
Agreement, Seller shall provide to AMSC a schedule of all tax elections that
have been made with respect to any Company (or any predecessor thereof) that
would have any effect on such Company after December 31, 1996, but only to the
extent that such elections were made affirmatively by the filing of a separate
document evidencing any such election. In addition, Seller shall use all
commercially reasonable efforts to identify to AMSC in writing within such
twenty (20) day period any other such tax elections that were not made
affirmatively by the filing of a separate document evidencing such tax
elections.
(n) Except as set forth on Section 8.1(n) of the Disclosure
Schedule, neither Seller nor any Company has received written notice to the
effect that the Company is subject to any penalty by reason of a violation of
any Tax order, Tax rule or Tax regulation or with respect to any Tax Return.
Section 8.2 AMSC's Tax Representations and Warranties. AMSC
--------------------------------------------
hereby represents and warrants to Seller that:
(a) Except for any transaction contemplated by this
Agreement (e.g., an election under Section 338(h)(10) of the Code), AMSC shall
cause the Companies not to engage in any transaction outside the ordinary course
of business on the Closing Date after the Closing if such transaction would
increase the tax liability of any of the Companies for any Taxable Year or
portion thereof ending on the Closing Date. AMSC and Seller agree to treat any
transaction of the Companies which is (i) - - outside the ordinary course of
business and (ii) occurs on the Closing Date but after the Closing as occurring,
for federal income Tax purposes, at the beginning of the day after the Closing
Date, in accordance with Treasury Regulations Section 1.1502-76(b)(1)(ii)(B).
(b) To the knowledge of AMSC, the fair market value of the
shares of AMSC Common Stock and other consideration received by Seller pursuant
to the Merger will be approximately equal to the fair market value of the MAA
Shares surrendered pursuant to the Merger in exchange therefor.
(c) To the knowledge of AMSC, following the Merger, MAA will
hold at least 90 percent of the fair market value of Merger Sub's net assets and
at least 70 percent of the fair market value of Merger Sub's gross assets held
immediately prior to the Merger. For purposes of this representation, amounts
used by Merger Sub to pay Merger-related expenses will be included as assets of
Merger Sub immediately prior to the Merger.
(d) Immediately prior to the Merger, AMSC will be in control
of Merger Sub within the meaning of Section 368(c) of the Code.
(e) AMSC has no plan or intention to reacquire any of the
shares of AMSC Common Stock issued in the Merger.
(f) As of the date of this Agreement and at all times
through and including the effective time of the Merger, AMSC had and has no plan
or intention of causing or permitting MAA to issue additional shares of stock
that would result in AMSC (or any permissible transferee thereof) losing control
of MAA within the meaning of Section 368(c) of the Code. Except as provided in
the next sentence, at any time during the eighteen (18) months following the
Closing Date, if AMSC causes or permits MAA to issue additional shares of stock
such that AMSC (or any permissible transferee thereof) loses control of MAA
within the meaning of Section 368(c) of the Code, AMSC shall, prior to such
issuance, provide an opinion of Arnold & Porter, or other counsel reasonably
acceptable to Seller, that such issuance of additional shares will not cause the
Merger to fail to qualify as a tax-free reorganization under Section
368(a)(2)(E) of the Code. The second sentence of this Section 8.2(f) shall not
apply if, prior to such issuance of additional shares of MAA stock, Seller and
its Affiliates do not own at least fifty percent (50%) of the AMSC Common Stock
received by Seller in the Merger. (g) AMSC has no plan or intention (i) to
liquidate MAA, (ii) to sell or otherwise dispose of the MAA Shares except for
transfers of such shares to corporations controlled by AMSC, or (iii) to cause
MAA to sell or otherwise dispose of any of its assets or of any of the assets
acquired from Merger Sub, except for dispositions made in the ordinary course of
business or transfers of assets to a corporation controlled by MAA within the
meaning of Section 368(c) of the Code.
(h) Merger Sub will have no liabilities assumed by MAA, and
will not transfer to MAA any assets subject to liabilities, in the Merger.
(i) Following the Merger, MAA will continue its historic
business or use a significant portion of its historic business assets in a
business.
(j) AMSC and Merger Sub will pay their respective expenses,
if any, incurred in connection with the Merger.
(k) There is no intercorporate indebtedness existing between
AMSC and MAA or between Merger Sub and MAA that was issued, acquired, or will be
settled at a discount.
(l) AMSC does not own, nor has it owned during the past five
years, any shares of the stock of MAA.
(m) Neither AMSC nor Merger Sub is an investment company as
defined in Section 368(a)(2)(F)(iii) and (iv) of the Code.
(n) AMSC shall cause each of the representations contained
in Section 8.2(a) through (m) to be true through the effective time of the
Merger.
Section 8.3 Tax Returns, Audits, Contests, Etc.; Tax Cooperation;
-----------------------------------------------------
Tax Sharing Agreements; Tax Records.
- -----------------------------------
(a) Seller shall prepare and file timely or cause to be
prepared and filed timely (i) all Tax Returns of or including any Company or
Benefit Plan for any Taxable Year (including any Short Taxable Year) the due
date (including extensions) for which is on or before the Closing Date, (ii) the
federal income Tax Returns of the Companies (e.g., Forms 1065 and separate Forms
1120 for inclusion in the consolidated federal income Tax Returns of the Seller
Group) for any Taxable Year - - (including any Short Taxable Year) ending on or
before the Closing Date, and (iii) all Tax Returns for any affiliated,
consolidated, combined, unitary or other group of which any Company is, was or
will be a member prior to the Closing Date (other than any Tax Return for a
Taxable Year ending after the Closing Date for such a group that consists solely
of two or more of the Companies). In addition to the Tax Returns that it is
required to file under the immediately preceding sentence, Seller may, on or
before the Closing Date, file any Tax Return of or including any Company for any
Taxable Year (including any Short Taxable Year) that ends on or before the
Closing Date.
(b) (i) AMSC shall be responsible for the preparation and
filing of all Tax Returns of the Companies that are due (including extensions)
after the Closing Date, other than (A) Tax Returns that Seller is required to
file under the first sentence of Section 8.3(a) and (B) Tax Returns that Seller
has filed on or before the Closing Date pursuant to the second sentence of
Section 8.3(a), provided, however, that AMSC shall have no obligation to prepare
any Tax Return for any affiliated, consolidated, unitary or other group of which
any Company is, was or will be a member prior to the Closing Date (other than
any Tax Return that is due (including extensions) after the Closing Date for
such a group that consists solely of two or more of the Companies).
(ii) At the Closing, Seller shall provide AMSC with a
list of all unfiled Tax Returns for or including any Company for Taxable Years
ending on or before the Closing Date.
(iii) If, pursuant to Section 8.7(a), Seller is liable
to indemnify AMSC for any Taxes shown on a Tax Return that AMSC is required to
file under Section 8.3(b)(i), AMSC shall use all commercially reasonable efforts
to provide Seller with a copy of any such Tax Return (along with a computation
of the amount of Tax shown on such Tax Return for which Seller is responsible) a
reasonable time prior to the filing thereof. AMSC shall use all commercially
reasonable efforts to provide any such income Tax Return at least sixty (60)
days prior to the due date thereof. AMSC will consider any suggestion made by
Seller with respect to the calculations and positions taken in such Tax Returns.
Failure by AMSC to comply with the provisions of this Section 8.3(b)(iii) will
in no way eliminate, limit or restrict Seller's indemnification obligations set
forth in Section 8.7.
(c) (i) Seller shall pay or cause to be paid (A) all Taxes
of the Companies or Taxes for which any Company may be liable that are due on or
before the Closing Date, and (B) the federal and State income Taxes of the
Companies for any Taxable Year (including any Short Taxable Year) ending on or
before the Closing Date.
(ii) No later than 180 days following the Closing Date,
AMSC shall provide to Seller a federal income Tax computation and related
schedules and data for each Company having a Short Taxable Year ending on the
Closing Date, which Tax computation shall be consistent with Tax Returns filed
for prior Taxable Years and shall reflect the income, gain or loss of such
Company for that Short Taxable Year other than any income, gain or loss arising
or resulting from any election described in Section 8.4.
(iii) Seller shall use all commercially reasonable
efforts to complete prior to the Closing Date all necessary federal income Tax
computations and related schedules and data for each Company for the Taxable
Years of the Companies ending on December 31, 1997. To the extent necessary for
Seller to complete such computations, schedules and data, AMSC shall allow
Seller and its agents reasonable access after the Closing Date to the books and
records of the Companies.
(iv) Except as provided in Section 8.3(c)(i), AMSC
shall pay or cause to be paid all Taxes of the Companies that are due after the
Closing Date.
(v) The provisions of this Section 8.3(c) shall not be
construed or applied to limit or broaden the indemnification obligations of
either Seller or AMSC under Section 8.7 except as specifically provided therein.
All Tax Returns and computations referred to in this Article 8 shall be prepared
in a manner consistent with prior Tax Returns, insofar as such Tax Returns and
computations referred to in this Article 8 relate solely to the Companies.
(d) AMSC and Seller shall use all commercially reasonable
efforts to provide each other with copies of Tax Returns (including amended Tax
Returns) of or including any Company to the extent any such Tax Returns are
relevant in determining either party's obligations under this Agreement,
including, but not limited to, the indemnification obligations in Section 8.7
and the procedural obligations in this Section 8.3. The provisions of this
Section 8.3 shall not be construed or applied to limit or broaden the
indemnification obligations of either Seller or AMSC under Section 8.7 except as
specifically provided therein.
(e) Seller and AMSC shall provide prior notice to, and
cooperate fully with, each other in connection with any audit examinations of
any Company by any governmental taxing authority with respect to any Taxes,
including but not limited to the furnishing or making available of records,
books of account or other materials reasonably necessary or helpful for the
defense against the assertions of any taxing authority as to any Taxes or
deficiencies thereof.
(f) Seller and AMSC shall cooperate with one another and
their respective representatives, in a prompt and timely manner, in connection
with the preparation, signing, and filing of, and any administrative or judicial
proceeding involving, any Tax Return filed or required to be filed by or for (i)
the Seller Group, any member thereof, or any Company for any Taxable Year
(including any Short Taxable Year) ending on or before the Closing Date, or (ii)
the AMSC Group, any member thereof, or any Company for any Taxable Year
(including any Short Taxable Year) ending after the Closing Date, with respect
to any item or issue affecting the property or operations of any Company. Such
cooperation shall include, but not be limited to, making available to the other
party, during normal business hours, all books, records (including, but not
limited to, working papers and schedules), information, officers and employees
(without substantial interruption of employment) reasonably requested and
necessary or useful in connection with any Tax inquiry, audit, investigation,
dispute, litigation or any other matter requiring any such books, records,
information, officers or employees for any reasonable business purpose.
Notwithstanding the foregoing, neither party shall be required to furnish to the
other Tax Returns or drafts thereof of the Seller Group, the AMSC Group, or any
affiliated, consolidated, combined, unitary or other group of which any Company
is, will be or was a member, as the case may be, for any Taxable Year, except
that each party shall furnish to the other the applicable portions of such Tax
Returns reporting the operations of the Companies and the applicable portions of
all reports relating to the examination by the IRS or any other federal, State
or local governmental agency. Any information obtained pursuant to this Article
8 shall be held in strict confidence and shall be used solely in connection with
the reason for which it was requested.
(g) As of the Closing Date, any and all Tax sharing or
allocation agreements shall terminate as between any Company, on the one hand,
and Seller or any Affiliates thereof, on the other hand, for all Taxes
regardless of the Taxable Year for which such Taxes are imposed, and the
provisions of this Agreement shall apply thereafter.
(h) (i) AMSC shall not, and shall not permit any other
person or entity to, dispose of or destroy any of the business records and files
of any Company in existence on the Closing Date relating to Taxes without first
offering to turn over possession thereof to Seller by written notice to Seller
at least 30 days prior to the proposed date of such disposition or destruction.
(ii) Seller shall not, and shall not permit any other
person or entity to, dispose of or destroy any business records and files
relating to Taxes of any Company now in the possession of, or subsequently
acquired by, either Seller, any member of the Seller Group or any Affiliate of
Seller without first offering to turn over possession thereof to AMSC by written
notice to AMSC at least 30 days prior to the proposed date of such disposition
or destruction.
Section 8.4 Asset Purchase Treatment for MAI Shares.
---------------------------------------
(a) (i) At the sole election of Purchaser, Purchaser and
Seller shall elect for federal Tax purposes to treat the purchase and sale of
the MAI Shares pursuant to this Agreement as a purchase and sale of the assets
of MAI in accordance with the provisions of Code Section 338 generally and Code
Section 338(h)(10) specifically. If an election is to be made as provided in the
preceding sentence, Purchaser and Seller agree to make timely all elections
necessary to carry out the provisions of this Section 8.4(a)(i) and to report
the purchase and sale of the MAI Shares consistent with the preceding sentence
and in accordance with the provisions of this Article 8.
(ii) If Purchaser and Seller make the election in
Section 8.4(a)(i), then Purchaser and Seller shall elect, for State income Tax
purposes, to treat the purchase and sale of the MAI Shares as a purchase and
sale of the assets of MAI to the extent permitted by applicable law. If an
election is to be made as provided in the preceding sentence, Purchaser and
Seller agree to make timely all elections necessary to carry out the provisions
of this Section 8.4(a)(ii) and to report the purchase and sale of the MAI Shares
consistent with the preceding sentence and in accordance with the provisions of
this Article 8. In any State(s) where it is unclear whether applicable law
permits the purchase and sale of the MAI Shares to be treated as a purchase and
sale of assets, Purchaser and Seller agree to treat the purchase and sale of the
MAI Shares as a purchase and sale of the assets of MAI provided that Seller and
Purchaser otherwise make the election described in Section 8.4(a)(i).
(iii) The provisions of Section 8.4(b), (c), (d) and
(e) below shall apply if Seller and Purchaser make an election described in
Section 8.4(a)(i) or (ii).
(b) Seller shall pay or otherwise be liable for (and shall
indemnify and hold harmless AMSC, its subsidiaries and the Companies against)
any and all Taxes and Other Tax Costs attributable to the recognition of income
by Seller or any Company (and Seller shall receive the tax benefit from any
loss) from the treatment of the purchase and sale of the MAI Shares as a
purchase and sale of the assets of MAI in accordance with the provisions of
Section 8.4(a).
(c) Purchaser and Seller hereby agree to determine the fair
market value of the assets, both tangible and intangible, of MAI (and of any
partnership Affiliates of MAI and MAA) (the "Assets") for purposes of allocating
the consideration to be paid for, and the amount realized on the sale of, the
Assets. This determination, which shall be binding upon Purchaser and Seller in
accordance with the provisions of Section 1060(a) of the Code, shall be made as
follows:
(i) No later than sixty (60) days (or such later date
as the parties mutually agree) following the Closing Date, Purchaser shall cause
an appraiser (the "Appraiser"), which shall be reasonably acceptable to Seller,
to provide to Purchaser and Seller an appraisal of the fair market valuations of
the Assets (the "Appraisal"). For purposes of this Section 8.4(c), the "fair
market value" of an Asset shall mean the amount a willing buyer would pay to a
willing seller for the actual property in question (and not calculated based
solely upon the replacement cost for such property) in an arm's length
transaction where each party to the transaction has full knowledge of all
relevant information concerning such property.
(ii) Each of Seller and Purchaser may provide the
Appraiser with such information as it believes will be useful to the Appraiser
in preparing the Appraisal. Copies of any written materials provided to the
Appraiser by either Seller or Purchaser shall simultaneously be provided to the
other party. All oral communication with the Appraiser shall be made through
Purchaser, which shall provide Seller with reasonable opportunities to speak and
meet with the Appraiser to express any views Seller reasonably believes are
pertinent to the preparation of the Appraisal.
(iii) Purchaser shall pay the basic fee of the
Appraiser as set at the time the Appraiser is initially engaged by Purchaser. To
the extent that any additional fees, costs or expenses are incurred as a result
of documents provided by Seller, communications initiated by Seller or meetings
held at Seller's request, Seller shall pay such fees, costs or expenses.
(iv) The fair market valuations of the Assets
determined by the Appraiser pursuant to this Section 8.4(c) shall be the fair
market valuations of the Assets for Tax purposes and shall be binding upon
Seller and Purchaser as provided in this Agreement.
(d) Neither Seller nor Purchaser nor any Affiliate of Seller or
Purchaser shall take a position in any Tax proceeding, Tax audit or otherwise
inconsistent with the fair market value determinations described in Section
8.4(c); provided, however, that (i) nothing contained herein shall require
Seller or Purchaser to contest any challenge to such determinations, and (ii)
nothing contained herein shall prevent Seller, Purchaser, or any of their
Affiliates from filing protective amended Tax Returns or claims for refunds
after a Tax authority has challenged such determinations. In the event that any
claim shall be made by any taxing authority against either Purchaser or any
Company (or any successor thereto), on the one hand, or Seller, on the other
hand, that, if successful, would have the effect of altering such fair market
value determinations, then the party that is the subject of such claim
("Involved Party") shall give notice thereof to the other party ("Other Party")
in writing within 30 business days thereof. Thereafter, except as provided in
the next sentence, the Involved Party shall have control of any contest relating
thereto, but the Involved Party shall consider in good faith any request or
suggestion by the Other Party for any conference, hearing or proceeding relating
to such contest, shall (to the extent it is feasible to do so) permit the Other
Party to participate therein at such Other Party's expense and shall not object
to such Other Party's submission of briefs and memoranda of law relating
thereto, and shall provide the Other Party with any relevant information
reasonably requested by such Other Party. Notwithstanding the provisions of the
preceding sentence, the Other Party shall have control of any contest relating
to the fair market valuations if the Involved Party has notified the Other Party
that the Other Party is obligated under the provisions of Section 8.7 to
indemnify the Involved Party for any Tax liability relating to the proposed
adjustments to the fair market valuations and the Other party shall have
provided to the Involved Party the written notice and acknowledgment of
financial responsibility referred to in the first sentence of Section 8.7(g).
(e) Purchaser and Seller each agrees to prepare and file all
Internal Revenue Service forms and the required schedules thereto and all
requisite State and local forms and schedules ("Forms") required to be filed by
either or both of them providing for the treatment of the purchase and sale of
the MAI Shares as purchases and sales of the Assets in accordance with the
provisions of Section 8.4(a). Purchaser shall request in writing from Seller, or
Seller shall request in writing from Purchaser, any information (reasonably
within the knowledge or possession of the person from whom requested) necessary
to complete the Forms, which information shall be provided no later than 30 days
following any such request. All such Forms shall be prepared consistent with the
fair market valuations of the Assets determined under Section 8.4(c), provided,
however, that Seller and Purchaser each recognize that appropriate adjustments
will be made for transaction and other costs and as required by any applicable
laws or regulations in determining the amount realized upon the disposition of
the Assets or the amount paid for the Assets.
Section 8.5 Tax-Free Reorganization Treatment for the MAA Merger.
----------------------------------------------------
Seller and AMSC agree that they intend that the Merger qualify as a tax-free
reorganization described in Section 368(a)(2)(E) of the Code, and Seller and
AMSC shall file all Tax Returns in a manner consistent with such treatment
(including satisfying all reporting requirements necessary to obtain such
treatment). Neither Seller nor AMSC nor any Affiliate of Seller or AMSC shall
take a position in any Tax proceeding, Tax audit or otherwise inconsistent with
the treatment of the Merger as a tax-free reorganization qualifying under
Section 368(a)(2)(E) of the Code; provided, however, that nothing contained
herein shall prevent Seller, AMSC, or any of their Affiliates from filing
protective amended Tax Returns or claims for refund after a Tax authority has
challenged such treatment.
Section 8.6 Transfer Taxes. Notwithstanding any other provision
--------------
in this Agreement, Seller and AMSC shall each be responsible for and pay
one-half of any transfer taxes, recording taxes, bulk sale taxes and similar
transaction taxes resulting from the transfer of the MAI Shares, the MAA Shares
or the deemed transfer of the equity interests in or the assets of any Company
as a result of the transactions contemplated by this Agreement. Each party
hereto hereby shall pay all such taxes and file all necessary documentation as
required under the applicable statutory provisions with respect to all such
taxes in a timely manner. Not later than fifteen (15) business days following
receipt of written notice from AMSC or Seller that it has paid any Taxes
described in this Section 8.6, the other party shall pay to the payor its
one-half share of such Taxes.
Section 8.7 General Tax Indemnifications.
----------------------------
(a) Seller shall indemnify and hold harmless AMSC and its
Affiliates (including the Companies) from and against any and all Taxes with
respect to which any Company or any entity as successor thereto may be liable to
the extent such Taxes are (i) attributable to any breach of any of Seller's
representations, warranties or covenants contained in this Article 8, (ii)
payable with respect to any Taxable Year ending on or prior to the Closing Date,
or (iii) payable with respect to that portion of any Split Period that is prior
to and including the Closing Date. Seller shall also indemnify and hold harmless
AMSC and its Affiliates (including the Companies) from and against (iv) any and
all Other Tax Costs relating to any Taxes described in this Section 8.7(a), and
(v) any and all Taxes and Other Tax Costs arising in any Taxable Year ending
after the Closing Date that result from any adjustment to any Tax Return of or
including the Company for any Taxable Year ending on or before the Closing Date,
provided, however, that the indemnification pursuant to this Section 8.7(a)(v)
shall not apply to the extent that such adjustment relates to whether any asset
is depreciable or amortizable, and further provided that any Tax or Other Tax
Cost indemnifiable under any other provision of this Article 8 shall not be
indemnifiable a second time under this Section 8.7(a)(v), and further provided
that any indemnification pursuant to this Section 8.7(a)(v) shall not apply to
any adjustment involving any agreement with a tax authority unless it has a
Material Adverse Effect on any Company (or any successor thereto).
Notwithstanding the preceding, Seller shall not be obligated to indemnify AMSC
or any of its Affiliates (including the Companies) for, in the case of taxes
described in clauses (ii), (iii), (iv) and (v), any Taxes that result from
AMSC's breach of any representation or warranty contained in this Article 8.
(b) AMSC shall indemnify and hold harmless Seller and its
Affiliates from and against any and all Taxes with respect to which Seller, any
of Seller's Affiliates, any Company or any entity as successor thereto may be
liable to the extent such Taxes are (i) attributable to any breach of any of
AMSC's representations or warranties contained in this Article 8, (ii) insofar
as they relate to any Company or any entity as successor thereto, payable with
respect to any Taxable Year beginning and ending after the Closing Date, or
(iii) insofar as they relate to any Company or any entity as successor thereto,
payable with respect to that portion of any Split Period that begins after the
Closing Date. AMSC shall also indemnify and hold harmless Seller and its
Affiliates from and against (iv) any and all Other Tax Costs relating to any
Taxes described in this Section 8.7(b). Notwithstanding the preceding, AMSC
shall not be obligated to indemnify Seller or any of its Affiliates for, in the
case of taxes described in clauses (ii), (iii) and (iv), any Taxes that result
from Seller's breach of any representation or warranty contained in this Article
8. For purposes of this Section 8.7(b), if AMSC's obligation to indemnify for
Taxes arises as a result of the Merger failing to qualify as a reorganization
under Section 368(a) of the Code, such obligation shall be limited to an amount
that reflects the value of the timing difference between (x) the year in which
such Taxes are actually payable and (y) the year or years in which Seller
disposes of the AMSC Common Stock received by Seller in the merger, adjusted to
take into account any Tax benefit Seller may realize from the early payment.
(c) If the Seller's indemnification obligation under this section
8.7 arises in respect of any adjustment (i) for which AMSC or any of its
Affiliates (including any of the Companies) receives indemnification from the
Seller and (ii) which results in any Tax benefit to AMSC or any Affiliate of
AMSC (including any of the Companies) thereof for any Taxable Year or Split
Period beginning after the Closing Date which would not, but for such
adjustment, be available, AMSC shall pay, or shall cause to be paid, to the
Seller an amount equal to the actual Tax saving produced by such Tax benefit at
the time such Tax saving is realized by AMSC or any of its Affiliates (including
any of the Companies). The amount of any such Tax saving for any Taxable period
shall be the amount of the reduction in Taxes payable to a taxing authority by
AMSC or any of its Affiliates (including any of the Companies) thereof with
respect to such Taxable Year or Split Period as compared to the Taxes that would
have been payable to a taxing authority by AMSC or any of its Affiliates
(including any of the Companies) with respect to such Taxable Year or Split
Period in the absence of such Tax benefit.
(d) For purposes of this Section 8.7, in the case of any Taxes
that are payable with respect to a Split Period, the portion of such Taxes
allocable to Seller or to the portion of the Split Period ending on the Closing
Date shall be equal to (i) in the case of Taxes imposed on the basis of income
or receipts, an amount determined on the basis of a closing of the books as of
the end of the Closing Date and (ii) in the case of any other Taxes, the product
of the total Taxes for the period multiplied by a fraction the numerator of
which is the number of days in the Split Period from the commencement of the
Split Period through and including the Closing Date and the denominator of which
is the number of days in the entire Split Period (provided, however, that for
purposes of this clause (ii) appropriate adjustments shall be made to reflect
specific events that can be identified and specifically allocated as occurring
on or prior to the Closing Date (in which case Seller shall be responsible for
any Taxes related thereto) or occurring after the Closing Date (in which case
AMSC shall be responsible for any Taxes related thereto)). Notwithstanding any
other provision in this Section 8.7(d), Section 8.2(a) or any other provision in
this Agreement, any income, gain, gross receipts, net receipts or similar Tax
item recognized by any Company as a result of any transaction described in
Section 5.17 shall be treated as recognized by such Company for all Tax purposes
exclusively in (x) Taxable Years ending on or prior to the Closing Date, and/or
(y) those portions of Split Periods that are prior to and including the Closing
Date.
(e) Seller or AMSC, as the case may be (the "Tax Indemnitee"),
shall notify the other party (the "Tax Indemnitor") in writing in a reasonably
prompt fashion of any written inquiries, notices of audit, assertions of
liability, or other written communications from or with a Tax authority that
relate to Taxes with respect to which the Tax Indemnitor may be liable under
this Article 8 (a "Tax Claim"). Failure by the Tax Indemnitee to notify the Tax
Indemnitor as required by this Sectio 8.7(e) shall not relieve the Tax
Indemnitor of its liability and obligation to indemnify the Tax Indemnitee under
this Agreement unless such failure precludes the Tax Indemnitor from contesting
the Taxes giving rise to its indemnification obligation and there is at least a
reasonable possibility that the Tax Indemnitor would have prevailed in
challenging such Taxes.
(f) Seller and AMSC shall take all reasonable steps and actions
necessary or appropriate to minimize any indemnification obligations either
party may have under this Section 8.7.
(g) Except as provided in the next sentence, within thirty (30)
days of receiving notice of a Tax Claim, the Tax Indemnitor, at its sole cost
and expense, may elect, by written notice to the Tax Indemnitee, to assume sole
responsibility for defending such Tax Claim, but only if, in such written notice
to the Tax Indemnitee, the Tax Indemnitor acknowledges full and complete
financial responsibility for all Taxes covered by such Tax Claim and all Other
Tax Costs related thereto. Notwithstanding the provisions of the preceding
sentence, Seller shall not have the rights to settle or litigate any Tax Claim,
or to control and determine the timing and amount of any payment or deposit of
an amount relating to any Tax Claim, the submission or content of documentation,
returns or other Tax forms, protests, memoranda of law and briefs, the conduct
of oral arguments or presentations, the selection of witnesses and the
negotiation of stipulations of fact with respect to any Taxable Year ending
after the Closing Date. If the Tax Indemnitor assumes responsibility for
defending a Tax Claim pursuant to this Section 8.7(g), it shall keep the Tax
Indemnitee reasonably informed of the status of such Tax Claim, and the Tax
Indemnitee and its representatives shall be entitled to attend any meetings or
hearings involving the Tax Claim at its own expense. If the Tax Indemnitor does
not elect to assume control of defending any Tax Claim, the Tax Indemnitee may
settle or defend such Tax Claim. In such a case, if the Tax Indemnitor is
responsible for the asserted Taxes under this Article 8, the Tax Indemnitor
shall indemnify the Tax Indemnitee for the reasonable cost of its defense, in
addition to the underlying Taxes.
(h) Any unresolved dispute relating to any payments or
indemnification obligations of either Seller or AMSC to the other pursuant to
the provisions of this Article 8 shall be submitted to an arbitrator mutually
acceptable to Seller and AMSC (or, if the parties are unable to agree upon an
arbitrator, to an arbitrator selected by the American Arbitration Association).
Any such arbitration shall be conducted in accordance with the rules of the
American Arbitration Association in effect at the time of the arbitration. Where
any dispute relates to a position to be taken on any Tax Return of or including
a Company, the parties shall use reasonable efforts to resolve the dispute
informally or pursuant to arbitration prior to filing such Tax Return. In the
event the parties are unable to resolve any dispute prior to filing a Tax
Return, the position taken on the Tax Return shall have no impact or influence
on the resolution of the underlying dispute, and in no way shall prejudice
either party's rights or obligations under this Article 8, nor shall any
resolution of any dispute have any impact on how a Tax Return must be filed. In
the event an indemnification dispute arises that is based on a disagreement as
to how a Tax Return of or including a Company should be filed, the
indemnification obligations of the indemnifying party under this Section 8.7
shall be determined consistent with the filing position advanced by such party
if such position is not inconsistent with prior Tax Returns and accounting
conventions and is proper and legal. If a Tax authority subsequently determines
that the position advanced by the indemnifying party is incorrect, the
indemnifying party's obligation to indemnify the other party shall be determined
consistent with the determination of the Tax authority.
(i) Notwithstanding Section 8.7(b), AMSC shall not be responsible
for, and Seller shall indemnify and hold harmless AMSC and its Affiliates
(including the Companies) from and against any and all Taxes or Other Tax Costs
with respect to which any Company or any entity as successor thereto may be
liable to the extent such Taxes arise in any Taxable Year ending after Closing
Date that result from any income, net receipts, gross receipts, gain or similar
items recognized by any Company as a result of the transactions contemplated in
Section 5.16.
(j) AMSC and Seller agree to cooperate in good faith in carrying
out the provisions of this Article 8.
(k) This Article 8 shall be construed and applied to avoid any
double counting of any payments, credits or other benefits with respect to any
representation, warranty, covenant or indemnity set forth herein.
Section 8.8 Exclusive Remedy for Taxes. Except as provided in
--------------------------
Section 7.3, this Article 8 provides the exclusive agreement between Seller,
AMSC and their respective Affiliates regarding responsibility for the Taxes of
the Companies.
Section 8.9 Survival and Purchase Price Adjustment.
--------------------------------------
(a) Notwithstanding any other provision of this Agreement,
the covenants, promises, indemnifications and other obligations of the parties
hereto set forth in this Article 8 shall survive the Closing until fully carried
out and the expiration of any applicable statute of limitations relating to the
Taxes covered thereby.
(b) In the event any payments are made to Seller pursuant to
the provisions of this Article 8, such payments are adjustments to the purchase
price paid for the MAI Shares as set forth in Section 2.2(B).
ARTICLE 9. TERMINATION OF AGREEMENT; PAYMENT OF
EXPENSES; WAIVER OF CONDITIONS
Section 9.1 Termination Pre-Closing. Anything herein to the
------------------------
contrary notwithstanding, this Agreement may be terminated at any time before
the Closing Date as follows (such date of termination being the "Termination
Date"), and in no other manner:
(a) Mutual Consent. By mutual written consent of Purchaser
---------------
and Seller.
(b) Expiration Date. By either Purchaser or Seller, if the
---------------
Closing shall not have occurred on or before June 30, 1998.
(c) Early Expiration Date. By Seller, if the Purchaser shall
---------------------
have not provided to Seller a waiver or evidence (satisfactory to Seller) of
satisfaction of the condition set forth in Section 6.1(l) on or prior to the
later of (i) 60 days after the end of the initial FCC comment period relating to
the transactions contemplated hereby, and (ii) 14 days after the FCC
Authorization, for any reason other than the breach or inaction of the party
seeking to exercise its termination rights under this Section 9.1.
(d) Prohibition. By written notice of either Seller or
-----------
Purchaser if there shall have been entered a Final Order or injunction of any
Governmental Entity restraining or prohibiting the consummation of the
transactions contemplated hereby, including but not limited to the failure of
the parties to obtain an FCC Authorization.
(e) Breach; Failure of Condition. Purchaser may terminate
------------------------------
this Agreement by giving written notice to Seller at any time prior to the
Closing in the event Seller is (and AMSC and Purchaser are not) in breach in any
material respect, and Seller may terminate this Agreement by giving written
notice to Purchaser at any time prior to the Closing in the event Purchaser or
AMSC is (and Seller is not) in breach in any material respect, of any
representation, warranty, or covenant contained in this Agreement and, in either
case, such breach has not been fully cured by the breaching party within 30 days
after written notice of such breach has been delivered to the breaching party by
the terminating party;
(f) Share Price. Seller may terminate this Agreement on the
-----------
Closing Date if the Market Value of a share of AMSC Common Stock calculated as
of the Closing Date has declined by more than 30% from the Market Value of a
share of AMSC Common Stock calculated as of the date hereof, after taking into
account all stock splits, reverse stock splits and similar adjustments to the
number of shares of AMSC Common Stock outstanding on the date hereof.
(g) FCC Final Order. Seller or Purchaser may terminate this
---------------
Agreement in the event that a Final Order of the FCC has not been received when,
under the terms of the Escrow Agreement, any period of time applicable to the
Escrowed Funds has expired thereby causing a return of the Escrowed Funds, by
providing notice to such other party within 30 Business Days of such expiration.
In the event a termination occurs pursuant to this Section 9.1(g):
(i) Purchaser shall return the Shares to Seller;
(ii) Seller shall return to Purchaser the AMSC Common
Stock issued to Seller for the MAA Shares pursuant to the terms of Section
2.1(a); and
(iii) each of the parties shall have only those rights
and obligations held by such party prior to the Closing Date.
Section 9.2 Termination Post-Closing. In the event that the
-------------------------
Closing proceeds upon receipt of an FCC Authorization that is not a Final Order,
and an adverse Final Order of the FCC is received that will not permit Purchaser
to operate MAA, MAI and the Subsidiaries as contemplated, Purchaser may
terminate this Agreement by providing notice to Seller within 30 Business Days
of receipt of the adverse Final Order of the FCC. In the event that a
termination occurs pursuant to this Section 9.2:
(a) the Escrow Agent shall return the MAI Purchase Price to
the Purchaser;
(b) Purchaser shall return the Shares to Seller;
(c) Seller shall return to Purchaser the AMSC Common Stock
issued to Seller for the MAA Shares pursuant to the terms of Section 2.1(a); and
(d) each parties shall have only those rights and
obligations held by such party prior to the Closing Date.
Section 9.3 Payment of Expenses; Waiver of Conditions. (a) Except
------------------------------------------
as set forth in Section 9.3(b), in the event that this Agreement shall be
terminated pursuant to this Article 9, all obligations of the parties hereto
under this Agreement shall terminate and there shall be no liability of any
party to any other party hereto and each party hereto will pay all costs and
expenses incident to its negotiation and preparation of this Agreement and to
its performance of and compliance with all agreements and conditions contained
herein on its part to be performed or complied with, including the fees,
expenses and disbursements of its counsel, its auditors and its actuaries;
provided, however, that if this Agreement shall be terminated pursuant to
Section 9.1(b), such termination shall not release any party hereto from any
liability that such party may have for any breach occurring prior to the
Termination Date of any representation, warranty or covenant made by such party
in this Agreement.
(b) In the event this Agreement is terminated pursuant to
Section 9.1(c), then Seller shall be entitled to be reimbursed by Purchaser for
its expenses incurred in connection with the negotiation and execution of and
otherwise in connection with this Agreement which expenses shall be deemed to be
equal to $4,000,000 in immediately available funds, which funds shall be
delivered to Seller not later than two days after the Termination Date.
ARTICLE 10. MISCELLANEOUS
Section 10.1 Amendments. Subject to applicable law, this
----------
Agreement and any exhibit or schedule attached hereto may be amended at any time
prior to the Closing Date by an instrument in writing duly signed by or on
behalf of each of the parties hereto.
Section 10.2 Further Instruments and Assurances. At or prior to
----------------------------------
and after the Closing, each party shall from time to time, at the request of any
other party and without further cost or expense to such other party, execute and
deliver such other instruments and take such other actions as shall be
reasonably required by any other party in order to carry out the transactions,
agreements and covenants contained in or contemplated by this Agreement.
Section 10.3 Public Announcements. Press releases and other public
--------------------
communications of any sort relating to this Agreement or the transactions
contemplated hereby shall be subject to the prior written consent of all parties
to this Agreement as to the contents of any such public disclosure, such consent
not being unreasonably withheld, conditioned or delayed; provided, however, each
party hereto shall be entitled to make any disclosure as is required under
applicable law, subpoena or final, nonappealable court order, in the reasonable
judgment of such disclosing party.
Section 10.4 Governing Law. THIS AGREEMENT AND THE LEGAL RELATIONS
--------------
BETWEEN THE PARTIES SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE
LAWS OF THE STATE OF NEW YORK, WITHOUT REFERENCE TO THE CONFLICTS OF LAWS
PROVISIONS THEREOF.
Section 10.5 Notices. All communications under this Agreement shall
-------
be in writing and shall be deemed to have been duly given (i) on the date of
receipt if served personally or by confirmed facsimile or other similar
communication, (ii) on the first day after sending if sent for guaranteed next
day delivery by a next-day courier service or (iii) on the fourth Business Day
after mailing if mailed to the party or parties to whom notice is to be given by
registered or certified mail, return receipt requested, postage prepaid, and
properly addressed as follows:
If to Purchaser:
American Mobile Satellite Corporation
10802 Parkridge Boulevard
Reston, Virginia 20191-5416
Attention: General Counsel
Facsimile: (703) 758-6134
and
American Mobile Satellite Corporation
10802 Parkridge Boulevard
Reston, Virginia 20191-5416
Attention: Chief Executive Officer
Facsimile: (703) 758-6106
With a copy to:
Arnold & Porter
555 12th Street, N.W.
Washington, D.C. 20004
Attention: Samuel A. Flax, Esq.
Facsimile: (202) 942-5999
If to Seller:
Motorola, Inc.
1303 East Algonquin Road
Schaumburg, Illinois 60196
Attention: General Counsel
Facsimile: (847) 576-3628
With a copy to:
Kirkland & Ellis
200 East Randolph Drive
Chicago, Illinois 60601
Attention: Mark B. Tresnowski
Facsimile: (312) 861-2200
Any party may change its address for purposes of this Section 10.5 by giving the
other parties hereto notice of the new address in the manner set forth above.
Section 10.6 Assignment and Binding Effect. This Agreement may
------------------------------
not be assigned by any party hereto without the prior written consent of the
other parties. Subject to the foregoing, all of the terms and provisions of this
Agreement shall be binding upon and inure to the benefit of and be enforceable
by the successors and assigns of the parties hereto.
Section 10.7 Entire Agreement. This Agreement, the exhibits and
----------------
schedules hereto, the Disclosure Schedule dated as of even date herewith, and
other documents delivered pursuant hereto, referred to herein or executed and
delivered in connection with the transactions contemplated hereby, contain the
entire agreement among Purchaser, Seller, MAA and MAI with respect to the
transactions contemplated herein and, except as provided herein, supersede all
previous negotiations, commitments and writings.
Section 10.8 Severability. Whenever possible, each provision of
------------
this Agreement will be interpreted in such manner as to be effective and valid
under applicable law, but if any provision of this Agreement is held to be
prohibited by or invalid under applicable law, such provision will be
ineffective only to the extent of such prohibition or invalidity, without
invalidating the remainder of such provision or the remaining provisions of this
Agreement.
Section 10.9 Counterparts. This Agreement may be executed and
------------
delivered in two or more counterparts, each of which shall be deemed an
original.
Section 10.10 No Third Party Beneficiaries. Nothing in this
-------------------------------
Agreement is intended to confer any rights or remedies, whether express or
implied, under or by reason of this Agreement, on any persons other than the
parties hereto and their respective successors and assigns, nor is anything in
this Agreement intended to relieve or discharge the obligation or liability of
any third persons to any party to this Agreement. Notwithstanding the preceding,
any other provision herein or in any Collateral Agreement, Purchaser and AMSC
shall be entitled to assign this Agreement, to third party lenders as collateral
for their loans from such entities.
Section 10.11 Delays or Omissions. No delay or omission to exercise
-------------------
any right, power or remedy accruing to Purchaser, AMSC or Seller upon any breach
or default of Purchaser, AMSC or Seller, respectively, under this Agreement,
shall impair any such right, power or remedy of such party nor shall it be
construed to be a waiver of any such breach or default, or an acquiescence
therein, or in any similar breach or default thereafter occurring; nor shall any
waiver of any single breach or default be deemed a waiver of any other breach or
default theretofore or thereafter occurring.
Section 10.12 Construction. This Agreement is to be deemed to
------------
have been prepared jointly by the parties hereto after arms length negotiations,
and any uncertainty or ambiguity existing herein shall not be interpreted
against any party, but according to the application of the rules of
interpretation of contracts.
Section 10.13 Knowledge Standard. The term "knowledge," "best of
------------------
knowledge," "know" and any similar term when used with respect to Seller, MAA or
MAI means actual (and not constructive) knowledge of any director, officer or
employee of Seller or an Affiliate of Seller, including but not limited to MAA,
MAI and the Subsidiaries.
Section 10.14 Expenses. Except as otherwise provided herein, all
--------
costs, fees and expenses incurred in connection with this Agreement shall be
paid by the party incurring such cost, fee or expense, except that filing fees
related to the FCC Consents shall be shared jointly by Seller and Purchaser. All
costs and expenses of MAA, MAI and the Subsidiaries associated with the
negotiation, execution, delivery and consummation of the Agreement shall be
deemed to be the responsibility of Seller and at or before the Closing Sellers
shall reimburse MAA, MAI and the Subsidiaries therefor.
<PAGE>
IN WITNESS WHEREOF, each of Seller, MAA, MAI, AMSC and Purchaser
has caused this Agreement to be duly executed on its behalf, as of the day and
year first above written.
MOTOROLA, INC.
By:/s/James G. Roseland
-----------------
Name: James G. Roseland
-----------------
Title: Vice President
--------------
MOTOROLA ARDIS ACQUISITION, INC.
By:/s/James G. Roseland
-----------------
Name: James G. Roseland
-----------------
Title: Vice President
--------------
MOTOROLA ARDIS, INC.
By:/s/Theodore W. Schaffner
---------------------
Name: Theodore W. Schaffner
---------------------
Title: Corporate Vice President
and Director of Business
Development
--------------------------
AMERICAN MOBILE SATELLITE CORPORATION
By:/s/Gary M. Parsons
---------------
Name: Gary M. Parsons
---------------
Title: CEO and President
-----------------
<PAGE>
AMSC ACQUISITION COMPANY, INC.
By:/s/Gary M. Parsons
---------------
Name: Gary M. Parsons
---------------
Title: CEO and President
-----------------
<PAGE>
EXHIBIT A
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR ANY STATE SECURITIES LAWS AND MAY NOT BE TRANSFERRED OR SOLD EXCEPT
IN COMPLIANCE THEREWITH OR PURSUANT TO AN EXEMPTION THEREFROM.
AMERICAN MOBILE SATELLITE CORPORATION
Warrant for the Purchase of Shares of
Common Stock of American Mobile Satellite Corporation
No. ___ Warrant to Purchase
____________ Shares
FOR VALUE RECEIVED, AMERICAN MOBILE SATELLITE CORPORATION, a
Delaware corporation (the "Company"), hereby certifies that MOTOROLA, INC., its
successor or permitted assigns (the "Holder"), is entitled, subject to the
provisions of this Warrant, to purchase from the Company, at the times specified
herein, _______________ (___________) (the "Warrant Share Amount") fully paid
and non-assessable shares of Common Stock of the Company, par value $.01 per
share (the "Common Stock"), at a purchase price per share equal to the Exercise
Price (as hereinafter defined). The Warrant Share Amount and the Exercise Price
are subject to adjustment from time to time as hereinafter set forth.
1. DEFINITIONS. The following terms, as used herein, have
the following meanings:
"Accepted Alien Ownership Percentage Limitation" means 24.99% or,
in the event of a modification of the Alien Ownership Restrictions subsequent to
the date hereof, such percentage limitation upon the Company's Alien ownership
as may
<PAGE>
be in effect from time to time as a result of such modification, less 0.01%.
"Alien" means any alien or a representative thereof, or a foreign
-----
government or a representative thereof, or a corporation or other entity
organized under the laws of any foreign government.
"Alien Ownership Percentage" means, with respect to any Person, the
--------------------------
percentage of total ownership in such Person owned of record, as well as the
percentage of total ownership in such Person voted, by Aliens; provided, that if
under the Alien Ownership Restrictions such Person would be deemed to have a
percentage of total ownership owned of record or voted by Aliens other than the
actual percentage so owned or voted, then such Person's Alien Ownership
Percentage shall be such deemed percentage.
"Alien Ownership Restrictions" means Section 310(b) of the
-------------------------------
Communications Act, as modified by any interpretation, ruling or order of the
Federal Communications Commission (or any successor agency) applicable to the
Company or any of its subsidiaries.
"AMSC" means AMSC Acquisition Company, Inc., a Delaware corporation
----
and a wholly-owned subsidiary of the Company.
"Board of Directors" means the Board of Directors of the Company.
------------------
"Business Day" means any day except a Saturday, Sunday or other day
------------
on which commercial banks in the City of New York are authorized by law to
close.
"Closing Price" has the meaning set forth in Section 10.D.
-------------
"Common Stock" has the meaning set forth in the preamble hereof.
------------
"Communications Act" means the Communications Act of 1934, as
-------------------
amended, or any successor statute.
"Company" has the meaning set forth in the preamble hereof.
-------
"Constituent Person" has the meaning set forth in Section 11.
------------------
"Current Market Price Per Common Share" has the meaning set forth
--------------------------------------
in Section 10.D.
"Exercise Date" means the applicable date of exercise of this
--------------
Warrant, as indicated on the Warrant Exercise Notice delivered by the Holder.
"Exercise Price" means initially $0.01 per Warrant Share, as
---------------
adjusted from time to time.
"Exercising Holder" has the meaning set forth in Section 3.A.
-----------------
"Expiration Date" means ______ __, 200_, at 5:00 p.m. New York City
---------------
time.
"FCC" means the Federal Communications Commission, or such
---
successor agency of the Federal government with responsibility for administering
the Communications Act.
"MAA" means Motorola ARDIS Acquisition, Inc.
---
"MAI" means Motorola ARDIS, Inc.
---
"NASDAQ" means the National Market of the National Association of
------
Securities Dealers, Inc. Automated Quotation System.
"NASD Limit" has the meaning set forth in Section 4.
----------
"NYSE" means the New York Stock Exchange Inc.
----
"Non-Electing Share" has the meaning set forth in Section 11.
------------------
"Person" means an individual, corporation, partnership, limited
------
liability company, association, trust or any other entity or organization
including a government or political subdivision or an agency or instrumentality
thereof.
"Registration Rights Agreement" has the meaning set forth in
-------------------------------
Section 16.
"Securities Act" means the Securities Act of 1933, as amended, and
--------------
the rules and regulations promulgated thereunder.
"Stock Purchase Agreement" means the Stock Purchase Agreement by
-------------------------
and among the Company, AMSC, the Holder, MAA and MAI, dated as of December ___,
1998.
"Warrant Exercise Notice" means the Warrant Exercise Notice forming
-----------------------
a part hereof.
"Warrant Margin" means, on any date, the difference of (x) the
---------------
greater of (A) the average of the Closing Prices (as defined in Section 10.D) on
each of the 20 trading days immediately preceding such date and (B) the Closing
Price [on the trading days] prior to the such date, minus (y) the Exercise
Price.
"Warrant Share Amount" has the meaning set forth in the preamble
---------------------
hereof.
"Warrant Shares" means the shares of Common Stock deliverable upon
--------------
exercise of this Warrant, as adjusted from time to time.
2. EXERCISE OF WARRANT.
A. Subject to Section 15 hereof, the Holder is entitled to
exercise this Warrant in whole or in part at any time, or from time to time, to
and including the Expiration Date or, if such day is not a Business Day, then on
the next succeeding day that shall be a Business Day. To exercise this Warrant,
the Holder shall execute and deliver to the Company at its address set forth in
Section 12 hereof a Warrant Exercise Notice substantially in the form annexed
hereto and shall deliver to the Company (x) this Warrant, including the Warrant
Exercise Subscription Form forming a part hereof duly executed by the Holder,
and (y) subject to Section 2.B, payment of the Exercise Price then in effect for
such Warrant Shares. Upon such delivery and payment, the Holder shall be deemed
to be the holder of record of the Warrant Shares subject to such exercise,
notwithstanding that the stock transfer books of the Company shall then be
closed or that certificates representing such Warrant Shares shalL not then be
actually delivered to the Holder.
B. The Exercise Price may be paid in cash or by certified or
official bank check or bank cashier's check payable to the order of the Company
or by wire transfer of immediately available funds to an account designated by
the Company or by cancellation of indebtedness owed to the Holder or by any
combination of such methods. In the alternative, the Holder may exercise its
right to receive Warrant Shares (i) on a net basis, such that, without the
exchange of any funds, the Holder will receive that number of Warrant Shares
(and such other consideration) otherwise issuable (or payable) upon exercise of
this Warrant less that number of Warrant Shares having an aggregate Current
Market Price Per Common Share on the Exercise Date equal to the aggregate
Exercise Price that would otherwise have been paid by the Holder for the Warrant
Shares or (ii) delivery to the Company, together with appropriate stock powers,
of certificates evidencing shares of Common Stock having an aggregate Current
Market Price Per Common Share on the Exercise Date of not less than the
aggregate Exercise Price. The Company shall pay any and all documentary, stamp
or similar issue or transfer taxes payable in respect of the issue or delivery
of this Warrant and the issue and delivery of the Warrant Shares.
C. If the Holder exercises this Warrant in part, this
Warrant shall be surrendered by the Holder to the Company and a new Warrant of
the same tenor and for the unexercised number of Warrant Shares shall be
executed by the Company. The Company shall register the new Warrant in the name
of the Holder or in such name or names of its transferee(s) pursuant to Section
8 hereof as may be directed in writing by the Holder and deliver the new Warrant
to the Person or Persons entitled to receive the same.
D. Except as otherwise provided in Section 3, upon surrender
of this Warrant in conformity with the foregoing provisions, the Company shall
transfer to the Holder of this Warrant appropriate evidence of ownership of the
shares of Common Stock or other securities or property (including any money) to
which the Holder is entitled, registered or otherwise placed in, or payable to
the order of, the name or names of the Holder or its transferee(s) as may be
directed in writing by the Holder, and shall deliver such evidence of ownership
and any other securities or property (including any money) to the Person or
Persons entitled to receive the same, together with an amount in cash in lieu of
any fraction of a share as provided in Section 7 below.
3. OWNERSHIP LIMITATION. If at any time the exercise of any
Warrants pursuant to Section 2 would cause the Company's Alien Ownership
Percentage to exceed the Accepted Alien Ownership Percentage Limitation, then in
lieu of issuing shares of Common Stock pursuant to Section 2:
A. the Company shall issue to each Holder exercising
Warrants at such time (each an "Exercising Holder") whose Alien
------------------
Ownership Percentage is less than or equal to the Accepted Alien
Ownership Percentage Limitation the number of shares of Common
Stock to which such Exercising Holder is entitled pursuant to
Section 2;
B. the Company shall issue to each Exercising Holder whose
Alien Ownership Percentage is greater than the Accepted Alien
Ownership Percentage Limitation (each, an "Affected Exercising
Holder") a number of shares of Common Stock equal to the quotient
of (x) the product of (A) the number of shares of Common Stock
that, immediately after giving effect to any issuances of Common
Stock pursuant to the foregoing Section 3.A, could be issued to a
Person with a 100% Alien Ownership Percentage without causing the
Company's Alien Ownership Percentage to exceed the Accepted Alien
Ownership Percentage Limitation, multiplied by (B) the number of
shares of Common Stock to which such Affected Exercising Holder
would be entitled pursuant to Section 2 but for the application
of this Section 3, divided by (y) the product of (A) the
aggregate number of shares of Common Stock to which all Affected
Exercising Holders would be entitled pursuant to Section 2 but
for the application o this Section 3, multiplied by (B) such
Affected Exercising Holder's Alien Ownership Percentage; provided
that in no event shall the number of shares of Common Stock
issuable to any Affected Exercising Holder pursuant to this
Section 3.B exceed the number of shares of Common Stock to which
such Affected Exercising Holder would have been entitled pursuant
to Section 2 but for the application of this Section 3; and
C. the Company shall deliver by wire transfer of immediately
available funds to the account of each Affected Exercising Holder
specified in such Affected Exercising Holder's Warrant Exercise
Notice, an amount equal to the product of (x) the number of
shares of Common Stock to which such Affected Exercising Holder
would have been entitled pursuant to Section 2 that are not
issuable to such Affected Exercising Holder pursuant to the
foregoing Section 3.B, multiplied by (y) the Warrant Margin on
the Exercise Date.
4. RESTRICTIVE LEGEND. Upon original issuance thereof, and
until such time at the same shall have been registered under the Securities Act
or sold pursuant to Rule 144 promulgated thereunder (or any similar rule or
regulation), each Warrant and any certificates evidencing Warrant Shares shall
bear a legend substantially in the form of the legend set forth on the first
page hereof, unless in the opinion of counsel reasonably satisfactory to the
Company, such legend is no longer required by the Securities Act.
5. RESERVATION OF SHARES. The Company hereby agrees that at
all times it shall reserve for issuance and delivery upon exercise of this
Warrant such number of its authorized but unissued shares of Common Stock as
will be sufficient to permit the exercise in full of this Warrant. All such
shares shall be duly authorized and, when issued upon such exercise, shall be
validly issued, fully paid and non-assessable, free and clear of all liens,
security interests, charges and other encumbrances or restrictions on sale
(other than general regulatory restrictions under the Communications Act) and
free and clear of all preemptive rights.
6. FRACTIONAL SHARES. No fractional shares or scrip
representing fractional shares shall be issued upon the exercise of this Warrant
and in lieu of delivery of any such fractional share upon any exercise hereof,
the Company shall pay to the Holder an amount in cash equal to such fraction
multiplied by the Current Market Price Per Common Share on the Exercise Date.
7. EXCHANGE, TRANSFER OR ASSIGNMENT OF WARRANT.
A. The Company shall from time to time register the exchange
or transfer of any outstanding Warrant in a Warrant register to
be maintained by the Company upon surrender thereof accompanied
by a written instrument or instruments of transfer in form
satisfactory to the Company, duly executed by the registered
Holder or Holders thereof or by the duly appointed legal
representative thereof or by a duly authorized attorney. Each
taker and holder of this Warrant by taking or holding the same,
consents and agrees that the registered holder hereof may be
treated by the Company and all other Persons dealing with this
Warrant as the absolute owner hereof for any purpose and as the
Person entitled to exercise the rights represented hereby.
B. Prior to any proposed transfer of the Warrants or the
Warrant Shares, unless such transfer is made pursuant to an
effective registration statement under the Securities Act the
Holder will deliver to the Company, if so requested by the
Company, an opinion of counsel reasonably satisfactory in form
and substance to the Company, to the effect that the Warrants or
Warrant Shares, as applicable, may be sold or otherwise
transferred without registration under the Securities Act.
Subject to the preceding sentence, the Holder of this Warrant
shall be entitled, without obtaining the consent of the Company,
to assign and transfer this Warrant, at any time in whole or from
time to time in part, to any Person or Persons. Subject to the
foregoing, upon surrender of this Warrant to the Company,
together with the attached Warrant Assignment Form duly executed,
the Company shall, without charge, execute and deliver a new
Warrant in the name of the assignee or assignees named in such
instrument of assignment and, if the Holder's entire interest is
not being assigned, in the name of the Holder, and this Warrant
shall promptly be cancelled.
8. LOSS OR DESTRUCTION OF WARRANT. Upon receipt by the
Company of evidence satisfactory to it (in the exercise of its reasonable
discretion) of the loss, theft, destruction or mutilation of this Warrant, and
(if requested by the Company in the case of loss, theft or destruction) of
reasonably satisfactory indemnification, and upon surrender and cancellation of
this Warrant, if mutilated, the Company shall execute and deliver a new Warrant
of like tenor and date representing the right to purchase an equivalent number
of Warrant Shares.
9. ANTI-DILUTION PROVISIONS.
A. In case the Company shall at any time after the date
hereof (i) declare a dividend or make a distribution on Common
Stock payable in Common Stock or other shares of the Company's
capital stock, (ii) subdivide, split or reclassify the
outstanding Common Stock into a larger number of shares, (iii)
combine or reclassify the outstanding Common Stock into a smaller
number of shares, or (iv) issue any shares of its capital stock
in a reclassification of Common Stock (including any such
reclassification in connection with a consolidation or merger in
which the Company is the continuing corporation), then in each
such case the Warrant Share Amount shall be adjusted to equal the
number of shares to which the holder of this Warrant would have
been entitled upon the occurrence of such event if this Warrant
had been exercised immediately prior to such time. Such
adjustment shall be made successively whenever any event listed
above shall occur.
B. In case the Company shall fix a record date for the
making of a distribution to holders of Common Stock (including
any such distribution made in connection with a consolidation or
merger in which the Company is the continuing corporation) of
evidences of indebtedness, assets or other property (excluding
cash dividends, other cash distributions from current or retained
earnings or dividends payable in Common Stock for which an
adjustment has been made pursuant to Section 9.A), the Warrant
Share Amount to be in effect after such record date shall be
determined by multiplying the Warrant Share Amount in effect
immediately prior to such record date by a fraction, the
numerator of which shall be the Current Market Price Per Common
Share, and the denominator of which shall be such Current Market
Price Per Common Share on such record date, less the fair market
value (determined by the Board of Directors of the Company;
provided that if the Holder shall object to any such
determination, the Board of Directors shall retain an independent
appraiser reasonably satisfactory to the Holder to determine such
fair market value) of the portion of the assets, other property
or evidence of indebtedness so to be distributed which is
applicable to one share of Common Stock. Such adjustments shall
be made successively whenever such a record date is fixed; and in
the event that such distribution is not so made, the Warrant
Share Amount shall again be adjusted to be the Warrant Share
Amount which would then be in effect if such record date had not
been fixed.
C. If as a result of any event or for any other reason, any
adjustment is made which increases the number of shares of Common
Stock issuable upon conversion, exercise or exchange of, or in
the conversion or exercise price or exchange ratio applicable to,
any outstanding securities of the Company that are convertible
into, or exercisable or exchangeable for, Common Stock of the
Company, then a corresponding adjustment shall be made hereunder
to increase the Warrant Share Amount, but only to the extent that
no such adjustment has been made pursuant to Section 9.A or B
hereof with respect to such event or for such other reason.
D. For the purpose of any computation under Section 3 or
Section 9.B hereof, on any determination date the "Current Market
--------------
Price Per Common Share" shall be deemed to be the average
-------------------------
(weighted by daily trading volume) of the Closing Prices (as
defined below) per share of Common Stock for the 20 consecutive
trading days immediately prior to such date. "Closing Price"
means (1) if shares of Common Stock then are listed and traded on
the NYSE, the closing price on such day as
reported, on the NYSE Composite Transactions Tape; (2) if shares
of Common Stock then are not listed and traded on the NYSE, the
closing price on such day as reported by the principal national
securities exchange on which the shares are listed and traded;
(3) if shares of Common Stock then are not listed and traded on
any such securities exchange, the last reported sale price on
such day on the NASDAQ; or (4) if shares of Common Stock then are
not traded on the NASDAQ National Market, the average of the
highest reported bid and lowest reported asked price on such day
as reported by NASDAQ. If on any determination date shares of
Common Stock are not quoted by any such organization, the Current
Market Price Per Common Share shall be the fair market value of
such shares on such determination date as reasonably determined
by the Board of Directors. If the Holder shall object to any
determination by the Board of Directors of the Current Market
Price Per Common Share, the Current Market Price Per Common Share
shall be the fair market value per share of Common Stock as
determined by an independent appraiser retained by the Company at
its expense and reasonably acceptable to the Holder. For purposes
of any computation under this Section 9, the number of shares of
Common Stock outstanding at any given time shall not include
shares owned or held by or for the account of the Company.
E. No adjustment in the Warrant Share Amount or the Exercise
Price shall be required unless such adjustment would require an
increase or decrease of at least one percent of such amount;
provided that any adjustments which by reason of this Section 9.F
are not required to be made shall be carried forward and taken
into account in any subsequent adjustment. All calculations under
this Section 9 shall be made to the nearest one tenth of a cent
or to the nearest hundredth of a share as the case may be.
G. In the event that, at any time as a result of the
provisions of this Section 9, the holder of this Warrant upon
subsequent exercise shall become entitled to receive any shares
of capital stock of the Company other than Common Stock, the
number of such other shares so receivable upon exercise of this
Warrant shall thereafter be subject to adjustment from time to
time in a manner and on terms as nearly equivalent as practicable
to the provisions contained herein.
H. Upon any adjustment pursuant to this Section 9, the
Company shall promptly thereafter (i) cause to be filed with the
Company a certificate of an officer of the Company setting forth
the Warrant Share Amount and Exercise Price after such adjustment
and setting forth in reasonable detail the method of calculation
and the facts upon which such calculations are based, and (ii)
cause to be given to each registered Holder of this Warrant at
the address as set forth in Section 11 written notice of such
adjustments. Where appropriate, such notice may be given in
advance and included as a part of the notice required to be
delivered pursuant to Section 12.B.
10. REORGANIZATION, CONSOLIDATION, MERGER, OR SALE OF
ASSETS. In case of any reclassification, redesignation, reorganization of
recapitalization by the Company (other than as set forth in Section 9) or
consolidation of the Company with, or merger of the Company into, any other
Person, any merger of another Person into the Company (other than a merger which
does not result in any reclassification, conversion, exchange or cancellation of
outstanding shares of Common Stock) or any sale or transfer of all substantially
all of the assets of the Company or of the Person formed by such consolidation
or resulting from such merger or which acquires such assets, as the case may be,
the Holder shall have the right thereafter to exercise this Warrant for the kind
and amount of securities, cash and other property receivable upon such
reclassification, redesignation, reorganization, recapitalization,
consolidation, merger, sale or transfer by a holder of the number of shares of
Common Stock for which this Warrant may have been exercised in full immediately
prior to such reclassification, redesignation, reorganization, recapitalization,
consolidation, merger, sale or transfer, assuming (i) such holder of Common
Stock is not a Person with which the Company consolidated or into which the
Company merged or which merged into the Company or to which such sale or
transfer was made, as the case may be ("Constituent Person"), or an Affiliate of
a Constituent Person and (ii) in the case of a consolidation, merger, sale or
transfer which includes an election as to the consideration to be received by
the holders, such holder of Common Stock failed to exercise its rights of
election, as to the kind or amount of securities, cash and other property
receivable upon such consolidation, merger, sale or transfer (provided that if
the kind or amount of securities, cash and other property receivable upon such
consolidation, merger, sale or transfer is not the same for each share of Common
Stock held immediately prior to such consolidation, merger, sale or transfer by
other than a Constituent Person or an Affiliate thereof and in respect of which
such rights of election shall not have been exercised ("Non-electing share"),
then for the purpose of this Section 10 the kind and amount of securities, cash
and other property receivable upon such consolidation, merger, sale or transfer
by each Non-electing share shall be deemed to be the kind and amount so
receivable per share by a plurality of the Non-electing shares. Adjustments for
events subsequent to the effective date of such reclassification, redesignation,
reorganization, recapitalization, consolidation, merger and sale of assets shall
be as nearly equivalent as may be practicable to the adjustments provided for in
this Warrant. In any such event, effective provisions shall be made in the
certificate or articles of incorporation of the resulting or surviving
corporation, in any contract of sale, conveyance, lease or transfer, or
otherwise so that the provision set forth herein for the protection of the
rights of the Holder shall thereafter continue to be applicable; and any such
resulting or surviving corporation shall expressly assume the obligation to
deliver, upon exercise, such shares of stock, other securities, cash and
property. The provisions of this Section 11 shall similarly apply to successive
consolidations, mergers, sales, leases or transfers.
11. NOTICES. Any notice, demand or delivery authorized or
required by this Warrant shall be in writing and shall be given to the Holder or
the Company, as the case may be, at its address (or telecopier number) set forth
below, or such other address (or telecopier number) as shall have been furnished
to the party giving or making such notice, demand or delivery:
If to the Company:
American Mobile Satellite Corporation
10802 Parkridge Blvd.
Reston, VA 22091
Telecopy: (703) 758-6134
Attention: Randy Segal,
General Counsel
With a copy to:
Arnold & Porter
555 - 12th Street, N.W.
Washington, D.C. 20004
Telecopy: (202) 942-5999
Attention: Samuel A. Flax, Esq.
If to the Holder:
Motorola, Inc.
Law Department, IL01/11
1303 E. Algonquin Road
Schaumburg, IL 60196
Telecopy: (847) 576-3628
Attention: Linda Valentine,
Corporate Vice President and General Counsel
With a copy to:
Kirkland & Ellis
200 E. Randolph Avenue
Chicago, IL 60601
Telecopy: (312) 861-2200
Attention: Mark Tresnowski, Esq.
Each such notice, demand or delivery shall be effective (i) if given by
telecopy, when such telecopy is transmitted to the telecopy number specified
herein and the intended recipient confirms the receipt of such telecopy or (ii)
if given by any other means, when received at the address specified herein.
12. NOTICES TO WARRANT HOLDERS.
A. The Company shall provide to the Holder, at its address
and in the manner set forth in Section 12, a notice of expiration
of this Warrant not less than 90 nor more than 120 days prior to
the Expiration Date.
B. In the event:
(a) the Company shall authorize the issuance to holders
of shares of Common Stock of rights, options or warrants to
subscribe for or purchase shares of Common Stock or of any
other subscription rights or warrants; or
(b) the Company shall authorize the distribution to
holders of shares of Common Stock of assets, including cash,
evidences of its indebtedness, or other securities; or
(c) of any reorganization, consolidation or merger to
which the Company is a party and for which approval of any
shareholders of the Company is required, or of the
conveyance or transfer of the properties and assets of the
Company substantially as an entirety, or of any
reclassification or change of Common Stock issuable upon
exercise of the Warrants, or a tender offer or exchange
offer for shares of Common Stock; or
(d) of the voluntary or involuntary dissolution,
liquidation or winding up of the Company; or
- 2 -
(e) the Company proposes to take any action that would
require an adjustment to the Warrant Share Amount or the
Exercise Price pursuant to Section 10 hereof;
then the Company shall cause to be given to the registered Holder of this
Warrant, at least 20 days prior to the applicable record date hereinafter
specified, or 20 days prior to the date of the event in the case of events for
which there is no record date a written notice stating (i) the date as of which
the holders of record of shares of Common Stock entitled to receive any such
rights, options, warrants or distribution are to be determined, or (ii) the
initial expiration date set forth in any tender offer or exchange offer for
shares of Common Stock, or (iii) the date on which any such reorganization,
reclassification, consolidation, merger, conveyance, transfer, dissolution,
liquidation or winding up is expected to become effective or consummated, and
the date as of which it is expected that holders of record of shares of Common
Stock shall be entitled to exchange such shares for securities or other
property, if any, deliverable upon such reorganization, reclassification,
consolidation, merger, conveyance, transfer, dissolution, liquidation or winding
up. The failure to give the notice required by this Section 13.B or any defect
therein shall not affect the legality or validity of any distribution, right,
option, warrant, consolidation, merger, conveyance, transfer, dissolution,
liquidation or winding up, or the vote upon any action.
13. RIGHTS OF THE HOLDER. Prior to the exercise of any
Warrant, the Holder shall not, by virtue hereof, be entitled to any rights of a
stockholder of the Company, including, without limitation, the right to vote, to
receive dividends or other distributions, to exercise any preemptive right or to
receive any notice of meetings of stockholders or any notice of any proceedings
of the Company except as may be specifically provided for herein. Nothing
contained herein shall impose any obligation on the Holder to purchase any
securities or impose any liabilities on such Holder as a stockholder of the
Company, whether such obligation or liabilities are asserted by the Company or
by creditors of the Company.
14. LIMITATION ON EXERCISE OF WARRANT; CANCELLATION OF
WARRANTS. Notwithstanding anything to the contrary in this Warrant, this Warrant
shall be exercisable at any given time only for the number of Warrant Shares
which is equal to the applicable Warrant Share Amount as in effect from time to
time.
15. REGISTRATION RIGHTS. The Holder of this Warrant is
entitled to certain registration rights with respect to the Warrant Shares
issuable upon the exercise thereof. Said registration rights are set forth in a
Registration Rights Agreement dated as of December __, 1997, by and among the
Company and the Holder (the "Registration Rights Agreement"). By acceptance of
this Warrant, the Holder hereof agrees that upon exercise of this Warrant, in
whole or in part, such Holder will be bound by the Registration Rights Agreement
as a holder of Registrable Securities thereunder. The Company agrees that upon
transfer of this Warrant, in whole or in part, pursuant to Section 7 hereof, the
transferee shall be entitled to become a party to the Registration Rights
Agreement if not already a party thereto. A copy of the Registration Rights
Agreement may be obtained by the Holder hereof upon written request to the
Company.
16. GOVERNING LAW AND WAIVER OF JURY TRIAL. THIS
WARRANT AND ALL RIGHTS ARISING HEREUNDER SHALL BE CONSTRUED AND DETERMINED IN
ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF NEW YORK, AND THE PERFORMANCE
THEREOF SHALL BE GOVERNED AND ENFORCED IN ACCORDANCE WITH SUCH LAWS. THE PARTIES
HERETO IRREVOCABLY WAIVE ANY RIGHT TO A JURY TRIAL WITH RESPECT TO ANY ACTION OR
PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT.
17. AMENDMENTS; WAIVERS. Any provision of this Warrant
may be amended or waived if, and only if, such amendment or waiver is in writing
and signed, in the case of an amendment, by the Holder and the Company, or in
the case of a waiver, by the party against whom the waiver is to be effective.
No failure or delay by either party in exercising any right, power or privilege
hereunder operate as a waiver thereof or shall any single or partial exercise
thereof preclude any other or further exercise thereof or the exercise of any
other right, power of privilege. The rights and remedies herein provided shall
be cumulative and not exclusive of any rights or remedies provided by law.
18. COUNTERPARTS. This Warrant may be executed in any
number of counterparts, each of which shall be deemed to be an original and all
of which together shall constitute one and the same instrument.
19. FCC COMPLIANCE. Notwithstanding any provisions of
this Warrant to the contrary, in the event that the consent of the FCC to the
exercise of this Warrant is required to be obtained prior to such exercise, this
Warrant shall not be exercisable unless and until such FCC consent shall have
been obtained. In the event that this Warrant is intended to be exercised and
such FCC consent is required to be obtained, the Company and the Holder shall
use commercially reasonable efforts to obtain such FCC consent promptly.
(signature page follows)
<PAGE>
- 3 -
IN WITNESS WHEREOF, the Company has duly caused this Warrant to be
signed by its duly authorized officer and to be dated as of ________ __, 1998.
AMERICAN MOBILE SATELLITE
CORPORATION
By:____________________________
Name:
Title:
Acknowledged and Agreed:
MOTOROLA, INC.
By:__________________________
Name:
Title:
<PAGE>
- 4 -
WARRANT EXERCISE NOTICE
(To be delivered prior to exercise of the Warrant
by execution of the Warrant Exercise Subscription Form)
To: American Mobile Satellite Corporation
10802 Parkridge Blvd.
Reston, VA 22091
The undersigned hereby notifies you of its intention to exercise
the Warrant to purchase shares of Common Stock, par value $.01 per share, of
American Mobile Satellite Corporation. The undersigned intends to exercise the
Warrant to purchase ______________ shares (the "Shares") at $0.01 per Share (the
"Exercise Price") [pursuant to the [net exercise] [delivery of Common Stock]
---------------
provision of Section 2.B of the Warrant]. [The undersigned intends to pay the
aggregate Exercise Price for the Share in cash, certified or official bank or
bank cashier's check or by wire transfer of immediately available funds to an
account to designated by the Company or by cancellation of indebtedness owed to
the Holder (or a combination of such methods) as indicated below.]
The undersigned hereby certifies that to the best of its knowledge
its Alien Ownership Percentage as of the date hereof is ___________.
Date: ________________________
-----------------------------
(Signature of Owner)
------------------------------
(Street Address)
------------------------------
(City) (State) (Zip Code)
Payment: $_____________ cash
$_____________ check
$_____________ wire transfer
$_____________ cancellation of indebtedness
[Wire Transfer Instructions, if required pursuant to Section 3 or 4 of the
Warrant: _______________________]
<PAGE>
- 5 -
WARRANT EXERCISE SUBSCRIPTION FORM
(To be executed only upon exercise of the Warrant
after delivery of Warrant Exercise Notice)
To: American Mobile Satellite Corporation
10802 Parkridge Blvd.
Reston, VA 22091
The undersigned irrevocably exercises the Warrant for the purchase
of _______________________ shares (the "Shares") of Common Stock, par value $.01
per share, of American Mobile Satellite Corporation (the "Company") at $____ per
Share (the "Exercise Price") and [herewith makes payment of $____________, such
payment being made in cash or by certified or official bank or bank cashier's
check payable to the order of the Company or by wire transfer or by cancellation
of indebtedness owed to the Holder or any combination of such methods] [the
undersigned Holder is exercising the Warrant pursuant to the [net exercise]
[delivery of shares of Common Stock] provision of Section 2.B of the Warrant],
all on the terms and conditions specified in the Warrant, surrenders this
Warrant and all right, title and interest therein to the Company and directs
that the Shares deliverable upon the exercise of this Warrant be registered or
placed in the name and at the address specified below and delivered thereto. If
said number of Shares is less than all of the shares of Common Stock for which
the Warrant is exercisable, the undersigned requests that a new Warrant
representing the remaining balance of such shares be registered in the name of
the undersigned or nominee hereinafter set forth, and further that such
certificate be delivered to the undersigned at the address hereinafter set forth
or to such other person or entity as is hereinafter set forth.
Date:__________________________
-----------------------------
(Signature of Owner)
------------------------------
(Street Address)
------------------------------
(City) (State) (Zip Code)
<PAGE>
- 6 -
Securities and/or check to be issued to:
Please insert social security or identifying
number:_______________________________________________
Name: _______________________________________________
Street Address: _____________________________________
City, State and Zip Code: ___________________________
Any unexercised portion of the Warrant evidenced by the [within] Warrant to be
issued to:
Please insert social security or identifying
number:_______________________________________________
Name: _______________________________________________
Street Address: _____________________________________
City, State and Zip Code: ___________________________
<PAGE>
- 7 -
WARRANT ASSIGNMENT FORM
Dated:____________
FOR VALUE RECEIVED, _____________________________ hereby sells,
assigns and transfers unto ____________________________________________________
(the "Assignee") (please type or print in block letters),
(insert Assignee's address)
--------------------------------------------------------
(insert Assignee's social security and taxpayer ID number)
its right to purchase up to ____ shares of Common Stock represented by this
Warrant and does hereby irrevocably constitute and appoint ____________
Attorney, to transfer the same on the books of the Company, with full power of
substitution in the premises.
----------------------------
Signature
Signature Guarantee:
<PAGE>
Exhibit 10.66
Participation Rights Agreement
THIS PARTICIPATION RIGHTS AGREEMENT (this "Agreement") is made
as of December 31, 1997, by and among Motorola, Inc., a Delaware corporation
(the "Investor"), American Mobile Satellite Corporation, a Delaware corporation
(the "Company"), and the parties listed on Schedule A attached hereto (the
"Stockholders").
American Mobile Satellite Corporation, a Delaware corporation,
the Investor and certain others are parties to a Stock Purchase Agreement dated
as of December 31, 1997 (the "Purchase Agreement"). In order to induce the
Investor to enter into the Purchase Agreement, the Stockholders have agreed to
the provisions set forth in this Agreement. Unless otherwise provided in this
Agreement, capitalized terms used herein shall have the meanings set forth in
Section 5 hereof.
The parties hereto agree as follows:
1. Investor Participation Rights. At any time after the
Closing Date and prior to the date on which the Investor beneficially owns less
than 5% of the Common Stock on a fully-diluted basis:
(a) At least 30 days prior to any transfer, assignment or any
other disposition of Stockholder Shares (other than a transfer (i) to the public
pursuant to Rule 144 under the Securities Act (or any similar rule then in
force) or (ii) in other sales through a broker or dealer in the public stock
market over an exchange or the Nasdaq Stock Market (a "Transfer"), the
transferring Stockholder (the "Transferring Stockholder") shall deliver a
written notice (the "Sale Notice") to the Investor, specifying in reasonable
detail the identity of the prospective transferee(s), the number of Stockholder
Shares to be transferred and the terms and conditions of the Transfer (including
the proposed price at which the Stockholder Shares is to be transferred). The
Investor may elect to participate in the contemplated Transfer by delivering
written notice of such election to the Transferring Stockholder within 30 days
after delivery of the Sale Notice. If the Investor elects to participate in such
Transfer, each of the Transferring Stockholder and the Investor shall be
entitled to sell in the contemplated Transfer, at the same price and on the same
terms, a number of Stockholder Shares equal to the product of (A) the quotient
determined by dividing the number of Stockholder Shares owned by such Person by
the aggregate number of Stockholder Shares owned by the Transferring Stockholder
and the Investor and (B) the number of Stockholder Shares to be sold in the
contemplated Transfer.
For example (by way of illustration only), if the Sale Notice
contemplated a sale of 100 shares of Common Stock by the Transferring
Stockholder, and if the Transferring Stockholder at such time owns
shares which constitute 30% of all Common Stock which are Stockholder
Shares and if the Investor elects to participate in such Transfer and
the Investor owns shares of Common Stock which constitutes 10% of all
of the Common Stock which are Stockholder Shares, the Transferring
Stockholder would be entitled to sell 75 shares of Common Stock (30% /
40% x 100 shares) and the Investor would be entitled to sell 25 shares
of Common Stock (10% / 40% x 100 shares).
<PAGE>
(b) The Transferring Stockholder will use its best efforts to
obtain the agreement of the prospective transferee(s) to the participation of
the Investor in any contemplated Transfer, and the Transferring Stockholder will
not Transfer any of its Stockholder Shares to the prospective transferee(s)
unless (i) simultaneously with such Transfer, the prospective transferee(s)
purchases from the Investor at the same price and on the same terms, the number
of Stockholder Shares which it is entitled to sell to such prospective
transferee pursuant to Section 1 above or (ii) simultaneously with such
Transfer, the Transferring Stockholder purchases the number of Stockholder
Shares from the Investor at the same price and on the same terms which the
Investor would have been entitled to sell pursuant to Section 1 above.
2. Shareholder Participation Rights. At any time after the
Closing Date and prior to the date on which the Investor beneficially owns less
than 5% of the Common Stock on a fully-diluted basis:
(a) At least 30 days prior to any transfer, assignment or any
other disposition of Stockholder Shares by the Investor (other than a transfer
(i) to the public pursuant to Rule 144 under the Securities Act (or any similar
rule then in force) or (ii) in other sales through a broker or dealer in the
public stock market over an exchange or the Nasdaq Stock Market) (a "Transfer"),
the Investor shall deliver a written notice (the "Sale Notice") to the
Stockholders, specifying in reasonable detail the identity of the prospective
transferee(s), the number of Stockholder Shares to be transferred and the terms
and conditions of the Transfer (including the proposed price at which the
Stockholder Shares is to be transferred). The Stockholders may elect, pro rata
based on the number of Stockholder Shares owned by them, to participate in the
contemplated Transfer by delivering written notice of such election to the
Investor within 30 days after delivery of the Sale Notice. If any Stockholder
elects to participate in such Transfer, the Investor and each such electing
Stockholder (an "Electing Stockholder") shall be entitled to sell in the
contemplated Transfer, at the same price and on the same terms, a number of
Stockholder Shares equal to the product of (A) the quotient determined by
dividing the number of Stockholder Shares owned by such Person by the aggregate
number of Stockholder Shares owned by the Electing Stockholders and the Investor
and (B) the number of Stockholder Shares to be sold in the contemplated
Transfer.
For example (by way of illustration only), if the Sale Notice
contemplated a sale of 100 shares of Common Stock by the Investor, and
if the Investor at such time owns shares which constitute 30% of all
Common Stock which are Stockholder Shares and if Electing Stockholders
elect to participate in such Transfer and the Electing Stockholders own
shares of Common Stock which constitutes 10% of all of the Common Stock
which are Stockholder Shares, the Investor would be entitled to sell 75
shares of Common Stock (30% / 40% x 100 shares) and the Electing
Stockholders would be entitled to sell 25 shares of Common Stock (10% /
40% x 100 shares).
- 2 -
<PAGE>
(b) The Investor will use its best efforts to obtain the
agreement of the prospective transferee(s) to the participation of the Electing
Stockholders in any contemplated Transfer, and the Investor will not Transfer
any of its Stockholder Shares to the prospective transferee(s) unless (i)
simultaneously with such Transfer, the prospective transferee(s) purchases from
the Electing Stockholders at the same price and on the same terms, the number of
Stockholder Shares which they are entitled to sell to such prospective
transferee pursuant to Section 2 above or (ii) simultaneously with such
Transfer, the Investor will purchase the number of Stockholder Shares from the
Electing Stockholders at the same price and on the same terms which the Electing
Stockholders would have been entitled to sell pursuant to Section 2 above.
3. Agreement to Vote for Transaction. Each Stockholder agrees
that it shall vote all of its Stockholder Shares in favor of and take such other
action as may be necessary to approve, and hereby consents to the Company
entering into, all of the transactions contemplated by the Purchase Agreement,
including the issuance of shares of Common Stock to the Investor.
4. Registration Rights Agreement. Pursuant to the Purchase
Agreement, the Company shall provide the Investor with certain registration
rights under a registration rights agreement substantially in the form of
Schedule B attached hereto (the "Registration Rights Agreement"). Each
Stockholder agrees and acknowledges that pursuant to the Registration Rights
Agreement, the Company shall provide the Investor with Demand Registrations and
Piggyback Registrations (each as defined in the Registration Rights Agreement),
for which the Investor shall have a priority of sale of its Registrable
Securities (as defined in the Registration Rights Agreement) over all other
unregistered securities held by any other stockholder of the Company. Each
Stockholder agrees to subordinate any registration rights granted with respect
to the unregistered securities of the Company owned by it (including any
unregistered securities it may acquire in the future), to the Investor under the
Registration Rights Agreement, and agrees that it shall be bound by Sections
1(b) and 2(c) therein until the end of the 42nd month after the month in which
the Closing under the Purchase Agreement occurs (the "Subordination Termination
Date"). After the Subordination Termination Date, the Investor and the
Stockholders will be pari passu with respect to the priority of sale in any
piggyback registration rights granted to such parties as set forth in the
Registration Rights Agreement.
5. Definitions.
(a) "Common Stock" means the Common Stock, par value $.01
------------
per share, of the Company.
(b) "Stockholder Shares" means (i) any shares of Common Stock
-------------------
issued to the Stockholders and the Investor (including shares issuable upon the
exercise of any AMSC Warrants) and (ii) any equity securities issued or issuable
directly or indirectly with respect to the Common Stock referred to in clause
(i) above (including by way of stock dividend or stock split or in connection
with a combination of shares, recapitalization, merger, consolidation or other
reorganization). As to any particular shares constituting Stockholder Shares,
such shares will cease to be Stockholder Shares when they have been (x)
effectively registered under the Securities Act and disposed of in accordance
with the registration statement covering them, or (y) sold to the public through
a broker, dealer or market maker pursuant to Rule 144 (or by similar provision
then in force) under the Securities Act.
- 3 -
<PAGE>
(c) Unless otherwise stated, other capitalized terms contained
herein have the meanings set forth in the Purchase Agreement.
6. Miscellaneous.
(a) Entire Agreement; No Inconsistent Agreements. This
Agreement contains the entire agreement between the parties hereto with respect
to the transactions contemplated herein and supersede all previous negotiations,
commitments and writings. The Company shall not hereafter enter into any
agreement with respect to its securities which is inconsistent with or violates
the rights granted to the Investor in this Agreement.
(b) Remedies. Any Person having rights under any provision of
this Agreement shall be entitled to enforce such rights specifically to recover
damages caused by reason of any breach of any provision of this Agreement and to
exercise all other rights granted by law. The parties hereto agree and
acknowledge that money damages may not be an adequate remedy for any breach of
the provisions of this Agreement and that any party may in its sole discretion
apply to any court of law or equity of competent jurisdiction (without posting
any bond or other security) for specific performance and for other injunctive
relief in order to enforce or prevent violation of the provisions of this
Agreement.
(c) Amendments and Waivers. Except as otherwise provided
herein, the provisions of this Agreement may be amended or waived only upon the
prior written consent of the Investor and the Stockholders.
(d) Successors and Assigns. All covenants and agreements in
this Agreement by or on behalf of any of the parties hereto shall bind and inure
to the benefit of the respective successors and assigns of the parties hereto
whether so expressed or not. In addition, whether or not any express assignment
has been made, the provisions of this Agreement which are for the benefit of
purchasers or holders of the Investor's Stockholder Shares are also for the
benefit of, and enforceable by, any subsequent holder of such shares.
(e) Severability. Whenever possible, each provision of this
Agreement shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement is held to be invalid,
illegal or unenforceable in any respect under any applicable law or rule in any
jurisdiction, such invalidity, illegality or unenforceability shall not affect
any other provision or the effectiveness or validity of any provision in any
other jurisdiction, and this Agreement shall be reformed, construed and enforced
in such jurisdiction as if such invalid, illegal or unenforceable provision had
never been contained herein.
(f) Counterparts. This Agreement may be executed
simultaneously in two or more counterparts (including by means of telecopied
signature pages), any one of which need not contain the signatures of more than
one party, but all such counterparts taken together shall constitute one and the
same Agreement.
(g) Descriptive Headings. The descriptive headings of this
Agreement are inserted for convenience only and do not constitute a part of this
Agreement.
- 4 -
<PAGE>
(h) Governing Law. THIS AGREEMENT AND THE EXHIBITS AND
SCHEDULES HERETO SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE
LAWS OF THE STATE OF NEW YORK, WITHOUT GIVING EFFECT TO ANY CHOICE OF LAW OR
CONFLICT OF LAW RULES OR PROVISIONS (WHETHER OF THE STATE OF NEW YORK OR ANY
OTHER JURISDICTION) THAT WOULD CAUSE THE APPLICATION OF THE LAWS OF ANY
JURISDICTION OTHER THAN THE STATE OF NEW YORK.
(i) Notices. All notices, demands or other communications to
be given or delivered under or by reason of the provisions of this Agreement
shall be in writing and shall be deemed to have been given when (i) delivered
personally to the recipient, (ii) sent to the recipient by reputable overnight
courier service (charges prepaid), (iii) sent by facsimile transmission, when
transmitted and receipt is confirmed or (iv) mailed to the recipient by
certified or registered mail, return receipt requested and postage prepaid. Such
notices, demands and other communications shall be sent to the Stockholders at
their respective addresses listed on Schedule A attached hereto and to the
Investor at the address indicated below:
To the Investor:
Motorola, Inc.
1303 East Algonquin Road
Schaumburg, Illinois 60196
Attn: General Counsel
Facsimile: (847) 576-3628
With a copy (which will not constitute notice) to:
Kirkland & Ellis
200 East Randolph Drive
Chicago, Illinois 60601
Attn: Mark B. Tresnowski, Esq.
Facsimile: (312) 861-2200
To the Company:
American Mobile Satellite Corporation
10802 Parkridge Boulevard
Reston, Virginia 20191-5416
Attn: General Counsel
Facsimile: (703) 758-6134
- 5 -
<PAGE>
With a copy (which will not constitute notice) to:
Arnold & Porter
555 12th Street, N.W.
Washington, D.C. 20004
Attn: Samuel A. Flax, Esq.
Facsimile: (202) 942-5999
or to such other address or to the attention of such other person as the
recipient party has specified by prior written notice to the sending party.
* * * * *
- 6 -
<PAGE>
IN WITNESS WHEREOF, the parties have duly executed this
Participation Rights Agreement as of the date first written above.
MOTOROLA, INC., SATELLITE MOBILE TELEPHONE
a Delaware corporation COMPANY, L.P.
By:/s/Julie A. Welch By:/s/Douglas I. Brandon
Name: Julie A. Welch Name: Douglas I. Brandon
Its: Senior Operations Controller Its: VP - External Affairs & Law
HUGHES COMMUNICATIONS TRANSIT COMMUNICATIONS, INC.
SATELLITE SERVICES, INC.
By:/s/Amnon Carr By:/s/Douglas I. Brandon
Name: Amnon Carr Name: Douglas I. Brandon
Its: Assistant Treasurer, Its: VP - External Affairs & Law
Hughes Electronics
SATELLITE COMMUNICATIONS SINGAPORE
INVESTMENTS CORPORATION TELECOMMUNICATIONS LTD.
By:/s/Douglas I. Brandon By:/s/Yap Chee Keong
Name: Douglas I. Brandon Name: Yap Chee Keong
Its: VP - External Affairs & Law Its: Group Financial Controller
SPACE TECHNOLOGIES AMERICAN MOBILE SATELLITE
INVESTMENTS, INC. CORPORATION
By:/s/Douglas I. Brandon By:/s/Gary M. Parsons
Name: Douglas I. Brandon Name: Gary M. Parsons
Its: VP - External Affairs & Law Its: Chief Executive Officer and
President
- 7 -
<PAGE>
[Continuation of Signature Page
to Participation Rights Agreement]
Solely with respect to its Warrants:
BARON CAPITAL PARTNERS, L.P.
By: Baron Capital Management, Inc.,
a General Partnership
By:/s/Morty Schaja
------------
Name: Morty Schaja
------------
Its: S.V.P.
------
For purposes of Sections 3 of the Participation Rights Agreement only:
BARON CAPITAL MANAGEMENT,
INC.
By:/s/Morty Schaja
------------
Name: Morty Schaja
------------
Its: S.V.P.
------
BAMCO, INC.
By:/s/Morty Schaja
------------
Name: Morty Schaja
------------
Its: S.V.P.
------
<PAGE>
Schedule A
Hughes Communications Satellite Services, Inc.
1500 Hughes Way
Long Beach, California 90810
Space Technologies Investments, Inc.
1150 Connecticut Avenue, N.W.
4th Floor
Washington, D.C. 20036
Satellite Communications Investments Corporation
1150 Connecticut Avenue, N.W.
4th Floor
Washington, D.C. 20036
Satellite Mobile Telephone Company, L.P.
1150 Connecticut Avenue, N.W.
4th Floor
Washington, D.C. 20036
Transit Communications, Inc.
1150 Connecticut Avenue, N.W.
4th Floor
Washington, D.C. 20036
Singapore Telecommunications Ltd.
31C Exeter Road
#03-00 Comcentre III
Singapore 239734
Republic of Singapore
Baron Capital Management, Inc.
767 Fifth Avenue
24th Floor
New York, New York 10153
BAMCO, Inc.
767 Fifth Avenue
24th Floor
New York, New York 10153
<PAGE>
EXHIBIT 11.1
AMERICAN MOBILE SATELLITE CORPORATION
COMPUTATIONS OF EARNINGS PER COMMON SHARE
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------
<S> <C> <C> <C>
1997 1996 1995
---- ---- ----
BASIC EARNINGS PER SHARE CALCULATION
- ------------------------------------
Net Loss ($119,207) ($134,638) ($66,917)
========== ========== =========
Net Loss per common share ($4.74) ($5.38) ($2.69)
======= ======= =======
Weighted-average common shares outstanding 25,131 25,041 24,900
======= ====== ======
DILUTED EARNINGS PER SHARE CALCULATION
- --------------------------------------
Net Loss (1) ($119,207) ($129,244) ($66,917)
========== ========== =========
Net Loss per common share ($4.73) ($5.13) ($2.65)
======= ======= =======
Weighted-average common shares outstanding (2) 25,197 25,179 25,278
====== ====== ======
(1) Calculated as follows: 1997 1996 1995
---- ---- ----
Primary net loss ($119,207) ($134,638) ($66,917)
Amortization of debt discount -- 2,253 --
Interest on convertible debt -- 3,141 --
---------- ---------- ---------
($119,207) ($129,244) ($66,917)
========== ========== =========
(2) Calculated as follows:
Historical weighted average number of shares 25,131 25,041 24,900
Assumed exercise of stock options 2 63 92
Assumed exercise of stock purchase 64 75 286
---------- -------- --------
warrants
25,197 25,179 25,278
====== ====== =======
</TABLE>
<PAGE>
EXHIBIT 21.1
SUBSIDIARIES OF AMERICAN MOBILE SATELLITE CORPORATION
Name Location of Incorporation
American Mobile Radio Corporation State of Delaware
AMRC Holdings, Inc. State of Delaware
AMSC Acquisition Company, Inc. State of Delaware
AMSC Sales Corporation, Ltd. Territory of the Virgin Islands
American Mobile Satellite Sales Corporation State of Delaware
AMSC Subsidiary Corporation State of Delaware and
Commonwealth of Virginia
Personal Communications Satellite Corporation State of Delaware
AMSC ARDIS Acquisition, Inc. State of Delaware
AMSC ARDIS, Inc. State of Delaware
Radio Data Network Holding Corporation State of New York
ARDIS Company New York General Partnership
ARDIS Holding Company New York Limited Partnership
Exhibit 23.1
------------
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation by
reference of our reports dated March 31, 1998, included in this Form 10-K into
American Mobile Satellite Corporation's previously filed Registration Statements
on Form S-8 File Nos. 33-72852, 33-34250, 33-91714 and 333-30099.
March 31, 1998 /s/Arthur Andersen LLP
<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 year
ended December 31, 1997, and is qualified in its entirety by reference to
such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<EXCHANGE-RATE> 1
<CASH> 2,106
<SECURITIES> 0
<RECEIVABLES> 4,564
<ALLOWANCES> 1,930
<INVENTORY> 40,321
<CURRENT-ASSETS> 64,739
<PP&E> 233,174
<DEPRECIATION> 104,916
<TOTAL-ASSETS> 311,447
<CURRENT-LIABILITIES> 59,433
<BONDS> 218,563
0
0
<COMMON> 252
<OTHER-SE> 46,131
<TOTAL-LIABILITY-AND-EQUITY> 311,447
<SALES> 23,530
<TOTAL-REVENUES> 44,214
<CGS> 40,335
<TOTAL-COSTS> 99,179
<OTHER-EXPENSES> 42,430
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 21,633
<INCOME-PRETAX> (119,207)
<INCOME-TAX> 0
<INCOME-CONTINUING> (119,207)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (119,207)
<EPS-PRIMARY> (4.74)
<EPS-DILUTED> (4.73)
</TABLE>
