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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
DATE OF REPORT (Date of earliest reported event): JULY 7, 1999
AMERICAN MOBILE SATELLITE CORPORATION
(Exact name of registrant as specified in its charter)
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DELAWARE 0-23044 93-0976127
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(State or other jurisdiction of (Commission File No.) (IRS Employer Identification No.)
incorporation or organization)
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10802 PARKRIDGE BOULEVARD
RESTON, VIRGINIA 20191-5416
(703) 758-6000
(Address, including zip code, and telephone number,
including area code, of registrant's principal
executive offices)
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ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS
This report on Form 8-K contains forward-looking statements. 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
under the caption "Risk Factors."
THE XM RADIO TRANSACTIONS
GENERAL
On July 7, 1999, American Mobile Satellite Corporation ("American Mobile"
or "we") acquired WorldSpace Inc.'s debt and equity interests in XM Satellite
Radio Holdings Inc. ("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,
DIRECTV, Telcom Ventures, Columbia Capital and Madison Dearborn Partners. XM
Radio 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.
We decided to effect these transactions to provide XM Radio with more
diversified and strategic sources of funding. We believe the infusion of funds
to XM Radio by the new investors, together with the strategic and competitive
advantages that such investors provide to XM Radio, are important to XM Radio's
chances of successfully developing and offering satellite-based commercial radio
service in accordance with its business plan.
THE EXCHANGE TRANSACTION
Our exchange of approximately 8.6 million shares of our common stock for
WorldSpace's interest in XM Radio was effected as follows:
- WorldSpace transferred all of its right, title and interest in XM Radio,
other than a portion of certain loans totaling $75 million issued by
WorldSpace to XM Radio, to a new trust, XM Ventures, for the benefit of
the stockholders of WorldSpace and certain other persons owning options
and other rights to acquire WorldSpace stock. The assets transferred to
XM Ventures included shares of XM Radio stock owned by WorldSpace,
certain other indebtedness payable to WorldSpace, including notes
convertible into shares of XM Radio stock, and options to acquire shares
of XM Radio stock.
- XM Ventures then transferred to American Mobile all of the assets
described above relating to XM Radio that it received from WorldSpace in
exchange for 8,614,244 shares of our common stock. Of these shares,
6,479,443 shares were issued to XM Ventures at the closing of the
exchange transaction. We must obtain the approval of our stockholders
before we can issue the remaining 2,134,801 shares to XM Ventures. After
we obtain this stockholder approval, we will issue the remaining shares
to XM Ventures.
Concurrently with these transactions, XM Radio's capital structure was
reorganized. Following such recapitalization, we hold 100% of XM Radio's Class B
common stock, which are the only shares of XM Radio's capital stock outstanding.
We also hold certain convertible debt of XM Radio, convertible into shares of XM
Radio Class B common stock, which debt is subordinated to the Series A
subordinated convertible notes of XM Radio described below. The Class B common
stock of XM Radio has three votes per share. XM Radio also has Class A common
stock, which is entitled to one vote per share.
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ISSUANCE OF SERIES A SUBORDINATED CONVERTIBLE NOTES OF XM RADIO TO NEW INVESTORS
On July 7, 1999, XM Radio issued $250 million of Series A subordinated
convertible notes to six new strategic and financial investors, including
General Motors, Clear Channel Investments, DIRECTV, Columbia Capital, Telcom
Ventures, and Madison Dearborn Partners. The notes and accrued interest are
convertible into either XM Radio's Class A common stock or XM Radio's Series A
convertible preferred stock at a conversion price of $509,711 aggregate
principal amount of notes for each share of XM Radio stock. The notes mature on
December 31, 2004, or, if XM Radio issues at least $50 million aggregate
principal amount of high yield debt securities, XM Radio will be entitled to
extend the maturity date of the convertible notes to a date no later than the
six-month anniversary of the stated maturity date of such high yield debt
securities. The notes are senior to all existing XM Radio indebtedness,
including our convertible debt in XM Radio that is convertible into XM Radio
Class B common stock, but are subordinate to any future high yield debt
securities issued by XM Radio.
Using part of the proceeds from the issuance of its Series A subordinated
convertible notes, XM Radio paid WorldSpace $75 million to repay an outstanding
loan owed to WorldSpace.
OUR FULLY DILUTED OWNERSHIP POSITION IN XM RADIO
As a result of the XM Radio Transactions we own all of the issued capital
stock of XM Radio. In the event that all securities convertible into voting
stock of XM Radio were converted, we would own approximately 37% of the economic
interest and approximately 62% of the voting interest in XM Radio. The $250
million of Series A subordinated convertible notes are convertible into either
XM Radio's Class A common stock or Series A convertible preferred stock at the
election of the holders and, automatically, upon the occurrence of certain
events, including an initial public offering of XM Radio yielding gross proceeds
in excess of $100 million and above a prescribed per share value. In addition,
the Class B common stock of XM Radio owned by us (which is entitled to three
votes per share) is convertible on a one for one basis into Class A common stock
(which is entitled to one vote per share), as follows: (1) at any time at our
discretion, (2) following XM Radio's initial public offering, at the direction
of the holders of a majority of the then outstanding shares of XM Radio's Class
A common stock (which majority must include at least 20% of the public holders
of Class A common stock), and (3) on or after January 1, 2002, at the direction
of the holders of a majority of the then outstanding shares of Class A common
stock. Such conversion will be effected only upon receipt of FCC approval. In
the event of such a conversion of our Class B common stock of XM Radio into
Class A common stock, our voting interest in XM Radio will be reduced to
approximately 37%.
OUR INVESTMENT IN XM RADIO
Prior to the XM Radio Transactions, we invested approximately $1.7 million
in equity in XM Radio, and an additional $21.4 million through the XM Note
Receivable described under the caption "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources" in our annual report on Form 10-K for the year ended December
31, 1998. In addition, WorldSpace provided approximately $143.9 million to XM
Radio through investments in equity and debt securities. The XM Note Receivable
(which is convertible into XM Radio stock) presently has an outstanding balance
of approximately $21.7 million, including accrued interest. Following completion
of the XM Radio Transactions, we have no legal obligation to invest additional
funds in XM Radio's business, and we do not intend to invest additional funds.
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XM RADIO'S BUSINESS
OVERVIEW
XM Radio is seeking to become a nationwide provider of digital quality
audio entertainment and information programming transmitted directly by
satellites to car, 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, coast-to-coast coverage and text display features.
XM Radio is constructing its satellite system and contracting with third
party programmers, vendors and other partners. Key milestones achieved include
the following:
- Raised approximately $331.0 million of capital to date, net of expenses
and repayment of debt, including recent investments by several strategic
and financial investors, including General Motors, Clear Channel
Investments, DIRECTV, Telcom Ventures, Columbia Capital and Madison
Dearborn Partners;
- Long-term agreement with the OnStar division of General Motors covering
the installation and exclusive marketing and distribution of XM Radio
service in GM vehicles;
- Contract with Hughes for delivery and launch of two high-powered
satellites;
- Agreement with STMicroelectronics, a leading digital audio chipset
manufacturer, for the design and production of chipsets for XM Radio
receivers;
- Contracts with Alpine Electronics, Pioneer, SHARP and Delco Electronics
to manufacture and distribute XM Radio receivers; and
- Agreements with leading specialty programmers including Black
Entertainment Television, Inc., Bloomberg Communications Inc., Cable News
Network LP, National Cable Satellite Corporation (C-SPAN), AsiaOne
Network, L.L.C., Hispanic Broadcasting Corporation (formerly Heftel),
One-on-One Sports Radio Network, Inc., Radio One, Inc. and Salem
Communications Corporation.
THE XM RADIO SYSTEM
XM Radio is designing its system to provide satellite radio to the
continental United States and coastal waters using S-Band radio frequencies
allocated by the FCC for satellite radio. The XM Radio system will be capable of
providing high quality satellite radio services to mobile XM radios in
automobiles, trucks, recreation vehicles and pleasure craft, as well as to fixed
or portable XM radios in the home, office or other fixed locations.
The XM Radio system design uses a network consisting of an uplink facility,
two high-power geostationary satellites and, where necessary, terrestrial
repeaters to provide digital audio service to both fixed and mobile XM radios
throughout the United States and coastal waters. XM Radio has signed a contract
with LCC International Inc., a wireless services site planner, to design a
terrestrial repeater network, and anticipates awarding a definitive contract for
the construction of a terrestrial repeater network in the third quarter of 1999.
XM Radio will also operate a business facility which will include a billing
system and administrative support. XM Radio's programming facility may include
its uplink facility and its network monitoring center. XM radios will be
manufactured by major consumer electronics manufacturers.
A key distinguishing feature of the XM Radio system from standard AM/FM
radio is its virtually seamless nationwide coverage. This will be accomplished
using two high-power satellites and a terrestrial repeater network. Terrestrial
repeaters will be an important component of the XM Radio system in dense urban
areas characterized by "urban canyons" (i.e. urban areas with narrow streets
and high buildings on both sides), allowing listeners to receive the signal
with small antennas even when the "view" of the satellite is obscured. These
repeaters will receive the satellite signals and retransmit them at much higher
power levels, allowing receivers to pick up signals that are reflected by
buildings or other objects, facilitating reception in dense urban areas. XM
Radio intends to leverage American Mobile's expertise and experience in
designing and constructing its terrestrial repeater network.
COMPETITION
XM Radio expects to face competition for both listeners and advertising
dollars, from both traditional and new sources.
CD RADIO. XM Radio's direct competitor in satellite radio service is
likely to be CD Radio, the only other FCC licensee for satellite radio service
in the United States. CD Radio has announced that it expects to become
operational in late 2000. If CD Radio begins commercial operations significantly
before XM Radio, it may gain a competitive advantage over XM Radio. CD Radio
plans to deploy three satellites in a North American elliptical orbit, with a
smaller number of terrestrial repeaters than XM Radio plans to use in its
system.
TRADITIONAL AM/FM RADIO. In addition to CD Radio, XM Radio anticipates
that it will compete with traditional AM/FM radio, particularly the larger
national radio broadcasters. 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. It is anticipated
that traditional radio will be able to broadcast high quality digital signals in
the next few years.
OTHER. To a lesser extent, XM Radio also expects to face competition from
national satellite-based audio programming syndicators, direct broadcast
satellite television, cable systems that carry audio service, and Internet-based
audio providers.
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RISK FACTORS
XM RADIO'S BUSINESS INVOLVES SIGNIFICANT RISKS AND THESE RISKS MAY IMPAIR THE
VALUE OF OUR INVESTMENT IN XM RADIO
There are significant risks associated with our investment in XM Radio.
These risks may impair the value of our investment in XM Radio.
XM RADIO IS A DEVELOPMENT STAGE COMPANY AND HAS NOT GENERATED REVENUES TO DATE
Because 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 been able to generate any revenues. XM Radio
likely will not generate significant revenues from operations until the
commencement of commercial operation of its service.
XM RADIO MAY NEVER BECOME PROFITABLE
XM Radio expects to incur significant expenses in the future, and as a
result 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
- whether it creates and implements the XM Radio system in a timely
fashion;
- whether consumer electronics manufacturers successfully develop and
manufacture XM radios;
- whether XM Radio can attract and retain enough subscribers and
advertisers to XM Radio;
- whether XM Radio can compete successfully; and
- 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 currently estimates that it will need approximately $700.0
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 2001. Even after it commences commercial service, XM Radio expects
to 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 "Certain
Transactions Involving XM Radio -- Distribution Agreement with General Motors."
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 further funds 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. See "The
XM Radio Transactions." 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 fails to obtain any necessary financing on a timely basis, then
- its satellite construction, launch, or other events necessary to its
business could be materially delayed, or their costs could materially
increase;
- 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
- 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.
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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
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 affect the useful lives of XM
Radio's satellites, including
- defects in construction;
- faster than expected degradation of solar panels;
- loss of fuel on board;
- random failure of satellite components that are not protected by back-up
units;
- electrostatic storms; and
- 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
in geosynchronous orbit, 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 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. In
addition, some areas with impediments to satellite line of sight may still
experience "dead zones." The terrestrial repeater system may not be fully
deployed when the satellites commence operation.
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.
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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
- XM Radio's inability to obtain necessary financing in a timely manner;
- delays in, or modifications to, the design, development, construction,
launch or testing of satellites, terrestrial repeaters or other aspects
of the XM Radio system;
- satellite launch failure;
- delays in manufacture or commercial availability of XM radios;
- obtaining additional authorizations from the FCC, if required; and
- 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.
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, including any delay in whole or in part caused by an
event beyond the reasonable control of Hughes or its subcontractors or
affiliates, and including specifically any delay caused by the satellite launch
services provider. In general, such excusable delays may not exceed 485 days.
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 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. XM Radio would be entitled to minimal liquidated damages from Hughes
for failure to launch within the scheduled launch period for each satellite.
Neither Hughes nor the satellite launch services provider, however, will
otherwise be liable to XM Radio for any delay in delivery of the satellites, up
to 180 days, resulting from a delay 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 from within or outside of Hughes' inventory. This remedy likely will not
adequately compensate XM Radio for the damage such delay would cause to its
business.
XM Radio currently intends to use Sea Launch as its satellite launch
services provider. Sea Launch is subject to U.S. export regulations because it
is a partnership between Boeing and foreign partners, including a Russian and a
Ukrainian company. It is possible that the Sea Launch export license could be
revoked or suspended in the future, or that future measures required to comply
with United States government regulations could result in delays material to XM
Radio's business. 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.
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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 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 TRADITIONAL AND EMERGING AUDIO
ENTERTAINMENT PROVIDERS, INCLUDING CD RADIO
In seeking market acceptance, XM Radio will encounter competition for both
listeners and advertising revenues from many sources, including
- CD Radio, the other satellite radio licensee;
- standard and, when available, digital AM/FM radio;
- national satellite-based radio programming syndicators;
- direct broadcast satellite television;
- cable systems that carry audio service; and
- Internet-based audio providers.
CD Radio has announced that it expects to become operational in late 2000
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. During the term of the agreement, which expires 12
years from the commencement date of XM Radio's commercial operations, General
Motors has agreed to distribute XM Radio's service to the exclusion of other
S-band 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 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. For more details about XM Radio's
contract with General Motors, see the discussion under the caption "Certain
Transactions Involving XM Radio -- Distribution Agreement with General Motors."
<PAGE> 9
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
- whether XM Radio obtains, produces and markets high quality programming
consistent with consumers' tastes;
- the willingness of consumers to pay subscription fees to obtain satellite
radio service;
- the cost and availability of XM radios;
- XM Radio's and its AM/FM radio competitors' marketing and pricing
strategies;
- whether competitors develop new and alternative technologies providing
audio entertainment; and
- 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.
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 will 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.
<PAGE> 10
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.
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 issue of interoperability. Accordingly, XM Radio may not be able to meet the
FCC's interoperability requirements. If it fails to do so, the FCC could take a
range of actions, any of which could harm XM Radio's business.
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.
<PAGE> 11
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.
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 also 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.
<PAGE> 12
CERTAIN TRANSACTIONS INVOLVING XM RADIO
SATELLITE CONSTRUCTION CONTRACT WITH HUGHES. XM Radio has entered into a
Satellite Purchase Contract for In-Orbit Delivery, dated March 20, 1998, as
amended thereafter, with Hughes. This satellite contract calls for Hughes to
deliver:
- in-orbit, two high-power satellites;
- an optional ground spare satellite upon exercise of XM Radio's option;
and
- satellite launch services.
XM Radio expects to incur total payment obligations under this satellite
contract of approximately $541.3 million, which includes amounts XM Radio
expects to pay pursuant to the exercise of the option to build the ground spare
satellite and certain financing costs and in-orbit incentive payments. Payments
are to be made to Hughes upon certain calendar dates and completion of discrete
milestones and other events. As of June 30, 1999, XM Radio had paid $58.3
million under this contract.
Until receipt by Hughes of certain material payments, or unless otherwise
released in accordance with the satellite contract, XM Radio has granted Hughes
a first priority security interest in any rights XM Radio may have in Hughes'
work product under the satellite contract to secure XM Radio's obligations to
Hughes with respect thereto.
XM Radio may, subject to certain conditions, terminate the satellite
contract at XM Radio's convenience, in which case Hughes will be entitled to
certain payments. XM Radio may also terminate the satellite contract for certain
events of default by Hughes or in case it becomes reasonably certain that the
total amount of excusable delay in Hughes' performance under the satellite
contract caused by events beyond Hughes' control (excluding delays XM Radio
caused) will exceed 485 calendar days.
The scheduled launch period for the first satellite is the period from
November 2000 through February 1, 2001. The scheduled launch period for the
second satellite is the period from February 1, 2001 through May 15, 2001. If
there is a delay of more than six months in the launch of either the first or
second satellite, XM Radio would be able to select an alternative launch system
from within or outside of Hughes' inventory of launch vehicles, subject to
certain payment conditions set forth in the satellite contract.
XM RADIO SHAREHOLDERS' AGREEMENT. XM Radio has entered into a
shareholders' agreement with American Mobile, Baron and the holders of the
Series A subordinated convertible notes issued by XM Radio, containing, among
others, the provisions described below.
The shareholders agreement provides that the Class B common stock of XM
Radio owned by us is convertible into Class A common stock, on a one for one
basis, as follows: (1) at any time at our discretion, (2) following XM Radio's
initial public offering, at the direction of the holders of a majority of the
then outstanding shares of XM Radio's Class A common stock (which majority must
include at least 20% of the public holders of Class A common stock), and (3) on
or after January 1, 2002, at the direction of the holders of a majority of the
then outstanding shares of XM Radio's Class A common stock. Such conversion will
be effected only upon receipt of FCC approval of our transfer of control of XM
Radio to a diffuse group of shareholders.
Except for affiliated transactions, we are not permitted to transfer any of
our shares of XM Radio's common stock until the earlier of the date on which XM
Radio begins commercial operations or one year after the closing of an initial
public offering (of a certain size) of shares of XM Radio. Shares of XM Radio
Class B common stock are transferable upon conversion into shares of XM Radio
Class A common stock and, in certain circumstances, to Baron.
Until an initial public offering of XM Radio's stock, XM Radio's Board of
Directors will consist of seven members, three of whom will be selected by
holders of the Series A subordinated convertible notes and four of whom will be
selected by us, including the Chairman of the Board and the President and Chief
Executive Officer. Following an initial public offering, XM Radio's Board of
Directors will consist of nine members, three of whom will be selected by
holders of the Series A subordinated convertible notes, four of whom will be
selected by us including (a) XM Radio's Chairman and (b) XM Radio's President
and Chief Executive Officer, and two of whom will be independent directors, one
of whose nomination must be approved by us and one of whose nomination must be
approved by a majority of the holders of the Series A subordinated convertible
notes. Following both (i) an initial public offering of XM Radio's stock and
(ii) receipt of approval of the FCC to transfer control of XM Radio to a diffuse
group of shareholders, XM Radio's Board of Directors will consist of nine
members, three of whom will be selected by the holders of the Series A
subordinated convertible notes, three of whom will be selected by us, two of
whom will be independent directors whose nominations must be approved by us and
a majority of the holders of the Series A subordinated convertible notes and one
of whom will be XM Radio's President and Chief Executive Officer. The foregoing
board rights are subject to the parties to the Shareholders' Agreement
maintaining certain minimum share percentages in XM Radio.
<PAGE> 13
OPERATIONAL AGREEMENT WITH DIRECTV. XM Radio has entered into an agreement
with DIRECTV (a subsidiary of Hughes Electronics, one of our principal
stockholders) to establish a strategic business relationship. Under this
agreement, XM Radio will provide bandwidth on its system for DIRECTV to develop
differentiated programming utilizing its resources and expertise at rates no
less favorable than those offered to other programmers. DIRECTV will also assist
XM Radio in operations and technical areas, including billing, customer service
and conditional access system selection, as well as overall system integration.
XM Radio will provide DIRECTV access to XM Radio advertising at the lowest
available commercial rates. The parties will also explore other cross-marketing
opportunities.
DISTRIBUTION AGREEMENT WITH GENERAL MOTORS. 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. During
the term of the agreement, which expires 12 years from the commencement date of
XM Radio's commercial operations, General Motors has agreed to distribute XM
Radio's service to the exclusion of other S-band satellite digital radio
services. XM Radio will also have a non-exclusive right to arrange for the
installation of XM radios included in OnStar systems in non-General Motors
vehicles that are sold for use in the United States. 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
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 must also 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. XM Radio will also make
available to General Motors bandwidth and advertising time on the XM Radio
system. The agreement is subject to renegotiation at any time based upon the
installation of radios that are interoperable or capable of receiving CD Radio's
service. The agreement can also be renegotiated if four years after the
commencement of XM Radio's commercial operations and at two-year intervals
thereafter 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 renegotiations. General Motors' exclusivity obligations will
discontinue if, four years after XM Radio commences commercial operations and at
two-year intervals thereafter, XM Radio fails to achieve and maintain specified
minimum market share levels in the satellite digital radio service market.
<PAGE> 14
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(a) HISTORICAL FINANCIAL STATEMENTS
Historical financial statements of American Mobile Satellite
Corporation and XM Satellite Radio Holdings Inc. required by this item are set
forth beginning on page F-1 of this report on Form 8-K.
(b) PRO FORMA FINANCIAL INFORMATION
Pro forma financial information required by this item is set forth
beginning on page P-1 of this report on Form 8-K.
(c) EXHIBITS
The following documents are filed as exhibits to this report:
2.1 Exchange Agreement, dated June 7, 1999, by and among American Mobile
Satellite Corporation, WorldSpace, Inc., and XM Satellite Radio
Holdings Inc.
23.1 Consent of Arthur Andersen LLP to incorporation by reference of report
included herein in the registrant's registration statement on Form S-3
(File No. 333-81459), the registrant's registration statement on Form
S-3 (File No. 333-71423), and the registrant's registration statements
on Form S-8 (File Nos. 33-72852, 33-34250, 33-91714, 333-30099 and
333-53253)
23.2 Consent of KPMG LLP to incorporation by reference of report included
herein in the registrant's registration statement on Form S-3 (File
No. 333-81459), the registrant's registration statement on Form S-3
(File No. 333-71423), and the registrant's registration statements on
Form S-8 (File Nos. 33-72852, 33-34250, 33-91714, 333-30099 and
333-53253).
<PAGE> 15
27.1 Financial Data Schedule (Year ended December 31, 1998)
27.2 Financial Data Schedule (Quarter ended March 31, 1999)
99.1 Shareholders Agreement, dated July 7, 1999, by and among XM
Satellite Radio Holdings Inc., American Mobile Satellite Corporation,
Baron Asset Fund, Clear Channel Investments, Inc., Columbia XM
Radio Partners, LLC, DIRECTV Enterprises, Inc., General Motors
Corporation, Madison Dearborn Capital Partners III, L.P., Madision
Dearborn Special Equity III, L.P., Special Advisers Fund I, LLC, and
Telcom-XM Investors, L.L.C.
99.2 Registration Rights Agreement, dated July 7, 1999, by and among XM
Satellite Radio Holdings Inc., American Mobile Satellite Corporation,
the Baron Asset Fund series of Baron Asset Fund, and the holders of
Series A subordinated convertible notes of XM Satellite Radio Holdings
Inc.
99.3 Note Purchase Agreement, dated June 7, 1999, by and among XM Satellite
Radio Holdings Inc., XM Satellite Radio Inc., Clear Channel
Communications, Inc., DIRECTV Enterprises, Inc., General Motors
Corporation, Telcom-XM Investors, L.L.C., Columbia XM Radio Partners,
LLC, Madison Dearborn Capital Partners III, L.P., Madision Dearborn
Special Equity III, L.P., and Special Advisers Fund I, LLC., including
Form of Series A subordinated convertible note of XM Satellite Radio
Holdings Inc. attached as Exhibit A thereto.
<PAGE> 16
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
AMERICAN MOBILE SATELLITE
CORPORATION
By: /s/ Walter V. Purnell, Jr.
-------------------------------------
Walter V. Purnell, Jr.
President and Chief Executive Officer
Date: July 9, 1999
<PAGE> 17
INDEX TO PRO FORMA FINANCIAL INFORMATION
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Description of Pro Forma Financial Information.............. P-2
Unaudited Pro Forma Consolidated Condensed Balance Sheet as
of March 31, 1999......................................... P-3
Unaudited Pro Forma Consolidated Condensed Statement of
Operations for the quarter ended March 31, 1999........... P-5
Unaudited Pro Forma Consolidated Condensed Statement of
Operations for the year ended December 31, 1998........... P-6
Notes to Pro Forma Financial Information.................... P-7
</TABLE>
P-1
<PAGE> 18
PRO FORMA FINANCIAL INFORMATION
The accompanying pro forma financial information gives effect to the XM
Radio transactions and the related XM Radio financing as if such transactions
had been consummated on March 31, 1999 in the case of the Unaudited Pro Forma
Consolidated Condensed Balance Sheet of American Mobile, and on January 1 of
each of the periods presented in the case of the Unaudited Pro Forma
Consolidated Condensed Statements of Operations of American Mobile. The pro
forma operating results for the year ended 1998 also give effect to the March
31, 1998 acquisition of ARDIS Company and concurrent units offering of senior
notes and warrants as if such transactions had been consummated on January 1,
1998. The pro forma consolidated condensed financial information is presented
for illustrative purposes only and is not necessarily indicative of what
American Mobile's actual financial position and results of operations would
have been had the above-referenced transactions been consummated as of the
above-referenced dates or of the financial position or results of operations
that may be reported by American Mobile in the future.
The following data should be read in conjunction with American Mobile's
Consolidated Financial Statements and related notes and XM Radio's Consolidated
Financial Statements and related notes included elsewhere herein.
P-2
<PAGE> 19
AMERICAN MOBILE SATELLITE CORPORATION AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED CONDENSED BALANCE SHEET
<TABLE>
<CAPTION>
AS OF MARCH 31, 1999
-------------------------------------------------------------
PRO FORMA ADJUSTMENTS
------------------------ PRO FORMA
AMERICAN XM RADIO AMERICAN
MOBILE XM RADIO ACQUISITION MOBILE
-------- -------- ----------- ----------
($'S IN THOUSANDS)
<S> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents.................... $ 8,131 $ 3,442 $250,000 (1) $175,323
(75,000)(2)
(11,250)(1)
Inventory.................................... 17,440 -- 17,440
Prepaid in-orbit insurance................... 1,932 -- 1,932
Accounts receivable-trade, net of allowance
for doubtful accounts..................... 16,752 -- 16,752
Restricted short-term investments............ 41,038 -- 41,038
Note receivable from XM Radio................ 21,687 -- (21,687)(4) --
Other current assets......................... 15,055 157 (58)(4) 15,154
-------- -------- --------
Total current assets................. 122,035 3,599 267,639
PROPERTY AND EQUIPMENT IN SERVICE -- NET....... 239,017 598 239,615
SYSTEM UNDER CONSTRUCTION...................... -- 219,455 219,455
GOODWILL & INTANGIBLES -- NET.................. 52,772 -- 41,610 (3) 94,382
DEFERRED CHARGES AND OTHER ASSETS -- NET....... 26,151 753 11,250 (1) 38,154
RESTRICTED INVESTMENTS......................... 68,623 -- 68,623
-------- -------- --------
Total assets......................... $508,598 $224,405 $927,868
======== ======== ========
</TABLE>
The accompanying notes are an integral part of the pro forma financial
statements.
P-3
<PAGE> 20
AMERICAN MOBILE SATELLITE CORPORATION AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED CONDENSED BALANCE SHEET
<TABLE>
<CAPTION>
AS OF MARCH 31, 1999
--------------------------------------------------------------
PRO FORMA ADJUSTMENTS
------------------------- PRO FORMA
AMERICAN XM RADIO AMERICAN
MOBILE XM RADIO ACQUISITION MOBILE
--------- -------- ----------- ---------
($'S IN THOUSANDS)
<S> <C> <C> <C> <C>
LIABILITIES AND STOCKHOLDERS' (DEFICIT)
EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued expenses..... $ 41,839 $55,088 $ 1,000 (3) $ 97,927
Current portion of obligations under
capital leases......................... 4,816 -- 4,816
Current portion of obligations due to
related parties........................ -- 101,927 (75,000)(2) --
(26,927)(4)
Current portion of vendor financing
commitment due to related party........ 1,569 -- 1,569
Current portion of other debt............. 2,584 34 2,618
--------- -------- ---------
Total current liabilities......... 50,808 157,049 106,930
LONG-TERM LIABILITIES:
Obligations under bank financing.......... 159,000 -- 159,000
Obligations under senior notes, net of
discount............................... 327,359 -- 327,359
Capital lease obligations................. 5,657 -- 5,657
Obligations due to related parties........ 21,769 78,860 (78,860)(4) 21,769
Convertible notes......................... -- -- 250,000 (1) 250,000
Net assets acquired in excess of purchase
price.................................. 1,855 -- 1,855
Vendor financing commitment due to related
party.................................. 3,031 -- 3,031
Other long-term debt...................... 442 46 488
Investment in XM Radio.................... 16,112 -- (16,112)(4) --
Other long-term liabilities............... 535 -- 535
--------- ------- ---------
Total long-term liabilities....... 535,760 78,906 769,694
--------- ------- ---------
Total liabilities................. 586,568 235,955 876,624
STOCKHOLDERS' (DEFICIT) EQUITY:
Preferred Stock, par value $0.01:
authorized 200,000 shares; no shares
issued................................. -- -- --
Common Stock, voting...................... 324 -- 86 (3) 410
Additional paid-in capital................ 509,074 10,643 129,128 (3) 638,202
(10,643)(4)
Deferred compensation..................... (2,305) -- (2,305)
Common Stock purchase warrants............ 60,588 -- 60,588
Unamortized guarantee warrants............ (33,177) -- (33,177)
Retained loss............................. (612,474) (22,193) 22,193 (4) (612,474)
--------- ------- ---------
Total stockholders' (deficit)
equity.......................... (77,970) (11,550) 51,244
--------- ------- ---------
Total liabilities and
stockholders' (deficit)
equity.......................... $ 508,598 $224,405 $ 927,868
========= ======== =========
</TABLE>
The accompanying notes are an integral part of the pro forma financial
statements.
P-4
<PAGE> 21
AMERICAN MOBILE SATELLITE CORPORATION AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED CONDENSED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE QUARTER ENDED MARCH 31, 1999
-------------------------------------------------------------
PRO FORMA ADJUSTMENTS
------------------------ PRO FORMA
AMERICAN XM RADIO AMERICAN
MOBILE XM RADIO ACQUISITION MOBILE
-------- -------- ----------- ---------
($ IN THOUSANDS, EXCEPT FOR PER SHARE DATA)
<S> <C> <C> <C> <C>
Revenues:
Services.............................. $ 16,164 $ -- $ 16,164
Sales of equipment.................... 4,066 -- 4,066
-------- ------- --------
Total Revenues........................ 20,230 -- 20,230
Costs and expenses
Cost of service and operations........ 17,410 -- 17,410
Cost of equipment sold................ 4,528 -- 4,528
Research & development................ 460 748 1,208
Sales and advertising................. 4,749 -- 4,749
General and administrative............ 4,769 3,673 8,442
Depreciation and amortization......... 13,772 -- 694(5) 14,466
-------- ------- --------
Operating Loss........................ (25,458) (4,421) (30,573)
Interest and Other Income (Expense)..... 1,739 54 (268)(6) 1,525
Interest Expense........................ (15,930) -- (2,032)(7) (17,962)
Equity in loss of XM Radio.............. (3,494) -- 3,494(9) --
-------- ------- --------
Net Loss................................ $(43,143) $(4,367) $(47,010)
======== ======= ========
Loss Per Share of Common Stock.......... $ (1.34) $ (1.15)
======== ========
Weighted-Average Common Shares
Outstanding During the Period
(000's)............................... 32,225 8,614(8) 40,839
======== ======= ========
</TABLE>
The accompanying notes are an integral part of the pro forma financial
statements.
P-5
<PAGE> 22
AMERICAN MOBILE SATELLITE CORPORATION, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED CONDENSED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1998
-------------------------------------------------------------------------------------------------
PRO FORMA
ADJUSTMENTS PRO FORMA
------------ ADJUSTMENTS
ARDIS ARDIS ---------------------- PRO FORMA
AMERICAN (Q1 ACQUISITION/ PRO FORMA XM RADIO AMERICAN
MOBILE ONLY) FINANCING ARDIS XM RADIO ACQUISITION MOBILE
--------- ------- ------------ --------- -------- ----------- ---------
($ IN THOUSANDS, EXCEPT FOR PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Services................ $ 57,994 $9,541 $ (139)(10) $ 67,396 $ -- $ 67,396
Sales of equipment...... 29,227 530 29,757 -- 29,757
--------- ------- --------- -------- ---------
Total Revenues.......... 87,221 10,071 97,153 -- 97,153
Costs and expenses
Cost of service and
operations............ 56,969 7,795 (139)(10) 64,625 -- 64,625
Cost of equipment
sold.................. 30,449 581 31,030 -- 31,030
Research and
development........... 1,117 -- 1,117 6,941 8,058
Sales and advertising... 16,854 1,562 18,416 -- 18,416
General and
administrative........ 17,332 1,487 18,819 9,252 28,071
Depreciation and
amortization.......... 52,707 3,291 845 (11) 56,519 -- 2,774 (5) 59,293
--------- ------- --------- -------- ---------
(324)(12)
Operating Loss.......... (88,207) (4,645) (93,373) (16,193) (112,340)
Interest and Other
Income.................. 4,372 5 1,538 (13) 5,915 26 5,941
Equity in Loss of XM
Radio................... (12,960) -- (12,960) -- 12,960 (9) --
Interest Expense.......... (53,771) (282) (9,702)(14) (63,755) -- (15,211)(7) (78,966)
--------- ------- --------- -------- --------
Net loss.................. $(150,566) $(4,922) $(164,173) $(16,167) $(185,365)
========= ======= ========= ======== ========
Loss Per Share of Common
Stock................... $ (5.88) $ (5.11) $ (4.55)
========= ========= ========
Weighted-Average Common
Shares Outstanding
During the Period
(000's)................. 25,588 6,521 (15) 32,109 8,614(8) 40,723
========= ======= ========= ======== ========
</TABLE>
The accompanying notes are an integral part of the pro forma financial
statements.
P-6
<PAGE> 23
NOTES TO PRO FORMA FINANCIAL INFORMATION
The pro forma financial information is based on the following assumptions
and adjustments:
(1) Reflects the issuance by XM Radio of $250 million of subordinated
convertible notes to General Motors Corporation, Clear Channel Investments Inc.,
DIRECTV Enterprises, Inc., Columbia Capital, Telcom Ventures, L.L.C. and Madison
Dearborn Partners and related financing costs of approximately $11.3 million.
The Series A subordinated convertible notes contain covenants prohibiting XM
Radio from making dividend payments.
(2) Reflects the repayment of $75 million by XM Radio of certain outstanding
notes payable to WorldSpace.
(3) Reflects the amounts related to the XM Radio transaction.
Total purchase consideration and transaction costs are anticipated to be as
follows:
<TABLE>
<CAPTION>
AMOUNT
-----------
(DOLLARS IN
THOUSANDS)
<S> <C>
8,614,244 shares of American Mobile at $15.00 per share (the
closing price of our common stock at the date of signing
of the letter of intent and announcement of the XM Radio
transaction) issued to XM Ventures........................ $129,214
Estimated transaction costs................................. 1,000
--------
$130,214
========
</TABLE>
The anticipated purchase consideration and transaction costs have been
allocated for pro forma purposes as follows:
<TABLE>
<CAPTION>
AMOUNT
-----------
(DOLLARS IN
THOUSANDS)
<S> <C>
Cash........................................................ $ 3,442
Other current and long-term assets.......................... 910
Property and equipment...................................... 220,053
Goodwill and intangibles.................................... 41,610
Accounts payable and accrued expenses....................... (55,088)
Notes payable............................................... (75,080)
--------
135,847
Less: American Mobile's previous investment in XM Radio:
Note receivable and miscellaneous receivables from XM
Radio to American Mobile (see Note (4))................ (21,745)
Existing equity interest in XM Radio (see Note (4))....... 16,112
--------
$130,214
========
</TABLE>
The above purchase price allocation is preliminary and may change upon
final determination of the fair value of net assets acquired. The Company has
not specifically identified amounts to assign to systems under construction and
other intangibles; changes in the amounts allocated to such assets could result
in changes to the amount of goodwill recorded. A preliminary amortization period
of fifteen years has been selected and utilized in the pro forma financial
information for goodwill and other intangible assets, which is expected in all
material respects to be representative of the amortization expense that will
result from the ultimate allocation to the specific intangible assets.
P-7
<PAGE> 24
(4) Reflects the elimination of intercompany accounts and equity accounts of XM
Radio upon the consolidation of XM Radio as follows: (dollars in thousands)
(a) Elimination of note receivable and miscellaneous receivables due from
XM Radio to American Mobile in the amount of $21,745.
(b) Elimination of obligations due to American Mobile from XM Radio in the
amount of $105,787.
(c) Elimination of XM Radio equity accounts consisting of $10,643 of
additional paid-in capital and $22,193 of retained losses.
(d) Elimination of American Mobile's investment in XM Radio in the amount
of $16,112.
(5) Reflects the amortization, over a fifteen-year life, of the acquired
intangibles, including goodwill of XM Radio.
(6) Reflects the elimination of interest earned by American Mobile from notes
due from XM Radio. Interest incurred by XM Radio on the associated note was
capitalized by XM Radio under System Under Construction.
(7) Reflects interest expensed on the portion of the $250 million of
subordinated convertible notes in excess of average System Under Construction
balances. Interest incurred on debt that is equivalent to average System Under
Construction balance is assumed capitalized. Also reflects the amortization of
the financing fees associated with the placement of such notes over the life of
the debt (54 months).
(8) Reflects shares issued to XM Ventures in connection with the XM Radio
transaction.
(9) Reflects the elimination of XM Radio losses previously recorded by American
Mobile on the equity basis.
P-8
<PAGE> 25
(10) Reflects the elimination of inter-company balances resulting from
transactions between American Mobile and ARDIS.
(11) Reflects the amortization, over a twenty-year life, of the excess of
purchase price of ARDIS over fair market value of net assets acquired.
(12) Reflects the elimination of goodwill amortization recorded by ARDIS.
(13) Reflects interest earned on funds escrowed in connection with the
Restricted Investments issued as part of the ARDIS acquisition and related
financing, at an average interest rate of 5%.
(14) Reflects adjustments to interest expense as a result of the ARDIS
acquisition and related financings.
(15) Reflects shares issued to Motorola in connection with the ARDIS
acquisition.
P-9
<PAGE> 26
<PAGE> 27
INDEX TO FINANCIAL STATEMENTS
AMERICAN MOBILE SATELLITE CORPORATION
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Public Accountants.................... F-2
Consolidated Statements of Operations for the years ended
December 31, 1998, 1997, and 1996......................... F-3
Consolidated Balance Sheets at December 31, 1998 and 1997... F-4
Consolidated Statements of Stockholders' (Deficit) Equity
for the years ended December 31, 1998, 1997 and 1996...... F-6
Consolidated Statements of Cash Flows for the years ended
December 31, 1998, 1997, and 1996......................... F-7
Notes to Consolidated Financial Statements including
Financial Statements of Subsidiaries...................... F-8
Unaudited Consolidated Condensed Statements of Operations
for the three months ended March 31, 1999 and 1998........ F-43
Unaudited Consolidated Condensed Balance Sheets at March 31,
1999 and December 31, 1998................................ F-44
Unaudited Consolidated Condensed Statements of Cash Flows
for the three months ended March 31, 1999 and 1998........ F-45
Notes to Unaudited Consolidated Condensed Financial
Statements including Financial Statements of
Subsidiaries.............................................. F-46
</TABLE>
XM SATELLITE RADIO HOLDINGS INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
<TABLE>
<S> <C>
Independent Auditors' Report................................ F-60
Consolidated Balance Sheets at December 31, 1998 and 1997... F-61
Consolidated Statements of Operations for the years ended
December 31, 1998, 1997, and for the period from December
15, 1992 (date of inception) to December 31, 1998......... F-62
Consolidated Statements of Stockholders' Equity (Deficit)
for the years ended December 31, 1998, 1997 and for the
period from December 15, 1992 (date of inception) to
December 31, 1998......................................... F-63
Consolidated Statements of Cash Flows for the years ended
December 31, 1998, 1997, and for the period from December
15, 1992 (date of inception) to December 31, 1998......... F-64
Notes to Consolidated Financial Statements.................. F-65
Unaudited Condensed Consolidated Balance Sheet as of March
31, 1999.................................................. F-78
Unaudited Condensed Consolidated Statements of Operations
for the three months ended March 31, 1999 and 1998 and for
the period from December 15, 1992 (date of inception) to
March 31, 1999............................................ F-79
Unaudited Condensed Consolidated Statements of Cash Flows
for the three months ended March 31, 1999 and 1998 and for
the period from December 15, 1992 (date of inception) to
March 31, 1999............................................ F-80
Notes to Unaudited Condensed Consolidated Financial
Statements................................................ F-81
</TABLE>
F-1
<PAGE> 28
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To American Mobile Satellite Corporation:
We have audited the accompanying consolidated balance sheets of American
Mobile Satellite Corporation (a Delaware corporation) and Subsidiaries as of
December 31, 1998 and 1997 (as restated -- see Note 18), and the related
consolidated statements of operations, stockholders' equity (deficit) and cash
flows for each of the three years in the period ended December 31, 1998. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform an audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosure in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of American Mobile Satellite
Corporation and Subsidiaries as of December 31, 1998 and 1997, and the results
of their operations and their cash flows for each of the three years in the
period ended December 31, 1998, in conformity with generally accepted accounting
principles.
/s/ ARTHUR ANDERSEN LLP
Washington, D.C.
March 29, 1999 (except with respect to
the matter discussed in Note 18,
as to which the date is July 7, 1999)
F-2
<PAGE> 29
AMERICAN MOBILE SATELLITE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------------------
1998 1997 1996
----------- ----------- -----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
REVENUES
Services.............................................. $ 57,994 $ 20,684 $ 9,201
Sales of equipment.................................... 29,227 23,530 18,529
--------- --------- ---------
Total Revenues........................................ 87,221 44,214 27,730
COSTS AND EXPENSES
Cost of service and operations........................ 58,086 31,959 30,471
Cost of equipment sold................................ 30,449 40,335 31,903
Sales and advertising................................. 16,854 12,066 24,541
General and administrative............................ 17,332 14,819 17,464
Depreciation and amortization......................... 52,707 42,430 43,390
--------- --------- ---------
Operating Loss........................................ (88,207) (97,395) (120,039)
INTEREST AND OTHER INCOME............................... 4,372 1,122 552
EQUITY IN LOSS OF XM RADIO.............................. (12,960) (1,301) --
INTEREST EXPENSE........................................ (53,771) (21,633) (15,151)
--------- --------- ---------
NET LOSS................................................ $(150,566) $(119,207) $(134,638)
========= ========= =========
Basic and Diluted Loss Per Share of Common Stock........ $ (4.94) $ (4.74) $ (5.38)
Weighted-Average Common Shares Outstanding During the
Period................................................ 30,496 25,131 25,041
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE> 30
AMERICAN MOBILE SATELLITE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
----------- -----------
(IN THOUSANDS, EXCEPT PER
SHARE DATA)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................. $ 2,285 $ 2,106
Inventory................................................. 18,593 40,321
Prepaid in-orbit insurance................................ 3,381 4,564
Accounts receivable-trade, net of allowance for doubtful
accounts of $935 in 1998 and $1,930 in 1997............ 15,325 8,140
Restricted short-term investments......................... 41,038 --
Other current assets...................................... 13,231 9,608
--------- ---------
Total current assets.............................. 93,853 64,739
PROPERTY AND EQUIPMENT, net (gross balances include $140,485
and $135,586 purchased from related parties through 1998
and 1997, respectively)................................... 246,553 233,174
GOODWILL AND INTANGIBLES, net............................... 53,235 --
RESTRICTED INVESTMENTS...................................... 67,199 1,000
DEFERRED CHARGES AND OTHER ASSETS, net of accumulated
amortization of $17,653 in 1998 and $14,096 in 1997....... 28,954 12,534
--------- ---------
Total assets...................................... $ 489,794 $ 311,447
========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE> 31
AMERICAN MOBILE SATELLITE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
--------- ---------
(IN THOUSANDS, EXCEPT
PER SHARE DATA)
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' (DEFICIT) EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued expenses..................... $ 33,797 $ 35,861
Obligations under capital leases due within one year...... 5,971 798
Current portion of vendor financing commitment due to
related party.......................................... 543 --
Current portion of deferred trade payables................ 4,498 15,254
Other current liabilities................................. 162 7,520
--------- ---------
Total current liabilities......................... 44,971 59,433
LONG-TERM LIABILITIES:
Obligations under New Bank Financing...................... 132,000 198,000
Obligations under Notes, net of discount.................. 327,147 --
Capital lease obligations................................. 5,824 3,147
Net assets acquired in excess of purchase price........... 2,028 2,725
Vendor financing commitment due to related party.......... 1,069 --
Deferred trade payables................................... 620 1,364
Investment in XM Radio.................................... 12,618 --
Other long-term liabilities............................... 540 647
--------- ---------
Total long-term liabilities....................... 481,846 205,883
Total liabilities................................. 526,817 265,316
--------- ---------
COMMITMENTS (Note 11)
STOCKHOLDERS' (DEFICIT) EQUITY:
Preferred Stock; par value $0.01; authorized 200,000
shares; no shares outstanding.......................... -- --
Common Stock; voting, par value $0.01; authorized
75,000,000 shares; 32,198,735 shares issued and
outstanding in 1998, 25,159,311 shares issued and
outstanding in 1997.................................... 322 252
Additional paid-in capital................................ 508,084 451,892
Deferred compensation..................................... (1,528) --
Common Stock purchase warrants............................ 59,108 36,338
Unamortized guarantee warrants............................ (33,678) (23,586)
Cumulative loss........................................... (569,331) (418,765)
--------- ---------
STOCKHOLDERS' (DEFICIT) EQUITY:............................. (37,023) 46,131
--------- ---------
Total liabilities and stockholders' (deficit)
equity.......................................... $ 489,794 $ 311,447
========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE> 32
AMERICAN MOBILE SATELLITE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' (DEFICIT) EQUITY
FOR THE PERIOD FROM JANUARY 1, 1996 THROUGH DECEMBER 31, 1998
<TABLE>
<CAPTION>
COMMON
COMMON ADDITIONAL STOCK UNAMORTIZED
STOCK PAID-IN DEFERRED PURCHASE GUARANTEE CUMULATIVE
SHARES PAR VALUE CAPITAL COMPENSATION WARRANTS WARRANTS LOSS TOTAL
---------- --------- ---------- ------------ -------- ----------- ---------- ---------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE, December 31,
1995..................... 24,961,130 $250 $448,757 $ -- $ 3,440 $ -- $(164,920) $ 287,527
Common Stock issued under
Stock Purchase Plan.... 39,366 -- 635 -- -- -- -- 635
Common Stock purchase
warrants issued for
Bridge Financing....... -- -- -- -- 2,253 -- -- 2,253
Common Stock issued for
exercise of stock
options and award of
bonus stock............ 37,320 -- 612 -- -- -- -- 612
Common Stock issued upon
exercise of Warrants... 37,500 1 844 -- (845) -- -- --
Common Stock purchase
warrants issued for
Bank Financing......... -- -- -- -- 19,000 (19,000) -- --
Amortization of Guarantee
Warrants............... -- -- -- -- -- 1,900 -- 1,900
Common Stock issued under
the 401(k) Savings
Plan................... 22,261 -- 411 -- -- -- -- 411
Net Loss................. -- -- -- -- -- -- (134,638) (134,638)
---------- ---- -------- ------- ------- -------- --------- ---------
BALANCE, December 31,
1996..................... 25,097,577 251 451,259 -- 23,848 (17,100) (299,558) 158,700
Common Stock issued under
the 401(k) Savings
Plan................... 31,684 1 349 -- -- -- -- 350
Common Stock issued under
the Stock Purchase
Plan................... 29,930 -- 283 -- -- -- -- 283
Common Stock issued for
award of bonus stock... 120 -- 1 -- -- -- -- 1
Guarantee Warrants
revaluation............ -- -- -- -- 12,490 (12,490) -- --
Amortization of Guarantee
Warrants............... -- -- -- -- -- 6,004 -- 6,004
Net Loss................. -- -- -- -- -- -- (119,207) (119,207)
---------- ---- -------- ------- ------- -------- --------- ---------
BALANCE, December 31,
1997..................... 25,159,311 252 451,892 -- 36,338 (23,586) (418,765) 46,131
Common Stock issued under
the 401(k) Savings
Plan................... 105,089 1 847 -- -- -- -- 848
Common Stock issued under
the Stock Purchase
Plan................... 47,011 -- 278 -- -- -- -- 278
Common Stock issued for
ARDIS Acquisition...... 6,520,532 65 49,716 -- -- -- -- 49,781
Common Stock issued for
exercise of stock
options and award of
bonus stock............ 10,681 -- 135 -- -- -- -- 135
Issuance of Stock
Purchase Warrants
pursuant to Notes
financing.............. -- -- -- -- 8,490 -- -- 8,490
Issuance of Restricted
Stock.................. 356,111 4 1,776 (1,780) -- -- -- --
Amortization of
compensation expense... -- -- -- 252 -- -- -- 252
Guarantee Warrants
revaluation............ -- -- -- -- 17,720 (17,720) -- --
Amortization of Guarantee
Warrants............... -- -- -- -- -- 7,628 -- 7,628
Expiration of Stock
Purchase Warrants...... -- -- 3,440 -- (3,440) -- -- --
Net Loss................. -- -- -- -- -- -- (150,566) (150,566)
---------- ---- -------- ------- ------- -------- --------- ---------
BALANCE, December 31,
1998..................... 32,198,735 $322 $508,084 $(1,528) $59,108 $(33,678) $(569,331) $ (37,023)
========== ==== ======== ======= ======= ======== ========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE> 33
AMERICAN MOBILE SATELLITE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------------
1998 1997 1996
--------- --------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss.................................................... $(150,566) $(119,207) $(134,638)
Adjustments to reconcile net loss to net cash used in
operating activities:
Amortization of Guarantee Warrants and debt related
costs................................................... 16,171 9,350 5,721
Depreciation and amortization............................. 52,707 42,430 43,307
Equity in loss of XM Radio................................ 12,960 1,301 --
Changes in assets and liabilities, net of acquisitions:
Inventory............................................... 21,947 (2,287) (27,482)
Prepaid in-orbit insurance.............................. 1,183 516 (257)
Accounts receivable -- trade............................ (105) (1,537) (5,229)
Other current assets.................................... 7,240 4,639 1,970
Accounts payable and accrued expenses................... 16,876 (5,820) 1,672
Deferred trade payables................................. (6,567) 11,685 --
Deferred items -- net................................... (7,396) 8,038 1,347
--------- --------- ---------
Net cash used in operating activities..................... (35,550) (50,892) (113,589)
CASH FLOWS FROM INVESTING ACTIVITIES:
Cash paid for acquisition of ARDIS.......................... (52,373) -- --
Purchase of restricted investments.......................... (125,128) -- (1,000)
Payment of escrow interest.................................. (20,633) -- --
Investment in XM Radio...................................... -- (1,643) --
Insurance proceeds applied to equipment in service.......... -- -- 66,000
Additions to property and equipment......................... (12,470) (8,598) (14,054)
--------- --------- ---------
Net cash (used in) provided by investing activities......... (210,604) (10,241) 50,946
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of Common Stock...................... 412 284 1,247
Proceeds from Notes and Stock Purchase Warrants............. 335,000 -- --
Principal payments under capital leases..................... (3,395) (2,576) (3,994)
Principal payments under Vendor Financing................... (16) -- --
Proceeds from bridge loan................................... 10,000 -- 70,000
Payment of bridge loan...................................... (10,000) -- (70,000)
Repayment of Bank Financing................................. (100,000) -- --
Proceeds from Bank Financing and New Bank Financing......... 34,000 71,000 127,000
Proceeds from debt issuance................................. -- -- 1,700
Payments on long-term debt.................................. (4,933) (6,180) (59,190)
Debt issuance costs......................................... (14,735) (1,471) (10,803)
--------- --------- ---------
Net cash provided by financing activities................... 246,333 61,057 55,960
Net increase (decrease) in cash and cash equivalents........ 179 (76) (6,683)
CASH AND CASH EQUIVALENTS, beginning of period.............. 2,106 2,182 8,865
--------- --------- ---------
CASH AND CASH EQUIVALENTS, end of period.................... $ 2,285 $ 2,106 $ 2,182
========= ========= =========
Supplemental Cash Flow Information -- Interest Payments..... $ 32,198 $ 11,785 $ 8,293
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-7
<PAGE> 34
AMERICAN MOBILE SATELLITE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1998, 1997 AND 1996
1. ORGANIZATION, BUSINESS AND LIQUIDITY
American Mobile Satellite Corporation (with its subsidiaries, "American
Mobile" or the "Company") was incorporated on May 3, 1988. The FCC authorized
American Mobile to construct, launch, and operate a mobile satellite services
system (the "Satellite Network") to provide a full range of mobile voice and
data services via satellite to land, air and sea-based customers in a service
area consisting of the continental United States, Alaska, Hawaii, Puerto Rico,
the U.S. Virgin Islands, U.S. coastal waters, international waters and airspace
and any foreign territory where the local government has authorized the
provision of service. On April 7, 1995, the Company successfully launched its
first satellite ("MSAT-2"), from Cape Canaveral, Florida. In late 1996, the
Company expanded its mobile data business through the acquisition of a dual mode
mobile messaging and global positioning and monitoring service for commercial
trucking fleets.
On March 31, 1998 the Company (through its newly-formed, wholly-owned
subsidiary, AMSC Acquisition Company, Inc. ("Acquisition Company")) acquired
ARDIS Company ("ARDIS"), a wholly-owned subsidiary of Motorola Inc. that owns
and operates a two-way wireless data communications network, for a purchase
price of approximately $50 million in cash and $50 million in the Company's
Common Stock (the "Acquisition"). The Company, through the acquisition of ARDIS,
became a nationwide provider of wireless communications services, including
data, dispatch, and voice services, primarily to business customers in the
United States.
On October 16, 1997, XM Satellite Radio Inc., formerly American Mobile
Radio Corporation, an indirect subsidiary of American Mobile through its
subsidiary XM Satellite Radio Holdings Inc., formerly AMRC Holdings, Inc.,
(together with XM Satellite Radio Inc., "XM Radio"), was awarded a license by
the FCC to provide satellite-based Digital Audio Radio Service ("DARS")
throughout the United States, following its successful $89.9 million bid at
auction on April 2, 1997. XM Radio has and will continue to receive funding for
this business from independent sources in exchange for debt and equity interests
in XM Radio. Accordingly, it is not expected that the development of this
business will have a material impact on the Company's financial position,
results of operations, or cash flows.
American Mobile is devoting its efforts to expanding its business. This
effort involves substantial risk, including successfully integrating ARDIS.
Specifically, future operating results will be subject to significant business,
economic, regulatory, technical, and competitive uncertainties and
contingencies. Depending on their extent and timing, these factors, individually
or in the aggregate, could have an adverse effect on the Company's financial
condition and future results of operations.
LIQUIDITY AND FINANCING REQUIREMENTS
Adequate liquidity and capital are critical to the ability of the Company
to continue as a going concern and to fund subscriber acquisition programs
necessary to achieve positive cash flow and profitable operations. The Company
expects to continue to make significant capital outlays for the foreseeable
future to fund interest expense, capital expenditures and working capital prior
to the time that it begins to generate positive cash flow from operations and
for the foreseeable future thereafter.
In connection with the Acquisition on March 31, 1998, and to meet its
ongoing cash requirements, the Acquisition Company issued $335 million of Units
(the "Units") consisting of 12 1/4% Senior Notes due 2008 (the "Notes"), and one
warrant to purchase 3.75749 shares of Common Stock of the Company for each
$1,000 principal amount of Notes (the "Warrants"). The
F-8
<PAGE> 35
AMERICAN MOBILE SATELLITE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Company also restructured its existing Bank Financing (the "New Bank
Financing"). The New Bank Financing of $200 million consists of a $100 million
unsecured five-year reducing Revolving Credit Facility maturing March 31, 2003
and a $100 million five-year Term Loan Facility with up to three additional
one-year extensions subject to lender approval. As of February 28, 1999, the
Company had $52 million available for borrowing under the Revolving Credit
Facility. Additionally, Motorola has agreed to provide the Company with up to
$10 million of vendor financing (the "Vendor Financing Commitment"), which is
available to finance up to 75% of the purchase price of additional base stations
needed to meet ARDIS' buildout requirements under certain customer contracts
(see Note 8).
The Company's current operating assumptions and projections, which reflect
management's best estimate of subscriber and revenue growth and operating
expenses, indicate that anticipated capital expenditures, operating losses,
working capital and debt service requirements through 1999, and beyond, can be
met by cash flows from operations, the net proceeds from the sale of the $335
million in Notes and Warrants, together with the borrowings under the $200
million New Bank Financing, the Vendor Financing Commitment and deferred terms
on certain trade payables; however, the Company's ability to meet its
projections is subject to numerous uncertainties and there can be no assurance
that the Company's current projections regarding the timing of its ability to
achieve positive operating cash flow will be accurate, and if the Company's cash
requirements are more than projected, the Company may require additional
financing in amounts which may be material. The type, timing and terms of
financing selected by the Company will be dependent upon the Company's cash
needs, the availability of other financing sources and the prevailing conditions
in the financial markets. There can be no assurance that any such sources will
be available to the Company at any given time or available on favorable terms.
2. SIGNIFICANT ACCOUNTING POLICIES
ACCOUNTING ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles (GAAP) requires management to make estimates and
assumptions that affect the reported amount of assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates. The Company's most significant estimates relate to the valuation of
inventory and committed inventory purchases, the allowance for doubtful accounts
receivable, and the realizability of long-term assets.
CONSOLIDATION
The consolidated financial statements include the accounts of American
Mobile and its wholly owned subsidiaries. All significant inter-company
transactions and accounts have been eliminated. As discussed in Note 1, XM
Radio, a subsidiary of the Company, was awarded a license to provide DARS and
entered into an agreement with World Space, Inc.("World Space"), whereby World
Space acquired a 20% participation in XM Radio, and options which, if exercised,
could reduce the Company's ownership interest in XM Radio to 22.6 %. On October
30, 1998 the Company and WorldSpace jointly filed an application for consent to
the transfer of control of XM Radio in anticipation of future exercise of the
World Space options. Additionally, the agreement gives WorldSpace certain
participative rights which provide for their participation in significant
business decisions that would be made in the ordinary course of business;
therefore, in accordance with
F-9
<PAGE> 36
AMERICAN MOBILE SATELLITE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Emerging Issues Task Force ("EITF") No. 96-16, the Company's investment in XM
Radio is carried on the equity method.
The following represents the summary financial information of XM Radio as
of December 31, 1998 and 1997.
<TABLE>
<CAPTION>
AS OF AS OF
DECEMBER 31, DECEMBER 31,
1998 1997
------------ ------------
(IN THOUSANDS)
<S> <C> <C>
Current assets....................................... $ 482 $ 1
Noncurrent assets.................................... 170,003 91,932
Current liabilities.................................. 130,823 82,949
Noncurrent liabilities............................... 46,845 --
Total stockholders' (deficit) equity................. (7,183) 8,984
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
1998 1997
------------ ------------
(IN THOUSANDS)
<S> <C> <C>
Gross sales.......................................... $ -- $ --
Operating expenses................................... 16,193 1,110
Interest (income) expense............................ (26) 549
Net loss............................................. 16,167 1,659
</TABLE>
CASH EQUIVALENTS
The Company considers highly liquid investments with remaining maturities
of 90 days or less at the time of acquisition to be cash equivalents.
RESTRICTED INVESTMENTS
Restricted investments represent those investments made by the Company to
fund either customer obligations or required interest payments associated with
the Notes. The Company considers all required funding from these accounts due
within the next twelve months to be current and reflects these amounts as such
in the accompanying balance sheet. The Company accounts for these investments on
an amortized cost basis.
INVENTORIES
Inventories, which consist primarily of finished goods, are stated at the
lower of cost or market. Cost is determined using the weighted average cost
method. The Company periodically assesses the market value of its inventory,
based on sales trends and forecasts and technological changes and records a
charge to current period income when such factors indicate that a reduction to
net realizable value is appropriate. Management considers both inventory on hand
and inventory which it has committed to purchase. The Company recorded charges
to cost of equipment sold in the amount of $12.0 million and $11.1 million in
1997 and 1996, respectively, related to the realizability of the Company's
inventory investment. No such charges were made in 1998.
F-10
<PAGE> 37
AMERICAN MOBILE SATELLITE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
OTHER CURRENT ASSETS
Other current assets consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1998 1997
------- ------
(IN THOUSANDS)
<S> <C> <C>
Interest rate swap (Note 8)................................. $ 5,964 $ --
Prepaid expenses............................................ 3,990 1,617
Deposits.................................................... 3,010 6,647
Non-trade receivables and other............................. 267 1,344
------- ------
$13,231 $9,608
======= ======
</TABLE>
FAIR VALUE OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards ("SFAS") No. 107, "Disclosures
about Fair Value of Financial Instruments," requires disclosures of the fair
value of certain financial instruments. Cash and cash equivalents, trade
accounts receivable, accounts payable and deferred trade payables approximate
fair value because of the relatively short maturity of these instruments. The
Notes are valued at their quoted market price. The fair value of the interest
rate swap is the estimated amount that the Company would receive to terminate
the swap agreement on December 31, 1998, taking into account current interest
rates and the current creditworthiness of the swap counter parties. As a result
of the Guarantees associated with the New Bank Financing, it is not practicable
to estimate the fair value of this facility. For debt issues that are not quoted
on an exchange, interest rates currently available to the Company for issuance
of debt with similar terms and remaining maturities are used to estimate fair
value.
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1998 AS OF DECEMBER 31, 1997
------------------------ ------------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
--------- --------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Assets:
Restricted investments....... $108,237 $107,010 $1,000 $1,000
Interest rate swap (Note 8).. 13,419 11,884 -- --
Liabilities:
Notes........................ 327,147 211,050 -- --
Vendor financing commitment.. 1,612 1,612 -- --
Capital leases............... 11,795 11,795 3,945 3,945
</TABLE>
CONCENTRATIONS OF CREDIT RISK
Financial instruments which potentially subject the Company to
concentrations of credit risk consist principally of temporary cash investments,
restricted investments and accounts receivable. The Company places its temporary
cash investments and restricted investments in debt securities such as
commercial paper, time deposits, certificates of deposit, bankers acceptances,
and marketable direct
F-11
<PAGE> 38
AMERICAN MOBILE SATELLITE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
obligations of the United States Treasury. The Company's intent is to hold its
investments in debt securities to maturity. To date, the majority of the
Company's business has been transacted with telecommunications, field services,
natural resources and transportation companies, including maritime and trucking
companies located throughout the United States. The Company grants credit based
on an evaluation of the customer's financial condition, generally without
requiring collateral or deposits. Exposure to losses on trade accounts
receivable, for both service and for inventory sales, is principally dependent
on each customer's financial condition. The Company anticipates that its credit
risk with respect to trade accounts receivable in the future will continue to be
diversified due to the large number of customers expected to comprise the
Company's subscriber base and their expected dispersion across many different
industries and geographies.
After giving pro forma effect to the Acquisition, as of December 31, 1998,
five customers accounted for approximately 40% of the Company's service revenue,
with one of those customers accounting for approximately 19%.
SOFTWARE DEVELOPMENT COSTS
The Company capitalizes costs related to the development of certain
software to be used with its mobile messaging and position location service (the
"Mobile Data Communications Service") product. The Company commenced
amortization of these costs in the first quarter of 1996. These costs are
amortized over three years. As of December 31, 1998 and 1997, net capitalized
software development costs were $869,000 and $1.8 million, respectively, and are
included in property and equipment in the accompanying balance sheets.
Additionally, during 1998, the Company adopted Statement of Position
("SOP") No. 98-1 -- "Accounting for the Costs of Computer Software Developed or
Obtained for Internal Use." As of December 31, 1998, net capitalized internal
use software costs were $1.1 million and are included in property and equipment
in the accompanying balance sheet and are amortized over three years.
DEFERRED CHARGES AND OTHER ASSETS
Other assets primarily consist of the long term portion of the interest
rate swap purchased in connection with the New Bank Financing (see Note 8), the
unamortized financing costs and debt issue costs associated with the existing
vendor financing arrangements, the Notes, the Bank Financing and the New Bank
Financing. As of December 31, 1998, the Company had a balance of $7.5 million
representing the long-term portion of the interest rate swap, and $20.6 million
and $11.8 million of unamortized financing costs recorded at December 31, 1998
and 1997, respectively. Financing costs are amortized over the term of the
related facility using the straight line method, which approximates the
effective interest method.
REVENUE RECOGNITION
The Company recognizes service revenue when communications services have
been rendered. Equipment sales are recognized upon shipment of products and
customer acceptance, if required.
RESEARCH AND DEVELOPMENT COSTS
Research and development costs are expensed as incurred. Such costs include
internal research and development activities and expenses associated with
external product development agreements.
F-12
<PAGE> 39
AMERICAN MOBILE SATELLITE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company incurred research and development costs of approximately $1.1
million in 1998, none for 1997, and approximately $57,000 for 1996.
ADVERTISING COSTS
Advertising costs are charged to operations in the year incurred and
totaled $2.9 million, $3.4 million, and $6.0 million for 1998, 1997, and 1996,
respectively.
STOCK BASED COMPENSATION
The Company accounts for employee stock options using the method of
accounting prescribed by Accounting Principles Board ("APB") Opinion No. 25,
"Accounting for Stock Issued to Employees." Generally, no expense is recognized
related to the Company's stock options because the option's exercise price is
set at the stock's fair market value on the date the option is granted.
ASSESSMENT OF ASSET IMPAIRMENT
The Company adopted the provisions of SFAS No. 121 "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of "
which requires that long-lived assets and certain identifiable intangibles be
reviewed for impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable. Recoverability of
assets to be held and used is measured by a comparison of the carrying amount of
an asset to future net cash flows expected to be generated by the asset. If such
assets are considered to be impaired, the impairment to be recognized is
measured by the amount by which the carrying amount of the assets exceed the
fair value of the assets. Assets to be disposed of are reported at the lower or
the carrying amount of the fair value less costs to sell. Adoption of SFAS No.
121 did not have a material impact on the Company's financial position, results
of operation, or liquidity during 1998, 1997 or 1996.
The Company has assessed the satellite and its related assets as of
December 31, 1998, and determined that an impairment did not exist; however,
there can be no assurance that a material provision for impairment will not be
required in the future. Management will continue to assess the recoverability of
these assets on an on-going basis.
LOSS PER SHARE
Basic earnings per share excludes dilution and is computed by dividing
income available to common stockholders by the weighted-average number of common
shares outstanding for the period. Diluted earnings per share reflects the
potential dilution that could occur if securities or other contracts to issue
common stock were exercised or converted into common stock or resulted in the
issuance of common stock that then shared in the earnings of the entity. Options
and warrants to purchase shares of common stock were not included in the
computation of loss per share as the effect would be antidilutive. As a result,
the basic and diluted earnings per share amounts are identical. As of December
31, 1998, there were approximately 70,000 options and warrants that would have
been included in this calculation had the effect not been antidilutive.
COMPREHENSIVE INCOME
SFAS No. 130, "Reporting of Comprehensive Income" requires "comprehensive
income" and the components of "other comprehensive income" to be reported in the
financial statements and/or notes thereto. Since the Company does not have any
components of "other comprehensive income,"
F-13
<PAGE> 40
AMERICAN MOBILE SATELLITE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
reported net income is the same as "comprehensive income" for the years ended
December 31, 1998, 1997, and 1996.
SEGMENT DISCLOSURES
In accordance with SFAS 131, "Disclosures about Segments of an Enterprise
and Related Information," the Company has only one operating segment which is
engaged in the provision of nationwide wireless communication. The Company
provides services within North America and parts of Central America and the
Caribbean, and all revenues are derived from customers within the United States.
The following summarizes service revenue by major product lines:
<TABLE>
<CAPTION>
REVENUE FOR THE
YEAR ENDED DECEMBER 31,
-------------------------
1998 1997 1996
------ ------ -----
(IN MILLIONS)
<S> <C> <C> <C>
Voice Service............................................ $14.0 $10.0 $5.0
Data Service............................................. 40.1 7.6 2.3
Capacity Resellers and Other............................. 3.9 3.1 1.9
</TABLE>
RECLASSIFICATION
Certain amounts from prior years' consolidated financial statements have
been reclassified to conform with the 1998 presentation.
NEW ACCOUNTING PRONOUNCEMENTS
In June 1998, FASB issued Statement No. 133, "Accounting for Derivative
Instruments and Hedging Activities," which requires the recognition of all
derivatives as either assets or liabilities measured at fair value. The Company
is in the process of determining the impact the adoption of this statement will
have on its financial position and results, but it is not expected to be
significant.
3. STOCKHOLDERS' EQUITY
The Company has authorized 200,000 shares of Preferred Stock and 75,000,000
shares of Common Stock. The par value per share is $0.01 for each class of
stock. For each share held, Common stockholders are entitled to one vote on
matters submitted to the stockholders. Cumulative voting applies for all
elections of directors of the Company.
The Preferred Stock may be issued in one or more series at the discretion
of the Board of Directors (the "Board"), without stockholder approval. The Board
is authorized to determine the number of shares in each series and all
designations, rights, preferences, and limitations on the shares in each series,
including, but not limited to, determining whether dividends will be cumulative
or non-cumulative.
Certain controlling stockholders of the Company have entered into a
Stockholders' Agreement (the "Agreement") which contains provisions relating to
the election of directors, procedures for maintaining compliance with the FCC's
alien ownership restrictions, certain restrictions on the transfer, sale and
exchange of Common Stock, and procedures for appointing directors to the
Executive Committee of the Board, among others. The Agreement continues in
effect until
F-14
<PAGE> 41
AMERICAN MOBILE SATELLITE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
terminated by an affirmative vote of holders of three-fourths of the Company's
Common Stock held by parties to the Agreement. Other matters relating to the
Company's governance of the Company are set forth in the Certificate of
Incorporation and Bylaws.
As of December 31, 1998, the Company had reserved Common Stock for future
issuance as detailed below.
<TABLE>
<S> <C>
Shares issuable upon exercise of warrants................... 7,821,259
Amended and Restated Stock Option Plan for Employees........ 4,062,534
Stock Option Plan for Non-Employee Directors................ 50,000
Employee Stock Purchase Plan................................ 143,126
Defined Contribution Plan................................... 248,403
----------
Total............................................. 12,325,322
==========
</TABLE>
4. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1998 1997
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Space Segment............................................. $188,150 $187,976
Ground Segment............................................ 110,942 109,691
Network equipment......................................... 49,089 --
Construction in progress.................................. 7,580 --
Office equipment and furniture............................ 16,252 19,305
Mobile data communications service equipment.............. 17,384 21,118
-------- --------
389,397 338,090
Less accumulated depreciation and amortization............ 142,844 104,916
-------- --------
Property and equipment, net............................... $246,553 $233,174
======== ========
</TABLE>
Property and equipment is recorded at cost and depreciated over its useful
life using the straight line method. Assets recorded as capital leases are
amortized over the shorter of their useful lives or the term of the lease. The
estimated useful lives of office furniture and equipment vary from 2-10 years.
The ground segment is depreciated over 8 years, the network equipment is
depreciated over 7 years, and the mobile data communications service equipment
is depreciated over 3.5 years.
The Company is depreciating its satellite over its estimated useful life of
10 years, which was based on several factors, including current conditions and
the estimated remaining fuel of MSAT-2. The original estimated useful live is
periodically reviewed using current Telemetry Tracking and Control data. To
date, no significant change in the original estimated useful life has resulted.
The telecommunications industry is subject to rapid technological change which
may require the Company to revise the estimated useful lives of MSAT-2 and the
ground segment or to adjust their carrying
F-15
<PAGE> 42
AMERICAN MOBILE SATELLITE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
amounts. The Company has also capitalized certain costs to develop and implement
its computerized billing system. These costs are included in property and
equipment and are depreciated over 8 years.
The costs of constructing and putting satellites into service are
capitalized in the financial statements and depreciated over the estimated
useful life of the satellite. A failure of the satellite from unsuccessful
launches and/or in orbit anomalies would result in a current write-down of the
satellite value. Partial satellite failures are recognized currently to the
extent such losses are deemed abnormal to the operation of the satellite. A
partial failure which is deemed normal would not result in a loss of satellite
capacity beyond what is considered normal satellite wear and tear. Additionally,
all future incentive arrangements relating to the construction of satellites
will be capitalized at launch.
5. GOODWILL AND INTANGIBLE ASSETS
Goodwill and intangible assets resulting from the Acquisition consist of
the following:
<TABLE>
<CAPTION>
DECEMBER 31,
1998
--------------
(IN THOUSANDS)
<S> <C>
FCC Licenses.............................................. $49,179
Goodwill.................................................. 6,154
-------
55,333
Less accumulated amortization............................. 2,098
-------
Goodwill and intangible assets, net....................... $53,235
=======
</TABLE>
Goodwill and intangible assets are being amortized on a straight-line basis
over 20 years.
6. STOCK OPTIONS AND RESTRICTED STOCK
The Company has two active stock option plans. The American Mobile
Satellite Corporation 1989 Amended and Restated Stock Option Plan for Employees
(the "Plan") permits the grant of non-statutory options and the award of bonus
stock up to a total of 4.5 million shares of Common Stock. Under the Plan, the
exercise price and vesting schedule for options is determined by the
Compensation Committee of the Board, which was established to administer the
Plan. Generally, options vest over a three year period and will have an exercise
price not less than the fair market value of a share on the date the option is
granted or have a term greater than ten years.
The Company also has a Stock Option Plan for Non-Employee Directors (the
"Director Plan") which provides for the grant of options up to a total of 50,000
shares of Common Stock. Directors receive an initial option to purchase 1,000
shares of Common Stock, with annual option grants to purchase 500 shares of
Common Stock. Options under the Director Plan can be exercised at a price equal
to the fair market value of the stock on the date of the grant and are fully
vested and immediately exercisable on the date of grant. Each Director Plan
option expires on the earlier of (i) ten years from the date of grant or (ii)
seven months after the Director's termination.
In January 1998, the Board of Directors granted restricted stock to certain
members of senior management. These grants include both a three-year vesting
schedule as well as specific corporate performance targets. As of December 31,
1998, the Company recorded costs of approximately $252,000 associated with the
vesting of these shares. In January 1999, performance requirements were
F-16
<PAGE> 43
AMERICAN MOBILE SATELLITE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
waived for certain senior executives, excluding the chairman and president, for
the first year of vesting. These performance requirements will remain in place,
and unless further waived by the Board of Directors, failure to meet a required
performance target would prevent the vesting of the restricted shares.
Information regarding the Company's stock option plans is summarized below:
<TABLE>
<CAPTION>
WEIGHTED AVERAGE
AVAILABLE GRANTED AND OPTION PRICE
FOR GRANT OUTSTANDING PER SHARE
---------- ----------- ----------------
<S> <C> <C> <C>
Balance, December 31, 1995............ 184,778 590,850 $17.94
Additional shares authorized for
grant............................ 1,241,138 -- --
Granted............................. (1,565,272) 1,565,272 18.37
Exercised and awarded............... -- (37,320) 16.41
Forfeited and canceled.............. 623,356 (623,356) 23.23
---------- ----------
Balance, December 31, 1996............ 484,000 1,495,446 16.22
Additional shares authorized for
grant............................ 1,500,000 -- --
Granted............................. (1,292,443) 1,292,443 12.67
Exercised and awarded............... -- (120) 10.28
Forfeited........................... 1,104,828 (1,104,828) 17.15
---------- ----------
Balance, December 31, 1997............ 1,796,385 1,682,941 13.08
Restricted stock granted............ (356,111) 356,111 --
Restricted stock awarded............ -- (356,111) --
Additional shares authorized for
grant............................ 1,000,000 -- --
Options granted..................... (1,406,249) 1,406,249 8.81
Exercised and awarded............... -- (10,681) 12.62
Forfeited........................... 349,438 (349,438) 10.85
---------- ----------
Balance, December 31, 1998............ 1,383,463 2,729,071 $11.11
========== ==========
</TABLE>
Options Exercisable at December 31:
<TABLE>
<CAPTION>
AVERAGE EXERCISE
OPTIONS PRICE
------- ----------------
<S> <C> <C>
1998........................................... 957,617 $13.29
1997........................................... 595,432 $14.39
1996........................................... 276,804 $17.97
</TABLE>
The Company accounts for stock compensation costs in accordance with the
provisions of APB No. 25, "Accounting for Stock Issued to Employees." Had
compensation cost been determined based on the fair value at the grant dates for
awards under the Company's stock plans in accordance with SFAS No. 123,
"Accounting for Stock Based Compensation", the net loss would have been
increased by $8.9 million ($.29 per share) in 1998, $5.3 million ($.21 per
share) in 1997, and $2.3 million in 1996 ($.09 per share). As required by SFAS
No. 123, the fair value of each option grant is estimated
F-17
<PAGE> 44
AMERICAN MOBILE SATELLITE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
on the date of grant using the Black-Scholes option pricing model with the
following assumptions for 1998, 1997, and 1996: no historical dividend yield; an
expected life of 10 years for options and three years for restricted stock;
historical volatility of 95% in 1998, 65% in 1997 and 45% in 1996, and a
risk-free rate of return ranging from 4.85% to 6.44%.
Exercise prices for options outstanding as of December 31, 1998, are as
follows:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
- -------------------------------------------- ----------------------------------
NUMBER WEIGHTED NUMBER
OUTSTANDING AVERAGE WEIGHTED EXERCISABLE WEIGHTED
AS OF CONTRACTUAL AVERAGE AS OF AVERAGE
RANGE OF DECEMBER 31, LIFE EXERCISE DECEMBER 31, EXERCISE
EXERCISE PRICES 1998 REMAINING PRICE 1998 PRICE
- --------------- ------------ ----------- -------- ------------ --------
<S> <C> <C> <C> <C> <C>
$ 5.00 - $ 8.87 1,200,583 8.56 $ 8.80 300 $ 8.87
9.06 - 12.00 463,464 7.83 11.44 285,725 11.61
12.50 - 12.81 432,711 8.04 12.74 146,668 12.74
13.00 - 13.00 492,112 6.49 13.00 384,723 13.00
14.62 - 25.75 140,201 3.91 18.11 140,201 18.11
--------- -------
$ 5.00 - $25.75 2,729,071 7.74 $11.11 957,617 $13.29
========= =======
</TABLE>
7. INCOME TAXES
The Company accounts for income taxes under the liability method as
required in the SFAS No. 109, "Accounting for Income Taxes." Under the liability
method, deferred income taxes are recognized for the tax consequences of
"temporary differences" by applying enacted statutory tax laws and rates
applicable to future years to differences between the financial statement
carrying amounts and the tax bases of existing assets and liabilities. Under
this method, the effect on deferred taxes of a change in tax rates is recognized
in income in the period that includes the enactment date. Potential tax
benefits, related to net operating losses and temporary differences, have been
recorded as an asset, and a valuation allowance for the same amount has been
established. The Company has paid no income taxes since inception.
The following is a summary of the Company's net deferred tax assets.
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1998 1997
--------- ---------
(IN THOUSANDS)
<S> <C> <C>
Net Operating Loss Carryforwards........................ $ 276,034 $ 217,918
Deferred Taxes Related to Temporary Differences:
Tangible asset bases, lives and depreciation
methods............................................ (61,977) (65,898)
Other................................................. (11,266) 8,700
--------- ---------
Total deferred tax asset................................ 202,791 160,720
Less valuation allowance................................ (202,791) (160,720)
--------- ---------
Net deferred tax asset.................................. $ -- $ --
========= =========
</TABLE>
F-18
<PAGE> 45
AMERICAN MOBILE SATELLITE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Significant timing differences affecting deferred taxes in 1998 reflect the
treatment of costs associated with the Space Segment for financial reporting
purposes compared to tax purposes. As of December 31, 1998, the Company had
estimated net operating loss carryforwards ("NOLs") of $680.8 million. The NOLs
expire in years 2004 through 2018. These NOL carryforwards are subject to
certain limitations if there is determined to be a substantial change in
ownership as defined in the Internal Revenue Code.
8. LONG-TERM DEBT
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1998 1997
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Notes, net of discount.................................... $327,147 $ --
New Bank Financing -- Term Loan Facility.................. 100,000 100,000
New Bank Financing -- Revolving Credit Facility........... 32,000 98,000
Deferred Trade Payables................................... 5,118 11,685
Vendor Financing Commitment............................... 1,612 --
Loan Agreement............................................ -- 4,933
-------- --------
465,877 214,618
Less current maturities................................... 5,041 15,254
-------- --------
Long-term debt............................................ $460,836 $199,364
======== ========
</TABLE>
$335 MILLION UNIT OFFERING
In connection with the Acquisition, the Acquisition Company issued $335
million of Units (the "Units") consisting of 12 1/4% Senior Notes due 2008 (the
"Notes"), and Warrants to purchase shares of Common Stock of the Company. Each
Unit consists of $1,000 principal amount of Notes and one Warrant to purchase
3.75749 shares of Common Stock at an exercise price of $12.51 per share. The
Warrants were valued at $8.5 million and are reflected in the balance sheet as a
debt discount. A portion of the net proceeds of the sale of the Units were used
to finance the Acquisition. In connection with the Notes, the Acquisition
Company purchased approximately $112.3 million of restricted investments that
are restricted for the payment of the first six interest payments on the Notes.
Interest payments are due semi-annually, in arrears, beginning October 1, 1998.
The Notes are fully guaranteed by American Mobile Satellite Corporation.
NEW BANK FINANCING
In connection with the Acquisition, the Company, the Acquisition Company
and its subsidiaries restructured the existing $200 million Bank Financing (the
"New Bank Financing") to provide for two facilities: (i) the Revolving Credit
Facility, a $100 million unsecured five-year reducing revolving credit facility,
and (ii) the Term Loan Facility, a $100 million five-year, term loan facility
with up to three additional one-year extensions subject to the lenders'
approval. The Revolving Credit Facility ranks pari passu with the Notes. The
Term Loan Facility is secured by the assets of the Company, principally its
stockholdings in XM Radio and the Acquisition Company, and will be effectively
subordinated to the Revolving Credit Facility and the Notes. The New Bank
Financing is severally
F-19
<PAGE> 46
AMERICAN MOBILE SATELLITE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
guaranteed by Hughes Electronics Corporation, Singapore Telecommunications Ltd.
and Baron Capital Partners, L.P. (collectively, the "Bank Facility Guarantors").
As of February 28, 1999, the Company had outstanding borrowings of $100 million
under the Term Loan Facility at 5.8125%, and $48 million under the Revolving
Credit Facility at rates ranging from 5.4375% to 5.5%.
THE TERM LOAN FACILITY
The Term Loan Facility bears an interest rate, generally, of 50 basis
points above London Interbank Offered Rate ("LIBOR"). The Term Loan Agreement
does not include any scheduled amortization until maturity, but does contain
certain provisions for prepayment based on certain proceeds received by the
Company, unless otherwise waived by the banks and the Bank Facility Guarantors,
including: (1) 100% of excess cash flow obtained by the Company; (2) the first
$25.0 million of net proceeds from the lease or sale of MSAT-2 received by the
Company, and thereafter 75% of the remaining proceeds received from such lease
or sale (the remaining 25% to be retained by the Acquisition Company for
business operations); (3) 100% of the proceeds of any other asset sales by the
Company; (4) 50% of the net proceeds of any equity offerings of the Company (the
remaining 50% to be retained by the Company for business operations); and (5)
100% of any major casualty proceeds of the Company. To the extent that the Term
Loan Facility is repaid, the aforementioned proceeds that would otherwise have
been used to repay the Term Loan Facility will be used to repay and permanently
reduce the commitment under the Revolving Credit Facility.
THE REVOLVING CREDIT FACILITY
The Revolving Credit Facility bears an interest rate, generally, of 50
basis points above LIBOR and is unsecured, with a negative pledge on the assets
of the Acquisition Company and its subsidiaries ranking pari passu with the
Notes. The Revolving Credit Facility will be reduced $10 million each quarter,
beginning with the quarter ending June 30, 2002, with the balance due on
maturity of March 31, 2003. Certain proceeds received by the Acquisition Company
would be required to repay and reduce the Revolving Credit Facility, unless
otherwise waived by the lenders and the Bank Facility Guarantors, including: (1)
100% of excess cash flow obtained by the Acquisition Company, as defined; (2)
the first $25.0 million net of proceeds of the lease or sale of MSAT-2 received
by the Acquisition Company, and thereafter 75% of the remaining proceeds
received from such lease or sale (the remaining 25% may be retained by the
Acquisition Company for business operations); (3) 100% of the proceeds of any
other asset sales by the Acquisition Company; (4) 50% of the net proceeds of any
offerings of the Acquisition Company's equity (the remaining 50% to be retained
by the Acquisition Company for business operations); and (5) 100% of any major
casualty proceeds. At such time as the Revolving Credit Facility is repaid in
full, and subject to satisfaction of the restrictive payments provisions of the
Notes, any prepayment amounts that would otherwise have been used to prepay the
Revolving Credit Facility will be dividended to American Mobile Satellite
Corporation.
THE GUARANTEES
In connection with the New Bank Financing, the Bank Facility Guarantors
extended separate guarantees of the obligations of each of the Acquisition
Company and the Company to the banks, which on a several basis aggregated to
$200 million. In their agreement with each of the Acquisition Company and the
Company (the "Guarantee Issuance Agreement"), the Bank Facility Guarantors
agreed to make their guarantees available for the New Bank Financing. In
exchange for the
F-20
<PAGE> 47
AMERICAN MOBILE SATELLITE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
additional risks undertaken by the Bank Facility Guarantors in connection with
the New Bank Financing, the Company agreed to compensate the Bank Facility
Guarantors, principally in the form of 1 million additional warrants and
re-pricing of 5.5 million warrants previously issued in connection with the
original Bank Facility (together, the "Guarantee Warrants"). The Guarantee
Warrants were issued with an exercise price of $12.51 and were valued at
approximately $17.7 million.
Further, in connection with the Guarantee Issuance Agreement, the Company
has agreed to reimburse the Bank Facility Guarantors in the event that the
Guarantors are required to make payment under the New Bank Financing guarantees,
and, in connection with this reimbursement commitment has provided the Bank
Facility Guarantors a junior security interest with respect to the assets of the
Company, principally its stockholdings in XM Radio and the Acquisition Company.
In connection with the New Bank Financing, the Company entered into an
interest rate swap agreement, with an implied annual rate of 6.51%. The swap
agreement reduces the impact of interest rate increases on the Term Loan
Facility. The Company paid a fee of approximately $17.9 million for the swap
agreement. Under the swap agreement, an amount equal to LIBOR plus 50 basis
points, is paid on a quarterly basis directly to the respective banks on behalf
of the Company, on a notional amount of $100 million until the termination date
of March 31, 2001. The Company has reflected as an asset, the unamortized fee
paid for the swap agreement in the accompanying consolidated financial
statements. The Company is exposed to a credit loss in the event of
non-performance by the counter party under the swap agreement. The Company does
not believe there is a significant risk of non-performance as the counter party
to the swap agreement is a major financial institution.
MOTOROLA VENDOR FINANCING
Motorola has entered into an agreement with ARDIS to provide up to $10
million of Vendor Financing Commitment, to finance up to 75% of the purchase
price of additional network base stations. Loans under this facility bear
interest at a rate equal to LIBOR plus 7.0% and will be guaranteed by the
Company and each subsidiary of the Acquisition Company. The terms of the
facility require that amounts borrowed be secured by the equipment purchased
therewith. Advances made during a quarter constitute a loan, which is then
amortized on a quarterly basis over three years. As of December 31, 1998, $1.6
million was outstanding under this facility at interest rates ranging from
12.07% to 13.0%.
DEFERRED TRADE PAYABLES
The Company has arranged the financing of certain trade payables, and as of
December 31, 1998, $5.1 million of deferred trade payables were outstanding at
rates ranging from 6.10% to 12.00% and are generally payable by the end of 1999.
As of December 31, 1997, $11.7 million was outstanding at rates ranging from
6.23% to 14.00%.
BRIDGE LOAN
On December 31, 1997, the Company entered into a Bridge Loan Agreement (the
"Bridge Loan") with Hughes Communications Satellite Services, Inc. ("Hughes") in
the principal amount of up to $10 million, secured by a pledge of the Company's
interest in its 80%-owned subsidiary, XM Radio. The Bridge Loan bore interest at
an annual rate of 12% and was fully repaid in March 1998. No further borrowings
are available under the Bridge Loan.
F-21
<PAGE> 48
AMERICAN MOBILE SATELLITE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
LOAN AGREEMENT
The Company entered into a Loan Agreement with Northern Telecom to finance
the purchase of certain equipment to be used in the ground segment. This Loan
Agreement was repaid in full in April 1998 and no further borrowings are
available under this Loan Agreement.
ASSETS PLEDGED AND SECURED
All wholly owned subsidiaries of the Company are subject to financing
agreements that limit the amount of cash dividends and loans that can be
advanced to the Company. At December 31, 1998, all of the subsidiaries' net
assets were restricted under these agreements. These restrictions will have an
impact on American Mobile Satellite Corporation's ability to pay dividends.
COVENANTS
The debt agreements and related Guarantee Agreements entered into by the
Company contain various restrictions, covenants, defaults, and requirements
customarily found in such financing agreements. Among other restrictions, these
provisions include limitations on cash dividends, restrictions on transactions
between American Mobile and its subsidiaries, restrictions on capital
acquisitions, material adverse change clauses, and maintenance of specified
insurance policies.
On March 29, 1999, the Bank Facility Guarantors agreed to eliminate certain
covenants contained in the Guarantee Issuance Agreement relating to earnings
before interest, taxes, depreciation, and amortization ("EBITDA") and service
revenue. In exchange for this waiver, the Company agreed to re-price their
Guarantee Warrants, effective April 1, 1999, from $12.51 to $7.50.
9. RELATED PARTIES
In 1990, following a competitive bid process, American Mobile signed
contracts with Hughes Aircraft, the parent company of Hughes Communications
Satellite Services ("Hughes Communications"), an American Mobile stockholder, to
construct MSAT-2 (the "Satellite Construction Contract"). The contract contains
flight performance incentives payable by the Company to Hughes Aircraft if
MSAT-2 performs according to the contract. As a result of certain
previously-disclosed performance considerations, additional contract payment
issues were raised by the Company. At present, the Company's obligation to make
additional performance payments to Hughes Aircraft remains at issue and ongoing
discussions are underway between the parties.
The Company has entered into various transactions and agreements with
Motorola, Inc. ("Motorola"), an American Mobile stockholder, which include the
purchase by American Mobile of services, network hardware and software
maintenance services, facility rentals, inventory and network gateway fees.
Additionally, Motorola has provided the Vendor Financing Commitment, which will
be available to finance up to 75% of the purchase price of additional network
base stations (see Note 8).
Additionally, the Company has entered into various transactions and
agreements with affiliates of AT&T Wireless Services, Inc. ("AT&T Wireless"), an
American Mobile stockholder. The arrangements include the purchase of satellite
capacity and equipment by AT&T, the purchase by American Mobile of certain
equipment for use in the Satellite Network, the leasing of certain office
equipment, and the engagement of AT&T to be one of the Company's long-distance
providers. Additionally, the Company sublet certain office space to AT&T
Wireless through September 1996; however, as a result of the Acquisition in
March 1998 and issuance of shares to Motorola, AT&T's
F-22
<PAGE> 49
AMERICAN MOBILE SATELLITE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
ownership fell below 10%; therefore, they ceased to be deemed a related party;
and, as such, the 1998 amounts do not include transactions with AT&T.
The following table represents a summary of all related party transactions.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------
1998 1997 1996
-------- ------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Payments made to (from) related parties:
Additions to property and equipment........... $ 4,931 $ 200 $ 2,847
Proceeds from debt issuance................... (10,000) -- (10,000)
Payments on debt obligations.................. 10,017 292 20,926
Payment for guarantees........................ -- -- 3,000
Operating expenses............................ 7,568 2,706 3,817
Satellite capacity/airtime/equipment
revenue.................................... -- (2,836) (1,276)
Sublease income............................... -- -- (205)
-------- ------- --------
Net payments to related parties................. $ 12,516 $ 362 $ 19,109
======== ======= ========
Due to (from) related parties:
Operating expenses............................ $ 698 $ 1,209 $ 185
Capital leases................................ -- 249 446
Vendor financing.............................. 1,638 -- --
Satellite capacity/airtime revenue............ (3) (495) (416)
Capital acquisitions.......................... 450 2,120 1,584
-------- ------- --------
Net amounts due to related parties.............. $ 2,783 $ 3,083 $ 1,799
======== ======= ========
</TABLE>
10. LEASES
CAPITAL LEASES
The Company leases certain office equipment, ground segment equipment and
switching equipment under agreements accounted for as capital leases. Assets
recorded as capital leases in the accompanying balance sheets include the
following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1998 1997
------- -------
(IN THOUSANDS)
<S> <C> <C>
Ground segment equipment.................................... $ 7,263 $ 7,263
Switch equipment............................................ 8,346 --
Office equipment............................................ 3,069 4,033
Less accumulated amortization............................... (6,612) (4,750)
------- -------
Total............................................. $12,066 $ 6,546
======= =======
</TABLE>
F-23
<PAGE> 50
AMERICAN MOBILE SATELLITE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
OPERATING LEASES
The Company leases substantially all of its base station sites through
cancellable operating leases. The majority of these leases provide for renewal
options for various periods at their fair rental value at the time of renewal.
In the normal course of business, the operating leases are generally renewed or
replaced by other leases. Additionally, the Company leases certain facilities
and equipment under arrangements accounted for as operating leases. Certain of
these arrangements have renewal terms. Total rent expense, under all operating
leases, approximated $5.9 million, $2.9 million, and $2.5 million in 1998, 1997,
and 1996, respectively.
At December 31, 1998, minimum future lease payments under noncancellable
operating and capital leases are as follows:
<TABLE>
<CAPTION>
OPERATING CAPITAL
LEASES LEASES
--------- -------
(IN THOUSANDS)
<S> <C> <C>
1999........................................................ $ 3,436 $ 6,841
2000........................................................ 3,517 6,043
2001........................................................ 2,183 35
2002........................................................ 2,190 --
2003........................................................ 1,524 --
2004 and thereafter......................................... 661 --
------- -------
Total....................................................... $13,511 $12,919
=======
Less: Interest.............................................. 1,124
-------
$11,795
=======
</TABLE>
11. OPERATING AGREEMENTS AND COMMITMENTS
JOINT OPERATING AND SATELLITE CAPACITY AGREEMENTS
On December 4, 1997, the Company entered into two agreements with respect
to two simultaneous transactions. The Company agreed with TMI Communications and
Company, Limited Partnership ("TMI") to acquire a one-half ownership interest in
TMI's satellite, MSAT-1, and simultaneously, the Company entered into an
agreement (the "Satellite Lease Agreement") with African Continental
Telecommunications Ltd. ("ACTEL"), for the lease of MSAT-2, for deployment over
sub-Saharan Africa. As ACTEL has not obtained the requisite financing, the
agreements were terminated on March 24, 1999; however, the Company and TMI will
remain parties to a Joint Operating Agreement and a Satellite Capacity Agreement
under which the parties agree to provide, among other things, emergency backup
and restoral services to each party during any period in which the other's
satellite is not functioning properly. Additionally, each party will be entitled
to lease excess capacity from the other party's satellite under specified terms
and conditions. The implementation of these agreements requires regulatory
approvals by the FCC and Industry Canada (formerly Canada's Department of
Industry and Science). The Company has received, and expects to continue to seek
approvals contemplated under these agreements on a timely basis.
F-24
<PAGE> 51
AMERICAN MOBILE SATELLITE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
COMMITMENTS
At December 31, 1998, the Company had remaining contractual commitments to
purchase both mobile data terminal inventory and mobile telephone inventory in
the maximum amount of $11.4 million during 1999. Additionally, the Company had
remaining contractual commitments in the amount of $1.0 million for the
development of certain next generation data terminal inventory. Contingent upon
the successful research and development efforts, the Company would have maximum
additional contractual commitments for mobile communications data terminal
inventory in the amount of $27.0 million over a three-year period starting in
1999. The Company has the right to terminate the research and development and
inventory commitment by paying cancellation fees of between $1.0 million and
$2.5 million, depending on when the termination option is exercised during the
term of the contract. The Company also has the right to terminate the inventory
commitment by incurring a cancellation penalty representing a percentage of the
unfulfilled portion of the contract. The Company has also contracted for the
purchase of $26.2 million of next generation wireless data terminals to be
delivered beginning early 1999. The contract contains a 50% cancellation
penalty. Additionally, the Company has remaining contractual commitments for the
purchase of $4.7 million of base stations required to complete certain necessary
site build-outs, $1.2 million for the purchase of certain software development,
and certain other multi-year operating expense contract commitments that total
approximately $2.3 million over the next two years.
The aggregate fixed and determinable portion of all inventory commitments
and obligations for other fixed contracts is as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
1999.................................... $30,310
2000.................................... 31,892
2001.................................... 11,621
-------
Total................................... $73,823
=======
</TABLE>
12. EMPLOYEE BENEFITS
DEFINED CONTRIBUTION PLAN
The Company sponsors a 401(k) defined contribution plan ("401(k) Savings
Plan") in which all employees can participate. The 401(k) Savings Plan provided
for a Company match of employee contributions, in the form of Common Stock,
limited to the fair market value of up to one-half of the employee's
contribution not to exceed 6% of an employee's compensation. The 401(k) Savings
Plan was amended in 1998 to reflect the following changes: (i) the increase of
the Company match up to 100% of the first 4% of an employee's compensation, (ii)
the addition of a discretionary annual employer non-elective contribution, (iii)
the addition of the option to have plan benefits distributed in the form of
installment payments, and (iv) provide for the reallocation of forfeitures, if
any, to active participants. In 1998 the ARDIS Individual Capital Accumulation
Plan was merged into the 401(k) Savings Plan to allow for a combined company
plan. The Company's matching expense was $847,538 for 1998, reflecting the
addition of the ARDIS employees, $350,000 for 1997, and $411,000 for 1996.
F-25
<PAGE> 52
AMERICAN MOBILE SATELLITE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
EMPLOYEE STOCK PURCHASE PLAN
The Company has an Employee Stock Purchase Plan ("Stock Purchase Plan") to
allow eligible employees to purchase shares of the Company's Common Stock at 85%
of the lower of market value on the first and last business day of the six-month
option period. An aggregate of 47,011, 29,930, and 39,366 shares of Common Stock
were issued under the Stock Purchase Plan in 1998, 1997, and 1996, respectively.
13. BUSINESS ACQUISITION
On March 31, 1998, the Company acquired ARDIS for a purchase price of
approximately $50 million in cash and $50 million in the Company's Common Stock
(the "Purchase Price"). The purchase method of accounting for business
combinations was used for the recording of the acquisition. The operating
results of ARDIS have been included in the Company's consolidated statements of
operations from the date of acquisition. The purchase price for the net assets
acquired was allocated ($1.6) million to net current assets and net current
liabilities, $50.4 million to property and equipment, $49.4 million to FCC
licenses and $1.3 million to goodwill. Additionally, the Company incurred
acquisition costs of approximately $2.6 million and recorded additional
liabilities of approximately $2.3 million.
The unaudited pro forma results give effect to (i) the Acquisition, (ii)
the Notes and (iii) the New Bank Financing as if such transactions had been
consummated on January 1 of each of the periods presented.
<TABLE>
<CAPTION>
1998 1997
--------- ---------
(IN THOUSANDS,
EXCEPT PER SHARE DATA)
<S> <C> <C>
Revenues................................................ $ 97,153 $ 87,965
Net Loss................................................ (164,173) (176,207)
Loss per share.......................................... (5.11) (5.61)
</TABLE>
14. LEGAL, REGULATORY AND OTHER MATTERS
LEGAL AND REGULATORY MATTERS
Like other mobile service providers in the telecommunications industry, the
Company is subject to substantial domestic, foreign and international regulation
including the need for regulatory approvals to operate and expand the Satellite
Network and operate and modify subscriber equipment.
The ownership and operation of the mobile satellite services system and
ground-based two-way wireless data system are subject to the rules and
regulations of the FCC, which acts under authority granted by the Communications
Act and related federal laws. Among other things, the FCC allocates portions of
the radio frequency spectrum to certain services and grants licenses to and
regulates individual entities using the spectrum. American Mobile operates
pursuant to various licenses granted by the FCC.
The successful operation of the Satellite Network is dependent on a number
of factors, including the amount of L-band spectrum made available to the
Company pursuant to an international coordination process. The United States is
currently engaged in an international process of coordinating the Company's
access to the spectrum that the FCC has assigned to the Company. While the
Company believes that substantial progress has been made in the coordination
process and
F-26
<PAGE> 53
AMERICAN MOBILE SATELLITE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
expects that the United States government will be successful in securing the
necessary spectrum, the process is not yet complete. The inability of the United
States government to secure sufficient spectrum could have an adverse effect on
the Company's financial position, results of operations and cash flows.
The Company has the necessary regulatory approvals, some of which are
pursuant to special temporary authority, to continue its operations as currently
contemplated. The Company has filed applications with the FCC and expects to
file applications in the future with respect to the continued operations, change
in operation and expansion of the Network and certain types of subscriber
equipment. Certain of its applications pertaining to future service have been
opposed. While the Company, for various reasons, believes that it will receive
the necessary approvals on a timely basis, there can be no assurance that the
requests will be granted, will be granted on a timely basis or will be granted
on conditions favorable to the Company. Any significant changes to the
applications resulting from the FCC's review process or any significant delay in
their approval could adversely affect the Company's financial position, results
of operations and cash flows.
There are applications now pending before the FCC to use the Inmarsat
system and TMI's Canadian-licensed system, both of which operate in the Mobile
Satellite Services ("MSS") L-band and have satellite footprints covering the
United States, to provide service in the United States. American Mobile has
opposed these filings. In addition to providing additional competition to
American Mobile, a grant of domestic authority by the FCC to use any of these
foreign systems may increase the demand by these systems for spectrum in the
international coordination process and could adversely affect American Mobile's
ability to coordinate its spectrum access.
On July 20, 1998, the International Bureau of the FCC granted an
application for Special Temporary Authority ("STA") to use TMI's space segment
to conduct market tests in the U.S. for six months using up to 500 mobile
terminals. On July 30, 1998, American Mobile filed an Application for Review and
a Motion for Stay of this STA grant with the FCC, and these filings remain
pending. On December 18, 1998, SatCom filed a request for a six-month extension
of this STA, which was extended to July 12, 1999.
On October 23, 1998, the FCC issued an order permitting Comsat Corporation
via Inmarsat to provide aeronautical services to the domestic legs of the same
aircraft in international flight. As the FCC noted, this action has a minimal
effect on American Mobile's access to L-band spectrum. Additionally, the Company
does not believe this action will have a material effect on the Company's
financial position or results of operations.
American Mobile is authorized to build, launch, and operate three
geosynchronous satellites in accordance with a specific schedule. American
Mobile is not in compliance with the schedule for commencement and construction
of its second and third satellites and has petitioned the FCC for changes to the
schedule. Certain of these extension requests have been opposed by third
parties. The FCC has not acted on American Mobile's requests. The FCC has the
authority to revoke the authorizations for the second and third satellites and
in connection with such revocation could exercise its authority to rescind
American Mobile's license. American Mobile believes that the exercise of such
authority to rescind the license is unlikely. The term of the license for each
of American Mobile's three authorized satellites is ten years, beginning when
American Mobile certifies that the respective satellite is operating in
compliance with American Mobile's license. The ten-year term of MSAT-2 began
August 21, 1995. Although American Mobile anticipates that the authorization for
MSAT-2 is likely to be extended in due course to correspond to the useful life
of
F-27
<PAGE> 54
AMERICAN MOBILE SATELLITE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
the satellite and a new license granted for any replacement satellites, there is
no assurance of such extension or grants.
On July 2, 1998, American Mobile filed an application for authority to
launch and operate its second-generation mobile satellite system. This satellite
is intended to support the Company's existing satellite services and, also,
allow the provision of an extended array of services, such as higher data rate
services and services to lower-power terminals. There is no guarantee that the
FCC will grant this application. The filing of the application does not commit
the Company to expend any resources toward this project; however, should the
Company decide to proceed with the construction of the follow-on satellite, the
Company would be required to raise substantial additional capital to fund this
project.
In 1992, a former director of American Mobile filed an Amended Complaint
against the Company alleging violations of the Communications Act of 1934, as
amended, and of the Sherman Act and breach of contract. The suit was dismissed
on November 10, 1998, prior to the commencement of trial pursuant to an
agreement to settle the suit by payment by the Company of $250,000.
OTHER MATTERS
As previously reported, the satellite has, in the past, experienced certain
technological anomalies, most significantly with respect to its eastern beam. On
August 1, 1996, the Company reached a resolution of the claims under its
satellite insurance contracts and policies and received proceeds in the amount
of $66.0 million. Based on certain engineering studies and the design of the
satellite, the Company believed that the insurance proceeds reflected the actual
cost of damage sustained to the satellite, and, as a result, the carrying value
of the satellite was reduced by the net insurance proceeds, which resulted in a
reduction of future depreciation charges beginning in the third quarter of 1996.
There can be no assurance that the satellite will not experience subsequent
anomalies that could adversely impact the Company's financial condition, results
of operations and cash flows.
The Company has received a recommendation from a subcontractor to its
satellite manufacturer that, pending further results from an ongoing
investigation, the satellite should be operated at modified power management
levels. The Company and its satellite manufacturer continue to investigate the
basis, if any, for this recommendation. Based on the information available to
date, management believes that, even if maintained, the power management
recommendation would not have a material negative effect on the Company's
business plan within the next three to five years, based on anticipated traffic
patterns and anticipated subscriber levels. In the event that traffic patterns
or subscriber levels materially exceed those anticipated, the power management
recommendation, if maintained, could have a material impact on the Company's
long-term business plan.
F-28
<PAGE> 55
AMERICAN MOBILE SATELLITE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
15. SUPPLEMENTAL CASH FLOW INFORMATION
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------
1998 1997 1996
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Noncash investing and financing activities:
Leased asset and related obligations...................... $ 648 $ 182 $ 284
Issuance of Common Stock for Acquisition.................. 49,781 -- --
Issuance of Restricted Stock.............................. 1,780 -- --
Issuance and repricing of Common Stock purchase
warrants................................................ 26,210 12,490 21,253
Issuance of Common Stock upon exercise of Common Stock
purchase warrants....................................... -- -- 845
Vendor financing for property in service.................. 1,628 -- 2,440
Issuance of Common Stock under the Defined Contribution
Plan.................................................... 848 350 411
</TABLE>
16. SUBSEQUENT EVENTS
On January 15, 1999, the Company entered into an agreement with Baron Asset
Fund ("Baron") for the placement of a $21.5 million note convertible into shares
of XM Radio common stock (the "Baron XM Radio Convertible Note"). The Company
subsequently loaned approximately $21.4 million to XM Radio in exchange for
outstanding XM Radio common stock and a note convertible into XM Radio shares
(the "XM Radio Note Receivable"). The Baron XM Radio Convertible Note ranks
subordinate to any other securities of the Company and is fully collateralized
by approximately one-half of the shares received by the Company as a result of
this transaction. The XM Radio Note Receivable is a non-recourse note and is
exchangeable into approximately half of the additional XM Radio common stock to
be received by the Company as a result of the January 15 transaction. Assuming
conversion of all convertible notes and exercise of the outstanding WorldSpace
options, the Company's ownership in XM Radio would be reduced to 22.6% (compared
with the 18.3% post-exercise position previously reported). The XM Radio Note
Receivable earns interest at LIBOR plus 5% and is due on the September 30, 2006
maturity date, and the Baron XM Radio Convertible Note accrues interest at the
rate of 6% annually, with all payments deferred until maturity or extinguished
upon conversion.
17. CONDENSED CONSOLIDATING FINANCIAL STATEMENTS
In connection with the Acquisition and related financing discussed above,
the Company formed a new wholly-owned subsidiary, AMSC Acquisition Company, Inc.
("Acquisition Company"). The Company contributed all of its inter-company notes
receivables and transferred its rights, title and interests in AMSC Subsidiary
Corporation, American Mobile Satellite Sales Corporation, and AMSC Sales Corp.
Ltd. (together with ARDIS, the "Subsidiary Guarantors") to Acquisition Company,
and Acquisition Company was the acquirer of ARDIS and the issuer of the $335
million of Notes. American Mobile Satellite Corporation ("American Mobile
Parent") is a guarantor of the Notes. The Notes contain covenants that, among
other things, limit the ability of Acquisition Company and its Subsidiaries to
incur additional indebtedness, pay dividends or make other distributions,
repurchase any capital stock or subordinated indebtedness, make certain
investments, create certain liens, enter
F-29
<PAGE> 56
AMERICAN MOBILE SATELLITE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
into certain transactions with affiliates, sell assets, enter into certain
mergers and consolidations, and enter into sale and leaseback transactions.
The $335 million of Notes are jointly and severally guaranteed on a full
and unconditional basis by the Subsidiary Guarantors, Acquisition Company and
American Mobile Parent. The following unaudited condensed consolidating
information for these entities presents:
- Condensed consolidating balance sheets as of December 31, 1998 and 1997,
condensed consolidating statements of operations and cash flows for 1998,
1997 and 1996 and condensed consolidating statements of stockholders'
equity (deficit) for the period January 1, 1996 through December 31,
1998.
- Elimination entries necessary to combine the entities comprising American
Mobile.
F-30
<PAGE> 57
AMERICAN MOBILE SATELLITE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
CONDENSED CONSOLIDATING BALANCE SHEET
AS OF DECEMBER 31, 1998
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
CONSOLIDATED
CONSOLIDATED AMERICAN AMERICAN
SUBSIDIARY ACQUISITION ACQUISITION MOBILE MOBILE
GUARANTORS COMPANY ELIMINATIONS COMPANY PARENT ELIMINATIONS PARENT
---------- ----------- ------------ ------------ -------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents..... $ 2,285 $ -- $ -- $ 2,285 $ -- $ -- $ 2,285
Inventory..................... 18,593 -- -- 18,593 -- -- 18,593
Prepaid in-orbit insurance.... 3,381 -- -- 3,381 -- -- 3,381
Accounts receivable -- net.... 15,325 -- -- 15,325 -- -- 15,325
Restricted short-term
investments................. -- 41,038 -- 41,038 -- -- 41,038
Other current assets.......... 7,192 20 -- 7,212 6,019 -- 13,231
--------- -------- --------- -------- -------- -------- --------
Total current assets.... 46,776 41,058 -- 87,834 6,019 -- 93,853
PROPERTY AND EQUIPMENT -- NET... 261,607 -- (15,054) 246,553 -- -- 246,553
GOODWILL & INTANGIBLES -- NET... 53,235 -- -- 53,235 -- -- 53,235
INVESTMENT IN/DUE FROM
SUBSIDIARY.................... -- 304,192 (304,192) -- 63,787 (63,787) --
DEFERRED CHARGES AND OTHER
ASSETS -- NET................. 386 33,460 -- 33,846 (4,892) -- 28,954
RESTRICTED INVESTMENTS.......... 1,500 54,939 -- 56,439 10,760 -- 67,199
--------- -------- --------- -------- -------- -------- --------
Total assets............ $ 363,504 $433,649 $(319,246) $477,907 $ 75,674 $(63,787) $489,794
========= ======== ========= ======== ======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
Accounts payable and accrued
expenses.................... $ 23,003 $ 10,715 $ -- $ 33,718 $ 79 $ -- $ 33,797
Obligations under capital
leases due within one
year........................ 5,971 -- -- 5,971 -- -- 5,971
Current portion long-term
debt........................ 5,041 -- -- 5,041 -- -- 5,041
Other current liabilities..... 162 -- -- 162 -- -- 162
--------- -------- --------- -------- -------- -------- --------
Total current
liabilities........... 34,177 10,715 -- 44,892 79 -- 44,971
DUE TO PARENT/AFFILIATE......... 681,029 -- (681,029) -- -- -- --
LONG-TERM LIABILITIES:
Obligations under New Bank
Financing................... -- 32,000 -- 32,000 100,000 -- 132,000
Senior Notes, net of
discount.................... -- 327,147 -- 327,147 -- -- 327,147
Other long-term debt.......... 1,689 -- -- 1,689 -- 1,689
Capital lease obligations..... 5,824 -- -- 5,824 -- -- 5,824
Net assets acquired in excess
of purchase price........... 2,028 -- -- 2,028 -- -- 2,028
Investment in XM Radio........ -- -- -- -- 12,618 -- 12,618
Other long-term liabilities... 540 -- -- 540 -- -- 540
--------- -------- --------- -------- -------- -------- --------
Total long-term
liabilities........... 10,081 359,147 -- 369,228 112,618 -- 481,846
Total liabilities....... 725,287 369,862 (681,029) 414,120 112,697 -- 526,817
--------- -------- --------- -------- -------- -------- --------
STOCKHOLDERS' (DEFICIT)
EQUITY........................ (361,783) 63,787 361,783 63,787 (37,023) (63,787) (37,023)
--------- -------- --------- -------- -------- -------- --------
Total liabilities and
stockholders'
(deficit) equity...... $ 363,504 $433,649 $(319,246) $477,907 $ 75,674 $(63,787) $489,794
========= ======== ========= ======== ======== ======== ========
</TABLE>
F-31
<PAGE> 58
AMERICAN MOBILE SATELLITE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
CONDENSED CONSOLIDATING BALANCE SHEET
AS OF DECEMBER 31, 1997
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
CONSOLIDATED
CONSOLIDATED AMERICAN AMERICAN
SUBSIDIARY ACQUISITION ACQUISITION MOBILE MOBILE
GUARANTORS COMPANY ELIMINATIONS COMPANY PARENT ELIMINATIONS PARENT
---------- ----------- ------------ ------------ -------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents..... $ 2,106 $ -- $ -- $ 2,106 $ -- $ -- $ 2,106
Inventory..................... 40,321 -- -- 40,321 -- -- 40,321
Prepaid in-orbit insurance.... 4,564 -- -- 4,564 -- -- 4,564
Accounts receivable -- net.... 8,140 -- -- 8,140 -- -- 8,140
Other current assets.......... 9,608 -- -- 9,608 -- -- 9,608
--------- --------- --------- -------- -------- -------- --------
Total current assets.... 64,739 -- -- 64,739 -- -- 64,739
PROPERTY AND EQUIPMENT -- NET... 250,335 -- -- 250,335 -- (17,161) 233,174
INVESTMENT IN/DUE FROM
SUBSIDIARY.................... -- -- -- -- 69,356 (69,356) --
DEFERRED CHARGES AND OTHER
ASSETS -- NET................. 36,722 -- -- 36,722 (23,188) -- 13,534
--------- --------- --------- -------- -------- -------- --------
Total assets............ $ 351,796 $ -- $ -- $351,796 $ 46,168 $(86,517) $311,447
========= ========= ========= ======== ======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
Accounts payable and accrued
expenses.................... $ 35,824 $ -- $ -- $ 35,824 $ 37 $ -- $ 35,861
Obligations under capital
leases due within one
year........................ 798 -- -- 798 -- -- 798
Current portion long-term
debt........................ 15,254 -- -- 15,254 -- -- 15,254
Other current liabilities..... 7,520 -- -- 7,520 -- -- 7,520
--------- --------- --------- -------- -------- -------- --------
Total current
liabilities........... 59,396 -- -- 59,396 37 -- 59,433
DUE TO PARENT/AFFILIATE......... 441,837 -- -- 441,837 -- (441,837) --
LONG-TERM LIABILITIES:
Obligations under New Bank
Financing................... 198,000 -- -- 198,000 -- -- 198,000
Capital lease obligations..... 3,147 -- -- 3,147 -- -- 3,147
Net assets acquired in excess
of purchase price........... 2,725 -- -- 2,725 -- -- 2,725
Other long-term liabilities... 2,011 -- -- 2,011 -- -- 2,011
--------- --------- --------- -------- -------- -------- --------
Total long-term
liabilities........... 205,883 -- -- 205,883 -- -- 205,883
Total liabilities....... 707,116 -- -- 707,116 37 (441,837) 265,316
--------- --------- --------- -------- -------- -------- --------
STOCKHOLDERS' (DEFICIT)
EQUITY........................ (355,320) -- -- (355,320) 46,131 355,320 46,131
--------- --------- --------- -------- -------- -------- --------
Total liabilities and
stockholders'
(deficit) equity...... $ 351,796 $ -- $ -- $351,796 $ 46,168 $(86,517) $311,447
========= ========= ========= ======== ======== ======== ========
</TABLE>
F-32
<PAGE> 59
AMERICAN MOBILE SATELLITE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1998
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
CONSOLIDATED AMERICAN CONSOLIDATED
SUBSIDIARY ACQUISITION ACQUISITION MOBILE AMERICAN MOBILE
GUARANTORS COMPANY ELIMINATIONS COMPANY PARENT ELIMINATIONS PARENT
---------- ----------- ------------ ------------ --------- ------------ ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
REVENUES
Services................... $ 57,994 $ -- $ -- $ 57,994 $ 1,200 $ (1,200) $ 57,994
Sales of equipment......... 29,227 -- -- 29,227 -- -- 29,227
--------- --------- -------- --------- --------- -------- ---------
Total Revenues............. 87,221 -- -- 87,221 1,200 (1,200) 87,221
COSTS AND EXPENSES
Cost of service and
operations............... 58,086 -- -- 58,086 -- -- 58,086
Cost of equipment sold..... 30,449 -- -- 30,449 -- -- 30,449
Sales and advertising...... 16,733 -- -- 16,733 121 -- 16,854
General and
administrative........... 17,355 110 -- 17,465 1,066 (1,199) 17,332
Depreciation and
amortization............. 53,233 -- -- 53,233 -- (526) 52,707
--------- --------- -------- --------- --------- -------- ---------
Operating Loss............. (88,635) (110) -- (88,745) 13 525 (88,207)
INTEREST AND OTHER INCOME... 319 14,908 (11,615) 3,612 8,472 (7,712) 4,372
EQUITY IN LOSS OF
SUBSIDIARIES............... -- (116,332) 116,332 -- (150,753) 137,793 (12,960)
INTEREST EXPENSE............ (28,016) (36,259) 11,615 (52,660) (8,298) 7,187 (53,771)
--------- --------- -------- --------- --------- -------- ---------
NET LOSS.................... $(116,332) $(137,793) $116,332 $(137,793) $(150,566) $137,793 $(150,566)
========= ========= ======== ========= ========= ======== =========
</TABLE>
F-33
<PAGE> 60
AMERICAN MOBILE SATELLITE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1997
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
CONSOLIDATED AMERICAN CONSOLIDATED
SUBSIDIARY ACQUISITION ACQUISITION MOBILE AMERICAN MOBILE
GUARANTORS COMPANY ELIMINATIONS COMPANY PARENT ELIMINATIONS PARENT
---------- ----------- ------------ ------------ --------- ------------ ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
REVENUES
Services................... $ 20,684 $ -- $ -- $ 20,684 $ 1,200 $ (1,200) $ 20,684
Sales of equipment......... 23,530 -- -- 23,530 -- -- 23,530
--------- --------- -------- --------- --------- -------- ---------
Total Revenues............. 44,214 -- -- 44,214 1,200 (1,200) 44,214
COSTS AND EXPENSES
Cost of service and
operations............... 31,959 -- -- 31,959 -- -- 31,959
Cost of equipment sold..... 40,335 -- -- 40,335 -- -- 40,335
Sales and advertising...... 12,030 -- -- 12,030 36 -- 12,066
General and
administrative........... 14,890 -- -- 14,890 1,129 (1,200) 14,819
Depreciation and
amortization............. 44,535 -- -- 44,535 (2,105) -- 42,430
--------- --------- -------- --------- --------- -------- ---------
Operating Loss............. (99,535) -- -- (99,535) 2,140 -- (97,395)
INTEREST AND OTHER INCOME... 1,122 -- -- 1,122 29,520 (29,520) 1,122
EQUITY IN LOSS OF
SUBSIDIARIES............... -- -- -- -- (150,867) 149,566 (1,301)
INTEREST EXPENSE............ (51,153) -- -- (51,153) -- 29,520 (21,633)
--------- --------- -------- --------- --------- -------- ---------
NET LOSS.................... $(149,566) $ -- $ -- $(149,566) $(119,207) $149,566 $(119,207)
========= ========= ======== ========= ========= ======== =========
</TABLE>
F-34
<PAGE> 61
AMERICAN MOBILE SATELLITE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1996
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
CONSOLIDATED AMERICAN CONSOLIDATED
SUBSIDIARY ACQUISITION ACQUISITION MOBILE AMERICAN MOBILE
GUARANTORS COMPANY ELIMINATIONS COMPANY PARENT ELIMINATIONS PARENT
---------- ----------- ------------ ------------ --------- ------------ ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
REVENUES
Services................... $ 9,201 $ -- $ -- $ 9,201 $ 1,200 $ (1,200) $ 9,201
Sales of equipment......... 18,529 -- -- 18,529 -- -- 18,529
--------- --------- -------- --------- --------- -------- ---------
Total Revenues............. 27,730 -- -- 27,730 1,200 (1,200) 27,730
COSTS AND EXPENSES
Cost of service and
operations............... 30,471 -- -- 30,471 -- -- 30,471
Cost of equipment sold..... 31,903 -- -- 31,903 -- -- 31,903
Sales and advertising...... 24,541 -- -- 24,541 -- -- 24,541
General and
administrative........... 16,212 -- -- 16,212 2,452 (1,200) 17,464
Depreciation and
amortization............. 45,496 -- -- 45,496 (2,106) -- 43,390
--------- --------- -------- --------- --------- -------- ---------
Operating Loss............. (120,893) -- -- (120,893) 854 -- (120,039)
INTEREST AND OTHER INCOME... 552 -- -- 552 29,485 (29,485) 552
EQUITY IN LOSS OF
SUBSIDIARIES............... -- -- -- -- (164,977) 164,977 --
INTEREST EXPENSE............ (44,636) -- -- (44,636) -- 29,485 (15,151)
--------- --------- -------- --------- --------- -------- ---------
NET LOSS.................... $(164,977) $ -- $ -- $(164,977) $(134,638) $164,977 $(134,638)
========= ========= ======== ========= ========= ======== =========
</TABLE>
F-35
<PAGE> 62
AMERICAN MOBILE SATELLITE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
CONDENSED CONSOLIDATING STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
FOR THE PERIOD FROM JANUARY 1, 1996 THROUGH DECEMBER 31, 1998
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
CONSOLIDATED AMERICAN CONSOLIDATED
SUBSIDIARY ACQUISITION ACQUISITION MOBILE AMERICAN MOBILE
GUARANTORS COMPANY ELIMINATIONS COMPANY PARENT ELIMINATIONS PARENT
---------- ----------- ------------ ------------ --------- ------------ ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31,
1995...................... $ (40,777) $ -- $ -- $ (40,777) $ 287,527 $ 40,777 $ 287,527
Net Loss.................. (164,977) -- -- (164,977) (134,638) 164,977 (134,638)
Issuance of common
stock................... -- -- -- -- 1,658 -- 1,658
Issuance of common stock
purchase warrants....... -- -- -- -- 4,153 -- 4,153
--------- --------- -------- --------- --------- --------- ---------
Balance, December 31,
1996...................... (205,754) -- -- (205,754) 158,700 205,754 158,700
Net Loss.................. (149,566) -- -- (149,566) (119,207) 149,566 (119,207)
Issuance of common
stock................... -- -- -- -- 634 -- 634
Amortization of guarantee
warrants................ -- -- -- -- 6,004 -- 6,004
--------- --------- -------- --------- --------- --------- ---------
Balance, December 31,
1997...................... (355,320) -- -- (355,320) 46,131 355,320 46,131
Net Loss.................. (116,332) (137,793) 116,332 (137,793) (150,566) 137,793 (150,566)
Capitalization of
Acquisition Company..... -- 201,580 355,320 556,900 -- (556,900) --
Acquisition of ARDIS...... 109,869 -- (109,869) -- -- -- --
Issuance of common
stock................... -- -- -- -- 51,042 -- 51,042
Issuance of common stock
purchase warrants....... -- -- -- -- 8,490 -- 8,490
Amortization of guarantee
warrants................ -- -- -- -- 7,628 -- 7,628
Amortization of
compensation expense.... -- -- -- -- 252 -- 252
--------- --------- -------- --------- --------- --------- ---------
Balance, December 31,
1998...................... $(361,783) $ 63,787 $361,783 $ 63,787 $ (37,023) $ (63,787) $ (37,023)
========= ========= ======== ========= ========= ========= =========
</TABLE>
F-36
<PAGE> 63
AMERICAN MOBILE SATELLITE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOW
YEAR ENDED DECEMBER 31, 1998
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
CONSOLIDATED
CONSOLIDATED AMERICAN AMERICAN
SUBSIDIARY ACQUISITION ACQUISITION MOBILE MOBILE
GUARANTORS COMPANY ELIMINATIONS COMPANY PARENT ELIMINATIONS PARENT
---------- ----------- ------------ ------------ --------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net loss....................... $(116,332) $(137,793) $116,332 $(137,793) $(150,566) $137,793 $(150,566)
Adjustments to reconcile net
loss to net cash used in
operating activities:
Amortization of Guarantee
Warrants and debt related
costs...................... -- 10,845 -- 10,845 5,326 -- 16,171
Depreciation and
amortization............... 53,233 -- -- 53,233 (526) -- 52,707
Equity in loss in XM Radio... -- -- -- -- 12,960 -- 12,960
Changes in assets &
liabilities
Inventory.................. 21,947 -- -- 21,947 -- -- 21,947
Prepaid in-orbit
insurance................ 1,183 -- -- 1,183 -- -- 1,183
Trade accounts
receivable............... (105) -- -- (105) -- -- (105)
Other current assets....... 7,185 -- -- 7,185 55 -- 7,240
Accounts payable and
accrued expenses......... 16,864 -- -- 16,864 12 -- 16,876
Deferred trade payables.... (6,567) -- -- (6,567) -- -- (6,567)
Deferred Items -- net...... (7,396) -- -- (7,396) -- -- (7,396)
--------- --------- -------- --------- --------- -------- ---------
Net cash used in operating
activities............... (29,988) (126,948) 116,332 (40,604) (132,739) 137,793 (35,550)
CASH FLOWS FROM INVESTING
ACTIVITIES:
Additions to property &
equipment.................. (12,470) -- -- (12,470) -- -- (12,470)
Acquisition of ARDIS......... -- (52,373) -- (52,373) -- -- (52,373)
Purchase of long-term,
restricted investments..... (1,500) (95,476) -- (96,976) (28,152) -- (125,128)
Payment of escrow interest... -- (20,633) -- (20,633) -- -- (20,633)
--------- --------- -------- --------- --------- -------- ---------
Net cash used in investing
activities................. (13,970) (168,482) -- (182,452) (28,152) -- (210,604)
CASH FLOWS FROM FINANCING
ACTIVITIES:
Proceeds from issuance of
Common Stock............... -- -- -- -- 412 -- 412
Funding from Parent.......... 52,481 41,165 (116,332) (22,686) 160,479 (137,793) --
Principal payments under
capital leases............. (3,395) -- -- (3,395) -- -- (3,395)
Payments under Vendor
Financing.................. (16) -- -- (16) -- -- (16)
Repayment of bank
financing.................. -- (66,000) -- (66,000) -- -- (66,000)
Payments on long-term debt... (4,933) -- -- (4,933) -- -- (4,933)
Debt issuance costs.......... -- (14,735) -- (14,735) -- -- (14,735)
Proceeds from Senior Notes
and Stock Purchase
Warrants................... -- 335,000 -- 335,000 -- -- 335,000
--------- --------- -------- --------- --------- -------- ---------
Net cash provided by
financing activities....... 44,137 295,430 (116,332) 223,235 160,891 (137,793) 246,333
Net increase in cash and cash
equivalents.................. 179 -- -- 179 -- -- 179
CASH & CASH EQUIVALENTS,
beginning of period.......... 2,106 -- -- 2,106 -- -- 2,106
--------- --------- -------- --------- --------- -------- ---------
CASH & CASH EQUIVALENTS, end of
period....................... $ 2,285 $ -- $ -- $ 2,285 $ -- $ -- $ 2,285
========= ========= ======== ========= ========= ======== =========
</TABLE>
F-37
<PAGE> 64
AMERICAN MOBILE SATELLITE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOW
YEAR ENDED DECEMBER 31, 1997
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
CONSOLIDATED
CONSOLIDATED AMERICAN AMERICAN
SUBSIDIARY ACQUISITION ACQUISITION MOBILE MOBILE
GUARANTORS COMPANY ELIMINATIONS COMPANY PARENT ELIMINATIONS PARENT
---------- ----------- ------------ ------------ --------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net loss....................... $(149,566) $ -- $ -- $(149,566) $(119,207) $149,566 $(119,207)
Adjustments to reconcile net
loss to net cash used in
operating activities:
Amortization of Guarantee
Warrants and debt related
costs...................... 9,350 -- -- 9,350 -- -- 9,350
Depreciation and
amortization............... 44,535 -- -- 44,535 (2,105) -- 42,430
Equity in loss in XM Radio... -- -- -- -- 1,301 -- 1,301
Changes in assets &
liabilities
Inventory.................. (2,287) -- -- (2,287) -- -- (2,287)
Prepaid in-orbit
insurance................ 516 -- -- 516 -- -- 516
Trade accounts
receivable............... (1,537) -- -- (1,537) -- -- (1,537)
Other current assets....... 4,639 -- -- 4,639 -- -- 4,639
Accounts payable and
accrued expenses......... (5,844) -- -- (5,844) 24 -- (5,820)
Deferred trade payables.... 11,685 -- -- 11,685 -- -- 11,685
Deferred Items -- net...... 8,038 -- -- 8,038 -- -- 8,038
--------- --------- -------- --------- --------- -------- ---------
Net cash used in operating
activities............... (80,471) -- -- (80,471) (119,987) 149,566 (50,892)
CASH FLOWS FROM INVESTING
ACTIVITIES:
Additions to property &
equipment.................. (8,598) -- -- (8,598) -- -- (8,598)
Investment in XM Radio....... -- -- -- -- (1,643) -- (1,643)
--------- --------- -------- --------- --------- -------- ---------
Net cash used in investing
activities................. (8,598) -- -- (8,598) (1,643) -- (10,241)
CASH FLOWS FROM FINANCING
ACTIVITIES:
Proceeds from issuance of
Common Stock............... -- -- -- -- 284 -- 284
Funding from Parent.......... 28,220 -- -- 28,220 121,346 (149,566) --
Principal payments under
capital leases............. (2,576) -- -- (2,576) -- -- (2,576)
Proceeds from bank
financing.................. 71,000 -- -- 71,000 -- -- 71,000
Payments on long-term debt... (6,180) -- -- (6,180) -- -- (6,180)
Debt issuance costs.......... (1,471) -- -- (1,471) -- -- (1,471)
--------- --------- -------- --------- --------- -------- ---------
Net cash provided by
financing activities....... 88,993 -- -- 88,993 121,630 (149,566) 61,057
Net decrease in cash and cash
equivalents.................. (76) -- -- (76) -- -- (76)
CASH & CASH EQUIVALENTS,
beginning of period.......... 2,182 -- -- 2,182 -- -- 2,182
--------- --------- -------- --------- --------- -------- ---------
CASH & CASH EQUIVALENTS, end of
period....................... $ 2,106 $ -- $ -- $ 2,106 $ -- $ -- $ 2,106
========= ========= ======== ========= ========= ======== =========
</TABLE>
F-38
<PAGE> 65
AMERICAN MOBILE SATELLITE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOW
YEAR ENDED DECEMBER 31, 1996
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
CONSOLIDATED
CONSOLIDATED AMERICAN AMERICAN
SUBSIDIARY ACQUISITION ACQUISITION MOBILE MOBILE
GUARANTORS COMPANY ELIMINATIONS COMPANY PARENT ELIMINATIONS PARENT
---------- ----------- ------------ ------------ --------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net loss....................... $(164,977) $ -- $ -- $(164,977) $(134,638) $164,977 $(134,638)
Adjustments to reconcile net
loss to net cash used in
operating activities:
Amortization of Guarantee
Warrants and debt related
costs...................... 5,721 -- -- 5,721 -- -- 5,721
Depreciation and
amortization............... 45,413 -- -- 45,413 (2,106) -- 43,307
Changes in assets &
liabilities
Inventory.................. (27,482) -- -- (27,482) -- -- (27,482)
Prepaid in-orbit
insurance................ (257) -- -- (257) -- -- (257)
Trade accounts
receivable............... (5,229) -- -- (5,229) -- -- (5,229)
Other current assets....... 1,970 -- -- 1,970 -- -- 1,970
Accounts payable and
accrued expenses......... 1,668 -- -- 1,668 4 -- 1,672
Deferred trade payables.... -- -- -- -- -- -- --
Deferred Items -- net...... 1,347 -- -- 1,347 -- -- 1,347
--------- --------- -------- --------- --------- -------- ---------
Net cash (used in) provided
by operating
activities............... (141,826) -- -- (141,826) (136,740) 164,977 (113,589)
CASH FLOWS FROM INVESTING
ACTIVITIES:
Additions to property &
equipment.................. (14,054) -- -- (14,054) -- -- (14,054)
Purchase of long-term,
restricted investments..... (1,000) -- -- (1,000) -- -- (1,000)
Insurance proceeds applied to
equipment in service....... 66,000 -- -- 66,000 -- -- 66,000
--------- --------- -------- --------- --------- -------- ---------
Net cash provided by
investing activities....... 50,946 -- -- 50,946 -- -- 50,946
CASH FLOWS FROM FINANCING
ACTIVITIES:
Proceeds from issuance of
Common Stock............... -- -- -- -- 1,247 -- 1,247
Funding from parent.......... 29,485 -- -- 29,485 135,492 (164,977) --
Principal payments under
capital leases............. (3,994) -- -- (3,994) -- -- (3,994)
Proceeds from debt
issuance................... 1,700 -- -- 1,700 -- -- 1,700
Proceeds from bank
financing.................. 127,000 -- -- 127,000 -- -- 127,000
Payments on long-term debt... (59,190) -- -- (59,190) -- -- (59,190)
Debt issuance costs.......... (10,803) -- -- (10,803) -- -- (10,803)
--------- --------- -------- --------- --------- -------- ---------
Net cash provided by (used
in) financing activities... 84,198 -- -- 84,198 136,739 (164,977) 55,960
Net decrease in cash and cash
equivalents.................. (6,682) -- -- (6,682) (1) -- (6,683)
CASH & CASH EQUIVALENTS,
beginning of period.......... 8,864 -- -- 8,864 1 -- 8,865
--------- --------- -------- --------- --------- -------- ---------
CASH & CASH EQUIVALENTS, end of
period....................... $ 2,182 $ -- $ -- $ 2,182 $ -- $ -- $ 2,182
========= ========= ======== ========= ========= ======== =========
</TABLE>
F-39
<PAGE> 66
AMERICAN MOBILE SATELLITE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
18. SUBSEQUENT EVENTS
XM ACQUISITION
On July 7, 1999, the Company 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 the Company's common
stock, the issuance of approximately 2.1 million of which is subject to Company
stockholder approval. Additionally, XM Radio issued an aggregate $250 million of
Series A subordinated convertible notes to several new investors and used $75
million of the proceeds it received from the issuance of these notes to repay
the $75 million loan owed to WorldSpace. As a result of these transactions, the
Company owns all of the issued and outstanding stock of XM Radio. Assuming
subsequent conversion of all outstanding convertible notes of XM Radio, and
assuming the Company obtains stockholder approval to issue the remaining 2.1
million shares discussed above, American Mobile would own approximately 37% of
the economic interest of XM Radio, and would have approximately 62% of the
voting interest in XM Radio.
On a pro forma basis, assuming this transaction had been consummated on
January 1, 1998, the following results would have been reflected:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1998
-----------------
<S> <C>
Revenues............................................... $ 97,153
Net Loss............................................... 185,365
Loss per share......................................... (4.55)
</TABLE>
As a result of these transactions, the Company controls XM Radio and will
consolidate XM Radio on a prospective basis. Additionally, pursuant to generally
accepted accounting principles, the Company's accompanying 1998 financial
statements have been restated to record American Mobile's share of losses which
had previously been suspended pursuant to the equity method of accounting. The
effect of this restatement was to increase the Company's previously reported net
loss from $137,948 to $150,566, to increase the loss per share from $4.52 to
$4.94 and to restate other financial statement amounts as follows for 1998.
<TABLE>
<CAPTION>
AS REPORTED ADJUSTMENT AS RESTATED
----------- ---------- -----------
<S> <C> <C> <C>
Equity in Loss of XM Radio............ $ 342 $ 12,618 $ 12,960
Cumulative Loss....................... (556,713) (12,618) (569,331)
Investment in XM Radio................ -- (12,618) (12,618)
</TABLE>
F-40
<PAGE> 67
AMERICAN MOBILE SATELLITE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
QUARTERLY FINANCIAL DATA
(UNAUDITED)
<TABLE>
<CAPTION>
1998-QUARTERS 1997-QUARTERS
----------------------------------------- -----------------------------------------
1(ST) 2(ND) 3(RD) 4(TH) 1(ST) 2(ND) 3(RD) 4(TH)
-------- -------- -------- -------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS, EXCEPT FOR PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues.................. $ 10,022 $ 22,410 $ 21,802 $ 32,987 $ 8,685 $ 10,753 $ 10,795 $ 13,981
Operating expenses(1)..... 28,425 47,274 44,178 55,551 32,341 32,420 30,617 46,231
-------- -------- -------- -------- -------- -------- -------- --------
Loss from operations...... (18,403) (24,864) (22,376) (22,564) (23,656) (21,667) (19,822) (32,250)
Interest and other
expense................. (9,003) (18,125) (17,008) (18,223) (3,425) (5,175) (6,442) (6,770)
-------- -------- -------- -------- -------- -------- -------- --------
Net Loss.................. (27,406) (42,989) (39,384) (40,787) (27,081) (26,842) (26,264) (39,020)
Net loss per common
share(2)................ $ (1.09) $ (1.36) $ (1.24) $ (1.27) $ (1.08) $ (1.07) $ (1.04) $ (1.55)
Weighted-average common
shares outstanding
during the period
(000s).................. 25,241 31,719 31,773 32,154 25,109 25,120 25,145 25,151
Market price per share(3)
High.................... $ 16.13 $ 14.31 $ 10.69 $ 6.25 $ 14.75 $ 12.13 $ 10.88 $ 10.75
Low..................... $ 6.75 $ 9.25 $ 4.50 $ 3.50 $ 9.37 $ 8.50 $ 6.23 $ 6.28
</TABLE>
- -------------------------
(1) Operating expenses include charges of approximately $12.0 million in the
fourth quarter of 1997 related to the realizability of the Company's
inventory investment.
(2) Loss per share calculations for each of the quarters are based on the
weighted average number of shares outstanding for each of the periods, and
the sum of the quarters may not necessarily be equal to the full year loss
per share amount.
(3) The Company's Common Stock is listed under the symbol SKYC on the Nasdaq
National Market System. The quarterly high and low sales price represents
the closing price in the Nasdaq National Market System. The quotations
represent inter-dealer quotations, without retail markups, markdowns or
commissions, and may not necessarily represent actual transactions. As of
February 28, 1999, there were 275 stockholders of record of the Company's
Common Stock.
F-41
<PAGE> 68
SELECTED FINANCIAL DATA
Set forth below is the selected financial data for the Company for the five
fiscal years ended December 31, 1998:
<TABLE>
<CAPTION>
1998 1997 1996 1995 1994
--------- --------- --------- -------- --------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
Revenues............................. $ 87,221 $ 44,214 $ 27,730 $ 8,797 $ 5,240
Net Loss............................. (150,566) (119,207) (134,638) (66,917) (21,103)
Basic and diluted Loss per Common
Share.............................. $ (4.94) $ (4.74) $ (5.38) $ (2.69) $ (0.86)
Dividends on Common Stock(1)......... None None None None None
Consolidated Balance Sheet Data:
Cash and Cash Equivalents............ $ 2,285 $ 2,106 $ 2,182 $ 8,865 $137,287
Property Under Construction.......... -- -- -- -- 263,505
Total Assets......................... 489,794 311,447 350,173 398,351 448,674
Current Liabilities.................. 44,971 59,433 57,669 104,772 37,251
Long-Term Obligations................ 481,846 205,883 133,804 6,052 59,879
Stockholders' (Deficit) Equity....... (37,023) 46,131 158,700 287,527 351,544
</TABLE>
- -------------------------
(1) The Company has paid no dividends on its Common Stock since inception and
does not plan to pay dividends on its Common Stock in the foreseeable
future. In addition, the payment of dividends is subject to restrictions
described in Note 8 to the financial statements and discussed in
Management's Discussion and Analysis.
F-42
<PAGE> 69
AMERICAN MOBILE SATELLITE CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
----------------------------
1999 1998
--------- ---------
(IN THOUSANDS, EXCEPT PER
SHARE DATA)
<S> <C> <C>
REVENUES
Services.................................................. $ 16,164 $ 6,418
Sales of equipment........................................ 4,066 3,604
-------- --------
Total Revenues............................................ 20,230 10,022
COSTS AND EXPENSES
Cost of service and operations............................ 17,870 7,728
Cost of equipment sold.................................... 4,528 3,881
Sales and advertising..................................... 4,749 3,022
General and administrative................................ 4,769 3,631
Depreciation and amortization............................. 13,772 10,163
-------- --------
Operating Loss............................................ (25,458) (18,403)
INTEREST EXPENSE............................................ (15,930) (6,638)
INTEREST AND OTHER INCOME................................... 1,739 141
EQUITY IN LOSS OF XM RADIO.................................. (3,494) (2,506)
-------- --------
NET LOSS.................................................. $(43,143) $(27,406)
======== ========
Basic and Diluted Loss Per Share of common stock............ $ (1.34) $ (1.09)
Weighted-average common shares outstanding during the
period.................................................... 32,225 25,241
</TABLE>
See notes to consolidated condensed financial statements.
F-43
<PAGE> 70
AMERICAN MOBILE SATELLITE CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1999 1998
--------- ------------
(IN THOUSANDS)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents................................. $ 8,131 $ 2,285
Inventory................................................. 17,440 18,593
Prepaid in-orbit insurance................................ 1,932 3,381
Accounts receivable -- net................................ 16,752 15,325
Restricted short-term investments......................... 41,038 41,038
Note receivable from XM Radio............................. 21,687 --
Other current assets...................................... 15,055 13,231
-------- --------
Total current assets............................... 122,035 93,853
PROPERTY & EQUIPMENT -- net................................. 239,017 246,553
GOODWILL & INTANGIBLES -- net............................... 52,772 53,235
RESTRICTED INVESTMENTS...................................... 68,623 67,199
DEFERRED CHARGES & OTHER ASSETS -- net...................... 26,151 28,954
-------- --------
Total assets....................................... $508,598 $489,794
======== ========
LIABILITIES & STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES
Accounts payable & accrued expenses....................... $ 41,839 $ 33,797
Obligations under capital leases due within one year...... 4,816 5,971
Vendor financing due to related party within one year..... 1,569 543
Deferred trade payables due within one year............... 2,584 4,498
Other current liabilities................................. -- 162
-------- --------
Total current liabilities.......................... 50,808 44,971
LONG-TERM LIABILITIES
Obligations under New Bank Financing...................... 159,000 132,000
Obligations under Senior Notes, net of discount........... 327,359 327,147
Capital lease obligations................................. 5,657 5,824
Net assets acquired in excess of purchase price........... 1,855 2,028
Vendor financing due to related party..................... 3,031 1,069
Note payable to related party............................. 21,769 --
Deferred trade payables................................... 442 620
Investment in XM Radio.................................... 16,112 12,618
Other long-term liabilities............................... 535 540
-------- --------
Total long-term liabilities........................ 535,760 481,846
-------- --------
Total liabilities.................................. 586,568 526,817
STOCKHOLDERS' DEFICIT
Preferred Stock........................................... -- --
Common Stock.............................................. 324 322
Additional paid-in capital................................ 509,074 508,084
Deferred compensation..................................... (2,305) (1,528)
Common Stock purchase warrants............................ 60,588 59,108
Unamortized guarantee warrants............................ (33,177) (33,678)
Cumulative loss........................................... (612,474) (569,331)
-------- --------
Total stockholders' deficit........................ (77,970) (37,023)
-------- --------
Total liabilities and stockholders' deficit........ $508,598 $489,794
======== ========
</TABLE>
See notes to consolidated financial statements.
F-44
<PAGE> 71
AMERICAN MOBILE SATELLITE CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
--------------------
1999 1998
-------- --------
(IN THOUSANDS)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss.................................................... $(43,143) $(27,406)
Adjustments to reconcile net loss to net cash used in
operating activities:
Amortization of guarantee warrants, debt discount and
issuance costs.......................................... 4,552 2,524
Depreciation and amortization............................. 13,772 10,163
Equity in loss in XM Radio................................ 3,494 2,506
Changes in assets and liabilities:
Inventory............................................... 1,153 1,986
Prepaid in-orbit insurance.............................. 1,449 1,675
Trade accounts receivable............................... (1,427) 3,744
Other current assets.................................... (1,369) (661)
Accounts payable and accrued expenses................... 8,568 (12,197)
Deferred trade payables................................. (2,092) 6,436
Deferred items -- net................................... (931) 293
-------- --------
Net cash used in operating activities....................... (15,974) (10,937)
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment......................... (2,541) (1,126)
Purchase of XM Radio note receivable........................ (21,419) --
Acquisition of ARDIS........................................ -- (51,382)
Purchase of long-term, restricted investments............... (1,424) (140,892)
-------- --------
Net cash used in investing activities....................... (25,384) (193,400)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of Common Stock...................... 162 103
Principal payments under capital leases..................... (1,322) (135)
Principal payments under Vendor Financing................... (90) --
Proceeds from New Bank Financing............................ 27,000 2,000
Proceeds from note payable to related party................. 21,500 --
Repayment of Bank Financing................................. -- (100,000)
Proceeds from bridge financing.............................. -- 10,000
Repayment of bridge financing............................... -- (10,000)
Proceeds from Senior Notes and Stock Purchase Warrants...... -- 335,000
Debt issuance costs......................................... (46) (13,458)
-------- --------
Net cash provided by financing activities................... 47,204 223,510
Net increase in cash and cash equivalents................... 5,846 19,173
CASH AND CASH EQUIVALENTS, beginning of period.............. 2,285 2,106
-------- --------
CASH AND CASH EQUIVALENTS, end of period.................... $ 8,131 $ 21,279
======== ========
</TABLE>
See notes to consolidated financial statements.
F-45
<PAGE> 72
AMERICAN MOBILE SATELLITE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
MARCH 31, 1999
(UNAUDITED)
1. ORGANIZATION AND BUSINESS
American Mobile Satellite Corporation (with its subsidiaries, "American
Mobile" or the "Company") is a nationwide provider of wireless communications
services, including data, dispatch, and voice services, primarily to business
customers in the United States.
Additionally, the Company has an investment in XM Satellite Radio Inc.,
which, through its subsidiary XM Satellite Radio Holdings Inc. (together with XM
Satellite Radio Inc, "XM Radio"), is one of two entities awarded a license by
the FCC to provide satellite-based Digital Audio Radio Service ("DARS")
throughout the United States. XM Radio is currently engaged in efforts to
construct its satellite system. The Company's investment in XM Radio is
currently not material to the Company's financial position, results of
operations or cash flows. The Company is not required to provide any additional
funding.
American Mobile is devoting its efforts to expanding its business. This
effort involves substantial risk. Specifically, future operating results will be
subject to significant business, economic, regulatory, technical, and
competitive uncertainties and contingencies. Depending on their extent and
timing, these factors, individually or in the aggregate, could have an adverse
effect on the Company's financial condition and future results of operations.
2. SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The unaudited consolidated condensed financial statements included herein
have been prepared pursuant to the rules and regulations of the Securities and
Exchange Commission. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted. While the Company believes
that the disclosures made are adequate to make the information not misleading,
these consolidated financial statements should be read in conjunction with the
consolidated financial statements and related notes included in the Company's
1998 Annual Report on Form 10-K.
The consolidated balance sheet as of March 31, 1999, and the consolidated
statements of operations and cash flows for the three months ended March 31,
1999 and 1998, have been prepared by the Company without audit. In the opinion
of management, all adjustments (consisting of normal recurring adjustments)
necessary to present fairly the financial position, results of operations and
cash flows at March 31, 1999, and for all periods presented have been made. The
balance sheet at December 31, 1998 has been taken from the audited financial
statements.
NET LOSS PER SHARE
Basic and diluted loss per common share is based on the weighted-average
number of shares of Common Stock outstanding during the period. Stock options
and common stock purchase warrants are not reflected since their effect would be
antidilutive. As of March 31, 1999, there were approximately 84,000 options and
warrants that would have been included in this calculation had the effect not
been antidilutive.
F-46
<PAGE> 73
AMERICAN MOBILE SATELLITE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS -- (CONTINUED)
COMPREHENSIVE INCOME
SFAS No. 130, "Reporting of Comprehensive Income," requires "comprehensive
income" and the components of "other comprehensive income" to be reported in the
financial statements and/or notes thereto. Since the Company does not have any
components of "other comprehensive income," reported net income is the same as
"comprehensive income" for the three months ended March 31, 1999 and 1998.
SEGMENT DISCLOSURES
In accordance with SFAS 131, "Disclosures about Segments of an Enterprise
and Related Information," the Company has only one operating segment which is
engaged in the provision of nationwide wireless communication. The Company
provides services within North America and parts of Central America and the
Caribbean, and all revenues are derived from customers within the United States.
The following summarizes service revenue by major product lines:
<TABLE>
<CAPTION>
REVENUE FOR THE
THREE MONTHS ENDED
MARCH 31,
-------------------
1999 1998
------ -----
(IN MILLIONS)
<S> <C> <C>
Voice Service............................................... $ 3.0 $3.2
Data Service................................................ 12.0 2.3
Capacity Resellers and Other................................ 1.2 0.9
</TABLE>
RECENTLY ADOPTED ACCOUNTING PRONOUNCEMENTS
In June 1998, FASB issued Statement No. 133, "Accounting for Derivative
Instruments and Hedging Activities," which requires the recognition of all
derivatives as either assets or liabilities measured at fair value. This
statement is effective for the year ending December 31, 2000. The Company does
not believe that the adoption of this statement will have a material impact on
its financial position, results of operations and cash flows.
In March 1999, FASB issued an Exposure Draft on an Interpretation of
Accounting Principles Board Opinion No. 25 Accounting for Certain Transactions
involving Stock Compensation. This proposed Interpretation would make it more
likely that expense would be required to be recognized in the case of, among
other things, stock (including stock options) issued to non-employee members of
an entity's board of directors. The Company has assessed the impact of this
proposed Interpretation and does not believe that adoption of this
Interpretation would have a material impact on its financial position, results
of operations and cash flows.
OTHER
The Company paid approximately $2.1 million and $1.5 million in the
three-month periods ended March 31, 1999 and 1998, respectively, to related
parties for capital assets, service-related obligations, and payments under
pre-existing financing agreements. There were no payments from related parties
in the three-month period ended March 31, 1999, as compared to $1.1 million for
communication services and equipment purchases in the three-month period ended
March 31, 1998.
F-47
<PAGE> 74
AMERICAN MOBILE SATELLITE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS -- (CONTINUED)
Total indebtedness to related parties as of March 31, 1999 approximated $27.5
million, with amounts due from related parties as of March 31, 1999 totaling
$21.7 million.
3. LIQUIDITY AND FINANCING
LIQUIDITY AND FINANCING REQUIREMENTS
Adequate liquidity and capital are critical for the Company to continue as
a going concern and to fund subscriber acquisition programs necessary to achieve
positive cash flow and profitable operations. The Company expects to continue to
make significant capital outlays to fund interest expense, capital expenditures
and working capital prior to the time that it begins to generate positive cash
flow from operations and for the foreseeable future thereafter.
On March 31, 1998, AMSC Acquisition Company, Inc. ("Acquisition Company"),
a wholly-owned subsidiary of American Mobile Satellite Corporation, issued $335
million of units consisting of 12 1/4% Senior Notes due 2008 (the "Senior
Notes"), and one warrant to purchase 3.75749 shares of Common Stock of the
Company for each $1,000 principal amount of Senior Notes (the "Warrants"), and
also restructured its existing bank financing (the "New Bank Financing"). The
New Bank Financing of $200 million consists of a $100 million unsecured
five-year reducing Revolving Credit Facility maturing March 31, 2003 and a $100
million five-year Term Loan Facility with up to three additional one-year
extensions subject to lender approval. Additionally, on March 29, 1999, the Bank
Facility Guarantors (as defined in Item 2 under the caption "Liquidity and
Capital Resources") agreed to eliminate certain covenants relating to the
Company's future earnings before interest, taxes, depreciation, and amortization
("EBITDA") and service revenue. In exchange for this elimination of covenants,
the Company agreed to reprice their Guarantee Warrants (as defined in Item 2
under the caption "Liquidity and Capital Resources"), effective April 1, 1999,
from $12.51 to $7.50. The value of the repricing was approximately $1.5 million.
As of April 30, 1999, the Company had $41.0 million available for borrowing
under the Revolving Credit Facility. Additionally, Motorola has agreed to
provide the Company with up to $10 million of vendor financing (the "Vendor
Financing Commitment"), which is available to finance up to 75% of the purchase
price of additional base stations needed to meet ARDIS' buildout requirements
under certain customer contracts. As of March 31, 1999, $4.6 million was
outstanding under this facility.
The Company's current operating assumptions and projections, which reflect
management's best estimate of subscriber and revenue growth and operating
expenses, indicate that anticipated capital expenditures, operating losses,
working capital and debt service requirements through 1999 and beyond, can be
met by cash flows from operations, the net proceeds from the sale of the Senior
Notes and Warrants, together with the borrowings under the $200 million New Bank
Financing, the Vendor Financing Commitment and deferred terms on certain trade
payables; however, the Company's ability to meet its projections is subject to
numerous uncertainties and there can be no assurance that the Company's current
projections regarding the timing of its ability to achieve positive operating
cash flow will be accurate, and if the Company's cash requirements are more than
projected, the Company may require additional financing in amounts which may be
material. The type, timing and terms of financing selected by the Company will
be dependent upon the Company's cash needs, the availability of other financing
sources and the prevailing conditions in the financial markets. There can be no
assurance that any such sources will be available to the Company at any given
time or available on favorable terms.
F-48
<PAGE> 75
AMERICAN MOBILE SATELLITE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS -- (CONTINUED)
XM RADIO
As previously mentioned (see "Organization and Business"), the Company has
an investment in XM Satellite Radio Inc., which, through its subsidiary XM
Satellite Radio Holdings Inc. (together with XM Satellite Radio Inc, "XM
Radio"), is one of two entities awarded a license by the FCC to provide
satellite-based Digital Audio Radio Service ("DARS") throughout the United
States. XM Radio is currently engaged in efforts to construct its satellite
system. The Company's investment in XM Radio is currently not material to the
Company's financial position, results of operations or cash flows. The Company
is not required to provide any additional funding.
On January 15, 1999, the Company issued to Baron Asset Fund ("Baron") a
$21.5 million note convertible into shares of XM Radio common stock (the "Baron
XM Radio Convertible Note"). The Company subsequently loaned approximately $21.4
million to XM Radio in exchange for XM Radio common stock and a note convertible
into XM Radio shares (the "XM Radio Note Receivable"). The Baron XM Radio
Convertible Note ranks subordinate to all other securities of the Company and is
fully collateralized by approximately one-half of the shares received by the
Company as a result of this transaction. The XM Radio Note Receivable is a
non-recourse note and is exchangeable into approximately half of the additional
XM Radio common stock to be received by the Company as a result of the January
15 transaction. Assuming conversion of all convertible notes and exercise of
outstanding options to purchase XM Radio common stock held by World Space, the
Company's ownership in XM Radio would be 22.6%. The XM Radio Note Receivable
earns interest at LIBOR plus 5% and is due on the September 30, 2006 maturity
date, and the Baron XM Radio Convertible Note accrues interest at the rate of 6%
annually, with all payments deferred until maturity or extinguished upon
conversion. The Company has the option to satisfy the Baron XM Radio Convertible
Note by tendering the shares into which it would have been convertible in lieu
of any cash payments.
Summarized financial information for XM Radio as of March 31, 1999, and for
the three months ended March 31, 1999 and 1998, and for the period from December
15, 1992 (date of inception) through March 31, 1999 is set forth below.
<TABLE>
<CAPTION>
THREE MONTHS
ENDED DECEMBER 15,
MARCH 31, 1992 THROUGH
---------------- MARCH 31,
1999 1998 1999
------ ------ ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Gross sales...................................... $ -- $ -- $ --
Operating expenses............................... 4,421 3,100 21,724
Loss from operations............................. 4,421 3,100 21,724
Interest expense (income)........................ (54) -- 469
Net loss......................................... 4,367 3,100 22,193
</TABLE>
F-49
<PAGE> 76
AMERICAN MOBILE SATELLITE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
AS OF AS OF
MARCH 31, DECEMBER 31,
1999 1998
--------- ------------
<S> <C> <C>
Current assets.......................................... $ 3,599 $ 482
Non-current assets...................................... 220,806 170,003
Current liabilities..................................... 157,049 130,823
Non-current liabilities................................. 78,906 46,845
Total stockholders' deficit............................. (11,550) (7,183)
</TABLE>
4. LEGAL AND REGULATORY MATTERS
The ownership and operation of the mobile satellite services system and
ground-based two-way wireless data system are subject to the rules and
regulations of the FCC, which acts under authority granted by the Communications
Act and related federal laws. Among other things, the FCC allocates portions of
the radio frequency spectrum to certain services and grants licenses to and
regulates individual entities using the spectrum. American Mobile operates
pursuant to various licenses granted by the FCC.
The successful operation of the satellite network is dependent on a number
of factors, including the amount of L-band spectrum made available to the
Company pursuant to an international coordination process. The United States is
currently engaged in an international process of coordinating the Company's
access to the spectrum that the FCC has assigned to the Company. While the
Company believes that substantial progress has been made in the coordination
process and expects that the United States government will be successful in
securing the necessary spectrum, the process is not yet complete. The inability
of the United States government to secure sufficient spectrum could have an
adverse effect on the Company's financial position, results of operations and
cash flows.
The Company has the necessary regulatory approvals, some of which are
pursuant to special temporary authority, to continue its operations as currently
contemplated. The Company has filed applications with the FCC and expects to
file applications in the future with respect to the continued operations, change
in operation and expansion of its network and certain types of subscriber
equipment. Certain of its applications pertaining to future service have been
opposed. While the Company, for various reasons, believes that it will receive
the necessary approvals on a timely basis, there can be no assurance that the
requests will be granted, will be granted on a timely basis or will be granted
on conditions favorable to the Company. Any significant changes to the
applications resulting from the FCC's review process or any significant delay in
their approval could adversely affect the Company's financial position, results
of operations and cash flows.
There are applications now pending before the FCC to use the Inmarsat
system and TMI's Canadian-licensed system, both of which operate in the Mobile
Satellite Services ("MSS") L-band and have satellite footprints covering the
United States, to provide service in the United States. American Mobile has
opposed these filings. In addition to providing additional competition to
American Mobile, a grant of domestic authority by the FCC to use any of these
foreign systems may increase the demand by these systems for spectrum in the
international coordination process and could adversely affect American Mobile's
ability to coordinate its spectrum access.
F-50
<PAGE> 77
AMERICAN MOBILE SATELLITE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS -- (CONTINUED)
On July 20, 1998, the International Bureau of the FCC granted an
application for Special Temporary Authority ("STA") to use TMI's space segment
to conduct market tests in the U.S. for six months using up to 500 mobile
terminals. On July 30, 1998, American Mobile filed an Application for Review and
a Motion for Stay of this STA grant with the FCC, and these filings remain
pending. On December 18, 1998, SatCom filed a request for a six-month extension
of this STA, which was extended to July 12, 1999.
American Mobile is authorized to build, launch, and operate three
geosynchronous satellites in accordance with a specific schedule. American
Mobile is not in compliance with the schedule for commencement and construction
of its second and third satellites and has petitioned the FCC for changes to the
schedule. Certain of these extension requests have been opposed by third
parties. The FCC has not acted on American Mobile's requests. The FCC has the
authority to revoke the authorizations for the second and third satellites and
in connection with such revocation could exercise its authority to rescind
American Mobile's license. American Mobile believes that the exercise of such
authority to rescind the license is unlikely. The term of the license for each
of American Mobile's three authorized satellites is ten years, beginning when
American Mobile certifies that the respective satellite is operating in
compliance with American Mobile's license. The ten-year term of MSAT-2 began
August 21, 1995. Although American Mobile anticipates that the authorization for
MSAT-2 is likely to be extended in due course to correspond to the useful life
of the satellite and a new license granted for any replacement satellites, there
is no assurance of such extension or grants.
5. COMMITMENTS
At March 31, 1999, the Company had remaining contractual commitments to
purchase both mobile data terminal inventory and mobile telephone inventory in
the maximum amount of $12.0 million during 1999. Additionally, the Company had
remaining contractual commitments in the amount of $635,000 for the development
of certain next generation data terminals. Contingent upon the successful
research and development efforts, the Company would have maximum additional
contractual commitments for mobile communications data terminal inventory in the
amount of $27.0 million over a three-year period starting in 1999. The Company
has the right to terminate the research and development and inventory commitment
by paying cancellation fees of between $1 million and $2.5 million, depending on
when the termination option is exercised during the term of the contract. The
Company also has the right to terminate the inventory commitment by incurring a
cancellation penalty representing a percentage of the unfulfilled portion of the
contract. The Company has also contracted for the purchase of $26.2 million of
next generation wireless data terminals to be delivered beginning mid-1999. The
contract contains a 50% cancellation penalty. Additionally, the Company has
remaining contractual commitments for the purchase of $392,000 of base stations
required to complete certain necessary site build-outs, and $1.2 million for
certain software development.
6. CONDENSED CONSOLIDATING FINANCIAL STATEMENTS
In connection with the Company's acquisition of ARDIS Company on March 31,
1998 (the "Acquisition") and related financing discussed above, the Company
formed a new wholly-owned subsidiary, AMSC Acquisition Company, Inc.
("Acquisition Company"). The Company contributed all of its inter-company notes
receivables and transferred its rights, title and interests in AMSC Subsidiary
Corporation, American Mobile Satellite Sales Corporation, and AMSC Sales Corp.
Ltd.
F-51
<PAGE> 78
AMERICAN MOBILE SATELLITE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS -- (CONTINUED)
(together with ARDIS, the "Subsidiary Guarantors") to Acquisition Company, and
Acquisition Company was the acquirer of ARDIS and the issuer of the Senior
Notes. American Mobile Satellite Corporation ("American Mobile Parent") is a
guarantor of the Senior Notes. The Senior Notes contain covenants that, among
other things, limit the ability of Acquisition Company and its Subsidiaries to
incur additional indebtedness, pay dividends or make other distributions,
repurchase any capital stock or subordinated indebtedness, make certain
investments, create certain liens, enter into certain transactions with
affiliates, sell assets, enter into certain mergers and consolidations, and
enter into sale and leaseback transactions.
The $335 million of Notes are jointly and severally guaranteed on a full
and unconditional basis by the Subsidiary Guarantors, Acquisition Company and
American Mobile Parent. The following unaudited condensed consolidating
information for these entities presents:
- Condensed consolidating balance sheets as of March 31, 1999 and December
31, 1998 and condensed consolidating statements of operations and cash
flows for the three month period ended March 31, 1999 and 1998.
- Elimination entries necessary to combine the entities comprising American
Mobile.
F-52
<PAGE> 79
AMERICAN MOBILE SATELLITE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS -- (CONTINUED)
CONDENSED CONSOLIDATING BALANCE SHEET
AS OF MARCH 31, 1999
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
CONSOLIDATED AMERICAN CONSOLIDATED
SUBSIDIARY ACQUISITION ACQUISITION MOBILE AMERICAN MOBILE
GUARANTORS COMPANY ELIMINATIONS COMPANY PARENT ELIMINATIONS PARENT
---------- ----------- ------------ ------------ -------- ------------ ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents... $ 8,131 $ -- $ -- $ 8,131 $ -- $ -- $ 8,131
Inventory................... 17,440 -- -- 17,440 -- -- 17,440
Prepaid in-orbit
insurance................. 1,932 -- -- 1,932 -- -- 1,932
Accounts
receivable -- net......... 16,752 -- -- 16,752 -- -- 16,752
Restricted short-term
investments............... -- 41,038 -- 41,038 -- -- 41,038
Note receivable from XM
Radio..................... -- -- -- -- 21,687 -- 21,687
Other current assets........ 9,091 -- -- 9,091 5,964 -- 15,055
--------- -------- --------- -------- --------- -------- --------
Total current
assets.............. 53,346 41,038 -- 94,384 27,651 -- 122,035
PROPERTY AND
EQUIPMENT -- NET............ 253,545 -- (14,528) 239,017 -- -- 239,017
GOODWILL &
INTANGIBLES -- NET.......... 52,772 -- -- 52,772 -- -- 52,772
INVESTMENT IN/DUE FROM
SUBSIDIARY.................. 4,734 305,509 (310,243) -- 29,758 (29,758) --
DEFERRED CHARGES AND OTHER
ASSETS -- NET............... 328 32,344 -- 32,672 (6,521) -- 26,151
RESTRICTED INVESTMENTS....... 1,522 56,156 -- 57,678 10,945 -- 68,623
--------- -------- --------- -------- -------- -------- --------
Total assets.......... $ 366,247 $435,047 $(324,771) $476,523 $ 61,833 $(29,758) $508,598
========= ======== ========= ======== ========= ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY(DEFICIT)
CURRENT LIABILITIES:
Accounts payable and accrued
expenses.................. $ 20,430 $ 20,988 $ -- $ 41,418 $ 421 $ -- $ 41,839
Obligations under capital
leases due within one
year...................... 4,816 -- -- 4,816 -- -- 4,816
Current portion long-term
debt...................... 4,153 -- -- 4,153 -- -- 4,153
Other current liabilities... -- -- -- -- -- -- --
--------- -------- --------- -------- --------- -------- --------
Total current
liabilities......... 29,399 20,988 -- 50,387 421 -- 50,808
DUE TO PARENT/AFFILIATE...... 716,929 -- (716,372) 557 1,501 (2,058) --
LONG-TERM LIABILITIES:
Obligations under New Bank
Financing................. -- 59,000 -- 59,000 100,000 -- 159,000
Senior Notes, net of
discount.................. -- 327,359 -- 327,359 -- -- 327,359
Other long-term debt........ 3,473 -- -- 3,473 21,769 -- 25,242
Capital lease obligations... 5,657 -- -- 5,657 -- -- 5,657
Net assets acquired in
excess of purchase
price..................... 1,855 -- -- 1,855 -- -- 1,855
Investment in XM Radio...... -- -- -- -- 16,112 -- 16,112
Other long-term
liabilities............... 535 -- -- 535 -- -- 535
--------- -------- --------- -------- --------- -------- --------
Total long-term
liabilities......... 11,520 386,359 -- 397,879 137,881 -- 535,760
Total liabilities..... 757,848 407,347 (716,372) 448,823 139,803 (2,058) 586,568
--------- -------- --------- -------- --------- -------- --------
STOCKHOLDERS'
EQUITY(DEFICIT)............. (391,601) 27,700 391,601 27,700 (77,970) (27,700) (77,970)
--------- -------- --------- -------- --------- -------- --------
Total liabilities and
stockholders' equity
(deficit)........... $ 366,247 $435,047 $(324,771) $476,523 $61,833 $(29,758) $508,598
========= ======== ========= ======== ========= ======== ========
</TABLE>
F-53
<PAGE> 80
AMERICAN MOBILE SATELLITE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS -- (CONTINUED)
CONDENSED CONSOLIDATING BALANCE SHEET
AS OF DECEMBER 31, 1998
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
CONSOLIDATED AMERICAN CONSOLIDATED
SUBSIDIARY ACQUISITION ACQUISITION MOBILE AMERICAN MOBILE
GUARANTORS COMPANY ELIMINATIONS COMPANY PARENT ELIMINATIONS PARENT
---------- ----------- ------------ ------------ -------- ------------ ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents... $ 2,285 $ -- $ -- $ 2,285 $ -- $ -- $ 2,285
Inventory................... 18,593 -- -- 18,593 -- -- 18,593
Prepaid in-orbit
insurance................. 3,381 -- -- 3,381 -- -- 3,381
Accounts
receivable -- net......... 15,325 -- -- 15,325 -- -- 15,325
Restricted short-term
investments............... -- 41,038 -- 41,038 -- -- 41,038
Other current assets........ 7,192 20 -- 7,212 6,019 -- 13,231
--------- -------- --------- -------- --------- -------- --------
Total current
assets.............. 46,776 41,058 -- 87,834 6,019 -- 93,853
PROPERTY AND
EQUIPMENT -- NET............ 261,607 -- (15,054) 246,553 -- -- 246,553
GOODWILL &
INTANGIBLES -- NET.......... 53,235 -- -- 53,235 -- -- 53,235
INVESTMENT IN/DUE FROM
SUBSIDIARY.................. -- 304,192 (304,192) -- 63,787 (63,787) --
DEFERRED CHARGES AND OTHER
ASSETS -- NET............... 386 33,460 -- 33,846 (4,892) -- 28,954
RESTRICTED INVESTMENTS....... 1,500 54,939 -- 56,439 10,760 -- 67,199
--------- -------- --------- -------- --------- -------- --------
Total assets.......... $ 363,504 $433,649 $(319,246) $477,907 $75,674 $(63,787) $489,794
========= ======== ========= ======== ========= ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
Accounts payable and accrued
expenses.................. $ 23,003 $ 10,715 $ -- $ 33,718 $ 79 $ -- $ 33,797
Obligations under capital
leases due within one
year...................... 5,971 -- -- 5,971 -- -- 5,971
Current portion long-term
debt...................... 5,041 -- -- 5,041 -- -- 5,041
Other current liabilities... 162 -- -- 162 -- -- 162
--------- -------- --------- -------- --------- -------- --------
Total current
liabilities......... 34,177 10,715 -- 44,892 79 -- 44,971
DUE TO PARENT/AFFILIATE...... 681,029 -- (681,029) -- -- -- --
LONG-TERM LIABILITIES:
Obligations under New Bank
Financing................. -- 32,000 -- 32,000 100,000 -- 132,000
Senior Notes, net of
discount.................. -- 327,147 -- 327,147 -- -- 327,147
Other long-term debt........ 1,689 -- -- 1,689 -- 1,689
Capital lease obligations... 5,824 -- -- 5,824 -- -- 5,824
Net assets acquired in
excess of purchase
price..................... 2,028 -- -- 2,028 -- -- 2,028
Investment in XM Radio...... -- -- -- -- 12,618 -- 12,618
Other long-term
liabilities............... 540 -- -- 540 -- -- 540
--------- -------- --------- -------- --------- -------- --------
Total long-term
liabilities......... 10,081 359,147 -- 369,228 112,618 -- 481,846
Total liabilities..... 725,287 369,862 (681,029) 414,120 112,697 -- 526,817
--------- -------- --------- -------- --------- -------- --------
STOCKHOLDERS' EQUITY
(DEFICIT)................... (361,783) 63,787 361,783 63,787 (37,023) (63,787) (37,023)
--------- -------- --------- -------- --------- -------- --------
Total liabilities and
stockholders' equity
(deficit)........... $ 363,504 $433,649 $(319,246) $477,907 $75,674 $(63,787) $489,794
========= ======== ========= ======== ========= ======== ========
</TABLE>
F-54
<PAGE> 81
AMERICAN MOBILE SATELLITE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS -- (CONTINUED)
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1999
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
CONSOLIDATED AMERICAN CONSOLIDATED
SUBSIDIARY ACQUISITION ACQUISITION MOBILE AMERICAN MOBILE
GUARANTORS COMPANY ELIMINATIONS COMPANY PARENT ELIMINATIONS PARENT
---------- ----------- ------------ ------------ -------- ------------ ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
REVENUES
Services.................... $ 16,164 $ -- $ -- $ 16,164 $ 300 $ (300) $ 16,164
Sales of equipment.......... 4,066 -- -- 4,066 -- -- 4,066
-------- -------- ------- -------- -------- ------- --------
Total Revenues.............. 20,230 -- -- 20,230 300 (300) 20,230
COSTS AND EXPENSES
Cost of service and
operations................ 17,870 -- -- 17,870 -- -- 17,870
Cost of equipment sold...... 4,528 -- -- 4,528 -- -- 4,528
Sales and advertising....... 4,749 -- -- 4,749 -- -- 4,749
General and
administrative............ 4,543 336 -- 4,879 190 (300) 4,769
Depreciation and
amortization.............. 14,298 -- (526) 13,772 -- -- 13,772
-------- -------- ------- -------- -------- ------- --------
Operating Loss.............. (25,758) (336) 526 (25,568) 110 -- (25,458)
INTEREST AND OTHER INCOME.... 69 4,998 (3,886) 1,181 558 -- 1,739
EQUITY IN LOSS OF
SUBSIDIARIES................ -- (29,818) 29,818 -- (40,691) 37,197 (3,494)
INTEREST EXPENSE............. (4,129) (12,567) 3,886 (12,810) (3,120) -- (15,930)
-------- -------- ------- -------- -------- ------- --------
NET LOSS..................... $(29,818) $(37,723) $30,344 $(37,197) $(43,143) $37,197 $(43,143)
======== ======== ======= ======== ======== ======= ========
</TABLE>
F-55
<PAGE> 82
AMERICAN MOBILE SATELLITE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS -- (CONTINUED)
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1998
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
CONSOLIDATED AMERICAN CONSOLIDATED
SUBSIDIARY ACQUISITION ACQUISITION MOBILE AMERICAN MOBILE
GUARANTORS COMPANY ELIMINATIONS COMPANY PARENT ELIMINATIONS PARENT
---------- ----------- ------------ ------------ -------- ------------ ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
REVENUES
Services.................... $ 6,418 $ -- $ -- $ 6,418 $ 300 $ (300) $ 6,418
Sales of equipment.......... 3,604 -- -- 3,604 -- -- 3,604
-------- ---- ---- -------- -------- ------- --------
Total Revenues.............. 10,022 -- -- 10,022 300 (300) 10,022
COSTS AND EXPENSES
Cost of service and
operations................ 7,728 -- -- 7,728 -- -- 7,728
Cost of equipment sold...... 3,881 -- -- 3,881 -- -- 3,881
Sales and advertising....... 2,993 -- -- 2,993 33 (4) 3,022
General and
administrative............ 3,659 -- -- 3,659 267 (295) 3,631
Depreciation and
amortization.............. 10,689 -- -- 10,689 (525) (1) 10,163
-------- ---- ---- -------- -------- ------- --------
Operating Loss.............. (18,928) -- -- (18,928) 525 -- (18,403)
INTEREST AND OTHER INCOME.... 141 -- -- 141 7,188 (7,188) 141
EQUITY IN LOSS OF
SUBSIDIARIES................ -- -- -- -- (35,119) 32,613 (2,506)
INTEREST EXPENSE............. (13,826) -- -- (13,826) -- 7,188 (6,638)
-------- ---- ---- -------- -------- ------- --------
NET LOSS..................... $(32,613) $ -- $ -- $(32,613) $(27,406) $32,613 $(27,406)
======== ==== ==== ======== ======== ======= ========
</TABLE>
F-56
<PAGE> 83
AMERICAN MOBILE SATELLITE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS -- (CONTINUED)
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOW
THREE MONTHS ENDED MARCH 31, 1999
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
CONSOLIDATED
CONSOLIDATED AMERICAN AMERICAN
SUBSIDIARY ACQUISITION ACQUISITION MOBILE MOBILE
GUARANTORS COMPANY ELIMINATIONS COMPANY PARENT ELIMINATIONS PARENT
---------- ----------- ------------ ------------ -------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net loss........................ $(29,818) $(37,723) $30,344 $(37,197) $(43,143) $37,197 $(43,143)
Adjustments to reconcile net
loss to net cash (used in)
provided by operating
activities:
Amortization of Guarantee
Warrants and debt related
costs....................... -- 1,786 -- 1,786 2,766 -- 4,552
Depreciation and
amortization................ 13,772 -- 13,772 -- -- 13,772
Equity in loss in XM Radio.... -- -- -- -- 3,494 -- 3,494
Changes in assets &
liabilities
Inventory................... 1,153 -- -- 1,153 -- -- 1,153
Prepaid in-orbit
insurance................. 1,449 -- -- 1,449 -- -- 1,449
Trade accounts receivable... (1,427) -- -- (1,427) -- -- (1,427)
Other current assets........ (1,444) 20 -- (1,424) 55 -- (1,369)
Accounts payable and accrued
expenses.................. (29,338) 37,485 -- 8,147 421 -- 8,568
Deferred trade payables..... (2,092) -- -- (2,092) -- -- (2,092)
Deferred Items -- net....... (542) -- -- (542) (389) -- (931)
-------- -------- ------- -------- -------- ------- --------
Net cash (used in) provided by
operating activities........ (48,287) 1,568 30,344 (16,375) (36,796) 37,197 (15,974)
CASH FLOWS FROM INVESTING
ACTIVITIES:
Additions to property &
equipment................... (2,541) -- -- (2,541) -- -- (2,541)
Purchase of XM Radio note
receivable.................. -- -- -- -- (21,419) -- (21,419)
Purchase of long-term,
restricted investments...... (22) (1,217) -- (1,239) (185) -- (1,424)
-------- -------- ------- -------- -------- ------- --------
Net cash used in investing
activities.................. (2,563) (1,217) -- (3,780) (21,604) -- (25,384)
CASH FLOWS FROM FINANCING
ACTIVITIES:
Common Stock.................. -- -- -- -- 162 -- 162
Funding from parent........... 58,108 (27,351) (30,344) 413 36,784 (37,197) --
Principal payments under
capital leases.............. (1,322) -- -- (1,322) -- -- (1,322)
Principal payments under
Vendor Financing............ (90) -- -- (90) -- -- (90)
Proceeds from bank
financing................... -- 27,000 -- 27,000 -- -- 27,000
Proceeds from note payable to
related party............... -- -- -- -- 21,500 -- 21,500
Debt issuance costs........... -- -- -- -- (46) -- (46)
-------- -------- ------- -------- -------- ------- --------
Net cash provided by (used in)
financing activities........ 56,696 (351) (30,344) 26,001 58,400 (37,197) 47,204
Net increase in cash and cash
equivalents................... 5,846 -- -- 5,846 -- -- 5,846
CASH & CASH EQUIVALENTS,
beginning of period........... 2,285 -- -- 2,285 -- -- 2,285
-------- -------- ------- -------- -------- ------- --------
CASH & CASH EQUIVALENTS, end of
period........................ $ 8,131 $ -- $ -- $ 8,131 $ -- $ -- $ 8,131
======== ======== ======= ======== ======== ======= ========
</TABLE>
F-57
<PAGE> 84
AMERICAN MOBILE SATELLITE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS -- (CONTINUED)
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOW
THREE MONTHS ENDED MARCH 31, 1998
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
CONSOLIDATED
CONSOLIDATED AMERICAN AMERICAN
SUBSIDIARY ACQUISITION ACQUISITION MOBILE MOBILE
GUARANTORS COMPANY ELIMINATIONS COMPANY PARENT ELIMINATIONS PARENT
---------- ----------- ------------ ------------ -------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net Loss $ (32,613) $ -- $ -- $ (32,613) $(27,406) $ 32,613 $ (27,406)
Adjustments to reconcile net
loss to net cash used in
operating activities:
Amortization of guarantee
warrants, debt discount and
issuance costs.............. 2,524 -- -- 2,524 -- -- 2,524
Depreciation and
amortization................ 10,689 -- -- 10,689 (525) (1) 10,163
Equity in loss in XM Radio.... -- -- -- -- 2,506 -- 2,506
Changes in assets &
liabilities
Inventory................... 1,986 -- -- 1,986 -- -- 1,986
Prepaid in-orbit
insurance................. 1,675 -- -- 1,675 -- -- 1,675
Accounts
receivable -- trade....... 3,744 -- -- 3,744 -- -- 3,744
Other current assets........ (661) -- -- (661) -- -- (661)
Accounts payable and accrued
expenses.................. (12,182) -- -- (12,182) (15) -- (12,197)
Deferred trade payables..... 6,436 -- -- 6,436 -- -- 6,436
Deferred Items -- net....... 293 -- -- 293 -- -- 293
--------- --------- -------- --------- -------- -------- ---------
Net cash used in operations... (18,109) -- -- (18,109) (25,440) 32,612 (10,937)
CASH FLOWS FROM INVESTING
ACTIVITIES:
Additions to property &
equipment..................... (1,126) -- (1,126) -- -- (1,126)
Cash paid for acquisition of
ARDIS......................... -- (51,382) -- (51,382) -- -- (51,382)
Purchase of long-term,
restricted investments........ -- (113,000) -- (113,000) (27,892) -- (140,892)
--------- --------- -------- --------- -------- -------- ---------
Net cash used in investing
activities.................. (1,126) (164,382) -- (165,508) (27,892) -- (193,400)
CASH FLOWS FROM FINANCING
ACTIVITIES:
Proceeds from issuance of
Common Stock................ -- -- -- -- 103 -- 103
Funding from parent........... 136,543 (148,670) -- (12,127) 44,739 (32,612) --
Principal payments under
capital leases.............. (135) -- -- (135) -- -- (135)
Proceeds from bank
financing................... 2,000 -- -- 2,000 -- -- 2,000
Repayment of bank financing... (100,000) -- -- (100,000) -- -- (100,000)
Debt issuance costs........... -- (13,458) -- (13,458) -- -- (13,458)
Proceeds from Notes and stock
purchase warrants........... -- 326,510 -- 326,510 8,490 -- 335,000
--------- --------- -------- --------- -------- -------- ---------
Net cash provided by financing
activities.................. 38,408 164,382 -- 202,790 53,332 (32,612) 223,510
Net increase in cash and cash
equivalents................... 19,173 -- -- 19,173 -- -- 19,173
CASH & CASH EQUIVALENTS,
beginning of period........... 2,106 -- -- 2,106 -- -- 2,106
--------- --------- -------- --------- -------- -------- ---------
CASH & CASH EQUIVALENTS, end of
period........................ $ 21,279 $ -- $ -- $ 21,279 $ -- $ -- $ 21,279
========= ========= ======== ========= ======== ======== =========
</TABLE>
F-58
<PAGE> 85
AMERICAN MOBILE SATELLITE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS -- (CONTINUED)
7. SUBSEQUENT EVENTS
XM ACQUISITION
On July 7, 1999, the Company 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 the Company's common
stock, of which the issuance of approximately 2.1 million is subject to Company
stockholder approval. Additionally, XM Radio issued an aggregate $250 million of
Series A subordinated convertible notes to several new investors and used $75
million of the proceeds it received from the issuance of these notes to repay
the outstanding loan owed to WorldSpace. As a result of these transactions, the
Company owns all of the issued and outstanding stock of XM Radio. Assuming
subsequent conversion of all outstanding convertible notes of XM Radio, and
assuming we obtain stockholder approval to issue the remaining 2.1 million
shares discussed above, the Company would own approximately 37% of the equity of
XM Radio, and would have approximately 62% of the voting power in XM Radio.
On a pro forma basis, assuming this transaction had been consummated on
January 1, 1999, the following results would have been reflected:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, 1999
------------------
<S> <C>
Revenues............................................ $20,230
Net Loss............................................ 47,010
Loss per share...................................... (1.15)
</TABLE>
As a result of these transactions, the Company controls XM Radio and will
consolidate XM Radio on a prospective basis. Additionally, pursuant to generally
accepted accounting principles, the Company's 1998 and March 31, 1999 financial
statements have been restated to record American Mobile's share of losses which
had previously been suspended pursuant to the equity method of accounting. The
effect of this restatement was to increase the Company's previously reported net
loss for the three months ended March 31, 1999 from $39,649 to $43,143, to
increase the loss per share from $1.23 to $1.34 and to restate other financial
statement amounts as of and for the three months ended March 31, 1999 as
follows.
<TABLE>
<CAPTION>
AS REPORTED ADJUSTMENT AS RESTATED
----------- ---------- -----------
<S> <C> <C> <C>
Equity in Loss of XM Radio............ $ -- $ 3,494 $ 3,494
Cumulative Loss....................... (596,362) (16,112) (612,474)
Investment in XM Radio................ -- (16,112) (16,112)
</TABLE>
The effect of this restatement on the three month period ended March 31,
1998 was to increase the Company's previously reported net loss from $25,242 to
$27,406, to increase the loss per share from $1.00 to $1.09 and to increase the
equity in loss of XM Radio from $342 to $2,506.
F-59
<PAGE> 86
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders
XM Satellite Radio Holdings Inc. and Subsidiary:
We have audited the accompanying 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. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of XM Satellite
Radio Holdings Inc. and subsidiary (a development stage company) as of December
31, 1998 and 1997, and the results of their operations and their cash flows for
the years then ended and for the period from December 15, 1992 (date of
inception) to December 31, 1998, in conformity with generally accepted
accounting principles.
The accompanying consolidated financial statements have been prepared
assuming that the Company will continue as a going concern. As discussed in note
11 to the consolidated financial statements, the Company has not commenced
operations, has negative working capital of $130,341,000, and is dependent upon
additional debt and equity financings, which raises substantial doubt about its
ability to continue as a going concern. Management's plan in regard to these
matters is also described in note 11. The consolidated financial statements do
not include any adjustments that might result from the outcome of this
uncertainty.
/s/ KPMG LLP
McLean, VA
February 12, 1999
F-60
<PAGE> 87
XM SATELLITE RADIO HOLDINGS INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
--------- --------
(IN THOUSANDS, EXCEPT
FOR SHARE DATA)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 310 $ 1
Prepaid and other current assets.......................... 172 --
-------- -------
Total current assets.............................. 482 1
Other assets:
System under construction................................. 169,029 91,932
Property and equipment, net of accumulated depreciation
and amortization of $57 and $0......................... 449 --
Other assets.............................................. 525 --
-------- -------
Total assets...................................... $170,485 $91,933
======== =======
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current Liabilities:
Accounts payable.......................................... $ 23,125 $ --
Due to related parties.................................... 13,767 445
Accrued interest on loans payable......................... 1,907 1,886
Loans payable due to related parties...................... 91,546 80,618
Term loan................................................. 34 --
Accrued expenses.......................................... 444 --
-------- -------
Total current liabilities......................... 130,823 82,949
Term loan, net of current portion......................... 53 --
Convertible notes payable due to related party............ 45,583 --
Accrued interest on convertible notes payable due to
related party.......................................... 1,209 --
-------- -------
Total liabilities................................. 177,668 82,949
-------- -------
Common stock -- $0.10 par value; authorized 3,000 shares;
125 shares issued and outstanding at December 31, 1998 and
1997................................................... -- --
Additional paid-in capital.................................. 10,643 10,643
Deficit accumulated during development stage................ (17,826) (1,659)
-------- -------
Total stockholders' equity (deficit).............. (7,183) 8,984
-------- -------
Commitments and contingencies (notes 4, 7, 8, 11, 12, and
13)
Total liabilities and stockholders' equity
(deficit)...................................... $170,485 $91,933
======== =======
</TABLE>
See accompanying notes to consolidated financial statements.
F-61
<PAGE> 88
XM SATELLITE RADIO HOLDINGS INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1998 AND 1997, AND FOR THE PERIOD FROM
DECEMBER 15, 1992 (DATE OF INCEPTION) TO DECEMBER 31, 1998
<TABLE>
<CAPTION>
DECEMBER 15, 1992
(DATE OF INCEPTION)
1998 1997 TO DECEMBER 31, 1998
------- ------ --------------------
(IN THOUSANDS, EXCEPT FOR SHARE DATA)
<S> <C> <C> <C>
Revenue.......................................... $ -- $ -- $ --
------- ------ -------
Operating expenses:
Research and development....................... 6,941 -- 6,941
Professional fees.............................. 5,242 1,090 6,332
General and administrative..................... 4,010 20 4,030
------- ------ -------
Total operating expenses............... 16,193 1,110 17,303
------- ------ -------
Operating loss......................... 16,193 1,110 17,303
------- ------ -------
Other expenses (income):
Interest expense (income), net................. (26) 549 523
------- ------ -------
Total other (expense) income........... (26) 549 523
------- ------ -------
Net loss............................... $16,167 $1,659 $17,826
======= ====== =======
Net loss per share:
Basic and diluted.............................. $ 129 $ 14
======= ======
Weighted average shares used in computing net
loss per share -- basic and diluted............ 125 119
======= ======
</TABLE>
See accompanying notes to consolidated financial statements.
F-62
<PAGE> 89
XM SATELLITE RADIO HOLDINGS INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
YEARS ENDED DECEMBER 31, 1998 AND 1997, AND FOR THE PERIOD FROM
DECEMBER 15, 1992 (DATE OF INCEPTION) TO DECEMBER 31, 1998
<TABLE>
<CAPTION>
DEFICIT
ACCUMULATED
COMMON STOCK ADDITIONAL DURING
---------------- PAID-IN DEVELOPMENT TOTAL STOCKHOLDERS'
SHARES AMOUNT CAPITAL STAGE EQUITY (DEFICIT)
------ ------ ---------- ----------- --------------------
(IN THOUSANDS, EXCEPT FOR SHARE DATA)
<S> <C> <C> <C> <C> <C>
Issuance of common stock
(December 15, 1992)...... 100 $-- $ -- $ -- $ --
--- -- ------- -------- --------
Balance at December 31,
1992..................... 100 -- -- -- --
Net loss................... -- -- -- -- --
--- -- ------- -------- --------
Balance at December 31,
1993..................... 100 -- -- -- --
Net loss................... -- -- -- -- --
--- -- ------- -------- --------
Balance at December 31,
1994..................... 100 -- -- -- --
Net loss................... -- -- -- -- --
--- -- ------- -------- --------
Balance at December 31,
1995..................... 100 -- -- -- --
Net loss................... -- -- -- -- --
--- -- ------- -------- --------
Balance at December 31,
1996..................... 100 -- -- -- --
Contributions to paid-in
capital.................. -- -- 143 -- 143
Issuance of common stock
and capital
contributions............ 25 -- 9,000 -- 9,000
Issuance of options........ -- -- 1,500 -- 1,500
Net loss................... -- -- -- (1,659) (1,659)
--- -- ------- -------- --------
Balance at December 31,
1997..................... 125 -- 10,643 (1,659) 8,984
Net loss................... -- -- -- (16,167) (16,167)
--- -- ------- -------- --------
Balance at December 31,
1998..................... 125 $-- $10,643 $(17,826) $ (7,183)
=== == ======= ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-63
<PAGE> 90
XM SATELLITE RADIO HOLDINGS INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1998 AND 1997, AND FOR THE PERIOD FROM
DECEMBER 15, 1992 (DATE OF INCEPTION) TO DECEMBER 31, 1998
<TABLE>
<CAPTION>
DECEMBER 15, 1992
(DATE OF
INCEPTION) TO
1998 1997 DECEMBER 31, 1998
-------- -------- -----------------
(IN THOUSANDS)
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss.................................................. $(16,167) $ (1,659) $ (17,826)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation............................................ 57 -- 57
Note discount amortization.............................. -- 33 33
Changes in operating assets and liabilities:
Increase in prepaid and other current assets.......... (212) -- (212)
Increase in accounts payable and accrued expenses..... 1,701 -- 1,701
Increase in amounts due to related parties............ 13,322 445 13,767
Increase (decrease) in accrued interest............... (2) 517 515
-------- -------- ---------
Net cash provided by (used in) operating
activities....................................... (1,301) (664) (1,965)
-------- -------- ---------
Cash flows from investing activities:
Purchase of property and equipment........................ (506) -- (506)
Additions to system under construction.................... (43,406) (90,031) (133,437)
-------- -------- ---------
Net cash used in investing activities.............. (43,912) (90,031) (133,943)
-------- -------- ---------
Cash flows from financing activities:
Proceeds from sale of common stock and capital
contribution............................................ -- 9,143 9,143
Proceeds from issuance of loan payable to related party... 337 80,053 80,390
Proceeds from issuance of options......................... -- 1,500 1,500
Proceeds from issuance of convertible notes to related
party................................................... 45,583 -- 45,583
Payment to establish collateral for term loan............. (92) -- (92)
Proceeds from term loan................................... 92 -- 92
Repayments of term loan................................... (5) -- (5)
Payments for deferred financing costs..................... (393) -- (393)
-------- -------- ---------
Net cash provided by financing activities.......... 45,522 90,696 136,218
-------- -------- ---------
Net increase in cash and cash equivalents.......... 309 1 310
Cash and cash equivalents at beginning of year.............. 1 -- --
-------- -------- ---------
Cash and cash equivalents at end of year.................... $ 310 $ 1 $ 310
======== ======== =========
Supplemental cash flow disclosure:
Interest capitalized...................................... $ 11,824 $ 1,901 $ 13,725
======== ======== =========
Interest converted into principal note balance............ $ 9,157 $ 501 $ 9,658
======== ======== =========
Accrued system milestone payments......................... $ 21,867 $ -- $ 21,867
======== ======== =========
</TABLE>
See accompanying notes to consolidated financial statements.
F-64
<PAGE> 91
XM SATELLITE RADIO HOLDINGS INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE PERIOD FROM DECEMBER 15, 1992 (DATE OF INCEPTION) TO DECEMBER 31, 1998
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND PRACTICES
(a) NATURE OF BUSINESS
XM Satellite Radio Inc. ("XMSR"), formerly American Mobile Radio
Corporation, was incorporated on December 15, 1992 in the State of Delaware as a
wholly owned subsidiary of American Mobile Satellite Corporation ("AMSC") for
the purpose of procuring a digital audio radio service license ("DARS").
Business activity for the period December 15, 1992 through December 31, 1996 was
insignificant.
XM Satellite Radio Holdings Inc. (the "Company"), formerly AMRC Holdings
Inc., was incorporated in the State of Delaware on May 16, 1997 for the purpose
of constructing, launching and operating a domestic communications satellite
system for the provision of DARS. Pursuant to various financing agreements
entered in 1997 between AMSC, XMSR and WorldSpace, Inc. ("WSI"), WSI acquired a
20 percent interest in XMSR. In May 1997, AMSC and WSI exchanged their
respective interests in XMSR for all of the Company's common stock.
(b) PRINCIPLES OF CONSOLIDATION AND BASIS OF PRESENTATION
The consolidated financial statements include the accounts of XM Satellite
Radio Holdings Inc. and its subsidiary, XM Satellite Radio Inc. All significant
intercompany transactions and accounts have been eliminated. The Company's
management has devoted substantially all of its time to the planning and
organization of the Company and to the process of addressing regulatory matters,
initiating research and development programs, conducting market research,
initiating construction of the satellite system, securing content providers, and
securing adequate debt and equity capital for anticipated operations and growth.
Accordingly, the Company's financial statements are presented as those of a
development stage enterprise, as prescribed by Statement of Financial Accounting
Standards No. 7, Accounting and Reporting by Development Stage Enterprises.
(c) CASH AND CASH EQUIVALENTS
The Company considers short-term, highly liquid investments with an
original maturity of three months or less to be cash equivalents.
(d) PROPERTY AND EQUIPMENT
Property and equipment are carried at cost less accumulated depreciation
and amortization. Depreciation and amortization is calculated using the
straight-line method over the following estimated useful lives:
<TABLE>
<S> <C>
Furniture, fixtures and computer equipment....... 3 years
Machinery and equipment.......................... 7 years
Leasehold improvements........................... Remaining lease term
</TABLE>
(e) SYSTEM UNDER CONSTRUCTION
The Company is currently developing its satellite system. Costs related to
the project are being capitalized to the extent that they have future benefits.
As of December 31, 1998, all amounts
F-65
<PAGE> 92
XM SATELLITE RADIO HOLDINGS INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
recorded as system under construction relate to costs incurred in obtaining a
Federal Communications Commission ("FCC") license and approval as well as the
system development.
On October 16, 1997, the FCC granted XMSR a license to launch and operate
two geostationary satellites for the purpose of providing digital audio radio in
the United States in the 2332.5 -- 2345 Mhz (space-to-earth) frequency band,
subject to achieving certain technical milestones and international regulatory
requirements. The license is valid for eight years upon successful launch and
orbital insertion of the satellites. The Company's license requires that it
comply with a construction and launch schedule specified by the FCC for each of
the two authorized satellites. The FCC has the authority to revoke the
authorizations and in connection with such revocation could exercise its
authority to rescind the Company's license. The Company believes that the
exercise of such authority to rescind the license is unlikely.
The license asset value consists of the total payments made to the FCC for
the license of $90,031,000. Associated with this license is capitalized interest
of $10,991,000 and $1,901,000 as of December 31, 1998 and 1997, respectively.
Costs incurred for system development were $65,273,000. Associated with the
system development costs is capitalized interest of $2,734,000 at December 31,
1998.
The Company adopted the provisions of Statement of Financial Accounting
Standards (SFAS) No. 121, Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to be Disposed of (SFAS No. 121), during fiscal year 1997.
SFAS No. 121 requires that long-lived assets and certain identifiable
intangibles be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of an asset to future net cash flows expected
to be generated by the asset. If such assets are considered to be impaired, the
impairment to be recognized is measured by the amount by which the carrying
amount of the assets exceed the fair value of the assets. Assets to be disposed
of are reported at the lower of the carrying amount of fair value less costs to
sell. Adoption of this SFAS No. 121 did not have a material impact on the
Company's financial position, results of operations, or liquidity during 1998 or
1997.
(f) STOCK-BASED COMPENSATION
During fiscal year 1997, the Financial Accounting Standards Board issued
SFAS No. 123, Accounting for Stock-based Compensation (SFAS No. 123), which
encourages, but does not require, the recognition of stock-based employee
compensation at fair value. SFAS No. 123 also allows entities to continue to
apply the provisions of APB Opinion No. 25, Accounting for Stock Issued to
Employees, and related interpretations, and to provide pro forma net income and
pro forma earnings per share disclosures for employee stock option grants made
during the year of adoption and in future years as if the fair-value-based
method defined in SFAS No. 123 had been applied. The Company has elected to
continue to apply the provisions of APB Opinion No. 25 and provide the pro forma
disclosure provisions of SFAS No. 123. Accordingly, compensation cost for
options to purchase common stock granted to employees is measured as the excess,
if any, of the fair value of common stock at the date of the grant over the
exercise price an employee must pay to acquire the common stock.
Warrants to purchase common stock granted to other than employees as
consideration for goods or services rendered are recognized at fair market
value.
F-66
<PAGE> 93
XM SATELLITE RADIO HOLDINGS INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(g) RESEARCH AND DEVELOPMENT
Research and development costs are expensed as incurred.
(h) NET LOSS PER SHARE
In December 1997, the Company adopted the provisions of SFAS No. 128,
Earnings per Share, (SFAS 128). SFAS 128 supersedes APB. 15, Earnings per Share
and its related interpretations, and promulgates new accounting standards for
the computation and manner of presentation of the Company's loss per share. SFAS
128 requires the presentation of basic and diluted loss per share. Basic
earnings per share is calculated by dividing net income by the weighted-average
number of common shares outstanding during the period. The computation of
diluted earnings per share includes all common stock options and warrants and
other common stock, to the extent dilutive, that potentially may be issued as a
result of conversion privileges, including the convertible notes payable due to
related party. The Company has not previously reported annual loss per share
data. Due to losses incurred during 1998 and 1997, the impact of other
potentially dilutive securities is anti-dilutive and is not included in the
diluted loss per share calculation.
(i) INCOME TAXES
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards No. 109, Accounting for Income Taxes. Deferred
income taxes are recognized for the tax consequences in future years of
differences between the tax bases of assets and liabilities and the financial
reporting amounts at each year-end, based on enacted tax laws and statutory tax
rates applicable to the periods in which the differences are expected to affect
taxable income. Valuation allowances are established when necessary to reduce
deferred tax assets to the amount expected to be realized. Income tax expense is
the sum of tax payable for the period and the change during the period in
deferred tax assets and liabilities.
(j) COMPREHENSIVE INCOME
In December 1998, the Company adopted SFAS No. 130, Reporting Comprehensive
Income (SFAS 130). This statement establishes standards for reporting and
displaying comprehensive income and its components in the financial statements.
This statement is effective for all interim and annual periods with the year
ended December 31, 1998. The Company has evaluated the provisions of SFAS 130
and has determined that there were no transactions that have taken place during
the years ended December 31, 1998 and 1997 that would be classified as other
comprehensive income.
(k) ACCOUNTING ESTIMATES
The preparation of the Company's financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities at
the date of the financial statements and the reported amounts of expenses during
the reporting period. The estimates involve judgments with respect to, among
other things, various future factors which are difficult to predict and are
beyond the control of the Company. Significant estimates include valuation of
the Company's investment in the DARS license and the benefit for income taxes
and related valuation allowances. Accordingly, actual amounts could differ from
these estimates.
F-67
<PAGE> 94
XM SATELLITE RADIO HOLDINGS INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(l) RECLASSIFICATIONS
Certain fiscal year 1997 amounts have been reclassified to conform to the
fiscal 1998 consolidated financial statement presentation.
(2) RELATED PARTY TRANSACTIONS
The Company had related party transactions with the following shareholders:
(a) AMSC
In 1997, AMSC contributed $143,000 for the Company to establish the
original application for the FCC license. On March 28, 1997, the Company
received $1,500,000 as a capital contribution from AMSC. During 1998, AMSC
incurred general and administrative costs and professional fees for the Company
and established an intercompany balance of $458,000 (see note 3).
(b) WSI
On March 28, 1997, the Company received $1,500,000 as a capital
contribution from WSI. The Company issued WSI 25 shares of common stock for this
consideration.
On April 16, 1997, the Company received $15,000,000 from WSI, which
represented $6,000,000 as an additional capital contribution and $9,000,000 as a
six-month bridge loan (see note 4).
On May 16, 1997, the Company obtained a $1,000,000 working capital loan
facility from WSI. During 1997, the Company drew down $663,000 against the
facility with the remaining $337,000 drawn in 1998 (see note 4).
On October 16, 1997, the Company received $71,911,000 from WSI, which
represented an additional $13,522,000 under the bridge loan and $58,389,000
under the additional amounts loan (see note 4).
On April 1, 1998, the Company entered into an agreement with WSI to issue
$54,536,000 in convertible notes. During 1998, the Company drew down $45,583,000
under the agreement (see note 4).
In July 1998, the Company acquired furniture and equipment from WSI for
$104,000 and has established a due to WSI for the balance (see note 3).
In addition to financing, the Company has relied upon certain related
parties for legal and technical services. Total expenses incurred in
transactions with related parties are as follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1998
----------------------------
WSI AMSC TOTAL
-------- ----- -------
<S> <C> <C> <C>
Research and development.................................... $ 6,624 -- 6,624
Professional fees........................................... 2,529 353 2,882
General and administrative.................................. 903 60 963
------- --- ------
Total............................................. $10,056 413 10,469
======= === ======
</TABLE>
F-68
<PAGE> 95
XM SATELLITE RADIO HOLDINGS INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1997
----------------------------
WSI AMSC TOTAL
-------- ----- -------
<S> <C> <C> <C>
Professional fees........................................... $ 960 130 1,090
General and administrative.................................. -- 20 20
------- --- ------
Total............................................. $ 960 150 1,110
======= === ======
</TABLE>
Additionally, during 1998 the Company incurred $925,000 of WSI project
management costs that were capitalized to the satellite system.
(3) DUE TO RELATED PARTIES
Due to related parties included the following amounts:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------
1998 1997
------- ----
<S> <C> <C>
Advances from WSI........................................... $ 7,405 --
Due to WSI.................................................. 5,904 390
Due to AMSC................................................. 458 55
------- ---
$13,767 445
======= ===
</TABLE>
Advances represent funding provided by WSI for 30 days. If amounts are not
repaid within this time period, additional convertible notes will be issued.
(4) DEBT
(a) LOANS PAYABLE DUE TO RELATED PARTY
In March 1997, XMSR entered into a series of agreements (the "Participation
Agreement") with AMSC and WSI in which both companies provided various equity
and debt funding commitments to XMSR for the purpose of financing the activities
of XMSR in connection with the establishment of a DARS satellite system in the
United States. On May 16, 1997 certain portions of the Participation Agreement
were subsequently ratified with substantially the same terms and conditions
under the Bridge Loan, Additional Amounts Loan and Working Capital Credit
Facility (the "Loan Agreement").
F-69
<PAGE> 96
XM SATELLITE RADIO HOLDINGS INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company has loans payable with a face amount of $91,546,000 and
$82,053,000 with a carrying amount of $91,546,000 and $80,618,000 at December
31, 1998 and 1997, respectively, outstanding with WSI as follows (in thousands):
<TABLE>
<CAPTION>
1998 1997
------- ------
<S> <C> <C>
Bridge loan................................................. $25,556 23,001
Additional amounts loan..................................... 64,875 58,389
Working capital loan........................................ 1,115 663
------- ------
91,546 82,053
Discount arising from concurrent issuance of options (note
7), net................................................... -- (1,435)
------- ------
$91,546 80,618
======= ======
</TABLE>
Bridge Loan
The Company executed the bridge loan with WSI in two tranches. On April 16,
1997, the Company received proceeds of $8,479,000 for a loan with a face amount
of $9,000,000. On October 16, 1997, the Company received proceeds of $12,771,000
for a loan with a face amount of $13,522,000. The first tranche was a six-month
loan at LIBOR plus five percent per annum, equaling 11.03 percent. The first
tranche was rolled over with the establishment of the second tranche, which is a
six-month loan at LIBOR plus five percent per annum, equaling 9.94 percent at
December 31, 1998 and due in April 1999. The accrued interest under the bridge
loan is compounded to the loan balance each April and October.
Additional Amounts Loan
On October 16, 1997, the Company executed the additional amounts loan with
WSI and received proceeds of $58,219,000 for a loan with a face amount of
$58,389,000. This loan is a six-month loan at LIBOR plus five percent per annum,
equaling 9.94 percent at December 31, 1998 and due in April 1999. The accrued
interest under the additional amounts loan is compounded to the loan balance
each April and October.
Working Capital Loan
On May 16, 1997, the Company executed the working capital loan with WSI
whereby the Company would receive proceeds of $920,000 for a loan with a face
amount of $1,000,000. The Company drew down $663,000 against the line of credit
through December 31, 1997. This loan is a six-month loan at LIBOR plus five
percent per annum, with an interest rate of 10.19 percent at December 31, 1998
and due in May 1999. The accrued interest on the loan is compounded to the
balance in May and November.
Restrictive Covenants
The financing agreements contain restrictive covenants which include a
prohibition of the Company or its subsidiary to merge or consolidate, or sell,
transfer, or otherwise dispose of substantially all of its assets. The Company
or the subsidiary may not incur additional indebtedness in
F-70
<PAGE> 97
XM SATELLITE RADIO HOLDINGS INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
excess of $1,000,000 without prior written consent of WSI. Additionally, the
financing agreements provide for other restrictive covenants including a
restriction on the payment of dividends.
The Company has pledged 64.7511 percent of its share of the issued and
outstanding common stock of the subsidiary to WSI as collateral for the
financings.
(b) CONVERTIBLE NOTES PAYABLE DUE TO RELATED PARTY
Effective April 1, 1998, the Company entered into a convertible note
agreement with WSI that provides for a maximum of $54,536,000 through the
issuance of convertible notes. The notes mature on September 30, 2006 and carry
an interest rate of LIBOR plus five percent per annum, which was 10.15 percent
as of December 31, 1998. Under the terms of the note agreement, WSI shall have
the right to convert all or a portion of the aggregate principal amount of the
notes into shares of common stock at a conversion price of $875,000 per share.
As of December 31, 1998, $45,583,000 had been drawn through the issuance of
convertible notes. Interest is payable upon maturity.
(c) TERM LOAN
On November 1, 1998, the Company reached an agreement with a commercial
bank for a $92,000 installment loan with a 36 month term at 7 percent interest
per annum. The Company pledged $92,000 as collateral for the loan and placed
this balance on deposit at the commercial bank. At December 31, 1998, the
Company's outstanding balance was $87,000.
(5) FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of cash and cash equivalents, receivables, accounts
payable, accrued expenses, and the term loan approximate their fair market value
because of the relatively short duration of these instruments as of December 31,
1998 and 1997, in accordance with SFAS No. 107, Disclosures about Fair Value of
Financial Instruments.
The fair value of the loans and convertible notes due to related party
could not be estimated as such amounts are due to the Company's stockholders.
(6) COMMON STOCK
(a) 1998 SHARES AWARD PLAN
On June 1, 1998, the Company adopted the 1998 Shares Award Plan (the
"Plan") under which employees, consultants, and non-employee directors may be
granted options to purchase shares of common stock of the Company. The Company
has authorized 25 shares of common stock under the Plan. The options are
exercisable in installments determined by the compensation committee of the
Company's board of directors. The options expire as determined by the committee,
but no later than
F-71
<PAGE> 98
XM SATELLITE RADIO HOLDINGS INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
ten years from the date of grant. Transactions and other information relating to
the Plan for the year ended December 31, 1998 are summarized below:
<TABLE>
<CAPTION>
OUTSTANDING OPTIONS
--------------------------
WEIGHTED-
NUMBER OF AVERAGE
SHARES EXERCISE PRICE
--------- --------------
<S> <C> <C>
Balance, January 1, 1998................................. -- --
Options granted........................................ 14.712 $875,000
Options canceled or expired............................ -- --
Options exercised...................................... -- --
------ --------
Balance, December 31, 1998............................... 14.712 $875,000
====== ========
</TABLE>
The following table summarizes information about stock options outstanding
at December 31, 1998:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------------- -----------------------------
WEIGHTED-
AVERAGE WEIGHTED- WEIGHTED-
NUMBER REMAINING AVERAGE NUMBER AVERAGE
EXERCISE OUTSTANDING AT CONTRACTUAL EXERCISE EXERCISABLE AT EXERCISE
PRICE DECEMBER 31, 1998 LIFE PRICE DECEMBER 31, 1998 PRICE
-------- ----------------- ----------- --------- ----------------- ---------
<S> <C> <C> <C> <C> <C> <C>
$875,000 14.712 9.5 years $875,000 -- $875,000
======== ====== ========= ======== == ========
</TABLE>
There were no stock options exercisable at December 31, 1998. There were
10.288 shares available under the plan for future grants at December 31, 1998.
At December 31, 1998, all options have been issued to employees.
The per share weighted-average fair value of employee options granted
during the year ended December 31, 1998 was $564,000 on the date of grant using
the Black-Scholes Option Pricing Model with the following weighted-average
assumptions:
<TABLE>
<CAPTION>
DECEMBER 31, 1998
-----------------
<S> <C>
Expected dividend yield................................ 0%
Volatility............................................. 56.23%
Risk-free interest rate range.......................... 4.53% to 5.67%
Expected life.......................................... 7.5 years
===============
</TABLE>
The Company applies APB Opinion No. 25 in accounting for its Plan and,
accordingly, no compensation cost has been recognized for its stock options in
the financial statements. Had the Company determined compensation cost based on
the fair value at the grant date for its stock options
F-72
<PAGE> 99
XM SATELLITE RADIO HOLDINGS INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
under SFAS 123, the Company's net income and earnings per share would have been
reduced to the pro forma amounts indicated below (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1998
-----------------
(DOLLARS IN
THOUSANDS)
<S> <C>
Net loss:
As reported.......................................... $16,167
Pro forma............................................ 17,508
As reported -- net loss per share -- basic and
diluted........................................... 129
Pro forma -- net loss per share -- basic and
diluted........................................... 140
=======
</TABLE>
(b) RESTRICTIVE COVENANTS
Certain actions require the unanimous affirmative vote of the board of
directors of the Company. Such actions include the entry into, or the amendment,
modification, extension or termination of any agreements for amounts in excess
of $40,000,000 or with AMSC or WSI; the entry into any agreements outside of the
ordinary course of business; merger or consolidation; issuance of additional
shares of capital stock; and the declaration and payment of dividends. If WSI
holds more than 50 percent of the shares of common stock, this provision
requiring the unanimous affirmative vote of the board of directors will be of no
further force and effect. Additionally, an affirmative vote of 81 percent of all
the issued and outstanding shares of common stock shall be required to approve
any voluntary filing of a bankruptcy petition by the Company or its subsidiary.
(7) WSI OPTIONS
The Company issued WSI three options. Under the first option, WSI may
purchase 97.2222 shares of common stock at $241,714 per share to acquire common
stock. The option may be exercised in whole or in incremental amounts between
April 16, 1998 and October 16, 2002. Under certain circumstances, AMSC may
require WSI to exercise the option in whole. The Company allocated $1,250,000 to
the option. Under the second option, WSI may purchase 128.8876 shares at
$477,005 per share. The option may be exercised between October 16, 1997 and
October 16, 2003. The Company allocated $170,000 to the option. Under the third
option, WSI may purchase 3.5111 shares of common stock at $284,811 per share.
The option may be exercised between October 16, 1997 and October 17, 2002. The
Company allocated $80,000 to the option.
The exercise of these options is subject to prior approval of the FCC to
the extent that such exercise would constitute transfer of control. The
allocation was based upon independent valuation.
(8) EMPLOYEE BENEFIT PLAN
On July 1, 1998, the Company has adopted a profit sharing and employee
savings plan under Section 401(k) of the Internal Revenue Code. This plan allows
eligible employees to defer up to 15 percent of their compensation on a pre-tax
basis through contributions to the savings plan. The company contributed $0.50
in 1998 for every dollar the employees contributed up to 6 percent of
compensation, which amounted to $14,000.
F-73
<PAGE> 100
XM SATELLITE RADIO HOLDINGS INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(9) INTEREST COST
The Company capitalizes a portion of interest cost as a component of the
cost of the FCC license and satellite system under construction. The following
is a summary of interest cost incurred during December 31, 1998 and 1997, and
for the period from December 15, 1992 (date of inception) to December 31, 1998
(in thousands):
<TABLE>
<CAPTION>
DECEMBER 15, 1992
(DATE OF INCEPTION) TO
1998 1997 DECEMBER 31, 1998
------- ----- ----------------------
<S> <C> <C> <C>
Interest cost capitalized........................... $11,824 1,901 13,725
Interest cost charged to expense.................... -- 549 549
------- ----- ------
Total interest cost incurred.............. $11,824 2,450 14,274
======= ===== ======
</TABLE>
Interest costs incurred prior to the award of the license were expensed in
1997.
(10) INCOME TAXES
For the period from December 15, 1992 (date of inception) to December 31,
1998, the Company filed consolidated federal and state tax returns with its
majority stockholder AMSC. The Company generated net operating losses and other
deferred tax benefits which were not utilized by AMSC. As no formal tax sharing
agreement has been finalized, the Company was not compensated for the net
operating losses. Had the Company filed on a stand-alone basis, it would have
had no tax provision as the deferred tax benefit of approximately $7,164,000 and
$650,000 for 1998 and 1997, respectively, would have been fully offset by a
valuation allowance.
(11) ACCUMULATED DEFICIT
The Company is devoting its efforts to develop, construct and expand a
digital audio radio network. This effort involves substantial risk and future
operating results will be subject to significant business, economic, regulatory,
technical, and competitive uncertainties and contingencies. These factors
individually or in the aggregate could have an adverse effect on the Company's
financial condition and future operating results and create an uncertainty as to
the Company's ability to continue as a going concern. The financial statements
do not include any adjustments that might be necessary should the Company be
unable to continue as a going concern.
In order to commence satellite-based radio broadcasting services, the
Company will require substantial funds to develop and construct the DARS system,
develop and launch radio communications satellites, retire debt incurred in
connection with the acquisition of the DARS license and to sustain operations
until it generates positive cash flow. At December 31, 1998, the Company has
negative working capital of $130,341,000.
At the Company's current stage of development, economic uncertainties exist
regarding successful acquisition of additional debt and equity financing and
ultimate profitability of the Company's proposed service. The Company is
currently constructing its satellites and will require substantial additional
financing before construction is completed. Failure to obtain the required long-
term financing will prevent the Company from realizing its objective of
providing satellite-delivered radio programming. Management's plan to fund
operations and capital expansion includes the
F-74
<PAGE> 101
XM SATELLITE RADIO HOLDINGS INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
additional sale of debt and equity securities through public and private
sources. There are no assurances, however, that such financing will be obtained.
(12) COMMITMENTS AND CONTINGENCIES
(a) FCC LICENSE
The FCC has established certain system development milestones that must be
met for the Company to maintain its license to operate the system. The Company
believes that it is proceeding into the system development as planned and in
accordance with the FCC milestones.
(b) APPLICATION FOR REVIEW OF FCC LICENSE
One of the losing bidders for the DARS licenses filed an Application for
Review by the full FCC of the Licensing Order which granted the Company its FCC
license. The Application for Review alleges that WorldSpace has effectively
taken control of the Company without FCC approval. The FCC or the U.S. Court of
Appeals has the authority to overturn the award of the FCC license should they
rule in favor of the losing bidder. Although the Company believes that the FCC
license will withstand the challenge, no prediction of the outcome of this
challenge can be made with any certainty.
(c) SATELLITE PURCHASE CONTRACT
On March 20, 1998, as amended on June 5, 1998, the Company entered into an
agreement for the construction of two satellites, two launch vehicles, and
related equipment, services and spare parts, including launch services. The
total commitment under the amended agreement, excluding financing fees, is
approximately $438,013,000 as of December 31, 1998. These amounts are due upon
the completion of certain milestones. The Company has incurred costs of
$64,348,000 as of December 31, 1998. One of the members of the board of
directors is an executive of an affiliate of the Contractor.
Under the terms of this agreement, the Contractor shall invest $15,000,000
in a private or public equity offering of the Company, should it be consummated
prior to March 20, 1999.
(d) TECHNICAL SERVICES AND TECHNOLOGY LICENSES
Effective January 1, 1998, the Company entered into an agreement with AMSC
and WorldSpace Management Corporation ("WorldSpace MC"), an affiliate of WSI, in
which WorldSpace MC provides technical support in areas related to the
development of a DARS system. Payments for services provided under this
agreement are made based on negotiated hourly rates. This agreement may be
terminated by either party on or after the date of the commencement of
commercial operation following the launch of the Company's first satellite.
There is no minimum services purchase requirement. The Company incurred costs of
$4,770,000 under the agreement during 1998.
Effective January 1, 1998, XMSR entered into a technology licensing
agreement with AMSC and WorldSpace MC by which as compensation for certain
licensed technology currently under development to be used in the XM Radio
system, XMSR will pay up to $14,300,000 over a ten-year period. In addition,
XMSR agreed to pay 1.2 percent of quarterly net revenues to WorldSpace MC and a
royalty for equipment manufactured using the technology, if it were to use the
source encoding
F-75
<PAGE> 102
XM SATELLITE RADIO HOLDINGS INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
and decoding of transmission signals under development. No liability exists to
AMSC or WorldSpace MC should such developments prove unsuccessful. XMSR incurred
costs of $6,624,000 under the agreement during 1998.
(e) FCC OCCURRENCES
On October 30, 1998, AMSC and WSI submitted an application for Consent and
Transfer Control with the FCC. These entities have requested the FCC's consent
to WSI's exercise of certain options that would increase its shareholding
interest in the Company. There have been challenges filed against the
application.
(f) LEASES
The Company has two noncancelable operating leases for office space that
expire over the next four years. The future minimum lease payments under
noncancelable leases as of December 31, 1998 are (in thousands):
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31:
- ------------------------
<S> <C>
1999........................................................ $ 42
2000........................................................ 44
2001........................................................ 46
2002........................................................ 48
2003........................................................ --
----
$180
====
</TABLE>
Rent expense for 1998 and 1997 was $231,000 and $0, respectively.
(13) SUBSEQUENT EVENTS
On January 12, 1999, a competitor of the Company commenced action against
the Company for patent infringement and for a declaratory judgment of future
patent infringement by the Company. There have been no damages specified in the
action and the Company is in the process of responding to the complaint. Should
it be unsuccessful in its defense, the Company could be liable for monetary
damages, and could be forced to engineer alternative technologies related to
signal reception or seek a license from, or pay royalties to, the competitor.
The Company intends to vigorously defend against the suit; however, the outcome
is uncertain at this time.
Effective January 15, 1999, the Company issued a convertible note to AMSC
for $21,419,000. This note matures on September 30, 2006 and carries an interest
rate of LIBOR plus five percent per annum. Under the terms of this note, AMSC
shall have the right to convert all or a portion of the aggregate principal
amount of the note into shares of common stock at a conversion price of $875,000
per share. Interest is payable upon maturity.
F-76
<PAGE> 103
XM SATELLITE RADIO HOLDINGS INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(14) QUARTERLY DATA (UNAUDITED)
<TABLE>
<CAPTION>
1998
----------------------------------------
1ST 2ND 3RD 4TH
QUARTER QUARTER QUARTER QUARTER
------- ------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Revenues........................................... $ -- -- -- --
Operating loss..................................... 3,100 5,032 3,849 4,204
Loss before income taxes........................... 3,100 5,032 3,857 4,178
Net loss........................................... 3,100 5,032 3,857 4,178
====== ===== ===== =====
Net loss per share -- basic and diluted............ $ 25 40 31 33
====== ===== ===== =====
</TABLE>
<TABLE>
<CAPTION>
1997
----------------------------------------
1ST 2ND 3RD 4TH
QUARTER QUARTER QUARTER QUARTER
------- ------- ------- -------
<S> <C> <C> <C> <C>
Revenues........................................... $ -- -- -- --
Operating loss..................................... -- 51 185 874
Loss before income taxes........................... -- 270 459 930
Net loss........................................... -- 270 459 930
====== ===== ===== =====
Net loss per share -- basic and diluted............ $ -- 2 4 7
====== ===== ===== =====
</TABLE>
The sum of quarterly per share net losses for 1997 do not necessarily agree
to the net loss per share for the year due to the timing of stock issuances.
F-77
<PAGE> 104
XM SATELLITE RADIO HOLDINGS INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
MARCH 31, 1999
------------------------
(IN THOUSANDS,
EXCEPT SHARE DATA)
<S> <C>
ASSETS
Current assets:
Cash...................................................... $ 3,442
Prepaid and other current assets.......................... 157
--------
Total current assets........................................ 3,599
Other assets:
Property and equipment net of accumulated depreciation.... 598
System under construction................................. 219,455
Other assets.............................................. 753
--------
Total assets................................................ $224,405
========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable and accrued expenses..................... $ 55,088
Due to related parties.................................... 6,243
Accrued interest on loans payable......................... 4,138
Loans payable due to related parties...................... 91,546
Term loan................................................. 34
--------
Total current liabilities................................... 157,049
Noncurrent liabilities:
Accrued interest on notes payable......................... 2,905
Notes payable due to related parties...................... 75,955
Term loan, net of current portion......................... 46
--------
Total liabilities........................................... 235,955
--------
Stockholders' deficit:
Common stock -- $0.10 par value; authorized 3,000 shares;
issued and outstanding 125 shares...................... --
Additional paid-in capital................................ 10,643
Deficit accumulated during development stage.............. (22,193)
--------
Total stockholders' deficit................................. (11,550)
--------
Commitments and contingencies
Total liabilities and stockholders' deficit................. $224,405
========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
F-78
<PAGE> 105
XM SATELLITE RADIO HOLDINGS INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1999 AND 1998 AND FOR THE PERIOD FROM
DECEMBER 15, 1992 (DATE OF INCEPTION) TO MARCH 31, 1999
<TABLE>
<CAPTION>
THREE MONTHS ENDED DECEMBER 15, 1992
MARCH 31, (DATE OF INCEPTION)
-------------------- TO MARCH 31,
1999 1998 1999
-------- -------- -------------------
(IN THOUSANDS, EXCEPT FOR SHARE DATA)
<S> <C> <C> <C>
Revenue......................................... $ -- $ -- $ --
-------- -------- --------
Operating expenses:
Research and development...................... 748 1,933 7,689
Professional fees............................. 1,297 1,050 7,629
General and administrative.................... 2,376 117 6,406
-------- -------- --------
Total operating expenses........................ 4,421 3,100 21,724
-------- -------- --------
Operating loss.................................. (4,421) (3,100) (21,724)
-------- -------- --------
Other expense -- interest income (expense)...... 54 -- (469)
-------- -------- --------
Net loss........................................ $ (4,367) $ (3,100) $(22,193)
======== ======== ========
Net loss per share:
Basic and diluted............................. $(34,936) $(24,800)
======== ========
Weighted average shares used in computing net
loss per share:
Basic and diluted............................. 125 125
======== ========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
F-79
<PAGE> 106
XM SATELLITE RADIO HOLDINGS INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED MARCH 31, 1999 AND 1998 AND FOR THE PERIOD FROM
DECEMBER 15, 1992 (DATE OF INCEPTION) TO MARCH 31, 1999
<TABLE>
<CAPTION>
DECEMBER 15,
THREE MONTHS 1992
ENDED MARCH 31, (DATE OF
----------------- INCEPTION)
1999 1998 TO MARCH 31, 1999
------- ------- -----------------
(IN THOUSANDS)
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss.................................................. $(4,367) $(3,100) $ (22,193)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation............................................ 57 -- 114
Note discount amortization.............................. -- -- 33
Changes in operating assets and liabilities:
(Increase) decrease in prepaid and other current
assets............................................. 15 (2) (197)
Decrease in other assets.............................. 21 -- 21
Increase in accounts payable and accrued expenses..... 847 -- 2,548
Increase (decrease) in amounts due to related
parties............................................ (119) 2,251 13,648
Increase in accrued interest.......................... -- -- 515
------- ------- ---------
Net cash used in operating activities....................... (3,546) (851) (5,511)
------- ------- ---------
Cash flows used in investing activities
Purchase of property and equipment........................ (206) -- (712)
Additions to system under construction.................... (15,827) (5,168) (149,264)
------- ------- ---------
Net cash used in investing activities..................... (16,033) (5,168) (149,976)
Cash flows from financing activities:
Proceeds from sale of common stock and capital
contribution............................................ -- -- 9,143
Proceeds from issuance of loan payable to related party... 1,548 336 81,938
Proceeds from issuance of convertible note to related
party................................................... 21,419 5,683 67,002
Proceeds from issuance of options......................... -- -- 1,500
Payment to establish collateral for term loan............. -- -- (92)
Proceeds for term loan.................................... -- -- 92
Repayments of term loan................................... (7) -- (12)
Payment for deferred financing costs...................... (249) -- (642)
------- ------- ---------
Net cash provided by financing activities................... 22,711 6,019 158,929
------- ------- ---------
Net cash increase in cash and cash equivalents.............. 3,132 -- 3,442
Cash and cash equivalents -- beginning...................... 310 1 --
------- ------- ---------
Cash and cash equivalents -- ending......................... $ 3,442 $ 1 $ 3,442
======= ======= =========
Supplemental cash flow disclosure:
Interest capitalized...................................... $ 4,236 $ 2,280 $ 17,961
======= ======= =========
Interest converted into principal note balance............ $ -- $ -- $ 9,658
======= ======= =========
Accrued system milestone payments......................... $30,363 $ -- $ 52,230
======= ======= =========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
F-80
<PAGE> 107
XM SATELLITE RADIO HOLDINGS INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(1) BASIS OF PRESENTATION
In the opinion of management, the accompanying unaudited condensed
financial statements reflect all adjustments, consisting of only normal
recurring accruals, necessary for a fair presentation of the consolidated
financial position of XM Satellite Radio Holdings Inc. and subsidiary, a
development stage entity, (the "Company") as of March 31, 1999, and the results
of operations and cash flows for the three months ended March 31, 1999 and 1998,
and the period from December 15, 1992 (date of inception) through March 31,
1999. The results of operations for the three months ended March 31, 1999 and
1998 are not necessarily indicative of the results that may be expected for the
full year. These condensed financial statements are unaudited, and do not
include all related footnote disclosures.
The interim unaudited condensed financial statements should be read in
conjunction with the audited financial statements of the Company.
(2) LOANS PAYABLE TO RELATED PARTY
The Company's loan facility with WorldSpace, Inc., including the
$25,556,000 outstanding on the bridge loan, the $64,875,000 outstanding on the
additional amounts loan and the $1,115,000 outstanding under the working capital
loan expired in April 1999 for the bridge loan and additional amounts loan and
May 1999 for the working capital loan. Upon maturity, the notes were converted
to demand notes. These demand notes are expected to be settled in connection
with AMSC's acquisition of the WSI debt and equity interest (see note 5). These
demand notes bear interest at LIBOR plus five percent per annum, approximately
10.0 percent.
(3) CONVERTIBLE NOTES PAYABLE DUE TO RELATED PARTY
During the period from January 1, 1999 through March 31, 1999 the Company
issued an additional $8,953,000 in convertible notes to WorldSpace, Inc. ("WSI")
under its agreement for an aggregate of $54,536,000 in convertible notes with
WSI. The notes mature on September 30, 2006 and carry an interest rate of LIBOR
plus five percent per annum, which was 9.97 percent as of March 31, 1999. As of
March 31, 1999, the full $54,536,000 had been drawn through the issuance of
convertible notes.
On January 15, 1999, the Company issued a convertible note to American
Mobile Satellite Corporation ("AMSC") for $21,419,000. This note matures on
September 30, 2006 and carries an interest rate of LIBOR plus five percent per
annum. Interest is payable upon maturity. AMSC shall have a right to convert all
or a portion of the aggregate principal amount of the note into shares of common
stock at a conversion price of $875,000 per share.
(4) SATELLITE CONTRACT
During the first half of 1999, the Company and Hughes Space and
Communications, Inc. ("Hughes") amended the satellite contract to implement a
revised work time table and payment schedule to reflect the timing of the
receipt of additional funding.
F-81
<PAGE> 108
XM SATELLITE RADIO HOLDINGS INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(5) SUBSEQUENT EVENTS
EXCHANGE OF WORLDSPACE'S INTEREST IN XM RADIO (WORLDSPACE TRANSACTION)
On July 7, 1999, AMSC acquired WSI's remaining debt and equity interests in
the Company in exchange for approximately 8.6 million shares of AMSC's common
stock, the issuance of approximately 2.1 million of which is subject to AMSC
stockholder approval. Additionally, the Company issued an aggregate $250 million
of Series A subordinated convertible notes to several new investors and used $75
million of the proceeds it received from the issuance of these notes to redeem
certain outstanding loan obligations owed to WSI. As a result of these
transactions, AMSC owns all of the issued and outstanding stock of the Company.
Assuming subsequent conversion of all outstanding convertible notes of the
Company, and assuming AMSC obtains stockholder approval to issue the remaining
2.1 million shares discussed above, AMSC would own approximately 37% of the
equity of the Company, and would have approximately 62% of the voting power in
the Company.
RECAPITALIZATION
Concurrently with the transaction discussed above, the Company's capital
structure was reorganized. As a result, AMSC holds 125 shares of Class B common
stock, which are the only shares of the Company's capital stock outstanding. The
Class B common stock has three votes per share. The Company also has Class A
common stock, which is entitled to one vote per share and non-voting Class C
common stock. The Class B common stock is convertible into Class A common stock
on a one for one basis, as follows: (1) at any time at the discretion of AMSC,
(2) following the Company's initial public offering, at the direction of the
holders of a majority of the then outstanding shares of Class A common stock
(which majority must include at least 20% of the public holders of Class A
common stock), and (3) on or after January 1, 2002, at the direction of the
holders of a majority of the then outstanding shares of the Company's Class A
common stock. Such conversion will be effected only upon receipt of FCC approval
of AMSC's transfer of control of the Company to a diffuse group of shareholders.
The Company also authorized 1,000 shares of preferred stock, of which 500
shares are designated Series A convertible preferred stock, par value $1.00 per
share. The Series A convertible preferred stock is convertible into Class A
common stock at the option of the holder. The Series A preferred stock is
non-voting and receives dividends, if declared, ratably with the common stock.
No such shares have been issued.
ISSUANCE OF SERIES A SUBORDINATED CONVERTIBLE NOTES OF XM RADIO TO NEW INVESTORS
At the closing of the transaction described above, the Company issued an
aggregate $250 million of Series A subordinated convertible notes to six new
investors -- General Motors Corporation, $50 million; Clear Channel Investments,
Inc., $75 million; DIRECTV Enterprises, Inc., $50 million; and Columbia Capital,
Telcom Ventures, L.L.C. and Madison Dearborn Partners, $75 million. The Series A
convertible notes issued by the Company are convertible into shares of the
Company's Class A common stock or Series A convertible preferred stock at the
election of the holders or upon the occurrence of certain events, including an
initial public offering of a prescribed size. The conversion price is $509,711
aggregate principal amount of notes for each share of the Company's stock. The
notes mature on December 31, 2004, or, if the Company issues at least $50
million aggregate principal amount of high yield debt securities, the Company
will be entitled to extend the
F-82
<PAGE> 109
XM SATELLITE RADIO HOLDINGS INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
maturity date of the convertible notes to a date no later than the six month
anniversary of the stated maturity date of such high yield debt securities. The
notes are senior to all existing Company indebtedness, including certain notes
held by AMSC that are convertible into the Company's stock, but will be
subordinate to any future high yield debt securities issued by the Company.
REPAYMENT OF LOANS
Using part of the proceeds from the issuance of its Series A subordinated
convertible notes, the Company paid WSI $75 million to repay an outstanding
portion of loans payable to WSI.
(6) CONTINGENCIES
PATENT INFRINGEMENT ACTION
In January, 1999, a competitor of the Company commenced an action against
the Company for patent infringement. In February, 1999, the Company filed an
answer to the action. The Company does not believe that it has infringed and
will not infringe any of the competitor's patents and intends to vigorously
defend against the suit; however, the outcome is uncertain at this time.
FCC OCCURRENCES
AMSC and WSI had previously submitted an application for Consent and
Transfer of Control with the FCC. Challenges have been filed against the
application. The Company withdrew this application on July 7, 1999 based upon
the WorldSpace Transaction.
GENERAL MOTORS DISTRIBUTION AGREEMENT
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. During the term of the agreement, which expires 12
years from the commencement date of XM Radio's commercial operations, General
Motors has agreed to distribute XM Radio's service to the exclusion of other
S-band satellite digital radio services. XM Radio will also have a non-exclusive
right to arrange for the installation of XM radios included in OnStar systems in
non-General Motors vehicles that are sold for use in the United States. 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 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 must also 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. XM Radio will also
make available to General Motors bandwidth and advertising time on the XM Radio
system. The agreement is subject to renegotiation at any time based upon the
installation of radios that are interoperable or capable of receiving CD Radio's
service. The agreement is subject to renegotiation if, four years after the
commencement of XM Radio's commercial operations and at two-year intervals
F-83
<PAGE> 110
XM SATELLITE RADIO HOLDINGS INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
thereafter 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 renegotiations. General Motors' exclusivity obligations will
discontinue if, four years after XM Radio commences commercial operations and at
two-year intervals thereafter, XM Radio fails to achieve and maintain specified
minimum market share levels in the satellite digital radio service market.
AMENDMENT TO AMSC NOTE AGREEMENT
On July 7, 1999 the Company amended the convertible note agreement with
AMSC to change the maturity date to December 31, 2004, unless extended, in
certain circumstances if the Company issues high yield debt securities, and to
provide for the payment of the accrued interest in Class B common stock at a
price of $509,711 per share.
F-84
<PAGE> 1
EXHIBIT 2.1
EXCHANGE AGREEMENT
This EXCHANGE AGREEMENT (this "Agreement") is entered into as of June 7,
1999 by and among American Mobile Satellite Corporation, a corporation duly
organized under the laws of the State of Delaware ("AMSC"), WorldSpace, Inc., a
corporation duly organized under the laws of the State of Maryland
("WorldSpace"), and XM Satellite Radio Holdings Inc., a corporation duly
organized under the laws of the State of Delaware ("XM Holdings").
W I T N E S S E T H:
WHEREAS, AMSC currently holds 100 shares of XM Holdings Common Stock,
which constitutes 80% of the issued and outstanding shares of XM Holdings Common
Stock;
WHEREAS, WorldSpace currently holds 25 shares of XM Holdings Common Stock,
which constitutes 20% of the issued and outstanding shares of XM Holdings Common
Stock;
WHEREAS, WorldSpace holds other assets relating to XM Holdings as set
forth below;
WHEREAS, WorldSpace desires to transfer to a trust ("XM Ventures") all of
WorldSpace's right, title and interests in and to all assets held by WorldSpace
relating to XM Holdings, other than certain debt of XM Holdings with a value
equal to $75 million;
WHEREAS, AMSC desires to acquire from XM Ventures the assets to be
transferred by WorldSpace to XM Ventures solely in exchange for the issuance by
AMSC to XM Ventures of shares of AMSC Common Stock; and
WHEREAS, XM Holdings desires to retire the debt of XM Holdings retained by
WorldSpace through the payment by XM Holdings to WorldSpace of cash in the
amount of $75 million.
NOW, THEREFORE, in consideration of the foregoing and for good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto, intending to be legally bound, hereby agree as
follows:
<PAGE> 2
ARTICLE 1
DEFINITIONS
Unless otherwise defined herein, the following terms shall have the
meanings specified below:
"AMRC" means American Mobile Radio Corporation, a Delaware corporation
whose name was changed to XM Satellite Radio Inc.
"AMRC Holdings" means AMRC Holdings, Inc., a Delaware corporation whose
name was changed to XM Satellite Radio Holdings Inc.
"AMSC Common Stock" means the voting common stock, par value $0.01 per
share, of AMSC.
"Acquired AMSC Stock" means the sum of the First Transfer and the
Second Transfer.
"Beneficially Own" means the ownership of any shares of AMSC Common Stock
as to which the person, entity, or group is the beneficial owner as determined
under Rule 13d-3 under the Exchange Act, provided that in calculating record or
beneficial ownership for purposes of this Agreement, the application of such
definition shall not result in the same shares of AMSC Common Stock being
counted more than once.
"Business Day" means any day other than a Saturday, Sunday or other day on
which the national or state banks located in New York, New York or Washington,
DC are authorized to be closed.
"Class A Stockholder" means Noah A. Samara, whose stock ownership in
WorldSpace is specified in a letter delivered by WorldSpace to AMSC as of the
date of this Agreement.
"Class B Stockholders" means all of the stockholders of WorldSpace as of
the date hereof other than the Class A Stockholder, which Class B Stockholders
(together with their stock ownership in WorldSpace) are listed in a letter
delivered by WorldSpace to AMSC as of the date of this Agreement, which list may
be corrected by WorldSpace at the Closing as reasonably acceptable to AMSC.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"FCC" means the Federal Communications Commission, or any successor
agency thereto.
"First Transfer" means 19.9% of the issued and outstanding shares of AMSC
Common Stock immediately prior to the Closing.
"Option Holders" means those persons or entities (and such persons' or
entities' respective heirs or successors in interest) holding options, warrants,
or other rights exercisable to acquire an interest in WorldSpace, which person
or entities (together with the number of such
2
<PAGE> 3
options, warrants, or rights) are listed in a letter delivered by WorldSpace to
AMSC as of the date of this Agreement, which list may be corrected by WorldSpace
at the Closing as reasonably acceptable to AMSC.
"SEC" means the Securities and Exchange Commission, or any successor
agency thereto.
"Second Transfer" means that number of shares of AMSC Common Stock equal
to 8,614,244 minus the number of shares of AMSC Common Stock in the First
Transfer.
"Securities Act" means the Securities Act of 1933, as amended.
"$75 Million Portion" means a portion of the principal amount of the
Bridge, Additional Amounts and Working Capital Loans issued by WorldSpace to
AMRC Holdings pursuant to the Bridge, Additional Amounts and Working Capital
Credit Facility dated as of May 16, 1997 among AMRC Holdings, AMRC, AMSC and
WorldSpace, as amended by Amendment No. 1 to Bridge, Additional Amounts and
Working Capital Credit Facility dated as of the date hereof, equal to $75
million.
"Significant Stockholders" means those WorldSpace Stockholders or Option
Holders that Beneficially Own more than 1% of the then outstanding shares of
AMSC Common Stock. In the event that the WorldSpace Stockholders or Option
Holders are direct or indirect beneficiaries of XM Ventures (provided that no
WorldSpace Stockholder or Option Holder shall be deemed to be an indirect
beneficiary of XM Ventures solely by reason of holding shares of WorldSpace
capital stock), then the determination of whether a WorldSpace Stockholder or
Option Holder is a Significant Stockholder shall be made by adding to the number
of shares of AMSC Common Stock owned of record or beneficially by any WorldSpace
Stockholder or Option Holder, that number of shares of AMSC Common Stock equal
to the product of the number of shares of AMSC Common Stock then owned by XM
Ventures multiplied by a fraction equal to the percentage of assets of XM
Ventures that such WorldSpace Stockholder or Option Holder would receive if XM
Ventures were to distribute all of its assets to the WorldSpace Stockholders
and/or Option Holders as of the date of the determination, assuming that all
options, warrants or other rights exercisable to acquire an interest in
WorldSpace held by such WorldSpace Stockholder or Option Holder had been
exercised by that WorldSpace Stockholder or Option Holder.
"Transferred XM Stock" means the 25 shares of XM Holdings Common Stock
owned by WorldSpace as of the date hereof.
"WorldSpace Stockholders" means the Class A Stockholder and the Class B
Stockholders and such Class A Stockholder's and Class B Stockholders' respective
heirs or successors in interest.
"XM Common Stock" means the common stock, par value $0.10 share, of XM
Satellite Radio, Inc.
"XM Holdings Common Stock" means the common stock, par value $0.10 share,
of XM Holdings.
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<PAGE> 4
ARTICLE 2
EXCHANGE
2.1 Transfer of WorldSpace's XM Interest to XM Ventures.
(a) Prior to the Closing, WorldSpace shall establish XM Ventures as an
irrevocable trust in which WorldSpace shall have no reversionary interest. The
only beneficiaries of XM Ventures shall be WorldSpace and/or, at the election of
WorldSpace, the WorldSpace Stockholders and/or the Option Holders (but only upon
exercise by the Option Holders of their options, warrants or rights exercisable
to acquire an interest in WorldSpace), as well as such holders' heirs (in the
case of a natural person) or successors in interest (in the case of an
artificial person) excluding successors in interest resulting from a change in
control. WorldSpace shall name the trustee of XM Ventures, provided, however,
that any such trustee and any successor trustee must, in AMSC's reasonable
judgment, not have an adverse effect on AMSC's ability to apply for or hold FCC
licenses. AMSC acknowledges that the persons and entities identified as
potential trustees in a letter delivered by WorldSpace to AMSC on the date
hereof meet the requirements of the previous sentence. WorldSpace or XM
Ventures, as the case may be, shall give AMSC written notice of the identity of
the trustee or any successor trustee no later than five (5) Business Days prior
to appointment of the trustee or successor trustee.
(b) Prior to or at the Closing, WorldSpace shall release any related
security interest and shall transfer to XM Ventures all of WorldSpace's right,
title and interest in and to all assets held by WorldSpace relating to XM
Holdings and XM Satellite Radio, Inc., except for the $75 Million Portion
(collectively, the "XM Interest"), including without limitation, the following:
(i) The Transferred XM Stock;
(ii) That certain Convertible Note dated April 1, 1998 in the
principal amount of $54,536,112 convertible into 62.3270 shares of XM Holdings
Common Stock, and any interest accrued or capitalized with respect thereto ("XM
Convertible Note");
(iii) The Bridge, Additional Amounts and Working Capital Loans
issued by WorldSpace to AMRC Holdings pursuant to the Bridge, Additional Amounts
and Working Capital Credit Facility dated as of May 16, 1997 among AMRC
Holdings, AMRC, AMSC and WorldSpace, as amended by Amendment No. 1 to Bridge,
Additional Amounts and Working Capital Credit Facility dated as of the date
hereof, and any interest accrued or capitalized with respect thereto, other than
the $75 Million Portion;
(iv) Options to purchase (A) 97.2222 shares of XM Holdings
Common Stock pursuant to the Bridge Option, (B) 128.8876 shares of XM Holdings
Common Stock pursuant to the Additional Amounts Option, and (C) 3.5111 shares of
XM Holdings Common Stock pursuant to the Working Capital Option, each of which
is dated as of May 16, 1997 between AMRC Holdings and WorldSpace (each of (A),
(B) and (C) being collectively referred to as "XM Options"); and
(v) The 80.9389 shares of XM Common Stock pledged under the
Security Agreement, dated as of May 16, 1997 between AMRC Holdings and
WorldSpace.
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<PAGE> 5
(c) If the trust beneficiaries of XM Ventures include the WorldSpace
Stockholders and/or the Option Holders, then upon receipt of the XM Interest, XM
Ventures shall issue to WorldSpace a note (the "WorldSpace Note"). The
WorldSpace Note shall provide that WorldSpace shall have no recourse in respect
of the WorldSpace Note to the AMSC Common Stock to be issued by AMSC to XM
Ventures hereunder, other than the right to receive proceeds from sales of AMSC
Common Stock made in conformance with the terms of this Agreement.
(d) At the Closing, XM Holdings shall redeem the $75 Million Portion
through the payment by XM Holdings to WorldSpace of cash in the amount of $75
million.
2.2 Exchange of AMSC Common Stock for XM Interest.
(a) At the Closing, XM Ventures shall transfer to AMSC the XM
Interest.
(b) In consideration of its receipt of the XM Interest, AMSC shall, at
the Closing, issue the First Transfer to XM Ventures and deliver to XM Ventures
certificates for such shares of AMSC Common Stock registered in the name of XM
Ventures, and agrees to issue the Second Transfer to XM Ventures subject only to
the satisfaction of the condition precedent set forth in Section 2.2(c) below.
(c) AMSC shall issue to XM Ventures the Second Transfer, and deliver
to XM Ventures certificates for such shares of AMSC Common Stock registered in
the name of XM Ventures, as expeditiously as possible but no later than five
Business Days after obtaining the requisite stockholder approval for such
issuance under Nasdaq NMS Rule 4460(i) (excluding the vote of any shares issued
under Section 2.2(b) hereof) (the "AMSC Stockholder Approval"). AMSC
acknowledges its obligation to deliver at or prior to the Closing the agreement
described in Section 2.3(b)(iv) hereof, and covenants that it shall (i) obtain
the AMSC Stockholder Approval as soon as practicable, but in no event later than
60 days following the Closing if the SEC does not review AMSC's proxy material,
or 120 days following the Closing if the SEC undertakes a review of AMSC's proxy
material; (ii) use commercially reasonable efforts, at its own expense, to cause
the stockholders executing such agreement to comply with their obligations
thereunder, and (iii) cooperate at its own expense with WorldSpace in any action
by WorldSpace to enforce the covenants of such stockholders under such
agreement. Notwithstanding the foregoing, if the SEC undertakes a review of
AMSC's proxy material and AMSC is unable as a result of such review to obtain
the AMSC Stockholder Approval prior to the 120th day following the Closing, AMSC
shall use commercially reasonable efforts to expedite the completion of the
SEC's review, and so long as AMSC is making such efforts, AMSC shall not be
deemed to be in breach of this Agreement for an additional 30 days following
such 120-day period; provided, however, that if AMSC requires information from
WorldSpace to complete the SEC's review, such time periods shall be extended for
the number of days that it takes WorldSpace to furnish such information.
(d) If AMSC obtains the AMSC Stockholder Approval prior to the Closing
Date, AMSC shall, at the Closing, issue the Second Transfer to XM Ventures and
deliver to XM Ventures certificates for such shares of AMSC Common Stock
registered in the name of XM Ventures.
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<PAGE> 6
(e) In the event that, prior to the First Transfer and/or the Second
Transfer, the outstanding shares of AMSC Common Stock shall have been increased,
decreased, or changed into or exchanged for a different number or kind of shares
or securities by reorganization, recapitalization, reclassification, stock
dividend, stock split, or other like changes in AMSC's capitalization, then an
appropriate and proportionate adjustment shall be made in the number and kind of
shares to be thereafter delivered under the First Transfer and/or Second
Transfer, as the case may be; provided, however, that no adjustment shall be
required pursuant to this Section 2.2(e) for the issuance of:
(i) shares of AMSC Common Stock pursuant to any warrants,
rights, options, or any securities convertible or exchangeable for shares of
AMSC Common Stock outstanding as of the date hereof;
(ii) shares of AMSC Common Stock issued by AMSC under bona
fide employee benefit plans adopted by the Board of Directors of AMSC;
(iii) shares of AMSC Common Stock issued to stockholders of
any bona fide third party that merges into AMSC in proportion to their stock
holdings of such bona fide third party immediately prior to such merger, upon
such merger; or
(iv) shares of AMSC Common Stock pursuant to any agreement or
transaction with a bona fide third party that is determined by the Board of
Directors of AMSC, in good faith, to be commercially reasonable and in the best
interests of AMSC and its stockholders.
2.3 Closing.
(a) The transfer of the XM Interest described in Section 2.2(a) and
the AMSC Common Stock described in Section 2.2(b) shall occur at a closing (the
"Closing") to be held beginning at 10:00 A.M. at the offices of Arnold & Porter,
located at 555 Twelfth Street, N.W., Washington, D.C. 20004, no later than three
(3) Business Days after the satisfaction or waiver of the conditions set forth
in Article 8 hereof or at such other place and time as the parties hereto may
agree (the date of the Closing being referred to herein as the "Closing Date").
(b) On the Closing Date, the following actions shall be taken in the
order specified below; provided, however, that all such actions shall be deemed
to occur simultaneously, and none of such actions shall be deemed to occur until
all of such actions have occurred :
(i) WorldSpace shall transfer the XM Interest to XM
Ventures;
(ii) XM Ventures shall transfer to AMSC the XM Interest;
(iii) AMSC shall issue the First Transfer to XM Ventures, and
deliver to XM Ventures certificates for such shares of AMSC Common Stock
registered in the name of XM Ventures;
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<PAGE> 7
(iv) AMSC shall deliver to WorldSpace an agreement in the
form provided by AMSC to WorldSpace on the date hereof executed by AMSC
stockholders entitled to vote at least 50% of the then outstanding shares of
AMSC Common Stock, in which those stockholders agree to vote in favor of any
proposal presented for stockholder approval by AMSC management for the issuance
of the Second Transfer to XM Ventures;
(v) XM Holdings shall retire the $75 Million Portion through
the payment by XM Holdings to WorldSpace of cash in the amount of $75 million;
(vi) The Shareholder Agreement dated as of May 16, 1997 by
and among AMRC Holdings, WorldSpace and AMSC shall terminate. WorldSpace
acknowledges that it shall have no further rights or obligations under the
Pledge Cancellation and Investment Agreement dated as of January 15, 1999 by and
among XM Holdings, WorldSpace, AMSC, and for certain limited purposes, Baron
Asset Fund;
(vii) AMSC shall deliver to WorldSpace, XM Ventures amd XM
Holdings a certificate of AMSC executed by Walter Purnell, Chief Executive
Officer of AMSC, certifying that the representations and warranties of AMSC in
Article 5 hereof are true and correct in all material respects as of the Closing
Date;
(viii) XM Holdings shall deliver to WorldSpace, XM Ventures and
AMSC a certificate of XM Holdings executed by Hugh Panero, Chief Executive
Officer of XM Holdings, certifying that the representations and warranties of XM
Holdings in Article 6 hereof are true and correct in all material respects as of
the Closing Date;
(ix) WorldSpace shall deliver to AMSC and XM Holdings a
certificate of WorldSpace executed by Noah A. Samara, Chief Executive Officer of
WorldSpace, certifying that the representations and warranties of WorldSpace in
Article 4 hereof are true and correct in all material respects as of the Closing
Date;
(x) AMSC shall deliver to WorldSpace, XM Ventures and XM
Holdings an opinion of outside counsel, such outside counsel and the form and
substance of such opinion to be reasonably satisfactory to WorldSpace, to the
effect that the execution, delivery and performance of this Agreement by AMSC,
and the consummation of the transactions contemplated hereby by AMSC, have been
authorized by all necessary corporate action on the part of AMSC, and that this
Agreement constitutes the legal, valid and binding obligation of AMSC
enforceable against it in accordance with the terms hereof, subject to
bankruptcy, insolvency, moratorium, reorganization, fraudulent transfer and
other laws affecting creditors' rights generally and to equitable principles;
(xi) WorldSpace shall deliver to AMSC and XM Holdings an
opinion of outside counsel, such outside counsel and the form and substance of
such opinion to be reasonably satisfactory to AMSC, to the effect that the
execution, delivery and performance of this Agreement by WorldSpace, and the
consummation of the transactions contemplated hereby by WorldSpace , have been
authorized by all necessary corporate action on the part of WorldSpace, and that
this Agreement constitutes the legal, valid and binding obligation of WorldSpace
enforceable against it in accordance with the terms hereof, subject to
bankruptcy,
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<PAGE> 8
insolvency, moratorium, reorganization, fraudulent transfer and
other laws affecting creditors' rights generally and to equitable principles;
(xii) XM Holdings shall deliver to WorldSpace, XM Ventures and
AMSC an opinion of outside counsel, such outside counsel and the form and
substance of such opinion to be reasonably satisfactory to WorldSpace, to the
effect that the execution, delivery and performance of this Agreement by XM
Holdings, and the consummation of the transactions contemplated hereby by XM
Holdings, have been authorized by all necessary corporate action on the part of
XM Holdings, and that this Agreement constitutes the legal, valid and binding
obligation of XM Holdings enforceable against it in accordance with the terms
hereof, subject to bankruptcy, insolvency, moratorium, reorganization,
fraudulent transfer and other laws affecting creditors' rights generally and to
equitable principles.
ARTICLE 3
RESTRICTIONS ON AMSC STOCK
3.1 Distribution of Stock and Liquidity Restrictions.
(a) Except as set forth herein, XM Ventures shall not effect any
offer to sell, sale, contract to sell or otherwise dispose of any shares of AMSC
Common Stock. Notwithstanding the foregoing, XM Ventures may pledge shares of
AMSC Common Stock to a pledgee that is a bank, savings and loan association or
credit union organized under the laws of the United States or any state thereof,
the deposits of which are insured by a United States federal agency, pursuant to
a bona fide pledge of such shares as collateral security for indebtedness or
other obligations due to the pledgee, provided that such shares shall remain
subject to, and upon foreclosure, realization or other similar action by the
pledgee, shall be transferred only in accordance with, the provisions of Section
3.1(b).
(i) Upon the receipt by XM Ventures of the First Transfer, XM
Ventures may sell or otherwise dispose of and/or distribute to the WorldSpace
Stockholders and/or Option Holders (if and when such Option Holders become
stockholders of WorldSpace) up to 1.7 million shares of AMSC Common Stock
received under the First Transfer, and the remaining shares from the First
Transfer as well as all of the shares under the Second Transfer shall be held by
XM Ventures in accordance with the terms of this Agreement.
(ii) On or after the last day of each consecutive 3-month period
following the Closing Date, XM Ventures may sell or otherwise dispose of and/or
distribute to the WorldSpace Stockholders and/or Option Holders (if and when
such Option Holders become stockholders of WorldSpace) up to an additional 20%
of the Acquired AMSC Stock.
Any such sales, disposals or distributions by XM Ventures
pursuant to this Section 3.1(a) shall be made in compliance with the terms of
this Agreement (including without limitation Sections 3.1(b) and 7.7 hereof, and
the legend set forth in Section 4.9 hereof) and applicable securities laws.
(b) XM Ventures and each of the Significant Stockholders, without
the prior written consent of AMSC, which consent shall not be unreasonably
withheld, shall not
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(i) knowingly transfer in a directed sale any of the AMSC Common Stock held by
them to: (A) WorldSpace or any affiliate of WorldSpace (other than a WorldSpace
Stockholder or Option Holder in accordance with the terms of this Agreement);
(B) any alien or the representative of any alien; or (C) any corporation,
partnership, or other legal entity of which more than one-fourth of the capital
stock or other ownership interests is owned of record or voted by aliens, their
representatives, or by a foreign government or representative thereof; or (ii)
transfer, in any single transaction or in any related series of transactions to
any individual, entity, or group of individuals or entities, such number of
shares of AMSC Common Stock held by them constituting 5% or more of the then
outstanding shares of AMSC Common Stock. The parties hereto acknowledge and
agree that nothing in this Agreement is intended to restrict the right of XM
Ventures to adjust the amount of shares of AMSC Common Stock distributed to its
beneficiaries to give effect to the respective interests of WorldSpace
Stockholders and Option Holders in WorldSpace. XM Ventures and each Significant
Stockholder further agree to provide notice to any WorldSpace Stockholder or
Option Holder to whom XM Ventures or any Significant Stockholder distributes or
transfers any shares of AMSC Common Stock of the transfer and voting
restrictions imposed by Sections 3.1(b) and 3.2(a) hereof which would apply in
the event such WorldSpace Stockholder or Option Holder becomes a Significant
Stockholder.
(c) Except with respect to the rights of AMSC under this
Agreement, XM Ventures and WorldSpace acknowledge and agree that AMSC and XM
Holdings shall have no control over, and shall not in any way participate in,
any distribution by XM Ventures of AMSC Acquired Stock to the WorldSpace
Stockholders. The parties hereto further acknowledge and agree that neither AMSC
nor XM Holdings shall have any liability to XM Ventures, WorldSpace or to any
WorldSpace Stockholders arising out of or in connection with any such
distribution.
3.2 Voting Restrictions.
(a) From the Closing Date until the first date on which XM
Ventures and the Significant Stockholders hold less than 15% of the then
outstanding shares of AMSC Common Stock (the "Mirror Voting Period"), XM
Ventures and each Significant Stockholder shall, with respect to any vote or
consent by the holders of AMSC Common Stock on any matter, be present in person
or represented by proxy at any meeting of the AMSC stockholders to consider such
matter, and shall vote such shares of AMSC Common Stock held by them, or sign
any such consent, in proportion to the votes or consents of all other AMSC
stockholders voting on or consenting to such matter.
(b) Following the expiration of the Mirror Voting Period, XM
Ventures and the Significant Stockholders shall vote the AMSC Common Stock held
by XM Ventures and the Significant Stockholders, respectively, as each
determines in its own discretion.
3.3 Legends. The certificates for shares of AMSC Common Stock
distributed to Significant Stockholders shall, in respect of the restrictions on
voting set forth in Section 3.2(a), bear the following legend:
THE VOTING OF THE SHARES EVIDENCED BY THIS CERTIFICATE IS RESTRICTED BY THE
TERMS OF AN EXCHANGE AGREEMENT, DATED AS OF JUNE 7, 1999, COPIES OF WHICH ARE ON
FILE WITH THE ISSUER OF THIS CERTIFICATE. NO VOTE SHALL BE EFFECTIVE UNLESS AND
UNTIL THE TERMS AND CONDITIONS OF
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SECTION 3.2(a) OF THE AFORESAID EXCHANGE AGREEMENT HAVE BEEN COMPLIED WITH IN
FULL.
Certificates for shares of AMSC Common Stock distributed to Significant
Stockholders shall, in respect of the restrictions on transfer set forth in
Section 3.1(b), also bear the following legend:
THE SALE, ASSIGNMENT, TRANSFER OR OTHER DISPOSITION OF THE SHARES EVIDENCED BY
THIS CERTIFICATE IS RESTRICTED BY THE TERMS OF AN EXCHANGE AGREEMENT, DATED AS
OF JUNE 7, 1999, COPIES OF WHICH ARE ON FILE WITH THE ISSUER OF THIS
CERTIFICATE. NO SALE, ASSIGNMENT, TRANSFER OR OTHER DISPOSTION SHALL BE
EFFECTIVE UNLESS AND UNTIL THE TERMS AND CONDITIONS OF THE AFORESAID EXCHANGE
AGREEMENT, INCLUDING WITHOUT LIMITATION, SECTION 3.1(b) THEREOF, HAVE BEEN
COMPLIED WITH IN FULL.
AMSC shall, upon presentation of a certificate representing shares of
AMSC Common Stock with respect to which one or both of the foregoing
restrictions have expired or are not applicable, together with such evidence
(including, when such an opinion would customarily be required by AMSC of its
stockholders, an opinion of counsel obtained at the stockholder's expense and
reasonably satisfactory to AMSC) of such lapse or nonapplicability as AMSC would
reasonably request of stockholders who are similarly situated, promptly cause to
be issued a replacement certificate for such shares of AMSC Common Stock without
the applicable restrictive legend.
3.4 Registration Rights.
(a) Shelf Registration. AMSC shall use its best efforts to effect
at its expense (excluding expenses relating to services provided by counsel or
other advisors retained by persons other than AMSC) the registration for resale
of the shares of Acquired AMSC Stock, including without limitation the filing of
post-effective amendments, appropriate qualification under applicable blue sky
or other state securities laws and appropriate compliance with applicable
regulations issued under the Securities Act, as would permit or facilitate the
sale or distribution of all the shares of AMSC Common Stock on a delayed or
continuous basis in the manner (including manner of sale) reasonably requested
in writing by XM Ventures or the holders of such AMSC Common Stock (together,
the "Holders"). Such best efforts by AMSC shall include the following:
(i) As expeditiously as reasonably possible after the Closing
Date and in no event more than 30 days thereafter prepare and file, at AMSC's
expense, with the SEC pursuant to Rule 415 under the Securities Act on Form S-3
under the Securities Act (or in the event that AMSC is ineligible to use such
form, such other form as AMSC is eligible to use under the Securities Act)
covering the shares of AMSC Common Stock to be issued pursuant to this Agreement
("Shelf Registration Statement"). Thereafter, AMSC shall use its best efforts to
cause such Shelf Registration Statement and other filings to be declared
effective as expeditiously as reasonably possible. AMSC shall provide XM
Ventures and its counsel a reasonable opportunity to review any such Shelf
Registration Statement or amendment or supplement thereto prior to filing, and
XM Ventures and its counsel shall use their best efforts to complete such review
in a timely fashion.
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(ii) Prepare and file with the SEC such amendments and
supplements to such Shelf Registration Statement and the prospectus used in
connection with such Shelf Registration Statement as may be necessary to comply
with the provisions of the Securities Act with respect to the disposition of all
securities covered by such Shelf Registration Statement and notify the Holders
of the filing and effectiveness of such Shelf Registration Statement and any
amendments or supplements.
(iii) Furnish such numbers of copies of a current prospectus
conforming with the requirements of the Securities Act, copies of the Shelf
Registration Statement, any amendment or supplement thereto and any documents
incorporated by reference therein and such other documents as such Holders may
reasonably require in order to facilitate the disposition of shares of AMSC
Common Stock owned by such Holders.
(iv) Use its best efforts to register and qualify, as
expeditiously as reasonably possible, the securities covered by such Shelf
Registration Statement under such other securities or "Blue Sky" laws of such
jurisdictions in the United States as shall be reasonably requested by the
Holders; provided that AMSC shall not be required in connection therewith or as
a condition thereto to qualify to do business or to file a general consent to
service of process in any such states or jurisdictions.
(v) Notify the Holders immediately of the happening of any event
as a result of which the prospectus (including any supplements thereto or
thereof) included in such Shelf Registration Statement, as then in effect,
includes an untrue statement of material fact or omits to state a material fact
required to be stated therein or necessary to make the statements therein not
misleading in light of the circumstances then existing, and use its best efforts
to promptly update and/or correct such prospectus.
(vi) Notify the Holders immediately of the issuance by the SEC or
any state securities commission or agency of any stop order suspending the
effectiveness of the Shelf Registration Statement or the initiation of any
proceedings for that purpose. AMSC shall use its best efforts to prevent the
issuance of any stop order and, if any stop order is issued, to obtain the
lifting thereof at the earliest possible time.
(vii) Use its best efforts to list, as expeditiously as reasonably
possible, the shares of AMSC Common Stock covered by such Shelf Registration
Statement with all securities exchange(s) and/or markets on which the AMSC
Common Stock is then listed and prepare and file any required filings with the
National Association of Securities Dealers, Inc. or any securities exchange or
market on which shares of AMSC Common Stock are traded.
(viii) Take all steps reasonably necessary to enable the Holders to
avail themselves of the prospectus delivery mechanism set forth in Rule 153 (or
successor thereto) under the Act, provided, however, that nothing shall require
AMSC to list AMSC Common Stock on any securities exchange or market on which
shares of AMSC Common Stock are not then traded.
(b) Blackout Periods. During any consecutive 365-day period,
AMSC may suspend the effectiveness of the Shelf Registration Statement on two
occasions to extend no
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longer than reasonably necessary and in no event more than 30 consecutive days,
separated, in each case, by at least 60 days from any prior blackout period, if
there is a possible acquisition or business combination or other transaction,
business development or event involving AMSC that may require disclosure in the
Shelf Registration Statement and the Board of Directors of AMSC determines in
the good faith exercise of its reasonable judgment that such disclosure is not
in the best interests of AMSC and its stockholders or obtaining any financial
statements relating to an acquisition or business combination required to be
included in the Shelf Registration Statement would be impracticable. In such a
case, AMSC shall promptly notify the Holders of the suspension of the Shelf
Registration Statement's effectiveness, provided that such notice shall not
require AMSC to disclose the possible acquisition or business combination or
other transaction, business development or event if the Board of Directors of
AMSC determines in good faith that such acquisition or business combination or
other transaction, business development or event should remain confidential.
Upon the abandonment, consummation, or termination of the possible acquisition
or business combination or other transaction, business development or event, or
the availability of the required financial statements with respect to a possible
acquisition or business combination, the suspension of the use of the Shelf
Registration Statement pursuant to this Section 3.4(b) shall cease and AMSC
shall promptly notify the Holders that disposition of Acquired AMSC Stock may be
resumed.
(c) Piggyback and Demand Registration Rights. Except as set
forth herein, at any time following the Closing Date, whenever AMSC proposes to
register any of its securities in an underwritten offering under the Securities
Act and the registration form to be used may be used for the registration of the
Acquired AMSC Stock (a "Piggyback Registration"), whether or not for sale for
its own account, AMSC shall give prompt written notice to the Holders of its
intention to effect such a registration, and shall include in such registration
all Acquired AMSC Stock with respect to which AMSC has received written requests
for inclusion therein from any Holders within 15 days after the receipt of
AMSC's notice, provided that no such notice shall be required and AMSC shall
have no obligation to provide piggyback registration rights to any Holder if
AMSC stockholders with priority with respect to piggyback registration rights
have exercised such rights and the managing underwriter of such offering advises
AMSC in writing that the inclusion of the securities held by the stockholders
with priority with respect to piggyback registration rights and requested to be
included in the offering, or the inclusion of any securities in addition to such
securities held by the stockholders with priority with respect to piggyback
registration rights, would adversely affect the marketability of such offering,
or, upon expiration or termination of the Registration Rights Agreements (as
defined below), the managing underwriter of any such offering advises AMSC in
writing that the inclusion of securities by the Holders would, in the good faith
judgment of such underwriter, adversely affect the marketability of such
offering. AMSC shall in any event have no obligation to provide piggyback
registration rights to any Holder if the managing underwriter of the relevant
offering advises AMSC that the inclusion in the offering of the Acquired AMSC
Stock held by the Holder would adversely affect the marketability of such
offering. The Piggyback Registration described in this Section 3.4(c) shall in
all events be subject and subordinate to the registration rights provided for
(i) in the Amended and Restated Registration Rights Agreement dated as of March
31, 1998, as amended through the date hereof, by and among AMSC, Hughes
Electronics Corporation, Singapore Telecommunications Ltd. and Baron Capital
Partners, L.P., (ii) the Registration Rights Agreement dated as of March 31,
1998 by and between Motorola, Inc and AMSC, as amended through the date hereof,
including the rights to priority on inclusion of
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shares of AMSC Common Stock set forth therein, and (iii) the Registration Rights
Agreement by and among AMSC, Toronto Dominion Investments, Inc., Morgan Guaranty
Trust Company of New York and Hughes Communications Satellite Services, Inc.,
amended and restated as of April 19, 1996, as further amended and restated
through the date hereof (collectively, the "Registration Rights Agreements").
Other than the registration rights granted pursuant to the Registration Rights
Agreements, AMSC has not granted, and will not grant, to any person any
piggyback rights with priority over the rights granted to Holders hereunder.
Notwithstanding the foregoing, the Holders shall not be entitled to Piggyback
Registration in connection with the first underwritten offering by AMSC
following the Closing Date. Commencing upon the later of 24 months following the
Closing Date or the exercise or expiration of all demand rights under the
Registration Rights Agreements, but in no event later than 36 months after the
Closing Date, irrespective of whether all demand rights under the Registration
Rights Agreements have been exercised or expired, the Holders shall be entitled
to two underwritten demand registrations by AMSC with the SEC on customary terms
and procedures, subject to the right of the AMSC Board of Directors to delay
such registration for no more than 90 days upon the good faith determination
that such registration is not in the best interests of AMSC at that time. AMSC
shall not amend any of its existing registration rights agreement nor enter into
any new registration rights agreement granting registration rights that are
equal to or have priority over any of the rights granted to the Holders under
this Article 3.
(d) Rule 144. The WorldSpace Stockholders shall otherwise have no
registration rights with respect to the AMSC Common Stock held by them, but may
at any time, subject to the requirements of Section 3.1(b) hereof, offer, sell
or transfer the AMSC Common Stock held by them in accordance with the
requirements in Rule 144 under the Securities Act. AMSC shall make and keep
public information available, as those terms are understood and defined under
Rule 144, so as to make such Rule available to the Holders.
(e) Notice to Holders. AMSC's obligation to provide notice to any
Holder hereunder shall be satisfied if AMSC provides written notice to XM
Ventures and to such Holder addressed to the most recent address provided for
such Holder by XM Ventures in writing to AMSC.
(f) Eligibility. The registration rights described in this Section
3.4 shall not be available to any Holder who is not at the time a WorldSpace
Stockholder or an Option Holder.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES
OF WORLDSPACE
WorldSpace represents and warrants to AMSC and XM Holdings that:
4.1 Corporate Existence and Power.
(a) WorldSpace is a corporation duly organized, validly existing
and in good standing under the laws of its jurisdiction of incorporation; and
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(b) WorldSpace has the corporate power and authority to execute,
deliver and perform its obligations under this Agreement.
4.2 Due Authorization; No Contravention.
The execution, delivery and performance by WorldSpace of this Agreement
have been duly authorized by all necessary corporate action, other than the
approval of the stockholders of WorldSpace contemplated by Section 4.5, and do
not and will not:
(a) Breach or violate the terms of the charter or bylaws of
WorldSpace or the terms of any contract to which WorldSpace is a party or by
which it is bound; or
(b) Violate any law or regulation applicable to WorldSpace.
4.3 Binding Effect. This Agreement has been duly authorized,
except for the approval of the stockholders of WorldSpace contemplated by
Section 4.5, executed and delivered by WorldSpace and constitutes the legal,
valid and binding obligation of it enforceable against it in accordance with the
terms hereof, subject to bankruptcy, insolvency, moratorium, reorganization,
fraudulent transfer and other laws affecting creditors' rights generally and to
equitable principles.
4.4 Consents. No consents or approvals of, or filings or
registrations with, any public body or authority are necessary, other than
possible pre-acquisition notification filings required under the
Hart-Scott-Rodino Improvements Acts of 1976, as amended ("HSR Act"), with
respect to the transactions contemplated hereby, and no consents or approvals of
any third parties are necessary in connection with the execution and delivery of
this Agreement by WorldSpace or the consummation by WorldSpace of the
transactions contemplated hereby.
4.5 Board and WorldSpace Stockholder Approvals. This Agreement and
the consummation of the transactions contemplated hereby have been approved by
all necessary action on the part of the Board of Directors of WorldSpace. The
Board of Directors of WorldSpace has adopted a resolution declaring the
transaction advisable, has recommended that the WorldSpace stockholders approve
this Agreement and the transactions contemplated hereby, and has called a
meeting of WorldSpace stockholders to approve this Agreement and the
transactions contemplated hereby in accordance with Section 7.10.
4.6 WorldSpace Stockholders. As of the date hereof, WorldSpace has
delivered an agreement or agreements to AMSC executed by WorldSpace stockholders
entitled to vote at least 50% of the issued and outstanding shares of WorldSpace
common stock. In such agreements, the stockholders agree to vote in favor of
this Agreement and the transactions contemplated hereby. The percentage of
WorldSpace stockholders who have executed such agreements in favor of AMSC shall
be sufficient under the charter and bylaws of WorldSpace and applicable law to
constitute the approval required by Section 4.5 above. Such WorldSpace
stockholders shall continue to hold, on the date of the vote of WorldSpace
stockholders with respect to this Agreement and the transaction contemplated
hereby, at least 50% of the shares of WorldSpace common stock eligible to vote
thereon.
4.7 Ownership of XM Interest. The Transferred XM Stock constitutes
all of the XM Holdings Common Stock held of record or beneficially by
WorldSpace, and WorldSpace has no
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options to purchase or acquire any XM Holdings Common Stock other than those
included in the XM Interest and otherwise has no right, title or interest in XM
Holdings, other than the $75 Million Portion. WorldSpace owns of record and
beneficially the Transferred XM Stock, with good and marketable title thereto
free and clear of all liens, claims or encumbrances. WorldSpace owns all of the
other assets constituting the XM Interest free and clear of all liens, claims or
encumbrances. Immediately after the Closing, AMSC shall have good and marketable
title in and to the XM Interest, free and clear of all liens, claims or
encumbrances. WorldSpace shall have no ownership or other economic interest in
XM Holdings immediately after the Closing other than those specified in a letter
delivered by WorldSpace to AMSC and XM Holdings as of the date hereof.
4.8 Access, Sophistication.
(a) WorldSpace has been provided copies of all reports and
registration statements filed by AMSC with the SEC pursuant to U.S. federal
securities laws since December 31, 1998 ("AMSC SEC Documents"), and has reviewed
such documents and has relied only on (i) statements and information contained
therein and (ii) the representations, warranties, terms and conditions of this
Agreement. WorldSpace will advise the WorldSpace Stockholders in its proxy
statement of the availability for review by each WorldSpace Stockholder of each
AMSC SEC Document.
(b) All documents, books and records requested by WorldSpace
pertaining to AMSC have been made available for inspection by WorldSpace and its
agents and representatives, and WorldSpace and its agents and representatives
have had a reasonable opportunity to ask questions of and receive answers from
AMSC or officers or employees acting on behalf of AMSC concerning the terms and
conditions of the issuance to XM Ventures of the AMSC Common Stock pursuant to
this Agreement (the "AMSC Acquired Stock") and the business and prospects of
AMSC. WorldSpace and its agents and representatives have such knowledge and
experience in financial and business matters as to enable them to utilize the
information made available to them in connection with the transactions
contemplated hereby, to evaluate the merits and risks of the issuance by AMSC to
XM Ventures of the Acquired AMSC Stock pursuant to Article 2 hereof, and to make
an informed decision with respect thereto and such an evaluation and informed
decision have been made.
4.9 Investment Representation. WorldSpace acknowledges that the
shares of AMSC Common Stock to be acquired by XM Ventures will not have been
registered under the Securities Act or any state or other jurisdiction's
securities laws. WorldSpace further acknowledges that the shares of AMSC Common
Stock must be held indefinitely by XM Ventures and may not be sold or
transferred, except in accordance with the terms of the legend set forth below.
WorldSpace will advise each WorldSpace Stockholder in its proxy statement of
these restrictions. WorldSpace acknowledges that the certificate or certificates
for shares of AMSC Common Stock will bear a legend substantially to the effect
set forth below and that a stop transfer order may be placed with respect
thereto.
THE SHARES OF COMMON STOCK REPRESENTED BY
THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR
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ANY APPLICABLE SECURITIES LAWS OR ANY
JURISDICTION AND MAY NOT BE TRANSFERRED UNTIL
(A) A REGISTRATION UNDER SUCH SECURITIES ACT
AND SUCH APPLICABLE SECURITIES LAWS SHALL HAVE
BECOME EFFECTIVE WITH REGARD THERETO OR (B) IN
THE OPINION OF COUNSEL REASONABLY ACCEPTABLE
TO THE COMPANY, REGISTRATION UNDER SUCH
SECURITIES ACT AND SUCH APPLICABLE SECURITIES
LAWS IS NOT REQUIRED IN CONNECTION WITH SUCH
PROPOSED TRANSFER.
AMSC shall, upon presentation of a certificate representing
shares of AMSC Common Stock with respect to which the foregoing restriction is
not applicable, together with such evidence of such nonapplicability as AMSC may
reasonably request, promptly cause to be issued a replacement certificate for
such shares of AMSC Common Stock without the restrictive legend.
4.10 Tax and Other Consequences. WorldSpace has not relied in any
way upon any statement or representation by AMSC, XM Holdings, or their
advisors, relating to any tax and other valuation consequences arising from the
transactions contemplated by this Agreement. WorldSpace has not represented to
any WorldSpace Stockholder that WorldSpace has relied upon any such statement or
representation by AMSC, XM Holdings, or their advisors.
ARTICLE 5
REPRESENTATIONS AND WARRANTIES OF AMSC
AMSC hereby represents and warrants to WorldSpace and XM Holdings
that:
5.1 Corporate Existence and Power.
(a) AMSC is a corporation duly organized, validly existing and
in good standing under the laws of its jurisdiction of incorporation.
(b) AMSC has the corporate power and authority to execute,
deliver, and perform its obligations under this Agreement.
5.2 Capital Structure. AMSC's authorized capital stock consists of
75 million shares of AMSC Common Stock, of which 32,332,824 were issued and
outstanding and none were held in treasury as of April 21, 1999, and 200,000
shares of AMSC Preferred Stock, none of which were issued and outstanding as of
April 21, 1999. All of the outstanding shares of AMSC Common Stock have been,
and all of the shares of Acquired AMSC Common Stock will be as of the date of
issuance of such shares, duly authorized, and validly issued, fully paid and
non-assessable. No shares of capital stock are, and no shares of Acquired Common
Stock shall as of the date of issuance of such shares be, entitled to preemptive
rights. As of April 21, 1999, 3,812,536 shares of AMSC Common Stock were
reserved for issuance upon the exercise of outstanding options and under other
employee
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benefit plans and 7,821,259 shares of AMSC Common Stock were reserved for
issuance upon the exercise of outstanding warrants. There are no other scrip,
rights to subscribe to, calls or commitments of any character whatsoever
relating to, or securities or rights exchangeable for or convertible into, any
shares of capital stock of AMSC, or contracts, commitments, understandings, or
arrangements by which AMSC is or may become bound to issue additional shares of
capital stock of AMSC or options, warrants, scrip, rights to subscribe to, or
commitments to purchase or acquire, any shares or securities or rights
convertible or exchangeable into shares, of capital stock of AMSC, and there
shall be no such rights relating to any shares of Acquired AMSC Common Stock as
of the date of issuance of such shares.
5.3 Due Authorization; No Contravention. The execution, delivery
and performance by AMSC of this Agreement have been duly authorized by all
necessary corporate action, other than the approval of the AMSC stockholders
contemplated by Section 2.2(c), and do not and will not:
(a) Breach or violate the terms of the Certificate of
Incorporation or bylaws of AMSC or the terms of any contract to which AMSC is a
party or by which it is bound; or
(b) Violate any law or regulation applicable to AMSC, including
but not limited to the rules and regulations promulgated from time to time by
the FCC.
5.4 Binding Effect. This Agreement has been duly authorized,
except for the approval of the stockholders of AMSC contemplated by Section
2.2(c) (which approval is not a condition to the Closing), executed and
delivered by AMSC and constitutes the legal, valid and binding obligation of
AMSC enforceable against it in accordance with the terms hereof, subject to
bankruptcy, insolvency, moratorium, reorganization, fraudulent transfer and
other laws affecting creditors' rights generally and to equitable principles.
5.5 Consents. No consents or approvals of, or filings or
registrations with, any public body or authority are necessary, other than
possible pre-acquisition filings required under the HSR Act with respect to the
transactions contemplated hereby, and no consents or approvals of any third
parties are necessary, in connection with the execution and delivery of this
Agreement by AMSC or the consummation by AMSC of the transactions contemplated
by this Agreement.
5.6 Tax and Other Consequences. AMSC has not relied in any way
upon any statement or representation by any of the other parties hereto, or
their advisors, relating to any tax and other valuation consequences arising
from the transactions contemplated by this Agreement.
5.7 Commission Filings. AMSC has filed with the SEC all forms,
reports, schedules, statements and other documents required to be filed by it
since December 31, 1996 (as supplemented and amended since the time of filing,
collectively, the "SEC Reports"), each of which complied when filed in all
material respects with all applicable requirements of the Securities Act and the
Exchange Act as of the time of such filings. None
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of the SEC Reports as of the time of such filings contained any untrue statement
of a material fact or omitted to state a material fact required to be stated
therein or necessary in order to make the statements therein, in light of the
circumstances in which they were made, not misleading.
5.8 Compliance With Law. Except as set forth in its SEC Reports,
AMSC has not and is not conducting its business in violation of any law,
regulation, judgment, order, decree, injunction, arbitration award, license,
authorization, opinion, agency requirement or permit of any governmental entity,
except for violations or possible violations that, individually or in the
aggregate, are not reasonably likely to have a material adverse effect on AMSC.
AMSC has all permits, licenses and franchises from governmental agencies
required to conduct its business as it is now being conducted, except for such
permits, licenses and franchises, the absence of which, individually or in the
aggregate, would not have a material adverse effect on AMSC.
5.9 AMSC Stockholders. The AMSC stockholders who will be
delivering at the Closing an agreement in the form delivered by AMSC to
WorldSpace on the date hereof relating to the AMSC Stockholder Approval own, in
the aggregate, at least 50% of the outstanding shares of AMSC Common Stock,
which percentage is sufficient to constitute a valid action of the holders of
AMSC Common Stock under the certificate of incorporation and bylaws of AMSC and
applicable law and under Nasdaq NMS Rule 4460(i). Such stockholders shall
continue to hold, on the date of the vote of AMSC stockholders with respect to
the AMSC Stockholder Approval, at least a majority of the shares of AMSC Common
Stock entitled to vote thereon.
ARTICLE 6
REPRESENTATIONS AND WARRANTIES OF XM HOLDINGS
XM Holdings hereby represents and warrants to WorldSpace and AMSC that:
6.1 Corporate Existence and Power.
(a) XM Holdings is a corporation duly organized, validly
existing and in good standing under the laws of its jurisdiction of
incorporation; and
(b) XM Holdings has the corporate power and authority to
execute, deliver and perform its obligations under this Agreement.
6.2 Due Authorization; No Contravention. The execution, delivery
and performance by XM Holdings of this Agreement have been duly authorized by
all necessary corporate action, and do not and will not (i) breach or violate
the terms of the articles of incorporation or bylaws of XM Holdings or the terms
of any contract to which XM Holdings is a party or by which it is bound; or (ii)
violate any law or regulation applicable to XM Holdings.
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6.3 Binding Effect. This Agreement has been duly authorized,
executed and delivered by XM Holdings and constitutes the legal, valid and
binding obligation of it enforceable against it in accordance with the terms
hereof, subject to bankruptcy, insolvency, moratorium, reorganization,
fraudulent transfer and other laws affecting creditors' rights generally and to
equitable principles.
6.4 Consents. No consents or approvals of, or filings or
registrations with, any public body or authority are necessary, and no consents
or approvals of any third parties are necessary, in connection with the
execution and delivery of this Agreement by XM Holdings or the consummation by
XM Holdings of the transactions contemplated hereby.
ARTICLE 7
COVENANTS
7.1 Applications and Notices. As promptly as practicable after the
date hereof, the parties hereto shall submit any applications, notices or other
filings to any state or federal government agency, department or body, the
approval of which is required for consummation of the transactions contemplated
hereby. Without limiting the generality of the foregoing, the parties shall use
their best efforts to cooperate in good faith (i) to file no later than June 11,
1999 any pre-acquisition notification filings, if required, under the HSR Act
with respect to the transactions contemplated hereby, and (ii) to obtain as soon
as practicable early termination of any such filings.
7.2 Cooperation.
(a) The parties hereto shall each use its commercially
reasonable efforts in good faith to take or cause to be taken all action
necessary or desirable on its part so as to permit consummation of the
transactions contemplated hereby at the earliest possible date, including
seeking to obtain any necessary shareholder approval. No party hereto shall
take, or cause or to the best of its ability permit to be taken, any action that
would impair the prospects of completing the transactions contemplated hereby.
(b) Noah Samara shall use his commercially reasonable efforts in
good faith to provide relevant information in response to such requests that
AMSC may reasonably make in connection with AMSC's compliance with applicable
SEC and FCC laws, rules and regulations, including without limitation rules and
regulations relating to alien ownership.
7.3 Press Release. The parties hereto shall agree with each other
as to the form and substance of any press release and other public disclosures
related to this Agreement or the transactions contemplated hereby; provided,
however, that nothing contained herein shall prohibit any party hereto from
making any disclosure which its counsel deems necessary to comply with
applicable law.
7.4 Non-Competition. (a) WorldSpace agrees not to compete directly
or indirectly in the United States with the digital audio radio service business
of AMSC (the "DARS
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Business"), XM Holdings, or any successor to XM Holdings owned or controlled by
AMSC for so long as XM Ventures and Noah Samara Beneficially Own, directly or
indirectly, in the aggregate more than 10% of the then outstanding shares of
AMSC Common Stock and for a period of three years thereafter.
(b) Noah Samara agrees not to compete directly or indirectly
with the DARS Business in the United States of AMSC, XM Holdings, or any
successor to XM Holdings owned or controlled by AMSC for a period beginning on
the Closing Date and ending on the earlier of (i) the third anniversary of the
Closing, or (ii) such time as Noah Samara is no longer an employee, officer, or
director of WorldSpace or any affiliate of WorldSpace. For a period of three
years following the Closing, Noah Samara (the "receiving party") shall treat
confidentially and shall not disclose to any third party, without the prior
written consent of XM Holdings, any non-public information proprietary to XM
Holdings ("XM Confidential Information"). The confidentiality provisions of the
foregoing sentence shall not apply to information proprietary to, or developed
by, WorldSpace or WorldSpace International Network Inc. or any affiliate of
WorldSpace or WorldSpace International Network Inc. Information will not be
considered to be "XM Confidential Information" if it: (i) was known to the
receiving party before receipt thereof from XM Holdings; (ii) is disclosed to
the receiving party by a third party who has a right to make such disclosure;
(iii) is or becomes part of the public domain through no fault of the receiving
party; or (iv) is independently developed by the receiving party, WorldSpace,
WorldSpace International Network, Inc. or any affiliate of any of them without
dependence on any XM Confidential Information.
7.5 Definitive Agreement. The parties hereto specifically agree
and intend that this Agreement is and shall be construed as a definitive
agreement enforceable in accordance with its terms, including the required
satisfaction of the conditions precedent in Article 8 hereof, and have entered
into this Agreement intending to be bound by those terms. If there is any
disagreement as to any documentation referenced in this Agreement to be prepared
and executed on or prior to the Closing, then the unresolved terms of such
documentation shall not be deemed to be material so as to prevent enforcement of
this Agreement, and shall be determined in accordance with the dispute
resolution provision set forth in Section 9.5 hereof.
7.6 XM Ventures. WorldSpace shall cause XM Ventures to be formed
consistent with the terms of this Agreement, and upon its formation, to become a
party hereto at or before the Closing and to make the following representations
and warranties to AMSC and XM Holdings:
(a) Existence and Power.
(i) XM Ventures has been duly formed and is validly
existing under the laws of the jurisdiction of its organization.
(ii) XM Ventures has the power and authority to execute,
deliver and perform its obligations under this Agreement.
20
<PAGE> 21
(b) Due Authorization; No Contravention. The execution, delivery
and performance of this Agreement by XM Ventures have been duly authorized by
all necessary action, and do not and will not:
(i) Breach or violate the terms of any provision of the
organization documents of XM Ventures or other governing documents of XM
Ventures, or any contract to which XM Ventures is a party or by which it is
bound; or
(ii) Violate any requirement of law applicable to XM
Ventures.
(c) Binding Effect. This Agreement has been duly authorized,
executed and delivered by XM Ventures and constitutes the legal, valid and
binding obligation of it enforceable against it in accordance with the terms
hereof, subject to bankruptcy, insolvency, moratorium, reorganization,
fraudulent transfer and other laws affecting creditors' rights generally and to
equitable principles.
(d) Ownership of XM Interest. Upon transfer of the XM Interest
from WorldSpace, XM Ventures owns all of the assets constituting the XM Interest
free and clear of all liens, claims or encumbrances. Following the Closing, AMSC
shall have good and marketable title in and to the XM Interest.
(e) Investment Representation. XM Ventures is acquiring the
shares of AMSC Common Stock for its own account and not with a view to
distribution thereof and has no present intention to sell the shares of AMSC
Common Stock in violation of any securities laws, provided, however, that in
making the representation set forth herein, XM Ventures does not agree to hold
the shares of AMSC Common Stock for any minimum or other specific term and
reserves the right to dispose of the shares of AMSC Common Stock in accordance
with the terms of this Agreement. XM Ventures agrees that the shares of AMSC
Common Stock that it acquires shall bear a legend in the form set forth in
Section 4.7 hereof.
(f) WorldSpace Representations and Warranties. The
representations and warranties of WorldSpace set forth in Article 4 hereof are
accurate and correct in all material respects on and as of the Closing Date.
7.7 Distributions. All distributions of AMSC Acquired Stock by XM
Ventures, including, without limitation, the determination of the recipients of
and the amount of any distribution, shall be in compliance with the terms of
this Agreement and all applicable laws and regulations and shall not violate,
conflict with, or result in a breach of any provision of any agreement to which
XM Ventures or any of its assets may be subject.
7.8 AMSC Stockholder Agreement. AMSC will execute the agreement
referenced under Section 2.3(b)(iv) hereof.
7.9 AMSC Stockholder Meeting; Filings. AMSC will take all actions
required to be taken by it with respect to the AMSC Stockholder Approval under
Sections 2.2(c), and with
21
<PAGE> 22
respect to SEC filings under Section 3.4. AMSC will provide WorldSpace a
reasonable opportunity (in no event more than three Business Days) to review and
comment upon any disclosure in any AMSC proxy statement associated with the AMSC
Stockholder Approval to the extent such disclosure relates to WorldSpace,
WorldSpace Stockholders, WorldSpace International Network Inc. or WorldSpace
International Network Inc. stockholders.
7.10 WorldSpace Stockholders Meeting. WorldSpace will use its
commercially reasonable efforts to take, in accordance with applicable law and
its charter and bylaws, all action necessary to convene a meeting of WorldSpace
Stockholders or otherwise seek consent to obtain approval by WorldSpace
Stockholders of the transactions contemplated hereby (the "WorldSpace
Stockholder Approval") no later than June 23, 1999; provided, however that so
long as WorldSpace is making such efforts, WorldSpace shall not be in breach of
this provision until July 15, 1999. WorldSpace shall deliver a copy of this
Agreement to each of the WorldSpace Stockholders in connection with seeking such
stockholders' consent or approval.
7.11 AmeriSpace. WorldSpace will use commercially reasonable
efforts to implement as expeditiously as reasonably possible following the
Closing the terms of the letter relating to AmeriSpace in the form delivered by
WorldSpace and WorldSpace International to AMSC on the date hereof, and will not
take any actions contrary or inconsistent with the commitments and intent of the
parties expressed in such letter.
7.12 Reporting. AMSC and XM Holdings covenant and agree (i) to
treat and report for tax purposes the exchange of the Transferred XM Stock, the
XM Convertible Note, and the XM Options for AMSC Common Stock as a tax-free
reorganization under Section 368(a)(1)(B) of the Internal Revenue Code, (ii) to
treat and report for tax purposes the redemption by XM Holdings of the $75
Million Portion, as a retirement of a portion of the principal amount of the
Bridge, Additional Amounts and Working Capital Loans issued by WorldSpace to
AMRC Holdings pursuant to the Bridge, Additional Amounts and Working Capital
Credit Facility dated as of May 16, 1997 among AMRC Holdings, AMRC, AMSC and
WorldSpace, as amended by Amendment No. 1 to the Bridge, Additional Amounts and
Working Capital Credit Facility dated as of the date hereof, and (iii) to treat
and report for tax purposes the exchange of the remaining balance of such loans
for AMSC Common Stock as a retirement of the outstanding principal balance
thereof and accrued and unpaid interest on such loans. Neither AMSC nor XM
Holdings will take any action in connection with any audit or other proceeding
with the Internal Revenue Service or any state or local taxing authority that is
inconsistent with the foregoing undertakings.
ARTICLE 8
CONDITIONS PRECEDENT
8.1 Conditions Precedent - AMSC. The obligations of AMSC to
consummate the transactions contemplated by this Agreement shall be subject to
satisfaction of the following conditions at or prior to the Closing unless
waived by AMSC:
22
<PAGE> 23
(a) The representations and warranties of WorldSpace and XM
Ventures set forth in Article 4 and Section 7.6 hereof, respectively, shall be
true and correct in all material respects as of the date of this Agreement and
as of the Closing Date as though made on and as of the Closing Date; and
(b) WorldSpace shall have in all material respects performed all
obligations and complied with all covenants required by this Agreement to be
performed or complied with by it at or prior to the Closing.
8.2 Conditions Precedent -- WorldSpace. The obligations of WorldSpace
to consummate the transactions contemplated by this Agreement shall be subject
to satisfaction of the following conditions at or prior to the Closing unless
waived by WorldSpace:
(a) The representations and warranties of AMSC and of XM
Holdings set forth in Articles 5 and 6 hereof, respectively, shall be true and
correct in all material respects as of the date of this Agreement and as of the
Closing Date as though made on and as of the Closing Date;
(b) AMSC and XM Holdings shall have in all material respects
performed all of the respective obligations and complied with all of the
respective covenants required by this Agreement to be performed or complied with
by them at or prior to the Closing;
(c) WorldSpace shall have received the agreement referenced
under Section 2.3(b)(iv) hereof;
(d) WorldSpace shall have received the WorldSpace Stockholder
Approval as described under Section 7.10 hereof;
(e) WorldSpace shall have received a payment in cash from XM
Holdings of $75 million in connection with the retirement of the $75 Million
Portion; and
(f) The four operational agreements between XM Satellite Radio,
Inc. on the one hand, and each of DIRECTV, Inc., Clear Channel Communications,
Inc., Telecom Ventures and WorldSpace, respectively, executed as of the date of
this Agreement shall be in full force and effect.
8.3 Conditions Precedent -- AMSC and WorldSpace. The respective
obligations of the parties hereto to consummate the transactions contemplated
hereby shall be subject to satisfaction or waiver of the following conditions at
or prior to the Closing:
(a) Regulatory Approvals. The parties hereto shall have received
all regulatory approvals required in connection with the transactions
contemplated by this Agreement and all notice periods and waiting periods
required after the granting of any such approvals shall have passed.
23
<PAGE> 24
(b) No Prohibition. None of the parties hereto shall be subject
to any order, decree or injunction of a court or agency of competent
jurisdiction that enjoins or prohibits consummation of the transactions
contemplated by this Agreement.
(c) XM Holdings Investment. The Investment Agreement and
Distribution Agreement by and among General Motors Corporation, Clear Channel
Communication Inc. and DIRECTV, Inc. executed as of the date hereof shall be in
full force and effect, and the closing of the financings under such agreements
shall have taken place prior to or simultaneously with the Closing hereunder.
ARTICLE 9
MISCELLANEOUS
9.1 Survival. The representations and warranties of the parties
set forth in Articles 4, 5 and 6, and the covenants set forth in this Agreement
shall survive the Closing.
9.2 Obligations to Obtain Stockholder Approval.
(a) AMSC's obligation to deliver to XM Ventures the Second
Transfer shall not be subject to any condition other than the AMSC Stockholder
Approval, which is the sole condition to such obligation. Upon receipt of the
AMSC Stockholder Approval, the obligation of AMSC to deliver to XM Ventures the
Second Transfer on a timely basis shall be absolute and unconditional, and shall
not be subject to any counterclaims, right of setoff, deduction, diminution,
recoupment or defense of any kind. Any failure by AMSC to obtain the AMSC
Stockholder Approval shall have no effect on the survival of the representations
and warranties of AMSC under Article 5 hereof or the covenants of AMSC under
Articles 2 and 7, and Section 9.2(a) hereof, nor shall it render any
representation or warranty void or voidable or otherwise excuse the performance
by AMSC of the covenants set forth in Articles 2 or 7, and Section 9.2(a)
hereof. In the event AMSC breaches any of its representations, warranties or
covenants relating to the AMSC Stockholder Approval, WorldSpace shall have a
cause of action against AMSC for damages caused by such breach, and AMSC shall
indemnify WorldSpace against all reasonable costs and expenses (including legal
fees) incurred by WorldSpace in prosecuting such action.
(b) Any failure by WorldSpace to obtain the WorldSpace
Stockholder Approval shall have no effect on the survival of the representations
and warranties of WorldSpace under Article 4 hereof or the covenants of
WorldSpace under Article 7 hereof, nor shall it render any representation or
warranty void or voidable or otherwise excuse the performance by WorldSpace of
the covenants set forth in Articles 7 hereof. In the event WorldSpace breaches
any of its representations, warranties or covenants relating to the WorldSpace
Stockholder Approval, AMSC shall have a cause of action against WorldSpace for
damages caused by such breach, and WorldSpace shall indemnify AMSC against all
reasonable costs and expenses (including legal fees) incurred by AMSC in
prosecuting such action.
24
<PAGE> 25
9.3 Counterparts. This Agreement may be executed in any number of
separate counterparts, each of which, when so executed, shall be deemed an
original, and all of said counterparts taken together shall be deemed to
constitute but one and the same instrument.
9.4 Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF DELAWARE.
9.5 Arbitration.
(a) The parties irrevocably consent to the exclusive
jurisdiction of arbitration in Washington, D.C. in accordance with the Expedited
Arbitration Rules of JAMS/Endispute for all purposes in connection with any
action or proceeding that arises out of or relates to this Agreement
(collectively, the "Proceedings"). The parties hereby agree that service of
summons, complaint, or other process in connection with any Proceedings may be
made as set forth in the Exchange Agreement with respect to service of notices,
and that service so made shall be effective as if personally made in the State
of Delaware.
(b) The arbitrators may issue any order for interim relief as
may be necessary to safeguard the property that is the subject of the
Proceedings, including without limitation, ordering the parties to take such
action as the arbitrator deems appropriate. In the event that the parties apply
to an arbitrator for interim relief, and such relief is not awarded, the parties
shall be at liberty to apply for relief to any competent judicial authority for
interim or conservatory measures, and they shall not by doing so be held to
infringe the agreement to arbitrate or to affect the relevant powers reserved to
the arbitrators. The arbitrators also have the power to award final relief of an
injunctive or declaratory nature, including the power to determine unresolved
terms in the closing documentation and to order the parties to perform in
accordance with such terms.
(c) Each of the parties hereto acknowledges that (i) it has
freely agreed that all Proceedings will be heard in accordance with this Section
9.5, (ii) the agreement to choose arbitration in Washington, D.C. in accordance
with the Expedited Arbitration Rules of JAMS/Endispute to hear all Proceedings
is reasonable and will not place such party at a disadvantage or otherwise deny
it its day in court, (iii) it is a knowledgeable, informed, sophisticated person
or business entity capable of understanding and evaluating the provisions set
forth in this Agreement, including this Section 9.5, and (iv) has been
represented by such counsel and other advisors of its choosing as it has deemed
appropriate in connection with its decision to enter into this Agreement,
including this Section 9.5.
9.6 Entire Agreement. This Agreement embodies the entire agreement
and understanding between the parties hereto with respect to the subject matter
hereof, and supersedes all prior or contemporaneous agreements and
understandings of such parties, verbal or written, relating to the subject
matter hereof and thereof and no representations or warranties are made by any
party hereto relating to the subject matter hereof except as set forth in this
Agreement.
25
<PAGE> 26
9.7 Interpretation. The headings of the Articles and Sections
herein are inserted for convenience of reference only and are not intended to be
a part of or to affect the meaning or interpretation of this Agreement.
9.8 Assignment. No party hereto shall assign or transfer its
interests hereunder without the prior written consent of the other parties
hereto.
9.9 Confidentiality. The parties hereto agree to maintain the
confidentiality hereof until such time as they may otherwise agree or as
required by law.
[SIGNATURES BEGIN ON THE NEXT PAGE]
26
<PAGE> 27
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and delivered by their proper and duly authorized directors,
officers or representatives as of the day and year first above written.
AMERICAN MOBILE SATELLITE
CORPORATION
By: /s/Gary M. Parsons
-------------------------------------
Name: Gary M. Parsons
Title: Chairman
WORLDSPACE, INC.
By: /s/Noah Samara
------------------------------------
Name: Noah Samara
Title: Chairman & CEO
XM SATELLITE RADIO HOLDINGS INC.
By: /s/Hugh Panero
------------------------------------
Name: Hugh Panero
Title: President & CEO
Noah A. Samara agrees to be a signatory to this Agreement solely with respect to
Sections 3.1(b), 3.2(a), 7.2(b), 7.4(b), 7.5, and Article 9 (other than Section
9.2).
NOAH A. SAMARA
/s/Noah A. Samara
----------------------------------------
27
<PAGE> 28
Accepted and Agreed as of
[the Closing Date]:
[XM VENTURES]
By:
Name:
Title:
1
<PAGE> 1
Exhibit 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the
incorporation of our report included in this Form 8-K into the Company's
previously filed registration statements on Form S-3, File Nos. 333-81459 and
333-71423, and the Company's registration statements on Form S-8, File Nos.
33-72852, 33-34250, 33-91714, 333-30099 and 333-53253.
/s/ Arthur Andersen LLP
July 7, 1999
<PAGE> 1
EXHIBIT 23.2
INDEPENDENT AUDITORS' CONSENT
The Board of Directors
XM Satellite Radio Holdings Inc.:
We consent to the incorporation by reference in the registration statements (No.
333-71423 and 333-81459) on Forms S-3 and (Nos. 33-72852, 33-34250, 33-91714,
333-30099 and 333-53253) on Forms S-8 of American Mobile Satellite Corporation
of our report dated February 12, 1999, 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 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, which report appears in the Form 8-K of
American Mobile Satellite Corporation dated July 9, 1999.
Our report, dated February 12, 1999, contains an explanatory paragraph that
states that the Company has not commenced operations, has negative working
capital of $130,341,000 and is dependent upon debt and equity financings which
raise substantial doubt about its ability to continue as a going concern. The
consolidated financial statements do not include any adjustments that might
result from the outcome of that uncertainty.
/s/KPMG LLP
McLean, Virginia
July 9, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Company's audited Consolidated Statement of Operations, Consolidated Balance
Sheet, and Consolidated Statement of Cash Flows, in each case for the Year ended
December 31, 1998, and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<EXCHANGE-RATE> 1
<CASH> 2,289
<SECURITIES> 108,237
<RECEIVABLES> 15,325
<ALLOWANCES> 935
<INVENTORY> 18,593
<CURRENT-ASSETS> 93,853
<PP&E> 246,553
<DEPRECIATION> 142,844
<TOTAL-ASSETS> 489,794
<CURRENT-LIABILITIES> 44,971
<BONDS> 477,672
0
0
<COMMON> 322
<OTHER-SE> (37,345)
<TOTAL-LIABILITY-AND-EQUITY> 489,794
<SALES> 29,227
<TOTAL-REVENUES> 87,221
<CGS> 30,449
<TOTAL-COSTS> 122,721
<OTHER-EXPENSES> 52,707
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 53,771
<INCOME-PRETAX> (150,566)
<INCOME-TAX> 0
<INCOME-CONTINUING> (150,566)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (150,566)
<EPS-BASIC> (4.94)
<EPS-DILUTED> (4.93)
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Company's unaudited Consolidated Statement of Loss, Consolidated Balance Sheet,
and Consolidated Statement of Cash Flows, in each case for the three months
ended March 31, 1999, and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<EXCHANGE-RATE> 1
<CASH> 8,131
<SECURITIES> 131,348
<RECEIVABLES> 16,752
<ALLOWANCES> 0
<INVENTORY> 17,440
<CURRENT-ASSETS> 122,035
<PP&E> 239,017
<DEPRECIATION> 0
<TOTAL-ASSETS> 508,598
<CURRENT-LIABILITIES> 50,598
<BONDS> 526,227
0
0
<COMMON> 324
<OTHER-SE> (78,294)
<TOTAL-LIABILITY-AND-EQUITY> 508,598
<SALES> 4,066
<TOTAL-REVENUES> 20,230
<CGS> 4,528
<TOTAL-COSTS> 27,388
<OTHER-EXPENSES> 13,772
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 15,930
<INCOME-PRETAX> (43,143)
<INCOME-TAX> 0
<INCOME-CONTINUING> (43,143)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (43,143)
<EPS-BASIC> (1.34)
<EPS-DILUTED> 0
</TABLE>
<PAGE> 1
EXHIBIT 99.1
- --------------------------------------------------------------------------------
SHAREHOLDERS AGREEMENT
BY AND AMONG
XM SATELLITE RADIO HOLDINGS INC.
AMERICAN MOBILE SATELLITE CORPORATION
BARON ASSET FUND
COLUMBIA XM RADIO PARTNERS, LLC
CLEAR CHANNEL INVESTMENTS, INC.
DIRECTV ENTERPRISES, INC.
GENERAL MOTORS CORPORATION
MADISON DEARBORN CAPITAL PARTNERS III, L.P.
MADISON DEARBORN SPECIAL EQUITY III, L.P.
SPECIAL ADVISORS FUND I, LLC
AND
TELCOM-XM INVESTORS, L.L.C.
DATED JULY 7, 1999
- --------------------------------------------------------------------------------
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ARTICLE I. DEFINITIONS......................................................................................................3
Section 1.1 Definitions.........................................................................................3
ARTICLE II. CONDUCT OF BUSINESS; NON-COMPETITION; COOPERATION OF SHAREHOLDERS...............................................8
Section 2.1 Conduct of Business.................................................................................8
Section 2.2 Non-Competition.....................................................................................8
Section 2.3 Cooperation of Shareholders.........................................................................8
ARTICLE III. RESTRICTIONS ON TRANSFER.......................................................................................9
Section 3.1 Initial Transfer Restrictions for Investors.........................................................9
Section 3.2 Notice of Proposed Transfer.........................................................................9
Section 3.3 Transfers and Assignment by American Mobile........................................................10
Section 3.4 Transfers and Assignment by Telcom, Columbia and Madison...........................................11
Section 3.5 Permitted Transfers................................................................................11
Section 3.6 Endorsement of Stock Certificates..................................................................11
Section 3.7 Regulatory Approvals; Opinions.....................................................................12
ARTICLE IV. SHAREHOLDER DEBT AND RECAPITALIZATION AT PUBLIC OFFERING.......................................................13
Section 4.1 Share and Debt Conversion..........................................................................13
Section 4.2 Conversion of Class B Common Stock into Class A Common Stock.......................................13
Section 4.3 Submission of Proposal for Conversion to Public Stockholders.......................................14
ARTICLE V. CORPORATE GOVERNANCE; VOTING AGREEMENT..........................................................................14
Section 5.1 Board of Directors.................................................................................14
Section 5.2 Observation Rights.................................................................................16
Section 5.3 Removal of Directors...............................................................................17
Section 5.4 Operational Involvement of Clear Channel, DIRECTV and the TCM Group................................17
Section 5.5 Shareholder Actions................................................................................17
ARTICLE VI. CERTAIN REPRESENTATIONS........................................................................................18
Section 6.1 Existence and Power................................................................................18
Section 6.2 Due Authorization; No Contravention................................................................18
Section 6.3 Binding Effect.....................................................................................18
</TABLE>
1
<PAGE> 3
<TABLE>
<S> <C>
ARTICLE VII. TAG-ALONG RIGHTS; right of first refusal......................................................................18
Section 7.1 Tag Along Rights...................................................................................18
Section 7.2 Right of First Refusal.............................................................................19
ARTICLE VIII. MISCELLANEOUS................................................................................................20
Section 8.1 Notices............................................................................................20
Section 8.2 Waiver and Amendment...............................................................................21
Section 8.3 Specific Performance...............................................................................21
Section 8.4 GOVERNING LAW......................................................................................21
Section 8.5 Parties In Interest................................................................................21
Section 8.6 Severability of Provisions.........................................................................22
Section 8.7 Plural, Singular...................................................................................22
Section 8.8 Counterparts.......................................................................................22
Section 8.9 Descriptive Headings...............................................................................22
Section 8.10 Future Assurances..................................................................................22
Section 8.11 Termination........................................................................................22
</TABLE>
2
<PAGE> 4
SHAREHOLDERS AGREEMENT
This Shareholders Agreement, dated as of July 7, 1999 ("Agreement"),
is hereby entered into by and among XM Satellite Radio Holdings Inc., a
corporation duly organized under the laws of the State of Delaware (the
"Company"), American Mobile Satellite Corporation, a corporation duly organized
under the laws of the State of Delaware ("American Mobile"), the Baron Asset
Fund series ("Baron") of Baron Asset Fund, a business trust organized under the
laws of the Commonwealth of Massachusetts, Clear Channel Investments, Inc., a
corporation duly organized under the laws of the State of Nevada ("Clear
Channel"), Columbia XM Radio Partners, LLC, a limited liability company duly
organized under the laws of the State of Virginia ("Columbia"), DIRECTV
Enterprises, Inc. a corporation duly organized under the laws of the State of
Delaware ("DIRECTV"), General Motors Corporation, a corporation duly organized
under the laws of the State of Delaware ("GM"), Madison Dearborn Capital
Partners III, L.P. ("Madison Capital"), Madison Dearborn Special Equity III,
L.P. ("Madison Equity"), Special Advisors Fund I, LLC ("Madison Advisors" and,
collectively with Madison Capital and Madison Equity, each an entity duly
organized under the laws of the State of Delaware, "Madison") and Telcom-XM
Investors, L.L.C., a limited liability company duly organized under the laws of
the State of Delaware ("Telcom"). Baron, Clear Channel, Columbia, DIRECTV, GM,
Madison and Telcom are collectively referred to herein as the "Investors". The
Company, American Mobile, and the Investors are collectively referred to herein
as the "Parties".
WITNESSETH
WHEREAS, American Mobile is the holder of one hundred percent (100%)
of the issued and outstanding shares of the Company's common stock;
WHEREAS, the Company owns one hundred percent (100%) of the issued
and outstanding shares of common stock of XM Satellite Radio Inc. ("XM");
WHEREAS, XM holds a license awarded by the U.S. Federal
Communications Commission (the "FCC") for the establishment of a Satellite
Digital Audio Radio Service ("SDARS") system in the United States;
WHEREAS, the Company desires to receive financing for capital
expenditures and for working capital;
WHEREAS, the Investors (other than Baron) have entered into a note
purchase agreement with the Company (the "Note Purchase Agreement"), dated as of
June 7, 1999, under which the Investors (other than Baron) shall purchase Series
A
<PAGE> 5
Subordinated Convertible Notes due December 31, 2004 (each a "Series A
Subordinated Convertible Note" and, collectively, the "Series A Subordinated
Convertible Notes"), on the terms and conditions described in the Note Purchase
Agreement;
WHEREAS, pursuant to an exchange agreement dated as of June 7, 1999
(the "WSI Exchange Agreement"), WorldSpace has agreed to release any related
security interest and to transfer to a trust created by WorldSpace ("XM
Ventures") all of WorldSpace's right, title and interest in and to, except as
noted below, all assets held by WorldSpace relating to the Company and XM
(collectively, the "XM Interest"), including without limitation, the following:
(i) The Company's common stock held by WorldSpace;
(ii) That certain Convertible Note dated April 1, 1998 in the
principal amount of $54,536,112 convertible into 62.3270 shares of the
Company's Common Stock, and any interest accrued or capitalized with
respect thereto;
(iii) The Bridge, Additional Amounts and Working Capital Loans
issued by WorldSpace to the Company pursuant to the Bridge, Additional
Amounts and Working Capital Facility dated as of May 16, 1997 among the
Company, XM, American Mobile and WorldSpace, as amended by Amendment No.
1 to Bridge, Additional Amounts and Working Capital Credit Facility, and
any interest accrued or capitalized with respect thereto, other than
$75,000,000 aggregate principal and accrued interest thereunder which
will be retained by WorldSpace and repaid and retired by the Company
under the WSI Exchange Agreement;
(iv) Options to purchase (A) 97.2222 shares of the Company's
Common Stock pursuant to the Bridge Option, (B) 128.8876 shares of the
Company's Common Stock pursuant to the Additional Amounts Option, and (C)
3.5111 shares of the Company's Common Stock pursuant to the Working
Capital Option, each of which is dated as of May 16, 1997 between the
Company and WorldSpace; and
(v) The 80.9389 shares of XM common stock pledged under the
Security Agreement, dated as of May 16, 1997 between the Company and
WorldSpace; and
WHEREAS, pursuant to the WSI Exchange Agreement, XM Ventures has
agreed to transfer the XM Interest to American Mobile;
WHEREAS, the Company, American Mobile, and each of the Investors
believe it to be in the best interests of the Company, American Mobile, and the
mutual
2
<PAGE> 6
best interests of each of the Investors to set forth herein their agreements
with respect to certain matters related to the ownership and corporate
governance of the Company.
NOW, THEREFORE, in consideration for the mutual covenants contained
herein, the adequacy, receipt, and sufficiency of which are hereby acknowledged,
the undersigned hereby agree as follows:
ARTICLE I.
DEFINITIONS
Section 1.1 Definitions. Capitalized terms not defined herein have
the respective meanings ascribed to them in the Note Purchase Agreement.
(a) Accredited Investor: has the meaning specified in the Note
Purchase Agreement.
(b) Affiliate: means, as applied to any Person, any other Person
directly or indirectly controlling, controlled by, or under direct or indirect
common control with, such Person. For purposes of this definition, "control"
(including, with correlative meanings, the terms "controlling," "controlled by"
and "under common control with"), as applied to any Person, means the
possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of such Person, whether through the
ownership of voting securities, by contract or otherwise. For purposes of
Sections 3.2, 3.5 and 7.1, a member of a limited liability company or a partner
of a partnership shall be deemed an Affiliate of said company or partnership.
(c) Agreement: has the meaning specified in the Preamble.
(d) American Mobile: has the meaning specified in the Preamble.
(e) American Mobile Exchange Agreement: means the Exchange,
Amendment and Recapitalization Agreement dated on or about the date hereof among
American Mobile and the Company, providing for the restructuring of the
investment of American Mobile in the Company.
(f) Baron: has the meaning specified in the Preamble.
(g) Board or Board of Directors: means the Board of Directors of the
Company or a committee consisting of one or more directors lawfully exercising
the powers of the Board.
(h) Business Day: means any day other than a Saturday, Sunday or any
other day on which commercial banks are authorized or required by law to be
closed in New York City or the District of Columbia.
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(i) Capital Stock: means any and all of the Company's shares,
interests, warrants, options, rights to acquire equity or equity-linked
securities of the Company, participations or other equivalents (however
designated, whether voting or non-voting) in equity of the Company, whether now
outstanding or issued subsequently hereto, including, without limitation, all
series and classes of Common Stock and preferred stock of the Company, and all
Convertible Securities, including any Series A Subordinated Convertible Note,
Series A Convertible Preferred Stock, the New American Mobile Note and the $21
Million Notes.
(j) Change of Control: means a transfer of control of XM which would
require approval by the FCC under any terms of XM's SDARS license.
(k) Charter Documents: has the meaning specified in Section 5.5(b).
(l) Class A Common Stock: means the Class A Common Stock, par value
$0.01 per share, of the Company having one (1) vote per share.
(m) Class B Common Stock: means the Class B Common Stock, par value
$0.01 per share, of the Company having three (3) votes per share.
(n) Class C Common Stock: means the Class C Common Stock, par value
$0.01 per share, of the Company having zero (0) votes per share.
(o) Clear Channel: has the meaning specified in the Preamble.
(p) Clear Channel Operational Assistance Agreement: means the
operational assistance agreement dated on or about June 7, 1999, between Clear
Channel and the Company.
(q) Closing: means the consummation of the transactions contemplated
by the Note Purchase Agreement, including the sale and purchase of the Series A
Subordinated Convertible Notes.
(r) Columbia: has the meaning specified in the Preamble.
(s) Commencement of Commercial Operations: means the commencement of
commercial operations of XM as publicly announced by it.
(t) Commission: means the Securities and Exchange Commission or any
other Federal agency at the time administering the Securities Act.
(u) Common Stock: means all classes and series of the common stock,
$0.01 par value per share, of the Company, any stock into which such common
stock shall have been changed or converted or any stock resulting from any
capital reorganization or reclassification of such common stock, and all other
stock of any class or classes (however designated) of the Company, the holders
of which have the right, without limitation as to amount, either to all or to a
share of the balance of current dividends and
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liquidating dividends after the payment of dividends and distributions of any
shares entitled to preference.
(v) Common Stock Deemed Outstanding: means, at any given time, the
number of shares of Common Stock actually outstanding at such time, plus the
number of shares of Common Stock issuable upon the conversion, or exercise in
full, of all Convertible Securities whether or not the Convertible Securities
are convertible into or exercisable or exchangeable for Common Stock at such
time.
(w) Company: has the meaning specified in the Preamble.
(x) Conversion Price: means $509,711, as such price may be adjusted
pursuant to the Note Purchase Agreement.
(y) Convertible Securities: means securities or obligations that
are exercisable for, convertible into or exchangeable for shares of Common
Stock. The term includes options, warrants or other rights to subscribe for or
purchase Common Stock or to subscribe for or purchase other securities or
obligations that are convertible into or exercisable or exchangeable for Common
Stock, including, without limitation, the Series A Subordinated Convertible
Notes, the Series A Convertible Preferred Stock, the $21 Million Notes and the
New American Mobile Note.
(z) DBS: means direct broadcast satellite service.
(aa) DIRECTV: has the meaning specified in the Preamble.
(bb) DIRECTV Operational Assistance Agreement: means the operational
assistance agreement dated on or about June 7, 1999 between DIRECTV and the
Company.
(cc) Excluded Securities: means any (a) Common Stock or Convertible
Securities outstanding as of the date hereof (as disclosed in the Note Purchase
Agreement or the Private Placement Memorandum Supplement No. 1 dated as of July
1, 1999 delivered by the Company to each Investor), or issuable pursuant to the
American Mobile Exchange Agreement or the WSI Exchange Agreement and any Common
Stock issuable upon exercise of such Convertible Securities, (b) Common Stock or
Convertible Securities issued under a Qualifying Stock Plan and (c) Common Stock
or Convertible Securities issued to Persons who are not Affiliates of the
Company as partial consideration for senior debt financing, equipment lease
financing or underwritten High Yield Debt financing pursuant to a registered
public offering under the Securities Act or pursuant to Rule 144A thereunder.
(dd) FCC: has the meaning specified in the Recitals.
(ee) FCC Approval: means approval by the FCC of the transfer of
control of the Company from American Mobile to a diffuse group of shareholders.
(ff) GM: has the meaning specified in the Preamble.
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(gg) High Yield Debt: has the meaning specified in the Note Purchase
Agreement.
(hh) Holders: means the Investors and American Mobile and their
respective Permitted Transferees.
(ii) Initial Public Offering: means the closing of a firm commitment
underwritten public offering of shares of Common Stock.
(jj) Investors: has the meaning specified in the Preamble and their
Permitted Transferees.
(kk) January 15, 1999 Letter Agreements: means, collectively, (i)
that certain letter agreement between American Mobile, Baron and WorldSpace and
(ii) that certain letter agreement between American Mobile and WorldSpace, each
such letter agreement dated as of January 15, 1999.
(ll) Madison: has the meaning specified in the Preamble.
(mm) Notice of Proposed Issuance: has the meaning specified in
Section 7.
(nn) New American Mobile Note: means the convertible note issued by
the Company to American Mobile on or about the date hereof pursuant to the
American Mobile Exchange Agreement.
(oo) Note Purchase Agreement: has the meaning specified in the
Preamble.
(pp) Offered Capital Stock: has the meaning specified in Section 7.
(qq) Participation Notice: has the meaning specified in Section
3.3(c).
(rr) Parties: has the meaning specified in the Preamble.
(ss) Permitted Transferees: means each transferee of any Capital
Stock, with the transfer being made in compliance with the provisions of Article
III hereof.
(tt) Person: means any individual, partnership, corporation, joint
venture, limited liability company, association, trust, unincorporated
organization, or a government or agency or political subdivision thereof.
(uu) Qualified Initial Public Offering: means an Initial Public
Offering which (a) raises not less than $100 million in gross proceeds and (b)
for which the offering price of the securities offered thereby is at least (i)
125% of the Conversion Price if the offering occurs within six months of the
Closing or (ii) 150% of the Conversion Price if the offering occurs more than
six months after the Closing, unless the Company obtains Requisite Approval (as
such term is defined in the Note Purchase Agreement) for a lower offering price
or lower amount of funds raised at which the Series A Subordinated Convertible
Notes may be automatically converted.
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(vv) Qualified Institutional Buyer: has the meaning specified in
the Note Purchase Agreement.
(ww) Qualifying Stock Plan: means, collectively, all approved stock
incentive plans for employees, consultants and non-employee directors, provided
that (i) issuances under a Qualifying Stock Plan do not exceed 10% in the
aggregate of the shares of Common Stock Deemed Outstanding and (ii) such
Qualifying Stock Plan has been approved by a compensation committee of the Board
of Directors or the full Board of Directors, which, in either case, shall
include at least one director designated by the Holders of the Series A
Subordinated Convertible Notes and which approval shall include the approval of
such director so designated.
(xx) Registration Statement: means a registration statement filed
with the Commission pursuant to the Securities Act.
(yy) Resale-Restriction Termination Date: has the meaning
specified in Section 3.1
(zz) Right of First Refusal: means the rights granted to each
Holder pursuant to Section 7.2 hereof.
(aaa) SDARS: has the meaning specified in the Recitals.
(bbb) Series A Convertible Preferred Stock: means the Series A
Convertible Preferred Stock, par value $1.00 per share, of the Company having
zero (0) votes per share.
(ccc) Series A Subordinated Convertible Note: has the meaning
specified in the Recitals.
(ddd) Securities Act: means the Securities Act of 1933, as amended,
or any similar federal statute and the rules and regulations of the Commission
thereunder, all as the same shall be in effect at the time.
(eee) Subsidiary: means, with respect to any Person, any
corporation, association or other business entity of which more than fifty
percent (50%) of the voting power of the outstanding Capital Stock is owned,
directly or indirectly, by such Person or one or other Subsidiaries of such
Person.
(fff) TCM Group: means Columbia, Madison and Telcom collectively.
(ggg) Telcom: has the meaning specified in the Preamble.
(hhh) TCM: means TCM, LLC, a Delaware limited liability company.
(iii) TCM Operational Assistance Agreement: means the operational
assistance agreement dated on or about the date hereof between TCM and the
Company.
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(jjj) Transfer Notice: has the meaning specified in Section 3.3(c)
(kkk) $21 Million Notes: means the convertible notes issued by the
Company to American Mobile as of January 15, 1999.
(lll) Unallocated Portion: has the meaning specified in Section
3.3(c).
(mmm) WorldSpace: means WorldSpace, Inc., a Maryland corporation.
(nnn) WSI Exchange Agreement: has the meaning specified in the
Recitals.
(ooo) XM Interest: has the meaning specified in the Recitals.
(ppp) XM Ventures: has the meaning specified in the Recitals.
ARTICLE II.
CONDUCT OF BUSINESS; NON-COMPETITION; COOPERATION OF
SHAREHOLDERS
Section 2.1 Conduct of Business. The Company shall act as the
holding company for XM. XM and the Company shall, and American Mobile shall
cause XM and the Company to, conduct their business in such manner as to comply
with all applicable laws and regulations (including but not limited to the rules
and regulations of the FCC).
Section 2.2 Non-Competition. American Mobile agrees not to compete
with XM or the Company in the SDARS business in the United States for so long as
American Mobile holds at least 5% of the Common Stock (assuming full conversion
of all of American Mobile's holdings of Capital Stock which are convertible into
Common Stock) and for a period of three years following the date on which
American Mobile ceases to hold 5% of the Common Stock (assuming full conversion
of all of American Mobile's holdings of Capital Stock which are convertible into
Common Stock). Notwithstanding the foregoing, nothing contained herein shall
limit American Mobile's rights to fulfill its obligations under law as a common
carrier licensed by the FCC with respect to the selling of its capacity to third
party resellers for any business purpose, including those which may compete with
the business of XM and the Company.
Section 2.3 Cooperation of Shareholders. American Mobile, the
Company and the Investors agree to work cooperatively in connection with the
preservation, maintenance and any extension or renewal by XM of its SDARS
license and to provide (and to cause the Company to provide), with reasonable
promptness, such information as may be required or appropriate in accordance
with FCC rules, regulations, and processes to preserve, maintain and extend or
renew XM's SDARS license.
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ARTICLE III.
RESTRICTIONS ON TRANSFER
Section 3.1 Initial Transfer Restrictions for Investors
Prior to the date which is one year after the later of the date of
original issue of the Series A Subordinated Convertible Notes and the last date
that the Company or any Affiliate of the Company was the owner of such
Securities (or any predecessor thereto) (the "Resale-Restriction Termination
Date"), each Investor, except for Baron, may transfer any shares of Capital
Stock held by it only (i) to the Company, (ii) pursuant to a Registration
Statement that has been declared effective under the Securities Act, (iii) for
so long as such Capital Stock is eligible for resale pursuant to Rule 144A under
the Securities Act, to a person it reasonably believes is a Qualified
Institutional Buyer that purchases for its own account or for the account of a
Qualified Institutional Buyer to whom notice is given that the transfer is being
made in reliance on Rule 144A under the Securities Act, (iv) pursuant to offers
and sales that occur outside the United States within the meaning of Regulation
S under the Securities Act, (v) commencing only with the period which is six
months after the date of the issuance of such Capital Stock, to an Accredited
Investor purchasing for its own account or for the account of such an Accredited
Investor, or (vi) pursuant to any other available exemption from the
registration requirements of the Securities Act, subject in each of the
foregoing cases to any requirement of law that the disposition of its property
or the property of any investor account or accounts be at all times within its
or their control. The foregoing restrictions on resale will not apply subsequent
to the Resale-Restriction Termination Date. If any resale or other transfer of
any Capital Stock is proposed to be made pursuant to clause (v) above prior to
the Resale-Restriction Termination Date, the transferor shall deliver a letter
from the transferee to the Company in form and substance reasonably satisfactory
to the Company, which shall provide, among other things, that the transferee is
an Accredited Investor that is acquiring such Capital Stock for investment and
not for resale or distribution in violation of the Securities Act. Each Investor
acknowledges that the Company reserves the right prior to any offer, sale or
other transfer of the Capital Stock pursuant to clauses, (iii), (iv), (v) or
(vi) above to require the delivery to the Company of an opinion of counsel to
the Investor, certifications and/or other information reasonably satisfactory to
the Company.
Section 3.2 Notice of Proposed Transfer
(a) Until an Initial Public Offering, except for transfers to Affiliates
permitted under this Agreement, each Holder of Capital Stock shall be required
to furnish at least 30 days prior written notice to the Company of any proposed
transfer of Capital Stock.
(b) During the 30-day period referred to in Section 3.2 (a), any proposed
sale, assignment or transfer may be disallowed if the Board of Directors
reasonably determines, and provides notice to such requesting Holder, that any
such proposed sale, assignment or transfer to the proposed transferee would:
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(i) result in a sale, assignment or transfer to a competitor of
the Company for SDARS service in the United States;
(ii) be reasonably likely to materially adversely affect the
Company's prospects for obtaining from the FCC or other regulatory bodies
any necessary licenses or consents for the Company's SDARS system; or
(iii) be reasonably likely to materially adversely affect the
Company's ability or prospects for successfully implementing or operating
its SDARS system.
(c) Upon any such disallowance by the Board of Directors of a proposed
sale, assignment or transfer by a Holder pursuant to Section 3.2(b), counsel to
the Company shall be available to discuss with such Holder the reasons for such
disallowance.
Section 3.3 Transfers and Assignment by American Mobile.
(a) Subject to the requirements of Article IV hereof, American Mobile
shall not be permitted to transfer any of its shares of Capital Stock or other
securities of the Company to any Person (except as contemplated in the January
15, 1999 Letter Agreements) until the earlier of (i) the Commencement of
Commercial Operations, or (ii) one year after the closing of the Company's
Initial Public Offering; provided that no shares of Class B Common Stock may be
transferred at any time until such shares are converted to shares of Class A
Common Stock.
(b) Notwithstanding Section 3.3(a) and subject to Section 3.5, American
Mobile shall have the right to (i) assign or transfer its interest in the
Company to any Person (1) if such Person is an Affiliate of American Mobile or
(2) if such Person owns 10% or more of the outstanding Common Stock of American
Mobile (not including WorldSpace or any Affiliate of WorldSpace); provided that
such assignment or transfer complies with applicable law and, in the case of an
assignment or transfer to a 10% or more holder, American Mobile's right to
effect such assignment or transfer shall be subject to the notice requirement of
Section 3.2(a), compliance with the provisions of Section 3.3(c) and Section 7.1
and any such assignment or transfer may be subject to disallowance pursuant to
Section 3.2(b), and (ii) pledge or hypothecate, in connection with its customary
bona fide financing arrangements (including under its current guaranteed bank
facilities),Capital Stock and any other interest in the Company.
(c) In the event that American Mobile proposes to transfer all or a
portion of its interest in the Company in accordance with Section 3.3(b)(i)(2)
hereof to a Person who is not an Affiliate, American Mobile will provide notice
thereof (including the proposed terms thereof) (the "Transfer Notice"), at least
ten (10) Business Days prior to the proposed transfer, to each Investor (other
than Baron), whereupon each Investor (other than Baron) shall have the right to
purchase, at the same price and upon the same material terms and conditions set
forth in the Transfer Notice, a pro rata portion of such interest based upon
such Investor's portion of the Common Stock Deemed Outstanding held by all
Investors other than Baron. Each Investor desiring to participate in such
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purchase shall provide American Mobile and each other Investor notice of its
agreement to participate (the "Participation Notice") within ten (10) Business
Days of receipt of the Transfer Notice with respect to its pro rata portion of
the proposed transfer. In the event that one or more of the other Investors does
not provide a timely Participation Notice, whether and to the extent to which
such Investor would acquire any remaining, unallocated portion of the proposed
transfer (the "Unallocated Portion"), the Unallocated Portion shall be allocated
in pro rata proportion to the Convertible Securities (or securities into which
such Convertible Securities had been converted) held by each of the Investors
who submits a Participation Notice to the extent of such Investor's indicated
willingness to acquire any Unallocated Portion as provided in such Investors'
Participation Notice.
Section 3.4 Transfers and Assignment by Telcom, Columbia and Madison.
Prior to the Company's Initial Public Offering, none of Telcom, Columbia or
Madison shall transfer (including transfer to an Affiliate) any of their shares
of Common Stock, or other securities of the Company, to (i) any Person who,
directly or indirectly, derives 20% or more of its gross revenues from radio,
television or outdoor media or (ii) any Person who, directly or indirectly, then
provides, distributes or markets DBS services or who is then known to the
proposed transferor to be actively planning such activities.
Section 3.5 Permitted Transfers
(a) Notwithstanding the restrictions on transfer set forth elsewhere in
this Article III (other than Section 3.4, Section 3.6 and Section 3.7), each
Investor shall have the right to transfer or assign its holdings of Capital
Stock to an Affiliate of such Investor, and each Investor shall be able to
pledge or hypothecate, in connection with bona fide financing arrangements, its
Capital Stock and any other interest in the Company; provided, however that no
transfer to an Affiliate shall be effective if the purpose or intent of such
transfer is to circumvent the restrictions on transfers to non-Affiliates set
forth herein.
(b) Transfers and encumbrances of Capital Stock may only be made in
strict compliance with all applicable terms of this Agreement. Any purported
transfer or encumbrance of Capital Stock that does not so comply with all
applicable provisions of this Agreement shall be void and ineffective and the
Company shall not recognize nor be bound by any such purported transfer or
encumbrance and any such purported transfer shall have no effect on the stock
transfer books of the Company.
(c) Any assignment or transfer of an interest in the Company pursuant to
the terms of this Agreement, other than in a public offering of the Company's
Common Stock or an offering pursuant to Rule 144 or 145 under the Securities
Act, shall be subject to the assumption by the transferee of the terms and
conditions set forth in this Agreement applicable to the transferor.
Section 3.6 Endorsement of Stock Certificates. Conformed copies of this
Agreement shall be filed with the secretary of the Company and kept with the
records of the Company at its principal office. Until such time that the
Company, based on an
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opinion of counsel, shall have determined otherwise, an officer of the Company
shall endorse each certificate representing the Capital Stock heretofore or
hereafter issued by the Company to any Holder by causing to be placed on the
back thereof the following legend:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT"), OR ANY STATE SECURITIES LAWS. NEITHER THESE
SECURITIES NOR ANY INTEREST OR PARTICIPATION HEREIN MAY BE
RE-OFFERED, SOLD, ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED OR
OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION UNLESS
SUCH TRANSACTION IS EXEMPT FROM, OR NOT SUBJECT TO, REGISTRATION
UNDER THE SECURITIES ACT.
THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE THE SUBJECT OF
A CERTAIN SHAREHOLDERS AGREEMENT WHICH, AMONG OTHER THINGS,
CONTAINS RESTRICTIONS ON THE TRANSFER OF SUCH SECURITIES. A COPY
OF THE SHAREHOLDERS AGREEMENT IS AVAILABLE FOR INSPECTION AT THE
PRINCIPAL OFFICE OF THE COMPANY.
Upon registration of any Capital Stock under the Securities Act,
the Company shall remove such legend from the certificate(s) representing such
Capital Stock promptly upon request of the Holder thereof and delivery of such
certificate(s) to the Company.
The Company shall, upon presentation of a certificate
representing shares of the Company's Capital Stock with respect to which one or
both of the foregoing restrictions have expired or are not applicable, together
with such evidence (including, when such an opinion would customarily be
required by the Company of its stockholders, an opinion of counsel obtained at
the Holder's expense and reasonably satisfactory to the Company) of such lapse
or nonapplicability as the Company would reasonably request of stockholders who
are similarly situated, promptly cause to be issued a replacement certificate
for such shares of the Company's Capital Stock without the applicable
restrictive legend.
Section 3.7 Regulatory Approvals; Opinions.
(a) To the extent that any regulatory approval, notification or other
submission or procedure is required or customarily provided in connection with
the exercise of any right or obligations as set forth in this Agreement with
respect to the
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transfer or assignment of Capital Stock (including, but not limited to, FCC
approvals (if required) and applicable securities laws), such transfer or
assignment of Capital Stock pursuant to this Agreement will be delayed and will
only take place after such approval, notification or other submission or
procedure has been obtained, submitted or completed.
(b) Prior to the transfer of any Capital Stock, the Company at its
option may require an opinion of counsel reasonably satisfactory to the Company
to the effect that such transfer is in compliance with, or exempt from, the
registration requirements of the Securities Act.
ARTICLE IV.
SHAREHOLDER DEBT AND RECAPITALIZATION AT PUBLIC OFFERING
Section 4.1 Share and Debt Conversion. On the completion of an Initial
Public Offering, American Mobile shall convert the New American Mobile Note and
all other instruments of indebtedness issued to American Mobile pursuant to the
American Mobile Exchange Agreement and the WSI Exchange Agreement and all
interest accrued thereon into shares of Class B Common Stock, in accordance with
the terms and conditions of such instruments, and the Holder of the $21 Million
Notes shall convert the $21 Million Notes and all interest accrued thereon into
shares of Class B Common Stock, in accordance with the terms and conditions of
such notes.
Section 4.2 Conversion of Class B Common Stock into Class A Common Stock.
Following the earlier to occur of (a) completion of the Company's Initial Public
Offering, or (b) January 1, 2002, and either (i) at the discretion of American
Mobile or (ii) at the direction of the holders of a majority of the shares of
Common Stock Deemed Outstanding (excluding any shares held by American Mobile
and its Affiliates other than Baron, GM, Hughes or DIRECTV), which majority, if
the Company has then completed an Initial Public Offering, shall include at
least 20% of the public holders of Class A Common Stock, American Mobile shall
convert all of its shares of Class B Common Stock into shares of Class A Common
Stock, upon the receipt of FCC Approval; provided that American Mobile shall not
be obligated to convert any shares of Class B Common Stock into shares of Class
A Common Stock if such conversion, together with the conversion of all
Convertible Securities the Company reasonably believes would be converted at
such time, would not result in a Change of Control. The conversion rate shall be
one share of Class B Common Stock for each share of Class A Common Stock,
subject to adjustment in connection with any stock split, dividend or
combination or similar event involving the Common Stock; provided that no such
adjustment shall be made for shares of Common Stock issued pursuant to a
Qualifying Stock Plan. Each of American Mobile, the Company and the Investors
hereby agrees to prepare and file any and all applications, and furnish any
information, required by applicable FCC rules and policies in order to obtain
the FCC Approval and shall agree to use all reasonable commercial efforts in
order to obtain the FCC Approval.
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Section 4.3 Submission of Proposal for Conversion to Public Stockholders.
At the direction of two (2) of the three (3) members of the Board of Directors
designated by the Investors (other than Baron) pursuant to Section 5.1, the
Company will insert into any proxy statement scheduled by the Company to be
delivered to the holders of Class A Common Stock appropriate material to provide
such holders of Class A Common Stock with the opportunity to vote to direct the
Company to cause American Mobile to convert its shares of Class B Common Stock
into shares of Class A Common Stock.
ARTICLE V.
CORPORATE GOVERNANCE; VOTING AGREEMENT
Section 5.1 Board of Directors.
(a) From the date hereof until the completion of the Company's
Initial Public Offering, the Board of Directors and the boards of directors of
XM and any other material subsidiary, (collectively, the "Boards of Directors")
shall consist of seven (7) members (unless the constitution of the board of
directors of any material subsidiary other than XM shall be otherwise approved
by unanimous vote of the members of the Board of Directors designated, pursuant
to this Section 5.1, by the Holders of Series A Subordinated Convertible Notes
(or the holders of securities into which such Series A Convertible Notes may be
converted), of whom:
(i) three (3) members shall be designated by the Holders of
Series A Subordinated Convertible Notes (or the holders of securities
into which such Series A Convertible Notes may be converted), (x) one (1)
of whom shall be a designee of Clear Channel, (y) one (1) of whom shall
be a designee of GM or DIRECTV, as those two Parties may agree, and (z)
one (1) of whom shall be a designee of a majority in interest of the TCM
Group; and
(ii) four (4) members shall be designated by American Mobile,
who shall include (x) the Chairman and (y) the President and CEO of the
Company (who shall be selected by American Mobile).
(b) Following the completion of the Company's Initial Public
Offering but prior to the receipt of FCC Approval, the Boards of Directors shall
consist of nine (9) members, of whom:
(i) three (3) members shall be designated by the Holders of
Series A Subordinated Convertible Notes (or the holders of securities
into which such Series A Subordinated Convertible Notes may be
converted), (x) one (1) of whom shall be a designee of Clear Channel, (y)
one (1) of whom shall be a designee of GM or DIRECTV, as those two
Parties may agree, and (z) one (1) of whom shall be a designee of a
majority in interest of the TCM Group;
(ii) four (4) members shall be designated by American Mobile,
who shall include (x) the Chairman and (y) the President and the CEO of
the Company (who shall be selected by American Mobile); and
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(iii) two (2) of whom shall be independent directors of
recognized industry expertise and stature, of whom (x) one (1) member
shall be approved by American Mobile and (y) the other of whom shall be
approved by the Investors who hold a majority of the Common Stock Deemed
Outstanding (excluding Baron) held by Investors (excluding Baron).
(c) Following the completion of the Company's Initial Public
Offering and upon receipt of the FCC Approval, the Boards of Directors shall
consist of nine (9) members, of whom:
(i) three (3) members shall be designated by the Holders of
Series A Subordinated Convertible Notes (or the holders of the securities
into which such Series A Subordinated Convertible Notes may be
converted), (x) one (1) of whom shall be a designee of Clear Channel, (y)
one (1) of whom shall be a designee of GM or DIRECTV, as those two
Parties may agree, and (z) one (1) of whom shall be a designee of a
majority in interest of the TCM Group;
(ii) three (3) members shall be designated by American Mobile;
(iii) one (1) member shall be the President and CEO of the
Company; and
(iv) two (2) members shall be independent directors of
recognized industry expertise and stature both of whom shall be approved
by American Mobile and the Investors who hold a majority of the Common
Stock Deemed Outstanding (excluding Baron) held by Investors (excluding
Baron).
(d) Each Holder agrees to vote its Common Stock in favor of the
persons nominated in accordance with the provisions herein. The rights of each
of (i) Clear Channel, (ii) GM or DIRECTV, and (iii) the TCM Group to designate a
director and, if applicable, approve the appointment of independent directors
pursuant to this Section 5.1 shall continue for so long as such Party (or GM and
DIRECTV together) holds (A) in excess of 5% of the Common Stock Deemed
Outstanding or (B) the full amount of such Party's original investment in the
Company (whether or not converted into shares of Series A Convertible Preferred
Stock, if applicable, or Class A Common Stock). Similarly, following the
Company's receipt of FCC Approval, the right of American Mobile to designate
directors and approve the appointment of independent directors pursuant to this
Section 5.1 shall continue for so long as American Mobile holds (A) in excess of
15% of the Common Stock Deemed Outstanding or (B) the full amount of American
Mobile's investment in the Company on the date of this Agreement excluding the
portion of its investment contemplated in the January 15 Letter Agreements
(whether or not converted into shares of Class A Common Stock) (the "Initial
AMSC Investment"); provided that, if American Mobile holds less than 15% of the
Common Stock Deemed Outstanding and less than the Initial AMSC Investment, (x)
American Mobile shall be entitled to designate two (2) directors (pursuant to
Section 5.1(a)(ii) and (c)(ii)) and approve the appointment of two (2)
independent directors (pursuant to Section 5.1(c)(iv)) for so long as American
Mobile owns Capital Stock in excess of 10% of the Common Stock Deemed
Outstanding, and (y) American Mobile shall be entitled to
15
<PAGE> 19
designate one (1) director (pursuant to Section 5.1(a)(ii) and (c)(ii)) and
approve the appointment of two (2) independent directors (pursuant to Section
5.1(c)(iv)) for so long as American Mobile owns excess of 5% of the Common Stock
Deemed Outstanding.
(e) The right of each Investor to designate a director pursuant to
Sections 5.1(a)(i), 5.1(b)(i) and 5.1(c)(i) also shall terminate, and any
director designated by such Investor shall promptly resign from the Boards of
Directors:
(i) in the case of Clear Channel, if a majority of the
ownership interests of Clear Channel cease to be owned, directly or
indirectly, by Clear Channel Communications, Inc.;
(ii) in the case of DIRECTV, if a majority of the ownership
interests of DIRECTV cease to be owned, directly or indirectly, by
DIRECTV, Inc. (provided that the loss of DIRECTV's right to designate
directors shall not affect GM's rights under this Section 5.1); and
(iii) in the case of the TCM Group, if a majority of the
ownership interests of both Telcom and Columbia cease to be owned,
directly or indirectly, by Telcom Ventures, L.L.C. and the existing
members of Columbia (one of which is Columbia Capital, LLC).
Section 5.2 Observation Rights.
(a) Following the Closing and for such time as GM and DIRECTV (i)
continue to hold, in the aggregate, in excess of 5% of the Common Stock Deemed
Outstanding, or (ii) each retains the full amount of its original investment in
the Company (whether or not converted into shares of Series A Convertible
Preferred Stock or Class A Common Stock), GM or DIRECTV shall be allowed one
observer at Board of Directors meetings to represent whichever company does not
designate a member of the Board of Directors at that time.
(b) Following the Closing and for such time as any of Telcom,
Columbia and Madison (i) continues to hold, in the aggregate, in excess of 5% of
the Common Stock Deemed Outstanding, or (ii) such Investor retains the full
amount of its original investment in the Company, such Investor shall be allowed
to have an observer at Board of Directors meetings so long as such company(ies)
does not have an Affiliate serving as a member of the Board of Directors at that
time.
(c) Following the Closing and for such time as Clear Channel (i)
continues to hold in excess of 5% of the Common Stock Deemed Outstanding, or
(ii) retains the full amount of its original investment in the Company, Clear
Channel shall be allowed an observer at Board of Directors meetings.
16
<PAGE> 20
Section 5.3 Removal of Directors. American Mobile and the Investors agree
to vote so that each member of the Board of Directors nominated or designated in
accordance with Section 5.1 shall serve as a director of the Company until
removed, upon the instructions of the Party designating such director, and each
Party agrees to vote its shares of Common Stock in accordance with such
directions. To the extent permitted by law, American Mobile and each Investor
agree not to take any action to remove or replace, with or without cause, any
director of the Company that has not been designated for removal or replacement
by the Party having originally nominated or designated such director.
Section 5.4 Operational Involvement of Clear Channel, DIRECTV and the TCM
Group.
(a) Following the Closing and for such time as Clear Channel (i)
continues to hold in excess of 5% of the Common Stock Deemed Outstanding, or
(ii) retains the full amount of its original investment in the Company, the
Company agrees that Clear Channel shall have operational rights and involvement
as set forth in the Clear Channel Operational Assistance Agreement, provided
that such rights and involvement shall terminate if Clear Channel ceases to be a
wholly-owned subsidiary of Clear Channel Communications, Inc.
(b) Following the Closing and for such time as DIRECTV (i) continues
to hold in excess of 5% of the Common Stock Deemed Outstanding, or (ii) retains
the full amount of its original investment in the Company (whether or not
converted into shares of Series A Convertible Preferred Stock or Class A Common
Stock), the Company agrees that DIRECTV shall have operational rights and
involvement as set forth in the DIRECTV Operational Assistance Agreement.
(c) Following the Closing and for such time as Telcom, Columbia and
Madison (i) continue to hold, in the aggregate, in excess of 5% of the Common
Stock Deemed Outstanding, or (ii) each retains the full amount of its original
investment in the Company, the Company agrees that the TCM Group shall have
operational rights and involvement as set forth in the TCM Operational
Assistance Agreement.
Section 5.5 Shareholder Actions.
(a) Each Party acknowledges that the Company's bylaws provide for
certain notice, quorum and voting requirements for actions taken thereby to be
valid and agrees not to take any action inconsistent with such provisions.
(b) Each Party shall at all times take all actions necessary (i) to
give effect to the terms and conditions of this Agreement and (ii) to ensure
that the certificate of incorporation and bylaws of the Company (the "Charter
Documents") do not, at any time, conflict with the provisions of this Agreement,
and hereby agrees to make or authorize any amendments to the Charter Documents
that may hereafter be required to give effect to this Agreement.
17
<PAGE> 21
(c) In the event of any conflict between the terms of this Agreement
and the bylaws of the Company, the terms of this Agreement shall prevail.
ARTICLE VI.
CERTAIN REPRESENTATIONS
Each Party hereby represents and warrants on behalf of itself to
each other Party that:
Section 6.1 Existence and Power.
(a) It is an entity duly organized, validly existing and in good
standing under the laws of its jurisdiction of formation;
(b) It has the power and authority to own its assets, carry on its
business and execute, deliver, and perform its obligations under this Agreement;
and
(c) It is duly qualified to do business and is licensed and in good
standing under the laws of each jurisdiction where its ownership, lease or
operation of property or the conduct of its business requires such qualification
or license.
Section 6.2 Due Authorization; No Contravention. The execution, delivery
and performance by it of this Agreement have been duly authorized by all
necessary action, and do not and will not:
(a) Breach or violate the terms of its certificate of incorporation
(or similar constituent document) or bylaws (or similar constituent document);
(b) Breach or violate the terms of any material agreement to which
it is party; or
(c) Violate any law or regulation applicable to it, including but
not limited to the rules and regulations promulgated from time to time by the
FCC.
Section 6.3 Binding Effect. This Agreement has been duly authorized,
executed and delivered by it and constitutes the legal, valid and binding
obligation of it enforceable against it in accordance with the terms hereof,
subject to applicable bankruptcy, insolvency, reorganization, moratorium,
fraudulent transfer and similar laws affecting creditors' rights generally and
to general principles of equity (regardless of whether enforcement is sought in
a proceeding in equity or at law).
ARTICLE VII.
TAG-ALONG RIGHTS; RIGHT OF FIRST REFUSAL
Section 7.1 Tag Along Rights. Prior to a Qualified Initial Public
Offering, each Holder of Convertible Securities (and/or the Holders of
securities into which such
18
<PAGE> 22
Convertible Securities may be converted), other than Baron, shall have the right
to participate in any sale or transfer (without paying any portion of the
transaction costs associated with such sale except for their own legal expense
and selling commission), in one transaction or in a series of transactions, to
any Person not an Affiliate of such transferor, of Capital Stock (including the
Series A Subordinated Convertible Notes) representing, at the time of such sale,
more than 5% of the Common Stock Deemed Outstanding, such participation to be
shared pro rata with each other Holder of Convertible Securities desiring to
participate and/or the Holders of securities into which such Convertible
Securities may be converted.
Section 7.2 Right of First Refusal. Prior to a Qualified Initial Public
Offering, the Company shall only issue Capital Stock in accordance with the
following terms:
(a) The Company shall not issue any Capital Stock unless it first
delivers to each Holder of Convertible Securities (or the Holders of securities
into which such Convertible Securities may be converted) (each such Person being
referred to in this Section 7 as a "Buyer") a written notice (the "Notice of
Proposed Issuance") specifying the type and total number of such shares of
Capital Stock that the Company then intends to issue (the "Offered Capital
Stock"), all of the material terms, including the price upon which the Company
proposes to issue the Offered Capital Stock and stating that the Buyers shall
have the right to purchase the Offered Capital Stock in the manner specified in
this Section 7.2(a) for the same price per share and in accordance with the same
terms and conditions specified in such Notice of Proposed Issuance.
(b) During the thirty (30) consecutive day period commencing on the
date the Company delivers to all of the Buyers the Notice of Proposed Issuance
(the "Thirty Day Period"), the Buyers shall have the option to purchase all of
the Offered Capital Stock at the same price per share and upon the same terms
and conditions specified in the Notice of Proposed Issuance. Each Buyer electing
to purchase Offered Capital Stock must give written notice of its election to
the Company prior to the expiration of the Thirty Day Period. If the Offered
Capital Stock is being offered as part of an investment unit together with debt
or other instruments, any election by a Buyer to purchase Offered Capital Stock
shall also constitute an election to purchase a like portion of such debt or
other instruments.
(c) Each Buyer shall have the right to purchase that number of
shares of the Offered Capital Stock as shall be equal to the number of shares of
the Offered Capital Stock multiplied by a fraction, the numerator of which shall
be the number of shares of Common Stock then held by such Buyer plus all shares
of Common Stock issuable upon conversion of all Convertible Securities then held
by such Buyer and the denominator of which shall be the aggregate number of
shares of Common Stock Deemed Outstanding. The amount of such Offered Capital
Stock that each Buyer is entitled to purchase under this Section 7 shall be
referred to as its "Proportionate Share."
(d) Each Buyer shall have a right of oversubscription such that if
any other Buyer fails to elect to purchase his or its full Proportionate Share
of the Offered Capital Stock, the other Buyer(s) shall, among them, have the
right to purchase up to the balance
19
<PAGE> 23
of such Offered Capital Stock not so purchased. The Buyers may exercise such
right of oversubscription by electing to purchase more than their Proportionate
Share of the Offered Capital Stock by so indicating in their written notice
given during the Thirty Day Period. If, as a result thereof, such
oversubscription elections exceed the total number of the Offered Capital Stock
available in respect to such oversubscription privilege, the oversubscribing
Buyers shall be cut back with respect to oversubscriptions on a pro rata basis
in accordance with their respective Proportionate Share or as they may otherwise
agree among themselves.
(e) If all of the Offered Capital Stock has not been purchased by
the Buyers pursuant to the foregoing provisions, then the Company shall have the
right, until the expiration of one-hundred eighty (180) consecutive days
commencing on the first day immediately following the expiration of the Thirty
Day Period, to issue the Offered Capital Stock not purchased by the Buyers at
not less than, and on terms no more favorable in any material respect to the
purchaser(s) thereof than, the price and terms specified in the Notice of
Proposed Issuance. If such remaining Offered Capital Stock is not issued within
such period and at such price and on such terms, the right to issue in
accordance with the Notice of Proposed Issuance shall expire and the provisions
of this Agreement shall continue to be applicable to the Offered Capital Stock.
(f) The Company may proceed with the issuance of Capital Stock
without first following the foregoing procedures provided that (i) the purchaser
of such Capital Stock agrees in writing to be bound by this Section 7, and (ii)
within ten (10) days following the issuance of such Capital Stock, the Company
or the purchaser of the Capital Stock undertakes steps substantially similar to
those described above to offer to all Buyers the right to purchase from such
purchaser or from the Company such amount of such Capital Stock at the same
price and terms applicable to the purchaser's purchase thereof as is necessary
to provide the Buyers with substantially the same antidilution protection
offered by this Section 7 as if the procedures set forth above had been followed
prior to the issuance of such Capital Stock.
(g) Notwithstanding the foregoing, the Right of First Refusal
described in this Section 7 shall not apply with respect to the issuance of
Excluded Securities.
ARTICLE VIII.
MISCELLANEOUS
Section 8.1 Notices. Except as otherwise provided in this Agreement,
notices and other communications under this Agreement shall be in writing and
shall be deemed properly served if: (i) mailed by registered or certified mail,
return receipt requested, (ii) delivered by a recognized overnight courier
service, (iii) delivered personally, or (iv) sent by facsimile transmission
addressed to each Party at its address for notices specified on Schedule I
attached hereto, or at such other address, or to the attention of such officer,
as any Party shall have furnished to each other Party in writing pursuant to
this Section 8.1. Such notice shall be deemed to have been received: (i) three
(3) Business Days after the date of mailing if sent by certified or registered
mail, (ii) one (1) Business Day after the
20
<PAGE> 24
date of delivery if sent by overnight courier, (iii) the date of delivery if
personally delivered, or (iv) the next succeeding Business Day after
transmission by facsimile with confirmation of receipt.
Section 8.2 Waiver and Amendment. Any term of this Agreement may be
amended, and the observance of any term of this Agreement may be waived (either
generally or in a particular instance and either retroactively or prospectively)
only with the written consent of (a) the Company, (b) American Mobile and (c)
Investors (other than Baron) holding, (i) in the case of amendments to or
waivers of provisions of this Agreement generally, eighty-one percent (81%) of
the aggregate of the Common Stock Deemed Outstanding held by Investors (other
than Baron), and (ii) in the case of any other non-material change or technical
correction of this Agreement, a majority of the aggregate of the Common Stock
Deemed Outstanding held by Investors (other than Baron); provided that no
Investor's rights, preferences or obligations hereunder may be materially
adversely modified without the consent of such Investor unless the rights,
preferences or obligations hereunder of each other Investor is modified in a
substantially equivalent manner. Any amendment or waiver effected in accordance
with this Section 8.2 shall be binding upon each future Holder and the Company.
Section 8.3 Specific Performance. Each Party acknowledges (i) that it
will be impossible to measure in money the damage to each other Party if any of
them or any legal representative of any Party fails to comply with any of the
provisions of this Agreement, (ii) that every such provision is material, and
(iii) that in the event of any such failure, the Company and the Investors will
not have an adequate remedy at law or in damages. Accordingly, each Party hereto
consents to the issuance of an injunction or the enforcement of other equitable
remedies against it at the suit of an aggrieved Party without the posting of any
bond or other security, to compel specific performance of all of the terms
hereof and to prevent any disposition of shares of Capital Stock in
contravention of any terms of this Agreement, and waives any defense thereto,
including, without limitation, the defenses of (i) failure of consideration,
(ii) breach of any other provision of this Agreement and (iii) availability or
relief in damages.
Section 8.4 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF DELAWARE WITHOUT GIVING
EFFECT TO ANY CONFLICT OF LAW PROVISIONS THEREOF.
EACH OF THE PARTIES ACKNOWLEDGES THAT (i) IT IS A KNOWLEDGEABLE,
INFORMED, SOPHISTICATED BUSINESS ENTITY CAPABLE OF UNDERSTANDING AND EVALUATING
THE PROVISIONS SET FORTH IN THIS AGREEMENT, INCLUDING THIS SECTION 8.4, AND (ii)
IT HAS BEEN REPRESENTED BY SUCH COUNSEL AND OTHER ADVISORS OF ITS CHOOSING AS IT
HAS DEEMED APPROPRIATE IN CONNECTION WITH ITS DECISION TO ENTER INTO THIS
AGREEMENT.
Section 8.5 Parties In Interest. This Agreement shall be binding upon and
shall inure to the benefit of each Party and their respective successors and
assigns as provided
21
<PAGE> 25
for herein, and by their signatures hereto, and each Party intends to and does
hereby become bound. Nothing expressed or mentioned in this Agreement is
intended or shall be construed to give any Person other than the Parties hereto
and their respective successors and assigns any legal or equitable right, remedy
or claim under or in or in respect of this Agreement or any provision herein
contained.
Section 8.6 Severability of Provisions. In case any one or more of the
provisions contained in this Agreement should be invalid, illegal or
unenforceable in any respect, the validity, legality and enforceability of the
remaining provisions contained herein shall not in any way be affected or
impaired thereby.
Section 8.7 Plural, Singular. When used herein, the singular of each term
includes the plural and the plural of each term includes the singular.
Section 8.8 Counterparts. This Agreement may be executed in any number of
counterparts all of which taken together shall constitute one agreement and any
Party hereto may execute this Agreement by signing any such counterpart.
Section 8.9 Descriptive Headings: The descriptive headings of the several
sections of this Agreement are inserted for convenience only and do not
constitute a part of this Agreement.
Section 8.10 Future Assurances. Each Party shall execute and deliver all
such future instruments and take such other and further action as may be
reasonably necessary or appropriate to carry out the provisions of this
Agreement and the intention of the Parties as expressed herein.
Section 8.11 Termination. This Agreement shall be immediately terminated
upon any of the following: (i) the unanimous written consent to the termination
hereof by the Parties hereto, (ii) the dissolution, bankruptcy or receivership
of the Company, or (iii) at such time as only one (1) Holder remains a Party
hereto.
22
<PAGE> 26
IN WITNESS WHEREOF, the Parties have caused this Agreement to be duly
signed as of the date first above written.
<TABLE>
<S> <C>
XM SATELLITE RADIO HOLDINGS INC. AMERICAN MOBILE SATELLITE CORPORATION
By: /s/ Hugh Panero By: /s/ Gary M. Parsons
--------------- -------------------
Name: Hugh Panero Name: Gary M. Parsons
Title: President and CEO Title: Chairman of the Board of Directors
BARON ASSET FUND CLEAR CHANNEL INVESTMENTS, INC.
on behalf of BARON ASSET FUND SERIES
By: /s/ Ronald Baron By: /s/ Randall Mays
---------------- ----------------
Name: Ronald Baron Name: Randall Mays
Title: Chairman and CEO Title: Executive VP and CFO
COLUMBIA XM RADIO PARTNERS, LLC DIRECTV ENTERPRISES, INC.
By Columbia Capital LLC, its Managing Member
By: /s/ James B. Fleming By: /s/ Steven J. Cox
-------------------- -----------------
Name: James B. Fleming Name: Steven J. Cox
Title: Managing Director Title: Senior Vice President of New Ventures
GENERAL MOTORS CORPORATION MADISON DEARBORN CAPITAL PARTNERS
III, L.P.
By Madison Dearborn Partners III, L.P., its
general partner
By: /s/ Mark Gibbons By Madison Dearborn Partners LLC, its general
-------------------- partner
Name: Mark Gibbons
Title: Director, Business Development As Attorney-
in-fact for Eric Feldstein, Vice President and
Treasurer By: /s/ James N. Perry, Jr.
------------------------
Name: James N. Perry, Jr.
Title: Managing Director
MADISON DEARBORN SPECIAL EQUITY III, L.P. SPECIAL ADVISORS FUND I, LLC
By Madison Dearborn Partners III, L.P., its general By Madison Dearborn Partners III, L.P., its
partner manager
By Madison Dearborn Partners LLC, its general By Madison Dearborn Partners LLC, its general
partner partner
By: /s/ James N. Perry, Jr. By: /s/ James N. Perry, Jr.
----------------------- -----------------------
Name: James N. Perry, Jr. Name: James N. Perry, Jr.
Title: Managing Director Title: Managing Director
</TABLE>
<PAGE> 27
TELCOM--XM INVESTORS, L.L.C.
By: /s/ Rahul Prakash
-----------------
Name: Rahul Prakash
Title: President
<PAGE> 28
SCHEDULE I
NAMES, ADDRESSES AND FACSIMILE NUMBERS OF PARTIES
<TABLE>
<S> <C> <C>
The Company: XM Satellite Radio Holdings Inc. 202-969-7124
1250 23rd Street, N.W., Suite 57
Washington, DC 20037
Attention: Joseph M. Titlebaum, Esq.
American Mobile: American Mobile Satellite Corporation 703-758-6134
10802 Parkridge Blvd.
Reston, VA 22091
Attention: Randy S. Segal, Esq.
Baron: Baron Asset Fund 212-583-2014
767 Fifth Avenue, 49th Floor
New York, NY 10153
Attention: Linda Martinson, Esq.
Clear Channel: Clear Channel Investments, Inc. 210-822-2299
200 Concord Plaza, Suite 600
San Antonio, TX 78216
Attention: Mr. Mark Hubbard
Columbia: Columbia XM Radio Partners, L.L.C. 703-519-3904
201 North Union Street, Suite 300
Alexandria, Virginia 22314
Attention: Mr. James B. Fleming
DIRECTV: DIRECTV Enterprises, Inc. 310-964-4114
2230 East Imperial Highway
El Segundo, CA 90245
Attention: Mr. Steven J. Cox
GM: General Motors Corporation 212-418-6258
100 Renaissance Center
Detroit, MI 48265 - 1000
Attention: Mr. Mark Gibbens
Telcom: Telcom-XM Investors, L.L.C. 703-706-3801
211 North Union Street, Suite 300
Alexandria, VA 22314
Attention: Hal B. Perkins, Esq.
Madison: Madison Dearborn Partners, Inc. 312-895-1221
Three First National Plaza
Chicago, Illinois 60602
Attention: Mr. James N. Perry
</TABLE>
<PAGE> 1
EXHIBIT 99.2
XM SATELLITE RADIO HOLDINGS INC.
-----------------------------
REGISTRATION RIGHTS AGREEMENT
-----------------------------
JULY 7, 1999
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C>
Article I. DEFINITIONS.......................................................2
Section 1.1 Definitions.............................................2
Article II. REGISTRATION RIGHTS..............................................6
Section 2.1 Demand Registrations....................................6
Section 2.2 Shelf Registration......................................9
Section 2.3 Piggyback Registration Rights..........................10
Section 2.4 Registration Procedures................................11
Section 2.5 Hold-Back Agreements...................................15
Section 2.6 Black-Out Periods for Registration Statements..........15
Section 2.7 American Mobile Rights.................................15
Article III. INDEMNIFICATION AND CONTRIBUTION...............................16
Section 3.1 Indemnification by the Company.........................16
Section 3.2 Indemnification by Holders.............................16
Section 3.3 Conduct of Indemnification Proceedings.................17
Section 3.4 Contribution...........................................17
Article IV. MISCELLANEOUS...................................................18
Section 4.1 Rule 144...............................................18
Section 4.2 Specific Performance...................................18
Section 4.3 Amendments and Waivers.................................18
Section 4.4 Notices................................................19
Section 4.5 Transfers..............................................19
Section 4.6 Execution in Counterparts..............................19
Section 4.7 GOVERNING LAW; CHOICE OF FORUM; JURY TRIAL WAIVER......19
Section 4.8 Severability...........................................20
Section 4.9 Headings...............................................20
Section 4.10 No Inconsistent Agreement..............................20
Section 4.11 Further Assurances.....................................20
Section 4.12 Entire Agreement.......................................21
</TABLE>
<PAGE> 3
REGISTRATION RIGHTS AGREEMENT
This REGISTRATION RIGHTS AGREEMENT (this "Agreement"), dated as of July 7, 1999
("Agreement"), is hereby entered into by and among XM Satellite Radio Holdings
Inc., a corporation duly organized under the laws of the State of Delaware (the
"Company"), American Mobile Satellite Corporation, a corporation duly organized
under the laws of the State of Delaware ("American Mobile"), the Baron Asset
Fund series ("Baron") of Baron Asset Fund, a business trust organized under the
laws of the Commonwealth of Massachusetts, Clear Channel Investments, Inc., a
corporation duly organized under the laws of the State of Nevada ("Clear
Channel"), Columbia XM Radio Partners, LLC, a limited liability company duly
organized under the laws of the State of Virginia ("Columbia"), DIRECTV
Enterprises, Inc. a corporation duly organized under the laws of the State of
Delaware ("DIRECTV"), General Motors Corporation, a corporation duly organized
under the laws of the State of Delaware ("GM"), Madison Dearborn Capital
Partners III, L.P., ("Madison Capital"), Madison Dearborn Special Equity III,
L.P. ("Madison Equity") and Special Advisors Fund I, LLC ("Madison Advisors"
and, collectively with Madison Capital and Madison Equity, each an entity duly
organized under the laws of the State of Delaware, "Madison") and Telcom-XM
Investors, L.L.C., a limited liability company duly organized under the laws of
the State of Delaware ("Telcom"). Baron, Clear Channel, Columbia, DIRECTV, GM,
Madison and Telecom are collectively referred to herein as the "Investors". The
Company, American Mobile, and the Investors are collectively referred to herein
as the "Parties".
W I T N E S S E T H
-------------------
WHEREAS, the Investors (other than Baron) have agreed to make an
investment in the Company through the purchase of Series A Subordinated
Convertible Notes (the "Convertible Notes" or the "Notes") pursuant to a certain
Note Purchase Agreement, dated June 7, 1999, by and among the Company and the
Investors (other than Baron) (the "Note Purchase Agreement");
WHEREAS, the Company has agreed to execute this Agreement to provide
the Investors with certain rights to cause the registration of the Class A
Common Stock (as hereafter defined) issuable upon conversion of the Notes or
upon conversion of shares of Series A Convertible Preferred Stock;
WHEREAS, American Mobile is a shareholder of the Company;
WHEREAS, the Company has agreed to execute this Agreement to provide
American Mobile with rights to cause the registration of shares of Class A
Common Stock held by it;
WHEREAS, the Company, American Mobile, WorldSpace, Inc. and Baron
have entered into the January 15 Letter Agreements, which provide that, from and
after the completion of a substantial public or private equity financing by the
Company of $100 million or more, Baron shall benefit, on a "most favored nation"
basis, from any reduction in the restrictions on transfer, improvements in
rights to receive information regarding the Company and any
<PAGE> 4
registration rights accepted by any other investor in the Company pursuant to
the terms of such financing;
WHEREAS, the Investors hereby acknowledge the rights granted to
Baron under the January 15 Letter Agreements, and the Parties desire that this
Agreement constitute the sole evidence of such rights from the date hereof;
WHEREAS, Baron hereby acknowledges that the rights granted to it
under this Agreement constitute the sole evidence of such rights from the date
hereof, and that the January 15 Letter Agreements shall terminate as of the date
hereof; and
WHEREAS, the Parties desire herein to provide certain registration
rights to each Investor and to American Mobile.
NOW, THEREFORE, in consideration of the foregoing and the promises
and covenants contained herein, the Parties agree as follows:
ARTICLE I.
DEFINITIONS
Section 1.1 Definitions. Capitalized terms not otherwise defined herein
shall have the respective meanings ascribed to them in the Note Purchase
Agreement. The following terms, as used herein, have the following meanings:
"Accredited Investor" has the meaning specified in the Note
Purchase Agreement.
"Additional Demand Registration" has the meaning specified in
Section 2.1(e).
"Affiliate", as applied to any specified Person, shall mean any
other Person, directly or indirectly, controlling or controlled by or under
direct or indirect common control with such specified Person. For the purposes
of this definition, "control" (including, with correlative meanings, the terms
"controlling," "controlled by" and "under common control") as applied to any
Person, means the possession, directly or indirectly, of the power to direct or
cause the direction of the management and policies of such Person, whether
through the ownership of voting securities, by contract or otherwise. For
purposes of this definition, a member of a limited liability company or a
partner of a partnership shall be deemed an Affiliate of said company or
partnership.
"Agreement" means this Registration Rights Agreement (including any
Schedules hereto), as it may from time to time be amended, supplemented or
modified in accordance with its terms.
"American Mobile" has the meaning specified in the Preamble.
"Baron" has the meaning specified in the Preamble.
2
<PAGE> 5
"Board" or "Board of Directors" means the Board of Directors of the
Company or a committee consisting of one or more directors lawfully exercising
the relevant powers of the Board.
"Board Resolution" means a resolution duly adopted by the Board of
Directors, certified by the Secretary or an Assistant Secretary of the Company
to have been duly adopted by the Board of Directors and to be in full force and
effect on the date of such certification.
"Business Day" means any day other than a Saturday, Sunday or any
other day on which commercial banks are authorized or required by law to be
closed in New York City or the District of Columbia.
"Class A Common Stock" means the Class A Common Stock, par value
$0.01 per share, of the Company, having one (1) vote per share.
"Class B Common Stock" means the Class B Common Stock, par value
$0.01 per share, of the Company, having three (3) votes per share.
"Class C Common Stock" means the Class C Common Stock, par value
$0.01 per share, of the Company, having zero (0) votes per share.
"Clear Channel" has the meaning specified in the Preamble.
"Closing Date" means the date of the closing under the Note Purchase
Agreement, or such later date as the Parties hereto shall mutually agree.
"Columbia" has the meaning specified in the Preamble.
"Commencement of Commercial Operations" means the commencement of
commercial operations of XM Satellite Radio Inc. as publicly announced by it.
"Commission" means the Securities and Exchange Commission or any
other Federal agency at the time administering the Securities Act.
"Common Stock" means all classes and series of the common stock,
$0.01 par value per share, of the Company, any stock into which such common
stock shall have been changed or converted or any stock resulting from any
capital reorganization or reclassification of such common stock, and all other
stock of any class or classes (however designated) of the Company the holders of
which have the right, without limitation as to amount, either to all or to a
share of the balance of current dividends and liquidating dividends after the
payment of dividends and distributions of any shares entitled to preference.
"Company" has the meaning specified in the Preamble.
"Convertible Notes" has the meaning specified in the Recitals.
"Demand Registration" has the meaning specified in Section 2.1(a).
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"DIRECTV" has the meaning specified in the Preamble.
"End of Suspension Notice" has the meaning specified in Section
2.6(b).
"Exchange Act" means the Securities Exchange Act of 1934, as
amended, and the rules and regulations promulgated thereunder, all as the same
shall be in effect at the time.
"Exchange Agreement" means that certain Exchange, Amendment and
Recapitalization Agreement, dated on or about the date hereof, between the
Company and American Mobile.
"Fair Market Value" means the price that would be paid in an
arm's-length transaction between an informed and willing seller under no
compulsion to sell and an informed and willing buyer under no compulsion to buy.
If there is any dispute as to the Fair Market Value of any security of the
Company between the Investor who holds such security and the Company, the Fair
Market Value of such security shall be determined by a firm of independent
appraisers of national standing valuing such security on an as-converted basis.
"GM" has the meaning specified in the Preamble.
"High Yield Debt" has the meaning specified in the Note Purchase
Agreement.
"Holders" means each of Baron, Clear Channel, Columbia, DIRECTV, GM,
Madison, Telcom and American Mobile, severally, and any transferees of
registration rights hereunder permitted pursuant to Section 4.5.
"Holders' Notes" means the Notes, the $21 Million Notes and the
New American Mobile Note.
"Initial Public Offering" means the closing of a firm commitment
underwritten public offering of shares of Common Stock
"Investors" has the meaning specified in the Preamble.
"January 15 Letter Agreements" means, collectively, (i) that certain
letter agreement between American Mobile, Baron and WorldSpace and (ii) that
certain letter agreement between American Mobile and WorldSpace, each such
letter agreement dated as of January 15, 1999.
"Losses" has the meaning specified in Section 3.1.
"Madison" has the meaning specified in the Preamble.
"Managing Underwriters" has the meaning specified in Section
2.1(c).
"New American Mobile Note" has the meaning specified in the
Exchange Agreement.
"Notes" has the meaning specified in the Recitals.
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"Note Purchase Agreement" has the meaning specified in the
Recitals.
"Person" means any individual, partnership, corporation, joint
venture, limited liability company, association, trust, unincorporated
organization, or a government or agency or political subdivision thereof.
"Piggyback Registration" has the meaning specified in Section
2.3(a).
"Qualified Initial Public Offering" means the closing of a firm
commitment underwritten public offering of Common Stock in an offering which (a)
raises not less than $100 million in gross proceeds and (b) for which the
offering price of the securities offered thereby is at least (i) 125% of the
Conversion Price if the offering occurs within six months of the Closing Date or
(ii) 150% of the Conversion Price if the offering occurs more than six months
after the Closing Date, unless the Company obtains Requisite Approval (as such
term is defined in the Note Purchase Agreement) for a lower offering price or
lower amount of funds raised at which the Notes may be automatically converted.
"Qualified Institutional Buyer" has the meaning specified in the
Note Purchase Agreement.
"Registrable Securities" means the shares of Class A Common Stock of
the Company issued or issuable (i) upon conversion of the Notes (ii) upon
conversion of the Series A Convertible Preferred Stock issued or issuable upon
conversion of the Notes or (iii) upon conversion of the Class B Common Stock
held by American Mobile or issued or issuable upon conversion of the New
American Mobile Note or the $21 Million Notes that may be available for
registration from time to time pursuant to the terms hereof; provided, however,
that such securities shall cease to be Registrable Securities when a
Registration Statement with respect to the registration of such securities shall
have been declared effective under the Securities Act and such securities shall
have been disposed of pursuant to such Registration Statement, or when such
securities have been sold without restriction pursuant to Rule 144 under the
Securities Act. All references to "Registrable Securities" held by a Holder
shall include all Registrable Securities issuable to such Holder upon conversion
of any Convertible Securities (as such term is defined in the Shareholders
Agreement) held by such Holder.
"Registration Statement" means a registration statement filed with
the Commission pursuant to the Securities Act.
"Securities Act" means the Securities Act of 1933, as amended, or
any similar federal statute and the rules and regulations of the Commission
thereunder, all as the same shall be in effect at the time.
"Series A Convertible Preferred Stock" means the Series A
Convertible Preferred Stock, par value $1.00 per share, of the Company, having
zero (0) votes per share.
"Shareholders Agreement" means that certain Shareholders Agreement,
dated on or about the date hereof, by and among the Parties hereto.
"Shelf Registration" has the meaning specified in Section
2.2(a).
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"Suspension Event" has the meaning specified in Section 2.6(a).
"Suspension Notice" has the meaning specified in Section 2.6(b).
"TCM Group" means Telcom, Columbia and Madison, collectively.
"Telcom" has the meaning specified in the Preamble.
"$21 Million Notes" means the convertible notes issued by the
Company to American Mobile as of January 15, 1999.
"Underwritten Offering" has the meaning specified in Section
2.1(c).
"WorldSpace" means WorldSpace, Inc., a corporation duly organized
under the laws of the State of Maryland.
ARTICLE II.
REGISTRATION RIGHTS
Section 2.1 Demand Registrations. No Holder shall have any right to
exercise any of the demand registration rights granted herein until the date
which is twelve (12) months after the Closing Date.
(a) Right to Demand. At any time after the date which is twelve (12) months
after the Closing Date, any Holder may notify the Company that it intends to
offer to or cause to be offered for public sale all or any portion of the
Registrable Securities held by or issuable to it (a "Demand Registration"),
then, subject to the rights of the Company set forth in Section 2.1(b) and the
registration rights of each other Holder set forth in Section 2.3, the Company
will use its best efforts to cause such Registrable Securities as may be
requested by such Holder to be registered under the Securities Act, pursuant to
a Registration Statement on such form as may then be available to the Company
for sale in an underwritten offering or a non-underwritten offering, as elected
by such Holder, and to keep such Registration Statement effective until the
earlier of: (i) the date six months from the date of effectiveness thereof, or
(ii) the date on which all of the Holders' Registrable Securities registered
thereunder are sold; provided, however, that the requesting Holder must request
registration of Registrable Securities with a Fair Market Value, on the date of
such request, of at least $10 million (unless the Fair Market Value of all of
the Registrable Securities held by or issuable to such Holder is less than $10
million, in which event all of the Registrable Securities held by or issuable to
such Holder must be included in such registration in order to effect such
registration). Subject to the rights of each Holder as set forth in Section
2.1(e), each of Baron, Clear Channel, DIRECTV, GM and the TCM Group (which, for
purposes of this Section 2.1(a), shall be considered a single "Holder") shall be
entitled to one Demand Registration as provided herein, and American Mobile
shall be entitled to two Demand Registrations as provided herein. The Company
may postpone the filing of any Registration Statement required under this
Section 2.1 for a reasonable period of time, not to exceed 120 days following
receipt by the Company of the Holder's request, if a Suspension Event (as
hereinafter defined) has occurred and is continuing.
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(b) Company Priority on Registration. Notwithstanding any other provision of
this Agreement to the contrary, upon receipt by the Company of a request for a
Demand Registration from a Holder, the Company shall have the right, within 30
days of receipt of such notice, to notify such Holder of the Company's intention
to commence a primary public offering of securities for its own account (other
than a registration effected solely to implement an employee benefit plan or a
transaction to which Rule 145 or any other similar rule of the Commission under
the Securities Act is applicable) by the filing of a Registration Statement with
the Commission and, in such a case, the Company shall not have any obligation to
honor the request to register the shares held by such notifying Holder; in which
event such request shall be deemed never to have been made; provided, however,
that the Company shall commence such public offering by the filing of such a
Registration Statement within 60 days of so notifying that Holder. In addition,
the Company shall not be required to cause a Registration Statement demanded
pursuant to this Section 2.1 to become effective prior to 120 days following the
effective date of a Registration Statement initiated by the Company, if the
request for registration has been received by the Company subsequent to the
giving of written notice by the Company, made in good faith, to the Holders to
the effect that the Company is commencing to prepare a company-initiated
Registration Statement (other than a registration effected solely to implement
an employee benefit plan or a transaction to which Rule 145 or any other similar
rule of the Commission under the Securities Act is applicable); provided,
however, that the Company shall use its best efforts to achieve such
effectiveness promptly.
(c) Selection of Managing Underwriters. The offering of Registrable
Securities pursuant to any Registration Statement filed under this Article II
shall be in the form of an underwritten offering ("Underwritten Offering"), if
the Holders of a majority of the Registrable Securities requested to be
registered in such offering so elect. In such event, the Company shall select
one or more managing underwriters to act in connection with such Underwritten
Offering (the "Managing Underwriters"), which Managing Underwriters shall be
approved by the Holder initiating such offering, which approval shall not be
unreasonably withheld. Any request by the Holders of Registrable Securities for
an Underwritten Offering shall, in addition to specifying the number of shares
requested to be registered, specify the anticipated per share price range for
such offering.
(d) Priority on Underwritten Offering. If the Managing Underwriters for an
Underwritten Offering demanded by the Holders pursuant to this Section 2.1
notify the Company and such Holders that in their opinion the number of
Registrable Securities requested to be included in such offering (together with
any other shares of Common Stock which the Company is required to include in
such registration) exceeds the number of shares which can be sold in such
offering in an orderly manner within a price range acceptable to the Holders of
the majority of the Registrable Securities requested to be included in such
offering, the Company will include in such offering the maximum amount of
Registrable Securities requested to be included pursuant to this Agreement,
which, in the opinion of the Managing Underwriters, can be sold in such offering
in an orderly manner within an acceptable price range, and such amount shall be
allocated pro rata among the Holders thereof on the basis of the number of
shares of Registrable Securities requested to be included in such registration
by each such Holder pursuant to Section 2.1(a) and Section 2.3(a); provided,
however, that American Mobile's right to register its Registrable Securities
pursuant to this Section 2.1(d) shall be subordinate to the rights of the other
Holders hereunder.
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(e) Cut-back. In the event that, in connection with any exercise by any
Holder of a Demand Registration, other Holders exercise Piggyback Registration
rights as provided in Section 2.3, and following such exercise the Managing
Underwriters in an Underwritten Offering notify the Company that in their
opinion the number of Registrable Securities requested to be included in such
offering exceeds the number of shares which can be sold in an orderly manner in
such offering within a price range acceptable to the initiating Holder such that
the initiating Holder is unable to sell at least 75% of the number of shares
originally requested to be registered by it, such initiating Holder shall be
entitled to an additional Demand Registration exercisable at such later time as
such Holder may elect (an "Additional Demand Registration"). If such Additional
Demand Registration is exercised and such initiating Holder is unable to sell in
such offering, cumulatively with the number of shares sold in the first offering
requested by it, at least 75% of the number of shares originally requested to be
registered by it, such initiating Holder shall be entitled to successive
Additional Demand Registrations until it has sold in all such Additional Demand
Registrations, cumulatively with the first offering requested by it, at least
75% of the amount originally requested to be registered by it.
(f) American Mobile Registration Rights. American Mobile shall be entitled
to exercise two Demand Registrations, subject to the rights of the Company set
forth in Section 2.1(b) and subject to the right of each other Holder to
exercise Piggyback Registration rights in connection with a demand by American
Mobile; provided that each other Holder shall have priority over American Mobile
(i) with respect to registration of its Registrable Securities in such offering
and (ii) with respect to registration of Registrable Securities pursuant to
Section 2.2(c). In the event that American Mobile, in a Demand Registration it
has initiated, is not able to sell at least 75% of the number of shares
originally requested to be registered by it, then American Mobile shall be
entitled to an Additional Demand Registration exercisable at such later time as
American Mobile may elect. If such Additional Demand Registration is exercised
and American Mobile is unable to sell in such offering, cumulatively with the
number of shares sold in the first offering requested by it, at least 75% of the
number of shares originally requested to be registered by it, American Mobile
shall be entitled to successive Additional Demand Registrations until it has
sold in all such Additional Demand Registrations, cumulatively with the first
offering requested by it, at least 75% of the amount originally requested to be
registered by it.
(g) Inclusion by the Company of its Common Stock in an Underwritten
Offering. If the Managing Underwriters for an Underwritten Offering notify the
Company that in their opinion the number of Registrable Securities to be
included in an Underwritten Offering is less than the number of shares which can
be sold in an orderly manner in such offering within a price range acceptable to
the Holder initiating such offering, the Company may include in such
registration, on its own behalf, up to the greatest number of shares of Common
Stock which in the opinion of the Managing Underwriters can be sold (together
with the Registrable Securities demanded to be included in such registration) in
an orderly manner within the price range acceptable to the Holder initiating
such offering.
(h) Participation in Underwritten Registrations. Notwithstanding any other
provision of this Section 2.1 or Section 2.3 to the contrary, no Person may
participate in any Underwritten Offering hereunder unless such Person: (i)
agrees to sell such Person's securities on the basis provided in the applicable
underwriting arrangements, which shall contain customary terms and
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<PAGE> 11
conditions, and (ii) completes and executes all questionnaires, powers of
attorney, indemnities, underwriting agreements and other documents required
under the terms of such underwriting arrangements; provided, however, that no
Holder of Registrable Securities included in any Underwritten Offering shall be
required to make any representations or warranties to the Company or the
underwriters other than representations and warranties regarding such Holder and
such Holder's intended method of distribution and no Holder shall be required to
undertake joint or joint and several obligations with any other Person.
(i) Expenses of Underwriting Offering. The Company shall pay any and all
registration expenses incident to the filing of each Registration Statement or
otherwise incident to the performance by the Company of, or its compliance with,
its obligations under this Section 2.1. Each Holder shall pay all underwriting
discounts and commissions and transfer taxes, if any, relating to the sale or
disposition of such Holder's Registrable Securities included in the Underwritten
Offering and the fees of any counsel retained by such Holder in connection
therewith.
Section 2.2 Shelf Registration.
(a) Shelf Registration. Following the Commencement of Commercial Operations
and at the request of the Holders holding Registrable Securities having a Fair
Market Value of not less than $25 million (collectively, the "Requesting
Holders"), the Company shall notify (such notice a "Shelf Notification") each
Holder not a Requesting Holder of the Company's intention to prepare and file
with the Commission a Registration Statement for an offering to be made on a
delayed or a continuous basis pursuant to Rule 415 (or any appropriate similar
rule that may be adopted by the Commission) under the Securities Act covering
all or a portion of the Registrable Securities, and shall thereafter prepare and
file such Registration Statement (the "Shelf Registration"). Each Holder not a
Requesting Holder shall notify the Company within thirty (30) days of receipt of
a Shelf Notification if it intends to include Registrable Securities held by it
in such Shelf Registration; otherwise, such Holder shall have no right to
include its Registrable Securities in such Shelf Registration or in any
subsequent Shelf Registration; provided that a Holder not a Requesting Holder
may subsequently request a Shelf Registration pursuant to this Section 2.2(a) if
such Holder (i) notifies the Company within thirty (30) days of a Shelf
Notification that (a) upon request of the Company, it has agreed not to include
its Registrable Securities in such Shelf Registration, or (b) by reason of
contractual obligation or law, it cannot at the time of the Shelf Notification
include its Registrable Securities in a Shelf Registration and (ii) in each
subsequent request for a Shelf Registration, such Holder (collectively with
other Holders not Requesting Holders making such request) must request
registration of Registrable Securities with an aggregate Fair Market Value on
the date of such request of not less than $25 million in Registrable Securities
held by or issuable to such Holder(s). Each Shelf Registration shall be on a
Form S-3 or another appropriate form (unless the Holders of the Registrable
Securities offered thereby reasonably request a specific form) permitting
registration of such Registrable Securities for resale by the Holders in the
manner or manners reasonably designated by them (including, without limitation,
one or more underwritten offerings).
(b) Effectiveness. The Company shall use reasonable efforts to cause the
Shelf Registration to become effective under the Securities Act as soon as
practicable following the date of filing. Subject to the requirements of the
Securities Act including, without limitation,
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requirements relating to updating prospectuses through post-effective amendments
or otherwise, the Company shall use reasonable efforts to keep the Shelf
Registration continuously effective until the date on which all of the
Registrable Securities registered thereunder from time to time are sold.
(c) Priority in Underwritten Offering from Shelf Registration. If any of the
Registrable Securities to be registered pursuant to Shelf Registration are to be
sold in an Underwritten Offering, and if the Managing Underwriters notify the
Company and the Holders of such Registrable Securities that in their opinion,
the number of Registrable Securities requested to be included in such offering
exceeds the number of shares which can be sold in such offering in an orderly
manner within an acceptable price range, there shall be included in such
Underwritten Offering the maximum amount of Registrable Securities requested to
be included, pursuant to this Agreement, which in the opinion of the Managing
Underwriters can be sold in an orderly manner within an acceptable price range,
and such amount shall be allocated pro rata among the Holders of such
Registrable Securities requested to be included in such Underwritten Offering on
the basis of the number of shares of Registrable Securities requested to be
included in such registration by each such Holder. American Mobile's right to
register its Registrable Securities pursuant to this Section 2.2(c) shall be
subordinate to the rights of the other Holders hereunder.
Section 2.3 Piggyback Registration Rights.
(a) Requests for Piggyback Registration. If, at any time, the Company
proposes to effect a registered offering of its Common Stock (including pursuant
to Section 2.1 and Section 2.2), the Company will give prompt written notice to
all Holders of its intention to effect such a registration and, subject to
Section 2.3(b) and Section 2.3(c), will include in such registration all
Registrable Securities with respect to which the Company has received written
requests for inclusion therein within fifteen (15) days after the date the
Company's notice is given (a "Piggyback Registration"); provided, however, that
the Holders shall not have any right to cause a Piggyback Registration in
connection with any Initial Public Offering by the Company or in any offering by
the Company of High Yield Debt.
(b) Priority on Primary Registrations. If, in connection with any proposed
Piggyback Registration in connection with an Underwritten Offering initiated by
the Company (other than pursuant to Section 2.1), the Managing Underwriters
notify the Company that in their opinion the number of shares of securities
requested to be included in such offering exceeds the number which can be sold
in such offering in an orderly manner within a price range acceptable to the
Company, the Company will include in such offering (i) first, the securities the
Company proposes to sell and (ii) second, the greatest number of the Registrable
Securities requested to be included pursuant to this Agreement, pro rata among
the Holders thereof on the basis of the number of shares requested to be
included in such registration by each such Holder, in each case up to the
greatest number of shares of Common Stock which, in the opinion of the Managing
Underwriters, can be sold in an orderly manner in the price range of such
offering; provided, however, that American Mobile shall not be entitled to
participate in any such Piggyback Registration until all shares of Registrable
Securities held by other Holders which have been requested to be included in
such Piggyback Registration have been so included.
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(c) Priority on Secondary Registrations. Subject to Section 4.10(b), if a
Piggyback Registration is an underwritten secondary registration on behalf of
holders of the Company's securities (other than the Registrable Securities), and
the Managing Underwriters notify the Company that in their opinion the number of
shares of securities requested to be included in such offering exceeds the
number which can be sold in an orderly manner within an acceptable price range,
the Company will include in such offering (i) first, the securities requested to
be included pursuant to this Agreement by the holders requesting such
registration, and (ii) second, the greatest number of the Registrable Securities
and any other securities requested to be included pursuant to this Agreement
(including by the Company), subject to Section 2.1(g), pro rata among the
Holders thereof and the holders of such other securities on the basis of the
number of shares requested to be included in such registration by each such
holder, in each case up to the greatest number of shares of Common Stock which
in the opinion of the Managing Underwriters can be sold in an orderly manner in
the price range of such offering; provided, however, that American Mobile shall
not be entitled to participate in any such Piggyback Registration until all
shares of Registrable Securities held by other Holders which have been requested
to be included in such Piggyback Registration have been so included.
(d) Participation in Piggyback Registrations. Notwithstanding any other
provision of this Section 2.3 to the contrary, no Person may participate in any
Piggyback Registration hereunder unless such Person: (i) agrees to sell such
Person's securities on the basis provided in the applicable underwriting
arrangements, which shall contain customary terms and conditions, and (ii)
completes and executes all questionnaires, powers of attorney, indemnities,
underwriting agreements and other documents required under the terms of such
underwriting arrangements; provided, however, that no Holder of Registrable
Securities included in any Piggyback Registration shall be required to make any
representations or warranties, jointly or severally, to the Company or the
underwriters other than representations and warranties regarding such Holder and
such Holder's intended method of distribution, and no Holder shall be required
to undertake joint or joint and several obligations with any other Person.
(e) Expenses of Piggyback Registration. The Company or Persons other than
the Holders shall pay any and all registration expenses incident to the filing
of each Registration Statement or otherwise incident to the performance by the
Company of or its compliance with, its obligations under this Section 2.3. Each
Holder shall pay all underwriting discounts and commissions and transfer taxes,
if any, relating to the sale or disposition of such Holder's Registrable
Securities included in the Piggyback Registration and the fees of any counsel
retained by such Holder in connection therewith.
Section 2.4 Registration Procedures. The Company hereby covenants and
agrees that it shall:
(a) perform its obligations with respect to a Registration Statement
pursuant to Section 2.1, Section 2.2 or Section 2.3 hereof and effect or cause
to be effected the registration of the Registrable Securities under the
Securities Act to permit the sale of such Registrable Securities by the Holders
in accordance with their intended method or methods of distribution, and that it
shall prepare and file with the Commission a Registration Statement with respect
to such Registrable Securities and use its best efforts to cause such
Registration Statement to become effective (provided that, before filing a
Registration Statement or prospectus or any
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amendments or supplements thereto, it will furnish to one counsel selected by
each Holder participating in such registration (each of Baron, Clear Channel,
DIRECTV, GM and the TCM Group shall, for such purposes, be considered a single
"Holder") copies of all such documents proposed to be filed, which documents
will be subject to the review of such counsel) and it will incorporate in such
Registration Statement the reasonable comments of such counsel not inconsistent
with the Company's disclosure obligations under applicable securities laws;
(b) prepare and file with the Commission such amendments and supplements to
such Registration Statement and the prospectus used in connection therewith as
may be necessary to keep such Registration Statement effective for the period
required hereunder (or if no period is so required, a period of not less than
one hundred eighty (180) days or such shorter period which is sufficient to
complete the distribution of the securities registered under the Registration
Statement) and comply with the provisions of the Securities Act with respect to
the disposition of all securities covered by such Registration Statement during
such period in accordance with the intended methods of disposition by the
sellers thereof set forth in such Registration Statement;
(c) furnish to each seller of Registrable Securities, the Managing
Underwriters, if any, and their respective counsel, prior to the filing thereof
with the Commission, such number of copies of such Registration Statement, each
amendment and supplement thereto, the prospectus included in such Registration
Statement (including each preliminary prospectus) and such other documents as
such seller may reasonably request in order to facilitate the disposition of the
Registrable Securities owned by such seller and to use its best efforts to
reflect in each such document, when so filed with the Commission, such comments
as the sellers of Registrable Securities or their counsel shall reasonably
propose;
(d) use its best efforts to comply with the requirements of any applicable
blue sky laws of such jurisdictions as any seller reasonably requests and do any
and all other acts and things which may be reasonably necessary or advisable to
enable such seller to consummate the disposition in such jurisdictions of the
Registrable Securities owned by such seller (provided, however, that the Company
will not be required to: (i) qualify generally to do business in any
jurisdiction where it would not otherwise be required to qualify but for this
subparagraph, (ii) subject itself to taxation in any such jurisdictions, or
(iii) consent to general service of process in any such jurisdiction);
(e) notify each seller of such Registrable Securities as promptly as
practicable in any of the following circumstances: (i) at any time when a
prospectus relating thereto is required to be delivered under the Securities
Act, of the happening of any event as a result of which the prospectus included
in such Registration Statement contains an untrue statement of a material fact
or omits any fact necessary to make the statements therein not misleading, and,
at the request of any such seller, the Company will prepare a supplement or
amendment to such prospectus so that, as thereafter delivered to the purchasers
of such Registrable Securities, such prospectus will not contain an untrue
statement of a material fact or omit to state any fact necessary to make the
statements therein not misleading; (ii) when a Registration Statement and any
amendment thereto has been filed with the Commission and when the Registration
Statement or any post-effective amendment thereto has become effective; (iii) of
any request by the Commission for amendment or supplements to the Registration
Statement or the prospectus included therein or for additional information; (iv)
of the issuance by the Commission of any stop order suspending the
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effectiveness of the Registration Statement or the initiation of any proceedings
for that purpose; and (v) the receipt by the Company of any notification with
respect to the suspension of the qualification of the securities included
therein for sale in any jurisdiction or the initiation of any proceeding for
such purpose;
(f) cause all such Registrable Securities to be listed on each securities
exchange or quoted in each quotation system on which similar securities issued
by the Company are then listed or quoted;
(g) enter into such agreements on terms reasonably acceptable to the
Company (including underwriting agreements) in form, scope and substance as are
customary in underwritten offerings, and take all other reasonable actions
necessary to facilitate the registration or the disposition of the Registrable
Securities included in any Registration Statement including, without limitation,
the participation of senior management in "road shows" and similar activities,
provided that such activities do not interfere with the duties of senior
management in a manner that would likely be detrimental to the best interests of
the Company;
(h) take such action as may be necessary so that: (i) any Registration
Statement and any amendment thereto and any prospectus forming part thereof and
any amendment or supplement thereto (and each report or other document
incorporated therein by reference in each case) complies in all material
respects with the Securities Act and the Exchange Act and the respective rules
and regulations thereunder; (ii) any Registration Statement and any amendment
thereto does not, when it becomes effective, contain an untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein not misleading; and (iii) any
prospectus forming part of any Registration Statement, and any amendment or
supplement to such prospectus, does not include an untrue statement of a
material fact or omit to state a material fact necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading;
(i) use its best efforts to prevent the issuance, and if issued to obtain
the withdrawal, of any order suspending the effectiveness of any Registration
Statement at the earliest possible time;
(j) cooperate with the Holders to facilitate the timely preparation and
delivery of certificates representing Registrable Securities to be sold pursuant
to any Registration Statement free of any restrictive legend and registered in
such names as the Holders may request in connection with the sale of Registrable
Securities pursuant to such Registration Statement; and
(k) obtain and furnish to each selling Holder, immediately prior to the
effectiveness of the Registration Statement (and, in the case of an Underwritten
Offering, at the time of delivery of any Registrable Securities sold pursuant
thereto) a cold comfort letter from the Company's independent public accountants
in the same form and covering the same matters as is typically delivered to
underwriters and, in the event that an underwriter or underwriters have been
retained in connection with such registration, such cold comfort letter to be
provided to the selling Holders shall be the same cold comfort letter delivered
to such underwriter or underwriters.
13
<PAGE> 16
Each Holder agrees that, upon receipt of any notice from the Company
of the happening of any event of the kind described in Section 2.4(e) hereof,
such Holder will immediately discontinue disposition of Registrable Securities
pursuant to a Registration Statement until such Holder's receipt of the copies
of the supplemented or amended prospectus contemplated by Section 2.4(e) hereof,
and, if so directed by the Company, such Holder will deliver to the Company (at
the expense of the Company) all copies in its possession, other than permanent
file copies then in such Holder's possession, of the prospectus covering such
Registrable Securities current at the time of receipt of such notice. If the
Company shall give any such notice to suspend the disposition of Registrable
Securities pursuant to a Registration Statement, the Company shall extend the
period during which the Registration Statement shall be maintained effective
pursuant to this Agreement by the number of days during the period from and
including the date of the giving of such notice to and including the date when
the Holders shall have received copies of the supplemented or amended prospectus
necessary to resume such dispositions.
Section 2.5 Hold-Back Agreements.
(a) Restrictions on Public Sale by the Holders. Each Holder of Registrable
Securities shall be deemed to have agreed not to effect any public sale or
public distribution of securities of the Company of the same or similar class or
classes of the securities included in a Registration Statement or any securities
convertible into or exchangeable or exercisable for such securities, including a
sale pursuant to Rule 144 or Rule 144A under the Securities Act, during the
15-day period prior to, and during such period of time as may be required by the
Managing Underwriter, but not to exceed a 90-day period beginning on, the
effective date of the Registration Statement (except pursuant to an Underwritten
Offering being conducted by the Managing Underwriters), except to the extent
otherwise agreed in writing by the Managing Underwriter. The foregoing
restriction shall apply to all Holders automatically for the period of three (3)
years commencing from the date of the Initial Public Offering, and thereafter
shall apply to those Holders electing to include Registrable Securities in a
Registration Statement for an Underwritten Offering filed pursuant to Section
2.1, Section 2.2 or Section 2.3. The restrictions set forth in this Section
2.5(a) shall not apply to any private sales of Registrable Securities that are
exempt from registration under section 4(2) of the Securities Act.
(b) Restrictions on Public Sale by the Company. The Company shall not effect
any public sale or public distribution of any securities which are the same as
or substantially similar to the Registrable Securities being registered pursuant
to a Registration Statement for an Underwritten Offering filed pursuant to
Section 2.1, Section 2.2 or Section 2.3 hereof, or any securities convertible
into or exchangeable or exercisable for such securities during the 15-day period
prior to, and during the 30-day period beginning on, the effective date of a
Registration Statement (except pursuant to the Registration Statement),
provided, however, that the foregoing restrictions shall not apply in the case
of any registration for public sale or public distribution of any securities for
High Yield Debt (regardless of whether or not coupled with warrants, options, or
other equity equivalents) by the Company.
14
<PAGE> 17
Section 2.6 Black-Out Periods for Registration Statements.
(a) Notwithstanding anything to the contrary in this Agreement, commencing
ninety (90) days after the effectiveness of a Registration Statement, the
Company may, not more than once in any 12-month period, and one additional time
during the term of this Agreement (but not during any other Suspension Event or
within ninety (90) days after termination of any other Suspension Event), direct
the Holders to suspend sales of Registrable Securities registered thereunder, as
provided herein, if one or more of the following events (a "Suspension Event")
occurs pending negotiations relating to, or consummation of, a material
corporate transaction (i) that would require additional disclosure of material
information by the Company in the Registration Statement (or such filings), (ii)
as to which the Company has a bona fide business purpose for preserving
confidentiality and (iii) which renders the Company unable to comply with
Commission requirements, in each case under circumstances that would make it
impractical or inadvisable to cause the Registration Statement (or such filings)
to become effective or to promptly amend or supplement the Registration
Statement on a post-effective basis, as applicable.
(b) In the case of a Suspension Event, the Company may give notice (a
"Suspension Notice") to the Holders to suspend sales of the Registrable
Securities so that the Company may correct or update the Registration Statement
(or such filings). Each such suspension shall continue only for so long as the
Suspension Event or its effect is continuing, and in no event will any such
suspension exceed ninety (90) days. The Holders agree that they will not effect
any sales of the Registrable Securities pursuant to such Registration Statement
(or such filings) at any time after they have received a Suspension Notice from
the Company and prior to the termination of such Suspension Event. If so
directed by the Company, the Holders will deliver to the Company all copies of
the prospectus covering the Registrable Securities held by them at the time of
receipt of the Suspension Notice. The Holders may recommence effecting sales of
the Registrable Securities pursuant to the Registration Statement (or such
filings) following further notice to such effect (an "End of Suspension Notice")
from the Company, which End of Suspension Notice shall, in the case of a
Suspension Event, be given by the Company not later than five (5) days after the
conclusion of any Suspension Event and shall be accompanied by copies of the
supplemented or amended prospectus necessary to resume such sales.
(c) If the Company shall give a Suspension Notice pursuant to this Section
2.6, the Company shall extend the period during which the Registration Statement
shall be maintained effective pursuant to this Agreement by the number of days
during the period from the date of the giving of the Suspension Notice to and
including the date when the Holders shall have received the End of Suspension
Notice and copies of the supplemented or amended prospectus necessary to resume
sales.
Section 2.7 American Mobile Rights. Except as otherwise expressly provided
herein, all references to "Holders" herein includes American Mobile.
Notwithstanding anything to the contrary herein, the rights of American Mobile
under Sections 2.1, 2.2 and 2.3 shall be subordinate to the corresponding rights
of the other Holders; provided, however, that the Company shall in no event
hereafter provide any Person with any rights to request the Company to register
any Capital Stock of the Company, with priority equal to or superior to that of
American Mobile hereunder, except in connection with any offering of High Yield
Debt.
15
<PAGE> 18
ARTICLE III.
INDEMNIFICATION AND CONTRIBUTION
Section 3.1 Indemnification by the Company. The Company shall indemnify,
to the extent permitted by law, each Holder of Registrable Securities, each
Person who controls such Holder (within the meaning of Section 15 of the
Securities Act or Section 20 of the Exchange Act) and its respective officers,
directors, partners, members, employees, agents and representatives, against all
actions, suits, claims, damages, losses, costs, expenses or proceedings
(collectively, "Losses") caused by any untrue or alleged untrue statement of
material fact contained in any Registration Statement, prospectus or preliminary
prospectus or any amendment thereof or supplement thereto or any omission or
alleged omission of a material fact required to be stated therein or necessary
to make the statements therein, in light of the circumstances under which made,
not misleading, except insofar as the same are caused by or contained in any
information furnished in writing to the Company by such Holder expressly for use
therein or by such Holder's failure to deliver a copy of the Registration
Statement or prospectus or any amendments or supplements thereto after the
Company has furnished such Holder with a sufficient number of copies of the same
and except insofar as the same are caused by or contained in any prospectus if
such Holder failed to send or deliver a copy of any subsequent prospectus or
prospectus supplement which would have corrected such untrue or alleged untrue
statement of material fact or such omission or alleged omission of a material
fact with or prior to the delivery of written confirmation of the sale by such
Holder after the Company has furnished such Holder with a sufficient number of
copies of the same. In connection with an Underwritten Offering, the Company
will indemnify such Underwriters, each Person who controls such Underwriters
(within the meaning of Section 15 of the Securities Act or Section 20 of the
Exchange Act) and their respective officers, directors, partners, employees,
agents and representatives to the same extent as provided above with respect to
the indemnification of the Holders of Registrable Securities.
Section 3.2 Indemnification by Holders. In connection with any
Registration Statement in which Holders of Registrable Securities are
participating, each such Holder will furnish to the Company in writing such
information as the Company reasonably requests for use in connection with any
such Registration Statement or prospectus and, to the extent permitted by law,
will indemnify the Company, each Person who controls the Company (within the
meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act)
and their respective officers, directors, partners, employees, agents and
representatives against any Losses arising out of or based upon any untrue or
alleged untrue statement of a material fact contained in any Registration
Statement, prospectus, or form of prospectus, or arising out of or based upon
any omission or alleged omission of a material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which made, not misleading, to the extent, but only to the
extent, that such untrue or alleged untrue statement is contained in, or such
omission or alleged omission is required to be contained in, any information so
furnished in writing by such Holder to the Company expressly for use in such
Registration Statement or prospectus and that such statement or omission was
relied upon by the Company in preparation of such Registration Statement,
prospectus or form of prospectus; provided, however, that such Holder of
Registrable Securities shall not be liable in any such case to the extent that
the Holder has furnished in writing to the Company prior to the filing of any
such Registration Statement or
16
<PAGE> 19
prospectus or amendment or supplement thereto information expressly for use in
such Registration Statement or prospectus or any amendment or supplement thereto
which corrected or made not misleading, information previously furnished to the
Company, and the Company failed to include such information therein. In no event
shall the liability of any selling Holder of Registrable Securities hereunder be
greater in amount than the dollar amount of the proceeds (net of payment of all
expenses) received by such Holder upon the sale of the Registrable Securities
giving rise to such indemnification obligation. Such indemnity shall remain in
full force and effect regardless of any investigation made by or on behalf of
such indemnified party.
Section 3.3 Conduct of Indemnification Proceedings. If any Person shall be
entitled to indemnity hereunder such indemnified party shall give prompt written
notice to the party or parties from which such indemnity is sought of the
commencement of any proceeding with respect to which such indemnified party
seeks indemnification or contribution pursuant hereto; provided, however, that
the failure to so notify the indemnifying parties shall not relieve the
indemnifying parties from any obligation or liability except to the extent that
the indemnifying parties have been prejudiced by such failure. The indemnifying
parties shall have the right, exercisable by giving written notice to an
indemnified party promptly after the receipt of written notice from such
indemnified party of such proceeding, to assume, at the indemnifying parties'
expense, the defense of any such proceeding, with counsel reasonably
satisfactory to such indemnified party; provided, however, that an indemnified
party or parties (if more than one such indemnified party is named in any
proceeding) shall have the right to employ separate counsel in any such
proceeding and to participate in the defense thereof, but the fees and expenses
of such counsel shall be at the expense of such indemnified party or parties
unless the parties to such proceeding include both the indemnified party or
parties and the indemnifying party or parties, and there exists, in the opinion
of the indemnified party(ies)' counsel, a conflict between one or more
indemnifying parties and one or more indemnified parties, in which case the
indemnifying parties shall, in connection with any one such proceeding or
separate but substantially similar or related proceedings in the same
jurisdiction, arising out of the same general allegations or circumstances, be
liable for the fees and expenses of not more than one separate firm of attorneys
(together with appropriate local counsel) at any time for such indemnified party
or parties. If an indemnifying party assumes the defense of such proceeding, the
indemnifying parties will not be subject to any liability for any settlement
made by the indemnified party without its or their consent (such consent not to
be unreasonably withheld).
Section 3.4 Contribution. If the indemnification provided for in this
Article III is unavailable to an indemnified party or is insufficient to hold
such indemnified party harmless for any Losses in respect of which this Article
III would otherwise apply by its terms, then each applicable indemnifying party,
in lieu of indemnifying such indemnified party, shall have an obligation to
contribute to the amount paid or payable by such indemnified party as a result
of such Losses, in such proportion as is appropriate to reflect the relative
fault of the indemnifying party, on the one hand, and such indemnified party, on
the other hand, in connection with the actions, statements or omissions that
resulted in such Losses as well as any other relevant equitable considerations.
The relative fault of such indemnifying party, on the one hand, and indemnified
party, on the other hand, shall be determined by reference to, among other
things, whether any action in question, including any untrue or alleged untrue
statement of a material fact or omission or alleged omission to state a material
fact, has been taken by, or relates to information supplied by, such
indemnifying party or indemnified party, and the parties' relative
17
<PAGE> 20
intent, knowledge, access to information and opportunity to correct or prevent
any such action, statement or omission. The amount paid or payable by a party as
a result of any Losses shall be deemed to include any legal or other fees or
expenses incurred by such party in connection with any proceeding, to the extent
such party would have been indemnified for such expenses under Section 3.3, if
the indemnification provided for in Section 3.1 or Section 3.2 was available to
such party. The Parties agree that it would not be just and equitable if
contribution pursuant to this Section 3.4 were determined by pro rata allocation
or by any other method of allocation that does not take account of the equitable
considerations referred to in the second sentence of this paragraph.
Notwithstanding the provisions of this Section 3.4, an indemnifying party that
is a selling Holder of Registrable Securities shall not be required to
contribute any amount in excess of the amount by which the net proceeds received
by such indemnifying party exceeds the amount of any damages that such
indemnifying party has otherwise been required to pay by reason of such untrue
or alleged untrue statement or omission or alleged omission. No person adjudged
guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of
the Securities Act) shall be entitled to contribution from any Person who was
not guilty of such fraudulent misrepresentation.
ARTICLE IV.
MISCELLANEOUS
Section 4.1 Rule 144. The Company covenants that it will file any reports
required to be filed by it under the Securities Act and the Exchange Act and
that it will take such further action as any Holder may reasonably request, all
to the extent required from time to time to enable Holders to sell Registrable
Securities without registration under the Securities Act within the limitations
of the exemptions provided by (a) Rule 144 or 145 under the Securities Act, as
such rule may be amended from time to time, or (b) any similar rule or
regulation hereafter adopted by the Commission. Upon the request of any Holder,
the Company will deliver to such Holder a written statement as to whether it has
complied with such requirements.
Section 4.2 Specific Performance. Each Holder, in addition to being
entitled to exercise all rights provided herein or granted by law, including
recovery of liquidated or other damages, will be entitled to specific
performance of its rights under this Agreement. The Company agrees that monetary
damages would not be adequate compensation for any loss incurred by reason of a
breach by it of the provisions of this Agreement and hereby agrees to waive the
defense in any action for specific performance that a remedy at law would be
adequate.
Section 4.3 Amendments and Waivers. Any term of this Agreement may be
amended, and the observance of any term of this Agreement may be waived (either
generally or in a particular instance and either retroactively or prospectively)
only with the written consent of (a) the Company, (b) American Mobile and (c)
Investors (other than Baron) holding, (i) in the case of amendments to or
waivers of provisions of this Agreement generally, eighty-one percent (81%) of
the Registrable Securities held by or issuable to Investors (other than Baron),
and (ii) in the case of any other non-material change or technical correction of
this Agreement, a majority of the Registrable Securities held by or issuable to
Investors (other than Baron); provided that no Investor's rights, preferences or
obligations hereunder may be materially adversely modified
18
<PAGE> 21
without the consent of such Investor unless the rights, preferences or
obligations hereunder of each other Investor is modified in a substantially
equivalent manner. Any amendment or waiver effected in accordance with this
Section 4.3 shall be binding upon each future Holder and the Company.
Section 4.4 Notices. Except as otherwise provided in this Agreement,
notices and other communications under this Agreement shall be in writing and
shall be deemed properly served if: (i) mailed by registered or certified mail,
return receipt requested, (ii) delivered by a recognized overnight courier
service, (iii) delivered personally, or (iv) sent by facsimile transmission
addressed to each Party at its address for notices specified on Schedule 4.4
attached hereto, or at such other address, or to the attention of such officer,
as any Party shall have furnished to each other Party in writing pursuant to
this Section 4.4. Such notice shall be deemed to have been received: (i) three
(3) Business Days after the date of mailing if sent by certified or registered
mail, (ii) one (1) Business Day after the date of delivery if sent by overnight
courier, (iii) the date of delivery if personally delivered, or (iv) the next
succeeding Business Day after transmission by facsimile.
Section 4.5 Transfers.
(a) Subject to the transfer restrictions set forth in the Shareholders
Agreement, any Holder transferring any portion of its Registrable Securities may
transfer to its transferee any registration rights granted herein and then held
by such Holder, provided that no Holder may transfer to more than one transferee
its rights to initiate any Demand Registration pursuant to Section 2.1,
(provided that such transferees shall be able to participate in such Demand
Registration and all other registration rights held by such Holder, subject to
the terms and conditions set forth in this Agreement), nor shall any such
transfer be deemed to create any right to initiate additional demand
registrations or obligate the Company to issue notices hereunder to additional
Person(s), except to the extent the Company shall have received actual notice of
such transfer to such Person(s).
(b) Any assignment or transfer of any registration rights set forth herein
shall be subject to the assumption by the transferee of the terms and conditions
set forth in this Agreement applicable to the transferor, and any proposed
transferee shall execute such documents and instruments that the Company may
reasonably require to evidence that such transferee is bound by the terms and
conditions of this Agreement.
Section 4.6 Execution in Counterparts. This Agreement may be executed in any
number of counterparts and by different parties hereto in separate counterparts,
each of which when so executed shall be deemed to be an original and all of
which taken together shall constitute one and the same agreement.
Section 4.7 GOVERNING LAW; CHOICE OF FORUM; JURY TRIAL WAIVER.
THIS AGREEMENT AND THE NOTE SHALL BE GOVERNED BY, AND CONSTRUED IN
ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK WITHOUT GIVING EFFECT TO ANY
CONFLICT OF LAW PROVISIONS THEREOF
19
<PAGE> 22
OTHER THAN NEW YORK GENERAL OBLIGATIONS LAW SECTIONS 5-1401 AND 5-1402.
IN THE EVENT THAT A JUDICIAL PROCEEDING IS NECESSARY, THE SOLE FORUM
FOR RESOLVING DISPUTES ARISING OUT OF OR RELATING TO THIS AGREEMENT IS THE
SUPREME COURT OF THE STATE OF NEW YORK IN AND FOR THE COUNTY OF NEW YORK OR THE
FEDERAL COURTS LOCATED IN SUCH STATE AND COUNTY, AND RELATED APPELLATE COURTS.
THE PARTIES HEREBY IRREVOCABLY CONSENT TO THE JURISDICTION OF SUCH COURTS AND
AGREE TO SAID VENUE.
THE PARTIES HEREBY IRREVOCABLY WAIVE ALL RIGHT TO A TRIAL BY JURY IN
ANY ACTION, PROCEEDING OR COUNTERCLAIM ARISING OUT OF OR RELATING TO THIS
AGREEMENT OR ANY OTHER DOCUMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY OR
THEREBY.
Section 4.8 Severability. The holding of any provision of this Agreement
to be invalid or unenforceable by a court of competent jurisdiction shall not
affect any other provision of this Agreement, which shall remain in full force
and effect. If any provision of this Agreement shall be declared by a court of
competent jurisdiction to be invalid, illegal or incapable of being enforced in
whole or in part, such provision shall be interpreted so as to remain
enforceable to the maximum extent permissible consistent with applicable law and
the remaining conditions and provisions or portions thereof shall nevertheless
remain in full force and effect and enforceable to the extent they are valid,
legal and enforceable, and no provisions shall be deemed dependent upon any
other covenant or provision unless so expressed herein.
Section 4.9 Headings. The headings in this Agreement are for convenience
of reference only and shall not limit or otherwise affect the meaning hereof.
Section 4.10 No Inconsistent Agreement.
(a) The Company will not after the date of this Agreement enter into any
agreement with respect to its securities or any amendment to such an agreement
that is inconsistent with the rights granted to the Holders in this Agreement,
or otherwise conflicts with the provisions hereof.
(b) The Company shall not grant to any person the right to request the
Company to register any equity securities of the Company, or any securities
convertible or exchangeable or exercisable for such securities, or grant any
rights for additional demand registrations of the Company's securities other
than as provided in this Agreement, without the prior written consent of the
Holders of the Registrable Securities if such right is inconsistent with the
terms of this Agreement (including without limitation the priorities for
registration set forth herein); provided, however, that the foregoing
restrictions shall not apply in the case of any registration for public sale or
public distribution of any securities for High Yield Debt (regardless of whether
or not coupled with warrants, options, or other equity equivalents) by the
Company.
Section 4.11 Further Assurances. The Parties agree to execute and deliver
all such further documents, agreements and instruments and take such other and
further action as may be necessary or appropriate to carry out the purposes and
intent of this Agreement.
20
<PAGE> 23
Section 4.12 Entire Agreement. This Agreement supersedes all other
agreements, written or oral, concerning the subject matter herein, including the
January 15 Letter Agreements, which are hereby terminated.
[Signatures begin on next page]
21
<PAGE> 24
IN WITNESS WHEREOF, the Parties have caused this Agreement to be duly
signed as of the date first above written.
<TABLE>
<CAPTION>
<S> <C>
XM SATELLITE RADIO HOLDINGS INC. AMERICAN MOBILE SATELLITE CORPORATION
By: /s/ Hugh Panero By: /s/ Gary M. Parsons
--------------- -------------------
Name: Hugh Panero Name: Gary M. Parsons
Title: President and CEO Title: Chairman of the Board of Directors
BARON ASSET FUND CLEAR CHANNEL INVESTMENTS, INC.
on behalf of BARON ASSET FUND SERIES
By: /s/ Ronald Baron By: /s/ Randall Mays
---------------- ----------------
Name: Ronald Baron Name: Randall Mays
Title: Chairman and CEO Title: Executive VP and CFO
COLUMBIA XM RADIO PARTNERS, LLC DIRECTV ENTERPRISES, INC.
By Columbia Capital LLC, its Managing Member
By: /s/ James B. Fleming By: /s/ Steven J. Cox
-------------------- -----------------
Name: James B. Fleming Name: Steven J. Cox
Title: Managing Director Title: Senior Vice President of New Ventures
GENERAL MOTORS CORPORATION MADISON DEARBORN CAPITAL PARTNERS
III, L.P.
By Madison Dearborn Partners III, L.P., its
general partner
By: /s/ Mark Gibbons By Madison Dearborn Partners LLC, its general
---------------- partner
Name: Mark Gibbons
Title: Director,Business Development As Attorney- By: /s/ James N. Perry, Jr.
in-fact for Eric Feldstein, Vice President and -----------------------
Treasurer
Name: James N. Perry, Jr.
Title: Managing Director
MADISON DEARBORN SPECIAL EQUITY III, L.P. SPECIAL ADVISORS FUND I, LLC
By Madison Dearborn Partners III, L.P., its general By Madison Dearborn Partners III, L.P., its
partner manager
By Madison Dearborn Partners LLC, its general By Madison Dearborn Partners LLC, its general
partner partner
By: /s/ James N. Perry, Jr. By: /s/ James N. Perry, Jr.
----------------------- -----------------------
Name: James N. Perry, Jr. Name: James N. Perry, Jr.
Title: Managing Director Title: Managing Director
</TABLE>
22
<PAGE> 25
TELCOM--XM INVESTORS, L.L.C.
By: /s/ Rahul Prakash
-----------------
Name: Rahul Prakash
Title: President
23
<PAGE> 26
SCHEDULE 4.4
SCHEDULE OF HOLDERS
<TABLE>
<CAPTION>
Name Address Facsimile
---- ------- ---------
<S> <C> <C>
American Mobile Satellite Corporation 10802 Parkridge Blvd. 703-758-6134
Reston, VA 20191-5416
Attn: Randy S. Segal, Esq.
Baron Asset Fund 767 Fifth Avenue 212-583-2014
49th Floor
New York, NY 10153
Attn: Linda Martinson, Esq.
Clear Channel Investments, Inc. 200 Concord Plaza 210-822-2299
Suite 600
San Antonio, TX 78216-6940
Attn: Mr. Mark Hubbard
Columbia XM Radio Partners LLC 201 North Union Street 703-519-3904
Suite 300
Alexandria, VA 22314
Attn: Mr. James B. Fleming
DIRECTV Enterprises, Inc. 2230 E. Imperial Hwy. 310-964-4114
El Segundo, CA 90245
Attn: Mr. Steven J. Cox
General Motors Corporation 767 Fifth Avenue 212-418-6258
14th Floor
New York, NY 10153
Attn: Mr. Mark Gibbens
Madison Dearborn Capital Partners III, L.P., Three First National Plaza 312-895-1221
Madison Dearborn Special Equity III, L.P., Chicago, IL 60602
Special Advisors Fund I, LLC Attn: Mr. James N. Perry, Jr.
Telcom-XM Investors LLC 211 North Union Street 703-706-3801
Suite 300
Alexandria, VA 22314
Attn: Hal B. Perkins, Esq.
</TABLE>
24
<PAGE> 1
EXHIBIT 99.3
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
XM SATELLITE RADIO HOLDINGS INC.
$250,000,000
SERIES A SUBORDINATED CONVERTIBLE NOTES
DUE DECEMBER 31, 2004
-------------------------------
NOTE PURCHASE
AGREEMENT
-------------------------------
DATED AS OF JUNE 7, 1999
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2
Table of Contents
<TABLE>
<CAPTION>
Page
----
<S> <C>
1. Definitions .......................................................................................................2
2. Issuance of the Notes.............................................................................................16
3. Interest and Repayment............................................................................................17
3.1. Interest on the Notes.................................................................................17
3.2. Interest after Maturity...............................................................................17
3.3. Payments and Computations.............................................................................17
3.4. Payment at Maturity or Conversion.....................................................................17
4. Representations, Warranties and Agreements of the Company.........................................................18
4.1. Incorporation, Standing, etc..........................................................................18
4.2. Subsidiaries..........................................................................................18
4.3. Disclosure............................................................................................18
4.4. Qualification.........................................................................................18
4.5. Authorization of Agreement and Notes..................................................................18
4.6. Absence of Defaults and Conflicts.....................................................................18
4.7. Absence of Proceedings................................................................................19
4.8. Possession of Licenses and Permits....................................................................19
4.9. No Violations of Laws.................................................................................19
4.10. Internal Accounting Controls..........................................................................19
4.11. Tax Returns and Payments..............................................................................20
4.12. Indebtedness..........................................................................................20
4.13. Title to Properties; Liens............................................................................20
4.14. Patents, Trademarks, Authorizations, etc..............................................................20
4.15. Governmental Consents.................................................................................20
4.16. Investment Company Act................................................................................20
4.17. Public Utility Holding Company Act....................................................................21
4.18. Restrictions..........................................................................................21
4.19. Capitalization........................................................................................21
4.20. Seniority of Notes....................................................................................21
4.21. Patent Applications...................................................................................21
4.22. Material Events.......................................................................................21
4.23. Financial Statements..................................................................................23
4.24. No Undisclosed Fees...................................................................................23
4.25. No Transactions with Affiliates.......................................................................23
4.26. Satellite Launch......................................................................................23
4.27. Appropriate Technology................................................................................23
4.28. CD Radio Litigation...................................................................................23
4.29. Registration Rights...................................................................................23
5. Representations and Warranties of the Investor....................................................................23
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C> <C>
5.1. Risks of Investment...................................................................................24
5.2. Investment Experience.................................................................................24
5.3. Ability to Bear Risk..................................................................................24
5.4. Receipt and Review of Documentation...................................................................24
5.5. No General Solicitation by Company....................................................................24
5.6. Organization, Good Standing, Corporate Authority......................................................25
5.7. Benefit Plan Investor.................................................................................25
5.8. No Public Market......................................................................................25
5.9. Due Authorization.....................................................................................25
5.10. Qualified Institutional Buyer or Accredited Investor..................................................25
6. Restrictions on Transfer..........................................................................................26
6.1. Restrictions; Restrictive Legend......................................................................26
7. Covenants.........................................................................................................26
7.1. Payment of Note and Maintenance of Office.............................................................26
7.2. Payment of Taxes and Claims...........................................................................26
7.3. Maintenance of Properties and Corporate Existence.....................................................27
7.4. Compliance with Law...................................................................................27
7.5. Notice................................................................................................28
7.6. Merger and Sale of Assets.............................................................................28
7.7. Limitation on Transactions with Affiliates and Shareholders...........................................29
7.8. Limitation on Indebtedness............................................................................29
7.9. Limitation on Restricted Payments.....................................................................29
7.10. Limitation on the Issuance and Sale of Capital Stock..................................................30
7.11. Limitation on Liens...................................................................................30
7.12. Protective Provisions.................................................................................30
7.13. Patents...............................................................................................30
7.14. Financing Purposes....................................................................................30
7.15. Information Rights....................................................................................30
7.16. XM Radio System Design................................................................................31
7.17. Indemnification for Patent Claims.....................................................................31
7.18. Filing of Restated Certificate of Incorporation.......................................................31
7.19. Limitation on Grants of Rights........................................................................31
8. Conversion Provisions.............................................................................................31
8.1. Company's Right of Conversion.........................................................................31
8.2. Optional Conversion Right.............................................................................31
8.3. Issuance of Certificates..............................................................................32
8.4. Adjustment to Conversion..............................................................................32
8.5. Treasury Shares.......................................................................................35
8.6. Fractional Shares.....................................................................................35
8.7. Merger of the Company.................................................................................35
8.8. Reclassification of Class A Common Stock and/or Class A Convertible Preferred Stock...................35
</TABLE>
ii
<PAGE> 4
<TABLE>
<S> <C> <C>
8.9. Reservation of Class A Common Stock and Class A Convertible Preferred Stock...........................36
8.10. Taxes.................................................................................................36
8.11. Certain Events........................................................................................36
8.12. No Rights or Liabilities as Shareholders..............................................................37
8.13. Automatic Conversion of Class A Convertible Preferred Stock Upon Transfer.............................37
8.14. Dividends Paid Between Notice of Conversion and Conversion............................................37
9. Put Right If No Qualified Initial Public Offering.................................................................37
10. Registration, Transfer and Substitution of Note...................................................................38
10.1. Note Register.........................................................................................38
10.2. Transfer and Exchange of Note.........................................................................38
10.3. Replacement of Note...................................................................................38
11. Conditions to Obligations of the Investors........................................................................38
12. Events of Default; Acceleration...................................................................................40
12.1. Nature of Events and Acceleration of Note.............................................................40
12.2. Default Remedies......................................................................................41
12.3. Notice of Default.....................................................................................41
13. Seniority of Notes................................................................................................42
14. Expenses .........................................................................................................42
15. Survival .........................................................................................................42
16. Amendments and Waivers............................................................................................42
17. Notices ..........................................................................................................42
18. Execution in Counterparts.........................................................................................43
19. Binding Effect....................................................................................................43
20. GOVERNING LAW; CHOICE OF FORUM; JURY TRIAL WAIVER.................................................................43
21. Miscellaneous.....................................................................................................43
21.1. Conflict..............................................................................................43
21.2. Severability..........................................................................................43
21.3. No Waiver.............................................................................................44
21.4. Further Assurances....................................................................................44
</TABLE>
iii
<PAGE> 5
ATTACHMENTS:
2(a) Principal Amounts of Notes
5.7 Benefit Plan Investor
17 Notices
EXHIBIT A: Form of Notes
iv
<PAGE> 6
NOTE PURCHASE AGREEMENT
NOTE PURCHASE AGREEMENT, dated as of June 7, 1999, by and between XM
SATELLITE RADIO HOLDINGS INC., a Delaware corporation with its principal office
located at 1250 23rd Street N.W., Suite 57, Washington, D.C. 20037 (the
"Company"), and each of the investors listed on Attachment 2(a) hereto, (each,
an "Investor," and collectively, the "Investors"), (collectively, the "Parties,"
and each, a "Party").
W I T N E S S E T H:
WHEREAS, the Company is engaged in the development of a satellite digital
audio radio service in the United States;
WHEREAS, the Company desires to receive financing in the aggregate
principal amount of Two Hundred Fifty Million Dollars ($250,000,000) (the
"Financing") for (i) capital expenditures, (ii) working capital and (iii)
repaying certain loans from WorldSpace, Inc., (collectively, the "Financing
Purposes");
WHEREAS, each of the Investors desires to provide the Company the
Financing for the Financing Purposes through the purchase of Series A
Subordinated Convertible Notes due December 31, 2004 (each as hereinafter
defined a "Convertible Note" or a "Note" and collectively the "Convertible
Notes" or "Notes"), substantially in the form attached hereto as Exhibit A;
WHEREAS, upon the consummation of the XM Exchange Agreement (as defined
below), American Mobile shall be the holder of all the issued and outstanding
shares of Capital Stock of the Company;
WHEREAS, the Company, American Mobile, WorldSpace, Inc. and Baron Asset
Fund Series have entered into a certain letter agreement (the "Baron Asset Fund
Letter Agreement") dated as of January 15, 1999, pursuant to which Baron (as
defined below), from and after the completion of a substantial public or private
equity financing by the Company of $100 million or more, shall benefit, on a
"most favored nation" basis, from any reduction in the restrictions on transfer,
improvements in rights to receive information regarding the Company and any
registration rights accepted by any other investor in the Company pursuant to
the terms of such financing;
WHEREAS, each Investor is aware of the rights granted to Baron under the
Baron Asset Fund Letter Agreement; and
WHEREAS, the Parties desire to set forth the terms and conditions of and
to provide for the issuance by the Company of the Convertible Notes described
herein.
NOW THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the Parties hereby agree as
follows:
<PAGE> 7
1. Definitions The following terms when used in this Agreement, including
its preamble and recitals, shall, except where the context otherwise requires,
have the following meanings (such meanings to be equally applicable to the
singular and plural forms thereof):
Accredited Investor: means
(i) Any bank as defined in section 3(a)(2) of the Securities Act, or
any savings and loan association or other institution as defined in section
3(a)(5)(A) of the Securities Act whether acting in its individual or
fiduciary capacity.
(ii) Any broker or dealer registered pursuant to section 15 of the
Exchange Act.
(iii) Any insurance company as defined in Section 2(13) of the
Securities Act.
(iv) Any investment company registered under the Investment Company Act
or a business development company as defined in section 2(a)(48) of that Act.
(v) Any Small Business Investment Company licensed by the U.S. Small
Business Administration under section 301(c) or (d) of the Small Business
Investment Act.
(vi) Any private business development company as defined in section
202(a)(22) of the Advisers Act.
(vii) Any director or executive officer of the Company.
(viii) Any natural person whose individual net worth, or joint net worth
with that person's spouse, at the time of his purchase exceeds $1,000,000.
(ix) Any natural person who had an individual income in excess of
$200,000 in each of the last two calendar years, or joint income with that
person's spouse, in excess of $300,000 in each of those years, and has a
reasonable expectation of reaching the same income level in the current
calendar year.
(x) Any entity with total assets at the time of purchase of the Note
in excess of $5,000,000, which was not formed for the purpose of investing in
a Note and which is one of the following:
(A) a corporation; or
(B) a partnership; or
(C) a Massachusetts or similar business trust; or
(D) a tax-exempt organization described in Section 501(c)(3) of
the Internal Revenue Code.
(xi) Any trust with total assets in excess of $5,000,000 which was not
formed for the purpose of investing in a Note and whose purchase of a Note
has been directed by a person who has such knowledge and experience in
financial and business matters that he
2
<PAGE> 8
is capable of evaluating the merits and risks of the investment.
(xii) Any employee benefit plan within the meaning of Title I of ERISA
which satisfies at least one of the following conditions:
(A) it has total assets in excess of $5,000,000; or
(B) the investment decision is being made by a plan fiduciary
which is a bank, savings and loan association, insurance company or
registered investment adviser; or
(C) it is a self-directed plan (i.e., a tax-qualified defined
contribution plan in which a participant may exercise control over
the investment of assets credited to his or her account) and the
decision to invest is made by those participants investing, and each
such participant qualifies as an accredited investor.
(xiii) Any employee benefit plan established and maintained by a state,
its political subdivisions or any agency or instrumentality of a state or its
political subdivisions, which has total assets in excess of $5,000,000.
(xiv) Any entity in which all of the equity owners are persons
described above.
Advisers Act: means the Investment Advisers Act of 1940, as amended.
Affiliate: means, as applied to any Person, any other Person directly or
indirectly controlling, controlled by, or under direct or indirect common
control with, such Person. For purposes of this definition, "control"
(including, with correlative meanings, the terms "controlling," "controlled by"
and "under common control with"), as applied to any Person, means the
possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of such Person, whether through the
ownership of voting securities, by contract or otherwise.
Agreement: means this Note Purchase Agreement (including any Schedules
and Exhibits hereto), as it may from time to time be amended, supplemented or
modified in accordance with its terms.
Agreements and Instruments: have the meaning specified in Section 4.6.
American Mobile: means American Mobile Satellite Corporation, a Delaware
corporation with its principal office located at 10802 Parkridge Blvd., Reston
VA 20191-5416.
American Mobile Exchange Agreement: means the exchange, amendment and
recapitalization agreement dated on or about the date hereof among American
Mobile and the Company, providing for the restructuring of the Investment of
American Mobile in the Company, substantially in a form consistent with the Term
Sheet.
Bankruptcy: means, with respect to any Person, the happening of any of
the following events:
3
<PAGE> 9
(i) such Person shall commence a proceeding or make an application or
petition to a court or other judicial or administrative forum for an order that
such Person be declared bankrupt or insolvent or be wound up or that an order be
entered for the liquidation, reorganization or for other relief with respect to
the debts of such Person or that a provisional liquidator be appointed;
(ii) any application shall be made or any involuntary case or proceeding
shall be commenced against such Person seeking liquidation, reorganization or
other relief with respect to it or its debts under any bankruptcy, insolvency or
other similar law now or hereafter in effect or seeking the appointment of a
trustee, receiver, liquidator, custodian, administrator or other similar
official of it or any substantial part of its property, (unless the application
is withdrawn, struck out or dismissed, or the case or proceeding is dismissed or
terminated, within 30 days of it being made); or
(iii) a liquidator is appointed for such Person.
Baron Asset Fund Letter Agreement: has the meaning specified in the
Recitals.
Baron: means Baron Asset Fund, acting on behalf of Baron Asset Fund
Series, and any Person under common control.
Benefit Plan Investor: means any: (i) employee benefit plan (as defined
in Section 3(3) of ERISA, whether or not such plan is subject to the provision
of Title I of ERISA), (ii) any plan described in Section 4975(e)(1) of the
Internal Revenue Code, or (iii) any entity whose underlying assets include plan
assets by reason of a plan's Investment in the entity.
Board or Board of Directors: means the Board of Directors of the Company
or a committee consisting of one or more directors lawfully exercising the
relevant powers of the Board.
Board Resolution: means a resolution duly adopted by the Board of
Directors, certified by the Secretary or an Assistant Secretary of the Company
to have been duly adopted by the Board of Directors and to be in full force and
effect on the date of such certification.
Business Day: means any day other than a Saturday, Sunday or any other
day on which commercial banks are authorized or required by law to be closed in
New York City, the District of Columbia or, in the case of the determination of
LIBOR, London, England.
Capital Stock: means, with respect to any Person, any and all shares,
interests, warrants, options, participations, rights to acquire or other
equivalents (however designated, whether voting or non-voting) in equity of such
Person, whether now outstanding or issued subsequent hereto, including, without
limitation, all series and classes of Common Stock and Preferred Stock.
Capitalized Interest: has the meaning specified in Section 3.1.
Capitalized Lease: means, as applied to any Person, any lease of any
property (whether real, personal or mixed) of which the discounted present value
of the rental
4
<PAGE> 10
obligations of such Person as lessee, in conformity with GAAP, is required to be
capitalized on the balance sheet of such Person; and "Capitalized Lease
Obligations" means the discounted present value of the rental obligations under
such lease.
Capitalized Lease Obligations: has the meaning specified under the
definition of "Capitalized Lease."
CARIBSS-1 Satellite: means the satellite held by WorldSpace International
Network known as "CARIBSS-1" or "AmeriStar."
Change of Control: means the acquisition by any Person or any group of
persons acting in concert, other than American Mobile or an Affiliate of
American Mobile, of more than 50% of the voting securities of the Company.
Citibank, N.A.: means Citibank, N.A., a bank organized under the laws of
the United States.
Class A Common Stock: means the Class A Common Stock, par value $0.01 per
share, of the Company, having one (1) vote per share.
Class B Common Stock: means the Class B Common Stock, par value $0.01 per
share, of the Company, having three (3) votes per share.
Class C Common Stock: means the Class C Common Stock, par value $0.01 per
share, of the Company, having zero (0) votes per share.
Class A Convertible Preferred Stock: means the Class A Convertible
Preferred Stock, par value $1.00 per share, of the Company, having zero (0)
votes per share.
Clear Channel: means Clear Channel Communications Inc., a Texas
corporation.
Clear Channel Operational Assistance Agreement: means that certain
agreement by and between Clear Channel and the Company dated on or about the
date hereof, related to certain operational matters involving the Company.
Closing: means the consummation of the transactions contemplated by this
Agreement, including the sale and purchase of the Notes.
Closing Date: means the date of closing of the XM Exchange Agreement or
such later date as the Parties hereto shall mutually agree.
Columbia Capital: means Columbia XM Radio Partners LLC, a limited
liability company.
Commission: means the Securities and Exchange Commission or any other
Federal agency at the time administering the Securities Act.
Common Stock: means all classes of the common stock, $0.01 par value per
share, of the Company, any stock into which such common stock shall have been
changed or
5
<PAGE> 11
any stock resulting from any capital reorganization or reclassification of such
common stock, and all other stock of any class or classes (however designated)
of the Company the holders of which have the right, without limitation as to
amount, either to all or to a share of the balance of current dividends and
liquidating dividends after the payment of dividends and distributions of any
shares entitled to preference.
Company: has meaning specified in the Preamble.
Compensation Committee: means the committee of the Board of Directors
responsible for executive compensation and issuances of employee stock under the
Company's Stock Plan.
Confidential Memorandum: has the meaning specified in Section 5.4.
Conversion Price: means $509,711 per share, as such price may be adjusted
pursuant to this Agreement.
Conversion Stock: has the meaning specified in Section 2(c).
Convertible Note: has the meaning specified in Section 2.
Convertible Notes: has the meaning specified in Section 2.
Currency Agreement: means any foreign exchange contract, currency swap
agreement or other similar agreement or arrangement designed to protect the
Company or any of its Subsidiaries against fluctuations in currency values to or
under which the Company or any of its Subsidiaries is a party or a beneficiary
on the date hereof or becomes a party or a beneficiary thereafter.
DIRECTV: means DIRECTV Enterprises, Inc., a Delaware corporation.
DIRECTV Operational Assistance Agreement: means that certain agreement by
and between DIRECTV, Inc. and the Company dated on or about the date hereof,
relating to certain operational matters involving the Company.
Disclosure Schedule: means the written disclosures to the representations
and warranties of the Company delivered to the Investors in connection with this
Agreement.
Disqualified Stock: means any class or series of Capital Stock of any
Person that by its terms or otherwise is (i) required to be redeemed prior to
the Stated Maturity of the Notes, (ii) redeemable at the option of the holder of
such class or series of Capital Stock at any time prior to the Stated Maturity
of the Notes, or (iii) convertible into or exchangeable for Capital Stock
referred to in clause (i) or (ii) above or Indebtedness having a scheduled
maturity prior to the Stated Maturity of the Notes.
ERISA: means the Employee Retirement Income Security Act of 1974, as
amended.
Event of Default: has the meaning specified in Section 12.1.
6
<PAGE> 12
Exchange Act: means the Securities Exchange Act of 1934, as amended, and
the rules and regulations promulgated thereunder, all as the same shall be in
effect at the time.
Fair Market Value: means the price that would be paid in an arm's-length
transaction between an informed and willing seller under no compulsion to sell
and an informed and willing buyer under no compulsion to buy, as determined in
good faith by the Board of Directors, whose determination shall be conclusive if
evidenced by a Board Resolution; provided that for purposes of Section 9 of this
Agreement determining the Fair Market Value of a Note, such value shall be
determined by a firm of investment bankers of national standing, selected by the
Holders exercising a put under Section 9, with the consent of the Company, such
consent not to be unreasonably withheld, with such firm valuing the equity value
of the Company on an as-converted basis, without taking account of a control
premium or a minority discount.
Family of Investment Companies: has the meaning specified under the
definition of "Qualified Institutional Buyer."
Federal Bankruptcy Code: means Title 11, United States Code.
FCC: means the Federal Communications Commission.
FCC License: means the Company's license from the FCC to operate its
satellite digital audio radio service in the United States.
Financing: has the meaning specified in the Recitals.
Financing Purposes: has the meaning specified in the Recitals.
GAAP: means generally accepted accounting principles in the United States
of America as in effect as of the date hereof, including, without limitation,
those set forth in the opinions and pronouncements of the Accounting Principles
Board of the American Institute of Certified Public Accountants and statements
and pronouncements of the Financial Accounting Standards Board or in such other
statements by such other entity as approved by a significant segment of the
accounting profession.
GM: means General Motors Corporation, a Delaware corporation.
Governmental Licenses: has the meaning specified in Section 4.8.
Guarantee: means any obligation, contingent or otherwise, of any Person
directly or indirectly guaranteeing any Indebtedness or other obligation of any
other Person and, without limiting the generality of the foregoing, any
obligation, direct or indirect, contingent or otherwise, of such Person (i) to
purchase or pay (or advance, or supply funds for the purchase, or payment of)
such Indebtedness or other obligation of such other Person (whether arising by
virtue of partnership arrangements, or by agreements to keep-well, to purchase
assets, goods, securities or services, to take-or-pay, or to maintain financial
statement conditions or otherwise) or (ii) entered into for purposes of assuring
in any other manner the obligee of such Indebtedness or other obligation of the
payment thereof or to protect such obligee against loss in respect thereof (in
whole or in part); provided, however, that the term
7
<PAGE> 13
"Guarantee" shall not include endorsements for collection or deposit in the
ordinary course of business. The term "Guarantee" used as a verb has a
corresponding meaning.
High Yield Debt: means secured or unsecured debt securities issued by the
Company in a registered public offering or an offering to Qualified
Institutional Buyers and/or institutional Accredited Investors under Rule 144A
of the Securities Act of at least $50 million after the Closing Date, with or
without attached warrants or quasi-equity rights.
Holder: means, with respect to each Note, the Person in whose name such
Note is registered in the register maintained by the Company pursuant to Section
10.
Holders: means, with respect to the Notes, all persons in whose names
such Notes are registered in the register maintained by the Company pursuant to
this Agreement.
HSR Act: means the Hart-Scott-Rodino Antitrust Improvements Act of 1976,
as amended.
Hughes: means Hughes Space and Communications International, Inc., a
Delaware corporation.
Incur: means, with respect to any Indebtedness, to incur, create, issue,
assume, Guarantee or otherwise become liable for or with respect to, or become
responsible for, the payment of, contingently or otherwise, such Indebtedness;
provided, that neither the accrual of interest nor the accretion of original
issue discount shall be considered an Incurrence of Indebtedness.
Indebtedness: means, with respect to any Person at any date of
determination (without duplication), (i) all indebtedness of such Person for
borrowed money, (ii) all obligations of such Person evidenced by bonds,
debentures, notes or other similar instruments, (iii) all obligations of such
Person in respect of letters of credit or other similar instruments (including
reimbursement obligations with respect thereto, but excluding obligations with
respect to letters of credit (including trade letters of credit) securing
obligations (other than obligations described in (i) or (ii) above or (v), (vi)
or (vii) below) entered into in the ordinary course of business of such Person
to the extent such letters of credit are not drawn upon or, if drawn upon, to
the extent such drawing is reimbursed no later than the third Business Day
following receipt by such Person of a demand for reimbursement), (iv) all
obligations of such Person to pay the deferred and unpaid purchase price of
property or services, which purchase price is due more than six months after the
date of placing such property in service or taking delivery and title thereto or
the completion of such services, except Trade Payables, (v) all obligations of
such Person as lessee under Capitalized Leases, (vi) all Indebtedness of other
Persons secured by a Lien on any asset of such Person, whether or not such
Indebtedness is assumed by such Person; provided that the amount of such
Indebtedness shall be the lesser of (A) the Fair Market Value of such asset at
such date of determination and (B) the amount of such Indebtedness, (vii) all
Indebtedness of other Persons Guaranteed by such Person to the extent such
Indebtedness is Guaranteed by such Person and (viii) to the extent not otherwise
included in this definition, obligations under Currency Agreements and Interest
Rate Agreements. The amount of Indebtedness of any Person at any date shall be
the outstanding balance at such date of all unconditional obligations as
described above and, with respect to
8
<PAGE> 14
contingent obligations, the maximum liability upon the occurrence of the
contingency giving rise to the obligation, provided, however, that (A) the
amount outstanding at any time with respect to any Indebtedness issued with
original issue discount is the original issue price (plus any accreted value
thereon) of such Indebtedness and (B) Indebtedness shall not include any
liability for federal, state, local or other taxes.
Interest Capitalization Date: has the meaning specified in Section 2(a).
Interest Period: has the meaning specified under the definition of
"LIBOR."
Interest Rate: means a rate per annum of LIBOR plus 5% of the unpaid
principal amount of the Note (including without limitation any Capitalized
Interest).
Interest Rate Agreement: means any interest rate swap agreement, interest
rate cap agreement or other financial agreement or arrangement designed to
protect the Company or any Subsidiaries of the Company against fluctuations in
interest rates in respect of Indebtedness to or under which the Company or any
of its Subsidiaries is a party or a beneficiary on the date hereof or becomes a
party or a beneficiary hereafter, provided that the notional principal amount
thereof does not exceed the principal amount of the Indebtedness of the Company
and its Subsidiaries that bears interest at floating rates.
Internal Revenue Code: means the Internal Revenue Code of 1986, as
amended.
Investment: in any Person means any direct or indirect advance, loan or
other extension of credit (including without limitation by way of Guarantee or
similar arrangement, but excluding advances to customers in the ordinary course
of business that are, in conformity with GAAP, recorded as accounts receivable
on the balance sheet of the Company or its Subsidiaries) or capital contribution
to (by means of any transfer of cash or other property to others or any payment
for property or services for the account or use of others), or any purchase or
acquisition of Capital Stock, bonds, notes, debentures or other similar
instruments issued by, such Person.
Investment Company Act: means the Investment Company Act of 1940, as
amended.
Investor and Investors: has the meaning specified in the Preamble.
Investor Note: has the meaning specified in Section 2.
ITU: means the International Telecommunication Union.
LIBOR: means (i) the arithmetic mean (rounded upward, if necessary, to
the nearest 1/100th of 1%) of the offered quotations (expressed as a rate per
annum) for Dollar deposits for the then next occurring six month period (each an
"Interest Period") as at 11:00 A.M., London time, on the day two London Business
Days prior to the first day of such Interest Period as set forth on the Reuters
information display page entitled "LIBO" (or such other page as may replace the
LIBO page on that system for the purpose of displaying London interbank offered
rates) (the "Reuters Screen") available to subscribers of the Reuters
9
<PAGE> 15
electronic display terminal, provided that two or more such offered quotations
are available on the Reuters Screen; or
(ii) if fewer than two such offered quotations are available on the
Reuters Screen, or if the Reuters Screen is unavailable, the arithmetic mean
(rounded upwards, if necessary, to the nearest 1/100th of 1%) of the respective
rates notified to Citibank, N.A. by at least three money center banks in the
London interbank market as the rate at which it is offered Dollar deposits and
in an amount equal or comparable to the Note and for the Interest Period at or
about 11:00 A.M., London time, on the day two London Banking Days prior to the
first day of such Interest Period.
Lien: means any mortgage, pledge, security interest, encumbrance, lien or
charge of any kind (including, without limitation, any conditional sale or other
title retention agreement or lease in the nature thereof or any agreement to
give any security interest).
Madison Dearborn: means Madison Dearborn Capital Partners III, L.P.,
Madison Dearborn Special Equity III, L.P., and Special Advisors Fund I, LLC.
Material: means material in relation to the business, operations,
affairs, financial condition, assets, or properties of the Company and its
Subsidiaries taken as a whole.
Material Adverse Effect: means a material adverse effect on the
properties, business, operations, earnings, assets, liabilities or financial
condition of the Company and the Subsidiaries, taken as a whole, or on the
ability of the Company or its Subsidiaries to perform their respective
obligations under this Agreement, the Note or any of the Transaction Documents.
Maturity Date: has the meaning specified in Section 2, as it may be
modified or amended pursuant to the terms hereof.
Note: has the meaning specified in Section 2.
Notes: has the meaning specified in Section 2.
OnStar Distribution Agreement: means the distribution agreement between
GM/OnStar, a division of General Motors Corporation, and XM Satellite Radio Inc.
providing for the installation and distribution of XM receivers in General
Motors automobiles.
Party or Parties: has the meaning specified in the preamble to this
Agreement.
Permitted Investment: means (i) short-term cash investments; (ii)
payroll, travel and similar advances to cover matters that are expected at the
time of such advances ultimately to be treated as expenses in accordance with
GAAP; and (iii) stock, obligations or securities received in satisfaction of
judgments.
Permitted Liens: means (i) Liens for taxes, assessments, governmental
charges or claims that are being contested in good faith by appropriate legal
proceedings promptly instituted and diligently conducted and for which a reserve
or other appropriate provision, if any, as shall be required in conformity with
GAAP shall have been made; (ii) statutory and
10
<PAGE> 16
common law Liens of landlords and carriers, warehousemen, mechanics, suppliers,
materialmen, repairmen or other similar Liens arising in the ordinary course of
business and with respect to amounts not yet delinquent or being contested in
good faith by appropriate legal proceedings promptly instituted and diligently
conducted and for which a reserve or other appropriate provision, if any, as
shall be required in conformity with GAAP shall have been made; (iii) Liens
incurred or deposits made in the ordinary course of business in connection with
workers' compensation, unemployment insurance and other types of social
security; (iv) Liens incurred or deposits made to secure the performance of
tenders, bids, leases, statutory or regulatory obligations, bankers'
acceptances, surety and appeal bonds, government contracts, performance and
return-of-money bonds and other obligations of a similar nature incurred in the
ordinary course of business (exclusive of obligations for the payment of
borrowed money); (v) easements, rights-of-way, municipal and zoning ordinances
and similar charges, encumbrances, title defects or other irregularities that do
not materially interfere with the ordinary course of business of the Company or
its Subsidiaries; (vi) Liens (including extensions and renewals thereof) upon
real or personal property acquired after the date hereof; provided that (a) such
Lien is created solely for the purpose of securing Indebtedness Incurred, in
accordance with Section 7.8, (1) to finance the cost of the item of property or
assets subject thereto and such Lien is created prior to, at the time of or
within six (6) months after the later of the acquisition, the completion of
construction or the commencement of full operation of such property or (2) to
refinance any Indebtedness previously so secured, (b) the principal amount of
the Indebtedness secured by such Lien does not exceed one hundred percent (100%)
of such cost and (c) any Lien permitted by this clause shall not extend to or
cover any property or assets other than such item of property or assets and any
improvements on such item; (vii) leases or subleases granted to others that do
not materially interfere with the ordinary course of business of the Company and
its Subsidiaries, taken as a whole; (viii) Liens encumbering property or assets
under construction arising from progress or partial payments by a customer of
the Company or its Subsidiaries relating to such property or assets; (ix) any
interest or title of any Person in the property subject to the Satellite
Contract; (x) Liens arising from filing Uniform Commercial Code financing
statements regarding leases; (xi) Liens in favor of the Company or its
Subsidiaries; (xii) Liens arising from the rendering of a final judgment or
order against the Company or its Subsidiaries that does not give rise to an
Event of Default; (xiii) Liens securing reimbursement obligations with respect
to letters of credit that encumber documents and other property relating to such
letters of credit and the products and proceeds thereof; (xiv) Liens in favor of
customs and revenue authorities arising as a matter of law to secure payment of
customs duties in connection with the importation of goods; (xv) Liens
encumbering customary initial deposits and margin deposits, and other Liens that
are within the general parameters customary in the industry and incurred in the
ordinary course of business, in each case, securing Indebtedness under Interest
Rate Agreements and Currency Agreements and forward contracts, options, future
contracts, futures options or similar agreements or arrangements designed solely
to protect the Company or its Subsidiaries from fluctuations in interest rates,
currencies or the price of commodities; (xvi) Liens arising out of conditional
sale, title retention, consignment or similar arrangements for the sale of goods
entered into by the Company or any of its Subsidiaries in the ordinary course of
business in accordance with the past practices of the Company and its
Subsidiaries prior to the date hereof; (xvii) Liens on receivables to secure
receivables-based financing permitted under Section 7.8; and (xviii) Liens in
respect of Indebtedness permitted or approved under Section 7.8; (xix) Liens
existing on the date hereof and disclosed herein; (xx) Liens granted after the
date hereof
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on any assets or Capital Stock of the Company or its Subsidiaries created in
favor of the holder of the Notes; (xxi) Liens with respect to the assets of any
Subsidiaries of the Company granted by such Subsidiaries to the Company to
secure Indebtedness owing to the Company.
Person: means any individual, partnership, corporation, joint venture,
limited liability company, association, trust, unincorporated organization, or a
government or agency or political subdivision thereof.
Potential Event of Default: means an event or condition which, with
notice or lapse of time or both, would become an Event of Default.
Preferred Stock: as applied to the Capital Stock of any corporation,
means Capital Stock of any class or classes (however designated) which is
preferred as to the payment of dividends, or as to the distribution of assets
upon any voluntary or involuntary liquidation or dissolution of such
corporation, over shares of Capital Stock of any other class of such
corporation.
Qualified Initial Public Offering: has the meaning specified in Section
8.1.
Qualified Institutional Buyer: means:
(i) Any of the following entities, acting for its own account or the
accounts of other qualified institutional buyers, that in the aggregate owns
and invests on a discretionary basis at least $100 million in securities of
issuers that are not affiliated with the entity:
(A) Any insurance company as defined in section 2(13) of the
Securities Act;
(B) Any investment company registered under the Investment
Company Act or any business development company as defined in
section 2(a)(48) of that act;
(C) Any Small Business Investment Company licensed by the U.S.
Small Business Administration under section 301(c) or (d) of the
Small Business Investment Act of 1958 (the "Small Business
Investment Act");
(D) Any plan established and maintained by a state, its
political subdivisions, or any agency or instrumentality of a state
or its political subdivisions, for the benefit of its employees;
(E) Any employee benefit plan within the meaning of Title I of
ERISA;
(F) Any trust fund whose trustee is a bank or trust company and
whose participants are exclusively plans of the types identified in
paragraph (a)(i)(D) or (E) above, except trust funds that include as
participants individual retirement accounts or H.R. 10 plans;
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<PAGE> 18
(G) Any business development company as defined in section
202(a)(22) of the Advisers Act;
(H) Any organization described in section 501(c)(3) of the
Internal Revenue Code, corporation (other than a bank as defined in
section 3(a)(2) of the Securities Act or a savings and loan
association or other institution referenced in section 3(a)(5)(A) of
Securities Act or a foreign bank or savings and loan association or
equivalent institution), partnership, or Massachusetts or similar
business trust; and
(I) Any investment adviser registered under the Advisers Act.
(ii) Any dealer registered pursuant to section 15 of the Exchange Act,
acting for its own account or the accounts of other Qualified Institutional
Buyers, that in the aggregate owns and invests on a discretionary basis at
least $10 million of securities of issuers that are not affiliated with the
dealer, provided, however, that securities constituting the whole or a part
of an unsold allotment to or subscription by a dealer as a participant in a
public offering shall not be deemed to be owned by such dealer.
(iii)Any dealer registered pursuant to section 15 of the Exchange Act
acting in a riskless principal transaction on behalf of a Qualified
Institutional Buyer.
(iv) Any investment company registered under the Investment Company Act,
acting for its own account or for the accounts of other Qualified
Institutional Buyers, that is part of a family of investment companies which
own in the aggregate at least $100 million in securities of issuers, other
than issuers that are affiliated with the investment company or are part of
such family of investment companies. "Family of investment companies" means
any two or more investment companies registered under the Investment Company
Act, except for a unit investment trust whose assets consist solely of shares
of one or more registered investment companies, that have the same investment
adviser (or, in the case of unit investment trusts, the same depositor),
provided, however, that for purposes of this section:
(A) Each series of a series company (as defined in Rule 18f-2
under the Investment Company Act) shall be deemed to be a separate
investment company; and
(B) Investment companies shall be deemed to have the same
adviser (or depositor) if their advisers (or depositors) are
majority-owned subsidiaries of the same parent, or if one investment
company's adviser (or depositor) is a majority-owned subsidiary of
the other investment company's adviser (or depositor).
(v) Any entity, all of the equity owners of which are Qualified
Institutional Buyers, acting for its own account or the accounts of other
Qualified Institutional Buyers, and
(vi) Any bank as defined in section 3(a)(2) of the Securities Act, any
savings and loan association or other institution as referenced in section
3(a)(5)(A) of the
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<PAGE> 19
Securities Act, or any foreign bank or savings and loan association or
equivalent institution, acting for its own account or the accounts of other
Qualified Institutional Buyers, that in the aggregate owns and invests on a
discretionary basis at least $100 million in securities of issuers that are
not affiliated with it and that has an audited net worth of at least $25
million as demonstrated in its latest annual financial statements, as of a
date not more than 16 months preceding the date of sale of the Notes in the
case of a U.S. bank or savings and loan association, and not more than 18
months preceding such date of sale for a foreign bank or savings and loan
association or equivalent institution.
Registration Rights Agreement: means the registration rights agreement
by and among the Parties hereto, American Mobile and Baron to be entered into
at Closing, containing the terms set forth in the Term Sheet and other
customary terms and conditions.
Regulatory Agreement: means that certain regulatory agreement by and
among American Mobile, WorldSpace, Inc., WorldSpace International Network, and
the Company, dated on or about the date hereof.
Repayment Event: means any event or condition which gives the holder of
any note, debenture or other evidence of Indebtedness (or any Person acting on
such holder's behalf) the right to require, pursuant to an acceleration of
claims or prior to the Stated Maturity thereof, the repurchase, redemption or
repayment of all or a portion of such Indebtedness by the Company or its
Subsidiaries.
Requisite Approval: means written approval, consent or waiver by the
Holders of a majority of the aggregate outstanding principal amount of the
Convertible Notes.
Responsible Officer: shall mean the Chairman, President, Chief Executive
Officer, Chief Financial Officer or General Counsel of the Company.
Reuters Screen: has the meaning specified under the definition of
"LIBOR."
Satellite Contract: means the Satellite Purchase Contract for In-Orbit
Delivery by and between XM Satellite Radio Inc. and Hughes dated March 20, 1998,
as amended from time to time.
Schedules: means the schedules attached to the Disclosure Schedule.
Securities: has the meaning specified in Section 5.1.
Securities Act: means the Securities Act of 1933, as amended, or any
similar federal statute and the rules and regulations of the Commission
thereunder, all as the same shall be in effect at the time.
Shareholders' Agreement: means the shareholders' agreement by and among
the Company, the Investors and American Mobile to be entered into at Closing
containing the terms set forth in the Term Sheet.
Small Business Investment Act: has the meaning specified under the
definition of "Qualified Institutional Buyer."
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<PAGE> 20
Stated Maturity: means, (i) with respect to any debt security, the date
specified in such debt security as the fixed date on which the final installment
of principal of such debt security is due and payable and (ii) with respect to
any scheduled installment of principal of or interest on any debt security, the
date specified in such debt security as the fixed date on which such installment
is due and payable.
Stock Plan: means any duly approved employee restricted stock plan and/or
stock option incentive plan of the Company, including without limitation the
Company's 1998 Shares Award Plan dated as of June 1, 1998, any amendments and/or
restatements thereof.
Subsidiaries: means, with respect to any Person, any corporation,
association or other business entity of which more than fifty percent (50%) of
the voting power of the outstanding Voting Stock is owned, directly or
indirectly, by such Person or one or other Subsidiaries of such Person.
Tax: means any federal, state, local, or foreign income, gross receipts,
license, payroll, employment, excise, severance, stamp, occupation, premium,
windfall profits, environmental (including taxes under Internal Revenue Code
Section 59A), customs duties, capital stock, franchise, profits, withholding,
social security (or similar), unemployment, disability, real property, personal
property, sales, use, transfer, registration, value added, alternative or add-on
minimum, estimated, or other tax of any kind whatsoever, including any interest,
penalty, or addition thereto, whether disputed or not.
TCM Group: means Telcom, Columbia Capital and Madison Dearborn.
TCM Group Operational Assistance Agreement: means that certain agreement
by and between an entity to be formed by the TCM Group and the Company dated on
or about the date hereof, related to certain operational matters involving the
Company.
Telcom: means Telcom-XM Investors L.L.C., a Delaware limited liability
company.
Term Sheet: means the Summary of Principal Terms and Conditions of the
Proposed Issuance of Series A Subordinated Convertible Notes in the form
accepted by the Parties simultaneously with the execution of this Agreement.
Trade Payables: means, with respect to any Person, any accounts payable
or any other indebtedness or monetary obligation to trade creditors created,
assumed or Guaranteed by such Person or any of its Subsidiaries arising in the
ordinary course of business in connection with the acquisition of goods or
services.
Transaction Documents: means all documents delivered in connection with
the transactions contemplated by this Agreement, including without limitation
the Notes, the XM Exchange Agreement, the OnStar Distribution Agreement, the
Shareholders Agreement, the DIRECTV Operational Assistance Agreement, the OnStar
Distribution Agreement, the Clear Channel Operational Assistance Agreement, the
TCM Group Operational Assistance Agreement, the WorldSpace Operational
Assistance Agreement, the Satellite Contract, the Registration Rights Agreement
and any documents or instruments contemplated by or executed in connection with
any of the transactions contemplated hereby or thereby.
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<PAGE> 21
Voting Stock: means with respect to any Person, Capital Stock of any
class or kind ordinarily having the power to vote for the election of directors,
managers or other voting members of the governing body of such Person.
WorldSpace International Network: means WorldSpace International Network
Inc., a British Virgin Islands corporation.
WorldSpace, Inc.: means WorldSpace, Inc., a Maryland corporation.
WorldSpace Operational Assistance Agreement: means that certain agreement
by and between Clear Channel and the Company dated on or about the date hereof,
related to certain operational matters involving the Company
XM Exchange Agreement: means the agreement among American Mobile,
WorldSpace, Inc. and the Company, dated on or about the date hereof, providing
for the restructuring of the investment of WorldSpace, Inc. in the Company, or
any substantially equivalent agreement.
XM Satellite Radio Inc.: means XM Satellite Radio Inc., a Delaware
corporation with its principal office at 1250 23rd St. NW, Suite 57, Washington,
D.C. 20037.
2. Issuance of the Notes (a) The Company has duly authorized the Series A
Subordinated Convertible Notes Due December 31, 2004, in the principal amount as
is set forth on Attachment 2(a) for each Investor (each, an "Investor Note")
(each such Investor Note, together with any Notes issued in substitution or
exchange therefor pursuant to this Agreement, are herein called the "Convertible
Note" or the "Note" and collectively, the "Convertible Notes" or the "Notes").
Each Note will bear interest from the date thereof at the Interest Rate,
capitalized quarterly in arrears in each year on the day which numerically
corresponds to the date of the Note in each of the three, six, nine and twelve
months subsequent to the month of the Note (or, if any such month has no such
numerically corresponding day, on the last Business Day of such month)
commencing with the date three months from the date thereof (each, an "Interest
Capitalization Date"), will mature either: (x) on December 31, 2004, or (y) by
reason of automatic extension without any action by any Party, if the Company
issues High Yield Debt prior to June 30, 2001, on the first Business Day
following the date that is six (6) months from the maturity date of such High
Yield Debt or, following such first issuance, any other High Yield Debt issued
prior to June 30, 2002, unless earlier converted in accordance with the terms
hereof (the "Maturity Date"), and will be in substantially the form of Exhibit A
attached hereto, with such changes thereto, if any, as may be approved by the
Parties.
(b) Each Note shall be governed by, and the rights and the benefits of
the Investor determined in accordance with, the terms and conditions of this
Agreement.
(c) Any voluntary or mandatory conversion of the principal amount
(including without limitation any Capitalized Interest) of any of the
Convertible Notes under the terms of this Agreement, whether or not such
Convertible Note is held by the respective Investor or any subsequent Holder,
shall be as follows: (i) the Note purchased by Clear Channel shall be
convertible solely into Class A Common Stock; (ii) the Note purchased by
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<PAGE> 22
DIRECTV shall be convertible solely into Class A Convertible Preferred Stock;
(iii) the Note purchased by GM shall be convertible solely into Class A
Convertible Preferred Stock; and (iv) the Notes purchased by Telcom, Columbia
Capital and Madison Dearborn shall be convertible solely into Class A Common
Stock; provided, however, that if the Holder of either the DIRECTV Note or the
GM Note is a non-Affilate of DIRECTV or GM, respectively, such Note shall be
convertible solely into Class A Common Stock. For purposes of this Agreement,
the stock into which any such Convertible Note has been converted in accordance
with this Section 2(c) shall be referred to as the "Conversion Stock."
(d) No prepayment of any Note shall be permitted without the approval
from the Holders of Notes not being prepaid representing a majority of the
aggregate outstanding principal amount of the Notes.
3. Interest and Repayment With respect to each Note:
3.1. Interest on the Notes Any and all accrued interest on the unpaid
principal amount of each Note shall be capitalized and added to such unpaid
principal amount, as of each Interest Capitalization Date, as additional
principal amounts ("Capitalized Interest") upon which future interest payments
shall accrue at the Interest Rate.
3.2. Interest after Maturity In the event the Company shall fail to make
any payment of the principal amount of, or interest on, any Note when due, after
giving effect to any applicable grace period provided for in this Agreement, the
Company shall pay interest on such unpaid amount, payable from time to time on
demand, from the date such amount shall have become due to the date of payment
thereof (after as well as before judgment), accruing on a daily basis, at a per
annum rate equal to the sum of the Interest Rate plus one percent (1.0%).
3.3. Payments and Computations (a) The Company will pay all sums becoming
due on each Note for interest or principal in the manner and at the address
specified for such purpose as each Investor shall from time to time specify to
the Company in writing for such purpose, without the presentation or surrender
of the Note or the making of any notation thereon, except that if a Note is paid
in full, following such payment, the Note shall be surrendered to the Company at
its principal office for cancellation.
(b) Interest on each Note shall be calculated for the actual number of
days (including the first day but excluding the last day of any relevant period)
elapsed and shall be computed on the basis of a 360-day year of twelve 30-day
months.
3.4. Payment at Maturity or Conversion (a) The outstanding principal
amount of each Note (including without limitation any Capitalized Interest),
together with any accrued interest thereon, shall be due and payable in full in
cash on the earlier of: (i) the Maturity Date, or (ii) such other date as the
Note becomes due and payable pursuant to this Agreement.
(b) Upon any conversion of any Note hereunder, the principal amount of
each Note (including without limitation all Capitalized Interest), together with
any accrued interest thereon, shall be converted into a number of shares of
either Class A Common Stock
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or Class A Preferred Stock, as appropriate, equal to such principal amount and
interest divided by the Conversion Price.
4. Representations, Warranties and Agreements of the Company The
Company represents, warrants and agrees as follows:
4.1. Incorporation, Standing, etc. The Company is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware and has all requisite corporate power and authority to own and operate
its properties, to carry on its business as now conducted and as presently
proposed to be conducted, to enter into this Agreement, to issue the Notes and
to carry out the terms of this Agreement and the Notes. The Company has, by all
necessary corporate action, duly authorized the execution and delivery of this
Agreement and of the Notes and the performance of its obligations hereunder and
under the Notes.
4.2. Subsidiaries XM Satellite Radio Inc. is the only Subsidiary of the
Company. The Subsidiary of the Company is a corporation duly organized, validly
existing and in good standing under the laws of the jurisdiction of its
incorporation. The Subsidiary of the Company has all requisite power and
authority to own and operate its properties and to carry on its business as now
conducted and as presently proposed to be conducted. Except as disclosed in
Schedule 4.2, all the outstanding shares of Capital Stock of the Subsidiary of
the Company are duly authorized, validly issued, fully paid and non-assessable,
and all such shares are owned beneficially and of record by the Company free and
clear of any Lien.
4.3. Disclosure The Confidential Memorandum delivered to the Investor
does not include any untrue statement of material fact or omit to state any
material fact necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading.
4.4. Qualification Each of the Company and its Subsidiaries is duly
qualified and in good standing as a foreign corporation authorized to do
business in each jurisdiction in which the character of the properties owned or
leased by it therein or in which the transaction of its business makes such
qualification necessary.
4.5. Authorization of Agreement and Notes This Agreement and the Note
have been duly authorized, executed and delivered by the Company. Upon
acceptance of this Agreement by the signature of a Responsible Officer on the
signature page hereof, this Agreement will constitute a legal, valid, binding
and enforceable obligation of the Company, subject to applicable bankruptcy,
insolvency, reorganization, moratorium and similar laws affecting creditors'
rights generally, and subject, as to enforceability, to general principles of
equity (regardless of whether enforcement is sought in a proceeding in equity or
at law).
4.6. Absence of Defaults and Conflicts Except as disclosed in Schedule
4.6, neither the Company nor any of its Subsidiaries is in violation of its
respective certificate of incorporation, bylaws or other charter documents or is
in default in the performance or observance of any material obligation,
agreement, covenant or condition contained in any contract, indenture, mortgage,
loan agreement, note, lease or other instrument to which either of them is a
party or by which either of them may be bound, or to which either of the
property
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<PAGE> 24
or assets of the Company or its Subsidiaries is subject (collectively,
"Agreements and Instruments"); and the execution, delivery and performance of
this Agreement and any other Agreement or Instrument entered into or issued or
to be entered into or issued by the Company or any of its Subsidiaries in
connection with the transactions contemplated hereby or thereby, and the
consummation of the transactions contemplated herein or therein (including
without limitation the issuance of the Note) and compliance by the Company with
its obligations hereunder and thereunder, have been duly authorized by all
necessary corporate action and do not and will not, whether with or without the
giving of notice or passage of time or both, conflict with or constitute a
breach of, or default or Repayment Event under, or result in the creation or
imposition of any lien, charge or encumbrance upon any property or assets of the
Company or its Subsidiaries pursuant to such Agreements and Instruments, nor
will such action result in any violation of the provisions of the certificate of
incorporation, bylaws or other charter documents of the Company or its
Subsidiaries or any applicable law, statute, rule, regulation, judgment, order,
writ or decree of any government, government instrumentality or court, domestic
or foreign, having jurisdiction over the Company or its Subsidiaries or any of
their assets or properties.
4.7. Absence of Proceedings Except as disclosed in Schedule 4.7, there is
no action, suit or proceeding before or by any court or governmental agency or
body, domestic or foreign, now pending or, to the best of the Company's
knowledge, threatened, against or affecting the Company or its Subsidiaries or
any of their respective officers or directors in their capacity as such or any
of their respective property or assets.
4.8. Possession of Licenses and Permits Except as disclosed in Schedule
4.8, (i) the Company and its Subsidiaries possess such material permits,
certificates, licenses, approvals, consents, orders and other authorizations
(collectively, "Governmental Licenses") issued by the appropriate Federal,
state, local or foreign regulatory agencies or bodies necessary to conduct the
business now operated by them or planned to be conducted by them as described in
the Confidential Memorandum; (ii) the Company and its Subsidiaries are in
compliance with the terms and conditions of all such Governmental Licenses;
(iii) all of the Governmental Licenses are valid and in full force and effect;
(iv) and neither the Company nor any of its Subsidiaries has received any notice
of proceedings relating to the revocation, withdrawal, cancellation,
modification, suspension or non-renewal of any such Governmental Licenses.
4.9. No Violations of Laws Neither the Company nor its Subsidiaries have
violated any law, including without limitation (i) the U.S. Communications Act
of 1934, as amended, and the rules or regulations promulgated thereunder, (ii)
any applicable state law or regulation concerning intra-state
telecommunications, and (iii) any foreign law or regulation concerning
international communications, in each case the violation of which would have a
Material Adverse Effect.
4.10.Internal Accounting Controls The books, records and accounts of the
Company and its Subsidiaries accurately and fairly reflect, in all material
respects, in reasonable detail, the transactions in and dispositions of the
assets of the Company and its Subsidiaries. The Company and its Subsidiaries
maintain a system of internal accounting controls sufficient to provide
reasonable assurance that (i) transactions are executed in accordance with
management's general or specific authorizations; (ii) transactions are recorded
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as necessary to permit preparation of financial statements in conformity with
GAAP and to maintain asset accountability; (iii) access to assets is permitted
only in accordance with management's general or specific authorization; and (iv)
the recorded amount for assets is compared with the existing assets at
reasonable intervals and appropriate action is taken with respect to any
differences.
4.11. Tax Returns and Payments The Company and its Subsidiaries have
filed all income tax returns required by law to be filed by them and have paid
all taxes shown to be due and payable on such returns and all other taxes,
assessments, fees and other governmental charges levied upon them and their
respective properties, assets, income and franchises which are due and payable,
to the extent such taxes and assessments have become due and payable and before
they have become delinquent, except for any taxes and assessments the amount,
applicability or validity of which is currently being contested in good faith by
appropriate proceedings and with respect to which the Company or its
Subsidiaries, as the case may be, has established adequate reserves in
accordance with GAAP. The charges, accruals and reserves on the books of the
Company and its Subsidiaries in respect of Federal, state and foreign income
taxes for all fiscal periods are adequate in the reasonable opinion of the
Company and, to the best of the Company's knowledge, there are no additional
assessments for such periods or any basis therefor.
4.12. Indebtedness Except as disclosed in Schedule 4.12, neither the
Company nor any of its Subsidiaries is in default and no waiver of default is
currently in effect, in the payment of any interest or principal on any
Indebtedness of the Company or such Subsidiaries.
4.13. Title to Properties; Liens Except as disclosed in Schedule 4.13,
the Company and its Subsidiaries each have good and marketable title to all of
their respective properties and assets, free and clear of all Liens, except for
Permitted Liens.
4.14. Patents, Trademarks, Authorizations, etc. Except as disclosed in
Schedule 4.14, the Company and its Subsidiaries own, possess or have the right
to use (without any known conflict with the rights of others) all patents,
trademarks, service marks, trade names, copyrights, licenses and authorizations
which are necessary to the conduct of their respective businesses as conducted
on the date hereof.
4.15. Governmental Consents Except as disclosed in Schedule 4.15 or as
may be required to be obtained or made under the Securities Act and applicable
state securities laws in connection with the exercise of any registration rights
of a Holder provided for in the Registration Rights Agreement, neither the
Company nor its Subsidiaries are required to procure, make or file any consent,
approval or authorization of, or any notice to, of filing, registration or
qualification with, any court or administrative or governmental body in order to
execute and deliver this Agreement and the Notes and to perform its obligations
hereunder and under any and all Transaction Documents.
4.16. Investment Company Act The Company is not, and upon the issuance of
the Note as herein contemplated will not be, an "investment company" or an
entity "controlled" by an "investment company" as such terms are defined in the
Investment Company Act, nor is the Company an "open-ended investment trust,"
"unit investment trust"
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or "face-amount certificate company" that is or is required to be registered
under Section 8 of the Investment Company Act.
4.17. Public Utility Holding Company Act The Company is not a "holding
company," or a "subsidiary company" of a "holding company," or an "affiliate" of
a "holding company" or of a "subsidiary company" of a "holding company," as such
terms are defined in the Public Utility Holding Company Act of 1935, as amended.
4.18. Restrictions Except for the restrictions contained herein or under
applicable law, there will be no other restrictions upon the Notes (including
any restrictions set forth in any existing shareholder agreement), with the
exception of any restrictions contained in the Shareholders' Agreement and in
the Registration Rights Agreement.
4.19. Capitalization The authorized, issued and outstanding Capital Stock
of the Company is as set forth in Schedule 4.19 hereof under "Capitalization";
and all issued and outstanding shares of the Capital Stock of the Company are
validly issued, fully paid and non-assessable. After giving effect to the
closing of all of the transaction contemplated in (i) the XM Exchange Agreement
and (ii) this Agreement (including the conversion of all Notes into Conversion
Stock), and without regard to options issued under the Stock Plan, Holders will
hold 47.4% of issued and outstanding shares of Common Stock of the Company and
60.1% of issued and outstanding shares of Capital Stock of the Company, without
giving effect to options under the Stock Plan. Except for the Notes issued to
American Mobile in connection with the American Mobile Exchange Agreement, the
Notes issued by American Mobile to Baron, and options and rights granted
pursuant to the Company's Stock Plan, neither the Company nor any of its
Subsidiaries has outstanding any securities convertible into or exchangeable for
any shares of its Capital Stock nor does it have outstanding any rights to
subscribe for or to purchase, or any options for the purchase of, or any
agreements providing for the issuance (contingent or otherwise) of, or any
calls, commitments or claims of any character relating to, any of its Capital
Stock or securities convertible into or exchangeable for any of its Capital
Stock. Prior to the Closing, the Company will duly authorize and reserve for
issuance the Conversion Stock and the Conversion Stock will, when issued, be
duly and validly issued, fully paid and non-assessable and free from all initial
Liens.
4.20. Seniority of Notes The Notes shall rank senior to all other
existing Indebtedness of the Company as of the date of issuance of the Notes.
4.21. Patent Applications As of the Closing Date, the Company has filed
with the U.S. Patent and Trademark Office applications for not less than five
(5) patents regarding technology anticipated to be employed in its XM Radio
System.
4.22. Material Events Except as disclosed on Schedule 4.22, since March
31, 1999, there has not been with respect to the Company or any of its
Subsidiaries:
(a) any event with respect to their properties, business, prospects,
operations, earnings, assets, liabilities or condition (financial or otherwise)
which could reasonably be expected to result in a Material Adverse Effect; or
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(b) any damages, destruction or loss to the properties or assets of the
Company or any of its Subsidiaries, whether or not covered by insurance, that
has or could reasonably be expected to have a Material Adverse Effect or that in
the aggregate exceed $100,000; or
(c) any loss or waiver by the Company of any of its Subsidiaries of any
right, not in the ordinary course of business, or any material debt owed to it;
or
(d) other than the sales of assets in the ordinary course of business
(including pursuant to sale leaseback transactions), any sale, transfer or other
disposition of, or agreements to sell, transfer or otherwise dispose of, any
assets by the Company or any of its Subsidiaries in excess of $100,000 in the
aggregate, or any cancellation or agreement to cancel any debt or claims of the
Company or any of its Subsidiaries; or
(e) any declaration or setting aside or payment of any dividend
(whether in cash, property or stock) or any distribution (whether in cash,
property or stock) or other payment with respect to any of the Capital Stock of
the Company or any of its Subsidiaries, or any repurchase, purchase or other
acquisition of, or agreement to repurchase, purchase or otherwise acquire, any
of the Company's or any of its Subsidiaries' Capital Stock; or
(f) any amendment or termination of any contract, agreement or license
to which the Company or any of its Subsidiaries is a party or by which it is
bound, except where such amendment or termination could not be reasonably
expected to have a Material Adverse Effect; or
(g) any resignation or termination or employment of any key employee,
and there is no impending or threatened resignation or termination or
terminations of employment of any key employee; or
(h) any labor dispute (including, without limitation, any negotiation,
or request for negotiation, for any labor representation or any labor contract)
affecting the Company or any of its Subsidiaries; or
(i) any application of any existing (or the enactment of any new)
environmental law or personnel, product safety law or other governmental
regulation that has or which could reasonably be expected to have a Material
Adverse Effect.
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4.23. Financial Statements The financial statements and schedules of the
Company and its consolidated subsidiaries included in the Confidential
Memorandum comply as to form in all material respects with applicable accounting
requirements, present fairly the financial conditions of the Company and its
consolidated subsidiaries, as of the respective dates thereof and the results of
operations and cash flows of the Company and its consolidated subsidiaries, for
the respective periods covered thereby, all in conformity with GAAP applied on a
consistent basis throughout the periods involved (except as may be indicated in
the notes thereto) and fairly present the consolidated financial position of the
Company and its consolidated Subsidiaries as of the dates thereof and the
consolidated results of their operations and cash flows for the periods then
ended (subject, in the case of unaudited statements, to normal year-end audit
adjustments).
4.24. No Undisclosed Fees Except as disclosed in writing to the
Investors, there are no fees or payments to be made by the Company to bankers,
brokers or agents with regard to the financing.
4.25. No Transactions with Affiliates Except as disclosed in the
Confidential Memorandum, neither the Company nor the Subsidiaries has engaged in
any transaction with an Affiliate on terms any less favorable to the Company or
the Subsidiaries, as the case may be, then would likely have been obtainable in
arm's length dealing with a Person not an Affiliate.
4.26. Satellite Launch The Company has no reason to believe that the
scheduled launch of it satellites will not occur during the scheduled launch
periods under the Satellite Contract as described in the Confidential
Memorandum, except as the Satellite Contract may be amended prior to the
Closing.
4.27. Appropriate Technology The Company has no reason to believe that
the technology utilized in the XM Radio System (as such term is defined and
described in the Confidential Memorandum) is not fit to accomplish its intended
purpose as described in the Confidential Memorandum.
4.28. CD Radio Litigation The Company believes it more likely than not
that it will prevail in the action alleging patent infringement brought by CD
Radio, as described in the Confidential Memorandum, regarding the Company's use
of certain technology in the development of a satellite digital audio radio
service.
4.29. Registration Rights Except as provided in the Registration Rights
Agreement, there are no contracts, agreements or understandings between the
Company and any other Person granting such Person the right to require the
Company to file a Registration Statement under the Securities Act with respect
to any Securities that the Company owned or to be owned by such a Person or to
require the Company to include such Securities in the Securities registered
pursuant to any of the Registration Statements filed by the Company under the
Securities Act.
5. Representations and Warranties of the Investor Each Investor
represents and warrants to and agrees with the Company that:
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<PAGE> 29
5.1. Risks of Investment It recognizes that the purchase of a Note and
any securities which may be issued upon the conversion thereof (collectively,
the "Securities") involves a high degree of risk including, but not limited to,
the following: (i) the Company is a development stage business with no operating
history and requires substantial funds in addition to the proceeds of the
Financing; (ii) an investment in the Company is highly speculative, and only
investors who can afford the loss of their entire investment should consider
investing in the Company and purchasing the Securities; (iii) the Investor may
not be able to liquidate his investment; (iv) transferability of the Securities
is restricted; (v) in the event of a disposition of the Securities, the Investor
could sustain the loss of its entire investment and (vi) the Company does not
anticipate the payment of dividends in the foreseeable future. Such Investor has
reviewed the description of such risks set forth in the Confidential Memorandum.
5.2. Investment Experience It has prior investment experience, including
investment in securities which are non-listed, unregistered and/or not traded on
the Nasdaq National or SmallCap Market, a national or other stock exchange or on
the automated quotation system of the National Association of Securities
Dealers, Inc., for actively traded stocks, or has employed the services of an
investment adviser, attorney and/or accountant experienced in evaluating such
investments to read all of the documents furnished or made available by the
Company to it and to evaluate the merits and risks of such an investment on such
Investor's behalf. To the extent necessary, it has retained, at its own expense,
and relied upon appropriate professional advice regarding the investment, tax
and legal merits and consequences of this Agreement and its purchase of the
Securities hereunder.
5.3. Ability to Bear Risk Either by reason of its business or financial
experience or the business or financial experience of its professional advisers
(who are unaffiliated with, and who are not compensated by, the Company or any
Affiliate or selling agent of the Company, directly or indirectly) each Investor
has the capacity to protect its own interests in connection with the transaction
contemplated hereby, and is able to bear the economic risk which it hereby
assumes.
5.4. Receipt and Review of Documentation It hereby acknowledges receipt
and review of (i) the Private Placement Memorandum dated May 1999, the Summary
of Principal Terms and Conditions attached thereto as supplemented and amended
through the date hereof by the Term Sheet, (collectively, the "Confidential
Memorandum"), and (ii) this Agreement and all attachments to it; and hereby
represents that it has been furnished by the Company during the course of this
transaction with information regarding the Company which such Investor has
requested, has been afforded the opportunity to ask questions of and receive
answers from duly authorized officers or other representatives of the Company
concerning the terms and conditions of the Securities, and has received any
additional information which it has requested.
5.5. No General Solicitation by Company It was contacted regarding the
sale of the Securities by the Company (or an authorized agent or representative
thereof) with whom the Investor had a prior substantial pre-existing
relationship and no securities were offered or sold to it by the Company (or an
authorized agent or representative thereof) by means of any form of general
solicitation or general advertising, including: (i) any advertisement, article,
notice or other communication published in a newspaper or magazine or similar
media or
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<PAGE> 30
broadcast over television or radio, or (ii) attendance at any seminar
or meeting whose attendees were invited by any general solicitation or general
advertising.
5.6. Organization, Good Standing, Corporate Authority It (or if it is an
employee benefit plan governed under ERISA, the fiduciary signing on its behalf)
is duly organized and validly existing as a corporation or limited liability
company, as the case may be, and in good standing under the laws of its
jurisdiction of organization, with requisite power and authority (corporate and
other) to own its properties and conduct its business.
5.7. Benefit Plan Investor Each Investor agrees to complete Attachment
5.7 as it applies to it.
5.8. No Public Market It understands that there currently is no public
market for the Securities. It understands and hereby acknowledges that, except
as provided herein, the Company is under no obligation to register any of the
Securities under the Securities Act or any state securities or "blue sky" laws.
5.9. Due Authorization The execution and delivery of, and the performance
by such Investor of its obligations under, this Agreement have been duly and
validly authorized, and, assuming due authorization, execution and delivery by
the Company, upon acceptance of the Agreement by the signature of a duly
authorized officer of such Investor on the signature page hereof, this Agreement
will constitute a legal, valid, binding obligation of such Investor, enforceable
against such Investor in accordance with its terms, subject to applicable
bankruptcy, insolvency, reorganization, moratorium and similar laws affecting
creditors' rights generally, and subject, as to enforceability, to general
principles of equity (regardless of whether enforcement is sought in a
proceeding in equity or at law).
5.10.Qualified Institutional Buyer or Accredited Investor It is:
(a) either
(i) a Qualified Institutional Buyer, or
(ii) an Accredited Investor; and
(b) aware that the sale of Securities to it is being made in reliance on
the exemption from the registration requirements provided by Section 4(2) of the
Securities Act and the regulations promulgated thereunder; and
(c) acquiring such Securities for its own account or the account of an
Accredited Investor or a Qualified Institutional Buyer, as the case may be, and
not with a view to any resale or distribution thereof.
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6. Restrictions; Restrictive Legend Each Investor agrees on its own
behalf and on behalf of any investor account for which it is purchasing the
Securities, and each subsequent holder of the Securities by its acceptance
thereof will agree, to offer, sell or otherwise transfer such Securities only in
compliance with the terms and conditions set forth in the Shareholders'
Agreement. Each Investor acknowledges that each certificate representing
Securities will contain a legend substantially to the following effect:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE
SECURITIES LAWS. NEITHER THESE SECURITIES NOR ANY INTEREST OR PARTICIPATION
HEREIN MAY BE RE-OFFERED, SOLD, ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED OR
OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION UNLESS SUCH
TRANSACTION IS EXEMPT FROM, OR NOT SUBJECT TO, REGISTRATION UNDER THE
SECURITIES ACT.
THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE THE SUBJECT OF A CERTAIN
SHAREHOLDERS' AGREEMENT WHICH, AMONG OTHER THINGS, CONTAINS RESTRICTIONS ON
THE TRANSFER OF SUCH SECURITIES. A COPY OF THE SHAREHOLDERS' AGREEMENT IS
AVAILABLE FOR INSPECTION AT THE PRINCIPAL OFFICE OF THE COMPANY.
Upon any registration of any Securities, pursuant to the Registration Rights
Agreement, or upon termination of the Shareholders' Agreement, the Company shall
remove the applicable legend(s) from the certificate(s) representing such
Securities promptly upon request of the Holder thereof and shall promptly
deliver replacement certificate(s) to such Holder.
7. Covenants For so long as any Note is outstanding, the Company will,
and will cause each of its Subsidiaries to, perform or comply with, as required,
each of the following covenants:
7.1. Payment of Note and Maintenance of Office The Company will
punctually pay or cause to be paid the principal and interest due in respect of
such Note according to the terms thereof and hereof and will maintain an office
within the continental boundaries of the United States of America where notices,
presentations and demands in respect of this Agreement and the Note may be made
upon it and will notify the holder of such Note of any change of location of
such office. Such office is presently maintained at 1250 23rd Street NW, Suite
57, Washington, DC 20037.
7.2. Payment of Taxes and Claims The Company will, and will cause its
Subsidiaries to, pay and discharge promptly (a) all taxes, assessments and other
governmental charges imposed upon it or any of its properties or assets or in
respect of any of its franchises, business, income or profits before the same
shall become delinquent and (b) all lawful claims of materialmen, mechanics,
carriers, warehousemen, landlords and other similar Persons for labor,
materials, supplies and rentals which, if unpaid, might by law become a lien or
charge upon its property; provided, however, that none of the foregoing need be
paid while being
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contested in good faith by appropriate proceedings initiated within the period
allowed by applicable law, rule or regulation and diligently conducted so long
as (i) adequate book reserves have been established in accordance with GAAP with
respect thereto and (ii) neither the Company's nor such Subsidiaries' title to
or right to the use of its properties is materially adversely affected thereby.
7.3. Maintenance of Properties and Corporate Existence The Company will
and will cause each of its Subsidiaries to:
(a) maintain its property in good condition and make all necessary
renewals, replacements, additions, betterments and improvements thereto, all as
in the judgment of the Company may be necessary so that the business carried on
in connection therewith may be conducted properly and advantageously at all
times;
(b) keep adequately insured, by financially sound and reputable insurers,
all of its property of a character usually insured by entities engaged in the
same or a similar business similarly situated against loss or damage of the
kinds and in amounts customarily insured against by such entities and with
deductibles or co-insurance no greater than is customary, and carry, with such
insurers in customary amounts and with deductibles or co-insurance no greater
than is customary, such other insurance, including public liability insurance
and liability insurance against claims for any violation of applicable law, as
is usually carried by entities engaged in the same or a similar business
similarly situated;
(c) keep proper books of record and account in which full, true and
correct entries will be made of all its business transactions and generally
maintain a system of accounting established and administered in accordance with
GAAP;
(d) set aside on its books from its earnings for each fiscal year,
beginning with the first such year ending subsequent to the date hereof and for
each fiscal year thereafter, in amounts deemed adequate in the opinion of the
Company, all proper accruals and reserves which, in accordance with GAAP, should
be set aside from such earnings in connection with its business, including,
without limitation, reserves for depreciation, obsolescence and/or amortization
and accruals for taxes for such period, including all taxes based on or measured
by income or profits; and
(e) except as otherwise permitted or contemplated hereby, do or cause to
be done all things necessary to preserve and keep in full force and effect its
corporate existence and such rights, patents, trademarks, copyrights, licenses,
permits, franchises and governmental authorizations as the Company determines to
be necessary for the present and presently planned future conduct of its
business.
7.4. Compliance with Law Neither the Company nor its Subsidiaries will:
(a) violate any laws, ordinances, governmental rules or regulations to
which it is, or might become, subject, unless the same are being contested by
the Company or such Subsidiaries in good faith and by appropriate proceedings
which shall effectively prevent the imposition of any penalty on the Company or
such Subsidiaries for such noncompliance; or
(b) fail to use its best efforts to obtain or retain (as applicable) any
patents,
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<PAGE> 33
trademarks, service marks, trade names, copyrights, design patents, licenses,
permits, franchises or other governmental authorizations necessary to the
ownership of its property or to the conduct of its business.
7.5. Notice The Company will give prompt written notice to the Holder of
any Event of Default or Potential Event of Default hereunder.
7.6. Merger and Sale of Assets Except with Requisite Approval:
(a) Except to the extent provided for in the XM Exchange Agreement, the
Company will not consolidate or merge with or into any other Person or permit
any other Person to consolidate with or merge into it, or sell, lease, transfer
or otherwise dispose of all or substantially all of its assets (as an entirety
or substantially an entirety in one transaction or a series of related
transactions);
(b) No Subsidiary of the Company may consolidate or merge with or into
any other Person or permit any other Person to consolidate with or merge into it
(unless in either case the Subsidiary is the surviving entity and it remains a
wholly-owned Subsidiary of the Company), or sell, lease, transfer or otherwise
dispose of all or substantially all of its assets (as an entirety or
substantially an entirety in one transaction or a series of related
transactions); or
(c) The Company shall not sell, assign, lease, convey, transfer, or
otherwise dispose of, nor mortgage, pledge, hypothecate, charge or otherwise
encumber any of its interests in XM Satellite Radio Inc., including without
limitation, (i) any equity investment in XM Satellite Radio Inc., and (ii) all
Indebtedness of XM Satellite Radio Inc. in favor of the Company.
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7.7. Limitation on Transactions with Affiliates and Shareholders Except
with Requisite Approval or as provided in the XM Exchange Agreement, the
American Mobile Exchange Agreement and the Transaction Documents, the Company
will not, and will not permit the Subsidiaries of the Company to, directly or
indirectly, enter into, renew or extend any transaction (including, without
limitation, the purchase, sale, lease or exchange of property or assets, or the
rendering of any service) with any holder (or any Affiliate of such holder) of
five percent (5%) or more of any class of Capital Stock (as converted) of the
Company or with any Affiliate of the Company or its Subsidiaries, except upon
fair and reasonable terms no less favorable to the Company or such Subsidiaries
than would likely be obtained, at the time of such transaction or, if such
transaction is pursuant to a written agreement, at the time of the execution of
the agreement providing therefor, in a comparable arm's length transaction with
a Person that is not such a holder or an Affiliate.
7.8. Limitation on Indebtedness (a) Except with Requisite Approval,
neither the Company nor its Subsidiaries will incur (i) Indebtedness (other than
Indebtedness in respect of the Notes, the notes issued pursuant to the XM
Exchange Agreement and the American Mobile Exchange Agreement and Indebtedness
existing as of the date hereof) in an aggregate principal amount in excess of
$25,000,000 at any one time outstanding; or (ii) any Indebtedness that is senior
to or pari passu in right of payment with the Notes except as provided in
Section 13 hereof.
(b) For purposes of determining any particular amount of Indebtedness
under this Section, (i) Guarantees, Liens or obligations with respect to letters
of credit supporting Indebtedness otherwise included in the determination of
such particular amount shall not be included, (ii) any Permitted Liens shall not
be treated as Indebtedness, and (iii) Indebtedness incurred in respect of the
Satellite Contract shall not be included in any determination under this
Section.
(c) Notwithstanding any other provision of this Section, (i) the maximum
amount of Indebtedness that the Company or its Subsidiaries may Incur shall not
be deemed to be exceeded due solely to fluctuations in the exchange rates of
currencies, and (ii) except with Requisite Approval, neither the Company nor any
of its Subsidiaries may Incur any Indebtedness that is expressly subordinated to
any other Indebtedness of the Company or such Subsidiaries, as the case may be,
unless such Indebtedness, by its terms or the terms of any agreement or
instrument pursuant to which such Indebtedness is outstanding, is also expressly
made subordinate to the Notes at least to the extent that such Indebtedness is
subordinated to such other Indebtedness.
7.9. Limitation on Restricted Payments Except with Requisite Approval,
the Company will not, and will not permit its Subsidiaries, directly or
indirectly, to: (i) purchase, redeem, retire or otherwise acquire for value, or
declare or pay any dividend or make any distribution on or with respect to, any
shares of its Capital Stock (other than the exercise by the Company of its
repurchase rights as to Common Stock issued to employees or others providing
services at original cost upon termination of their employment or other service
relationship with the Company in connection with the exercise) held by Persons
other than the Company or its Subsidiaries; (ii) make any voluntary or optional
principal payment, or voluntary or optional redemption, repurchase, defeasance,
or other acquisition or retirement for value, of Indebtedness of the Company
(other than, in each case, the purchase, repurchase or the
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<PAGE> 35
acquisition of Indebtedness in anticipation of satisfying a sinking fund
obligation, principal installment or final maturity, in any case due within one
(1) year of the date of acquisition); or (iii) make any Investment, other than a
Permitted Investment, in any Person.
7.10. Limitation on the Issuance and Sale of Capital Stock Except with
Requisite Approval, the Company will not issue or sell, and will not permit the
Subsidiaries or the Company, directly or indirectly, to issue or sell, any
shares of Capital Stock of the Subsidiaries or the Company (including options,
warrants or other rights to purchase shares of such Capital Stock) except: (i)
to the Company; (ii) in connection with an initial public offering of Common
Stock; (iii) to the extent required under the Company's Stock Plan; (iv) in
respect of the Stock Plan, provided that such Capital Stock does not exceed 10%
on a fully diluted basis of shares of Capital Stock issuable upon conversion of
the Convertible Notes; and (v) to the purchasers of any issuance of High Yield
Debt in such issuance.
7.11. Limitation on Liens Except with Requisite Approval, the Company
will not, and will not permit any Subsidiaries of the Company to, create, incur,
assume or suffer to exist any Liens of any kind other than Permitted Liens.
7.12. Protective Provisions Except with Requisite Approval, the Company
will not take any action which: (i) materially alters or changes the business of
the Company, (ii) effects a voluntary liquidation, dissolution or winding up of
the Company, or (iii) is an action outside the ordinary course of business,
including without limitation the issuance of additional equity or equity-linked
securities, or the execution of material agreements with a value in excess of
$25 million.
7.13. Patents Not later than four months after the Closing Date, the
Company shall have filed with the U.S. Patent and Trademark Office applications
for not less than twenty (20) patents regarding technology anticipated to be
employed in its XM Radio System unless otherwise agreed by Holders providing
Requisite Approval.
7.14. Financing Purposes The net proceeds of the Financing shall be used
by the Company solely for the Financing Purposes.
7.15. Information Rights (a) The Company will deliver to the Holder
audited annual financial statements within 90 days of the close of each fiscal
year and unaudited quarterly financial statements within 30 days of the end of
each fiscal quarter. Annual budgets will be delivered to the Holder within 30
days prior to the commencement of each fiscal year. The Company will provide the
Holder or its representatives with access to the books, records and properties
of the Company and officers of the Company so long as such access does not
violate any federal or applicable state law. The Holder hereby agrees to
maintain the confidentiality of all non-public information received from the
Company, and to execute any further documents or instruments as the Company may
reasonably require to ensure such confidentiality.
(b) The Company, pursuant to the terms of the Baron Asset Fund Letter
Agreement, will grant to Baron the same information rights as are granted to the
Holder in this Section 7.15. Baron will be subject to the same obligations to
maintain the confidentiality of all non-public information received from the
Company, and the Company will require Baron to
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<PAGE> 36
execute such further documents or instruments as the Holders may reasonably be
required by the Company to execute to ensure such confidentiality.
7.16. XM Radio System Design Prior to the implementation of the Company's
final transmission system and receiver design choice, the Company shall: (a)
obtain an opinion of non-infringement by competent outside patent counsel
regarding the XM Radio System, which opinion shall be delivered to the
Investors; and (b) obtain the Requisite Approval with respect to any material
changes in such design, which approval shall not be unreasonably withheld or
delayed.
7.17. Indemnification for Patent Claims The Company shall defend, hold
harmless, and indemnify, to the extent permitted by law, each Holder, each
Person who controls such Holder (within the meaning of Section 15 of the
Securities Act or Section 20 of the Exchange Act), Affiliates of each such
Holder and their respective officers, directors, partners, employees, agents and
representatives against all losses arising out of or in connection with any
claims of patent infringement relating to the intellectual property of the
Company or any of its Subsidiaries and asserted by reason of such Holder's
ownership of any Note or any Conversion Stock.
7.18. Filing of Restated Certificate of Incorporation
Prior to the Closing, the Company shall file with the Secretary of State
of Delaware a restated Certificate of Incorporation with terms consistent with
those set forth in the Term Sheet and with such other terms and conditions not
inconsistent with the Term Sheet which are necessary to effect the transactions
contemplated by this Agreement.
7.19. Limitation on Grants of Rights
The Company shall not provide capacity on a "most favored nation" basis
in connection with any future financing it may enter into without Requisite
Approval.
8. Conversion Provisions
8.1. Company's Right of Conversion Each of the Notes (together with
interest accrued on the principal amount (including Capitalized Interest) of
such Note or portion thereof to be converted) shall be automatically converted
into Conversion Stock at the Conversion Price upon the closing of a firm
commitment underwritten public offering of Common Stock in an offering which (a)
raises not less than $100 million in gross proceeds and (b) for which the
offering price of the securities offered thereby is at least (i) 125% of the
Conversion Price if the offering occurs within six months of the Closing Date or
(ii) 150% of the Conversion Price if the offering occurs more than six months
after the Closing Date (a "Qualified Initial Public Offering"), unless the
Company obtains the Requisite Approval for a lower offering price or lower
amount of funds raised at which the Notes may be automatically converted.
8.2. Optional Conversion Right Each Holder shall have the right, at its
option, at any time, subject to terms and provisions of this Agreement, as
applicable, to convert the unpaid principal amount (including Capitalized
Interest) of each of its Notes or any portion thereof held by such Holder
(together with interest accrued on the principal amount of such Note or portion
thereof to be converted) into shares of the respective class of Conversion Stock
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at the Conversion Price, promptly after surrender of such Note, accompanied by
written notice of conversion specifying the principal amount thereof to be
converted duly executed, to the Company at any time during usual business hours
at the office of the Company at, and, if so required by the Company, accompanied
by a written instrument or instruments of transfer in form satisfactory to the
Company, duly executed by such Holder or its attorney duly authorized in
writing. The conversion of all or any portion of the principal and interest of a
Note into Conversion Stock is hereinafter sometimes referred to as the
"conversion" of such Note. Notwithstanding any other provision hereof, if a
conversion of a Note is to be made in connection with a sale of the Company or
other event, such conversion may, at the election of any Holder tendering such
Note for conversion, be expressly conditioned upon the consummation of such
other event, in which case such conversion shall not be deemed to be effective
until the consummation or occurrence of such other event.
8.3. Issuance of Certificates The Company and the Holder surrendering a
Note for conversion shall promptly make all filings, which may be required in
connection with such conversion under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976 (the "HSR Act"). The Company and any such Holder shall
provide each other with such necessary information and assistance as may
reasonably be requested in connection with such filings. As promptly as
practicable after the surrender of a Note for conversion (and, if applicable,
the specified waiting period under the HSR Act), as herein provided, the Company
at its expense shall deliver or cause to be delivered at its said office to or
upon the written order of the holder of such Note so surrendered certificates
bearing, if required by the terms hereof, the restrictive legends set forth in
Section 6.1 hereof, representing the number of fully paid and nonassessable
shares of Conversion Stock into which such Note may be converted in accordance
with the provisions hereof. Subject to the following provisions of this Section
8.3, such conversion shall be deemed to have been made at the close of business
on the date that such Note shall have been surrendered for conversion with a
written notice of conversion duly executed and any instruments of transfer as
may have been requested by the Company (or, if applicable, the expiration of the
specified waiting period under the HSR Act), so that the rights of the holder of
such Note as a holder shall cease at such time and the Person entitled to
receive the shares of Conversion Stock upon conversion of such Note shall be
treated for all purposes as having become the record holder or holders of such
shares of Conversion Stock at such time and such conversion shall be at the
Conversion Price; provided, however, that no such surrender on any date when the
stock transfer books of the Company shall be closed shall be effective to
constitute the Person entitled to receive the shares of Conversion Stock upon
such conversion as the record Holder of such shares of Conversion Stock on such
date, but such surrender shall be effective to constitute the Person entitled to
receive such shares of Conversion Stock as the record Holder thereof for all
purposes at the close of business on the next succeeding day on which such stock
transfer books are open.
8.4. Adjustment to Conversion The Conversion Price shall be adjusted from
time to time as follows:
(a) In case the Company shall: (i) declare a dividend or make a
distribution on outstanding shares of Capital Stock in shares of Common Stock,
(ii) subdivide any of the outstanding shares of Common Stock into a greater
number of shares, or (iii) combine any of the outstanding shares of Common Stock
into a smaller number of shares, the Conversion Price in effect at the time of
the record date for such dividend or distribution or the effective
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date of such subdivision or combination shall be adjusted so that the same shall
equal the price determined by multiplying the Conversion Price in effect
immediately prior thereto by a fraction, the numerator of which shall be the
number of shares of Common Stock outstanding immediately prior to any such
record date for such dividend or distribution or the effective date of such
subdivision or combination and the denominator of which shall be the number of
shares of Common Stock outstanding immediately after the payment of such
dividend or distribution or the effective date of such subdivision or
combination.
(b) In case the Company shall issue or sell shares of Common Stock
without consideration or for a consideration per share less than the Conversion
Price in effect immediately prior to any such issuance or sale, (excluding any
notes issued to American Mobile pursuant to the American Mobile Exchange
Agreement) the Conversion Price shall be adjusted so that the same shall equal
the price determined by multiplying the Conversion Price in effect immediately
prior thereto by a fraction, the numerator of which shall be the number of
shares of Common Stock outstanding immediately prior to any such issuance plus
the number of shares which the aggregate offering price of the total number of
shares of Common Stock proposed to be issued would purchase at a price per share
equal to the Conversion Price in effect immediately prior to such issuance and
the denominator of which shall be the number of shares of Common Stock
outstanding immediately prior to such issuance plus the number of additional
shares of Common Stock proposed to be issued. Such adjustment shall be made upon
the closing with respect to the shares of Common Stock so issued based upon the
number of shares of Common Stock actually issued. Subject to the right provided
for in Section 8.4(e), the granting of stock options with an exercise price less
than the Conversion Price in effect at the time of grant and the award of stock
grants for no cash consideration or for cash consideration less than the
Conversion Price in effect at the time of award shall be deemed to be an
issuance at such time by the Company of the shares of Common Stock covered by
such options or grants for consideration less than the Conversion Price and
shall result in an adjustment to the Conversion Price as provided above based
upon the exercise price under any such stock options and the cash consideration
receivable under any such stock grants.
(c) In case the Company shall issue (whether directly or by assumption in
a merger or otherwise) or sell any securities convertible into shares of Common
Stock (or any rights, warrants, options to subscribe for or purchase securities
convertible into shares of Common Stock or securities convertible into or
exchangeable for shares of Common Stock) and the conversion price per share
thereunder (or the sum, if greater, of the consideration per share received upon
the issuance of any such rights, warrants, options or convertible or
exchangeable securities plus the minimum aggregate amount of additional
consideration, if any, payable to the Company upon the
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exercise thereof and the conversion price per share under the convertible
securities purchasable upon exercise thereof) is less than the Conversion Price
in effect immediately prior to any such issuance, the Conversion Price shall be
adjusted so that the same shall equal the price determined by multiplying the
Conversion Price in effect immediately prior thereto by a fraction, the
numerator of which shall be the number of shares of Common Stock outstanding
immediately prior to any such issuance plus the number of shares which the
aggregate conversion price under the convertible securities so issued (or the
sum, if greater, of the aggregate consideration received or receivable upon
issuance of any such rights, warrants, options or convertible or exchangeable
securities plus the minimum aggregate amount of additional consideration, if
any, payable to the Company upon the exercise thereof and the aggregate
conversion price under the convertible securities purchasable upon exercise
thereof) would purchase at a price per share equal to the Conversion Price in
effect immediately prior to such issuance and the denominator of which shall be
the number of shares of Common Stock outstanding immediately prior to such
issuance plus the number of additional shares of Common Stock issuable upon the
full conversion of all of the securities proposed to be issued (or all of the
securities issuable upon full exercise of all of such rights, warrants, options
or convertible or exchangeable securities proposed to be issued and the
conversion of the convertible securities purchasable upon such exercise). Such
adjustment shall be made whenever such convertible securities (or rights,
warrants or options to purchase convertible securities) are issued; provided,
however, that, to the extent shares have not been delivered upon expiration of
the conversion period for such convertible securities, the Conversion Price
shall be readjusted to the Conversion Price which would then be in effect had
the adjustments made upon the issuance of such convertible securities (or the
issuance of such rights, warrants or options to purchase convertible securities)
been made upon the basis of delivery of only the number of shares actually
delivered.
(d) No adjustment in the Conversion Price shall be required: (i) with
respect to shares issued upon conversion of any Note (or upon conversion of any
shares of Class A Convertible Preferred Stock which are subsequently converted
into shares of Class A Common Stock), or (ii) unless such adjustment would
require an increase or decrease in the Conversion Price of at least 0.2%;
provided, however, that any adjustment which by reason of clause (ii) of this
Section 8.4(d) is not required to be made shall be carried forward and taken
into account in the determination of, and shall be included in, any subsequent
adjustment.
(e) No adjustment in the Conversion Price shall be required with respect
to shares issued pursuant to the Stock Plan if: (i) such shares, together with
all other shares issued under Stock Plan, do not exceed 10% of the fully diluted
shares of Common Stock of the Company giving pro forma effect to the conversion
of the Notes, and (ii) such Stock Plan has been approved by a Compensation
Committee of the Board of Directors, or an equivalent committee of the Board of
Directors, which committee shall include at least one director designated by the
Holders and which approval shall include the approval of such director so
designated.
(f) Whenever the Conversion Price is adjusted as provided herein, the
Company shall promptly mail to each Holder a certificate signed by the chief
financial officer of the Company setting forth the Conversion Price after such
adjustment and setting forth a brief statement of the facts requiring such
adjustment and the computation thereof.
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8.5. Treasury Shares For purposes hereof, the number of shares of Capital
Stock of the Company outstanding at any given time shall not include shares
owned or held by or for the account of the Company. The disposition of any such
shares shall be considered an issue or sale of Class A Common Stock or Class A
Convertible Preferred Stock for the purposes of this Section.
8.6. Fractional Shares If Conversion of any Note results in a fraction,
the Company shall issue fractional shares up to one-ten thousandth of one share
and shall pay any remaining balance in cash.
8.7. Merger of the Company In case of any consolidation with or merger of
the Company with another corporation, or in case of any sale, lease or
conveyance to another corporation of the property of the Company as an entirety
or substantially as an entirety, the Holder shall have the right thereafter to
convert any Notes into the kind and amount of shares of stock and other
securities and property or cash receivable upon such consolidation, merger,
sale, lease or conveyance by a Holder of the number of shares of Conversion
Stock of the Company into which such Note might have been converted immediately
prior to such consolidation, merger, sale, lease or conveyance.
8.8. Reclassification of Class A Common Stock and/or Class A Convertible
Preferred Stock In case of any reclassification or change of the shares of Class
A Common Stock and/or Class A Convertible Preferred Stock of the Company
issuable upon conversion of the Notes (other than a change in par value, or from
par value to no par value, or as a result of a subdivision or combination, but
including any change in the shares of Class A Common Stock and/or Class A
Convertible Stock of the Company into two or more classes or series of shares)
or in case of any consolidation or merger of another corporation into the
Company in which the Company is the surviving corporation and in which there is
a reclassification or change of the shares of Class A Common Stock or Class A
Convertible Preferred Stock of the Company issuable upon conversion of the
respective Note (other than a change in par value, or from par value to no par
value, or as a result of a subdivision or combination, but including any change
in the shares of Class A Common Stock and/or Class A Convertible Preferred Stock
of the Company into two or more classes or series of shares), the Company shall
provide that the Holders shall have the right thereafter to convert the Notes
into the kind and amount of shares of stock and other securities and property or
cash receivable upon such reclassification, change, consolidation or merger by a
holder of the number of shares of Class A Common Stock or Class A Convertible
Preferred Stock of the Company into which the Note might have been converted
immediately prior to such reclassification, change, consolidation or merger, and
there shall be an adjustment of the Conversion Price which shall be as nearly
equivalent as may be practicable to the adjustments of the Conversion Price
otherwise provided for in this Section. The above provisions hereof shall
similarly apply to successive reclassifications and changes of shares of Class A
Common Stock and/or Class A Convertible Preferred Stock of the Company and to
successive consolidations, mergers, sales or conveyances involving such
reclassifications and changes of shares of Class A Common Stock and/or Class A
Convertible Preferred Stock. The Company shall not effect any such
consolidation, merger, sale, transfer or other disposition, unless prior to or
simultaneously with the consummation thereof the successor corporation (if other
than the Company) resulting from such consolidation or merger or the corporation
purchasing or otherwise acquiring such properties shall assume, by written
instrument executed and mailed or delivered to the Holders at the last address
of such Holders
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appearing on the books of the Company, the obligation to deliver to such holders
such shares of stock, securities or properties as, in accordance with the
foregoing provisions, such Holders may be entitled to acquire. The above
provisions of this subparagraph shall similarly apply to successive
reorganizations, reclassifications, consolidations, mergers, sales, transfers,
or other dispositions.
8.9. Reservation of Class A Common Stock and Class A Convertible
Preferred Stock The Company covenants that it will at all times reserve and keep
available out of its authorized Class A Common Stock and Class A Convertible
Preferred Stock, solely for the purpose of issuance: (i) upon conversion of the
respective Notes as provided herein and/or in the respective Note Purchase
Agreement(s); and (ii) upon any automatic conversion of the Class A Convertible
Preferred Stock provided for in Section 8.13 such number of shares of Class A
Common Stock and Class A Convertible Preferred Stock as shall then be issuable
upon the conversion of the Notes, or the Class A Convertible Preferred Stock, as
the case may be. The Company covenants that all shares of Class A Common Stock
and Class A Convertible Preferred Stock which shall be so issuable shall be duly
and validly issued and fully paid and non-assessable, free from preemptive or
similar rights on the part of the holders of any shares of Capital Stock or
securities of the Company, and free from all Liens or other charges with respect
to the issuance thereof. The Company will take all such action as may be
necessary to assure that such shares of Class A Common Stock and Class A
Convertible Preferred Stock may be so issued without violation by the Company of
any applicable law or regulation, or of any requirements of any domestic
securities exchange or other public trading market upon which the Class A Common
Stock or Class A Convertible Preferred Stock may be listed or quoted.
8.10. Taxes The issuance of certificates for shares of Conversion Stock
upon the conversion of any Note, and the issuance of Class A Common Stock upon
conversion of Class A Preferred Stock, shall be made without charge to the
converting Holder for any Tax in respect of the issuance of such certificates,
and such certificates shall be issued in the name of, or in such name as may be
directed by, the Holder of such Note or Class A Preferred Stock; provided,
however, that the Company shall not be required to pay any Tax which may be
payable in respect of any transfer involved in the issuance and delivery of any
such certificate in a name other than that of the Holder of such Note or Class A
Preferred Stock, and the Company shall not be required to issue or deliver such
certificates unless or until the Person or Persons requiring the issuance
thereof shall have paid to the Company the amount of such Tax or shall have
established to the satisfaction of the Company that such Tax has been paid. The
Holder shall be responsible for the payment of all applicable income Taxes in
connection with the conversion of the Note or Class A Preferred Stock.
8.11. Certain Events If any event occurs as to which in the opinion of
the Board of Directors of the Company the other provisions of this Section 8 are
not strictly applicable or if strictly applicable would not fairly protect the
conversion rights of the Holder of a Note in accordance with the essential
intent and principles of such provisions, then such Board of Directors shall
appoint a firm of independent certified public accountants (which may be the
regular auditors of the Company) of recognized national standing, which shall
give its opinion upon the adjustment, if any, on a basis consistent with such
essential intent and principles, necessary to preserve, without dilution, the
rights of the Holder. Upon receipt of such opinion by the Board of Directors,
the Company shall forthwith make the adjustment described therein;
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provided, however, that no such adjustment pursuant to this Section shall have
the effect of increasing the Conversion Price as otherwise determined pursuant
to Section 8 hereof except in the event of a combination of shares of the type
contemplated in Section 8.4 and then in no event to an amount larger than the
conversion price as adjusted pursuant to Section 8.4.
8.12. No Rights or Liabilities as Shareholders No Note shall entitle any
Holder thereof to any of the rights of a shareholder of the Company. No
provision of this Agreement or of any Note, in the absence of the actual
conversion of such Note or any part thereof by the Holder thereof into
Conversion Stock issuable upon such conversion, shall give rise to any liability
on the part of such Holder as a shareholder of the Company, whether such
liability shall be asserted by the Company or by creditors of the Company.
8.13. Automatic Conversion of Class A Convertible Preferred Stock Upon
Transfer The Parties hereby agree that upon any transfer or sale of any
shares(s) of Class A Convertible Preferred Stock to a non-Affiliate of the
Holder thereof, such Holder must surrender to the Company the certificate(s)
representing such shares to the Company, and such shares of Class A Convertible
Preferred Stock shall, without any action being required by any party or by the
Company, be automatically converted into shares of Class A Common Stock on a
one-for-one basis. Any transfer or sale of any Affiliate to which shares of
Class A Convertible Preferred Stock have been transferred or sold shall
automatically cause the conversion of such shares into Class A Common Stock. Any
attempt to transfer any share(s) of Class A Convertible Preferred Stock in
violation of this Section 8.13 shall be deemed null and void and the Company
shall be entitled to refuse to recognize such attempted transfer on its books
and records.
8.14. Dividends Paid Between Notice of Conversion and Conversion
In the event a Holder provides written notice to the Company of intent to
convert a Note or portion thereof into Conversion Stock pursuant to Section 8.2,
but such conversion has not yet been effected by the record date for any cash
dividend or distribution, the Company shall adjust the Conversion Price or make
such other equitable adjustment as necessary in order to give the Holder of such
Note the economic advantage it would have received if conversion had occurred at
the time such Holder delivered such notice to the Company. Such adjustment shall
be made successively whenever any event specified above shall occur.
9. Put Right If No Qualified Initial Public Offering (a) In the event
that a Qualified Initial Public Offering has not occurred prior to June 30,
2004, each Holder shall have the right to notify the Company of such Holder's
intention to put its Convertible Note to the Company at a put price equal to the
greater of: (i) the sum of the outstanding principal amount and accrued interest
on such Convertible Note, or (ii) the Fair Market Value as of a date not more
than thirty (30) days from the date of purchase of the shares of Class A Common
Stock into which such a Convertible Note is directly or indirectly convertible.
(b) Upon receipt of such notice the Company shall, within one year of the
date of such notice, have the option, at its discretion, with the concurrence of
the Holders of a majority in the aggregate principal amount of the Convertible
Notes to either: (i) become subject to the reporting requirements of the
Exchange Act and register the Class A Common
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<PAGE> 43
Stock underlying the securities held by such Holder for resale under the
Securities Act, or (ii) repurchase such Convertible Notes at the put price
stated above no later than June 30, 2005 and the Maturity Date shall be extended
to such date; provided, however, that in the event any High Yield Debt
instruments of the Company so require, such payment shall be further delayed
until the Company is able to first repay such High Yield Debt and the Company
will use its best efforts to arrange for such repayment of the High Yield Debt.
10. Registration, Transfer and Substitution of Note The Company will keep
at its principal office a register in which the Company will provide for the
registration of the Notes and the registration of transfers of the Notes. The
Company may treat the Person in whose name the Note is registered on such
register as the owner and holder thereof (the "Holder") for the purpose of
receiving payment of the principal of and interest on the Note and for all other
purposes, whether or not the Note shall be overdue, and the Company shall not be
affected by any notice to the contrary.
10.2. Transfer and Exchange of Note Upon surrender of one or more Notes
for registration of transfer or for exchange to the Company at its principal
office with evidence that all applicable transfer taxes have been paid, the
Company at its expense will execute and deliver in exchange therefor one or more
Notes in the aggregate unpaid principal amount(s) of such surrendered Note(s).
Each such new Note shall be registered in the name of such Person, or its
nominee, as such Holder or transferee may request, dated so that there will be
no loss of interest on such surrendered Note and otherwise of like tenor.
10.3. Replacement of Note Upon receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction or mutilation of the
Note and, in the case of any such loss, theft or destruction, upon delivery of
an indemnity bond in such reasonable amount and form as the Company may
determine (or of an indemnity agreement from the Holder reasonably satisfactory
to the Company), or, in the case of any such mutilation, upon the surrender of
such Holder for cancellation to the Company at its principal office, the Company
at its expense will execute and deliver, in lieu thereof, a new Note of like
tenor, dated so that there will be no loss of interest on such lost, stolen,
destroyed or mutilated Note. Any Note in lieu of which any such new Note has
been so executed and delivered by the Company shall not be deemed to be an
outstanding Note for any purpose of this Agreement.
11. Conditions to Obligations of the Investors Each Investor's obligation
to purchase its respective Note at the Closing is subject to the fulfillment on
or prior to the Closing of the following conditions, of which conditions (a),
(b) and (e) may be waived at the option of such Investor to the extent permitted
by law:
(a) The representations and warranties made by the Company in Section 4
hereof shall be true and correct in all material respects when made, and shall
be true and correct in all material respects at the Closing Date with the same
force and effect as if they had been made on and as of said date, and shall be
so certified by a Responsible Officer of the Company.
(b) All covenants, agreements and conditions contained in this Agreement
to be performed by the Company on or prior to such purchase shall have been
performed or complied with in all material respects.
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(c) There shall not then be in effect any legal or other order enjoining
or restraining the transactions contemplated by this Agreement.
(d) There shall not be in effect any law, rule or regulation prohibiting
or restricting such purchase or requiring any consent or approval of any Person
which shall not have been obtained to issue the Note (except as otherwise
provided in this Agreement).
(e) The XM Exchange Agreement shall close concurrently with the issuance
of the Notes in the manner contemplated in such agreement with all of the
conditions therein satisfied.
(f) In connection with the issuance and sale of the Convertible Notes to
all of the Investors, the Company shall have received gross proceeds of not less
than $125 million.
(g) The Investor shall have received an opinion of counsel to the Company
with respect to the Confidential Memorandum and the legality of the Convertible
Notes, in form and substance reasonably satisfactory to the Investor.
(h) Each of the Clear Channel Operational Assistance Agreement, the
DIRECTV Operational Assistance Agreement, the TCM Group Operational Assistance
Agreement and the OnStar Distribution Agreement shall continue in full force and
effect.
(i) Each of the Investors and the Company shall have entered into the
Registration Rights Agreement and the Shareholders' Agreement.
(j) The Investor shall have received a duly executed copy of the
Regulatory Agreement.
(k) No public disclosure related to this Note Purchase Agreement shall
have been made prior to Closing, except with Requisite Approval or as required
by law.
(l) The Investors shall have received assurances from Hughes, to the
reasonable satisfaction of the Investors, that upon receipt of sums due, Hughes
will amend the Satellite Contract with respect to the construction schedule as
reasonably acceptable to the Investors.
(m) American Mobile shall have delivered a letter to the Investors
representing that consummation of the transactions contemplated by this
Agreement and the Transaction Documents will not result in American Mobile
having to file an application with the FCC to effect a change of control.
(n) The Secretary of the Company shall have delivered to the Investors a
Secretary's Certificate, dated the date hereof, certifying that the conditions
specified in Sections 11(a) and 11(b) have been fulfilled.
(o) XM Satellite Radio Inc. shall have provided to the Investors a
Guarantee of the Obligations of the Company in respect of this Agreement and
each of the Notes, which Guarantee shall be subordinated to: (i) any Guarantees
issued by XM Satellite Radio Inc. in connection with any High Yield Debt issued
by the Company, and (ii) any High Yield Debt issued directly by XM Satellite
Radio Inc.
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(p) The Company shall have filed with the Secretary of State of Delaware
a restated Certificate of Incorporation with terms consistent with those set
forth in the Term Sheet and with such other terms and conditions not
inconsistent with the Term Sheet which are necessary to effect the transactions
contemplated by this Agreement.
12. Events of Default; Acceleration Nature of Events and Acceleration of
Note If any of the following events ("Events of Default") shall occur and be
continuing for any reason whatsoever (and whether such occurrence shall be
voluntary or involuntary or come about or be effected by operation of law or
otherwise):
(a) any payment of principal on the Note is not made when and as such
payment becomes due at maturity, upon acceleration, redemption or repurchase, or
otherwise;
(b) any payment of interest on the Note (other than Capitalized Interest)
is not made when and as such payment becomes due and payable, and such failure
to make payment continues and has not been made, waived or extended by the
Holders capable of providing Requisite Approval for a period of fifteen (15)
days;
(c) the Company fails to comply with or perform any of its covenants set
forth in this Agreement or the Note (other than a default specified in clause
(a) or (b) above), and such failure continues for a period of thirty (30) days
after the day on which written notice thereof is given to the Company by the
Holders capable of providing Requisite Approval;
(d) any warranty or representation by or on behalf of the Company
contained in this Agreement or in any instrument furnished in compliance with
this Agreement is false or incorrect in any material respect on the date as of
which made;
(e) there occurs with respect to any Indebtedness of the Company or its
Subsidiaries in excess of $25 million: (i) an event of default that has caused
the holder thereof to, or provided the holder thereof the right to, declare such
Indebtedness to be due and payable prior to its Stated Maturity and such
Indebtedness has not been discharged in full, and/or (ii) the failure to make a
principal payment at the final (but not any interim) fixed maturity and such
payment shall not have been made, waived or extended within thirty (30) days of
such payment default;
(f) any final judgment or order (not covered by insurance) for the
payment of money in excess of $10 million in the aggregate for all such final
judgments or orders against the Company or its Subsidiaries (treating any
deductibles, self-insurance or retention as not so covered) shall be rendered
against the Company its Subsidiaries and shall not be paid or discharged, and:
(i) the final judgment or order that causes the aggregate amount for all such
final judgments or orders outstanding and not paid or discharged against all
such Persons to exceed $10 million shall remain unsatisfied, unvacated and
unstayed pending appeal for a period of 30 consecutive days after the entry
thereof, or (ii) enforcement proceedings shall have been commenced by any
creditor upon such judgment or order;
(g) the Company or its Subsidiaries shall commence a voluntary case under
any chapter of the Federal Bankruptcy Code, or shall consent to (or fail to
contest within ten (10) days) the commencement of an involuntary case against
the Company or its Subsidiaries under
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the Federal Bankruptcy Code;
(h) the Company or its Subsidiaries shall institute proceedings for
liquidation, rehabilitation, readjustment or composition (or for any related or
similar purpose) under any law (other than the Federal Bankruptcy Code) relating
to financially distressed debtors, their creditors or property, or shall consent
to (or fail to contest within ten (10) days) the institution of any such
proceedings against the Company or its Subsidiaries;
(i) a court or other governmental authority or agency having jurisdiction
in the premises shall enter a decree or order: (i) for the appointment of a
receiver, liquidator, assignee, trustee or sequestrator (or other similar
official) of the Company or its Subsidiaries or of any part of the property of
such Person, or for the winding-up or liquidation of the affairs of such Person,
and such decree or order shall remain in force and undischarged and unstayed for
a period of more than thirty (30) days, or (ii) for the sequestration or
attachment of any property of the Company or its Subsidiaries without its
unconditional return to the possession of such Person, or its unconditional
release from such sequestration or attachment, within thirty (30) days
thereafter;
(j) the Company: (i) shall be in default under any of the OnStar
Distribution Agreement, the Clear Channel Operational Assistance Agreement, the
DIRECTV Operational Assistance Agreement, or the TCM Group Operational
Assistance Agreement, and (ii) and shall not have remedied such default within
thirty (30) days of receipt of notice thereof; or
(k) the Company shall not have launched its first satellite by December
31, 2003;
then, in the case of any such Event of Default referred to in clause (g), (h),
or (i) of this Section 12.1, automatically, or, in the case of any other such
Event of Default, at the option of the Holders capable of providing Requisite
Approval exercised by written notice to the Company, the Notes, together with
the interest accrued thereon, shall forthwith become and be due and payable,
without any other presentment, demand, protest or notice of any kind, all of
which are hereby expressly waived.
12.2. Default Remedies If an Event of Default exists, the Holders may
exercise any right, power or remedy permitted to them by law, either by suit in
equity or by action at law or both, whether for specific performance of any
covenant or agreement contained in this Agreement or in aid of the exercise of
any power granted in this Agreement, or the Holders may proceed to enforce
payment of the Notes or to enforce any other legal or equitable right of the
Holders. No course of dealing on the part of the Holders or any delay or failure
on the part of the Holder to exercise any right shall operate as a waiver of
such right or otherwise prejudice such Holder's powers and remedies. If an Event
of Default exists, the Company will pay to the Holder, to the extent not
prohibited by law, such further amount as shall be sufficient to cover the cost
and expenses of collection or other proceedings, including, but not limited to,
reasonable attorneys' fees.
12.3. Notice of Default If any one (1) or more of the Events of Default
specified in Section 12.1 shall occur, or if the holder of any evidence of
Indebtedness of the Company gives any notice or takes any other action with
respect to a claimed default, the
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Company will forthwith give written notice thereof to the Holders describing the
notice or action and the nature of the claimed default, including any Event of
Default.
13. Seniority of Notes (a) The Notes shall rank senior to all of the
Company's existing Indebtedness as of the date hereof; and the Parties hereby
agree and acknowledge that the Notes shall be subordinated to any High Yield
Debt which may be issued by the Company at any time after the Closing in
accordance with customary market standards as advised by the Company's
investment bankers.
(b) Except to the extent provided in Section 13(a) above or with
Requisite Approval, the Company shall not assume or incur any Indebtedness
senior in rank to, or on a parity with, any of the Notes.
14. Expenses The Company will pay at Closing all reasonable fees and
expenses relating to the sale and purchase of the Convertible Notes and to any
amendment or modification to this Agreement or the Convertible Notes, including
the reasonable fees and disbursements of outside counsel for the Investors.
15. Survival All express representations and warranties contained in this
Agreement or made in writing by or on behalf of the Company in connection with
the transactions contemplated by this Agreement shall survive the execution and
delivery of this Agreement, any investigation at any time made by the Investor
or on the Investor's behalf, the issuance of the Note hereunder, and any
disposition, payment or conversion of the Note. All statements contained in any
certificate or other instrument delivered by or on behalf of the Company
pursuant to this Agreement or in connection with the transactions contemplated
hereby shall be deemed representations and warranties of the Company under this
Agreement.
16. Amendments and Waivers Any term of this Agreement or of the Note may
be amended, and the observance of any term of this Agreement or of the Note may
be waived (either generally or in a particular instance and either retroactively
or prospectively) only with the written consent of the Company and with the
written consent of Holders holding Notes in aggregate principal amounts equal to
or greater than, (i) in the case of amendments to or waivers of provisions of
this Agreement generally, eighty-one percent (81%), (ii) in the case of any
modification to Section 2, Section 3 or the Conversion Price, one hundred
percent (100%), and (iii) in the case of any other non-material change or
technical correction of this Agreement, the Requisite Approval. For the
avoidance of doubt, a non-material or technical correction shall mean a change
in the terms of this Agreement which has no material adverse effect or
consequence to the rights, preferences and obligations of holders of the
Convertible Notes or Conversion Stock. Any amendment or waiver effected in
accordance with this Section 16 shall be binding upon each future Holder of the
Note and the Company.
17. Notices Except as otherwise provided in this Agreement, notices and
other communications under this Agreement shall be in writing and shall be
deemed properly served if: (i) mailed by registered or certified mail, return
receipt requested, (ii) delivered by a recognized overnight courier service,
(iii) delivered personally, or (iv) sent by facsimile transmission, addressed to
the General Counsel for each party at the address set forth on Attachment 17 for
such party or at such other address or to the attention of such other officers
as such party shall have furnished in writing pursuant to this Section 17. Such
notice shall be
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deemed to have been received: (i) three (3) days after the date of mailing if
sent by certified or registered mail, (ii) one (1) day after the date of
delivery if sent by overnight courier, (iii) the date of delivery if personally
delivered, or (iv) the next succeeding business day after transmission by
facsimile.
18. Execution in Counterparts This Agreement may be executed in any
number of counterparts and by different Parties hereto in separate counterparts,
each of which when so executed shall be deemed to be an original and all of
which taken together shall constitute one and the same agreement.
19. Binding Effect This Agreement shall be binding upon and inure to the
benefit of the Parties and their respective successors and assigns, except that
the Company shall not have the right to assign its rights or obligations
hereunder or any interest herein without the prior written consent of the Holder
which may be withheld for any reason.
20. GOVERNING LAW; CHOICE OF FORUM; JURY TRIAL WAIVER THIS AGREEMENT
AND THE NOTE SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAW OF
THE STATE OF NEW YORK WITHOUT GIVING EFFECT TO ANY CONFLICT OF LAW PROVISIONS
THEREOF OTHER THAN NEW YORK GENERAL OBLIGATIONS LAW SECTIONS 5-1401 AND 5-1402.
(b) IN THE EVENT THAT A JUDICIAL PROCEEDING IS NECESSARY, THE SOLE FORUM
FOR RESOLVING DISPUTES ARISING OUT OF OR RELATING TO THIS AGREEMENT IS THE
SUPREME COURT OF THE STATE OF NEW YORK IN AND FOR THE COUNTY OF NEW YORK OR THE
FEDERAL COURTS LOCATED IN SUCH STATE AND COUNTY, AND RELATED APPELLATE COURTS.
THE PARTIES HEREBY IRREVOCABLY CONSENT TO THE JURISDICTION OF SUCH COURTS AND
AGREE TO SAID VENUE.
(c) THE PARTIES HEREBY IRREVOCABLY WAIVE ALL RIGHT TO A TRIAL BY JURY IN
ANY ACTION, PROCEEDING OR COUNTERCLAIM ARISING OUT OF OR RELATING TO THIS
AGREEMENT OR ANY OTHER DOCUMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY OR
THEREBY.
21. Miscellaneous
21.1. Conflict In the event of any conflict between the terms and
conditions of the Term Sheet and either the Registration Rights Agreement or the
Shareholders' Agreement, the terms and conditions of the Term Sheet shall
prevail.
21.2. Severability The holding of any provision of this Agreement to be
invalid or unenforceable by a court of competent jurisdiction shall not affect
any other provision of this Agreement, which shall remain in full force and
effect. If any provision of this Agreement shall be declared by a court of
competent jurisdiction to be invalid, illegal or incapable of being enforced in
whole or in part, such provision shall be interpreted so as to remain
enforceable to the maximum extent permissible consistent with applicable law and
the remaining conditions and provisions or portions thereof shall nevertheless
remain in full force and effect and enforceable to the extent they are valid,
legal and enforceable, and no provisions
43
<PAGE> 49
shall be deemed dependent upon any other covenant or provision unless so
expressed herein.
21.3. No Waiver It is agreed that a waiver by any party of a breach of
any provision of this Agreement shall not operate, or be construed, as a waiver
of any subsequent breach by the breaching party.
21.4. Further Assurances The Parties agree to execute and deliver all
such further documents, agreements and instruments and take such other and
further action as may be necessary or appropriate to carry out the purposes and
intent of this Agreement, including without limitation, entering into the
Registration Rights Agreement and the Shareholder's Agreement.
44
<PAGE> 50
IN WITNESS WHEREOF, the Parties have caused this Agreement to be duly
signed as of the date first above written.
[SIGNATURE PAGES PROVIDED SEPARATELY]
45
<PAGE> 51
IN WITNESS WHEREOF, the Parties have caused this Agreement to be duly
signed as of the date first above written.
<TABLE>
<S> <C>
XM SATELLITE RADIO HOLDINGS INC. XM SATELLITE RADIO INC.
By: /s/ Hugh Panero By: /s/ Hugh Panero
--------------- ---------------
Name: Hugh Panero Name: Hugh Panero
Title: President & CEO Title: President & CEO
CLEAR CHANNEL COMMUNICATIONS INC. COLUMBIA XM RADIO PARTNERS, LLC
By Columbia Capital LLC, its Managing Member
By: /s/ _______________ By: /s/ James B. Fleming, Jr.
-------------------------
Name: Name: James B. Fleming, Jr.
Title: Title: Managing Member
DIRECTV ENTERPRISES, INC. GENERAL MOTORS CORPORATION
By: /s/Steven J. Cox By: /s/ Mark G. Gibbens
---------------- Name: Mark G. Gibbens
Name: Steven J. Cox ---------------
Title: Title: Director, Business Development as
Attorney-in-fact for Eric Feldstein,
Vice-President & Treasurer
MADISON DEARBORN CAPITAL PARTNERS III, L.P MADISON DEARBORN SPECIAL EQUITY III, L.P.
By Madison Dearborn Partners III, L.P., its general partner By Madison Dearborn III, L.P., its general partner
By Madison Dearborn Partners LLC, its general partner By Madison Dearborn Partners LLC, its general partner
By: /s/James N. Perry By: /s/ James N. Perry
------------------------ ------------------
Name: James N. Perry Name: James N. Perry
Title: Title:
MADISON DEARBORN CAPITAL PARTNERS III, L.P. TELCOM-XM INVESTORS, L.L.C.
By Madison Dearborn Partners III, L.P., its MANAGER
By Madison Dearborn Partners LLC, its general partner
By: /s/James N. Perry By: /s/ Hal B. Perkins
----------------- ------------------
Name: James N. Perry Name: Hal B. Perkins
Title: Title: V.P. & General Counsel
</TABLE>
46
<PAGE> 52
Agreed and Accepted by:
AMERICAN MOBILE SATELLITE CORPORATION
By: /s/Gary M. Parsons
------------------
Name: Gary M. Parsons
Title: Chairman of the Board
47
<PAGE> 53
ATTACHMENT 2(a)
<TABLE>
<CAPTION>
NAME OF INVESTOR PRINCIPAL AMOUNT OF NOTE
- ---------------- ------------------------
<S> <C>
Clear Channel.............................................................$75,000,000.00
DIRECTV...................................................................$50,000,000.00
GM........................................................................$50,000,000.00
Telcom....................................................................$25,000,000.00
Columbia Capital..........................................................$25,000,000.00
Madison Dearborn..........................................................$25,000,000.00
</TABLE>
A-1
<PAGE> 54
ATTACHMENT 5.7
BENEFIT PLAN INVESTOR
(Check appropriate box):
[ ] (a) It is not, nor are any of the underlying assets with respect to
which the purchase is being made, a Benefit Plan Investor.
[ ] (b) It, or one or more of the underlying assets with respect to
which the purchase is being made, is a Benefit Plan Investor.
(NAME OF INVESTOR: __________________________________)
A-2
<PAGE> 55
ATTACHMENT 17
NOTICES
<TABLE>
<CAPTION>
PARTY ADDRESS FAX NO.
- ----- ------- -------
<S> <C> <C>
XM Satellite Radio Holdings Inc. 1250 23rd Street, N.W. 202-969-7050
Suite 57
Washington, D.C. 20037-1100
XM Satellite Radio Inc. 1250 23rd Street, N.W. 202-969-7050
Suite 57
Washington, D.C. 20037-1100
Clear Channel Communications, Inc. 200 Concord Plaza 210-822-2229
Suite 600
San Antonio, TX 78216-6940
Columbia XM Radio Partners LLC 201 North Union Street 703-519-3904
Suite 300
Alexandria, VA 22314
DIRECTV Enterprises, Inc. 2230 E. Imperial Hwy. 310-964-4114
El Segundo, CA 90245
General Motors Corporation 767 Fifth Avenue 212-418-6258
14th Floor
New York, NY 10153
Madison Dearborn Capital Partners Three First National Plaza 312-895-1225
III, L.P., Chicago, IL 60602
Madison Dearborn Special Equity III,
L.P.,
Special Advisors Fund I, LLC.
Telcom-XM Investors L.L.C. 211 North Union Street 703-706-3837
Suite 300
Alexandria, VA 22314
</TABLE>
A-3
<PAGE> 56
EXHIBIT A
[Form of Note]
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE
SECURITIES LAWS. NEITHER THESE SECURITIES NOR ANY INTEREST OR PARTICIPATION
HEREIN MAY BE REOFFERED, SOLD, ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED OR
OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION UNLESS SUCH
TRANSACTION IS EXEMPT FROM, OR NOT SUBJECT TO, REGISTRATION UNDER THE SECURITIES
ACT.
THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE THE SUBJECT OF A CERTAIN NOTE
PURCHASE AGREEMENT AND A CERTAIN SHAREHOLDERS' AGREEMENT WHICH, AMONG OTHER
THINGS, CONTAIN RESTRICTIONS ON THE TRANSFER OF SUCH SECURITIES. A COPY OF THE
NOTE PURCHASE AGREEMENT AND THE SHAREHOLDERS' AGREEMENT ARE AVAILABLE FOR
INSPECTION AT THE PRINCIPAL OFFICE OF THE COMPANY.
U.S. $[ ] Dated: _______, 1999
FOR VALUE RECEIVED, the undersigned, XM SATELLITE RADIO HOLDINGS INC., a
Delaware corporation with its principal office located at 1250 23rd Street N.W.,
Suite 57, Washington, D.C. 20037 (the "Company"), promises to pay to the order
of [INVESTOR], a [ ] corporation with its principal office located at [ ] or its
assignee (collectively, the "Holder"), the principal amount of $[ ], in the
lawful currency of the United States of America, or such lesser or greater
amount as shall then remain outstanding under this Note, at the times and in the
manner provided in that certain Note Purchase Agreement dated as of June 7,
1999, by and among the Company, the Holder and the other Parties thereto, to
which reference is hereby made and which is incorporated herein by reference, no
later than December 31, 2004, or such other date upon which this Note shall
become due and payable pursuant to the Note Purchase Agreement, whether by
reason of extension, acceleration or otherwise (the "Maturity Date").
Capitalized terms not otherwise defined herein shall have the meanings ascribed
to such terms in the Note Purchase Agreement.
The Company promises also to pay interest on the unpaid principal amount
hereof at a rate equal to the Interest Rate, as provided in the Note Purchase
Agreement, computed on the basis of the actual number of days (including the
first day but excluding the last day of any relevant period) elapsed over a 360
day year, in accordance with the provisions of the Note Purchase Agreement.
Interest shall be calculated on the outstanding principal amount of this Note
for the period commencing on the Closing Date, and continuing through the
Maturity Date, or the date of any permitted Conversion thereof. Interest on any
past due amount of interest or principal, accruing on a daily basis, shall be
payable on demand at a per annum rate equal to the Interest Rate plus 1%.
E-1
<PAGE> 57
This Note is convertible into shares of [Class A Common Stock] [Class A
Convertible Preferred Stock] of the Company at the Conversion Price as provided
for in the Note Purchase Agreement, subject to the terms, conditions and
restrictions contained or referred to therein.
As provided for in the Note Purchase Agreement, any and all interest
payments accrued on the unpaid principal amount of this Note shall (unless
otherwise paid) be capitalized on a quarterly basis and added to such unpaid
principal amount, as of the respective Interest Capitalization Date, as
additional principal amounts upon which future interest payments shall accrue at
the Interest Rate.
This Note is the Note referred to in the Note Purchase Agreement among
the Company, the Holder and the other Investors and in the Registration Rights
Agreement among the Company, the Holder, the other Investors, Baron and American
Mobile dated on or about the date hereof and is entitled to the benefits
thereof. In case an Event of Default shall occur and be continuing, the
principal of and accrued interest on this Note may be declared, at the option of
the Holder, to be due and payable in the manner and with the effect provided in
the Note Purchase Agreement.
Any payments made hereunder shall be applied first against costs and
expenses of the Holder hereunder; then against default interest, if any; then
against interest due hereunder; and then against principal due hereunder.
All notices and other communications hereunder shall be in writing and,
for purposes of this Note, shall be delivered in accordance with, and effective
as provided in, the Note Purchase Agreement.
The Company hereby waives presentment, demand, protest or notice of any
kind in connection with this Note.
This Note shall be construed in accordance with, and be governed by the
laws of, the State of New York without giving effect to any conflicts of law
provisions of such laws (other than New York General Obligations Law Sections
5-1401 and 5-1402). The Company hereby irrevocably submits to the exclusive
jurisdiction of the New York Supreme Court and the United States District Court
located in the County of New York, State of New York, with respect to any action
or proceeding arising out of or relating to this Note and irrevocably agrees
that service of process in any such action or proceeding may be effectuated in
any manner permitted by law, including by mailing or delivering a copy of such
process to the Company at its address set forth above.
This Note shall be binding upon the Company and inure to the benefit of
the Holder and its respective successors and permitted assigns. The Holder may
assign all, or any part of, or any interest in, the Holder's rights and benefits
hereunder only to the extent and in the manner permitted in the Note Purchase
Agreement and the Shareholders' Agreement. To the extent of any such assignment,
such assignee shall have the same rights and benefits against the Company and
shall agree to be bound by and to comply with the terms and conditions of the
Note Purchase Agreement and the Shareholders' Agreement as it would have had if
it were the Holder hereunder.
E-2
<PAGE> 58
Neither any failure nor any delay on the part of the Holder in exercising
any right, power or privilege under this Note shall operate as a waiver thereof,
nor shall a single or partial exercise thereof preclude any other or further
exercise of any other right, power or privilege.
The Company agrees to pay on demand all losses, costs and expenses, if
any, including attorneys' fees, incurred by the Holder in connection with the
enforcement of this Note in the event default occurs in the payment of any
amounts due hereunder.
IN WITNESS WHEREOF, the Company has caused this Note to be executed by
its officer thereunto duly authorized as of the date first above written.
XM SATELLITE RADIO HOLDINGS INC.
By:
-------------------------------------
Name:
Title:
GUARANTY
XM Satellite Radio Inc. hereby unconditionally guarantees the full and timely
payment when due of all amounts payable under this Note and the performance by
the Company of all of its obligations hereunder.
XM SATELLITE RADIO INC.
By:
-------------------------------------
Name:
Title:
E-3
<PAGE> 59
DISCLOSURE SCHEDULE
D-1
<PAGE> 60
SCHEDULE 4.2
SUBSIDIARIES (LIENS)
(a) The Company has granted a lien in favor of WorldSpace, Inc., on
approximately 67% of the shares of XM Satellite Radio Inc., which will be
released upon the Closing.
(b) The Company has granted a lien in favor of Citibank, N.A., on all assets of
the Company to secure a loan of $97,000 that is otherwise fully
cash-collateralized by a pledged cash deposit account.
D-2
<PAGE> 61
SCHEDULE 4.6
ABSENCE OF DEFAULTS AND CONFLICTS
See "Certain Transactions--Satellite Contract" (pp. 71-72)
See "Risk Factors--Dependence Upon Satellite and Launch Contractors--Satellite
Contract Breach" (pp. 88-89)
(All page references refer to the Confidential Memorandum)
D-3
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SCHEDULE 4.7
ABSENCE OF PROCEEDINGS
See "Business--Intellectual Property--Litigation with CD Radio" (pp. 58-59)
See "Business--Regulatory and Other Legal Issues" (pp. 60-61)
See "Business--Legal Proceedings" (pp. 62)
See "Risk Factors--Litigation with CD Radio" (pp. 86-87)
See "Risk Factors--Continuing Oversight by the FCC and Other Regulatory Matters"
(pp. 92-94)
(All page references refer to the Confidential Memorandum)
D-4
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SCHEDULE 4.8
POSSESSION OF LICENSES AND PERMITS
See "Business--Regulatory and Other Legal Issues" (pp. 60-61)
See "Risk Factors--Possible Delays and Adverse Effect of Delay" (pp. 84-85)
See "Risk Factors--Dependence Upon Satellite and Launch Contractors--Dependence
Upon Launch Services Provider" (pp. 89-90)
See "Risk Factors--Continuing Oversight by the FCC and Other Regulatory Matters"
(pp. 92-97)
See "Risk Factors--Unavailability of XM Radios" (pp. 99-100)
See "Risk Factors--Need to Obtain Rights to Programming" (p. 100)
(All page references refer to the Confidential Memorandum)
D-5
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SCHEDULE 4.12
INDEBTEDNESS
See "Certain Transactions--Satellite Contract" (pp. 71-72)
See "Risk Factors--Dependence Upon Satellite and Launch Contractors--Satellite
Contract Breach" (pp. 88-90)
See "(2) Related Party Transactions" and "(4) Debt" in the Notes to the
Financial Statements attached to the Confidential Memorandum.
See "Certain Transactions--Bridge Loan Agreement" (p. 75)
See "Certain Transactions--Security Agreement" (p. 75)
(All page references refer to the Confidential Memorandum)
D-6
<PAGE> 65
SCHEDULE 4.13
TITLE TO PROPERTIES; LIENS
See "Certain Transactions--Satellite Contract" (pp.71-72)
See "Risk Factors--Dependence Upon Satellite and Launch Contractors" (pp. 88-89)
See Schedule 4.2 and Schedule 4.12 hereof.
(All page references refer to the Confidential Memorandum)
D-7
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SCHEDULE 4.14
PATENTS, TRADEMARKS, AUTHORIZATIONS, ETC.
See "Business--Corporate Sponsors and Ownership" (pp. 51-52)
See "Business--Intellectual Property" (pp. 58-59)
See "Certain Transactions--Technical Services Agreements" and "--Technology
License" (pp. 72-75)
See "Risk Factors--Risks Related to Intellectual Property and Uncertain Scope of
Technology" (p. 86)
See "Risk Factors--Litigation with CD Radio" (pp. 86-87)
See "Risk Factors--Need to Obtain Rights to Programming" (p. 100)
See "Risk Factors--Dependence on American Mobile and WorldSpace" (p. 103)
(All page references refer to the Confidential Memorandum)
D-8
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SCHEDULE 4.15
GOVERNMENTAL CONSENTS
See "Business--Regulatory and Other Legal Issues" (pp. 60-61)
See "Risk Factors--Dependence Upon Satellite and Launch Contractors--Dependence
Upon Launch Services Provider" (pp. 89-90)
See "Risk Factors--Continuing Oversight by the FCC and Other Regulatory Matters"
(pp. 92-97)
(All page references refer to the Confidential Memorandum)
D-9
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SCHEDULE 4.19
CAPITALIZATION
Shareholders' equity:
Common Stock, 3000 shares authorized, 125 shares issued and
outstanding actual(1); 5000 authorized pro forma(2) and as adjusted(3) no shares
issued and outstanding pro forma and as adjusted (as described below);
Class A Common Stock, no shares authorized, issued and outstanding
actual; 2500 shares authorized pro forma and as adjusted; no shares
issued and outstanding pro forma and as adjusted;
Class B Common Stock, no shares authorized, issued and outstanding
actual; 1000 shares authorized pro forma and as adjusted; 125 shares
issued and outstanding pro forma and as adjusted;
Class C Common Stock, no shares authorized, issued and outstanding
actual; 500 shares authorized pro forma and as adjusted; no shares
issued and outstanding pro forma and as adjusted; and
Preferred Stock, no shares authorized, issued and outstanding actual; 1000
shares authorized, 500 reserved for Class A Convertible Preferred Stock, pro
forma and as adjusted; no shares issued and outstanding pro forma and as
adjusted.
- ------------------------
(1) Excludes 325.9716 shares of our Class B Common Stock issuable upon exercise
of certain options and convertible indebtedness held by WorldSpace, Inc., and
American Mobile, assuming conversion as of June 15, 1999 and completion of the
transactions contemplated by the Note Purchase Agreement and excludes 25 shares
of common stock reserved for issuance upon the exercise of options granted under
the Company's Stock Plan.
(2) Assumes the filing of our Restated Certificate of Incorporation.
(3) Assumes the filing of our Restated Certificate of Incorporation and the
completion of transactions contemplated in the XM Exchange Agreement and this
Agreement.
D-10
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SCHEDULE 4.22
MATERIAL EVENTS
See "Risk Factors--Dependence Upon Satellite and Launch Contractors--Satellite
Contract Breach" (pp. 88-89)
See "Risk Factors--Dependence Upon Satellite and Launch Contractors--Dependence
Upon Launch Services Provider" (pp. 89-90)
See "Risk Factors--Need for Substantial Further Financing" (pp. 83-84)
(All page references refer to the Confidential Memorandum)
D-11
