-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, KBKrziTEAC1JlC9DMz+5jBTQOreHJRYHQPtvTrUMktKEMUa7zUmd1d7NDSFv8LAV LgOpo7haNNg/bCANe69uPQ== 0000913665-00-000011.txt : 20000515 0000913665-00-000011.hdr.sgml : 20000515 ACCESSION NUMBER: 0000913665-00-000011 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20000331 FILED AS OF DATE: 20000512 FILER: COMPANY DATA: COMPANY CONFORMED NAME: MOTIENT CORP CENTRAL INDEX KEY: 0000913665 STANDARD INDUSTRIAL CLASSIFICATION: COMMUNICATION SERVICES, NEC [4899] IRS NUMBER: 930976127 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-23044 FILM NUMBER: 630193 BUSINESS ADDRESS: STREET 1: 10802 PARKRIDGE BLVD CITY: RESTON STATE: VA ZIP: 22091 BUSINESS PHONE: 7037586000 MAIL ADDRESS: STREET 1: 10802 PARKRIDGE BLVD CITY: RESTON STATE: VA ZIP: 22091 FORMER COMPANY: FORMER CONFORMED NAME: AMERICAN MOBILE SATELLITE CORP DATE OF NAME CHANGE: 19931019 10-Q 1 MOTIENT QUARTERLY REPORT FOR PERIOD ENDING 3/31/00 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2000 Commission file number 0-23044 MOTIENT CORPORATION (Exact name of registrant as specified in its charter) DELAWARE 93-0976127 (State or other (I.R.S. Employer jurisdiction of Identification No.) incorporation or organization) 10802 Parkridge Boulevard Reston, VA 20191-5416 (Address of principal (Zip Code) executive offices) (703) 758-6000 (Registrant's telephone number, including area code) American Mobile Satellite Corporation (Former name, if changed since last report) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such report(s)), and (2) has been subject to such filing requirements for the past 90 days. Yes X No Number of shares of Common Stock outstanding at April 30, 2000: 49,501,260 PART I- FINANCIAL INFORMATION Item 1. Financial Statements Motient Corporation and Subsidiaries Consolidated Condensed Statements of Operations (in thousands, except per share data) (Unaudited)
Three months ended March 31, 2000 1999 ---- ---- REVENUES Services $ 17,152 $ 16,164 Sales of equipment 5,018 4,066 ----- ----- Total Revenues 22,170 20,230 COSTS AND EXPENSES Cost of service and operations 18,018 17,870 Cost of equipment sold 5,256 4,528 Sales and advertising 6,226 4,749 General and administrative 21,912 4,769 Depreciation and amortization 9,094 13,772 ----- ------ Operating Loss (38,336) (25,458) Interest and Other Income 5,202 1,739 Interest Expense (14,981) (15,930) Gain on Conversion of Convertible Note Payable to Related Party 32,854 -- Unrealized Gain on Convertible Note Payable to Related Party 3,925 -- Minority Interest in XM Radio's losses 7,342 -- Equity in Loss of XM Radio -- (3,494) ------ NET LOSS BEFORE PREFERRED DIVIDEND (3,994) (43,143) ------- -------- Preferred Dividend Declared by XM Radio (506) -- NET LOSS ATTRIBUTABLE TO COMMON SHAREHOLDERS ($4,500) ($43,143) ======== ========= Basic and Diluted Loss Per Share of Common Stock $(0.09) $(1.34) Weighted-Average Common Shares Outstanding During the Period 49,094 32,225 See notes to consolidated condensed financial statements.
1 Motient Corporation and Subsidiaries Consolidated Condensed Balance Sheets (in thousands)
March 31, December 31, 2000 1999 --------- ------------ (unaudited) ASSETS CURRENT ASSETS: Cash and cash equivalents (includes 448,037 from XM Radio) $ 448,631 $ 51,474 Short-term investments -- 69,472 Accounts receivable-trade, net 17,073 16,594 Inventory 36,040 28,616 Prepaid in-orbit insurance 2,045 3,381 Restricted short-term investments 41,038 41,038 Restricted short-term investments of XM Radio 58,817 -- Other current assets 11,910 9,719 ------ ------ Total current assets 615,554 220,294 PROPERTY AND EQUIPMENT, net 123,915 116,516 XM RADIO SYSTEM UNDER CONSTRUCTION 432,194 357,278 GOODWILL AND OTHER INTANGIBLES, net 61,346 62,211 RESTRICTED INVESTMENTS 35,115 31,109 RESTRICTED INVESTMENTS OF XM RADIO 79,599 -- DEFERRED CHARGES AND OTHER ASSETS, net 31,872 22,540 ---------- -------- Total assets $1,379,595 $809,948 ========== ======== See notes to consolidated condensed financial statements.
2 Motient Corporation and Subsidiaries Consolidated Condensed Balance Sheets (in thousands)
March 31, December 31, 2000 1999 --------- ------------ (unaudited) LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) CURRENT LIABILITIES: Accounts payable and accrued expenses $ 86,586 $ 67,885 Obligations under capital leases due within one year 4,700 6,154 Current portion of vendor financing commitment due to related party 3,619 1,977 Current portion of deferred trade payables 2,141 3,983 Other current liabilities 1,869 1,646 ----- ----- Total current liabilities 98,915 81,645 LONG-TERM LIABILITIES: Obligations under Senior Notes, net of discount 327,800 327,576 Senior Secured Notes of XM Radio, net of discount 259,528 -- Obligations under New Bank Financing 120,000 85,000 Capital lease obligations 846 247 Net assets acquired in excess of purchase price 1,159 1,333 Vendor financing commitment due to related party 4,339 2,535 Convertible note payable due to related party, at fair value -- 50,138 Other long-term liabilities 5,087 3,955 ----- ----- Total long-term liabilities 718,759 470,784 Total liabilities 817,674 552,429 ------- -------- MINORITY INTEREST 513,732 274,745 STOCKHOLDERS' EQUITY (DEFICIT): Preferred Stock -- -- Common Stock 552 485 Additional paid-in capital 919,127 844,181 Deferred compensation (6,507) (6,536) Common Stock purchase warrants 56,243 63,290 Unamortized guarantee warrants (16,970) (18,384) Cumulative loss (904,256) (900,262) --------- --------- STOCKHOLDERS' EQUITY (DEFICIT) 48,189 (17,226) ----------- --------- Total liabilities, minority interest, and stockholders' equity(deficit) $1,379,595 $809,948 ========== ======== See notes to consolidated condensed financial statements.
3 Motient Corporation and Subsidiaries Consolidated Condensed Statements of Cash Flows (in thousands) (Unaudited)
Three months ended March 31, 2000 1999 ---- ---- CASH FLOWS FROM OPERATING ACTIVITIES: Net loss $ (3,994) $(43,143) Adjustments to reconcile net loss to net cash used in operating activities: Amortization of Guarantee Warrants and debt related costs 2,942 4,552 Depreciation and amortization 9,094 13,772 Equity in loss of XM Radio -- 3,494 Unrealized gain on marketable securities (3,925) -- Non cash stock compensation of XM Radio 658 -- Gain on conversion of convertible note payable to related party (32,854) -- Minority Interest (7,342) -- Changes in assets and liabilities, net of acquisitions: Inventory (7,424) 1,153 Prepaid in-orbit insurance 1,336 1,449 Accounts receivable-- trade (584) (1,427) Other current assets (2,166) (1,369) Accounts payable and accrued expenses (1,853) 9,138 Accrued interest Senior Note 10,259 (570) Deferred trade payables (1,842) (2,092) Deferred items-- net 1,157 (931) ----- ---- Net cash used in operating activities (36,538) (15,974) CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of XM Radio Note Receivable -- (21,419) Purchase of restricted investments (4,007) (1,424) Net Purchase/Maturity of XM Radio's short-term investments 69,472 -- System under construction (62,422) -- Purchase of restricted investments by XM Radio (123,416) -- Other investing activities by XM Radio (18,493) -- Additions to property and equipment (9,825) (2,541) ------ ------ Net cash used in investing activities (148,691) (25,384) CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from issuance of Common Stock 5,168 162 Proceeds from issuance of Common and Preferred Stock by XM Radio 229,093 -- Proceeds from Senior Secured Notes and Stock Purchase Warrants issued by XM Radio 325,000 -- Principal payments under capital leases (1,627) (1,322) Principal payments under Vendor Financing (494) (90) Proceeds from New Bank Financing 35,000 27,000 Proceeds from note payable to related party -- 21,500 Debt issuance costs (9,754) (46) -------- ------- Net cash provided by financing activities 582,386 47,204 Net increase in cash and cash equivalents 397,157 5,846 CASH AND CASH EQUIVALENTS, beginning of period 51,474 2,285 -------- ------ CASH AND CASH EQUIVALENTS, end of period $448,631 $8,131 ======== ====== See notes to consolidated condensed financial statements.
4 PART I. FINANCIAL INFORMATION Item 1. Financial Statements (continued) MOTIENT CORPORATION AND SUBSIDIARIES Notes to Consolidated Condensed Financial Statements March 31, 2000 (Unaudited) 1. ORGANIZATION AND BUSINESS Motient Corporation (formerly American Mobile Satellite Corporation) is a leading provider of two-way mobile communications services principally to business-to-business customers and enterprises. Motient Corporation (with its subsidiaries, "Motient" or the "Company") serves a variety of markets including mobile professionals, telemetry, transportation, field service, and nationwide voice dispatch, to customers in the United States. Motient provides its industry-leading eLinksm two-way wireless email service to customers accessing email through corporate servers, Internet Service Providers (ISP) and Mail Service Provider (MSP) accounts, and paging network suppliers. As of March 31, 2000, the Company had an equity interest in XM Satellite Radio Holdings Inc. ("XM Radio") of approximately 34.4% (or 25.5% on a fully diluted basis); however, the Company continues to control XM Radio through its Board of Director membership and common stock voting rights. The Company will continue to consolidate XM Radio until the Company no longer controls XM Radio. The Company must request and receive FCC approval to relinquish control of XM Radio. On March 30, 2000, the FCC approved an application filed by XM Radio which would allow the Company to reduce its ownership of the voting stock of XM Radio to a minimum of 40%, provided that the Company retains its right to elect a majority of the directors of XM Radio's Board of Directors. The Company has not elected to reduce its voting shares in XM Radio and still maintains control of XM Radio. As a result of acquiring the outstanding debt and equity interest in XM Radio from another investor in July of 1999 ( the "XM Acquisition"), XM Radio's financial results for the period July 7, 1999 through March 31, 2000 have been included in the Company's consolidated condensed financial statements. Prior to July 7, 1999, the Company's investment in XM Radio was accounted for pursuant to the equity method of accounting. The operations and financing of XM Radio are maintained separate and apart from the operations and financing of Motient. XM Radio completed its initial public offering in October 1999. Please refer to XM Radio's audited financial statements, included in its reports and filings with the Securities and Exchange Commission ("SEC"), for more detail about its business plan, risks, and financial results. Motient is devoting its efforts to expanding its business. This effort involves substantial risk. Specifically, future operating results will be subject to significant business, economic, regulatory, technical, and competitive uncertainties and contingencies. Depending on their extent and timing, these factors, individually or in the aggregate, could have an adverse effect on the Company's financial condition and future results of operations. 2. SIGNIFICANT ACCOUNTING POLICIES Basis of Presentation The unaudited consolidated condensed financial statements included herein have been prepared pursuant to the rules and regulations of the SEC. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted. While the Company believes that the disclosures made are adequate to not make the information misleading, these consolidated condensed financial statements should be read in conjunction with the consolidated financial statements and related notes included in the Company's filings and the filings of XM Radio with the SEC. All filings of the Company before April 24, 2000 can be found under the Company's former name American Mobile Satellite Corporation. The consolidated balance sheet as of March 31, 2000, and the consolidated statements of operations and cash flows for the three months ended March 31, 2000 and 1999, have been prepared by the Company and are unaudited. In the opinion of management, all adjustments (consisting of normal recurring adjustments) necessary to present fairly the financial position, results of operations and cash flows at March 31, 2000, and for all periods presented have been made. 5 Consolidation The consolidated financial statements include the accounts of Motient, its wholly owned subsidiaries, and its equity interest in XM Radio. All significant inter-company transactions and accounts have been eliminated. Loss Per Share Basic and diluted loss 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. As a result, the basic and diluted earnings per share amounts are identical. As of March 31, 2000, there were approximately 7,143,697 options and warrants that were not included in this calculation, because the effect would be antidilutive. Net loss attributable to common shareholders reflects the deduction from net loss of the Company's share of the preferred stock dividend declared by XM Radio on its 8.25% Series B convertible redeemable preferred stock. The dividend was paid in shares of Class A common stock on May 1, 2000. Comprehensive Income SFAS No. 130, "Reporting of Comprehensive Income" requires "comprehensive income" and the components of "other comprehensive income" to be reported in the financial statements and/or notes thereto. Since the Company does not have any components of "other comprehensive income," reported net income is the same as "comprehensive income" for the three months ended March 31, 2000 and 1999. Segment Disclosures In accordance with SFAS 131, "Disclosures about Segments of an Enterprise and Related Information," the Company has two operating segments: wireless communications services and XM Radio's satellite-based digital audio radio service. The Company provides a wide range of two-way mobile and internet communications services principally to business-to-business customers and enterprises. The Company's service covers all of the 50 states, Puerto Rico, the U.S. Virgin Islands, and hundreds of miles of U.S. coastal waters. XM Radio is in the process of constructing its satellite system to provide digital radio programming transmitted from satellites to vehicles, homes, and portable radios. XM Radio is currently in the development stage and thus has no revenue generating operations. The following summarizes the Company's core wireless communications services and equipment revenue by major product lines:
Revenue for the Three Months Ended March 31, 2000 1999 ---- ---- (in millions) Data Service $12.5 $12.0 Voice Service 3.5 3.0 Capacity Resellers and Other 1.2 1.1 Equipment 5.0 4.1
New Accounting Pronouncements In June 1998, FASB issued Statement No. 133, "Accounting for Derivative Instruments and Hedging Activities," which requires the recognition of all derivatives as either assets or liabilities measured at fair value. This statement was originally effective for the year ended December 31, 2000. In June 1999, FASB issued Statement No. 137, which defers the effective date of 6 Statement No. 133 until fiscal years beginning after June 15, 2000. The Company does not believe that the adoption of this statement will have a material impact on its financial position, results of operations and cash flows. In December 1999, the SEC issued Staff Accounting Bulletin No. 101, "Revenue Recognition" ("SAB 101"). SAB 101 provides guidance on the recognition, presentation, and disclosure of revenue in financial statements. The Company is currently evaluating the impact of SAB 101 on its consolidated results of operations and financial condition. The adoption date for SAB 101 is June 30, 2000 and any change in accounting principle required from adoption of SAB 101 will be reported as a cumulative effect of a change in accounting principle. In March 2000, the Financial Accounting Standards Board issued FASB Interpretation No. 44, Accounting for Certain Transactions Involving Stock Compensation ("FIN 44"). FIN 44 further defines the accounting consequence of various modifications to the terms of a previously fixed stock option or award under APB Opinion No. 25, Accounting for Stock Issued to Employees. FIN 44 becomes effective on July 1, 2000, but certain conclusions in FIN 44 cover specific events that occur after either December 15, 1998 or January 12, 2000. In July 1999, XM Radio repriced certain options. FIN 44 requires that these options be accounted for as variable from July 1, 2000 until the date the award is exercised, forfeited, or expires unexercised. For those options that have vested as of July 1, 2000, compensation cost is recognized only to the extent that the exercise price exceeds the stock price on July 1, 2000. For those options that have not vested as of July 1, 2000, the portion of the award's intrinsic value measured at July 1, 2000 is recognized over the remaining vesting period. Additional compensation cost is measured for the full amount of any increases in stock price after the effective date and is recognized over the remaining vesting period. Any adjustment to compensation cost for further changes in the stock price after the award vests is recognized immediately. The effects of implementing FIN 44 may require XM Radio to recognize additional non-cash compensation commencing in the third quarter of 2000. Concentrations of Credit Risk For the three months ended March 31, 2000, four customers accounted for approximately 32% of the Company's service revenue, with one of those customers representing approximately 12%. Other The Company paid approximately $4.4 million and $2.1 million in the three-month period ended March 31, 2000 and 1999, respectively, to related parties for capital assets, service-related obligations, and payments under pre-existing financing agreements. There were no payments from related parties in the three-month period ended March 31, 2000 and 1999. Total indebtedness to related parties at March 31, 2000 was approximately $9.0 million. 3. STOCKHOLDERS' EQUITY Activity for the quarter in stockholders' equity consists of the following:
Common Additional Stock Common Paid-in Purchase Stock Capital Warrants ----- ------- -------- Balance December 31, 1999 $485 $844,181 $63,290 Warrant Exercises 5 7,776 (7,047) Stock Option Exercises 62 4,157 -- Capital gain in connection with XM Radio equity transactions -- 62,828 -- Issuance of shares under Stock Purchase Plan and award of bonus stock -- 185 -- -- ---- -- Ending Balance March 31, 2000 $552 $919,127 $56,243 ==== ========= =======
7 4. LIQUIDITY AND FINANCING Adequate liquidity and capital are critical for the Company to continue as a going concern and to fund subscriber acquisition programs necessary to achieve positive cash flow and profitable operations. The Company expects to continue to make significant capital outlays to fund interest expense, capital expenditures and working capital prior to the time it begins to generate positive cash flow from operations and for the foreseeable future. The Company's current operating assumptions and projections reflect management's best estimate of subscriber and revenue growth and operating expenses. The Company anticipates that capital expenditures, operating losses, working capital and debt service requirements through 2000, and beyond, can be met by (i) the borrowings available under the bank financing and the vendor financing, (ii) proceeds from the exercise of stock options and warrants (iii) proceeds realized through the sale of inventory relating to our new products-eLink and MobileMAX2TM, and (iv) additional debt or equity financing transactions. The Company also believes that its investment in XM Radio may provide the Company, in the future, with flexibility for obtaining additional liquidity, should that be necessary. However, there are various restrictions on the Company's ability to realize liquidity on its investment in XM Radio. The Company's ability to meet its projections is subject to numerous uncertainties and there can be no assurance that the Company's current projections regarding the timing of its ability to achieve positive operating cash flow will be accurate. If the Company's cash requirements are more than projected, the Company may require additional financing in amounts which may be material. The type, timing and terms of financing that the Company selects will be dependent upon its cash needs, the availability of other 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. XM Radio is operated, managed, and funded separately from the Company. See consolidating financial statements in Footnote 7 for XM Radio's separate financial statements. While the Company does not have any obligation or commitments to provide additional funding to XM Radio, and does not expect to provide such funding, it may chose to provide additional financing in the future. XM Radio will require significant additional funding in the future. The failure of XM Radio to obtain the necessary financing could have a material adverse effect on the value of the Company's investment in XM Radio. On August 3, 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, $59 million was used to pay down a portion of the Term Loan Facility, and is not available for re-borrowing. The remainder of the net proceeds were used to pay down a portion of the Revolving Credit Facility, which are available for re-borrowing as needed for general working capital purposes. $335 Million Unit Offering On March 31, 1998, Motient Holdings Inc. (formerly AMSC Acquisition Company, Inc.) 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 are reflected in the balance sheet as a debt discount. In connection with the Senior Notes, Motient Holdings Inc. purchased approximately $112.3 million of restricted investments that are 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 in the 1999 public offering, 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 principle 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. 8 New Bank Financing In March 1998, the Company also restructured its existing $200 million Bank Financing (the "New Bank Financing") to provide for two facilities: (i) the Revolving Credit Facility, a $100 million unsecured five-year reducing revolving credit facility maturing March 31, 2003, and (ii) the Term Loan Facility, a $100 million five-year, term loan facility with up to three additional one-year extensions subject to the lenders' approval. The Term Loan Facility was reduced to $41 million using the proceeds from the stock offering in 1999 and is not available for re-borrowing. The New Bank Financing is severally guaranteed by Hughes Electronics Corporation, Singapore Telecommunications Ltd. and Baron Capital Partners, L.P. (collectively, the "Bank Facility Guarantors"). As of March 31, 2000, the Company had outstanding borrowings of $41 million under the Term Loan Facility at 7.1875%, and $79 million under the Revolving Credit Facility at rates ranging from 7.0625% to 7.1875%. The Guarantees In connection with the New Bank Financing, the Bank Facility Guarantors extended separate guarantees of the obligations of Motient Holdings Inc. and the Company to the banks, which on a several basis aggregated to $200 million. In their agreement with Motient Holdings Inc. and the Company (the "Guarantee Issuance Agreement"), the Bank Facility Guarantors agreed to make their guarantees available for the New Bank Financing. In exchange for the additional risks undertaken by the Bank Facility Guarantors in connection with the New Bank Financing, the Company agreed to compensate the Bank Facility Guarantors, principally in the form of 1 million additional warrants and re-pricing of 5.5 million warrants previously issued in connection with the original Bank Facility (together, the "Guarantee Warrants"). The Guarantee Warrants were originally issued with an exercise price of $12.51, reduced to $7.50 in exchange for the elimination of certain covenants in the Guarantee Issuance Agreement, and further reduced to $7.3571 in connection with the automatic application of certain adjustment provisions following the stock offering in 1999. The Guarantee Warrants were valued at approximately $21.6 million. Further, in connection with the Guarantee Issuance Agreement, the Company has agreed to reimburse the Bank Facility Guarantors in the event that the Guarantors are required to make payment under the New Bank Financing guarantees, and, in connection with this reimbursement commitment has provided the Bank Facility Guarantors a junior security interest with respect to the assets of the Company, principally its stockholdings in XM Radio and Motient Holdings Inc. In connection with the New Bank Financing, the Company entered into an interest rate swap agreement, with an implied annual rate of 6.51%. The swap agreement reduces the impact of interest rate increases on the Term Loan Facility. The Company paid a fee of approximately $17.9 million for the swap agreement. Under the swap agreement, an amount equal to LIBOR plus 50 basis points, is paid on a quarterly basis directly to the respective banks on behalf of the Company, on a notional amount of $100 million until the termination date of March 31, 2001. In connection with the pay down of a portion of the Term Loan Facility in 1999, the Company reduced the notional amount of its swap agreement from $100 million to $41 million. The Company is exposed to a credit loss in the event of non- performance by the counter party under the swap agreement. The Company does not believe there is a significant risk of non-performance as the counter party to the swap agreement is a major financial institution. Other Financing Motorola has entered into an agreement with the Company to provide up to $10 million of vendor financing, to finance up to 75% of the purchase price of additional network base stations. As of March 31, 2000, $8.0 million was outstanding under this facility at interest rates ranging from 13.00% to 13.1838%. The Company has also arranged the financing of certain trade payables, and as of March 31, 2000, $2.1 million of deferred trade payables were outstanding at rates ranging from 6.07% to 12.00%. 9 Baron XM Radio Convertible Note In January 1999 the Company issued to Baron Asset Fund ("Baron"), a stockholder and guarantor of the Company's Bank Facility, a $21.5 million note convertible into shares of common stock of XM Radio (the "Convertible Note Payable to Related Party" or "Baron XM Radio Convertible Note".) The Baron XM Radio Convertible note was indexed to XM Radio stock. Due to a decrease in value of XM Radio stock, from December 31, 1999 to January 12, 2000, the Company recorded an unrealized gain of $3.9 million in the first quarter of 2000. On January 13, 2000, Baron notified the Company of its intention to exchange the Baron XM Radio Convertible Note for 1,314,914 shares of XM Radio Class B Stock, subsequently converted to Class A Stock on a one-for-one basis. The exchange of the convertible note resulted in a non-recurring gain of $32.9 million at March 31, 2000 computed as the difference in the carrying value of the Baron XM Radio Convertible Note and the Company's cost basis in XM Radio stock exchanged upon conversion of this note. XM Radio Financing In the first quarter of 2000, XM Radio completed a supplemental stock offering of 4.4 million shares of Class A Common Stock, at $32 per share, and 2.0 million shares of newly designated Series B convertible redeemable preferred stock, at $50 per share. The Series B convertible redeemable preferred stock provides for 8.25% cumulative dividends that may be paid in Class A common stock or cash. The Series B convertible redeemable preferred stock is convertible into Class A common stock at a conversion price of $40 per share and is redeemable in Class A common stock on February 3, 2003. Net proceeds raised from this stock offering were approximately $228.6 million. In March 2000, XM Radio completed a high yield debt offering of 325,000 units, each unit consisting of $1,000 principal amount of 14% Senior Secured Notes due 2010 and one warrant to purchase 8.024815 shares of Class A common stock of XM Radio at an exercise price of $49.50 per share. XM Radio realized net proceeds of $191.3 million, excluding $123.0 million used to acquire securities which will be used to pay interest payments due under the notes for the first three years. 10 In connection with this stock offering and in accordance with Staff Accounting Bulletin 51 (SAB 51), the Company recorded an increase to its investment in XM Radio in the first quarter of 2000 of approximately $ 62.8 million to reflect the increase in the net book value of XM Radio. SAB 51 addresses the accounting for sale of stock by a subsidiary. Since XM Radio is a development stage company, SAB 51 requires that the difference in the carrying amount of the Company's investment in XM Radio and the net book value of XM Radio after the equity transactions, be reflected as a capital transaction. Accordingly the $62.8 million increase to the Company's investment in XM Radio, is reflected as an addition to additional paid-in capital in the accompanying consolidated condensed balance sheet. As a result of the conversion of the Baron XM Radio Convertible Note, the supplemental stock offering by XM Radio, and XM Radio's high yield debt offering, the Company's voting interest in XM Radio was further reduced to 61.0%, while its equity interest was reduced to 34.4% (or 25.5% on a fully diluted basis). 5. COMMITMENTS AND CONTINGENCIES At March 31, 2000, the Company had remaining contractual commitments to purchase subscriber equipment inventory, primarily related to eLink and MobileMAX2, in the maximum amount of $36.0 million during 2000 and 2001. The Company has the right to terminate certain of these commitments by incurring a cancellation penalty representing a percentage of the unfulfilled portion of the contract. As of March 31, 2000 the cancellation penalty would have been approximately $6.1 million. The Company has also contracted for the purchase of $9.5 million of base stations to expand its coverage and complete certain necessary site build-outs, $0.1 million for certain software development, and certain other operating expense contract commitments that total approximately $1.0 million over the next year. The aggregate fixed and determinable portion of all inventory commitments and obligations for other fixed contracts is $46.6 million, of which $29.4 million is due in 2000 and the remainder of $17.2 million is due in 2001. XM Radio is also subject to certain commitments and contingencies. XM Radio has a distribution agreement with General Motors that will require significant expenditures in the future. Under its satellite contract with Hughes Space and Communications, Inc., XM Radio will incur payment obligations of approximately $541.3 million of which $242.8 million had been paid as of March 31, 2000. XM Radio has signed a contract with LCC International, Inc., for the engineering of its terrestrial repeater network with total contract payments expected to be approximately $115 million through 2001. As of March 31, 2000, XM Radio has paid $10.4 million under this contract. Effective October 1999, XM Radio signed a contract with Hughes Electronics Corporation for the design, development, and purchase of terrestrial repeater equipment. The total value of this contract is $128 million and XM Radio has paid $6.0 million under this contract as of March 31, 2000. On February 16, 2000, XM Radio and Sirius Satellite Radio, a competitor of XM Radio, signed an agreement to develop a unified standard for satellite radios to facilitate the ability of consumers to purchase one radio capable of receiving both XM Radio's and Sirius Satellite Radio's services. Refer to XM Radio's filings with the SEC for additional information regarding these contractual commitments. 6. LEGAL AND REGULATORY MATTERS Like other mobile service providers in the telecommunications industry, the Company is subject to substantial domestic, foreign and international regulation including the need for regulatory approvals to operate and expand the satellite network and operate and modify subscriber equipment. The ownership and operation of the mobile satellite services system and ground-based two-way wireless data system are subject to the rules and regulations of the FCC, which acts under authority granted by the Communications Act and related federal laws. Among other things, the FCC allocates portions of the radio frequency spectrum to certain services and grants licenses to and regulates individual entities using the spectrum. Motient operates pursuant to various licenses granted by the FCC. The successful operation of the satellite network is dependent on a number of factors, including the amount of L-band spectrum made available to the Company pursuant to an international coordination process. The United States is 11 currently engaged in an international process of coordinating the Company's access to the spectrum that the FCC has assigned to the Company. This international coordination process is not yet complete. In the absence of a coordination agreement, Motient must operate its system on a non- interference basis. The inability of the United States government to secure sufficient spectrum could have an adverse effect on the Company's financial position, results of operations and cash flows. The Company has the necessary regulatory approvals, some of which are pursuant to special temporary authority, to continue its operations as currently contemplated. The Company has filed applications with the FCC and expects to file applications in the future with respect to the continued operations, change in operation and expansion of the network and certain types of subscriber equipment. Certain of its applications pertaining to future service have been opposed. While the Company, for various reasons, believes that it will receive the necessary approvals on a timely basis, there can be no assurance that the requests will be granted, will be granted on a timely basis or will be granted on conditions favorable to the Company. Any significant changes to the applications resulting from the FCC's review process or any significant delay in their approval could adversely affect the Company's financial position, results of operations and cash flows. On November 30,1999, the FCC granted two applications to use TMI Communications and Company, Limited Partnership's (TMI) Canadian- licensed system to provide service in the United States to up to 125,000 mobile terminals. TMI's system operates in the MSS L-Band and has a satellite footprint that covers the United States. Motient is currently appealing the FCC's grant of these applications to the United States Court of Appeals for the D.C. Circuit. There is no assurance that this appeal will be successful. TMI's entry into the domestic U.S. marketplace provides additional competition to Motient and may increase TMI's demand for spectrum in the international coordination process. The FCC might grant additional applications to use TMI's system or other foreign-licensed L-Band systems. Such action would provide additional competition and increase demand for spectrum in the international coordination process. Motient is authorized to build, launch, and operate three geosynchronous satellites in accordance with a specific schedule. Motient is not in compliance with the schedule for commencement and construction of its second and third satellites and has petitioned the FCC for changes to the schedule. Certain of these extension requests have been opposed by third parties. The FCC has not acted on Motient's requests. The FCC has the authority to revoke the authorizations for the second and third satellites and in connection with such revocation could exercise its authority to rescind Motient's license. Motient believes that the exercise of such authority to rescind the license is unlikely. The term of the license for each of Motient's three authorized satellites is ten years, beginning when Motient certifies that the respective satellite is operating in compliance with Motient's license. The ten-year term of MSAT-2 began August 21, 1995. Although Motient anticipates that the authorization for MSAT-2 is likely to be extended in due course to correspond to the useful life of the satellite and a new license granted for any replacement satellites, there is no assurance of such extension or grants. XM Radio is also subject to the rules and regulations of the FCC. The FCC has established certain system development milestones that must be met in order for XM Radio to maintain its license to operate its satellite system. XM Radio believes it is in compliance with the FCC milestones. One of the bidders for the DARS licenses filed an Application for Review by the FCC of the Licensing Order which granted XM Radio its FCC license. The Application for Review alleges that a prior XM Radio shareholder had effectively taken control of XM Radio without the approval of the FCC. The FCC or the U.S. Court of Appeals has the authority to overturn the award of the FCC license to XM Radio. XM Radio believes that it should be able to maintain its FCC license since the party referenced is no longer a stockholder of XM Radio. XM Radio is unable to predict the outcome of this Application for Review. In January 1999, a competitor of XM Radio, Sirius Radio, filed an action against XM Radio for patent infringement. In February 2000, this suit was resolved in accordance with the terms of a joint development agreement between XM Radio and Sirius Radio and both companies agreed to cross-license their respective property. 7. FINANCIAL STATEMENTS OF SUBSIDIARIES In connection with the Company's acquisition of Motient Communications Company (formerly known as ARDIS Company) on March 31, 1998, (the "Motient Communications Acquisition") and related financing discussed above, the Company 12 formed a new wholly-owned subsidiary, Motient Holdings Inc. ("Motient Holdings"). The Company contributed all of its inter-company notes receivables and transferred its rights, title and interests in Motient Services Inc. and certain other subsidiaries that were subsequently dissolved (together with Motient Communications, the "Subsidiary Guarantors") to Motient Holdings, and Motient Holdings was the acquirer of Motient Communications and the issuer of the Senior Notes. Motient Corporation ("Motient Parent") is a guarantor of the Senior Notes. The Senior Notes contain covenants that, among other things, limit the ability of Motient Holdings and its Subsidiaries to incur additional indebtedness, pay dividends or make other distributions, repurchase any capital stock or subordinated indebtedness, make certain investments, create certain liens, enter into certain transactions with affiliates, sell assets, enter into certain mergers and consolidations, and enter into sale and leaseback transactions. The Senior Notes are jointly and severally guaranteed on full and unconditional basis by the Subsidiary Guarantors and Motient Parent. The following unaudited condensed consolidating information for these entities presents: o Condensed consolidating balance sheets as of March 31, 2000 and December 31, 1999 and the condensed consolidating statements of operations and cash flows for the three months ended March 31, 2000 and 1999. o Elimination entries necessary to combine the entities comprising Motient. 13 Condensed Consolidating Balance Sheet As of March 31, 2000 (unaudited) (in thousands)
Consolidated Consolidated Subsidiary Motient Motient Motient Motient Guarantors Holdings Eliminations Holdings Parent XM Radio Eliminations Parent ---------- -------- ------------ -------- ------ -------- ------------ ------ ASSETS ------ CURRENT ASSETS: Cash and cash equivalents $ 594 $ -- $ -- $ 594 $ -- $ 448,037 $ -- $ 448,631 Inventory 36,040 -- -- 36,040 -- -- -- 36,040 Prepaid in-orbit insurance 2,045 -- -- 2,045 -- -- -- 2,045 Accounts receivable-- net 17,073 -- -- 17,073 -- -- -- 17,073 Restricted short-term investments -- 41,038 -- 41,038 -- 58,817 -- 99,855 Other current assets 8,192 -- -- 8,192 2,518 1,200 -- 11,910 ----- ------ -- ----- ------ ------- ------ ------ Total current assets 63,944 41,038 -- 104,982 2,518 508,054 -- 615,554 PROPERTY AND EQUIPMENT-- NET 128,388 -- (12,422) 115,966 -- 7,949 -- 123,915 SYSTEM UNDER CONSTRUCTION -- -- -- -- -- 437,274 (5,080) 432,194 GOODWILL AND INTANGIBLES-- NET 50,398 -- -- 50,398 -- 25,037 (14,089) 61,346 INVESTMENT IN XM RADIO -- -- -- -- 234,421 -- (234,421) -- INVESTMENT IN/DUE FROM SUBSIDIARY -- 192,135 (192,135) -- (196,903) -- 196,903 -- DEFERRED CHARGES AND OTHER ASSETS-- NET 3,039 25,926 -- 28,965 (11,326) 14,233 -- 31,872 RESTRICTED INVESTMENTS 2,500 19,593 -- 22,093 13,022 79,599 -- 114,714 ----- ------ --------- ------ ------- ------ ------- ------- Total assets $248,269 $278,692 $(204,557) $322,404 $41,732 $1,072,146 $(56,687) $1,379,595 ======== ======== ========== ======== ======= ========== ========= ==========
14 Condensed Consolidating Balance Sheet (Continued) As of March 31, 2000 (unaudited) (in thousands)
Consolidated Consolidated Subsidiary Motient Motient Motient Motient Guarantors Holdings Eliminations Holdings Parent XM Radio Eliminations Parent ---------- -------- ------------ -------- ------ -------- ------------ ------ LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) ---------------------------------------------- CURRENT LIABILITIES: Accounts payable and accrued expenses $25,434 $ 21,128 $ -- $ 46,562 $ 562 $ 39,462 $ -- $ 86,586 Obligations under capital leases due within one year 4,551 -- -- 4,551 -- 149 -- 4,700 Current portion long-term debt 5,760 -- -- 5,760 -- -- -- 5,760 Other current liabilities -- -- -- -- -- 1,869 -- 1,869 ------- -------- -------- -------- ------ -------- -------- -------- Total current liabilities 35,745 21,128 -- 56,873 562 41,480 -- 98,915 DUE TO PARENT/ AFFILIATE 811,306 -- (811,368) (62) (34,019) 62 34,019 -- LONG-TERM LIABILITIES: Note payable to/from Issuer/Parent -- 14,000 -- 14,000 (14,000) -- -- -- Obligations under Bank Financing -- 79,000 -- 79,000 41,000 -- -- 120,000 Senior Notes, net of discount -- 327,800 -- 327,800 -- 259,528 -- 587,328 Other long-term debt 4,339 -- -- 4,339 -- -- -- 4,339 Capital lease obligations 644 -- -- 644 -- 202 -- 846 Net assets acquired in excess of purchase price 1,159 -- -- 1,159 -- -- -- 1,159 Other long-term liabilities 1,887 -- -- 1,887 -- 3,200 -- 5,087 ----- ------- ----- ------ ------- ------- ----- ------- Total long-term liabilities 8,029 420,800 -- 428,829 27,000 262,930 -- 718,759 Total liabilities 855,080 441,928 (811,368) 485,640 (6,457) 304,472 34,019 817,674 ------- ------- --------- ------- -------- ------- ------- ------- MINORITY INTEREST -- -- -- -- -- -- 513,732 513,732 STOCKHOLDERS' EQUITY (DEFICIT) (606,811) (163,236) 606,811 (163,236) 48,189 767,674 (604,438) 48,189 -------- -------- ------- ------- ------- ------- ------ ------- Total liabilities,minority interest, and stockholders' equity (deficit) $248,269 $278,692 $(204,557) $322,404 $41,732 $1,072,146 $(56,687) $1,379,595 ======== ======== ========= ======== ======= ========== ========== ==========
15 Condensed Consolidating Balance Sheet As of December 31, 1999 (Unaudited) (In Thousands)
Consolidated Consolidated Subsidiary Motient Motient Motient Motient Guarantors Holdings Eliminations Holdings Parent XM Radio Eliminations Parent ---------- -------- ------------ -------- ------ -------- ------------ ------ ASSETS ------ CURRENT ASSETS: Cash and cash equivalents $ 776 $ -- -- $ 776 $ -- $ 50,698 $ -- $ 51,474 Short-term investments -- -- -- -- -- 69,472 -- 69,472 Inventory 28,616 -- -- 28,616 -- -- -- 28,616 Prepaid in-orbit insurance 3,381 -- -- 3,381 -- -- -- 3,381 Accounts receivable--net 16,594 -- -- 16,594 -- -- -- 16,594 Restricted short-term investments -- 41,038 -- 41,038 -- -- -- 41,038 Other current assets 6,074 -- -- 6,074 2,568 1,077 -- 9,719 ----- ------ ------- ----- ----- ----- ----- ------ Total current assets 55,441 41,038 -- 96,479 2,568 121,247 -- 220,294 PROPERTY AND EQUIPMENT-- NET 126,914 -- (12,949) 113,965 -- 2,551 -- 116,516 SYSTEM UNDER CONSTRUCTION -- -- -- -- -- 362,358 (5,080) 357,278 GOODWILL AND INTANGIBLES-- NET 51,158 -- -- 51,158 -- 25,380 (14,327) 62,211 INVESTMENT IN XM RADIO -- -- -- -- 190,757 -- (190,757) -- INVESTMENT IN/DUE FROM SUBSIDIARY -- 176,450 (176,450) -- (148,913) -- 148,913 -- DEFERRED CHARGES AND OTHER ASSETS-- NET 2,977 26,507 -- 29,484 (10,597) 3,653 -- 22,540 RESTRICTED INVESTMENTS 320 18,360 -- 18,680 12,429 -- -- 31,109 -------- -------- ---------- -------- --------- -------- --------- -------- Total assets $236,810 $262,355 $(189,399) $309,766 $46,244 $515,189 $(61,251) $809,948 ======== ======== ========= ======== ======== ======== ======== ========
16 Condensed Consolidating Balance Sheet (Continued) As of December 31, 1999 (Unaudited) (In Thousands)
Consolidated Consolidated Subsidiary Motient Motient Motient Motient Guarantors Holdings Eliminations Holdings Parent XM Radio Eliminations Parent ---------- -------- ------------ -------- ------ -------- ------------ ------ LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) ---------------------------------------------- CURRENT LIABILITIES: Accounts payable and accrued expenses $31,073 $ 10,866 $ -- $ 41,939 $ 1,266 $ 24,680 $ -- $ 67,885 Obligations under capital leases due within one year 5,982 -- -- 5,982 -- 172 -- 6,154 Current portion long-term debt 5,960 -- -- 5,960 -- -- -- 5,960 Other current liabilities -- -- -- -- -- 1,646 -- 1,646 ------ ------- ------ -------- ------ ------ -------- ------ Total current liabilities 43,015 10,866 -- 53,881 1,266 26,498 -- 81,645 DUE TO PARENT/ AFFILIATE 769,564 -- (769,626) (62) (14,934) 62 14,934 -- LONG-TERM LIABILITIES: Note payable to/from Issuer/Parent -- 14,000 -- 14,000 (14,000) -- -- -- Obligations under Bank Financing -- 44,000 -- 44,000 41,000 -- -- 85,000 Senior Notes, net of discount -- 327,576 -- 327,576 -- -- -- 327,576 Other long-term debt 2,535 -- -- 2,535 50,138 -- -- 52,673 Capital lease obligations 35 -- -- 35 -- 212 -- 247 Net assets acquired in excess of purchase price 1,333 -- -- 1,333 -- -- -- 1,333 Other long-term liabilities 555 -- -- 555 -- 3,400 -- 3,955 ----- ------- -------- ------- ------ ------ ------- ------- Total long-term liabilities 4,458 385,576 -- 390,034 77,138 3,612 -- 470,784 Total liabilities 817,037 396,442 (769,626) 443,853 63,470 30,172 14,934 552,429 ------- ------- --------- ------- ------ ------ ------- ------- MINORITY INTEREST -- -- -- -- -- -- 274,745 274,745 STOCKHOLDERS' EQUITY (DEFICIT) (580,227) (134,087) 580,227 (134,087) (17,226) 485,017 (350,930) (17,226) -------- -------- ------- -------- ------- ------- ------- ------- Total liabilities,minority interest, and stockholders' equity (deficit) $236,810 $262,355 $(189,399) $309,766 $46,244 $515,189 $(61,251) $809,948 ======== ======== ========= ======== ======== ======= ======== ========
17 Condensed Consolidating Statement of Operations Three Months ended March 31, 2000 (Unaudited) (In thousands)
Consolidated Consolidated Subsidiary Motient Motient Motient Motient Guarantors Holdings Eliminations Holdings Parent XM Radio Eliminations Parent ---------- -------- ------------ -------- ------ -------- ------------ ------ REVENUES Services $ 17,152 $ -- $ -- $ 17,152 $ 1,200 $ -- $ (1,200) $ 17,152 Sales of equipment 5,018 -- -- 5,018 -- -- -- 5,018 ------ ------ ------ ------ ------ ------ ------ ------ Total Revenues 22,170 -- -- 22,170 1,200 -- (1,200) 22,170 COSTS AND EXPENSES Cost of service and operations 18,018 -- -- 18,018 -- -- -- 18,018 Cost of equipment sold 5,256 -- -- 5,256 -- -- -- 5,256 Sales and advertising 6,225 -- -- 6,225 1 -- -- 6,226 General and administrative 6,117 335 -- 6,452 275 16,385 (1,200) 21,912 Depreciation and amortization 8,829 -- -- 8,829 -- 503 (238) 9,094 ----- ----- ----- ------- ----- ------ ------ ----- Operating Loss (22,275) (335) -- (22,610) 924 (16,888) 238 (38,336) Interest and Other Income 90 5,076 (3,843) 1,323 (20) 4,150 (251) 5,202 Gain on Conversion of Convertible Note Payable to Related Party -- -- -- -- 32,854 -- -- 32,854 Unrealized Gain on Convertible Note Payable to Related Party -- -- -- -- 3,925 -- -- 3,925 Minority Interest in XM Radio's Losses -- -- -- -- -- -- 7,342 7,342 Equity in Loss of Subsidiaries -- (26,584) 26,584 -- (40,660) -- 40,660 -- Interest Expense (4,399) (13,419) 3,843 (13,975) (1,255) (2) 251 (14,981) ----- ------ ------- ------ -------- -------- ------- ------ NET LOSS BEFORE PREFERRED STOCK DIVIDEND (26,584) (35,262) 26,584 (35,262) (4,232) (12,740) 48,240 (3,994) Preferred Stock Dividend Declared -- -- -- -- (506) (1,472) 1,472 (506) NET LOSS ATTRIBUTABLE TO --------- --------- ------- --------- -------- --------- ------- -------- COMMON SHAREHOLDERS ($26,854) ($35,262) $26,854 ($35,262) ($4,738) ($14,212) $49,712 ($4,500) ========= ======= ======= ========= ======== ========= ======== ========
18 Condensed Consolidating Statement of Operations Three Months ended March 31, 1999 (Unaudited) (In Thousands)
Consolidated Consolidated Subsidiary Motient Motient Motient Motient Guarantors Holdings Eliminations Holdings Parent Eliminations Parent ---------- -------- ------------ -------- ------ ------------ ------ REVENUES Services $ 16,164 $ -- $ -- $ 16,164 $ 300 $ (300) $ 16,164 Sales of equipment 4,066 -- -- 4,066 -- -- 4,066 ----- ----- ----- ------- ------- ------ ------- Total Revenues 20,230 -- -- 20,230 300 (300) 20,230 COSTS AND EXPENSES Cost of service and operations 17,870 -- -- 17,870 -- -- 17,870 Cost of equipment sold 4,528 -- -- 4,528 -- -- 4,528 Sales and advertising 4,749 -- -- 4,749 -- -- 4,749 General and administrative 4,543 336 -- 4,879 190 (300) 4,769 Depreciation and amortization 14,298 -- (526) 13,772 -- -- 13,772 ------ ----- ------ -------- ------- ------- ------- Operating Loss (25,758) (336) 526 (25,568) 110 -- (25,458) INTEREST AND OTHER INCOME 69 4,998 (3,886) 1,181 558 -- 1,739 EQUITY IN LOSS OF SUBSIDIARIES -- (29,818) 29,818 -- (40,691) 37,197 (3,494) INTEREST EXPENSE (4,129) (12,567) 3,886 (12,810) (3,120) -- (15,930) ------ ------- ------ -------- ------- ------- -------- NET LOSS ($29,818) ($37,723) $30,344 ($37,197) ($43,143) $37,197 ($43,143) ========= ========= ======= ========= ========= ========= =========
19 Condensed Consolidating Statement of Cash Flow Three Months Ended March 31, 2000 (Unaudited) (In thousands)
Consolidated Consolidated Subsidiary Motient Motient Motient Motient Guarantors Holdings Eliminations Holdings Parent XM Radio Eliminations Parent ---------- -------- ------------ -------- ------ -------- ------------ ------ CASH FLOWS FROM OPERATING ACTIVITIES: Net loss ($26,584) ($35,262) $26,584 ($35,262) ($4,232) ($12,740) $48,240 ($3,994) Adjustments to reconcile net loss to net cash (used in) provided by operating activities: Amortization of Guarantee Warrants and debt related costs -- 1,342 -- 1,342 1,600 -- -- 2,942 Depreciation and amortization 8,829 -- -- 8,829 -- 503 (238) 9,094 Non cash stock compensation of XM Radio -- -- -- -- -- 658 -- 658 Minority Interest -- -- -- -- -- -- (7,342) (7,342) Gain on conversion on convertible note payable to related party -- -- -- -- (32,854) -- -- (32,854) Unrealized gain on marketable securities -- -- -- -- (3,925) -- -- (3,925) Changes in assets & liabilities Inventory (7,424) -- -- (7,424) -- -- -- (7,424) Prepaid in-orbit insurance 1,336 -- -- 1,336 -- -- -- 1,336 Trade accounts receivable (584) -- -- (584) -- -- -- (584) Other current assets (2,103) -- -- (2,103) 60 (123) -- (2,166) Accounts payable and accrued expenses (15,901) 10,262 -- (5,639) (704) 4,490 -- (1,853) Accrued interest on Senior Note -- 10,259 -- 10,259 -- -- -- 10,259 Deferred trade payables (1,842) -- -- (1,842) -- -- -- (1,842) Deferred Items-- net 1,276 -- -- 1,276 (119) -- -- 1,157 ----- ------- ------ ----- ---- ----- ----- ------ Net cash (used in) provided by operating activities (42,997) (13,399) 26,584 (29,812) (40,174) (7,212) 40,660 (36,538) CASH FLOWS FROM INVESTING ACTIVITIES: Additions to property & equipment (4,896) -- -- (4,896) -- (4,929) -- (9,825) System under construction -- -- -- -- -- (62,422) -- (62,422) Net Purchase/Maturity of short-term investments -- -- -- -- -- 69,472 -- 69,472 Other investing activities by XM Radio -- -- -- -- -- (18,493) -- (18,493) Purchase of long-term, restricted investments (2,180) (1,234) (3,414) (593) (123,416) -- (127,423) ------- ------- ------ ------- ----- -------- ------ --------- Net cash used in investing activities (7,076) (1,234) -- (8,310) (593) (139,788) -- (148,691)
20
Consolidated Consolidated Subsidiary Motient Motient Motient Motient Guarantors Holdings Eliminations Holdings Parent XM Radio Eliminations Parent ---------- -------- ------------ -------- ------ -------- ------------ ------ CASH FLOWS FROM FINANCING ACTIVITIES: Issuance of Common and Preferred Stock -- -- -- -- 5,168 229,093 -- 234,261 Funding from parent/subsidiary 52,012 (20,367) (26,584) 5,061 35,599 -- (40,660) -- Principal payments under capital leases (1,627) -- -- (1,627) -- -- -- (1,627) Principal payments under Vendor Financing (494) -- -- (494) -- -- -- (494) Proceeds from Senior Secured Notes and Stock Purchase Warrants -- -- -- -- -- 325,000 -- 325,000 Proceeds from bank financing -- 35,000 -- 35,000 -- -- -- 35,000 Debt issuance costs -- -- -- -- -- (9,754) -- (9,754) ------- ------- ------- ----- ----- ------- ----- ------ Net cash provided by (used in) financing activities 49,891 14,633 (26,584) 37,940 40,767 544,339 (40,660) 582,386 Net (decrease)increase in cash and cash equivalents (182) -- -- (182) -- 397,339 -- 397,157 CASH & CASH EQUIVALENTS, beginning of period 776 -- -- 776 -- 50,698 -- 51,474 --- ------ ------ ----- ------ ------ ------ ------- CASH & CASH EQUIVALENTS, end of period $594 $ -- $ -- $594 $ -- $448,037 $ -- $448,631 ==== ====== ====== ==== ====== ======== ====== ========
21 Condensed Consolidating Statement of Cash Flow Three Months Ended March 31, 1999 (Unaudited) (In thousands)
Consolidated Consolidated Subsidiary Motient Motient Motient Motient Guarantors Holdings Eliminations Holdings Parent Eliminations Parent ---------- -------- ------------ -------- ------ ------------ ------ CASH FLOWS FROM OPERATING ACTIVITIES: Net Loss ($29,818) ($37,723) $30,344 ($37,197) ($43,143) $37,197 ($43,143) Adjustments to reconcile net loss to net cash (used in) provided by operating activities: Amortization of guarantee warrants, debt discount and issuance costs -- 1,786 -- 1,786 2,766 -- 4,552 Depreciation and amortization 13,772 -- -- 13,772 -- -- 13,772 Equity in loss in XM Radio -- -- -- -- 3,494 -- 3,494 Changes in assets & liabilities Inventory 1,153 -- -- 1,153 -- -- 1,153 Prepaid in-orbit insurance 1,449 -- -- 1,449 -- -- 1,449 Accounts receivable-- trade (1,427) -- -- (1,427) -- -- (1,427) Other current assets (1,444) 20 -- (1,424) 55 -- (1,369) Accounts payable and accrued expenses (29,338) 38,055 -- 8,717 421 -- 9,138 Accrued interest on Senior Notes -- (570) -- (570) -- -- (570) Deferred trade payables (2,092) -- -- (2,092) -- -- (2,092) Deferred items-- net (542) -- -- (542) (389) -- (931) ---- ----- ------ -------- -------- ----- ---- Net cash (used in) provided by operating activities (48,287) 1,568 30,344 (16,375) (36,796) 37,197 (15,974) CASH FLOWS FROM INVESTING ACTIVITIES: Additions to property & equipment (2,541) -- -- (2,541) -- -- (2,541) Purchase of XM Radio note receivable -- -- -- -- (21,419) -- (21,419) Purchase of long-term, restricted investments (22) (1,217) -- (1,239) (185) -- (1,424) ---- ------- ------ -------- ------- ----- ------- Net cash used in investing activities (2,563) (1,217) -- (3,780) (21,604) -- (25,384) CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from issuance of Common Stock -- -- -- -- 162 -- 162 Funding from parent 58,108 (27,351) (30,344) 413 36,784 (37,197) -- Principal payments under capital leases (1,322) -- -- (1,322) -- -- (1,322) Payments under Vendor Financing (90) -- -- (90) -- -- (90) Proceeds from bank financing -- 27,000 -- 27,000 -- -- 27,000 Debt issuance costs -- -- -- -- (46) -- (46)
22
Consolidated Consolidated Subsidiary Motient Motient Motient Motient Guarantors Holdings Eliminations Holdings Parent Eliminations Parent ---------- -------- ------------ -------- ------ ------------ ------ Proceeds from note payable to related party -- -- -- -- 21,500 -- 21,500 ------- ------- -------- ------- ------- ------- ------ Net cash provided by (used in) financing activities 56,696 (351) (30,344) 26,001 58,400 (37,197) 47,204 Net increase in cash and cash equivalents 5,846 -- -- 5,846 -- -- 5,846 CASH and CASH EQUIVALENTS, beginning of period 2,285 -- -- 2,285 -- -- 2,285 ----- ---- ------ ----- ----- ----- ------ CASH and CASH EQUIVALENTS, end of period $8,131 $ -- $ -- $8,131 $ -- $ -- $8,131 ====== ====== ====== ====== ====== ===== ======
23 PART I- FINANCIAL INFORMATION Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management's Discussion and Analysis of Financial Condition and Results of Operations This Quarterly Report on Form 10-Q includes "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. All statements regarding our expected financial position and operating results, our business strategy, and our financing plans and requirements are forward-looking statements. These statements can sometimes be identified by our use of forward-looking words or phrases such as, for example, "may," "will," "anticipate," "estimate," "expect," "project," or "intend." These forward-looking statements reflect our plans, expectations and beliefs, and, accordingly, are subject to certain risks and uncertainties. We cannot guarantee that any of such forward-looking statements will be realized. Factors that may cause actual results to differ materially from those contemplated by such forward-looking statements ("Cautionary Statements") include, among others, those described under the caption "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Overview," and elsewhere in this quarterly report, including in conjunction with the forward-looking statements included in this quarterly report. All of our subsequent written and oral forward-looking statements (or statements that may be attributed to us) are expressly qualified by the Cautionary Statements. You should carefully review the risk factors described in our other filings with the Securities and Exchange Commission (the "SEC") from time to time, including our registration statement on Form S-3 (File No. 333-81459), our Form 10-K Annual Report filed on March 30, 2000 and Form 10-Q Quarterly Reports to be filed by the Company subsequent to this Form 10-Q, as well as our other reports and filings with the SEC. In addition, you are urged to review carefully the Report on Form 8-K, dated February 25, 2000 (File No. 0-27441) of XM Satellite Radio Holdings Inc. ("XM Radio") describing the risk factors relating to its business, as well as XM Radio's Form 10-K Annual Report for 1999 and its other reports filed from time to time with the SEC. General This section provides information which we believe is relevant to an assessment and understanding of the financial condition and consolidated results of operations of Motient Corporation (with its subsidiaries, "Motient" or the "Company"). The discussion should be read in conjunction with the consolidated financial statements and notes thereto. Motient has six wholly-owned subsidiaries which, for purposes of this quarterly report, are referred to as the core wireless business, and a controlling interest in three other subsidiaries, referred to as XM Radio (defined below). On a consolidated basis, we refer to these entities as Motient. Core Wireless Business We are a leading provider of two-way mobile communications services principally to business-to-business customers and enterprises. Motient serves a variety of markets including mobile professionals, telemetry, transportation, field service, and nationwide voice dispatch, to customers in the United States. During 1999, we made substantial investments in two new products -- eLinksm and MobileMAX2TM. Our eLink service is a two-way wireless email device and electronic organizer that uses our terrestrial network. We believe that this product will capitalize on the rapid expansion of internet email usage, particularly in the business-to-business environment. We provide our industry-leading eLinksm two-way wireless email service to customers accessing email through corporate servers, Internet Service Providers (ISP) and Mail Service Provider (MSP) accounts, and paging network suppliers. MobileMAX2 is our second generation multi-mode mobile data messaging service which uses both our satellite and terrestrial networks to provide least-cost-routing capabilities. We believe MobileMAX2 will improve our competitive position in the transportation industry, since the product has a relatively low cost of entry, and contains added functionality that should allow us to increase our penetration of the less-than-truckload market. We expect that our rollout of eLink and MobileMAX2 will require a significant investment of financial resources. We believe that the market opportunity represented by these wireless data offerings is substantial, and we have decided to focus the majority of our available future resources on expanding our wireless data business. As a result of these factors and in light of certain regulatory developments in late 1999 with respect to our satellite voice business, we expect that the future level of investment in our voice business and satellite-related product lines will decrease as a percentage of our overall investment. While we expect that this shift in resources will ultimately yield an increase in our customer base, we expect that it will have the effect of driving down average revenue per unit as the percentage of voice customers decreases. 24 XM Radio As of March 31, 2000, we had an equity interest in XM Satellite Radio Holdings Inc. ("XM Radio") of approximately 34.4% (or 25.5% on a fully diluted basis) of the common stock of XM Radio; however, we continue to control XM Radio through Board of Director membership and common stock voting rights. We will continue to consolidate XM Radio until we no longer control XM Radio. We must request and receive FCC approval to relinquish control of XM Radio. Accordingly, the results of XM Radio are consolidated with our financial statements. On March 30, 2000, the FCC approved an application filed by XM Radio which would allow us to reduce our ownership of the voting stock of XM Radio to a minimum of 40%, provided that we retain our right to elect a majority of the directors of XM Radio's Board of Directors. We have not elected to reduce our voting shares in XM Radio and thus still maintain control of XM Radio. The operations and financing of XM Radio are maintained separate and apart from the operations and financing of Motient (see discussion of Liquidity and Capital Resources below). XM Radio completed its initial public offering in October 1999. Please refer to XM Radio's SEC reports and filings for more detail about its business plan, risks, and financial results. Our significant acquisitions in recent years and the impact of consolidating the results of XM Radio, make period to period comparison of our financial results less meaningful, and therefore, you should not rely on them as an indication of future operating performance. Overview We have incurred significant operating losses and negative cash flows in each year since we started operations, due primarily to start-up costs, the costs of developing and building the networks and the cost of developing, selling and providing our products and services. We are, and will continue to be, highly leveraged (see discussion of Liquidity and Capital Resources -- below). Our future operating results could be adversely affected by a number of uncertainties and factors, including: o the launch of new products or the entry into new market segments, which may require us to continue to incur significant operating losses, o our ability to fully recover the value of our inventory in a timely manner, o our ability to gain market acceptance of new products and services, including our new product offerings, eLink and MobileMAX2, o the timely roll-out of certain key customer initiatives and new products, including for example MobileMAX2, o our ability to respond and react to changes in our business and the industry because we have substantial indebtedness, o our ability to fund anticipated capital expenditures, operating losses and debt service requirements and our ability to secure additional financing as necessary, o our ability to modify the organization, strategy and product mix to maximize the market opportunities as the market changes, o our ability to manage growth effectively, o competition from existing companies that provide services using existing communications technologies and the possibility of competition from companies using new technology in the future, o our ability to maintain, on commercially reasonable terms or at all, certain technologies licensed from third parties, o the loss of one or more of our key customers, o the timely availability of an adequate supply of subscriber equipment at competitive price points, o our ability to expand our networks on a timely basis and at a commercially reasonable cost, or at all, as additional future demand increases, o regulation by the FCC, and technical anomalies that may occur within the network, which could impact, among other things, customer performance, satisfaction and revenue under contractual arrangements with certain customers, or the operation of the satellite network and the cost, scope or availability of in-orbit insurance. Additionally, XM Radio is a development stage company with no revenues, and its business is subject to a number of significant risks and uncertainties including the following: 25 o the ability to obtain additional financing necessary to complete the build out of its system and maintain operations until such time as it can reach cash flow positive, o satellite launch failure, destruction or damage during launch, and premature failure of XM Radio's satellite that will not be fully covered by insurance, o the ability of XM Radio to successfully integrate complex technologies into a technologically feasible configuration, o the timely availability of XM Radio subscriber equipment at competitive prices, o the ability of XM Radio to gain market acceptance of its service, and o the ability of XM Radio to achieve profitability given certain distribution agreement obligations and joint development funding requirements. The Company has a significant investment in XM Radio which may be effected by the foregoing risks and impact the market price of XM Radio's stock. For an expanded discussion of XM Radio's risk factors, please refer to XM Radio's Report on Form 8-K dated February 25, 2000 filed with the SEC. Three Months ended March 31, 2000 and 1999 Revenue and Subscriber Statistics Service revenues, which includes our data, voice, and capacity reseller services, approximated $17.2 million for the three months ended March 31, 2000, which constituted a $1.0 million, or 6% increase over the same period in 1999. The increase in service revenues quarter over quarter was primarily attributable to a 34% increase in subscribers, partially offset by average revenue per user price reductions. Three Months Ended March 31, Summary of Revenue 2000 1999 Change % Change ------------------ ---- ---- ------ -------- (in millions) Data Service $12.5 $12.0 $ 0.5 4% Voice Service 3.5 3.0 0.5 17 Capacity Resellers and Other 1.2 1.1 0.1 9 Equipment Revenue 5.0 4.1 0.9 22 --- --- --- -- Total $22.2 $20.2 $2.0 10% ===== ===== ==== == The increase in service revenue from voice services was primarily the result of an increase in our voice subscribers of approximately 5,600 from March 31, 1999 to March 31, 2000. This was offset by a decrease in our average revenue per unit ("ARPU") of 21%, caused by a shift in customer usage to lower-usage emergency response services and a continued drop in average revenue per user for our maritime customers. Our data service revenue increased as a result of approximately 32,400 additional subscribers at March 31, 2000. This was offset by a 20% decrease in ARPU caused by scheduled calendar year contract price reductions as well as a shift in customers to our data product line, which typically has a lower ARPU, and a change in subscriber mix among market segments. Service revenue from capacity resellers, who handle both voice and data services, increased primarily as a result of increased contract commitments from current customers. The increase in revenue from the sale of equipment reflects the sale of hardware equipment associated with our eLink and MobileMAX2 service offerings, offset by a decrease in sales of single-mode and voice equipment, which we expect to continue as we shift away from the voice business and with the introduction of MobileMAX2. As is common in our industry, we report subscriber information and average revenue per unit per month statistics. Although these measures are not required under Generally Accepted Accounting Principles ("GAAP"), we believe that this information helps to demonstrate important trends in our business. 26 Average Revenue Subscribers per Unit Three Months Ended Three Months Ended March 31, March 31, 2000 1999 2000 1999 ---- ---- ---- ---- Data 131,949 99,523 $ 35 $ 44 Voice 19,084 13,435 67 85 ------ ------ Total 151,033 112,598 $ 39 $ 49 ======= ======= Additionally, our mix of subscribers can be broken down into the following markets: As of March 31, 2000 1999 ---- ---- Field Service 30% 44% Transportation 42% 31% Telemetry 9% 10% Maritime 4% 3% eLink 4% -- Other 11% 12% As the mix of subscribers shifts more to our data business, and more of the voice business is handled by resellers, we expect that the overall average revenue per unit will continue to decline over time towards the average revenue per unit for data service. Expenses Three Months Ended March 31, Summary of Expenses 2000 1999 Change % Change ------------------- ---- ---- ------ -------- (in millions) Cost of Service & Operations $ 18.0 $ 17.9 $ 0.1 1% Cost of Equipment Sales 5.3 4.5 0.8 18 Sales & Advertising 6.2 4.7 1.5 32 General & Administrative 21.9 4.8 17.1 356 Depreciation & Amortization 9.1 13.8 (4.7) (34) --- ---- ----- ---- Total $60.5 $45.7 $14.8 32% ===== ===== ===== == Effective July 7, 1999, we assumed control of XM Radio and we consolidated its results with ours from that point forward. Consequently, the March 31, 2000 results reflect the costs of the consolidated entity. The March 31, 1999 expenses do not include XM Radio as it was accounted for under the equity method of accounting at that point in time. Cost of service and operations includes costs to support subscribers and to operate the network. As a percentage of total revenues, cost of service and operations was 81% for the three months ended March 31, 2000 and 88% for the same period in 1999. The slight dollar increase in cost of service and operations was primarily attributable to (i) an increase of $0.6 million for communication charges associated with increased service usage and costs to support the terrestrial network, and (ii) an increase of $0.2 million for site rental costs associated with the terrestrial network, offset by a reduction of approximately $1.0 million in Year 2000 costs and approximately $0.2 million in lower in-orbit insurance due a lower fair market value of the satellite. XM Radio did not incur any cost of service and operations expenses during the quarter ended March 31, 2000. The cost of equipment sold increased $0.8 million, or 18%, from $4.5 million for the three months ended March 31, 1999 to $5.3 million for the three months ended March 31, 2000. The increase quarter over quarter in the cost of equipment sold was proportionate to the increase in equipment revenue, which reflects the roll-out of our MobileMAX2 equipment in the first quarter of 2000 offset by a decrease in sales of single-mode and voice equipment. The 32% increase in sales and advertising expenses from the three months ended March 31, 1999 to the three months ended March 31, 2000 was primarily attributable to (i) increased employee sales commissions, (ii) increased trade show activity in the first quarter of 2000 compared to the same period in 1999, (iii) costs incurred in connection with our company name change in April 2000, (iv) an increase in advertising in the first quarter of 2000 to heighten our presence in the marketplace particularly in the transportation market in anticipation of the rollout of MobileMAX2, and (v) eLink customer acquisition costs. We expect these costs to continue to increase as we increase our customer 27 acquisitions and brand recognition efforts. XM Radio did not incur any sales and advertising expenses in the first quarter of 2000. General and administrative expenses were $21.9 million in the first quarter of 2000, of which $16.4 million were related to XM Radio. Excluding XM Radio expenses, general and administrative expenses represented 25% and 24% of total revenue for the three months ended March 31, 2000 and 1999, respectively. The $0.8 million increase in our core wireless business general and administrative expenses was attributable to (i) an increase in headcount from the prior year causing an increase in employee-related costs, and (ii) a $0.1 million increase in regulatory costs, associated with our appeal of the FCC's decision to grant applications to competitors to provide mobile satellite services in the United States. See "Regulation" below. Depreciation and amortization expenses were $9.1 million in the first quarter of 2000, of which $0.2 million was incurred by XM Radio. Excluding XM Radio, depreciation and amortization was approximately 41% and 68% of total revenue for the three months ended March 31, 2000 and 1999, respectively. The $4.9 million decrease in depreciation and amortization expense was primarily attributable to the $97.4 million asset impairment charge related to our satellite and satellite related ground segment assets taken in the fourth quarter of 1999. This will result in a reduction in depreciation expense of approximately $4.1 million per quarter. Interest and other income, including that earned by XM Radio, was $5.2 million for the first quarter of 2000, as compared to $1.7 million for the same period in 1999. Excluding $4.2 million of interest earned by XM Radio on its short-term investments, the decrease of $0.7 million was a result of lower balances on escrows established with the proceeds from the $335 million debt offering. We incurred $15.0 million of interest expense in the first quarter of 2000, of which a minimal amount was incurred by XM Radio, compared to $16.0 million of interest expense in the first quarter of 1999. The decrease was a result of a $1.6 million decrease in amortization of debt discount, prepaid interest and debt offering costs due to the debt discount costs that were written off in 1999 when we extinguished $59 million of debt on the Term Loan Facility, offset by a $20 million higher debt balance on our Revolving Credit Facility quarter over quarter. We expect that interest costs will continue to increase as we continue to draw down on our bank revolver. In January 1999, we issued a note payable in the amount of $21.5 million to Baron Asset Fund, a stockholder and a guarantor of our bank facility. The note was secured and exchangeable for a portion of our shares of XM Radio. Since the note was indexed to XM Radio stock, which decreased in value from December 1999 to January 2000, we recorded an unrealized gain before the note was exchanged in the amount of $3.9 million. The note payable was exchanged for XM Radio stock in January 2000, and we recorded a non-recurring gain of $32.9 million for the difference between the carrying value of the debt and XM Radio stock exchanged to settle the obligation. Net capital expenditures, excluding XM Radio, for the first quarter of 2000 for property and equipment were $4.9 million compared to $2.5 million in the same period of 1999. Expenditures consisted primarily of assets necessary to continue the build out of our terrestrial network. In addition, XM Radio expended $4.9 million in the first quarter of 2000 primarily for office furniture and equipment. Net capital expenditures for property under construction represent those costs associated with the build out of the XM Radio network. It is anticipated that these expenditures will continue to be significant as XM Radio continues to build out its satellites and ground segments. For the first quarter of 2000, XM Radio expended $62.4 million for property under construction. Liquidity and Capital Resources Core Wireless Business Adequate liquidity and capital are critical to our ability to continue as a going concern and to fund subscriber acquisition programs necessary to achieve positive cash flow and profitable operations. We expect to continue to make significant capital outlays to fund interest expense, new product rollouts, capital expenditures and working capital before we begin to generate positive cash flow from operations. We expect these outlays to continue for the foreseeable future. 28 Summary of Liquidity and Financing Sources for Core Wireless Business Our current operating assumptions and projections reflect our best estimate of subscriber and revenue growth and operating expenses. We anticipate that capital expenditures, operating losses, working capital and debt service requirements through 2000, and beyond, can be met by (i) the borrowings available under the bank financing and the vendor financing, (ii) proceeds from the exercise of stock options and warrants (iii) proceeds realized through the sale of inventory relating to our new products-eLink and MobileMAX2, and (iv) additional debt or equity financing transactions. We also believe that our investment in XM Radio may provide us, in the future, with flexibility for obtaining additional liquidity, should that be necessary. However, there are various restrictions on our ability to realize liquidity on our investment in XM Radio. Our ability to meet our projections is subject to numerous uncertainties and we cannot guarantee that our current projections regarding the timing of our ability to achieve positive operating cash flow will be accurate. If our cash requirements are more than projected, we may require additional financing in amounts which may be material. The type, timing and terms of financing that we select will be dependent upon our cash needs, the availability of other financing sources and the prevailing conditions in the financial markets. We cannot guarantee that additional financing sources will be available at any given time or available on favorable terms. Our current financing arrangements are summarized below: o A $141 million bank financing facility, consisting of (i) a $100 million unsecured five-year reducing revolving credit facility and (ii) a $41 million five-year term loan facility, with up to three additional one-year extensions subject to the lenders' approval, which is secured by the assets of the Company, principally our stockholdings in XM Radio. The bank financing is severally guaranteed by Hughes Electronics Corporation, Singapore Telecommunications Ltd., and Baron Capital Partners, L.P. Both facilities bear interest, generally, at 100 basis points above London Interbank Offered Rate-- LIBOR. Certain proceeds that we may receive are required to be used to repay and reduce the bank financing, unless otherwise waived by the lenders and the guarantors. As of March 31, 2000, the Company had outstanding borrowings of $41 million under the term loan facility at 7.1875%, and $79 million under the revolving credit facility at rates ranging from 7.0625% to 7.1875%. Additionally, in connection with the bank financing, we entered into an interest rate swap agreement which reduces the impact of interest rate increases on the term loan facility. Under the swap agreement, we will receive an amount equal to LIBOR plus 50 basis points, paid directly to the banks on a quarterly basis, on a notional amount of $41 million until the termination date of March 31, 2001. The unamortized fee paid for the swap agreement is reflected as an asset in the accompanying financial statements. We are exposed to a credit loss in the event the counter party does not perform under this agreement; however, we do not believe there is a significant risk of non performance, since the counter party to the swap agreement is a major financial institution. o A vendor financing commitment from Motorola, Inc., a stockholder, to provide up to $10 million of vendor financing to finance up to 75% of the purchase price of additional terrestrial network base stations. Loans under this facility bear interest at a rate equal to LIBOR plus 7.0% and are guaranteed by Motient and each of its wholly-owned subsidiaries. The terms of the facility require that amounts borrowed be secured by the equipment purchased therewith. As of March 31, 2000, $1.1 million was available under this facility. o $335 million of senior notes issued at the time of the Motient Communications Acquisition. The notes bear interest at 12 1/4% annually and are due in 2008. A portion of the net proceeds of the sale of the notes were used to finance pledged securities that are intended to provide for the payment of the first six interest payments on these notes. Interest payments are due semi-annually, in arrears, and began on October 1, 1998. The notes were issued by a subsidiary of Motient, and are fully guaranteed by Motient. o We have also arranged the financing of certain trade payables, and as of March 31, 2000, $2.1 million of deferred trade payables were outstanding at rates ranging from 6.07% to 12.00% and are generally payable by the end of 2000. Commitments At March 31, 2000, we had remaining contractual commitments to purchase subscriber equipment inventory, primarily related to eLink and MobileMAX2, in the maximum amount of $36.0 million during 2000 and 2001. We have the right to terminate certain of these commitments by incurring a cancellation penalty representing a percentage of the unfulfilled portion of the contract. As of March 31, 2000 the cancellation penalty would have been approximately $6.1 million. We have also contracted for the purchase of $9.5 million of base stations to expand our coverage and complete certain necessary site build-outs, $0.1 million for certain software development, and certain other operating expense contract commitments that total approximately $1.0 million over the next year. 29 The aggregate fixed and determinable portion of all inventory commitments and obligations for other fixed contracts is $46.6 million of which $29.4 million is due in 2000 and the remainder of $17.2 million is due in 2001. XM Radio XM Radio is operated, managed, and funded separately from our core wireless business. While we do not have any obligation or commitments to provide additional funding to XM Radio, and do not expect to provide any additional funding, we may choose to do so in the future. XM Radio will require significant additional funding in the future. If XM Radio is not successful in obtaining the additional required financing, our investment in XM Radio could be negatively impacted. In the first quarter of 2000, XM Radio raised an additional $228.6 million in net proceeds through a follow-on offering of 4.4 million shares of its Class A common stock and 2.0 million shares of Series B convertible redeemable preferred stock. In March 2000, XM Radio completed a high yield debt offering of 325,000 units, each unit consisting of $1,000 principal amount of 14% Senior Secured Notes due 2010 and one warrant to purchase 8.024815 shares of Class A common stock of XM Radio at an exercise price of $49.50 per share. XM Radio realized net proceeds of $191.3 million, excluding $123.0 million used to acquire securities which will be used to pay interest payments due under the notes for the first three years. XM Radio is also subject to certain commitments and contingencies. XM Radio has a distribution agreement with General Motors that will require significant expenditures in the future. Under its satellite contract with Hughes Space and Communications, Inc., XM Radio will incur payment obligations of approximately $541.3 million of which $242.8 million had been paid as of March 31, 2000. XM Radio has signed a contract with LCC International, Inc., for the engineering of its terrestrial repeater network with total contract payments expected to be approximately $115 million through 2001. As of March 31, 2000, XM Radio has paid $10.4 million under this contract. Effective October 1999, XM Radio signed a contract with Hughes Electronics Corporation for the design, development, and purchase of terrestrial repeater equipment. The total value of this contract is $128 million and XM Radio has paid $6.0 million under this contract as of March 31, 2000. On February 16, 2000, XM Radio and Sirius Satellite Radio, a competitor of XM Radio, signed an agreement to develop a unified standard for satellite radios to facilitate the ability of consumers to purchase one radio capable of receiving both XM Radio's and Sirius Satellite Radio's services. Other Cash used in operating activities was $36.5 million for the three months ended March 31, 2000, of which $7.2 million was attributable to XM Radio. Excluding XM Radio, cash used in operating activities was $29.3 million, compared to $16.0 million for the three months ended March 31, 1999. The increase in cash used in operating activities was primarily attributable a decrease in net working capital of $10.8 million primarily due to (i) the build up of inventory for our new products, without a corresponding amount of sales, caused by the slower rollout of our new product initiatives and (ii) the timing of payments on accounts payable. Cash used in investing activities was $148.7 million for three months ended March 31, 2000, of which $139.8 million was attributable to XM Radio. Excluding XM Radio, cash used in investing activities was $8.9 million, compared to $25.4 million for the same period in 1999. This decrease was primarily attributable to the purchase of the XM Radio Note Receivable in 1999 offset by higher payments in 2000 for property and equipment and the purchase of $2.5 million additional escrows in 2000 in connection with a vendor requirement relating to the supply of MobileMAX2 equipment. Cash provided by financing activities was $582.4 million in the first quarter of 2000, of which $544.3 million was attributable to XM Radio. Excluding XM Radio, cash provided by financing activities was $38.1 million, compared to $47.2 million in the first quarter of 1999. This decrease is due to the proceeds received from a related party in 1999 of $21.5 million offset by $13.0 million higher proceeds in 2000 from bank financing and stock option and warrant exercises. Excluding XM Radio, proceeds from the issuance of Common Stock in connection with stock option and warrant exercises as well as stock issued under our employee stock purchase plan, were $5.2 million and $0.2 million for three months ended March 31 2000, and 1999, respectively. Excluding XM Radio, payments on long-term debt and capital leases were $2.1 million and $1.4 million for the three months ended March 31, 2000 and 1999, respectively. As of March 31, 2000, excluding XM Radio, we had $594,000 of cash and cash equivalents, working capital of $9.1 million, and $41.0 million of current investments restricted for the payment of interest. None of the cash and working capital held by XM Radio is available for use by the Company. 30 Regulation The ownership and operations of our communication systems are subject to significant regulation by the FCC, which acts under authority granted by the Communications Act of 1934, as amended (the "Communications Act"), and related federal laws. A number of our licenses are subject to renewal by the FCC and, with respect to our satellite operations, are subject to international frequency coordination. In addition, current FCC regulations generally limit the ownership and control of Motient by non-U.S. citizens or entities to 25%. We cannot assure that the rules and regulations of the FCC will continue to support our operations as presently conducted and contemplated to be conducted in the future, or that all existing licenses will be renewed and requisite frequencies coordinated. In November 1999 the FCC granted two applications to use a Canadian competitor's satellite system to provide mobile satellite services in the United States. This decision represents a departure from the FCC's previous statements that there is only enough spectrum in the mobile satellite services L-band to authorize a single mobile satellite services system to provide service in the United States. While Motient has appealed this decision, there can be no assurances that it will be overturned. The loss of exclusive right to provide these services will result in competition from other providers to provide mobile satellite services and cause us to reduce the prices charged and revenue related to these services. Accounting Standards In June 1998, FASB issued Statement No. 133, "Accounting for Derivative Instruments and Hedging Activities," which requires the recognition of all derivatives as either assets or liabilities measured at fair value. In June 1999, FASB issued Statement No. 137, which defers the effective date of Statement No. 133 until fiscal years beginning after June 15, 2000. We do not believe that the adoption of this statement will have a material impact on our financial position and results of operations. In December 1999, the SEC issued Staff Accounting Bulletin No. 101, "Revenue Recognition" ("SAB 101"). SAB 101 provides guidance on the recognition, presentation, and disclosure of revenue in financial statements. We are currently evaluating the impact of SAB 101 on our consolidated results of operations and financial condition. The adoption date for SAB 101 is June 30, 2000 and any change in accounting principle required from adoption of SAB 101 will be reported as a cumulative effect of a change in accounting principle. In March 2000, the Financial Accounting Standards Board issued FASB Interpretation No. 44, Accounting for Certain Transactions Involving Stock Compensation ("FIN 44"). FIN 44 further defines the accounting consequence of various modifications to the terms of a previously fixed stock option or award under APB Opinion No. 25, Accounting for Stock Issued to Employees. FIN 44 becomes effective on July 1, 2000, but certain conclusions in FIN 44 cover specific events that occur after either December 15, 1998 or January 12, 2000. In July 1999, XM Radio repriced certain options. FIN 44 requires that these options be accounted for as variable from July 1, 2000 until the date the award is exercised, forfeited, or expires unexercised. For those options that have vested as of July 1, 2000, compensation cost is recognized only to the extent that the exercise price exceeds the stock price on July 1, 2000. For those options that have not vested as of July 1, 2000, the portion of the award's intrinsic value measured at July 1, 2000 is recognized over the remaining vesting period. Additional compensation cost is measured for the full amount of any increases in stock price after the effective date and is recognized over the remaining vesting period. Any adjustment to compensation cost for further changes in the stock price after the award vests is recognized immediately. The effects of implementing FIN 44 may require XM Radio to recognize additional non-cash compensation commencing in the third quarter of 2000. 31 Item 3. Quantitative and Qualitative Disclosures about Market Risk Quantitative and Qualitative Disclosures about Market Risk We are exposed to the impact of interest rate changes related to our credit facilities. We manage interest rate risk through the use of a combination of fixed and variable rate debt. Currently, except for the interest rate cap described below, we do not use derivative financial instruments to manage our interest rate risk. We have minimal cash flow exposure due to general interest rate changes for our fixed rate, long-term debt obligations. We invest our cash in short-term commercial paper, investment-grade corporate and government obligations and money market funds. Under our Term Loan and Revolving Credit Facility, interest is paid generally at 100 basis points above LIBOR. The exposure to interest rate fluctuations is limited due to the interest rate paid on a monthly basis being variable and based on current market conditions. We have also entered into an interest rate swap agreement which reduces the impact of interest rate increases on the Term Loan Facility. Under this agreement, we receive an amount equal to LIBOR plus 50 basis points paid directly to the banks on a quarterly basis until the swap agreement terminates on March 31, 2001. Our Senior Notes bear interest at a fixed rate of 12 1/4%. We run the risk that market rates will decline and the required payments will exceed those based on current market rates. 32 PART II - OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K (a) Exhibits 3.1 - Restated Certificate of Incorporation of Motient Corporation (as restated effective April 24, 2000) (filed herewith). 3.2 - Amended and Restated Bylaws of Motient Corporation (as amended and restated effective April 24, 2000) (filed herewith). 27.0 - Financial Data Schedule (filed herewith). (b) Current Reports on Form 8-K On April 24, 2000, the Company filed a Current Report on Form 8-K, in response to Item 5-Other Events, reporting that the Company had changed its name to Motient Corporation. 33 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. MOTIENT CORPORATION (Registrant) Date: May 12, 2000 /s/W. Bartlett Snell --------------------------------------------------- W. Bartlett Snell Senior Vice President and Chief Financial Officer (principal financial and accounting officer and Duly Authorized Officer to sign on behalf of the Registrant) 34 EXHIBIT INDEX Number Description 3.1 - Restated Certificate of Incorporation of Motient Corporation (as restated effective April 24, 2000) (filed herewith). 3.2 - Amended and Restated Bylaws of Motient Corporation (as amended and restated effective April 24, 2000) (filed herewith). 27.0 - Financial Data Schedule (filed herewith). EX-3.(I) 2 RESTATED CERTIFICATE OF INCORPORATION EXHIBIT 3.1 RESTATED CERTIFICATE OF INCORPORATION OF MOTIENT CORPORATION MOTIENT CORPORATION, a corporation organized and existing under and by virtue of the Delaware General Corporation Law (the "Corporation"), hereby certifies as follows: 1. The name of the Corporation is MOTIENT CORPORATION; it was originally incorporated under the name "American Mobile Satellite Consortium, Inc.," and its original Certificate of Incorporation was filed on May 3, 1988 and renamed "American Mobile Satellite Corporation" in its Certificate of Incorporation. 2. This Restated Certificate of Incorporation, the entirety of which is set forth below, has been duly adopted in accordance with Section 245 of the Delaware General Corporation Law, only restates and integrates and does not further amend the provisions of the Corporation's certificate of incorporation as heretofore amended or supplemented, and there is no discrepancy between those provisions and the provisions of this Restated Certificate of Incorporation. FIRST: The name of the Corporation is MOTIENT CORPORATION. SECOND: The address of the registered office of the Corporation in the State of Delaware is Corporation Trust Center, 1209 Orange Street, in the City of Wilmington, County of New Castle, and the name of its registered agent at that address is The Corporation Trust Company. THIRD: The purpose of the Corporation is to engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of the State of Delaware, including specifically to act as the registered agent of its wholly owned subsidiaries. FOURTH: A. Authorized Capital Stock. The total number of shares of all classes ------------------------- of stock which the Corporation shall be authorized to issue shall be one hundred fifty million two hundred thousand (150,200,000) shares. One hundred fifty million (150,000,000) of said shares shall be of a par value of $.01 per share and shall be designated common stock ("Common Stock") and two hundred thousand (200,000) of said shares shall be of a par value of $.01 per share and shall be designated Series Preferred Stock. B. Series Preferred Stock. The Series Preferred Stock may be issued ------------------------ from time to time by the board of directors as herein provided in one or more series. The designations, relative rights, preferences and limitations with respect to the Series Preferred Stock, and with respect to the shares of each series thereof, may, to the extent permitted by law, be similar to or may differ from those of any other series. The board of directors of the Corporation is hereby expressly granted authority, subject to the provision of this Article FOURTH, to issue from time to time Series Preferred Stock in one or more series, and to fix from time to time before issuance thereof, by filing of a certificate pursuant to the General Corporation Law of the State of Delaware, the number of shares in each such series, and all designations, relative rights (including the right, to the extent permitted by law, to convert into shares of any class or into shares of any series of any class), preferences and limitations of the shares in each such series, including, but without limiting the generality of the foregoing, the following: 1. The number of shares to constitute such series (which number may at any time, or from time to time, be increased or decreased by the board of directors, notwithstanding that shares of the series may be outstanding at the time of such increase or decrease, unless the board of directors shall have otherwise provided in creating such series) and the distinctive designation thereof; 2. The dividend rate on the shares of such series, whether or not dividends on the shares of such series shall be cumulative and the date or dates, if any, from which dividends thereon shall be cumulative; 3. Whether or not the shares of such series shall be redeemable, and, if redeemable, the date or dates upon or after which they shall be redeemable and the amount or amounts per share payable thereon in the case of the redemption thereof, which amount may vary at different redemption dates or otherwise as permitted by law; 4. The right, if any, of holders of shares of such series to convert the same into, or exchange the same for, shares of Common Stock or other securities as permitted by law, and the terms and conditions of such conversion or exchange, as well as provisions for adjustment of the conversion rate in such events as the board of directors shall determine; 5. The amount per share payable on the shares of such series upon the voluntary and involuntary liquidation, dissolution or winding up of the Corporation; 6. Whether the holders of shares of such series shall have voting power, full or limited, in addition to the voting powers provided by law, and, in case additional voting powers are accorded, to fix the extent thereof; and 7. Generally to fix the other rights and privileges and any qualifications, limitations or restrictions on such rights and privileges of such series, provided, however, that no such rights, privileges, qualifications, limitations or restrictions shall be in conflict with the Certificate of Incorporation of the Corporation or with the resolution or resolutions adopted by the board of directors providing for the issue of any series of which there are shares then outstanding. C. Voting. ------ 1. On all matters upon which holders of Common Stock are entitled or permitted to vote, every holder of Common Stock shall be entitled to one (1) vote in person or by proxy for each share of Common Stock standing in such holder's name on the transfer books of the Corporation. 2. Except as otherwise specifically provided in the certificate filed pursuant to law with respect to any series of Series Preferred Stock or as otherwise provided by law, the Series Preferred Stock shall not have any right to vote on any matters submitted to the stockholders of the Corporation, including, without limitation, the election of directors. In all instances in which voting rights are granted to Series Preferred Stock or any series thereof, such Series Preferred Stock or series shall vote as provided in the certificate filed pursuant to law with respect to any series of Series Preferred Stock or as otherwise provided by law. D. Dividends. The holders of Common Stock shall be entitled to receive --------- dividends and distributions of the Corporation when and as declared by the board of directors out of funds legally available therefor. Dividends on the outstanding Series Preferred Stock of each series shall be declared and paid or set apart for payment before any dividends shall be declared and paid or set apart for payment on the Common Stock with respect to the same dividend period. Dividends on any shares of Serie Preferred Stock shall be cumulative only if and to the extent set forth in a certificate filed pursuant to law. After dividends on all shares of Series Preferred Stock (including cumulative dividends if and to the extent any such shares shall be entitled thereto) shall have been declared and paid or set apart for payment with respect to any dividend period, then and not otherwise as long as any shares of Series Preferred Stock shall remain outstanding, dividends may be declared and paid or set apart for payment with respect to the same dividend period on the Common Stock out of the assets or funds of the Corporation legally available therefor. E. Liquidation, Dissolution or Winding Up. In the event of any ------------------------------------------ liquidation, dissolution or winding up of the Corporation, whether voluntary or involuntary, each series of Series Preferred Stock shall have preference and priority over the Common Stock for payment of the amount to which each outstanding series of Series Preferred Stock shall be entitled in accordance with the provisions thereof and each holder of Series Preferred Stock shall be entitled to be paid in full such amount, or hav a sum sufficient for the payment in full set aside, before any payments shall be made to the holders of the Common Stock. If upon liquidation, dissolution or winding up of the Corporation, the assets of the Corporation or the proceeds thereof, distributable among the holders of the shares of all series of Series Preferred Stock shall be insufficient to pay in full the preferential amount aforesaid, then such assets, or the proceeds thereof, shall be distributed among such holders ratably in accordance with the respective amounts which would be payable if all amounts payable thereof were paid in full. After the holders of the Series Preferred Stock of each series shall have been paid in full the amounts to which they respectively shall be entitled, or a sum sufficient for the payment in full set aside, the remaining net assets of the Corporation, after payment or provision for payment of the debts of the Corporation, shall be distributed pro rata to the holders of the Common Stock, to the exclusion of the holders of Preferred Stock. A consolidation or merger of the Corporation with or into another corporation or corporations, or a sale, whether for cash, shares of stock, securities or properties, of all or substantially all of the assets of the Corporation, shall not be deemed or construed to be a liquidation, dissolution or winding up of the Corporation within the meaning of this Article FOURTH. F. Redemption of Series Preferred Stock. In the event that Series --------------------------------------- Preferred Stock of any series shall be made redeemable as provided in subsection B.3 of this Article FOURTH, the Corporation, at the option of the board of directors, may redeem at any time or times, and from time to time, all or any part of any one or more series of Series Preferred Stock outstanding by paying for each share the then applicable redemption price fixed by the board of directors as provided herein, plus an amount equal to accrued and unpaid dividends to the date fixed for redemption, upon such notice and terms as provided in the certificates filed pursuant to law with respect to such series of Series Preferred Stock. FIFTH: At all elections of directors of the Corporation, each holder of Common Stock shall be entitled to any many votes as shall equal the number of votes which (except for such provision as to cumulative voting) such holder would be entitled to cast for the election of directors multiplied by the number of directors to be elected, and such holder may cast all of such votes for a single director or may distribute such votes among the number of directors to be voted for, or for any two or more o them as such holder may see fit. The number of directors shall not be less than seven. All directors shall be elected at each election of directors by the holders of Common Stock. Elections of directors need not be by written ballot. SIXTH: For the management of the business and for the conduct of the affairs of the Corporation, and in further definition, limitation and regulation of the powers of the Corporation and of its directors and of its stockholders or any class thereof, as the case may be, it is further provided as follows: 1. Except as otherwise expressly provided in this Certificate of Incorporation or the bylaws, all actions of the board of directors shall be taken upon or pursuant to the affirmative vote of a majority of the directors present at a meeting at which a quorum is present. 2. The affirmative vote of the holders of two-thirds of the issued and outstanding shares of Common Stock shall be required to approve any of the following actions: a. the merger or consolidation of the Corporation with or into any other entity; b. the dissolution or liquidation of the Corporation; c. or the sale, exchange, or lease of all or substantially all of the Corporation's property and assets. SEVENTH: No fractional shares of Common Stock shall be issued by the Corporation. In lieu of any fractional shares to which a holder would otherwise be entitled, the Corporation shall pay cash equal to such fraction multiplied by the fair market value per share of such Common Stock. EIGHTH: If and to the extent permitted by the provisions governing amendment of the bylaws contained therein, the board of directors is authorized to make, repeal, alter, amend and rescind the bylaws of the Corporation. NINTH: To the fullest extent permitted by the General Corporation Law of Delaware or any other applicable laws presently or hereafter in effect, a director of the Corporation shall not be personally liable to the Corporation or its stockholders for monetary damages for breach of fiduciary duty as a director. Any repeal or modification of this Article NINTH shall not adversely affect any right or protection of a director of the Corporation existing immediately prior to such repeal or modification. TENTH: Each person who is or was a director or officer of the Corporation shall be indemnified by the Corporation to the fullest extent permitted by the General Corporation Law of the State of Delaware or any other applicable laws as presently or hereafter in effect. Without limiting the generality or the effect of the foregoing, the Corporation may enter into one or more agreements with any person which provide for indemnification greater or different than that provided in this Article TENTH. Any repeal or modification of this Article TENTH shall not adversely affect any right or protection existing hereunder immediately prior to such repeal or modification. ELEVENTH: The Corporation reserves the right to amend, alter, change or repeal any provision contained in this Certificate, in the manner now or hereafter prescribed by statute and this Certificate, and all rights conferred on stockholders herein are granted subject to this reservation. This Certificate may not be amended, modified, rendered ineffective or repealed except by the vote of the holders of two thirds of the issued and outstanding shares of Common Stock. Other classes or series of stock shall not be entitled to vote on any such amendment, modification or other change, unless and to the extent required by applicable law. TWELFTH: The Corporation expressly elects not to be governed by Section 203 of the General Corporation Law of the State of Delaware. IN WITNESS WHEREOF, I, the undersigned, being duly elected/appointed Vice President of the Corporation, do on behalf of the Corporation make this Restated Certificate of Incorporation of the Corporation, effective April 24, 2000, hereby declaring and certifying under penalties of perjury that this is the act and deed of the Corporation and the facts herein stated are true, and accordingly have hereunto set my hand this 24th day of April , 2000. MOTIENT CORPORATION By: /s/Randy S. Segal ----------------- Name: Randy S. Segal Title: Senior Vice President, General Counsel and Secretary Attested to: /s/David H. Engvall - ------------------- Name: David H. Engvall Title: Vice President, Executive Counsel and Assistant Secretary Commonwealth of Virginia County of Fairfax, ss: I, Suzanne H. Podhorecki, a Notary Public, hereby certify that on the 24th day of April, 2000, David H. Engvall appeared before me and acknowledged that he is the duly authorized and elected Vice President, Executive Counsel and Assistant Secretary of Motient Corporation, that his signature was his own act and deed and the foregoing instrument, the act and deed of Motient Corporation and the facts stated therein are true. /s/Suzanne H. Podhorecki ------------------------ Notary Public My Commission Expires: October 31, 2001 Commonwealth of Virginia County of Fairfax, ss: I, Suzanne H. Podhorecki, a Notary Public, hereby certify that on the 24th day of April, 2000, Randy S. Segal appeared before me and acknowledged that she is the duly authorized and elected Senior Vice President, General Counsel and Secretary of Motient Corporation, that her signature was her own act and deed and the foregoing instrument, the act and deed of Motient Corporation and the facts stated therein are true. /s/Suzanne H. Podhorecki ------------------------ Notary Public My Commission Expires: October 31, 2001 EX-3.(II) 3 AMENDED AND RESTATED BYLAWS EXHIBIT 3.2 AMENDED AND RESTATED BYLAWS OF MOTIENT CORPORATION (As of April 24, 2000) TABLE OF CONTENTS Page ARTICLE I. OFFICES................................................... 1 ARTICLE II. MEETINGS OF STOCKHOLDERS.................................. 2 ARTICLE III. DIRECTORS................................................. 5 ARTICLE IV. NOTICES................................................... 9 ARTICLE V. OFFICERS.................................................. 9 ARTICLE VI. CERTIFICATES OF STOCK..................................... 12 ARTICLE VII. PROCUREMENT............................................... 14 ARTICLE VIII. INDEMNIFICATION OF DIRECTORS AND OFFICERS.............................................. 14 ARTICLE IX. GENERAL PROVISIONS........................................ 15 ARTICLE X. AMENDMENTS................................................ 15 ARTICLE I. OFFICES SECTION 1. The registered office of MOTIENT CORPORATION (the "Corporation") shall be in the City of Wilmington, County of New Castle, State of Delaware, or such other place within the State of Delaware as the board of directors may from time to time determine. SECTION 2. The Corporation may also have offices at such other places both within and without the State of Delaware as the board of directors may from time to time determine or the business of the Corporation may require. ARTICLE II. MEETINGS OF STOCKHOLDERS SECTION 1. All meetings of the stockholders for the election of directors or for any other purpose shall be held at such time and place, within or without the State of Delaware, but within the United States of America, as shall be stated in the notice of the meeting or in a duly executed waiver of notice thereof. SECTION 2. Annual meetings of the stockholders of the Corporation for the purpose of electing directors and for the transaction of such other business as may be properly brought before such meetings shall be held on the third Thursday of April in each year, or at such other time, date and place as the board of directors shall determine by resolution. SECTION 3. Written notice of the annual meeting of stockholders stating the place, date and hour of the meeting shall be given to each stockholder entitled to vote at such meeting not less than ten nor more than sixty days before the date of the meeting. SECTION 4. The officer who has charge of the stock ledger of the Corporation shall prepare and make, at least ten days before every meeting of stockholders, a complete list of the stockholders entitled to vote at the meeting, arranged in alphabetical order, and showing the address of each stockholder and the number and class of shares registered in the name of each stockholder. Such list shall be open for examination by any stockholder, for any purpose germane to the meeting, durin ordinary business hours, for a period of at least ten days prior to the meeting, either at a place within the city where the meeting is to be held, which place shall be specified in the notice of the meeting, or, if not so specified, at the place where the meeting is to be held. The list shall also be produced and kept at the time and place of the meeting during the whole time thereof, and may be inspected by any stockholder who is present. SECTION 5. Special meetings of the stockholders, for any purpose or purposes, unless otherwise prescribed by statute or by the Certificate of Incorporation, may be called by the president and shall be called by the president or secretary at the request in writing of a majority of the board of directors, or at the request in writing of the holder or holders of Common Stock representing at least 33-1/3% of the shares of Common Stock issued and outstanding and entitled to vote. A special meeting of the holders of the Common Stock for the sole purpose of electing all of the directors of the Corporation shall be called by the president or secretary promptly upon the receipt by the secretary of a written request from the holder or holders of Common Stock representing that percentage of the shares of Common Stock then issued and outstanding that would be sufficient to elect at least one director if such shares of Common Stock were then cumulatively voted in an election of the entire board of directors. SECTION 6. Written notice of a special meeting of stockholders stating the place, date and hour of the meeting and the purpose or purposes for which the meeting is called, shall be given not less than ten nor more than sixty days before the date of the meeting to each stockholder entitled to vote at such meeting. Business transacted at any special meeting of stockholders shall be limited to the purposes stated in the notice. SECTION 7. The holders of a majority of the Common Stock issued and outstanding and entitled to vote thereat, present in person or represented by proxy, shall constitute a quorum at all meetings of the holders of Common Stock for the transaction of business except as otherwise provided by statute or by the Certificate of Incorporation. If, however, such quorum shall not be present or represented at any meeting of the holders of Common Stock, the holders of Common Stock entitled to vote thereat, present in person or represented by proxy, shall have power to adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum shall be present or represented. At such adjourned meeting at which a quorum shall be present or represented, any business may be transacted which might have been transacted at the meeting as originally notified. If the adjournment is for more than thirty days, or if after the adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each holder of Common Stock of record entitled to vote at the meeting. SECTION 8. When a quorum is present at any meeting of holders of Common Stock, the affirmative vote of the holders of a majority of the Common Stock present in person or represented by proxy shall decide any question brought before such meeting, unless the question is one upon which by express provision of law, the Certificate of Incorporation or these bylaws, a different vote is required, in which case such express provision shall govern and control the decision of such question. SECTION 9. At every meeting of the holders of Common Stock each holder of Common Stock shall be entitled to one vote in person or by proxy for each share of the Common Stock held by such stockholder for each matter with respect to which the holders of Common Stock are entitled to vote except for the election of directors, which shall be by cumulative voting as provided in the Certificate of Incorporation. SECTION 10. The stock ledger of the Corporation shall be the only evidence as to who are the stockholders entitled to examine the stock ledger, the list required by Article II, Section 4 and the books of the Corporation, or to vote in person or by proxy at any meeting of stockholders. SECTION 11. Votes by written ballot at any meeting of stockholders may be conducted by one or more inspectors, appointed for that purpose, either by the board of directors or by the chairman of the meeting. The inspector or inspectors may decide upon the qualifications of voters and the validity of proxies, may count the votes and declare the result and take such other actions as required by applicable law. SECTION 12. The Chairman of the Board, or, in the absence of the Chairman of the Board, the Chairman of the Executive Committee or, in the absence of the Chairman of the Executive Committee, the President, or, in the absence of any of them, any Vice President, in order of their election, shall preside at meetings of stockholders. The secretary of the Corporation shall act as secretary, but in the absence of the secretary, the presiding officer may appoint a secretary. SECTION 13. (a) No proposal for a stockholder vote shall be submitted by a stockholder (a "Stockholder Proposal") to the Corporation's stockholders unless the stockholder submitting such proposal (the "Proponent") shall have filed a written notice setting forth with particularity (i) the names and business addresses of the Proponent and all persons or entities acting in concert with the Proponent; (ii) the name and address of the Proponent and the persons or entities identified in clause (i), as they appear on the Corporation's books (if they so appear); (iii) the class and number of shares of the Corporation beneficially owned by the Proponent and the persons or entities identified in clause (i); (iv) a description of the Stockholder Proposal containing all material information relating thereto; and (v) such other information as the board of directors reasonably determines is necessary or appropriate to enable the board of directors and stockholders of the Corporation to consider the Stockholder Proposal. Upon receipt of the Stockholder Proposal and prior to the stockholder meeting at which such Stockholder Proposal will be considered, if the board of directors, a designated committee of the board of directors or, if authorized by the board of directors or a committee thereof, an officer of the Corporation, determines that the information provided in a Stockholder Proposal does not satisfy the informational requirements of these bylaws or is otherwise not in accordance with law, the secretary of the Corporation shall promptly notify such Proponent of the deficiency in the notice. Such Proponent shall have an opportunity to cure the deficiency by providing additional information to the secretary within the period of time, not to exceed ten days from the date such deficiency notice is given to the Proponent, determined by the board of directors or such committee. If the deficiency is not cured within such period, or if the board of directors, or such committee determine that the additional information provided by the Proponent, together with the information previously provided, does not satisfy the requirements of this Article II, Section 13, then such proposal shall not be presented for action at the meeting in question. Nothing in this Article II, Section 13, shall in any way limit the discretion of the board of directors to omit any Stockholder Proposal in accordance with applicable law. (b) Stockholder Proposals shall be delivered to the secretary at the principal executive office of the Corporation not less than sixty days not more than one hundred and twenty days prior to the date of the meeting of stockholders if such Stockholder Proposal is to be submitted at an annual stockholders meeting (provided, however, that if such annual meeting is called to be held before the date specified in Article II, Section 2, or if a Stockholder Proposal is to be submitted at a special stockholders meeting, such Stockholder Proposal shall be so delivered no later than the close of business on the tenth day following the day on which notice of the date of such annual stockholders meeting or special stockholders meeting, as the case may be, was announced on the Dow Jones newswire service, or if such newswire service is unavailable, any national newswire service). ARTICLE III. DIRECTORS SECTION 1. The board of directors shall consist of seven (7) directors. The directors shall be elected at the annual meeting of the stockholders, or as provided in Article II, Section 5 and each director elected shall hold office until his or her successor is elected and qualified. SECTION 2. Vacancies and newly created directorships resulting from any increase in the authorized number of directors may be filled only as provided in this Article III, Section 4. SECTION 3. A director or directors may be removed by the affirmative vote of the holders of a majority of the shares of Common Stock issued and outstanding and entitled to vote at a special meeting of the holders of the Common Stock called for such a purpose. In the event of the removal of a director, the vacancy created by such removal shall be filled only as provided in this Article III, Section 4. SECTION 4. Board of directors vacancies and newly created directorships may be filled by a vote of a majority of the directors then in office, although less than a quorum, or by the sole remaining director. SECTION 5. The business and affairs of the Corporation shall be managed by or under the direction of its board of directors which may exercise all such powers of the Corporation and do all such lawful acts and things as are not by statute or by the Certificate of Incorporation or by these bylaws directed or required to be exercised or done by the stockholders. SECTION 6. Meetings of the board of directors, both regular and special, may be held at any location within North America and may be held outside North America if two-thirds of the number of directors then in office so authorize. In the event a meeting of the board of directors is to be held outside North America, notice thereof shall be given at least ten business days prior to such meeting. SECTION 7. Regular meetings of the board of directors may be held at such time (not less frequently than four times each year) and at such place as shall from time to time be determined by the board of directors. SECTION 8. Special meetings of the board of directors may be called by the president and shall be called by the president upon the written request of three directors. Except as otherwise provided in Article III, Sections 5 and 9, each notice of a special meeting of the board of directors shall be given at least five business days prior to such meeting and shall identify the purpose or purposes of the special meeting or the business to be transacted at the special meeting. Business transacted at any special meeting of the board of directors shall be limited to the purpose or purposes stated in the notice of such special meeting. SECTION 9. At all meetings of the board of directors, the presence of a majority of the number of directors then in office shall be necessary to constitute a quorum for the transaction of business, provided that a quorum may not be less than one-third of the total number of directors. The act of a majority of the directors present at a meeting at which a quorum is present, unless a greater number is required by law, by the Certificate of Incorporation or by these bylaws, shall be the act of the board of directors. If a quorum shall not be present at any meeting of the board of directors, the directors present thereat may adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum shall be present. SECTION 10. Any action required or permitted to be taken at any meeting of the board of directors or of any committee thereof may be taken without a meeting, if all members of the board of directors or the committee, as the case may be, consent thereto in writing, and the writing or writings are filed with the minutes or proceedings of the board of directors or the committee. SECTION 11. Members of the board of directors, or any committee designated by the board of directors, shall have the right to participate in a meeting of the board of directors, or any committee, by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other, and such participation in a meeting shall constitute presence in person at the meeting. SECTION 12. The Corporation may pay the directors reasonable compensation for serving as directors and as members of one or more committees of the board of directors, the form and amount of which shall be fixed by resolution adopted by a majority of the number of directors then in office, and may reimburse such directors for any reasonable expenses incurred in attending the meetings of the board of directors or any committees thereof. SECTION 13. In addition to the committees designated in these bylaws, the board of directors may, by resolution passed by a majority of the whole board of directors: (i) designate one or more committees, each committee to consist of one or more of the directors of the Corporation; (ii) appoint the members of such committees; and (iii) designate one or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of the committee. SECTION 14. The Corporation shall have an Executive Committee, to consist of four or more directors appointed by a majority of the whole board of directors, and may appoint one or more directors as alternate members of such Executive Committee, who may replace any absent or disqualified member at any meeting of the Executive Committee. Between the meetings of the board of directors and while the board of directors is not in session, the Executive Committee shall have all the power and exercise all the duties of the board of directors in the management of the business and affairs of the Corporation that may lawfully be delegated to the Executive Committee by the board of directors, including, without limitation, the power and authority granted to committees pursuant to these bylaws, and the power and authority to declare a dividend, to authorize the issuance of stock and to adopt a certificate of ownership and merger pursuant to Section 253 of the Delaware General Corporation Law, a amended. The Executive Committee shall adopt its own rules of procedure and shall meet where and as provided by such rules. All action taken by the Executive Committee shall be reported to the board of directors at the meeting thereof next succeeding such action. SECTION 15. The Corporation shall have an Audit Committee, to consist of not less than two directors, appointed by the board of directors. The duties and responsibilities of the Audit Committee shall be established by the board of directors. The Audit Committee shall adopt its own rules of procedure and shall meet where and as provided by such rules. All action taken by the Audit Committee shall be reported to the board of directors at the meeting thereof next succeeding such action. SECTION 16. The Corporation shall have a Nominating Committee, to consist of not less than two directors, not more than one of whom may be an officer of the Corporation, appointed by the board of directors. The duties and responsibilities of the Nominating Committee shall be to select the persons to be candidates for nomination for election as directors of the Corporation and make recommendations with respect thereto to the board of directors. The Nominating Committee shall adopt its own rules of procedure and shall meet where and as provided by such rules. All action taken by the Nominating Committee shall be reported to the board of directors at the meeting thereof next succeeding such action. SECTION 17. In the absence or disqualification of a member of a committee, and in the absence of a designation by the board of directors of an alternate member to replace the absent or disqualified member, the member or members of the committee present at any meeting and not disqualified from voting, whether or not he or they constitute a quorum, may unanimously appoint another member of the board of directors to act at the meeting in the place of any such absent or disqualified member. SECTION 18. Any committee, to the extent provided in the resolution of the board of directors establishing such committee and to the extent not inconsistent with the Certificate of Incorporation, these bylaws, or the General Corporation Law of the State of Delaware, shall have and may exercise all the powers and authority of the board of directors in the management of the business and affairs of the Corporation, and may authorize the seal of the Corporation to be fixed to all paper which may require it. SECTION 19. Each committee shall keep regular minutes of its meetings and report the same to the board of directors when required. ARTICLE IV. NOTICES SECTION 1. Whenever, under the provisions of the statutes, the Certificate of Incorporation or these bylaws, notice is required to be given to any stockholder or director, such notice shall be in writing, and shall be deemed given to each stockholder or director (i) upon receipt if delivered in person, by cable, telegram, telex, telecopy, or other electronic transmission, (ii) one day after deposit with a reputable overnight courier service, or (iii) five days after deposit in the United States mail (either by first class, registered or certified mail, postage prepaid), if sent to such stockholder's or director's address as it appears on the records of the Corporation. SECTION 2. Whenever any notice is required to be given under the provisions of the statutes, the Certificate of Incorporation or these bylaws, a written waiver of notice, signed by the person or persons entitled to such notice, whether before or after the time stated therein, shall be deemed equivalent to notice. Attendance of a person at a meeting shall constitute a waiver of notice of such meeting, except when the person attends a meeting for the express purpose of objecting at the beginning of the meeting to the transaction of any business because the meeting is not lawfully called or convened. ARTICLE V. OFFICERS SECTION 1. The officers of the Corporation shall be elected by the board of directors and shall be a president, a secretary and a treasurer. The board of directors may also elect one or more vice-presidents and one or more assistant secretaries and assistant treasurers. The officers of the Corporation shall be elected by the vote of a majority of the number of directors then in office. Any number of offices may be held by the same person, unless the Certificate of Incorporation or these bylaws otherwise provide. SECTION 2. The board of directors at its first meeting after each annual meeting of stockholders shall elect a president, a secretary, a treasurer and any other officers which the board of directors determines to elect and shall designate one of such officers as the chief financial officer. SECTION 3. The board of directors may elect such other officers and appoint such agents as it shall deem necessary who shall hold their offices for such terms and shall exercise such powers and perform such duties as shall be determined from time to time by the board of directors. SECTION 4. The compensation of all officers and agents of the Corporation shall be fixed from time to time by the board of directors. SECTION 5. The officers of the Corporation shall hold office until their successors are elected and qualified. Any officer elected by the board of directors may be removed at any time by the affirmative vote of a majority of the number of directors then in office. Any vacancy occurring in any office of the Corporation may be filled by the affirmative vote of a majority of the number of directors then in office. SECTION 6. The president of the Corporation, subject to the control of the board of directors, shall supervise the day-to-day affairs of the corporation, shall have general and active management responsibility for the business of the Corporation, and shall see that all orders and resolutions of the board of directors are carried into effect. SECTION 7. At the request of the president or in his absence or in the event of his inability or refusal to act, the vice-president, if there be one, or in the event there be more than one vice-president, the vice-presidents in the order designated by the directors, or in the absence of any designation, then in the order of their election, shall perform the duties of the president, and when so acting, shall have all the powers of and be subject to all the restrictions upon the president. The vice-presidents shall perform such other duties and have such other powers as the board of directors may from time to time prescribe. SECTION 8. The secretary shall attend all meetings of the stockholders and record all the proceedings of the meetings of the Corporation and of the board of directors in a book or books to be kept for that purpose and shall perform like duties for the standing committees when required. The secretary shall give, or cause to be given, notice of all meetings of the stockholders and special meetings of the board of directors, and shall perform such other duties as may be prescribed by the board of directors or the president, under whose supervision the secretary shall be. The secretary shall have custody of the corporate seal of the Corporation and the secretary, or an assistant secretary, shall have authority to affix the same to any instrument requiring it and when so affixed, it may be attested by the secretary's signature or by the signature of such assistant secretary. The board of directors may give general authority to any other officer to affix the seal of the Corporation and to attest the affixing by his signature. The secretary shall see that all books, reprints, statements, certificates and other documents and records required by law to be kept or filed are properly kept or filed, as the case may be. SECTION 9. The assistant secretary, if there be one, or if there be more than one, the assistant secretaries in the order determined by the board of directors, or if there be no such determination, then in the order of their election, shall at the request of the secretary or in his absence or in the event of his inability or refusal to act, perform the duties of the secretary, and when so acting, shall have all the powers and be subject to all the restrictions upon the secretary. The assistant secretaries shall perform such other duties and have such other powers as the board of directors may from time to time prescribe. SECTION 10. The treasurer shall have the custody of the corporate funds and securities and shall keep full and accurate accounts of receipts and disbursements in books belonging to the Corporation and shall deposit all moneys and other valuable effects in the name and to the credit of the Corporation in such depositories as may be designated by the board of directors. The treasurer shall disburse the funds of the Corporation as may be ordered by the board of directors, taking proper vouchers for such disbursements, and shall render to the president, and to the board of directors at its regular meetings, or when the board of directors so requires, an account of all his transactions as treasurer and of the financial condition of the Corporation. SECTION 11. If required by the board of directors, the treasurer shall give the Corporation a bond in such sum and with such surety or sureties as shall be satisfactory to the board of directors for the faithful performance of the duties of his office and for the restoration to the Corporation, in case of his death, resignation, retirement or removal from office, of all books, papers, vouchers, money and other property of whatever kind in his possession or under his control belonging to the Corporation. SECTION 12. The assistant treasurer, if there be one, or if there shall be more than one, the assistant treasurers in the order determined by the board of directors, or if there be no such determination, then in the order of their election, shall, at the request of the treasurer or in his absence or in the event of his inability or refusal to act, perform the duties of the treasurer, and when so acting, shall have all the powers and be subject to all the restrictions upon the treasurer. The assistant treasurers shall perform such other duties and have such other powers as the board of directors may from time to time prescribe. SECTION 13. The chief financial officer shall have such duties as may be assigned by the board of directors. ARTICLE VI. CERTIFICATES OF STOCK SECTION 1. Every stockholder of the Corporation shall be entitled to have a certificate in the name of the Corporation signed by the president and the secretary or an assistant secretary of the Corporation, certifying the number of shares owned by him in the Corporation. If the Corporation shall be authorized to issue more than one class of capital stock or more than one series of any class, the powers, designations, preferences and relative, participating, optional or other special right of such class of capital stock or series thereof and the qualifications, limitations or restrictions of such preferences and/or rights shall be set forth in full or summarized on the face or back of the certificate which the Corporation shall issue to represent such class or series of capital stock; provided that, except as otherwise provided in Section 202 of the General Corporation Law of the State of Delaware, in lieu of the foregoing requirements, there may be set forth on the face or back of the certificate which the Corporation shall issue to represent such class or series of capital stock, a statement that the Corporation will furnish without charge to each stockholder who so requests the powers, designations, preferences and relative, participating, optional or other special rights of each class of capital stock or series thereof and the qualifications, limitations or restrictions of such preference and/or rights. SECTION 2. Any or all of the signatures on a certificate may be facsimile. In case any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed upon a certificate shall have ceased to be such officer, transfer agent or registrar before such certificate is issued, it may be issued by the Corporation with the same effect as if they were such officer, transfer agent or registrar at the date of issue. SECTION 3. The board of directors may direct a new certificate or certificates to be issued in place of any certificate or certificates theretofore issued by the Corporation alleged to have been lost, stolen or destroyed, upon the making of an affidavit of that fact by the person claiming the certificate of stock to be lost, stolen or destroyed. When authorizing such issue of a new certificate or certificates, the board of directors may, in its discretion and as a condition precedent to the issuance thereof, require the owner of such lost, stolen or destroyed certificate or certificates, or his legal representative, to advertise the same in such manner as it shall require and/or to give the Corporation a bond in such sum as it may direct as indemnity against any claim that may be made against the Corporation with respect to the certificate alleged to have been lost, stolen or destroyed. SECTION 4. Upon surrender to the Corporation or the transfer agent of the Corporation of a certificate for shares duly endorsed or accompanied by proper evidence of succession, assignation or authority to transfer, it shall be the duty of the Corporation to issue a new certificate to the person entitled thereto, cancel the old certificate and record the transaction upon its books. SECTION 5. In order that the Corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, or entitled to express consent to corporate action in writing without a meeting, or entitled to receive payment of any dividend or other distribution or allotment of any rights, or entitled to exchange of stock or for the purpose of any other lawful action, the board of directors may affix, in advance, a record date, which shall not be more than sixty nor less than ten days before the date of such meeting, nor more than sixty days prior to any other action. A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; provided, however, that the board of directors may fix a new record date for the adjourned meeting. SECTION 6. The Corporation shall be entitled to recognize the exclusive right of a person registered on its books as the owner of shares of capital stock of the Corporation to receive dividends, and to vote as such owner, and shall not be bound to recognize any equitable or other claim to or interest in such share or shares of capital stock on the part of any other person, whether or not it shall have express or other notice thereof, except as otherwise provided by the laws of the State of Delaware. ARTICLE VII. PROCUREMENT Each Director shall have the right to review in their entirety any and all proposals received by the Corporation in response to any requests for proposals that may be issued by the Corporation for contracts, purchase orders or other similar binding commitments to be entered into by, or on behalf of, the Corporation. The board of directors' review of proposals shall be conducted in a manner consistent with the requirements of the request for proposals to maintain the confidentiality of proprietary information contained in the proposals. ARTICLE VIII. INDEMNIFICATION OF DIRECTORS AND OFFICERS Each person who is or was or had agreed to be a director or officer of the Corporation shall be indemnified by the Corporation to the fullest extent permitted or authorized by the General Corporation Law of the State of Delaware or any other applicable laws as presently or hereafter in effect. Without limiting the generality of the foregoing, the Corporation may enter into one or more agreements with any person which provide for indemnification greater or different than that provided in this Article VIII. Any repeal or modification of this Article VIII shall not adversely affect any right or protection existing hereunder immediately prior to such repeal or modification. The Corporation may, but shall not be obligated to, maintain insurance, at its expense, for the benefit of the Corporation and of any person to be indemnified. ARTICLE IX. GENERAL PROVISIONS SECTION 1. Dividends upon the capital stock of the Corporation, subject to the provisions of the Certificate of Incorporation, if any, may be declared by the board of directors at any regular or special meeting, pursuant to law. Dividends may be paid in cash, in property, or in shares of capital stock, subject to the provisions of the Certificate of Incorporation. SECTION 2. Before payment of any dividend, there may be set aside out of any funds of the Corporation available for dividends such sum or sums as the board of directors from time to time, in their absolute discretion, think proper as a reserve or reserves to meet contingencies, or for equalizing dividends, or for repairing or maintaining any property of the Corporation, or for such other purpose as the board of directors shall believe conducive to the interest of the Corporation, and the board of directors may modify or abolish any such reserve in the manner in which it was created. SECTION 3. All checks or demands for money and notes of the Corporation shall be signed by such officer or officers or such other person or persons as the board of directors may from time to time designate. SECTION 4. The fiscal year of the Corporation shall end on December 31 of each year or as otherwise fixed by resolution of the board of directors. SECTION 5. The board of directors may adopt a corporate seal and use the same by causing it or a facsimile thereof to be impressed or affixed or reproduced or otherwise. ARTICLE X. AMENDMENTS Except as otherwise provided by the Certificate of Incorporation or these bylaws, these bylaws may be altered, amended or repealed or new bylaws may be adopted only by the vote of either (i) three-fourths of the members of the board of directors then in office or (ii) the holders of two-thirds of the issued and outstanding shares of Common Stock. Approved by three-fourths of the members of the board of directors effective as of the 24th day of April, 2000. /s/Randy S. Segal -------------------------- Randy S. Segal Secretary EX-27 4 FINANCIAL DATA SCHEDULE
5 This schedule contains summary financial information extracted from the Company's unaudited Consolidated Statement of Operations, Consolidated Balance Sheet, and Consolidated Statement of Cash Flows, in each case for the three months ended March 31, 2000, and is qualified in its entirety by reference to such financial statements. 1,000 U.S. Dollars 3-MOS DEC-31-2000 JAN-01-2000 MAR-31-2000 1 448,631 214,569 17,073 0 36,040 615,554 123,915 0 1,379,595 98,915 722,973 0 0 552 47,637 1,379,595 5,018 22,170 5,256 51,412 9,094 0 14,981 (3,994) (3,994) (3,994) 0 0 0 (4,500) (0.09) (0.09)
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