As filed with the Securities and Exchange Commission on June 24, 1998
Registration Nos. 333-52777 and 333-52777-01 to -09
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Amendment No. 1
to
Form S-4
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
AMERICAN MOBILE SATELLITE CORPORATION
AMSC ACQUISITION COMPANY, INC.
(Exact name of registrant
as specified in charter)
Delaware #4899 93-0976127
Delaware #4899 54-1876634
(State or other Jurisdiction (Primary Standard (I.R.S. Employer
of incorporation or Industrial Classification Identification No.)
organization) Code Number)
10802 Parkridge Blvd.
Reston, Virginia 20191-5416
(703) 758-6000
(Address, including zip code,
and telephone number, including area code,
of registrant's principal executive offices)
ADDITIONAL REGISTRANTS
Name of Jurisdiction of Primary IRS Address and
Registrant Organization Standard Employer Telephone
Number Industrial Indentifi-
Classification cation
Number Number
- --------------------------------------------------------------------------------
AMSC Sales Virgin Islands 4899 66-0518953 10802 Parkridge
Corporation, Blvd.
Ltd. Reston, Virginia
20191-5416
(703) 758-6000
- --------------------------------------------------------------------------------
AMSC Delaware (same) 52-1735106 (same)
Subsidiary
Corporation
- --------------------------------------------------------------------------------
American Delaware (same) 54-1755358 (same)
Mobile Satellite
Sales
Corporation
- --------------------------------------------------------------------------------
AMSC ARDIS Delaware (same) 36-3983833 (same)
Acquisition,
Inc.
- --------------------------------------------------------------------------------
AMSC ARDIS, Delaware (same) 36-3688865 (same)
Inc.
- --------------------------------------------------------------------------------
Radio Data New York (same) 36-3687936 (same)
Network
Holding
Corporation
- --------------------------------------------------------------------------------
ARDIS Holding New York (same) 36-4022106 (same)
Company General
Partnership
- --------------------------------------------------------------------------------
ARDIS Company New York (same) 36-4022130 (same)
General
Partnership
Randy Segal
Vice President, General
Counsel and Secretary
American Mobile Satellite Corporation
10802 Parkridge Blvd.
Reston, Virginia 20191-5416
(703) 758-6130
(Name, address, including zip code,
and telephone number, including area code,
of agent for service)
Copies to:
Robert B. Ott
Arnold & Porter
555 Twelfth Street, N.W.
Washington, D.C. 20004
(202) 942-5008
Approximate date of commencement of proposed sale to the public: As soon as
practicable after the effective date of the Registration Statement.
If the securities being registered on this Form are being offered in connection
with the formation of a holding company and there is compliance with General
Instruction G, check the following box [ ].
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 OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED JUNE 24, 1998
PROSPECTUS
[LOGO OF AMERICAN MOBILE APPEARS HERE]
$335,000,000
AMERICAN MOBILE SATELLITE CORPORATION
AMSC ACQUISITION COMPANY, INC.
OFFER TO EXCHANGE SERIES B 12 1/4% SENIOR NOTES DUE 2008
OF AMSC ACQUISITION COMPANY, INC.
FOR ANY AND ALL OF ITS OUTSTANDING SERIES A 12 1/4% SENIOR NOTES DUE 2008. THIS
EXCHANGE OFFER WILL EXPIRE AT 5:00P.M., NEW YORK CITY TIME, ON , 1998
UNLESS EXTENDED.
AMSC Acquisition Company, Inc., a Delaware corporation (the "Company"),
hereby offers (the "Exchange Offer"), upon the terms and conditions set forth
in this Prospectus (the "Prospectus") and the accompanying Letter of
Transmittal (the "Letter of Transmittal"), to exchange $1,000 principal amount
of its Series B 12 1/4% Senior Notes due 2008 (the "Exchange Notes"), which
have been registered under the Securities Act of 1933, as amended (the
"Securities Act"), pursuant to a Registration Statement of which this
Prospectus is a part, for each $1,000 principal amount of its outstanding
Series A 12 1/4% Senior Notes due 2008 (the "Old Notes" and, together with the
Exchange Notes, the "Notes"), of which $335,000,000 principal amount is
outstanding as of the date hereof. The form and terms of the Exchange Notes are
the same as the form and terms of the Old Notes (which they are intended to
replace) except that the Exchange Notes will bear a Series B designation and
have been registered under the Securities Act and, therefore, will not bear
legends restricting their transfer. See "The Exchange Offer." The Exchange
Notes will evidence the same debt as the Old Notes (which they are intended to
replace) and will be issued under and be entitled to the benefits of the
Indenture (the "Indenture") dated March 31, 1998 among the Company, American
Mobile Satellite Corporation (the direct parent of the Company, "Holdings"),
all current and future subsidiaries of the Company, and State Street Bank and
Trust Co., as Trustee (the "Trustee"), governing the Notes. See "The Exchange
Offer" and "Description of Exchange Notes."
The Exchange Notes will bear interest at the rate of 12 1/4% per annum
payable semi-annually in arrears on April 1 and October 1, of each year,
commencing on October 1, 1998. The Exchange Notes will mature on March 31,
2008. The Company will not be required to make any mandatory sinking fund or
redemption payments with respect to the Exchange Notes. The Exchange Notes will
be redeemable at the option of the Company at any time on or after April 1,
2003 at the redemption prices set forth herein, plus accrued and unpaid
interest and Liquidated Damages (as defined herein), if any, to the redemption
date. In addition, the Company will be entitled, at any time on or before April
1, 2001, to redeem up to 35% of the aggregate principal amount of the Exchange
Notes with the proceeds of any Equity Offering (as defined herein) at a
redemption price equal to 112.25% of the principal amount of the Exchange
Notes, plus accrued and unpaid interest and Liquidated Damages, if any, to the
redemption date; provided, however, that at least $217.8 million in aggregate
principal amount of Exchange Notes initially issued remains outstanding after
giving effect to such redemption. See "Description of the Exchange Notes--
Optional Redemption."
Upon the occurrence of a Change of Control, the Company will be required to
make an offer to repurchase all of the outstanding Exchange Notes at a price
equal to 101% of the principal amount thereof, plus accrued and unpaid interest
and Liquidated Damages, if any, to the repurchase date. See "Description of the
Exchange Notes--Repurchase at the Option of Holders."
The Company is a holding company and substantially all of its operations are
conducted through its operating subsidiaries. The obligations of the Company
under the Exchange Notes will be fully and unconditionally guaranteed (the
"Guarantees") (i) on a subordinated unsecured basis by Holdings and (ii) on a
senior unsecured basis by all current and future subsidiaries of the Company
(collectively, the "Subsidiary Guarantors," and, together with Holdings, the
"Guarantors"). See "Description of the Exchange Notes--Subsidiary Guarantees,"
"--Holdings Guarantee" and "--Subordination of Holdings Guarantee."
(continued on next page)
--------------
SEE "RISK FACTORS" BEGINNING ON PAGE 18 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY HOLDERS WHO TENDER THEIR NOTES IN THE EXCHANGE
OFFER.
--------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
The date of this Prospectus is , 1998
(cover page continued)
The Exchange Notes and the Guarantees will be senior obligations of the
Company and the Subsidiary Guarantors, and will rank pari passu in right of
payment with all other senior Indebtedness (as defined herein) of the Company
and the Subsidiary Guarantors, and will rank senior in right of payment to any
future subordinated Indebtedness of the Company and the Subsidiary Guarantors.
As of March 31, 1998, the Company on a consolidated basis had outstanding
Indebtedness with a principal amount of $374.2 million ($365.7 million net of
debt discount) and $28.0 million of other senior liabilities (including trade
payables). The Guarantee of Holdings is subordinate to all Indebtedness of
Holdings and will rank pari passu with or subordinate to all existing
subordinated Indebtedness of Holdings. The Indenture permits the Company to
incur additional senior Indebtedness, subject to certain limitations, and does
not limit Holdings' ability to incur additional indebtedness. See "Description
of the Exchange Notes--Certain Covenants."
The Company will accept for exchange any and all Old Notes validly tendered
and not withdrawn prior to 5:00 p.m., New York time, on [ ], 1998, unless
extended by the Company in its sole discretion (the "Expiration Date").
Tenders of Old Notes may be withdrawn at any time prior to 5:00 p.m. on the
Expiration Date. The Exchange Offer is subject to certain customary
conditions. The Old Notes were sold by the Company on March 31, 1998 to the
Initial Purchasers (as defined herein) in an offering of units (the "Units
Offering"), each consisting of (i) $1,000 principal amount of Old Notes and
one Warrant to purchase 3.75749 shares of common stock, $.01 par value
("Common Stock") of Holdings, which was a transaction effected without
registration under the Securities Act in reliance upon an exemption under the
Securities Act. The Initial Purchasers subsequently placed the Old Notes with
qualified institutional buyers in reliance upon Rule 144A under the Securities
Act and pursuant to offers and sales that occurred outside the United States
within the meaning of Regulation S under the Securities Act. Accordingly, the
Old Notes may not be reoffered, resold or otherwise transferred unless
registered under the Securities Act or unless an applicable exemption from the
registration requirements of the Securities Act is available. The Exchange
Notes are being offered hereunder in order to satisfy the obligations of the
Company under the Debt Registration Rights Agreement (as defined herein)
entered into by the Company in connection with the offering of the Old Notes.
See "The Exchange Offer."
Based on no-action letters issued by the staff of the Securities and
Exchange Commission (the "Commission") to third parties, the Company believes
the Exchange Notes issued pursuant to the Exchange Offer may be offered for
resale, resold and otherwise transferred by any holder thereof (other than any
such holder that is an "affiliate" of the Company within the meaning of Rule
405 under the Securities Act) without compliance with the registration and
prospectus delivery provisions of the Securities Act, provided that such
Exchange Notes are acquired in the ordinary course of such holder's business
and such holder has no arrangement or understanding with any person to
participate in the distribution of such Exchange Notes. See "The Exchange
Offer--Purpose and Effect of the Exchange Offer" and "The Exchange Offer--
Resale of the Exchange Notes." Each broker-dealer (a "Participating Broker-
Dealer") that receives Exchange Notes for its own account pursuant to the
Exchange Offer must acknowledge that it will deliver a prospectus in
connection with any resale of such Exchange Notes. The Letter of Transmittal
states that by so acknowledging and by delivering a prospectus, a
Participating Broker-Dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act. This Prospectus, as it
may be amended or supplemented from time to time, may be used by a
Participating Broker-Dealer as a result of market-making activities or other
trading activities. The Company has agreed that, for a period of one year
after the Expiration Date, it will make this Prospectus available to any
Participating Broker-Dealer for use in connection with any such resale. See
"Plan of Distribution."
There has not previously been any public market for the Old Notes or the
Exchange Notes. The Initial Purchasers have informed the Company that they
currently do not intend to make a market in the Exchange Notes. The Company
does not intend to list the Exchange Notes on any securities exchange or to
seek approval for quotation through any automated quotation system.
i
Any Old Notes not tendered and accepted in the Exchange Offer will remain
outstanding and will be entitled to all the rights and will be subject to the
limitations applicable thereto under the Indenture. Following consummation of
the Exchange Offer, the holders of Old Notes will continue to be subject to
the existing restrictions upon transfer thereof and the Company will have no
further obligation to such holders to provide for registration under the
Securities Act of the Old Notes held by them. To the extent that Old Notes are
tendered and accepted in the Exchange Offer, a holder's ability to sell
untendered Old Notes could be adversely affected. See "Risk Factors--Exchange
Offer Procedures" and "Exchange Offer--Consequences of Failure to Exchange."
The Exchange Notes will be available initially only in book-entry form. The
Company expects that the Exchange Notes issued pursuant to this Exchange Offer
will be issued in the form of one or more Global Notes (as defined herein),
which will be deposited with, or on behalf of, The Depository Trust Company
(the "Depositary") and registered in its name or in the name of Cede & Co.,
its nominee. Beneficial interests in a Global Note representing the Exchange
Notes will be shown on, and transfers thereof will be effected through,
records maintained by the Depositary and its participants. After the initial
issuance of the Global Notes, Exchange Notes in certificated form will be
issued in exchange for a Global Note only on the terms set forth in the
Indenture. See "Description of Exchange Notes--Book Entry, Delivery and Form."
THIS PROSPECTUS AND THE RELATED LETTER OF TRANSMITTAL CONTAIN IMPORTANT
INFORMATION. HOLDERS OF OLD NOTES ARE URGED TO READ THIS PROSPECTUS AND THE
RELATED LETTER OF TRANSMITTAL CAREFULLY BEFORE DECIDING WHETHER TO TENDER
THEIR OLD NOTES PURSUANT TO THE EXCHANGE OFFER.
This Prospectus, together with the Letter of Transmittal, is being sent to
all registered holders of Old Notes as of [ ,] 1998.
The Company will not receive any cash proceeds from the issuance of the
Exchange Notes offered hereby. No dealer-manager is being used in connection
with this Exchange Offer. The Company will pay all expenses incurred by it
incident to the Exchange Offer. See "Use of Proceeds" and "Plan of
Distribution."
The Exchange Offer is not being made to, nor will tenders be accepted from
or on behalf of, holders of the Old Notes in any jurisdiction in which the
making of the Exchange Offer or acceptance thereof would not be in compliance
with the laws of such jurisdiction or would otherwise not be in compliance
with any provision of any applicable security law.
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS: THIS PROSPECTUS INCLUDES
"FORWARD-LOOKING STATEMENTS" WITHIN THE MEANING OF SECTION 27A OF THE
SECURITIES ACT AND SECTION 21E OF THE EXCHANGE ACT. ALL STATEMENTS OTHER THAN
STATEMENTS OF HISTORICAL FACTS INCLUDED IN THIS PROSPECTUS, INCLUDING WITHOUT
LIMITATION, CERTAIN STATEMENTS UNDER THE "PROSPECTUS SUMMARY," "MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS" AND
"BUSINESS," MAY CONSTITUTE FORWARD-LOOKING STATEMENTS. READERS ARE CAUTIONED
NOT TO PLACE UNDUE RELIANCE ON THESE FORWARD-LOOKING STATEMENTS, WHICH SPEAK
ONLY AS OF THE DATE HEREOF. ALTHOUGH THE COMPANY AND HOLDINGS BELIEVE THAT THE
EXPECTATIONS REFLECTED IN SUCH FORWARD-LOOKING STATEMENTS ARE REASONABLE, THEY
CAN GIVE NO ASSURANCE THAT SUCH EXPECTATIONS WILL PROVE TO BE CORRECT.
IMPORTANT FACTORS THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM
THE ISSUER'S EXPECTATIONS ("CAUTIONARY STATEMENTS") ARE DISCLOSED IN THIS
PROSPECTUS, INCLUDING WITHOUT LIMITATION IN CONJUNCTION WITH THE FORWARD-
LOOKING STATEMENTS INCLUDED IN THIS PROSPECTUS AND UNDER "RISK FACTORS." ALL
SUBSEQUENT WRITTEN AND ORAL FORWARD-LOOKING STATEMENTS ATTRIBUTABLE TO THE
COMPANY OR HOLDINGS OR PERSONS ACTING ON THEIR BEHALF ARE EXPRESSLY QUALIFIED
IN THEIR ENTIRETY BY THE CAUTIONARY STATEMENTS.
ii
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and consolidated financial statements, including the notes thereto,
included elsewhere or incorporated by reference in this Prospectus. As used in
this Prospectus, the "Company" means AMSC Acquisition Company, Inc. and its
operating subsidiaries. "Holdings" means American Mobile Satellite Corporation,
the direct parent and sole owner of the Company. Certain market research data
contained in this Prospectus was provided by The Strategis Group ("Strategis");
while some of this data is from publicly available reports of Strategis, the
Company also retained Strategis to provide the Company with additional market
research data.
OVERVIEW
The Company, formed through the combination of Holdings' wholly owned
operating subsidiaries that offer mobile data and voice communications services
("American Mobile") and ARDIS Company ("ARDIS"), is a leading provider of
nationwide wireless communications services, including data, dispatch, and
voice services, primarily to business customers in the United States. The
Company offers a broad range of end-to-end wireless solutions utilizing a
seamless network consisting of the nation's largest, most fully-deployed
terrestrial wireless data network and a satellite in geosynchronous orbit. On a
pro forma basis, the Company had service revenue of $15.8 million for the first
quarter of 1998 and approximately 85,200 customer units in service at March 31,
1998. In addition, the Company has recently signed customer contracts, subject
to certain conditions, that it believes will result in the activation of over
100,000 new units over the next three years. Through Holdings, the Company's
major equity investors include Hughes Electronics Corporation ("Hughes"),
Motorola, Inc. ("Motorola"), Singapore Telecommunications Ltd. ("Singapore
Telecom") and AT&T Wireless Services, Inc. ("AT&T Wireless"), who in the
aggregate will own approximately 61.4% of Holdings on a fully diluted basis.
The Company expects to capitalize on the substantial and growing market for
wireless data communications services, which Strategis estimates grew at a
compound annual unit growth rate of 28% from 1994 to 1997. Strategis further
estimates that the addressable market for wireless data products is composed of
approximately 12.5 million mobile workers in occupations, such as
transportation and field services, with significant wireless communication and
data access needs and that approximately 10.4 million of these workers will use
some form of mobile data service by 2001. 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. The Company believes this growth is being driven by the
widespread acceptance of Internet and intranet applications, logistical
requirements for just-in-time delivery and position location services,
development of more compact, less expensive user devices and a significant
increase in the use of data applications such as e-mail.
Through its ability to offer a broad range of services on a nationwide scale,
the Company believes that it is well positioned to serve the needs of mobile
workers in the United States. Within its addressable market, the Company
concentrates its sales and marketing efforts on the transportation, field
services and emerging two-way messaging markets, where it believes that its
combination of guaranteed delivery and high reliability, deep in-building
penetration and geographic breadth of coverage provide a significant
competitive advantage over other networks.
The executive offices of Holdings and the Company are located at 10802
Parkridge Blvd., Reston, Virginia, 20191. The Company's telephone number is
(703) 758-6000.
1
BUSINESS STRATEGY
The Company's objective is to maximize its revenues by delivering value-added
services to end users in specific market segments. To meet this objective and
to capitalize upon the competitive advantages resulting from the combination of
American Mobile and ARDIS, the Company intends to: (i) offer business customers
a broad range of nationwide wireless service and end-to-end data solutions;
(ii) integrate and leverage the advantages of its nationwide terrestrial and
satellite data networks; (iii) enhance market penetration by lowering
customers' "total cost of ownership;" and (iv) expand the use of alternate
distribution channels to accelerate network loading.
Offer Business Customers a Broad Range of Nationwide Wireless Solutions. The
Company believes its corporate customers prefer a single-source service
provider capable of delivering a broad range of efficient and cost effective
solutions to meet their need for mobile wireless communications. The Company
believes that it has and will continue to have a unique strategic advantage in
being able to provide one-stop shopping across a broad range of products,
including two-way paging and advanced messaging, packaged e-mail and LAN
solutions, custom data applications, dual mode terrestrial/satellite data, and
satellite voice and dispatch functions. Through its staff of approximately 230
direct sales, engineering support and customer service professionals, the
Company provides a suite of bundled wireless services, and a single point of
contact for sales, service, billing and project management, all on a national
basis.
Integrate and Leverage Network Advantages. The Company has spent over a
decade developing and deploying its nationwide terrestrial and satellite
networks and now seeks to accelerate growth by leveraging its integrated
network. Unlike many competitors with plans to build out limited city-wide or
regional terrestrial networks or to launch satellites, the Company's technology
infrastructure is in place and operational today, with future network expansion
requirements arising primarily from increased customer demand. The Company
believes that this integrated terrestrial/satellite network provides key
competitive advantages currently unmatched by any competitor: virtually 100%
nationwide geographic coverage, guaranteed message delivery, and, in the areas
covered by the ARDIS network, deep in-building penetration. By integrating the
operations of its terrestrial and satellite networks, the Company expects to
achieve operating efficiencies and economies of scale that it believes will
lead to improved operating margins.
Enhance Market Penetration By Reducing Customers' "Total Cost of
Ownership." Historically, the most significant obstacle to the implementation
of enterprise-wide wireless data applications has been the relatively high
total cost of ownership. The total cost of ownership is comprised of three
primary elements: the cost of the subscriber unit, the required investment in
software development, and the monthly cost of network access and usage. In most
of the Company's applications, the monthly cost of network access and usage has
been the least prohibitive of these elements. Until recently, subscriber unit
costs in excess of $3,000 and custom software investments of up to several
million dollars were common. By working with business partners and vendors, and
making strategic software investments, the Company has succeeded in
significantly lowering customers' total cost of ownership. New subscriber
units, including low-cost two-way messaging units and laptop modem cards, are
now available for $500 or less and substantial development work is underway
with several of the Company's vendors to accelerate reductions of equipment
cost, unit weight and size. In the future, the Company expects that the
increased subscriber unit volumes associated with recent large contract awards
will lead to additional unit price reductions. In addition, customers can now
use off-the-shelf software applications that are relatively inexpensive, or in
the case of the Company's two-way messaging service, free. The Company believes
that these lower price points will accelerate the adoption of the Company's
services in its historical markets, and will enable the Company to develop new
markets, such as wireless point-of-sale and telemetry.
Expand Alternate Distribution Channels. The Company sells its service
primarily through a direct sales force and resellers. In order to accelerate
network loading, the Company expects to expand its use of indirect
2
distribution channels. To date, the Company has entered into agreements with
Enron Energy Services ("Enron") (utility monitoring), Ameritech SecurityLink
(alarm monitoring), Global Payment Systems (point-of-sale), GE Logisticom
(asset tracking and dispatching) and other value-added resellers to penetrate
markets where such resellers have a market presence and significantly greater
resources than the Company, including dedicated sales personnel. In addition,
the Company is in the process of establishing relationships with existing
paging companies, paging resellers, and other targeted distribution partners to
market two-way guaranteed messaging services. The Company believes that the
resale of its network is an alternative that paging companies will consider
when assessing a move from one-way to two-way messaging because it may reduce
or eliminate the need for additional investment in network infrastructure. The
Company intends to utilize paging companies and other similar partners with
well established distribution capabilities to develop markets outside of the
Company's historical market segments.
THE UNITS OFFERING
On March 31, 1998, the Company consummated an offering, pursuant to which it
sold 335,000 Units, each consisting of (a) $1,000 principal amount of Old Notes
due 2008 of the Company and (b) one Warrant to purchase 3.75749 shares of
Common Stock of Holdings (the "Units Offering"). The Warrants are exercisable
at $12.51 per share, subject to certain anti-dilution provisions. Warrant
holders may exercise the Warrants at any time on or after the earlier to occur
of (i) the first anniversary of the Closing Date (as defined herein) and (ii)
in the event a Change of Control occurs, the date Holdings mails notice thereof
to the holders of Notes and Warrants. Unless exercised, the Warrants will
expire on April 1, 2008. If all Warrants were exercised as of the date of
issuance of the Warrants, the Warrants would represent approximately 3.00% of
the Common Stock outstanding on a fully-diluted basis after giving effect to
the exercise of all in-the-money outstanding options or rights issued by
Holdings. The Old Notes and Warrants will become separable no later than upon
the commencement of the Exchange Offer.
The Company used approximately $113.0 million of the net proceeds from the
Units Offering to fund the purchase of a portfolio of U.S. government
securities (the "Pledged Securities"), which will provide funds sufficient to
pay in full when due the first six scheduled interest payments on the Notes.
The Pledged Securities are pledged as security for the repayment of principal
of and interest on the Notes, Liquidated Damages, if any, and all other
obligations under the Indenture. See "Use of Proceeds" and "Description of the
Exchange Notes --Interest Reserve." Other proceeds have been, or will be, used
as follows: (i) approximately $50.0 million for the cash portion of the
acquisition of ARDIS (the "Acquisition"), (ii) approximately $100.0 million for
the repayment of certain bank financing, (iii) approximately $17.9 million for
repayment of advances from Holdings, which funds are intended to provide for
the payment of Holdings' interest payments on the Term Loan Facility (as
defined below) for three years, (iv) approximately $10.1 million for repayment
of the Bridge Facility (as defined below), (v) $10.0 million for the escrow for
UPS Guarantee (as defined below) obligations, (vi) approximately $7.2 million
for the payment of deferred obligations and (vii) approximately $14.8 million
for payment of estimated fees and expenses in connection with the Acquisition,
the Units Offering and the New Bank Financing. The remaining net proceeds will
be used for working capital purposes. See "Use of Proceeds."
The Units were sold by the Company on March 31, 1998 to Bear, Stearns & Co.
Inc., J.P. Morgan & Co., TD Securities, and BancAmerica Robertson Stephens (the
"Initial Purchasers") pursuant to a Purchase Agreement dated March 26, 1998
(the "Purchase Agreement"). The Initial Purchasers subsequently resold the
Units to qualified institutional buyers pursuant to Rule 144A under the
Securities Act and pursuant to offers and sales that occurred outside the
United States within the meaning of Regulation S under the Securities Act.
Pursuant to the Purchase Agreement, the Company and the Initial Purchasers
entered into a Debt Registration Rights Agreement dated March 31, 1998 (the
"Debt Registration Rights Agreement"), which grants the holders of the Old
Notes certain exchange and registration rights. The Exchange Offer is intended
to satisfy certain obligations of the Company under the Debt Registration
Rights Agreement.
3
CORPORATE STRUCTURE
The following diagram illustrates the corporate structure of the Company:
Holdings(1)
----------------------------
AMRC Holdings,
Inc. and
The Company(2)
American Mobile
Radio Corporation
("AMRC")
-----------------------------------------------------------
American Mobile
Satellite Sales AMSC Sales AMSC Subsidiary
Corporation(3)(4) Corporation Corporation(3)(4) ARDIS(4)(5)
Ltd.(3)(4)
(1) Guarantor of the Notes on a subordinated, unsecured basis.
(2) The Company is a wholly-owned subsidiary of Holdings.
(3) American Mobile Satellite Sales Corporation, AMSC Sales Corporation Ltd.
and AMSC Subsidiary Corporation are collectively referred to as "American
Mobile."
(4) Guarantors of the Notes on a joint and several, full and unconditional,
senior unsecured basis.
(5) Includes subsidiaries of ARDIS.
NEW BANK FINANCING
In connection with the Units Offering, Holdings, the Company and its
subsidiaries renegotiated the then existing $200.0 million bank facility (the
"Bank Financing") to provide for two facilities: (i) a $100.0 million unsecured
five-year reducing revolving credit facility (the "Revolving Credit Facility")
guaranteed by the Company's subsidiaries, which matures on March 31, 2003 and
(ii) a $100.0 million five-year, term loan facility with up to three additional
one-year extensions, subject to lender approval (the "Term Loan Facility,"
collectively with the Revolving Credit Facility, the "New Bank Financing"). The
Revolving Credit Facility ranks pari passu with the Exchange Notes. The Term
Loan Facility is secured by the assets of Holdings, principally its interests
in AMRC and the Company, and is effectively subordinated to the Revolving
Credit Facility and the Notes. The New Bank Financing is severally guaranteed
by Hughes, Singapore Telecom and Baron Capital Partners, L.P.
4
SATELLITE LEASE AND SATELLITE PURCHASE AGREEMENTS
On December 4, 1997, Holdings and American Mobile entered into an agreement
with African Continental Telecommunications Ltd. ("ACTEL") to lease the
Company's satellite, "MSAT-2," (the "Satellite Lease Agreement") for deployment
over sub-Saharan Africa. The five-year lease provides for aggregate payments to
the Company of $182.5 million. Simultaneously, the Company agreed with TMI
Communications and Company, Limited Partnership ("TMI") to acquire a one-half
ownership interest in TMI's satellite, "MSAT-1," (the "Satellite Purchase
Agreement") at an aggregate cost to the Company of $60.0 million. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources." It is anticipated that the net
proceeds of the Satellite Lease Agreement and Satellite Purchase Agreement will
be used primarily to repay the Company's Revolving Credit Facility, and
secondarily to provide the Company with additional liquidity. In addition, any
amounts repaid from the net proceeds of the Satellite Lease Agreement and
Satellite Purchase Agreement would reduce the commitment available to the
Company under the Revolving Credit Facility. See "Description of New Bank
Financing." The consummation of the Satellite Lease Agreement is subject to
certain conditions and there can be no assurance that it will be consummated.
See "Risk Factors--Satellite Lease and Purchase Agreement Risks" and
"Business--Satellite Lease and Satellite Purchase Agreements."
5
THE EXCHANGE OFFER
SECURITIES OFFERED.................. $335,000,000 aggregate principal amount
of Series B 12 1/4% Senior Notes due 2008
of the Company (the "Exchange Notes").
THE EXCHANGE OFFER.................. 1,000 principal amount of the Exchange
Notes in exchange for each $1,000
principal amount of Old Notes. As of the
date hereof, $335,000,000 aggregate
principal amount of Old Notes are
outstanding. The Company will issue the
Exchange Notes to holders on or promptly
after the Expiration Date.
Based on an interpretation by the staff
of the Commission set forth in no-action
letters issued to third parties, the
Company believes that Exchange Notes
issued pursuant to the Exchange Offer in
exchange for Old Notes may be offered for
resale, resold and otherwise transferred
by any holder thereof (other than any
such holder which is an "affiliate" of
the Company within the meaning of Rule
405 under the Securities Act) without
compliance with the registration and
prospectus delivery provisions of the
Securities Act, provided that such
Exchange Notes are acquired in the
ordinary course of such holder's business
and that such holder does not intend to
participate and has no arrangement or
understanding with any person to
participate in the distribution of such
Exchange Notes.
Each Participating Broker-Dealer that
receives Exchange Notes for its own
account pursuant to the Exchange Offer
must acknowledge that it will deliver a
prospectus in connection with any resale
of such Exchange Notes. The Letter of
Transmittal states that by so
acknowledging and by delivering a
prospectus, a Participating Broker-Dealer
will not be deemed to admit that it is an
"underwriter" within the meaning of the
Securities Act. This Prospectus, as it
may be amended or supplemented from time
to time, may be used by a Participating
Broker-Dealer in connection with resales
of Exchange Notes received in exchange
for Old Notes where such Old Notes were
acquired by such Participating Broker-
Dealer as a result of market-making
activities or other trading activities
(other than a resale of an unsold
allotment from the original sale of Old
Notes). The Company has agreed that, for
a period of one year after the Expiration
Date, it will make this Prospectus
available to any Participating Broker-
Dealer for use in connection with any
such resale. See "Plan of Distribution."
6
Any holder who tenders in the Exchange
Offer with the intention to participate,
or for the purpose of participating, in a
distribution of the Exchange Notes could
not rely on the position of the staff of
the Commission enunciated in no-action
letters and, in the absence of an
exemption therefrom, must comply with the
registration and prospectus delivery
requirements of the Securities Act in
connection with any resale transaction.
Failure to comply with such requirements
in such instance may result in such
holder incurring liability under the
Securities Act for which the holder is
not indemnified by the Company.
EXPIRATION DATE..................... 5:00 p.m., New York time, on [ ,] 1998
unless the Exchange Offer is extended, in
which case the term "Expiration Date"
means the latest date and time to which
the Exchange Offer is extended.
ACCRUED INTEREST ON THE EXCHANGE
NOTES AND THE OLD NOTES.............
Each Exchange Note will bear interest
from the most recent date to which
interest has been paid or duly provided
for on the Old Note surrendered in
exchange for such Exchange Note or, if no
interest has been paid or duly provided
for on such Old Note, from March 31,
1998. Interest on the Exchange Notes is
payable semi-annually on each April 1 and
October 1, commencing on October 1, 1998.
Holders of Old Notes whose Old Notes are
accepted for exchange will not receive
accrued interest on such Old Notes for
any period from and after the last date
to which interest has been paid or duly
provided for on the Old Notes prior to
the original issue date of the Exchange
Notes or, if no such interest has been
paid or duly provided for, will not
receive any accrued interest on such Old
Notes, and will be deemed to have waived,
the right to receive any interest on such
Old Notes accrued from and after March
31, 1998.
CONDITIONS TO THE EXCHANGE OFFER.... The Exchange Offer is subject to certain
customary conditions, which may be waived
by the Company. See "The Exchange Offer--
Conditions."
PROCEDURES FOR TENDERING OLD Each holder of Old Notes wishing to
NOTES............................... accept the Exchange Offer must complete,
sign and date the accompanying Letter of
Transmittal, or a facsimile thereof, in
accordance with the instructions
contained herein and therein, and mail or
otherwise deliver such Letter of
Transmittal, or such facsimile, together
with the Old Notes and any other required
documentation to the Exchange Agent (as
defined herein) at the address
7
set forth in the Letter of Transmittal.
By executing the Letter of Transmittal,
each holder will represent to the Company
that, among other things, the Exchange
Notes acquired pursuant to the Exchange
Offer are being obtained in the ordinary
course of business of the person
receiving such Exchange Notes, whether or
not such person is the holder, that
neither the holder nor any such other
person has any arrangement or
understanding with any person to
participate in the distribution of such
Exchange Notes and that neither the
holder nor any such other person is an
"affiliate," as defined under Rule 405 of
the Securities Act. See "The Exchange
Offer--Purpose and Effect of the Exchange
Offer" and "The Exchange Offer--
Procedures for Tendering."
UNTENDERED OLD NOTES................ Following the consummation of the
Exchange Offer, holders of Old Notes
eligible to participate but who do not
tender their Old Notes will not have any
further exchange rights and such Old
Notes will continue to be subject to
certain restrictions on transfer.
Accordingly, the liquidity of the market
for such Old Notes could be adversely
affected.
CONSEQUENCES OF FAILURE TO The Old Notes that are not exchanged
EXCHANGE............................ pursuant to the Exchange Offer will
remain restricted securities.
Accordingly, such Old Notes may be resold
only (i) to the Company, (ii) pursuant to
an effective registration statement under
the Securities Act, (iii) pursuant to
Rule 144A or Rule 144 under the
Securities Act, (iv) outside the United
States to a foreign person pursuant to
the requirements of Rule 904 under the
Securities Act, (v) to an institutional
"accredited investor" as defined in Rule
501(a)(1), (2), (3) or (7) under the
Securities Act who furnishes the Trustee
with a letter containing certain
representations and agreements and, in
the case of any transfer of aggregate
principal amount of Old Notes of $100,000
or less an opinion of counsel, if the
Company so requests, or (vi) pursuant to
some other exemption under the Securities
Act (and based on an opinion of counsel,
if the Company so requests). See "The
Exchange Offer--Consequences of Failure
to Exchange."
SHELF REGISTRATION STATEMENT........ In the event that (i) the Exchange Offer
is not available to any holder or may not
be consummated because, in either case,
it would violate applicable securities
laws or because the applicable
interpretations of the staff of the
Commission would not permit the Company
to effect the Exchange Offer, or (ii) in
certain circumstances the holder notifies
the Company that it is unable to
8
participate in the Exchange Offer or is
unable to use this Prospectus, the
Company will cause to be filed with the
Commission, no later than 30 days after
such obligation arises, a shelf
registration statement (the "Shelf
Registration Statement"). The Company
will use its best efforts to cause the
Shelf Registration Statement to be
declared effective on or before the 135th
day after the completion of the Old Notes
Offering. The Company has agreed to
maintain the effectiveness of the Shelf
Registration Statement, under certain
circumstances, for a maximum of two years
following the date of the completion of
the Old Notes Offering.
SPECIAL PROCEDURES FOR BENEFICIAL Any beneficial owner whose Old Notes are
OWNERS.............................. registered in the name of a broker,
dealer, commercial bank, trust company or
other nominee and who wishes to tender
should contact such registered holder
promptly and instruct such registered
holder to tender on such beneficial
owner's behalf. If such beneficial owner
wishes to tender on such owner's own
behalf, such owner must, prior to
completing and executing the Letter of
Transmittal and delivering its Old Notes,
either make appropriate arrangements to
register ownership of the Old Notes in
such owner's name or obtain a properly
completed bond power from the registered
holder. The transfer of registered
ownership may take considerable time. The
Company will keep the Exchange Offer open
for not less than twenty days in order to
provide for the transfer of registered
ownership.
GUARANTEED DELIVERY PROCEDURES...... Holders of Old Notes who wish to tender
their Old Notes and whose Old Notes are
not immediately available or who cannot
deliver their Old Notes, the Letter of
Transmittal or any other documents
required by the Letter of Transmittal to
the Exchange Agent (or comply with the
procedures for book-entry transfer) prior
to the Expiration Date must tender their
Old Notes according to the guaranteed
delivery procedures set forth in "The
Exchange Offer--Guaranteed Delivery
Procedures."
WITHDRAWAL RIGHTS................... Tenders may be withdrawn at any time
prior to 5:00 p.m., New York time, on the
Expiration Date.
ACCEPTANCE OF NOTES AND DELIVERY OF
EXCHANGE NOTES.....................
The Company will accept for exchange,
subject to the conditions described under
"The Exchange Offer--Conditions," any and
all Old Notes which are properly tendered
in the Exchange Offer prior to 5:00 p.m.,
New York time, on the Expiration Date.
The Exchange Notes
9
issued pursuant to the Exchange Offer
will be delivered promptly following the
Expiration Date. See "The Exchange
Offer--Terms of the Exchange Offer."
USE OF PROCEEDS..................... There will be no cash proceeds to the
Company from the exchange pursuant to the
Exchange Offer.
EXCHANGE AGENT...................... State Street Bank and Trust Co.
THE EXCHANGE NOTES
GENERAL............................. The form and terms of the Exchange Notes
are the same as the form and terms of the
Old Notes (which they replace) except
that (i) the Exchange Notes bear a Series
B designation, (ii) the Exchange Notes
have been registered under the Securities
Act and, therefore, will not bear legends
restricting the transfer thereof, and
(iii) the holders of Exchange Notes will
not be entitled to certain rights under
the Debt Registration Rights Agreement,
including the provisions providing for an
increase in the interest rate on the Old
Notes in certain circumstances relating
to the timing of the Exchange Offer,
which rights will terminate when the
Exchange Offer is consummated. See "The
Exchange Offer--Purpose and Effect of the
Exchange Offer." The Exchange Notes will
evidence the same debt as the Old Notes
and will be entitled to the benefits of
the Indenture. See "Description of
Exchange Notes." The Warrants issued in
connection with the issuance of the Old
Notes are not subject to the Exchange
Offer and will continue to be subject to
the restrictions on transfer set forth
therein.
SECURITIES OFFERED.................. $335,000,000 aggregate principal amount
of Series B 12 1/4% Senior Notes due 2008
of the Company.
MATURITY............................ March 31, 2008.
INTEREST............................ The Exchange Notes will bear interest at
a rate of 12 1/4% per annum, payable
semi-annually in arrears on April 1 and
October 1 of each year, commencing on
October 1, 1998.
RANKING............................. The Exchange Notes will be senior
obligations of the Company, will rank
pari passu in right of payment with all
existing and future unsecured senior
Indebtedness (as defined herein) of the
Company and will rank senior in right of
payment to any future subordinated
Indebtedness (as defined herein) of the
Company. As of March 31, 1998, after
giving effect to the Units Offering on a
consolidated basis, the Company had
outstanding indebtedness with a principal
amount of $374.2 million
10
($365.7 million net of debt discount).
Holdings is a holding company and
substantially all of its operations are
conducted through its operating
subsidiaries. The indenture pursuant to
which the Exchange Notes will be issued
(the "Indenture") permits the Company to
incur additional Indebtedness, including
senior Indebtedness and secured
Indebtedness, subject to certain
limitations and does not limit Holdings'
ability to incur additional Indebtedness.
See "Capitalization" and "Description of
the Exchange Notes--Certain Covenants--
Incurrence of Indebtedness and Issuance
of Preferred Stock."
INTEREST RESERVE.................... The Company used approximately $113.0
million of the net proceeds from the
Units Offering to purchase and pledge to
the Trustee, for the benefit of the
holders of the Notes, the Pledged
Securities, which are in an amount
sufficient upon receipt of scheduled
interest and principal payments, to
provide for payment in full when due of
the first six scheduled semi-annual
interest payments on the Notes. The
Pledged Securities are pledged as
security for the repayment of the
principal of and interest on the Notes,
Liquidated Damages, if any, and all other
obligations under the Indenture. When an
interest payment is due, the Company may
either deposit sufficient funds to pay
the interest scheduled to be paid or
direct the Trustee to release from the
Pledge Account (as defined herein) funds
sufficient to pay the interest scheduled.
In the event the Company exercises the
former option, the Pledge Agreement
provides the Company may direct to
Trustee to release proceeds or the
Pledged Securities from the Pledge
Account in a like amount. If the Company
makes the first six scheduled interest
payments on the Notes in a timely manner
and no Default (as defined herein) or
Event of Default (as defined herein) is
then continuing, the remaining Pledged
Securities, if any, will be released from
the Pledge Account and the Notes will
thereafter be unsecured obligations of
the Company. See "Description of the
Notes--Interest Reserve."
GUARANTEES.......................... The obligations of the Company under the
Exchange Notes will be fully and
unconditionally guaranteed by Holdings on
a subordinated unsecured basis, and by
the Subsidiary Guarantors on a joint and
several, full and unconditional senior
unsecured basis. The Subsidiary
Guarantees will rank pari passu in right
of payment with all other senior
Indebtedness of the Subsidiary
Guarantors, and will rank senior in right
of payment to any future subordinated
Indebtedness of the Subsidiary
Guarantors. The Guarantee of Holdings is
subordinate to
11
all Indebtedness of Holdings and will
rank pari passu with or subordinate to
all existing subordinated indebtedness of
Holdings. As of March 31, 1998, the
aggregate amount of outstanding senior
Indebtedness and other senior liabilities
(including trade payables) of Holdings on
a stand-alone basis was approximately
$100.0 million. See "Description of
the Exchange Notes--Subsidiary
Guarantees," "--Holdings Guarantee" and
"--Subordination of Holdings Guarantee."
OPTIONAL REDEMPTION................. The Exchange Notes will be redeemable, at
the option of the Company, in whole or in
part, at any time on or after April 1,
2003, at the redemption prices set forth
herein, plus accrued and unpaid interest
and Liquidated Damages, if any, thereon
to the applicable redemption date.
Notwithstanding the foregoing, on or
prior to April 1, 2001, the Company may
redeem at any time or from time to time
up to 35% of the aggregate principal
amount of the Exchange Notes at a
redemption price equal to 112.25% of the
principal amount thereof, plus accrued
and unpaid interest and Liquidated
Damages, if any, thereon to the
applicable redemption date, with the net
proceeds of an Equity Offering; provided,
that at least $217.8 million in the
aggregate principal amount of the
Exchange Notes initially issued remains
outstanding after giving effect to the
redemption thereof. See "Description of
the Exchange Notes--Optional Redemption."
CHANGE OF CONTROL................... Upon the occurrence of a Change of
Control, the Company will be required to
make an offer to repurchase all of the
outstanding Exchange Notes at a price
equal to 101% of the principal amount
thereof, plus accrued and unpaid interest
and Liquidated Damages, if any, thereon
to the repurchase date. See "Description
of the Exchange Notes--Repurchase at the
Option of Holders--Change in Control."
CERTAIN COVENANTS................... The Indenture contains certain covenants
that, among other things, limit the
ability of the Company 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. See "Description
of the Exchange Notes--Certain
Covenants."
12
RISK FACTORS
For a discussion of certain risk factors that should be considered by
prospective purchasers in evaluating an investment in the Units, see "Risk
Factors."
PRO FORMA SUMMARY FINANCIAL AND OTHER DATA
The following summary pro forma financial information gives effect to (i) the
Acquisition, (ii) the Units Offering and (iii) the New Bank Financing as if
such transactions had been consummated on January 1 of each of the periods
presented. The pro forma combined financial information is presented for
illustrative purposes only and is not necessarily indicative of what the
Company's actual financial position or 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 the Company in the future.
The following data should be read in conjunction with Holdings' Consolidated
Financial Statements and related notes, ARDIS' Combined Financial Statements
and related notes, "Management's Discussion and Analysis of Financial Condition
and Results of Operations," and other financial information included elsewhere
or incorporated by reference herein, as applicable.
13
THE COMPANY
PRO FORMA SUMMARY FINANCIAL AND OTHER DATA
THREE MONTHS ENDED
MARCH 31,
YEAR ENDED --------------------
DECEMBER 31, 1997 1997 1998
----------------- --------- ---------
(DOLLARS IN THOUSANDS, EXCEPT
SUBSCRIBERS AND REVENUE PER UNIT)
STATEMENT OF OPERATIONS DATA:
Revenues:
Services............................ $ 62,109 $ 14,674 $ 15,820
Equipment and consulting............ 25,856 4,859 4,134
--------- --------- ---------
Total revenue..................... 87,965 19,533 19,954
Operating loss........................ (118,986) (27,525) (24,094)
Net loss.............................. (165,131) (38,693) (36,053)
OTHER FINANCIAL AND OPERATING DATA:
Number of subscribers (end of period)
(1).................................. 81,300 71,900 85,200
Average monthly revenue per unit (1).. $ 62 $ 70 $ 63
EBITDA (2)............................ (56,907) (12,086) (9,593)
Depreciation and amortization......... 61,204 14,564 14,501
Capital expenditures.................. 10,334 1,781 4,891
Ratio of earnings to fixed charges
(3).................................. -- -- --
- --------------------
(1) Number of subscribers and average monthly revenue per unit calculations
have been adjusted to account for subscribers common to ARDIS and American
Mobile.
(2) "EBITDA" consists of operating income (loss) plus depreciation and
amortization. EBITDA is a financial measure commonly used in the Company's
industry and should not be construed as an alternative to operating income
(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. EBITDA for the three-months ending March
31, 1997 and for the year ending December 31, 1997 have been adjusted to
include $875,000 of other income from the licensing of certain technology.
(3) For purposes of calculating the ratio of earnings to fixed charges,
earnings are defined as loss before income taxes and extraordinary items
plus fixed charges. Fixed charges consist of interest expense, amortization
of debt issuance costs, accretion of discount on preferred stock and a
reasonable approximation of the interest factor included in rental payments
on operating leases. Earnings were inadequate to cover fixed charges for
the year ended December 31, 1997 by $165.1 million, and for the three
months ended March 31, 1997 and 1998 by $38.7 million and $36.1 million,
respectively.
14
SUMMARY FINANCIAL AND OTHER DATA
The following summary historical financial information of American Mobile has
been derived from Holdings' historical financial statements and should be read
in conjunction with such consolidated financial statements and the notes
thereto incorporated by reference into in this Prospectus. Holdings'
Consolidated Financial Statements include the combined condensed financial
statements of American Mobile in Note 17 for the three-year period ended
December 31, 1997. Holdings' Consolidated Financial Statements for each of the
five years in the period ended December 31, 1997 have been audited by Arthur
Andersen LLP, independent auditors, and appear elsewhere in this Prospectus.
The following summary historical financial information for ARDIS as of and
for each of the three years in the three-year period ended December 31, 1997
have been derived from the audited combined financial statements of ARDIS,
which have been audited by KPMG Peat Marwick LLP, independent auditors, and are
incorporated by reference into this Prospectus.
Summary historical financial information for American Mobile for 1993 and for
ARDIS for 1993 and 1994 have been derived from the audited consolidated
financial statements of Holdings and unaudited combined financial statements of
ARDIS, respectively. In the respective opinions of management of American
Mobile and ARDIS, such unaudited summary financial statements have been
prepared on the same basis as the audited financial statements referred to
above and include all adjustments (consisting of normal recurring accruals)
necessary for a fair presentation of the financial information for the periods
presented.
Summary historical financial information for American Mobile and ARDIS as of
and for the three months ended March 31, 1997 and 1998 have been derived from
unaudited consolidated financial statements of Holdings and unaudited combined
financial statements of ARDIS, respectively. In the respective opinions of
management of American Mobile and ARDIS, such unaudited combined financial
statements have been prepared on the same basis as the audited financial
statements referred to above and include all adjustments (consisting of normal
recurring accruals) necessary for a fair presentation of the financial
information for the interim periods. Results of operations for the three months
ended March 31, 1998, are not necessarily indicative of the results to be
expected for fiscal 1998. The following data should be read in conjunction with
ARDIS' Combined Financial Statements and related notes and Holdings'
Consolidated Financial Statements and related notes including American Mobile's
combined condensed financial statements, "Management's Discussion and Analysis
of Financial Condition and Results of Operations," and other financial
information included elsewhere or incorporated by reference herein, as
applicable.
15
AMERICAN MOBILE
SUMMARY COMBINED FINANCIAL AND OTHER DATA
THREE
MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
--------------------------------------------- ----------------
1993 1994 1995 1996 1997 1997 1998
------- ------- ------- -------- -------- ------- -------
(DOLLARS IN THOUSANDS, EXCEPT SUBSCRIBERS AND REVENUE PER
UNIT)
STATEMENT OF OPERATIONS DATA:
Revenues:
Services............... $ 852 $ 3,662 $ 6,873 $ 9,201 $ 20,684 $ 4,173 $ 6,418
Equipment.............. -- 1,578 1,924 18,529 23,530 4,532 3,604
------- ------- ------- -------- -------- ------- -------
Total revenue.......... 852 5,240 8,797 27,730 44,214 8,705 10,022
Operating loss.......... (25,112) (29,984) (71,278) (120,893) (99,535) (24,071) (18,928)
Net loss (1)............ (24,910) (29,137) (73,341) (164,977) (149,566) (34,748) (32,613)
OTHER FINANCIAL AND OPERATING DATA:
Number of subscribers
(end of period) (2).... -- -- -- 20,300 32,400 23,000 34,800
Average monthly revenue
per unit (2)........... -- -- -- $ 81 $ 65 $ 64 $ 64
EBITDA (3).............. (17,653) (25,443) (59,710) (75,397) (54,125) (12,733) (8,239)
Depreciation and
amortization........... 7,459 4,541 11,568 45,496 44,535 10,463 10,689
Capital expenditures ... 64,044 50,762 83,776 14,054 8,598 1,126 3,574
Ratio of earnings to
fixed charges (4)...... -- -- -- -- -- -- --
AS OF
MARCH 31, 1998(5)
----------------------
(DOLLARS IN THOUSANDS)
BALANCE SHEET DATA:
Cash and cash equivalents............................ $ 21,279
Property and equipment, net (6)...................... 280,894
Total assets......................................... 585,856
Total debt........................................... 365,706
Total stockholders' equity........................... 181,374
- --------------------
(1) Includes interest expense on inter-company loans between Holdings and
American Mobile in the amount of $2.4 million in 1995, $29.5 million in
1996, $29.5 million in 1997, $7.3 million for the three months ended March
31, 1997, and $7.2 million for the three months ended March 31, 1998.
(2) Prior to 1996, American Mobile was a development stage company and leased
satellite capacity primarily on a pass-through basis. As such, subscriber
information is not available for periods prior to 1996. Average monthly
revenue per unit for the year ended December 31, 1996 was calculated on an
average monthly basis after adjusting both subscribers and revenues to
normalize for the acquisition, in late 1996, of MCSS.
(3) EBITDA consists of operating income plus depreciation and amortization.
EBITDA is a financial measure commonly used in the Company's industry and
should not be construed as an alternative to operating income (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. EBITDA for the three months ending March 31, 1997
and the year ending December 31, 1997 have been adjusted to include
$875,000 of other income from the licensing of certain technology.
(4) For purposes of calculating the ratio of earnings to fixed charges,
earnings are defined as loss before income taxes and extraordinary items
plus fixed charges. Fixed charges consist of interest expense, amortization
of debt issuance costs, accretion of discount on preferred stock and a
reasonable approximation of the interest factor included in rental payment
on operating leases. Earnings were inadequate to cover fixed charges for
the years ended December 31, 1993, 1994, 1995, 1996 and 1997 by $47.3
million, $42.1 million, $99.1 million, $165.0 million, and $150.0 million,
respectively, and for the three months ended March 31, 1997 and 1998 by
$34.7 million and $32.6 million, respectively.
(5) As a result of the Acquisition on March 31, 1998, all Balance Sheet Data
includes ARDIS.
(6) Includes capitalized interest in the amount of $22.4 million, $12.9
million, and $25.7 million in 1993, 1994 and 1995, respectively.
16
ARDIS
SUMMARY COMBINED FINANCIAL AND OTHER DATA
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
------------------------------------------------ --------------------
1993 1994 1995 1996 1997 1997 1998
-------- -------- -------- -------- -------- --------- ---------
(DOLLARS IN THOUSANDS, EXCEPT SUBSCRIBERS AND REVENUE PER UNIT)
STATEMENT OF OPERATIONS DATA:
Revenues:
Services...................... $ 43,831 $ 48,561 $ 40,006 $ 43,413 $ 41,923 $10,598 $ 9,541
Equipment and consulting...... 2,773 2,346 1,266 1,884 2,326 327 530
-------- -------- -------- -------- -------- --------- ---------
Total revenue................. 46,604 50,907 41,272 45,297 44,249 10,925 10,071
Operating loss................. (40,704) (22,831) (40,632) (29,168) (17,368) (2,933) (4,645)
Net loss....................... (40,446) (22,504) (25,253) (18,998) (11,742) (2,120) (3,220)
OTHER FINANCIAL AND OPERATING
DATA:
Number of subscribers (end of
period)....................... 24,800 33,100 44,200 52,500 55,400 54,600 57,600
Average monthly revenue per
unit ......................... $ 150 $ 140 $ 86 $ 75 $ 65 $ 66 $ 56
EBITDA (1)..................... (32,816) (12,733) (26,277) (11,899) (2,782) 647 (1,354)
Depreciation and amortization.. 7,888 10,098 14,355 17,269 14,586 3,580 3,291
Capital expenditures........... 17,966 17,303 42,366 4,806 1,736 655 1,317
Ratio of earnings to fixed
charges (2)................... -- -- -- -- -- -- --
- --------------------
(1) EBITDA consists of operating income plus depreciation and amortization.
EBITDA is a financial measure commonly used in the company's industry and
should not be construed as an alternative to operating income (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. EBITDA for 1993 includes a non-recurring charge
in the amount of $20.4 million relating to the write-off of previously
capitalized software development costs.
(2) For purposes of calculating the ratio of fixed charges, earnings are
defined as loss before income taxes and extraordinary items plus fixed
charges. Fixed charges consist of interest expense, amortization of debt
issuance costs, accretion of discount on preferred stock and a reasonable
approximation of the interest factor included in rental payment on
operating leases. Earnings were inadequate to cover fixed charges for the
years ended December 31, 1993, 1994, 1995, 1996 and 1997 by $40.4 million,
$22.5 million, $40.8 million, $30.5 million and $18.5 million,
respectively, and for the three months ended March 31, 1997 and 1998 by
$3.3 million and $4.9 million, respectively.
17
RISK FACTORS
In addition to the other information contained in this Prospectus, the
following risk factors should be considered carefully in evaluating the
Company and Holdings and their business in connection with the Exchange Offer.
This Prospectus includes "forward-looking statements" within the meaning of
Section 27A of the Securities Act and Section 21E of the Exchange Act of 1934,
as amended (the "Exchange Act"). Although the Company believes that its plans,
intentions and expectations reflected in such forward-looking statements are
reasonable, it can give no assurance that such plans, intentions or
expectations will be achieved. Important factors that could cause actual
results to differ materially from the Company's forward-looking statements are
set forth below and elsewhere in this Prospectus. All forward-looking
statements attributable to the Company, Holdings or persons acting on its
behalf are expressly qualified in their entirety by the cautionary statements
set forth below.
SUBSTANTIAL AND CONTINUING OPERATING LOSSES
Each of American Mobile and ARDIS has incurred significant operating losses
and negative cash flows in each year since it commenced operations, due
primarily to start-up costs, the costs of developing and building each network
and the cost of developing, selling and providing its respective products and
services. American Mobile has reported operating losses of approximately $18.9
million in the three months ended March 31, 1998 and $99.5 million, $120.9
million and $71.3 million in 1997, 1996 and 1995, respectively. ARDIS has
reported operating losses of approximately $4.6 million in the three months
ended March 31, 1998 and $17.4 million, $29.2 million, and $40.6 million in
1997, 1996 and 1995, respectively.
Since inception, American Mobile has been engaged in the operation of its
business, the recruitment of key management and technical personnel and
raising capital to fund its operations and the development of the satellite
and associated network. American Mobile launched commercial service in January
1996. Accordingly, it has a short operating history upon which an evaluation
of its prospects in each of its markets can be made. The prospects for the
Company's success must be considered in light of the risks, expenses and
difficulties often encountered in the establishment of a new business in a
continually evolving industry subject to rapid technological and price
changes, and characterized by an increasing number of market competitors. See
"Business."
The Company, on a pro forma basis, had an operating loss of approximately
$24.1 million for the three months ended March 31, 1998. The Company estimates
that, absent the successful leasing of its MSAT-2 satellite, operating
revenues will not be sufficient to cover operating expenses for the
foreseeable future. Even with the leasing of MSAT-2, the ability of the
Company to generate positive operating cash flow will depend upon, among other
factors, the success of the Acquisition and the successful marketing of the
Company's services, as to which there can be no assurance.
In addition, further development of the Company's business and the expansion
of its networks will require additional capital and other expenditures and the
Company expects that it will have significant operating losses and will record
significant net cash outflow in the near term. A substantial portion of the
proceeds from the Units Offering will be utilized to fund working capital,
operating losses and capital expenditures. There can be no assurance that the
Company will have sufficient resources to complete such expenditures and make
principal or interest payments with respect to the Notes.
SUBSTANTIAL LEVERAGE
The Company is highly leveraged. As of March 31, 1998, the Company on a
consolidated basis had total indebtedness of approximately $374.2 million
($365.7 million net of debt discount) and had availability of $100.0 million
under the Company's Revolving Credit Facility. The Company also has received a
commitment from Motorola for up to $10.0 million of vendor financing of
certain capital expenditures (the "Vendor Financing Commitment"). The
Company's earnings would have been insufficient to cover its fixed charges by
approximately $165.2 million and $36.1 million for the year ended December 31,
1997 and the three months ended March 31, 1998, respectively, and at March 31,
1998 the Company's stockholders' equity was
18
approximately $181.4 million. The Company and its subsidiaries will be
permitted to incur additional indebtedness in the future. Further, commencing
April 1, 2001 (three years after the date of the Indenture), the Company will
be permitted to pay dividends to Holdings to permit Holdings to meet its
interest expense obligations with respect to the Term Loan Facility. See
"Capitalization," "Management's Discussion and Analysis of Financial Condition
and Results of Operations--Liquidity and Capital Resources," "Selected
Financial and Operating Data" and "Description of the Exchange Notes."
American Mobile historically has not generated sufficient earnings or cash
flow from operations to make such interest payments. Accordingly, the Company
expects that it will be necessary for its operating results to improve
significantly in order to permit it to meet the debt service obligations under
the Notes beyond the period for which the payment of interest on the Notes is
provided for through the Pledged Securities. The ability of the Company to
improve its operating results will depend upon a variety of factors, including
economic, financial, competitive, regulatory and other factors beyond its
control. There can be no assurance that the Company will generate sufficient
earnings or cash flow from operations in the future to service the Notes and
to meet its working capital, capital expenditure and other requirements. If
the Company is unable to service the Notes using earnings or cash flow from
operations, it will have to examine alternate means of repayment that could
include restructuring or refinancing its indebtedness or seeking additional
sources of debt or equity financing. There can be no assurance, however, that
the Indenture or the New Bank Financing would permit the Company to pursue
alternative means of repayment or that the Company would be able to effect
such a restructuring or refinancing or obtain such additional financing if
permitted to do so. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Liquidity and Capital Resources."
In addition, Holdings is highly leveraged. On March 31, 1998, Holdings had
total indebtedness of approximately $465.7 million and stockholders' equity of
approximately $81.0 million. Also after giving effect to the Units Offering,
Holdings' earnings have been insufficient to cover its fixed charges by
approximately $176.3 million and $38.9 million for fiscal 1997 and for the
three months ended March 31, 1998, respectively. Holdings will not be subject
to any of the covenants or restrictions under the Indenture governing the
Notes. Accordingly, the Indenture will not restrict Holdings' ability to incur
additional indebtedness and issue preferred stock, pay dividends or make
certain other payments, enter into transactions with affiliates, make certain
asset dispositions, merge or consolidate with, or transfer substantially all
of its assets to, another person, encumber assets, or engage in certain
business activities.
The degree to which the Company and Holdings are leveraged following the
Units Offering could have important consequences to holders of the Notes,
including, but not limited to: (i) making it more difficult for the Company to
satisfy its obligations with respect to the Notes, (ii) increasing the
Company's vulnerability to general adverse economic and industry conditions,
(iii) limiting the Company's ability to obtain additional financing to fund
future working capital, capital expenditures, research and development and
other general corporate requirements, (iv) requiring the dedication of a
substantial portion of the Company's cash flow from operations to the payment
of principal of, and interest on, its indebtedness, thereby reducing the
availability of such cash flow to fund working capital, capital expenditures,
research and development or other general corporate purposes, (v) limiting the
Company's flexibility in planning for, or reacting to, changes in its business
and the industry, and (vi) placing the Company at a competitive disadvantage
vis-a-vis less leveraged competitors. In addition, the Indenture and the New
Bank Financing will contain financial and other restrictive covenants that
will limit the ability of the Company to, among other things, borrow
additional funds. Failure by the Company to comply with such covenants could
result in an event of default which, if not cured or waived, could have a
material adverse effect on the Company. In addition, the degree to which the
Company is leveraged could prevent it from repurchasing all of the Notes
tendered to it upon the occurrence of a Change of Control. See "Description of
the Exchange Notes--Repurchase at the Option of Holders--Change of Control"
and "Description of New Bank Financing."
LIQUIDITY; NEED FOR ADDITIONAL CAPITAL
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
19
cash flow from operations and for the foreseeable future thereafter. The
Company currently believes that the net proceeds of the Units Offering,
together with borrowings under the New Bank Financing and the Vendor Financing
Commitment, will be sufficient to meet the Company's currently anticipated
capital expenditures, operating losses, working capital and debt service
requirements through the time it generates positive operating cash flow and
thereafter. However, if the Company's cash flows from operations are less than
projected, the Company will require additional debt or equity financing in
amounts that could be substantial. The type, timing and terms of financing
selected by the Company will be dependent upon the Company's cash needs, the
availability of other financing sources and the prevailing conditions in the
financial markets. There can be no assurance that any such sources will be
available to the Company at any given time or as to the favorableness of the
terms on which such sources may be available. The Vendor Financing Commitment
is subject to customary conditions, including due diligence, and there can be
no assurance that the facility will be obtained by the Company on these terms
or at all. Further, there can be no assurance that there will be a final
agreement on favorable terms, or at all, with respect to the Vendor Financing
Commitment or any other vendor financing or that, once finalized, the Company
will meet the conditions therein to funding. See "Management's Discussion and
Analysis of Operations--Liquidity and Capital Resources." There can also be no
assurance that the Company's current projection of cash flow from operations
(which will depend upon numerous future factors and conditions, many of which
are outside of the Company's control) will be accurate. Projections are merely
estimates of future events and actual events should be expected to vary from
current estimates, possibly materially. In addition, if customer demand
exceeds current expectations and if such demand can be accommodated without
adversely affecting the quality of the Company's service, the Company is
likely to attempt to accelerate its expansion. If the Company elects to
accelerate its build-out or introduce new products or services, its funding
needs will increase, possibly to a significant degree. There can be no
assurance that any additional financing will be available to the Company on
commercially reasonable terms or at all. Because the Company's cost of
expanding its network and operating its business, as well as the Company's
revenues, will depend on a variety of factors (including the ability of the
Company to meet its expansion schedules, the number of customers and the
services for which they subscribe, the nature and penetration of new services
that may be offered by the Company and its competitors, regulatory changes and
changes in technology) actual costs and revenues may vary from expected
amounts, possibly to a material degree, and such variations are likely to
affect the Company's future capital requirements. Accordingly, there can be no
assurance that the Company will not be required to raise substantial
additional capital in the future or that its current projections will prove to
be accurate. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and "Business--Market Opportunity," "--Business
Strategy," "--Products and Services," "--Competition;" and "Regulation."
HOLDINGS' GUARANTEE
The Guarantee of Holdings is subordinated in right of payment to all
existing and future Indebtedness of Holdings, including borrowings under the
Holdings Term Loan Facility. In the event of bankruptcy, liquidation, or
reorganization of Holdings, the assets of Holdings will be available to pay
obligations on the Guarantee of Holdings only after all senior Indebtedness
has been paid in full, and there may not be sufficient assets remaining to pay
amounts due on the Guarantee of Holdings. In addition, under certain
circumstances Holdings will not be permitted to pay its obligations under its
Guarantee in the event of a default under any or all senior Indebtedness. As
of March 31, 1998, on a stand-alone basis Holdings had $100.0 million of
Indebtedness effectively ranking senior to the Guarantee of Holdings.
Holdings will not be subject to any of the covenants or restrictions under
the Indenture governing the Notes. Accordingly, the Indenture will not
restrict Holdings' ability to incur additional Indebtedness and issue
preferred stock, pay dividends or make certain other payments, enter into
transactions with affiliates, make certain asset dispositions, merge or
consolidate with, or transfer substantially all of its assets to, another
person, encumber assets, or engage in certain business activities. If the
Company were to default on its obligations to pay amounts payable under the
Notes, Holdings may lack funds for payment of such amounts, and, in such
event, holders of the Notes would not be able to rely upon the Guarantee for
payment of such amounts. See "Description of New Bank Financing."
20
NECESSARY BUILDOUTS
On June 5, 1996, the FCC granted ARDIS extensions of time to complete the
buildouts of 190 antenna sites, as required to maintain previously granted
licenses. As of February 1998, approximately 104 of the sites remain to be
constructed by expiration dates that range between June 27, 1998 to March 31,
1999. Management estimates that $5.2 million will be necessary to achieve
timely buildouts of the network, including $5.0 million in 1998. Failure to
obtain such capital or to complete the buildouts in a timely manner could
result in loss of licenses for such sites from the FCC, loss of customers, as
well as the incurrence of penalties under the UPS Contract, which would have a
material adverse effect on the Company. See "--Liquidity; Need for Additional
Capital," "--UPS Contract," "--Customer Concentration" and "Management's
Discussion and Analysis of Financial Condition and Results of Operation--
Liquidity and Capital Resources."
RAPIDLY CHANGING MARKET
The markets for wireless communications services are characterized by rapid
technological and other changes. The Company's success depends, in part, on
its ability to respond and adapt to such changes. There can be no assurance
that the Company will be able to compete effectively under, or adjust its
contemplated plan of development to meet, changing market conditions or that
the Company will be able to implement its strategy or that its strategy will
be successful in this rapidly evolving market.
This market is also marked by the introduction of new products and services
and increased capacity for services similar to those provided by the Company.
Future technological advances in the wireless communications industry may
result in the availability of new products or services (or increase the
efficiency of existing products or services). If a technology becomes
available that is more cost-effective or creates a superior product, the
Company may be unable to access such technology or its use may involve
substantial capital expenditures that the Company may be unable to finance.
There can be no assurance that existing proposed or as yet undeveloped
technologies will not render the Company's technology less profitable or less
viable, or that the Company will have available the financial and other
resources to compete effectively against companies possessing such
technologies. The Company is unable to predict which of the many possible
future products and services will meet evolving industry standards and
consumer demands. There can be no assurance that the Company will be able to
adapt to such technological changes or offer such products or services on a
timely basis or establish or maintain a competitive position.
DEPENDENCE ON MARKET ACCEPTANCE
The Company's success is subject to a number of business, economic,
regulatory and competitive factors, many of which are beyond the Company's
control, including the extent to which prospective customers will purchase the
Company's service. The Company's ability to service its Indebtedness,
including the Notes, is subject to the successful implementation of its growth
strategy, which, in turn, is premised, among other things, on the Company's
expectation that demand for its services will increase significantly in its
markets. Certain of these services have not yet been commercially introduced
and there can be no assurance that any of them will achieve market acceptance
or result in the generation of operating cash flow. Failure to gain market
acceptance for current or planned products and services would have a material
adverse effect on the Company. In addition, the Company has incurred and will
continue to incur significant operating expenses, has made, and will continue
to make, significant capital investments, has entered into operating leases,
equipment supply contracts and service arrangements, and is attempting to
secure financing, in each case based upon certain expectations as to the
anticipated market acceptance of, and customer demand for, the Company's
services. Accordingly, any material miscalculation by the Company with respect
to its operating strategy or business plan could have a material adverse
effect on the Company.
CHALLENGES OF BUSINESS INTEGRATION
The full benefits of a combination of American Mobile and ARDIS as a result
of the Acquisition will require the integration of each company's
administrative, finance, sales and marketing organizations, the coordination
of
21
each company's sales efforts and the implementation of appropriate
operational, financial and management systems and controls. This will require
substantial attention from the senior management teams of American Mobile and
ARDIS, who have limited experience integrating the operations of companies of
the size of American Mobile and ARDIS and whose members have not worked
together previously as one team. The diversion of management attention, as
well as any other difficulties that may be encountered in the transition and
integration process, could have a material adverse effect on the revenues and
operating results of the Company. In addition, American Mobile and ARDIS
provide similar services to certain shared customers, requiring the Company to
integrate the services provided to these shared customers. If the contemplated
organizational changes are not properly managed, there could be an adverse
effect on the Company's results of operations. There can be no assurance that
the Company will be able to integrate the operations of American Mobile and
the ARDIS network successfully or, if successful, that such integration will
yield the expected benefits to the Company or will not materially adversely
affect the Company's business, financial condition or results of operations.
The Company's prospects should be considered in light of the numerous risks
commonly encountered in business combinations. The historical financial
statements presented in this Prospectus may not necessarily be indicative of
the results that would have been attained had the Company operated on a
combined basis and as an independent entity.
MANAGEMENT OF GROWTH
In its continuing efforts to respond to changing market conditions, the
Company may experience periods of rapid expansion. In order to manage growth
effectively in the complex environment in which it operates, the Company will
need to maintain and improve its operating and financial systems and expand,
train and manage its employee base. The Company must expand the capacity of
its sales, distribution and installation networks in order to achieve
continued growth in its existing and future markets. In general, the failure
to manage growth effectively could have a material adverse effect on the
Company's business, financial condition and results of operations.
UPS CONTRACT
ARDIS has entered into a contract with UPS for the use of the ARDIS network
pursuant to which the Company anticipates providing communication services for
approximately 50,000 UPS units by the end of 2000. However, performance under
the UPS Contract is subject to certain significant conditions, including,
among others, (i) required capital expenditures by the Company to expand
capacity of the ARDIS network in certain areas, (ii) successful development of
the DIAD III device by Motorola and (iii) successful deployment of the DIAD
III devices on the ARDIS network within strict guaranteed operational
performance levels. Management believes that the Company will be required to
incur capital spending of approximately $17.4 million in connection with the
UPS Contract over the next three years. In addition, the contract represents a
significant implementation effort of a magnitude in excess of that of any
existing ARDIS customer. Failure to meet the requirements under the UPS
Contract could result in a loss of the contract as well as monetary penalties
that could materially adversely affect the Company. See "Business--Customers."
Under the UPS Contract, the Company also has significant warranties of
performance, both during the implementation phase and for ongoing network
performance. During the implementation phase, the Company must meet key
checkpoints and milestones culminating in an acceptance test. Failure of the
acceptance test could result, after a cure period, in the loss of the
contract. In addition, the Company will have to construct network capacity in
several key cities. Failure to complete such construction by the committed
dates would subject the Company to monthly penalties until compliance is
achieved.
On an ongoing basis, the UPS Contract requires that the Company guarantee
network performance levels. If network availability drops below 99%, the
Company will be subject to an initial penalty of 2% of the average monthly use
of the service, calculated as the average of the last three months in the
affected area. The penalty increases if performance levels further drop.
22
As a part of the negotiations leading to the signing of the UPS Contract,
Motorola issued a performance guarantee regarding the network's performance.
In connection with the Acquisition, the Company agreed to indemnify Motorola
for up to $10.0 million in connection with such performance guarantee (the
"UPS Guarantee"). In order to satisfy any such obligation, the Company has
deposited $10.0 million of the proceeds from the Units Offering into an escrow
account, such escrow account having the same three-year term (with two
possible one-year renewals) as the UPS Contract.
CUSTOMER CONCENTRATION
After giving effect to the Acquisition, IBM, NCR and Pitney Bowes accounted
for 26%, 7% and 5%, respectively, of the Company's recurring service revenue
for the twelve months ended December 31, 1997. The loss of one or more of such
customers, or any event, occurrence or development which adversely affects the
relationship between the Company and such customer could have a material
adverse effect upon the Company.
RELIANCE ON THIRD PARTY VENDORS
The Company relies on independent third-party vendors to develop and
manufacture wireless communications devices for its networks, which are
significant elements of the Company's business plan. See "Business--Equipment;
Supplier Relationships." These suppliers do not sell such devices to the
Company on an exclusive basis. The Company carries a limited inventory of such
devices and generally has no guaranteed supply arrangements. The Company has
from time to time experienced interruptions and/or delays of supply and there
can be no assurance that the Company will not experience such interruptions in
the future. In addition, the Company's contracts with the majority of its
suppliers are short-term contracts. There can be no assurance that such
suppliers will continue to provide products to the Company at attractive
prices, or at all, or that the Company will be able to obtain such products in
the future from these or other providers on the scale and within the time
frames required by the Company. Further, there can be no assurance that any of
the Company's suppliers will not enter into exclusive arrangements with the
Company's competitors, or cease selling these components to the Company at
commercially reasonable prices, or at all. Any failure to obtain such products
on a timely basis at an affordable cost, or any significant delays or
interruptions of supply, would have a material adverse effect on the Company.
Further, as part of its growth strategy, the Company is relying on its
suppliers to reduce the cost of wireless communications devices approved and
available for use on its network. Management believes that reductions in the
cost of wireless communications devices will result in increased sales of
devices, additional subscribers for the Company's services and a corresponding
increase in the Company's service revenues. Any failure to obtain such cost
reductions on a timely basis, or any significant delays of such reductions,
would have a material adverse effect on the Company.
In addition, the anticipated expansion of the Company's operations and
infrastructure is expected to place a significant demand on the Company's
suppliers, some of which have limited resources and production capacity. In
addition, certain of the Company's suppliers, in turn, rely on sole or limited
sources of supply for components included in their products. Failure of the
Company's suppliers to adjust to meet such increasing demand may prevent them
from continuing to supply devices in the quantities and the quality and at the
times required by the Company, or at all. The Company's inability to obtain
sufficient quantities of sole or limited source devices or to develop
alternative sources if required could result in delays and increased costs in
the expansion of the Company's operations and infrastructure or the inability
of the Company to properly maintain its existing level of operations. Such
occurrences would have a material adverse effect on the Company's business,
financial condition and results of operations.
ARDIS TECHNOLOGY RISKS
The ARDIS network, and certain of its competitive strengths such as deep in-
building penetration, is based upon a single frequency reuse ("SFR")
technology. Motorola holds the patent for SFR technology. ARDIS has entered
into support agreements with Motorola to provide for certain support of the
operations of the ARDIS
23
network. See "The Acquisition." However, there can be no assurance that
Motorola will not enter into arrangements with the Company's competitors, or
that if it does, such arrangements would not have a material adverse effect on
the Company. In addition, the construction of additional network sites may
disclose the existence of interfering facilities operated by other licensees
that were not apparent in the design and licensing of the ARDIS facilities. To
the extent that is the case, ARDIS may be required either to pay the operators
of those interfering facilities to cease operations or to abandon operation of
interfering facilities.
SATELLITE TECHNOLOGY RISKS
The Company presently has an agreement with TMI, the Canadian mobile
satellite licensee, for reciprocal backup, restoral and excess capacity usage
("Backup Capacity") on the other party's satellite in the event of a satellite
failure or a need for excess capacity. On December 4, 1997, the Company
entered into the Satellite Lease Agreement with ACTEL to lease MSAT-2 for
deployment over sub-Saharan Africa and, simultaneously, entered into the
Satellite Purchase Agreement with TMI to acquire a one-half ownership interest
in TMI's satellite, MSAT-1. See "Prospectus Summary--Recent Developments." In
the event that the lease and deployment is consummated, the Company will no
longer have available Backup Capacity from MSAT-1, which may reduce the
marketability of the Company's services, since certain services such as voice
dispatch can only be provided by the MSAT-1 or MSAT-2 satellites. Each of
MSAT-2 and MSAT-1 has in the past experienced certain technological anomalies,
most recently with respect to MSAT-2 in January 1998. While recent anomalies
have involved either spare components or ones which have not had a material
impact on the Company, there can be no assurance that either of the satellites
will not experience subsequent anomalies that could adversely affect the
Company's financial condition, results of operations and cash flows. In the
event that MSAT-1 experiences anomalies of this type or other types at a time
when the Company has no back-up capacity, there would be a material adverse
effect on the Company.
MSAT-2 has an expected remaining service life of approximately eight years
and the expected remaining life of MSAT-1 is approximately ten years. This
expected remaining service life of each satellite may be affected by a number
of factors. For example, random failure of satellite components could result
in damage to or loss of MSAT-2 or MSAT-1. It is also possible that either
satellite could be damaged by electromagnetic storms or collisions with other
objects, although such occurrences are rare. Although the Company believes
that the actual service lives of both satellites may exceed their expected
service lives, there can be no assurance that MSAT-2's or MSAT-1's expected
service life will be exceeded or achieved. Although the Company has obtained
in-orbit insurance against a failure of MSAT-2, it is unlikely that any
recovery under such insurance would fully compensate the Company for losses it
would sustain in such event. At present, there is no insurance policy in
effect for MSAT-1. Although there can be no assurance, the Company believes
that it will be able to obtain insurance with respect to its interest in MSAT-
1 in connection with the Satellite Purchase Agreement on terms substantially
similar to those presently in effect for MSAT-2. In addition, the orbit
insurance policy is subject to annual renewal, and there is no assurance that
insurance on favorable terms and at commercially reasonable rates will remain
available for coverage of MSAT-2, or be available for coverage of MSAT-1.
In the event that, following the satellite lease, MSAT-1 ceases to operate,
the Company would have several options to replace the lost capacity, through
the lease or purchase of capacity on certain Inmarsat satellites, or the
launch of a new satellite. However, each of these options would require
substantial lead-time and significant financing. As a result, any such delay
or need for significant funds would result in a material adverse effect on the
Company.
SATELLITE LEASE AND PURCHASE AGREEMENT RISKS
The five-year Satellite Lease Agreement provides for aggregate lease
payments to the Company of $182.5 million. The Satellite Lease Agreement
includes a renewal option, at the lessee's election, through the end of the
life of MSAT-2, on the same terms, exercisable two and one-half years prior to
the end of the initial lease term. The Satellite Purchase Agreement
contemplates Holdings' one-half ownership acquisition at a cost of $60.0
million payable in equal installments over a five-year period; certain
additional payments to TMI of up to one-
24
half of additional net payments received are contemplated in the event that
additional benefits are realized by Holdings with respect to MSAT-2 after the
initial lease term. Under the Satellite Purchase Agreement, TMI and Holdings
will each own a 50% undivided ownership interest in MSAT-1, will be jointly
responsible for the operation of MSAT-1, and will share certain satellite
operating expenses, but will otherwise maintain their separate business
operations.
The Satellite Purchase Agreement and Satellite Lease Agreement are separate
transactions and reflect separate sets of obligations for the Company. As a
result, it is possible, under certain circumstances, that the Company would
remain obligated to make or continue payments under the Satellite Purchase
Agreement to TMI without receipt from the lessee of anticipated payments under
the Satellite Lease Agreement, principally by virtue of a default of ACTEL.
While the Company believes that if ACTEL defaults under the Satellite Lease
Agreement, the Company would be able to achieve the return of MSAT-2 from
ACTEL to its operation in the United States and terminate its payment
obligations to TMI under the Satellite Purchase Agreement, there can be no
assurances that such actions can be achieved. In addition, there can be no
assurances that the agreements will operate in parallel, or that the Company
will not be met with certain completion or transactional risks under the
Satellite Lease Agreement. If it is necessary for the Company to make payments
under the Satellite Purchase Agreement at a time when it is not receiving
payments under the Satellite Lease Agreement, the Company would be materially
and adversely affected.
Closing under the Satellite Purchase Agreement and Satellite Lease Agreement
is subject to a number of conditions, including: a successful financing by
ACTEL of at least $120 million; completion of certain satellite testing,
inversion and relocation activities with respect to American Mobile's
satellite, to support the contemplated services over Africa; receipt of
various government authorizations from Gibraltar, South Africa and other
jurisdictions to support satellite relocation, including authorizations with
respect to orbital slot and spectrum coordination; and completion of certain
system development activities sufficient to support satellite redeployment. It
is anticipated that the closing under both agreements will occur
simultaneously in the third quarter of 1998. While it is anticipated that
these transactions would improve the leverage of and provide additional
liquidity to the Company, there can be no assurance that such transactions
will be consummated simultaneously, or at all.
LIMITATION ON REMOTE DISASTER RECOVERY SYSTEM FOR GROUND SEGMENT OF SATELLITE
NETWORK
At the present time, the Company's disaster recovery systems focus on
internal redundancy and diverse routing within each of the complexes operated
by or for the Company. However, the Company does not currently have access to
a remote backup complex that would enable it to continue to provide mobile
satellite communications services to customers in the event of a natural
disaster or other occurrence that rendered the system unavailable.
Accordingly, the Company's business is subject to the risk that such a
disaster or other occurrence could hinder or prevent the Company from
continuing to provide services to some or all of its customers. ARDIS,
however, does have access to a remote backup complex that would enable it to
continue to provide its services in such circumstances.
COMPETITION
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 those of the Company and which provide, or plan to provide, a
wider range of services than will be provided the Company. The Company's
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 the Company, and additional allocations of spectrum for
such uses may occur in the future. See "Business--Competition."
25
REGULATORY RISKS
The ownership and operations of the Company's communication systems are
subject to significant regulation by the FCC, which acts under authority
granted by the Communications Act of 1934, as amended (the "Communications
Act"), and related federal laws. A number of the Company's licenses are
subject to renewal by the FCC and, with respect to the Company's satellite
operations, are subject to international frequency coordination. In addition,
current FCC regulations generally limit the ownership and control of Holdings
by non-U.S. citizens or entities to 25%. There can be no assurances that the
rules and regulations of the FCC will continue to support the Company's
operations as presently conducted and contemplated to be conducted in the
future, or that all existing licenses will be renewed and requisite
frequencies coordinated. See "Regulation."
YEAR 2000 COMPLIANCE
The Company has implemented a Year 2000 program to ensure that the Company's
computer systems and applications will function properly beyond 1998. The
Company believes that it has allocated adequate resources for this purpose and
expects its Year 2000 data conversion program to be successfully completed on
a timely basis. There can, however, be no assurance that this will be the
case. The Company does not expect to incur significant expenditures to address
this issue. The ability of third parties with whom the Company transacts
business to adequately address their Year 2000 issues is outside of the
Company's control. There can be no assurance that the failure of the Company
or such third parties to adequately address their respective Year 2000 issues
will not have a material adverse effect on the Company's business, financial
condition, cash flows and results of the operations.
CONTROL BY PRINCIPAL STOCKHOLDERS
Holdings' principal stockholders following the consummation of the
Acquisition are Hughes, Motorola, Baron Capital, Inc., Singapore Telecom and
AT&T Wireless, who hold in aggregate approximately 75.5% of the Common Stock
of Holdings on a fully diluted basis. Holdings has entered into material
contracts and transactions with its principal stockholders or their affiliates
and may enter into additional contracts in the future, including in some
instances the guarantee of debt obligations of the Company and Holdings. See
"Certain Relationships and Related Party Transactions." Those stockholders
have other interests in the communications industry that may conflict with the
Company's interests.
DEPENDENCE ON KEY PERSONNEL
The Company is dependent on the efforts of a group of employees with
technical and business knowledge regarding Holdings' and the Company's
systems. The loss of services of one or more of these individuals could
materially and adversely affect the business of Holdings and the Company and
their future prospects. The Company does not maintain key man life insurance
on any of the Company officers or employees. Holdings' and the Company's
future success will also depend on their ability to attract and retain
additional management and technical personnel required in connection with the
growth and development of their businesses. Failure by the Company to retain
or attract such key personnel could have a material adverse effect on the
Company's business, financial condition and results of operations. See
"Management."
POSSIBLE INABILITY TO FUND A CHANGE OF CONTROL
Upon a Change of Control, the Company will be required to offer to
repurchase all of the outstanding Notes at a price equal to 101% of the
principal amount thereof, plus accrued and unpaid interest and Liquidated
Damages, if any, to the date of repurchase. There can be no assurance that the
Company would have sufficient resources to repurchase the Notes upon the
occurrence of a Change of Control. The failure to repurchase all of the Notes
tendered to the Company would constitute an Event of Default under the
Indenture. Furthermore, the repurchase of the Notes by the Company upon a
Change of Control might result in a default on the part of the Company in
respect of other future indebtedness of the Company, as a result of the
financial effect of such repurchase on the Company or otherwise. The Change of
Control repurchase feature of the Notes may have anti-
26
takeover effects and may delay, defer or prevent a merger, tender offer or
other takeover attempt. Notwithstanding these provisions, the Company could
enter into certain transactions, including certain recapitalizations, that
would not constitute a Change of Control but would increase the amount of debt
outstanding at such time. See "Description of the Exchange Notes--Repurchase
at the Option of Holders."
FRAUDULENT CONVEYANCE CONSIDERATIONS
Under applicable provisions of federal bankruptcy law or comparable
provisions of state fraudulent transfer law, if, among other things, the
Company or any Guarantor, at the time it incurred the indebtedness evidenced
by the Notes or its Note Guarantee (i) (a) was or is insolvent or rendered
insolvent by reason of such occurrence or (b) was or is engaged in a business
or transaction for which the assets remaining with the Company or such
Guarantor constituted unreasonably small capital or (c) intended or intends to
incur, or believed or believes that it would incur, debts beyond its ability
to pay such debts as they mature, and (ii) the Company, or such Guarantor
received or receives less than reasonably equivalent value or fair
consideration for the incurrence of such indebtedness, then the Notes and the
Note Guarantees, and any pledge or other security interest securing such
indebtedness, could be voided, or claims in respect of the Notes or the Note
Guarantees could he subordinated to all other debts of the Company or such
Guarantor, as the case may be. In addition, the payment of interest and
principal by the Company pursuant to the Notes or the payment of amounts by a
Guarantor pursuant to a Note Guarantee could be voided and required to be
returned to the person making such payment, or to a fund for the benefit of
the creditors of the Company or such Guarantor, as the case may be.
The measures of insolvency for purposes of the foregoing considerations will
vary depending upon the law applied in any proceeding with respect to the
foregoing. Generally, however, the Company or a Guarantor would be considered
insolvent if (i) the sum of its debts, including contingent liabilities, were
greater than the saleable value of all of its assets at a fair valuation or if
the present fair saleable value of its assets were less than the amount that
would be required to pay its probable liability on its existing debts,
including contingent liabilities, as they become absolute and mature or (ii)
it could not pay its debts as they become due.
The Company has no operations of its own and derives substantially all of
its revenue from its subsidiaries. If the Note Guarantees were voided, the
holders of indebtedness of, and trade creditors of, subsidiaries of the
Company would generally be entitled to payment of their claims from the assets
of the affected subsidiaries before such assets were made available for
distribution to the Company. In the event of a bankruptcy, liquidation or
reorganization of a subsidiary, holders of any of such subsidiary's
indebtedness will have a claim to the assets of the subsidiary that is prior
to the Company's interest in those assets. If any subsidiary indebtedness were
to be accelerated, there can be no assurance that the assets of such
subsidiary would be sufficient to repay such indebtedness or that the assets
of the Company and of the other subsidiaries would be sufficient to repay in
full the indebtedness of the Company, including the Notes.
On the basis of historical financial information, recent operating history
and other factors, the Company and each Guarantor believes that, after giving
effect to the indebtedness incurred in connection with the Units Offering, it
will not be insolvent, will not have unreasonably small capital for the
business in which it is engaged and will not incur debts beyond its ability to
pay such debts as they mature. There can be no assurance, however, as to what
standard a court would apply in making such determinations or that a court
would agree with the Company's or the Guarantors' conclusions in this regard.
CERTAIN TAX CONSIDERATIONS
The Company has determined that the Old Notes were issued with original
issue discount ("OID") for United States federal income tax purposes in an
amount equal to the excess of the principal amount due at maturity on the Old
Notes over their "issue price" (as described in "Certain United States Federal
Income Tax Consequences--U.S. Holders--Original Issue Discount"). This OID
will carry over to, and be treated as OID on, the Exchange Notes received in
exchange for the Old Notes, and each United States holder of an Exchange Note
will be required to include in taxable income for any particular taxable year
a portion of such OID in advance of the receipt of the cash to which such OID
is attributable. For additional information regarding the
27
OID associated with the Notes, as well as certain other federal income tax
considerations relevant to the exchange of Old Notes for Exchange Notes and
the ownership and depositor of Exchange Notes, see "Certain United States
Federal Income Tax Consequences."
RESTRICTIONS ON TRANSFER; ABSENCE OF A PUBLIC MARKET
Prior to the Exchange Offer, there has not been any public market for the
Old Notes. The Old Notes have not been registered under the Securities Act and
will be subject to restrictions on transferability to the extent that they are
not exchanged for Exchange Notes by holders who are entitled to participate in
the Exchange Offer. The holders of Old Notes (other than any such holder that
is an "affiliate" of the Company within the meaning of Rule 405 under the
Securities Act) who are not eligible to participate in the Exchange Offer are
entitled to certain registration rights, and the Company is required to file a
Shelf Registration Statement with respect to such Old Notes. TheExchange Notes
will constitute a new issue of securities with no established trading market.
The Exchange Notes will not be listed on any securities exchange and the
Company will not seek the admission thereof to trading in the National
Association of Securities Dealers Automated Quotation System. The Company has
been advised by the Initial Purchasers that they currently intend to make a
market in the Exchange Notes; however, they are not obligated to do so and any
such market-making may be discontinued at any time without notice. In
addition, such market-making activity will be subject to the limits imposed by
the Securities Act and the Exchange Act and may be limited during the Exchange
Offer and the pendency of any shelf registration statement. Therefore, there
can be no assurance as to the development or liquidity of any market for the
Exchange Notes. See "Description of the Notes--Registration Rights; Liquidated
Damages" and "Notice to Investors."
EXCHANGE OFFER PROCEDURES
Issuance of the Exchange Notes in exchange for the Old Notes pursuant to the
Exchange Offer will be made only after a timely receipt by the Company of such
Old Notes, a properly completed and duly executed Letter of Transmittal and
all other required documents. Therefore, holders of the Old Notes desiring to
tender such Old Notes in exchange for Exchange Notes should allow sufficient
time to ensure timely delivery. The Company is under no duty to give
notification of defects or irregularities with respect to the tenders of Old
Notes for exchange. Old Notes that are not tendered or are tendered but not
accepted will, following the consummation of the Exchange Offer, continue to
be subject to the existing restrictions upon transfer thereof and, upon
consummation of the Exchange Offer, registration rights under the Debt
Registration Rights Agreement generally will terminate. In addition, any
holder of Old Notes who tenders in the Exchange Offer for the purpose of
participating in a distribution of the Exchange Notes may be deemed to have
received restricted securities and, if so, will be required to comply with the
registration and prospectus delivery requirements of the Securities Act in
connection with any resale transactions. Each Participating Broker-Dealer that
receives Exchange Notes for its own account in exchange for Old Notes, where
such Old Notes were acquired by such Participating Broker-Dealer as a result
of market-making activities or other trading activities, must acknowledge that
it will deliver a prospectus in connection with any resale of such Exchange
Notes. See "Plan of Distribution." To the extent that Old Notes are tendered
and accepted in the Exchange Offer, the trading market for untendered and
tendered but unaccepted Old Notes could be adversely affected. See "The
Exchange Offer."
28
USE OF PROCEEDS
The gross proceeds to the Company and Holdings from the Units Offering were
$335.0 million. The Company has used or intends to use the proceeds as
follows: (i) approximately $113.0 million to fund the purchase of the Pledged
Securities; (ii) approximately $50.0 million to purchase ARDIS (see "The
Acquisition"); (iii) approximately $100.0 million to pay down the Bank
Financing (such amount will be available for borrowing under the Revolving
Credit Facility to fund general corporate purposes, including working capital
requirements, payment of deferred trade payables, operating losses and capital
expenditures expected to be incurred in connection with the continued growth
and development of the Company's business); (iv) approximately $17.9 million
to repay advances from Holdings, which funds are intended to provide for the
payment of Holdings' interest payments on the Term Loan Facility for three
years; (v) approximately $10.1 million to repay debt plus accrued interest
expected to be outstanding under the Bridge Facility, which bears interest at
12%, matures March 31, 1999 and requires prepayment in full from the proceeds
of the Units Offering; (vi) approximately $10.0 million to fund an escrow
account in connection with the UPS Guarantee obligations; (vii) approximately
$7.2 million to pay deferred obligations; and (viii) approximately $14.8
million to pay estimated fees and expenses in connection with the Acquisition,
the Offering and the New Bank Financing. The remaining net proceeds will be
used for working capital purposes.
CAPITALIZATION
The following table sets forth the cash and capitalization of the Company at
March 31, 1998. This table should be read in conjunction with the consolidated
financial statements of Holdings and of ARDIS and the related notes, the Pro
Forma Financial Information and other financial information included elsewhere
herein.
AS OF MARCH 31, 1998
----------------------
(DOLLARS IN THOUSANDS)
Cash, cash equivalents and restricted cash (1)........... $135,279
========
Debt, including current portion:
Bank Financing (2)..................................... $ --
12 1/4% Senior Notes (3)............................... 326,510
Other debt............................................. 39,196
--------
Total debt, including current portion................ 365,706
--------
Stockholders' equity (3)................................. 181,374
--------
Total capitalization............................... $547,080
========
- ---------------------
(1) Restricted cash includes Pledged Securities of $113.0 million.
(2) It is expected that the Company will have an additional $100.0 million
available for borrowing under the Revolving Credit Facility and Holdings
will assume the obligation for the $100.0 million Term Loan Facility.
(3) Reflects a debt discount of $8.5 million that was allocated to the
Warrants associated with the issuance of Old Notes.
29
SELECTED FINANCIAL AND OTHER DATA
The following selected historical financial information of American Mobile
and Holdings has been derived from Holdings' historical financial statements
and should be read in conjunction with such consolidated financial statements
and the notes thereto incorporated by reference into this Prospectus.
Holdings' Consolidated Financial Statements include the combined condensed
financial statements of American Mobile in Note 17 for the three year period
ended December 31, 1997. Holdings' Consolidated Financial Statements for each
of the five years in the period ended December 31, 1997 have been audited by
Arthur Andersen LLP, independent auditors.
The following historical selected financial information for ARDIS as of and
for each of the three years in the three-year period ended December 31, 1997
have been derived from the audited Combined Financial Statements of ARDIS,
which have been audited by KPMG Peat Marwick LLP, independent auditors, and
are incorporated by reference into this Prospectus.
Selected historical financial information for American Mobile for 1993 and
for ARDIS for 1993 and 1994 have been derived from the audited Consolidated
Financial Statements of Holdings and unaudited combined financial statements
of ARDIS, respectively. In the respective opinions of the management of
American Mobile and ARDIS, such unaudited selected financial statements have
been prepared on the same basis as the audited financial statements referred
to above and include all adjustments (consisting of normal recurring accruals)
necessary for a fair presentation of the financial information for the periods
presented.
Selected historical financial information for American Mobile, Holdings and
ARDIS as of and for the three months ended March 31, 1997 and 1998 have been
derived from unaudited consolidated financial statements of Holdings and
unaudited Combined Financial Statements of ARDIS, respectively. In the
respective opinions of management of American Mobile, Holdings and ARDIS, such
unaudited combined and consolidated financial statements have been prepared on
the same basis as the audited financial statements referred to above and
include all adjustments (consisting of normal recurring accruals) necessary
for a fair presentation of the financial information for the interim periods.
Results of operations for the three months ended March 31, 1998, are not
necessarily indicative of the results to be expected for fiscal 1998. The
following data should be read in conjunction with the ARDIS' Combined
Financial Statements and related notes and Holdings' Consolidated Financial
Statements and related notes including American Mobile's combined condensed
financial statements, "Management's Discussion and Analysis of Financial
Condition and Results of Operations," and other financial information included
elsewhere or incorporated by reference herein, as applicable.
30
AMERICAN MOBILE
SELECTED COMBINED FINANCIAL AND OTHER DATA
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
-------------------------------------------------- --------------------
1993 1994 1995 1996 1997 1997 1998
-------- -------- -------- --------- --------- --------- ---------
(DOLLARS IN THOUSANDS, EXCEPT SUBSCRIBERS AND REVENUE PER UNIT)
STATEMENT OF OPERATIONS
DATA:
Revenues:
Services............... $ 852 $ 3,662 $ 6,873 $ 9,201 $ 20,684 $ 4,173 $ 6,418
Equipment.............. -- 1,578 1,924 18,529 23,530 4,532 3,604
-------- -------- -------- --------- --------- --------- ---------
Total revenue.......... 852 5,240 8,797 27,730 44,214 8,705 10,022
Cost of service and
operations............. 7,188 10,241 23,863 30,471 31,959 8,873 7,728
Cost of equipment sold.. -- 2,329 4,676 31,903 40,335 5,442 3,881
Sales and advertising... 2,942 5,882 22,683 24,541 12,030 3,221 2,993
General and
administrative......... 8,375 12,231 17,285 16,212 14,890 4,777 3,659
Depreciation and
amortization........... 7,459 4,541 11,568 45,496 44,535 10,463 10,689
-------- -------- -------- --------- --------- --------- ---------
Operating loss.......... (25,112) (29,984) (71,278) (120,893) (99,535) (24,071) (18,928)
Interest and other
income................. 202 847 1,242 552 1,122 945 141
Interest expense (1).... -- -- (3,305) (44,636) (51,153) (11,622) (13,826)
-------- -------- -------- --------- --------- --------- ---------
Net loss................ $(24,910) $(29,137) $(73,341) $(164,977) $(149,566) $(34,748) $(32,613)
======== ======== ======== ========= ========= ========= =========
OTHER FINANCIAL AND
OPERATING DATA:
Number of subscribers
(end of period) (2).... -- -- -- 20,300 32,400 23,000 34,800
Average monthly revenue
per unit (2)........... -- -- -- $ 81 $ 65 $ 64 $ 64
EBITDA (3).............. (17,653) (25,443) (59,710) (75,397) (54,125) (12,733) (8,239)
Capital expenditures.... 64,044 50,762 83,776 14,054 8,598 1,126 3,574
Ratio of earnings to
fixed charges (4)...... -- -- -- -- -- -- --
AS OF DECEMBER 31, AS OF MARCH 31,
----------------------------------------------- --------------------
1993 1994 1995 1996 1997 1997 1998(7)
-------- -------- -------- --------- -------- --------- ---------
(DOLLARS IN THOUSANDS)
BALANCE SHEET DATA:
Cash and cash
equivalents............ $ 4,012 $ 10,861 $ 8,864 $ 2,182 $ 2,106 $ 1,572 $ 21,279
Property and equipment,
net (5)................ 220,520 275,146 383,301 287,127 250,335 278,286 280,894
Total assets............ 230,226 292,971 419,546 386,537 351,796 377,518 574,473
Total debt (6).......... 157,630 244,849 425,863 545,432 660,399 579,651 365,705
Total stockholders'
equity (deficit)....... 61,701 32,564 (40,779) (205,754) (355,320) (237,787) (169,991)
- ---------------------
(1) Includes interest expense accrued on inter-company loans between Holdings
and American Mobile in the amount of $2.4 million in 1995, $29.5 million
in 1996, $29.5 million in 1997, $7.3 million for the three months ended
March 31, 1997 and $7.2 million for the three months ended March 31, 1998,
net of inter-company interest capitalized of $9.0 million in 1993, $9.4
million in 1994 and $21.1 million in 1995.
(2) Prior to 1996 American Mobile was a development stage company and leased
satellite capacity primarily on a pass-thru basis. As such, subscriber
information is not available for periods prior to 1996. Average monthly
revenue per unit for year ending December 31, 1996 was calculated on an
average monthly basis after adjusting both subscribers and revenues to
normalize for the acquisition, in late 1996, of MCSS.
(3) EBITDA consists of operating income (loss) plus depreciation and
amortization. EBITDA is a financial measure commonly used in The Company's
industry and should not be construed as an alternative to operating income
(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. EBITDA for the three-months ending March
31, 1997 and the year ending December 31, 1997 have been adjusted to
include $875,000 of other income from the licensing of certain technology.
(4) For purposes of calculating the ratio of earnings to fixed charges,
earnings are defined as loss before income taxes and extraordinary items
plus fixed charges. Fixed charges consist of interest expense,
amortization of debt issuance costs, accretion of discount on preferred
stock and a reasonable approximation of the interest factor included in
rental payments on operating leases. Earnings were inadequate to cover
fixed charges for the years ended December 31, 1993, 1994, 1995, 1996 and
1997 by $47.3 million, $42.1 million, $99.1 million, $165.0 million, and
$150.0 million respectively, and for the three months ended March 31, 1997
and 1998 by $34.7 million and $32.6 million, respectively.
(5) Includes capitalized interest of $22.4 million, $12.9 million, and $25.7
million in 1993, 1994 and 1995, respectively.
(6) Includes $103.2 million in 1993, $163.3 million in 1994, $349.5 million in
1995, $400.8 million in 1996, $441.8 million in 1997 and $404.0 million as
of March 31, 1997, of inter-company loans between Holdings and American
Mobile.
(7) Includes the acquisition of ARDIS and contribution of intercompany loans
by Holdings.
31
HOLDINGS
SELECTED CONSOLIDATED FINANCIAL DATA
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
-------------------------------------------------- ---------------------
1993 1994 1995 1996 1997 1997 1998
-------- -------- -------- --------- --------- --------- ----------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
STATEMENT OF OPERATIONS
DATA:
Revenues:
Services............... $ 852 $ 3,662 $ 6,873 $ 9,201 $ 20,684 $ 4,153 $ 6,418
Equipment.............. -- 1,578 1,924 18,529 23,530 4,532 3,604
-------- -------- -------- --------- --------- --------- ---------
Total revenue.......... 852 5,240 8,797 27,730 44,214 8,685 10,022
Cost of service and
operations............. 7,232 10,327 23,948 30,471 31,959 8,873 7,728
Cost of equipment sold.. -- 2,329 4,676 31,903 40,335 5,442 3,881
Sales and advertising... 3,010 5,973 22,775 24,541 12,066 3,221 3,022
General and
administrative......... 7,528 11,674 16,681 17,464 14,819 4,868 3,631
Depreciation and
amortization........... 7,459 4,541 11,218 43,390 42,430 9,937 10,163
-------- -------- -------- --------- --------- --------- ---------
Operating loss.......... (24,377) (29,604) (70,501) (120,039) (97,395) (23,656) (18,403)
Interest and other
income (expense)....... 569 8,501 4,500 552 (179) 945 (201)
Interest expense........ -- -- (916) (15,151) (21,633) (4,370) (6,638)
-------- -------- -------- --------- --------- --------- ---------
Loss before
extraordinary item..... (23,808) (21,103) (66,917) (134,638) (119,207) (27,081) (25,242)
Extraordinary item (1).. (1,372) -- -- -- -- -- --
-------- -------- -------- --------- --------- --------- ---------
Net loss................ $(25,180) $(21,103) $(66,917) $(134,638) $(119,207) $ (27,081) $ (25,242)
======== ======== ======== ========= ========= ========= =========
Loss per share of Common
Stock:
Loss before
extraordinary item..... $ (2.36) $ (0.86) $ (2.69) $ (5.38) $ (4.74) $ (1.08) $ (1.00)
Extraordinary item...... (0.13) -- -- -- -- -- --
-------- -------- -------- --------- --------- --------- ---------
Net loss per common
share.................. $ (2.49) $ (0.86) $ (2.69) $ (5.38) $ (4.74) $ (1.08) $ (1.00)
======== ======== ======== ========= ========= ========= =========
Weighted average shares
outstanding (000's).... 10,103 24,672 24,900 25,041 25,131 25,109 25,241
AS OF DECEMBER 31, AS OF MARCH 31,
-------------------------------------------------- ---------------------
1993 1994 1995 1996 1997 1997 1998(3)
-------- -------- -------- --------- --------- --------- ----------
(DOLLARS IN THOUSANDS)
BALANCE SHEET DATA:
Cash and cash
equivalents............ $243,060 $166,004 $ 8,865 $ 2,182 $ 2,106 $ 1,572 $ 21,279
Property and equipment,
net (2)................ 211,461 274,656 362,105 267,863 233,174 259,546 264,261
Total assets............ 460,382 448,674 398,351 350,173 311,447 345,628 574,145
Total debt.............. 82,585 81,572 76,362 144,601 218,563 175,649 465,706
Total stockholders'
equity................. 367,370 351,544 287,527 158,700 46,131 132,817 80,994
- ---------------------
(1) Reflects extraordinary losses on debt conversion associated with the
initial public offering. Net loss per share on a pro forma basis, after
giving effect to the debt conversion, would have been ($2.15).
(2) In 1993, 1994 and 1995, capitalized interest was $13.3 million, $3.5
million and $4.7 million, respectively.
(3) Includes the acquisition of ARDIS on March 31, 1998.
32
ARDIS
SELECTED COMBINED FINANCIAL AND OTHER DATA
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
------------------------------------------------ --------------------
1993 1994 1995 1996 1997 1997 1998
-------- -------- -------- -------- -------- --------- ---------
(DOLLARS IN THOUSANDS, EXCEPT SUBSCRIBERS AND REVENUE PER UNIT)
STATEMENT OF OPERATIONS
DATA:
Revenues:
Services............... $ 43,831 $ 48,561 $ 40,006 $ 43,413 $ 41,923 $ 10,598 $ 9,541
Equipment and
consulting............ 2,773 2,346 1,266 1,884 2,326 327 530
-------- -------- -------- -------- -------- --------- ---------
Total revenue.......... 46,604 50,907 41,272 45,297 44,249 10,925 10,071
Cost of service and
operations............. 39,078 38,923 39,884 32,805 31,940 7,179 7,795
Cost of equipment sold.. 1,756 1,621 1,878 1,350 2,233 466 581
Selling and
advertising............ 10,193 14,311 15,164 13,677 5,888 1,528 1,562
General and
administration......... 7,979 8,785 10,623 9,364 6,970 1,105 1,487
Depreciation and
Amortization........... 7,888 10,098 14,355 17,269 14,586 3,580 3,291
Non-recurring expense
(1).................... 20,414 -- -- -- -- -- --
-------- -------- -------- -------- -------- --------- ---------
Operating loss.......... (40,704) (22,831) (40,632) (29,168) (17,368) (2,933) (4,645)
Interest income......... 258 327 481 198 150 34 5
Interest expense........ -- -- (688) (1,556) (1,331) (362) (282)
-------- -------- -------- -------- -------- --------- ---------
Net loss before taxes... (40,446) (22,504) (40,839) (30,526) (18,549) (3,261) (4,922)
Income tax benefit...... -- -- 15,586 11,528 6,807 1,141 1,702
-------- -------- -------- -------- -------- --------- ---------
Net loss................ $(40,446) $(22,504) $(25,253) $(18,998) $(11,742) $ (2,120) $ (3,220)
======== ======== ======== ======== ======== ========= =========
OTHER FINANCIAL AND
OPERATING DATA:
Number of subscribers
(end of period)........ 24,800 33,100 44,200 52,500 55,400 54,600 57,600
Average monthly revenue
per unit............... $ 150 $ 140 $ 86 $ 75 $ 65 $ 66 $ 56
EBITDA (2).............. (32,816) (12,733) (26,277) (11,899) (2,782) (647) (1,354)
Capital expenditures.... 17,966 17,303 42,366 4,806 1,736 655 1,317
Ratio of earnings to
fixed charges (3)...... -- -- -- -- -- -- --
AS OF DECEMBER 31
------------------------------------------------
1993 1994 1995 1996 1997
-------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS)
BALANCE SHEET DATA:
Cash and cash
equivalents............ $ 8,896 $ 16,035 $ 6,985 $ 5,289 $ 2,082
Property and equipment,
net.................... 31,738 38,476 65,228 53,302 41,801
Total assets............ 61,113 83,368 103,231 91,252 69,830
Total debt.............. -- -- 18,019 16,395 12,831
Total stockholders'
equity................. 48,143 55,940 72,267 65,141 48,092
- ---------------------
(1) Non-recurring item represents the write-off of previously capitalized
software development costs.
(2) EBITDA consists of operating income (loss) plus depreciation and
amortization. EBITDA is a financial measure commonly used in the Company's
industry and should not be construed as an alternative to operating income
(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. EBITDA for 1993 includes extraordinary
items. EBITDA for 1993 includes a non-recurring charge in the amount of
$20.4 million relating to the write-off of previously capitalized software
development costs.
(3) For purposes of calculating the ratio of earnings to fixed charges,
earnings are defined as loss before income taxes and extraordinary item
plus fixed charges. Fixed charges consist of interest expense,
amortization of debt issuance costs, accretion of discount on preferred
stock and a reasonable approximation of the interest factor included in
rental payments on operating leases. Earnings were inadequate to cover
fixed charges for the years ended December 31, 1993, 1994, 1995, 1996 and
1997 by $40.4 million, $22.5 million, $40.8 million, $30.5 million and
$18.5 million, respectively, and for the three months ended March 31, 1997
and 1998 by $3.3 million and $4.9 million, respectively.
33
PRO FORMA FINANCIAL INFORMATION
The accompanying pro forma financial information of the Company gives effect
to (i) the Acquisition, (ii) the Offering and (iii) the New Bank Financing as
if such transactions had been consummated on January 1 of each of the periods
presented. The pro forma condensed financial information is presented for
illustrative purposes only and is not necessarily indicative of what the
Company'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 the Company in the future.
The following data should be read in conjunction with Holdings' Consolidated
Financial Statements and related notes and ARDIS' Combined Financial
Statements and related notes.
34
THE COMPANY
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1998
----------------------------------------------------
PRO FORMA
ADJUSTMENTS
AMERICAN -------------------- PRO FORMA:
MOBILE ARDIS ACQUISITION OFFERING THE COMPANY
-------- ------- ----------- -------- -----------
(DOLLARS IN THOUSANDS)
Revenues:
Services................ $ 6,418 $ 9,541 $ (139)(1) $ 15,820
Equipment and
consulting............. 3,604 530 4,134
-------- ------- --------
Total revenue........... 10,022 10,071 19,954
Cost of service and
operations.............. 7,728 7,795 (139)(1) 15,384
Cost of equipment sold... 3,881 581 4,462
Sales and advertising.... 2,993 1,562 4,555
General and
administrative.......... 3,659 1,487 5,146
Depreciation and 10,689 3,291 845 (3) 14,501
amortization............
(324)(2)
-------- ------- --------
Operating loss........... (18,928) (4,645) (24,094)
Interest and other
income.................. 141 5 1,413 (5) 1,559
Interest expense......... (13,826) (282) 590 (4) (13,518)
-------- ------- --------
Loss before income tax
benefit................. (32,613) (4,922) (36,053)
Income tax benefit....... -- 1,702 (1,702)(6) --
-------- ------- --------
Net loss................. $(32,613) $(3,220) $(36,053)
======== ======= ========
See Notes to Pro Forma Financial Information on following pages.
35
THE COMPANY
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1997
-----------------------------------------------------
PRO FORMA
ADJUSTMENTS
---------------------
AMERICAN PRO FORMA:
MOBILE ARDIS ACQUISITION OFFERING THE COMPANY
-------- ------- ----------- --------- -----------
(DOLLARS IN THOUSANDS)
Revenues:
Services............... $ 4,173 $10,598 $ (97)(1) $ 14,674
Equipment and
consulting............ 4,532 327 4,859
-------- ------- --------
Total revenue......... 8,705 10,925 19,533
Cost of service and
operations............. 8,873 7,179 (97)(1) 15,955
Cost of equipment sold.. 5,442 466 5,908
Sales and advertising... 3,221 1,528 4,749
General and
administrative......... 4,777 1,105 5,882
Depreciation and
amortization........... 10,463 3,580 845 (3) 14,564
-------- ------- --------
(324)(2)
Operating loss.......... (24,071) (2,933) (27,525)
Interest and other
income................. 945 34 1,413 (5) 2,392
Interest expense........ (11,622) (362) (1,576)(4) (13,560)
-------- ------- --------
Loss before income tax
benefit................ (34,748) (3,261) (38,693)
Income tax benefit...... -- 1,141 (1,141)(6) --
-------- ------- --------
Net loss................ $(34,748) $(2,120) $(38,693)
======== ======= ========
See Notes to Pro Forma Financial Information on following pages.
36
THE COMPANY
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1997
--------------------------------------------------------
PRO FORMA:
ADJUSTMENTS
----------------------
AMERICAN PRO FORMA:
MOBILE ARDIS ACQUISITION OFFERING THE COMPANY
--------- -------- ----------- -------- -----------
(DOLLARS IN THOUSANDS)
Revenues:
Services............... $ 20,684 $ 41,923 $ (498)(1) $ 62,109
Equipment and
consulting............ 23,530 2,326 25,856
--------- -------- ---------
Total revenue......... 44,214 44,249 87,965
Cost of service and
operations............. 31,959 31,940 (498)(1) 63,401
Cost of equipment sold.. 40,335 2,233 42,568
Sales and advertising... 12,030 5,888 17,918
General and
administrative......... 14,890 6,970 21,860
Depreciation and
amortization........... 44,535 14,586 3,380 (3) 61,204
--------- -------- ---------
(1,297)(2)
Operating loss.......... (99,535) (17,368) (118,986)
Interest and other
income................. 1,122 150 5,208 (5) 6,480
Interest expense........ (51,153) (1,331) (141)(4) (52,625)
--------- -------- ---------
Loss before income tax
benefit................ (149,566) (18,549) (165,131)
Income tax benefit...... -- 6,807 (6,807)(6) --
--------- -------- ---------
Net loss................ $(149,566) $(11,742) $(165,131)
========= ======== =========
See Notes to Pro Forma Financial information on following pages.
37
NOTES TO PRO FORMA FINANCIAL INFORMATION
The pro forma financial information is based on the following assumptions
and adjustments:
(1) Reflects the elimination of revenues and related operating expenses on
transactions between American Mobile and ARDIS.
(2) Reflects the elimination of goodwill amortization recorded by ARDIS.
(3) Reflects the amortization, over a 20-year life, of the excess of purchase
price of ARDIS over fair market value of assets acquired.
(4) Reflects adjustments to interest expense as follows:
YEAR THREE MONTHS
ENDED ENDED MARCH 31,
DECEMBER ----------------
31, 1997 1997 1998
-------- ------- -------
(DOLLARS IN THOUSANDS)
(a) Adjustment of interest expense and debt
costs on New Bank Financing and vendor
financing.............................. $(15,227) $(2,819) $(4,530)
(b) Interest expense on the Notes and
amortization of debt discount ......... 41,887 10,471 10,471
(c) Amortization of Note issuance costs.... 1,225 306 306
(d) Amortization of the Guarantee Warrants
....................................... 1,776 870 351
(e) Elimination of inter-company interest.. (29,520) (7,252) (7,188)
-------- ------- -------
$ 141 $ 1,576 $ (590)
======== ======= =======
The assumptions in connection with the above pro forma interest expense
adjustments are as follows:
(a) Reflects (i) an increase of 25 basis points in the interest rate of
the New Bank Financing relative to the Bank Financing, (ii) the
elimination of interest expense applicable to the Bank Financing and
vendor financing which is to be partially repaid with the proceeds
from the sale of the Units and (iii) the elimination of interest
expense and deferred financing costs (including costs associated with
the Guarantee Warrants) which were incurred in connection with the
Bank Financing on Holdings' $100.0 million Term Loan Facility.
(b) Reflects interest expense on the Notes at 12 1/4% and amortization of
the $8.5 million debt discount.
(c) Reflects the amortization, over ten years, of debt issuance costs of
approximately $12.2 million associated with the Notes.
(d) Reflects the amortization, over a five-year period, of the Guarantee
Warrants related to the New Bank Financing.
(e) Reflects the elimination of inter-company interest expense between
American Mobile and Holdings in connection with the contribution of
inter-company notes by Holdings to the Company.
(5) Reflects interest income earned on the Pledged Securities at an average
interest rate of 5.0%.
(6) Reflects the elimination of a tax sharing arrangement between ARDIS and
Motorola.
38
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
General. The Company believes that its targeted customer base selects its
communications service provider based on a variety of considerations including
network coverage and quality as well as the total cost of ownership. The
Company also believes that the coverage and quality of its network are
superior to other competing networks. As a result, the Company believes it is
able to price its offerings at a premium to other competitors. However, to
remain competitive and to accelerate penetration of its targeted markets, as
well as to gain access to new markets, the Company seeks to lower the
customers' total cost of ownership of its products and services.
Total cost of ownership is comprised of three main components: (i) equipment
costs, (ii) software application costs and (iii) usage fees. Currently,
American Mobile and ARDIS 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.
The Company is working closely with a number of equipment vendors to develop
more capable, less costly next generation devices. As a result, the Company
believes that the cost of its equipment will decline in the future. American
Mobile and ARDIS also have benefited, although to a lesser degree, from trends
in the software industry that have resulted in lower prices for software
applications. In the future, the Company intends to increase its offering of
pre-packaged software as standardized applications become more advanced. The
Company believes that by offering pre-packaged applications, it will be able
to lower its customers' total cost of ownership. The Company also is able to
lower the total cost of ownership by offering a wide range of product
offerings and service packages. The Company provides its 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 the Company's network, it can select among various products and
service packages to minimize its monthly usage fee.
Revenues. American Mobile and ARDIS generate their service revenues from
fixed monthly access charges and variable usage fees. Both companies also have
entered into certain multi-year take-or-pay contracts with resellers and
value-added service providers ("VASPs"). The Company anticipates that such
resellers and VASPs will represent an increasing percentage of its revenue and
its customer base in the future. In addition, American Mobile sells bulk
channel capacity on its satellite under take-or-pay contracts that generally
last for five years. Each month a percentage of the Company's 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,
the Company believes that given the generally high quality of its service, the
long-term nature of many of its contracts, the significant up-front investment
required to install a new system and the critical nature of the service
provided, the Company experiences relatively low levels of turnover.
American Mobile generates additional revenues from the sale of equipment. As
a result of certain manufacturer requirements to purchase bulk quantities of
inventory and American Mobile's shift from a consumer to a business customer
focus in 1996, American Mobile has not sold subscriber equipment at a positive
margin and does not expect to do so in the future. ARDIS generates additional
revenues from consulting fees earned during service implementation and from
equipment sales, but the majority of ARDIS' customers buy their equipment
directly from manufacturers.
Costs and Expenses. American Mobile and ARDIS operate wireless networks
which have been deployed on a nationwide scale. As a result, both companies
have incurred, and the Company will continue to incur, large fixed costs
related to the ongoing maintenance and operation of the network. Major
components of the Company's fixed cost structure include (i) lease expense
related to the network's approximately 1,700 base stations, dedicated and
frame relay access lines and network backbone, (ii) operation of American
Mobile's and ARDIS' network operations and control centers, (iii) satellite
telemetry, tracking and control expenses and (iv) satellite insurance.
American Mobile and ARDIS also have incurred significant sales and marketing
expenses
39
as they have grown their customer bases. Both companies recently reoriented
their sales and marketing efforts toward serving business customers.
Previously, both American Mobile and ARDIS spent significant time and
resources to penetrate consumer markets. Toward this end, the companies
developed large, consumer-oriented sales and marketing organizations that
resulted in increased operating expenses without corresponding subscriber
growth. The Company believes that it now has developed an appropriate sales
and marketing infrastructure to meet the anticipated demand of its business
customers.
The Company believes that, as a result of the Acquisition, it will be able
to capitalize upon meaningful operational synergies which could expedite the
Company's ability to generate positive EBITDA and free cash flow (operating
cash flow less capital expenditures). In addition, the Company believes it
will be able to enhance revenue growth through cross-selling opportunities
between American Mobile's and ARDIS' salesforces. The Company also expects to
rationalize its cost structure through (i) network optimization and
integration, (ii) office and systems consolidation and (iii) limited personnel
reductions.
To date, American Mobile and ARDIS have experienced significant operating
and net losses and negative EBITDA as they have developed their networks. The
Company expects that it will continue to experience such operating losses and
negative EBITDA until such time as it develops a revenue-generating customer
base sufficient to fund its operating expenses.
THE COMPANY
The results discussed below represent information relating to Holdings, on a
consolidated basis. Major differences between the financial statements of
Holdings and the Company are (i) the Term Loan Facility is an obligation of
Holdings and, as such, the related debt and interest costs are not included in
the Company's financial statements and (ii) certain inter-company management
fees and expenses between Holdings and Company that are not eliminated at the
Company level.
Three Months Ended March 31, 1998 Compared to Three Months Ended March 31,
1997
Operating Revenues. Service revenues, which include both the Company's voice
and data services, approximated $6.4 million for the quarter ended March 31,
1998 as compared to $4.2 million for the same period in 1997 and represents a
52% increase year over year. Service revenue from voice services increased 78%
from approximately $1.8 million in the first quarter of 1997 to approximately
$3.2 million in the comparable period of 1998. The $1.4 million increase was
primarily a result of an 85% increase in voice customers during the first
quarter of 1998 as compared to the comparable period in 1997. Service revenue
from the Company's data services approximated $2.3 million in the first
quarter of 1998, as compared to $1.6 million for the comparable quarter of
1997, an increase of $700,000 or 44%. The increase was primarily a result of a
25% increase in data units. Service revenue from capacity resellers, who
handle both voice and data services, approximated $805,000 in the first
quarter of 1998, as compared to $518,000 for the first quarter of 1997, an
increase of $287,000 or 55%. As of March 31, 1998 and 1997, receivables
relating to service revenues were $4.0 million and $3.0 million, respectively.
Revenue from the sale of mobile data terminals and mobile telephones
decreased 20% from $4.5 million in the first quarter of 1997 to $3.6 million
in the first quarter of 1998. The decrease was primarily attributable to
reduced sales of voice products, as well as certain price reductions made in
the first quarter of 1998. As of March 31, 1998 and 1997, receivables relating
to equipment revenue were $2.5 million and $7.0 million respectively.
Costs and Expenses. Cost of service and operations for the first quarter of
1998, which includes costs to support subscribers and to operate the Satellite
Network, were $7.7 million for 1998 and $8.9 million for the same period of
1997. Cost of service and operations for the first quarter of 1998 and 1997,
as a percentage of revenues, were 77% and 102%, respectively. The decrease in
cost of service and operations was primarily attributable to a reduction in
information technology costs affected by dramatically reducing the dependence
on outside consultants, offset by increased interconnect charges associated
with increased service usage.
40
The cost of equipment sold decreased 28% from $5.4 million in the first
quarter of 1997 to $3.9 million for the same period in 1998. The dollar
decrease in the cost of equipment sold is primarily attributable to (i) a
corresponding decrease in voice equipment sales and (ii) the impact of the
inventory valuation allowance recorded in the fourth quarter of 1997.
Sales and advertising expenses were $3.0 million in the first quarter of
1998, compared to $3.2 million for the same period in 1997. Sales and
advertising expenses as a percentage of revenue were 30% in the first quarter
of 1998 and 37% in the first quarter of 1997. The decrease of sales and
advertising expenses was primarily attributable to a reduction in subscriber
acquisition costs as the first quarter marketing and promotional initiatives
were put on hold pending the Acquisition. It is anticipated that these costs
will increase as the Company rolls out new marketing programs associated with
the new corporate strategy.
General and administrative expenses for the first quarter of 1998 were $3.6
million, compared to $4.9 million in the first quarter of 1997. As a
percentage of revenue, general and administrative expenses represented 36% in
the first quarter of 1998 and 56% in the first quarter of 1997. The decrease
in general and administrative expenses for 1998 compared to 1997 was primarily
attributable to (i) a $775,000 reduction in personnel expenses as a result of
deferred hiring decisions and (ii) a $371,000 reduction in insurance premiums,
primarily related to the negotiation of better rates on certain key insurance
policies.
Depreciation and amortization expense was $10.2 million and $9.9 million for
the first quarter of 1998 and 1997, respectively, representing approximately
102% and 114% of revenue for the first quarter of 1998 and 1997, respectively.
The increase in depreciation and amortization expense was attributable to
depreciation on newly-acquired assets.
Interest and Other Income. Interest and other income was $141,000 for the
first quarter of 1998 compared to $945,000 for the same period in 1997. The
decrease was a result of other income in the amount of $875,000 representing
proceeds from the licensing of certain technology associated with the
Satellite Network received in the first quarter of 1997, offset by a $100,000
increase in interest income earned on certain escrowed monies. The Company
incurred $6.6 million of interest expense in the first quarter of 1998
compared to $4.4 million for the same period in 1997, reflecting (i) the
amortization of debt discount and debt offering costs in the amount of $2.5
million in 1998, compared to $1.8 million in 1997, and (ii) higher outstanding
loan balances as compared to 1997.
Capital Expenditures. Net capital expenditures, including additions financed
through vendor financing arrangements, for the first quarter of 1998 for
property and equipment were $1.1 million compared to $1.8 million for the same
period in 1997. The decrease was largely attributable to the reduction in the
acquisition of assets necessary to complete the satellite network.
Year Ended December 31, 1997 Compared to Year Ended December 31, 1996
Operating Revenues. Service revenues, which include both the Company's voice
and data services, approximated $20.7 million for 1997 as compared to $9.2
million for 1996 and represents a 125% increase year over year. Service
revenue from voice services increased 100% from approximately $5.0 million in
1996 to approximately $10.0 million in 1997. The $5.0 million increase was
primarily a result of a 101% increase in voice customers during 1997. Service
revenue from the Company's data services approximated $7.6 million in 1997, as
compared to $2.3 million for 1996, an increase of $5.4 million or 245%. The
increase was primarily a result of additional revenue from dual mode
subscribers added as a result of the acquisition, on November 1996, of
Rockwell's dual mode mobile messaging and global positioning and monitoring
service, as compared to the revenue received in 1996 for satellite capacity
leased by Rockwell. Service revenue from capacity resellers, who handle both
voice and data services, approximated $2.8 million in 1997, as compared to
$1.8 million in 1996, an increase of $1.0 million or 56%. As of December 31,
1997 and 1996, receivables relating to service revenues were $3.6 million and
$1.8 million, respectively.
41
Revenue from the sale of mobile data terminals and mobile telephones
increased 27% from $18.5 million in 1996 to $23.5 million in 1997. The
increase was primarily attributable to increased equipment sales of the dual-
mode mobile messaging product, discussed above. As of December 31, 1997 and
1996, receivables relating to equipment revenue were $5.9 million and $5.8
million respectively.
Costs and Expenses. Cost of service and operations for 1997, which includes
costs to support subscribers and to operate the Satellite Network, were $32.0
million for 1997 and $30.5 million for 1996. Cost of service and operations
for 1997 and 1996, as a percentage of revenues, were 72% and 110%,
respectively. The increase in cost of service and operations was primarily
attributable to (i) increased interconnect charges associated with increased
service usage by customers, and (ii) the additional cost associated with
supporting the dual mode mobile messaging product discussed above, offset by a
reduction in information technology costs affected by dramatically reducing
the dependence on outside consultants.
The cost of equipment sold increased 26% from $31.9 million in 1996 to $40.3
million in 1997. The dollar increase in the cost of equipment sold is
primarily attributable to (i) increased sales as a result of the acquisition
of the dual mode messaging product, (ii) an increase of $600,000 in inventory
carrying costs as certain subscriber equipment contracts were fulfilled, and
(iii) a $12.0 million write down of inventory to net realizable value in 1997
as compared to $11.1 million write down and reconfiguration charges in 1996.
Sales and advertising expenses were $12.1 million in 1997, compared to $24.5
million in 1996. Sales and advertising expenses as a percentage of revenue
were 27% in 1997 and 88% in 1996. The decrease of sales and advertising
expenses was primarily attributable to (i) a more focused approach to
advertising as the company has moved from consumer markets to targeted
business-to-business sales, and the resulting reduction in print advertising,
(ii) increased costs in the first quarter of 1996 for the development of
collateral material needed to support the sales effort, and (iii) costs
incurred in the first quarter of 1996 associated with the formal launch of
service.
General and administrative expenses for 1997 were $14.8 million, compared to
$17.5 million in 1996. As a percentage of revenue, general and administrative
expenses represented 34% in 1997 and 63% in 1996. The decrease in general and
administrative expenses for 1997 compared to 1996 was primarily attributable
to reductions made in staffing as a result of a management restructuring in
the third quarter of 1996 and the associated severance costs.
Depreciation and amortization expense was $42.4 million and $43.4 million in
1997 and 1996, respectively, representing approximately 96% and 156% of
revenue for 1997 and 1996, respectively. The overall dollar and percentage
decrease in depreciation and amortization expense was attributable to the
reduction of the carrying value of the satellite as a result of the
resolution, in August 1996, of claims under the Company's satellite insurance
contracts and policies and the receipt of approximately $66.0 million, offset
by a $1.0 million one-time charge, in the second quarter of 1997, associated
with increased amortization in accordance with SFAS No. 86 of certain cost
associated with software development for the mobile data product.
Interest and Other Income. Interest income was $247,000 in 1997 compared to
$552,000 in 1996. The decrease was a result of lower average cash balances.
The Company incurred $21.6 million of interest expense in 1997 compared to
$15.2 million of interest expense in 1996 reflecting (i) the amortization of
debt discount and debt offering costs in the amount of $9.4 million in 1997,
compared to $5.7 million in 1996, and (ii) higher outstanding loan balances as
compared to 1996. During 1997, the Company received other income in the amount
of $875,000 representing proceeds from the licensing of certain technology
associated with the Satellite Network.
Interest expense in 1997 was significant as a result of borrowings under the
Bank Financing, as well as the amortization of borrowing costs incurred in
conjunction with securing the facility. It is anticipated that interest costs
will continue to be significant as a result of the Bank Financing, Bridge
Financing, and Acquisition, (see "Liquidity and Capital Resources").
42
Capital Expenditures. Net capital expenditures, including additions financed
through vendor financing arrangements, for 1997 for property and equipment
were $8.8 million compared to capital reductions of $51.0 million in 1996. The
$59.4 million increase was largely attributable to (i) the net proceeds in
1996 of $66.0 million from the resolution of the claims under the Company's
satellite insurance contracts and policies (see "Liquidity and Capital
Resources") and (ii) the decrease in asset acquisitions associated with the
final build-out of the communications ground segment (the "CGS").
Years Ended December 31, 1996 and 1995
Service Revenues. Service revenues, which include both the Company's voice
and data services, approximated $9.2 million for 1996 as compared to $6.9
million for 1995 which represents a 33% increase year over year. Service
revenue from voice services approximated $5.0 million in 1996, including
approximately $1.3 million attributable to satellite capacity leased to TMI,
under a commitment which was completed in May 1996. Service revenue from the
Company's data and position location services ("Mobile Data Communication
Service") approximated $2.2 million in 1996, as compared to $1.7 for 1995, an
increase of $500,000 or 29%. Service revenue from capacity resellers who
handle both voice and data services, approximated $1.8 million in 1996, as
compared to $5.2 million in 1995, a decrease of $3.4 million or 65%. Prior to
1996, the Company provided its Mobile Data Communication Service using
satellite capacity leased from the Communications Satellite Corporation
("COMSAT"), the cost of which was passed through to one customer (Rockwell).
The decrease in revenue from capacity resellers reflects the reduced revenue
from Rockwell resulting from lower billings for the use of the lower cost
MSAT-2 versus billings attributable to the leased COMSAT satellite applied on
a pass-through basis. As previously discussed, the Company acquired the dual
mode mobile messaging and global positioning and monitoring service of
Rockwell in November 1996. At December 31, 1996 and 1995, receivables relating
to service revenues were $1.8 million and $405,000, respectively.
Revenue from the sale of mobile data terminals and mobile telephones
increased from $1.9 million in 1995 to $18.5 million in 1996, primarily
attributable to (i) the Company's introduction of certain voice products in
the fourth quarter of 1995 and the resulting sale of mobile telephones, and
(ii) the increased availability of mobile data terminals in 1996 compared to
1995 following a contract signed with a mobile data terminal manufacturer in
February 1995.
Costs and Expense. The Company's costs and expenses have primarily increased
in connection with the start of full commercial service in December 1995. Cost
of service and operations for 1996, which includes costs to support
subscribers and to operate the Satellite Network, were $30.5 million for 1996,
an increase of $6.5 million from 1995. Cost of service and operations for 1996
and 1995, as a percentage of revenue were 110% and 272%, respectively. The
dollar increase in cost of service and operations was primarily attributable
to (i) additional personnel and related costs to support both existing and
anticipated customer demand, (ii) increased costs associated with the on-going
maintenance of the Company's billing systems and the CGS, and (iii) $6.5
million of insurance expense for in-orbit insurance coverage for MSAT-2,
offset by the elimination of COMSAT lease expense reflecting the transition of
the Company's customers from the leased satellite to MSAT-2.
The cost of equipment sold increased to $31.9 million in 1996 from $4.7
million in 1995. The increase in cost of equipment sold is primarily
attributable to (i) the Company's introduction of certain voice products in
the fourth quarter of 1995 and the resulting sale of mobile telephones, (ii)
the availability of mobile data terminals in 1996 compared to 1995, (iii) a
$4.2 million charge in 1996 for the reconfiguration of certain components to
better meet customer requirements, and (iv) a $6.9 million write down of
inventory to net realizable value in 1996.
Sales and advertising expenses were $24.5 million in 1996, compared to $22.8
million in 1995. Sales and advertising expenses as a percentage of revenue
were 88% in 1996 and 259% in 1995. The increase of sales and advertising
expenses was primarily attributable to (i) additional head count and personnel
related costs associated with the increase in sales staff, and (ii) increased
costs directly associated with the increase in subscriber acquisition
programs, offset by a $1.4 million charge, in 1995, associated with the re-
acquisition of defective equipment located at a customer site and settlement
of related disputes.
43
General and administrative expenses for 1996 were $17.5 million, an increase
of $0.8 million as compared to 1995. As a percentage of revenue, general and
administrative expenses represented 63% in 1996 and 190% in 1995. The dollar
increase in general and administrative expenses for 1996 compared to 1995 was
primarily attributable to (i) approximately $675,000 of severance costs
associated with a management restructuring and (ii) an increase in facilities
rents and utilities of $236,000. The decrease of general and administrative
expenses as a percentage of operating expenses was attributable to the overall
increase in operating expenses.
Depreciation and amortization expense was $43.4 million and $11.2 million in
1996 and 1995, respectively, representing approximately 156% and 128% of
revenue for 1996 and 1995, respectively. The increase in depreciation and
amortization expense was attributable to the commencement of depreciation of
both MSAT-2 and related assets and the CGS in the fourth quarter of 1995.
Interest and Other Income. Interest and other income was $552,000 in 1996
compared to $4.5 million in 1995. The decrease was a result of lower average
cash balances. The Company incurred $15.2 million of interest expense in 1996
compared to $916,000 of interest expense in 1995 reflecting (i) the
discontinuation of interest cost capitalization as a result of substantially
completing the Satellite Network in the fourth quarter of 1995, (ii) the
amortization of debt discount and debt offering costs (including Guarantee
Warrants (see "Liquidity and Capital Resources")) relating to the Bridge
Financing and Bank Financing (see "Liquidity and Capital Resources"), and
(iii) higher outstanding loan balances as compared to 1995.
Capital Expenditures. Net capital reductions, including additions financed
through vendor financing arrangements, for 1996 for property and equipment
were $51.0 million compared to capital expenditures of $86.7 million in 1995.
The decrease was largely attributable to (i) the net proceeds of $66.0 million
from the resolution of the claims under the Company's satellite insurance
contracts and policies (see "Liquidity and Capital Resources"), (ii) the
purchase, in the first quarter of 1995, of launch insurance at a cost to the
Company of $42.8 million in connection with the Company's launch contract with
Martin Marietta Commercial Launch Services, Inc., and (iii) the decrease in
construction activity as certain components of the CGS were completed.
ARDIS
Three Months Ended March 31, 1998 Compared to Three Months Ended March 31,
1997
Operating Revenues. Services revenues were $9.5 million for the three months
ended March 31, 1998 as compared to $10.6 million for the three months ended
March 31, 1997. The decrease in revenue reflects reduced usage by several
large accounts and additional discounts extended to several large accounts
that signed multi-year agreements.
Revenue from the sale of equipment increased to $500,000 for the three
months ended March 31, 1998 compared to $300,000 for the three months ended
March 31, 1997. Devices made available from Research In Motion ("RIM") and
continued demand for the Motorola PCMCIA modem contributed to the increase.
Costs and Expenses. Total costs and expenses increased approximately 6% for
the three months ended March 31, 1998 compared to the same period in 1997.
Cost of services and operations for the three months ended March 31, 1998 were
$7.8 million, an increase from $7.2 million for the same period in 1997. This
increase was due primarily to increased costs to maintain the network along
with incremental costs for base stations which were installed during 1997.
Cost of services and operations for the three months ended March 31, 1998 and
1997 as a percentage of operating expenses were 53% and 52% respectively.
The cost of equipment sold for the three months ended March 31, 1998
increased to $600,000 from $500,000, which represented 4% and 3%,
respectively, of total operating expenses.
Sales and marketing expenses for the three months ended March 31, 1998 were
$1.6 million a slight increase from $1.5 million for the same period in 1997.
The increase was related to additional vertical distribution headcount as
compared to 1997. Sales and marketing costs as a percentage of operating
expenses were 11% in 1998 and 1997.
44
General and administrative expenses for the three months ended March 31,
1998 were $1.5 million, an increase from $1.1 million for the same period in
1997. This increase was attributable primarily to increased reserve
requirements. As a percentage of operating expenses, general and
administrative expenses represented 10% in 1998 and 8% in 1997.
Depreciation and amortization expense for the three months ended March 31,
1998 was $3.3 million, a decline from $3.6 million for the same period in
1997. The decline was attributable to the network assets originally
contributed in 1990 becoming fully depreciated in March 1997 along with other
computer equipment becoming fully depreciated in the last twelve months.
Depreciation and amortization expense as a percentage of operating expenses
was 22% for 1998 and 26% for 1996.
Interest and Other Income. Net interest expense was $300,000 for the three
months ended March 1998 and 1997.
Capital Expenditures. Capital expenditures for the three months ended March
31, 1998 were $1.3 million compared to $700,000 for the same period in 1997.
The increase in capital expenditures reflects the purchase of base stations
and other network equipment to provide additional capacity as required for new
customers to be added in 1998 and 1999.
Year Ended December 31, 1997 Compared to the Year Ended December 31, 1996
Operating Revenues. Services revenues were $41.9 million for 1997 as
compared to $43.4 million for 1996. The decrease in revenue reflects reduced
usage during 1997 by several large accounts, including UPS, which was impacted
by the strike in 1997.
Revenue from the sale of equipment increased to $2.3 million in 1997
compared to $1.9 million in 1996. Devices made available from RIM during 1997
and continued demand for the Motorola PCMCIA modem contributed to the
increase.
Costs and Expenses. Total costs and expenses decreased approximately 17%
during 1997 compared to 1996. Cost of services and operations for 1997 were
$31.9 million, a decrease from $32.8 million for 1996. This decrease was due
primarily to continued cost savings derived from the consolidation of network
operations which were commenced during 1996.
The cost of equipment sold for 1997 increased to $2.2 million from $1.4
million for 1996 in relation to the increased revenue from equipment sales.
Sales and marketing expenses for 1997 were $5.9 million, a decrease from
$13.7 million for 1996. The decrease was primarily attributable to ARDIS'
shift from a consumer market focus in 1996 to its traditional vertical
business markets focus in 1997. Sales and marketing costs as a percentage of
revenue were 13% in 1997 and 30% in 1996.
General and administrative expenses in 1997 were $7.0 million, a decrease
from $9.4 million in 1996. This decrease was primarily attributable to (i)
reduced headcount and personnel related costs which had supported horizontal
marketing efforts, (ii) reduced software license expenses and (iii) reduced
reserve requirements. As a percentage of revenue, general and administrative
expenses represented 16% in 1997 and 21% in 1996.
Depreciation and amortization expense in 1997 was $14.6 million, a decrease
from $17.3 million in 1996. The decrease was attributable to the network
assets originally contributed in 1990 becoming fully depreciated in 1997.
Depreciation and amortization expense as a percentage of revenue was 33% for
1997 and 38% for 1996.
Interest and Other Income. Net interest expense was $1.2 million for 1997, a
decrease from $1.4 million in 1996. This decrease was a result of lower
capital lease balances.
45
Capital Expenditures. Capital expenditures for 1997 were $1.4 million
compared to $3.4 million for 1996. The decrease in capital expenditure amounts
reflects the significant capital expenditures made in 1996 and prior periods
that provided sufficient network capacity and therefore reduced capital
expenditure requirements in 1997.
Year Ended December 31, 1996 Compared to the Year Ended December 31, 1995
Operating Revenues. Services revenues were $43.4 million in 1996 compared to
$40.0 million for 1995. The increase in revenue reflects a 21% increase in
active units that resulted from the signing of several new contracts.
Revenue from the sale of radio data terminals and consulting services
increased to $1.9 million in 1996 from $1.3 million in 1995. The introduction
of wireless PCMCIA modems in 1996 contributed to this increase.
Costs and Expenses. Total costs and expenses decreased approximately 9%
during 1996 compared to 1995. Cost of services and operations for 1996 were
$32.8 million, a decline from $39.9 million in 1995. This dollar decrease was
attributable to (i) reduced headcount and personnel related costs as a result
of network consolidation completed during the first quarter of 1996, (ii)
reduced consulting expenses related to network enhancements for horizontal
applications anticipated during 1995, and (iii) reduced support costs
associated with fewer capital expenditure installations. Costs of services and
operations for 1996 and 1995 as a percentage of operating expenses were 44%
and 49%, respectively.
The cost of equipment sold in 1996 decreased to $1.4 million from $1.9
million in 1995, representing 2% of operating expenses in both periods.
Sales and marketing expenses were $13.7 million in 1996, a decline from
$15.2 million in 1995. This decline was attributable primarily to (i) reduced
headcount and personnel related costs associated with decreases in sales and
marketing staff supporting horizontal market programs and (ii) decreased
advertising and promotion activities. Sales and marketing costs as a
percentage of operating expenses were 18% in 1996 and 19% in 1995.
General and administrative expenses for 1996 were $9.4 million, a decline
from $10.6 million in 1995. This decline was attributable to reduced headcount
and personnel related costs associated with the operations consolidations and
other restructuring activities in the fourth quarter of 1995. As a percent of
operating expenses, general and administrative expenses represented 13% in
1996 and 1995.
Depreciation and amortization expense in 1996 was $17.3 million, compared to
$14.4 million in 1995, representing approximately 23% and 18% of operating
expenses in 1996 and 1995. The dollar and percent increase in depreciation and
amortization was the result of depreciation of network assets installed and
frequencies purchased in 1994 and 1995.
Interest and Other Income. Net interest expense was $1.4 million in 1996
compared to $0.2 million in 1995. Lower available cash balances in 1996
reduced the amount of interest income earned during the period.
Capital Expenditures. Capital expenditures, including additions financed
through capital leases, were $4.8 million in 1996 compared to $42.4 million in
1995. The decrease reflects (i) the build-out of several 19.2 protocol base
station layers in 1995, (ii) the replacement of the system's network
controllers during 1995, and (iii) the acquisition, in 1995, of a capital
lease for switching equipment in the amount of $18.8 million.
LIQUIDITY AND CAPITAL RESOURCES
American Mobile and ARDIS have incurred significant operating losses and
negative cash flows in each year since they commenced operations, due
primarily to start-up costs, the costs of developing and building their
networks and the cost of developing, selling and providing products and
services. American Mobile historically has financed its cash requirements for
operations and investments through private equity contributions, sales of
public equity securities, equipment financing arrangements and other
borrowings, including its existing $200
46
million Bank Facility. ARDIS has financed its cash requirements primarily
through equity contributions from Motorola since 1994.
From 1994 to 1997, American Mobile and ARDIS have generated combined
historical cumulative negative cash flow from operations of $(360.4) million.
However, as the result of increased subscribers, reduced overhead and cost-
cutting efforts, negative combined cash flow from operations declined to
$(22.8) million for the three months ended March 31, 1998 from $35.8 million
for the comparable period in 1997. In addition, American Mobile's and ARDIS'
combined historical capital expenditures, which totaled $223.4 million from
1994 to 1997, have declined from $126.1 million in 1995 to $10.3 million in
1997. Combined historical capital expenditures for the three months ended
March 31, 1998 were $4.9 million compared to $1.8 million for the comparable
period in 1997. Management anticipates that the cash required to fund capital
expenditures for fiscal 1998 will be $14.0 million, the majority of which will
be spent in connection with the continued buildout and upgrade of the
terrestrial network to accommodate increased subscribers and FCC mandated site
installations.
The following tables summarize the historical cash flow statements of
American Mobile and ARDIS.
AMERICAN MOBILE
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
----------------------------- -------------------
1995 1996 1997 1997 1998
-------- --------- -------- -------- ---------
(DOLLARS IN THOUSANDS)
Cash used in operations... $(60,412) $(141,826) $(80,471) $(34,665) $ (18,109)
Cash (used in) provided by
investing (1)............ (83,945) 50,946 (8,598) (3,574) (165,508)
Cash provided by financing
activities............... 142,360 84,198 88,993 37,629 202,790
- --------
(1) In the third quarter of 1996, American Mobile received $66.0 million in
proceeds for insurance claims filed in connection with an anomaly in MSAT-
2.
ARDIS
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
--------------------------- --------------------
1995 1996 1997 1997 1998
-------- -------- ------- --------- ---------
(DOLLARS IN THOUSANDS)
Cash (used in) provided by
operations................ $(28,215) $(18,666) $ 593 $ (1,117) $(4,645)
Cash (used in) provided by
investing................. (23,535) (4,806) (1,736) (1,517) (1,314)
Cash provided by (used in)
financing activities...... 42,700 21,776 (2,064) 1,500 7,341
The Company believes the net proceeds from the Units Offering after cash
used for the Acquisition together with borrowings under the Revolving Credit
Facility and the Vendor Financing Commitment, will be sufficient to fund
operating losses, capital expenditures, working capital, and scheduled
principal and interest payments on debt through the time when the Company
expects to generate positive free cash flow (operating cash flow less capital
expenditures). If the Company does not meet its projections or if the
Revolving Credit Facility or the Vendor Financing Commitment is not available
for any reason, it would require any additional financing to meet its business
plan. There can be no assurance that the Company's current projection of
operating cash flow will be accurate.
The Company does not have a significant source of liquidity other than the
Revolving Credit Facility and the Vendor Financing Commitment. As of April 30,
1998, the Company had $95.0 million available to be borrowed under the
Revolving Credit Facility. However, borrowings under the Revolving Credit
Facility are subject to certain conditions beginning in the fourth quarter of
1998. In the event the Company is unable to borrow amounts under the Revolving
Credit Facility, the Company's cash needs will significantly exceed its
available resources, which would have a material adverse effect on the
Company. The obligations of the
47
Company under the Revolving Credit Facility are guaranteed by Hughes,
Singapore Telecom and Baron Capital Partners, L.P., each of whom has
substantially greater resources than the Company. However, such guarantees are
subject to certain conditions, including the continuing compliance by the
Company with certain financial and other covenants. Failure to continue to
satisfy such covenants could result in the termination of such guarantees,
which would constitute an event of default under the Revolving Credit
Facility. In such event, the lenders under the Revolving Credit Facility would
not be obligated to advance funds thereunder and would have the right to
accelerate the indebtedness thereunder. There can be no assurance that the
Company would be in a position to refinance the Revolving Credit Facility in
such circumstances. See "Risk Factors--Liquidity; Need for Additional
Capital," and "--Substantial Leverage."
The Revolving Credit Facility is a $100.0 million line of credit that is
available for capital expenditures, working capital requirements and general
corporate purposes. The commitment under the Revolving Credit Facility will be
reduced $10.0 million per quarter beginning the quarter ending June 30, 2002
and will mature on March 31, 2003. See "Description of New Bank Financing."
On December 4, 1997, Holdings and American Mobile entered into an agreement
with ACTEL to lease the Company's satellite for deployment over sub-Saharan
Africa. The five year lease provides for aggregate payments to Holdings of
$182.5 million. Simultaneously, Holdings agreed with TMI to acquire a one-half
ownership interest in TMI's satellite at an aggregate cost of $60.0 million to
be paid over five years. Management expects that if both agreements are
consummated, the net cash benefit to Holdings after the payment of associated
net expenses will be approximately $41.0 million in 1998 and approximately
$66.0 million over the remaining terms of the agreements. The first $25.0
million of net proceeds plus 75% of any net proceeds in excess of $25.0
million will be utilized to pay down the Revolving Credit Facility and reduce
commitments. The remaining 25% of the net proceeds in excess of $25.0 million
will be utilized to support the Company's operations. While it is anticipated
that these transactions will improve the Company's leverage and liquidity,
there can be no assurance that such transactions will be consummated
simultaneously, if at all.
Motorola has agreed to provide the Company with up to $10.0 million of
vendor financing, which will be available to finance up to 75% of the purchase
price of additional base stations needed to meet the buildout requirements of
the UPS Contract. Loans under this facility will bear interest at a rate equal
to LIBOR plus 7.0% and will be guaranteed by Holdings and each subsidiary of
the Company. The terms of such facility will require that amounts borrowed be
secured by the equipment purchased therewith. This commitment is subject to
customary conditions, including due diligence, and there can be no assurance
that the facility will be obtained by the Company on these terms or at all.
See "Risk Factors--Liquidity; Need for Additional Capital."
The Company is a wholly-owned subsidiary of Holdings, which has $100.0
million in aggregate principal amount of indebtedness under the Term Loan
Facility. Holdings is a holding company which has no assets other than the
capital stock of the Company and AMRC. Holdings currently owns 80% of the
capital stock of AMRC. In October 1997, WorldSpace, Inc. ("WorldSpace")
provided additional financing to AMRC that AMRC utilized to pay for its
Digital Audio Radio Services ("DARS") license. Through its investment in AMRC,
WorldSpace has an option to increase its ownership in AMRC to 72%, subject to
FCC approval. It is anticipated that the proceeds resulting from the exercise
of the option will not be available to either Holdings or the Company. As a
result of its arrangements and discussions with WorldSpace, AMRC will not be
consolidated with the financial results of Holdings. See "Business--AMRC." The
Company will utilize approximately $17.9 million of the proceeds of the Units
Offering to repay advances from Holdings, which is intended to provide for the
payment of Holdings' interest payments on the Term Loan Facility for three
years. Holdings anticipates that such amount, together with interest earned
thereon, will be sufficient to fund debt service on the Term Loan Facility for
a period of approximately three years. From and after April 1, 2001 (three
years after the date of the Indenture), it is expected that the Indenture will
permit the Company to make dividend payments to Holdings in amounts which are
sufficient to permit Holdings to service its cash interest requirements under
the Term Loan Facility, subject to certain restrictions. The Company may pay
other dividends to Holdings for routine administrative expenses. See
"Description of the Exchange Notes--Certain Covenants--Restricted Payments."
48
The obligations of Holdings under the Term Loan Facility are severally
guaranteed by Hughes, Singapore Telecom and Baron Capital Partners, L.P., each
of whom has substantially greater resources than the Company. However, such
guarantees require the Company to meet certain conditions, including the
continuing compliance of Holdings with certain financial and other covenants.
Failure to continue to satisfy such covenants could result in an event of
default under the Term Loan Facility. In such event, the lenders under the
Term Loan Facility would not be obligated to advance funds thereunder and
would have the right to accelerate the indebtedness thereunder. There can be
no assurance that Holdings would be in a position to refinance the Term Loan
Facility in such circumstances. See "Risk Factors--Holdings' Guarantee."
The Company is highly leveraged. The Indenture permits the Company and its
subsidiaries to incur additional Indebtedness under certain circumstances and,
to a limited extent, to secure such Indebtedness with liens on the assets
securing such Indebtedness. The ability of the Company and its subsidiaries to
make scheduled payments with respect to Indebtedness (including the Notes)
will depend upon, among other things, the Company's ability to complete any
necessary additional financing, the continued deployment of its network on a
timely and cost-effective basis, the market acceptance and customer demand for
the Company's products and services and the future operating performance of
the Company. Each of these factors is, to a large extent, subject to economic,
financial, competitive, regulatory and other factors, many of which are beyond
the Company's control. If the Company does not generate sufficient increases
in cash flow from operations to repay the Notes at maturity, it could attempt
to refinance the Notes; however, no assurance can be given that such a
refinancing would be available on terms acceptable to the Company, or at all.
Any failure by the Company to satisfy its obligations with respect to the
Notes at maturity (with respect to payments of principal) or prior thereto
(with respect to payments of interest or required repurchases) would
constitute a default under the Indenture and could cause a default under
agreements governing other Indebtedness, if any, of the Company. See "Risk
Factors--Substantial and Continuing Operating Losses;" "--Liquidity; Need for
Additional Capital;" "Description of the Exchange Notes--Certain Covenants--
Incurrence of Indebtedness and Issuance of Preferred Stock."
49
BUSINESS
OVERVIEW
The Company is a leading provider of nationwide wireless communications
services, including data, dispatch, and voice services, primarily to business
customers in the United States. The Company offers a broad range of end-to-end
wireless solutions utilizing a seamless network consisting of the nation's
largest, most fully-deployed terrestrial wireless data network and a satellite
in geosynchronous orbit. On a pro forma basis, the Company had service revenue
of $62.1 million in 1997 and approximately 85,200 customer units in service at
March 31, 1998. In addition, the Company has recently signed customer
contracts, subject to certain conditions, that it believes will result in the
activation of in excess of 100,000 new units over the next three years.
Through Holdings, the Company's major equity investors include Hughes,
Motorola, Singapore Telecom and AT&T Wireless, who in the aggregate will own
approximately 61.4% of Holdings on a fully diluted basis.
MARKET OPPORTUNITY
The Company expects to capitalize on the substantial and growing market for
wireless data communications services, which Strategis estimates grew at a
compound annual unit growth rate of 28% from 1994 to 1997. Strategis further
estimates that the addressable market for wireless data products is composed
of approximately 12.5 million mobile workers in occupations such as
transportation and field services, with significant wireless communication and
data access needs, and that approximately 10.4 million of these workers will
use some form of mobile data service by 2001. Strategis estimates that
approximately 2.0 million workers currently use some form of mobile data
service, primarily analog cellular service. The Company believes this growth
is being driven by the widespread acceptance of Internet and intranet
applications, logistical requirements for just-in-time delivery and position
location services, development of more compact, less expensive user devices,
and a significant increase in the use of data applications such as e-mail.
The following table identifies the Company's target markets for its services
and provides an estimate, based on the market research of Strategis, of the
potential addressable market size:
FIELD OTHER
TRANSPORTATION SERVICES MOBILE WORKERS TOTAL
-------------- -------- -------------- ------
Market Size:
(Units in thousands) 1,600 1,700 9,200 12,500
In addition to these targeted mobile workers, there is a significant market
for the Company's products in non-mobile environments such as wireless
telemetry. Strategis estimates that there are over 96 million control and data
collection points, such as utility meters, which are directly addressable by
the Company's services. Further, the Company markets its services to the
maritime industry, which is estimated to have an addressable market of 218,000
vessels.
Transportation
In the transportation industry, the Company focuses primarily on wireless
data solutions for the trucking market. The types of companies that comprise
this market are private and for-hire fleet operators and owner-operators. For-
hire carriers are companies whose primary business is trucking and whose
revenues are from transporting goods via trucks on a contractual basis.
Private fleets are operated by non-trucking firms that haul their own freight.
Owner/operators are individuals who own and operate their own trucks. Some
owner/operators work for a single company under a lease agreement while others
work with transportation brokers to find loads or operate their own small
transportation businesses. Leasing for hire companies generally lease their
vehicles on a temporary basis ranging from hours to weeks or more. Owner
operators, private fleets, and leasing-for-hire operators provide services in
both the long-haul and less-than-truckload ("LTL") segments. Package Delivery
carriers are firms engaged in the delivery of documents, small packages and
freight on a time sensitive basis.
50
TRANSPORTATION--1.6 MILLION ADDRESSABLE UNITS
LESS THAN OWNER PRIVATE LEASING FOR PACKAGE
TRUCKLOAD TRUCKLOAD OPERATORS CARRIERS HIRE DELIVERY
--------- --------- --------- -------- ----------- --------
Characteristics: Point-to- Short haul, Contract Internal Outsourced Largest
point, haul irregular service company suppliers of overnight
lengths route, to long- fleets private and 2-3 day
greater than multiple haul and fleet delivery
100 miles stop LTL services firms, high
logistic
requirements
Market Size:
(Units in thousands) 347 200 62 439 284 230
In addressing the trucking market, the Company initially focused on the
needs of the long-haul trucking segment. This segment is characterized by
large trucks hauling loads in excess of 100 miles with shipments being sent
directly from sender to receiver. In order to meet the data and location
positioning demands resulting from regulatory and environmental initiatives
and just-in-time inventory requirements, this segment was the first to adopt
two-way wireless communication systems. At the present time, it is estimated
that there exists an installed base of approximately 200,000 mobile
communications units (including those sold by the Company) in trucking fleets
operating in the United States. The Company's customers in this segment employ
the Company's products to improve fleet asset utilization, reduce non-revenue
producing miles and achieve on-time deliveries.
The Company believes that the pressures for regulatory compliance and on-
time delivery will also affect the LTL market. This market 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. It
is expected that as LTL carriers respond to the need for improved operating
efficiencies and responsiveness they will adopt wireless communications
solutions. The Company believes that its multi-mode product is well matched to
the higher volume data requirements of LTL carriers given its ability to
provide service in areas not covered by existing satellite-only and
terrestrial-only competitors and the lower average usage charges of the
Company's terrestrial and satellite network.
Field Services
The "mobile workforce," that portion of U.S. workers whose occupations
require them to spend significant portions of their time outside of their
offices, has grown rapidly in response to customer demands for greater
responsiveness and flexibility. Companies' ability to meet these demands have
been enhanced by the emergence of distributed computing and mobile
communications. The field service market, which is a subset of the overall
mobile workforce, is comprised of groups of workers who install, move and
maintain property, plant, and equipment in field operations or at customer
premises. Field service organizations realize significant benefits from the
use of wireless applications. Typically, these organizations are able to
improve the speed and quality of their work while reducing costs through the
applications of wireless technology.
Strategis estimates that there are approximately 1.7 million field service
workers who are directly addressable by the Company's products. The field
service category can be subdivided into two broad subsegments, in-building and
vehicle-based, each of which has different product requirements.
51
FIELD SERVICE--1.7 MILLION ADDRESSABLE UNITS
IN-BUILDING VEHICLE-BASED
----------- -------------
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) 1,100 600
There are approximately 1.1 million field service workers in the United
States who spend a significant amount of time maintaining in-building assets,
such as computer systems. Real-time dispatching allows for the dynamic
redistribution of service calls and ready access to offsite databases and
technical expertise, thereby improving the productivity of a customer's field
service force by eliminating non-productive time spent away from the worksite.
There are approximately 0.6 million vehicle-based field service workers in
the United States who maintain field assets, such as an oil pipeline, over
wide geographic regions. These employees often work in remote areas and
frequently operate on a contingency, rather than scheduled, basis. Operators
of vehicle-based field service fleets employ mobile communications in order to
resolve contingencies through coordination of activity and to increase
productivity through prompt access to technical support.
Other Mobile Workers
The remaining addressable market for mobile data services consists of a
broad array of mobile workers with significant requirements for mobile data
communication and access capabilities. This larger market segment contains
approximately 9.2 million mobile workers in industries and functions including
manufacturing, wholesale and retail trade, and insurance. The majority of
users within this segment do not require integrated connection with
centralized systems, but still have a need for wireless data communication,
such as email. Because these applications are generic across numerous
industries, the segment is horizontally addressable. The Company intends to
address these workers through a broad distribution strategy, offering its
small, low priced two-way messaging product.
Other mobile workers also include employees of federal, state and local
governments and public safety organizations who employ mobile communications
to coordinate both daily activities and disaster responses. These agencies and
organizations generally make use of a combination of various self-provided and
commercially available wireless services in order to ensure high levels of
availability and reliability.
Maritime
The maritime market consists of three major addressable segments: merchant
vessels, fishing vessels, and recreational vessels.
MARITIME--218,000 ADDRESSABLE UNITS
MERCHANT FISHING RECREATIONAL
-------- ------- ------------
Characteristics: U.S.-flagged Fishing vessels over Large recreational
commercial merchant 5 gross tons vessels
vessels
Market Size:
(Units in
thousands) 16 35 167
52
Merchant vessels are operated by firms to transport goods and perform other
functions. As with truck transportation firms, merchant vessels utilize mobile
communications to increase operating efficiencies and load factors. The
Company targets approximately 16,000 large, U.S.-flagged vessels. Fishing
vessels weighing over 5 gross tons and operated by individuals and firms in
U.S. waters number approximately 35,000. Fishing operators who have adopted
mobile communications gain increased efficiencies from coordination with other
vessels and with shore-based personnel. Recreational vessels are comprised of
approximately 167,000 craft that make use of mobile communications both to
extend the utility of terrestrial wireless communications and for navigational
and safety purposes.
Wireless Telemetry
Wireless telemetry applications facilitate data connectivity between remote
equipment and a central monitoring facility. The wireless telemetry market
consists of several major industry applications, including automatic meter
reading, business alarm monitoring, oil and gas wellhead and pipeline
monitoring, and vending machine, agricultural, and environmental asset
monitoring. Strategis estimates that approximately 96 million control and data
collection points will be connected to monitoring facilities via wireless data
communications services by 2002. 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.
Other Market Segments
Electronic funds transfer and point-of-sale ("EFT/POS") applications are
creating an emerging market segment for wireless communications. There are two
segments within the broad market where a wireless solution can be applied to
EFT/POS applications. The first segment is an environment in which the
wireless EFT/POS solution can replace the wireline offering, such as fast food
franchises, for example. The second segment includes those applications for
which wireline connectivity is not an option, such as taxi and limousine
services. MasterCard and VISA predict over 800,000 wireless POS terminals to
be in use in the next 2 to 5 years.
Other market segments addressed by the Company's offerings include remote
fixed site, news gathering, recreational vehicles, and business and general
aircraft. The common application among these segments is satellite telephony,
including facsimile and circuit switched data. The Company has developed a
customer base in each of these segments, and has in some cases sponsored the
development of unique equipment configurations designed to meet the needs of
specific user environments.
BUSINESS STRATEGY
The Company's objective is to maximize its revenues by delivering value-
added services to end users in specific segments. To meet this objective and
to capitalize upon the competitive advantages resulting from the combination
of American Mobile and ARDIS, the Company intends to: (i) offer business
customers a broad range of nationwide wireless service and end-to-end data
solutions; (ii) integrate and leverage the advantages of its nationwide
terrestrial and satellite data networks; (iii) enhance market penetration by
lowering the customers' "total cost of ownership"; and (iv) expand the use of
alternative distribution channels to accelerate network loading.
Offer Business Customers a Broad Range of Nationwide Wireless Solutions. The
Company believes its corporate customers prefer a single-source service
provider capable of delivering a broad range of efficient and cost effective
solutions to meet their need for mobile wireless communications. The Company
believes that it has and will continue to have a unique strategic advantage in
being able to provide one-stop shopping across a broad range of products,
including two-way paging and advanced messaging, packaged e-mail and LAN
solutions, custom data applications, dual mode terrestrial/satellite data, and
satellite voice and dispatch functions. Through its staff of approximately 230
direct sales, engineering support and customer service professionals, the
Company provides a suite of bundled wireless services, and a single point of
contact for sales, service, billing and project management, all on a national
basis.
53
Integrate and Leverage Network Advantages. The Company has spent over a
decade developing and deploying its nationwide terrestrial and satellite
networks and now seeks to accelerate its growth by leveraging its integrated
network. Unlike many competitors with plans to build out limited city-wide or
regional terrestrial networks or to launch satellites, the Company's
technology infrastructure is in place and operational today, with future
network expansion requirements arising primarily from increased customer
demand. The Company believes that this integrated terrestrial/satellite
network provides key competitive advantages currently unmatched by any
competitor: virtually 100% nationwide geographic coverage, guaranteed message
delivery, and, in the areas covered by the ARDIS network, deep in-building
penetration. By integrating the operations of its terrestrial and satellite
networks, the Company expects to achieve operating efficiencies and economies
of scale that it believes will lead to improved operating margins.
Enhance Market Penetration By Reducing Customers "Total Cost of
Ownership." Historically, the most significant obstacle to the implementation
of enterprise-wide wireless data applications has been the relatively high
total cost of ownership. The total cost of ownership is comprised of three
primary elements: the cost of the subscriber unit, the required investment in
software development, and the monthly cost of network access and usage. In
most of the Company's applications, the monthly cost of network access and
usage has been the least prohibitive of these elements. Until recently,
subscriber unit costs in excess of $3,000 and custom software investments of
up to several million dollars were common. By working with business partners
and vendors, and making strategic software investments, the Company has
succeeded in significantly lowering customers' total cost of ownership. New
subscriber units, including low-cost two-way messaging units and laptop modem
cards, are now available for $500 or less and substantial development work is
underway with several of the Company's vendors to accelerate reductions of
equipment cost, unit weight and size. In the future, the Company expects that
the increased subscriber unit volumes associated with recent large contract
awards will lead to additional unit price reductions. In addition, customers
can now use off-the-shelf software applications that are relatively
inexpensive, or in the case of the Company's two-way messaging service, free.
The Company believes that these lower price points will accelerate the
adoption of the Company's services in its historical markets, and will enable
the Company to develop new markets, such as wireless point-of-sale and
telemetry.
Expand Alternate Distribution Channels. The Company sells its services
primarily through a direct sales force and resellers. In order to accelerate
network loading, the Company expects to expand its use of indirect
distribution channels. To date, the Company has entered into agreements with
Enron. (utility monitoring), Ameritech SecurityLink (alarm monitoring), Global
Payment Systems (point-of-sale), GE Logisticom (asset tracking and
dispatching) and other value-added resellers to penetrate markets where such
resellers have a market presence and significantly greater resources than the
Company, including dedicated sales personnel. In addition, the Company is in
the process of establishing relationships with existing paging companies,
paging resellers, and other targeted distribution partners to market two-way
guaranteed messaging services. The Company believes that the resale of its
network is an alternative that paging companies will consider when assessing a
move from one-way to two-way messaging because it may reduce or eliminate the
need for additional investment in network infrastructure. The Company intends
to utilize paging companies and other similar partners with well established
distribution capabilities to develop markets outside of the Company's
historical market segments.
54
PRODUCTS AND SERVICES
The Company believes that it is well-positioned to provide a broad range of
end-to-end wireless data and voice solutions to business customers in the
United States.
Data Services
The Company's 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 e-mail and integral
GPS and reporting of such data.
NETWORK APPLICATION PRIMARY MARKET SEGMENTS CUSTOMERS AND RESELLERS SERVICE BENEFITS
------------------- ----------------------- ----------------------- ----------------
Multi-Mode Transportation Sitton Motor Lines Least cost routing
CRST and ubiquitous
Tandem Transport satellite coverage
Terrestrial Field services IBM Nationwide coverage
only Sears and deep in-
Lucent building
Pitney Bowes penetration
NCR
Transportation UPS Fully deployed
Conway nationwide two-way
GE Logisticom network
Two-Way Messaging ConectUS Nationwide coverage
IKON Office Systems and deep in-
building
penetration
Telemetry Enron Energy Services Low cost off-peak
Ameritech SecurityLink transmission
Satellite Transportation Cannon Express Conway Less expensive
only Truckload Services equipment costs
relative to multi-
mode
Multi-mode Messaging. The Company's multi-mode communications system uses
its 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 the Company's
satellite network thereby providing nationwide coverage. The Company believes
that its multi-mode data and global position tracking services will enable it
to bring cost-effective solutions to the long-haul trucking customers as well
as the broader transportation industry, including the less-than-truckload and
package delivery segments.
Terrestrial-Only Data. The Company offers a variety of end-to-end wireless
data solutions to customers primarily in vertical market segments, including
the field service and transportation markets. The Company's network provides a
breadth of coverage that the Company believes 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 e-mail and fax capabilities. The Company
recently 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 the RIM Interactive Pager(TM).
In addition, software firms such as Nettech, Racotek, IBM and BHA have
developed "middleware" which helps to significantly minimize the customer's
development effort in connecting the customer's application to the Company's
network. A number of off-the-shelf software packages such as Motorola's
AirMobile Wireless Software for Lotus cc:Mail(TM), Lotus Notes(TM) and IKON's
Mobile CHOICE(TM) for Windows enable popular e-mail software applications on
the Company's network.
55
Satellite Messaging. The Company's 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 the Company's satellite messaging service.
Voice Services
The Company offers mobile voice services through two primary services:
nationwide dispatch service and satellite telephone service.
NETWORK APPLICATION PRIMARY MARKET SEGMENTS CUSTOMERS SERVICE BENEFITS
------------------- ----------------------- --------- ----------------
Dispatch Field Services AT&T Only provider of
MCI nationwide dispatch
Williams Companies services
Telephony Maritime Maritime Cellular Low cost maritime
Seven Seas telephony service
Other CBS Reliable, remote
Red Cross mobile coverage
FEMA
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. This service is designed to facilitate team-based,
contingency-driven operations of groups operating over wide and/or remote
areas. The Company markets 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 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. The Company offers a wide
range of satellite phone configurations developed to address the particular
communications needs of customers. The Company markets the 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
The Company prices its 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 fixed
increment of both terrestrial and satellite usage, as well as a set number of
vehicle location reports. Usage beyond the fixed increment is metered and
charged on a variable basis 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 the Company's data customers range from below $10 for high unit quantity,
low traffic volume, off-peak telemetry users, to over $60 for high volume,
peak users in the field service market. The Company's average monthly revenue
per data user in the fourth quarter of 1997 was approximately $55.
56
Voice Products
The Company's 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 $150 for high volume maritime users to a low of $50
for certain public safety and emergency restoral applications. The Company's
current average monthly revenue per voice user in the fourth quarter of 1997
was approximately $135.
MARKETING AND DISTRIBUTION
The Company markets its services through four primary distribution channels:
direct sales, vertical resellers, horizontal resellers and dealers.
Direct Sales
The Company has a direct sales force of 60 employees who focus on the
requirements of business customers. This sales organization is comprised of a
national accounts group that profiles and targets specific Fortune 500
accounts, and a network of regionally based representatives who specialize in
specific industry segments. The direct sales representatives have acquired
significant industry expertise, and use that expertise in a solutions-oriented
sales approach. Sales to national account targets generally require a
sustained marketing effort lasting several months. Prior to making a buying
decision, a majority of the accounts exercise a due diligence process where
competitive alternatives are evaluated. The Company's employees often assist
in developing justification studies, application design support, hardware
testing, planning and training.
Vertical Resellers
In order to penetrate quickly certain market segments characterized by
specialized technical requirements and/or unique business applications, the
Company leverages the capabilities of specialized distribution partners. These
relationships enable the Company to penetrate new market segments without
investing in the product, training and development requirements typically
associated with entry into a new market segment.
The Company's resale arrangements are specifically designed to accelerate
entry into the wireless telemetry (utility and alarm monitoring), point-of-
sale, maritime and government market segments. Resellers of the Company's
products within the wireless telemetry market include Enron for commercial
utility meter reading, and Ameritech SecurityLink for alarm monitoring. The
Company also has a relationship with Global Payment Systems for wireless
point-of-sale applications. These business partners are responsible for
development of the end-user solutions, and purchase capacity on the Company's
data network.
VASPs represent one of the Company's primary distribution channels for
maritime satellite telephony. VASPs purchase bulk minutes, resell at a margin,
set the price, take risk of collection and perform all service and billing
functions.
The Company currently utilizes three specialized government resellers, one
of which has included the Company's products on the general services
administration schedule. The Company intends to expand the distribution
opportunities for its terrestrial data products by also including them in
these programs.
The Company also has various PNCs that purchase bulk satellite capacity from
the Company in the form of dedicated capacity increments or channels. PNCs use
this capacity to support their own proprietary networks and products, and
maintain all associated business risks and responsibilities.
Horizontal Resellers
The Company utilizes a series of resale relationships designed to reach a
large segment of the mobile workforce that does not require integration with
centralized systems, but still has a broad need for two-way messaging and
wireless e-mail access. Because these applications are generic across numerous
industries, the
57
segment is horizontally addressable, and requires some level of retail
presence. To achieve this presence, the Company is in the process of
establishing relationships with existing paging companies, paging resellers
and other targeted distribution partners to market two-way guaranteed
messaging services. The Company also maintains relationships with
manufacturers of personal handheld computing devices, who include the
Company's marketing material with the device packaging to provide the
purchaser the option of wirelessly enabling a handheld computing device.
Dealer Channels
The Company also uses land mobile and maritime dealers who distribute the
Company's nationwide dispatch and satellite telephony products. These dealers
typically have strong business relationships with regional public safety
entities, as well as with smaller field service fleets and maritime users. The
Company believes that opportunities exist to capitalize on the strengths of
this channel by introducing a low cost terrestrial data device with minimum
integration requirements, such as the RIM Interactive Pager(TM). Typically
these dealers serve as agents for sales and service and do not set pricing or
provide billing and collection services. These dealers are generally
compensated with a modest percentage of the service revenue for which they are
responsible.
CUSTOMERS
As of December 31, 1997, the Company had approximately 81,300 units in
service and an established customer base of large, established corporations
including AT&T, Avis, Bank of America, IBM, JB Hunt, Lucent, MCI, NCR, Otis
Elevator, Pitney Bowes, Sears, Siemens and The Williams Companies. The
Company's products also have been adopted by various emergency response
organizations such as the Federal Emergency Management Agency ("FEMA") and the
American Red Cross. The majority of the Company's customers sign long-term
contracts and make significant capital investments to initiate service. As a
result, the Company typically experiences low turnover of its customer base.
Additionally, during the fourth quarter of 1997, the Company was awarded two
significant new customer contracts: Enron and UPS. Enron will utilize the
Company as the network provider for a wireless utility monitoring service
targeted at commercial power users. Enron has committed to place a minimum of
55,000 units into service over the next three years. Management believes that
the UPS contract will result in approximately 50,000 units operating on the
terrestrial data network by the end of the year 2000. See "Risk Factors--UPS
Contract."
As of December 31, 1997, the Company's customer base included the following
market and product segments:
PERCENT OF
MARKET SEGMENTS TOTAL UNITS
--------------- -----------
Field Services.......... 48%
Transportation.......... 26
Telemetry............... 8
Maritime................ 4
Other................... 14
---
Total................... 100%
===
PERCENT OF
PRODUCT SEGMENTS TOTAL UNITS
---------------- -----------
Data:
Terrestrial............. 60%
Satellite............... 12
Multi-mode.............. 8
Private Networks........ 7
---
Total Data............ 87
Voice:
Telephony............... 7%
Dispatch................ 4
Private Networks........ 2
---
Total Voice........... 13
Total..................... 100%
===
58
THE NETWORK
The Company's integrated network consists of (i) a satellite in
geosychronous orbit with coverage of the continental United States, Alaska,
Hawaii, Puerto Rico, the U.S. Virgin Islands and U.S. coastal waters and
airspace, and (ii) the largest two-way terrestrial data network in the United
States with coverage of over 425 of the largest cities and towns in the United
States, including virtually all metropolitan areas. The network provides a
wide range of mobile data and voice services in multi-mode and single-mode
configurations.
Users of the Company's terrestrial and satellite communications network
access the network through subscriber units that may be portable, mobile or
stationary devices. Generally, subscriber units enable either data or voice
communications and are designed to operate over either the terrestrial data-
only network or the satellite network, which provide both voice and data
communications. In addition, the Company's multi-mode subscriber equipment is
designed to provide least-cost routing of data messages over both the
terrestrial and satellite networks.
Subscriber units receive and transmit wireless data or voice messages from
either terrestrial base stations or the Company's satellite, MSAT-2.
Terrestrial messages are routed to their destination via Company-owned data
switches, which connect to the public data network. Satellite messages are
routed to their destination via satellite data and voice switches, located at
the Company's headquarters, which connect to the public data and switched
voice networks. A data switch located in Cedar Rapids links the terrestrial
and satellite networks for the delivery of the Company's multi-mode data
service. The terrestrial, satellite and multi-mode network interconnections
are depicted below.
[GRAPHIC IMAGE OMITTED SHOWING SATELLITE MULTI-MODE AND TERRESTRIAL NETWORK
INTERCONNECTIONS]
59
The Company's terrestrial network delivers superior in-building penetration,
completion rates and response times compared to other wireless data networks
through the use of a patented SFR technology developed by Motorola. As
illustrated below, SFR technology enables multiple base stations in a given
area to use the same frequency. As a result, a message sent by a subscriber
can be received by a number of base stations. This technology contrasts with
more commonly used multiple frequency reuse ("MFR") systems which provide for
only one transmission path for a given message at a particular frequency. In
comparison with MFR systems, the Company's technology provides superior in-
building penetration and response times and enables the Company to
incrementally deploy additional capacity as required, instead of in larger
increments as required by most wireless networks.
[GRAPHIC IMAGE OMITTED DEPICTING SINGLE FREQUENCY RE-USE]
SATELLITE LEASE AND SATELLITE PURCHASE AGREEMENTS
On December 4, 1997, Holdings and American Mobile entered into an agreement
with ACTEL to lease the Company's satellite, MSAT-2, for deployment over sub-
Saharan Africa. The five-year lease provides for aggregate payments to the
Company of up to $182.5 million. Simultaneously, Holdings and American Mobile
agreed with TMI to acquire a one-half ownership interest in TMI's satellite at
an aggregate cost to American Mobile of $60.0 million.
Under the Satellite Purchase Agreement, TMI and the Company will each own a
50% undivided ownership interest in MSAT-1, will be jointly responsible for
the operation of the MSAT-1, and will share certain satellite operating
expenses, but will otherwise maintain their separate business operations.
Closing under the Satellite Purchase Agreement and Satellite Lease Agreement
is subject to a number of conditions, including: United States and Canadian
regulatory approvals; a successful financing by ACTEL of at
60
least $120 million; completion of certain satellite testing, inversion and
relocation activities with respect to American Mobile's satellite, to support
the contemplated services over Africa; receipt of various government
authorizations from Gibraltar, South Africa and other jurisdictions to support
satellite relocation, including authorization with respect to orbital slot and
spectrum coordination; and completion of certain system development activities
sufficient to support satellite redeployment. It is anticipated that the
closing under both agreements will occur simultaneously in mid-1998. While the
Company believes that if ACTEL defaults under the Satellite Lease Agreement,
the Company would be able to achieve the return of MSAT-2 from ACTEL to its
operation in the United States and terminate its payment obligations to TMI
under the Satellite Purchase Agreement, there can be no assurances that such
actions can be achieved. In addition, there can be no assurance, however, that
such transactions will be consummated simultaneously, or at all.
If consummated, the transactions are expected to increase substantially the
Company's cash flow, without affecting its ability to serve and grow its
customers based on expected capacity available on MSAT-1 (including excess TMI
capacity available to the Company for purchase). Net proceeds from the
transactions will be used to reduce amounts outstanding under the Company's
Revolving Credit Facility and provide for additional liquidity. See "Risk
Factors--Satellite Lease and Purchase Agreement Risks," "Management's
Discussion and Analysis of Financial Condition and Result of Operations--
Liquidity and Capital Resources" and "Description of New Bank Financing."
EQUIPMENT; SUPPLIER RELATIONSHIPS
The Company has contracts with multiple vendors to supply equipment
configurations designed to operate on each of its operating platforms. These
devices are designed to meet the requirements of specific end-user
applications. The Company continues to pursue enhancements to these devices
that will result in additional desirable features and reduced cost of
ownership. Although many of the components of the Company's products are
available from a number of different suppliers, the Company does rely upon a
few key suppliers. See "Risk Factors--Reliance on Third Party Vendors."
In connection with its mobile data communications service, the Company
presently has an agreement with Trimble Navigation, Inc. to supply its
satellite data unit. In addition, multi-mode data terminals are sourced from
Rockwell. The Company also has contracted with Vistar, Inc., a Canadian
company, for the development of a new multi-mode terminal. The new terminal
will incorporate design changes that will simplify the installation process
and allow for the addition of enhancements in a modular fashion. The Company
believes that the price of multi-mode terminals will continue to decline in
the coming years.
There are currently over 30 different types of subscriber units available
from 15 manufacturers that can operate on the terrestrial network. Examples of
portable subscriber units include ruggedized laptop computers, small external
modems, handheld or palmtop "assistants," pen based "tablets," and two-way
messaging devices, such as the RIM Interactive Pager(TM). Significant
developers of devices that are compatible with the network include Motorola,
RIM and Itronix. Motorola and RIM manufacture modems designed to be integrated
into handheld field service terminals, telemetry devices, utility monitoring
and security systems as well as other computing systems. RIM recently has
developed the Interactive Pager(TM) that supports the Company's two-way
messaging service. Itronix manufactures the XC-6000, a fully ruggedized laptop
computer with a standard keyboard and an integrated wireless modem.
Mobile satellite voice telephones are offered in a number of different
configurations that deliver a variety of features and options to meet specific
market needs. Mobile satellite telephones are currently available in land
mobile vehicle installed, fixed site, maritime, aeronautical, dual mode
voice/direct to home satellite television and fully transportable (i.e.,
battery powered and packaged in a briefcase) configurations. Subscriber
equipment for satellite telephone service and nationwide dispatch service
includes data interface ports to allow connection to communications
accessories such as personal computers, and global positioning satellite
("GPS") tracking devices. Recent enhancements allow users to utilize the
dispatch product remotely from the vehicle, via a wireless tether. American
Mobile continues to add enhancements based upon customer requirements, and has
61
several initiatives that could result in the reduced cost of end-user devices.
The primary suppliers for the voice equipment are Westinghouse Electric, Inc.
and Mitsubishi.
Tandem computer provides the ARDIS network switching computers under a
multi-year lease that extends through the year 2000, while AT&T provides
network services including a nationwide wireline data network, and leased
sites which house regional ARDIS switching equipment. The Company also has a
relationship with AT&T as its vendor for switched inbound and outbound public
switched telephone network services. The satellite system terminates calls
from its telephone product via both the AT&T and Sprint networks.
ARDIS has executed multiple agreements with Motorola that provide for
certain continued support from Motorola with respect to: supply and support
for the ARDIS DataTAC network infrastructure; ongoing maintenance and service
of the ARDIS base stations; and lease administration services for
approximately 37% of ARDIS' base station site leases. Additionally, Motorola
is expected to continue to manufacture modems compatible with the ARDIS
network infrastructure for use in end-user devices.
Hughes Network Systems Ltd, of the United Kingdom, manufactures and supports
the key component to the Company's multi-mode and satellite messaging
products, which is the Land Earth Station ("LES"). There are currently 4 LES's
operational. The platform for the Company's voice products, the communications
ground segment ("CGS"), depends upon products from multiple vendors, most of
which are generally commercially available. Northern Telecom manufactures and
supports the core voice switch. Digital Equipment Corporation supplies the
computing platform that runs the CGS.
COMPETITION
The wireless communications industry is highly competitive and is
characterized by frequent technological innovation. The Company competes on
the basis of providing comprehensive, end-to-end solutions and a premium level
of service in the markets it serves. End-to-end solutions have been assembled
working with a select group of business partners who develop and manufacture
software, middleware and hardware components. The Company differentiates
itself and provides a premium level of service due to its unmatched geographic
coverage, in-building penetration, guaranteed message delivery, and guaranteed
reliability.
The Company competes with a full array of companies, from small startups to
Fortune 500 companies. Many of these competitors have financial, technical and
marketing resources in excess of the Company's. Because the Company competes
in several market segments with a broad range of services, competing
technologies may address one or more of the market segments. The Company has
identified six major classes of technologies or services that offer
capabilities competitive with the Company's services: Terrestrial Packetized
Data; Cellular/PCS; Specialized Mobile Radio ("SMR")/Enhanced Specialized
Mobile Radio ("ESMR"); Private Systems; Paging/Narrowband PCS; and Mobile
Satellite Services.
Terrestrial Packetized Data. Companies using packetized data technologies
provide wireless data services that compete directly with a number of the
Company's data products. Packetized data technology relies on radio
frequencies to transmit short-burst data messages. Primary competitors using
this technology include RAM Mobile Data ("RAM"), Metricom, Teletrac and
Cellnet. RAM, a wholly-owned subsidiary of BellSouth enterprises, operates a
terrestrial-only network that provides data services to customers primarily in
the field service, transportation and utility industries. The Company believes
that its network provides broader coverage, and superior in-building
penetration compared to RAM's network. In addition, the Company is upgrading
its network in major cities so that it will operate at faster speeds than the
RAM network. Metricom's Ricochet service provides wireless, mobile access to
the Internet, private intranets, local area networks and e-mail. Metricom
currently offers its service in limited regions comprised of San Francisco,
Seattle, Houston and Washington, D.C. Teletrac provides primarily location and
vehicle monitoring and two-way data transfer services in major metropolitan
areas and Cellnet provides wireless meter reading services and has a contract,
similar to the Company's with Enron, to provide meter reading for residential
customers. The Company's contract with Enron is for commercial meter reading
that typically requires a large volume of data to be sent from each meter.
62
Cellular and PCS. Cellular and PCS services compete with the Company's
satellite and terrestrial voice and data services, and presently serve the
majority of mobile communications users in the United States, with
approximately 55,000,000 units. Cellular and PCS systems operated by
approximately 1,500 companies collectively provide service throughout most of
the United States, with no single competitor providing the breadth of coverage
that is available through the Company's network. Cellular Digital Packet Data
("CDPD"), the cellular industry's standard packet data service, is available
principally in metropolitan areas containing approximately 44% of the nation's
population at the end of 1997. PCS carriers, many of which offer short message
capabilities and expect to offer larger capacity packet data services in the
near future, presently offer service which in the aggregate covers
approximately 60% of the U.S. population.
Most cellular and PCS providers have structured their services and
distribution principally to meet switched voice service requirements of broad-
market users. However, HighwayMaster Communications, Inc. offers data and
voice communications to the long-haul trucking industry through the
application of its proprietary messaging and billing technologies to circuit-
switched cellular capacity which it purchases in bulk from a number of large
cellular carriers. Differences in equipment and service pricing and product
characteristics result in minimal direct competition between the Company's
voice products and most other cellular carriers.
Specialized Mobile Radio (SMR) and Enhanced Specialized Mobile Radio (ESMR)
Services. Within the limitations of available spectrum and technology, SMR
operators compete with the Company's voice dispatch services by providing
mobile communications services, including mobile telephone, dispatch, paging
and limited data services. For certain applications, such as mobile telephone
interconnect, SMR systems presently are less expensive than the Company's
services, although the shared channel configuration and the economics of these
systems have traditionally caused SMR systems to be less frequently utilized
for voice telephone services.
SMR radio services have been expanding rapidly over the past ten years and
converting from analog to digital technology. ESMR systems compete with the
Company's voice and data dispatch services in metropolitan areas. NEXTEL
Communications, Inc. provides ESMR services in numerous large metropolitan
service areas in the United States and is the leading provider of SMR using
digital technology, frequency reuse and lower power transmitters to transform
its current SMR service into cellular-like services, including voice telephone
services. Geotek Communications, Inc. offers voice and data communication
networks for the trunked mobile radio market. Targeted primarily to small and
medium-sized businesses managing fleets of vehicles and mobile workforces,
Geotek is focused on providing metropolitan area voice and data services.
Currently, Geotek's service is available in 11 markets. Neither Nextel nor
Geotek provide nationwide voice dispatch or data services comparable to those
offered by the Company.
Private Land Mobile Frequencies. Individual companies that have chosen to
develop their own private wireless data network constitute a large percentage
of the wireless marketplace for corporate fleets. An example of such a
customer is Federal Express. While these companies already have made
significant investments in their systems, in some cases recurring maintenance,
upgrade and expansion costs, coupled with recent steps by the FCC to charge
private system owners for the use of the radio frequencies, have caused these
organizations to turn to commercial providers such as the Company.
Narrowband PCS/Enhanced Paging. There are a large number of paging companies
that offer messaging services on a regional or nationwide basis. Despite the
low cost of one-way paging, most traditional paging services do not provide
full-function two-way communications. Although some paging companies, such as
MTel, have begun to offer limited time-delayed two-way messaging services,
initial challenges in coverage, responsiveness and throughput currently limit
their adoption by the Company's targeted business customers.
Mobile Satellite Services. The Company's voice and data services face
competition from a number of companies that are selling or are developing
services using a variety of satellite technologies. The principal alternative
satellite-based communications system available to the trucking market is
Qualcomm Incorporated's ("Qualcomm") OmniTracs nationwide data service.
Qualcomm currently provides low-speed mobile data services using terminals
which are priced competitively with the Company's satellite-only terminals.
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Qualcomm's OmniTracs service does not provide a terrestrial communications
path or least-cost routing capabilities similar to the Company's multi-mode
product. As a result, transmissions to and from a vehicle must be routed
exclusively over a satellite network and are subject to line of sight blocking
and higher transmission costs, limiting the product's functionality and cost-
effectiveness in segments that require urban coverage or large volumes of data
transmission.
NORCOM Networks Inc. ("NORCOM") is in the process of commercially deploying
a satellite-based packet data service that competes with the Company's data
services in the transportation and field service segments. NORCOM currently
purchases channel capacity on the Company's satellite over which it operates
its network, and combines its satellite data service product with terrestrial
services provided by RAM Mobile Data and by the Company.
The Company's satellite services also compete for mobile maritime
subscribers with TMI, a Canadian company operating a satellite comparable to
MSAT-2, and with Inmarsat, a consortium of 70 countries that is authorized to
provide maritime voice and data services along the North American coasts.
Because Inmarsat's current system operates at a much lower power level than
does the Company's satellite, its mobile terminals must be equipped with
antenna systems that are larger and more expensive than those required for the
Company's network. The Inmarsat system also has per minute charges
significantly higher than those charged by the Company. COMSAT, the U.S.
signatory for Inmarsat, applied to the FCC for authority to provide mobile
satellite services ("MSS") in the United States through Inmarsat facilities.
The FCC has consistently denied COMSAT's application, most recently on January
9, 1998. TMI, which is technically capable of providing service within the
United States, has also announced its intention to provide MSS to domestic
customers over MSAT-1. Both TMI and SatCom Systems, Inc., a United States
reseller, have applied to the FCC for authority to provide MSS in the United
States using TMI space segment on MSAT-1. There can be no assurances that
COMSAT, TMI, or any other satellite provider will not become authorized to
provide MSS in the United States (See "Regulation").
Recently, several Low Earth Orbit ("LEO") and Medium Earth Orbit ("MEO")
satellite systems have commenced rollout. Examples of these systems, which are
more complex and costly than the Company's geosynchronous network, include
those of Iridium LLC; Globalstar Telecommunications, LTD, and ICO Global. When
deployed, these systems will offer certain advantages over the Company's voice
telephony service, including the ability to support small handheld telephones
and, in certain instances, reduced transmission delay. However, the Company
does not expect that these systems will provide a nationwide dispatch service
or support data service in excess of 4,800 bps. Moreover, these companies are
focused primarily on consumer-oriented and global traveler applications and
not the business markets which are the focus of the Company. Further, because
these companies will deploy satellite systems, they are not expected to
compete against urban in-building data services provided by the Company.
In addition to relatively complex LEO systems designed to provide mobile
voice services, there are a number of proposals for relatively simple "little"
LEO systems that would provide only low-speed packet data services. These
systems, including ORBCOMM Global, L.P., Final Analysis and LEO One USA, have
access to comparatively limited spectrum and are expected to compete for
customers who require specialty applications such as asset tracking services
for unpowered trailers.
AMRC
The Company is one of two primary operating subsidiaries of Holdings. The
second subsidiary, AMRC has been granted a license from the FCC to construct,
launch and operate a domestic satellite system for the provision of satellite-
based DARS. AMRC made a payment of $90 million to fully pay for its DARS
license in October 1997. Holdings currently owns 80% of the capital stock of
AMRC. The remainder of AMRC is owned by WorldSpace, a leading international
DARS company that is planning to provide DARS service to Latin America, Africa
and Asia. Through its investment in AMRC, WorldSpace has an option to increase
its ownership in AMRC to 72%, subject to FCC approval. It is anticipated that
the proceeds resulting from the exercise of the option will not be available
to either Holdings or the Company.
64
EMPLOYEES
At December 31, 1997, the Company employed approximately 477 individuals, of
which 117 were sales and marketing, 279 were network and operations, and 81
were general and administrative employees. None of the Company's employees is
represented by a labor union, and the Company considers its relations with its
employees to be good.
PROPERTIES
The Company leases approximately 94,000 square feet at its headquarters
office space and network operations center in Reston, Virginia. The lease has
a term which runs through August 3, 2003 (which may be extended at the
Company's election for an additional five years). In addition, the Company
leases a back-up Ku-band radio frequency facility in Alexandria, Virginia. The
Company also leases approximately 86,000 square feet of space for an
operations center in Lincolnshire, Illinois, the lease for which expires
December 31, 2000, and approximately 7,800 square feet for a remote data
center in Lexington, Kentucky, the lease for which expires April 30, 2001. The
Company also leases site space for approximately 1,700 base stations across
the country under one- to five-year lease contracts with renewal provisions.
The Company anticipates that it will be able to gain access to additional base
station sites when necessary on acceptable terms.
LEGAL PROCEEDINGS
In 1992, a former director of Holdings filed an Amended Complaint against
Holdings alleging violations of the Communications Act and of the Sherman Act
and breach of contract. The suit seeks damages for not less than $100 million
trebled under the antitrust laws plus punitive damages, interest, attorneys'
fees and costs. In mid-1992, Holdings filed its response denying all
allegations. Holdings' motion for summary judgment, filed on June 30, 1994,
was denied on April 18, 1996. The trial in this matter, previously set for
December 1997, has been postponed to a date to be determined in 1998.
Management believes that the complaint is without merit, and the ultimate
outcome of this matter will not be material to the Company's financial
position, results of operations, or its cash flow.
REGULATION
The Company is regulated to varying degrees at the federal, state, and local
levels. Various legislative and regulatory proposals under consideration from
time to time by Congress and the FCC have in the past materially affected and
may in the future materially affect the telecommunications industry in
general, and American Mobile and ARDIS in particular. In addition, many
aspects of regulation at the federal, state and local level currently are
subject to judicial review or are the subject of administrative or legislative
proposals to modify, repeal, or adopt new laws and administrative regulations
and policies. The following is a summary of significant laws, regulations and
policies affecting the operation of American Mobile's and ARDIS' businesses.
GENERAL
The ownership and operation of American Mobile's (MSS) system and ARDIS'
ground-based two-way wireless data system are subject to the rules and
regulations of the FCC, which acts under authority granted by the
Communications Act and related federal laws. Among other things, the FCC
allocates portions of the radio frequency spectrum to certain services and
grants licenses to and regulates individual entities using that spectrum.
American Mobile and ARDIS operate pursuant to various licenses granted by the
FCC.
Both American Mobile and ARDIS are Commercial Mobile Radio Service ("CMRS")
providers and therefore are regulated as common carriers. The companies must
offer service at just and reasonable rates on a first-come, first-serve basis,
without any unjust or unreasonable discrimination, and they are subject to the
FCC's complaint processes. The FCC has forborne from applying numerous common
carrier provisions of the Communications Act to CMRS providers. In particular,
American Mobile and ARDIS are not subject to
65
traditional public utility rate-of-return regulation, and the companies are
not required to file tariffs with the FCC for their domestic services.
As providers of interstate telecommunications services, American Mobile and
ARDIS are required to contribute to the FCC's universal service fund, which
supports the provision of telecommunications services to high-cost areas, and
establishes funding mechanisms to support the provision of service to schools,
libraries, and rural health care providers. Under the FCC's current rules,
American Mobile and ARDIS are required to contribute a percentage of their
end-user telecommunications revenues resulting from the sale of
telecommunications services. The extent of this obligation is subject to
change. A number of parties have filed petitions for review of the FCC's
universal service policy and these appeals have been consolidated in the U.S.
Court of Appeals for the Fifth Circuit. Both companies may also be required to
contribute to state universal service programs. The requirement to make these
payments, the amount of which in some cases may be subject to change and is
not yet determined, may have a material adverse impact on the conduct of their
businesses.
American Mobile and ARDIS are subject to the Communications Assistance for
Law Enforcement Act ("CALEA"). Under CALEA, American Mobile and ARDIS must
ensure that law enforcement agencies can intercept certain communications
transmitted over their networks. American Mobile and ARDIS must also ensure
that law enforcement agencies are able to access certain call-identifying
information relating to communications over their networks. The companies must
comply with the CALEA requirements and any rules subsequently promulgated by
October 25, 1998 or face possible sanctions, including substantial fines and
possible imprisonment of company officials. The FCC currently has a proceeding
underway to establish rules for the implementation of these requirements. This
proceeding primarily addresses record-keeping and security-related issues. The
telecommunications industry, which has been charged with establishing detailed
technical standards for compliance with CALEA's requirements, has not yet been
able to adopt final standards that are acceptable to law enforcement. While
both Congress and the FCC have the authority to extend the compliance
deadline, both have thus far declined to do so. It is not clear whether the
companies will be able to comply with CALEA's requirements or will be able to
do so in a timely manner. CALEA establishes a federal fund to compensate
telecommunications carriers for all reasonable costs directly associated with
modifications performed by carriers in connection with equipment, facilities,
and services installed or deployed on or before January 1, 1995. For
equipment, facilities, and services deployed after January 1, 1995, the CALEA
fund is supposed to compensate carriers for any reasonable costs associated
with modifications required to make compliance "reasonably achievable." It is
possible that all necessary modifications will not qualify for this
compensation and that the available funds will not be sufficient to reimburse
the companies. The requirement to comply with CALEA could have a material
adverse effect on the conduct of their businesses.
As a matter of general regulation by the FCC, both of the companies are
subject to, among other things, payment of regulatory fees, restrictions on
the level of radio frequency emissions of their systems' mobile terminals and
base stations, and "rate integration" regulations requiring that providers of
interstate interexchange telecommunications services charge the same rates for
these services in every state, including Puerto Rico and the U.S. Virgin
Islands. Any of these regulations may have an adverse impact on the conduct of
their businesses.
The FCC licenses of American Mobile and ARDIS are subject to restrictions in
the Communications Act that (i) certain FCC licenses may not be held by a
corporation of which more than 20% of its capital stock is directly owned of
record or voted by non-U.S. citizens or entities or their representatives and
(ii) that no such FCC license may be held by a corporation controlled by
another corporation ("indirect ownership") if more than 25% of the controlling
corporation's capital stock is owned of record or voted by non-U.S. citizens
or entities or their representatives, if the FCC finds that the public
interest is served by the refusal or revocation of such license. However, with
the implementation of the Basic Telecommunications Agreement ("BTA"),
negotiated under the auspices of the World Trade Organization ("WTO") and to
which the United States is a party, the FCC will presume that indirect
ownership interests in excess of 25% by non-U.S. citizens or entities will be
permissible to the extent that the ownership interests are from WTO-member
countries. The BTA took effect on February 5, 1998, and the FCC's implementing
regulations took effect on February 9, 1998.
66
MSS SYSTEM
American Mobile is licensed by the FCC to provide a broad range of mobile
voice, data and dispatch services via satellite to land, air and sea-based
customers in a service area consisting of the continental United States,
Alaska, Hawaii, Puerto Rico, the U.S. Virgin Islands and U.S. coastal waters
and airspace. American Mobile is also authorized to provide fixed site voice
and data services via satellite to locations within this service area, so long
as such services remain incidental to American Mobile's mobile communications
services. American Mobile is authorized to build, launch and operate three
geosynchronous satellites in accordance with a specified schedule. American
Mobile is not in compliance with the schedule for commencement and
construction of its second and third satellites and has petitioned the FCC for
changes to the schedule. Certain of these extension requests have been opposed
by third parties. The FCC has not acted on American Mobile's requests. The FCC
has the authority to revoke the authorizations for the second and third
satellites and, in connection with such a revocation, could exercise its
authority to rescind American Mobile's license. American Mobile believes that
the exercise of such authority to rescind the license is unlikely. The term of
the license for each of American Mobile's three authorized satellites is ten
years, beginning when American Mobile certifies that the respective satellite
is operating in compliance with American Mobile's license. The ten-year term
of MSAT-2 began August 21, 1995. Although American Mobile anticipates that the
authorizations are likely to be extended in due course to correspond to the
useful lives of the satellites and that new licenses will be granted for
replacement satellites, there is no assurance of such extension or grant.
Holdings' current foreign ownership level, for which the indirect ownership
limits are applicable, is approximately 21%. Singapore, which is the domicile
of Singapore Telecom, one of Holdings' largest shareholders, is a WTO-member
country.
On March 12, 1998, the FCC granted American Mobile's application requesting
the modification of its license to permit the Company to implement the
Satellite Purchase Agreement and Satellite Lease Agreement. This proceeding
was contested, and the opponents to this application may seek review of this
grant. In addition, this grant is conditioned upon and subject to modification
as necessary to comply with any subsequent agreement between representatives
of the governments of Canada and the United States concerning shared use of
MSAT-1.
MSAT-2, like MSAT-1, is designed to be able to operate over the 1530-
1559/1631.5-1660.5 MHz bands (the "L-band"). American Mobile is currently
licensed to operate in the 1544-1559/1645-1660.5 MHz bands (the "upper L-
band"). The FCC has designated American Mobile as the licensee for both MSS
and Aeronautical Mobile Satellite (Route) Service ("AMS(R)S"). AMS(R)S
includes satellite communications related to air traffic control, as well as
aeronautical safety-related operational and administrative functions. As a
condition to its authorization, American Mobile is required by the FCC to be
capable of providing priority and preemptive access for AMS(R)S traffic in the
upper L-band and to be interoperable with and capable of transferring AMS(R)S
traffic to international and foreign systems providing such service. American
Mobile currently anticipates it will be able to meet these requirements
without any material adverse effect on its business. If American Mobile is
unable to meet these requirements, the FCC may authorize and give priority
spectrum access to one or more additional satellite systems that meet the
specified requirements.
American Mobile has applied for authorization to operate in the additional
1530-1544/1631.5-1645.5 MHz bands (the "lower L-band"). If American Mobile is
assigned spectrum in the lower L-band, it will be required by the FCC to
provide similar priority and preemptive access in that spectrum to maritime
distress and safety communications. With respect to its mobile voice
terminals, American Mobile currently anticipates it will be able to meet this
requirement without any material adverse effect on its business. The Federal
Aviation Administration ("FAA") filed comments, however, in connection with
American Mobile's application to operate up to 30,000 mobile data terminals
that were transitioned from leased space segment to MSAT-2 in late 1995,
stating its concern that the mobile data terminals cannot be operated in
compliance with American Mobile's obligation to provide priority and
preemptive access in the upper L-band. The FAA has proposed that American
Mobile operate the mobile data terminals in the lower L-band. American Mobile
has received successive six-month grants of special temporary authority
("STA"), under a two-year waiver of the FCC's rules on priority and preemptive
access, to operate up to 15,100 mobile data terminals in the lower L-band.
This number was
67
increased to 33,100 terminals pursuant to American Mobile's acquisition of the
mobile data equipment and services previously licensed to Rockwell. The two-
year waiver expired on August 1, 1997, but remains in effect while American
Mobile's request for a two-year extension of that waiver is pending at the
FCC. American Mobile will need additional authority to increase the number of
mobile data terminals that it is authorized to operate if it is to fulfill
contracts with GE Logisticom and others. American Mobile will also need
permission from the FCC to operate mobile data terminals with a different
transmission design than those operated under its current lower L-band
authorization. Transmissions from these terminals require a wider band width
than do transmissions from American Mobile's existing terminals. There can be
no assurance that American Mobile will continue to receive authority to
operate these new mobile data terminals or any other additional mobile data
terminals in the lower L-band.
American Mobile's mobile terminal authorizations are subject to compliance
with certain requirements regarding interference protection to the Global
Positioning System ("GPS"). With the consent of the FAA, the FCC granted
American Mobile's application subject to certain conditions, including that
the grant may be modified after the interference issue is studied. The FCC is
now considering a proposal from the National Telecommunications and
Information Administration to impose more stringent limits on the out-of-band
emissions from certain mobile terminals, including those used in connection
with American Mobile's system, in order to protect GPS and the Russian Global
Navigation Satellite System ("Glonass"). This proposal would require that
mobile terminals used on American Mobile's system be manufactured according to
a new design by 2002, and that existing terminals and any terminals not
meeting the new specifications be retired or retrofitted by 2005. American
Mobile has opposed this proposal. If adopted by the FCC, this policy could
have a material adverse effect on American Mobile's business.
American Mobile's license authorizes MSAT-2 to operate using certain
telemetry, transfer and control frequencies in the Ku-band, and, under the
Satellite Purchase Agreement, American Mobile would operate MSAT-1 using
similar frequencies. American Mobile operates MSAT-2 at the 101(degrees) W.L.
orbital location, and, under the Satellite Purchase Agreement, would also
operate MSAT-1 at 101(degrees) W.L. GE American Communications, Inc. ("GE
American"), also operates a satellite at the 101(degrees) W.L. orbital
location. American Mobile and GE American have an agreement covering both
MSAT-1 and MSAT-2 that may require American Mobile to modify its operations or
make certain payments to GE American if American Mobile's operations cause
interference to those of GE American. While there can be no assurances, the
Company does not anticipate any interference in the operations of either MSAT-
1 or MSAT-2 and those of GE American.
American Mobile's subscriber equipment will operate in L-band frequencies
that are limited in available bandwidth. The feeder-link earth stations and
the network communications controller of the CGS operate in the more plentiful
fixed satellite service Ku-band frequencies. Of the 30 MHz in the upper L-band
frequencies, American Mobile is currently licensed to operate in the 1544-
1559/1645.5-1660.5 MHz bands. Of the 30 MHz assigned to American Mobile by the
FCC, one MHz is limited to AMS(R)S and one-way paging and two MHz are limited
to distress and safety communications. American Mobile does not plan to
operate on these three MHz of bandwidth.
In June 1996, the FCC issued a notice of proposed rulemaking proposing to
assign to American Mobile the first 28 MHz of internationally coordinated L-
band spectrum from either the upper or lower portion of the MSS L-band. Under
the FCC's proposal, American Mobile would have first priority access to use
the lower L-band spectrum as necessary to compensate for spectrum unavailable
for coordination in the upper L-band. In the event the United States is able
to coordinate more than 28 MHz of L-band spectrum, the FCC has proposed
allowing other applicants to apply for assignment of those frequencies.
Certain entities have filed with the FCC petitions to deny American Mobile's
application and comments opposing the assignment of additional frequencies to
American Mobile. While there can be no assurances, American Mobile believes
the FCC is likely to grant American Mobile's application.
In the Ku-band frequencies, American Mobile is currently licensed to operate
MSAT-2 using 200 MHz within the bands 10.75-10.95 GHz for downlink
transmissions and 13.0-13.15 GHz and 13.2-13.25 GHz for
68
uplink transmissions. American Mobile has applied for authority to operate
using an additional 200 MHz of spectrum within the same bands.
Spectrum availability, particularly in the L-band, is a function not only of
how much spectrum is assigned to American Mobile by the FCC, but also the
extent to which the same frequencies are used by other systems in the North
American region, and the manner of such use. All spectrum use must be
coordinated with other parties that are providing or plan to provide mobile
satellite-based communications in the same geographical region using the same
spectrum. At this time, the other parties with which spectrum use must be
coordinated include Canada, Mexico, the Russian Federation and Inmarsat.
Use of the spectrum is determined through a series of negotiations between
the United States government and the other user agencies, pursuant to the
rules and regulations of the International Telecommunication Union ("ITU").
For the past several years, each of the countries and international
organizations that have used or will use L-band frequencies within the North
American region have been meeting regularly to negotiate and coordinate their
current and future use of that spectrum. American Mobile estimates that
international coordination will make approximately 20 MHz of L-band spectrum
available to the United States for MSAT-2. Since the coordination process
involves many parties and there is uncertainty about the total outcome, the
actual amount of spectrum available may be more or less than that estimated.
In addition, the proposed Satellite Sharing Agreement may make the
coordination of spectrum for American Mobile's system more difficult. Some of
the spectrum that may be available to American Mobile may include a portion of
the 28 MHz lower L-band spectrum adjacent to the frequencies already assigned
to American Mobile by the FCC.
The ITU's Radio Regulations include a table of frequency allocations that
prescribe the permitted uses of the radio spectrum. As a result of the ITU
satellite plan for parts of the Ku-band, there also may be restrictions on
American Mobile's ability to deploy feederlink earth stations in Alaska,
Hawaii, Puerto Rico, and the U.S. Virgin Islands.
During the course of the licensing process for American Mobile and several
times since, the FCC has stated that there is only enough spectrum in the MSS
L-band for the FCC to authorize a single MSS system to provide service in the
United States. In 1995, however, Comsat applied for authority to provide MSS
in the United States in the L-band over the Inmarsat satellite system. Comsat
subsequently filed an application seeking a blanket authorization for the
operation of 5,000 mobile terminals in the United States, as well as a request
for an STA to operate 50 mobile terminals in the United States. On January 9,
1998, the FCC denied Comsat's request for an STA and required that Comsat
amend its underlying applications to conform with the requirements established
in the FCC's November 1997 order on market access by foreign-licensed
satellite systems. This order conforms the FCC's regulations with the BTA and
makes it easier for foreign satellite systems from WTO-member countries to
access the United States market, while at the same time making clear that the
FCC may deny access to such satellite applicants on the basis of spectrum
availability, applicants' technical, legal, or financial qualifications, or
foreign or domestic policy factors. The order also requires Comsat to make an
appropriate waiver of immunity from any suit as part of any application to
provide domestic services over Inmarsat's system. On January 12, 1998, Comsat
filed an appeal of this order with the U.S. Court of Appeals for the D.C.
Circuit, and American Mobile is opposing this appeal as an intervenor. On
February 6, 1998, Comsat filed an application for review of the FCC's denial
of its request for an STA, and a petition for waiver of the FCC's new market
access rules to permit it to offer MSS on a temporary basis in the United
States. American Mobile has opposed these filings.
In its January 9, 1998 denial of Comsat's STA request, the FCC stated that
it would be willing to authorize Comsat to provide international service if
Comsat amended its blanket license application to show that service through
its terminals and Inmarsat's MSS system could be limited to international
traffic. Comsat has amended its application in order to make this showing.
American Mobile has opposed this application. In addition, Comsat has applied
for authority under Section 214 of the Communications Act to provide satellite
paging and tracking services in the United States. American Mobile has also
opposed this application.
69
TMI, which is technically capable of providing service within the United
States, has also announced its intention to provide MSS to domestic customers
over MSAT-1. On February 10, 1998, the FCC granted a thirty-day STA to SatCom
Systems, Inc. ("SatCom") for the testing of up to 30 full-duplex mobile
terminals in the United States using TMI's system. On March 10, 1998, SatCom
filed a request for an additional STA of 90 days for further testing, and also
requested that the scope of this STA be expanded to permit it to operate up to
500 mobile terminals for 180 days on a private carrier basis so that it may
conduct U.S. marketing trials. SatCom simultaneously filed an application for
a blanket license to operate up to 25,000 mobile terminals in the United
States over MSAT-1 on a permanent basis. American Mobile has opposed this
blanket license application. On March 30, 1998, TMI filed an application for a
blanket license to operate up to 100,000 mobile terminals in the United States
over TMI's space segment in MSAT-1 on a permanent basis. American Mobile has
opposed TMI's blanket license application.
On January 30, 1998, Kitcomm Satellite Communications Ltd. ("Kitcomm") filed
a letter of intent with the FCC to provide MSS to U.S. customers over its
proposed foreign-licensed satellite system. Kitcomm proposes to provide two-
way remote data collection, tracking and messaging services over a global
system of non-geostationary satellites. Kitcomm has stated its intent to
operate a low-power, spread-spectrum system in the lower L-band at 1525-
1530/1626.5-1631 MHz. In order to provide domestic service, Kitcomm will also
have to request authority to operate mobile terminals in the United States.
American Mobile will oppose any FCC application by Kitcomm that would reduce
the spectrum available to American Mobile either directly or as a result of
international frequency coordination.
In addition to providing additional competition to American Mobile, a grant
of domestic authority by the FCC to one of these foreign systems would
significantly increase the demand for spectrum in the international
coordination process and could adversely affect American Mobile's business.
American Mobile is operating under waivers of certain FCC rules. In 1996,
the FCC issued an order requiring all CMRS providers to offer what are known
as "enhanced 9-1-1 services" including the ability to automatically locate the
position of all transmitting mobile terminals. American Mobile would not have
been able to offer this automatic location information without adding
substantially to the cost of its mobile equipment and reconfiguring its CGS
software. The FCC decided not to impose specific new requirements on MSS
providers, including American Mobile, at that time. The FCC did state its
expectation that such providers eventually would be required to provide
"appropriate access to emergency services." A decision to impose this
requirement on MSS providers would have a material adverse effect on American
Mobile.
The FCC enacted "rate integration" regulations requiring that providers of
interstate interexchange telecommunications services charge the same rates for
these services in every state, including Puerto Rico and the U.S. Virgin
Islands. American Mobile has opposed the imposition of this rate integration
requirement on its MSS system, so that it may preserve the flexibility to
charge more for service in areas covered by satellite beams that require more
satellite power. The FCC has denied American Mobile's request for a permanent
exemption from its rate integration requirement, but has not yet ruled on
American Mobile's request for a temporary waiver of a year or more. The FCC
has granted American Mobile an interim waiver from its rate integration
requirement until its decision on American Mobile's temporary waiver request.
GROUND-BASED SYSTEM
ARDIS' wireless data network consists of base stations licensed in the
Business Radio and Specialized Mobile Radio Service, all operating in the 800
MHz frequency band. The ARDIS system is interconnected with the public
switched network.
The FCC's licensing regime in effect when it issued ARDIS' licenses provided
for the issuance of individual licenses for specific channels at specific
sites. With respect to the part of the band in which all of ARDIS' base
stations operate, however, the FCC has implemented a new licensing regime. The
new licensing regime involves the auctioning of licenses for specific channels
for wide geographic areas, within which the licensee will have
70
substantial flexibility to operate any number of base stations, including base
stations that may operate on the same channels as incumbent licensees such as
ARDIS. The FCC has proposed to conduct the auctions for additional channel
capacity of the kind used by ARDIS beginning in the third quarter of 1998. The
FCC proposes to prohibit the new geographic licensees from causing
interference to incumbents, but there is concern that such interference may
occur and that practical application of these rules is uncertain.
ARDIS believes that it has licenses for sufficient channels to meet its
current needs for capacity. To the extent that it needs additional capacity,
it may be required to either participate in the upcoming auctions or acquire
channels from other licensees. As part of its new licensing regime, the FCC
permits a wide-area geographic licensee, with prior FCC approval, to sell a
portion of its geographic area to another entity. This partitioning authority
may increase ARDIS' flexibility to operate additional base stations, but the
practical utility of this option is uncertain at this time.
ARDIS operates its system under a number of waivers of the FCC's technical
rules, including rules on station identification, for-profit use of excess
capacity, system loading, and multiple station ownership. Several of these
waivers were first obtained individually by IBM and Motorola, which operated
separate wireless data systems until forming the ARDIS joint venture in 1990.
The FCC incorporated a number of these waivers into its regulations when it
implemented Congress' statutory provision creating the CMRS classification,
and ARDIS no longer requires those waivers. On June 5, 1996, the FCC waived
its one-year construction requirement and granted ARDIS extensions of time to
complete the buildouts of approximately 190 sites, as required to maintain
previously granted licenses. As of March 25, 1998, ARDIS intends but has yet
to construct 104 of these sites. The extended construction deadlines vary by
site between June 27, 1998 and March 31, 1999. Failure to complete the
buildouts in a timely manner could result in a loss of licenses for such sites
from the FCC. In addition, at 11 of 104 uncompleted sites ARDIS is required to
erect a new tower, and there is no assurance that local zoning regulations
will not affect the timetable for the completion of these sites.
The foregoing does not purport to describe all present and proposed federal,
state, and local regulation and legislation relating to the industries in
which American Mobile and ARDIS operate. Other existing federal, state, and
local regulations currently are the subject of a variety of judicial
proceedings, legislative hearings, and administrative and legislative proposal
which could change, in varying degrees, the manner in which American Mobile
and ARDIS operate. Neither the outcome of these proceedings nor their impact
on American Mobile's and ARDIS' operations can be predicted at this time.
71
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth certain information regarding the directors
and executive officers of Holdings as of May 31, 1998.
NAME AGE POSITION
- ---- --- --------
Gary M. Parsons......... 48 Chairman of the Board of Directors and Chief Executive Officer
Walter V. Purnell, Jr... 53 President
Robert L. Goldsmith..... 54 Executive Vice President and Chief Operating Officer
Randy S. Segal.......... 42 Vice President, General Counsel and Secretary
Stephen D. Peck......... 53 Vice President, Chief Financial Officer
Jack A. Shaw............ 59 Director
Douglas I. Brandon...... 39 Director
Pradeep P. Kaul......... 48 Director
Ho Siaw Hong............ 49 Director
Billy J. Parrott........ 63 Director
Andrew A. Quartner...... 45 Director
Roderick M. Sherwood,
III.................... 44 Director
Michael T. Smith........ 54 Director
Set forth below are descriptions of the backgrounds and principal
occupations of each of Holdings' executive officers and directors.
EXECUTIVE OFFICERS
Gary M. Parsons, 48. Holdings' Chairman of the Board of Directors and Chief
Executive Officer effective upon the consummation of the Acquisition, Mr.
Parsons has been a Holdings director, the Chief Executive Officer and
President of Holdings since July 1996. Mr. Parsons joined Holdings from MCI
Communications Corporation ("MCI") 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., 53. Holdings' President effective upon the
consummation of the Acquisition. Prior to the Acquisition, Mr. Purnell was
President and Chief Executive Officer of ARDIS since September 1995.
Previously, Mr. Purnell had served as the chief financial officer of ARDIS
since its founding in 1990. Prior to 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, 54. Holdings' Executive Vice President and Chief
Operating Officer since February 1997. Prior to joining Holdings, 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.
72
Randy S. Segal, 42. Holdings' 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
the Honorable Edmund L. Palmieri for the United States District Court for the
Southern District of New York.
Stephen D. Peck, 53. Holdings' Vice President and Chief Financial Officer
since July 1997, Mr. Peck was formerly Executive Vice President and Chief
Financial Officer at Phillips Publishing International ("PPI"), which he
joined in 1986. Prior to joining PPI, Mr. Peck was Senior Vice President for
Finance and Administration of the Viguerie Company, which he joined in 1977.
DIRECTORS
Gary M. Parsons, a Holdings director and Chairman of the Board of Directors,
has been a Holdings director since July 1996. See "Executive Officers."
Douglas I. Brandon, 39. A Holdings director as of 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.
Ho Siaw Hong, 48. A Holdings director since April 1997 and from March 1993
to March 1994, Mr. Ho is Assistant Vice President of the Satellite Services
Group of Singapore Telecom. Since 1972 he has held a variety of positions at
Singapore Telecom in the areas of network control and management, cellular
radio, paging and satellite system planning and satellite business
development.
Pradeep P. Kaul, 48. A Holdings director as of May 1998, Mr. Kaul is
Executive Vice President of Hughes Network Systems ("HNS"), responsible for
HNS' 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. ("M/A-Com"), which was acquired
by Hughes Electronics Corporation ("Hughes") in 1987. Prior to that, Mr. Kaul
was director of engineering with M/A Com.
Billy J. Parrott, 63. A Holdings 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, 44. A Holdings director since May 1988, Mr. Quartner
also serves as corporate counsel of Nextlink Communications, Inc. and Vice
Chairman of CellPort Labs, Inc. Prior to his present positions, Mr. Quartner
was Senior Vice President, Law, of AT&T Wireless beginning in 1997, 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, 59. A Holdings director since July 1996, and formerly Chairman
of the Board of Directors of Holdings, Mr. Shaw is Chairman and Chief
Executive Officer of Hughes Network Systems, Inc. and Senior Vice President of
Hughes Electronics Corporation. Mr. Shaw is a member of the Hughes Electronics
Corporation Executive Committee. Previously, Mr. Shaw held senior management
positions with companies including ITT Space Communications, Inc., Digital
Communications Corporation, and M/A-COM Telecommunications, Inc., which was
acquired by Hughes in 1987.
73
Roderick M. Sherwood, III, 44. A Holdings director since April 1996, Mr.
Sherwood is a Vice President of Hughes Electronics Corporation and Executive
Vice President of DIRECTV International, Inc. Previously, Mr. Sherwood served
as Treasurer of Hughes Electronics Corporation, Senior Vice President--
Operations and Chief Financial Officer of Hughes Telecommunications and Space
Company, Chairman of Hughes Investment Management Company, and 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.
Michael T. Smith, 54. A Holdings director since April 1996, Mr. Smith is
Chairman and Chief Executive of Hughes Electronics Corporation. Mr. Smith is a
member of the Hughes Electronics Corporation Executive Committee. Prior to his
current position, Mr. Smith served as Chairman of Hughes Aircraft Company and
Vice Chairman of Hughes Electronics Corporation. 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.
Currently, there is one vacancy on the Board of Directors following the
resignation of former Director Yap Chee Keong in connection with his
termination of employment with Singapore Telecom.
74
MANAGEMENT COMPENSATION
EXECUTIVE COMPENSATION
The following tables set forth (a) the compensation paid or accrued by the
Company to the Company's chief executive officer and its three other most
highly compensated executive officers receiving over $100,000 per year on an
annual basis (the "Executive Officers") for services rendered during the
fiscal years ended December 31, 1997, 1996 and 1995, and (b) certain
information relating to options granted to such individuals.
Summary Compensation Table
LONG TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
--------------------------------------- ------------ ALL OTHER
NAME AND ANNUAL OTHER OPTIONS/ COMPEN-
PRINCIPAL POSITION YEAR SALARY(1) BONUS COMPENSATION(2) SARS(3) SATION(4)
------------------ ---- --------- -------- --------------- ------------ ---------
Gary M. Parsons.......... 1997 $317,692 $158,000 $ 9,600 100,000 $ --
Chief Executive Officer 1996 145,385 87,500 4,026 300,000 --
Robert L. Goldsmith(5)... 1997 189,807 76,406 8,800 100,000 --
Executive Vice
President,
Chief Operating Officer
Randy S. Segal........... 1997 191,000 66,850 9,600 25,000 --
Vice President, General 1996 191,000 52,716 5,619 65,000 --
Counsel and Secretary 1995 183,750 55,000 40,341 12,000 54,493
Stephen D. Peck(5)....... 1997 88,154 31,318 4,465 50,000 --
Vice President, Chief
Financial Officer
- --------
(1) Effective with the Acquisition, Messrs. Parsons', Purnell's, and
Goldsmith's, Ms. Segal's and Mr. Peck's annualized base salaries are
approximately $350,000, $225,000, $219,600, $204,400 and $195,400,
respectively.
(2) All dollar amounts reported for fiscal year 1995 relate to payments to
cover the Executive Officers' increased taxes as a result of relocation
expense reimbursements. All dollar amounts reported for fiscal year 1997
and 1996 relate to the personal use of a company car and/or a car
allowance.
(3) The numbers reflect grants of options to purchase shares of Common Stock
under the Holdings 1989 Employee Stock Option Plan (the "Stock Option
Plan"). The Company has not granted stock appreciation rights ("SARs").
(4) Relates to relocation expense reimbursements.
(5) Messrs. Goldsmith and Peck joined the Company in February 1997 and July
1997, respectively.
75
OPTION/SAR GRANTS IN LAST FISCAL YEAR
POTENTIAL REALIZABLE
VALUE AT ASSUMED
ANNUAL RATES OF
STOCK PRICE
APPRECIATION FOR
INDIVIDUAL GRANTS OPTION TERM (3)
---------------------------------------------------- ---------------------
NUMBER OF % OF TOTAL
SECURITIES OPTIONS/SARS
UNDERLYING GRANTED TO EXERCISE OR
OPTIONS/SARS EMPLOYEES/ BASE PRICE
NAME GRANTED(1)(2) FISCAL YEAR ($/SHARE) EXPIRATION DATE 5% 10%
- ---- ------------- ------------ --------- --------------- --------- -----------
Gary M. Parsons......... 100,000 7.7373% $12.81 Jan. 23, 2007 $ 806,021 $ 2,042,233
Robert L. Goldsmith..... 100,000 7.7373% 12.50 Feb. 3, 2007 786,118 1,992,178
Randy S. Segal.......... 25,000 1.9343% 12.81 Jan. 23, 2007 201,505 510,558
Stephen D. Peck......... 50,000 3.8686% 9.06 July 14, 2007 284,889 721,965
- --------
(1) The numbers reflect the grant of options to purchase shares of Common
Stock under the Stock Option Plan. The Company has not granted SARs.
(2) The options become exercisable in three annual installments, vesting at
the rate of 33 1/3% per year for three years.
(3) Based on actual option term and annual compounding. The actual value an
Executive Officer may realize will depend upon the excess of the price of
the Common Stock over the exercise price on the date the option is
exercised. Accordingly, there is no assurance that the value ultimately
realized by an Executive Officer, if any, will be at or near the values
indicated.
THE COMPANY'S MANAGEMENT AND COMPENSATION AFTER THE ACQUISITION
The networks, operations and sales activities of American Mobile and ARDIS
are being integrated such that the Company operates through a single
management structure utilizing the talents of the combined management team.
Mr. Purnell serves as President of the Company and of Holdings, and Mr.
Parsons serves as Chief Executive Officer and Chairman of the Board of
Directors of the Company and of Holdings. The Company intends to blend the
management of both American Mobile and ARDIS in key technical, sales,
marketing and financial positions, in order to leverage the capabilities of
each organization.
Management Compensation Following the Acquisition
Holdings and the Company have, historically, maintained an executive
compensation program designed to align the interests of management with those
of its stockholders. In so doing, the goals of the compensation program have
been to attract and retain key employees with significant equity participation
in the performance of Holdings and the Company through the use of stock
incentive grants to executives and key employees, as well as to all employees
of the Company. At the same time, in keeping with the overall program
philosophy, a significant portion of the cash compensation is at-risk, with
discretionary bonus compensation based on attainment of both individual and
corporate performance objectives.
In January 1998, the Board of Directors granted restricted stock to senior
management for the first time. These grants include both a three-year vesting
schedule as well as specific corporate performance targets related to either
the successful fulfillment of the Company's lease of MSAT-2 or the Company's
achievement of positive EBITDA. Unless waived by the Board of Directors,
failure to meet a required performance target would prevent the vesting of the
restricted shares.
76
The following table indicates the options and restricted stock granted to
the Executive Officers in January 1998, and their cumulative options and
restricted shares granted to date:
JANUARY 1998 TOTAL STOCK OPTION
JANUARY 1998 STOCK OPTION SHARES GRANTED
RESTRICTED STOCK SHARES (INCLUDING JANUARY
EXECUTIVE OFFICER SHARES AWARDED GRANTED 1998 GRANT)
----------------- ---------------- ------------ ------------------
Gary M. Parsons................ 111,111 100,000 500,000
Walter Purnell(1).............. 80,000 80,000 80,000
Robert Goldsmith............... 75,000 0 100,000
Randy S. Segal................. 60,000 0 123,932
Stephen D. Peck................ 30,000 0 50,000
- --------
(1) Mr. Purnell's grants were contingent on the successful consummation of the
Acquisition and Mr. Purnell's employment as President of the Company and
of Holdings, each of which transpired on March 31, 1998.
The companies also maintain broad-based employee stock ownership programs,
which also serve to align the interests of the employees with those of the
companies and their stockholders. These programs include an employee stock
purchase program and a company stock match for employees' contributions to a
401(k) savings plan. Holdings and the Company believe that the availability of
these broad-based programs offer additional benefits in recruiting and
retaining its employees.
Since the consummation of the Acquisition, Holdings and the Company have
continued the existing compensation policy.
Management Employment Agreements Following the Acquisition
At December, 1997, Holdings was a party to change in control agreements
(collectively, the "Change in Control Agreements," and individually, a "Change
in Control Agreement") with each of Robert Goldsmith, Stephen Peck and Randy
S. Segal, as well as with other members of senior management (collectively,
"Key
Executives," and individually, a "Key Executive"). Following the Acquisition a
similar agreement was entered into with Walter Purnell. Under the Change in
Control Agreements, the Company considers it essential to its best interests
and to the best interests of its stockholders to retain its key management
personnel. If a change in control occurs during the term of the Change in
Control Agreement and the Company terminates the employment of the Key
Executive within two years following the occurrence of such change in control,
(i) the Company will provide to each Key Executive a lump-sum severance
payment equal to the sum of the Key Executive's annual base salary and the Key
Executive's average bonus, (ii) all options to purchase securities of the
Company granted to the Key Executive pursuant to the Company's Stock Option
Plan or any other Company plan that are then held by the Key Executive will be
accelerated to the later of the date of termination or six months after the
date such option was granted, and shall continue to be exercisable for a two-
year period after such acceleration, and (iii) the Company will provide the
Key Executive with group term life insurance, health insurance, accident and
long-term disability insurance benefits, which shall continue for a twelve-
month period or until the date the Key Executive will reach age sixty-five
substantially similar in all respects to those that the Key Executive was
receiving immediately prior to the termination date. In addition, the Company
will pay to the Key Executive all reasonable legal fees and expenses incurred
by the Key Executive as a result of a termination.
Holdings also has entered into certain arrangements with Mr. Parsons with
respect to change in control of the companies. Mr. Parsons' agreements,
reflected in an initial employment letter agreement and in his subsequent
stock option and restricted stock agreements, provide that Mr. Parsons would
be entitled to one year's salary in the event his employment terminates
following a change in control, and all equity awards would vest upon the
occurrence of a change in control without regard to whether Mr. Parsons'
employment were terminated.
The Acquisition did not trigger a change in control under any of the
arrangements in effect for the Key Executives or for Mr. Parsons.
77
SECURITY OWNERSHIP
The following table and the accompanying notes set forth certain information
concerning the beneficial ownership of Holdings' Common Stock at March 31,
1998 (except where otherwise indicated) after giving effect to the Acquisition
by each person who is known by Holdings to own beneficially more than five
percent of Holdings' Common Stock. Except as otherwise indicated, each person
listed in the table has informed Holdings that such person has, or following
the Acquisition will have in the case of the pro forma numbers (i) sole voting
and investment power with respect to such person's shares of Common Stock and
(ii) record and beneficial ownership with respect to such person's shares of
Common Stock.
PRO FORMA PRO FORMA
NAME OF BENEFICIAL OWNER(1) NUMBER OF SHARES % OF CLASS
--------------------------- ---------------- ----------
AT&T Wireless Services, Inc.................... 3,881,424(2) 12.0%
1150 Connecticut Avenue, N.W.
Washington, DC 20036
Singapore Telecommunications Ltd............... 4,919,046(3) 15.2%
31 Exeter Road, Comcentre......................
Singapore 239732
Republic of Singapore
Baron Capital, Inc............................. 6,187,933(4) 19.2%
767 Fifth Avenue, 24th Floor...................
New York, NY 10153
Motorola, Inc.................................. 6,549,217(5) 20.6%
1303 East Algonquin Road
Schaumberg, IL 60196
Hughes Communications Satellite 11,566,622(6) 31.8%
Services, Inc.................................
Building S66/D468
Post Office Box 92424
Los Angeles, CA 90009
DIRECTORS AND EXECUTIVE OFFICERS
--------------------------------
Douglas I. Brandon............................. 0 *
Robert L. Goldsmith(7)(8)...................... 111,158 *
Ho Siaw Hong................................... 0 *
Pradeep P. Kaul................................ 0 *
Billy J. Parrott(9)(10)........................ 12,000 *
Gary M. Parsons(7)(8).......................... 256,267 *
Stephen D. Peck(7)(8).......................... 30,218 *
Walter V. Purnell, Jr.(8)(11).................. 80,200 *
Andrew A. Quartner(9)(12)...................... 5,500 *
Randy S. Segal(7)(8)........................... 133,556 *
Jack A. Shaw................................... 0 *
Roderick M. Sherwood III....................... 0 *
Michael T. Smith............................... 1,000 *
All Directors and Executive Officers as a group
(14 persons) (7)(8)(9)........................ 629,899 2.09%
78
- --------
* 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.
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 (1,344,067 shares), and
Space Technologies Investments, Inc. (1,855,539). Includes 649,347 shares
of Common Stock issuable upon exercise of warrants held by Space
Technologies Investments, Inc., and 230,932 shares of Common Stock
issuable upon exercise of warrants held by Satellite Communications
Investments Corporation. Such warrants are exercisable at any time
through December 20, 1998, at an exercise price of $21.00 per share,
subject to restriction if such exercise would cause the Company's foreign
ownership to exceed the levels permitted by the Communications Act.
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 81%-owned by Temasek Holdings
(Private) Ltd., a Singapore holding company that is wholly owned by the
Government of Singapore. Includes 812,500 shares of Common Stock issuable
upon exercise of warrants issued in connection with the Bank Financing.
(4) Includes 812,500 shares of Common Stock issuable upon exercise of
warrants issued in connection with the Bank Financing.
(5) Of these shares, 25,000 have not yet been issued to allow for potential
purchase price adjustment reduction in connection with the Acquisition.
(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 of warrants
issued in connection with the Bank Financing.
(7) Includes shares owned through the Company's matching 401(k) Plan and/or
Employee Stock Purchase Plan.
(8) Includes shares issuable upon the exercise of options granted under the
Stock Option Plan which options are vested and exercisable within sixty
days after March 31, 1998, subject to compliance with applicable
securities laws.
(9) Includes shares issuable upon the exercise of options granted under the
Nonemployee Director Stock Option Plan which options are vested and
exercisable within sixty days after March 31, 1998, subject to compliance
with applicable securities laws.
(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.
79
CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
Holdings and each holder of shares of Common Stock who acquired such shares
prior to Holdings' 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, without giving
effect to the Units Offering. The Stockholders' Agreement sets forth
agreements among the parties relating to the governance of Holdings, ownership
of shares and the voting and transferability of Common Stock and other
matters. The Stockholders' Agreement limits Holdings' activities to providing
and marketing mobile satellite service, designing, constructing, operating and
maintaining American Mobile's mobile satellite system, engaging in the
communications business, and engaging in activities necessary, appropriate or
reasonably related to the foregoing. Holdings does not currently intend to
engage in any other activities. 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 U.S. citizen, if such action would cause Holdings to violate applicable
law, regulations or FCC policy.
In the Stockholders' Agreement, 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 Holdings'
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 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 Holdings, would
raise a reasonable prospect of violating the Communications Act or regulations
thereunder. Moreover, before any Specified Stockholder may elect a director of
Holdings 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 or entities or their representatives (the
Company's wholly-owned subsidiary, AMSC Subsidiary Corporation, as the holder
of the FCC license to construct and operate American Mobile's 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 (the Company controls AMSC Subsidiary Corporation and therefore
is subject to these restrictions). The Stockholders' Agreement contains
procedures for reducing the risk that Holdings 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 Holdings.
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
80
under the Stockholders' Agreement, provided such transferee together with its
affiliates would, giving effect to such transfer, hold in excess of 5.0% 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.
Stockholders Guarantees
As described below, certain of the principal stockholders of Holdings are
guarantors of the New Bank Financing, and have received certain warrants to
purchase shares of Holdings' Common Stock and other consideration in
connection with providing such guarantee. See "Description of New Bank
Financing."
Bridge Facility
On December 30, 1997, Holdings entered into a bridge facility (the "Bridge
Facility") with HCSSI in the principal amount of up to $10 million, secured by
a pledge of Holdings' interest in its 80%-owned subsidiary, AMRC Holdings,
Inc. The Bridge Facility bore an annual interest rate of 12% and a maturity
date of March 31, 1999, and required mandatory repayment in the event net
proceeds are received from any asset disposition, lease agreement, financing
or equity transaction of Holdings. The Bridge Facility also included a number
of conditions precedent to each borrowing thereunder, including a schedule for
permitted borrowings through February 1998. The Bridge Facility was fully
drawn, and was repaid in full with a portion of the proceeds from the Units
Offering.
Motorola Agreements
In connection with the Acquisition, and pursuant to the Purchase Agreement,
Holdings, Motorola and certain of Holdings' principal stockholders (Hughes,
Singapore Telecom and AT&T Wireless) (the "Participating Stockholders") agreed
to certain participation and registration rights with respect to Holdings'
Common Stock.
Pursuant to the terms of the Participation Rights Agreements 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
Holdings' 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 Holdings' Common Stock, Motorola has 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 are
entitled to similar notice and participation rights in the event of an
intended transfer by Motorola of its interests in Holdings' Common Stock.
The Participation Rights Agreement also provides that in connection with the
Acquisition, Motorola is 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 Agreement, after the
first year following the Acquisition of ARDIS, Motorola or its transferees
is/are entitled to two demand registrations with respect to its shares of
Holdings' Common Stock, subject to certain registration priorities and
postponement rights of Holdings. In addition, Motorola is entitled to
piggyback registration in connection with any registration of securities by
Holdings (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 has certain
priorities for sale over those of other parties (including the Participating
Stockholders). Motorola's priority rights, however, do not extend to a primary
registration on behalf of Holdings or to the registration rights relating to
the Old Notes.
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In addition, under the Participation Rights Agreement, the Participating
Stockholders and Baron agreed with Motorola to vote its shares of Common Stock
in favor of and take such other action as may be necessary to approve the
Acquisition, including the issuance of shares of Holdings' Common Stock to
Motorola in connection with the Acquisition.
As described below, Motorola also agreed to provide the Company with a $10.0
million Vendor Financing Facility. See "Description of Motorola Vendor
Financing."
DESCRIPTION OF NEW BANK FINANCING
In connection with the Units Offering, Holdings, the Company and its
subsidiaries renegotiated the then existing $200.0 million Bank Financing 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: (i) the Revolving
Credit Facility, a $100.0 million unsecured five-year reducing revolving
credit facility, and (ii) the Term Loan Facility, a $100.0 million five-year,
term loan facility with up to three additional one-year extensions subject to
the Banks' approval. The Revolving Credit Facility will rank pari passu with
the Notes. The Term Loan Facility is secured by the assets of Holdings,
principally its assets in AMRC and the Company, and will be effectively
subordinated to the Revolving Credit Facility and the Notes. The New Bank
Financing will be severally guaranteed by Hughes, Singapore Telecom and Baron
Capital Partners, L.P.
The Banks' placement fee for the New Bank Financing was in an amount of
approximately $500,000. Each of the Revolving Credit Facility and the Term
Loan Facility are severally guaranteed by Hughes, Singapore Telecom and Baron
(the "Bank Facility Guarantors"). In addition, in connection with the New Bank
Financing, the Bridge Facility will be repaid.
The Revolving Credit Facility
The Revolving Credit Facility bears an interest rate, generally, of 50.0
basis points above London Interbank Offered Rate ("LIBOR") and is unsecured,
with a negative pledge on the assets of the 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 Company would be required to repay and reduce the Revolving
Credit Facility, unless otherwise waived by the Banks and the Bank Facility
Guarantors: (1) 100% of excess cash flow obtained by the Company; (2) the
first $25.0 million net proceeds of the lease or sale of MSAT-2 received by
the Company, and thereafter 75% of the remaining proceeds received from such
lease or sale (the remaining 25% may be retained by the 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 offerings of the Company's equity (the
remaining 50% to be retained by the 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
Holdings.
The Term Loan Facility
The Term Loan Facility bears an interest rate, generally, of 50.0 basis
points above LIBOR and is secured by the assets of Holdings, principally its
stockholdings in AMRC and the Company. The Term Loan Agreement does not
include any scheduled amortization until maturity, but does contain certain
provisions for prepayment based on certain proceeds received by Holdings,
unless otherwise waived by the Banks and the Bank Facility Guarantors: (1)
100% of excess cash flow obtained by Holdings; (2) the first $25.0 million net
proceeds of the lease or sale of MSAT-2 received by Holdings, and thereafter
75% of the remaining proceeds received from such lease or sale (the remaining
25% to be retained by the Company for business operations); (3) 100% of the
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proceeds of any other asset sales by Holdings; (4) 50% of the net proceeds of
any equity offerings of Holdings (the remaining 50% to be retained by Holdings
for business operations); and (5) 100% of any major casualty proceeds of
Holdings. To the extent that the Term Loan Facility is repaid, the
aforementioned proceeds that would otherwise have been used to repay the Term
Loan Facility will be used to repay and reduce the commitment under the
Revolving Credit Facility.
The Guarantees
In connection with the New Bank Financing, the Bank Facility Guarantors
agreed to extend separate guarantees of the obligations of each of the Company
and Holdings to the Banks, which on a several basis aggregate to $200 million.
In their agreement with each of the Company and Holdings (the "Guarantee
Issuance Agreement"), the Bank Facility Guarantors agreed to make their
guarantees available for the New Bank Financing. The Guarantee Issuance
Agreement includes certain additional agreements of the Company and of
Holdings including with respect to financial performance of the Company
relating to the ratio of debt to EBITDA and service revenue, which, if not
met, could, if not waived, limit the Company's ability to draw down on
additional amounts under the Revolving Credit Facility and result in a default
under the New Bank Financing beginning in 1999. In exchange for the additional
risks undertaken by the Bank Facility Guarantors in connection with the New
Bank Financing, Holdings agreed to compensate the Bank Facility Guarantors,
principally in the form of 1 million additional warrants and repricing of 5.5
million warrants previously issued (together, the "Guarantee Warrants"). The
Guarantee Warrants have an exercise price of $12.51. The Bank Facility
Guarantors have certain demand and piggy-back registration rights with regard
to the unregistered shares of the Company's Common Stock held by them or
issuable upon exercise of the Guarantee Warrants.
Further, in connection with the Guarantee Issuance Agreement, Holdings
agreed to reimburse the Bank Facility Guarantors in the event that the
Guarantors are required to make payment under the Revolving Credit Facility
guarantees, and, in connection with this Reimbursement Commitment provided the
Bank Facility Guarantors a junior security interest with respect to the assets
of Holdings, principally its stockholdings in AMRC and the Company.
DESCRIPTION OF MOTOROLA VENDOR FINANCING
Motorola has agreed to provide the Company with up to $10.0 million of
vendor financing, which will be available to finance up to 75% of the purchase
price of additional base stations needed to meet the buildout requirements of
the UPS Contract. Loans under this facility will bear interest at a rate equal
to LIBOR plus 7.0% and will be guaranteed by Holdings and each subsidiary of
the Company. The terms of such facility will require that amounts borrowed be
secured by the equipment purchased therewith. This commitment is subject to
customary conditions, including due diligence, and there can be no assurance
that the facility will be obtained by the Company on these terms or at all.
See "Risk Factors--Liquidity; Need for Additional Capital."
THE EXCHANGE OFFER
PURPOSE AND EFFECT OF THE EXCHANGE OFFER
The Old Notes were originally sold by the Company on March 31, 1998 to the
Initial Purchasers pursuant to the Purchase Agreement. The Initial Purchasers
subsequently resold the Old Notes to qualified institutional buyers in
reliance on Rule 144A under the Securities Act and pursuant to offers and
sales that occurred outside the United States within the meaning of Regulation
S under the Securities Act. As a condition to the completion of the Units
Offering, the Company and the Subsidiary Guarantors entered into the Debt
Registration Rights Agreement with the Initial Purchasers pursuant to which
the Company and the Subsidiary Guarantors agreed to file with the Commission
the Exchange Offer Registration Statement on the appropriate form under the
Securities Act with respect to an offer to exchange the Old Notes for Exchange
Notes. The Exchange Notes will be substantially identical to the Old Notes,
except that the Exchange Notes will bear a Series B designation and will have
been registered under the Securities Act and, therefore will not contain terms
with respect to transfer
83
restrictions (other than those that might be imposed by state securities
laws). If (i) Holdings, the Company and the Subsidiary Guarantors are not
required to file the Exchange Offer Registration Statement or permitted to
commence or accept tenders pursuant to the Exchange Offer because the Exchange
Offer is not permitted by applicable law or Commission policy or (ii) any
Holder of Transfer Restricted Securities (as defined herein) notifies the
Company prior to the 20th business day after the consummation of the Exchange
Offer that (a) it is prohibited by law or Commission policy from participating
in the Exchange Offer or (b) it may not resell the Exchange Notes acquired by
it in the Exchange Offer to the public without delivering a prospectus and the
prospectus contained in the Exchange Offer Registration Statement is not
appropriate or available for such resales or (c) it is a broker-dealer and
owns Old Notes acquired directly from the Company or an affiliate of the
Company, Holdings, the Company and the Subsidiary Guarantors will file with
the Commission the Shelf Registration Statement. For purposes of the Exchange
Offer, "Transfer Restricted Securities" means each Old Note until the earliest
to occur of (i) the date on which such Old Note has been exchanged in the
Exchange Offer for an Exchange Note which is entitled to be resold to the
public by the Holder thereof without complying with the prospectus delivery
requirements of the Securities Act, (ii) the date on which such Old Note has
been effectively registered under the Securities Act and disposed of in
accordance with the Shelf Registration Statement or (iii) the date on which
such Old Note is distributed to the public pursuant to Rule 144 under the
Securities Act (and purchasers thereof have been issued Exchange Notes) and
each Exchange Note until the date on which such Exchange Note is disposed of
by a broker-dealer pursuant to the section entitled "Plan of Distribution,"
herein.
Under existing interpretations of the staff of the Commission, the Exchange
Notes would, in general, be freely transferable after the Exchange Offer
without further registration under the Securities Act. However, any purchaser
of Old Notes who is an "affiliate" of the Company or intends to participate in
the Exchange Offer for the purpose of distributing the Exchange Notes (i) will
not be able to rely on the interpretations of the staff of the Commission,
(ii) will not be able to tender its Old Notes in the Exchange Offer and (iii)
must comply with the registration and prospectus delivery requirements of the
Securities Act in connection with any sale or transfer of the Old Notes,
unless such sale or transfer is made pursuant to an exemption from such
requirements.
Each holder who wishes to exchange such Old Notes for Exchange Notes in the
Exchange Offer will be required to make certain representations, including
representations that (i) it is not an affiliate of the Company, (ii) it is not
engaged in, and does not intend to engage in, and has no arrangement or
understanding with any person to participate in, a distribution of the
Exchange Notes and (iii) it is acquiring the Exchange Notes in its ordinary
course of business. In addition, broker-dealers receiving Exchange Notes in
the Exchange Offer will have a prospectus delivery requirement with respect to
resales of Exchange Notes. The Commission has taken the position that such
broker-dealers may fulfill their prospectus delivery requirements with respect
to the Exchange Notes (other than a resale of an unsold allotment from the
original sale of Old Notes) with the prospectus contained in the Exchange
Offer Registration Statement. Under the Debt Registration Rights Agreement,
the Company is required to allow such broker-dealers to use the prospectus
contained in the Exchange Offer Registration Statement in connection with the
resale of such Exchange Notes for a period of one year after the Expiration
Date.
The Debt Registration Rights Agreement provides that (i) Holdings, the
Company and the Subsidiary Guarantors will file an Exchange Offer Registration
Statement with the Commission on or prior to 45 days after the completion of
the Units Offering, (ii) Holdings, the Company and the Subsidiary Guarantors
will use their best efforts to have the Exchange Offer Registration Statement
declared effective by the Commission on or prior to 135 days after the
completion of the Units Offering, (iii) unless the Exchange Offer would not be
permitted by applicable law or Commission policy, the Company will commence
the Exchange Offer and use its best efforts to issue on or prior to 30
business days after the date on which the Exchange Offer Registration
Statement is declared effective by the Commission, Exchange Notes in exchange
for all Old Notes tendered prior thereto in the Exchange Offer, and (iv) if
obligated to file the Shelf Registration Statement, Holdings, the Company and
the Subsidiary Guarantors will use their best efforts to file the Shelf
Registration Statement with the Commission on or prior to 30 days after such
filing obligation arises and to cause the Shelf Registration Statement to be
declared effective by the Commission on or prior to 135 days after such
obligation arises.
84
If (i) Holdings, the Company and the Subsidiary Guarantors fail to file any
of the Registration Statements required by the Debt Registration Rights
Agreement on or before the date specified for such filing, (ii) any of such
Registration Statements is not declared effective by the Commission on or
prior to the date specified for such effectiveness (the "Effectiveness Target
Date"), (iii) Holdings, the Company and the Subsidiary Guarantors fail to
consummate the Exchange Offer within 30 business days of the Effectiveness
Target Date with respect to the Exchange Offer Registration Statement or (iv)
the Shelf Registration Statement or the Exchange Offer Registration Statement
is declared effective but thereafter ceases to be effective or usable in
connection with resales of Transfer Restricted Securities during the periods
specified in the Registration Rights Agreement (each such event referred to in
clauses (i) through (iv) above a "Registration Default"), then Holdings, the
Company and the Subsidiary Guarantors will pay Liquidated Damages to each
Holder of Notes in an amount equal to 0.05% per week per $1,000 principal
amount of the Notes for the first 90 days after such Registration Default. The
amount of the Liquidated Damages will increase, up to a maximum rate of $.50
per week per $1,000 principal amount of Notes, by an additional 0.05 % per
week per $1,000 principal amount of Notes with respect to each subsequent 90-
day period until all Registration Defaults have been cured. Following the cure
of all Registration Defaults, the accrual of Liquidated Damages will cease.
The summary herein of certain provisions of the Debt Registration Rights
Agreement does not purport to be complete and is subject to, and is qualified
in its entirety by, all the provisions of the Debt Registration Rights
Agreement, a copy of which is filed as an exhibit to the Exchange Offer
Registration Statement of which this Prospectus is a part.
Following the consummation of the Exchange Offer, holders of the Old Notes
who were eligible to participate in the Exchange Offer but who did not tender
their Old Notes will not have any further registration rights and such Old
Notes will continue to be subject to certain restrictions on transfer.
Accordingly, the liquidity of the market for such Old Notes could be adversely
affected.
TERMS OF THE EXCHANGE OFFER
Upon the terms and subject to the conditions set forth in this Prospectus
and in the Letter of Transmittal, the Company will accept any and all Old
Notes validly tendered and not withdrawn prior to 5:00 p.m., New York time, on
the Expiration Date. The Company will issue $1,000 principal amount of
Exchange Notes in exchange for each $1,000 principal amount of outstanding Old
Notes accepted in the Exchange Offer. Holders may tender some or all of their
Old Notes pursuant to the Exchange Offer. However, Old Notes may be tendered
only in integral multiples of $1,000.
The form and terms of the Exchange Notes are the same as the form and terms
of the Old Notes except that (i) the Exchange Notes bear a Series B
designation and a different CUSIP Number from the Old Notes, (ii) the Exchange
Notes have been registered under the Securities Act and hence will not bear
legends restricting the transfer thereof and (iii) the holders of the Exchange
Notes will not be entitled to certain rights under the Debt Registration
Rights Agreement, including the provisions providing for an increase in the
interest rate on the Old Notes in certain circumstances relating to the timing
of the Exchange Offer, all of which rights generally will terminate when the
Exchange Offer is terminated. The Exchange Notes will evidence the same debt
as the Old Notes and will be entitled to the benefits of the Indenture.
The Exchange Offer is not conditioned upon any minimum number of Old Notes
being tendered. As of the date of this Prospectus, $335,000,000 aggregate
principal amount of Old Notes were outstanding.
Holders of Old Notes do not have any appraisal or dissenters rights under
the General Corporation Law of Delaware or the Indenture in connection with
the Exchange Offer. The Company intends to conduct the Exchange Offer in
accordance with the applicable requirements of the Exchange Act and the rules
and regulations of the Commission thereunder.
85
The Company shall be deemed to have accepted validly tendered Old Notes
when, as and if the Company has given oral or written notice thereof to the
Exchange Agent. The Exchange Agent will act as agent for the tendering holders
for the purpose of receiving the Exchange Notes from the Company.
If any tendered Old Notes are not accepted for exchange because of an
invalid tender, the occurrence of certain other events set forth herein or
otherwise, the certificates for any such unaccepted Old Notes will be
returned, without expense, to the tendering holder thereof as promptly as
practicable after the Expiration Date.
Holders who tender Old Notes in the Exchange Offer will not be required to
pay brokerage commissions or fees or, subject to the instructions in the
Letter of Transmittal, transfer taxes with respect to the exchange of Old
Notes pursuant to the Exchange Offer. The Company will pay all charges and
expenses, other than transfer taxes in certain circumstances, in connection
with the Exchange Offer. See "--Fees and Expenses."
EXPIRATION DATE; EXTENSIONS; AMENDMENTS
The term "Expiration Date" shall mean 5:00 p.m., New York time, on [ ],
1998, unless the Company, in its sole discretion, extends the Exchange Offer,
in which case the term "Expiration Date" shall mean the latest date and time
to which the Exchange Offer is extended.
In order to extend the Exchange Offer, the Company will notify the Exchange
Agent of any extension by oral or written notice and will mail to the
registered holders an announcement thereof, each prior to 9:00 a.m., New York
time, on the next business day after the previously scheduled expiration date.
The Company reserves the right, in its sole discretion, (i) to delay
accepting any Old Notes, to extend the Exchange Offer or to terminate the
Exchange Offer if any of the conditions set forth below under "--Conditions"
shall not have been satisfied, by giving oral or written notice of such delay,
extension or termination to the Exchange Agent or (ii) to amend the terms of
the Exchange Offer in any manner. Any such delay in acceptance, extension,
termination or amendment will be followed as promptly as practicable by oral
or written notice thereof to the registered holders.
INTEREST ON THE EXCHANGE NOTES
The Exchange Note will bear interest from the most recent date to which
interest has been paid or duly provided for on the Old Note surrendered in
exchange for such Exchange Note or, if no interest has been paid or duly
provided for on such Old Note, from March 31, 1998. Interest on the Exchange
Notes is payable semi-annually on each April 1 and October 1 commencing on
October 1, 1998.
Holders of Old Notes whose Old Notes are accepted for exchange will not
receive accrued interest on such Old Notes for any period from and after the
last date to which interest has been paid or duly provided for on the Old
Notes prior to the original issue date of the Exchange Notes or, if no such
interest has been paid or duly provided for will not receive any accrued
interest on such Old Notes, and will be deemed to have waived, the right to
receive any interest on such Old Notes accrued from and after March 31, 1998.
PROCEDURES FOR TENDERING
For a holder of Old Notes to tender Old Notes validly pursuant to the
Exchange Offer, a properly completed and duly executed Letter of Transmittal
(or facsimile thereof), with any required signature guarantee, or (in the case
of a book-entry transfer), an Agent's Message in lieu of the Letter of
Transmittal, and any other required documents, must be received by the
Exchange Agent at the address set forth in the Letter of Transmittal prior to
5:00 p.m., New York time, on the Expiration Date. In addition, prior to 5:00
p.m., New York time, on the Expiration Date, either (a) certificates for
tendered Old Notes must be received by the Exchange Agent at such address or
(b) such Old Notes must be transferred pursuant to the procedures for book-
entry transfer described below (and a confirmation of such tender received by
the Exchange Agent, including an Agent's Message if the tendering holder has
not delivered a Letter of Transmittal).
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The term "Agent's Message" means a message transmitted by the Depository,
received by the Exchange Agent and forming part of the confirmation of a book-
entry transfer, which states that the Depository has received an express
acknowledgment from the participant in the Depository tendering Old Notes
which are the subject of such book-entry confirmation that such participant
has received and agrees to be bound by the terms of the Letter of Transmittal
and that the Company may enforce such agreement against such participant. In
the case of an Agent's Message relating to guaranteed delivery, the term means
a message transmitted by the Depository and received by the Exchange Agent,
which states that the Depository has received an express acknowledgment from
the participant in the Depository tendering Old Notes that such participant
has received and agrees to be bound by the Notice of Guaranteed Delivery.
By tendering Old Notes pursuant to the procedures set forth above, each
holder will make to the Company the representations set forth above in the
third paragraph under the heading "--Purpose and Effect of the Exchange
Offer."
The tender by a holder and the acceptance thereof by the Company will
constitute agreement between such holder and the Company in accordance with
the terms and subject to the conditions set forth herein and in the Letter of
Transmittal.
THE METHOD OF DELIVERY OF OLD NOTES AND THE LETTER OF TRANSMITTAL AND ALL
OTHER REQUIRED DOCUMENTS TO THE EXCHANGE AGENT IS AT THE ELECTION AND SOLE
RISK OF THE HOLDER. AS AN ALTERNATIVE TO DELIVERY BY MAIL, HOLDERS MAY WISH TO
CONSIDER OVERNIGHT OR HAND DELIVERY SERVICE. IN ALL CASES, SUFFICIENT TIME
SHOULD BE ALLOWED TO ASSURE DELIVERY TO THE EXCHANGE AGENT BEFORE THE
EXPIRATION DATE. NO LETTER OF TRANSMITTAL OR NOTES SHOULD BE SENT TO THE
COMPANY. HOLDERS MAY REQUEST THEIR RESPECTIVE BROKERS, DEALERS, COMMERCIAL
BANKS, TRUST COMPANIES OR NOMINEES TO EFFECT THE ABOVE TRANSACTIONS FOR SUCH
HOLDERS.
Any beneficial owner whose Old Notes are registered in the name of a broker,
dealer, commercial bank, trust company or other nominee and who wishes to
tender should contact the registered holder promptly and instruct such
registered holder to tender on such beneficial owner's behalf. See "Signatures
On This Letter, Bond Powers and Endorsements, Guarantee of Signatures"included
with the Letter of Transmittal.
Signatures on a Letter of Transmittal or a notice of withdrawal, as the case
may be, must be guaranteed by an Eligible Institution (as defined below)
unless the Old Notes tendered pursuant thereto are tendered (i) by a
registered holder who has not completed the box entitled "Special Issuance
Instructions" or "Special Delivery Instructions" on the Letter of Transmittal
or (ii) for the account of an Eligible Institution. In the event that
signatures on a Letter of Transmittal or a notice of withdrawal, as the case
may be, are required to be guaranteed, such guarantee must be by a member firm
of the Medallion System (an "Eligible Institution").
If the Letter of Transmittal is signed by a person other than the registered
holder of any Old Notes listed therein, such Old Notes must be endorsed or
accompanied by a properly completed bond power, signed by such registered
holder as such registered holder's name appears on such Old Notes with the
signature thereon guaranteed by an Eligible Institution.
If the Letter of Transmittal or any Old Notes or bond powers are signed by
trustees, executors, administrators, guardians, attorneys-in-fact, offices of
corporations or others acting in a fiduciary or representative capacity, such
persons should so indicate when signing, and evidence satisfactory to the
Company of their authority to so act must be submitted with the Letter of
Transmittal.
The Company understands that the Exchange Agent will make a request promptly
after the date of this Prospectus to establish accounts with respect to the
Old Notes at the book-entry transfer facility, The Depository Trust Company
("DTC" or the "Book-Entry Transfer Facility"), for the purpose of facilitating
the Exchange
87
Offer, and subject to the establishment thereof, any financial institution
that is a participant in the Book-Entry Transfer Facility's system may make
book-entry delivery of Old Notes by causing such Book-Entry Transfer Facility
to transfer such Old Notes into the Exchange Agent's account with respect to
the Old Notes in accordance with the Book-Entry Transfer Facility's procedures
for such transfer. Although delivery of the Old Notes may be effected through
book-entry transfer into the Exchange Agent's account at the Book-Entry
Transfer Facility, an appropriate Letter of Transmittal properly completed and
duly executed with any required signature guarantee, or, in the case of a
book-entry transfer, an Agent's Message in lieu of the Letter of Transmittal
and all other required documents must in each case be transmitted to and
received or confirmed by the Exchange Agent at its address set forth in the
Letter of Transmittal on or prior to the Expiration Date, or, if the
guaranteed delivery procedures described below are complied with, within the
time period provided under such procedures. Delivery of documents to the Book-
Entry Transfer Facility does not constitute delivery to the Exchange Agent.
The Exchange Agent and DTC have confirmed that the Exchange Offer is
eligible for the DTC Automated Tender Offer Program ("ATOP"). Accordingly, DTC
participants may electronically transmit their acceptance of the Exchange
Offer by causing DTC to transfer Old Notes to the Exchange Agent in accordance
with DTC's ATOP procedures for transfer. DTC will then send an Agent's Message
to the Exchange Agent.
All questions as to the validity, form, eligibility (including time of
receipt), acceptance of tendered Old Notes and withdrawal of tendered Old
Notes will be determined by the Company in its sole discretion, which
determination will be final and binding. The Company reserves the absolute
right to reject any and all Old Notes not properly tendered or any Old Notes
the Company's acceptance of which would, in the opinion of counsel for the
Company, be unlawful. The Company also reserves the right in its sole
discretion to waive any defects, irregularities or conditions of tender as to
particular Old Notes. The Company's interpretation of the terms and conditions
of the Exchange Offer (including the instructions in the Letter of
Transmittal) will be final and binding on all parties. Unless waived, any
defects or irregularities in connection with tenders of Old Notes must be
cured within such time as the Company shall determine. Although the Company
intends, to notify holders of defects or irregularities with respect to
tenders of Old Notes, neither the Company, the Exchange Agent nor any other
person shall incur any liability for failure to give such notification.
Tenders of Old Notes will not be deemed to have been made until such defects
or irregularities have been cured or waived. Any Old Notes received by the
Exchange Agent that are not properly tendered and as to which the defects or
irregularities have not been cured or waived will be returned by the Exchange
Agent to the tendering holders, unless otherwise provided in the Letter of
Transmittal, as soon as practicable following the Expiration Date.
GUARANTEED DELIVERY PROCEDURES
Holders who wish to tender their Old Notes and (i) whose Old Notes are not
immediately available, (ii) who cannot deliver their Old Notes, the Letter of
Transmittal or any other required documents to the Exchange Agent or (iii) who
cannot complete the procedures for book-entry transfer, prior to the
Expiration Date, may effect a tender if:
(a) the tender is made through an Eligible Institution;
(b) prior to the Expiration Date, the Exchange Agent receives from such
Eligible Institution a properly completed and duly executed Notice of
Guaranteed Delivery (by facsimile transmission, mail or hand delivery)
setting forth the name and address of the holder, the certificate number(s)
of such Old Notes and the principal amount of Old Notes tendered, stating
that the tender is being made thereby and guaranteeing that, within five
New York Stock Exchange trading days after the Expiration Date, the Letter
of Transmittal (or facsimile thereof) together with the certificate(s)
representing the Old Notes (or a confirmation of book-entry transfer of
such Old Notes into the Exchange Agent's account at the Book-Entry Transfer
Facility), and any other documents required by the Letter of Transmittal
will be deposited by the Eligible Institution with the Exchange Agent; and
(c) such properly completed and executed Letter of Transmittal (of
facsimile thereof), as well as the certificates representing all tendered
Old Notes in proper form for transfer (or a confirmation of book-entry
88
transfer of such Old Notes into the Exchange Agent's account at the Book-
Entry Transfer Facility), and all other documents required by the Letter of
Transmittal are received by the Exchange Agent upon five New York Stock
Exchange trading days after the Expiration Date.
Upon request to the Exchange Agent, a Notice of Guaranteed Delivery will be
sent to holders who wish to tender their Old Notes according to the guaranteed
delivery procedures set forth above.
WITHDRAWAL OF TENDERS
Except as otherwise provided herein, tenders of Old Notes may be withdrawn
at any time prior to 5:00 p.m., New York time, on the Expiration Date.
To withdraw a tender of Old Notes in the Exchange Offer, a telegram, telex,
letter or facsimile transmission notice of withdrawal must be received by the
Exchange Agent at its address set forth in the Letter of Transmittal prior to
5:00 p.m., New York time, on the Expiration Date. Any such notice of
withdrawal must specify the name of the person having deposited the Old Notes
to be withdrawn (the "Depositor"), identify the Old Notes to be withdrawn
(including the principal amount of such Old Notes) and (where certificates for
Old Notes have been transmitted) specify the name in which such Old Notes are
registered, if different from that of the Depositor. In the case of Old Notes
transferred by book-entry transfer, specify the name and number of the account
at the Book-Entry Transfer Facility to be credited. If certificates for Old
Notes have been delivered or otherwise identified to the Exchange Agent, then
prior to the release of such certificates the Depositor must also submit the
serial numbers of the particular certificates to be withdrawn and a signed
notice of withdrawal with signatures guaranteed by an Eligible Institution
unless such Depositor is an Eligible Institution in which case such guarantee
will not be required. All questions as to the validity, form and eligibility
(including time of receipt) of such notices will be determined by the Company,
whose determination shall be final and binding on all parties. Any Old Notes
so withdrawn will be deemed not to have been validly tendered for purposes of
the Exchange Offer and no Exchange Notes will be issued with respect thereto
unless the Old Notes so withdrawn are validly retendered. Any Old Notes which
have been tendered but which are not accepted for exchange will be returned to
the holder thereof without cost to such holder as soon as practicable after
withdrawal, rejection of tender or termination of the Exchange Offer. Properly
withdrawn Old Notes may be retendered by following one of the procedures
described above under "--Procedures for Tendering" at any time prior to the
Expiration Date.
CONDITIONS
Notwithstanding any other term of the Exchange Offer, the Company shall not
be required to accept for exchange, or exchange Exchange Notes for, any Old
Notes, and may terminate or amend the Exchange Offer as provided herein before
the acceptance of such Old Notes, if:
(a) any action or proceeding is instituted or threatened in any court or
by or before any governmental agency with respect to the Exchange Offer
which, in the Company's reasonable discretion, might materially impair the
ability of the Company to proceed with the Exchange Offer or any material
adverse development has occurred in any existing action or proceeding with
respect to the Company or any of its subsidiaries; or
(b) any law, statute, rule, regulation or interpretation by the staff of
the Commission is proposed, adopted or enacted, which, in the Company's
reasonable discretion, might materially impair the ability of the Company
to proceed with the Exchange Offer or materially impair the contemplated
benefits of the Exchange offer to the Company; or
(c) any governmental approval has not been obtained, which approval the
Company shall, in the Company's reasonable discretion, deem necessary for
the consummation of the Exchange Offer as contemplated hereby.
If the Company determines in its reasonable discretion that any of the
conditions are not satisfied, the Company may (i) refuse to accept any Old
Notes and return all tendered Old Notes to the tendering holders, (ii) extend
the Exchange Offer and retain all Old Notes tendered prior to the expiration
of the Exchange Offer,
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subject, however, to the rights of holders to withdraw such Old Notes (see "--
Withdrawal of Tenders"), or (iii) waive such unsatisfied conditions with
respect to the Exchange Offer and accept all properly tendered Old Notes which
have not been withdrawn.
EXCHANGE AGENT
State Street Bank and Trust Co. (the "Exchange Agent") has been appointed as
Exchange Agent for the Exchange Offer. Questions and requests for assistance,
requests for additional copies of this Prospectus or of the Letter of
Transmittal and requests for Notice of Guaranteed Delivery should be directed
to the Exchange Agent at the address indicated in the Letter of Transmittal.
Delivery to an address other than as set forth in the Letter of Transmittal
will not constitute a valid delivery.
FEES AND EXPENSES
The expenses of soliciting tenders will be borne by the Company. The
principal solicitation is being made by mail; however, additional solicitation
may be made by telegraph, telecopy, telephone or in person by officers and
regular employees of the Company and its affiliates.
The Company has not retained any dealer-manager in connection with the
Exchange Offer and will not make any payments to brokers, dealers, or others
soliciting acceptances of the Exchange Offer. The Company, however, will pay
the Exchange Agent reasonable and customary fees for its services and will
reimburse it for its reasonable out-of-pocket expenses in connection
therewith.
The cash expenses to be incurred in connection with the Exchange Offer will
be paid by the Company. Such expenses include fees and expenses of the
Exchange Agent and Trustee, accounting and legal fees and printing costs,
among others.
ACCOUNTING TREATMENT
The Exchange Notes will be recorded at the same carrying value as the Old
Notes, which is face value, as reflected in the Company's accounting records
on the date of exchange. Accordingly, no gain or loss for accounting purposes
will be recognized by the Company. The expenses of the Exchange Offer will be
expensed over the term of the Exchange Notes.
CONSEQUENCES OF FAILURE TO EXCHANGE
The Old Notes that are not exchanged for Exchange Notes pursuant to the
Exchange Offer will remain restricted securities. Accordingly, such Old Notes
may be resold only.
RESALE OF THE EXCHANGE NOTES
With respect to resales of Exchange Notes, based on interpretations by the
staff of the Commission set forth in no-action letters issued to third parties
(for example, the letters of the commission to (i) Exxon Capital Holdings
Corporation, available May 13, 1988, (ii) Morgan Stanley & Co., Inc. available
June 5, 1991 and (iii) Shearman & Sterling, available July 2, 1993), the
Company believes that a holder or other person (other than a person that is an
affiliate of the Company within the meaning of Rule 405 under the Securities
Act) who receives Exchange Notes in exchange for Old Notes in the ordinary
course of business and who is not participating, does not intend to
participate, and has no arrangement or understanding with any person to
participate, in the distribution of the Exchange Notes, will be allowed to
resell the Exchange Notes to the public without further registration under the
Securities Act and without delivering to the purchasers of the Exchange Notes
a prospectus that satisfies the requirements of Section 10 of the Securities
Act. However, if any holder acquires Exchange Notes in the Exchange Offer for
the purpose of distributing or participating in a distribution of the Exchange
Notes, such holder cannot rely on the position of the staff of the Commission
enunciated in such no-action letters
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or any similar interpretive letters, and must comply with the registration and
prospectus delivery requirements of the Securities Act in connection with any
resale transaction, unless an exemption from registration is otherwise
available. Further, each Participating Broker-Dealer that receives Exchange
Notes for its own account in exchange for Old Notes, where such Old Notes were
acquired by such Participating Broker-Dealer as a result of market-making
activities or other trading activities, must acknowledge that it will deliver
a prospectus in connection with any resale of such Exchange Notes.
Each holder of Old Notes who wishes to exchange Old Notes for Exchange Notes
in the Exchange Offer will be required to represent that (i) it is not an
affiliate of the Company, (ii) it is not engaged in, and does not intend to
engage in, and has no arrangement or understanding with any person to
participate in, a distribution of the Exchange Notes and (iii) it is acquiring
the Exchange Notes in its ordinary course of business. Each broker-dealer that
receives Exchange Notes for its own account pursuant to the Exchange Offer
must acknowledge that it acquired the Old Notes for its own account as the
result of market-making activities or other trading activities and must agree
that it will deliver a prospectus meeting the requirements of the Securities
Act in connection with any resale of such Exchange Notes. The Letter of
Transmittal states that by so acknowledging and by delivering a prospectus, a
broker-dealer will not be deemed to admit that it is an "underwriter" within
the meaning of the Securities Act. Based on the position taken by the staff of
the Division of Corporation Finance of the Commission in the interpretive
letters referred to above, the Company believes that Participating Broker-
Dealers who acquired Old Notes for their own accounts as a result of market-
making activities or other trading activities may fulfill their prospectus
delivery requirements with respect to the Exchange Notes received upon
exchange of such Old Notes (other than Old Notes which represent an unsold
allotment from the original sale of the Old Notes) with a prospectus meeting
the requirements of the Securities Act, which may be the prospectus prepared
for an exchange offer so long as it contains a description of the plan of
distribution with respect to the resale of such Exchange Notes. Accordingly,
this Prospectus, as it may be amended or supplemented from time to time, may
be used by a Participating Broker-Dealer during the period referred to below
in connection with resales of Exchange Notes received in exchange for Old
Notes where such Old Notes were acquired by such Participating Broker-Dealer
for its own account as a result of market-making or such other trading
activities. Subject to certain provisions set forth in the Debt Registration
Rights Agreement, the Company has agreed that this Prospectus, as it may be
amended or supplemented from time to time, may be used by a Participating
Broker-Dealer in connection with resales of such Exchange Notes for a period
ending one year after the Expiration Date. Such notice may be given in the
space provided for that purpose in the Letter of Transmittal or may be
delivered to the Exchange Agent at one of the addresses set forth in the
Letter of Transmittal. See "Plan of Distribution." Any Participating Broker-
Dealer who is an "affiliate" of the Company may not rely on such interpretive
letters and must comply with the registration and prospectus delivery
requirements of the Securities Act in connection with any resale transaction.
DESCRIPTION OF THE EXCHANGE NOTES
GENERAL
The Old Notes were issued and the Exchange Notes will be issued pursuant to
an Indenture (the "Indenture") among the Company, the Guarantors and State
Street Bank and Trust Co., as trustee (the "Trustee"). The terms of the Notes
include those stated in the Indenture and those made part of the Indenture by
reference to the Trust Indenture Act of 1939 (the "Trust Indenture Act"). The
Notes are subject to all such terms, and Holders of Notes are referred to the
Indenture and the Trust Indenture Act for a statement thereof. The following
summary of the material provisions of the Indenture does not purport to be
complete and is qualified in its entirety by reference to the Indenture,
including the definitions therein of certain terms used below. Copies of the
Unit Agreement, the Indenture, the Pledge Agreement, and the Debt Registration
Rights Agreement are available as set forth under "--Additional Information."
The definitions of certain terms used in the following summary are set forth
below under "--Certain Definitions." For purposes of this summary, the term
"Company" refers only to AMSC Acquisition Company, Inc. and not to any of its
Subsidiaries.
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The Exchange Notes will be general unsecured obligations of the Company and
will rank pari passu in right of payment with all current and future unsecured
senior Indebtedness of the Company, including Indebtedness under the Revolving
Credit Facility. However, all borrowings under the Revolving Credit Facility
have the benefit of a full guarantee from the Shareholder Guarantors, each of
whom have substantially greater resources than the Company. As of March 31,
1998, after giving effect to the Acquisition, the Units Offering and the
acquisition of MCSS (the "Transactions"), the Company had approximately $374.2
million ($365.7 million net of debt discount) of Indebtedness outstanding. The
Indenture permits additional borrowings, including borrowings under the
Revolving Credit Facility, in the future. Further, commencing April 1, 2001
(three years after the date of the Indenture), the Company will be permitted
to pay dividends to Holdings to permit Holdings to meet its interest expense
obligations with respect to the Term Loan Facility, subject to certain
limitations.
SUBSIDIARY GUARANTEES
The Company's payment obligations under the Exchange Notes will be jointly
and severally guaranteed (the "Subsidiary Guarantees") by the Subsidiary
Guarantors. The obligations of each Subsidiary Guarantor under its Subsidiary
Guarantee will be limited so as not to constitute a fraudulent conveyance
under applicable law. See, however, "Risk Factors--Fraudulent Conveyance
Considerations."
The Indenture provides that no Subsidiary Guarantor may consolidate with or
merge with or into (whether or not such Subsidiary Guarantor is the surviving
Person), another corporation, Person or entity whether or not affiliated with
such Subsidiary Guarantor unless (i) subject to the provisions of the
following paragraph, the Person formed by or surviving any such consolidation
or merger (if other than such Subsidiary Guarantor) assumes all the
obligations of such Subsidiary Guarantor pursuant to a supplemental indenture
in form and substance reasonably satisfactory to the Trustee, under the Unit
Agreement, the Notes, the Indenture, the Pledge Agreement and the Debt
Registration Rights Agreement; (ii) immediately after giving effect to such
transaction, no Default or Event of Default exists; and (iii) except in the
case of any such merger or consolidation with the Company or another
Subsidiary Guarantor, the Company would be permitted by virtue of the
Company's pro forma Debt to Cash Flow Ratio, immediately after giving effect
to such transaction, to incur at least $1.00 of additional Indebtedness
pursuant to the Debt to Cash Flow Ratio test set forth in the covenant
described below under the caption "--Certain Covenants--Incurrence of
Indebtedness and Issuance of Preferred Stock."
The Indenture provides that in the event of a sale or other disposition of
all of the assets of any Subsidiary Guarantor, by way of merger, consolidation
or otherwise, or a sale or other disposition of all of the capital stock of
any Subsidiary Guarantor, then such Subsidiary Guarantor (in the event of a
sale or other disposition, by way of such a merger, consolidation or
otherwise, of all of the capital stock of such Subsidiary Guarantor) or the
corporation acquiring the property (in the event of a sale or other
disposition of all of the assets of such Subsidiary Guarantor) will be
released and relieved of any obligations under its Subsidiary Guarantee;
provided that the Net Proceeds of such sale or other disposition are applied
in accordance with the applicable provisions of the Indenture. See "Repurchase
at Option of Holders--Asset Sales."
"Subsidiary Guarantors" means (i) each existing Subsidiary of the Company
and (ii) any other Subsidiary of the Company that executes a Subsidiary
Guarantee in accordance with the provisions of the Indenture, and their
respective successors and assigns.
HOLDINGS GUARANTEE
The Company's payment obligations under the Exchange Notes will be
guaranteed on a subordinated basis (the "Holdings Guarantee") by Holdings. The
Holdings Guarantee of Holdings will be subordinated to the prior payment in
full of all Senior Indebtedness of Holdings, to the same extent as Holdings'
guarantee of the Revolving Credit Facility. As of March 31, 1998, after giving
effect to the Transactions, on a stand-alone basis Holdings had $100.0 million
in aggregate principal amount of Senior Indebtedness outstanding. Holdings'
will not be subject to any of the covenants or restrictions under the
Indenture governing the Notes. Accordingly, the
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Indenture does not restrict Holdings' ability to incur additional
indebtedness, issue preferred stock or other capital stock, pay dividends or
make other payments, enter into transactions with affiliates, make certain
asset dispositions, merge or consolidate with, or transfer substantially all
of its assets to, another person, encumber assets, or engage in certain
business activities.
The Indenture provides that Holdings may not consolidate with or merge with
or into (whether or not Holdings is the surviving Person), another
corporation, Person or entity whether or not affiliated with Holdings unless
(i) the Person formed by or surviving any such consolidation or merger (if
other than Holdings) assumes all the obligations of Holdings pursuant to a
supplemental indenture in form and substance reasonably satisfactory to the
Trustee, under the Notes, the Unit Agreement, the Indenture, the Pledge
Agreement, the Debt Registration Rights Agreement and the Warrant Registration
Rights Agreement; and (ii) immediately after giving effect to such
transaction, no Default or Event of Default exists.
SUBORDINATION OF HOLDINGS GUARANTEE
The Obligations of Holdings with respect to its Holdings Guarantee are
subordinated in right of payment, as set forth in the Indenture, to the prior
payment in full of all Senior Indebtedness of Holdings, whether outstanding on
the date of the Indenture or thereafter incurred.
Upon any distribution to creditors of Holdings in a liquidation or
dissolution of Holdings or in a bankruptcy, reorganization, insolvency,
receivership or similar proceeding relating to Holdings or its property, an
assignment for the benefit of creditors or any marshalling of Holdings' assets
and liabilities, the holders of Senior Indebtedness of Holdings will be
entitled to receive payment in full of all Obligations due in respect of such
Senior Indebtedness of Holdings (including interest after the commencement of
any such proceeding at the rate specified in the applicable Senior
Indebtedness of Holdings) before the Holders of Notes will be entitled to
receive any payment with respect to the Holdings Guarantee, and until all
Obligations with respect to Senior Indebtedness of Holdings are paid in full,
any distribution to which the Holders of Notes would be entitled shall be made
to the holders of Senior Indebtedness of Holdings (except that Holders of
Notes may receive and retain Permitted Junior Securities and payments made
from the trust described under "--Legal Defeasance and Covenant Defeasance").
Holdings also may not make any payment upon or in respect of the Holdings
Guarantee (except in Permitted Junior Securities or from the trust described
under "--Legal Defeasance and Covenant Defeasance") if (i) a default in the
payment of the principal of, premium, if any, or interest on Designated Senior
Indebtedness occurs and is continuing beyond any applicable period of grace or
(ii) any other default occurs and is continuing with respect to Designated
Senior Indebtedness that permits holders of the Designated Senior Indebtedness
as to which such default relates to accelerate its maturity and the Trustee
receives a notice of such default (a "Payment Blockage Notice") from Holdings
or the holders of any Designated Senior Indebtedness. Payments on the Holdings
Guarantee may and shall be resumed (a) in the case of a payment default, upon
the date on which such default is cured or waived and (b) in case of a
nonpayment default, the earlier of the date on which such nonpayment default
is cured or waived or 179 days after the date on which the applicable Payment
Blockage Notice is received, unless the maturity of any Designated Senior
Indebtedness has been accelerated. No new period of payment blockage may be
commenced unless and until (i) 360 days have elapsed since the effectiveness
of the immediately prior Payment Blockage Notice and (ii) all scheduled
payments of principal, premium, if any, and interest on the Notes that have
come due have been paid in full in cash. No nonpayment default that existed or
was continuing on the date of delivery of any Payment Blockage Notice to the
Trustee shall be, or be made, the basis for a subsequent Payment Blockage
Notice.
The Indenture further requires that Holdings promptly notify holders of
Senior Indebtedness of Holdings if payment of the Notes is accelerated because
of an Event of Default.
As a result of the subordination provisions described above, in the event of
a liquidation or insolvency, Holders of Notes may recover less ratably than
creditors of Holdings who are holders of Senior Indebtedness of
93
Holdings. After giving effect to the Units Offering and the application of the
proceeds therefrom, the principal amount of Senior Indebtedness of Holdings on
a stand-alone basis outstanding at September 30, 1997, was approximately
$100.0 million. The Indenture does not limit the amount of additional
Indebtedness, including Senior Indebtedness of Holdings, that Holdings and its
subsidiaries can incur.
"Designated Senior Indebtedness" means (i) any Indebtedness outstanding
under the Term Loan Facility or (ii) any other Senior Indebtedness of Holdings
the principal amount of which is $25.0 million or more and that has been
designated by Holdings as "Designated Senior Indebtedness."
"Permitted Junior Securities" means Equity Interests in Holdings or debt
securities that are subordinated to all Senior Debt of Holdings (and any debt
securities issued in exchange for Senior Indebtedness of Holdings) to
substantially the same extent as, or to a greater extent than, the Holdings
Guarantee is subordinated to Senior Indebtedness of Holdings pursuant to the
Indenture.
"Senior Indebtedness" means Obligations with respect to the Term Loan
Facility and any other Indebtedness of Holdings now or hereafter incurred
except such Indebtedness specifically designated by Holdings as subordinated
Indebtedness at the time of its incurrence. Notwithstanding anything to the
contrary in the foregoing, Senior Indebtedness will not include (w) any
liability for federal, state, local or other taxes owed or owing by Holdings,
(x) any Indebtedness of Holdings to any of its Subsidiaries or other
Affiliates, (y) any trade payables or (z) any Indebtedness that is incurred in
violation of the Indenture.
PRINCIPAL, MATURITY AND INTEREST
The Exchange Notes will be limited in aggregate principal amount to $335.0
million and will mature on March 31, 2008. Interest on the Exchange Notes will
accrue at the rate of 12 1/4% per annum and will be payable semi-annually in
arrears on April 1 and October 1, commencing on October 1, 1998, to Holders of
record on the immediately preceding March 15 and September 15. Interest on the
Exchange Notes will accrue from the most recent date to which interest has
been paid or, if no interest has been paid, from March 26, 1998. Interest will
be computed on the basis of a 360-day year comprised of twelve 30-day months.
Principal, premium, if any, and interest and Liquidated Damages on the
Exchange Notes will be payable at the office or agency of the Company
maintained for such purpose within the City and State of New York or, at the
option of the Company, payment of interest and Liquidated Damages may be made
by check mailed to the Holders of the Exchange Notes at their respective
addresses set forth in the register of Holders of the Exchange Notes; provided
that all payments of principal, premium, interest and Liquidated Damages with
respect to the Exchange Notes the Holders of which have given wire transfer
instructions to the Company will be required to be made by wire transfer of
immediately available funds to the accounts specified by the Holders thereof.
Until otherwise designated by the Company, the Company's office or agency in
New York will be the office of the Trustee maintained for such purpose. The
Exchange Notes will be issued in denominations of $1,000 and integral
multiples thereof.
INTEREST RESERVE
A portion of the Company's obligations under the Exchange Notes will be
secured pending disbursement pursuant to the Pledge Agreement by a pledge of
the Escrow Amount. At the Closing of the Units Offering, the initial amount
deposited in the Escrow Amount was precisely determined in order to provide
sufficient funds to enable to the Company to make the first six interest
payments with respect to the Notes. The initial amount deposited in the Escrow
Amount is approximately $113.0 million (the "Cash Collateral"). The Pledge
Agreement provides for the grant by the Company to the Trustee of a security
interest in the Cash Collateral for the benefit of the holders of the Notes.
Such security interest secures the payment and performance when due of the
Obligations of the Company under the Indenture with respect to the Notes and
under such Notes, as provided in the Pledge Agreement. The Liens created by
the Pledge Agreement are first priority security interests in the Cash
Collateral. The ability of holders to realize upon any such funds or
securities may be subject to certain bankruptcy law limitations in the event
of a bankruptcy of the Company.
94
The Cash Collateral will be disbursed from the Escrow Amount only to pay
interest on the Notes and, upon certain repurchases or redemptions of the
Notes, to pay principal of and premium, if any, thereon. Pending such
disbursements, all funds contained in the Escrow Amount will be invested in
Cash Equivalents. Upon the acceleration of the maturity of the Notes or the
failure to pay principal at maturity or upon certain redemptions and
repurchases of the Notes, the Pledge Agreement will provide for the
foreclosure by the Trustee upon the net proceeds of the Escrow Amount. Under
the terms of the Indenture, the proceeds of the Escrow Amount shall be
applied, first, to amounts owing to the Trustee in respect of fees and
expenses of the Trustee and second, to the Obligations under the Notes and the
Indenture.
OPTIONAL REDEMPTION
The Notes are not be redeemable at the Company's option prior to April 1,
2003. Thereafter, the Notes will be subject to redemption at any time at the
option of the Company, in whole or in part, upon not less than 30 nor more
than 60 days' notice, at the redemption prices (expressed as percentages of
principal amount) set forth below plus accrued and unpaid interest and
Liquidated Damages thereon, if any, to the applicable redemption date, if
redeemed during the twelve-month period beginning on April 1 of the years
indicated below:
YEAR PERCENTAGE
---- ----------
2003.............................................................. 106.125%
2004.............................................................. 104.083%
2005.............................................................. 102.042%
2006 and thereafter............................................... 100.000%
Notwithstanding the foregoing, during the first 36 months after the date of
the Indenture, the Company may redeem up to 35% of the aggregate principal
amount of Notes originally issued under the Indenture at a redemption price of
112.25% of the principal amount thereof, plus accrued and unpaid interest and
Liquidated Damages thereon, if any, to the redemption date, with the net cash
proceeds to the Company of an Equity Offering; provided that at least $217.8
million in aggregate principal amount of Notes remain outstanding immediately
after the occurrence of such redemption (excluding Notes held by the Company
and its Subsidiaries); and provided, further, that such redemption shall occur
within 45 days of the date of the closing of such Equity Offering.
SELECTION AND NOTICE
If less than all of the Notes are to be redeemed at any time, selection of
Notes for redemption will be made by the Trustee in compliance with the
requirements of the principal national securities exchange, if any, on which
the Notes are listed, or, if the Notes are not so listed, on a pro rata basis,
by lot or by such method as the Trustee shall deem fair and appropriate;
provided that no Notes of $1,000 or less shall be redeemed in part. Notices of
redemption shall be mailed by first class mail at least 30 but not more than
60 days before the redemption date to each Holder of Notes to be redeemed at
its registered address. Notices of redemption may not be conditional. If any
Note is to be redeemed in part only, the notice of redemption that relates to
such Note shall state the portion of the principal amount thereof to be
redeemed. A new Note in principal amount equal to the unredeemed portion
thereof will be issued in the name of the Holder thereof upon cancellation of
the original Note. Notes called for redemption become due on the date fixed
for redemption. On and after the redemption date, interest will cease to
accrue on the Notes or portions of the Notes called for redemption.
MANDATORY REDEMPTION
The Company is not required to make mandatory redemption or sinking fund
payments with respect to the Exchange Notes except as set forth under
"Repurchase at the Option of Holders--Change of Control."
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REPURCHASE AT THE OPTION OF HOLDERS
Change of Control
Upon the occurrence of a Change of Control, each Holder of Exchange Notes
will have the right to require the Company to repurchase all or any part
(equal to $1,000 or an integral multiple thereof) of such Holder's Notes
pursuant to the offer described below (the "Change of Control Offer") at an
offer price in cash equal to 101% of the aggregate principal amount thereof
plus accrued and unpaid interest and Liquidated Damages thereon, if any, to
the date of purchase (the "Change of Control Payment"). Within ten days
following any Change of Control, the Company will mail a notice to each Holder
describing the transaction or transactions that constitute the Change of
Control and offering to repurchase Notes on the date specified in such notice,
which date shall be no earlier than 30 days and no later than 60 days from the
date such notice is mailed (the "Change of Control Payment Date"), pursuant to
the procedures required by the Indenture and described in such notice. The
Company will comply with the requirements of Rule 14e-1 under the Exchange Act
and any other securities laws and regulations thereunder to the extent such
laws and regulations are applicable in connection with the repurchase of the
Notes as a result of a Change of Control.
On the Change of Control Payment Date, the Company will, to the extent
lawful, (1) accept for payment all Notes or portions thereof properly tendered
pursuant to the Change of Control Offer, (2) deposit with the Paying Agent an
amount equal to the Change of Control Payment in respect of all Notes or
portions thereof so tendered and (3) deliver or cause to be delivered to the
Trustee the Notes so accepted together with an Officers' Certificate stating
the aggregate principal amount of Notes or portions thereof being purchased by
the Company. The Paying Agent will promptly mail to each Holder of Notes so
tendered the Change of Control Payment for such Notes, and the Trustee will
promptly authenticate and mail (or cause to be transferred by book entry) to
each Holder a new Note equal in principal amount to any unpurchased portion of
the Notes surrendered, if any; provided that each such new Note will be in a
principal amount of $1,000 or an integral multiple thereof. The Company will
publicly announce the results of the Change of Control Offer on or as soon as
practicable after the Change of Control Payment Date. Unless the Company
defaults in the payment for any Notes properly tendered pursuant to the Change
of Control Offer, any Notes accepted for payment pursuant to the Change of
Control Offer shall cease to accrue interest after the Change of Control
Payment Date.
The Change of Control provisions described above will be applicable whether
or not any other provisions of the Indenture are applicable. Except as
described above with respect to a Change of Control, the Indenture does not
contain provisions that permit the Holders of the Notes to require that the
Company repurchase or redeem the Notes in the event of a takeover,
recapitalization or similar transaction.
The Company's other senior indebtedness contains prohibitions of certain
events that would constitute a Change of Control. In addition, the exercise by
the Holders of Notes of their right to require the Company to repurchase the
Notes could cause a default under such other indebtedness, even if the Change
of Control itself does not, due to the financial effect of such repurchases on
the Company. Finally, the Company's ability to pay cash to the Holders of
Notes upon a repurchase may be limited by the Company's then existing
financial resources. See "Risk Factors--Possible Inability to Fund a Change of
Control."
The Company will not be required to make a Change of Control Offer upon a
Change of Control if a third party makes the Change of Control Offer in the
manner, at the times and otherwise in compliance with the requirements set
forth in the Indenture applicable to a Change of Control Offer made by the
Company and purchases all Notes validly tendered and not withdrawn under such
Change of Control Offer.
"Change of Control" means the occurrence of any of the following: (i) the
sale, lease, transfer, conveyance or other disposition (other than by way of
merger or consolidation), in one or a series of related transactions, of all
or substantially all of the assets of the Company and its Subsidiaries taken
as a whole to any "person" (as such term is used in Section 13(d)(3) of the
Exchange Act) other than a Principal or a Related Party of a Principal (as
defined below), (ii) the adoption of a plan relating to the liquidation or
dissolution of the Company, (iii) the
96
consummation of any transaction (including, without limitation, any merger or
consolidation) the result of which is that any "person" (as defined above),
other than the Principals and their Related Parties, becomes the "beneficial
owner" (as such term is defined in Rule 13d-3 and Rule 13d-5 under the
Exchange Act, except that a person shall be deemed to have "beneficial
ownership" of all securities that such person has the right to acquire,
whether such right is currently exercisable or is exercisable only upon the
occurrence of a subsequent condition), directly or indirectly, of more than
40% of the Voting Stock of Holdings (measured by voting power rather than
number of shares), (iv) the consummation of the first transaction (including,
without limitation, any merger or consolidation) the result of which is that
any "person" (as defined above) becomes the "beneficial owner" (as defined
above), directly or indirectly, of more of the Voting Stock of Holdings
(measured by voting power rather than number of shares) than is at the time
"beneficially owned" (as defined above) by the Principals and their Related
Parties in the aggregate, (v) the first day on which a majority of the members
of the Board of Directors of the Company or Holdings are not Continuing
Directors or (vi) the first day on which Holdings ceases to own 80% of the
outstanding Voting Stock of the Company.
The definition of Change of Control includes a phrase relating to the sale,
lease, transfer, conveyance or other disposition of "all or substantially all"
of the assets of the Company and its Subsidiaries taken as a whole. Although
there is a developing body of case law interpreting the phrase "substantially
all," there is no precise established definition of the phrase under
applicable law. Accordingly, the ability of a Holder of Notes to require the
Company to repurchase such Notes as a result of a sale, lease, transfer,
conveyance or other disposition of less than all of the assets of the Company
and its Subsidiaries taken as a whole to another Person or group may be
uncertain.
"Continuing Director" means, as of any date of determination, any member of
the Board of Directors of the Company who (i) was a member of such Board of
Directors on the date of the Indenture, (ii) was nominated for election or
elected to such Board of Directors with the approval of a majority of the
Continuing Directors who were members of such Board at the time of such
nomination or election or (iii) was a designee of any Principal at a time when
such Principal owned more than 10% of the Voting Stock of Holdings.
"Principals" means Hughes, Singapore Telecom, AT&T Wireless and Motorola.
"Related Party" with respect to any Principal means (A) any controlling
stockholder, 80% (or more) owned Subsidiary, or spouse or immediate family
member (in the case of an individual) of such Principal or (B) any trust,
corporation, partnership or other entity, the beneficiaries, stockholders,
partners, owners or Persons beneficially holding an 80% or more controlling
interest of which consist of such Principal and/or such other Persons referred
to in the immediately preceding clause (A).
Asset Sales
The Indenture provides that the Company will not, and will not permit any of
its Subsidiaries to, consummate an Asset Sale unless (i) the Company (or the
Subsidiary, as the case may be) receives consideration at the time of such
Asset Sale at least equal to the fair market value (evidenced by a resolution
of the Board of Directors set forth in an Officers' Certificate delivered to
the Trustee) of the assets or Equity Interests issued or sold or otherwise
disposed of and (ii) at least 75% of the consideration therefor received by
the Company or such Subsidiary is in the form of cash or Cash Equivalents;
provided that the amount of (x) any liabilities (as shown on the Company's or
such Subsidiary's most recent balance sheet), of the Company or any Subsidiary
(other than contingent liabilities and liabilities that are by their terms
subordinated to the Notes or any guarantee thereof) that are assumed by the
transferee of any such assets pursuant to a customary novation agreement that
releases the Company or such Subsidiary from further liability and (y) any
securities, notes or other obligations received by the Company or any such
Subsidiary from such transferee that are contemporaneously (subject to
ordinary settlement periods) converted by the Company or such Subsidiary into
cash (to the extent of the cash received), shall be deemed to be cash for
purposes of this provision.
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Within 180 days after the receipt of any Net Proceeds from an Asset Sale,
the Company may apply such Net Proceeds, at its option, (a) to repay
Indebtedness under a Credit Facility, (b) to the acquisition of all of the
assets of, or all of the Voting Stock of, another Permitted Business, the
making of a capital expenditure or the acquisition of other long-term assets
that are used or useful in a Permitted Business (and the payment of related
expenses) or (c) in the case of Net Proceeds received by the Company pursuant
to the Satellite Lease Arrangements, for working capital purposes. Pending the
final application of any such Net Proceeds, the Company may temporarily reduce
revolving credit borrowings or otherwise invest such Net Proceeds in any
manner that is not prohibited by the Indenture. Any Net Proceeds from Asset
Sales that are not applied or invested as provided in the first sentence of
this paragraph will be deemed to constitute "Excess Proceeds." When the
aggregate amount of Excess Proceeds exceeds $10.0 million, the Company will be
required to make an offer to all Holders of Notes (an "Asset Sale Offer") to
purchase the maximum principal amount of Notes that may be purchased out of
the Excess Proceeds, at an offer price in cash in an amount equal to 100% of
the principal amount thereof plus accrued and unpaid interest and Liquidated
Damages thereon, if any, to the date of purchase, in accordance with the
procedures set forth in the Indenture. To the extent that any Excess Proceeds
remain after consummation of an Asset Sale Offer, the Company may use such
Excess Proceeds for any purpose not otherwise prohibited by the Indenture. If
the aggregate principal amount of Notes tendered into such Asset Sale Offer
surrendered by Holders thereof exceeds the amount of Excess Proceeds, the
Trustee shall select the Notes to be purchased on a pro rata basis. Upon
completion of such offer to purchase, the amount of Excess Proceeds shall be
reset at zero.
Notwithstanding the foregoing, the Company and its Subsidiaries will be
permitted to consummate Asset Sales of Communications Assets without complying
with the first paragraph of this covenant if (x) at least 75% of the
consideration received by the Company and its Subsidiaries in respect of such
Asset Sale constitutes either Communications Assets, cash or Cash Equivalents,
and (y) any Net Proceeds received by the Company or any of its Subsidiaries in
connection with such Asset Sale are applied in accordance with the foregoing
paragraph and (z) the Company and its Subsidiaries receives consideration at
the time of such Asset Sale at least equal to the fair market value (evidenced
by a resolution of the Board of Directors set forth in a Officer's Certificate
delivered to the trustee, such determination to be based upon an opinion or
appraisal issued by an accounting, appraisal or investment banking firm of
national standing if such fair market value exceeds $1.0 million) of the
Communications Assets sold or otherwise disposed of.
CERTAIN COVENANTS
Restricted Payments
The Indenture provides that the Company will not, and will not permit any of
its Subsidiaries to, directly or indirectly: (i) declare or pay any dividend
or make any other payment or distribution on account of the Company's or any
of its Subsidiaries' Equity Interests (including, without limitation, any
payment in connection with any merger or consolidation involving the Company
or any of its Subsidiaries) or to the direct or indirect holders of the
Company's or any of its Subsidiaries' Equity Interests in their capacity as
such (other than dividends or distributions payable in Equity Interests (other
than Disqualified Stock) of the Company or to the Company or a Subsidiary of
the Company); (ii) purchase, redeem or otherwise acquire or retire for value
(including, without limitation, in connection with any merger or consolidation
involving the Company) any Equity Interests of the Company or any direct or
indirect parent of the Company or other Affiliate of the Company (other than
any such Equity Interests owned by the Company or any Wholly Owned Subsidiary
of the Company); (iii) make any payment on or with respect to, or purchase,
redeem, defease or otherwise acquire or retire for value any Indebtedness that
is subordinated to the Notes, except a payment of interest or principal at
Stated Maturity; or (iv) make any Restricted Investment (all such payments and
other actions set forth in clauses (i) through (iv) above being collectively
referred to as "Restricted Payments"), unless, at the time of and after giving
effect to such Restricted Payment:
(a) no Default or Event of Default shall have occurred and be continuing
or would occur as a consequence thereof; and
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(b) the Company would, at the time of such Restricted Payment and after
giving pro forma effect thereto as if such Restricted Payment had been made
at the beginning of the Reference Period, have been permitted to incur at
least $1.00 of additional Indebtedness pursuant to the Debt to Cash Flow
Ratio test set forth in the first paragraph of the covenant described above
under caption "--Incurrence of Indebtedness and Issuance of Preferred
Stock;" and
(c) such Restricted Payment, together with the aggregate amount of all
other Restricted Payments made by the Company and its Subsidiaries after
the date of the Indenture (excluding Restricted Payments permitted by
clauses (ii), (iii) and (iv) of the next succeeding paragraph), is less
than the sum, without duplication, of (i) 50% of the Consolidated Net
Income of the Company for the period (taken as one accounting period) from
the beginning of the first fiscal quarter commencing after the date of the
Indenture to the end of the Company's most recently ended fiscal quarter
for which internal financial statements are available at the time of such
Restricted Payment (or, if such Consolidated Net Income for such period is
a deficit, less 100% of such deficit), plus (ii) 100% of the aggregate net
cash proceeds received by the Company since the date of the Indenture as a
contribution to its common equity capital or from the issue or sale of
Equity Interests of the Company (other than Disqualified Stock) or from the
issue or sale of Disqualified Stock or debt securities of the Company that
have been converted into such Equity Interests (other than Equity Interests
(or Disqualified Stock or convertible debt securities) sold to a Subsidiary
of the Company), plus (iii) to the extent that any Restricted Investment
that was made after the date of the Indenture is sold for cash or otherwise
liquidated or repaid for cash, the lesser of (A) the cash return of capital
with respect to such Restricted Investment (less the cost of disposition,
if any) and (B) the initial amount of such Restricted Investment.
The foregoing provisions will not prohibit (i) the payment of any dividend
within 60 days after the date of declaration thereof, if at said date of
declaration such payment would have complied with the provisions of the
Indenture; (ii) the redemption, repurchase, retirement, defeasance or other
acquisition of any subordinated Indebtedness or Equity Interests of the
Company in exchange for, or out of the net cash proceeds of the substantially
concurrent sale (other than to a Subsidiary of the Company) of, other Equity
Interests of the Company (other than any Disqualified Stock); provided that
the amount of any such net cash proceeds that are utilized for any such
redemption, repurchase, retirement, defeasance or other acquisition shall be
excluded from clause (c) (ii) of the preceding paragraph; (iii) the
defeasance, redemption, repurchase or other acquisition of subordinated
Indebtedness with the net cash proceeds from an incurrence of Permitted
Refinancing Indebtedness; (iv) the payment of any dividend by a Subsidiary of
the Company to the holders of its common Equity Interests on a pro rata basis;
(v) from and after April 1, 2001 the payment of dividends to Holdings the
proceeds of which are used to satisfy interest expense obligations of Holdings
under the Term Loan Facility, as in effect on the date of the Indenture;
provided that (x) no Default of Event of Default shall have occurred and be
continuing immediately before or immediately after such transaction and (y)
the aggregate amount of such payments does not exceed the sum of (1) $6.5
million and (2) the difference between (A) the Company's Cumulative
Consolidated Cash Flow from and after April 1, 2001 and (B) 1.75 times
Consolidated Interest Expense accrued on a cumulative basis from and after
April 1, 2001; (vi) the payment of dividends to Holdings the proceeds of which
are used to satisfy ordinary course administrative expenses of Holdings, but
in no event to exceed (together with all payments made pursuant to management
agreements) $2.0 million in any given fiscal year; (vii) the payment of any
dividend required pursuant to the Tax Sharing Agreement between the Company
and Holdings, as such became effective on the date of the Indenture and (viii)
other Investments in any Person (other than Holdings or an Affiliate of
Holdings that is not also a Subsidiary of the Company) having an aggregate
fair market value (measured on the date each such Investment was made and
without giving effect to subsequent changes in value), when taken together
with all other Investments made pursuant to this clause (viii) that are at the
time outstanding, not to exceed the greater of (x) $10.0 million and (y) 2.5%
of the Consolidated Tangible Net Worth of the Company at such time.
The amount of all Restricted Payments (other than cash) shall be the fair
market value on the date of the Restricted Payment of the asset(s) or
securities proposed to be transferred or issued by the Company or such
Subsidiary, as the case may be, pursuant to the Restricted Payment. The fair
market value of any non-cash
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Restricted Payment shall be determined by the Board of Directors whose
resolution with respect thereto shall be delivered to the Trustee, such
determination to be based upon an opinion or appraisal issued by an
accounting, appraisal or investment banking firm of national standing if such
fair market value exceeds $5.0 million. Not later than the date of making any
Restricted Payment, the Company shall deliver to the Trustee an Officers'
Certificate stating that such Restricted Payment is permitted and setting
forth the basis upon which the calculations required by the covenant
"Restricted Payments" were computed, together with a copy of any fairness
opinion or appraisal required by the Indenture.
Incurrence of Indebtedness and Issuance of Preferred Stock
The Indenture provides that the Company will not, and will not permit any of
its Subsidiaries to, directly or indirectly, create, incur, issue, assume,
guarantee or otherwise become directly or indirectly liable, contingently or
otherwise, with respect to (collectively, "incur") any Indebtedness (including
Acquired Debt) and that the Company will not issue any Disqualified Stock and
will not permit any of its Subsidiaries to issue any shares of preferred
stock; provided, however, that the Company may incur Indebtedness (including
Acquired Debt) or issue shares of Disqualified Stock if the Company's Debt to
Cash Flow Ratio at the time of incurrence of such Indebtedness or the issuance
of such Disqualified Stock, after giving pro forma effect to such incurrence
or issuance as of such date and to the use of proceeds therefrom as if the
same had occurred at the beginning of the most recently ended Reference Period
of the Company for which internal financial statements are available, would
have been no greater than 4.0 to 1.0.
The Indenture also provides that the Company will not incur any Indebtedness
that is contractually subordinated in right of payment to any other
Indebtedness of the Company unless such Indebtedness is also contractually
subordinated in right of payment to the Notes on substantially identical
terms; provided, however, that no Indebtedness of the Company shall be deemed
to be contractually subordinated in right of payment to any other Indebtedness
of the Company solely by virtue of being unsecured.
The provisions of the first paragraph of this section will not apply to the
incurrence of any of the following items of Indebtedness (collectively,
"Permitted Debt"):
(i) the incurrence by the Company of Indebtedness (including letters of
credit, with letters of credit being deemed to have a principal amount
equal to the maximum potential liability of the Company and its
Subsidiaries thereunder) under Credit Facilities; provided that the
aggregate principal amount of all Indebtedness outstanding under all Credit
Facilities after giving effect to such incurrence does not exceed an amount
equal to the greater of (a) $100.0 million less the aggregate amount of all
Net Proceeds of Asset Sales applied to repay revolving credit Indebtedness
under a Credit Facility pursuant to the covenant described above under the
caption "--Asset Sales" other than Net Proceeds received pursuant to the
Satellite Lease Arrangements and (b) the Borrowing Base at the time of such
incurrence;
(ii) the incurrence by the Company and its Subsidiaries of the Existing
Indebtedness;
(iii) the incurrence by the Company of Indebtedness represented by the
Old Notes and the Exchange Notes and the guarantee by the Subsidiary
Guarantors thereof;
(iv) the incurrence by the Company or any of its Subsidiaries of
Indebtedness represented by Capital Lease Obligations, mortgage financings
or purchase money obligations, in each case incurred for the purpose of
financing all or any part of the purchase price or cost of construction or
improvement of property, plant or equipment used in the business of the
Company or such Subsidiary, in an aggregate principal amount not to exceed
(subject to clause (x) below) $17.5 million at any time outstanding;
(v) the incurrence by the Company or any of its Subsidiaries of
Indebtedness in connection with the acquisition of assets or a new
Subsidiary; provided that such Indebtedness was incurred by the prior owner
of such assets or such Subsidiary prior to such acquisition by the Company
or one of its Subsidiaries and was not incurred in connection with, or in
contemplation of, such acquisition by the Company or one of it
Subsidiaries; and provided further that the principal amount (or accreted
value, as applicable) of such
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Indebtedness, together with any other outstanding Indebtedness incurred
pursuant to this clause (v), does not exceed (subject to clause (x) below)
$17.5 million;
(vi) the incurrence by the Company or any of its Subsidiaries of
Permitted Refinancing Indebtedness in exchange for, or the net proceeds of
which are used to refund, refinance or replace Indebtedness (other than
intercompany Indebtedness) that is either Existing Indebtedness or was
permitted by the Indenture to be incurred under the first paragraph hereof
or clauses (iii), (iv), (v) or (vi) of this paragraph;
(vii) the incurrence by the Company or any of its Subsidiaries of
intercompany Indebtedness between or among the Company and any of its
Wholly Owned Subsidiaries; provided, however, that (i) if the Company is
the obligor on such Indebtedness, such Indebtedness is expressly
subordinated to the prior payment in full in cash of all Obligations with
respect to the Notes and (ii)(A) any subsequent issuance or transfer of
Equity Interests that results in any such Indebtedness being held by a
Person other than the Company or a Subsidiary thereof and (B) any sale or
other transfer of any such Indebtedness to a Person that is not either the
Company or a Wholly Owned Subsidiary thereof shall be deemed, in each case,
to constitute an incurrence of such Indebtedness by the Company or such
Subsidiary, as the case may be, that was not permitted by this clause
(vii);
(viii) the incurrence by the Company of Hedging Obligations that are
incurred for the purpose of fixing or hedging interest rate risk with
respect to any floating rate Indebtedness that is permitted by the terms of
this Indenture to be outstanding;
(ix) the guarantee by the Company or any of the Subsidiary Guarantors of
Indebtedness of the Company or a Subsidiary of the Company that was
permitted to be incurred by another provision of this covenant;
(x) the incurrence by the Company or any Subsidiary Guarantor of Vendor
Financing Indebtedness in an aggregate principal amount (or accreted value,
as applicable) not to exceed $15.0 million outstanding at anytime; and
(xi) the incurrence by the Company of additional Indebtedness in an
aggregate principal amount (or accreted value, as applicable) at any time
outstanding not to exceed $17.5 million; provided that the total amount of
Indebtedness incurred by the Company pursuant to clauses (iv), (v) and (xi)
hereof does not, in the aggregate, exceed $35.0 million.
For purposes of determining compliance with this covenant, (a) in the event
that an item of Indebtedness meets the criteria of more than one of the
categories of Permitted Debt described in clauses (i) through (xi) above or is
entitled to be incurred pursuant to the first paragraph of this covenant, the
Company shall, in its sole discretion, classify such item of Indebtedness and
will only be required to include the amount and type of such Indebtedness in
one of the above clauses, and (b) an item of Indebtedness may be divided and
classified in more than one of the types of Indebtedness described herein.
Accrual of interest, accretion or amortization of original issue discount, the
payment of interest on any Indebtedness in the form of additional Indebtedness
with the same terms, and the payment of dividends on Disqualified Stock in the
form of additional shares of the same class of Disqualified Stock will not be
deemed to be an incurrence of Indebtedness or an issuance of Disqualified
Stock for purposes of this covenant.
Maintenance of Insurance
The Indenture provides that the Company shall obtain or maintain (as
applicable) in full force and effect:
(i) in-orbit operations insurance with respect to each of MSAT-1 or MSAT-
2, at all times representing the value and prior insurance settlements of
such satellite (taking into account the foregone useful life of such
satellite) and the pro rata cost of a launch vehicle, payable in the event
that such satellite ceases to be used for commercial revenue producing
service (provided that such insurance may contain customary provisions for
deductible payments and minimum thresholds for satellite failure);
provided, however, that at the time the Company is required to procure or
renew in-orbit operations insurance with respect to MSAT-1 or MSAT-2, the
Company may reduce the amount to be insured by (x) the amount of cash, Cash
Equivalents and short-
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term investments (amounts allocated or expected to be allocated for capital
expenditures or working capital requirements), currently available to the
Company to construct a Replacement Satellite as determined in good faith by
the Board of Directors of the Company (evidenced by a resolution approved
by at least a majority of the Board of Directors of the Company and set
forth in an Officers' Certificate delivered to the Trustee), and (y) the
value of any long lead-time spare parts that the Company has procured to
date for any satellite that is comparable to the technological capability
of the MSAT-1 or MSAT-2 being insured, as such value is determined in good
faith by the Board of Directors of the Company (evidenced by a resolution
approved by at least a majority of the Board of Directors of the Company
and set forth in an Officers' Certificate delivered to the Trustee),
provided further that any insurance maintained by the Company will reflect
the rights of the lessee or purchaser under the terms of any Satellite
Lease Arrangements.
(ii) launch and in-orbit checkout insurance with respect to each
Replacement Satellite, which insurance shall be procured promptly prior to
the launch of each such satellite and shall be in effect on the launch date
and remain in effect through the launch and the initial check-out period of
such Replacement Satellite, in an amount sufficient to provide for the
construction, launch and insurance of a Replacement Satellite to be payable
in the event of a launch or satellite failure during the initial check-out
period; provided, however, that at the time the Company is required to
procure launch and in-orbit check-out insurance with respect to a
Replacement Satellite, the Company may reduce the amount to be insured if
another Replacement Satellite is fully operational, is being used in
commercial service and is insured in accordance with clause (i) above, by
(x) the amount of cash, cash equivalents and short-term investments
currently available to the Company to construct a Replacement Satellite as
determined in good faith by the Board of Directors of the Company
(evidenced by a resolution approved by at least a majority of the Board of
Directors of the Company and set forth in an Officers' Certificate
delivered to the Trustee), and (y) the value of any long lead-time spare
parts that the Company has procured to date for any satellite that is
comparable to the technological capability of the Replacement Satellite
being insured, as such value is determined in good faith by the Board of
Directors of the Company (evidenced by a resolution approved by at least a
majority of the Board of Directors of the Company and set forth in an
Officers' Certificate delivered to the Trustee).
The obligation of the Company to maintain insurance pursuant to this
covenant may be satisfied by any combination of:
(i) insurance commitments obtained from any recognized insurance
provider,
(ii) insurance commitments obtained from any entity other than an entity
referred to in clause (i) if the Board of Directors of the Company
determines in good faith (evidenced by a majority resolution of the Board
of Directors of the Company and set forth in an Officer's Certificate
delivered to the Trustee) that such entity is creditworthy and otherwise
capable of bearing the financial risk of providing such insurance and
making payments in respect of any claims on a timely basis; and
(iii) unrestricted cash segregated and maintained by the Company in a
segregated account established with an Eligible Institution (the "Insurance
Account") solely for disbursement in accordance with the terms of this
covenant ("Cash Insurance"), and to be held in trust for the sole and
express benefit of the holders of the Notes.
Within 30 days following any date on which the Company is required to obtain
insurance pursuant to the Indenture, the Company will deliver to the Trustee
an insurance certificate certifying the amount of insurance then carried, and
in full force and effect, and an Officer's Certificate stating that such
insurance, together with any other insurance or Cash Insurance maintained by
the Company, complies with the Indenture. In addition, the Company will cause
to be delivered to the Trustee no less than once each year an insurance
certificate setting forth the amount of insurance then carried, which
insurance certificate shall entitle the Trustee to:
(i) notice of any claim under any such insurance policy; and
(ii) at least 30 days' notice from the provider of such insurance prior
to the cancellation of any such insurance and an Officers' Certificate that
complies with the first sentence of this paragraph.
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In the event that the Company maintains any Cash Insurance in satisfaction
of any part of their obligation to maintain insurance pursuant to this
covenant, the Company shall deliver, in lieu of any insurance certificate
otherwise required by this covenant, an Officers' Certificate to the Trustee
certifying the amount of such Cash Insurance.
In the event that the Company receives any proceeds of any insurance that it
is required to maintain pursuant to this covenant, the Company shall promptly
deposit such proceeds into an escrow account established with an Eligible
Institution for such purpose. If the Company maintains any Cash Insurance in
satisfaction of any part of its obligation to maintain insurance pursuant to
this covenant, the Company shall transfer the cash maintained in the Insurance
Account to such escrow account upon the occurrence of the event (e.g. a launch
failure) that would have entitled the Company to the payment of insurance had
the Company purchased insurance from a recognized insurance provider. The
Company may use monies on deposit in such escrow account for the design,
development, construction, procurement, launch and insurance of any
Replacement Satellite if: (i) the Company delivers to the Trustee a
certificate of the Company's President certifying that such Replacement
Satellite is comparable to the technological capability of the satellite being
replaced, (ii) within 30 days following the receipt of such insurance
proceeds, the Company delivers to the Trustee an Officers' Certificate
certifying that (A) the Company will use its reasonable best efforts to ensure
that such Replacement Satellites are launched within 24 months following
delivery from the escrow account of such insurance proceeds; and (B) the
Company will have sufficient funds to service the Company's projected debt
service requirements until the scheduled launch of such Replacement Satellite
and to develop, construct, launch and insure such Replacement Satellite.
Liens
The Indenture provides that the Company will not, and will not permit any of
its Subsidiaries to, directly or indirectly, create, incur, assume or suffer
to exist any Liens on any asset now owned or hereafter acquired, or any income
or profits therefrom or assign or convey any right to receive income
therefrom, except Permitted Liens.
Dividend and Other Payment Restrictions Affecting Subsidiaries
The Indenture provides that the Company will not, and will not permit any of
its Subsidiaries to, directly or indirectly, create or otherwise cause or
suffer to exist or become effective any encumbrance or restriction on the
ability of any Subsidiary to (i)(a) pay dividends or make any other
distributions to the Company or any of its Subsidiaries (1) on its Capital
Stock or (2) with respect to any other interest or participation in, or
measured by, its profits, or (b) pay any indebtedness owed to the Company or
any of its Subsidiaries, (ii) make loans or advances to the Company or any of
its Subsidiaries or (iii) transfer any of its properties or assets to the
Company or any of its Subsidiaries. However, the foregoing restrictions will
not apply to encumbrances or restrictions existing under or by reason of (a)
Existing Indebtedness as in effect on the date of the Indenture, (b) the
Revolving Credit Facility as in effect as of the date of the Indenture, and
any amendments, modifications, restatements, renewals, increases, supplements,
refundings, replacements or refinancings thereof, provided that such
amendments, modifications, restatements, renewals, increases, supplements,
refundings, replacement or refinancings are no more restrictive, taken as a
whole, with respect to such dividend and other payment restrictions than those
contained in the Revolving Credit Facility as in effect on the date of the
Indenture, (c) the Indenture and the Notes, (d) applicable law, (e) any
instrument governing Indebtedness or Capital Stock of a Person acquired by the
Company or any of its Subsidiaries as in effect at the time of such
acquisition (except to the extent such Indebtedness was incurred in connection
with or in contemplation of such acquisition), which encumbrance or
restriction is not applicable to any Person, or the properties or assets of
any Person, other than the Person, or the property or assets of the Person, so
acquired, provided that, in the case of Indebtedness, such Indebtedness was
permitted by the terms of the Indenture to be incurred, (f) customary non-
assignment provisions in leases entered into in the ordinary course of
business and consistent with past practices, (g) purchase money obligations
for property acquired in the ordinary course of business that impose
restrictions of the nature described in clause (iii) above on the property so
acquired, (h) any agreement for the sale of a Subsidiary that restricts
distributions by that Subsidiary pending its sale, (i) Permitted Refinancing
Indebtedness,
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provided that the restrictions contained in the agreements governing such
Permitted Refinancing Indebtedness are no more restrictive, taken as a whole,
than those contained in the agreements governing the Indebtedness being
refinanced, (j) secured Indebtedness otherwise permitted to be incurred
pursuant to the provisions of the covenant described above under the caption
"--Liens" that limits the right of the debtor to dispose of the assets
securing such Indebtedness, (k) provisions with respect to the disposition or
distribution of assets or property in joint venture agreements and other
similar agreements entered into in the ordinary course of business and
(l) restrictions on cash or other deposits or net worth imposed by customers
under contracts entered into in the ordinary course of business.
Merger, Consolidation, or Sale of Assets
The Indenture provides that the Company may not consolidate or merge with or
into (whether or not the Company is the surviving corporation), or sell,
assign, transfer, lease, convey or otherwise dispose of all or substantially
all of its properties or assets in one or more related transactions, to
another corporation, Person or entity unless (i) the Company is the surviving
corporation or the entity or the Person formed by or surviving any such
consolidation or merger (if other than the Company) or to which such sale,
assignment, transfer, lease, conveyance or other disposition shall have been
made is a corporation organized or existing under the laws of the United
States, any state thereof or the District of Columbia; (ii) the entity or
Person formed by or surviving any such consolidation or merger (if other than
the Company) or the entity or Person to which such sale, assignment, transfer,
lease, conveyance or other disposition shall have been made assumes all the
obligations of the Company under the Unit Agreement, the Pledge Agreement, the
Debt Registration Rights Agreement, the Warrant Registration Rights Agreement
and the Notes and the Indenture pursuant to a supplemental indenture in a form
reasonably satisfactory to the Trustee; (iii) immediately after such
transaction no Default or Event of Default exists; and (iv) except in the case
of a merger of the Company with or into a Wholly Owned Subsidiary of the
Company, the Company or the entity or Person formed by or surviving any such
consolidation or merger (if other than the Company), or to which such sale,
assignment, transfer, lease, conveyance or other disposition shall have been
made (A) will have a Consolidated Net Worth immediately after the transaction
equal to or greater than the Consolidated Net Worth of the Company immediately
preceding the transaction and (B) will, at the time of such transaction and
after giving pro forma effect thereto as if such transaction had occurred at
the beginning of the Reference Period, be permitted to incur at least $1.00 of
additional Indebtedness pursuant to the Debt to Cash Flow Ratio test set forth
in the first paragraph of the covenant described above under the caption "--
Incurrence of Indebtedness and Issuance of Preferred Stock."
Transactions with Affiliates
The Indenture provides that the Company will not, and will not permit any of
its Subsidiaries to, make any payment to, or sell, lease, transfer or
otherwise dispose of any of its properties or assets to, or purchase any
property or assets from, or enter into or make or amend any transaction,
contract, agreement, understanding, loan, advance or guarantee with, or for
the benefit of, any Affiliate (each of the foregoing, an "Affiliate
Transaction"), unless (i) such Affiliate Transaction is on terms that are no
less favorable to the Company or the relevant Subsidiary than those that would
have been obtained in a comparable transaction by the Company or such
Subsidiary with an unrelated Person and (ii) the Company delivers to the
Trustee (a) with respect to any Affiliate Transaction or series of related
Affiliate Transactions involving aggregate consideration in excess of $1.0
million, a resolution of the Board of Directors set forth in an Officers'
Certificate certifying that such Affiliate Transaction complies with clause
(i) above and that such Affiliate Transaction has been approved by a majority
of the disinterested members of the Board of Directors and (b) with respect to
any Affiliate Transaction or series of related Affiliate Transactions
involving aggregate consideration in excess of $10.0 million, an opinion as to
the fairness to the Holders of such Affiliate Transaction from a financial
point of view issued by an accounting, appraisal or investment banking firm of
national standing. Notwithstanding the foregoing, the following items shall
not be deemed to be Affiliate Transactions: (i) reasonable fees and
compensation paid to and indemnity provisions provided on behalf of officers,
directors or employees of the Company or any of its Subsidiaries in the
ordinary course of business, (ii) transactions between or among the Company
and its Subsidiaries, (iii) transactions pursuant to agreements in effect on
the Issue Date and amendments, modifications and
104
replacements thereof, provided that such amendments, modifications and
replacements are on terms that are fair and reasonable to the Company and have
been unanimously approved by the disinterested members of the Board of
Directors, (iv) transactions between the Company and Holdings pursuant to the
Tax Sharing Agreement, as such is in effect on the date of the Indenture (or
as amended thereafter so long as no payment by the Company and its
Subsidiaries under any such amended Tax Sharing Agreement shall exceed the
amount of the payment that would have been permitted at such time under the
Tax Sharing Agreement as in effect on the Issue Date), and (v) Restricted
Payments (other than Restricted Investments) that are permitted by the
provisions of the Indenture described above under the caption "--Restricted
Payments."
Sale and Leaseback Transactions
The Indenture provides that the Company will not, and will not permit any of
its Subsidiaries to, enter into any sale and leaseback transaction; provided
that the Company may enter into a sale and leaseback transaction if (i) the
Company could have (a) incurred Indebtedness in an amount equal to the
Attributable Debt relating to such sale and leaseback transaction pursuant to
the Debt to Cash Flow Ratio test set forth in the first paragraph of the
covenant described above under the caption "--Incurrence of Additional
Indebtedness and Issuance of Preferred Stock" and (b) incurred a Lien to
secure such Indebtedness pursuant to the covenant described above under the
caption "--Liens," (ii) the gross cash proceeds of such sale and leaseback
transaction are at least equal to the fair market value (as determined in good
faith by the Board of Directors and set forth in an Officers' Certificate
delivered to the Trustee) of the property that is the subject of such sale and
leaseback transaction and (iii) the transfer of assets in such sale and
leaseback transaction is permitted by, and the Company applies the proceeds of
such transaction in compliance with, the covenant described above under the
caption "--Repurchase at the Option of Holders--Asset Sales."
Additional Subsidiary Guarantees
The Indenture provides that if the Company or any of its Subsidiaries
acquires or creates another Subsidiary after the date of the Indenture, then
such newly acquired or created Subsidiary shall become a Subsidiary Guarantor
and execute a Supplemental Indenture and deliver an Officers' Certificate and
Opinion of Counsel and such other documents necessary and in accordance with
the terms of the Indenture.
Limitation on Issuances and Sales of Equity Interests in Wholly Owned
Subsidiaries
The Indenture provides that the Company (i) will not, and will not permit
any Wholly Owned Subsidiary of the Company to, transfer, convey, sell, lease
or otherwise dispose of any Equity Interests in any Wholly Owned Subsidiary of
the Company to any Person (other than the Company or a Wholly Owned Subsidiary
of the Company), unless (a) such transfer, conveyance, sale, lease or other
disposition is of all the Equity Interests in such Wholly Owned Subsidiary and
(b) the cash Net Proceeds from such transfer, conveyance, sale, lease or other
disposition are applied in accordance with the covenant described above under
the caption "--Repurchase at the Option of Holders--Asset Sales," and (ii)
will not permit any Wholly Owned Subsidiary of the Company to issue any of its
Equity Interests (other than, if necessary, shares of its Capital Stock
constituting directors' qualifying shares) to any Person other than to the
Company or a Wholly Owned Subsidiary of the Company.
Business Activities
The Company will not, and will not permit any Subsidiary to, engage in any
business other than Permitted Businesses, except to such extent as would not
be material to the Company and its Subsidiaries taken as a whole.
Payments for Consent
The Indenture provides that neither the Company nor any of its Subsidiaries
will, directly or indirectly, pay or cause to be paid any consideration,
whether by way of interest, fee or otherwise, to any Holder of any Notes for
or as an inducement to any consent, waiver or amendment of any of the terms or
provisions of the Indenture
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or the Notes unless such consideration is offered to be paid or is paid to all
Holders of the Notes that consent, waive or agree to amend in the time frame
set forth in the solicitation documents relating to such consent, waiver or
agreement.
Reports
The Indenture provides that, whether or not required by the rules and
regulations of the Commission, so long as any Notes are outstanding, the
Company will furnish to the Trustee and the Holders of Notes (i) all quarterly
and annual financial information that would be required to be contained in a
filing with the Commission on Forms 10-Q and 10-K if the Company were required
to file such Forms, including a "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and, with respect to the annual
information only, a report thereon by the Company's certified independent
accountants and (ii) all current reports that would be required to be filed
with the Commission on Form 8-K if the Company were required to file such
reports, in each case within the time periods specified in the Commission's
rules and regulations. For so long as Holdings is a guarantor of the Notes,
the Indenture permits the Company to satisfy its obligations in this covenant
with respect to financial information relating to the Company by furnishing
financial information relating to Holdings; provided that the same is
accompanied by consolidated financial information of the Company on a stand-
alone basis that explains in reasonable detail the differences between the
information relating to Holdings, on the one hand, and the information
relating to the Company on a stand-alone basis, on the other hand. In
addition, following the consummation of the Exchange Offer, whether or not
required by the rules and regulations of the Commission, the Company will file
a copy of all such information and reports with the Commission for public
availability within the time periods specified in the Commission's rules and
regulations (unless the Commission will not accept such a filing) and make
such information reasonably available to securities analysts and prospective
investors upon request. In addition, Holdings, the Company and the Subsidiary
Guarantors have agreed that, for so long as any Notes remain outstanding, they
will furnish to the Holders and to securities analysts and prospective
investors, upon their request, the information required to be delivered
pursuant to Rule 144A(d)(4) under the Securities Act.
EVENTS OF DEFAULT AND REMEDIES
The Indenture provides that each of the following constitutes an Event of
Default: (i) default for 30 days in the payment when due of interest on, or
Liquidated Damages with respect to, the Notes (ii) default in payment when due
of the principal of or premium, if any, on the Notes (iii) failure by the
Company or any of its Subsidiaries to comply with the provisions described
under the captions "--Repurchase at the Option of Holders--Change of Control,"
"--Asset Sales," "--Certain Covenants--Restricted Payments" or "--Incurrence
of Indebtedness and Issuance of Preferred Stock"; (iv) failure by the Company
or any of its Subsidiaries for 60 days after notice to comply with any of its
other agreements in the Indenture or the Notes; (v) default under any
mortgage, indenture or instrument under which there may be issued or by which
there may be secured or evidenced any Indebtedness for money borrowed by the
Company or any of its Subsidiaries (or the payment of which is guaranteed by
the Company or any of its Subsidiaries) whether such Indebtedness or guarantee
now exists, or is created after the date of the Indenture, which default (a)
is caused by a failure to pay principal of or premium, if any, or interest on
such Indebtedness prior to the expiration of the grace period provided in such
Indebtedness on the date of such default (a "Payment Default") or (b) results
in the acceleration of such Indebtedness prior to its express maturity and, in
each case, the principal amount of any such Indebtedness, together with the
principal amount of any other such Indebtedness under which there has been a
Payment Default or the maturity of which has been so accelerated, aggregates
$5.0 million or more; (vi) default under any mortgage, indenture or instrument
under which there may be issued or by which there may be secured or evidenced
any Indebtedness for money borrowed by Holdings (or the payment of which is
guaranteed by Holdings) whether such Indebtedness or guarantee now exists, or
is created after the date of the Indenture, which default is (a) a Payment
Default or (b) results in the acceleration of such Indebtedness prior to its
express maturity and, in each case, the principal amount of any such
Indebtedness, together with the principal amount of any other such
Indebtedness under which there has been a Payment Default or the maturity of
which has been so accelerated, aggregates $5.0 million or more; (vii) failure
by Holdings to pay final judgments aggregating in
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excess of $5.0 million, which judgments are not paid, discharged or stayed for
a period of 60 days; (viii) failure by the Company or any of its Subsidiaries
to pay final judgments aggregating in excess of $5.0 million, which judgments
are not paid, discharged or stayed for a period of 60 days; (ix) material
breach by Holdings, the Company or any Subsidiary of any representation or
warranty set forth in the Unit Agreement or the Pledge Agreement, or material
default by Holdings, the Company or any Subsidiary in the performance of any
covenant set forth in the Unit Agreement or the Pledge Agreement, or
repudiation by Holdings, the Company or any Subsidiary of its obligations
under the Unit Agreement or the Pledge Agreement or the unenforceability of
the Unit Agreement or the Pledge Agreement against Holdings, the Company or
any Subsidiary for any reason; (x) certain events of bankruptcy or insolvency
with respect to the Company or any Guarantor; (xi) the termination or
revocation of any of the permits, licenses, approvals, orders, certificates,
franchises or authorizations of governmental or regulatory authorities,
including those relating to the Federal Communications Act of 1934, as
amended, owned or held by Holdings, the Company or any of the Subsidiary
Guarantors that are material to the Company and its Subsidiaries, taken as a
whole, (collectively, "Licenses") or any other material impairment occurs
under any such Licenses of the rights of the holder of such License; and (xii)
except as permitted by the Indenture, any of the Holdings Guarantee or the
Subsidiary Guarantees shall be held in any judicial proceeding to be
unenforceable or invalid or shall cease for any reason to be in full force and
effect or any of the Holdings Guarantee or the Subsidiary Guarantees, or any
Person acing on behalf of Holdings or any of the Subsidiary Guarantors, shall
deny or disaffirm its obligations under its guarantee.
If any Event of Default occurs and is continuing, the Trustee or the Holders
of at least 25% in principal amount of the then outstanding Notes may declare
all the Notes to be due and payable immediately. Notwithstanding the
foregoing, in the case of an Event of Default arising from certain events of
bankruptcy or insolvency, with respect to the Company, any Significant
Subsidiary or any group of Subsidiaries that, taken together, would constitute
a Significant Subsidiary, all outstanding Notes will become due and payable
without further action or notice. Holders of the Notes may not enforce the
Indenture or the Notes except as provided in the Indenture. Subject to certain
limitations, Holders of a majority in principal amount of the then outstanding
Notes may direct the Trustee in its exercise of any trust or power. The
Trustee may withhold from Holders of the Notes notice of any continuing
Default or Event of Default (except a Default or Event of Default relating to
the payment of principal or interest) if it determines that withholding notice
is in their interest.
In the case of any Event of Default occurring by reason of any willful
action (or inaction) taken (or not taken) by or on behalf of the Company with
the intention of avoiding payment of the premium that the Company would have
had to pay if the Company then had elected to redeem the Notes pursuant to the
optional redemption provisions of the Indenture, an equivalent premium shall
also become and be immediately due and payable to the extent permitted by law
upon the acceleration of the Notes. If an Event of Default occurs prior to
April 1, 2003, by reason of any willful action (or inaction) taken (or not
taken) by or on behalf of the Company with the intention of avoiding the
prohibition on redemption of the Notes prior to April 1, 2003, then the
premium specified in the Indenture shall also become immediately due and
payable to the extent permitted by law upon the acceleration of the Notes.
The Holders of a majority in aggregate principal amount of the Notes then
outstanding by notice to the Trustee may on behalf of the Holders of all of
the Notes waive any existing Default or Event of Default and its consequences
under the Indenture except a continuing Default or Event of Default in the
payment of interest on, or the principal of, the Notes.
The Company is required to deliver to the Trustee annually a statement
regarding compliance with the Indenture, and the Company is required upon
becoming aware of any Default or Event of Default, to deliver to the Trustee a
statement specifying such Default or Event of Default.
NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND STOCKHOLDERS
No director, officer, employee, incorporator or stockholder of the Company,
as such, shall have any liability for any obligations of the Company under the
Notes, the Indenture or the Pledge Agreement or for any claim
107
based on, in respect of, or by reason of, such obligations or their creation.
Each Holder of Notes by accepting a Note waives and releases all such
liability. The waiver and release are part of the consideration for issuance
of the Notes. Such waiver may not be effective to waive liabilities under the
federal securities laws and it is the view of the Commission that such a
waiver is against public policy.
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
The Company may, at its option and at any time, elect to have all of its
obligations discharged with respect to the outstanding Notes ("Legal
Defeasance") except for (i) the rights of Holders of outstanding Notes to
receive payments in respect of the principal of, premium, if any, and interest
and Liquidated Damages on such Notes when such payments are due from the trust
referred to below, (ii) the Company's obligations with respect to the Notes
concerning issuing temporary Notes, registration of Notes, mutilated,
destroyed, lost or stolen Notes and the maintenance of an office or agency for
payment and money for security payments held in trust, (iii) the rights,
powers, trusts, duties and immunities of the Trustee, and the Company's
obligations in connection therewith and (iv) the Legal Defeasance provisions
of the Indenture. In addition, the Company may, at its option and at any time,
elect to have the obligations of the Company released with respect to certain
covenants that are described in the Indenture ("Covenant Defeasance") and
thereafter any omission to comply with such obligations shall not constitute a
Default or Event of Default with respect to the Notes. In the event Covenant
Defeasance occurs, certain events (not including non-payment, bankruptcy,
receivership, rehabilitation and insolvency events) described under "Events of
Default" will no longer constitute an Event of Default with respect to the
Notes.
In order to exercise either Legal Defeasance or Covenant Defeasance, (i) the
Company must irrevocably deposit with the Trustee, in trust, for the benefit
of the Holders of the Notes, cash in U.S. dollars, non-callable Government
Securities, or a combination thereof, in such amounts as will be sufficient,
in the opinion of a nationally recognized firm of independent public
accountants, to pay the principal of, premium, if any, and interest and
Liquidated Damages on the outstanding Notes on the stated maturity or on the
applicable redemption date, as the case may be, and the Company must specify
whether the Notes are being defeased to maturity or to a particular redemption
date; (ii) in the case of Legal Defeasance, the Company shall have delivered
to the Trustee an opinion of counsel in the United States reasonably
acceptable to the Trustee confirming that (A) the Company has received from,
or there has been published by, the Internal Revenue Service a ruling or (B)
since the date of the Indenture, there has been a change in the applicable
federal income tax law, in either case to the effect that, and based thereon
such opinion of counsel shall confirm that, the Holders of the outstanding
Notes will not recognize income, gain or loss for federal income tax purposes
as a result of such Legal Defeasance and will be subject to federal income tax
on the same amounts, in the same manner and at the same times as would have
been the case if such Legal Defeasance had not occurred; (iii) in the case of
Covenant Defeasance, the Company shall have delivered to the Trustee an
opinion of counsel in the United States reasonably acceptable to the Trustee
confirming that the Holders of the outstanding Notes will not recognize
income, gain or loss for federal income tax purposes as a result of such
Covenant Defeasance and will be subject to federal income tax on the same
amounts, in the same manner and at the same times as would have been the case
if such Covenant Defeasance had not occurred; (iv) no Default or Event of
Default shall have occurred and be continuing on the date of such deposit
(other than a Default or Event of Default resulting from the borrowing of
funds to be applied to such deposit) or insofar as Events of Default from
bankruptcy or insolvency events are concerned, at any time in the period
ending on the 91st day after the date of deposit; (v) such Legal Defeasance or
Covenant Defeasance will not result in a breach or violation of, or constitute
a default under any material agreement or instrument (other than the
Indenture) to which the Company or any of its Subsidiaries is a party or by
which the Company or any of its Subsidiaries is bound; (vi) the Company must
have delivered to the Trustee an opinion of counsel to the effect that after
the 91st day following the deposit, the trust funds will not be subject to the
effect of any applicable bankruptcy, insolvency, reorganization or similar
laws affecting creditors' rights generally; (vii) the Company must deliver to
the Trustee an Officers' Certificate stating that the deposit was not made by
the Company with the intent of preferring the Holders of Notes over the other
creditors of the Company with the intent of defeating, hindering, delaying or
defrauding creditors of the Company or others; and (viii) the Company
108
must deliver to the Trustee an Officers' Certificate and an opinion of
counsel, each stating that all conditions precedent provided for relating to
the Legal Defeasance or the Covenant Defeasance have been complied with.
TRANSFER AND EXCHANGE
A Holder may transfer or exchange Notes in accordance with the Indenture.
The Registrar and the Trustee may require a Holder, among other things, to
furnish appropriate endorsements and transfer documents and the Company may
require a Holder to pay any taxes and fees required by law or permitted by the
Indenture. The Company is not required to transfer or exchange any Note
selected for redemption. Also, the Company is not required to transfer or
exchange any Note for a period of 15 days before a selection of Notes to be
redeemed.
The registered Holder of a Note will be treated as the owner of it for all
purposes.
AMENDMENT, SUPPLEMENT AND WAIVER
Except as provided in the next two succeeding paragraphs, the Indenture or
the Notes may be amended or supplemented with the consent of the Holders of at
least a majority in principal amount of the Notes then outstanding (including,
without limitation, consents obtained in connection with a purchase of, or
tender offer or exchange offer for, Notes), and any existing default or
compliance with any provision of the Indenture or the Notes may be waived with
the consent of the Holders of a majority in principal amount of the then
outstanding Notes (including, without limitation, consents obtained in
connection with a purchase of, or tender offer or exchange offer for, Notes).
Without the consent of each Holder affected, an amendment or waiver may not
(with respect to any Notes held by a non-consenting Holder): (i) reduce the
principal amount of Notes whose Holders must consent to an amendment,
supplement or waiver, (ii) reduce the principal of or change the fixed
maturity of any Note or alter the provisions with respect to the redemption of
the Notes (other than provisions relating to the covenants described above
under the caption "--Repurchase at the Option of Holders"), (iii) reduce the
rate of or change the time for payment of interest on any Note, (iv) waive a
Default or Event of Default in the payment of principal of or premium, if any,
or interest on the Notes (except a rescission of acceleration of the Notes by
the Holders of at least a majority in aggregate principal amount of the Notes
and a waiver of the payment default that resulted from such acceleration), (v)
make any Note payable in money other than that stated in the Notes, (vi) make
any change in the provisions of the Indenture relating to waivers of past
Defaults or the rights of Holders of Notes to receive payments of principal of
or premium or Liquidated Damages, if any, or interest on the Notes, (vii)
waive a redemption payment with respect to any Note (other than a payment
required by one of the covenants described above under the caption "--
Repurchase at the Option of Holders") (viii) release any Guarantee other than
in accordance with the Indenture or (ix) make any change in the foregoing
amendment and waiver provisions.
Notwithstanding the foregoing, without the consent of any Holder of Notes,
the Company and the Trustee may amend or supplement the Indenture or the Notes
to cure any ambiguity, defect or inconsistency, to provide for uncertificated
Notes in addition to or in place of certificated Notes, to provide for the
assumption of the Company's obligations to Holders of Notes in the case of a
merger or consolidation or sale of all or substantially all of the Company's
assets, to make any change that would provide any additional rights or
benefits to the Holders of Notes or that does not adversely affect the legal
rights under the Indenture of any such Holder, or to comply with requirements
of the Commission in order to effect or maintain the qualification of the
Indenture under the Trust Indenture Act.
CONCERNING THE TRUSTEE
The Indenture contains certain limitations on the rights of the Trustee,
should it become a creditor of the Company, to obtain payment of claims in
certain cases, or to realize on certain property received in respect of any
such claim as security or otherwise. The Trustee will be permitted to engage
in other transactions; however, if it acquires any conflicting interest it
must eliminate such conflict within 90 days or apply to the Commission for
permission to continue or resign.
109
The Holders of a majority in principal amount of the then outstanding Notes
will have the right to direct the time, method and place of conducting any
proceeding for exercising any remedy available to the Trustee, subject to
certain exceptions. The Indenture provides that in case an Event of Default
shall occur (which shall not be cured), the Trustee will be required, in the
exercise of its power, to use the degree of care of a prudent man in the
conduct of his own affairs. Subject to such provisions, the Trustee will be
under no obligation to exercise any of its rights or powers under the
Indenture at the request of any Holder of Notes, unless such Holder shall have
offered to the Trustee security and indemnity satisfactory to it against any
loss, liability or expense.
CERTAIN DEFINITIONS
Set forth below are certain defined terms used in the Indenture. Reference
is made to the Indenture for a full disclosure of all such terms, as well as
any other capitalized terms used herein for which no definition is provided.
"Acquired Debt" means, with respect to any specified Person, (i)
Indebtedness of any other Person existing at the time such other Person is
merged with or into or became a Subsidiary of such specified Person,
including, without limitation, Indebtedness incurred in connection with, or in
contemplation of, such other Person merging with or into or becoming a
Subsidiary of such specified Person, and (ii) Indebtedness secured by a Lien
encumbering any asset acquired by such specified Person.
"ACTEL Agreement" means the agreement between Holdings and African
Continental Telecommunications Ltd., dated as of December 4, 1997, pursuant to
which Holdings will lease its MSAT-2 satellite to African Continental
Telecommunications Ltd., as such agreement is in effect on the date of the
Indenture.
"Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For purposes of this definition, "control"
(including, with correlative meanings, the terms "controlling," "controlled
by" and "under common control with"), as used with respect to any Person,
shall mean the possession, directly or indirectly, of the power to direct or
cause the direction of the management or policies of such Person, whether
through the ownership of voting securities, by agreement or otherwise;
provided that beneficial ownership of 10% or more of the Voting Stock of a
Person shall be deemed to be control.
"Asset Sale" means (i) the sale, lease, conveyance or other disposition of
any assets or rights (including, without limitation, by way of a sale and
leaseback) other than sales of inventory in the ordinary course of business
consistent with past practices (provided that the sale, lease, conveyance or
other disposition of all or substantially all of the assets of the Company and
its Subsidiaries taken as a whole will be governed by the provisions of the
Indenture described above under the caption "--Change of Control" and/or the
provisions described above under the caption "--Merger, Consolidation or Sale
of Assets" and not by the provisions of the Asset Sale covenant), and (ii) the
issue or sale by the Company or any of its Subsidiaries of Equity Interests of
any of the Company's Subsidiaries, in the case of either clause (i) or (ii),
whether in a single transaction or a series of related transactions (a) that
have a fair market value in excess of $1.0 million or (b) for net proceeds in
excess of $1.0 million. Notwithstanding the foregoing, the following items
shall not be deemed to be Asset Sales: (i) a transfer of assets by the Company
to a Wholly Owned Subsidiary or by a Wholly Owned Subsidiary to the Company or
to another Wholly Owned Subsidiary, (ii) an issuance of Equity Interests by a
Wholly Owned Subsidiary to the Company or to another Wholly Owned Subsidiary,
and (iii) a Restricted Payment that is permitted by the covenant described
above under the caption "--Restricted Payments."
"Attributable Debt" in respect of a sale and leaseback transaction means, at
the time of determination, the present value (discounted at the rate of
interest implicit in such transaction, determined in accordance with GAAP) of
the obligation of the lessee for net rental payments during the remaining term
of the lease included in such sale and leaseback transaction (including any
period for which such lease has been extended or may, at the option of the
lessor, be extended).
110
"Borrowing Base" means, as of any date, an amount equal to 85% of the face
amount of all accounts receivable owned by the Company and its Subsidiaries as
of such date that are not more than 90 days past due calculated on a
consolidated basis and in accordance with GAAP. To the extent that information
is not available as to the amount of accounts receivable or trade payables as
of a specific date, the Company may utilize the most recent available
information for purposes of calculating the Borrowing Base.
"Capital Lease Obligation" means, at the time any determination thereof is
to be made, the amount of the liability in respect of a capital lease that
would at such time be required to be capitalized on a balance sheet in
accordance with GAAP.
"Capital Stock" means (i) in the case of a corporation, corporate stock,
(ii) in the case of an association or business entity, any and all shares,
interests, participations, rights or other equivalents (however designated) of
corporate stock, (iii) in the case of a partnership or limited liability
company, partnership or membership interests (whether general or limited) and
(iv) any other interest or participation that confers on a Person the right to
receive a share of the profits and losses of, or distributions of assets of,
the issuing Person.
"Cash Equivalents" means (i) United States dollars, (ii) securities issued
or directly and fully guaranteed or insured by the United States government or
any agency or instrumentality thereof (provided that the full faith and credit
of the United States is pledged in support thereof) having maturities of not
more than six months from the date of acquisition, (iii) certificates of
deposit and eurodollar time deposits with maturities of six months or less
from the date of acquisition, bankers' acceptances with maturities not
exceeding six months and overnight bank deposits, in each case with any
domestic commercial bank having capital and surplus in excess of $500 million
and a Thompson Bank Watch Rating of "B" or better, (iv) repurchase obligations
with a term of not more than seven days for underlying securities of the types
described in clauses (ii) and (iii) above entered into with any financial
institution meeting the qualifications specified in clause (iii) above, (v)
commercial paper having the highest rating obtainable from Moody's Investors
Service, Inc. or Standard & Poor's Corporation and in each case maturing
within six months after the date of acquisition and (vi) money market funds
the assets of which constitute Cash Equivalents of the kinds described in
clauses (i)-(v) of this definition.
"Communications Asset" means a terrestrial or satellite antenna, licensed
site, base station, communications ground segment, network operations center
or other telecommunications facility (other than a satellite) that is used or
useful in a Permitted Business.
"Consolidated Annualized Cash Flow" means, with respect to any Person for
any period, the product of (x) the Consolidated Cash Flow of such Person for
the most recently completed fiscal quarter for which internal financial
statements are available, times (y) four.
"Consolidated Cash Flow" means, with respect to any Person for any period,
the Consolidated Net Income of such Person for such period plus (i) an amount
equal to any extraordinary loss plus any net loss realized in connection with
an Asset Sale (to the extent such losses were deducted in computing such
Consolidated Net Income), plus (ii) provision for taxes based on income or
profits of such Person and its Subsidiaries for such period, to the extent
that such provision for taxes was included in computing such Consolidated Net
Income, plus (iii) consolidated interest expense of such Person and its
Subsidiaries for such period, whether paid or accrued and whether or not
capitalized (including, without limitation, amortization of debt issuance
costs and original issue discount, non-cash interest payments, the interest
component of any deferred payment obligations, the interest component of all
payments associated with Capital Lease Obligations imputed interest with
respect to Attributable Debt, commissions, discounts and other fees and
charges incurred in respect of letter of credit or bankers' acceptance
financings, and net payments (if any) pursuant to Hedging Obligations), to the
extent that any such expense was deducted in computing such Consolidated Net
Income, plus (iv) depreciation, amortization (including amortization of
goodwill and other intangibles but excluding amortization of prepaid cash
expenses that were paid in a prior period) and other non-cash expenses
(excluding any such non-cash expense to the extent that it represents an
accrual of or reserve for cash expenses in any future period or amortization
of a prepaid cash expense that was paid in a prior period) of such Person and
its Subsidiaries for such period to the extent
111
that such depreciation, amortization and other non-cash expenses were deducted
in computing such Consolidated Net Income, minus (v) non-cash items increasing
such Consolidated Net Income for such period, in each case, on a consolidated
basis and determined in accordance with GAAP. Notwithstanding the foregoing,
the provision for taxes on the income or profits of, and the depreciation and
amortization and other non-cash expenses of, a Subsidiary of the referent
Person shall be added to Consolidated Net Income to compute Consolidated Cash
Flow only to the extent that a corresponding amount would be permitted at the
date of determination to be dividended to the Company by such Subsidiary
without prior governmental approval (that has not been obtained), and without
direct or indirect restriction pursuant to the terms of its charter and all
agreements, instruments, judgments, decrees, orders, statutes, rules and
governmental regulations applicable to that Subsidiary or its stockholders.
"Consolidated Indebtedness" means, with respect to any Person as of any date
of determination, the sum, without duplication, of (i) the total amount of
Indebtedness of such Person and its Subsidiaries, plus (ii) the total amount
of Indebtedness of any other Person, to the extent that such Indebtedness has
been Guaranteed by the referent Person or one or more of its Subsidiaries,
plus (iii) the aggregate liquidation value of all Disqualified Stock of such
Person and all preferred stock of Subsidiaries of such Person, in each case,
determined on a consolidated basis in accordance with GAAP.
"Consolidated Interest Expense" means, with respect to any Person for any
period, the sum of (i) the consolidated interest expense of such Person and
its Subsidiaries for such period, whether paid or accrued (including, without
limitation, amortization or original issue discount, non-cash interest
payments, the interest component of any deferred payment obligations, the
interest component of all payments associated with Capital Lease Obligations,
imputed interest with respect to Attributable Debt, commissions, discounts and
other fees and charges incurred in respect of letter of credit or bankers'
acceptance financings, and net payments (if any) pursuant to Hedging
Obligations) and (ii) the consolidated interest expense of such Person and its
Subsidiaries that was capitalized during such period, and (iii) any interest
expense on Indebtedness of another Person that is guaranteed by such Person or
one of its Subsidiaries or secured by a Lien on assets of such Person or one
of its Subsidiaries (whether or not such Guarantee or Lien is called upon) and
(iv) the product of (a) all dividend payments on any series of preferred stock
of such Person or any of its Subsidiaries, times (b) a fraction, the numerator
of which is one and the denominator of which is one minus the then current
combined federal, state and local statutory tax rate of such Person, expressed
as a decimal, in each case, on a consolidated basis and in accordance with
GAAP.
"Consolidated Net Income" means, with respect to any Person for any period,
the aggregate of the Net Income of such Person and its Subsidiaries for such
period, on a consolidated basis, determined in accordance with GAAP; provided
that (i) the Net Income (but not loss) of any Person that is not a Subsidiary
or that is accounted for by the equity method of accounting shall be included
only to the extent of the amount of dividends or distributions paid in cash to
the referent Person or a Wholly Owned Subsidiary thereof that is a Subsidiary
Guarantor, (ii) the Net Income of any Subsidiary shall be excluded to the
extent that the declaration or payment of dividends or similar distributions
by that Subsidiary of that Net Income is not at the date of determination
permitted without any prior governmental approval (that has not been obtained)
or, directly or indirectly, by operation of the terms of its charter or any
agreement, instrument, judgment, decree, order, statute, rule or governmental
regulation applicable to that Subsidiary or its stockholders, (iii) the Net
Income of any Person acquired in a pooling of interests transaction for any
period prior to the date of such acquisition shall be excluded and (iv) the
cumulative effect of a change in accounting principles shall be excluded.
"Consolidated Net Worth" means, with respect to any Person as of any date,
the sum of (i) the consolidated equity of the common stockholders of such
Person and its consolidated Subsidiaries as of such date plus (ii) the
respective amounts reported on such Person's balance sheet as of such date
with respect to any series of preferred stock (other than Disqualified Stock)
that by its terms is not entitled to the payment of dividends unless such
dividends may be declared and paid only out of net earnings in respect of the
year of such declaration and payment, but only to the extent of any cash
received by such Person upon issuance of such preferred stock, less
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(x) all write-ups (other than write-ups resulting from foreign currency
translations and write-ups of tangible assets of a going concern business made
within 12 months after the acquisition of such business) subsequent to the
date of the Indenture in the book value of any asset owned by such Person or a
consolidated Subsidiary of such Person, (y) all investments as of such date in
unconsolidated Subsidiaries and in Persons that are not Subsidiaries (except,
in each case, Permitted Investments), and (z) all unamortized debt discount
and expense and unamortized deferred charges as of such date, all of the
foregoing determined in accordance with GAAP.
"Consolidated Tangible Net Worth" of any Person at any time means the
Consolidated Net Worth of such Person at such time less goodwill and any other
intangible assets reflected on the consolidated balance sheet of such Person
at such time.
"Credit Facilities" means, with respect to the Company, one or more debt
facilities (including, without limitation, the Revolving Credit Facility) or
commercial paper facilities with banks or other institutional lenders
providing for revolving credit loans, term loans, receivables financing
(including through the sale of receivables to such lenders or to special
purpose entities formed to borrow from such lenders against such receivables)
or letters of credit, in each case, as amended, restated, modified, renewed,
refunded, replaced or refinanced in whole or in part from time to time.
Indebtedness under Credit Facilities outstanding on the date on which Notes
are first issued and authenticated under the Indenture shall be deemed to have
been incurred on such date in reliance on the exception provided by clause (i)
of the definition of Permitted Debt.
"Cumulative Consolidated Cash Flow" means the aggregate Consolidated Cash
Flow of a Person from a particular point in time.
"Debt to Cash Flow Ratio" means, with respect to any Person as of any date
of determination (the "Calculation Date") the ratio of (a) the Consolidated
Indebtedness of the Company as of such date to (b) the Consolidated Annualized
Cash Flow of the Company for the most recent full fiscal Reference Period
ending immediately prior to such date for which internal financial statements
are available, determined on a pro forma basis after giving effect to all
acquisitions or dispositions of assets made by the Company and its
Subsidiaries from the beginning of such Reference Period through and including
such date of determination (including any related financing transactions) as
if such acquisitions and dispositions had occurred at the beginning of such
quarter. In addition, for purposes of making the computation referred to
above, (i) acquisitions that have been made by the Company or any of its
Subsidiaries, including through mergers or consolidations and including any
related financing transactions, during the reference period or subsequent to
such reference period and on or prior to the Calculation Date shall be deemed
to have occurred on the first day of the reference period and Consolidated
Cash Flow for such reference period shall be calculated without giving effect
to clause (iii) of the proviso set forth in the definition of Consolidated Net
Income, and (ii) the Consolidated Cash Flow attributable to discontinued
operations, as determined in accordance with GAAP, and operations or
businesses disposed of prior to the Calculation Date, shall be excluded.
"Default" means any event that is or with the passage of time or the giving
of notice or both would be an Event of Default.
"Disqualified Stock" means any Capital Stock that, by its terms (or by the
terms of any security into which it is convertible, or for which it is
exchangeable, at the option of the holder thereof), or upon the happening of
any event, matures or is mandatorily redeemable, pursuant to a sinking fund
obligation or otherwise, or redeemable at the option of the Holder thereof, in
whole or in part, on or prior to the date that is 91 days after the date on
which the Notes mature; provided, however, that any Capital Stock that would
constitute Disqualified Stock solely because the holders thereof have the right
to require the Company to repurchase such Capital Stock upon the occurrence of
a Change of Control or an Asset Sale shall not constitute Disqualified Stock if
the terms of such Capital Stock provide that the Company may not repurchase or
redeem any such Capital Stock pursuant to such provisions unless such
repurchase or redemption complies with the covenant described above under the
caption "--Certain Covenants--Restricted Payments."
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"Equity Interests" means Capital Stock and all warrants, options or other
rights to acquire Capital Stock (but excluding any debt security that is
convertible into, or exchangeable for, Capital Stock).
"Equity Offering" means (i) an offering of common stock of the Company or a
capital contribution to the Company's common equity of the net cash proceeds
of a public offering of Holdings or (ii) one or more Strategic Equity
Investments (other than in connection with a Change of Control).
"Existing Indebtedness" means Indebtedness of the Company and its
Subsidiaries (other than Indebtedness under the Revolving Credit Facility) in
existence on the date of the Indenture, until such amounts are repaid.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as have been approved by a significant segment of the accounting
profession, which are in effect from time to time.
"Guarantee" means a guarantee (other than by endorsement of negotiable
instruments for collection in the ordinary course of business), direct or
indirect, in any manner (including, without limitation, by way of a pledge of
assets or through letters of credit or reimbursement agreements in respect
thereof), of all or any part of any Indebtedness.
"Hedging Obligations" means, with respect to any Person, the obligations of
such Person under (i) interest rate swap agreements, interest rate cap
agreements and interest rate collar agreements and (ii) other agreements or
arrangements designed to protect such Person against fluctuations in interest
rates.
"Indebtedness" means, with respect to any Person, any indebtedness of such
Person, whether or not contingent, in respect of borrowed money or evidenced
by bonds, notes, debentures or similar instruments or letters of credit (or
reimbursement agreements in respect thereof) or banker's acceptances or
representing Capital Lease Obligations or the balance deferred and unpaid of
the purchase price of any property or representing any Hedging Obligations,
except any such balance that constitutes an accrued expense or trade payable,
if and to the extent any of the foregoing (other than letters of credit and
Hedging Obligations) would appear as a liability upon a balance sheet of such
Person prepared in accordance with GAAP, as well as all Indebtedness of others
secured by a Lien on any asset of such Person (whether or not such
Indebtedness is assumed by such Person) and, to the extent not otherwise
included, the Guarantee by such Person of any indebtedness of any other
Person. The amount of any Indebtedness outstanding as of any date shall be (i)
the accreted value thereof, in the case of any Indebtedness issued with
original issue discount, and (ii) the principal amount thereof, together with
any interest thereon that is more than 30 days past due, in the case of any
other Indebtedness.
"Investments" means, with respect to any Person, all investments by such
Person in other Persons (including Affiliates) in the forms of direct or
indirect loans (including guarantees of Indebtedness or other obligations),
advances or capital contributions (excluding commission, travel and similar
advances to officers and employees made in the ordinary course of business),
purchases or other acquisitions for consideration of Indebtedness, Equity
Interests or other securities, together with all items that are or would be
classified as investments on a balance sheet prepared in accordance with GAAP.
If the Company or any Subsidiary of the Company sells or otherwise disposes of
any Equity Interests of any direct or indirect Subsidiary of the Company such
that, after giving effect to any such sale or disposition, such Person is no
longer a Subsidiary of the Company, the Company shall be deemed to have made
an Investment on the date of any such sale or disposition equal to the fair
market value of the Equity Interests of such Subsidiary not sold or disposed
of in an amount determined as provided in the final paragraph of the covenant
described above under the caption "--Restricted Payments."
"Lien" means, with respect to any asset, any mortgage, lien, pledge, charge,
security interest or encumbrance of any kind in respect of such asset, whether
or not filed, recorded or otherwise perfected under applicable law (including
any conditional sale or other title retention agreement, any lease in the
nature thereof,
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any option or other agreement to sell or give a security interest in and any
filing of or agreement to give any financing statement under the Uniform
Commercial Code (or equivalent statutes) of any jurisdiction).
"Net Income" means, with respect to any Person, the net income (loss) of
such Person, determined in accordance with GAAP and before any reduction in
respect of preferred stock dividends, excluding, however, (i) any gain (but
not loss), together with any related provision for taxes on such gain (but not
loss), realized in connection with (a) any Asset Sale (including, without
limitation, dispositions pursuant to sale and leaseback transactions) or (b)
the disposition of any securities by such Person or any of its Subsidiaries or
the extinguishment of any Indebtedness of such Person or any of its
Subsidiaries and (ii) any extraordinary or nonrecurring gain (but not loss),
together with any related provision for taxes on such extraordinary or
nonrecurring gain (but not loss).
"Net Proceeds" means the aggregate cash and Cash Equivalent proceeds
received by the Company or any of its Subsidiaries in respect of any Asset
Sale (including, without limitation, any cash received upon the sale or other
disposition of any non-cash consideration received in any Asset Sale), net of
the direct costs relating to such Asset Sale (including, without limitation,
legal, accounting and investment banking fees, and sales commissions) and any
relocation expenses incurred as a result thereof, taxes paid or payable as a
result thereof (after taking into account any available tax credits or
deductions and any tax sharing arrangements), amounts required to be applied
to the repayment of Indebtedness secured by a Lien on the asset or assets that
were the subject of such Asset Sale and any reserve for adjustment in respect
of the sale price of such asset or assets established in accordance with GAAP.
"Obligations" means any principal, interest, penalties, fees,
indemnifications, reimbursements, damages and other liabilities payable under
the documentation governing any Indebtedness.
"Permitted Business" means the business of the Company on the date of the
Indenture and businesses reasonably related or incidental thereto.
"Permitted Investments" means (a) any Investment in the Company or in a
Wholly Owned Subsidiary of the Company that is a Subsidiary Guarantor (b) any
Investment in Cash Equivalents; (c) any Investment by the Company or any
Subsidiary of the Company in a Person, if as a result of such Investment (i)
such Person becomes a Wholly Owned Subsidiary of the Company and a Subsidiary
Guarantor or (ii) such Person is merged, consolidated or amalgamated with or
into, or transfers or conveys substantially all of its assets to, or is
liquidated into, the Company or a Wholly Owned Subsidiary of the Company that
is a Subsidiary Guarantor; (d) any Investment made as a result of the receipt
of non-cash consideration from an Asset Sale that was made pursuant to and in
compliance with the covenant described above under the caption "--Repurchase
at the Option of Holders--Asset Sales"; and (e) any acquisition of assets
solely in exchange for the issuance of Equity Interests (other than
Disqualified Stock) of the Company.
"Permitted Liens" means (i) Liens in favor of the Company; (ii) Liens on
property of a Person existing at the time such Person is merged into or
consolidated with the Company or any Subsidiary of the Company; provided that
such Liens were in existence prior to the contemplation of such merger or
consolidation and do not extend to any assets other than those of the Person
merged into or consolidated with the Company; (iii) Liens on property existing
at the time of acquisition thereof by the Company or any Subsidiary of the
Company, provided that such Liens were in existence prior to the contemplation
of such acquisition; (iv) Liens to secure the performance of statutory
obligations, surety or appeal bonds, performance bonds or other obligations of
a like nature incurred in the ordinary course of business; (v) Liens to secure
Indebtedness (including Capital Lease Obligations) permitted by clause (iv) or
clause (x) of the second paragraph of the covenant entitled "Incurrence of
Indebtedness and Issuance of Preferred Stock" covering only the assets
acquired with such Indebtedness; (vi) Liens existing on the date of the
Indenture; (vii) Liens for taxes, assessments or governmental charges or
claims that are not yet delinquent or that are being contested in good faith
by appropriate proceedings promptly instituted and diligently concluded,
provided that any reserve or other appropriate provision as shall be required
in conformity with GAAP shall have been made therefor; and (viii) Liens
incurred in the ordinary course of
115
business of the Company or any Subsidiary of the Company with respect to
obligations that do not exceed $5.0 million at any one time outstanding and
that (a) are not incurred in connection with the borrowing of money or the
obtaining of advances or credit (other than trade credit in the ordinary
course of business) and (b) do not in the aggregate materially detract from
the value of the property or materially impair the use thereof in the
operation of business by the Company or such Subsidiary.
"Permitted Refinancing Indebtedness" means any Indebtedness of the Company
or any of its Subsidiaries issued in exchange for, or the net proceeds of
which are used to extend, refinance, renew, replace, defease or refund other
Indebtedness of the Company or any of its Subsidiaries (other than
intercompany Indebtedness); provided that: (i) the principal amount (or
accreted value, if applicable) of such Permitted Refinancing Indebtedness does
not exceed the principal amount of (or accreted value, if applicable), plus
accrued interest on, the Indebtedness so extended, refinanced, renewed,
replaced, defeased or refunded (plus the amount of reasonable expenses
incurred in connection therewith); (ii) such Permitted Refinancing
Indebtedness has a final maturity date later than the final maturity date of,
and has a Weighted Average Life to Maturity equal to or greater than the
Weighted Average Life to Maturity of, the Indebtedness being extended,
refinanced, renewed, replaced, defeased or refunded; (iii) if the Indebtedness
being extended, refinanced, renewed, replaced, defeased or refunded is
subordinated in right of payment to the Notes, such Permitted Refinancing
Indebtedness has a final maturity date later than the final maturity date of,
and is subordinated in right of payment to, the Notes on terms at least as
favorable to the Holders of Notes as those contained in the documentation
governing the Indebtedness being extended, refinanced, renewed, replaced,
defeased or refunded; and (iv) such Indebtedness is incurred either by the
Company or by the Subsidiary who is the obligor on the Indebtedness being
extended, refinanced, renewed, replaced, defeased or refunded.
"Person" means any individual, corporation, limited liability company, joint
stock company, trust, unincorporated organization, government or any agency or
political subdivision thereof or any other entity.
"Pledge Agreement" means the Pledge and Escrow Agreement among the Company
and the Trustee, dated the date of the Indenture and as amended from time to
time.
"Reference Period" means the most recently ended full fiscal quarter.
"Replacement Satellite" means any satellite constructed to replace MSAT-1 or
MSAT-2 in the event of a failure of such MSAT-1 or MSAT-2.
"Restricted Investment" means an Investment other than a Permitted
Investment.
"Revolving Credit Facility" means that certain Revolving Credit Facility,
dated as of March 31, 1998, by and among the Company and 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"),
providing for up to $100.0 million of revolving credit borrowings, including
any related notes, guarantees, collateral documents, instruments and
agreements executed in connection therewith, and in each case as amended,
modified, renewed, refunded, replaced or refinanced from time to time.
"Satellite Lease Arrangements" means the sale or lease of the Company's
MSAT-2 satellite pursuant to the ACTEL Agreement or a replacement agreement
(an "MSAT-2 Lease Agreement") provided that any such replacement agreement
shall be on commercially reasonable terms, provided that (A) the consideration
received by the Company in respect at such sale or lease (x) consists solely
of cash and (y) constitutes fair market value (as determined by the Board of
Directors of the Company set forth in resolution thereof delivered to the
Company, which determination shall be based upon an opinion or appraisal
issued by an appraisal or investment banking firm of national standing); (B)
the Company shall have acquired (through purchase or lease) capacity on MSAT-1
or a reasonable substitute thereof either (x) pursuant to the TMI Lease
Agreement or (y) any other agreement with a term not less than the maximum
term of the MSAT-2 Lease Agreement then in effect and otherwise on
commercially reasonable terms if (in the case of this clause (y)) in the
opinion of a nationally
116
recognized independent expert (a) the capacity acquired pursuant to such
replacement agreement is sufficient to permit the Company to conduct an
operations as conducted and as contemplated to be conducted through the term
of the MSAT-2 Lease Agreement then in effect and (y) the total consideration
paid by the Company for such replacement satellite capacity is no greater than
the fair market value thereof.
"Separation Date" means that earlier of (i) 180 days from the date of
issuance, (ii) such date as the Initial Purchasers may, in their discretion,
deem appropriate, (iii) in the event a Change of Control occurs, the date that
the Company mails notice thereof to holders of the Notes, (iv) the
commencement of the Exchange Offer and (v) the effectiveness of the shelf
registration statement relating to the Notes.
"Shareholder Guarantors" means Hughes, Singapore Telecom and Baron Capital
Partners, L.P.
"Significant Subsidiary" means any Subsidiary that would be a "significant
subsidiary" as defined in Article 1, Rule 1-02 of Regulation S-X, promulgated
pursuant to the Securities Act, as such Regulation is in effect on the date of
the Indenture.
"Stated Maturity" means, with respect to any installment of interest or
principal on any series of Indebtedness, the date on which such payment of
interest or principal was scheduled to be paid in the original documentation
governing such Indebtedness, and shall not include any contingent obligations
to repay, redeem or repurchase any such interest or principal prior to the
date originally scheduled for the payment thereof.
"Strategic Equity Investment" means an investment in Capital Stock (other
than Disqualified Stock) of the Company or Holdings in an aggregate amount of
not less than $50.0 million.
"Strategic Investor" means a Person engaged in one or more Permitted
Businesses that has, or is a Wholly-Owned Subsidiary of a Person that has, an
equity market capitalization in excess of $1.0 billion.
"Subsidiary" means, with respect to any Person, (i) any corporation,
association or other business entity of which more than 50% of the total
voting power of shares of Capital Stock entitled (without regard to the
occurrence of any contingency) to vote in the election of directors, managers
or trustees thereof is at the time owned or controlled, directly or
indirectly, by such Person or one or more of the other Subsidiaries of that
Person (or a combination thereof) and (ii) any partnership (a) the sole
general partner or the managing general partner of which is such Person or a
Subsidiary of such Person or (b) the only general partners of which are such
Person or of one or more Subsidiaries of such Person (or any combination
thereof).
"Term Loan Facility" means that certain Credit Agreement, dated as of March
31, 1998, by and among Holdings and the Banks, providing for up to $100.0
million of borrowings, including any related notes, guarantees, collateral
documents, instruments and agreements executed in connection therewith, and in
each case as amended, modified, renewed, refunded, replaced or refinanced from
time to time.
"Unit Agreement" means the Unit Agreement among the Company, Holdings and
the Trustee, dated the Issue Date and as amended from time to time.
"Vendor Financing Indebtedness" means Indebtedness of the Company or a
Subsidiary Guarantor the proceeds of which are utilized solely to acquire
ground-based Communications Assets used or usable in a Permitted Business of
the Company or such Subsidiary Guarantor.
"Voting Stock" of any Person as of any date means the Capital Stock of such
Person that is at the time entitled to vote in the election of the Board of
Directors of such Person.
"Weighted Average Life to Maturity" means, when applied to any Indebtedness
at any date, the number of years obtained by dividing (i) the sum of the
products obtained by multiplying (a) the amount of each then remaining
installment, sinking fund, serial maturity or other required payments of
principal, including payment at final maturity, in respect thereof, by (b) the
number of years (calculated to the nearest one-twelfth) that will
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elapse between such date and the making of such payment, by (ii) the then
outstanding principal amount of such Indebtedness.
"Wholly Owned Subsidiary" of any Person means a Subsidiary of such Person
all of the outstanding Capital Stock or other ownership interests of which
(other than directors' qualifying shares) shall at the time be owned by such
Person or by one or more Wholly Owned Subsidiaries of such Person and one or
more Wholly Owned Subsidiaries of such Person.
BOOK-ENTRY, DELIVERY AND FORM
Except as set forth below, the Exchange Notes will be issued in the form of
one or more Global Notes (the "Global Notes"). The Global Notes will be
deposited on the date of the closing of the sale of the Notes offered hereby
(the "Closing Date") with the Trustee as custodian for The Depository Trust
Company ("DTC"), in New York, New York, and registered in the name of DTC or
its nominee, in each case for credit to an account of a direct or indirect
participant in DTC as described below.
Exchange Notes that are issued as described below under "--Certified
Securities" will be issued in registered form (the "Certificated Securities").
Except as set forth below, the Global Notes may be transferred, in whole and
not in part, only to another nominee of DTC or to a successor of DTC or its
nominee. Beneficial interests in the Global Notes may not be exchanged for
Exchange Notes in certificated form except in the limited circumstances
described below. See "--Exchange of Book-Entry Securities for Certificated
Securities." Except in the limited circumstances described below, owners of
beneficial interests in the Global Notes will not be entitled to receive
physical delivery of Certificated Securities (as defined below).
Initially, the Trustee will act as Paying Agent and Registrar with respect
to the Exchange Notes. The Exchange Notes may be presented for registration of
transfer and exchange at the offices of the Registrar.
DEPOSITORY PROCEDURES
The following description of the operations and procedures of DTC, Euroclear
and Cedel are provided solely as a matter of convenience. These operations and
procedures are solely within the control of the respective settlement systems
and are subject to changes by them from time to time. The Company takes no
responsibility for these operations and procedures and urges investors to
contact the system or their participants directly to discuss these matters.
DTC has advised the Company that DTC is a limited-purpose trust company
created to hold securities for its participating organizations (collectively,
the "Participants") and to facilitate the clearance and settlement of
transactions in those securities between Participants through electronic book-
entry changes in accounts of its Participants. The Participants include
securities brokers and dealers (including the Initial Purchasers), banks,
trust companies, clearing corporations and certain other organizations. Access
to DTC's system is also available to other entities such as banks, brokers,
dealers and trust companies that clear through or maintain a custodial
relationship with a Participant, either directly or indirectly (collectively,
the "Indirect Participants"). Persons who are not Participants may
beneficially own securities held by or on behalf of DTC only through the
Participants or the Indirect Participants. The ownership interests in, and
transfers of ownership interests in, each security held by or on behalf of DTC
are recorded on the records of the Participants and Indirect Participants.
DTC has also advised the Company that, pursuant to procedures established by
it, (i) upon deposit of the Global Notes, DTC will credit the accounts of
Participants designated by the Initial Purchasers with portions of the
principal amount of the Global Notes and (ii) ownership of the Notes evidenced
by the Global Notes will be shown on, and the transfer of ownership thereof
will be effected only through, records maintained by DTC (with respect to the
Participants) or by the Participants and the Indirect Participants (with
respect to other owners of beneficial interest in the Global Notes).
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Investors in the Global Notes may hold their interests therein directly
through DTC, if they are Participants in such system, or indirectly through
organizations (including Euroclear and Cedel) which are Participants in such
system. Euroclear and Cedel will hold interests in the Global Notes on behalf
of their participants through customers' securities accounts in their
respective names on the books of their respective depositories, which are
Morgan Guaranty Trust Company of New York, Brussels office, as operator of
Euroclear, and Citibank, N.A., as operator of Cedel. All interests in Global
Notes, including those held through Euroclear or Cedel, may be subject to the
procedures and requirements of DTC. Those interests held through Euroclear or
Cedel may also be subject to the procedures and requirements of such systems.
The laws of some states require that certain persons take physical delivery in
definitive form of securities that they own. Consequently, the ability to
transfer beneficial interests in Global Notes to such persons will be limited
to that extent. Because DTC can act only on behalf of Participants, which in
turn act on behalf of Indirect Participants and certain banks, the ability of
a person having beneficial interests in a Global Note to pledge such interests
to persons or entities that do not participate in the DTC system, or otherwise
take actions in respect of such interests, may be affected by the lack of a
physical certificate evidencing such interests.
EXCEPT AS DESCRIBED BELOW, OWNERS OF INTEREST IN THE GLOBAL NOTES WILL NOT
HAVE EXCHANGE NOTES REGISTERED IN THEIR NAMES, WILL NOT RECEIVE PHYSICAL
DELIVERY OF EXCHANGE NOTES IN CERTIFICATED FORM AND WILL NOT BE CONSIDERED THE
REGISTERED OWNERS OR "HOLDERS" THEREOF UNDER THE INDENTURE FOR ANY PURPOSE.
Payments in respect of the principal of, and premium, if any, Liquidated
Damages, if any, and interest on a Global Note registered in the name of DTC
or its nominee will be payable to DTC in its capacity as the registered Holder
under the Indenture. Under the terms of the Unit Agreement and the Indenture,
the Company and the Trustee will treat the persons in whose names the Exchange
Notes, including the Global Notes, are registered as the owners thereof for
the purpose of receiving such payments and for any and all other purposes
whatsoever. Consequently, neither the Company nor the Trustee nor any agent of
the Company or the Trustee has or will have any responsibility or liability
for (i) any aspect of DTC's records or any Participant's or Indirect
Participant's records relating to or payments made on account of beneficial
ownership interest in the Global Notes, or for maintaining, supervising or
reviewing any of DTC's records or any Participant's or Indirect Participant's
records relating to the beneficial ownership interests in the Global Notes or
(ii) any other matter relating to the actions and practices of DTC or any of
its Participants or Indirect Participants. DTC has advised the Company that
its current practice, upon receipt of any payment in respect of securities, is
to credit the accounts of the relevant Participants with the payment on the
payment date, in amounts proportionate to their respective holdings in the
principal amount of beneficial interest in the relevant security as shown on
the records of DTC unless DTC has reason to believe it will not receive
payment on such payment date. Payments by the Participants and the Indirect
Participants to the beneficial owners of Exchange Notes will be governed by
standing instructions and customary practices and will be the responsibility
of the Participants or the Indirect Participants and will not be the
responsibility of DTC, the Trustee, the or the Company. Neither the Company
nor the Trustee will be liable for any delay by DTC or any of its Participants
in identifying the beneficial owners of the Exchange Notes, and the Company
and the Trustee may be, may conclusively rely on and will be protected in
relying on instructions from DTC or its nominee for all purposes.
Except for trades involving only Euroclear and Cedel participants, interest
in the Global Notes are expected to be eligible to trade in DTC's Same-Day
Funds Settlement System and secondary market trading activity in such
interests will, therefore, settle in immediately available funds, subject in
all cases to the rules and procedures of DTC and its Participants. See "--Same
Day Settlement and Payment."
Cross-market transfers between the Participants in DTC, on the one hand, and
Euroclear or Cedel participants, on the other hand, will be effected through
DTC in accordance with DTC's rules on behalf of Euroclear or Cedel, as the
case may be, by its respective depositary; however, such cross-market
transactions will require delivery of instructions to Euroclear or Cedel, as
the case may be, by the counterparty in such system in accordance with the
rules and procedures and within the established deadlines (Brussels time) of
such system. Euroclear or Cedel, as the case may be, will, if the transaction
meets its settlement requirements, deliver
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instructions to its respective depositary to take action to effect final
settlement on its behalf by delivering or receiving interests in the relevant
Global Note in DTC, and making or receiving payment in accordance with normal
procedures for same-day funds settlement applicable to DTC. Euroclear
participants and Cedel participants may not deliver instructions directly to
the depositories for Euroclear or Cedel.
DTC has advised the Company that it will take any action permitted to be
taken by a Holder of Exchange Notes only at the direction of one or more
Participants to whose account DTC has credited the interests in the Global
Notes and only in respect of such portion of the amount of the Exchange Notes
as to which such Participant or Participants has or have given such direction.
However, if there is an Event of Default under the Notes, DTC reserves the
right to exchange the Global Notes for legended Notes in certificated form,
and to distribute such Notes to its Participants.
Although DTC, Euroclear and Cedel have agreed to the foregoing procedures to
facilitate transfers of interests in the Global Notes among Participants in
DTC, Euroclear and Cedel, they are under no obligation to perform or to
continue to perform such procedures, and such procedures may be discontinued
at any time. Neither the Company nor the Trustee nor any of their respective
agents will have any responsibility for the performance by DTC, Euroclear or
Cedel or their respective participants or indirect participants of their
respective obligations under the rules and procedures governing their
operations.
Exchange of Book-Entry Securities for Certificated Securities
A Global Note is exchangeable for definitive Exchange Notes in registered
certificated form ("Certificated Notes") if (i) DTC (x) notifies the Company
that it is unwilling or unable to continue as depositary for the Global Notes
and the Company thereupon fails to appoint a successor depositary or (y) has
ceased to be a clearing agency registered under the Exchange Act, (ii) the
Company, at its option, notifies the Trustee in writing that it elects to
cause the issuance of the Certificated Securities or (iii) there shall have
occurred and be continuing a Default or Event of Default with respect to the
Notes. In addition, beneficial interests in Global Notes may be exchanged for
Certificated Securities upon request but only upon prior written notice given
to the Trustee by or on behalf of DTC in accordance with the Indenture. In all
cases, Certificated Securities delivered in exchange for any Global Notes or
beneficial interests therein will be registered in the names, and issued in
any approved denominations, requested by or on behalf of the depositary (in
accordance with its customary procedures).
Same Day Settlement and Payment
The Indenture requires that payments in respect of the Notes represented by
the Global Notes (including principal, premium, if any, interest and
Liquidated Damages, if any) be made by wire transfer of immediately available
funds to the accounts specified by the Global Note Holder. With respect to
Certificated Securities, the Company will make all payments of principal,
premium, if any, interest and Liquidated Damages, if any, by wire transfer of
immediately available funds to the accounts specified by the Holders thereof
or, if no such account is specified, by mailing a check to each such Holder's
registered address. The Notes represented by the Global Notes are expected to
be eligible to trade in the PORTAL market and to trade in the Depositary's
Same-Day Funds Settlement System, and any permitted secondary market trading
activity in such Notes will, therefore, be required by the Depositary to be
settled in immediately available funds. The Company expects that secondary
trading in any Certificated Securities will also be settled in immediately
available funds.
Because of time zone differences, the securities account of a Euroclear or
Cedel participant purchasing an interest in a Global Note from a Participant
in DTC will be credited, and any such crediting will be reported to the
relevant Euroclear or Cedel participant, during the securities settlement
processing day (which must be a business day for Euroclear and Cedel)
immediately following the settlement date of DTC. DTC has advised the Company
that cash received in Euroclear or Cedel as a result of sales of interests in
a Global Note by or through a Euroclear or Cedel participant to a Participant
in DTC will be received with value on the settlement date of DTC but will be
available in the relevant Euroclear or Cedel cash account only as of the
business day for Euroclear or Cedel following DTC's settlement date.
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CERTAIN UNITED STATES FEDERAL INCOME TAX CONSEQUENCES
The following general discussion summarizes certain of the principal
material United States federal income tax consequences of the exchange of Old
Notes for Exchange Notes and of the ownership and disposition of the Exchange
Notes. Old Notes and Exchange Notes are discussed collectively below as
"Notes." This discussion is a summary for general information only and does
not consider all aspects of United States federal income taxation that may be
relevant to an investor in light of that investor's particular circumstances.
This discussion also deals only with Old Notes and Exchange Notes held by a
holder as capital assets within the meaning of Section 1221 of the United
States Internal Revenue Code of 1986, as amended to the date hereof (the
"Code"). This summary does not address all of the tax consequences that may be
relevant nor does it address the federal income tax consequences to holders
subject to special treatment under the federal income tax laws, such as
brokers or dealers in securities or currencies, certain securities traders,
tax-exempt entities, banks, thrifts, insurance companies, other financial
institutions, persons that hold the Notes as a position in a "straddle" or as
part of a "synthetic security," "hedging," "conversion" or other integrated
instrument, persons that have a "functional currency" other than the United
States dollar, investors in pass-through entities and certain United States
expatriates. Further, this summary does not address (i) the income tax
consequences to shareholders in or partners or beneficiaries of, a holder of
the Notes (ii) the United States federal alternative minimum tax consequences
of the purchase, ownership or disposition of the Notes, or (iii) any state,
local or foreign tax consequences of the purchase, ownership or disposition of
the Notes.
This discussion is based upon the Code, existing and proposed regulations
thereunder, and current administrative rulings and court decisions. All of the
foregoing are subject to change, possibly on a retroactive basis, and any such
change could affect the continuing validity of this discussion.
HOLDERS AND PURCHASERS OF NOTES SHOULD CONSULT THEIR OWN TAX ADVISORS
CONCERNING THE APPLICATION OF FEDERAL INCOME TAXES LAWS, AS WELL AS THE LAWS
OF ANY STATE, LOCAL, OR FOREIGN TAXING JURISDICTION, TO THEIR PARTICULAR
SITUATIONS.
UNITED STATES HOLDERS
For purposes of this discussion, "United States Holder" generally means (i)
a citizen or resident (as defined in 7701(b)(1) of the Code) of the United
States, (ii) a corporation or partnership created or organized under the laws
of the United States or any political subdivision thereof, (iii) an estate the
income of which is includible in its gross income for United States federal
income tax purposes without regard to its source, or (iv) a trust if a court
within the United States is able to exercise primary supervision over its
administration and one or more United States persons have the authority to
control all substantial decisions of the trust. Certain United States federal
income tax consequences relevant to a holder other than a United States Holder
(a "Non-U.S. Holder") are discussed separately below.
Exchange of Notes
The exchange of the Old Notes for the Exchange Notes pursuant to the
Exchange Offer should not be a taxable event to the holder and thus the holder
should not recognize any taxable gain or loss as a result of the exchange. A
holder's adjusted tax basis in the Exchange Notes will be the same as his
adjusted tax basis in the Old Notes exchange therefor, his holding period for
the Old Notes will be included in his holding period for the Exchange Notes
and the issue price and adjusted issue price of the Old Notes will be the
issue price and adjusted issue price of the Exchange Notes.
Payments of Interest
Stated interest paid or accrued on the Notes will constitute qualified
stated interest and will be taxable to a United States Holder as ordinary
income in accordance with the holder's method of accounting for federal income
tax purposes. Alternatively, a United States Holder may elect to include
stated interest on the Notes (as well as original issue discount ("OID"),
market discount and de minimis market discount on the Notes, as
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adjusted by any amortizable bond premium or acquisition premium) in gross
income on a constant-yield basis. The mechanics and implications of such an
election are beyond the scope of this discussion and, as a result, United
States Holders should consult their own tax advisors regarding the
desirability of making such an election.
Original Issue Discount
The Company has determined that the Notes were issued with OID for United
States federal income tax purposes. The amount of OID on a Note equals the
excess of the principal amount due at maturity on the Note over its "issue
price." The Company has determined that the portion of the purchase price
originally paid for each Unit that was properly allocable to each Note and,
thus, the "issue price" of each $1,000 principal amount Old Note, was $974.66.
Although this allocation is not binding on the IRS, each United States holder
is bound by the Company's allocation, unless a disclosure statement is
attached to the timely filed United States federal income tax return of the
United States Holder for its taxable year in which it acquired the Note.
Each United States Holder (whether reporting on the cash or accrual basis of
accounting for tax purposes) will be required to include in taxable income the
daily portion of the OID that accrues on a Note for each day during the
taxable year on which such United States Holder holds the Note, in advance of
the receipt of the cash to which such OID is attributable. The daily portion
is determined by allocating to each day of an accrual period a pro rata
portion of the OID allocable to such accrual period. A United States Holder
may use accrual periods of any length from one day to one year to compute
accruals of OID, provided each scheduled payment of principal or interest
occurs either on the first day or last day of an accrual period. The amount of
OID allocable to an accrual period equals the excess of (i) the product of the
"adjusted issue price" of the Note at the beginning of the accrual period and
the Note's "yield to maturity" (which "yield to maturity" is adjusted to take
into account the length of the accrual period), over (ii) the amount of any
stated interest payments allocable to such accrual period. The "yield to
maturity" of the Notes is the discount rate that, when applied to all payments
due under the Notes (including stated interest payments), results in a present
value equal to the issue price of the Notes. The "adjusted issue price" of a
Note at the beginning of an accrual period will equal its issue price,
increased by the aggregate amount of OID that has accrued on the Note in all
prior accrual periods, and decreased by any principal payments made on the
Note during all prior accrual periods.
If the Company is required to pay Liquidated Damages with respect to the
Notes as described under "Description of the Exchange Notes--Registration
Rights; Liquidated Damages," such payment would result in ordinary income to
United States Holders. Although not free from doubt, the Company intends to
treat any such payments as additional interest payable on the Notes. If such
treatment is respected, the Notes would be treated as reissued for OID
purposes, and the payments may affect the calculation of OID.
Premium
A United States Holder that purchases a Note at a price greater than the
Note's principal amount will not be required to include any OID in income. The
excess of the United States Holder's basis in a Note over its principal amount
generally is treated as amortizable bond premium. A United States Holder may
elect to deduct such amortizable bond premium (with a corresponding reduction
in the holder's tax basis) over the remaining term of the Note (or a shorter
period to the first call date, if a smaller deduction would result) on an
economic accrual basis. The election would apply to all taxable debt
instruments held by the United States Holder at any time during the first
taxable year to which the election applies and to any such debt instruments
that are later acquired by the United States Holder. The election may not be
revoked without the consent of the IRS.
A United States Holder that purchases a Note at a price in excess of the
Note's adjusted issue price but less than the Note's principal amount has
acquisition premium with respect to the Note equal to such excess. The amount
of OID the United States Holder must include in income each year with respect
to the Note is reduced by the portion of acquisition premium allocated to such
year. United States Holders generally allocate acquisition premium to each
accrual of OID on a pro rata basis, so that each accrual of OID is reduced by
a constant fraction.
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Market Discount
If a United States Holder purchases a Note for an amount that is less than
its adjusted issue price, the amount of the difference will be treated as
market discount for U.S. federal income tax purposes, unless such difference
is less than a specified de minimis amount. Under the market discount rules, a
United States Holder must accrue market discount on a straight-line basis, or
may elect to accrue it on an economic accrual basis. Absent the election
described in the next paragraph, a United States Holder will not include
market discount in income as it accrues. A United States Holder will be
required to treat any principal payment on, or any amount received on the
sale, exchange, retirement or other disposition of, a Note as ordinary income
to the extent of accrued market discount which has not previously been
included in income.
In addition, the United States Holder may be required to defer, until the
maturity of the Note or its earlier disposition in a taxable transaction, the
deduction of a portion of the interest expense of any indebtedness incurred or
continued to purchase or carry such a Note. A United States Holder of a Note
acquired at a market discount may elect to include market discount in income
as interest as it accrues, in which case the interest deferral rule described
in the prior sentence would not apply. This election would apply to all bonds
with market discount acquired by the electing United States Holder on or after
the first day of the taxable year to which the election applies and is
separate from the election concerning the rate of accrual described above. The
election may be revoked only with the consent of the IRS.
Sale or Redemption of the Notes
Upon the disposition of a Note by sale, exchange or redemption, a United
States Holder generally will recognize gain or loss equal to the difference,
if any, between (i) the amount realized on the disposition (other than amounts
attributable to accrued and unpaid interest) and (ii) the United States
Holder's tax basis in the Note. A United States Holder's tax basis in a Note
generally will equal the cost of the Note to the United States Holder,
increased by OID previously included (or currently includible) in such
holder's gross income to the date of disposition, and reduced by any payments
other than payments of qualified stated interest made on such Note. When a
Note is sold, disposed of or redeemed between Interest Payment Dates, the
portion of the amount realized on the disposition that is attributable to
interest accrued to the date of sale must be reported as interest income by a
cash method investor and an accrual method investor that has not included the
interest in income as it accrued.
Assuming the Note is held as a capital asset, such gain or loss will
generally constitute capital gain or loss and will be long-term capital gain
or loss if the United States Holder has held such Note for longer than one
year. Federal income tax rates on long-term capital gain received by
individuals vary based on the individual's income and the holding period for
the asset. In particular, different maximum tax rates apply to gains
recognized by an individual from the sale of (i) assets held for more than one
year but no more than 18 months and (ii) assets held for more than 18 months.
Holders should contact their tax advisors for more information or for the
capital gains tax rate applicable to particular sale of Notes. Pending
legislation, if enacted, would modify these rules retroactively to January 1,
1998, and impose the same tax rate to gains from the sales of assets held for
more than one year.
NON-U.S. HOLDERS
The following discussion summarizes certain United States federal income tax
consequences relevant to a Non-U.S. Holder of a Note.
This discussion does not deal with all aspects of United States federal
income taxation that may be relevant to any particular Non-U.S. Holder in
light of that holder's personal circumstances with respect to such holder's
purchase, ownership or disposition of the Notes, including such holder holding
the Notes through a partnership. For example, persons who are partners in
foreign partnerships and beneficiaries of foreign trusts or estates who are
subject to United States federal income tax because of their own status, such
as United States residents or foreign persons engaged in a trade or business
in the United States, may be subject to United States federal income tax even
though the entity is not subject to such tax.
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Stated Interest and OID on the Notes
Under current United States federal income tax law, payments of stated
interest or OID on a Note by the Company or any paying agent to a holder that
is a Non-U.S. Holder will not be subject to withholding of United States
federal income tax if (i) such payment is effectively connected with a trade
or business conducted within the United States by such Non-U.S. Holder, or
(ii) both (a) the holder does not actually or constructively own 10 percent or
more of the combined voting power of all classes of stock of the Company and
is not a controlled foreign corporation related to the Company through stock
ownership and (b) the beneficial owner provides a statement signed under
penalties of perjury that includes its name and address and certifies (on an
IRS Form W-8 or a substantially similar substitute form) that it is a Non-U.S.
Person in compliance with applicable requirements.
Interest on a Note that is effectively connected with the conduct of a trade
or business in the United States by a Non-U.S. Holder, although exempt from
the withholding tax (assuming appropriate certification is provided), may be
subject to graduated United States federal income tax on a net income basis
and also an additional branch profits tax at 30% (or a lower rate provided in
an applicable treaty) as if such amounts were earned by a United States
Holder.
Sale or Redemption of Notes
Except as described below and subject to the discussion concerning backup
withholding, a Non-U.S. Holder generally will not be subject to withholding of
United States federal income tax with respect to any gain realized upon the
sale or redemption of Notes. Further, a Non-U.S. Holder generally will not be
subject to United States federal income tax with respect to any such gain
unless (i) the gain is effectively connected with a United States trade or
business of such Non-U.S. Person, (ii) subject to certain exceptions, the Non-
U.S. Holder is an individual who holds such Notes as a capital asset and is
present in the United States for 183 days or more in the taxable year of the
disposition, or (iii) the Non-U.S. Holder is subject to tax pursuant to the
provisions of United States tax law applicable to certain United States
expatriates.
INFORMATION REPORTING
In general, information reporting requirements will apply to payments made
on, and proceeds from the sale of, Notes held by a noncorporate United States
Holder within the United States. In addition, payments made on, and payments
of proceeds from the sale of, such Notes to a Non-U.S. Holder made to or
through the United States office of a broker are subject to information
reporting unless the holder thereof certifies as to its non-U.S. status or
otherwise establishes an exemption from information reporting and backup
withholding. See "Backup Withholding."
Backup Withholding
Payments made on, and proceeds from the sale of the Notes may be subject to
a "backup" withholding tax of 31% unless the holder complies with certain
identification or exemption requirements. Any amounts so withheld will be
allowed as a credit against the holder's income tax liability, or refunded,
provided the required information is provided to the IRS.
New Regulations Relating to Withholding and Information Reporting for Non-
U.S. Holders
In October 1997, the IRS issued final regulations relating to withholding,
backup withholding and information reporting with respect to payments made to
Non-U.S. Holders, and in March 1998 the IRS announced a delay in their
effective date. The regulations generally apply to payments made after
December 31, 1999. However, withholding certificates that are valid under the
present rules on December 31, 1999, remain valid until the earlier of December
31, 2000 or the expiration date of the certificate under the present rules
(unless otherwise invalidated due to changes in the circumstances of the
person whose name is on the certificate).
When effective, the new regulations will streamline and, in some cases,
alter the types of statements and information that must be furnished to claim
a reduced rate of withholding. While various IRS forms (such as
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IRS Forms 1001 and 4224) currently are used to claim exemption from withholding
or a reduced withholding rate, the preamble to the regulations states that the
IRS intends most certifications to be made on revised Form W-8. The regulations
also clarify the duties of United States payors making payments to foreign
persons and modify the rules concerning withholding on payments made to Non-
U.S. Holders through foreign intermediaries. With some exceptions, the new
regulations treat a payment to a foreign partnership as a payment directly to
the partners.
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PLAN OF DISTRIBUTION
Each Participating Broker-Dealer that receives Exchange Notes for its own
account in connection with the Exchange Offer must acknowledge that it will
deliver a prospectus in connection with any resale of such Exchange Notes.
This Prospectus, as it may be amended or supplemented from time to time, may
be used by Participating Broker-Dealers during the period referred to below in
connection with resales of Exchange Notes received in exchange for Old Notes
where such Old Notes were acquired by such Participating Broker-Dealers for
their own accounts as a result of market-making activities or other trading
activities (other than a resale of an unsold allotment from the original sale
of Old Notes). The Company has agreed that this Prospectus, as it may be
amended or supplemented from time to time, may be used by a Participating
Broker-Dealer in connection with resales of such Exchange Notes for a period
ending one year after the Expiration Date. Such notice may be given in the
space provided for that purpose in the Letter of Transmittal or may be
delivered to the Exchange Agent at one of the addresses set forth in the
Letter of Transmittal. See "The Exchange Offer--Resales of Exchange Notes."
The Company will not receive any proceeds from the issuance of the Exchange
Notes offered hereby. Exchange Notes received by Participating Broker-Dealers
for their own accounts in connection with the Exchange Offer may be sold from
time to time in one or more transactions in the over-the-counter market, in
negotiated transactions, through the writing of options on the Exchange Notes
or a combination of such methods of resale, at market prices prevailing at the
time of resale, at prices related to such prevailing market prices or at
negotiated prices. Any such resale may be made directly to purchasers or to or
through brokers or dealers who may receive compensation in the form of
commissions or concessions from any such broker-dealer and/or the purchasers
of any such Exchange Notes. Any Participating Broker-Dealer that resells
Exchange Notes that were received by it for its own account in connection with
the Exchange Offer and any broker or dealer that participates in a
distribution of such Exchange Notes may be deemed to be an "underwriter"
within the meaning of the Securities Act, and any profit on any such resale of
Exchange Notes and any commissions or concessions received by any such persons
may be deemed to be underwriting compensation under the Securities Act. The
Letter of Transmittal states that by acknowledging that it will deliver and by
delivering a prospectus, a Participating Broker-Dealer will not be deemed to
admit that it is an "underwriter" within the meaning of the Securities Act.
For a period ending one year after the Expiration Date, the Company will
promptly send additional copies of this Prospectus and any amendment or
supplement to this Prospectus to any Participating Broker-Dealer that requests
such documents in the Letter of Transmittal.
LEGAL MATTERS
The validity of the securities offered hereby will be passed upon for the
Company by Arnold & Porter, Washington, District of Columbia.
INDEPENDENT ACCOUNTANTS
The consolidated financial statements of American Mobile Satellite
Corporation as of December 31, 1996 and 1997 and for each of the three years
in the period ended December 31, 1997, incorporated by reference into this
Prospectus, have been audited by Arthur Andersen LLP, independent public
accountants, as indicated in their reports with respect thereto, and are
included herein in reliance upon the authority of said firm as experts in
giving such reports. The combined financial statements of ARDIS Holding
Company as of December 31, 1996 and 1997 and for each of the years in the
three years then ended, incorporated by reference into this Prospectus, have
been audited by KPMG Peat Marwick LLP, independent accountants, as stated in
their report.
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AVAILABLE INFORMATION
The Company and Holdings have filed with the Commission a Registration
Statement on Form S-4 (the "Exchange Offer Registration Statement," which term
shall encompass all amendments, exhibits and schedules thereto) pursuant to
the Securities Act, and the rules and regulations promulgated thereunder,
covering the Exchange Notes being offered hereby. This Prospectus does not
contain all of the information set forth in the Exchange Offer Registration
Statement. For further information with respect to the Company and the
Exchange Offer, reference is made to the Exchange Offer Registration
Statement. Statements made in this Prospectus as to the contents of any
contract, agreement or other document referred to are not necessarily
complete. With respect to each such contract, agreement or other document
filed as an exhibit to the Exchange Offer Registration Statement, reference is
made to the exhibit for a more complete description of the document or matter
involved, and each such statement shall be deemed qualified in its entirety by
such reference.
Holdings is subject to the informational requirements of the Exchange Act,
and in accordance therewith, Holdings files reports and other information with
the Commission. Such reports, proxy statements and other information filed by
Holdings can be inspected and copied at the Commission's public reference room
located at 450 Fifth Street, N.W., Washington, D.C. 20549, and the
Commission's regional offices located at: 7 World Trade Center (13th floor),
New York, New York 10006 and Northwest Atrium Center, 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661. Copies of such material can be obtained
at prescribed rates by writing to the SEC, Public Reference Section,
Washington, D.C. 20549. Copies of documents filed by Holdings with the
Commission may also be accessed electronically by means of the Commission's
home page on the Internet at "http://www.sec.gov."
Holdings will furnish periodic reports to the Trustee, which will make them
available upon request to the holders of the Notes.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
Holdings hereby incorporates by reference in this Prospectus the following
documents, which have been filed with the Commission pursuant to the Exchange
Act: (i) Holdings' Annual Report on Form 10-K for the year ended December 31,
1997 and Form 10-K/A thereto, filed April 15, 1998; (ii) Holdings' Quarterly
Report on Form 10-Q for the quarter ended March 31, 1998; and (iii) Holdings'
Current Reports on Form 8-K dated as of January 5, 1998, January 22, 1998,
March 9, 1998, April 15, 1998 and June 5, 1998 and on Form 8-K/A filed January
13, 1998.
In addition, all documents filed by Holdings with the Commission pursuant to
Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act after the date hereof
and prior to the termination of the Exchange Offer shall be deemed to be
incorporated herein by reference and to be a part hereof from the respective
dates of the filing of such documents. Any statement contained in a document
incorporated or deemed to be incorporated by reference herein shall be deemed
to be modified or superseded for purposes of this Prospectus to the extent
that a statement contained herein or in any other subsequently filed document
which also is or is deemed to be incorporated by reference herein modifies or
supersedes such statement. Any such statement so modified or superseded shall
not be deemed, except as so modified or superseded, to constitute a part of
this Prospectus.
THIS PROSPECTUS INCORPORATES DOCUMENTS BY REFERENCE WHICH ARE NOT PRESENTED
HEREIN OR DELIVERED HEREWITH. THE COMPANY AND HOLDINGS UNDERTAKE TO PROVIDE A
COPY OF EACH SUCH DOCUMENT, WITHOUT CHARGE, TO EACH PERSON, INCLUDING ANY
BENEFICIAL OWNER, TO WHOM A PROSPECTUS IS DELIVERED, UPON WRITTEN OR ORAL
REQUEST TO RANDY S. SEGAL, VICE PRESIDENT, GENERAL COUNSEL AND SECRETARY, AMSC
ACQUISITION COMPANY, INC., 10802 PARKRIDGE BLVD., RESTON, VIRGINIA 20191-5416,
TELEPHONE (703) 758-6130. IN ORDER TO ENSURE EARLY DELIVERY OF THE DOCUMENTS,
ANY REQUEST SHOULD BE MADE BY , 1998.
127
INDEX TO PRO FORMA FINANCIAL STATEMENTS OF HOLDINGS
Description of Pro Forma Financial Statements of Holdings................. P-2
Pro Forma Consolidated Statement of Operations for the three months ended
March 31, 1998 (unaudited)............................................... P-3
Pro Forma Consolidated Statement of Operations for the three months ended
March 31, 1997 (unaudited)............................................... P-4
Pro Forma Consolidated Statement of Operations for the year ended December
31, 1997 (unaudited)..................................................... P-5
Notes to Pro Forma Financial Statements................................... P-6
P-1
PRO FORMA FINANCIAL INFORMATION
The accompanying pro forma financial information gives effect to (i) the
Acquisition, (ii) the Offering and (iii) the New Bank Financing as if such
transactions had been consummated on January 1 of each of the periods
presented in the case of the Unaudited Pro Forma Condensed Statement of
Operations of Holdings. The pro forma condensed financial information is
presented for illustrative purposes only and is not necessarily indicative of
what Holdings' 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 Holdings in the future.
The following data should be read in conjunction with Holdings' Consolidated
Financial Statements and related notes and ARDIS' Combined Financial
Statements and related notes incorporated by reference elsewhere within this
document.
P-2
HOLDINGS
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1998
-----------------------------------------------------------------
PRO FORMA ADJUSTMENTS
---------------------------- PRO FORMA
HOLDINGS ARDIS ACQUISITION OFFERING CONSOLIDATED
-------- ------- ------------ ---------- ------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
Revenues:
Services.............. $ 6,418 $ 9,541 $ (139)(1) $ 15,820
Equipment and
consulting........... 3,604 530 4,134
-------- ------- --------
Total revenue....... 10,022 10,071 19,954
Cost of service and
operations............. 7,728 7,795 (139)(1) 15,384
Cost of equipment sold.. 3,881 581 4,462
Sales and advertising... 3,022 1,562 4,584
General and
administrative......... 3,631 1,487 5,118
Depreciation and
amortization........... 10,163 3,291 (324)(2) 13,975
-------- ------- --------
845 (3)
Operating loss.......... (18,403) (4,645) (23,569)
Interest and other
income (expense)....... (201) 5 125 (4) 1,413 (5) 1,342
Interest expense........ (6,638) (282) (9,702)(6) (16,622)
-------- ------- --------
Net loss before income
tax benefit............ (25,242) (4,922) (38,849)
Income tax benefit...... -- 1,702 (1,702)(7) --
-------- ------- --------
Net loss................ $(25,242) $(3,220) $(38,849)
======== ======= ========
Loss per share of Common
Stock.................. $ (1.00) $ (1.23)
======== ========
Weighted-average common
shares outstanding
during the period
(000's)................ 25,241 6,262 (8) 31,503
======== ========== ========
See Notes to Pro Forma Financial Information on following pages.
P-3
HOLDINGS
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1997
----------------------------------------------------------
PRO FORMA
ADJUSTMENTS
---------------------- PRO FORMA
HOLDINGS ARDIS ACQUISITION OFFERING CONSOLIDATED
-------- ------- ----------- -------- ------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
Revenues:
Services.............. $ 4,153 $10,598 $ (97)(1) $ 14,654
Equipment and
consulting........... 4,532 327 4,859
-------- ------- --------
Total revenue....... 8,685 10,925 19,513
Cost of service and
operations............. 8,873 7,179 (97)(1) 15,955
Cost of equipment sold.. 5,442 466 5,908
Sales and advertising... 3,221 1,528 4,749
General and
administrative......... 4,868 1,105 5,973
Depreciation and
amortization........... 9,937 3,580 (324)(2) 14,038
-------- ------- --------
845 (3)
Operating loss.......... (23,656) (2,933) (27,110)
Interest and other
income................. 945 34 125 (4) 1,413 (5) 2,517
Interest expense........ (4,370) (362) (11,932)(6) (16,664)
-------- ------- --------
Net loss before income
tax benefit............ (27,081) (3,261) (41,257)
Income tax benefit...... -- 1,141 (1,141)(7) --
-------- ------- --------
Net loss................ $(27,081) $(2,120) $(41,257)
======== ======= ========
Loss per share of Common
Stock.................. ($1.08) $ (1.32)
======== ========
Weighted-average common
shares outstanding
during the
period (000's)......... 25,109 6,262 (8) 31,371
======== ====== ========
See Notes to Pro Forma Financial Information on following pages.
P-4
HOLDINGS
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1997
------------------------------------------------------------------
PRO FORMA ADJUSTMENTS
--------------------------- PRO FORMA
HOLDINGS ARDIS ACQUISITION OFFERING CONSOLIDATED
--------- -------- ------------ ---------- ------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
Revenues:
Services.............. $ 20,684 $ 41,923 $ (498)(1) $ 62,109
Equipment and
consulting........... 23,530 2,326 25,856
--------- -------- ---------
Total revenue....... 44,214 44,249 87,965
Cost of service and
operations............. 31,959 31,940 (498)(1) 63,401
Cost of equipment sold.. 40,335 2,233 42,568
Sales and advertising... 12,066 5,888 17,954
General and
administrative......... 14,819 6,970 21,789
Depreciation and
amortization........... 42,430 14,586 (1,297)(2) 59,099
--------- -------- ---------
3,380 (3)
Operating loss.......... (97,395) (17,368) (116,846)
Interest and other
(expense) income ...... (179) 150 500 (4) 5,208 (5) 5,679
Interest expense........ (21,633) (1,331) (42,076)(6) (65,040)
--------- -------- ---------
Net loss before income
tax benefit............ (119,207) (18,549) (176,207)
Income tax benefit...... -- 6,807 (6,807)(7) --
--------- -------- ---------
Net loss................ $(119,207) $(11,742) $(176,207)
========= ======== =========
Loss per share of Common
Stock.................. $ (4.74) $ (5.61)
========= =========
Weighted-average common
shares outstanding
during the
period (000's)......... 25,131 6,262 (8) 31,393
========= ========== =========
See Notes to Pro Forma Financial Information on following pages.
P-5
NOTES TO PRO FORMA FINANCIAL INFORMATION
The pro forma financial information is based on the following assumptions
and adjustments:
(1) Reflects the elimination of revenues and related operating expenses on
transactions between American Mobile and ARDIS.
(2) Reflects the elimination of goodwill amortization recorded by ARDIS.
(3) Reflects the amortization, over a 20-year life, of the excess of purchase
price of ARDIS over fair market value of assets acquired.
(4) Reflects interest earned on funds escrowed in connection with the UPS
Guarantee at an average interest rate of 5.0%.
(5) Reflects interest income earned on the Pledged Securities at an average
interest rate of 5.0%.
(6) Reflects adjustments to interest expense as follows:
THREE MONTHS
ENDED
MARCH 31,
-----------------
YEAR ENDED
DECEMBER 31, 1997 1997 1998
----------------- -------- --------
(DOLLARS IN THOUSANDS)
(a)Adjustment of interest expense and debt
costs on New Bank Financing...... $(10,547) $(2,076) $(3,268)
(b)Interest expense on the Notes and
amortization of debt discount.... 41,887 10,471 10,471
(c)Amortization of Note issuance costs.... 1,225 306 306
(d)Amortization of Guarantee Warrants .... 3,544 1,740 702
(e)Amortization of pre-funded interest.... 5,967 1,491 1,491
--------- -------- --------
$ 42,076 $ 11,932 $ 9,702
========= ======== ========
The assumptions in connection with the above pro forma interest expense
adjustments are as follows:
(a) Reflects (i) an increase of 25 basis points in the interest rate of the
New Bank Financing relative to the Bank Financing and (ii) the
elimination of interest expense applicable to the Bank Financing and
vendor financing which is to be partially repaid with the proceeds from
the sale of the Units.
(b) Reflects interest expense on the Notes at 12 1/4% and amortization of
the $8.5 million debt discount.
(c) Reflects the amortization, over a ten year period, of debt issuance
costs of approximately $12.2 million associated with the Offering and
the New Bank Financing.
(d) Reflects the amortization, over a five year period, of the Guarantee
Warrants related to the New Bank Financing.
(e) Reflects the amortization, over a three year period, of pre-funded
interest of $17.9 million on the Term Loan Facility.
(7) Reflects the elimination of a tax sharing arrangement between ARDIS and
Motorola.
(8) Reflects shares issued to Motorola in connection with the Acquisition.
P-6
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRE-
SENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING
BEEN AUTHORIZED. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF ANY OFFER TO BUY ANY SECURITIES OTHER THAN THE EXCHANGE NOTES
OFFERED HEREBY OR AN OFFER TO SELL OR THE SOLICITATION OF ANY OFFER TO BUY THE
EXCHANGE NOTES IN ANY CIRCUMSTANCES IN WHICH SUCH OFFER OR SOLICITATION IS UN-
LAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER
SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO
CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT ANY INFOR-
MATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
---------------
TABLE OF CONTENTS
PAGE
----
Prospectus Summary....................................................... 1
Risk Factors............................................................. 18
Use of Proceeds.......................................................... 29
Capitalization........................................................... 29
Selected Financial and Other Data........................................ 30
Pro Forma Financial Information.......................................... 34
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 39
Business................................................................. 50
Regulation............................................................... 65
Management............................................................... 72
Management Compensation.................................................. 75
Security Ownership....................................................... 78
Certain Relationships and Related Party Transactions..................... 80
Description of New Bank Financing........................................ 82
Description of Motorola Vendor Financing................................. 83
The Exchange Offer....................................................... 83
Description of the Exchange Notes........................................ 91
Certain United States Federal Income Tax Consequences.................... 121
Plan of Distribution..................................................... 126
Legal Matters............................................................ 126
Independent Accountants.................................................. 126
Available Information.................................................... 127
Incorporation of Certain Documents by Reference.......................... 127
Index to Pro Forma Financial Statements of Holdings...................... P-1
LOGO
$335,000,000
AMERICAN MOBILE SATELLITE CORPORATION AMSC ACQUISITION COMPANY, INC.
OFFER TO EXCHANGE
12 1/4% SENIOR NOTES DUE 2008 (SERIES B) OF
AMSC ACQUISITION COMPANY, INC.
FOR ANY AND ALL OUTSTANDING 12 1/4% SENIOR NOTES DUE 2008 (SERIES A)
-----------------------
PROSPECTUS
-----------------------
[ ], 1998
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Each of the Company's and Holdings' Bylaws provide that the Company and
Holdings will indemnify its directors and officers to the fullest extent
permitted by Delaware law. The Company and Holdings 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, each of the Company's and Holdings' 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 or Holdings, 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.
Holdings also has entered into separate indemnification agreements with
its officers and directors. These agreements would require Holdings to, among
other things, indemnify its officers and directors against certain liabilities
that may arise by reason of their status or service as officers and directors
(other than liabilities arising from willful misconduct of a culpable nature),
to advance their expenses incurred as a result of any proceeding against them as
to which they could be indemnified and to obtain officers' and directors'
insurance if available on reasonable terms.
Holdings has obtained an insurance policy covering officers and directors
under which the insurer agrees to pay on behalf of Holdings, subject to certain
exclusions, including certain violations of securities law, any claim made
against its officers and directors for a wrongful act that they may become
legally obligated to pay or for which the corporation is required to indemnify
its officers or directors. The policy has limits of $40,000,000 in the
aggregate, including SEC related events, subject to deductibles of $100,000 for
non SEC related events and $300,000 for SEC related events. Each of the Company
and Holdings believes that its Certificate of Incorporation and Bylaw
provisions, indemnification agreements and insurance policies, as the case may
be, are necessary to attract and retain qualified persons as officers and
directors.
At present, there is no pending litigation or proceeding involving an
officer or director of either the Company or Holdings as to which
indemnification is being sought, nor is either of the Company or Holdings aware
of any threatened litigation that may result in claims for indemnification by
any officer or director.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
Exhibit Description
- ------- -----------
2.1 Stock Purchase Agreement, by and among the Company, Motorola,
Motorola ARDIS Acquisition, Inc., Motorola ARDIS, Inc. and AMSC,
dated as of December 31, 1997 (incorporated by reference herein from
Exhibit 10.65 to Holdings' Annual Report on Form 10-K for the year
ending December 31, 1997).
2.2 Amendment No. 1 to Stock Purchase Agreement, by and among the
Company, Motorola, Motorola ARDIS Acquisition, Inc., Motorola ARDIS,
Inc. and AMSC, dated as of March 31, 1998 (incorporated by reference
herein from Exhibit 4.2 to the Schedule 13D dated March 31, 1998
filed by Motorola, Inc.).
4.1 Indenture dated March 31, 1998 between the Company and State Street
Bank and Trust Company.*
4.2 Pledge Security Agreement dated March 31, 1998 by and among the
Company and State Street Bank and Trust Company (as Trustee and as
Collateral Agent).*
4.3 Debt Registration Rights Agreement dated March 31, 1998 by and among
the Company, Holdings, American Mobile Satellite Sales Corporation,
AMSC Sales Corporation, Ltd., AMSC Subsidiary Corporation, ARDIS
Company, Motorola ARDIS Acquisition, Inc., ARDIS Holding Company,
Radio Data Network Holding Corporation, Bear, Stearns & Co. Inc.,
J.P. Morgan Securities Inc., TD Securities (USA) Inc., and
BancAmerica Robertson Stephens.*
4.4 Warrant Agreement dated March 31, 1998 between Holdings and State
Street Bank and Trust Company.*
4.5 Warrant Registration Rights Agreement dated March 31, 1998 by and
among Holdings, Bear, Stearns & Co. Inc., J.P. Morgan Securities
Inc., TD Securities (USA) Inc., and BancAmerica Robertson Stephens
(including form of Warrant Certificate).*
4.6 Unit Agreement, dated March 31, 1998 by and among the Company,
Holdings and State Street Bank and Trust Company.*
5.1 Opinion of Arnold & Porter (filed herewith).
8.1 Tax Opinion of Arnold & Porter (filed herewith).
II-2
23.1 Consent of The Strategis Group.*
23.2 Consent of Arthur Andersen LLP (filed herewith).
23.3 Consent of KPMG Peat Marwick LLP (filed herewith).
23.4 Consent of KPMG Peat Marwick LLP (filed herewith).
23.5 Consent of Arnold & Porter (included in Exhibit 5.1 and Exhbit 8.1,
respectively filed herewith).
24.1 Powers of Attorney of directors and officers of the Company (included
as part of signature page).
25.1 Statement of Eligibility of Trustee on Form T-1.*
99.1 Form of Letter of Transmittal.*
99.2 Form of Notice of Guaranteed Delivery.*
99.3 Form of Tender Instructions.*
__________
*Previously filed.
ITEM 22. UNDERTAKINGS
The undersigned Registrants hereby undertake:
(A)
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(a) To include any prospectus required by section 10(a)(3) of
the Securities Act of 1933 (the "Securities Act").
(b) To reflect in the prospectus any facts or events arising
after the effective date of the registration statement (or
the most recent post-effective amendment thereof) which,
individually or in the aggregate, represent a fundamental
change in the information set forth in the registration
statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that
which was registered) and any deviation from the low or high
end of the estimated maximum offering range may be reflected
in the form of prospectus filed with the Commission pursuant
to Rule 424(b) ((S) 230.424(b) of this chapter) if, in the
aggregate, the changes in volume and price represent no more
than 20% change in the maximum aggregate offering price set
forth in the "Calculation of Registration Fee" table in the
effective registration statement.
II-3
(c) To include any material information with respect to the plan
of distribution not previously disclosed in the registration
statement or any material change to such information in the
registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed to
be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the
termination of the offering.
(B) That, for purposes of determining any liability under the Securities Act,
each filing of the registrant's annual report pursuant to section 13(a) or
section 15(d) of the Securities Exchange Act of 1934 (and, where
applicable, each filing of an employee benefit plan's annual report
pursuant to section 15(d) of the Securities Exchange Act of 1934) that is
incorporated by reference in the registration statement shall be deemed to
be a new registration statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
(C) That, insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling
persons of the registrant pursuant to the provision described under Item 20
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 Securities 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 Securities Act and will be
governed by the final adjudication of such issue.
(D) To respond to requests for information that is incorporated by reference
into the Prospectus pursuant to Item 4, 10(b), 11, or 13 of this form,
within one business day of receipt of such request, and to send the
incorporated documents by first class mail or other equally prompt means.
This includes information contained in documents filed subsequent to the
effective date of the registration statement through the date of responding
to the request.
II-4
(E) To supply by means of a post-effective amendment all information concerning
a transaction, and the company being acquired involved therein, that was
not the subject of and included in the registration statement when it
became effective.
II-5
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment No. 1 to its Registration Statement to be signed
on its behalf by the undersigned, thereunto duly authorized, in the County of
Fairfax, Commonwealth of Virginia, on June 23, 1998.
AMERICAN MOBILE SATELLITE CORPORATION
By: /s/Randy S. Segal
-------------------
Randy S. Segal
Vice President, General Counsel and Secretary
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 Registration Statement has been signed below by the following persons in
the capacities indicated on June 23, 1998.
/s/Gary M. Parsons* Chief Executive Officer June 23, 1998
- ---------------------- and Chairman of the Board
Gary M. Parsons (Principal Executive Officer)
/s/Stephen D. Peck* Vice President and Chief June 23, 1998
- ---------------------- Financial Officer
Stephen D. Peck (Principal Financial and
Accounting Officer)
/s/Douglas I. Brandon* Director June 23, 1998
- ----------------------
Douglas I. Brandon
/s/Ho Siaw Hong* Director June 23, 1998
- ----------------------
Ho Siaw Hong
Director June 23, 1998
- ----------------------
Pradeep P. Kaul
Director June 23, 1998
- ----------------------
Billy J. Parrott
/s/Andrew A. Quartner* Director June 23, 1998
- ----------------------
Andrew A. Quartner
II-6
/s/Jack A. Shaw* Director June 23, 1998
- ----------------------
Jack A. Shaw
/s/Roderick M. Sherwood, III* Director June 23, 1998
- -----------------------------
Roderick M. Sherwood, III
/s/Michael T. Smith* Director June 23, 1998
- ----------------------
Michael T. Smith
For herself and as Attorney-In-Fact for the above mentioned directors.
*By: /s/Randy S. Segal
-----------------
Randy S. Segal
Vice President, General Counsel
and Secretary
II-7
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment No. 1 to its Registration Statement to be signed
on its behalf by the undersigned, thereunto duly authorized, in the County of
Fairfax, Commonwealth of Virginia, on June 23, 1998.
AMSC ACQUISITION COMPANY, INC.
By: /s/Randy S. Segal
-------------------
Randy S. Segal
Vice President, General Counsel and Secretary
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 Registration Statement has been signed below by the following persons in
the capacities indicated on June 23, 1998.
/s/Jack A. Shaw* Chairman of the Board June 23, 1998
- ---------------------- of Directors
Jack A. Shaw
/s/Gary M. Parsons* Chief Executive Officer June 23, 1998
- ---------------------- and Director
Gary M. Parsons (Principal Executive Officer)
/s/Stephen D. Peck* Vice President and Chief June 23, 1998
- --------------------- Financial Officer
Stephen D. Peck (Principal Financial and
Accounting Officer)
/s/Douglas I. Brandon* Director June 23, 1998
- ----------------------
Douglas I. Brandon
/s/Ho Siaw Hong* Director June 23, 1998
- ----------------------
Ho Siaw Hong
/s/Roderick M. Sherwood, III* Director June 23, 1998
- -----------------------------
Roderick M. Sherwood, III
II-8
For herself and as Attorney-In-Fact for the above mentioned directors.
*By: /s/Randy S. Segal
-----------------
Randy S. Segal
Vice President, General Counsel
and Secretary
II-9
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment No. 1 to its Registration Statement to be signed
on its behalf by the undersigned, thereunto duly authorized, in the County of
Fairfax, Commonwealth of Virginia, on June 23, 1998.
AMSC SALES CORPORATION, LTD.
By: /s/Randy S. Segal
-------------------
Randy S. Segal
Vice President, General Counsel and Secretary
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 Registration Statement has been signed below by the following persons in
the capacities indicated on June 23, 1998.
/s/Gary M. Parsons* Chief Executive Office June 23, 1998
- -------------------------- and Director
Gary M. Parsons (Principal Executive Officer)
/s/Stephen D. Peck* Vice President and Chief June 23, 1998
- --------------------- Financial Officer
Stephen D. Peck (Principal Financial and
Accounting Officer)
/s/Walter V. Purnell, Jr.* Director June 23, 1998
- --------------------------
Walter V. Purnell, Jr.
/s/Randy S. Segal* Director June 23, 1998
- --------------------------
Randy S. Segal
/s/Avril G. Harvey* Director June 23, 1998
- --------------------------
Avril G. Harvey
/s/Catherine B. Sittig* Director June 23, 1998
- --------------------------
Catherine B. Sittig
For herself and as Attorney-In-Fact for the above mentioned directors.
II-10
*By: /s/Randy S. Segal
-----------------
Randy S. Segal
Vice President, General Counsel
and Secretary
II-11
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment No. 1 to its Registration Statement to be signed
on its behalf by the undersigned, thereunto duly authorized, in the County of
Fairfax, Commonwealth of Virginia, on June 23, 1998.
AMSC SUBSIDIARY CORPORATION
By:
/s/Randy S. Segal
-------------------
Randy S. Segal
Vice President, General Counsel and Secretary
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 Registration Statement has been signed below by the following persons in
the capacities indicated on June 23, 1998.
/s/Jack A. Shaw* Chairman of the Board June 23, 1998
- ---------------------- of Directors
Jack A. Shaw
/s/Gary M. Parsons* Chief Executive Officer June 23, 1998
- ---------------------- and Director
Gary M. Parsons (Principal Executive Officer)
/s/Stephen D. Peck* Vice President and Chief June 23, 1998
- ---------------------- Financial Officer
Stephen D. Peck (Principal Financial and
Accounting Officer)
/s/Douglas I. Brandon* Director June 23, 1998
- ----------------------
Douglas I. Brandon
/s/Ho Siaw Hong* Director June 23, 1998
- ----------------------
Ho Siaw Hong
/s/Roderick M. Sherwood, III* Director June 23, 1998
- ----------------------
Roderick M. Sherwood, III
II-12
For herself and as Attorney-In-Fact for the above mentioned directors.
*By: /s/Randy S. Segal
-----------------
Randy S. Segal
Vice President, General Counsel
and Secretary
II-13
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment No. 1 to its Registration Statement to be signed
on its behalf by the undersigned, thereunto duly authorized, in the County of
Fairfax, Commonwealth of Virginia, on June 23, 1998.
AMERICAN MOBILE SATELLITE SALES CORPORATION
By: /s/Randy S. Segal
-------------------
Randy S. Segal
Vice President, General Counsel and Secretary
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 Registration Statement has been signed below by the following persons in
the capacities indicated on June 23, 1998.
/s/Jack A. Shaw* Chairman of the Board June 23, 1998
- ----------------------------- of Directors
Jack A. Shaw
/s/Gary M. Parsons* Chief Executive Officer June 23, 1998
- ----------------------------- and Director
Gary M. Parsons (Principal Executive Officer)
/s/Stephen D. Peck* Vice President and Chief June 23, 1998
- ----------------------------- Financial Officer
Stephen D. Peck (Principal Financial and
Accounting Officer)
/s/Douglas I. Brandon* Director June 23, 1998
- -----------------------------
Douglas I. Brandon
/s/Ho Siaw Hong* Director June 23, 1998
- -----------------------------
Ho Siaw Hong
/s/Roderick M. Sherwood, III* Director June 23, 1998
- -----------------------------
Roderick M. Sherwood, III
II-14
For herself and as Attorney-In-Fact for the above mentioned directors.
*By: /s/Randy S. Segal
-----------------
Randy S. Segal
Vice President, General Counsel
and Secretary
II-15
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment No. 1 to its Registration Statement to be signed
on its behalf by the undersigned, thereunto duly authorized, in the County of
Fairfax, Commonwealth of Virginia, on June 23, 1998.
AMSC ARDIS ACQUISITION, INC.
By: /s/Randy S. Segal
------------------
Randy S. Segal
Vice President, General Counsel and Secretary
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 Registration Statement has been signed below by the following persons in
the capacities indicated on June 23, 1998.
/s/Jack A. Shaw* Chairman of the Board June 23, 1998
- ----------------------------- of Directors
Jack A. Shaw
/s/Gary M. Parsons* Chief Executive Officer June 23, 1998
- ----------------------------- and Director
Gary M. Parsons (Principal Executive Officer)
/s/Stephen D. Peck* Vice President and Chief June 23, 1998
- ----------------------------- Financial Officer
Stephen D. Peck (Principal Financial and
Accounting Officer)
/s/Douglas I. Brandon* Director June 23, 1998
- -----------------------------
Douglas I. Brandon
/s/Ho Siaw Hong* Director June 23, 1998
- -----------------------------
Ho Siaw Hong
/s/Roderick M. Sherwood, III* Director June 23, 1998
- -----------------------------
Roderick M. Sherwood, III
II-16
For herself and as Attorney-In-Fact for the above mentioned directors.
*By: /s/Randy S. Segal
-----------------
Randy S. Segal
Vice President, General Counsel
and Secretary
II-17
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment No. 1 to its Registration Statement to be signed
on its behalf by the undersigned, thereunto duly authorized, in the County of
Fairfax, Commonwealth of Virginia, on June 23, 1998.
AMSC ARDIS, INC.
By: /s/Randy S. Segal
-------------------
Randy S. Segal
Vice President, General Counsel and Secretary
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 Registration Statement has been signed below by the following persons in
the capacities indicated on June 23, 1998.
/s/Jack A. Shaw* Chairman of the Board June 23, 1998
- ----------------------------- of Directors
Jack A. Shaw
/s/Gary M. Parsons* Chief Executive Officer June 23, 1998
- ----------------------------- and Director
Gary M. Parsons (Principal Executive Officer)
/s/Stephen D. Peck* Vice President and Chief June 23, 1998
- ----------------------------- Financial Officer
Stephen D. Peck (Principal Financial and
Accounting Officer)
/s/Douglas I. Brandon* Director June 23, 1998
- -----------------------------
Douglas I. Brandon
/s/Ho Siaw Hong* Director June 23, 1998
- -----------------------------
Ho Siaw Hong
/s/Roderick M. Sherwood, III* Director June 23, 1998
- -----------------------------
Roderick M. Sherwood, III
For herself and as Attorney-In-Fact for the above mentioned directors.
II-18
*By: /s/Randy S. Segal
-----------------
Randy S. Segal
Vice President, General Counsel
and Secretary
II-19
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment No. 1 to its Registration Statement to be signed
on its behalf by the undersigned, thereunto duly authorized, in the County of
Fairfax, Commonwealth of Virginia, on June 23, 1998.
RADIO DATA NETWORK HOLDING CORPORATION
By: /s/Randy S. Segal
-------------------
Randy S. Segal
Vice President, General Counsel and Secretary
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 Registration Statement has been signed below by the following persons in
the capacities indicated on June 23, 1998.
/s/Jack A. Shaw* Chairman of the Board June 23, 1998
- ----------------------------- of Directors
Jack A. Shaw
/s/Gary M. Parsons* Chief Executive Officer June 23, 1998
- ----------------------------- and Director
Gary M. Parsons (Principal Executive Officer)
/s/Stephen D. Peck* Vice President and Chief June 23, 1998
- ----------------------------- Financial Officer
Stephen D. Peck (Principal Financial and
Accounting Officer)
/s/Douglas I. Brandon* Director June 23, 1998
- -----------------------------
Douglas I. Brandon
/s/Ho Siaw Hong* Director June 23, 1998
- -----------------------------
Ho Siaw Hong
/s/Roderick M. Sherwood, III* Director June 23, 1998
- -----------------------------
Roderick M. Sherwood, III
For herself and as Attorney-In-Fact for the above mentioned directors.
II-20
*By: /s/Randy S. Segal
-----------------
Randy S. Segal
Vice President, General Counsel
and Secretary
II-21
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment No. 1 to its Registration Statement to be signed
on its behalf by the undersigned, thereunto duly authorized, in the County of
Fairfax, Commonwealth of Virginia, on June 23, 1998.
ARDIS HOLDING COMPANY
By: /s/Randy S. Segal
-------------------
Randy S. Segal
Vice President and Secretary
For: AMSC ARDIS, Inc., Partner
By: /s/Randy S. Segal
-------------------
Randy S. Segal
Vice President and Secretary
For: AMSC ARDIS Acquisition, Inc., Partner
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 Registration Statement has been signed below by the following persons in
the capacities indicated on June 23, 1998.
By: AMSC ARDIS, Inc., Partner
/s/Jack A. Shaw* Chairman of the Board June 23, 1998
- ----------------------------- of Directors
Jack A. Shaw
/s/Gary M. Parsons* Chief Executive Officer June 23, 1998
- ----------------------------- and Director
Gary M. Parsons (Principal Executive Officer)
/s/Stephen D. Peck* Vice President and Chief June 23, 1998
- ----------------------------- Financial Officer
Stephen D. Peck (Principal Financial and
Accounting Officer)
/s/Douglas I. Brandon* Director June 23, 1998
- -----------------------------
Douglas I. Brandon
/s/Ho Siaw Hong* Director June 23, 1998
- -----------------------------
Ho Siaw Hong
II-22
/s/Roderick M. Sherwood, III* Director June 23, 1998
- -----------------------------
Roderick M. Sherwood, III
For herself and as Attorney-In-Fact for the above mentioned directors.
*By: /s/Randy S. Segal
-----------------
Randy S. Segal
Vice President, General Counsel
and Secretary
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 Registration Statement has been signed below by the following persons in
the capacities indicated on June 23, 1998.
By: AMSC ARDIS Acquisition, Inc., Partner
/s/Jack A. Shaw* Chairman of the Board June 23, 1998
- ----------------------------- of Directors
Jack A. Shaw
/s/Gary M. Parsons* Chief Executive Officer June 23, 1998
- ----------------------------- and Director
Gary M. Parsons (Principal Executive Officer)
/s/Stephen D. Peck* Vice President and Chief June 23, 1998
- ----------------------------- Financial Officer
Stephen D. Peck (Principal Financial and
Accounting Officer)
/s/Douglas I. Brandon* Director June 23, 1998
- -----------------------------
Douglas I. Brandon
/s/Ho Siaw Hong* Director June 23, 1998
- -----------------------------
Ho Siaw Hong
/s/Roderick M. Sherwood, III* Director June 23, 1998
- -----------------------------
Roderick M. Sherwood, III
II-23
For herself and as Attorney-In-Fact for the above mentioned directors.
*By: /s/Randy S. Segal
-----------------
Randy S. Segal
Vice President, General Counsel
and Secretary
II-24
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment No. 1 to its Registration Statement to be signed
on its behalf by the undersigned, thereunto duly authorized, in the County of
Fairfax, Commonwealth of Virginia, on June 23, 1998.
ARDIS COMPANY
By: /s/Randy S. Segal
-------------------
Randy S. Segal
Vice President and Secretary
For: ARDIS Holding Company, By Its Two Partners,
AMSC ARDIS, Inc. and AMSC ARDIS Acquisition, Inc.
By: /s/Randy S. Segal
-------------------
Randy S. Segal
Vice President and Secretary
For: Radio Data Network Holding Corporation, Partner
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 Registration Statement has been signed below by the following persons in
the capacities indicated on June 23, 1998.
By: ARDIS Holding Company By Its Two Partners,
AMSC ARDIS, Inc. and AMSC ARDIS Acquisition, Inc.
/s/Jack A. Shaw* Chairman of the Board June 23, 1998
- ----------------------------- of Directors
Jack A. Shaw
/s/Gary M. Parsons* Chief Executive Officer June 23, 1998
- ----------------------------- and Director
Gary M. Parsons (Principal Executive Officer)
/s/Stephen D. Peck* Vice President and Chief June 23, 1998
- ----------------------------- Financial Officer
Stephen D. Peck (Principal Financial and
Accounting Officer)
/s/Douglas I. Brandon* Director June 23, 1998
- -----------------------------
Douglas I. Brandon
/s/Ho Siaw Hong* Director June 23, 1998
- -----------------------------
Ho Siaw Hong
II-25
/s/Roderick M. Sherwood, III* Director June 23, 1998
- -----------------------------
Roderick M. Sherwood, III
For herself and as Attorney-In-Fact for the above mentioned directors.
*By: /s/Randy S. Segal
-----------------
Randy S. Segal
Vice President, General Counsel
and Secretary
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 Registration Statement has been signed below by the following persons in
the capacities indicated on June 23, 1998.
By: Radio Data Network Holding Corporation, Partner
/s/Jack A. Shaw* Chairman of the Board June 23, 1998
- ----------------------------- of Directors
Jack A. Shaw
/s/Gary M. Parsons* Chief Executive Officer June 23, 1998
- ----------------------------- and Director
Gary M. Parsons (Principal Executive Officer)
/s/Stephen D. Peck* Vice President and Chief June 23, 1998
- ----------------------------- Financial Officer
Stephen D. Peck (Principal Financial and
Accounting Officer)
/s/Douglas I. Brandon* Director June 23, 1998
- -----------------------------
Douglas I. Brandon
/s/Ho Siaw Hong* Director June 23, 1998
- -----------------------------
Ho Siaw Hong
II-26
/s/Roderick M. Sherwood, III* Director June 23, 1998
- -----------------------------
Roderick M. Sherwood, III
For herself and as Attorney-In-Fact for the above mentioned directors.
*By: /s/Randy S. Segal
-----------------
Randy S. Segal
Vice President, General Counsel
and Secretary
II-27
INDEX OF EXHIBITS
Exhibit
- -------
2.1 Stock Purchase Agreement, by and among the Company, Motorola,
Motorola ARDIS Acquisition, Inc., Motorola ARDIS, Inc. and AMSC,
dated as of December 31, 1997 (incorporated by reference herein from
Exhibit 10.65 to Holdings' Annual Report on Form 10-K for the year
ending December 31, 1997).
2.2 Amendment No. 1 to Stock Purchase Agreement, by and among the
Company, Motorola, Motorola ARDIS Acquisition, Inc., Motorola ARDIS,
Inc. and AMSC, dated as of March 31, 1998 (incorporated by reference
herein from Exhibit 4.2 to the Schedule 13D dated March 31, 1998
filed by Motorola, Inc.).
4.1 Indenture dated March 31, 1998 between the Company and State Street
Bank and Trust Company.*
4.2 Pledge Security Agreement dated March 31, 1998 by and among the
Company and State Street Bank and Trust Company (as Trustee and as
Collateral Agent).*
4.3 Debt Registration Rights Agreement dated March 31, 1998 by and among
the Company, Holdings, American Mobile Satellite Sales Corporation,
AMSC Sales Corporation, Ltd., AMSC Subsidiary Corporation, ARDIS
Company, Motorola ARDIS Acquisition, Inc., ARDIS Holding Company,
Radio Data Network Holding Corporation, Bear, Stearns & Co. Inc.,
J.P. Morgan Securities Inc., TD Securities (USA) Inc., and
BancAmerica Robertson Stephens.*
4.4 Warrant Agreement dated March 31, 1998 between Holdings and State
Street Bank and Trust Company.*
4.5 Warrant Registration Rights Agreement dated March 31, 1998 by and
among Holdings, Bear, Stearns & Co. Inc., J.P. Morgan Securities
Inc., TD Securities (USA) Inc., and BancAmerica Robertson Stephens
(including form of Warrant Certificate).*
4.6 Unit Agreement, dated March 31, 1998 by and among the Company,
Holdings and State Street Bank and Trust Company.*
5.1 Opinion of Arnold & Porter (filed herewith).
8.1 Tax Opinion of Arnold & Porter (filed herewith).
23.1 Consent of The Strategis Group.*
23.2 Consent of Arthur Andersen LLP (filed herewith).
23.3 Consent of KPMG Peat Marwick LLP (filed herewith).
23.4 Consent of KPMG Peat Marwick LLP (filed herewith).
23.5 Consent of Arnold & Porter (included in Exhibit 5.1 and Exhbit 8.1,
respectively filed herewith).
24.1 Powers of Attorney of directors and officers of the Company (included
as part of signature page).
25.1 Statement of Eligibility of Trustee on Form T-1.*
99.1 Form of Letter of Transmittal.*
II-28
99.2 Form of Notice of Guaranteed Delivery.*
99.3 Form of Tender Instructions.*
__________
*Previously filed.
II-29