Amendment No. 1 to Amended and Restated Term Credit Agreement among Motient Communications Inc., Motient License Inc., M&E Advisors L.L.C., and Lenders
Contract Categories:
Business Finance
›
Credit Agreements
Summary
This amendment updates the existing term credit agreement between Motient Communications Inc., Motient License Inc., M&E Advisors L.L.C. (as Administrative and Collateral Agent), and the participating lenders. The amendment addresses prior defaults by Motient, which the lenders agree to waive if certain conditions are met, including the transfer of FCC licenses to a subsidiary and the pledge of shares as collateral. The agreement also adjusts borrowing limits and clarifies key terms. The amendment is effective once all specified conditions are satisfied or waived, with a termination date of December 31, 2004.
EX-10.31 10 b3944ex1031.txt AMENDED TERM, CREDIT AGREEMENT EXHIBIT 10.31 Execution Copy ================================================================================ AMENDMENT NO. 1 to AMENDED AND RESTATED TERM CREDIT AGREEMENT dated as of March 16, 2004 among Motient Communications Inc. Motient License Inc. the Required Lenders party hereto and M&E Advisors L.L.C. as Administrative Agent and Collateral Agent ================================================================================
-i- AMENDMENT NO. 1 TO AMENDED AND RESTATED TERM CREDIT AGREEMENT THIS AMENDMENT NO. 1 (this "Amendment") to the Amended and Restated Term Credit Agreement, dated as of January 27, 2003 (the "Original Agreement"), among Motient Communications Inc., a Delaware corporation (the "Borrower"), Motient Corporation, a Delaware corporation, Motient Holdings Inc., a Delaware corporation, M&E Advisors L.L.C., as Administrative Agent (in such capacity, the "Administrative Agent") and Collateral Agent (in such capacity, the "Collateral Agent"), and each of the lenders from time to time parties thereto (each, a "Lender" and, collectively, the "Lenders") is entered into as of this the 16th day of March by and among the Borrower, the Administrative Agent, the Collateral Agent, the Required Lenders (as defined in the Original Agreement) and Motient License Inc., a recently formed Delaware corporation and a wholly owned subsidiary of the Borrower ("License Sub"). The Original Agreement, as amended by this Amendment, is referred to herein as the "Agreement" and, at the Effective Time (as hereinafter defined), all references to "this Agreement" set forth in the Original Agreement shall be deemed to refer to the Original Agreement as so amended. Capitalized terms used but not defined herein have the meanings ascribed to them in the Original Agreement. WHEREAS, the Borrower has defaulted on certain obligations under the Original Agreement as described in greater detail in Section 3 of this Amendment; and WHEREAS, the Required Lenders are prepared to waive such defaults contingent upon the full satisfaction or waiver of all conditions to the effectiveness of this Amendment set forth in Section 5 of this Amendment; and WHEREAS, (a) one such condition to effectiveness is the transfer to License Sub by the Borrower of the Granted FCC Licenses (as hereinafter defined) pursuant to the terms of a FCC License Transfer Agreement substantially in the form of Annex A hereto, to be dated as of the date hereof (the "Transfer Agreement"), by and between the Borrower and the License Sub and (b) another such condition is the execution and delivery of a Share Pledge Agreement substantially in form of Annex B hereto, to be dated as of the date hereof (the "Motient Communications Share Pledge Agreement"), by and between the Borrower and the Collateral Agent pursuant to which the Borrower will pledge all of its shares of capital stock in License Sub as security for repayment in full of the Secured Obligations (as defined in the Motient Communications Share Pledge Agreement); and WHEREAS, License Sub is a party to this Amendment in order to subject License Sub to the terms and conditions of the Agreement as of the Effective Time, including, without limitation, Section 5.26 thereof; NOW, THEREFORE, in consideration of the foregoing and of the mutual covenants and agreements hereinafter set forth, the parties hereto hereby agree that the Original Agreement is amended as of the Effective Time as follows: Section 1. Recitals. The fourth "WHEREAS" clause in the Recitals of the Original Agreement is hereby amended and restated in its entirety to read as follows: "WHEREAS, the Lenders have agreed, on the terms and conditions set forth in this Agreement, to lend the Borrower from time to time amounts not to exceed twelve million five hundred thousand dollars ($12,500,000) in the aggregate, which amount shall (x) be reduced by four million nine hundred eleven thousand two hundred eighty-seven dollars ($4,911,287), of which (i) four hundred million five hundred thousand ($4,500,000) was previously extended to the Borrower as of March 16, 2004 and (ii) four hundred eleven thousand two hundred eighty-seven dollars ($411,287) constitutes accrued but unpaid interest as of such date that is being added to the outstanding principal amount owed by the Borrower to the Lenders pursuant to Section 4 of this Amendment, but (y) not reduced by the three hundred twenty thousand dollar ($320,000) commitment fee that is being added to the outstanding principal amount owed by the Borrower to the Lenders pursuant to Section 5.27 of the Agreement, such that, as of March 16, 2004, the Borrower's additional borrowing capacity under this Agreement shall be seven million five hundred eighty-eight thousand seven hundred thirteen dollars ($7,588,713);" Section 2. Definitions. 2.01. The following new definitions are hereby added to Section 1.01 of the Original Agreement in alphabetical order: "Agreement" means, as of the Effective Time, the Original Agreement as amended by the Amendment. "Amendment" has the meaning set forth in the introductory paragraph of the Amendment. "Effective Time" means the moment in time at which all conditions to the effectiveness of the Amendment set forth in Section 5 of the Amendment have been fully satisfied or waived by the Required Lenders. "FCC" means the Federal Communications Commission. "FCC Licenses" means the Granted FCC Licenses and the Pending FCC Licenses, collectively. "Granted FCC Licenses" means those FCC licenses listed in Part A of Annex C to the Amendment. "License Sub" has the meaning set forth in the introductory paragraph of the Amendment. "Motient Communications Share Pledge Agreement" has the meaning set forth in the Recitals of the Amendment. 2 "Original Agreement" has the meaning set forth in the introductory paragraph of the Amendment. "Pending FCC Licenses" means those FCC licenses listed in Part B of Annex C to the Amendment. "Termination Date" means December 31, 2004, or if such day is not a Business Day, the next succeeding Business Day. "Transfer Agreement" has the meaning set forth in the Recitals of the Amendment. 2.02. The definition of "Pledge Agreements" set forth in Section 1.01 of the Original Agreement is amended and restated in its entirety to read as follows: "Pledge Agreements" means, collectively, the Motient Corporation Share Pledge Agreement, dated as of January 27, 2003, between the Collateral Agent and Motient, the Motient Holdings Share Pledge Agreement, dated as of January 27, 2003, between the Collateral Agent and Holdings, and the Motient Communications Share Pledge Agreement. 2.03. The definition of "Security Agreement" set forth in Section 1.01 of the Original Agreement is amended and restated in its entirety to read as follows: "Security Agreement" means the Security Agreement, dated as of January 27, 2003, between the Borrower and the Collateral Agent, as amended by Amendment No. 1 thereto, dated as of January 30, 2003, between the Borrower and the Collateral Agent. Section 3. Waiver of Defaults. At the Effective Time, on behalf of the Lenders, the Required Lenders waive those Defaults and Events of Default, and only those Defaults and Events of Default, as are stated with particularity on Annex D hereto (the waiver of all such Defaults and Events of Default, collectively, the "Waiver"). The Waiver shall not effect any right, power or privilege of the Lenders under any Loan Document, which rights, powers and privileges are cumulative and not exclusive of any rights or remedies otherwise available to the Lenders, except that the covered Defaults and Events of Default shall be waived on and as of the date of the Amendment. Section 4. Commitments. Section 2.01 of the Original Agreement is hereby amended and restated in its entirety to read as follows: "Section 2.01. Commitments. During the Availability Period, each Lender severally agrees, on the terms and conditions set forth in this Agreement, to make Loans to the Borrower from time to time in an aggregate principal amount not to exceed such Lender's Commitment, and in an aggregate principal amount for all Lenders not to exceed twelve million five hundred thousand dollars ($12,500,000) in the aggregate, which amount shall (x) be reduced by four million nine hundred eleven thousand two hundred eighty-seven dollars ($4,911,287), of which (i) four hundred million five hundred thousand ($4,500,000) was previously extended to the Borrower as of 3 March 16, 2004 and (ii) four hundred eleven thousand two hundred eighty-seven dollars ($411,287) represents accrued but unpaid interest as of such date that shall constitute an increase by like amount as of March 16, 2004 to the outstanding principal amount owed by the Borrower to the Lenders under this Agreement, but (y) not reduced by the three hundred twenty thousand dollar ($320,000) commitment fee described in Section 5.27 of this Agreement, such that, as of March 16, 2004, the Borrower's additional borrowing capacity under this Agreement shall be seven million five hundred eighty-eight thousand seven hundred thirteen dollars ($7,588,713); provided, however, that no Lender shall have any obligation to make any Loan pursuant to this Section 2.01 from the date hereof through December 31, 2004 unless the Borrower shall be in compliance with each of those financial covenants set forth on Annex E to the Amendment; provided, further, that no Lender shall have any obligation to make any Loan pursuant to this Section 2.01 on or after January 1, 2005 unless the Borrower shall be in compliance with each of a revised set of financial covenants (the "2005 Covenants") to be mutually agreed upon between the Company and the Administrative Agent, with each such entity acting in good faith, on or before December 15, 2004; provided, further, that any failure by the Borrower to comply with any of the financial convents set forth on Annex E to the Amendment from the date hereof through December 31, 2004, and any failure by the Borrower to comply with any of the 2005 Covenants on or after January 1, 2005, shall constitute an Event of Default hereunder. The Commitments are not revolving in nature and amounts repaid or prepaid cannot be reborrowed." Section 5. Borrowing Amounts. Section 2.02(b) of the Original Agreement is hereby amended and restated in its entirety to read as follows: "(b) Borrowing Amounts. Each Borrowing shall be in the aggregate principal amount of five hundred thousand dollars ($500,000) or any larger multiple of five hundred thousand dollars ($500,000), provided, that no single Borrowing may exceed one million five hundred thousand dollars ($1,500,000)." Section 6. Effectiveness. This Amendment shall become effective immediately upon the full satisfaction or waiver by the Required Lenders of the following conditions: 6.01. The Administrative Agent shall have received all of the following, in form and substance reasonably satisfactory to the Required Lenders: (i) from each party hereto, a counterpart of this Amendment duly executed on behalf of such party; (ii) from each party thereto, a counterpart of the Transfer Agreement duly executed on behalf of such party; (iii) from each party thereto, a counterpart of the Motient Communications Share Pledge Agreement duly executed on behalf of such party; (iv) from each party thereto, a counterpart of the Common Stock Purchase Warrant substantially in the form of Annex F to the Amendment duly executed on behalf of such party; 4 (v) from each party thereto, a counterpart of the Registration Rights Agreement substantially in the form of Annex G to the Amendment duly executed on behalf of such party; (vi) a stock certificate in the Borrower's name representing all of the issued and outstanding shares of capital stock of License Sub, which stock certificate shall be duly endorsed for transfer or accompanied by a blank stock power; (vii) certificates of incorporation for each of the Borrower and License Sub, which certificates of incorporation shall have been certified as of a date proximate to the Effective Time by the Secretary of State of the State of Delaware; (viii) good standing certificates for each of the Borrower and License Sub from the Secretary of State of the State of Delaware, dated as of a date proximate to the Effective Time; (ix) copies of resolutions, certified as of a date proximate to the Effective Time by the Secretary or an Assistant Secretary of each of the covered entities, of the boards of directors of (a) the Borrower approving and authorizing the execution and delivery by the Borrower of the Transfer Agreement, the Motient Communications Share Pledge Agreement and the Amendment and the performance of its obligations under each such agreement and (b) License Sub approving and authorizing the execution and delivery by License Sub of the Transfer Agreement and the Amendment and the performance of its obligations under each such agreement; and (x) a certificate of the Secretary or an Assistant Secretary of each Parent Guarantor, the Borrower and License Sub, certifying as of a date proximate to the Effective Time the names and true signatures of its officers authorized to execute and deliver each of the following agreements to which it is a party: the Transfer Agreement, the Motient Communications Share Pledge Agreements and the Amendment. 6.02. The Borrower shall have transferred the Granted FCC Licenses to License Sub and agreed to transfer the Pending FCC Licenses to License Sub, in each case pursuant to the terms of the Transfer Agreement. The FCC shall be notified of such transfers by the filing of FCC Form 603 pro forma notifications pursuant to the terms of the Transfer Agreement. 6.03. The Chief Executive Officer, President or Chief Financial Officer of the Borrower shall have delivered a certificate to the Administrative Agent, dated as of a date proximate to the Effective Time, stating that the conditions set forth in Section 6.01 and 6.02 of the Amendment have been satisfied (except to the extent any such conditions shall have been waived by the Required Lenders) and the representations and warranties incorporated in Section 7 of this Amendment are true and correct in all material respects (except as set forth on Annex H hereto), in each case as of the Effective Time. Section 7. Representations and Warranties. The Borrower represents and warrants that, except as set forth on Annex H hereto, each of the representations and warranties made by the Borrower in Article 4 of the Original Agreement as of the Closing Date is true and correct as of the date hereof. 5 Section 8. Covenants. The following additional covenants are hereby added to Article 5 of the Original Agreement in numerical order: "Section 5.26. FCC Licenses. The Borrower and License Sub jointly and severally covenant and agree that neither entity will suffer (a) any FCC License to be owned or acquired by any Person other than License Sub or (b) License Sub to (i) be partially or wholly owned by any entity other than the Borrower, (ii) engage in any business other than the ownership of the FCC Licenses and activities incidental thereto, (iii) own or acquire any assets other than the FCC Licenses and, to the extent incidental to its ownership of the FCC Licenses, cash, or (iv) have or incur any Indebtedness or other liabilities other than liabilities imposed under the Loan Documents, liabilities imposed by law (including, without limitation, tax liabilities) and other liabilities incident to, but not involving any encumbrance of, its ownership of the FCC Licenses." "Section 5.27. Commitment Fee. As of March 16, 2004, the outstanding principal amount of indebtedness owed by the Borrower to the Lenders under this Agreement shall be increased by three hundred twenty thousand dollars ($320,000), which amount shall (x) constitute a commitment fee in respect of additional borrowings made available to the Borrower under the Amendment and (y) be owed to the Lenders pro rata on the basis of their percentage interests of the principal amount of indebtedness outstanding under the Agreement and the date immediately preceding the date hereof." Section 9. Miscellaneous. 9.01. Amendment. The Original Agreement shall only be amended by this Amendment (a) at the Effective Time and (b) to the extent expressly provided for by this Amendment. Except for the Waiver, which shall not be effective until the Effective Time, nothing in this Amendment shall constitute a waiver of any right, power or privilege of any Lender or the Administrative Agent under any Loan Document. Once it has become effective, this Amendment may not be waived, amended or modified except pursuant to an agreement or agreements entered into by the Borrower and the Required Lenders or by the Borrower and the Administrative Agent with the consent of the Required Lenders. 9.02. Successors and Assigns. The provisions of this Amendment shall be binding upon and shall inure to the benefit of the parties hereto and their respective successors and assigns, except that neither the Borrower nor License Sub may assign or otherwise transfer any of its rights under this Amendment without the prior written consent of the Required Lenders. 9.03. Governing Law; Submission to Jurisdiction. This Amendment shall be governed by and construed in accordance with the laws of the State of New York (excluding the choice of law provisions thereof). Each of the Borrower and License Sub for itself and its property hereby submits to the nonexclusive jurisdiction of the United States District Court for the Southern District of New York and of any New York State Court sitting in New York City and any applicable court from any thereof, for the purposes of all legal proceedings arising out of or relating to this Amendment or the transactions contemplated hereby or for the recognition or enforcement of any judgment. Each of the Borrower and License Sub irrevocably waives, to the fullest extent permitted by law, any objection which it may now or hereafter have to the laying of the venue of any such proceeding brought in such court and any claim that any such proceeding brought in such court has been brought in an inconvenient forum. 6 9.04. Counterparts. This Amendment may be signed in any number of counterparts, each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument. 9.05. Waiver of Jury Trial. EACH OF THE BORROWER AND LICENSE SUB HEREBY IRREVOCABLY WAIVES ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO THIS AMENDMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY. [Signature Page Follows] 7 IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed by their respective authorized officers as of the day and year first written above. The Borrower MOTIENT COMMUNICATIONS INC. By: /s/ Christopher W. Downie Name: Christopher W. Downie Title: Chief Financial Officer License Sub MOTIENT LICENSE INC. By: /s/ Christopher W. Downie Name: Christopher W. Downie Title: Chief Financial Officer Administrative Agent/Collateral Agent M&E ADVISORS L.L.C. By: /s/ Gary Singer Name: Gary Singer Title: Investment Advisor Required Lenders LC CAPITAL MASTER FUND, LTD. By: /s/ Richard F. Conway Name: Richard F. Conway Title: Director [Signature Page to Amendment No. 1 to the Amended and Restated Term Credit Agreement] YORK OFFSHORE INVESTORS UNIT TRUST By: /s/ Adam J. Semler Name: Adam J. Semler Title: CFO of its investment manager YORK CAPITAL MANAGEMENT, L.P. By: /s/ Adam J. Semler Name: Adam J. Semler Title: CFO YORK INVESTMENT LIMITED By: /s/ Adam J. Semler Name: Adam J. Semler Title: CFO of its investment manager YORK DISTRESSED OPPORTUNITIES FUND, L.P. By: /s/ Adam J. Semler Name: Adam J. Semler Title: CFO BAY HARBOUR 90-1, LTD By: /s/ Doug Teitelbaum Name: Doug Teitelbaum Title: BAY HARBOUR PARTNERS, LTD By: /s/ Doug Teitelbaum Name: Doug Teitelbaum Title: 2 ANNEX A Form of Transfer Agreement FCC LICENSE TRANSFER AGREEMENT WHEREAS, Motient Communications Inc., a Delaware corporation and a wholly owned subsidiary of Motient Corporation ("MCI"), desires to assign those certain 800 MHz licenses listed on Exhibit A hereto (the "Granted Licenses") to Motient License Inc., a Delaware corporation and a wholly owned subsidiary of MCI ("MLI," and together with MCI, the "Parties"), as of the date hereof; and WHEREAS, MCI desires to assign to MLI those certain 800 MHz licenses listed on Exhibit B hereto (the "Pending Licenses," and together with the Granted Licenses, the "Licenses") as soon as reasonably practicable after the Pending Licenses are granted to MCI; WHEREAS, such assignments shall be made pursuant to certain pro forma assignment procedures created by the FCC; WHEREAS, the Parties desire to hereby evidence the transfer of the licenses from MCI to MLI; NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged: 1. MCI hereby assigns to MLI all right, title and interest in the Granted Licenses, free and clear of all liens, claims and demands of all persons whomsoever attributable to MCI, its affiliates, predecessors, successors or assigns. 2. MCI hereby irrevocably agrees to assign to MLI all right, title and interest in the Pending Licenses as soon as reasonably practicable as the Pending Licenses are granted to MCI, free and clear of all liens, claims and demands of all persons whomsoever attributable to MCI, its affiliates, predecessors, successors or assigns. 3. MLI hereby accepts the assignment of, and assumes responsibility as licensee under, the Granted Licenses from and after the date hereof. 4. MLI hereby irrevocably agrees to accept the assignment of, and to assume responsibility as licensee under, the Pending Licenses from and after the date they are assigned to MLI. 5. MCI shall notify the Federal Communications Commission (the "FCC") of the assignment of the Granted Licenses within ten days after the date hereof, via the filing of a FCC Form 603 pro forma notification. 6. MCI shall notify the FCC of the assignment of each Pending License within 30 days from the date such license is granted to MCI and assigned to MLI pursuant to the terms of this Agreement, via the filing of a FCC Form 603 pro forma notification. A-1 Date: March __, 2004 Motient Communications Inc. Motient License Inc. By:____________________ By:_______________________ Name: Dennis Matheson Name: Christopher Downie Title: Senior Vice President Title: President A-2 ANNEX B Form of Motient Communications Share Pledge Agreement [Please see exhibit 10.33 of Motient Corporation's Annual Report on Form 10-K for the year ended December 31, 2002] ANNEX C
C-1
C-2
C-3
C-4
C-5
C-6
C-7
C-8
C-9
C-10
C-11
C-12
C-13
C-14
C-15
C-16
C-17
C-18
C-19
C-20
C-21
C-22
C-23
C-24
C-25
C-26
C-27
C-28
C-29
C-30 ANNEX D
Note: On a cumulative basis, the Company is approximately $9,372,000 below what is required by the covenant plan.
D-1 Note: On a cumulative basis, the Company is approximately $6,342,000 below what is required by the covenant plan.
Note: Working capital flows from prior months materially impacted Free Cash Flow compliance. On a cumulative basis, the Company is approximately $4,652,000 ahead of what is required by the covenant plan. The Borrower accepted 275,000 shares of common stock of GoAmerica, Inc. in partial settlement of an outstanding debt. The Borrower created one subsidiary entity, Motient License Inc., a Delaware corporation. The Borrower may not have sent copies of certain current reports on Form 8-K to the Administrative Agent promptly after being filed with the SEC. The Borrower may not have promptly notified the Administrative Agent in writing of certain Material Adverse Effects listed in Annex D. The Borrower sold certain frequency assets to Nextel Communications, Inc., or its affiliates, pursuant to two different sales agreements, dated as of July 29, 2003 and December 9, 2003, respectively. D-2 ANNEX E Financial Covenants to be Satisfied by Borrower In Advance of Any Additional Borrowings Motient Corporation and its consolidated subsidiaries shall have gross revenues in the following amounts as of the following dates: Date Amount (in $000s) January 31, 2004 $3,174 February 28, 2004 $3,015 March 31, 2004 $2,876 April 30, 2004 $2,746 May 31, 2004 $2,677 June 30, 2004 $2,603 July 31, 2004 $2,537 August 31, 2004 $2,510 September 30, 2004 $2,496 October 31, 2004 $2,478 November 30, 2004 $2,480 December 31, 2004 $2,500 Motient Corporation and its consolidated subsidiaries shall have EBITDA in the following amounts as of the following dates: Date Amount (in $000s) January 31, 2004 $(1,320) February 28, 2004 $(1,843) March 31, 2004 $(1,529) April 30, 2004 $(1,367) May 31, 2004 $(1,258) June 30, 2004 $(1,286) July 31, 2004 $(1,189) August 31, 2004 $(1,009) September 30, 2004 $(1,003) October 31, 2004 $(887) November 30, 2004 $(695) December 31, 2004 $(607) Motient Corporation and its consolidated subsidiaries shall have FCF in the following amounts as of the following dates: Date Amount (in $000s) January 31, 2004 $(2,075) February 28, 2004 $(485) March 31, 2004 $(2,274) April 30, 2004 $(1,223) May 31, 2004 $(931) June 30, 2004 $(1,322) July 31, 2004 $(1,061) August 31, 2004 $(1,232) September 30, 2004 $(1,145) October 31, 2004 $(888) November 30, 2004 $(1,566) December 31, 2004 $(902) E-1 ANNEX F Form of Common Stock Purchase Warrant [Please see exhibit 10.34 of Motient Corporation's Annual Report on Form 10-K for the year ended December 31, 2002] F-1 ANNEX G Form of Registration Rights Agreement [Please see exhibit 10.35 of Motient Corporation's Annual Report on Form 10-K for the year ended December 31, 2002] G-1 ANNEX H Schedule of Exceptions to Representations and Warranties Section 4.03 - FCC will be notified subsequent to the transfer of FCC Licenses from Motient Communications Inc. to Motient License Inc. No formal FCC approval is required. Section 4.06 - See Annex D Section 4.11 - Motient License Inc. is a subsidiary of Motient Communications Inc. Section 4.13 - Since January 27, 2003 there have been a number of developments regarding Motient's business, assets, operations, prospects and condition. Some of these developments and changes may constitute a Material Adverse Effect: 1. Change in Accountants: On March 2, 2004 Motient Corporation dismissed PricewaterhouseCoopers LLP ("PwC") as its independent accountants, effective immediately. PwC had been previously dismissed on April 17, 2003 with respect to all accounting periods other than the period from May 1, 2002 to December 31, 2002. 2. Failure to File 2002/2003 Reports: Motient Corporation failed to timely file its reports on form 10-Q and 10-K for the year 2002, and its reports on form 10-Q for the year 2003. Motient does not expect to timely file its report on form 10-K for the year 2003 or its report on form 10-Q for the first quarter of the year 2004. Consequently, Motient Corporation's outstanding shares of common stock are not registered. 3. UPS: United Parcel Service ("UPS"), the Borrower's largest customer, has begun a planned partial migration to next generation network technology causing its monthly airtime usage of the Borrower's network to decline. Although UPS signed a long-term contract extension with the Borrower in May 2003, there are no minimum purchase requirements under the contract and the contract may be terminated by UPS on 30 days' notice. Over time the Borrower expects that the bulk of UPS's units will migrate to another network. Until June of 2003, UPS had maintained its historical level of payments to mitigate the near-term revenue and cash flow impact of its recent and anticipated continued reduced network usage. However, beginning in July of 2003, the revenues and cash flow from UPS have declined significantly. Also, due to an arrangement entered into in December 2002 under which UPS prepaid for network airtime to be used by it in 2004, the Borrower does not expect that UPS will be required to make any cash payments to the Borrower in 2004 for service to be provided in 2004. H-1 4. Restatement of Prior Period Financial Statements: Motient Corporation's ("Motient") financial information for the period January 1, 2002 to April 30, 2002, prior to the adoption of "fresh start" accounting, includes the effects of several complex transactions from prior years, including the formation of and transactions with a joint venture with Mobile Satellite Ventures LP ("MSV") in 2000 and 2001 and the sale of certain of Motient's transportation assets to Aether Systems, Inc. ("Aether") in 2000. In November 2002 Motient initiated a process to seek the concurrence of the staff of the Securities and Exchange Commission ("SEC") with respect to its conclusions on the appropriate accounting for these transactions, which was completed in March of 2003. The staff of the SEC did not object to certain aspects of Motient's prior accounting with respect to the MSV and Aether matters in 2000 and 2001, but did object to other aspects of Motient's prior accounting for these transactions. The required adjustments to reflect the appropriate accounting treatment will cause material changes to Motient's financial statements in our previously reported results for the years ended December 31, 2000 and 2001 and the three months ended March 31, 2002. The following is a brief description of the material differences between Motient's original accounting treatment with respect to the MSV and Aether transactions and the revised accounting treatment that Motient has concluded is appropriate: Allocation of initial proceeds from MSV formation transactions in June 2000. In the June 2000 transaction with MSV, Motient received $44 million from MSV. This amount represented payments due under a research and development agreement, a deposit on the purchase of certain of Motient's assets at a future date, and payment for a right for certain of the investors in MSV to convert their ownership in MSV into shares of common stock of Motient. Since the combined fair value of the three components exceeded $44 million, based on valuations of each component, Motient initially allocated the $44 million of proceeds first to the fair value of the research and development agreement and then the remaining value to the asset deposit and investor conversion option based on their relative fair values. Upon review, we have determined to allocate the $44 million of proceeds first to the investor conversion option based on its fair value, with the remainder to the research and development agreement and asset deposit based on their relative fair values. The effect of this reallocation is to increase shareholders' equity at the time of the initial recording, as well as to reduce subsequent service revenue as a result of the lower recorded value allocated to the research and development agreement. Recording of suspended losses associated with MSV in fourth quarter of 2001. In November 2001, when the asset sale described above was consummated, Motient and MSV amended the agreement, with Motient agreeing to take a $15 million note as part of the consideration for the sale of the assets to MSV. Additionally, at the time of this transaction, Motient purchased a $2.5 million convertible note from MSV. As Motient had no prior basis in its investment in MSV, Motient had not recorded any prior equity method losses associated with its investment in MSV. When Motient agreed to take the $15 million note as partial consideration for the assets sold to MSV, Motient recorded its share of the MSV losses that had not been previously recognized by Motient, having the affect of completely writing off the notes receivable in 2001. H-2 Upon review, Motient has determined that it should not have recorded any suspended losses of MSV, since those losses would have been absorbed by certain of the senior equity holders in MSV. As a result, Motient has concluded that it should not have written off any prior MSV losses against the value of the notes in 2001. Recording of increase in Motient's investment in MSV in November 2001. Also in the November 2001 transaction, MSV acquired assets from another company, TMI Communications & Company ("TMI"), in exchange for cash, a note and equity in MSV. Motient initially considered whether or not a step-up in the value of its investment in MSV was appropriate for the value allocated to TMI for its equity interest, and determined that a step-up was not appropriate. Upon review, Motient has determined that it should have recognized a step-up in value of the MSV investment under Staff Accounting Bulleting No. 51, Accounting for Sales of Stock of a Subsidiary, and an offsetting gain recorded directly to shareholders' equity. Recognition of gain on sale of assets to MSV in November 2001. Upon the completion of the November 2001 transactions, Motient determined that 80% of its gain from the sale of the assets should be deferred, since that was Motient's equity ownership percentage in MSV at the time the assets were sold to MSV. Upon review, Motient has determined that it was appropriate to apply Motient's ownership percentage at the completion of all of the related transactions that occurred on the same day as the asset sale transaction, since they were dependent upon one another and effectively closed simultaneously. Accordingly, Motient should have deferred approximately 48% of the gain (Motient's equity ownership percentage in MSV following the completion of such transactions) as opposed to 80%. Allocation of proceeds from the sale of the transportation business to Aether in November 2000. Motient received approximately $45 million for the sale of its retail transportation business assets to Aether. This consisted of $30 million for the assets, of which $10 million was held in an escrow account which was subsequently released in the fourth quarter of 2001 upon the satisfaction of certain conditions, and $15 million for a perpetual license to use and modify any intellectual property owned by or licensed by Motient in connection with the retail transportation business. In the fourth quarter of 2000, Motient recognized a gain of $5.7 million, which represented the difference between the net book value of the assets sold and the $20 million cash portion of the purchase price for the assets received at closing. Motient recognized an additional $8.3 million gain in the fourth quarter of 2001 when the additional $10 million of proceeds were released from escrow. The $1.7 million difference between the proceeds received and the gain recognized is a result of pricing modifications that were made at the time of the release of the escrow plus certain compensation paid to former employees of the transportation business as a result of the certain performance criteria having been met. H-3 Motient deferred the $15 million perpetual license payment, which was then amortized into revenue over a 5-year period, which was the estimated life of the customer contracts sold to Aether at the time of the transaction. Upon review, Motient has determined that the $15 million in deferred revenue should be recognized over a four year period, which represents the life of a network airtime agreement that Motient entered into with Aether at the time of the closing of the asset sale. Recognition of costs associated with certain options granted to Motient employees who were subsequently transferred to Aether upon consummation of the sale of Motient's transportation business to Aether in September 2000. Motient valued the vested options based on their fair value at the date of the consummation of the asset sale and recorded that value against the gain on the sale of the assets to Aether. Upon review, Motient has determined to value these vested options as a repricing under the intrinsic value method, with any charge recorded as an operating expense. In addition, for each subsequent quarter for which the unvested options continued to vest, Motient had valued these options on a fair value basis and recorded any adjustment in value as an operating expense. Upon review, Motient has determined that any adjustments in value should have been reflected as an increase or reduction of the gain on the sale of the assets to Aether. 5. Walter V. Purnell, Jr.: On February 10, 2004, Walter V. Purnell, Jr. and the Company mutually ended his employment as President and Chief Executive Officer of Motient Corporation and all of its wholly owned subsidiaries. Concurrently, he resigned as a director of such entities and of Mobile Satellite Ventures LP and all of its subsidiaries. 6. Reduction in Force: On February 18, 2004, Borrower effected a reduction in its workforce in order to reduce operating expenses and thereby preserve cash. In this action, 53 employees were terminated, reducing Borrower's total workforce from 165 employees to 112 employees. Included in this RIF were several executives, including the Senior Vice-Presidents in charge of Marketing and Sales. 7. Accounting Controls: Prior to its termination, PwC informed Motient that, with regard to their audit of Motient's consolidated financial statements for the period May 1, 2002 to December 31, 2002: - Timely reconciliation of certain accounts between the general ledger and subsidiary ledger, in particular accounts receivable and fixed assets, was not performed; - Review of accounts and adjustments by supervisory personnel on monthly cut-off dates, in particular fixed asset clearing accounts, accounts receivable reserve and inventory reserve calculations, were not performed; H-4 - Cut-off of accounts at balance sheet dates related to accounts payables, accrued expenses and inventories was not achieved; and - No formal policy existed to analyze impairment of long-lived assets on a recurring basis. To address such matters, PwC recommended that management institute a thorough close-out process, including a detailed review of the financial statements, comparing budget to actual and current period to prior period to determine any unusual items. PwC also recommended that the Company prepare an accounting policy and procedures manual for all significant transactions to include procedures for revenue recognition, inventory allowances, accounts receivable allowance, and accruals, among other policies. In addition to the above, since April 2003 Borrower has reevaluated its staffing levels, reorganized the finance and accounting organization and replaced ten accounting personnel with more experienced accounting personnel, including, among others, a new chief financial officer, chief accounting officer and corporate controller, a manager of revenue assurance and a manager of financial services. H-5
