The following table and accompanying notes set forth certain information
regarding the selling stockholders as of January 1, 2005 unless otherwise
indicated. Under this prospectus, the selling stockholders and any of their
respective transferees, assignees, donees, distributees, pledgees or other
successors in interest may offer and sell from time to time an aggregate of
28,960,418 shares of common stock. In this prospectus, we refer to these holders
collectively as the selling stockholders. The shares are being registered to
permit public sales of the shares, and the selling stockholders may offer the
shares for resale from time to time. See "Plan of Distribution." The selling
stockholders may offer all, some or none of the common stock listed below.
The table below sets forth the names of the selling stockholders and the number
of shares owned, directly and beneficially, by such stockholders as of January
1, 2005 unless otherwise indicated. The number of shares of common stock
outstanding on February 9, 2005 was 64,768,286. Except as otherwise indicated,
each person listed in the table has informed Motient that such person has (1)
voting and investment power with respect to such person's shares of common stock
and (2) record and beneficial ownership with respect to such person's shares of
common stock.
If all of the shares are sold pursuant to this prospectus, then the selling
stockholders will sell 28,960,418 shares of our common stock, or 35.7% of
Motient's common stock outstanding as of February 9, 2005. Share ownership does
not include warrants to purchase additional shares of Motient common stock,
issued in the November 12, 2004 or February 9, 2005 private placements, which
have not yet vested and may never vest. Such warrants will vest if and only if
we fail to meet certain conditions regarding the registration of the shares sold
in these private placements.
Shares Beneficially Owned Shares Beneficially Owned
Prior to Offering After Offering
----------------- --------------
Shares
Name of Beneficial Owner Number Percentage Offered Number Percentage
------------------------ ------ ---------- ------- ------ ----------
Greywolf Capital II LP (1) 676,400 1.0% 200,000 476,400 *
Greywolf Capital Overseas Fund (1) 1,341,600 2.1% 800,000 541,600 *
LC Capital Master Fund, Ltd. (2) 2,521,076 3.9% 1,166,861 1,354,215 2.1%
Millennium Partners, L.P. (3) 583,430 * 583,430 0 *
RNR II, LP 257,500 * 257,500 0 *
Catalyst Credit Opportunity Fund (4) 27,568 * 4,800 22,768 *
Catalyst Credit Opportunity Fund Offshore (4) 84,898 * 14,800 70,098 *
DCM Limited. (4) 2,534 * 400 2,134 *
Highland Crusader Offshore Partners, L.P. (5) 2,919,289 4.5% 466,744 2,452,545 3.8%
Highland Equity Fund, L.P. (5) 108,344 * 58,344 50,000 *
Highland Equity Focus Fund, L.P. (5) 1,300,145 2.0% 875,145 425,000 *
Kurt J. Rechner & Melani Rechner (6) 28,340 * 5,835 22,505 *
Kurt J. Rechner 401(k) (6) 5,835 * 5,835 0 *
Kurt J. Rechner IRA Rollover (6) 11,670 * 11,670 0 *
Morris D. Weiss, IRA Rollover (6) 11,670 * 11,670 0 *
Morris D. Weiss & Lauren C. Ravkind (6) 67,340 * 11,670 55,670 *
John J. Gorman 401(k) Plan & Trust (7) 1,040,058 1.6% 350,058 690,000 1.1%
York Investment Limited (8) 1,418,724 2.2% 863,510 555,214 *
York Capital Management, L.P. (8) 374,937 * 213,396 161,541 *
York Select Unit Trust (8) 253,684 * 168,157 85,527 *
York Select, L.P. (8) 365,743 * 246,176 119,567 *
York Global Value Partners, L.P. (8) 342,425 * 252,425 90,000 *
York Credit Opportunities Fund, L.P. (8) 369,356 * 150,000 219,356 *
York/Green Capital Partners, L.P. (8) 180,000 * 90,000 90,000 *
Ahab Partners, L.P. (9) 147,025 * 147,025 0 *
Ahab International, Ltd. (9) 203,034 * 203,034 0 *
George W. Haywood (10) 5,804,500 9.0% 1,785,000 4,019,500 6.2%
97
Tracer Capital Offshore Fund Ltd. (11) 148,580 * 78,535 70,045 *
Tracer Capital Partners QP L.P. (11) 172,112 * 90,718 81,394 *
Tracer Capital Partners L.P. (11) 10,965 * 5,776 5,189 *
The Raptor Global Portfolio Ltd. (12) 3,248,275 5.0% 698,364 2,549,911 3.9%
The Tudor BVI Global Portfolio Ltd. (13) 713,726 1.1% 148,756 564,970 *
The Altar Rock Fund L.P. (14) 34,975 * 6,907 28,068 *
Tudor Proprietary Trading, L.L.C. (15) 381,968 * 79,462 302,506 *
Rockbay Capital Fund, LLC 19,691 * 12,646 7,045 *
Rockbay Capital Institutional Fund, LLC 262,638 * 169,422 93,216 *
Rockbay Capital Offshore Fund, Ltd. 626,102 * 401,363 224,739 *
Glenview Capital Partner, L.P. (16) 76,1000 * 52,130 23,970 *
Glenview Institutional Partners, L.P. (16) 226,300 * 174,000 52,300 *
Glenview Capital Master Fund, Ltd. (16) 519,000 * 353,900 165,100 *
GCM Little Arbor Master Fund, Ltd. (16) 20,400 * 3,400 17,000 *
OZ Master Fund, Ltd. (17) 2,050,947 3.2% 1,138,232 912,715 1.4%
OZ Mac 13 Ltd. (17) 31,309 * 18,504 12,805 *
Fleet Maritime, Inc. (17) 30,976 * 10,125 20,851 *
Singer Children's Management Trust (18) 535,000 * 400,000 135,000 *
CY Offshore Fund, Ltd. (19) 263,938 * 263,938 0 *
CS Offshore Fund, Ltd. (19) 131,969 * 131,969 0 *
Edward W. Rose, III (20) 263,938 * 263,938 0 *
Cardinal Partners 2000, L.P. (20) 118,329 * 118,329 0 *
Cardinal Partners, L.P. (20) 124,749 * 124,749 0 *
George Kaiser Family Foundation 263,938 * 263,938 0 *
Xerion Partners II Master Fund Limited (21) 350,058 * 350,058 0 *
Ore Hill Partners (22) 408,401 * 408,401 0 *
John Waterfall (23) 2,926,000 4.5% 116,686 2,809,314 4.3%
Edwin Morgens (23) 2,726,000 4.2% 116,686 2,609,314 4.0%
MWV Employee Retirement Group Trust 35,006 * 35,006 0 *
Strome Hedgecap Ltd. (24) 257,500 * 257,500 0 *
Loeb Partners Corporation (25) 181,686 * 116,686 65,000 *
CanPartners Investments IV, LLC 577,500 * 140,000 437,500 *
Harbert Distressed Investment Master Fund, LTD (26) 427,655 * 427,655 0 *
Alpha Sub Fund VI LLC 9,845 * 9,845 0 *
Roger C. Altman (27) 20,416 * 20,416 0 *
Austin M. Beutner (27) 22,339 * 22,339 0 *
Anthony Grillo (27) 135,308 * 118,208 17,100 *
William O. Hiltz (27) 9,905 * 9,905 0 *
Neeraj Mital (27) 8,658 * 8,658 0 *
David G. Offensend (27) 12,718 * 12,718 0 *
Michael J. Price (27) 41,059 * 41,059 0 *
John P. Fitzsimons (27) 20,000 * 20,000 0 *
Mitchell A. Harwood (27) 34,012 * 34,012 0 *
Craig T. Moore (27) 34,012 * 34,012 0 *
Eugene Lee (27) 2,000 * 2,000 0 *
M. Sharon Lewellen (27) 1,200 * 1,200 0 *
Dr. Rajendra Singh (28) 8,187,804 12.6% 2,046,951 6,140,853 9.5%
Neera Singh (28) 8,187,804 12.6% 2,046,951 6,140,853 9.5%
The Hersh Raj Singh Education Trust (28) 2,046,951 3.2% 2,046,951 0 *
The Samir Raj Singh Education Trust (28) 2,046,951 3.2% 2,046,951 0 *
Columbia Capital Equity Partners III (QP), L.P. (29) 1,459,621 2.3% 1,459,621 0 *
Columbia Capital Equity Partners III (Cayman), L.P. (29) 801,555 1.2% 801,555 0 *
Columbia Capital Equity Partners III (AI), L.P. (29) 80,634 * 80,634 0 *
Columbia Capital Investors III, LLC (29) 360,145 * 360,145 0 *
Columbia Capital Employee Investors III, LLC (29) 5,028 * 5,028 0 *
Spectrum Equity Investors IV, L.P. 1,778,325 2.7% 1,778,325 0 *
Spectrum Equity Investors Parallel IV, L.P. 10,495 * 10,495 0 *
Spectrum IV Investment Managers' Fund, L.P. 21,175 * 21,175 0 *
----------
* Less than 1% of the outstanding shares.
98
(1) Greywolf Advisors LLC exercises voting and investment control over all
the shares offered by Greywolf Capital Partners II LP and Greywolf
Capital Overseas Fund. Accordingly, Greywolf Advisors LLC may be
deemed to beneficially own all shares held by Greywolf Capital
Partners II LP and Greywolf Capital Overseas Fund.
(2) LC Capital Master Fund, Ltd. was a lender under our term credit
agreement.
(3) Millennium Management, L.L.C., a Delaware limited liability company,
is the managing general partner of Millennium Partners, L.P., a Cayman
Islands exempted company, and consequently may be deemed to have
voting control and investment discretion over securities owned by
Millennium Partners, L.P. Israel A. Englander is the sole managing
member of Millennium Management, L.L.C. As a result, Mr. Englander may
be deemed to be the beneficial owner of any shares deemed to be
beneficially owned by Millennium management, L.L.C. The foregoing
should not be construed as an admission by either of Millennium
Management, L.L.C or Mr. Englander as to beneficial ownership of the
shares owned by Millennium Partners. Millennium Partners, L.P. was a
lender under our term credit agreement.
(4) Catalyst Investment Management exercises voting and investment control
over all shares offered by Catalyst Credit Opportunity Fund Offshore,
Catalyst Credit Opportunity Fund and DCM Limited. Consequently,
Catalyst Investment Management may be deemed to be the beneficial
owner the shares of Motient common stock offered by such entities.
(5) Highland Capital Management, L.P., which is owned by James D. Dondero,
a member of Motient's board of directors, exercises voting and
investment control over the common stock offered hereby. Mr. Dondero
disclaims beneficial ownership of these securities except to the
extent of their pecuniary interest. Highland Capital Management, L.P.
was an indirect lender under our term credit agreement and is the
general partner of the selling stockholders.
(6) Kurt Rechner and Morris Weiss are employees of Tejas Securities Group,
Inc., which acted as placement agent for our April, July and November
2004 private placements of common stock. The Morris Weiss, IRA is the
individual retirement account for Morris Weiss. Kurt Rechner, Rollover
IRA and Kurt Rechner 401(k) are individual retirement accounts for
Kurt Rechner. Melanie Rechner is the wife of Kurt Rechner. Lauren C.
Ravkind is the wife of Morris Weiss. Morris Weiss and Kurt Rechner may
be considered affiliates of a broker-dealer. They have confirmed to us
that the securities were acquired in the ordinary course of business
and that there are no agreements or understandings with any other
person to dispose of the securities. The share ownership of Morris D.
Weiss and Lauren C. Ravkind includes 6,000 shares owned by their
children and 35,000 shares owned pursuant to two warrants.
(7) John Gorman is the chairman of the board of directors of Westech
Capital, which owns Tejas Securities Group, Inc., a registered
broker-dealer, which acted as placement agent for our April, July and
November 2004 private placements of common stock. Therefore, Mr.
Gorman is an affiliate of a broker-dealer. Mr. Gorman has confirmed to
us that the securities were acquired in the ordinary course of
business and that there are no agreements or understandings with any
other person to dispose of the securities.
(8) York Capital Management L.P., York Distressed Opportunities Fund,
L.P., York Investment Limited were lenders under our term credit
agreement.
(9) Jonathan Gallen exercises investment and voting control over all
shares offered hereby. Accordingly, he may be deemed to beneficially
own 350,059 shares of Motient common stock prior to the offering
contemplated hereby.
(10) Mr. Haywood's ownership includes 130,000 shares of Motient common
stock owned by his children and spouse.
99
(11) Riley McCormack is the Managing Member of the Investment Manager of
each of Tracer Capital Partners L.P., Tracer Capital Partners QP L.P.
and Tracer Capital Offshore Fund Ltd.. As such, he may be deemed to be
the beneficial owner of all shares owned by such entities.
(12) Tudor Investment Corporation is the investment advisor of The Raptor
Global Portfolio Ltd. Because Paul Tudor Jones II is the controlling
shareholder of Tudor Investment Corporation, he may be deemed to be
the beneficial owner of shares beneficially owned by The Raptor Global
Portfolio Ltd. Mr. Jones disclaims such beneficial ownership.
(13) Tudor Investment Corporation is the investment advisor of The Tudor
BVI Global Portfolio Ltd. Because Paul Tudor Jones II is the
controlling shareholder of Tudor Investment Corporation, he may be
deemed to be the beneficial owner of shares beneficially owned by The
Tudor BVI Global Portfolio Ltd. Mr. Jones disclaims such beneficial
ownership.
(14) Tudor Investment Corporation is the general partner of The Altar Rock
Fund L.P. Because Paul Tudor Jones II is the controlling shareholder
of Tudor Investment Corporation, he may be deemed to be the beneficial
owner of shares beneficially owned by The Altar Rock Fund L.P. Mr.
Jones disclaims such beneficial ownership.
(15) Paul Tudor Jones II is the indirect controlling equity holder of Tudor
Proprietary Trading, L.L.C. and, as a result, may be deemed to be the
beneficial owner of shares beneficially owned by Tudor Proprietary
Trading, L.L.C. Mr. Jones disclaims such beneficial ownership.
(16) Larry Robbins is the President and CEO of Glenview Capital Management,
LLC, the Investment Manager of each of Glenview Capital Partner, L.P.,
Glenview Institutional Partners, L.P., Glenview Capital Master Fund,
Ltd. and GCM Little Arbor Master Fund, Ltd.. As such, he may be deemed
to exercise voting and investment control over the shares held by such
entities..
(17) Daniel S. Och is the Senior Managing Member of OZ Management, L.L.C.,
the investment manager of each of OZ Master Fund, Ltd., OZ Mac 13 Ltd.
and Fleet Maritime, Inc. As such, Mr. Och may be deemed to exercise
voting and investment control over the shares held by such entities.
(18) Singer Children's Management Trust is a trust established for the
benefit of the children of Gary and Karen Singer. Karen Singer is the
wife of Gary Singer (investment advisor of M&E Advisors, LLC, a lender
under our term credit agreement), the brother of Steven Singer, the
chairman of our board of directors. Gary and Karen Singer disclaim any
beneficial ownership of securities owned by the trust. Karen Singer
beneficially owns, for her own account, warrants to purchase 602,500
shares of common stock, which are not included herein.
(19) James Traweek, Jr. exercises voting and investment control over the
shares of Motient common stock owned by CY Offshore Fund, Ltd. and CS
Offshore Fund, Ltd. He therefore may be deemed to be the beneficial
owner of such shares.
(20) Edward W. Rose III exercises voting and investment control over the
shares of Motient common stock owned by Cardinal Partners 2000, L.P.
and Cardinal Partners, L.P. He therefore may be deemed to be the
beneficial owner of such shares in addition to the shares he holds for
his own account.
(21) Daniel J. Arbess controls Xerion Partners Equity LLC ("XPE"), which is
the investment manager of Xerion Partners II Master Fund Limited
("XP-II") and has voting and investment discretion over securities
held by XP-II. XPE and Mr. Arbess thus may be deemed to be beneficial
owners of the shares identified in the table as being beneficially
owned by XP-II. XPE and Mr. Arbess disclaim beneficial ownership of
the shares held by XP-II.
(22) Frederick Wahl and Ben Nickoll exercise voting and investment control
over the shares owned by Ore Hill Partners. They therefore may be
deemed to be the beneficial owner of such shares.
100
(23) John C. Waterfall is the president and treasurer of Morgens,
Waterfall, Vintiadis & Co., Inc. and beneficially owns 2,926,000
shares of common stock, which includes 416,686 shares of common stock
for his own account and 10,000 shares of common stock held in trust
for his children. Morgens, Waterfall, Vintiadis & Co. beneficially
owns 2,500,000 shares of common stock. Edwin Morgens, the vice
president and secretary of Morgens, Waterfall, Vintiadis & Co.
beneficially owns 2,716,000 shares of our common stock, which includes
216,686 shares of common stock for his own account. Share ownership is
based generally on a Form 3 and a Schedule 13G/A filed with the SEC on
March 10, 2004, a Form 4 filed on July 19, 2004.
(24) Strome Investment Management is the investment advisor to the selling
stockholder, and has common ownership with Strome Securities, a
registered broker-dealer. As such, it may be deemed to be the
beneficial owner of all shares owned by such entities. Mark Strome
exercises voting and investment control over such securities. The
selling stockholder has not notified us that the securities were
acquired other than in the ordinary course of business, or that there
are any agreements or understandings with any other person to dispose
of the securities.
(25) Gideon King and Robert Grubin each exercise voting and investment
control over the shares of Motient common stock owned by the selling
stockholder. They therefore may be deemed to be the beneficial owners
of such shares.
(26) The selling stockholder may be deemed to be an affiliate of HMC
Investments, Inc., a registered broker-dealer. The selling stockholder
is selling these shares for its own account, and has assured Motient
that there are no agreements with any other person to dispose of the
securities.
(27) The selling stockholder may be deemed to be an affiliate of Evercore
Group Inc., a registered broker dealer. The selling stockholder is
selling these shares for his or her own account, and has assured
Motient that there are no agreements with any other person to dispose
of the securities.
(28) Dr. Singh and Neera Singh may each be deemed to be the beneficial
owner of an aggregate of 4,093,902 shares of Motient common stock held
by the The Hersh Raj Singh Education Trust and The Samir Raj Singh
Education Trust, each an irrevocable trust of which Neera Singh is one
of the co-trustees. They disclaim beneficial ownership of such shares
to the extent allowable by law.
(29) The general partner of Columbia Capital Equity Partners III (QP), L.P.
and Columbia Capital Equity Partners III (AI), L.P. is Columbia
Capital Equity Partners III, L.P. ("Columbia III"). The general
partner of Columbia Capital Equity Partners III (CAYMAN), L.P. is
Columbia Capital Equity Partners (Cayman) III, Ltd. Columbia III is
the sole shareholder of Columbia Capital Equity Partners (Cayman) III,
Ltd. The general partner of Columbia III is Columbia Capital III,
L.L.C. which is also the manager of Columbia Capital Investors III,
LLC and Columbia Capital Employee Investors III, L.L.C.
James B. Fleming, Jr., Harry F. Hopper III and R. Philip Herget, III
control Columbia Capital III, L.L.C. As a result, Messrs. Fleming,
Hopper and Herget exercise voting and investment control over all of
the shares offered by Columbia Capital Equity Partners III (QP), L.P.,
Columbia Capital Equity Partners III (AI), L.P., Columbia Capital
Equity Partners III (CAYMAN), L.P., Columbia Capital Investors III,
LLC and Columbia Capital Employee Investors III, L.L.C., and may be
deemed to have beneficial ownership over those shares. Messrs.
Fleming, Hopper and Herget disclaim beneficial ownership of all of
these shares, to the extent allowable by law.
101
DESCRIPTION OF MOTIENT'S SECURITIES
Since May 1, 2002, the effective date of our plan of reorganization, we have
been governed by our Restated Certificate of Incorporation, which provides for
one hundred five million (105,000,000) shares of authorized capital stock,
consisting of one hundred million (100,000,000) shares of common stock, par
value $.01 per share, and five million (5,000,000) shares of preferred stock,
par value $.01 per share. In accordance with Section 1123(a)(6) of the
Bankruptcy Code, our Restated Certificate of Incorporation prohibits the
issuance of any shares of non-voting securities. The following summary
description of our capital stock is qualified in its entirety by reference to
our Restated Certificate of Incorporation and Amended and Restated Bylaws, a
copy of each of which is filed as an exhibit to the registration statement of
which this prospectus is a part.
Common Stock
We may issue up to one hundred million (100,000,000) shares of common stock. As
of February 9, 2005, 64,768,286 shares of common stock were outstanding. The
common stock has the following terms:
o The outstanding shares of our common stock are fully paid and
non-assessable.
o Holders of common stock are entitled to one vote per share for each
share held of record on all matters submitted to a vote of
stockholders and are entitled to receive ratably such dividends as may
be declared by the board of directors out of funds legally available
therefor.
o After satisfaction of the dividend rights of holders of any
outstanding preferred stock, holders of common stock will be entitled
to any dividend declared by the board of directors out of funds
legally available for this purpose. However, it is not anticipated
that any cash dividends will be paid on the common stock for the
foreseeable future.
o Upon a liquidation, dissolution or winding up of Motient, holders of
common stock will have the right to a ratable portion of assets
remaining after payment of liabilities and any payments due to holders
of outstanding preferred stock;
o The holders of common stock have no preemptive rights; and
o The rights, preferences and privileges of holders of common stock may
be adversely affected by the rights of the holders of shares of any
series of preferred stock that we may designate and issue in the
future.
Preferred Stock
We may issue up to five million (5,000,000) shares of preferred stock in one or
more series. Our board of directors may issue such preferred stock, and
designate the terms thereof (including with respect to voting rights, dividends,
liquidation preferences and conversion rights), without the need for stockholder
approval. There are no shares of preferred stock outstanding, and there are no
agreements or understandings for the designation of any series of preferred
stock or the issuance of shares thereunder. The existence of authorized but
unissued preferred stock may enable our board to render more difficult or to
discourage an attempt to obtain control of us by means of a merger, tender
offer, proxy contest or otherwise.
Foreign Ownership Restrictions
Under the Telecommunications Act of 1996, non-U.S. citizens or their
representatives, foreign governments or their representatives, or corporations
organized under the laws of a foreign country may not own, in the aggregate,
more than 20% of a common carrier licensee or more than 25% of the parent of a
common carrier licensee if the FCC determines that the public interest would be
served by prohibiting this ownership. Additionally, the FCC's rules may under
some conditions limit the size of investments by foreign telecommunications
carriers in U.S. international carriers.
102
Limitation of Liability and Indemnification
Under Section 145 of the Delaware General Corporation Law, or DGCL, a
corporation may indemnify its directors, officers, employees and agents and its
former directors, officers, employees and agents and those who serve, at the
corporation's request, in such capacities with another enterprise, against
expenses, including attorneys' fees, as well as judgments, fines and settlements
in nonderivative lawsuits, actually and reasonably incurred in connection with
the defense of any action, suit or proceeding in which they or any of them were
or are made parties or are threatened to be made parties by reason of their
serving or having served in such capacity. The DGCL provides, however, that such
person must have acted in good faith and in a manner such person reasonably
believed to be in, or not opposed to, the best interests of the corporation and,
in the case of a criminal action, such person must have had no reasonable cause
to believe his or her conduct was unlawful. In addition, the DGCL does not
permit indemnification in an action or suit by or in the right of the
corporation, where such person has been adjudged liable to the corporation,
unless, and only to the extent that, a court determines that such person fairly
and reasonably is entitled to indemnity for costs the court deems proper in
light of liability adjudication. Indemnity is mandatory to the extent a claim,
issue or matter has been successfully defended.
Our Restated Certificate of Incorporation provides that no director of Motient
shall be personally liable for breach of fiduciary duty as a director. Any
repeal or modification of such provision shall not adversely affect any right or
protection, or any limitation of the liability of, a director of Motient
existing at, or arising out of facts or incidents occurring prior to, the
effective date of such repeal or modification. Both our Restated Certificate of
Incorporation and our Amended and Restated Bylaws contain provisions that
further provide for the indemnification of directors and officers in accordance
with and to the fullest extent permitted by the DGCL.
Additionally, Motient has entered into indemnification agreements with certain
of its directors and officers which may, in certain cases, be broader than the
specific indemnification provisions contained under current applicable law. The
indemnification agreements may require Motient, among other things, to indemnify
such officers, directors and key personnel against certain liabilities that may
arise by reason of their status or service as directors, officers or employees
of Motient and to advance the expenses incurred by such parties as a result of
any threatened claims or proceedings brought against them as to which they could
be indemnified.
Transfer Agent and Registrar
The transfer agent and registrar for our common stock is EquiServe Trust
Company, N.A., 250 Royal St., Canton, MA 02021.
103
SHARES ELIGIBLE FOR FUTURE SALE
Sales of substantial amounts of our common stock in the public market could
adversely affect our common stock's prevailing market price, assuming an
established trading market for our common stock develops. As of February 9,
2005, we had outstanding 64,768,836 shares of our common stock. Approximately
35,807,868 of these shares are freely tradable without restriction or further
registration under the Securities Act, if they are held by persons other than
"affiliates" of Motient, as defined under the Securities Act. We believe that
15,186,636 shares of our common stock are held, or will be held, by holders who
may be affiliates. In addition, we have issued approximately 28,960,418 shares
of restricted common stock, which are not registered and may not be traded by
any holder of such stock absent an exemption from the Securities Act until
registered. All of the shares offered for sale pursuant to this prospectus may
be sold pursuant to this prospectus under the Securities Act, and will
thereafter be freely tradable so long as they are not held by affiliates or
underwriters. If the selling stockholders sell a large number of shares into the
public market at one time, such sales could have an adverse effect on the market
price of the common stock. We are not aware of any shares held by affiliates not
being offered for sale under this prospectus. If any such shares exist, these
shares may be sold under Rule 144 promulgated under the Securities Act of 1933.
Rule 144 permits sales by a holder within any three-month period of a number of
shares that does not exceed the greater of: (1) 1% of the number of shares of
common stock then outstanding or (2) the average weekly trading volume of the
common stock during the four calendar weeks preceding the filing of a notice on
Form 144 with respect to those sales. Sales under Rule 144 are also governed by
manner of sale provisions and notice requirements, and current public
information about Motient must be available.
Also, we have issued certain parties warrants to purchase an aggregate of up to
8,808,087 shares of our common stock. The table below sets forth certain
relevant terms of these warrants.
--------------------------------------------------------------------------------------------------------------------
Issued to: Number of Shares Exercise Price Term
--------------------------------------------------------------------------------------------------------------------
Lenders under our term credit agreement - 1,812,500 $1.06 5 year term, issued
January 2003 issuance January 2003
--------------------------------------------------------------------------------------------------------------------
Lenders under our term credit agreement - 580,000 $4.88 None
March 2004 issuance
--------------------------------------------------------------------------------------------------------------------
Certain Affiliates of CTA 250,000 $3.00 5 year term, issued
December 2002
--------------------------------------------------------------------------------------------------------------------
Certain Affiliates of CTA 56,250 $5.50 10 year term, issued
April 2004
--------------------------------------------------------------------------------------------------------------------
Further Lane Asset Management 200,000 $5.10 5 year term, issued
July 2003
--------------------------------------------------------------------------------------------------------------------
Certain Affiliates of Tejas Securities, Inc. 600,000 $5.50 10 year term, issued
April 2004
--------------------------------------------------------------------------------------------------------------------
Certain Affiliates of Tejas Securities, Inc. 510,000 $8.57 10 year term, issued
July 2004
--------------------------------------------------------------------------------------------------------------------
Evercore Investments, LLC 8,077 $3.95 5 year term, issued
May 2002
--------------------------------------------------------------------------------------------------------------------
Purchasers of our common stock in the 3,838,402 $8.57 5 year term, issued
November 12, 2004 private placement (1) November 2004
--------------------------------------------------------------------------------------------------------------------
Purchasers of our common stock in the 952,858 $22.50 5 year term, issued
February 9, 2005 private placement (1) February 2005
--------------------------------------------------------------------------------------------------------------------
Total: 8,808,087 (2)
--------------------------------------------------------------------------------------------------------------------
104
(1) The warrants issued to the purchasers of our common stock in the
November 12, 2004 and February 9, 2005 private placements have not yet
vested and may never vest. Such warrants will vest if and only if we
fail to meet certain conditions regarding the registration of the
shares sold in the private placements. The first such condition was
the filing of this registration statement. The remaining conditions
involve the timing of the effectiveness of this registration
statement. None of the shares underlying these warrants are being
registered pursuant to this registration statement, and are not
included in the total.
(2) We have reserved 2,993,024 shares of common stock for issuance under
our 2002 stock option plan. Such shares are not being registered
pursuant to this registration statement.
105
PLAN OF DISTRIBUTION
Motient has registered the shares offered by this prospectus on behalf of the
selling stockholders, and will not receive any proceeds from the sale of the
shares by the selling stockholders, although we will receive proceeds from the
exercise of our various outstanding warrants to the extent they are exercised.
These shares may be sold or distributed from time to time by the selling
stockholders and any of their respective transferees, assignees, donees,
distributees, pledgees or other successors in interest, all of whom we
collectively refer to in this prospectus as "selling stockholders." The selling
stockholders may sell their shares at market prices prevailing at the time of
sale, at prices related to such prevailing market prices, at negotiated prices,
or at fixed prices or in competitively bid transactions, which may be changed.
Each selling stockholder reserves the right to accept or reject, in whole or in
part, any proposed purchase of shares, whether the purchase is to be made
directly or through agents.
The selling stockholders may offer their shares at various times in one or more
of the following transactions:
o in ordinary brokers' transactions and transactions in which the broker
solicits purchasers;
o purchases by a broker-dealer as principal and resale by the
broker-dealer for its account pursuant to this prospectus;
o in transactions involving cross or block trades;
o in transactions "at the market" to or through market makers in the
common stock or into an existing market for the common stock;
o in other ways not involving market makers or established trading
markets, including direct sales of the shares to purchasers or sales
of the shares effected through agents;
o through transactions in options, swaps or other derivatives which may
or may not be listed on an exchange;
o in privately negotiated transactions;
o in transactions to cover short sales;
o in underwritten transactions; or
o in a combination of any of the foregoing transactions.
The selling stockholders also may sell all or a portion of their shares in open
market transactions in accordance with Rule 144 under the Securities Act
provided that they meet the criteria and conform to the requirements of that
rule.
From time to time, one or more of the selling stockholders may pledge or grant a
security interest in some or all of the shares owned by them. If the selling
stockholders default in performance of their secured obligations, the pledgees
or secured parties may offer and sell the shares from time to time by this
prospectus. The selling stockholders also may transfer and donate shares in
other circumstances. The number of shares beneficially owned by selling
stockholders will decrease as and when the selling stockholders transfer or
donate their shares or default in performing obligations secured by their
shares. The plan of distribution for the shares offered and sold under this
prospectus will otherwise remain unchanged, except that the transferees, donees,
pledgees, other secured parties or other successors in interest will be selling
stockholders for purposes of this prospectus.
106
A selling stockholder may sell short the common stock. The selling stockholder
may deliver this prospectus in connection with such short sales and use the
shares offered by this prospectus to cover such short sales.
A selling stockholder may enter into hedging transactions with broker-dealers.
The broker-dealers may engage in short sales of the common stock in the course
of hedging the positions they assume with the selling stockholder, including
positions assumed in connection with distributions of the shares by such
broker-dealers. A selling stockholder also may enter into option or other
transactions with broker-dealers that involve the delivery of shares to the
broker-dealers, who may then resell or otherwise transfer such shares. In
addition, a selling stockholder may loan or pledge shares to a broker-dealer,
which may sell the loaned shares or, upon a default by the selling stockholder
of the secured obligation, may sell or otherwise transfer the pledged shares.
The selling stockholders may use brokers, dealers, underwriters or agents to
sell their shares. The persons acting as agents may receive compensation in the
form of commissions, discounts or concessions. This compensation may be paid by
the selling stockholders or the purchasers of the shares of whom such persons
may act as agent, or to whom they may sell as principal, or both. The
compensation as to a particular person may be less than or in excess of
customary commissions. The selling stockholders and any agents or broker-dealers
that participate with the selling stockholders in the offer and sale of the
shares may be deemed to be "underwriters" within the meaning of the Securities
Act. Any commissions they receive and any profit they realize on the resale of
the shares by them may be deemed to be underwriting discounts and commissions
under the Securities Act. Neither we nor any selling stockholders can presently
estimate the amount of such compensation.
Motient has advised the selling stockholders that during such time as they may
be engaged in a distribution of the shares, they are required to comply with
Regulation M under the Securities Exchange Act. With some exceptions, Regulation
M prohibits any selling stockholder, any affiliated purchasers and other persons
who participate in such a distribution from bidding for or purchasing, or
attempting to induce any person to bid for or purchase, any security which is
the subject of the distribution until the entire distribution is complete.
Under Motient's registration rights agreement with certain of the selling
stockholders, Motient is required to bear the expenses relating to this
offering, excluding any underwriting discounts and fees, brokerage and sales
commissions, and stock transfer taxes relating to the sale or disposition of the
shares.
Motient has agreed to indemnify certain of the selling stockholders and their
respective controlling persons against some liabilities, including some
liabilities under the Securities Act.
It is possible that a significant number of shares could be sold at the same
time. Such sales, or the perception that such sales could occur, may adversely
affect prevailing market prices for the common stock.
This offering by any selling stockholder will terminate on the date on which the
selling stockholder has sold all of such selling stockholder's shares.
107
LEGAL MATTERS
For the purposes of this offering, Robert Macklin, the general counsel of
Motient has given his opinion as to the validity of the shares of common stock
offered by the selling stockholders. As of January 31, 2005, Mr. Macklin held
options to purchase 35,619 shares of common stock.
EXPERTS
The consolidated financial statements and schedules of Motient Corporation and
subsidiaries as of December 31, 2002 and 2003, and for each of the three years
in the period ended December 31, 2003, included in this prospectus, have been
audited by Ehrenkrantz Sterling & Co., LLC, with respect to 2001 and 2002, and
Friedman LLP, successor-in-interest to Ehrenkrantz Sterling & Co., LLC, with
respect to 2003, an independent registered public accounting firm, as indicated
in their reports with respect thereto, and are included herein in reliance upon
the authority of said firm as experts in giving said reports. The financial
statements and schedules referred to above have been included in this prospectus
in reliance upon the authority of those firms as experts in giving said reports.
The consolidated financial statements of Mobile Satellite Ventures LP at
December 31, 2002 and 2003, and for each of the three years in the period ended
December 31, 2003, appearing in this prospectus and registration statement have
been audited by Ernst & Young LLP, independent auditors, as set forth in their
report thereon appearing elsewhere herein, and are included in reliance upon
such report given on the authority of such firm as experts in accounting and
auditing.
WHERE YOU CAN FIND MORE INFORMATION
We have filed a registration statement on Form S-1 with the Securities and
Exchange Commission, or SEC, to register the shares as required by the federal
securities laws. This prospectus, which constitutes a part of that registration
statement on Form S-1, omits certain information concerning us and our common
stock contained in the registration statement. Furthermore, statements contained
in this prospectus concerning any document filed as an exhibit are not
necessarily complete and, in each instance, reference is made to the copy of
such document filed as an exhibit to the registration statement. Accordingly,
you should reference the registration statement and its exhibits for further
information with respect to us and the shares offered under this prospectus.
We also file annual, quarterly and special reports, proxy statements and other
information with the SEC under the Securities Exchange Act of 1934, as amended.
Our Exchange Act file number for our SEC filings is 0-23044. You may read and
copy any document we file with the SEC at the following SEC public reference
room:
Public Reference Room
450 Fifth Street, N.W.
Room 1024
Washington, D.C. 20549
You may obtain information on the operation of the SEC's Public Reference Room
by calling the SEC at 1-800-SEC-0330.
The SEC also maintains an Internet web site that contains reports, proxy
statements and other information regarding issuers, including Motient, who file
electronically with the SEC. The address of that site is http://www.sec.gov.
You should rely only on the information or representations provided in this
prospectus and the registration statement. We have not authorized anyone to
provide you with different information. The information contained in this
document speaks only as of the date of this document unless the information
specifically indicates that another date applies.
108
INDEX TO FINANCIAL STATEMENTS
MOTIENT CORPORATION AND SUBSIDIARIES
Independent Auditors' Report....................................................................................... F-1
Nine Months Ended September 30, 2004 and 2003 and 2003 Year-End Consolidated Statements of Operations ............. F-2
Nine Months Ended September 30, 2004 and 2003 Year-End Consolidated Balance Sheets ................................ F-3
Nine Months Ended September 30, 2004 and 2003 and 2003 Year-End Consolidated
Statements of Changes in Stockholders' Equity (Deficit)............................................................ F-4
Nine Months Ended September 30, 2004 and 2003 and 2003 Year-End Consolidated Statements of Cash Flows ............. F-5
Notes to Consolidated Financial Statements......................................................................... F-6
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of Motient Corporation:
We have audited the accompanying consolidated balance sheets of Motient
Corporation (a Delaware Corporation) and Subsidiaries (together the "Company")
as of December 31, 2003 and 2002 (Successor Company), and the related
consolidated statements of operations, changes in stockholders' equity (deficit)
and cash flows for the year ended December 31, 2003 (Successor Company), the
eight months ended December 31, 2002 (Successor Company), the four months ended
April 30, 2002 (Predecessor Company) and the year ended December 31, 2001
(Predecessor Company). Our audits also included the financial statement schedule
listed in the index at Item 15(a). These financial statements and schedule are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements and schedule based on our audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform an audit to obtain reasonable assurance about whether the
consolidated financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, based on our audits, the consolidated financial statements
referred to above present fairly, in all material respects, the financial
position of Motient Corporation and Subsidiaries as of December 31, 2003 and
2002 (Successor Company) and the results of their operations and their cash
flows for the year ended December 31, 2003 (Successor Company), the eight months
ended December 31, 2002 (Successor Company), the four months ended April 30,
2002 (Predecessor Company) and the year ended December 31, 2001 (Predecessor
Company), in conformity with accounting principles generally accepted in the
United States of America. Also, in our opinion, the related financial statement
schedule, when considered in relation to the basic financial statements taken as
a whole, present fairly in all material respects the information set forth
therein.
/s/ Friedman LLP
----------------
Livingston, New Jersey
July 2, 2004
F-1
Motient Corporation and Subsidiaries
Consolidated Statements of Operations
For the Nine Months Ended September 30, 2004 and 2003, the Year Ended
December 31, 2003, the Eight Months Ended December 31, 2002, the Four Months
Ended April 30, 2002 and the Year Ended December 31, 2001
(in thousands, except per share data)
Successor Company Predecessor Company
----------------- -------------------
Nine Months Nine Months Eight Months Four Months (Restated)
Ended Ended Year Ended Ended Ended Year Ended
September 30, September 30, December 31, December 31, April 30, December 31,
2004 2003 2003 2002 2002 2001
---- ---- ---- ---- ---- ----
(Unaudited) (Unaudited)
REVENUES
Services and related revenues $ 27,446 $ 38,209 $ 49,275 $ 35,501 $ 16,809 $ 68,063
Sales of equipment 3,846 3,204 5,210 1,116 5,564 22,202
--------- --------- --------- --------- --------- ---------
Total revenues 31,292 41,413 54,485 36,617 22,373 90,265
========= ========= ========= ========= ========= =========
COSTS AND EXPENSES
Cost of services and operations (including
stock-based compensation of $211 for the
year ended December 31, 2003; and $2,028
and $426 for the nine months ended
September 30, 2004 and 2003, respectively
exclusive of depreciation and amortization
below) 29,532 39,999 51,393 38,141 21,909 73,064
Cost of equipment sold (exclusive of
depreciation and amortization) 3,705 3,607 5,942 2,226 5,980 34,116
Sales and advertising (including
stock-based compensation of $151 for the
year ended December 31, 2003 and $804 and
$304 for the nine months ended September
30, 2004 and 2003, respectively 2,058 3,782 4,552 4,825 4,287 22,618
General and administrative (including
stock-based compensation of $241 for the
year ended December 31, 2003 and $1,131
and $487 for the nine months ended
September 30, 2004 and 2003, respectively) 6,902 10,393 11,299 9,691 4,130 20,543
Restructuring charges 6,264 -- -- 25 584 4,739
Depreciation and amortization 12,071 16,312 21,466 15,509 6,913 32,408
Loss or impairment of assets -- 5,535 5,535 -- -- --
--------- --------- --------- --------- --------- ---------
Total Costs and Expenses 60,532 79,628 100,187 70,417 43,803 187,488
========= ========= ========= ========= ========= =========
Operating loss (29,240) (38,215) (45,702) (33,800) (21,430) (97,223)
Interest and other income (expense) 265 819 662 (89) 145 1,128
Interest expense (3,595) (4,592) (6,365) (1,910) (1,850) (61,675)
Other income from Aether/MSV 1,957 1,956 2,203 1,017 1,125 --
Write-off of deferred financing fees (8,052) -- -- -- -- --
Gain (loss) on disposal of assets 2 51 (3,037) (2,116) (591) 67
Loss on impairment of asset -- -- -- -- -- 23,201
Gain on sale of transportation and
satellite assets -- -- -- 385 372 --
Gain on Rare Medium Note call option -- -- -- -- -- 1,511
Rare Medium merger costs -- -- -- -- -- (4,054)
XM Radio equity investment impairment
charge -- -- -- -- -- (81,467)
Gain on debt and capital lease retirement
(unaudited) 802 -- -- -- -- --
Equity in losses of XM Radio and MSV (8,617) (7,768) (9,883) (22,273) (1,909) (48,488)
--------- --------- --------- --------- --------- ---------
Loss before reorganization items (46,478) (47,749) (62,122) (58,786) (24,138) (267,000)
Reorganization items:
Costs associated with debt restructuring -- -- -- (772) (22,324) (1,254)
Gain (loss) on extinguishment of debt -- -- -- -- 183,725 (1,243)
Gain on fair market adjustment of
assets/liabilities -- -- -- -- 94,715 --
--------- --------- --------- --------- --------- ---------
(Loss) income before income taxes (46,478) (47,749) (62,122) (59,558) 231,978 (269,497)
Income tax provision -- -- -- -- -- --
--------- --------- --------- --------- --------- ---------
Net (loss) income $ (46,478) $ (47,749) $ (62,122) $ (59,558) $ 231,978 $(269,497)
========= ========= ========= ========= ========= =========
Net (loss) income - basic and diluted $ (1.59) $ (1.90) $ (2.47) $ (2.37) $ 3.98 $ (5.27)
========= ========= ========= ========= ========= =========
Weighted-Average Common Shares
Outstanding - basic and diluted 29,323 25,128 25,145 25,097 58,251 51,136
The accompanying notes are an integral part of these consolidated financial statements.
F-2
Motient Corporation and Subsidiaries
Consolidated Balance Sheets
as of September 30, 2004, December 31, 2003 and 2002
(in thousands, except share and per share data)
Successor Successor Successor
Company Company Company
------- ------- -------
September December December
30, 2004 31, 2003 31, 2002
--------- -------- --------
(unaudited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 16,742 $ 3,618 $ 5,840
Accounts receivable-trade, net of allowance for
doubtful accounts of $298, $759 and $1,003 at September 30,
2004, December 31, 2003 and 2002, respectively 2,076 3,804 9,339
Inventory 96 240 1,077
Due from Mobile Satellite Ventures LP, net 100 93 234
Assets held for sale 271 2,734 --
Deferred equipment costs 1,453 3,765 2,755
Other current assets 1,220 5,091 6,796
Restricted cash and short-term investments -- 504 604
--------- --------- ---------
Total current assets 21,958 19,849 26,645
RESTRICTED INVESTMENTS 51 1,091
PROPERTY AND EQUIPMENT, net 21,822 31,381 46,405
FCC LICENSES AND OTHER INTANGIBLES, net 69,809 74,021 94,921
INVESTMENT IN AND NOTES RECEIVABLE FROM MSV 11,993 22,610 32,493
DEFERRED CHARGES AND OTHER ASSETS 4,519 8,076 1,757
--------- --------- ---------
Total assets $ 130,152 $ 157,028 $ 202,221
========= ========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 8,765 $ 12,365 $ 13,040
Deferred equipment revenue 1,512 3,795 2,861
Deferred revenue and other current liabilities 5,018 11,005 5,308
Obligations under capital leases, current -- 1,454 3,031
Vendor financing commitment, current -- 2,413 1,020
--------- --------- ---------
Total current liabilities 15,295 31,032 25,260
--------- --------- ---------
LONG-TERM LIABILITIES:
Notes payable, including accrued interest thereon -- 22,885 20,943
Term Credit Facility -- 4,914 --
Capital lease obligations, net of current portion -- 1,642 3,219
Vendor financing commitment, net of current portion -- 2,401 4,927
Other long-term liabilities 251 1,347 4,824
--------- --------- ---------
Total long-term liabilities 251 33,189 33,913
--------- --------- ---------
Total liabilities 15,546 64,221 59,173
--------- --------- ---------
COMMITMENTS AND CONTINGENCIES -- -- --
STOCKHOLDERS' EQUITY:
Preferred Stock; par value $0.01; authorized 5,000,000 shares and no shares
outstanding at September 30, 2004, December 31,
2003 and 2002 -- -- --
Common Stock; voting, par value $0.01; authorized 100,000,000
shares; 34,529,958, 25,196,840 and 25,097,256 shares issued and
outstanding at September 30, 2004, December 31, 2003 and 2002,
respectively 345 252 251
Additional paid-in capital 256,541 198,743 197,814
Common stock purchase warrants 25,878 15,492 4,541
Accumulated deficit (168,158) (121,680) (59,558)
--------- --------- ---------
STOCKHOLDERS' EQUITY 114,606 92,807 143,048
--------- --------- ---------
Total liabilities, and stockholders' equity $ 130,152 $ 157,028 $ 202,221
========= ========= =========
The accompanying notes are an integral part of these
consolidated financial statements.
F-3
Motient Corporation and Subsidiaries
Consolidated Statements of Changes In Stockholders' Equity (Deficit)
For the Nine Months Ended September 30, 2004, the Year Ended December 31, 2003,
the Eight Months Ended December 31, 2002, the Four Months Ended April 30, 2002
and the Year Ended December 31, 2001 (Restated)
Common Stock Common
------------ Additional Deferred Stock Unamortized
Par Paid-in Stock Purchase Guarantee Accumulated
Shares Value Capital Compensation Warrants Warrants Deficit Total
------ ----- ------- ------------ -------- -------- ------- -----
Predecessor Company
-------------------
BALANCE, December 31, 2000 $49,539,222 $495 $984,532 $(1,327) $92,249 $(11,504) $(1,043,861) $20,584
Common Stock issued under the 401(k) Savings
& Stock Purchase Plan 3,006,756 30 1,475 -- -- -- -- 1,505
Common Stock issued for exercise of stock
options and award of bonus stock 2,015 -- 1 -- -- -- -- 1
Common Stock issued for exercise of Stock
Purchase Warrants 38,228 -- 845 -- (845) -- -- --
Capital Gain in connection with sale of
stock by MSV -- -- 12,883 -- -- -- -- 12,883
Change in deferred compensation on non-cash
compensation -- -- 539 1,048 -- -- -- 1,587
Cancellation of restricted stock (88,200) -- (264) 264 -- -- -- --
Reduction of Guarantee Warrants for
extinguishment of debt -- -- -- -- -- 8,837 -- 8,837
Compensatory stock options issued to
employees -- -- 138 -- -- -- -- 138
Amortization of Guarantee Warrants -- -- -- -- -- 4,993 -- 4,993
Loss in connection with sale of stock by XM
Radio -- -- (12,180) -- -- -- -- (12,180)
Guarantee Warrants revaluation -- -- -- -- 2,326 (2,326) -- --
Issuance of Restricted Stock 3,219,236 32 386 (418) -- -- -- --
Net Loss -- -- -- -- -- -- (269,497) (269,497)
----------- ---- -------- ------- ------- -------- ----------- --------
BALANCE, December 31, 2001 55,717,257 557 988,355 (433) 93,730 -- (1,313,358) (231,149)
Common Stock issued under the 401(k) Savings
& Stock Purchase Plan 2,718,041 27 176 -- -- -- -- 203
Change in deferred compensation on non-cash
compensation -- -- -- 97 -- -- -- 97
Net Income - Predecessor Company -- -- -- -- -- -- 231,978 231,978
----------- ---- -------- ------- ------- -------- ----------- --------
Balance before fresh-start-Predecessor
Company 58,435,298 $584 $988,531 $(336) $93,730 $ -- $(1,081,380) $1,129
=========== ==== ======== ======= ======= ===== =========== =======
Successor Company
-----------------
Issuance of New Equity through bankruptcy 25,097,256 $251 $197,814 $ -- $ -- $ -- $ -- $198,065
Issuance of Common Stock Warrants -- -- -- -- 3,077 -- -- 3,077
---------- ----- ----- ----- ----- ----- ----- ------
BALANCE, April 30, 2002 25,097,256 251 197,814 -- 3,077 -- -- 201,142
Issuance of Common Stock Warrants -- -- -- -- 1,464 -- -- 1,464
Net Loss -- -- -- -- -- -- (59,558) (59,558)
----------- ---- -------- ------- -------- -------- ---------- -------
BALANCE, December 31, 2002 25,097,256 251 197,814 -- 4,541 -- (59,558) 143,048
Common Stock issued under the 401(k) Savings
& Stock Purchase Plan 84,172 1 280 -- -- -- -- 281
Common Stock issued for exercise of stock
options 15,412 -- 46 -- -- -- -- 46
Issuance of Common Stock Warrants -- -- -- -- 10,951 -- -- 10,951
Change in deferred compensation on non-cash
compensation -- -- 603 -- -- -- -- 603
Net loss -- -- -- -- -- -- (62,122) (62,122)
----------- ---- -------- ------- -------- -------- ---------- -------
BALANCE, December 31, 2003 25,196,840 $252 $198,743 $ -- $15,492 $ -- $(121,680) $92,807
Issuance of Common Stock 8,886,310 88 52,448 -- -- -- -- 52,536
Common Stock issued under the 401(k) Savings
& Stock Purchase Plan 34,056 1 150 -- -- -- -- 151
Common Stock issued for exercise of stock
options 412,752 4 1,235 -- -- -- -- 1,239
Issuance of Common Stock Warrants -- -- -- -- 10,386 -- -- 10,386
Change in deferred compensation on non-cash
compensation -- -- 3,965 -- -- -- -- 3,965
Net loss -- -- -- -- -- -- (46,478) (46,478)
BALANCE, September 30, 2004 (unaudited) 34,529,958 $345 $256,541 $ -- $25,878 $ -- $(168,158) $114,606
=========== ==== ======== ======= ======= ======== =========== ========
The accompanying notes are an integral part of these
consolidated financial statements.
F-4
Motient Corporation and Subsidiaries
Consolidated Statements of Cash Flows
For the Nine Months Ended September 30, 2004 and 2003,
For the Year Ended December 31, 2003, the Eight Months Ended December 31, 2002,
the Four Months Ended April 30, 2002 and the Year Ended December 31, 2001
(in thousands)
Successor Company Predecessor Company
----------------- -------------------
Nine Months Nine Months Year Eight Months Four Months (Restated)
Ended Ended Ended Ended Ended Year Ended
September September December 31, December 31, April 30, December 31,
30, 2004 30, 2003 2003 2002 2002 2001
-------- -------- ---- ---- ---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income $ (46,478) $ (47,749) $ (62,122) $ (59,558) $ 231,978 $(269,497)
Adjustments to reconcile net (loss)
income to net cash (used in) provided
by operating activities:
Amortization of Guarantee Warrants
and debt related costs -- -- -- -- 5,629 11,499
Depreciation and amortization 12,071 16,312 21,466 15,509 6,913 32,408
Provision for inventory
write-downs -- -- -- -- -- 7,891
Equity in loss of XM Radio and MSV 8,617 7,768 9,883 22,319 1,909 48,488
(Gain) loss on disposal of assets -- 479 3,037 2,116 591 (67)
Restructuring charges, fixed
asset disposals 2,798 -- -- -- -- --
Impairment loss on XM Radio
common stock held for sale -- -- -- -- -- 81,467
Gain on Rare Medium Note call
option -- -- -- -- -- (1,511)
Gain on sale of transportation
assets -- -- -- (385) (372) (23,201)
(Gain) loss on extinguishment of
debt -- -- -- -- (183,725) 1,243
Gain on debt restructuring (802) (405) (573) -- -- --
Issuance of warrants -- 927 927 -- -- --
Fresh-Start valuation and other
non-cash adjustments -- -- -- -- (94,715) --
Write-off of deferred financing
fees 8,052 -- -- -- -- --
Non cash amortization of
deferred financing costs 2,026 1,531 3,292 -- -- --
Non cash stock compensation 3,990 1,216 603 -- -- 1,150
Impairment of other intangibles
(unaudited) -- 5,535 5,535 -- -- --
Changes in assets and liabilities,
net of acquisitions and
dispositions:
Inventory 144 551 837 2,765 (2,167) (1,118)
Accounts receivable -- trade 1,728 4,403 5,535 782 1,370 462
Other current assets 6,867 2,482 (80) 4,263 15,833 10,764
Accounts payable and accrued
expenses (3,449) 805 (255) (217) 7,619 (10,327)
Accrued interest (3,080) 1,602 2,510 1,193 1,320 20,810
Deferred trade payables -- -- -- -- -- (2,212)
Deferred revenue and other deferred
items (7,062) 368 2,285 2,305 (6,729) (7,097)
--------- --------- --------- --------- --------- ---------
Net cash (used in) operating
activities (14,578) (4,175) (7,120) (8,908) (14,546) (98,848)
--------- --------- --------- --------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of assets -- -- 6,116 616 -- --
Proceeds from sale of property and
equipment 2 -- -- -- -- --
Proceeds from sale of satellite
assets to MSV -- -- -- -- -- 42,500
Proceeds from sale of
transportation assets -- -- -- 385 372 10,000
Proceeds from MSV note 2,000 -- -- -- -- --
Proceeds (purchase) of restricted
investments 1,544 (202) (991) (604) -- 11,307
Proceeds from the sale of XM Radio
common stock -- -- -- -- -- 38,289
Receipt of Senior Note Interest
from escrow -- -- -- -- -- 20,503
Investment in MSV -- -- -- (957) -- --
Additions to property and equipment (1,101) -- (232) (613) (494) (13,751)
--------- --------- --------- --------- --------- ---------
Net cash (used in) provided by
investing activities 2,445 (202) 4,893 (1,173) (122) 108,848
--------- --------- --------- --------- --------- ---------
Motient Corporation and Subsidiaries
Consolidated Statements of Cash Flows
For the Nine Months Ended September 30, 2004 and 2003,
For the Year Ended December 31, 2003, the Eight Months Ended December 31, 2002,
the Four Months Ended April 30, 2002 and the Year Ended December 31, 2001
(in thousands)
(Continued)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from Rare Medium note -- -- -- -- -- 50,000
Principal payments under capital
leases (2,419) (2,116) (2,986) (1,425) (1,273) (3,582)
Principal payments under vendor
financing (2,582) (657) (1,020) -- -- (5,176)
Repayment from Term Loan (6,785) -- -- -- -- (25,500)
Proceeds from Term Credit Facility 1,500 4,500 4,500 -- -- --
Repayment of notes (19,750) -- -- -- -- --
Proceeds from Bank Financing -- -- -- -- -- 6,000
Proceeds from issuance of stock 55,480 -- -- -- 17 354
Proceeds from issuance of employee
stock options 1,235 190 47 -- -- --
Stock issuance costs and other
charges (1,422) -- -- -- -- --
Debt issuance costs and other
charges -- (537) (536) (117) -- (1,229)
--------- --------- --------- --------- --------- ---------
Net cash provided by (used in)
financing activities 25,257 1,380 5 (1,542) (1,256) 20,867
--------- --------- --------- --------- --------- ---------
Net (decrease) increase in cash and
cash equivalents 13,124 (2,997) (2,222) (11,623) (15,924) 30,867
--------- --------- --------- --------- --------- ---------
CASH AND CASH EQUIVALENTS, beginning of
period 3,618 5,840 5,840 17,463 33,387 227,423
Less XM Radio cash included in 2000
consolidated cash total -- -- -- -- -- 224,903
--------- --------- --------- --------- --------- ---------
CASH AND CASH EQUIVALENTS, end of period $ 16,742 $ 2,843 $ 3,618 $ 5,840 $ 17,463 $ 33,387
========= ========= ========= ========= ========= =========
The accompanying notes are an integral part of these
consolidated financial statements.
F-5
MOTIENT CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
1. ORGANIZATION
Motient Corporation (with its subsidiaries, "Motient" or the "Company") provides
two-way mobile communications services principally to business-to-business
customers and enterprises. Motient serves a variety of markets including mobile
professionals, telemetry, transportation and field service. Motient provides its
eLinkSM brand two-way wireless email services to customers accessing email
through corporate servers, Internet Service Providers, Mail Service Provider
accounts and paging network service providers. Motient also offers BlackBerry TM
by Motient, a wireless email solution developed by Research In Motion Ltd.
("RIM") and licensed to operate on Motient's network. BlackBerry TM by Motient
is designed for large corporate accounts operating in a Microsoft Exchange or
Lotus Notes environment. The Company considers the two-way mobile communications
service described in this paragraph to be its core wireless business.
Motient presently has six wholly-owned subsidiaries and a 29.5% interest in
Mobile Satellite Ventures LP (MSV). For further details regarding Motient's
interest in MSV, please see "Recent Developments - Mobile Satellite Ventures
LP". Motient Communications Inc. owns the assets comprising Motient's core
wireless business, except for Motient's Federal Communications Commission, or
FCC, licenses, which are held in a separate subsidiary, Motient License Inc.
Motient License was formed on March 16, 2004, as part of Motient's amendment of
its credit facility, and is a special purpose wholly-owned subsidiary of Motient
Communications that holds all of the FCC licenses formerly held by Motient
Communications. A pledge of the stock of Motient License, along with other
assets of Motient Communications, secures borrowings under the term credit
facility. There are currently no borrowing outstanding under the term credit
facility. (Unaudited) For further details regarding the formation of Motient
License, please see Note 16 ("Subsequent Events"). Our other four subsidiaries
hold no material operating assets other than the stock of other subsidiaries and
Motient's interests in MSV. On a consolidated basis, we refer to Motient
Corporation and its six wholly-owned subsidiaries as "Motient."
Motient is devoting its efforts to expanding its core wireless business, while
also focusing on cost-cutting efforts. These efforts involve substantial risk.
Future operating results will be subject to significant business, economic,
regulatory, technical and competitive uncertainties and contingencies. Depending
on their extent and timing, these factors, individually or in the aggregate,
could have an adverse effect on the Company's financial condition and future
results of operations. In recent periods, certain factors have placed
significant pressures on Motient's financial condition and liquidity position.
These factors also have restrained Motient's ability to accelerate revenue
growth at the pace required to enable it to generate cash in excess of its
operating expenses. These factors include competition from other wireless data
suppliers and other wireless communications providers with greater resources,
cash constraints have limited Motient's ability to generate greater demand,
unanticipated technological and development delays and general economic factors.
Motient's results in recent periods, including the period covered by this
report, have also been hindered by the downturn in the economy and capital
markets. These factors contributed to the Company's decision in January 2002 to
file a voluntary petition for reorganization under Chapter 11 of the United
States Federal Bankruptcy Code. Motient's Plan of Reorganization was confirmed
on April 26, 2002 and became effective on May 1, 2002. Please see Note 2
("Significant Accounting Policies -- Motient's Chapter 11 Filing and Plan of
Reorganization and "Fresh-start" Accounting") below.
For a discussion of certain significant recent developments and trends in
Motient's business after the end of the period covered by this report, please
see Note 16 ("Subsequent Events"). As discussed in more detail in Note 2
("Significant Accounting Policies"), the 2002 comparative financial statements
provided herein have been restated and have been audited by the Company's former
independent registered public accounting firm, Ehrenkrantz Sterling & Co. LLC,
predecessor-in-interest to Friedman LLP.
F-6
The financial results for the year ended December 31, 2001 and the financial
results for the period January 1, 2002 to April 30, 2002 are herein referred to
as Predecessor Company results and the financial results for the period May 1,
2002 to December 31, 2002, the year ended December 31, 2003 and the nine months
ended September 30, 2004 (unaudited) included herein are referred to as
Successor Company results. Due to the effects of the "fresh-start" accounting,
results for the periods defined above are not comparable to periods beginning
after May 1, 2002. In the opinion of management, all adjustments (consisting of
normal recurring adjustments) necessary to present fairly the financial
position, results of operations and cash flows for all periods presented have
been made.
XM Radio
XM Satellite Radio Holdings Inc. ("XM Radio"), a public company that launched
its satellite radio service at the end of 2001, was incorporated on December 15,
1992 for the purpose of procuring a digital audio radio service license. As of
December 31, 2000, Motient had an equity interest of approximately 33.1% (or
21.3% on a fully diluted basis) in XM Satellite Radio Holdings Inc. ("XM
Radio"), and Motient controlled XM Radio through its board of director
membership and common stock voting rights. In January 2001, pursuant to FCC
approval authorizing Motient to relinquish control of XM Radio, the number of
directors appointed by the Company to XM Radio's Board of Directors was reduced
to less than 50% of XM Radio directors, and the Company converted a portion of
its super-voting Class B Common Stock of XM Radio to Class A Common Stock. As a
result, the Company ceased to control XM Radio.
Throughout 2001, Motient disposed of its equity interest in XM Radio, and as of
November 19, 2001, Motient did not hold any interest in XM Radio. For the period
from January 1, 2001 through November 19, 2001, the Company accounted for its
investment in XM Radio pursuant to the equity method of accounting.
Mobile Satellite Ventures LP
On June 29, 2000, the Company formed a joint venture subsidiary, Mobile
Satellite Ventures LP (formerly known as Mobile Satellite Ventures LLC) ("MSV"),
in which it owned, until November 26, 2001, 80% of the membership interests, in
order to conduct research and development activities. In June 2000, the other
20% interest in MSV was purchased by three investors unrelated to Motient. The
minority investors had certain participating rights which provided for their
participation in certain business decisions that were made in the normal course
of business; therefore, in accordance with EITF No 96-16, "Investor's Accounting
for an Investee When the Investor Has a Majority of the Voting Interest but the
Minority Shareholder or Shareholders Have Certain Approval or Veto Rights", the
Company's investment in MSV has been recorded for all periods presented in the
consolidated financial statements pursuant to the equity method of accounting.
On November 26, 2002, Motient's interest in MSV was reduced to approximately
48%. As of December 31, 2003 and March 31, 2004, Motient held a 29.5% interest
in MSV on a fully-diluted basis. Please see Note 13 ("Business Acquisitions and
Dispositions - MSV"). For additional information regarding MSV, please see the
financial statements of MSV beginning on page M-0. (Unaudited)
Network Offerings: T-Mobile/Verizon Wireless
On March 1, 2003, Motient entered into a national premier dealer agreement with
T-Mobile USA, and, on May 21, 2003, Motient entered into an authorized agency
agreement with Verizon Wireless. These agreements allowed Motient to sell each
of T-Mobile's third generation global system for GSM/GPRS network subscriptions
and Verizon's third generation CDMA/1XRTT network subscriptions nationwide.
Motient was paid for each subscriber put onto either network. Each agreement
allowed Motient to actively sell and promote wireless email and wireless
Internet applications to enterprise accounts on networks with greater capacity
and speed, and that are voice capable. Please see Note 16 ("Subsequent Events")
for information regarding the termination of these agreements. (Unaudited)
F-7
Effects of the Chapter 11 Filing and Emergence
As a result of the Company's Chapter 11 bankruptcy filing, the Company saw a
slower adoption rate for its services during the first quarter of 2002. In a
large customer deployment, the upfront cost of the hardware can be significant.
Because the hardware generally is usable only on Motient's network, certain
customers delayed adoption while Motient was in Chapter 11.
Additionally, certain of the Company's trade creditors required either deposits
for future services or shortened payment terms; however, none of these deposits
or changes in payment terms were material, and none of the Company's key
suppliers has ceased to do business with the Company as a result of its
reorganization.
Since emerging from bankruptcy protection in May 2002, the Company has
undertaken a number of actions to reduce its operating expenses and cash burn
rate. The Company's liquidity constraints have been exacerbated by weak revenue
growth since emerging from bankruptcy protection, due to a number of factors
including the weak economy generally and the weak telecommunications and
wireless sector specifically, the financial difficulty of several of its key
resellers, on whom it relies for a majority of its new revenue growth, and its
continued limited liquidity which has hindered efforts at demand generation.
Management and Board Changes
On January 17, 2003, David Engvall resigned as senior vice president, general
counsel and secretary.
On March 18, 2003, Brandon Stranzl resigned from the Board of Directors.
On April 17, 2003, the board of directors elected Christopher W. Downie to the
position of Vice President, Chief Financial Officer and Treasurer. Mr. Downie
had previously been a consultant with CTA, working on Motient matters, since May
2002.
On June 20, 2003, Jared Abbruzzese resigned his position as Chairman of the
Board. Steven Singer was elected Chairman of the Board and a new director, Peter
Aquino, was elected to the Board. Mr. Aquino was a senior managing director for
CTA.
For additional information on management and board changes for periods after
this report, please see Note 16, "Subsequent Events".
Change in Accountants
On May 31, 2002, the Company dismissed Arthur Anderson as its independent
auditors. On July 10, 2002, the Company engaged PricewaterhouseCoopers as its
independent auditors.
On April 17, 2003, the Company dismissed PricewaterhouseCoopers as its
independent auditors, effective upon the completion of services related to the
audit of the Company's consolidated financial statements for the period May 1,
2002 to December 31, 2002. On March 2, 2004, Motient dismissed
PricewaterhouseCoopers as its independent auditors effective immediately. The
audit committee of the Company's board approved the dismissal.
On April 25, 2003, the Company's Board approved the engagement of Ehrenkrantz
Sterling & Co. LLC as its independent registered public accounting firm to (i)
re-audit the Company's consolidated financial statements for the fiscal year
ended December 31, 2000 and the fiscal year ended December 31, 2001, and (ii)
audit the Company's consolidated financial statements for the interim period
from January 1, 2002 to April 30, 2002, and the fiscal year that ended on
December 31, 2003.
For additional information on changes in accountants for periods after this
report, please see Note 16, ("Subsequent Events").
F-8
Cost Reduction Actions
Predecessor Company Reductions in Workforce. On September 26, 2001, the Company
announced a plan to restructure its business. As part of this restructuring, the
Company laid off 25% of its workforce, or 50, 22 and 13 employees in the
Company's operations, sales and marketing and general and administrative
functions, respectively, and cancelled certain of its product initiatives. The
Company recorded a restructuring charge in 2001 of $4.74 million. This charge
represents $1.6 million of costs directly associated with employee severance
packages, $3.0 million of costs associated with product initiative cancellations
and $0.1 million of costs associated with capital assets that were no longer in
service. Of the $4.7 million charge, approximately $1.7 million represented cash
outlays made over the last quarter of 2001 and the first quarter of 2002. The
balance represents the write down of assets previously acquired. As of December
31, 2001, the Company had a remaining operational restructuring liability of
approximately $0.6 million, which was fully utilized in 2002.
Successor Company Reductions in Workforce. The Company undertook reductions in
its workforce in July 2002, September 2002, March 2003 and February 2004. These
actions eliminated approximately 29% (95 employees), 13% (26 employees), 10% (19
employees) and 32.5% (54 employees), respectively, of its then-remaining
workforce. In the aggregate, the Company has reduced its work force by
approximately 68% since July 2002 and reduced employee and related expenditures
by approximately $1.5 million per month.
Network Rationalization. The Company is in the process of analyzing its wireless
data network in a coordinated effort to reduce network operating costs. One
aspect of this rationalization encompasses reducing unneeded capacity across the
network by deconstructing under-utilized and unprofitable base stations. In
certain instances, the geographic area that the network serves may be reduced by
this process. The full extent of the changes to network coverage have yet to be
determined.
Frame Relay and Tandem Equipment Retirement. In conjunction with our base
station rationalization initiatives discussed above, Motient is in the process
of converting its telecommunications infrastructure technology to frame relay
technology. As of September 30, 2004, this project was approximately 80%
complete. In the fourth quarter of 2004, we retired certain network equipment
associated with this conversion. We expect to realize significant
telecommunications cost reductions in 2005 as a result of this conversion.
(Unaudited)
Closure of Reston, VA Facility. On July 15, 2003, the Company substantially
completed the transfer of its headquarters from Reston, VA to Lincolnshire, IL,
where it already had a facility. This action reduced the Company's monthly
operating expenses by a net amount of approximately $65,000 per month, or
$780,000 per year.
Refinancing of Vendor Obligations. During the fourth quarter of 2002 and the
first quarter of 2003, the Company renegotiated several of its key vendor and
customer arrangements in order to reduce recurring expenses and improve its
liquidity position. In some cases, the Company was able to negotiate a flat rate
reduction for continuing services provided to it by its vendors or a deferral of
payable amounts, and in other cases the Company renegotiated the scope of
services provided in exchange for reduced rates or received pre-payments for
future services. The Company continues to aggressively pursue further vendor
cost reductions where opportunities arise.
F-9
In the case of financing arrangements, the Company negotiated, among other
things, a deferral of approximately $2.6 million of accounts payable that was
owed for services provided for which the Company issued a promissory note for
such amount, with the note to be paid off ratably over a two-year period
beginning in January 2004. The Company also restructured certain of its vendor
and capital lease obligations to significantly reduce the monthly amortization
requirements of these facilities on an on-going basis. As part of such
negotiations, the Company agreed to fund a letter of credit in twelve monthly
installments during 2003, in the aggregate amount of $1.125 million, to secure
certain payment obligations. This letter of credit will be released to Motient
in fifteen monthly installments beginning in July 2004, assuming no defaults
have occurred or are occurring. In March, 2004, Motient further restructured its
vendor financing facility and an outstanding promissory note to the same vendor
by extending the repayment schedule, thereby reducing the combined monthly
amortization requirements under these facilities. In June 2004, the Company
negotiated settlements of its obligations, promissory notes and capital lease,
and terminated these obligations and leases. On July 15, 2004, the Company paid
all principal and interest due and owing on its notes payable to Rare Medium and
CSFB, in the aggregate amount of $23.5 million. (Unaudited) Please see
"Management's Discussion and Analysis of Financial Condition and Results of
Operations"--Liquidity and Capital Resources - Summary of Liquidity and
Financing" for further details on these facilities. For more information on
these events, please see Note 16, ("Subsequent Events").
UPS Revenue
On December 1, 2002, Motient entered into a letter agreement with UPS under
which UPS agreed to make a series of eight prepayments to Motient totaling $5
million for future services Motient is obligated to provide after January 1,
2004. In addition to any other rights it has under its network services
agreement with Motient, the letter agreement does not contain any minimum
purchase requirement and provides that UPS may terminate the network services
agreement, in whole or in part, by providing 30 days' notice to Motient at which
point any remaining prepayment would be required to be returned. As of July 31,
2003, all eight prepayments had been made. The $5 million prepayment is credited
against airtime services provided to UPS beginning January 1, 2004, until the
prepayment is fully credited.
UPS, the Company's largest customer as of December 31, 2002, has substantially
completed its migration to next generation network technology as of July 2003,
and its monthly airtime usage of the Company's network has declined
significantly in the last six months of 2003. UPS was our second largest
customer for the twelve months ended December 31, 2003 and our eighth largest
customer for the three months ended December 31, 2003. While the Company expects
that UPS will remain a customer for the foreseeable future, the bulk of UPS'
units have migrated to another network. As of December 31, 2003, UPS had
approximately 7,120 active units on Motient's network.
Until June 2003, UPS had voluntarily maintained its historical level of payments
to mitigate the near-term revenue and cash flow impact of its recent and
anticipated continued reduced network usage. However, beginning in July 2003,
the revenues and cash flow from UPS declined significantly. Also, due to the
arrangement entered into in 2002 under which UPS prepaid for network airtime to
be used by it in 2004, the Company does not expect that UPS will be required to
make any cash payments to the Company in 2004 for service to be provided in
2004. Pursuant to such agreement, and, as of May 31, 2004, UPS has not been
required to make any cash payments to the Company in 2004, and the value of the
Company's remaining airtime service obligations to UPS in respect of the
prepayment was approximately $4.3 million. The Company is planning a number of
initiatives to offset the loss of revenue and cash flow from UPS, including the
following:
o further reductions in the Company's employee and network infrastructure
costs;
o actions to grow new revenue from the Company's carrier relationships
with Verizon Wireless and T-Mobile, under which the Company will be
selling voice and data services on such carrier's next generation
wireless networks as a master agent;
o actions to grow revenue from the Company's various telemetry
applications and initiatives; and
o enhancements to the Company's liquidity which are expected to involve
the sale of unneeded frequency assets, such as the sales of certain
Specialized Mobile Radio ("SMR") licenses to Nextel.
F-10
Despite these initiatives, Motient continues to be cash flow negative, and there
can be no assurances that we will ever be cash flow positive.
Liquidity and Financing Requirements
The Company's future financial performance will depend on its ability to
continue to reduce and manage operating expenses, as well as its ability to grow
revenue. The Company's future financial performance could be negatively affected
by unforeseen factors and unplanned expenses.
The Company expects to continue to require significant additional funds before
it begins to generate cash in excess of its operating expenses, and does not
expect to generate cash from operations in excess of its operating costs until
the fourth quarter of 2005, at the earliest. Also, even if the Company begins to
generate cash in excess of its operating expenses, it expects to continue to
require significant additional funds to meet remaining interest obligations,
capital expenditures and other non-operating cash expenses.
In March 2004, the Company amended its term credit facility. As of June 25,
2004, the Company had borrowed $6.8 million under this term credit facility, all
of which has been repaid and may not be reborrowed. On December 31, 2004, the
Company's amended term credit facility expired. (Unaudited) All amounts borrowed
under the facility have been repaid. (Unaudited) The Company continues to pursue
all potential funding alternatives. Among the alternatives for raising
additional funds are the issuances of debt or equity securities, other
borrowings under secured or unsecured loan arrangements and sales of assets.
There can be no assurance that additional funds will be available to the Company
on acceptable terms or in a timely manner. In April 2004, the Company sold
4,215,910 shares of its common stock for aggregate consideration of $23.2
million in a private placement. In July 2004, the Company sold an additional
3,500,000 shares of its common stock for aggregate consideration of $30.0
million. In November 2004, the Company sold an additional 15,353,609 shares of
its common stock for aggregate consideration of $131.6 million. (Unaudited) For
additional information on these events, please see Note 16 ("Subsequent
Events").
The Company's projected cash requirements are based on certain assumptions about
its business model and projected growth rate, including, specifically, assumed
rates of growth in subscriber activations service revenue. While the Company
believes these assumptions are reasonable, these growth rates continue to be
difficult to predict and there is no assurance that the actual results that are
experienced will meet the assumptions included in the Company's business model
and projections. If the future results of operations are significantly less
favorable than currently anticipated, the Company's cash requirements will be
more than projected, and it may require additional financing in amounts that
will be material. The type, timing and terms of financing that the Company
obtains will be dependent upon its cash needs, the availability of financing
sources and the prevailing conditions in the financial markets. The Company
cannot guarantee that additional financing sources will be available at any
given time or available on favorable terms.
2. SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
On a consolidated basis, we refer to Motient Corporation and its six
wholly-owned subsidiaries as "Motient." All intercompany transactions have been
eliminated in consolidation.
For the period from January 1, 2001, through November 19, 2001, the Company's
investment in XM Radio was recorded pursuant to the equity method of accounting.
For the year ended December 31, 2001, XM Radio recorded $0.5 million of revenue,
incurred $282.1 million of operating expenses and had a net loss attributable to
common stockholders of $307.5 million.
F-11
As noted above (please see Note 1, "Organization"), the results of MSV have been
accounted for pursuant to the equity method of accounting.
Motient's Chapter 11 Filing and Plan of Reorganization and "Fresh-Start"
Accounting
On October 1, 2001, the Company announced that it would not make a $20.5 million
semi-annual interest payment due on the Senior Notes on such date. On November
26, 2001, the Senior Notes trustee declared all amounts owed under the senior
notes immediately due and payable. Following these events, the Company
determined that the continued viability of its business required restructuring
its highly leveraged capital structure. In October 2001, the Company retained
Credit Suisse First Boston ("CSFB") as its financial advisor to assist in the
restructuring the Company's debt. Shortly thereafter, the Company and CSFB began
meeting with the principal creditor constituencies.
On January 10, 2002, the Company filed for protection under Chapter 11 of the
Bankruptcy Code. The Company's Amended Joint Plan of Reorganization was filed
with the United States Bankruptcy Court for the Eastern District of Virginia on
February 28, 2002. The cases were jointly administered under the case name "In
Re Motient Corporation, et. al.," Case No. 02-80125. The Company's Plan of
Reorganization was confirmed on April 26, 2002 and the Company's emergence from
bankruptcy became effective on May 1, 2002 (the "Effective Date"). The Company
adopted "fresh-start" accounting as of May 1, 2002 in accordance with procedures
specified by AICPA Statement of Position ("SOP") No. 90-7, "Financial Reporting
by Entities in Reorganization under the Bankruptcy Code." The Company determined
that its selection of May 1, 2002 versus April 26, 2002 for the "fresh-start"
date was more convenient for financial reporting purposes and that the results
for the period from April 26, 2002 to May 1, 2002 were immaterial to the
consolidated financial statements. All results for periods prior to the
Effective Date are referred to as those of the "Predecessor Company" and all
results for periods including and subsequent to the Effective Date are referred
to as those of the "Successor Company".
In accordance with SOP No. 90-7, the reorganized value of the Company was
allocated to the Company's assets based on procedures specified by SFAS No. 141,
"Business Combinations". Each liability existing at the plan confirmation date,
other than deferred taxes, was stated at the present value of the amounts to be
paid at appropriate market rates. It was determined that the Company's
reorganization value computed immediately before the Effective Date was $234
million. Subsequent to the determination of this value, the Company determined
that the reorganization value ascribed to MSV did not reflect certain preference
rights on liquidation available to certain equity holders in MSV. Therefore, the
reorganization value of MSV was reduced by $13 million and the Company's
reorganization value was reduced to $221 million. The Company adopted
"fresh-start" accounting because holders of existing voting shares immediately
before filing and confirmation of the plan received less than 50% of the voting
shares of the emerging entity and its reorganization value is less than its
postpetition liabilities and allowed claims, as shown below:
Postpetition current liabilities $49.9 million
Liabilities deferred pursuant to Chapter 11 Proceedings 401.1 million
--------------
Total postpetition liabilities and allowed claims 451.0 million
Reorganization value (221.0 million)
--------------
Excess of liabilities over reorganization value $(230.0 million)
===============
F-12
The reorganization value of Motient was determined by considering of several
factors and by reliance on various valuation methods. For the valuation of the
core wireless business, consideration was given to discounted cash flows and
price/earnings and other applicable ratios, a liquidation value analysis,
comparable company trading multiples and comparable acquisition multiple
analysis. The factors considered by Motient included the following:
o Forecasted operating cash flow results which gave effect to the
estimated impact of limitations on the use of available net operating
loss carryovers and other tax attributes resulting from the Plan of
Reorganization and other events,
o The discounted residual value at the end of the forecast period based
on the capitalized cash flows for the last year of that period,
o Market share and position,
o Competition and general economic considerations,
o Projected sales growth, and
o Working capital requirements.
For the valuation of the Company's investment in MSV, consideration was given to
the valuation of MSV's equity reflected by recent arms-length investments in
MSV, subsequently adjusted as discussed above.
After consideration of the Company's debt capacity, and after extensive
negotiations among parties in interest, it was agreed that Motient's
reorganization capital structure should be as follows:
Notes payable to Rare Medium and CSFB $19.8 million
Shareholders' Equity 201.2 million
-------------
$221.0 million
==============
The Company allocated the $221.0 million reorganization value among its net
assets based upon its current estimates of the fair value of its assets. In the
case of current assets, with the exception of inventory, the Company concluded
that their carrying values approximated fair values. The values of the Company's
frequencies and its investment in and note receivable from MSV were based on
independent analyses presented to the bankruptcy court and subsequently adjusted
as discussed above. The value of the Company's fixed assets was based upon a
valuation of the Company's software and estimates of replacement cost for
network and other equipment, for which the Company believes that its recent
purchases represent a valid data point. The value of the Company's other
intangible assets was based on third party valuations as of May 1, 2002.
In February 2003, the Company engaged a financial advisory firm to prepare a
valuation of software and customer intangibles. Software and customer
intangibles were not taken into consideration when the original fresh-start
balance sheet was determined at May 1, 2002. The changes for the software and
customer contracts are reflected below and in the financial statements and notes
herein.
The effect of the plan of reorganization and application of "fresh-start"
accounting on the Predecessor Company's balance sheet as of April 30, 2002, is
as follows:
F-13
Debt
Discharge
Preconfirmation and Reorganized
Predecessor Exchange Fresh Start Successor
(in thousands) Company(j) of Stock Adjustments Company
---------- -------- ----------- -------
Assets:
Current assets
Cash $17,463 $17,463
Receivables 10,121 10,121
Inventory 8,194 $(4,352) 3,842
Deferred equipment costs 11,766 (11,766) (e) --
Other current assets 11,443 11,443
------ ------ ------
Total current assets 58,987 (16,118) 42,869
Property and equipment 58,031 (1,553) (i) 56,478
FCC Licenses and other intangibles 45,610 56,866 (f)(i) 102,476
Goodwill 4,981 (4,981) (i) --
Investment in and notes receivable from MSV 27,262 26,593 (f) 53,855
Other long-term assets 2,864 (1,141) (e) 1,723
----- ------- -----
Total Assets $197,735 $59,666 $257,401
======== ======= ========
Liabilities & Stockholders' (Deficit) Equity
Liabilities Not Subject to Compromise:
Current liabilities:
Current maturities of capital leases $4,096 $4,096
Accounts payable - trade 1,625 1,625
Vendor financing 655 655
Accrued expenses 15,727 15,727
Deferred revenue 23,284 (18,913) (g)(e) 4,371
------ ------- -----
45,387 (18,913) 26,474
Long term liabilities:
Vendor financing 2,661 2,661
Capital lease obligation 3,579 3,579
Deferred revenue 19,931 (16,136) (e)(g) 3,795
Liabilities Subject to Compromise:
Prepetition liabilities 8,785 (8,785) (a) --
Senior note, including accrued interest
thereon 367,673 (367,673) (b) --
Rare Medium Note, including accrued
interest thereon 27,030 (27,030) (c) --
-------- ------- ------
403,488 (403,488) --
Rare Medium and CSFB Notes -- 19,750 19,750
-------- -------- ------- ------
Total liabilities 475,046 (383,738) (35,049) 56,259
Stockholders' (deficit) equity:
Common stock - old 584 (584) (h) --
Common stock - new 251 (d) 251
Additional paid-in capital 988,531 (988,531) 197,814
197,814 (d)(h)
Common stock purchase
warrants - old 93,730 (93,730) (h)
Common stock purchase
warrants - new 3,077 (d) 3,077
Deferred stock compensation (336) 336 (h) --
Retained (deficit) earnings (1,359,820) 1,359,820 94,715 --
----------- (183,725) ------ ------
(94,715) (d)(h)
183,725 (h)
---------
Stockholders' Equity (Deficit) (277,311) 383,738 94,715 201,142
--------- ------- ------ -------
Total Liabilities & Stockholders' Equity
(Deficit) $197,735 $ -- $59,666 $257,401
======== ===== ======= ========
F-14
(a) Represents the cancellation of the following liabilities:
i. Amounts due to Boeing $1,533
ii. Amounts due to CSFB 2,000
iii. Amounts due to JP Morgan Chase 1,550
iv. Amounts due to Evercore Partners LP ("Evercore") 1,948
v. Amounts due to the FCC 1,003
vi. Other amounts 751
------
$8,785
Liabilities were cancelled in exchange for the following:
a. 97,256 shares of new Motient common stock,
b. a note to CSFB in the amount of $750 and
c. a warrant to Evercore Partners to purchase 343,450 shares of new
Motient common stock, and
d. a note to Rare Medium in the amount of $19,000.
(b) Represents the cancellation of the senior notes in the amount of
$367,673, including interest threron, in exchange for 25,000,000
shares of new Motient common stock. Certain of the Company's other
creditors received an aggregate of 97,256 shares of the Company's
common stock in settlement for amounts owed to them.
(c) Represents the cancellation of $27,030 of notes due to Rare Medium,
including accrued interest thereon, in exchange for a new note in the
amount of $19,000. The Company also issued CSFB a note in the
principal amount of $750 for certain investment banking services.
(d) Represents the issuance of the following:
i. 25,097,256 shares of new Motient common stock.
ii. warrants to the holders of pre-reorganization common stock to
purchase an aggregate of approximately 1,496,512 shares of common
stock, with such warrants being valued at approximately $1,100.
iii. a warrant to purchase up to 343,450 share of common stock to
Evercore, valued at approximately $1,900. The retained earnings
adjustment includes the gain on the discharge of debt of
$183,725.
(e) Represents the write off of deferred equipment costs of $12,907 and
deferred equipment revenue of $12,907 since there is no obligation to
provide future service post-"fresh start".
(f) To reflect the step-up in assets in accordance with the reorganization
value and valuations performed.
(g) Represents the write off of the deferred gain associated with the
Company's sale of its satellite assets to MSV in November 2001 and the
write-off of the unamortized balance of the $15,000 perpetual license
sold to Aether in November 2000, both of which total approximately
$22,142, since there is no obligation to provide future service
post-"fresh start".
(h) To record the cancellation of the Company's pre-reorganization equity
and to reverse the gain on extinguishment of debt of $183,725 and the
gain on fair market adjustment of $94,715.
(i) To record the valuation and resulting increase of customer intangibles
of approximately $11,501 and frequencies of $45,365. The reduction of
$4,981 is due to a write-off of goodwill. The reduction of property
and equipment relates to a subsequent reduction in the carrying value
of certain software from $4,942 to $3,389, reduction to inventory from
$8,194 to $3,842 to its net realizable value.
(j) The balances do not match the balances in the Company's Plan of
Reorganization due to subsequent re-audit adjustments.
Under the Plan of Reorganization, all then-outstanding shares of the Company's
pre-reorganization common stock and all unexercised options and warrants to
purchase the Company's pre-reorganization common stock were cancelled. The
holders of $335 million in senior notes exchanged their notes for 25,000,000
shares of the Company's new common stock. Certain of the Company's other
creditors received an aggregate of 97,256 shares of the Company's new common
F-15
stock in settlement for amounts owed to them. These shares were issued following
completion of the bankruptcy claims process; however, the value of these shares
has been recorded in the financial statements as if they had been issued on the
effective date of the reorganization. Holders of the Company's
pre-reorganization common stock received warrants to purchase an aggregate of
approximately 1,496,512 shares of common stock. The warrants expired May 1,
2004, or two years after the Effective Date. The warrants were exerciseable to
purchase shares of Motient common stock at a price of $.01 per share only if and
when the average closing price of Motient's common stock over a period of ninety
consecutive trading days was equal to or greater than $15.44 per share.
Motient's common stock did not trade at this level from May 1, 2002 to May 1,
2004. All warrants issued to the holders of the Company's pre-reorganization
common stock, including those shares held by the Company's 401(k) savings plan,
have been recorded in the financial statements as if they had been issued on the
effective date of the reorganization. Also, in July 2002, Motient issued to
Evercore, financial advisor to the creditors' committee in Motient's
reorganization, a warrant to purchase up to 343,450 shares of common stock, at
an exercise price of $3.95 per share. The warrant was dated May 1, 2002, and has
a term of five years. If the average closing price of Motient's common stock for
thirty consecutive trading days is equal to or greater than $20.00, Motient may
require Evercore to exercise the warrant, provided the common stock is then
trading in an established public market. The value of this warrant has been
recorded in the financial statements as if it had been issued on May 1, 2002.
Cash (used) provided by reorganization items were as follows:
Predecessor
Successor Company Company
----------------- -------
Eight Months Four Months
Year Ended Ended Ended
December 31, December 31, April 30,
2003 2002 2002
---- ---- ----
(in thousands)
Professional Fees $-- $(3,434) $(5,892)
Interest Income -- -- 145
-- -- ---
$-- $(3,434) $(5,747)
=== ======== ========
Further details regarding the plan are contained in Motient's Disclosure
Statement with respect to the plan, which was filed as Exhibit 99.2 to the
Company's current report on Form 8-K dated March 4, 2002.
Accounting Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles ("GAAP") requires management to make estimates and
assumptions that affect the reported amount of assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates. The Company's most significant estimates relate to the valuation of
its net assets and assets in "fresh-start" accounting, the valuation on its
investment in MSV, the valuation of inventory, the allowance for doubtful
accounts receivable, the valuation of deferred tax assets and the realizability
of long-lived assets.
Cash Equivalents
The Company considers highly liquid investments with original or remaining
maturities at the time of purchase of three months or less to be cash
equivalents.
Short-term Investments
The Company considers highly liquid investments with original or remaining
maturities at the time of purchase of between three months and a year to be
short-term investments.
F-16
Restricted Investments
At December 31, 2003, the Company had $1.6 million of restricted investments. At
December 31, 2002, the Company had $0.6 million of restricted investments. The
securities included in restricted investments were classified as
held-to-maturity under the provision of SFAS No. 115, "Accounting for Certain
Investments in Debt and Equity Securities". The Company classified restricted
investment amounts which would mature within one year as current assets in the
accompanying balance sheet. The Company accounted for these investments at their
amortized cost.
Inventory
Inventory, which consists primarily of communication devices and accessories,
such as power supplies and documentation kits, is stated at the lower of cost or
market. Cost is determined using the weighted average cost method. The Company
periodically assesses the market value of its inventory, based on sales trends
and forecasts and technological changes and records a charge to current period
income when such factors indicate that a reduction to net realizable value is
appropriate. The Company considers both inventory on hand and inventory which it
has committed to purchase, if any. The Company recorded inventory write-downs to
cost of equipment sold to reduce inventory amounts to its net realizable value,
in the amount of $0.2 million in 2003 and $4.4 million in 2002.
Other Current Assets
Other current assets consist of the following:
Successor Company
-----------------
December 31,
2003 2002
---- ----
(in thousands)
Prepaid site rent $3,416 $4,175
Prepaid maintenance 271 289
Prepaid expenses - other 806 1,802
Deposits 10 55
Non-trade receivables and other 588 475
--- ---
$5,091 $6,796
====== ======
Fair Value of Financial Instruments
SFAS No. 107, "Disclosures about Fair Value of Financial Instruments," requires
disclosures of the fair value of certain financial instruments. The carrying
amount for cash and cash equivalents, short-term investments, accounts
receivable, non-trade receivables included in other assets, accounts payable and
accrued expenses, and deferred revenues approximates their fair values. For debt
issues that are not quoted on an exchange, interest rates currently available to
the Company for issuance of debt with similar terms and remaining maturities are
used to estimate fair value. The fair value of the Company's equity investment
in MSV was determined by an independent third-party valuation performed in
November 2003 as part of Company's preparation of its December 31, 2002
financial statements. This same valuation methodology was utilized to value the
Company's equity interest in MSV as of December 31, 2003. The fair value of the
notes receivable from MSV approximates its carrying value as of December 31,
2003.
F-17
As of December 31, 2003 As of December 31, 2002
Successor Company Successor Company
----------------- -----------------
Carrying Carrying
Amount Fair Value Amount Fair Value
------ ---------- ------ ----------
(in thousands)
Assets:
Restricted investments $1,595 $1,595 $604 $604
Investment in and notes receivable from MSV 22,610 31,294 32,493 32,493
Liabilities:
Rare Medium Note $22,016 $22,016 $20,148 $20,148
CSFB Note 869 869 795 795
Term Credit Facility 4,914 4,914 -- --
Vendor financing commitment 4,814 4,814 6,096 6,096
Capital leases $3,096 $3,096 $6,250 $6,250
Concentrations of Credit Risk and Major Customers
Financial instruments which potentially subject the Company to concentrations of
credit risk consist principally of cash, short term investments, and accounts
receivable. The Company periodically invests its cash balances in temporary or
overnight investments. The Company's short term investments included debt
securities such as commercial paper, time deposits, certificates of deposit,
bankers acceptances, and marketable direct obligations of the United States
Treasury.
To date, the majority of the Company's business has been transacted with
telecommunications, field services, natural resources, professional service and
transportation companies located throughout the United States. The Company
grants credit based on an evaluation of the customer's financial condition,
generally without requiring collateral or deposits. Exposure to losses on trade
accounts receivable, for both service and for equipment sales, is principally
dependent on each customer's financial condition.
Motient's rights to use and sell the BlackBerryTM software and RIM's handheld
devices may be limited or made prohibitively expensive as a result of a patent
infringement lawsuit brought against RIM by NTP Inc. As a purchaser of those
products, Motient could be adversely affected by the outcome of that litigation.
Please see Note 14, "Legal and Regulatory Matters"
For the year ended December 31, 2003, five customers accounted for approximately
47% of the Company's service revenue, with two of those customers, SkyTel and
UPS, each accounting for more than 11% of the Company's service revenue. As of
December 31, 2003, no single customer accounted for more than 6% of the
Company's net accounts receivable.
For the four months ended April 30, 2002 and the eight months ended December 31,
2002, SkyTel and UPS accounted for approximately 11% and 16%, respectively, and
15% and 18%, respectively of the Company's service revenue. As of December 31,
2002, SkyTel represented approximately 14% of the Company's net receivables, all
of which was current.
For the year ended December 31, 2001, revenue from the MSV research and
development efforts accounted for approximately 9% of the Company's service
revenue. Excluding revenue earned from MSV, six other customers accounted for
approximately 41% of the Company's service revenue, with one customer
individually accounting for more than 10% of such revenue.
The revenue attributable to such customers varies with the level of network
airtime usage consumed by such customers, and none of the service contracts with
such customers requires that the customers use any specified quantity of network
airtime, nor do such contracts specify any minimum level of revenue. There can
be no assurance that the revenue generated from these customers will continue in
future periods.
F-18
Software Development Costs
During 1998, the Company adopted SOP No. 98-1, "Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use." As of December 31,
2003 and 2002, net capitalized internal use software costs were $1.3 million and
$4.0 million, respectively, are included in property and equipment in the
accompanying consolidated balance sheets and are amortized over three years.
Deferred Charges and Other Assets
Deferred charges and other assets consist of the following:
Successor Company
December 31,
------------
2003 2002
---- ----
(in thousands)
Deferred equipment costs $709 $1,640
Term credit facility financing fees 7,367 --
Other long term assets -- 117
--- ---
$8,076 $1,757
====== ======
Financing costs are amortized over the term of the related facility using the
straight-line method, which approximates the effective interest method.
Deferred Revenue and other Current Liabilities
Deferred Revenue and other current liabilities consist of the following:
Successor Company
-----------------
December 31,
2003 2002
---- ----
(in thousands)
Deferred Revenue - UPS $4,678 $--
Deferred Revenue - Aether 3,447 1,947
Deferred Revenue - RIM 1,397 3,163
Deferred Registration fees 175 90
Deposits - other 693 10
Deferred Revenue - other 615 98
------- ------
$11,005 $5,308
======= ======
Other Long-Term Liabilities
Other long-term liabilities consist of the following:
Successor Company
December 31,
------------
2003 2002
---- ----
(in thousands)
Deferred revenue, Aether, RIM, MSV and other $622 $3,115
Deferred equipment revenue 725 1,709
--- -----
$1,347 $4,824
====== ======
F-19
Revenue Recognition
The Company generates revenue through equipment sales, airtime service
agreements and consulting services. In 2000, the Company adopted SAB No. 101,
which provides guidance on the recognition, presentation and disclosure of
revenue in financial statements. In certain circumstances, SAB No. 101 requires
the Company to defer the recognition of revenue and costs related to equipment
sold as part of a service agreement.
In December 2003, the Staff of the SEC issued SAB No. 104, "Revenue
Recognition", which supersedes SAB No. 101, "Revenue Recognition in Financial
Statements." SAB No. 104's primary purpose is to rescind accounting guidance
contained in SAB No. 101 related to multiple-element revenue arrangements and to
rescind the SEC's "Revenue Recognition in Financial Statements Frequently Asked
Questions and Answers" ("FAQ") issued with SAB No. 101. Selected portions of the
FAQ have been incorporated into SAB No. 104. The adoption of SAB No. 104 will
not have a material impact on the Company's revenue recognition policies.
Revenue is recognized as follows:
Service revenue: Revenues from the Company's wireless services are recognized
when the services are performed, evidence of an arrangement exists, the fee is
fixed and determinable and collectibility is probable. Service discounts and
incentives are recorded as a reduction of revenue when granted, or ratably over
a contract period. The Company defers any revenue and costs associated with
activation of a subscriber on the Company's network over an estimated customer
life of two years.
The Company packages airtime usage on its network that involves a wide variety
of volume packaging, anything from a 35 kilobytes per month plan up to unlimited
kilobyte usage per month, with various gradations in between. Discounts may be
applied when comparing one customer to another, and such service discounts are
recorded as a reduction of revenue when granted. The Company does not offer
incentives generally as part of its service offerings, however, if offered they
would be recorded as a reduction of revenue ratably over a contract period.
(Unaudited).
Service discounts and incentives are recorded as a reduction of revenue when
granted, or ratably over a contract period. The Company defers any revenue and
costs associated with activation of a subscriber on the Company's network over
an estimated customer life of two years. (Unaudited)
To date, the majority of the Company's business has been transacted with
telecommunications, field services, natural resources, professional service and
transportation companies located throughout the United States. The Company
grants credit based on an evaluation of the customer's financial condition,
generally without requiring collateral or deposits. The Company establishes a
valuation allowance for doubtful accounts receivable for bad debt and other
credit adjustments. Valuation allowances for revenue credits are established
through a charge to revenue, while valuation allowances for bad debts are
established through a charge to general and administrative expenses. The Company
assesses the adequacy of these reserves quarterly, evaluating factors such as
the length of time individual receivables are past due, historical collection
experience, the economic environment and changes in credit worthiness of the
Company's customers. If circumstances related to specific customers change or
economic conditions worsen such that the Company's past collection experience
and assessments of the economic environment are no longer relevant, the
Company's estimate of the recoverability of its trade receivables could be
further reduced.
Equipment and service sales: The Company sells equipment to resellers who market
its terrestrial product and airtime service to the public. The Company also
sells its product directly to end-users. Revenue from the sale of the equipment,
as well as the cost of the equipment, are initially deferred and are recognized
over a period corresponding to the Company's estimate of customer life of two
years. Equipment costs are deferred only to the extent of deferred revenue.
As of December 31, 2003 and 2002, the Company had capitalized a total of $4.5
million and $4.4 million of deferred equipment revenue, respectively, and had
deferred equipment costs of $4.3 million and $4.4 million, respectively.
F-20
Advertising Costs
Advertising costs are charged to operations as incurred and totaled $6.6 million
in 2003, $4.3 million for the eight months ended December 31, 2002 and $2.5
million for the four months ended April 30, 2002 and $10.0 million in 2001. In
2001, a portion of the advertising costs associated with certain of the
Company's Internet promotions, were prepaid in the form of warrants to acquire
common stock issued by the Company, valued at $4.8 million. The warrants were
expensed as the associated page views were delivered. The Company recognized
advertising expense associated with the warrants issued for this Internet
promotion in the amount of $1.4 million in 2001. In September 2001, the Company
cancelled the Internet promotion, and the $2.9 million of remaining prepaid
advertising was written off.
Stock-Based Compensation
As permitted by SFAS No. 123, "Accounting for Stock-Based Compensation", which
establishes a fair value based method of accounting for stock-based compensation
plans, the Company has elected to follow Accounting Principles Board Opinion
No.25 "Accounting for Stock Issued to Employees" for recognizing stock-based
compensation expense for financial statement purposes. For companies that choose
to continue applying the intrinsic value method, SFAS No. 123 mandates certain
pro forma disclosures as if the fair value method had been utilized. The Company
accounts for stock based compensation to consultants in accordance with EITF
96-18, "Accounting for Equity Instruments That Are Issued to Other Than
Employees for Acquiring, or in Conjunction with Selling, Goods or Services" and
SFAS No. 123.
In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based
Compensation - Transition and Disclosure - an amendment of FASB Statement
No.123", which provides optional transition guidance for those companies
electing to voluntarily adopt the accounting provisions of SFAS No. 123. In
addition, SFAS No. 148 mandates certain new disclosures that are incremental to
those required by SFAS No. 123. The Company continued to account for stock-based
compensation in accordance with APB No. 25.
The following table illustrates the effect on income (loss) attributable to
common stockholders and earnings (loss) per share if the Company had applied the
fair value recognition provisions of SFAS No. 123 to stock-based employee
compensation.
Predecessor
Successor Company Company
----------------- -------
Nine Nine Twelve Eight Four
Months Months Months Months Months
Ended Ended Ended Ended Ended
September 30, September 30, December 31, December 31, April 30,
2004 2003 2003 2002 2002
---- ---- ---- ---- ----
(unaudited) (unaudited)
----------- -----------
Net loss, as reported $ (46,478) $ (47,749) $ (62,122) $ (59,558) $ 231,978
Add: Stock-based employee compensation expense
included in net income, net of related tax effects 3,963 1,217 603 -- --
Deduct: Total stock-based employee compensation
expense determined under fair value based method
for all awards, net of tax related effects (2,218) (2,343) (2,488) (567) (57)
--------- --------- --------- --------- ---------
Pro forma net loss (44,733) (48,875) $ (64,007) $ (60,125) $ 231,921
Weighted average common shares outstanding 29,323 25,128 25,145 25,097 58,251
Earnings per share:
Basic and diluted---as reported $ (1.59) $ (1.90) $ (2.47) $ (2.37) $ 3.98
Basic and diluted---pro-forma $ (1.53) $ (1.95) $ (2.55) $ (2.40) $ 3.98
Under SFAS No. 123 the fair value of each option grant is estimated on the date
of grant using the Black-Scholes option-pricing model with the following
weighted-average assumptions:
F-21
Predecessor
Successor Company Company
----------------- -----------
Twelve Months Eight Months Four Months
Ended Ended Ended
Nine Months Ended December 31, December 31, April 30,
September 30, 2004 2003 2002 2002
------------------ ---- ---- ----
(unaudited)
-----------
Expected life (in years) 8 10 10 10
Risk-free interest rate 0.88%-1.46% 0.88%-0.93% 1.71% 1.71%
Volatility 146%-258% 148%-162% 173% 197%
Dividend yield 0.0% 0.0% 0.0% 0.0%
Options to purchase 1,631,025 shares, 1,757,513 shares, and 633,719 (unaudited)
of the Company's common stock were outstanding at December 31, 2002, December
31, 2003 and September 30, 2004, respectively, under the Company's 2002 Stock
Option Plan. Options to purchase 2,683,626 shares of the Predecessor Company's
stock were outstanding at April 30, 2002. These options were cancelled as part
of the Company's reorganization.
In March 2003, the Company's board of directors approved the reduction in the
exercise price of all of the outstanding stock options from $5.00 per share to
$3.00 per share. The repricing requires that all options be accounted for in
accordance with variable plan accounting, under which the value of these options
are measured at their intrinsic value and any change in that value is charged to
the income statement each quarter based on the difference (if any) between the
intrinsic value and the then-current market value of the common stock. The other
options are accounted for as a fixed plan and in accordance with intrinsic value
accounting, which requires that the excess of the market price of stock over the
exercise price of the options, if any, at the time that both the exercise price
and the number of options are known be recorded as deferred compensation and
amortized over the option vesting period. For the three and twelve months ended
December 31, 2003, the Company recorded a mark-to-market adjustment of $(0.6)
million and $0.6 million respectively relating to these re-priced options.
In July 2003, the compensation and stock option committee of the Company's board
of directors, acting pursuant to the Company's 2002 stock option plan, granted
26 employees and officers options to purchase an aggregate of 470,000 shares of
the Company's common stock at a price of $5.15 per share. In September 2003, one
additional employee received a grant for 25,000 shares of the Company's common
stock at a price of $5.65 per share. One-half of each option grant vests with
the passage of time and the continued employment of the recipient, in three
equal increments, on the first, second and third anniversary of the date of
grant. The other half of each grant will either vest or be rescinded based on
the performance of the Company in 2004. If vested and not exercised, the options
will expire on the 10th anniversary of the date of grant. In August 2004, one
employee received a grant for 100,000 shares of the Company's common stock at a
price of $5.15 per share. (Unaudited) In December 2004, the directors, one
employee and one consultant received options to purchase an aggregate of 195,000
shares of the Company's common stock at a price of $8.57 per share. (Unaudited)
These options were immediately exercisable. (Unaudited)
Assessment of Asset Impairment
The Company follows the provisions of SFAS No. 121 "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of,"
which requires that long-lived assets and certain identifiable intangibles be
reviewed for impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable. Recoverability of
assets to be held and used is measured by a comparison of the carrying amount of
an asset to future undiscounted net cash flows expected to be generated by the
asset. If such assets are considered to be impaired, the impairment to be
recognized is measured by the amount by which the carrying amount of the assets
exceeds the fair value of the assets. Assets to be disposed of are reported at
the lower of the carrying amount or their fair value less costs to sell. On
January 1, 2002, the Company also adopted SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets", which supersedes SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and Long-Lived Assets to be
Disposed Of". The statement requires that all long-lived assets be measured at
the lower of carrying amount or fair value less cost to sell, whether reported
in continuing operations or in discontinued operations. Therefore, discontinued
F-22
operations will no longer be measured on a net realizable value basis and will
not include amounts for future operating losses. The statement also broadens the
reporting requirements for discontinued operations to include disposal
transactions of all components of an entity (rather than segments of a
business). Components of an entity include operations and cash flows that can be
clearly distinguished from the rest of the entity that will be eliminated from
the ongoing operations of the entity in a disposal transaction. Subsequent to
the period covered by this report, we engaged a financial advisor to value
certain of our assets as of December 31, 2002, among other things, to test for
potential impairment of certain of our long-lived assets under SFAS No. 144.
This testing included valuations of software and customer-related intangibles.
Based on these tests, no recording of impairment charges was required. However,
we subsequently engaged this financial advisor to reevaluate the value of our
customer-related intangibles as of September 30, 2003 due primarily to the
decline in revenue from UPS in this time period. This valuation resulted in an
impairment of the customer-related intangibles of $5.5 million in the third
quarter of 2003. The adoption of SFAS No. 144 had no other material impact on
our financial statements.
Deferred Taxes
The Company accounts for income taxes under the liability method as required in
SFAS No. 109, "Accounting for Income Taxes". Under the liability method,
deferred income taxes are recognized for the tax consequences of "temporary
differences" by applying enacted statutory tax laws and rates applicable to
future years to differences between the financial statement carrying amounts and
the tax bases of existing assets and liabilities. Under this method, the effect
on deferred taxes of a change in tax rates is recognized in income in the period
that includes the enactment date. A valuation reserve is established for
deferred tax assets if the realization of such benefits cannot be sufficiently
assured.
Property and Equipment
Property and equipment are recorded at cost for the Predecessor Company and
adjusted for impairment, and includes "fresh-start" adjustments for the
Successor Company and depreciated over their useful life using the straight-line
method. All identifiable assets recognized in accordance with "fresh-start"
accounting were recorded at the effective date based upon independent appraisal.
Assets recorded as capital leases are amortized over the shorter of their useful
lives or the term of the lease. The estimated useful lives of office furniture
and equipment vary from two to ten years, and the network equipment is
depreciated over seven years. The Company has also capitalized certain costs to
develop and implement its computerized billing system. These costs are included
in property and equipment and are depreciated over three years. Repairs and
maintenance do not significantly increase the utility or useful life of an asset
and are expensed as incurred.
Segment Disclosures
In accordance with SFAS No. 131, "Disclosures about Segments of an Enterprise
and Related Information", the Company has one operating segment: its core
wireless business. Since January 1, 2001, the Company had one operating segment:
its core wireless business. The Company provides its core wireless business to
the continental United States, Alaska, Hawaii and Puerto Rico. The following
summarizes the Company's core wireless business revenue by major market
categories:
F-23
Successor Company Predecessor Company
----------------- -------------------
(unaudited) (Restated)
Nine Months Year Eight Months Four Months Year
Ended Ended Ended Ended Ended
Summary of Revenue September 30, December 31, December 31, April 30, December 31,
------------------ 2004 2003 2002 2002 2001
(in millions) ---- ---- ---- ---- ----
Wireless Internet $15.7 $27.8 $15.5 $5.6 $11.4
Field Services 4.7 9.9 10.5 5.6 19.4
Transportation 2.7 7.9 7.4 4.1 15.9
Telemetry 1.8 2.3 1.8 0.8 2.6
All other 2.6 1.4 0.3 0.7 18.8
--- --- --- --- ----
Service Revenue $27.5 49.3 35.5 16.8 68.1
Equipment Revenue 3.8 5.2 1.1 5.6 22.2
--- --- --- --- ----
Total $31.3 $54.5 $36.6 $22.4 $90.3
===== ===== ===== ===== =====
The Company does not measure ultimate income or loss or track its assets by
these market categories.
(Loss) Per Share
Basic and diluted (loss) income per common share is computed by dividing income
available to common stockholders by the weighted-average number of common shares
outstanding for the period. Diluted earnings per share reflects the potential
dilution that could occur if securities or other contracts to issue common stock
were exercised or converted into common stock or resulted in the issuance of
common stock that then shared in the earnings of the entity.
Options and warrants to purchase shares of common stock were not included in the
computation of loss per share as the effect would be antidilutive for the years
ended December 31, 2003 and 2001 and for the four and eight months ended April
30, 2002 and December 31, 2002, respectively. As a result, the basic and diluted
earnings per share amounts for all periods presented are the same. As of
September 30, 2004 and 2003, there were warrants to acquire 6,063,450 and
5,664,962, respectively, shares of common stock and options outstanding for
633,719 and 1,787,900, respectively, shares that were not included in this
calculation because of their antidilutive effect. (Unaudited) As of December 31,
2003, there were warrants to acquire approximately 5,664,962 shares of common
stock and 1,757,513 options outstanding that were not included in this
calculation because of their antidilutive effect. As of December 31, 2002, there
were warrants to acquire approximately 2,339,962 shares of common stock and
1,631,025 options outstanding that were not included in this calculation because
of their antidilutive effect. For the four months ended April 30, 2002, no
options or warrants had exercise prices in excess of the fair market value of
the Company's common stock and thus were not factored into the per share
calculation. As of December 31, 2001 there were options outstanding for
approximately 393,353 shares of common stock that were not included in this
calculation because of their antidilutive effect.
Derivatives
In April and July 2001, the Company sold notes to Rare Medium totaling $50
million. The notes were collateralized by up to 5,000,000 of the Company's XM
Radio shares, and, until maturity, which was extended until October 12, 2001,
Rare Medium had the option to exchange the notes for a number of XM Radio shares
equivalent to the principal of the note plus any accrued interest thereon (see
Note 8, "Debt and Capital Leases"). The Company determined the embedded call
options in the notes, which permitted Rare Medium to convert the borrowings into
shares of XM Radio, were derivatives which were accounted for in accordance with
SFAS No. 133 and accordingly recorded a gain in the amount of $1.5 million in
2001 related to the Rare Medium note call options. On October 12, 2001, the
embedded call options in the Rare Medium notes expired unexercised. The Rare
Medium note was cancelled and replaced by a new Rare Medium note in the amount
of $19.0 million as part of the Company's reorganization.
F-24
In connection with the bank financing in March 1998, the Company entered into an
interest rate swap agreement, with an implied annual rate of 6.51%. The swap
agreement reduced the impact of interest rate increases on then-existing term
loan facility. The Company paid a fixed fee of approximately $17.9 million for
the swap agreement. In return, the counter-party was obligated to pay a variable
rate equal to LIBOR plus 50 basis points, paid on a quarterly basis directly to
the respective banks on behalf of the Company, on a notional amount of $100
million until the termination date of March 31, 2001. In connection with the pay
down of a portion of the term loan facility during 1999, the Company reduced the
notional amount of its swap agreement from $100 million to $41 million and
realized net proceeds of approximately $6 million due to early termination of a
portion of the swap agreement. The interest rate swap agreement expired in March
2001.
Investment in MSV and Notes Receivable from MSV
As a result of the application of "fresh-start" accounting, restatements and the
subsequent modifications described below, the notes and investment in MSV were
valued at fair value and the Company recorded an asset in the amount of
approximately $53.9 million representing the estimated fair value of our
investment in and note receivable from MSV. Included in this investment is the
historical cost basis of the Company's common equity ownership of approximately
48% as of May 1, 2002, or approximately $19.3 million. In accordance with the
equity method of accounting, we recorded our approximate 48% share of MSV losses
against this basis.
Approximately $6.2 million of the value attributed to the equity interest in MSV
is the excess of fair value over cost basis and is amortized over the estimated
lives of the underlying MSV assets that gave rise to the basis difference. The
Company is amortizing the excess basis in accordance with the pro-rata
allocation of various components of MSV's intangible assets as determined by MSV
through recent independent valuations. Such assets consist of FCC licenses,
intellectual property and customer contracts, which are being amortized over a
weighted-average life of approximately 12 years.
Additionally, Motient has recorded the $15.0 million note receivable from MSV,
plus accrued interest thereon at its fair value, estimated to be approximately
$13.0 million at "fresh start", after giving affect to discounted future cash
flows at market interest rates. This note matures in November 2006 and is
subject to certain conditions and priorities with respect to payment of other
indebtedness.
In November 2003, Motient engaged CTA to perform a valuation of its equity
interests in MSV as of December 31, 2002. Concurrent with CTA's valuation,
Motient reduced the book value of its equity interest in MSV from $53.9 million
(inclusive of Motient's $2.5 million convertible notes from MSV) to $40.9
million as of May 1, 2002 to reflect certain preference rights on liquidation of
certain classes of equity holders in MSV.
Also, as a result of CTA's valuation of MSV, Motient determined that the value
of its equity interest in MSV was impaired as of December 31, 2002. This
impairment was deemed to have occurred in the fourth quarter of 2002 and the
Company reduced the value of its equity interest in MSV by $15.4 million as of
December 31, 2002. It was determined that no further impairment was required as
of December 31, 2003.
The valuation of Motient's investment in MSV and its note receivable from MSV
are ongoing assessments that are, by their nature, judgmental given that MSV is
not traded on a public market and is in the process of developing certain next
generation technologies, which depend on approval by the FCC. There is the
inherent future risk that due to the uncertainties described above, Motient may
have to write down the value of this investment and note. For information
regarding recent developments involving MSV, please see Note 16 ("Subsequent
Events").
For the year ended December 31, 2003, MSV had revenues of $27.1 million,
operating expenses of $46.5 million and a net loss of $28 million. For the
eight-month period ended December 31, 2002, MSV had revenues of $15.8 million,
operating expenses of $36.4 million and a net loss of $17.0 million. For the
four-month period ended April 30, 2002, MSV had revenues of $9.1 million,
operating expenses of $9.3 million and a net loss of $9.2 million. For the year
F-25
ended December 31, 2003, the Company's equity in losses of MSV were $9.7
million. For the eight-month period ended December 31, 2002, the Company's
equity in losses of MSV were $6.9 million, and for the four-month period ended
April 30, 2002, the Company's equity in losses of MSV were $1.9 million. Results
for MSV for these periods and for the years ended December 31, 2003, 2002 and
2001 are outlined below.
Eight Months Four Months
Year Ended Ended Ended Year Ended
December 31, December 31, April 30, December 31,
2003 2002 2002 2001
---- ---- ---- ----
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
(in thousands)
Revenue $27,124 $15,766 $9,088 $2,095
Income (loss) from operations (19,332) (20,622) (175) (16,156)
Net Loss (28,000) (16,964) (9,203) (16,525)
Current Assets 10,678 12,383 14,292 14,335
Non-current assets 120,141 131,912 142,081 148,328
Current liabilities 10,372 10,555 14,801 11,999
Non-current liabilities $121,431 $110,474 $101,348 $101,238
For additional information regarding MSV, please see the financial statements of
MSV beginning on page M-1.
Recent Accounting Pronouncements
In February, 2002, EITF No. 01-09, "Accounting for Consideration Given by a
Vendor to a Customer (Including a Reseller of the Vendor's Products)", was
issued to provide guidance on whether consideration paid by a vendor to a
reseller should be recorded as expenses or against revenues. The Company has
reviewed EITF 01-09 and believes that all such consideration is properly
recorded by the Company as operating expenses. The Company adopted the
provisions of this consensus on January 1, 2002, and it had no material impact
on the Company's consolidated financial statements.
In November 2002, the EITF reached consensus on EITF No. 00-21, "Accounting for
Revenue Arrangements with Multiple Deliverables". This consensus requires that
revenue arrangements with multiple deliverables be divided into separate units
of accounting if the deliverables in the arrangement meet specific criteria. In
addition, arrangement consideration must be allocated among the separate units
of accounting based on their relative fair values, with certain limitations. The
sale of the Company's equipment with related services constitutes a revenue
arrangement with multiple deliverables. The Company will be required to adopt
the provisions of this consensus for revenue arrangements entered into after
June 30, 2003, and the Company has decided to apply it on a prospective basis.
Motient did not have any revenue arrangements that would have a material impact
on its financial statements with respect to EITF No. 00-21.
In November 2002, the FASB issued FASB Interpretation, or FIN No. 45,
"Guarantor's Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness of Others". FIN No. 45 elaborates on the
disclosures to be made by a guarantor in its interim and annual financial
statements about its obligations under certain guarantees that it has issued. It
also clarifies that a guarantor is required to recognize, at the inception of a
guarantee, a liability for the fair value of the obligation undertaken in
issuing the guarantee. However, a liability does not have to be recognized for a
parent's guarantee of its subsidiary's debt to a third party or a subsidiary's
guarantee of the debt owed to a third party by either its parent or another
subsidiary of that parent. The initial recognition and measurement provisions of
FIN No. 45 are applicable on a prospective basis to guarantees issued or
modified after December 31, 2002 irrespective of the guarantor's fiscal year
end. The disclosure requirements of FIN No. 45 are effective for financial
statements with annual periods ending after December 15, 2002. Motient does not
have any guarantees that would require disclosure under FIN No. 45.
F-26
In January 2003, the FASB issued FASB Interpretation No. 46 or FIN No. 46,
"Consolidation of Variable Interest Entities -- An Interpretation of ARB No.
51", which clarifies the application of Accounting Research Bulletin No. 51,
"Consolidated Financial Statements", to certain entities in which equity
investors do not have the characteristics of a controlling financial interest or
do not have sufficient equity at risk for the entity to finance its activities
without additional subordinated financial support from other parties. FIN No. 46
provides guidance related to identifying variable interest entities (previously
known generally as special purpose entities, or SPEs) and determining whether
such entities should be consolidated. FIN No. 46 must be applied immediately to
variable interest entities created or interests in variable interest entities
obtained after January 31, 2003. For those variable interest entities created or
interests in variable interest entities obtained on or before January 31, 2003,
the guidance in FIN No. 46 must be applied in the first fiscal year or interim
period beginning after June 15, 2003. The Company has reviewed the implications
that adoption of FIN No. 46 would have on its financial position and results of
operations and it did not have a material impact.
In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain Financial
Instruments with Characteristics of Both Liabilities and Equity". This statement
establishes standards for how an issuer classifies and measures in its statement
of financial position certain financial instruments with characteristics of both
liabilities and equity. It requires that an issuer classify a financial
instrument that is within its scope as a liability (or an asset in some
circumstances) because that financial instrument embodies the characteristics of
an obligation of the issuer. This standard is effective for financial
instruments entered into or modified after May 31, 2003, and otherwise is
effective at the beginning of the first interim period beginning after June 15,
2003. The Company has determined that it does not have any financial instruments
that are impacted by SFAS No. 150.
Restatement of Financial Statements
Subsequent to the issuance of the Company's financial statements for the quarter
ended March 31, 2002 and year ended December 31, 2001, the Company became aware
that certain accounting involving the effects of several complex transactions
from these years, including the formation of and transactions with a joint
venture, MSV, in 2000 and 2001 and the sale of certain of our transportation
assets to Aether in 2000, required revision. These transactions were described
in more detail in Note 13 ("Business Acquisitions and Dispositions") of notes to
consolidated financial statements in each of Motient's annual reports on Form
10-K for the fiscal years ended December 31, 2000 and 2001. In addition, as a
result of the Company's re-audit of the years ended December 31, 2001 and 2000
performed by the Company's former independent accounting firm, Ehrenkrantz
Sterling & Co. LLC, certain accounting adjustments were proposed and accepted by
the Company. A description of these adjustments is provided below.
Summary of Adjustments to Prior Period Financial Statements with respect to MSV
and Aether Transactions
The following is a brief description of the material differences between our
original accounting treatment with respect to the MSV and Aether transactions
and the revised accounting treatment that Motient has concluded was appropriate
and has been reflected in the accompanying financial statements for the
respective periods.
Allocation of initial proceeds from MSV formation transactions in June 2000. In
the June 2000 transaction with MSV, Motient Services received $44 million from
MSV. This amount represented payments due under a research and development
agreement, a deposit on the purchase of certain of Motient's assets at a future
date, and payment for a right for certain of the investors in MSV to convert
their ownership in MSV into shares of common stock of Motient. Since the
combined fair value of the three components exceeded $44 million, based on
valuations of each component, Motient initially allocated the $44 million of
proceeds first to the fair value of the research and development agreement and
then the remaining value to the asset deposit and investor conversion option
based on their relative fair values. Upon review, Motient revised its initial
accounting treatment and allocated the $44 million of proceeds first to the
investor conversion option based on its fair value, and the remainder to the
research and development agreement and asset deposit based on their relative
fair values. The effect of this reallocation increased shareholders' equity at
the time of the initial recording by $12 million, as well as reduced subsequent
service revenue by $4 million in 2001, as a result of the lower recorded value
allocated to the research and development agreement. All remaining unamortized
balances were written off as part of the gain on the sale of the satellite
assets.
F-27
Recording of suspended losses associated with MSV in fourth quarter of 2001. In
November 2001, when the asset sale described in Note 13 was consummated, Motient
and MSV amended the asset purchase agreement, with Motient agreeing to take a
$15 million note as part of the consideration for the sale of the assets to MSV.
Additionally, at the time of this transaction, Motient purchased a $2.5 million
convertible note issued by MSV. As Motient had no prior basis in its investment
in MSV, Motient had not recorded any prior equity method losses associated with
its investment in MSV. When Motient agreed to take the $15 million note as
partial consideration for the assets sold to MSV, Motient recorded its share of
the MSV losses that had not been previously recognized by Motient ($17.5
million), having the effect of completely writing off the notes receivable in
2001.
Upon review, Motient determined that it should not have recorded any suspended
losses of MSV, since those losses should have been absorbed by certain of the
senior equity holders in MSV. As a result, Motient concluded that it should not
have written off its portion ($17.5 million) of the prior MSV losses against the
value of both notes in 2001.
Recording of increase in Motient's investment in MSV in November 2001. Also in
the November 2001 transaction, MSV acquired assets from another company, TMI, in
exchange for cash, a note and equity in MSV. Motient initially considered
whether or not a step-up in the value of its investment in MSV was appropriate
for the value allocated to TMI for its equity interest, and determined that a
step-up was not appropriate. Upon review, Motient determined that it should have
recognized a step-up in value of the MSV investment of $12.9 million under Staff
Accounting Bulletin No. 51, "Accounting for Sales of Stock of a Subsidiary"
("SAB 51"), with an offsetting gain recorded directly to shareholders' equity.
Recognition of gain on sale of assets to MSV in November 2001. Upon the
completion of the November 2001 transactions, Motient determined that 80% of its
gain from the sale of the assets should be deferred, since that was Motient's
equity ownership percentage in MSV at the time the assets were sold to MSV. Upon
review, Motient has determined that it was appropriate to apply Motient's
ownership percentage at the completion of all of the related transactions that
occurred on the same day as the asset sale transaction, since the transactions
were dependent upon one another and effectively closed simultaneously.
Accordingly, Motient should have deferred approximately 48% of the gain
(Motient's equity ownership percentage in MSV following the completion of such
transactions) as opposed to 80%. This change resulted in an increased gain on
the sale of MSV of $7.9 million in 2001.
Allocation of proceeds from the sale of the transportation business to Aether in
November 2000. Motient received approximately $45 million for the sale of its
retail transportation business assets and assumption of its liabilities to
Aether. This consisted of $30 million for the assets, of which $10 million was
held in an escrow account that was subsequently released in the fourth quarter
of 2001 upon the satisfaction of certain conditions, and $15 million for a
perpetual license to use and modify any intellectual property owned or licensed
by Motient in connection with the retail transportation business. In the fourth
quarter of 2000, Motient recognized a gain of $8.9 million, which represented
the difference between the net book value of the assets sold and the $20 million
cash portion of the purchase price for the assets received at closing. Motient
recognized an additional $8.3 million gain in the fourth quarter of 2001 when
the additional $10 million of proceeds were released from escrow. The $1.7
million difference between the proceeds received and the gain recognized is a
result of pricing modifications that were made at the time of the release of the
escrow plus certain compensation paid to former employees of the transportation
business as a result of certain performance criteria having been met.
Motient deferred the $15 million perpetual license payment, which was then
amortized into revenue over a five-year period, the estimated life of the
customer contracts sold to Aether at the time of the transaction. Upon review,
Motient determined that the $15 million in deferred revenue should be recognized
over a four year period, which represents the life of a network airtime
agreement that Motient entered into with Aether at the time of the closing of
the asset sale. The decrease in the amortization period resulted in increased
revenue of $63,000 and $750,000 in 2000 and 2001, respectively.
F-28
Recognition of costs associated with certain options granted to Motient
employees who were subsequently transferred to Aether upon consummation of the
sale of Motient's transportation business to Aether in November 2000. Motient
valued the vested options based on their fair value at the date of the
consummation of the asset sale and recorded that value against the gain on the
sale of the assets to Aether. Upon review, Motient has determined to value these
vested options as a repricing under the intrinsic value method, with any charge
recorded as an operating expense. In addition, for each subsequent quarter for
which the unvested options continued to vest, Motient had valued these options
on a fair value basis and recorded any adjustment in value as an operating
expense. Upon review, Motient has determined that any adjustments in value
should have been reflected as an increase or reduction of the gain on the sale
of the assets to Aether. The revised accounting resulted in an increase in
expenses of $1.0 million in 2001.
Recognition of difference between strike price and fair market value at
measurement date for options issued to ARDIS employees. Motient has restated its
consolidated financial statements to recognize compensation expense related to
the issuance of stock options with an exercise price below fair market value.
The revised accounting resulted in a decrease in net income and a corresponding
increase in additional paid in capital of $0.01 million for the year ended
December 31, 2001.
Recognition of adoption of SAB 101,"Revenue Recognition in Financial
Statements". Motient has restated its consolidated financial statements as of
January 1, 2000, based on guidance provided in Securities and Exchange
Commission Staff Accounting Bulletin No. 101, "Revenue Recognition in Financial
Statements", as amended ("SAB101"). Motient's adoption of SAB101 resulted in a
change of accounting for certain product shipments and activation fees. The
cumulative effect of the change to retained earnings as of January 1, 2000 was
$4.6 million. The cumulative effect was recognized as income in 2001 as the
amounts were amortized into revenue and ultimately recognized as additional gain
on the sale of the Company's satellite, transportation and certain other assets.
Accrual of advertising expense in December 2000. Motient has restated its
consolidated financial statements in 2000 to recognize an additional $1.1
million in advertising expense previously recognized in 2001.
Recognition of costs associated with inventory write-downs. Motient has restated
its consolidated financial statements in 2000 to recognize an additional $1
million in Cost of Goods Sold for inventory write-downs previously recognized in
2001. In addition, Motient has restated its consolidated financial statements
for the three-months ended March 31, 2002 to recognize an additional $0.4
million in Cost of Goods Sold for inventory write-downs not previously recorded.
Summary of Impact of the Restatement
The revised accounting treatment described above required that certain
adjustments be made to the income statements and balance sheets for the years
ended December 31, 2001 and the quarter ended March 31, 2002. The effect of
these adjustments is illustrated in the table below. Certain of the adjustments
are based on assumptions that we have made about the fair value of certain
assets.
F-29
Quarter Ended Year Ended
March 31, December 31,
2002 2001
---- ----
(in thousands)
Statement of operations data
----------------------------
Net Revenue, as previously reported $16,495 $93,293
Adjustments 188 (3,028)
--- -------
As restated $16,683 $90,265
======= =======
Net Operating Loss, as previously reported $(15,970) $(94,996)
Adjustments 208 (2,227)
--- -------
As restated $(15,762) $(97,223)
========= =========
Net Loss, as previously reported $(32,885) $(292,089)
Adjustments (2,544) 22,592
------- ------
As restated - inclusive of the cumulative
effect of $4,677 $(35,429) $(269,497)
========= ==========
Basic and Fully Diluted Loss Per Share of
Common Stock, as previously reported $(0.56) $(5.71)
Adjustments (0.05) 0.44
------ ----
As restated $(0.61) $(5.27)
======= =======
Balance sheet data
------------------
Total Assets, as previously reported $177,628 $209,617
Adjustments 27,654 30,848
------ ------
As restated $205,282 $240,465
======== ========
Total Liabilities, as previously reported $485,681 $485,086
Adjustments (14,122) (13,472)
-------- --------
As restated $471,559 $471,614
======== ========
Stockholders' Equity, as previously
reported $(308,053) $(275,469)
Adjustments 41,776 44,320
------ ------
As restated $(266,277) $(231,149)
========== ==========
Total Liabilities & Stockholders' Equity,
as previously reported $177,628 $209,617
Adjustments 27,654 30,848
------ ------
As restated $205,282 $240,465
======== ========
3. STOCKHOLDERS' (DEFICIT) EQUITY
As of December 31, 2003 and 2002, the Company has authorized 5,000,000 shares of
preferred stock and 100,000,000 shares of common stock. For each share of common
stock held, common stockholders are entitled to one vote on matters submitted to
the stockholders.
F-30
The Preferred Stock may be issued in one or more series at the discretion of the
Board of Directors (the "Board"), without stockholder approval. The Board is
authorized to determine the number of shares in each series and all
designations, rights, preferences, and limitations on the shares in each series,
including, but not limited to, determining whether dividends will be cumulative
or non-cumulative.
As of December 31, 2003, the Company had reserved common stock for future
issuance as detailed below.
Shares issuable upon exercise of warrants 5,664,962
2002 Stock Option Plan 2,993,024
Defined Contribution Plan 115,828
-------
Total 8,773,814
=========
XM Radio
During 2000 and 2001, XM Radio executed certain equity transactions that
affected the Company's ownership percentage in XM Radio. As a result of these
transactions, and in accordance with SAB 51, the Company recorded a decrease to
its investment in XM Radio of $12.2 million in 2001, and an increase to its
investment in XM Radio of $129.5 million in 2000. SAB 51 addresses the
accounting for sales of stock by a subsidiary. Because XM Radio was a
development stage company until November 12, 2001, SAB 51 required the
difference in the carrying amount of the Company's investment in XM Radio and
the net book value of XM Radio after the stock issuances be reflected in the
financial statements of the Company as a capital transaction in the accompanying
consolidated statements of stockholders' (deficit) equity. As of November 19,
2001, the Company did not hold any interest in XM Radio.
Mobile Satellite Ventures LP
During 2001, MSV executed certain equity transactions that affected the
Company's ownership percentage in MSV. As a result of these transactions, and in
accordance with SAB 51, the Company recorded an increase to its investment in
MSV of $12.9 million in 2001, with an offsetting gain recorded directly to
shareholders' equity.
Please see the audited financial statements of MSV beginning on page M-1 for
further information regarding the financial condition of MSV. (Unaudited)
4. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
Successor Company
-----------------
December 31,
2003 2002
---- ----
(in thousands)
Network equipment $ 35,865 $ 47,384
Office equipment and furniture 2,846 3,951
Construction in progress -- 1,409
-------- --------
38,711 52,744
Less accumulated depreciation and
amortization (7,330) (6,339)
-------- --------
Property and equipment, net $ 31,381 $ 46,405
======== ========
Depreciation expense totaled $13,770 for the year ended December 31, 2003;
$9,816 for the eight months ended December 31, 2002 and $5,924 for the four
months ended April 30, 2002.
F-31
5. FCC LICENSES AND OTHER INTANGIBLE ASSETS
FCC licenses and other intangible assets consist of the following:
Successor Company
-----------------
December 31,
2003 2002
---- ----
(in thousands)
FCC Licenses $ 80,594 $ 88,997
Customer contracts 1,893 11,501
--------- ---------
82,487 100,498
Less accumulated amortization (8,466) (5,577)
--------- ---------
FCC licenses and other
intangible assets, net $ 74,021 $ 94,921
========= =========
Amortization totaled $7,696 for the year ended December 31, 2003; $5,693 for the
eight months ended December 31, 2002 and $989 for the four months ended April
30, 2002.
Motient accounts for its frequencies as finite-lived intangibles and amortizes
them over a 20-year estimated life. Motient's FCC licenses are granted for a
term of 10 years, subject to renewal. Renewal of Motient's current licenses are
granted in the ordinary course. Motient had amortized its goodwill on a
straight-line basis over 20 years, however, this goodwill was eliminated as part
of Motient's "fresh-start" accounting. As part of its "fresh-start" accounting,
Motient valued its long-term customer contracts and amortizes these contracts
over a four-year life. The fair value of customer related intangibles is based
on analysis incorporating a discounted cash flow of the Company's primary
customer contracts and other related considerations (unaudited).
Subsequent to the period covered by this report, we engaged a financial advisor
to value certain of our customer-intangible assets as of December 31, 2002,
among other things, to test for potential impairment of certain of our
long-lived assets under SFAS No. 144. Based on these tests, no recording of
impairment charges was required. However, we subsequently engaged this financial
advisor to reevaluate the value of our customer-related intangibles as of
September 30, 2003 due primarily to the decline in revenue from UPS in this time
period. This valuation resulted in an impairment of the customer-related
intangibles of $5.5 million in the third quarter of 2003. For information
regarding recent developments related to the Company's FCC licenses, please see
Note 16 ("Subsequent Events")(Unaudited).
The table below outlines Motient's amortization requirements for the five year
period from December 31, 2003.
Prior to its reorganization, the Company had several active stock option plans.
The Motient Corporation Award Plan (the "Award Plan") permitted the grant of
non-statutory options and stock-based awards up to a total of 7.3 million shares
of common stock. Under the Award Plan, the exercise price and vesting schedule
for options was determined by the compensation and stock option committee of the
Board, which was established to administer the Award Plan. Generally, options
vested over a three year period and had an exercise price of not less than the
fair market value of a share on the date the option was granted or have a term
greater than ten years. In May 2000, the Company's stockholders approved certain
amendments to the Award Plan, including permitting non-employee directors to be
eligible for option grants under the Award Plan.
F-32
The Company also had a Stock Plan for Non-Employee Directors (the "Director
Plan") which provided for the grant of the options up to a total of 100,000
shares of common stock. Effective March 25, 1999, Directors received an initial
option to purchase 5,000 shares of common stock, with annual option grants to
purchase 2,500 shares of common stock. In addition, the Board was allowed to
grant discretionary options at such time and on such terms and conditions as it
deemed appropriate. Options under the Director Plan were exercisable at a price
equal to the fair market value of the stock on the date of grant and were fully
vested and immediately exercisable on the date of grant. Each Director Plan
option expired on the earlier of (i) ten years from the date of grant or (ii)
seven months after the Director's termination.
In January 1998, the Board granted restricted stock to certain members of senior
management. These grants included both a three year vesting schedule as well as
specific corporate performance targets. The Company did not record any
compensation expense associated with these shares during 1999 or 2000 however in
January 2001, in recognition of employee services in entering into the second
MSV transaction, the Board lifted the remaining restrictions, and the shares
were released upon vesting. Accordingly, the Company recorded compensation
expense in the amount of $1.4 million in 2001 associated with the vesting of
these shares.
On September 25, 2001, the Company issued approximately 3.2 million shares of
restricted stock to employees, with a price on the date of issuance of $0.13 per
share, in exchange for approximately 4.3 million outstanding employee stock
options, which were cancelled. With the exception of restricted stock issued to
an employee terminated on September 26, 2001, which shares vested immediately
based on the terminated employees' then-vested exchanged options, all other
shares of restricted stock issued on September 25, 2001 were subject to a six
month holding period, at which time the shares of restricted stock vested in
accordance with the vesting schedule of the options for which the restricted
stock was exchanged. The Company recorded a deferred compensation charge as of
December 31, 2001 in the amount of $419,000 associated with the issuance of
these shares. This compensation was charged expense over the employees' service
period.
All of the above mentioned plans and the respective authorized and issued stock
options were cancelled as part of the Company's reorganization on May 1, 2002.
In May 2002, the Company's Board approved the 2002 Stock Option Plan with
2,993,024 authorized shares of common stock, of which options to purchase
1,757,513 shares of the Company's common stock were outstanding at December 31,
2003. The plan was approved by the Company's stockholders on July 11, 2002. The
2002 options are subject to vesting in two parts - 50% of the shares vest in
three equal parts on the first, second and third anniversary of the date of
grant, and the other 50% vest in three equal parts, or are rescinded, based on a
comparison of the Company's performance in 2002, 2003, and 2004 to certain
objectives established by the compensation and stock option committee of the
Board following the availability of the annual results. A portion of the options
granted under the 2002 Stock Option Plan have a performance-based component.
These options will be accounted for in accordance with variable plan accounting,
which requires that the value of these options are measured at their intrinsic
value and any change in that value be charged to the income statement upon the
determination that the fulfillment of the performance criteria is probable. The
other options were previously accounted for as a fixed plan and in accordance
with intrinsic value accounting, which require that the excess of the market
price of stock over the exercise price of the options, if any, at the time that
both the exercise price and the number of options are known be recorded as
deferred compensation and amortized over the option vesting period.
In March 2003, the Company's board of directors approved the reduction in the
exercise price of all of the outstanding stock options from $5.00 per share to
$3.00 per share. The re-pricing requires that all options be accounted for in
accordance with variable plan accounting, which requires that the value of these
options are measured at their intrinsic value and any change in that value be
charged to the income statement each quarter based on the difference (if any)
between the intrinsic value and the then-current market value of the common
stock.
In July and September 2003, the compensation and stock option committee of the
Company's Board, acting pursuant to the Company's 2002 stock option plan,
granted 26 employees and officers options to purchase an aggregate of 470,000
shares of the Company's common stock at a price of $5.15 per share and 25,000
shares of the Company's common stock at a price of $5.65 per share. One-half of
each option grant vests with the passage of time and the continued employment of
the recipient, in three equal increments, on the first, second and third
anniversary of the date of grant. The other half of each grant will either vest
or be rescinded based on the performance of the Company in 2004. In August 2004,
F-33
one employee received a grant for 100,000 shares of the Company's common stock
at a price of $5.15 per share. (Unaudited) In December 2004, the directors, one
employee and one consultant received options to purchase an aggregate of 195,000
shares of the Company's common stock at a price of $8.57 per share. (Unaudited)
These options were immediately exercisable. (Unaudited) If vested and not
exercised, the options will expire on the 10th anniversary of the date of grant.
Information regarding the Company's stock option plan is summarized below:
Restricted
Stock and
Options Options Granted Weighted Average
Available and Option Price
For Grant Outstanding Per Share
--------- ----------- ---------
Predecessor Company
-------------------
Balance, December 31, 2000 2,194,432 3,920,605 $11.65
Options granted (1,274,336) 1,274,336 5.88
Restricted stock granted (3,219,236) -- --
Restricted stock cancelled 88,200 -- --
Exercised -- (2,015) 0.68
Forfeited 4,799,573 (4,799,573) 10.28
--------- -----------
Balance, December 31, 2001 2,588,633 393,353 9.65
MTNT Restricted stock and options available for
grant cancelled (2,588,633) (393,353)
----------- ---------
Balance, April 30, 2002 (Predecessor Company) -- -- --
Successor Company
Reorganized MNCP shares authorized for grant 2,993,024 -- 5.00(1)
MNCP options granted (2,244,250) 2,244,250 --
Exercised -- -- 5.00
Forfeited 613,225 (613,225) 5.00
------- ---------
Balance, December 31, 2002 1,361,999 1,631,025
Options granted (495,000) 495,000 5.18
Exercised 15,412 ( 15,412) 3.00
Forfeited 353,100 (353,100) 3.02
------- ---------
Balance, December 31, 2003 1,235,511 1,757,513
(1) In March 2003, our board of directors approved the reduction in the
exercise price of all of the outstanding stock options from $5.00 per
share to $3.00 per share.
Exercise prices for options outstanding as of December 31, 2003, were as
follows:
Options Outstanding Options Exercisable
------------------- -------------------
Number Weighted Number
Outstanding Average Weighted Exercisable Weighted
as of Contractual Average as of Average
Range of December 31, Life Exercise December 31, Exercise
Exercise Prices 2003 Remaining Price 2003 Price
--------------- ---- --------- ----- ---- -----
$5.00(1) 1,265,513 9 years $3.00 426,289 $3.00
$5.15 467,000 10 years $5.15 --- $5.15
$5.65 25,000 10 years $5.65 --- $5.65
(1) In March 2003, our board of directors approved the reduction in
the exercise price of all of the outstanding stock options from
$5.00 per share to $3.00 per share.
7. INCOME TAXES
The following is a summary of the Company's net deferred tax assets.
Successor Company
-----------------
December 31,
2003 2002
---- ----
(in thousands)
Net Operating Loss Carryforwards $165,933 $148,699
Deferred Taxes Related to Temporary Differences:
Tangible asset bases, lives and depreciation methods (11,000) (13,736)
Other (8,515) (13,518)
------- --------
Total deferred tax asset, net 146,418 121,445
Less valuation allowance (146,418) (121,445)
--------- ---------
Net deferred tax asset $ -- $ --
======= ======
Potential tax benefits, related to net operating losses and temporary
differences, have been recorded as an asset, and a valuation allowance for the
same amount has been established. The Company has paid no income taxes since
inception.
As of December 31, 2003 and 2002, the Company had estimated net operating loss
carryforwards ("NOLs") of $412 million and $370 million, respectively. In April
2002, due to the debt restructuring and reorganization, the Company has
triggered a change of control, which has limited the availability and
utilization of the NOLs. The Company's NOL's expire between 2004 and 2024.
8. DEBT & CAPITAL LEASES
Debt and capital leases consists of the following:
December 31,
2003 2002
---- ----
(in thousands)
Rare Medium note payable, including accrued interest $22,016 $20,148
CSFB note payable, including accrued interest 869 795
Term Credit Facility 4,914 --
Vendor financing, including accrued interest 4,814 5,947
Capital leases 3,096 6,250
----- -----
35,709 33,140
Less current maturities 3,867 4,051
----- -----
Long-term debt $31,842 $29,089
======= =======
F-35
The following table reflects the maturity of our various obligations over the
next five years:
Less then
Total 1 year 1-4 years After 5 years
----- ------ --------- -------------
(in thousands)
Operating leases (1) $33,685 $12,170 $19,031 $2,484
Capital lease obligations, including interest thereon (1) 3,504 1,752 1,752 ---
Notes Payables (2) 22,885 --- 22,885 ---
Term Credit Facility (3) 4,914 --- 4,914 ---
Vendor financing commitment and note payable (4) 4,814 2,413 2,401 ---
----- ----- ----- ---
Total Contractual Cash Obligations $69,802 $16,335 $50,983 $2,484
======= ======= ======= ======
(1) These commitments generally contain provisions that provide for an
acceleration of rent upon a default by us, except that certain long-term
real estate leases, categorized as Operating Leases, may not contain such
provisions.
(2) In addition to being accelerable upon default, notes payable to Rare
Medium and CSFB, which comprise approximately $21 million of this amount,
must be prepaid with 25% of the proceeds due from any repayment of the $15
million principal note issued to Motient by MSV. These notes were paid in
full in July 2004. (Unaudited)
(3) This facility was repaid in full in April 2004. (Unaudited)
(4) All obligations pursuant to this commitment and note were settled and
repaid in July 2004. (Unaudited)
Term Credit Facility
On January 27, 2003, the Company's wholly-owned subsidiary, Motient
Communications, closed a $12.5 million term credit agreement with a group of
lenders, including several of the Company's existing stockholders. The lenders
include the following entities or their affiliates: M&E Advisors, L.L.C., Bay
Harbour Partners, York Capital and Lampe Conway & Co. York Capital is affiliated
with JGD Management Corp. and James G. Dinan. JGD Management Corp., James G.
Dinan, James D. Dondero and Highland Capital Management each hold 5% or more of
Motient's common stock. The lenders also include Gary Singer, directly or
through one or more entities. Gary Singer is the brother of Steven G. Singer,
one of our directors.
The table below shows, as of June 24, 2004 the number of shares of Motient
common stock beneficially owned by the following parties to the term credit
agreement, based solely on filings made by such parties with the SEC:
Name of Beneficial Owner Number of Shares
------------------------ ----------------
James G. Dinan* 2,276,445
JGD Management Corp.* 2,276,445
Highland Capital Management** 4,424,559
James Dondero** 4,424,559
*JGD Management Corp and James G. Dinan share beneficial ownership with
respect to the 2,276,445 shares of our common stock. Mr. Dinan is the
president and sole stockholder of JGD Management Corp, which manages
the other funds and accounts that hold our common stock over which Mr.
Dinan has discretionary investment authority.
** James D. Dondero, a member of our board of directors, is the
President of Highland Capital Management, L.P., which, pursuant to an
arrangement with M&E Advisors, L.L.C., has indirectly made a
commitment under the credit facility.
Under the credit agreement, the lenders have made commitments to lend Motient
Communications up to $12.5 million. The commitments are not revolving in nature
and amounts repaid or prepaid may not be reborrowed. Borrowing availability
under Motient's term credit facility terminated on December 31, 2003. On March
16, 2004, Motient Communications entered into an amendment to the credit
facility which extended the borrowing availability period until December 31,
2004. As part of this amendment, Motient Communications provided the lenders
with a pledge of all of the stock of a newly-formed special purpose subsidiary
of Motient Communications, Motient License, which holds all of Motient's FCC
licenses formerly held by Motient Communications.
F-36
Under this facility, the lenders have agreed to make loans to Motient
Communications through December 31, 2004 upon Motient Communications' request no
more often than once per month, in aggregate principal amounts not to exceed
$1.5 million for any single loan, and subject to satisfaction of other
conditions to borrowing, including certain financial and operating covenants,
contained in the credit agreement. As of April 1, 2004, the Company had borrowed
$6.0 million under this facility, all of which has since been repaid and may not
be re-borrowed.
Each loan borrowed under the credit agreement has a term of three years. Loans
carry interest at 12% per annum. Interest accrues, compounding annually, from
the first day of each loan term, and all accrued interest is payable at each
respective loan maturity, or, in the case of mandatory or voluntary prepayment,
at the point at which the respective loan principal is repaid. Loans may be
prepaid at any time without penalty.
The obligations of Motient Communications under the credit agreement are secured
by a pledge of all the assets owned by Motient Communications that can be
pledged as security (including, but not limited to Motient Communication's
shares in Motient License). Motient Communications owns, directly or indirectly,
all of the Company's assets relating to its terrestrial wireless communications
business. In addition, Motient and its wholly-owned subsidiary, Motient Holdings
Inc., have guaranteed Motient Communications' obligations under the credit
agreement, and the Company has delivered a pledge of the stock of Motient
Holdings Inc., Motient Communications, Motient Services and Motient License to
the lenders. In addition, upon the repayment in full of the outstanding
$19,750,000 in senior notes due 2005 issued by MVH Holdings Inc. to Rare Medium
and CSFB in connection with the Company's approved Plan of Reorganization, the
Company will pledge the stock of MVH Holdings Inc. to the lenders.
On January 27, 2003, in connection with the signing of the credit agreement,
Motient issued warrants at closing to the lenders to purchase, in the aggregate,
3,125,000 shares of its common stock. The exercise price for these warrants is
$1.06 per share. The warrants were immediately exercisable upon issuance and
have a term of five years. The warrants were valued at $10 million using a
Black-Scholes pricing model and have been recorded as a debt discount and are
being amortized as additional interest expense over three years, the term of the
related debt. Upon closing of the credit agreement, the Company paid closing and
commitment fees to the lenders of $500,000. These fees have been recorded on the
Company's balance sheet and are being amortized as additional interest expense
over three years, the term of the related debt. Under the credit agreement, the
Company must pay an annual commitment fee of 1.25% of the daily average of
undrawn amounts of the aggregate commitments from the period from the closing
date to December 31, 2003. In December 2003, the Company paid the lenders a
commitment fee of approximately $113,000.
In each of April, June and August 2003 and March of 2004, the Company made draws
under the credit agreement in the amount of $1.5 million for an aggregate amount
of $6.0 million. The Company used such funds to fund general working capital
requirements of operations.
For the monthly periods ended April 2003 through December 2003, the Company
reported events of default under the terms of the credit facility to the
lenders. These events of default related to non-compliance with covenants
requiring minimum monthly revenue, earnings before interest, taxes and
depreciation and amortization and free cash flow performance. In each period,
the lenders waived these events of default. There can be no assurance that
Motient will not have to report additional events of default or that the lenders
will continue to provide waivers in such event. Ultimately, there can be no
assurances that the liquidity provided by the credit facility will be sufficient
to fund Motient's ongoing operations.
F-37
Borrowing availability under the facility terminated on December 31, 2004, and
the Company does not plan to attempt to extend the borrowing availability again.
(unaudited) All amounts due and owing under the facility were repaid prior to
such termination (unaudited).
For further information about amendments to and repayments of amounts due and
owing under this Credit Agreement, please see Note 16 ("Subsequent Events").
$335 Million Unit Offering
On March 31, 1998, Motient Holdings Inc., a wholly-owned subsidiary of Motient,
issued $335 million of Units (the "Units") consisting of 12 1/4% Senior Notes
due 2008 (the "Senior Notes"), and one warrant to purchase 3.75749 shares of
common stock of the Company for each $1,000 principal amount of Senior Notes
(the "Warrants") at an exercise price of $12.51 per share. The Warrants were
valued at $8.5 million and were recorded as a debt discount. A portion of the
net proceeds of the sale of the Units were used to finance the Motient
Communications acquisition in 1998. In connection with the Senior Notes, Motient
Holdings Inc. purchased approximately $112.3 million of restricted investments
that were restricted for the payment of the first six interest payments on the
Senior Notes. Interest payments are due semi-annually, in arrears, beginning
October 1, 1998. As a result of the automatic application of certain adjustment
provisions following the issuance of 7.0 million shares of common stock in a
public offering in 1999, the exercise price of the warrants associated with the
Senior Notes was reduced to $12.28 per share, the number of shares per warrant
was increased to 3.83 shares for each $1,000 principal amount of Senior Notes,
and the aggregate number of shares issuable upon exercise of such warrants was
increased by 24,294. The additional Senior Note warrants and re-pricing were
valued at $440,000. This was recorded as additional debt discount in the third
quarter of 1999. The Senior Notes were jointly and severally guaranteed on a
full and unconditional basis by Motient Corporation and all of its subsidiaries.
The Company failed to make a semi-annual interest payment due October 1, 2001,
which failure constituted an event of default under the Senior Notes. As a
result of the Company's failure to make the required semi-annual interest
payment, the missed interest payment accrued interest at the annual rate of
13.25%. As a result of this event of default, the Company classified the Senior
Notes as current liabilities in the Consolidated Balance Sheet as of December
31, 2001.
As discussed above (please see Note 2, "Significant Accounting Policies"), as
part of the Company's Plan of Reorganization, the Senior Notes, including
accrued interest thereon, and related warrants were exchanged in full for new
equity of the reorganized Company.
Rare Medium Notes
In 2001, Motient issued two notes to Rare Medium in the aggregate principal
amount of $50 million, at 12.5% annual interest. These notes were collateralized
by five million of the Company's XM Radio shares. On October 12, 2001, in
accordance with the terms of the notes, the Company exchanged $26.2 million of
the Rare Medium notes, representing $23.8 million in principal and $2.4 million
of accrued interest, for five million of its XM Radio shares. The $26.9 million
of principal and accrued interest remaining outstanding at December 31, 2001 was
unsecured.
As a result of the delivery of the shares of XM Radio common stock described
above (see Note 13, "Business Acquisitions and Dispositions"), the maturity of
the Rare Medium notes was accelerated to November 19, 2001. As of December 31,
2001, the Rare Medium notes were in default; and, therefore, the Company
classified the Rare Medium notes as current liabilities in the Consolidated
Balance Sheet as of December 31, 2001.
F-38
Under the Company's Plan of Reorganization, the Rare Medium notes were cancelled
and replaced by a new note in the principal amount of $19.0 million. The new
note was issued by a new subsidiary of Motient Corporation that owns 100% of
Motient Ventures Holding Inc., which owns all of the Company's interests in MSV.
The new note had a term of three years and carried interest at 9%. The note
allowed the Company to elect to accrue interest and add it to the principal,
instead of paying interest in cash. The note requires that it be prepaid using
25% of the proceeds of any repayment of the $15 million note receivable from
MSV. In July 2004, the Company repaid all accrued principal and interest on this
note, in the amount of $22.6 million. (Unaudited) In April 2004, the Company
made certain payments on the Rare Medium note. Please see "Subsequent
Events-Development Relating to MSV."
CSFB Note
Under the Company's Plan of Reorganization, the Company issued a note to CSFB,
in satisfaction of certain claims by CSFB against Motient, in the principal
amount of $750,000. The new note was issued by a new subsidiary of Motient
Corporation that owns 100% of Motient Ventures Holding Inc., which owns all of
the Company's interests in MSV. The new note had a term of three years and
carried interest at 9%. The note allowed the Company to elect to accrue interest
and add it to the principal, instead of paying interest in cash. The note
requires that it be prepaid using 25% of the proceeds of any repayment of the
$15 million note receivable from MSV. In July 2004, the Company repaid all
accrued principal and interest on this note, in the amount of $0.9 million.
(Unaudited) In April 2004, the Company made certain payments on the Rare Medium
note. Please see "Subsequent Events-Development Relating to MSV."
Bank Financing
In March 1998, the Company entered into a $200 million bank financing (the "Bank
Financing") consisting of two facilities: (i) the revolving credit facility
("Revolving Credit Facility"), a $100 million unsecured five-year reducing
revolving credit facility maturing March 31, 2003, and (ii) the term loan
facility ("Term Loan Facility"), a $100 million five-year, term loan facility
with up to three additional one-year extensions subject to the lenders'
approval. In 1999, the Term Loan Facility was reduced to $41 million. In 2000,
the Term Loan Facility was reduced to $40 million, and the Revolving Credit
Facility was reduced to $71.3 million. During 2001, the Bank Financing was
completely extinguished.
The Term Loan Facility
The Term Loan Facility bore an interest rate, generally, of 100 basis points
above London Interbank Offered Rate ("LIBOR"). The Term Loan Agreement did not
include any scheduled amortization until maturity, but did contain certain
provisions for prepayment based on certain proceeds received by the Company,
unless otherwise waived by the banks and the Bank Facility Guarantors (as
defined below). During 2001, the Term Loan Facility was completely extinguished.
The Revolving Credit Facility
The Revolving Credit Facility bore an interest rate, generally, of 100 basis
points above LIBOR and was unsecured, with a negative pledge on the assets of
Motient Holdings and its subsidiaries and ranked pari passu with the Senior
Notes. Certain proceeds received by Motient Holdings were required to repay and
reduce the Revolving Credit Facility, unless otherwise waived by the banks and
the Bank Facility Guarantors (as defined below). During 2001, the Revolving
Credit Facility was completely extinguished.
The Guarantees
In connection with the Bank Financing, Hughes Electronics Corporation, Singapore
Telecommunications, Ltd. and Baron Capital Partners, L.P. (collectively, the
"Bank Facility Guarantors"), extended separate guarantees of the obligations of
each of Motient Holdings and the Company to the banks, which on a several basis
aggregated to $200 million. In their agreement with each of Motient Holdings and
the Company (the "Guarantee Issuance Agreement"), the Bank Facility Guarantors
agreed to make their guarantees available for the Bank Financing. In exchange
for the additional risks undertaken by the Bank Facility Guarantors in
connection with the Bank Financing, the Company agreed to compensate the Bank
Facility Guarantors, principally in the form of one million additional warrants
and re-pricing of 5.5 million warrants previously issued in connection with the
original Bank Facility (together, the "Guarantee Warrants"). The Guarantee
Warrants were issued with an exercise price of $12.51 and were valued at
approximately $17.7 million. The amounts initially assigned to the Guarantee
Warrants and subsequent repricings are recorded as Common Stock Purchase
F-39
Warrants and Unamortized Guarantee Warrants in the accompanying consolidated
balance sheets. The amount assigned to Unamortized Guarantee Warrants was
amortized to interest expense over the life of the related debt. On March 29,
1999, the Bank Facility Guarantors agreed to eliminate certain covenants
contained in the Guarantee Issuance Agreement relating to earnings before
interest, depreciation, amortization and taxes and service revenue. In exchange
for this elimination of covenants, the Company agreed to re-price their
Guarantee Warrants, effective April 1,1999, from $12.51 to $7.50. The value of
the re-pricing was approximately $1.5 million.
As a result of the automatic application of certain adjustment provisions
following the issuance of the 7.0 million shares in the August 1999 public
offering, the exercise price of the Guarantee Warrants was reduced to $7.3571
per share and the Guarantee Warrants became exercisable for an additional
126,250 shares. The additional Guarantee Warrants and re-pricing were valued at
$2.4 million. Additionally, in June 2000, the Bank Facility Guarantors agreed to
partially reduce the debt repayment requirements associated with the MSV
transaction. In exchange, the Company further reduced the price of the Guarantee
Warrants to $6.25, which was valued at $1.4 million. In 2001, the Bank Facility
Guarantors agreed to waive certain repayment obligations under the Bank
Financing. In exchange for these waivers, the Company re-priced the warrants
held by certain of the Bank Facility Guarantors from $6.25 to $1.31 per share,
and issued new warrants to one Bank Facility Guarantor with an exercise price of
$1.31 per share. The value of the re-pricing and warrant issuance was $2.3
million.
Further, in connection with the Guarantee Issuance Agreement, the Company had
agreed to reimburse the Bank Facility Guarantors in the event that the
Guarantors were required to make payment under the Bank Financing guarantees,
and, in connection with this reimbursement commitment it provided the Bank
Facility Guarantors a junior security interest with respect to the assets of the
Company, principally its stockholdings in XM Radio and Motient Holdings.
Debt Extinguishments
In 1999, the Company raised $116 million, net of underwriting discounts and
expenses, through the issuance of 7.0 million shares of common stock in a public
offering. Of the net proceeds, Motient used $59 million to pay down a portion of
the Term Loan Facility. In 2000, the Company paid down and permanently reduced
the Term Loan Facility by an additional $1 million with proceeds from stock and
warrant exercises, and the Revolving Credit Facility was permanently reduced by
$22.8 million with a portion of the proceeds of the MSV and Aether transactions.
In 2001, the Company sold 2.0 million shares of XM Radio stock and used $8.5
million of the proceeds to permanently reduce the Term Loan Facility.
Additionally, $12.25 million of proceeds from the Rare Medium note were used to
pay down and permanently reduce the Term Loan Facility.
On November 6, 2001, the agent for the bank lenders under the Bank Financing
declared all loans under the Bank Financing immediately due and payable, due to
the existence of several events of default under the Bank Financing. On the same
date, the bank lenders sought payment in full from the Bank Financing Guarantors
for the accelerated loan obligations. The Bank Facility Guarantors repaid all
such loans on November 14, 2001 in the amount of approximately $97.6 million. As
a result, the Company had a reimbursement obligation to the Bank Guarantors in
the amount of $97.6 million, which included accrued interest and fees.
On November 19, 2001, the Company sold 500,000 shares of its XM Radio common
stock through a broker for $9.50 per share, for aggregate proceeds of $4.75
million. The net proceeds from this sale were paid to the Bank Facility
Guarantors, thereby reducing the amount of the Company's reimbursement
obligation to the Bank Facility Guarantors by such amount. Also on November 19,
2001, the Company delivered all of its remaining 9,257,262 shares of XM Radio
common stock to the Bank Facility Guarantors in full satisfaction of the entire
remaining amount of its reimbursement obligations to the Bank Facility
Guarantors. Upon delivery of these shares, the Bank Facility Guarantors released
the Company from all of its remaining obligations to the Bank Facility
Guarantors under the Bank Financing and the related guarantees and reimbursement
and security agreements. The Company delivered 7,108,184 shares to Hughes
Electronics Corporation, 964,640 shares to Singapore Telecommunications, Ltd.,
and 1,184,438 shares to Baron Capital Partners, L.P.
As a result of the permanent reductions of the Term Facility and the Revolving
Credit Facility, the Company recorded a loss on extinguishment of debt of
approximately $1.2 million in 2001 and $3.0 million in 2000, which reflects the
write-down, on a pro-rata basis, of unamortized guarantee warrants and deferred
financing fees associated with the placement of the Bank Financing.
F-40
Interest Rate Swap Agreement
In connection with the Bank Financing in March 1998, the Company entered into an
interest rate swap agreement, with an implied annual rate of 6.51%. The swap
agreement reduced the impact of interest rate increases on the Term Loan
Facility. The Company paid a fixed fee of approximately $17.9 million for the
swap agreement. In return, the counter-party was obligated to pay a variable
rate equal to LIBOR plus 50 basis points, paid on a quarterly basis directly to
the respective banks on behalf of the Company, on a notional amount of $100
million until the termination date of March 31, 2001. In connection with the pay
down of a portion of the Term Loan Facility during 1999, the Company reduced the
notional amount of its swap agreement from $100 million to $41 million and
realized net proceeds of approximately $6 million due to early termination of a
portion of the swap agreement. The interest rate swap agreement expired in March
2001.
Motorola Vendor Financing
In June 1998, Motorola had entered into an agreement with the Company to provide
up to $15 million of vendor financing, to finance up to 75% of the purchase
price of network base stations. Loans under this facility bear interest at a
rate equal to LIBOR plus 7.0% and are guaranteed by the Company and each
subsidiary of Motient Holdings. The terms of the facility require that amounts
borrowed be secured by the equipment purchased therewith. Advances made during a
quarter constitute a loan, which is then amortized on a quarterly basis over
three years. As of December 31, 2003, $4.8 million was outstanding, including
accrued interest, under this facility at an interest rate of 5.4%. As of
December 31, 2002, $5.9 million was outstanding, including accrued interest,
under this facility at an interest rate of 9%. No additional amounts are
available for borrowing under this facility. In January 2003 and subsequently in
March 2004, the Company restructured this liability. In June 2004, the Company
negotiated a settlement of the entire amounts of these obligations. Please see
Note 16, ("Subsequent Events") for additional information.
Hewlett-Packard Capital Lease
The Company has a capital lease for network equipment with Hewlett-Packard, now
Compaq Corporation. The lease has an effective interest rate of 12.2%. This
capital lease was in default for non-payment at December 31, 2002, however, in
January 2003, this agreement was restructured to provide for a modified payment
schedule. In June 2004, the Company negotiated a settlement of the entire
amounts under this lease. Please see Note 16, ("Subsequent Events") for
additional information.
Assets Pledged and Secured
Prior to the Company's reorganization in May 2002, all wholly-owned subsidiaries
of the Company were subject to financing agreements that limited the amount of
cash dividends and loans that could be advanced to the Company. At December 31,
2001, all of the subsidiaries' net assets were restricted under these
agreements. At December 31, 2003 and 2002, the Company was subject to financing
agreements with Rare Medium, CSFB, Motorola and Hewlett-Packard that continued
to limit the amount of cash dividends and loans that could be advanced to the
Company. The Company's term credit facility that also restricts the Company's
ability to pay cash dividends and receive additional loans that could be
advanced to the Company. These restrictions will have an impact on Motient's
ability to pay dividends. Please see Note 16, "Subsequent Events" for additional
information on payment and settlement of certain of those obligations.
Restricted net assets of the Company's subsidiaries were approximately $35.7
million and $33.1 million at December 31, 2003 and December 31, 2002
respectively.
Covenants
The Company's historical and current debt agreements contain various
restrictions, covenants, defaults, and requirements customarily found in such
financing agreements. Among other restrictions, these provisions include
limitations on cash dividends, restrictions on transactions between Motient and
its subsidiaries, restrictions on capital acquisitions, material adverse change
clauses, and maintenance of specified insurance policies. Please see Note 16,
"Subsequent Events" for additional information on payment and settlement of
certain of these obligations.
F-41
9. RELATED PARTIES
The following table represents a summary of all related party transactions.
Predecessor Predecessor
Successor Company Successor Company Company Company
----------------- ----------------- ------- -------
Four Months (Restated)
Year Ended Eight Months Ended Ended Year Ended
December 31, 2003 December 31, 2002 April 30, 2002 2001
----------------- ----------------- -------------- ----
Payments made to (from) related parties:
Proceeds from the sale of assets to MSV $-- $-- $-- $(42,500)
Operating expenses 258 -- 49 125
Additional investment in MSV -- 957 -- --
Funding of future sub-lease
obligations to MSV -- -- 361 4,000
-------- --------- --------- --------
Net payments to (from) related parties $258 $957 $410 $(38,375)
-------- --------- --------- --------
Due to (from) related parties:
Operating expenses $322 $(234) $618 $ (521)
Note Receivable from MSV (18,781) (18,732) (12,345) (15,000)
-------- --------- --------- ---------
Net amounts due (from) to related parties $(18,459) $ (18,966) $ (11,727) $(15,521)
-------- --------- --------- ---------
For the year ended December 31, 2003, the four months ended April 30, 2002,
eight months ended December 31, 2002, and for the year ended December 31, 2001,
the Company recorded revenue related to the MSV research and development
agreement in the amount of $0, $0, $0 and $2.6 million, respectively.
Communication Technology Advisors LLC
In May 2002, the Company entered into a consulting agreement with Communication
Technology Advisors LLC ("CTA") under which CTA provided consulting services to
the Company. CTA's chairman, Jared E. Abbruzzese, was a director of the Company
until June 20, 2003. Peter Aquino, elected to the Company's Board on June 20,
2003, was a senior managing director of CTA. Gerry S. Kittner, also a Motient
director, is an advisor and consultant for CTA.
CTA is a consulting and private advisory firm specializing in the technology and
telecommunications sectors. The Company's agreement with CTA had an initial term
of three months ending August 15, 2002, and was extended by mutual agreement for
several additional terms of two or three months each. For the first three months
of the agreement, CTA was paid a flat fee of $60,000 per month, and for the
period August 2002 to May 2003, the monthly fee was $55,000. Beginning in May
2003, the monthly fee was reduced to $39,000. The Company also agreed to
reimburse CTA for CTA's out-of-pocket expenses incurred in connection with
rendering services during the term of the agreement. This agreement was modified
on January 30, 2004.
CTA had previously acted as the spectrum and technology advisor to the official
committee of unsecured creditors in connection with the Company's Chapter 11
case. CTA received a total of $475,000 in fees for such advice and was
reimbursed a total of $4,896 for expenses in connection with the rendering of
such advice.
Except for the warrant offered to CTA described below and the warrants granted
to certain members of CTA in connection with the private placement of the
Company's common stock on April 7, 2004, neither CTA, nor any of its principals
or affiliates is a stockholder of Motient, nor does it hold any debt of Motient
(other than indebtedness as a result of consulting fees and expense
reimbursement owed to CTA in the ordinary course under the Company's existing
agreement with CTA). CTA has informed the Company that in connection with the
conduct of its business in the ordinary course, (i) it routinely advises clients
in and appears in restructuring cases involving telecommunications companies
throughout the country, and (ii) certain of the Company's stockholders and
bondholders and/or certain of their respective affiliates or principals, may be
considered to be (a) current clients of CTA in matters unrelated to Motient; (b)
former clients of CTA in matters unrelated to Motient; and (c) separate
affiliates of clients who are (or were) represented by CTA in matters unrelated
to Motient.
F-42
In July 2002, the Company's Board approved the offer and sale to CTA (or
affiliates thereof) of a warrant (or warrants) for 500,000 shares of the
Company's common stock, for an aggregate purchase price of $25,000. The warrant
has an exercise price of $3.00 per share and a term of five years. These
warrants were valued at $1.5 million and were recorded as a consultant
compensation expense in December of 2002. Certain affiliates of CTA purchased
the warrants in December 2002. Christopher W. Downie received a warrant for
100,000 of the 500,000 shares.
In November 2003, CTA was engaged to provide valuation of Motient's equity
interest in MSV as of December 31, 2002. CTA was paid $150,000 for this
valuation.
At December 31, 2003, CTA was owed $415,000.
On January 30, 2004, the Company engaged CTA to act as chief restructuring
entity. The term of CTA's engagement is currently scheduled to end on August 1,
2004. As consideration for this work, Motient agreed to pay to CTA a monthly fee
of $60,000, one-half of which will be paid monthly in cash and one-half of which
will deferred. The new agreement amends the consulting arrangement discussed
above. In April 2004, Motient paid CTA $440,000 for all past deferred fees.
In April 2004 and July 2004, certain members of CTA were granted warrants to
purchase 400,000 shares and 340,000 shares, respectively, of common stock in
conjunction with the private placements of the Company's common stock on April
7, 2004 and July 1, 2004. The warrants have an exercise price of $5.50 and $8.57
per share, respectively, and a term of five years. In December 2004, certain
affiliates of CTA were granted options to purchase 125,000 shares of the
Company's common stock at a price of $8.57 per share. (Unaudited) The options
are immediately vested and have a term of 10 years. (Unaudited)
Mr. Abbruzzese, Mr. Kittner and Mr. Aquino did not participate in the
deliberations or vote of the Board with respect to the foregoing matters while
serving as a member of the Board.
10. LEASES
Capital Leases
The Company leases certain office equipment and switching equipment under
agreements accounted for as capital leases. Assets recorded as capital leases in
the accompanying balance sheets include the following:
Successor Company
---------------------------
2003 2002
---- ----
(in thousands)
Switch equipment $9,795 $9,795
Office equipment --- 2,501
Less accumulated depreciation (5,280) (5,669)
------- -------
Total $4,515 $ 6,627
====== =======
Subsequent to the end of the period covered by this report, the Company
restructured certain of its existing lease obligations. Please see Note 16
("Subsequent Events").
Operating Leases
The Company leases substantially all of its base station sites through operating
leases. The majority of these leases provide for renewal options for various
periods at their fair rental value at the time of renewal. In the normal course
of business, the operating leases are generally renewed or replaced by other
leases. Additionally, the Company leases certain facilities and equipment under
arrangements accounted for as operating leases. Certain of these arrangements
have renewal terms. Total rent expense, under all operating leases, approximated
$15.2 million for the year ended December 31, 2003, $10.5 million for the eight
months ended December 31, 2002, $5.6 million for the four months ended April 30,
2002, and $13.4 million in for the year ended December 31 2001.
F-43
At December 31, 2003, minimum future lease payments under noncancelable
operating and capital leases are as follows:
Operating Capital
--------- -------
(in thousands)
2004 $12,170 $1,752
2005 9,238 1,752
2006 6,089 --
2007 2,090 --
2008 and thereafter 4,098 --
------ --
Total $33,685 3,504
------- -----
Less: Interest (408)
-----
Present value of minimum lease payments $3,096
Less: Current maturities, including those amounts
deemed to be in default (1,454)
-------
Non current capital lease obligation $1,642
------
11. COMMITMENTS AND CONTINGENCIES
As of December 31, 2003, the Company had no contractual inventory commitments.
UPS, the Company's largest customer as of December 31, 2002, has substantially
completed its migration to next generation network technology, and its monthly
airtime usage of the Company's network has declined significantly. UPS was our
second largest customer for the twelve months ended December 31, 2003 and our
eighth largest customer for the three months ended December 31, 2003. There are
no minimum purchase requirements under the Company's contract with UPS and the
contract may be terminated by UPS on 30 days' notice at which point any
remaining prepayment would be require to be repaid. While the Company expects
that UPS will remain a customer for the foreseeable future, the bulk of UPS'
units have migrated to another network. As of May 31, 2004, UPS had
approximately 3,800 active units on Motient's network.
Until June 2003, UPS had voluntarily maintained its historical level of payments
to mitigate the near-term revenue and cash flow impact of its recent and
anticipated continued reduced network usage. However, beginning in July 2003,
the revenues and cash flow from UPS declined significantly. Also, due to a
separate arrangement entered into in 2002 under which UPS prepaid for network
airtime to be used by it in 2004, the Company does not expect that UPS will be
required to make any cash payments to the Company in 2004 for service to be
provided in 2004. Pursuant to such agreement, and, as of April 30, 2004, UPS has
not been required to make any cash payments to the Company in 2004, and the
value of the Company's remaining airtime service obligations to UPS in respect
of the prepayment was approximately $4.3 million. If UPS terminates the
contract, we will be required to refund any unused portion of the prepayment to
UPS.
As of December 31, 2003, we had the following outstanding cash contractual
commitments:
Total <1 year 1-3 years 3 - 5 years More than 5 years
----- ------- --------- ----------- -----------------
(in thousands)
Operating leases (1) $33,685 $12,170 $17,417 $1,614 $2,484
Capital lease obligations, including interest 3,504 1,752 1,752 --- ---
thereon (1)
Notes Payable (2) 22,885 --- 22,885 --- ---
Term Credit Facility (3) 4,914 --- 4,914 --- ---
Equipment financing commitment (4) 4,814 2,413 2,401 --- ---
----- ----- ----- --- ---
Total Contractual Cash Obligations $69,802 $16,335 $49,369 $1,614 $2,484
======= ======= ======= ====== ======
(1) These commitments generally contain provisions that provide for an
acceleration of rent upon a default by us, except that certain long-term real
estate leases, categorized as Operating Leases, may not contain such provisions.
F-44
(2) In addition to being accelerable upon default, notes payable to Rare Medium
and CSFB, which comprise approximately $21 million of this amount, must be
prepaid with 25% of the proceeds due from any repayment of the $15 million
principal note issued to Motient by MSV. These notes were paid in full in July
2004 (Unaudited).
(3) This facility was repaid in full in April 2004. (Unaudited)
(4) All obligations pursuant to this commitment and note were settled and repaid
in July 2004. (Unaudited)
In May 2002, the FCC filed a proof of claim with the United States Bankruptcy
Court, asserting a pre-petition claim in the approximate amount of $1.0 million
in fees incurred as a result of our withdrawal from certain auctions. Under our
court-approved Plan of Reorganization, subsequent to June 30, 2002 the FCC's
claim was classified as an "other unsecured" claim, and the FCC was issued a
pro-rata portion of 97,256 shares of common stock issued to creditors with
allowed claims in such class. We recorded a $1.0 million expense in April 2002
for this claim.
At April 30, 2002, we had certain contingent and/or disputed obligations under
our satellite construction contract entered into in 1995, which contained flight
performance incentives payable by us to the contractor if the satellite
performed according to the contract. Upon the implementation of the Plan of
Reorganization, this contract was terminated, and in satisfaction of all amounts
alleged to be owed by us under this contract, the contractor received a pro-rata
portion of the 97,256 shares issued to creditors holding allowed unsecured
claims. The shares were issued upon closure of the bankruptcy claims process.
12. EMPLOYEE BENEFITS
Prior to the Company's reorganization, the Company had several active stock
plans. All of these plans and the respective authorized and issued stock options
were cancelled as part of the Company's reorganization on May 1, 2002.
Defined Contribution Plan
The Company sponsored a 401(k) defined contribution plan ("401(k) Savings Plan")
in which all employees of Motient could participate. The 401(k) Savings Plan
provided for (i) a Company match of employee contributions, in the form of
common stock, at a rate of $1 for every $1 of an employee's contribution not to
exceed 4% of an employee's eligible compensation, (ii) a discretionary annual
employer non-elective contribution, (iii) the option to have plan benefits
distributed in the form of installment payments, and (iv) the reallocation of
forfeitures, if any, to active participants. In 2001, effective January 2002,
the Company amended its 401(k) Savings Plan to make the matching contributions
discretionary, as well as to allow the match to be made in either cash or shares
of common stock, at the Company's sole discretion. The Company's matching
expense was $0.36 million for 2003, $0 for 2002 and $1.1 million for 2001.
During 2001, the Company authorized an additional 5,025,000 shares for the
401(k) Savings Plan, and authorized an additional 268,000 shares in January
2002. As part of Company's plan of reorganization, all of the outstanding shares
of the Company's common stock were cancelled. During 2002, the Company
authorized 200,000 shares for the 401(K) Savings Plan.
Employee Stock Purchase Plan
The Company had an Employee Stock Purchase Plan ("Stock Purchase Plan") to allow
eligible employees to purchase shares of the Company's common stock at 85% of
the lower of market value on the first and last business day of the six-month
option period. An aggregate of 217,331 shares of common stock were issued under
the Stock Purchase Plan in 2001.
Effective January 2002, the Company discontinued the Stock Purchase Plan.
2002 Stock Option Plan
The Company's 2002 stock option plan was adopted by the Board on May 31, 2002
and received stockholder approval on July 11, 2002. A total of 2,993,024 shares
of common stock have been reserved for issuance under the 2002 stock option
plan. Under the 2002 stock option plan, the Company is authorized to grant
options to purchase shares of common stock intended to qualify as incentive
stock options, as defined under section 422 of the Internal Revenue Code of
1986, as amended, and non-qualified stock options to any employees, outside
directors, consultants, advisors and individual service providers whose
participation in the 2002 stock option plan is determined by the Company's
F-45
compensation and stock option committee to be in the Company's best interests.
The term of each stock option is fixed by the Board or the compensation and
stock option committee, and each stock option is exercisable within ten years of
the original grant date. Some change of control transactions involving the
Company, such as a sale of Motient, may cause awards granted under the 2002
stock option plan to vest. Generally, an option is not transferable by the
recipient except by will or the laws of descent and distribution. As of December
31, 2003, options to purchase 2,993,024 shares of common stock had been
authorized under the 2002 stock option plan at a price of $5.00 per share, of
which options to purchase 1,757,513 shares of the Company's common stock were
outstanding at December 31, 2003. In March 2003, the Board approved the
reduction in the exercise price of all of the outstanding stock options from
$5.00 per share to $3.00 per share.
A portion of the options granted under the plan will either vest or be rescinded
based on Motient's performance. These options are accounted for in accordance
with variable plan accounting, which requires that the value of these options be
measured at their intrinsic value and any change in that value be charged to the
income statement upon the determination that the fulfillment of the Company
performance criteria is probable. The other options are accounted for as a fixed
plan and in accordance with intrinsic value accounting, which requires that the
excess of the market price of stock over the exercise price of the options, if
any, at the time that both the exercise price and the number of options are
known be recorded as deferred compensation and amortized over the option vesting
period. As of the date of grant, the option price per share was in excess of the
market price; therefore, these options are not deemed to have any value and no
expense has been recorded to date.
The 2002 options are subject to vesting in two parts - 50% of the shares vest in
three equal parts on the first, second and third anniversary of the date of
grant, and the other 50% vest in three equal parts, or are rescinded, based on a
comparison of the Company's performance in 2002, 2003, and 2004 to certain
objectives established by the compensation and stock option committee of the
Board following the availability of the annual results. In May 2004, the
compensation committee of the Company's Board made a determination to vest a
portion of the 2003 performance options.
In July and September 2003, the compensation and stock option committee of the
Company's Board, acting pursuant to the Company's 2002 stock option plan,
granted 26 employees and officers options to purchase an aggregate of 470,000
shares of the Company's common stock at a price of $5.15 per share and 25,000
shares of the Company's common stock at a price of $5.65 per share. One-half of
each option grant vests with the passage of time and the continued employment of
the recipient, in three equal increments, on the first, second and third
anniversary of the date of grant. The other half of each grant will either vest
or be rescinded based on the performance of the Company in 2004. In August 2004,
the Company granted one employee options to purchase 100,000 shares of stock at
$5.65 per share. (Unaudited) In December 2004, the directors, one employee and
one consultant received options to purchase an aggregate of 195,000 shares of
the Company's common stock at a price of $8.57 per share. (Unaudited) These
options are exercisable immediately. (Unaudited) If vested and not exercised,
the options will expire on the 10th anniversary of the date of grant.
For additional information regarding the establishment of new employee benefit
plans, please see Section 16 ("Subsequent Events"). (Unaudited)
13. BUSINESS ACQUISITIONS AND DISPOSITIONS
Sale of Retail Transportation Business to Aether
In November 2000, Motient sold assets relating to its retail transportation
business to Aether Systems, Inc. ("Aether") and received approximately $45
million. This consisted of $30 million for the assets, of which $10 million was
held in an escrow account which was subsequently released in the fourth quarter
of 2001 upon the satisfaction of certain conditions, and $15 million for a
perpetual license to use and modify any intellectual property owned by or
licensed by Motient in connection with the retail transportation business.
Motient recognized an $8.3 million gain in the fourth quarter of 2001 when the
additional $10 million of proceeds were released from escrow. The $1.7 million
difference between the proceeds received and the gain recognized is a result of
pricing modifications that were made at the time of the release of the escrow
related to network capacity agreements. Motient amortized the $15 million
perpetual license payment, as restated, over a four year period through the
adoption of "fresh-start" accounting, which represented the life of the network
airtime agreement that Motient entered into with Aether at the time of the
closing of the asset sale.
F-46
Concurrent with the closing of the asset sale, the Company and Aether entered
into two long-term, prepaid network airtime agreements valued at $20 million, of
which $5 million was paid at closing, pursuant to which Aether agreed to
purchase airtime on the Company's satellite and terrestrial networks. Aether
also became an authorized reseller of the Company's eLink and BlackBerry TM by
Motient wireless email service offerings.
MSV
On June 29, 2000, the Company formed a joint venture subsidiary, MSV, in which
it owned until November 26, 2001, 80% of the membership interests in order to
conduct research and development activities. The remaining 20% interests in MSV
were owned by three investors unrelated to Motient. The other investors paid $50
million to MSV (in the aggregate), in exchange for their 20% interest. Motient
Services Inc. ("Motient Services") owned the Company's satellite and related
assets.
Of the $50 million payment received by MSV, $6.0 million was retained by MSV to
fund certain research and development activities, $24 million was paid to
Motient Services as a deposit on the purchase of the satellite assets, and $20
million was also paid to Motient Services for the use of the satellite and
frequency under a research and development agreement.
On November 26, 2001, Motient sold the assets comprising its satellite
communications business to MSV, as part of a transaction in which certain other
parties joined MSV, including TMI, a Canadian satellite services provider. In
consideration for its satellite business assets, Motient Services received the
following: (i) a $24 million cash payment in June 2000, (ii) a $41 million cash
payment paid at closing on November 26, 2001, net of $4 million retained by MSV
to fund the Company's future sublease obligations to MSV for rent and utilities
through August 2003 and (iii) a five-year $15 million note. In this transaction,
TMI also contributed its satellite communications business assets to MSV. In
addition, Motient purchased a $2.5 million convertible note issued by MSV, and
certain other investors, including a subsidiary of Rare Medium, purchased a
total of $52.5 million of convertible notes. The Company realized a gain of
approximately $29.8 million on the sale of its net assets; however, 48% of the
gain, or $14.3 million, was deferred and amortized over five years through the
adoption of "fresh-start" accounting.
MSV has also filed a separate application with the FCC with respect to MSV's
plans for a new generation satellite system utilizing ancillary terrestrial base
stations. For further information on the FCC approval process, see note 2
("Significant Accounting Policies-Investment in MSV and Notes Receivable from
MSV.) For further information on the FCC approval process, see Note 16
("Subsequent Events").
In July 2002, MSV commenced a rights offering seeking total funding in the
amount of $3.0 million. While the Company was not obligated to participate in
the offering, the Company's board determined that it was in the Company's best
interests to participate so that its interest in MSV would not be diluted. On
August 12, 2002, the Company funded an additional $957,000 to MSV pursuant to
this offering, and received a new convertible note in such amount. This rights
offering did not impact the Company's ownership position in MSV.
As of December 31, 2002, the Company had an ownership percentage, on an
undiluted basis, of approximately 48% of the common and preferred units of MSV,
and approximately 55% of the common units. Assuming that all of MSV's
outstanding convertible notes are converted into limited partnership units of
MSV, as of December 31, 2002 Motient had a 33.3% partnership interest in MSV on
an "as converted" basis giving effect to the conversion of all outstanding
convertible notes of MSV, and 25.5% on a fully-diluted basis, assuming certain
other investors exercise their right to make additional investment in MSV as a
result of the FCC ancillary terrestrial components ("ATC") application process.
In February 2003, the FCC adopted the ATC Order, giving mobile satellite
operators broad authority to use their assigned spectrum to operate an ATC. The
ATC Order established a set of preconditions and technical limits for ATC
operations, as well as an application process for ATC approval of the specific
system incorporating the ATCs that the licensee intends to use. On November 18,
2003, MSV filed an application with the FCC to expand the use of its L-band
assets and construct its next-generation hybrid network with ATC. As part of its
next-generation system, MSV intends to use its L-band spectrum, which the FCC
had previously limited to satellite-only services, for terrestrial wireless
services in conjunction with mobile satellite services.
In addition, both proponents and opponents of ATC (including MSV) have filed for
reconsideration of the ATC Order, and the opponents of ATC have filed an appeal
with the U.S. Court of Appeals for the District of Columbia Circuit. Oppositions
to the petitions for reconsideration were filed August 20, 2003; replies were
F-47
filed September 2, 2003. The Court of Appeals has held the appeal in abeyance
pending resolution of the reconsideration requests. For information regarding
recent developments involving MSV, please see Note 16 ("Subsequent Events").
On August 21, 2003, two investors in MSV (excluding Motient) invested an
additional $3.7 million in MSV in exchange for Class A preferred units of
limited partnership interests in MSV. MSV used the proceeds from this investment
to repay other indebtedness that is senior in its right of repayment to
Motient's promissory note. Under the terms of the amended and restated
investment agreement, these investors also have the option of investing an
additional $17.6 million in MSV by December 31, 2003; however, if, prior to this
time, the FCC does not issue a decision addressing MSV's petition for
reconsideration with respect to the ATC Order (as hereinafter defined), the
option will be automatically extended to March 31, 2004.
On April 2, 2004, two exiting investors in MSV invested $17.6 million in MSV in
exchange for class A preferred units of limited partnership interests of MSV. In
connection with this investment, MSV's amended and restated investment agreement
was amended to provide that of the total $17.6 million in proceeds, $5.0 million
was used to repay certain outstanding indebtedness of MSV, including $2.0
million of accrued interest under the $15.0 million promissory note issued to
Motient by MSV. Motient was required to, and paid 25% of the $2.0 million it
received in this transaction, or $500,000, to prepay its existing notes owed to
Rare Medium Group and CSFB. The remainder of the proceeds from this investment
were used for general corporate purposes by MSV. As of the closing of the
additional investment on April 2, 2004, Motient's percentage ownership of MSV
was approximately 29.5% on an "as converted" basis giving effect to the
conversion of all outstanding convertible notes of MSV.
On May 17, 2004, MSV was awarded its first patent on a next generation satellite
system technology containing an ancillary terrestrial component (ATC)
innovation. MSV believes that patent will support its ability to deploy ATC in a
way that minimizes interference to other satellite systems, and addresses ways
to mitigate residual interference levels using interference-cancellation
techniques.
Please see note 2, "Significant Accounting Policies- Investment in MSV and Notes
Receivable from MSV" and note 16, "Subsequent Events-Developments Relating to
MSV."
For additional information regarding MSV, please see the financial statements of
MSV beginning on page M-1. (Unaudited)
Sale of SMR Licenses to Nextel Communications, Inc.
On July 29, 2003, our wholly-owned subsidiary, Motient Communications, entered
into an asset purchase agreement with Nextel, under which Motient Communications
sold to Nextel certain of its SMR licenses issued by the FCC for $3.4 million.
The closing of this transaction occurred on November 7, 2003. On December 9,
2003, Motient Communications entered into a second asset purchase agreement,
under which Motient Communications will sell additional licenses to Nextel for
$2.75 million resulting in a $1.5 million loss which was recorded in December,
2003. In February 2004, the Company closed the sale of licenses covering
approximately $2.2 million of the purchase price, and in April 2004, the Company
closed the sale of approximately one-half of the remaining licenses. The
transfer of the other half of the remaining licenses has been challenged at the
FCC by a third-party. While the Company believes, based on the advice of
counsel, that the FCC will ultimately rule in its favor, the Company cannot be
assured that it will prevail, and, in any event, the timing of any final
resolution is uncertain. None of these licenses are necessary for Motient's
future network requirements. Motient has and expects to continue to use the
proceeds of the sales to fund its working capital requirements and for general
corporate purposes. The lenders under Motient Communications' Term Credit
Agreement consented to the sale of these licenses.
XM Radio
In January 2001, pursuant to FCC approval for Motient to cease to control XM
Radio, the number of directors that the Company appointed to XM Radio's Board of
Directors was reduced to less than 50% of XM Radio's directors, and the Company
converted a portion of its super-voting Class B common stock of XM Radio to
Class A common stock. As a result, the Company ceased to control XM Radio, and
as of January 1, 2001, the Company accounted for its investment in XM Radio
pursuant to the equity method of accounting.
F-48
In January and February 2001, the Company sold, in two separate transactions,
two million shares of its XM Radio Class A common stock, at an average price of
$16.77 per share, for total proceeds of $33.5 million. In October 2001, as noted
above, the Company repaid $26.2 million of the Rare Medium notes in exchange for
five million of its XM Radio shares. On November 19, 2001, the Company sold
500,000 shares of its XM Radio common stock through a broker for $9.50 per
share, for aggregate proceeds of $4.75 million. Also on November 19, 2001, as a
result of a series of transaction to cure defaults under its Bank Financing and
to the Bank Facility Guarantors, the Company sold and/or delivered all of its of
its remaining 9,257,262 shares of XM Radio common stock to the Bank Facility
Guarantors in full satisfaction of the entire remaining amount of its
reimbursement obligations to the Bank Facility Guarantors. The agent for the
bank lenders under the Bank Financing declared all loans under the Bank
Financing immediately due and payable, due to the existence of several events of
default under the Bank Financing. On the same date, the bank lenders sought
payment in full from the Bank Financing Guarantors for the accelerated loan
obligations. For the year ended December 31, 2001, the Company recorded proceeds
of approximately $38.3 million from the sale in 2001 of two million shares of
its XM Radio stock. For the year ended December 31, 2001, the Company recorded
equity in losses of XM Radio of $48.5 million. As of November 19, 2001, the
Company ceased to have any interest in XM Radio.
In anticipation of the exchange of the XM Radio shares for debt, the Company
recorded an impairment loss of $81.5 million in 2001. This loss represents the
write down of the Company's investment in XM Radio to the fair value on the date
of the exchange. Upon the actual exchange of shares, the Company recognized a
net extraordinary gain of $10.0 million, which represented the difference
between the fair market value of the XM Radio stock as compared to the value of
the debt cancelled in exchange for the shares. For the twelve months ended
December 31, 2001, the Company recorded equity in losses of XM Radio of $48.5
million.
Merger Agreement with Rare Medium Group, Inc.
On May 14, 2001, the Company signed a definitive merger agreement with Rare
Medium pursuant to which the Company would acquire Rare Medium. On October 1,
2001, the Company and Rare Medium announced their mutual termination of the
merger. The Company recorded a charge of $4.1 million in 2001 representing costs
incurred by the Company to pursue this transaction.
14. LEGAL AND REGULATORY MATTERS
Legal
Motient filed a voluntary petition for relief under Chapter 11 of the Bankruptcy
Code on January 10, 2002. The Bankruptcy Court confirmed Motient's Plan of
Reorganization on April 26, 2002, and Motient emerged from bankruptcy on May 1,
2002. For further details regarding this proceeding, please see Note 2
("Significant Accounting Policies -- Motient's Chapter 11 Filing and Plan of
Reorganization and "Fresh-Start" Accounting").
A former employee who was discharged as part of a reduction in force in July
2002 asserted a claim for a year's pay and attorney's fees under a Change of
Control Agreement that the employee had with the Company. This claim was subject
to binding arbitration. Although the Company believed that it had substantial
defenses on the merits, on July 11, 2003, the Company was informed that the
arbitrator ruled in the employee's favor. In August 2003, the Company made a
$200,000 payment to this employee for the disputed pay and related benefits
costs and legal fee reimbursement.
Motient's rights to use and sell the BlackBerryTM software and RIM's handheld
devices may be limited or made prohibitively expensive as a result of a patent
infringement lawsuit brought against RIM by NTP Inc. (NTP v. Research In Motion,
Civ. Action No. 3:01CV767 (E.D. Va.)). In that action, a jury concluded that
certain of RIM's BlackBerryTM products infringe on patents held by NTP covering
the use of wireless radio frequency information in email communications. On
August 5, 2003, the judge in the case ruled against RIM, awarding NTP $53.7
million in damages and enjoining RIM from making, using, or selling the
products, but stayed the injunction pending appeal by RIM. The appeal has not
yet been resolved. As a purchaser of those products, Motient could be adversely
affected by the outcome of that litigation.
For further details regarding legal matters related to periods after this
report, please see Note 16 ("Subsequent Events").
F-49
Regulatory
The terrestrial two-way wireless data network used in Motient's wireless
business 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 Motient's wireless business in particular. The following is a summary of
significant laws, regulations and policies affecting the operation of Motient's
wireless business. 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. Neither the outcome of these
proceedings nor their impact on Motient's operations can be predicted at this
time.
The ownership and operation of Motient's terrestrial network is subject to the
rules and regulations of the FCC, which acts under authority established by the
Communications Act of 1934, as amended, 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. Motient operates pursuant to various licenses granted by the FCC.
Motient is a commercial mobile radio service provider and therefore is regulated
as a common carrier. Motient must offer service at just and reasonable rates on
a first-come, first-served basis, without any unjust or unreasonable
discrimination, and Motient is subject to the FCC's complaint processes. The FCC
has forborne from applying numerous common carrier provisions of the
Communications Act to commercial mobile radio service providers. In particular,
Motient is not subject to traditional public utility rate-of-return regulation,
and is not required to file tariffs with the FCC.
The FCC's universal service fund supports the provision of affordable
telecommunications to high-cost areas, and the provision of advanced
telecommunications services to schools, libraries, and rural health care
providers. Under the FCC's current rules, end-user revenues derived from the
sale of information and other non-telecommunication services and certain
wholesale revenues derived from the sale of telecommunications services are not
subject to universal service fund obligations. Based on the nature of its
business, Motient is currently not required to contribute to the universal
service fund. Current rules also do not require that Motient impute to its
contribution base retail revenues derived when it uses its own transmission
facilities to provide a service that includes both information service and
telecommunications components. There can be no assurances that the FCC will
retain the exclusions described herein or its current policy regarding the scope
of a carrier's contribution base. Motient may also be required to contribute to
state universal service programs. The requirement to make these state universal
service payments, the amount of which in some cases may be subject to change and
is not yet determined, may have a material adverse effect on the conduct of
Motient's business.
Motient is subject to the Communications Assistance for Law Enforcement Act, or
CALEA. Under CALEA, Motient must ensure that law enforcement agencies can
intercept certain communications transmitted over its networks. Motient must
also ensure that law enforcement agencies are able to access certain
call-identifying information relating to communications over Motient's networks.
The deadline for complying with the CALEA requirements and any rules
subsequently promulgated was June 30, 2002. Based on discussions with Federal
law enforcement agencies regarding the applicability of CALEA's provisions to
the Company, the Company does not believe that its network, which uses packet
data technology, is subject to the requirements of CALEA. At the suggestion of
Federal law enforcement agencies, the Company has developed an alternative
methodology for intercepting certain communications over its network for the
purposes of law enforcement surveillance. The Company believes this alternative
methodology has substantially the same functionality as the standards provided
in CALEA. It is possible that the Company's alternative methodology may
ultimately be found not to comply with CALEA's requirements, or the Company's
interpretation that CALEA does not apply to its network may ultimately be found
to be incorrect. Should these events occur, the requirement to comply with CALEA
could have a material adverse effect on the conduct of the Company's business.
In addition, 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 intended to
compensate carriers for any reasonable costs associated with modifications
required to make compliance "reasonably achievable." It is possible that all
F-50
necessary modifications will not qualify for this compensation and that the
available funds will not be sufficient to reimburse Motient. Therefore, the
requirement to comply with CALEA could have a material adverse effect on the
conduct of Motient's business.
Motient's FCC licenses are granted for a term of 10 years, subject to renewal.
For Motient's non-market-based licenses, or non-auction licenses, renewal is
granted in the ordinary course. Motient no longer holds any auction licenses.
All such licenses were sold in November 2003 to Nextel Communications and its
affiliates.
As a matter of general regulation by the FCC, Motient is subject to, among other
things, payment of regulatory fees and restrictions on the level of radio
frequency emissions of Motient's systems' mobile terminals and base stations.
Any of these regulations may have an adverse impact on the conduct of Motient's
business.
Motient's FCC licenses 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, referred to as
indirect ownership, if more than 25% of the controlling corporation's capital
stock is owned of record or voted by non-U.S. citizens or entities or their
representatives, if the FCC finds that the public interest is served by the
refusal or revocation of such license. However, with the implementation of the
Basic Telecommunications Agreement, negotiated under the auspices of the World
Trade Organization and to which the United States is a party, the FCC will
presume that indirect ownership interests in the Company's FCC licenses in
excess of 25% by non-U.S. citizens or entities will be permissible to the extent
that the ownership interests are from World Trade Organization-member countries.
If the 25% foreign ownership limit is exceeded, the FCC could take a range of
potential actions, which could harm Motient's business.
Motient's terrestrial network consists of base stations licensed in the 800 MHz
business radio and specialized mobile radio services. The terrestrial network is
interconnected with the public switched telephone network.
The FCC's licensing regime in effect when the majority of authorizations used in
the terrestrial network were issued provided for individual, site-specific
licenses. The FCC has since modified the licensing process applicable to
specialized mobile radio licenses in the band. Specialized mobile radio licenses
are now issued by auction in wide-area, multi-channel blocks. The geographic
area and number of channels within a block vary depending on whether the
frequencies are in the so-called "Upper 200" specialized mobile radio channels,
the "General Category," or the "Lower 80." In addition, wide-area auction
winners in the Upper 200 have the right to relocate incumbent licensees to other
"comparable" spectrum. Auction winners in the General Category and Lower 80 do
not have these same relocation rights and must afford protection to incumbent
stations. Incumbent stations may not, however, expand their service areas.
Wide-area auction winners have substantial flexibility to install any number of
base stations including, in the case of the General Category and Lower 80
channels, base stations that operate on the same channels as incumbent
licensees. Motient was an incumbent in the Upper 200 and remains an incumbent on
certain General Category channels. Although the FCC requires General Category
and Lower 80 geographic licensees to protect incumbents from interference, there
is some concern that such interference may occur and that practical application
of the interference-protection rules may be uncertain.
Motient believes that it has licenses for a sufficient number of channels to
meet its current capacity needs on the terrestrial network.
Motient operates the terrestrial network under a number of waivers involving 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's statutory provision creating the commercial mobile
radio service classification. As of March 3, 1999, Motient completed its planned
construction of base stations for which extended implementation was granted by
the FCC in 1996.
F-51
On March 14, 2002, the FCC adopted a notice of proposed rulemaking exploring
options and alternatives for improving the spectrum environment for public
safety operations in the 800 MHz band. This notice of proposed rulemaking was
issued by the FCC after a "white paper" proposal was submitted to the FCC by
Nextel Communications Inc. in November 2001 addressing largely the same issues.
In its white paper, Nextel proposed that certain of its wireless spectrum in the
700 MHz band, lower 800 MHz band, and 900 MHz band be exchanged for spectrum in
the upper 800 MHz band and in the 2.1 GHz band. Nextel's proposal addressed the
problem of interference to public safety agencies by creating blocks of
contiguous spectrum to be shared by public safety agencies. Since the notice of
proposed rulemaking was issued, Motient has been actively participating with
other affected licensees, including Nextel, to reach agreement on a voluntary
plan to re-allocate spectrum to alleviate interference to public safety
agencies. On December 24, 2002, a group of affected licensees, including
Motient, Nextel, and several other licensees, submitted a detailed proposal to
the FCC for accomplishing the re-allocation of spectrum over a period of several
years. These parties have also been negotiating a mechanism by which Nextel
would agree to reimburse costs, up to $850 million, incurred by affected
licensees in relocating to different parts of the spectrum band pursuant to the
rebanding plan.
In mid-April 2003, the FCC's Office of Engineering and Technology ("OET") sent a
letter to several manufacturers requesting additional practical, technical and
procedural solutions or information that may have yet to be considered. Upon
reviewing the filed comments, OET has indicated that other technical solutions
were possible and were being reviewed by the FCC. To date, no action has been
taken by the FCC. We cannot assure you that our operations will not be affected
by this proceeding.
For further details regarding regulatory matters related to periods after this
report, please see Note 16 ("Subsequent Events").
F-52
15. SUPPLEMENTAL CASH FLOW INFORMATION
Successor Company Predecessor Company
----------------- -------------------
(unaudited) (unaudited)
Nine Months Nine Months Eight Months Four Months (Restated)
Ended Ended Year Ended Ended Ended Year Ended
September 30, September 30, December 31, December 31, April 30, December 31,
2004 2003 2003 2002 2002 2001
---- ---- ---- ---- ---- ----
(in thousands)
Cash payments for interest $4,648 $1,459 $572 $396 $427 $26,240
Cash payment for income taxes -- -- -- -- -- --
Noncash investing and financing activities:
Leased asset and related obligations -- -- -- -- -- 632
Issuance of restricted stock -- -- -- -- -- 419
Cancellation of restricted stock -- -- -- -- -- (264)
Additional deferred compensation on non-cash
compensation -- -- -- -- 97 1,587
Issuance and repricing of common stock
purchase warrants 15,079 10,024 10,024 1,464 -- 2,326
Capital (loss) gain in connection with the
sale of stock by XM Radio -- -- -- -- -- (12,180)
Capital gain in connection with the sale of
stock by MSV -- -- -- -- -- 12,883
Vendor financing for property in service -- -- -- -- -- --
Vendor financing under maintenance agreement -- -- -- 2,631 -- --
Issuance of Common Stock under the Defined
Contribution Plan $150 $190 $280 $-- $(203) $1,151
16. SUBSEQUENT EVENTS
Private Placements
On April 7, 2004, Motient sold 4,215,910 shares of its common stock at $5.50 per
share for an aggregate purchase price of $23,187,505 to The Raptor Global
Portfolio Ltd., The Tudor BVI Global Portfolio, Ltd., The Altar Rock Fund L.P.,
Tudor Proprietary Trading, L.L.C., Highland Crusader Offshore Partners, L.P.,
York Distressed Opportunities Fund, L.P., York Select, L.P., York Select Unit
Trust, M&E Advisors L.L.C., Catalyst Credit Opportunity Fund, Catalyst Credit
Opportunity Fund Offshore, DCM, Ltd., Greywolf Capital II LP and Greywolf
Capital Overseas Fund and LC Capital Master Fund. The sale of these shares was
not registered under the Securities Act of 1933 and the shares may not be sold
in the United States absent registration or an applicable exemption from
registration requirements. The shares were offered and sold pursuant to the
exemption from registration afforded by Rule 506 under the Securities Act and/or
Section 4(2) of the Securities Act. In connection with this sale, Motient signed
a registration rights agreement with the holders of these shares. Among other
things, this registration rights agreement requires Motient to file and cause to
make effective a registration statement permitting the resale of the shares by
the holders thereof. Motient also issued warrants to purchase an aggregate of
1,053,978 shares of our common stock to the investors listed, at an exercise
price of $5.50 per share. These warrants will vest if and only if Motient does
not meet certain deadlines between July and November, 2004, with respect to
certain requirements under the registration rights agreement. If the warrants
vest, they may be exercised by the holders thereof at any time through June 30,
2009. Because Motient met certain conditions following the issuance of the
warrants, they will never vest (unaudited).
In connection with this sale, Motient issued to Tejas Securities Group, Inc.,
its placement agent for the private placement, and certain CTA affiliates,
warrants to purchase 600,000 and 400,000 shares, respectively, of its common
stock. The exercise price of these warrants is $5.50 per share. The warrants are
immediately exercisable upon issuance and have a term of five years. Motient
also paid Tejas Securities Group, Inc. a placement fee of $350,000 at closing.
The fair value of the warrants was estimated at $6.2 million using a
Black-Scholes model. (Unaudited) The shares were offered and sold pursuant to
the exemption from registration afforded by Section 4(2) of the Securities Act.
F-53
Additional Private Placement
On July 1, 2004, Motient sold 3,500,000 shares of our common stock at a per
share price of $8.57 for an aggregate purchase price of $30.0 million to The
Raptor Global Portfolio Ltd., The Tudor BVI Global Portfolio, Ltd., The Altar
Rock Fund L.P., Tudor Proprietary Trading, L.L.C., York Distressed Opportunities
Fund, L.P., York Select, L.P., York Select Unit Trust, York Global Value
Partner, L.P., Catalyst Credit Opportunity Fund, Catalyst Credit Opportunity
Fund Offshore, DCM, Ltd., Rockbay Capital Fund, LLC, Rockbay Capital Investment
Fund, LLC, Rockbay Capital Offshore Fund, Ltd., Glenview Capital Partner, L.P.,
Glenview Institutional Partners, L.P., Glenview Capital Master Fund, Ltd., GCM
Little Arbor Master Fund, Ltd., OZ Master Fund, Ltd., OZ Mac 13 Ltd., Fleet
Maritime, Inc., John Waterfall, Edwin Morgens, Greywolf Capital II, L.P.,
Greywolf Capital Overseas Fund, Highland Equity Focus Fund, L.P., Singer
Children's Management Trust, and Strome Hedgecap Limited. The sale of these
shares was not registered under the Securities Act and the shares may not be
sold in the United States absent registration or an applicable exemption from
registration requirements. The shares were offered and sold pursuant to the
exemption from registration afforded by Rule 506 under the Securities Act and/or
Section 4(2) of the Securities Act. In connection with this sale, Motient signed
a registration rights agreement with the holders of these shares. Among other
things, this registration rights agreement requires us to file and cause to make
effective a registration statement permitting the resale of the shares by the
holders thereof. Motient also issued warrants to purchase an aggregate of
525,000 shares of our common stock to the investors listed above, at an exercise
price of $8.57 per share. These warrants will vest if and only if Motient does
not meet certain registration deadlines beginning in November, 2004, with
respect to certain requirements under the registration rights agreement. If the
warrants vest, they may be exercised by the holders thereof at any time through
June 30, 2009. Because Motient met certain conditions following the issuance of
the warrants, they will never vest (unaudited).
In connection with this sale, Motient issued to certain affiliates of CTA and
Tejas Securities Group, Inc., its placement agent for the private placement,
warrants to purchase 340,000 and 510,000 shares, respectively, of its common
stock. The exercise price of these warrants is $8.57 per share. The warrants are
immediately exercisable upon issuance and have a term of five years. Motient
also paid Tejas Securities Group, Inc. a placement fee of $850,000 at closing.
The shares were offered and sold pursuant to the exemption from registration
afforded by Rule 506 under the Securities Act and/or Section 4(2) of the
Securities Act.
On November 12, 2004, Motient sold 15,353,609 shares of its common stock at a
per share price of $8.57. Motient received aggregate proceeds of $126,397,809,
net of $5,182,620 in commissions paid to its placement agent, Tejas Securities
Group, Inc. The approximately 60 purchasers included substantially all of the
purchasers from the April and July 2004 private placements, as well multiple new
investors. The sale of these shares was not registered under the Securities Act
and the shares may not be sold in the United States absent registration or an
applicable exemption from registration requirements. The shares were offered and
sold pursuant to the exemption from registration afforded by Rule 506 under the
Securities Act and/or Section 4(2) of the Securities Act. In connection with
this sale, Motient signed a registration rights agreement with the holders of
these shares. Among other things, this registration rights agreement required us
to file and cause to make effective a registration statement permitting the
resale of the shares by the holders thereof. Motient also issued warrants to
purchase an aggregate of approximately 3,838,401 shares of its common stock to
the investors listed above, at an exercise price of $8.57 per share. These
warrants will vest if and only if Motient does not meet certain deadlines
between January and March 2005 with respect to certain requirements under the
registration rights agreement. If the warrants vest, they may be exercised by
the holders thereof at any time through November 11, 2009. (Unaudited)
Rights Offering (Unaudited)
On November 22, Motient announced that it will issue to each of its stockholders
of record one right for each share of Motient common stock held as of the close
of business on December 17, 2004. Each right will entitle any holder that did
not participate in the April, July or November 2004 private placement to
purchase 0.103 shares of its common stock at a price of $8.57 per share, with
fractions rounded up to the next whole share. A maximum of 2.5 million shares
may be sold in the Rights Offering, generating maximum aggregate proceeds of
approximately $21.4 million.
F-54
The rights will be non-transferable and will expire if not exercised within the
exercise period. The rights will not be exercisable until the registration
statement covering the rights and the shares of underlying common stock is
declared effective by the SEC, and the exercise period will expire 30 days after
the rights become exercisable. Motient has not filed a registration statement
relating to the rights offering, but intends to do so as soon as reasonably
practicable. Motient expects to consummate this rights offering in early 2005.
The holders of the rights will not have over-subscription rights, and there will
be no backstop to purchase unsubscribed shares. Purchasers that purchased shares
in the November 12, 2004 private placement of its common stock, which include
all purchasers in its April 2 and July 2004 private placements, have waived
their right to participate in the rights offering.
Motient reserves the right to abandon this rights offering at any time prior to
the effectiveness of the registration statement relating to the rights offering,
and upon any such abandonment, any and all of the rights previously issued will
be cancelled, will no longer be exercisable and will be of no further force or
effect.
Term Credit Facility
On March 16, 2004, Motient entered into an amendment to its credit facility
which extended the borrowing availability period until December 31, 2004. As
part of this amendment, Motient provided the lenders with a pledge of all of the
stock of a newly-formed special purpose subsidiary of Motient Communications,
Inc., Motient License Inc. ("Motient License") which holds all of Motient's FCC
licenses formerly held by Motient Communications. On March 16, 2004, in
connection with the execution of the amendment to the credit agreement, the
Company issued warrants to the lenders to purchase, in the aggregate, 2,000,000
shares of Motient's common stock. The number of warrants was reduced to an
aggregate of 1,000,000 shares of common stock since, within 60 days after March
16, 2004, the Company obtained at least $7.5 million of additional debt or
equity financing. The exercise price of the warrants is $4.88 per share.
The warrants were immediately exercisable upon issuance and have a term of five
years. The warrants were valued at $6.7 million using a Black-Scholes pricing
model and are being recorded as a debt discount and will be amortized as
additional interest expense over three years, the term of the related debt.The
warrants are also subject to a registration rights agreement. Under such
agreement, Motient agreed to register the shares underlying the warrants upon
the request of a majority of the warrantholders, or in conjunction with the
registration of other common stock of the company. Motient will bear all the
expenses of such registration. Motient registered the shares underlying the
warrants in July 2004. (unaudited) The Company also paid a commitment fees to
the lenders of $320,000 which accrued into the principal balance at closing.
These fees will be recorded on Motient's balance sheet and will be amortized as
additional interest expense over three years, the term of the related debt
(unaudited).
On April 13, 2004, Motient repaid all principal amounts then owing under its
term credit facility, including accrued interest thereon, in an amount of $6.7
million. The remaining availability under the credit facility of $5.8 million
will be available for borrowing to the Company until December 31, 2004, subject
to the lending conditions in the credit agreement. On December 31, 2004,
borrowing availability under the facility terminated, and the Company does not
anticipate that it will be extended again (unaudited).
Developments Relating to MSV
On April 2, 2004, two exiting investors in MSV invested $17.6 million in MSV in
exchange for class A preferred units of limited partnership interests of MSV. In
connection with this investment, MSV's amended and restated investment agreement
was amended to provide that of the total $17.6 million in proceeds, $5.0 million
was used to repay certain outstanding indebtedness of MSV, including $2.0
million of accrued interest under the $15.0 million promissory note issued to
Motient by MSV. Motient was required to use 25% of the $2.0 million it received
in this transaction, or $500,000, to prepay its existing notes owed to Rare
Medium Group and CSFB. The remainder of the proceeds from this investment were
used for general corporate purposes by MSV. As of the closing of the additional
investment on April 2, 2004, Motient's percentage ownership of MSV was
approximately 29.5% on an "as converted" basis giving effect to the conversion
of all outstanding convertible notes of MSV.
In June 2004, MSV obtained certain rights to receive nationwide spectrum in the
S-band (2.1 GHz range) from its affiliate, TMI Communications and Company,
Limited Partnership, or TMI, as a result of the FCC's reinstatement of TMI's
S-band authorization on June 29, 2004. This reinstatement of TMI's S-band
authorization is subject to certain conditions. The S-band authorization
F-55
requires the satisfaction of certain satellite construction and other
milestones. There can be no assurances that such conditions and milestones will
be satisfied.
On November 8, 2004, the FCC issued an order granting MSV an ancillary
terrestrial component, or ATC, license, the first ATC license ever granted by
the FCC. The FCC also approved several of MSV's waiver requests, allowing MSV to
further enhance its service and coverage, but it specifically deferred its
ruling on other MSV waiver requests. The order sets forth various limitations
and conditions necessary to the use of ATC by MSV, but there can be no
assurances that such conditions will be satisfied by MSV, or that such
limitations will not be unnecessarily burdensome to MSV. Please review the full
FCC order for additional important information regarding the authorizations and
waivers granted to MSV, and the limitations and conditions set forth therein.
The order may be found on the FCC's website, www.fcc.gov. (Unaudited)
On November 12, 2004, Motient purchased approximately 5.4 million MSV limited
partnership units, and a corresponding number of shares in MSV's general
partner, Mobile Satellite Ventures GP Inc. ("MSV GP"). As consideration, Motient
provided MSV with $125 million in cash, converted its outstanding $15 million
principal note (and all accrued interest thereon) issued by MSV, converted its
$3.5 million of convertible notes issued by MSV, and converted the accrued
interest on such convertible notes. In connection with Motient's investment, the
other limited partners of MSV exchanged their outstanding notes (and the accrued
interest thereon), and one limited partner contributed an additional $20 million
in cash, for limited partnership units and a corresponding number of MSV GP
shares. Such investments and conversions increased Motient's ownership of MSV
from 29.5% (assuming conversion of all outstanding convertible notes) to 38.6%.
Motient does not control MSV and continues to account for its investment under
the equity method. (Unaudited)
On February 9, 2005, Motient entered into a merger agreement with Telcom
Satellite Ventures Inc. and Telcom Satellite Ventures II Inc. and simultaneously
consummated the transactions contemplated thereby, pursuant to which Telcom
merged with and into MVH Holdings Inc., a direct and wholly-owned subsidiary of
Motient, in a tax free reorganization in which MVH is the surviving company. In
exchange for 2,296,835 MSV limited partnership units, Motient issued to Telcom's
stockholders 8,187,804 shares of its common stock in a private placement.
(Unaudited)
Concurrently with this merger, Motient (through MVH) also purchased an aggregate
of 373.7 shares of common stock of Spectrum Space Equity Investors IV, Inc. and
two other related entities, representing approximately 66.3% of the outstanding
common stock of each of such entities, and an aggregate of 221.2 shares of
common stock of Columbia Space Partners, Inc. and two other related entities,
representing approximately 27.8% of the outstanding common stock of such
entities. In total, Motient issued to the Spectrum Entities and Columbia
Entities a total of 4,516,978 shares of Motient common stock in a private
placement in exchange for indirect ownership of 1,267,098 MSV units and a
corresponding number of shares of TerreStar and MSV's general partner.
(Unaudited)
In connection with the Stock Purchase Agreements, the parties entered into
stockholders agreements relating to each of the Spectrum Entities and Columbia
Entities, pursuant to which, among other things, the stockholders of such
entities agreed to cause each such entity to vote the interests of MSV, MSV's
general partner and TerreStar held by such entity in proportion to the ownership
of such entity. However, despite any protections offered by such stockholders
agreements, Motient can provide no assurances that its minority position in the
Columbia entities will not unduly impact the value of its investment in such
entities. (Unaudited)
At the consummation of these transactions, Motient's direct and indirect
ownership of MSV was approximately 49%. (Unaudited)
In connection with the execution of these transactions, Motient also entered
into a registration rights agreement with the stockholders of Telcom, Spectrum
and Columbia, and Motient also issued warrants to Telcom, Columbia and Spectrum
to purchase an aggregate of approximately 952,858 shares of Motient common
stock. The Warrants have a term of five years and an exercise price equal to
$22.50. Each Warrant shall become exercisable only if Motient does not meet
certain deadlines with respect to the registration of the shares covered by the
registration rights agreement. (Unaudited)
F-56
Motient's investment in MSV is governed by several agreements, including but not
limited to the limited partnership agreement of MSV and the stockholder's
agreement of MSV GP. The acquisition or disposition by MSV of its assets, the
acquisition or disposition of any limited partner's interest in MSV, subsequent
investment into MSV by any person, and any merger or other business combination
of MSV, would be subject to the control restrictions contained in such
documents. Such control restrictions include, but are not limited to, rights of
first refusal, tag along rights and drag along rights. Many of these actions,
among others, cannot occur without the consent of the majority of the ownership
interests of MSV. In addition the limited partners of MSV entered into a voting
agreement amongst themselves, which may restrict any signatories ability to give
such consent absent the agreement of the majority of the signatories to such
voting agreement. MSV plans to use the proceeds from this investment for general
corporate purposes. (Unaudited)
For additional information regarding MSV, please see the financial statements of
MSV beginning on page M-1. (Unaudited)
Rare Medium and CSFB Notes
On July 15, 2004, the Company paid all principal and interest due and owing on
its notes payable to Rare Medium and CSFB, in the aggregate amount of $23.5
million. (Unaudited)
Further Cost Reduction Actions
Please see Note 1, "Organization and Going Concern - - Cost Reduction Actions".
UPS Revenue
Please see Note 1, "Organization and Going Concern - - UPS Revenue".
Motorola Debt Obligation Renegotiation
In March 2004, Motient further restructured both the vendor financing facility
and the promissory note to Motorola, primarily to extend the amortization
periods for both the vendor financing facility and the promissory note. Motient
will amortize the combined balances in the amount of $100,000 per month
beginning in March 2004. Motient also agreed that interest would accrue on the
vendor financing facility at LIBOR plus 4%. As part of this restructuring,
Motient agreed to grant Motorola a second lien (junior to the lien held by the
lenders under our term credit facility) on the stock of Motient License. This
pledge secures Motient's obligations under both the vendor financing facility
and the promissory note.
Management and Board Changes
On February 10, 2004, the Company and Walter V. Purnell, Jr. mutually agreed to
end his employment as President and Chief Executive Officer of Motient and all
of its wholly owned subsidiaries. Concurrently, Mr. Purnell resigned as a
director of such entities and of MSV and all of its subsidiaries.
On February 18, 2004, Daniel Croft, Senior Vice President, Marketing and
Business Development, and Michael Fabbri, Senior Vice President, Sales, were
relieved of their duties as part of a reduction in force.
On March 18, 2004 the board of directors elected Christopher W. Downie to the
position of executive vice president, chief financial officer and treasurer, and
designated Mr. Downie as the Company's principal executive officer.
On May 6, 2004, the board of directors elected Raymond L. Steel to serve as a
member of the board. Mr. Steele was also elected to the Company's audit
committee.
F-57
On May 6, 2004 the board of directors elected Robert L. Macklin to the position
of General Counsel and Secretary.
On May 24, 2004 the board of directors designated Myrna J. Newman, the Company's
controller and chief accounting officer, as the principal financial officer of
the Company.
Also on May 24, 2004, the board of directors elected Christopher W. Downie to
the position of executive vice president, chief operating officer and treasurer.
Mr. Downie remains the principal executive officer.
On June 15, 2004, the board of directors designated Jonelle St. John and Raymond
J. Steele as the board's financial experts.
Change in Accountants
On March 2, 2004, Motient dismissed PricewaterhouseCoopers as its independent
auditors effective immediately. The audit committee of the Company's Board
approved the dismissal of PricewaterhouseCoopers. PricewaterhouseCoopers was
previously appointed to audit Motient's consolidated financial statements for
the period May 1, 2002 to December 31, 2002, and, by its terms, such engagement
was to terminate upon the completion of services related to such audit.
PricewaterhouseCoopers has not reported on Motient's consolidated financial
statements for such period or for any other fiscal period. On March 2, 2004, the
audit committee engaged Ehrenkrantz Sterling & Co. LLC as Motient's independent
auditors to replace PricewaterhouseCoopers to audit Motient's consolidated
financial statements for the period May 1, 2002 to December 31, 2002.
On June 1, 2004, Ehrenkrantz Sterling & Co. LLC, merged with the firm of
Friedman Alpren & Green LLP. The new entity, Friedman LLP has been retained by
Motient and the Audit Committee of Motient's Board of Directors approved this
decision on June 4, 2004.
For further details regarding the change in accountants, please see the
Company's current report on Form 8K filed with the SEC on April 23, 2003 and the
Company's amendment to its current report on Form 8-K/A filed with the SEC on
April 23, 2003 and March 9, 2004.
CTA Arrangements
On January 30, 2004, the Company engaged CTA to act as chief restructuring
entity. The term of CTA's engagement is currently scheduled to end on August 1,
2004. As consideration for this work, Motient agreed to pay to CTA a monthly fee
of $60,000. The new agreement amended the existing consulting arrangement with
CTA. In addition, since the initial engagement of CTA, the payment of certain
monthly fees to CTA has been deferred. In April 2004, Motient paid CTA $440,000
for all past deferred fees. In December 2004, certain affiliates of CTA were
granted options to purchase 125,000 shares of the Company's common stock at a
price of $8.57 per share. (Unaudited) The options are immediately vested and
have a term of 10 years. (Unaudited)
Termination of Motorola and Hewlett-Packard Agreements (Unaudited)
In June 2004, the Company negotiated settlements terminating its outstanding
financing facilities with Motorola and its lease with Hewlett-Packard for
certain network equipment. The full amount due and owing under these agreements
was a combined $6.8 million. Motient paid or will pay a combined $3.9 million in
cash and will issue a warrant to Motorola to purchase 200,000 shares of the
Company's common stock at a price of $8.68, in full satisfaction of the
outstanding balances. In the case of Hewlett-Packard, the Company took title to
all of the leased equipment and software, and in the case of Motorola, there was
no equipment or service that Motorola was obligated to provide. Additionally,
Hewlett-Packard released to the Company its $1.1 million letter of credit.
F-58
Regulatory
It was reported that in March of 2004, the staff of the FCC circulated a draft
order to the five FCC Commissioners recommending adoption of the plan for the
reallocation of the 800 MHz spectrum commonly known as the "Consensus Plan".
However, the staff apparently also recommended the rejection of Nextel's offer
to pay $850 million to recover the costs of the re-allocation of the spectrum,
as the staff apparently felt this amount to be insufficient to cover the costs
of such re-allocation. On April 8, 2004, Motient filed a request with the FCC
asking that the FCC relocate Motient into the so called "upper-800 MHz band" as
part of the Consensus Plan.
The FCC did not adopt the order in April, and one month later, the Cellular
Telecommunications & Internet Association, or CTIA, proposed a plan that would
grant Nextel alternative spectrum in the less valuable 2.1 GHz band. Verizon
Wireless has advanced CTIA's and a similar plan, and has pledged to bid $5
billion for the 1.9 GHz spectrum if those airwaves are auctioned. Nextel has
vigorously opposed the CTIA and Verizon Wireless plans, insisting that it be
allowed to relocate to the 1.9 GHz spectrum. News accounts have stated that some
senior officials at the FCC would prefer to grant Nextel the 2.1 GHz spectrum
because such a grant is less subject to a court challenge as an impermissible
sale of spectrum outside of an auction. Some members of Congress have also
expressed interest in the proceeding. Given the uncertain outcome of this
proceeding, we cannot assure you that our operations will not be affected by it.
On August 6, 2004, the FCC released the text of its July 8, 2004 order. The text
of the order did not grant Motient's request, but neither did it explicitly deny
it. (Unaudited) On December 2, 2004, Motient filed comments with the FCC seeking
to clarify and implement Motient's original request of April 8, 2004.
(Unaudited) On December 22, 2004, the FCC clarified that Motient would generally
be allowed, subject to certain conditions, to move its 800MHz frequencies to the
upper-800 MHz band. (Unaudited) Motient cannot assure that its operations will
be not affected by the adoption or implementation of this order or any
subsequent addenda. (Unaudited)
Legal
On April 15, 2004, Motient filed a claim under the rules of the American
Arbitration Association in Fairfax County, VA, against Wireless Matrix
Corporation, a reseller of Motient's services, for the non-payment of certain
amounts due and owing under the "take-or-pay" agreement between Motient and
Wireless Matrix. Under this agreement, Wireless Matrix agreed to purchase
certain minimum amounts of air-time on the Motient network. In February 2004
Wireless Matrix informed Motient that it was terminating its agreement with
Motient. Motient did not believe that Wireless Matrix had any valid basis to do
so, and consequently filed the above mentioned claim seeking over $2.6 million
in damages, which amount represents Wireless Matrix's total prospective
commitment under the agreement. On May 10, 2004, Motient received notice of a
counter-claim by Wireless Matrix of approximately $1 million, representing such
amounts as Wireless Matrix claimed to have paid in excess of services rendered
under the agreement. In June 2004, Motient reached a favorable out of court
agreement with Wireless Matrix in which Wireless Matrix paid Motient $1.1
million.
On December 14, 2004, an appeals court found that Research in Motion had
violated several patents held by NTP, Inc., but also found fault with certain
instructions given to the jury in the initial patent infringement suit it filed
by NTP against Research In Motion. Consequently, the appeals court vacated the
injunction preventing the sale by RIM of certain of its products granted to NTP
by the lower court and remanded the case for further proceedings. (Unaudited)
2004 Restricted Stock Plan (Unaudited)
In August 2004, the Company adopted a restricted stock plan, and subsequently
registered the shares to be issued under such plan on a registration statement
on Form S-8. Pursuant to this plan, the Company may issue up to 1,000,000 shares
of restricted common stock to employees or directors. In September 2004, the
Company issued an aggregate of 15,400 shares of restricted stock to its
directors as partial compensation for their service on the board of directors.
Such shares will vest six months after issue, or upon a change of control of the
Company.
Reseller Agreements (Unaudited)
In October and November 2004, respectively, the Company terminated its dealer
agreements with Verizon and T-Mobile that allowed it to sell mobile internet
devices for use on their wireless networks. Concurrently with the termination of
the Company's agreement with T-Mobile, it signed a sub-dealer agreement with
RACO, Inc., that will allow the Company to continue to sell mobile internet
F-59
devices for use on T-Mobile's wireless network. Also in October and November
2004, respectively, the Company signed reseller agreements with AT&T Wireless
Services Inc., (now Cingular) and Sprint Spectrum, LP, allowing the Company to
sell and promote applications and solutions to enterprise accounts on their
networks.
iMotient Solutions (Unaudited)
In December 2004, the Company launched a new set of products and services
designed to integrate a suite of its own products and services into an
integrated, network agnostic, product called iMotient Solutions. iMotient allows
Motient's customers to use multiple networks via a single connection to Motient,
providing a one-source alternative for development, device management and
billing across multiple networks, including but not limited to GPRS, 1XRTT, and
DataTac. Once connected to iMotient, customers will receive a suite of
proprietary applications and services that Motient believes will reduce airtime
usage, improve performance and reduce costs.
QUARTERLY FINANCIAL DATA
(dollars in thousands, except for per share data)
(unaudited)
Successor Company
-----------------
2003-Quarters
-------------
3/31/03 6/30/03 9/30/03 12/31/03
------- ------- ------- --------
Revenues $14,370 $14,992 $12,051 $13,072
Operating expenses (1) 24,424 25,358 29,846 20,559
-------- -------- -------- --------
Loss from operations (10,054) (10,366) (17,795) (7,487)
Net Income (loss) $(12,394) $(13,010) $(22,345) $(14,373)
Basic and Diluted Loss Per $(0.49) $(0.52) $(0.89) $(0.57)
Share of common stock
Weighted-average common shares 25,097 25,137 25,170 25,145
outstanding during the period
Market price per share (3) $4.00 $2.00 $5.00 $5.45
High
Low $2.75 $5.75 $6.35 $3.95
Predecessor Company through April 30, 2002 and
Successor Company from May 1, 2002 to December 31, 2002 Predecessor Company
------------------------------------------------------- -------------------
2002-Quarters 2001-Quarters (restated)
------------- ------------------------
(Predecessor (Successor
Company) Company)
1 Month 2 Months
(Predecessor Ended Ended (Successor (Successor
Company) April 30, June 30, Company) Company)
3/31/02 2002 2002 9/30/02 12/31/02 3/31/01 6/30/01 9/30/01 12/31/01
------- ---- ---- ------- -------- ------- ------- ------- --------
Revenues $16,683 $5,690 $8,719 $13,297 $14,601 $22,565 $22,641 $23,547 $21,513
Operating expenses (1) 32,445 11,358 19,796 25,426 25,195 48,225 47,832 50,342 41,092
------ ------ ------ ------ ------ ------ ------ ------ ------
Loss from operations (15,762) (5,668) (11,077) ( 12,129) (10,594) (25,660) (25,191) (26,795) (19,579)
Net Income (loss) $(35,429) $267,408 $(13,010) $(16,644) $(29,904) (54,948) (65,317) (49,636) (99,597)
Basic and Diluted Loss Per $(0.61) $4.58 $(0.52) $(0.66) $(1.19) $(1.11) $(1.32) $(0.99) $(1.81)
Share of common stock
Weighted-average common 58,256 58,366 25,097 25,097 25,097 49,639 49,654 50,175 55,027
shares outstanding during
the period
Market price per share (3) $0.45 $0.040 $5.90 $4.45 $3.40 $6.59 $2.05 $1.10 $0.60
High
Low $0.055 $0.080 $3.60 $0.40 $0.65 $1.25 $0.38 $0.09 $0.05
(1) Operating expenses include restructuring charges of approximately $25,000
in the second quarter of 2002, $4.7 million in the third quarter of 2001.
Of the $4.7 million restructuring expense in 2001, $3.8 million was paid in
2001. Of the $0.6 million restructuring expense in 2002, $0.5 million was
paid in 2002.
F-60
(2) Loss per share calculations for each of the quarters are based on the
weighted average number of shares outstanding for each of the periods, and
the sum of the quarters is not equal to the full year loss per share amount
due to rounding.
(3) Until January 14, 2002, the Company's common stock was listed under the
symbol MTNT on the Nasdaq Stock Market. The Company voluntarily delisted
from the Nasdaq Stock Market on January 14, 2002 as a result of its Chapter
11 bankruptcy filing. The Company's common stock is currently traded under
the symbol MNCP on the Pink Sheets. The quarterly high and low sales price
represents the intra-day prices in the Nasdaq Stock Market for the
Company's pre-reorganization common stock for the periods indicated for
2001 and the high and low bid prices for Motient pre- and
post-reorganization common stock for the periods indicated. The quotations
represent inter-dealer quotations, without retail markups, markdowns or
commissions, and may not necessarily represent actual transactions. As of
December 31, 2003, there were 11 stockholders of record of the Company's
common stock.
Summary of Impact of the Restatement of Financial Statements
The revised accounting treatment described in Note 2 ("Significant Accounting
Policies -- Restatement of Financial Statements") requires that certain
adjustments be made to the income statements and balance sheets for the
respective quarters of 2001 and the quarter ended March 31, 2002. The effect of
these adjustments is illustrated in the table below. The adjustments reflected
in the table below were reviewed by Motient's independent auditor, Ehrenkrantz
Sterling & Co. LLC. Certain of the adjustments are based on assumptions that
Motient has made about the fair value of certain assets.
Quarter Ended March 31, 2001 Quarter Ended June 30, 2001 Quarter Ended September 30,2001
---------------------------- --------------------------- -------------------------------
(Unaudited) (Unaudited) (Unaudited)
As reported As restated As reported As restated As reported As restated
----------- ----------- ----------- ----------- ----------- -----------
(in thousands)
Net Revenue $23,407 $22,565 $23,657 $22,641 $24,447 $23,547
Loss from Operations (25,217) (25,660) (25,224) (25,191) (25,933) (26,795)
Net Loss (54,006) (54,948) (65,324) (65,317) (48,707) (49,636)
Basic and Fully
Diluted EPS $(1.09) $(1.11) $(1.32) $(1.32) $(0.97) $(0.99)
Total Assets 536,608 536,772 485,682 486,694 448,542 449,474
Total Liabilities 588,579 580,840 599,931 593,032 610,106 604,055
Stockholders' Deficit (51,971) (44,068) (114,249) (106,338) (161,564) (154,582)
Total Liabilities &
Stockholders' Deficit $536,608 $536,772 $485,682 $486,694 $448,542 $449,474
Quarter Ended December 31, 2001 Year Ended December 31, 2001 Quarter Ended March 31, 2001
------------------------------- ---------------------------- ----------------------------
(Unaudited) (Unaudited) (Unaudited)
As reported As restated As reported As restated As reported As restated
----------- ----------- ----------- ----------- ----------- -----------
(in thousands)
Net Revenue $21,782 $21,513 $93,293 $90,265 $16,495 $16,683
Loss from Operations (18,622) (19,579) (94,996) (97,223) (15,970) (15,763)
Net Loss (124,052) (99,597) (292,089) (269,497) (32,885) (35,430)
Basic and Fully
Diluted EPS $(2.25) $(1.81) $(5.71) $(5.27) $(0.56) $(0.61)
Total Assets 209,617 240,465 209,617 240,465 177,628 205,283
Total Liabilities 485,086 471,614 485,086 471,614 485,681 471,559
Stockholders' Deficit (275,469) (231,149) (275,469) (231,149) (308,053) (266,277)
Total Liabilities &
Stockholders' Deficit $209,617 $240,465 $209,617 $240,465 $177,628 $205,283
F-61
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED 2001(restated), FOUR MONTHS ENDED APRIL 30, 2002,
EIGHT MONTHS ENDED DECEMBER 31, 2002, and
YEAR ENDED DECEMBER 31, 2003
Charged
Balance at to Costs Balance at
Beginning and End of
Description of Period Expenses Deductions Period
----------- --------- -------- ---------- ------
Predecessor Company
-------------------
Year Ended December 31, 2001
Allowance for doubtful accounts $1,317 $1,375 $(1,728) $964
Four Months Ended April 30, 2002
Allowance for doubtful accounts $964 $(52) $(139) $773
=================================================================================================
Successor Company
-----------------
Eight Months Ended December 31, 2002
Allowance for doubtful accounts $773 $994 $(764) $1,003
Year Ended December 31, 2003
Allowance for doubtful accounts $1,003 $194 $(438) $759
Charged
Balance at to Costs Balance at
Beginning and End of
Description of Period Expenses Deductions Period
----------- --------- -------- ---------- ------
Predecessor Company
-------------------
Year Ended December 31, 2001
Allowance for Obsolescence $1,633 $7,891 $(2,451) $7,073
Four Months Ended April 30, 2002
Allowance for Obsolescence $7,073 $4,687 $(797) $10,963
=================================================================================================
Successor Company
-----------------
Eight Months Ended December 31, 2002
Allowance for Obsolescence $10,963 $287 $(1,699) $9,551
Year Ended December 31, 2003
Allowance for Obsolescence $9,551 $199 $(2,000) $7,750
F-62
Mobile Satellite Ventures LP and Subsidiaries
Index to the Consolidated Financial Statements
Contents
Report of Independent Auditors.............................................................................................. M-1
Audited Consolidated Financial Statements
Consolidated Balance Sheets as of December 31, 2002 and 2003 and September 30, 2004 (unaudited)............................. M-2
Consolidated Statements of Operations for the years ended December 31, 2001, 2002, and 2003 and
the unaudited nine-month periods ended September 30, 2003 and 2004....................................................... M-3
Consolidated Statements of Partners' Equity (Deficit) for the years ended December 31, 2001, 2002, and 2003
and the unaudited nine-month period ended September 30, 2004............................................................. M-4
Consolidated Statements of Cash Flows for the years ended December 31, 2001, 2002, and 2003 and the
unaudited nine-month periods ended September 30, 2003 and 2004........................................................... M-5
Notes to Consolidated Financial Statements.................................................................................. M-6
Report of Independent Auditors
General Partner and Unit Holders
Mobile Satellite Ventures LP
We have audited the accompanying consolidated balance sheets of Mobile Satellite
Ventures LP (a Delaware limited partnership) and subsidiaries (collectively, the
Company) as of December 31, 2002 and 2003, and the related consolidated
statements of operations, partners' equity (deficit) and cash flows for each of
the three years in the period ended December 31, 2003. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Mobile Satellite Ventures LP
and subsidiaries as of December 31, 2002 and 2003, and the consolidated results
of their operations and their cash flows for each of the three years in the
period ended December 31, 2003 in conformity with accounting principles
generally accepted in the United States.
/s/ Ernst & Young LLP
-------------------------------
Ernst & Young LLP
April 23, 2004
McLean, Virginia
M-1
Mobile Satellite Ventures LP and Subsidiaries
Consolidated Balance Sheets
December 31 September 30
2002 2003 2004
------------------------------------------------------------
(Unaudited)
Assets
Current assets:
Cash and cash equivalents $ 5,781,674 $ 3,981,624 $ 8,133,174
Restricted cash 652,860 74,246 74,612
Accounts receivable, net of allowance of
$785,195, $71,687, and $74,612 as of
December 31, 2002 and 2003 and
September 30, 2004 (unaudited), respectively 3,094,483 4,156,416 4,623,334
Inventory 2,118,583 1,406,604 772,152
Prepaid expenses and other current assets 735,384 1,058,942 631,265
------------- ------------- -------------
Total current assets 12,382,984 10,677,832 14,234,537
Property and equipment, net 28,767,458 23,598,573 17,925,524
Intangible assets, net 89,947,520 80,673,205 74,099,946
Goodwill 11,261,943 15,784,572 16,028,761
Other assets 1,935,553 84,779 1,584,779
------------- ------------- -------------
Total assets $ 144,295,458 $ 130,818,961 $ 123,873,547
============= ============= =============
Liabilities and partners' equity (deficit)
Current liabilities:
Accounts payable and accrued expenses $ 4,117,186 $ 4,172,297 $ 4,696,436
Vendor note payable, current portion -- 127,211 201,228
Deferred revenue, current portion 5,298,120 5,887,381 3,997,796
Due to Motient--related party 656,202 74,246 74,612
Other current liabilities 483,373 110,766 78,692
------------- ------------- -------------
Total current liabilities 10,554,881 10,371,901 9,048,764
Deferred revenue, net of current portion 16,633,917 20,865,511 20,269,517
Accrued interest, net of current portion 9,340,336 16,725,057 21,462,239
Vendor note payable, net of current portion -- 915,785 748,940
Notes payable to Investors 84,500,000 82,924,667 80,554,085
------------- ------------- -------------
Total liabilities 121,029,134 131,802,921 132,083,545
Commitments and contingencies
Partners' equity (deficit):
MSV general partner -- -- --
MSV limited partners 23,259,457 (1,041,013) (3,926,614)
Deferred compensation -- -- (3,824,403)
Accumulated other comprehensive income (loss) 6,867 57,053 (458,981)
------------- ------------- -------------
Total partners' equity (deficit) 23,266,324 (983,960) (8,209,998)
------------- ------------- -------------
Total liabilities and partners' equity (deficit) $ 144,295,458 $ 130,818,961 $ 123,873,547
============= ============= =============
See accompanying notes.
M-2
Mobile Satellite Ventures LP and Subsidiaries
Consolidated Statements of Operations
Nine-month period ended
Year ended December 31 September 30
2001 2002 2003 2003 2004
-------------------------------------------------------------------------------------------------
(Unaudited)
Revenues:
Services and related
revenues $ 2,062,660 $ 24,389,482 $ 25,536,096 $ 18,780,917 $ 20,077,748
Equipment sales and other
revenues 32,266 464,833 1,588,294 936,155 1,800,367
------------ ------------ ------------ ------------ ------------
Total revenues 2,094,926 24,854,315 27,124,390 19,717,072 21,878,115
Operating expenses:
Satellite operations and
cost of services 7,254,606 10,532,376 10,604,156 7,959,908 7,827,011
Satellite capacity
purchased from MSV Canada 454,416 4,647,224 4,858,305 3,624,879 4,147,723
Next-generation research
and development
expenditures 271,134 1,621,886 2,119,303 1,544,810 2,178,586
Legal, regulatory, and
consulting 2,902,897 3,652,636 4,966,044 3,776,726 6,147,534
Sales and marketing 53,915 2,416,050 1,973,381 1,477,180 3,332,241
General and administrative 674,203 4,546,327 3,992,187 2,938,946 4,022,362
Depreciation and
amortization 1,733,709 18,235,030 17,942,672 13,526,559 13,776,414
Amortization of asset
purchase deposit 4,906,104 -- -- -- --
------------ ------------ ------------ ------------ ------------
Total operating expenses 18,250,984 45,651,529 46,456,048 34,849,008 41,431,871
------------ ------------ ------------ ------------ ------------
Loss from operations (16,156,058) (20,797,214) (19,331,658) (15,131,936) (19,553,756)
Other income (expense):
Management fee from MSV Canada 321,631 3,100,847 3,199,974 2,407,982 2,629,906
Equity in losses of MSV
Canada (64,871) (373,738) (1,030,119) (626,593) (250,505)
Interest income 146,815 55,538 40,355 28,459 73,453
Interest expense (769,270) (8,577,407) (9,616,235) (7,092,030) (7,380,849)
Write-off of investment in
joint venture -- -- (2,000,000) (2,000,000) --
Other (expense) income, net (3,036) 424,490 737,213 269,141 13,472
------------ ------------ ------------ ------------ ------------
Net loss $(16,524,789) $(26,167,484) $(28,000,470) $(22,144,977) $(24,468,279)
============ ============ ============ ============ ============
See accompanying notes.
M-3
Mobile Satellite Ventures LP and Subsidiaries
Consolidated Statements of Partners' Equity (Deficit)
MSV LLC MSV LLC Investor Units
Common Units Units and Warrants General Partner Limited Partners
---------------------------------------------------------------------------------
Number of Number of Number of Number of Deferred
Units Amount Units Amount Units Amount Units Amount Compensation
------------------------------------------------------------------------------------------------
Balance at December 31, 2000 80 $- 20 $23,106,111 - $- - $ - $ -
Net loss from January 1,
2001 to November 26, 2001 - - - (13,926,522) - - - - -
Conversion from LLC to LP (80) - (20) (9,179,589) - - 10,000,000 9,179,589 -
Issuance of MSV Common Units
to TMI - - - - - - 6,636,482 42,805,306 -
Issuance of MSV Common Units
to vendor - - - - - - 6,250 40,313 -
Net loss from November 27,
2001 to December 31, 2001 - - - - - - - (2,598,267) -
------------------------------------------------------------------------------------------------
Balance at December 31, 2001 - - - - - - 16,642,732 49,426,941 -
Total, December 31, 2001
Net loss - - - - - - - -
(26,167,484)
Translation adjustment - - - - - - - - -
------------------------------------------------------------------------------------------------
Balance at December 31, 2002 - - - - - - 16,642,732 23,259,457 -
Total, December 31, 2002
Issuance of MSV Class A - - - - - - 573,951 3,700,000 -
Preferred Units
Net loss - - - - - - - (28,000,470) -
Change in market value of
derivative instruments - - - - - - - - -
Translation adjustment - - - - - - - - -
------------------------------------------------------------------------------------------------
Balance at December 31, 2003 - - - - - - 17,216,683 (1,041,013) -
Total, December 31, 2003
Issuance of MSV Class A
Preferred Units (unaudited) - - - - - - 2,735,317 17,633,333 -
Issuance of stock options
(unaudited) - - - - - - - 3,949,345 (3,949,345)
Net loss (unaudited) - - - - - - - (24,468,279) -
Amortization of deferred
compensation (unaudited) - - - - - - - - 124,942
Change in market value of
derivative instruments
(unaudited) - - - - - - - - -
Translation adjustment
(unaudited) - - - - - - - - -
------------------------------------------------------------------------------------------------
Balance at September 30, 2004
(unaudited) - $- - $ - - $- 19,952,000 $(3,926,614) $(3,824,403)
================================================================================================
Total, September 30, 2004
(unaudited)
See accompanying notes.
M-4
Mobile Satellite Ventures LP and Subsidiaries
Consolidated Statements of Partners' Equity (Deficit)
(Continued)
Accumulated Total
Other Partners'
Comprehensive Equity Comprehensive
Income (Deficit) Loss
-----------------------------------------
Balance at December 31, 2000 $ - $23,106,111
Net loss from January 1,
2001 to November 26, 2001 - (13,926,522)
Conversion from LLC to LP - -
Issuance of MSV Common Units
to TMI - 42,805,306
Issuance of MSV Common Units
to vendor - 40,313
Net loss from November 27,
2001 to December 31, 2001 - (2,598,267) $(2,598,267)
----------------------------------------
Balance at December 31, 2001 - 49,426,941
Total, December 31, 2001 $(2,598,267)
=============
Net loss - (26,167,484) $(26,167,484)
Translation adjustment 6,867 6,867 6,867
----------------------------------------
Balance at December 31, 2002 6,867 23,266,324
Total, December 31, 2002 $ (26,160,617)
=============
Issuance of MSV Class A - 3,700,000
Preferred Units
Net loss - (28,000,470) $(28,000,470)
Change in market value of
derivative instruments 81,712 81,712 81,712
Translation adjustment (31,526) (31,526) (31,526)
----------------------------------------
Balance at December 31, 2003 57,053 (983,960)
Total, December 31, 2003 $ (27,950,284)
=============
Issuance of MSV Class A
Preferred Units (unaudited) - 17,633,333
Issuance of stock options
(unaudited) - - -
Net loss (unaudited) - (24,468,279) $(24,468,279)
Amortization of deferred
compensation (unaudited) - 124,942 -
Change in market value of
derivative instruments
(unaudited) 39,563 39,563 39,563
Translation adjustment
(unaudited) (555,597) (555,597) (555,597)
----------------------------------------
Balance at September 30, 2004
(unaudited) $(458,981) $(8,209,998)
=======================
Total, September 30, 2004
(unaudited) $(24,984,313)
=============
See accompanying notes.
M-4
Mobile Satellite Ventures LP and Subsidiaries
Consolidated Statements of Cash Flows
Nine-month periods ended
Year ended December 31 September 30
2001 2002 2003 2003 2004
-------------------------------------------------------------------------------
(Unaudited)
Operating activities
Net loss $(16,524,789) $(26,167,484) $(28,000,470) $(22,144,977) $(24,468,279)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation and amortization 1,733,709 18,235,030 17,942,672 13,526,559 13,776,414
Amortization of prepaid satellite
capacity and services 6,610,552 -- -- -- --
Amortization of asset purchase deposit 4,906,104 -- -- -- --
Equity in losses of MSV Canada 64,871 373,738 1,030,119 626,593 250,505
Write-off of investment in joint venture -- -- 2,000,000 2,000,000 --
Amortization of deferred compensation 40,313 -- -- -- 124,942
Changes in operating assets and liabilities:
Accounts receivable (720,536) 471,009 (1,061,933) (187,997) (436,318)
Inventory 11,000 811,197 711,979 710,576 634,452
Prepaid expenses and other current assets (226,324) (353,808) (941,512) (1,225,804) 257,769
Accounts payable and accrued expenses (319,380) 1,076,582 290,671 (670,191) 375,573
Other current liabilities (8,891) (4,138,827) (751,514) (156,320) (328)
Accrued interest 768,482 8,571,854 7,384,721 4,965,223 4,737,182
Deferred revenue 3,040,307 723,136 1,274,075 (1,582,472) (2,871,932)
------------ ------------ ------------ ------------ ------------
Net cash used in operating activities (624,582) (397,573) (121,192) (4,138,810) (7,620,020)
Investing activities
Purchase of Motient Satellite business,
net of cash acquired (43,200,000) (2,200,000) (2,200,000) -- --
Purchase of TMI satellite business (7,500,000) -- -- -- --
Motient and TMI transaction costs (996,765) -- -- -- --
Purchase of property and equipment (105,416) (840,328) (1,316,512) (798,897) (1,344,289)
Purchase of option to form joint venture -- (1,000,000) (1,000,000) -- --
Purchase of intangible assets and other assets -- -- -- -- (2,000,000)
------------ ------------ ------------ ------------ ------------
Net cash used in investing activities (51,802,181) (4,040,328) (4,516,512) (798,897) (3,344,289)
Financing activities
Proceeds from issuance of notes 55,000,000 3,000,000 -- -- --
Proceeds from issuance of Class A Preferred Units -- -- 3,700,000 3,700,000 17,633,333
Principal payments on notes payable -- -- (1,575,333) (1,575,333) (2,455,868)
------------ ------------ ------------ ------------ ------------
Net cash provided by financing 55,000,000 3,000,000 2,124,667 2,124,667 15,177,465
activities
Effect of exchange rates on cash and
cash equivalents, including restricted cash -- 235,076 134,373 (417,868) (61,240)
------------ ------------ ------------ ------------ ------------
Net increase (decrease) in cash and
cash equivalents, including restricted cash 2,573,237 (1,202,825) (2,378,664) (3,230,908) 4,151,916
Cash and cash equivalents, including
restricted cash, beginning of period 5,064,122 7,637,359 6,434,534 6,434,534 4,055,870
------------ ------------ ------------ ------------ ------------
Cash and cash equivalents, including
restricted cash, end of period $ 7,637,359 $ 6,434,534 $ 4,055,870 $ 3,203,626 $ 8,207,786
============ ============ ============ ============ ============
Supplemental information:
Cash paid for interest $ -- $ 5,553 $ 2,124,667 $ 2,124,667 $ 2,700,142
============ ============ ============ ============ ============
Non-cash financing information
Equipment obtained through issuance of
notes to vendor $ -- $ -- $ 1,042,996 $ -- $ --
============ ============ ============ ============ ============
See accompanying notes.
M-5
Mobile Satellite Ventures LP and Subsidiaries
Notes to Consolidated Financial Statements
(Information as of September 30, 2004 and for the nine-month periods ended
September 30, 2003 and 2004 is unaudited)
1. Organization and Business
Mobile Satellite Venture LP's predecessor company, Motient Satellite Ventures
LLC, was organized as a limited liability company pursuant to the Delaware
Limited Liability Company Act on June 16, 2000 by Motient Corporation (Motient).
On December 19, 2000, Motient Satellite Ventures LLC changed its name to Mobile
Satellite Ventures LLC. The Company commenced operations in June 2000 and was
considered a development stage enterprise until November 26, 2001. On November
26, 2001, Mobile Satellite Ventures LLC (MSV LLC) was converted into a limited
partnership, Mobile Satellite Ventures LP (MSV or the Company), subject to the
laws of the state of Delaware. Concurrently, the Company acquired certain assets
and liabilities of the Motient and TMI Communications LP (TMI) satellite
businesses and issued $55.0 million of notes to certain existing and new
investors in exchange for cash. In connection with its purchase of TMI's
satellite business, the Company acquired a 20% equity interest in Mobile
Satellite Ventures (Canada) Inc. (MSV Canada) and 33-1/3% equity interest in
Mobile Satellite Ventures Holdings (Canada) Inc. (MSV Holdings).
The Company provides mobile satellite and communications services to individual
and corporate customers in the United States and Canada via its own satellite
and leased satellite capacity. The Company's operations are subject to
significant risks and uncertainties including technological, competitive,
financial, operational, and regulatory risks associated with the wireless
communications business. Uncertainties also exist regarding the Company's
ability to raise additional debt and equity financing and the ultimate
profitability of the Company's proposed next-generation wireless system. The
Company will require substantial additional capital resources to construct its
next-generation wireless system.
The Company's current operating assumptions and projections, which reflect
management's best estimate of future revenue and operating expenses, indicate
that anticipated operating expenditures through 2005 can be met by cash flows
from operations and available working capital; however, the Company's ability to
meet its projections is subject to uncertainties, and there can be no assurance
that the Company's current projections will be accurate. If the Company's cash
requirements are more than projected, the Company may require additional
financing. In addition, the Company entered into a satellite construction
contract (see Note 9) during 2002 and assumed certain obligations under another
system development contract in 2004 (see Note 3) that may require the Company to
obtain additional funding to finance the required payments unless one or both of
the contracts are either amended or terminated by the Company
M-6
Mobile Satellite Ventures LP and Subsidiaries
Notes to Consolidated Financial Statements
(Information as of September 30, 2004 and for the nine-month periods ended
September 30, 2003 and 2004 is unaudited)
1. Organization and Business (continued)
prior to certain payment due dates. The Company is not currently planning to
terminate the contracts, and there can be no assurance that the Company will be
able to enter into amendments that will defer payments in a manner consistent
with the Company's next-generation business plans. The type, timing, and terms
of financing, if required, selected by the Company will be dependent upon the
Company's cash needs, the availability of financing sources, and the prevailing
conditions in the financial markets. There can be no assurance that such
financing will be available to the Company at any given time or available on
favorable terms.
2. Significant Accounting Policies
Basis of Presentation
The consolidated financial statements include the accounts of the Company and
its wholly owned subsidiaries prepared in accordance with accounting principles
generally accepted in the United States. All significant intercompany accounts
are eliminated upon consolidation.
Unaudited Interim Consolidated Financial Statements Basis of Presentation
The accompanying unaudited consolidated financial statements of the Company have
been prepared in accordance with generally accepted accounting principles in the
United States for interim financial information. In the opinion of management,
all adjustments (consisting of normal recurring adjustments) considered
necessary for a fair presentation of financial position and results of
operations for the nine-month periods ended September 30, 2003 and 2004 have
been recorded. Operating results for the nine-month period ended September 30,
2004 are not necessarily indicative of the results that may be expected for the
entire fiscal year or for any future period.
Use of Estimates
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Significant estimates
M-7
Mobile Satellite Ventures LP and Subsidiaries
Notes to Consolidated Financial Statements
(Information as of September 30, 2004 and for the nine-month periods ended
September 30, 2003 and 2004 is unaudited)
2. Significant Accounting Policies (continued)
Use of Estimates (continued)
affecting the consolidated financial statements include management's judgments
regarding the allowance for doubtful accounts, reserves for inventory, future
cash flows expected from long-lived assets, and accrued expenses for probable
losses. Actual results could differ from those estimates.
Cash and Cash Equivalents
Cash and cash equivalents consist of highly liquid investments such as money
market accounts with an original maturity of three months or less.
Restricted Cash
In connection with the purchase of the Motient satellite business, the Company
retained $4.0 million, which was restricted to pay Motient's rent obligation to
the Company for the lease of office space in the Company's headquarters and to
ensure the provision of certain services to the Company by Motient under a
transition services agreement. During the year ended December 31, 2002, the
agreement was amended, an additional $1,104,708 was released to Motient, and
$336,060 was released to MSV. During the years ended December 31, 2002 and 2003,
$955,533 and $530,742, respectively, was used to satisfy Motient's obligations
under its sublease with the Company. During the years ended December 31, 2002
and 2003, $1,011,002 and $50,708, respectively, was remitted to Motient for
services provided to MSV.
Inventory
Inventories consist of finished goods that are communication devices and are
stated at the lower of cost or market, average cost method. The Company
periodically assesses the market value of its inventory, based on sales trends
and forecasts and technological changes, and records a charge to current period
income when such factors indicate that a reduction in net realizable value is
appropriate.
M-8
Mobile Satellite Ventures LP and Subsidiaries
Notes to Consolidated Financial Statements
(Information as of September 30, 2004 and for the nine-month periods ended
September 30, 2003 and 2004 is unaudited)
2. Significant Accounting Policies (continued)
Prepaid Satellite Capacity and Services
During 2000, the Company prepaid for $14.6 million of satellite capacity and
related services provided by Motient and expected to be used by the Company for
certain research and development activities during the two-year period ending
June 30, 2002. The prepaid satellite capacity and related services was being
amortized over this two-year period. During the year ended December 31, 2001,
the Company recorded $6,610,552 of amortization. On November 26, 2001, the
unamortized balance of approximately $4.3 million was applied to the purchase
price of the Motient satellite business (see Note 3).
Property and Equipment
Property and equipment acquired in business combinations are recorded at their
estimated fair value on the date of acquisition. Purchases of property and
equipment are recorded at cost. Depreciation is computed using the straight-line
method over estimated useful lives, ranging from three to five years. Leasehold
improvements are amortized over the shorter of the estimated useful life of the
asset or the remaining lease term.
Property and equipment consisted of the following:
December 31 September 30
2002 2003 2004
---- ---- ----
(Unaudited)
Space and ground segments $ 36,791,020 $ 39,771,813 $ 40,053,417
System under construction 500,000 850,000 2,082,247
Office equipment and furniture 832,325 836,961 850,145
Leasehold improvements 300,000 300,000 300,000
------------ ------------ ------------
38,423,345 41,758,774 43,285,809
Accumulated depreciation (9,655,887) (18,160,201) (25,360,285)
------------ ------------ ------------
Property and equipment, net $ 28,767,458 $ 23,598,573 $ 17,925,524
============ ============ ============
M-9
Mobile Satellite Ventures LP and Subsidiaries
Notes to Consolidated Financial Statements
(Information as of September 30, 2004 and for the nine-month periods ended
September 30, 2003 and 2004 is unaudited)
2. Significant Accounting Policies (continued)
Long-Lived Assets
In accordance with Statement of Financial Accounting Standards (SFAS) No. 144,
Accounting for the Impairment or Disposal of Long-Lived Assets, the Company
reviews its long-lived assets including property and equipment and intangible
assets other than goodwill, whenever events or changes in circumstances indicate
that the carrying amount of the assets may not be fully recoverable. To
determine the recoverability of its long-lived assets, the Company evaluates the
probability that future estimated undiscounted net cash flows will be less than
the carrying amount of the assets. If such estimated cash flows are less than
the carrying amount of the long-lived assets, then such assets are written down
to their fair value. No impairment charges were recorded in the years ended
December 31, 2001, 2002 or 2003. No impairment charges were recorded in the
nine-month period ended September 30, 2004. The Company may reduce its estimates
of anticipated cash flows and the remaining estimated useful lives of long-lived
assets in the future. As a result, the carrying amount of long-lived assets may
be reduced in the future.
Goodwill
The Company's goodwill arose from the November 2001 Motient and TMI
acquisitions. Because these transactions were consummated after June 30, 2001,
the Company applies the non-amortization provisions of SFAS No. 142, Goodwill
and Other Intangible Assets. Under SFAS No. 142, goodwill is not amortized into
results of operations, but instead is reviewed for impairment and written down
and charged to results of operations only in the periods in which the recorded
value of goodwill is determined to be more than its estimated fair value. The
Company performs its annual impairment test on December 31, or when certain
triggering events occur. No impairment charges were recorded in the years ended
December 31, 2001, 2002 and 2003. No events have occurred during the nine-month
period ended September 30, 2004 to trigger an additional impairment test.
Concentrations of Credit Risk
Financial instruments that potentially subject the Company to concentrations of
credit risk consist primarily of cash and cash equivalents and accounts
receivable. The Company maintains cash balances at financial institutions that
may at times exceed federally insured limits. The Company maintains its cash and
cash equivalents at high credit quality institutions, and as a result,
management believes that credit risk related to its cash is not significant.
M-10
Mobile Satellite Ventures LP and Subsidiaries
Notes to Consolidated Financial Statements
(Information as of September 30, 2004 and for the nine-month periods ended
September 30, 2003 and 2004 is unaudited)
2. Significant Accounting Policies (continued)
Concentrations of Credit Risk (continued)
The Company generally grants credit to customers on an unsecured basis. Risk on
accounts receivable is reduced through ongoing evaluation of probability of
collection of amounts owed to the Company. The Company records an allowance for
doubtful accounts equal to the amount estimated to be potentially uncollectible.
The Company's significant customers, as measured by percentage of total
revenues, were as follows:
For the year ended December 31 Nine-months ended September 30
2001 2002 2003 2003 2004
---- ---- ---- ---- ----
(Unaudited)
Customer A 14% 13% 12% 13% *
Customer B 13% 13% * * *
Customer C * * 11% 10% *
Customer D * * 13% 13% 11%
The Company's significant customers, as measured by percentage of total accounts
receivable, were as follows:
December 31 September 30
2001 2002 2003 2004
---- ---- ---- ----
(Unaudited)
Customer C 14% 13% * *
Customer D 26% 15% * 15%
Customer E * * 14% *
Customer F * * 12% *
* Customer did not represent more than 10% for the period presented.
M-11
Mobile Satellite Ventures LP and Subsidiaries
Notes to Consolidated Financial Statements
(Information as of September 30, 2004 and for the nine-month periods ended
September 30, 2003 and 2004 is unaudited)
2. Significant Accounting Policies (continued)
Accounts Payable and Accrued Expenses
Accounts payable and accrued expenses consisted of the following:
December 31 September 30
2002 2003 2004
---- ---- ----
(Unaudited)
Accounts payable $ 976,611 $ 978,802 $1,176,856
Accrued expenses 965,492 1,117,369 1,234,257
Accrued compensation and benefits 1,448,434 1,680,210 1,808,022
Accrued interest 161,314 283,749 316,286
Other 565,335 112,167 161,015
---------- ---------- ----------
Total accounts payable and accrued expenses $4,117,186 $4,172,297 $4,696,436
========== ========== ==========
Fair Value of Financial Instruments
SFAS No. 107, Disclosures about Fair Value of Financial Instruments, requires
disclosures regarding the fair value of certain financial instruments. The
carrying amount of the Company's cash and cash equivalents, accounts receivable,
and accounts payable and accrued expenses approximates their fair value because
of the short-term maturity of these instruments. The Company estimates the fair
value of its notes payable using estimated market prices based upon the current
interest rate environment and the remaining term to maturity. The Company
believes the fair value of these liabilities approximates their carrying value.
Stock-Based Compensation
SFAS No. 123, Accounting for Stock-Based Compensation, encourages, but does not
require, companies to record compensation cost for stock-based employee
compensation plans using the fair value method. The Company has chosen to
account for employee stock-based compensation using the intrinsic value method
as prescribed in Accounting Principles Board Opinion (APB Opinion) No. 25,
Accounting for Stock Issued to Employees, and its related interpretations.
M-12
Mobile Satellite Ventures LP and Subsidiaries
Notes to Consolidated Financial Statements
(Information as of September 30, 2004 and for the nine-month periods ended
September 30, 2003 and 2004 is unaudited)
2. Significant Accounting Policies (continued)
Stock-Based Compensation (continued)
The following illustrates the effect on net loss if the Company had applied the
fair value method of SFAS No. 123:
Nine-months ended
December 31 September 30
2001 2002 2003 2003 2004
---- ---- ---- ---- ----
(Unaudited)
Net loss, as reported $(16,524,789) $(26,167,484) $(28,000,470) $(22,144,977) $(24,468,279)
Add stock-based employee
compensation included in
reported net loss -- -- -- -- 124,942
Additional stock-based
employee compensation
expense determined under
fair value method (22,219) (621,148) (1,080,385) (837,764) (1,183,249)
------------ ------------ ------------ ------------ ------------
Pro forma net loss $(16,547,008) $(26,788,632) $(29,080,855) $(22,982,741) $(25,526,586)
============ ============ ============ ============ ============
In accordance with SFAS No. 123, the fair value of the options granted was
estimated at the grant date using an option-pricing model with the following
weighted-average assumptions: risk-free interest rates ranging from 4.5% to
3.5%, no dividends, expected life of the options of five years, no volatility.
Income Taxes
As a limited partnership, the Company is not subject to income tax directly.
Rather, each unit holder is subject to income taxation based on the unit
holder's portion of the Company's income or loss as defined in the limited
partnership agreement.
Derivatives
The Company accounts for derivatives in accordance with SFAS No. 133, Accounting
for Derivative Instruments and Hedging Activities, as amended, which requires
the recognition of all derivatives as either assets or liabilities measured at
fair value with changes in fair value of derivatives other than hedges reflected
as current period income (loss) unless the derivatives qualify as hedges of
future cash flows. For derivatives qualifying as hedges of future cash flows,
the effective portion of changes in fair value is
M-13
Mobile Satellite Ventures LP and Subsidiaries
Notes to Consolidated Financial Statements
(Information as of September 30, 2004 and for the nine-month periods ended
September 30, 2003 and 2004 is unaudited)
2. Significant Accounting Policies (continued)
Derivatives (continued)
recorded temporarily in equity and then recognized in earnings along with the
related effects of the hedged items. Any ineffective portion of hedges is
reported in earnings as it occurs.
In the normal course of business the Company is exposed to the impact of
fluctuations in the exchange rate with the Canadian dollar. The Company limits
this risk by following an established foreign currency financial management
policy. This policy provides for the use of forward and option contracts, which
limit the effects of exchange rate fluctuations of the Canadian dollar on
financial results. The Company does not use derivatives for trading or
speculative purposes.
As of December 31, 2003, the Company hedged aggregate exposures of $2,800,000,
by entering into forward exchange contracts requiring the purchase of the
Canadian dollar and the sale of the U.S. dollar. In general, the forward
exchange contracts have varying maturities up to, but not exceeding, one year
with cash settlements made at maturity based upon rates agreed to at contract
inception. These forward exchange contracts satisfy the hedge criteria of SFAS
No. 133, and therefore, the Company realized a gain on these contracts of
$81,712, for the year ended December 31, 2003, which is reflected as a component
of accumulated other comprehensive income and as an asset within prepaid
expenses and other current assets on the balance sheet in the accompanying
consolidated financial statements. As of September 30, 2004 and for the
nine-month period then ended, the Company had hedged aggregate exposures of
approximately $890,000 and realized a gain on these contracts of $39,563, which
is reflected as a component of accumulated other comprehensive income.
Revenue Recognition
The Company generates revenue primarily through the sale of wireless airtime
service and equipment. The Company recognizes revenue when the services are
performed or delivery has occurred, evidence of an arrangement exists, the fee
is fixed and determinable, and collectibility is probable. The Company receives
activation fees related to initial registration for retail customers. Revenue
from activation fees is deferred and recognized ratably over the customer's
contractual service period, generally one year.
M-14
Mobile Satellite Ventures LP and Subsidiaries
Notes to Consolidated Financial Statements
(Information as of September 30, 2004 and for the nine-month periods ended
September 30, 2003 and 2004 is unaudited)
2. Significant Accounting Policies (continued)
Foreign Currency and International Operations
The functional currency of one of the Company's subsidiaries is the Canadian
dollar. The financial statements of this subsidiary are translated to U.S.
dollars using period-end rates for assets and liabilities, which is included as
a component of accumulated other comprehensive income in the accompanying
balance sheet. In addition, the Company realized foreign exchange transaction
gains (losses), which are a component of other income in the accompanying
statements of operations. For the years ended December 31, 2002 and 2003,
realized foreign exchange transaction (losses) gains were $(266,507) and
$444,753, respectively. For the nine-month periods ended September 30, 2003 and
2004, the realized foreign exchange transaction gains (losses) were $40,695 and
$13,192, respectively.
Equity Method Investments
The Company accounts for its equity investments in MSV Canada and MSV Holdings
pursuant to the equity method of accounting. The carrying value of these
investments was $0 at each balance sheet date presented. Because the Company is
obligated to provide working capital financial support to MSV Canada through a
management agreement, the Company records losses related to such funding as
equity in losses of MSV Canada in the accompanying consolidated statements of
operations.
Comprehensive Income (Loss)
The Company reports comprehensive income (loss) in accordance with SFAS No. 130,
Reporting Comprehensive Income, which establishes rules for the reporting and
display of comprehensive income and its components. SFAS No. 130 requires
foreign currency translation adjustments and the change in market value of
effective derivative instruments to be included in other comprehensive income.
Reclassifications
Certain prior-year amounts have been reclassified to conform to the current-year
presentation.
M-15
Mobile Satellite Ventures LP and Subsidiaries
Notes to Consolidated Financial Statements
(Information as of September 30, 2004 and for the nine-month periods ended
September 30, 2003 and 2004 is unaudited)
2. Significant Accounting Policies (continued)
Recent Pronouncements
The Emerging Issues Task Force (EITF) issued EITF Issue 00-21, Revenue
Arrangements with Multiple Deliverables (EITF 00-21). EITF 00-21 provides
guidance on how to determine whether a revenue arrangement involving multiple
deliverable items contains more than one unit of accounting and, if so, requires
that revenue be allocated amongst the different units based on fair value. EITF
00-21 also requires that revenue on any item in a revenue arrangement with
multiple deliverables not delivered completely must be deferred until delivery
of the item is completed. The guidance in EITF 00-21 is effective for revenue
arrangements entered into in fiscal periods beginning after June 15, 2003. The
Company implemented EITF 00-21 in 2003. Its implementation did not have a
material impact on the Company's consolidated results of operations or financial
position.
In January 2003, the FASB issued Financial Interpretation No. 46 (FIN),
Consolidation of Variable Interest Entities, an Interpretation of Accounting
Research Bulletin No. 51, which requires the consolidation of an entity in which
an enterprise absorbs a majority of the entity's expected losses, receives a
majority of the entity's expected residual returns, or both, as a result of
ownership or contractual or other financial interests in the entity. Currently,
an entity is generally consolidated by an enterprise when the enterprise has a
controlling financial interest in the entity through ownership of a majority
voting interest in the entity. The Company is currently evaluating the impact of
adoption of FIN 46, which will be required for the first annual period beginning
after December 15, 2004.
3. Acquisitions
Acquisition of the Motient Satellite Business
During 2000, the Company paid $10.8 million to Motient representing an asset
purchase deposit. The asset purchase deposit was being amortized over the
two-year period during which the Company had the right to close on the purchase
of the Motient satellite business. Pursuant to the Motient Asset Purchase
Agreement, the unamortized asset purchase deposit balance of approximately $3.2
million was included as part of the purchase price of the Motient satellite
business. During the year ended December 31, 2001, the Company recorded
$4,906,104 of amortization related to the asset purchase deposit.
M-16
Mobile Satellite Ventures LP and Subsidiaries
Notes to Consolidated Financial Statements
(Information as of September 30, 2004 and for the nine-month periods ended
September 30, 2003 and 2004 is unaudited)
3. Acquisitions (continued)
Motient Asset Purchase Agreement and Investment Agreement
Under the original terms of the Motient Asset Purchase Agreement, the Company
obtained from Motient the right to purchase (Motient Asset Purchase Deposit) the
Motient satellite business for an additional cash payment. In June 2000, certain
investors (Investors) unrelated to Motient paid $50 million to the Company (in
the aggregate) in exchange for a minority equity interest in the Company.
Pursuant to the Investment Agreement, the Investors also acquired certain rights
to convert, at their option, their initial investment in the Company into shares
of Motient's common stock (Motient Conversion Right).
In connection with the original terms of the Motient Asset Purchase Agreement,
the Company paid $29.4 million to Motient for the Motient Asset Purchase Deposit
and the Motient Conversion Right. This amount was allocated between the Motient
Asset Purchase Deposit ($10.8 million) and the Motient Conversion Right ($18.6
million) based on the relative fair value of each. Similarly, a portion ($18.6
million) of the proceeds of the sale of the minority equity interest in the
Company was allocated to the written call option that permitted the investors to
exercise the Motient Conversion Right. The remaining investment proceeds were
allocated to the purchase of the equity interest.
The Company estimated the fair value of both the call option purchase from
Motient on its common stock and the call option written to the Investors on the
Motient common stock based on advice from an independent appraiser to be
approximately $18.6 million using the Black-Scholes valuation model. The Company
accounted for both the purchased and written call options on Motient common
stock as derivatives pursuant to SFAS No. 133. During 2002 and 2001, Motient
underwent a restructuring and reorganization that resulted in such options
having no value. As a result, the fair value of both of these options at
December 31, 2002 was $0, and the net change in fair value of these derivatives
for the year then ended was $0.
M-17
Mobile Satellite Ventures LP and Subsidiaries
Notes to Consolidated Financial Statements
(Information as of September 30, 2004 and for the nine-month periods ended
September 30, 2003 and 2004 is unaudited)
3. Acquisitions (continued)
TMI Asset Purchase
In January 2001, the Company entered into certain agreements (January 2001
Agreements) with Motient, the Investors, and TMI. The January 2001 Agreements
provided for TMI to contribute the TMI satellite business to the Company in
exchange for certain equity interests in the Company, $7.5 million in cash, and
an $11.5 million five-year note. Pursuant to the January 2001 Agreements, a
portion of the Company's payment to TMI was to be funded by a loan from Motient
in the amount of $2.5 million, as evidenced by a note.
The January 2001 Agreements required that, upon closing, Motient contribute the
Motient satellite business to the Company in exchange for a cash payment of
$45.0 million and a $15.0 million five-year note. The January 2001 Agreements
were amended in October 2001 (October 2001 Agreements). Pursuant to the October
2001 Agreements, the Company issued $50.0 million of convertible notes
(Convertible Notes) to a New Investor, as well as $2.5 million of Convertible
Notes to the Investors and $2.5 million of Convertible Notes to Motient.
2001 Acquisitions
On November 26, 2001, MSV completed the acquisition of certain satellite assets
and related liabilities from Motient and TMI. The satellite businesses provide
satellite voice and data communications services to customers in North America.
These transactions were accounted for using the purchase method of accounting.
The consolidated financial statements include the results of operations of the
acquired Motient and TMI satellite businesses subsequent to November 26, 2001.
At the time of the acquisitions, the Company allocated the purchase price to the
assets acquired and liabilities assumed on the preliminary basis based on their
respective estimated fair values. During 2002, the Company revised its purchase
price allocation based upon changes in estimates related primarily to certain
liabilities assumed in the acquisition.
In addition, under the terms of the agreement, the Company paid a total of $6.6
million through December 31, 2003 in contingent consideration to Motient for the
provision of services to a customer under a contract assumed by the Company.
These payments were accounted for as contingent consideration and were included
in the determination of the purchase price when paid to Motient. The $2.2
million final payment made during 2003 served to increase recorded goodwill. As
of December 31, 2003, there were no contingent purchase payments remaining.
M-18
Mobile Satellite Ventures LP and Subsidiaries
Notes to Consolidated Financial Statements
(Information as of September 30, 2004 and for the nine-month periods ended
September 30, 2003 and 2004 is unaudited)
3. Acquisitions (continued)
2001 Acquisitions (continued)
The aggregate purchase price, including $6.6 million of contingent consideration
paid through December 31, 2003, and allocation to the assets acquired and
liabilities assumed based on their estimated fair values is as follows:
Cash paid $ 59,117,552
Transaction costs 1,829,926
Notes payable issued 26,500,000
Prepaid satellite capacity and asset purchase deposit 7,539,752
MSV Common Units issued 42,805,306
Current and noncurrent liabilities assumed 19,653,236
------------
$157,445,772
============
Current assets acquired $ 6,385,051
Property and equipment 37,443,345
Intangible assets 100,230,000
Goodwill 13,387,376
------------
$157,445,772
============
The increase in goodwill from December 31, 2002 to December 31, 2003 is a result
of the fluctuation of the exchange rate between the U.S. and Canadian dollar and
as a result of the $2.2 million contingent purchase price payment to Motient.
The increase in goodwill from December 31, 2003 to September 30, 2004 is a
result of the fluctuation of the exchange rate between the U.S. and Canadian
dollar.
The Company's identifiable intangible assets for acquisitions consist of the
following:
(Information as of September 30, 2004 and for the nine-month periods ended
September 30, 2003 and 2004 is unaudited)
3. Acquisitions (continued)
2001 Acquisitions (continued)
Customer contracts and the next-generation intellectual property are being
amortized over 5 and 15 years, respectively. Management estimated the fair value
of identified intangibles based on a third-party appraisal. During the years
ended December 31, 2001, 2002, and 2003, the Company recorded approximately
$888,000, $9,401,000, and $9,427,000, respectively, of amortization expense
related to these intangible assets. For the nine-month periods ended September
30, 2003 and 2004, the Company recorded approximately $7,051,000 and $7,075,000,
respectively, of amortization expense related to these intangible assets. The
Company's next-generation intellectual property consists of a combination of
licenses and contractual rights to various authorizations, applications, certain
technology, and certain other rights, all of which resulted from the 2001
acquisitions.
Future amortization of intangible assets is as follows as of December 31, 2003:
In July 2004 MSV purchased certain intangible assets including intellectual
property and rights or rights to acquire spectrum access and rights or rights to
acquire related assets from third parties. At the time of these transactions,
MSV paid $2 million in cash of which $1.5 million is recorded in other assets
and $500,000 is recorded in intangible assets in the accompanying consolidated
balance sheet. Future payments under this agreement may range from $2.0 million
to $6.5 million in total payments through 2007, contingent upon certain
regulatory approvals, technology developments, operational milestones and in
certain instances, MSV's sole discretion.
As part of these transactions, MSV also acquired rights related to a system
development contract in exchange for MSV's assumption of payments through
January 2005. As of September 30, 2004, payments on this contract totaled
$750,000 with additional
M-20
Mobile Satellite Ventures LP and Subsidiaries
Notes to Consolidated Financial Statements
(Information as of September 30, 2004 and for the nine-month periods ended
September 30, 2003 and 2004 is unaudited)
3. Acquisitions (continued)
2004 Purchases (continued)
payments of $250,000 committed through January 2005. MSV may continue payments
on this contract at its sole discretion following these initial payments. These
payments have been capitalized as system under construction in property and
equipment in the accompanying consolidated balance sheets.
4. Long-Term Debt
Notes Payable
On November 26, 2001, the Company issued $55.0 million of Convertible Notes and
$26.5 million of Non-Convertible Notes, respectively (collectively, the Notes).
The Notes mature on November 26, 2006 and bear interest at 10% per annum,
compounded semi-annually and payable at maturity.
The Convertible Notes are convertible, at any time, into the Company's Class A
Preferred Units (Preferred Units) equal to a number of Preferred Units
determined by dividing the principal being converted by $6.45. The conversion
price of $6.45 (Conversion Price) is subject to adjustment in certain
circumstances. The terms of the Convertible Notes were amended during 2003 to
automatically convert into Preferred Units upon the Company's payment in full of
the principal and accrued interest on the Non-Convertible Notes and the accrued
interest on the Convertible Notes.
In August 2002, the Company issued an additional $3.0 million of Convertible
Notes. These notes were issued with terms identical to those of the Convertible
Notes issued in November 2001. In August 2003, the Company repaid approximately
$1.6 million of the principal and all of the accrued interest of approximately
$2.1 million, on one of the Non-Convertible Notes, as required by the Interim
Investment (Note 5).
In April 2004, the Company made payments totaling $5.0 million, approximately
$2.4 million of principal and $2.6 million of interest, respectively, on the
Non-Convertible Notes.
M-21
Mobile Satellite Ventures LP and Subsidiaries
Notes to Consolidated Financial Statements
(Information as of September 30, 2004 and for the nine-month periods ended
September 30, 2003 and 2004 is unaudited)
In February 2003, the Company entered into an agreement with a satellite
communications provider that is a related party (the Vendor) for the
construction and procurement of a ground station. The Vendor provided financing
for this project totaling approximately $1.3 million at an interest rate of 9.5
percent.
Future payments on the Vendor note payable as of December 31, 2003 are as
follows:
2004 $ 231,812
2005 279,523
2006 279,523
2007 279,523
2008 232,936
-----------
Total future payments 1,303,317
Less: interest (260,321)
-----------
Principal portion 1,042,996
Less: current portion (127,211)
-----------
Long-term portion of vendor note payable $ 915,785
===========
5. Partners' Equity
Prior to November 26, 2001, pursuant to the First Amended and Restated Limited
Liability Company Agreement (LLC Agreement) of the Company, the outstanding
members' interests in the Company were either MSV LLC Common Units or MSV LLC
Investor Units. All of the MSV LLC Common Units were owned by Motient. The MSV
LLC Investor Units were purchased by the Investors.
M-22
Mobile Satellite Ventures LP and Subsidiaries
Notes to Consolidated Financial Statements
(Information as of September 30, 2004 and for the nine-month periods ended
September 30, 2003 and 2004 is unaudited)
5. Partners' Equity (continued)
Effective November 26, 2001, pursuant to the Limited Partnership Agreement of
the Company, the partners' interests in the Company were either MSV Common Units
or MSV Class A Preferred Units. The Company's general partner, Mobile Satellite
Ventures GP Inc., a Delaware corporation, has no economic interest in the
Company and is owned by the Company's limited partners in proportion to their
fully diluted interests in the Company.
The Class A Preferred Units and Common Units carry many of the same rights and
privileges, except the Class A Preferred Units have preference over the Common
Units in receiving proceeds resulting from a distribution of assets in certain
circumstances. The general partner did not hold any units as of December 31,
2001, 2002, or 2003. As of December 31, 2001, 2002, and 2003, there were
14,642,732 Common Units held by limited partners. As of December 31, 2001, 2002,
and 2003, limited partners held 2,000,000, 2,000,000, and 2,573,951, Class A
Preferred Units, respectively. As of September 30, 2004, there were no units
held by the general partners, 14,642,732 Common Units held by limited partners
and 5,309,268 Class A Preferred Units held by limited partners (see Note 10).
Allocation of Profits and Losses
Prior to November 26, 2001, profits for any fiscal year were allocated to the
members, after giving effect to certain allocations, in the following order of
priority:
o First, among the Investors in proportion to, and to the extent of, any
prior allocations to the Investors of losses for all prior fiscal years
o Second, 100% to Motient until cumulative profits allocated to Motient for
all fiscal years are equal to the cumulative losses previously allocated to
Motient for all prior fiscal years
o Third, to each member in the proportion required such that the cumulative
profits allocated to each member for all fiscal years are equal to the
cumulative losses previously allocated to each such member for all prior
years
o Thereafter, the balance, if any, among the members in accordance with their
equity percentage interests
M-23
Mobile Satellite Ventures LP and Subsidiaries
Notes to Consolidated Financial Statements
(Information as of September 30, 2004 and for the nine-month periods ended
September 30, 2003 and 2004 is unaudited)
5. Partners' Equity (continued)
Allocation of Profits and Losses (continued)
Prior to November 26, 2001, losses for any fiscal year were allocated to the
members, after giving effect to certain allocations, in the following order of
priority:
o First, among the members in proportion to, and to the extent of, any prior
allocations to the members of profits for all prior fiscal years
o Second, among the members in proportion to their respective unreturned
subsequent capital contributions until the sum of the Investors' adjusted
capital account balances is equal to their initial capital contributions
o Third, 100% to Motient until its adjusted capital account balance has been
reduced to zero
o Thereafter, among the Investors in proportion to their respective adjusted
capital account balances
Effective November 26, 2001, profits and losses are allocated to the partners in
proportion to their economic interests. Losses allocated to any partner for any
fiscal year will not exceed the maximum amount of losses that may be allocated
to such partner without causing such partner to have an adjusted capital account
deficit at the end of such fiscal year. Any losses in excess of this limitation
shall be specially allocated solely to the other partners. Thereafter,
subsequent profits shall be allocated to reverse any such losses specially
allocated pursuant to the preceding sentence.
Distributions
Except for certain capital proceeds and upon liquidation, the Company shall make
distributions as determined by the Board of Directors to the partners in
proportion to their respective percentage interests.
M-24
Mobile Satellite Ventures LP and Subsidiaries
Notes to Consolidated Financial Statements
(Information as of September 30, 2004 and for the nine-month periods ended
September 30, 2003 and 2004 is unaudited)
5. Partners' Equity (continued)
Distributions (continued)
Upon dissolution of the Company, a liquidating trustee shall be appointed by the
Board, or under certain circumstances, the required investor majority, as
defined, who shall immediately commence to wind up the Company's affairs. The
proceeds of liquidation shall be distributed, in the following order:
o First, to creditors of the Company, including partners, in the order
provided by law
o Thereafter, to the partners in the same order as other distributions
Issuance of Class A Preferred Units
In August 2003, the Company amended the October 2001 Agreements and entered into
the First Amended and Restated Investment Agreement (Amended Agreement) with the
partners. Under the terms of the Amended Agreement, within 90 days of receipt of
the final approval from the FCC (as defined), and provided that the approval
occurred before March 31, 2004, the Investors would invest up to an additional
$21.3 million in the Company in return for additional equity interests. The
Amended Agreement extended this timeline and divided the investment originally
contemplated in the October 2001 agreements into two tranches: an Interim
Investment and a Subsequent Investment.
In August 2003, under the Interim Investment, the Company received $3.7 million
in exchange for the issuance of 573,951 Class A Preferred Units at $6.45 per
unit to the Investors in the amounts of their respective subscription and
contributions. The Company used these funds to repay approximately $1.6 million
of the principal and approximately $2.1 million of accrued interest on one of
the Non-Convertible Notes (see Note 4).
In April 2004, the Company received $17.6 million of Subsequent Investment
proceeds from the Investors in exchange for the issuance of 2,735,317 of Class A
Preferred Units to the Investors and repaid approximately $2.4 million of the
principal balance and approximately $2.6 million of accrued interest on
Non-Convertible Notes (see Notes 4 and 10).
M-25
Mobile Satellite Ventures LP and Subsidiaries
Notes to Consolidated Financial Statements
(Information as of September 30, 2004 and for the nine-month periods ended
September 30, 2003 and 2004 is unaudited)
6. Unit Option Plans
MSV Option Plan
In December 2001, the Company adopted a unit option incentive plan (Unit Option
Incentive Plan). Under the Unit Option Incentive Plan, the Company reserved for
issuance and may grant up to 5,000,000 options to acquire units to employees and
directors upon approval by the Board of Directors. Options to acquire units
generally vest over a three-year period and the options to acquire units have a
10-year life.
During 2004 the Company granted options at less than the estimated fair market
value of the related units on the option's grant date. As a result, the Company
recorded $3,949,345 in deferred compensation during the nine-month period ended
September 30, 2004. The deferred compensation is being amortized over the
options' three-year vesting period. For the nine-month period ended September
30, 2004, the Company recognized stock compensation expense of $124,942.
The Company has promised to grant an additional 235,000 options during the year
ended December 31, 2005 to certain executives of the Company of which 200,000
will have an exercise price of the lower of $6.45 or the price at which the most
recent financing transaction has occurred, and 35,000 will have an exercise
price of $6.45.
The following summarizes activity in the Unit Incentive Option Plan:
Options to Weighted-Average
Acquire Units Exercise Price
------------- --------------
Options outstanding at beginning of year, January 1, 2001 -- $ --
Granted 1,318,500 6.45
---------- ------
Options outstanding at December 31, 2001 1,318,500 6.45
Granted 89,000 6.45
---------- ------
Options outstanding at December 31, 2002 1,407,500 6.45
Granted 1,588,000 6.45
Canceled (107,332) 6.45
---------- ------
Options outstanding at December 31, 2003 2,888,168 6.45
Granted (Unaudited) 1,407,250 6.45
Canceled (Unaudited) (38,168) 6.45
---------- ------
Options outstanding at September 30, 2004 (Unaudited) 4,257,250 $ 6.45
========== ======
M-26
Mobile Satellite Ventures LP and Subsidiaries
Notes to Consolidated Financial Statements
(Information as of September 30, 2004 and for the nine-month periods ended
September 30, 2003 and 2004 is unaudited)
6. Unit Option Plans (continued)
MSV Option Plan (continued)
At December 31, 2002 and 2003, 439,500 and 468,435 options were exercisable,
respectively. At December 31, 2002 and 2003, the weighted-average remaining
contractual life for outstanding options was 8.6 years and 9.0 years,
respectively. The weighted-average fair value of unit options granted during the
years ended December 31, 2001, 2002 and 2003 was $1.30, $1.30, and $0.91 per
unit, respectively. As of September 30, 2004, 1,374,333 options were exercisable
and the weighted-average remaining contractual life for outstanding options was
8.3 years. The weighted-average fair value of unit options granted during the
nine-month periods ended September 30, 2003 and 2004 was $0.91 and $3.76 per
unit, respectively.
TerreStar Option Plan
In July 2002, the Board of Directors of TerreStar approved the 2002 TerreStar
Stock Incentive Plan. The plan terms are similar to the Unit Option Incentive
Plan. Options to acquire shares generally vest over a 3-year period and the
options to acquire units have a 10-year life. At December 31, 2002 and 2003, the
weighted-average remaining contractual life for outstanding options was 9.5 and
8.6 years, respectively. As of September 30, 2004, 1,146,466 options were
exercisable and the weighted-average remaining contractual life for outstanding
options was 8.2 years. (see Note 10)
The following summarizes activity in the TerreStar Option Plan:
Options to Weighted-Average
Acquire Exercise Price per
Shares Share
------ -----
Options outstanding at January 1, 2002 -- $ 0.70
Granted 1,781,596 0.70
---------- ------
Options outstanding at December 31, 2002 1,781,596 0.70
Granted 107,722 0.70
Canceled (36,517) 0.70
---------- ------
Options outstanding at December 31, 2003 1,852,801 0.70
Granted (Unaudited) 473,978 0.70
Canceled (Unaudited) (49,662) 0.70
---------- ------
Options outstanding at September 30, 2004 (Unaudited) 2,277,117 $ 0.70
========== ======
M-27
Mobile Satellite Ventures LP and Subsidiaries
Notes to Consolidated Financial Statements
(Information as of September 30, 2004 and for the nine-month periods ended
September 30, 2003 and 2004 is unaudited)
7. Related Party Transactions
During the years ended December 31, 2001, 2002, and 2003, the Company incurred
$479,161, $1,441,673, and $150,966 of administrative expenses related primarily
to services provided by Motient. During the nine-month periods ended September
30, 2003 and 2004, the Company incurred $125,709 and $1,180, respectively,
of administrative expenses primarily to services provided by Motient. In
addition, the Company provided facilities-related services to Motient of
$133,729 during the year ended December 31, 2003.
The Company has an arrangement with MSV Canada, under which the Company provides
management services to MSV Canada and purchases satellite capacity from MSV
Canada. MSV Canada owns the satellite formerly owned by TMI. The Company earns
the management fee under the management agreement by providing certain services
to MSV Canada such as allowing access to its intellectual property; providing
voice- and data-switching capabilities; providing backup, restoral, and
emergency spectrum and satellite capacity and providing accounting, customer
service, and billing services. The Company recognizes the related management fee
income in the month in which the rights and services are provided.
The Company leases satellite capacity from MSV Canada pursuant to a lease
agreement. The term of the lease extends for 25 years and may be terminated by
the Company with one year's notice or by either party in certain circumstances.
The amount of the lease payments is determined by the parties periodically based
upon the amount of capacity usage by the Company and market rates. Payments due
under the lease may be offset against amounts owed to the Company.
During the years ended December 31, 2001, 2002, and 2003, the Company incurred
$78,000, $117,000, and $36,025, respectively, of consulting expenses for
services provided by a company controlled by one of the Company's Investors,
which is included in legal, regulatory, and consulting expenses in the
accompanying consolidated statement of operations. During the nine-month periods
ended September 30, 2003 and 2004, the Company incurred $0 and $58,316,
respectively, for these services.
The Company leases office space from an affiliate of TMI (see Note 8). The
Company has also entered into an agreement with this company to obtain
telemetry, tracking, and control services. The agreement ends April 30, 2006,
with automatic extension for three successive additional renewal periods of one
year each. The agreement may be
M-28
Mobile Satellite Ventures LP and Subsidiaries
Notes to Consolidated Financial Statements
(Information as of September 30, 2004 and for the nine-month periods ended
September 30, 2003 and 2004 is unaudited)
7. Related Party Transactions (continued)
terminated at any time, provided that the Company makes a payment equal to the
lesser of 12 months of service or the remaining service fee. Under the services
agreement, the Company paid $28,443, $378,462, and $360,819, during the years
ended December 31, 2001, 2002, and 2003, respectively. During the nine-month
periods ended September 30, 2003 and 2004, the Company paid $217,053 and
$312,167, respectively, for these services.
8. Commitments and Contingencies
Leases
As of December 31, 2003, the Company has noncancelable operating leases,
expiring through August 2008. Rental expense, net of sublease income, for the
years ended December 31, 2001, 2002, and 2003, was approximately $67,000,
$1,800,000, and $1,100,000, respectively. During the nine-month periods ended
September 30, 2003 and 2004, the Company's rental expense, net of sublease
income was approximately $732,000 and $937,000, respectively.
Future minimum lease payments under noncancelable operating leases with initial
terms of one year or more are as follows for the years ended December 31:
The minimum lease payment for 2004 is net of expected sublease income of
approximately $67,000. Office facility leases may provide for periodic
escalations of rent, rent abatements during specified periods of the lease, and
payment of pro rata portions of building operating expenses, as defined. The
Company records rent expense for operating leases using the straight-line method
over the term of the lease agreement.
M-29
Mobile Satellite Ventures LP and Subsidiaries
Notes to Consolidated Financial Statements
(Information as of September 30, 2004 and for the nine-month periods ended
September 30, 2003 and 2004 is unaudited)
8. Commitments and Contingencies (continued)
Litigation and Claims
The Company is periodically a party to lawsuits and claims in the normal course
of business. While the outcome of the lawsuits and claims against the Company
cannot be predicted with certainty, management believes that the ultimate
resolution of the matters will not have a material adverse effect on the
financial position or results of operations of the Company.
Contingencies
From time to time, the Company may have certain contingent liabilities that
arise in the ordinary course of its business activities. The Company records
contingent liabilities when it is probable that future expenditures will be made
and such expenditures can be reasonably estimated. As of December 31, 2003, the
Company accrued $400,000 in accounts payable and accrued expenses in the
accompanying consolidated balance sheet. This amount was paid during the nine
months ended September 30, 2004.
Regulatory Matters
During 2001, Motient applied to the FCC to transfer licenses and authorizations
related to its L-Band mobile satellite system (MSS) to MSV. Such transfer was
approved in November 2001. In connection with this application, Motient sought
FCC authority to launch and operate a next-generation MSS that will include the
deployment of satellites and terrestrial base stations operating in the same
frequencies as an integrated network. In February 2003, the FCC adopted general
rules based on the Company's proposal to develop an integrated
satellite-terrestrial system, subject to the requirement that the Company file
an additional application for a specific terrestrial component consistent with
the broader guidelines issued in the February 2003 ruling. These broad
guidelines govern issues such as aggregate system interference to other MSS
operators, the level of integration between satellite and terrestrial service
offerings, and specific requirements of the satellite component that the Company
currently meets by virtue of its existing satellite system. While the Company's
current satellite assets satisfy these requirements, the Company anticipates the
future need to construct and deploy more powerful satellites.
The Company believes that the ruling allows for significant commercial
opportunity related to the Company's next-generation system. Both proponents and
opponents of the Ancillary Terrestrial Component (ATC), including the Company,
have asked the FCC to
M-30
Mobile Satellite Ventures LP and Subsidiaries
Notes to Consolidated Financial Statements
(Information as of September 30, 2004 and for the nine-month periods ended
September 30, 2003 and 2004 is unaudited)
8. Commitments and Contingencies (continued)
Regulatory Matters (continued)
reconsider the rules adopted in the February 2003 ruling. Opponents of the
ruling have advocated changes that could adversely impact the Company's business
plans. The Company has also sought certain corrections and relaxations of
technical standards that would further enhance the commercial viability of the
next-generation system. Moreover, one terrestrial wireless carrier has filed an
appeal of the FCC's decision with a United States Court of Appeals, which has
been held in abeyance until the FCC rules on the reconsideration requests. In
November 2003, the Company applied for the authority to operate the ATC in
conjunction with the current and next-generation satellites of MSV and MSV
Canada.
The FCC's International Bureau granted this authorization, in part, in November
2004 and deferred certain issues to the FCC's rulemaking proceeding, which, as
noted above, is in its reconsideration phase. A decision in the rulemaking phase
is expected in 2005. One opponent of the Company's application has asked the FCC
to review the Company's ATC authorization. There can be no assurance that,
following the conclusion of the rulemaking and the other legal challenges, the
Company will have authority to operate a commercially viable next-generation
network.
9. TerreStar Networks
In February 2002, the Company established TerreStar Networks Inc. (TerreStar), a
wholly owned subsidiary, to develop business opportunities related to the
proposed receipt of certain licenses in the 2 GHz band.
Regulatory Matters
TMI holds the approval issued by Industry Canada for a 2 GHz space station
authorization and related spectrum licenses for the provision of MSS in the 2
GHz band as well as an authorization from the FCC for the provision of MSS in
the 2 GHz band (MSS authorization). These authorizations are subject to FCC and
Industry Canada milestones relating to construction, launch, and operational
date of the system. TMI plans to transfer the Canadian authorizations to an
entity that is eligible to hold the Canadian authorizations and in which
TerreStar and/or TMI will have an interest, subject to obtaining the necessary
Canadian regulatory approvals. In order to satisfy the milestone requirements
included within the
M-31
Mobile Satellite Ventures LP and Subsidiaries
Notes to Consolidated Financial Statements
(Information as of September 30, 2004 and for the nine-month periods ended
September 30, 2003 and 2004 is unaudited)
9. TerreStar Networks (continued)
Regulatory Matters (continued)
authorizations, TerreStar and TMI entered into an agreement in which TerreStar
agreed to enter into a non-contingent satellite procurement contract for the
construction and delivery to TMI of a satellite that is consistent with the
Canadian and FCC authorizations. Further, TMI agreed that at TerreStar's
election, TMI will transfer the 2 GHz assets to the entities described above,
subject to any necessary Canadian and U.S. regulatory approvals. In December
2002, TMI and TerreStar jointly applied to the FCC for authority to transfer
TMI's MSS authorization to TerreStar.
In August 2002, Industry Canada advised the Company that this arrangement met
the requirement that TMI demonstrate that it is bound to a contractual agreement
for the construction of the proposed satellite. However, certain wireless
carriers had urged the FCC to cancel TMI's MSS authorization. A similar group
also filed a petition in January 2003 asking the FCC to dismiss the application
to transfer TMI's MSS authorization to TerreStar. In February 2003, the FCC
adopted an order canceling TMI's MSS authorization due to an alleged failure to
enter into a noncontingent satellite construction contract before the specified
first milestone date. Also in February 2003, the FCC adopted an order allowing
MSS carriers, including those in the 2 GHz band, to provide an ATC. A number of
parties, principally wireless carriers, have challenged the validity of that
order (see Note 8).
In June 2004, the FCC agreed to waive aspects of the first milestone requirement
applicable to TMI's MSS authorization and, therefore, reinstated that
authorization, along with the application to transfer TMI's MSS authorization to
TerreStar. The FCC also modified the milestone schedule applicable to TMI's MSS
authorization. TMI recently certified to the FCC its compliance with the second
milestone under its MSS authorization. The FCC is currently reviewing that
certification for compliance with the requirements of TMI's MSS authorization.
The application to transfer TMI's MSS authorization to TerreStar is still
pending before the FCC.
M-32
Mobile Satellite Ventures LP and Subsidiaries
Notes to Consolidated Financial Statements
(Information as of September 30, 2004 and for the nine-month periods ended
September 30, 2003 and 2004 is unaudited)
9. TerreStar Networks (continued)
Joint Venture Option
During 2002, TerreStar acquired an option to establish a joint venture with a
third party to develop certain opportunities in the 2 GHz band. The FCC licensed
the third party to construct, launch, and operate a communications system
consisting of two geostationary satellites in the 2 GHz band, a communications
network, and user terminals. Consideration for the option consisted of
nonrefundable payments made by TerreStar of $1,000,000 during 2002 and $500,000
during 2003. In January 2003, TerreStar exercised its option to form the joint
venture. Under the terms of the memorandum of agreement (MOA), TerreStar
contributed an additional $500,000 to the joint venture upon signing of the
joint venture agreements. However, as a result of the FCC order canceling TMI's
2 GHz license, TerreStar and the third party mutually agreed to terminate the
option agreement and the joint venture and any remaining obligations or
liabilities related to these agreements in July 2003. As a result, TerreStar
wrote off its $2.0 million investment in the joint venture during the year ended
December 31, 2003.
Satellite Construction Contract
During 2002, TerreStar entered into a contract to purchase a satellite system,
including certain ground infrastructure for use with the 2 GHz band. The Company
continues to make payments according to a milestone payment plan. The Company
made payments of $500,000 and $350,000 during the years ended December 31, 2002
and 2003, respectively. Such payments have been capitalized as system under
construction in property and equipment in the accompanying consolidated balance
sheets.
Following the reinstatement of the TMI license in July 2004, the contract was
amended resulting in a reduced milestone payment plan. The Company made payments
of $400,000 during the nine-months ended September 30, 2004 related to this
contract. The satellite manufacturer may also be entitled to certain incentive
payments based upon the performance of the satellite once in operation. If the
Company terminates the contract, the manufacturer shall be entitled to payment
of a termination liability as prescribed in the contract. Through 2004, the
termination liability can be satisfied by amounts paid under the contract up to
the point of termination. Beginning in 2005, the termination liability will be
equal to amounts that would have otherwise been due on milestones scheduled
within 30 days following notice of termination by the Company. The satellite
represents one component of a communications system that would include
ground-switching infrastructure, launch costs, and insurance. Total cost of this
system could exceed
M-33
Mobile Satellite Ventures LP and Subsidiaries
Notes to Consolidated Financial Statements
(Information as of September 30, 2004 and for the nine-month periods ended
September 30, 2003 and 2004 is unaudited)
9. TerreStar Networks (continued)
Satellite Construction Contract (continued)
$500 million. In order to finance future payments, the Company will be required
to obtain additional debt or equity financing, or may enter into various joint
ventures to share the cost of development. There can be no assurance that such
financing or joint venture opportunities will be available to the Company or
available on terms acceptable to the Company.
10. Subsequent Events
November 2004 Financing
In November 2004, MSV received $145 million in gross proceeds from its existing
investors in exchange for the issuance of 4,923,599 Common Units. Concurrently,
approximately $27 million of notes and accrued interest was exchanged for
914,160 Common Units of MSV. Additionally, $58 million of Convertible Notes were
converted to 8,997,073 Class A Preferred Units in accordance with their terms.
The Non-Convertible Notes with a principal balance of $22.5 million were
exchanged for 765,843 Common Units. Approximately $18.7 million of accrued
interest was paid in cash, while the remaining $4.4 million was exchanged for
152,230 Common Units. As part of the transaction, the Company's limited
partnership agreement was amended to eliminate the distinction between Preferred
and Common Units, and all Preferred Units were converted to Common Units. At the
completion of this transaction, all outstanding principal and interest
obligations on the Convertible and Non-Convertible Notes had been extinguished.
TerreStar Rights Transaction
On December 20, 2004, the Company issued rights (the Rights) to receive an
aggregate of 23,265,428 shares of common stock, par value $.001 per share (the
TerreStar Stock), of TerreStar, representing all of the shares of TerreStar
Stock owned by the Company, to the limited partners of the Company, pro rata in
accordance with each limited partner's percentage ownership in the Company. The
Rights will be exchanged into shares of TerreStar Stock automatically on
February 25, 2005. In addition, in connection with this transaction, TerreStar
issued warrants (the Warrants) to purchase an aggregate of 666,972 shares of
TerreStar Stock to one of the Company's limited partners. The Warrants have an
exercise price of $0.21491 per share and may be exercised until the fifth
anniversary of the date of their issuance.
M-34
Mobile Satellite Ventures LP and Subsidiaries
Notes to Consolidated Financial Statements
(Information as of September 30, 2004 and for the nine-month periods ended
September 30, 2003 and 2004 is unaudited)
10. Subsequent Events (continued)
TerreStar Rights Transaction (continued)
Concurrently, the Company authorized a 1 for 2 grant of additional options to
employee option holders of record at December 20, 2004.
Recent Pronouncements
In December 2004, the FASB issued SFAS No. 123(R), Share-Based Payment, which is
a revision of SFAS No. 123, supersedes APB Opinion No. 25, and amends SFAS No.
95, Statement of Cash Flows. Generally, the approach in SFAS No. 123(R) is
similar to the approach described in SFAS No. 123. However, SFAS No. 123(R)
requires all share-based payments to employees, including grants of employee
stock options, to be recognized in the income statement based on their fair
values. Pro forma disclosure is no longer an alternative. The new standard will
be effective for the Company for the year ending December 31, 2006.
M-35
PART II
Information not Required in Prospectus
Item 13. Other Expenses of Issuance and Distribution
The following table shows the costs and expenses, other than underwriting
discounts and commissions, payable in connection with the sale and distribution
of the securities being registered. All of these expenses will be paid by
Motient. All amounts except the SEC registration fee are estimated.
Item 14. Indemnification of Directors and Officers
Under Section 145 of the Delaware General Corporation Law ("DGCL"), a
corporation may indemnify its directors, officers, employees and agents and its
former directors, officers, employees and agents and those who serve, at the
corporation's request, in such capacities with another enterprise, against
expenses, including attorneys' fees, as well as judgments, fines and settlements
in nonderivative lawsuits, actually and reasonably incurred in connection with
the defense of any action, suit or proceeding in which they or any of them were
or are made parties or are threatened to be made parties by reason of their
serving or having served in such capacity. The DGCL provides, however, that such
person must have acted in good faith and in a manner such person reasonably
believed to be in, or not opposed to, the best interests of the corporation and,
in the case of a criminal action, such person must have had no reasonable cause
to believe his or her conduct was unlawful. In addition, the DGCL does not
permit indemnification in an action or suit by or in the right of the
corporation, where such person has been adjudged liable to the corporation,
unless, and only to the extent that, a court determines that such person fairly
and reasonably is entitled to indemnity for costs the court deems proper in
light of liability adjudication. Indemnity is mandatory to the extent a claim,
issue or matter has been successfully defended.
Our Restated Certificate of Incorporation provides that no director of Motient
shall be personally liable for breach of fiduciary duty as a director. Any
repeal or modification of such provision shall not adversely affect any right or
protection, or any limitation of the liability of, a director of Motient
existing at, or arising out of facts or incidents occurring prior to, the
effective date of such repeal or modification. Both our Restated Certificate of
Incorporation and our Amended and Restated Bylaws contain provisions that
further provide for the indemnification of directors and officers in accordance
with and to the fullest extent permitted by the DGCL.
Additionally, Motient has entered into indemnification agreements with certain
of its directors and officers which may, in certain cases, be broader than the
specific indemnification provisions contained under current applicable law. The
indemnification agreements may require Motient, among other things, to indemnify
such officers, directors and key personnel against certain liabilities that may
arise by reason of their status or service as directors, officers or employees
of Motient and to advance the expenses incurred by such parties as a result of
any threatened claims or proceedings brought against them as to which they could
be indemnified.
Item 15. Recent Sales of Unregistered Securities
On May 1, 2002, pursuant to Motient's plan of reorganization, 25,000,000 shares
of Motient's common stock, par value $.01 per share, were issued. An additional
97,256 shares of our common stock were issued to certain of our creditors upon
completion of the bankruptcy claims process.
Additionally, pursuant to our plan of reorganization, holders of our
pre-reorganization common stock became entitled to receive warrants to purchase
an aggregate of approximately 1,496,512 shares of common stock at a price of
$.01 per share. The holders were entitled to exercise such warrants to purchase
shares of our common stock prior May 1, 2004, if and only if the average closing
price of our common stock for ninety consecutive trading days was equal to or
greater than $15.44 per share. Since such condition was never satisfied, the no
warrants were ever exercised.
The shares of common stock and warrants to purchase shares of common stock
described above were not registered under the Securities Act of 1933. These
securities were issued in reliance upon the exemption contained in Section
1145(a) of the Bankruptcy Code, which exempts the offer and sale of securities
under a plan of reorganization from registration under the Securities Act.
In July 2002, our board of directors approved the offer and sale to CTA (or its
affiliates), a consultant to Motient, of warrants to purchase an aggregate of
500,000 shares of our common stock, for an aggregate purchase price of $25,000.
The warrants have an exercise price of $3.00 per share and a term of five years.
CTA purchased their warrants in December 2002. The warrants were valued at $1.5
million and recorded as a consultant compensation expense in December 2002. The
warrants were issued in reliance upon the exemption provided by Rule 506 under
the Securities Act of 1933, as amended, and/or in reliance on the exemption
afforded by Section 4(2) of the Securities Act.
On January 27, 2003, in connection with the execution of the credit agreement,
we issued warrants at closing to the lenders to purchase, in the aggregate,
3,125,000 shares of our common stock. The exercise price for these warrants is
$1.06 per share. The warrants were immediately exercisable upon issuance and
have a term of five years. The warrants were issued in reliance upon the
exemption afforded by Section 4(2) of the Securities Act.
On July 29, 2003, in connection with the execution of the letter agreement with
Further Lane, we issued Further Lane a warrant to purchase 200,000 shares of our
common stock. The exercise price of the warrant is $5.10 per share. The warrant
was immediately exercisable upon issuance and has a term of five years. The
warrant was issued in reliance upon the exemption afforded by Section 4(2) of
the Securities Act.
On March 16, 2004, in connection with the execution of the amendment to our
credit agreement, we issued warrants to the lenders to purchase, in the
aggregate, 2,000,000 shares of our common stock. The number of warrants will be
reduced to an aggregate of 1,000,000 shares of common stock because we obtained
at least $7.5 million of additional debt or equity financing within 60 days
after March 16, 2004. The exercise price of the warrants is $4.88 per share. The
warrants were immediately exercisable upon issuance and have a term of five
years. The warrants were issued in reliance upon the exemption afforded by
Section 4(2) of the Securities Act. The warrants are also subject to a
registration rights agreement. Under such agreement, we agreed to register the
shares underlying the warrants upon the request of a majority of the
warrantholders, or in conjunction with the registration of other common stock of
the company. We will bear all the expenses of such registration.
On April 7, 2004, we sold 4,215,910 shares of our common stock at a per share
price of $5.50 for an aggregate purchase price of $23.2 million to The Raptor
Global Portfolio Ltd., The Tudor BVI Global Portfolio, Ltd., The Altar Rock Fund
L.P., Tudor Proprietary Trading, L.L.C., Highland Crusader Offshore Partners,
L.P., York Distressed Opportunities Fund, L.P., York Select, L.P., York Select
Unit Trust, M&E Advisors L.L.C., Catalyst Credit Opportunity Fund, Catalyst
Credit Opportunity Fund Offshore, DCM, Ltd., Greywolf Capital II LP and Greywolf
Capital Overseas Fund and LC Capital Master Fund. The sale of these shares was
not registered under the Securities Act of 1933, as amended and the shares may
not be sold in the United States absent registration or an applicable exemption
from registration requirements. The shares were offered and sold pursuant to the
exemption from registration afforded by Rule 506 under the Securities Act and/or
Section 4(2) of the Securities Act. In connection with this sale, we signed a
registration rights agreement with the holders of these shares. We also issued
warrants to purchase an aggregate of 1,053,978 shares of our common stock to the
investors listed above, at an exercise price of $5.50 per share. However,
because we met certain conditions following the issuance of these warrants, they
will never vest.
In connection with this sale, we issued to Tejas Securities Group, Inc., our
placement agent for the private placement, and certain CTA affiliates, warrants
to purchase 600,000 and 400,000 shares, respectively, of our common stock. The
exercise price of these warrants is $5.50 per share. The warrants are
immediately exercisable upon issuance and have a term of five years. The fair
value of the warrants was estimated at $6.2 million using a Black-Scholes model.
The shares were offered and sold pursuant to the exemption from registration
afforded by Rule 506 under the Securities Act and/or Section 4(2) of the
Securities Act.
In April 2004, Michael Fabbri, Daniel Croft and Walter V. Purnell, Jr., received
275,000 shares of common stock upon the exercise of certain of their outstanding
options under Motient's 2002 employee stock option plan. Additionally, in June
2004, Walter V. Purnell, Jr. received an approximately 16,600 additional shares
of common stock upon the exercise of additional outstanding options. All of the
shares were offered and sold pursuant to the exemption from registration
afforded by Rule 506 under the Securities Act and/or Section 4(2) of the
Securities Act.
In June 2004, in connection with the settlement of outstanding obligations due
to Motorola, Motient agreed to issue Motorola warrants to purchase 200,000 of
its common stock. The exercise price of these warrants is $8.68 per share. The
warrants are immediately exercisable upon issuance and have a term of five
years. The warrants were issued in reliance upon the exemption afforded by
Section 4(2) of the Securities Act.
On July 1, 2004, we sold 3,500,000 shares of our common stock at a per share
price of $8.57 for an aggregate purchase price of $30.0 million to The Raptor
Global Portfolio Ltd., The Tudor BVI Global Portfolio, Ltd., The Altar Rock Fund
L.P., Tudor Proprietary Trading, L.L.C., York Distressed Opportunities Fund,
L.P., York Select, L.P., York Select Unit Trust, York Global Value Partner,
L.P., Catalyst Credit Opportunity Fund, Catalyst Credit Opportunity Fund
Offshore, DCM, Ltd., Rockbay Capital Fund, LLC, Rockbay Capital Investment Fund,
LLC, Rockbay Capital Offshore Fund, Ltd., Glenview Capital Partner, L.P.,
Glenview Institutional Partners, L.P., Glenview Capital Master Fund, Ltd., GCM
Little Arbor Master Fund, Ltd., OZ Master Fund, Ltd., OZ Mac 13 Ltd., Fleet
Maritime, Inc., John Waterfall, Edwin Morgens, Greywolf Capital II, L.P.,
Greywolf Capital Overseas Fund, Highland Equity Focus Fund, L.P., Singer
Children's Management Trust, Highland Equity Fund, L.P., and Strome Hedgecap
Limited. The sale of these shares was not registered under the Securities Act
and the shares may not be sold in the United States absent registration or an
applicable exemption from registration requirements. The shares were offered and
sold pursuant to the exemption from registration afforded by Rule 506 under the
Securities Act and/or Section 4(2) of the Securities Act. In connection with
this sale, we signed a registration rights agreement with the holders of these
shares. We also issued warrants to purchase an aggregate of 525,000 shares of
our common stock to the investors listed above, at an exercise price of $8.57
per share. However, because we met certain conditions following the issuance of
these warrants, they will never vest.
In connection with this sale, we issued to certain affiliates of CTA and Tejas
Securities Group, Inc., our placement agent for the private placement, warrants
to purchase 340,000 and 510,000 shares, respectively, of our common stock. The
exercise price of these warrants is $8.57 per share. The warrants are
immediately exercisable upon issuance and have a term of five years. The shares
were offered and sold pursuant to the exemption from registration afforded by
Rule 506 under the Securities Act and/or Section 4(2) of the Securities Act.
On November 12, 2004, Motient sold 15,353,609 shares of its common stock at a
per share price of $8.57. Motient received aggregate proceeds of $126,397,809,
net of $5,182,620 in commissions paid to Motient's placement agent, Tejas
Securities Group, Inc. The approximately 60 purchasers included substantially
all of the purchasers from the April and July 2004 private placements, as well
multiple new investors. The sale of these shares was not registered under the
Securities Act and the shares may not be sold in the United States absent
registration or an applicable exemption from registration requirements. The
shares were offered and sold pursuant to the exemption from registration
afforded by Rule 506 under the Securities Act and/or Section 4(2) of the
Securities Act. In connection with this sale, Motient signed a registration
rights agreement with the holders of these shares. Among other things, this
registration rights agreement requires Motient to file and cause to make
effective a registration statement permitting the resale of the shares by the
holders thereof. Motient also issued warrants to purchase an aggregate of
approximately 3,838,401 shares of its common stock to the investors listed
above, at an exercise price of $8.57 per share. These warrants will vest if and
only if Motient does not meet certain deadlines between January and March 2005
with respect to certain requirements under the registration rights agreement. If
the warrants vest, they may be exercised by the holders thereof at any time
through November 11, 2009.
On February 9, 2005, Motient entered into a merger agreement with Telcom
Satellite Ventures Inc. and Telcom Satellite Ventures II Inc. and simultaneously
consummated the transactions contemplated thereby, pursuant to which Telcom
merged with and into MVH Holdings Inc., a direct and wholly-owned subsidiary of
Motient, in a tax free reorganization in which MVH is the surviving company. In
exchange for 2,296,835 MSV limited partnership units, Motient issued to Telcom's
stockholders 8,187,804 shares of its common stock in a private placement.
Concurrently with this merger, Motient (through MVH) also purchased an aggregate
of 373.7 shares of common stock of Spectrum Space Equity Investors IV, Inc. and
two other related entities, representing approximately 66.3% of the outstanding
common stock of each of such entities, and an aggregate of 221.2 shares of
common stock of Columbia Space Partners, Inc. and two other related entities,
representing approximately 27.8% of the outstanding common stock of such
entities. In total, Motient issued to the Spectrum Entities and Columbia
Entities a total of 4,516,978 shares of Motient common stock in a private
placement in exchange for indirect ownership of 1,267,098 MSV units and a
corresponding number of shares of TerreStar and MSV's general partner.
In connection with the execution of these transactions, Motient also entered
into a registration rights agreement with the stockholders of Telcom, Spectrum
and Columbia, and Motient also issued warrants to Telcom, Columbia and Spectrum
to purchase an aggregate of approximately 952,860 shares of Motient common
stock. The Warrants have a term of five years and an exercise price equal to
$22.50. Each Warrant shall become exercisable only if Motient does not meet
certain deadlines with respect to the registration of the shares covered by the
registration rights agreement.
The shares, warrants and warrant shares have not been registered under the
Securities Act of 1933, as amended, and therefore they may not be offered or
sold in the United States absent registration or an applicable exemption from
registration requirements. As the potential purchasers are all accredited
investors, and no general solicitation has occurred, or will occur, as part of
the offering and sale of these securities, Motient has relied upon the exemption
from registration afforded by Rule 506 under the Securities Act and/or Section
4(2) of the Securities Act.
No underwriters were involved in any of the foregoing distributions of
securities.
Item 16. Exhibits and Financial Statement Schedules
(a) Exhibits
The Exhibit Index filed herewith is incorporated herein by reference.
(b) Financial Statement Schedules
Financial Statement Schedules not included below have been omitted
because they are not required or not applicable, or because the
required information is shown in the financial statements or notes
thereto.
Schedule II - Valuation and Qualifying Accounts...............Page F-60
Item 17. Undertakings
The undersigned registrant hereby undertakes:
1. To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) to include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) to reflect in the prospectus any facts or events arising after the
effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set
forth in the registration statement. Notwithstanding the
foregoing, any increase or decrease in volume of securities
offered (if the total dollar value of securities offered would not
exceed that which was registered) and any deviation from the low
or high end of the estimated maximum offering range may be
reflected in the form of prospectus filed with the Commission
pursuant to Rule 424(b) if, in the aggregate, the changes in
volume and price represent no more than a 20% change in the
maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration statement;
(iii)to include any material information with respect to the plan of
distribution not previously disclosed in the registration
statement or any material change to such information in the
registration statement; provided, however, that paragraphs
(a)(1)(i) and (a)(1)(ii) do not apply if the information required
to be included in a post-effective amendment by those paragraphs
is contained in periodic reports filed by the registrant pursuant
to section 13 or section 15(d) of the Securities Exchange Act of
1934 that are incorporated by reference in the registration
statement.
2. That, for the purpose of determining any liability under the Securities Act
of 1933, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.
3. To remove from registration by means of a post-effective amendment any of
the securities being registered which remain unsold at the termination of
the offering.
4. Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the General Corporation Law of the State of
Delaware, the Restated Certificate of Incorporation, as amended, or the
Amended and Restated Bylaws of registrant, indemnification agreements
entered into between registrant and its officers and directors, or
otherwise, the registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities (other than
the payment by the registrant of expenses incurred or paid by a director,
officer, or controlling person of the registrant in the successful defense
of any action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against
public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
Signatures
Pursuant to the requirements of the Securities Act of 1933, the Registrant has
duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the city of Lincolnshire,
Commonwealth of Illinois, on February 10, 2005.
MOTIENT CORPORATION
By: /s/ Christopher Downie
------------------------------------------
Christopher Downie
Executive Vice President, Chief Operating
Officer and Treasurer
POWER OF ATTORNEY
Each person whose signature appears below constitutes and appoints Robert L.
Macklin and Christopher W. Downie, his or her true and lawful attorney-in-fact
and agent, with full power of substitution and resubstitution, from such person
and in each person's name, place and stead, in any and all capacities, to sign
any and all amendments (including post-effective amendments) to this
Registration Statement and to file the same, with all exhibits thereto and all
documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorney-in-fact and agent, full power and authority to do
and perform each and every act and thing requisite and necessary to be done as
fully to all intents and purposes as he or she might or could do in person,
hereby ratifying and confirming all that said attorney-in-fact and agent or any
of them, or his, her or their substitute or substitutes, may lawfully do or
cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed by the following persons in the capacities and on the
date indicated.
Name Title Date
---- ----- ----
/s/ Christopher Downie Executive Vice President, February 10, 2005
----------------------- Chief Operating Officer and Treasurer
Christopher Downie (Principal Executive Officer)
* Controller and Chief Accounting Officer February 10, 2005
----------------------- (Principal Financial Officer)
Myrna J. Newman
Director February 10, 2005
-----------------------
Peter D. Aquino
/s/ Gerry S. Kittner Director February 10, 2005
-----------------------
Gerry S. Kittner
* Chairman, Director February 10, 2005
-----------------------
Steven G. Singer
* Director February 10, 2005
-----------------------
Jonelle St. John
* Director February 10, 2005
-----------------------
James D. Dondero
* Director February 10, 2005
-----------------------
Raymond L. Steele
* Signed by Christopher W. Downie pursuant to a power of attorney.
Exhibit Index
2.1 - Debtors' Amended Joint Plan of Reorganization Under Chapter 11 of
the Bankruptcy Code, dated February 27, 2002 (incorporated by
reference to Exhibit 99.2 to the Registrant's Current Report on Form
8-K dated March 4, 2002 (File No. 0-23044)).
3.1 - Restated Certificate of Incorporation of the Company (as restated
effective May 1, 2002) (incorporated by reference to Exhibit 3.1 of
the Company's Amendment No. 2 to Registration Statement on Form 8-A,
filed May 1, 2002).
3.2 - Amended and Restated Bylaws of the Company (as amended and restated
effective May 1, 2002) (incorporated by reference to Exhibit 3.1 of
the Company's Amendment No. 2 to Registration Statement on Form 8-A,
filed May 1, 2002).
4.1 - Specimen of Common Stock Certificate (incorporated by reference to
Exhibit 4.1 of the Company's Amendment No. 2 to Registration
Statement on Form 8-A, filed May 1, 2002).
5.1 - Opinion of General Counsel of Motient Corporation, regarding the
legality of the common stock registered hereby (incorporated by
reference to the Company's registration statement on Form S-1, filed
January 5, 2005).
10.2 - Credit Agreement by and between Motorola Inc. and ARDIS Company
dated June 17, 1998 (incorporated by reference to Exhibit 10.61 to
the Company's Current Report on Form 10-Q dated June 30, 1998 (File
No. 0-23044)).
10.2a - Amendment No. 2, dated September 1, 2000, to the Credit Agreement,
dated as of June 17, 1998, by and between Motorola, Inc. and Motient
Communications Company (formerly known as ARDIS Company)
(incorporated by reference to Exhibit 10.22a to the Company's
Quarterly Report on Form 10-Q for the quarter ended September 30,
2000 (File No. 0-23044)).
10.2b - Assumption, Release, Amendment and Waiver Agreement by and among
Motorola, Inc., Motient Communications Inc. and Motient
Communications Company, dated as of December 29, 2000 (incorporated
by reference to Exhibit 10.22b to the Company's Annual Report on
Form 10-K for the year ended December 31, 2001 (File No. 0-23044)).
10.3 - Investment Agreement dated as of June 22, 2000, by and among the
Company, Motient Satellite Ventures LLC, and certain other investors
(incorporated by reference to Exhibit 10.41 to the Company's
Quarterly Report on Form 10-Q for the quarter ended June 30, 2000
(File No. 0-23044)).
10.4 - Asset Sale Agreement between Motient Satellite Ventures LLC and
Motient Services Inc. dated as of June 29, 2000 (incorporated by
reference to Exhibit 10.42 to the Company's Quarterly Report on Form
10-Q for the quarter ended June 30, 2000 (File No. 0-23044)).
10.4a - Amendment No. 1, dated as of November 29, 2000, to Asset Sale
Agreement, dated as of June 29, 2000, between Motient Satellite
Ventures LLC and Motient Services Inc. (incorporated by reference to
Exhibit 10.42a to the Company's annual report on Form 10-K for the
year ended December 31, 2000 (File No. 0-23044)).
10.4b - Amended and Restated Asset Sale Agreement, dated as of January 8,
2001, between Mobile Satellite Ventures LLC and Motient Services
Inc. (incorporated by reference to Exhibit 10.42b to the Company's
annual report on Form 10-K for the year ended December 31, 2000
(File No. 0-23044)).
10.4c - Amendment, dated as of October 12, 2001, to the Amended and Restated
Asset Sale Agreement, dated as of January 8, 2001, by and between
Motient Services Inc. and Mobile Satellite Ventures LLC
(incorporated by reference to Exhibit 10.42c to the Company's
quarterly report on Form 10-Q for the quarter ended September 30,
2001 (File No. 0-23044)).
10.5 - Asset Sale Agreement, dated November 29, 2000, by and among the
Company, Motient Services Inc. and Aether Systems, Inc.
(incorporated by reference to Exhibit 10.46 to the Company's Annual
Report on Form 10-K for the year ended December 31, 2000 (File No.
0-23044)).
10.6 - January 2001 Investment Agreement, dated as of January 8, 2001, by
and among the Company, Mobile Satellite Ventures LLC, TMI
Communications and Company, Limited Partnership, and the other
investors named therein (incorporated by reference to Exhibit 10.48
to the Company's Annual Report on Form 10-K for the year ended
December 31, 2000 (File No. 0-23044)).
10.7 - Document Standstill and Termination Agreement, dated as of January
8, 2001, by and among the Company, Mobile Satellite Ventures LLC,
Motient Services Inc., and certain investors named therein
(incorporated by reference to Exhibit 10.50 to the Company's annual
report on Form 10-K for the year ended December 31, 2000 (File No.
0-23044)).
10.7a - Amended and Restated Document Standstill and Termination Agreement,
dated as of October 12, 2001 (incorporated by reference to Exhibit
10.50a to the Company's Quarterly Report on Form 10-Q for the
quarter ended September 30, 2001 (File No. 0-23044)).
10.8 - Amended and Restated Investment Agreement, dated October 12, 2001,
by and among Motient Corporation, Mobile Satellite Ventures LLC, TMI
Communications and Company, Limited Partnership, and the other
investors named therein (incorporated by reference to Exhibit 10.55
to the Company's quarterly report on Form 10-Q for the quarter ended
September 30, 2001 (File No. 0-23044)).
10.9 - Form of Stockholders' Agreement of Mobile Satellite Ventures GP Inc.
(incorporated by reference to Exhibit 10.56 to the Company's
quarterly report on Form 10-Q for the quarter ended September 30,
2001 (File No. 0-23044)).
10.9a - Stockholders' Agreement, dated as of November 26, 2001, of Mobile
Satellite Ventures GP Inc. (incorporated by reference to Exhibit
10.56a of the Company's Current Report on Form 8-K dated November
19, 2001 (File No. 0-23044)).
10.10 - Form of Limited Partnership Agreement of Mobile Satellite Ventures
LP (incorporated by reference to Exhibit 10.57 to the Company's
quarterly report on Form 10-Q for the quarter ended September 30,
2001 (File No. 0-23044)).
10.11 - Form of Convertible Note of Mobile Satellite Ventures LP, in the
amount of $50.0 million issued to MSV Investors LLC (incorporated by
reference to Exhibit 10.58 to the Company's quarterly report on Form
10-Q for the quarter ended September 30, 2001 (File No. 0-23044)).
10.12 - Form of Promissory Note of Mobile Satellite Ventures LP, in the
amount of $15.0 million issued to Motient Services Inc.
(incorporated by reference to Exhibit 10.59 to the Company's
quarterly report on Form 10-Q for the quarter ended September 30,
2001 (File No. 0-23044)).
10.13 - Registration Rights Agreement between the Company and Highland
Capital Management, L.P., and Morgan Stanley Investment Management,
dated May 1, 2002 (incorporated by reference to Exhibit 10.1 to the
Company's Quarterly Report on Form 10-Q for the quarter ended March
31, 2002) (File No. 0-23044)).
10.14* - Form of Change of Control Agreement for Officers of the Company
(incorporated by reference to Exhibit 10.2 to the Company's
Quarterly Report on Form 10-Q for the quarter ended March 31, 2002
(File No. 0-23044)).
10.15 - Senior Indebtedness Note of MVH Holdings Inc., in the amount of
$19.0 million issued to Rare Medium Group, Inc., dated May 1, 2002
(incorporated by reference to Exhibit 10.3 to the Company's
Quarterly Report on Form 10-Q for the quarter ended March 31, 2002
(File No. 0-23044)).
10.16 - Senior Indebtedness Note of MVH Holdings Inc., in the amount of
$750,000 issued to Credit Suisse First Boston, dated May 1, 2002
(incorporated by reference to Exhibit 10.4 to the Company's
Quarterly Report on Form 10-Q for the quarter ended March 31, 2002
(File No. 0-23044)).
10.17 - Settlement Agreement by and among the Registrant and Rare Medium
Group, Inc., dated March 28, 2002 (incorporated by reference to
Exhibit 10.5 to the Company's Quarterly Report on Form 10-Q for the
quarter ended March 31, 2002 (File No. 0-23044)).
10.18 - Form of Warrant to purchase 343,450 shares of the Company's common
stock at an exercise price of $3.95 per share issued to Evercore
Partners, L.P. (incorporated by reference to Exhibit 10.28 to
Amendment No. 1 to the Company's Registration Statement on Form S-1
(File No. 333-87844)).
10.19 - Debtors' Amended Joint Plan of Reorganization Under Chapter 11 of
the Bankruptcy Code, dated February 27, 2002 (incorporated by
reference to Exhibit 99.2 to the Registrant's Current Report on Form
8-K dated March 4, 2002 (File No. 0-23044)).
10.20* - Motient Corporation 2002 Stock Option Plan (incorporated by
reference to Exhibit 99.1 to the Company's registration statement on
Form S-8 (File No. 333-92326)).
10.21* - Form of Stock Option Agreement (incorporated by reference to Exhibit
99.2 to the Company's registration statement on Form S-8 (File No.
333-92326)).
10.22 - Form of Warrant to purchase up to 500,000 shares of the Company's
common stock at an exercise price of $3.00 per share issued to
certain affiliates of Communication Technology Advisors LLC
(incorporated by reference to Exhibit 10.22 to the Company's
Quarterly Report on Form 10-Q for the quarter ended June 30, 2002).
10.23* - Executive Retention Agreement, dated as of July 16, 2002, by and
between Walter V. Purnell, Jr. and the Company (incorporated by
reference to Exhibit 10.23 to the Company's Quarterly Report on Form
10-Q for the quarter ended September 30, 2002).
10.24 - Amended and Restated Term Credit Agreement, dated January 27, 2003,
by and among the Company, Motient Communications Inc., Motient
Holdings Inc., the Lenders named therein, and M&E Advisors, L.L.C.,
as Administrative Agent and Collateral Agent (incorporated by
reference to Exhibit 10.24 to the Company's Annual Report on Form
10-K for the year ended December 31, 2002).
10.25 - Security Agreement, dated as of January 27, 2003, between Motient
Communications Inc. and M&E Advisors L.L.C. as Collateral Agent
(incorporated by reference to Exhibit 10.25 to the Company's Annual
Report on Form 10-K for the year ended December 31, 2002).
10.26 - First Amendment to Security Agreement, dated as of January 30, 2003,
between Motient Communications Inc. and M&E Advisors L.L.C. as
Collateral Agent (incorporated by reference to Exhibit 10.26 to the
Company's Annual Report on Form 10-K for the year ended December 31,
2002).
10.27 - Motient Corporation Share Pledge Agreement, dated as of January 27,
2003, between Motient Corporation and M&E Advisors L.L.C., as
Collateral Agent (incorporated by reference to Exhibit 10.27 to the
Company's Annual Report on Form 10-K for the year ended December 31,
2002).
10.28 - Motient Holdings Share Pledge Agreement, dated as of January 27,
2003, between Motient Holdings Inc. and M&E Advisors L.L.C., as
Collateral Agent (incorporated by reference to Exhibit 10.28 to the
Company's Annual Report on Form 10-K for the year ended December 31,
2002).
10.29 - Form of Warrant to purchase shares of common stock of Motient
Corporation issued to lenders under the Amended and Restated Term
Credit Agreement dated as of January 27, 2003 (incorporated by
reference to Exhibit 10.29 to the Company's Annual Report on Form
10-K for the year ended December 31, 2002).
10.30* - Letter amendment to Executive Retention Agreement, dated as of
February 10, 2004, by and between Walter V. Purnell, Jr. and the
Company (incorporated by reference to Exhibit 10.30 to the Company's
Annual Report on Form 10-K for the year ended December 31, 2002).
10.31 - Amendment No. 1 to Amended and Restated Term Credit Agreement, dated
March 16, 2004, by and among Motient Communications Inc., Motient
License Inc., the Required Lenders party thereto, and M&E Advisors,
L.L.C., as Administrative Agent and Collateral Agent (incorporated
by reference to Exhibit 10.31 to the Company's Annual Report on Form
10-K for the year ended December 31, 2002).
10.32 - Omnibus Amendment to SLA Note and Credit Facility, dated as of March
16, 2004, by and among Motient Communications Inc., Motient
Corporation, Motient Holdings Inc., Motient Services Inc., and
Motorola, Inc. (incorporated by reference to Exhibit 10.32 to the
Company's Annual Report on Form 10-K for the year ended December 31,
2002).
10.33 - Share Pledge Agreement, dated as of March 16, 2004, by and between
Motient Communications Inc. and M&E Advisors, L.L.C. (incorporated
by reference to Exhibit 10.33 to the Company's Annual Report on Form
10-K for the year ended December 31, 2002).
10.34 - Warrant to purchase shares of common stock of Motient Corporation,
issued to lenders under Amendment No. 1 to Amended and Restated Term
Credit Agreement, dated March 16, 2004 (incorporated by reference to
Exhibit 10.34 to the Company's Annual Report on Form 10-K for the
year ended December 31, 2002).
10.35 - Registration Rights Agreement, dated March 16, 2004, by and between
Motient Corporation and M&E Advisors, L.L.C. in its capacity as
Administrative and Collateral Agent under Amendment No. 1 to Amended
and Restated Term Credit Agreement (incorporated by reference to
Exhibit 10.35 to the Company's Annual Report on Form 10-K for the
year ended December 31, 2002).
10.36 - Collateral Agency, Subordination and Intercreditor Agreement, dated
as of March 16, 2004, by and among Motient Communications Inc.,
Motient License Inc., M&E Advisors L.L.C., and Motorola, Inc.
(incorporated by reference to Exhibit 10.36 to the Company's Annual
Report on Form 10-K for the year ended December 31, 2002).
10.37 - Subordinate Motient Communications Share Pledge Agreement, dated as
of March 16, 2004, by and between Motient Communications Inc. and
Motorola, Inc. (incorporated by reference to Exhibit 10.37 to the
Company's Annual Report on Form 10-K for the year ended December 31,
2002).
10.38 - Common Stock Purchase Agreement, dated as of April 7, 2004, by and
among Motient Corporation and the Raptor Global Portfolio, Ltd., et
al (incorporated by reference to Exhibit 10.38 to the Company's
Quarterly Report on Form 10-Q for the quarter ended March 31, 2003).
10.39 - Registration Rights Agreement, dated as of April 7, 2004, by and
among Motient Corporation and the Raptor Global Portfolio, Ltd., et
al (incorporated by reference to Exhibit 10.39 to the Company's
Quarterly Report on Form 10-Q for the quarter ended March 31, 2003).
10.40 - Form of Common Stock Purchase Warrant, dated as of April 7, 2004
(incorporated by reference to Exhibit 10.40 to the Company's
Quarterly Report on Form 10-Q for the quarter ended March 31, 2003).
10.41 - Form of Common Stock Purchase Warrant, dated as of April 7, 2004
(incorporated by reference to Exhibit 10.41 to the Company's
Quarterly Report on Form 10-Q for the quarter ended March 31, 2004).
10.42 - Securities Purchase Agreement, dated as of June 30, 2004, by and
among Motient Corporation and the Raptor Global Portfolio, Ltd., et
al (incorporated by reference to Exhibit 10.42 to the Company's
Registration Statement on Form S-1 filed on July 6, 2004)
10.43 - Registration Rights Agreement, dated as of June 30, 2004, by and
among Motient Corporation and the Raptor Global Portfolio, Ltd., et
al (incorporated by reference to Exhibit 10.42 to the Company's
Registration Statement on Form S-1 filed on July 6, 2004)
10.44 - Form of Common Stock Purchase Warrant, dated as of June 30, 2004
(incorporated by reference to Exhibit 10.42 to the Company's
Registration Statement on Form S-1 filed on July 6, 2004)
10.45 - Form of Common Stock Purchase Warrant, dated as of June 30, 2004
(incorporated by reference to Exhibit 10.42 to the Company's
Registration Statement on Form S-1 filed on July 6, 2004)
10.46 - Warrant Issued to Motorola, Inc. (incorporated by reference to
Exhibit 10.42 to the Company's Quarterly Report on Form 10-Q for the
quarter ended June 30, 2004)
10.47 - Common Stock Purchase Agreement, dated as of November 12, 2004, by
and among Motient Corporation and the investors listed therein
(incorporated by reference to Exhibit 10.43 to the Company's
Quarterly Report on Form 10-Q for the quarter ended September 30,
2004)
10.48 - Registration Rights Agreement, dated as of November 12, 2004, by and
among Motient Corporation and the investors listed therein
(incorporated by reference to Exhibit 10.44 to the Company's
Quarterly Report on Form 10-Q for the quarter ended September 30,
2004)
10.49 - Form of Common Stock Purchase Warrant, dated as of November 12, 2004
(incorporated by reference to Exhibit 10.45 to the Company's
Quarterly Report on Form 10-Q for the quarter ended September 30,
2004)
10.50 - Purchase Agreement, dated as of November 12, 2004, by and among
Motient Ventures Holding Inc., Mobile Satellite Ventures LP, et al
(incorporated by reference to Exhibit 10.46 to the Company's
Quarterly Report on Form 10-Q for the quarter ended September 30,
2004)
10.51 - Note Exchange Agreement, dated as of November 12, 2004, by and among
Motient Ventures Holding Inc., Mobile Satellite Ventures LP, et al
(incorporated by reference to Exhibit 10.47 to the Company's
Quarterly Report on Form 10-Q for the quarter ended September 30,
2004)
10.52 - Amended and Restated Limited Partnership Agreement, dated as of
November 12, 2004, by and among Motient Ventures Holding Inc.,
Mobile Satellite Ventures LP, et al (incorporated by reference to
Exhibit 10.48 to the Company's Quarterly Report on Form 10-Q for the
quarter ended September 30, 2004)
10.53 - Amended and Restated Stockholders Agreement, dated as of November
12, 2004, by and among Motient Ventures Holding Inc., Mobile
Satellite Ventures GP Inc., et. al. (incorporated by reference to
Exhibit 10.49 to the Company's Quarterly Report on Form 10-Q for the
quarter ended September 30, 2004)
10.54 - Second Amended and Restated Parent Transfer/Drag Along Agreement,
dated as of November 12, 2004, by and among Motient Corporation, et.
al. (incorporated by reference to Exhibit 10.50 to the Company's
Quarterly Report on Form 10-Q for the quarter ended September 30,
2004)
10.55 - Voting Agreement, dated as of November 12, 2004, by and among
Columbia Space (QP), Inc., et al
10.56 - Amended and Restated Consent Agreement, dated February 9, 2005, by
and among Columbia Space (QP), Inc., et al
10.57 - Merger Agreement, dated as of February 9, 2005, by and among Motient
Corporation, Telcom Satellite Ventures Inc., et al
10.58 - Form of Stock Purchase Agreement, dated February 9, 2005
10.59 - Registration Rights Agreement, dated February 9, 2005 by and among
Motient Corporation, Telcom Satellite Ventures Inc., et al
10.60 - Form of Warrant to purchase Motient common stock, dated February 9,
2005
10.61 - Form of Stockholder's Agreement, dated February 9, 2005
16.1 - Letter from PricewaterhouseCoopers LLP to the Securities and
Exchange Commission dated April 22, 2003 (incorporated by reference
to Exhibit 99.1 to the Company's Current Report on Form 8-K filed on
April 23, 2003).
16.2 - Letter from PricewaterhouseCoopers LLP to the Securities and
Exchange Commission dated March 9, 2004 (incorporated by reference
to Exhibit 16.1 to the Company's Current Report on Form 8-K filed on
March 9, 2004).
16.3 - Letter from Friedman LLP to the Securities and Exchange Commission
dated June 7, 2004 (incorporated by reference to Exhibit 16.1 to the
Company's Current Report on Form 10-Q for the quarter ended
September 30, 2003, filed on June 7, 2004).
21.1 - Subsidiaries of the Company. (incorporated by reference to Exhibit
21.1 to the Company's Annual Report on Form 10-K for the year ended
December 31, 2003)
23.1 - Consent of General Counsel of Motient Corporation (included in
Exhibit 5.1)
23.2 - Consent of Friedman LLP, Independent Registered Public Accounting
Firm (filed herewith).
23.3 - Consent of Ernst & Young LLP, Independent Auditors (filed herewith).
24.1 - Power of Attorney pursuant to which amendments to this registration
statement may be filed (included on the signature page in Part II of
this registration statement).
-----------------------------------
*Management contract or compensatory plan or arrangement.
Exhibit 10.55
VOTING AGREEMENT
This VOTING AGREEMENT (this "Voting Agreement"), dated as of November
12, 2004, is entered into by and among those stockholders of Mobile Satellite
Ventures GP Inc., a Delaware corporation ("General Partner") and General Partner
of Mobile Satellite Ventures LP, a Delaware limited partnership ("MSV LP"),
listed on Schedule I hereto (each individually, a "Stockholder," and
collectively, the "Stockholders")).
RECITALS
WHEREAS, each Stockholder owns shares of common stock, par value $0.01
per share, of General Partner (the "Shares"), as well as units of limited
partnership interest of MSV LP;
WHEREAS, MSV LP and General Partner have entered into purchase
agreements (the "Purchase Agreements") with Motient Ventures Holding
Inc.("Motient") and certain other purchasers (collectively, the "Purchasers"),
pursuant to which the Purchasers will make an equity investment in MSV LP and
General Partner (the "Equity Investments");
WHEREAS, in connection with the Equity Investments, General Partner,
the Stockholders, and Motient are entering into that certain Amended and
Restated Stockholders' Agreement, dated as of November 12, 2004 (the "GP
Stockholders' Agreement");
WHEREAS, in connection with the Equity Investments and the concurrent
execution of the GP Stockholders' Agreement, the Stockholders wish to enter into
this Voting Agreement to memorialize their understandings and agreements
regarding the manner in which the Stockholders will vote with respect to certain
matters.
NOW, THEREFORE, in consideration of the agreements contained herein and
for other good and valuable consideration, the receipt and sufficiency of which
is hereby acknowledged, the parties to this Voting Agreement hereby agree as
follows:
Article I Defined Terms
Section 1.01. Definitions. The terms defined in this Article I shall,
for the purposes of this Voting Agreement, have the meanings herein specified.
In addition, any capitalized terms used in this Voting Agreement but not defined
herein shall have the meanings given such term in the GP Stockholders'
Agreement.
"Affiliate" means any person or entity that directly or indirectly
controls, is controlled by, or is under common control with, the specified
person or entity. As used in this definition, the term "control" means the
possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of an entity, whether through ownership
of voting securities, by contract or otherwise.
1
"Board" means General Partner's Board of Directors.
"Columbia Group" means the entities listed under the caption "Columbia
Group" in Schedule I, as well as any subsequent owner of Shares or Units owned
by the Columbia Group as of the date of this Agreement, where such Shares or
Units are transferred to such subsequent owner in accordance with the terms of
Section 2.03 of this Agreement.
"Equity Investments" has the meaning given to such term in the
Recitals.
"General Partner" has the meaning given to such term in the Preamble.
"GP Stockholders' Agreement" has the meaning given to such term in the
Recitals.
"Investor Group" means each of the following: (i) the TMI Group; (ii)
the MSV Investors Group; (iii) the Telcom/Columbia/Spectrum Group, and (iv) the
Motient Group.
"Major Transaction" means (a) the merger or consolidation of MSV LP or
General Partner into or with another corporation in which the limited partners
of MSV LP or the stockholders of General Partner, as applicable, and the
Affiliates of such limited partners or stockholders immediately preceding such
merger or consolidation (solely by virtue of their units, shares or other equity
interests of MSV LP or General Partner, as applicable) shall own less than 51%
of the outstanding voting securities of the surviving corporation; (b) the sale,
transfer or lease (but not including a transfer or lease by pledge or mortgage
to a bona fide lender for so long as such lender has no right to accelerate the
maturity of the indebtedness to which such pledge or mortgage relates), whether
in a single transaction or pursuant to a series of related transactions or plan,
of all or substantially all the assets of MSV LP or General Partner, which
assets shall include for these purposes 50% or more of the outstanding voting
capital stock of any subsidiaries of MSV LP or General Partner, as applicable,
the assets of which constitute all or substantially all the assets of MSV LP or
General Partner and its subsidiaries taken as a whole; (c) the sale, transfer or
lease (but not including a transfer or lease by pledge or mortgage to a bona
fide lender for so long as such lender has no right to accelerate the maturity
of the indebtedness to which such pledge or mortgage relates), whether in a
single transaction or pursuant to a series of related transactions, of all or
substantially all the assets of subsidiaries of MSV LP or General Partner, the
assets of which constitute all or substantially all of the assets of MSV LP or
General Partner, as applicable, and its subsidiaries taken as a whole; or (d)
the liquidation, dissolution or winding up MSV LP or General Partner or of such
of MSV LP's or General Partner's subsidiaries, as applicable, the assets of
which constitute all or substantially all of the assets of the business of MSV
LP or General Partner, as applicable, and its subsidiaries taken as a whole,
whether voluntarily or involuntarily.
"Motient" has the meaning given to such term in the Recitals.
"Motient Group" means Motient and any other Affiliate of Motient that
owns Shares or Units, as well as any subsequent owner of Shares or Units owned
by the Motient Group as of the date of this Agreement.
"MSV Investors Group" means the entities listed under the caption "MSV
Investors Group" in Schedule I, as well as any subsequent owner of Shares or
Units owned by the MSV Investors Group as of the date of this Agreement, where
such Shares or Units are transferred to such subsequent owner in accordance with
the terms of Section 2.03 of this Agreement.
2
"MSV LP" has the meaning given to such term in the Preamble.
"Parent Transfer/Drag Along Agreement" means that certain Amended and
Restated Parent Transfer/Drag Along Agreement, dated as of August 21, 2003, by
and among MSV LP, General Partner, Motient Corporation, Motient Ventures Holding
Inc., TMI Communications and Company, Limited Partnership, TMI Communications
Delaware, Limited Partnership, and the Investor Parents (as defined therein), as
amended.
"Partnership Agreement" means that certain Amended and Restated Limited
Partnership Agreement of MSV LP, dated as of November 12, 2004, as amended from
time to time, by and among General Partner and the limited partners named
therein.
"Purchase Agreements" has the meaning given to such term in the
Recitals.
Purchasers" has the meaning given to such term in the Recitals.
"Shares" has the meaning given to such term in the Recitals.
"Spectrum Group" means the entities listed under the caption "Spectrum
Group" in Schedule I, as well as any subsequent owner of Shares or Units owned
by the Spectrum Group as of the date of this Agreement, where such Shares or
Units are transferred to such subsequent owner in accordance with the terms of
Section 2.03 of this Agreement.
"Telcom Group" means the entities listed under the caption "Telcom
Group" in Schedule I, as well as any subsequent owner of Shares or Units owned
by the Telcom Group as of the date of this Agreement, where such Shares or Units
are transferred to such subsequent owner in accordance with the terms of Section
2.03 of this Agreement.
"Telcom/Columbia/Spectrum Group" means, collectively, the Telcom Group,
the Columbia Group, and the Spectrum Group.
"TMI Group" means the entities listed under the caption "TMI Group" in
Schedule I, as well as any subsequent owner of Shares or Units owned by the TMI
Group as of the date of this Agreement, where such Shares or Units are
transferred to such subsequent owner in accordance with the terms of Section
2.03 of this Agreement.
"Unit" means a unit of limited partnership interest in MSV LP with the
rights and privileges specified in the Partnership Agreement.
Article II Voting Agreements
Section 2.01. Voting of Shares and Units. To the extent the
Stockholders are entitled or required to vote their Shares or Units with respect
to any of the following actions (whether pursuant to law or agreement or
otherwise), none of the Stockholders shall vote its Shares or Units, or execute
a written consent with respect to such Shares or Units, in favor of any of the
following actions, unless at least three of the four Investor Groups are in
favor of such action:
3
(a) Major Transactions. The consummation by General Partner or MSV LP,
directly or indirectly, of any Major Transaction, or the entry by MSV LP or
General Partner into a binding agreement with respect to a Major Transaction;
(b) Material Changes to Organizational Documents. The amendment,
alteration, waiver or termination of any provision of (i) the certificate of
incorporation of General Partner, (ii) the bylaws of General Partner, (iii) the
Certificate of Limited Partnership of MSV LP, (iv) the Partnership Agreement,
(v) the GP Stockholders' Agreement, or (v) the Parent Transfer/Drag Along
Agreement, in each case in any manner that materially affects the rights,
privileges or obligations of the stockholders of General Partner or the limited
partners of MSV LP;
(c) Acquisition of More than 49% of Shares or Units. The acquisition,
in any transaction or series of related transactions, by any stockholder of
General Partner or limited partner of MSV LP (including any Affiliates of such
stockholders or limited partners) of direct or indirect ownership of more than
49% of (i) the outstanding Shares or (ii) the outstanding Units (including in
each case any Shares or Units attributable to unexercised options or warrants or
other similar securities owned by such stockholder or limited partner or their
Affiliates); or
(d) Exercise of Drag Along Rights. Any exercise of the "drag along"
rights set forth in Section 8.5(b) of the GP Stockholders' Agreement, including,
for the avoidance of doubt, any delivery of a Drag-Along Notice (as defined in
Section 8.5(b) of the GP Stockholders' Agreement).
Section 2.02. Board Votes. For so long as any Stockholder or Investor
Group is entitled to designate one or more directors on the Board, each
Stockholder agrees to cause its (or its Investor Group's) designees on the Board
to cast their votes as directors with respect to any of the matters described in
Section 2.01 above in a manner consistent with the agreements set forth in
Section 2.01 above; provided, that nothing in this Voting Agreement shall be
deemed to require a director to take any action, or refrain from acting, in a
manner inconsistent with such director's fiduciary duties under Delaware law.
Section 2.03. Purchasers and Transferees Bound. In addition to any
other requirements of the Partnership Agreement or the GP Stockholders'
Agreement relating to a transfer of Units or Shares, no Units or Shares shall be
sold, assigned, transferred or otherwise disposed of by any of the Stockholders
unless the purchaser or transferee of such Units or Shares executes a written
agreement or instrument accepting, with respect to the Units or Shares acquired
by such purchaser or transferee, all of the terms and conditions set forth in
this Voting Agreement and agreeing to be bound thereby. Following any such
transfer of Shares or Units, such Shares or Units shall remain subject to the
provisions of this Voting Agreement, and the purchaser or transferee of such
Shares or Units shall be deemed, for all purposes of this Voting Agreement, to
be a member of the same Investor Group as the Stockholder from which such Shares
or Units were acquired.
Section 2.04. Rules of Construction.
(a) Telcom/Columbia/Spectrum Group. Concurrent with the execution of
this Voting Agreement, the Telcom/Columbia/Spectrum Group shall deliver a
written instrument, signed by each Stockholder that is a member of such Group,
4
to the other Stockholders, stating the method by which the
Telcom/Columbia/Spectrum Group will express its binding vote to the other
Stockholders for matters to be voted on pursuant to this Voting Agreement. Such
methodology shall be selected by the members of the Telcom/Columbia/Spectrum
Group in their discretion, but the methodology indicated in such written
instrument shall be binding on such Stockholders unless and until a subsequent
written instrument is delivered, signed by each Stockholder that is a member of
the Telcom/Columbia/Spectrum Group, changing such methodology.
(b) Shares and Units Transferred to Other Parties. For the avoidance of
doubt, in the case of any votes or consents required by this Voting Agreement,
Shares or Units that are sold or transferred by Stockholders who are members of
one of the Investor Groups shall continue to be counted as Shares or Units, as
the case may be, owned by members of such selling Stockholder's Investor Group.
In addition, after the date of this Agreement, if any Stockholders sell or
transfer less than all of the Shares or Units owned by such Stockholder's
Investor Group to one or more persons not already members of such Stockholder's
Investor Group, then, no later than the effective date of such sale or transfer,
the Stockholder shall deliver a written instrument signed by both the transferor
and transferee(s) to each other Stockholder, stating the method by which such
transferring Stockholder's Investor Group will express its binding vote to the
other Stockholders for matters to be voted on pursuant to this Voting Agreement.
Article III Miscellaneous
Section 3.01. Term. This Voting Agreement, and the obligations of the
parties hereunder, shall survive and remain in effect until November 12, 2007,
or such other date as shall be agreed by two of the three Investor Groups party
to this Agreement (including, for this purpose, any of such Investor Group's
permitted transferees or assignees).
Section 3.02. Amendments. This Voting Agreement may be amended or
modified, and the rights and obligations of the parties to this Agreement may be
waived, only upon the written consent of two of the three Investor Groups party
to this Agreement (including, for this purpose, any of such Investor Group's
permitted transferees or assignees).
Section 3.03. Governing Law. This Agreement shall be governed in all
respects by the law of the State of New York as such law is applied to
agreements between New York residents entered into and performed entirely in the
State of New York, without regard to the conflict of laws provisions thereof.
Section 3.04. Successors and Assigns. Without in any way limiting the
applicability of other provisions of this Agreement that may be applicable, the
provisions hereof shall inure to the benefit of, and be binding upon, the
successors, assigns, heirs, executors and administrators of the parties hereto.
Nothing in this Agreement, express or implied, is intended to confer upon any
other party (other than the parties to this Agreement or their respective
successors and assigns) any rights, remedies, obligations or liabilities under
or by reason of this Agreement, except as expressly provided in this Agreement.
Section 3.05. Severability. In case any provision of this Agreement
shall be invalid, illegal or unenforceable, the validity, legality and
enforceability of the remaining provisions shall not in any way be affected or
impaired thereby; provided, that no such severability shall be effective if it
materially and adversely affects the economic benefit of this Agreement to any
party.
5
Section 3.06. Notices. All notices required or permitted hereunder
shall be in writing and shall be deemed effectively given (a) upon personal
delivery to the party to be notified, (b) when sent by confirmed facsimile if
sent during normal business hours of the recipient, if not, then on the next
business day, (c) five days after having been sent by registered or certified
mail, return receipt requested, postage prepaid, or (d) one day after deposit
with a nationally recognized overnight courier, specifying next day delivery,
with written verification of receipt. All communications shall be sent to each
Stockholder at the address designated by such party in Schedule I.
Section 3.07. Equitable Relief. Each Stockholder agrees that if it
fails to perform its obligations under this Agreement for any reason whatsoever,
the other parties hereto shall be entitled to specific performance and
injunctive or other equitable relief, and each Stockholder hereby further agrees
to waive any requirement for the securing or posting of any bond in connection
with the obtaining of any injunctive or other equitable relief. This provision
is without prejudice to any other rights that the other parties to this
Agreement may have against any other party for any failure to perform its
obligations under this Agreement.
Section 3.08. Further Assurances. Each Stockholder shall at any time
and from time to time promptly execute and deliver to the other Stockholders
such further instruments, consents and other documents and take such further
action as such other Stockholders may reasonably require in order to carry out
the full intent and purpose of this Agreement.
Section 3.09. Interpretation. The titles of the sections and
subsections of this Agreement are for convenience of reference only and are not
to be considered in construing this Agreement. All pronouns contained herein,
and any variations thereof, shall be deemed to refer to the masculine, feminine
or neutral, singular or plural, as to the identity of the parties hereto may
require.
Section 3.10. Counterparts. This Agreement may be executed in any
number of counterparts, each of which shall be an original, but all of which
together shall constitute one instrument. Delivery of an executed counterpart of
a signature page of this Agreement by facsimile shall be effective as delivery
of a manually executed counterpart of this Agreement.
Section 3.11. Entire Agreement. This Agreement, the Schedules hereto
and any other documents delivered pursuant hereto constitute the full and entire
understanding and agreement between the parties with regard to the subjects
hereof and supersede any and all prior and contemporaneous agreements or
understandings, whether expressed or implied, written or oral, between the
parties with respect hereto and thereto. No party shall be liable or bound to
any other in any manner by any representations, warranties, covenants and
agreements except as specifically set forth herein and therein.
[Signature Pages Follow]
6
IN WITNESS WHEREOF, the parties hereto have duly executed this Voting
Agreement as of the date first above written.
MSV INVESTORS, LLC
By: /s/ Jeffery A. Leddy
---------------------------------------
Name: Jeffery A. Leddy
Title: CEO
TMI COMMUNICATIONS DELAWARE, LIMITED PARTNERSHIP
By: 3924505 Canada, Inc., its General Partner
By: /s/ Rory McCormick
---------------------------------------
Name: Rory McCormick
Title: President
TELCOM SATELLITE VENTURES II, INC.
By: /s/ Rajendra Singh
---------------------------------------
Name: Rajendra Singh
Title: Chairman and CEO
TELCOM SATELLITE VENTURES INC.
By: /s/ Rajendra Singh
---------------------------------------
Name: Rajendra Singh
Title: Chairman and CEO
SPECTRUM SPACE EQUITY INVESTORS IV-II, INC.
By: /s/ Kevin J. Maroni
---------------------------------------
Name: Kevin J. Maroni
Title: President
SPECTRUM SPACE IV PARALLEL II, INC.
By: /s/ Kevin J. Maroni
-----------------------------------------
Name: Kevin J. Maroni
Title: President
SPECTRUM SPACE IV MANAGERS II, INC.
By: /s/ Kevin J. Maroni
-----------------------------------------
Name: Kevin J. Maroni
Title: President
SPECTRUM SPACE EQUITY INVESTORS IV, INC.
By: /s/ Kevin J. Maroni
-----------------------------------------
Name: Kevin J. Maroni
Title: President
SPECTRUM SPACE IV PARALLEL, INC.
By: /s/ Kevin J. Maroni
-----------------------------------------
Name: Kevin J. Maroni
Title: President
SPECTRUM SPACE IV MANAGERS, INC.
By: /s/ Kevin J. Maroni
-----------------------------------------
Name: Kevin J. Maroni
Title: President
COLUMBIA SPACE (QP) II, INC.
By: /s/ Donald A. Doering
-----------------------------------------
Name: Donald A. Doering
Title: Treasurer
COLUMBIA SPACE (AI) II, INC.
By: /s/ Donald A. Doering
-----------------------------------------
Name: Donald A. Doering
Title: Treasurer
COLUMBIA SPACE PARTNERS II, INC.
By: /s/ Donald A. Doering
-----------------------------------------
Name: Donald A. Doering
Title: Treasurer
COLUMBIA SPACE (QP), INC.
By: /s/ Donald A. Doering
-----------------------------------------
Name: Donald A. Doering
Title: Treasurer
COLUMBIA SPACE (AI), INC.
By: /s/ Donald A. Doering
-----------------------------------------
Name: Donald A. Doering
Title: Treasurer
COLUMBIA SPACE PARTNERS, INC.
By: /s/ Donald A. Doering
-----------------------------------------
Name: Donald A. Doering
Title: Treasurer
Exhibit 10.56
AMENDED AND RESTATED CONSENT AGREEMENT
This Amended and Restated Consent Agreement ("Consent Agreement"),
dated as of February 9, 2005, is entered into by and among those stockholders of
Mobile Satellite Ventures GP Inc., a Delaware corporation ("General Partner")
and General Partner of Mobile Satellite Ventures LP, a Delaware limited
partnership, listed on the signature pages hereto (collectively, the
"Telcom/Columbia/Spectrum Parties").
RECITALS
WHEREAS, each of the Telcom/Columbia/Spectrum Parties are party to that
certain Voting Agreement by and among the stockholders of General Partner, dated
November 12, 2004, as amended and in effect from time to time (the "Voting
Agreement").
WHEREAS, each of the Telcom/Columbia/Spectrum Parties are party to that
certain Amended and Restated Stockholders Agreement by and among the
stockholders of General Partner, dated November 12, 2004, as amended and in
effect from time to time (the "Stockholders' Agreement ").
WHEREAS, each of the Telcom/Columbia/Spectrum Parties are members of
the Telcom/Columbia/Spectrum Group.
WHEREAS, immediately after execution of this Consent Agreement, Telcom
Satellite Ventures, Inc. and Telcom Satellite Ventures II, Inc. will merge with
and into MVH Holding Inc., a Delaware corporation and wholly owned subsidiary of
Motient Corporation, and immediately thereafter MVH Holding Inc. will contribute
the assets of Telcom Satellite Ventures, Inc. and Telcom Satellite Ventures II,
Inc. to Motient Venture Holdings Inc. ("MVH"), a Delaware corporation and wholly
owned subsidiary of MVH Holding Inc. (the "Telcom/MVH Merger").
WHEREAS, pursuant to Section 2.04(a) of the Voting Agreement, the
Telcom/Columbia/Spectrum Parties must provide the other Stockholders with a
written instrument signed by the Telcom/Columbia/Spectrum Parties stating the
method by which the Telcom/Columbia/Spectrum Group will express its binding vote
to the other Stockholders in respect of matters that are to be voted on by the
Stockholders pursuant to the Voting Agreement.
WHEREAS, capitalized terms not otherwise defined herein shall have the
meanings given such terms in the Voting Agreement.
NOW, THEREFORE, in consideration of the agreements contained herein and
for other good and valuable consideration, the receipt and sufficiency of which
is hereby acknowledged, the Telcom/Columbia/Spectrum Parties hereby agree as
follows:
1
1. Definitions.
"Columbia Blocker Corps." shall mean (i) Columbia Space (QP), Inc.,
(ii) Columbia Space (AI), Inc., and (iii) Columbia Space Partners, Inc.
"Columbia Funds" shall mean (i) Columbia Capital Equity Partners III
(QP), L.P., (ii) Columbia Capital Equity Partners III (AI), L.P., (iii) Columbia
Capital Equity Partners III (Cayman), L.P., (iv) Columbia Capital Investors III,
LLC, (v) Columbia Capital Employee Investors III, LLC and/or (vi) any affiliated
fund of the foregoing.
"Effective Time" shall mean the effective time of the Telcom/MVH
Merger.
"Spectrum Blocker Corps." shall mean (i) Spectrum Space Equity
Investors IV, Inc., (ii) Spectrum Space IV Parallel, Inc., and (iii) Spectrum
Space IV Managers, Inc.
"Spectrum Funds" shall mean (i) Spectrum Equity Investors IV, L.P.,
(ii) Spectrum Equity Investors Parallel IV, L.P., (iii) Spectrum IV Investment
Managers Fund, L.P and/or (iv) any affiliated fund of the foregoing.
"Telcom Blocker Corps." shall mean (i) Telcom Satellite Ventures Inc.,
and (ii) Telcom Satellite Ventures II Inc. prior to the Effective Time and MVH
after the Effective Time.
"Telcom/Columbia/Spectrum Shares" shall mean any Shares held by the
Columbia Blocker Corps., Spectrum Blocker Corps. and/or Telcom Blocker Corps
immediately prior to the Effective Time.
"Telcom/Columbia/Spectrum Units" shall mean any Units held by the
Columbia Blocker Corps., Spectrum Blocker Corps. and/or Telcom Blocker Corps
immediately prior to the Effective Time.
"Transfer" shall means any transfer, sale, gift, exchange, assignment,
merger, recapitalization, pledge, hypothecation or other disposition of direct
or indirect ownership or voting control of any Telcom/Columbia/Spectrum Shares
and any Telcom/Columbia/Spectrum Units.
"Transferee" shall mean any holder of Telcom/Columbia/Spectrum Shares
and Telcom/Columbia/Spectrum Units received pursuant to a Transfer.
2. Consent.
A. From and after the Effective Time and until such time as the
Columbia Funds no longer own, directly or indirectly, at least 25% of the Shares
and Units owned by the Columbia Blocker Corps. immediately prior to the
Effective Time, the vote or written consent of the Shares or Units owned by the
Columbia Blocker Corps., exclusive of the vote of any Shares or Units owned by
the Spectrum Blocker Corps, and Telecom Blocker Corps. as of the time of such
2
vote or written consent shall bind the Telcom/Columbia/Spectrum Group with
respect to matters to be voted on or consented to pursuant to Sections 2.01,
2.02, 3.01, or 3.02 of the Voting Agreement. Promptly following the execution of
this Consent Agreement, the stockholders of each of the Columbia Blocker Corps.,
the Spectrum Blocker Corps. and the Telcom Blocker Corps. (and MVH as successor
pursuant to the Telcom/MVH Merger), will deliver to the other Stockholders of
General Partner the notice attached hereto as Exhibit A advising the other
Stockholders of General Partner of the parties forgoing agreement with respect
to the voting of the Telcom/Columbia/Spectrum Shares and the Telcom/Columbia
Spectrum Shares and Units. The notice delivered pursuant to this Section 2A
shall remain in effect until such time as the parties are required by Section 2B
to give the notice required thereby.
B. From and after such time as the Columbia Funds no longer own,
directly or indirectly, at least 25% of the Shares and Units owned by the
Columbia Blocker Corps. immediately prior to the Effective Time, the vote or
written consent of the holders of a majority of the Telcom/Columbia/Spectrum
Shares or Telcom/Columbia/Spectrum Units, as the case may be, as of the time of
such vote or written consent shall bind the Telcom/Columbia/Spectrum Group with
respect to matters to be voted on or consented to pursuant to Sections 2.01,
2.02, 3.01, or 3.02 of the Voting Agreement. Promptly following the effective
time after which the Columbia Funds no longer own, directly or indirectly, at
least 25% of the shares and Units owned by the Columbia Blocker Corps., the
stockholders of each of the Columbia Blocker Corps., the Spectrum Blocker Corps.
and the Telcom Blocker Corps. (or MVH as successor pursuant to the Telcom/MVH
merger) will deliver to the other Stockholders of General Partner the notice
attached hereto as Exhibit B advising the other Stockholders of General Partner
that from and after such date the parties agreement with respect to the voting
of the Telcom/Columbia/Spectrum Units and the Telcom/Columbia Spectrum Shares
and Units.
C The Telcom/Columbia/Spectrum Group will not vote or execute a written
consent for a waiver of the 49% limitation in Section 8.6 of the Stockholders'
Agreement or Section 2.01(c) of the Voting Agreement with respect to the
acquisition by any stockholder of General Partner or limited partner of MSV
(including any Affiliates (as defined in the MSV LP Agreement (as defined in the
Stockholders' Agreement) of such stockholders or limited partners) other than
MVH of more than 49% of (a) the outstanding Stock (as defined in the
Stockholders' Agreement ) or (b) the outstanding Units (including in each case
any Stock or Units attributable to unexercised options or warrants or other
similar securities owned by such stockholder or limited partner or their
affiliates), unless such limitation is also waived for MVH or otherwise does not
apply to MVH in connection with the same transaction (including application with
regard to rights of first refusal pursuant to the Stockholders Agreement). If
the Telcom/Columbia/Spectrum Group votes to waive the 49% limitation (in
accordance with this Section 2C) with respect to (i) a limited partner of MSV or
stockholder of General Partner other than MVH and (ii) MVH, then MVH (and any
other Affiliate of MVH that owns Shares or Units, as well as any subsequent
owner of Shares or Units owned by the Motient Group (as defined in the Voting
Agreement)) will vote to waive the 49% limitation (in accordance with this
Section 2C) with respect to such other limited partner of MSV or stockholder of
General Partner.
D. The parties that shall bind the Telcom/Columbia/Spectrum Group with
respect to matters to be voted on or consented to pursuant to Sections 2.01,
2.02, 3.01, or 3.02 of the Voting Agreement shall be referred to herein as the
"Binding Parties".
3
3. Transfers to Transferees.
A. Except as set forth in Section 2B or 6B (if applicable), no
Transferee shall have any voting power or consent rights under this Consent
Agreement or the Voting Agreement with respect to any Telcom/Columbia/Spectrum
Shares and Telcom/Columbia/Spectrum Units Transferred to such Transferee.
B. Prior to or simultaneously with any Transfer, (i) the Transferee(s)
shall execute a written agreement or instrument accepting, with respect to the
Telcom/Columbia/Spectrum Shares and Telcom/Columbia/Spectrum Units so
Transferred, all of the terms, conditions and provisions set forth in this
Consent Agreement and agreeing to be bound thereby and (ii) the transferor(s)
shall deliver a written instrument signed by the transferor(s) and the
Transferee(s) to each other Stockholder, stating that the transferor(s) and the
Transferee(s) agree to be so bound by this Consent Agreement.
4. Circumvention. The parties intend the provisions of this Consent
Agreement to be construed broadly so as to deprive all Transferees, other than
as set forth in Section 2B or 6B (if applicable), any consenting or voting
rights under or pursuant to the Voting Agreement with respect to
Telcom/Columbia/Spectrum Shares and Telcom/Columbia/Spectrum Units Transferred.
Each party agrees that it will not circumvent the intent of this Consent
Agreement and the provisions hereunder.
5. Equity Interests in TerreStar Networks Inc. As of the Effective
Time, the Columbia Blocker Corps., Spectrum Blocker Corps., and Telcom Blocker
Corps. hold rights (the "Rights Certificates") to receive shares of common stock
("Common Stock") of TerreStar Networks Inc. ("TerreStar"). As a holder of such
Rights Certificates, the Columbia Blocker Corps., Spectrum Blocker Corps., and
Telcom Blocker Corps. are parties to that certain TerreStar Securityholders'
Agreement dated as of December 20, 2004, the Columbia Blocker Corps., Spectrum
Blocker Corps., and Telcom Blocker Corps. are parties to that certain TerreStar
Voting Agreement dated as of December 20, 2004 (the "TerreStar Voting
Agreement") and the stockholders of the Columbia Blocker Corps., Spectrum
Blocker Corps., and Telcom Blocker Corps. are parties to that certain TerreStar
Parent Transfer/Drag Along Agreement dated as of December 20, 2004. The parties
agree that the Rights Certificates, any shares of Common Stock issued upon
conversion of the Rights Certificates and any other equity securities of
TerreStar held by the Columbia Blocker Corps., Spectrum Blocker Corps., and
Telcom Blocker Corps., shall be subject to the provisions of Section 2, Section
3, and Section 4 of this Agreement (the provisions of which are hereby
incorporated by reference, mutatis, mutandis into this Section 5) as if such
Rights Certificates, Common Stock, or other equity securities in TerreStar, as
applicable, were Shares or Units. In the case of the TerreStar Voting Agreement,
the notices contemplated by Section 2A and 2B, which are attached as Exhibits C
or D, shall be delivered to the Holders (as defined in the TerreStar Voting
Agreement).
4
6. Miscellaneous.
A. Term. This Consent Agreement, and the obligations of the parties
hereunder, shall survive and remain in effect so long as the Voting Agreement
survives and remains in effect.
B. Amendments. This Consent Agreement, and the rights and obligations
of the parties hereto may be waived (either generally or in a particular
instance, either retroactively or prospectively, and either for a specified
period of time or indefinitely) or amended if and only if such waiver or
amendment is consented to in writing by the Binding Parties; provided, however,
that if any waiver or amendment would materially and adversely affect the rights
of one or more parties in a way that is different from its effect on the other
parties, such waiver or amendment shall not be effective as to any such
adversely affected party unless consented to by such adversely affected party.
Each party to this Consent Agreement shall be bound by any amendment or waiver
effected properly and in accordance with this Section, whether or not such party
has consented to such amendment or waiver.
C. Governing Law. This Consent Agreement shall be governed in all
respects by the law of the State of New York as such law is applied to
agreements between New York residence entered into and performed entirely in the
State of New York, without regard to the conflict of laws provisions hereof.
D. Successors and Assigns. The provisions hereof shall be binding upon
the Transferees, successors, assigns, heirs, executors and administrators of the
parties hereto. Except as set forth in Section 2B or 6B (if applicable),
Transferees shall not have any voting power or consent rights under this Consent
Agreement.
E. Severability. In case any provisions of this Consent Agreement shall
be invalid, illegal or unenforceable, the validity, legality and enforceability
of the remaining provisions shall not in any way be affected or impaired
thereby; provided, that no such severability shall be effective if it materially
and adversely affects the economic benefit of this Consent Agreement to any
party hereto.
F. Notices. All notices required or permitted hereunder shall be in
writing and shall be deemed effectively given (a) upon personal delivery to the
party to be notified, (b) when sent by confirmed facsimile if sent during normal
business hours of the recipient, if not, then on the next business day, (c) five
days after having been sent by registered or certified mail, return receipt
requested, postage prepaid, or (d) one day after deposit with a nationally
recognized overnight courier, specifying next day delivery, with written
verification of receipt. All communications shall be sent to each party at the
address previously provided by such party.
G. Equitable Relief. Each party agrees that if it fails to perform its
obligations under this Consent Agreement for any reason whatsoever, the other
parties hereto shall be entitled to specific performance and injunctive or other
equitable relief, and each Stockholder hereby further agrees to waive any
requirement for the securing or posting of any bond in connection with the
obtaining of any injunctive or other equitable relief. This provision is without
prejudice to any other rights that the other parties to this Consent Agreement
may have against any other party for any failure to perform its obligations
under this Consent Agreement.
5
H. Further Assurances. Each party shall at any time and from time to
time promptly execute and deliver to the other parties such further instruments,
consents and other documents and take such further action as such other parties
may reasonably require in order to carry out the full intent and purpose of this
Consent Agreement.
I. Interpretation. The titles of the sections and subsections of this
Consent Agreement are for convenience of reference only and are not to be
considered in construing this Consent Agreement. All pronouns contained herein,
and any variations thereof, shall be deemed to refer to the masculine, feminine
or neutral, singular or plural, as to the identity of the parties hereto may
require.
J. Counterparts. This Consent Agreement may be executed in any number
of counterparts, each of which shall be an original, but all of which together
shall constitute one instrument. Delivery of an executed counterpart of a
signature page of this Consent Agreement by facsimile shall be effective as
delivery of a manually executed counterpart of this Consent Agreement.
K. Entire Agreement. This Consent Agreement, the Voting Agreement and
any other documents delivered to all parties pursuant hereto constitute the full
and entire understanding and agreement between the parties with regard to the
subjects hereof and supersede any and all prior and contemporaneous agreements
or understandings, whether expressed or implied, written or oral, between the
parties with respect hereto and thereto. No party shall be liable or bound to
any other in any manner by any representations, warranties, covenants and
agreements except as specifically set forth herein and therein.
[Signature Pages Follow]
6
IN WITNESS WHEREOF, the parties hereto have duly executed this Consent Agreement
as of the date first above written.
TELCOM SATELLITE VENTURES II, INC.
By: /s/ Rajendra Singh
---------------------------------
Name: Rajendra Singh
Title: President
TELCOM SATELLITE VENTURES INC.
By: /s/ Rajendra Singh
---------------------------------
Name: Rajendra Singh
Title: President
SPECTRUM SPACE EQUITY INVESTORS IV, INC.
By: /s/ Kevin J. Maroni
---------------------------------
Name: Kevin J. Maroni
Title: President
SPECTRUM SPACE IV PARALLEL, INC.
By: /s/ Kevin J. Maroni
---------------------------------
Name: Kevin J. Maroni
Title: President
SPECTRUM SPACE IV MANAGERS, INC.
By: /s/ Kevin J. Maroni
---------------------------------
Name: Kevin J. Maroni
Title: President
7
COLUMBIA SPACE (QP), INC.
By: /s/ Donald A. Doering
---------------------------------
Name: Donald A. Doering
Title: Treasurer
COLUMBIA SPACE (AI), INC.
By: /s/ Donald A. Doering
---------------------------------
Name: Donald A. Doering
Title: Treasurer
COLUMBIA SPACE PARTNERS, INC.
By: /s/ Donald A. Doering
---------------------------------
Name: Donald A. Doering
Title: Treasurer
8
As a Transferee, the undersigned each agree to be bound all of the terms,
conditions and provisions set forth in this Consent Agreement with respect to
the Telcom/Columbia/Spectrum Shares and Telcom/Columbia/Spectrum Units so
Transferred.
MOTIENT VENTURE HOLDING INC.
By: /s/ Christopher Downie
---------------------------------
Name: Christopher Downie
Title: Executive Vice President and Chief
Operating Officer
MVH HOLDINGS INC.
By: /s/ Christopher Downie
---------------------------------
Name: Christopher Downie
Title: Executive Vice President and Chief
Operating Officer
9
Exhibit 10.57
AGREEMENT AND PLAN OF MERGER
BY AND AMONG
MOTIENT CORPORATION
MVH HOLDINGS INC.
TELCOM SATELLITE VENTURES INC.
TELCOM SATELLITE VENTURES II INC.
AND
THE STOCKHOLDERS OF TELCOM
SATELLITE VENTURES INC. AND
TELCOM SATELLITE VENTURES II INC.
Dated as of February 9, 2005
TABLE OF CONTENTS
ARTICLE I The Merger..............................................................................................1
Section 1.1. The Merger.............................................................................1
Section 1.2. Closing................................................................................2
Section 1.3. Effective Time.........................................................................2
Section 1.4. Effect of the Merger...................................................................2
Section 1.5. Certificate of Incorporation and Bylaws................................................2
Section 1.6. Directors and Officers.................................................................2
ARTICLE II Effect of the Merger on the Stock of the Constituent Corporations; Exchange of Certificates............2
Section 2.1. Effect on Stock........................................................................2
Section 2.2. Exchange of Certificates...............................................................4
Section 2.3. Rights to Purchase Target Capital Stock................................................6
ARTICLE III Representations and Warranties of Target..............................................................6
Section 3.1. Organization, Qualification, Etc.......................................................6
Section 3.2. Capitalization.........................................................................6
Section 3.3. Corporate Authority Relative to this Agreement; No Violation...........................7
Section 3.4. No Liabilities; No Operations..........................................................7
Section 3.5. Target Assets..........................................................................8
Section 3.6. Target Agreements......................................................................8
Section 3.7. No Violation of Law....................................................................8
Section 3.8. Lack of Ownership of Acquiror Common Stock.............................................8
Section 3.9. Investigations; Litigation.............................................................8
Section 3.10. Tax Matters............................................................................9
Section 3.11. Approval of Target Stockholders........................................................9
ARTICLE IV Representations and Warranties of the Target Stockholders..............................................9
Section 4.1. Representations and Warranties of Target...............................................9
Section 4.2. Authority..............................................................................9
Section 4.3. No Conflict with other Instruments.....................................................9
Section 4.4. Ownership of Shares...................................................................10
Section 4.5. Approval of Agreement and Merger......................................................10
Section 4.6. Exchange Entirely for Own Account.....................................................10
Section 4.7. Reliance Upon the Target Stockholders' Representations................................10
Section 4.8. Receipt of Information................................................................10
Section 4.9. Investor Status; Etc..................................................................10
Section 4.10. Brokers or Finders....................................................................11
Section 4.11. Restricted Securities.................................................................11
Section 4.12. Legends...............................................................................11
i
ARTICLE V Representations and Warranties of Acquiror and Merger Sub..............................................11
Section 5.1. Organization, Standing and Power......................................................11
Section 5.2. Capitalization........................................................................12
Section 5.3. Authority.............................................................................12
Section 5.4. SEC Documents.........................................................................12
Section 5.5. Litigation............................................................................13
Section 5.6. Broker's and Finders' Fees............................................................13
Section 5.7. Representations Complete..............................................................13
Section 5.8. Acquiror Subsidiaries.................................................................13
Section 5.9. Independent Investigation.............................................................14
ARTICLE VI Conduct of Target Prior to the Effective Time.........................................................14
Section 6.1. Conduct of Business by Target.........................................................14
Section 6.2. Restrictions on the Conduct of Business by Target.....................................14
Section 6.3. No Solicitation.......................................................................15
Section 6.4. Tax Treatment.........................................................................16
ARTICLE VII Additional Agreements................................................................................16
Section 7.1. Investigation.........................................................................16
Section 7.2. Cooperation...........................................................................16
Section 7.3. Filings; Other Action.................................................................17
Section 7.4. Further Assurances....................................................................17
Section 7.5. Public Announcements..................................................................17
Section 7.6. Update Disclosure: Breaches...........................................................17
Section 7.7. Contribution of MSV Interests and Shares..............................................18
Section 7.8. Blue Sky Laws.........................................................................18
Section 7.9. TerreStar.............................................................................18
Section 7.10. Acquiror Rights Offering..............................................................19
Section 7.11. Role of Dr. Singh Subsequent to Closing...............................................19
Section 7.12. Target Stockholder Approval...........................................................19
Section 7.13. Rights Agreement......................................................................19
Section 7.14. Tax Treatment.........................................................................19
Section 7.15. Designation of Director...............................................................19
Section 7.16. No Additional Consideration...........................................................19
Section 7.17. Independent Evaluation of Investment..................................................19
ARTICLE VIII Conditions to the Merger............................................................................20
Section 8.1. Conditions to Each Party's Obligation to Effect the Merger............................20
Section 8.2. Conditions to Obligations of Target to Effect the Merger..............................20
Section 8.3. Conditions to Obligations of Acquiror to Effect the Merger............................21
ARTICLE IX Termination...........................................................................................22
Section 9.1. Termination or Abandonment............................................................22
Section 9.2. Effect of Termination.................................................................23
ii
ARTICLE X Indemnification........................................................................................23
Section 10.1. Survival of Representations and Warranties............................................23
Section 10.2. Obligation to Indemnify...............................................................23
Section 10.3. Indemnification Procedures............................................................24
Section 10.4. Notices and Payments..................................................................25
Section 10.5. Limited Remedy........................................................................25
Section 10.6. Payment Treatment.....................................................................26
ARTICLE XI Miscellaneous.........................................................................................26
Section 11.1. Expenses 26
Section 11.2. Counterparts: Effectiveness...........................................................26
Section 11.3. Governing Law.........................................................................26
Section 11.4. Notices...............................................................................26
Section 11.5. Assignment; Binding Effect............................................................27
Section 11.6. Severability..........................................................................27
Section 11.7. Entire Agreement; Non-Assignability; Parties in Interest..............................28
Section 11.8. Headings 28
Section 11.9. Certain Definitions...................................................................28
Section 11.10. Amendment.............................................................................28
Section 11.11. Waiver................................................................................28
Schedule A List of Target Stockholders
Schedule B Target Disclosure Schedule
Exhibit A Form of Acquiror Warrant
Exhibit B Form of Certificate of Merger
Exhibit C Form of Registration Rights Agreement
iii
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (this "Agreement") is made and
entered into as of February 9, 2005 by and among Motient Corporation, a Delaware
corporation ("Acquiror"), MVH Holdings Inc., a Delaware corporation and direct
wholly-owned subsidiary of Acquiror ("Merger Sub"), Telcom Satellite Ventures
Inc., a Delaware corporation ("Telcom I") and Telcom Satellite Ventures II Inc.,
a Delaware corporation ("Telcom II" and together with Telcom I, "Target"), and
all of the stockholders of both Telcom I and Telcom II set forth on Schedule I
hereto (collectively, the "Target Stockholders").
RECITALS:
A. The respective Boards of Directors of Telcom I, Telcom II, Acquiror
and Merger Sub believe it is advisable and in the best interests of each company
and their respective stockholders that Acquiror acquire Target through the
statutory merger of both Telcom I and Telcom II with and into Merger Sub (the
"Merger"), have determined that the Merger is in furtherance of and consistent
with their respective business strategies and, in furtherance thereof, have
approved the Merger.
B. Pursuant to the Merger, among other things, each outstanding share
of Telcom I common stock, par value $0.01 per share ("Telcom I Common Stock")
and each outstanding share of Telcom II common stock, par value $0.01 per share
("Telcom II Common Stock" and, together with Telcom I Common Stock, "Target
Common Stock"), shall be converted into the right to receive (i) shares of
Motient Corporation common stock, par value $0.01 per share ("Acquiror Common
Stock"), and (ii) warrants (the "Acquiror Warrants") to purchase shares of
Acquiror Common Stock (the "Warrant Shares") a form of which is attached as
Exhibit A hereto, at the rates set forth therein.
C. Target, Acquiror, Merger Sub and the Target Stockholders desire to
make certain representations and warranties and other agreements in connection
with the Merger.
D. The parties intend, by executing this Agreement, to adopt a plan of
reorganization within the meaning of Section 368 of the Internal Revenue Code of
1986, as amended (the "Code"), and that the Merger shall qualify as a
"reorganization" within the meaning of Section 368(a) of the Code.
AGREEMENT:
NOW, THEREFORE, in consideration of the covenants and representations
set forth herein, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties agree as follows:
ARTICLE I
The Merger
Section 1.1. The Merger. Upon the terms and subject to the conditions
of this Agreement, at the Effective Time (as defined in Section 1.3) in
accordance with the Delaware General Corporation Law ("DGCL"), both Telcom I and
Telcom II shall be merged with and into Merger Sub and the separate existence of
Telcom I and Telcom II shall thereupon cease. Merger Sub shall be the surviving
corporation in the Merger and is hereinafter sometimes referred to as the
"Surviving Corporation."
1
Section 1.2. Closing. The closing of the Merger (the "Closing") will
take place at such time and date to be specified by the parties (the "Closing
Date"), which shall be no later than the second business day after satisfaction
or waiver of the conditions set forth in Article VIII, unless another time or
date is agreed to by the parties hereto. The Closing will be held at the offices
of Andrews Kurth LLP, 111 Congress Avenue, Suite 1700, Austin, Texas, or at such
time and place as is otherwise agreed to by the Acquiror and Target.
Section 1.3. Effective Time. Subject to the provisions of this
Agreement and in accordance with the DGCL, as soon as practicable on the Closing
Date, the parties shall file a Certificate of Merger (the "Certificate of
Merger") in the form attached as Exhibit B hereto, with the Secretary of State
of the State of Delaware, in such form as required by the DGCL. The Certificate
of Merger shall provide for its effectiveness immediately upon its filing (the
"Effective Time").
Section 1.4. Effect of the Merger. At the Effective Time, the effect of
the Merger shall be as provided in the applicable provisions of the DGCL.
Without limiting the generality of the foregoing, and subject thereto, at the
Effective Time, except as otherwise provided herein, all the properties, rights,
privileges, powers and franchises of Merger Sub and Target shall vest in the
Surviving Corporation, and all debts, liabilities and duties of Merger Sub and
Target shall become the debts, liabilities and duties of the Surviving
Corporation.
Section 1.5. Certificate of Incorporation and Bylaws. At the Effective
Time:
(a) the Certificate of Incorporation of Merger Sub, as in effect
immediately prior to the Effective Time, shall be the Certificate of
Incorporation of the Surviving Corporation until thereafter amended as provided
by Delaware Law and such Certificate of Incorporation.
(b) the Bylaws of Merger Sub, as in effect immediately prior to the
Effective Time, shall be the Bylaws of the Surviving Corporation until
thereafter amended as provided by Delaware Law, the Certificate of Incorporation
and such Bylaws.
Section 1.6. Directors and Officers. The directors of Merger Sub and
the officers of Merger Sub immediately prior to the Effective Time shall be the
directors and officers of the Surviving Corporation until their respective
successors are duly elected and qualified (or their earlier resignation or
removal), as the case may be.
ARTICLE II
Effect of the Merger on the Stock of the Constituent
Corporations; Exchange of Certificates
Section 2.1. Effect on Stock. As of the Effective Time, by virtue of
the Merger and without any action on the part of Merger Sub, Target, Acquiror or
the Target Stockholders:
2
(a) Cancellation of Target-Owned Stock and Acquiror-Owned Stock. Each
share of Target Common Stock that is owned directly by Telcom I or Telcom II as
treasury stock or by Acquiror shall automatically be canceled and retired and
shall cease to exist, and no consideration shall be delivered in exchange
therefor.
(b) Conversion of Target Common Stock. Subject to Section 2.2(e), each
share of (i) Telcom I Common Stock issued and outstanding immediately prior to
the Effective Time (other than shares to be canceled in accordance with Section
2.1(a)) shall be converted into the right to receive (A) 65,202.425 shares of
Acquiror Common Stock; (B) an Acquiror Warrant to purchase 4,912.68 shares of
Acquiror Common Stock; and (C) Additional Merger Consideration, if any, pursuant
to Section 2.1(c) (collectively, the "Target I Merger Consideration") and (ii)
Telcom II Common Stock issued and outstanding prior to the Effective Time (other
than shares to be canceled in accordance with Section 2.1(a)) shall be converted
into the right to receive (A) 139,192.67 shares of Acquiror Common Stock; (B) an
Acquiror Warrant to purchase 10,439.45 shares of Acquiror Common Stock; and (C)
Additional Merger Consideration, if any (collectively, the "Target II Merger
Consideration" and, together with the Target I Merger Consideration, the "Merger
Consideration"). The Acquiror Warrants shall only become exercisable in the
event that the Acquiror is unable to file a Registration Statement on Form S-1
to register the resale of the Acquiror Common Stock and/or such registration
statement is not declared effective by the Securities and Exchange Commission
(the "SEC") prior to the dates and during the period set forth in the Acquiror
Warrants. As of the Effective Time, all such shares of Target Common Stock shall
no longer be outstanding and shall automatically be canceled and retired and
shall cease to exist, and each holder of a certificate or certificates which
immediately prior to the Effective Time represented outstanding Target Common
Stock (the "Certificates") shall cease to have any rights with respect thereto,
except the right to receive (i) shares of Acquiror Common Stock in an amount
equal to the product that is obtained by multiplying (A) the Exchange Ratio (as
defined below) by (B) the whole number of shares of Target Common Stock
surrendered and (ii) a warrant to purchase that number of shares of Acquiror
Common Stock equal to the product obtained by multiplying (A) 0.075 by (B) the
shares of Acquiror Common Stock determined in accordance with clause (i) of this
Section 2.1(b) (with the result rounded to the nearest whole share). The term
"Exchange Ratio" shall mean 8,187,804 divided by the sum of (i) the number of
shares of Telcom I Common Stock issued and outstanding immediately prior to the
Effective Time and (ii) the number of shares of Telcom II Common Stock issued
and outstanding immediately prior to the Effective Time.
(c) Purchase of MSV Interests. If at any time after the Closing Date
and prior to the one year anniversary of the Closing Date Acquiror acquires
additional interests in Mobile Satellite Ventures, L.P. ("MSV") (or its
successors) from a party who is a limited partner of MSV on the Closing Date (a
"Subsequent MSV Purchase"), Acquiror shall issue to the Target Stockholders in
proportion to their ownership of Target Common Stock immediately prior to the
Effective Time, as additional merger consideration (the "Additional Merger
Consideration"), a number of shares of Acquiror Common Stock equal to the
product of (i) the number of MSV limited partnership units held by Telcom I and
Telcom II immediately prior to the Effective Time, and (ii) the difference
between (x) the number of shares of Acquiror Common Stock issued in the
Subsequent MSV Purchase in exchange for each MSV limited partnership unit
acquired in such Subsequent MSV Purchase and (y) the number of shares of
Acquiror Common Stock issued to each Target Stockholder in exchange for each MSV
3
limited partnership unit acquired by Acquiror in the Merger; provided, that if
the number in clause (y) above shall be equal to or greater than the number in
clause (x), no additional shares of Acquiror Common Stock shall be issuable to
the Target Stockholders pursuant to this Section 2.1(c). Any shares of Acquiror
Common Stock issuable pursuant to this Section 2.1(c) shall be entitled to
piggyback registration rights granted pursuant to the Registration Rights
Agreement by and among Acquiror and each Target Stockholder dated as of the date
hereof (the "Rights Agreement"), a form of which is attached as Exhibit C
hereto.
(d) Adjustments to Exchange Ratio. The number of shares of Acquiror
Common Stock issuable in the Merger and the number of shares of Acquiror Common
Stock issuable upon exercise of the Acquiror Warrants shall be appropriately
adjusted to reflect any stock split, reverse split, stock dividend,
reorganization, recapitalization or other like change with respect to Acquiror
Common Stock occurring after the date hereof and prior to the Effective Time.
(e) Fractional Shares. No fraction of a share of Acquiror Common Stock
will be issued, but in lieu thereof each holder of shares of Target Common Stock
who would otherwise be entitled to a fraction of a share of Acquiror Common
Stock (after aggregating all fractional shares of Acquiror Common Stock to be
received by such holder) shall receive from Acquiror an amount of cash (rounded
to the nearest whole cent, with 0.5 being rounded up) equal to the product of
(i) such fraction, multiplied by the closing price for a share of Acquiror
Common Stock as quoted on the pink sheets on last trading day prior to the
Effective Time. No warrants to acquire a fractional share of Acquiror Common
Stock will be issued, but in lieu thereof each Acquiror Warrants which would
otherwise be exercisable to purchase a fraction of a share of Acquiror Common
Stock shall be rounded down so that it will be exercisable to purchase the next
lower whole number of shares.
(f) Contribution of Merger Consideration. Immediately prior to each
issuance of Acquiror Common Stock or Acquiror Warrants as Merger Consideration,
including Acquiror Common Stock which is Additional Merger Consideration
pursuant to Section 2.1(c), Acquiror shall contribute such Acquiror Common Stock
or Acquiror Warrants to Merger Sub for issuance by Merger Sub to Target
Stockholders pursuant to this Article II .
Section 2.2. Exchange of Certificates.
(a) Exchange Agent. Acquiror shall act as exchange agent in the Merger.
(b) Notice of Exchange. As soon as reasonably practicable after the
Effective Time, Acquiror shall make available for exchange in accordance with
this Article II, through such reasonable procedures as the Acquiror may adopt,
the shares of Acquiror Common Stock and Acquiror Warrants issuable pursuant to
Section 2.1(b) in exchange for shares of Target Common Stock outstanding
immediately prior to the Effective Time.
(c) Exchange Procedures. Promptly after the Effective Time, Acquiror
shall cause to be mailed to each holder of record of a Certificate or
Certificates which immediately prior to the Effective Time represented
outstanding shares of Target Common Stock, whose shares were converted into the
right to receive shares of Acquiror Common Stock (and cash in lieu of fractional
4
shares) and Acquiror Warrants pursuant to Section 2.1(b), (i) a letter of
transmittal (which shall specify that delivery shall be effected, and risk of
loss and title to the Certificates shall pass, only upon receipt of the
Certificates by Acquiror, and shall be in such form and have such other
provisions as Acquiror may reasonably specify) and (ii) instructions for use in
effecting the surrender of the Certificates in exchange for certificates (or
book entries in the case of shares that have not yet vested) representing shares
of Acquiror Common Stock (and cash in lieu of fractional shares) and Acquiror
Warrants. Upon surrender of a Certificate for cancellation to Acquiror, together
with such letter of transmittal, duly completed and validly executed in
accordance with the instructions thereto, the holder of such Certificate shall
be entitled to receive in exchange therefor a certificate representing the
number of whole shares of Acquiror Common Stock and payment in lieu of
fractional shares and Acquiror Warrants which such holder has the right to
receive pursuant to Section 2.1(b), and the Certificate so surrendered shall
forthwith be canceled. Until so surrendered, each outstanding Certificate that,
prior to the Effective Time, represented shares of Target Common Stock will be
deemed from and after the Effective Time, for all corporate purposes, other than
the payment of dividends, to evidence the ownership of the number of full shares
of Acquiror Common Stock into which such shares of Target Common Stock shall
have been so converted, the right to receive an amount in cash in lieu of the
issuance of any fractional shares and the Acquiror Warrants, all in accordance
with Section 2.1(b).
(d) No Further Ownership Rights in Target Common Stock. All Merger
Consideration paid upon the surrender for exchange of Certificates in accordance
with the terms of this Article II shall be deemed to have been paid in full
satisfaction of all rights pertaining to the shares of Target Common Stock
theretofore represented by such Certificates. There shall be no further
registration of transfers on the stock transfer books of the Surviving
Corporation of the shares of Target Common Stock which were outstanding
immediately prior to the Effective Time. If, after the Effective Time,
Certificates are presented to the Acquiror or the Surviving Corporation for any
reason, they shall be canceled and exchanged as provided in this Article II,
except as otherwise provided by law.
(e) No Liability. None of Acquiror, Target or Merger Sub shall be
liable to any person in respect of any shares of Acquiror Common Stock delivered
to a public official pursuant to any applicable abandoned property, escheat or
similar law. If any Certificate shall not have been surrendered prior to five
years after the Effective Time (or immediately prior to such earlier date on
which any Merger Consideration, payable to the holder of such Certificate, would
otherwise escheat to or become the property of any governmental body or
authority) any such Merger Consideration shall, to the extent permitted by
applicable law, become the property of the Surviving Corporation, free and clear
of all claims or interest of any person previously entitled thereto.
(f) Lost Certificates. If any Certificate shall have been lost, stolen
or destroyed, upon the making of an affidavit of that fact by the person
claiming such Certificate to be lost, stolen or destroyed and, if required by
the Surviving Corporation, the posting by such person of a bond in such
reasonable amount as the Surviving Corporation may direct as indemnity against
any claim that may be made against Acquiror or the Surviving Corporation with
respect to such Certificate, the Acquiror shall issue in exchange for such lost,
stolen or destroyed Certificate the Merger Consideration pursuant to this
Agreement.
5
Section 2.3. Rights to Purchase Target Capital Stock. At the Effective
Time, automatically and without any action on the part of the holder thereof,
each option, warrant or other right to purchase or acquire shares of Target
capital stock which remains as of such time unexercised in whole or in part
shall be cancelled.
ARTICLE III
Representations and Warranties of Target
Except as otherwise specifically provided in Schedules 3.5 and/or 3.6
attached hereto and incorporated herein by reference (collectively, the "Target
Disclosure Schedule"), Telcom I and Telcom II represent and warrant jointly and
severally, to Acquiror and Merger Sub, that on the date hereof and as of the
Effective Time:
Section 3.1. Organization, Qualification, Etc. Telcom I and Telcom II
are corporations duly organized, validly existing and in good standing under the
laws of the State of Delaware and each has the corporate power and authority to
own its properties and assets and to carry on its business as it is now being
conducted and each is duly qualified to do business and is in good standing in
each jurisdiction in which the ownership of its properties or the conduct of its
business requires such qualification. The copies of Target's Certificates of
Incorporation and bylaws which have been delivered to Acquiror are complete and
correct and in full force and effect on the date hereof.
Section 3.2. Capitalization.
(a) The authorized stock of:
(i) Telcom I consists of 1,000 shares of Telcom I Common Stock. As
of the Effective Time, 40 shares of Telcom I Common Stock were issued and
outstanding. All the outstanding shares of Target Common Stock have been validly
issued and are fully paid and non-assessable.
(ii) Telcom II consists of 1,000 shares of Telcom II Common Stock.
As of the Effective Time, 40 shares of Telcom II Common Stock were issued and
outstanding. All the outstanding shares of Target Common Stock have been validly
issued and are fully paid and non-assessable.
(b) Neither Telcom I nor Telcom II is a party to, nor is Telcom I or
Telcom II aware of, any voting agreement, voting trust or similar agreement or
arrangement relating to any class or series of its capital stock, or any
agreement or arrangement providing for registration rights with respect to any
capital stock or other securities of Target.
(c) Other than (i) the rights of Telcom I and Telcom II to receive
shares of common stock of TerreStar Networks Inc. ("TerreStar") pursuant to
those certain rights certificates dated December 20, 2004 (the "Rights
Certificates"), (ii) the limited partnership units (the "MSV LP Units") of MSV
and (iii) the shares of common stock (the "MSV GP Common Stock") of Mobile
Satellite Ventures GP Inc. ("MSV GP"), neither Telcom I nor Telcom II, directly
or indirectly, owns of record or beneficially, or has the right or obligation to
6
acquire, any outstanding securities or other interest in any corporation,
partnership, joint venture or other entity, except as otherwise may be set forth
in the Amended and Restated Stockholders' Agreement (the "MSV Stockholders'
Agreement") dated November 12, 2004 by and among MSV GP, the stockholders of MSV
GP and the Second Amended and Restated Parent Transfer/Drag Along Agreement
dated November 12, 2004 (the "Parent Transfer/Drag Along Agreement"), the
Amended and Restated Consent Agreement dated as of the date hereof (the "Consent
Agreement"), the Voting Agreement dated November 12, 2004 by and among Telcom I,
Telcom II and the other parties thereto (the "MSV Voting Agreement"), the Voting
Agreement dated December 20, 2004 by and among Telcom I, Telcom II and the other
parties thereto (the "TerreStar Voting Agreement"), the Parent Transfer/Drag
Along Agreement dated December 20, 2004 (the "TerreStar Parent Transfer/Drag
Along Agreement"), the Amended and Restated Limited Partnership Agreement of
MSV, dated November 12, 2004, as amended (the "Partnership Agreement"), the
Amended and Restated Stockholders' Agreement dated November 12, 2004 by and
among MSV GP and the stockholders of MSV GP (the "MSV Stockholders' Agreement"),
and the Rights Certificates, the Securityholders Agreement by and among MSV and
other securityholders of TerreStar (including the Irrevocable Proxies executed
in connection therewith) (the "TerreStar Securityholders Agreement") dated
December 20, 2004 (collectively, the "Other Documents").
Section 3.3. Corporate Authority Relative to this Agreement; No
Violation. Each of Telcom I and Telcom II has the corporate power and authority
to enter into this Agreement and to carry out its obligations hereunder. The
execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby have been duly and validly authorized by the
Board of Directors of Telcom I and Telcom II and, except for the approval and
adoption of this Agreement and the Merger by the stockholders of Telcom I and
Telcom II, no other corporate proceedings on the part of Telcom I and Telcom II
are necessary to authorize this Agreement and the transactions contemplated
hereby. The Board of Directors of Telcom I and Telcom II have determined that
the transactions contemplated by this Agreement are in the best interest of
Telcom I and Telcom II , respectively, and their respective stockholders. This
Agreement has been duly and validly executed and delivered by Telcom I and
Telcom II and, assuming this Agreement constitutes a valid and binding agreement
of the other parties hereto, this Agreement constitutes a valid and binding
agreement of Telcom I and Telcom II, enforceable against Telcom I and Telcom II
in accordance with its terms (except insofar as enforceability may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium or similar laws
affecting creditors' rights generally, or by principles governing the
availability of equitable remedies). Neither Telcom I nor Telcom II are subject
to or obligated under any charter, bylaw or contract provision or any license,
franchise or permit, or subject to any order or decree, other than the Other
Documents, which would be breached or violated by its executing or carrying out
this Agreement. Other than in connection with or in compliance with the
provisions of the DGCL and the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended (the "HSR Act") (collectively, the "Target Required
Approvals"), no authorization, consent or approval of, or filing with, any
governmental body or authority is necessary for the consummation by Telcom I or
Telcom II of the transactions contemplated by this Agreement.
Section 3.4. No Liabilities; No Operations. Except in connection with
their ownership and participation in the management of (i) MSV actively and/or
through the ownership of MSV LP Units and MSV GP Common Stock (including, but
not limited to, the exercise of those rights pursuant to the Other Documents),
7
(ii) TerreStar, and the exercise of its rights as such owner (including, but not
limited to, the exercise of those rights pursuant to the Other Documents) and
(iii) as set forth on the Target Disclosure Schedule, including, without
limitation, Schedule 3.6, neither Telcom I nor Telcom II has any debt,
liabilities or obligations of any nature, whether accrued, contingent or
otherwise. Except for their active participation in the management of MSV,
neither Telcom I or Telcom II is currently conducting nor has either ever
conducted any operations.
Section 3.5. Target Assets. All assets of Telcom I and Telcom II are
set forth on Schedule 3.5 hereto (collectively, the "Target Assets"). Telcom I
and Telcom II have good and marketable title to their respective Target Assets,
including the MSV LP Units, MSV GP Common Stock and Rights Certificates listed
on Schedule 3.5 hereto, free and clear of all liens, security interests,
encumbrances or adverse claims, other than pursuant to applicable securities
laws and the Other Agreements. Neither Telcom I not Telcom II have any
subsidiaries.
Section 3.6. Target Agreements.
(a) Telcom I has delivered to Acquiror (i) a correct and complete copy
of each written contract, agreement, plan, understanding, commitment or other
arrangement that is binding on Telcom I and except, in each case, for those as
to which Acquiror or a subsidiary thereof is a party or has knowledge
(collectively, the "Telcom I Agreements") to which Telcom I is a party and (ii)
a written summary setting forth the terms and conditions of each oral contract,
agreement, plan, understanding, commitment or other arrangement that is binding
on Telcom I and except, in each case, for those as to which Acquiror or a
subsidiary thereof is a party (collectively, the "Telcom I Oral Agreements") to
which Telcom I is a party. A list of each Telcom I Agreement and Telcom I Oral
Agreement is set forth on Schedule 3.6(a) hereto.
(b) Telcom II has delivered to Acquiror (i) a correct and complete copy
of each written contract, agreement, plan, understanding, commitment or other
arrangement that is binding on Telcom II and except, in each case, for those as
to which Acquiror or a subsidiary thereof is a party or has knowledge
(collectively, the "Telcom II Agreements") to which Telcom II is a party and
(ii) a written summary setting forth the terms and conditions of each oral
contract, agreement, plan, understanding, commitment or other arrangement that
is binding on Telcom II and except, in each case, for those as to which Acquiror
or a subsidiary thereof is a party (collectively, the "Telcom II Oral
Agreements") to which Telcom II is a party. A list of each Telcom II Agreement
and Telcom II Oral Agreement is set forth on Schedule 3.6(b) hereto.
Section 3.7. No Violation of Law. The businesses of Telcom I and Telcom
II are not being conducted in violation of any law, ordinance or regulation of
any governmental entity.
Section 3.8. Lack of Ownership of Acquiror Common Stock. Neither Telcom
I nor Telcom II owns any Acquiror Common Stock or other securities convertible
into Acquiror Common Stock.
Section 3.9. Investigations; Litigation.
8
(a) No investigation or review by any governmental body or authority
with respect to either Telcom I or Telcom II is pending nor has any governmental
body or authority notified either Telcom I or Telcom II in writing of an
intention to conduct the same; and
(b) There are no actions, suits or proceedings pending or threatened in
writing against or affecting Telcom I or Telcom II or its properties at law or
in equity, or before any federal, state, local or foreign governmental body or
authority.
Section 3.10. Tax Matters. Each of Telcom I and Telcom II has timely
filed all tax returns and reports required by law to be filed by it, these
returns and reports are true, correct and complete in all material respects and
each of Telcom I and Telcom II has paid all taxes owed for period up to and
including the Closing Date which are required to have been paid prior to the
Closing Date.
Section 3.11. Approval of Target Stockholders. Each of the Telcom
Stockholders, in their capacity as stockholders of Telcom I and Telcom II,
respectively, has approved the Merger and this Agreement by its execution of
this Agreement and no further approvals are required. No further vote of the
stockholders or directors of Telcom I or Telcom II is required by law, the
Certificate of Incorporation or bylaws of Telcom I or Telcom II or otherwise in
order for Telcom I and Telcom II to consummate the Merger and the transactions
contemplated hereby.
ARTICLE IV
Representations and Warranties of the Target Stockholders.
The Telcom Stockholders represent and warrant, jointly and severally,
to Acquiror and Merger Sub, that on the date hereof and as of the Effective
Time:
Section 4.1. Representations and Warranties of Target. The
representations and warranties made by Target in Article III of this Agreement
or the Target Disclosure Schedule, Rights Agreement, Certificate of Merger and
the Compliance Certificate (defined below) are true and correct as of the date
hereof and on and as of the Effective Time and do not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements herein or therein not misleading.
Section 4.2. Authority. Each Target Stockholder has all power to
execute and deliver this Agreement and to carry out and perform such Target
Stockholder's respective obligations under the terms of this Agreement; such
Target Stockholder has the sole power to dispose of his or its shares of Target
Common Stock, either as his, her or its sole and separate property or as
community property, as may be applicable to each Target Stockholder; and this
Agreement, when executed and delivered by such Target Stockholder and each other
party hereto, will constitute such Target Stockholder's valid and binding
obligation, enforceable against him or it in accordance with the terms of this
Agreement.
Section 4.3. No Conflict with other Instruments. The execution,
delivery and performance of this Agreement will not result in any violation of,
be in conflict with, or constitute a default or give rise to a right of
9
termination, cancellation or acceleration under any provision of (a) any
judgment, decree or order or any material agreement, contract, understanding,
indenture or other instrument to which any Target Stockholder is a party or by
which such Target Stockholder is bound; or (b) to the knowledge of the Target
Stockholders, any statute, rule or governmental regulation applicable to such
Target Stockholder.
Section 4.4. Ownership of Shares. As of the Closing, each Target
Stockholder represents and warrants severally as to the shares of Target Common
Stock owned of record by him, her or it that he, she or it has good and
marketable title to the shares to be exchanged pursuant to this Agreement.
Section 4.5. Approval of Agreement and Merger. Such Target Stockholder
has approved this Agreement and the Merger in his, her or its capacity as a
stockholder of Telcom I and Telcom II, as applicable.
Section 4.6. Exchange Entirely for Own Account. The Acquiror Common
Stock, Acquiror Warrants and the Warrant Shares to be issued to such Target
Stockholder will be acquired for investment for such Target Stockholder's own
account, not as a nominee or agent, and not with a view to the resale or
distribution of any part thereof, and that such Target Stockholder has no
present intention of selling, granting any participation in, or otherwise
distributing the same. By executing this Agreement, such Target Stockholder
further represents that such Target Stockholder does not have any contract,
undertaking, agreement or arrangement with any person to sell, transfer or grant
participation to such person or to any third person, with respect to any of such
Acquiror securities.
Section 4.7. Reliance Upon the Target Stockholders' Representations.
Such Target Stockholder understands that the Acquiror Common Stock, Acquiror
Warrants and Warrant Shares are not registered under the Securities Act and the
sale provided for in this Agreement and Acquiror's issuance of securities
hereunder will be made in reliance upon an exemption from registration under the
Securities Act pursuant to section 4(2) thereof, and that, in such case,
Acquiror's reliance on such exemption will be based on Target Stockholder's
representations set forth herein.
Section 4.8. Receipt of Information. Such Target Stockholder believes
he, she or it has received all the information he, she or it considers necessary
or appropriate for deciding whether to acquire the Acquiror Common Stock and
Acquiror Warrants. Such Target Stockholder further represents that he, she or it
has had an opportunity to ask questions and receive answers from Acquiror
regarding the terms and conditions of the offering of the Acquiror Common Stock
and Acquiror Warrants and the business and financial condition of Acquiror and
to obtain additional information (to the extent Acquiror possessed such
information or could acquire it without unreasonable effort or expense)
necessary to verify the accuracy of any information furnished to him, her or it
or which he, she or it had access.
Section 4.9. Investor Status; Etc. Such Target Stockholder certifies
and represents to Acquiror that it is an "accredited investor" as defined in
Rule 501 of Regulation D promulgated under the Securities Act and was not
organized for the purpose of acquiring any of the Acquiror Common Stock, the
10
Acquiror Warrants or the Warrant Shares. Such Target Stockholder's financial
condition is such that it is able to bear the risk of holding the Acquiror
Common Stock for an indefinite period of time and the risk of loss of its entire
investment. Such Target Stockholder has sufficient knowledge and experience in
investing in companies similar to Acquiror so as to be able to evaluate the
risks and merits of its investment in Acquiror.
Section 4.10. Brokers or Finders. Such Target Stockholder has not dealt
with any broker or finder in connection with the transactions contemplated by
this Agreement. Such Target Stockholder has not incurred, and shall not incur,
directly or indirectly, any liability for any brokerage or finders' fees or
agents' commissions or any similar charges in connection with this Agreement or
any transaction contemplated hereby.
Section 4.11. Restricted Securities. Such Target Stockholder
understands that the Acquiror Common Stock and Acquiror Warrants may not be
sold, transferred or otherwise disposed of without registration under the
Securities Act or an exemption therefrom, and that in the absence of an
effective registration statement covering the Acquiror Common Stock or an
available exemption from registration under the Securities Act, the Acquiror
Common Stock must be held indefinitely. In particular, such Target Stockholder
is aware that the Acquiror Common Stock may not be sold pursuant to Rule 144 or
Rule 145 promulgated under the Securities Act unless all of the conditions of
the applicable rule are met. Among the conditions for use of Rules 144 and 145
is the availability of current information to the public about Acquiror.
Section 4.12. Legends. It is understood that the certificates
evidencing the Acquiror Common Stock and Acquiror Warrants will bear one or all
of the following legends:
(a) "These securities have not been registered under the Securities Act
of 1933. They may not be sold, offered for sale, pledged or hypothecated in the
absence of a registration statement in effect with respect to the securities
under such Act or an opinion of counsel satisfactory to Motient Corporation that
such registration is not required or unless sold pursuant to Rule 144 or Rule
145 of such Act or another applicable exemption."
(b) Any legend required by the laws of the State of Delaware or other
jurisdiction.
ARTICLE V
Representations and Warranties of Acquiror and Merger Sub
Acquiror and Merger Sub represent and warrant to Target that on the
date hereof and as of the Effective Time:
Section 5.1. Organization, Standing and Power. Each of Acquiror and
Merger Sub is a corporation duly organized, validly existing and in good
standing under the laws of its jurisdiction of organization. Each of Acquiror
and Merger Sub has the corporate power to own its properties and to carry on its
business as now being conducted and as proposed to be conducted and is duly
qualified to do business and is in good standing in each jurisdiction in which
the failure to be so qualified and in good standing would have a material
adverse effect on this Agreement, Merger Sub or Acquiror. Neither Acquiror nor
Merger Sub is in violation of, nor will either be, as a result of the
transactions contemplated by this Agreement, in violation of any of the
provisions of its Certificate of Incorporation or Bylaws.
11
Section 5.2. Capitalization. The authorized capital stock of Acquiror
consists of (i) 100,000,000 shares of Common Stock, of which 52,063,054 shares
were outstanding as of February 5, 2005, and (ii) 5,000,000 shares of preferred
stock, of which no shares are outstanding as of the date hereof; and no material
changes to such outstanding numbers has occurred as of the Effective Time,
without taking into account the transactions contemplated by this Agreement or
the Stock Purchase Agreements (defined below). The authorized capital stock of
Merger Sub consists of 1,000 shares of common stock, $0.01 par value, all of
which are issued and outstanding and held by Acquiror. The shares of Acquiror
Common Stock to be issued pursuant to the Merger will be duly authorized,
validly issued, fully paid and non-assessable.
Section 5.3. Authority. Acquiror and Merger Sub have all requisite
corporate power and authority to enter into this Agreement and to consummate the
transactions and carry out its obligations contemplated hereby. The execution
and delivery of this Agreement and the consummation of the transactions
contemplated hereby have been duly authorized by all necessary corporate action
on the part of Acquiror and Merger Sub. This Agreement has been duly executed
and delivered by Acquiror and Merger Sub and constitutes the valid and binding
obligations of Acquiror and Merger Sub enforceable against Acquiror and Merger
Sub in accordance with its terms. The execution and delivery of this Agreement
does not, and the consummation of the transactions contemplated hereby will not,
conflict with, or result in any violation of, or default under (with or without
notice or lapse of time, or both), or give rise to a right of termination,
cancellation or acceleration of any obligation or loss of a benefit under (i)
any provision of the Certificate of Incorporation or Bylaws of Acquiror or
Merger Sub or any of their subsidiaries, as amended, or (ii) other than the
Other Documents, any material mortgage, indenture, lease, contract or other
agreement or instrument, permit, concession, franchise, license, judgment,
order, decree, statute, law, ordinance, rule or regulation applicable to
Acquiror or Merger Sub or their properties or assets. No consent, approval,
order or authorization of, or registration, declaration or filing with, any
governmental entity, is required by or with respect to Acquiror or Merger Sub in
connection with the execution and delivery of this Agreement by Acquiror or
Merger Sub or the consummation by Acquiror or Merger Sub of the transactions
contemplated hereby or thereby, except for: (i) the filing of the Articles of
Merger as provided in Section 1.2; (ii) the filing of a Form 8-K with the SEC
within 4 business days after the Closing; (iii) the filing of a responsive HSR
Act filing to the HSR Act filing made by Telcom I and Telcom II; (iv) such
filings under applicable state securities laws and the securities laws of any
foreign country as may be required in connection with the transactions
contemplated by this Agreement which are permitted by such laws to be filed
after the Closing; and (v) such other consents, authorizations, filings,
approvals and registrations which, if not obtained or made, would not have a
material adverse effect on Acquiror or Merger Sub and would not prevent,
materially alter, delay or otherwise invalidate any of the transactions
contemplated, by or the due execution and delivery of, this Agreement.
Section 5.4. SEC Documents. Acquiror has made available to Target true
and complete copies of the following reports of Acquiror (collectively, the "SEC
Documents"): (i) the annual report on Form 10-K for the year ended December 31,
2003, (ii) quarterly reports on Form 10-Q for the periods ended March 31, 2004,
12
June 30, 2004 and September 30, 2004 and (iii) each current report on Form 8-K
filed with the SEC since December 31, 2003. As of their respective filing dates,
the SEC Documents complied in all material respects with the requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and the rules
and regulations promulgated thereunder, and none of the SEC Documents contain
any untrue statement of a material fact or omitted to state a material fact
required to be stated therein or necessary in order to make the statements made
therein, in light of the circumstances under which they were made, not
misleading. The financial statements of Acquiror included in the SEC Documents
comply in all material respects with applicable accounting requirements and the
rules and regulations of the SEC with respect thereto in effect at the time of
filing. All material agreements to which Acquiror is a party or to which the
property or assets of Acquiror are subject are included as part of or
specifically identified in the SEC Documents to the extent required by the rules
and regulations of the SEC as in effect at the time of filing. Acquiror has
prepared and filed with the SEC all filings and reports required by the
Securities Act of 1933, as amended (the "Securities Act") and the Exchange Act
to make Acquiror's filings and reports current in all respects.
Section 5.5. Litigation. There is no private or government proceeding
pending before any agency, court or tribunal, foreign or otherwise, against
Acquiror or any of its subsidiaries or, to the knowledge of Acquiror, threatened
against Acquiror or any of its subsidiaries that would prevent, enjoin, alter or
materially delay any of the transactions contemplated by this Agreement, or that
would have a material adverse effect on the ability of Acquiror to consummate
the transactions contemplated by this Agreement. There is no judgment, decree or
order against Acquiror or any of its subsidiaries, or, to the knowledge of
Acquiror, any of their respective directors or officers (in their capacities as
such), that would prevent, enjoin, alter or materially delay any of the
transactions contemplated by this Agreement, or that would have a material
adverse effect on the ability of Acquiror to consummate the transactions
contemplated by this Agreement.
Section 5.6. Broker's and Finders' Fees. Acquiror has not incurred, nor
will it incur, directly or indirectly, any liability for brokerage or finders'
fees or agents' commissions or investment bankers' fees or any similar charges
in connection with this Agreement or any transaction contemplated hereby.
Section 5.7. Representations Complete. None of the representations or
warranties made by Acquiror or Merger Sub herein or in any Schedule hereto, or
certificate furnished by Acquiror or Merger Sub pursuant to this Agreement, when
all such documents are read together in their entirety, contains or will contain
at the Effective Time any untrue statement of a material fact, or omits or will
omit at the Effective Time to state any material fact necessary in order to make
the statements contained herein or therein, in the light of the circumstances
under which made, not misleading.
Section 5.8. Acquiror Subsidiaries. Motient Ventures Holdings Inc.
("MVHI") is a direct wholly-owned subsidiary of Merger Sub and MVHI holds the
interests in MSV and MSV GP that are currently reported as beneficially owned by
Acquiror and its direct and indirect subsidiaries. Neither Merger Sub nor MVHI
is an "investment company" within the meaning of the Investment Company Act of
1940, as amended, and neither Merger Sub nor MVHI is subject to the reporting
requirements of Section 13 or 15(d) of the Exchange Act.
13
Section 5.9. Independent Investigation. Acquiror and Merger Sub are
acting for their own account and have made their own independent decisions to
enter into this Agreement and to acquire the MSV LP Units, shares of MSV GP
Common Stock and the Right Certificates pursuant to the transaction contemplated
by this Agreement, based solely on their own judgment and investigation and upon
advice from such legal, financial, tax and other advisors as they have deemed
appropriate. Acquiror and Merger Sub are not relying on any investment advice,
assurance or recommendations by any other party to this Agreement with respect
to their investment in MSV, MSV GP and TerreStar.
ARTICLE VI
Conduct of Target Prior to the Effective Time
Section 6.1. Conduct of Business by Target. During the period from the
date of this Agreement and continuing until the earlier of the termination of
this Agreement or the Effective Time, Telcom I and Telcom II agree (except to
the extent expressly contemplated by this Agreement or as consented to in
writing by Acquiror), to carry on their business in the usual, regular and
ordinary course in substantially the same manner as heretofore conducted.
Without limiting the generality of the foregoing sentence, Telcom I and Telcom
II further agree (i) to pay their debts and taxes when due subject (A) to good
faith disputes over such debts or taxes and (B) to Acquiror's consent to the
filing of material tax returns (which consent shall not be unreasonably withheld
or delayed); (ii) to pay or perform other obligations when due; and (iii) to use
all reasonable efforts consistent with past practice and policies to preserve
intact present business organizations. Both Telcom I and Telcom II agree to
promptly notify Acquiror of any event or occurrence not in the ordinary course
of their business, and of any event which could have a material adverse effect
on the assets of either Telcom I or Telcom II.
Section 6.2. Restrictions on the Conduct of Business by Target. During
the period from the date of this Agreement and continuing until the earlier of
the termination of this Agreement or the Effective Time, except as set forth in
the Target Disclosure Schedule and as expressly contemplated by this Agreement,
neither Telcom I nor Telcom II shall do, cause or permit any of the following,
without the prior written consent of Acquiror:
(a) Charter Documents. Cause or permit any amendments to its
Certificate of Incorporation or Bylaws;
(b) Dividends; Changes in Capital Stock. Declare or pay any dividends
on or make any other distributions (whether in cash, stock or property) in
respect of any of its capital stock, or split, combine or reclassify any of its
capital stock or issue or authorize the issuance of any other securities in
respect of, in lieu of or in substitution for shares of its capital stock, or
repurchase or otherwise acquire, directly or indirectly, any shares of its
capital stock;
(c) No Operations. Other than their active participation in the
management of MSV, conduct any operations;
(d) Contracts. Enter into any contract or commitment, or violate, amend
or otherwise modify or waive any of the terms of any of its contracts;
14
(e) Issuance of Securities. Issue, deliver or sell or authorize or
propose the issuance, delivery or sale of, or purchase or propose the purchase
of, any shares of its capital stock or securities convertible into, or
subscriptions, rights, warrants or options to acquire, or other agreements or
commitments of any character obligating it to issue any such shares or other
convertible securities;
(f) Dispositions. Sell, lease, license or otherwise dispose of or
encumber any of its properties or assets;
(g) Indebtedness. Incur any indebtedness;
(h) Capital Expenditures. Make any capital expenditures, capital
additions or capital improvements;
(i) Insurance. Materially reduce the amount of any insurance coverage
provided by existing insurance policies;
(j) Termination or Waiver. Terminate or waive any right of substantial
value;
(k) Lawsuits. Commence a lawsuit other than for a breach of this
Agreement;
(l) Acquisitions. Acquire or agree to acquire by merging or
consolidating with, or by purchasing a substantial portion of the assets of, or
by any other manner, any business or any corporation, partnership, association
or other business organization or division thereof, or otherwise acquire or
agree to acquire any assets which are material, individually or in the
aggregate, to its and its subsidiaries' business, taken as a whole;
(m) Taxes. Other than in the ordinary course of business, make or
change any material election in respect of taxes, adopt or change any accounting
method in respect of taxes, file any material tax return or any material
amendment to a tax return, enter into any closing agreement, settle any claim or
assessment in respect of taxes, or consent to any extension or waiver of the
limitation period applicable to any claim or assessment in respect of taxes;
(n) Other. Take or agree in writing or otherwise to take, any of the
actions described in this Sections 6.2(a) through (m) above, or any action which
would make any of its representations or warranties contained in this Agreement
untrue or incorrect or prevent it from performing or cause it not to perform its
covenants hereunder.
Section 6.3. No Solicitation. Telcom I and Telcom II agree that neither
they nor any of their officers, directors or trustees shall, and that they shall
direct and use their best efforts to cause their employees, agents and
representatives (including any investment banker, attorney or accountant
retained by either of them) not to, directly or indirectly, initiate, solicit,
encourage or otherwise facilitate (including by way of furnishing information)
any inquiries or the making or any proposal or offer by any person other than
Acquiror or Merger Sub with respect to a merger, reorganization, share exchange,
consolidation, business combination, liquidation, dissolution or similar
transaction involving, or any purchase or sale of all or any significant portion
of the assets or equity securities of, Telcom I or Telcom II (any such proposal
or offer being hereinafter referred to as an "Acquisition Proposal"). Both
15
Telcom I and Telcom II further agree that neither they nor any of their
officers, directors and trustees shall, and that they shall direct and use their
best efforts to cause their employees, agents and representatives (including any
investment banker, attorney or accountant retained by either of them) not to,
directly or indirectly, have any discussion with or provide any confidential
information or data to any person relating to an Acquisition Proposal, or engage
in any negotiations concerning an Acquisition Proposal, or otherwise facilitate
any effort or attempt to make or implement an Acquisition Proposal or accept an
Acquisition Proposal. Both Telcom I and Telcom II agree that they and their
officers, directors or trustees shall, and shall direct and use their best
efforts to cause their employees, agents and representatives (including any
investment banker, attorney or accountant retained by either of them) to, cease
immediately any discussions or negotiations with any third parties relating to
any Acquisition Proposal. Target agrees that it will take the necessary steps to
promptly inform the individuals or entities referred to in the first sentence of
this Section 6.3 of the obligations undertaken in this Section 6.3.
Notwithstanding the above, the foregoing provisions this Section 6.3 will not
apply to any such actions taken solely in relation to the TerreStar Warrants,
the MSV Stockholders' Agreement or the Parent Transfer/Drag Along Agreement.
Section 6.4. Tax Treatment. ..Each of the parties intends the Merger to
qualify as a reorganization under Section 368(a) of the Code, and, from the date
of this Agreement until the Effective Time each party to this Agreement, and
each of their respective subsidiaries, shall not take any action, fail to take
any action, cause any action to be taken or not be taken, or suffer to exist any
condition, if such party knows, or has been advised in writing by another party,
that such action, failure or condition would prevent, or would be reasonably
likely to prevent, the Merger from qualifying as a reorganization within the
meaning of Section 368(a) of the Code.
ARTICLE VII
Additional Agreements
Section 7.1. Investigation. Telcom I and Telcom II shall afford to
Acquiror and to Acquiror's officers, employees, accountants, counsel and other
authorized representatives full and complete access during normal business
hours, throughout the period prior to the earlier of the Effective Time or the
date of termination of this Agreement, to their plants, properties, contracts,
commitments, books and records (including but not limited to tax returns) and
any report, schedule or other document filed or received by them pursuant to the
requirements of federal or state securities laws, and shall use their reasonable
best efforts to cause their respective representatives to furnish promptly to
one another such additional financial and operating data and other information
as to their respective businesses and properties as the other or its duly
authorized representatives may from time to time reasonably request.
Section 7.2. Cooperation. Telcom I, Telcom II and Acquiror shall
cooperate with one another in order to lift any injunctions or remove any other
impediment to the consummation of the transactions contemplated herein.
16
Section 7.3. Filings; Other Action. Subject to the terms and conditions
herein provided, the ultimate parent entity of the Target Stockholders and
Acquiror shall (i) promptly make their respective filings and thereafter make
any other required submissions under the HSR Act (to the extent such filings
have not already been made prior to the date hereof), (ii) use reasonable
efforts to cooperate with one another in (A) determining whether any filings are
required to be made with, or consents, permits, authorizations or approvals are
required to be obtained from, any third party, the United States government or
any agencies, departments or instrumentalities thereof or other governmental or
regulatory bodies or authorities of federal, state, local and foreign
jurisdictions in connection with the execution and delivery of this Agreement
and the consummation of the transactions contemplated hereby and thereby and (B)
timely making all such filings and timely seeking all such consents, permits,
authorizations or approvals and (iii) use reasonable efforts to take, or cause
to be taken, all other actions and do, or cause to be done, all other things
necessary, proper or advisable to consummate and make effective the transactions
contemplated hereby, including, without limitation, taking all such further
action as reasonably may be necessary to resolve such objections, if any, as the
Federal Trade Commission, the Antitrust Division of the Department of Justice,
state antitrust enforcement authorities or competition authorities of any other
nation or other jurisdiction or any other person may assert under relevant
antitrust or competition laws with respect to the transactions contemplated
hereby.
Section 7.4. Further Assurances. Each of the parties to this Agreement
shall use its reasonable best efforts to effectuate the transactions
contemplated hereby and to fulfill and cause to be fulfilled the conditions to
closing under this Agreement. Each party hereto, at the reasonable request of
another party hereto, shall execute and deliver such other instruments and do
and perform such other acts and things as may be necessary or desirable for
effecting completely the consummation of this Agreement and the transactions
contemplated hereby.
Section 7.5. Public Announcements. Except as may be required by
applicable law, no party hereto shall make any public announcements or otherwise
communicate with any news media or any other party, with respect to this
Agreement or any of the transactions contemplated hereby, without prior
consultation with the other parties as to the timing and contents of any such
announcement or communications; provided, however, that nothing contained herein
shall prevent any party from (i) promptly making all filings with governmental
authorities or disclosures with the stock exchange, if any, on which such
party's capital stock is listed, as may, in its judgment, be required in
connection with the execution and delivery of this Agreement or the consummation
of the transactions contemplated hereby or (ii) disclosing the terms of this
Agreement to such party's legal counsel, financial advisors or accountants in
furtherance of the transactions contemplated by this Agreement.
Section 7.6. Update Disclosure: Breaches.
(a) From and after the date of this Agreement until the Effective Time,
each party hereto shall promptly notify the other party hereto in writing of (i)
the occurrence, or non-occurrence, of any event that would be likely to cause
any condition to the obligations of any party to effect the Merger and the other
transactions contemplated by this Agreement not to be satisfied or (ii) the
failure of Telcom I, Telcom II or Acquiror, as the case may be, to comply with
or satisfy any covenant, condition or agreement to be complied with or satisfied
by it pursuant to this Agreement which would be likely to result in any
17
condition to the obligations of any party to effect the Merger and the other
transactions contemplated by this Agreement not to be satisfied; provided,
however, that the delivery of any notice pursuant to this Section 7.6 shall not
otherwise limit or affect the remedies available hereunder to the party
receiving such notice.
(b) Until the Closing, each party hereto shall have the continuing
obligation to promptly supplement the information contained in its disclosure
schedule attached hereto with respect to any matter hereafter discovered which
was in existence on the date hereof and, if known at the date of this Agreement,
would have been required to be set forth or described in such disclosure
schedules.
(c) Neither the supplementation of the disclosure schedules pursuant to
the obligation in Section 7.6(b) nor any disclosure after the date hereof of the
untruth of any representation and warranty made in this Agreement shall operate
as a cure of any breach of (i) the failure to disclose the information or (ii)
any untrue representation or warranty made herein. Notwithstanding the
foregoing, if such supplementation by Target or Acquiror (x) is consented to in
writing by Acquiror or Target, as applicable or (y) discloses any fact or set of
facts which, either singly or in the aggregate with other facts disclosed
pursuant to such obligation, is not, or is not reasonably likely to result in, a
material adverse effect, such supplementation shall be deemed to cure any such
untrue representation or warranty, and such representation or warranty, as so
supplemented, shall be deemed to have been amended accordingly.
Section 7.7. Contribution of MSV Interests and Shares. Within thirty
(30) days after the Effective Time, Acquiror and Merger Sub agree to cause all
of the MSV LP Units and shares of MSV GP Common Stock acquired by Acquiror
and/or Merger Sub as a result of the transactions contemplated by this Agreement
to be contributed by Merger Sub to MVHI (which shall have continued to be a
direct wholly-owned subsidiary of Merger Sub at such time), and thereby to cause
MVHI to hold both (i) the MSV limited partnership interests and MSV GP shares
that are currently beneficially owned by Acquiror and/or its direct and indirect
subsidiaries and (ii) the MSV limited partnership interests and MSV GP shares
acquired by Acquiror and/or Merger Sub as a result of the transactions
contemplated by this Agreement.
Section 7.8. Blue Sky Laws. Acquiror shall take such steps as may be
necessary to comply with the securities and blue sky laws of all jurisdictions
which are applicable to the issuance of the Acquiror Common Stock in connection
with the Merger. Each of Telcom I and Telcom II shall use its best efforts to
assist Acquiror as may be necessary to comply with the securities and blue sky
laws of all jurisdictions in which such compliance is necessary or desirable in
connection with the issuance of Acquiror Common Stock in connection with the
Merger.
Section 7.9. Acquiror Rights Offering. After the Closing, Acquiror may
issue up to 2,500,000 shares of Acquiror Common Stock at a purchase price per
share of $8.57 to its stockholders of record on December 17, 2004 pursuant to a
rights offering (the "Rights Offering"). The shares of Acquiror Common Stock
issuable to the Target Stockholders in the Merger will be issued to the Target
Stockholders after the record date for such Rights Offering. Each Target
Stockholder hereby acknowledges that such Target Stockholder has no right to
participate in the Rights Offering.
18
Section 7.10. Role of Dr. Singh Subsequent to Closing. In the event
that, subsequent to the Closing, Acquiror requests that Dr. Rajendra Singh
provide advisory or consulting services to Acquiror in a non-employee capacity,
on mutually acceptable terms, Dr. Singh would be willing to do so.
Section 7.11. Target Stockholder Approval. Each Target Stockholder
hereby approves this Agreement and the Merger in his/its capacity as a
stockholder of Telcom I or Telcom II, as applicable.
Section 7.12. Rights Agreement. At the Closing, Acquiror and each
Target Stockholder shall enter into the Rights Agreement in substantially the
form attached as Exhibit C hereto.
Section 7.13. Tax Treatment. At and after the Effective Time, each
party to this Agreement, and each of their respective subsidiaries, shall not to
take any action, fail to take any action, cause any action to be taken or not be
taken, or suffer to exist any condition, if such party knows, or has been
advised in writing by another party, that such action, failure or condition
would prevent, or would be reasonably likely to prevent, the Merger from
qualifying as a reorganization within the meaning of Section 368(a) of the Code.
Section 7.14. Designation of Director. Pursuant to this Agreement and
each of the Stock Purchase Agreements dated as of the date hereof by and among
Motient, Merger Sub and each of Columbia Capital Equity Partners III (QP), L.P.,
Columbia Capital Equity Partners III (AI), L.P., Columbia Capital Equity
Partners III (CAYMAN), L.P., Columbia Capital Investors III, LLC, Columbia
Capital Employee Investors III, L.L.C., Spectrum Equity Investors IV, L.P.,
Spectrum IV Investment Managers' Fund, L.P. and Spectrum Equity Investors
Parallel IV, L.P. (collectively, the "Stock Purchase Agreements"), the members
of the Telcom Investor Group, the Spectrum Investor Group and the Columbia
Investor Group (as such terms are defined in the MSV Stockholders' Agreement are
transferring to Motient or affiliates of Motient more than five percent (5%)
Percentage Interests (as such term is defined in the MSV Stockholders'
Agreement), and in connection herewith and therewith, hereby expressly transfer
to Motient such Investor Group's right to designate one director of MSV GP
pursuant to Section 2(b)(i) of the MSV Stockholders' Agreement, which director
shall be designated by Motient as transferee of such Investor Groups.
Section 7.15. No Additional Consideration. Each of Telcom I, Telcom II
and each Target Stockholder hereby agrees that other than the Merger
Consideration, no additional consideration is owed hereunder by Motient or
Merger Sub or any subsidiary of affiliate of Motient or Merger Sub to Telcom I,
Telcom II or the Target Stockholders due to consideration to be paid by Motient
and Merger Sub in connection with the transactions contemplated by the Stock
Purchase Agreements.
Section 7.16. Independent Evaluation of Investment..
(a) The parties intend that this Agreement and the transactions
contemplated thereby be consistent with the conditions and restrictions
applicable to the parties and/or their affiliates either pursuant to MSV GP's,
MSV's and/or TerreStar's organizational documents and/or pursuant to the
agreements between or among MSV GP's, MSV's and/or TerreStar's stockholders
and/or partners, as applicable, including without limitation the Other Documents
(collectively, the "Investor Agreements").
19
(b) Each of the parties hereto has made an independent evaluation of
each of the Investor Agreements' conditions and restrictions that are or may be
applicable or relevant to the transactions contemplated by this Agreement and
each acknowledges and agrees (i) that it is not relying on any representation,
warranty or evaluation by any other party to this Agreement with respect thereto
and (ii) that it believes in good faith that the Investor Agreements' conditions
and restrictions have been satisfied and/or are consistent with the transactions
contemplated by this Agreement. Notwithstanding any other provision of this
Agreement, it is the intention and agreement of the parties hereto that each
will bear its own risk and responsibility with respect to any such conditions
and restrictions applicable to it, without recourse to any other party pursuant
to the terms of this Agreement, including, without limitation, pursuant to
Article X hereof, provided that nothing herein shall limit in any way the
ability of a party hereto to seek equitable remedies in the event the transfers
hereunder (including but not limited to the indirect transfers of interests in
MSV, MSV GP or TerreStar) are held not to be valid, binding and enforceable.
ARTICLE VIII
Conditions to the Merger
Section 8.1. Conditions to Each Party's Obligation to Effect the
Merger. The respective obligations of each party to effect the Merger shall be
subject to the fulfillment at or prior to the Effective Time of the following
conditions:
(a) No statute, rule, regulation, executive order, decree, ruling or
injunction shall have been enacted, entered, promulgated or enforced by any
court or other tribunal or governmental body or authority which prohibits the
consummation of the Merger substantially on the terms contemplated hereby. In
the event any order, decree or injunction shall have been issued, each party
shall use its reasonable efforts to remove any such order, decree or injunction.
(b) Any applicable waiting period under the HSR Act with respect to the
transactions contemplated by this Agreement shall have expired or been
terminated and any other Target Required Approvals and Acquiror Required
Approvals shall have been obtained, except where the failure to obtain such
other Target Required Approvals and Acquiror Required Approvals would not have a
material adverse effect on Target or Acquiror, as the case may be.
Section 8.2. Conditions to Obligations of Target to Effect the Merger.
The obligations of Telcom I and Telcom II to effect the Merger are subject to
the fulfillment on or before the Closing of each of the following conditions:
(a) Acquiror shall have entered into the Rights Agreement;
(b) all representations and warranties made by Acquiror shall be true
and correct on and as of the Closing with the same effect as though such
representations and warranties had been made on and as of the date of Closing;
20
(c) since the date hereof, there shall have been no material adverse
change in the business, assets or financial condition of Acquiror;
(d) Acquiror shall have performed and complied in all material respects
with all agreements, obligations and conditions contained in this Agreement that
are required to be performed or complied with by it on or before the Closing;
(e) Telcom I and Telcom II shall have concluded, in their reasonable
discretion, that the consummation of the Merger will not be taxable events for
their stockholders and shall have received from Telcom I and Telcom II's tax
advisor a legal opinion, letter ruling or other assurance reasonably
satisfactory to them with respect thereto;
(f) Merger Sub and MVHI shall have executed a written acknowledgement
agreeing to be bound by the terms of the Voting Agreement dated November 12,
2004 by and among the stockholders of MSV GP in accordance with the provisions
of Section 2.03 thereof;
(g) Merger Sub and MVHI shall have entered into the Consent Agreement
with respect to the MSV LP Units and shares of MSV GP Common Stock acquired by
Merger Sub and contributed to MVHI at the Effective Time.
(h) Telcom I and Telcom II shall have been provided with a draft copy
of Acquiror's Registration Statement on Form S-1 (the "Mandatory S-1")
registering the resale of the Acquiror Common Stock to be issued in the Merger
in form and substance substantially as required by the rules and regulations of
the SEC, together with such information and assurances as Telcom I and Telcom II
shall require in their reasonable discretion with respect to Acquiror's ability
to meet its registration obligations as described in the Rights Agreement; and
(i) such other closing conditions as may be reasonably requested by
Telcom I and Telcom II, including, without limitation, no suspension of trading
relating to Acquiror or Acquiror Common Stock, the delivery of original stock
certificates and Acquiror Warrants, certified board resolutions approving the
Merger, good standing certificates, and the delivery of transfer agent
instructions to and their acceptance and processing by the transfer agent.
Section 8.3. Conditions to Obligations of Acquiror to Effect the
Merger. The obligation of Acquiror and Merger Sub to effect the Merger are
subject to the fulfillment on or before the Closing of each of the following
conditions:
(a) each Target Stockholder shall have entered into the Rights
Agreement;
(b) the representations and warranties of Target contained in Article
III and the Target Stockholders contained in Article IV shall be true and
correct on and as of the Closing with the same effect as though such
representations and warranties had been made on and as of the date of Closing ;
(c) Target and the Target Stockholders shall have performed and
complied in all material respects with all agreements, obligations and
conditions contained in this Agreement that are required to be performed or
complied with by it on or before the Closing;
21
(d) the President of Telcom I and Telcom II shall have delivered to
Acquiror at the Closing a certificate (the "Compliance Certificate") stating
that the conditions specified in Sections 8.3(b) and (c) have been fulfilled;
(e) Acquiror shall have concluded, in its reasonable discretion, that
the consummation of the Merger will not be a taxable event for Acquiror or
Merger Sub;
(f) Acquiror shall have concluded that it will be able to file the
Mandatory S-1 covering the resale of Acquiror Common Stock to be issued in the
Merger within three business days after the Closing Date;
(g) Telcom I and Telcom II shall have taken all actions necessary to
comply with the requirements of the MSV Stockholders' Agreement, including
Sections 8.2(a) and 8.2(b) thereof, and the Parent Transfer/Drag Along
Agreement;
(h) there shall have been no material adverse change in the business,
assets or financial condition of Telcom I, Telcom II, MSV, MSV GP or TerreStar;
and
(i) such other closing conditions as may be reasonably requested by
Motient, including, without limitation, the delivery of original stock
certificates for the outstanding shares of Telcom I and Telcom II, certified
board and stockholder resolutions approving the transaction and good standing
certificates.
ARTICLE IX
Termination
Section 9.1. Termination or Abandonment. Notwithstanding anything
contained in this Agreement to the contrary, this Agreement may be terminated
and abandoned at any time prior to the Effective Time, whether before or after
any approval of the matters presented in connection with the Merger by the
stockholders of Target:
(a) by the mutual written consent of Target and Acquiror;
(b) by either Target or Acquiror if the Effective Time shall not have
occurred on or before February 9, 2005; provided, that the party seeking to
terminate this Agreement pursuant to this clause 9.1(b) shall not have breached
in any material respect its obligations under this Agreement in any manner that
shall have proximately contributed to the failure to consummate the Merger on or
before such date;
(c) by either Target or Acquiror if (i) a statute, rule, regulation or
executive order shall have been enacted, entered or promulgated prohibiting the
consummation of the Merger substantially on the terms contemplated hereby or
(ii) an order, decree, ruling or injunction shall have been entered permanently
restraining, enjoining or otherwise prohibiting the consummation of the Merger
substantially on the terms contemplated hereby and such order, decree, ruling or
injunction shall have become final and non-appealable; provided, that the party
seeking to terminate this Agreement pursuant to this clause 9.1(c)(ii) shall
have used its reasonable best efforts to remove such injunction, order or
decree;
22
(d) by Target, if Acquiror shall have breached or failed to perform in
any material respect any of its representations, warranties, covenants or other
agreements contained in this Agreement, which breach or failure to perform (i)
would give rise to the failure of a condition set forth in Section 8.2(b) or
(d), and (ii) is incapable of being cured by Acquiror or is not cured within 30
days of notice of such breach or failure; or
(e) by Acquiror, if Target shall have breached or failed to perform in
any material respect any of its representations, warranties, covenants or other
agreements contained in this Agreement, which breach or failure to perform (i)
would give rise to the failure of a condition set forth in Section 8.3(b) or
(c), and (ii) is incapable of being cured by Target or is not cured within 30
days of notice of such breach or failure.
Section 9.2. Effect of Termination. Except as provided elsewhere in
this Agreement, in the event of the termination of this Agreement pursuant to
Section 9.1, this Agreement shall forthwith become void, there shall be no
liability on the part of Acquiror, Merger Sub or Target or any of their
respective officers or directors to the other and all rights and obligations of
any party hereto shall cease, except that nothing herein shall relieve any party
from liability for any misrepresentation or breach of any covenant or agreement
under this Agreement.
ARTICLE X
Indemnification
Section 10.1. Survival of Representations and Warranties. The
warranties, representations and covenants of Acquiror, Merger Sub and the Target
Stockholders contained in or made pursuant to this Agreement shall survive the
execution and delivery of this Agreement and the Closing, for a period of twelve
(12) months, except for the representations and warranties of the Target
Stockholders to the extent that they relate to the representations and
warranties of Telcom I and Telcom II set forth in Section 3.9 relating to
certain tax matters, which shall survive for the duration of the statute of
limitations applicable to such tax matters (such twelve month period or the
duration of the statute of limitations, as applicable, shall be defined as the
"Survival Period"), and shall in no way be affected by any investigation of the
subject matter thereof made by any party hereto. The warranties, representations
and covenants of Telcom I and Telcom II shall expire at the Effective Time;
provided, however, that such expiration shall in no way shorten the Survival
Period with respect to the representations of the Target Stockholders in Section
4.1.
Section 10.2. Obligation to Indemnify.
(a) Target and Target Stockholders Obligation to Indemnify. From and
after the Effective Time, the Target Stockholders (each, an "Acquiror
Indemnitor"), jointly and severally, shall indemnify, defend and hold harmless
Acquiror, Merger Sub and their respective officers, directors, stockholders,
partners, employees, agents and affiliates (each, an "Acquiror Indemnitee"),
from and against all losses, claims, damages, liabilities, obligations, fines,
penalties, judgments, settlements, costs, expenses and disbursements (including
23
attorneys', accountants' and investigatory fees and expenses) (collectively,
"Losses") to the extent resulting from any (i) breach or inaccuracy of any
representation or warranty of an Acquiror Indemnitor contained in the Agreement
for which a claim is initiated prior to the expiration of the Survival Period;
(ii) breach or inaccuracy of any representation or warranty of Telcom I or
Telcom II contained in this Agreement for which a claim is initiated prior to
the expiration of the Survival Period; or (iii) non-fulfillment or breach of any
covenant or agreement of an Acquiror Indemnitor or of Telcom I or Telcom II
contained in this Agreement.
(b) Acquiror's Obligation to Indemnify. From and after the Effective
Time, Acquiror shall defend, indemnify and hold harmless the Target Stockholders
and their respective officers, directors, stockholders, partners, employees,
agents and affiliates (each, a "Target Indemnitee") from and against any and all
Losses to the extent resulting from any (i) breach or inaccuracy of any
representation or warranty of the Acquiror or Merger Sub contained in this
Agreement for which a claim is initiated prior to the expiration of the Survival
Period; or (ii) non-fulfillment or breach of any covenant or agreement of the
Acquiror or Merger Sub contained in this Agreement.
(c) Indemnification Basket Amount. Notwithstanding the foregoing, an
Indemnifying Party (defined below) shall not be required to indemnify an
Indemnified Party pursuant to Section 10.2(a) or (b) unless and until the amount
of all Losses incurred by such Indemnified Party exceeds $500,000 in the
aggregate (the "Basket Amount"), in which case the Indemnifying Party shall be
required to indemnify the Indemnified Party for any and all such Losses
(including the Basket Amount).
Section 10.3. Indemnification Procedures.
(a) The person seeking indemnification hereunder (each, an "Indemnified
Party") shall give the party or parties from whom indemnification is sought or
to be sought (each, an "Indemnifying Party") prompt written notice of any Loss
as to which they have received written notification. If an indemnification claim
involves a claim by a third party (a "Third Party Claim"), the Indemnified Party
shall promptly notify the Indemnifying Party thereof in writing; provided,
however, that no delay on the part of the Indemnified Party in notifying the
Indemnifying Party shall relieve the Indemnifying Party from any obligation
hereunder unless (and then solely to the extent) the Indemnifying Party is
actually and materially prejudiced thereby. An Indemnifying Party shall have ten
business days from the delivery of such notice (the "Notice Response Period") to
notify the Indemnified Party whether or not it disputes its liability to the
Indemnified Party hereunder with respect to such claim or demand. If an
Indemnifying Party disputes its liability to an Indemnified Party hereunder with
respect to such claim or demand or the amount thereof, such dispute shall be
resolved by a civil action in a court of appropriate jurisdiction (including as
part of any proceeding with respect to the claim that gave rise to the
indemnification claim to which such dispute relates) which may be commenced by
either party. During the Notice Response Period, no such claim or demand may be
settled by the Indemnified Party.
(b) With respect to each Indemnification Matter (as defined below), the
Indemnified Parties will have the sole right and authority to control the
defense against any Third Party Claim with one counsel of their collective
choice. This right shall include the right to settle or resolve the Third Party
24
Claim by entering into an agreement memorializing the terms of settlement or
resolution (a "Settlement Agreement"), provided however, that the Indemnified
Party provides the Indemnifying Party with notice (in accordance with Section
10.4 hereof) of its intent to enter into a Settlement Agreement, which notice
shall include the proposed terms of the Settlement Agreement. The Indemnifying
Party shall, within ten business days of receipt of such notice, have the right
to reject the proposed Settlement Agreement, but shall do so only if it
reasonably determines that the Settlement Agreement does not represent a bona
fide and reasonable resolution of the underlying Third Party Claim. The
Indemnifying Party (and any Indemnified Party who is not otherwise satisfied
with the one counsel chosen by the Indemnified Parties collectively) may retain
separate co-counsel at their sole cost and expense and participate in the
defense of the Third Party Claim; provided, however, that in no event may any
Indemnifying Party consent to the entry of any judgment, enter into any
settlement with respect to the Third Party Claim or agree with any Person other
than the Indemnified Party, to take any other action with respect to the Third
Party Claim without the prior written consent of the Indemnified Party . If it
is determined pursuant to an order or settlement agreement that an Indemnifying
Party is responsible for all or a portion of any amounts for which the
Indemnified Party is liable as a result of such Third Party Claim hereunder, the
Indemnifying Party shall, pursuant to Section 10.4(b), render payment to the
Indemnified Party for all Losses resulting from such claim, subject to the
provisions of Section 10.5.
Section 10.4. Notices and Payments.
With respect to each separate matter which is subject to
indemnification under this Section 10 (each, an "Indemnification Matter"):
(a) Notice. Upon the Indemnified Party's receipt of written documents
pertaining to an Indemnification Matter, or, if the Indemnification Matter does
not involve a third party demand or claim, within a reasonable time after the
Indemnified Party first has actual knowledge of such Indemnification Matter, the
Indemnified Party shall give written notice to the Indemnifying Party of the
nature of such Indemnification Matter, and, if susceptible to estimation at such
time, the Indemnified Party's best estimate of the amount demanded or claimed in
connection therewith as provided in Section 10.3; provided, however, that no
delay on the part of the Indemnified Party in notifying the Indemnifying Party
shall relieve the Indemnifying Party from any obligation hereunder unless (and
then solely to the extent) the Indemnifying Party is actually and materially
prejudiced thereby.
(b) Payment. Upon determination of the amount of the Loss (whether due
to the Indemnifying Party's failure to dispute the indemnification matter, by
agreement among the parties, or after a settlement agreement is executed or a
final order is rendered with respect to the indemnification matter), the
Indemnifying Party shall promptly (and in any event, not later than ten days
after such determination) pay to the Indemnified Party all amounts owing by the
Indemnifying Party under this Section 10 with respect to such indemnification
matter, subject to the limitations set forth in Section 10.5.
Section 10.5. Limited Remedy.
25
(a) Acquiror Indemnitee Indemnification Limit. The maximum amount all
Acquiror Indemnitees may recover pursuant to the indemnity set forth in Section
10.2(a) hereof shall be limited to the value of the shares of Acquiror Common
Stock issued in the Merger as determined using the closing sales price of such
Acquiror Common Stock on the pink sheets on the Closing Date plus the value of
any shares of Acquiror Common Stock issued as Additional Merger Consideration as
determined using the closing sales price of Acquiror Common Stock on the pink
sheets on the date such Additional Merger Consideration is issued to the Target
Stockholders.
(b) Target Indemnitee Indemnification Limit. The maximum amount each
Target Indemnitee may recover pursuant to the indemnity set forth in Section
10.2(b) shall be limited to the value of the shares of Acquiror Common Stock
issued to such Target Indemnitee in the Merger as determined using the closing
sales price of Acquiror Common Stock on the pink sheets on the Closing Date plus
the value of any shares of Acquiror Common Stock issued as Additional Merger
Consideration to such Target Indemnitee as determined using the closing sales
price of Acquiror Common Stock on the pink sheets on the date such Additional
Merger Consideration is issued to such Target Indemnitee.
Section 10.6. Payment Treatment. Acquiror, Merger Sub and the Target
Stockholders agree to treat any payment under this Section 10 as an adjustment
to the Merger Consideration.
ARTICLE XI
Miscellaneous
Section 11.1. Expenses. Whether or not the Merger is consummated, all
costs and expenses incurred in connection with this Agreement and the
transactions contemplated hereby and thereby shall be paid by the party
incurring such expenses.
Section 11.2. Counterparts: Effectiveness. This Agreement may be
executed in two or more consecutive counterparts, each of which shall be an
original, with the same effect as if the signatures thereto and hereto were upon
the same instrument, and shall become effective when one or more counterparts
have been signed by each of the parties and delivered (by telecopy or otherwise)
to the other parties.
Section 11.3. Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Delaware without regard to
the principles of conflicts of laws thereof.
Section 11.4. Notices. Any notices, reports or other correspondence
(hereinafter collectively referred to as "correspondence") required or permitted
to be given hereunder shall be given in writing and shall be deemed given three
business days after the date sent by certified or registered mail (return
receipt requested), one business day after the date sent by overnight courier or
on the date given by telecopy (with confirmation of receipt) or delivered by
hand, to the party to whom such correspondence is required or permitted to be
given hereunder. An electronic communication ("Electronic Notice") shall be
deemed written notice for purposes of this Section 11.4 if sent with return
receipt requested to the facsimile number or electronic mail address specified
by the receiving party either in this Section 11.4 or on Schedule 1 hereto.
Electronic Notice shall be deemed received at the time the party sending
Electronic Notice receives verification of receipt by the receiving party.
26
To Acquiror:
Motient Corporation
300 Knightsbridge Parkway
Lincolnshire Parkway
Lincolnshire, IL 60069
Facsimile: (847) 478-4810
Attention: General Counsel
with a copy (which shall not constitute notice) to:
Andrews Kurth LLP
600 Travis Street, Suite 4200
Houston, Texas 77002
Telecopy: (713) 220-4285
Attention: Mark Young
To Target:
Telcom Satellite Ventures Inc.
Telcom Satellite Ventures II Inc.
c/o Telcom Ventures, L.L.C.
201 N. Union Street, Suite 360
Alexandria, VA 22314
Telecopy: 703-519-2181
Attention: Hal B. Perkins, Vice President & General Counsel
with a copy (which shall not constitute notice) to:
Steel Hector & Davis LLP
200 South Biscayne Boulevard, Suite 4000
Miami, FL 33131-2398
Telecopy: (305) 577-7001
Attention: Serge G. Martin, Esq.
To Target Stockholders:
At the address for such Target Stockholder set forth on
Schedule A hereto.
Section 11.5. Assignment; Binding Effect. Neither this Agreement nor
any of the rights, interests or obligations hereunder shall be assigned by any
of the parties hereto (whether by operation of law or otherwise) without the
prior written consent of the other parties. Subject to the preceding sentence,
this Agreement shall be binding upon and shall inure to the benefit of the
parties hereto and their respective successors and assigns.
Section 11.6. Severability. Any term or provision of this Agreement
which is invalid or unenforceable in any jurisdiction shall, as to that
jurisdiction, be ineffective to the extent of such invalidity or
unenforceability without rendering invalid or unenforceable the remaining terms
and provisions of this Agreement in any other jurisdiction. If any provision of
this Agreement is so broad as to be unenforceable, such provision shall be
interpreted to be only so broad as is enforceable.
27
Section 11.7. Entire Agreement; Non-Assignability; Parties in Interest.
This Agreement and the documents and instruments and other agreements
specifically referred to herein or delivered pursuant hereto, including the
Exhibits, the Schedules and the Target Disclosure Schedule: (a) constitute the
entire agreement among the parties with respect to the subject matter hereof and
supersede all prior agreements and understandings, both written and oral, among
the parties with respect to the subject matter hereof; (b) are not intended to
confer upon any other person any rights or remedies hereunder; and (c) shall not
be assigned by operation of law or otherwise except as otherwise specifically
provided.
Section 11.8. Headings. Headings of the Articles and Sections of this
Agreement are for convenience of the parties only, and shall be given no
substantive or interpretive effect whatsoever.
Section 11.9. Certain Definitions. References in this Agreement to
"Subsidiaries" of Telcom I, Telcom II or Acquiror shall mean any corporation or
other form of legal entity of which more than 50% of the outstanding voting
securities are on the date hereof directly or indirectly owned by Telcom I,
Telcom II or Acquiror, as the case may be. References in this Agreement (except
as specifically otherwise defined) to "affiliates" shall mean, as to any person,
any other person which, directly or indirectly, controls, or is controlled by,
or is under common control with, such person. As used in this definition,
"control" (including, with its correlative meanings, "controlled by" and "under
common control with") shall mean the possession, directly or indirectly, of the
power to direct or cause the direction of management or policies of a person,
whether through the ownership of securities or partnership of other ownership
interests, by contract or otherwise. References in the Agreement to "person"
shall mean an individual, a corporation, a partnership, an association, a trust
or any other entity or organization, including, without limitation, a
governmental body or authority.
Section 11.10. Amendment. This Agreement may be amended by the
agreement of all parties at any time prior to the Effective Time. This Agreement
may not be amended except by an instrument in writing signed by the parties
hereto.
Section 11.11. Waiver. At any time prior to the Effective Time, the
parties hereto may (a) extend the time for the performance of any of the
obligations or other acts of any other party hereto, (b) waive any inaccuracies
in the representations and warranties of any other party contained herein or in
any document delivered pursuant hereto and (c) waive compliance by any other
party with any of the agreements or conditions contained herein. Any such
extension or waiver shall be valid only if set forth in an instrument in writing
signed by the party or parties to be bound thereby, but such extension or waiver
or failure to insist on strict compliance with an obligation, covenant,
agreement or condition shall not operate as a waiver of, or estoppel with
respect to, any subsequent or other failure.
[Signature Pages Follow]
28
IN WITNESS WHEREOF, the parties hereto have caused this Agreement and
Plan of Merger to be duly executed and delivered as of the date first above
written.
MOTIENT CORPORATION
By:/s/ Christopher Downie
---------------------------------------
Name: Christopher Downie
Title: Executive Vice President and Chief
Operating Officer
MVH HOLDINGS INC.
By:/s/ Christopher Downie
---------------------------------------
Name: Christopher Downie
Title: Executive Vice President and Chief
Operating Officer
TELCOM SATELLITE VENTURES INC.
By:_______________________________________
Name:_____________________________________
Title:____________________________________
TELCOM SATELLITE VENTURES II INC.
By:_______________________________________
Name:_____________________________________
Title:____________________________________
[SIGNATURE PAGE TO AGREEMENT AND PLAN OF MERGER]
TARGET STOCKHOLDERS:
/s/ Dr. Rajendra Singh
------------------------------------------
Dr. Rajendra Singh
/s/ Neera Singh
------------------------------------------
Neera Singh
The Hersh Raj Singh Education Trust
By:/s/ Neera Singh
---------------------------------------
As Trustee
Dr. Rajendra Singh
c/o Telcom Ventures, L.L.C.
201 N. Union Street, Suite 360
Alexandria, VA 22314
Telecopy: 703-519-2181
Attention: Hal B. Perkins, Vice
President and General Counsel
Mrs. Neera Singh
c/o Telcom Ventures, L.L.C.
201 N. Union Street, Suite 360
Alexandria, VA 22314
Telecopy: 703-519-2181
Attention: Hal B. Perkins,
Vice President and General Counsel
The Hersh Raj Singh Education Trust
c/o Telcom Ventures, L.L.C.
201 N. Union Street, Suite 360
Alexandria, VA 22314
Telecopy: 703-519-2181
Attention: Hal B. Perkins,
Vice President and General Counsel
The Samir Raj Singh Education Trust
c/o Telcom Ventures, L.L.C.
201 N. Union Street, Suite 360
Alexandria, VA 22314
Telecopy: 703-519-2181
Attention: Hal B. Perkins,
Vice President and General Counsel
Schedule B
Target Disclosure Schedule
Schedule 3.5
Target Assets
2,296,835 MSV LP limited partnership units
249.60 shares of common stock of MSV GP
1,536,123 rights to receive shares of common stock of TerreStar Networks, GP
Rights under the agreements and instruments listed in Schedule 3.6
Schedule 3.6
Target Agreements
(see attached)
Exhibit A
Form of Acquiror Warrant
Exhibit B
Form of Certificate of Merger
Exhibit C
Form of Registration Rights Agreement
Exhibit 10.58
STOCK PURCHASE AGREEMENT
BY AND AMONG
MOTIENT CORPORATION,
MVH HOLDINGS INC.
AND
[PURCHASER]
Dated as of February 9, 2005
TABLE OF CONTENTS
ARTICLE I Purchase and Sale.......................................................................................1
Section 1.1. Sale of Blocker Corp Common Stock......................................................1
Section 1.2. Closing................................................................................1
Section 1.3. Deliveries.............................................................................1
ARTICLE II Representations and Warranties of Columbia.............................................................3
Section 2.1. Organization, Qualification, Etc.......................................................3
Section 2.2. Capitalization.........................................................................3
Section 2.3. Title to Blocker Corp Shares...........................................................4
Section 2.4. Authority..............................................................................4
Section 2.5. No Liabilities; No Operations..........................................................4
Section 2.6. Litigation.............................................................................5
Section 2.7. Blocker Corp Assets....................................................................5
Section 2.8. Blocker Corp Agreements................................................................5
Section 2.9. No Violation of Law....................................................................5
Section 2.10. Tax Matters............................................................................5
Section 2.11. Representations Complete...............................................................5
Section 2.12. Purchase Entirely for Own Account......................................................6
Section 2.13. Reliance Upon the Columbia's Representations...........................................6
Section 2.14. Receipt of Information.................................................................6
Section 2.15. Investor Status; Etc...................................................................6
Section 2.16. Brokers or Finders.....................................................................6
Section 2.17. Restricted Securities..................................................................6
Section 2.18. Legends................................................................................7
ARTICLE III Representations and Warranties of Motient and Sub.....................................................7
Section 3.1. Organization, Standing and Power.......................................................7
Section 3.2. Capitalization.........................................................................7
Section 3.3. Authorization of Motient Common Stock..................................................7
Section 3.4. Issuance of Motient Shares and Motient Warrants........................................7
Section 3.5. Title to Motient Shares and Warrants...................................................8
Section 3.6. Authority..............................................................................8
Section 3.7. SEC Documents..........................................................................8
Section 3.8. Litigation.............................................................................9
Section 3.9. Tax Matters............................................................................9
Section 3.10. Broker's and Finders' Fees.............................................................9
Section 3.11. Representations Complete...............................................................9
Section 3.12. Investment Company Act.................................................................9
Section 3.13. Independent Investigation..............................................................9
ARTICLE IV Additional Agreements.................................................................................10
Section 4.1. Filings; Other Action.................................................................10
i
Section 4.2. Public Announcements..................................................................10
Section 4.3. Blue Sky Laws.........................................................................10
Section 4.4. Additional Consideration..............................................................10
Section 4.5. Motient Rights Offering...............................................................11
Section 4.6. Designation of Director...............................................................11
Section 4.7. Right to Transfer.....................................................................11
Section 4.8. Independent Evaluation of Investment..................................................12
ARTICLE V Indemnification........................................................................................12
Section 5.1. Survival of Representations and Warranties............................................12
Section 5.2. Obligation to Indemnify...............................................................12
Section 5.3. Indemnification Procedures............................................................13
Section 5.4. Notices and Payments..................................................................14
Section 5.5. Limited Remedy........................................................................15
ARTICLE VI Miscellaneous.........................................................................................15
Section 6.1. Expenses..............................................................................15
Section 6.2. Counterparts: Effectiveness...........................................................15
Section 6.3. Governing Law.........................................................................15
Section 6.4. Notices...............................................................................15
Section 6.5. Assignment; Binding Effect............................................................16
Section 6.6. Severability..........................................................................16
Section 6.7. Entire Agreement; Non-Assignability; Parties in Interest..............................17
Section 6.8. Headings..............................................................................17
Section 6.9. Certain Definitions...................................................................17
Section 6.10. Amendments and Waivers................................................................17
Schedule A Columbia Disclosure Schedule
Exhibit A Form of Motient Warrant
Exhibit B Form of Registration Rights Agreement
Exhibit C Stockholders Agreement
ii
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (this "Agreement") is made and entered
into as of February 9, 2005 by and among Motient Corporation, a Delaware
corporation ("Motient"), MVH Holdings Inc., a Delaware corporation and direct
wholly-owned subsidiary of Motient ("Sub") and [Purchaser] ("Columbia"), a
Delaware limited partnership.
RECITAL:
WHEREAS, subject to the terms and conditions set forth in this
Agreement, Sub desires to purchase __________ shares (the "Blocker Corp Shares")
of common stock, par value $0.01 per share (the "Blocker Corp Common Stock") of
_________________ ("Blocker Corp") in exchange for (i) an aggregate of
____________________ shares (the "Motient Shares") of Motient's common stock,
par value $0.01 per share ("Motient Common Stock") and (ii) a warrant (the
"Motient Warrant") to purchase _____________ shares of Motient Common Stock (the
"Warrant Shares"), a form of which is attached as Exhibit A hereto, which shall
only become exercisable in the event that Motient is unable to file a
Registration Statement on Form S-1 to register the resale of the Motient Shares
and the Warrant Shares and/or such registration statement is not declared
effective by the Securities and Exchange Commission (the "SEC") prior to the
dates set forth in the Motient Warrant.
AGREEMENT:
NOW, THEREFORE, in consideration of the covenants and representations
set forth herein, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties agree as follows:
ARTICLE I
Purchase and Sale
Section 1.1. Sale of Blocker Corp Common Stock. Subject to the terms
and conditions hereof and in reliance upon the representations, warranties and
agreements contained herein, at the Closing (defined below), Sub will purchase
from Columbia, and Columbia shall issue and sell to Sub, the Blocker Corp Shares
from Columbia in exchange for the Motient Shares and the Motient Warrant.
Section 1.2. Closing. The closing (the "Closing") of the purchase and
sale of shares of Blocker Corp Common Stock in exchange for the Motient Shares
and the Motient Warrant is taking place contemporaneously with the execution and
delivery of this Agreement on the date hereof and is being held at the offices
of Andrews Kurth LLP, 111 Congress Avenue, Suite 1700, Austin, Texas.
Section 1.3. Deliveries. At the Closing:
(a) Columbia shall deliver to Sub the following:
(i) a certificate registered in Sub's name representing the
Blocker Corp Shares;
1
(ii) the Rights Agreement duly executed by Columbia;
(iii) the Stockholders Agreement in the form attached as Exhibit C
hereto (the "Blocker Corp Stockholders' Agreement") duly executed by Columbia;
and
(iv) the Amended and Restated Consent Agreement in the form
attached as Exhibit D hereto, duly executed by Spectrum Space Equity Investors
IV, Inc., Spectrum Space IV Parallel, Inc., Spectrum Space IV Managers, Inc.,
Columbia Space (QP), Inc., Columbia Space (AI), Inc., Columbia Space Partners,
Inc., Telcom Satellite Ventures Inc. and Telcom Satellite Ventures II Inc. (the
"Consent Agreement").
(b) Sub shall deliver to Columbia the following:
(i) a certificate registered in Columbia's name representing the
Motient Shares which was contributed by Motient to Sub immediately prior to the
Closing;
(ii) the Motient Warrant, which was contributed by Motient to Sub
immediately prior to the Closing;
(iii) the Rights Agreement duly executed by Motient;
(iv) the Blocker Corp Stockholders' Agreement duly executed by
Sub;
(v) a draft copy of Motient's Registration Statement on Form S-1
(the "Mandatory S-1") registering the resale by Columbia of the Motient Shares
and Warrant Shares in form and substance substantially as required by the rules
and regulations of the SEC, together with such information and assurances as
Columbia shall require in its reasonable discretion with respect to Motient's
ability to meet its registration obligations as described in the Rights
Agreement;
(vi) an acknowledgement duly executed by Sub agreeing to be bound
by the terms of the Second Amended and Restated Parent Transfer/Drag Along
Agreement dated November 12, 2004 (the "MSV Parent Transfer/Drag Along
Agreement") with respect to the Blocker Corp Shares Sub is purchasing hereunder;
(vii) an acknowledgement duly executed by Sub agreeing to be bound
by the terms of the Parent Transfer/Drag Along Agreement dated December 20, 2004
(the "TerreStar Parent Transfer/Drag Along Agreement") with respect to the
Blocker Corp Shares Sub is purchasing hereunder;
(viii) certified resolutions of Motient's and Sub's Boards of
Directors approving this Agreement and the transactions contemplated hereby;
(ix) a certificate of good standing for Motient and Sub from the
Secretary of State of the State of Delaware; and
2
(x) the Consent Agreement executed by (i) Sub whereby Sub has
agreed to be bound by the terms, conditions and provisions of the Consent
Agreement with respect to the limited partnership units (the "MSV LP Units") of
Mobile Satellite Ventures, L.P. ("MSV") and the shares of common stock (the "MSV
GP Common Stock") of Mobile Satellite Ventures GP Inc. ("MSV GP") indirectly
acquired by it pursuant to this Agreement and (ii) Motient Ventures Holding,
Inc., a Delaware corporation and wholly-owned subsidiary of Sub ("Motient
Ventures Holding") whereby Motient Ventures Holding has agreed to be bound by
the terms, conditions and provisions of the Consent Agreement with respect to
MSV LP Units and the MSV GP Common Stock indirectly acquired by it in connection
with the transactions contemplated by the Agreement and Plan of Merger by and
among Motient, Sub, Telcom Satellite Ventures Inc. and Telcom Satellite Ventures
II Inc. (the "Merger Agreement").
ARTICLE II
Representations and Warranties of Columbia
Except as otherwise specifically provided in the Disclosure Schedule of
Columbia attached hereto and incorporated herein by reference (the "Columbia
Disclosure Schedule"), Columbia represents and warrants to Motient and Sub, as
follows:
Section 2.1. Organization, Qualification, Etc. Blocker Corp is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware and has the corporate power and authority to own its
properties and assets and to carry on its business as it is now being conducted
and is duly qualified to do business and is in good standing in each
jurisdiction in which the ownership of its properties or the conduct of its
business requires such qualification. The copies of the Blocker Corp Certificate
of Incorporation and Bylaws which have been delivered to Motient and Sub are
complete and correct and in full force and effect on the date hereof.
Section 2.2. Capitalization.
(a) The authorized stock of Blocker Corp consists of 3,000 shares of
Blocker Corp Common Stock, 200 of which are issued and outstanding. All the
issued and outstanding shares of Blocker Corp Common Stock have been validly
issued and are fully paid and non-assessable.
(b) Neither Columbia nor Blocker Corp is a party to, nor is Columbia
aware of, any voting agreement, voting trust or similar agreement or arrangement
relating to any shares of Blocker Corp Common Stock, except for the Blocker Corp
Stockholders' Agreement, the Consent Agreement, the Voting Agreement dated
November 12, 2004 by and among Columbia and the other parties thereto (the "MSV
Voting Agreement"), the Voting Agreement dated December 20, 2004 by and among
Blocker Corp and the other parties thereto (the "TerreStar Voting Agreement"),
the MSV Parent Transfer/Drag Along Agreement, the TerreStar Parent Transfer/Drag
Along Agreement, the Amended and Restated Limited Partnership Agreement of MSV,
dated November 12, 2004, as amended (the "Partnership Agreement"), the Amended
and Restated Stockholders' Agreement dated November 12, 2004 by and among MSV GP
and the stockholders of MSV GP (the "MSV Stockholders' Agreement"), the Rights
Certificates (as defined below), the Securityholders Agreement by and among MSV
and other securityholders of TerreStar (including the Irrevocable Proxies
executed in connection therewith)(the "TerreStar Securityholders Agreement")
3
dated December 20, 2004 (collectively, all of the foregoing are the "Other
Documents"), or any agreement or arrangement providing for registration rights
with respect to any capital stock or other securities of Blocker Corp.
(c) Other than (i) the MSV LP Units, (ii) the MSV GP Common Stock, and
(iii) the rights of Blocker Corp to receive shares of common stock of TerreStar
Networks Inc. ("TerreStar") pursuant to Right to Receive Shares of Common Stock
(the "Rights Certificates"), Blocker Corp does not, directly or indirectly, own
of record or beneficially, or have the right or obligation to acquire, any
outstanding securities or other interest in any corporation, partnership, joint
venture or other entity, except as otherwise may be set forth in the Other
Documents.
Section 2.3. Title to Blocker Corp Shares. Columbia owns the Blocker
Corp Shares being sold to Sub pursuant to this Agreement free and clear of any
and all liens, claims and encumbrances of any kind, other than pursuant to (i)
applicable securities laws ("Securities Law Encumbrances") and (ii) the Other
Documents. Upon consummation of the transactions hereunder assuming compliance
with the Other Documents, Sub shall be vested with valid title to the Blocker
Corp Shares, free and clear of any liens, claims and encumbrances of any kind
(other than Securities Law Encumbrances and those pursuant to the Other
Documents).
Section 2.4. Authority. Columbia has all requisite corporate power and
authority to enter into this Agreement and to consummate the transactions and
carry out its obligations contemplated hereby. The execution and delivery of
this Agreement and the consummation of the transactions contemplated hereby have
been duly authorized by all necessary partnership action on the part of
Columbia. This Agreement has been duly executed and delivered by Columbia and
constitutes the valid and binding obligation of Columbia enforceable against
Columbia in accordance with its terms. The execution and delivery of this
Agreement does not, and the consummation of the transactions contemplated hereby
will not, conflict with, or result in any violation of, or default under (with
or without notice or lapse of time, or both), or give rise to a right of
termination, cancellation or acceleration of any obligation or loss of a benefit
under (i) any provision of the organizational documents of Columbia or Blocker
Corp, or (ii) other than the Other Documents, any material mortgage, indenture,
lease, contract or other agreement or instrument, permit, concession, franchise,
license, judgment, order, decree, statute, law, ordinance, rule or regulation
applicable to Columbia or its properties or assets. No consent, approval, order
or authorization of, or registration, declaration or filing with, any
governmental entity, is required by or with respect to Columbia in connection
with the execution and delivery of this Agreement by Columbia or the
consummation by Columbia of the transactions contemplated hereby or thereby,
except for such consents, authorizations, filings, approvals and registrations
which, if not obtained or made, would not have a material adverse effect on
Columbia or Blocker Corp and would not prevent, materially alter, delay or
otherwise invalidate any of the transactions contemplated, by or the due
execution and delivery of, this Agreement.
Section 2.5. No Liabilities; No Operations. Except in connection with
its ownership and participation in the management of (i) MSV through the
ownership of MSV LP Units and MSV GP Common Stock (including, but not limited
to, the exercise of those rights pursuant to the Other Documents), (ii)
TerreStar, and the exercise of its rights as such owner (including, but not
4
limited to, the exercise of those rights pursuant to the Other Documents), and
(iii) as otherwise disclosed herein, Blocker Corp has no debt, liabilities or
obligations of any nature, whether or not accrued, contingent or otherwise, and
is not currently conducting nor has it ever conducted any operations.
Section 2.6. Litigation. There is no private or government proceeding
pending before any agency, court or tribunal, foreign or otherwise, against
Columbia or Blocker Corp or any of Columbia's subsidiaries or, to the knowledge
of Columbia, threatened against Columbia or Blocker Corp or any of Columbia's
subsidiaries that would prevent, enjoin, alter or materially delay any of the
transactions contemplated by this Agreement, or that would have a material
adverse effect on the ability of Columbia to consummate the transactions
contemplated by this Agreement. There is no judgment, decree or order against
Columbia or Blocker Corp or any of Columbia's subsidiaries, or, to the knowledge
of Columbia, any of their respective directors or officers (in their capacities
as such), that would prevent, enjoin, alter or materially delay any of the
transactions contemplated by this Agreement, or that would have a material
adverse effect on the ability of Columbia to consummate the transactions
contemplated by this Agreement.
Section 2.7. Blocker Corp Assets. All assets of Blocker Corp are set
forth on Schedule 2.7 hereto (collectively, the "Blocker Corp Assets"). Blocker
Corp has good and marketable title to the Blocker Corp Assets, including the MSV
LP Units and MSV GP Common Stock listed on Schedule 2.7, free and clear of all
liens, security interests, encumbrances or adverse claims (other than Securities
Law Encumbrances and those pursuant to the Other Documents).
Section 2.8. Blocker Corp Agreements. Columbia has delivered to Motient
(i) a correct and complete copy of each written contract, agreement, plan,
understanding, commitment or other arrangement that is binding on Blocker Corp
and except, in each case, for those to which Motient or a subsidiary thereof is
a party (collectively, the "Blocker Corp Agreements") to which it is a party and
(ii) a written summary setting forth the terms and conditions of each oral
contract, agreement, plan, understanding, commitment or other arrangement that
is binding on Blocker Corp and except, in each case, for those to which Motient
or a subsidiary thereof is a party (collectively, the "Blocker Corp Oral
Agreements") to which it is a party. A list of each Blocker Corp Agreement and
Blocker Corp Oral Agreement is set forth on Schedule 2.8 hereto.
Section 2.9. No Violation of Law. The business of Blocker Corp is not
being conducted in violation of any law, ordinance or regulation of any
governmental entity.
Section 2.10. Tax Matters. Blocker Corp has timely filed all tax
returns and reports required by law to be filed by it, these returns and reports
are true, correct and complete in all material respects and Blocker Corp has
paid all taxes owed for the period up to and including the date hereof which are
required to have been paid prior to the date hereof.
Section 2.11. Representations Complete. None of the representations or
warranties made by Columbia herein or in any Schedule hereto, including the
Columbia Disclosure Schedule, when all such documents are read together in their
entirety, contains any untrue statement of a material fact, or omits to state
any material fact necessary in order to make the statements contained herein or
therein, in the light of the circumstances under which made, not misleading. The
5
foregoing does not, however, limit or modify the representations and warranties
of Motient or Sub set forth in Article III of this Agreement or the right of
Columbia to rely thereon.
Section 2.12. Purchase Entirely for Own Account. The Motient Shares,
Motient Warrants and the Warrant Shares to be issued to Columbia will be
acquired for investment for Columbia's own account, not as a nominee or agent,
and not with a view to the resale or distribution of any part thereof, in each
case, in violation of applicable securities laws, and Columbia has no present
intention of selling, granting any participation in, or otherwise distributing
the same except in compliance with applicable securities laws.
Section 2.13. Reliance Upon the Columbia's Representations. Columbia
understands that the Motient Shares, Motient Warrants and Warrant Shares are not
registered under the Securities Act and the sale provided for in this Agreement
and Motient's issuance of securities hereunder will be made in reliance upon an
exemption from registration under the Securities Act pursuant to Section 4(2)
thereof, and that, in such case, Motient's reliance on such exemption will be
based on Columbia's representations set forth herein.
Section 2.14. Receipt of Information. Columbia believes it has received
all the information it considers necessary or appropriate for deciding whether
to acquire the Motient Shares and Motient Warrants. Columbia further represents
that it has had an opportunity to ask questions and receive answers from Motient
regarding the terms and conditions of the offering of the Motient Shares and
Motient Warrants and the business and financial condition of Motient and to
obtain additional information (to the extent Motient possessed such information
or could acquire it without unreasonable effort or expense) necessary to verify
the accuracy of any information furnished to it or which it had access.
Section 2.15. Investor Status; Etc. Columbia certifies and represents
to Motient that it is an "accredited investor" as defined in Rule 501 of
Regulation D promulgated under the Securities Act and was not organized for the
purpose of acquiring any of the Motient Shares, the Motient Warrants or the
Warrant Shares. Columbia's financial condition is such that it is able to bear
the risk of holding the Motient Shares for an indefinite period of time and the
risk of loss of its entire investment. Columbia has sufficient knowledge and
experience in investing in companies similar to Motient so as to be able to
evaluate the risks and merits of its investment in Motient.
Section 2.16. Brokers or Finders. Columbia has not incurred, nor will
it incur, directly or indirectly, any liability for brokerage or finders' fees
or agents' commissions or investment bankers' fees or any similar charges in
connection with this Agreement or any transaction contemplated hereby.
Section 2.17. Restricted Securities. Columbia understands that the
Motient Shares, Motient Warrants and the Warrant Shares may not be sold,
transferred or otherwise disposed of without registration under the Securities
Act or an exemption therefrom, and that in the absence of an effective
registration statement covering same or an available exemption from registration
under the Securities Act, such Motient Shares, Motient Warrants and Warrant
Shares must be held indefinitely. In particular, Columbia is aware that such
Motient Shares, Motient Warrants and Warrant Shares may not be sold pursuant to
Rule 144 or Rule 145 promulgated under the Securities Act unless all of the
6
conditions of the applicable rule are met. Among the conditions for use of Rules
144 and 145 is the availability of current information to the public about
Motient.
Section 2.18. Legends. It is understood that the certificates
evidencing the Motient Shares, Motient Warrants and Warrant Shares will bear one
or all of the following legends:
(a) "These securities have not been registered under the Securities Act
of 1933, as amended. They may not be sold, offered for sale, pledged or
hypothecated in the absence of a registration statement in effect with respect
to the securities under such Act or an opinion of counsel satisfactory to
Motient Corporation that such registration is not required or unless sold
pursuant to Rule 144 or Rule 145 of such Act or another applicable exemption."
(b) Any legend required by the laws of the State of Delaware or other
jurisdiction.
ARTICLE III
Representations and Warranties of Motient and Sub
Motient and Sub, jointly and severally, represent and warrant to
Columbia as follows:
Section 3.1. Organization, Standing and Power. Motient and Sub are
corporations duly organized, validly existing and in good standing under the
laws of the State of Delaware and each has the corporate power and authority to
own its properties and assets and to carry on its business as it is now being
conducted and is duly qualified to do business and is in good standing in each
jurisdiction in which the ownership of its properties or the conduct of its
business requires such qualification. The copies of the Certificates of
Incorporation and Bylaws of Motient and Sub which have been made available to
Columbia are complete and correct and in full force and effect on the date
hereof.
Section 3.2. Capitalization. The authorized stock of Motient consists
of 100,000,000 shares of Motient Common Stock, of which 52,063,054 shares were
issued and outstanding as of February 5, 2005, and 5,000,000 shares of preferred
stock, par value $0.01 per share, of which no shares are issued and outstanding
as of the date hereof. All the outstanding shares of Motient Common Stock have
been validly issued and are fully paid and non-assessable. Sub is a wholly-owned
subsidiary of Motient.
Section 3.3. Authorization of Motient Common Stock. Immediately prior
to the Closing, Motient contributed the Motient Shares and the Motient Warrant
to Sub and Sub has authorized the sale and issuance of the Motient Shares and
the Motient Warrant to Columbia hereunder.
Section 3.4. Issuance of Motient Shares and Motient Warrants. The
issuance, sale and delivery of the Motient Shares and the Warrant Shares in
accordance with this Agreement and the Motient Warrant have been duly authorized
by all necessary corporate action and stockholder action on the part of Motient
and Sub and their respective officers, directors and stockholders. The Motient
Shares, when so issued, sold and delivered against payment therefor in
accordance with the provisions of this Agreement, will be duly authorized,
validly issued, fully paid and non-assessable. The Warrant Shares, when issued
upon exercise in accordance with the provisions of the Motient Warrant, will be
duly authorized, validly issued, fully paid and non-assessable.
7
Section 3.5. Title to Motient Shares and Warrants. Upon consummation of
the transactions hereunder, Columbia shall be vested with valid title to the
Motient Shares and the Motient Warrants, free and clear of any liens, claims and
encumbrances of any kind.
Section 3.6. Authority. Motient and Sub have all requisite corporate
power and authority to enter into this Agreement and to consummate the
transactions and carry out its respective obligations contemplated hereby. The
execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby have been duly authorized by all necessary
corporate and stockholder action on the part of Motient and Sub. This Agreement
has been duly executed and delivered by Motient and Sub and constitutes the
valid and binding obligations of Motient and Sub enforceable against Motient and
Sub in accordance with its terms. The execution and delivery of this Agreement
does not, and the consummation of the transactions contemplated hereby will not,
conflict with, or result in any violation of, or default under (with or without
notice or lapse of time, or both), or give rise to a right of termination,
cancellation or acceleration of any obligation or loss of a benefit under (i)
any provision of the Certificate of Incorporation or Bylaws of Motient or Sub or
any of their subsidiaries, as amended, or (ii) other than the Other Documents,
any material mortgage, indenture, lease, contract or other agreement or
instrument, permit, concession, franchise, license, judgment, order, decree,
statute, law, ordinance, rule or regulation applicable to Motient or Sub or
their properties or assets. No consent, approval, order or authorization of, or
registration, declaration or filing with, any governmental entity, is required
by or with respect to Motient or Sub in connection with the execution and
delivery of this Agreement by Motient or Sub or the consummation by Motient or
Sub of the transactions contemplated hereby or thereby, except for: (i) the
filing of a Form 8-K with the SEC within 4 business days after the Closing; (ii)
such filings under applicable state securities laws and the securities laws of
any foreign country as may be required in connection with the transactions
contemplated by this Agreement which are permitted by such laws to be filed
after the Closing; and (iii) such other consents, authorizations, filings,
approvals and registrations which, if not obtained or made, would not have a
material adverse effect on Motient or Sub and would not prevent, materially
alter, delay or otherwise invalidate any of the transactions contemplated, by or
the due execution and delivery of, this Agreement.
Section 3.7. SEC Documents. The Company has made available to Columbia
true and complete copies of the following reports of Motient (collectively, the
"SEC Documents"): (i) the annual report on Form 10-K for the year ended December
31, 2003, (ii) quarterly reports on Form 10-Q for the periods ended March 31,
2004, June 30, 2004 and September 30, 2004 and (iii) each current report on Form
8-K filed with the SEC since December 31, 2003. As of their respective filing
dates, the SEC Documents complied in all material respects with the requirements
of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and the
rules and regulations promulgated thereunder, and none of the SEC Documents
contain any untrue statement of a material fact or omitted to state a material
fact required to be stated therein or necessary in order to make the statements
made therein, in light of the circumstances under which they were made, not
misleading. The financial statements of Motient included in the SEC Documents
comply in all material respects with applicable accounting requirements and the
rules and regulations of the SEC with respect thereto in effect at the time of
filing. All material agreements to which Motient is a party or to which the
property or assets of Motient are subject are included as part of or
specifically identified in the SEC Documents to the extent required by the rules
8
and regulations of the SEC as in effect at the time of filing. Motient has
prepared and filed with the SEC all filings and reports required by the
Securities Act of 1933, as amended (the "Securities Act") and the Exchange Act
to make Motient's filings and reports current in all respects.
Section 3.8. Litigation. There is no private or government proceeding
pending before any agency, court or tribunal, foreign or otherwise, against
Motient or any of its subsidiaries or, to the knowledge of Motient, threatened
against Motient or any of its subsidiaries that would prevent, enjoin, alter or
materially delay any of the transactions contemplated by this Agreement, or that
would have a material adverse effect on the ability of Motient or Sub to
consummate the transactions contemplated by this Agreement. There is no
judgment, decree or order against Motient or any of its subsidiaries, or, to the
knowledge of Motient, any of their respective directors or officers (in their
capacities as such), that would prevent, enjoin, alter or materially delay any
of the transactions contemplated by this Agreement, or that would have a
material adverse effect on the ability of Motient or Sub to consummate the
transactions contemplated by this Agreement.
Section 3.9. Tax Matters. Each of Motient and Sub have timely filed all
tax returns and reports required by law to be filed by it, such returns and
reports are true, correct and complete in all material respects and Motient and
Sub have paid all taxes owed for period up to and including the date hereof
which are required to have been paid prior to the date hereof.
Section 3.10. Broker's and Finders' Fees. Neither Motient nor Sub has
incurred, nor will it incur, directly or indirectly, any liability for brokerage
or finders' fees or agents' commissions or investment bankers' fees or any
similar charges in connection with this Agreement or any transaction
contemplated hereby.
Section 3.11. Representations Complete. None of the representations or
warranties made by Motient or Sub herein or in any Schedule hereto, or
certificate furnished by Motient or Sub pursuant to this Agreement, when all
such documents are read together in their entirety, contains any untrue
statement of a material fact, or omits to state any material fact necessary in
order to make the statements contained herein or therein, in the light of the
circumstances under which made, not misleading. The foregoing does not, however,
limit or modify the representations and warranties of Columbia set forth in
Article II of this Agreement or the rights of Motient or Sub to rely thereon.
Section 3.12. Investment Company Act. Neither Motient nor Sub is an
"investment company" within the meaning of the Investment Company Act of 1940,
as amended, and Sub is not subject to the reporting requirements of Section 13
or 15(d) of the Exchange Act.
Section 3.13. Independent Investigation. Motient and Sub are acting for
their own account and each have made their own independent decision to enter
into this Agreement and to directly acquire the Blocker Corp Shares and to
indirectly acquire equity interests in MSV and MSV GP and TerreStar through the
purchase of the Blocker Corp Shares pursuant to the transactions contemplated by
this Agreement, based solely on their own judgment and investigation and upon
advice from such legal, financial, tax and other advisors as it has deemed
appropriate. Neither Motient nor Sub is relying on any investment advice,
assurance or recommendations by any other party to this Agreement with respect
to its investment in Blocker Corp, MSV, MSV GP and TerreStar.
9
ARTICLE IV
Additional Agreements
Section 4.1. Filings; Other Action. Subject to the terms and conditions
herein provided, following the Closing, both Columbia and Motient shall (i) use
reasonable efforts to cooperate with one another in (A) determining whether any
filings are required to be made with, or consents, permits, authorizations or
approvals are required to be obtained from, any third party, the United States
government or any agencies, departments or instrumentalities thereof or other
governmental or regulatory bodies or authorities of federal, state, local and
foreign jurisdictions in connection with the execution and delivery of this
Agreement and the consummation of the transactions contemplated hereby and
thereby and (B) timely making all such filings and timely seeking all such
consents, permits, authorizations or approvals and (iii) use reasonable efforts
to take, or cause to be taken, all other actions and do, or cause to be done,
all other things necessary, proper or advisable to consummate and make effective
the transactions contemplated hereby.
Section 4.2. Public Announcements. Except as may be required by
applicable law, no party hereto shall make any public announcements or otherwise
communicate with any news media or any other party, with respect to this
Agreement or any of the transactions contemplated hereby, without prior
consultation with the other parties as to the timing and contents of any such
announcement or communications; provided, however, that nothing contained herein
shall prevent any party from (i) promptly making all filings with governmental
authorities or disclosures with the stock exchange, if any, on which such
party's capital stock is listed, as may, in its judgment, be required in
connection with the execution and delivery of this Agreement or the consummation
of the transactions contemplated hereby or (ii) disclosing the terms of this
Agreement to such party's legal counsel, financial advisors or accountants in
furtherance of the transactions contemplated by this Agreement.
Section 4.3. Blue Sky Laws. Motient shall take such steps as may be
necessary to comply with the securities and blue sky laws of all jurisdictions
which are applicable to the issuance of the Motient Shares, the Motient Warrants
and the Warrant Shares in connection with this Agreement. Columbia shall use its
best efforts to assist Motient as may be necessary to comply with the securities
and blue sky laws of all jurisdictions in which such compliance is necessary or
desirable in connection therewith.
Section 4.4. Additional Consideration. If at any time after the date
hereof and prior to the one year anniversary of the date hereof Motient directly
or indirectly acquires additional interests in MSV (or its successors) from a
party who is a limited partner of MSV on the date hereof (a "Subsequent MSV
Purchase"), Motient will make a capital contribution to Sub which will issue to
Columbia as additional consideration hereunder (the "Additional Consideration")
for the purchase of the Blocker Corp Shares, a number of shares of Motient
Common Stock equal to the product of (i) the number of MSV limited partnership
units held by Blocker Corp immediately prior to the Closing, multiplied by (ii)
a fraction, the numerator of which is the number of Blocker Corp Shares acquired
by Sub hereunder and the denominator of which is the number of issued and
outstanding shares of Blocker Corp Common Stock as of the Closing, multiplied by
(iii) the difference between (x) the number of shares of Motient Common Stock
issued in the Subsequent MSV Purchase in exchange for each MSV limited
partnership unit directly or indirectly acquired in such Subsequent MSV Purchase
10
and (y) the product of (A) the number of Motient Shares, multiplied by (B) a
fraction, the numerator of which is the number of shares of Blocker Corp Common
Stock issued and outstanding as of the Closing and the denominator of which is
the product of the number of Blocker Corp Shares purchased by Sub at Closing and
the number of MSV limited partnership units owned by Blocker Corp as of the
Closing; provided, that if the number in clause (y) above shall be equal to or
greater than the number in clause (x), no additional shares of Motient Common
Stock shall be issuable to Columbia pursuant to this Section 4.4. Any shares of
Motient Common Stock issuable pursuant to this Section 4.4 shall be entitled to
piggyback registration rights granted pursuant to the Registration Rights
Agreement by and among Motient, Sub, Columbia and the other parties thereto
dated as of the date hereof (the "Rights Agreement"), a form of which is
attached as Exhibit B hereto. Notwithstanding the foregoing, if the issuance of
shares of Motient Common Stock pursuant to this Section 4.4 would require
Columbia or any affiliate of Columbia to obtain regulatory approval prior to
receiving such shares, such issuance will not occur if and until such time as
such regulatory approval has been obtained. Columbia hereby agrees and
acknowledges that no Additional Consideration is owed to it pursuant to this
Section 4.4 due to the transactions contemplated by the Merger Agreement or the
other Stock Purchase Agreements (defined below).
Section 4.5. Motient Rights Offering. After the Closing, Motient may
issue up to 2,500,000 shares of Motient Common Stock at a purchase price per
share of $8.57 to its stockholders of record on December 17, 2004 pursuant to a
rights offering (the "Rights Offering"). The Motient Shares to be issued to
Columbia at Closing, will be issued to Columbia after the record date for such
Rights Offering and Columbia hereby acknowledges that it has no right to
participate in the Rights Offering.
Section 4.6. Designation of Director. Pursuant to the Merger Agreement
and this and the other Stock Purchase Agreements dated as of the date hereof by
and among Motient, Sub and each of Columbia Capital Equity Partners III (QP),
L.P., Columbia Capital Equity Partners III (AI), L.P., Columbia Capital Equity
Partners III (CAYMAN), L.P., Columbia Capital Investors III, LLC, Columbia
Capital Employee Investors III, L.L.C., Spectrum Space Equity Investors IV,
L.P., Spectrum IV Investment Managers' Fund, L.P. and Spectrum Equity Investors
Parallel IV, L.P. (collectively, the "Stock Purchase Agreements"), the members
of the Telcom Investor Group, the Columbia Investor Group and the Spectrum
Investor Group (as such terms are defined in the MSV Stockholders' Agreement)
are transferring to Motient or affiliates of Motient more than five percent (5%)
Percentage Interests (as such term is defined in the MSV Stockholders'
Agreement), and in connection herewith and therewith, hereby expressly transfer
to Motient such Investor Group's right to designate one director of MSV GP
pursuant to Section 2(b)(i) of the MSV Stockholders' Agreement, which director
shall be designated by Motient as transferee of such Investor Groups.
Section 4.7. Right to Transfer.. Subject to compliance with applicable
securities laws, nothing contained in this Agreement, the Rights Agreement or
any other agreement to which Motient and Columbia are parties shall be deemed to
prevent or restrict Columbia or its transferees from selling or transferring the
Motient Shares, the Motient Warrants or the Warrant Shares in a transaction
exempt from the registration requirements of the Securities Act at any time when
a registration statement covering the resale of the Motient Shares and/or
Motient Warrants is not effective or the use thereof has been suspended by
Motient.
11
Section 4.8. Independent Evaluation of Investment..
(a) The parties intend that this Agreement and the transactions
contemplated thereby be consistent with the conditions and restrictions
applicable to the parties and/or their affiliates either pursuant to MSV GP's,
MSV's and/or TerreStar's organizational documents and/or pursuant to the
agreements between or among MSV GP's, MSV's and/or TerreStar's stockholders
and/or partners, as applicable, including without limitation the Other Documents
(collectively, the "Investor Agreements").
(b) Each of the parties hereto has made an independent evaluation of
each of the Investor Agreements' conditions and restrictions that are or may be
applicable or relevant to the transactions contemplated by this Agreement and
each acknowledges and agrees (i) that it is not relying on any representation,
warranty or evaluation by any other party to this Agreement with respect thereto
and (ii) that it believes in good faith that the Investor Agreements' conditions
and restrictions have been satisfied and/or are consistent with the transactions
contemplated by this Agreement. Notwithstanding any other provision of this
Agreement, it is the intention and agreement of the parties hereto that each
will bear its own risk and responsibility with respect to any such conditions
and restrictions applicable to it, without recourse to any other party pursuant
to the terms of this Agreement, including, without limitation, pursuant to
Article V hereof, provided that nothing herein shall limit in any way the
ability of a party hereto to seek equitable remedies in the event the transfers
hereunder (including but not limited to the indirect transfers of interests in
MSV, MSV GP or TerreStar) are held not to be valid, binding and enforceable.
ARTICLE V
Indemnification
Section 5.1. Survival of Representations and Warranties. The
warranties, representations, covenants and agreements of Motient, Sub and
Columbia contained in or made pursuant to this Agreement shall survive the
execution and delivery of this Agreement and the Closing, for a period of twelve
(12) months (the "Survival Period"), and shall in no way be affected by any
investigation of the subject matter thereof made by any party hereto.
Section 5.2. Obligation to Indemnify.
(a) Columbia Obligation to Indemnify. From and after the Closing,
Columbia shall indemnify, defend and hold harmless Motient, Sub and their
respective officers, directors, stockholders, partners, employees, subsidiaries,
agents and affiliates (each, a "Motient Indemnitee"), from and against all
losses, claims, damages, liabilities, obligations, fines, penalties, judgments,
settlements, costs, expenses and disbursements (including attorneys',
accountants' and investigatory fees and expenses) (collectively, "Losses") to
the extent resulting from any (i) breach or inaccuracy of any representation or
warranty of Columbia contained in the Agreement for which a claim is initiated
prior to the expiration of the Survival Period; (ii) non-fulfillment or breach
of any covenant or agreement of Columbia contained in this Agreement, (iii)
except as contemplated by Section 4.8 hereof, any action or inaction, or the
operation or conduct of business of Columbia or Blocker Corp prior to the
Closing; (iv) for any interest and penalties (but not taxes or any other Losses)
12
("Deficiency Interest and Penalties"), attributable to any underpayment of tax
by Blocker Corp, as such interest and penalties are finally determined as a
result of any taxing authority's challenge to the valuation of the Rights
Certificates distributed by Blocker Corp to Columbia on December 20, 2004; or
(v) any Deficiency Interest and Penalties (but not taxes or any other Losses),
incurred in connection with Blocker Corp distributing such Rights Certificates,
or any common stock, or other equity securities in TerreStar received upon
conversion of such Rights Certificates, as applicable, to the stockholders of
Blocker Corp after the date hereof pro rata based upon the respective ownership
of each of the stockholders in the Blocker Corp; provided with respect to this
Section 5.2(a)(v) only, that Columbia initiated such request for distribution of
the Rights Certificates, or any common stock, or other equity securities in
TerreStar to the stockholders of the Blocker Corp and each Motient Indemnitee
reasonably cooperates to effectuate such distribution promptly upon request by
Columbia. Any indemnification by Columbia pursuant this Section 5.2(a)(iv) or
5.2(a)(v) shall be satisfied in full by Columbia making, at its sole discretion,
either a (A) payment to Motient in the amount of any such Tax Interests and
Penalties for which Motient Indemnitees are entitled to indemnification
hereunder or (B) capital contribution to the Blocker Corp in the amount of all
such Tax Interests and Penalties incurred by the Blocker Corp.
(b) Motient's Obligation to Indemnify. From and after the Effective
Time, Motient and Sub, jointly and severally, shall indemnify, defend and hold
harmless Columbia and its officers, directors, managers, partners, members,
employees, agents and affiliates (each, a "Columbia Indemnitee") from and
against any and all Losses to the extent resulting from or relating to any (i)
breach or inaccuracy of any representation or warranty of Motient or Sub
contained in this Agreement for which a claim is initiated prior to the
expiration of the Survival Period or (ii) non-fulfillment or breach of any
covenant or agreement of Motient or Sub contained in this Agreement.
(c) Indemnification Basket Amount. Notwithstanding the foregoing, an
Indemnifying Party (defined below) shall not be required to indemnify an
Indemnified Party (defined below) pursuant to Section 5.2(a) or Section 5.2(b),
as applicable, unless and until the amount of all Losses incurred by such
Indemnified Party exceeds $_________ in the aggregate (the "Basket Amount"), in
which case the Indemnifying Party shall be required to indemnify the Indemnified
Party for any and all such Losses (including the Basket Amount); provided,
however that the limitation set forth in this Section 5.2(c) shall not apply to
any Losses resulting from a breach of the representations and warranties set
forth in Sections 2.2, 2.3, 2.7, 2.10, 2.11, 3.2, 3.3, 3.4, 3.5, 3.9 and 3.11 or
Deficiency Interest and Penalties pursuant to Section 5.2(a)(iv) or 5.2(a)(v).
Section 5.3. Indemnification Procedures.
(a) The person seeking indemnification hereunder (each, an "Indemnified
Party") shall give the party or parties from whom indemnification is sought or
to be sought (each, an "Indemnifying Party") prompt written notice of any Loss
as to which they have received written notification. If an indemnification claim
involves a claim by a third party (a "Third Party Claim"), the Indemnified Party
shall promptly notify the Indemnifying Party thereof in writing; provided,
however, that no delay on the part of the Indemnified Party in notifying the
Indemnifying Party shall relieve the Indemnifying Party from any obligation
hereunder unless (and then solely to the extent) the Indemnifying Party is
actually and materially prejudiced thereby. An Indemnifying Party shall have ten
13
business days from the delivery of such notice (the "Notice Response Period") to
notify the Indemnified Party whether or not it disputes its liability to the
Indemnified Party hereunder with respect to such claim or demand. If an
Indemnifying Party disputes its liability to an Indemnified Party hereunder with
respect to such claim or demand or the amount thereof, such dispute shall be
resolved by a civil action in a court of appropriate jurisdiction (including as
part of any proceeding with respect to the claim that gave rise to the
indemnification claim to which such dispute relates) which may be commenced by
either party. During the Notice Response Period, no such claim or demand may be
settled by the Indemnified Party.
(b) With respect to each Indemnification Matter (as defined below), the
Indemnified Parties will have the sole right and authority to control the
defense against any Third Party Claim with one counsel of their collective
choice. This right shall include the right to settle or resolve the Third Party
Claim by entering into an agreement memorializing the terms of settlement or
resolution (a "Settlement Agreement"), provided however, that the Indemnified
Party provides the Indemnifying Party with notice (in accordance with Section
5.4 hereof) of its intent to enter into a Settlement Agreement, which notice
shall include the proposed terms of the Settlement Agreement. The Indemnifying
Party shall, within ten business days of receipt of such notice, have the right
to reject the proposed Settlement Agreement, but shall do so only if it
reasonably determines that the Settlement Agreement does not represent a bona
fide and reasonable resolution of the underlying Third Party Claim. The
Indemnifying Party (and any Indemnified Party who is not otherwise satisfied
with the one counsel chosen by the Indemnified Parties collectively) may retain
separate co-counsel at their sole cost and expense and participate in the
defense of the Third Party Claim; provided, however, that in no event may any
Indemnifying Party consent to the entry of any judgment, enter into any
settlement with respect to the Third Party Claim or agree with any Person other
than the Indemnified Party, to take any other action with respect to the Third
Party Claim without the prior written consent of the Indemnified Party . If it
is determined pursuant to an order or settlement agreement that an Indemnifying
Party is responsible for all or a portion of any amounts for which the
Indemnified Party is liable as a result of such Third Party Claim hereunder, the
Indemnifying Party shall, pursuant to Section 5.4(b), render payment to the
Indemnified Party for all Losses resulting from such claim, subject to the
provisions of Section 5.5.
Section 5.4. Notices and Payments.
With respect to each separate matter which is subject to
indemnification under this Section 5 (each, an "Indemnification Matter"):
(a) Notice. Upon the Indemnified Party's receipt of written documents
pertaining to an Indemnification Matter, or, if the Indemnification Matter does
not involve a third party demand or claim, within a reasonable time after the
Indemnified Party first has actual knowledge of such Indemnification Matter, the
Indemnified Party shall give written notice to the Indemnifying Party of the
nature of such Indemnification Matter, and, if susceptible to estimation at such
time, the Indemnified Party's best estimate of the amount demanded or claimed in
connection therewith as provided in Section 5.3; provided, however, that no
delay on the part of the Indemnified Party in notifying the Indemnifying Party
shall relieve the Indemnifying Party from any obligation hereunder unless (and
then solely to the extent) the Indemnifying Party is actually and materially
prejudiced thereby.
14
(b) Payment. Upon determination of the amount of the Loss (whether due
to the Indemnifying Party's failure to dispute the indemnification matter, by
agreement among the parties, or after a settlement agreement is executed or a
final order is rendered with respect to the indemnification matter), the
Indemnifying Party shall promptly (and in any event, not later than ten days
after such determination) pay to the Indemnified Party all amounts owing by the
Indemnifying Party under this Section 5 with respect to such indemnification
matter, subject to the limitations set forth in Section 5.5.
Section 5.5. Limited Remedy.
(a) Motient Indemnitee Indemnification Limit. The maximum amount all
Motient Indemnitees may recover pursuant to the indemnity set forth in Section
5.2(a) hereof shall be limited to the value of the Motient Shares based on the
closing sales price of Motient Common Stock on the pink sheets on the date
hereof, plus the value of any shares of Motient Common Stock issued as
Additional Consideration as determined using the closing sales price of Motient
Common Stock on the pink sheets on the date such Additional Consideration is
issued to Columbia.
(b) Columbia Indemnitee Indemnification Limit. The maximum amount all
Columbia Indemnitees may recover in the aggregate pursuant to the indemnity set
forth in Section 5.2(b) shall be limited to the value of the Motient Shares
based on the closing sales price of Motient Common Stock on the pink sheets on
the date hereof, plus the value of any shares of Motient Common Stock issued as
Additional Consideration as determined using the closing sales price of Motient
Common Stock on the pink sheets on the date such Additional Consideration is
issued to Columbia.
ARTICLE VI
Miscellaneous
Section 6.1. Expenses. Whether or not the transactions contemplated
hereby are consummated, all costs and expenses incurred in connection with this
Agreement and the transactions contemplated hereby and thereby shall be paid by
the party incurring such expenses.
Section 6.2. Counterparts: Effectiveness. This Agreement may be
executed in two or more consecutive counterparts, each of which shall be an
original, with the same effect as if the signatures thereto and hereto were upon
the same instrument, and shall become effective when one or more counterparts
have been signed by each of the parties and delivered (by telecopy or otherwise)
to the other parties.
Section 6.3. Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Delaware without regard to
the principles of conflicts of laws thereof.
Section 6.4. Notices. Any notices, reports or other correspondence
(hereinafter collectively referred to as "correspondence") required or permitted
to be given hereunder shall be given in writing and shall be deemed given three
business days after the date sent by certified or registered mail (return
receipt requested), one business day after the date sent by overnight courier or
on the date given by telecopy (with confirmation of receipt) or delivered by
hand, to the party to whom such correspondence is required or permitted to be
given hereunder.
15
To Motient or Sub:
Motient Corporation
300 Knightsbridge Parkway
Lincolnshire Parkway
Lincolnshire, IL 60069
Facsimile: (847) 478-4810
Attention: General Counsel
with a copy (which shall not constitute notice) to:
Andrews Kurth LLP
600 Travis Street, Suite 4200
Houston, Texas 77002
Telecopy: (713) 220-4285
Attention: Mark Young
To Columbia:
[Fund]
[address]
with a copy (which shall not constitute notice) to:
Edwards & Angell, LLP
101 Federal Street
Boston, MA 02110 USA
Telecopy: (617) 439-4170
Attention: Stephen O. Meredith
Section 6.5. Assignment; Binding Effect. Neither this Agreement nor any
of the rights, interests or obligations hereunder shall be assigned by any of
the parties hereto (whether by operation of law or otherwise) without the prior
written consent of the other parties. Subject to the preceding sentence, this
Agreement shall be binding upon and shall inure to the benefit of the parties
hereto and their respective successors and assigns.
Section 6.6. Severability. Any term or provision of this Agreement
which is invalid or unenforceable in any jurisdiction shall, as to that
jurisdiction, be ineffective to the extent of such invalidity or
unenforceability without rendering invalid or unenforceable the remaining terms
and provisions of this Agreement in any other jurisdiction. If any provision of
this Agreement is so broad as to be unenforceable, such provision shall be
interpreted to be only so broad as is enforceable.
16
Section 6.7. Entire Agreement; Non-Assignability; Parties in Interest.
This Agreement and the documents and instruments and other agreements
specifically referred to herein or delivered pursuant hereto, including the
Exhibits, the Schedules and the Columbia Disclosure Schedule: (a) constitute the
entire agreement among the parties with respect to the subject matter hereof and
supersede all prior agreements and understandings, both written and oral, among
the parties with respect to the subject matter hereof; (b) are not intended to
confer upon any other person any rights or remedies hereunder; and (c) shall not
be assigned by operation of law or otherwise except as otherwise specifically
provided.
Section 6.8. Headings. Headings of the Articles and Sections of this
Agreement are for convenience of the parties only, and shall be given no
substantive or interpretive effect whatsoever.
Section 6.9. Certain Definitions. References in this Agreement to
"subsidiaries" of Columbia, Motient or Sub shall mean any corporation or other
form of legal entity of which more than 50% of the outstanding voting securities
are on the date hereof directly or indirectly owned by a Columbia, Motient or
Sub, as the case may be. References in this Agreement (except as specifically
otherwise defined) to "affiliates" shall mean, as to any person, any other
person which, directly or indirectly, controls, or is controlled by, or is under
common control with, such person. As used in this definition, "control"
(including, with its correlative meanings, "controlled by" and "under common
control with") shall mean the possession, directly or indirectly, of the power
to direct or cause the direction of management or policies of a person, whether
through the ownership of securities or partnership of other ownership interests,
by contract or otherwise. References in the Agreement to "person" shall mean an
individual, a corporation, a partnership, an association, a trust or any other
entity or organization, including, without limitation, a governmental body or
authority.
Section 6.10. Amendments and Waivers. Any term of this Agreement may be
amended and the observance of any term of this Agreement may be waived (either
generally or in a particular instance and either retroactively or
prospectively), only with the written consent of each of the parties hereto.
[Signature Pages Follow]
17
IN WITNESS WHEREOF, the parties hereto have caused this Stock Purchase
Agreement to be duly executed and delivered as of the date first above written.
MOTIENT CORPORATION
By:/s/ Christopher Downie
------------------------------------------
Name: Christopher Downie
Title: Executive Vice President and Chief
Operating Officer
MVH HOLDINGS INC.
By:/s/ Christopher Downie
-----------------------------------------
Name: Christopher Downie
Title: Executive Vice President and Chief
Operating Officer
PURCHASER
[SIGNATURE PAGE TO STOCK PURCHASE AGREEMENT]
Schedule A
Columbia Disclosure Schedule
Exhibit A
Form of Motient Warrant
Exhibit B
Registration Rights Agreement
Exhibit C
Blocker Corp Stockholders Agreement
Exhibit D
Amended and Restated Consent Agreement
Exhibit 10.59
MOTIENT CORPORATION
REGISTRATION RIGHTS AGREEMENT
This REGISTRATION RIGHTS AGREEMENT (this "Agreement") is made as of
February 9, 2005 by and among MOTIENT CORPORATION, a Delaware corporation, (the
"Company"), the Telcom Stockholders (defined below), Spectrum (defined below)
and Columbia (defined below) (each such stockholder, individually, an "Investor"
and, collectively, the "Investors").
WHEREAS, the Company has agreed to issue 8,187,804 shares (the "Telcom
Shares") of its common stock, $0.01 par value per share (including any
securities into which or for which such shares may be exchanged for, or
converted into, pursuant to any stock dividend, stock split, stock combination,
recapitalization, reclassification, reorganization or other similar event, the
"Common Stock"), to the Telcom Stockholders in connection with the merger of
Telcom Satellite Ventures Inc. ("Telcom I") and Telcom Satellite Ventures II
Inc. ("Telcom II") with and into MVH Holdings Inc. ("MVH"), a Delaware
corporation and wholly-owned subsidiary of the Company pursuant to the Agreement
and Plan of Merger dated February 9, 2005 by and between the Company, Telcom I,
Telcom II and MVH (the "Merger Agreement"); and
WHEREAS, the Company has also agreed to acquire, through MVH, shares of
common stock of several different corporations pursuant to certain Stock
Purchase Agreements (defined below), pursuant to which the Company will issue an
aggregate of 2,706,992 shares of Common Stock to Columbia (the "Columbia
Shares") and 1,809,995 shares of Common Stock to Spectrum (the "Spectrum Shares"
and, together with the Telcom Shares and Columbia Shares, the "Shares"); and
WHEREAS, the terms of the Merger Agreement and the Stock Purchase
Agreements provide that it shall be a condition precedent to the closing of the
transactions contemplated thereunder, for the Company and the Investors to
execute and deliver this Agreement.
NOW, THEREFORE, in consideration of the premises and mutual covenants
contained herein, the parties hereto hereby agree as follows:
1. DEFINITIONS. The following terms shall have the meanings provided
therefor below or elsewhere in this Agreement as described below:
"Additional Consideration Shares" means shares of Common Stock issuable
as Additional Merger Consideration (as such term is defined in Section 2.1(c) of
the Merger Agreement) or shares of Common Stock issuable as Additional
Consideration (as such term is defined in Section 4.4 of each Stock Purchase
Agreement).
"Affiliates" means any Person that, directly or indirectly, through one
or more intermediaries, controls, is controlled by, or is under common control
with, a Person, as such terms are used and construed under Rule 144.
1
"Board" means the board of directors of the Company.
"Business Day" means any day except Saturday, Sunday and any day which
shall be a federal legal holiday or a day on which banking institutions in the
State of Delaware are authorized or required by law or other governmental action
to close.
"Closing Date" shall mean the date hereof.
"Columbia" shall mean Columbia Capital Equity Partners III (QP), L.P.,
Columbia Capital Equity Partners III (AI), L.P., Columbia Capital Equity
Partners III (CAYMAN), L.P., Columbia Capital Investors III, LLC and Columbia
Capital Employee Investors III, L.L.C.
"Exchange Act" means the Securities Exchange Act of 1934, as amended,
and all of the rules and regulations promulgated thereunder.
"Person" (whether or not capitalized) means an individual, partnership,
limited liability company, corporation, association, trust, joint venture,
unincorporated organization, and any government, governmental department or
agency or political subdivision thereof.
"Prospectus" means the prospectus included in any Registration
Statement (including, without limitation, a prospectus that includes any
information previously omitted from a prospectus filed as part of an effective
Registration Statement in reliance upon Rule 430A promulgated under the
Securities Act), as amended or supplemented by any prospectus supplement, with
respect to the terms of the offering of any portion of the Registrable Shares
covered by such Registration Statement, and all other amendments and supplements
to the Prospectus, including post-effective amendments, and all material
incorporated by reference in such Prospectus.
"Registrable Shares" means, at the relevant time of reference thereto,
(i) the Shares, (ii) the Warrant Shares (including any shares of capital stock
that may be issued in respect thereof pursuant to a stock split, stock dividend,
recombination, reclassification or the like) and (iii) the Additional
Consideration Shares (except for purposes of Section 2), provided, however, that
the term "Registrable Shares" shall not include any of the Shares or Warrant
Shares that are actually sold pursuant to a registration statement that has been
declared effective under the Securities Act by the SEC.
"Registration Statement" means the Mandatory S-1 Registration Statement
and any additional registration statements contemplated by this Agreement,
including (in each case) the Prospectus, amendments and supplements to such
registration statement or Prospectus, including pre- and post-effective
amendments, all exhibits thereto, and all material incorporated by reference in
such registration statement or Prospectus.
"Rule 144" means Rule 144 promulgated under the Securities Act and any
successor or substitute rule, law or provision.
2
"SEC" means the Securities and Exchange Commission.
"Securities Act" means the Securities Act of 1933, as amended, and all
of the rules and regulations promulgated thereunder.
"Spectrum" means Spectrum Equity Investors IV, L.P., Spectrum IV
Investment Managers' Fund, L.P. and Spectrum Equity Investors Parallel IV, L.P.
"Stock Purchase Agreements" means the Stock Purchase Agreements dated
as of the date hereof by and among the Company, MVH Holdings Inc. and each of
the Spectrum entities and the Columbia entities.
"Telcom Stockholders" means Dr. Rajendra Singh, Neera Singh, The Hersh
Raj Singh Education Trust and The Samir Raj Singh Education Trust.
"Warrants" means the warrants to purchase Common Stock, dated as of the
date hereof, issued by the Company to the Investors pursuant to the Merger
Agreement and pursuant to the Stock Purchase Agreements, a form of which is
attached as Exhibit A to the Merger Agreement and each Stock Purchase Agreement.
"Warrant Shares" means the shares of Common Stock issued or issuable
upon the exercise of the Warrants.
2. MANDATORY FORM S-1 REGISTRATION.
(a) The Company will use its reasonable best efforts to prepare
and file with the SEC, on or before the date that is three (3) Business Days
following the Closing Date, a pre-effective amendment to the Company's
Registration Statement on Form S-1 (Reg. No. 333- 121862), in substantially the
form provided to the Investors, for the purpose of registering under the
Securities Act all of the Registrable Shares for resale by, and for the account
of, each Investor as an initial selling stockholder thereunder (the "Mandatory
S-1 Registration Statement"). The Mandatory S-1 Registration Statement shall
permit the Investors to offer and sell, on a delayed or continuous basis
pursuant to Rule 415 under the Securities Act, any or all of the Registrable
Shares. The Company agrees to use its reasonable best efforts to cause the
Mandatory S-1 Registration Statement to be declared effective as soon as
practicable after the date of such filing (including filing with the SEC, within
three (3) Business Days of the date that the Company is notified (orally or in
writing, whichever is earlier) by the SEC that the Mandatory S-1 Registration
Statement will not be "reviewed" or will not be subject to further review, a
request for acceleration of effectiveness in accordance with Rule 461
promulgated under the Securities Act (an "Acceleration Request"), which request
shall request an effective date that is within three (3) Business Days of the
date of such request). The Company shall notify each Investor in writing
promptly (and in any event within one (1) Business Day) after the Company's
submission of an Acceleration Request to the SEC. The Company shall use its
reasonable best efforts to keep the Mandatory S-1 Registration Statement
continuously effective (including through the filing of any required
post-effective amendments) until the earliest to occur of: (i) the date on which
the Investors may sell all Registrable Shares pursuant to Rule 144 without being
3
subject to the volume restrictions of such rule, (ii) the date after which all
of the Registrable Shares registered thereunder shall have been sold, or (iii)
the second (2nd) anniversary of the Closing Date; provided, that in any case
such date shall be extended by the amount of time of any Suspension Period (as
defined below). Thereafter, the Company shall be entitled to withdraw the
Mandatory S-1 Registration Statement and, upon such withdrawal, the Investors
shall have no further right to offer or sell any of the Registrable Shares
pursuant to the Mandatory S-1 Registration Statement (or any prospectus relating
thereto). For purposes of the Company's reasonable best efforts obligations in
this Section 2(a), the Company shall use its reasonable best efforts to avoid
taking any action or failing to take any action, that could reasonably lead to a
material delay in the effectiveness of the Mandatory S-1 Registration Statement,
such as filing other registration statements, engaging in business transactions
that could have such an effect, and failing to complete and file with the SEC as
required its audited year end 2004 financial statements.
(b) Notwithstanding anything in this Section 2 to the contrary, if
the Company shall furnish to the Investors a certificate signed by the President
or Chief Executive Officer of the Company, or the person performing such
functions, stating that the Board has made the good faith determination (i) that
the continued use by the Investors of the Mandatory S-1 Registration Statement
for purposes of effecting offers or sales of Registrable Shares pursuant hereto
would require, under the Securities Act and the rules and regulations
promulgated thereunder, premature disclosure in the Mandatory S-1 Registration
Statement (or the Prospectus relating thereto) of material, nonpublic
information concerning the Company, its business or prospects or any proposed
material transaction involving the Company, (ii) that such premature disclosure
would be materially adverse to the Company, its business or prospects or any
such proposed material transaction or would not be in the best interests of the
Company and (iii) that it is therefore essential to suspend the use by the
Investors, of the Mandatory S-1 Registration Statement (and the Prospectus
relating thereto), then the right of the Investors to use the Mandatory S-1
Registration Statement (and the Prospectus relating thereto) for purposes of
effecting offers or sales of Registrable Shares pursuant thereto shall be
suspended for a period (the "Suspension Period") not greater than fifteen (15)
consecutive Business Days during any consecutive twelve (12) month period.
During the Suspension Period, the Investors shall not offer or sell any
Registrable Shares pursuant to or in reliance upon the Mandatory S-1
Registration Statement (or the Prospectus relating thereto). The Company agrees
that, as promptly as possible, but in no event later than one (1) Business Day,
after the consummation, abandonment or public disclosure of the event or
transaction that caused the Company to suspend the use of the Mandatory S-1
Registration Statement (and the Prospectus relating thereto) pursuant to this
Section 2(b), the Company will as promptly as possible lift any suspension,
provide the Investors with revised Prospectuses, if required, and will notify
the Investors of their ability to effect offers or sales of Registrable Shares
pursuant to or in reliance upon the Mandatory S-1 Registration Statement.
(c) It shall be a condition precedent to the obligations of the
Company to register Registrable Shares for the account of an Investor pursuant
to this Section 2 or Section 3 that such Investor furnish to the Company such
information regarding itself, the Registrable Securities held by it, and the
method of disposition of such securities as shall be required to effect the
registration of such Investor's Registrable Securities.
4
(d) Notwithstanding anything in this Agreement to the contrary,
the Investors' sole remedy at law (but without in any way or form limiting the
availability of equitable remedies) for the failure of the Company to file the
Mandatory S-1 Registration Statement within three (3) Business Days after the
date hereof or for the failure of the Company to make effective the Mandatory
S-1 Registration Statement as soon as practicable after the date the Mandatory
S-1 Registration Statement is filed, shall be the vesting of the Warrants as
provided for therein.
3. PIGGYBACK REGISTRATION.
(a) If at any time any Registrable Shares are not able to be
resold pursuant to an effective Registration Statement, including prior to the
date the Mandatory S-1 Registration Statement is declared effective, and the
Company proposes to register any of its Common Stock under the Securities Act,
whether as a result of an offering for its own account or the account of others
(but excluding any registrations to be effected on Forms S-4 or S-8 or other
applicable successor Forms), the Company shall, each such time, give to the
Investors twenty (20) days' prior written notice of its intent to do so, and
such notice shall describe the proposed registration and shall offer such
Investors the opportunity to register such number of Registrable Shares as each
such Investor may request. Upon the written request of any Investor given to the
Company within fifteen (15) days after the receipt of any such notice by the
Company, the Company shall include in such Registration Statement all or part of
the Registrable Shares of such Investor, to the extent requested to be
registered and subject to subsection (b) below.
(b) If a registration pursuant to Section 3 hereof involves an
underwritten offering and the managing underwriter shall advise the Company in
writing that, in its opinion, the number of shares of Common Stock requested by
the Investors to be included in such registration is likely to affect materially
and adversely the success of the offering or the price that would be received
for any shares of Common Stock offered in such offering, then, notwithstanding
anything in this Section 3 to the contrary, the Company shall only be required
to include in such registration, to the extent of the number of shares of Common
Stock which the Company is so advised can be sold in such offering, (i) first,
the number of shares of Common Stock requested to be included in such
registration for the account of any stockholders of the Company (including the
Investors), pro rata among such stockholders on the basis of the number of
shares of Common Stock that each of them has requested to be included in such
registration, and (ii) second, any shares of Common Stock proposed to be
included in such registration for the account of the Company.
(c) In connection with any offering involving an underwriting of
shares, the Company shall not be required under this Section 3 or otherwise to
include the Registrable Shares of any Investor therein unless such Investor
accepts and agrees to the terms of the underwriting, which shall be reasonable
and customary, as agreed upon between the Company and the underwriters selected
by the Company.
4. OBLIGATIONS OF THE COMPANY. In connection with the Company's
registration obligations hereunder, the Company shall, as expeditiously as
practicable:
5
(a) (i) furnish to each Investor copies of all documents filed
with the SEC not less than two (2) Business Days prior to their being filed with
the SEC, (ii) use commercially reasonable efforts to cause its officers and
directors, counsel and certified public accountants to respond to such inquiries
as shall be necessary, in the reasonable opinion of such Investor, to conduct a
reasonable investigation within the meaning of the Securities Act, and (iii)
notify the Investors of any stop order issued or threatened by the SEC and use
best efforts to prevent the entry of such stop order or to remove it if entered.
(b) (i) prepare and file with the SEC such amendments and
supplements, including post-effective amendments, to each Registration Statement
and the Prospectus used in connection therewith as may be necessary to comply
with the Securities Act and to keep the Registration Statement continuously
effective as required herein, and prepare and file with the SEC such additional
Registration Statements or amendments and supplements, including post-effective
amendments, as necessary to register for resale under the Securities Act all of
the Registrable Shares (including naming any permitted transferees of
Registrable Shares as selling stockholders in any such Registration Statement)
as required herein; (ii) cause any related Prospectus to be amended or
supplemented by any required Prospectus supplement, and as so supplemented or
amended to be filed pursuant to Rule 424; (iii) respond as promptly as possible
through its reasonable best efforts to any comments received from the SEC with
respect to each Registration Statement or any amendment thereto and as promptly
as possible through its reasonable best efforts provide the Investors true and
complete copies of all correspondence from and to the SEC relating to the
Registration Statement (other than correspondence containing material nonpublic
information); and (iv) comply with the provisions of the Securities Act and the
Exchange Act with respect to the disposition of all Registrable Shares covered
by such Registration Statement as so amended or in such Prospectus as so
supplemented.
(c) Notify the Investors and legal counsel to the Investors
("Investors' Counsel") as promptly as possible:
(i) when the SEC notifies the Company whether there will be a
"review" of a Registration Statement and whenever the SEC comments in writing on
such Registration Statement; and (ii) when a Registration Statement, or any
post-effective amendment or supplement thereto, has become effective, and after
the effectiveness thereof: (A) of any request by the SEC or any other federal or
state governmental authority for amendments or supplements to the Registration
Statement or Prospectus or for additional information; (B) of the issuance by
the SEC or any state securities commission of any stop order suspending the
effectiveness of the Registration Statement covering any or all of the
Registrable Shares or the initiation of any proceedings for that purpose; and
(C) of the receipt by the Company of any notification with respect to the
suspension of the qualification or exemption from qualification of any of the
Registrable Shares for sale in any jurisdiction, or the initiation or
threatening of any proceeding for such purpose. Without limitation of any
remedies to which the Investors may be entitled under this Agreement, if any of
the events described in Section 4(c)(ii)(A), 4(c)(ii)(B), and 4(c)(ii)(C) occur,
the Company shall use best efforts to respond to and correct the event.
(d) Notify the Investors and their counsel as promptly as possible
of the happening of any event as a result of which the Prospectus included in or
6
relating to a Registration Statement contains an untrue statement of a material
fact or omits any fact necessary to make the statements therein not misleading;
and, thereafter, the Company will as promptly as possible prepare (and, when
completed, give notice to each Investor) a supplement or amendment to such
Prospectus so that, as thereafter delivered to the purchasers of such
Registrable Shares, such Prospectus will not contain an untrue statement of a
material fact or omit to state any fact necessary to make the statements therein
not misleading; provided that upon such notification by the Company, the
Investors will not offer or sell Registrable Shares pursuant to such Prospectus
until the Company has notified the Investors that it has prepared a supplement
or amendment to such Prospectus and delivered copies of such supplement or
amendment to the Investors (it being understood and agreed by the Company that
the foregoing proviso shall in no way diminish or otherwise impair the Company's
obligation to as promptly as possible prepare a Prospectus amendment or
supplement as above provided in this Section 4(d) and deliver copies of same as
above provided in Section 4(h) hereof), and it being further understood that, in
the case of the Mandatory S-1 Registration Statement, any such period during
which the Investors are restricted from offering or selling Registrable Shares
shall constitute a Suspension Period.
(e) Upon the occurrence of any event described in Section 4(d)
hereof, as promptly as possible, prepare a supplement or amendment, including a
post-effective amendment, to the Registration Statement or a supplement to the
related Prospectus or any document incorporated or deemed to be incorporated
therein by reference, and file any other required document so that, as
thereafter delivered, neither the Registration Statement nor such Prospectus
will contain an untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements therein,
in light of the circumstances under which they are made, not misleading.
(f) Use best efforts to avoid the issuance of or, if issued,
obtain the withdrawal of, (i) any order suspending the effectiveness of any
Registration Statement or (ii) any suspension of the qualification (or exemption
from qualification) of any of the Registrable Shares for sale in any
jurisdiction, as promptly as possible (it being understood that, in the case of
the Mandatory S-1 Registration Statement, any period during which the
effectiveness of the Mandatory S-1 Registration Statement or the qualification
of any Registrable Shares is suspended shall constitute a Suspension Period).
(g) Furnish to the Investors and their counsel, without charge, at
least one conformed copy of each Registration Statement and each amendment
thereto, and all exhibits to the extent requested by such Investor or their
counsel (including those previously furnished or incorporated by reference) as
promptly as possible after the filing of such documents with the SEC.
(h) As promptly as possible furnish to each selling Investor,
without charge, such number of copies of a Prospectus, including a preliminary
Prospectus, in conformity with the requirements of the Securities Act, and such
other documents (including, without limitation, Prospectus amendments and
supplements) as each such selling Investor may reasonably request in order to
facilitate the disposition of the Registrable Shares covered by such Prospectus
and any amendment or supplement thereto. The Company hereby consents to the use
of such Prospectus and each amendment or supplement thereto by each of the
selling Investors in connection with the offering and sale of the Registrable
Shares covered by such Prospectus and any amendment or supplement thereto to the
extent permitted by federal and state securities laws and regulations.
7
(i) Use best efforts to register and qualify (or obtain an
exemption from such registration and qualification) the Registrable Shares under
such other securities or blue sky laws of the states of residence of each
Investor and such other jurisdictions as each Investor shall reasonably request,
to keep such registration or qualification (or exemption therefrom) effective
during the periods each Registration Statement is effective, and do any and all
other acts or things which may be reasonably necessary or advisable to enable
each Investor to consummate the public sale or other disposition of Registrable
Shares in such jurisdiction, provided that the Company shall not be required in
connection therewith or as a condition thereto to qualify to do business or to
file a general consent to service of process in any such states or jurisdictions
where it is not then qualified or subject to process.
(j) Cooperate with the Investors to facilitate the timely
preparation and delivery of certificates representing the Registrable Shares to
be delivered to a transferee pursuant to a Registration Statement, which
certificates shall be free, to the extent permitted by the Merger Agreement or
the Purchase Agreement, as applicable, and applicable law, of all restrictive
legends, and to enable such Registrable Shares to be in such denominations and
registered in such names as such Investors may request.
(k) Cooperate with any reasonable due diligence investigation
undertaken by the Investors, any managing underwriter participating in any
disposition pursuant to a Registration Statement, Investors' Counsel and any
attorney, accountant or other agent retained by Investors or any managing
underwriter, in connection with the sale of the Registrable Shares, including,
without limitation, making available any documents and information; provided,
however, that the Company will not deliver or make available to any Investor
material, nonpublic information unless such Investor specifically requests and
consents in advance in writing to receive such material, nonpublic information
and, if requested by the Company, such Investor agrees in writing to treat such
information as confidential.
(l) At the request of a permitted transferee, the Company shall
amend any Registration Statement to include such transferee as a selling
stockholder in such Registration Statement.
(m) Comply with all applicable rules and regulations of the SEC in
all material respects.
5. EXPENSES OF REGISTRATION. The Company shall pay for all expenses
incurred in connection with a registration pursuant to this Agreement and
compliance with Section 4 of this Agreement, including without limitation (i)
all registration, filing and qualification fees and expenses (including without
limitation those related to filings with the SEC, The NASDAQ Stock Market, or
any national securities exchange upon which the Company's securities are listed
and in connection with applicable state securities or blue sky laws), (ii) all
printing expenses, (iii) all messenger, telephone and delivery expenses incurred
by the Company, (iv) all fees and disbursements of counsel for the Company and
Investors' Counsel, and (v) all fees and expenses of all other Persons retained
by the Company in connection with the consummation of the transactions
contemplated by this Agreement.
8
6. DELAY OF REGISTRATION. Subject to Section 11(d) hereof, the
Investors and the Company (other than with respect to Section 4(d) hereof) shall
not take any action to restrain, enjoin or otherwise delay any registration as
the result of any controversy which might arise with respect to the
interpretation or implementation of this Agreement.
7. INDEMNIFICATION. In the event that any Registrable Shares of the
Investors are included in a Registration Statement pursuant to this Agreement:
(a) To the fullest extent permitted by law, the Company will
indemnify and hold harmless each Investor and each officer, director, fiduciary,
agent, investment advisor, employee, member (or other equity holder), general
partner and limited partner (and Affiliates thereof) of such Investor, each
broker, underwriter or other person acting on behalf of such Investor and each
person, if any, who controls such Investor within the meaning of the Securities
Act, against any losses, claims, damages or liabilities, joint or several, (the
"Losses") to which they may become subject under the Securities Act or
otherwise, insofar as such Losses (or actions in respect thereof) arise out of
or relate to any untrue or alleged untrue statement of any material fact
contained in the Registration Statement, or arise out of or relate to the
omission or alleged omission to state therein a material fact required to be
stated therein, or necessary to make the statements therein not misleading, or
any violation by the Company of the Securities Act or state securities or blue
sky laws applicable to the Company and leading to action or inaction required of
the Company in connection with such registration or qualification under such
Securities Act or state securities or blue sky laws; and, subject to the
provisions of Section 7(c) hereof, the Company will reimburse on demand such
Investor, such broker or other person acting on behalf of such Investor or such
officer, director, fiduciary, employee, member (or other equity holder), general
partner, limited partner, Affiliate or controlling person for any legal or other
expenses reasonably incurred by any of them in connection with investigating or
defending any such loss, claim, damage, liability or action; provided, however,
that the indemnity agreement contained in this Section 7(a) shall not apply to
amounts paid in settlement of any such Losses if such settlement is effected
without the consent of the Company (which consent shall not be unreasonably
withheld), nor shall the Company be liable in any such case for any such loss,
damage, liability or action to the extent that it solely arises out of or is
based upon an untrue statement of any material fact contained in the
Registration Statement or omission to state therein a material fact required to
be stated therein or necessary to make the statements therein not misleading, in
each case to the extent that such untrue statement or alleged untrue statement
or omission or alleged omission was made in the Registration Statement, in
reliance upon and in conformity with written information furnished by such
Investor expressly for use in connection with such Registration Statement.
(b) To the fullest extent permitted by law, each Investor,
severally (as to itself) and not jointly, will indemnify and hold harmless the
Company, each of its directors, each of its officers who have signed the
Registration Statement, each person, if any, who controls the Company within the
9
meaning of the Securities Act, and all other Investors against any Losses to
which the Company or any such director, officer or controlling person or other
Investor may become subject to, under the Securities Act or otherwise, insofar
as such Losses (or actions in respect thereto) solely arise out of or are based
upon any untrue statement of any material fact contained in the Registration
Statement, or solely arise out of or relate to the omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, in each case to the extent that such untrue statement or
alleged untrue statement or omission or alleged omission was made in the
Registration Statement in reliance upon and in conformity with written
information furnished by such Investor expressly for use in connection with such
Registration Statement; and, subject to the provisions of Section 7(d) hereof,
such Investor will reimburse on demand any legal or other expenses reasonably
incurred by the Company or any such director, officer, controlling person, or
other Investor in connection with investigating or defending any such Losses,
provided, however, that the maximum aggregate amount of liability of such
Investor under this Section 7 shall be limited to the proceeds (net of
underwriting discounts and commissions, if any) actually received by such
Investor from the sale of Registrable Shares covered by such Registration
Statement; and provided, further, however, that the indemnity agreement
contained in this Section 7(b) or 7(e)shall not apply to amounts paid in
settlement of any such Losses if such settlement is effected without the consent
of such Investor against which the request for indemnity is being made (which
consent shall not be unreasonably withheld).
(c) As promptly as possible after receipt by an indemnified party
under this Section 7 of notice of the threat, assertion or commencement of any
action, such indemnified party will, if a claim in respect thereof is to be made
against any indemnifying party under this Section 7, notify the indemnifying
party in writing of the commencement thereof and the indemnifying party shall
have the right to participate in and, to the extent the indemnifying party
desires, jointly with any other indemnifying party similarly noticed, to assume
at its expense the defense thereof with counsel mutually satisfactory to the
parties; provided, however, that, the failure to notify an indemnifying party
promptly of the threat, assertion or commencement of any such action shall not
relieve such indemnifying party of any liability to the indemnified party under
this Section 7 except (and only) to the extent that it shall be finally
determined by a court of competent jurisdiction (which determination is not
subject to appeal or further review) that such failure shall have proximately
and materially adversely prejudiced the indemnifying party.
(d) If any indemnified party shall have reasonably concluded that
there may be one or more legal defenses available to such indemnified party
which are different from or additional to those available to the indemnifying
party, or that such claim or litigation involves or could have an effect upon
matters beyond the scope of the indemnity agreement provided in this Section 7,
the indemnifying party shall not have the right to assume the defense of such
action on behalf of such indemnified party, and such indemnifying party shall
reimburse such indemnified party and any person controlling such indemnified
party for the fees and expenses of counsel retained by the indemnified party
which are reasonably related to the matters covered by the indemnity agreement
provided in this Section 7. Subject to the foregoing, an indemnified party shall
have the right to employ separate counsel in any such action and to participate
in the defense thereof but the fees and expenses of such counsel shall not be at
the expense of the Company.
10
(e) If the indemnification provided for in this Section 7 from the
indemnifying party is applicable by its terms but unavailable to an indemnified
party hereunder in respect of any Losses, then the indemnifying party, in lieu
of indemnifying such indemnified party, shall, subject to the maximum aggregate
liability of any Investor as set forth in Section 7(b), contribute to the amount
paid or payable by such indemnified party as a result of such losses, claims,
damages, liabilities or expenses in such proportion as is appropriate to reflect
the relative fault of the indemnifying party and indemnified party in connection
with the actions which resulted in such losses, claims, damages, liabilities or
expenses, as well as any other relevant equitable considerations. The relative
faults of such indemnifying party and indemnified party shall be determined by
reference to, among other things, whether any action in question, including any
untrue or alleged untrue statement of a material fact or omission or alleged
omission to state a material fact, has been made by, or relates to information
supplied by, such indemnifying party or indemnified party, and the parties'
relative intent, knowledge, access to information and opportunity to correct or
prevent such action. The amount paid or payable by a party as a result of the
losses, claims, damages, liabilities and expenses referred to above shall be
deemed to include, subject to the limitations set forth in Sections 7(a), 7(b)
7(c) and 7(d), any legal or other fees, charges or expenses reasonably incurred
by such party in connection with any investigation or proceeding. No person
guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of
the Securities Act) shall be entitled to contribution from any person. The
parties hereto agree that it would not be just and equitable if contribution
pursuant to this Section 7(e) were determined by pro rata allocation or by any
other method of allocation which does not take account of the equitable
considerations referred to in the immediately preceding paragraph.
(f) The indemnity and contribution agreements contained in this
Section are in addition to any liability that any indemnifying party may have to
any indemnified party.
8. REPORTS UNDER THE EXCHANGE ACT. With a view to making available to
the Investors the benefits of Rule 144 and any other rule or regulation of the
SEC that may at any time permit the Investors to sell the Registrable Shares to
the public without registration, the Company agrees to use best efforts to: (i)
make and keep public information available, as those terms are understood and
defined in Rule 144, (ii) file with the SEC in a timely manner all reports and
other documents required to be filed by an issuer of securities registered under
the Securities Act or the Exchange Act; (iii) as long as any Investor owns any
Shares or Warrant Shares, to furnish in writing upon such Investor's request a
written statement by the Company that it has complied with the reporting
requirements of Rule 144 and of the Securities Act and the Exchange Act, and to
furnish to such Investor a copy of the most recent annual and quarterly reports
of the Company, and such other reports and documents so filed by the Company as
may be reasonably requested in availing such Investor of any rule or regulation
of the SEC permitting the selling of any such Shares without registration, and
(iv) undertake any additional actions reasonably necessary to maintain the
availability of a Registration Statement, including any successor or substitute
forms, or the use of Rule 144.
9. TRANSFER OF REGISTRATION RIGHTS. Each Investor may assign or
transfer any or all of its rights under this Agreement to any Person, provided
such assignee or transferee agrees in writing to be bound by the provisions
hereof that apply to such assigning or transferring Investor. Upon any such, and
each successive, assignment or transfer to any permitted assignee or transferee
in accordance with the terms of this Section 9, such permitted assignee or
transferee shall be deemed to be an "Investor" for all purposes of this
Agreement.
11
10. ENTIRE AGREEMENT. This Agreement constitutes and contains the
entire agreement and understanding of the parties with respect to the subject
matter hereof, and it also supersedes any and all prior negotiations,
correspondence, agreements or understandings with respect to the subject matter
hereof.
11. MISCELLANEOUS.
(a) This Agreement, and any right, term or provision contained
herein, may not be amended, modified or terminated, and no right, term or
provision may be waived, except with the written consent of each Investor and
the Company; provided that any particular Investor (as compared to all Investors
as a group) may pursue remedies, settle disputes and otherwise enforce or waive
rights as to such Investor whether or not any of the other Investors participate
in such action, as long as such action relates only to the rights of such
Investor and does not modify or waive the rights of any of the other Investors.
(b) This Agreement shall be governed by and construed and enforced
in accordance with the laws of the State of Delaware. This Agreement shall be
binding upon the parties hereto and their respective heirs, personal
representatives, successors and permitted assigns and transferees, provided that
the terms and conditions of Section 9 hereof are satisfied. Notwithstanding
anything in this Agreement to the contrary, if at any time any Investor
(including any successors or assigned) shall cease to own any Registrable
Shares, all of such Investor's rights under this Agreement shall immediately
terminate.
(c) Any notices to be given pursuant to this Agreement shall be in
writing and shall be given by certified or registered mail, return receipt
request. Notices shall be deemed given when personally delivered or when mailed
to the addresses of the respective parties as set forth on Exhibit A or Schedule
1 hereto, as applicable, or to such changed address of which any party may
notify the others pursuant hereto, except that a notice of change of address
shall be deemed given when received.
(d) The parties acknowledge and agree that in the event of any
breach of this Agreement, remedies at law will be inadequate, and each of the
parties hereto shall be entitled to specific performance of the obligations of
the other parties hereto and to such appropriate injunctive relief as may be
granted by a court of competent jurisdiction. All remedies, either under this
Agreement or by law or otherwise afforded to any of the parties, shall be
cumulative and not alternative.
(e) This Agreement may be executed in a number of counterparts.
All such counterparts together shall constitute one Agreement, and shall be
binding on all the parties hereto notwithstanding that all such parties have not
signed the same counterpart. The parties hereto confirm that any facsimile copy
of another party's executed counterpart of this Agreement (or its signature page
thereof) will be deemed to be an executed original thereof.
12
(f) Except as contemplated in Section 9 hereof, this Agreement is
intended solely for the benefit of the parties hereto and is not intended to
confer any benefits upon, or create any rights in favor of, any Person
(including, without limitation, any stockholder or debt holder of the Company)
other than the parties hereto.
(g) If any provision of this Agreement is invalid, illegal or
unenforceable, such provision shall be ineffective to the extent, but only to
the extent of, such invalidity, illegality or unenforceability, without
invalidating the remainder of such provision or the remaining provisions of this
Agreement, unless such a construction would be unreasonable.
(h) This Agreement shall be binding upon, and inure to the benefit
of, the parties hereto and their permitted successors and assigns.
[Signature Pages Follow]
IN WITNESS WHEREOF, the parties hereto have executed this Registration
Rights Agreement as of the date and year first above written.
MOTIENT CORPORATION
By: /s/ Christopher Downie
-------------------------------------
Christopher Downie,
Executive Vice President and Chief
Operating Officer
INVESTORS:
/s/ Dr. Rajendra Singh
-----------------------------------
Dr. Rajendra Singh
/s/ Neera Singh
-----------------------------------
Neera Singh
By: Spectrum Equity Associates IV, L.P.,
its General Partner
By: /s/ Kevin J. Maroni
----------------------------
Name: Kevin J. Maroni
Title: General Partner
[SIGNATURE PAGE TO REGISTRATION RIGHTS AGREEMENT]
SPECTRUM IV INVESTMENT MANAGERS' FUND, L.P.
By: /s/ Kevin J. Maroni
----------------------------
Name: Kevin J. Maroni
Title: General Partner
SPECTRUM EQUITY INVESTORS PARALLEL IV, L.P.
By: /s/ Kevin J. Maroni
----------------------------
Name: Kevin J. Maroni
Title: General Partner
COLUMBIA CAPITAL EQUITY PARTNERS III (QP),
L.P.
By: Columbia Capital Equity Partners III,
L.P., as General Partner
By: /s/ Donald A. Doering
-----------------------------
Name: Donald A. Doering
Title: Chief Financial Officer
COLUMBIA CAPITAL EQUITY PARTNERS III (AI),
L.P.
By: Columbia Capital Equity Partners III,
L.P., as General Partner
By: /s/ Donald A. Doering
-----------------------------
Name: Donald A. Doering
Title: Chief Financial Officer
[SIGNATURE PAGE TO REGISTRATION RIGHTS AGREEMENT]
COLUMBIA CAPITAL EQUITY PARTNERS III
(CAYMAN), L.P.
By: Columbia Capital Equity Partners
(Cayman) III, Ltd., as General
Partner
By: /s/ Donald A. Doering
----------------------------
Name: Donald A. Doering
Title: Chief Financial Officer
COLUMBIA CAPITAL INVESTORS III, LLC
By: Columbia Capital Equity Partners III,
L.P., as General Partner
By: /s/ Donald A. Doering
----------------------------
Name: Donald A. Doering
Title: Chief Financial Officer
COLUMBIA CAPITAL EMPLOYEE INVESTORS III,
L.L.C.
By: Columbia Capital III, L.L.C., its
Manager
By: /s/ Donald A. Doering
-------------------------
Name: Donald A. Doering
Title: Chief Financial Officer
[SIGNATURE PAGE TO REGISTRATION RIGHTS AGREEMENT]
Exhibit A
All correspondence to the Company shall be addressed as follows:
Motient Corporation 300 Knightsbridge Parkway Lincolnshire, IL 60069 Attention:
Christopher Downie, Executive Vice President and Chief Operating Officer
Telecopier: (847) 478-4810.
with copies to:
Motient Corporation 300 Knightsbridge Parkway Lincolnshire, IL 60069 Attention:
Robert Macklin, Esq. Telecopy: (847) 478-4810
Andrews Kurth LLP
450 Lexington Avenue
New York, NY 10017
Attention: Paul Silverstein, Esq.
Telecopy: (212) 850-2929
All correspondence to the Investors shall be addressed as set forth in Schedule
1 below
Schedule 1
List of Investors
1. Correspondence to the Telcom Stockholders shall be addressed as follows:
Dr. Rajendra Singh
Neera Singh
The Hersh Raj Singh Education Trust
The Samir Raj Singh Education Trust, with a copy to:
-------------------------------------------------------------------------------
c/o Telcom Ventures, L.L.C. Steel Hector & Davis LLP
201 N. Union Street, Suite 360 200 South Biscayne Blvd., 41st Floor
Alexandria, VA 22314 Miami, Florida 33131-2398
Telecopy: 703-519-2181 Telecopy: (305) 577-7001
Attention: Attention: Serge Martin
--------------------------------------------------------------------------------
2. Correspondence to Columbia shall be addressed as follows:
Columbia Capital Equity Partners III (QP), L.P.
Columbia Capital Equity Partners III (AI), L.P.
Columbia Capital Equity Partners III (CAYMAN), L.P.
Columbia Capital Investors III, LLC
Columbia Capital Employee Investors III, L.L.C., with a copy to:
--------------------------------------------------------------------------------
201 North Union Street Edwards & Angell, LLP
Suite 300 101 Federal Street
Alexandria, Virginia 22314 Boston, MA 02110 USA
Telecopy: (703) 519-3904 Telecopy: (617) 439-4170
Attention James B. Fleming Attention: Stephen O. Meredith
--------------------------------------------------------------------------------
3. Correspondence to Spectrum shall be addressed as follows:
Spectrum Equity Investors IV, L.P.
Spectrum IV Investment Managers' Fund, L.P.
Spectrum Equity Investors Parallel IV, L.P., with a copy to:
--------------------------------------------------------------------------------
One International Place Edwards & Angell, LLP
29th Floor 101 Federal Street
Boston, MA 02110 Boston, MA 02110 USA
Telecopy: (617) 464-4601 Telecopy: (617) 439-4170
Attention: Kevin J. Maroni Attention: Stephen O. Meredith
--------------------------------------------------------------------------------
Exhibit 10.60
NEITHER THIS WARRANT NOR THE SHARES ISSUABLE UPON EXERCISE OF THIS WARRANT HAVE
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE
STATE SECURITIES LAWS AND NEITHER THIS WARRANT NOR THE SHARES ISSUABLE UPON
EXERCISE OF THIS WARRANT MAY BE SOLD OR TRANSFERRED UNLESS THE REGISTRATION
PROVISIONS OF THE SAID ACT AND APPLICABLE STATE SECURITIES LAWS HAVE BEEN
COMPLIED WITH OR UNLESS COMPLIANCE WITH SUCH PROVISIONS IS NOT REQUIRED.
February 9, 2005
MOTIENT CORPORATION
COMMON STOCK PURCHASE WARRANT
Void after February 9, 2010
This Warrant (the "Warrant") entitles ________________ (including any
successors or assigns, the "Holder"), for value received, to purchase from
motient corporation, a Delaware corporation, at any time and from time to time,
subject to the terms and conditions set forth herein, during the period starting
from 5:00 a.m. on the Initial Exercise Date (as defined in Section 1 below) to
5:00 p.m., Eastern time, on the Expiration Date (as defined in Section 1 below),
at which time this Warrant shall expire and become void, all or any portion of
the vested Warrant Shares at the Exercise Price (as defined in Section 1 below).
This Warrant also is subject to the following terms and conditions:
1. Definitions. As used in this Warrant, the following terms shall have
the respective meanings set forth below or elsewhere in this Warrant as referred
to below:
"Affiliate" means any Person that, directly or indirectly, through one
or more intermediaries, controls, is controlled by, or is under common control
with, a Person, as such terms are used and construed under Rule 144, and any
Person (or group of Persons) who share(s) voting or investment power or is (are)
deemed a beneficial owner(s), as such terms are used and construed under Rule
13d-3 of the rules and regulations promulgated under the Securities Exchange Act
of 1934, as amended, including, without limitation, any Person that serves as a
general partner and/or investment adviser or in a similar capacity of a Person.
"Common Stock" means the common stock, $0.01 par value per share, of
the Company (including any securities into which or for which such shares may be
exchanged for, or converted into, pursuant to any stock dividend, stock split,
stock combination, recapitalization, reclassification, reorganization or other
similar event).
1
"Company" means Motient Corporation, a Delaware corporation.
"Exercise Price" means, $22.50 per share of Common Stock, as applicable
and as adjusted from time to time pursuant to the terms of this Warrant.
"Expiration Date" means February 9, 2010.
"Fair Market Value" shall mean (i) if the Common Stock is traded on
Nasdaq, then the last reported sale price per share of Common Stock on The
NASDAQ Stock Market or any national securities exchange in which such Common
Stock is quoted or listed, as the case may be, on the date immediately preceding
each date the Warrant is exercised or, if no such sale price is reported on such
date, such price on the next preceding business day in which such price was
reported, (ii) if the Common Stock is actively traded over-the-counter, then the
average of the closing bid and asked prices over the five (5) trading days ended
on the trading day immediately preceding each date the Warrant is exercised or
(iii) if such Common Stock is not traded, quoted or listed on The NASDAQ Stock
Market or any national securities exchange or the over-the-counter market, then
the fair market value of a share of Common Stock, as determined in good faith by
the Board of Directors of the Company.
"Holder" has the meaning set forth in the preamble of this Warrant.
"Initial Exercise Date" means the date on which this Warrant first
vests in accordance with Section 2.1 hereof.
"Person" (whether or not capitalized) means an individual, entity,
partnership, limited liability company, corporation, association, trust, joint
venture, unincorporated organization, and any government, governmental
department or agency or political subdivision thereof.
"SEC" means the Securities and Exchange Commission
"Shares" means the shares of Common Stock issued pursuant to the Merger
Agreement (including any securities into which or for which such shares may be
exchanged or converted pursuant to any stock dividend, stock split, stock
combination, recapitalization, reclassification, reorganization or other similar
event).
"Merger/Stock Purchase Agreement" means that certain Stock Purchase
Agreement/Agreement and Plan of Merger dated February 9, 2005, by and between
the Company and the other parties thereto.
"Warrant Shares" means an aggregate of _______ shares of Common Stock,
after giving effect to all adjustments thereto provided for herein, including,
without limitation, those set forth in Section 4 hereof.
2
2. Exercise of Warrant.
2.1 Method of Exercise; Vesting. Subject to all of the terms and
conditions hereof (including the vesting provisions set forth below), this
Warrant may be exercised in whole or in part, with respect to then vested
Warrant Shares, at any time and from time to time during the period commencing
on the Initial Exercise Date and ending on the Expiration Date. Exercise shall
be by presentation and surrender to the Company at its principal office, or to
the transfer agent of the Company, of this Warrant and the notice and
subscription form annexed hereto, executed by the Holder, which shall indicate
the number of shares for which the Holder intends to exercise this Warrant,
together with payment to the Company in accordance with Section 3 hereof in an
amount equal to the product of the Exercise Price multiplied by the number of
Warrant Shares being purchased upon such exercise. Upon and as of receipt by the
Company (or the transfer agent) of such properly completed and duly executed
purchase form accompanied by payment as herein provided, the Holder shall be
deemed to be the Holder of record of the Warrant Shares issuable upon such
exercise, notwithstanding that the stock transfer books of the Company shall
then be closed or that certificates representing such Warrant Shares shall not
then actually be, or have been, delivered to the Holder.
This Warrant shall become exercisable with respect to Warrant Shares
("vest") as follows: (i) with respect to 35% of the Warrant Shares, on March 11,
2005, if a registration statement covering the resale of the Shares shall not
have been filed with the SEC by such date, (ii) with respect to an additional
35% of the Warrant Shares, on April 10, 2005, if a registration statement
covering the resale of the Shares shall not have been filed with the SEC by such
date, and (iii) with respect to the remaining 30% of the Warrant Shares, on
August 7, 2005, if a registration statement covering the resale of the Shares
shall not have been declared effective by the SEC by such date and remained
continuously effective through such date or, if later, for a period of not less
than 60 days; provided, however, that if this Warrant does not vest and become
exercisable for any Warrant Shares in accordance with this paragraph, then this
Warrant shall become null and void but shall remain in effect as to all such
Warrant Shares that have vested.
2.2 Delivery of Stock Certificates on Exercise. As soon as practicable
after the exercise of this Warrant, and in any event within three (3) business
days thereafter, the Company, at its expense, and in accordance with applicable
securities laws, will cause to be issued in the name of and delivered to the
Holder, or as the Holder may direct (subject in all cases, to the provisions of
Section 9 hereof), a certificate or certificates for the number of Warrant
Shares purchased by the Holder on such exercise, plus, in lieu of any fractional
share to which the Holder would otherwise be entitled, cash equal to such
fraction multiplied by the Fair Market Value.
2.3 Shares To Be Fully Paid and Nonassessable. All Warrant Shares
issued upon the exercise of this Warrant shall be validly issued, fully paid and
nonassessable, free of all liens, taxes, charges and other encumbrances or
restrictions on sale (other than those set forth herein).
3
2.4 Fractional Shares. No fractional shares of Common Stock or scrip
representing fractional shares of Common Stock shall be issued upon the exercise
of this Warrant. With respect to any fraction of a share of Common Stock called
for upon any exercise hereof, the Company shall make a cash payment to the
Holder as set forth in Section 2.2 hereof.
2.5 Issuance of New Warrants; Company Acknowledgment. Upon any partial
exercise of this Warrant, the Company, at its expense, will forthwith and, in
any event within three (3) business days, issue and deliver to the Holder a new
warrant or warrants of like tenor, registered in the name of the Holder,
exercisable, in the aggregate, for the balance of the Warrant Shares. Moreover,
the Company shall, at the time of any exercise of this Warrant, upon the request
of the Holder, acknowledge in writing its continuing obligation to afford to the
Holder any rights to which the Holder shall continue to be entitled after such
exercise in accordance with the provisions of this Warrant; provided, however,
that if the Holder shall fail to make any such request, such failure shall not
affect the continuing obligation of the Company to afford to the Holder any such
rights.
2.6 Payment of Taxes and Expenses. The Company shall pay any recording,
filing, stamp or similar tax which may be payable in respect of any transfer
involved in the issuance of, and the preparation and delivery of certificates
(if applicable) representing, (i) any Warrant Shares purchased upon exercise of
this Warrant and/or (ii) new or replacement warrants in the Holder's name or the
name of any transferee of all or any portion of this Warrant.
3. Payment of Exercise Price. The Exercise Price for the Warrant Shares
being purchased may be paid (i) in cash, by certified check or by wire transfer
to an account designated in writing by the Company, (ii) by cancellation of
indebtedness owing from the Company to the Holder, (iii) by the Holder
surrendering a number of Warrant Shares having a Fair Market Value on the date
of exercise equal to, greater than (but only if by a fractional share) or less
than the required aggregate Exercise Price, in which case the Holder shall
receive the number of Warrant Shares to which it would otherwise be entitled
upon such exercise, less the surrendered shares, or (iv) any combination of the
methods described in the foregoing clauses (i), (ii) and (iii).
4. Adjustment of Exercise Price. The Exercise Price shall be subject to
adjustment from time to time upon the happening of certain events as follows:
4.1. Subdivision or Combination of Stock. If at any time or from time
to time after the date hereof, the Company shall subdivide (by way of stock
dividend, stock split or otherwise) its outstanding shares of Common Stock, the
Exercise Price in effect immediately prior to such subdivision shall be reduced
proportionately and the number of Warrant Shares (calculated to the nearest
whole share) shall be increased proportionately, and conversely, in the event
the outstanding shares of Common Stock shall be combined (whether by stock
combination, reverse stock split or otherwise) into a smaller number of shares,
the Exercise Price in effect immediately prior to such combination shall be
increased proportionately and the number of Warrant Shares (calculated to the
4
nearest whole share) shall be decreased proportionately. The Exercise Price and
the number of Warrant Shares, as so adjusted, shall be readjusted in the same
manner upon the happening of any successive event or events described in this
Section 4.1.
4.2 Adjustment for Stock Dividends. If at any time after the date
hereof, the Company shall declare a dividend or make any other distribution upon
any class or series of stock of the Company payable in shares of Common Stock or
securities convertible into shares of Common Stock, the Exercise Price and the
number of Warrant Shares to be obtained upon exercise of this Warrant shall be
adjusted proportionately to reflect the issuance of any shares of Common Stock
or convertible securities, as the case may be, issuable in payment of such
dividend or distribution. The Exercise Price and the number of Warrant Shares,
as so adjusted, shall be readjusted in the same manner upon the happening of any
successive event or events described in this Section 4.2. Notwithstanding the
foregoing, no adjustment shall be made with respect to any dividend of stock
purchase rights declared in connection with the issuance of up to up to
2,500,000 shares of Common Stock at a purchase price per share of $8.57 to the
Company's stockholders of record on December 17, 2004 pursuant to its publicly
announced rights offering.
4.3 Adjustments for Reclassifications. If the Common Stock issuable
upon the conversion of this Warrant shall be changed into the same or a
different number of shares of any class(es) or series of stock, whether by
reclassification or otherwise (other than an adjustment under Sections 4.1 and
4.2 or a merger, consolidation, or sale of assets provided for under Section
4.4), then and in each such event, the Holder hereof shall have the right
thereafter to convert each Warrant Share into the kind and amount of shares of
stock and other securities and property receivable upon such reclassification,
or other change by holders of the number of shares of Common Stock into which
such Warrant Shares would have been convertible immediately prior to such
reclassification or change, all subject to successive adjustments thereafter
from time to time pursuant to and in accordance with, the provisions of this
Section 4.
4.4 Adjustments for Merger or Consolidation. In the event that, at any
time or from time to time after the date hereof, the Company shall (a) effect a
reorganization, (b) consolidate with or merge into any other Person, or (c) sell
or transfer all or substantially all of its properties or assets or more than
50% of the voting capital stock of the Company (whether issued and outstanding,
newly issued, from treasury, or any combination thereof) to any other person
under any plan or arrangement contemplating the consolidation or merger, sale or
transfer, or dissolution of the Company, then, in each such case, the Holder,
upon the exercise of this Warrant as provided in Section 2.1 hereof at any time
or from time to time after the consummation of such reorganization,
consolidation, merger or sale or the effective date of such dissolution, as the
case may be, shall receive, in lieu of the Warrant Shares issuable on such
exercise immediately prior to such consummation or such effective date, as the
case may be, the stock and property (including cash) to which the Holder would
have been entitled upon the consummation of such consolidation or merger, or
sale or transfer, or in connection with such dissolution, as the case may be, if
the Holder had so exercised this Warrant immediately prior thereto (assuming the
payment by the Holder of the Exercise Price therefor as required hereby in a
form permitted hereby, which payment
5
shall be included in the assets of the Company for the purposes of determining
the amount available for distribution), all subject to successive adjustments
thereafter from time to time pursuant to, and in accordance with, the provisions
of this Section 4.
4.5 Continuation of Terms. Upon any reorganization, consolidation,
merger or transfer (and any dissolution following any such transfer) referred to
in this Section 4, this Warrant shall continue in full force and effect and the
terms hereof shall be applicable to the shares of Common Stock and other
securities and property receivable upon the exercise of this Warrant after the
consummation of such reorganization, consolidation or merger or the effective
date of dissolution following any such transfer, as the case may be, and shall
be binding upon the issuer of any such Common Stock or other securities or
property, including, in the case of any such transfer, the Person acquiring all
or substantially all of the properties or assets or more than 50% of the voting
capital stock of the Company (whether issued and outstanding, newly issued or
from treasury or any combination thereof), whether or not such Person shall have
expressly assumed the terms of this Warrant.
4.6 Certificate as to Adjustments. Upon the occurrence of each
adjustment or readjustment of the Exercise Price and number of Warrant Shares
pursuant to this Section 4, this Warrant shall, without any action on the part
of the Holder, be adjusted in accordance with this Section 4, and the Company,
at its expense, promptly shall compute such adjustment or readjustment in
accordance with the terms hereof and prepare and furnish to the Holder a
certificate setting forth such adjustment or readjustment, showing in detail the
facts upon which such adjustment or readjustment is based. The Company will
forthwith send a copy of each such certificate to the Holder in accordance with
Section 11.4 below.
5. Registration Rights. The Warrant Shares shall be entitled to
registration rights and all other rights as applicable to such shares in
accordance with that certain Registration Rights Agreement, dated as of the date
hereof by and among the Company and the Investors named therein.
6. Notices of Record Date. Upon (a) any establishment by the Company of
a record date of the holders of any class of securities for the purpose of
determining the holders thereof who are entitled to receive any dividend or
other distribution, or right or option to acquire securities of the Company, or
any other right, or (b) any capital reorganization, reclassification,
recapitalization, merger or consolidation of the Company with or into any other
corporation, any transfer of all or substantially all the assets of the Company,
or any voluntary or involuntary dissolution, liquidation or winding up of the
Company, or the sale, in a single transaction, of a majority of the Company's
voting stock (whether newly issued, or from treasury, or previously issued and
then outstanding, or any combination thereof), the Company shall mail to the
Holder at least ten (10) business days, or such longer period as may be required
by law, prior to the record date specified therein, a notice specifying (i) the
date established as the record date for the purpose of such dividend,
distribution, option or right and a description of such dividend, distribution,
option or right, (ii) the date on which any such reorganization,
reclassification, transfer, consolidation, merger, dissolution, liquidation or
6
winding up, or sale is expected to become effective and (iii) the date, if any,
fixed as to when the holders of record of Common Stock shall be entitled to
exchange their shares of Common Stock for securities or other property
deliverable upon such reorganization, reclassification, transfer, consolidation,
merger, dissolution, liquidation or winding up.
7. Exchange of Warrant. Subject to the provisions of Section 9 hereof
(if and to the extent applicable), this Warrant shall be exchangeable, upon the
surrender hereof by the Holder at the principal office of the Company, for new
warrants of like tenor, each registered in the name of the Holder or in the name
of such other persons as the Holder may direct (upon payment by the Holder of
any applicable transfer taxes). Each of such new warrants shall be exercisable
for such number of Warrant Shares as the Holder shall direct, provided that all
of such new warrants shall represent, in the aggregate, the right to purchase
the same number of Warrant Shares and cash, securities or other property, if
any, which may be purchased by the Holder upon exercise of this Warrant at the
time of its surrender.
8. No Dilution or Impairment. The Company will not, by amendment of its
Certificate of Incorporation or Bylaws or through any reorganization, transfer
of assets, consolidation, merger, dissolution, issue or sale of securities or
any other voluntary action, avoid or seek to avoid the observance or performance
of any of the terms of this Warrant, but will at all times in good faith assist
in the carrying out of all such terms and in the taking of all action as may be
necessary or appropriate in order to protect the rights of the Holder against
dilution, or other impairment.
9. Transfer Provisions, etc.
9.1 Legends. Pursuant to the Merger Agreement, each
certificate representing any Warrant Shares issued upon exercise of this
Warrant, and of any shares of Common Stock into which such Warrant Shares may be
converted, shall bear the following legend:
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE OFFERED OR
SOLD IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT UNDER SAID
ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, or in a transaction not
subject to, REGISTRATION UNDER SAID ACT."
9.2 Mechanics of Transfer.
(a) Any transfer of all or any portion of this Warrant (and the
Warrant Shares), or of any interest herein or therein, that is otherwise in
compliance with applicable law shall be effected by surrendering this Warrant to
the Company at its principal office, together with a duly executed form of
assignment, in the form attached hereto. In the event of any such transfer of
this Warrant, the Company shall issue a new warrant or warrants of like tenor to
the transferee(s), representing, in the aggregate, the right to purchase the
same number of Warrant Shares and cash,
7
securities or other property, if any, which may be purchased by the Holder upon
exercise of this Warrant at the time of its surrender.
(b) In the event of any transfer of all or any portion of this
Warrant in accordance with Section 9.2(a) above, the Company shall issue (i) a
new warrant of like tenor to the transferee, representing the right to purchase
the number of Warrant Shares, and cash, securities or other property, if any,
which were purchasable by the Holder of the transferred portion of this Warrant,
and (ii) a new warrant of like tenor to the Holder, representing the right to
purchase the number of Warrant Shares, and cash, securities or other property,
if any, purchasable by the Holder of the un-transferred portion of this Warrant.
Until this Warrant or any portion thereof is transferred on the books of the
Company, the Company may treat the Holder as the absolute holder of this Warrant
and all right, title and interest therein for all purposes, notwithstanding any
notice to the contrary.
9.3 No Restrictions on Transfer. Subject to compliance with applicable
securities laws, this Warrant and any portion hereof, the Warrant Shares and the
rights hereunder may be transferred by the Holder in its sole discretion at any
time and to any Person or Persons, including without limitation Affiliates and
affiliated groups of such Holder, without the consent of the Company.
9.4 Warrant Register. The Company shall keep at its principal office a
register for the registration, and registration of transfers, of the Warrants.
The name and address of each Holder of one or more of the Warrants, each
transfer thereof and the name and address of each transferee of one or more of
the Warrants shall be registered in such register. The Company shall give to any
Holder of a Warrant promptly upon request therefor, a complete and correct copy
of the names and addresses of all registered Holders of the Warrants.
10. Lost, Stolen or Destroyed Warrant. Upon receipt by the Company of
evidence satisfactory to it of loss, theft, destruction or mutilation of this
Warrant and, in the case of loss, theft or destruction, on delivery of a
customary affidavit of the Holder and indemnity agreement, or, in the case of
mutilation, upon surrender of this Warrant, the Company at its expense will
execute and deliver, or will instruct its transfer agent to execute and deliver,
a new Warrant of like tenor and date, and any such lost, stolen or destroyed
Warrant thereupon shall become void.
11. General.
11.1 Authorized Shares, Reservation of Shares for Issuance. At all
times while this Warrant is outstanding, the Company shall maintain its
corporate authority to issue, and shall have authorized and reserved for
issuance upon exercise of this Warrant, such number of shares of Common Stock,
any other capital stock or other securities as shall be sufficient to perform
its obligations under this Warrant (after giving effect to any and all
adjustments to the number and kind of Warrant Shares purchasable upon exercise
of this Warrant).
8
11.2 No Impairment. The Company will not, by amendment of its
Certificate of Incorporation or through any reorganization, transfer of assets,
consolidation, merger, dissolution, issuance or sale of securities, sale or
other transfer of any of its assets or properties, or any other voluntary
action, avoid or seek to avoid the observance or performance of any of the terms
of this Warrant, but will at all times in good faith assist in the carrying out
of all such terms and in the taking of all such action as may be necessary or
appropriate in order to protect the rights of the Holder hereunder against
impairment. Without limiting the generality of the foregoing, the Company (a)
will not increase the par value of any shares of Common Stock receivable upon
the exercise of this Warrant above the amount payable therefor on such exercise,
and (b) will take all action that may be necessary or appropriate in order that
the Company may validly and legally issue fully paid and nonassessable shares of
Common Stock upon the exercise of this Warrant.
11.3 No Rights as Stockholder. The Holder shall not be entitled to vote
or to receive dividends or to be deemed the holder of Common Stock that may at
any time be issuable upon exercise of this Warrant for any purpose whatsoever,
nor shall anything contained herein be construed to confer upon the Holder any
of the rights of a stockholder of the Company or any right to vote for the
election of directors or upon any matter submitted to stockholders at any
meeting thereof, or to give or withhold consent to any corporate action (whether
upon any recapitalization, issuance or reclassification of stock, change of par
value or change of stock to no par value, consolidation, merger or conveyance or
otherwise), or to receive notice of meetings (except to the extent otherwise
provided in this Warrant), or to receive dividends or subscription rights, until
the Holder shall have exercised this Warrant and been issued Warrant Shares in
accordance with the provisions hereof.
11.4 Notices. Any notices, reports or other correspondence (hereinafter
collectively referred to as "correspondence") required or permitted to be given
hereunder shall be given in writing and shall be deemed given if sent by
certified or registered mail (return receipt requested), overnight courier or
telecopy (with confirmation of receipt), or delivered by hand to the party to
whom such correspondence is required or permitted to be given hereunder.
Correspondence shall be directed:
Motient Corporation
300 Knightsbridge Parkway
Lincolnshire, IL 60069
Attention: General Counsel
Telecopier: 847-478-4810
9
Andrews Kurth LLP
450 Lexington Avenue
New York, NY 10017
Attention: Paul Silverstein, Esq.
Telecopier: (212) 850-2929
(b) if to the Holder at:
[address]
with a copy to:
[address]
12. Amendment and Waiver. No failure or delay of the Holder in
exercising any power or right hereunder shall operate as a waiver thereof, nor
shall any single or partial exercise of any such right or power, or any
abandonment or discontinuance of steps to enforce such a right or power,
preclude any other or further exercise thereof or the exercise of any other
right or power. The rights and remedies of the Holder are cumulative and not
exclusive of any rights or remedies which it would otherwise have. The terms of
this Warrant may be amended, modified or waived only with the written consent of
the Company and the Holder.
13. Governing Law. This Warrant shall be governed by and construed in
accordance with the laws of the State of Delaware, as such laws are applied to
contracts entered into and wholly to be performed within the State of Delaware
and without giving effect to any principles of conflicts or choice of law that
would result in the application of the laws of any other jurisdiction.
14. Covenants To Bind Successor and Assigns. All covenants,
stipulations, promises and agreements in this Warrant contained by or on behalf
of the Company shall bind its successors and assigns, whether so expressed or
not.
15. Severability. In case any one or more of the provisions contained
in this Warrant shall be invalid, illegal or unenforceable in any respect, the
validity, legality and enforceability of the remaining provisions contained
herein shall not in any way be affected or impaired thereby. The parties shall
endeavor in good faith negotiations to replace the invalid, illegal or
unenforceable provisions with valid provisions the economic effect of which
comes as close as possible to that of the invalid, illegal or unenforceable
provisions.
16. Construction. The definitions of this Warrant shall apply equally
to both the singular and the plural forms of the terms defined. Wherever the
context may require, any pronoun shall include the corresponding masculine,
feminine and neuter forms. The section and paragraph headings used herein are
for convenience of reference only, are not part of this Warrant and are not to
affect the construction of or be taken into consideration in interpreting this
Warrant.
10
17. Remedies. The Holder, in addition to being entitled to exercise all
rights granted by law, including recovery of damages, will be entitled to
specific performance of its rights under this Warrant. The Company agrees that
monetary damages would not be adequate compensation for any loss incurred by
reason of a breach by it of the provisions of this Warrant and hereby agrees to
waive the defense in any action for specific performance that a remedy at law
would be adequate. In any action or proceeding brought to enforce any provision
of this Warrant or where any provision hereof is validly asserted as a defense,
the successful party to such action or proceeding shall be entitled to recover
reasonable attorneys' fees in addition to any other available remedy.
[SIGNATURE PAGE TO FOLLOW]
11
IN WITNESS WHEREOF, the Company has executed this Common Stock Purchase
Warrant as of February 9, 2005.
COMPANY:
MOTIENT CORPORATION
By:/s/ Christopher Downie
-------------------------------------
Christopher Downie,
Executive Vice President and Chief
Operating Officer
[SIGNATURE PAGE TO COMMON STOCK PURCHASE WARRANT]
NOTICE AND
SUBSCRIPTION
To: MOTIENT CORPORATION Date:
300 Knightsbridge Parkway -----------------
Lincolnshire, IL 60069
The undersigned hereby irrevocably elects to exercise the right of
purchase represented by the attached Warrant for, and to exercise thereunder,
__________ shares of Common Stock, of MOTIENT CORPORATION a Delaware
corporation, and tenders herewith payment of $__________, representing the
aggregate purchase price for such shares based on the price per share provided
for in such Warrant. Such payment is being made in accordance with [Section
3(i)] [Section 3(ii)] [Section 3(iii)] [Section 3(iv)] of the attached Warrant.
Please issue a certificate or certificates for such shares of Common Stock in
the following name or names and denominations and deliver such certificate or
certificates to the person or persons listed below at their respective addresses
set forth below:
If said number of shares of Common Stock shall not be all the shares of Common
Stock issuable upon exercise of the attached Warrant, a new Warrant is to be
issued in the name of the undersigned for the balance remaining of such shares
of Common Stock less any fraction of a share of Common Stock paid in cash.
For value received, __________________________________ hereby sells,
assigns and transfers unto __________________ the attached Warrant [__% of the
attached Warrant], together with all right, title and interest therein, and does
hereby irrevocably constitute and appoint ____________________ attorney to
transfer said Warrant [said percentage of said Warrant] on the books of MOTIENT
CORPORATION, a Delaware corporation, with full power of substitution in the
premises.
If not all of the attached Warrant is to be so transferred, a new
Warrant is to be issued in the name of the undersigned for the balance of said
Warrant.
The undersigned hereby agrees that it will not sell, assign, or
transfer the right, title and interest in and to the Warrant unless applicable
federal and state securities laws have been complied with.
This Stockholder's Agreement, dated as of February 9, 2005
("Agreement"), is entered into by and among [Parent] and MVH Holdings Inc., a
Delaware corporation ("MVH"), in their capacity as the stockholders of [Blocker]
("Corporation") (each of [Parent], and MVH individually, and their permitted
successors and assigns, is a "Stockholder", and together the "Stockholders").
RECITALS
WHEREAS, Mobile Satellite Ventures GP Inc., a Delaware corporation, is
the general partner ("General Partner") of Mobile Satellite Ventures LP, a
Delaware limited partnership ("MSVLP");
WHEREAS, the Corporation is a party to that certain Amended and
Restated Stockholders' Agreement by and among the stockholders of the General
Partner, dated November 12, 2004 (the "MSV Stockholders' Agreement") and the
Stockholders are parties to that certain Second Amended and Restated Parent
Transfer/Drag Along Agreement, dated November 12, 2004 by and among the
stockholders of the General Partner ("MSV Parent Transfer/Drag Along
Agreement");
WHEREAS, the Corporation is a party to that certain Voting Agreement
dated as of November 12, 2004 among certain of the stockholders of General
Partner (the "Voting Agreement");
WHEREAS, the Corporation is a party to that certain Amended and
Restated Consent Agreement dated as of the date hereof among certain of the
stockholders of General Partner (the "Consent Agreement");
WHEREAS, Telcom Satellite Ventures Inc. and Telcom Satellite Ventures
II, Inc. delivered a Notice of Proposed Transfer to the limited partners of
MSVLP, dated January 12, 2005 (the "Telcom Transfer Notice");
WHEREAS, pursuant to Section 8 of the MSV Parent Transfer/Drag Along
Agreement and Section 8.2(b) of the MSV Stockholders' Agreement, on January 27,
2005, the Corporation and Columbia Capital Equity Partners III (QP), L.P.
delivered a tag-along notice as contemplated therein and thereby exercised its
"tag along" rights pursuant thereto ("Tag Along Exercise");
WHEREAS, upon consummation of the transactions contemplated by the Tag
Along Exercise, Columbia Capital Equity Partners III (QP), L.P. is receiving
shares of common stock of Motient Corporation, a Delaware corporation
("Motient") and MVH is receiving shares of the Corporation (the "Transfer"); and
WHEREAS, Columbia Capital Equity Partners III (QP), L.P. and MVH as the
stockholders of the Corporation wish to enter into this Agreement to memorialize
their understandings and agreements regarding certain matters.
1
NOW, THEREFORE, in consideration of the agreements contained herein and
for other good and valuable consideration, the receipt and sufficiency of which
is hereby acknowledged, the parties hereby agree as follows:
1 Acknowledgement. Each of Columbia Capital Equity Partners III (QP),
L.P., on behalf of itself and its affiliates, and MVH, on behalf of itself,
Motient and its other affiliates, hereby acknowledges and agrees that the Tag
Along Exercise was properly made and the "tag along" transactions were
consummated as contemplated by the Telcom Transfer Notice and the Tag Along
Exercise.
2 Agreements of the Stockholders. Each of the parties hereto hereby agree
as follows:
A. Provided that it is acting in compliance with the MSV Parent
Transfer/Drag Along Agreement and MSV Stockholders' Agreement, a Stockholder may
transfer any of its shares in the Corporation, provided that in any such
transfer the selling Stockholder shall promptly offer the right to participate
in such transfer ("Participation Right") on a pro-rata basis to, and shall
permit such participation by, the non-selling Stockholder; provided, further
that Columbia Capital Equity Partners III (QP), L.P. may transfer its shares to
any fund affiliated therewith without entitling MVH to a Participation Right and
MVH may transfer its shares to Motient Corporation, the entity that indirectly
owns all of the outstanding stock MVH, or any entity directly or indirectly
wholly-owned by Motient Corporation without entitling Columbia Capital Equity
Partners III (QP), L.P. to a Participation Right.
B. A vote of the majority of the shares of common stock of the
Corporation issued and outstanding at the time of any vote of the stockholders
of the Corporation shall be sufficient to authorize the corporate action subject
to such stockholder vote, except that:
(i) Subject to Section 2C below, the Stockholders shall cause the
Corporation to vote all shares owned in the General Partner at any time by the
Corporation and all units held at any time in MSVLP by the Corporation pro rata
as directed by the Stockholders based upon the respective ownership of each of
the Stockholders in the Corporation at the time such vote is taken;
(ii) The Corporation may not issue any additional equity
interests, incur any debt or sell any asset without the affirmative vote of all
of the Stockholders;
(iii) The Corporation will not engage in any transaction with any
of its affiliates or the affiliates of any Stockholders without the affirmative
vote or consent of all of the Stockholders; and
(iv) From the date hereof through the earlier of (i) June 30, 2005
or (ii) the transfer by MVH of any of its shares in the Corporation (other than
a transfer to Motient Corporation, the entity that indirectly owns all of the
outstanding stock MVH, or any entity directly or indirectly wholly-owned by
Motient Corporation) or the entry by MVH into any agreement pursuant to which
MVH becomes obligated under any circumstances to transfer any of its shares in
the Corporation (other than a transfer to Motient Corporation, the entity that
indirectly owns all of the outstanding stock MVH, or any entity directly or
indirectly wholly-owned by Motient Corporation), the Corporation may not merge
2
or combine with any other entity without the affirmative vote of all of the
Stockholders; provided however, that such unanimity is not required if the
transfer of such shares in the Corporation is to be conducted pursuant to (a)
the "drag along" provisions of the MSV Parent Transfer/Drag Along Agreement or
(b) a transaction or series of transactions the nature of which is a sale or
change of control of General Partner and/or MSVLP; and, provided, further, that
prior to any such merger or combination (regardless of whether before or after
the events described in clauses (i) and (ii) above), the Corporation shall, upon
the request of a Stockholder and such Stockholder's agreement to indemnify (and
actual payment of or the giving of security therefor) the Corporation and the
other Stockholder from any adverse tax consequences actually incurred by the
Corporation or the other Stockholder resulting therefrom, redeem the shares of
the Corporation owned by such requesting Stockholder in exchange for a
segregated portion of each asset owned by the Corporation equal to the
percentage of the total stock of the Corporation owned by such requesting
Stockholder.
In lieu of conducting a vote, the Stockholders may act upon any matter submitted
to them for a vote by written consent, provided that all Stockholders shall have
received at least five (5) business days' prior notice of the action to be
taken.
C. Notwithstanding the provisions of Section 2B(a) above, from and
after the date hereof and until such time as the Columbia Funds (as defined
below) no longer own, directly or indirectly, at least 25% of the shares owned
in General Partner and units owned in MSVLP by the Columbia Blocker Corps (as
defined below) immediately prior to the Transfer, with respect matters to be
voted on or consented to pursuant to Sections 2.01, 2.02, 3.01, or 3.02 of the
Voting Agreement, the Stockholders of the Corporation shall cause the
Corporation to vote all shares owned in General Partner and all units owned in
MSVLP held by the Corporation as directed by the vote of Columbia Capital Equity
Partners III (QP), L.P., having one vote, and MVH, having one vote, provided
that in the event of a tie between Columbia Capital Equity Partners III (QP),
L.P. and MVH, the vote of Columbia Capital Equity Partners III (QP), L.P. shall
prevail. For purposes of this Agreement, the "Columbia Funds" shall mean (i)
Columbia Capital Equity Partners III (QP), L.P., (ii) Columbia Capital Equity
Partners III (AI), L.P., (iii) Columbia Capital Equity Partners III (Cayman),
L.P., (iv) Columbia Capital Investors III, LLC, (v) Columbia Capital Employee
Investors III, LLC and/or (vi) any affiliated fund of the foregoing. For
purposes of this Agreement, the "Columbia Blocker Corps" shall mean (i) the
Corporation, (ii) Columbia Space (AI), Inc., and (iii) Columbia Space Partners,
Inc.
D. If pursuant to Section 2C of the Consent Agreement, the
Telcom/Columbia/Spectrum Group votes or executes a written consent for a waiver
of the 49% limitation with respect to the acquisition by any other stockholder
of General Partner or limited partner of MSVLP in accordance with the terms and
provisions of Section 2C of the Consent Agreement, then Columbia Capital Equity
Partners III (QP), L.P. shall cause the Corporation to vote its pro rata portion
of the shares owned in the General Partner by the Corporation and units held in
MSVLP by the Corporation for a waiver of the 49% limitation with respect to MVH.
E. If pursuant to Section 11 of the MSV Parent Transfer/Drag Along
Agreement a payment or allocation is made to the Corporation or any Stockholder
to mitigate any Adverse Tax Consequences (as such term is defined in the MSV
Parent Transfer/Drag Along Agreement), then each Stockholder shall take any and
all actions necessary to ensure that such payment is shared among all the
Stockholders pro-rata based upon the respective ownership of each of the
Stockholders in the Corporation.
3
F. A representative designated by Columbia Capital Equity Partners III
(QP), L.P. shall represent the Corporation in any meetings of the Board of
Directors of General Partner pursuant to any Observation Right granted pursuant
to, and as such term is defined in, the MSV Stockholders' Agreement.
3 Circumvention. Each party agrees that it will not circumvent the intent
of this Agreement and the provisions hereof.
4 Equity Interests in TerreStar Networks Inc. As of execution of this
Agreement, the Corporation holds rights (the "Rights Certificates") to receive
shares of common stock ("Common Stock") of TerreStar Networks Inc.
("TerreStar"). As a holder of such Rights Certificates, the Corporation is a
party to that certain TerreStar Securityholders' Agreement dated as of December
20, 2004 , the Corporation is a party to that certain TerreStar Voting Agreement
dated as of December 20, 2004 (the "TerreStar Voting Agreement") and the
Stockholders are party to that certain TerreStar Parent Transfer/Drag Along
Agreement dated as of December 20, 2004. The Stockholders agree that the Rights
Certificates, any shares of Common Stock issued upon conversion of the Rights
Certificates and any other equity securities of TerreStar held by the
Corporation, shall be subject to the rights and obligations contained in Section
2 and Section 3 of this Agreement (the provisions of which are hereby
incorporated by reference, mutatis, mutandis into this Section 4) as if such
Rights Certificates, Common Stock, or other equity securities in TerreStar, as
applicable, were units in MSVLP. Upon the request of any Stockholder, all
Stockholders will consent to the Corporation distributing such Rights
Certificates, Common Stock, or other equity securities in TerreStar, as
applicable, to the Stockholders pro rata based upon the respective ownership of
each of the Stockholders in the Corporation at the time of such distribution.
5 Miscellaneous.
A. Term. This Agreement, and the obligations of the parties hereunder,
shall survive and remain in effect so long as the Corporation has more than one
Stockholder, but shall terminate and be of no further force and effect upon all
of the outstanding shares of the Corporation being owned by one Stockholder.
B. Amendments. This Agreement, and the rights and obligations of the
parties hereto may be waived (either generally or in a particular instance,
either retroactively or prospectively, and either for a specified period of time
or indefinitely), amended or terminated if and only if such waiver, amendment or
termination is consented to in writing by each Stockholder.
C. Governing Law. This Agreement shall be governed in all respects by
the laws of the State of Delaware, without regard to the conflict of laws
provisions thereof.
D. Successors and Assigns. The provisions hereof shall be binding upon,
the successors, assigns, heirs, executors and administrators of the parties
hereto. Each Stockholder shall require the acquirer of any of its shares in the
Corporation to become a party to this Agreement, and no such transfer shall be
valid unless and until the acquirer so agrees and becomes a party to this
Agreement.
4
E. Severability. In case any provisions of this Agreement shall be
invalid, illegal or unenforceable, the validity, legality and enforceability of
the remaining provisions shall not in any way be affected or impaired thereby;
provided, that no such severability shall be effective if it materially and
adversely affects the economic benefit of this Agreement to any party hereto.
F. Notices. All notices required or permitted hereunder shall be in
writing and shall be deemed effectively given (a) upon personal delivery to the
party to be notified, (b) when sent by confirmed facsimile if sent during normal
business hours of the recipient, if not, then on the next business day, (c) five
days after having been sent by registered or certified mail, return receipt
requested, postage prepaid, or (d) one day after deposit with a nationally
recognized overnight courier, specifying next day delivery, with written
verification of receipt. All communications shall be sent to each party at the
address previously provided by such party.
G. Equitable Relief. Each party agrees that if it fails to perform its
obligations under this Agreement for any reason whatsoever, the other parties
hereto shall be entitled to specific performance and injunctive or other
equitable relief, and each Stockholder hereby further agrees to waive any
requirement for the securing or posting of any bond in connection with the
obtaining of any injunctive or other equitable relief. This provision is without
prejudice to any other rights that the other parties to this Agreement may have
against any other party for any failure to perform its obligations under this
Agreement.
H. Further Assurances. Each party shall at any time and from time to
time promptly execute and deliver to the other parties such further instruments,
consents and other documents and take such further action as such other parties
may reasonably require in order to carry out the full intent and purpose of this
Agreement.
I. Interpretation. The titles of the sections and subsections of this
Agreement are for convenience of reference only and are not to be considered in
construing this Agreement. All pronouns contained herein, and any variations
thereof, shall be deemed to refer to the masculine, feminine or neutral,
singular or plural, as to the identity of the parties hereto may require.
J. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be an original, but all of which together
shall constitute one instrument. Delivery of an executed counterpart of a
signature page of this Agreement by facsimile shall be effective as delivery of
a manually executed counterpart of this Agreement.
[Signature Pages Follow]
5
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as of
the date first above written.
[PARENT]
By:
By: ____________________
Name:
Title:
MVH HOLDINGS INC.
By: ____________________
Name:
Title:
(Signature Page to Columbia Space (QP), Inc. Stockholder's Agreement)
Exhibit 23.2
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We consent to the inclusion in this Amendment No. 1 to Registration Statement of
Motient Corporation and Subsidiaries on Form S-1 and the related prospectus, of
our report dated July 2, 2004 relating to the consolidated financial statements
and financial statement schedule, which appears in such Prospectus. We also
consent to the reference to us as "Experts" and "Summary Consolidated Financial
Data" in such Prospectus. However, it should be noted that Friedman LLP has not
prepared or certified such "Summary Consolidated Financial Data."
/s/ FRIEDMAN LLP
----------------------
East Hanover, New Jersey
February 11, 2005
Exhibit 23.3
Consent of Independent Auditors
We consent to the reference to our firm under the caption "Experts" and the use
of our report dated April 23, 2004, with respect to the financial statements of
Mobile Satellite Ventures, LP included in the Registration Statement (Form S-1
No. 333-121862) and related Prospectus of Motient Corporation for the
registration of its common stock.
/s/ Ernst & Young LLP
---------------------
McLean, Virginia
February 10, 2005
Next Section
Previous Section