<PAGE>
<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 9, 1996
REGISTRATION NO. 33-
________________________________________________________________________________
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
TSR PAGING INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
------------------------
<TABLE>
<S> <C> <C>
DELAWARE 4812 22-2779719
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
</TABLE>
------------------------
<TABLE>
<S> <C> <C>
LEONARD DISAVINO
CHIEF EXECUTIVE OFFICER
TSR PAGING INC.
400 KELBY STREET 400 KELBY STREET
FORT LEE, NEW JERSEY 07024 FORT LEE, NEW JERSEY 07024
(201) 947-5300 (201) 947-5300
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE (NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE
NUMBER, INCLUDING AREA CODE, OF REGISTRANT'S NUMBER, INCLUDING AREA CODE,
PRINCIPAL EXECUTIVE OFFICES) OF AGENT FOR SERVICE)
COPIES TO:
ROGER KIMMEL, ESQ. VINCENT PAGANO, JR., ESQ.
LATHAM & WATKINS SIMPSON THACHER & BARTLETT
885 THIRD AVENUE, SUITE 1000 425 LEXINGTON AVENUE
NEW YORK, NEW YORK 10022 NEW YORK, NEW YORK 10017
(212) 906-1200 (212) 455-2000
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED
MAXIMUM PROPOSED MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE AGGREGATE REGISTRATION
SECURITIES TO BE REGISTERED REGISTERED(1) PER SHARE OFFERING PRICE(2) FEE
<S> <C> <C> <C> <C>
Common Stock, $.01 par value shares $ $75,000,000 $ 25,863
</TABLE>
(1) Includes shares that the Underwriters have the option to purchase to cover
over-allotments, if any.
(2) Estimated solely for purposes of calculating the registration fee pursuant
to Rule 457 under the Securities Act.
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
________________________________________________________________________________
<PAGE>
<PAGE>
TSR PAGING INC.
CROSS-REFERENCE SHEET
PURSUANT TO ITEM 501(B) OF REGULATION S-K
<TABLE>
<CAPTION>
FORM S-1 ITEM
NUMBER AND CAPTION LOCATION IN PROSPECTUS
--------------------------------------------------------------------- -------------------------------------
<S> <C> <C>
1. Forepart of the Registration Statement and Outside Front Cover Page
of Prospectus........................................................ Facing Page; Cross-Reference Sheet;
Outside Front Cover Page
2. Inside Front and Outside Back Cover Pages of Prospectus.............. Inside Front and Outside Back Cover
Pages; Available Information
3. Summary Information, Risk Factors and Ratio of Earnings to Fixed
Charges.............................................................. Prospectus Summary; Risk Factors
4. Use of Proceeds...................................................... Proceeds of Offering
5. Determination of Offering Price...................................... Underwriting
6. Dilution............................................................. Dilution
7. Selling Security Holders............................................. *
8. Plan of Distribution................................................. Outside Front Cover Page;
Underwriting
9. Description of Securities to be Registered........................... Prospectus Summary; Description of
Capital Stock
10. Interests of Named Experts and Counsel............................... Legal Matters; Experts
11. Information with Respect to the Registrant........................... Inside Front and Outside Back Cover
Pages; Prospectus Summary; Risk
Factors; Dividend Policy;
Capitalization; Selected Financial
Data; Management's Discussion and
Analysis of Financial Condition and
Results of Operations; Business;
Management; Certain Relationships
and Related Party Transactions;
Principal Stockholders; Description
of Capital Stock; Shares Eligible
For Future Sale; Description of
Certain Indebtedness; Financial
Statements
12. Disclosure of Commission Position on Indemnification for Securities
Act Liabilities...................................................... *
</TABLE>
- ------------
* Answer is negative or item is not applicable.
<PAGE>
<PAGE>
EXPLANATORY NOTE
This Registration Statement contains two separate prospectuses. The first
prospectus relates to a public offering in the United States and Canada of an
aggregate of shares of Common Stock. The second prospectus relates
to a concurrent offering outside the United States and Canada of an aggregate of
shares of Common Stock. The prospectuses for the U.S. Offering and
the International Offering will be identical with the exception of a front cover
page and a back cover page. Such alternate pages appear in the Registration
Statement immediately following the complete prospectus for the U.S. Offering.
<PAGE>
<PAGE>
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
SUBJECT TO COMPLETION, DATED MAY 9, 1996
PROSPECTUS
SHARES
TSR PAGING INC.
COMMON STOCK
[LOGO]
---------------------------
All of the shares of Common Stock, par value $.01 per share (the 'Common
Stock'), of TSR Paging Inc. (the 'Company') offered hereby are being offered by
the Company. Of the shares of Common Stock offered, shares are
being offered initially in the United States and Canada by the U.S. Underwriters
(the 'U.S. Offering'), and shares are being offered initially outside
the United States and Canada in a concurrent international offering (the
'International Offering') by the International Managers (together with the U.S.
Underwriters, the 'Underwriters'). These offerings are collectively referred to
herein as the 'Offerings.' See 'Underwriting.'
Prior to the Offerings, there has been no public market for the Common
Stock. It is currently anticipated that the initial public offering price will
be between $ and $ per share. The initial public offering price and the
underwriting discount and commission per share are identical for each of the
Offerings. See 'Underwriting' for information relating to the factors considered
in determining the initial public offering price.
Application will be made to list the Common Stock on the Nasdaq National
Market under the symbol 'BEEP.'
---------------------------
FOR A DISCUSSION OF CERTAIN RISKS TO BE CONSIDERED IN CONNECTION WITH AN
INVESTMENT IN THE COMMON STOCK OFFERED HEREBY, SEE 'RISK FACTORS' BEGINNING ON
PAGE 8.
---------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
PRICE TO UNDERWRITING DISCOUNTS PROCEEDS TO
PUBLIC AND COMMISSIONS (1) COMPANY (2)
<S> <C> <C> <C>
Per Share.................................. $ $ $
Total (3).................................. $ $ $
</TABLE>
(1) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended. See 'Underwriting.'
(2) Before deducting expenses payable by the Company estimated at $ .
(3) The Company has granted to the U.S. Underwriters a 30-day option to purchase
up to additional shares of Common Stock on the same terms and
conditions as set forth above solely to cover over-allotments, if any. The
International Managers have been granted a similar option to purchase up to
additional shares solely to cover over-allotments, if any. If such
options are exercised in full, the total Price to Public, Underwriting
Discounts and Commissions and Proceeds to Company will be $ ,
$ and $ , respectively. See 'Underwriting.'
---------------------------
The shares of Common Stock offered by this Prospectus are offered by the
U.S. Underwriters subject to prior sale, to withdrawal, cancellation or
modification of the offer without notice, to delivery to and acceptance by the
U.S. Underwriters and to certain further conditions. It is expected that
delivery of the shares will be made at the offices of Lehman Brothers Inc., New
York, New York, on or about , 1996.
---------------------------
LEHMAN BROTHERS
SMITH BARNEY INC.
WESSELS, ARNOLD & HENDERSON
BRENNER SECURITIES
CORPORATION
, 1996
<PAGE>
<PAGE>
[ARTWORK TO BE SUPPLIED BY AMENDMENT]
IN CONNECTION WITH THESE OFFERINGS, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK AT
A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ NATIONAL MARKET, IN THE
OVER-THE-COUNTER MARKET OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE
DISCONTINUED AT ANY TIME.
2
<PAGE>
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial statements, including the notes thereto, appearing
elsewhere in this Prospectus. Unless the context otherwise requires, references
in this Prospectus to 'TSR Paging' or the 'Company' refer to TSR Paging Inc.
Unless otherwise stated, the information in this Prospectus assumes that the
Underwriters' over-allotment options are not exercised.
THE COMPANY
TSR Paging is a leading regional provider of wireless messaging products
and services and believes that it is one of the fastest growing, low-cost
wireless messaging companies in the United States. From 1991 to 1995, the
Company's subscriber base grew at an average compound annual growth rate of 92%
from 44,304 units in service to 607,725 units in service. During this period,
all of the Company's growth has been internally generated. At March 31, 1996,
the Company's subscriber base had grown to 696,623 units in service and the
Company was ranked as the 12th largest paging company in the United States,
according to industry sources.
The Company focuses its business efforts on densely populated major
metropolitan markets and population corridors which exhibit the size and
demographic trends that the Company believes should offer significant demand for
the Company's products and services. The Company seeks to maximize its returns
on capital and leverage its operating cost structure by achieving a sufficient
base of subscribers on a regional basis.
The Company's operations are currently organized into two operating
regions: (i) the Northeast, including certain metropolitan markets in New York,
Connecticut, New Jersey, Massachusetts, eastern Pennsylvania, Maryland and
Washington, D.C.; and (ii) the West, including certain metropolitan markets in
California, Arizona and Nevada.
The Company's long term operating objectives are to continue to
aggressively grow its base of subscribers throughout the U.S. at the same time
as achieving its operating profitability and cash flow growth targets. The
Company's strategy to achieve these objectives involves two distinct components:
(i) operating strategy and (ii) geographic expansion strategy.
The Company applies a focused, market-specific operating strategy to each
of the markets in which it operates. The key common elements of this strategy
include: (i) increasing its market penetration through the reseller distribution
channel, (ii) expanding its distribution through Company-owned stores, (iii)
continuing to maintain its low-cost provider status; (iv) providing a high level
of customer service, (v) focusing on selling as opposed to leasing pagers to
customers, and (vi) developing strategic alliances with other providers of
communications services.
The Company's geographic expansion strategy incorporates two key elements:
(i) the continued build-out of its existing regional networks in the Northeast
(anchored by New York City) and the West (anchored by Los Angeles), and (ii) the
development of networks in new markets, including the formation of two new
operating regions, covering the Midwest (anchored by Chicago) and the Southeast
(anchored by Miami/Ft. Lauderdale). During 1996, the Company commenced
construction in its new Midwest and Southeast regions. In addition, the Company
expanded service within its existing West region to the San Francisco and San
Jose markets.
The Company primarily targets the consumer segment of the market. Industry
sources expect this segment to grow at a faster rate than the industry average.
The Company believes this strong consumer growth is attributable to a
combination of factors including declining costs of service, expanding channels
of distribution and greater consumer awareness of the benefits offered by
wireless communications technology. In addition, the Company believes the
consumer market is less capital intensive and more profitable than the
commercial market, primarily because consumers typically buy rather than lease
pagers and also because the consumer is generally less sensitive to the price of
wireless messaging services than the commercial subscriber. The Company strives
to develop close ties with its subscribers by providing high quality customer
service and post-sales support in order to lower
3
<PAGE>
<PAGE>
subscriber disconnect rates and position the Company as a likely distributor of
other wireless products, such as cellular and wireless personal communication
services ('PCS').
The Company seeks to maximize its penetration of the consumer market by
distributing its services primarily through the reseller channel and through
stores owned and operated by the Company. Through the use of resellers, the
Company is able to efficiently market its services to a broad population base
and achieve higher network utilization with lower incremental capital, sales and
administrative costs. The reseller channel allows the Company to rapidly gain a
presence in newly opened markets and increase its penetration in existing
markets. In addition, the Company is able to reach the consumer at a lower
incremental cost, primarily because the Company does not incur the selling,
marketing, administrative and disconnection expenses associated with these
subscribers.
The Company has been operating its own stores since July 1993 and at March
31, 1996 had 67 stores in operation in eight states. As the appeal of wireless
messaging services to the consumer market grows, the Company believes that it
will be able to capture an increasingly significant share of this market through
a targeted retail distribution strategy that emphasizes Company-owned stores.
The Company's control of this distribution outlet enables it to control the
quality of sales personnel, ensure that subscribers make educated purchase
decisions and maintain high quality customer service. The Company expects to
continue to develop this channel and plans to open stores in markets in which
the Company provides regional wireless messaging services.
The Company believes that it has one of the lowest operating costs per
pager in the wireless messaging industry. The Company's average monthly
operating costs per pager were $5.71, $4.50 and $3.81 for the years ended 1993,
1994 and 1995, respectively. The Company attributes its low operating cost
structure to a combination of factors, including its (i) high quality customer
service and resultant lower rate of disconnections, (ii) focus on the reseller
distribution channel whereby the reseller absorbs a significant portion of the
operating expenses per pager, (iii) increasing penetration of its existing
markets and ability to realize economies of scale, (iv) efficient allocation and
productivity of personnel, and (v) volume purchase arrangements with suppliers.
The Company has historically distinguished itself from other wireless
messaging operators by providing high quality customer service in each of its
markets. Substantially all of the Company's wireless messaging systems are 900
MHz systems which utilize Motorola's FLEX'tm' technology. FLEX'tm' technology
enables the Company to more efficiently use its bandwidth by increasing the
number of messages transmitted per minute and thereby increase the number of
pagers in service which can be supported on its systems. As a result, the
Company's wireless messaging systems experience little delay in transmitting
messages and are highly reliable. As part of its commitment to 'full service,'
the Company strives to provide direct subscribers with high quality post-sale
maintenance, including 24-hour on-call repair and next-day replacement of lost
or damaged equipment. In addition, unlike many of its competitors, the Company
provides its reseller distributors with a high level of service by, among other
things, allowing resellers to integrate their billing and activation systems
with those of the Company.
BACKGROUND AND REORGANIZED CORPORATE STRUCTURE
The Company's current business was established in 1987 by Leonard DiSavino
and Philip Sacks. Until 1995, all of the common stock and partnership interests
of the Company were owned by Leonard DiSavino, Philip Sacks and certain trusts
for the benefit of their respective children (collectively, the 'Founding
Stockholders').
In July 1995, a group of investors led by TA Associates, Inc.
(collectively, the 'Investors') purchased from Leonard DiSavino and Philip Sacks
(i) discount notes for $34 million with an aggregate face value of $70.0 million
(the 'Notes'), which are the non-recourse obligations of Messrs. DiSavino and
Sacks and (ii) an option (the 'Option') for $1 million to purchase 40.66% of the
fully-diluted common stock of the Company from the Founding Stockholders in
exchange for the discounted portion of the Notes. The Investors intend to
exercise the Option simultaneously with the consummation of the
4
<PAGE>
<PAGE>
Offerings. In addition, a portion of the proceeds from the Offerings will be
used to pay a dividend of $35 million (the 'Dividend') to the Founding
Stockholders, which payment will be used by Messrs. DiSavino and Sacks to repay
in part the Notes. The Notes will be satisfied in connection with the exercise
of the Option. See 'Use of Proceeds' and 'Certain Relationships and Related
Party Transactions.'
Prior to the Offerings, the Company was an S Corporation subject to
taxation under Subchapter S of the Internal Revenue Code of 1986, as amended
(the 'Internal Revenue Code'). As a result, the net income of the Company, for
federal (and some state) income tax purposes, has been reported by, and taxed
directly to, the Company's stockholders rather than to the Company. The
Company's S Corporation status will terminate immediately prior to the
consummation of the Offerings and the Company will become a C Corporation
subject to corporate income taxation. No adverse tax consequences to the persons
who become stockholders in the Offerings are expected to result from termination
of the Company's S Corporation status.
THE OFFERINGS
<TABLE>
<S> <C>
Common Stock Offered by the Company
U.S. Offering................................. shares
International Offering........................ shares
Total......................................... shares (1)
Common Stock to be outstanding after the
Offerings..................................... shares (1)(2)
Use of Proceeds................................. The Company will use approximately $35 million of the net
proceeds of the Offerings to pay the Dividend and the remainder
for capital expenditures in connection with system and
geographic expansion, potential acquisitions, working capital
and general corporate purposes. Pending the use of funds for
geographic and system expansion and other general corporate
uses, the Company will use approximately $ million of the net
proceeds of the Offerings to repay indebtedness under the
Company's revolving credit facility.
Nasdaq National Market Symbol................... Application has been made to list the Common Stock on the
Nasdaq National Market under the symbol 'BEEP.'
</TABLE>
- ------------
(1) Excludes up to shares of Common Stock that may be issued upon the
exercise of the over-allotment options granted to the Underwriters.
(2) Excludes shares of Common Stock reserved for issuance upon exercise
of stock options outstanding upon consummation of the Offerings at a
weighted average exercise price of $ per share at the date of this
Prospectus. See 'Management -- 1995 Phantom Stock Plan' and ' -- Non-
Employee Director Stock Option Plan.'
5
<PAGE>
<PAGE>
SUMMARY FINANCIAL AND OPERATING DATA
The following table sets forth summary financial data for the years ended
December 31, 1991 and December 31, 1992, which have been derived from the
Company's financial statements audited by Cummings & Carroll, P.C., independent
public accountants, and for the years ended December 31, 1993, December 31, 1994
and December 31, 1995 which have been derived from the Company's financial
statements audited by Arthur Andersen LLP, independent public accountants, whose
report thereon is included elsewhere in this Prospectus. The following summary
financial data for the three months ended March 31, 1995 and March 31, 1996 have
been derived from the Company's unaudited condensed financial statements which,
in the opinion of management, contain all adjustments (consisting of normal and
recurring adjustments) necessary to present fairly the Company's financial
position and results of operations at such dates and for such periods. The
interim results are not necessarily indicative of the results of operations for
the entire year. The data presented below should be read in conjunction with,
and is qualified in its entirety by reference to, the financial statements of
the Company and the related notes thereto appearing elsewhere in this Prospectus
and 'Management's Discussion and Analysis of Financial Condition and Results of
Operations.'
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED DECEMBER 31, ENDED MARCH 31,
------------------------------------------------------ --------------------
1991 1992 1993 1994 1995 1995 1996
------- ------- -------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Revenues:
Services, rent and maintenance....... $ 7,130 $ 8,500 $ 11,119 $ 17,954 $ 28,908 $ 6,308 $ 9,937
Product sales........................ 809 1,586 8,481 14,088 18,615 3,931 4,954
Cost of products sold................ (453) (857) (5,098) (10,520) (14,549) (3,094) (3,949)
------- ------- -------- -------- -------- -------- --------
Net revenues....................... 7,486 9,229 14,502 21,522 32,974 7,145 10,942
Services, rent and maintenance
expenses............................. 1,678 1,888 2,748 4,592 7,060 1,575 2,308
Selling and marketing expenses......... 1,562 1,810 1,814 3,332 5,399 1,178 1,771
General and administrative expenses.... 2,295 2,560 3,377 5,165 8,719 1,943 3,422
Depreciation and amortization.......... 1,977 2,741 6,758 7,578 10,870 2,179 2,892
Non-cash compensation expense(1)....... 0 0 0 0 0 0 747
------- ------- -------- -------- -------- -------- --------
Operating income (loss)................ (26) 230 (195) 855 926 270 (198)
Other expense.......................... 0 0 0 0 163 0 0
Interest expense....................... 600 548 517 1,024 2,484 522 638
Unusual item(2)........................ 0 0 0 590 564 0 0
Income tax provision................... 0 0 0 32 49 0 5
------- ------- -------- -------- -------- -------- --------
Loss from continuing operations before
discontinued operations and
extraordinary item................... (626) (318) (712) (791) (2,334) (252) (841)
Discontinued operations and
extraordinary item(3)................ 0 0 0 0 612 0 0
------- ------- -------- -------- -------- -------- --------
Net loss............................... $ (626) $ (318) $ (712) $ (791) $ (2,946) $ (252) $ (841)
------- ------- -------- -------- -------- -------- --------
------- ------- -------- -------- -------- -------- --------
Pro forma loss from continuing
operations before discontinued
operations and extraordinary
item(4).............................. $ (2,285) $ (836)
Pro forma loss per common share from
continuing operations before
discontinued operations and
extraordinary item(4)................ $ $
Weighted average shares outstanding....
OTHER DATA:
EBITDA(5).............................. $ 1,951 $ 2,971 $ 6,563 $ 8,433 $ 11,796 $ 2,449 $ 3,441
EBITDA margin(6)....................... 26.1% 32.2% 45.3% 39.2% 35.8% 34.3% 31.4%
Average monthly revenue per unit(7).... $ 17.65 $ 12.77 $ 8.00 $ 6.18 $ 5.20 $ 6.11 $ 5.08
Average monthly operating expense per
unit(8).............................. 11.70 9.40 5.71 4.50 3.81 4.55 3.83
Units in service (at end of period).... 44,304 66,674 164,883 319,687 607,725 368,767 696,623
Units in service per employee (at end
of period)(9)........................ 642 901 1,633 1,648 1,905 1,748 1,819
Selling and marketing expenses per net
subscriber addition(10).............. $157.03 $ 80.91 $ 18.47 $ 21.52 $ 18.74 $ 24.00 $ 19.92
Capital expenditures................... 2,234 4,288 10,969 13,160 20,643 2,777 7,252
</TABLE>
<TABLE>
<CAPTION>
MARCH 31, 1996
---------------------------
PRO FORMA
ACTUAL AS ADJUSTED(11)
-------- ---------------
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents............................................................. $ 116 $
Total assets.......................................................................... 42,456
Total long-term debt (including current maturities)................................... 43,750
Total stockholders' equity (deficit).................................................. (11,824)
(Footnotes on following page)
</TABLE>
6
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<PAGE>
- ------------
(1) During 1992 and 1993, the Company granted to certain employees equity
interests which were to be realized upon the occurrence of certain events.
Effective January 1, 1996, these equity interests were cancelled and such
employees were issued 168,900 units under the Phantom Stock Plan at a
strike price of $0, vest over a five-year period from the original date of
grant in 1992 or 1993, as applicable, and had a grant date value of $6
per unit. The employees received credit for vesting through the date of
cancellation of the equity interests. In addition, on January 1, 1996,
150,350 units were issued under the Phantom Stock Plan, at a strike price
of $6 per unit and vest over a five-year period. As determined by an
independent investment bank valuation and the Company's Compensation
Committee the per unit value on January 1, 1996 was $6. As a result, the
financial statements for the three months ended March 31, 1996 reflect
non-cash compensation expense of $747,000 (which amount includes the
cumulative effect of the vesting from 1992 forward) with a corresponding
credit to additional paid-in-capital. The remaining non-cash compensation
expense of $266,000 will be recognized by the Company over the next two
years.
(2) The unusual item of $590,000 in 1994 primarily consists of certain
financing costs associated with the commencement of an initial public
offering which was terminated prior to completion. The unusual item of
$564,000 in 1995 primarily consists of costs related to certain merger
activity.
(3) The discontinued operations charge of $300,000 consists of costs related to
the discontinuation of the Company's telephone answering service
operations. The extraordinary item of $312,000 is related to the write-off
of deferred financing costs following the refinancing of the Credit
Agreement.
(4) Following termination of the Company's status as an S corporation upon
consummation of the Offerings, the Company will be subject to corporate
income taxation. Accordingly, pro forma loss reflects Federal and state
income taxes as if the Company has been a C corporation based on the tax
rates that were in effect during the periods presented. See 'The Company.'
The pro forma statement of operations data does not reflect (i)
distributions to Messrs. DiSavino and Sacks that, if the Company were a C
corporation, would be recorded as compensation expense by the Company and
(ii) reductions in interest expense relating to the paydown of borrowings
under the Company's revolving credit facility, as it is anticipated that
the Company will reborrow such amounts to fund its expansion strategy. Pro
forma loss including discontinued operations before extraordinary item
would have been $ per share and $ per share for the year ended
December 31, 1995 and the three months ended March 31, 1996, respectively.
Pro forma loss including discontinued operations and extraordinary item
would have been $ per share and $ per share for the year ended
December 31, 1995 and the three months ended March 31, 1996, respectively.
(5) EBITDA represents operating income plus depreciation and amortization and
non-cash compensation expense. EBITDA is a financial measure commonly used
in the Company's industry and is not intended to represent cash flows for
the period, nor has it been presented as an alternative to operating income
or as an indicator of operating performance and should not be considered in
isolation or as a substitute for measures of performance prepared in
accordance with generally accepted accounting principles. See 'Management's
Discussion and Analysis of Financial Condition and Results of Operations'
and the Financial Statements and the Notes thereto appearing elsewhere in
this Prospectus.
(6) EBITDA margin is calculated by dividing (a) EBITDA by (b) net revenues.
EBITDA margin is a measure commonly used in the Company's industry as an
indicator of the efficiency of the Company's operations.
(7) Average monthly revenue per unit ('ARPU') is calculated by dividing (a)
annual services, rent and maintenance revenues for the period by (b) 12
(months), and dividing the result by (c) the average number of units in
service for the year.
(8) Average monthly operating expense per unit ('EXPU') is calculated by
dividing (a) total annual operating expenses before depreciation and
amortization and non-cash compensation expense by (b) 12 (months), and
dividing the result by (c) the average number of units in service for the
year.
(9) Employees at the end of the period includes all full-time employees plus
part-time employees divided by two, excluding employees associated with the
Company's discontinued operations.
(10) Selling and marketing expenses per net subscriber additions is calculated
by dividing (a) selling and marketing expenses by (b) the net change in
units in service during such year.
(11) The Pro Forma As Adjusted amounts reflect (i) the consummation of the
Offerings, (ii) the payment of the Dividend and (iii) the recording of a
deferred tax liability of $347,000 to reflect differences between book and
tax accounting for depreciation, inventory and certain reserves as a result
of the conversion of the Company from an S corporation to a C corporation.
In addition, the pro forma statement of operations data does not reflect
reductions in interest expense relating to the paydown of borrowings under
the Company's revolving credit facility, as it is anticipated that the
Company will reborrow such amounts to fund its expansion strategy.
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RISK FACTORS
Prospective investors should consider carefully, together with all of the
information contained in this Prospectus, the following factors.
EXPANSION INTO NEW MARKETS; CAPITAL REQUIREMENTS AND START-UP COSTS
The Company is currently implementing a significant expansion program which
involves the Company's entry into new geographic markets and compliance with the
construction requirements imposed by the Federal Communications Commission
('FCC') pursuant to numerous authorizations issued by the FCC (collectively, the
Company's 'Nationwide Frequency License'), which authorize the construction and
operation of a nationwide wireless messaging system on that frequency (the
Company's 'Nationwide System'). The Company estimates that it will require
approximately $60.0 million in aggregate capital expenditures during 1996 and
1997 in order to fund this expansion. The Company expects to fund these capital
requirements from a combination of a portion of the net proceeds from the
Offerings, available funds under the Company's bank financing agreements and
cash flow from its operations. However, there can be no assurance that the
Company will be able to complete its expansion program as scheduled, generate
sufficient cash flow from operations to meet a portion of its capital
requirements or obtain additional debt or equity financing, on reasonable terms
or at all. In addition, the Company will incur substantial start-up costs in
connection with expanding its operations into new markets, which will result in
initial operating losses in those markets. Any such operating losses could have
a material adverse effect on the Company's results of operations for such
periods. Based upon historical positive cash flow and available borrowings under
a credit facility, the Company believes that it has adequate resources to
sustain its current operations. See ' -- History of Net Losses.'
COMPETITION
The wireless messaging industry is a highly competitive industry, with
price being the primary means of differentiation among providers of numeric
messaging services (which account for the majority of the Company's current
revenues). Companies in the industry also compete on the basis of coverage area,
enhanced services, transmission quality, system reliability and customer
service. The Company faces competition from other wireless communications
companies in all markets in which it operates. Certain of the Company's
competitors, which include public and private telecommunications companies and
regional and national wireless messaging companies, possess greater financial,
technical, marketing and other resources than the Company. If any of such
companies were to devote additional resources to the numeric or other wireless
messaging businesses, the Company's results of operations could be adversely
affected. Some of these larger competitors may also be able to use their
substantial financial resources to increase the already competitive pricing in
the markets in which the Company operates, which may have an adverse effect on
the Company's results of operations. In addition, other entities offering
wireless two-way communications technology, including cellular telephone, PCS
and specialized mobile radio services ('SMR'), also compete with the wireless
messaging services that the Company provides. There can be no assurance that
additional competitors will not enter markets served by the Company or that the
Company will be able to compete successfully. See 'Business -- Competition.'
TECHNOLOGICAL CHANGE
The wireless communications industry is characterized by rapid
technological change. Technological advances in the wireless communications
industry may result in the availability of new services or products competitive
with the wireless messaging services provided, or to be developed by, the
Company. Recent and proposed regulatory changes by the FCC are aimed at
encouraging such new services and products. Moreover, changes in technology
could lower the cost of competitive services and products to a level where the
Company's services and products would become less competitive or to where the
Company would be required to reduce the prices of its services and products.
There can be no assurance that the Company will be able to develop or introduce
new services and products to remain competitive or that the Company will not be
adversely affected in the event of such technological developments. See
'Business -- Competition.'
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Several wireless two-way communication technologies, including cellular
telephone service, broadband and narrowband PCS, SMR, low-speed data networks
and mobile satellite services, are currently in use or under development.
Although these technologies are currently more expensive than wireless messaging
services or are not yet broadly available, future technological improvements
could result in increased capacity and efficiency for wireless two-way
communication and, accordingly, could result in increased competition for the
Company. Some of these service providers are bundling wireless messaging
services with two-way service in a combined handset. Large manufacturers
dominate technological development in the wireless communications industry, and
changes in their methods of distributing one-way wireless messaging products
could reduce the Company's access to technology and may have an adverse effect
on the Company's operations. There can be no assurance that the Company will not
be adversely affected by such technological change. See
'Business -- Competition.'
REGULATORY CONSIDERATIONS
Government Regulation. The Company's wireless messaging operations are
subject to regulation by the FCC and, to a lesser extent, by various state
regulatory agencies. From time to time, legislation and regulations which could
potentially adversely affect the Company are proposed by federal and state
legislators and regulators. Moreover, FCC approval and authorization is subject
to challenge prior to issuance and appeal after issuance. However, there can be
no assurance that Federal or other state legislation will not be adopted, or
that the FCC or the various state agencies will not adopt regulations or take
other actions, whether in connection with challenges, appeals or otherwise, that
would adversely affect the business of the Company. In addition, the Company's
wireless messaging facilities are also subject to certain Federal Aviation
Administration regulations with respect to the construction, marking and
lighting of wireless messaging transmitter towers and antennas. See
'Business -- Regulation.'
Required Auctions Under the Omnibus Budget Reconciliation Act of 1993 (the
'Budget Act'). The Omnibus Budget Reconciliation Act of 1993 (the 'Budget Act')
authorized the FCC to implement procedures which will require that new or
modified licenses for portions of the radio spectrum used by the Company be
awarded by an auction process. The FCC has enacted general regulations regarding
the conduct of such auctions and the FCC has already proceeded to assign certain
licenses pursuant to auctions. Since these procedures are new to the wireless
communications industry, the Company cannot predict their impact on its
licensing practices, although the Company believes that, to the extent the
Company seeks to expand its radio spectrum licenses in the future, these
procedures may make such expansion of the Company's operations more costly. The
Budget Act also created a new regulatory category called 'commercial mobile
radio services' ('CMRS'), which includes most paging providers currently
operating as either radio common carriers ('RCCs') or private carrier paging
operators ('PCPs'), including the Company. The FCC has adopted rules to govern
regulation of this new category, which have become effective, except that
certain Private Mobile systems, including PCP systems, will continue to be
regulated as 'Private Mobile Radio Service' until August 1996, at which time
such systems will become subject to CMRS regulation. In addition, in February
1996, the FCC adopted a Notice of Proposed Rulemaking ('NPRM') in which the FCC
proposed to utilize a geographic licensing process in place of the current
site-specific licensing process and to sell geographic licenses at auction.
There can be no assurance that such auctions, if implemented, would not
materially increase the cost of licenses which may be sought by the Company in
the future. Moreover, based on the definition in the NPRM, it is not yet clear
whether the FCC will include the Company's Nationwide System frequency as one of
the nationwide frequencies that will be exempt from geographic licensing.
Failure to have its Nationwide System frequency so included by the FCC could
result in a material adverse effect on the Company. See
'Business -- Regulation.'
In light of the FCC's ability to utilize auctions to select from among
competing CMRS applications, and as a result of the FCC's proposal to institute
geographic licensing through auctions for one-way paging frequencies, there can
be no assurance that the Company will be able to procure additional frequencies,
or expand its existing paging networks operating on frequencies for which the
Company is currently licensed into new geographic areas. The Company also
believes that the use of auctions for paging licenses may increase the number of
competitors who have significant financial resources and may provide an added
incentive to build out authorized systems rapidly.
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Regulation of Foreign Ownership. Under existing law, except in certain
circumstances, no more than 20% of the Company's capital stock may be owned,
directly or indirectly, or voted by non-U.S. citizens or their representatives,
a foreign government or its representatives, or a foreign corporation. The
Company's certificate of incorporation authorizes the Board of Directors to
adopt such provisions as it deems necessary in order to ensure compliance with
the rules, regulations and policies of the FCC (the 'FCC Rules'). These
restrictions on foreign ownership could also adversely affect the ability of the
Company to attract additional equity financing from entities that are, or are
owned by, non-U.S. persons. See 'Business -- Regulation.'
SHIFTING MIX OF DISTRIBUTION CHANNELS
Since 1992, the Company has significantly shifted its mix of distribution
channels to resellers and Company-owned stores from direct sales. The shift
towards the reseller channel in particular has in part led to a decline in the
Company's ARPU over the last three years since the Company charges wholesale
service prices to resellers compared to higher retail prices charged to end
users. This decrease has historically been partially offset by lower EXPU
resulting from the reseller bearing a significant portion of the costs of
selling, marketing, administration and disconnections related to their
customers. To the extent that the Company's EXPU does not decline at a rate
similar to ARPU, the Company's financial results may be adversely affected. The
Company has also experienced a decline in the net margin on product sales
(defined as product sales less cost of products sold) over the last three years.
In addition to increased competition in the industry, the Company attributes
this decline in part to its increased use of the reseller distribution channel
to which the Company has less flexibility in terms of the prices it charges on
the sale of pagers. See 'Management's Discussion and Analysis of Financial
Conditions and Results of Operations' and 'Business -- Competition.'
As part of its expansion plans, the Company intends to continue to expand
its distribution through Company-owned stores. The establishment of numerous
additional Company-owned stores would represent a divergence from the Company's
historical operating policy and experience and there can be no assurance that
the Company's recent success in this channel of distribution will be maintained.
Because the Company plans to sell an increasing number of its units through
Company-owned stores, the Company's overall rate of disconnections may increase
since the Company expects that subscribers who purchase pagers through retail
outlets may cancel their subscriptions at a higher rate than subscribers
obtained through other distribution channels.
GROWTH STRATEGY
The Company has historically grown at a faster rate than the average for
the wireless messaging industry. However, there can be no assurance that the
Company will be able to continue to achieve its historical growth rate. The
Company's continued expansion will depend on, among other things, the Company's
ability to access new markets and customers, install facilities and open new
Company-owned stores, each in a timely manner, at reasonable cost and on terms
acceptable to the Company. The Company's expansion will also depend on, among
other things, its access to funds for required capital expenditures, the ability
to attract and retain skilled employees, the adaptability of the Company's
decentralized operating structure to more regions as the Company implements its
expansion plan, and on the ability of the Company's officers and key employees
to manage successfully rapid growth and to implement appropriate management
information systems and controls. The Company's inability to manage its
expansion effectively, or to attract and retain skilled employees and implement
appropriate systems and controls, could have a material adverse effect on the
Company's operations. See 'Business' and 'Management.' Historically, the Company
has grown internally. The Company may in the future make strategic acquisitions
to expand its markets and take advantage of the consolidation trend in the
wireless messaging industry. There can be no assurance that future acquisitions
can be consummated on acceptable terms or that any acquired companies will be
successfully integrated into the Company's operations.
SUBSCRIBER TURNOVER
The results of operations of wireless messaging service providers such as
the Company are significantly affected by subscriber disconnections, which
commonly are measured based upon a
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percentage of the Company's customer base. In order to realize net growth in
subscriber units in service, disconnected subscribers must be replaced and
additional subscribers must be added. However, because the sales and marketing
costs associated with attracting new subscribers are substantial relative to the
costs of providing service to existing subscribers, disconnections adversely
affect the Company's results of operations. The Company's average monthly
disconnect rate during the year ended December 31, 1995 and the three months
ended March 31, 1996 was approximately 1.1% and 1.3%, respectively, of its
subscriber base for each period. Although the Company believes that its
disconnect rate is below the industry average, there can be no assurance that
the Company will not experience an increase in its disconnect rate which may
adversely affect the Company's results of operations. In addition, because the
Company plans to sell an increasing number of its units through Company-owned
stores, the Company's overall rate of disconnections may increase since the
Company expects that subscribers who purchase pagers through such retail outlets
may tend to cancel their subscriptions at a higher rate than subscribers
obtained through other distribution channels. See 'Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Overview.'
HISTORY OF NET LOSSES
The Company sustained net losses of $0.8 million, $2.9 million and $0.1
million for the years ended December 31, 1994 and 1995 and for the three months
ended March 31, 1996, respectively, and expects to incur additional losses in
the future. The Company's losses have resulted primarily from interest expense
and depreciation expense associated with capital investments. There can be no
assurance that the Company will be able to operate profitably in the future. See
'Selected Consolidated Financial Data' and 'Management's Discussion and Analysis
of Financial Condition and Results of Operations.'
CONTROL BY PRINCIPAL STOCKHOLDERS
Upon completion of the Offering, Leonard DiSavino and Philip Sacks, the
founders of the Company, will beneficially own an aggregate of approximately
% of the outstanding shares of Common Stock ( % if the Underwriters'
over-allotment options are exercised in full). In addition, the Investors will
own in aggregate approximately % of the outstanding shares of Common Stock
( % if the Underwriters' over-allotment options are exercised in full).
Pursuant to an agreement with the Investors, Messrs. DiSavino and Sacks and the
Investors have agreed to vote their shares of Common Stock in order to elect to
the Board of Directors (i) four persons designated by Messrs. DiSavino and Sacks
and (ii) three persons designated by certain of the Investors. Thus, the
Investment Agreement gives the Investors and Messrs. DiSavino and Sacks control
of the Board of Directors of the Company. Furthermore, the Investors will give
Messrs. DiSavino and Sacks an irrevocable proxy to vote approximately 17.3% of
the Common Stock of the Company held by the Investors. As a result of the
foregoing, such parties will be in a position to control the affairs and
management of the Company. See 'Management' and 'Principal Stockholders.'
DEPENDENCE ON KEY PERSONNEL
The success of the Company will depend to a significant extent upon the
active participation and experience of its management. The loss of the services
of any of Leonard DiSavino, the Company's President and Chief Executive Officer,
Philip Sacks, the Company's Chief Operating Officer, or Mitchell Sacks, the
Company's Executive Vice President -- Operations and Chief Financial Officer,
could adversely affect the Company's business. The Company will enter into
employment agreements and has already entered into non-competition agreements
with these officers. The Company has not obtained key-man life insurance on any
of its key management employees. See 'Management.'
DEPENDENCE ON KEY SUPPLIERS
The Company does not manufacture any of the pagers, transmitters or
switches used in its operations. The Company currently obtains substantially all
of its pagers from Motorola, Inc. ('Motorola'), the worldwide leading pager
manufacturer. The Company purchases its transmitters from Motorola and Glenayre
Electronics, Inc. ('Glenayre'), a leading manufacturer of wireless messaging
equipment, and substantially all of its computerized messaging switches from
Glenayre. Although pagers, transmitters and switches are available from a number
of vendors, the Company concentrates its purchases with certain vendors in order
to achieve purchasing economies, which results in its
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dependence on Motorola and Glenayre for the timely delivery of its pager
inventory and transmitter and switching equipment. To date, the Company has not
experienced significant delays in obtaining pagers, transmitters or wireless
messaging switches, but there can be no assurance that it will not experience
such delays in the future. The Company cannot predict what impact, if any, such
delays may have on its ability to compete in its markets.
DILUTION
The Company's existing stockholders acquired their shares of Common Stock
at a cost substantially below the initial public offering price. The Dividend
paid to the Founding Stockholders and the accrual of deferred tax liabilities in
connection with the conversion of the Company from an S Corporation to a C
Corporation will result in a decrease in the net tangible book value of the
Company. Accordingly, purchasers of the shares of Common Stock will experience
immediate dilution in net tangible book value per share of Common Stock of
$ from the initial public offering price per share. See 'Dilution.'
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the Offerings, the Company will have shares of
Common Stock outstanding. Of these shares, the shares sold in the
Offerings ( shares if the Underwriters' over-allotment options are
exercised in full) will be freely tradeable. The remaining shares will
continue to be 'restricted shares' as defined in Rule 144 under the Securities
Act of 1933, as amended (the 'Securities Act'). Any person (or persons whose
shares are aggregated) who is not deemed to have been an affiliate of the
Company at any time during the 90 days preceding a sale, and who has
beneficially owned shares for at least three years (including any period of
ownership of preceding non-affiliated holders), will be entitled to sell such
shares under Rule 144(k) without regard to the volume limitations, manner of
sale provisions, public information requirements or notice requirements of Rule
144. Such shares may not be resold in the absence of registration under the
Securities Act or pursuant to exemptions from such registration, including,
among others, the exemption provided by Rule 144 under the Securities Act.
Certain stockholders have registration rights with respect to all of the shares
owned by them and management has been granted certain incidental registration
rights.
The Company, as well as holders of approximately shares,
including all holders who are directors or officers of the Company, and certain
other stockholders, have agreed, subject to certain exceptions, not to sell,
offer to sell, grant any option for the sale of or otherwise dispose of any
shares of Common Stock or securities convertible into or exercisable or
exchangeable for Common Stock (except for the shares offered hereby) for a
period of 180 days after the date of this Prospectus without the written consent
of Lehman Brothers Inc. See 'Underwriting' and 'Shares Eligible for Future
Sale.'
No prediction can be made as to the effect, if any, that future sales of
shares, or the availability of shares for future sale, will have on the market
price of the Common Stock prevailing from time to time. Sales of substantial
amounts of Common Stock (including shares issued upon the exercise of stock
options), or the perception that such sales could occur, could adversely affect
prevailing market prices for the Common Stock. If such sales reduce the market
price of the Common Stock, the Company's ability to raise additional capital in
the equity markets could be adversely affected.
NO PRIOR MARKET FOR COMMON STOCK; POSSIBLE VOLATILITY OF STOCK PRICE
Prior to the Offerings there has been no public market for the Common
Stock. Although application has been made to list the Common Stock on the Nasdaq
National Market, there can be no assurance that an active trading market will
develop or be sustained. The initial public offering price will be determined by
negotiations among the Company and representatives of the Underwriters and may
not be indicative of the price at which the Common Stock will trade after
completion of the Offerings. See 'Underwriting.' There can be no assurances that
a purchaser of Common Stock in the Offerings will be able to resell the Common
Stock at or above the initial public offering price. In addition, factors such
as variations in the Company's actual and anticipated operating results,
announcements by the Company or others and developments affecting the Company,
could cause the market price of the Common Stock to fluctuate significantly.
Broad market fluctuations, market changes
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in the wireless communications sector, interest rate changes and general
economic and political conditions, among other factors, also may adversely
affect the market price of the Common Stock, regardless of the Company's
performance.
ANTI-TAKEOVER EFFECT AND OTHER PROVISIONS OF THE CERTIFICATE OF INCORPORATION
Certain provisions of the Company's Certificate of Incorporation (the
'Certificate of Incorporation') and By-laws (the 'By-laws'), as well as
provisions of the Delaware General Corporate Law, may have the effect of
discouraging or preventing certain types of transactions involving an actual or
potential change in control of the Company, including transactions in which the
stockholders might otherwise receive a premium for their shares over then
current market prices. Upon consummation of the Offerings, the Certificate of
Incorporation of the Company will contain a provision that divides the Board of
Directors into three classes, with one class having a term of one year, one
class having a term of two years and one class having a term of three years. At
each annual meeting of stockholders, directors will be elected to succeed those
directors whose terms have expired, and each newly elected director will serve
for a three-year term. Such classified board provision would decrease the
ability to remove incumbent directors from their positions on the Board of
Directors in the event of a takeover of the Company. The Certificate of
Incorporation also restricts alien ownership and voting of the capital stock of
the Company. Finally, the Board of Directors has the authority to fix the rights
and preferences of and issue shares of preferred stock, which may have the
effect of delaying or preventing a change in control of the Company without
action by the stockholders. See 'Description of Capital Stock -- Delaware Law
and Certain Certificate of Incorporation and By-law Provisions.'
DIVIDEND POLICY
Except for the Dividend and certain distributions to stockholders during
the period it was an S Corporation for the payment of tax liabilities, in lieu
of salaries or to provide the Founding Stockholders with a return of their
capital, the Company has not paid any dividends on its Common Stock, intends to
retain all future earnings for the operation and expansion of its business and
does not anticipate declaring and paying cash dividends on the Common Stock at
any time in the foreseeable future. Any future determination as to the payment
of cash dividends will depend upon the Company's results of operations,
financial condition and capital requirements, as well as such other factors as
the Board of Directors may consider. In addition, the Company's revolving credit
and term loan agreement contains certain covenants which restrict the payment of
dividends by the Company or any of its subsidiaries. See 'Dividend Policy' and
'Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources.'
FORWARD-LOOKING STATEMENTS
This Prospectus contains certain forward-looking statements concerning the
Company's operations, economic performance and financial condition, including,
in particular, the likelihood of the Company's success in developing and
expanding its business. These statements are based upon a number of assumptions
and estimates which are inherently subject to significant uncertainties and
contingencies, many of which are beyond the control of the Company, and reflect
future business decisions which are subject to change. Some of these assumptions
inevitably will not materialize, and unanticipated events will occur which will
affect the Company's results. Consequently, actual results will vary from the
statements contained herein and such variance may be, and is likely to be,
material. Prospective investors are therefore cautioned not to place undue
reliance on this information.
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THE COMPANY
Background. The Company's predecessor, Tri-State Radio Corporation, was
formed in 1974 by the Company's founders, Leonard DiSavino and Philip Sacks, to
acquire a wireless communications company which operated primarily in
Pennsylvania, New Jersey and Delaware. The Company's current business was
established by Messrs. DiSavino and Sacks in 1987 following the sale of the
majority of the Company's original operations. Since 1987, the Company has
operated primarily in two regions, the Northeast, including metropolitan markets
in New York, Connecticut, New Jersey, Massachusetts, eastern Pennsylvania,
Maryland and Washington, D.C., and the West, including certain metropolitan
markets in California, Arizona and Nevada. Until 1995, the Company conducted its
business through a number of related subchapter S Corporations and a
partnership, all of the common stock and partnership interests of which were
owned by Leonard DiSavino and Philip Sacks and certain trusts for the benefit of
their respective children.
In July 1995, the Investors purchased from Leonard DiSavino and Philip
Sacks (i) the Notes, which are the non-recourse obligations of Messrs. DiSavino
and Sacks, and (ii) the Option for $1 million to purchase 40.66% of the fully
- -diluted common stock of the Company from the Founding Stockholders in exchange
for the discounted portion of the Notes. The Investors intend to exercise
the Option simultaneously with the consummation of the Offerings. A portion of
the proceeds from the Offerings will be used to pay the $35 million Dividend to
the Founding Stockholders, which payment will be used by Messrs. DiSavino and
Sacks to repay in part the Notes. The Notes will be satisfied in connection with
the exercise of the Option. See 'Use of Proceeds' and 'Certain Relationships and
Related Party Transactions.'
In September 1995, all of the related S Corporations and the partnership
were merged (the 'Merger') with or into the Company, with the Company as the
surviving S Corporation. In connection with the Merger, the Company changed its
name to TSR Paging Inc. The Company is a Delaware corporation. The Company's
principal offices are located at 400 Kelby Street, Fort Lee, New Jersey 07024,
and its telephone number is (201) 947-5300.
Reorganized Corporate Structure and S Corporation Status. Prior to the
Offerings, the Company was an S Corporation subject to taxation under Subchapter
S of the Internal Revenue Code. As a result, the net income of the Company, for
federal (and some state) income tax purposes, has been reported by, and taxed
directly to, the Company's stockholders rather than to the Company. The
Company's S Corporation status will terminate immediately prior to the
consummation of the Offerings and the Company will become a C Corporation
subject to corporate income taxation. In connection with the Company's change in
status to a C Corporation, the Company will incur a one-time charge to
stockholders' equity for deferred tax liabilities of approximately $347,000
reflecting differences between book and tax accounting for depreciation,
inventory and certain reserves. No adverse tax consequences to the persons who
become stockholders in the Offerings are expected to result from termination of
the Company's S corporation status.
The Company (including the related subchapter S corporations) has paid
distributions to its stockholders to enable them to pay their income tax
liability as a result of the Company's status as an S corporation, in lieu of
salaries and, from time to time, to provide them with a return on their capital.
The aggregate amounts of these distributions were $747,436, $1,326,275 and
$1,321,374 in each of the years ended December 31, 1993, 1994 and 1995,
respectively. Effective October 1, 1995, the salaries of Messrs. DiSavino and
Philip Sacks were established at $300,000 per annum with subsequent salary
amounts based on the Company's budget as approved by the Board of Directors.
Payments with respect to the Company's income (as measured under the rules
governing S corporations under the Code) may be made to the Founding
Stockholders pursuant to a tax indemnification agreement or, under certain
circumstances, the Founding Stockholders could be required to make payments to
the Company pursuant to such agreement. See 'Certain Relationships and Related
Party Transactions -- Tax Indemnification Agreement.'
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USE OF PROCEEDS
The net proceeds to the Company from the Offerings are estimated to be
approximately $ million (or $ million if the Underwriters'
over-allotment options are exercised in full), assuming an initial public
offering price of $ per share (based upon the midpoint of the filing range
set forth on the cover page of this Prospectus), after deducting underwriting
discounts and the estimated offering expenses payable by the Company.
Approximately $35 million of the net proceeds of the Offerings will be used
to pay the Dividend to the Founding Stockholders, which payment, together with
the proceeds from the exercise of the Option, will be used by Messrs. DiSavino
and Sacks to repay the Notes. See 'Certain Relationships and Related Party
Transactions.'
The remainder of the net proceeds of the Offerings will be used to fund
geographic and system expansion. The Company's planned expansion into new
geographic regions will include the purchase of new paging equipment,
transmitters, satellite networking equipment and other capital expenditures, as
well as potential acquisitions, including the acquisition of licenses or radio
spectrum to expand or enhance its services. The Company estimates that it will
require approximately $60 million in aggregate capital expenditures during 1996
and 1997 to fund this expansion. The Company intends to utilize its existing
Credit Agreement (as defined below) and any refinancings thereof, together with
cash flow from operations and the remainder of the proceeds of the Offerings, to
complete its expansion program. There can be no assurance that the Company will
be able to refinance its Credit Agreement or have access to substitute capital
on acceptable terms. In addition, as opportunities are presented to the Company
and as conditions change, the Company may alter its capital programs in light of
such opportunities or conditions. See 'Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity and Capital
Resources.' The Company may also use proceeds of the Offerings for working
capital and general corporate purposes.
Pending the use of funds for geographic and system expansion as described
above, approximately $ million of the net proceeds of the Offerings will be
used to repay outstanding revolving indebtedness under an amended and restated
credit agreement (the 'Credit Agreement') among the Company, the First National
Bank of Chicago, N.A. and certain other lenders. At March 31, 1996, the
effective annual interest rate on indebtedness under the Credit Agreement was
6.42%. The commitments under the Credit Agreement will terminate on June 30,
1997. Any outstanding balances under the Credit Agreement at June 30, 1997 must
be repaid according to a specific schedule in quarterly installments beginning
on September 30, 1997 and continuing until June 30, 2002. See 'Description of
Certain Indebtedness -- Credit Agreement.'
DIVIDEND POLICY
Except for the Dividend and certain distributions to stockholders during
the period it was an S Corporation for the payment of tax liabilities, in lieu
of salaries or to provide the Founding Stockholders with a return of their
capital, the Company has not paid any dividends on its Common Stock, intends to
retain all future earnings for the operation and expansion of its business and
does not anticipate declaring and paying cash dividends on the Common Stock at
any time in the foreseeable future. The decision whether to apply legally
available funds to the payment of dividends on the Common Stock will be made by
the Board of Directors of the Company from time to time in the exercise of its
business judgment, taking into account, among other things, the Company's
results of operations and financial condition, any then existing or proposed
commitments for the use by the Company of available funds, and the Company's
obligations with respect to any then outstanding class or series of its
preferred stock. See 'The Company -- Reorganized Corporate Structure and S
Corporation Status.'
The Company is restricted by the terms of the Credit Agreement from paying
cash dividends on its Common Stock, and may in the future enter into loan or
other agreements or issue debt securities or preferred stock that restrict the
payment of cash dividends on Common Stock. See 'Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources' and 'Description of Certain Indebtedness.'
15
<PAGE>
<PAGE>
DILUTION
The net tangible book value of the Company's Common Stock at March 31, 1996
was a deficit of approximately $ million, or $ per share. 'Net tangible
book value' per share represents the amount of total tangible assets less total
liabilities, divided by the number of shares of Common Stock outstanding. After
giving effect to the (i) payment of the Dividend, (ii) conversion of the Company
from an S corporation to a C corporation and (iii) sale by the Company of the
shares of Common Stock at an assumed initial public offering price of
$ per share (based upon the mid-point of the filing range set forth on the
cover page of this Prospectus) and the application of the estimated net proceeds
therefrom, the pro forma net tangible book value of the Company at March 31,
1996 would have been approximately $ million, or $ per share,
representing an immediate increase in net tangible book value of $ per
share to existing stockholders and an immediate dilution of $ per share to
new investors. The table below illustrates this per share dilution.
<TABLE>
Initial public offering price per share.................................................... $
<S> <C> <C>
--------
Net tangible book value (deficit) per common share before the Offerings.... $
Dividend to Founding Stockholders..........................................
Conversion of the Company from an S corporation to a C corporation.........
Increase per common share attributable to the Offerings....................
--------
Pro forma net tangible book value per common share after the Offerings.....................
--------
Dilution per common share to new investors................................................. $
--------
--------
</TABLE>
The above calculations do not give effect to the exercise of stock options
outstanding at March 31, 1996. As of that date, the Company had outstanding
options to purchase shares of Common Stock under its stock option plan
at a weighted average exercise price of $ per share. To the extent that
certain of these options are exercised, there may be further dilution to new
investors.
The following table sets forth on a pro forma basis as of March 31, 1996,
the differences between the existing stockholders and the new investors with
respect to the number of shares of Common Stock purchased from the Company, the
total consideration paid to the Company and the average price per share paid by
existing stockholders and new investors (at an assumed initial public offering
price of $ per share before deducting underwriting discounts and offering
expenses payable by the Company).
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
------------------- ----------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
-------- ------- ------------ ------- -------------
<S> <C> <C> <C> <C> <C>
Founding Stockholders............................. % $ % $
Investors......................................... 35,000,000
New investors.....................................
-------- ------- ------------ -------
Total............................................. 100% $ 100%
-------- ------- ------------ -------
-------- ------- ------------ -------
</TABLE>
16
<PAGE>
<PAGE>
CAPITALIZATION
The following table sets forth the cash and cash equivalents and the
capitalization of the Company at March 31, 1996, (i) on an actual basis and (ii)
as adjusted to give effect to the Offerings, the payment of the Dividend and the
conversion of the Company from an S corporation to a C corporation. The
information below should be read in conjunction with 'Management's Discussion
and Analysis of Financial Condition and Results of Operations' and the Company's
historical financial statements and the notes thereto included elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
MARCH 31, 1996
--------------------------------
PRO FORMA
ACTUAL AS ADJUSTED(1)
-------------- --------------
(IN THOUSANDS)
<S> <C> <C>
Cash and cash equivalents...................................................... $ 116 $
-------------- --------------
-------------- --------------
Long-term debt:
Borrowings under the Credit Agreement..................................... $ 43,750 $
-------------- --------------
Total long-term debt................................................. $ 43,750 $
-------------- --------------
Stockholders' equity (deficit):
Common Stock ($.01 par value, authorized, 1,000 shares, issued and
outstanding at March 31, 1996 and shares issued and outstanding
pro forma as adjusted).................................................. 4
Additional paid-in capital................................................ (11,828)
Accumulated deficit....................................................... 0
-------------- --------------
Total stockholders' equity (deficit)................................. (11,824)
-------------- --------------
Total capitalization................................................. $ 31,710 $
-------------- --------------
-------------- --------------
</TABLE>
- ------------
(1) The Pro Forma As Adjusted amounts reflect (i) the consummation of the
Offerings, (ii) the payment of the Dividend and (iii) the recording of a
deferred tax liability of $347,000 to reflect differences between book and
tax accounting for depreciation, inventory and certain reserves as a result
of the conversion of the Company from an S corporation to a C corporation.
In addition, the pro forma statement of operations data does not reflect
reductions in interest expense relating to the paydown of borrowings under
the Company's revolving credit facility, as it is anticipated that the
Company will reborrow such amounts to fund its expansion strategy.
17
<PAGE>
<PAGE>
SELECTED FINANCIAL AND OPERATING DATA
The following table sets forth financial data for the years ended December
31, 1991 and December 31, 1992, which have been derived from the Company's
financial statements, audited by Cummings & Carroll, P.C., independent public
accountants, and for the years ended December 31, 1993, December 31, 1994 and
December 31, 1995 which have been derived from the Company's financial
statements, audited by Arthur Andersen LLP, independent public accountants,
whose report thereon is included elsewhere in this Prospectus. The following
financial data for the three months ended March 31, 1995 and March 31, 1996 have
been derived from the Company's unaudited condensed financial statements which,
in the opinion of management, contain all adjustments (consisting of normal and
recurring adjustments) necessary to present fairly the Company's financial
position and results of operations at such dates and for such periods. The
interim results are not necessarily indicative of the results of operations for
the entire year. The data presented below should be read in conjunction with,
and is qualified in its entirety by reference to, the Financial Statements and
the Notes thereto appearing elsewhere in this Prospectus and 'Management's
Discussion and Analysis of Financial Condition and Results of Operations.'
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED DECEMBER 31, ENDED MARCH 31,
----------------------------------------------------------- --------------------
1991 1992 1993 1994 1995 1995 1996
------- ------- ------- ------- ------- ------- -------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Revenues:
Services, rent and maintenance........ $ 7,130 $ 8,500 $11,119 $17,954 $28,908 $ 6,308 $ 9,937
Product sales......................... 809 1,586 8,481 14,088 18,615 3,931 4,954
Cost of products sold................. (453) (857) (5,098) (10,520) (14,549) (3,094) (3,949)
------- ------- ------- ------- ------- ------- -------
Net revenues........................ 7,486 9,229 14,502 21,522 32,974 7,145 10,942
Services, rent and maintenance
expenses.............................. 1,678 1,888 2,748 4,592 7,060 1,575 2,308
Selling and marketing expenses.......... 1,562 1,810 1,814 3,332 5,399 1,178 1,771
General and administrative expenses..... 2,295 2,560 3,377 5,165 8,719 1,943 3,422
Depreciation and amortization........... 1,977 2,741 6,758 7,578 10,870 2,179 2,892
Non-cash compensation expense(1)........ 0 0 0 0 0 0 747
------- ------- ------- ------- ------- ------- -------
Operating income (loss)................. (26) 230 (195) 855 926 270 (198)
Other expense........................... 0 0 0 0 163 0 0
Interest expense........................ 600 548 517 1,024 2,484 522 638
Unusual item(2)......................... 0 0 0 590 564 0 0
Income tax provision (benefit).......... 0 0 0 32 49 0 5
------- ------- ------- ------- ------- ------- -------
Loss from continuing operations before
discontinued operations and
extraordinary item.................. (626) (318) (712) (791) (2,334) (252) (841)
Discontinued operations and
extraordinary item(3)................. 0 0 0 0 612 0 0
------- ------- ------- ------- ------- ------- -------
Net loss.............................. $ (626) $ (318) $ (712) $ (791) $(2,946) $ (252) $ (841)
------- ------- ------- ------- ------- ------- -------
------- ------- ------- ------- ------- ------- -------
Pro forma loss from continuing
operations before discontinued
operations and extraordinary
item(4)............................... $(2,285) $ (836)
Pro forma loss per common share from
continuing operations before
discontinued operations and
extraordinary item(4)................. $ $
Weighted average shares outstanding.....
OTHER DATA:
EBITDA(5)............................... $ 1,951 $ 2,971 $ 6,563 $ 8,433 $11,796 $ 2,449 $ 3,441
EBITDA margin(6)........................ 26.1% 32.2% 45.3% 39.2% 35.8% 34.3% 31.4%
Average monthly revenue per unit(7)..... $ 17.65 $ 12.77 $ 8.00 $ 6.18 $ 5.20 $ 6.11 $ 5.08
Average monthly operating expense per
unit(8)............................... 11.70 9.40 5.71 4.50 3.81 4.55 3.83
Units in service (at end of period)..... 44,304 66,674 164,883 319,687 607,725 368,767 696,623
Units in service per employee (at end of
period)(9)............................ 642 901 1,633 1,648 1,905 1,748 1,819
Selling and marketing expenses per net
subscriber addition(10)............... $157.03 $ 80.91 $ 18.47 $ 21.52 $ 18.74 $ 24.00 $ 19.92
Capital expenditures.................... 2,234 4,288 10,969 13,160 20,643 2,777 7,252
</TABLE>
(table continued on next page)
18
<PAGE>
<PAGE>
(table continued from previous page)
<TABLE>
<CAPTION>
MARCH 31, 1996
--------------------------
PRO FORMA
AS
ACTUAL ADJUSTED(11)
-------- --------------
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents............................................................................ $ 116 $
Total assets......................................................................................... 42,456
Total long-term debt (including current maturities).................................................. 43,750
Total stockholders' equity (deficit)................................................................. (11,824)
</TABLE>
- ------------
(1) During 1992 and 1993, the Company granted to certain employees equity
interests which were to be realized upon the occurrence of certain events.
Effective January 1, 1996, these equity interests were cancelled and such
employees were issued 168,900 units under the Phantom Stock Plan at a
strike price of $0, vest over a five-year period from the original date of
grant in 1992 or 1993, as applicable, and had a grant date value of $6 per
unit. The employees received credit for vesting through the date of
cancellation of the equity interests. In addition, on January 1, 1996,
150,350 units were issued under the Phantom Stock Plan, at a strike price
of $6 per unit and vest over a five-year period. As determined by an
independent investment bank valuation and the Company's Compensation
Committee the per unit value on January 1, 1996 was $6. As a result, the
financial statements for the three months ended March 31, 1996 reflect non-
cash compensation expense of $747,000 (which amount includes cumulative
effect of the vesting from 1992 forward) with a corresponding credit to
additional paid-in-capital. The remaining non-cash compensation expense of
$266,000 will be recognized by the Company over the next two years.
(2) The unusual item of $590,000 in 1994 primarily consists of certain
financing costs associated with the commencement of an initial public
offering which was terminated prior to completion. The unusual item of
$564,000 in 1995 primarily consists of costs related to certain merger
activity.
(3) The discontinued operations charge of $300,000 consists of costs related to
the discontinuation of the Company's telephone answering service
operations. The extraordinary item of $312,000 is related to the write-off
of deferred financing costs following the refinancing of the Credit
Agreement.
(4) Following termination of the Company's status as an S Corporation upon
consummation of the Offerings, the Company will be subject to corporate
income taxation. Accordingly, pro forma loss reflects Federal and state
income taxes as if the Company had been a C Corporation based on the tax
rates that were in effect during the periods presented. See 'The Company.'
The pro forma statement of operations data does not reflect (i)
distributions to Messrs. DiSavino and Sacks that, if the Company were a C
corporation, would be recorded as compensation expense by the Company and
(ii) reductions in interest expense relating to the paydown of borrowings
under the Company's revolving credit facility, as it is anticipated that
the Company will reborrow such amounts to fund its expansion strategy. Pro
forma loss including discontinued operations before extraordinary item
would have been $ per share and $ per share for the year ended
December 31, 1995 and the three months ended March 31, 1996, respectively.
Pro forma loss including discontinued operations and extraordinary item
would have been $ per share and $ per share for the year ended
December 31, 1995 and the three months ended March 31, 1996, respectively.
(5) EBITDA represents operating income plus depreciation and amortization and
non-cash compensation expense. EBITDA is a financial measure commonly used
in the Company's industry and is not intended to represent cash flows for
the period, nor has it been presented as an alternative to operating income
or as an indicator of operating performance and should not be considered in
isolation or as a substitute for measures of performance prepared in
accordance with generally accepted accounting principles. See 'Management's
Discussion and Analysis of Financial Condition and Results of Operations'
and the Financial Statements and the Notes thereto appearing elsewhere in
this Prospectus.
(6) EBITDA margin is calculated by dividing (a) EBITDA by (b) net revenues.
EBITDA margin is a measure commonly used in the Company's industry as an
indicator of the efficiency of the Company's operations.
(7) ARPU is calculated by dividing (a) annual services, rent and maintenance
revenues by (b) 12 (months), and dividing by (c) the average number of
units in service for the year.
(8) EXPU is calculated by dividing (a) total annual operating expenses before
depreciation and amortization and non-cash compensation expense by (b) 12
(months), and dividing by (c) the average number of units in service for
the year.
(9) Employees at the end of the period includes all full-time employees plus
part-time employees divided by two, excluding employees associated with the
Company's discontinued operations.
(10) Selling and marketing expenses per net subscriber additions is calculated
by dividing (a) selling and marketing expenses by (b) the net change in
units in service during such year.
(11) The Pro Forma As Adjusted amounts reflect (i) the consummation of the
Offerings, (ii) the payment of the Dividend and (iii) the recording of a
deferred tax liability of $347,000 to reflect differences between book and
tax accounting for depreciation, inventory and certain reserves as a result
of the conversion of the Company from an S Corporation to a C Corporation.
In addition, the pro forma statement of operations data does not reflect
reductions in interest expense relating to the paydown of borrowings under
the Company's revolving credit facility, as it is anticipated that the
Company will reborrow such amounts to fund its expansion strategy.
19
<PAGE>
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion of the financial condition and results of
operations of the Company for the three years ended December 31, 1995 should be
read in conjunction with the audited financial statements of the Company and the
notes thereto.
OVERVIEW
The Company builds and operates wireless messaging systems, and generates
revenues primarily from the provision of wireless messaging services and to a
lesser extent from the sale of wireless communications equipment and
accessories. The Company's predecessor, founded by Leonard DiSavino and Philip
Sacks in 1974 to acquire a wireless communications company, operated primarily
in Pennsylvania, New Jersey and Delaware. The Company's current business was
established by the founders in 1987 following the sale of the majority of the
Company's original operations. Since 1987, the Company has operated primarily in
two regions; the Northeast, including metropolitan markets in New York,
Connecticut, New Jersey, Massachusetts, eastern Pennsylvania, Maryland and
Washington, D.C.; and the West, including certain metropolitan markets in
California, Arizona and Nevada.
The Company's historical financial results include the accounts of a
partnership and six related S corporations. In August 1995, all such entities
merged into the Company, with the Company as the surviving S corporation. Prior
to the Offerings, the Company was not subject to federal income taxes and was
subject to state taxes only in certain states. The Company's pro forma net
income (loss) for the years ended December 31, 1993, 1994 and 1995,
respectively, and for the three months ended March 31, 1995 and 1996 has been
computed as if the Company had been subject to Federal and state income taxes
for the respective periods presented.
The Company's long-term operating objectives are to continue to expand its
business operations by providing wireless messaging services to a broad base of
subscribers throughout the U.S. at the same time as achieving its operating
profitability and cash flow growth targets. The Company believes operating
expenses per unit in service and units in service per employee are key measures
of operating efficiency. The Company seeks to improve efficiency through
increasing penetration in existing markets and through expansion into contiguous
markets. The Company has grown rapidly over the last five years, all from
internally generated growth. From 1991 to 1995, the number of units serviced by
the Company increased at an annual compound growth rate of 92.4% to 607,725 at
December 31, 1995. The Company's substantial growth has been generated by a
combination of factors, including (i) the use by the Company of a diverse mix of
distribution channels; (ii) the conversion and expansion of the Company's
networks to wide area 900 MHz transmission systems; and (iii) expansion of the
geographic regions covered by the Company. Each of these factors is described
below.
Distribution channels. Prior to 1992, the Company utilized a direct sales
force as its primary method of distribution. The Company has since shifted its
distribution mix by using resellers and Company-owned stores for distribution
and marketing. This broader distribution strategy has allowed the Company to
capture an increasing share of the consumer segment of the market and improve
penetration in its existing markets. The Company opened its first retail store
in July 1993 and has increased the number of retail stores to 67 at March 31,
1996. Many of the Company-owned stores are located in retail areas, enabling the
Company to establish direct relationships with consumers.
Wide area 900 MHz Systems. Since 1992, the Company has developed its
operations primarily on wide area 900 MHz transmission systems which it has
deployed in its existing and expansion markets. As a result of upgrading its
signal protocol to a FLEX'tm'-based system, the Company is able to offer service
to customers at higher speed and with improved reliability. The Company is
developing the Nationwide Frequency License which allows the Company to provide
additional geographic coverage options for the customer.
Geographic Expansion Program. Since 1994, the Company has undertaken an
expansion program to increase the coverage of its existing operations and to
enter new geographic regions. In 1994, the Company began marketing its services
in the Philadelphia and Los Angeles/Orange County markets, and in 1995, the
Company began marketing its services in the Boston and Baltimore/ Washington,
D.C.
20
<PAGE>
<PAGE>
markets. Within the next twelve months the Company expects to operate in four
regions, including the Northeast, anchored by New York City, the West, anchored
by Los Angeles, the Midwest, anchored by Chicago, and the Southeast, anchored by
Miami/Ft. Lauderdale. See 'Business -- Geographic Expansion Strategy.'
The Company's expansion plans require significant capital investment. New
markets generally incur operating losses from start-up and other costs until a
sufficient customer base has been established. Based on its experience, the
Company typically enters new markets by selling its wireless messaging services
through resellers in order to rapidly penetrate the market and build a
sufficient base of subscribers. Historically, once the Company has gained a
sufficient base of subscribers in a market, it generally opens retail stores in
order to further enhance its market penetration and expand its direct sales to
consumers in the market.
The Company's net revenues are derived primarily from fixed periodic
recurring fees, not dependent upon usage, charged to subscribers for wireless
messaging services. As long as a subscriber remains in service, future operating
results benefit from the recurring periodic revenue stream, without the
incurrence of additional selling expenses. The Company's strategic shift in its
mix of distribution channels towards the reseller channel, in particular, has
contributed to a decrease in ARPU over the last three years. This decrease has
resulted from the lower wholesale service price charged to resellers compared to
higher retail prices charged to end users. This decrease, however, has been
partially offset by lower operating costs resulting from resellers bearing the
costs of selling, marketing, administration and disconnections related to their
customers.
As a result of the Company's focus on the reseller and Company-owned store
distribution channels, the Company sells, rather than leases, substantially all
of the end-user equipment used by its subscribers. The Company therefore recoups
a substantial portion of equipment costs upon sale to resellers and subscribers.
This results in lower capital expenditures, depreciation and amortization than
if the Company leased such equipment to its subscribers.
The definitions below relate to management's discussion of the Company's
results of operations that follows.
Services, rent and maintenance revenues: include primarily
monthly, quarterly, semi-annually and annually billed recurring
revenue, not generally dependent on usage, charged to subscribers
for wireless messaging and related services such as voice mail and
equipment repair and replacement.
Net revenues: include services, rent and maintenance revenues and
sales of subscriber equipment and accessories less the cost of
equipment sold.
Services, rent and maintenance expenses: include costs related to
the management, operation and maintenance of the Company's network
systems, including telecommunications and site rental expenses.
Selling and marketing expenses: include salaries, commissions and
administrative costs for the Company's sales force and related
marketing and advertising expenses.
General and administrative expenses: include executive management
expenses, accounting, office-related expenses, information
services, billing, treasury, employee benefits and store rent.
RESULTS OF OPERATIONS
The following table sets forth the percentage of net revenues represented
by certain items in the Company's Statements of Operations and certain other
information for the periods indicated.
21
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED DECEMBER 31, ENDED MARCH 31,
----------------------------- ------------------
1993 1994 1995 1995 1996
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Services, rent and maintenance................................. 76.7% 83.4% 87.7% 88.3% 90.8%
Product sales.................................................. 58.5 65.5 56.4 55.0 45.3
Cost of products sold.......................................... (35.2) (48.9) (44.1) (43.3) (36.1)
------- ------- ------- ------- -------
Net revenues................................................... 100.0 100.0 100.0 100.0 100.0
------- ------- ------- ------- -------
Operating expenses:
Services, rent and maintenance................................. 18.9 21.3 21.4 22.0 21.1
Selling and marketing.......................................... 12.5 15.5 16.4 16.5 16.2
General and administrative..................................... 23.3 24.0 26.4 27.2 31.3
Depreciation and amortization.................................. 46.6 35.2 33.0 30.5 26.4
------- ------- ------- ------- -------
Operating income (loss).......................................... (1.3%) 4.0% 2.8% 3.8% 5.0%
OTHER DATA:
EBITDA........................................................... $ 6,563 $ 8,433 $11,796 $ 2,449 $ 3,441
EBITDA margin.................................................... 45.3% 39.2% 35.8% 34.3% 31.4%
ARPU............................................................. $ 8.00 $ 6.18 $ 5.20 $ 6.11 $ 5.08
EXPU............................................................. $ 5.71 $ 4.50 $ 3.81 $ 4.55 $ 3.83
Units in service (at end of period).............................. 164,883 319,687 607,725 368,767 696,623
Units in service per employee (at end of period)................. 1,633 1,648 1,905 1,748 1,819
</TABLE>
Three months ended March 31, 1996 compared with three months ended March 31,
1995
Net revenues increased by 53.1% to $10.9 million for the three months ended
March 31, 1996 from $7.1 million for the three months ended March 31, 1995.
Services, rent and maintenance revenues increased by 57.1% to $9.9 million for
the three months ended March 31, 1996 from $6.3 million for the three months
ended March 31, 1995 due primarily to an increase in the number of pagers in
service, offset by a decrease in ARPU. Units in service increased by 88.9% to
696,623 at March 31, 1996 from 368,767 at March 31, 1995, all of which growth
was internally generated, and reflected both increased penetration of the
Company's existing markets as well as expansion into the Boston and
Baltimore/Washington, D.C. markets. ARPU decreased by 16.9% to $5.08 for the
three months ended March 31, 1996 from $6.11 for the three months ended March
31, 1995. This decrease was due primarily to the high reseller component of the
Company's subscriber mix as well as the increasingly competitive market for
wireless messaging services.
Product sales increased by 26.0% to $5.0 million for the three months ended
March 31, 1996 from $3.9 million for the three months ended March 31, 1995 due
to an increase in the number of units sold offset by declining unit prices. The
cost of products sold rose by 27.6% to $3.9 million for the three months ended
March 31, 1996 from $3.1 million for the three months ended March 31, 1995 and
the net margin on product sales fell to 20.3% from 21.3% over the same period.
The decrease in net margin reflected primarily the high reseller component of
the Company's subscriber mix and the increasingly competitive market for pager
sales.
Average monthly operating expenses per unit decreased by 15.8% to $3.83 for
the three months ended March 31, 1996 from $4.55 for the three months ended
March 31, 1995. This decrease was attributable to the Company's continued focus
on cost control and ability to achieve economies of scale in its existing
markets, offset by start-up expenses in the Boston and Baltimore/Washington,
D.C. markets. In addition, the higher reseller component of the subscriber mix
contributed to the decline because the reseller bears a significant portion of
the operating expenses associated with each unit.
Services, rent and maintenance expenses increased by 46.5% to $2.3 million
for the three months ended March 31, 1996 from $1.6 million for the three months
ended March 31, 1995 and decreased slightly as a percentage of net revenues to
21.1% for the three months ended March 31, 1996 from 22.0% for the three months
ended March 31, 1995. This increase was due primarily to higher network and site
rental expenses associated with the Company's expansion into new markets. On a
per unit basis, monthly services, rent and maintenance expenses decreased by
22.9% to $1.18 for the three months
22
<PAGE>
<PAGE>
ended March 31, 1996 from $1.53 for the three months ended March 31, 1995. This
decrease was attributable to increased economies of scale realized from the
expansion of the Company's operations.
Selling and marketing expenses increased by 50.3% to $1.8 million for the
three months ended March 31, 1996 from $1.2 million for the three months ended
March 31, 1995 and decreased as a percentage of net revenues to 16.2% for the
three months ended March 31, 1996 from 20.4% for the three months ended March
31, 1995. The increase in selling and marketing expenses was due primarily to
start-up costs and staffing expenses related to the opening of new stores. The
number of Company-owned stores grew to 67 at March 31, 1996 from 33 at March 31,
1995. Monthly selling and marketing expenses per unit decreased by 20.2% to
$0.91 for the three months ended March 31, 1996 from $1.14 for the three months
ended March 31, 1995. This decrease was attributable to the decrease in
marketing costs associated with the increase in subscribers through the reseller
channel for which the reseller absorbs the majority of the marketing and sales
costs.
General and administrative expenses increased by 76.1% to $3.4 million for
the three months ended March 31, 1996 from $1.9 million for the three months
ended March 31, 1995 and increased as a percentage of net revenues to 31.3% for
the three months ended March 31, 1996 from 27.2% for the three months ended
March 31, 1995. This increase was attributable primarily to costs associated
with the growth in the Company's coverage area and the expansion into new
markets, including increased staffing and other infrastructure expenses. Monthly
general and administrative expenses per unit decreased by 6.9% to $1.75 for the
three months ended March 31, 1996 from $1.88 for the three months ended March
31, 1995. This decrease was due primarily to the increase in subscribers.
EBITDA increased by 40.5% to $3.4 million for the three months ended March
31, 1996 from $2.4 million for the three months ended March 31, 1995 and the
EBITDA margin fell to 31.4% for the three months ended March 31, 1996 from 34.3%
for the three months ended March 31, 1995. The decrease in the EBITDA margin
reflects the factors discussed above.
Depreciation and amortization expenses increased by 32.7% to $2.9 million
for the three months ended March 31, 1996 from $2.2 million for the three months
ended March 31, 1995 and decreased as a percentage of net revenues to 26.4% for
the three months ended March 31, 1996 from 30.5% for the three months ended
March 31, 1995. The increase in depreciation and amortization expenses was
attributable to the Company's continued expansion program.
Interest expense increased to $0.6 million for the three months ended March
31, 1996 from $0.5 million for the three months ended March 31, 1995. The
increase was due to additional borrowings raised during the three months ended
March 31, 1996, the proceeds of which were used primarily to finance the
Company's expansion program. Average borrowings outstanding were $39.8 million
and $22.7 million during the three months ended March 31, 1996 and 1995,
respectively, and the weighted average interest cost was 6.42% and 9.42% over
the same period.
During 1992 and 1993, the Company granted equity interests to certain
employees which were to be realized upon the occurrence of certain events, as
defined. Effective January 1, 1996, these equity interests were cancelled and
the employees were issued 168,900 units under the Phantom Stock Plan at a strike
price of $0, vest over a five-year period from the original date of grant in
1992 or 1993, as applicable, and had a grant date value of $6 per unit. The
employees received credit for vesting through the date of cancellation of the
equity interests. In addition, on January 1, 1996, 150,350 units were issued
under the Phantom Stock Plan, at a strike price of $6 per unit and vest
over a five-year period. As determined by an independent investment bank
valuation and the Company's Compensation Committee the per unit value on
January 1, 1996 was $6. As a result, the financial statements for the three
months ended March 31, 1996 reflect non-cash compensation expense of $747,000
(which amount includes the cumulative effect of the vesting from 1992 forward)
with a corresponding credit to additional paid-in-capital. The remaining non-
cash compensation expense of $266,000 will be recognized by the Company over the
next two years.
The net loss decreased to $0.8 million for the three months ended March 31,
1996 from $0.3 million for the three months ended March 31, 1995 as a result of
the factors discussed above.
The pro forma net loss decreased to $0.8 million for the three months ended
March 31, 1996 from $0.3 million for the three months ended March 31, 1995.
Year ended December 31, 1995 compared with year ended December 31, 1994
Net revenues increased by 53.2% to $33.0 million in 1995 from $21.5 million
in 1994. Services, rent and maintenance revenues increased by 61.0% to $28.9
million in 1995 from $18.0 million in 1994 due
23
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primarily to an increase in the number of pagers in service, offset by a
decrease in ARPU. Units in service increased by 90.1% to 607,725 at December 31,
1995 from 319,687 at December 31, 1994, all of which growth was internally
generated, and reflected both increased penetration of the Company's existing
markets as well as expansion into the Boston and Baltimore/Washington, D.C.
markets. ARPU decreased by 15.9% to $5.20 in 1995 from $6.18 in 1994. This
decrease was due primarily to the high reseller component of the Company's
subscriber mix as well as the increasingly competitive market for wireless
messaging services.
Product sales increased by 32.1% to $18.6 million in 1995 from $14.1
million in 1994 due to an increase in the number of units sold offset by
declining unit prices. The cost of products sold rose by 38.3% to $14.5 million
in 1995 from $10.5 million in 1994 and the net margin on product sales fell to
21.8% in 1995 from 25.3% over the same period. This decrease in net margin
reflected primarily the high reseller component of the Company's subscriber mix
and the increasingly competitive market for pager sales.
Average monthly operating expenses per unit decreased by 15.3% to $3.81 in
1995 from $4.50 in 1994. This decrease was attributable to the Company's
continued focus on cost control and ability to achieve economies of scale by
spreading the fixed costs of its operations over a larger base of subscribers.
In addition, the higher reseller component of the subscriber mix contributed to
the decline because the reseller bears a significant portion of the operating
expenses associated with each unit.
Services, rent and maintenance expenses increased by 53.7% to $7.1 million
in 1995 from $4.6 million in 1994 and increased slightly as a percentage of net
revenues to 21.4% in 1995 from 21.3% in 1994. This increase was due primarily to
start-up costs associated with the Boston, Baltimore and Washington, D.C.
systems, increases in telecommunications expenses related to subscriber growth,
including the pre-purchasing of telephone codes and leased lines, and other
expenses related to the build-out of the nationwide network, including increased
site rental costs and the building of a Company-owned and operated satellite
up-link facility. On a per unit basis, monthly services, rent and maintenance
expenses decreased by 19.6% to $1.27 in 1995 from $1.58 in 1994. This decrease
was attributable to increased economies of scale realized from the expansion of
the Company's operations.
Selling and marketing expenses increased by 62.0% to $5.4 million in 1995
from $3.3 million in 1994 and increased as a percentage of net revenues to 16.4%
in 1995 from 15.5% in 1994. This increase was attributable primarily to
increased advertising and other expenses associated with the growth of
Company-owned stores and the expansion into new geographic markets. The number
of Company-owned stores grew to 58 by December 31, 1995 from 29 at December 31,
1994. Monthly selling and marketing expenses per unit decreased by 15.7 % to
$0.97 in 1995 from $1.15 in 1994. This decrease was attributable to the decrease
in marketing costs associated with the increase in subscribers through the
reseller channel for which the reseller absorbs the majority of the marketing
and sales costs.
General and administrative expenses increased by 68.8% to $8.7 million in
1995 from $5.2 million in 1994 and increased as a percentage of net revenues to
26.4% in 1995 from 24.0% in 1994. This increase was attributable primarily to
costs associated with the growth in the Company's subscriber base, including
increased billing and collection costs and increased staffing and other
infrastructure expenses incurred in anticipation of future growth. Monthly
general and administrative expenses per unit decreased by 11.8% to $1.57 in 1995
from $1.78 in 1994. This decrease was due primarily to the increase in
subscribers.
EBITDA increased by 39.9% to $11.8 million in 1995 from $8.4 million in
1994 and the EBITDA margin fell to 35.8% in 1995 from 39.2% in 1994. The
decrease in the EBITDA margin reflects the factors discussed above.
Depreciation and amortization expenses increased by 43.4% to $10.9 million
in 1995 from $7.6 million in 1994 and decreased as a percentage of net revenues
to 33.0% in 1995 from 35.2% in 1994. The increase in depreciation and
amortization expenses was generally attributable to the Company's continued
expansion program and increased investment in technical facilities.
Interest expense increased to $2.5 million in 1995 from $1.0 million in
1994. The increase was due to additional borrowings raised during 1995, the
proceeds of which were used primarily to finance the Company's expansion
program, and an increase in the weighted average interest cost paid during the
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<PAGE>
year. Average borrowings outstanding were $26.1 million and $14.5 million during
1995 and 1994, respectively, and the weighted average interest cost was 9.15%
and 7.14% over the same period.
The Company incurred $0.6 million from unusual items and $0.6 million of
extraordinary items and discontinued operations during 1995. The unusual item
expense incurred during 1995 of $0.6 million related to certain merger activity.
The discontinued operation expense of $0.3 million related to the
discontinuation of the Company's answering service operations. The extraordinary
item expense of $0.3 million related to the write-off of deferred financing
costs following the Company's refinancing of its credit agreement. During 1994,
the unusual item expense of $0.6 million related to costs associated with the
commencement of an initial public offering which was terminated prior to
completion.
The net loss increased to $2.9 million in 1995 from $0.8 million in 1994 as
a result of the factors discussed above.
The pro forma net loss increased to $2.9 million in 1995 from $0.8 million
in 1994.
Year ended December 31, 1994 compared with year ended December 31, 1993
Net revenues increased by 48.4% to $21.5 million in 1994 from $14.5 million
in 1993. Services, rent and maintenance revenues increased by 61.5% to $18.0
million in 1994 from $11.1 million in 1993 due primarily to an increase in the
number of units in service, offset by a decrease in ARPU. Units in service
increased by 93.9% to 319,687 at December 31, 1994 from 164,883 at December 31,
1993 primarily due to increased penetration of existing markets and expansion
into the Philadelphia and Los Angeles/Orange County markets. In particular, the
Company benefited from marketing its wide area paging systems in its New York
and Arizona markets which converted to the 900 MHz systems in March 1993 and
August 1992, respectively. ARPU decreased by 22.7% to $6.18 in 1994 from $8.00
in 1993. This decrease was due primarily to the increasing reseller component of
the company's subscriber mix as well as the increasingly competitive market for
wireless messaging services.
Product sales increased by 66.1% to $14.1 million in 1994 from $8.5 million
in 1993. The cost of products sold rose by 106.4% to $10.5 million in 1994 from
$5.1 million in 1993 due to an increase in the number of units sold offset by
declining unit prices, and the net margin on product sales fell to 25.3% in 1994
from 39.9% in 1993. This decrease reflected primarily a shift toward the
reseller component of the Company's subscriber mix and the increasingly
competitive market for product sales.
Average monthly operating expenses per unit decreased by 21.2% to $4.50 in
1994 from $5.71 in 1993. This decrease was attributable to the Company's
continued focus on cost control and ability to achieve economies of scale by
spreading the fixed costs of its operations over a rapidly increasing base of
subscribers. In addition, the higher reseller component of the subscriber mix
contributed to the decline because the reseller bears a significant portion of
the operating expenses associated with each unit.
Services, rent and maintenance expenses increased by 67.1% to $4.6 million
in 1994 from $2.7 million in 1993 and increased as a percentage of net revenues
to 21.3% in 1994 from 18.9% in 1993. This increase was primarily due to start-up
and other expenses associated with the introduction of the Company's Los
Angeles/Orange County and Philadelphia systems, expenses related to the
Company's continued up-grading of its existing network infrastructure and an
increase in telecommunications expenses related to subscriber growth. Monthly
services, rent and maintenance expenses on a per unit basis decreased by 20.2%
to $1.58 in 1994 from $1.98 in 1993. This decrease was attributable to increased
economies of scale realized from the expansion of the Company's operations.
Selling and marketing expenses increased by 83.7% to $3.3 million in 1994
from $1.8 million in 1993 and increased as a percent of net revenues to 15.5% in
1994 from 12.5% in 1993. This increase was primarily attributable to the growth
of the Company operated stores and the expansion into new geographical markets.
The number of Company operated stores increased to 29 at December 31, 1994 from
9 at December 31, 1993. Monthly selling and marketing expenses per unit
decreased by 12.2% to $1.15 in 1994 from $1.31 in 1993. This decrease was
attributable to the increase in reseller subscribers because the reseller
absorbs the majority of the marketing and sales costs.
25
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<PAGE>
General and administrative expenses increased by 52.9% to $5.2 million in
1994 from $3.4 million in 1993 and increased as a percentage of net revenues to
24.0% in 1994 from 23.3% in 1993. This increase was due to a combination of
factors associated with the growth of the Company's subscriber base, including
costs associated with the initiation of operations of the Los Angeles/Orange
County network, and staffing and other infrastructure expenses. Monthly general
and administrative expenses per unit decreased by 26.7% to $1.78 in 1994 from
$2.43 in 1993. This decrease was attributable to the increase in subscribers.
EBITDA increased by 28.5% to $8.4 million in 1994 from $6.6 million in 1993
and the EBITDA margin decreased to 39.2% in 1994 from 45.3% in 1993. The
decrease in the EBITDA margin reflects the factors discussed above.
Depreciation and amortization expenses increased by 12.1% to $7.6 million
in 1994 from $6.8 million in 1993 and decreased as a percentage of net revenues
to 35.2% in 1994 from 46.6% in 1993. This increase resulted primarily from
increased investment in technical and infrastructure facilities due to the
Company's expansion of its existing markets and entry into new markets.
Interest expense increased to $1.0 million in 1994 from $0.5 million in
1993. This increase reflected both an increase in average borrowings outstanding
to $14.5 million in 1994 from $7.9 million in 1993 and an increase in the
weighted average interest cost to 7.14% from 6.63% over the same period.
The Company incurred an unusual item expense of $0.6 million in 1994
associated with the commencement of an initial public offering which was
terminated prior to completion.
The net loss increased by 11.1% to $0.8 million in 1994 from $0.7 million
in 1993 as a result of the factors discussed above.
The pro forma net loss increased to $0.8 million in 1994 from $0.7 million
in 1993.
LIQUIDITY AND CAPITAL RESOURCES
The Company's business strategy requires the availability of substantial
funds to finance the expansion of its existing operations and customer base, and
the development and construction of new networks and distribution channels.
Historically, these investments have been funded by cash flow from operations
and bank borrowings. Based upon historical positive cash flow and available
borrowings under a credit facility, the Company believes that it has adequate
resources to sustain its current operations.
Uses of Funds. The Company's primary use of funds has historically been
for capital expenditures in order to expand its systems in its existing markets
and to build and develop systems in new geographical markets. Capital
expenditures were approximately $7.3 million for the three months ended March
31, 1996 and $2.8 million for the three months ended March 31, 1995. During
1995, 1994 and 1993, the Company's capital expenditures were $20.6 million,
$13.2 million and $11.0 million, respectively. The Company experienced greater
capital expenditures in the three months ended March 31, 1996 and in 1995 due to
a combination of factors, including (i) compliance with the construction
requirements imposed by the FCC pursuant to the Company's Nationwide Frequency
License and the build-out of Company-owned stores in new geographic markets, and
(ii) increased spending in existing markets related to the continued upgrading
of its network onto FLEX'tm'-based systems. During 1994 and 1993, capital
expenditures increased primarily as a result of both the construction of systems
in new geographic markets and the upgrading of the Company's existing
transmission networks.
Sources of Funds. In prior years, the Company has financed its growth
through internally generated cash flow from operations and bank debt. Net cash
flow from operations was $(2.5) million and ($1.1) million for the three months
ended March 31, 1996 and 1995, respectively, and $7.9 million, $5.1 million and
$9.2 million during 1995, 1994, and 1993, respectively. Inventories increased to
$8.7 million at March 31, 1996 from $6.4 million at December 31, 1995 and $3.3
million at December 31, 1994, due primarily to the Company's significantly
increased investment in pagers to support the growth of its subscriber base.
Accounts payable increased to $7.9 million at March 31, 1996 from $10.4 million
at December 31, 1995 and $5.4 million at December 31 1994, again reflecting the
significant investment in pagers to support growth in the subscriber base. The
Company's overall working capital surplus (deficit) at March 31, 1996 was $1.1
million, compared to ($4.0) million at December 31, 1995 and $(2.1)
26
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<PAGE>
million at December 31, 1994. The Company's working capital surplus at March 31,
1996 primarily reflected an increase in inventory financed primarily through
borrowings under the Credit Facility.
Cash flow from financing activities has historically reflected primarily
the issuance of long-term debt under the Company's bank facilities. For the
three months ended March 31, 1996, issuance of bank debt was $9.8 million. For
1995, 1994 and 1993, issuance of bank debt was $14.4 million, $9.8 million and
$2.9 million respectively, substantially all of which, in conjunction with the
net cash flow from operations discussed above, was used to fund the Company's
capital expenditures.
At March 31, 1996, the Company's liquidity consisted of approximately $0.1
million in cash and cash equivalents. In addition, the Company had available
$16.2 million in unused borrowing capacity under the Credit Agreement.
After payment of the Dividend, the remainder of the net proceeds of the
Offerings will be used to fund geographic and system expansion. The Company's
planned expansion into new geographic regions will include the purchase of new
paging equipment, transmitters, satellite networking equipment and other capital
expenditures, as well as potential acquisitions, including the acquisition of
licenses or radio spectrum to expand or enhance its services. The Company
estimates that it will require approximately $60 million in aggregate capital
expenditures during 1996 and 1997 to fund this expansion. The Company intends to
utilize its existing Credit Agreement and any refinancings thereof, together
with cash flow from operations and a portion of the proceeds of the Offerings,
to complete its expansion program. In addition, in connection with the Company's
expansion plans, the Company may be required to incur additional indebtedness,
refinance the Credit Agreement and/or engage in other financings, the nature,
amount and source of which cannot now be determined, but which may include
private or public offerings of debt or equity securities. There can be no
assurance that such financings or refinancings will be available to the Company
on acceptable terms. The Company may also consider from time to time a
disposition of certain of its less strategically important assets. However, the
Company has no agreements, commitments or understandings with respect to any
such transactions at this time. Certain transactions involving the disposition
of the Company's assets require the approval of the lenders under the Credit
Agreement.
Description of Credit Agreement. On July 17, 1995 the Company entered into
the Credit Agreement. The Credit Agreement increased the Company's revolving
line of credit from $28.0 million to a $60.0 million revolving credit and term
loan facility. Borrowings under the Credit Agreement have been used to refinance
existing indebtedness (under its former credit agreement), fund capital
expenditures and for general corporate purposes. The Credit Agreement is secured
by substantially all of the assets of the Company. Required quarterly principal
repayments begin September 30, 1997, and continue through September 30, 2002. At
March 31, 1996, the Company had an outstanding balance under the Credit
Agreement of approximately $43.8 million. The Credit Agreement contains various
covenants that, among other restrictions, (i) require the Company to maintain
certain financial ratios, including an interest coverage ratio, a fixed charge
coverage ratio and a leverage ratio, (ii) limit additional indebtedness and
future mergers and acquisitions without the approval of the lenders, (iii) limit
investments made by the Company, (iv) limit total annual capital expenditures
and (v) restrict the payment of cash dividends and other stockholder
distributions by the Company during the term of the Credit Agreement. The Credit
Agreement also prohibits a change in control of the Company, as defined, during
the term of the Credit Agreement. See 'Description of Certain Indebtedness.'
SEASONALITY
Generally, the Company's results of operations are not significantly
affected by seasonal factors. However, the Company's shift towards distribution
of pagers to the retail market has caused it to experience higher sales and
subscriber growth in the fourth quarter and correspondingly lower sales in the
first quarter. Furthermore, the concentration of the Company's business in the
northeast has also contributed to slightly lower sales in the first quarter due
to weather patterns.
EFFECT OF INFLATION
Inflation is not a material factor affecting the Company's business. Paging
systems equipment and transmission costs have not increased while pager costs
have declined significantly over time. This has been reflected in lower prices
charged to the Company's subscribers. General operating expenses such as
salaries, employee benefits and occupancy costs are, however, subject to normal
inflationary pressures.
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BUSINESS
GENERAL
TSR Paging is a leading regional provider of wireless messaging products
and services and believes that it is one of the fastest growing, low-cost
wireless messaging companies in the United States. From 1991 to 1995, the
Company's subscriber base grew at an average compound annual growth rate of 92%
from 44,304 units in service to 607,725 units in service. During this period,
all of the Company's growth has been internally generated. At March 31, 1996,
the Company's subscriber base had grown to 696,623 units in service and the
Company was ranked as the 12th largest paging company in the United States,
according to industry sources.
The Company's operations are currently organized into two operating
regions: (i) the Northeast, including certain metropolitan markets in New York,
Connecticut, New Jersey, Massachusetts, eastern Pennsylvania, Maryland and
Washington, D.C.; and (ii) the West, including certain metropolitan markets in
California, Arizona and Nevada. The Company is currently undertaking a
significant regional expansion program, including the formation of two new
operating regions, covering the Midwest and the Southeast, and the continued
build-out of its existing regions. Set forth below is a table showing the
Company's operating regions and number of units in service as of December 31,
1993, 1994 and 1995 and March 31, 1996.
<TABLE>
<CAPTION>
NUMBER OF PAGERS IN SERVICE
------------------------------------------
DECEMBER 31, MARCH 31,
----------------------------- ---------
1993 1994 1995 1996
------- ------- ------- ---------
<S> <C> <C> <C> <C>
Northeast.................................................. 128,525 225,785 394,344 460,660
West....................................................... 36,358 93,902 213,381 235,963
------- ------- ------- ---------
Total............................................ 164,883 319,687 607,725 696,623
------- ------- ------- ---------
------- ------- ------- ---------
</TABLE>
BUSINESS OBJECTIVES
The Company has historically generated positive EBITDA while achieving
subscriber growth at levels above the industry average. The Company focuses its
business efforts on densely populated major metropolitan markets and population
corridors which exhibit the size and demographic trends that the Company
believes should offer significant demand for the Company's products and
services. The Company seeks to maximize its returns on capital and leverage its
operating cost structure by achieving a sufficient base of subscribers on a
regional basis. The Company primarily targets the consumer segment of each
market, which it believes is the fastest growing market segment. The Company
strives to develop close ties with its subscribers by providing high quality
customer service and post-sales support in order to lower subscriber disconnect
rates and position the Company as a likely distributor of other wireless
communications services. The Company expects to achieve these objectives by
continuing to adhere to the key operating strategies outlined below.
Operating Strategy
The Company believes that the consumer market represents the fastest
growing segment of the wireless messaging industry. Industry sources expect the
consumer portion of the market to grow at a faster rate than the industry
average. The Company believes this strong consumer growth is attributable to a
combination of factors including declining costs of service and equipment,
expanding channels of distribution and greater consumer awareness of the
benefits offered by wireless communications technology. In addition, the Company
believes the consumer market is less capital intensive and more profitable than
the commercial market, primarily because consumer subscribers typically buy
rather than lease pagers and also because the consumer subscriber is generally
less sensitive to the price of wireless messaging services than the commercial
subscriber.
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The Company applies a focused, market-specific operating strategy to each
of the markets in which it operates. The key elements of this strategy include:
Increase Market Penetration through the Reseller Channel. Through the use
of resellers, the Company is able to efficiently market its services to a
broad population base and achieve higher network utilization with lower
incremental capital, sales and administrative costs. The reseller channel
allows the Company to rapidly gain a presence in newly opened markets and
increase its penetration in existing markets. In addition, the Company is
able to reach the consumer at a lower incremental capital cost, primarily
because the Company does not incur the selling, marketing, administrative
and disconnection expenses associated with these subscribers. The Company
believes that it differentiates itself in the reseller market by providing
resellers with a high level of support service. For example, the Company
frequently integrates the reseller's billing and activation systems with
those of the Company through computer links and thus streamlines its
service to resellers.
Continue Expansion of Company-Owned Stores. The Company has been
operating its own stores since July 1993 and currently has 67 stores in
operation in eight states. As the appeal of wireless messaging services to
the consumer market grows, the Company believes that it will be able to
capture an increasingly significant share of this market through a
targeted retail distribution strategy that emphasizes Company-owned
stores. The Company's control of this distribution outlet enables it to
control the quality of sales personnel, ensure that subscribers make
educated purchase decisions and maintain high quality customer service.
The Company expects to continue to develop this channel and plans to open
stores in every market in which the Company provides regional wireless
messaging services.
Low-cost Provider. The Company believes that its has one of the lowest
operating costs per pager in the wireless messaging industry. The
Company's average monthly operating costs per pager were $5.71, $4.50 and
$3.81 for the years ended 1993, 1994 and 1995, respectively. The Company
attributes its low operating cost structure to a combination of factors,
including its (i) high quality customer service and resultant lower rate
of disconnections, (ii) focus on the reseller distribution channel whereby
the reseller absorbs a significant portion of the operating expenses per
pager, (iii) increasing penetration of its existing markets and ability to
realize economies of scale, (iv) efficient allocation and productivity of
personnel, and (v) volume purchase arrangements with suppliers.
Quality Subscriber Service. The Company has historically distinguished
itself from other wireless messaging operators by providing high quality
customer service in each of its markets. Substantially all of the
Company's wireless messaging systems are 900 MHz systems which utilize
Motorola's state-of-the-art FLEX'tm' technology. FLEX'tm' technology
enables the Company to more efficiently use its bandwidth by increasing
the number of messages transmitted per minute and thereby increasing the
number of pagers in service which can be supported on its systems. As a
result, the Company's wireless messaging systems experience little delay
in transmitting messages and are highly reliable. As part of its
commitment to 'full service,' the Company strives to provide direct
subscribers with high quality post-sale maintenance, including 24-hour
on-call repair service and next-day replacement of lost or damaged
equipment. The Company believes that its provision of quality service
contributes to an average disconnect rate which has historically been
lower than that of the industry. According to industry sources, the
average monthly disconnect rate for the industry during 1993 and 1994, the
last years for which data is available, was 2.9% and 2.8%. In comparison,
the Company's average monthly disconnect rate for 1993, 1994 and 1995 was
1.9%, 1.3% and 1.1%, respectively.
Focus on COAM vs. Leased Pagers. The Company emphasizes customer owned
and maintained ('COAM') pagers instead of leased pagers. Since a COAM
customer is responsible for the purchase and maintenance of the unit, this
strategy results in significantly reduced capital investment by the
Company on a per unit basis, reduced collection expenses and a reduction
in lost units. In addition, the Company believes a COAM customer is less
likely to switch or terminate service than a subscriber who leases a unit
due to the higher up front cost incurred in the purchase and the
inconvenience involved in switching to a new frequency.
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Develop Strategic Alliances. The Company has established several
strategic relationships with other providers of communications services.
These providers, which enjoy strong brand awareness, resell the Company's
wireless messaging services under their own brand name and, in some cases,
package the product with other communications services. The Company
currently has resale relationships with AT&T Wireless, Inc. and Jones
Intercable, Inc. The Company also has an agreement with Bell
Atlantic/NYNEX Mobile, Inc. for the sale of cellular telephone service and
related equipment through the majority of the Company's stores. The
Company actively seeks out strategic partners when it believes synergies
exist.
Geographic Expansion Strategy
The Company's geographic expansion strategy incorporates two key elements:
(i) the continued build-out of its existing regional networks in the Northeast
(anchored by New York City) and the West (anchored by Los Angeles), and (ii) the
development of networks in new markets, including the formation of two new
operating regions, covering the Midwest (anchored by Chicago) and the Southeast
(anchored by Miami/Ft. Lauderdale).
During 1996, the Company commenced construction in its new Midwest region,
with service to be anchored by Chicago and extending to Milwaukee, and commenced
construction in its Southeast region. In addition, the Company expanded service
within its existing West region to the San Francisco and San Jose markets.
The Company's strategy when entering a new market is to use the reseller
channel in order to rapidly penetrate the market and establish a sufficient base
of subscribers. As the Company becomes more established in a region, in addition
to the reseller channel, the Company generally opens retail stores in order to
further enhance its market penetration and expand its direct sales to consumers
in the market.
Substantially all of the Company's existing and new wireless messaging
operations are being developed using wide area 900 MHz transmission systems. The
wide area 900 MHz transmission system and the use of FLEX'tm' technology provide
the Company with ample growth capacity as it expands and enters new markets. In
addition, the Company holds the Nationwide Frequency License. This license
provides the Company with the ability to efficiently build out and expand its
systems into new regions and markets contiguous to its existing operations.
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The following chart sets forth information regarding each of the Company's
markets in operation or which are expected to be completed within the next 12
months:
<TABLE>
<CAPTION>
REGION MARKET SERVICE DATE(1)
- ------------- --------------------------------------------- ----------------------
<S> <C> <C>
NORTHEAST: New York/
New Jersey................................. 1/87
Harrisburg................................... 2/75
Philadelphia................................. 6/94
Hartford..................................... 11/94
Boston....................................... 9/95
Providence................................... Under construction(2)
Baltimore.................................... 10/95
Washington, D.C. ............................ 10/95
Pittsburgh................................... Under construction
MIDWEST: Chicago...................................... Under construction
Milwaukee.................................... Under construction
SOUTHEAST: Miami/
Ft. Lauderdale............................. Under construction
Tampa/
St. Petersburg............................. Under construction
Orlando...................................... Under construction
WEST: Los Angeles.................................. 6/94
San Diego.................................... 11/85
Phoenix...................................... 9/87
Tucson....................................... 5/87
Las Vegas.................................... Under construction(2)
San Francisco................................ 4/96
San Jose..................................... 4/96
Sacramento................................... Under construction(2)
Denver....................................... Under construction
</TABLE>
- ------------
(1) Service Date refers to the approximate date on which the Company began
marketing its services in such market.
(2) The Company currently provides coverage, but does not yet market its
wireless messaging services, in this region.
PCS STRATEGY
During the second half of 1994, the FCC auctioned a portion of spectrum
which was allocated for advanced wireless messaging services, also known as
narrowband PCS. This spectrum will allow wireless messaging operators to offer
an array of enhanced products and services which previously were unavailable
given the limited spectrum allocated to existing one-way messaging services.
These products include pagers that can transmit both voice and data and pagers
which will allow subscribers to acknowledge the receipt of messages.
The Company pursues strategic relationships with PCS developers and
operators in order to be able to offer subscribers narrowband PCS services
without the licensing or capital cost associated with the construction of a
narrowband PCS network. For example, the Company recently signed a memorandum of
understanding with PCS Development Corporation ('PCSD') (a nationwide narrowband
PCS license holder) to act as a distributor of PCSD's services, such as a
wireless voice messaging product. In addition, the Company will continue to
evaluate whether to participate in future government auctions for FCC licenses
as the technology associated with these services becomes more widely accessible
and more cost effective to deploy.
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WIRELESS MESSAGING OPERATIONS
Subscribers and Services
The Company currently provides two principal types of wireless messaging
services in its markets: digital display and alphanumeric display. Both digital
display and alphanumeric pagers can be used in conjunction with the Company's
voicemail services.
<TABLE>
<CAPTION>
TYPE OF SERVICE DESCRIPTION
- ------------------------------------ ---------------------------------------------------------------------------
<S> <C>
Numeric (Digital Display) Wireless
Messaging Service................. Numeric wireless messaging service permits a caller, utilizing a touchtone
telephone, to transmit to a subscriber a numeric message consisting of a
telephone number, an account number or coded information. Numeric pagers
have memory capability to store several such numeric messages which can be
recalled by a subscriber when desired.
Alphanumeric Wireless Messaging
Service........................... Alphanumeric wireless messaging service allows subscribers to receive and
store messages consisting of both letters and numbers. Alphanumeric pagers
have sufficient memory to store thousands of characters. This service also
has the ability to tie into computer-based networks to provide advanced
messaging services such as periodic news and sports updates. Callers may
input messages either by using the Company's or another wireless messaging
company's operator dispatch center, a personal computer or a portable
alphanumeric input device, such as AlphaMate'tm' manufactured by Motorola.
Voice Mail Service.................. Voice mail service enables a caller to leave a recorded message and
automatically alerts a subscriber, through a pager, that a message has been
recorded. A subscriber may retrieve messages 24 hours a day by calling
their voice mailbox from any touch-tone telephone. The Company's voicemail
system provides complete message privacy, allows for personalized message
greetings and enables voice messages to be sent to a large group of people
simultaneously.
</TABLE>
The Company provides wireless messaging services to subscribers for a fixed
periodic fee, generally on a monthly, quarterly, semi-annual or annual basis.
Fees for wireless messaging services generally increase with the level of
service provided and the sophistication of the pager, but vary according to the
competitive conditions in different geographic markets, the size of the contract
involved and the type of distribution channel through which the pager is sold.
The Company markets a variety of coverage options to subscribers, from service
in a particular market to additional regional coverage for an incremental fee.
For example, customers in the New York region (covering New York, New Jersey and
Connecticut) can purchase coverage in the Boston market for an additional
periodic charge.
In addition to its wireless messaging and voicemail operations, the Company
also markets complementary products and services, including cellular telephone
equipment and service. As PCS and other advanced wireless messaging services
become available, the Company expects to market such products and services
through its Company-owned stores. These complementary products and services
generate incremental revenues to the Company, improve the productivity of its
sales and service staff and further enhance the Company's position as a provider
of wireless communications services and equipment.
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<PAGE>
The following table sets forth the number of subscriber units of various
types in service at December 31, 1993, 1994 and 1995 and March 31, 1996.
<TABLE>
<CAPTION>
UNITS IN SERVICE BY TYPE
------------------------------------------------------------------------------------
DECEMBER 31, MARCH 31,
-------------------------------------------------------------- ------------------
1993 1994 1995 1996
------------------ ------------------ ------------------ ------------------
NUMBER PERCENT NUMBER PERCENT NUMBER PERCENT NUMBER PERCENT
------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Numeric display units.............. 153,868 93% 306,977 96% 586,267 96% 671,808 96%
Alphanumeric display units......... 2,999 2 6,676 2 17,898 3 21,577 3
Other(1)........................... 8,016 5 6,034 2 3,560 1 3,238 1
------- ------- ------- ------- ------- ------- ------- -------
Total...................... 164,883 100% 319,687 100% 607,725 100% 696,623 100%
------- ------- ------- ------- ------- ------- ------- -------
------- ------- ------- ------- ------- ------- ------- -------
</TABLE>
- ------------
(1) Includes tone-only and tone plus voice units.
Subscribers either lease the pager from the Company for an additional fixed
periodic fee or own the pager, having purchased it from the Company or from
another vendor. At March 31, 1996, approximately 96% of the Company's units in
service were owned by subscribers. The following table sets forth at December
31, 1993, 1994 and 1995 and March 31, 1996, the respective numbers and
percentages of pagers that were (i) serviced by the Company and owned by
resellers or direct subscribers and (ii) serviced and owned by the Company and
leased to subscribers.
<TABLE>
<CAPTION>
OWNERSHIP OF UNITS IN SERVICE
------------------------------------------------------------------------------------
DECEMBER 31, MARCH 31,
-------------------------------------------------------------- ------------------
1993 1994 1995 1996
------------------ ------------------ ------------------ ------------------
NUMBER PERCENT NUMBER PERCENT NUMBER PERCENT NUMBER PERCENT
------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Subscriber owned (COAM)............ 136,168 83% 291,574 91% 577,824 95% 667,469 96%
Company owned and leased to
subscribers...................... 28,715 17 28,113 9 29,901 5 29,154 4
------- ------- ------- ------- ------- ------- ------- -------
Total...................... 164,883 100% 319,687 100% 607,725 100% 696,623 100%
------- ------- ------- ------- ------- ------- ------- -------
------- ------- ------- ------- ------- ------- ------- -------
</TABLE>
Sales and Marketing
Subscribers who use wireless messaging services have traditionally included
small business operators and employees, professionals, medical personnel, sales
and service providers, construction and tradespeople, and real estate brokers
and developers. However, the appeal of wireless messaging to the consumer market
is growing substantially and the service is increasingly being adopted by
individuals for private, nonbusiness uses such as communicating with family
members and friends.
The Company historically relied on direct sales to market its services to
wireless messaging customers. Over the last three years, however, the Company
has implemented a broader distribution strategy designed to capitalize on the
growing mass market appeal of wireless messaging products. This sales and
marketing strategy includes three different distribution channels to penetrate
the consumer and small business market: (i) resellers (including strategic
partners) which purchase wireless messaging services and resell them to their
own subscribers generally on a private label basis; (ii) Company-owned stores
which sell pagers and cellular telephones (including their related services) and
wireless communications devices and accessories directly to consumers; and (iii)
a direct sales force that concentrates selectively on small and medium-sized
business accounts. At March 31, 1996, the Company employed a sales force of 173
sales representatives, including the Company's direct sales staff and sales
representatives in Company-owned stores. Sales and marketing strategies and
policies in each of the Company's regions are directed by a Company Vice
President dedicated to each region. The Company's distribution channels are
described below.
Resellers. Resellers buy wireless messaging services from the Company for
resale to their own business clients and individual customers. Through the
use of resellers, the Company is able to efficiently market its services
to a broad population base and achieve higher network utilization with
lower incremental capital, sales and administrative costs. Resellers
provide an effective sales channel through which to enter new markets and
to access specific consumer niches in existing
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markets for which the Company could not cost effectively justify a direct
sales effort. The Company provides its resellers with a high level of
support by, among other things, allowing administrative and operational
connections between the reseller and the Company. For example, the Company
frequently integrates the reseller's billing and activation systems with
those of the Company. The Company issues a consolidated monthly bill to
each reseller, and it is the reseller who is responsible for the
marketing, billing and collection, and equipment maintenance for each of
its customers. The Company believes that this integration of systems
results in increased reseller retention. At March 31, 1996, the Company
distributed its services through approximately 3,000 resellers. The
Company has also established strategic relationships with other
telecommunications service providers who market the Company's services
under their own brand name. The Company has agreements to provide wireless
messaging services through AT&T Wireless, Inc. and Jones Intercable, Inc.
Company-Owned Stores. In July 1993, the Company initiated a program to
develop a retail distribution channel through Company owned and operated
retail stores. At March 31, 1996, the Company operated 67 such stores,
primarily under the 'Beeper Warehouse' brand name, that sell wireless
messaging services and equipment. The stores are typically located in
strip shopping centers or other high-traffic retail locations, and
generally range from approximately 600 to 1,200 square feet in size. The
Company believes that retail locations increase 'walk-in' traffic,
particularly from non-business, consumer users. In addition, the Company
is able to provide direct, high-quality customer service to subscribers
and control the quality of the sales process, thereby allowing the Company
to more effectively manage the level of disconnects in this channel. In
addition, the Company is able to increase store revenues and enhance its
customer relationships through the sale of additional equipment and
services, including cellular phones and accessories. The stores also act
as service centers for direct and reseller customers, providing repair and
maintenance services. The Company generally leases its stores for terms
ranging from one to five years. The Company intends to continue to open
stores as it expands its regional wireless messaging systems.
Direct Sales. The Company's sales force focuses primarily on resellers
and also opportunistically targets small and medium sized businesses where
management believes a specific opportunity exists. However, the Company
does not emphasize direct sales as it believes that more profitable
subscribers can be targeted through the reseller and retail channels.
The following table sets forth information regarding numbers of units in
service by distribution channel at December 31, 1993, 1994 and 1995 and March
31, 1996.
<TABLE>
<CAPTION>
UNITS IN SERVICE BY DISTRIBUTION CHANNEL
------------------------------------------------------------------------------------
DECEMBER 31, MARCH 31,
-------------------------------------------------------------- ------------------
1993 1994 1995 1996
------------------ ------------------ ------------------ ------------------
NUMBER PERCENT NUMBER PERCENT NUMBER PERCENT NUMBER PERCENT
------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Resellers.......................... 103,649 63% 235,383 74% 485,014 80% 564,489 81%
Company-owned stores............... 1,619 1 16,705 5 50,055 8 59,072 9
Direct sales(1).................... 59,615 36 67,599 21 72,656 12 73,062 10
------- ------- ------- ------- ------- ------- ------- -------
Total...................... 164,883 100% 319,687 100% 607,725 100% 696,623 100%
------- ------- ------- ------- ------- ------- ------- -------
------- ------- ------- ------- ------- ------- ------- -------
</TABLE>
- ------------
(1) Includes retail sales at service center locations.
OPERATIONS
The Company manages its administrative functions, including billing,
accounting, regulatory, treasury and insurance, from its corporate headquarters
in Fort Lee, New Jersey. Functions that require more specific customer or market
knowledge, such as marketing, collections and inventory management, are handled
on a decentralized basis in each of the Company's markets. This structure allows
the Company to be more responsive to customer demands. In addition, the Company
believes that its decentralized operating structure allows it to provide greater
incentives to employees by measuring each
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market as a profit center and holding managers accountable for performance. Each
of the markets in which the Company operates has its own sales manager and
operations manager who together make staffing, administrative, operational and
marketing decisions within guidelines established by senior management. Each
market has its own field sales force, collections personnel and inventory
controller. Compensation of managers is based primarily on the performance of
their respective markets, taking into account such factors as growth, disconnect
rates and operating profitability. As a result, each manager has a strong
incentive to manage operations cost effectively and increase the local
subscriber base. The Company believes that its decentralized organizational
structure is a key element in its operating strategy and that the financial and
accounting systems it has in place are adequate to support substantial market
expansion in the future.
The Company's decentralized operations are monitored by centralized
management information systems that provide senior management financial and
operating information with detail down to the store and sales person level. The
Company believes that its management information systems are sufficient to
support the Company's projected growth. In addition, the Company is highly
focused on cost control and the efficient allocation and productivity of its
personnel and believes that it has one of the lowest costs per pager in the
industry. Average monthly operating costs per pager (operating expenses divided
by average outstanding pagers) were $5.71, $4.50 and $3.81 for the years ended
December 31, 1993, 1994 and 1995, respectively.
NETWORK AND EQUIPMENT
Substantially all of the Company's growth during the last three years has
been on its wide area 900 MHz networks which the Company believes have the
capacity to support its future growth. All of the Company's networks utilize
satellite-based digital links to control its transmitters. The Company also
utilizes its own redundant satellite up-link facilities which operate on Hughes
Galaxy 4 Satellite channels.
All of the Company's 900 MHz transmitters have 24-hour monitoring and
technical support from Company-employed and trained engineers. To ensure maximum
reliability, coverage and building penetration, the Company designs its own
wireless messaging networks and, in many cases, installs its own transmitters.
Each of the Company's 900 MHz transmitters supports multiple frequencies which
enables the Company to transmit on its regional or nationwide 900 MHz
frequencies. All of the Company's 900 MHz networks are capable of transmitting
using FLEX'tm' protocol.
As part of its geographic expansion program, the Company is building out
its Nationwide System, which is authorized pursuant to the numerous FCC licenses
that comprise the Company's Nationwide Frequency License. On December 1, 1995,
the FCC granted the Company a 'Slow Growth Authorization' pursuant to which the
Company was granted a three-year extension of the FCC construction deadlines
applicable to certain of the licenses that make up the Nationwide Frequency
License. The latest of these extended construction deadlines granted pursuant to
the Slow Growth Authorization expires in the first half of 1999, and during such
period the Company intends to complete the installation of 300 transmitters
operating on the nationwide frequency. Based on its current expansion program,
the Company believes that it will have fulfilled the terms of the Slow Growth
Authorization and completed construction of sufficient 929.2125 MHz transmitting
facilities to comply with FCC construction requirements to retain nationwide
exclusivity on this frequency in the near future.
The Company does not manufacture any of the pagers or related transmitting
and switching equipment used in its wireless messaging operations. The equipment
used in the Company's operations is available for purchase from multiple
sources, and the Company anticipates that infrastructure equipment and pagers
will continue to be available to the Company in the foreseeable future,
consistent with normal manufacturing and delivery lead times. The Company
continually evaluates new developments in wireless messaging technology in
connection with the design and enhancement of its systems and selection of
products to be offered to subscribers. The Company currently purchases
substantially all of its pagers from Motorola, from which it achieves cost
savings from volume purchases. The Company purchases its transmitters from
Motorola and Glenayre and its switches from Glenayre.
35
<PAGE>
<PAGE>
WIRELESS MESSAGING INDUSTRY OVERVIEW
Industry sources indicate that at December 31, 1995, the wireless messaging
industry served over 34 million subscribers in the U.S., representing a
penetration rate of approximately 13% of the population. Industry sources also
indicate that in recent years the number of units in service in the United
States has been growing at annual rates in excess of 28% per year since 1989 and
predict that the number of units in service will continue to grow at annual
rates of approximately 15% to 20% through the year 2000. Factors that have been
described as contributing to this growth include (i) declining costs of service
and subscriber equipment, (ii) increasing awareness of the benefits of wireless
messaging among the general population, (iii) introduction of new or enhanced
equipment and services, (iv) expanding channels of distribution into the mass
consumer market, (v) significant improvement in productivity, reliability and
coverage areas, and (vi) the relatively high cost of alternative cellular
communications services.
Historically, the wireless messaging industry has been highly fragmented
and characterized by a large number of small, independent local operators.
During the 1990's however, consolidation in the wireless messaging industry
increased significantly. The Company estimates that the 15 largest companies
provide wireless messaging service to approximately 63% of the estimated
subscribers in service in the U.S. However, several hundred other licensed
wireless messaging companies remain in existence in the U.S., many of which
continue to provide only local wireless messaging services. The Company believes
that the wireless messaging industry will be characterized by further
consolidation.
The Company believes that future developments in the wireless messaging
industry will include (i) technological improvements that permit advanced
services and applications to a wider market on a cost-effective basis, (ii)
consolidation of smaller, single-market operators and larger, multi-market
wireless messaging companies, and (iii) increased numbers of pagers in service
as a result of general expansion into consumer and retail markets. Future
technological developments in the wireless messaging industry will likely
include new wireless messaging services such as 'confirmation' or 'response'
paging that will have the ability to send a message back to the wireless
messaging system that confirms that the paging message has been received,
digitized voice paging, two-way paging and notebook and sub-notebook computer
wireless data applications. Narrowband PCS may offer the ability to provide some
of these services.
WIRELESS MESSAGING TECHNOLOGY
Wireless messaging is a method of one-way wireless messaging that uses an
assigned radio frequency to contact a wireless messaging subscriber anywhere in
a service area. A subscriber carries a pager that receives messages by the
broadcast of a one-way radio signal. To contact a subscriber, a message is
usually sent by placing a telephone call to the subscriber's designated
telephone number. The telephone call is received by an electronic messaging
switch which then generates a signal that is sent to radio transmitters in the
service area. Depending upon the topography of the service area, the operating
radius of a radio transmitter typically ranges from three to 12 miles. The
transmitters send a signal that is received by the pager carried by the
subscriber and is delivered as a tone, vibration, numeric or alphanumeric
message. A tone-only pager notifies the subscriber that a call has been received
by emitting a beeping sound or vibration. In the case of tone-plus-voice
service, the subscriber's pager emits a beeping sound followed by a brief voice
message. Depending upon the type of pager in use, the subscriber may receive a
message that is displayed on the pager or a subscriber may call his or her home,
office or telemessaging service to receive the message. A digital display pager
permits a caller to transmit to the subscriber a numeric message that may
consist of a telephone number, an account number or coded information. A digital
display pager has the memory capability to store several numeric messages that
can be recalled by the subscriber when desired. Alphanumeric display wireless
messaging service allows subscribers to receive and store messages consisting of
both numbers and text.
The Company believes that one-way wireless messaging is the most
cost-effective and reliable means of conveying a variety of information rapidly
over a wide geographic area either directly to a person traveling or to various
fixed locations. One-way wireless messaging is an inherently lower cost way to
communicate than two-way communication methods. For example, pagers and air time
required to transmit an average message cost less than equipment and air time
for cellular telephones.
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Furthermore, pagers operate for longer periods due to superior battery life,
often exceeding one month on a single AAA battery. Wireless messaging
subscribers generally pay a fixed periodic service fee, which covers a certain
number of messages sent to the subscriber. In addition, pagers are unobtrusive,
portable and historically have not become obsolete even in the face of
substantial technological advances in the communications industry. Growth in the
number of cellular telephone customers is increasingly viewed as a complement to
wireless messaging. Many cellular telephone customers use pagers in conjunction
with their telephones to screen incoming calls and minimize battery use and
cellular usage charges.
The wireless messaging industry has also benefited from technological
advances resulting from research and development conducted by manufacturers of
pagers and transmission equipment. Such advances include microcircuitry, liquid
crystal display technology and standard digital encoding formats, which have
enhanced the capability and capacity of wireless messaging systems while
lowering equipment and air time costs. Technological improvements have enabled
and will continue to enable the Company to provide better quality services at
lower prices to its subscribers and have generally contributed to the growth of
the wireless messaging industry.
COMPETITION
The wireless messaging industry is a highly competitive industry, with
price being the primary means of differentiation among providers of numeric
messaging services (which account for the majority of the Company's current
revenues). Companies in the industry also compete on the basis of coverage area,
enhanced services, transmission quality, system reliability and customer
service. The Company experiences competition from one or more competitors in all
of the regions in which it operates. Although some of the Company's competitors
are small, privately-owned companies serving only one market area, others are
subsidiaries or divisions of larger companies that provide wireless messaging
services in multiple market areas. Many of these competitors possess
significantly greater financial and other resources than the Company. Since
1987, the Company has competed with Paging Network, Inc. ('PageNet'), the
largest provider of wireless messaging services in the United States, and
MobileMedia Communications Corporation ('MobileMedia') in all of the Company's
major markets.
Paging also competes to a certain extent with a number of additional
wireless technologies, including cellular, PCS, and SMR services and various
mobile satellite services. In 1994, the FCC began auctioning licenses for PCS.
PCS involves a network of small, low-powered transceivers placed throughout a
neighborhood, business complex, community or metropolitan area to provide
customers with mobile voice and data communications. There are two types of PCS,
narrowband and broadband. Narrowband PCS is expected to provide advanced
wireless messaging and other capabilities, such as 'acknowledgment paging,'
'talk-back' and voice paging. Broadband PCS is expected to provide new types of
communications devices that will include multi-functional portable phones and
imaging devices. Both narrowband and broadband PCS are currently in the
developmental stage, and PCS providers will likely compete directly and
indirectly with the Company.
Future technological developments in the wireless telecommunications
industry, such as PCS, and enhancements of current technology may create new
products and services which could compete with the wireless messaging services
currently offered by the Company. There can be no assurance that the Company
would not be adversely affected by such technological change. However, the
Company believes that paging is and will continue for the foreseeable future to
be the most cost-effective and reliable method of wireless messaging. Compared
to two-way methods of communications such as cellular telephony, paging service
utilizes smaller, more easily transportable equipment, offers longer battery
life, uses a signalling technology that penetrates buildings and other
structures more effectively and, most importantly, is less expensive.
REGULATION
Currently, wireless messaging companies provide paging services on
frequencies allocated pursuant to Parts 22 and 90 of the FCC's Rules.
Traditionally, frequencies allocated pursuant to Part 22 of the FCC's Rules were
authorized on a radio common carrier ('RCC') basis, with RCC licensees holding
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exclusive licenses for the allocated frequency at specific sites. Frequencies
allocated pursuant to Part 90 of the FCC's Rules ('Private Mobile' frequencies)
were traditionally allocated on a shared basis subject to frequency coordination
procedures designed to avoid interference with operation by other licensees
utilizing the same frequency. The Company is licensed for both RCC and Private
Mobile paging systems.
In 1993, Congress replaced the traditional distinction between RCC and
Private Mobile systems. In 1995, the FCC adopted rules revising the
classification of licensees of wireless services, including paging service, in
accordance with 1993 legislation. Pursuant to the new classification, all
wireless licensees are classified as either Commercial Mobile Radio Service
('CMRS') licensees or Private Mobile Radio Service ('PMRS') licensees. Those
carriers, including the Company and its competitors, who make service available
to the public on a for-profit basis through interconnection with the public
switched telephone network are classified as CMRS licenses. The Company's RCC
and Private Mobile paging systems licensed under Parts 22 and 90 of the FCC's
Rules are now classified as CMRS systems, although the Company's Private Mobile
systems operating on 929-930 MHz are subject to a transition period through
August, 1996, during which time these systems will be regulated as PMRS systems.
The Congressional and FCC purpose behind this new regulatory scheme was to
promote regulatory parity between operators of similar one-way paging systems
regardless of whether those systems were licensed under Part 22 or Part 90 of
the FCC's Rules. The Company believes that such parity will remove certain
regulatory advantages that Private Mobile paging companies previously enjoyed
and allow similar paging systems to be regulated in a similar fashion.
The Company's 929-930 MHz paging systems authorized pursuant to Part 90 of
the FCC's Rules (often referred to as 'Private Carrier Paging' or 'PCP'
systems), were originally authorized on a shared basis. However, in 1993 the FCC
amended its rules to provide for exclusive operation on these frequencies. Based
on the paging systems licensed to the Company at the time of adoption of these
FCC regulations, the Company obtained local and regional exclusivity for many of
its PCP systems. Exclusive operation of these PCP systems is still subject to
certain requirements and limitations including, but not limited to, construction
requirements and sharing with previously-licensed 'incumbent,' co-channel
systems. Moreover, the Company has recently obtained 'slow growth' authorization
from the FCC allowing the Company additional, time to construct and place into
operation the Nationwide System on 929.2125 MHz in compliance with applicable
FCC requirements.
The Company currently provides paging services to subscribers over its own
transmission facilities on CMRS systems licensed pursuant to both Part 22 and
Part 90 of the FCC's Rules. The FCC licenses granted to the Company are for
varying terms of up to 10 years, at the end of which time renewal applications
must be approved by the FCC. The Company's current licenses have renewal dates
ranging from 1996 to 2005. Generally, the FCC has granted most applicants'
renewal applications upon a demonstration of compliance with FCC regulations and
adequate service to the public. The FCC has granted every renewal application
that the Company has filed, and all of the Company's Part 22 licenses were
renewed for a 10-year period ending April 1, 1999. Although the Company is
unaware of any circumstances which might prevent the grant of any pending or
future renewal applications, no assurance can be given that any of the Company's
licenses will be renewed by the FCC. Furthermore, although revocation and
involuntary modification of licenses are extraordinary regulatory measures, the
FCC has the authority to restrict the operation of licensed facilities or to
revoke or modify licenses. None of the Company's licensees have ever been
revoked or modified involuntarily by the FCC.
The Communications Act requires licensees such as the Company to obtain
prior approval from the FCC for the assignment or transfer of control of any
construction permit or station license or any rights thereunder, including in
the context of acquisition of other paging companies by the Company and
transfers by the Company of a controlling interest in any of its licenses or
construction permits or any rights thereunder. In addition, prior FCC approval
would be required in connection with any transfer of control of the Company or,
in certain circumstances, the acquisition of fifty percent (50%) or more of the
equity of the Company by a single entity or two or more entities under common
control. The FCC has approved each acquisition and transfer of control for which
the Company has sought approval in the past.
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The Company also regularly applies for FCC authority to use additional
frequencies, modify the technical parameters of existing licenses, expand its
service territory and provide new services under existing FCC Rules. Although
there can be no assurance that future requests for approval or applications
filed by the Company will be approved or acted upon in a timely manner by the
FCC, or that the FCC will grant such requests or applications, the Company knows
of no reason to believe any such requests or applications will not be approved
or granted.
When FCC approval is required, whether in connection with a renewal
application, a transfer of control or assignment of license application or an
application for new or modified CMRS facilities for which prior FCC
authorization is required, any interested party may file a petition to dismiss
or deny the application. Pursuant to the Communications Act, such application
cannot be acted upon until the petition is dismissed or denied by the FCC or
withdrawn or dismissed by the petitioner. Moreover, any such FCC approval or
authorization is subject to the filing of petitions for reconsideration and
other administrative and judicial appeal processes. Although the Company does
not believe that any such petition or appeal will be granted by the FCC that
would result in a material adverse effect on the Company, the Company can give
no assurance that such petitions and/or appeals, whether currently outstanding
or to be filed in the future, may not be granted by the FCC resulting in a
material adverse effect on the Company.
The Communications Act also limits foreign investment in and the ownership
of entities which are licensed as CMRS carriers by the FCC. Pursuant to Section
310(b) of the Communications Act, as amended by the Telecommunications Act of
1996, the stock of FCC licensees, such as the Company, may be owned no more than
20% by aliens or their representatives, a foreign government or its
representatives or a foreign corporation. For entities that own or control FCC
licensees, the stock of such entities can be held no more than 25% by aliens or
their representatives, a foreign government or its representatives or a foreign
corporation. The FCC has the authority to waive these ownership limitations and
the FCC has recently adopted a new 'effective competitive opportunities'
analysis that the Company believes may make it easier for the FCC to waive these
ownership limitations, at least for aliens of countries whose telecommunications
markets are open to U.S. participation.
In 1993, Congress amended the Communications Act to allow the FCC to assign
radio spectrum licenses through the use of auctions. The FCC has enacted general
regulations regarding the conduct of such auctions and the FCC has already
proceeded to assign certain licenses pursuant to auctions.
Pursuant to this legislative authority, the FCC has adopted regulations
pursuant to which the FCC can utilize auctions to select CMRS licensees when
more than one entity has filed a timely application for the same license
(referred to as 'mutually exclusive' or 'MX' applications). In addition, in
February, 1996, the FCC adopted a Notice of Proposed Rulemaking ('NPRM') in
which the FCC proposed to substantially modify the manner in which CMRS paging
licenses are granted and to utilize auctions in that process.
Specifically, Part 22 and Part 90 paging licenses were previously issued by
the FCC on a site-specific basis with authorization necessary to operate on any
paging frequency at each desired transmitter location. In the NPRM, the FCC
proposed to utilize a geographic licensing process in place of the current
site-specific licensing process. Under the FCC's proposal in the NPRM,
geographic licenses would be established and sold at auction. Pursuant to each
such geographic license, the licensee could operate on a single CMRS paging
frequency throughout a geographic area defined as a Major Trading Area ('MTA').
The United States is divided into 51 MTA's and there would be 51 geographic
licenses issued for each CMRS paging frequency. A geographic license would
confer upon the licensee the right to utilize the authorized frequency at any
location throughout the MTA provided that such operation: (i) does not interfere
with previously authorized co-channel one-way paging systems (referred to as
'incumbent systems'); (ii) does not interfere with co-channel operations in
neighboring MTA's; and (iii) complies with other FCC regulations. Under the
proposal specified in the NPRM, incumbent licensees can make minor changes to
their existing systems without prior FCC authorization as long as the changes do
not result in any increase in the composite interference contours of the
incumbent licensee's co-channel system. Incumbent licensees cannot, however,
without the consent of the geographic licensee for the subject frequency in the
subject MTA, make any changes to the incumbent's existing system or
39
<PAGE>
<PAGE>
add any co-channel transmitters that would result in an increase in the
composite interference contours of the incumbents' co-channel system.
In the NPRM, the FCC also proposed to exempt from geographic licensing CMRS
paging frequencies that are licensed on a nationwide basis. The frequency on
which the Company's Nationwide System operates is authorized on a nationwide
exclusive basis. However, based on the definition specified in the NPRM, it is
not yet clear whether the FCC will include the Company's Nationwide System
frequency as one of the nationwide frequencies that will be exempt from
geographic licensing. The Company has filed comments with the FCC in response to
the NPRM seeking clarification that the Company's Nationwide System frequency
will be exempt from geographic licensing. The FCC has not yet acted on the
Company's comments and the Company can give no assurances that the FCC will act
in accordance with the Company's position.
In light of the FCC's ability to utilize auctions to select from among MX
CMRS applications, and as a result of the FCC's proposal to institute geographic
licensing through auctions for one-way paging frequencies, there can be no
assurance that the Company will be able to procure additional frequencies, or to
expand its existing paging networks operating on frequencies for which the
Company is currently licensed into new geographic areas. Moreover, acquisition
of new paging licenses under existing rules, or new geographic paging licenses
(if the proposals specified in the NPRM are adopted), will require that the
Company make significant investment in order to obtain these licenses. The
Company also believes that the use of auctions in the paging context may
increase the number of competitors who have significant financial resources and
may provide an added incentive to build out authorized systems quickly. Further,
if the FCC rejects the Company's position and subjects the Company's Nationwide
System frequency to geographic licensing, the Company's planned expansion of the
Nationwide System could be hindered and could require significant additional
investment to acquire the resulting geographic licenses. Failure to have its
Nationwide System frequency included as a nationwide frequency that exempts it
from geographic licensing could result in a material adverse effect on the
Company.
In addition, in adopting the NPRM, the FCC also imposed a freeze on the
acceptance and processing of any applications for paging facilities. Although
the Company will be able to continue filing applications for new, expanded
and/or modified paging systems pursuant to exceptions to the FCC's freeze, the
freeze will limit the Company's ability to expand and modify its paging systems.
The FCC has also allocated two MHz of spectrum in the 901-902, 930-931 and
940-941 MHz frequency bands for advanced two-way messaging, characterized by the
FCC as narrowband PCS. In a separate phase of the same proceeding, the FCC has
also allocated 120 MHz of spectrum in the 1.8-2.2 GHz band for broadband PCS,
which involves primarily two-way mobile voice and data services. The FCC is in
the process of auctioning licenses for narrowband and broadband PCS systems
across the country. The Company believes that the two-way messaging capability
that will be possible on both types of PCS systems is currently being provided
by competitors and is a service that the Company and its competitors may pursue
in the future.
Congress recently adopted and President Clinton signed the
Telecommunications Act of 1996, which enacted numerous proposals relating to FCC
regulation of communications service providers. Although the Company's
anticipates that the deregulatory nature of the Telecommunications Act of 1996
will result in advantages to the Company, the Company can give no assurances
that the Telecommunications Act of 1996 and the FCC rules adopted pursuant
thereto will not have a material adverse effect on the Company.
In addition to regulation by the FCC, paging systems are subject to certain
Federal Aviation Administration regulations with respect to the height,
location, construction, marking and lighting of towers and antennas.
Further, in addition to regulation by the FCC, certain states imposed
various regulations on certain paging operations of the Company. At this time,
the Company is not aware of any proposed state legislation or regulations which
would have a material adverse impact on the Company's existing operations. There
can be no assurance, however, that such legislation or regulations will not be
passed in the future.
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<PAGE>
From time to time, legislation or regulations which could potentially
affect the Company, either beneficially or adversely, are proposed by federal
and state regulating entities. There can be no assurance this legislation or
regulation would not have a material adverse impact on the Company's operations.
TRADEMARKS AND COPYRIGHTS
On March 20, 1995, Tri-State Radio Co., a partnership that has since been
merged with and into the Company, filed a trademark application with the United
States Patent and Trademark Office with respect to the name 'Tri-State Radio'
with the United States Patent and Trademark Office. The Company has also filed a
trademark application with the United States Patent and Trademark Office for
'Beeper Warehouse,' a name that is used in connection with the Company's sales
and service centers. The Company may file additional trademark applications in
the future. The Company's logo, a radio-wave symbol, has been approved as a
service mark by the United States Patent and Trademark Office.
PROPERTIES
Substantially all of the Company's office space, including all of its
regional offices and sales and service centers, is leased. The leases provide
for monthly rentals up to $28,846 and expire, subject to renewal options, on
various dates from February, 1996 through November, 2002. The Company was
obligated to pay approximately $3.4 million under such leases during fiscal
1995. Management believes that it will continue to be able to obtain additional
space at reasonable costs. The Company owns one office building in York,
Pennsylvania.
The Company also leases sites for its transmitters on commercial broadcast
towers, buildings and other fixed structures. At December 31, 1995, the Company
leased sites for approximately 535 transmitters. The monthly rental cost of
these site leases ranges up to $3,500, and the leases expire at various dates
through December 2000.
EMPLOYEES
At March 31, 1996, the Company employed 376 persons on a full-time basis
and 42 persons on a part-time basis. Of these, 168 performed managerial, general
and administrative functions for the Company, 205 were involved in sales, sales
support and marketing and 45 were involved in engineering, maintenance and
repair. None of the Company's employees are represented by any labor union, and
management believes that the Company's employee relations are good.
LEGAL PROCEEDINGS
In the ordinary course of its business, the Company may be involved in
various pending or threatened legal proceedings. In management's opinion, none
of such legal proceedings will have a material adverse effect on the Company's
business, financial condition or operations, taken as a whole.
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MANAGEMENT
DIRECTORS, EXECUTIVE OFFICERS AND KEY EMPLOYEES
The directors, executive officers and certain other key employees of the
Company, their ages at April 30, 1996 and their positions with the Company are
set forth below. The Board of Directors is divided into three classes serving
staggered three-year terms.
<TABLE>
<CAPTION>
NAME AGE POSITION
- -------------------------------------- --- -------------------------------------------------------------------
<S> <C> <C>
Directors and Executive Officers:
Leonard DiSavino................. 57 Co-Chairman of the Board of Directors, President and Chief
Executive Officer
Philip Sacks..................... 66 Co-Chairman of the Board of Directors and Chief Operating Officer
Mitchell Sacks................... 33 Executive Vice President -- Operations, Chief Financial Officer and
Director
William P. Collatos.............. 42 Director
Stephen J. Gaal.................. 51 Director
Roger H. Kimmel.................. 49 Director
Kenneth T. Schiciano............. 33 Director
Key Employees:
Roland Addis..................... 35 Vice President -- Marketing
Ardon Beahm...................... 40 Vice President -- Engineering
Raymond Broedel.................. 49 Vice President -- West Coast Operations
Peter Buell...................... 37 Vice President -- Retail Sales
Michael LaRusso.................. 37 Vice President -- Sales (Northeast Region)
Frank Lynch...................... 34 Vice President -- Sales (West Region)
Mitchell Peipert................. 37 Vice President -- Controller
</TABLE>
Mr. Leonard DiSavino founded the Company with Philip Sacks and has served
as President and Chief Executive Officer since the Company's inception in 1974.
He also serves as Co-Chairman of the Board of Directors. Prior to establishing
the Company, Mr. DiSavino was Vice President of LIN Communications Services,
Inc. and President and Chief Executive Officer of Digital Paging Systems, Inc.,
a subsidiary of Graphic Scanning, Inc.
Mr. Philip Sacks founded the Company with Leonard DiSavino and has served
as Chief Operating Officer since the Company's inception. He also serves as
Co-Chairman of the Board of Directors. Prior to establishing the Company, Mr.
Sacks was Vice President -- Sales of LIN Communications Services, Inc. and
Executive Vice President of Digital Paging Systems, Inc., a subsidiary of
Graphic Scanning, Inc. Mr. Sacks is the father of Mitchell Sacks.
Mr. Mitchell Sacks joined the Company in November 1991 as Vice
President -- Finance and has been the Chief Financial Officer and Executive Vice
President -- Operations of the Company since January 1994. Mr. Sacks has been a
member of the Board of Directors since February 1994. From 1990 until April
1991, he was Northeast Regional Manager and, subsequently, Assistant Vice
President of Banque Francaise du Commerce Exterieur. From April 1991 until
November 1991, he served as an Associate at Segal & Co., a financial advisory
firm. Mr. Sacks is the son of Philip Sacks.
Mr. William P. Collatos has been a member of the Board of Directors since
July 1995. Mr. Collatos has served as a general partner of Spectrum Equity
Investors L.P., a venture capital fund specializing in communications,
information and media companies, since 1993. Mr. Collatos was a partner of TA
Associates, Inc. and Media Communications Partners from 1980 until 1993.
Spectrum Equity Investors, as one of the Investors, is a principal stockholder
of the Company. Mr. Collatos is a member of the Board of Directors of Galaxy
Telecom L.P. and Saga Communications.
Mr. Stephen J. Gaal has been a member of the Board of Directors since July
1995. Mr. Gaal has served as a general partner, managing director or principal
of TA Associates, Inc., a private equity capital firm, and its related entities
for more than five years. Mr. Gaal was a principal at Chatham Venture
Corporation, a venture capital firm. TA Associates, Inc., as one of the
Investors, is a principal
42
<PAGE>
<PAGE>
stockholder of the Company. Mr. Gaal is a member of the Board of Directors of
WorkGroup Technologies, Inc.
Mr. Roger H. Kimmel has been a member of the Board of Directors since July
1995. Mr. Kimmel has been a partner at the law firm of Latham & Watkins for more
than five years.
Mr. Kenneth T. Schiciano has been a member of the Board of Directors since
July 1995 and has been a principal of TA Associates, Inc. since January 1995. Mr
Schiciano was a Vice President of TA Associates, Inc. from 1989 to December
1994. Mr. Schiciano is a member of the Board of Directors of Galaxy Telecom L.P.
TA Associates, Inc., as one of the Investors, is a principal stockholder of the
Company.
Mr. Roland Addis joined the Company in March 1996 as Vice
President -- Marketing. Prior to joining the Company, Mr. Addis was employed by
AT&T as District Manager of New Business Development from May 1995 through March
1996. From September 1988 to April 1995, Mr. Addis was employed at Kraft General
Foods in various Marketing and New Product Development positions.
Mr. Ardon Beahm joined the Company in 1976 and has served in a number of
technical positions. From 1986 to 1991 he served as Chief Engineer of the
Company. He has served as Vice President -- Engineering since 1991.
Mr. Raymond Broedel joined the Company in 1994 as Operations Manager in
California. Mr. Broedel was promoted in 1995 to Vice President -- West Coast
Operations. Prior to joining the Company, Mr. Broedel was employed in operations
management positions at Asarte Corporation from 1989 to 1994.
Mr. Peter Buell joined the Company in 1988 as a Sales Representative. Mr.
Buell was promoted to New York Retail Sales Manager in July 1993 and Vice
President -- Retail Sales for the Northeast region as of August 1994. Prior to
joining the Company, Mr. Buell was employed in retail sales, sales support and
direct mail advertising at several companies.
Mr. Michael LaRusso joined the Company in January 1987 as a Sales
Representative. Mr. LaRusso was promoted to New York Sales Manager in 1992 and
Vice President -- Sales for the Northeast region as of August 1994. Prior to
joining the Company, Mr. LaRusso was employed in sales positions in the medical
industry.
Mr. Frank Lynch joined the Company in October 1993 as General Manager of
the Company's San Diego location. In 1995, Mr. Lynch was promoted to Vice
President -- Sales for the Company's West region. Prior to joining the Company,
Mr. Lynch was employed at Motorola from 1987 to 1993 in various sales positions
in divisions related to data products.
Mr. Mitchell Peipert joined the Company in April 1992 as Controller and has
served as Vice President -- Controller since January 1994. From 1989 to 1992,
Mr. Peipert served as Manager for Anchin Block and Anchin, independent public
accountants. From 1987 to 1989, Mr. Peipert was employed as a senior financial
analyst for the corporate controller's group at Merrill Lynch, Pierce Fenner &
Smith Incorporated. Mr. Peipert is a certified public accountant.
COMPENSATION OF DIRECTORS
Following the consummation of the Offerings, the Company will pay its
directors who are not officers of the Company customary fees, including fees for
each directors' meeting and each committee meeting attended and reimbursement
for traveling costs and other out-of-pocket expenses incurred in attending such
meetings. Directors who are also officers of the Company receive no additional
compensation for serving on the Board of Directors or its committees.
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<PAGE>
<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth the cash compensation paid for the fiscal
year ended December 31, 1995 to each of the persons who are the most highly
compensated executive officers of the Company (the 'Named Executive Officers').
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
---------------------------------
OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION
- ---------------------------------------------------------------------- ---- -------- ----- ------------
<S> <C> <C> <C> <C>
Leonard DiSavino ..................................................... 1995 $ 75,000 $ 0 $665,836(1)
Co-Chairman, President
and Chief Executive Officer
Philip Sacks ......................................................... 1995 75,000 0 655,538(2)
Co-Chairman
and Chief Operating Officer
Mitchell Sacks ....................................................... 1995 170,833 0 0
Executive Vice President Operations
and Chief Financial Officer
</TABLE>
- ------------
(1) Includes (i) $465,000 received as a distribution from the Company as a
return of capital, (ii) $138,774 in transactional costs paid by the Company
on behalf of such person and (iii) $57,543 as a distribution in respect of
tax liabilities for 1995.
(2) Includes (i) $465,000 received as a distribution from the Company as a
return of capital, (ii) $138,774 in transactional costs paid by the Company
on behalf of such person and (iii) $47,254 as a distribution in respect of
tax liabilities for 1995.
EMPLOYMENT CONTRACTS
In connection with the Offerings, Messrs. DiSavino, Philip Sacks and
Mitchell Sacks will enter into employment agreements which are currently being
negotiated.
1995 PHANTOM STOCK PLAN
In September 1995, the Company adopted the 1995 Phantom Stock Plan for
Employees of TSR Paging Inc. (the 'Phantom Stock Plan' or the 'Plan'), which
provides for the grant of units ('Units') representing interests in the Company.
The Phantom Stock Plan is intended to assist the Company in attracting and
retaining management and personnel with the experience and ability to make a
substantial contribution to the success of the Company's business. The following
summary of the Plan is qualified in its entirety by reference to the full text
of the Plan, a copy of which has been filed as an exhibit to the Registration
Statement of which this Prospectus is a part.
The Plan is currently administered by the Board of Directors (the 'Board')
of the Company. The total number of Units available under the Phantom Stock Plan
for grants to employees of the Company is 1,000,000. Grants of Units under the
Plan take the form of individual grant agreements, the form and substance of
which, including the number of Units, the Strike Price (if any), the vesting
period and other terms, are determined at the discretion of the Board. The Board
has the discretion to amend, suspend or terminate the plan. No such amendment,
suspension or termination may modify the rights of a holder of Units under an
individual grant agreement without such holder's consent.
The Phantom Stock Plan provides that the Company will be obligated to make
payments in respect of Units only upon the happening of a Liquidity Event. In
lieu of making such payments, the Company may exchange rights in respect of
Units for options for Common Stock. The Company intends to grant options for
Common Stock in connection with the Offerings. The Plan defines a Liquidity
Event as (i) a Sale of the Company or (ii) a Public Offering. A Sale for
purposes of the Plan is defined as (i) the consolidation or merger of the
Company with or into any other Person, (ii) the sale or transfer by the Company
of all or substantially all of its assets, (iii) the sale or transfer by the
Stockholders (as defined in the Plan) of more than 50% of the outstanding equity
interests of the Company or (iv) the approval of a plan of liquidation or
dissolution of the Company, except, in the case of clauses (i) through (iii),
for transactions with a Stockholder or an Affiliate (as defined in the Plan) of
a Stockholder. A Public
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<PAGE>
Offering for purposes of the Plan is defined as a public offering in which (i)
the aggregate valuation, subject to certain exceptions, of the outstanding
Common Stock of the Company immediately prior to such offering is not less than
$215,000,000, (ii) proceeds to the Company, net of underwriting discounts and
commissions, are at least $50,000,000, (iii) the Notes are repaid and (iv) the
shares of the Company's Common Stock are listed on the New York Stock Exchange
or quoted on the Nasdaq National Market.
The Plan provides that if the Liquidity Event is a Public Offering, the
holder of Units will be entitled to receive either cash or options, at the
discretion of the Board. The Offerings will constitute a Liquidity Event under
the Plan. In connection with the Offerings, the Company intends to grant options
for Common Stock to holders of Units. If the Liquidity Event is a Sale of the
Company, the holders of Units will be entitled to receive either cash or the
form of consideration received in such Sale, in the discretion of the Board.
Holders of Units under the Plan do not have the rights or privileges of
stockholders of the Company.
NON-EMPLOYEE DIRECTOR STOCK OPTION PLAN
In connection with the Offerings, the Company intends to adopt the 1996
Non-Employee Director Stock Option Plan (the 'Director Plan'). The Director Plan
is intended to assist the Company in attracting and retaining directors of
outstanding ability and to promote the identification of their interests with
those of the stockholders of the Company. The Director Plan will provide for
automatic grants of non-qualified stock options ('Options') covering
authorized but unissued or reacquired shares of Common Stock, subject to
adjustment to reflect events such as stock dividends, stock splits,
recapitalizations, mergers or reorganizations of or by the Company. The Director
Plan will be administered by the Board of Directors of the Company and is
intended to satisfy the requirements of Rule 16b-3 under the Exchange Act.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
At December 31, 1995, the Company had not created a compensation committee
or an audit committee of its Board of Directors. The Company will establish both
a compensation committee and an audit committee of its Board of Directors. In
connection with the Offerings, it is anticipated that the compensation committee
and the audit committee will consist of not fewer than two non-employee
directors. Prior to the Offerings, decisions on executive compensation were
generally made by Messrs. Leonard DiSavino and Philip Sacks, subject, in the
case of Messrs. DiSavino and Sacks, to approval by the Board of Directors and in
the case of Mitchell Sacks, to review by a representative of the Investors.
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CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
In July 1995, the Investors purchased from Leonard DiSavino and Philip
Sacks (i) the Notes for $34.0 million with an aggregate face value of $70.0
million, which are the non-recourse obligations of Messrs. DiSavino and Sacks
and (ii) the Option for $1 million to purchase 40.66% of the fully-diluted
common stock, including phantom stock , of the Company from the Founding
Stockholders in exchange for the discounted portion of the Notes. The
Investors intend to exercise the Option simultaneous with the consummation
of the Offerings. A portion of the proceeds from the Offerings will be used
to pay the Dividend to the Founding Stockholders, which payment will be used by
Messrs. DiSavino and Sacks to repay in part the Notes. The Notes will be
satisfied in connection with the exercise of the Option. See 'Use of Proceeds.'
In connection with the purchase and sale of the Notes and the Option, the
Company, the Operating Entities, the Founding Stockholders and the Investors
entered into a Securities Purchase Agreement (the 'SPA'), dated as of July 17,
1995. Under the SPA the Company may not, among other things, allow amendments
(subject to certain exceptions) to its certificate of incorporation, consolidate
or merge with or into any other entity, make any loans or investments (subject
to certain exceptions) in any other entity, make any dividends on any of its
capital stock or sell additional securities (except for sales of additional
securities pursuant to a Qualified Public Offering (as defined in the SPA)).
The parties to the SPA also entered into an Investment Agreement, dated as
of July 17, 1995 (the 'Investment Agreement'), which provides the Investors with
the right to elect three members of the Board of Directors of the Company. In
addition, the Investment Agreement also provides that the Company will use its
reasonable efforts to include, subject to certain exceptions, all or a portion
of the Registrable Securities (as defined below) held by the Investors in
registrations of securities under the Securities Act. If the registration
relates to a primary offering, the Company will pay all expenses of the
registration except for underwriting commissions and transfer taxes on stock
attributable to the Registrable Securities. If such registration relates
exclusively to a secondary offering all selling stockholders will pay their
proportionate share of the expenses of the registration and offering, except
expenses the Company would have incurred whether or not such registration had
occurred. In connection with the Offerings, the Investors have agreed to waive
their registration rights with respect to the Offerings under the Investment
Agreement.
The Investment Agreement further provides that after the Company's first
underwritten public offering of securities, one or more of the Investors holding
at least ten percent of the Registrable Securities will be able to request that
the Company register under the Securities Act its or their Registrable
Securities on any four occasions, provided that each such registration must be
at least twelve months apart. The Investment Agreement defines Registrable
Securities as any stock of the Company purchased by, or issued to, an Investor
including without limitation any stock issued or issuable upon exercise of the
Option and any stock issued or issuable in connection with a stock dividend or
stock split or otherwise.
In connection with the Offerings, the Investors will give Messrs. DiSavino
and Sacks an irrevocable proxy to vote approximately 17.3% of the Common Stock
of the Company held by the Investors.
In connection with the SPA and the purchase and sale of the Notes and the
Options, the Company extended loans to Messrs. DiSavino and Sacks totaling
$1,049,140, to pay certain fees and expenses of such transactions. Such loans
are noninterest bearing, have no defined repayment terms and are reflected as a
reduction to capital (deficit) in the financial statements of the Company. Prior
to consummation of the Offerings, the Company forgave the loans to Messrs.
DiSavino and Sacks.
Tax Indemnification Agreement. Prior to the completion of the Offerings,
the Company and the Founding Stockholders will enter into a tax indemnification
agreement (the 'Tax Agreement'). Subject to certain limitations, the Tax
Agreement generally provides that the Company will be indemnified by the
Founding Stockholders on a pro rata basis, and the Founding Stockholders will be
indemnified by the Company, for increases in taxes and certain other costs that
result from a reallocation by a taxing authority of taxable income between the
period before the date of this Prospectus, in which the Company has been taxed
as an S Corporation, and the period commencing on the date of this Prospectus,
in which the Company will be taxed as a C Corporation. The amount payable by the
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<PAGE>
Company or a Founding Stockholder with respect to a reallocation will be limited
to the tax benefit derived by the Company or the Founding Stockholder,
respectively, as a result of the reallocation.
Mr. Roger H. Kimmel, a director of the Company, is a member of Latham &
Watkins. Latham & Watkins has represented the Company from time to time in
various matters, including the Offerings. See 'Legal Matters.'
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PRINCIPAL STOCKHOLDERS
The following table (i) assumes that the Option has been exercised, (ii)
assumes that grants under the Phantom Stock Plan are converted into options to
purchase Common Stock and, (iii) sets forth certain information regarding the
beneficial ownership of the Common Stock (X) immediately prior to the Offerings
and (Y) as adjusted to reflect the sale of the Common Stock in the Offerings, by
(1) each person known by the Company to be the beneficial owner of more than 5%
of the outstanding shares of Common Stock, (2) each director, (3) each Named
Executive Officer and (4) all directors and executive officers of the Company as
a group. Unless otherwise noted in the footnotes to the table, the persons named
in the table have sole voting and investing power with respect to all shares of
Common Stock indicated as being beneficially owned by them.
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP OF COMMON BENEFICIAL OWNERSHIP OF COMMON
STOCK PRIOR TO THE OFFERINGS STOCK AFTER THE OFFERINGS
-------------------------------------- --------------------------------------
BENEFICIAL OWNER NUMBER PERCENT NUMBER PERCENT
- ---------------------------------------------- ------------------- ----------------- ------------------- -----------------
<S> <C> <C> <C> <C>
Leonard DiSavino(1) .......................... 28.7 % %
c/o TSR Paging Inc.
400 Kelby Street
Fort Lee, NJ 07024
Philip Sacks(2) .............................. 28.7
c/o TSR Paging Inc.
400 Kelby Street
Fort Lee, NJ 07024
Mitchell Sacks(3) ............................ 0
c/o TSR Paging Inc.
400 Kelby Street
Fort Lee, NJ 07024
TA Associates Group(4) ....................... 24.9
125 High Street
Suite 2500
Boston, MA 02110
Spectrum Equity Investors L.P.(5) ............ 8.2
125 High Street
Suite 2600
Boston, MA 02110
St. Paul Fire and Marine Insurance Company ... 5.8
c/o St. Paul Venture Capital, Inc.
8500 Normandale Lake Blvd.
Suite 1940
Bloomingdale, MN 55437
William P. Collatos(5) ....................... 0
c/o Spectrum Equity Investors L.P.
125 High Street
Suite 2600
Boston, MA 02110
Stephen J. Gaal(6) ........................... *
c/o TA Associates, Inc.
125 High Street
Suite 2500
Boston, MA 02110
Roger H. Kimmel(7) ........................... 0
885 Third Avenue
Suite 1000
New York, NY 10022
Kenneth T. Schiciano(8) ...................... *
c/o TA Associates, Inc.
125 High Street
Suite 2500
Boston, MA 02110
Directors and Named Executive Officers as a 57.4 % %
group (seven persons) ....................
</TABLE>
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<PAGE>
- ------------
* Less than 1%.
(1) Includes (i) shares held in a trust for the benefit of Mr. DiSavino's
children (the 'DiSavino Trust') and (ii) shares held in three separate
grantor retained annuity trusts (each, a 'GRAT'), of which GRATs Messrs.
DiSavino and Sacks are co-trustees. Mr. DiSavino has disclaimed beneficial
ownership of all of the shares in the DiSavino Trust and the GRATs. Pursuant
to the Stockholders Agreement (as defined in 'Certain Relationships and
Related Party Transactions'), the DiSavino Trust granted Mr. DiSavino an
irrevocable proxy to vote the shares of Common Stock of the Company held by
the DiSavino Trust.
(2) Includes (i) shares held in a trust for the benefit of Mitchell Sacks
(the 'Mitchell Sacks Trust') and (ii) shares held in three separate
GRATs, of which GRATs Messrs. DiSavino and Sacks are co-trustees. Mr. Sacks
has disclaimed beneficial ownership of all of the shares in the Mitchell
Sacks Trust and the GRATs. Pursuant to the Stockholders Agreement, the
Mitchell Sacks Trust granted Mr. Sacks an irrevocable proxy to vote the
shares of Common Stock of the Company held by the Mitchell Sacks Trust.
(3) Mr. Mitchell Sacks is the beneficiary of a trust which holds shares of
Common Stock. Mr. Philip Sacks has the right to vote such shares for a
five-year period ending , .
(4) Includes shares held by Advent VII L.P., shares held by Advent
Atlantic and Pacific II L.P., shares held by Advent VI L.P.,
shares held by Advent Industrial II L.P., shares held by Advent New
York L.P. and shares held by TA Venture Investors Limited Partnership.
Advent VII L.P., Advent Atlantic and Pacific II L.P., Advent VI L.P., Advent
Industrial II L.P., Advent New York L.P. and TA Venture Investors Limited
Partnership are part of an affiliated group of investment partnerships
referred to collectively as the TA Associates Group. The general partner of
Advent VII L.P. is TA Associates VII, L.P. The general partner of Advent
Atlantic and Pacific II Limited Partnership is TA Associates AAP II
Partners, L.P. The general partner of each of Advent VI, L.P., Advent New
York, L.P. and Advent Industrial II, L.P. is TA Associates VI, L.P. The
general partner of each of TA Associates VII, L.P., TA Associates VI, L.P.
and TA Associates AAP II Partners, L.P. is TA Associates, Inc. In such
capacity, TA Associates, Inc. exercises sole voting and investment power
with respect to all of the shares held of record by the named investment
partnerships, with the exception of those held by TA Venture Investors,
L.P.; individually no stockholder, director or officer of TA Associates,
Inc. is deemed to have or share such voting or investment power. Principals
and employees of TA Associates, Inc. (including Mr. Gaal and Mr. Schiciano,
directors of the Company) comprise the general partners of TA Venture
Investors, L.P. In such capacity, each of Mr. Gaal and Mr. Schiciano may be
deemed to share voting and investment power with respect to shares
held of record by TA Venture Investors, L.P. Messrs. Gaal and Schiciano
disclaim beneficial ownership of such shares, except to the extent of the
shares and shares, in which they respectively hold a pecuniary
interest.
(5) Mr. Collatos, a director of the Company, is a general partner of Spectrum
Equity Investors L.P. Mr. Collatos disclaims beneficial ownership of shares
held by Spectrum Equity Investors L.P.
(6) Mr. Gaal is a director of the Company. Includes shares held by TA
Venture Investors, L.P., all of which are included in the shares
described in footnote (4) above. Mr. Gaal disclaims beneficial ownership to
such shares, except to the extent of the shares as to which he holds a
pecuniary interest. Does not include any shares owned by Advent VII L.P.,
Advent Atlantic and Pacific II L.P., Advent VI L.P., Advent Industrial II
L.P. or Advent New York L.P., as to which Mr. Gaal disclaims beneficial
ownership.
(7) Mr. Kimmel is a trustee under the DiSavino Trust and Mitchell Sacks Trust
but disclaims beneficial ownership of the shares held by such trusts.
(8) Mr. Schiciano is a director of the Company. Includes shares held by TA
Venture Investors, L.P., all of which are included in the shares
described in footnote (4) above. Mr. Schiciano disclaims beneficial
ownership to such shares, except to the extent of the shares as to
which he holds a pecuniary interest. Does not include any shares owned by
Advent VII L.P., Advent Atlantic and Pacific II L.P., Advent VI L.P., Advent
Industrial II L.P. or Advent New York L.P. as to which Mr. Schiciano
disclaims beneficial ownership.
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DESCRIPTION OF CAPITAL STOCK
At the date of the Offerings, the authorized capital stock of the Company
will consist of 20,000,000 shares of common stock, par value $.01 per share, and
1,000,000 shares of preferred stock, par value $.01 per share (the 'Preferred
Stock').
COMMON STOCK
The holders of Common Stock are entitled to one vote for each share held of
record on all matters submitted to a vote of the stockholders. The Certificate
of Incorporation does not provide for cumulative voting, and, accordingly, the
holders of a majority of the outstanding shares have the power to elect all
directors. The quorum required at a stockholders' meeting for consideration of
any matter is a majority of the shares entitled to vote on that matter,
represented in person or by proxy. If a quorum is present, the affirmative vote
of a majority of the shares voting on the matter at the meeting is required for
stockholder approval.
Holders of Common Stock will have no preemptive, subscription, conversion
or similar rights. There are no redemption or sinking fund provisions applicable
to the Common Stock. Subject to preferences that may be applicable to any
then-outstanding Preferred Stock, holders of Common Stock are entitled to
receive ratably dividends when, as, and if declared by the Board of Directors
out of funds legally available therefor. In the event of liquidation,
dissolution or winding up of the Company, holders of Common Stock are entitled
to share ratably in all assets of the Company remaining after the payment of
liabilities and the liquidation preference of any then-outstanding Preferred
Stock. All outstanding shares of Common Stock are, and all shares of Common
Stock to be outstanding upon completion of the Offering will be, fully paid and
nonassessable.
Under the Communications Act, not more than 20% of the Company's capital
stock may be owned of record by other than United States citizens or entities.
The Certificate of Incorporation restricts the ownership and voting of the
Company's capital stock, including its Common Stock, in accordance with the
Communications Act and the rules of the FCC, to prohibit ownership of more than
20% of the Company's capital stock (or control of more than 20% of the voting
power it represents) by or for the account of aliens or their representatives,
foreign governments or their representatives or foreign corporations. See
'Business -- Regulation.' The Certificate of Incorporation also prohibits any
transfer of the Company's capital stock that would cause the Company to violate
this prohibition. In addition, the Certificate of Incorporation authorizes the
Board of Directors to adopt such provisions as it deems necessary to enforce
these prohibitions. The Company's Board of Directors has the right to require
that the certificates evidencing shares of the Company's Common Stock contain a
certification that must be executed by the transferee of any such certificate
before transfers of the shares represented thereby may be made on the books of
the Company. Such certification addresses whether such transferee, any person or
entity who will be able to vote such shares, or any person or entity for whose
account such shares will be held, is an alien, foreign government or foreign
corporation.
PREFERRED STOCK
The Certificate of Incorporation authorizes the Board of Directors to
issue, from time to time and without further stockholder action, one or more
series of Preferred Stock, and to fix the relative rights and preferences of the
shares thereof, including voting powers, dividend rights, liquidation
preferences, redemption rights and conversion privileges. To date, the Board of
Directors has not authorized any series of Preferred Stock, and there are no
agreements or understandings for the issuance of any shares of Preferred Stock.
Because of its broad discretion with respect to the creation and issuance of
Preferred Stock without stockholder approval, the Board of Directors could
adversely affect the voting power of the holders of Common Stock and, by issuing
shares of Preferred Stock with certain voting, conversion and/or redemption
rights, could discourage any attempt to obtain control of the Company.
DELAWARE LAW AND CERTAIN CERTIFICATE OF INCORPORATION AND BY-LAW PROVISIONS
The Company is a Delaware corporation and is subject to Section 203 of the
Delaware General Corporation law. Subject to certain exceptions set forth
therein, Section 203 prevents an 'interested stockholder' (defined generally as
a person owning 15% or more of a corporation's outstanding voting
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stock) from engaging in a 'business combination' (as defined) with a Delaware
corporation for three years following the date such person became an interested
stockholder unless (i) before such person became an interested stockholder, the
Board of Directors of the corporation approved the transaction that resulted in
the interested stockholder becoming an interested stockholder or approved the
business combination; (ii) upon consummation of the transaction that resulted in
the interested stockholder becoming an interested stockholder, the interested
stockholder owned at least 85% of the voting stock of the corporation
outstanding at the time the transaction commenced (excluding shares owned by
persons who are both officers and directors of the corporation, and shares held
by certain employee stock ownership plans); or (iii) following the transaction
in which such person became an interested stockholder, the business combination
is approved by the Board of Directors of the corporation and authorized at a
meeting of stockholders by the affirmative vote of the holders of at least
two-thirds of the outstanding voting stock of the corporation not owned by the
interested stockholder. Under certain circumstances, Section 203 of the Delaware
General Corporation Law (the 'DGCL') makes it more difficult for an 'interested
stockholder' to effect various business combinations with a corporation for a
three-year period, although the stockholders may, by adopting an amendment to
the corporation's certificate of incorporation or bylaws, elect not to be
governed by this section, effective twelve months after adoption. The Company's
Certificate of Incorporation and By-laws do not exclude the Company from the
restrictions imposed under Section 203 of the DGCL. It is anticipated that the
provisions of Section 203 of the DGCL may encourage companies interested in
acquiring the Company to negotiate in advance with the Board of Directors.
The Certificate of Incorporation divides the Board of Directors into three
classes, with one class having a term of one year, one class having a term of
two years and one class having a term of three years. Each class is as nearly
equal in number as possible. The Company's By-laws provide that the exact number
of directors shall be fixed from time to time by the Board of Directors. At each
annual meeting of stockholders, directors will be elected to succeed those
directors whose terms have expired, and each newly elected director will serve
for a three-year term. Directors may only be removed for cause. The classified
board provision could increase the likelihood that, in the event of a takeover
of the Company, incumbent directors will retain their positions. In addition,
the classified board provision will help insure that the Company's Board of
Directors, if confronted with an unsolicited proposal from a third party that
has acquired a block of the voting stock of the Company, will have sufficient
time to review the proposal and appropriate alternatives and to seek the best
available result for all stockholders.
LIMITATION OF LIABILITY AND INDEMNIFICATION
The Certificate of Incorporation provides that to the fullest extent
permitted by the DGCL, a director of the Company shall not be liable to the
Company or its stockholders for the monetary damages for breach of fiduciary
duty as a director. Under the DGCL, liability of a director may not be limited
(i) for any breach of the director's duty or loyalty to the Company or its
stockholders, (ii) for acts or omissions not in good faith or that involve
intentional misconduct or a knowing violation of law, (iii) in respect of
certain unlawful dividend payments or stock redemptions or repurchases and (iv)
for any transaction from which the director derives an improper personal
benefit. The effect of the provision of the Certificate of Incorporation is to
eliminate the rights of the Company and its stockholders (through stockholders'
derivative suits on behalf of the Company) to recover monetary damages against a
director for breach of the fiduciary duty of care as a director (including
breaches resulting from negligent or grossly negligent behavior) except in the
situations described in clauses (i) through (iv) above. This provision does not
limit or eliminate the rights of the Company or any stockholder to seek
nonmonetary relief such as an injunction or rescission in the event of a breach
of a director's duty of care. In addition, the Company's By-laws provide that
the Company shall indemnify its directors, officers, employees and agents to the
fullest extent permitted by the DGCL.
The Company maintains a standard policy of officers' and directors'
liability insurance.
TRANSFER AGENT AND REGISTRAR
will serve as the transfer agent and registrar for the Common
Stock.
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SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the Offerings, the Company will have shares of
Common Stock outstanding ( shares if the Underwriters' over-allotment
options are exercised in full). Of these shares, the shares sold in the
Offerings ( shares if the Underwriters' over-allotment options are
exercised in full) will be freely tradeable without restriction or further
registration under the Securities Act, except for any shares purchased by an
'affiliate' of the Company, as that term is defined under Rule 144 of the
Securities Act and the regulations promulgated thereunder, which will be subject
to the limitations of Rule 144.
The remaining shares will be 'restricted' securities within the
meaning of Rule 144 under the Securities Act and may not be sold other than
pursuant to an effective registration statement under the Securities Act or
pursuant to an exemption from the registration requirements of the Securities
Act. All of such shares are subject to agreements with the Underwriters
that prohibit their sale or other disposition for a period of 180 days after the
date of the Offerings without the prior written consent of Lehman Brothers Inc.
After expiration of such 180-day period, approximately of such shares
may be sold in accordance with the volume and other resale restrictions of Rule
144.
In general, under Rule 144 under the Securities Act as currently in effect,
a person (or persons whose shares must be aggregated) who has beneficially owned
Restricted Shares for at least two years, including a person who may be deemed
an 'affiliate' of the Company, is entitled to sell within any three-month period
that number of shares that does not exceed the greater of one percent of the
then outstanding shares of the Common Stock or the reported average weekly
trading volume of the then outstanding shares for the four weeks preceding each
such sale. Sales under Rule 144 also are subject to certain manner of sale
restrictions and notice requirements, and to the availability of current public
information about the Company. Any person (or persons whose shares are
aggregated) who is not deemed to have been an affiliate of the Company at any
time during the 90 days preceding a sale, and who has beneficially owned shares
for at least three years (including any period of ownership of preceding
non-affiliated holders), will be entitled to sell such shares under Rule 144(k)
without regard to the volume limitations, manner of sale provisions, public
information requirements or notice requirements. As defined in Rule 144, an
'affiliate' of an issuer is a person that directly, or indirectly through the
usage of one or more intermediaries, controls, or is controlled by, or is under
common control with, such issuer.
Prior to the Offerings, there has been no public market for the Common
Stock. No prediction can be made as to the effect, if any, that future sales of
shares, or the availability of shares for future sale, will have on the market
price of the Common Stock prevailing from time to time. Sales of substantial
amounts of Common Stock (including shares issued upon the exercise of stock
options), or the perception that such sales could occur, could adversely affect
prevailing market prices for the Common Stock. If such sales reduce the market
price of the Common Stock, the Company's ability to raise additional capital in
the equity markets could be adversely affected.
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DESCRIPTION OF CERTAIN INDEBTEDNESS
CREDIT AGREEMENT
The Company, the First National Bank of Chicago, N.A. ('First Chicago') and
certain other lenders (collectively, the 'Lenders') entered into the Credit
Agreement, pursuant to which the Lenders have provided a $60.0 million credit
facility, including revolving loans and up to $5.0 million in letters of credit,
to the Company. The following summary of certain provisions of the Credit
Agreement is qualified by reference to the Credit Agreement, a copy of which
is filed as an exhibit to the Registration Statement of which this Prospectus
is a part, and capitalized terms have the meaning set forth in the Credit
Agreement. The Credit Agreement is used to finance certain capital expenditures
and to provide for ongoing working capital requirements of the Company. The
Company may borrow on a revolving basis under the Credit Agreement at any
time prior to June 30, 1997. Thereafter, loans under the Credit Agreement
convert into term loans, and must be repaid according to a specified quarterly
installment schedule beginning on September 30, 1997 and continuing until June
30, 2002.
The Company's obligations under the Credit Agreement are secured by
substantially all of the Company's assets (other than licenses or permits issued
by the FCC to the extent that it is unlawful to grant a security interest in, or
would cause a forfeiture of, such licenses or permits, but including the
proceeds from any sale or disposition of such licenses or permits to the extent
the grant of a security interest in such proceeds is lawful).
Loans under the Credit Agreement ('Advances') may be either Floating Rate
Advances or Eurodollar Advances, as selected by the Company. Floating Rate
Advances bear interest at the Alternate Base Rate plus the Applicable Margin and
Eurodollar Advances bear interest at the Eurodollar Rate. The Alternate Base
Rate is defined as the higher of (i) the corporate base rate of First Chicago
and (ii) the weighted average of the rates on overnight Federal funds with
members of the Federal Reserve System plus 1/2%. The Eurodollar Rate is equal to
the sum of (i) the quotient of (a) the rate determined by First Chicago to be
the rate at which deposits in U.S. dollars are offered by First Chicago to
first-class banks in the London interbank market applicable to such period,
divided by (b) one minus the applicable aggregate reserve requirement imposed
under Regulation D of the Board of Governors of the Federal Reserve System on
Eurocurrency liabilities, plus (ii) the Applicable Margin. The Applicable Margin
is determined by reference to the Leverage Ratio of the Company (equal to (i)
the total debt of the Company divided by (b) the net operating cash flow of the
Company for the last two fiscal quarters multiplied by two) as set forth in the
following table:
<TABLE>
<CAPTION>
LEVERAGE RATIO
- ---------------------------------- APPLICABLE MARGIN
GREATER THAN ---------------------------
OR EQUAL TO BUT LESS THAN FLOATING EURODOLLAR
- ------------ ------------- -------- ----------
<S> <C> <C> <C>
3.5 -- 1.00% 2.25%
3.0 3.5 0.75 2.00
2.5 3.0 0.50 1.75
2.0 2.5 0.25 1.50
-- 2.0 0.00 1.25
</TABLE>
The Credit Agreement provides that on or before June 30 of each year,
commencing with June 30, 1998, the Company is required to make a mandatory
prepayment of all outstanding Advances in an amount equal to 50% of the excess
of Net Operating Cash Flow over (i) capital expenditures, (ii) scheduled
principal payments, (iii) increases or decreases in the excess of current assets
over current liabilities, (iv) tax distributions and (v) interest expense.
The Credit Agreement contains numerous restrictive financial and other
covenants, including, but not limited to (i) limitations on the incurrence of
liens and other indebtedness, (ii) restrictions on mergers and consolidations,
certain asset sales, investments exceeding $10 million over the term of the
Credit Agreement and sale-leasebacks, (iii) a prohibition (with certain limited
exceptions) on dividends on its capital stock and (iv) the achievement of
certain financial targets, including an interest coverage ratio of 3.75:1 in
1996 and 4.0:1 thereafter, a pro forma fixed charge coverage ratio of 1.10:1 in
1997 and 1.15:1 thereafter, a fixed charge coverage ratio of 1.10:1 during 1997
and 1.20:1 thereafter, a leverage
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ratio of 4.00:1 through June 30, 1996 declining to 2.50:1 in 1999 and a limit on
capital expenditures of $28.5 million in 1996, decreasing to $24.0 million in
2001 and thereafter.
Events of default under the Credit Agreement include, among others, (i)
nonpayment of principal, interest, fees or other obligations due under the
Credit Agreement and related documents, (ii) breach in the observance or
performance of certain covenants, conditions or agreements, (iii) failure by the
Company to pay when due any indebtedness in excess of $500,000, or default under
any agreement relating to indebtedness of the Company aggregating $500,000 which
causes acceleration of the stated maturity of such indebtedness, (iv) certain
bankruptcy events, (v) certain government condemnations of property of the
Company and (vi) failure to pay or otherwise discharge any judgment in excess of
$500,000 for thirty days.
The Company is charged a commitment fee for the unborrowed portion of the
funds which each Lender is obligated to loan under the Credit Agreement at a
rate of .375% per annum, which rate is reduced to .50% per annum when the
Leverage Ratio is equal or greater than 2.0. The Company is also charged a fee
on outstanding undrawn letters of credit based on the Leverage Ratio as set
forth in the previous table.
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
FOR NON-UNITED STATES HOLDERS
The following is a general discussion of certain United States federal
income tax consequences of the ownership and disposition of Common Stock by a
holder who is not a United States person (a 'Non-U.S. Holder'). For these
purposes, the term 'United States person' is defined as any person who is a
citizen or resident of the United States, a corporation or a partnership or
other entity created or organized in the United States or under the laws of the
United States or of any State, or an estate or trust whose income is includable
in gross income for United States federal income tax purposes regardless of its
source. This discussion does not address all aspects of United States federal
income and estate taxes and does not deal with non-United States and state and
local tax consequences that may be relevant to Non-U.S. Holders in light of
their personal circumstances. Furthermore, this discussion is based on current
provisions of the Internal Revenue Code of 1986, as amended (the 'Code'),
existing and proposed regulations promulgated thereunder and administrative and
judicial interpretations thereof, all of which are subject to change. Each
prospective purchaser of Common Stock is advised to consult a tax advisor with
respect to current and possible future tax consequences of acquiring, holding
and disposing of Common Stock.
An individual may, subject to certain exceptions, be deemed to be a
resident alien (as opposed to a nonresident alien) by virtue of being present in
the United States on at least 31 days in the calendar year and for an aggregate
of at least 183 days during a three-year period ending in the current calendar
year (counting for such purposes all of the days present in the current year,
one-third of the days present in the immediately preceding year, and one-sixth
of the days present in the second preceding year). Resident aliens are subject
to United States federal tax as if they were United States citizens and
residents.
DIVIDENDS
The Company does not currently intend to pay dividends on shares of Common
Stock. See 'Dividend Policy.' In the event that dividends are paid on shares of
Common Stock, except as described below, such dividends paid to a Non-U.S.
Holder of Common Stock will generally be subject to withholding of United States
federal income tax at a 30% rate or such lower rate as may be specified by an
applicable income tax treaty, unless the dividends are effectively connected
with the conduct of a trade or business of the Non-U.S. Holder within the United
States. If the dividend is effectively connected with the conduct of a United
States trade or business of a Non-U.S. Holder who has properly filed a Form 4224
(or similar statement) with the withholding agent with respect to the taxable
year in which the dividend is paid, no withholding is required. However, the
dividend (as adjusted by any applicable deductions) would be subject to regular
United States federal income tax. In addition, all or a portion of any such
effectively connected dividends received by a foreign corporation may, under
certain circumstances, be subject to an additional 'branch profits tax' at a 30%
rate or such lower rate as may be specified by an applicable income tax treaty.
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Under current United States Treasury regulations, dividends paid to an
address outside the United States, unless the payer has knowledge to the
contrary, are presumed to be paid to a resident of such country for purposes of
the withholding discussed above, and, under the current interpretation of United
States Treasury regulations, for purposes of determining the applicability of a
tax treaty rate. Under proposed United States Treasury regulations not currently
in effect, however, a Non-U.S. Holder of Common Stock who wishes to claim the
benefit of an applicable treaty rate would be required to satisfy applicable
certification and other requirements. Currently, certification and disclosure
requirements must be complied with in order to be exempt from withholding under
the effectively connected income exemption discussed above.
A Non-U.S. Holder of Common Stock eligible for a reduced rate of United
States withholding tax pursuant to a tax treaty may obtain a refund of any
excess amounts currently withheld by filing an appropriate claim for refund with
the Internal Revenue Service. Each Non-U.S. Holder should consult a tax advisor
on the possibility of entitlement to a foreign tax credit or other tax relief in
the Non-U.S. Holder's own country with respect to any United States tax paid.
GAIN ON DISPOSITION OF COMMON STOCK
A Non-U.S. Holder will generally not be subject to United States federal
income tax (and no tax will generally be withheld) with respect to gain
recognized on a sale or other disposition of Common Stock so long as (i) the
gain is not effectively connected with a trade or business of the Non-U.S.
Holder in the United States, (ii) in the case of certain Non-U.S. Holders who
are non-resident alien individuals and hold the Common Stock as a capital asset,
such holders are not present in the United States for 183 or more days in the
taxable year of the sale or other disposition, and (iii) the Company is not and
has not been a 'United States real property holding corporation' for United
States federal income tax purposes (assuming the Common Stock is regularly
traded on an established securities market). The Company believes that it is
not, and does not anticipate becoming, a 'United States real property holding
corporation' for United States federal income tax purposes. In addition, the
Company believes that the Common Stock will be treated as regularly traded on an
established securities market.
If the capital gain from the sale or other disposition of Common Stock is
effectively connected with the conduct of a trade or business of the Non-U.S.
Holder within the United States, or if the United States real property holding
corporation provisions apply and the Non-U.S. Holder is more than a five percent
stockholder (applying certain attribution rules), the capital gain would be
subject to regular United States federal income tax. In addition, with respect
to corporate Non-U.S. Holders, the 'branch profits tax' described above may also
apply. An individual Non-U.S. Holder who is present in the United States for 183
days or more in the taxable year of sale on other disposition and holds the
Common Stock as a capital asset will generally be taxed at a rate of 30% on any
net capital gain recognized during any year on such stock if either (i) such
individual has a 'tax home' (as defined for United States federal income tax
purposes) in the United States or (ii) the gain is attributable to an office or
other fixed place of business maintained by such individual in the United
States. Non-U.S. Holders should consult applicable treaties, which may provide
for different rules.
FEDERAL ESTATE TAXES
Common Stock held (or treated as owned) by an individual Non-U.S. Holder at
the time of death will be included in such holder's gross estate for United
States federal estate tax purposes and may be subject to United States federal
estate tax, unless an applicable estate tax treaty provides otherwise.
UNITED STATES INFORMATION REPORTING REQUIREMENTS AND BACKUP WITHHOLDING TAX
The Company must report annually to the IRS and to each Non-U.S. Holder the
amount of dividends paid to, and the tax withheld with respect to, such holder.
These information reporting requirements apply regardless of whether withholding
was reduced or eliminated by an applicable tax treaty. Copies of these
information returns may also be made available under the provisions of a
specific treaty or agreement to the tax authority in the country in which the
Non-U.S. Holder resides.
Under temporary United States Treasury regulations, United States backup
withholding tax (which generally is a withholding tax imposed at the rate of 31%
on certain payments to persons that fail to furnish certain information under
the United States information reporting requirements) and information reporting
with respect to such tax will generally not apply to dividends paid on Common
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Stock to a Non-U.S. Holder at an address outside the United States unless the
Payer has knowledge that the payee is a U.S. person.
As a general matter, backup withholding and information reporting also will
not apply to a payment of the proceeds of a sale of Common Stock by or through a
foreign office of a foreign broker. Information reporting requirements (but not
backup withholding) will apply, however, to a payment of the proceeds of a sale
of Common Stock by a foreign office of a broker that is a United States person,
that derives 50% or more of its gross income for certain periods from the
conduct of a trade or business in the United States, or that is a 'controlled
foreign corporation' (generally, a foreign corporation controlled by United
States shareholders) with respect to the United States, unless the broker has
documentary evidence in its records that the holder is a Non-U.S. Holder and
certain other conditions are met, or the holder otherwise establishes an
exemption. Payment by a United States office of a broker of the proceeds of a
sale of Common Stock is subject to both backup withholding and information
reporting unless the holder certifies under penalties of perjury that it is a
Non-U.S. Holder, or otherwise establishes an exemption.
A Non-U.S. Holder may obtain a refund of any amounts withheld under the
backup withholding rules by filing the appropriate claim for refund with the
IRS.
These backup withholding and information reporting rules are under review
by the United States Treasury, and their application to the Common Stock could
be changed prospectively by future regulations.
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UNDERWRITING
The underwriters of the U.S. Offering of the Common Stock (the 'U.S.
Underwriters'), for whom Lehman Brothers Inc., Smith Barney, Inc., Wessels,
Arnold & Henderson, L.L.C. and Brenner Securities Corporation are serving as
representatives, have severally agreed, subject to the terms and conditions of
the U.S. Underwriting Agreement, the form of which is filed as an exhibit to the
Registration Statement, to purchase from the Company, and the Company has agreed
to sell to each U.S. Underwriter, the aggregate number of shares of Common Stock
set forth opposite their names below.
<TABLE>
<CAPTION>
NUMBER OF
U.S. UNDERWRITER SHARES
- ---------------------------------------------------------------------------------- ---------
<S> <C>
Lehman Brothers Inc...............................................................
Smith Barney Inc..................................................................
Wessels, Arnold & Henderson, L.L.C................................................
Brenner Securities Corporation....................................................
---------
Total...................................................................
---------
---------
</TABLE>
The managers of the International Offering named below (the 'International
Managers'), for whom Lehman Brothers International (Europe), Smith Barney Inc.,
Wessels, Arnold & Henderson, L.L.C. and Brenner Securities Corporation are
acting as lead managers, have severally agreed, subject to the terms and
conditions of the International Underwriting Agreement, the form of which is
filed as an exhibit to the Registration Statement, to purchase from the Company,
and the Company has agreed to sell to each International Manager, the aggregate
number of shares of Common Stock set forth opposite their respective names
below.
<TABLE>
<CAPTION>
NUMBER OF
INTERNATIONAL MANAGERS SHARES
- ---------------------------------------------------------------------------------- ---------
<S> <C>
Lehman Brothers International (Europe)............................................
Smith Barney Inc..................................................................
Wessels, Arnold & Henderson, L.L.C................................................
Brenner Securities Corporation....................................................
---------
Total...................................................................
---------
---------
</TABLE>
The U.S. Underwriting Agreement and the International Underwriting
Agreement (collectively, the 'Underwriting Agreements') provided that the
obligations of the U.S. Underwriters and the International Managers,
respectively, to purchase shares of Common Stock, are subject to the approval of
certain legal matters by counsel and to certain other conditions and that if any
of the shares of Common Stock are purchased by the U.S. Underwriters pursuant to
the U.S. Underwriting Agreement or by the International Managers pursuant to the
International Underwriting Agreement, all the shares of Common Stock agreed to
be purchased by either the U.S. Underwriters or the International Managers, as
the case may be, pursuant to their respective Underwriting Agreements, must be
so purchased. The offering price and underwriting discounts and commissions for
the U.S. Offering and the International Offering are identical. The closing of
the International Offering is a condition to the closing of the U.S. Offering
and the closing of the U.S. Offering is a condition to the closing of the
International Offering.
The Company has been advised that the U.S. Underwriters and the
International Managers propose to offer shares of Common Stock directly to the
public initially at the public offering price set forth on the cover page of
this Prospectus and to certain selected dealers (who may include the U.S.
Underwriters and International Managers) at such public offering price less a
selling concession not to exceed $ per share. The selected dealers may
reallow a concession not to exceed $ per share. After the initial offering
of the Common Stock, the concession to selected dealers and the reallowance to
other dealers may be changed by the U.S. Underwriters and the International
Managers.
The U.S. Underwriters and the International Managers have entered into an
Agreement Among U.S. Underwriters and International Managers (the 'Agreement
Among') pursuant to which each U.S. Underwriter has agreed that, as part of the
distribution of the shares of Common Stock offered in the U.S. Offering, (a) it
is not purchasing any of such shares for the account of anyone other than a U.S.
or
57
<PAGE>
<PAGE>
Canadian Person (as defined below) and (b) it has not offered or sold, and will
not offer, sell, resell or deliver, directly or indirectly, any of such shares
or distribute any prospectus relating to the U.S. Offering outside the United
States or Canada or to anyone other than a U.S. or Canadian Person. In addition,
pursuant to the Agreement Among, each International Manager has agreed that, as
part of the distribution of the shares of Common Stock offered in the
International Offering, (a) it is not purchasing any of such shares for the
account of any U.S. or Canadian Person and (b) it has not offered to sold, and
will not offer, sell, resell or deliver, directly or indirectly, any of such
shares or distribute any prospectus relating to the International Offering
within the United States or Canada or to any U.S. or Canadian Person. The
foregoing limitations do not apply to stabilization transactions or to certain
other transactions specified in the Underwriting Agreements and the Agreement
Among, including: (i) certain purchases and sales between the U.S. Underwriters
and the International Managers; (ii) certain offers, sales, resales, deliveries
or distributions to or through investment advisors or other persons exercising
investment discretion; (iii) purchases, offers or sales by a U.S. Underwriter
who is also acting as an International Manager or by an International Manager
who also is acting as a U.S. Underwriter and (iv) other transactions
specifically approved by the U.S. Underwriters and International Managers. As
used herein, 'U.S. or Canadian Person' means any resident or citizen of the
United States or Canada, any corporation, pension, profit sharing or other trust
or other entity organized under or governed by the laws of the United States or
Canada or any political subdivision thereof (other than the foreign branch of
any United States or Canadian Person), any estate or trust the income of which
is subject to United States or Canadian federal income taxation regardless of
the source of its income, and any United States or Canadian branch of a person
other than a United States or Canadian Person. The term 'United States' means
the United States of America (including, the states thereof and the District of
Columbia) and its territories, its possessions and other areas subject to its
jurisdiction. The term 'Canada' means the provinces of Canada, its territories,
its possessions and other areas subject to its jurisdiction.
Pursuant to the Agreement Among, sales may be made among the U.S.
Underwriters and the International Managers of such number of shares of Common
Stock as may be mutually agreed. The price of any shares so sold shall be the
public offering price as then in effect for Common Stock being sold by the U.S.
Underwriters and International Managers, less an amount not greater than the
selling concession unless otherwise determined by mutual agreement. To the
extent that there are sales pursuant to the Agreement Among, the number of
shares initially available for sale by the U.S. Underwriters and the
International Managers may be more or less than the amount specified on the
cover page of this Prospectus.
Each International Manager has represented and agreed that: (i) it has not
offered or sold and, prior to the date six months after the date of issue of the
shares of Common Stock, will not offer or sell any shares of Common Stock to
persons in the United Kingdom except to persons whose ordinary activities
involve them in acquiring, holding, managing or disposing of investments (as
principal or agent) for the purpose of their business or otherwise in
circumstances which have not resulted and will not result in an offer to the
public in the United Kingdom within the meaning of the Public Offers of
Securities Regulations 1995; (ii) it has complied and will comply with all
applicable provisions of the Financial Services Act 1986 with respect to
anything done by it in relation to the Common Stock in, from or otherwise
involving the United Kingdom; and (iii) it has only issued or passed on, and
will only issue or pass on, to any person in the United Kingdom, any document
received by it in connection with the issue of the Common Stock if that person
is of a kind described in Article 11(3) of the Financial Services Act 1986
(Investment Advertisements) (Exemptions) Order 1995.
Purchasers of the shares pursuant to the Offerings may be required to pay
stamp taxes and other charges in accordance with the laws and practices of the
country of purchase in addition to the offering price set forth on the cover
page hereof.
The Company, the management and directors of the Company and certain other
stockholders of the Company have each agreed not to offer, sell or otherwise
dispose of any shares of Common Stock for a period of 180 days after the date of
this Prospectus without the prior written consent of Lehman Brothers Inc.,
subject in the case of the Company to exceptions to permit the issuances of
shares in
58
<PAGE>
<PAGE>
connection with the Offerings and upon exercise of outstanding options. See
'Shares Eligible for Future Sales.'
The U.S. Underwriters have reserved approximately shares of the
Common Stock for sale, at the initial public offering price, to directors,
officers and employees of the Company, their business affiliates and related
parties, in each case as such persons have expressed an interest in purchasing
such shares of the Common Stock in the Offerings. The number of shares of the
Common Stock available for sale to the general public will be reduced to the
extent such persons purchase such reserved shares of the Common Stock. Any
reserved shares of the Common Stock not so purchased will be offered by the
Underwriters to the general public on the same basis as the other shares of the
Common Stock offered pursuant to the U.S. Offering.
The Company has granted to the U.S. Underwriters and the International
Managers options to purchase up to an additional and shares of
Common Stock, respectively, at the initial public offering price less the
underwriting discounts and commissions shown on the cover page of this
Prospectus, solely to cover over-allotments, if any. The options may be
exercised at any time up to 30 days after the date of this Prospectus. To the
extent that the U.S. Underwriters and the International Managers exercise such
options, each of the U.S. Underwriters and the International Managers, as the
case may be, will be committed (subject to certain conditions) to purchase a
number of option shares proportionate to such U.S. Underwriter's or
International Manager's initial commitment.
The Company has agreed to indemnify the U.S. Underwriters and the
International Managers against certain liabilities, including liabilities under
the Securities Act, and to contribute to payments which the U.S. Underwriters
and the International Managers may be required to make in respect thereof.
Application has been Common Stock on the Nasdaq National Market under the
symbol 'BEEP'.
Prior to the Offerings there has been no public market for the Company's
Common Stock. The initial public offering price for the Common Stock offered
hereby was determined by negotiation among the Company, the U.S. Underwriters
and the International Managers. Among the principal factors considered in making
such determination was the history of and the prospects for the industry in
which the Company competes, an assessment of the Company's management, the past
and present operations of the Company, the historical results of operations of
the Company and the trend of its revenues and earnings, the prospects for future
earnings of the Company, the general condition of the securities markets at the
time of the Offerings and the prices of similar securities of generally
comparable companies. There can be no assurance that an active trading market
will develop for the Common Stock or that the Common Stock will trade in the
public market subsequent to the Offerings at or above the initial public
offering price. See 'Risk Factors -- Absence of Public Market and Determination
of Public Offering Price.'
LEGAL MATTERS
The validity of the Common Stock will be passed upon for the Company by
Latham & Watkins, New York, New York and certain regulatory matters will be
passed upon for the Company by Richard S. Becker & Associates, Chartered. Mr.
Roger H. Kimmel, a member of the firm of Latham & Watkins, is a director of the
Company. Certain legal matters relating to the Offerings will be passed upon for
the Underwriters by Simpson Thacher & Bartlett (a partnership which includes
professional corporations), New York, New York and certain regulatory matters
will be passed upon for the Underwriters by .
59
<PAGE>
<PAGE>
EXPERTS
The financial statements as of December 31, 1993, December 31, 1994 and
December 31, 1995 and for each of the three years in the period ended December
31, 1995 in this Prospectus and elsewhere in the registration statement have
been audited by Arthur Andersen LLP, independent public accountants, as
indicated in their reports with respect thereto, and are included herein in
reliance upon the authority of said firm as experts in giving said reports.
ADDITIONAL INFORMATION
The Company has filed with the Commission a Registration Statement on Form
S-1 (together with all amendments, exhibits and schedules thereto, the
'Registration Statement') under the Securities Act with respect to the Common
Stock being offered hereby. This Prospectus, which constitutes part of the
Registration Statement, does not contain all of the information set forth in the
Registration Statement. Statements made in this Prospectus concerning the
contents of any contract, agreement or other document referred to herein are not
necessarily complete. With respect to each such contract, agreement or other
document filed with the Commission as an exhibit to the Registration Statement,
reference is hereby made to such exhibits for a more complete description of the
matter involved, and each such statement shall be deemed qualified in its
entirety by such reference. Upon completion of the Offerings, the Company will
be subject to the informational reporting requirements of the Securities
Exchange Act of 1934, as amended, and, in accordance therewith, will file
reports, proxy statements and other information with the Commission. The
Registration Statement and the exhibits and schedules thereto, as well as such
reports, proxy statements and other information may be inspected at the public
reference room maintained by the Commission at Room 1024, 450 Fifth Street,
N.W., Washington, D.C. 20549, and should also be available for inspection and
copying at its regional offices located at Northwestern Atrium Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661 and 7 World Trade Center,
13th Floor, New York, New York 10048. Copies of such material can be obtained
from the public reference section of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549, at prescribed rates. The Company intends to furnish its
stockholders with annual reports containing financial statements audited by an
independent certified public accounting firm and quarterly reports containing
unaudited financial information for the first three quarters of each fiscal
year.
60
<PAGE>
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Public Accountants................................................................... F-2
Balance Sheets as of December 31, 1994 and 1995 and March 31, 1996......................................... F-3
Statements of Operations for the years ended December 31, 1993, December 31, 1994 and December 31, 1995 and
the three months ended March 31, 1995 and March 31, 1996................................................. F-4
Statements of Stockholders' Equity (Deficit) for the years ended December 31, 1993, December 31, 1994 and
December 31, 1995 and the three months ended March 31, 1996.............................................. F-5
Statements of Cash Flows for the years ended December 31, 1993, December 31, 1994 and December 31, 1995 and
the three months ended March 31, 1995 and March 31, 1996................................................. F-6
Notes to Financial Statements.............................................................................. F-7
</TABLE>
F-1
<PAGE>
<PAGE>
The financial statements included herein have been adjusted to give effect
to the termination of the S Corporation, the exchange of shares previously
outstanding and the anticipated increase in the authorized common stock of the
Company to shares of $ par value common stock and the filing of the
Company's amended and restated certificate of incorporation as described in Note
2 to the financial statements. We expect to be in a position to render the
following audit report upon the effectiveness of such events assuming that from
March 1, 1996 to the effective date of such events, no other events will have
occurred that would affect the financial statements or notes thereto.
ARTHUR ANDERSEN LLP
Roseland, New Jersey
March 1, 1996
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To TSR PAGING INC.:
We have audited the accompanying balance sheets of TSR Paging Inc. (a Delaware
corporation) (the 'Company') as of December 31, 1994 and 1995, and the related
statements of operations, stockholders' equity (deficit) and cash flows for the
three years in the period ended December 31, 1995. 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 generally accepted auditing
standards. 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 the Company as of December 31,
1994 and 1995, and the results of its operations and its cash flows for the
three years in the period ended December 31, 1995 in conformity with generally
accepted accounting principles.
F-2
<PAGE>
<PAGE>
TSR PAGING INC.
BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
--------------------------- -----------
1994 1995 1996
----------- ------------ -----------
(UNAUDITED)
<S> <C> <C> <C>
CURRENT ASSETS:
Cash............................................................. $ 921,600 $ 140,384 $ 116,325
Accounts receivable, less allowance for doubtful accounts of
$148,735, $203,397 and $448,127 at December 31, 1994 and 1995
and March 31, 1996, respectively.............................. 1,268,546 2,009,618 2,262,249
Inventory........................................................ 3,281,741 6,361,603 8,677,113
Prepaid expenses and other current assets........................ 87,533 379,583 565,892
----------- ------------ -----------
Total current assets..................................... 5,559,420 8,891,188 11,621,579
EQUIPMENT AND LEASEHOLD IMPROVEMENTS, net (Note 2)................. 14,820,532 24,593,192 28,952,896
INTANGIBLE AND OTHER ASSETS (less accumulated amortization of
$59,747, $82,694 and $125,796 at December 31, 1994 and 1995 and
March 31, 1996, respectively) (Note 2)........................... 530,404 1,703,721 1,882,020
----------- ------------ -----------
Total assets............................................. $20,910,356 $ 35,188,101 $42,456,495
----------- ------------ -----------
----------- ------------ -----------
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
Current maturities of long-term debt (Note 3).................... $ 3,810 $ 0 $ 0
Accounts payable................................................. 5,369,317 10,415,359 7,915,125
Accrued expenses................................................. 1,441,586 924,340 682,359
Deferred revenues................................................ 605,685 1,309,710 1,664,692
Subscriber deposits.............................................. 253,265 268,898 268,601
----------- ------------ -----------
Total current liabilities................................ 7,673,663 12,918,307 10,530,777
----------- ------------ -----------
LONG-TERM DEBT, less current maturities (Note 3)................... 19,650,000 34,000,000 43,750,000
----------- ------------ -----------
COMMITMENTS AND CONTINGENCIES (Note 8).............................
STOCKHOLDERS' EQUITY (DEFICIT) (Notes 2 and 5):
Preferred stock, par value $.01 per share, 1,000,000 shares
authorized, none issued and outstanding....................... 0 0 0
Common stock, par value $.01 per share, shares
authorized, issued and outstanding at December 31,
1994 and 1995 and March 31, 1996.............................. 4,000 4,000 4,000
Additional paid-in capital....................................... 347,129 347,129 (11,828,282)
Partners' capital (deficit)...................................... (3,095,780) 0 0
Accumulated deficit.............................................. (3,668,656) (11,032,195) 0
Stockholder receivable........................................... 0 (1,049,140) 0
----------- ------------ -----------
Total stockholders' equity (deficit)..................... (6,413,307) (11,730,206) (11,824,282)
----------- ------------ -----------
Total liabilities and stockholders' equity
(deficit)......................................... $20,910,356 $ 35,188,101 $42,456,495
----------- ------------ -----------
----------- ------------ -----------
</TABLE>
The accompanying notes to financial statements are an integral part of these
balance sheets.
F-3
<PAGE>
<PAGE>
TSR PAGING INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
FOR THE YEARS ENDED DECEMBER 31, MARCH 31,
----------------------------------------- --------------------------
1993 1994 1995 1995 1996
----------- ----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
REVENUES:
Services, rent and maintenance revenues.............. $11,118,899 $17,954,778 $28,908,433 $ 6,308,048 $ 9,936,948
Product sales........................................ 8,481,427 14,087,874 18,615,329 3,930,827 4,954,450
----------- ----------- ----------- ----------- -----------
Total revenues................................ 19,600,326 32,042,652 47,523,762 10,238,874 14,891,398
OPERATING EXPENSES:
Services, rent and maintenance....................... 2,748,354 4,591,793 7,059,694 1,574,496 2,308,341
Cost of products sold................................ 5,098,562 10,519,922 14,548,726 3,094,217 3,948,696
Selling and marketing................................ 1,813,795 3,331,799 5,399,041 1,457,712 1,771,399
General and administrative........................... 3,376,729 5,165,112 8,718,724 1,663,509 3,421,859
Depreciation and amortization........................ 6,757,793 7,577,822 10,870,039 2,179,046 2,891,822
Non-cash compensation expense (Note 5)............... 0 0 0 0 746,710
----------- ----------- ----------- ----------- -----------
Total expenses................................ 19,795,233 31,186,448 46,596,224 9,968,980 15,088,827
Income (loss) from operations................. (194,907) 856,204 927,538 269,894 (197,429)
OTHER EXPENSE.......................................... 0 0 163,396 0 0
INTEREST EXPENSE....................................... 517,489 1,024,286 2,483,887 522,354 638,232
----------- ----------- ----------- ----------- -----------
Loss before unusual item, provision for income taxes,
discontinued operations and extraordinary item..... (712,396) (168,082) (1,719,745) (252,460) (835,661)
UNUSUAL ITEM (Note 7).................................. 0 (589,861) (564,404) 0 0
----------- ----------- ----------- ----------- -----------
Loss before provision for income taxes, discontinued
operations and extraordinary item.................. (712,396) (757,943) (2,284,149) (252,460) (835,661)
PROVISION FOR INCOME TAXES............................. 0 32,500 49,499 0 5,125
----------- ----------- ----------- ----------- -----------
Loss before discontinued operations and extraordinary
item............................................... (712,396) (790,443) (2,333,648) (252,460) (840,786)
DISCONTINUED OPERATIONS (Note 4)....................... 0 0 (300,004) 0 0
----------- ----------- ----------- ----------- -----------
Loss before extraordinary item....................... (712,396) (790,443) (2,633,652) (252,460) (840,786)
EXTRAORDINARY ITEM (Note 3)............................ 0 0 (312,733) 0 0
----------- ----------- ----------- ----------- -----------
Net loss...................................... $ (712,396) $ (790,443) $(2,946,385) $ (252,460) $ (840,786)
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
PRO FORMA NET LOSS DATA (unaudited) (Notes 2 and 6):
LOSS BEFORE PROVISION FOR INCOME TAXES, DISCONTINUED
OPERATIONS AND EXTRAORDINARY ITEM.................... $ (712,396) $ (757,943) $(2,284,149) $ (252,460) $ (835,661)
PRO FORMA INCOME TAX PROVISION......................... 0 0 0 0 0
----------- ----------- ----------- ----------- -----------
Pro forma net loss before discontinued operations and
extraordinary item................................. (712,396) (757,943) (2,284,149) (252,460) (835,661)
DISCONTINUED OPERATIONS................................ 0 0 (300,004) 0 0
----------- ----------- ----------- ----------- -----------
Pro forma net loss before extraordinary item......... (712,396) (757,943) (2,584,153) (252,460) (835,661)
EXTRAORDINARY ITEM..................................... 0 0 (312,733) 0 0
----------- ----------- ----------- ----------- -----------
Pro forma net loss................................... $ (712,396) $ (757,943) $(2,896,876) $ (252,460) $ (835,661)
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
PRO FORMA NET LOSS PER COMMON SHARE (Notes 2 and 6):
Continuing operations................................ $ $
Discontinued operations..............................
Extraordinary item...................................
----------- -----------
PRO FORMA NET LOSS PER COMMON SHARE.................... $ $
----------- -----------
----------- -----------
PRO FORMA COMMON SHARES OUTSTANDING....................
----------- -----------
----------- -----------
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
F-4
<PAGE>
<PAGE>
TSR PAGING INC.
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
TOTAL
ADDITIONAL PARTNERS' STOCKHOLDERS'
COMMON PAID-IN CAPITAL ACCUMULATED STOCKHOLDER EQUITY
STOCK CAPITAL (DEFICIT) DEFICIT RECEIVABLE (DEFICIT)
------ ------------ ----------- ------------ ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, December 31, 1992.............. $4,000 $ 390,688 $ (194,072) $(2,993,814) $ 0 $ (2,793,198)
Partners' draw........................ 0 0 (747,436) 0 0 (747,436)
Net loss.............................. 0 0 (561,730) (150,666) 0 (712,396)
------ ------------ ----------- ------------ ----------- -------------
BALANCE, December 31, 1993.............. 4,000 390,688 (1,503,238) (3,144,480) 0 (4,253,030)
Partners' draw........................ 0 0 (1,326,275) 0 0 (1,326,275)
Net loss.............................. 0 0 (266,267) (524,176) 0 (790,443)
Purchase and retirement of stock...... 0 (43,559) 0 0 0 (43,559)
------ ------------ ----------- ------------ ----------- -------------
BALANCE, December 31, 1994.............. 4,000 347,129 (3,095,780) (3,668,656) 0 (6,413,307)
Partners' draw........................ 0 0 (1,043,826) 0 0 (1,043,826)
Termination of partnership (Note 1)... 0 0 4,139,606 (4,139,606) 0 0
Stockholder receivable (Note 2)....... 0 0 0 0 (1,049,140) (1,049,140)
Stockholder distributions............. 0 0 0 (277,548) 0 (277,548)
Net loss.............................. 0 0 0 (2,946,385) 0 (2,946,385)
------ ------------ ----------- ------------ ----------- -------------
BALANCE, December 31, 1995.............. 4,000 347,129 0 (11,032,195) (1,049,140) (11,730,206)
Stockholder distributions............. 0 0 0 (1,049,140) 1,049,140 0
Non-cash compensation expense (Note 5) 0 746,710 0 0 0 746,710
Net loss.............................. 0 0 0 (840,786) 0 (840,786)
Termination of S Corporation
(Note 5)............................ 0 (12,922,121) 0 12,922,121 0 0
------ ------------ ----------- ------------ ----------- -------------
BALANCE, March 31, 1996 (unaudited)..... $4,000 $(11,828,282) $ 0 $ 0 $ 0 $(11,824,282)
------ ------------ ----------- ------------ ----------- -------------
------ ------------ ----------- ------------ ----------- -------------
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
F-5
<PAGE>
<PAGE>
TSR PAGING INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
FOR THE YEARS ENDED DECEMBER 31, MARCH 31,
------------------------------------------ --------------------------
1993 1994 1995 1995 1996
------------ ------------ ------------ ------------ -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss................................................ $ (712,396) $ (790,443) $ (2,946,385) $ (252,460) $ (840,786)
Adjustments to reconcile net loss to net cash provided
by (used in) operating activities --
Depreciation and amortization........................ 6,757,793 7,577,822 10,870,039 2,179,046 2,891,822
Non-cash compensation expense........................ 0 0 0 0 746,710
Writeoff of debt financing costs..................... 0 0 312,732 0 0
Changes in assets and liabilities....................
(Increase) decrease in accounts receivable, net...... (85,351) (574,200) (741,072) 80,558 (252,632)
Increase in inventory................................ 0 (3,281,741) (3,079,862) (373,674) (2,315,510)
(Increase) decrease in prepaid expenses.............. 32,254 (27,449) (292,050) (18,038) (186,308)
(Increase) decrease in intangibles and other
assets............................................. (48,124) 30,935 (1,486,049) (346,652) (178,299)
Increase (decrease) in accounts payable.............. 2,617,433 1,076,621 5,046,042 (1,717,834) (2,500,234)
Increase (decrease) in accrued expenses.............. 372,489 991,251 (517,246) (992,872) (241,981)
Increase in deferred revenues........................ 270,703 149,531 704,025 294,904 354,982
Increase (decrease) in subscriber deposits........... (22,098) (18,438) 15,633 195 (297)
------------ ------------ ------------ ------------ -----------
Net cash provided by (used in) operating
activities.................................... 9,182,703 5,133,889 7,885,807 (1,146,827) (2,522,533)
------------ ------------ ------------ ------------ -----------
CASH FLOWS USED IN INVESTING ACTIVITIES:
Purchases of property and equipment, net................ (10,969,099) (13,160,128) (20,642,699) (2,777,108) (7,251,526)
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of long-term debt.............................. 2,884,123 9,800,000 14,350,000 3,448,964 9,750,000
Repayment of long-term debt............................. 0 (3,325) (3,810) 0 0
Partners' draw.......................................... (747,436) (1,326,275) (1,043,826) (239,111) 0
Purchase of minority stockholder's stock................ 0 (43,559) 0 0 0
Debt financing costs.................................... (9,966) (167,495) 0 0 0
Distribution to stockholder............................. 0 0 (277,548) 0 0
Stockholder receivable.................................. 0 0 (1,049,140) 0 0
------------ ------------ ------------ ------------ -----------
Net cash provided by financing activities....... 2,126,721 8,259,346 11,975,676 3,209,853 9,750,000
------------ ------------ ------------ ------------ -----------
Net increase (decrease) in cash................. 340,325 233,107 (781,216) (714,081) (24,059)
CASH AND CASH EQUIVALENTS, beginning of period............ 348,168 688,493 921,600 921,600 140,384
------------ ------------ ------------ ------------ -----------
CASH AND CASH EQUIVALENTS, end of period.................. $ 688,493 $ 921,600 $ 140,384 $ 207,519 $ 116,325
------------ ------------ ------------ ------------ -----------
------------ ------------ ------------ ------------ -----------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest............................................. $ 477,349 $ 980,918 $ 2,359,733 $ 565,722 $ 703,746
Income taxes......................................... 5,997 32,500 17,567 0 5,351
------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
F-6
<PAGE>
<PAGE>
TSR PAGING INC.
NOTES TO FINANCIAL STATEMENTS
(1) ORGANIZATION AND OPERATIONS:
The 1993 and 1994 financial statements include the accounts of Tri-State
Radio Co., a partnership, and the following entities organized as 'S'
corporations: Tri-State Radio Corporation of Pennsylvania, Inc., Tri-State
Answering Service, Inc., San Diego Paging, Inc., Phoenix/Tucson Paging Corp.,
First Beeper Warehouse, Inc., Second Beeper Warehouse, Inc., Third Beeper
Warehouse, Inc. and Southwest Paging, Inc. On August 31, 1995, the Companies
were merged into one 'S' corporation, TSR Paging Inc. (the 'Company') (see Note
2). The Company provides wireless messaging services on the eastern coast of the
United States from Boston to Washington D.C. and in Southern California and
Arizona.
The unaudited financial statements as of March 31, 1996 and for the three
months ended March 31, 1996 and 1995 have been prepared by the Company pursuant
to the rules and regulations of the Securities and Exchange Commission.
Accordingly, certain information and note disclosures normally included in
financial statements prepared in conformity with generally accepted accounting
principles have been condensed or omitted. In the opinion of the Company, all
adjustments, consisting of only normal recurring adjustments, necessary to
present fairly the financial position, results of operations and changes in cash
flows for the periods presented have been made. These financial statements
should be read in conjunction with the financial statements and notes as of
December 31, 1994 and 1995 and for the years ended December 31, 1993, 1994 and
1995.
The Company is currently implementing a significant expansion program which
involves the Company's entry into new geographic markets and compliance with
certain construction requirements. The Company estimates that it will require
approximately $60.0 million in aggregate capital expenditures during 1996 and
1997 in order to fund this expansion. The Company expects to be able to fund
these capital requirements from a combination of a portion of the net proceeds
from the Offerings, available funds under the Company's bank financing
agreements and cash flow from its operations. However, there can be no assurance
that the Company will be able to complete its expansion program as scheduled,
generate sufficient cash flow from operations to meet a portion of its capital
requirements or obtain additional debt or equity financing, on reasonable terms
or at all. In addition, the Company will incur substantial start-up costs in
connection with expanding its operations into new markets, which will result in
initial operating losses in those markets. Any such operating losses could have
a material adverse effect on the Company's results of operations for such
periods. Based upon historical positive cash flow and available borrowings under
a credit facility, the Company believes that it has adequate resources to
sustain its current operations.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Use of Estimates in the Preparation of Financial Statements
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Revenue Recognition
The Company recognizes revenue under service, rental and maintenance
agreements with customers as the related services are performed. Advance
billings for services are deferred and recognized as revenue when earned. Sales
of pagers are recognized upon delivery. The Company leases certain pagers under
operating leases. Substantially all of these leases are on a month-to-month
basis.
F-7
<PAGE>
<PAGE>
TSR PAGING INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Equipment And Leasehold Improvements
Equipment and leasehold improvements are stated at cost, less accumulated
depreciation and amortization. Depreciation and amortization are computed using
the double-declining balance method for pagers and the straight-line method for
all other equipment and leasehold improvements and are based on the following
estimated useful lives:
<TABLE>
<S> <C>
Pagers and other equipment......................................... 3 to 8 years
Furniture and fixtures............................................. 5 to 10 years
</TABLE>
Leasehold improvements are depreciated over the shorter of the estimated
useful life of the asset or the lease term. The net book value of the pagers
that are lost or determined to be obsolete are written off as additional
depreciation expense.
Equipment and leasehold improvements consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
-------------------------- -----------
1994 1995 1996
----------- ----------- -----------
(unaudited)
<S> <C> <C> <C>
Pagers, paging equipment and other equipment.............. $19,178,926 $30,752,948 $36,558,359
Furniture and fixtures.................................... 272,298 578,443 721,566
Leasehold improvements............................... 568,345 1,398,161 1,762,293
----------- ----------- -----------
20,019,569 32,729,552 39,042,218
Less -- Accumulated depreciation and amortization......... 5,199,037 8,136,360 10,089,322
----------- ----------- -----------
Equipment and leasehold improvements, net................. $14,820,532 $24,593,192 $28,952,896
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
Intangible And Other Assets
Intangible and other assets, net of accumulated amortization, are composed
of the following:
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
---------------------- -----------
1994 1995 1996
-------- ---------- -----------
(unaudited)
<S> <C> <C> <C>
Licenses...................................................... $ 34,288 $ 270,444 $ 467,584
Security deposits and other assets............................ 138,320 277,874 334,132
Debt financing costs.......................................... 341,439 1,068,163 1,027,906
Other......................................................... 16,357 87,240 52,398
-------- ---------- -----------
$530,404 $1,703,721 $ 1,882,020
-------- ---------- -----------
-------- ---------- -----------
</TABLE>
The cost of acquired licenses is being amortized over 25 years on a
straight-line basis. Debt financing costs are being amortized over the life of
the loan.
Income Taxes
The Company has previously elected to be taxed as an S corporation under
Subchapter S of the Internal Revenue Code. Consequently, the stockholders were
taxed on their proportionate share of the Company's taxable income and no
provision for Federal income taxes has been provided in the accompanying
statements of operations.
In connection with the completion of the proposed initial public offering
(see Note 9), the Company will no longer qualify as an 'S' corporation and will
become subject to corporate income taxes (see Note 6).
F-8
<PAGE>
<PAGE>
TSR PAGING INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Long-Lived Assets
During 1995, the Company adopted the provisions of Statement of Financial
Accounting Standards No. 121, 'Accounting for the Impairment of Long-Lived
Assets' ('SFAS 121'). SFAS 121 requires, among other things, that an entity
review its long-lived assets and certain related intangibles for impairment
whenever changes in circumstances indicate that the carrying amount of an asset
may not be fully recoverable. As a result of its review, the Company does not
believe that any impairment currently exists related to its long-lived assets.
Stock Based Compensation
The Financial Accounting Standards Board has issued a new standard,
'Accounting for Stock-Based Compensation' ('SFAS 123'). SFAS 123 requires,
commencing in 1996, that an entity account for employee stock compensation under
a fair value based method. However, SFAS 123 also allows an entity to continue
to measure compensation cost for employee stock-based compensation using the
intrinsic value based method of accounting prescribed by APB Opinion No. 12,
'Accounting for Stock Issued to Employees' ('Opinion 25'). Entities electing to
remain with the accounting under Opinion 25 are required to make pro forma
disclosures of net income and earnings per share as if the fair value based
method of accounting under SFAS 123 had been applied.
Pro Forma Net Loss Per Common Share
Pro forma net loss per common share has been computed by dividing pro forma
net loss by the pro forma number of common shares outstanding, as adjusted. As
required by the Securities and Exchange Commission rules, all warrants, options
and shares issued within one year of the public offering at less than the public
offering price (see Notes 5 and 9) are assumed to be outstanding for each year
presented for purposes of the per share calculation.
(3) LONG-TERM DEBT:
Long-term debt consists of the following at:
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
-------------------------- -----------
1994 1995 1996
----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Revolving loan............................................ $19,650,000 $34,000,000 $43,750,000
Notes payable............................................. 3,810 0 0
----------- ----------- -----------
19,653,810 34,000,000 43,750,000
Less -- Current maturities................................ 3,810 0 0
----------- ----------- -----------
Long-term debt............................................ $19,650,000 $34,000,000 $43,750,000
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
On January 20, 1994, the Company amended the existing revolving credit and
term loan agreement (the 'Old Agreement'). The Old Agreement increased the
revolving line of credit from $10,000,000 to a $22,000,000 revolving credit and
term loan facility secured by substantially all of the Company's assets.
Subsequently on October 20, 1994, the Old Agreement was amended to increase the
revolving line of credit to $28,000,000. As a result, on January 1, 1995 the
availability under the revolving line of credit increased from $20,200,000 to
$28,000,000.
Under the Old Agreement, the Company could designate the interest on all or
any portion of the borrowings outstanding to be either a floating rate option,
Certificate of Deposit (CD) fixed rate option or a LIBOR fixed rate option. The
portion designated as a floating rate option bears interest at the higher of the
Federal Funds Rate plus 1/2 of 1% or the financial institution's prime rate.
Both rates are increased for a predefined margin ranging from 1.00% to 1.75%.
The portion designated as a CD fixed rate option bears interest at the rate,
which, in the sole opinion of the financial institution, has been
F-9
<PAGE>
<PAGE>
TSR PAGING INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
offered in the domestic CD market plus a predefined margin ranging from 2.50% to
3.25%. The portion designated as a LIBOR fixed rate option bears interest at the
rate of interest at which U.S. deposits are offered in the London interbank
markets, plus a predefined margin ranging from 2.25% to 3.0%. The predefined
margins are based upon the level of indebtedness outstanding relative to cash
flow, as defined.
On July 17, 1995, the Company replaced the Old Agreement with a new
revolving credit and term loan agreement (the 'New Agreement'). The New
Agreement increased the revolving line of credit from $28,000,000 to a
$60,000,000 revolving credit and term loan facility secured by substantially all
of the Company's assets. As a result of the termination of the Old Agreement
$312,733 relating to deferred financing costs of the Old Agreement were written
off during 1995. These costs are reflected as an extraordinary item in the
accompanying statements of operations.
Under the New Agreement, only interest is payable quarterly until September
30, 1997 at which time amounts outstanding under the revolving credit agreement
terminate and the balance outstanding will convert to a term note. The note will
be repaid 2.5% in 1997, 12.5% in 1998, 20.25% in 1999, 26.5% in 2000, 29.5% in
2001 and 8.75% in 2002. Prepayments of borrowings under this agreement may be
required commencing June 30, 1998 should certain events, as set forth in the New
Agreement, occur.
The New Agreement contains various covenants that, among other things,
require the Company to maintain certain financial ratios and to limit capital
expenditures, as defined.
Under the New Agreement, the Company may designate the interest on all or
any portion of the borrowings outstanding to be either a floating rate option or
a Eurodollar fixed rate option. The portion designated as a floating rate option
bears interest at the higher of the Federal Funds Rate plus 1/2 of 1% or the
financial institution's corporate base rate. Both rates are increased for a
predefined margin ranging up to 1%. The portion designated as a Eurodollar fixed
rate option bears interest at the rate of interest at which U. S. dollar
deposits are offered by the financial institution in the London interbank
market, plus a predefined margin ranging from 1.25% to 2.25%. The predefined
margins are based upon the level of indebtedness outstanding relative to cash
flow, as defined.
The weighted average balances outstanding under the Old and New Agreements
for the years ended December 31, 1994 and 1995 and the three months ended March
31, 1996 (unaudited) were $14,526,473, $26,108,011 and $39,775,000,
respectively. The maximum outstanding borrowings for the years ended December
31, 1994 and 1995 and three months ended March 31, 1996 (unaudited) were
$20,200,000, $34,750,000 and $44,250,000, respectively. For the years ended
December 31, 1994 and 1995 and the three months ended March 31, 1996
(unaudited), weighted average interest rates were 7.14%, 9.15% and 6.42%,
respectively.
Commitment fees of 0.5% or 0.375% per annum are charged on the unused
balance, as defined, depending on the attainment of certain leverage ratios, as
defined. Commitment fees are charged to interest expense as incurred.
Aggregate maturities of long-term debt under the New Agreement at December
31, 1995 were as follows:
<TABLE>
<S> <C>
1996................................................................. $ 0
1997................................................................. 850,000
1998................................................................. 4,250,000
1999................................................................. 6,885,000
2000................................................................. 9,010,000
Thereafter........................................................... 13,005,000
-----------
$34,000,000
-----------
-----------
</TABLE>
F-10
<PAGE>
<PAGE>
TSR PAGING INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(4) DISCONTINUED OPERATIONS:
In December 1995, the Company approved the disposition of its answering
service operations. The net losses of these operations for 1995, including a
$185,000 provision for loss on disposal, are included in the statements of
operations as discontinued operations. Financial statements for prior periods
have not been restated. Revenues for the years ended December 31, 1993, 1994 and
1995 and the three months ended March 31, 1995 and 1996 (unaudited) were
$257,000, $264,000, $273,000, $70,000 and $66,000, respectively. Losses from
operations for the same periods were $23,000, $39,000, $116,000, $13,000 and
$110,000. The net assets related to this operation included in the accompanying
balance sheets were $42,000, $68,000 and $11,000 for December 31, 1994 and 1995
and March 31, 1996 (unaudited), respectively.
(5) STOCKHOLDERS' EQUITY (DEFICIT):
Common Stock
In connection with the proposed initial public offering of its common
stock, the Company will amend and restate its certificate of incorporation to
increase the number of authorized shares of common stock from 1,000 to
shares.
Phantom Stock Plan
In September 1995, the Company adopted the 1995 Phantom Stock Plan for
Employees of TSR Paging Inc. (the 'Phantom Stock Plan' or the 'Plan'), which
provides for the grant of units ('Units') representing interests in the Company.
The Plan is currently administered by the Board of Directors (the 'Board')
of the Company. The total number of Units available under the Phantom Stock Plan
for grants to employees of the Company is 1,000,000. Grants of Units under the
Plan take the form of individual grant agreements, the form and substance of
which, including the number of Units, the Strike Price (if any), the vesting
period and other terms, are determined in the discretion of the Board. The Board
has the discretion to amend, suspend or terminate the plan. No such amendment,
suspension or termination may modify the rights of a holder of Units under an
individual grant agreement without such holder's consent.
The Phantom Stock Plan provides that the Company will be obligated to make
payments in respect of Units only upon the happening of a Liquidity Event. The
Plan defines a Liquidity Event as (i) a Sale of the Company or (ii) a Public
Offering. A Sale for purposes of the Plan is defined as (i) the consolidation or
merger of the Company with or into any other Person, (ii) the sale or transfer
by the Company of all or substantially all of its assets, (iii) the sale or
transfer by the Stockholders of more than 50% of the outstanding equity
interests of the Company or (iv) the approval of a plan of liquidation or
dissolution of the Company, except in the case of clauses (i) through (iii), for
transactions with a Stockholder or an Affiliate of a Stockholder. A Public
Offering for purposes of the Plan is defined as a public offering in which (i)
the aggregate valuation, subject to certain exceptions, of the outstanding
Common Stock of the Company, immediately prior to such offering is not less than
$215,000,000, (ii) proceeds to the Company, net of underwriting discounts and
commissions, are at least $50,000,000, (iii) the Notes (as defined in
'Prospectus Summary') are repaid and (iv) the shares of the Company's Common
Stock are listed on the New York Stock Exchange or quoted on NASDAQ.
The Plan provides that if the Liquidity Event is a Public Offering, the
holder of Units will be entitled to receive either cash or options, in the
discretion of the Board. If the Liquidity Event is a Sale of the Company, the
holders of Units will be entitled to receive either cash or the form of
consideration received in such Sale, in the discretion of the Board.
During 1992 and 1993, the Company granted to certain employees equity
interests which were to be realized upon the occurrence of certain events.
Effective January 1, 1996, these equity interests were
F-11
<PAGE>
<PAGE>
TSR PAGING INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
cancelled and such employees were issued 168,900 units under the Phantom Stock
Plan at a strike price of $0, vest over a five-year period from the date of
grant in 1992 or 1993, as applicable, and had a grant date value of $6 per
unit. The employees received credit for vesting through the date of cancellation
of the equity interests. In addition, on January 1, 1996, 150,350 units were
issued under the Phantom Stock Plan, at a strike price of $6 per unit and vest
over a five-year period. As determined by an independent investment bank
valuation and the Company's Compensation Committee the per unit value on January
1, 1996 was $6. As a result, the financial statements for the three months ended
March 31, 1996 reflect non-cash compensation expense of $747,000 (which amount
includes the cumulative effect of the vesting from 1992 forward) with a
corresponding credit to additional paid-in-capital. The remaining non-cash
compensation expense of $266,000 will be recognized by the Company over the next
two years.
Holders of Units under the Plan will not have the rights or privileges of
stockholders of the Company.
Stockholder Receivable
During 1995, the Company extended loans to two of its principal
stockholders totaling $1,049,140. The loans are noninterest bearing, and have no
defined repayment terms and are reflected as a reduction to capital (deficit) in
the accompanying financial statements.
Termination of 'S' Corporation
Upon termination of the 'S' corporation, the accumulated deficit as of that
date will be transferred to additional paid-in capital. At March 31, 1996, the
accompanying balance sheets and statements of stockholders' equity (deficit)
have been adjusted to reflect such termination.
(6) PRO FORMA INCOME TAXES (UNAUDITED):
As described in Note 2, the Company previously elected 'S' corporation
status under the provisions of the Internal Revenue Code. In connection with the
completion of the initial public offering, the Company will no longer qualify as
an 'S' corporation and will become subject to Federal and state income taxes.
The following unaudited pro forma information has been determined based
upon the provisions of Statement of Financial Accounting Standards No. 109,
'Accounting for Income Taxes' (SFAS 109). The Company would not have a Federal
and state income tax provision because of net operating loss carryforwards for
all periods presented.
The pro forma income tax provision (benefit) differs from the amounts
computed by applying the Federal statutory rate of 34% to loss before taxes as
follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
DECEMBER 31, MARCH 31,
------------------------------------- ----------------------
1993 1994 1995 1995 1996
--------- --------- ----------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Tax benefit at the statutory rate............. $(242,000) $(269,000) $(1,002,000) $ (86,000) $(286,000)
State income taxes, net of Federal benefit.... (43,000) (47,000) (177,000) (15,000) (50,000)
Operating loss carry forward.................. 285,000 316,000 1,179,000 101,000 336,000
--------- --------- ----------- --------- ---------
$ 0 $ 0 $ 0 $ 0 $ 0
--------- --------- ----------- --------- ---------
--------- --------- ----------- --------- ---------
</TABLE>
(7) UNUSUAL ITEM:
During late 1993 and early 1994 the Company commenced an initial public
offering which was subsequently terminated. As a result, deferred offering costs
amounting to $589,861 have been included as an unusual item in the accompanying
statements of operations for 1994. Costs of $28,394 relating to this offering
are included in the unusual loss for 1995.
F-12
<PAGE>
<PAGE>
TSR PAGING INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
During 1995, the Company incurred approximately $536,000 of costs related
to certain merger activity which were discontinued during the year. These costs
are reflected as an unusual item in the accompanying statements of operations
for 1995.
(8) COMMITMENTS AND CONTINGENCIES:
The Company has operating leases for office and transmitting sites which
expire on various dates through 2002. In most cases, the Company expects that in
the normal course of business leases will be renewed or replaced by other
leases.
Minimum annual rental commitments (exclusive of taxes, maintenance, etc.)
under all noncancellable operating leases at December 31, 1995 are as follows:
<TABLE>
<S> <C>
1996.................................................................. $3,811,621
1997.................................................................. 3,291,383
1998.................................................................. 2,660,996
1999.................................................................. 1,750,284
2000.................................................................. 977,196
Thereafter............................................................ 733,266
</TABLE>
Total rent expense charged to operations for the and the years ended
December 31, 1993, 1994 and 1995 and three months ended March 31, 1995 and 1996
(unaudited) was $1,251,600, $2,170,581, $3,366,781, $749,586 and $1,189,336,
respectively.
(9) SUBSEQUENT EVENT (UNAUDITED):
Proposed Public Offering
The Company contemplates an initial public offering (the 'Offering') of
approximately additional shares of its common stock. (See "Risk
Factors" in the Registration Statement).
F-13
<PAGE>
<PAGE>
__________________________________ __________________________________
No person has been authorized to give any information or to make any
representation in connection with this offering being made hereby not contained
in this Prospectus, and, if given or made, such information or representation
must not be relied upon as having been authorized by the Company, the U.S.
Underwriters or any other person. This Prospectus does not constitute an offer
to sell or a solicitation of an offer to buy any securities offered hereby in
any jurisdiction in which it is unlawful to make such offer or solicitation in
such jurisdiction. Neither the delivery of this Prospectus nor any sale made
hereunder shall under any circumstances create an implication that information
contained herein is correct as of any time subsequent to the date hereof.
---------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Summary.......................................................................................................... 3
Risk Factors..................................................................................................... 8
The Company...................................................................................................... 14
Use of Proceeds.................................................................................................. 15
Dividend Policy.................................................................................................. 15
Dilution......................................................................................................... 16
Capitalization................................................................................................... 17
Selected Financial and Operating Data............................................................................ 18
Management's Discussion and Analysis of Financial Condition and Results of Operations............................ 20
Business......................................................................................................... 28
Management....................................................................................................... 42
Certain Relationships and Related Party Transactions............................................................. 46
Principal Stockholders........................................................................................... 48
Description of Capital Stock..................................................................................... 50
Shares Eligible for Future Sale.................................................................................. 52
Description of Certain Indebtedness.............................................................................. 53
Certain United States Federal Income Tax Consequences For Non-United States Holders.............................. 54
Underwriting..................................................................................................... 57
Legal Matters.................................................................................................... 59
Experts.......................................................................................................... 60
Additional Information........................................................................................... 60
Index to Financial Statements.................................................................................... F-1
</TABLE>
---------------------------
Until , 1996 (25 days after the date of this Prospectus), all
dealers effecting transactions in the Common Stock offered hereby, whether or
not participating in this distribution, may be required to deliver a Prospectus.
This is in addition to the obligation of dealers to deliver a Prospectus when
acting as Underwriters and with respect to their unsold allotments or
subscriptions.
SHARES
[TSR PAGING LOGO]
COMMON STOCK
---------------------------
PROSPECTUS
, 1996
---------------------------
LEHMAN BROTHERS
SMITH BARNEY INC.
WESSELS, ARNOLD & HENDERSON
BRENNER SECURITIES
CORPORATION
__________________________________ __________________________________
<PAGE>
<PAGE>
[ALTERNATE PAGE]
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
SUBJECT TO COMPLETION, DATED MAY 9, 1996
PROSPECTUS
SHARES
TSR PAGING INC.
COMMON STOCK
[LOGO]
---------------------------
All of the shares of Common Stock, par value $.01 per share (the 'Common
Stock'), of TSR Paging Inc. (the 'Company') offered hereby are being offered by
the Company. Of the shares of Common Stock offered, shares are
being offered initially outside the United States and Canada by the
International Managers (the 'International Offering') and shares are
being offered initially inside the United States and Canada in a concurrent U.S.
Offering (the 'U.S. Offering') by the U.S. Underwriters (together with the
International Managers, the 'Underwriters'). These offerings are collectively
referred to herein as the 'Offerings.' See 'Underwriting.'
Prior to the Offerings, there has been no public market for the Common
Stock. It is currently anticipated that the initial public offering price will
be between $ and $ per share. The initial public offering price and the
underwriting discount and commission per share are identical for each of the
Offerings. See 'Underwriting' for information relating to the factors considered
in determining the initial public offering price.
Application will be made to list the Common Stock on the Nasdaq National
Market under the symbol 'BEEP.'
---------------------------
FOR A DISCUSSION OF CERTAIN RISKS TO BE CONSIDERED IN CONNECTION WITH AN
INVESTMENT IN THE COMMON STOCK OFFERED HEREBY, SEE 'RISK FACTORS' BEGINNING ON
PAGE 8.
---------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
PRICE TO UNDERWRITING DISCOUNTS PROCEEDS TO
PUBLIC AND COMMISSIONS (1) COMPANY (2)
<S> <C> <C> <C>
Per Share.................................. $ $ $
Total (3).................................. $ $ $
</TABLE>
(1) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended. See 'Underwriting.'
(2) Before deducting expenses payable by the Company estimated at $ .
(3) The Company has granted to the International Managers a 30-day option to
purchase up to additional shares of Common Stock on the same terms
and conditions as set forth above solely to cover over-allotments, if any.
The U.S. Underwriters have been granted a similar option to purchase up to
additional shares solely to cover over-allotments, if any. If such
options are exercised in full, the total Price to Public, Underwriting
Discounts and Commissions and Proceeds to Company will be $ ,
$ and $ , respectively. See 'Underwriting.'
---------------------------
The shares of Common Stock offered by this Prospectus are offered by the
International Managers subject to prior sale, to withdrawal, cancellation or
modification of the offer without notice, to delivery to and acceptance by the
International Managers and to certain further conditions. It is expected that
delivery of the shares will be made at the offices of Lehman Brothers Inc., New
York, New York, on or about , 1996.
---------------------------
LEHMAN BROTHERS
SMITH BARNEY INC.
WESSELS, ARNOLD & HENDERSON
BRENNER SECURITIES
CORPORATION
, 1996
<PAGE>
<PAGE>
[ALTERNATE PAGE]
__________________________________ __________________________________
No person has been authorized to give any information or to make any
representation in connection with this offering being made hereby not contained
in this Prospectus, and, if given or made, such information or representation
must not be relied upon as having been authorized by the Company, the
Underwriters or any other person. This Prospectus does not constitute an offer
to sell or a solicitation of an offer to buy any securities offered hereby in
any jurisdiction in which it is unlawful to make such offer or solicitation in
such jurisdiction. Neither the delivery of this Prospectus nor any sale made
hereunder shall under any circumstances create an implication that information
contained herein is correct as of any time subsequent to the date hereof.
---------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Summary.......................................................................................................... 3
Risk Factors..................................................................................................... 8
The Company...................................................................................................... 14
Use of Proceeds.................................................................................................. 15
Dividend Policy.................................................................................................. 15
Dilution......................................................................................................... 16
Capitalization................................................................................................... 17
Selected Financial and Operating Data............................................................................ 18
Management's Discussion and Analysis of Financial Condition and Results of Operations............................ 20
Business......................................................................................................... 28
Management....................................................................................................... 42
Certain Relationships and Related Party Transactions............................................................. 46
Principal Stockholders........................................................................................... 48
Description of Capital Stock..................................................................................... 50
Shares Eligible for Future Sale.................................................................................. 52
Description of Certain Indebtedness.............................................................................. 53
Certain United States Federal Income Tax Consequences For Non-United States Holders.............................. 54
Underwriting..................................................................................................... 57
Legal Matters.................................................................................................... 59
Experts.......................................................................................................... 60
Additional Information........................................................................................... 60
Index to Financial Statements.................................................................................... F-1
</TABLE>
---------------------------
Until , 1996 (25 days after the date of this Prospectus), all
dealers effecting transactions in the Common Stock offered hereby, whether or
not participating in this distribution, may be required to deliver a Prospectus.
This is in addition to the obligation of dealers to deliver a Prospectus when
acting as Underwriters and with respect to their unsold allotments or
subscriptions.
SHARES
[TSR PAGING LOGO]
COMMON STOCK
---------------------------
PROSPECTUS
, 1996
---------------------------
LEHMAN BROTHERS
SMITH BARNEY INC.
WESSELS, ARNOLD & HENDERSON
BRENNER SECURITIES
CORPORATION
__________________________________ __________________________________
<PAGE>
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the expenses expected to be incurred in
connection with the issuance and distribution of Common Stock registered hereby,
all of which expenses, except for the Commission registration fee, the National
Association of Securities Dealers, Inc. filing fee and the Nasdaq National
Market listing application fee, are estimates:
<TABLE>
<CAPTION>
DESCRIPTION AMOUNT
- ------------------------------------------------------------------------------------------ ----------
<S> <C>
Securities and Exchange Commission registration fee....................................... $ 25,863
National Association of Securities Dealers, Inc. filing fee............................... 8,000
Nasdaq National Market Listing Application fee............................................ *
Accounting fees and expenses.............................................................. *
Legal fees and expenses................................................................... *
Printing and engraving fees and expenses.................................................. *
Blue Sky fees and expenses................................................................ *
Transfer Agent fees and expenses.......................................................... *
Miscellaneous expenses.................................................................... *
----------
Total................................................................................ $ *
----------
----------
</TABLE>
- ------------
* To be completed by amendment.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Company is a Delaware corporation. Reference is made to Section
102(b)(7) of the Delaware General Corporation Law (the 'DGCL'), which enables a
corporation in its original certificate of incorporation or an amendment thereto
to eliminate or limit the personal liability of a director for violations of the
director's fiduciary duty, except (i) for any breach of the director's duty of
loyalty to the corporation or its stockholders, (ii) for acts or omissions not
in good faith or which involve intentional misconduct or a knowing violation of
law (iii) pursuant to Section 174 of the DGCL (providing for liability of
directors for unlawful payments of dividends of unlawful stock purchase or
redemptions) or (iv) for any transaction from which a director derived an
improper personal benefit.
Reference is also made to Section 145 of the DGCL, which provides that a
corporation may indemnify any person, including an officer or director, who is,
or is threatened to be made, party to any threatened, pending or completed legal
action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of such corporation), by
reason of the fact that such person was an officer, director, employee or agent
of such corporation or is or was serving at the request of such corporation as a
director, officer, employee or agent of another corporation or enterprise. The
indemnity may include expenses (including attorneys' fees), judgments, fines and
amounts paid in settlement actually and reasonably incurred by such person in
connection with such action, suit or proceeding, provided such officer,
director, employee or agent acted in good faith and in a manner he reasonably
believed to be in, or not opposed to, the corporation's best interest and, for
criminal proceedings, had no reasonable cause to believe that his conduct was
unlawful. A Delaware corporation may indemnify any officer or director in an
action by or in the right of the corporation under the same conditions, except
that no indemnification is permitted without judicial approval if the officer or
director is adjudged to be liable to the corporation. Where an officer or
director is successful on the merits or otherwise in the defense of any action
referred to above, the corporation must indemnify him against the expenses that
such officer or director actually and reasonably incurred.
Article 6, Section 5 of the Restated Certificate of Incorporation of the
Company (filed as Exhibit 3.1) provides that, except under certain
circumstances, directors of the Company shall not be personally liable to the
Company or its stockholders for monetary damages for breach of fiduciary duties
as a
II-1
<PAGE>
<PAGE>
director and provides for indemnification of the officers and directors of the
Company to the full extent permitted by applicable law.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
None.
ITEM 16. EXHIBITS.
(a) Exhibits:
The following exhibits are filed pursuant to Item 601 of Regulation
S-K.
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------- ------------------------------------------------------------------------------------------------------------
<C> <S>
*1.1 -- Form of Underwriting Agreement.
*3.1 -- Amended and Restated Certificate of Incorporation of the Company.
*3.2 -- Amended and Restated By-Laws of the Company.
*4.1 -- Specimen Certificate of Common Stock.
*5 -- Opinion of Latham & Watkins regarding the validity of the securities being registered.
*9.1 -- Agreement between Leonard DiSavino and the DiSavino Trust.
*9.2 -- Agreement between Philip Sacks and the Sacks Trust.
*10.1 -- Credit Agreement among the Company, The First Chicago National Bank, N.A. and certain other lenders, as
amend and restated on August 31, 1995.
23.1 -- Consent of Arthur Andersen LLP.
*23.2 -- Consent of Latham & Watkins (included in their opinion filed as Exhibit 5).
24 -- Power of Attorney (included in signature page).
</TABLE>
- ------------
* To be filed by amendment.
(b) Financial Statement Schedules.
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Schedule II -- Valuation and Qualifying Accounts
</TABLE>
All other Schedules are omitted as the required information is inapplicable
or is presented in the financial statements or related notes.
ITEM 17. UNDERTAKINGS.
(a) The undersigned Registrant hereby undertakes to provide to the
Underwriters at the closing specified in the Underwriting Agreement,
certificates in such denominations and registered in such names as required by
the Underwriters to permit prompt delivery to each purchaser.
(b) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission, such indemnification is against public policy as expressed in the
Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
(c) The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of Prospectus filed as part
of this Registration Statement in reliance upon
II-2
<PAGE>
<PAGE>
Rule 430A and contained in a form of Prospectus filed by the Registrant
pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall
be deemed to be a part of this Registration Statement as of the time it was
declared effective.
(2) For purposes of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of Prospectus
shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-3
<PAGE>
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Fort Lee, State of New
Jersey on May 9, 1996.
TSR PAGING INC.
By: /S/ LEONARD DISAVINO
.................................
LEONARD DISAVINO
CO-CHAIRMAN OF THE BOARD OF
DIRECTORS,
PRESIDENT AND CHIEF EXECUTIVE
OFFICER
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints each of Leonard DiSavino, Philip Sacks and
Mitchell Sacks, as true and lawful attorney-in-fact and agent with full power of
substitution and resubstitution for him and in his name, place and stead, in any
and all capacities to sign any and all amendments (including pre-effective and
post-effective amendments) to this Registration Statement, and to file the same
with all exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorney-in-fact and
agent full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorney-in-fact and agent, or his substitute or
substitutes may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and as of the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------ -------------------------------------------- -------------------
<C> <S> <C>
/s/ LEONARD DISAVINO Co-Chairman of the Board of Directors, May 9, 1996
......................................... President and Chief Executive Officer
(LEONARD DISAVINO) (Principal Executive Officer)
/s/ PHILIP SACKS Co-Chairman of the Board of Directors, Chief May 9, 1996
......................................... Operating Officer and Secretary
(PHILIP SACKS)
/s/ MITCHELL SACKS Director, Executive Vice President -- May 9, 1996
......................................... Operations and Chief Financial Officer
(MITCHELL SACKS) (Principal Financial Officer)
/s/ MITCHELL PEIPERT Vice President -- Controller (Principal May 9, 1996
......................................... Accounting Officer)
(MITCHELL PEIPERT)
/s/ WILLIAM P. COLLATOS Director May 9, 1996
.........................................
(WILLIAM P. COLLATOS)
/s/ STEPHEN J. GAAL Director May 9, 1996
.........................................
(STEPHEN J. GAAL)
/s/ ROGER H. KIMMEL Director May 9, 1996
.........................................
(ROGER H. KIMMEL)
/s/ KENNETH T. SCHICIANO Director May 9, 1996
.........................................
(KENNETH T. SCHICIANO)
</TABLE>
II-4
<PAGE>
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON SCHEDULES
To TSR PAGING INC.:
We have audited in accordance with generally accepted auditing standards,
the 1993, 1994 and 1995 financial statements of TSR Paging Inc. included on
pages F-2 through F-13 of this registration statement and have issued our report
thereon dated March 1, 1996. Our audits were made for the purpose of forming an
opinion on the basic financial statements taken as a whole. The schedule listed
in Item 16(b) of this registration statement is the responsibility of the
Company's management and is presented for purposes of complying with the
Securities and Exchange Commission's rules and is not part of the basic
financial statements. This schedule has been subjected to the auditing
procedures applied in the audits of the basic financial statements as of
December 31, 1994 and 1995 and for each of the three years in the period ended
December 31, 1995, and, in our opinion, fairly states in all material respects
the financial data required to be set forth therein in relation to the basic
financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Roseland, New Jersey
March 1, 1996
II-6
<PAGE>
<PAGE>
SCHEDULE II
TSR PAGING INC.
VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
BALANCE
AT CHARGED
BEGINNING TO COSTS BALANCE AT
DESCRIPTION OF YEAR AND EXPENSES DEDUCTION(A) END OF YEAR
- ---------------------------------------------------------- --------- ------------ ------------ -----------
<S> <C> <C> <C> <C>
For the year ended December 31, 1993...................... $ 61,000 $426,832 $ (181,832) $ 306,000
For the year ended December 31, 1994...................... 306,000 528,214 (685,479) 148,735
For the year ended December 31, 1995...................... 148,735 779,283 (724,621) 203,397
</TABLE>
- ------------
(a) Uncollectible accounts written off, net of recoveries.
S-1
STATEMENT OF DIFFERENCES
------------------------
The trademark symbol shall be expressed as................. 'TM'
<PAGE>
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
To TSR PAGING INC.:
As independent public accountants, we hereby consent to the use of our
reports and to all references to our Firm included in or made a part of this
registration statement.
ARTHUR ANDERSEN LLP
Roseland, New Jersey
May 9, 1996
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C> <C>
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1996
<PERIOD-START> JAN-1-1995 JAN-1-1996
<PERIOD-END> DEC-31-1995 MAR-31-1996
<PERIOD-TYPE> YEAR 3-MOS
<CASH> 140,384 116,325
<SECURITIES> 0 0
<RECEIVABLES> 2,213,015 2,710,376
<ALLOWANCES> (203,397) (448,127)
<INVENTORY> 6,361,603 8,677,113
<CURRENT-ASSETS> 8,891,188 11,621,579
<PP&E> 32,729,552 39,042,218
<DEPRECIATION> (8,136,360) (10,089,322)
<TOTAL-ASSETS> 35,188,101 42,456,495
<CURRENT-LIABILITIES> 12,918,307 10,530,776
<BONDS> 34,000,000 43,750,000
<COMMON> 4,000 4,000
0 0
0 0
<OTHER-SE> (11,734,026) (11,828,282)
<TOTAL-LIABILITY-AND-EQUITY> 35,188,101 42,456,495
<SALES> 18,615,329 4,954,450
<TOTAL-REVENUES> 47,523,762 14,891,398
<CGS> 14,548,726 3,948,696
<TOTAL-COSTS> 46,596,224 14,342,117
<OTHER-EXPENSES> 163,396 0
<LOSS-PROVISION> 779,283 244,730
<INTEREST-EXPENSE> 2,483,887 638,232
<INCOME-PRETAX> (2,284,149) (88,951)
<INCOME-TAX> 49,499 5,125
<INCOME-CONTINUING> (2,333,648) (94,076)
<DISCONTINUED> (300,004) 0
<EXTRAORDINARY> (312,733) 0
<CHANGES> 0 0
<NET-INCOME> (2,946,385) (94,076)
<EPS-PRIMARY> 0 0
<EPS-DILUTED> 0 0
</TABLE>
