SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
I. SCHEDULE 14A INFORMATION
A. Proxy Statement Pursuant to Section 14(a) of the Securities Exchange
Act of 1934
Filed by the Registrant |X|
Filed by a Party other than the Registrant |_|
Check the appropriate box:
|X| Preliminary Proxy Statement
|_| Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
| | Definitive Proxy Statement
|_| Definitive Additional Materials
|_| Soliciting Material Pursuant to ss. 240.14a-11(c) or ss. 240.14a-12
American Mobile Satellite Corporation
(Name of Registrant as Specified in Its Charter)
Randy S. Segal
(Name of Person(s) Filing Proxy Statement)
Payment of Filing Fee (Check the appropriate box):
|X| No fee required.
|_| Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1) Title of each class of securities to which transaction applies:
2) Aggregate number of securities to which transaction applies:
3) Per unit price or other underlying value of transaction computed pursuant
to Exchange Act Rule O-11 (Set forth the amount on which the filing fee is
calculated and state how it was determined):
4) Proposed maximum aggregate value of transaction:
5) Total fee paid:
|_| Fee paid previously with preliminary materials.
|_| Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration
statement number, or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
2) Form Schedule or Registration Statement No.:
3) Filing Party:
4) Date Filed:
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American Mobile Satellite Corporation
10802 Parkridge Boulevard
Reston, Virginia 20191-5416
(703) 758-6000
August 6, 1999
Dear Stockholder:
You are cordially invited to attend a special meeting of stockholders of
American Mobile Satellite Corporation to be held at 9:00 a.m. on Tuesday,
September 7, 1999 at the offices of American Mobile Satellite Corporation
located at 10802 Parkridge Boulevard, Reston, Virginia 20191.
The formal notice of special meeting and proxy statement are attached to this
letter. This material contains information concerning the business to be
conducted at the meeting.
Even if you are unable to attend the meeting in person, it is important that
your shares be represented. Therefore, I urge you to complete, date, sign and
return the enclosed proxy card at your earliest convenience. If you choose to
attend the annual meeting, you may, of course, revoke your proxy and cast your
votes personally at the meeting.
Sincerely,
/s/Gary M. Parsons
Gary M. Parsons
Chairman of the Board
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[GRAPHIC OMITTED]
American Mobile Satellite Corporation
10802 Parkridge Boulevard
Reston, Virginia 20191-5416
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
To the Stockholders of American Mobile Satellite Corporation:
A special meeting of stockholders of American Mobile Satellite Corporation
("American Mobile" or the "Company") will be held at the offices of American
Mobile, 10802 Parkridge Boulevard, Reston, Virginia, on September 7, 1999, at
9:00 a.m. local time, for the following purposes:
1. To consider and act upon a proposal to issue shares of American Mobile Common
Stock to XM Ventures in connection with the Exchange Agreement entered into by
the Company with WorldSpace, Inc., XM Satellite Radio Holdings, Inc., and XM
Ventures;
2. To approve an amendment to the Company's Amended and Restated Certificate of
Incorporation to increase the number of shares of Common Stock authorized for
issuance from 75,000,000 shares to 150,000,000 shares; and
3. To transact such other business as may be properly brought before the meeting
or any postponements or adjournments thereof.
Only holders of record of American Mobile's Common Stock at the close of
business on July 14, 1999, will be entitled to vote at the meeting. A list of
such stockholders will be available at the Company's headquarters, 10802
Parkridge Boulevard, Reston, Virginia, for examination during normal business
hours by any stockholder for any purpose germane to the meeting for a period of
ten days prior to the meeting.
Stockholders who do not expect to attend the meeting in person are asked to
date, sign and complete the enclosed proxy and return it without delay in the
enclosed envelope, which requires no postage if mailed in the United States.
By order of the Board of Directors,
Randy S. Segal
Senior Vice President and Secretary
Reston, Virginia
August 6, 1999
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American Mobile Satellite Corporation
10802 Parkridge Boulevard
Reston, Virginia 20191-5416
(703) 758-6000
PROXY STATEMENT
---------------
The accompanying proxy is solicited on behalf of the Board of Directors of
American Mobile Satellite Corporation ("American Mobile" or the "Company") for
use at a special meeting of stockholders to be held on September 7, 1999, and
any postponement or adjournments thereof. The special meeting will be held at
the principal executive offices of the Company, which are located at 10802
Parkridge Boulevard, Reston, Virginia, and will commence at 9:00 a.m. local
time. Any stockholder giving a proxy may revoke it at any time before it is
exercised at the meeting by delivering to the Secretary of American Mobile a
written instrument of revocation or a duly executed proxy bearing a later date.
This proxy statement and the accompanying form of proxy are being first sent to
stockholders on or about August 6, 1999.
The only class of securities of American Mobile entitled to vote at the special
meeting is its Common Stock, of which 39,136,801 shares were outstanding on July
14, 1999. Only stockholders of record at the close of business on July 14, 1999,
will be entitled to vote at the special meeting. The presence at the special
meeting of the holders of a majority of the issued and outstanding shares of
Common Stock entitled to vote, either in person or represented by properly
executed proxies, is necessary to constitute a quorum for the transaction of
business at the meeting. If there are not sufficient shares represented in
person or by proxy at the meeting to constitute a quorum, the meeting may be
postponed or adjourned in order to permit further solicitation of proxies by the
Company. Proxies given pursuant to this solicitation and not revoked will be
voted at any postponement or adjournment of the annual meeting in the manner
described elsewhere in this proxy statement. Each stockholder has one vote for
each share of Common Stock held.
Proposal 1, which seeks approval for the issuance of shares of Common Stock to
XM Ventures, will require the affirmative vote of a majority of the total votes
cast on Proposal 1, without reference to the shares currently held by XM
Ventures. Abstentions will not have any effect on the vote on Proposal 1.
Proposal 2, which seeks approval of an amendment to the Amended and Restated
Certificate of Incorporation, will require the affirmative vote of two-thirds of
the issued and outstanding shares of Common Stock. Abstentions with respect to
Proposal 2 will have the same effect as a vote against Proposal 2.
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Brokers who hold shares in street name do not have the authority to vote on
certain matters for which they have not received instructions from beneficial
owners. Broker non-votes will be counted in determining the existence of a
quorum. Such broker non-votes with respect to Proposal 1 will not affect the
outcome of the vote on that Proposal. Broker non-votes will not be included in
the vote totals on Proposal 2, and thus will affect the outcome of the vote on
that Proposal.
The cost of soliciting proxies in the form enclosed herewith will be borne by
the Company. In addition to the solicitation of proxies by mail, the Company,
through its directors, officers and regular employees, also may solicit proxies
personally or by telephone. The Company also will request persons, firms, and
corporations holding Common Stock in their names or in the names of their
nominees, which are beneficially owned by others, to send proxy material to and
obtain proxies from the beneficial owners and will reimburse the holders for
their reasonable expenses in so doing.
This proxy statement contains and incorporates by reference certain forward-
looking statements within the meaning of Section 27A of the Securities Act of
1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as
amended. We intend such forward-looking statements to be covered by the safe
harbor provisions for forward-looking statements in these sections. All
statements regarding our expected financial position and operating results, our
business strategy, and our financing plans are forward-looking statements. These
statements can sometimes be identified by our use of forward-looking words such
as "may," "will," "anticipate," "estimate," "expect," "project," or "intend."
These forward-looking statements reflect our plans, expectations, and beliefs
and, accordingly, are subject to certain risks and uncertainties. We cannot
guarantee that any of such forward-looking statements will be realized.
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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
---------------------------------------------------
MANAGEMENT
----------
The following table and the accompanying notes set forth certain information
concerning the beneficial ownership of the Company's common stock as of June 30,
1999 (except where otherwise indicated), by each person who is known by the
Company to own beneficially more than five percent of its common stock, each
director and each executive officer, and all directors and executive officers as
a group. Except as otherwise indicated, each person listed in the table has
informed the Company that such person has sole voting and investment power with
respect to such person's shares of common stock and record and beneficial
ownership with respect to such person's shares of common stock.
<TABLE>
Number of
<CAPTION>
Name of Beneficial Owner(1) Shares % of
Class
Beneficial Owners of More than 5%
<S> <C> <C>
AT&T Wireless Services, Inc.(2)............. 3,001,145 9.22%
1150 Connecticut Avenue, N.W.
Washington, DC 20036
Singapore Telecommunications Limited (3).... 4,836,746 14.49%
31 Exeter Road, Comcentre
Singapore 239732
Republic of Singapore
Motorola, Inc.(4)........................... 6,520,532 20.03%
1303 East Algonquin Road
Schaumberg, IL 60196
Baron Capital, Inc.(5)...................... 6,135,100 18.38%
767 Fifth Avenue, 24th Floor
New York, NY 10153
Hughes Communications Satellite Services, Inc.(6) 11,566,622 30.88%
Building S66/D468
Post Office Box 92424
Los Angeles, CA 90009
XM Ventures(7).............................. 6,479,443 16.35%
c/o Noah Samara, as trustee
2400 N St., N.W.
Washington, DC 20037
Directors and Executive Officers
Douglas I. Brandon(8)....................... 5,000 *
Robert L. Goldsmith(9)(10).................. 151,357 *
Pradeep P. Kaul(8).......................... 6,000 *
Billy J. Parrott(8)(11)..................... 17,500 *
Gary M. Parsons(9)(10)...................... 450,990 1.39%
Walter V. Purnell, Jr.(9)(10)(12)........... 112,387 *
Andrew A. Quartner(8)(13)................... 21,000 *
Jack A. Shaw(8)............................. 6,000 *
Roderick M. Sherwood III(8)................. 6,000 *
Michael T. Smith(8)......................... 7,000 *
Randy S. Segal(9)(10)....................... 161,841 *
W. Bartlett Snell(10)....................... 40,000 *
All Directors and Executive Officers as a group (12
persons)(8)(9)(10)........................ 985,075 3.03%
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* Less than 1%
</TABLE>
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(1) Certain holders of common stock, including each of the beneficial
owners of more than 5% of the common stock ("5% Stockholders") listed
in the table are parties to a stockholders' agreement dated December
1, 1993 (the "Stockholders' Agreement"). The 5% Stockholders who are
parties to the Stockholders' Agreement may be deemed to constitute a
group having beneficial ownership of all common stock held by members
of such group. See "Certain Relationships and Related Party
Transactions." Each such 5% Stockholder disclaims beneficial ownership
as to shares of common stock held by other 5% Stockholders.
(2) Through its subsidiaries, Transit Communications, Inc. (681,818
shares), Satellite Communications Investments Corporation (1,113,135
shares) and Space Technologies Investments, Inc. (1,206,192). Transit
Communications, Inc. is indirectly 80%-owned by LIN Broadcasting
Corporation, which is an indirect subsidiary of AT&T Wireless.
Satellite Communications Investments Corporation and Space Technologies
Investments, Inc. are direct or indirect subsidiaries of AT&T Wireless.
(3) Singapore Telecom is approximately 80%-owned by Temasek Holdings
(Private) Ltd., a Singapore holding company that is wholly owned by the
Government of Singapore. Includes 812,500 shares of common stock
issuable upon exercise of warrants issued in connection with the
guarantees of the bank financings.
(4) Motorola, Inc. has granted to the Underwriters an option to purchase up
to 1,050,000 shares of common stock to cover overallotments. If all of
such shares are sold by Motorola, Motorola would beneficially own
5,470,532 shares representing approximately 16.8% of our common stock.
(5) Includes 812,500 shares of common stock issuable upon exercise of
warrants issued in connection with the guarantees of the bank
financings.
(6) Hughes Communications Satellite Services, Inc. ("HCSSI") is an indirect
wholly-owned subsidiary of Hughes, which is a wholly-owned subsidiary
of General Motors Corporation. Includes 25,000 shares of common stock
issuable upon exercise of warrants issued to HCSSI on January 19, 1996,
in connection with a prior interim financing facility guarantee and
4,875,000 shares of common stock issuable upon exercise warrants issued
in connection with the bank financings.
(7) Information about XM Ventures is as of July 7, 1999. Excludes 2,134,801
shares that we have agreed to issue to XM Ventures, subject to
stockholder approval. If such shares are issued to XM Ventures, XM
Ventures would beneficially own approximately 20.92% of our common
stock.
(8) Includes shares issuable upon the exercise of options granted under
American Mobile's Stock Option Plan for Non-Employee Directors which
options are vested and exercisable within sixty days after June 30,
1999, subject to compliance with applicable securities laws.
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(9) Includes shares owned through American Mobile's matching 401(k) Plan
and/or Employee Stock Purchase Plan.
(10) Includes shares issuable upon the exercise of options granted under
American Mobile's 1989 Employee Stock Option Plan which options are
vested and exercisable within sixty days after June 30, 1999, subject
to compliance with applicable securities laws. Also includes shares of
restricted stock awarded under American Mobile's 1989 Employee Stock
Option Plan, which are subject to a number of conditions of forfeiture.
(11) Includes 7,500 shares owned by Private Networks, Inc., a company in
which Mr. Parrott owns a one-third equity interest. Mr. Parrott
disclaims beneficial ownership as to all such shares of common stock.
(12) Includes 200 shares owned by Mr. Purnell's wife, as to which Mr.
Purnell disclaims beneficial ownership.
(13) Includes 1,050 shares owned by trusts for the benefit of each of Mr.
Quartner's three children, of which Mr. Quartner is trustee, and 100
shares owned by Mr. Quartner's wife. Mr. Quartner disclaims beneficial
ownership as to all such shares of common stock.
PROPOSAL 1. APPROVAL OF ISSUANCE OF STOCK TO XM VENTURES
--------------------------------------------------------
The Exchange Transaction
- ------------------------
On July 7, 1999, the Company acquired from XM Ventures, a trust established by
WorldSpace, Inc. ("WorldSpace"), all of WorldSpace'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
the Company's Common Stock (the "Exchange Transaction"). Concurrently with this
transaction, XM Radio issued $250 million of subordinated convertible notes to
several new strategic and financial investors, including General Motors
Corporation ("General Motors"), Clear Channel Investments, Inc. ("Clear
Channel"), DIRECTV Enterprises, Inc. ("DIRECTV"), Telcom Ventures, Columbia
Capital and Madison Dearborn Partners (the "Private Placement"). Immediately
thereafter, XM Radio reorganized its capital structure. XM Radio used $75
million of the proceeds from these notes to repay the outstanding loan payable
to WorldSpace. The foregoing transactions are referred to herein collectively as
the "Transaction."
At the closing of the Exchange Transaction, the Company issued 6,479,443 shares
of Common Stock to XM Ventures and now holds 100% of XM Radio's Class B common
stock, which are the only shares of XM Radio's capital stock outstanding. The
Company also agreed, subject to stockholder approval, to issue the remaining
2,134,801 shares to XM Ventures (the "Additional Issuance").
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Vote Required
- -------------
The Company's Common Stock is quoted on the Nasdaq National Market. Under the
rules of the Nasdaq National Market, the Company must obtain stockholder
approval prior to the issuance of Common Stock if (a) the issuance of such
securities is in connection with the acquisition of the stock or assets of
another company and (b) either (i) the common stock to be issued in the
transaction will have upon its issuance voting power equal to or in excess of
20% of the voting power of the Company's common stock outstanding before such
issuance or (ii) the number of shares of common stock to be issued is or will be
equal to or in excess of 20% of the number of shares of common stock outstanding
before such issuance. Accordingly, the Company must obtain approval of the
Additional Issuance from its stockholders before such Additional Issuance
occurs, because the shares of Common Stock issued to XM Ventures at the closing
of the Exchange Transaction, together with the Additional Issuance, will
represent more than 20% of the voting power of the Company's Common Stock or
more than 20% of the number of shares of Common Stock outstanding prior to such
Additional Issuance.
The affirmative vote of a majority of the total votes cast, excluding shares of
Common Stock held by XM Ventures, is required to approve the Additional
Issuance. In connection with the Exchange Transaction, the holders of
approximately 74% of the Company's Common Stock (Hughes Communications Satellite
Services, Inc., Motorola, Inc., Singapore Telecommunications Limited, BAMCO,
Inc. and AT&T Wireless Services, Inc.) have agreed to vote in favor of the
Additional Issuance. Such shares of Common Stock will be sufficient to establish
a quorum and to approve the Additional Issuance without the vote of any other
stockholder.
The Board of Directors unanimously approved the Exchange Transaction and
recommends that stockholders approve the Additional Issuance. Stockholders are
not being asked to approve the Exchange Transaction. A failure of the Company's
stockholders to approve the Additional Issuance will not affect the closing of
the Exchange Transaction.
The Exchange Transaction had a dilutive effect on the voting rights of the
holders of the Company's Common Stock. As a result of the Exchange Transaction,
assuming stockholder approval of the Additional Issuance, XM Ventures will
beneficially own approximately 20.9% of the Company's Common Stock outstanding
as of such date, assuming no additional stock is issued prior to such date.
Although the Company will not be required to make the Additional Issuance if
stockholder approval is not received, any failure by the Company to obtain such
approval will not affect the survival or validity of its representations and
warranties or covenants to WorldSpace. WorldSpace will have a cause of action
against the Company for damages caused by a breach by the Company of its
representations and warranties and covenants and will be entitled to indemnity
for all reasonable costs and expenses (including legal fees) incurred by
WorldSpace in prosecuting such an action.
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Background of the Company's Investment in XM Radio and Reasons for the
- ----------------------------------------------------------------------
Exchange Transaction
- --------------------
In December 1992, the Company formed a new, wholly owned subsidiary, XM
Satellite Radio Inc. ("XMSR", formerly American Mobile Radio Corporation), for
the purpose of procuring a digital audio radio service license ("DARS") from the
Federal Communication Commission ("FCC"). XMSR's business activity from December
1992 through 1996 was insignificant. In May 1997, the Company formed another
subsidiary, XM Radio (formerly AMRC Holdings Inc.), as a holding company for
XMSR. XM Radio owns all of the outstanding stock of XMSR. Also in May 1997,
pursuant to various financing agreements among the Company, WorldSpace, XMSR and
XM Radio, WorldSpace acquired 20% of the voting interest in XM Radio, as well as
certain options to acquire additional capital stock of XM Radio, and also agreed
to provide additional loans to fund XMSR's bid for a DARS license. In October
1997, the FCC awarded XMSR one of two DARS licenses, in exchange for payment to
the FCC of the approximately $90 million bid at the DARS license auction.
In approving the Exchange Transaction, the Board of Directors concluded that its
interest in XM Radio offered potentially significant future value to the Company
and its stockholders, and that such potential value would increase with the
increased business potential of XM Radio. In order to develop and offer a
satellite-based commercial digital radio service in accordance with XM Radio's
business plan, however, XM Radio requires significant additional capital.
Although the Company has no legal obligation and does not intend to fund the
development of XM Radio's business, the Board of Directors noted that XM Radio's
ability to attract additional capital would be enhanced if new investors could
participate in an equity structure in XM Radio that would not be diluted by
WorldSpace's ownership interests. By facilitating an infusion of new funding for
XM Radio, the Board of Directors also believed that it could attract investors
who would bring strategic and competitive advantages to XM Radio.
Following the Exchange Transaction, the Company owns all of the issued capital
stock of XM Radio. If all securities convertible into voting stock of XM Radio
were converted, the Company 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 the Company is convertible on a one for one basis
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into Class A common stock, as follows: (1) at any time at the Company's
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 the Company's Class B common stock of XM Radio
into Class A common stock, the Company's voting interest in XM Radio will be
reduced to approximately 37%.
The Company also is a party to a shareholders' agreement containing, among other
provisions, restrictions on the ability of the Company to transfer any shares of
XM Radio's common stock and an agreement relating to the composition of XM
Radio's board of directors. Additional information regarding the XM Radio
shareholders' agreement is included in the Company's Current Report on Form 8-K
dated July 9, 1999 and incorporated by reference in this proxy statement. See
"Where to Get Additional Information."
Opinion of Bear Stearns
- -----------------------
American Mobile engaged Bear, Stearns & Co. Inc. ("Bear Stearns") to render a
fairness opinion in connection with the Transaction based on Bear Stearns'
experience and expertise, particularly in providing advice to companies in the
technology and telecommunications industries, as well as on Bear Stearns' prior
investment banking relationship and familiarity with American Mobile. Bear
Stearns is an internationally recognized investment banking firm that has
substantial experience in transactions similar to the Transaction. Bear Stearns,
as part of its investment banking business, is continuously engaged in the
valuation of businesses and securities in connection with mergers and
acquisitions, negotiated underwritings, competitive biddings, secondary
distributions of listed and unlisted securities, private placements and
valuations for corporate and other purposes.
On June 7, 1999, Bear Stearns delivered to American Mobile's Board of Directors
its oral opinion (subsequently confirmed in writing) to the effect that, as of
the date thereof, and subject to the assumptions, qualifications and limitations
set forth therein, the consideration to be received by American Mobile in
exchange for American Mobile's issuance of Common Stock to XM Ventures in the
Transaction (collectively, the "Consideration") was fair, as a whole, from a
financial point of view, to the unaffiliated public stockholders of American
Mobile.
The full text of Bear Stearns' opinion dated as of June 7, 1999, which sets
forth the assumptions made, matters considered and qualifications and
limitations on the review undertaken by Bear Stearns, is incorporated herein by
reference. The summary of Bear Stearns' opinion set forth below is qualified in
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its entirety by reference to the full text of such opinion, which is attached as
Appendix A to this Proxy Statement. American Mobile stockholders are urged to
read carefully Bear Stearns' opinion in its entirety.
In reading the discussion of such fairness opinion set forth below, American
Mobile stockholders should be aware that Bear Stearns' opinion:
o was provided to the American Mobile Board of Directors for its sole benefit
and use and was directed only to the fairness of the Consideration, as a
whole, from a financial point of view, to the unaffiliated public
stockholders of American Mobile;
o did not constitute a recommendation to the American Mobile Board of
Directors in connection with the Transaction;
o did not address any other transactions or arrangements to be entered into
or payments to be made, directly or indirectly, by or to American Mobile or
any other person as part of, or concurrently with, the Transaction;
o did not address the merits of the underlying business decision by American
Mobile to engage in the Transaction or the price or range of prices at
which shares of American Mobile common stock may trade subsequent to the
announcement or consummation of the Transaction; and
o did not constitute a recommendation to any holder of American Mobile Common
Stock as to how to vote in connection with the Additional Issuance, or any
matter related thereto.
Although Bear Stearns evaluated the fairness of the Consideration, as a whole,
from a financial point of view, to the unaffiliated public stockholders of
American Mobile, the Consideration itself was determined by American Mobile and
WorldSpace through arm's- length negotiations. Bear Stearns provided advice to
American Mobile during the course of such negotiations. American Mobile did not
provide specific instructions to, or place any limitations on, Bear Stearns with
respect to the procedures to be followed or factors to be considered by it in
performing its analyses or providing its opinion.
In the course of its analyses for rendering its opinion, Bear Stearns, among
other things:
o reviewed the June 5, 1999 draft Exchange Agreement;
o reviewed the June 5, 1999 draft Summary of Principal Terms and Conditions,
Proposed Issuance of Subordinated Convertible Notes;
o reviewed the June 6, 1999 draft Note Purchase Agreement by and between XM
Radio and the investors named therein;
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o reviewed the June 4, 1999 draft Amendment No. 1 to the Bridge, Additional
Amounts and Working Capital Loans;
o reviewed American Mobile's Annual Reports to Shareholders and Annual
Reports on Form 10-K for the fiscal years ended December 31, 1996 through
1998, and its Quarterly Report on Form 10-Q for the period ended March 31,
1999;
o reviewed certain operating and financial information, including
projections, provided to it by management of American Mobile and XM Radio
relating to American Mobile's and XM Radio's respective businesses and
prospects;
o met with certain members of the senior managements of American Mobile and
XM Radio to discuss the respective operations, historical financial
statements and future prospects of American Mobile and XM Radio;
o reviewed the historical prices and trading volume of American Mobile's
Common Stock;
o reviewed publicly available financial data, stock market performance data
and valuation parameters of a company which Bear Stearns deemed generally
comparable to XM Radio;
o reviewed the terms of a recent transaction involving the issuance of a note
convertible into shares of XM Radio common stock; and
o conducted such other studies, analyses, inquiries and investigations as it
deemed appropriate.
In the course of its review, Bear Stearns relied upon and assumed, without
independent verification, the accuracy and completeness of the financial and
other information, including without limitation the projections (including any
expected synergies reflected therein), provided to Bear Stearns by American
Mobile and XM Radio. With respect to American Mobile and XM Radio's projected
financial results, Bear Stearns assumed that they have been reasonably prepared
on bases reflecting the best currently available estimates and judgments of the
senior managements of American Mobile and XM Radio as to the expected future
performance of American Mobile and XM Radio, respectively. Bear Stearns did not
assume any responsibility for the independent verification of any such
information or of the projections provided to Bear Stearns and further relied
upon the assurances of the senior managements of American Mobile and XM Radio
that they are unaware of any facts that would make the information or
projections provided to Bear Stearns incomplete or misleading. In arriving at
its opinion, Bear Stearns did not conduct a physical inspection of any of the
properties or assets, and did not perform or obtain any independent appraisal of
the assets or liabilities, of American Mobile or XM Radio, nor was it furnished
with any such appraisals. Bear Stearns' opinion was necessarily based on
economic, market and other conditions, and the information made available to it,
as of the date thereof. Accordingly, although subsequent developments may affect
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Bear Stearns' opinion, Bear Stearns undertook no obligation to update, revise or
reaffirm its opinion. In rendering its opinion, Bear Stearns assumed that the
Transaction would be consummated on substantially the terms described in the
draft Exchange Agreement and related documents that it reviewed as described
above.
Financial Analysis of Bear Stearns. The following is a brief summary of the
- -------------------------------------
material valuation, financial and comparative analyses considered by Bear
Stearns in connection with the rendering of Bear Stearns' opinion. Such summary
does not purport to be a complete description of the analyses underlying Bear
Stearns' opinion.
In performing its analyses, Bear Stearns relied solely on the assumptions made
by American Mobile and XM Radio with respect to industry performance, general
business, economic, market and financial conditions and other matters, many of
which are beyond the control of Bear Stearns, American Mobile, and XM Radio. Any
estimates contained in the analyses performed by Bear Stearns are not
necessarily indicative of actual values or future results, which may be
significantly more or less favorable than suggested by such analyses.
Additionally, estimates of the value of businesses or securities do not purport
to be appraisals or to reflect the prices at which such businesses or securities
might actually be sold. Accordingly, such analyses and estimates are inherently
subject to substantial uncertainty. In addition, Bear Stearns' opinion was among
several factors taken into consideration by the American Mobile Board of
Directors in making its determination to approve the Transaction. Based on the
closing stock price for American Mobile common stock on June 4, 1999 of $16.06
per share, the Exchange Transaction implied an equity value of XM Radio of
$567.9 million or $696,652 per share.
Discounted Cash Flow Analysis. Bear Stearns performed a discounted cash flow
- -------------------------------
("DCF") analysis of XM Radio based on projections for the fiscal years 1999
through 2008 provided by XM Radio. These projections reflected certain synergies
expected by management of XM Radio to be created through distribution and other
agreements with General Motors, DIRECTV, and Clear Channel (collectively, the
"Strategic Partners"). XM Radio's management prepared an "optimistic" and
"conservative" case regarding the potential impact of such agreements. Bear
Stearns relied on the "conservative" case for this analysis. Bear Stearns used
discount rates of a range of 25% to 30%, based on a satellite broadcasting
industry weighted average cost of capital. In performing its analysis, Bear
Stearns used terminal EBITDA multiples of 7.0x to 10.0x. Bear Stearns added the
present values of the discounted free cash flows to the present values of the
terminal values to arrive at a range of implied enterprise values of XM Radio.
Bear Stearns then deducted long-term debt and added cash to the implied
enterprise values of XM Radio to arrive at a range of equity values for XM
Radio. This analysis implied an equity value per share range of $1,491,888 to
$3,240,887.
Analysis of Precedent XM Radio Transaction. Bear Stearns reviewed and analyzed
- -------------------------------------------
the financial terms of a recent transaction involving securities of XM Radio
(the "Precedent XM Radio Transaction") and compared the financial terms of such
11
<PAGE>
transaction to those of the Transaction for purposes of this analysis. The
Precedent XM Radio Transaction was American Mobile's issuance of a $21.5 million
note to an investor convertible into 24.5 shares of XM Radio common stock held
by American Mobile. Bear Stearns reviewed the consideration given and the
conversion ratio in the Precedent XM Radio Transaction. Bear Stearns noted that
the Precedent XM Radio Transaction was not identical to the Transaction and
that, accordingly, any analysis of the Precedent XM Radio Transaction
necessarily involved complex considerations and judgments concerning differences
in value and consideration. Bear Stearns' analysis of the Precedent XM Radio
Transaction indicated that the implied conversion price per share for the
investor's XM Radio convertible note was $875,000 per share.
Analysis of Publicly Traded Company. Bear Stearns compared certain operating and
- ----------------------------------- financial information for XM Radio to
certain publicly available operating, financial, trading and valuation
information of CD Radio, Inc. ("Comparable Satellite Broadcasting Company").
Although Bear Stearns used this company for comparison purposes, it is not
identical to XM Radio. Bear Stearns' analysis indicated that the Comparable
Satellite Broadcasting Company's enterprise value to 2003, 2004, and 2005
estimated revenue yielded forward multiples of 2.3x, 1.1x, and 0.7x,
respectively. The Comparable Satellite Broadcasting Company's enterprise value
to 2004 and 2005 estimated EBITDA yielded forward multiples of 3.8x and 1.5x,
respectively. Bear Stearns applied a 20% discount to the Comparable Satellite
Broadcasting Company's forward multiples to reflect XM Radio's additional
financing risk, potential time to market delay and the incremental capital CD
Radio has invested in its operations to date. After the discount, the implied
forward revenue multiples were 1.8x, 0.9x, and 0.6x for 2003, 2004, and 2005,
respectively, and the implied forward EBITDA multiples were 3.0x and 1.2x for
2004 and 2005, respectively. Application of XM Radio's projected revenue yielded
a range of per share values of $682,649 to $1,335,237. Application of XM Radio's
projected EBITDA yielded a range of per share values of $966,524 to $1,376,449.
Has/Gets Analysis. Based on a DCF analysis, Bear Stearns examined the projected
- ------------------
per share value held by American Mobile stockholders pre- and post- Transaction.
The American Mobile DCF value was derived using a range of discount rates of 16%
to 20% and terminal EBITDA multiples of 4.0x to 7.0x. The XM Radio DCF value was
derived using a range of discount rates of 25% to 30% and terminal EBITDA
multiples of 7.0x to 10.0x. Total pre-Transaction value held by American
Mobile's shareholders was determined by summing their 100% ownership stake in
American Mobile with their 21.5% ownership interest in XM Radio. The
pre-Transaction DCF value of XM Radio was derived using stand-alone financial
projections provided by XM Radio without giving effect to agreements with
Strategic Partners. Total post-Transaction value held by American Mobile
stockholders was determined by summing their reduced ownership in American
Mobile of 83.3% with their increased ownership stake in XM Radio of 30.7%. The
post- Transaction DCF value of XM Radio was derived using financial projections
provided by XM Radio, which included operating synergies resulting from
agreements with the strategic partners. This analysis suggested that the
12
<PAGE>
Transaction should result in accretion in total value to American Mobile's
stockholders when the operating synergies from the Strategic Partners are
included in the value of XM Radio.
Impact of Strategic Partners. Bear Stearns examined the financial impact of the
- -----------------------------
Strategic Partners on XM Radio. As part of Bear Stearns' analysis, it reviewed
and compared XM Radio's financial projections pre-Transaction, reflecting no
Strategic Partner impact, with XM Radio's financial projections
post-Transaction, reflecting the operational agreements with and potential
enhancements from the Strategic Partners. XM Radio's management prepared an
"optimistic" and "conservative" case regarding the potential impact of the
Strategic Partners. Bear Stearns relied on the "conservative" case for this
analysis. Based on DCF analyses, Bear Stearns examined the enterprise value of
XM Radio pre-and post-Transaction. The DCF analysis indicated that the
enterprise value of XM Radio increased due to the involvement of the Strategic
Partners.
The preparation of a fairness opinion is a complex process and involves various
judgments and determinations as to the most appropriate and relevant assumptions
and financial analyses and the application of these methods to the particular
circumstances involved. Such an opinion is therefore not readily susceptible to
partial analysis or summary description, and taking portions of the analyses set
out above, without considering the analysis as a whole, would, in the view of
Bear Stearns, create an incomplete and misleading picture of the processes
underlying the analyses considered in rendering Bear Stearns' opinion. Bear
Stearns did not form an opinion as to whether any individual analysis or factor
(positive or negative), considered in isolation, supported or failed to support
Bear Stearns' opinion. In arriving at its opinion, Bear Stearns considered the
results of its separate analyses and did not attribute particular weight to any
one analysis or factor considered by such firm. The analyses performed by Bear
Stearns, particularly those based on estimates and projections, are not
necessarily indicative of actual values or actual future results, which may be
significantly more or less favorable than suggested by such analyses. Such
analyses were prepared solely as part of Bear Stearns' analyses of the fairness
of the Consideration, as a whole, from a financial point of view, to the
unaffiliated public stockholders of American Mobile.
Fee Arrangements. Pursuant to the terms of its engagement letter with Bear
- -----------------
Stearns, American Mobile paid a customary fee to Bear Stearns in connection with
the delivery of Bear Stearns' opinion. American Mobile has also agreed to
indemnify Bear Stearns against certain liabilities in connection with its
engagement, including certain liabilities under the federal securities laws.
Bear Stearns has been previously engaged by American Mobile to provide certain
investment banking and financial advisory services in connection with American
Mobile's acquisition of ARDIS Company in 1998 and to act as lead manager on an
offering of senior notes and warrants in 1998, for which (in each case) it
13
<PAGE>
received customary compensation. Bear Stearns is also acting as lead manager for
American Mobile's pending offering of up to 7 million shares of its Common
Stock. In the ordinary course of business, Bear Stearns may actively trade the
equity securities of American Mobile for its own account and for the account of
its customers and, accordingly, may at any time hold a long or short position in
such securities. Bear Stearns also acted as exclusive joint placement agent on
the Private Placement and received customary compensation from XM Radio for such
services. American Mobile and XM Radio expressly waived any actual or potential
conflicts of interest in connection with Bear Stearns' engagement by American
Mobile to render its fairness opinion, on the one hand, and its engagement by XM
Radio to act as exclusive joint placement agent in the Private Placement, on the
other hand.
Pro Forma Summary Financial and Other Data
- ------------------------------------------
The following summary 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 summary 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 read in conjunction with the pro forma financial
information and American Mobile's Consolidated Financial Statements and related
notes and XM Radio's Consolidated Financial Statements and related notes
includes in the Company's Current Report on Form 8-K dated July 9, 1999 and
incorporated by reference herein. See "Where to Get Additional Information."
14
<PAGE>
<TABLE>
<CAPTION>
For the Three Months For the Year Ended
Ended March 31, 1999 December 31, 1998
---------------------------------- ------------------------------------
(Dollars in thousands, except subscribers and revenue per unit)
Statement of Operations Data:
Revenue:
<S> <C> <C>
Services $ 16,164 $ 67,396
Sales of equipment 4,066 29,757
---------- ---------
Total revenue 20,230 97,153
Operating loss (30,573) (112,340)
Net loss (47,010) (185,365)
Other Financial and Operating
Data:
Number of subscribers (end of period) 113,000 105,700
Average monthly revenue per unit 49 60
EBITDA (16,107) (53,047)
Depreciation and amortization 14,466 59,293
Capital expenditures 53,173 57,699
</TABLE>
<TABLE>
<CAPTION>
As of March 31, 1999
----------------------------------
(in thousands)
Balance Sheet Data:
<S> <C>
Cash and cash equivalents $ 175,323
Restricted investments 109,661
Property and equipment, net 239,615
Total assets 927,868
Total debt 776,307
Total stockholders' equity 51,244
</TABLE>
Overview of XM Radio
- --------------------
XM Radio is a development stage company 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 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 currently is constructing its satellite system and contracting with
third-party programmers, vendors, and other partners. Key milestones achieved
include the following:
15
<PAGE>
o Raised approximately $331 million of capital to date, net of
expenses and repayment of debt, including recent investments
by several strategic and financial investors;
o Long-term agreement with the OnStar division of General
Motors Corporation covering the installation and exclusive
marketing and distribution of XM Radio service in GM
vehicles;
o Contract with Hughes Space and Communications International,
Inc. for delivery and launch of two high-powered satellites;
o Agreement with STMicroelectronics, a leading digital audio
chipset manufacturer, for the design and production of
chipsets for XM radios;
o Contracts with Alpine Electronics, Pioneer, SHARP and Delco
Electronics to manufacture and distribute XM radios; and
o 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.
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.
XM Radio's principal executive offices are located at 1250 23d Street, N.W.,
Washington, D.C. 20037, telephone: (202) 969-7100.
Selected Financial Data
- -----------------------
Set forth below is selected financial data for XM Radio for the periods
indicated. The selected financial data should be read in conjunction with the
consolidated financial statements and related notes of XM Satellite Radio
Holdings Inc. and Subsidiary included in the Company's Current Report on Form
8-K dated July 9, 1999 and incorporated by reference in this proxy statement.
See "Where to Get Additional Information."
16
<PAGE>
<TABLE>
<CAPTION>
December 15, 1992
(Date of Inception) Years Ended Three Months Ended
to December 31, December 31, March 31,
--------------- ------------ ---------
1998 1997 1998 1998 1999
---- ---- ---- ---- ----
(In thousands, except share data)
Statements of Operations Data:
<S> <C> <C> <C> <C> <C>
Revenue $ - $ - $ - $ - $ -
--------- --------- --------- --------- ---------
Operating expenses:
Research and development 6,941 - 6,941 1,933 748
Professional fees 6,332 1,090 5,242 1,050 1,297
General and administrative 4,030 20 4,010 117 2,376
--------- -- ----- --- -----
Total operating expenses 17,303 (1,110) 16,193 3,100 4,421
--------- ------- ------ ----- -----
Interest income (expense), net (523) (549) 26 -- 54
Net loss $ (17,826) $(1,659) $(16,167) $(3,100) $(4,367)
========= ======= ========= ======= =======
Net loss per share $(146,115) $(13,941) $(129,336) $(24,800) $(34,936)
========= ======== ========== ======== ========
Weighted average shares used in
computing net loss per share -
basic and diluted 122 119 125 125 125
</TABLE>
<TABLE>
<CAPTION>
December 31, December 31, March 31, 1999
1997 1998 (Unaudited)
------------ ------------ --------------
(In thousands)
Balance Sheets Data:
<S> <C> <C> <C>
Cash and cash equivalents.. $ 1 $ 310 $ 3,442
System under construction.. 91,932 169,029 219,455
Total assets............... 91,933 170,485 224,405
Total debt................. 82,504 140,298 78,906
Total liabilities.......... 82,944 177,668 235,955
Stockholders' equity (deficit) 8,984 (7,183) (11,550)
</TABLE>
17
<PAGE>
XM Radio -- Management's Discussion and Analysis of Financial Condition
- -----------------------------------------------------------------------
and Results of Operations
- -------------------------
XM Radio is a development stage company engaged in the construction of its
satellite radio service. As such, it currently generates no revenue and is
incurring significant operating losses. Prior to the Exchange Transaction, the
Company accounted for XM Radio according to the equity method of accounting. As
a result of the Exchange Transaction, the Company will consolidate XM Radio's
accounts and operating results with its own until such time, if ever, as the
Company no longer controls XM Radio. 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.
Additionally, in accordance with generally accepted accounting principles, the
Company restated its financial statements for the year ended December 31, 1998,
and the quarter ended March 31, 1999, to effect its share of XM Radio's losses
based on our voting equity interest in XM Radio during those periods. This
resulted in the Company's recording additional net losses of approximately $12.6
million for the year ended December 31, 1998, and $3.5 million for the quarter
ended March 31, 1999.
XM Radio has raised approximately $331.0 million of capital to date, net of
expenses and repayment of debt, including $250.0 million of gross proceeds of
subordinated convertible notes issued on July 7, 1999. These funds have been
used to acquire XM Radio's FCC license, make required payments under XM Radio's
satellite contract with Hughes, and for working capital and operating expenses.
Of the funds raised by XM Radio prior to July 7, 1999, the Company provided
approximately $1.7 million, $21.4 million was provided by the XM Note Receivable
described under the caption "Management's Discussion and Analysis of Financial
Condition and Results of Operations - Liquidity and Capital Resources" contained
in the Company's annual report on Form 10-K for the year ended December 31,
1998, and the remainder was provided by WorldSpace. 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. Concurrently with this
transaction, XM Radio issued $250 million of subordinated convertible notes to
several new strategic and financial investors. XM Radio used $75 million of the
proceeds from the notes to repay the outstanding loan payable to WorldSpace. As
a result of these transactions, the Company owns all of the issued and
outstanding stock of XM Radio, although several large notes convertible into
equity of XM Radio are outstanding. WorldSpace no longer owns any direct equity
or debt interest in XM Radio. The XM Note Receivable (which also is convertible
into XM Radio stock) presently has an outstanding balance of approximately $21.7
million, including accrued interest. Assuming a subsequent conversion of all
outstanding convertible notes of XM Radio into voting stock, the Company would
own approximately 37% of the economic interest in XM Radio.
18
<PAGE>
XM Radio currently estimates that it will require approximately $750.0 million
in addition to the amounts it has raised thus far to develop and commercially
launch its system, which is currently expected in 2001. Even after its service
is launched commercially, XM Radio anticipates that it will need substantial
further funding to cover its cash requirements before it begins generating
positive cash flow from operations. XM Radio's actual financing requirements
will depend on how the business develops over the next two years and cannot be
estimated at the present time. XM Radio's primary uses of funds will include
satellite construction and launch, launch and in-orbit insurance premiums,
construction of its terrestrial repeater system, development of the satellite
radio ground segment, and working capital and operating expenses.
XM Radio has significant payment obligations under a long-term distribution
agreement with the OnStar division of General Motors. This agreement provides
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 must also share
with General Motors a percentage of the subscription revenue attributable to
General Motors vehicles with installed XM radios. This percentage increases
until there are more than 8 million General Motors vehicles with installed XM
radios. The agreement is subject to renegotiation 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 renegotiation.
XM Radio expects to satisfy its future funding requirements by selling debt or
equity securities, publicly and/or privately, and by obtaining loans or credit
lines from banks or other financial institutions. Any such sale could reduce our
interest in XM Radio. In addition, XM Radio plans to seek funds through vendor
financing arrangements in connection with construction of its terrestrial
repeater system. XM Radio's projections regarding its funding requirements are
forward-looking, and XM Radio's actual requirements could vary materially from
its projections, due to a variety of factors, some of which are outside of the
19
<PAGE>
control of XM Radio, including unexpected costs, unforeseen delays, engineering
design changes, launch failures, satellite anomalies, adverse regulatory
developments, or other unanticipated events.
The Company is not required to provide any additional funding to XM Radio, and
the Company expects that XM Radio will continue to obtain substantially all of
its required funding from other sources. Accordingly, the Company does not
expect that development of the XM Radio business will have a material effect on
its consolidated liquidity, capital resources or cash flows.
Certain Transactions Involving the Exchange Transaction and XM Radio
- --------------------------------------------------------------------
Registration Rights. The Company is obligated to register for resale, on a
- ---------------------
delayed or continuous basis, under the Securities Act of 1933, as amended, the
shares of its Common Stock acquired by XM Ventures or the holders of its Common
Stock in the Exchange Transaction. The Company may suspend the effectiveness of
the resale registration statement, at its option, up to two times in any
consecutive 365-day period, for no more than 30 consecutive days per suspension,
separated, in each case, by at least 60 days from any prior blackout period, in
the event of certain significant business combinations or similar material
transactions, if (i) the Board of Directors determines, in the exercise of its
reasonable judgment, that disclosure of such transaction in the resale
registration statement is not in the Company's best interests, and (ii) the
Company provides notice of such determination to XM Ventures.
Whenever the Company proposes to register any of its securities in an
underwritten offering under the Securities Act, whether or not for its own
account, on a form that may also be used for the registration of the shares
issued to XM Ventures in the Exchange Transaction, XM Ventures and the other
holders of common stock issued in the Exchange Transaction may request that the
Company include, or "piggyback," in such registration all of the shares issued
to XM Ventures in the Exchange Transaction. The piggyback registration rights
granted to XM Ventures are subject and subordinate to the registration rights
under all of the Company's other existing registration rights agreements with
other parties. In addition, XM Ventures may not exercise such piggyback
registration rights in the Company's first public offering that occurs after
July 7, 1999.
In addition, beginning on the later of July 7, 2001 or the exercise or
expiration of all demand registration rights under all of the Company's other
existing registration rights agreements with other parties, but in no event
later than July 7, 2002, irrespective of whether all demand registration rights
under all of such other existing registration rights agreements with other
parties have been exercised or expired, XM Ventures and the other holders of
common stock issued in the Exchange Transaction shall be entitled to two
underwritten demand registrations on customary terms and procedures. These
demand registrations are subject to the right of the Company's Board of
20
<PAGE>
Directors to delay any such registration for up to 90 days upon its good faith
determination that such registration is not in the Company's best interests at
that time.
XM Ventures Transfer Restrictions. XM Ventures has agreed to certain
- ---------------------------------------
restrictions on the transfer of shares of Common Stock received in connection
with the Exchange Transaction. At the closing, XM Ventures was permitted to sell
or otherwise dispose of and/or distribute to certain stockholders of WorldSpace
("WorldSpace Stockholders") and/or holders of options or other rights to acquire
an interest in WorldSpace ("Option Holders") (if and when the Option Holders
become stockholders in WorldSpace) up to 1.7 million shares of Common Stock. On
or after the last day of each consecutive 3-month period following the closing,
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 Common
Stock.
XM Ventures and each of the WorldSpace Stockholders or Option Holders that
beneficially own (as determined under Rule 13d-3 of the Securities Exchange Act
of 1934) more than 1% of the then outstanding shares of Common Stock (the
"Significant Stockholders"), without the prior written consent of American
Mobile, which consent is not to be unreasonably withheld, may not (i) knowingly
transfer in a directed sale any of the 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 the Exchange 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 Common Stock held by them constituting 5% or more of the then
outstanding shares of Common Stock.
XM Ventures Voting Restrictions. From July 8, 1999 until the first date on which
XM Ventures and the Significant Stockholders hold less than 15% of the then
outstanding shares of Common Stock (the "Mirror Voting Period"), XM Ventures and
each Significant Stockholder is obliged to, with respect to any vote or consent
by the holders of Common Stock on any matter, be present in person or
represented by proxy at any meeting of the American Mobile stockholders to
consider such matter, and to vote such shares of Common Stock held by them, or
sign any such consent, in proportion to the votes or consents of all other
American Mobile stockholders voting on or consenting to such matter.
Following the expiration of the Mirror Voting Period, XM Ventures and the
Significant Stockholders may vote the Common Stock held by XM Ventures and the
Significant Stockholders, respectively, as each determines in its own
discretion.
21
<PAGE>
Other Information
- -----------------
Restated financial statements of the Company for the years ended December
31,1998, 1997 and 1996 and the periods ended March 31, 1999 and March 31, 1998
are included in the Company's Current Report on Form 8-K dated July 9, 1999 and
incorporated by reference in this proxy statement. See "Where to Get Additional
Information."
Certain other information regarding the Company's investment in XM Radio,
including risks that may impair the value of the Company's investment and other
transactions involving XM Radio, are included in the Company's Current Report of
Form 8-K dated July 9, 1999 and incorporated by reference in this proxy
statement. See "Where to Get Additional Information."
The Board of Directors recommends a vote FOR
the Issuance of the Additional Issuance.
22
<PAGE>
PROPOSAL 2. AMENDMENT TO THE COMPANY'S
--------------------------------------
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
-------------------------------------------------
TO INCREASE THE NUMBER OF SHARES OF COMMON STOCK
------------------------------------------------
AUTHORIZED FOR ISSUANCE
-----------------------
On May 26, 1999, the Board of Directors approved an amendment to the Company's
Amended and Restated Certificate of Incorporation to increase the number of
shares of Common Stock authorized for issuance from 75,000,000 shares to
150,000,000 shares.
As of July 14, 1999, there were 39,136,801 shares of the Company's Common Stock
issued and outstanding out of 75,000,000 authorized shares of Common Stock. As
of July 14, 1999, approximately 13,763,916 additional shares of Common Stock
were reserved for issuance pursuant to the Company's stock option plans and
other employee benefit plans, upon exercise of outstanding warrants, and for
issuance to XM Ventures under the Exchange Agreement. In addition, the Company
has filed a registration statement relating to the offer and sale of up to
7,000,000 newly issued shares. Consequently, there are a total of 59,900,717
shares of Common Stock issued and outstanding or reserved for future issuance,
and there are only approximately 15,099,283 authorized shares remaining
available for future issuance. The Company's Amended and Restated Certificate of
Incorporation also presently authorizes 200,000 shares of Preferred Stock, which
will not be changed by the proposed amendment.
The increase in the number of authorized shares of Common Stock will provide
additional authorized and unissued shares which may be used by the Company for
any proper corporate purpose and without additional stockholder approval unless
such approval is required by federal or state law or the rules and regulations
of The Nasdaq Stock Market National Market. Such purposes might include, without
limitation, issuance in public or private sales for cash as a means of obtaining
additional capital for use in the Company's business and operations, issuance as
part or all of the consideration required to be paid by the Company for
acquisition of other businesses or properties, and possible distributions or
dividends to holders of Common Stock. Although many of the foregoing
transactions will not require additional stockholder approval, the Company does
consider from time to time proposals or transactions involving the issuance of
additional shares of Common Stock or instruments convertible into or exercisable
for Common Stock.
The additional shares of Common Stock for which authorization is sought will be
identical to the shares of Common Stock of the Company now authorized. Holders
of Common Stock do not have preemptive rights to subscribe for additional
securities that may be issued by the Company. Although future issuances of
additional shares of Common Stock will be authorized by the Board of Directors
based on its judgment as to the best interests of the Company and its
stockholders, any such future issuance of additional authorized shares would
have the effect of diluting the voting power per share, and could have the
effect of diluting the book value per share, of the outstanding shares of Common
Stock. In addition, an increase in the authorized shares of Common Stock could,
23
<PAGE>
in certain instances, render more difficult or discourage a merger, tender
offer, or proxy contest and thus potentially have an "anti-takeover" effect,
especially if additional shares of Common Stock were issued in response to a
potential takeover. Such an effect could deter certain types of transactions
that might be proposed, whether or not such transactions were favored by the
majority of stockholders, and could enhance the ability of officers and
directors to retain their positions.
If the amendment is authorized, the text of Paragraph A of Article FOURTH of the
Company's Amended and Restated Certificate of Incorporation will be amended to
read as follows:
"A. Authorized Capital Stock. The total number of shares of
all classes of stock which the Corporation shall be authorized to issue
shall be one hundred fifty million two hundred thousand shares
(150,200,000) shares. One hundred fifty million (150,000,000) of said
shares shall be of a par value of $.01 per share and shall be
designated common stock ("Common Stock") and two hundred thousand
(200,000) of said shares shall be of a par value of $.01 per share and
shall be designated Series Preferred Stock."
Recommendation and Vote Required
- --------------------------------
The affirmative vote of the holders of two-thirds of the outstanding shares of
Common Stock is required to authorize the proposed amendment to the Amended and
Restated Certificate of Incorporation.
The Board of Directors Recommends a Vote FOR the Approval of this Proposal.
OTHER MATTERS
-------------
The Board of Directors is not aware of any other matters to be presented at the
special meeting. If any other matter proper for action at the meeting should be
presented, the holders of the accompanying proxy will vote the shares
represented by the proxy on such matter in accordance with their best judgment.
If any matter not proper for action at the meeting should be presented, the
holders of the proxy will vote against consideration thereof or action thereon.
The Company does not expect any representative of the Company's accountant,
Arthur Andersen LLP, to attend the meeting.
All shares represented by the accompanying proxy, if the proxy is duly executed
and received by the Company at or prior to the meeting, will be voted at the
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meeting in accordance with any instructions specified on such proxy and, where
no instruction is specified, as indicated on such proxy.
WHERE TO GET ADDITIONAL INFORMATION
-----------------------------------
The SEC allows the Company to incorporate by reference the information filed
with the SEC, which means that the Company can disclose important information to
you by referring you to those documents. The information incorporated by
reference is considered to be part of this proxy statement, and information that
the Company files later with the SEC will automatically update and supersede
this information. The Company incorporates by reference the documents listed
below and any future filings (File No. 0-23044) we make with the SEC under
Sections 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934:
a. our annual report on Form 10-K for the year ended December 31,
1998;
b. our quarterly report on Form 10-Q for the quarter ended March 31,
1999;
c. our report on Form 8-K dated June 7, 1999 and filed with the SEC
on June 9, 1999; and
d. our report on Form 8-K dated July 9, 1999 and filed with the SEC
on July 9, 1999.
You may request a copy of these filings, at no cost, by writing or telephoning
the Company at the following address:
Randy Segal
Senior Vice President, General
Counsel and Secretary
American Mobile Satellite Corporation
10802 Parkridge Blvd.
Reston, Virginia 20191-5416
(703) 758-6000
By order of the Board of Directors,
Randy S. Segal
Senior Vice President and Secretary
Reston, Virginia
August 6, 1999
25
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Appendix A
[Letterhead of Bear, Stearns & Co. Inc.]
As of June 7, 1999
Board of Directors
American Mobile Satellite Corporation
10802 Parkridge Boulevard
Reston, VA 20191-5416
Attention: Gary Parsons, Chairman
Gentlemen:
We understand that, as more fully described in the June 5, 1999 draft Exchange
Agreement (the "Exchange Agreement") by and among American Mobile Satellite
Corporation ("American Mobile"), WorldSpace, Inc. ("WorldSpace") and XM
Satellite Radio Holdings Inc. ("XM Radio"), American Mobile intends to issue
shares of common stock, par value $.01 per share, of American Mobile ("American
Mobile Common Stock") to XM Ventures, a trust to be established by WorldSpace
for the benefit of WorldSpace and/or the stockholders of WorldSpace (the
"Trust"), in exchange for the XM Interest (as defined in and more fully
described in the Exchange Agreement) (the "Purchase"). In consideration of
American Mobile's receipt of the XM Interest, American Mobile would issue the
First Transfer (as defined in the Exchange Agreement) at the Closing (as defined
in the Exchange Agreement) and agree to issue the Second Transfer (as defined in
the Exchange Agreement) only after satisfaction of the AMSC Stockholder Approval
(as defined in the Exchange Agreement). The aggregate number of shares of
American Mobile Common Stock issuable by American Mobile in the First Transfer
and the Second Transfer would be 8,614,244. Prior to the Closing, WorldSpace
would transfer to the Trust all of WorldSpace's right, title and interest in and
to the XM Interest. After the Closing, neither WorldSpace nor the Trust would
have any ownership interest in XM Radio.
We further understand that at the Closing, XM Radio would recapitalize (the
"Recapitalization") its common stock into two classes - Class A Common Stock,
having one vote per share (none of which would be outstanding) and Class B
Common Stock, having three votes per share (the "XM Radio Class B Stock"). The
shares of XM Radio common stock that American Mobile currently holds and the
shares of XM Radio common stock that American Mobile would acquire in the
Purchase as part of the XM Interest would be recapitalized into shares of XM
Radio Class B Stock in the Recapitalization and no other shares of XM Radio
Class B Stock would be outstanding. As part of the Recapitalization, pursuant to
the terms of the Exchange Agreement, American Mobile would return the XM
Interest to XM Radio for cancellation and XM Radio would issue to American
Mobile a note (the "XM Radio Class B Note") convertible into approximately 174
shares of XM Radio Class B Stock (the "Exchange"). The XM Interest to be
received by American Mobile in the Purchase (as immediately exchanged for the XM
Radio Class B Note in the Exchange) and the shares of XM Radio Class B Stock to
be received by American Mobile in exchange for its shares of XM Radio common
stock in the Recapitalization are referred to herein collectively as the
"Consideration" to be received by American Mobile.
<PAGE>
We further understand that, as more fully described in the June 5, 1999 draft
Summary of Principal Terms and Conditions, Proposed Issuance of Subordinated
Convertible Notes (the "Summary of Principal Terms") and the June 6, 1999 draft
Note Purchase Agreement by and between XM Radio and the investors named therein
(the "Note Purchase Agreement"), XM Radio would issue at the Closing in a
private placement (the "Private Placement") an aggregate of $250 million of
Series A Subordinated Convertible Notes to General Motors Corporation, DIRECTV
(a subsidiary of Hughes Electronics), Columbia Capital, Madison Dearborn, Telcom
Ventures and Clear Channel Communications.
Finally, we further understand that, as more fully described in the Exchange
Agreement, at the Closing, XM Radio would redeem the Retained XM Interest (as
defined in the Exchange Agreement) and pay WorldSpace $75 million in cash (the
"Redemption"). The Purchase, Recapitalization, Private Placement and Redemption
are contingent on each other and would close concurrently; such transactions are
referred to herein collectively as the "Transaction."
You have asked us to render our opinion as to whether the Consideration to be
received by American Mobile in exchange for American Mobile's issuance of
American Mobile Common Stock to the Trust in the Transaction is fair, as a
whole, from a financial point of view, to the unaffiliated public stockholders
of American Mobile. In that connection, we are not opining as to any other
transactions or arrangements to be entered into or payments to be made, directly
or indirectly, by or to American Mobile or any other person as part of, or
concurrently with, the Transaction.
In the course of our analyses for rendering this opinion, we have:
1. reviewed the June 5, 1999 draft Exchange Agreement;
2. reviewed the June 5, 1999 draft Summary of Principal Terms;
3. reviewed the June 6, 1999 draft Note Purchase Agreement;
4. reviewed the June 4, 1999 draft Amendment No. 1 to the Bridge,
Additional Amounts and Working Capital Loans;
5. reviewed American Mobile's Annual Reports to Shareholders and
Annual Reports on Form 10-K for the fiscal years ended December
31, 1996 through 1998, and its Quarterly Report on Form 10-Q for
the period ended March 31, 1999;
6. reviewed certain operating and financial information, including
projections, provided to us by management of American Mobile and
XM Radio relating to American Mobile's and XM Radio's respective
businesses and prospects;
7. met with certain members of the senior managements of American
Mobile and XM Radio to discuss the respective operations,
historical financial statements and future prospects of American
Mobile and XM Radio;
8. reviewed the historical prices and trading volume of the American
Mobile Common Stock;
9. reviewed publicly available financial data, stock market
performance data and valuation parameters of a company which we
deemed generally comparable to XM Radio;
2
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10. reviewed the terms of a recent transaction involving the issuance
of a note convertible into shares of XM Radio common stock; and
11. conducted such other studies, analyses, inquiries and
investigations as we deemed appropriate.
In the course of our review, we have relied upon and assumed, without
independent verification, the accuracy and completeness of the financial and
other information, including without limitation the projections, provided to us
by American Mobile and XM Radio. With respect to American Mobile and XM Radio's
projected financial results, we have assumed that they have been reasonably
prepared on bases reflecting the best currently available estimates and
judgments of the senior managements of American Mobile and XM Radio as to the
expected future performance of American Mobile and XM Radio, respectively. We
have not assumed any responsibility for the independent verification of any such
information or of the projections provided to us and we have further relied upon
the assurances of the senior managements of American Mobile and XM Radio that
they are unaware of any facts that would make the information or projections
provided to us incomplete or misleading. In arriving at our opinion, we have not
conducted a physical inspection of any of the properties or assets, and have not
performed or obtained any independent appraisal of the assets or liabilities, of
American Mobile and XM Radio, nor have we been furnished with any such
appraisals. Our opinion is necessarily based on economic, market and other
conditions, and the information made available to us, as of the date hereof.
Accordingly, although subsequent developments may affect this opinion, we do not
have any obligation to update, revise or reaffirm this opinion. In rendering our
opinion, we have assumed that the Transaction will be consummated on
substantially the terms described in the Exchange Agreement and related
documents that we reviewed.
We have been engaged by American Mobile to render this fairness opinion to
American Mobile in connection with the Transaction and have received a fee for
such services. Bear Stearns has been previously engaged by American Mobile to
provide certain investment banking and financial advisory services in connection
with American Mobile's acquisition of ARDIS Company in 1998 and to act as lead
manager on an offering of senior notes and warrants in 1998. In the ordinary
course of business, Bear Stearns may actively trade the equity securities of
American Mobile for its own account and for the account of its customers and,
accordingly, may at any time hold a long or short position in such securities.
Bear Stearns has also acted as exclusive joint placement agent on the Private
Placement and will receive a fee from XM Radio for such services. American
Mobile and XM Radio have expressly waived any actual or potential conflicts of
interest that might arise in connection with Bear Stearns' engagement by
American Mobile to render this opinion, on the one hand, and its engagement by
XM Radio to act as exclusive joint placement agent in the Private Placement, on
the other hand.
It is understood that this letter is intended for the sole benefit and use of
the Board of Directors of American Mobile and does not constitute a
recommendation to the Board of Directors of American Mobile or any holders of
American Mobile Common Stock as to how to vote in connection with the
Transaction. This opinion does not address American Mobile's underlying business
decision to pursue the Transaction. This letter is not to be relied upon or used
for any other purpose, or reproduced, disseminated, quoted to or referred to at
any time, in whole or in part, without our prior written consent; provided,
however, that this letter may be included in its entirety in any proxy statement
or other document to be distributed to the holders of American Mobile Common
Stock in connection with the Transaction.
3
<PAGE>
Based on and subject to the foregoing, it is our opinion that the Consideration
to be received by American Mobile in exchange for American Mobile's issuance of
American Mobile Common Stock to the Trust in the Transaction is fair, as a
whole, from a financial point of view, to the unaffiliated public stockholders
of American Mobile.
Very truly yours,
BEAR, STEARNS & CO. INC.
By: /s/Scott Moskowitz
SENIOR MANAGING DIRECTOR
4
<PAGE>
This Proxy is Solicited By The Board of Directors of the Company
AMERICAN MOBILE SATELLITE CORPORATION
PROXY FOR SPECIAL MEETING OF STOCKHOLDERS
September 7, 1999
The undersigned hereby constitutes and appoints Walter V. Purnell, Jr., Randy S.
Segal and David H. Engvall and each of them, true and lawful agents and proxies
("Proxies"), with full power of substitution and revocation in each, to attend
the Special Meeting of Stockholders of American Mobile Satellite Corporation to
be held at 9:00 a.m. on Tuesday, September 7, 1999 at American Mobile Satellite
Corporation, 10802 Parkridge Boulevard, Reston, Virginia, and any adjournments
thereof, and thereat to vote all shares of Common Stock which the undersigned
would be entitled to vote if personally present (i) as designated upon the
matters set forth on the reverse side, and (ii) in their discretion, on such
other business as may properly come before the meeting.
This proxy when properly executed will be voted in the manner directed herein by
the undersigned stockholder.
You are encouraged to specify your choices by marking the appropriate boxes, SEE
REVERSE SIDE.
<PAGE>
(REVERSE SIDE)
1. Issuance of shares of the Company's FOR AGAINST ABSTAIN
Common Stock to XM Ventures. |_| |_| |_|
2. Amendment to the Company's FOR AGAINST ABSTAIN
Certificate of Incorporation to |_| |_| |_|
increase the number of shares
of Common Stock authorized for
issuance to 150,000,000.
CHANGE OF |_|
ADDRESS
INSTRUCTIONS:
1. Please sign exactly as name is printed hereon.
2. If shares are held jointly, each holder should sign.
3. If signing as executor or trustee or in similar fiduciary capacity, please
give full title as such.
4. If a corporation, please sign full corporate name by President or other
authorized officer.
5. If a partnership, please sign partners name by authorized person.
SIGNATURE(S) DATE
<PAGE>
