Notes On The WorldSpace and AMRC deal as found in valuespec.com:
All the following excerpts were taken from the SKYC 10K dated 4-15-98:
sec.gov
Page F-1
<<On October 16, 1997, American Mobile Radio Corporation, an indirect subsidiary
of American Mobile through its subsidiary AMRC Holdings, Inc. (together with
American Mobile Radio Corporation, "AMRC"), was awarded a license by the FCC to
provide satellite-based Digital Audio Radio Service ("DARS") throughout the
United States, following its successful $89.9 million bid at auction on April 2,
1997. American Mobile has entered into an agreement with WorldSpace, Inc.
("WorldSpace"), by which WorldSpace has acquired a 20% participation in AMRC. In
connection with the DARS auction, AMRC has also arranged for financing of the
FCC license fees as well as for initial working capital needs, which financing
has included the issuance of options. Under the terms of AMRC's financing and
contingent on FCC approval, exercise of the outstanding issued options could
result in the dilution of American Mobile's ownership interest in AMRC to 28%.
Additionally, the agreement gives WorldSpace certain participation rights which
provide for their participation in significant business decisions in the
ordinary course of business. As a result, AMRC is carried on the equity method.
The operations and financing of AMRC are maintained separate and apart from the
operations and financing of American Mobile (see "Liquidity and Financing").>>
page F-5
<<As previously mentioned (see "Organization and Business"), AMRC was a winning
bidder for, and on October 16, 1997, was awarded an FCC license to provide DARS
throughout the United States. AMRC has and will continue to receive funding for
this business from an independent source in exchange for debt and an equity
interest in AMRC. Accordingly, it is not expected that the development of this
business will have a material impact on the Company's financial position,
results of operations, or cash flows. The Company's equity interest in AMRC may,
however, even on a fully diluted basis, become a material asset of the Company.>>
Pages 45 to 51 (Worldspace and AMRC DARS deal):
<<Nature of Business
------------------
American Mobile Radio Corporation (AMRC) was incorporated on December
15, 1992 in the State of Delaware as a wholly owned subsidiary of
American Mobile Satellite Corporation (AMSC) for the purpose of
procuring a digital audio radio service license (DARS). Business
activity for the period December 15, 1992 through December 31, 1996 was
insignificant.
AMRC Holdings, Inc. (the Company) was incorporated in the State of
Delaware on May 16, 1997 for the purpose of constructing, launching and
operating a domestic communications satellite system for the provision
of DARS. Pursuant to various financing agreements entered into in 1997
between AMSC, AMRC and WorldSpace, Inc. (WSI), WSI acquired a 20%
interest in AMRC. In May 1997, AMSC and WSI exchanged their respective
interests in AMRC for all of the Company's common stock.
Principles of Consolidation and Basis of Presentation
-----------------------------------------------------
The consolidated financial statements include the accounts of AMRC
Holdings, Inc. and its subsidiary, AMRC. All significant intercompany
transactions and accounts have been eliminated. The Company's board of
directors have devoted substantially all of their time to the planning
and organization of the Company and to the process of addressing
regulatory matters, initiating research and development programs,
conducting market research and securing adequate debt and equity
capital for anticipated operations and growth. Accordingly, the
Company's financial statements are presented as those of a development
stage enterprise, as prescribed by Statement of Financial Accounting
Standards No. 7, Accounting and Reporting by Development Stage
Enterprises.
Cash and Cash Equivalents
-------------------------
The Company considers short-term, highly liquid investments with an
original maturity of three months or less to be cash equivalents. At
December 31, 1997, the Company maintained one bank account and held no
short-term investments.
F-46
AMRC HOLDINGS, INC. AND SUBSIDIARY
(A Development Stage Company)
Notes to Consolidated Financial Statements
for the period from December 15, 1992 (date of inception) to
December 31, 1997
System Under Construction
-------------------------
The Company is currently developing its satellite system. Costs related
to the project are being capitalized to the extent that they have
future benefits. As of December 31, 1997, all amounts recorded as
system under construction relate to costs incurred in obtaining FCC
licenses and approvals.
On October 16, 1997, the Federal Communications Commission ("FCC")
granted AMRC a license to launch and operate two geostationary
satellites for the purpose of providing digital audio radio in the
United States in the 2332.5 - 2345 MHz (space-to-earth) frequency band,
subject to achieving certain technical milestones and international
regulatory requirements. The license is valid for eight years upon
successful launch and orbital insertion of the satellites. The
Company's license requires that it comply with a construction and
launch schedule specified by the FCC for each of the two authorized
satellites. The FCC has the authority to revoke the authorizations and
in connection with such revocation could exercise its authority to
rescind the Company's license. The Company believes that the exercise
of such authority to rescind the license is unlikely.
The license asset value consists of the total payments made to the FCC
for the license of $90,030,889. Associated with this license is
capitalized interest of $1,901,473.
During 1996, the Company adopted Statement of Financial Accounting
Standards (SFAS) No. 121, Accounting for the Impairment of Long-lived
Assets and for Long-lived Assets to be Disposed of (SFAS No. 121).
SFAS No. 121 requires that long-lived assets to be held and used be
reviewed by the Company for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. An impairment loss is recognized when the undiscounted
net cash flows associated with the asset are less than the asset's
carrying amount. Impairment losses, if any, are measured as the excess
of the carrying amount of the asset over its estimated fair market
value. The adoption of SFAS No. 121 did not have a material impact on
the Company's financial position or results of operations.
F-47
Income Taxes
------------
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards No. 109, Accounting for Income Taxes.
Deferred income taxes are recognized for the tax consequences in future
years of differences between the tax bases of assets and liabilities
and the financial reporting amounts at each year-end, based on enacted
tax laws and statutory tax rates applicable to the periods in which the
differences are expected to affect taxable income. Valuation allowances
are established when necessary to reduce deferred tax assets to the
amount expected to be realized. Income tax expense is the sum of tax
payable for the period and the change during the period in deferred tax
assets and liabilities.
Use of Estimates
----------------
The preparation of the Company's financial statements in conformity
with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of
assets and liabilities at the date of the financial statements and the
reported amounts of expenses during the reported period. The estimates
involve judgments with respect to, among other things, various future
factors which are difficult to predict and are beyond the control of
the Company. Significant estimates include valuation of the Company's
investment in the DARS license and benefit for income taxes and related
valuation allowances. Accordingly, actual amounts could differ from
these estimates.
(2) Related Party Transactions
--------------------------
The Company had related party transactions with the following
shareholders:
AMSC
----
In 1997, AMSC contributed $142,534 for the Company to establish the
original application for the FCC license. On March 28, 1997, the
Company received $1,500,000 as a capital contribution from AMSC.
During the fiscal year, AMSC incurred costs for operating expenses of
the Company and established an intercompany balance of $55,435.
F-48
WSI
---
On March 28, 1997, the Company received $1,500,000 as a capital
contribution from WSI. The Company issued WSI 25 shares of common stock
for this consideration.
On April 16, 1997, the Company received $14,977,777 from WSI, which
represented $6,000,000 as an additional capital contribution and
$8,977,777 as a six-month bridge loan (see note 3).
On May 16, 1997, the Company obtained a $1,000,000 working capital loan
facility from WSI. During fiscal year 1997, the Company drew down
$663,531 against the facility (see note 3).
On October 16, 1997, the Company received $71,911,111 from WSI, which
represented an additional $13,522,223 under the bridge loan and
$58,388,889 under the additional amounts loan (see note 3).
In addition to financing, the Company has relied upon certain related
parties for legal and technical services. Total expenses incurred in
transactions with related parties are as follows:
Year ended December 31, 1997
----------------------------
WSI AMSC Total
--- ---- -----
Technical and other
Professional services $ 921,756 $ - $ 921,756
Legal services 37,803 130,451 168,254
Other - 19,615 19,615
---------- -------- ----------
Total $ 959,559 $ 150,066 $1,109,625
========== ========== ==========
F-49
(3) Loans Payable
In March 1997, AMRC entered into a series of agreements (Participation
Agreement) with AMSC and WSI in which both companies provide various
equity and debt funding commitments to AMRC for the purpose of
financing the activities of AMRC in connection with the establishment
of a DARS satellite system in the United States. On May 16, 1997,
certain portions of the Participation Agreement were subsequently
ratified with substantially the same terms and conditions under the
Bridge Loan, Additional Amounts Loan and Working Capital Credit
Facility (Loan Agreement).
The Company has loans payable with a face amount of $82,053,046 with a
carrying amount of $80,617,687 at December 31, 1997 outstanding with
WSI as follows:
Bridge loan $23,000,626
Additional amounts loan 58,388,889
Working capital loan 663,531
- --------------------------------------------------------------------------------
82,053,046
Discount arising from concurrent issuance of options (note 4) (1,435,359)
- --------------------------------------------------------------------------------
$80,617,687
- --------------------------------------------------------------------------------
Bridge Loan
-----------
The Company executed the bridge loan with WSI in two traunches.On April
16, 1997, the Company received proceeds of $8,479,012 for a loan with a
face amount of $8,977,777. On October 16, 1997, the Company received
proceeds of $12,770,988 for a loan with a face amount of $13,522,223.
The first traunche was a six-month loan at LIBOR plus five percent per
annum, equaling 11.03 percent. The first traunche was rolled over with
the establishment of the second tranche, which is a six-month loan at
LIBOR plus five percent per annum, equaling 10.88 percent.
F-50
(3) Continued
Additional Amounts Loan
-----------------------
On October 16, 1997, the Company executed the additional amounts loan
with WSI and received proceeds of $58,218,889 for a loan with a face
amount of $58,388,889. This loan is a six-month loan at LIBOR plus five
percent per annum, equaling 10.88 percent.
Working Capital Loan
--------------------
On May 16, 1997, the Company executed the working capital loan with WSI
whereby the company would receive proceeds of $920,000 for a loan with
a face amount of $1,000,000. The Company drew down $663,531 against the
line of credit through December 31, 1997. This loan is a six-month loan
at LIBOR plus five percent per annum, with interest rates ranging from
10.91 percent to 11 percent as the components of the loan were rolled
over in November 1997.
(4) Options
The Company issued WSI three options. Under the first option, WSI may
purchase 97.2222 shares of common stock at $241,714 per share. The
option may be exercised in whole or in incremental amounts between
April 16, 1998 and October 16, 2002, subject to prior approval of the
FCC to the extent that such exercise would constitute transfer of
control. Under certain circumstances, AMSC may require WSI to exercise
the option in whole. The Company allocated $ 1,250,000 to the option,
based upon an independent valuation. Under the second option, WSI may
purchase 128.8876 shares at $477,005 per share. The option may be
exercised between October 16, 1997 and October 16, 2003, subject to
prior approval of the FCC to the extent that such exercise would
constitute transfer of control. The Company allocated $ 170,000 to the
option, based upon an independent valuation. Under the third option,
WSI may purchase 3.5111 shares of common stock at $284,811 per share.
The option may be exercised between October 16, 1997 and October 16,
2002, subject to prior approval of the FCC to the extent that such
exercise would constitute transfer of control. The Company allocated $
80,000 to the option, based upon an independent valuation.
F-51
(5) Accumulated Deficit
-------------------
The Company is devoting its efforts to develop, construct and expand a
digital audio radio network. This effort involves substantial risk and
future operating results will be subject to significant business,
economic, regulatory, technical, and competitive uncertainties and
contingencies. These factors individually or in the aggregate could
have an adverse effect on the Company's financial condition and future
operating results and create an uncertainty as to the Company's ability
to continue as a going concern. The financial statements do not include
any adjustments that might be necessary should the Company be unable to
continue as a going concern.
In order to commence satellite-based radio broadcasting services, the
Company will require substantial funds to develop and construct the
DARS system, develop and launch radio communications satellites, retire
debt incurred in connection with the acquisition of the DARS license
and to sustain operations until it generates positive cash flow. At the
Company's current stage of development, economic uncertainties exist
regarding successful acquisition of additional debt and equity
financing and ultimate profitability of the Company's proposed service.
The Company has not commenced construction of its satellites and will
require substantial additional financing before it is able to do so.
Failure to obtain the required long-term financing will prevent the
Company from realizing its objective of providing satellite-delivered
radio programming. Management's plan to fund operations and capital
expansion includes the additional sale of debt and equity securities
through public and private sources. There are no assurances, however,
that such financing will be obtained.
(6) Interest Cost
-------------
The Company capitalizes a portion of its interest cost as a component
of the system under construction. The following is a summary of
interest cost incurred during 1997:
Interest cost capitalized $1,901,473
Interest cost charged to expense 549,447
- --------------------------------------------------------------------------------
Total interest cost incurred $2,450,920
- --------------------------------------------------------------------------------
Interest costs incurred prior to the award of the license were expenses.
F-51
(7) Income Taxes
------------
For the period from December 15, 1992 (date of inception) to December
31, 1997, the Company filed a consolidated return with its majority
stockholder, AMSC. The Company generated net operating losses and other
tax benefits which were not utilized by AMSC. As no formal tax sharing
agreement has been finalized, the Company was not compensated for the
net operating losses. Had the Company filed on a stand alone basis, it
would have had no tax provision as the deferred tax benefit of
approximately $650,000 would have been fully offset by a valuation
allowance.
(8) Commitments and Contingencies
-----------------------------
The FCC has established certain system development milestones that must
be met for the company to maintain its license to operate the systems.
The Company believes that it is proceeding into the system development
as planned and in accordance with the FCC milestones.
(9) Subsequent Events
-----------------
On March 20, 1998, the Company entered into an agreement for the
construction of two satellites, two launch vehicles, and related
equipment, services and spare parts, including launch services. The
total commitment, excluding financing fees, is $376 million. These
amounts are due upon completion of certain milestones. In March 1998,
the Company made the first milestone payment of $5 million which was
funded through additional borrowings from WSI.>>
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