UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K/A
AMENDMENT NO. 1 TO
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of report (Date of earliest event reported):
January 5, 2005 (November 12, 2004)
SkyTerra Communications, Inc.
(Exact name of registrant as specified in its charter)
Delaware 000-13865 23-2368845
(State or Other Jurisdiction (Commission File Number) (IRS Employer
of Incorporation) Identification Number)
19 West 44th Street, Suite 507, New York, New York 10036
(Address of principal executive offices, including zip code)
(212) 730-7540
(Registrant's telephone number, including area code)
N/A
(Former name or former address, if changed since last report)
EXPLANATORY PARAGRAPH
The undersigned registrant hereby amends and restates Section 9 of its
current report on Form 8-K, originally filed with the Securities and Exchange
Commission on November 18, 2004, to include the requisite historical financial
information of Mobile Satellite Venture, LP and the pro forma financial
statements of the registrant. The complete text of Section 9 as amended and
restated is as follows.
SECTION 9 - FINANCIAL STATEMENTS AND EXHIBITS
ITEM 9.01 FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements of Businesses Acquired.
Independent Auditors' Report
Consolidated Balance Sheets as of December 31, 2002 and 2003 and
September 30, 2004 (unaudited)
Consolidated Statements of Operations for the years ended
December 31, 2001, 2002 and 2003 and for the
unaudited nine-month period ended September 30, 2004
Consolidated Statements of Partners' Equity (Deficit) for the years
ended December 31, 2001, 2002 and 2003 and for the unaudited
nine-month period ended September 30, 2004
Consolidated Statements of Cash Flows for the years ended December 31,
2001, 2002 and 2003 and for the unaudited nine-month period ended
September 30, 2004
Notes to Consolidated Financial Statements
(b) Pro Forma Financial Information.
Overview
Unaudited Pro Forma Condensed Consolidated Balance Sheet as of
September 30, 2004
Unaudited Pro Forma Condensed Consolidated Statements of Operations
for the nine months ended September 30, 2004 and for the year
ended December 31, 2003
Notes to the Unaudited Pro Forma Condensed Consolidated Financial
Statements
(c) Exhibits.
Number Description
------ -----------
2.1 * - Note Exchange and Conversion Agreement, dated as
of November 12, 2004, by and among MSV Investors,
LLC, Mobile Satellite Ventures LP, et al.
10.1 * - Consent and Waiver of Limited Partners and
Convertible Noteholders Pursuant to the Partnership
Agreement and the Stockholders' Agreement, dated as
of November 12, 2004, by and among MSV Investors,
LLC, Mobile Satellite Ventures LP, et al.
10.2 * - Amended and Restated Limited Partnership
Agreement, dated as of November 12, 2004, by and
among MSV Investors, LLC, Mobile Satellite Ventures
LP, et al.
10.3 * - Amended and Restated Stockholders Agreement,
dated as of November 12, 2004, by and among MSV
Investors, LLC, Mobile Satellite Ventures GP Inc.,
et al.
10.4 * - Second Amended and Restated Parent Transfer/Drag
Along Agreement by and among SkyTerra
Communications et. al.
23.1 - Consent of Independent Auditors
* Previously filed as an exhibit to the Company's Current Report on
Form 8-K filed with the Securities and Exchange Commission on
November 18, 2004, and incorporated herein by reference.
INDEPENDENT AUDITORS' REPORT
General Partner and Unit Holders
Mobile Satellite Ventures LP
We have audited the accompanying consolidated balance sheets of Mobile
Satellite Ventures LP (a Delaware limited partnership) and subsidiaries
(collectively, the Company) as of December 31, 2002 and 2003, and the related
consolidated statements of operations, partners' equity (deficit) and cash
flows for each of the three years in the period ended December 31, 2003. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Mobile Satellite Ventures LP
and subsidiaries as of December 31, 2002 and 2003, and the consolidated results
of their operations and their cash flows for each of the three years in the
period ended December 31, 2003 in conformity with accounting principles
generally accepted in the United States.
/s/ Ernst & Young
April 23, 2004
McLean, Virginia
MOBILE SATELLITE VENTURES LP AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31,
----------------------------------- September 30,
2002 2003 2004
--------------- ---------------- ----------------
(Unaudited)
ASSETS
Current assets:
Cash $5,781,674 $3,981,624 $8,133,174
Restricted cash 652,860 74,246 74,612
Accounts receivable, net of allowance of $785,195, $71,687
and $74,612 (unaudited), respectively 3,094,483 4,156,416 4,623,334
Inventory 2,118,583 1,406,604 772,152
Prepaid expenses and other current assets 735,384 1,058,942 631,265
--------------- ---------------- ----------------
Total current assets 12,382,984 10,677,832 14,234,537
--------------- ---------------- ----------------
Property and equipment, net 28,767,458 23,598,573 17,925,524
Intangible assets, net 89,947,520 80,673,205 74,099,946
Goodwill 11,261,943 15,784,572 16,028,761
Other assets 1,935,553 84,779 1,584,779
--------------- ---------------- ----------------
Total assets $144,295,458 $130,818,961 $123,873,547
=============== ================ ================
LIABILITIES AND PARTNERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable and accrued expenses $4,117,186 $4,172,297 $4,696,436
Vendor note payable, current portion - 127,211 201,228
Deferred revenue, current portion 5,298,120 5,887,381 3,997,796
Due to Motient - related party 656,202 74,246 74,612
Other current liabilities 483,373 110,766 78,692
--------------- ---------------- ----------------
Total current liabilities 10,554,881 10,371,901 9,048,764
Deferred revenue, net of current portion 16,633,917 20,865,511 20,269,517
Accrued interest, net of current portion 9,340,336 16,725,057 21,462,239
Vendor note payable, net of current portion - 915,785 748,940
Notes payable 84,500,000 82,924,667 80,554,085
--------------- ---------------- ----------------
Total liabilities 121,029,134 131,802,921 132,083,545
--------------- ---------------- ----------------
Commitments and contingencies
Partners' equity (deficit):
MSV general partner - - -
MSV limited partners 23,259,457 (1,041,013) (3,926,614)
Deferred compensation - - (3,824,403)
Accumulated other comprehensive income (loss) 6,867 57,053 (458,981)
--------------- ---------------- ----------------
Total partners' equity (deficit) 23,266,324 (983,960) (8,209,998)
--------------- ---------------- ----------------
Total liabilities and partners' equity (deficit) $144,295,458 $130,818,961 $123,873,547
=============== ================ ================
See accompanying notes.
MOBILE SATELLITE VENTURES LP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Nine-Month
Year Ended December 31, Period Ended
------------------------------------------------------- September 30,
2001 2002 2003 2004
--------------- --------------- ---------------- ----------------
(Unaudited)
Revenues:
Services and related revenues $2,062,660 $24,389,482 $25,536,096 $20,077,748
Equipment sales and other revenues 32,266 464,833 1,588,294 1,800,367
--------------- --------------- ---------------- ----------------
Total revenues 2,094,926 24,854,315 27,124,390 21,878,115
--------------- --------------- ---------------- ----------------
Operating expenses:
Satellite operations and cost of services 7,254,606 10,532,376 10,604,156 7,827,011
Satellite capacity purchased from MSV Canada 454,416 4,647,224 4,858,305 4,147,723
Next-generation research and development
expenditures 271,134 1,621,886 2,119,303 2,178,586
Legal, regulatory and consulting 2,902,897 3,652,636 4,966,044 6,147,534
Sales and marketing 53,915 2,416,050 1,973,381 3,332,241
General and administrative 674,203 4,546,327 3,992,187 4,022,362
Depreciation and amortization 1,733,709 18,235,030 17,942,672 13,776,414
Amortization of asset purchase deposit 4,906,104 - - -
--------------- --------------- ---------------- ----------------
Total operating expenses 18,250,984 45,651,529 46,456,048 41,431,871
--------------- --------------- ---------------- ----------------
Loss from operations (16,156,058) (20,797,214) (19,331,658) (19,553,756)
Other income (expense):
Management fee from MSV Canada 321,631 3,100,847 3,199,974 2,629,906
Equity in losses of MSV Canada (64,871) (373,738) (1,030,119) (250,505)
Interest income 146,815 55,538 40,355 73,453
Interest expense (769,270) (8,577,407) (9,616,235) (7,380,849)
Write-off of investment in joint venture - - (2,000,000) -
Other (expense) income, net (3,036) 424,490 737,213 13,472
--------------- --------------- ---------------- ----------------
Net loss $(16,524,789) $(26,167,484) $(28,000,470) $ (24,468,279)
=============== =============== ================ ================
See accompanying notes.
MOBILE SATELLITE VENTURES LP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF PARTNERS' EQUITY (DEFICIT)
FOR THE YEARS ENDED DECEMBER 31, 2001, 2002 AND 2003 AND
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2004 (UNAUDITED)
MSV LLC MSV LLC Investor
Common Units Units and Warrants General Partner Limited Partners
----------------- -------------------- ------------------- ---------------------
Number Number Number Number
of Units Amount of Units Amount of Units Amount of Units Amount
------- -------- -------- ---------- -------- --------- --------- ---------
Balance at December 31, 2000 80 $- 20 $23,106,111 - $- - $ -
Net loss from January 1, 2001 to
November 26, 2001 - - - (13,926,522) - - - -
Conversion from LLC to LP (80) - (20) (9,179,589) - - 10,000,000 9,179,589
Issuance of MSV Common Units to TMI - - - - - - 6,636,482 42,805,306
Issuance of MSV Common Units to
vendor - - - - - - 6,250 40,313
Net loss from November 27, 2001 to
December 31, 2001 - - - - - - - (2,598,267)
------- -------- -------- ---------- -------- --------- ---------- -----------
Balance at December 31, 2001 - - - - - - 16,642,732 49,426,941
Total, December 31, 2001
Net loss - - - - - - - (26,167,484)
Translation adjustment - - - - - - - -
------- -------- -------- ---------- -------- --------- ---------- -----------
Balance at December 31, 2002 - - - - - - 16,642,732 23,259,457
Total, December 31, 2002
Issuance of MSV LP Class A - - - - - - 573,951 3,700,000
Preferred Units
Net loss - - - - - - - (28,000,470)
Change in market value of
derivative instruments - - - - - - - -
Translation adjustment - - - - - - - -
------- -------- -------- ---------- -------- --------- ---------- ---------
Balance at December 31, 2003 - - - - - - 17,216,683 (1,041,013)
Total, December 31, 2003
Issuance of MSV LP Class A - - - - - - 2,735,317 17,633,333
Preferred Units (unaudited)
Net loss (unaudited) - - - - - - - (24,468,279)
Issuance of stock options
(unaudited) - - - - - - - 3,949,345
Amortization of deferred
compensation (unaudited) - - - - - - - -
Change in market value of
derivative instruments
(unaudited) - - - - - - - -
Translation adjustment
(unaudited) - - - - - - - -
------- -------- -------- ---------- -------- --------- ---------- -----------
Balance at September 30, 2004
(unaudited) - $ - - $ - - $ - 19,952,000 $(3,926,614)
======= ======== ======== ========== ======== ========= ========== ===========
Total, September 30, 2004
(unaudited)
Chart Continued
Accumulated Total
Other Partners'
Deferred Comprehensive Equity Comprehensive
Compensation Income (Deficit) Loss
------------ ------------- ---------- ------------
Balance at December 31, 2000 $- $- $23,106,111
Net loss from January 1, 2001 to
November 26, 2001 - - (13,926,522)
Conversion from LLC to LP - - -
Issuance of MSV Common Units to TMI - - 42,805,306
Issuance of MSV Common Units to
vendor - - 40,313
Net loss from November 27, 2001 to
December 31, 2001 - - (2,598,267) $(2,598,267)
----------- ----------- ----------- ------------
Balance at December 31, 2001 - - 49,426,941
Total, December 31, 2001 $(2,598,267)
============
Net loss - - (26,167,484) $(26,167,484)
Translation adjustment - 6,867 6,867 6,867
----------- ----------- ----------- ------------
Balance at December 31, 2002 - 6,867 23,266,324
Total, December 31, 2002 $(26,160,617)
============
Issuance of MSV LP Class A - - 3,700,000
Preferred Units
Net loss - - (28,000,470) $(28,000,470)
Change in market value of
derivative instruments - 81,712 81,712 81,712
Translation adjustment - (31,526) (31,526) (31,526)
----------- ----------- ----------- ------------
Balance at December 31, 2003 - 57,053 (983,960)
Total, December 31, 2003 $(27,950,284)
============
Issuance of MSV LP Class A - - 17,633,333
Preferred Units (unaudited)
Net loss (unaudited) - - (24,468,279) $(24,468,279)
Issuance of stock options
(unaudited) (3,949,345) - - -
Amortization of deferred
compensation (unaudited) 124,942 - 124,942 -
Change in market value of
derivative instruments
(unaudited) - 39,563 39,563 39,563
Translation adjustment
(unaudited) - (555,597) (555,597) (555,597)
----------- ----------- ----------- ------------
Balance at September 30, 2004
(unaudited) $(3,824,403) $(458,981) $(8,209,998)
=========== =========== ===========
Total, September 30, 2004
(unaudited) $(24,984,313)
============
See accompanying notes.
MOBILE SATELLITE VENTURES LP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine-Month
Year Ended December 31, Period Ended
---------------------------------------------------- September 30,
2001 2002 2003 2004
--------------- --------------- --------------- ---------------
(Unaudited)
Operating activities
Net loss $(16,524,789) $(26,167,484) $(28,000,470) $(24,468,279)
Adjustments to reconcile net loss to net cash used
in operating activities:
Depreciation and amortization 1,733,709 18,235,030 17,942,672 13,776,414
Amortization of prepaid satellite capacity and
services 6,610,552 - - -
Amortization of asset purchase deposit 4,906,104 - - -
Equity in losses of MSV Canada 64,871 373,738 1,030,119 250,505
Write-off of investment in joint venture - - 2,000,000 -
Amortization of deferred compensation 40,313 - - 124,942
Changes in operating assets and liabilities:
Accounts receivable (720,536) 471,009 (1,061,933) (436,318)
Inventory 11,000 811,197 711,979 634,452
Prepaid expenses and other current assets (226,324) (353,808) (941,512) 257,769
Accounts payable and accrued expenses (319,380) 1,076,582 290,671 375,573
Other current liabilities (8,891) (4,138,827) (751,514) (328)
Accrued interest 768,482 8,571,854 7,384,721 4,737,182
Deferred revenue 3,040,307 723,136 1,274,075 (2,871,932)
--------------- --------------- --------------- ---------------
Net cash used in operating activities (624,582) (397,573) (121,192) (7,620,020)
--------------- --------------- --------------- ---------------
Investing activities
Purchase of Motient Satellite business, net of cash
acquired (43,200,000) (2,200,000) (2,200,000) -
Purchase of TMI satellite business (7,500,000) - - -
Motient and TMI transaction costs (996,765) - - -
Purchase of property and equipment (105,416) (840,328) (1,316,512) (1,344,289)
Purchase of option to form joint venture - (1,000,000) (1,000,000) -
Purchase of intangible assets and other assets - - - (2,000,000)
--------------- --------------- --------------- ---------------
Net cash used in investing activities (51,802,181) (4,040,328) (4,516,512) (3,344,289)
--------------- --------------- --------------- ---------------
Financing activities
Proceeds from issuance of notes 55,000,000 3,000,000 - -
Proceeds from issuance of Class A Preferred Units - - 3,700,000 17,633,333
Principal payments on notes payable - - (1,575,333) (2,455,868)
--------------- --------------- --------------- ---------------
Net cash provided by financing activities 55,000,000 3,000,000 2,124,667 15,177,465
Effect of exchange rates on cash and cash
equivalents, including restricted cash - 235,076 134,373 (61,240)
--------------- --------------- --------------- ---------------
Net increase (decrease) in cash and cash
equivalents, including restricted cash 2,573,237 (1,202,825) (2,378,664) 4,151,916
Cash and cash equivalents, including restricted
cash, beginning of period 5,064,122 7,637,359 6,434,534 4,055,870
--------------- --------------- --------------- ---------------
Cash and cash equivalents, including restricted
cash, end of period $7,637,359 $6,434,534 $4,055,870 $8,207,786
=============== =============== =============== ===============
Supplemental information:
Cash paid for interest $- $5,553 $2,124,667 $2,700,142
=============== =============== =============== ===============
Non-cash financing information
Equipment obtained through issuance of notes
to vendor $- $- $1,042,996 $-
=============== =============== =============== ===============
See accompanying notes.
MOBILE SATELLITE VENTURES LP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information as of September 30, 2004 and for the nine-month period
ended September 30, 2004 is unaudited)
1. Organization and Business
Mobile Satellite Venture LP's predecessor company, Motient Satellite Ventures
LLC, was organized as a limited liability company pursuant to the Delaware
Limited Liability Company Act on June 16, 2000 by Motient Corporation
(Motient). On December 19, 2000, Motient Satellite Ventures LLC changed its
name to Mobile Satellite Ventures LLC. The Company commenced operations in June
2000 and was considered a development stage enterprise until November 26, 2001.
On November 26, 2001, Mobile Satellite Ventures LLC (MSV LLC) was converted
into a limited partnership, Mobile Satellite Ventures LP (MSV or the Company),
subject to the laws of the state of Delaware. Concurrently, the Company
acquired certain assets and liabilities of the Motient and TMI Communications
LP (TMI) satellite businesses and issued $55.0 million of notes to certain
existing and new investors in exchange for cash. In connection with its
purchase of TMI's satellite business, the Company acquired a 20% equity
interest in Mobile Satellite Ventures (Canada) Inc. (MSV Canada) and 33-1/3%
equity interest in Mobile Satellite Ventures Holdings (Canada) Inc. (MSV
Holdings).
The Company provides mobile satellite and communications services to individual
and corporate customers in the United States and Canada via its own satellite
and leased satellite capacity. The Company's operations are subject to
significant risks and uncertainties including technological, competitive,
financial, operational, and regulatory risks associated with the wireless
communications business. Uncertainties also exist regarding the Company's
ability to raise additional debt and equity financing and the ultimate
profitability of the Company's proposed next-generation wireless system. The
Company will require substantial additional capital resources to construct its
next-generation wireless system.
The Company's current operating assumptions and projections, which reflect
management's best estimate of future revenue and operating expenses, indicate
that anticipated operating expenditures through 2005 can be met by cash flows
from operations and available working capital; however, the Company's ability
to meet its projections is subject to uncertainties and there can be no
assurance that the Company's current projections will be accurate. If the
Company's cash requirements are more than projected, the Company may require
additional financing. In addition, the Company entered into a satellite
construction contract (see Note 9) during 2002 and assumed certain obligations
under another system development contract in 2004 (see Note 3) that may require
the Company to obtain additional funding to finance the required payments
unless one or both of the contracts are either amended or terminated by the
Company prior to certain payment due dates. The Company is not currently
planning to terminate the contracts, and there can be no assurance that the
Company will be able to enter into amendments that will defer payments in a
manner consistent with the Company's next-generation business plans. The type,
timing, and terms of financing, if required, selected by the Company will be
dependent upon the Company's cash needs, the availability of financing sources,
and the prevailing conditions in the financial markets. There can be no
assurance that such financing will be available to the Company at any given
time or available on favorable terms.
2. Significant Accounting Policies
Basis of Presentation
The consolidated financial statements include the accounts of the Company and
its wholly owned subsidiaries prepared in accordance with accounting principles
generally accepted in the United States. All significant intercompany accounts
are eliminated upon consolidation.
Unaudited Interim Consolidated Financial Statements Basis of Presentation
The accompanying unaudited consolidated financial statements of the Company
have been prepared in accordance with generally accepted accounting principles
in the United States for interim financial information. In the opinion of
management, all adjustments (consisting of normal recurring adjustments)
considered necessary for a fair presentation of financial position and results
of operations for the nine-month period ended September 30, 2004 have been
recorded. Operating results for the nine-month period ended September 30, 2004
are not necessarily indicative of the results that may be expected for the
entire fiscal year or for any future period.
Use of Estimates
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Significant estimates affecting the consolidated financial
statements include management's judgments regarding the allowance for doubtful
accounts, reserves for inventory, future cash flows expected from long-lived
assets and accrued expenses for probable losses. Actual results could differ
from those estimates.
Cash and Cash Equivalents
Cash and cash equivalents consist of highly liquid investments, such as money
market accounts, with an original maturity of three months or less.
Restricted Cash
In connection with the purchase of the Motient satellite business, the Company
retained $4.0 million, which was restricted to pay Motient's rent obligation to
the Company for the lease of office space in the Company's headquarters and to
ensure the provision of certain services to the Company by Motient under a
transition services agreement. During the year ended December 31, 2002, the
agreement was amended, an additional $1,104,708 was released to Motient and
$336,060 was released to MSV. During the years ended December 31, 2002 and
2003, $955,533 and $530,742, respectively, was used to satisfy Motient's
obligations under its sublease with the Company. During the years ended
December 31, 2002 and 2003, $1,011,002 and $50,708, respectively, was remitted
to Motient for services provided to MSV.
Inventory
Inventories consist of finished goods that are communication devices and are
stated at the lower of cost or market, average cost method. The Company
periodically assesses the market value of its inventory, based on sales trends
and forecasts and technological changes, and records a charge to current period
income when such factors indicate that a reduction in net realizable value is
appropriate.
Prepaid Satellite Capacity and Services
During 2000, the Company prepaid for $14.6 million of satellite capacity and
related services provided by Motient and expected to be used by the Company for
certain research and development activities during the two-year period ending
June 30, 2002. The prepaid satellite capacity and related services was being
amortized over this two-year period. During the year ended December 31, 2001,
the Company recorded $6,610,552 of amortization. On November 26, 2001, the
unamortized balance of approximately $4.3 million was applied to the purchase
price of the Motient satellite business (see Note 3).
Property and Equipment
Property and equipment acquired in business combinations are recorded at their
estimated fair value on the date of acquisition. Purchases of property and
equipment are recorded at cost. Depreciation is computed using the
straight-line method over estimated useful lives, ranging from three to five
years. Leasehold improvements are amortized over the shorter of the estimated
useful life of the asset or the remaining lease term.
Property and equipment consisted of the following:
December 31,
--------------------------------- September 30,
2002 2003 2004
--------------- -------------- ---------------
(Unaudited)
Space and ground segments $36,791,020 $39,771,813 $40,053,417
System under construction 500,000 850,000 2,082,247
Office equipment and furniture 832,325 836,961 850,145
Leasehold improvements 300,000 300,000 300,000
--------------- -------------- ---------------
38,423,345 41,758,774 43,285,809
Accumulated depreciation (9,655,887) (18,160,201) (25,360,285)
--------------- -------------- ---------------
Property and equipment, net $28,767,458 $23,598,573 $17,925,524
=============== ============== ===============
Long-Lived Assets
In accordance with Statement of Financial Accounting Standards (SFAS) No. 144,
Accounting for the Impairment or Disposal of Long-Lived Assets, the Company
reviews its long-lived assets, including property and equipment and intangible
assets other than goodwill, whenever events or changes in circumstances
indicate that the carrying amount of the assets may not be fully recoverable.
To determine the recoverability of its long-lived assets, the Company evaluates
the probability that future estimated undiscounted net cash flows will be less
than the carrying amount of the assets. If such estimated cash flows are less
than the carrying amount of the long-lived assets, then such assets are written
down to their fair value. No impairment charges were recorded in the years
ended December 31, 2001, 2002 or 2003. No impairment charges were recorded in
the nine-month period ended September 30, 2004. The Company may reduce its
estimates of anticipated cash flows and the remaining estimated useful lives of
long-lived assets in the future. As a result, the carrying amount of long-lived
assets may be reduced in the future.
Goodwill
The Company's goodwill arose from the November 2001 Motient and TMI
acquisitions. Because these transactions were consummated after June 30, 2001,
the Company applies the non-amortization provisions of SFAS No. 142, Goodwill
and Other Intangible Assets. Under SFAS No. 142, goodwill is not amortized into
results of operations, but instead is reviewed for impairment and written down
and charged to results of operations only in the periods in which the recorded
value of goodwill is determined to be more than its estimated fair value. The
Company performs its annual impairment test on December 31, or when certain
triggering events occur. No impairment charges were recorded in the years ended
December 31, 2001, 2002 and 2003. No events have occurred during the nine-month
period ended September 30, 2004 to trigger an additional impairment test.
Concentrations of Credit Risk
Financial instruments that potentially subject the Company to concentrations of
credit risk consist primarily of cash and cash equivalents and accounts
receivable. The Company maintains cash balances at financial institutions that
may at times exceed federally insured limits. The Company maintains its cash
and cash equivalents at high credit quality institutions, and as a result,
management believes that credit risk related to its cash is not significant.
The Company generally grants credit to customers on an unsecured basis. Risk on
accounts receivable is reduced through ongoing evaluation of probability of
collection of amounts owed to the Company. The Company records an allowance for
doubtful accounts equal to the amount estimated to be potentially
uncollectible.
The Company's significant customers, as measured by percentage of total
revenues were as follows:
Nine-Month
Year Ended December 31, Period Ended
------------------------------------------------- September 30,
2001 2002 2003 2004
-------------- ------------- -------------- -------------
(Unaudited)
Customer A 14% 13% 12% *
Customer B 13% 13% * *
Customer C * * 11% *
Customer D * * 13% 11%
The Company's significant customers, as measured by percentage of total
accounts receivable were as follows:
December 31,
------------------------------------------------- September 30,
2001 2002 2003 2004
-------------- ------------- -------------- --------------
(Unaudited)
Customer C 14% 13% * *
Customer D 26% 15% * 15%
Customer E * * 14% *
Customer F * * 12% *
* Customer did not represent more than 10% for the period presented.
Accounts Payable and Accrued Expenses
Accounts payable and accrued expenses consisted of the following:
December 31,
--------------------------------- September 30,
2002 2003 2004
--------------- -------------- ---------------
(Unaudited)
Accounts payable $976,611 $978,802 $1,176,856
Accrued expenses 965,492 1,117,369 1,234,257
Accrued compensation & benefits 1,448,434 1,680,210 1,808,022
Accrued interest 161,314 283,749 316,286
Other 565,335 112,167 161,015
--------------- -------------- ---------------
Total accounts payable and accrued expenses $4,117,186 $4,172,297 $4,696,436
=============== ============== ===============
Fair Value of Financial Instruments
SFAS No. 107, Disclosures about Fair Value of Financial Instruments, requires
disclosures regarding the fair value of certain financial instruments. The
carrying amount of the Company's cash and cash equivalents, accounts
receivable, and accounts payable and accrued expenses approximates their fair
value because of the short-term maturity of these instruments. The Company
estimates the fair value of its notes payable using estimated market prices
based upon the current interest rate environment and the remaining term to
maturity. The Company believes the fair value of these liabilities approximates
their carrying value.
Stock-Based Compensation
SFAS No. 123, Accounting for Stock-Based Compensation, encourages, but does not
require, companies to record compensation cost for stock-based employee
compensation plans using the fair value method. The Company has chosen to
account for employee stock-based compensation using the intrinsic value method
as prescribed in Accounting Principles Board Opinion (APB Opinion) No. 25,
Accounting for Stock Issued to Employees, and its related interpretations.
The following illustrates the effect on net loss if the Company had applied the
fair value method of SFAS No. 123:
Nine-Months
Year Ended December 31, Ended
---------------------------------------------------- September 30,
2001 2002 2003 2004
-------------- --------------- --------------- --------------
(Unaudited)
Net loss, as reported $(16,524,789) $(26,167,484) $(28,000,470) $(24,468,279)
Add stock-based employee compensation
included in reported net loss - - - 124,942
Additional stock-based employee compensation
expense determined under fair value method (22,219) (621,148) (1,080,385) (1,183,249)
-------------- --------------- --------------- --------------
Pro forma net loss $(16,547,008) $(26,788,632) $(29,080,855) $(25,526,586)
============== =============== =============== ==============
In accordance with SFAS No. 123, the fair value of the options granted was
estimated at the grant date using an option-pricing model with the following
weighted-average assumptions: risk-free interest rates ranging from 4.5% to
3.5%, no dividends, expected life of the options of five years, and no
volatility.
Income Taxes
As a limited partnership, the Company is not subject to income tax directly.
Rather, each unit holder is subject to income taxation based on the unit
holder's portion of the Company's income or loss as defined in the limited
partnership agreement.
Derivatives
The Company accounts for derivatives in accordance with SFAS No. 133,
Accounting for Derivative Instruments and Hedging Activities, as amended, which
requires the recognition of all derivatives as either assets or liabilities
measured at fair value with changes in fair value of derivatives other than
hedges reflected as current period income (loss) unless the derivatives qualify
as hedges of future cash flows. For derivatives qualifying as hedges of future
cash flows, the effective portion of changes in fair value is recorded
temporarily in equity and then recognized in earnings along with the related
effects of the hedged items. Any ineffective portion of hedges is reported in
earnings as it occurs.
In the normal course of business the Company is exposed to the impact of
fluctuations in the exchange rate with the Canadian dollar. The Company limits
this risk by following an established foreign currency financial management
policy. This policy provides for the use of forward and option contracts, which
limit the effects of exchange rate fluctuations of the Canadian dollar on
financial results. The Company does not use derivatives for trading or
speculative purposes.
As of December 31, 2003, the Company hedged aggregate exposures of $2,800,000
by entering into forward exchange contracts requiring the purchase of the
Canadian dollar and the sale of the U.S. dollar. In general, the forward
exchange contracts have varying maturities up to, but not exceeding, one year
with cash settlements made at maturity based upon rates agreed to at contract
inception. These forward exchange contracts satisfy the hedge criteria of SFAS
No. 133, and therefore, the Company realized a gain on these contracts of
$81,712 for the year ended December 31, 2003, which is reflected as a component
of accumulated other comprehensive income and as an asset within prepaid
expenses and other current assets on the balance sheet in the accompanying
consolidated financial statements. As of September 30, 2004 and for the
nine-month period then ended, the Company had hedged aggregate exposures of
approximately $890,000 and realized a gain on these contracts of $39,563, which
is reflected as a component of accumulated other comprehensive income.
Revenue Recognition
The Company generates revenue primarily through the sale of wireless airtime
service and equipment. The Company recognizes revenue when the services are
performed or delivery has occurred, evidence of an arrangement exists, the fee
is fixed and determinable, and collectibility is probable. The Company receives
activation fees related to initial registration for retail customers. Revenue
from activation fees is deferred and recognized ratably over the customer's
contractual service period, generally one year.
Foreign Currency and International Operations
The functional currency of one of the Company's subsidiaries is the Canadian
dollar. The financial statements of this subsidiary are translated to U.S.
dollars using period-end rates for assets and liabilities, which is included as
a component of accumulated other comprehensive income in the accompanying
balance sheet. In addition, the Company realized foreign exchange transaction
gains (losses), which are a component of other income in the accompanying
statements of operations. For the years ended December 31, 2002 and 2003, the
realized foreign exchange transaction (losses) and gains were $(266,507) and
$444,753, respectively. For the nine-month period ended September 30, 2004, the
realized foreign exchange transaction gains were $13,192.
Equity Method Investments
The Company accounts for its equity investments in MSV Canada and MSV Holdings
pursuant to the equity method of accounting. The carrying value of these
investments was $0 at each balance sheet date presented. Because the Company is
obligated to provide working capital financial support to MSV Canada through a
management agreement, the Company records losses related to such funding as
equity in losses of MSV Canada in the accompanying consolidated statements of
operations.
Comprehensive Income (Loss)
The Company reports comprehensive income (loss) in accordance with SFAS No.
130, Reporting Comprehensive Income, which establishes rules for the reporting
and display of comprehensive income and its components. SFAS No. 130 requires
foreign currency translation adjustments and the change in market value of
effective derivative instruments to be included in other comprehensive income.
Reclassifications
Certain prior-year amounts have been reclassified to conform to the
current-year presentation.
Recent Pronouncements
The Emerging Issues Task Force (EITF) issued EITF Issue 00-21, Revenue
Arrangements with Multiple Deliverables (EITF 00-21). EITF 00-21 provides
guidance on how to determine whether a revenue arrangement involving multiple
deliverable items contains more than one unit of accounting and, if so,
requires that revenue be allocated amongst the different units based on fair
value. EITF 00-21 also requires that revenue on any item in a revenue
arrangement with multiple deliverables not delivered completely must be
deferred until delivery of the item is completed. The guidance in EITF 00-21 is
effective for revenue arrangements entered into in fiscal periods beginning
after June 15, 2003. The Company implemented EITF 00-21 in 2003. Its
implementation did not have a material impact on the Company's consolidated
results of operations or financial position.
In January 2003, the FASB issued Financial Interpretation (FIN) No. 46,
Consolidation of Variable Interest Entities, an Interpretation of Accounting
Research Bulletin No. 51, which requires the consolidation of an entity in
which an enterprise absorbs a majority of the entity's expected losses,
receives a majority of the entity's expected residual returns, or both, as a
result of ownership or contractual or other financial interests in the entity.
Currently, an entity is generally consolidated by an enterprise when the
enterprise has a controlling financial interest in the entity through ownership
of a majority voting interest in the entity. The Company is currently
evaluating the impact of adoption of FIN 46, which will be required for the
first annual period beginning after December 15, 2004.
3. Acquisitions
Acquisition of the Motient Satellite Business
During 2000, the Company paid $10.8 million to Motient representing an asset
purchase deposit. The asset purchase deposit was being amortized over the
two-year period during which the Company had the right to close on the purchase
of the Motient satellite business. Pursuant to the Motient Asset Purchase
Agreement, the unamortized asset purchase deposit balance of approximately $3.2
million was included as part of the purchase price of the Motient satellite
business. During the year ended December 31, 2001, the Company recorded
$4,906,104 of amortization related to the asset purchase deposit.
Motient Asset Purchase Agreement and Investment Agreement
Under the original terms of the Motient Asset Purchase Agreement, the Company
obtained from Motient the right to purchase (Motient Asset Purchase Deposit)
the Motient satellite business for an additional cash payment. In June 2000,
certain investors (Investors) unrelated to Motient paid $50 million to the
Company (in the aggregate) in exchange for a minority equity interest in the
Company. Pursuant to the Investment Agreement, the Investors also acquired
certain rights to convert, at their option, their initial investment in the
Company into shares of Motient's common stock (Motient Conversion Right).
In connection with the original terms of the Motient Asset Purchase Agreement,
the Company paid $29.4 million to Motient for the Motient Asset Purchase
Deposit and the Motient Conversion Right. This amount was allocated between the
Motient Asset Purchase Deposit ($10.8 million) and the Motient Conversion Right
($18.6 million) based on the relative fair value of each. Similarly, a portion
($18.6 million) of the proceeds of the sale of the minority equity interest in
the Company was allocated to the written call option that permitted the
investors to exercise the Motient Conversion Right. The remaining investment
proceeds were allocated to the purchase of the equity interest.
The Company estimated the fair value of both the call option purchase from
Motient on its common stock and the call option written to the Investors on the
Motient common stock based on advice from an independent appraiser to be
approximately $18.6 million using the Black-Scholes valuation model. The
Company accounted for both the purchased and written call options on Motient
common stock as derivatives pursuant to SFAS No. 133. During 2002 and 2001,
Motient underwent a restructuring and reorganization that resulted in such
options having no value. As a result, the fair value of both of these options
at December 31, 2002 was $0, and the net change in fair value of these
derivatives for the year then ended was $0.
TMI Asset Purchase
In January 2001, the Company entered into certain agreements (January 2001
Agreements) with Motient, the Investors, and TMI. The January 2001 Agreements
provided for TMI to contribute the TMI satellite business to the Company in
exchange for certain equity interests in the Company, $7.5 million in cash, and
an $11.5 million five-year note. Pursuant to the January 2001 Agreements, a
portion of the Company's payment to TMI was to be funded by a loan from Motient
in the amount of $2.5 million, as evidenced by a note.
The January 2001 Agreements required that, upon closing, Motient contribute the
Motient satellite business to the Company in exchange for a cash payment of
$45.0 million and a $15.0 million five-year note. The January 2001 Agreements
were amended in October 2001 (October 2001 Agreements). Pursuant to the October
2001 Agreements, the Company issued $50.0 million of convertible notes
(Convertible Notes) to a New Investor, as well as $2.5 million of Convertible
Notes to the Investors and $2.5 million of Convertible Notes to Motient.
2001 Acquisitions
On November 26, 2001, MSV completed the acquisition of certain satellite assets
and related liabilities from Motient and TMI. The satellite businesses provide
satellite voice and data communications services to customers in North America.
These transactions were accounted for using the purchase method of accounting.
The consolidated financial statements include the results of operations of the
acquired Motient and TMI satellite businesses subsequent to November 26, 2001.
At the time of the acquisitions, the Company allocated the purchase price to
the assets acquired and liabilities assumed on the preliminary basis based on
their respective estimated fair values. During 2002, the Company revised its
purchase price allocation based upon changes in estimates related primarily to
certain liabilities assumed in the acquisition.
In addition, under the terms of the agreement, the Company paid a total of $6.6
million through December 31, 2003 in contingent consideration to Motient for
the provision of services to a customer under a contract assumed by the
Company. These payments were accounted for as contingent consideration and were
included in the determination of the purchase price when paid to Motient. The
$2.2 million final payment made during 2003 served to increase recorded
goodwill. As of December 31, 2003, there were no contingent purchase payments
remaining.
The aggregate purchase price, including $6.6 million of contingent
consideration paid through December 31, 2003, and allocation to the assets
acquired and liabilities assumed based on their estimated fair values is as
follows:
Cash paid $59,117,552
Transaction costs 1,829,926
Notes payable issued 26,500,000
Prepaid satellite capacity and asset purchase deposit 7,539,752
MSV Common Units issued 42,805,306
Current and noncurrent liabilities assumed 19,653,236
------------------
$157,445,772
==================
Current assets acquired $6,385,051
Property and equipment 37,443,345
Intangible assets 100,230,000
Goodwill 13,387,376
------------------
$157,445,772
==================
The increase in goodwill from December 31, 2002 to December 31, 2003 is a
result of the fluctuation of the exchange rate between the U.S. and Canadian
dollar and as a result of the $2.2 million contingent purchase price payment to
Motient. The increase in goodwill from December 31, 2003 to September 30, 2004
is a result of the fluctuation of the exchange rate between the U.S. and
Canadian dollar.
The Company's identifiable intangible assets for acquisitions consist of
the following:
December 31,
--------------------------------- September 30,
2002 2003 2004
--------------- -------------- ---------------
(Unaudited)
Customer contracts $17,886,694 $18,092,565 $18,114,789
Next-generation intellectual property 82,350,000 82,350,000 82,350,000
Other intellectual property - - 500,000
--------------- -------------- ---------------
100,236,694 100,442,565 100,964,789
Accumulated amortization (10,289,174) (19,769,360) (26,864,843)
--------------- -------------- ---------------
Intangible assets, net $89,947,520 $80,673,205 $74,099,946
=============== ============== ===============
Customer contracts and the next-generation intellectual property are being
amortized over 5 and 15 years, respectively. Management estimated the fair
value of identified intangibles based on a third-party appraisal. During the
years ended December 31, 2001, 2002, and 2003, the Company recorded
approximately $888,000, $9,401,000, and $9,427,000, respectively, of
amortization expense related to these intangible assets. For the nine-month
period ended September 30, 2004, the Company recorded approximately $7,075,000
of amortization expense related to these intangibles. The Company's
next-generation intellectual property consists of a combination of licenses and
contractual rights to various authorizations, applications, certain technology,
and certain other rights, all of which resulted from the 2001 acquisitions.
Future amortization of intangible assets is as follows as of December 31, 2003:
2004 $9,427,357
2005 9,427,357
2006 7,400,753
2007 5,490,000
2008 5,490,000
Thereafter 43,437,738
----------------
$80,673,205
================
2004 Purchases
In July 2004, MSV purchased certain intangible assets including intellectual
property and rights or rights to acquire related to spectrum access and rights
or rights to acquire related to related assets from third parties. At the time
of these transactions, MSV paid $2 million in cash, of which $1.5 million is
recorded in other assets and $500,000 is recorded in intangible assets in the
accompanying consolidated balance sheets. Future payments under this agreement
may range from $2.0 million to $6.5 million in total payments through 2007,
contingent upon certain regulatory approvals, technology developments,
operational milestones and in certain instances, MSV's sole discretion.
As part of these transactions, MSV also acquired rights related to a system
development contract in exchange for MSV's assumption of payments through
January 2005. As of September 30, 2004, payments on this contract totaled
$750,000 with additional payments of $250,000 committed through January 2005.
MSV may continue payments on this contract at its sole discretion following
these initial payments. These payments have been capitalized as system under
construction in property and equipment in the accompanying consolidated balance
sheet.
4. Long-Term Debt
Notes Payable
On November 26, 2001, the Company issued $55.0 million of Convertible Notes and
$26.5 million of Non-Convertible Notes, respectively (collectively, the Notes).
The Notes mature on November 26, 2006 and bear interest at 10% per annum,
compounded semi-annually and payable at maturity.
The Convertible Notes are convertible, at any time, into the Company's Class A
Preferred Units (Preferred Units) equal to a number of Preferred Units
determined by dividing the principal being converted by $6.45. The conversion
price of $6.45 (Conversion Price) is subject to adjustment in certain
circumstances. The terms of the Convertible Notes were amended during 2003 to
automatically convert into Preferred Units upon the Company's payment in full
of the principal and accrued interest on the Non-Convertible Notes and the
accrued interest on the Convertible Notes.
In August 2002, the Company issued an additional $3.0 million of Convertible
Notes. These notes were issued with terms identical to those of the Convertible
Notes issued in November 2001. In August 2003, the Company repaid approximately
$1.6 million of the principal and all of the accrued interest of approximately
$2.1 million, on one of the Non-Convertible Notes, as required by the Interim
Investment (Note 5).
In April 2004 the Company made payments totaling $5.0 million, approximately
$2.4 million of principal and $2.6 million of interest, respectively, on the
Non-Convertible Notes.
Long-term debt consists of the following:
December 31,
--------------------------------- September 30,
2002 2003 2004
--------------- -------------- ---------------
(Unaudited)
Convertible Notes $58,000,000 $58,000,000 $58,000,000
Non-Convertible Notes 26,500,000 24,924,667 22,554,085
--------------- -------------- ---------------
Notes payable $84,500,000 $82,924,667 $80,554,085
=============== ============== ===============
Vendor Notes Payable
In February 2003, the Company entered into an agreement with a satellite
communications provider that is a related party (the Vendor) for the
construction and procurement of a ground station. The Vendor provided financing
for this project totaling approximately $1.3 million at an interest rate of 9.5
percent.
Future payments on the Vendor note payable as of December 31, 2003 are as
follows:
2004 $231,812
2005 279,523
2006 279,523
2007 279,523
2008 232,936
--------------
Total future payments 1,303,317
Less: interest (260,321)
--------------
Principal portion 1,042,996
Less: current portion (127,211)
--------------
Long-term portion of vendor note payable $915,785
==============
5. Partners' Equity
Prior to November 26, 2001, pursuant to the First Amended and Restated Limited
Liability Company Agreement (LLC Agreement) of the Company, the outstanding
members' interests in the Company were either MSV LLC Common Units or MSV LLC
Investor Units. All of the MSV LLC Common Units were owned by Motient. The MSV
LLC Investor Units were purchased by the Investors.
Effective November 26, 2001, pursuant to the Limited Partnership Agreement of
the Company, the partners' interests in the Company were either MSV Common
Units or MSV Class A Preferred Units. The Company's general partner, Mobile
Satellite Ventures GP Inc., a Delaware corporation, has no economic interest in
the Company and is owned by the Company's limited partners in proportion to
their fully diluted interests in the Company.
The Class A Preferred Units and Common Units carry many of the same rights and
privileges, except the Class A Preferred Units have preference over the Common
Units in receiving proceeds resulting from a distribution of assets in certain
circumstances. The general partner did not hold any units as of December 31,
2001, 2002, or 2003. As of December 31, 2001, 2002, and 2003, there were
14,642,732 Common Units held by limited partners. As of December 31, 2001,
2002, and 2003, limited partners held 2,000,000, 2,000,000 and 2,573,951 Class
A Preferred Units, respectively. As of September 30, 2004, there were no units
held by the general partner, 14,642,732 Common Units held by limited partners
and 5,309,268 Class A Preferred Units held by limited partners (see Note 10).
Allocation of Profits and Losses
Prior to November 26, 2001, profits for any fiscal year were allocated to the
members, after giving effect to certain allocations, in the following order of
priority:
o First, among the Investors in proportion to, and to the extent of,
any prior allocations to the Investors of losses for all prior fiscal
years
o Second, 100% to Motient until cumulative profits allocated to Motient
for all fiscal years are equal to the cumulative losses previously
allocated to Motient for all prior fiscal years
o Third, to each member in the proportion required such that the
cumulative profits allocated to each member for all fiscal years are
equal to the cumulative losses previously allocated to each such
member for all prior years
o Thereafter, the balance, if any, among the members in accordance with
their equity percentage interests
Prior to November 26, 2001, losses for any fiscal year were allocated to the
members, after giving effect to certain allocations, in the following order of
priority:
o First, among the members in proportion to, and to the extent of, any
prior allocations to the members of profits for all prior fiscal
years
o Second, among the members in proportion to their respective
unreturned subsequent capital contributions until the sum of the
Investors' adjusted capital account balances is equal to their
initial capital contributions
o Third, 100% to Motient until its adjusted capital account balance has
been reduced to zero
o Thereafter, among the Investors in proportion to their respective adjusted
capital account balances
Effective November 26, 2001, profits and losses are allocated to the partners
in proportion to their economic interests. Losses allocated to any partner for
any fiscal year will not exceed the maximum amount of losses that may be
allocated to such partner without causing such partner to have an adjusted
capital account deficit at the end of such fiscal year. Any losses in excess of
this limitation shall be specially allocated solely to the other partners.
Thereafter, subsequent profits shall be allocated to reverse any such losses
specially allocated pursuant to the preceding sentence.
Distributions
Except for certain capital proceeds and upon liquidation, the Company shall
make distributions as determined by the Board of Directors to the partners in
proportion to their respective percentage interests.
Upon dissolution of the Company, a liquidating trustee shall be appointed by
the Board, or under certain circumstances, the required investor majority, as
defined, who shall immediately commence to wind up the Company's affairs. The
proceeds of liquidation shall be distributed, in the following order:
o First, to creditors of the Company, including partners, in the order
provided by law
o Thereafter, to the partners in the same order as other distributions
Issuance of Class A Preferred Units
In August 2003, the Company amended the October 2001 Agreements and entered
into the First Amended and Restated Investment Agreement (Amended Agreement)
with the partners. Under the terms of the Amended Agreement, within 90 days of
receipt of the final approval from the FCC (as defined), and provided that the
approval occurred before March 31, 2004, the Investors would invest up to an
additional $21.3 million in the Company in return for additional equity
interests. The Amended Agreement extended this timeline and divided the
investment originally contemplated in the October 2001 agreements into two
tranches: an Interim Investment and a Subsequent Investment.
In August 2003, under the Interim Investment, the Company received $3.7 million
in exchange for the issuance of 573,951 Class A Preferred Units at $6.45 per
unit to the Investors in the amounts of their respective subscription and
contributions. The Company used these funds to repay approximately $1.6 million
of the principal and approximately $2.1 million of accrued interest on one of
the Non-Convertible Notes (see Note 4).
In April 2004, the Company received $17.6 million of Subsequent Investment
proceeds from the Investors in exchange for the issuance of 2,735,317 of Class
A Preferred Units to the Investors and repaid approximately $2.4 million of the
principal balance and approximately $2.6 million of accrued interest on
Non-Convertible Notes (see Notes 4 and 10).
6. Unit Option Plans
MSV Option Plan
In December 2001, the Company adopted a unit option incentive plan (Unit Option
Incentive Plan). Under the Unit Option Incentive Plan, the Company reserved for
issuance and may grant up to 5,000,000 options to acquire units to employees
and directors upon approval by the Board of Directors. Options to acquire units
generally vest over a 3-year period and the options to acquire units have a
10-year life.
During 2004 the Company granted options at less than the estimated fair market
value of the related units on the option's grant date. As a result, the Company
recorded $3,949,345 in deferred compensation during the nine months ended
September 30, 2004. The deferred compensation is being amortized to income over
the options' three year vesting period. For the nine-month period ended
September 30, 2004, the Company recognized stock compensation expense
of $124,942.
The Company has promised to grant an additional 235,000 options during the year
ended December 31, 2005 to certain executives of the Company of which 200,000
options will have an exercise price of the lower of $6.45 or the price at which
the most recent financing transaction has occurred and 35,000 will have an
exercise price of $6.45.
The following summarizes activity in the Unit Incentive Option Plan:
Weighted
Average
Options to Exercise
Acquire Units Prices
--------------- --------------
Options outstanding at January 1, 2001 - $-
Granted 1,318,500 6.45
---------------
Options outstanding at December 31, 2001 1,318,500 6.45
Granted 89,000 6.45
---------------
Options outstanding at December 31, 2002 1,407,500 6.45
Granted 1,588,000 6.45
Cancelled (107,332) 6.45
---------------
Options outstanding at December 31, 2003 2,888,168 6.45
Granted (unaudited) 1,407,250 6.45
Cancelled (unaudited) (38,168) 6.45
---------------
Options outstanding at September 30, 2004 (unaudited) 4,257,250 $6.45
===============
At December 31, 2002 and 2003, 439,500 and 468,435 options were exercisable,
respectively. At December 31, 2002 and 2003, the weighted-average remaining
contractual life for outstanding options was 8.6 years and 9.0 years,
respectively. The weighted-average fair value of unit options granted during
the years ended December 31, 2001, 2002 and 2003 was $1.30, $1.30 and $0.91 per
unit, respectively. As of September 30, 2004, 1,374,333 options were
exercisable and the weighted-average remaining contractual life for outstanding
options was 8.3 years. The weighted average fair value of unit options granted
during the nine-month period ended September 30, 2004 was $3.76 per unit.
TerreStar Option Plan
In July 2002, the Board of Directors of TerreStar approved the 2002 TerreStar
Stock Incentive Plan. The plan terms are similar to the Unit Option Incentive
Plan. Options to acquire shares generally vest over a 3-year period and the
options to acquire units have a 10-year life. At December 31, 2002 and 2003,
the weighted-average remaining contractual life for outstanding options was 9.5
and 8.6 years, respectively. As of September 30, 2004, 1,146,466 options were
exercisable, and the weight-average remaining contractual life for outstanding
options was 8.2 years (see Note 10).
The following summarizes activity in the TerreStar Option Plan:
Weighted
Average
Options to Exercise
Acquire Units Prices
--------------- --------------
Options outstanding at January 1, 2002 - $-
Granted 1,781,596 0.70
---------------
Options outstanding at December 31, 2002 1,781,596 0.70
Granted 107,722 0.70
Cancelled (36,517) 0.70
---------------
Options outstanding at December 31, 2003 1,852,801 0.70
Granted (unaudited) 473,978 0.70
Cancelled (unaudited) (49,662) 0.70
---------------
Options outstanding at September 30, 2004 (unaudited) 2,277,117 $0.70
===============
7. Related Party Transactions
During the years ended December 31, 2001, 2002, and 2003, the Company incurred
$479,161, $1,441,673, and $150,966, respectively, of administrative expenses
related primarily to services provided by Motient. During the nine-month period
ended September 30, 2004, the Company incurred $1,180 of administrative
expenses related primarily to services provided by Motient. In addition, the
Company provided facilities-related services to Motient of $133,729 during the
year ended December 31, 2003.
The Company has an arrangement with MSV Canada, under which the Company
provides management services to MSV Canada and purchases satellite capacity
from MSV Canada. MSV Canada owns the satellite formerly owned by TMI. The
Company earns the management fee under the management agreement by providing
certain services to MSV Canada such as allowing access to its intellectual
property; providing voice- and data- switching capabilities; providing backup,
restoral, and emergency spectrum and satellite capacity and providing
accounting, customer service, and billing services. The Company recognizes the
related management fee income in the month in which the rights and services are
provided.
The Company leases satellite capacity from MSV Canada pursuant to a lease
agreement. The term of the lease extends for 25 years and may be terminated by
the Company with one year's notice or by either party in certain circumstances.
The amount of the lease payments is determined by the parties periodically
based upon the amount of capacity usage by the Company and market rates.
Payments due under the lease may be offset against amounts owed to the Company.
During the years ended December 31, 2001, 2002, and 2003, the Company incurred
$78,000, $117,000, and $36,025, respectively, of consulting expenses for
services provided by a company controlled by one of the Company's Investors,
which is included in legal, regulatory and consulting expenses in the
accompanying consolidated statement of operations. During the nine-month period
ended September 30, 2004, the Company incurred $58,316 for these services.
The Company leases office space from an affiliate of TMI (see Note 8). The
Company has also entered into an agreement with this company to obtain
telemetry, tracking, and control services. The agreement ends April 30, 2006,
with automatic extension for three successive additional renewal periods of one
year each. The agreement may be terminated at any time, provided that the
Company makes a payment equal to the lesser of 12 months of service or the
remaining service fee. Under the services agreement, the Company paid $28,443,
$378,462, and $360,819 during the years ended December 31, 2001, 2002 and 2003,
respectively. During the nine-month period ended September 30, 2004, the
Company paid $312,167 for these services.
8. Commitments and Contingencies
Leases
As of December 31, 2003, the Company has non-cancelable operating leases,
expiring through August 2008. Rental expense, net of sublease income, for the
years ended December 31, 2001, 2002, and 2003 was approximately $67,000,
$1,800,000, and $1,100,000, respectively. During the nine-month period ended
September 30, 2004, the Company's rental expense, net of sublease income, was
approximately $937,000.
Future minimum lease payments under noncancelable operating leases with initial
terms of one year or more are as follows for the years ended December 31:
2004 $1,253,689
2005 1,250,789
2006 1,243,969
2007 1,243,969
2008 898,309
----------------
$5,890,725
================
The minimum lease payment for 2004 is net of expected sublease income of
approximately $67,000. Office facility leases may provide for periodic
escalations of rent, rent abatements during specified periods of the lease, and
payment of pro rata portions of building operating expenses, as defined. The
Company records rent expense for operating leases using the straight-line
method over the term of the lease agreement.
Litigation and Claims
The Company is periodically a party to lawsuits and claims in the normal course
of business. While the outcome of the lawsuits and claims against the Company
cannot be predicted with certainty, management believes that the ultimate
resolution of the matters will not have a material adverse effect on the
financial position or results of operations of the Company.
Contingencies
From time to time, the Company may have certain contingent liabilities that
arise in the ordinary course of its business activities. The Company records
contingent liabilities when it is probable that future expenditures will be
made and such expenditures can be reasonably estimated. As of December 31,
2003, the Company accrued $400,000 in accounts payable and accrued expenses in
the accompanying consolidated balance sheet. This amount was paid during the
nine months ended September 30, 2004.
Regulatory Matters
During 2001, Motient applied to the FCC to transfer licenses and authorizations
related to its L-Band mobile satellite system (MSS) to MSV. Such transfer was
approved in November 2001. In connection with this application, Motient sought
FCC authority to launch and operate a next-generation MSS that will include the
deployment of satellites and terrestrial base stations operating in the same
frequencies as an integrated network. In February 2003, the FCC adopted general
rules based on the Company's proposal to develop an integrated
satellite-terrestrial system, subject to the requirement that the Company file
an additional application for a specific terrestrial component consistent with
the broader guidelines issued in the February 2003 ruling. These broad
guidelines govern issues such as aggregate system interference to other MSS
operators, the level of integration between satellite and terrestrial service
offerings, and specific requirements of the satellite component that the
Company currently meets by virtue of its existing satellite system. While the
Company's current satellite assets satisfy these requirements, the Company
anticipates the future need to construct and deploy more powerful satellites.
The Company believes that the ruling allows for significant commercial
opportunity related to the Company's next-generation system. Both proponents
and opponents of the Ancillary Terrestrial Component (ATC), including the
Company have asked the FCC to reconsider the rules adopted in the February 2003
ruling. Opponents of the ruling have advocated changes that could adversely
impact the Company's business plans. The Company has also sought certain
corrections and relaxations of technical standards that would further enhance
the commercial viability of the next-generation system. Moreover, one
terrestrial wireless carrier has filed an appeal of the FCC's decision with a
United States Court of Appeals, which has been held in abeyance until the FCC
rules on the reconsideration requests. In November 2003, the Company applied
for the authority to operate the ATC in conjunction with the current and
next-generation satellites of MSV and MSV Canada.
The FCC's International Bureau granted this authorization, in part, in November
2004 and deferred certain issues to the FCC's rulemaking proceeding, which, as
noted above, is in its reconsideration phase. A decision in the rulemaking
phase is expected in 2005. One opponent of the Company's application has asked
the FCC to review the Company's ATC authorization. There can be no assurance
that, following the conclusion of the rulemaking and the other legal
challenges, the Company will have authority to operate a commercially viable
next-generation network.
9. TerreStar Networks
In February 2002, the Company established TerreStar Networks Inc. (TerreStar),
a wholly owned subsidiary, to develop business opportunities related to the
proposed receipt of certain licenses in the 2 GHz band.
Regulatory Matters
TMI holds the approval issued by Industry Canada for a 2 GHz space station
authorization and related spectrum licenses for the provision of MSS in the 2
GHz band as well as an authorization from the FCC for the provision of MSS in
the 2 GHz band (MSS authorization). These authorizations are subject to FCC and
Industry Canada milestones relating to construction, launch and operational
date of the system. TMI plans to transfer the Canadian authorizations to an
entity that is eligible to hold the Canadian authorizations and in which
TerreStar and/or TMI will have an interest, subject to obtaining the necessary
Canadian regulatory approvals. In order to satisfy the milestone requirements
included within the authorizations, TerreStar and TMI entered into an agreement
in which TerreStar agreed to enter into a non-contingent satellite procurement
contract for the construction and delivery to TMI of a satellite that is
consistent with the Canadian and FCC authorizations. Further, TMI agreed that
at TerreStar's election, TMI will transfer the 2 GHz assets to the entities
described above, subject to any necessary Canadian and U.S. regulatory
approvals. In December 2002, TMI and TerreStar jointly applied to the FCC for
authority to transfer TMI's MSS authorization to TerreStar.
In August 2002, Industry Canada advised the Company that this arrangement met
the requirement that TMI demonstrate that it is bound to a contractual
agreement for the construction of the proposed satellite. However, certain
wireless carriers had urged the FCC to cancel TMI's MSS authorization. A
similar group also filed a petition in January 2003 asking the FCC to dismiss
the application to transfer TMI's MSS authorization to TerreStar. In February
2003, the FCC adopted an order canceling TMI's MSS authorization due to an
alleged failure to enter into a noncontingent satellite construction contract
before the specified first milestone date. Also in February 2003, the FCC
adopted an order allowing MSS carriers, including those in the 2 GHz band, to
provide an ATC. A number of parties, principally wireless carriers, have
challenged the validity of that order (see Note 8).
In June 2004, the FCC agreed to waive aspects of the first milestone
requirement applicable to TMI's MSS authorization and, therefore, reinstated
that authorization, along with the application to transfer TMI's MSS
authorization to TerreStar. The FCC also modified the milestone schedule
applicable to TMI's MSS authorization. TMI recently certified to the FCC its
compliance with the second milestone under its MSS authorization. The FCC is
currently reviewing that certification for compliance with the requirements of
TMI's MSS authorization. The application to transfer TMI's MSS authorization to
TerreStar is still pending before the FCC.
Joint Venture Option
During 2002, TerreStar acquired an option to establish a joint venture with a
third party to develop certain opportunities in the 2 GHz band. The FCC
licensed the third party to construct, launch and operate a communications
system consisting of two geostationary satellites in the 2 GHz band, a
communications network and user terminals. Consideration for the option
consisted of nonrefundable payments made by TerreStar of $1,000,000 during 2002
and $500,000 during 2003. In January 2003, TerreStar exercised its option to
form the joint venture. Under the terms of the memorandum of agreement (MOA),
TerreStar contributed an additional $500,000 to the joint venture upon signing
of the joint venture agreements. However, as a result of the FCC order
canceling TMI's 2 GHz license, TerreStar and the third party mutually agreed to
terminate the option agreement and the joint venture and any remaining
obligations or liabilities related to these agreements in July 2003. As a
result, TerreStar wrote off its $2,000,000 investment in the joint venture
during the year ended December 31, 2003.
Satellite Construction Contract
During 2002, TerreStar entered into a contract to purchase a satellite system,
including certain ground infrastructure for use with the 2 GHz band. The
Company continues to make payments according to a milestone payment plan.
Following the reinstatement of the TMI license in July 2004, the contract was
amended resulting in a reduced milestone payment plan. The Company made
payments of $500,000 and $350,000 during the years ended December 31, 2002 and
2003, respectively. Such payments have been capitalized as system under
construction in property and equipment in the accompanying consolidated balance
sheets.
Following the reinstatement of the TMI license in July 2004, the contract was
amended resulting in a reduced milestone payment plan. The Company made
payments of $400,000 during the nine-month period ended September 30, 2004
related to this contract. The satellite manufacturer may also be entitled to
certain incentive payments based upon the performance of the satellite once in
operation. If the Company terminates the contract, the manufacturer shall be
entitled to payment of a termination liability as prescribed in the contract.
Through 2004, the termination liability can be satisfied by amounts paid under
the contract up to the point of termination. Beginning in 2005, the termination
liability will be equal to amounts that would have otherwise been due on
milestones scheduled within 30 days following notice of termination by the
Company. The satellite represents one component of a communications system that
would include ground switching infrastructure, launch costs and insurance.
Total cost of this system could exceed $500 million. In order to finance future
payments, the Company will be required to obtain additional debt or equity
financing, or may enter into various joint ventures to share the cost of
development. There can be no assurance that such financing or joint venture
opportunities will be available to the Company or available on terms acceptable
to the Company.
10. Subsequent Events
November 2004 Financing
In November 2004, MSV received $145 million in gross proceeds from its existing
investors in exchange for the issuance of 4,923,599 Common Units. Concurrently,
approximately $27 million of notes and accrued interest was exchanged for
914,160 Common Units of MSV. Additionally, $58 million of Convertible Notes
were converted to 8,997,073 Class A Preferred Units in accordance with their
terms. The Non-Convertible Notes with a principal balance of $22.5 million were
exchanged for 765,843 Common Units. Approximately $18.7 million of accrued
interest was paid in cash while the remaining $4.4 million was exchange for
152,230 Common Units. As part of the transaction, the Company's limited
partnership agreement was amended to eliminate the distinction between
Preferred and Common Units, and all Preferred Units were converted to Common
Units. At the completion of this transaction, all outstanding principal and
interest obligations on the Convertible and Non-Convertible Notes had been
extinguished.
TerreStar Rights Transaction
On December 20, 2004, the Company issued rights (the Rights) to receive an
aggregate of 23,265,428 shares of common stock, par value $.001 per share (the
TerreStar Stock), of TerreStar, representing all of the shares of TerreStar
Stock owned by the Company, to the limited partners of the Company, pro rata in
accordance with each limited partner's percentage ownership in the Company. The
Rights will be exchanged into shares of TerreStar Stock automatically on
February 25, 2005. In addition, in connection with this transaction, TerreStar
issued warrants (the Warrants) to purchase an aggregate of 666,972 shares of
TerreStar Stock to one of the Company's limited partners. The Warrants have an
exercise price of $0.21491 per share, and may be exercised until the fifth
anniversary of the date of their issuance.
Concurrently, the Company authorized a 1 for 2 grant of additional options to
employee option holders of record at December 20, 2004.
Recent Pronouncements
In December 2004, the FASB issued SFAS No. 123(R), Share-Based Payment, which
is a revision of SFAS No. 123, supersedes APB Opinion No. 25, and amends SFAS
No. 95, Statement of Cash Flows. Generally, the approach in SFAS No. 123(R) is
similar to the approach described in SFAS No. 123. However, SFAS No. 123(R)
requires all share-based payments to employees, including grants of employee
stock options, to be recognized in the income statement based on their fair
values. Pro forma disclosure is no longer an alternative. The new standard will
be effective for the Company for the year ending December 31, 2006.
SKYTERRA COMMUNICATIONS, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The following Unaudited Pro Forma Condensed Consolidated Balance Sheet
assumes that, on September 30, 2004, (i) MSV Investors, LLC, an 80% owned
subsidiary of SkyTerra Communications, Inc. (the "Company"), had converted its
Mobile Satellite Ventures LP (the "MSV Joint Venture") convertible promissory
notes in the principal amount of approximately $51 million (the "Company's MSV
Notes") into 22.8% of the limited partnership interests of the MSV Joint
Venture and corresponding shares in the corporate general partner of the MSV
Joint Venture on an undiluted basis, at their original conversion price of
$6.45 per unit (the "Conversion") and (ii) the MSV Joint Venture had completed
the $230 million financing in which it raised $145 million in cash by selling
partnership units for $29.45 per unit and exchanged or converted approximately
$85 million of debt securities, including the Conversion (the "MSV Joint
Venture Financing"). The Unaudited Pro Forma Condensed Consolidated Statements
of Operations assume that the MSV Joint Venture Financing had occurred on
January 1, 2003, reflecting the results of the Company for the year ended
December 31, 2003 and the nine months ended September 30, 2004.
The Unaudited Pro Forma Condensed Consolidated Financial Statements are
derived from the historical financial statements of the Company and the MSV
Joint Venture, after giving effect to the MSV Joint Venture Financing and
assumptions and adjustments considered appropriate by the Company, certain of
which are described in the accompanying Notes to Unaudited Pro Forma Condensed
Consolidated Financial Statements. The Unaudited Pro Forma Condensed
Consolidated Financial Statements are provided for illustrative purposes only
and are not necessarily indicative of the results of operations or financial
condition that actually would have been obtained if the the MSV Joint Venture
Financing had occurred on the dates indicated or of the operating results that
may be obtained in the future.
The Unaudited Pro Forma Condensed Consolidated Financial Statements
should be read in conjunction with the historical financial statements, and the
related notes thereto, of the Company and the MSV Joint Venture. The historical
financial statements of the MSV Joint Venture and the related notes thereto as
of and for the year ended December 31, 2003 and as of and for the nine months
ended September 30, 2004 are included herein. The historical financial
statements of the Company and the related notes thereto as of and for the year
ended December 31, 2003 and as of and for the nine months ended September 30,
2004 have been previously filed with the Securities and Exchange Commission.
SKYTERRA COMMUNICATIONS, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
(In thousands)
September 30, 2004
---------------------------------------------------
SkyTerra Pro Forma SkyTerra
Adjustments Pro Forma
------------- ------------- ------------
Assets
Current assets:
Cash and cash equivalents $34,205 $16,298 (1) $50,503
Short-term investments 14,714 14,714
Accounts receivable 149 149
Prepaid expenses and other current assets 637 637
------------- ------------- ------------
Total current assets 49,705 16,298 66,003
Property and equipment, net 631 631
Notes receivable 67,416 (16,298) (1) -
(51,118) (2)
Investment in Mobile Satellite Ventures LP - 51,118 (2) 51,118
Investments in affiliates 3,219 3,219
Other assets 695 695
------------- ------------- ------------
Total assets $121,666 $- $121,666
============= ============= ============
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $1,754 $1,754
Accrued liabilities 3,240 3,240
Deferred revenue 121 121
------------- ------------
Total current liabilities 5,115 5,115
------------- ------------
Series A Convertible Preferred Stock, $.01 par
value, net of unamortized discount of $33,687 87,608 87,608
------------- ------------
Minority interest 13,521 13,521
------------- ------------
Stockholders' equity:
Preferred stock, $.01 par value - -
Common stock, voting, $.01 par value 61 61
Common stock, non-voting, $.01 par value 90 90
Additional paid-in capital 547,228 547,228
Accumulated other comprehensive income 4 4
Accumulated deficit (531,961) (531,961)
------------- ------------
Total stockholders' equity 15,422 15,422
------------- ------------
Total liabilities and stockholders' equity $121,666 $121,666
============= ============
See accompanying Notes to Unaudited Pro Forma Condensed Consolidated Financial Statements.
SKYTERRA COMMUNICATIONS, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands except share data)
For the Nine Months Ended September 30, 2004
------------------------------------------------------
Pro Forma SkyTerra
SkyTerra Adjustments Pro Forma
-------------- ------------- -------------
Revenues $1,778 $1,778
Cost of revenues 1,735 1,735
-------------- -------------
Gross profit 43 43
Selling, general and administrative expenses 6,467 6,467
-------------- -------------
Loss from operations (6,424) (6,424)
Interest income, net 9,490 $(4,779) (3) 4,711
Loss on investments in affiliates (972) (972)
Equity in loss of Mobile Satellite Venture LP - (3,918) (4) (3,918)
Other income, net 20,841 20,841
Minority interest (631) 1,739 (5) 1,108
-------------- ------------- -------------
Income from continuing operations 22,304 (6,958) 15,346
Cumulative dividends and accretion of convertible
preferred stock to liquidation value (7,426) (7,426)
-------------- ------------- -------------
Income from continuing operations attributable
to common stockholders $14,878 $(6,958) $7,920
============== ============= =============
Earnings per share from continuing operations:
Basic $0.99 $0.53
============== =============
Diluted $0.95 $0.50
============== =============
Weighted average common shares outstanding:
Basic 15,062,714 15,062,714
============== =============
Diluted 15,713,479 15,713,479
============== =============
For the Year Ended December 31, 2003
------------------------------------------------------
SkyTerra Pro Forma SkyTerra
Adjustments Pro Forma
-------------- ------------- -------------
Revenues $699 $699
Cost of revenues 913 913
-------------- -------------
Gross profit (214) (214)
Selling, general and administrative expenses 6,733 6,733
-------------- -------------
Loss from operations (6,947) (6,947)
Interest income, net 6,304 $(5,815) (3) 489
Loss on investments in affiliates (404) (404)
Equity in loss of Mobile Satellite Venture LP - (4,215) (4) (4,215)
Other income, net 244 244
Minority interest (1,126) 2,006 (5) 880
-------------- ------------- -------------
Loss from continuing operations (1,929) (8,024) (9,953)
Cumulative dividends and accretion of convertible
preferred stock to liquidation value (9,687) (9,687)
-------------- ------------- -------------
Loss from continuing operations attributable to
common stockholders $(11,616) $(8,024) $(19,640)
============== ============= =============
Basic and diluted loss per share from continuing
operations $(0.76) $(1.28)
============== =============
Weighted average common shares outstanding 15,341,518 15,341,518
============== =============
See accompanying Notes to Unaudited Pro Forma Condensed Consolidated Financial Statements.
SKYTERRA COMMUNICATIONS, INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The Unaudited Pro Forma Condensed Consolidated Financial Statements are
based on the following assumptions and adjustments:
(1) Represents the receipt of cash from the MSV Joint Venture to pay the
accrued interest on the Company's MSV Notes.
(2) Represents the conversion of the Company's MSV Notes into 22.8% of the
limited partnership interests of the MSV Joint Venture (on an undiluted
basis) and corresponding shares in the corporate general partner of the
MSV Joint Venture.
(3) Reflects an adjustment of $4.8 million for the nine months ended September
30, 2004 and $5.8 million for the year ended December 31, 2003,
representing the elimination of interest earned on the Company's MSV Notes
during each respective period.
(4) Reflects an adjustment of $3.9 million for the nine months ended September
30, 2004 and $4.2 million for the year ended December 31, 2003,
representing the Company's proportionate share of the MSV Joint Venture's
net loss (adjusted for the elimination of interest expense on the debt
securities exchanged or converted as part of the MSV Joint Venture
Financing) as accounted for under the equity method during each respective
period.
(5) Reflects an adjustment of $1.7 million for the nine months ended September
30, 2004 and $2.0 million for the year ended December 31, 2003,
representing the portion of the amounts included in footnotes (3) and (4)
above which are attributable to the group of unaffiliated third parties who
own approximately 20% of MSV Investors, LLC.
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 hereto duly authorized.
Date: January 5, 2005 By: /s/ CRAIG J. KAUFMANN
-----------------------------
Name: Craig J. Kaufmann
Title: Controller and Treasurer