As filed with the Securities and Exchange Commission on August 3, 1999
Registration No. 333-______
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM S-3
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
-------------------
AMERICAN MOBILE SATELLITE CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 93-0976127
(State or other jurisdiction (I.R.S. Employee Identification Number)
of incorporation or organization)
10802 Parkridge Blvd.
Reston, Virginia 20191-5416
(703) 758-6000
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
Randy S. Segal
Senior Vice President, General
Counsel and Secretary
American Mobile Satellite Corporation
10802 Parkridge Blvd.
Reston, Virginia 20191-5416
(703) 758-6130
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
Approximate date of commencement of proposed sale to the public: From time to
time after the effective date of this Registration Statement.
If the only securities being registered on this Form are being offered pursuant
to dividend or interest reinvestment plans, please check the following box.---
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933 (as defined below), other than securities offered only in connection with
dividend or interest reinvestment plans, check the following box. X
---
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, please check the following box and list
the Securities Act registration statement number of the earlier effective
registration statement for the same offering.--- --------------
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering.---
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box.---
<PAGE>
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
Proposed
Title of each class maximum Proposed
of offering price maximum
securities to be Amount to be per aggregate Amount of
registered registered (1) share offering Registration fee
price
<S> <C> <C> <C> <C>
Common Stock,
$0.01 par value per
share 8,614,244 $18.75(2) $161,517,075(2) $44,901.75
</TABLE>
(1) Represents shares of Common Stock that may be sold by certain stockholders
of the Company.
(2) Estimated in accordance with Rule 457(c) under the Securities Act solely
for the purpose of computing the amount of the registration fee.
The registrant hereby amends this registration statement on such date or dates
as may be necessary to delay its effective date until the registrant shall file
a further amendment which specifically states that this registration statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act or until this registration statement shall become effective on
such date as the Securities and Exchange Commission, acting pursuant to said
Section 8(a), may determine.
================================================================================
<PAGE>
The information in this prospectus is not complete and may be changed. We may
not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. The prospectus is not an offer
to sell these securities and it is not soliciting an offer to buy these
securities in any state where the offer or sale is not permitted.
Subject to Completion, Dated August 3, 1999
Prospectus
AMERICAN MOBILE SATELLITE CORPORATION
8,614,244 Shares of Common Stock
The persons listed in this Prospectus under "Selling Stockholders" may
offer and sell from time to time up to a total of 8,614,244 shares of common
stock of American Mobile Satellite Corporation. We issued the shares being
offered under this Prospectus in private transactions to XM Ventures, a Maryland
Trust. This Prospectus covers sales of shares by XM Ventures. In addition, XM
Ventures may distribute shares it owns to the people who own shares of, or
options, warrants or other rights to purchase shares of, common stock of
WorldSpace, Inc. which is the beneficiary of XM Ventures. If XM Ventures makes
such a distribution, we will supplement this Prospectus to name any additional
selling stockholders.
We will not receive any proceeds from the sale of the shares by the selling
stockholders named in this Prospectus.
Our common stock is listed on the Nasdaq Stock Market's National Market and
traded under the symbol "SKYC."
------------------
See "Risk Factors" beginning on page 3 for a discussion of certain material
factors that you should consider in connection with an investment in our common
stock.
------------------
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or passed upon the
adequacy or accuracy of this prospectus. Any representation to the contrary is a
criminal offense.
The date of this Prospectus is __________, 1999.
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TABLE OF CONTENTS
Page
Risk Factors................................................................ 3
American Mobile's Business................................................... 26
Use of Proceeds.............................................................. 28
Selling Stockholders......................................................... 28
Registration Rights of Selling Stockholders.................................. 30
Plan of Distribution......................................................... 31
Legal Matters................................................................ 32
Experts...................................................................... 33
Where You Can Find More Information.......................................... 33
Certain Information About this Prospectus.................................... 33
This prospectus contains and incorporates by reference certain forward
looking statements within the meaning of Section 27A of the Securities Act of
1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as
amended. We intend such forward looking statements to be covered by the safe
harbor provisions for forward looking statements in these sections. All
statements regarding our expected financial position and operating results, our
business strategy and our financing plans are forward looking statements. These
statements can sometimes be identified by our use of forward looking words such
as "may," "will," "anticipate," "estimate," "expect," "project," or "intend."
These forward looking statements reflect our plans, expectations and beliefs
and, accordingly, are subject to certain risks and uncertainties. We cannot
guarantee that any of such forward looking statements will be realized. Factors
that may cause actual results to differ materially from those contemplated by
such forward looking statements include, among others, the factors discussed in
the section of this prospectus entitled "Risk Factors."
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RISK FACTORS
------------
You should carefully consider the risks described below before making an
investment decision. The risks and uncertainties described below are not the
only ones we face. Additional risks and uncertainties, of which we are unaware
or that we currently think are immaterial, may also impair our business
operations. If any of the following risks actually occur, our business,
financial condition or results of operations could be materially adversely
affected. In such case, the trading price of our common stock could decline, and
you may lose all or part of your investment.
In addition to the risks described below which relate to our core
wireless business and our company generally, there are significant risks
associated with our investment in XM Radio. We describe these risks separately
under the caption "XM Radio's business involves significant risks and these
risks may impair the value of our investment in XM Radio."
We have substantial and continuing operating losses
- ---------------------------------------------------
We have incurred significant operating losses and negative cash flows in
each year since we began operations. These losses are due primarily to start-up
costs, the costs of developing and building our satellite and terrestrial
networks and the cost of developing, selling and providing our products and
services. For the year ended December 31, 1998, on a pro forma basis for the
ARDIS acquisition, we reported operating losses of approximately $93.4 million,
and for the quarter ended March 31, 1999, we reported operating losses of
approximately $25.5 million. For historical periods prior to our acquisition of
ARDIS, we reported operating losses of approximately $97.4 million and $120.0
million in 1997 and 1996, respectively. During these same periods, ARDIS
reported operating losses of approximately $17.4 million and $29.2 million. In
addition, XM Radio incurred aggregate net losses of approximately $1.7 million
from its inception through December 31, 1997, and an additional $20.5 million in
the 15-month period ended March 31, 1999. We expect XM Radio's net losses and
negative cash flow to continue. See the discussion under "-- XM Radio has made
significant expenditures and incurred significant losses to date and these are
expected to grow." We expect to continue to make significant capital outlays to
fund interest expense, capital expenditures and working capital before we begin
to generate positive cash flow from operations. These outlays are expected to
continue for the foreseeable future. We expect to have significant operating
losses and will record significant net cash outflow in the near term. We believe
that our cash resources, together with existing available borrowings, will be
sufficient to fund operating losses, capital expenditures, working capital, and
scheduled principal and interest payments on debt through the time when we
expect to generate positive free cash flow. However, we cannot guarantee that we
will have sufficient resources to complete the expenditures required to operate
our business or to achieve positive free cash flow within the time frame
contemplated by our current projections.
Since our inception, we have been engaged in developing our business,
recruiting key management and technical personnel, raising capital to fund our
operations, and developing our network. We have introduced a variety of new
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products and services, some of which have not achieved widespread market
acceptance. We expect to continue to launch new products and services, some of
which will be introduced in new market segments, in order to capitalize on
emerging trends in our industry. The launch of such new products or the entry
into new market segments may require us to spend additional capital, which could
cause us to continue to incur significant operating losses. Our ability to
generate positive free cash flow will depend upon, among other factors, the
successful marketing of our services, including new services such as our
eLink(SM) wireless two-way messaging service. We cannot guarantee that these
efforts will be successful.
Our extension into new wireless markets involves risks
- ------------------------------------------------------
In May 1999, we announced our eLink wireless email service, which uses a
palm-sized device that combines two-way wireless email and personal information
management software. We believe that this service may represent an important
growth opportunity for us. However, the market for this type of service is
relatively untested and, therefore, there is a risk that demand for this service
will not increase as rapidly as we hope. The failure of this service to gain
market acceptance in a timely manner or at all or the failure to achieve
significant market penetration could harm our business. Our eLink service is
expected to compete initially with one major competitor, which has already
launched its service. While we believe our eLink service has several competitive
advantages over existing competitive services, our competitors may have
substantially greater financial, technical, marketing, sales, distribution and
other resources than ours. Also, the eLink service represents an effort to
target individual customers and small groups in corporations, as well as the
larger business customers which presently represent the overwhelming majority of
our business. We intend to reach such customers primarily through resellers such
as SkyTel. This distribution strategy makes us substantially dependent on the
efforts of such resellers, and if such resellers fail to adequately promote our
service or otherwise perform their obligations to us, sales of the eLink service
may be less than expected. In addition, we have spent, and expect to continue to
spend, significant operating expenses and capital expenditures on the
development, testing, marketing, and distribution of the eLink service, and we
are contractually committed to purchase substantial quantities of the eLink
device from the manufacturer, following successful product certification. If the
service does not achieve acceptable levels of market acceptance, these
expenditures and commitments could depress our operating results. If the service
does achieve market acceptance, its success will depend, in part, on our ability
to maintain an adequate supply of devices for subscribers, which are supplied by
a third party vendor over whom we have no control. The success of the eLink
service will also depend on our ability to continue to use, promote and protect
the eLink service name and the other intellectual property associated with the
service.
We have substantial indebtedness, which may make our business more vulnerable
- -----------------------------------------------------------------------------
As of March 31, 1999, our total indebtedness was approximately $533.9
million, and $526.2 million net of debt discount. As of March 31, 1999, we had
$41.0 million available under our revolving credit facility and $5.1 million
available under an equipment financing facility from Motorola. On a pro forma
basis, after giving effect to the acquisition of ARDIS and the related financing
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as if these transactions had been consummated on January 1 of the period
presented, our earnings would have been insufficient to cover our fixed charges
by approximately $176.2 million for the year ended December 31, 1997, $164.2
million for the year ended December 31, 1998, and $43.1 million for the quarter
ended March 31, 1999. At March 31, 1999, our stockholders' deficit was
approximately $(78.0) million. We and our subsidiaries will be permitted to
incur additional indebtedness in the future.
Beginning April 1, 2001, AMSC Acquisition Company, our wholly-owned
subsidiary, will be allowed to pay dividends to us to permit us to meet our
interest expenses with respect to our term loan facility. Historically, we have
not generated sufficient earnings or cash flow from operations to make such
interest payments.
The degree to which we are leveraged could have important consequences to
the success of our business including, but not limited to:
o increasing our vulnerability to general adverse economic and industry
conditions;
o limiting our ability to obtain additional financing to fund future
working capital, capital expenditures, research and development and
other general corporate requirements;
o requiring the dedication of a substantial portion of our cash flow
from operations to the payment of principal of, and interest on, our
indebtedness, thereby reducing the availability of such cash flow to
fund working capital, capital expenditures, research and development
or for other general corporate purposes;
o limiting our flexibility in planning for, or reacting to, changes in
our business and the industry; and
o placing us at a competitive disadvantage as compared to less leveraged
competitors.
We may need additional capital but it might not be available
- ------------------------------------------------------------
We expect to continue to make significant outlays to fund debt service,
capital expenditures and working capital, both before and after we become cash
flow positive. While we believe that our cash resources, together with existing
available borrowings, will be sufficient to fund operating losses, capital
expenditures, working capital, and debt service through the time when we expect
to generate positive free cash flow sufficient to fund these items, it is
possible that our cash flows from operations will be less than projected or will
not occur when projected. In such event, we will require additional debt or
equity financing in amounts that could be material. The type, timing and terms
of financing we may select will depend upon our cash needs, the availability of
other financing sources and the prevailing conditions in the financial markets.
We cannot guarantee that we will be able to find any such sources at any given
time on favorable terms.
We cannot guarantee that our current projections will be accurate. Our
projections will depend upon numerous future factors and conditions, many of
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which are outside of our control. Our projections are merely estimates of future
events and you should expect actual events to vary from current estimates,
possibly materially. In addition, if customer demand exceeds our current
expectations and we can accommodate such demand without adversely affecting the
quality of our service, we are likely to attempt to accelerate our expansion. If
we elect to introduce new products or services, our funding needs will increase,
possibly to a significant degree. If there is a rapid increase in customer
demand for recently announced products and services, such as our eLink wireless
email service, we may need to order substantial quantities of inventory, which
will require significant working capital which we may need to finance. In
addition, we are contractually committed to purchase significant quantities of
our second generation two-way messaging device and the second generation
terminal to be used with our multi-mode device. If customer demand for these
devices does not meet our expectations, we may need to finance significant
amounts of inventory purchases. We cannot guarantee that we will be able to
secure any additional financing on commercially reasonable terms or at all. Our
cost of expanding our network and operating our business, as well as our
revenues, will depend on a variety of factors including:
o our ability to meet our expansion schedules;
o the number of customers and the services for which they subscribe;
o the nature and penetration of new services that we and our competitors
may offer;
o regulatory changes; and
o changes in technology.
As a result, our actual costs and revenues may vary from expected amounts,
possibly to a material degree. Such variations are likely to affect our future
capital requirements. Accordingly, it is possible that we will be required to
raise substantial additional capital in the future or that our current
projections will prove to be inaccurate.
Our business could suffer if we cannot keep pace with the rapidly changing
- --------------------------------------------------------------------
market for wireless communications
- ----------------------------------
The markets for wireless communications services change rapidly. Our
success depends, in part, on our ability to respond and adapt to such changes.
We cannot guarantee that we will be able to compete effectively under, or adjust
our contemplated plan of development to meet, changing market conditions. We
cannot guarantee that we will be able to implement our strategy or that our
strategy will be successful in this rapidly evolving market.
The market for wireless communications services is also marked by the
continuous introduction of new products and services and increased capacity for
services similar to those we provide. Future technological advances in the
wireless communications industry may result in the availability of new products
or services. Advances may increase the efficiency of existing products or
services. If a technology becomes available that is more cost-effective or
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creates a superior product, we may be unable to access such technology or
finance the necessary substantial capital expenditures that may be required. Our
technology may be rendered less profitable or less viable by existing, proposed
or as yet undeveloped technologies. We cannot guarantee that we will have the
financial and other resources available to compete effectively against companies
possessing such technologies. We are unable to predict which of the many
possible future products and services will meet evolving industry standards and
consumer demands. We cannot guarantee that we can adapt to such technological
changes or offer such products or services on a timely basis to establish or
maintain a competitive position.
Our wireless business depends on market acceptance
- --------------------------------------------------
The success of our wireless communications business is subject to a number
of business, economic, regulatory and competitive factors, many of which are
beyond our control, including the extent to which prospective customers will
purchase our services. The vitality of our business depends on the successful
implementation of our growth strategy, which, in turn, depends, among other
things, on our expectation that demand for our services will increase
significantly in the markets we serve. We have not yet commercially introduced
some of our services and we cannot guarantee that any of them will achieve
market acceptance or generate operating cash flow. If we cannot gain market
acceptance for current or planned products and services then our business will
be harmed.
Based upon our expectations as to the customer demand for our services, we
have made, and will continue to make, significant capital investments. Based on
similar expectations, our subsidiaries have entered into operating leases,
equipment supply contracts and service arrangements, and are attempting to
secure financing of future equipment purchases. Accordingly, any material
miscalculation with respect to our operating strategy or business plan would
harm our business.
We may be unable to achieve our operating and financial objectives if we cannot
- -------------------------------------------------------------------------------
manage our growth effectively
- -----------------------------
We may experience periods of rapid expansion in our continuing efforts to
respond to changing market conditions. We will need to maintain and improve our
operating and financial systems and expand, train and manage our employees in
order to manage growth effectively in the complex environment in which we
operate. We must expand the capacity of our sales, distribution and installation
networks in order to achieve continued growth in our existing and future
markets. In general, if we fail to manage growth effectively there could be a
material adverse effect on our business, financial condition and results of
operations.
We may be unable to achieve our business and financial objectives because the
- --------------------------------------------------------------------------
wireless communications industry is highly competitive
- ------------------------------------------------------
The wireless communications industry is highly competitive and is
characterized by frequent technological innovation. The industry includes major
domestic and international companies, many of which have financial, technical,
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marketing, sales, distribution and other resources substantially greater than
ours and which provide, or plan to provide, a wider range of services than we
will provide. Our products and services compete with a number of communications
services, including existing satellite services, terrestrial air-to-ground
services, and terrestrial land-mobile and fixed services, and may compete with
new technologies in the future. In addition, the FCC has recently allocated
large amounts of additional spectrum for communications uses or potential uses
that could compete with us. Additional allocations of spectrum for such uses may
occur in the future and could make it easier for new competitors to enter the
market. In addition, increased competition has resulted in downward pressure on
pricing for certain of our products and services.
Our wireless business depends on proprietary information
- --------------------------------------------------------
Our wireless communications business depends on technical knowledge,
and we believe that our future success is based, in part, on our ability to keep
up with new technological developments and incorporate them in our products and
services. We own or have the right to use certain of our work products,
inventions, designs, software, systems and similar know-how. We must
diligently
protect that information, and while we have taken steps to protect such
information, we cannot guarantee that the information will not be disclosed to
others or that others will not independently develop similar information,
systems and know-how. We also rely on some technologies licensed from third
parties. We cannot be sure that these licenses will remain available to us on
commercially reasonable terms or at all. The loss of such technologies could
require us to obtain substitute technology of lower quality or performance
standards or at a greater cost, which could harm our business.
Our customers are highly concentrated and our business could suffer if we lost
- --------------------------------------------------------------------------------
key customers
- -------------
After accounting for the acquisition of ARDIS in March 1998, five customers
(including IBM) accounted for an aggregate of 40% of our service revenue for
both the year ended December 31, 1998, and the quarter ended March 31, 1999. In
addition, we recently signed an important strategic agreement with SkyTel, under
which SkyTel will market our eLink wireless email service to its customers. The
loss of one or more of these customers or contracts, or any event, occurrence or
development which adversely affects our relationship with one or more of these
customers, or with
SkyTel, could harm our business.
Our business could suffer if we do not meet the required service levels under
- --------------------------------------------------------------------------------
our contract with UPS and other large customer contracts
- --------------------------------------------------------
Our contract with UPS represents the largest implementation of a
wireless data service using our terrestrial network, calling for us to provide
wireless service for approximately 50,000 UPS units by the end of 2001. In
connection with this contract, we expect to incur capital expenditures of
approximately $7.1 million in 1999 and $5.2 million in 2000. The UPS contract
includes significant warranties of performance. If network availability drops
below 99%, we will be subject to an initial penalty of 2% of the average monthly
use of service, calculated as the average of the last three months in the
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affected area. The penalty increases if performance levels drop further. Also,
as part of the negotiations leading to the signing of the UPS contract, Motorola
issued a performance guarantee to UPS regarding the network's performance. In
connection with our acquisition of ARDIS, we agreed to indemnify Motorola in
connection with such performance guarantee. We have deposited $10.0 million in
an escrow account that can be used to satisfy such indemnification obligations.
In addition to the UPS contract, most of our other contracts, including those
with large customers, contain warranties of performance and penalties associated
with failures of network performance.
The growth and reputation of our wireless business could suffer if our third
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party vendors cannot provide adequate quantities of devices in a timely manner
- ------------------------------------------------------------------------------
We rely on independent vendors to develop and manufacture wireless
communications devices for our networks, which are significant elements of our
business plan because most of our services require such devices. Certain of our
important product initiatives are dependent on the timely delivery of new
generation devices, including the palm-sized device used with our eLink wireless
email service, which is manufactured by Research in Motion, Limited, and the
second generation terminal to be used with our multi-mode service, which is
manufactured by Vistar Telecommunications Inc. These suppliers do not sell such
devices to us on an exclusive basis. We carry a limited inventory of such
devices and generally have no guaranteed supply arrangements. From time to time,
we have experienced interruptions and/or delays of supply. Vistar has delayed
its original timetable for delivery of the second generation terminal to be used
in our multi-mode device. Currently, delivery is scheduled to begin in the
second half of 1999. We cannot guarantee that we will not experience further
interruptions or delays. In addition, we have short-term contracts with the
majority of our suppliers. We cannot guarantee that our suppliers will continue
to provide products to us at attractive prices, or at all, or that we will be
able to obtain such products in the future from these or other providers on the
scale and within the time frames we require. Some or all of our suppliers could
enter into exclusive arrangements with our competitors, or cease selling these
components to us at commercially reasonable prices, or at all. If we fail to
obtain such products on a timely basis at an affordable cost, or experience any
significant delays or interruptions of supply, our business would be harmed.
As part of our growth strategy, we rely on our suppliers to reduce the cost
of wireless communications devices approved and available for use on our
network. We believe that reductions in the cost of wireless communications
devices will result in increased sales of devices, additional subscribers for
our services and a corresponding increase in our service revenues. If we fail to
obtain such cost reductions on a timely basis, or experience any significant
delays of such reductions, our revenues could be diminished.
We expect the anticipated expansion of our operations and infrastructure to
place a significant demand on our suppliers, some of which have limited
resources and production capacity. In addition, some of our suppliers, in turn,
rely on sole or limited sources of supply for components included in their
products. If our suppliers fail to adjust to meet such increasing demand, they
may be unable to supply devices in the quantities and the quality and at the
times we require, or at all. If we are unable to obtain sufficient quantities of
sole or limited source devices or to develop alternative sources, we could
experience delays and increased costs in the expansion of our operations and
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infrastructure or become unable to properly maintain our existing level of
operations. Such occurrences could harm our business.
Our competitive position may be harmed if our wireless terrestrial network
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technology is licensed to others
- --------------------------------
The terrestrial network, and certain of its competitive strengths, such as
deep in-building penetration, is based upon a single frequency reuse technology.
Motorola holds the patent for this technology and, through our ARDIS subsidiary,
we hold a non-exclusive license to use this technology. We also rely on support
agreements with Motorola for support of the operations of certain portions of
the terrestrial network. However, Motorola could enter into arrangements with
our competitors and it is possible that such agreements could harm our ability
to compete.
There are risks associated with satellite technology
- ----------------------------------------------------
We have an agreement with TMI Communications and Company, Limited
Partnership, a Canadian mobile satellite owner and operator, for backup,
restoral and additional capacity if our MSAT-2 satellite fails or we need
additional capacity. TMI owns and operates a satellite called MSAT-1. In return,
we have agreed to provide TMI with similar backup service on our MSAT-2
satellite. Each of the MSAT-1 and MSAT-2 satellites has in the past experienced
some malfunctions. Recent MSAT-2 malfunctions have involved either components
backed up by spare parts or did not have a material impact on current
operations. However, either or both satellites could experience future
malfunctions at any time, which could damage our ability to serve our customers
and harm our reputation in the marketplace.
MSAT-2 has an expected end of service date of 2006, subject to potential
malfunctions and other factors. For example, random failure of satellite
components could result in damage to or loss
of MSAT-2. It is also possible that electromagnetic storms or collisions with
other objects could damage the satellite, although such occurrences are rare.
Although the actual end of service date of the satellite may exceed its expected
end of service date, we cannot guarantee that the expected end of service date
of the satellite will be achieved or exceeded. Although we have in-orbit
insurance for a failure of MSAT-2, it is unlikely that any recovery under such
insurance would fully compensate us for losses we would sustain from such a
failure. In addition, the in-orbit insurance policy is subject to annual or
biannual renewal, and we cannot guarantee that insurance will remain available
for coverage of MSAT-2 on favorable terms or at commercially reasonable rates.
Our disaster recovery system for the satellite network ground segment is limited
- --------------------------------------------------------------------------------
Presently, our disaster recovery systems focus on internal redundancy and
diverse routing within each of the facilities operated by or for us. For
example, the terrestrial network has access to a remote communications backup
complex that would enable us to continue to provide our terrestrial network
services in the event of a natural disaster affecting one geographic site.
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However, we do not currently have access to a remote backup satellite ground
communications facility that would enable us to continue to provide mobile
satellite communications services for customers in the event of a natural
disaster or other occurrence that rendered the system unavailable. Our business
is subject to the risk that such a disaster or other occurrence could hinder or
prevent us from continuing to provide some services to some or all of our
customers.
Our wireless business is subject to domestic and international regulation which
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could impose significant costs or otherwise harm our business
- -------------------------------------------------------------
The ownership and operations of our wireless communication systems are
subject to significant regulation by the FCC under authority granted by the
Communications Act of 1934, as amended, and related federal laws. We cannot
guarantee that the rules and regulations of the FCC will continue to support our
operations as we presently conduct them and plan to conduct them in the future.
A number of our licenses are subject to renewal by the FCC. Also, our satellite
operations are subject to international frequency coordination, which may
require us to entertain requests for accommodation by other nearby satellite
systems. We cannot guarantee that all existing licenses will be renewed and
requisite frequencies coordinated. Current FCC regulations also generally limit
the ownership and control of our company by non-U.S. citizens or entities to no
more than 25%, which could limit your opportunity to receive a takeover premium
for your shares of common stock. In addition, despite our efforts to monitor our
foreign ownership, there can be no assurance that non-U.S. persons or entities
will not own in the aggregate more than 25% of our common stock. If this limit
is exceeded, the FCC could potentially take a range of actions which could harm
our business.
There are applications by others now pending before the FCC to use the
Inmarsat system and TMI's Canadian-licensed system, both of which operate in the
MSS L-band and have satellite footprints covering the United States, to provide
mobile satellite service in the United States. We have opposed these filings.
However, on July 20, 1998, the FCC granted SatCom Systems, Inc. a Special
Temporary Authority to operate up to 500 mobile terminals in the United States
over TMI's satellite for 180 days on a private carrier basis so that it may
conduct marketing trials; this Special Temporary Authority is likely to be
extended until the FCC acts on SatCom's underlying application. On July 30,
1998, we filed an Application for Review and a Motion for Stay of this Special
Temporary Authority grant with the FCC, and these filings remain pending. In
addition to providing additional competition to us, a grant of domestic
authority by the FCC to use any of these foreign systems may increase the demand
by these systems for spectrum in the international coordination process and
restrain our ability to coordinate our spectrum access.
We could lose revenues or damage our reputation if we are not year 2000 ready
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Many currently installed computer systems and software products are coded
to accept only two-digit entries in the date code field. Many such systems will
need to accept four-digit entries in order to distinguish 20th century dates
from 21st century dates. As a result, before the end of this year, computer
systems and software used by many companies need to be upgraded to comply with
these "Year 2000" requirements. Otherwise these systems may cause
miscalculations that will interfere with business activities or simply fail to
11
<PAGE>
work. When we use the terms "Year 2000 Ready" or "Year 2000 Readiness," we mean
that customers will not experience any material difference in performance and
functionality of our networks as a result of the date being prior to, during or
after the year 2000.
We expect our networks to be Year 2000 Ready by the end of the third
quarter of 1999. In addition, we are currently scheduled to complete renovation,
implementation and rollout of our internal systems, including our CMIS voice
customer billing software, in the fourth quarter of 1999. The cost of our Year
2000 Readiness program in 1998 was approximately $2.4 million, and expenditures
for the Year 2000 Readiness program in 1999 are estimated to be up to $6.6
million, of which approximately $3.3 million was incurred as of June 30, 1999.
The estimated cost and date to reach Year 2000 Readiness are our best
estimates. There can be no assurances that we will achieve these results and
actual results could differ materially from those anticipated. Failure to solve
Year 2000 issues within our critical business systems could result in service
outages, miscalculations or disruption of operations that could have a material
adverse impact on our business. Also, some of our critical business systems
depend significantly on software programs, products, equipment and services
provided to us by third party vendors that are not within our control. A
significant Year 2000-related disruption of the services or equipment that third
party vendors provide to us could cause our customers to seek alternative
providers or cause an unmanageable burden on our customer service and technical
support, which, in turn, could harm our business. We could also face customer
lawsuits for damages.
Our Year 2000 Readiness program may fail to foresee some risks or may not
address them adequately. Because of our reliance on software, some Year 2000
problems may not be found or the remediation efforts may introduce new bugs that
are not identified before they affect operations. If our customers fail to
become Year 2000 ready on time with their own hardware and software systems,
their applications may not function even if our systems are Year 2000 Ready.
This could result in reduced traffic and revenues.
We strongly urge you to read about our Year 2000 efforts under the heading
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Year 2000 Readiness" contained in our annual report on Form 10-K
for the year ended December 31, 1998.
A small number of principal stockholders will own 85% of our stock and their
- --------------------------------------------------------------------------------
interests may conflict with yours as a stockholder
- --------------------------------------------------
Our principal stockholders are Hughes Communications Satellite Services,
Inc., Motorola, Inc., Baron Capital, Inc., Singapore Telecommunications Limited,
AT&T Wireless Services, Inc. and XM Ventures. In addition, we have agreed to
issue an additional 2,134,801 shares of our common stock to XM Ventures after we
obtain approval from our stockholders. After such shares are issued, these
stockholders will collectively hold in aggregate approximately 85% of our common
stock on a fully diluted basis. We have entered into material contracts and
transactions with many of our principal stockholders and their affiliates and we
12
<PAGE>
may enter into additional contracts in the future. These contracts include the
guarantee of our debt obligations. Certain of these stockholders have other
interests in the communications industry that may conflict with our interests.
Certain of these stockholders, or their affiliates, have contracts or other
relationships with XM Radio, which has a different business plan than ours. For
example, Hughes is constructing XM Radio's satellites, and General Motors
Corporation, which owns Hughes, has purchased $50.0 million of XM Radio's Series
A subordinated convertible notes and entered into a long-term distribution
agreement with XM Radio. DIRECTV Enterprises, Inc., a division of Hughes, also
has purchased $50.0 million of XM Radio's Series A subordinated convertible
notes and entered into an operational assistance agreement with XM Radio. It is
possible that these stockholders' interests in XM Radio could conflict with
their interests in American Mobile, and, as a result, these stockholders could
take actions that might not be in our interests or your interests as a
stockholder. Also, there can be no assurance that these stockholders will
continue to retain their current ownership position in our company.
Our business would be harmed if we cannot attract and retain our key personnel
- ------------------------------------------------------------------------------
We are dependent on the efforts of a group of employees with specialized
technical and business knowledge regarding our systems. If we lose the services
of one or more of these individuals it could harm our business and our future
prospects. Our future success will also depend on our ability to attract and
retain additional management and technical personnel required in connection with
the growth and development of our business. If we fail to retain or attract such
key personnel our business would suffer. We do not maintain key man life
insurance on any of our officers or employees.
Our charter and bylaws contain anti-takeover provisions that could adversely
- --------------------------------------------------------------------------------
affect the price of our common stock
- ------------------------------------
Our certificate of incorporation and bylaws and the Delaware General Corporation
Law contain provisions that may have the following effects:
o discouraging, delaying or making more difficult a change in control;
and
o preventing the removal of incumbent directors.
The existence of these provisions may negatively impact the price of our
common stock and may discourage third-party bids. These provisions may reduce
any premiums paid to stockholders for their common stock. Furthermore, we are
subject to Section 203 of the Delaware General Corporation Law, which governs
business combinations with interested stockholders and could have the effect of
delaying or preventing a change in control.
Our certificate of incorporation also allows our board of directors to
issue up to 200,000 shares of preferred stock and to fix the rights, privileges
and preferences of such shares without any further vote or action by the
stockholders. If this preferred stock is issued in the future, the rights of the
holders may adversely affect the rights of the holders of common stock. While we
have no present intention to issue shares of preferred stock, any such issuance
could be used to discourage, delay or make more difficult a change in control.
13
<PAGE>
We do not intend to pay dividends
- ---------------------------------
We have not declared or paid any dividends on our common stock since our
date of inception. We intend to retain any earnings to support the growth and
development of our business and we have no present intention of paying dividends
in the foreseeable future. In addition, our ability to pay dividends is
restricted by agreements we have made with several banks in connection with our
loans and credit facility arrangements.
The price of our common stock is volatile
- -----------------------------------------
Historically, the market prices for securities of emerging companies in the
telecommunications industry have been highly volatile. Future announcements
concerning our business or the business of our competitors, including results of
technological innovations, new commercial products, or government regulations
may have a significant impact on the market price of our common stock. Our
common stock has been thinly traded since our initial public offering and its
price has been highly volatile in recent periods.
Future sales of our stock could adversely affect its price
- ----------------------------------------------------------
Future sales of substantial amounts of our common stock, or the perception
that such sales may occur, could adversely affect the value of our common stock
and could impair our ability to raise additional capital in the future through
the sale of equity securities. As of July 14, 1999, we had 39,136,801 shares of
common stock outstanding. Of these shares, approximately 12,000,000 shares
(including 5,322,600 shares owned by Baron) are freely tradable in the open
market without further registration under the Securities Act of 1933. Also,
12,615,662 shares (including 2,070,884 shares that may be issued in the future
upon exercise of outstanding warrants) are registered pursuant to a shelf
registration statement declared effective by the Securities and Exchange
Commission on March 31, 1999. In addition, we have provided certain registration
rights to other stockholders and owners of warrants to purchase our common
stock. These registration rights cover 6,666,622 shares of stock and warrants to
purchase an aggregate of 5,712,500 additional shares. In addition, we have filed
a registration statement covering the 8,614,244 shares issued or to be issued to
XM Ventures. Upon the effectiveness of such registration statement, such shares
will be freely tradable in the open market, subject to certain limitations, as
described under the caption "Selling Stockholders - Summary of Certain Material
Relationships with Selling Stockholders." We also have approximately 3.8 million
shares of common stock reserved for issuance under employee and director stock
option plans and other employee benefit plans, all of which shares, when issued,
are registered for resale.
XM Radio's business involves significant risks and these risks may impair the
- --------------------------------------------------------------------------------
value of our investment in XM Radio
- -----------------------------------
In addition to the risks described above which relate to our core wireless
business and to our company generally, there are significant risks associated
14
<PAGE>
with our investment in XM Radio. These risks may impair the value of our
investment in XM Radio. We describe these risks separately in the section that
follows.
XM Radio is a development stage company and has not generated revenues to date
- ------------------------------------------------------------------------------
XM Radio is a development stage company and still needs to develop the
planned XM Radio service significantly before XM Radio can offer it to
consumers. XM Radio has not yet generated any revenues. XM Radio will not
generate revenues from operations until the commencement of commercial operation
of its service.
XM Radio may never become profitable
- ------------------------------------
Because XM Radio expects to incur significant expenses in the future, it
will need to generate significant revenues before it can become profitable. XM
Radio's ability to generate revenues and ultimately to become profitable will
depend upon several factors, including
o whether it creates and implements the XM Radio system in a timely
fashion;
o whether consumer electronics manufacturers successfully develop and
manufacture XM radios;
o whether XM Radio can attract and retain enough subscribers and
advertisers to XM Radio;
o whether XM Radio can compete successfully; and
o whether the FCC grants XM Radio all additional necessary
authorizations in a timely manner.
XM Radio has made significant expenditures and incurred significant losses to
- --------------------------------------------------------------------------------
date and these are expected to grow
- -----------------------------------
As of March 31, 1999, XM Radio had incurred costs of approximately $219.5
million in connection with the development of the XM Radio system. XM Radio
incurred aggregate net losses of approximately $1.7 million from its inception
through December 31, 1997, and an additional $20.5 million in the 15-month
period ended March 31, 1999. We expect XM Radio's net losses and negative cash
flow to grow as XM Radio builds its system, makes payments under its various
contracts and begins to incur marketing costs.
XM Radio needs substantial further financing but such financing might not be
- --------------------------------------------------------------------------------
available
- ---------
XM Radio needs substantial additional financing to cover projected capital
expenditures and operating expenses before it can generate any revenue from its
operations. XM Radio estimates that it will need approximately $750 million in
addition to the amount it has raised thus far in order to meet its needs until
it begins commercial operation of its service, which XM Radio is targeting for
the second quarter of 2001. On July 23, 1999, XM Radio announced that it had
15
<PAGE>
filed a registration statement with the Securities and Exchange Commission for
an initial public offering of its common stock. XM Radio expects that the net
proceeds from such offering will be sufficient in the absence of additional
financing to cover XM Radio's funding needs into the first quarter of 2000. Even
after it commences commercial service, XM Radio will require significant
additional funds before it generates positive cash flow. In addition, XM Radio
has substantial payment obligations under a distribution agreement with General
Motors, as described under the caption "XM Radio's Distribution Agreement with
General Motors involves significant financial and other risks." XM Radio's
actual funding requirements could vary materially from its projections, due to a
variety of factors, some of which are outside of the control of XM Radio,
including unexpected costs, unforeseen delays, engineering design changes,
launch failures, satellite anomalies, adverse regulatory developments, or other
unanticipated events. If one or more of these events occurs, XM Radio may have
to raise more funds than expected to remain in business and to continue to
develop and market the XM Radio system.
We do not intend to provide any material portion of XM Radio's funding
requirements. XM Radio plans to raise future funds by selling debt or equity
securities, or both, publicly and/or privately and by obtaining loans or other
credit lines from banks or other financial institutions. Any such financing
would likely decrease our economic and/or voting interest in XM Radio. XM Radio
may not be able to raise any such funds or obtain any such loans on favorable
terms or at all. XM Radio's ability to obtain the required financing depends on
several factors, including future market conditions; XM Radio's success or lack
of success in developing, implementing and marketing its satellite radio
service; XM Radio's future creditworthiness; and restrictions contained in
agreements with XM Radio's investors or lenders. If XM Radio is successful in
raising additional financing, it is anticipated that a significant portion of
the financing will consist of debt securities. As a result, XM Radio may be
highly leveraged.
If XM Radio fails to obtain any necessary financing on a timely basis, then
o its satellite construction, launch, or other events necessary to its
business could be materially delayed, or their costs could materially
increase;
o XM Radio could default on its commitments to its satellite
construction or launch contractors, creditors or others, leading to
termination of construction or inability to launch XM Radio's
satellites; and
o XM Radio may not be able to launch its satellite radio service as
planned and may have to discontinue operations or seek a purchaser for
its business or assets.
There are significant risks associated with satellite launches
- --------------------------------------------------------------
Satellite launches have significant risks, including launch failure,
satellite destruction or damage during launch, and improper orbital placement.
Launch failure rates vary depending on the particular launch vehicle and
contractor, and there is virtually no track record for the specific rocket that
will be used for the launch of XM Radio's satellites. If one or more launches
16
<PAGE>
fail, XM Radio will suffer significant delay that will be very damaging to its
business, and XM Radio will incur significant additional costs associated with
the delay in revenue generating activities.
Satellites have limited lives and may fail during orbit
- -------------------------------------------------------
XM Radio cannot be certain of the specific longevity of any particular
satellite. Although its satellites are expected to have useful operational lives
of approximately 15 years, a number of factors may decrease the useful lives of
XM Radio's satellites, including
o defects in construction;
o faster than expected degradation of solar panels;
o loss of fuel on board;
o random failure of satellite components that are not protected by
back-up units;
o electrostatic storms; and
o collisions with other objects in space.
If a satellite were to fail while in orbit, XM Radio would either have to
arrange for the launch of its ground spare satellite or have to contract for
additional satellites to be built and launched. Any such failure likely could
affect the quality of XM Radio service, substantially delay the commencement or
interrupt the continuation of XM Radio service and harm XM Radio's business.
XM Radio's system depends on development and integration of complex technologies
- --------------------------------------------------------------------------------
in a novel configuration that might not work
- --------------------------------------------
XM Radio's service will transmit signals to XM radios using two
satellites, supplemented by a terrestrial repeater network to relay satellite
signals. This system will involve some new applications of existing technology
and integration of two or more different and complex technologies, which may not
work as planned. This system will also require development of new technologies
and finalization of XM Radio's planned system. XM Radio may not be able to
successfully develop such technologies or its system.
The use of terrestrial repeaters with a satellite system is untested
- --------------------------------------------------------------------------------
and may not provide the expected transmission quality. XM Radio's system
- -------------------------------------------------------
would use satellites to broadcast radio signals to portable radios and radios
installed in cars and trucks, which are highly mobile. High concentrations of
tall buildings and other obstructions may block signals from the satellites,
which would adversely affect satellite reception. XM Radio plans to address this
issue by installing a network of terrestrial repeaters that will retransmit the
17
<PAGE>
satellite signal in areas where blockages might otherwise occur. Although
satellite and terrestrial repeater transmission is existing technology, these
two systems have not been integrated and used together on the scale contemplated
by XM Radio. XM Radio cannot be certain that what it plans will work, either in
terms of design or scale. In addition, some areas with impediments to satellite
line of sight may still experience "dead zones."
XM Radio's business plan relies on the timely development of XM radios. XM
----------------------------------------------------------------------
Radio's service would be received by specially designed receivers. These
receivers, which have not yet been developed, must be capable of receiving both
satellite and terrestrial signals. Although these radios will be based on
existing technologies, they will require a unique integration of such
technologies, which may take longer than expected.
Integration of components of XM Radio's system may encounter technical
---------------------------------------------------------------------------
difficulties. XM Radio will have to integrate a number of sophisticated
- ------------
satellite and other wireless technologies before it can begin offering its
service. Integration of such a satellite radio system is a complex task which
has not previously been accomplished. It will require XM Radio to integrate many
components which have not yet been fully developed and/or have not yet been used
as part of a combined system. Despite extensive testing of the components of the
XM Radio system, because of the nature and complexity of the XM Radio system, XM
Radio cannot ultimately confirm the ability of the system to function until XM
Radio has actually deployed and tested a substantial portion of the system.
Hardware or software errors in space or on the ground may limit or delay the XM
Radio service and therefore reduce anticipated revenues. There could also be
delays in the planned development, integration and operation of the components
of the XM Radio system. If the technological integration of the XM Radio system
is not completed in a timely and effective manner, XM Radio's business will be
harmed.
XM Radio's planned launch of service may be delayed, which could harm XM Radio's
- --------------------------------------------------------------------------------
business and chances of success
- -------------------------------
XM Radio plans to commercially launch its service in 2001. Its ability to
do so will depend on several important factors. Potential causes of serious
delay include
o XM Radio's inability to obtain necessary financing in a timely manner;
o delays in, or modifications to, the design, development, construction,
launch or testing of satellites, terrestrial repeaters or other
aspects of the XM Radio system;
o satellite launch failure;
o delays in manufacture or commercial availability of XM radios;
o obtaining additional authorizations from the FCC, if required; and
o coordinating spectrum use with Mexico.
Any significant delay in the start of commercial operations would harm XM
Radio's business and decrease XM Radio's chances of competing successfully.
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<PAGE>
During any period of delay, XM Radio would continue to have significant cash
requirements that could materially increase the aggregate amount of funding it
needs. XM Radio may not be able to obtain additional financing on favorable
terms, or at all, during periods of delay.
XM Radio's success depends on the quality and performance of its satellite and
- --------------------------------------------------------------------------------
launch contractors
- ------------------
Dependence upon satellite manufacturer to construct and deliver satellites.
---------------------------------------------------------------------------
XM Radio will rely on Hughes, its satellite manufacturer, to build and deliver
its satellites in a timely manner. If Hughes fails to deliver functioning
satellites in a timely manner the introduction of XM Radio's service would
likely be delayed. If Hughes were to deliver a satellite late or otherwise
default, the remedies XM Radio has will not adequately compensate XM Radio for
any damage caused to its business. Although XM Radio's satellite contract
provides for certain remedies for late delivery, Hughes will not be liable for
indirect or consequential damages, or lost revenues or profits, from late
delivery or other defaults. XM Radio's satellite contract entitles Hughes to
certain excusable delays.
Hughes has promised that the satellites will perform in accordance with the
specifications and requirements of the satellite contract and will be free from
any material defect or failure or any nonconformance in design, material or
workmanship. However, XM Radio's only remedy if Hughes breaches this promise is
not to pay Hughes in-orbit performance incentive payments of up to a total of
$12.5 million for each satellite. This remedy likely will not adequately
compensate for the damage such breach would cause to XM Radio's business.
Dependence upon launch services provider. XM Radio is depending on Sea
--------------------------------------------
Launch, the satellite launch services provider, to build its launch vehicles and
to launch the satellites. If the satellite launch services provider fails to
launch the satellites in a timely manner XM Radio may be unable to meet its
business plan timetable. Neither Hughes nor the satellite launch services
provider will be liable to XM Radio for any delay in delivery of the satellites
up to 180 days caused by XM Radio's scheduled launch services provider. A delay
of more than six months beyond the launch period for either satellite would
allow XM Radio, subject to certain conditions (including possibly paying
additional fees to Hughes), to select an alternative launch system. Although XM
Radio may be able to use another satellite launch services provider, switching
to another provider could involve significant delay and a significant increase
in cost.
XM Radio will depend on third party vendors to supply radios to customers
- -------------------------------------------------------------------------
XM Radio's strategy calls for subscribers to buy XM radios from third
party manufacturers or their distributors to receive XM Radio's service. XM
radios are not yet available, and XM Radio does not intend to manufacture or
distribute XM radios. XM Radio is negotiating with leading consumer electronics
manufacturers for the manufacture and distribution of XM radios for retail sale
in the United States. XM Radio has already signed contracts with Pioneer, Alpine
and Delphi-Delco to develop XM radios for use in the car, and a contract with
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<PAGE>
SHARP to manufacture XM radios for use in the home. However, these agreements
may not result in the timely production of enough affordable XM radios to permit
the widespread introduction of XM Radio's service. If one or more manufacturers
fails to develop these products for timely commercial sale, at an affordable
price and with mass market nationwide distribution, XM Radio's revenues would be
less than expected and its business would suffer.
XM Radio will be subject to competition from CD Radio and traditional and
- --------------------------------------------------------------------
emerging audio entertainment providers
- --------------------------------------
In seeking market acceptance, XM Radio will encounter competition for both
listeners and advertising revenues from many sources, including
o CD Radio, the other satellite radio licensee;
o traditional and, when available, digital AM/FM radio;
o Internet-based audio providers;
o direct broadcast satellite television audio service; and
o cable systems that carry audio service.
CD Radio has announced that it expects to begin receiving revenue from
commercial operations in the first quarter of 2001, and therefore may commence
operations before XM Radio. If CD Radio begins commercial operations
significantly before XM Radio does, it may gain a competitive advantage over XM
Radio.
Unlike XM Radio, traditional AM/FM radio already has a well established
market for its services and generally offers "free" broadcast reception paid for
by commercial advertising rather than by a subscription fee. Also, many radio
stations offer information programming of a local nature, such as traffic and
weather reports, which XM Radio initially will be unable to offer as effectively
as local radio, or at all. To the extent that consumers place a high value on
these features of traditional AM/ FM radio, XM Radio will be at a competitive
disadvantage.
XM Radio's distribution agreement with General Motors involves significant
- --------------------------------------------------------------------------------
financial and other risks
- -------------------------
XM Radio has signed a long-term distribution agreement with the OnStar
division of General Motors providing for the installation of XM radios in
General Motors vehicles and the distribution of XM Radio's service to the
exclusion of other satellite digital radio services. XM Radio has significant
annual, fixed payment obligations to General Motors for four years following
commencement of commercial service. These payments approximate $35 million in
the aggregate during this period. Additional annual fixed payment obligations
beyond the initial four years of the contract term range from less than $35
million to approximately $130 million through 2009, aggregating approximately
$400 million. In order to encourage the broad installation of XM radios in
General Motors vehicles, XM Radio has agreed to subsidize a portion of the cost
20
<PAGE>
of XM radios, and to make incentive payments to General Motors when the owners
of General Motors vehicles with installed XM radios become subscribers for the
XM Radio service. XM Radio also must share with General Motors a percentage of
the subscription revenue attributable to General Motors vehicles with installed
XM radios, which percentage increases until there are more than 8 million
General Motors vehicles with installed XM radios. This agreement is subject to
renegotiation if GM does not achieve and maintain specified installation levels
of General Motors vehicles capable of receiving XM Radio's service, starting
with 1.24 million units after four years, and the lesser of 600,000 units per
year thereafter and amounts proportionate to target market shares in the
satellite digital radio service market. There can be no assurances as to the
outcome of any such renegotiation. XM Radio may not be able to meet its
obligations to General Motors under this agreement. In addition, while XM Radio
and General Motors have discussed certain installation projections, General
Motors is not required to meet any minimum targets for installing XM radios in
General Motors vehicles. In addition, certain of the payments to be made by XM
Radio under this agreement will not be directly related to the number of XM
radios installed in General Motors vehicles.
XM Radio's business will depend on market acceptance, and the market for its
- --------------------------------------------------------------------------------
service is new and unproven
- ---------------------------
There is currently no mobile satellite radio service in commercial
operation in the United States. As a result, XM Radio cannot estimate with any
certainty the potential demand for such a service or the degree to which XM
Radio will meet that demand. Furthermore, there may not be sufficient demand to
enable XM Radio to earn sufficient revenues, achieve sufficient cash flow or
turn a profit. Among other things, consumer acceptance of XM Radio will depend
upon
o whether XM Radio obtains, produces and markets high quality
programming consistent with consumers' tastes;
o the willingness of consumers to pay subscription fees to obtain
satellite radio service;
o the cost and availability of XM radios;
o XM Radio's and its AM/FM radio competitors' marketing and pricing
strategies;
o whether competitors develop new and alternative technologies providing
audio entertainment; and
o general economic conditions.
Because XM Radio expects to derive a significant part of its revenues from
advertisers as well as subscription revenues, advertiser acceptance will be
critical to the success of its business. XM Radio's ability to generate revenues
from advertisers will depend on several factors, including the level and type of
market penetration of XM Radio's service, competition for advertising dollars
from other media, and changes in the advertising industry. Also, FCC regulations
may limit XM Radio's ability to offer its radio service to non-subscribers.
These factors may reduce XM Radio's potential revenue from advertising.
21
<PAGE>
CD Radio has filed a patent infringement suit against XM Radio
- --------------------------------------------------------------
On January 12, 1999, CD Radio, the only other owner of an FCC license for
satellite radio service, commenced a lawsuit against XM Radio alleging that XM
Radio is infringing or will infringe three patents assigned to CD Radio. The CD
Radio patents involved in this litigation relate to certain aspects of signal
and reception methodologies that may be employed by a satellite radio system. In
its complaint, CD Radio seeks money damages to the extent XM Radio has
manufactured, used or sold any product or method claimed in CD Radio's patents,
and an injunction.
Based on the planned design of XM Radio's system, XM Radio's knowledge of
the differences between the XM Radio system and the claims of the CD Radio
patents and on advice XM Radio has received from its patent counsel, XM Radio
believes that it has not infringed and will not infringe any CD Radio patents.
However, the litigation could have a material adverse effect on XM Radio, even
if XM Radio is successful. It may divert management's attention and may make it
more difficult for XM Radio to raise financing or enter into other agreements
with third parties, and may impede XM Radio's ability to move forward with the
development of its system in a timely manner. If XM Radio does not prevail in
this litigation, XM Radio could become liable to CD Radio for substantial money
damages and/or be subject to an injunction preventing XM Radio from using
certain technology in its satellite radio system. Any such injunction could
force XM Radio to develop new technology which would not be subject to the
injunction. Alternatively, XM Radio could be required to license alternative
technology from a third party, or seek a license from, and pay royalties to, CD
Radio to use its technology. Any of the foregoing could delay or increase the
costs of deploying XM Radio's system.
XM Radio's business may be impaired by third party intellectual property rights
- -------------------------------------------------------------------------------
The development of XM Radio's system will depend largely upon the
intellectual property that XM Radio will develop and license from third parties.
If the intellectual property that XM Radio may develop or use is not adequately
protected, others will be permitted to duplicate the XM Radio system or service
without liability. There is no guarantee that others will not develop such
information, technology and know-how. In addition, others may challenge,
invalidate or circumvent XM Radio's intellectual property rights, patents or
existing sublicenses. Some of the know-how and technology XM Radio has developed
and plans to develop will not be covered by U.S. patents. In order to protect
its rights, XM Radio will seek to rely on trade secret protection and
contractual agreements. However, those agreements may not provide adequate
protection for XM Radio's trade secrets, know-how or other proprietary technical
information if there is any unauthorized use or disclosure. The loss of
necessary technologies could require XM Radio to obtain substitute technology of
lower quality or performance standards, at greater cost or on a delayed basis,
which could harm XM Radio's business.
22
<PAGE>
Other parties may have patents or pending patent applications which will
later mature into patents or inventions which may block XM Radio's ability to
operate its system or license its technology. XM Radio may have to resort to
litigation to enforce its rights under license agreements or to determine the
scope and validity of other parties' proprietary rights in the subject matter of
those licenses. Such litigation could result in substantial cost, and there can
be no guarantee that XM Radio will succeed in any such litigation.
Oversight by the FCC and other regulatory bodies involves costs and risks
- -------------------------------------------------------------------------
XM Radio license subject to continuing FCC oversight. As an owner of one of
----------------------------------------------------
two FCC licenses to operate a commercial satellite radio service in the United
States, XM Radio will continue to be subject to regulatory oversight by the FCC.
XM Radio's development, implementation and eventual operation of its system will
be subject to significant regulation by the FCC under authority granted under
the Communications Act of 1934, as amended, and related federal law.
Non-compliance by XM Radio with FCC rules and regulations could result in fines,
additional license conditions, license revocation or other detrimental FCC
actions. Any of these FCC actions may harm XM Radio's business. There is no
guarantee that the rules and regulations of the FCC will continue to support XM
Radio's business plan.
License contains required milestones. The term of XM Radio's FCC license is
------------------------------------
eight years from the commencement of actual commercial operation and may be
renewed. The license requires XM Radio to adhere to certain milestones in the
development of its system, including a requirement that XM Radio begin full
operation of its system by October 2003. Because it depends on third parties in
certain significant respects, XM Radio may not be able to meet all of the
milestones contained in its FCC license. If it fails to do so, the FCC could
take a range of actions, any of which may harm XM Radio's business.
Challenge to XM Radio's license. The award of XM Radio's FCC license was
---------------------------------
challenged by one of the losing bidders in the initial FCC licensing procedure,
but the challenge was denied by the FCC. Subsequent to the award of XM Radio's
license, the losing bidder filed with the FCC for reconsideration of XM Radio's
license award. Although XM Radio believes that the award of its license will
continue to be upheld, it cannot predict the ultimate outcome of this challenge.
If this challenge is successful, the FCC could take a range of actions, any of
which could harm XM Radio's ability to proceed with its planned satellite radio
service.
Interoperability requirement. The FCC's rules require interoperability with
----------------------------
all licensed satellite radio systems that are operational or under construction.
The FCC conditioned XM Radio's license on certification that XM Radio's final
receiver design is interoperable with the final receiver design of the other
licensee, CD Radio, which plans to use a different transmission technology than
XM Radio plans to use. Because of uncertainty regarding the design of CD Radio's
systems, XM Radio may not be able initially to meet this interoperability
requirement. XM Radio may not be able to design a commercially viable
interoperable receiver, and CD Radio may not cooperate with XM Radio on the
23
<PAGE>
issue of interoperability. Accordingly, XM Radio may not be able to meet the
FCC's interoperability requirements and may need to obtain an extension of time
or modification of this requirement from the FCC. Complying with the
interoperability requirement could make the radios more difficult and costly to
manufacture. Accordingly, this requirement could delay the commercial
introduction of XM Radio's service.
Further approvals needed for repeater system. The FCC has proposed to
------------------------------------------------
permit XM Radio to deploy terrestrial repeaters to fill in gaps in satellite
coverage. However, certain parties have opposed the FCC's proposal and the FCC
has not issued any final orders addressing this issue. XM Radio's plans to
deploy such terrestrial repeaters in its system may be impacted, possibly
materially, by whatever rules the FCC issues in this regard.
XM Radio subject to coordination risks. XM Radio must coordinate its
------------------------------------------
domestic uplink station networks with other users of the X-Band, including
operators in the Fixed Services, Broadcast Auxiliary Services, the Electronic
News Gathering Services and Mobile-Satellite Service uplink station networks. XM
Radio may not be able to coordinate its use of this spectrum in a timely manner
or at all. XM also will need to coordinate the XM Radio system with Fixed
Service and Mobile Aeronautical Telemetry systems operating in the same
frequency bands in Canada and Mexico. The U.S. government, which conducts the
coordination process, has resolved the issue with Canada, and has begun
discussions with the Mexican government. However, the negotiations with Mexico
could be complicated by that country's interest in developing a similar digital
satellite radio service that might operate on the same frequencies as XM Radio
will use in the United States. Failure of the FCC to coordinate satellite radio
frequency use with Mexico could materially affect XM Radio's business.
XM Radio subject to interference risks. XM Radio's system may be subject to
--------------------------------------
interference from licensees operating in adjacent frequency bands. Wireless
Communications Service licensees operating in frequency bands adjacent to the
satellite radio's S-Band allocation must comply with certain out-of-band
emission limits imposed by the FCC to protect satellite radio systems. In April
1998, the FCC proposed to amend its rules to allow for new radio frequency
lighting devices that would operate in the 2400-2500 MHz frequency band. XM
Radio opposed the proposal on the grounds that the proliferation of this new
kind of lighting and its proposed emission limits, particularly if used for
street lighting, may interfere with XM Radio. Signal quality, and hence the
quality of XM Radio's service, could be impaired if the FCC does not rule in XM
Radio's favor.
XM Radio could be vulnerable to risk of signal theft
- ----------------------------------------------------
Like all radio transmissions, the XM Radio signal will be subject to
interception. "Pirates" may be able to obtain or rebroadcast XM Radio without
paying the subscription fee. Although XM Radio plans to use encryption
technology to mitigate the risk of signal theft, such technology may not be
adequate to prevent theft of the XM Radio signal. If widespread, signal theft
could harm XM Radio's business.
24
<PAGE>
XM Radio needs to obtain rights to programming, which could be more costly than
- -------------------------------------------------------------------------------
anticipated
- -----------
XM Radio must negotiate and enter into music programming royalty
arrangements with performing rights societies such as the American Society of
Composers, Authors and Publishers, Broadcast Music, Inc., and SESAC, Inc. These
organizations collect royalties and distribute them to songwriters and music
publishers and negotiate fees with copyright users based on a percentage of
revenues. Radio broadcasters currently pay a combined total of approximately
3-4% of their revenues to these performing rights societies. XM Radio expects to
negotiate or establish by arbitration royalty arrangements with these
organizations, but such royalty arrangements may be more costly than anticipated
or unavailable.
Under the Digital Performance Right in Sound Recordings Act of 1995 and the
Digital Millennium Copyright Act of 1998, XM Radio also has to negotiate royalty
arrangements with the owners of the sound recordings. The Recording Industry
Association of America will negotiate licenses and collect royalties on behalf
of copyright owners for this performance right in sound recordings. Cable audio
services currently pay a royalty rate of 6.5% of gross subscriber revenue. This
rate was set by the Librarian of Congress, which has statutory authority to
decide rates through arbitration, and was affirmed on May 21, 1999, by the
United States Court of Appeals for the District of Columbia. Although XM Radio
believes it can distinguish itself sufficiently from the cable audio services in
order to negotiate a lower statutory rate, it may not be able to do so.
Insurance will provide limited protection to XM Radio
- -----------------------------------------------------
XM Radio intends to purchase standard launch and in-orbit insurance
policies from global space insurance underwriters, which would provide coverage
against total or partial loss of either satellite during its expected life from
the time of launch. Any adverse change in insurance market conditions may
substantially increase the premiums XM Radio would have to pay for such
insurance. If the launch of either satellite is a total or partial failure,
under certain circumstances XM Radio's insurance may not fully cover XM Radio's
losses. Further, XM Radio does not expect to buy insurance to cover business
interruption, loss of business or similar losses. Also, any insurance XM Radio
obtains will likely contain certain customary exclusions and material change
conditions.
Rapid technological change could make XM Radio's service obsolete
- -----------------------------------------------------------------
The satellite industry and the audio entertainment industry are both
characterized by rapid technological change, frequent new product innovations,
changes in customer requirements and expectations, and evolving industry
standards. Products using new technologies, or emerging industry standards,
could render XM Radio's technologies obsolete. In addition, XM Radio may face
unforeseen problems when developing the XM Radio system which could harm its
business.
Because XM Radio will depend on third parties to develop technologies used
in key elements of the XM Radio system, more advanced technologies which it may
wish to use may not be available to XM Radio on reasonable terms or in a timely
manner. Further, XM Radio's competitors may have access to technologies not
available to XM Radio, which may enable them to produce entertainment products
of greater interest to consumers, or at a more competitive cost.
25
<PAGE>
AMERICAN MOBILE'S BUSINESS
--------------------------
General
- -------
We are a nationwide provider of wireless two-way data, dispatch and voice
communications services that enable businesses and mobile workers to manage,
access, and transfer electronic information. We have developed a versatile array
of products and services targeted at customers in four primary market segments:
(1) transportation and package delivery, (2) field service, (3) wireless email
and other Internet-based content services, and (4) telemetry, which refers to
device to device communications for database access or remote monitoring.
Customers use our products and services to connect their remote and mobile
equipment and people to their enterprise systems. We deliver our services
through our own wireless network that uniquely integrates separate terrestrial
and satellite components. Our customers typically sign multi-year contracts for
applications on our network such as:
o messaging and call dispatch systems used by large transportation
companies and field service organizations,
o two-way wireless email services that provide mobile professionals with
integrated wireless access to a broad range of corporate and Internet
email applications,
o telemetry and point-of-sale systems that connect remote equipment,
such as utility meters or wireless point-of-sale terminals, with a
central monitoring facility,
o global position tracking systems that permit businesses to manage
mobile assets, and
o point-to-multi-point voice communications systems used by natural
resource companies, utilities, government agencies and other entities
with mobile fleets and field workers.
We offer customers the nation's largest, most fully-deployed terrestrial
wireless two-way data network, comprising approximately 1,700 base stations that
provide service to 427 of the largest cities and towns in the United States,
including virtually all metropolitan areas. We believe that our network's
extensive nationwide coverage and deep in-building penetration are key
competitive advantages, providing customers with full two-way messaging
capability and guaranteed message delivery through a single service provider
with nationwide scope. Our satellite in geosynchronous orbit overlays our
terrestrial network, thereby extending the service area coverage of our network
throughout all 50 states and the Caribbean. The satellite also provides
nationwide voice and dispatch services.
As of March 31, 1999 we had approximately 113,000 units on our network, of
which 99,600 were data units and 13,400 were voice units. On a pro forma basis
giving effect to our acquisition of ARDIS Company in March 1998, our total
subscribers grew by 30% during 1998 and 7% during the first quarter of 1999. In
26
<PAGE>
addition, we reduced our EBITDA loss from ($56.9) million in 1997 to ($36.9)
million in 1998, on a pro forma basis for the ARDIS acquisition.
Our principal executive offices are located at 10802 Parkridge Boulevard,
Reston, Virginia 20191-5416, and our telephone number is (703) 758-6000. We also
maintain an Internet site on the World Wide Web at www.ammobile.com. Information
contained at our web site is not, and should not be deemed to be, a part of this
prospectus.
Our Investment in XM Radio
- --------------------------
In addition to our core wireless business, we have an investment in XM
Satellite Radio Holdings Inc., a development stage company. XM Radio is seeking
to become a nationwide provider of digital quality audio entertainment and
information programming transmitted directly by satellites to vehicle, home and
portable radios. XM Radio owns one of two FCC licenses to provide a satellite
digital audio radio service for the United States. XM Radio is developing its
service, which it will call "XM Radio," to provide a wide variety of music,
news, talk, sports and other programming offering up to 100 distinct channels.
XM Radio believes that customers will be attracted to the broad offering of
formats and the service's digital quality sound and coast-to-coast coverage. XM
Radio is constructing its satellite system and contracting with third party
programmers, vendors and other partners.
On July 7, 1999, we acquired WorldSpace, Inc.'s debt and equity interests
in XM Radio, other than a $75 million loan from WorldSpace to XM Radio, in
exchange for approximately 8.6 million shares of our common stock. Concurrently
with this transaction, XM Radio issued $250 million of subordinated convertible
notes to several new strategic and financial investors, including General Motors
Corporation, Clear Channel Investments, Inc., DIRECTV Enterprises, Inc., Telcom
Ventures, L.L.C., Columbia Capital and Madison Dearborn Partners. XM Radio used
$75 million of the proceeds from such notes to repay the outstanding loan
payable to WorldSpace. As a result of these transactions, WorldSpace no longer
owns any direct equity or debt interest in XM Radio, and we own all of the
issued and outstanding stock of XM Radio. However, on a fully diluted basis
assuming a subsequent conversion of all outstanding convertible notes of XM
Radio into XM Radio voting stock, we would own approximately 37% of the economic
interest in XM Radio.
Recent Developments - Results for the Quarter Ended June 30, 1999
- -----------------------------------------------------------------
On July 26, 1999, we announced certain financial and operating results for
the second quarter ended June 30, 1999. Total revenues for the quarter,
including equipment sales, increased to $22.9 million, from $22.4 million for
the same period in 1998. Net service revenues for the quarter were $16.6 million
compared with $16.7 million in the second quarter 1998. We reported a second
quarter EBITDA loss of ($10.5) million and a net loss of ($42.4) million, or
($1.31) per share, as compared to an EBITDA loss of ($10.4) million and a net
27
<PAGE>
loss of ($43.0) million, or ($1.36) per share, for the same quarter of the
previous year. Excluding equity losses in XM Radio, which we were required to
reflect under the equity basis of accounting as a result of the Exchange
Transaction described below, the net loss for the second quarter was ($39.2)
million, or ($1.21) per share. During the quarter, we added 10,100 subscriber
units, ending at 123,100 as of June 30, 1999.
USE OF PROCEEDS
---------------
We will not receive any proceeds from the sale of the shares of our common
stock covered by this Prospectus. The Selling Stockholders will receive all of
the proceeds from any sales of our common stock covered by this prospectus.
SELLING STOCKHOLDERS
--------------------
Information About the Shares Owned by XM Ventures
- -------------------------------------------------
We issued 6,479,443 shares of our common stock to XM Ventures in a private
transaction on July 7, 1999, and we have agreed to issue an additional 2,134,801
shares of our common stock to XM Ventures after we obtain the approval of our
stockholders to issue such shares. A special meeting of our stockholders has
been scheduled for September 7, 1999 to vote on a proposal to issue such
additional shares.
We agreed to issue the foregoing shares to XM Ventures as part of a
transaction completed on July 7, 1999, in which we acquired WorldSpace, Inc.'s
debt and equity interests in XM Radio, other than a $75 million loan from
WorldSpace to XM Radio, in exchange for approximately 8.6 million shares of our
common stock. (In this prospectus, this transaction is referred to as the
"Exchange Transaction.") For more information about the Exchange Transaction,
please see the discussion under the caption "- Summary of Certain Material
Relationships with Selling Stockholders."
Subject to certain limitations, XM Ventures may sell the shares it owns.
Alternatively, XM Ventures may distribute any of the shares to the persons who
own shares of, or options, warrants or other rights to purchase shares of,
common stock of WorldSpace, Inc. which is the beneficiary of XM Ventures, who,
in turn, may sell such shares. If XM Ventures distributes shares it owns to such
persons, we will, if required, supplement this Prospectus to name any additional
selling stockholders.
The following table shows, as of July 14, 1999, the number of shares of our
common stock that were beneficially owned by XM Ventures and the number of
shares that XM Ventures may offer under this Prospectus. We cannot provide you
with an estimate of the number of shares of common stock that XM Ventures will
hold in the future, since XM Ventures may sell all, some or none of its shares
of common stock. The following table (excluding the information relating to the
percentage of shares beneficially owned) has been prepared based upon
information provided to us by XM Ventures.
28
<PAGE>
<TABLE>
Shares Owned Prior to Offering
------------------------------
Shares Held
<CAPTION>
Number of Shares(1) Percent(2) Shares Offered After Offering
------------------- ---------- -------------- --------------
<S> <C> <C> <C> <C> <C>
XM Ventures (3) 8,614,244 20.87% 8,614,244 (4)
</TABLE>
- ----------------
(1) Reflects beneficial ownership of shares of common stock prior to giving
effect to the sale of the shares offered by this Prospectus. Inclues
2,134,801 shares that we have agreed to issue to XM Ventures, subject to
stockholder approval. A special meeting of our stockholders has been
scheduled for September 7, 1999 to vote on a proposal to issue such shares.
(2) Reflects the percentage of the outstanding shares of common stock
beneficially owned.
(3) XM Ventures is a trust, the beneficiary of which is WorldSpace, Inc. The
trustee of XM Ventures is Noah A. Samara. XM Ventures' address is 2400 N
Street, N.W., Washington, DC 20037.
(4) We cannot provide you with an estimate of the number of shares of common
stock that XM Ventures will hold in the future because XM Ventures may sell
all, some or none of its shares of common stock.
Summary of Certain Material Relationships with Selling Stockholders
- -------------------------------------------------------------------
Prior to July 7, 1999, WorldSpace owned 20% of the voting stock of XM Radio
and, between May 1997 and July 1999, WorldSpace provided approximately $143.9
million of funding to XM Radio. The funds provided by WorldSpace constituted the
vast majority of XM Radio's funding prior to July 7, 1999. WorldSpace's funding
to XM Radio took the form of both equity investments and loans, including loans
represented by notes convertible into XM Radio stock. WorldSpace also owned
certain options exercisable for XM Radio stock. Also, from May 1997 to July 7,
1999, Noah Samara, a stockholder of WorldSpace, served as a director of XM
Radio. Prior to July 7, 1999, we and WorldSpace were parties to a shareholders'
agreement addressing certain board of director and other corporate governance
matters relating to XM Radio. This agreement was terminated upon the closing of
the Exchange Transaction.
On July 7, 1999, we acquired WorldSpace's debt and equity interests in XM
Radio, other than a $75 million loan from WorldSpace to XM Radio, in exchange
for approximately 8.6 million shares of our common stock. Concurrently with the
Exchange Transaction, XM Radio issued $250 million of subordinated convertible
notes to several new strategic and financial investors, and used $75 million of
the proceeds from these notes to repay the outstanding loan payable to
WorldSpace. As a result of these transactions, we own all of the issued and
outstanding stock of XM Radio, subject to the possibility of our interest being
reduced as described below. WorldSpace no longer owns any direct equity or debt
interest in XM Radio.
29
<PAGE>
As part of the Exchange Transaction, XM Ventures agreed to certain
restrictions on the transfer of shares of our common stock owned by it.
Generally, XM Ventures initially may sell or distribute up to 1.7 million of its
shares, and, thereafter, it may sell or distribute an additional 20% of the
shares on or after each three-month anniversary of July 7, 1999, the date we
originally issued shares to XM Ventures. There are additional restrictions on
the transfer of such shares to ensure that we do not violate applicable legal
limits on the percentage of our stock that may be owned by non-U.S. citizens, as
well as certain other restrictions contained in the Exchange Agreement executed
in connection with the Exchange Transaction.
Also as part of the Exchange Transaction, XM Ventures agreed to certain
restrictions on its ability to vote its shares of our common stock. From July 8,
1999 until the first date on which XM Ventures and certain "significant
stockholders" (as defined below) hold less than 15% of the then outstanding
shares of our common stock, XM Ventures and each such significant stockholder
must, with respect to any vote or consent by the holders of our common stock on
any matter, be present in person or represented by proxy at any meeting of our
stockholders to consider such matter, and must vote their shares of common
stock, or sign any such consent, in proportion to the votes or consents of all
other stockholders voting or consenting to such matter. Following the expiration
of this period, XM Ventures and such significant stockholders may vote their
shares of common stock as each determines in its own discretion. For purposes of
the foregoing discussion, "significant stockholder" means each stockholder of
WorldSpace or holder of options or other rights to acquire an interest in
WorldSpace as of June 7, 1999 that beneficially owns (within the meaning of Rule
13d-3 of the Securities Exchange Act of 1934) more than one percent (1%) of the
then outstanding shares of our common stock, provided that in calculating
beneficial ownership, no share may be counted more than once.
REGISTRATION RIGHTS OF SELLING STOCKHOLDERS
-------------------------------------------
When we issued the shares covered by this Prospectus to XM Ventures as
described above, we agreed to register such shares for resale under the
Securities Act of 1933. This agreement is contained in an Exchange Agreement,
dated June 7, 1999, by and among us, XM Radio and WorldSpace. This agreement
requires us to file a "shelf" registration statement to register such shares. We
are also required to file such amendments and supplements to such registration
statement and this prospectus with the SEC as may be necessary to comply with
applicable securities law with respect to the disposition of all of the shares
covered by the registration statement. The Exchange Agreement also gives XM
Ventures certain rights to include, or "piggyback," shares of common stock in
other registrations, as well as certain rights to demand underwritten
registrations.
We may suspend the effectiveness of the "shelf" registration statement, at
our option, up to two times in any consecutive 365-day period, for no longer
than reasonably necessary and in no event longer than 30 consecutive days per
suspension, separated, in each case, by at least 60 days from any prior blackout
period, in the event of certain significant business combinations or similar
material transactions, if (i) the Board of Directors determines, in the exercise
of its reasonable judgment, that disclosure of such transaction in the shelf
registration statement is not in our best interests, and (ii) we provide notice
of such determination to XM Ventures.
30
<PAGE>
Whenever we propose to register any of our securities in an underwritten
offering under the Securities Act, whether or not for our own account, on a form
that may also be used for the registration of the shares covered by this
registration statement, XM Ventures may request that we include, or "piggyback,"
in such registration all of the shares issued to XM Ventures in the Exchange
Transaction. The piggyback registration rights granted to XM Ventures are
subject and subordinate to the registration rights under all of our other
existing registration rights agreements with other parties. In addition, XM
Ventures may not exercise their piggyback rights in connection with our first
public offering that occurs after July 7, 1999.
In addition, beginning on the later of July 7, 2001 or the exercise or
expiration of all demand registration rights under all of our other existing
registration rights agreements with other parties, but in no event later than
July 7, 2002, irrespective of whether all demand registration rights under all
of our other existing registration rights agreements with other parties have
been exercised or expired, XM Ventures shall be entitled to two underwritten
demand registrations on customary terms and procedures. These demand
registrations are subject to the right of our Board of Directors to delay any
such registration for up to 90 days upon its good faith determination that such
registration is not in our best interests at that time.
PLAN OF DISTRIBUTION
---------------------
The selling stockholders named in this Prospectus may sell their shares of
common stock, from time to time, on the Nasdaq National Market (or any other
securities exchange or automated quotation system on which our shares are then
listed or quoted or in the over-the-counter market), in privately negotiated
transactions or a combination of these methods of sale. Such selling
stockholders may sell the shares at fixed prices (which may be changed), at
market prices prevailing at the time of sale, at prices related to market prices
or at negotiated prices. Such selling stockholders may sell their common stock
directly or by or through agents, brokers, dealers or underwriters in one or
more of the following types of transactions:
o underwritten public offerings;
o ordinary brokerage transactions and in transactions in which the
broker solicits purchasers;
o purchases by a broker-dealer as principal and resale by such
broker-dealer for its own account pursuant to this prospectus;
o for the purpose of covering short positions; and
o in "block" sales.
31
<PAGE>
To the extent required, we will amend or supplement this prospectus from
time to time to describe a specific plan of distribution. If the selling
stockholders hire brokers or dealers to sell their shares of common stock, the
selling stockholders may arrange for other brokers or dealers to participate in
the resales. In addition, any shares covered by this prospectus which qualify
for sale pursuant to Section 4(1) of the Securities Act of 1933 or Rule 144
under such Act may be sold under such provisions rather than pursuant to this
prospectus.
At the time any selling stockholder makes a particular offer, if required,
we will file, and such selling stockholder will distribute, a prospectus
supplement that sets forth the number of shares of common stock offered and
other terms of the offering, including the name or names of any underwriters,
dealers or agents, the purchase price paid by any underwriters for the common
stock purchased from such selling stockholder, any discounts, commissions or
other items constituting compensation from such selling stockholder and any
discounts, concessions or commissions allowed or reallowed or paid to dealers.
The selling stockholders and any brokers, dealers or agents who participate
in a sale of the shares of common stock may be considered "underwriters" within
the meaning of Section 2(11) of the Securities Act. Any profits realized by any
selling stockholders and the compensation of any brokers, dealers or agents may
be deemed to be underwriting discounts and commissions.
Our outstanding common stock is listed on the Nasdaq National Market, and
we have applied for listing of the 8,614,244 shares of common stock held by XM
Ventures on the Nasdaq National Market.
We will bear the costs of registering the shares of our common stock held
by XM Ventures, including all registration and filing fees, fees and expenses
for compliance with securities or blue sky laws, printing expenses, messenger
and delivery expenses, fees and disbursements of custodians, and fees and
disbursements of our counsel and all independent certified public accountants
and underwriters (excluding discounts and commissions). XM Ventures, however, is
responsible for the fees and disbursements of its separate legal counsel in
connection with the registration.
LEGAL MATTERS
-------------
Certain legal matters with respect to the shares of common stock offered by
this prospectus will be passed upon for the Company by Randy S. Segal, our
Senior Vice President, General Counsel and Secretary. Ms. Segal owns 170,200
shares of common stock. Ms. Segal's ownership includes shares she owns through
our matching 401(k) Plan and /or Employee Stock Purchase Plan. Her ownership
also includes shares issuable upon the exercise of options granted under our
Stock Option Plan which options are vested and exercisable, subject to
compliance with applicable securities laws. Ms. Segal is also a Director of XM
Radio.
32
<PAGE>
EXPERTS
-------
The consolidated financial statements of American Mobile Satellite
Corporation (the "Company") as of December 31, 1997 and 1998 and for each of the
years in the three-year period ended December 31, 1998, included in the
Company's Form 8-K dated July 9, 1999 and incorporated by reference in this
prospectus and elsewhere in the registration statement, have been audited by
Arthur Andersen LLP, independent public accountants, as indicated in their
report with respect thereto, and are included herein in reliance upon the
authority of said firm as experts in giving said report.
The consolidated financial statements of XM Satellite Radio Holdings Inc.
and Subsidiary (XM Radio) as of December 31, 1998 and 1997, and for the years
ended December 31, 1998 and 1997 and for the period from December 15, 1992 (date
of inception) to December 31, 1998, have been incorporated by reference herein
and in the registration statement in reliance upon the report of KPMG LLP,
independent certified public accountants, incorporated by reference herein, and
upon the authority of said firm as experts in accounting and auditing. The
report of KPMG contains an explanatory paragraph that states that XM Radio has
not commenced operations, has negative working capital and is dependent upon
additional debt and equity financings, which raise substantial doubt about XM
Radio's ability to continue as a going concern. The consolidated financial
statements of XM Radio do not include any adjustments that might result from the
outcome of that uncertainty.
WHERE YOU CAN FIND MORE INFORMATION
-----------------------------------
We file annual, quarterly and special reports, proxy statements and other
information with the SEC. You may read and copy any document we file with the
SEC at the SEC's public reference rooms located at Room 1024, 450 Fifth Street,
N.W., Washington, DC 20549, at 7 World Trade Center, 13th Floor, New York, NY
10048, and at Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, IL
60661. You can also obtain copies of filed documents by mail from the Public
Reference Section of the SEC at Room 1024, 450 Fifth Street, NW, Washington, DC
20549. Please call the SEC at 1-800-SEC-0330 for further information on the
public reference rooms. Our SEC filings are also available to the public at the
SEC's web site at http://www.sec.gov.
CERTAIN INFORMATION ABOUT THIS PROSPECTUS
-----------------------------------------
We have filed a registration statement on Form S-3 with the SEC under the
Securities Act of 1933 covering the common stock being offered by this
prospectus. As permitted by SEC rules, this prospectus omits certain information
that is included in the registration statement. For further information about us
and our common stock, you should refer to the registration statement and its
exhibits. Since the prospectus may not contain all the information that you may
find important, you should review the full text of these documents. If we have
filed a contract, agreement or other document as an exhibit to the registration
statement, you should read the exhibit for a more complete understanding of the
document or matter involved. Each statement in this prospectus, including
33
<PAGE>
statements incorporated by reference as discussed below, regarding a contract,
agreement or other document is qualified in its entirety by reference to the
actual document.
The SEC allows us to incorporate by reference the information that we file
with the SEC, which means that we can disclose important information to you by
referring you to those documents. The information incorporated by reference is
considered to be part of this prospectus, and information that we file later
with the SEC will automatically update and supersede this information. We
incorporate by reference the documents listed below and any future filings (File
No. 0-23044) we make with the SEC under Sections 13(a), 13(c), 14 or 15(d) of
the Securities Exchange Act of 1934:
a. our annual report on Form 10-K for the year ended December 31, 1998;
b. our quarterly report on Form 10-Q for the quarter ended March 31,
1999;
c. the description of our capital stock contained in our registration
statement on Form 8-A, dated December 9, 1993 and on Form 8-A/A, dated
December 13, 1993;
d. our current report on Form 8-K dated June 7, 1999 and filed with the
SEC on June 9, 1999;
e. our current report on Form 8-K dated July 9, 1999 and filed with the
SEC on July 9, 1999; and
f. our current report on Form 8-K dated July 23, 1999 and filed with the
SEC on July 26, 1999.
You may request a copy of these filings, at no cost, by writing or
telephoning us at the following address:
Randy S. Segal
Senior Vice President,General
Counsel and Secretary
American Mobile Satellite Corporation
10802 Parkridge Blvd.
Reston, Virginia 20191-5416
(703) 758-6130
34
<PAGE>
PART II
-------
INFORMATION NOT REQUIRED IN PROSPECTUS
--------------------------------------
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
- ------------------------------------------------------
The following are the estimated expenses (other than underwriting
discounts and commissions) of the issuance and distribution of the securities
being registered to be paid by the Company.
<TABLE>
<S> <C>
SEC registration fee............. ..................... $ 45,000
Legal fees and expenses................................ 20,000
Blue Sky fees and expenses............................. 2,500
Accounting fees and expenses........................... 10,000
Listing fees........................................... 17,500
Miscellaneous.......................................... 5,000
----------
Total $100,000
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
- ----------------------------------------------------
The Company's Bylaws provide that the Company will indemnify its directors
and officers to the fullest extent permitted by Delaware law. The Company may be
required to advance litigation expenses in the case of stockholder derivative
actions or other actions, against an undertaking by the indemnified party to
repay such advances if it is ultimately determined that the indemnified party is
not entitled to indemnification.
In addition, the Company's Certificate of Incorporation provides that,
pursuant to Delaware law, its directors shall not be liable for monetary damages
for breach of the directors' fiduciary duty of care to the corporation and its
stockholders. This provision in the Certificate of Incorporation does not
eliminate the duty of care, and in appropriate circumstances equitable remedies
such as injunctive or other forms of nonmonetary relief will remain available
under Delaware law. In addition, each director will continue to be subject to
liability for breach of the director's duty of loyalty to the Company for acts
or omissions not in good faith or involving intentional misconduct, for knowing
violations of law, for actions leading to improper personal benefit to the
director, and for payment of dividends or approval of stock repurchases or
redemptions that are unlawful under Delaware law. The provision also does not
affect a director's responsibilities under any other law, such as the federal
securities laws.
II-1
<PAGE>
At present, there is no pending litigation or proceeding involving an
officer or director of the Company as to which indemnification is being sought,
nor is the Company aware of any threatened litigation that may result in claims
for indemnification by any officer or director.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
- -----------------------------------------------------
Exhibits
- --------
5 Opinion of Randy S. Segal, General Counsel, Senior Vice President and
Secretary.
23.1 Consent of Arthur Andersen LLP, independent public accountants.
23.2 Consent of KPMG LLP, independent certified public accountants.
23.3 Consent of Randy S. Segal, General Counsel, Senior Vice President and
Secretary (included in Exhibit 5 to this registration statement).
24 Powers of Attorney of directors and officers of the Company (included
in the signature page).
ITEM 17. UNDERTAKINGS.
- -----------------------
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this Registration Statement:
(i) To include any prospectus required by section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the Registration Statement (or the most
recent post-effective amendment thereof) which, individually or
in the aggregate, represent a fundamental change in the
information set forth in the Registration Statement.
Notwithstanding the foregoing, any increase or decrease in volume
of securities offered (if the total dollar value of securities
offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated maximum
offering range may be reflected in the form of prospectus filed
with the Commission pursuant to Rule 424(b) of the Securities Act
if, in the aggregate, the changes in volume and price represent
no more than a 20% change in the maximum aggregate offering price
set forth in the "Calculation of Registration Fee" table in the
effective Registration Statement;
II-2
<PAGE>
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the Registration
Statement or any material change to such information in the
Registration Statement; Provided, however, that paragraphs
(a)(1)(i) and (a)(1)(ii) do not apply if the information required
to be included in a post-effective amendment by those paragraphs
is contained in periodic reports filed by the registrant pursuant
to Section 13 or Section 15(d) of the Securities Exchange Act of
1934 that are incorporated by reference in the Registration
Statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the
termination of the offering.
(b) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of
the registrant's annual report pursuant to Section 13(a) or Section 15(d)
of the Securities Exchange Act of 1934 (and, where applicable, each filing
of an employee benefit plan's annual report pursuant to Section 15(d) of
the Securities Exchange Act of 1934) that is incorporated by reference in
the Registration Statement shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering of
such securities at that time shall be deemed to be the initial bona fide
offering thereof.
(c) Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than th payment
by the registrant of expenses incurred or paid by a director, officer or
controlling person of the registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against
public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
II-3
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized in the County of Fairfax, Commonwealth of Virginia, on the 3rd day of
August, 1999.
AMERICAN MOBILE SATELLITE CORPORATION
By: /s/ Walter V. Purnell, Jr.
Name: Walter V. Purnell, Jr.
Title: President and Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below hereby constitutes and appoints Gary M. Parsons, Walter V. Purnell, Jr.
and Randy S. Segal, his true and lawful attorney-in-fact and agent, with full
power of substitution and resubstitution, for him and in his name, place, and
stead, in any and all capacities, to sign any and all amendments to this
registration statement, and to file the same, with exhibits thereto, and other
documents in connection therewith with the Securities and Exchange Commission,
granting unto said attorney-in-fact and agent full power and authority to do and
perform each and every act and thing requisite and necessary to be done, as
fully to all intents and purposes as he might or could do in person, hereby
ratifying and confirming all that said attorney-in-fact and agent or either of
them, or their or his substitute or substitutes, may lawfully do or cause to be
done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated:
Signature Title Date
/s/ Walter V. Purnell, Jr. President and Chief August 3, 1999
- -------------------------- Executive Officer, and Director
Walter V. Purnell, Jr. (Principal Executive Officer)
/s/ W. Bartlett Snell Senior Vice President and August 3, 1999
- --------------------- Chief Financial Officer
W. Bartlett Snell (Principal Financial and
Accounting Officer)
II-4
<PAGE>
/s/ Gary M. Parsons Chairman of the Board August 3, 1999
- ------------------- of Directors
Gary M. Parsons
/s/ Douglas I. Brandon Director August 3, 1999
- ----------------------
Douglas I. Brandon
/s/ Pradeep P. Kaul Director August 3, 1999
- -------------------
Pradeep P. Kaul
/s/ Billy J. Parrott Director August 3, 1999
- --------------------
Billy J. Parrott
/s/ Andrew A. Quartner Director August 3, 1999
- ----------------------
Andrew A. Quartner
/s/ Jack A. Shaw Director August 3, 1999
- ----------------
Jack A. Shaw
/s/ Roderick M. Sherwood, III Director August 3, 1999
- -----------------------------
Roderick M. Sherwood, III
/s/ Michael T. Smith Director August 3, 1999
- --------------------
Michael T. Smith
II-5
<PAGE>
Exhibit 5
August 3, 1999
American Mobile Satellite Corporation
10802 Parkridge Boulevard
Reston, Virginia 20191-5416
Ladies and Gentlemen:
As set forth in the Registration Statement on Form S-3 (the
"Registration Statement") filed by American Mobile Satellite Corporation (the
"Company"), with the Securities and Exchange Commission under the Securities Act
of 1933, as amended, relating to 8,614,244 shares of Common Stock (the "Shares")
that may be sold by XM Ventures and certain other selling stockholders named in
the Registration Statement (the "Selling Stockholders"), certain legal matters
in connection with the Shares are being passed upon for the Company by me. At
your request, this opinion is being furnished to you for filing as Exhibit 5 to
the Registration Statement.
As described in the Registration Statement, 6,479,443 of the Shares
(the "Issued Shares") were issued to XM Ventures on July 7, 1999, and the
remaining 2,134,801 Shares (the "Additional Shares") are to be issued to XM
Ventures following approval of such issuance by the Company's stockholders.
In my capacity as general counsel of the Company, I have examined the
Certificate of Incorporation and Bylaws of the Company, each as amended to date,
the originals, or copies certified or otherwise identified, of corporate records
of the Company, including minute books of the Company as furnished to me by the
Company, certificates of public officials and of representatives of the Company,
statutes and other instruments and documents as a basis for the opinions
hereinafter expressed. In giving such opinions, I have relied upon certificates
of officers of the Company with respect to the accuracy of certain factual
matters contained in such certificates.
On the basis of the foregoing, and subject to the assumptions,
limitations and qualifications set forth herein, I am of the opinion that:
<PAGE>
1. The Company is a corporation duly incorporated and validly
existing under the laws of the State of Delaware.
2. The Shares to be sold by the Selling Stockholders have been duly
authorized.
3. The Issued Shares have been validly issued and are fully paid and
nonassessable.
4. The Additional Shares, upon issuance and delivery thereof
following approval of such issuance by the Company's
stockholders, will be validly issued, fully paid and
nonassessable.
The opinions set forth above are limited in all respects to the General
Corporation law of the State of Delaware as in effect on the date hereof.
I hereby consent to the filing of this opinion as Exhibit 5 to the
Registration Statement, and to the reference to my name under the caption "Legal
Matters" contained in the Registration Statement.
Sincerely,
/s/ Randy S. Segal
Randy S. Segal
General Counsel
<PAGE>
Exhibit 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our report
dated March 29, 1999 (except with respect to the matter discussed in Note 18, as
to which the date is July 7, 1999) and to all references to our Firm
incorporated by reference in or made a part of this registration statement on
Form S-3. Our report dated March 29, 1999 included in American Mobile Satellite
Corporation's Form 10-K for the year ended December 31, 1998 is no longer
appropriate since restated financial statements have been presented giving
effect to a business combination.
/s/ ARTHUR ANDERSEN LLP
Washington, D.C.
August 2, 1999
Exhibit 23.2
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference of our report dated February 12,
1999 in this registration statement on Form S-3 of American Mobile Satellite
Corporation with respect to the consolidated balance sheets of XM Satellite
Radio Holdings Inc. and Subsidiary (a development stage company) as of December
31, 1998 and 1997 and the related consolidated statements of operations,
stockholders' equity (deficit) and cash flows for the years ended December 31,
1998 and 1997 and for the period from December 15, 1992 (date of inception) to
December 31, 1998, and to the reference to our firm under the heading "Experts"
in the prospectus.
Our report, dated February 12, 1999, contains an explanatory paragraph that
states that XM Radio has not commenced operations, has negative working capital
of $130,341,000 and is dependent upon additional debt and equity financings
which raise substantial doubt about XM Radio's ability to continue as a going
concern. The consolidated financial statements of XM Radio do not include any
adjustments that might result from the outcome of that uncertainty.
/s/ KPMG LLP
McLean, VA
August 3, 1999
<PAGE>
