AMERICAN MOBILE SATELLITE CORP, S-3, 1999-06-24

AMERICAN MOBILE SATELLITE CORP
S-3, 1999-06-24
COMMUNICATIONS SERVICES, NEC

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<PAGE> 1

AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 24, 1999.

REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------

FORM S-3

REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------

AMERICAN MOBILE SATELLITE

CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

<TABLE>
<S> <C>
DELAWARE 93-0976127
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYEE IDENTIFICATION NUMBER)
INCORPORATION OR ORGANIZATION)
</TABLE>

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)
------------------------

RANDY S. SEGAL
SENIOR VICE PRESIDENT, GENERAL
COUNSEL AND SECRETARY
AMERICAN MOBILE SATELLITE CORPORATION
10802 PARKRIDGE BOULEVARD
RESTON, VIRGINIA 20191-5416
(703) 758-6000
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
------------------------

<TABLE>
<S> <C>
COPIES TO:
ROBERT H. WINTER GREGORY A. EZRING
ARNOLD & PORTER LATHAM & WATKINS
555 12TH STREET, N.W. 885 THIRD AVENUE
WASHINGTON, DC 20004-1202 NEW YORK, NY 10022
(202)942-5000 (212)906-1200
</TABLE>

------------------------

APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [ ]
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933 (as defined below), other than securities offered only in connection with
dividend or interest reinvestment plans, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
---------------
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
---------------
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
------------------------

CALCULATION OF REGISTRATION FEE

<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------------
PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT BEING OFFERING PRICE AGGREGATE OFFERING AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED(1) PER SHARE(2) PRICE(2) REGISTRATION FEE
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, $0.01 par value per
share.......................... 8,050,000 $17.969 $144,650,450 $40,213
- ---------------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>

(1) Includes 1,050,000 shares that may be purchased to cover over-allotments.
(2) Estimated in accordance with Rule 457 under the Securities Act solely for
the purpose of computing the amount of the registration fee.
------------------------

THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME EFFECTIVE
ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(a), MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2

THE INFORMATION IN THIS PRELIMINARY PROSPECTUS IS NOT COMPLETE AND MAY BE
CHANGED. THESE SECURITIES MAY NOT BE SOLD NOR MAY ANY OFFERS TO BUY BE ACCEPTED
PRIOR TO THE TIME THIS PROSPECTUS IS DELIVERED IN FINAL FORM. THIS PRELIMINARY
PROSPECTUS IS NOT AN OFFER TO SELL THESE SECURITIES AND IT IS NOT A SOLICITATION
OF AN OFFER TO BUY THESE SECURITIES IN ANY JURISDICTION WHERE SUCH OFFER OR SALE
IS NOT PERMITTED.

SUBJECT TO COMPLETION, DATED JUNE 24, 1999

PRELIMINARY PROSPECTUS
7,000,000 SHARES
[LOGO]

AMERICAN MOBILE
SATELLITE CORPORATION

COMMON STOCK
-------------------------

We are offering for sale 7,000,000 shares of common stock of American Mobile
Satellite Corporation. All of such shares of common stock are being offered by
American Mobile.

Our common stock is listed on the Nasdaq Stock Market's National Market under
the symbol "SKYC." On June 23, 1999, the last reported sale price of our common
stock on the Nasdaq National Market was $18.00 per share.

SEE "RISK FACTORS" BEGINNING ON PAGE 9 OF THIS PROSPECTUS TO READ ABOUT CERTAIN
RISKS THAT YOU SHOULD CONSIDER BEFORE BUYING SHARES OF OUR COMMON STOCK.

-------------------------

NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY OTHER REGULATORY BODY HAS
APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE ADEQUACY OR
ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
-------------------------

<TABLE>
<S> <C> <C>
PER
SHARE TOTAL
---------------------- ----------------------
Public offering price....................................... $ $
Underwriting discounts...................................... $ $
Proceeds, before expenses, to us............................ $ $
</TABLE>

-------------------------

The underwriters may, under certain circumstances, purchase up to an additional
1,050,000 shares of common stock of American Mobile from Motorola, Inc. at the
public offering price less the underwriting discount. We will not receive any of
the proceeds from any shares of common stock sold by Motorola.

The underwriters are severally underwriting the shares being offered. The
underwriters expect to deliver the shares against payment in New York, New York
on , 1999.
-------------------------

BEAR, STEARNS & CO. INC.
CREDIT SUISSE FIRST BOSTON
DEUTSCHE BANC ALEX. BROWN
SOUNDVIEW TECHNOLOGY GROUP
The date of this prospectus is , 1999.
<PAGE> 3

PROSPECTUS SUMMARY

This summary contains basic information about us and this offering. Because
it is a summary, it does not contain all the information you should consider
before investing in the common stock. Please read the entire prospectus
carefully, including the section entitled "Risk Factors" and our financial
statements and the related notes to those statements, included in this
prospectus. Unless stated otherwise, all information in this prospectus assumes
no exercise of the underwriters' over-allotment option. This prospectus contains
certain statistical data about our industry and the markets in which we operate
that comes from information published by The Strategis Group. Certain additional
market research data that is not published was provided to us by Strategis.
Although we believe that data from Strategis is generally reliable, this type of
data is inherently imprecise. We caution you not to place undue reliance on this
data.

OUR BUSINESS

We are a nationwide provider of wireless two-way data, dispatch and voice
communications services that enable businesses and mobile workers to manage,
access, and transfer electronic information. We have developed a versatile array
of products and services targeted at customers in four primary market segments:
(1) transportation and package delivery, (2) field service, (3) wireless email
and other Internet-based content services, and (4) telemetry, which refers to
device to device communications for database access or remote monitoring.
Customers use our products and services to connect their remote and mobile
equipment and people to their enterprise systems. We deliver our services
through our own wireless network that uniquely integrates separate terrestrial
and satellite components. Our customers typically sign multi-year contracts for
applications on our network such as:

- messaging and call dispatch systems used by large transportation
companies and field service organizations,

- two-way wireless email services that provide mobile professionals with
integrated wireless access to a broad range of corporate and Internet
email applications,

- telemetry and point-of-sale systems that connect remote equipment, such
as utility meters or wireless point-of-sale terminals, with a central
monitoring facility,

- global position tracking systems that permit businesses to manage mobile
assets, and

- point-to-multi-point voice communications systems used by natural
resource companies, utilities, government agencies and other entities
with mobile fleets and field workers.

We offer customers the nation's largest, most fully-deployed terrestrial
wireless two-way data network, comprising approximately 1,700 base stations that
provide service to 427 of the largest cities and towns in the United States,
including virtually all metropolitan areas. We believe that our network's
extensive nationwide coverage and deep in-building penetration are key
competitive advantages, providing customers with full two-way messaging
capability and guaranteed message delivery through a single service provider
with nationwide scope. Our satellite in geosynchronous orbit overlays our
terrestrial network, thereby extending the service area coverage of our network
throughout all 50 states and the Caribbean. The satellite also provides
nationwide voice and dispatch services.

As of March 31, 1999 we had approximately 113,000 units on our network, of
which 99,600 were data units and 13,400 were voice units. On a pro forma basis
giving effect to our acquisition of ARDIS Company in March 1998, our total
subscribers grew by 30% during 1998 and 7% during the first quarter of 1999. In
addition, we reduced our EBITDA loss from ($56.9) million in 1997 to ($36.9)
million in 1998, on a pro forma basis for the ARDIS acquisition.
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<PAGE> 4

Our objective is to deliver cost-effective, value-added wireless
communications services to end users in targeted market segments. We believe
this focused customer-oriented approach will maximize the number of our
subscribers and revenue, which will allow us to generate the greatest returns
for our stockholders. To meet this objective we intend to:

- continue to offer business customers a broad range of nationwide wireless
solutions;

- access new market segments with significant growth potential, such as
wireless email services and telemetry, where we believe our products
provide a compelling value-added service;

- develop new third party distribution channels;

- enhance market penetration by lowering customers' "total cost of
ownership"; and

- capitalize on the technological advantages of our nationwide data
network.

We believe that we are well positioned to capitalize on the substantial and
growing market for wireless data services, which The Strategis Group estimates
is composed of approximately 32.3 million addressable mobile workers with
significant wireless communication and data access needs. Strategis further
estimates that approximately 9.7 million of these workers will use some form of
mobile data service by 2002, and that approximately 2.8 million workers
currently use some form of mobile data service, primarily analog cellular-based
service. We believe that growth in this market is being driven by the widespread
acceptance of wireless voice services, and the need for mobility in many market
segments. We also believe that growth is being driven by development of more
compact, less expensive user devices, and an increasing requirement for
"real-time" wireless communications between companies, as well as between their
mobile workers, customers and vendors. The Internet has contributed to this
growth by expanding the ability to communicate across a common technology
platform. In addition, there is a large and growing market for wireless
telemetry applications such as utility meter reading, premises alarm monitoring
and point-of-sale credit and debit card transaction processing. Strategis
estimates that there are approximately 96.0 million control and data collection
points that may be addressable by wireless data communication services.

We have been and will continue to be focused on serving the needs of two
established markets -- transportation and field service -- through both existing
products and the development of new products. Transportation and package
delivery customers such as United Parcel Service, Cannon Express and
Southeastern Freight Lines typically use our nationwide data network to meet the
data communications and location positioning requirements which result from
customer demand, regulatory initiatives and just-in-time inventory requirements.
Field service customers such as IBM, NCR, Pitney Bowes and Sears use data
applications such as service call dispatch, asset tracking and peer-to-peer
communications to achieve critical business objectives that result in increased
productivity, profitability and customer satisfaction. Other customers such as
AT&T Network Services, MCI WorldCom and The Williams Companies use our voice
dispatch service to provide their field service organizations with nationwide
point-to-multipoint communication via push-to-talk handsets.

expand our presence in the wireless telemetry market where we have developed a
core customer base that includes companies such as ABB Information Systems and
Ameritech SecurityLink. Telemetry customers use our network to create
efficiencies in a number of critical data applications such as automated meter
reading, business alarm monitoring, oil and gas wellhead and pipeline
monitoring, vending machine monitoring and point-of-sale transactions.

We distribute our services through our internal sales force, as well as
through the broader distribution resources of value added resellers, such as
paging companies. Through our resale arrangements with companies that have large
existing customer bases, we are able to address significantly more potential
customers than we would be able to address on our own. For example, we have
signed a five-year agreement with SkyTel Corp. to market our eLink wireless
email service to its customers through its sales force of over 450 trained sales
representatives and SkyTel's resale partners, and to integrate SkyTel's content
service offerings into the eLink service for its customers. We are currently in
discussions with a number of other large potential distribution partners for our
eLink service. We have also entered into a number of distribution agreements
with resellers for our telemetry products in order to penetrate specific markets
where such resellers have a significant market presence and substantial sales
and marketing resources. For example, we have entered into an agreement with ABB
Information Systems, under which ABB markets our wireless telemetry product to
utility companies, so that utilities can collect data from remote utility
meters. We will continue to seek additional third party distribution channels
with companies that provide access to large customer bases that we wish to
target.

OUR INVESTMENT IN XM RADIO

In addition to our core wireless business, we have an investment in XM
Satellite Radio Holdings Inc., a development stage company. XM Radio is seeking
to become a nationwide provider of digital quality audio entertainment and
information programming transmitted directly by satellites to 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.

On June 7, 1999, we entered into an agreement with WorldSpace, Inc. to
acquire its debt and equity interests in XM Radio, other than a $75 million loan
from WorldSpace to XM Radio, in exchange for approximately 8.6 million shares of
our common stock. After this transaction closes, WorldSpace will not own any
direct equity or debt interest in XM Radio. Concurrently with this transaction,
XM Radio committed to issue $250 million of subordinated convertible notes to
several new strategic and financial investors, including General Motors
Corporation, Clear Channel Communications, Inc., DIRECTV ENTERPRISES, Inc.,
Telcom Ventures, L.L.C., Columbia Capital and Madison Dearborn Partners. XM
Radio will use $75 million of the proceeds from such notes to repay the
outstanding loan payable to WorldSpace. Following these transactions, we will
own all of the issued and outstanding stock of XM Radio. However, on a fully
diluted basis assuming a subsequent conversion of all outstanding convertible
notes of XM Radio into XM Radio voting stock, we would own approximately 37% of
the economic interest in XM Radio. For more information about these
transactions, please see the discussion under the caption "The XM Radio
Transactions."

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,
including recent commitments from several strategic and financial
investors;
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- 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 Space and Communications International, Inc. for
delivery and launch of two high-powered satellites;

- Agreement with STMicroelectronics SrL, a leading digital audio chipset
manufacturer, for the design and production of chipsets for XM Radio
receivers;

- Contracts with Alpine Electronics, Inc., Pioneer Electronic Corporation,
SHARP Corporation and Delco Electronics Corporation 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.

RECENT DEVELOPMENTS

ANNOUNCEMENT OF ELINK WIRELESS SERVICE

On May 4, 1999, we announced our eLink wireless email service, a two-way
wireless data messaging solution that will provide mobile professionals with
integrated wireless access to a broad range of corporate and Internet email, and
personal information manager applications such as calendar, task list and
address book functions. The eLink service is the second generation of a two-way
messaging and email product that we have offered to business customers since
1997. The service will operate on our nationwide terrestrial network, and will
be launched using a palm-sized messaging device manufactured by Research in
Motion, Limited, the RIM 850. The eLink service is designed to enable users to
stay connected via email virtually everywhere they travel in the United States,
permitting them to receive and send messages and access other data applications
and content services. Coupled with a desktop cradle for in-office
synchronization with Microsoft Outlook(TM), Lotus Notes(TM), and other popular
enterprise products, the device features a rechargeable battery option and large
internal memory. Users will be able to select from two eLink services, eLink
AgentSM, which enables users to create an integrated wireless/corporate or
Internet emailbox using their existing email system, or eLink MessengerSM, which
provides a stand-alone wireless emailbox. We currently expect to launch our
eLink service during the third quarter of 1999.

STRATEGIC ALLIANCE WITH SKYTEL

On April 7, 1999, we announced a strategic alliance with SkyTel. On May 4,
1999, SkyTel announced that it will feature the eLink wireless service as one of
its five "core" wireless messaging solutions. SkyTel will market the eLink
service to its customers through its sales force of over 450 trained sales
representatives and through its resale partners. We will also market the eLink
service through our own direct sales force and through a new dedicated site on
the World Wide Web. SkyTel has also agreed to work with us to more closely
connect our network with the SkyTel network and to make SkyTel's considerable
content service offerings (including, for example, stock quotations and airline
flight information) available to those eLink subscribers obtained through
SkyTel. Our agreement with SkyTel has a five year term.

ROLLOUT OF UPS CONTRACT

We have a multi-year agreement with UPS, under which UPS will use our
terrestrial network for wireless communications for its third generation package
tracking device. Following development
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and testing of a new custom wireless device by Motorola, UPS has taken delivery
of several thousand units from Motorola, and on June 14, 1999, we and UPS
jointly announced the rollout of units under the contract and UPS began using
its third generation package tracking device in 13 metropolitan areas, including
New York, Chicago, San Francisco and Boston. The contract calls for us to
provide wireless communications services for approximately 50,000 UPS units by
the end of 2001. This contract represents the largest implementation of a
wireless data service using our terrestrial network.
-------------------------

Our principal executive offices are located at 10802 Parkridge Boulevard,
Reston, Virginia 20191-5416, and our telephone number is (703) 758-6000. We also
maintain an Internet site on the World Wide Web at www.ammobile.com. Information
contained at our web site is not, and should not be deemed to be, a part of this
prospectus.
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THE OFFERING

Common stock offered.......... 7,000,000 shares(1)

Common stock to be outstanding
after the offering............ 39,549,365 shares(2)

Use of proceeds............... Our net proceeds from the offering are
estimated to be approximately $117.7 million,
based on an assumed public offering price of
$18.00 per share after deducting the
underwriting discount and estimated offering
expenses. We will use 50% of the net proceeds
from the offering to fund expansion of our core
wireless business, principally in new markets
such as wireless email service and wireless
telemetry, as well as for working capital and
other general corporate purposes. Pending such
use of proceeds, we will use them to pay down a
portion of the outstanding balance under our
revolving credit facility, which we will be
able to reborrow when needed. The remaining 50%
of the net proceeds from the offering will be
used to pay down a portion of the outstanding
balance under our term loan facility, as
required by the terms of the loan. As of May
31, 1999, there was $100.0 million in principal
amount outstanding under the term loan
facility. We do not intend to use any of the
proceeds from this offering to fund the
development of XM Radio's business. See "How We
Intend to Use the Proceeds from the Offering."

Nasdaq National Market
Symbol........................ SKYC
- -------------------------
(1) Excludes a 30-day option granted to the underwriters by Motorola, Inc. to
purchase up to 1,050,000 additional shares of our common stock to cover
over-allotments, if any. We will not receive any of the proceeds from any
shares of common stock sold by Motorola. See "Underwriting."

(2) Does not include shares which may be issued upon exercise of the following
outstanding options and warrants as of June 15, 1999: (a) options to
purchase 3,711,419 shares of common stock at a weighted average exercise
price of $8.96 per share and (b) warrants to purchase 7,821,259 shares of
common stock at exercise prices ranging from $7.50 per share to $12.51 per
share. Also excludes 8,614,244 shares to be issued to XM Ventures, as
described under the caption "The XM Radio Transactions."
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SUMMARY CONSOLIDATED FINANCIAL AND OTHER DATA

You should read the following data together with the Consolidated Financial
Statements and related notes, "Management's Discussion and Analysis of Financial
Condition and Results of Operations," Pro Forma Financial Information, and other
financial information included elsewhere in this prospectus.
<TABLE>
<CAPTION>

YEARS ENDED DECEMBER 31,
--------------------------------------------------------------------
1998
1998 (PRO FORMA AS
1996 1997 1998 (PRO FORMA)(1) ADJUSTED)(1)(2)
--------- --------- --------- -------------- ---------------
(UNAUDITED) (UNAUDITED)
(IN THOUSANDS, EXCEPT SUBSCRIBER AND REVENUE PER UNIT)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Services.................. $ 9,201 $ 20,684 $ 57,994 $ 67,396 $ 67,396
Equipment................. 18,529 23,530 29,227 29,757 29,757
--------- --------- --------- --------- ---------
Total revenue........... 27,730 44,214 87,221 97,153 97,153

Operating loss.............. (120,039) (97,395) (88,207) (93,373) (112,340)
Net loss.................... (134,638) (119,207) (137,948) (151,555) (179,926)

OTHER FINANCIAL AND OPERATING DATA:
Number of subscribers (end
of period)................ 20,300 32,400 105,700 105,700 105,700
Average monthly service
revenue per unit.......... $ 81 $ 65 $ 70 $ 60 $ 60
EBITDA(3)................... (76,649) (54,090) (35,500) (36,854) (53,047)
Depreciation and
amortization.............. 43,390 42,430 52,707 56,519 59,293
Capital expenditures........ 14,054 8,598 12,470 13,787 57,699

<CAPTION>
THREE MONTHS
ENDED MARCH 31,
----------------------------------
1999
(PRO
1998 1999 FORMA)(2)
-------- ----------- ---------
(UNAUDITED)
(IN THOUSANDS, EXCEPT SUBSCRIBER AND REVENUE PER UNIT)
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA
Revenues:
Services................... $ 6,418 $ 16,164 $ 16,164
Equipment.................. 3,604 4,066 4,066
-------- -------- --------
Total revenue............ 10,022 20,230 20,230
Operating loss............... (18,403) (25,458) (30,573)
Net loss..................... (25,242) (39,649) (45,327)

OTHER FINANCIAL AND OPERATING
DATA:
Number of subscribers (end
of period)................. 34,800 113,000 113,000
Average monthly service
revenue per unit........... $ 64 $ 49 $ 49
EBITDA(3).................... (8,240) (11,686) (16,107)
Depreciation and
amortization............... 10,163 13,772 14,466
Capital expenditures......... 1,126 2,541 53,173
</TABLE>

<TABLE>
<CAPTION>
AS OF MARCH 31, 1999
--------------------------------------------
AS ADJUSTED FOR PRO FORMA
ACTUAL THE OFFERING(4) AS ADJUSTED(2)
-------- --------------- --------------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................................... $ 8,131 $ 14,720(7) $181,912
Restricted investments(5)................................... 109,661 109,661 109,661
Property and equipment, net................................. 239,017 239,017 459,070
Total assets................................................ 508,598 505,492 924,763
Total debt(6)............................................... 526,227 408,568 658,648
Total stockholders' (deficit) equity........................ (61,858) 52,695 165,798
</TABLE>

- -------------------------

(1) The summary financial data in this column has been adjusted to give effect
to (a) our acquisition of ARDIS Company on March 31, 1998 for $50 million in
cash and $50 million in shares of our common stock, (b) our issuance on
March 31, 1998 of $335 million of aggregate principal amount of 12 1/4%
Senior Notes due 2008 and related warrants to purchase shares of our common
stock, and (c) the $100 million term loan facility and $100 million
revolving credit facility we entered into on March 31, 1998, as if all of
such transactions had been consummated on January 1, 1998. Such data is
presented for illustrative purposes only and is not necessarily indicative
of what our actual financial position or results of operations would have
been had the transactions referred to above been consummated as of January
1, 1998, or of the financial position or results of operations that we may
report in the future.

(2) The summary financial data in this column gives pro forma effect to (a) the
XM Radio Transactions, including the issuance of approximately 8.6 million
shares of our common stock to XM Ventures in exchange for all of
WorldSpace's remaining debt and equity interests in XM Radio, the issuance
by XM Radio of $250 million aggregate principal amount of subordinated
convertible notes, XM Radio's repayment of a $75 million loan to WorldSpace,
and the consolidation of XM Radio, and (b) our sale of 7.0 million shares of
common stock in this
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offering at an assumed public offering price of $18.00 per share, net of
underwriting discounts and estimated offering expenses, and the application
of the net proceeds of the offering as described under "How We Intend to Use
the Proceeds From the Offering," as if all of such transactions had been
consummated on January 1 of the period presented in the case of the
statement of operations data, and on March 31, 1999 in the case of the
balance sheet data. The pro forma summary data is presented for illustrative
purposes only and is not necessarily indicative of what our actual results
of operations or financial condition would have been had the transactions
referred to above been consummated as of the dates referred to above, or of
the results of operations or financial condition that we may report in the
future.

(3) EBITDA consists of operating loss before interest expense, taxation,
depreciation and amortization. EBITDA is a financial measure commonly used
in our industry and should not be construed as an alternative to operating
loss (as determined in accordance with GAAP) or as a measure of liquidity.
EBITDA does not represent funds available for dividends, reinvestment or
other discretionary activities.

(4) Gives effect to our sale of 7.0 million shares of common stock in this
offering at an assumed public offering price of $18.00 per share, net of
underwriting discounts and estimated offering expenses, and the application
of the net proceeds of the offering as described under "How We Intend to Use
the Proceeds From the Offering," as if all of such transactions had been
consummated on March 31, 1999.

(5) Consists of $96.8 million of pledged securities securing our obligations
under our Senior Notes due 2008, $10.0 million escrowed to fulfill potential
indemnification obligations to Motorola in connection with Motorola's
performance guarantee under our contract with UPS, and $2.9 million of
other.

(6) Net of discount of approximately $7.6 million allocated to the warrants
issued in connection with the Senior Notes due 2008.

(7) Reflects amount anticipated to be received upon termination of a portion of
an interest rate swap in connection with the repayment of amounts under the
term loan facility with the proceeds of this offering.
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RISK FACTORS

You should carefully consider the risks described below before making an
investment decision. The risks and uncertainties described below are not the
only ones we face. Additional risks and uncertainties, of which we are unaware
or that we currently think are immaterial, may also impair our business
operations. If any of the following risks actually occur, our business,
financial condition or results of operations could be materially adversely
affected. In such case, the trading price of our common stock could decline, and
you may lose all or part of your investment.

This prospectus contains and incorporates 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 in
this section of this prospectus.

In addition to the risks described below which relate to our core wireless
business and our company generally, there are significant risks associated with
our investment in XM Radio. We describe these risks separately under the caption
"XM Radio's business involves significant risks and these risks may impair the
value of our investment in XM Radio."

WE HAVE SUBSTANTIAL AND CONTINUING OPERATING LOSSES

We have incurred significant operating losses and negative cash flows in
each year since we began operations. These losses are due primarily to start-up
costs, the costs of developing and building our satellite and terrestrial
networks and the cost of developing, selling and providing our products and
services. For the year ended December 31, 1998, on a pro forma basis for the
ARDIS acquisition, we reported operating losses of approximately $93.4 million,
and for the quarter ended March 31, 1999, we reported operating losses of
approximately $25.5 million. For historical periods prior to our acquisition of
ARDIS, we reported operating losses of approximately $97.4 million and $120.0
million in 1997 and 1996, respectively. During these same periods, ARDIS
reported operating losses of approximately $17.4 million and $29.2 million. In
addition, XM Radio incurred aggregate net losses of approximately $1.7 million
from its inception through December 31, 1997, and an additional $20.5 million in
the 15-month period ended March 31, 1999. We expect XM Radio's net losses and
negative cash flow to continue. See the discussion under "Risk Factors -- XM
Radio has made significant expenditures and incurred significant losses to date
and this is expected to continue." We expect to continue to make significant
capital outlays to fund interest expense, capital expenditures and working
capital before we begin to generate positive cash flow from operations. These
outlays are expected to continue for the foreseeable future. We expect to have
significant operating losses and will record significant net cash outflow in the
near term. We believe that the net proceeds from this offering, together with
existing available borrowings, will be sufficient to fund operating losses,
capital expenditures, working capital, and scheduled principal and interest
payments on debt through the time when we expect to generate positive free cash
flow. However, we cannot guarantee that we will have sufficient resources to
complete the expenditures required to operate our business or to achieve
positive free cash flow within the time frame contemplated by our current
projections.

Since our inception, we have been engaged in developing our business,
recruiting key management and technical personnel, raising capital to fund our
operations, and developing our network. We have introduced a variety of new
products and services, some of which have not

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achieved widespread market acceptance. We expect to continue to launch new
products and services, some of which will be introduced in new market segments,
in order to capitalize on emerging trends in our industry. The launch of such
new products or the entry into new market segments may require us to spend
additional capital, which could cause us to continue to incur significant
operating losses. Our ability to generate positive free cash flow will depend
upon, among other factors, the successful marketing of our services, including
new services such as the eLink wireless two-way messaging service we recently
announced. We cannot guarantee that these efforts will be successful.

OUR EXTENSION INTO NEW WIRELESS MARKETS INVOLVES RISKS

We recently announced our new eLink wireless email service, which uses a
palm-sized device that combines two-way wireless email and personal information
management software. We believe that this service may represent an important
growth opportunity for us. However, the market for this type of service is
relatively untested and, therefore, there is a risk that demand for this service
will not increase as rapidly as we hope. The failure of this service to gain
market acceptance in a timely manner or at all or the failure to achieve
significant market penetration could harm our business. Our new eLink service is
expected to compete initially with one major competitor, which has already
launched its service. While we believe our eLink service has several competitive
advantages over existing competitive services, our competitors may have
substantially greater financial, technical, marketing, sales, distribution and
other resources than ours. Also, the eLink service represents an effort to
target individual customers and small groups in corporations, as well as the
larger business customers which presently represent the overwhelming majority of
our business. We intend to reach such customers primarily through resellers such
as SkyTel. This distribution strategy makes us substantially dependent on the
efforts of such resellers, and if such resellers fail to adequately promote our
service or otherwise perform their obligations to us, sales of the eLink service
may be less than expected. In addition, we have spent, and expect to continue to
spend, significant operating expenses and capital expenditures on the
development, testing, marketing, and distribution of the eLink service, and we
are contractually committed to purchase up to $26.2 million of the eLink device
from the manufacturer, following successful product certification, including FCC
approval. If the service does not achieve acceptable levels of market
acceptance, these expenditures and commitments could depress our operating
results. If the service does achieve market acceptance, its success will depend,
in part, on our ability to maintain an adequate supply of devices for
subscribers, which are supplied by a third party vendor over whom we have no
control. The success of the eLink service will also depend on our ability to
continue to use, promote and protect the eLink service name and the other
intellectual property associated with the service.

WE HAVE SUBSTANTIAL INDEBTEDNESS, WHICH MAY MAKE OUR BUSINESS MORE VULNERABLE

As of March 31, 1999, our total indebtedness was approximately $533.9
million, and $526.2 million net of debt discount. On a pro forma basis for the
XM Transactions, this offering and our application of the net proceeds of this
offering, our total indebtedness was approximately $666.3 million, and $658.6
million net of debt discount (including $250.0 million of indebtedness of XM
Radio in the form of convertible notes). As of March 31, 1999, we had $41.0
million available under our revolving credit facility and $5.1 million available
under an equipment financing facility from Motorola. On a pro forma basis for
the XM Transactions, this offering and our application of the net proceeds of
this offering, as of March 31, 1999, we had $99.8 million available under our
revolving credit facility and $5.1 million available under the Motorola
facility. On a pro forma basis, after giving effect to the acquisition of ARDIS
and the related financing as if these transactions had been consummated on
January 1 of the period presented, our earnings would have been insufficient to
cover our fixed charges by approximately $176.2 million for the year ended
December 31, 1997, $151.6 million for the year ended December 31, 1998, and
$39.6 million for the quarter ended

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March 31, 1999. On a pro forma basis for the XM Transactions, this offering and
our application of the net proceeds of this offering, as well as the ARDIS
acquisition, our earnings would have been insufficient to cover our fixed
changes by approximately $179.9 million for the year ended December 31, 1998,
and $45.3 million for the quarter ended March 31, 1999. At March 31, 1999, our
stockholders' deficit was approximately $61.9 million and, on a pro forma basis
for the XM Transactions and this offering, our stockholders' equity was $165.8
million. We and our subsidiaries will be permitted to incur additional
indebtedness in the future.

Beginning April 1, 2001, AMSC Acquisition Company, our wholly-owned
subsidiary, will be allowed to pay dividends to us to permit us to meet our
interest expenses with respect to our term loan facility. Historically, we have
not generated sufficient earnings or cash flow from operations to make such
interest payments.

The degree to which we are leveraged could have important consequences to
the success of our business including, but not limited to:

- increasing our vulnerability to general adverse economic and industry
conditions;

- limiting our ability to obtain additional financing to fund future
working capital, capital expenditures, research and development and other
general corporate requirements;

- requiring the dedication of a substantial portion of our cash flow from
operations to the payment of principal of, and interest on, our
indebtedness, thereby reducing the availability of such cash flow to fund
working capital, capital expenditures, research and development or for
other general corporate purposes;

- limiting our flexibility in planning for, or reacting to, changes in our
business and the industry; and

- placing us at a competitive disadvantage as compared to less leveraged
competitors.

WE MAY NEED ADDITIONAL CAPITAL BUT IT MIGHT NOT BE AVAILABLE

We expect to continue to make significant outlays to fund debt service,
capital expenditures and working capital, both before and after we become cash
flow positive. While we believe that the net proceeds from this offering,
together with existing available borrowings, will be sufficient to fund
operating losses, capital expenditures, working capital, and debt service
through the time when we expect to generate positive free cash flow sufficient
to fund these items, it is possible that our cash flows from operations will be
less than projected or will not occur when projected. In such event, we will
require additional debt or equity financing in amounts that could be material.
The type, timing and terms of financing we may select will depend upon our cash
needs, the availability of other financing sources and the prevailing conditions
in the financial markets. We cannot guarantee that we will be able to find any
such sources at any given time on favorable terms.

We cannot guarantee that our current projections will be accurate. Our
projections will depend upon numerous future factors and conditions, many of
which are outside of our control. Our projections are merely estimates of future
events and you should expect actual events to vary from current estimates,
possibly materially. In addition, if customer demand exceeds our current
expectations and we can accommodate such demand without adversely affecting the
quality of our service, we are likely to attempt to accelerate our expansion. If
we elect to introduce new products or services, our funding needs will increase,
possibly to a significant degree. If there is a rapid increase in customer
demand for recently announced products and services, such as our eLink wireless
email service, we may need to order substantial quantities of inventory, which
will require significant working capital which we may need to finance. In
addition, we are contractually committed to purchase significant quantities of
our second generation two-way messaging device and the second

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generation terminal to be used with our multi-mode device. If customer demand
for these devices does not meet our expectations, we may need to finance
significant amounts of inventory purchases. We cannot guarantee that we will be
able to secure any additional financing on commercially reasonable terms or at
all. Our cost of expanding our network and operating our business, as well as
our revenues, will depend on a variety of factors including:

- our ability to meet our expansion schedules;

- the number of customers and the services for which they subscribe;

- the nature and penetration of new services that we and our competitors
may offer;

- regulatory changes; and

- changes in technology.

As a result, our actual costs and revenues may vary from expected amounts,
possibly to a material degree. Such variations are likely to affect our future
capital requirements. Accordingly, it is possible that we will be required to
raise substantial additional capital in the future or that our current
projections will prove to be inaccurate.

OUR BUSINESS COULD SUFFER IF WE CANNOT KEEP PACE WITH THE RAPIDLY CHANGING
MARKET FOR WIRELESS COMMUNICATIONS

The markets for wireless communications services change rapidly. Our
success depends, in part, on our ability to respond and adapt to such changes.
We cannot guarantee that we will be able to compete effectively under, or adjust
our contemplated plan of development to meet, changing market conditions. We
cannot guarantee that we will be able to implement our strategy or that our
strategy will be successful in this rapidly evolving market.

The market for wireless communications services is also marked by the
continuous introduction of new products and services and increased capacity for
services similar to those we provide. Future technological advances in the
wireless communications industry may result in the availability of new products
or services. Advances may increase the efficiency of existing products or
services. If a technology becomes available that is more cost-effective or
creates a superior product, we may be unable to access such technology or
finance the necessary substantial capital expenditures that may be required. Our
technology may be rendered less profitable or less viable by existing, proposed
or as yet undeveloped technologies. We cannot guarantee that we will have the
financial and other resources available to compete effectively against companies
possessing such technologies. We are unable to predict which of the many
possible future products and services will meet evolving industry standards and
consumer demands. We cannot guarantee that we can adapt to such technological
changes or offer such products or services on a timely basis to establish or
maintain a competitive position.

OUR WIRELESS BUSINESS DEPENDS ON MARKET ACCEPTANCE

The success of our wireless communications business is subject to a number
of business, economic, regulatory and competitive factors, many of which are
beyond our control, including the extent to which prospective customers will
purchase our services. The vitality of our business depends on the successful
implementation of our growth strategy, which, in turn, depends, among other
things, on our expectation that demand for our services will increase
significantly in the markets we serve. We have not yet commercially introduced
some of our services and we cannot guarantee that any of them will achieve
market acceptance or generate operating cash flow. If we cannot gain market
acceptance for current or planned products and services then our business will
be harmed.

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Based upon our expectations as to the customer demand for our services, we
have made, and will continue to make, significant capital investments. Based on
similar expectations, our subsidiaries have entered into operating leases,
equipment supply contracts and service arrangements, and are attempting to
secure financing of future equipment purchases. Accordingly, any material
miscalculation with respect to our operating strategy or business plan would
harm our business.

WE MAY BE UNABLE TO ACHIEVE OUR OPERATING AND FINANCIAL OBJECTIVES IF WE CANNOT
MANAGE OUR GROWTH EFFECTIVELY

We may experience periods of rapid expansion in our continuing efforts to
respond to changing market conditions. We will need to maintain and improve our
operating and financial systems and expand, train and manage our employees in
order to manage growth effectively in the complex environment in which we
operate. We must expand the capacity of our sales, distribution and installation
networks in order to achieve continued growth in our existing and future
markets. In general, if we fail to manage growth effectively there could be a
material adverse effect on our business, financial condition and results of
operations.

WE MAY BE UNABLE TO ACHIEVE OUR BUSINESS AND FINANCIAL OBJECTIVES BECAUSE THE
WIRELESS COMMUNICATIONS INDUSTRY IS HIGHLY COMPETITIVE

The wireless communications industry is highly competitive and is
characterized by frequent technological innovation. The industry includes major
domestic and international companies, many of which have financial, technical,
marketing, sales, distribution and other resources substantially greater than
ours and which provide, or plan to provide, a wider range of services than we
will provide. Our products and services compete with a number of communications
services, including existing satellite services, terrestrial air-to-ground
services, and terrestrial land-mobile and fixed services, and may compete with
new technologies in the future. In addition, the FCC has recently allocated
large amounts of additional spectrum for communications uses or potential uses
that could compete with us. Additional allocations of spectrum for such uses may
occur in the future and could make it easier for new competitors to enter the
market. In addition, increased competition has resulted in downward pressure on
pricing for certain of our products and services.

We regularly compare the carrying amount of our inventory to its estimated
market value and record write-downs when deficiencies are identified. In 1997
and 1996, we recorded $12.0 million and $11.1 million of inventory write-downs,
respectively. As a result of certain recent announcements by competitors
regarding price reductions in their satellite voice equipment, we may record a
charge to cost of goods sold of $3.0 million to $4.0 million related to the
realizability of our inventory in the second quarter of 1999. As of March 31,
1999, we had $17.4 million of inventory, comprising data and voice communication
hardware equipment for sale to customers.

OUR WIRELESS BUSINESS DEPENDS ON PROPRIETARY INFORMATION

Our wireless communications business depends on technical knowledge, and we
believe that our future success is based, in part, on our ability to keep up
with new technological developments and incorporate them in our products and
services. We own or have the right to use certain of our work products,
inventions, designs, software, systems and similar know-how. We must diligently
protect that information, and while we have taken steps to protect such
information, we cannot guarantee that the information will not be disclosed to
others or that others will not independently develop similar information,
systems and know-how. We also rely on some technologies licensed from third
parties. We cannot be sure that these licenses will remain available to us on
commercially reasonable terms or at all. The loss of such technologies could
require us to obtain substitute technology of lower quality or performance
standards or at a greater cost, which could harm our business.

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OUR CUSTOMERS ARE HIGHLY CONCENTRATED AND OUR BUSINESS COULD SUFFER IF WE LOST
KEY CUSTOMERS

After accounting for the acquisition of ARDIS in March 1998, five customers
(including IBM) accounted for an aggregate of 40% of our service revenue for
both the year ended December 31, 1998, and the quarter ended March 31, 1999. In
addition, as described in "Prospectus Summary -- Recent Developments," we
recently signed an important strategic agreement with SkyTel, under which SkyTel
will market our new eLink wireless email service to its customers. The loss of
one or more of these customers or contracts, or any event, occurrence or
development which adversely affects our relationship with one or more of these
customers, or with SkyTel, could harm our business.

OUR BUSINESS COULD SUFFER IF WE DO NOT MEET THE REQUIRED SERVICE LEVELS UNDER
OUR CONTRACT WITH UPS AND OTHER LARGE CUSTOMER CONTRACTS

Our contract with UPS represents the largest implementation of a wireless
data service using our terrestrial network, calling for us to provide wireless
service for approximately 50,000 UPS units by the end of 2001. In connection
with this contract, we expect to incur capital expenditures of approximately
$7.1 million in 1999 and $5.2 million in 2000. The UPS contract includes
significant warranties of performance. If network availability drops below 99%,
we will be subject to an initial penalty of 2% of the average monthly use of
service, calculated as the average of the last three months in the affected
area. The penalty increases if performance levels drop further. Also, as part of
the negotiations leading to the signing of the UPS contract, Motorola issued a
performance guarantee to UPS regarding the network's performance. In connection
with our acquisition of ARDIS, we agreed to indemnify Motorola in connection
with such performance guarantee. We have deposited $10.0 million in an escrow
account that can be used to satisfy such indemnification obligations. In
addition to the UPS contract, most of our other contracts, including those with
large customers, contain warranties of performance and penalties associated with
failures of network performance.

THE GROWTH AND REPUTATION OF OUR WIRELESS BUSINESS COULD SUFFER IF OUR THIRD
PARTY VENDORS CANNOT PROVIDE ADEQUATE QUANTITIES OF DEVICES IN A TIMELY MANNER

We rely on independent vendors to develop and manufacture wireless
communications devices for our networks, which are significant elements of our
business plan because most of our services require such devices. Certain of our
important product initiatives are dependent on the timely delivery of new
generation devices, including the palm-sized device used with our eLink wireless
email service, which is manufactured by Research in Motion, Limited, and the
second generation terminal to be used with our multi-mode service, which is
manufactured by Vistar Telecommunications Inc. These suppliers do not sell such
devices to us on an exclusive basis. We carry a limited inventory of such
devices and generally have no guaranteed supply arrangements. From time to time,
we have experienced interruptions and/or delays of supply. Vistar has delayed
its original timetable for delivery of the second generation terminal to be used
in our multi-mode device. Currently, delivery is scheduled to begin in the
second half of 1999. We cannot guarantee that we will not experience further
interruptions or delays. In addition, we have short-term contracts with the
majority of our suppliers. We cannot guarantee that our suppliers will continue
to provide products to us at attractive prices, or at all, or that we will be
able to obtain such products in the future from these or other providers on the
scale and within the time frames we require. Some or all of our suppliers could
enter into exclusive arrangements with our competitors, or cease selling these
components to us at commercially reasonable prices, or at all. If we fail to
obtain such products on a timely basis at an affordable cost, or experience any
significant delays or interruptions of supply, our business would be harmed.

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As part of our growth strategy, we rely on our suppliers to reduce the cost
of wireless communications devices approved and available for use on our
network. We believe that reductions in the cost of wireless communications
devices will result in increased sales of devices, additional subscribers for
our services and a corresponding increase in our service revenues. If we fail to
obtain such cost reductions on a timely basis, or experience any significant
delays of such reductions, our revenues could be diminished.

We expect the anticipated expansion of our operations and infrastructure to
place a significant demand on our suppliers, some of which have limited
resources and production capacity. In addition, some of our suppliers, in turn,
rely on sole or limited sources of supply for components included in their
products. If our suppliers fail to adjust to meet such increasing demand, they
may be unable to supply devices in the quantities and the quality and at the
times we require, or at all. If we are unable to obtain sufficient quantities of
sole or limited source devices or to develop alternative sources, we could
experience delays and increased costs in the expansion of our operations and
infrastructure or become unable to properly maintain our existing level of
operations. Such occurrences could harm our business.

OUR COMPETITIVE POSITION MAY BE HARMED IF OUR WIRELESS TERRESTRIAL NETWORK
TECHNOLOGY IS LICENSED TO OTHERS

The terrestrial network, and certain of its competitive strengths, such as
deep in-building penetration, is based upon a single frequency reuse technology.
Motorola holds the patent for this technology and, through our ARDIS subsidiary,
we hold a non-exclusive license to use this technology. We also rely on support
agreements with Motorola for support of the operations of certain portions of
the terrestrial network. However, Motorola could enter into arrangements with
our competitors and it is possible that such agreements could harm our ability
to compete.

THERE ARE RISKS ASSOCIATED WITH SATELLITE TECHNOLOGY

We have an agreement with TMI Communications and Company, Limited
Partnership, a Canadian mobile satellite owner and operator, for backup,
restoral and additional capacity if our MSAT-2 satellite fails or we need
additional capacity. TMI owns and operates a satellite called MSAT-1. In return,
we have agreed to provide TMI with similar backup service on our MSAT-2
satellite. Each of the MSAT-1 and MSAT-2 satellites has in the past experienced
some malfunctions. Recent MSAT-2 malfunctions have involved either components
backed up by spare parts or did not have a material impact on current
operations. However, either or both satellites could experience future
malfunctions at any time, which could damage our ability to serve our customers
and harm our reputation in the marketplace.

MSAT-2 has an expected end of service date of 2006, subject to potential
malfunctions and other factors. For example, random failure of satellite
components could result in damage to or loss of MSAT-2. It is also possible that
electromagnetic storms or collisions with other objects could damage the
satellite, although such occurrences are rare. Although the actual end of
service date of the satellite may exceed its expected end of service date, we
cannot guarantee that the expected end of service date of the satellite will be
achieved or exceeded. Although we have in-orbit insurance for a failure of
MSAT-2, it is unlikely that any recovery under such insurance would fully
compensate us for losses we would sustain from such a failure. In addition, the
in-orbit insurance policy is subject to annual or biannual renewal, and we
cannot guarantee that insurance will remain available for coverage of MSAT-2 on
favorable terms or at commercially reasonable rates.

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OUR DISASTER RECOVERY SYSTEM FOR THE SATELLITE NETWORK GROUND SEGMENT IS LIMITED

Presently, our disaster recovery systems focus on internal redundancy and
diverse routing within each of the facilities operated by or for us. For
example, the terrestrial network has access to a remote communications backup
complex that would enable us to continue to provide our terrestrial network
services in the event of a natural disaster affecting one geographic site.
However, we do not currently have access to a remote backup satellite ground
communications facility that would enable us to continue to provide mobile
satellite communications services for customers in the event of a natural
disaster or other occurrence that rendered the system unavailable. Our business
is subject to the risk that such a disaster or other occurrence could hinder or
prevent us from continuing to provide some services to some or all of our
customers.

OUR WIRELESS BUSINESS IS SUBJECT TO DOMESTIC AND INTERNATIONAL REGULATION WHICH
COULD IMPOSE SIGNIFICANT COSTS OR OTHERWISE HARM OUR BUSINESS

The ownership and operations of our wireless communication systems are
subject to significant regulation by the FCC under authority granted by the
Communications Act of 1934, as amended, and related federal laws. We cannot
guarantee that the rules and regulations of the FCC will continue to support our
operations as we presently conduct them and plan to conduct them in the future.
A number of our licenses are subject to renewal by the FCC. Also, our satellite
operations are subject to international frequency coordination, which may
require us to entertain requests for accommodation by other nearby satellite
systems. We cannot guarantee that all existing licenses will be renewed and
requisite frequencies coordinated. Current FCC regulations also generally limit
the ownership and control of our company by non-U.S. citizens or entities to no
more than 25%, which could limit your opportunity to receive a takeover premium
for your shares of common stock.

There are applications by others now pending before the FCC to use the
Inmarsat system and TMI's Canadian-licensed system, both of which operate in the
MSS L-band and have satellite footprints covering the United States, to provide
mobile satellite service in the United States. We have opposed these filings.
However, on July 20, 1998, the FCC granted SatCom Systems, Inc. a Special
Temporary Authority (STA) to operate up to 500 mobile terminals in the United
States over TMI's satellite for 180 days on a private carrier basis so that it
may conduct marketing trials; this STA was subsequently extended to July 12,
1999. On July 30, 1998, we filed an Application for Review and a Motion for Stay
of this Special Temporary Authority grant with the FCC, and these filings remain
pending. In addition to providing additional competition to us, a grant of
domestic authority by the FCC to use any of these foreign systems may increase
the demand by these systems for spectrum in the international coordination
process and restrain our ability to coordinate our spectrum access.

WE COULD LOSE REVENUES OR DAMAGE OUR REPUTATION IF WE ARE NOT YEAR 2000 READY

Many currently installed computer systems and software products are coded
to accept only two-digit entries in the date code field. Many such systems will
need to accept four-digit entries in order to distinguish 20th century dates
from 21st century dates. As a result, before the end of this year, computer
systems and software used by many companies need to be upgraded to comply with
these "Year 2000" requirements. Otherwise these systems may cause
miscalculations that will interfere with business activities or simply fail to
work. When we use the terms "Year 2000 Ready" or "Year 2000 Readiness," we mean
that customers will not experience any material difference in performance and
functionality of our networks as a result of the date being prior to, during or
after the year 2000.

We expect our networks to be Year 2000 Ready by the end of the third
quarter of 1999. In addition, we are currently scheduled to complete renovation,
implementation and rollout of our internal systems, including our CMIS voice
customer billing software, in the fourth quarter of 1999.

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The cost of our Year 2000 Readiness program in 1998 was approximately $2.4
million, and expenditures for the Year 2000 Readiness program in 1999 are
estimated to be up to $7.4 million, of which approximately $1.5 million was
incurred as of March 31, 1999.

The estimated cost and date to reach Year 2000 Readiness are our best
estimates. There can be no assurances that we will achieve these results and
actual results could differ materially from those anticipated. Failure to solve
Year 2000 issues within our critical business systems could result in service
outages, miscalculations or disruption of operations that could have a material
adverse impact on our business. Also, some of our critical business systems
depend significantly on software programs, products, equipment and services
provided to us by third party vendors that are not within our control. A
significant Year 2000-related disruption of the services or equipment that third
party vendors provide to us could cause our customers to seek alternative
providers or cause an unmanageable burden on our customer service and technical
support, which, in turn, could harm our business. We could also face customer
lawsuits for damages.

Our Year 2000 Readiness program may fail to foresee some risks or may not
address them adequately. Because of our reliance on software, some Year 2000
problems may not be found or the remediation efforts may introduce new bugs that
are not identified before they affect operations. If our customers fail to
become Year 2000 ready on time with their own hardware and software systems,
their applications may not function even if our systems are Year 2000 Ready.
This could result in reduced traffic and revenues.

We strongly urge you to read about our Year 2000 efforts under the heading
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Year 2000 Readiness."

A SMALL NUMBER OF PRINCIPAL STOCKHOLDERS WILL OWN OVER 85% OF OUR STOCK AND
THEIR INTERESTS MAY CONFLICT WITH YOURS AS A STOCKHOLDER

Our principal stockholders are Hughes, Motorola, Baron Capital, Inc.,
Singapore Telecom and AT&T Wireless. In addition, in connection with the XM
Radio Transactions, we have agreed to issue 8,614,244 shares of our common stock
to XM Ventures. Together, these stockholders will collectively hold in aggregate
approximately 85% of our common stock on a fully diluted basis, prior to giving
effect to the issuance of any shares in this offering. We have entered into
material contracts and transactions with our principal stockholders and their
affiliates and we may enter into additional contracts in the future. These
contracts include the guarantee of our debt obligations. Certain of these
stockholders have other interests in the communications industry that may
conflict with our interests. Certain of these stockholders, or their affiliates,
have contracts or other relationships with XM Radio, which has a different
business plan than ours. For example, Hughes is constructing XM Radio's
satellites, and General Motors, which owns Hughes, has agreed to purchase $50.0
million of XM Radio's Series A subordinated convertible notes and will enter
into a long-term distribution agreement with XM Radio. DIRECTV, a division of
Hughes, also has agreed to purchase $50.0 million of XM Radio's Series A
subordinated convertible notes and will enter into an operational assistance
agreement with XM Radio. It is possible that these stockholders' interests in XM
Radio could conflict with their interests in American Mobile, and, as a result,
these stockholders could take actions that might not be in our interests or your
interests as a stockholder. Also, there can be no assurance that these
stockholders will continue to retain their current ownership position in our
company.

OUR BUSINESS WOULD BE HARMED IF WE CANNOT ATTRACT AND RETAIN OUR KEY PERSONNEL

We are dependent on the efforts of a group of employees with specialized
technical and business knowledge regarding our systems. If we lose the services
of one or more of these individuals it could harm our business and our future
prospects. Our future success will also depend on our ability to

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attract and retain additional management and technical personnel required in
connection with the growth and development of our business. If we fail to retain
or attract such key personnel our business would suffer. We do not maintain key
man life insurance on any of our officers or employees.

OUR CHARTER AND BYLAWS CONTAIN ANTI-TAKEOVER PROVISIONS THAT COULD ADVERSELY
AFFECT THE PRICE OF OUR COMMON STOCK

Our certificate of incorporation and bylaws and the Delaware General
Corporation Law contain provisions that may have the following effects:

- discouraging, delaying or making more difficult a change in control; and

- preventing the removal of incumbent directors.

The existence of these provisions may negatively impact on the price of our
common stock and may discourage third-party bids. These provisions may reduce
any premiums paid to stockholders for their common stock. Furthermore, we are
subject to Section 203 of the Delaware General Corporation Law, which governs
business combinations with interested stockholders and could have the effect of
delaying or preventing a change in control.

Our certificate of incorporation also allows our board of directors to
issue up to 200,000 shares of preferred stock and to fix the rights, privileges
and preferences of such shares without any further vote or action by the
stockholders. If this preferred stock is issued in the future, the rights of the
holders may adversely affect the rights of the holders of common stock. While we
have no present intention to issue shares of preferred stock, any such issuance
could be used to discourage, delay or make more difficult a change in control.

WE DO NOT INTEND TO PAY DIVIDENDS

We have not declared or paid any dividends on our common stock since our
date of inception. We intend to retain any earnings to support the growth and
development of our business and we have no present intention of paying dividends
in the foreseeable future. In addition, our ability to pay dividends is
restricted by agreements we have made with several banks in connection with our
loans and credit facility arrangements.

YOU WILL EXPERIENCE DILUTION

You will experience immediate and substantial dilution in the net tangible
book value of your shares. Please see "Dilution."

THE PRICE OF OUR COMMON STOCK IS VOLATILE

Historically, the market prices for securities of emerging companies in the
telecommunications industry have been highly volatile. Future announcements
concerning our business or the business of our competitors, including results of
technological innovations, new commercial products, or government regulations
may have a significant impact on the market price of our common stock. Our
common stock has been thinly traded since our initial public offering and its
price has been highly volatile in recent periods.

FUTURE SALES OF OUR STOCK COULD ADVERSELY AFFECT ITS PRICE

Future sales of substantial amounts of our common stock, or the perception
that such sales may occur, could adversely affect the value of our common stock
and could impair our ability to raise additional capital in the future through
the sale of equity securities. As of June 11, 1999, we had

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32,549,365 shares of common stock outstanding. Of these shares, 11,351,745
shares (including 5,322,600 shares owned by Baron) are freely tradable in the
open market without further registration under the Securities Act. Also,
12,616,037 shares (including 2,071,259 shares that may be issued in the future
upon exercise of outstanding warrants) are registered pursuant to a shelf
registration statement declared effective by the Securities and Exchange
Commission on March 31, 1999. In addition, we have provided certain registration
rights to other stockholders and owners of warrants to purchase our common
stock. These registration rights cover 6,666,622 shares of stock and warrants to
purchase an aggregate of 5,712,500 additional shares. In connection with the XM
Transactions, we have also agreed to file a shelf registration statement
covering the 8,614,244 shares to be issued to XM Ventures. After such shares are
issued and upon the effectiveness of such registration statement, such shares
will be freely tradable in the open market, subject to a limit on the number of
shares that may be sold or transferred to third parties during the first year
following issuance to XM Ventures. Approximately 20% of the issued shares may be
sold upon issuance and an additional 20% may be sold each quarter thereafter. We
also have approximately 3.8 million shares of common stock reserved for issuance
under employee and director stock option plans and other employee benefit plans,
all of which shares, when issued, are registered for resale. Hughes, Motorola
and AT&T, who collectively own approximately 16.2 million shares, have agreed
with the underwriters not to sell their shares for a period of 120 days after
the date we issue the shares being offered in this offering, subject to the
underwriters' right to purchase from Motorola up to 1,050,000 shares of common
stock under the underwriters' overallotment option. Our directors and members of
our senior management have similarly agreed not to sell their shares for a
period of 90 days after the date we issue the shares being offered in this
offering. However, the underwriters may waive these restrictions at any time.

XM RADIO'S BUSINESS INVOLVES SIGNIFICANT RISKS AND THESE RISKS MAY IMPAIR THE
VALUE OF OUR INVESTMENT IN XM RADIO

In addition to the risks described above which relate to our core wireless
business and to our company generally, there are significant risks associated
with our investment in XM Radio. These risks may impair the value of our
investment in XM Radio. We describe these risks separately in the section that
follows.

XM RADIO IS A DEVELOPMENT STAGE COMPANY AND HAS NOT GENERATED REVENUES TO DATE

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.

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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.
XM Radio's actual 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.

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.

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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

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to function until XM Radio has actually deployed and tested a substantial
portion of the system. Hardware or software errors in space or on the ground may
limit or delay the XM Radio service and therefore reduce anticipated revenues.
There could also be delays in the planned development, integration and operation
of the components of the XM Radio system. If the technological integration of
the XM Radio system is not completed in a timely and effective manner, XM
Radio's business will be harmed.

XM RADIO'S PLANNED LAUNCH OF SERVICE MAY BE DELAYED, WHICH COULD HARM XM RADIO'S
BUSINESS AND CHANCES OF SUCCESS

XM Radio plans to commercially launch its service in 2001. Its ability to
do so will depend on several important factors. Potential causes of serious
delay include

- 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

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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.

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

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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 receivers in
General Motors cars. Under the agreement, XM Radio has substantial payment
obligations to General Motors, including, among others, certain guaranteed,
annual, fixed payment obligations. XM Radio may not be able to meet its
obligations to General Motors under this agreement. In addition, while XM Radio
and General Motors have discussed certain installation projections, General
Motors is not required to meet any minimum targets for installing XM radios in
General Motors vehicles. In addition, certain of the payments to be made by XM
Radio under this agreement will not be directly related to the number of XM
radios installed in General Motors vehicles.

XM RADIO'S BUSINESS WILL DEPEND ON MARKET ACCEPTANCE, AND THE MARKET FOR ITS
SERVICE IS NEW AND UNPROVEN

There is currently no mobile satellite radio service in commercial
operation in the United States. As a result, XM Radio cannot estimate with any
certainty the potential demand for such a service or the degree to which XM
Radio will meet that demand. Furthermore, there may not be sufficient demand to
enable XM Radio to earn sufficient revenues, achieve sufficient cash flow or
turn a profit. Among other things, consumer acceptance of XM Radio will depend
upon

- 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.

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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.

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

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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.

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.

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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.

27
<PAGE> 30

THE XM RADIO TRANSACTIONS

GENERAL

On June 7, 1999, we agreed to acquire WorldSpace's debt and equity
interests in XM Radio, other than a $75 million loan from WorldSpace to XM
Radio, in exchange for approximately 8.6 million shares of our common stock.
After this transaction closes, we will own all of the issued and outstanding
stock of XM Radio, subject to the possibility of our interest being reduced as
described below. WorldSpace will no longer own any direct equity or debt
interest in XM Radio. Concurrently with this transaction, XM Radio committed to
issue $250 million of subordinated convertible notes to several new strategic
and financial investors, including General Motors Corporation, Clear Channel
Communications, DIRECTV, Telcom Ventures, Columbia Capital and Madison Dearborn
Partners. XM Radio will use $75 million of the proceeds from these notes to
repay the outstanding loan payable to WorldSpace.

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.

These transactions are subject to a variety of closing conditions,
including WorldSpace stockholder approval and other customary closing
conditions. We currently anticipate that the transactions will close by early
July 1999.

THE EXCHANGE TRANSACTION

Our exchange of approximately 8.6 million shares of our common stock for
WorldSpace's interest in XM Radio will be effected as follows:

- WorldSpace will transfer 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 to be
transferred to XM Ventures will include 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 will then transfer to American Mobile all of the assets
described above relating to XM Radio that it receives from WorldSpace in
exchange for 8,614,244 shares of our common stock. Of these shares,
approximately 6.4 million shares will be 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 approximately 2.2 million
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 will be
reorganized. Following such recapitalization, we will hold 100% of XM Radio's
Class B common stock, which will be the only shares of XM Radio's capital stock
outstanding. We will also hold certain convertible debt of XM Radio, convertible
into shares of XM Radio Class B common stock, which debt will be subordinated to
the Series A subordinated convertible notes of XM Radio described below. The
Class B common stock of XM Radio will have three votes per share. XM Radio will
also have Class A common stock, which will be entitled to one vote per share.

28
<PAGE> 31

ISSUANCE OF SERIES A SUBORDINATED CONVERTIBLE NOTES OF XM RADIO TO NEW INVESTORS

At the closing of the exchange transaction described above, XM Radio has
committed to issue $250 million of Series A subordinated convertible notes to
six new strategic and financial investors, including General Motors, Clear
Channel Communications, DIRECTV, Columbia Capital, Telcom Ventures, and Madison
Dearborn Partners. The notes and accrued interest will be 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 will 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 will
be 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 will be
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 will pay WorldSpace $75 million to repay an
outstanding loan owed to WorldSpace.

OUR FULLY DILUTED OWNERSHIP POSITION IN XM RADIO

Following completion of the XM Radio Transactions we will 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 will be 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) will be 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

To date we have invested approximately $1.7 million in equity in XM Radio
(excluding the XM Note Receivable funded by the Baron Note described below in
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources"), and an additional $21.4 million
through the XM Note Receivable. The remainder of the $167.0 million raised by XM
Radio to date was provided by WorldSpace 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.

29
<PAGE> 32

HOW WE INTEND TO USE THE PROCEEDS FROM THE OFFERING

Our net proceeds from the sale of the 7,000,000 shares of common stock we
are offering, at an assumed public offering price of $18.00 per share, are
estimated to be approximately $117.7 million, after deducting the underwriting
discount and estimated offering expenses we will pay. We will not receive any
proceeds from any sale of shares of common stock sold by Motorola if the
underwriters exercise the overallotment option.

We will use 50% of the net proceeds from the offering to fund expansion of
our core wireless business, principally in new markets such as wireless email
service and wireless telemetry, as well as for working capital and other general
corporate purposes. Pending such use of proceeds, we will use them to pay down a
portion of the outstanding balance under our revolving credit facility, which we
will be able to reborrow when needed. As of May 31, 1999, there was $72.0
million in principal amount outstanding under the revolving credit facility at
interest rates ranging from 5.6875% to 5.8125%.

The remaining 50% of the net proceeds from the offering will be used to pay
down a portion of the outstanding balance under our term loan facility, as
required by the terms of such loan. As of May 31, 1999, there was $100.0 million
in principal amount outstanding under the term loan facility. Borrowings under
this facility mature on March 31, 2003. We have entered into a swap agreement
with respect to these borrowings and, for the year ended December 31, 1998, the
weighted average interest rate for borrowings under the term loan facility was
approximately 6.51%.

We do not intend to use any of the proceeds from this offering to fund the
development of XM Radio's business.

We believe that the net proceeds from this offering, together with existing
available borrowings, will be sufficient to fund operating losses, capital
expenditures, working capital, and scheduled principal and interest payments on
debt through the time when we expect to generate positive free cash flow. If we
meet our projections, we would not require any additional financing to meet our
business plan. We cannot guarantee that our current projections regarding the
timing of our ability to achieve positive free cash flow will be accurate. For
example, if we incur unanticipated expenses or if our revenues are less than we
currently project, we may fail to meet our current projections. If our positive
free cash flow is less than projected, we could require significant additional
funding, as explained under the caption titled "Risk Factors -- We may need
additional capital but it might not be available."

30
<PAGE> 33

PRICE RANGE OF OUR COMMON STOCK

Our common stock trades on the Nasdaq National Market under the symbol
"SKYC." The table below shows, for the periods indicated in the table, the high
and low sales prices per share of our common stock as reported by the Nasdaq
National Market.

<TABLE>
<CAPTION>
HIGH LOW
------ -----
<S> <C> <C>
1997
First Quarter............................................. $14.75 $9.37
Second Quarter............................................ 12.13 8.50
Third Quarter............................................. 10.88 6.23
Fourth Quarter............................................ 10.75 6.28
</TABLE>

<TABLE>
<CAPTION>
HIGH LOW
------ -----
<S> <C> <C>
1998
First Quarter............................................. $16.13 $6.75
Second Quarter............................................ 14.31 9.25
Third Quarter............................................. 10.69 4.50
Fourth Quarter............................................ 6.25 3.50
</TABLE>

<TABLE>
<CAPTION>
HIGH LOW
------ -----
<S> <C> <C>
1999
First Quarter............................................. $ 8.31 $3.90
Second Quarter (through June 23, 1999).................... 21.94 7.19
</TABLE>

On June 23, 1999, the last reported sale price of our common stock on the
Nasdaq National Market was $18.00 per share.

DIVIDEND POLICY

We have not declared or paid any dividends on our common stock since our
date of inception. We intend to retain any earnings to support the growth and
development of our business and we have no present intention of paying dividends
in the foreseeable future. In addition, our ability to pay dividends is
restricted by our term loan facility and revolving credit facility, as well as
the terms of the Senior Notes due 2008 issued by AMSC Acquisition Company.

31
<PAGE> 34

CAPITALIZATION

The following table shows our capitalization as of March 31, 1999 (a) on an
actual basis, (b) on an as adjusted basis to reflect the sale of 7.0 million
shares of common stock we are offering at an assumed public offering price of
$18.00 per share, after deducting the underwriting discount and estimated
offering expenses and the application of the net proceeds from the offering as
described under "How We Intend to Use the Proceeds From the Offering," and (c)
on a pro forma basis to reflect the items described in (b) above and to reflect
the XM Radio Transactions as if they occurred on March 31, 1999, including the
issuance of approximately 8.6 million shares of our common stock to XM Ventures
in exchange for all of WorldSpace's remaining debt and equity interests in XM
Radio, the issuance by XM Radio of $250 million aggregate principal amount of
subordinated convertible notes, XM Radio's repayment of a $75 million loan to
WorldSpace, and the consolidation of XM Radio. You should read this table
together with the section entitled "How We Intend to Use the Proceeds From the
Offering," our financial statements and related notes, Pro Forma Financial
Information, and other financial and operating data included elsewhere in this
prospectus or incorporated into this prospectus by reference.

<TABLE>
<CAPTION>
MARCH 31, 1999
----------------------------------------------
AS ADJUSTED FOR PRO FORMA
ACTUAL THE OFFERING AS ADJUSTED
---------- --------------- -------------
(IN THOUSANDS)
<S> <C> <C> <C>
Cash and cash equivalents................................... $ 8,131 $ 14,720(1) $ 181,912
Restricted investments(2)................................... 109,661 109,661 109,661
Long-term debt:
12 1/4% Senior Notes due 2008(3).......................... $ 327,359 $ 327,359 $ 327,359
Term loan facility........................................ 100,000 41,171 41,171
Revolving credit facility(4).............................. 59,000 170 170
Subordinated convertible notes of XM Radio................ -- -- 250,000
Other debt(5)............................................. 39,868 39,868 39,948
---------- ---------- ---------
Total debt.............................................. 526,227 408,568 658,648
---------- ---------- ---------
Stockholders' equity:
Common stock, 75,000,000 shares
Authorized; 32,303,098 shares issued and outstanding;
39,303,098 shares issued and outstanding, as adjusted;
and 47,917,342 shares issued and outstanding, pro
forma(6)................................................ 324 394 480
Additional paid-in capital.................................. 509,074 626,663 755,791
Deferred compensation....................................... (2,305) (2,305) (2,305)
Common stock purchase warrants, net......................... 27,411 27,411 27,411
Accumulated deficit......................................... (596,362) (599,468) (615,579)
---------- ---------- ---------
Total stockholders' (deficit) equity.................... (61,858) 52,695 165,798
---------- ---------- ---------
Total capitalization.................................... $ 464,369 $ 461,263 $ 824,446
========== ========== =========
</TABLE>

- -------------------------
(1) Reflects amount anticipated to be received upon termination of a portion of
an interest rate swap in connection with the repayment of amounts under the
term loan facility with the proceeds of the offering.
(2) Consists of $96.8 million of pledged securities securing our obligations
under our Senior Notes due 2008, $10.0 million escrowed to fulfill potential
indemnification obligations to Motorola in connection with Motorola's
performance guarantee under our contract with UPS, and $2.9 million of
other.
(3) Net of discount of approximately $7.6 million allocated to the warrants
issued in connection with the Senior Notes due 2008.
(4) The total amount that may be borrowed under this facility is $100 million.
(5) Includes: (a) $21.8 million incurred in connection with the issuance of a
note to Baron Asset Fund, which note is convertible into shares of common
stock of XM Radio; (b) $4.6 million outstanding under a vendor financing
loan from Motorola; and (c) approximately $13.5 million of capital lease
obligations and other borrowings.
(6) The number of shares issued and outstanding on a pro forma basis includes
8,614,244 shares to be issued to XM Ventures in the XM Radio Transactions.

32
<PAGE> 35

DILUTION

Our actual net tangible book value as of March 31, 1999 was a deficit of
approximately $(114.6 million), or $(3.55) per share. Actual net tangible book
value per share represents the amount of total actual tangible assets less total
actual liabilities, divided by the number of shares of our common stock
outstanding as of March 31, 1999. After giving effect to the sale of the
7,000,000 shares of common stock we are offering (after deducting the
underwriting discount and estimated offering expenses) at an assumed public
offering price of $18.00 per share, our adjusted net tangible book value as of
March 31, 1999 would have been a deficit of $77,000, or less than $0.01 per
share. This represents an immediate increase in as adjusted net tangible book
value of $3.55 per share to existing stockholders and an immediate dilution of
$18.00 per share to new investors. The following table illustrates this per
share dilution:

<TABLE>
<S> <C> <C>
Public offering price per share............................. $18.00
Actual net tangible book value per share as of March 31,
1999...................................................... $(3.55)
Increase per share attributable to new investors............ 3.55
As adjusted net tangible book value per share after the
offering.................................................. --
------
Dilution per share to new investors......................... $18.00
======
</TABLE>

33
<PAGE> 36

SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA

The following selected consolidated financial and other data should be read
in conjunction with the Consolidated Financial Statements and related notes
beginning on page F-1 of this prospectus, the Pro Forma Financial Information
beginning on page P-1 of this prospectus, and "Management's Discussion and
Analysis of Financial Condition and Results of Operations" beginning on page 36
of this prospectus. The consolidated statement of operations data for the years
ended December 31, 1996, 1997, and 1998 and the consolidated balance sheet data
as of December 31, 1997 and December 31, 1998 are derived from our financial
statements which have been audited by Arthur Andersen LLP, independent public
accountants, and are included elsewhere herein.
<TABLE>
<CAPTION>

YEARS ENDED DECEMBER 31,
-----------------------------------------------------------------------
1998
1998 (PRO FORMA
1996 1997 1998 (PRO FORMA)(1) AS ADJUSTED)(1)(2)
--------- --------- --------- -------------- ------------------
(UNAUDITED) (UNAUDITED)
(IN THOUSANDS, EXCEPT LOSS PER SHARE, SUBSCRIBERS AND REVENUE PER UNIT)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Services.................... $ 9,201 $ 20,684 $ 57,994 $ 67,396 $ 67,396
Equipment................... 18,529 23,530 29,227 29,757 29,757
--------- --------- --------- --------- ---------
Total revenue............. 27,730 44,214 87,221 97,153 97,153
Cost of service and
operations.................. 30,414 31,959 56,969 64,625 64,625
Cost of equipment sold........ 31,903 40,335 30,449 31,030 31,030
Research and development...... 57 -- 1,117 1,117 8,058
Sales and advertising......... 24,541 12,066 16,854 18,416 18,416
General and administrative.... 17,464 14,819 17,332 18,819 28,071
Depreciation and
amortization................ 43,390 42,430 52,707 56,519 59,293
--------- --------- --------- --------- ---------
Operating loss................ (120,039) (97,395) (88,207) (93,373) (112,340)
Interest and other income
(expense)................... 552 (179) 4,030 5,573 5,941
Interest expense.............. (15,151) (21,633) (53,771) (63,755) (73,527)
--------- --------- --------- --------- ---------
Net loss...................... (134,638) (119,207) (137,948) (151,555) (179,926)
Loss per share of common
stock....................... $ (5.38) $ (4.74) $ (4.52) $ (4.72) $ (3.77)
Weighted average shares
outstanding................. 25,041 25,131 30,496 32,109 47,723
OTHER FINANCIAL AND OPERATING
DATA:
Number of subscribers (end of
period)..................... 20,300 32,400 105,700 105,700 105,700
Average monthly service
revenue per unit............ $ 81 $ 65 $ 70 $ 60 $ 60
EBITDA (3).................... (76,649) (54,090) (35,500) (36,854) (53,047)
Depreciation and
amortization................ 43,390 42,430 52,707 56,519 59,293
Capital expenditures.......... 14,054 8,598 12,470 13,787 57,669

<CAPTION>
THREE MONTHS
ENDED MARCH 31,
------------------------------------

1999
1998 1999 (PRO FORMA)(2)
-------- -------- --------------
(UNAUDITED)
(IN THOUSANDS, EXCEPT LOSS PER SHARE, SUBSCRIBERS AND REVENUE PER UNIT)
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Services.................... $ 6,418 $ 16,164 $ 16,164
Equipment................... 3,604 4,066 4,066
-------- -------- --------
Total revenue............. 10,022 20,230 20,230
Cost of service and
operations.................. 7,728 17,410 17,410
Cost of equipment sold........ 3,881 4,528 4,528
Research and development...... -- 460 1,208
Sales and advertising......... 3,022 4,749 4,749
General and administrative.... 3,631 4,769 8,442
Depreciation and
amortization................ 10,163 13,772 14,466
-------- -------- --------
Operating loss................ (18,403) (25,458) (30,573)
Interest and other income
(expense)................... (201) 1,739 1,525
Interest expense.............. (6,638) (15,930) (16,279)
-------- -------- --------
Net loss...................... (25,242) (39,649) (45,327)
Loss per share of common
stock....................... $ (1.00) $ (1.23) $ (0.95)
Weighted average shares
outstanding................. 25,241 32,225 47,839
OTHER FINANCIAL AND OPERATING
DATA:
Number of subscribers (end of
period)..................... 34,800 113,000 113,000
Average monthly service
revenue per unit............ $ 64 $ 49 $ 49
EBITDA (3).................... (8,240) (11,686) (16,107)
Depreciation and
amortization................ 10,163 13,772 14,466
Capital expenditures.......... 1,126 2,541 53,173
</TABLE>

<TABLE>
<CAPTION>
AS OF MARCH 31, 1999
----------------------------------------------
AS ADJUSTED FOR PRO FORMA
ACTUAL THE OFFERING(4) AS ADJUSTED(2)
-------- --------------- ---------------
(UNAUDITED)
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................................... $ 8,131 $ 14,720(7) $181,912
Restricted investments(5)................................... 109,661 109,661 109,661
Property and equipment, net................................. 239,017 239,017 459,070
Total assets................................................ 508,598 505,492 924,763
Total debt(6)............................................... 526,227 408,568 658,648
Total stockholders' (deficit) equity........................ (61,858) 52,695 165,798
</TABLE>

34
<PAGE> 37

- -------------------------
(1) The selected financial data in this column has been adjusted to give effect
to (a) our acquisition of ARDIS Company on March 31, 1998 for $50 million in
cash and $50 million in shares of our common stock, (b) our issuance on
March 31, 1998 of $335 million of aggregate principal amount of 12 1/4%
Senior Notes due 2008 and related warrants to purchase shares of our common
stock, and (c) the $100 million term loan facility and $100 million
revolving credit facility we entered into on March 31, 1998, as if all of
such transactions had been consummated on January 1, 1998. Such data is
presented for illustrative purposes only and is not necessarily indicative
of what our actual financial position or results of operations would have
been had the transactions referred to above been consummated as of January
1, 1998 or of the financial position or results of operations that we may
report in future periods.
(2) The selected financial data in this column gives pro forma effect to (a) the
XM Radio Transactions, including the issuance of approximately 8.6 million
shares of our common stock to XM Ventures in exchange for all of
WorldSpace's remaining debt and equity interests in XM Radio, the issuance
by XM Radio of $250 million aggregate principal amount of subordinated
convertible notes, XM Radio's repayment of a $75 million loan to WorldSpace,
and the consolidation of XM Radio, and (b) our sale of 7.0 million shares of
common stock in this offering at an assumed public offering price of $18.00
per share, net of underwriting discounts and estimated offering expenses,
and the application of the net proceeds of the offering as described under
"How We Intend to Use the Proceeds From the Offering," as if all of such
transactions had been consummated on January 1 of the period presented in
the case of statement of operations data, and March 31, 1999 in the case of
balance sheet data. The pro forma selected data is presented for
illustrative purposes only and is not necessarily indicative of what our
actual results of operations or financial condition would have been had the
transactions referred to above been consummated as of the dates referred to
above, or of the results of operations or financial condition that we may
report in the future.
(3) EBITDA consists of operating loss before interest expense, taxation,
depreciation and amortization. EBITDA is a financial measure commonly used
in our industry and should not be construed as an alternative to operating
loss (as determined in accordance with GAAP) or as a measure of liquidity.
EBITDA does not represent funds available for dividends, reinvestment or
other discretionary activities.
(4) Gives effect to our sale of 7.0 million shares of common stock in this
offering at an assumed public offering price of $18.00 per share, net of
underwriting discounts and estimated offering expenses, and the application
of the net proceeds of the offering as described under "How We Intend to Use
the Proceeds From the Offering," as if all of such transactions had been
consummated on March 31, 1999.
(5) Consists of $96.8 million of pledged securities securing our obligations
under our Senior Notes due 2008, $10.0 million escrowed to fulfill potential
indemnification obligations to Motorola in connection with Motorola's
performance guarantee under our contract with UPS, and $2.9 million of
other.
(6) Net of discount of approximately $7.6 million allocated to the warrants
issued in connection with the Senior Notes due 2008.
(7) Reflects amount anticipated to be received upon termination of a portion of
an interest rate swap in connection with the repayment of amounts under the
term loan facility with the proceeds of this offering.

35
<PAGE> 38

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS

The following discussion and analysis provides information which we believe
is relevant to an assessment and understanding of our financial condition and
consolidated results of operations. This discussion should be read together with
the Consolidated Financial Statements, Pro Forma Financial Information and
related Notes contained elsewhere in this prospectus.

INTRODUCTION

American Mobile was formed in 1988 to develop, construct, and operate a
mobile satellite services system. With the launch of our satellite in 1995, we
began to offer a full range of mobile voice and data communications services via
satellite to customers in North America. In March 1998, we acquired ARDIS
Company from Motorola, Inc. for $100.0 million. With the acquisition of ARDIS,
we acquired the nation's largest, most fully deployed terrestrial wireless data
network and we now offer a broad range of wireless communications services using
a seamless integrated network consisting of the ARDIS terrestrial network and a
satellite in geosynchronous orbit.

In light of the significance of our acquisition of ARDIS in 1998, we
believe the period to period comparison of our financial results are not
necessarily meaningful and should not be relied upon as an indication of future
operating performance.

XM RADIO ACCOUNTING TREATMENT

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 XM Radio Transactions, we
have accounted for XM Radio according to the equity method of accounting. When
we have completed the XM Radio Transactions, we will be required to consolidate
XM Radio's accounts and operating results with our own until such time, if ever,
as we no longer control 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, upon completion of the XM Radio Transactions, we will be required
in accordance with generally accepted accounting principles to restate our
financial statements for the year ended December 31, 1998, and the quarter ended
March 31, 1999, to reflect our share of XM Radio's losses based on our voting
equity interest in XM Radio during those periods. This will result in our
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.

OVERVIEW OF KEY FACTORS AFFECTING THE FINANCIAL PERFORMANCE OF OUR CORE WIRELESS
BUSINESS

We believe that our targeted customer base selects its wireless
communications service provider based on a variety of considerations including
network coverage and quality as well as the total cost of ownership. We also
believe that the coverage and quality of our network are superior to other
competing networks. As a result, we believe we are able to price our offerings
at a premium to competitors. However, to remain competitive and to accelerate
penetration of our targeted markets, as well as to gain access to new markets,
we seek to lower the customers' total cost of ownership of our products and
services.

Total cost of ownership is comprised of three main components: equipment
costs, software application costs and usage fees. Currently, we benefit from
positive trends in equipment pricing. Historically, manufacturers have been able
to provide similar products at significantly lower prices and enhanced products
at relatively lower prices. We are working closely with a number of equipment
vendors to develop more capable, less costly next generation devices. As a
result, we believe that the cost of our equipment will decline in the future. We
also have benefited, although to a lesser degree,

36
<PAGE> 39

from trends in the software industry that have resulted in lower prices for
software applications. In the future, we intend to increase our offering of
pre-packaged software as standardized applications become more advanced. By
offering pre-packaged applications, we believe we will be able to lower
customers' total cost of ownership. We also are able to lower the total cost of
ownership by offering a wide range of product offerings and service packages. We
provide data customers with a choice of multi-mode or single mode (i.e.,
satellite and/or terrestrial) products as well as a variety of service packages
that vary the mix of fixed access and variable usage fees. Depending on where,
how and when a customer intends to use our network, it can select among various
products and service packages to minimize its monthly usage fee.

REVENUES. We generate service revenues from fixed monthly access charges
and variable usage fees. We also have entered into certain multi-year
take-or-pay contracts with resellers and value-added service providers. We
anticipate that such resellers and value-added service providers will represent
an increasing percentage of our revenue and our customer base in the future. In
addition, we sell bulk channel capacity on our satellite under take-or-pay
contracts that generally last for five years. Each month a percentage of our
customer base may terminate its service for a variety of reasons, including
failure to pay, dissatisfaction with the service or the use of a competing
service. However, we believe that due to the generally high quality of our
service, the long-term nature of many of our contracts, the significant up-front
investment required to install a new system and the critical nature of the
service provided, we experience relatively low levels of turnover.

We generate additional revenues from the sale of equipment. We have not
sold subscriber equipment at a positive margin and do not expect to do so in the
future. We generate additional revenues from consulting fees earned during
service implementation.

COSTS AND EXPENSES. We operate wireless networks which have been deployed
on a nationwide scale. As a result, we have incurred, and will continue to
incur, large fixed costs related to the ongoing maintenance and operation of the
networks. Major components of our fixed cost structure include (1) lease
expenses related to the terrestrial network's approximately 1,700 base stations,
dedicated and frame relay access lines and network backbone, (2) operation of
network operations and control centers, (3) satellite telemetry, tracking and
control expenses, and (4) satellite insurance. We also have incurred significant
sales and marketing expenses as we have grown our customer base.

We have incurred significant operating losses and negative cash flows in
each year since we commenced operations, due primarily to start-up costs, the
costs of developing and building our networks and the cost of developing,
selling and providing our products and services. We are, and will continue to
be, highly leveraged.

Our future operating results could be adversely affected by a number of
uncertainties and factors, including the risks and uncertainties described in
"Risk Factors" in this prospectus.

Our operating results and capital and liquidity needs have been materially
affected by delays experienced in the acquisition of subscribers and the related
equipment sales. The impact of this delay has substantially decreased our
anticipated revenues and increased our capital and liquidity needs. No assurance
can be given that additional delays relating to the acquisition of subscribers
and equipment sales will not be encountered in the future and will not have an
adverse impact on our business.

As of March 31, 1999, there were approximately 113,000 units on our
network.

37
<PAGE> 40

RESULTS OF OPERATIONS

THREE MONTHS ENDED MARCH 31, 1999 AND 1998

Service revenues, which includes both our voice and data services,
approximated $16.2 million for the three months ended March 31, 1999, which is a
$9.8 million, or 153%, increase over the same period in 1998. The significant
increase in service revenues year over year was primarily due to the inclusion,
in the three months ended March 31, 1999, of revenues attributable to the ARDIS
data service.

<TABLE>
<CAPTION>
THREE MONTHS
ENDED
MARCH 31, CHANGE
------------- ------------
1999 1998 $ %
----- ---- ----- ---
(IN MILLIONS)
<S> <C> <C> <C> <C>
SUMMARY OF REVENUE
Voice service............................................. $ 3.0 $3.2 $(0.2) (6)%
Data service.............................................. 12.0 2.3 9.7 422
Capacity resellers and other.............................. 1.2 0.9 0.3 33
Equipment sales........................................... 4.1 3.6 0.5 14
</TABLE>

The decrease in service revenue from voice services was primarily a result
of reduced per-minute rates as a result of the sale of the assets of our
maritime division, in October 1998, to a reseller, partially offset by a 21%
increase in voice customers in the first quarter of 1999 as compared to 1998.
The increase in service revenue from our data services was due principally to
the inclusion in the three months ended March 31, 1999 of approximately $9.4
million of revenues from the ARDIS data service. Service revenue from capacity
resellers, who handle both voice and data services, increased primarily as a
result of increased contract commitments from current customers.

Revenue from the sale of subscriber equipment increased as a result of
increased sales of certain data products.

<TABLE>
<CAPTION>
THREE MONTHS
ENDED
MARCH 31 CHANGE
-------------- ------------
1999 1998 $ %
----- ----- ----- ---
(IN MILLIONS)
<S> <C> <C> <C> <C>
SUMMARY OF EXPENSES
Cost of service and operations........................... $17.9 $ 7.7 $10.2 132%
Cost of equipment sales.................................. 4.5 3.9 0.6 15
Sales and advertising.................................... 4.7 3.0 1.7 57
General and administrative............................... 4.8 3.6 1.2 33
Depreciation and amortization............................ 13.8 10.2 3.6 35
</TABLE>

As of January 1999, because we completed the integration of the ARDIS
acquisition and we achieved certain related cost synergies, we stopped reporting
separate company information for ARDIS. Consequently, we no longer distinguish
ARDIS costs from those of the rest of the business, and the first quarter
discussion reflects the costs of the consolidated entity.

Cost of service and operations for the first quarter of 1999 includes costs
to support subscribers and to operate the network. As a percentage of total
revenues, cost of service and operations was 88% and 77% for the first quarter
of 1999 and 1998, respectively. The increase in cost of service and

38
<PAGE> 41

operations was primarily attributable to (1) additional headcount, primarily as
a result of the ARDIS acquisition, (2) increased communication charges
associated with increased service usage and costs to support the ARDIS
terrestrial network, (3) system and base station maintenance to support the
ARDIS terrestrial network, (4) site rental costs associated with the terrestrial
network, and (5) incremental Year 2000 readiness costs. As a percentage of
revenue, cost of service and operations has increased as a result of the
variable costs incurred within the ARDIS terrestrial network, such as site rent
and telecommunications costs.

The increase from the first quarter of 1998 to the first quarter of 1999 in
the cost of equipment sold was primarily attributable to the increase in the
volume of sales of the various data products.

Sales and advertising expenses were 23% of total revenue during the first
quarter of 1999 and 30% of total revenue in the same period in 1998. The 57%
increase in sales and advertising expenses from the first quarter of 1998 to the
first quarter of 1999 was generally attributable to increased headcount costs
resulting from the ARDIS acquisition.

General and administrative expenses represented 24% of total revenue in the
first quarter of 1999 and 36% of total revenue in the first quarter of 1998. The
$1.2 million increase in general and administrative expenses quarter over
quarter for 1999 compared to 1998 was primarily attributable to (1) headcount
costs related to additional staffing as a result of the ARDIS acquisition, and
(2) occupancy costs resulting from the leasing of the two ARDIS office
locations.

Depreciation and amortization expense represented approximately 68% of
total revenue in the first quarter of 1999, as compared to 101% of total revenue
in the first quarter of 1998. The $3.6 million increase in depreciation and
amortization expense was primarily attributable to the ARDIS assets acquired and
the amortization of intangibles acquired in the ARDIS acquisition.

Interest and other income was $1.7 million for first quarter of 1999 as
compared to $100,000 for the same period in 1998. The increase was primarily a
result of interest earned on certain required escrows established with the
proceeds from the $335 million of Senior Notes due 2008. We incurred $15.9
million of interest expense in the first quarter of 1999 compared to $6.6
million in the same period of 1998, reflecting (1) interest expense on the $335
million of Senior Notes due 2008 at 12.25%, offset by lower debt balances on our
bank loans (comprising the term loan facility and the revolving credit facility)
and (2) the amortization of debt discount, prepaid interest and debt offering
costs in the amount of $4.6 million in the first quarter of 1999, compared to
$2.5 million in the first quarter of 1998. We anticipate that interest costs
will continue to be significant as a result of borrowings under our term loan
and revolving credit facilities and the Senior Notes due 2008, as explained
under the heading "Liquidity and Capital Resources."

Net capital expenditures for the first quarter of 1999 for property and
equipment were $2.5 million compared to $1.1 million in 1998. The increase was
largely attributable to the acquisition of assets necessary to continue the
required build-outs of the ARDIS terrestrial network.

YEARS ENDED DECEMBER 31, 1998 AND 1997

Service revenues, which includes both our voice and data services,
approximated $58.0 million for 1998, which constitutes a $37.3 million, or 180%,
increase over 1997. The significant increase in service revenues year over year
was primarily attributable to the addition of revenues from the ARDIS data
service. Not including revenues attributable to ARDIS, service revenues for 1998
increased 33% year to year from $20.7 million to $27.6 million.

39
<PAGE> 42

<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, CHANGE
------------- -----------
1998 1997 $ %
----- ----- ----- ---
(IN MILLIONS)
<S> <C> <C> <C> <C>
SUMMARY OF REVENUE
Voice service............................................... $14.0 $10.0 $ 4.0 40%
Data service................................................ 40.1 7.6 32.5 428%
Capacity resellers and other................................ 3.9 3.1 0.8 26%
Equipment revenue........................................... 29.2 23.5 5.7 24%
</TABLE>

The increase in service revenue from voice services was primarily a result
of a 34% increase in voice customers in 1998 as compared to 1997. The increase
in service revenue from the Company's data services was a result of $30.4
million from the ARDIS data service and a 26% increase in mobile data units
during 1998. Service revenue from capacity resellers, who handle both voice and
data services, increased primarily as a result of increased contract commitments
from current customers.

The increase in revenue from the sale of subscriber equipment includes the
sale of approximately $8.5 million of maritime voice equipment to Stratos Global
Corporation in the fourth quarter of 1998. Excluding this sale, revenue from the
sale of subscriber equipment decreased, due to reductions in prices for certain
data products. ARDIS equipment sales were $1.4 million.

<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, CHANGE
------------- -----------
1998 1997 $ %
----- ----- ----- ---
(IN MILLIONS)
<S> <C> <C> <C> <C>
SUMMARY OF EXPENSES
Cost of service and operations.............................. $58.0 $32.0 $26.0 81%
Cost of equipment sales..................................... 30.4 40.3 (9.9) (25)
Sales and advertising....................................... 16.9 12.1 4.8 40
General and administrative.................................. 17.3 14.8 2.5 17
Depreciation and amortization............................... 52.7 42.4 10.3 24
</TABLE>

Cost of service and operations for 1998 includes costs to support
subscribers and to operate our network. As a percentage of total revenues, cost
of service and operations was 67% and 72% for 1998 and 1997, respectively. The
increase in cost of service and operations was primarily attributable to (1)
$26.9 million related to the ARDIS terrestrial network, and (2) increased
interconnect charges associated with increased service usage, offset by (3) a
reduction in information technology costs caused by reducing the dependence on
outside consultants. Absent the acquisition of ARDIS on March 31, 1998, cost of
service and operations for 1998 was $31.1 million, or a $900,000 decrease from
1997.

The decrease from 1997 to 1998 in the cost of equipment sold was primarily
attributable to the impact of an inventory valuation allowance of approximately
$12.0 million recorded in the fourth quarter of 1997 and the resulting decrease
in 1998 equipment prices, offset by the cost of the sale of the maritime
equipment, mentioned above.

The 40% increase in sales and advertising expenses from 1997 to 1998 was
primarily due to costs attributable to ARDIS. Absent the acquisition of ARDIS,
sales and advertising expenses for 1998 were $12.3 million, or an increase of
less than 2% over 1997. Sales and advertising expenses were 19% of total revenue
in 1998 and 27% of total revenue in 1997.

40
<PAGE> 43

General and administrative expenses represented 20% and 34% of total
revenue in 1998 and 1997, respectively. The dollar increase in general and
administrative expenses for 1998 compared to 1997 was primarily due to $5.4
million of costs attributable to the ARDIS operations, offset by reductions of
approximately $2.9 million of expenses attributable to (1) $900,000 in taxes
relating to a reversal of an accrual as a result of obtaining a favorable
property tax ruling, and (2) reductions of bad debt expense. Absent the
acquisition of ARDIS, general and administrative expenses for 1998 were $11.9
million.

Depreciation and amortization expense represented approximately 60% of
total revenue in 1998, as compared to 96% of total revenue in 1997. The dollar
increase in depreciation and amortization expense was primarily attributable to
the ARDIS assets acquired and the step-up in the basis of ARDIS licenses. Absent
the acquisition of ARDIS, depreciation and amortization expense for 1998 was
$40.0 million, or a reduction of $2.4 million from 1997.

Interest and other income was $4.4 million for 1998 as compared to $1.1
million for 1997. The increase was primarily a result of interest earned on
certain required escrows established with the proceeds from the $335 million of
Senior Notes due 2008. We incurred $53.8 million of interest expense in 1998
compared to $21.6 million in 1997, reflecting (1) the amortization of debt
discount, prepaid interest and debt offering costs in the amount of $16.2
million in 1998, compared to $9.4 million in 1997 and (2) interest expense on
the $335 million of Senior Notes due 2008 at 12.25%, offset by lower debt
balances on our bank loans.

Interest expense in 1998 was significant as a result of borrowings under
the term loan facility and revolving credit agreement, the amortization of
borrowing costs incurred in connection with the negotiation and completion of
such facilities, and interest accrued on the Senior Notes due 2008. It is
anticipated that interest costs will continue to be significant as a result of
borrowings under the term loan facility and revolving credit facility and the
Senior Notes due 2008, as explained under the heading "Liquidity and Capital
Resources."

Net capital expenditures for 1998 for property and equipment were $12.5
million compared to $8.6 million in 1997. The increase was largely attributable
to the acquisition of assets necessary to continue the required build-outs of
the terrestrial network.

YEARS ENDED DECEMBER 31, 1997 AND 1996

Service revenues, which include both our voice and data services,
approximated $20.7 million for 1997 as compared to $9.2 million for 1996 and
represents a 125% increase year over year.

<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, CHANGE
------------- ----------
1997 1996 $ %
----- ----- ---- ---
(IN MILLIONS)
<S> <C> <C> <C> <C>
SUMMARY OF REVENUE
Voice service............................................... $10.0 $ 5.0 $5.0 100%
Data service................................................ 7.6 2.3 5.3 230
Capacity resellers and other................................ 3.1 1.9 1.2 63
Equipment revenue........................................... 23.5 18.5 5.0 27
</TABLE>

Service revenue from voice services increased primarily as a result of a
101% increase in voice customers during 1997. Service revenue from our data
services increased as a result of additional revenue from subscribers added as a
result of the acquisition, on November 1996, of a dual mode mobile messaging and
global positioning and monitoring service from Rockwell International

41
<PAGE> 44

Corporation, as compared to the revenue received in 1996 for satellite capacity
leased by Rockwell. The increase in service revenue from capacity resellers, who
handle both voice and data services, was a result of additional data customer
contracts.

The increase in the sale of subscriber equipment was primarily attributable
to increased equipment sales of the dual-mode mobile messaging product,
discussed above.

<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, CHANGE
------------- ------------
1997 1996 $ %
----- ----- ------ ---
(IN MILLIONS)
<S> <C> <C> <C> <C>
SUMMARY OF EXPENSES
Cost of service and operations.............................. $32.0 $30.5 $ 1.5 5%
Cost of equipment sales..................................... 40.3 31.9 8.4 26
Sales and advertising....................................... 12.1 24.5 (12.4) (51)
General and administrative.................................. 14.8 17.5 (2.7) (15)
Depreciation and amortization............................... 42.4 43.4 (1.0) (2)
</TABLE>

Cost of service and operations, which includes costs to support subscribers
and to operate the satellite network, as a percentage of total revenues, were
72% and 110% for 1997 and 1996, respectively. The increase in cost of service
and operations was primarily attributable to (1) increased interconnect charges
associated with increased service usage by customers, and (2) the additional
cost associated with supporting the dual mode mobile messaging product discussed
above, offset by a reduction in information technology costs affected by
reducing the dependence on outside consultants.

The cost of equipment sold represented 91% of total revenue in 1997 and
115% of total revenue in 1996. While this percentage decrease was primarily a
result of the increase in the total revenue, the dollar increase in the cost of
equipment sold was primarily attributable to (1) increased sales as a result of
the acquisition of the dual mode messaging product, (2) an increase of $600,000
in inventory carrying costs as certain subscriber equipment contracts were
fulfilled, and (3) a $12.0 million write-down of inventory to net realizable
value in 1997 as compared to a $11.1 million write-down and reconfiguration
charges in 1996.

Sales and advertising expenses as a percentage of total revenue were 27% in
1997 and 88% in 1996. The decrease of sales and advertising expenses was
primarily attributable to (1) a more focused approach to advertising as the
company moved from consumer markets to targeted business-to-business sales, and
the resulting reduction in print advertising, (2) increased costs in the first
quarter of 1996 for the development of collateral material needed to support
sales and marketing, and (3) costs incurred in the first quarter of 1996
associated with the formal launch of service.

General and administrative expenses decreased for 1997, as compared to
1996, primarily as a result of reductions made in staffing due to a management
restructuring in the third quarter of 1996 and the associated severance costs.
As a percentage of total revenue, general and administrative expenses
represented 34% in 1997 and 63% in 1996.

Depreciation and amortization expense represented approximately 96% and
157% of total revenue for 1997 and 1996, respectively. The decrease in
depreciation and amortization expense was attributable to the reduction of the
carrying value of the satellite as a result of the resolution, in August 1996,
of claims under our satellite insurance contracts and policies and the receipt
of approximately $66.0 million, offset by a $1.0 million one-time charge, in the
second quarter of 1997, associated with increased amortization in accordance
with SFAS No. 86 of certain cost associated with software development for the
mobile data product.

42
<PAGE> 45

Interest income was $247,000 in 1997 compared to $552,000 in 1996. The
decrease was a result of lower average cash balances. We incurred $21.6 million
of interest expense in 1997 compared to $15.2 million of interest expense in
1996 reflecting (1) the amortization of debt discount and debt offering costs in
the amount of $9.4 million in 1997, compared to $5.7 million in 1996, and (2)
higher outstanding loan balances as compared to 1996. During 1997, we received
other income in the amount of $875,000 representing proceeds from the licensing
of certain technology associated with the satellite network.

Net capital expenditures for 1997 for property and equipment were $8.6
million compared to capital reductions of $51.9 million in 1996. The $60.5
million increase was largely attributable to (1) the net proceeds in 1996 of
$66.0 million from the resolution of the claims under our satellite insurance
contracts and policies as previously disclosed and (2) the decrease in asset
acquisitions associated with the final build-out of the communications ground
segment.

LIQUIDITY AND CAPITAL RESOURCES

GENERAL

Adequate liquidity and capital are critical to our ability to continue as a
going concern and to fund subscriber acquisition programs necessary to achieve
positive cash flow and profitable operations. We expect to make significant
capital outlays to fund interest expense, capital expenditures and working
capital before we begin to generate positive cash flow from operations. These
outlays are expected to continue for the foreseeable future thereafter. While we
believe that the net proceeds from this offering, together with existing
available borrowings, will be sufficient to fund operating losses, capital
expenditures, working capital, and scheduled principal and interest payments on
debt through the time when we expect to generate positive free cash flow, it is
possible that our cash flows from operations will be less than projected. In
that event, we would need to obtain additional funding, which may not be
available to us or, if available, may not be offered on attractive terms.

On March 31, 1998, our subsidiary, AMSC Acquisition Company, Inc., issued
$335 million of units consisting of 12 1/4% Senior Notes due 2008 and one
warrant to purchase 3.75749 shares of our common stock for each $1,000 principal
amount of Senior Notes. Also on March 31, 1998, we restructured our existing
bank loans and entered into 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 April 30, 1999, we had $41.0 million available for
borrowing under the revolving credit facility. Additionally, at the time of the
ARDIS acquisition, Motorola agreed to provide us with up to $10 million of
vendor financing to finance up to 75% of the purchase price of additional base
stations needed to meet our buildout requirements under certain customer
contracts. As of March 31, 1999, $4.6 million was outstanding under this
facility.

In connection with our term loan and revolving credit facilities, each of
Hughes Electronics Corporation, Singapore Telecommunications Ltd. and Baron
Capital Partners, L.P. (collectively, these entities are referred to in this
discussion as the "Bank Facility Guarantors") extended separate guarantees of
our obligations and those of AMSC Acquisition Company under the term loan and
revolving credit facilities. The aggregate amount of these guarantees is $200
million. In exchange for these guarantees, we agreed to issue them an aggregate
of 1 million warrants to purchase shares of our common stock, and to re-price
5.5 million warrants previously issued to them (together, these warrants are
referred to in this discussion as the "Guarantee Warrants"). The Guarantee
Warrants were issued with an exercise price of $12.51 per share and were valued
at approximately $17.7 million. On March 29, 1999, we agreed to reprice the
Guarantee Warrants, to $7.50 per share, in exchange for the Bank Facility
Guarantors agreeing to eliminate certain restrictive covenants applicable to us
relating to our future earnings before interest, depreciation, amortization and
taxes

43
<PAGE> 46

("EBITDA") and service revenue. The value of this repricing was approximately
$1.5 million. As of May 31, 1999, we had $100.0 million in principal amount
outstanding under the term loan facility at a weighted average interest rate of
5.5%, and $72.0 million principal amount outstanding under the revolving credit
facility at interest rates ranging from 5.6875% to 5.8125%.

Further, in connection with the guarantees provided by the Bank Facility
Guarantors, we agreed to reimburse the Bank Facility Guarantors if they are
required to actually make payment pursuant to their guarantees. To secure this
reimbursement commitment, we provided the Bank Facility Guarantors a junior
security interest in our assets, principally our stockholdings in XM Radio and
AMSC Acquisition Company.

At the time we entered into the term loan facility, we 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 under the term loan
facility. We paid a fee of approximately $17.9 million for the swap agreement.
Under the swap agreement, we will receive an amount equal to LIBOR plus 50 basis
points, paid directly to the banks on a quarterly basis, on a notional amount of
$100 million until the termination date of March 31, 2001. We have reflected as
an asset the unamortized fee paid for the swap agreement in our accompanying
financial statements. We are exposed to a credit loss in the event of
non-performance by the counter party under the swap agreement. We do not believe
there is a significant risk of non performance as the counter party to the swap
agreement is a major financial institution.

We have arranged the financing of certain trade payables, and as of March
31, 1999, $3.0 million of deferred trade payables were outstanding at rates
ranging from 6.10% to 12.0% and are generally payable by the end of 1999.

While we believe that the net proceeds from this offering, together with
existing available borrowings, will be sufficient to fund operating losses,
capital expenditures, working capital, and scheduled principal and interest
payments on debt through the time when we expect to generate positive free cash
flow, it is possible that our cash flows from operations will be less than
projected. In general, our ability to meet our projections is subject to
numerous uncertainties and there can be no assurance that our current
projections regarding the timing of our ability to achieve positive operating
cash flow will be accurate. If our cash requirements are more than projected, we
may need additional financing in amounts which may be material. The type, timing
and terms of financing that we select will be dependent upon our cash needs, the
availability of other financing sources and the prevailing conditions in the
financial markets. We cannot be sure that any additional financing will be
available to us at any given time or available on favorable terms.

On January 15, 1999, we issued to Baron Asset Fund a $21.5 million note
convertible into shares of XM Radio common stock owned by us (the "Baron Note").
We then loaned approximately $21.4 million to XM Radio in exchange for XM Radio
common stock and a note issued by XM Radio convertible into XM Radio common
stock (the "XM Note Receivable"). The Baron Note ranks subordinate to all of our
other debt obligations and is fully collateralized by approximately one-half of
the shares we received as a result of this transaction. The XM Note Receivable
is a non-recourse note collateralized by the additional XM Radio shares that we
would receive upon conversion of the note. The XM Note Receivable earns interest
at LIBOR plus 5% and is due on September 30, 2006, and the Baron Note accrues
interest at the rate of 6% annually, with all payments deferred until maturity
or extinguished upon conversion. We have the option to satisfy the Baron Note by
tendering the shares into which it would have been convertible in lieu of any
cash payment.

COMMITMENTS. At March 31, 1999, we 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, we had
remaining contractual commitments in the amount of

44
<PAGE> 47

$635,000 for the development of certain next generation data terminals.
Contingent upon successful research and development efforts, we 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. We have 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. We also have the right to terminate the inventory
commitment by incurring a cancellation penalty representing a percentage of the
unfulfilled portion of the contract. We have also contracted for the purchase of
$26.2 million of second generation wireless two-way messaging devices to be
delivered beginning mid-1999. The contract contains a 50% cancellation penalty.
Additionally, we have 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.

All of our wholly owned subsidiaries are subject to financing agreements
that limit the amount of cash dividends and loans that they can advance to us.
At March 31, 1999, all of our subsidiaries' net assets were restricted under
these agreements. These restrictions will have an impact on our ability to pay
dividends.

Cash used in operating activities was $16.0 million for the first quarter
of 1999 compared to $10.9 million for the comparable period in 1998. The
increase in cash used in operating activities was primarily attributable to (1)
approximately $3.0 million of increased operating losses, primarily as a result
of additional net expenses incurred as a result of the ARDIS acquisition and
Year 2000 readiness programs, and (2) increases in net working capital
requirements resulting primarily from increased data service revenues. Cash used
in investing activities was $25.4 million for the first quarter of 1999 compared
to $193.4 million for the first quarter of 1998, representing the acquisition of
ARDIS in March 1998, and the funding of certain required escrows in connection
with the acquisition and issuance of the Senior Notes due 2008, offset by the
issuance in January 1999 of the XM Note Receivable. Cash provided by financing
activities was $47.2 million in the first quarter of 1999 as compared to $223.5
million in the first quarter of 1998 reflecting the issuance of the Senior Notes
due 2008 in March 1998, offset by the repayment of other long-term debt in the
first quarter of 1998, and the proceeds from the issuance of the Baron Note and
draws under the revolving credit facility in the first quarter of 1999. Proceeds
from the sale of shares of our common stock were $162,000 and $103,000 for the
first three months of 1999 and 1998, respectively. Payments on long-term debt
and capital leases were $1.3 million and $100,000 for the first three months of
1999 and 1998, respectively. In addition, we incurred $40,000 of debt issuance
costs in the first quarter of 1999, as compared to $13.5 million in the first
quarter of 1998, reflecting placement of the Senior Notes due 2008, and costs
incurred in connection with the negotiation and completion of the term loan
facility and revolving credit facility. As of March 31, 1999, we had $8.1
million of cash and cash equivalents, working capital of $8.5 million, $21.7
million of securities and $41.0 million of investments restricted for the
payment of interest.

XM RADIO'S LIQUIDITY AND CAPITAL RESOURCES

XM Radio has raised an aggregate of $167.0 million through debt and equity
securities since its inception. 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 $167.0 million
raised by XM Radio to date, we provided approximately $1.7 million (excluding
the XM Note Receivable funded by the Baron Note described above), $21.4 million
was provided by the XM Note Receivable, and the remainder was provided by
WorldSpace. On June 7, 1999 we agreed to acquire WorldSpace's debt and equity
interests in XM Radio, other than a $75 million loan from WorldSpace to XM
Radio, in exchange for approximately 8.6 million shares of our common stock. As
of the date this transaction closes, we will own all of the issued and
outstanding stock of

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<PAGE> 48

XM Radio, although several large notes convertible into equity of XM Radio would
be outstanding. WorldSpace will no longer own any direct equity or debt interest
in XM Radio. Concurrently with this transaction, XM Radio committed to issue
$250 million of subordinated convertible notes to several new strategic and
financial investors. XM Radio will use $75 million of the proceeds from the
notes to repay the outstanding loan payable to WorldSpace. 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.
Following these transactions, assuming a subsequent conversion of all
outstanding convertible notes of XM Radio into voting stock, including the Baron
Note, we would own approximately 37% of the economic interest in XM Radio.

Following consummation of the XM Radio Transactions and receipt of proceeds
from the subordinated convertible notes, XM Radio currently estimates that it
will require approximately $700.0 million 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. The amount 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 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. See "The XM Radio Transactions." 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 control of XM Radio, including
unexpected costs, unforeseen delays, engineering design changes, launch
failures, satellite anomalies, adverse regulatory developments, or other
unanticipated events.

We are not required to provide any additional funding to XM Radio, and we
expect that XM Radio will continue to obtain substantially all of its required
funding from other sources. Accordingly, we do not expect that development of
the XM Radio business will have a material effect on our consolidated liquidity,
capital resources or cash flows. We do not intend to use any of the net proceeds
from this offering to fund XM Radio's business plan.

REGULATION

The ownership and operations of our wireless communication systems and XM
Radio's systems are subject to significant regulation by the FCC, which acts
under authority granted by the Communications Act of 1934, as amended, and
related federal laws. A number of our licenses are subject to renewal by the FCC
and, with respect to our satellite operations, are subject to international
frequency coordination. In addition, the Communications Act limits the ownership
and control of American Mobile by non-U.S. citizens or entities to 25%, unless
such ownership is found to be in the public interest. There can be no assurances
that the rules and regulations of the FCC will continue to support our
operations as presently conducted and contemplated to be conducted in the
future, or that all existing licenses will be renewed and requisite frequencies
coordinated. See "Regulation."

YEAR 2000 READINESS

American Mobile has a Year 2000 Readiness Program to address Year 2000
issues. "Year 2000 Ready," or "Year 2000 Readiness," means that customers will
experience no material difference in

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<PAGE> 49

performance and functionality of our networks as a result of the date being
prior to, during or after the year 2000.

Our Year 2000 Readiness Program uses the phased approach that is common in
our industry. The awareness, inventory and assessment phases have been
completed, and American Mobile is at various stages of the renovation,
validation/test and implementation/rollout phases, depending on the particular
system involved.

Our plans for the renovation, validation/test and implementation/rollout
phases call for us to be Year 2000 Ready by the end of the third quarter of
1999. In addition, we are currently scheduled to complete renovations,
implementation and rollout of our internal systems, including our CMIS voice
customer billing software, in the fourth quarter 1999. These internal software
systems do not affect our ability to pass customer traffic and therefore will
not affect Year 2000 Readiness.

The complex of hardware and software that we maintain consists of
commercial off-the-shelf software, as well as custom software developed
specifically for our networks. In certain cases, our Year 2000 Readiness Program
involves upgrading commercial off-the-shelf software that is unsupported by the
vendor or whose Year 2000 Readiness could not be determined. Upgrading such
commercial off-the-shelf software, as planned, provides greater certainty
regarding the Year 2000 Readiness of such products and ensures that vendor
support will be available.

Our Year 2000 Readiness Program cost approximately $2.4 million in 1998.
Expenditures for the Year 2000 Readiness Program in 1999 are estimated to be up
to $7.4 million, of which approximately $1.5 million was incurred as of March
31, 1999. Some of these costs, including the purchase of software upgrades and
consulting services, are expensed as incurred while other costs, such as
hardware purchases, are being treated as capital expenditures.

The estimated cost and date on which we believe our network will be Year
2000 Ready are our best estimates. However, there is no guarantee that we will
achieve these results and actual results could differ materially from those
anticipated. Some of our critical business systems depend significantly on
software programs and third party services that are not within our control.
Failure to solve Year 2000 errors within our critical business systems could
result in possible service outages, miscalculations or disruption of operations
that could have a material impact on our business. Because of our heavy
dependence on software, some Year 2000 problems may not be found or the
remediation efforts may introduce new bugs that are not identified before they
impact operations. This applies to both commercial off-the-shelf software and
custom software.

If our customers fail to make their own hardware and software Year 2000
Ready on time, their applications may not function even if our systems are Year
2000 Ready. This could result in reduced traffic and revenues. Also, suppliers
of goods and services may suffer Year 2000-related failures from which we cannot
adequately protect our business.

While we believe that we will be able to achieve Year 2000 Readiness in a
timely manner, the schedule for completing the implementation of several core
business systems extends to the third quarter of 1999 and there is a possibility
that we may not become Year 2000 Ready on time or within budget. Contingency
planning, as discussed below, is currently underway to minimize the risk of
business interruptions caused by Year 2000 problems within our core business
systems.

We have contingency arrangements in place to minimize service interruptions
that can mitigate, although not eliminate, interruptions caused by problems
resulting from Year 2000 issues. For example, we have backup power supplies and
generators in place for certain portions of our networks in the event of
electrical power outages. In addition, we have contracted with more than one
service provider for some services. We are incorporating these arrangements into
our Year 2000 contingency plans. To the extent that it is commercially
reasonable to do so, we will include other redundant or alternative sources of
services in our Year 2000 contingency planning efforts.

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<PAGE> 50

BUSINESS

In this section of the prospectus, we describe important aspects of our
business. We have divided this section into two separate sections, one
describing our core wireless communications business, and the other discussing
XM Radio's business. As described elsewhere in this prospectus, XM Radio is a
development stage company. XM Radio has a separate management team and a
business plan that is distinct from our core wireless business. To date, XM
Radio has received substantially all of its required funding from independent
sources in exchange for debt and equity interests in XM Radio. We are not
required to provide any additional funding to XM Radio, and we currently expect
that XM Radio will continue to obtain substantially all of its required funding
from other sources. Accordingly, we do not expect that development of the XM
Radio business will have a material effect on our consolidated liquidity,
capital resources or cash flows. For these reasons, we describe XM Radio's
business in a section that is separate from the discussion of our core wireless
operations. The description of XM Radio's business begins on page 67 of this
prospectus.

OVERVIEW

We are a nationwide provider of wireless two-way data, dispatch and voice
communications services that enable businesses and mobile workers to manage,
access, and transfer electronic information. We have developed a versatile array
of products and services targeted at customers in four primary market segments:
(1) transportation and package delivery, (2) field service, (3) wireless email
and other Internet-based content services, and (4) telemetry. Customers use our
products and services to connect their remote and mobile equipment and people to
their enterprise systems. We deliver our services through our own wireless
network that uniquely integrates separate terrestrial and satellite components.
Our customers typically sign multi-year contracts for applications on our
network such as:

- messaging and call dispatch systems used by large transportation
companies and field service organizations,

- two-way wireless email services that provide mobile professionals with
integrated wireless access to a broad range of corporate and Internet
email applications,

- telemetry and point-of-sale systems that connect remote equipment, such
as utility meters or wireless point-of-sale terminals, with a central
monitoring facility,

- global position tracking systems that permit businesses to manage mobile
assets, and

- point-to-multi-point voice communications systems used by natural
resource companies, utilities, government agencies and other entities
with mobile fleets and field workers.

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quarter of 1999. In addition, we reduced our EBITDA loss from ($56.9) million in
1997 to ($36.9) million in 1998, on a pro forma basis for the ARDIS acquisition.

We believe that we are well positioned to capitalize on the substantial and
growing market for wireless data services, which Strategis estimates is composed
of approximately 32.3 million addressable mobile workers with significant
wireless communication and data access needs. Strategis further estimates that
approximately 9.7 million of these workers will use some form of mobile data
service by 2002, and that approximately 2.8 million workers currently use some
form of mobile data service, primarily analog cellular-based service. We believe
that growth in this market is being driven by the widespread acceptance of
wireless voice services and the need for mobility in many market segments. We
also believe that growth is being driven by development of more compact, less
expensive user devices, and an increasing requirement for "real-time" wireless
communications between companies, as well as between their mobile workers,
customers and vendors. The Internet has contributed to this growth by expanding
the ability to communicate across a common technology platform. In addition,
there is a large and growing market for wireless telemetry applications such as
utility meter reading, premises alarm monitoring and point-of-sale credit and
debit card transaction processing. Strategis estimates that there are
approximately 96.0 million control and data collection points that may be
addressable by wireless data communication services.

We have been and will continue to be focused on serving the needs of two
established markets -- transportation and field service -- through both existing
products and the development of new products. Transportation and package
delivery customers such as UPS, Cannon Express and Southeastern Freight Lines
typically use our nationwide data network to meet the data communications and
location positioning requirements which result from customer demand, regulatory
initiatives, and just-in-time inventory requirements. Field service customers
such as IBM, NCR, Pitney Bowes and Sears use data applications such as service
call dispatch, asset tracking and peer-to-peer communications to achieve
critical business objectives that result in increased productivity,
profitability and customer satisfaction. Other customers such as AT&T Network
Services, MCI WorldCom and The Williams Companies use our voice dispatch service
to provide their field service organizations with nationwide point-to-multipoint
communication via push-to-talk handsets.

In addition to penetrating our established markets more fully, we are
capitalizing on the advantages of our network to accelerate our entry into new
markets with significant growth potential, such as wireless email service and
wireless telemetry. On May 4, 1999, we announced our eLink wireless email
service, a combination of two-way wireless email and personal information
management software that has been designed to uniquely meet the needs of mobile
professionals. This service uses a palm-sized device which enables professionals
located throughout the country to remain wirelessly connected to their desktop
PC's and enterprise networks. We believe that the functionality, convenience and
pricing of this service will allow us to penetrate a significant portion of the
mobile professional workforce. We also believe that our network's attributes
will allow us to expand our presence in the wireless telemetry market where we
have developed a core customer base that includes companies such as ABB
Information Systems, Ameritech SecurityLink, Akyman USA Inc. and U.S. Wireless.
Telemetry customers use our network to create efficiencies in a number of
critical data applications such as automated meter reading, business alarm
monitoring, oil and gas wellhead and pipeline monitoring, vending machine
monitoring and point-of-sale transactions.

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<PAGE> 52

to integrate SkyTel's content service offerings into the eLink service for its
customers. We are currently in discussions with a number of other large
potential distribution partners for our eLink service. We have also entered into
a number of distribution agreements with resellers for our telemetry products in
order to penetrate specific markets where such resellers have a significant
market presence and substantial sales and marketing resources. For example, we
have entered into an agreement with ABB Information Systems, under which ABB
markets our wireless telemetry product to utility companies, so that utilities
can collect data from remote utility meters. We will continue to seek additional
third party distribution channels with companies that provide access to large
customer bases that we wish to target.

MARKET OPPORTUNITY -- WIRELESS DATA SERVICES

We believe that wireless data services will be the primary driver of our
future growth and profitability and that the market for wireless data services
is substantial and growing. Strategis estimates that the addressable market for
wireless data products is composed of approximately 32.3 million mobile workers
in a variety of occupations, with significant wireless communication and data
access needs. Strategis further estimates that approximately 9.7 million of
these workers will use some form of mobile data service by 2002, and that
approximately 2.8 million workers currently use some form of mobile data
service, primarily analog cellular-based service.

We believe that growth in this market is being driven by the widespread
acceptance of wireless voice services, the need for mobility in many market
segments, and a growing need for "real-time" communications. The Internet has
contributed to this growth by expanding the ability to communicate across a
common technology platform. This trend is being accompanied by, and in some
cases contributing to, an increase in customer demand for just-in-time delivery,
development of more compact, less expensive user devices, and an increasing
requirement for wireless communications between companies, as well as between
their mobile workers, customers and vendors.

The table below shows our target market segments and provides an estimate,
based on the market research of Strategis, of the potential addressable market
size for each:

<TABLE>
<CAPTION>
MARKET SEGMENT MARKET SIZE
- -------------- -----------
(UNITS IN THOUSANDS)
<S> <C>
Transportation........................................ 5,800
Field service......................................... 1,800
Wireless email........................................ 24,500
Other................................................. 200
-------
32,300
Telemetry............................................. 96,000
-------
Total............................................ 128,300
</TABLE>

TRANSPORTATION

In the transportation industry, we have focused primarily on wireless data
solutions for the trucking market. The major segments of the trucking industry
include: truckload (or long-haul), less-than-truckload, package delivery,
private fleets and asset/trailer tracking. The transportation industry uses
mobile communications to keep track of drivers, monitor loads and assets not in
use, trace delivery problems and keep customers informed through the integration
of mobile communications with the transportation company's back-office systems.

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<PAGE> 53

The truckload market consists of long-haul operators who handle
point-to-point shipments sent directly from sender to receiver. Strategis
estimates that the total potential truckload market is approximately 790,000
subscriber units, and we believe that the current market penetration is
approximately 55%. To meet customer demands and comply with regulatory
requirements, this segment was the first to adopt two-way wireless
communications systems. Customers in this segment use our products to improve
fleet asset utilization, reduce non-revenue producing miles and achieve on-time
deliveries.

The less-than-truckload segment is characterized by shipments that are
typically picked up by a carrier at a terminal, moved as part of a larger load,
sorted at a destination terminal and then delivered. Strategis estimates that
the total less-then truckload market is approximately 200,000 units. Because of
competition from package delivery firms such as Federal Express and UPS, as well
as regulatory requirements and demands from customers for constant
communications on delivery status, the less-than-truckload segment is beginning
to adopt two-way wireless communications systems. The less-than-truckload market
currently has very little penetration by mobile communications providers. We
believe our multi-mode product is well matched to the higher volume data
requirements of less-than-truckload carriers, due to its ability to provide
service in areas not covered by existing satellite-only and terrestrial-only
competitors, and the lower average usage charges enabled by the integration of
our terrestrial and satellite networks.

There are a relatively small number of large, national firms in the package
delivery segment. We believe that the potential package delivery market is
approximately 230,000 units. We believe we are in a good position to achieve
leadership in this segment with the recently announced rollout of our contract
with UPS. Under this multi-year agreement, UPS will use our terrestrial network
for wireless communications for its third generation package tracking device. On
June 14, 1999, UPS began using its third generation package tracking device in
13 metropolitan areas, including New York, Chicago, San Francisco and Boston.
The contract calls for us to provide wireless communications services for
approximately 50,000 UPS units by the end of 2001. This contract represents the
largest implementation of a wireless data service using our terrestrial network.

Private fleets are operated by non-trucking firms that haul their own
freight. Strategis estimates that there are approximately 574,000 private-fleet
vehicles in the United States. Private fleets provide services in both the
long-haul and less-than-truckload segments.

Asset/trailer tracking is a specialized segment within the transportation
market, and refers to the tracking of mobile transportation assets, such as
trailers in the trucking industry, and railroad locomotives, rail cars and
containers. Strategis estimates that the total size of the asset/trailer
tracking market is approximately 4.0 million units. Companies monitor the
location of their remote and mobile transportation assets to give "real-time"
tracking information to their customers, particularly on high-value or
perishable shipments that are in-transit. Also, because transportation companies
generally assume liability for shipments while in transit, they are attracted to
wireless solutions which allow them to track shipments more efficiently and to
be notified promptly if their trucks are opened or broken into.

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<PAGE> 54

TRANSPORTATION -- 5.8 MILLION ADDRESSABLE UNITS

<TABLE>
<CAPTION>
LESS-THAN- ASSET/TRAILER
TRUCKLOAD TRUCKLOAD PACKAGE DELIVERY PRIVATE CARRIERS TRACKING
-------------- ---------- ------------------- ---------------- --------------
<S> <C> <C> <C> <C> <C>
Characteristics...... Long-haul, Multi- Multi-pickup and Internal company Location
point-to-point pickup and delivery; largest fleets tracking and
delivery short-term delivery security
firms monitoring
Market Size (units in 790 200 230 570 4,000
thousands).........
</TABLE>

FIELD SERVICE

Companies employ field service workers in a variety of market segments,
including the computer, office systems, building systems, oil and gas, and
telecommunications markets. Field service workers in each market segment need
connectivity to their office and immediate access to information in order to
respond to customers in the field. Each market segment, however, has its own
requirements in terms of wireless access and subscriber equipment.

The field service market is composed of a highly mobile workforce focused
on maintaining, repairing and servicing equipment on the customer's premise or
remote locations. In response to customer demand, field service work has become
increasingly focused on rapid response and efficient delivery of high quality
service. To meet these challenges, field service groups have turned to wireless
technology to provide dependable and timely call dispatching and communications.
Using a variety of ruggedized laptop and handheld computers, field service
organizations can be in constant contact with customers and their home office
under any environmental conditions.

Strategis estimates that there are approximately 1.8 million field service
workers who are directly addressable by our products. The field service category
can be subdivided into two broad segments, in-building and vehicle-based, each
of which has different product requirements. Our in-building customers, such as
those in the information systems, office equipment and building services
segments, value the deep in-building penetration of our terrestrial network. Our
vehicle-based customers, such as those in the oil and gas, telecommunications
and utilities segments, generally value the broad, nationwide coverage of our
network.

FIELD SERVICE -- 1.8 MILLION ADDRESSABLE UNITS

<TABLE>
<CAPTION>
IN-BUILDING VEHICLE-BASED
------------------------- -------------------------
<S> <C> <C>
Characteristics.......... Repair personnel, Primarily outdoor, team-
installers, contractors, oriented and contingency
and engineers using based operators in the
primarily data telecommunications,
applications for single utility and petroleum
worker dispatch and industries typically
database query using voice dispatch
applications. applications.
Market Size (units in
thousands)............. 1,200 600
</TABLE>

WIRELESS EMAIL AND OTHER INTERNET-BASED CONTENT SERVICES

The largest segment of the market for mobile data communications services
consists of a broad array of mobile workers, including professionals, with
significant requirements for wireless email and

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other Internet-based content services. This segment contains approximately 24.5
million mobile workers in industries and functions that include manufacturing,
wholesale and retail trade, and a variety of service industries. The majority of
users within this segment often do not require integrated connection with
centralized systems such as an intranet, but still have a need for wireless data
communication, such as email. Many of these workers need to communicate not only
with their employer and fellow employees, but also with their customers and
third parties, often using the Internet. We believe that mobile professionals
will increasingly demand two-way wireless communications services that access
electronic data applications such as email and other Internet applications.
Because these applications are similar across numerous industries, the segment
is horizontally addressable.

WIRELESS TELEMETRY

Telemetry facilitates data connectivity between remote equipment and a
central facility, generally without human interaction. Telemetry is used by a
wide variety of companies for applications such as automated meter reading,
monitoring of oil and gas pipelines, and the monitoring of a wide variety of
systems, including alarm and security systems, vending machines and
environmental and agricultural monitoring equipment. Strategis estimates that
there are approximately 96.0 million control and data collection points that may
be addressable by wireless data communications services. As of mid-1997,
according to Strategis, in excess of 8.4 million control and data points had
been connected to monitoring facilities via wireless data communications
services.

The traditional telemetry market is composed of several sub-segments. We
intend to focus our efforts in the telemetry market in several of these areas,
including:

- Automated meter reading

- Security/alarms

- Oil and gas pipeline monitoring

- Vending and office machines

- Building control

- Point-of-sale applications

We believe that the largest current telemetry opportunity is automated
meter reading. There are over 185 million meters in the United States with fewer
than 1% automated. Historically, automated meter reading applications have been
developed using handheld devices and drive-by systems installed in energy
companies' maintenance vehicles. Recently, network-based wireless systems such
as ours have expanded the benefits of automated meter reading by adding
real-time delivery of information, improved billing and customer care, remote
management of customer accounts, and real-time load profiling for customers.

We believe that there are significant opportunities for wireless telemetry
applications in other fields. For example, wireless telemetry solutions can
allow customers to monitor, at a low cost, their remote office machines,
computer systems and vending machines, thereby improving the value and
productivity of those assets. In the oil and gas industry, telemetry
applications can improve remote flow control monitor systems, enhance compliance
with new environmental regulations, and improve emergency response without
sending technicians to monitor remote installations.

Point-of-sale applications are creating an emerging market segment for
wireless communications. We believe there are two segments within the broad
market where a wireless solution can be applied to point-of-sale applications.
The first segment is an environment in which our network enables a wireless
point-of-sale solution that is faster than the wireline offering or other
traditional wireless

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solutions, making it viable to offer credit card processing in stores such as
fast food franchises. The second segment includes those applications for which
wireline connectivity is not an option, such as taxi and limousine services.

OTHER MARKET SEGMENTS

The maritime segment consists of working boats, such as commercial merchant
ships and fishing ships, and pleasure boats such as large recreational vessels.
Our satellite-based mobile communications services are used by these vessels to
increase operating efficiencies, extend the reach of terrestrial wireless
services, and improve navigation. Strategis estimates that there are over
200,000 vessels that may be addressed by our satellite-based communication
services.

Other market segments addressed by our offerings include remote
exploration, news gathering, recreational vehicles, and business and general
aircraft. The common application among these segments is satellite telephony,
including facsimile and circuit switched data. We have developed a customer base
in each of these segments, and have in some cases sponsored the development of
unique equipment configurations designed to meet the needs of specific user
environments.

OUR WIRELESS BUSINESS STRATEGY

Our objective is to deliver cost-effective, value-added wireless services
to end users in targeted market segments. We believe this focused
customer-oriented approach will maximize the number of our subscribers and
revenue, which will allow us to generate the greatest returns for our
stockholders. To meet this objective we intend to:

- continue to offer business customers a broad range of nationwide wireless
solutions;

- access new market segments with significant growth potential, such as
wireless email services and telemetry, where we believe our products
provide a compelling value-added service;

- develop new third party distribution channels;

- enhance market penetration by lowering customers' "total cost of
ownership"; and

- capitalize on the technological advantages of our nationwide data
network.

CONTINUE TO OFFER BUSINESS CUSTOMERS A BROAD RANGE OF NATIONWIDE WIRELESS
SOLUTIONS. We believe that we possess a key strategic advantage in being able
to offer our business customers a broad range of wireless solutions using our
own unique, nationwide network. We expect to continue to offer an extensive
range of wireless solutions, including custom data applications, nationwide
dispatch, two-way messaging, wireless email, voice telephony and dispatch
services, and telemetry applications. We believe that our array of wireless
solutions addresses several market segments with significant growth potential.
By offering a wide range of cost-effective wireless solutions using our
integrated nationwide network, we are able both to customize solutions for large
corporate customers, and also sell "off the shelf" solutions for smaller
businesses. We will continue to use our network to develop and offer wireless
applications that address the growing demand for mobile wireless communications.

ACCESS NEW MARKET SEGMENTS WITH SIGNIFICANT GROWTH POTENTIAL. We have
traditionally focused on serving the transportation and field service markets
because these segments value the nationwide, guaranteed delivery and in-building
coverage attributes of our network. Recent significant reductions in the total
cost of ownership and improvements in equipment functionality and size have
enabled our services to appeal to a broader range of market segments. In
particular, we believe that eLink, our new two-way wireless email service, is
economically attractive to a large portion of the mobile work force. We expect
that mobile professionals will increasingly demand two-way wireless data
communications services that access electronic data applications such as email
and other Internet applications. We also believe there is a significant market
for our products in non-mobile

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environments such as wireless telemetry, where our wireless network offers a
value-added automated mechanism for end-user customers to collect and use data
from multiple remote locations in a central monitoring facility.

DEVELOP NEW DISTRIBUTION CHANNELS. We have traditionally used our direct
sales force and authorized dealers as the primary channels to distribute our
products and services. To facilitate our entrance into new markets with
significant growth potential, we intend to accelerate our efforts to develop
third party distribution channels to reach a broader potential customer base.
For example, in order to better access the wireless email market, we have formed
an alliance with SkyTel, under which SkyTel will offer our eLink service to
SkyTel's customers through its sales force of over 450 trained sales
representatives and its resale partners. SkyTel will also integrate its content
service offerings with the eLink service for its customers. This agreement has a
five year term. We are currently in discussions with a number of other large
potential distribution partners. In the wireless telemetry market, we have
entered into reseller agreements with ABB Information Systems (utility
monitoring), Ameritech SecurityLink (alarm monitoring), Akyman USA Inc.
(point-of-sale), U.S. Wireless (point-of-sale), and other value added resellers
to penetrate markets where such resellers have a market presence and
significantly greater resources, including dedicated sales personnel. We are
continuing to seek additional distribution channels that will enable us to more
fully penetrate our existing markets and access potential new markets on an
incremental basis.

ENHANCE MARKET PENETRATION BY REDUCING CUSTOMERS' "TOTAL COST OF
OWNERSHIP." We expect to increase the market acceptance of our products and
services and increase our revenues by continuing to lower the total cost of
ownership of our products. These costs include the cost of subscriber units,
investment in software development, and monthly access and usage fees. By
working with vendors and other business partners and by making strategic
software investments, we have significantly lowered the total cost of ownership
of our products. At the same time, we have improved the functionality of our
devices and made them smaller and more convenient. For example, while our first
generation multi-mode device sold prior to December 1998 was a bulky terminal
that cost approximately $2,700, the new generation multi-mode device that is
scheduled to begin delivery in the second half of 1999 will cost significantly
less. Similarly, while the predecessor to our two-way messaging device, the
Motorola KDT 840, was a large terminal that cost approximately $6,500, the RIM
850 device for our eLink service is palm-sized and costs only $359. We intend to
continue to work with our vendors to develop new generations of devices that
combine improved functionality and convenience at a lower cost per unit. We also
expect that increased subscriber unit volumes associated with large contract
awards will lead to additional unit price reductions. In addition, we will
continue to incorporate inexpensive, off the shelf software or free software in
our services. We believe that these lower price points will accelerate the
acceptance and adoption of our services in our traditional markets, and will
enable us to penetrate large new markets, such as wireless email service.

CAPITALIZE ON OUR NETWORK'S TECHNICAL ADVANTAGES. We own the nation's
largest, most fully deployed terrestrial wireless two-way data network. Together
with our own satellite in geosynchronous orbit, the service area coverage of our
network extends throughout the United States. Our terrestrial network is faster,
lower-cost, and better able to transmit larger data content than satellite-only
systems. We believe that our ability to offer the benefits of both terrestrial
and satellite-based wireless solutions, using a network that we own, is a unique
competitive advantage in targeting large customers and corporate accounts. Also,
unlike many competitors who are in the process of building limited city-wide or
regional terrestrial networks, or planning to launch satellites, we have
deployed a network that is in place and operational today, and our future
network expansion requirements are expected to arise primarily from increased
customer demand. We believe that our network provides key competitive advantages
currently unmatched by any competitor: virtually 100% nationwide geographic
coverage, guaranteed two-way message delivery, and, in the areas covered by our
terrestrial network, deep in-building penetration with superior performance
characteristics when

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compared with satellite-only alternatives or cellular-based architectures. We
also believe that our two-way messaging and wireless email products are superior
to currently available "two-way paging" services, due to the full, equal
in-bound and out-bound messaging capabilities that our network enables.

OUR WIRELESS PRODUCTS AND SERVICES

We believe that we are well-positioned to provide a broad range of
end-to-end wireless data and voice solutions to business customers in the United
States. We believe that wireless data communication services, including email
and Internet applications, will be primary driver of our future growth and
profitability.

DATA SERVICES

Our data messaging services enable communications between groups of mobile
or fixed data terminals and a single "hub." Current applications include one-way
and two-way messaging, wireless Internet email, and asset tracking and managing.

<TABLE>
<CAPTION>
PRIMARY MARKET
NETWORK APPLICATION SEGMENTS CUSTOMERS AND RESELLERS SERVICE BENEFITS
- ------------------- ------------------- -------------------------- -------------------
<S> <C> <C> <C>
Terrestrial only..... Field service IBM Nationwide coverage
Sears and deep in-
Pitney Bowes building
NCR penetration

Transportation UPS Fully deployed
nationwide two-
way

Two-way messaging SkyTel (reseller) Nationwide coverage
and wireless and deep in-
email building
penetration

Telemetry ABB Information Services Low cost off-peak
Ameritech SecurityLink transmission
Akyman USA Inc.
U.S. Wireless

Satellite only....... Transportation Cannon Express Less expensive
Con-way Transportation equipment costs
Services relative to
multi-mode

Multi-Mode........... Transportation Sitton Motor Lines Least cost routing
Southeastern Freight Lines and ubiquitous
satellite
coverage
</TABLE>

TERRESTRIAL-ONLY. We offer a variety of end-to-end wireless data solutions
to customers primarily in vertical market segments, including the transportation
and field service markets. Our network provides a breadth of coverage that we
believe is significantly greater than that of any competing network and offers
deep in-building penetration, efficient frequency reuse, and reliable two-way
data communications. Typical applications of the service include call dispatch,
asset tracking, peer-to-peer communications, Internet email and fax
capabilities. In 1998, we introduced a two-way messaging service that provides
guaranteed message delivery, personal acknowledgment, pre-set and custom message
reply and complete custom message origination using a hand-held, two-way
messaging

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device manufactured by Research in Motion, Limited. Our eLink wireless email
service, a second generation, two-way wireless data messaging solution, will
provide mobile professionals with integrated wireless access to a broad range of
corporate and Internet email and personal information manager applications. The
eLink service is designed to permit mobile professionals to receive and send
messages and other data applications via wireless email, using a second
generation, palm-sized messaging device, the RIM 850. A variety of software
firms have developed "middleware" which helps to significantly minimize the
customer's development effort in connecting the customer's application to our
network. A number of off-the-shelf software packages, including Motorola's
AirMobile Wireless Software for Lotus cc:Mail(TM), Lotus Notes(TM) and IKON's
Mobile CHOICE(TM) for Windows, enable popular email software applications on our
network.

Our telemetry products are designed to meet specific needs of customers or
groups of customers, such as utility companies. Our telemetry products use our
nationwide terrestrial wireless network to permit a central monitoring facility
to collect data from remote terminals. Applications include meter reading and
wireless point-of-sale transactions.

SATELLITE-ONLY MESSAGING. Our satellite mobile messaging service is
offered as an alternative to the multi-mode product for customers in the
long-haul trucking segment. Customers with broad network coverage requirements
but relatively low usage requirements can reduce their total cost of ownership
by subscribing to our satellite messaging service.

MULTI-MODE MESSAGING. Our multi-mode communications system uses our
terrestrial and satellite network to provide "least-cost routing" for customers'
two-way data communications by actively seeking connections to the lower cost
terrestrial network before automatically using our satellite network thereby
providing nationwide coverage. We believe that our multi-mode data and global
position tracking services allow us to bring cost-effective solutions to
long-haul trucking customers as well as the broader transportation industry,
including the less-than-truckload and package delivery segments.

VOICE SERVICES

We offer mobile voice services through two primary services: nationwide
dispatch service and satellite telephone service.

<TABLE>
<CAPTION>
NETWORK APPLICATION PRIMARY MARKET SEGMENTS CUSTOMERS SERVICE BENEFITS
- ------------------- ----------------------- ------------------ ------------------------
<S> <C> <C> <C>
Dispatch............. Field service AT&T Only provider of
MCI WorldCom nationwide dispatch
Williams Companies services
Telephony............ Maritime Stratos (reseller) Low cost maritime
telephony service
Other CBS Reliable, remote mobile
Red Cross coverage
FEMA
State of Louisiana
</TABLE>

NATIONWIDE DISPATCH SERVICE. Nationwide dispatch service provides
point-to-multi-point voice communications among users in a customer-defined
group using a push-to-talk device. We are the only provider of nationwide voice
dispatch service. This service is designed to facilitate team-based,
contingency-driven operations of groups operating over wide and/or remote areas.
We market the dispatch service to businesses that have wide-area operational
requirements that are under-served by a similar point-to-multi-point capability.
These targets include: oil and gas pipeline companies; utilities and
telecommunications companies with outside maintenance fleets; state and local
public safety

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<PAGE> 60

organizations operating in under-served areas; and public service organizations
with a requirement to seamlessly link resources on a nationwide basis.

SATELLITE TELEPHONE SERVICE. Satellite telephone service supports two-way
circuit-switched voice, facsimile and data services. We offer a wide range of
satellite phone configurations developed to address the particular
communications needs of customers. We market telephone service to businesses
that have nationwide coverage requirements, including those operating in
geographic areas that lack significant terrestrial coverage, including natural
resource companies, utilities and telecommunications companies that require
backup and restoral support, public safety organizations, and maritime users
seeking expanded or less costly coverage for both commercial and recreational
vessels.

PRICING OF OUR WIRELESS PRODUCTS AND SERVICES

We price our services on an access fee and variable usage fee basis. Volume
packages that include increments of free usage in exchange for higher, fixed
access fees, as well as volume discounting plans are also available.

DATA PRODUCTS. Multi-mode users are charged a monthly access fee that
includes a set number of vehicle location reports. In addition to this access
fee, users pay for their usage depending on the length and mode of
transmissions. Customers are typically charged less for terrestrial usage than
for satellite usage. Satellite and terrestrial messaging services are priced
under similar structures, and offer a wide variety of volume packaging and
discounts, consistent with the demands of the targeted markets. The average
monthly bills for our data customers range from below $10 for high unit
quantity, low traffic volume, off-peak telemetry users, to over $100 for high
volume, peak users in the field service market. Our average monthly revenue per
data user in the first quarter of 1999 was approximately $44. Our new eLink
wireless two-way messaging service will be offered initially with an unlimited
monthly airtime fee of $59.95.

VOICE PRODUCTS. Our nationwide dispatch users are charged a fixed access
fee for virtually unlimited usage, while satellite telephone users are charged
both fixed access and variable usage fees. Monthly bills for satellite voice
customers range from over $100 for high volume users to a low of $35 for certain
public safety and emergency restoral applications. Our current average monthly
revenue per voice user in the first quarter of 1999 was approximately $85.

OUR WIRELESS CUSTOMERS

As of March 31, 1999, we had approximately 113,000 units in service and an
established customer base of large corporations including UPS, AT&T, Avis, Bank
of America, IBM, MCI WorldCom, NCR, Otis Elevator, Pitney Bowes, Sears, Siemens,
Con-way Transportation Services, Cannon Express, Southeastern Freight Lines and
The Williams Companies. Our products also have been adopted by various emergency
response organizations such as the Federal Emergency Management Agency and the
American Red Cross. The majority of our customers sign long-term contracts and
make significant capital investments to initiate service. As a result, we
typically experience low turnover of our customer base. Customers representing
44% of our revenues for the quarter ended March 31, 1999 were signed to
multi-year contracts expiring on or after December 31, 2000.

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<PAGE> 61

As of March 31, 1999, our customer base included the following market
segments:

<TABLE>
<CAPTION>
PERCENTAGE OF
MARKET SEGMENTS TOTAL UNITS
- --------------- -------------
<S> <C>
Field service.............................................. 44%
Transportation and package delivery........................ 31
Telemetry and point of sale................................ 10
Other...................................................... 15
---
Total...................................................... 100%
===
</TABLE>

As of March 31, 1999, our customer base included the following product
segments:

<TABLE>
<CAPTION>
PERCENTAGE OF
PRODUCT SEGMENTS TOTAL UNITS
- ---------------- -------------
<S> <C>
Data:
Terrestrial.............................................. 62%
Multi-mode............................................... 11
Satellite................................................ 8
Private networks......................................... 7
---
88
Voice:
Telephony................................................ 6
Dispatch................................................. 4
Private networks......................................... 2
---
Total...................................................... 100%
===
</TABLE>

MARKETING AND DISTRIBUTION

We market our wireless services through four primary distribution channels:
direct sales, vertical resellers, horizontal resellers and dealers.

DIRECT SALES. We have a direct sales force that focuses on the
requirements of business customers. This sales organization is comprised of a
national accounts group that profiles and targets specific Fortune 500 accounts,
and a network of regionally based representatives who specialize in specific
industry segments. Sales to national account targets generally require a
sustained marketing effort lasting several months. Prior to making a buying
decision, a majority of the accounts exercise a due diligence process where
competitive alternatives are evaluated. Our employees often assist in developing
justification studies, application design support, hardware testing, planning
and training.

VERTICAL RESELLERS. In order to penetrate quickly certain market segments
characterized by specialized technical requirements and/or unique business
applications, we leverage the capabilities of specialized distribution partners.
These relationships enable us to penetrate new market segments without investing
in the product, training and development requirements typically associated with
entry into a new market segment.

Our vertical resale arrangements are designed to accelerate entry into the
wireless telemetry (utility and alarm monitoring), point-of-sale, maritime and
government market segments. These business partners are responsible for
development of the end-user solutions, and purchase capacity on our data
network.

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<PAGE> 62

In the maritime segment, we traditionally sold our satellite-based mobile
communications services through our direct sales force, dealers and resellers.
In 1998, we made Stratos the exclusive distributor of our satellite telephony
service to authorized dealers and retail customers. As part of this agreement,
we sold substantially all of our maritime-related inventory to Stratos. Under
our agreement, Stratos pays us an activation fee for each maritime subscriber
unit, as well as specified per-minute fees and a portion of the monthly access
fee that Stratos charges to its customers. In addition, Stratos performs certain
of our obligations under contracts with resellers we entered into prior to
making Stratos our exclusive reseller, and Stratos manages such contracts, in
exchange for a portion of the fees we collect from such other resellers. We also
continue to offer satellite capacity on a wholesale non-exclusive basis to other
parties who serve the maritime market.

We currently use three specialized government resellers, one of which has
included our products on the General Services Administration schedule. We intend
to expand the distribution opportunities for our terrestrial data products by
also including them in these programs.

We also have various private network customers that purchase bulk satellite
capacity from us in the form of dedicated capacity increments or channels.
Private network customers use this capacity to support their own proprietary
networks and products, and maintain all associated business risks and
responsibilities.

HORIZONTAL RESELLERS. We use horizontal resale relationships to reach a
large segment of the mobile workforce that does not require integration with
centralized systems, but still has a broad need for two-way messaging and
wireless email access. Because these applications are generic across numerous
industries, the segment is horizontally addressable, and requires some level of
retail presence. We recently announced a strategic agreement with SkyTel under
which SkyTel will feature our new eLink wireless email service as one of its
five "core" wireless messaging solutions. Our agreement with SkyTel has a five
year term. We are currently in discussions with a number of other large
potential distribution partners for our eLink service. We also maintain
relationships with manufacturers of personal handheld computing devices, that
include our marketing material with the device packaging to provide the
purchaser the option of wirelessly enabling a handheld computing device.

DEALER CHANNELS. We also use dealers who distribute our nationwide
dispatch and satellite telephony products. These dealers typically have strong
business relationships with regional public safety entities, as well as with
smaller field service fleets. We believe that opportunities exist to capitalize
on the strengths of this channel by introducing a low-cost terrestrial data
device with minimum integration requirements. Typically these dealers serve as
agents for sales and service and do not provide billing and collection services.
These dealers are generally compensated with a standard activation fee, plus a
modest percentage of the service revenue for which they are responsible.

OUR WIRELESS COMMUNICATIONS NETWORK

Our integrated wireless network consists of (1) the largest two-way
terrestrial data network in the United States, providing service to 427 of the
largest cities and towns in the United States, including virtually all
metropolitan areas, and (2) a satellite in geosynchronous orbit with coverage of
the continental United States, Alaska, Hawaii, Puerto Rico, the U.S. Virgin
Islands and U.S. coastal waters and airspace. The network provides a wide range
of mobile data and voice services in multi-mode and single-mode configurations.

Users of our network access it through subscriber units that may be
portable, mobile or stationary devices. Generally, subscriber units enable
either data or voice communications and are designed to operate over either the
terrestrial data-only network or the satellite network, which

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provides both voice and data communications. In addition, our multi-mode
subscriber equipment is designed to provide least-cost routing of data messages
over the integrated terrestrial and satellite network.

Subscriber units receive and transmit wireless data or voice messages from
either terrestrial base stations or our satellite, MSAT-2. Terrestrial messages
are routed to their destination via data switches that we own, which connect to
the public data network. Satellite messages are routed to their destination via
satellite data and voice switches, located at our headquarters, which connect to
the public data and switched voice networks. A data switch located in
Lincolnshire, Illinois links the terrestrial and satellite networks for the
delivery of our multi-mode data service.

Our new eLink wireless two-way messaging service incorporates two-way data
switches and Internet connectivity. This service provides users with several
wireless messaging alternatives. Our eLink Messenger(SM) service assigns a
unique email address allowing users to send and receive wireless email messages
independent of other email systems. In addition, the eLink Messenger(SM) service
provides the capability to send wireless messages to a facsimile and the option
to receive wireless messages initiated through interactive voice response or
operator assisted methods. Users of our eLink Agent(SM) service have the
capability to send and receive email messages, using their existing Internet
email address, over our wireless terrestrial network, as long as the user's
email system is compliant with the industry protocol known as Post Office
Protocol 3, or POP3.

Our terrestrial network delivers superior in-building penetration,
completion rates and response times compared to other wireless data networks
through the use of a patented single frequency reuse technology developed by
Motorola. Single frequency reuse technology enables multiple base stations in a
given area to use the same frequency. As a result, a message sent by a
subscriber can be received by a number of base stations. This technology
contrasts with more commonly used multiple frequency reuse systems which provide
for only one transmission path for a given message at a particular frequency. In
comparison with multiple frequency reuse systems, our technology provides
superior in-building penetration and response times and enables us to
incrementally deploy additional capacity as required, instead of in larger
increments as required by most wireless networks.

MSAT-2 has an expected end of service date of 2006 subject to potential
malfunctions and other factors. We have an agreement with TMI, the Canadian
mobile satellite owner and operator of MSAT-1, for back up, restoral and
additional capacity if our satellite fails or we need additional capacity. In
return, we have agreed to provide TMI with similar back-up service on our MSAT-2
satellite. Each of the MSAT-1 and MSAT-2 satellites has in the past experienced
some malfunctions. Prior MSAT-2 malfunctions have involved either components
backed up by spares or did not have a material impact on current operations.
However, either or both satellites could malfunction at any time.

EQUIPMENT AND SUPPLIER RELATIONSHIPS

We have contracts with multiple vendors to supply equipment configurations
designed to meet the requirements of specific end-user applications. We continue
to pursue enhancements to these devices that will result in additional desirable
features and reduced cost of ownership. Although many of the components of our
products are available from a number of different suppliers, we rely on a
relatively small number of key suppliers. The devices used with our services
generally are subject to various product certification requirements and
regulatory approvals before they are delivered for use by our customers.

Our eLink wireless two-way messaging service will be launched using a
palm-sized second-generation device manufactured by Research in Motion, Limited,
the RIM 850. This device includes a full keyboard and features a unique thumb
wheel that functions similarly to a PC mouse. This new

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generation device is scheduled to begin delivery in mid-1999, following
successful product certification and FCC approvals. Research in Motion also
manufactured the first generation device used in our earlier two-way messaging
service. As described below, Research In Motion also manufactures modems
designed to be integrated into handheld field service terminals, telemetry
devices, utility monitoring and security systems and certain other computing
systems. Research In Motion is also manufacturing the modem that will be
incorporated into the second generation multi-mode terminal being manufactured
by Vistar Telecommunications, as described below. Our supply arrangements with
Research In Motion are not exclusive, and Research In Motion manufactures
similar hardware products for other companies, including BellSouth Wireless, our
primary competitor in the two-way wireless messaging market segment.

In addition to the messaging devices manufactured by Research in Motion,
there are currently over 30 other types of subscriber units available from 15
manufacturers that can operate on our terrestrial network. Examples of portable
subscriber units include ruggedized laptop computers, small external modems,
handheld or palmtop "assistants," and pen based "tablets."

In the transportation market, we have an agreement with Conexant Systems,
Inc. (formerly Rockwell Semiconductor Systems) to provide multi-mode data
communications equipment, and Vistar Telecommunications Inc., a Canadian
company, to provide multi-mode data terminal equipment. We also have contracted
with Vistar for the development and manufacture of a new multi-mode terminal.
The new terminal, scheduled to begin delivery in the second half of 1999, will
incorporate design changes that lower the total cost of ownership. The new
multi-mode terminal will incorporate a modem provided by Research In Motion. We
believe that the price of multi-mode terminals will continue to decline in the
coming years.

Mobile satellite voice telephones are offered in a number of different
configurations that deliver a variety of features and options to meet specific
market needs. Mobile satellite telephones are currently available in land mobile
vehicle installed, fixed site, maritime, aeronautical, and fully transportable
(i.e., battery powered and packaged in a briefcase) configurations. Subscriber
equipment for satellite telephone service and nationwide dispatch service
includes data interface ports to allow connection to communications accessories
such as personal computers, and global positioning satellite tracking devices.
Recent enhancements allow users to use the dispatch product remotely from the
vehicle, via a wireless tether. The primary suppliers of our voice terminal
equipment have been Westinghouse Wireless Solutions, Inc. and Mitsubishi
Electronics America. We currently believe that we have sufficient inventory of
voice terminal equipment on hand to meet expected demand and we continue working
with Westinghouse and Mitsubishi to provide support and service to our voice
customers.

Tandem Computer provides the terrestrial network switching computers under
a multi-year lease that extends through 2000, while AT&T provides network
services including a nationwide wireline data network, and leased sites which
house regional switching equipment for our terrestrial network.

We also have a relationship with AT&T as our vendor for switched inbound
and outbound public switched telephone network services. The satellite system
terminates calls from its telephone product via both the AT&T and Sprint
networks.

Through our ARDIS subsidiary, we have executed multiple agreements with
Motorola that provide for certain continued support from Motorola with respect
to supply and support for the ARDIS DataTAC network infrastructure, ongoing
maintenance and service of the terrestrial network base stations, and lease
administration services for approximately 37% of the terrestrial network base
station site leases.

Hughes Network Systems Ltd. manufactures and supports the key component to
our multi-mode and satellite messaging products, namely the land earth station.
There are currently four land earth stations that are operational. The platform
for our voice products, the communications ground

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segment, depends upon products from multiple vendors, most of which are
generally commercially available. Northern Telecom manufactures and supports the
core voice switch. Digital Equipment Corporation supplies the computing platform
that runs the communications ground segment.

We own certain patents, technical data and other intellectual property that
has been developed in connection with our communications network. We jointly own
certain intellectual property with TMI, the Canadian mobile satellite service
provider, and we license intellectual property from other vendors for operation
of our network. We believe our ownership of and rights to intellectual property
for our system is sufficient for our business purposes.

The terrestrial network, and certain of its competitive strengths such as
deep in-building penetration, is based upon single frequency reuse technology.
Motorola holds the patent for the single frequency reuse technology. We have
entered into support agreements with Motorola to provide for certain support of
the operations of the terrestrial network. However, there can be no assurance
that Motorola will not enter into arrangements with our competitors, or that if
it does, such arrangements would not harm our business.

COMPETITION IN OUR WIRELESS BUSINESS

The wireless communications industry is highly competitive and is
characterized by constant technological innovation. We compete by providing
nationwide coverage, comprehensive, end-to-end solutions and a premium level of
service in the markets we serve. End-to-end solutions have been assembled
working with business partners who develop and manufacture software, middleware
and hardware components. We differentiate our offerings with unmatched
geographic coverage, deep in-building penetration, guaranteed message delivery,
and guaranteed reliability.

We compete with a full array of companies, from small startups to Fortune
500 companies. Many of these competitors have greater financial, technical and
marketing resources than we do. Because we compete in several market segments
with a broad range of services, competitors and competing technologies may
address one or more of the market segments. We have identified six major classes
of technologies or services that offer capabilities that we believe are, or may
be, competitive with our services: terrestrial packetized data; cellular/PCS;
specialized mobile radio/enhanced specialized mobile radio; private mobile
communications systems; paging/narrowband PCS; and mobile satellite services.

TERRESTRIAL PACKETIZED DATA. Companies using packetized data technologies
provide wireless data services that compete directly with a number of our data
products. Packetized data technology relies on radio frequencies to transmit
data messages in short bursts. Primary competitors using this technology include
BellSouth Wireless Data, Metricom and Cellnet Data. BellSouth Wireless Data, a
wholly owned subsidiary of BellSouth Corporation, operates a terrestrial-only
network that provides data services to customers in vertical markets such as
field service, transportation and utility industries, and also addresses the
horizontal market with its two-way messaging service. We believe that our
network provides broader coverage, and superior in-building penetration than
BellSouth Wireless Data's network. In addition, we continue to upgrade our
network in major metropolitan areas so that it will operate at faster speeds
than the BellSouth Wireless Data network. Metricom's Ricochet service provides
wireless, mobile access to the Internet, private intranets, local area networks
and email. Metricom currently offers its service in limited regions, comprised
of San Francisco, Seattle, parts of New York City and Washington, D.C. Cellnet
provides wireless meter reading services in a private network environment.

In addition, some traditional paging companies, such as PageNet, and
certain companies providing packetized data to vertical markets, such as
BellSouth Wireless Data, are expanding into the horizontal market with two-way
data services. Typical applications include wireless email, near-

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real time delivery of stock quotes and other time sensitive information, and
mobile workforce communications. We consider this to be a dynamic market,
offering considerable opportunity and risk because it is untested. We believe
that our eLink wireless email service is superior to similar products offered by
competitors because of (1) users' ability to combine their existing email box
(corporate or Internet) into the wireless email system, no matter where they
are, (2) a unique synchronizing cradle that automatically updates users'
personal information management features, (3) more attractive pricing, (4) a
new, rechargeable battery option, and (5) the nationwide breadth of our
terrestrial wireless network. We have signed a strategic alliance with SkyTel
under which SkyTel will market our eLink service to its customers.

CELLULAR AND PCS. Cellular and PCS services compete with our satellite and
terrestrial voice and data services, and presently serve the majority of mobile
communications users in the United States, with over 67 million subscribers at
the end of 1998. Approximately 2,300 cellular and PCS systems collectively
provide service throughout most of the United States, with no single competitor
providing the breadth of coverage that is available through our network.
Cellular digital packet data, the cellular industry's standard packet data
service, is available principally in metropolitan areas containing approximately
55% of the nation's population at the end of 1998. Some cellular and PCS
carriers offer short message capabilities, depending on the protocol they use,
and expect to offer larger capacity packet data services in the near future.

Most cellular and PCS providers have structured their services and
distribution principally to address voice service requirements of broad-market
users. There is minimal direct competition between our satellite voice products
and cellular carriers' voice products, owing to differences in service,
equipment, and pricing. HighwayMaster Communications, Inc. offers
terrestrial-based data and voice communications services using its proprietary
messaging and billing technologies and circuit-switched cellular capacity, which
it purchases in bulk from cellular carriers and resells to end-users in the
long-haul trucking industry.

SPECIALIZED MOBILE RADIO (SMR) AND ENHANCED SPECIALIZED MOBILE RADIO (ESMR)
SERVICES. SMR is a terrestrial trunked dispatch voice and mobile telephone
service in the 800 and 900 MHz bands. ESMR is a wide-area form of SMR. SMR
services have been expanding rapidly over the past ten years, but over 80% of
the SMR systems are private networks. Within the limitations of available
spectrum and coverage, SMR operators with public networks compete with our voice
dispatch and, to some degree, mobile telephone services. For certain
applications, such as mobile telephone interconnect, SMR systems are less
expensive than our satellite services, but the shared channel configuration and
the economics of maintaining these systems have traditionally been designed for
dispatch only.

ESMR systems compete with our voice dispatch and data services in
metropolitan areas. Nextel Communications, Inc. provides ESMR services in
numerous large metropolitan service areas in the United States. Nextel is also
the leading provider of SMR using digital technology, frequency reuse and lower
power transmitters to transform its current SMR service into cellular-like
telephone services. Nextel's integrated handsets include telephone, two-way
radio, and text/numeric paging. Nextel, however, does not provide nationwide
voice dispatch or data services.

PRIVATE MOBILE COMMUNICATIONS SYSTEMS. Individual companies that have
chosen to develop their own private wireless data networks constitute a large
percentage of the wireless marketplace for corporate fleets. An example of such
a company is Federal Express. While these companies already have made
significant investments in their systems, in some cases recurring maintenance,
upgrade and expansion costs, coupled with recent steps by the FCC to charge
private system owners for the use of the radio frequencies, have caused these
organizations to turn to commercial providers such as American Mobile.

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NARROWBAND PCS/ENHANCED PAGING. A large number of paging companies offer
messaging services on a regional or nationwide basis. Despite the low cost of
one-way paging, most traditional paging services do not provide full-function
two-way communications, due to technological limitations in their networks.
Although some paging companies have begun to offer limited two-way messaging
services, initial challenges in coverage, responsiveness and throughput, as well
as the high cost of service, currently limit their adoption by our targeted
customers. As described in "Prospectus Summary -- Recent Developments," we
recently signed a distribution agreement with SkyTel under which SkyTel will
market our eLink two-way messaging service to its customers.

MOBILE SATELLITE SERVICES. Our voice and data services face competition
from a number of companies selling or developing services using a variety of
satellite technologies. The principal competing satellite-based communications
system available to the trucking market is Qualcomm Incorporated's OmniTRACS
nationwide data service. Qualcomm currently provides low-speed mobile data
services using terminals which are priced competitively with our satellite-only
terminals. Qualcomm's OmniTRACS service currently does not provide a terrestrial
communications path or least-cost routing capabilities similar to our multi-mode
product, although Qualcomm has indicated that it plans to offer a multi-mode
product in the future. As a result, transmissions to and from a vehicle must be
routed exclusively over a satellite network and are subject to line of sight
blocking and higher transmission costs. These factors limit the product's
functionality and cost-effectiveness in segments that require urban coverage or
large volumes of data transmission.

Our satellite services also compete for mobile maritime subscribers with
TMI, a Canadian company operating a satellite comparable to MSAT-2, and with
Inmarsat, a consortium of 70 countries that is authorized to provide maritime
voice and data services along the North American coasts. Because Inmarsat's
current system operates at a much lower power level than does our satellite, its
mobile terminals must be equipped with systems that are larger and more
expensive than those required for our network. The Inmarsat system also has per
minute charges that significantly exceed our customary charges. Several parties
have applied to the FCC for authority to provide mobile satellite services in
the United States through non-U.S. satellite systems. See "Regulation."

Recently, several low earth orbit and medium earth orbit satellite
companies have either started service or begun deployment of their satellite
systems. Iridium LLC began service in November 1998. Iridium has targeted the
international business traveler with hand-held phones priced in the same range
as our phones, and service that is generally more expensive than our satellite
telephone service. The low earth orbit and medium earth orbit voice systems,
such as Iridium's and those offered by Globalstar and ICO, are more complex and
costly than our geosynchronous network. These systems offer certain advantages
over our voice telephony service, including the ability to support small
handheld telephones and, in certain instances, reduced transmission delay.
However, we do not expect that these systems will initially provide a nationwide
dispatch service or support data service in excess of 4,800 bps. Further,
because these are satellite systems, they are not expected to compete
effectively against the urban in-building data services that we provide.

In addition to relatively complex non-geosynchronous systems designed to
provide mobile voice services, there are relatively simple "little" low earth
orbit systems that would provide only low-speed packet data services. These
systems, including ORBCOMM Global, L.P., and LEO One USA, have access to
comparatively limited spectrum and are expected to compete for customers who
require specialty applications such as asset tracking services for untethered
trailers.

EMPLOYEES

At May 31, 1999, our core wireless operations had approximately 471
employees. None of our employees is represented by a labor union. We consider
our relations with our employees to be good.

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PROPERTIES

In our wireless business operations, we lease approximately 94,000 square
feet at our headquarters office space and network operations center in Reston,
Virginia. The lease has a term which runs through August 3, 2003 (which may be
extended at our election for an additional five years). In addition, we lease a
back-up Ku-band radio frequency facility in Alexandria, Virginia. We also lease
approximately 86,000 square feet of space for office space and an operations
center in Lincolnshire, Illinois, the lease for which expires December 31, 2000
(which may be extended at our election for an additional five years). We also
lease site space for approximately 1,700 base stations and antennas across the
country for the terrestrial network under one- to five-year lease contracts with
renewal provisions. We anticipate that we will be able to gain access to
additional base station sites when necessary on acceptable terms.

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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,
including recent commitments from several strategic and financial
investors, including General Motors, Clear Channel Communications,
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

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

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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.

REGULATION

The satellite network and terrestrial two-way wireless data network used in
our core wireless business are regulated to varying degrees at the federal,
state, and local levels. Various legislative and regulatory proposals under
consideration from time to time by Congress and the FCC have in the past
materially affected and may in the future materially affect the
telecommunications industry in general, and our wireless business in particular.
In addition, many aspects of regulation at the federal, state and local level
currently are subject to judicial review or are the subject of administrative or
legislative proposals to modify, repeal, or adopt new laws and administrative
regulations and policies. The following is a summary of significant laws,
regulations and policies affecting the operation of our core wireless business,
as well as certain regulatory matters that are applicable to XM Radio's
business.

GENERAL REGULATORY MATTERS APPLICABLE TO OUR WIRELESS BUSINESS

The ownership and operation of our satellite and terrestrial networks are
subject to the rules and regulations of the FCC, which acts under authority
established by the Communications Act and related federal laws. Among other
things, the FCC allocates portions of the radio frequency spectrum

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to certain services and grants licenses to and regulates individual entities
using that spectrum. American Mobile operates pursuant to various licenses
granted by the FCC.

American Mobile is a Commercial Mobile Radio Service provider and therefore
is regulated as a common carrier. We must offer service at just and reasonable
rates on a first-come, first-served basis, without any unjust or unreasonable
discrimination, and we are subject to the FCC's complaint processes. The FCC has
forborne from applying numerous common carrier provisions of the Communications
Act to Commercial Mobile Radio Service providers. In particular, we are not
subject to traditional public utility rate-of-return regulation, and we are not
required to file tariffs with the FCC for our domestic services.

As a provider of interstate telecommunications services, we are required to
contribute to the FCC's universal service fund, which supports the provision of
affordable telecommunications to high-cost areas, and the provision of advanced
telecommunications services to schools, libraries, and rural health care
providers. Under the FCC's current rules, we are required to contribute a
percentage of the end-user telecommunications revenues we derive from the retail
sale of telecommunications services. Currently excluded from a carrier's
universal service contribution base are end-user revenues derived from the sale
of information and other non-telecommunications services and wholesale revenues
derived from the sale of telecommunications. A significant portion of the
terrestrial network revenue falls within the excluded categories, thereby
reducing our universal service assessments. Current rules also do not require
that we impute to our contribution base retail revenues derived when we use our
own transmission facilities to provide a service that includes both information
service and telecommunications components. There can be no assurances that the
FCC will retain the exclusions described herein or its current policy regarding
the scope of a carrier's contribution base. A number of parties have filed
petitions for review of the FCC's universal service policy and these appeals
have been consolidated in the U.S. Court of Appeals for the Fifth Circuit.
American Mobile may also be required to contribute to state universal service
programs. The requirement to make these state universal service payments, the
amount of which in some cases may be subject to change and is not yet
determined, may have a material adverse impact on the conduct of our business.

American Mobile is subject to the Communications Assistance for Law
Enforcement Act ("CALEA"). Under CALEA, we must ensure that law enforcement
agencies can intercept certain communications transmitted over our networks. We
must also ensure that law enforcement agencies are able to access certain
call-identifying information relating to communications over our networks. We
must comply with the CALEA requirements and any rules subsequently promulgated
by June 30, 2000 or face possible sanctions, including substantial fines and
possible imprisonment of company officials. It is not clear whether we will be
able to comply with CALEA's requirements or will be able to do so in a timely
manner. CALEA establishes a federal fund to compensate telecommunications
carriers for all reasonable costs directly associated with modifications
performed by carriers in connection with equipment, facilities, and services
installed or deployed on or before January 1, 1995. For equipment, facilities,
and services deployed after January 1, 1995, the CALEA fund is supposed to
compensate carriers for any reasonable costs associated with modifications
required to make compliance "reasonably achievable." It is possible that all
necessary modifications will not qualify for this compensation and that the
available funds will not be sufficient to reimburse American Mobile. The
requirement to comply with CALEA could have a material adverse effect on the
conduct of our business.

As a matter of general regulation by the FCC, we are subject to, among
other things, payment of regulatory fees, restrictions on the level of radio
frequency emissions of our systems' mobile terminals and base stations, and
"rate integration" regulations requiring that providers of interstate
interexchange telecommunications services charge the same rates for these
services in every state,

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including Puerto Rico and the U.S. Virgin Islands. Any of these regulations may
have an adverse impact on the conduct of our business.

The FCC licenses of American Mobile are subject to restrictions in the
Communications Act that (1) certain FCC licenses may not be held by a
corporation of which more than 20% of its capital stock is directly owned of
record or voted by non-U.S. citizens or entities or their representatives and
(2) that no such FCC license may be held by a corporation controlled by another
corporation ("indirect ownership") if more than 25% of the controlling
corporation's capital stock is owned of record or voted by non-U.S. citizens or
entities or their representatives, if the FCC finds that the public interest is
served by the refusal or revocation of such license. However, with the
implementation of the Basic Telecommunications Agreement, negotiated under the
auspices of the World Trade Organization ("WTO") and to which the United States
is a party, the FCC will presume that indirect ownership interests in American
Mobile's FCC licenses in excess of 25% by non-U.S. citizens or entities will be
permissible to the extent that the ownership interests are from WTO-member
countries. The Basic Telecommunications Agreement and this presumption regarding
indirect ownership by non-U.S. citizens or entities do not apply to XM Radio's
satellite radio license. The Basic Telecommunications Agreement took effect on
February 5, 1998, and the FCC's implementing regulations took effect on February
9, 1998.

AMERICAN MOBILE'S WIRELESS TERRESTRIAL NETWORK

Our terrestrial network consists of base stations licensed in the Business
Radio and Specialized Mobile Radio Service, all operating in the 800 MHz
frequency band. The terrestrial network is interconnected with the public
switched data network.

The FCC's licensing regime in effect when it issued licenses for the
terrestrial network provided for the issuance of individual licenses for
specific channels at specific sites. With respect to the part of the band in
which all of the terrestrial base stations operate, however, the FCC has
implemented a new licensing regime. The new licensing regime involves the
auctioning of licenses for specific channels for wide geographic areas, within
which the licensee will have substantial flexibility to operate any number of
base stations, including base stations that may operate on the same channels as
incumbent licensees such as American Mobile. The FCC proposes to prohibit the
new geographic licensees from causing interference to incumbents, but there is
concern that such interference may occur and that practical application of these
rules is uncertain.

We believe that we have licenses for sufficient channels to meet our
current needs for capacity on the terrestrial network. To the extent that we
need additional capacity, we may be required to either participate in the
upcoming auctions or acquire channels from other licensees. As part of its new
licensing regime, the FCC permits a wide-area geographic licensee, with prior
FCC approval, to sell a portion of its geographic area to another entity. This
partitioning authority may increase our flexibility to operate additional base
stations, but the practical utility of this option is uncertain at this time.

We operate the terrestrial network under a number of waivers of the FCC's
technical rules, including rules on station identification, for-profit use of
excess capacity, system loading, and multiple station ownership. Several of
these waivers were first obtained individually by IBM and Motorola, which
operated separate wireless data systems until forming the ARDIS joint venture in
1990. The FCC incorporated a number of these waivers into its regulations when
it implemented Congress' statutory provision creating the Commercial Mobile
Radio Service classification, and we no longer require those waivers. As of
March 3, 1999, we completed our planned construction of base stations for which
extended implementation was granted by the FCC in 1996.

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AMERICAN MOBILE'S WIRELESS SATELLITE NETWORK

We are licensed by the FCC to provide a broad range of mobile voice, data
and dispatch services via satellite to land, air and sea-based customers in a
service area consisting of the continental United States, Alaska, Hawaii, Puerto
Rico, the U.S. Virgin Islands and U.S. coastal waters and airspace. American
Mobile is also authorized to provide fixed site voice and data services via
satellite to locations within this service area, so long as such services remain
incidental to American Mobile's mobile communications services. American Mobile
is authorized to build, launch and operate three geosynchronous satellites in
accordance with a specified schedule. We are not in compliance with the schedule
for commencement and construction of our second and third satellites and we have
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 our
requests. The FCC has the authority to revoke the authorizations for the second
and third satellites and, in connection with such a revocation, could exercise
its authority to rescind our license. We believe that the exercise of such
authority to rescind the license is unlikely. The term of the license for each
of our three authorized satellites is ten years, beginning when we certify that
the respective satellite is operating in compliance with the license. The
ten-year term of the license for MSAT-2 began August 21, 1995. Although we
anticipate that the authorizations are likely to be extended in due course to
correspond to the useful lives of the satellites and that new licenses will be
granted for replacement satellites, there is no assurance of such extension or
grant.

On July 2, 1998, we filed an application for authority to launch and
operate our second-generation mobile satellite system. This satellite is
intended to support our 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 us to expend any
resources toward this project; however, should we decide to proceed with the
construction of the follow-on satellite, we would be required to raise
substantial additional capital to fund this project.

Our current foreign ownership level, for which the indirect ownership
limits are applicable, is at least 14%. This figure does not include any foreign
ownership of Motorola, Inc., which holds approximately 20.03% of our outstanding
stock. Singapore, which is the domicile of Singapore Telecom, one of our largest
shareholders, is a WTO-member country.

MSAT-2 is designed to operate over the 1530-1559/1631.5-1660.5 MHz bands
(the "L-band"). American Mobile is currently licensed to operate in the
1544-1559/1645-1660.5 MHz bands (the "upper L-band"). The FCC has designated
American Mobile as the licensee for both MSS and Aeronautical Mobile Satellite
(Route) Service ("AMS(R)S"). AMS(R)S includes satellite communications related
to air traffic control, as well as aeronautical safety-related operational and
administrative functions. As a condition to its authorization, American Mobile
is required by the FCC to be capable of providing priority and preemptive access
for AMS(R)S traffic in the upper L-band and to be interoperable with and capable
of transferring AMS(R)S traffic to international and foreign systems providing
such service. We currently anticipate we will be able to meet these requirements
without any material adverse effect on our business. If we are unable to meet
these requirements, the FCC may authorize and give priority spectrum access to
one or more additional satellite systems that meet the specified requirements.

We have applied for authorization to operate in the 1530-1544/1631.5-1645.5
MHz band (the "lower L-band"). If we are assigned spectrum in the lower L-band,
we will be required by the FCC to provide similar priority and preemptive access
in that spectrum to maritime distress and safety communications. With respect to
our mobile voice terminals, we currently anticipate we will be able to meet this
requirement without any material adverse effect on its business. The Federal
Aviation Administration filed comments, however, in connection with our
application to operate up to 30,000

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mobile data terminals that were transitioned from leased space segment to MSAT-2
in late 1995, stating its concern that the mobile data terminals cannot be
operated in compliance with our obligation to provide priority and preemptive
access in the upper L-band. The FAA has proposed that we operate the mobile data
terminals in the lower L-band. We have received successive six-month grants of
special temporary authority, under a two-year waiver of the FCC's rules on
priority and preemptive access, to operate up to 15,100 mobile data terminals in
the lower L-band. This number was increased to 33,100 terminals pursuant to our
acquisition of the mobile data equipment and services previously licensed to
Rockwell. The two-year waiver expired on August 1, 1997, but remains in effect
while our request for a two-year extension of that waiver is pending at the FCC.
We will need additional authority to increase the number of mobile data
terminals that we are authorized to operate in order to achieve planned growth
in our data services. We will also need permission from the FCC to operate
mobile data terminals with a different transmission design than those operated
under our current lower L-band authorization. Transmissions from these terminals
require a wider bandwidth than do transmissions from our existing terminals. We
were granted a six-month special temporary authority to operate up to 10,000 of
these mobile data terminals on February 12, 1999. We will need additional
authorization from the FCC to operate up to 100,000 of these terminals as
contemplated. There can be no assurance that we will continue to receive
authority to operate these mobile data terminals or other mobile terminals in
the lower L-band.

American Mobile's mobile terminal authorizations are subject to compliance
with certain requirements regarding interference protection to the Global
Positioning System ("GPS"). With the consent of the FAA, the FCC granted our
application subject to certain conditions, including that the grant may be
modified after the interference issue is studied. The FCC is now proposing to
impose more stringent limits on the out-of-band emissions from certain mobile
terminals, including those used in connection with our system, in order to
protect GPS and the Russian Global Navigation Satellite System. Some of our
existing mobile terminals may not comply with this proposed standard. Under the
FCC's proposal, all mobile terminals commissioned after January 1, 2002 must
comply with this new limit, and any terminals not meeting the new specifications
must be retired or retrofitted by 2005. While we believe that we will be able to
comply with the proposed 2002 deadline for newly commissioned terminals, we will
oppose the 2005 deadline for the retirement or retrofitting of existing,
non-compliant terminals. If adopted by the FCC, this policy could have a
material adverse effect on our business.

American Mobile's license authorizes MSAT-2 to operate using certain
telemetry, transfer and control frequencies in the Ku-band. American Mobile
operates MSAT-2 at the 101 degrees W.L. orbital location. GE American
Communications, Inc., also operates a satellite at the 101 degrees W.L. orbital
location. American Mobile and GE American have an agreement covering MSAT-2 that
may require us to modify our operations or make certain payments to GE American
if our operations cause interference to those of GE American. While there can be
no assurances, we do not anticipate any interference in the operations of MSAT-2
and those of GE American.

American Mobile's subscriber equipment will operate in L-band frequencies
that are limited in available bandwidth. The feeder-link earth stations and the
network communications controller of the communications ground segment operate
in the more plentiful fixed satellite service Ku-band frequencies. Of the 30 MHz
in the upper L-band frequencies, American Mobile is currently licensed to
operate in the 1544-1559/1645.5-1660.5 MHz bands. Of the 30 MHz assigned to
American Mobile by the FCC, one MHz is limited to AMS(R)S and one-way paging and
two MHz are limited to distress and safety communications. We do not plan to
operate on these three MHz of bandwidth.

In June 1996, the FCC issued a notice of proposed rulemaking proposing to
assign to American Mobile the first 28 MHz of internationally coordinated L-band
spectrum from either the upper or

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lower portion of the MSS L-band. Under the FCC's proposal, we would have first
priority access to use the lower L-band spectrum as necessary to compensate for
spectrum unavailable for coordination in the upper L-band. In the event the
United States is able to coordinate more than 28 MHz of L-band spectrum, the FCC
has proposed allowing other applicants to apply for assignment of those
frequencies. Certain entities have filed with the FCC petitions to deny our
application and comments opposing the assignment of additional frequencies to
American Mobile. While there can be no assurances, we believe the FCC is likely
to grant our application.

In the Ku-band frequencies, American Mobile is currently licensed to
operate MSAT-2 using 200 MHz within the bands 10.75-10.95 GHz for downlink
transmissions and 13.0-13.15 GHz and 13.2-13.25 GHz for uplink transmissions. We
have applied for authority to operate using an additional 200 MHz of spectrum
within the same bands.

Spectrum availability, particularly in the L-band, is a function not only
of how much spectrum is assigned to us by the FCC, but also the extent to which
the same frequencies are used by other systems in the North American region, and
the manner of such use. All spectrum use must be coordinated with other parties
that are providing or plan to provide mobile satellite-based communications in
the same geographical region using the same spectrum. At this time, the other
parties with which spectrum use must be coordinated include Canada, Mexico, the
Russian Federation and Inmarsat. In addition, a new Japanese system that is to
be launched this year proposes to operate in a manner that would interfere with
our system and other systems in this region, and this Japanese system's spectrum
use will have to be coordinated with these regional operators.

Use of the spectrum is determined through a series of negotiations between
the United States government and the other user agencies, pursuant to the rules
and regulations of the International Telecommunication Union. For the past
several years, each of the countries and international organizations that have
used or will use L-band frequencies within the North American region have met
regularly to negotiate and coordinate their current and future use of that
spectrum. We estimate that international coordination will make approximately 20
MHz of L-band spectrum available to the United States for MSAT-2. Since the
coordination process involves many parties and there is uncertainty about the
total outcome, the actual amount of spectrum available may be more or less than
that estimated. The operation of the new Japanese system may have the effect of
further reducing our access to spectrum. Some of the spectrum that may be
available to us may include a portion of the 28 MHz lower L-band spectrum
adjacent to the frequencies already assigned to us by the FCC.

The International Telecommunications Union Radio Regulations include a
table of frequency allocations that prescribe the permitted uses of the radio
spectrum. As a result of the International Telecommunications Union satellite
plan for parts of the Ku-band, there also may be restrictions on our ability to
deploy feederlink earth stations in Alaska, Hawaii, Puerto Rico, and the U.S.
Virgin Islands.

During the course of the licensing process for American Mobile and several
times since, the FCC has stated that there is only enough spectrum in the MSS
L-band for the FCC to authorize a single mobile satellite services system to
provide service in the United States. In 1995, however, Comsat applied for
authority to provide mobile satellite services in the United States in the
L-band over the Inmarsat satellite system. Comsat subsequently filed an
application seeking a blanket authorization for the operation of 5,000 mobile
terminals in the United States, as well as a request for a special temporary
authority to operate 50 mobile terminals in the United States. On January 9,
1998, the FCC denied Comsat's request for a special temporary authority and
required that Comsat amend its underlying applications to conform with the
requirements established in the FCC's November 1997 order on market access by
foreign-licensed satellite systems. This order conforms the

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FCC's regulations with the Basic Telecommunications Agreement and makes it
easier for foreign satellite systems from WTO-member countries to access the
United States market, while at the same time making clear that the FCC may deny
access to such satellite applicants on the basis of spectrum availability,
applicants' technical, legal, or financial qualifications, or foreign or
domestic policy factors. The order also requires Comsat to make an appropriate
waiver of immunity from any suit as part of any application to provide domestic
services over Inmarsat's system. On January 12, 1998, Comsat filed an appeal of
this order with the U.S. Court of Appeals for the D.C. Circuit, and American
Mobile is opposing this appeal as an intervenor. On February 6, 1998, Comsat
filed an application for review of the FCC's denial of its request for a special
temporary authority, and a petition for waiver of the FCC's new market access
rules to permit it to offer mobile satellite services on a temporary basis in
the United States. American Mobile has opposed these filings, which remain
pending.

In its January 9, 1998 denial of Comsat's request for a special temporary
authority, the FCC stated that it would be willing to authorize Comsat to
provide international service if Comsat amended its blanket license application
to show that service through its terminals and Inmarsat's mobile satellite
services system could be limited to international traffic. Comsat has amended
its application in order to make this showing. American Mobile has opposed this
application, which remains pending.

On October 23, 1998, the FCC issued an order permitting Comsat to provide
aeronautical services via Inmarsat to the domestic legs of the same aircraft in
international flight. As the FCC noted, this action has a minimal effect on our
access to L-band spectrum. Additionally, we do not believe this action will have
any effect on revenues.

TMI, which is technically capable of providing service within the United
States, also hopes to provide mobile satellite services to United States
domestic customers over MSAT-1. On March 10, 1998, SatCom Systems, Inc. filed an
application for a blanket license to operate up to 25,000 mobile terminals in
the United States over MSAT-1 on a permanent basis. American Mobile has opposed
this application, which remains pending. On July 20, 1998, the International
Bureau of the FCC granted SatCom a special temporary authority to operate up to
500 mobile terminals for 180 days on a private carrier basis so that it may
conduct marketing trials; this special temporary authority was subsequently
extended to July 12, 1999. On July 30, 1998, American Mobile filed an
Application for Review and a Motion for Stay of this special temporary authority
grant with the FCC, and these filings remain pending.

On March 30, 1998, TMI filed its own application for a blanket license to
operate up to 100,000 mobile terminals in the United States over MSAT-1 on a
permanent basis. On March 18, 1999, TMI filed an application for a second
blanket license to operate up to 100,000 mobile data terminals in the United
States over MSAT-1. American Mobile has opposed these applications, which remain
pending. In early 1999, additional blanket license applications to operate a
combined 115,000 mobile terminals in the United States over MSAT-1 on a
permanent basis were filed by Comtech Mobile Datacom Corp., National Systems &
Research Co., and Infosat Communications, Inc. American Mobile has also opposed
these applications, which remain pending.

On January 30, 1998, Kitcomm Satellite Communications Ltd. filed a letter
of intent with the FCC to provide mobile satellite services to U.S. customers
over its proposed foreign-licensed satellite system. Kitcomm proposes to provide
two-way remote data collection, tracing, and messaging services over a global
system in the lower L-band at 1525-1530/1626.5-1631 MHz. American Mobile has
opposed the operation of this proposed system in the United States, since such
operations would likely reduce the spectrum available to us either directly or
as a result of international frequency coordination. In order to provide
domestic service, Kitcomm will also have to request authority to operate mobile
terminals in the United States, and American Mobile will oppose any FCC

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application by Kitcomm that would reduce the spectrum available to us either
directly or as a result of international frequency coordination.

In addition to providing us with additional competition, a grant of
domestic authority by the FCC to one of these foreign systems would
significantly increase the demand for spectrum in the international coordination
process and could adversely affect our business.

American Mobile is operating under waivers of certain FCC rules. In 1996,
the FCC issued an order requiring all Commercial Mobile Radio Service providers
to offer what are known as "enhanced 9-1-1 services" including the ability to
automatically locate the position of all transmitting mobile terminals. We would
not have been able to offer this automatic location information without adding
substantially to the cost of our mobile equipment and reconfiguring our
communications ground segment software. The FCC decided not to impose specific
new requirements on mobile satellite services providers, including American
Mobile, at that time. The FCC did state its expectation that such providers
eventually would be required to provide "appropriate access to emergency
services." A decision to impose this requirement on mobile satellite services
providers could have a material adverse effect on our business.

The FCC enacted "rate integration" regulations requiring that providers of
interstate interexchange telecommunications services charge the same rates for
these services in every state, including Puerto Rico and the U.S. Virgin
Islands. We have opposed the imposition of this rate integration requirement on
our mobile satellite services system, so that we may preserve the flexibility to
charge more for service in areas covered by satellite beams that require more
satellite power. The FCC has denied our request for a permanent exemption from
its rate integration requirement, but has not yet ruled on our request for a
temporary waiver of a year or more. The FCC has granted American Mobile an
interim waiver from its rate integration requirement until its decision on
American Mobile's temporary waiver request.

The foregoing does not purport to describe all present and proposed
federal, state, and local regulation and legislation relating to the industries
in which we operate. Other existing federal, state, and local regulations
currently are the subject of a variety of judicial proceedings, legislative
hearings, and administrative and legislative proposal which could change, in
varying degrees, the manner in which we operate. Neither the outcome of these
proceedings nor their impact on our operations can be predicted at this time.

REGULATORY MATTERS APPLICABLE TO XM RADIO

XM Radio and CD Radio received licenses from the FCC in October 1997 to
construct and operate satellite radio service. The FCC has allocated 25 MHz for
the new service in what is known as the S-Band.

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.

One of the two losing bidders in the initial satellite radio license
auction has filed an application for review of the order granting XM Radio's FCC
license by the full FCC. It argued that WorldSpace had effectively taken control
of XM Radio without FCC approval and that WorldSpace has circumvented the FCC's
application cut-off procedures. XM Radio has opposed this challenge

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and has denied the allegations contained in the challenge. The FCC's order
granting XM Radio's license remains in effect during the pendency of this
challenge. If this challenge is upheld, 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.

The term of XM Radio's license is eight years from the commencement of
actual commercial operation and may be renewed. The FCC requires the satellite
radio licensees, including XM Radio, to adhere to certain milestones in the
development of their systems, including a requirement that the licensees begin
full operation by October 2003.

XM Radio's FCC license requires it to meet the following milestones:

<TABLE>
<CAPTION>
DEADLINE MILESTONE STATUS
- -------- --------- ------
<S> <C> <C>
October 1998 Complete contracting for first satellite Completed March 1998
October 1999 Complete contracting for second satellite Completed March 1998
October 2001 Begin in-orbit operation of at least one satellite Expected First Quarter 2001
October 2003 Begin full operation of the XM Radio system Expected Second Quarter 2001
</TABLE>

While XM Radio has already fulfilled the first two milestones, it may not meet
the remaining two milestones, in part because it depends on third parties to
build and launch its satellites. If XM Radio fails to meet its milestones, the
FCC could take a range of actions, any of which may harm XM Radio's business.

The FCC's regulation of the technical operations of satellite radio is
largely limited to preventing interference with other communications services.
The FCC has required that each satellite radio licensee provide an interoperable
receiver that will permit end users to access all licensed satellite radio
systems that are operational in the U.S. or under construction. Because of
uncertainty regarding the design of CD Radio's systems, XM Radio may not be able
to meet this interoperability requirement. If it fails to do so, the FCC could
take a range of actions, any of which may harm XM Radio's business.

The FCC is currently conducting a rulemaking proceeding to establish rules
for terrestrial repeater transmitters. The FCC has proposed a form of blanket
licensing for terrestrial repeaters and service rules which would prohibit
satellite radio licensees from using terrestrial repeating transmitters to
originate local programming or transmit signals other than those received from
the satellite radio satellites. Various parties, including the National
Association of Broadcasters, have asked the FCC to

- delay consideration of terrestrial repeater rules until XM Radio and CD
Radio provide additional information regarding planned terrestrial
repeaters;

- require individual licensing of each terrestrial repeater;

- limit the number of repeaters that may be deployed; and

- impose a waiting period on the use of repeaters in order to determine if
signal reception problems can be resolved through other means.

The FCC also may adopt limits on emissions of terrestrial repeaters outside of
XM Radio's allowable frequency bands to protect other services using nearby
frequencies. While XM Radio believes that it will meet any reasonable standard
for out-of-band emissions for terrestrial repeaters, the FCC has no specific
standard at this time, and the application of such limits might increase XM
Radio's cost of using repeaters. Although XM Radio is optimistic that it will be
able to construct and use terrestrial repeaters as needed, the development and
implementation of the FCC's ultimate rules might delay this process or restrict
its ability to do so.

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XM Radio will need to coordinate the XM Radio system with Fixed Service and
Mobile Aeronautical Telemetry systems operating in the same frequency bands in
adjacent countries. Canada and Mexico are the countries whose radio systems are
most likely to be affected by satellite radio. The U.S. government, which
conducts the coordination process on behalf of XM Radio, 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. Although XM Radio is
optimistic that the FCC will coordinate satellite radio frequency use with
Mexico without compromising its ability to operate as planned, it may not be
able to do so, which could materially affect XM Radio.

XM Radio will operate its system's feeder link stations (the communications
links between XM Radio's own earth station and its satellites) in the X-Band.
Feeder links are a necessary component of the XM Radio system. Licensees
currently operating in the X-Band include operators in the Fixed Services,
Broadcast Auxiliary Services, the Electronic News Gathering Services and
Mobile-Satellite Service uplink station networks. Although XM Radio is
optimistic that it will succeed in coordinating domestic feeder link station
networks, it may not be able to coordinate use of this spectrum in a timely
manner, or at all.

XM Radio also needs to protect its system from out-of-band emissions from
licensees operating in adjacent frequency bands. Wireless Communication System
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. These limits, however, are less
stringent than those XM Radio proposed. In addition, 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. However, the FCC may not rule in XM Radio's favor.

The FCC order granting XM Radio's license determined that because XM Radio
is a private satellite system providing a subscription service on a non-common
carrier basis, it would not be subject to the FCC's foreign ownership
restrictions. However, such restrictions would apply to XM Radio if it were to
offer non-subscription services, which may appear more lucrative to potential
advertisers than subscription services. The FCC also stated in its order that it
may reconsider its decision not to subject satellite radio licensees to its
foreign ownership restrictions.

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MANAGEMENT

The following table sets forth certain information regarding our executive
officers and directors.

<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Gary M. Parsons.............. 49 Chairman of the Board
Walter V. Purnell, Jr........ 54 President and Chief Executive Officer and Director
Robert L. Goldsmith.......... 55 Executive Vice President and Chief Operating Officer
Randy S. Segal............... 43 Senior Vice President, General Counsel and Secretary
W. Bartlett Snell............ 47 Senior Vice President and Chief Financial Officer
Douglas I. Brandon........... 40 Director
Pradeep P. Kaul.............. 49 Director
Billy J. Parrott............. 64 Director
Andrew A. Quartner........... 46 Director
Jack A. Shaw................. 60 Director
Roderick M. Sherwood, III.... 45 Director
Michael T. Smith............. 55 Director
</TABLE>

Set forth below are descriptions of the backgrounds and principal
occupations of each of the Company's executive officers and directors.

EXECUTIVE OFFICERS

GARY M. PARSONS, 49. American Mobile's Chairman of the Board of Directors
since March 1998, Mr. Parsons has been an American Mobile director, and formerly
Chief Executive Officer and President of American Mobile, since July 1996. Mr.
Parsons also serves as the Chairman of the Board of XM Radio. Mr. Parsons joined
American Mobile from MCI Communications Corporation where he served in a variety
of executive roles from 1990 to 1996, including most recently as Executive Vice
President of MCI Communications, and as Chief Executive Officer of MCI's
subsidiary MCImetro, Inc. From 1984 to 1990, Mr. Parsons was one of the
principals of Telecom*USA, which was acquired by MCI.

WALTER V. PURNELL, JR., 54. An American Mobile director and the Company's
Chief Executive Officer since January 1999, Mr. Purnell also serves as
President, a position he has held since March 1998. Previously, Mr. Purnell was
President and Chief Executive Officer of ARDIS since September 1995. Before
that, Mr. Purnell had served as the Chief Financial Officer of ARDIS since its
founding in 1990. Before 1990, Mr. Purnell held a broad range of senior
executive positions with IBM over 23 years, with financial responsibility over
significant telecommunications and other business divisions, both domestically
and internationally.

ROBERT L. GOLDSMITH, 55. American Mobile's Executive Vice President and
Chief Operating Officer since February 1997. Prior to joining American Mobile,
Mr. Goldsmith was the Senior Vice President of Sales and Marketing and General
Manager of the Commercial Services Division for Qwest Communications Company.
Prior to joining Qwest in 1995, Mr. Goldsmith was with MCI for nine years in
various executive sales and marketing positions.

RANDY S. SEGAL, 43. American Mobile's Senior Vice President, General
Counsel and Secretary since October 1992. From October 1983 to October 1992, Ms.
Segal was associated with the law firm of Debevoise & Plimpton in New York, New
York. Prior to joining Debevoise, Ms. Segal clerked for the Honorable Jerre S.
Williams of the United States Court of Appeals for the Fifth Circuit, and for

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the Honorable Edmund L. Palmieri for the United States District Court for the
Southern District of New York.

W. BARTLETT SNELL, 47. American Mobile's Senior Vice President and Chief
Financial Officer as of March 1999. Mr. Snell was formerly the Senior Vice
President and Chief Financial Officer at Orbcomm Global, L.P., which he joined
in 1996. Prior to joining Orbcomm, Mr. Snell spent 16 years at IBM in a variety
of leadership positions in diverse business areas.

DIRECTORS

DOUGLAS I. BRANDON, 40. An American Mobile director since January 1998, Mr.
Brandon is Vice President -- External Affairs & Law, AT&T Wireless Services,
Inc. Prior to joining AT&T Wireless in 1993, Mr. Brandon was associated with the
law firm of Davis Polk & Wardwell beginning in 1986. Prior to Davis Polk, Mr.
Brandon clerked for the Honorable William H. Timbers of the United States Court
of Appeals for the Second Circuit.

PRADEEP P. KAUL, 49. An American Mobile director since May 1998, Mr. Kaul
is Executive Vice President of Hughes Network Systems ("Hughes Network") and a
member of the Office of the Chairman. In addition to his general corporate
duties, Mr. Kaul is responsible for Hughes Network's efforts in the wireless
marketplace, managing the development and marketing of offerings that include
subscriber terminals, infrastructure networks and digital network services.
Prior to 1987, Mr. Kaul was senior vice president of M/A-Com Telecommunications,
Inc., which was acquired by Hughes Electronics Corporation in 1987. Prior to
that, Mr. Kaul was director of engineering with M/A-Com.

BILLY J. PARROTT, 64. An American Mobile director since May 1988, Mr.
Parrott is President and Chief Executive Officer of Antifire, Inc., a
manufacturer of non-toxic fire retardants. Mr. Parrott is also the founder and
co-founder of several telecommunications companies, including Private Networks,
Inc., a builder and operator of telecommunications and broadcast properties, and
Roanoke Valley Cellular Telephone Company, a cellular communications company.
Mr. Parrott is owner of a production company where he functions as a writer,
producer, director and marketing consultant to Fortune 500 companies.

ANDREW A. QUARTNER, 46. An American Mobile director since May 1988, Mr.
Quartner also serves as corporate counsel at Nextlink Communications, Inc. and
Vice Chairman of CellPort Labs, Inc. Prior to 1997, Mr. Quartner was Senior Vice
President, Law, of AT&T Wireless, which he joined in November 1985. Prior to
joining AT&T Wireless, Mr. Quartner was associated with the law firm of
Debevoise & Plimpton in New York.

JACK A. SHAW, 60. An American Mobile director and formerly Chairman of the
Board of Directors of American Mobile since July 1996, Mr. Shaw is Chairman and
Chief Executive Officer of Hughes Network and Executive Vice President of Hughes
Electronics. Mr. Shaw is a member of the Hughes Electronics Executive Committee.
Mr. Shaw also serves as a Director of XM Radio. Previously, Mr. Shaw held senior
management positions with companies including ITT Space Communications, Inc.,
Digital Communications Corporation and M/A-Com, which was acquired by Hughes in
1987.

RODERICK M. SHERWOOD, III, 45. An American Mobile director since April
1996, Mr. Sherwood is a Hughes Network Systems Senior Vice President and General
Manager of Spaceway and a Corporate Vice President of Hughes. Previously, Mr.
Sherwood served as Treasurer of Hughes, and Chairman of Hughes Investment
Management Company, Senior Vice President -- Operations and Chief Financial
Officer of Hughes Telecommunications and Space Company, and Executive Vice
President of DIRECTV International. He is a member of the Hughes Chairman's
Forum. Prior to joining Hughes in May 1995, Mr. Sherwood served in a variety of
financial roles during his 14-year career with Chrysler Corporation, where he
served as Assistant Treasurer from 1991 to 1994.

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MICHAEL T. SMITH, 55. An American Mobile director since April 1996, Mr.
Smith is Chairman and Chief Executive Officer of Hughes. Mr. Smith is a member
of the Hughes Executive Committee. Mr. Smith also serves as the Chairman of the
Board of Directors of PanAmSat Corporation. Prior to his current position, Mr.
Smith served as Chairman of Hughes Aircraft Company and Vice Chairman of Hughes.
Mr. Smith served as Executive Vice President and Chief Financial Officer of
Hughes from 1989 until 1992. Mr. Smith was the Chairman of Hughes Missile
Systems Co. from 1992 to 1994. Previously, Mr. Smith served in a variety of
financial management positions with Hughes and General Motors Corporation,
beginning his career in 1968.

CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS

American Mobile and each holder of shares of common stock who acquired such
shares prior to our initial public offering of 8,500,000 shares of common stock,
which was completed December 20, 1993, are parties to a Stockholders' Agreement,
amended and restated as of December 1, 1993 (the "Stockholders' Agreement"). The
remaining parties to the Stockholders' Agreement (principally Hughes, Singapore
Telecom, and AT&T Wireless) hold approximately 50% of the outstanding shares of
common stock on a fully diluted basis. The Stockholders' Agreement sets forth
agreements among the parties relating to the governance of American Mobile,
ownership of shares and the voting and transferability of common stock and other
matters. The Stockholders' Agreement limits our activities to engaging in the
communications business, providing, marketing and operating a mobile satellite
service and engaging in activities necessary, appropriate or reasonably related
to the foregoing. The Stockholders' Agreement provides that the parties will not
vote to remove members of the board of directors except for cause and that they
will not elect or permit the election of a director who is not a United States
citizen, if such action would cause American Mobile to violate applicable law,
regulations or FCC policy.

In the Stockholders' Agreement, certain stockholders who, together with
their affiliates, own in excess of five percent of the common stock ("Specified
Stockholders") have also agreed to cause their representatives on our board of
directors to appoint to the Executive Committee two directors (and one
alternate) nominated by each of the two Specified Stockholders which are parties
to the Stockholders' Agreement that hold the greatest number of shares of common
stock and one director (and one alternate) nominated by the Specified
Stockholder that holds the third greatest number of shares of common stock,
provided that each Specified Stockholder making such nomination holds at least
15% (the "Threshold Percentage"), of the outstanding common stock.
Notwithstanding the foregoing, regardless of whether any other Specified
Stockholder which is a party to the Stockholders' Agreement holds the Threshold
Percentage of the outstanding shares of common stock, during the period that any
single Specified Stockholder or group of affiliated stockholders which are
parties to the Stockholders' Agreement are the record holders of more than 50%
of the outstanding common stock, the Specified Stockholders have agreed to cause
their Board representatives to vote for the appointment to the Executive
Committee of nominees of that Specified Stockholder. The Stockholders' Agreement
also provides that no person shall be elected to the board of directors if such
election would violate the Communications Act of 1934 or regulations thereunder.
Furthermore, the Stockholders' Agreement provides that no director shall be
elected to the Executive Committee if such election, in the opinion of counsel
for American Mobile, would raise a reasonable prospect of violating the
Communications Act or regulations thereunder. Moreover, before any Specified
Stockholder may elect a director of American Mobile who is not a United States
citizen, it must first allow Singapore Telecom to elect such a director,
provided Singapore Telecom casts sufficient cumulative votes to elect a
director.

The Communications Act provides that certain FCC licenses may not be held
by a corporation of which more than 20% of its capital stock is directly owned
of record or voted by non-U.S. citizens

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or entities or their representatives (our wholly-owned subsidiary, AMSC
Subsidiary Corporation, as the holder of the FCC license to construct and
operate our mobile satellite services system, is subject to these restrictions).
Further, the Communications Act provides that certain FCC licenses may not be
held by a corporation controlled by another corporation if more than 25% of the
controlling corporation's capital stock is owned of record or voted by non-U.S.
citizens or entities or their representatives ("Alien Ownership"), if the FCC
finds that the public interest is served by the refusal or revocation of such
license (we control AMSC Subsidiary and therefore are subject to these
restrictions). The Stockholders' Agreement contains procedures for reducing the
risk that we will fail to comply with the FCC's Alien Ownership restrictions as
a result of the ownership of the stockholders party to that Agreement or their
respective holdings in American Mobile.

The Stockholders' Agreement provides that when a Specified Stockholder
transfers common stock not acquired by such Specified Stockholder in the open
market, the transferee shall become a party to the Stockholders' Agreement, and
shall assume all of the transferring Specified Stockholder's rights and
obligations under the Stockholders' Agreement, provided such transferee together
with its affiliates would, giving effect to such transfer, hold in excess of 5%
of the issued and outstanding common stock.

The Stockholders' Agreement continues until terminated by the affirmative
vote of the holders of three-fourths of the issued and outstanding common stock
held by parties to the Stockholders' Agreement. It may be amended by a
three-fourths' vote of the Specified Stockholders, except that amendments to the
provisions providing for registration rights and certain other matters require
the affirmative vote of the holders of three-fourths of the outstanding common
stock held by parties to the Stockholders' Agreement.

MOTOROLA AGREEMENTS

In connection with the acquisition of ARDIS Company from Motorola on March
31, 1998, and pursuant to the Stock Purchase Agreement dated as of December 31,
1997, as amended March 31, 1998 (the "Purchase Agreement"), American Mobile,
Motorola and certain of American Mobile's principal stockholders (Hughes,
Singapore Telecom and AT&T Wireless) (the "Participating Stockholders") have
agreed to certain participation and registration rights with respect to our
common stock.

Pursuant to the terms of the Participation Rights Agreement entered into on
December 31, 1997 (the "Participation Rights Agreement"), in the event that one
of the Participating Stockholders seeks to transfer its shares of American
Mobile's common stock other than in a Rule 144 or public stock exchange or
Nasdaq Stock Market transaction (a "Transfer") at a time at which Motorola
beneficially owns 5% or more of American Mobile's common stock, Motorola would
have a right to receive notice of the intended transfer by such Participating
Stockholder and a right to participate (proportionate to Motorola's
stockholdings relative to those of such Participating Stockholder) in such
contemplated transfer. Under the Participation Rights Agreement, the
Participating Stockholders would be entitled to similar notice and participation
rights in the event of an intended transfer by Motorola of its interests in
American Mobile's common stock.

The Participation Rights Agreement also provides that in connection with
the acquisition of ARDIS, Motorola would be entitled to certain demand and
participation ("piggyback") registration rights with respect to the shares of
common stock to be issued to Motorola (directly or following exercise of its
warrants) as part of the purchase price of ARDIS. Pursuant to the Participation
Rights Agreement, after the first year following the acquisition of ARDIS,
Motorola or its transferees would be entitled to two demand registrations with
respect to its shares of American Mobile's common stock, subject to certain
registration priorities and postponement rights of American Mobile. In addition,
Motorola would be entitled to piggyback registration in connection with any
registration of

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securities by American Mobile (whether or not for its own account) on a form
which may be used for registration of the common stock held by Motorola. Under
the Participation Rights Agreement, Motorola's piggyback registration rights
would have certain priorities for sale over those of other parties (including
the Participating Stockholders). Motorola's priority rights, however, would not
extend to a primary registration on behalf of American Mobile or to the
registration rights relating to the 12 1/4% Senior Notes due 2008 and related
warrants.

Motorola has agreed, at the election of the underwriters, to sell up to
1,050,000 shares of common stock to the underwriters at the public offering
price less the underwriting discount to cover over-allotments. We will not
receive any proceeds from a sale of these shares by Motorola. If the
underwriters purchase all of these shares from Motorola, Motorola will receive
approximately $ .

BANK FACILITY GUARANTEES

In connection with the acquisition of ARDIS, American Mobile, AMSC
Acquisition Company, Inc. and its subsidiaries entered into agreements with
Morgan Guaranty Trust Company of New York, Toronto Dominion Bank, Bank of
America National Trust and Savings Association and certain other lenders
(collectively, the "Banks") to provide for two facilities: (1) the revolving
credit facility, a $100 million unsecured five-year reducing revolving credit
facility, and (2) the term loan facility, a $100 million five-year, term loan
facility with up to three additional one-year extensions subject to the Banks'
approval (collectively, the "Bank Financing"). The term loan facility is secured
by our assets, principally our stockholdings in XM Radio and AMSC Acquisition
Company. The Bank Financing is severally guaranteed by Hughes, Singapore Telecom
and Baron Capital Partners, L.P. (collectively, the "Bank Facility Guarantors").

In exchange for the additional risks undertaken by the Bank Facility
Guarantors in connection with the Bank Financing, we agreed to issue 1 million
warrants to purchase shares of our common stock, and to reprice 5.5 million
warrants previously issued (together, the "Guarantee Warrants"). As of the Bank
Financing, the Guarantee Warrants had an exercise price of $12.51 per share.
Further, in connection with the guarantees, we agreed to reimburse the Bank
Facility Guarantors in the event that any of them were required to make payment
under the revolving credit facility guarantees. In connection with this
reimbursement commitment, we provided the Bank Facility Guarantors a junior
security interest with respect to our assets, principally our stockholdings in
XM Radio and AMSC Acquisition Company.

The Bank Facility Guarantors also obtained certain demand and piggy-back
registration rights with regard to the unregistered shares of our common stock
held by them or issuable upon exercise of the Guarantee Warrants. Pursuant to
the terms of an Amended and Restated Registration Rights Agreement with the Bank
Facility Guarantors (the "Registration Rights Agreement"), we agreed to (i)
extend the expiration date for demand registration rights with respect to the
Bank Facility Guarantors' existing warrants, (ii) provide registration rights
for the Guarantee Warrants, and (iii) provide registration rights for other
restricted securities held by the Bank Facility Guarantors. Under the
Registration Rights Agreement the Bank Facility Guarantors would be entitled to
up to three demand registrations with respect to their shares of common stock,
subject to certain registration priorities and postponement rights of American
Mobile. In addition the Bank Facility Guarantors would be entitled to piggyback
registration rights in connection with any registration of securities by
American Mobile (whether or not for its own account), subject to certain
Motorola priorities for sale under the Participation Rights Agreement.

On March 22, 1999, we and the Bank Facility Guarantors agreed to amend the
Registration Rights Agreement to (1) extend the expiration date for exercise of
the demand registration rights granted thereunder to March 31, 2007, (2) clarify
that the rights provided in the Registration Rights

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Agreement are assignable by the Bank Facility Guarantors provided that the
prospective assignee agrees to become a party to that agreement, and (3) provide
one additional demand registration right that may be exercised only by Hughes or
its assignee.

On March 29, 1999, the Bank Facility Guarantors agreed to eliminate certain
restrictive covenants relating to our future earnings before interest,
depreciation, amortization and taxes and service revenue. In exchange, we agreed
to amend the exercise price of the Guarantee Warrants from $12.51 per share to
$7.50 per share.

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.

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. Upon the closing of the XM Radio
Transactions, XM Radio will enter into a shareholders' agreement with American
Mobile and the holders of the Series A subordinated convertible notes issued by
XM Radio, containing, among others, the provisions described below.

The shareholders agreement will provide that the Class B common stock of XM
Radio owned by us will be 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,

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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 will not be 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 will be transferable only upon conversion into shares
of XM Radio Class A common stock.

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.

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 receivers in General Motors cars. Under the
agreement, XM Radio has substantial payment obligations to General Motors,
including, among others, certain guaranteed, annual, fixed payment obligations.
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.

OTHER TRANSACTIONS

In January 1997, we reached an agreement with Hughes Aircraft, the
manufacturer of our satellite, to reduce by 27.5% the amount of certain
performance payments owed to Hughes Aircraft under its satellite construction
contract and to defer all payments otherwise due until January 1998, based on
certain satellite performance considerations. Thereafter, we raised certain
additional

84
<PAGE> 87

contractual payment issues. At present, our obligation to make additional
performance payments to Hughes Aircraft remains at issue and ongoing discussions
are underway between the companies.

Hughes Network Systems Limited, the manufacturer of our land earth
stations, has provided one of our subsidiaries software maintenance services in
support of the operation of the land earth stations at an annual rate of
$760,000 for the twelve month period commencing December 1, 1998.

We have entered into a reseller agreement with Hughes Space &
Communications Company, through its Hughes Government Services ("HGS") business
unit, whereby we will sell our services to HGS for resale by HGS to federal
government subscribers at rates to be established by HGS. Like our other
government resellers, HGS will set rates and prices for services and equipment,
respectively and will be responsible for billing and collecting amounts due from
its customers.

On March 31, 1999, the Securities and Exchange Commission declared our
shelf registration statement on Form S-3 effective. This registration statement
registered warrants to purchase common stock that were issued to purchasers of
the 12 1/4% Senior Notes due 2008, as well as the shares of common stock
issuable upon exercise of such warrants, and shares of common stock owned by
Motorola and shares of common stock (owned directly and issuable upon exercise
of warrants) owned by Singapore Telecom.

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<PAGE> 88

PRINCIPAL STOCKHOLDERS

The following table and the accompanying notes set forth certain
information concerning the beneficial ownership of our common stock at June 11,
1999 (except where otherwise indicated), by each person who is known by us to
own beneficially more than five percent of our 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 us
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>
<CAPTION>
NUMBER OF
NAME OF BENEFICIAL OWNER(1) SHARES % OF CLASS
- --------------------------- ---------- ----------
<S> <C> <C>
BENEFICIAL OWNERS OF MORE THAN 5%
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 14.50%
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 18.39%
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
DIRECTORS AND EXECUTIVE OFFICERS
Douglas I. Brandon(7)....................................... 5,000 *
Robert L. Goldsmith(8)(9)................................... 151,357 *
Pradeep P. Kaul(7).......................................... 6,000 *
Billy J. Parrott(7)(10)..................................... 17,500 *
Gary M. Parsons(8)(9)....................................... 450,990 1.39%
Walter V. Purnell, Jr.(8)(9)(11)............................ 112,387 *
Andrew A. Quartner(7)(12)................................... 21,000 *
Jack A. Shaw(7)............................................. 6,000 *
Roderick M. Sherwood III(7)................................. 6,000 *
Michael T. Smith(7)......................................... 7,000 *
Randy S. Segal(8)(9)........................................ 161,841 *
W. Bartlett Snell(9)........................................ 40,000 *
All Directors and Executive Officers as a group (12
persons)(6)(10)........................................... 985,075 3.03%
</TABLE>

86
<PAGE> 89

- -------------------------
* Less than 1%

(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.

(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) 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 11, 1999,
subject to compliance with applicable securities laws.

(8) Includes shares owned through American Mobile's matching 401(k) Plan and/or
Employee Stock Purchase Plan.

(9) 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 11, 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.

(10) 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.

(11) Includes 200 shares owned by Mr. Purnell's wife, as to which Mr. Purnell
disclaims beneficial ownership.

(12) 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.

87
<PAGE> 90

DESCRIPTION OF CAPITAL STOCK

Our authorized capital stock consists of 75,000,000 shares of common stock,
par value $0.01 per share and 200,000 shares of preferred stock, par value $0.01
per share. On May 26, 1999 our Board of Directors approved an amendment to our
certificate of incorporation to increase our authorized shares of common stock
from 75,000,000 shares to 150,000,000 shares. This amendment is subject to
approval by our stockholders.

COMMON STOCK

On June 11, 1999, there were 32,549,365 shares of common stock outstanding,
held of record by 278 stockholders.

The holders of common stock are entitled to one vote for each share held of
record on all matters submitted to a vote of the stockholders. Cumulative voting
applies to the election of directors. Subject to preferences that may be
applicable to any then-outstanding preferred stock, holders of common stock are
entitled to receive ratably such dividends as may be declared by the board of
directors out of legally available funds. In the event of a liquidation,
dissolution or winding-up of the Company, holders of the common stock are
entitled to share ratably in all assets remaining after we pay our liabilities
and the liquidation preference of any then-outstanding preferred stock. With two
exceptions, there are no preemptive, subscription, redemption or sinking fund
provisions applicable to the common stock. The two exceptions are: (1)
provisions of the preferred stock described below and (2) provisions of an
existing stockholders' agreement as to redemption if alien ownership issues
arise. All outstanding shares of common stock are, and all shares of common
stock to be outstanding upon completion of the offering will be, fully-paid and
nonassessable.

Our certificate of incorporation requires cumulative voting for the
election of directors. Under cumulative voting, each stockholder is entitled to
cast as many votes in the election as equals the product of the number of
directors to be elected and the aggregate number of shares of common stock held
by such stockholder. The stockholder may cumulate such votes for one or more
directors as the stockholder determines. Under cumulative voting, assuming nine
directors were to be elected and 32,549,365 shares of common stock were
outstanding, a stockholder would have to hold at least 3,254,937 shares of
common stock to be certain of electing one director.

PREFERRED STOCK

The board of directors may issue preferred stock in one or more series and
may fix the designations, preferences, powers and relative, participating,
optional and other rights, qualifications, limitations and restrictions on the
preferred stock, including the dividend rate, conversion rights, voting rights,
redemption price and liquidation preference, and may fix the number of shares to
be included in any such series. Any preferred stock may rank senior to the
common stock for the payment of dividends or amounts upon liquidation,
dissolution or winding-up, or both. In addition, any shares of preferred stock
may have class or series voting rights. We do not have any shares of preferred
stock outstanding. Issuances of preferred stock, while providing us with
flexibility in connection with general corporate purposes, may, among other
things, have an adverse effect on the rights of holders of common stock. The
board of directors, without stockholder approval, can issue preferred stock with
voting and conversion rights that could adversely affect the voting power and
other rights of holders of common stock. Preferred stock could thus be issued
quickly with terms calculated to delay or prevent a change of control of the
Company or to make the removal of management more difficult. In certain
circumstances, this could have the effect of decreasing the market price of the
common stock.

88
<PAGE> 91

CERTAIN PROVISIONS OF OUR CERTIFICATE OF INCORPORATION AND BYLAWS

CERTIFICATE OF INCORPORATION. As currently in effect, our certificate of
incorporation may not be amended, modified, rendered ineffective or repealed
except by the vote of the holders of two-thirds of the issued and outstanding
shares of common stock. Except as required by law, other classes or series of
stock will not be entitled to vote on any such amendment, modification or other
change, unless and to the extent required by any applicable law. Our certificate
of incorporation currently requires the affirmative vote of the holders of
two-thirds of the issued and outstanding shares of common stock to approve:

- our merger or consolidation with or into any other entity;

- our dissolution or liquidation; or

- the sale, exchange or lease of all or substantially all of our property
and assets.

The certificate of incorporation also requires that at each election of
directors by the holders of common stock, all directors must be elected.

BYLAWS. As currently in effect, our bylaws require that there be nine
directors on the board of directors. The bylaws provide that special meetings of
the stockholders generally may be called by the president and shall be called at
the request of the holders of at least one-third of the common stock then issued
and outstanding. A special meeting solely to elect all directors of the Company
shall be called at the written request of a holder or holders of sufficient
shares of common stock to then elect at least one director under principles of
cumulative voting. The bylaws also provide that except as provided in the
certificate of incorporation or the bylaws, the bylaws may be altered, amended
or repealed or new bylaws may be adopted only upon the vote of either:

- three-fourths of the members of the board of directors then in office or

- the holders of two-thirds of the issued and outstanding shares of common
stock.

89
<PAGE> 92

UNDERWRITING

Subject to the terms and conditions of the underwriting agreement dated
, 1999, the underwriters named below, who are represented by Bear,
Stearns & Co. Inc., Credit Suisse First Boston Corporation, Deutsche Bank
Securities Inc. and SoundView Technology Group, Inc., have severally agreed to
purchase from us the respective numbers of shares of common stock at the public
offering price less the underwriting discounts and commissions set forth on the
cover page of this prospectus.

<TABLE>
<CAPTION>
UNDERWRITERS NUMBER OF SHARES
- ------------ ----------------
<S> <C>
Bear, Stearns & Co. Inc. ...................................
Credit Suisse First Boston Corporation......................
Deutsche Bank Securities Inc. ..............................
SoundView Technology Group, Inc. ...........................
---------
Total.................................................. 7,000,000
=========
</TABLE>

The underwriting agreement provides that the obligations of the several
underwriters to purchase and accept delivery of the shares included in this
offering are subject to approval of legal matters by their counsel and to
customary conditions, including the effectiveness of the registration statement,
the continuing correctness of our representations to them, the receipt of a
"comfort letter" from our accountants and no occurrence of an event that would
have a material adverse effect on our business. The underwriters are obligated
to purchase and accept delivery of all the shares, other than those covered by
the over-allotment option described below, if they purchase any of the shares.

Motorola has granted to the underwriters an option, exercisable for 30 days
from the date of the underwriting agreement, to purchase up to 1,050,000
additional shares at the public offering price less the underwriting fees. We
will not receive any proceeds from the sale of any shares by Motorola. The
underwriters may exercise such option solely to cover over-allotments, if any,
made in connection with this offering. To the extent that the underwriters
exercise such option, each underwriter will become obligated, subject to
conditions, to purchase a number of additional shares approximately
proportionate to such underwriter's initial purchase commitment.

The underwriters propose to initially offer some of the shares directly to
the public at the public offering price set forth on the cover page of this
prospectus and some of the shares to dealers at the public offering price less a
concession not in excess of $ per share. The underwriters may allow, and
such dealers may re-allow, a concession not in excess of $ per share on
sales to other dealers. After the initial offering of the shares to the public,
the representatives of the underwriters may change the public offering price and
such concessions.

The following table shows the underwriting fees to be paid to the
underwriters by us in connection with this offering. These amounts are shown
assuming both no exercise and full exercise of the underwriters' option to
purchase additional shares of our common stock.

<TABLE>
<CAPTION>
NO EXERCISE FULL EXERCISE
----------- -------------
<S> <C> <C>
Per Share................................................
Total....................................................
</TABLE>

We and our directors and certain members of management have agreed with the
underwriters not to dispose of or hedge any of their common stock or securities
convertible into or exchangeable for shares of common stock during the period
from the date of this prospectus and continuing through the date 90 days after
the date of this prospectus, except with the prior written consent of

90
<PAGE> 93

Bear, Stearns & Co. Inc. In addition, Hughes, Motorola and AT&T have agreed with
the underwriters not to dispose of or hedge any of their common stock or
securities convertible into or exchangeable for shares of common stock during
the period from the date of this prospectus and continuing through the date 120
days after the date of this prospectus, except with the prior written consent of
Bear, Stearns & Co. Inc. These agreements do not apply to issuances or sales of
common stock by us pursuant to any existing employee benefit plans or upon
conversion or exchange of any currently outstanding convertible or exchangeable
securities.

In order to facilitate the offering of our common stock, the underwriters
may engage in transactions that stabilize, maintain or otherwise affect the
market price of our common stock. Specifically, the underwriters may over-allot
shares of our common stock in connection with this offering, thereby creating a
short position in our common stock for their own account. Additionally, to cover
such over-allotments or to stabilize the market price of our common stock, the
underwriters may bid for, and purchase, shares of our common stock in the open
market. Finally, the representatives, on behalf of the underwriters, also may
reclaim selling concessions allowed to an underwriter or dealer if the
underwriting syndicate repurchases shares distributed by that underwriter or
dealer. Any of these activities may maintain the market price of our common
stock at a level above that which might otherwise prevail in the open market.
These transactions may be effected on the Nasdaq National Market, in the
over-the-counter market or otherwise. The underwriters are not required to
engage in these activities and, if commenced, may end any of these activities at
any time.

In connection with this offering, certain underwriters and selling group
members who are qualified market markers on the Nasdaq National Market may
engage in passive market making transactions in our common stock on the Nasdaq
National Market in accordance with Rule 103 of Regulation M under the Securities
Exchange Act, during the business day prior to the pricing of the offering
before the commencement of offers or sales of our common stock. Passive market
markers must comply with applicable volume and price limitations and must be
identified as such. In general, a passive market maker must display its bid at a
price not in excess of the highest independent bid of such security; if all
independent bids are lowered below the passive market makers' bid, however, such
bid must then be lowered when certain purchase limits are exceeded.

We have agreed to indemnify the underwriters against certain liabilities,
including liabilities under the Securities Act, or to contribute to payments the
underwriters may be required to make in respect thereof.

The representatives of the underwriters have advised us that the
underwriters do not intend to confirm sales to any account over which they
exercise discretionary authority.

From time to time, Bear, Stearns & Co. Inc. and its affiliates have
provided, and may continue to provide in the future, investment banking, general
financing and banking services to us and our affiliates, for which they have
received, and expect to receive, customary compensation. Bear Stearns acted as
an initial purchaser in connection with our March 1998 Units offering and
received customary compensation for their services. Bear Stearns acted as our
financial adviser in connection with our acquisition of ARDIS Company in March
1998 and received customary compensation for their services. Bear Stearns acted
as our financial advisor in connection with our acquisition of Worldspace's debt
and equity interest in XM Radio and received customary compensation for their
services. Bear Stearns also acted as financial adviser to XM Radio in connection
with its issuance of $250 million of Series A subordinated convertible notes and
received customary compensation for their services.

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<PAGE> 94

LEGAL MATTERS

Certain legal matters with respect to the shares of common stock offered by
this prospectus will be passed upon for the Company by Arnold & Porter,
Washington, D.C. Certain legal matters in connection with this offering will be
passed upon for the underwriters by Latham & Watkins, New York, New York.

EXPERTS

The consolidated financial statements of American Mobile Satellite
Corporation as of December 31, 1997 and 1998 and for each of the years in the
three-year period ended December 31, 1998, included in this registration
statement, have been audited by Arthur Andersen LLP, independent public
accountants, as indicated in their report with respect thereto, and are included
herein in reliance upon the authority of said firm as experts in giving said
report.

The consolidated financial statements of XM Satellite Radio Holdings, Inc.
(XM Radio) as of December 31, 1998 and 1997, and for the years ended December
31, 1998 and 1997 and for the period from December 15, 1992 (date of inception)
to December 31, 1998, have been included herein and in the registration
statement in reliance upon the report of KPMG LLP, independent certified public
accountants, appearing elsewhere herein, and upon the authority of said firm as
experts in accounting and auditing. The report of KPMG contains an explanatory
paragraph that states that XM Radio has not commenced operations, has negative
working capital and is dependent upon additional debt and equity financings,
which raise substantial doubt about XM Radio's ability to continue as a going
concern. The consolidated financial statements of XM Radio do not include any
adjustments that might result from the outcome of that uncertainty.

WHERE YOU CAN FIND MORE INFORMATION

We file annual, quarterly and special reports, proxy statements and other
information with the SEC. You may read and copy any document we file with the
SEC at the SEC's public reference rooms located at Room 1024, 450 Fifth Street,
N.W., Washington, DC 20549, at 7 World Trade Center, 13th Floor, New York, NY
10048, and at Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, IL
60661. You can also obtain copies of filed documents by mail from the Public
Reference Section of the SEC at Room 1024, 450 Fifth Street, NW, Washington, DC
20549. Please call the SEC at 1-800-SEC-0330 for further information on the
public reference rooms. Our SEC filings are also available to the public at the
SEC's web site at http://www.sec.gov.

CERTAIN INFORMATION ABOUT THIS PROSPECTUS

We have filed a registration statement on Form S-3 with the SEC under the
Securities Act of 1933 covering the common stock being offered by this
prospectus. As permitted by SEC rules, this prospectus omits certain information
that is included in the registration statement. For further information about us
and our common stock, you should refer to the registration statement and its
exhibits. Since the prospectus may not contain all the information that you may
find important, you should review the full text of these documents. If we have
filed a contract, agreement or other document as an exhibit to the registration
statement, you should read the exhibit for a more complete understanding of the
document or matter involved. Each statement in this prospectus, including
statements incorporated by reference as discussed below, regarding a contract,
agreement or other document is qualified in its entirety by reference to the
actual document.

The SEC allows us to incorporate by reference the information that we file
with the SEC, which means that we can disclose important information to you by
referring you to those documents. The

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<PAGE> 95

information incorporated by reference is considered to be part of this
prospectus, and information that we file later with the SEC will automatically
update and supersede this information. We incorporate by reference the documents
listed below and any future filings (File No. 0-23044) we make with the SEC
under Sections 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934:

a. our annual report on Form 10-K for the year ended December 31, 1998;

b. our quarterly report on Form 10-Q for the quarter ended March 31, 1999;

c. our report on Form 8-K dated June 7, 1999 and filed with the SEC on June
9, 1999; and

d. the description of our capital stock contained in our registration
statement on Form 8-A, dated December 9, 1993 and on Form 8-A/A, dated
December 13, 1993.

You may request a copy of these filings, at no cost, by writing or
telephoning us 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) 758-6130

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<PAGE> 96

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> 97

PRO FORMA FINANCIAL INFORMATION

The accompanying pro forma financial information gives effect to (i) the
pending XM Radio transactions and the related XM Radio financing and (ii) the
repayment of $117.7 million of indebtedness outstanding under our bank
financings and the issuance of shares in this offering 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> 98

AMERICAN MOBILE SATELLITE CORPORATION AND SUBSIDIARIES

UNAUDITED PRO FORMA CONSOLIDATED CONDENSED BALANCE SHEET

The accompanying notes are an integral part of the pro forma financial
statements.

P-3
<PAGE> 99
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 OFFERING MOBILE
--------- -------- ----------- -------- ---------
($'S IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
LIABILITIES AND STOCKHOLDERS' (DEFICIT) EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued expenses...... $ 41,839 55,088 $ 1,000(4) $ 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)(5)
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 -- (117,659)(6) 41,341
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)(5) 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
Other long-term liabilities................ 535 -- 535
--------- -------- ---------
Total long-term liabilities........ 519,648 78,906 652,035
--------- -------- ---------
Total liabilities.................. 570,456 235,955 758,965
STOCKHOLDERS' (DEFICIT) EQUITY:
Preferred Stock, par value $0.01:
authorized 200,000 shares; no shares
issued.................................. -- -- --
Common Stock, voting....................... 324 -- 86(4) 70(6) 480
Additional paid-in capital................. 509,074 10,643 129,128(4) 117,589(6) 755,791
(10,643)(5)
Deferred compensation...................... (2,305) -- (2,305)
Common Stock purchase warrants............. 60,588 -- 60,588
Unamortized guarantee warrants............. (33,177) -- (33,177)
Retained loss.............................. (596,362) (22,193) (16,111)(3) (429)(7) (615,579)
--------- -------- ---------
22,193(5) (2,677)(8)
Total stockholders' (deficit)
equity........................... (61,858) (11,550) 165,798
--------- -------- ---------
Total liabilities and stockholders'
(deficit) equity................. $ 508,598 $224,405 $ 924,763
========= ======== =========
</TABLE>

The accompanying notes are an integral part of the pro forma financial
statements.

P-4
<PAGE> 100

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 OFFERING MOBILE
-------- -------- ----------- -------- ---------
($ IN THOUSANDS, EXCEPT FOR PER SHARE DATA)
<S> <C> <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(9) 14,466
-------- ------- --------
Operating Loss........................ (25,458) (4,421) (30,573)
Interest and Other Income (Expense)..... 1,739 54 (268)(10) 1,525
Interest Expense........................ (15,930) -- (2,032)(11) 1,683(13) (16,279)
-------- ------- --------
Net Loss................................ $(39,649) $(4,367) $(45,327)
======== ======= ========
Loss Per Share of Common Stock.......... $ (1.23) $ (0.14) $ (0.95)
======== ======= ========
Weighted-Average Common Shares
Outstanding During the Period
(000's)............................... 32,225 8,614(12) 7,000(14) 47,839
======== ====== ===== ========
</TABLE>

The accompanying notes are an integral part of the pro forma financial
statements.

P-5
<PAGE> 101

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 OFFERING MOBILE
--------- ------- ------------ --------- -------- ----------- -------- ---------
($ IN THOUSANDS, EXCEPT FOR PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Services................. $ 57,994 $9,541 $ (139)(16) $ 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)(16) 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(17) 56,519 -- 2,774(9) 59,293
--------- ------- --------- -------- ---------
(324)(18)
Operating Loss........... (88,207) (4,645) (93,373) (16,193) (112,340)
Interest and Other
Income................... 4,372 5 1,538(19) 5,915 26 5,941
Equity in Loss of XM
Radio.................... (342) -- (342) -- 342(15)
Interest Expense........... (53,771) (282) (9,702)(20) (63,755) -- (15,211)(11) 5,439(13) (73,527)
--------- ------- --------- -------- ---------
Net loss................... $(137,948) $(4,922) $(151,555) $(16,167) $(179,926)
========= ======= ========= ======== =========
Loss Per Share of Common
Stock.................... $ (5.39) $(0.19) $ (4.72) $ (0.63) $ (3.77)
========= ======= ========= ======== =========
Weighted-Average Common
Shares Outstanding During
the Period (000's)....... 25,588 6,521(21) 32,109 8,614(12) 7,000(14) 47,723
========= ======= ========= ======= ===== =========
</TABLE>

The accompanying notes are an integral part of the pro forma financial
statements.

P-6
<PAGE> 102

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 Communications
Inc., DIRECTV, Inc., Columbia Capital, Telcom Ventures, L.L.C. and Madison
Dearborn Partners and related financing costs of approximately $11.3 million.

(2) Reflects the repayment of $75 million by XM Radio of certain outstanding
notes payable to WorldSpace.

(3) Reflects American Mobile's 80% interest in the losses of XM Radio not
previously recorded by American Mobile. In accordance with equity accounting
rules, when the acquisition of XM Radio is consummated, we will restate our 1998
and first quarter 1999 Statements of Operations to reflect our share of XM
Radio's losses based on our share of XM Radio's outstanding voting equity
interest during those periods.

(4) 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.................................... 41,611
Accounts payable and accrued expenses....................... (55,088)
Notes payable............................................... (75,080)
--------
135,848
Less: American Mobile's previous investment in XM Radio:
Note receivable and miscellaneous receivables from XM
Radio to American Mobile (see Note (5))................ (21,745)
Negative investment in XM Radio resulting from Note (3)
above (see Note (5))................................... 16,111
--------
$130,214
========
</TABLE>

P-7
<PAGE> 103

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.

(5) 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 $16,111.

(6) As discussed in "Use of Proceeds," we will utilize the $126.0 million from
the sale of 7,000,000 shares of American Mobile at $18.00 per share to pay down
indebtedness under our bank loans. This adjustment reflects the proceeds from
the anticipated Offering and application of the proceeds therefrom as if the
Offering had occurred on March 31, 1999, as follows:

<TABLE>
<CAPTION>
AMOUNT
-----------
(DOLLARS IN
THOUSANDS)
<S> <C>
Repayment of bank loans..................................... $117,659
Payment of underwriting discount and estimated offering
costs..................................................... 8,341
--------
Gross proceeds from the Offering.......................... $126,000
========
</TABLE>

(7) Reflects the amount anticipated to be received upon termination of a portion
of an interest rate swap in connection with the repayment of amounts outstanding
under the term loan with the proceeds of the Offering. Upon such termination,
the Company expects to report a loss of $429,000.

(8) Reflects the write-off of a pro-rata share of financing fees incurred in
connection with the placement of amounts outstanding under the term loan.

(9) Reflects the amortization, over a fifteen-year life, of the acquired
intangibles, including goodwill of XM Radio.

(10) 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.

(11) 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).

(12) Reflects shares issued to XM Ventures in connection with the XM Radio
transaction.

(13) Reflects the elimination of interest expense on the bank loans and
amortization of related financing costs associated with the placement of the
term loan as a result of the repayment of a portion of the outstanding debt with
the net proceeds from the Offering.

P-8
<PAGE> 104

(14) Reflects the issuance of shares in connection with the Offering.

(15) Reflects the elimination of XM Radio losses previously recorded by American
Mobile on the equity basis.

(16) Reflects the elimination of inter-company balances resulting from
transactions between American Mobile and ARDIS.

(17) Reflects the amortization, over a twenty-year life, of the excess of
purchase price of ARDIS over fair market value of net assets acquired.

(18) Reflects the elimination of goodwill amortization recorded by ARDIS.

(19) 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%.

(20) Reflects adjustments to interest expense as a result of the ARDIS
acquisition and related financings.

(21) Reflects shares issued to Motorola in connection with the ARDIS
acquisition.

P-9
<PAGE> 105

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-38
Unaudited Consolidated Condensed Balance Sheets at March 31,
1999 and December 31, 1998................................ F-39
Unaudited Consolidated Condensed Statements of Cash Flows
for the three months ended March 31, 1999 and 1998........ F-40
Notes to Unaudited Consolidated Condensed Financial
Statements including Financial Statements of
Subsidiaries.............................................. F-41
</TABLE>

XM SATELLITE RADIO HOLDINGS INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)

<TABLE>
<S> <C>
Independent Auditors' Report................................ F-53
Consolidated Balance Sheets at December 31, 1998 and 1997... F-54
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-55
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-56
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-57
Notes to Consolidated Financial Statements.................. F-58
Unaudited Condensed Consolidated Balance Sheet as of March
31, 1999.................................................. F-71
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-72
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-73
Notes to Unaudited Condensed Consolidated Financial
Statements................................................ F-74
</TABLE>

F-1
<PAGE> 106

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, 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

F-2
<PAGE> 107

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.............................. (342) (1,301) --
INTEREST EXPENSE........................................ (53,771) (21,633) (15,151)
--------- --------- ---------
NET LOSS................................................ $(137,948) $(119,207) $(134,638)
========= ========= =========
Basic and Diluted Loss Per Share of Common Stock........ $ (4.52) $ (4.74) $ (5.38)
Weighted-Average Common Shares Outstanding During the
Period (000's)........................................ 30,496 25,131 25,041
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.

F-3
<PAGE> 108

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> 109

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
Other long-term liabilities............................... 540 647
--------- ---------
Total long-term liabilities....................... 469,228 205,883
Total liabilities................................. 514,199 265,316
--------- ---------
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........................................... (556,713) (418,765)
--------- ---------
STOCKHOLDERS' (DEFICIT) EQUITY:............................. (24,405) 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> 110

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................. -- -- -- -- -- -- (137,948) (137,948)
---------- ---- -------- ------- ------- -------- --------- ---------
BALANCE, December 31,
1998..................... 32,198,735 $322 $508,084 $(1,528) $59,108 $(33,678) $(556,713) $ (24,405)
========== ==== ======== ======= ======= ======== ========= =========
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.

F-6
<PAGE> 111

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.................................................... $(137,948) $(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................................ 342 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> 112

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> 113
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> 114
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> 115
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> 116
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> 117
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> 118
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> 119
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> 120
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> 121
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> 122
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> 123
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> 124
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> 125
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
rate at an annual rate of 12% and was fully repaid in March 1998. No further
borrowings are available under the Bridge Loan.

F-21
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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, depreciation, amortization and taxes ("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> 127
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> 128
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> 129
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> 130
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................................................ (151,555) (176,207)
Loss per share.......................................... (4.72) (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> 131
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> 132
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> 133
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 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. FINANCIAL STATEMENTS OF SUBSIDIARIES

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> 134
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.

Acquisition Company is a holding company with no material operations. It
holds the Notes and Revolving Credit Facility, both of which are fully and
unconditionally guaranteed on a joint and several basis by all of its
subsidiaries, and holds the inter-company notes receivable from its
subsidiaries. Separate company financial statements for Acquisition Company have
not been prepared, as management believes the differences between the
Acquisition Company and the Subsidiary Guarantors statements to be immaterial,
and therefore not material information to the investors.

Summarized financial information with respect to American Mobile Parent,
Acquisition Company and with respect to the Subsidiary Guarantors on a combined
basis as of December 31, 1998 and for the years ended December 31, 1998 and 1997
is as follows (unaudited):

<TABLE>
<CAPTION>
AMERICAN MOBILE PARENT ACQUISITION COMPANY
------------------------- ----------------------
OPERATING STATEMENT DATA 1998 1997 1998 1997
------------------------ ------------ --------- ------------ ------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Net Revenue............................. $ 1,200 $ 1,200 $ -- $--
Equity in loss of subsidiaries.......... (137,793) (149,566) (116,332) --
Operating income (loss)................. 13 35 (110) --
Net loss................................ (137,948) (119,207) (137,793) --
</TABLE>

<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
BALANCE SHEET DATA 1998 1998
------------------ ------------ ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Current assets.......................... $ 6,019 $ 41,058
Non-current assets...................... 69,655 392,591
Current liabilities..................... 79 10,715
Non-current liabilities................. 100,000 359,147
Shareholders' (Deficit) Equity.......... (24,405) 63,787
</TABLE>

<TABLE>
<CAPTION>
COMBINED SUBSIDIARY
GUARANTORS
----------------------
OPERATING STATEMENT DATA 1998 1997
------------------------ --------- ---------
(IN THOUSANDS)
<S> <C> <C>
Net Revenue................................................. $ 87,221 $ 44,214
Equity in loss of subsidiaries.............................. -- --
Operating loss.............................................. (88,635) (99,535)
Net loss.................................................... (116,332) (149,566)
</TABLE>

F-30
<PAGE> 135
AMERICAN MOBILE SATELLITE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

<TABLE>
<CAPTION>
DECEMBER 31,
BALANCE SHEET DATA 1998
------------------ --------------
(IN THOUSANDS)
<S> <C>
Current assets.............................................. $ 46,776
Non-current assets.......................................... 316,728
Current liabilities......................................... 33,842
Non-current liabilities..................................... 691,445
Shareholders' Deficit....................................... (361,783)
</TABLE>

Major differences between the financial statements of Parent and
Acquisition Company include (i) the Term Loan Facility which, as of the
Acquisition, is an obligation of Parent and, as such, the related debt and
interest costs are not included in the Acquisition Company financial statements
for the periods ended and as of December 31, 1998, and (ii) certain immaterial
inter-company management fees and expenses between the Parent and Acquisition
Company are not eliminated at the Acquisition Company level.

The consolidated condensed unaudited financial statements of Acquisition
Company are set forth below.

AMSC ACQUISITION COMPANY, INC. AND SUBSIDIARY GUARANTORS
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------
1998 1997 1996
--------- --------- ---------
(DOLLARS IN THOUSANDS)
<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............................. 16,733 12,030 24,541
General and administrative........................ 17,465 14,890 16,212
Depreciation and amortization..................... 53,233 44,535 45,496
--------- --------- ---------
Operating Loss.................................... (88,745) (99,535) (120,893)
INTEREST AND OTHER INCOME........................... 3,612 1,122 552
INTEREST EXPENSE.................................... (52,660) (51,153) (44,636)
--------- --------- ---------
NET LOSS............................................ $(137,793) $(149,566) $(164,977)
========= ========= =========
</TABLE>

F-31
<PAGE> 136
AMERICAN MOBILE SATELLITE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

AMSC ACQUISITION COMPANY, INC. AND SUBSIDIARY GUARANTORS
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 1998 AND 1997
(UNAUDITED)

<TABLE>
<CAPTION>
1998 1997
-------- --------
(DOLLARS IN
THOUSANDS)
<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................................................ 15,325 8,140
Current portion of restricted short-term investments...... 41,038 --
Other current assets...................................... 7,212 9,608
-------- --------
Total current assets............................... 87,834 64,739
PROPERTY AND EQUIPMENT, net................................. 246,553 250,335
RESTRICTED INVESTMENTS...................................... 56,439 --
GOODWILL AND INTANGIBLES, net............................... 53,235 --
DEFERRED CHARGES AND OTHER ASSETS, net...................... 33,846 36,722
-------- --------
TOTAL ASSETS....................................... $477,907 $351,796
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
Accounts payable and accrued expenses..................... $ 33,718 $ 35,825
Obligations under capital leases due within one year...... 5,971 798
Current portion of deferred trade payables................ 5,041 15,254
Other current liabilities................................. 162 7,520
-------- --------
Total current liabilities.......................... 44,892 59,397
DUE TO PARENT............................................... -- 441,836
LONG-TERM LIABILITIES:
Obligations under New Bank Financing...................... 32,000 198,000
Notes, net of discount.................................... 327,147 --
Capital lease obligations................................. 5,824 3,147
Deferred trade payables................................... 1,689 1,364
Net assets acquired in excess of purchase price........... 2,028 2,725
Other long-term liabilities............................... 540 647
-------- --------
Total long-term liabilities........................ 369,228 205,883
Total liabilities.................................. 414,120 707,116
-------- --------
STOCKHOLDERS' EQUITY (DEFICIT).............................. 63,787 (355,320)
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY
(DEFICIT)......................................... $477,907 $351,796
======== ========
</TABLE>

F-32
<PAGE> 137
AMERICAN MOBILE SATELLITE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

AMSC ACQUISITION COMPANY, INC. AND SUBSIDIARY GUARANTORS
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
FOR THE PERIOD FROM JANUARY 1, 1996 THROUGH DECEMBER 31, 1998
(UNAUDITED)

<TABLE>
<CAPTION>
TOTAL
------------
(DOLLARS IN
THOUSANDS)
<S> <C>
BALANCE, December 31, 1995................................ $ (40,777)
Net Loss................................................ (164,977)
---------
BALANCE, December 31, 1996................................ (205,754)
Net Loss................................................ (149,566)
---------
BALANCE, December 31, 1997................................ (355,320)
Net Loss................................................ (137,793)
Investment by Parent Company............................ 556,900
---------
BALANCE, December 31, 1998................................ $ 63,787
=========
</TABLE>

F-33
<PAGE> 138
AMERICAN MOBILE SATELLITE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

AMSC ACQUISITION COMPANY, INC. AND SUBSIDIARY GUARANTORS
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------------
1998 1997 1996
--------- --------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss.................................................... $(137,793) $(149,566) $(164,977)
Adjustments to reconcile net loss to net cash used in
operating activities:
Amortization of debt discount............................. 10,845 9,350 5,721
Depreciation and amortization............................. 53,233 44,535 45,413
Changes in assets and liabilities:
Inventory............................................... 21,947 (2,287) (27,482)
Prepaid in-orbit insurance.............................. 1,183 516 (257)
Trade accounts receivable............................... (105) (1,537) (5,229)
Other current assets.................................... 7,185 4,639 1,970
Accounts payable and accrued expenses................... 16,864 (5,844) 1,668
Deferred trade payables................................. (6,567) 11,685 --
Deferred items -- net................................... (7,396) 8,038 1,347
--------- --------- ---------
Net cash used in operating activities....................... (40,604) (80,471) (141,826)
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of ARDIS........................................ (52,373) -- --
Purchase of long-term restricted securities................. (96,976) -- (1,000)
Payment of escrow interest.................................. (20,633) -- --
Insurance proceeds applied to equipment in service.......... -- -- 66,000
Additions to property and equipment......................... (12,470) (8,598) (14,054)
--------- --------- ---------
Net cash provided by (used in) investing activities......... (182,452) (8,598) 50,946
CASH FLOWS FROM FINANCING ACTIVITIES:
Funding (to) from Parent.................................... (22,686) 28,220 29,485
Proceeds from Notes......................................... 335,000 -- --
Principal payments under capital leases..................... (3,395) (2,576) (3,994)
Principal payments under Vendor Financing................... (16) -- --
Proceeds from short-term borrowings......................... 10,000 -- 70,000
Payments on short-term borrowings........................... (10,000) -- (70,000)
Repayment of Bank Financing................................. (100,000) -- --
Proceeds from New Bank Financing and 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................... 223,235 88,993 84,198
Net increase (decrease) in cash and cash equivalents........ 179 (76) (6,682)
CASH AND CASH EQUIVALENTS, beginning of period.............. 2,106 2,182 8,864
--------- --------- ---------
CASH AND CASH EQUIVALENTS, end of period.................... $ 2,285 $ 2,106 $ 2,182
========= ========= =========
</TABLE>

F-34
<PAGE> 139
AMERICAN MOBILE SATELLITE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

18. SUBSEQUENT EVENTS (UNAUDITED)

XM ACQUISITION

On June 7, 1999, the Company signed an agreement with WorldSpace, under
which the Company will acquire 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 2.2 million of which is subject to Company stockholder
approval. Additionally, XM Radio will issue an aggregate $250 million of Series
A subordinated convertible notes to several new investors and will use $75
million of the proceeds it receives from the issuance of these notes to repay
the $75 million loan owed to WorldSpace. After these transactions are completed,
the Company will own all of the issued and outstanding stock of XM Radio.
Assuming subsequent conversion of all then-outstanding convertible notes of XM
Radio, and assuming the Company obtains stockholder approval to issue the
remaining 2.2 million shares discussed above, American Mobile will own
approximately 37% of the economic interest of XM Radio, and would have
approximately 62% of the voting interest in XM Radio.

These transactions are subject to a variety of closing conditions,
including WorldSpace stockholder approval and other customary closing
conditions. The Company believes that the transactions will close by early July
1999.

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>

Upon closing, the Company will control XM Radio and will consolidate XM
Radio on a prospective basis. Additionally, generally accepted accounting
principles require the Company to restate its 1998 financial statements to
record the Company's share of losses which had previously been suspended
pursuant to the equity method of accounting. The effect of this restatement will
be to increase the Company's previously reported net loss from $137,948 to
$150,566 and to increase the loss per share from $4.52 to $4.94.

F-35
<PAGE> 140
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................. (6,839) (14,099) (13,922) (14,881) (3,425) (5,175) (6,442) (6,770)
-------- -------- -------- -------- -------- -------- -------- --------
Net Loss.................. (25,242) (38,963) (36,298) (37,445) (27,081) (26,842) (26,264) (39,020)
Net loss per common
share(2)................ $ (1.00) $ (1.23) $ (1.14) $ (1.16) $ (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-36
<PAGE> 141

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............................. (137,948) (119,207) (134,638) (66,917) (21,103)
Basic and diluted Loss per Common
Share.............................. $ (4.52) $ (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................ 469,228 205,883 133,804 6,052 59,879
Stockholders' (Deficit) Equity....... (24,405) 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-37
<PAGE> 142

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.................................. -- (342)
-------- --------
NET LOSS.................................................. $(39,649) $(25,242)
======== ========
Basic and Diluted Loss Per Share of common stock............ $ (1.23) $ (1.00)
Weighted-average common shares outstanding during the period
(000's)................................................... 32,225 25,241
</TABLE>

See notes to consolidated condensed financial statements.

F-38
<PAGE> 143

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
Other long-term liabilities............................... 535 540
-------- --------
Total long-term liabilities........................ 519,648 469,228
-------- --------
Total liabilities.................................. 570,456 514,199
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........................................... (596,362) (556,713)
-------- --------
Total stockholders' deficit........................ (61,858) (24,405)
-------- --------
Total liabilities and stockholders' deficit........ $508,598 $489,794
======== ========
</TABLE>

See notes to consolidated financial statements.

F-39
<PAGE> 144

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.................................................... $(39,649) $(25,242)
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................................ -- 342
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-40
<PAGE> 145

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-41
<PAGE> 146
AMERICAN MOBILE SATELLITE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS -- (CONTINUED)

COMPREHENSIVE INCOME

SEGMENT DISCLOSURES

<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-42
<PAGE> 147
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, depreciation, amortization and taxes
("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-43
<PAGE> 148
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-44
<PAGE> 149
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 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.

F-45
<PAGE> 150
AMERICAN MOBILE SATELLITE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS -- (CONTINUED)

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. AMSC ACQUISITION COMPANY 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-46
<PAGE> 151
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.

Acquisition Company is a holding company with no material operations. It
holds the Senior Notes and Revolving Credit Facility, both of which are fully
and unconditionally guaranteed on a joint and several basis by all of its
subsidiaries, and holds the inter-company notes receivable from its
subsidiaries. Separate company financial statements for Acquisition Company have
not been prepared, as management believes the differences between the
Acquisition Company and the Subsidiary Guarantors statements to be immaterial,
and therefore not material information to the investors.

Summarized financial information with respect to American Mobile Parent,
Acquisition Company and with respect to the Subsidiary Guarantors on a combined
basis as of March 31, 1999 and for the three months ended March 31, 1999 and
1998 is as follows (unaudited):

<TABLE>
<CAPTION>
AMERICAN MOBILE PARENT ACQUISITION COMPANY
THREE MONTHS ENDED THREE MONTHS ENDED
MARCH 31, MARCH 31,
---------------------- --------------------
1999 1998 1999 1998
-------- -------- -------- ----
(IN THOUSANDS)
<S> <C> <C> <C> <C>
OPERATING STATEMENT DATA
Net Revenue.................... $ 300 $ 300 $ -- $--
Equity in loss of
subsidiaries................. (37,197) (32,613) (29,818) --
Operating income (loss)........ 110 526 190 --
Net (loss) income.............. (39,649) (25,242) (37,197) --
</TABLE>

<TABLE>
<CAPTION>
AS OF AS OF
MARCH 31, MARCH 31,
1999 1999
--------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
BALANCE SHEET DATA
Current assets......................... $ 27,651 $ 41,038
Non-current assets..................... 34,182 394,009
Current liabilities.................... 421 20,988
Non-current liabilities................ 123,270 386,359
Shareholders' (Deficit) Equity......... (61,858) 27,700
</TABLE>

F-47
<PAGE> 152
AMERICAN MOBILE SATELLITE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS -- (CONTINUED)

<TABLE>
<CAPTION>
COMBINED SUBSIDIARY
GUARANTORS
THREE MONTHS ENDED
MARCH 31,
----------------------
1999 1998
-------- --------
(IN THOUSANDS)
<S> <C> <C>
OPERATING STATEMENT DATA
Net Revenue............................................. $ 20,230 $ 10,022
Equity in loss of subsidiaries.......................... -- --
Operating loss.......................................... (25,758) (18,928)
Net loss................................................ (29,818) (32,613)
</TABLE>

<TABLE>
<CAPTION>
AS OF
MARCH 31, 1999
--------------
(IN THOUSANDS)
<S> <C>
BALANCE SHEET DATA
Current assets.............................................. $ 53,346
Non-current assets.......................................... 312,901
Current liabilities......................................... 29,399
Non-current liabilities..................................... 728,449
Shareholders' Deficit....................................... (391,601)
</TABLE>

Major differences between the financial statements of Parent and
Acquisition Company include (i) the Term Loan Facility which, as of the
Acquisition, is an obligation of Parent and, as such, the related debt and
interest costs are not included in the Acquisition Company financial statements
for the periods ended and as of March 31, 1999, and (ii) certain immaterial
inter-company management fees and expenses between the Parent and Acquisition
Company are not eliminated at the Acquisition Company level.

The consolidated condensed unaudited financial statements of Acquisition
Company are set forth below.

F-48
<PAGE> 153
AMERICAN MOBILE SATELLITE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS -- (CONTINUED)

AMSC ACQUISITION COMPANY, INC.
COMBINED CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)

<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
----------------------
1999 1998
--------- ---------
(DOLLARS IN THOUSANDS)
<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 2,993
General and administrative................................ 4,879 3,659
Depreciation and amortization............................. 13,772 10,689
-------- --------
Operating Loss............................................ (25,568) (18,928)
INTEREST AND OTHER INCOME................................... 1,181 141
INTEREST EXPENSE............................................ (12,810) (13,826)
-------- --------
NET LOSS.................................................... $(37,197) $(32,613)
======== ========
</TABLE>

F-49
<PAGE> 154
AMERICAN MOBILE SATELLITE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS -- (CONTINUED)

AMSC ACQUISITION COMPANY, INC.
COMBINED CONDENSED BALANCE SHEETS
(UNAUDITED)

<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1999 1998
--------- ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................. $ 8,131 $ 2,285
Inventory................................................. 17,440 18,593
Accounts receivable....................................... 16,752 15,325
Restricted short-term investments......................... 41,038 41,038
Prepaid in-orbit insurance................................ 1,932 3,381
Other current assets...................................... 9,091 7,212
-------- --------
Total current assets............................... 94,384 87,834
PROPERTY AND EQUIPMENT -- NET............................... 239,017 246,553
GOODWILL -- NET............................................. 52,772 56,439
RESTRICTED INVESTMENTS...................................... 57,678 53,235
DEFERRED CHARGES AND OTHER ASSETS -- NET.................... 32,672 33,846
-------- --------
Total assets....................................... $476,523 $477,907
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued expenses..................... $ 41,418 $ 33,718
Obligations under capital leases due within one year...... 4,816 5,971
Current portion of long-term debt......................... 4,153 5,041
Other current liabilities................................. -- 162
-------- --------
Total current liabilities.......................... 50,387 44,892
DUE TO PARENT............................................... 557 --
LONG-TERM LIABILITIES:
Obligations under New Bank Financing...................... 59,000 32,000
Senior Notes, net of discount............................. 327,359 327,147
Capital lease obligations................................. 5,657 5,824
Other long-term debt...................................... 3,473 1,689
Net assets acquired in excess of purchase price........... 1,855 2,028
Other long-term liabilities............................... 535 540
-------- --------
Total long-term liabilities........................ 397,879 369,228
Total liabilities.................................. 448,823 414,120
-------- --------
STOCKHOLDERS' EQUITY........................................ 27,700 63,787
-------- --------
Total liabilities and stockholders' equity......... $476,523 $477,907
======== ========
</TABLE>

F-50
<PAGE> 155
AMERICAN MOBILE SATELLITE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS -- (CONTINUED)

AMSC ACQUISITION COMPANY, INC.
COMBINED CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)

<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-----------------------
1999 1998
--------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
CASH FLOWS USED IN OPERATING ACTIVITIES:
Net loss.................................................... $(37,197) $ (32,613)
Adjustments to reconcile net loss to net cash used in
operating activities:
Amortization of debt discount............................. 1,786 2,524
Depreciation and amortization............................. 13,772 10,689
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.................................... (1,424) (661)
Accounts payable and accrued expenses................... 8,147 (12,182)
Deferred trade payables................................. (2,092) 6,436
Deferred items -- net................................... (542) 293
-------- ---------
Net cash used in operating activities....................... (16,375) (18,109)
Additions to property and equipment......................... (2,541) (1,126)
Acquisition of ARDIS........................................ -- (51,382)
Purchase of long-term restricted cash securities............ (1,239) (113,000)
-------- ---------
Net cash used in investing activities....................... (3,780) (165,508)
CASH FLOWS FROM FINANCING ACTIVITIES:
Funding from Parent......................................... 413 (12,127)
Principal payments under capital leases..................... (1,322) (135)
Proceeds from Bank Financing................................ 27,000 2,000
Repayment of Bank Financing................................. -- (100,000)
Proceeds from bridge financing.............................. -- 10,000
Repayment of bridge financing............................... -- (10,000)
Proceeds from Senior Notes.................................. -- 326,510
Principal payments under Vendor Financing................... (90) --
Debt issuance costs......................................... -- (13,458)
-------- ---------
Net cash provided by financing activities................... 26,001 202,790
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>

F-51
<PAGE> 156
AMERICAN MOBILE SATELLITE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS -- (CONTINUED)

7. SUBSEQUENT EVENTS

XM ACQUISITION

On June 7, 1999, the Company signed an agreement with WorldSpace, under
which the Company will acquire 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 2.2 million is subject to Company stockholder
approval. Additionally, XM Radio will issue an aggregate $250 million of Series
A subordinated convertible notes to several new investors and will use $75
million of the proceeds it receives from the issuance of these notes to repay
the outstanding loan owed to WorldSpace. After these transactions are completed,
the Company will own all of the issued and outstanding stock of XM Radio.
Assuming subsequent conversion of all then-outstanding convertible notes of XM
Radio, and assuming we obtain stockholder approval to issue the remaining 2.2
million shares discussed above, the Company will own approximately 37% of the
equity of XM Radio, and would have approximately 62% of the voting power in XM
Radio.

Upon closing, the Company will control XM Radio and will consolidate XM
Radio on a prospective basis. Additionally, generally accepted accounting
principles require restatement of the 1998 and March 31, 1999 financial
statements to record the Company's share of losses which had previously been
suspended pursuant to the equity method of accounting. The effect of this
restatement will be to increase the Company's previously reported net loss for
the three months ended March 31, 1999 from $39,649 to $43,143 and to increase
the loss per share from $1.23 to $1.34.

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>

F-52
<PAGE> 157

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-53
<PAGE> 158

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-54
<PAGE> 159

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-55
<PAGE> 160

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-56
<PAGE> 161

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-57
<PAGE> 162

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.

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-58
<PAGE> 163
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-59
<PAGE> 164
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-60
<PAGE> 165
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-61
<PAGE> 166
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 (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 (Loan Agreement).

F-62
<PAGE> 167
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-63
<PAGE> 168
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.

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-64
<PAGE> 169
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-65
<PAGE> 170
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-66
<PAGE> 171
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-67
<PAGE> 172
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.

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-68
<PAGE> 173
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-69
<PAGE> 174
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-70
<PAGE> 175

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-71
<PAGE> 176

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-72
<PAGE> 177

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-73
<PAGE> 178

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 BREACH

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-74
<PAGE> 179
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 June 7, 1999, AMSC signed an agreement with WSI, under which AMSC will
acquire 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 2.2 million of which is subject to AMSC stockholder approval.
Additionally, the Company will issue an aggregate $250 million of Series A
subordinated convertible notes to several new investors and will use $75 million
of the proceeds it receives from the issuance of these notes to redeem certain
outstanding loan obligations owed to WSI. After these transactions are
completed, AMSC will own all of the issued and outstanding stock of the Company.
Assuming subsequent conversion of all then-outstanding convertible notes of the
Company, and assuming AMSC obtains stockholder approval to issue the remaining
2.2 million shares discussed above, AMSC will own approximately 37% of the
equity of the Company, and would have approximately 62% of the voting power in
the Company.

These transactions are subject to a variety of closing conditions,
including WSI stockholder approval and other customary closing conditions. The
Company believes that the transactions will close by early July 1999.

RECAPITALIZATION

Concurrently with the transaction discussed above, the Company's capital
structure will be reorganized. Following the restructuring, AMSC will hold 125
shares of Class B common stock, which will be the only shares of the Company's
capital stock outstanding. The Class B common stock will have three votes per
share. The Company will also have Class A common stock, which will be entitled
to one vote per share. The Class B common stock will be 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.

ISSUANCE OF SERIES A SUBORDINATED CONVERTIBLE NOTES OF XM RADIO TO NEW INVESTORS

At the closing of the transaction described above, the Company has
committed to issue an aggregate $250 million of Series A subordinated
convertible notes to six new investors -- General Motors Corporation, $50
million; Clear Channel Communications Inc., $75 million; DIRECTV, 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 will
be 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 will be $509,711 aggregate principal
amount of notes for each share of the Company's stock. The notes will 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 maturity date of the convertible notes to a date no later than the
six month anniversary of

F-75
<PAGE> 180
XM SATELLITE RADIO HOLDINGS INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

the stated maturity date of such high yield debt securities. The notes will be
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 will pay 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 currently expects this application to be withdrawn
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 receivers in
General Motors cars. Under the agreement, XM Radio has substantial payment
obligations to General Motors, including, among others, certain guaranteed,
annual, fixed payment obligations. 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.

F-76
<PAGE> 181

------------------------------------------------------
------------------------------------------------------

PROSPECTIVE INVESTORS MAY RELY ON THE INFORMATION CONTAINED IN THIS PROSPECTUS.
NEITHER AMERICAN MOBILE SATELLITE CORPORATION NOR ANY UNDERWRITER HAS AUTHORIZED
ANYONE TO PROVIDE PROSPECTIVE INVESTORS WITH DIFFERENT OR ADDITIONAL
INFORMATION. THIS PROSPECTUS IS NOT AN OFFER TO SELL THESE SECURITIES AND IT IS
NOT A SOLICITATION OF AN OFFER TO BUY THESE SECURITIES IN ANY JURISDICTION WHERE
SUCH OFFER OR SALE IS NOT PERMITTED. THE INFORMATION CONTAINED IN THIS
PROSPECTUS IS CORRECT ONLY AS OF THE DATE OF THIS PROSPECTUS, REGARDLESS OF THE
TIME OF DELIVERY OF THIS PROSPECTUS OR ANY SALE OF THESE SECURITIES.

-------------------------

TABLE OF CONTENTS

-------------------------

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary......................... 1
Risk Factors............................... 9
The XM Radio Transactions.................. 28
How We Intend to Use the Proceeds from the
Offering................................. 30
Price Range of Our Common Stock............ 31
Dividend Policy............................ 31
Capitalization............................. 32
Dilution................................... 33
Selected Consolidated Financial and Other
Data..................................... 34
Management's Discussion and Analysis of
Financial Condition and Results of
Operations............................... 36
Business................................... 48
Regulation................................. 68
Management................................. 78
Certain Relationships and Related Party
Transactions............................. 80
Principal Stockholders..................... 86
Description of Capital Stock............... 88
Underwriting............................... 90
Legal Matters.............................. 92
Experts.................................... 92
Where You Can Find More Information........ 92
Certain Information About this
Prospectus............................... 92
Index to Pro Forma Financial Information... P-1
Index to Financial Statements.............. F-1
</TABLE>

------------------------------------------------------
------------------------------------------------------
------------------------------------------------------
------------------------------------------------------
7,000,000 SHARES

[LOGO]

AMERICAN MOBILE
SATELLITE CORPORATION

COMMON STOCK

------------------------------------------
PRELIMINARY PROSPECTUS
------------------------------------------

BEAR, STEARNS & CO. INC.
CREDIT SUISSE FIRST BOSTON
DEUTSCHE BANC ALEX. BROWN
SOUNDVIEW TECHNOLOGY GROUP

, 1999

------------------------------------------------------
------------------------------------------------------
<PAGE> 182

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.

The following are the estimated expenses to be incurred in connection with
the issuance and distribution of the securities being registered.

<TABLE>
<S> <C>
SEC registration fee........................................ $ 41,000
Printing and engraving expenses............................. 200,000
Legal fees and expenses..................................... 250,000
Blue Sky fees and expenses.................................. 50,000
NASD listing and filing fees................................ 32,500
Accounting fees and expenses................................ 200,000
Transfer agent fees......................................... 11,500
Total....................................................... $785,000
========
</TABLE>

ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.

The Company's Bylaws provide that the Company will indemnify its directors
and officers to the fullest extent permitted by Delaware law. The Company may be
required to advance litigation expenses in the case of stockholder derivative
actions or other actions, against an undertaking by the indemnified party to
repay such advances if it is ultimately determined that the indemnified party is
not entitled to indemnification.

In addition, the Company's Certificate of Incorporation provides that,
pursuant to Delaware law, its directors shall not be liable for monetary damages
for breach of the directors' fiduciary duty of care to the corporation and its
stockholders. This provision in the Certificate of Incorporation does not
eliminate the duty of care, and in appropriate circumstances equitable remedies
such as injunctive or other forms of nonmonetary relief will remain available
under Delaware law. In addition, each director will continue to be subject to
liability for breach of the director's duty of loyalty to the Company for acts
or omissions not in good faith or involving intentional misconduct, for knowing
violations of law, for actions leading to improper personal benefit to the
director, and for payment of dividends or approval of stock repurchases or
redemptions that are unlawful under Delaware law. The provision also does not
affect a director's responsibilities under any other law, such as the federal
securities laws.

At present, there is no pending litigation or proceeding involving an
officer or director of the Company as to which indemnification is being sought,
nor is the Company aware of any threatened litigation that may result in claims
for indemnification by any officer or director.

II-1
<PAGE> 183

ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.

(a) Exhibits

<TABLE>
<C> <S>
1 Form of Underwriting Agreement among American Mobile
Satellite Corporation, Bear, Stearns & Co. Inc., Credit
Suisse First Boston Corporation, Deutsche Bank Securities
Inc. and SoundView Technology Group, Inc.*
4.1 Restated Certificate of Incorporation of the Company (as
restated effective May 1, 1996) (incorporated by reference
to Exhibit 3.1a to the Company's Quarterly Report on Form
10-Q filed for the periods ending March 31, 1996 and June
30, 1996 (File No. 0-23044)).
4.2 Amended and Restated Bylaws of the Company (effective as of
May 26, 1999).
5 Opinion of Arnold & Porter.*
10.1 Exchange Agreement, dated June 7, 1999, by and among
American Mobile Satellite Corporation, XM Satellite Radio
Holdings Inc. and WorldSpace, Inc.*
10.2 Shareholders Agreement, dated as of ,
1999, by and among XM Satellite Radio Holdings Inc.,
American Mobile Satellite Corporation, Baron, Clear Channel
Communications, Inc., Columbia XM Radio Partners, LLC,
DIRECTV ENTERPRISES, Inc., General Motors Corporation,
Madison Dearborn Special Equity III, L.P., and Telcom XM
Investors, L.L.C.*
10.3 Registration Rights Agreement, dated , 1999, by
and among XM Satellite Radio Holdings Inc., American Mobile
Satellite Corporation, Baron, and the holders of Series A
subordinated convertible notes of XM Satellite Radio
Holdings Inc.*
23.1 Consent of Arthur Andersen LLP, independent public
accountants.
23.2 Consent of KPMG LLP, independent certified public
accountants.
23.3 Consent of Arnold & Porter (included in Exhibit 5 to this
registration statement).*
23.4 Consent of The Strategis Group.
24 Powers of Attorney of directors and officers of the Company
(included in the signature page).
27 Financial Data Schedule (incorporated by reference to
Exhibit 27 to the Company's Quarterly Report on Form 10-Q
dated May 13, 1999, File No. 0-23044).
</TABLE>

- -------------------------

* To be filed by amendment.

ITEM 17. UNDERTAKINGS.

The undersigned registrant hereby undertakes that:

(1) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part
of this registration statement in reliance upon Rule 430A and contained
in a form of prospectus filed by the registrant pursuant to Rule
424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to
be part of this registration statement as of the time it was declared
effective.

(2) For the purpose of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating
to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering
thereof.

The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a) or 15(d) of the Securities
Exchange Act of 1934 (and, where applicable, each filing of an employee benefit

II-2
<PAGE> 184

plan's annual report pursuant to Section 15(d) of the Securities Exchange Act of
1934) that is incorporated by reference in the registration statement shall be
deemed to be a new registration statement related to securities offered therein,
and the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.

Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the General Corporation Law of the State of Delaware, the
Restated Certificate of Incorporation, as amended, or the Amended and Restated
Bylaws of registrant, indemnification agreements entered into between registrant
and its officers and directors, or otherwise, the registrant has been advised
that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer, or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.

II-3
<PAGE> 185

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized in the County of Fairfax, Commonwealth of Virginia, on the 24th day
of June, 1999.

AMERICAN MOBILE SATELLITE
CORPORATION

By: /s/ WALTER V. PURNELL, JR.
------------------------------------
Name: Walter V. Purnell, Jr.
Title: President and Chief
Executive Officer

POWER OF ATTORNEY

KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below hereby constitutes and appoints Gary M. Parsons, Walter V. Purnell, Jr.
and Randy S. Segal, his true and lawful attorney-in-fact and agent, with full
power of substitution and resubstitution, for him and in his name, place, and
stead, in any and all capacities, to sign any and all amendments to this
registration statement, and to file the same, with exhibits thereto, and other
documents in connection therewith with the Securities and Exchange Commission,
granting unto said attorney-in-fact and agent full power and authority to do and
perform each and every act and thing requisite and necessary to be done, as
fully to all intents and purposes as he might or could do in person, hereby
ratifying and confirming all that said attorney-in-fact and agent or either of
them, or their or his substitute or substitutes, may lawfully do or cause to be
done by virtue hereof.

Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated:

<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>

/s/ WALTER V. PURNELL, JR. President and Chief Executive June 24, 1999
- --------------------------------------------------- Officer, and Director (Principal
Walter V. Purnell, Jr. Executive Officer)

/s/ W. BARTLETT SNELL Senior Vice President and Chief June 24, 1999
- --------------------------------------------------- Financial Officer (Principal
W. Bartlett Snell Financial and Accounting Officer)

/s/ GARY M. PARSONS Chairman of the Board of June 24, 1999
- --------------------------------------------------- Directors
Gary M. Parsons

/s/ DOUGLAS I. BRANDON Director June 24, 1999
- ---------------------------------------------------
Douglas I. Brandon

/s/ PRADEEP P. KAUL Director June 24, 1999
- ---------------------------------------------------
Pradeep P. Kaul

/s/ BILLY J. PARROTT Director June 24, 1999
- ---------------------------------------------------
Billy J. Parrott
</TABLE>

II-4
<PAGE> 186

<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ ANDREW A. QUARTNER Director June 24, 1999
- ---------------------------------------------------
Andrew A. Quartner

/s/ JACK A. SHAW Director June 24, 1999
- ---------------------------------------------------
Jack A. Shaw

/s/ RODERICK M. SHERWOOD, III Director June 24, 1999
- ---------------------------------------------------
Roderick M. Sherwood, III

/s/ MICHAEL T. SMITH Director June 24, 1999
- ---------------------------------------------------
Michael T. Smith
</TABLE>

II-5

<PAGE> 1

EXHIBIT 4.2

Reflecting (1) changes approved, November 1990, in Adopted
1990 Financing Plan and made effective upon Initial Funding,
(2) deletion of CEO position, effective March 28, 1991, (3)
changes made at board of directors' and Stockholders'
meetings held December 12, 1991, (4) changes made at board
of directors' and Stockholders' meetings held June 11, 1992,
(5) increase in the number of members of the Executive
Committee, approved at the August 13, 1992 meeting of the
board of directors, (6) changes in the notice provision to
permit first class mail as approved by Consent of
Stockholders dated October 21, 1992, (7) changes made at the
board of directors' meeting held December 7, 1993 and
approved by written consent of the stockholders, (8) changes
made by unanimous consent of the board of directors dated
March 18, 1994, to change the board size to fourteen, and
(9) changes made at the board of directors' meeting held
February 29, 1996, to change the board size to eleven, and
(10) changes made at the board of directors' meeting held
March 19, 1998 effective at the 1998 annual stockholders'
meeting to change the board size to ten, (11) changes made
at the board of directors' meeting held March 25, 1999 to
change the board size to nine, and (12) changes made at the
board of directors' meeting held May 26, 1999 to change the
executive committee size to four.

===============

AMENDED AND RESTATED BYLAWS

AMERICAN MOBILE SATELLITE CORPORATION

(As of May 26, 1999)
<PAGE> 2
<TABLE>
<CAPTION>
TABLE OF CONTENTS
-----------------
Page
----
<S> <C> <C>
ARTICLE I. OFFICES . . . . . . . . . . . . . . . . . . . . . . . . . . 1

ARTICLE II. MEETINGS OF STOCKHOLDERS . . . . . . . . . . . . . . . . . 2

ARTICLE III. DIRECTORS . . . . . . . . . . . . . . . . . . . . . . . . . 5

ARTICLE IV. NOTICES . . . . . . . . . . . . . . . . . . . . . . . . . . 10

ARTICLE V. OFFICERS . . . . . . . . . . . . . . . . . . . . . . . . . 11

ARTICLE VI. CERTIFICATES OF STOCK . . . . . . . . . . . . . . . . . . . 14

ARTICLE VII. PROCUREMENT . . . . . . . . . . . . . . . . . . . . . . . . 16

ARTICLE VIII. INDEMNIFICATION OF DIRECTORS
AND OFFICERS . . . . . . . . . . . . . . . . . . . . . . . 16

ARTICLE IX. GENERAL PROVISIONS . . . . . . . . . . . . . . . . . . . . 16

ARTICLE X. AMENDMENTS . . . . . . . . . . . . . . . . . . . . . . . . 17
</TABLE>
<PAGE> 3

ARTICLE I.
OFFICES

SECTION 1. The registered office of American
Mobile Satellite Corporation (the "Corporation") shall be in the City
of Wilmington, County of New Castle, State of Delaware, or such other
place within the State of Delaware as the board of directors may from
time to time determine.

SECTION 2. The Corporation may also have offices
at such other places both within and without the State of Delaware as
the board of directors may from time to time determine or the business
of the Corporation may require.

ARTICLE II.
MEETINGS OF STOCKHOLDERS

SECTION 1. All meetings of the stockholders for
the election of directors or for any other purpose shall be held at
such time and place, within or without the State of Delaware, but
within the United States of America, as shall be stated in the notice
of the meeting or in a duly executed waiver of notice thereof.

SECTION 2. Annual meetings of the stockholders of
the Corporation for the purpose of electing directors and for the
transaction of such other business as may be properly brought before
such meetings shall be held on the third Thursday of April in each
year, or at such other time, date and place as the board of directors
shall determine by resolution.

SECTION 3. Written notice of the annual meeting of
stockholders stating the place, date and hour of the meeting shall be
given to each stockholder entitled to vote at such meeting not less
than ten nor more than sixty days before the date of the meeting.

SECTION 4. The officer who has charge of the stock
ledger of the Corporation shall prepare and make, at least ten days
before every meeting of stockholders, a complete list of the
stockholders entitled to vote at the meeting, arranged in alphabetical
order, and showing the address of each stockholder and the number and
class of shares registered in the name of each stockholder. Such list
shall be open for examination by any stockholder, for any purpose
germane to the meeting, during ordinary business hours, for a period of
at least ten days prior to the meeting, either at a place within the
city where the meeting is to be held, which place shall
<PAGE> 4
-2-

be specified in the notice of the meeting, or, if not so specified, at
the place where the meeting is to be held. The list shall also be
produced and kept at the time and place of the meeting during the whole
time thereof, and may be inspected by any stockholder who is present.

SECTION 5. Special meetings of the stockholders,
for any purpose or purposes, unless otherwise prescribed by statute or
by the Certificate of Incorporation, may be called by the president and
shall be called by the president or secretary at the request in writing
of a majority of the board of directors, or at the request in writing
of the holder or holders of Common Stock representing at least 33-1/3%
of the shares of Common Stock issued and outstanding and entitled to
vote. A special meeting of the holders of the Common Stock for the
sole purpose of electing all of the directors of the Corporation shall
be called by the president or secretary promptly upon the receipt by
the secretary of a written request from the holder or holders of Common
Stock representing that percentage of the shares of Common Stock then
issued and outstanding that would be sufficient to elect at least one
director if such shares of Common Stock were then cumulatively voted in
an election of the entire board of directors.

SECTION 6. Written notice of a special meeting of
stockholders stating the place, date and hour of the meeting and the
purpose or purposes for which the meeting is called, shall be given not
less than ten nor more than sixty days before the date of the meeting
to each stockholder entitled to vote at such meeting. Business
transacted at any special meeting of stockholders shall be limited to
the purposes stated in the notice.

SECTION 7. The holders of a majority of the Common
Stock issued and outstanding and entitled to vote thereat, present in
person or represented by proxy, shall constitute a quorum at all
meetings of the holders of Common Stock for the transaction of business
except as otherwise provided by statute or by the Certificate of
Incorporation. If, however, such quorum shall not be present or
represented at any meeting of the holders of Common Stock, the holders
of Common Stock entitled to vote thereat, present in person or
represented by proxy, shall have power to adjourn the meeting from time
to time, without notice other than announcement at the meeting, until a
quorum shall be present or represented. At such adjourned meeting at
which a quorum shall be present or represented, any business may be
transacted which might have been transacted at the meeting as
originally notified. If the adjournment is for more than thirty days,
or if after
<PAGE> 5
-3-

the adjournment a new record date is fixed for the adjourned meeting, a
notice of the adjourned meeting shall be given to each holder of Common
Stock of record entitled to vote at the meeting.

SECTION 8. When a quorum is present at any meeting
of holders of Common Stock, the affirmative vote of the holders of a
majority of the Common Stock present in person or represented by proxy
shall decide any question brought before such meeting, unless the
question is one upon which by express provision of law, the Certificate
of Incorporation or these bylaws, a different vote is required, in
which case such express provision shall govern and control the decision
of such question.

SECTION 9. At every meeting of the holders of
Common Stock each holder of Common Stock shall be entitled to one vote
in person or by proxy for each share of the Common Stock held by such
stockholder for each matter with respect to which the holders of Common
Stock are entitled to vote except for the election of directors, which
shall be by cumulative voting as provided in the Certificate of
Incorporation.

SECTION 10. The stock ledger of the Corporation
shall be the only evidence as to who are the stockholders entitled to
examine the stock ledger, the list required by Article II, Section 4
and the books of the Corporation, or to vote in person or by proxy at
any meeting of stockholders.

SECTION 11. Votes by written ballot at any meeting
of stockholders may be conducted by one or more inspectors, appointed
for that purpose, either by the board of directors or by the chairman
of the meeting. The inspector or inspectors may decide upon the
qualifications of voters and the validity of proxies, may count the
votes and declare the result and take such other actions as required by
applicable law.

SECTION 12. The Chairman of the Board, or, in the
absence of the Chairman of the Board, the Chairman of the Executive
Committee or, in the absence of the Chairman of the Executive
Committee, the President, or, in the absence of any of them, any Vice
President, in order of their election, shall preside at meetings of
stockholders. The secretary of the Corporation shall act as secretary,
but in the absence of the secretary, the presiding officer may appoint
a secretary.
<PAGE> 6
-4-

SECTION 13. (a) No proposal for a stockholder
vote shall be submitted by a stockholder (a "Stockholder Proposal") to
the Corporation's stockholders unless the stockholder submitting such
proposal (the "Proponent") shall have filed a written notice setting
forth with particularity (i) the names and business addresses of the
Proponent and all persons or entities acting in concert with the
Proponent; (ii) the name and address of the Proponent and the persons
or entities identified in clause (i), as they appear on the
Corporation's books (if they so appear); (iii) the class and number of
shares of the Corporation beneficially owned by the Proponent and the
persons or entities identified in clause (i); (iv) a description of the
Stockholder Proposal containing all material information relating
thereto; and (v) such other information as the board of directors
reasonably determines is necessary or appropriate to enable the board
of directors and stockholders of the Corporation to consider the
Stockholder Proposal. Upon receipt of the Stockholder Proposal and
prior to the stockholder meeting at which such Stockholder Proposal
will be considered, if the board of directors, a designated committee
of the board of directors or, if authorized by the board of directors
or a committee thereof, an officer of the Corporation, determines that
the information provided in a Stockholder Proposal does not satisfy the
informational requirements of these bylaws or is otherwise not in
accordance with law, the secretary of the Corporation shall promptly
notify such Proponent of the deficiency in the notice. Such Proponent
shall have an opportunity to cure the deficiency by providing
additional information to the secretary within the period of time, not
to exceed ten days from the date such deficiency notice is given to the
Proponent, determined by the board of directors or such committee. If
the deficiency is not cured within such period, or if the board of
directors, or such committee determines that the additional information
provided by the Proponent, together with the information previously
provided, does not satisfy the requirements of this Article II, Section
13, then such proposal shall not be presented for action at the meeting
in question. Nothing in this Article II, Section 13, shall in any way
limit the discretion of the board of directors to omit any Stockholder
Proposal in accordance with applicable law.

(b) Stockholder Proposals shall be delivered to the
secretary at the principal executive office of the Corporation not less
than sixty days not more than one hundred and twenty days prior to the
date of the meeting of stockholders if such Stockholder Proposal is to
be submitted at an annual stockholders meeting (provided, however, that
if such annual meeting is called to be held before the date specified
in Article II, Section 2, or if a
<PAGE> 7
-5-

Stockholder Proposal is to be submitted at a special stockholders
meeting, such Stockholder Proposal shall be so delivered no later than
the close of business on the tenth day following the day on which
notice of the date of such annual stockholders meeting or special
stockholders meeting, as the case may be, was announced on the Dow
Jones newswire service, or if such newswire service is unavailable, any
national newswire service).

ARTICLE III.
DIRECTORS

SECTION 1. The board of directors shall consist of
nine (9) directors. The directors shall be elected at the annual
meeting of the stockholders, or as provided in Article II, Section 5
and each director elected shall hold office until his or her successor
is elected and qualified.

SECTION 2. Vacancies and newly created
directorships resulting from any increase in the authorized number of
directors may be filled only as provided in this Article III, Section
4.

SECTION 3. A director or directors may be removed
by the affirmative vote of the holders of a majority of the shares of
Common Stock issued and outstanding and entitled to vote at a special
meeting of the holders of the Common Stock called for such a purpose.
In the event of the removal of a director, the vacancy created by such
removal shall be filled only as provided in this Article III, Section
4.

SECTION 4. (a) Board of directors vacancies may be
filled by a vote of a majority of the directors then in office. No
person elected by the board of directors to fill a vacancy shall
commence service as a director of the Corporation until ten calendar
days have passed since delivery of the notice required by subsection
(b) of this Article III, Section 4 and provided that during such ten
day period, no election of directors has been requested in accordance
with Article II, Section 5. If such an election is requested in
accordance with Article II, Section 5, the vacancy shall remain
unfilled pending the results of such election.

(b) Upon the election of any person by the board of
directors to fill a vacancy, and upon the first business day following
the tenth day after a vacancy occurs, provided such vacancy has not
then been filled, the secretary shall promptly file with the Securities
and Exchange Commission a
<PAGE> 8
-6-

Current Report on Form 8-K and shall on the same day as such filing
provide notice of such election or continuing vacancy by electronic
transmission or overnight delivery to each stockholder that owns of
record, or that has advised the Corporation in writing, including
through delivery to the Corporation of a Schedule 13D filed with the
Securities and Exchange Commission, that it and its affiliates
beneficially or of record own, Common Stock representing that
percentage of the then issued and outstanding shares of Common Stock
sufficient to elect at least one director if such stock were then
cumulatively voted in an election of the entire board of directors. No
Form 8-K or notice of a vacancy under this Article II, Section 4(b)
shall be required by reason of any continued vacancies that existed on
December 8, 1993. Each of such Form 8-K and such notice shall (i) if a
vacancy is being filled, identify the person elected by the board of
directors to fill the vacancy, provide a brief summary of such person's
business background and indicate the proposed date on which such person
will commence service as a director or (ii) indicate that the vacancy
shall continue until filled by a vote of the board of directors or the
stockholders.

SECTION 5. The business and affairs of the
Corporation shall be managed by or under the direction of its board of
directors which may exercise all such powers of the Corporation and do
all such lawful acts and things as are not by statute or by the
Certificate of Incorporation or by these bylaws directed or required to
be exercised or done by the stockholders.

SECTION 6. Meetings of the board of directors,
both regular and special, may be held at any location within North
America and may be held outside North America if two-thirds of the
number of directors then in office so authorize. In the event a
meeting of the board of directors is to be held outside North America,
notice thereof shall be given at least ten business days prior to such
meeting.

SECTION 7. Regular meetings of the board of
directors may be held at such time (not less frequently than four times
each year) and at such place as shall from time to time be determined
by the board of directors.

SECTION 8. Special meetings of the board of
directors may be called by the president and shall be called by the
president upon the written request of three directors. Except as
otherwise provided in Article III, Sections 5 and 9, each notice of a
special meeting of the board of directors
<PAGE> 9
-7-

shall be given at least five business days prior to such meeting and
shall identify the purpose or purposes of the special meeting or the
business to be transacted at the special meeting. Business transacted
at any special meeting of the board of directors shall be limited to
the purpose or purposes stated in the notice of such special meeting.

SECTION 9. At all meetings of the board of
directors, the presence of a majority of the number of directors then
in office shall be necessary to constitute a quorum for the transaction
of business, provided that a quorum may not be less than one-third of
the total number of directors. The act of a majority of the directors
present at a meeting at which a quorum is present, unless a greater
number is required by law, by the Certificate of Incorporation or by
these bylaws, shall be the act of the board of directors. If a quorum
shall not be present at any meeting of the board of directors, the
directors present thereat may adjourn the meeting from time to time,
without notice other than announcement at the meeting, until a quorum
shall be present.

SECTION 10. Any action required or permitted to be
taken at any meeting of the board of directors or of any committee
thereof may be taken without a meeting, if all members of the board of
directors or the committee, as the case may be, consent thereto in
writing, and the writing or writings are filed with the minutes or
proceedings of the board of directors or the committee.

SECTION 11. Members of the board of directors, or
any committee designated by the board of directors, shall have the
right to participate in a meeting of the board of directors, or any
committee, by means of conference telephone or similar communications
equipment by means of which all persons participating in the meeting
can hear each other, and such participation in a meeting shall
constitute presence in person at the meeting.

SECTION 12. The Corporation may pay the directors
reasonable compensation for serving as directors and as members of one
or more committees of the board of directors, the form and amount of
which shall be fixed by resolution adopted by a majority of the number
of directors then in office, and may reimburse such directors for any
reasonable expenses incurred in attending the meetings of the board of
directors or any committees thereof.
<PAGE> 10
-8-

SECTION 13. In addition to the committees
designated in these bylaws, the board of directors may, by resolution
passed by a majority of the whole board of directors: (i) designate
one or more committees, each committee to consist of one or more of the
directors of the Corporation; (ii) appoint the members of such
committees; and (iii) designate one or more directors as alternate
members of any committee, who may replace any absent or disqualified
member at any meeting of the committee.

SECTION 14. The Corporation shall have an Executive
Committee, to consist of four or more directors appointed by a majority
of the whole board of directors, and may appoint one or more directors
as alternate members of such Executive Committee, who may replace any
absent or disqualified member at any meeting of the Executive
Committee. Between the meetings of the board of directors and while
the board of directors is not in session, the Executive Committee shall
have all the powers and exercise all the duties of the board of
directors in the management of the business and affairs of the
Corporation that may lawfully be delegated to the Executive Committee
by the board of directors, including, without limitation, the power and
authority granted to committees pursuant to these bylaws, and the power
and authority to declare a dividend, to authorize the issuance of stock
and to adopt a certificate of ownership and merger pursuant to Section
253 of the Delaware General Corporation Law, as amended. The Executive
Committee shall adopt its own rules of procedure and shall meet where
and as provided by such rules. All action taken by the Executive
Committee shall be reported to the board of directors at the meeting
thereof next succeeding such action.

SECTION 15. The Corporation shall have an Audit
Committee, to consist of not less than three directors, appointed by
the board of directors. The duties and responsibilities of the Audit
Committee shall be established by the board of directors. The Audit
Committee shall adopt its own rules of procedure and shall meet where
and as provided by such rules. All action taken by the Audit Committee
shall be reported to the board of directors at the meeting thereof next
succeeding such action.

SECTION 16. The Corporation shall have a Nominating
Committee, to consist of not less than three directors, not more than
one of whom may be an officer of the Corporation, appointed by the
board of directors. The duties and responsibilities of the Nominating
Committee shall be to select the persons to be candidates for
nomination for election as
<PAGE> 11
-9-

directors of the Corporation and make recommendations with respect
thereto to the board of directors. The Nominating Committee shall
adopt its own rules of procedure and shall meet where and as provided
by such rules. All action taken by the Nominating Committee shall be
reported to the board of directors at the meeting thereof next
succeeding such action.

SECTION 17. In the absence or disqualification of a
member of a committee, and in the absence of a designation by the board
of directors of an alternate member to replace the absent or
disqualified member, the member or members of the committee present at
any meeting and not disqualified from voting, whether or not he or they
constitute a quorum, may unanimously appoint another member of the
board of directors to act at the meeting in the place of any such
absent or disqualified member.

SECTION 18. Any committee, to the extent provided
in the resolution of the board of directors establishing such committee
and to the extent not inconsistent with the Certificate of
Incorporation, these bylaws, or the General Corporation Law of the
State of Delaware, shall have and may exercise all the powers and
authority of the board of directors in the management of the business
and affairs of the Corporation, and may authorize the seal of the
Corporation to be fixed to all papers which may require it.

SECTION 19. Each committee shall keep regular
minutes of its meetings and report the same to the board of directors
when required.

ARTICLE IV.
NOTICES

SECTION 1. Whenever, under the provisions of the
statutes, the Certificate of Incorporation or these bylaws, notice is
required to be given to any stockholder or director, such notice shall
be in writing, and shall be deemed given to each stockholder or
director (i) upon receipt if delivered in person, by cable, telegram,
telex, telecopy, or other electronic transmission, (ii) one day after
deposit with a reputable overnight courier service, or (iii) five days
after deposit in the United States mail (either by first class,
registered or certified mail, postage prepaid), if sent to such
stockholder's or director's address as it appears on the records of the
Corporation.
<PAGE> 12
-10-

SECTION 2. Whenever any notice is required to be
given under the provisions of the statutes, the Certificate of
Incorporation or these bylaws, a written waiver of notice, signed by
the person or persons entitled to such notice, whether before or after
the time stated therein, shall be deemed equivalent to notice.
Attendance of a person at a meeting shall constitute a waiver of notice
of such meeting, except when the person attends a meeting for the
express purpose of objecting at the beginning of the meeting to the
transaction of any business because the meeting is not lawfully called
or convened.

ARTICLE V.
OFFICERS

SECTION 1. The officers of the Corporation shall
be elected by the board of directors and shall be a president, a
secretary and a treasurer. The board of directors may also elect one
or more vice-presidents and one or more assistant secretaries and
assistant treasurers. The officers of the Corporation shall be elected
by the vote of a majority of the number of directors then in office.
Any number of offices may be held by the same person, unless the
Certificate of Incorporation or these bylaws otherwise provide.

SECTION 2. The board of directors at its first
meeting after each annual meeting of stockholders shall elect a
president, a secretary, a treasurer and any other officers which the
board of directors determines to elect and shall designate one of such
officers as the chief financial officer.

SECTION 3. The board of directors may elect such
other officers and appoint such agents as it shall deem necessary who
shall hold their offices for such terms and shall exercise such powers
and perform such duties as shall be determined from time to time by the
board of directors.

SECTION 4. The compensation of all officers and
agents of the Corporation shall be fixed from time to time by the board
of directors.

SECTION 5. The officers of the Corporation shall
hold office until their successors are elected and qualified. Any
officer elected by the board of directors may be removed at any time by
the affirmative vote of a majority of the number of directors then in
office. Any vacancy occurring in
<PAGE> 13
-11-

any office of the Corporation may be filled by the affirmative vote of
a majority of the number of directors then in office.

SECTION 6. The president of the Corporation,
subject to the control of the board of directors, shall supervise the
day-to-day affairs of the corporation, shall have general and active
management responsibility for the business of the Corporation, and
shall see that all orders and resolutions of the board of directors are
carried into effect.

SECTION 7. At the request of the president or in
his absence or in the event of his inability or refusal to act, the
vice-president, if there be one, or in the event there be more than one
vice-president, the vice-presidents in the order designated by the
directors, or in the absence of any designation, then in the order of
their election, shall perform the duties of the president, and when so
acting, shall have all the powers of and be subject to all the
restrictions upon the president. The vice-presidents shall perform
such other duties and have such other powers as the board of directors
may from time to time prescribe.

SECTION 8. The secretary shall attend all meetings
of the stockholders and record all the proceedings of the meetings of
the Corporation and of the board of directors in a book or books to be
kept for that purpose and shall perform like duties for the standing
committees when required. The secretary shall give, or cause to be
given, notice of all meetings of the stockholders and special meetings
of the board of directors, and shall perform such other duties as may
be prescribed by the board of directors or the president, under whose
supervision the secretary shall be. The secretary shall have custody
of the corporate seal of the Corporation and the secretary, or an
assistant secretary, shall have authority to affix the same to any
instrument requiring it and when so affixed, it may be attested by the
secretary's signature or by the signature of such assistant secretary.
The board of directors may give general authority to any other officer
to affix the seal of the Corporation and to attest the affixing by his
signature. The secretary shall see that all books, reprints,
statements, certificates and other documents and records required by
law to be kept or filed are properly kept or filed, as the case may be.

SECTION 9. The assistant secretary, if there be
one, or if there be more than one, the assistant secretaries in the
order determined by the board of directors, or if there be no such
determination, then in the order of
<PAGE> 14
-12-

their election, shall at the request of the secretary or in his absence
or in the event of his inability or refusal to act, perform the duties
of the secretary, and when so acting, shall have all the powers and be
subject to all the restrictions upon the secretary. The assistant
secretaries shall perform such other duties and have such other powers
as the board of directors may from time to time prescribe.

SECTION 10. The treasurer shall have the custody of
the corporate funds and securities and shall keep full and accurate
accounts of receipts and disbursements in books belonging to the
Corporation and shall deposit all moneys and other valuable effects in
the name and to the credit of the Corporation in such depositories as
may be designated by the board of directors. The treasurer shall
disburse the funds of the Corporation as may be ordered by the board of
directors, taking proper vouchers for such disbursements, and shall
render to the president, and to the board of directors at its regular
meetings, or when the board of directors so requires, an account of all
his transactions as treasurer and of the financial condition of the
Corporation.

SECTION 11. If required by the board of directors,
the treasurer shall give the Corporation a bond in such sum and with
such surety or sureties as shall be satisfactory to the board of
directors for the faithful performance of the duties of his office and
for the restoration to the Corporation, in case of his death,
resignation, retirement or removal from office, of all books, papers,
vouchers, money and other property of whatever kind in his possession
or under his control belonging to the Corporation.

SECTION 12. The assistant treasurer, if there be
one, or if there shall be more than one, the assistant treasurers in
the order determined by the board of directors, or if there be no such
determination, then in the order of their election, shall, at the
request of the treasurer or in his absence or in the event of his
inability or refusal to act, perform the duties of the treasurer, and
when so acting, shall have all the powers and be subject to all the
restrictions upon the treasurer. The assistant treasurers shall
perform such other duties and have such other powers as the board of
directors may from time to time prescribe.

SECTION 13. The chief financial officer shall have
such duties as may be assigned by the board of directors.
<PAGE> 15
-13-

ARTICLE VI.
CERTIFICATES OF STOCK

SECTION 1. Every stockholder of the Corporation
shall be entitled to have a certificate in the name of the Corporation
signed by the president and the secretary or an assistant secretary of
the Corporation, certifying the number of shares owned by him in the
Corporation. If the Corporation shall be authorized to issue more than
one class of capital stock or more than one series of any class, the
powers, designations, preferences and relative, participating, optional
or other special rights of such class of capital stock or series
thereof and the qualifications, limitations or restrictions of such
preferences and/or rights shall be set forth in full or summarized on
the face or back of the certificate which the Corporation shall issue
to represent such class or series of capital stock; provided that,
except as otherwise provided in Section 202 of the General Corporation
Law of the State of Delaware, in lieu of the foregoing requirements,
there may be set forth on the face or back of the certificate which the
Corporation shall issue to represent such class or series of capital
stock, a statement that the Corporation will furnish without charge to
each stockholder who so requests the powers, designations, preferences
and relative, participating, optional or other special rights of each
class of capital stock or series thereof and the qualifications,
limitations or restrictions of such preference and/or rights.

SECTION 2. Any or all of the signatures on a
certificate may be facsimile. In case any officer, transfer agent or
registrar who has signed or whose facsimile signature has been placed
upon a certificate shall have ceased to be such officer, transfer agent
or registrar before such certificate is issued, it may be issued by the
Corporation with the same effect as if they were such officer, transfer
agent or registrar at the date of issue.

SECTION 3. The board of directors may direct a new
certificate or certificates to be issued in place of any certificate or
certificates theretofore issued by the Corporation alleged to have been
lost, stolen or destroyed, upon the making of an affidavit of that fact
by the person claiming the certificate of stock to be lost, stolen or
destroyed. When authorizing such issue of a new certificate or
certificates, the board of directors may, in its discretion and as a
condition precedent to the issuance thereof, require the owner of such
lost, stolen or destroyed certificate or certificates, or his legal
representative, to advertise the same in such manner as it shall
require and/or to give the Corporation a bond in such sum
<PAGE> 16
-14-

as it may direct as indemnity against any claim that may be made
against the Corporation with respect to the certificate alleged to have
been lost, stolen or destroyed.

SECTION 4. Upon surrender to the Corporation or
the transfer agent of the Corporation of a certificate for shares duly
endorsed or accompanied by proper evidence of succession, assignation
or authority to transfer, it shall be the duty of the Corporation to
issue a new certificate to the person entitled thereto, cancel the old
certificate and record the transaction upon its books.

SECTION 5. In order that the Corporation may
determine the stockholders entitled to notice of or to vote at any
meeting of stockholders or any adjournment thereof, or entitled to
express consent to corporate action in writing without a meeting, or
entitled to receive payment of any dividend or other distribution or
allotment of any rights, or entitled to exchange of stock or for the
purpose of any other lawful action, the board of directors may affix,
in advance, a record date, which shall not be more than sixty nor less
than ten days before the date of such meeting, nor more than sixty days
prior to any other action. A determination of stockholders of record
entitled to notice of or to vote at a meeting of stockholders shall
apply to any adjournment of the meeting; provided, however, that the
board of directors may fix a new record date for the adjourned meeting.

SECTION 6. The Corporation shall be entitled to
recognize the exclusive right of a person registered on its books as
the owner of shares of capital stock of the Corporation to receive
dividends, and to vote as such owner, and shall not be bound to
recognize any equitable or other claim to or interest in such share or
shares of capital stock on the part of any other person, whether or not
it shall have express or other notice thereof, except as otherwise
provided by the laws of the State of Delaware.

ARTICLE VII.
PROCUREMENT

Each Director shall have the right to review in their
entirety any and all proposals received by the Corporation in response
to any requests for proposals that may be issued by the Corporation for
contracts, purchase orders or other similar binding commitments to be
entered into by, or on
<PAGE> 17
-15-

behalf of, the Corporation. The board of directors' review of
proposals shall be conducted in a manner consistent with the
requirements of the request for proposals to maintain the
confidentiality of proprietary information contained in the proposals.

ARTICLE VIII.
INDEMNIFICATION OF DIRECTORS AND OFFICERS

Each person who is or was or had agreed to be a director or
officer of the Corporation shall be indemnified by the Corporation to
the fullest extent permitted or authorized by the General Corporation
Law of the State of Delaware or any other applicable laws as presently
or hereafter in effect. Without limiting the generality of the
foregoing, the Corporation may enter into one or more agreements with
any person which provide for indemnification greater or different than
that provided in this Article VIII. Any repeal or modification of this
Article VIII shall not adversely affect any right or protection
existing hereunder immediately prior to such repeal or modification.
The Corporation may, but shall not be obligated to, maintain insurance,
at its expense, for the benefit of the Corporation and of any person to
be indemnified.

ARTICLE IX.
GENERAL PROVISIONS

SECTION 1. Dividends upon the capital stock of the
Corporation, subject to the provisions of the Certificate of
Incorporation, if any, may be declared by the board of directors at any
regular or special meeting, pursuant to law. Dividends may be paid in
cash, in property, or in shares of capital stock, subject to the
provisions of the Certificate of Incorporation.

SECTION 2. Before payment of any dividend, there
may be set aside out of any funds of the Corporation available for
dividends such sum or sums as the board of directors from time to time,
in their absolute discretion, think proper as a reserve or reserves to
meet contingencies, or for equalizing dividends, or for repairing or
maintaining any property of the Corporation, or for such other purpose
as the board of directors shall believe
<PAGE> 18
-16-

conducive to the interest of the Corporation, and the board of
directors may modify or abolish any such reserve in the manner in which
it was created.

SECTION 3. All checks or demands for money and
notes of the Corporation shall be signed by such officer or officers or
such other person or persons as the board of directors may from time to
time designate.

SECTION 4. The fiscal year of the Corporation
shall end on December 31 of each year or as otherwise fixed by
resolution of the board of directors.

SECTION 5. The board of directors may adopt a
corporate seal and use the same by causing it or a facsimile thereof to
be impressed or affixed or reproduced or otherwise.

ARTICLE X.
AMENDMENTS

Except as otherwise provided by the Certificate of
Incorporation or these bylaws, these bylaws may be altered, amended or
repealed or new bylaws may be adopted only by the vote of either (i)
three-fourths of the members of the board of directors then in office
or (ii) the holders of two-thirds of the issued and outstanding shares
of Common Stock.

Approved by the holders of two-thirds of the issued and
outstanding voting Common Stock of the Corporation effective as of the
26th day of May, 1999.

/s/ Randy S. Segal
-------------------
Randy S. Segal
Secretary

<PAGE> 1

EXHIBIT 23.1

CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS

As independent public accountants, we hereby consent to the use of our report
dated March 29, 1999 (and to all references to our Firm) included in or made
part of this registration statement.

/s/ ARTHUR ANDERSEN LLP

Washington, D.C.
June 23, 1999

<PAGE> 1

EXHIBIT 23.2

INDEPENDENT AUDITORS' CONSENT

The Board of Directors
XM Satellite Radio Holdings Inc.:

We consent to the use of our report dated February 12, 1999 in this registration
statement on Form S-3 of American Mobile Satellite Corporation with respect to
the consolidated balance sheets of XM Satellite Radio Holdings Inc. and
Subsidiary (a development stage company) as of December 31, 1998 and 1997 and
the related consolidated statements of operations, stockholders' equity
(deficit) and cash flows for the years ended December 31, 1998 and 1997 and for
the period from December 15, 1992 (date of inception) to December 31, 1998 and
to the reference to our firm under the heading "experts" in the prospectus.

Our report, dated February 12, 1999, contains an explanatory paragraph that
states that the Company has not commenced operations, has negative working
capital of $130,341,000 and is dependent upon additional debt and equity
financings which raise substantial doubt about 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
June 24, 1999

<PAGE> 1

EXHIBIT 23.4

STRATEGIS FINANCIAL CONSULTING, INC.

CONSENT OF THE STRATEGIS GROUP

We hereby consent to the inclusion of our market research data contained in the
Registration Statement on Form S-3, and to the references to our firm and such
data in the Prospectus included in such Registration Statement. In giving such
consent, we do not admit that we come within the category of persons whose
consent is required under Section 7 of the Securities Act of 1933, as amended
(the "Act"), or the rules and regulations of the Securities and Exchange
Commission thereunder (the "Regulations"), nor do we admit that we are experts
with respect to any part of such Registration Statement within the meaning of
the term "experts" as used in the Act or the Regulations.

STRATEGIS FINANCIAL CONSULTING, INC.

June 23, 1999

Name: Elliott Hamilton
Title: Senior Vice President