<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 26, 1998
REGISTRATION NO. 333-49839
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------
SATELLINK COMMUNICATIONS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
---------------
GEORGIA 4812 58-1850580
(State or other (Primary Standard Industrial (I.R.S. employer
jurisdiction of Classification Code Number) identification number)
incorporation or
organization)
1325 NORTHMEADOW PARKWAY
SUITE 120
ROSWELL, GEORGIA 30075
(770) 625-2599
(Address, including zip code, and telephone number, including area code, of
the registrant's principal executive offices)
DANIEL D. LENSGRAF
CHIEF FINANCIAL OFFICER
SATELLINK COMMUNICATIONS, INC.
1325 NORTHMEADOW PARKWAY
SUITE 120
ROSWELL, GEORGIA 30075
PHONE: (770) 625-2599
FACSIMILE: (770) 625-2651
(Name, address, including zip code and telephone number, including area code,
of agent for service)
---------------
COPIES TO:
M. HILL JEFFRIES, ESQ. JAMES WALKER IV, ESQ.
SCOTT D. DICKINSON, ESQ. TERRESA R. TARPLEY, ESQ.
ALSTON & BIRD LLP NELSON MULLINS RILEY & SCARBOROUGH,
ONE ATLANTIC CENTER L.L.P.
1201 WEST PEACHTREE STREET FIRST UNION PLAZA, SUITE 1400
ATLANTA, GEORGIA 30309-3424 999 PEACHTREE STREET, N.E.
PHONE: (404) 881-7000 ATLANTA, GEORGIA 30309-3464
FACSIMILE: (404) 881-7777 PHONE: (404) 817-6000
FACSIMILE: (404) 817-6050
---------------
Approximate date of commencement of proposed sale to public: AS SOON AS
PRACTICABLE AFTER THE EFFECTIVENESS OF THE REGISTRATION STATEMENT.
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 of 1933, 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 number of the earlier effective registration statement for the
same offering. [_]
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration 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
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- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF SECURITIES TO AMOUNT TO BE OFFERING PRICE AGGREGATE REGISTRATION
BE REGISTERED REGISTERED(1) PER SHARE(2) OFFERING PRICE(2) FEE(3)
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, $0.01 par value per
share............................... 4,197,500 $12.00 $50,370,000 $4,682
- -----------------------------------------------------------------------------------------------------
</TABLE>
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(1) Includes 547,500 shares which the Underwriters have the option to purchase
from the Company to cover over-allotments, if any.
(2) Estimated solely for purposes of determining the registration fee pursuant
to Rule 457(a).
(3) Excludes $10,178 previously paid.
---------------
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.
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- -------------------------------------------------------------------------------
<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 26, 1998
PROSPECTUS
3,650,000 SHARES
[SATELLINK COMMUNICATIONS, INC. LOGO]
SATELLINK COMMUNICATIONS
COMMON STOCK
Of the 3,650,000 shares of common stock, par value $0.01 per share (the
"Common Stock"), offered hereby, 2,750,000 shares are being offered by
Satellink Communications, Inc. (the "Company" or "Satellink"), and 900,000
shares are being offered by certain shareholders of the Company (the "Selling
Shareholders"). See "Principal and Selling Shareholders." The Company will not
receive any of the proceeds from the sale of shares by the Selling
Shareholders. See "Use of Proceeds."
Prior to this offering (the "Offering"), there has been no public market for
the Common Stock. It currently is anticipated that the initial public offering
price of the Common Stock will be between $10.00 and $12.00 per share. See
"Underwriting" for information relating to the determination of the initial
public offering price. The Company has applied for the Common Stock to be
listed for quotation on The Nasdaq Stock Market's National Market (the "Nasdaq
National Market") under the symbol "STLK."
SEE "RISK FACTORS" BEGINNING ON PAGE 8 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE COMMON STOCK OFFERED
HEREBY.
-----------
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>
PROCEEDS TO
PRICE TO UNDERWRITING PROCEEDS TO SELLING
PUBLIC DISCOUNT(1) COMPANY(2) SHAREHOLDERS
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per Share....................... $ $ $ $
- --------------------------------------------------------------------------------
Total(3)........................ $ $ $ $
</TABLE>
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- --------------------------------------------------------------------------------
(1) The Company and the Selling Shareholders have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933, as amended. See "Underwriting."
(2) Before deducting estimated expenses of $900,000 payable by the Company.
(3) The Company has granted the Underwriters a 30-day over-allotment option to
purchase up to 547,500 additional shares of Common Stock on the same terms
and conditions as set forth above. If all such shares are purchased by the
Underwriters, the total Price to Public will be $ , the total
Underwriting Discount will be $ and the total Proceeds to Company will
be $ . See "Underwriting."
-----------
The shares of Common Stock are offered subject to receipt and acceptance by
the several Underwriters, to prior sale and to the Underwriters' right to
reject orders in whole or in part and to withdraw, cancel or modify the offer
without notice. It is expected that certificates for the shares of Common Stock
will be available for delivery on or about , 1998.
-----------
J.C.Bradford&Co. Morgan Keegan & Company, Inc.
, 1998
<PAGE>
[DESCRIPTION OF U.S. MAP SHOWING THE COMPANY'S COVERAGE AREA]
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK,
INCLUDING OVER-ALLOTMENT, STABILIZING AND SHORT-COVERING TRANSACTIONS IN THE
COMMON STOCK, AND THE IMPOSITION OF PENALTY BIDS. FOR A DESCRIPTION OF THESE
ACTIVITIES, SEE "UNDERWRITING."
2
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and consolidated financial statements, including the notes thereto,
appearing elsewhere in this Prospectus. Unless the context indicates otherwise,
all references to the "Company" or "Satellink" include Satellink
Communications, Inc. and its subsidiaries. Unless otherwise indicated, all
information contained herein: (i) reflects the conversion of all outstanding
shares of Series A Convertible Preferred Stock, par value $0.01 per share (the
"Series A Preferred Stock"), and Series C Convertible Preferred Stock, par
value $0.01 per share (the "Series C Preferred Stock"), into Common Stock upon
the completion of the Offering; (ii) reflects a 1.3-for-one stock split to be
effected immediately prior to the effectiveness of the Offering; and (iii)
assumes no exercise of the Underwriters' over-allotment option. The Company's
fiscal year ends on July 31, and references to particular fiscal years of the
Company refer to the twelve months ended on July 31 of the year indicated. See
the consolidated financial statements and the notes thereto.
THE COMPANY
Satellink provides paging and enhanced personal telecommunications services
to businesses and individuals in smaller metropolitan areas and major cities in
the southeastern and southwestern United States. The Company has provided
paging and voicemail services since 1988. In 1995, the Company began
development of its proprietary Satellink Telecommunications Application
Resource Network (the "STAR*Net") in anticipation of increased subscriber
demand for a broad spectrum of personal telecommunications services from a
single provider. The STAR*Net platform allows the Company to provide an
integrated suite of personal telecommunications services to businesses and
individuals in markets not generally targeted by major providers. The Company
intends to capitalize on its STAR*Net platform by marketing enhanced services
to its existing paging and voicemail subscriber base and by attracting new
subscribers who would otherwise use multiple providers to fulfill their
personal telecommunications needs.
Through the STAR*Net platform, which integrates carrier grade telephony
platform hardware with the Company's proprietary software, Satellink provides
its subscribers with single telephone number access to paging, voicemail, long
distance and "find me" services. The STAR*Net platform also allows the Company
to offer prepaid and postpaid long distance calling cards and inbound 1-800
service. The Company believes that the STAR*Net platform's scalable and
flexible architecture and relatively low cost of implementation give the
Company a competitive advantage by allowing it to quickly add and customize
services and offer enhanced services in smaller markets where the
implementation of a more expensive architecture is not economically justified.
The Company delivers paging services by broadcasting messages over: (i) FM
subcarrier frequencies that are leased by the Company in Georgia and Alabama
and that are linked with the CUE Paging Corporation ("CUE") nationwide FM
paging network, which reaches over 95% of the population of the United States
and Canada and covers 60,000 miles of interstate highway; (ii) Company-owned
VHF and UHF paging networks in Georgia and Louisiana; and (iii) VHF, UHF, 900
MHz and narrowband personal communications service ("PCS") paging networks
operated by third parties from which the Company purchases and resells local,
regional and nationwide service. The Company's use of the STAR*Net platform and
multiple message distribution networks in its market areas allows the Company
to offer to its customers an assortment of service and pricing options not
readily available from many of the Company's competitors.
Satellink's paging and voicemail subscriber base has increased through
internal growth and acquisitions from approximately 27,000 subscribers as of
July 31, 1995 to approximately 160,000 subscribers as of May 19, 1998. Net
monthly revenues have increased from $700,000 for the month ended January 31,
1995 to $1.8 million for the month ended April 30, 1998.
3
<PAGE>
The Company's primary objective is to become a leading regional provider of
enhanced personal telecommunications services. The Company intends to achieve
its objective by pursuing the following strategies:
. Expand Subscriber Base Through Acquisitions. The Company intends to
increase its subscriber base and its opportunities to cross-market
STAR*Net services by identifying and acquiring other providers of
paging, voicemail and other personal telecommunications services. The
Company believes that it can generate cost savings through integration
of acquired companies, particularly from its increased purchasing power
for equipment and airtime. Any cost savings would effectively reduce the
multiple paid for acquired companies, thereby increasing the Company's
return on invested capital. The Company intends to continue to focus on
smaller acquisition candidates because it expects larger providers to
focus increasingly on internal growth and larger acquisitions, thereby
decreasing competition for smaller acquisition candidates.
. Cross-Market an Integrated Suite of Customized Services to Existing and
Acquired Subscribers. The Company intends to cross-market additional
STAR*Net services to its existing and acquired paging and voicemail
subscribers. The Company believes that its paging and voicemail
subscribers are mobile individuals who are likely to use additional
personal telecommunications services. The Company believes these
subscribers will be more likely to purchase these services from the
Company because: (i) the Company owns the subscribers' access numbers
and is able to offer them the ability to change service plans and
coverage areas without changing access numbers; (ii) the Company is able
to provide its subscribers with unified billing for a variety of
personal telecommunications services; and (iii) existing subscribers are
familiar with the Company and have purchased services from the Company
in the past.
. Expand the Suite of Customized Services. The Company intends to
continually develop new STAR*Net services. Current planned services
under development include Internet-based voicemail delivery and receipt,
local access voicemail between cities, text-to-speech playback of e-mail
messages, Internet e-mail pager notification and narrowband PCS connect.
The Company believes these services will, when combined with existing
STAR*Net service offerings, provide it with additional cross-marketing
opportunities to existing and new subscribers.
. Focus on Niche Markets. The Company believes that smaller metropolitan
markets throughout the Southeast and Southwest are underserved by larger
providers of personal telecommunications services. These smaller markets
are attractive to Satellink because management believes these markets
have reduced competition for personal telecommunications services,
limited availability of alternative services such as cellular telephones
and lower market penetration rates for personal telecommunications
services. Approximately 45% of the Company's paging subscribers utilize
regional or national paging services compared to approximately 33% of
total paging subscribers in the United States who use such services. The
Company believes this reflects its ability to serve mobile individuals
who require the broad, uninterrupted coverage area provided by the
Company. The Company intends to continue implementing its niche market
strategy by opening additional offices in smaller metropolitan markets,
acquiring other providers of paging, voicemail and other personal
telecommunications services in existing and additional markets and
utilizing its direct sales force in markets in Georgia, Alabama,
Louisiana and Texas.
The Company was incorporated under the laws of the State of Georgia on June
2, 1988. The mailing address of its principal executive office is 1325
Northmeadow Parkway, Suite 120, Roswell, Georgia 30075, and its telephone
number is (770) 625-2599.
4
<PAGE>
ACQUISITIONS
Acquisitions have contributed significantly to the Company's growth. The
following table provides a summary of acquisitions in which the Company
acquired more than 5,000 subscribers. The Company has paid an aggregate
consideration of approximately $27.0 million in connection with these
acquisitions.
<TABLE>
<CAPTION>
APPROXIMATE NUMBER OF
SUBSCRIBERS
DATE ------------------------
NAME OF ACQUIRED COMPANY LOCATIONS ACQUIRED PAGING VOICEMAIL
- ------------------------ ---------------------- ------------- ----------- ------------
<S> <C> <C> <C> <C>
Atlanta Voice Page, Atlanta February 1996 11,500 --
Inc....................
C.R., Inc. ............. Dallas May 1996 10,500 --
Message World........... Atlanta February 1997 -- 5,300
Premier Paging,
Inc./Premier Paging Baton Rouge and April 1998 10,000 --
of New Orleans, Inc.... New Orleans
Hyde's Stay in Touch, Shreveport, Monroe and May 1998 39,000 --
Inc. .................. Alexandria, Louisiana
</TABLE>
In addition to the above acquisitions, since the commencement of the
Company's acquisition program in February 1996, the Company has consummated six
acquisitions for an aggregate consideration of $2.9 million, through which it
acquired a total of 7,600 paging subscribers. The Company is currently engaged
in preliminary discussions with several other acquisition candidates, but it
has no binding commitments to acquire any of such candidates. See "Risk
Factors -- Ability to Manage Growth; Acquisition Risks" and "Use of Proceeds."
THE OFFERING
Common Stock offered by the
Company............................ 2,750,000 shares
Common Stock offered by the Selling
Shareholders....................... 900,000 shares
Common Stock to be outstanding
after the Offering................. 7,380,297 shares(1)
Use of proceeds..................... To repay indebtedness and redeem Series D
Redeemable Preferred Stock, par value
$0.01 per share (the "Series D Preferred
Stock"). See "Use of Proceeds" and
"Certain Transactions."
Proposed Nasdaq National Market
symbol............................. STLK
- --------
(1) Reflects the conversion of all outstanding shares of Series A Preferred
Stock and Series C Preferred Stock into Common Stock on the closing date of
the Offering (the "Closing Date"). Excludes 1,549,396 shares of Common
Stock that will be subject to vested options and warrants and 153,422
shares of Common Stock that will be subject to outstanding but unvested
options on the Closing Date. See "Management -- Incentive Plan," "Shares
Eligible for Future Sale" and note 7 to consolidated financial statements.
5
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL AND OPERATING DATA
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA AND ARPU)
The following table sets forth certain historical and pro forma consolidated
financial and operating data for the Company. This information should be read
in conjunction with "Use of Proceeds," "Selected Consolidated Financial and
Operating Data," "Management's Discussion and Analysis of Financial Condition
and Results of Operations," the Company's consolidated financial statements and
notes thereto, including the unaudited pro forma consolidated financial
information, and the other financial information included elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
YEARS ENDED JULY 31, NINE MONTHS ENDED APRIL 30,
------------------------------------------ -------------------------------
PRO FORMA PRO FORMA
1995 1996 1997 1997(1) 1997 1998 1998(1)
--------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Service, rent and
maintenance revenues... $ 6,885 $ 9,839 $ 16,308 $ 20,478 $ 11,899 $ 14,577 $ 17,877
Product sales........... 526 975 1,264 2,508 856 903 1,967
--------- --------- --------- --------- --------- --------- ---------
Total revenues......... 7,411 10,814 17,572 22,986 12,755 15,480 19,844
Cost of products sold... (468) (960) (1,201) (2,443) (840) (801) (1,970)
--------- --------- --------- --------- --------- --------- ---------
Net revenues........... 6,943 9,854 16,371 20,543 11,915 14,679 17,874
--------- --------- --------- --------- --------- --------- ---------
Service, rent and
maintenance expenses... 2,718 3,879 6,542 7,149 4,870 5,475 5,799
Selling and marketing
expenses............... 1,222 1,602 2,314 2,635 1,696 2,261 2,469
General and
administrative
expenses............... 887 1,732 3,039 4,300 2,095 2,563 3,344
Engineering expenses.... 567 516 638 641 473 631 631
Depreciation and
amortization........... 845 1,204 2,242 3,278 1,605 2,130 2,793
Fixed asset impairment
and one-time
reengineering charges.. -- -- -- -- -- 1,534 1,534
--------- --------- --------- --------- --------- --------- ---------
Operating income........ 704 921 1,596 2,540 1,176 85 1,304
Other income............ 90 91 90 151 69 180 450
Interest expense........ (704) (873) (1,564) (675) (1,100) (1,740) (1,033)
Accretion of stock
warrants(2)............ (643) (854) (1,773) -- (1,252) (628) --
(Loss) income from joint
venture................ -- (96) 26 26 20 99 99
Minority interest....... -- (2) (3) (3) (2) (8) (8)
--------- --------- --------- --------- --------- --------- ---------
Loss before income tax
provision and
extraordinary item..... (553) (813) (1,628) 2,039 (1,089) (2,012) 812
Income tax provision.... -- -- -- (775) -- -- (309)
--------- --------- --------- --------- --------- --------- ---------
Loss before
extraordinary item..... (553) (813) (1,628) 1,264 (1,089) (2,012) 503
Extraordinary loss on
early retirement of
debt(3)................ -- (132) -- -- -- -- --
--------- --------- --------- --------- --------- --------- ---------
Net (loss) income ..... (553) (945) (1,628) 1,264 (1,089) (2,012) 503
--------- --------- --------- --------- --------- --------- ---------
Preferred stock
dividends.............. 88 334 438 -- 329 361 --
--------- --------- --------- --------- --------- --------- ---------
Net loss attributable to
common shareholders.... $ (641) $ (1,279) $ (2,066) $ 1,264 $ (1,418) $ (2,373) $ 503
========= ========= ========= ========= ========= ========= =========
Allocation to Class A
Common Stock.......... $ (608) $ (1,221) $ (2,042) $ 1,264 $ (1,401) $ (2,372) $ 503
Allocation to Class B
Common Stock.......... (33) (58) (24) N/A (17) (1) N/A
Net (loss) income per
share (4):
Loss from extraordinary
item--basic:
Class A Common Stock... $ -- $ (0.05) $ -- $ -- $ -- $ -- $ --
Class B Common Stock... -- (2.95) -- -- -- -- --
Net loss attributable
to common
shareholders--basic:
Class A Common Stock... (0.21) (0.44) (0.69) 0.17 (0.47) (0.79) 0.07
Class B Common Stock... (13.76) (28.60) (44.96) N/A (30.85) (51.11) N/A
Net income attributable
to common
shareholders--diluted. N/A N/A N/A 0.15 N/A N/A 0.06
Weighted average common
shares outstanding--
basic:
Class A Common Stock... 2,872,417 2,775,792 2,952,811 7,323,933 2,952,811 3,015,800 7,344,165
Class B Common Stock... 2,418 2,013 535 N/A 535 29 N/A
Weighted average common
shares outstanding--
diluted................ N/A N/A N/A 8,230,403 N/A N/A 8,256,548
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
AT APRIL 30, 1998
---------------------------------
PRO FORMA
AS
ACTUAL PRO FORMA(1) ADJUSTED(5)
------- ------------ -----------
<S> <C> <C> <C>
BALANCE SHEET DATA:
Working capital............................... $ 557 $ 1,354 $ 1,754
Property and equipment, net................... 11,165 11,665 11,665
Total assets.................................. 34,994 47,523 48,823
Long-term debt, less current maturities....... 25,263 37,491 14,759
Total shareholders' (deficit) equity.......... (8,233) (8,233) 28,774
</TABLE>
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEARS ENDED JULY 31, APRIL 30,
------------------------------------ ---------------------------
PRO PRO
FORMA FORMA
1995 1996 1997 1997(1) 1997 1998 1998(1)
------- -------- ------- -------- ------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
OTHER DATA:
Cash provided by (used
in) operations......... $ 726 $ 896 $ 1,974 $ N/A $ 1,017 $ 645 $ N/A
Cash used in investing
activities............. (1,649) (11,019) (8,033) N/A (4,762) (11,962) N/A
Cash provided by
financing activities... 959 10,601 5,728 N/A 3,289 11,379 N/A
Adjusted EBITDA(6)...... 1,639 2,263 3,951 5,992 2,868 4,020 6,170
Adjusted EBITDA
margin(7).............. 23.6% 23.0% 24.1% 29.2% 24.1% 27.4% 34.5%
Units in service (end of
period)................ 27,271 65,418 95,172 129,407 90,067 122,569 162,757
Average revenues per
unit(8)................ $ 24.91 $ 17.72 $ 16.99 $ 15.35 $ 20.98 $ 18.24 $ 13.60
Capital expenditures.... $(1,528) $ (1,911) $(3,647) $ N/A $(2,870) $ (5,793) $ N/A
</TABLE>
- --------
(1) The pro forma statements of operations and other data give effect to the
acquisition of Hyde's Stay in Touch, Inc. and its affiliated company (the
"Hyde's Acquisition") and the issuance of $12.2 million in additional debt
to finance the Hyde's Acquisition as if they had occurred at the beginning
of the period presented, and the pro forma balance sheet data give effect
to Hyde's Acquisition and the related financings as if they had occurred at
April 30, 1998. The pro forma financial information does not purport to
represent what the Company's results of operations would have been if the
Hyde's Acquisition and the related financing had in fact occurred on such
date, nor does it purport to indicate the future financial position or
results of future operations of the Company. The pro forma adjustments are
based on currently available information and certain assumptions that
management believes to be reasonable.
(2) Represents a non-cash expense, calculated pursuant to a formula based on
the Company's Adjusted EBITDA, associated with the put feature of warrants
(the "Creditanstalt Warrants") issued by the Company to Creditanstalt-
Bankverein ("Creditanstalt"), as agent for the lenders under the Company's
credit arrangements (the "Credit Facility"). The put feature of the
Creditanstalt Warrants will be canceled on the Closing Date.
(3) As a result of early retirement of debt in fiscal 1996, the Company
recorded a loss of $132,000, net of income taxes.
(4) Basic and diluted net income (loss) per share under the two class method
are computed separately for holders of Class A and Class B Common Stock
using the weighted average number of shares of Class A and Class B Common
Stock outstanding. Diluted net income per share differs from basic earnings
per share only for periods in which earnings are positive. Net loss
attributable to Class A and Class B shareholders is allocated based on the
extent to which each class shares in the Company's loss. The Company's
Class A and Class B common shareholders receive dividends at a ratio of
1:84.5. For the calculation of basic and diluted net loss per share, see
the Company's consolidated statements of operations for the periods
presented. See also "Capitalization."
(5) Adjusted to reflect the effect of the Hyde's Acquisition, the issuance of
$12.2 million in additional debt to finance the Hyde's Acquisition and the
sale of 2,750,000 shares of Common Stock offered by the Company hereby at
an assumed initial public offering price of $11.00 per share (the midpoint
of the price range set forth on the cover page of this Prospectus) and the
application of the estimated net proceeds therefrom. See "Use of Proceeds"
and "Capitalization."
(6) Adjusted EBITDA represents earnings before interest, taxes, depreciation,
amortization, fixed asset impairment and one-time reengineering charges,
accretion of stock warrants and extraordinary item. Adjusted EBITDA is a
measure of financial performance that is often used in the personal
telecommunications industry to compare companies on the basis of liquidity,
capital resources and leverage and to determine a company's ability to
service debt. Adjusted EBITDA also is one of the financial measurements
used to determine whether the Company is in compliance with its covenants
under the Credit Facility. However, Adjusted EBITDA should not be
considered in isolation or as an alternative to net loss, income from
operations, cash flows from operating activities or any other measure of
performance under generally accepted accounting principles ("GAAP").
Further, Adjusted EBITDA may be calculated differently by different
companies within the personal telecommunications industry. Thus, Adjusted
EBITDA as presented herein may not be comparable to Adjusted EBITDA or
other similarly titled measures reported by other companies. Adjusted
EBITDA for fiscal 1996 excludes $145,000 related to a one-time charge to
write off research and development.
(7) Adjusted EBITDA margin is calculated by dividing Adjusted EBITDA by net
revenues.
(8) Average revenues per unit ("ARPU") equals the average net revenues for a
given period divided by the average number of units in service during such
period. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations -- Overview."
(9) Consists of cash paid as dividends on the Company's Series A Preferred
Stock and Series C Preferred Stock. No dividends have been paid on the
Company's Common Stock. See "Dividend Policy."
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RISK FACTORS
An investment in the shares of Common Stock offered hereby involves a high
degree of risk. In addition to the other information contained in this
Prospectus, prospective investors should consider the following factors
carefully in evaluating an investment in the Common Stock offered hereby. This
Prospectus contains "forward-looking statements" relating to, without
limitation, future economic performance, plans and objectives of management
for future operations, and projections of revenues and other financial items
that are based on the beliefs of, assumptions made by and information
currently available to the Company's management. Forward-looking statements
are identified by the use of words such as "expects," "estimates,"
"anticipates," "believes," "intends," "plans" and similar expressions and
variations thereof. The cautionary statements set forth in this "Risk Factors"
section and elsewhere in this Prospectus identify important factors with
respect to such forward-looking statements, including certain risks and
uncertainties, that could cause actual results to differ materially from those
expressed in or implied by such forward-looking statements.
ABILITY TO MANAGE GROWTH; ACQUISITION RISKS
Demands in managing continued growth, including difficulties in predicting
the growth in network usage and required capacity, could have a material
adverse effect on the Company's business, financial condition and results of
operations. There can be no assurance that the Company's systems, procedures,
controls and existing space will be adequate to support expansion of the
Company's operations. The Company has experienced substantial growth in
revenue and personnel in recent years. The Company's growth has placed
significant demands on all aspects of the Company's business, including its
administrative, technical and financial personnel and systems. Additional
expansion by the Company may further strain the Company's management,
financial and other resources. The Company's future operating results will
substantially depend on the ability of its officers and key employees to
manage changing business conditions and to implement and improve its
technical, administrative, financial control and reporting systems. If the
Company is unable to respond to and manage changing business conditions, then
the quality of the Company's services, its ability to retain key personnel and
its results of operations could be materially adversely affected. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," "Business -- Growth Strategy" and "Management."
The Company continually evaluates acquisition opportunities, and a
significant portion of the Company's recent growth has been accomplished
through acquisitions. Acquisitions involve numerous risks, including
difficulties in the assimilation of the operations, services, products and
personnel of the acquired company, the diversion of management's attention
from other business concerns, the entrance into markets in which the Company
has little or no prior experience and the potential loss of key employees and
subscribers of the acquired company. Acquisitions may also result in
potentially dilutive issuances of equity securities, the incurrence of
additional debt, the assumption of known and unknown liabilities, the write-
off of amortization expenses related to goodwill and other intangible assets,
all of which could have a material adverse effect on the Company's business,
financial condition and results of operations. If assumptions prove to be
incorrect and the potential liabilities ultimately exceed established
reserves, the Company's business, financial condition and results of
operations could be materially adversely affected. In the future, the Company
may take charges in connection with acquisitions. There can be no assurance
that the costs and expenses incurred will not exceed the estimates upon which
such charges are based. The Company is unable to predict whether any
prospective acquisition will occur or the likelihood that any acquisition will
be completed. See "Business -- Acquisitions."
HISTORY OF PRIOR LOSSES
The Company incurred net losses during each of its last five fiscal years,
including net losses of $233,000 during fiscal 1993, $245,000 during fiscal
1994, $641,000 during fiscal 1995, $1.2 million during fiscal 1996 and $2.0
million during fiscal 1997, as well as net losses of $1.1 million during the
nine months ended April 30, 1997 and $2.0 million during the nine months ended
April 30, 1998.
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Although the Company has experienced significant growth in revenues in
recent fiscal years and expects to become profitable upon consummation of the
Offering due to the elimination of the put feature of the Creditanstalt
Warrants and related accretion, there can be no assurance that revenue growth
can be sustained or that the Company will become or remain profitable
following the consummation of the Offering. The Company's ability to maintain
profitability depends on a number of factors, including increasing revenues
while reducing costs, maintaining current subscribers, attracting new
subscribers, implementing its business strategies and many other factors
outside the Company's control. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and "Business -- Growth
Strategies."
TECHNOLOGICAL CHANGE; DEPENDENCE ON NEW SERVICES
The Company's future success will depend in significant part on its ability
to anticipate industry standards, continue to apply advances in technologies,
enhance its current services, develop and introduce new services in a timely
fashion, enhance its software and the STAR*Net platform and compete
successfully with products and services based on evolving or new technologies.
The market for the Company's services is characterized by rapid technological
change, frequent new product introductions and evolving industry standards.
The Company expects development and introduction of new products and
services, along with enhancements to existing products and services, will
compete with the services offered by the Company. Among the new and evolving
technologies with which the Company expects to compete are notebook computers
equipped with sound cards, fax modems and cellular modems, portable Internet
appliances which would allow connection to the Internet over wireless networks
and personal digital assistants with enhanced communications features. The
Company intends to introduce additional services in 1998, several of which are
described in this Prospectus. Development of these services has required and
will require the implementation of new technologies and the integration of
these technologies into the STAR*Net platform. Several of the Company's
competitors have developed and introduced services that are functionally
identical to the STAR*Net services that the Company currently offers and
intends to offer. For example, products currently exist which provide text-to-
voice e-mail conversion and "find me" services, and several competitors have
developed single number services for all of their communications devices.
There can be no assurance that the Company's current and future STAR*Net
services will meet with market acceptance or will compete effectively with the
services that are currently offered or that will be offered by the Company's
competitors. There can be no assurance that the Company will be successful in
developing and marketing service enhancements or new services that respond to
these or other technological changes or evolving industry standards, that the
Company will not experience difficulties that could delay or prevent the
successful development, introduction and marketing of its services, or that
its new services, and the enhancements thereto, will adequately meet the
requirements of the marketplace and achieve market acceptance. Delays in the
introduction of new services, the inability of the Company to develop such new
services or the failure of such services to achieve market acceptance could
have a material adverse effect on the Company's business, financial condition
and results of operation. See "Business -- Industry," " -- Services" and "--
Proprietary Rights and Technology."
RISKS ASSOCIATED WITH THE STAR*NET ROLLOUT
The Company has limited experience in developing and marketing STAR*Net
services. Additionally, the Company has limited experience in establishing new
networks and replacing existing networks using the STAR*Net technology. There
can be no assurance that the Company will be successful in developing and
marketing STAR*Net services, establishing new networks or replacing existing
networks in a timely and cost-effective manner. The Company may experience
unexpected delays or problems, including system errors or failures, in
developing and marketing STAR*Net services or establishing new networks using
the STAR*Net technology. Additionally, the Company may experience
difficulties, including service interruption or failure, in transferring
subscribers from existing networks to the STAR*Net platform. Significant delay
or difficulty in establishing the STAR*Net platform or in developing and
marketing STAR*Net services could have a material adverse effect on the
Company's business, financial condition and results of operations.
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RISKS ASSOCIATED WITH JOINT VENTURES
FM Concepts, Ltd. ("FM Concepts") is a joint venture owned equally by the
Company, certain affiliates of C.R., Inc. ("C.R.") and Cape Fear Paging of
North Carolina, Inc. ("Cape Fear"). FM Concepts was formed in 1995 for a 40
year term to develop an FM pager (the "FM Concepts Pager") for use by the
Company, C.R. and Cape Fear. The Company does not control FM Concepts, and
there can be no assurance that FM Concepts will use its resources in a manner
consistent with the Company's strategies. Additionally, FM Concepts can
require each of the Company, C.R. and Cape Fear to contribute up to an
aggregate of $250,000 to FM Concepts, and the Company cannot require FM
Concepts to return any or all of its contribution. Although the Company has
contributed approximately $227,000 to FM Concepts as of April 30, 1998, the FM
Concepts Pager is at an experimental stage, and there can be no assurance that
it will ever reach the production stage. There can also be no assurance that
the FM Concepts Pager will function in accordance with design specifications
or that subscribers will view it as an attractive alternative to traditional
pagers or competing FM pagers. FM Concepts intends to outsource the production
of the FM Concepts Pager to a third party manufacturer; however, there can be
no assurance that FM Concepts will successfully identify a suitable
manufacturer or that any manufacturer will be able to produce the FM Concepts
Pager according to design specifications in a cost-effective manner. See
"Business -- Proprietary Rights and Technology" and "-- Pagers."
The Company currently purchases FM radio pagers from FM Concepts, L.L.C.
("FM Concepts II"), a joint venture that was formed in 1996 and is owned
equally by the Company and Cape Fear. FM Concepts II is not controlled by the
Company, and, therefore, there can be no assurance that FM Concepts II will
utilize its resources in a manner consistent with the Company's strategies.
Additionally, FM Concepts II can require each of the Company and Cape Fear to
contribute up to an aggregate of $250,000 to FM Concepts II's capital, and the
Company cannot require FM Concepts II to return any or all of its
contribution. As of April 30, 1998, the Company had contributed approximately
$235,000 to FM Concepts II. FM Concepts II and CUE have been licensed by Nokia
Oy AB ("Nokia") to manufacture and distribute pagers using Nokia's FM paging
technology throughout North America. FM Concepts II has contracted with
Infotelcom, a French producer, to manufacture FM pagers for distribution in
North America. The Company believes that its participation in the FM Concepts
II joint venture combined with the outsourcing of production of FM pagers
allows it to obtain FM pagers at a more favorable cost than if it purchased
such pagers directly from a third party manufacturer. See "Business --
Pagers."
COMPETITION
The telecommunications services industry is intensely competitive, rapidly
evolving and subject to rapid technological change. The Company expects
competition to increase in the future. Many of the Company's current and
potential competitors have longer operating histories, greater name
recognition, larger customer bases and substantially greater financial,
personnel, marketing, engineering, technical and other resources than the
Company. Competition from these competitors could have a material adverse
effect on the Company's business, financial condition and results of
operations.
The Company attempts to differentiate itself from its competitors by
offering an integrated suite of telecommunications services. Other providers
currently offer each of the individual services and certain combinations of
the services offered by the Company. For example, Premiere Technologies, Inc.
("Premiere Technologies") offers bundled telecommunications services which are
similar to those offered by the Company. Octel Communications Corporation
("Octel") and Microsoft Corporation ("Microsoft") recently announced a service
called "Unified Messenger," which places all voicemail, e-mail and fax
messages in a single mailbox accessible by computer or telephone. The
Company's nationwide mobile communications services and features compete with
services provided by companies such as AT&T Corp. ("AT&T"), MCI Communications
Corp. ("MCI") and Sprint Corp. ("Sprint") as well as smaller interexchange
long distance providers. The Company's voicemail services compete with
voicemail services provided by AT&T, certain regional Bell operating companies
("RBOCs") and other service bureaus as well as by equipment manufacturers,
such as Octel, Northern Telecom, Inc. ("NorTel"), Siemens Business
Communications Systems, Inc. ("Siemens"), Centigram
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Communications Corporation ("Centigram"), Boston Technology, Inc. ("Boston
Technology") and Digital Sound Corporation ("Digital Sound"). The Company's
paging services compete primarily with those offered by Paging Network, Inc.
("PageNet"), the world's largest provider of paging services, AirTouch
Communications, Inc. ("AirTouch"), Arch Communications, Inc. ("Arch"),
MobileMedia Communications, Inc. ("MobileComm"), SkyTel Corporation
("SkyTel"), a subsidiary of Mobile Telecommunications Technologies Corp.
("MTEL"), PageMart, Inc. ("PageMart") and Metrocall, Inc. ("Metrocall"). The
Company expects that other parties will develop and implement information and
telecommunications service platforms similar to its platform, thereby
increasing competition for the Company's services. See "Business --
Competition."
On February 8, 1996, President Clinton signed into law the
Telecommunications Act of 1996, as amended (the "1996 Act"), which allows the
RBOCs, as is the case with other local exchange carriers ("LECs"), to provide
long distance telephone service between Local Access and Transport Areas
("LATAs"). The 1996 Act will likely significantly increase competition for
long distance services. The new legislation also grants the FCC the authority
to deregulate other aspects of the telecommunications industry, which may in
the future, if authorized by the FCC, facilitate the offering of an integrated
suite of information and telecommunications services by the RBOCs in
competition with the Company. Such increased competition could have a material
adverse effect on the Company's business, financial condition and results of
operations. See "Business -- Legislative Matters" and "-- Government
Regulation."
Telecommunications companies compete for consumers primarily based on price,
with major long distance carriers and paging companies conducting extensive
advertising campaigns to capture market share. There can be no assurance that
a decrease in the rates charged for communications services by the major long
distance carriers, major paging companies or other competitors, whether caused
by general competitive pressures or the entry of the RBOCs and other LECs into
the bundled telecommunications market, would not have a material adverse
effect on the Company's business, financial condition and results of
operations. The Company expects that the information and telecommunications
services markets will continue to attract new competitors and new
technologies, possibly including alternative technologies that are more
sophisticated and cost effective than the Company's technology. See "Business
- -- Competition."
UNCERTAINTY OF MARKET ACCEPTANCE OF PERSONAL TELECOMMUNICATIONS SERVICES
The Company's future success depends upon the market acceptance of its
existing and future personal telecommunications products and services.
Personal telecommunications services integrate the functionality of telephones
and computers and thus represent a departure from standards for information
and telecommunications services. Market acceptance of personal
telecommunications products and services generally requires that individuals
and enterprises accept a new way of exchanging information. The Company
believes that broad market acceptance of its personal telecommunications
products and services will depend on several factors, including ease of use,
price, reliability, access and quality of service, system security, product
functionality and the effectiveness of marketing and distribution efforts.
There can be no assurance that the Company's personal telecommunications
products and services will achieve broad market acceptance or that such market
acceptance will occur at the rate which the Company currently anticipates. A
decline in the demand for, or the failure to achieve broad market acceptance
of, the Company's personal telecommunications product and services would have
a material adverse effect on the Company's business, financial condition and
results of operations. See "-- Technological Change; Dependence on New
Services" and "Business -- Industry" and "-- Services."
DEPENDENCE ON NETWORKS, SWITCHING FACILITIES AND THE STAR*NET PLATFORM;
DAMAGE, FAILURE AND DOWNTIME
There can be no assurance that a fire, act of sabotage, technical failure,
natural disaster or a similar event would not cause the failure of all or a
portion of the Company's network, a third party network on which the Company
relies, or any of the Company's switching facilities or STAR*Net platforms,
thereby resulting in an interruption of the Company's services. On May 18 and
19, 1998, the Galaxy 4 satellite, which is owned by
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PanAmSat and transmits paging messages for a majority of the pagers in service
in the United States, malfunctioned, resulting in an interruption of paging
service to up to 40 million paging subscribers in the United States, including
approximately 25% of the Company's subscribers. Because the Company uses
multiple message distribution networks and the majority of the Company's
subscribers are serviced through the CUE nationwide FM paging network and
Company-owned VHF and UHF paging networks, most of the Company's subscribers
were not affected by the malfunction of the Galaxy 4 satellite. However, there
can be no assurance that a technical malfunction such as the one that affected
the Galaxy 4 satellite will not affect one or more of the Company's
distribution networks, resulting in an interruption of the Company's services.
Such an interruption could have a material adverse effect on the Company's
business, financial condition and results of operations.
The Company currently maintains switching facilities and STAR*Net platforms
in Atlanta, Albany, Augusta, Cordele, Macon, Savannah and Valdosta, Georgia;
Birmingham, Alabama; Baton Rouge and New Orleans, Louisiana; and Dallas,
Texas. The Company's network service operations are dependent upon its ability
to protect the equipment and data at its switching facilities and STAR*Net
platforms against potential damage that may be caused by fire, power loss,
technical failures, unauthorized intrusion, natural disasters, sabotage and
other similar events. The Company has implemented monitored security systems,
controlled access and automated data backup procedures, uninterruptable power
supply systems and automated system trouble alerts. Nevertheless, any damage
to the Company's switching facilities or STAR*Net platforms could have a
material adverse effect on the Company business, financial condition and
results of operations. See "Business -- Paging Infrastructure" and "-- The
STAR*Net Platform."
LIMITATIONS OF CUE PAGING NETWORK
The Company's FM subcarrier paging network is located in Alabama and Georgia
and is linked with the CUE nationwide FM subcarrier paging network, through
which the Company delivers nationwide FM paging service. Accordingly, the
Company is dependent upon CUE for continued maintenance and development of its
nationwide FM subcarrier paging network. CUE is under no contractual
obligation to upgrade or further develop the network to accommodate new
technologies or subscribers beyond its current capabilities. The Company
estimates that the CUE network is currently operating at approximately 60% of
capacity and, assuming the continuation of historical growth rates on the CUE
network, that sufficient capacity is available to accommodate the Company's FM
subscriber growth for the next five years. There can be no assurance, however,
that the Company's estimate of the CUE network capacity or its projection of
the Company's subscriber growth are accurate. If CUE fails to maintain its
nationwide network, fails to upgrade or further develop the network or if the
Company's estimates of network capacity or projections of subscriber growth
are inaccurate, the Company may experience a material adverse effect on its
business, financial condition and results of operations. See "-- Technological
Change; Dependence on New Services" and "Business -- Paging Infrastructure."
LIMITATIONS OF FM PAGING TECHNOLOGY
There can be no assurance that the Company's potential or existing
subscribers will accept the inherent limitations of the FM Concepts Pager or
that a third party will not develop a superior FM pager to which the Company
does not have access at competitive prices. The cost of pagers varies, based
in part on their messaging capability and whether they utilize traditional or
FM paging technology. FM radio pagers currently used by the Company are
designed to scan the entire FM band in search of paging broadcasts and
currently only receive numeric messages. The FM pagers currently purchased by
the Company are more expensive and approximately 50% larger than traditional
pagers. Reduced acceptance of FM pagers or increased competition from FM and
traditional pager providers could have a material adverse effect on the
Company's business, financial condition and results of operations. See "--
Technological Change; Dependence on New Services," "-- Risks Associated with
Joint Ventures," "-- Limited Protection of Proprietary Rights and Technology,"
"Business -- Pagers" and "-- Proprietary Rights and Technology."
FACTORS AFFECTING OPERATING RESULTS; POTENTIAL FLUCTUATIONS IN QUARTERLY
RESULTS
The Company's operating results may vary significantly in the future.
Certain factors that may cause the Company's future operating results to vary
include, without limitation: (i) the timing of new service announcements; (ii)
market acceptance of new and enhanced versions of the Company's services;
(iii) potential acquisitions; (iv) competitive pricing pressures; (v) changes
in legislation and regulation that may affect the competitive environment for
the Company's communications services; and (vi) general economic and seasonal
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factors. Quarterly revenues are difficult to forecast because the market for
the Company's existing and planned services is rapidly evolving. The Company's
expense levels are based, in part, on its expectations as to future revenues.
If revenue levels are below expectations, the Company may be unable or
unwilling to reduce expenses proportionately and operating results would
likely be adversely affected. As a result, the Company believes that period-
to-period comparisons of its results of operations are not necessarily
meaningful and should not be relied upon as indications of future performance.
Due to all of the foregoing factors, it is likely that in some future quarter
or quarters the Company's operating results will be below the expectations of
public market analysts and investors. In such event, the market price of the
Company's Common Stock will likely be materially adversely affected. See "--
Ability to Manage Growth; Acquisition Risks" and "-- Risks Associated with the
STAR*Net Rollout."
DEPENDENCE ON KEY MANAGEMENT AND PERSONNEL
The Company's success is largely dependent upon its President and Chief
Executive Officer, Jerry W. Mayfield, the loss of whom could have a material
adverse effect on the Company. The Company also believes that to be successful
it must hire and retain highly qualified engineering, product development and
marketing personnel. Competition in the recruitment of highly qualified
engineering and product development personnel in the information and
telecommunications services industry is intense. Additionally, turnover in
marketing personnel is high, and the Company may not be able to recoup its
investment in a marketing representative before that person leaves the
Company. The inability of the Company to locate, hire and retain such
personnel may have a material adverse effect on the Company. No assurance can
be given that the Company will be able to retain its key employees or that it
will be able to attract qualified personnel in the future. The Company
maintains and is the beneficiary of a life insurance policy in the amount of
$1.0 million on the life of Mr. Mayfield. See "Management" and "Business --
Employees."
YEAR 2000 RISKS
The Year 2000 issue is the result of potential problems with computer
systems or any equipment with computer chips using dates that have been stored
as two digits rather than four (e.g., "98" for 1998). On January 1, 2000, any
clock or date recording mechanism, including date sensitive software, which
uses only two digits to represent the year may recognize a date using "00" as
the year 1900 rather than the year 2000. This could result in system failures
or miscalculations causing disruption of operations, including, among other
things, a temporary inability to process transactions, send invoices or
perform similar tasks.
The Company has assessed the Year 2000 issue with respect to the software
used by the Company in providing its services and with respect to its
computerized information and operating systems. Based on discussions with its
current software vendors and an internal assessment of its in-house computer
systems, the Company believes that it has completed substantially all
modifications to its affected software programs and computerized systems and
that minimal additional work is required to finalize these modifications. The
Company expects to fully complete all Year 2000 modifications by early 1999,
leaving adequate time to assess and correct any significant issues that may
materialize. Management does not believe that the remaining costs to resolve
the Company's Year 2000 issues will be material to the Company's results of
operations. Management has applied a substantial amount of judgment in
arriving at this assessment; consequently, there can be no assurance that this
assessment of the remaining costs to be incurred to remediate all Year 2000
issues will prove to be accurate, and actual results could differ materially
from such assessment.
The Company is also discussing the Year 2000 issue with its significant
customers and suppliers to determine the extent to which the Company is
vulnerable to those third parties' failures to remediate their own Year 2000
issues. The Company is not yet certain as to the extent to which the computer
software and business systems of its customers and suppliers are Year 2000
compliant. If systems of third parties on which the Company's systems rely are
not timely converted or if such conversions are incompatible with the
Company's systems, or if the Company fails to timely complete the remaining
modifications to its own systems, the Year 2000 issue could have a material
adverse effect on the Company's business, financial condition and results of
operations.
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RISK OF SOFTWARE FAILURES OR ERRORS
The software developed and utilized by the Company in providing its services
may contain undetected errors. Although the Company tests its software prior
to placing the software on its network, there can be no assurance that errors
will not be found in the software after the software is placed into use. Any
such errors may result in: (i) partial or total failure of the Company's
network; (ii) additional and unexpected expenses to fund further product
development or to add programming personnel to complete a development project;
and (iii) loss of revenues because of the inability of subscribers to use the
network or the cancellation by subscribers of their service with the Company,
any of which could have a material adverse effect on the Company's business,
financial condition and results of operation. See "-- Dependence on Networks,
Switching Facilities and the STAR*Net Platform; Damage, Failure and Downtime,"
"Business -- Paging Infrastructure," "-- Technical Support" and "--
Proprietary Rights and Technology."
DEPENDENCE UPON TELECOMMUNICATIONS PROVIDERS; NO GUARANTEED SUPPLY
Other than certain local and regional paging networks, the Company does not
own a transmission network and, accordingly, depends on MCI and other
facilities-based and non-facilities based carriers for transmission of its
subscribers' long distance calls and the majority of its paging data. These
long distance telecommunications and paging services generally are procured
pursuant to supply agreements for terms of up to three years, subject to
earlier termination in certain events. Certain of these agreements provide for
minimum purchase requirements. Further, the Company is dependent upon LECs for
call origination and termination. The Company's ability to maintain and expand
its business depends, in part, on its ability to continue to obtain
telecommunications services on favorable terms from long distance and paging
carriers and the cooperation of both interexchange carriers and LECs in
originating and terminating service for its subscribers in a timely manner.
The partial or total loss of the ability to initiate or terminate calls would
result in a loss of revenues by the Company and could lead to a loss of
subscribers, which could have a material adverse effect on the Company's
business, financial condition and results of operation. See "Business --
Paging Infrastructure."
RISK OF LOSS FROM RETURNED TRANSACTIONS; FRAUD; BAD DEBT; THEFT OF SERVICES
From time to time, persons have gained unauthorized access to the Company's
network and obtained services without rendering payment to the Company by
unlawfully using the access numbers and personal identification numbers
("PINs") of authorized users. No assurance can be given that future losses due
to unauthorized use of access numbers and PINs will not be material. The
Company attempts to manage these risks through its internal controls and
billing system. The STAR*Net platform is designed to prohibit a single access
number and PIN from establishing multiple simultaneous connections to the
platform, and the Company establishes preset spending limits for each
subscriber. Although the Company believes that its risk management and bad
debt reserve practices are adequate, there can be no assurance that the
Company's risk management practices or reserves will be sufficient to protect
the Company from unauthorized or returned transactions or thefts of services
which could have a material adverse effect on the Company's business,
financial condition and results of operations.
REGULATION
STAR*Net Services
Various regulatory factors affect the Company's financial performance and
its ability to compete. The Company is subject to regulation by the FCC and to
entry and rate regulation by various state public service and public utility
commissions ("PUCs") and is otherwise affected by regulatory decisions, trends
and policies made by these agencies. FCC rules currently require interexchange
carriers to permit resale of their transmission services. FCC rules also
require most LECs to provide all interexchange carriers with equal access to
local exchange facilities for purposes of origination and termination of local
and long distance calls. In the unlikely event that either or both of these
requirements are eliminated, the Company could be adversely affected.
Moreover, the underlying carriers that provide services to the Company or that
originate or terminate the
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Company's traffic may increase rates or experience disruptions in service due
to factors outside the Company's control, which could cause the Company to
experience increases in its costs for telecommunications services or
disruptions in transmitting its subscribers' local and long distance calls.
See "Business -- Government Regulation."
In order to provide intrastate long distance service, the Company
generally is required to obtain certification from state PUCs, to register
with such state PUCs or to be found exempt from registration by such state
PUCs. The Company's facilities do not prevent subscribers from using the
facilities to make long distance calls in any state, including states in which
the Company currently is not authorized to provide intrastate
telecommunications services and operator services. Regulatory action against
the Company by one or more state PUCs resulting from the availability of long
distance telecommunications and operator services through the Company's
facilities in states where the Company is not authorized to provide such
services could have a material adverse effect on the Company's business,
financial condition and results of operations.
The 1996 Act is intended to increase competition in the long distance and
local telecommunications markets. The 1996 Act opens competition in the local
services market and, at the same time, contains provisions intended to protect
new competitors from unfair competition by incumbent LECs, including the
RBOCs. The 1996 Act allows RBOCs to provide long distance service outside of
their local service territories but bars them from immediately offering in-
region inter-LATA long distance services until certain conditions are
satisfied. An RBOC must apply to the FCC to provide in-region inter-LATA long
distance services and must satisfy a set of pro-competitive criteria intended
to ensure that RBOCs open their own local markets to competition before the
FCC will approve such application. The FCC has approved the applications of
certain RBOCs to provide in-region inter-LATA long distances services.
Moreover, as a result of the 1996 Act, the Company may experience increased
competition from others, including the RBOCs. In addition, the Company may be
subject to additional regulatory requirements and fees resulting from the
implementation of the 1996 Act, including universal service assessments,
access charge assessments, payphone compensation surcharges, local number
portability and cost recovery assessments. See "Business -- Legislative
Matters."
Paging Operations
Federal Regulation. The Company's paging operations are subject to
regulation by the FCC under the Federal Communications Act of 1934, as amended
(the "Communications Act"). The FCC has granted the Company licenses to use
the radio frequencies necessary to conduct its paging operations. Licenses
issued by the FCC to the Company set forth the technical parameters for each
station, such as location, frequency, signal strength, tower height, etc.,
under which the Company is authorized to operate.
License Grant and Renewal. The FCC licenses granted to the Company are for
varying terms of up to 10 years, at the end of which license renewal
applications must be filed with and granted by the FCC. The Company holds
various FCC radio licenses which are used in connection with its paging
operations. The license expiration dates for these licenses are staggered,
with only a portion of the licenses expiring in any particular calendar year.
Licensees in the paging service normally enjoy a "renewal expectancy," unless
it can be demonstrated by a competitor that the licensee has not operated the
station in conformance with the FCC's rules, or that the licensee has not
provided adequate service to the public. Such challenges have been rare, and
the vast majority of license renewal applications are granted in the normal
course. Although the Company is unaware of any circumstances which could
prevent the grant of its license renewal applications, no assurance can be
given that any of the Company's license renewal applications will be free of
competing applications or will be granted by the FCC. Furthermore, the FCC has
the authority to restrict the operations of licensed radio facilities or,
following a hearing pursuant to the Communications Act, to revoke or
involuntarily modify radio licenses. To date, none of the Company's licenses
have ever been revoked or modified involuntarily.
FCC Regulatory Developments. The FCC has enacted regulations regarding
auctions for the award of radio licenses. Pursuant to such rules, the FCC may,
at any time, require auctions for new or existing services prior to the award
of any license. Accordingly, there can be no assurance that the Company will
be able to procure additional frequencies, or expand existing paging networks
into new service areas.
15
<PAGE>
In March 1994, the FCC adopted rules pursuant to which the FCC auctions
licenses for blocks of spectrum on a "market area basis." The winner of the
license is given the right to use a certain frequency or group of frequencies
throughout a defined geographic area (such as a Rand-McNalley Basic Trading
Area ("BTA") or Major Trading Area ("MTA")), and can construct and operate
transmitters throughout this market area without FCC licensing of individual
stations. In some cases, existing users of the designated frequencies must be
protected from interference or furnished with alternative means of
communications. The FCC has completed auctions to license various radio
services on a market area basis, including narrowband PCS or two-way paging,
broadband PCS, and the first phase of the 800 MHz trunked specialized mobile
radio auction, which concluded in December 1997. In these auctions, successful
bidders have made significant auction payments in order to obtain spectrum.
With respect to its paging operations, the Company may choose to
participate in the market area licensing auctions for paging services. The
first auction for the 900 MHz paging bands is tentatively scheduled for the
third quarter of calendar year 1998. The lower paging bands, e.g., the
exclusive 150 and 450 MHz frequencies, are likely to be auctioned in 1999. The
Company believes that most bidders in the auctions will be larger carriers,
with significant resources to build out large regional systems. The FCC is
currently not proposing to auction the shared private carrier paging
frequencies licensed under its rules.
On February 8, 1996, the FCC announced a freeze on the acceptance of
applications for new or modified transmitter facilities in paging services.
This freeze was temporarily lifted to permit the filing of expansion
applications by incumbent paging carriers. With respect to applications to
expand paging systems licensed on exclusive paging frequencies, the FCC has
indicated that it will not process any expansion application filed after July
31, 1996; and that any pending application which is mutually exclusive with
another pending application, due to the possibility of harmful electrical
interference, will be dismissed. However, with respect to shared paging
channels, licensed under the FCC's rules, e.g., 462.850 MHz, the FCC is
permitting incumbent licensees to file expansion applications without
restriction. Thus, while the Company may be licensed on a particular shared
frequency at a particular site in Georgia, it could expand its paging system
throughout the southeastern United States, or elsewhere. Such flexibility is
not currently available to the Company for its paging system licensed on
exclusive frequencies under the FCC's rules. Currently, the only method for
expanding its paging system licensed under the FCC's rules is through
acquisition of existing stations, with FCC approval, which the Company did
during the first quarter of calendar year 1998.
The FCC has fully implemented its rules regarding the classification of
the services offered by paging carriers as either Commercial Mobile Radio
Services ("CMRS") or Private Mobile Radio Services ("PMRS"). Previously,
paging licensees had been classified either as "common carriers" or "private
carrier paging carriers." Pursuant to the FCC's rules, which aim to reduce the
disparities in the regulatory treatment of similar mobile services, the
Company's paging services are classified as CMRS, since the radio facilities
are interconnected to the public switched telephone network and service is
provided to the general public on a for-profit basis. The Company believes
that such parity will remove certain regulatory advantages which private
carriers, such as itself, enjoyed under the previous regulatory scheme. It
should be noted that certain disparities still exist between the exclusive
frequencies and the shared frequencies licensed under the FCC's rules, which
can affect the Company's ability to respond to subscriber demands in a timely
manner. In particular, the Company generally cannot expand its exclusive
paging channel coverage except by acquisition of another carrier's station on
the same channel or by being a winning bidder in the upcoming paging auctions.
These auctions will feature "overlay" licenses, with the winning bidder being
required to protect existing licensees within the designated service area. If
the Company is the successful bidder for its areas of interest, it will be
able to expand the coverage of its existing operations without further FCC
approval, within the licensed market areas. If instead, the Company is not the
successful bidder, then it will be unable to expand its existing coverage
unless it obtains the permission of the winning bidder. However, the winning
bidder would have to protect the Company's existing coverage areas from
interference.
Separate and distinct from the Company's paging facilities discussed above
is the Company's FM subcarrier paging system. While the FCC requires carriers,
such as the Company, to file applications prior to
16
<PAGE>
initiating service on "leased subcarrier facilities of broadcast stations,"
such applications are not barred by the FCC's freeze on applications for
paging channels. Thus, it would be possible for the Company to expand its FM
subcarrier paging system, should the need arise.
The 1996 Act may affect the Company's paging business. Some aspects of the
new statute could have a beneficial effect on the Company's paging business.
For example, proposed federal guidelines regarding antenna siting issues may
potentially remove local and state barriers to the construction of
communications facilities (although such restrictions are now being litigated
in the courts and debated in Congress), and efforts to increase competition in
the local exchange and interexchange industries may reduce the cost to the
Company of acquiring necessary communications services and facilities. On the
other hand, some provisions relating to common carrier interconnection, pay
phone rates, enhanced 911 (E-911), telephone number portability, equal access,
the assignment of new area codes, universal service fund and telephone relay
service fund contributions, resale requirements and auction authority may
place additional burdens upon the Company or subject the Company to increased
competition.
Paging carriers are indirectly affected by Federal Aviation Administration
("FAA") regulations to the extent that proposed antenna sites may require
prior FAA approval. In those circumstances where antenna structure clearance
is required, the FCC will not grant an application for new or modified
facilities until such clearance is obtained from the FAA. Under the FCC's
rules, the tower owner is generally the entity that is required to secure such
approval.
The FCC has recently issued stricter guidelines with respect to radio
frequency (RF) radiation hazards. Generally, most paging facilities will be
categorically exempt, provided the base station and antenna system meet
certain criteria governing power and antenna height. In those circumstances
where the base station does not meet the criteria for exemption, it may be
necessary for the Company to modify its facility or relocate to another
antenna structure. If an exclusive paging channel is involved, the Company's
choices for relocation will be limited to certain sites within its service
area, since the Company may not expand its composite interference contour.
With respect to the shared paging frequencies the Company will be free to
relocate upon the receipt of FCC approval. See "Business -- Government
Regulation."
LIMITED PROTECTION OF PROPRIETARY RIGHTS AND TECHNOLOGY
The Company relies primarily on a combination of intellectual property laws
and contractual provisions to protect its proprietary rights and technology.
These laws and contractual provisions provide only limited protection of the
Company's proprietary rights and technology. Despite the Company's efforts to
protect its proprietary rights and technology, unauthorized parties may
attempt to copy aspects of the Company's software or services or to obtain and
use information that the Company regards as proprietary. Although the Company
is not aware of any current or previous infringement on its proprietary rights
and technology, there can be no assurance that the Company's means of
protecting its proprietary rights and technology will be adequate or that the
Company's competitors will not independently develop similar technology. In
addition, the laws of some foreign countries do not protect the Company's
proprietary rights to as great an extent as the laws of the United States See
"Business -- Proprietary Rights and Technology."
RISKS OF INFRINGEMENT CLAIMS
Many patents, copyrights and trademarks have been issued in the general
areas of information and telecommunications services and personal
telecommunications. In the ordinary course of its business, third parties may
claim that the Company's current or future products or services infringe the
patent, copyright or trademark rights of such third parties. No assurance can
be given that actions or claims alleging patent, copyright or trademark
infringement will not be brought against the Company with respect to current
or future products or services or that, if such actions or claims are brought,
the Company will ultimately prevail. Any such claiming parties may have
significantly greater resources than the Company to pursue litigation of such
claims. Any such claims, whether with or without merit, could be time
consuming, distract management's attention, result in costly
17
<PAGE>
litigation, cause delays in introducing new or improved products and services,
require the Company to enter into royalty or licensing agreements, or cause
the Company to discontinue use of the challenged technology, tradename or
service mark at potentially significant expense to the Company associated with
the marketing of a new name or the development or purchase of replacement
technology, all of which could have a material adverse effect on the Company's
business, financial condition and results of operations. See "Business --
Proprietary Rights and Technology."
CONCENTRATION OF STOCK OWNERSHIP; VOTING CONTROL BY DIRECTORS AND EXECUTIVE
OFFICERS
On the Closing Date the present directors, executive officers and their
respective affiliates will beneficially own 3,584,619 shares (approximately
47.9%) of the Company's Common Stock, including options and warrants that are
exercisable as of the Closing Date. In addition, the present directors,
executive officers and their respective affiliates hold options to acquire
128,018 shares of Common Stock that are not exercisable within 60 days of the
Closing Date, which together with shares currently beneficially owned would
represent approximately 48.8% of the Common Stock outstanding after completion
of the Offering, giving effect to the exercise of those options. As a result,
these shareholders, voting together, will be able to control or exercise
significant influence over all matters requiring shareholder approval,
including the election of directors and approval of significant corporate
transactions. Such concentration of ownership also may have the effect of
delaying or preventing a change in control of the Company. Purchasers in the
Offering will become minority shareholders of the Company and will be unable
to control the management or business policies of the Company. See "Principal
and Selling Shareholders" and "Description of Capital Stock -- Certain
Provisions of the Articles, Bylaws and the Georgia Code."
ABSENCE OF PRIOR PUBLIC MARKET; OFFERING PRICE DETERMINED BY AGREEMENT;
VOLATILITY OF MARKET PRICE
Prior to this Offering, there has been no public market for the Common
Stock, although the Company has applied for listing of the Common Stock on the
Nasdaq National Market in connection with this Offering. The initial public
offering price of the Common Stock will be determined solely by negotiations
among the Company and the Underwriters and will not necessarily be related to
the Company's book value, net worth or any other established criteria of value
and may not be indicative of the market price for shares of Common Stock after
the Offering. See "Underwriting" for a discussion of the factors to be
considered in determining the initial public offering price for the Common
Stock. From time to time after the Offering, there may be significant
volatility in the market price for the Common Stock, and there can be no
assurance that the market price of the Common Stock will not decline below the
initial public offering price. The stock market has from time to time
experienced significant price and volume fluctuations, which have particularly
affected the market prices of the stocks of high technology companies, and
which may be unrelated to the operating performance of particular companies.
Factors such as actual or anticipated operating results, growth rates, changes
in estimates by analysts, market conditions in the industry, announcements by
competitors, regulatory actions and general economic conditions will vary from
period to period. As a result of the foregoing, the Company's operating
results and prospects from time to time may be below the expectations of
public market analysts and investors. Any such event would likely result in a
material adverse effect on the price of the Common Stock.
18
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
All of the outstanding shares of Common Stock, as well as shares of Common
Stock issuable upon exercise of outstanding options or warrants, are or will
be eligible for future sale in the public market pursuant to Rule 144 under
the Securities Act of 1933, as amended (the "Securities Act"). Sales of such
shares in the public market, or the perception that such sales may occur,
could adversely affect the market price of the Common Stock or impair the
Company's ability to raise additional capital in the future through the sale
of equity securities.
Immediately following the completion of the Offering, there will be
7,380,297 outstanding shares of Common Stock (7,927,797 shares if the
Underwriters' over-allotment option is exercised in full) and options and
warrants to purchase an additional 1,702,818 shares of Common Stock. The
3,650,000 shares of Common Stock offered hereby (4,197,500 shares if the
Underwriters' over-allotment option is exercised in full) will be freely
tradeable without restriction under the Securities Act by persons other than
"affiliates" of the Company. Of the remaining 3,730,297 shares of Common Stock
that will be outstanding upon the completion of the Offering, 209,865 shares
will be eligible for immediate sale in the public market without restriction.
Beginning 180 days after the date of this Prospectus (or earlier with the
written consent of J.C. Bradford & Co.), 3,520,432 additional shares will be
available for immediate sale in the public market, subject to the provisions
of Rule 144, upon the expiration of certain lock-up agreements between the
Underwriters and each of the Company's directors and executive officers, the
Selling Shareholders and each holder of more than 5% of the Company's Common
Stock (the "Lock-Up Agreements"). If a shareholder should request J.C.
Bradford & Co. to waive the 180-day lock-up period as to all or a portion of
such shareholder's shares, J.C. Bradford & Co. would take into consideration
the number of shares as to which such request relates, the identity of the
requesting shareholder, the relative demand for additional shares of Common
Stock in the market, the period of time since the completion of the Offering,
and the average volume and price performance of the Common Stock during such
period.
The Company has entered into registration rights agreements with several
shareholders, option holders and warrant holders (collectively, the
"Registration Rights Holders") pursuant to which the Company is obligated to
register shares of Common Stock on behalf of the Registration Rights Holders.
Pursuant to certain demand registration rights, certain of the Registration
Rights Holders are entitled to demand at any time that the Company file a
registration statement and register up to an aggregate of 2,143,256 shares of
Common Stock. Additionally, pursuant to certain piggyback registration rights,
the Registration Rights Holders are entitled to include up to an aggregate of
2,476,056 shares of Common Stock in any registration statement (other than a
registration statement on Form S-4 or Form S-8) filed by the Company
subsequent to the Offering. All of the Registration Rights Holders will be
prevented, however, from exercising any registration rights for a period of
180 days after the completion of the Offering as a result of the Lock-Up
Agreements. If, following the expiration of the 180-day lock-up period, the
Company were required to file a registration statement upon demand of any
Registration Rights Holder or include shares of Common Stock pursuant to the
exercise of piggyback registration rights in a registration statement
otherwise filed by the Company, all of such registered shares generally would
then be eligible for immediate sale in the public market. See "Certain
Transactions" and "Shares Eligible for Future Sale."
The Company intends to file a Registration Statement on Form S-8 as soon as
practicable after the completion of the Offering to register 1,000,000 shares
of Common Stock, of which 153,422 shares are subject to outstanding but
unvested options, that are available for issuance pursuant to the Company's
1997 Long-Term Incentive Plan (the "Plan"). All of such registered shares also
generally would then be eligible for immediate sale in the public market
unless such sale is contractually restricted. See "Certain Transactions,"
"Shares Eligible for Future Sale" and "Underwriting."
DILUTION
The initial public offering price is substantially higher than the tangible
book value per share of the outstanding Common Stock. Investors purchasing
shares of Common Stock in the Offering therefore will incur immediate and
substantial dilution, and existing shareholders will receive a material
increase in the tangible book value per share of their shares of Common Stock.
At an initial public offering price of $11.00 per share (the midpoint of the
price range set forth on the cover page of this Prospectus), the immediate
dilution to new investors would be $10.83 per share. In addition, investors
purchasing shares of Common Stock in the Offering will incur additional
dilution to the extent outstanding options and warrants are exercised. See
"Dilution."
19
<PAGE>
ANTI-TAKEOVER EFFECTS OF CERTAIN PROVISIONS OF THE ARTICLES, BYLAWS AND THE
GEORGIA CODE
The Board of Directors of the Company may issue preferred stock without
shareholder action. The existence of this "blank check" preferred stock could
render more difficult or discourage an attempt to obtain control of the
Company by means of a tender offer, merger, proxy contest or otherwise.
Additionally, effective as of the first annual meeting of shareholders held
after the completion of the Offering, the Board of Directors will be divided
into three classes of directors, with directors to be elected for staggered
three year terms. Such staggered terms may delay the ability of the Company's
shareholders to change control of the Company through the replacement of
directors and therefore inhibit the shareholders' ability to obtain the
maximum value for their shares of Common Stock that might otherwise be
realized. The Company is subject to certain provisions of the Georgia Business
Corporation Code, as amended (the "Georgia Code"), which relate to business
combinations with interested shareholders. In addition to considering the
effects of any action on the Company and its shareholders, the Company's
Restated Articles of Incorporation (the "Articles") permit the Board of
Directors and the committees and individual members thereof to consider the
interests of various constituencies, including employees, customers, suppliers
and creditors of the Company, communities in which the Company maintains
offices or operations and other factors which such directors deem pertinent in
carrying out and discharging the duties and responsibilities of such positions
and in determining what is believed to be in the best interests of the
Company. See "Management -- Board of Directors" and "Description of Capital
Stock -- Certain Provisions of the Articles, Bylaws and the Georgia Code."
20
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 2,750,000 shares of
Common Stock offered by the Company at an assumed initial public offering
price of $11.00 per share (the midpoint of the price range set forth on the
cover page of this Prospectus) are estimated to be approximately $27.2 million
(approximately $32.8 million if the Underwriters' over-allotment option is
exercised in full) after deducting estimated underwriting discounts and
Offering expenses payable by the Company. The Company will not receive any
proceeds from the sale of the shares offered by the Selling Shareholders. See
"Principal and Selling Shareholders."
The Company presently intends to use the net proceeds as follows:
<TABLE>
<CAPTION>
APPROXIMATE
DOLLAR APPROXIMATE
AMOUNT PERCENTAGE
----------- -----------
<S> <C> <C>
To repay outstanding indebtedness and accrued
interest........................................... $22,700,000 84%
To redeem all outstanding shares of Series D
Preferred Stock.................................... 4,500,000 16
----------- ---
Total............................................. $27,200,000 100%
=========== ===
</TABLE>
The Company currently intends to use approximately $21.8 million of the net
proceeds to repay outstanding indebtedness under the Company's Credit Facility
with Creditanstalt which indebtedness totaled $37.5 million at May 19, 1998.
The Credit Facility carries a variable interest rate based on, at the
Company's election: (i) Creditanstalt's prime rate less an incentive pricing
spread (the "Incentive Pricing Spread") based on certain financial ratios of
the Company; or (ii) LIBOR plus the Incentive Pricing Spread. The Company has
historically utilized the Credit Facility for working capital and to finance
acquisitions. As of May 19, 1998, the outstanding balance under the Credit
Facility accrued interest at a rate of 9.72%. During the past 12 months, the
Company borrowed approximately $20.2 million under the Credit Facility which
was used to acquire five companies and for capital expenditures and general
corporate purposes
The Company expects to use approximately $4.5 million of the net proceeds to
redeem all shares of its Series D Preferred Stock outstanding prior to the
Offering. Such shares of Series D Preferred Stock were issued in April 1998,
and the proceeds from such issuance were used to finance a portion of the
purchase price of Premier Paging, Inc. and Premier Paging of New Orleans, Inc.
(collectively, "Premier Paging"). Additionally, the issuance and sale of
shares of Series D Preferred Stock increased the Company's available
borrowings under the Credit Facility from $30.0 million to $40.0 million. On
the Closing Date, the Company will amend its Articles to eliminate the Series
D Preferred Stock. See "Certain Transactions."
The anticipated reduction in amounts outstanding under the Credit Facility
will increase the availability of bank credit for general business purposes,
including acquisitions of businesses, products or technologies of strategic
importance to the Company. The Company currently is engaged in preliminary
discussions with other potential acquisition candidates. Although it has no
binding commitments to acquire any of such other potential candidates,
management believes that the Company may acquire one or more of these
candidates in the future by using available borrowings under the Credit
Facility. There can be no assurance that the Company will complete any
acquisitions on terms favorable to the Company, if at all. See "Risk Factors
- -- Ability to Manage Growth, Acquisition Risks," "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources" and "Business -- Acquisitions."
21
<PAGE>
DIVIDEND POLICY
The Company presently intends to employ all available funds for the
expansion of its business and, therefore, does not anticipate declaring or
paying cash dividends on the Common Stock in the foreseeable future. The
Company has not paid cash dividends on its Common Stock in the past, and the
payment of cash dividends, if any, in the future will depend upon the
Company's earnings, financial condition, capital requirements, cash flow, long
range plans and such other factors as the Board of Directors of the Company
may deem relevant at that time. The terms of the Credit Facility prohibit the
Company, without the prior written consent of the Company's lenders, from
paying cash dividends in any fiscal year in an amount exceeding the lesser of
25% of the Company's excess cash flow (as defined in the Credit Facility) for
the immediately preceding fiscal year or $350,000. Additionally, the
designation of the Company's Series B Preferred Stock provides that dividends
and other distributions, payable in cash or other property, shall be paid on
the Series B Preferred Stock equally, ratably and on a parity with such
dividends and other distributions paid on the Common Stock. See "Description
of Capital Stock."
22
<PAGE>
CAPITALIZATION
The following table sets forth the indebtedness and capitalization of the
Company at April 30, 1998: (i) on a historical basis; (ii) on a pro forma
basis to reflect the Hyde's Acquisition and the issuance of $12.2 million in
additional debt to finance the Hyde's Acquisition; and (iii) on a pro forma as
adjusted basis to reflect an increase in authorized shares of Common Stock to
50,000,000 shares, the conversion of all issued and outstanding shares of
Series A Preferred Stock and Series C Preferred Stock into shares of Common
Stock, the sale by the Company of 2,750,000 shares of the Common Stock offered
hereby and the application of the estimated net proceeds therefrom to repay
indebtedness and redeem Series D Preferred Stock as described in "Use of
Proceeds." On the Closing Date, the Company will amend its Articles to
redesignate the Class A Common Stock and Series B Preferred Stock as Common
Stock and Non-Voting Preferred Stock, respectively, and to eliminate the Class
B Common Stock, Series A Preferred Stock, Series C Preferred Stock and Series
D Preferred Stock. The following table should be read in conjunction with
"Selected Consolidated Financial and Operating Data," "Use of Proceeds,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the consolidated financial statements and notes thereto,
including the unaudited pro forma consolidated financial information, included
elsewhere in this Prospectus.
<TABLE>
<CAPTION>
AT APRIL 30, 1998
------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
------- --------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Short-term debt (including current portion of
long-term debt)................................ $ 1,200 $ 1,200 $ 1,200
======= ======= =======
Long-term debt.................................. $25,263 $37,491 $14,759
Stock warrants................................ 4,975 4,975 --
Series C Redeemable Convertible Preferred
Stock, $0.01 par value; 3,500 shares
authorized, issued and outstanding, actual
and pro forma; 0 shares authorized, issued
and outstanding, pro forma as adjusted....... 3,500 3,500 --
Series D Redeemable Preferred Stock, $0.01 par
value; 4,500 shares authorized, issued and
outstanding, actual and pro forma; 0 shares
authorized, issued and outstanding, pro forma
as adjusted.................................. 4,500 4,500 --
Shareholders' (deficit) equity:
Series A Convertible Preferred Stock, $0.01
par value; 7,500 shares authorized and 7,360
shares issued and outstanding, actual and pro
forma; 0 shares authorized, issued and
outstanding, pro forma as adjusted........... 74 74 --
Series B Convertible Preferred Stock, $0.01
par value; 30,000 shares authorized and 0
shares issued and outstanding................ -- -- --
Class A Common Stock, $0.01 par value;
5,000,000 shares authorized and 3,054,377
shares issued and outstanding, actual and pro
forma; 50,000,000 shares authorized and
7,380,297 shares issued and outstanding, pro
forma as adjusted(1)......................... 31 31 74
Class B Common Stock, $0.01 par value; 20,000
shares authorized and 0 shares issued and
outstanding, actual and pro forma; 0 shares
authorized, issued and outstanding, pro forma
as adjusted.................................. -- -- --
Additional paid-in capital.................... 2,537 2,537 33,226
Stock warrants................................ -- -- 4,975
Accumulated deficit........................... (10,801) (10,801) (9,501)
------- ------- -------
Total shareholders' (deficit) equity........ (8,159) (8,159) 28,774
------- ------- -------
Total capitalization...................... $30,079 $42,307 $43,533
======= ======= =======
</TABLE>
- --------
(1) Excludes 1,702,818 shares of Common Stock that were subject to outstanding
options and warrants at April 30, 1998 at a weighted average exercise
price of $0.97 per share. See "Management -- Incentive Plan," "Shares
Eligible for Future Sale" and note 7 to consolidated financial statements.
23
<PAGE>
DILUTION
As of April 30, 1998, the net tangible book value of the Company was
approximately $(25,956,000), or $(8.50) per share of Common Stock. "Net
tangible book value per share" is defined as the book value of tangible assets
of the Company less all liabilities, divided by the number of issued and
outstanding shares of Common Stock. After giving effect to the conversion of
all outstanding shares of Series A Preferred Stock and Series C Preferred
Stock into Common Stock and the sale by the Company of the 2,750,000 shares of
Common Stock offered hereby at an assumed initial public offering price of
$11.00 per share and after deducting the estimated underwriting discounts and
Offering expenses payable by the Company, the pro forma net tangible book
value of the Company as of April 30, 1998, would have been approximately
$1,276,000 or $0.17 per share. This represents an immediate increase in net
tangible book value of $8.67 per share to existing shareholders and an
immediate dilution in net tangible book value of $10.83 per share to
purchasers of shares of Common Stock in the Offering. The following table
illustrates the per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share.............. $11.00
------
Net tangible book value before the Offering................ $(8.50)
Increase per share attributable to new shareholders........ 8.67
------
Pro forma net tangible book value per share ................. 0.17
------
Dilution per share to new shareholders....................... $10.83
======
</TABLE>
The following table sets forth, as of April 30, 1998, on a pro forma basis
giving effect to the conversion of the Series A Preferred Stock and Series C
Preferred Stock into Common Stock, the number of shares of Common Stock
acquired from the Company, the total consideration paid and the average price
per share paid by existing shareholders and new investors, assuming the sale
of 2,750,000 shares of Common Stock hereby at an assumed initial public
offering price of $11.00 per share.
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
----------------- ------------------- PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
--------- ------- ----------- ------- ---------
<S> <C> <C> <C> <C> <C>
Existing shareholders........... 4,630,292 62.7% $ 6,393,104 17.4% $ 1.38
New investors................... 2,750,000 37.3% 30,250,000 82.6% 11.00
--------- ------ ----------- ------
Total......................... 7,380,292 100.0% $36,643,104 100.0%
========= ====== =========== ======
</TABLE>
The foregoing tables do not take into account the exercise of outstanding
options and warrants to acquire 1,702,818 shares of Common Stock. Assuming
that all such options and warrants were exercised and that the full amount of
cash consideration was received therefrom, dilution per share to new investors
would be $0.38. See "Management -- Incentive Plan," "Certain Transactions --
Non-Voting Preferred Stock Warrant Issuance" and note 7 to consolidated
financial statements.
24
<PAGE>
SELECTED CONSOLIDATED FINANCIAL AND OPERATING DATA
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA AND ARPU)
The following table sets forth selected historical and pro forma
consolidated financial and operating information of the Company. The selected
historical consolidated financial data as of July 31, 1996 and 1997 and for
the fiscal years ended July 31, 1995, 1996 and 1997 have been derived from the
consolidated financial statements of the Company included in this Prospectus,
which have been audited by Arthur Andersen LLP, independent public
accountants. The selected historical consolidated financial data as of July
31, 1993, 1994 and 1995 and for the years ended July 31, 1993 and 1994 have
been derived from audited consolidated financial statements of the Company
that are not included in this Prospectus. The selected historical consolidated
financial data as of and for the nine months ended April 30, 1997 and 1998
have been derived from unaudited consolidated financial statements of the
Company and, in the opinion of management, include all adjustments, consisting
only of normal recurring accruals, necessary for a fair presentation of such
information. Operating results for the nine months ended April 30, 1998 are
not necessarily indicative of the results that may be expected for the entire
fiscal year. The selected historical and pro forma consolidated financial data
are qualified by reference to, and should be read in conjunction with, the
Company's consolidated financial statements and the notes thereto, including
the unaudited pro forma consolidated financial information, included in this
Prospectus, as well as "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
<TABLE>
<CAPTION>
YEARS ENDED JULY 31, NINE MONTHS ENDED APRIL 30,
---------------------------------------------------------------- -------------------------------
PRO FORMA PRO FORMA
1993 1994 1995 1996 1997 1997(1) 1997 1998 1998(1)
--------- --------- --------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF
OPERATIONS DATA:
Service, rent and
maintenance
revenues........... $ 5,012 $ 5,980 $ 6,885 $ 9,839 $ 16,308 $ 20,478 $ 11,899 $ 14,577 $ 17,877
Product sales....... 367 449 526 975 1,264 2,508 856 903 1,967
--------- --------- --------- --------- --------- --------- --------- --------- ---------
Total revenues..... 5,379 6,429 7,411 10,814 17,572 22,986 12,755 15,480 19,844
Cost of products
sold............... (320) (416) (468) (960) (1,201) (2,443) (840) (801) (1,970)
--------- --------- --------- --------- --------- --------- --------- --------- ---------
Net revenues....... 5,059 6,013 6,943 9,854 16,371 20,543 11,915 14,679 17,874
--------- --------- --------- --------- --------- --------- --------- --------- ---------
Service, rent and
maintenance
expenses........... 2,019 2,335 2,718 3,879 6,542 7,149 4,870 5,475 5,799
Selling and
marketing
expenses........... 723 801 1,222 1,602 2,314 2,635 1,696 2,261 2,469
General and
administrative
expenses........... 822 842 887 1,732 3,039 4,300 2,095 2,563 3,344
Engineering
expenses........... 482 453 567 516 638 641 473 631 631
Depreciation and
amortization....... 613 713 845 1,204 2,242 3,278 1,605 2,130 2,793
Fixed asset
impairment and one-
time
reengineering charges.. -- 297 -- -- -- -- -- 1,534 1,534
--------- --------- --------- --------- --------- --------- --------- --------- ---------
Operating income.... 400 572 704 921 1,596 2,540 1,176 85 1,304
Other income........ 62 144 90 91 90 151 69 180 450
Interest expense.... (576) (523) (704) (873) (1,564) (675) (1,100) (1,740) (1,033)
Accretion of stock
warrants(2)........ (140) (350) (643) (854) (1,773) -- (1,252) (628) --
(Loss) income from
joint venture...... -- -- -- (96) 26 26 20 99 99
Minority interest... -- -- -- (2) (3) (3) (2) (8) (8)
--------- --------- --------- --------- --------- --------- --------- --------- ---------
Loss before income
tax benefit and
extraordinary
item............... (254) (157) (553) (813) (1,628) 2,039 (1,089) (2,012) 812
Income tax benefit.. 41 -- -- -- -- (775) -- -- (309)
--------- --------- --------- --------- --------- --------- --------- --------- ---------
Loss before
extraordinary
item............... (213) (157) (553) (813) (1,628) (1,264) (1,089) (2,012) 503
Extraordinary gain
(loss) on early
retirement of debt(3).. 68 -- -- (132) -- -- -- -- --
--------- --------- --------- --------- --------- --------- --------- --------- ---------
Net loss........... (145) (157) (553) (945) (1,628) 1,264 (1,089) (2,012) 503
--------- --------- --------- --------- --------- --------- --------- --------- ---------
Preferred stock
dividends.......... 88 88 88 334 438 -- 329 361 --
--------- --------- --------- --------- --------- --------- --------- --------- ---------
Net loss
attributable to
common
shareholders....... $ (233) $ (245) $ (641) $ (1,279) $ (2,066) $ 1,264 $ (1,418) $ (2,373) $ 503
========= ========= ========= ========= ========= ========= ========= ========= =========
Allocation to Class
A Common Stock.... $ (219) $ (230) $ (608) $ (1,221) $ (2,042) $ (1,264) $ (1,401) $ (2,372) $ 503
Allocation to Class
B Common Stock.... (14) (15) (33) (58) (24) N/A (17) (1) N/A
Net (loss) income
per share(4):
Gain (loss) from
extraordinary
item--basic:
Class A Common
Stock............ $ 0.02 $ -- $ -- $ (0.05) $ -- $ -- $ -- $ -- $ --
Class B Common
Stock............ 1.45 -- -- (2.95) -- -- -- -- --
Net loss
attributable to
common
shareholders--
basic:
Class A Common
Stock............ (0.08) (0.08) (0.21) (0.44) (0.69) 0.17 (0.47) (0.79) (0.07)
Class B Common
Stock............ (4.97) (5.15) (13.76) (28.60) (44.96) N/A (30.85) (51.11) N/A
Net income
attributable to
common shares--
diluted........... N/A N/A N/A N/A N/A 0.15 N/A N/A 0.06
Weighted average
common shares
outstanding--basic:
Class A Common
Stock............ 2,865,034 2,911,451 2,872,417 2,775,792 2,952,811 7,323,933 2,952,811 3,015,800 7,344,165
Class B Common
Stock............ 2,821 2,821 2,418 2,013 535 N/A 535 29 N/A
Weighted average
common shares
outstanding--
diluted........... N/A N/A N/A N/A N/A 8,230,403 N/A N/A 8,256,548
</TABLE>
25
<PAGE>
<TABLE>
<CAPTION>
AT JULY 31, AT APRIL 30
----------------------------------------- -------------------------
PRO FORMA
1993 1994 1995 1996 1997 1997 1998 1998(1)
-------- ------ ------ ------ ------- ------ ------ ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working (deficit)
capital................ $ (1,001) $ (635) $ (184) $ (607) $(1,218) $ 395 $ 557 $1,754
Property and equipment,
net.................... 2,476 2,895 3,773 5,906 8,753 7,437 11,165 11,665
Total assets............ 3,980 4,778 5,870 17,935 25,122 21,251 34,994 48,823
Long-term debt, less
current maturities..... 3,349 3,792 5,826 12,278 18,411 16,359 25,263 14,579
Total shareholders'
equity (deficit)....... (1,840) (1,785) (3,131) (4,180) (6,029) (5,374) (8,233) 28,774
</TABLE>
<TABLE>
<CAPTION>
NINE MONTHS ENDED APRIL
YEARS ENDED JULY 31, 30,
----------------------------------------------------- ----------------------------
PRO FORMA PRO FORMA
1993 1994 1995 1996 1997 1997(1) 1997 1998 1998(1)
------ ------- ------- ------- ------- --------- ------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
OTHER DATA:
Cash provided by (used
in) operations......... $ 461 $ 971 $ 726 $ 896 $ 1,974 $ N/A $ 1,017 $ 645 $ N/A
Cash used in investing
activities............. (573) (1,177) (1,649) (11,019) (8,033) N/A (4,762) (11,962) N/A
Cash provided by
financing activities... 193 125 959 10,601 5,728 N/A 3,289 11,379 N/A
Adjusted EBITDA(6)...... 1,075 1,726 1,639 2,263 3,951 5,992 2,868 4,020 6,170
Adjusted EBITDA
margin(7).............. 21.2% 28.7% 23.6% 23.0% 24.1% 29.2% 24.1% 27.4% 34.5%
Units in service (end of
period)................ 15,313 19,179 27,271 65,418 95,172 129,407 90,067 122,569 162,757
Average revenues per
unit(8)................ $28.67 $ 29.05 $ 24.91 $ 17.72 $ 16.99 $ 15.35 $ 20.98 $ 18.24 $ 13.60
Capital expenditures.... $ (517) $ (971) $(1,528) $(1,911) $(3,647) $ N/A $(2,870) $ (5,793) $ NA
Cash dividends and
distributions(9)....... (128) (100) (77) (334) (450) N/A (329) (356) N/A
</TABLE>
- --------
(1) The pro forma statements of operations and other data give effect to the
Hyde's Acquisition and the issuance of an additional $12.2 million in debt
to finance the Hyde's Acquisition as if they had occurred at the beginning
of the period presented, and the pro forma balance sheet data give effect
to the Hyde's Acquisition and the related financing as if they had
occurred at April 30, 1998. The pro forma financial information does not
purport to represent what the Company's results of operations would have
been if the Hyde's Acquisition and the related financing had in fact
occurred on such date, nor does it purport to indicate the future
financial position or results of future operations of the Company. The pro
forma adjustments are based on currently available information and certain
assumptions that management believes to be reasonable.
(2) Represents a non-cash expense, calculated pursuant to a formula based on
the Company's Adjusted EBITDA, associated with the put feature of the
Creditanstalt Warrants. The put feature of the Creditanstalt Warrants will
be canceled on the Closing Date.
(3) As a result of early retirement of debt in fiscal 1993 and fiscal 1996,
the Company recorded a gain of $68,000 in fiscal 1993 and a loss of
$132,000 in fiscal 1996, net of income taxes.
(4) Basic and diluted net income (loss) per share under the two class method
are computed separately for holders of Class A and Class B Common Stock
using the weighted average number of shares of Class A and Class B Common
Stock outstanding. Diluted net income per share is only applicable for
period in which earnings are positive. Net loss attributable to Class A
and Class B shareholders is allocated based on the extent to which each
class shares in the Company's (loss) income. The Company's Class A and
Class B common shareholders receive dividends at a ratio of 1:84.5. For
the calculation of basic and diluted net loss per share, see the Company's
consolidated statements of operation for the periods presented. See also
"Capitalization."
(6) Adjusted EBITDA represents earnings before interest, taxes, depreciation,
amortization, fixed asset impairment and one-time reengineering charges,
accretion of stock warrants and extraordinary item. Adjusted EBITDA is a
measure of financial performance that is often used in the personal
telecommunications industry to compare companies on the basis of
liquidity, capital resources and leverage and to determine a company's
ability to service debt. Adjusted EBITDA also is one of the financial
measurements used to determine whether the Company is in compliance with
its covenants under the Credit Facility. However, Adjusted EBITDA should
not be considered in isolation or as an alternative to net loss, income
from operations, cash flows from operating activities or any other measure
of performance under GAAP. Further, Adjusted EBITDA may be calculated
differently by different companies within the personal telecommunications
industry. Thus, Adjusted EBITDA as presented herein may not be comparable
to Adjusted EBITDA or other similarly titled measures reported by other
companies. Adjusted EBITDA for fiscal 1996 excludes $145,000 related to a
one-time charge to write off purchased research and development.
(7) Adjusted EBITDA margin is calculated by dividing Adjusted EBITDA by net
revenues.
(8) ARPU equals the average net revenues for a given period divided by the
average number of units in service during such period. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Overview."
(9) Consists of cash paid as dividends on the Company's Series A Preferred
Stock and Series C Preferred Stock. No dividends have been paid on the
Company's Common Stock. See "Dividend Policy."
26
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This Prospectus contains "forward-looking statements" relating to, without
limitation, future economic performance, plans and objectives of management
for future operations, and projections of revenue and other financial items
that are based on the beliefs of, assumptions made by and information
currently available to the Company's management. Forward-looking statements
are identified by the use of words such as "expects," "estimates,"
"anticipates," "believes," "intends," "plans" and similar expressions and
variations thereof. The cautionary statements set forth in the "Risk Factors"
section and elsewhere in this Prospectus identify important factors with
respect to such forward-looking statements, including certain risks and
uncertainties, that could cause actual results to differ materially from those
expressed in or implied by such forward-looking statements. The following
discussion should be read in connection with the discussion set forth in "Risk
Factors" and with the consolidated financial statements and the notes thereto
included elsewhere in this Prospectus.
OVERVIEW
Satellink provides paging and enhanced telecommunications services to
businesses and individuals in smaller metropolitan areas and major cities in
the southeastern and southwestern United States. The Company delivers its
services through its STAR*Net platform, which is accessible from and provides
access to a variety of devices, including pagers, telephones and computers.
The STAR*Net platform is modular and scalable, which allows the Company to
quickly customize its services to meet the needs of its subscribers and expand
system capacity.
Satellink's revenues consist of: (i) service, rent and maintenance revenues;
and (ii) product sales. Service, rent and maintenance revenues consist
primarily of recurring revenues from paging and voicemail services. The
Company bills the fixed portion of the fees it charges for paging and
voicemail services in advance and bills usage-related fees in arrears. The
majority of the Company's revenues are recurring in nature (approximately
92.9%, 91.0%, 92.8% and 94.2% for fiscal 1995, 1996 and 1997 and for the nine
months ended April 30, 1998, respectively) and are derived from periodic
(usually monthly) fixed and usage-related fees charged to paging and voicemail
subscribers. While a subscriber continues to use the Company's services,
operating results benefit from a recurring revenue stream with minimal
requirements for incremental selling expenses. Service, rent and maintenance
revenues are recognized during the periods in which the services are provided.
Product sales revenues include the revenues derived from the sale of pagers
and other subscriber equipment and accessories and are recognized during the
periods in which sales occur. Net revenues include service, rent and
maintenance revenues and product sales revenues less the cost of products
sold. The Company's total revenues have increased from approximately $5.4
million for fiscal 1993 to approximately $17.6 million for fiscal 1997 and
were approximately $15.5 million for the nine months ended April 30, 1998. The
cost of products sold, which consists of the cost of subscriber equipment
sold, has increased from approximately $320,000 for fiscal 1993 to
approximately $1.2 million for fiscal 1997. Net revenues have increased from
approximately $5.1 million for fiscal 1993 to approximately $16.4 million for
fiscal 1997. Net revenues for the nine months ended April 30, 1998 were
approximately $14.7 million.
Service, rent and maintenance expenses include: subcarrier, tower and
satellite channel lease cost; data delivery telephone costs; third party
carriers' airtime expense; and network maintenance expense. Selling and
marketing expenses include salaries, commissions, travel and administrative
costs for the Company's sales force and related marketing and advertising
expenses. General and administrative expenses include expenses associated with
executive management, accounting, billing, customer service, office
telephones, office rents and maintenance and employee benefits. Engineering
expenses include costs associated with technical support personnel and
information services. The Company has experienced a decline in total average
operating expenses per unit in service (operating expenses per unit before
depreciation, amortization, restructuring and other one-time charges, and
accretion of stock warrants) from $22.93 for fiscal 1993 to $12.95 for fiscal
1997. Operating expenses per unit in service was $11.15 for the nine months
ended April 30, 1998.
27
<PAGE>
Depreciation is calculated on a straight line basis over periods ranging
from five to 20 years depending on the nature of the asset. Amortization is
calculated on a straight-line basis over periods ranging from five to 30
years.
Other income consists primarily of income from late fees, finance charges
and income derived from the sale of used subscriber equipment.
Interest expense consists primarily of interest paid under the Credit
Facility and, to a lesser extent, interest paid in connection with unsecured
promissory notes issued by the Company to finance certain acquisitions.
Accretion of stock warrants is a non-cash expense associated with the put
feature of the Creditanstalt Warrants. The expense has been calculated using a
formula based on the Company's Adjusted EBITDA. The put feature of the
Creditanstalt Warrants is canceled upon completion of a qualified initial
public offering of Common Stock which yields net proceeds to the Company of at
least $10.0 million.
Income (loss) from joint venture includes the net income of FM Concepts II,
a joint venture that is owned equally by the Company and Cape Fear. FM
Concepts II purchases and resells Infotelcom FM pagers. The Company accounts
for FM Concepts II under the equity method of accounting.
Minority interest represents the minority owner's share of the income or
loss associated with the operations of DirectLink Communications, L.L.C.
("Direct Link"). Direct Link provides personal telecommunications services to
consumers through a retail location in Duluth, Georgia. Until January 1998,
the general manager of Direct Link held 15% of the membership interest in
Direct Link. In February 1998, the Company acquired the 15% interest. The
Company will not report a minority interest associated with Direct Link after
fiscal 1998.
ARPU equals the average net revenues for a given period divided by the
average number of units in service during such period. ARPU for fiscal 1993,
1994, 1995, 1996 and 1997 and for the nine months ended April 30, 1998 was
$28.67, $29.05, $24.91, $17.72, $16.99 and $14.98, respectively. The downward
trend is the result of the acquisitions of paging companies which primarily
provide local service, a shift in product mix and increasing competitive
pressures. At July 31, 1993, local, regional and nationwide subscribers as a
percentage of total subscribers equaled 15.4%, 63.4% and 21.1%, respectively.
At April 30, 1998, local, regional, nationwide and voicemail subscribers as a
percentage of total subscribers equaled 43.4%, 27.7%, 16.7% and 12.2%,
respectively.
Adjusted EBITDA represents earnings before interest, taxes, depreciation,
amortization, fixed asset impairment and one-time reengineering charges,
accretion of stock warrants and extraordinary item. Adjusted EBITDA is a
measure of financial performance that is often used in the personal
telecommunications industry to compare companies on the basis of liquidity,
capital resources and leverage and to determine a company's ability to service
debt. Adjusted EBITDA also is one of the financial measurements used to
determine whether the Company is in compliance with its covenants under the
Credit Facility. However, Adjusted EBITDA should not be considered in
isolation or as an alternative to net loss, income from operations, cash flows
from operating activities or any other measure of performance under GAAP.
Further, Adjusted EBITDA may be calculated differently by different companies
within the personal telecommunications industry. Thus, Adjusted EBITDA as
presented herein may not be comparable to Adjusted EBITDA or other similarly
titled measures reported by other companies.
28
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth the percentage of net revenues represented by
certain items in the Company's statements of operations for the periods
indicated:
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
YEARS ENDED JULY 31, APRIL 30,
------------------------ -------------
1995 1996 1997 1997 1998
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Service, rent and maintenance reve-
nues............................... 99.2% 99.8% 99.6% 99.8% 99.3%
Product sales....................... 7.6 9.9 7.7 7.2 6.2
------ ------ ------ ----- -----
Total revenues..................... 106.8 109.7 107.3 107.0 105.5
Cost of products sold............... (6.8) (9.7) (7.3) (7.0) (5.5)
------ ------ ------ ----- -----
Net revenues....................... 100.0 100.0 100.0 100.0 100.0
------ ------ ------ ----- -----
Service, rent and maintenance ex-
penses............................. 39.1 39.4 40.0 40.9 37.3
Selling and marketing expenses...... 17.6 16.3 14.1 14.2 15.4
General and administrative ex-
penses............................. 12.8 17.6 18.6 17.6 17.5
Engineering expenses................ 8.2 5.2 3.9 4.0 4.3
Depreciation and amortization....... 12.2 12.2 13.7 13.5 14.5
Fixed asset impairment and one-time
reengineering charges.............. -- -- -- -- 10.5
------ ------ ------ ----- -----
Operating income (loss)............. 10.1 9.3 9.7 9.8 0.5
Other income........................ 1.3 0.9 0.5 0.6 1.2
Interest expense.................... (10.1) (8.8) (9.6) (9.2) (11.9)
Accretion of stock warrants......... (9.3) (8.7) (10.8) (10.5) (4.3)
(Loss) income from joint venture.... -- (1.0) 0.2 0.2 0.7
Minority interest................... -- -- -- -- (0.1)
------ ------ ------ ----- -----
Loss before income tax provision and
extraordinary item................. (8.0) (8.3) (10.0) (9.1) (13.9)
Income tax provision................ -- -- -- -- --
------ ------ ------ ----- -----
Loss before extraordinary item...... (8.0) (8.3) (10.0) (9.1) (13.9)
Extraordinary loss on early
retirement of debt................. -- (1.3) -- -- --
------ ------ ------ ----- -----
Net loss........................... (8.0) (9.6) (10.0) (9.1) (13.9)
------ ------ ------ ----- -----
Preferred stock dividends........... (1.3) (3.4) (2.6) (2.8) (2.5)
------ ------ ------ ----- -----
Net loss attributable to common
shareholders....................... (9.2)% (13.0)% (12.6)% (11.9)% (16.4)%
====== ====== ====== ===== =====
Adjusted EBITDA..................... 23.6 % 23.0 % 24.1 % 24.1 % 27.4 %
</TABLE>
NINE MONTHS ENDED APRIL 30, 1998 COMPARED TO NINE MONTHS ENDED APRIL 30, 1997
Total Revenues. Total revenues increased $2.7 million, or 21.4%, to $15.5
million for the nine months ended April 30, 1998 from $12.8 million for the
nine months ended April 30, 1997. This increase was primarily due to an
increased number of subscribers resulting from internal growth and
acquisitions. Total subscribers increased 33,000, or 36.1%, to 123,000 at
April 30, 1998 from 90,000 at April 30, 1997. Of this increase in subscribers,
45.8% resulted from internal growth and 54.2% resulted from acquisitions.
During the period from February 1, 1997 through April 30, 1998, the Company
completed seven acquisitions which added 17,600 subscribers. Product sales
increased $47,000, or 5.5%, to $903,000 for the nine months ended April 30,
1998 from $856,000 for the nine months ended April 30, 1997, but decreased as
a percentage of net revenues to 6.3% for the nine months ended April 30, 1998
from 7.2% for the nine months ended April 30, 1997. The increase in product
sales was related to subscriber base growth while the decline in product sales
as a percentage of net revenues reflects increased voicemail and other
services revenues which do not require subscriber equipment.
29
<PAGE>
Cost of Products Sold. Cost of products sold decreased $39,000, or 4.6%, to
$801,000 for the nine months ended April 30, 1998 from $840,000 for the nine
months ended April 30, 1997. The gross margin on products sold increased to
11.3% for the nine months ended April 30, 1998 from 1.8% for the nine months
ended April 30, 1997. The decrease in cost of products sold and the increase
in gross margin were primarily attributable to lower product costs associated
with the changing mix of products sold and declining prices for subscriber
equipment.
Service, Rent and Maintenance Expenses. Service, rent and maintenance
expenses increased $605,000, or 12.4%, to $5.5 million for the nine months
ended April 30, 1998 from $4.9 million for the nine months ended April 30,
1997. This increase reflects an increase in airtime expense paid to third
party service providers associated with subscriber base growth and related
increased telephone expense. Telephone expense increased due to additional
telephone facilities and increased voicemail usage. Service, rent and
maintenance expenses decreased as a percentage of net revenues to 37.3% for
the nine months ended April 30, 1998 from 40.9% for the nine months ended
April 30, 1997. The decrease in service, rent and maintenance expenses as a
percentage of net revenues reflects economies of scale as the subscriber base
has grown.
Selling and Marketing Expenses. Selling and marketing expenses increased
$565,000, or 33.3%, to $2.3 million for the nine months ended April 30, 1998
from $1.7 million for the nine months ended April 30, 1997. This increase
reflects sales staff compensation related to increased sales activity and
advertising. Selling and marketing expenses increased as a percentage of net
revenues to 15.4% for the nine months ended April 30, 1998 from 14.2% for the
nine months ended April 30, 1997.
General and Administrative Expenses. General and administrative expenses
increased $468,000, or 22.3%, to $2.6 million for the nine months ended
April 30, 1998 from $2.1 million for the nine months ended April 30, 1997.
This increase reflects higher office costs and customer service staffing
levels associated with subscriber base growth. This increase also relates to
costs incurred by the Company in connection with the introduction of new
STAR*Net products. For these reasons, general and administrative expenses also
increased as a percentage of net revenues to 17.5% for the nine months ended
April 30, 1998 from 17.6% for the nine months ended April 30, 1997.
Engineering Expenses. Engineering expenses increased $158,000, or 33.4%, to
$631,000 for the nine months ended April 30, 1998 from $473,000 for the nine
months ended April 30, 1997. This increase reflects higher staffing levels and
costs associated with upgrading the Company's information systems and
capabilities and the introduction of new STAR*Net products.
Adjusted EBITDA. Adjusted EBITDA increased $1.2 million, or 40.2%, to $4.0
million for the nine months ended April 30, 1998 from $2.9 million for the
nine months ended April 30, 1997. As a percentage of net revenues, Adjusted
EBITDA increased to 27.4% for the nine months ended April 30, 1998 from 24.1%
for the nine months ended April 30, 1997.
Depreciation and Amortization. Depreciation and amortization increased
$525,000, or 32.7%, to $2.1 million for the nine months ended April 30, 1998
from $1.6 million for the nine months ended April 30, 1997. This increase
reflects an increase in pagers, switches and other depreciable assets
associated with the increased subscriber base and increased amortization
related to acquired intangible assets.
Operating Income. Operating income decreased $1.1 million, or 92.8%, to
$85,000 for the nine months ended April 30, 1998 from $1.2 million for the
nine months ended April 30, 1997. This decrease reflects a $1.5 million one-
time charge for the write-down of traditional paging terminals removed from
service in connection with the Company's implementation of its STAR*Net
platform, write-off of assets associated with the Company's previous billing
system which was replaced and a write-off of reengineering cost previously
capitalized. Excluding the one-time charge, operating income would have been
$1.6 million for the nine months ended April 30, 1998, a 37.7% increase over
the nine months ended April 30, 1997.
30
<PAGE>
Other Income. Other income increased $111,000, or 160.9%, to $180,000 for
the nine months ended April 30, 1998 from $69,000 for the nine months ended
April 30, 1997. This increase was related to increased sales of used
subscriber equipment as the Company accepted more used units as trade-ins and
resold such units. This increase also reflects increased late fees associated
with the larger subscriber base.
Interest Expense. Interest expense increased $640,000, or 58.2%, to $1.7
million for the nine months ended April 30, 1998 from $1.1 million for the
nine months ended April 30, 1997. This increase primarily reflects an increase
in the average level of debt outstanding due to acquisitions completed during
the second half of fiscal 1997 and, to a lesser extent, higher bank lending
rates during the nine months ended April 30, 1998.
Accretion of Stock Warrants. Accretion of stock warrants expense decreased
$624,000, or 49.8%, to $628,000 in nine months ended April 30, 1998 from $1.3
million for the nine months ended April 30, 1997.
Income (Loss) From Joint Venture. Income from joint venture increased
$79,000, or 395.0%, to $99,000 for the nine months ended April 30, 1998 from
$20,000 for the nine months ended April 30, 1997. This increase was related to
a decrease in wholesale prices for FM pagers that was not passed on from FM
Concepts II to the Company.
Minority Interest. Minority interest expense increased $6,000 to $8,000 for
the nine months ended April 30, 1998 from $2,000 for the nine months ended
April 30, 1997. This increase was related to increased profits at Direct Link.
Net Loss. Net loss increased $923,000, or 84.8%, to $2.0 million for the
nine months ended April 30, 1998 from $1.1 million for the nine months ended
April 30, 1997. This increase reflects the factors described above. Excluding
the effect of the accretion of stock warrants and the one-time charge for the
write-down of traditional paging terminals removed from service in connection
with the Company's implementation of its STAR*Net platform and the write-off
of assets associated with the Company's previous billing system which was
replaced, net income decreased $13,000, or 7.6%, to $150,000 for the nine
months ended April 30, 1998 from $163,000 for the nine months ended April 30,
1997.
FISCAL YEAR ENDED JULY 31, 1997 COMPARED TO FISCAL YEAR ENDED JULY 31, 1996
Total Revenues. Total revenues increased $6.8 million, or 63.0%, to $17.6
million for fiscal 1997 from $10.8 million for fiscal 1996. This increase was
primarily due to an increased number of subscribers resulting from internal
growth and acquisitions. Total subscribers increased 30,000, or 46.2%, to
95,000 at July 31, 1997 from 65,000 at July 31, 1996. Of this increase in
subscribers, 63.0% resulted from internal growth and 37.0% resulted from
acquisitions. Results for fiscal 1997 include twelve months of operations of
C.R. and Atlanta Voice Page, Inc. ("AVP"), which were acquired in February and
June, 1996, respectively, through which the Company added 22,000 paging
subscribers. Also during fiscal 1997, the Company completed five smaller
acquisitions through which it added 11,900 subscribers. Results of operations
of the acquired companies were included from the various acquisition dates.
Product sales increased $289,000, or 29.6%, to $1.3 million for fiscal 1997
from $1.0 million for fiscal 1996. This increase was related to subscriber
base growth. Product sales decreased as a percentage of net revenues to 7.7%
for fiscal 1997 from 9.9% for fiscal 1996. The decline in product sales as a
percentage of net revenues reflects increased voicemail and other services
revenues which do not require subscriber equipment.
Cost of Products Sold. Cost of products sold increased $241,000, or 25.1%,
to $1.2 million for fiscal 1997 from $1.0 million for fiscal 1996. This
increase was associated with continued subscriber base growth. Gross margin on
products sold increased to 5.0% for fiscal 1997 from 1.5% for fiscal 1996.
This increase was primarily attributable to lower product costs associated
with the changing mix of products sold and declining prices for subscriber
equipment.
Service, Rent and Maintenance Expenses. Service, rent and maintenance
expenses increased $2.7 million, or 68.7%, to $6.5 million for fiscal 1997
from $3.9 million for fiscal 1996. This increase reflects an increase in
airtime expense paid to third party service providers and an increase in
subcarrier and tower lease expenses
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<PAGE>
primarily associated with the acquisitions of C.R. and AVP. Results of
operations for C.R. and AVP are reflected for all of fiscal 1997 but only the
last two months and six months, respectively, of fiscal 1996. Telephone
expense increased as a result of additional telephone facilities and increased
voicemail usage. Service, rent and maintenance expenses increased as a
percentage of net revenues to 40.0% for fiscal 1997 from 39.4% for fiscal
1996. The increase in service, rent and maintenance expenses as a percentage
of net revenues reflects increases in telephone and airtime costs as a
percentage of net revenues.
Selling and Marketing Expenses. Selling and marketing expenses increased
$712,000, or 44.4%, to $2.3 million for fiscal 1997 from $1.6 million for
fiscal 1996. This increase reflects sales staff compensation related to
increased sales activity and advertising, both of which resulted in subscriber
base growth. Selling and marketing expenses decreased as a percentage of net
revenues to 14.1% for fiscal 1997 from 16.3% for fiscal 1996.
General and Administrative Expenses. General and administrative expenses
increased $1.3 million, or 75.5%, to $3.0 million for fiscal 1997 from $1.7
million for fiscal 1996. This increase reflects higher staffing levels
associated with the subscriber base growth, as well as higher office costs.
General and administrative expenses increased as a percentage of net revenues
to 18.6% for fiscal 1997 from 17.6% for fiscal 1996.
Engineering Expenses. Engineering expenses increased $122,000, or 23.6%, to
$638,000 for fiscal 1997 from $516,000 for fiscal 1996. This increase reflects
higher staffing levels associated with the subscriber base growth and related
systems.
Adjusted EBITDA. Adjusted EBITDA increased $1.7 million, or 74.6%, from $2.3
million for fiscal 1996 to $4.0 million for fiscal 1997. As a percentage of
net revenues, Adjusted EBITDA increased from 23.0% for fiscal 1996 to 24.1%
for fiscal 1997.
Depreciation and Amortization. Depreciation and amortization increased $1.0
million, or 86.2%, to $2.2 million for fiscal 1997 from $1.2 million for
fiscal 1996. This increase reflects an increase in depreciable assets
associated with the increased subscriber base and increased amortization
related to acquired intangible assets.
Operating Income. Operating income increased $675,000, or 73.3%, to $1.6
million for fiscal 1997 from $921,000 for fiscal 1996.
Other Income. Other income decreased $1,000, or 1.1%, to $90,000 for fiscal
1997 from $91,000 for fiscal 1996.
Interest Expense. Interest expense increased $692,000, or 79.4%, to $1.6
million for fiscal 1997 from $872,000 for fiscal 1996. This increase primarily
reflects an increase in the average level of debt outstanding because of
acquisitions during fiscal 1997 and the second half of fiscal 1996 and, to a
lesser extent, higher bank lending rates during fiscal 1997.
Accretion of Stock Warrants. Accretion of stock warrants expense increased
$919,000, or 107.6%, to $1.8 million for fiscal 1997 from $854,000 for fiscal
1996.
Income (Loss) From Joint Venture. Income from joint venture increased
$122,000 to $26,000 for fiscal 1997 from ($96,000) for fiscal 1996. This
increase represents the Company's share of income earned through the resale of
FM pagers by FM Concepts II. Additionally, during fiscal 1996, FM Concepts II
recognized a charge for research and development of $436,000, of which the
Company's share was $145,000.
Minority Interest. Minority interest expense increased $300 to $2,800 for
fiscal 1997 from $2,500 for fiscal 1996.
Net Loss. Net loss increased $684,000, or 72.5%, to $1.6 million for fiscal
1997 from $944,000 for fiscal 1996. This increase reflects the factors
described above. Excluding the effect of the accretion of stock warrants and a
$132,000 extraordinary charge on early retirement of debt for fiscal 1996, net
income increased $103,000, or 245.2%, to $145,000 for fiscal 1997 from $42,000
for fiscal 1996.
32
<PAGE>
FISCAL YEAR ENDED JULY 31, 1996 COMPARED TO FISCAL YEAR ENDED JULY 31, 1995
Total Revenues. Total revenues increased $3.4 million, or 45.9%, to $10.8
million for fiscal 1996 from $7.4 million for fiscal 1995. This increase was
primarily due to an increased number of subscribers resulting from
acquisitions and internal growth. Total subscribers increased 38,000, or
139.9%, to 65,000 at July 31, 1996 from 27,000 at July 31, 1995. Of this
increase, 57.9% resulted from acquisitions and 42.1% resulted from internal
growth. Results for fiscal 1996 include the operations of C.R. and AVP, which
were acquired in February and June 1996, respectively, and through which the
Company added 22,000 paging subscribers. The Company did not complete any
acquisitions during fiscal 1995. Product sales increased $449,000, or 85.4%,
to $975,000 for fiscal 1996 from $526,000 for fiscal 1995. Product sales
increased as a percentage of net revenues to 9.9% for fiscal 1996 from 7.6%
for fiscal 1995. The increase in product sales as a percentage of net revenues
reflects a shift in product mix from voicemail services to paging services.
Cost of Products Sold. Cost of products sold increased $492,000, or 105.1%,
to $960,000 for fiscal 1996 from $468,000 for fiscal 1995. This increase was
primarily attributable to increased product sales associated with subscriber
base growth. Gross margin on products sold decreased to 1.5% for fiscal 1996
from 11.0% for fiscal 1995. This decrease was primarily attributable to price
decreases designed to encourage increased sales.
Service, Rent and Maintenance Expenses. Service, rent and maintenance
expenses increased $1.2 million, or 42.7%, to $3.9 million for fiscal 1996
from $2.7 million for fiscal 1995. This increase reflects an increase in
airtime expense paid to third party service providers and an increase in
subcarrier and tower lease expenses primarily associated with the acquisitions
of C.R. and AVP. Results of operations for C.R. and AVP are reflected in the
last two months and six months, respectively, of fiscal 1996. Telephone
expense increased due to additional telephone facilities and increased
voicemail usage associated with the C. R. acquisition. Service, rent and
maintenance expense increased as a percentage of net revenues to 39.4% for
fiscal 1996 from 39.1% for fiscal 1995. The increase in service, rent and
maintenance expense as a percentage of net revenues reflects an increase in
third party airtime expense as a percentage of net revenues and a lower profit
margin on product sales.
Selling and Marketing Expenses. Selling and marketing expenses increased
$380,000, or 31.1%, to $1.6 million for fiscal 1996 from $1.2 million for
fiscal 1995. This increase reflects sales staff compensation related to
increased sales activity and advertising, both of which resulted in subscriber
base growth. Selling and marketing expenses decreased as a percentage of net
revenues to 16.3% for fiscal 1996 from 17.6% for fiscal 1995.
General and Administrative Expenses. General and administrative expenses
increased $845,000, or 95.3%, to $1.7 million for fiscal 1996 from $887,000
for fiscal 1995. This increase reflects additions to senior management and
higher staffing levels associated with subscriber base growth, as well as
higher office costs. General and administrative expenses increased as a
percentage of net revenues to 17.6% for fiscal 1996 from 12.8% for fiscal
1995.
Engineering Expenses. Engineering expenses decreased $51,000, or 9.0%, to
$516,000 for fiscal 1996 from $567,000 for fiscal 1995. This decrease reflects
lower staffing levels primarily due to a vacancy in the position of manager of
management information systems for the majority of fiscal 1996.
Adjusted EBITDA. Adjusted EBITDA increased $624,000, or 38.1%, to $2.3
million for fiscal 1996 from $1.6 million for fiscal 1995. As a percentage of
net revenues, Adjusted EBITDA decreased to 23.0% for fiscal 1996 from 23.6%
for fiscal 1995.
Depreciation and Amortization. Depreciation and amortization increased
$359,000, or 42.5%, to $1.2 million for fiscal 1996 from $845,000 for fiscal
1995. This increase reflects a greater number of pagers associated with the
increased subscriber base and increased amortization related to acquired
intangible assets.
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<PAGE>
Operating Income. Operating income increased $217,000, or 30.8%, to $921,000
for fiscal 1996 from $704,000 for fiscal 1995. This increase reflects
increased net revenues, partially offset by increased general and
administrative expenses.
Other Income. Other income increased $1,000, or 1.1%, to $91,000 for fiscal
1996 from $90,000 for fiscal 1995.
Interest Expense. Interest expense increased $168,000, or 23.9%, to $872,000
for fiscal 1996 from $704,000 for fiscal 1995. This increase primarily
reflects a decrease in the average level of debt outstanding due to the
repayment of debt following the issuance of 3,500 shares of Series C Preferred
Stock in November 1995 and, to a lesser extent, lower bank lending rates
during fiscal 1996.
Accretion of Stock Warrants. Accretion of stock warrants expense increased
$211,000, or 32.8%, to $854,000 for fiscal 1996 from $643,000 for fiscal 1995.
Income (Loss) From Joint Venture. Loss from joint venture was ($96,000) for
fiscal 1996. As the Company began reporting the equity interest in FM Concepts
II in November 1995, there was no equity income or loss for fiscal 1995.
During fiscal 1996, FM Concepts II recognized a charge for research and
development of $436,000, of which the Company's share was $145,000, which was
partially offset by the Company's share of income earned through the resale of
FM pagers by FM Concepts II.
Minority Interest. Minority interest expense was $2,500 for fiscal 1996,
reflecting the Company's initial investment in Direct Link during fiscal 1996.
Net Loss. Net loss increased $391,000, or 70.7%, to $944,000 for fiscal 1996
from $553,000 for fiscal 1995. This increase reflects the factors described
above. Excluding the effect of the accretion of stock warrants charge and a
$132,000 extraordinary charge on early retirement of debt for fiscal 1996, net
income decreased $48,000 to $42,000 for fiscal 1996 from $90,000 for fiscal
1995.
LIQUIDITY AND CAPITAL RESOURCES
The Company has met its primary cash requirements from borrowings under the
Credit Facility and cash flows from operations. Borrowings under the Company's
Credit Facility have been used to fund acquisitions, capital expenditures and
general corporate requirements. The Company had outstanding borrowings under
the Credit Facility of $5.7 million, $12.6 million, $18.8 million and $25.8
million as of July 31, 1995, 1996 and 1997 and April 30, 1998, respectively.
As of May 19, 1998, the Company had outstanding borrowings under the Credit
Facility of $37.5 million. The Credit Facility was increased in March 1998 to
$40.0 million from $25.0 million. The Credit Facility carries a variable rate
of interest based on, at the Company's election: (i) Creditanstalt's prime
rate plus 2%; or (ii) LIBOR plus 4%. The Credit Facility is secured by
substantially all of the Company's assets.
The Company's cash balances were $46,000, $525,000 and $193,000 at July 31,
1995, 1996 and 1997, respectively, and $255,000 at April 30, 1998. Net cash
provided by operating activities was $726,000, $896,000 and $2.0 million for
the years ended July 31, 1995, 1996 and 1997, respectively, and $645,000 for
the nine months ended April 30, 1998.
Net cash used in investing activities was $1.7 million, $11.0 million and
$8.0 million for the years ended July 31, 1995, 1996 and 1997, respectively,
and $12.0 million for the nine months ended April 30, 1998. Investing
activities during fiscal 1995 included $1.5 million net purchases of property
and equipment and a $120,000 investment in the FM Concepts II joint venture.
Investing activities during fiscal 1996 included $9.0 million for the
purchases of businesses, $1.9 million net purchases of property and equipment
and $158,000 of further investment in the FM Concepts II joint venture.
Investing activities during fiscal 1997 included $4.4 million for the
purchases of businesses, and $3.6 million net purchases of property and
equipment. Investing
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<PAGE>
activities during the nine months ended April 30, 1998 included $4.3 for the
purchases of businesses, $4.3 million net purchases of property and equipment
and $99,000 of further investment in the FM Concepts II joint venture.
Net cash provided by financing activities was $1.0 million, $10.6 million
and $5.7 million for the years ended July 31, 1995, 1996 and 1997,
respectively, and $11.4 million for the nine months ended April 30, 1998.
Included in cash provided from financing activities for fiscal 1995 was $1.6
million of proceeds from issuance of long-term debt and $200,000 of proceeds
from subscriptions receivable partially offset by $707,000 for the purchase
and retirement of Common Stock, $77,000 of dividends on Series A Preferred
Stock and Series C Preferred Stock and $36,000 of other financing activities.
Included in cash provided by financing activities for fiscal 1996 was $7.2
million of proceeds from the issuance of long-term debt, $3.5 million proceeds
from the issuance of Series A Preferred Stock and Series C Preferred Stock,
$250,000 of proceeds from the issuance of Common Stock and $42,000 of other
financing activities partially offset by $334,000 of dividends on Series A
Preferred Stock and Series C Preferred Stock. Included in cash provided by
financing activities for fiscal 1997 was $6.2 million of proceeds from
issuance of long-term debt partially offset by $450,000 of dividends on
Series A Preferred Stock and Series C Preferred Stock and $60,000 of other
financing activities. Included in net cash provided by financing activities in
the nine months ended April 30, 1998 was $6.8 million of proceeds from
issuance of long-term debt, $4.5 million of proceeds from the issuance of
Series D Preferred Stock, and $100,000 of proceeds from the issuance of Common
Stock partially offset by $361,000 of dividends on Series A Preferred Stock,
Series C Preferred Stock and Series D Preferred Stock.
The Company had a working capital (deficit) of $(164,000) at July 31, 1995,
$(607,000) at July 31, 1996, $(1.2 million) at July 31, 1997 and $556,000 at
April 30, 1998.
On April 3, 1998, the Company issued $4.5 million of Series D Preferred
Stock, a portion of the proceeds of which was used to finance a portion of the
$4.3 million purchase price (the "Premier Acquisition") of Premier Paging. The
Premier Acquisition was also financed with an unsecured four year note in the
principal amount of $900,000. The note bears interest at 9% per year. The
remaining proceeds from the sale of the Series D Preferred Stock were used for
working capital. The Series D Preferred Stock pays a monthly coupon of 8.5%
per annum.
On May 1, 1998, the Company borrowed $11.4 million under the Credit Facility
to finance the Hyde's Acquisition and other working capital purposes. The
Company intends to repay a portion of amounts outstanding under the Credit
Facility and redeem the Series D Preferred Stock with the net proceeds of the
Offering. While there can be no assurance, the Company estimates that the
proceeds of the Offering, funds to be provided by operations and funds
available under the Credit Facility will be sufficient to meet the Company's
anticipated needs for working capital for the next twelve months. This
estimate is a forward-looking statement that is subject to risks and
uncertainties. Actual results and working capital needs could differ
materially from those estimated due to a number of factors, including the use
of such proceeds to fund acquisitions and the factors discussed under "Risk
Factors." In addition, acquisitions may require additional debt and equity
financing. The Company has no present plans to make any other significant
capital expenditures.
RECENT ACCOUNTING PRONOUNCEMENT
In June 1997, the Financial Accounting Standards Board (the "FASB") issued
Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive
Income" ("SFAS 130"), which establishes standards for reporting and
presentation of comprehensive income and its components in a full set of
general purpose financial statements. This statement is effective for periods
beginning after December 15, 1997. The adoption of SFAS 130 is not expected to
have an impact on the Company's financial statements.
In June 1997, the FASB issued Statement of Financial Accounting Standards
No. 131, "Disclosures about Segments of an Enterprise and Related Information"
("SFAS 131"), which establishes standards for the way that public business
enterprises report information about operating segments in annual financial
statements and requires that those enterprises report selected information
about operating segments in interim financial reports issued to stockholders.
It also establishes standards for related disclosures about products and
services, geographic areas and major customers. This Statement is effective
for financial statements for periods beginning after December 15, 1997. The
adoption of SFAS 131 is not expected to have a material impact on the
Company's financial statements.
35
<PAGE>
BUSINESS
GENERAL
Satellink provides paging and enhanced personal telecommunications services
to businesses and individuals in smaller metropolitan areas and major cities
in the southeastern and southwestern United States. The Company has provided
paging and voicemail services since 1988. In 1995, the Company began
development of its proprietary STAR*Net platform in anticipation of increased
subscriber demand for a broad spectrum of personal telecommunications services
from a single provider. The STAR*Net platform allows the Company to provide an
integrated suite of personal telecommunications services to businesses and
individuals in markets not generally targeted by major providers. The Company
intends to capitalize on its STAR*Net platform by marketing enhanced services
to its existing paging and voicemail subscriber base and by attracting new
subscribers who would otherwise use multiple providers to fulfill their
personal telecommunications needs.
Through the STAR*Net platform, which integrates carrier-grade telephony
platform hardware with the Company's proprietary software, Satellink provides
its subscribers with single telephone number access to paging, voicemail, long
distance and "find me" services. The STAR*Net platform also allows the Company
to offer prepaid and postpaid long distance calling cards and inbound 1-800
service. The Company believes that the STAR*Net platform's scalable and
flexible architecture and relatively low cost of implementation give the
Company a competitive advantage by allowing it to quickly add and customize
services and offer enhanced services in smaller markets where the
implementation of a more expensive architecture is not economically justified.
The Company delivers paging services by broadcasting messages over: (i) FM
subcarrier frequencies that are leased by the Company in Georgia and Alabama
and that are linked with the CUE nationwide FM paging network, which reaches
over 95% of the population of the United States and Canada and covers 60,000
miles of interstate highway; (ii) Company-owned VHF and UHF paging networks in
Georgia and Louisiana; and (iii) VHF, UHF, 900 MHz and narrowband PCS paging
networks owned by third parties from which the Company purchases and resells
local, regional and nationwide service. The Company's use of the STAR*Net
platform and multiple message distribution networks in its market areas allows
the Company to offer to its customers an assortment of service and pricing
options not readily available from many of the Company's competitors.
Satellink's paging and voicemail subscriber base has increased through
internal growth and acquisitions from approximately 27,000 subscribers as of
July 31, 1995 to approximately 160,000 subscribers as of May 19, 1998. Net
monthly revenues have increased from $700,000 for the month ended July 31,
1995 to $1.8 million for the month ended April 30, 1998.
INDUSTRY
Recent technological developments in the paging industry include new paging
services such as "confirmation" or "response" paging, narrowband PCS voice
paging, two-way paging and notebook and sub-notebook computer wireless data
applications. Industry sources estimate that there were approximately 43.1
million pagers in service in the United States at December 31, 1996, which
were serviced by over 2,000 licensed paging companies. Of these paging
companies, the ten largest serve approximately 80% of the total paging
subscribers in the United States. From 1990 through 1996, the number of pagers
in service in the United States grew at a compound annual rate of 27.0% and
the number of pagers in service is projected to grow at a compound annual rate
of approximately 9.0% from 1996 through 2001. Factors contributing to this
growth include: (i) declining costs of service; (ii) increasing consumer
awareness of the benefits of mobile communications; (iii) introduction of new
or enhanced paging equipment and services; and (iv) expanding channels of
distribution.
Recent technological developments in the wireless communications industry
have allowed providers to offer new and enhanced services. For example, PCS
providers are currently offering a variety of personal telecommunications
services, many of which are similar to the Company's services. According to a
1998 Price
36
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Waterhouse survey, total PCS subscribers in the United States are projected to
grow from less than 1 million in 1997 to approximately 45 million by 2001.
These subscribers will use services provided through several different types
of PCS technology, including time division multiple access, code division
multiple access and newly developed PCS technologies using the 1910 MHz to
1930 MHz band. Current PCS-based service offerings include advanced paging and
messaging for voice and data, including two-way messaging and facsimile
transmission, next-generation mobile telephone service and two-way voice, data
and video communications. Future PCS-based service offerings are expected to
include personal digital assistants, portable facsimile machines, wireless
replacements for portions of the wireline telephone network and other kinds of
short-range communications.
The Company believes that future developments in the paging and wireless
communications industry will include: (i) technological improvements that
permit increased service and applications to a wider market on a cost-
effective basis; (ii) consolidation of smaller, single-market operators into
larger, multi-market paging companies; and (iii) increased numbers of pagers
in service, as a result of general expansion into consumer and retail markets.
GROWTH STRATEGY
The Company's primary objective is to become a leading regional provider of
enhanced personal telecommunications services. The Company intends to achieve
its objective by pursuing the following strategies:
. Expand Subscriber Base Through Acquisitions. The Company intends to
increase its subscriber base and its opportunities to cross-market
STAR*Net services by identifying and acquiring other providers of
paging, voicemail and other personal telecommunications services. The
Company believes that it can generate cost savings through integration
of acquired companies, particularly from its increased purchasing power
for equipment and airtime. Any cost savings would effectively reduce the
multiple paid for acquired companies, thereby increasing the Company's
return on invested capital. The Company intends to continue to focus on
smaller acquisition candidates because it expects larger providers to
focus increasingly on internal growth and larger acquisitions, thereby
decreasing competition for smaller acquisition candidates.
. Cross-Market an Integrated Suite of Customized Services to Existing and
Acquired Subscribers. The Company intends to cross-market additional
STAR*Net services to its existing and acquired paging and voicemail
subscribers. The Company believes that its paging and voicemail
subscribers are mobile individuals who are likely to use additional
personal telecommunications services. The Company believes these
subscribers will be more likely to purchase these services from the
Company because: (i) the Company owns the subscribers' access numbers
and is able to offer them the ability to change service plans and
coverage areas without changing access numbers; (ii) the Company is able
to provide its subscribers with unified billing for a variety of
personal telecommunications services; and (iii) existing subscribers are
familiar with the Company and have purchased services from the Company
in the past.
. Expand the Suite of Customized Services. The Company intends to
continually develop new STAR*Net services. Current planned services
under development include Internet-based voicemail delivery and receipt,
local access voicemail between cities, text-to-speech playback of e-mail
messages, Internet e-mail pager notification and narrowband PCS connect.
The Company believes these services will, when combined with existing
STAR*Net service offerings, provide it with additional cross-marketing
opportunities to existing and new subscribers.
. Focus on Niche Markets. The Company believes that smaller metropolitan
markets throughout the Southeast and Southwest are underserved by larger
providers of personal telecommunications services. These smaller markets
are attractive to Satellink because management believes these markets
have reduced competition for personal telecommunications services,
limited availability of alternative services such as cellular telephones
and lower market penetration rates for personal telecommunications
services. Approximately 45% of the Company's paging subscribers utilize
37
<PAGE>
regional or national paging services compared to approximately 33% of
total paging subscribers in the United States who use such services. The
Company believes this reflects its ability to serve mobile individuals
who require the broad, uninterrupted coverage area provided by the
Company. The Company intends to continue implementing its niche market
strategy by opening additional offices in smaller metropolitan markets,
acquiring other providers of paging, voicemail and other personal
telecommunications services in existing and additional markets and
utilizing its direct sales force in markets in Georgia, Alabama,
Louisiana and Texas.
ACQUISITIONS
Acquisitions have contributed significantly to the Company's growth. The
following table provides a summary of acquisitions in which the Company
acquired more than 5,000 subscribers. The Company has paid an aggregate
consideration of approximately $27.0 million in connection with these
acquisitions.
<TABLE>
<CAPTION>
APPROXIMATE NUMBER
OF SUBSCRIBERS
DATE --------------------
NAME OF ACQUIRED COMPANY LOCATIONS ACQUIRED PAGING VOICEMAIL
- ------------------------ ---------------------- ------------- --------- ----------
<S> <C> <C> <C> <C>
Atlanta Voice Page,
Inc. .................. Atlanta February 1996 11,500 --
C.R., Inc............... Dallas May 1996 10,500 --
Message World........... Atlanta February 1997 -- 5,300
Premier Paging,
Inc./Premier Paging
of New Orleans, Inc.... Baton Rouge and April 1998 10,000 --
New Orleans
Hyde's Stay in Touch,
Inc. .................. Shreveport, Monroe and May 1998 39,000 --
Alexandria, Louisiana
</TABLE>
In addition to the above acquisitions, since the commencement of the
Company's acquisition program in February 1996, the Company has consummated
six acquisitions for aggregate consideration of $2.9 million, through which it
acquired a total of 7,600 paging subscribers. The Company is currently engaged
in preliminary discussions with several other acquisition candidates, but it
has no binding commitments to acquire any of such candidates. See "Risk
Factors -- Ability to Manage Growth; Acquisition Risks" and "Use of Proceeds."
38
<PAGE>
SERVICES
The Company provides an integrated suite of paging, voicemail and enhanced
personal telecommunications services. A subscriber can select any single
service or combination of services, all of which can be accessed through a
single local or 1-800 access number. The following table summarizes each
current and planned service offering.
SERVICE OFFERING DESCRIPTION
CURRENT SERVICES
STAR*Paging Satellink provides local, regional or national
paging service at a variety of price points
through traditional, FM and third party
networks. Unlike traditional paging technology,
FM paging technology utilizes existing FM radio
station transmitters to reach 95% of the
population of the United States and Canada.
STAR*Message The Company provides subscribers with an
outsourced voicemail solution that allows
subscribers to avoid the capital investment
necessary to establish their own standalone
voicemail system.
STAR*FindMe Satellink can provide a subscriber with a
personal local or 1-800 number that serves as a
single point of access from which callers can
select various messaging options or attempt to
locate the subscriber at up to four
predetermined phone numbers.
STAR*Calling A subscriber can place worldwide long distance
calls from the United States while accessing
the STAR*Net voicemail box, thereby allowing
the customer to return a voicemail message,
listen to additional voicemail messages and
make additional calls without redialing an
access number or PIN. Additionally, a
subscriber can use prepaid or traditional
calling cards to place long distance calls.
One number services The STAR*Net platform, combined with the
Company's flexibility in network choice, allows
a subscriber to change coverage area or type of
service without changing the subscriber's local
or 1-800 access number.
STAR*Toll Free A subscriber can establish a single 1-800
number from which the subscriber can forward
calls to a different number at a cost that is
generally lower than that charged by
traditional 1-800 providers.
SERVICES UNDER DEVELOPMENT
STAR*MeetMe Without special equipment or operator
assistance, a subscriber would be able to
initiate a conference call from any telephone
in which up to 16 individuals could
participate.
STAR*Web A subscriber would be able to access paging,
voicemail or e-mail messages through the
Internet.
Local access voicemail A subscriber would be able to leave messages
for other subscribers in networked cities
without dialing a long distance number.
Text-to-speech playback A subscriber would be able to access Internet
or LAN e-mail messages via the subscriber's
voicemail.
Internet e-mail pager A subscriber would be able to receive a paging
notification message to notify the subscriber of the receipt
of Internet e-mail messages.
PAGING INFRASTRUCTURE
The Company operates multiple paging distribution networks and has reseller
and other arrangements with third parties which enable the Company to
distribute its multiple service offerings in ways that address the needs of a
variety of subscribers. The majority of these services utilize the Company's
FM and traditional paging
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networks and traditional paging networks owned and operated by third party
carriers. A portion of these services also utilize the CUE FM paging network,
which allows the Company to reach over 95% of the population of the United
States and Canada and covers 60,000 miles of interstate highway. Despite the
Company's multiple distribution networks, there can be no assurance that the
Company's subscribers will not experience downtime due to the failure of the
Company's network, a third party's network on which the Company relies or any
of the Company's switching facilities or its STAR*Net platforms. See "Risk
Factors -- Dependence on Networks, Switching Facilities and the STAR*Net
Platform; Damage, Failure and Downtime."
FM Network
The Company's FM network operates by broadcasting on the sideband of FM
radio stations in Georgia and Alabama. The Company has entered into agreements
with over 30 FM radio stations pursuant to which the stations agree to
transmit paging messages on a 57 KHz subcarrier concurrently with their
regular radio broadcasts. Because most FM radio stations have significantly
higher power output and taller towers than traditional paging transmitters,
the Company is able to deliver messages over its FM network using fewer
transmitters than would be necessary to cover the same geographic area with a
traditional paging network. This allows the Company to enter a new local
market by installing injecting a 57 KHz subcarrier into an existing FM radio
station rather than building a network of paging towers equipped with low-
powered traditional paging transmitters.
Paging messages broadcast over the Company's FM network are broadcast from
all 30 radio stations. The Company's pagers are programmed to scan the FM
frequency spectrum to locate a station broadcasting the Company's 57 KHz
paging signal, allowing subscribers to move within the coverage area without
interruption of paging service. The Company's FM network is linked to a
national FM network operated by CUE and made up of over 500 FM radio stations
throughout the United States and Canada. The CUE network reaches over 95% of
the population of the United States and Canada and covers 60,000 miles of
interstate highway. Numeric paging messages are broadcast over the CUE network
through a relay system whereby the Company transmits a paging message to CUE's
main terminal which then transmits the message to a satellite which, in turn,
retransmits the message either to all participating FM stations for nationwide
subscribers or to selected FM stations for regional subscribers. The Company
offers regional, nationwide and North American paging through the CUE network,
and CUE bills the Company for paging distribution depending on the coverage
provided. Additionally, the Company pays a co-operative advertising fee to CUE
based on the number of Company pagers connected to the CUE network. See "Risk
Factors -- Limitations of CUE Paging Network."
Traditional Paging Networks
The Company has developed traditional paging networks in Georgia and
Louisiana. The traditional paging network broadcasts messages on specified
frequencies, including 462.850 MHz, 462.825 MHz and 152.240 MHz. These
messages are broadcast from Company-owned transmitters located principally in
the metropolitan Atlanta area and southern Louisiana. Such transmitters are
mounted on radio towers owned by third parties who lease tower space to the
Company and other broadcasters of radio and other transmissions. Each Company-
owned transmitter is operated pursuant to an FCC-issued license. See "--
Government Regulation."
Third Party Carrier Network
In addition to maintaining its own traditional paging network, the Company's
switching facilities are networked to traditional regional and nationwide
paging networks owned and operated by third parties, including PageNet,
Preferred Networks, Inc. ("Preferred Network"), A+ Network, Inc. ("A+
Network"), BestCom and others. Paging data is transferred from the Company's
switch to the third party network, which then transmits the data over its
network. The Company has entered into a nationwide resale agreement with
PageNet pursuant to which the Company can resell PageNet airtime anywhere in
the United States. Under this reseller agreement, the Company can access new
paging markets by installing the STAR*Net platform to receive incoming calls
and forward such calls to the PageNet network for broadcast. The Company is
also a party to a national reseller agreement with SkyTel pursuant to which
the Company can resell SkyTel's one-way and two-way nationwide paging
services.
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THE STAR*NET PLATFORM
Incoming calls to the Company's subscribers are received by either a
traditional switching platform or by the STAR*Net platform. Traditional
switching platforms, such as a Zetron platform, provide only for the delivery
of paging and voicemail messages. The STAR*Net platform allows the Company not
only to deliver paging and voicemail messages in the same manner as a
traditional platform, but also to relay incoming data to a variety of
distribution mechanisms, such as switched 1-800 service and, in the future,
the Internet. Further, the STAR*Net platform allows incoming calls to access
trunk lines from which a subscriber can place long-distance calls or
conference calls. The STAR*Net platform also combines with the Company's one
number capability to allow it to switch a subscriber from one service to
another or one network to another without issuing a new telephone number to
the subscriber. Accordingly, the Company can switch a subscriber between
paging networks with different coverage areas or between paging networks with
less paging traffic, which often results in more reliable and timely message
delivery, without changing the subscriber's access number.
The STAR*Net platform is a software-driven system that utilizes carrier
grade telephony platform hardware combined with the Company's proprietary
software. A STAR*Net platform is generally located in each of the Company's
markets, thereby providing access to the Company's multiple message
distribution networks. Customers in market areas where a separate STAR*Net
platform has not been installed may still obtain access to the broad range of
personal telecommunications services available through the STAR*Net platform
through 1-800 access numbers that connect into a STAR*Net platform. Because
the STAR*Net platform relies on readily available and relatively inexpensive
hardware components, the Company is able to enter new markets without the
substantial capital investment associated with traditional switching
equipment. Additionally, the Company believes that the flexible and scalable
architecture of the STAR*Net platform will allow it to be easily modified to
accommodate new services without replacing or materially modifying the
existing hardware. In addition to functioning as part of the Company's
network, the STAR*Net platform can be customized to meet the specific needs of
a subscriber, such as: (i) a school system that implements an automated system
through which students can access grades and teacher comments, register for
courses or be notified directly of their grades through an autodialed
telephone message; or (ii) a small business that needs an integrated voicemail
system but cannot afford the capital investment associated with a traditional
voicemail system.
The Company currently maintains switching facilities and STAR*Net platforms
in Atlanta, Albany, Augusta, Cordele, Macon, Savannah and Valdosta, Georgia;
Birmingham, Alabama; Baton Rouge and New Orleans, Louisiana; and Dallas,
Texas. The Company's network service operations are dependent upon its ability
to protect the equipment and data at its switching facilities against
potential damage that may be caused by fire, power loss, technical failures,
unauthorized intrusion, natural disasters, sabotage and other similar events.
The Company has therefore implemented monitored security systems, controlled
access, automated data backup procedures, uninterrupted power supply systems
and automated system trouble alerts.
SALES, MARKETING AND CUSTOMER SERVICE
Historically, the Company has relied on its direct sales force to obtain
paging and voicemail customers. The Company's sales and marketing strategy
incorporates a multi-channel distribution system that utilizes the following
distribution channels to access different market segments: (i) the Company's
direct sales staff that concentrates on business accounts; (ii) Company-
employed database telemarketing sales staff which uses computerized lead
management and professional telemarketing techniques to identify primarily
small businesses and professionals as potential subscribers; and (iii) Company
retail stores that are designed to sell higher ARPU products and services to
the consumer market. As of April 30, 1998, the Company employed 50 sales
representatives, including the Company's direct sales staff, telemarketing
professionals and sales representatives who call on retailers.
The Company's sales representatives are typically recent college graduates
who attend a weeklong training program administered by the Company's senior
marketing personnel. Sales representatives are compensated through salary plus
a commission generally based on the first month's recurring revenue generated
by each new subscriber. See "Risk Factors -- Dependence on Key Management and
Personnel."
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In connection with the development of the STAR*Net platform and rollout of
STAR*Net services, the Company has commenced an intensive program designed to
educate its sales representatives about STAR*Net services and to encourage
them to cross-market these services to existing paging and voicemail
subscribers. In the future, this program will be incorporated into the
Company's ongoing training program. The sales representatives will initially
focus on cross-marketing STAR*Net services to larger, multi-unit subscribers.
The Company also intends to hire additional outside sales representatives for
the Company's retail outlets to focus on marketing STAR*Net services to multi-
unit subscribers. At the same time, the Company intends to market STAR*Net
services to individual and small business subscribers through billing inserts
and telemarketing. Because sales representatives are compensated based on the
first month's recurring revenue generated by each subscriber, the Company
believes its sales representatives are encouraged to promote and cross-sell
STAR*Net services that generate higher monthly recurring revenue.
The Company maintains a customer service center in Roswell, Georgia. This
center employs 18 full-time customer service personnel who are available via a
toll-free call daily from 8:00 a.m. until midnight. Additionally, customer
service calls received between midnight and 8:00 a.m. are forwarded via paging
message to on-call customer service personnel, who return the service call
within 30 minutes of receipt of the paging message. Customer service personnel
are trained to educate and assist Satellink's subscribers in the use of the
Company's services and to resolve billing and technical issues. The Company's
customer service center can accommodate an additional eight full-time customer
service representatives.
SUBSCRIBERS
Satellink markets its services to large and small businesses and, to a
lesser extent, individuals who require advanced, high-volume personal
telecommunications services. Approximately 44% of the Company's paging
subscribers utilize regional or national paging services, compared to
approximately 33% of total paging subscribers in the United States that use
such services. The Company believes this reflects its focus on mobile
individuals who require the broad, uninterrupted coverage area provided by the
Company. These subscribers have traditionally included truck drivers and other
small business operators and employees, professionals, medical personnel,
sales and service providers, construction and trades people, and real estate
brokers and developers. Additionally, paging and voicemail service is
increasingly being adopted by individuals for private, nonbusiness uses such
as communicating with family members and friends. The Company also believes
that its focus on business and high-volume individual subscribers results in
increased revenues, reduced subscriber turnover and provides an attractive
base to which to market additional personal telecommunications services.
PAGERS
The majority of the Company's paging services are delivered through either:
(i) numeric display pagers, which permit a subscriber to receive a telephone
number or other numeric coded information and to store several such numeric
messages that the customer can recall when desired; or (ii) alphanumeric
display pagers, which allow the subscriber to receive and store text messages.
The Company utilizes pagers for traditional paging subscribers that are
manufactured by Motorola, NEC, Panasonic and other manufacturers. The Company
utilizes Infotelcom numeric pagers for FM paging subscribers. Certain
traditional pagers are among the smallest available and have time and date
stamping capability and average battery life of five weeks. Infotelcom pagers
are more expensive and approximately 50% larger than many traditional pagers
and have an average battery life of five weeks; however, these pagers do not
have time and date stamping capability.
The Company is seeking to address the limitations of the Infotelcom pager
through its participation in a joint venture which is developing a new FM
pager, the FM Concepts Pager, which is expected to be 25% smaller than the
Infotelcom pager and have similar capabilities to those of many popular
traditional pagers. The Company plans to introduce the FM Concepts Pager
during the first quarter of fiscal 1999 and believes the FM Concepts Pager can
be produced at approximately 75% of the cost of its current FM pager. These
cost savings can be passed on to new subscribers, thereby making FM paging a
more cost-effective alternative for new
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<PAGE>
subscribers. There can be no assurance that the Company's potential or
existing subscribers will accept the inherent limitations of the FM Concepts
Pager or that a third party will not develop a superior FM pager to which the
Company does not have access at competitive prices. Reduced acceptance of FM
pagers or increased competition from FM pager providers could have a material
adverse effect on the Company's business, financial condition and results of
operations. See "-- Proprietary Rights and Technology" and "Risk Factors --
Risks Associated with Joint Ventures."
The Company's business subscribers either lease or buy their pagers, and its
individual subscribers buy their pagers. Both business and individual
subscribers then subscribe for either local, regional, multi-regional or
nationwide service. Contracts with large unit volume subscribers are typically
for two to three year terms, while contracts with smaller volume subscribers
generally have one year terms with annual renewals. The volume discounts on
lease costs and service fees are typically offered to large unit volume
subscribers. Annual loss protection allows subscribers who lease pagers to
limit their costs of replacement upon loss or destruction of the pager.
Maintenance services are offered to subscribers who own their own pagers.
The Company purchases a variety of models of traditional pagers from
Motorola and certain other manufacturers and sells or leases these pagers to
its customers. Traditional pagers are capable of receiving a signal on a
single frequency and are capable of receiving alphanumeric messages. The cost
of different model pagers varies based on the model's messaging capability and
whether it is a traditional or FM radio pager. The Company and most of its
competitors sell pagers without a significant markup. The absence of a markup
inhibits the Company's ability to compete on the basis of price. Accordingly,
the cost at which the Company is able to obtain pagers directly relates to the
price at which the Company is able to sell pagers and generate recurring
revenues from providing services to the purchasers of such pagers.
PROPRIETARY RIGHTS AND TECHNOLOGY
In 1995, the Company began development of the STAR*Net platform in
anticipation of increased demand for a broad spectrum of personal
telecommunications services from a single provider. The STAR*Net platform
utilizes off-the-shelf servers, typically produced by Compaq Computer
Corporation or Hewlett-Packard Company, augmented by commercially available
add-ons such as telephony hardware produced by Dialogic Corporation. The
STAR*Net platform's proprietary software is written in "C" and was developed
by a team of Company and independent contractor programmers. See "-- The
STAR*Net Platform" and "Risk Factors -- Technological Change; Dependence on
New Services" and "-- Risk of Software Failures or Errors."
FM Concepts is a joint venture owned equally by the Company, certain
affiliates of C.R. and Cape Fear. FM Concepts was formed in 1995 for a 40-year
term to develop a new FM pager, the FM Concepts Pager. The Company does not
control FM Concepts, and there can be no assurance that FM Concepts will
utilize its resources in a manner consistent with the Company's strategies.
Additionally, FM Concepts can require each of the Company, C.R. and Cape Fear
to contribute up to an aggregate of $250,000 to the capital of FM Concepts,
and the Company cannot require FM Concepts to return any or all of its
contribution. Although the Company has contributed approximately $227,000 to
FM Concepts as of April 30, 1998, the FM Concepts Pager is at an experimental
stage, and there can be no assurance that it will ever reach the production
stage. There can be no assurance that, once produced, the FM Concepts Pager
will function in accordance with design specifications or that subscribers
will view it as an attractive alternative to traditional pagers or competing
FM pagers. FM Concepts intends to outsource the production of the FM Concepts
Pager to a third party manufacturer; however, there can be no assurance that
FM Concepts will successfully identify a suitable manufacturer or that any
manufacturer will be able to produce the FM Concepts Pager according to design
specifications and/or in a cost-effective manner. See "Risk Factors -- Risks
Associated with Joint Ventures."
The Company intends to use the FM Concepts Pager to reduce its dependence on
Infotelcom pagers produced under license by FM Concepts II, a joint venture
that was formed in 1996 and is owned equally by the Company and Cape Fear. FM
Concepts II is not controlled by the Company, and, therefore, there can be no
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assurance that FM Concepts II will utilize its resources in a manner
consistent with the Company's strategies. FM Concepts II can require each of
the Company and Cape Fear to contribute up to an aggregate of $250,000 to the
capital of FM Concepts II, and the Company cannot require FM Concepts II to
return any or all of its contributions. As of April 30, 1998, the Company had
contributed approximately $235,000 to FM Concepts II. FM Concepts II and CUE
have been licensed by Nokia to manufacture and distribute pagers using Nokia's
FM paging technology throughout North America. FM Concepts II has contracted
with Infotelcom, a French manufacturer, to produce FM pagers for distribution
in North America. The Company believes that its participation in the FM
Concepts II joint venture combined with the outsourcing of production of FM
pagers allows it to obtain FM pagers at a more favorable cost than if it
purchased such pagers directly from a third party manufacturer. See "Risk
Factors -- Risks Associated with Joint Ventures" and "-- Limitations of FM
Paging Technology."
The Company's ability to compete is dependent in part upon its proprietary
technology, particularly its newly-developed STAR*Net platform and FM Concepts
Pager. The Company relies primarily on a combination of intellectual property
laws and contractual provisions to protect its proprietary rights and
technology. These laws and contractual provisions provide only limited
protection of the Company's proprietary rights and technology. The Company's
proprietary rights and technology include confidential information and trade
secrets which the Company attempts to protect through confidentiality and
nondisclosure agreements. The Company typically attempts to protect its
confidential information and trade secrets through these contractual
provisions for the term of the applicable agreement and, to the extent
permitted by applicable law, for some negotiated period of time following
termination of the agreement, typically one to two years at a minimum.
Despite the Company's efforts to protect its proprietary rights and
technology through intellectual property laws and contractual provisions,
there can be no assurance that others will not be able to copy or otherwise
obtain and use the Company's proprietary technology without authorization, or
independently develop technologies that are similar or superior to the
Company's technology. However, the Company believes that, due to the rapid
pace of technological change in the information and telecommunications service
industry, factors such as the technological and creative skills of its
personnel, new product developments, frequent product enhancements and the
timeliness and quality of support services are more important to establishing
and maintaining a competitive advantage in the industry. See "Risk Factors --
Limited Protection of Proprietary Rights and Technology."
Many patents, copyrights and trademarks have been issued in the general
areas of information and personal telecommunications services. In the ordinary
course of its business third parties may claim that the Company's current or
future products or services infringe the patent, copyright or trademark rights
of such third parties. Although the Company believes that any such claims will
not adversely impact its business, there can be no assurance that such claims
will not be successful or that the existence or threat of such claims will not
have an adverse effect on the Company's business, financial condition and
results of operations.
TECHNICAL SUPPORT
Satellink's technical support and development personnel are responsible for
developing, testing and supporting proprietary software applications, as well
as creating and improving enhanced system features and services. The Company's
technical support and development strategy is to focus its efforts on
enhancing its proprietary software and integrating its software with readily
available software and hardware when feasible. Satellink continually develops
software and periodically introduces major and minor enhancements of its
software.
The Company's technical support and development personnel developed the
STAR*Net platform over a three-year period using off-the-shelf hardware and
proprietary software. These personnel continuously evaluate and develop new
applications for and additions to the STAR*Net platform in order to fulfill
the actual or anticipated needs of subscribers and to respond to technological
and marketplace developments. There can be no assurance, however, that the
Company's personnel will be able to successfully identify such needs or
developments or develop and implement new technologies or applications in
response thereto.
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As of April 30, 1998, Satellink had seven employees and four independent
contractors in technical support and development positions. In addition to
developing and monitoring the STAR*Net platform, this technical support and
development team continuously monitors and performs necessary improvements to
the Company's billing systems and messaging systems and network connections to
determine if software or hardware modifications are necessary. Satellink's
technical support and development personnel also engage in joint development
efforts with the Company's strategic partners and vendors, including, but not
limited to the development of the FM Concepts Pager.
COMPETITION
The Company believes that its focus on business and high-volume individual
subscribers distinguishes the Company from larger providers, many of whom
focus on selling their services to a larger number of lower-volume
subscribers. The Company believes it has identified a market niche in smaller
metropolitan markets throughout the Southeast and Southwest that it believes
are underserved by larger providers of personal telecommunications services.
However, the information and telecommunications services industry is intensely
competitive, rapidly evolving and subject to rapid technological change. The
Company expects competition to increase in the future. Many of the Company's
current and potential competitors have longer operating histories, greater
name recognition, larger customer bases and substantially greater financial,
personnel, marketing, engineering, technical and other resources than the
Company. Competition from these competitors could have a material adverse
effect on the Company's business, financial condition and results of
operations.
The Company attempts to differentiate itself from its competitors by
offering an integrated suite of telecommunications services. Other providers
currently offer each of the individual services and certain combinations of
the services offered by the Company. For example, Premiere Technologies offers
bundled telecommunications services which are similar to those offered by the
Company. Octel and Microsoft recently announced a service called "Unified
Messenger," which places all voicemail, e-mail and fax messages in a single
mailbox available by computer or telephone. The Company's nationwide mobile
communications services and features compete with services provided by
companies such as AT&T, MCI and Sprint as well as smaller interexchange long
distance providers. The Company's voicemail services compete with voicemail
services provided by AT&T, certain RBOCs and other service bureaus as well as
by equipment manufacturers, such as Octel, Nortel, Siemens, Centigram, Boston
Technology and Digital Sound. The Company's paging services compete primarily
with those offered by PageNet, the world's largest provider of paging
services, AirTouch, Arch, MobileComm, SkyTel, PageMart and Metrocall. The
Company expects that other parties will develop and implement information and
telecommunications service platforms similar to its platform, thereby
increasing competition for the Company's services.
In addition, on February 8, 1996, President Clinton signed into law the 1996
Act, which allows the RBOCs, as is the case with other LECs, to provide long
distance telephone service between LATAs and will likely significantly
increase competition for long distance services. The new legislation also
grants the FCC the authority to deregulate other aspects of the
telecommunications industry, which in the future may, if authorized by the
FCC, facilitate the offering of an integrated suite of information and
telecommunications services by the RBOCs in competition with the Company. Such
increased competition could have a material adverse effect on the Company's
business, financial condition and results of operations. See "-- Legislative
Matters."
Telecommunications companies compete for consumers primarily based on price,
with major long distance carriers and paging companies conducting extensive
advertising campaigns to capture market share. There can be no assurance that
a decrease in the rates charged for communications services by the major long
distance carriers, major paging companies or other competitors, whether caused
by general competitive pressures or the entry of the RBOCs and other LECs into
the bundled telecommunications market, would not have a material adverse
effect on the Company's business, financial condition and results of
operations. The Company expects that the information and telecommunications
services markets will continue to attract new competitors and new
technologies, possibly including alternative technologies that are more
sophisticated and cost effective than the Company's technology.
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LEGISLATIVE MATTERS
The 1996 Act was intended to increase competition in the long distance and
local telecommunications markets. The 1996 Act opens competition in the local
services market and, at the same time, contains provisions intended to protect
consumers and businesses from unfair competition by incumbent LECs, including
the RBOCs. The 1996 Act allows RBOCs to provide long distance service outside
of their local service territories but bars them from immediately offering in-
region inter-LATA long distance services until certain conditions are
satisfied. An RBOC must apply to the FCC to provide in-region inter-LATA long
distance services and must satisfy a set of pro-competitive criteria intended
to ensure that RBOCs open their own local markets to competition before the
FCC will approve such application. Further, while the FCC has final authority
to determine whether an RBOC application is granted, the FCC must consult with
the Department of Justice to determine if, among other things, the entry of
the RBOC would be in the public interest, and with the relevant state to
determine that the pro-competitive criteria have been satisfied. The Company
is unable to determine how the FCC will rule on any such applications.
The 1996 Act provides a framework for the Company and other long distance
carriers to compete with LECs by reselling local telephone service, by
interconnecting to LEC network facilities at various points in the network, or
by building new local service facilities. In the future, the Company may
decide to lease unbundled network elements, which could also be used as a
platform to provide access to the Company's services, or to build local
service facilities. The Company's decision to enter the local services market
is dependent on the economic viability of the options and on the regulatory
environment, which will likely vary by state.
GOVERNMENT REGULATION
The Company provides telecommunications services. Consequently, the Company
is subject to extensive federal and state regulation in the United States.
Various international authorities may also seek to regulate the services
provided by Satellink.
Tariffs and Detariffing. The Company is classified by the FCC as a non-
dominant carrier for its domestic interstate and international common carrier
telecommunications services. Common carriers that provide domestic interstate
and international telecommunications services must maintain tariffs on file
with the FCC describing rates, terms and conditions of service. While the
tariffs of non-dominant carriers, such as the Company, are subject to FCC
review, they are presumed to be lawful upon filing with the FCC. Currently,
the Company either has applied for and received, or is in the process of
applying for and receiving, all necessary authority from the FCC to provide
domestic interstate and international telecommunications services.
In October 1996, the FCC issued an order detariffing long distance services
which prohibited non-dominant long distance carriers from filing tariffs for
domestic, interstate, long distance services in the future. The FCC's
scheduled detariffing rules were to become effective September 22, 1997. The
detariffing rules were appealed by several parties, and in February 1997, the
U.S. Court of Appeals for the District of Columbia Circuit issued a temporary
stay preventing the rules from taking effect pending judicial review. The
Company is currently unable to predict what impact the outcome of the FCC's
detariffing proceeding will have on the Company.
Local Interconnection and Resale. In August 1996, the FCC adopted an order
(the "Interconnection Order") which established a minimum set of rules
relating to the manner in which all telecommunications carriers would be able
to interconnect with the LECs' networks. The Interconnection Order addressed
several important interconnection issues, including unbundled network element
purchase, resale discounts, and negotiation and arbitration procedures between
LECs and long distance carriers.
Several states, companies, associations and other entities appealed the
Interconnection Order. On July 18, 1997, the U.S. Court of Appeals for the
Eighth Circuit overturned many of the rules established by the FCC's
Interconnection Order governing, among other things, the pricing of
interconnection, resale and unbundled network elements. The Court's decision
substantially limits the FCC's jurisdiction and expands the state regulators'
jurisdiction to set and enforce rules governing the development of local
competition.
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The FCC and other parties have appealed the Court's ruling to the U.S.
Supreme Court, and the Supreme Court has agreed to hear the appeal. The case
is expected to be argued before the Supreme Court in the Fall of 1998, and the
Court is expected to issue a decision in the spring of 1999. The Company is
unable to predict what impact the Court's decision will have on its ability to
offer competitive local service, and no assurance can be given that the
Court's decision will not have a material adverse effect on the Company's
business, financial condition and results of operation.
Federal Regulation. The Company's paging operations are subject to
regulation by the FCC under the Communications Act. The FCC has granted the
Company licenses to use the radio frequencies necessary to conduct its paging
operations. Licenses issued by the FCC to the Company set forth the technical
parameters for each station, such as location, frequency, signal strength and
tower height under which the Company is authorized to operate.
License Grant and Renewal. The FCC licenses granted to the Company are for
varying terms of up to 10 years. At the end of such terms, license renewal
applications must be filed with and granted by the FCC. The Company holds
various FCC radio licenses which are used in connection with its paging
operations. The license expiration dates for these licenses are staggered,
with only a portion of the licenses expiring in any particular calendar year.
Licensees in the paging services industry normally enjoy a license "renewal
expectancy," unless it can be demonstrated by a competitor that the licensee
has not operated the station in conformance with the FCC's rules, or that the
licensee has not provided adequate service to the public. Such challenges have
been rare, and the vast majority of license renewal applications are granted
in the normal course. Although the Company is unaware of any circumstance
which could prevent the grant of its license renewal applications, no
assurance can be given that any of the Company's license renewal applications
will be free of competing applications or will be granted by the FCC.
Furthermore, the FCC has the authority to restrict the operations of licensed
radio facilities or, following a hearing pursuant to the Communications Act,
to revoke or involuntarily modify radio licenses. To date, none of the
Company's licenses have ever been revoked or modified involuntarily.
FCC Regulatory Developments. The FCC has enacted regulations regarding
auctions for the award of radio licenses. Pursuant to such rules, the FCC may,
at any time, require auctions for new or existing services prior to the award
of any license. Accordingly, there can be no assurance that the Company will
be able to procure additional frequencies, or expand existing paging networks
into new service areas.
In March 1994, the FCC adopted rules pursuant to which the FCC auctions
licenses for blocks of spectrum on a "market area basis." The winner of the
license is given the right to use a certain frequency or group of frequencies
throughout a defined geographic area (such as a BTA or MTA and can construct
and operate its transmitters throughout this market area without FCC licensing
of individual stations. In some cases, existing users of the designated
frequencies must be protected from interference or furnished with alternative
means of communications. The FCC has completed auctions to license various
radio services on a market area basis, including narrowband PCS or two-way
paging, broadband PCS, and the first phase of the 800 MHz trunked specialized
mobile radio auction, which concluded in December 1997. In these auctions,
successful bidders have made significant auction payments in order to obtain
spectrum.
With respect to its paging operations, the Company may chose to participate
in the market area licensing auctions for paging services. The first auction,
for the 900 MHz paging bands is tentatively scheduled for the third quarter of
calendar year 1998. The lower paging bands, e.g., the exclusive 150 and 450
MHz frequencies, are likely to be auctioned in 1999. The Company believes that
most bidders in the auctions will be larger carriers, with significant
resources to build out large regional systems. The FCC is currently not
proposing to auction the shared private carrier paging frequencies licensed
under its rules.
On February 8, 1996, the FCC announced a freeze on the acceptance of
applications for new or modified transmitter facilities in paging services.
This freeze was temporarily lifted to permit the filing of expansion
applications by incumbent paging carriers. With respect to applications to
expand paging systems licensed on
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exclusive paging frequencies, the FCC has indicated that it will not process
any expansion application filed after July 31, 1996; and that any pending
application which is mutually exclusive with another pending application, due
to the possibility of harmful electrical interference, will be dismissed.
However, with respect to shared paging channels, licensed under the FCC's
rules, e.g., 462.850 MHz, the FCC is permitting incumbent licensees to file
expansion applications without restriction. Thus, while the Company may be
licensed on a particular shared frequency at a particular site in Georgia, it
could expand its paging system throughout the southeastern United States, or
elsewhere. Such flexibility is not currently available to the Company for its
paging system licensed on exclusive frequencies under the FCC's rules.
Currently, the only method for expanding its paging system licensed under the
FCC's rules is through acquisition of existing stations, with FCC approval,
which the Company did during the first quarter of calendar year 1998.
The FCC has fully implemented its rules regarding the classification of the
services offered by paging carriers as either CMRS or PMRS providers.
Previously, paging licensees had been classified either as common carriers or
private carrier paging carriers. Pursuant to the FCC's rules, which aim to
reduce the disparities in the regulatory treatment of similar mobile services,
the Company's paging services are classified as CMRS, since the radio
facilities are interconnected to the public switched telephone network and
service is provided to the general public on a for-profit basis. The Company
believes that such parity will remove certain regulatory advantages which
private carriers, such as itself, enjoyed under the previous regulatory
scheme. Certain disparities still exist between the exclusive frequencies and
the shared frequencies licensed under the FCC's rules, which can affect the
Company's ability to respond to subscriber demands in a timely manner. In
particular, the Company generally cannot expand its exclusive paging channel
coverage except by acquisition of another carrier's station on the same
channel or by the winning bidder in the upcoming paging auctions. These
auctions will feature "overlay" licenses, with the winning bidder being
required to protect existing licensees within the designated service area. If
the Company is the successful bidder for its areas of interest, it will be
able to expand the coverage of its existing operations without further FCC
approval, within the licensed market areas. If instead, the Company is not the
successful bidder, then it will be unable to expand its existing coverage
unless it obtains the permission of the winning bidder. However, the winning
bidder would have to protect the Company's existing coverage areas from
interference.
Separate and distinct from the Company's paging facilities discussed above
is the Company's FM sub-carrier paging system. While the FCC requires
carriers, such as the Company, to file applications prior to initiating
service on leased subcarrier facilities of broadcast stations, such
applications are not barred by the FCC's freeze on applications for paging
channels. Thus, it would be possible for the Company to expand its FM
subcarrier paging system, should the need arise.
The 1996 Act may affect the Company's paging business. Some aspects of the
new statute could have a beneficial effect on the Company's paging business.
For example, proposed federal guidelines regarding antenna siting issues may
potentially remove local and state barriers to the construction of
communications facilities (although such restrictions are now being litigated
in the courts and debated in Congress), and efforts to increase competition in
the local exchange and interexchange industries may reduce the cost to the
Company of acquiring necessary communications services and facilities. On the
other hand, some provisions relating to common carrier interconnection, pay
phone rates, enhanced 911 (E-911), telephone number portability, equal access,
the assignment of new area codes, universal service fund and telephone relay
service fund contributions, resale requirements and auction authority may
place additional burdens upon the Company or subject the Company to increased
competition.
Paging carriers are indirectly affected by FAA regulations to the extent
that proposed antenna sites may require prior FAA approval. In those
circumstances where antenna structure clearance is required, the FCC will not
grant an application for new or modified facilities until such clearance is
obtained from the FAA. Under the FCC's rules, the tower owner is generally the
entity that is required to secure such approval.
The FCC has recently issued stricter guidelines with respect to radio
frequency ("RF") radiation hazards. Generally, most paging facilities will be
categorically exempt, provided the base station and antenna system meet
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<PAGE>
certain criteria governing power and antenna height. In those circumstances
where the base station does not meet the criteria for exemption, it may be
necessary for the Company to modify its facility or relocate to another
antenna structure. If an exclusive paging channel is involved, the Company's
choices for relocation will be limited to certain sites within its service
area, since the Company may not expand its composite interference contour.
With respect to the shared paging frequencies, the Company will be free to
relocate upon the receipt of FCC approval, which could take some time.
Universal Service Reform. On May 8, 1997, the FCC released an order
establishing a significantly expanded federal telecommunications subsidy
regime. For example, the FCC established new subsidies for schools and
libraries with an annual cap of $2.25 billion and for rural health care
providers with an annual cap of $400 million. Providers of interstate
telecommunications service, such as the Company, as well as certain other
entities, must make contributions to the federal programs. The Company's
contribution to schools, libraries, and rural health care funds will be based
on its gross end user revenues for intrastate, interstate, and international
telecommunications services. The Company's contribution to other federal
subsidy funds will be based upon its gross end user revenues for interstate
and international telecommunications services. Several parties have appealed
the May 8, 1997 Order, and those appeals have been consolidated in the U.S.
Court of Appeals for the Fifth Circuit. No assurance can be given that the
FCC's ultimate universal service contribution requirements will not have a
material adverse effect on the Company's business, financial condition and
results of operations.
Access Charge Reform. On May 16, 1997, the FCC released an Access Charge
Reform Order, which revised rules governing the interstate switched access
charge rate structure of price cap LECs. The new rules are intended to
eliminate implicit subsidies and to establish rate structures that better
reflect the manner in which costs are incurred. The new rules substantially
increase the costs that price cap LECs recover through monthly, non-traffic
sensitive access charges and substantially decrease the costs that price cap
LECs recover through traffic sensitive access charges. The manner in which the
FCC implements its approach to lowering access charge levels will have an
effect on the prices the Company pays for originating and terminating
interstate traffic. Portions of the Access Charge Reform Order have been
appealed. In light of the uncertainty regarding ultimate disposition of the
Access Charge Reform proceeding by the FCC and the courts, the Company is
unable to predict what impact the FCC's revised access charge scheme will have
on its access charge cost structure.
Payphone Compensation. In September 1996, the FCC issued an order adopting
rules to implement the 1996 Act's requirements establishing "a per call
compensation plan to ensure all payphone service providers are fairly
compensated for each and every completed call using their payphone." This
order included a specific fee to be paid to each payphone service provider by
long distance carriers and intra-LATA toll providers (including LECs) on all
"dial around" calls, including debit card and calling card calls. On July 1,
1997, the U.S. Court of Appeals for the D.C. Circuit overturned some of the
FCC rules for the implementation plan.
On October 7, 1997, the FCC issued a second order, revising the per-call,
compensation amount to be paid to payphone service providers. Specifically,
the FCC decreased the compensation amount to $0.284 per call. The Company
began paying this per-call amount on October 7, 1997. This compensation amount
will remain in effect until October 6, 1999, when a market-based rate will
become effective. Although the Company expects to incur additional costs to
receive "dial around" calls that originate from payphones, the FCC has
permitted long distance carriers, such as the Company, to pass such costs
through to their customers.
State Regulation. Most PUCs require carriers that wish to provide intrastate
common carrier services to be authorized to provide such services. The Company
either has applied for and received, or is in the process of applying for and
receiving, all necessary authorizations to provide intrastate long distance
services.
The Company is generally not subject to price regulation or to rate of
return regulation for its intrastate services. In most states, however, the
Company is required to file tariffs setting forth the terms, conditions and
prices for its intrastate services. In some state jurisdictions, the tariff
can list a rate range for intrastate services. The Company may be subject to
additional regulatory burdens in some states, such as compliance with quality
of service requirements or remittance of contributions to support state
sponsored universal service. The
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<PAGE>
Company's ability to incur long-term indebtedness is subject to prior PUC
approval in some state jurisdictions. In addition, some state PUCs regulate
the issuance of securities and the transfer of control of entities subject to
their jurisdiction. These state regulations may have attached to the Company's
recent acquisitions. Currently, the Company is reviewing whether and to what
extent additional regulatory compliance is required in this regard. See "Risk
Factors -- Regulation."
PROPERTIES
The Company's corporate headquarters occupy approximately 10,000 square feet
of office space in Roswell, Georgia under a lease expiring in November 2001.
The Company's main network switching center, along with its Atlanta sales
force, occupies approximately 7,000 square feet of office space in Roswell,
Georgia under a lease expiring in November 2001. The Company also occupies
office space for sales and network operation in Birmingham, Alabama; Albany,
Cordele and Valdosta, Georgia; Baton Rouge and New Orleans, Louisiana; and
Dallas, Texas. The Company believes that its current space is sufficient to
meet its present needs and does not anticipate any difficulty securing
additional space, as needed, on terms acceptable to the Company.
EMPLOYEES
At April 30, 1998, the Company had 175 employees, of whom 17 were technical
support personnel, 99 were sales and marketing personnel, seven were technical
support and development personnel and 52 were managerial and administrative
employees. Except for the Company's 401(k) Plan, the Company does not have any
collective bargaining, employment, pension or compensation arrangements with
any of its employees. The Company considers its relations with its employees
to be good. See "Management."
LEGAL PROCEEDINGS
The Company is not a party to any legal proceeding that it believes would
have a material adverse effect on its business, financial condition or results
of operations.
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MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
The directors and executive officers of the Company and their ages as of
April 30, 1998 are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Jerry W. Mayfield............. 51 Chairman of the Board, President and Chief
Executive Officer
David C. Massey............... 51 Senior Vice President -- Sales & Marketing
and Director
Robert P. Poche............... 42 Senior Vice President -- Systems &
Technology and Director
James O. Carpenter............ 48 Director
Marc A. Comeaux............... 43 Director
Robert D. Gage, IV............ 43 Director
Gordon E. Kaiser.............. 54 Director
Stiles A. Kellett, Jr. ....... 54 Director
Daniel D. Lensgraf............ 35 Senior Vice President -- Finance &
Administration, Chief Financial Officer
and Secretary
</TABLE>
Jerry W. Mayfield has been Chairman of the Board, President and Chief
Executive Officer of the Company since May 1994. Mr. Mayfield served as
Executive Vice President of the Company from the time of its formation in 1988
until May 1994 and has been a director of the Company since its formation.
From 1984 until 1986, Mr. Mayfield served as Chief Executive Officer of
Rainbow Chevron Corporation, an oilfield services company in Lafayette,
Louisiana, and from 1970 to 1984, Mr. Mayfield was a partner in the New
Orleans, Louisiana office of Arthur Andersen LLP. Mr. Mayfield is a Certified
Public Accountant.
David C. Massey has been Senior Vice President -- Sales & Marketing of the
Company since February 1993 and a director of the Company since December 1995.
Mr. Massey has primary responsibility for the Company's sales and marketing
programs, including the supervision of all sales representatives. Mr. Massey
is a Certified Public Accountant.
Robert P. Poche has been Senior Vice President -- Systems & Technology since
the Company's formation in 1988 and was elected a director of the Company in
1995. Mr. Poche has primary responsibility for the Company's technical support
and development programs and was instrumental in the development of the
STAR*Net platform. Mr. Poche is a licensed registered professional engineer.
James O. Carpenter has been a director of the Company since its formation in
1988. Since 1987, Mr. Carpenter has been the Managing Partner of Rock Lake
Planting Company, Inc., a Mississippi-based agriculture concern. Mr. Carpenter
is a Certified Public Accountant.
Marc A. Comeaux has been a director of the Company since its formation in
1988. Since January 1996, Mr. Comeaux has been President of Acadia Fine Foods,
Inc., a restaurant operator in Alpharetta, Georgia. From May 1994 through
December 1995, Mr. Comeaux was President of Teledata Solutions, Inc., a
consulting firm. Mr. Comeaux served as President and Chief Executive Officer
of the Company from 1988 until May 1994.
Robert D. Gage, IV has been a director of the Company since its formation in
1988. Mr. Gage has been President and Chief Executive Officer of the Port
Gibson Bank, Port Gibson, Mississippi for more than five years.
Gordon E. Kaiser has been a director of the Company since April 1990. Mr.
Kaiser has been President and Chief Executive Officer of CUE, an owner of a
nationwide FM paging network for more than five years. Mr. Kaiser is an
attorney and was formerly a partner in Gowling & Henderson, Toronto, Canada.
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<PAGE>
Stiles A. Kellett, Jr. has been a director of the Company since December
1995. Mr. Kellett has been Chairman of the Board of Directors of Kellett
Investment Corp. since 1995. From 1978 to 1995, Mr. Kellett served as Chairman
of the Board of Directors of Convalescent Services, Inc., a long-term health
care company in Atlanta, Georgia. Mr. Kellett also serves as a director of
WorldCom, Inc. and Mariner Health Group, Inc.
Daniel D. Lensgraf has been Senior Vice President -- Finance &
Administration, Chief Financial Officer and Secretary of the Company since
August 1995. From May 1992 until August 1995, Mr. Lensgraf was employed as a
Senior Associate in the Corporate Finance Group of Creditanstalt.
Directors of the Company are elected at the annual meeting of shareholders.
Executive officers of the Company are appointed at the first meeting of the
Board of Directors after each annual meeting of shareholders. Directors and
executive officers are elected to serve until they resign, are removed or
otherwise are disqualified to serve, or until their successors are elected and
qualified. The Company is not party to any employment agreements with its
executive officers.
BOARD OF DIRECTORS
The Company's Board of Directors (the "Board") is comprised of eight members
who, beginning with the Company's first annual meeting of shareholders
following the Offering, will be divided into three classes, which will be as
nearly equal in number as possible. The directors in each class will be
elected by the shareholders for a term of three years and until their
successors are elected and qualified. The term of office of one of the classes
of directors will expire each year, and a new class of directors will be
elected by the shareholders each year at the annual meeting of shareholders.
The composition of the three classes of directors will be determined by a vote
of the Company's shareholders at the first annual meeting of shareholders
following the Offering. See "Description of Capital Stock -- Certain
Provisions of the Articles, Bylaws and the Georgia Code."
Pursuant to a Stockholders Agreement (the "Stockholders Agreement") dated
August 1, 1988 by and between the Company and certain of its shareholders, the
shareholders party thereto have agreed to vote the Common Stock held by them
for the election of Messrs. Mayfield, Comeaux and the president of CUE
(currently Mr. Kaiser) to the Board of Directors. The shareholders party
thereto have also agreed to vote the Common Stock held by them for the
election of Messrs. Gage and Carpenter to the Board of Directors so long as
Messrs. Gage, Carpenter, Ira Carpenter, Jr. and Charles R. Carpenter own, in
the aggregate, at least 20% of the voting stock of the Company. Pursuant to
the Kellett Agreement (as defined in "-- Compensation Committee Interlocks and
Insider Participation" below), the Company agreed to cause its management to
nominate Mr. Kellett and use its best efforts to cause Mr. Kellett's election
to the Board of Directors. The Stockholders Agreement and the Kellett
Agreement will terminate on the Closing Date, and there will be no further
voting arrangements with respect to the election of directors.
COMPENSATION OF DIRECTORS
Prior to the completion of the Offering, each director who is not an
employee of the Company receives fees of $750 and $500 for each meeting of the
Board of Directors and each committee thereof, respectively, attended in
person. Following the completion of the Offering, the Board intends to begin
paying each director who is not an employee of the Company an annual fee of
$6,000 as well as fees of $1,000 and $500 for each meeting of the Board of
Directors and committee thereof, respectively, attended in person. Directors
are reimbursed for their out-of-pocket expenses incurred in connection with
their service on the Board of Directors. In addition, following the completion
of the Offering, directors may receive discretionary grants of options to
purchase shares of Common Stock pursuant to the Plan. See "-- Incentive Plan."
MEETINGS AND COMMITTEES
The Board of Directors conducts its business through meetings of the full
Board and through committees of the Board, including the Audit Committee (the
"Audit Committee") and the Compensation Committee (the "Compensation
Committee").
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The Audit Committee is responsible for reviewing with the Company's
independent accountants their audit plan, the scope and results of their audit
engagement and the accompanying management letter, if any, reviewing the scope
and results of the Company's internal auditing procedures, consulting with the
independent accountants and management with regard to the Company's accounting
methods and the adequacy of its internal accounting controls, approving
professional services provided by the independent accountants, reviewing the
independence of the independent accountants, and reviewing the range of the
independent accountants' audit and non-audit fees. The Audit Committee is
comprised of James O. Carpenter (Chairman), Marc A. Comeaux and Gordon E.
Kaiser, none of whom served as an officer or employee of the Company during
fiscal 1997.
The Compensation Committee is responsible for establishing the compensation
of executive officers and for administering and interpreting the Company's
Plan. The Compensation Committee consists of Stiles A. Kellett, Jr.
(Chairman), James O. Carpenter and Robert D. Gage, IV, none of whom served as
an officer or employee of the Company during fiscal 1997.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
On November 17, 1995, the Company issued and sold 2,000 shares of Series C
Preferred Stock to Mr. Kellett and an affiliate of Mr. Kellett for an
aggregate purchase price of $2.0 million. In connection with the sale of the
Series C Preferred Stock, the Company entered into a letter agreement with Mr.
Kellett (the "Kellett Agreement") pursuant to which the Company agreed to
cause its management to nominate Mr. Kellett to serve on the Board and to use
its best efforts to cause Mr. Kellett's election to the Board until the
earlier to occur of: (i) Mr. Kellett and his affiliates cease to own at least
50% of the 2,000 shares of Series C Preferred Stock acquired by him and his
affiliate (or shares of Common Stock issued upon the conversion thereof); or
(ii) the consummation of an initial public offering of Common Stock resulting
in proceeds to the Company of at least $10.0 million. The Kellett Agreement
will terminate according to its terms on the Closing Date. Pursuant to the
terms and conditions of the designation of the Series C Preferred Stock, on
the Closing Date each issued and outstanding share of Series C Preferred Stock
will be converted into 272.5725 shares of Common Stock without further action
on the part of the Company or the holders of the Series C Preferred Stock. It
is expected that Mr. Kellett will continue to serve as a director of the
Company at least until the first election of directors by the shareholders
following the Offering. See "Certain Transactions -- Series C Preferred Stock
Issuance."
On April 3, 1998, the Company issued and sold 1,500 shares of Series D
Preferred Stock to an affiliate of Mr. Kellett for $1.5 million. Pursuant to
the terms of the Series D Preferred Stock, all outstanding shares of Series D
Preferred Stock will be redeemed on the Closing Date through proceeds realized
from the Offering. See "Certain Transactions -- Series D Preferred Stock and
Related Warrant Issuance."
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<PAGE>
EXECUTIVE COMPENSATION
Summary Compensation
The following table summarizes the compensation paid by the Company for
services rendered for fiscal 1997 by the Company's Chief Executive Officer and
the Company's other executive officers whose total salary and bonus for fiscal
1997 exceeded $100,000 (collectively, the "Named Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
--------------------- --------------------
SECURITIES ALL OTHER
NAME AND FISCAL UNDERLYING COMPENSA-
PRINCIPAL POSITION YEAR SALARY BONUS(1) OPTIONS(#) TION(2)
------------------ ------ ---------- ---------- ---------- ---------
<S> <C> <C> <C> <C> <C>
Jerry W. Mayfield........... 1997 $172,000 $10,000 -- $3,445
Chairman of the Board,
President and Chief
Executive Officer
David C. Massey............. 1997 121,000 8,000 -- 2,425
Senior Vice President --
Sales & Marketing
Robert P. Poche............. 1997 121,000 8,000 -- 2,425
Senior Vice President --
Systems & Technology
Daniel D. Lensgraf.......... 1997 110,000 8,000 -- 1,100
Senior Vice President --
Finance & Administration,
Chief Financial Officer and
Secretary
</TABLE>
- --------
(1) Consists of a discretionary bonus paid to the Named Executive Officers
based on the Company's performance during fiscal 1997.
(2) Represents contributions by the Company under its 401(k) Profit Sharing
Plan on behalf of the Named Executive Officers.
Stock Option Grants
The Company did not grant any stock options or stock appreciation rights
during fiscal 1997.
Option Values as of July 31, 1997
The following table sets forth information concerning the stock options held
by each of the Named Executive Officers as of July 31, 1997. No options were
exercised, and no stock appreciation rights were exercised or outstanding,
during fiscal 1997.
FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS IN-THE-MONEY
AT JULY 31, 1997 OPTIONS AT JULY 31, 1997(1)
------------------------- ------------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ------------- ------------- --------------
<S> <C> <C> <C> <C>
Jerry W. Mayfield..... -- -- -- --
David C. Massey....... -- -- -- --
Robert P. Poche....... -- -- -- --
Daniel D. Lensgraf.... 28,167 56,332 $ 259,837 $ 519,652
</TABLE>
- --------
(1) There was no public trading market for the Common Stock at July 31, 1997.
Accordingly, these values have been calculated based on an assumed initial
public offering price of $11.00 per share, less the applicable exercise
price. See "Principal and Selling Shareholders."
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<PAGE>
INCENTIVE PLAN
The Plan was adopted by the Board of Directors of the Company on September
18, 1997 and was approved by the Company's shareholders on December 18, 1997.
The purpose of the Plan is to promote the success, and enhance the value, of
the Company by linking the personal interests of key employees, officers and
directors to those of the shareholders, and by providing such persons with an
incentive for outstanding performance. The Plan is further intended to provide
flexibility to the Company in its ability to motivate, attract and retain the
services of persons upon whose judgment, interest and special effort the
successful conduct of its operation largely is dependent. The Plan authorizes
the granting of awards to key employees, officers and directors of the Company
or its subsidiaries in the following forms: (i) options (both incentive stock
options and non-qualified stock options) to purchase shares of stock; (ii)
stock appreciation rights; (iii) performance shares; (iv) restricted stock;
and (v) other stock-based awards. The Plan authorizes the issuance of up to
1,000,000 shares of Common Stock, and options for the purchase of 153,422 of
such shares have been granted and are outstanding as of April 30, 1998.
401(K) PLAN
The Company sponsors a defined contribution plan (the "401(k) Plan") for
eligible employees of the Company under Section 401(k) of the Internal Revenue
Code of 1986, as amended. Participants may contribute up to 15% of their
annual salaries to the 401(k) Plan, subject to certain limitations. All
contributions made by an employee are fully vested and are not subject to
forfeiture. The Company may make discretionary matching contributions to the
401(k) Plan on behalf of all eligible employees. During fiscal 1997, the
Company made matching contributions equal to 40% of the eligible contribution
made by each employee to the 401(k) Plan.
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<PAGE>
CERTAIN TRANSACTIONS
NON-VOTING PREFERRED STOCK WARRANT ISSUANCE
In connection with the Credit Facility, the Company issued the Creditanstalt
Warrants for the purchase of 13,325 shares of Non-Voting Preferred Stock or
1,189,253 shares of Common Stock (the "Warrant Shares"), at the election of
Creditanstalt, at a weighted average price of $0.06 per share of Common Stock.
The Creditanstalt Warrants are exercisable from time to time on or before
December 3, 2005. The Creditanstalt Warrants provide that, subject to certain
conditions and exceptions, the holder of the Creditanstalt Warrants (the
"Warrant Holder") may not exercise Creditanstalt Warrants to purchase shares
of Common Stock if the purchase of such shares, when aggregated with shares of
Common Stock previously issued pursuant to the Creditanstalt Warrants or
issued upon conversion of Non-Voting Preferred Stock issued pursuant to the
Creditanstalt Warrants, would exceed 4.99% of the aggregate number of shares
of Common Stock outstanding as of the time of the exercise of the
Creditanstalt Warrants. The Creditanstalt Warrants further provide that in no
event shall any Creditanstalt Warrants be exercisable for shares of Common
Stock or Non-Voting Preferred Stock which, when aggregated with all other
shares of Common Stock and Non-Voting Preferred Stock then held by
Creditanstalt or its affiliates, would, upon issuance, represent in excess of
24.99% of the total shareholders' equity of the Company, including all series
of Preferred Stock, determined in accordance with GAAP. The Creditanstalt
Warrants provide the Warrant Holder with certain rights with respect to the
registration of the Creditanstalt Warrants and the Warrant Shares under the
Securities Act, subject to certain terms and conditions. See "Description of
Capital Stock -- Preferred Stock" and "Shares Eligible for Future Sale --
Registration Rights."
SERIES C PREFERRED STOCK ISSUANCE
On November 17, 1995, the Company issued and sold 1,000 shares of Series C
Preferred Stock to Creditanstalt, an aggregate of 2,000 shares to Stiles A.
Kellett, Jr. and an affiliate of Mr. Kellett and 500 shares to an unaffiliated
accredited investor (the "Series C Investors") for aggregate cash
consideration of $3.5 million (the "Series C Issuance"). See "Management --
Compensation Committee Interlocks and Insider Participation." Pursuant to the
terms and conditions of the Series C Preferred Stock, on the Closing Date each
issued and outstanding share of Series C Preferred Stock will be converted
into 272.5725 shares of Common Stock without further action on the part of the
Company or the Series C Investors. The terms of the Series C Preferred Stock
provide the Series C Investors with certain rights with respect to the
registration under the Securities Act of the Series C Preferred Stock or the
Common Stock issuable upon conversion of the Series C Preferred Stock, subject
to certain terms and conditions. See "Shares Eligible for Future Sale --
Registration Rights."
SERIES D PREFERRED STOCK AND RELATED WARRANT ISSUANCE
On April 3, 1998, the Company issued and sold an aggregate of 4,500 shares
of Series D Preferred Stock for $1,000 per share. Of such shares, 1,000 were
issued to Creditanstalt, 1,500 were issued to an affiliate of Mr. Kellett, 300
were issued to Mr. Carpenter, 200 were issued to Mr. Gage, 100 were issued to
each of CUE and Mr. Poche and 500 were issued to an affiliate of Messrs.
Mayfield, Massey and Lensgraf. Pursuant to the terms of the Series D Preferred
Stock, all outstanding shares of Series D Preferred Stock will be redeemed on
the Closing Date through proceeds realized from the Offering. The issuance and
sale of the Series D Preferred Stock to directors and executive officers of
the Company was approved by the shareholders of the Company. See "Use of
Proceeds."
In connection with the Series D Issuance, the Company issued warrants to
purchase an aggregate of 163,800 shares of Common Stock (or, with respect to
Creditanstalt and at the election of Creditanstalt, 430.769 shares of Non-
Voting Preferred Stock) at a price of $4.62 per share (the "Series D
Warrants"). In the event the Company does not redeem the Series D Preferred
Stock by June 30, 1998, December 31, 1998, December 31, 1999 and December 31,
2000, the aggregate number of shares of Common Stock subject to the Series D
Warrants increases to 245,700, 327,600, 409,500 and 491,400, respectively (or,
with respect to Creditanstalt, 646.1535, 861.5379,
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<PAGE>
1,076.9225 and 1,292.3070 shares Non-Voting Preferred Stock, respectively).
The Series D Warrants are exercisable at any time or from time to time on or
prior to April 3, 2008. The Series D Warrants provide that, subject to certain
conditions and exceptions, the holder of the Series D Warrants (the "Series D
Warrant Holder") may not exercise Series D Warrants to purchase shares of
Common Stock if the purchase of such shares, when aggregated with shares of
Common Stock previously issued pursuant to the Series D Warrants or issued
upon conversion of Non-Voting Preferred Stock issued pursuant to the Series D
Warrants, would exceed 4.99% of the aggregate number of shares of Common Stock
outstanding as of the time of the exercise of the Series D Warrants. The
Series D Warrants further provide that in no event shall any Series D Warrant
be exercisable for shares of Common Stock or Non-Voting Preferred Stock which,
when aggregated with all other shares of Common Stock and Non-Voting Preferred
Stock then held by Creditanstalt or its affiliates, would, upon issuance,
represent in excess of 24.99% of the total shareholders' equity of the
Company, including all series of Preferred Stock, determined in accordance
with GAAP. The terms of the Series D Warrants provide the Series D Warrant
Holders with certain rights with respect to the registration under the
Securities Act of the shares issuable upon exercise of the Series D Warrants,
subject to certain terms and conditions. See "Shares Eligible For Future Sale
- -- Registration Rights."
OTHER TRANSACTIONS
Since 1988, the Company has maintained an ongoing relationship with CUE
pursuant to which the Company's FM subcarrier paging network is linked with
the CUE nationwide FM paging network. In April 1988, the Company issued and
sold 403,374 shares of Common Stock to CUE at a price of $0.74 per share of
Common Stock. In April 1991, the Company issued and sold 950 shares of Series
A Preferred Stock, which are convertible into 80,275 shares of Common Stock,
to CUE at a price of $1.18 per share of Common Stock. Additionally, since
April 1990, Mr. Gordon E. Kaiser, President and Chief Executive Officer of
CUE, has served as a director of the Company. As of April 30, 1998, CUE owned
approximately 8.4% of the outstanding Common Stock of the Company on a fully
diluted basis. CUE from time to time provides the Company with various paging
services, consisting principally of airtime and network services for the
purpose of providing regional and nationwide paging. The amounts paid by the
Company to CUE for such services during fiscal 1995, 1996 and 1997 and for the
nine months ended April 30, 1998 were $1.7 million, $2.5 million, $4.2 million
and $3.2 million, respectively. The Company will periodically have outstanding
affiliated receivables and payables related to the timing of payments for such
services.
Creditanstalt is a lender and agent for the lenders under the Company's
$40.0 million Credit Facility. As of May 19, 1998, total indebtedness under
the Credit Facility was $37.5 million. The amounts paid by the Company to
Creditanstalt, as agent for the lenders, under the Credit Facility for fiscal
1995, 1996 and 1997 and for the nine months ended April 30, 1998 were
$700,000, $1.0 million, $1.6 million and $1.1 million, respectively. The
Company intends to use $21.8 million of the net proceeds to repay outstanding
indebtedness under the Credit Facility. See "Use of Proceeds."
The Company believes that none of the transactions described above were on
terms more favorable to officers, directors and principal shareholders than
could have been obtained in a transaction with an unaffiliated party. The
Company requires all material transactions between the Company and its
officers, directors or other affiliates to: (i) be approved by a majority of
the disinterested members of the Board of Directors of the Company and (ii) be
on terms no less favorable to the Company than could be obtained from
unaffiliated third parties.
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PRINCIPAL AND SELLING SHAREHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of the Common Stock as of April 30, 1998, and as adjusted to reflect
the sale of the Common Stock offered hereby, by: (i) each director of the
Company who beneficially owns Common Stock; (ii) each Named Executive Officer
of the Company; (iii) all directors and executive officers of the Company as a
group; (iv) each person known to the Company to beneficially own more than 5%
of the Common Stock; and (v) each of the Selling Shareholders. Unless
otherwise indicated, all shares of Common Stock are owned directly and the
indicated person has sole voting and investment power. All share amounts
assume the automatic conversion of all issued and outstanding shares of Series
A Preferred Stock and Series C Preferred Stock into shares of Common Stock on
the Closing Date and the redemption of all issued and outstanding shares of
Series D Preferred Stock on the Closing Date.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED OWNED AFTER
PRIOR TO OFFERING(1) NUMBER OF OFFERING
----------------------- SHARES -----------------------
NAME NUMBER PERCENT OFFERED NUMBER PERCENT
---- ------------ ------------------- ------------ ----------
<S> <C> <C> <C> <C> <C>
Creditanstalt American Corporation(2)........... 1,498,225 25.4 339,824 1,158,401 14.0
Jerry W. Mayfield(3)............................ 590,996 12.7 -- 590,996 8.0
Kellett Partners, L.P. and Stiles A.
Kellett, Jr.(4)................................ 575,293 12.3 -- 575,293 7.7
David C. Massey(5).............................. 542,446 11.7 -- 542,446 7.3
CUE Paging Corporation and Gordon E.
Kaiser(6)...................................... 502,709 10.8 -- 502,709 6.8
Robert D. Gage, IV(7)........................... 481,965 10.4 -- 481,965 6.5
James O. Carpenter(8)........................... 444,179 9.6 -- 444,179 6.0
Marc A. Comeaux(9).............................. 322,954 7.0 40,000 236,521 3.8
Robert P. Poche(10)............................. 152,537 3.3 15,000 137,537 1.9
Daniel D. Lensgraf(11).......................... 72,973 1.6 -- 72,973 1.0
Dr. David Autin................................. 60,963 1.3 50,000 10,963 *
Dr. E. Paul Breaux.............................. 100,893 2.2 100,893 -- --
Campbell Investment Group....................... 171,332 3.7 142,100 29,232 *
Ira J. Carpenter, Jr............................ 87,358 1.9 39,000 48,358 *
Audrey B. Menard(12)............................ 88,683 1.9 88,683 -- --
Mary E. Menard.................................. 84,500 1.8 84,500 -- --
All directors and executive officers as a group
(9 persons).................................... 3,686,050 60.0 101,433 3,584,619 47.9
</TABLE>
- --------
* Less than 1%.
(1) For purposes of this table, a person or group of persons is deemed to have
"beneficial ownership" of any shares that such person or group has the
right to acquire within 60 days after April 30, 1998 with respect to which
such person has or shares voting or investment power. For purposes of
computing the percentages of outstanding shares held by each person or
group of persons, shares which such person or group has the right to
acquire within 60 days after such date are deemed to be outstanding for
purposes of computing the percentage for such person or group but are not
deemed to be outstanding for the purpose of computing the percentage of
any other person or group. See "Use of Proceeds."
(2) Includes 1,189,253 shares of Common Stock issuable upon exercise of the
Creditanstalt Warrants and 36,400 shares of Common Stock issuable upon
exercise of the Series D Warrants. The address of Creditanstalt is 245
Park Avenue, New York, New York 10167.
(3) Includes 7,280 shares of Common Stock issuable upon exercise of the Series
D Warrants. Mr. Mayfield's address is 1325 Northmeadow Parkway, Suite 120,
Roswell, Georgia 30075.
(4) Includes 520,692 shares of Common Stock held by Kellett Partners, L.P., of
which Mr. Kellett is the General Partner, and 54,600 shares of Common
Stock issuable upon exercise of the Series D Warrants. The address of
Kellett Partners, L.P. and Mr. Kellett is 200 Galleria Parkway, Suite
1800, Atlanta, Georgia 30395.
(5) Includes 32,390 shares of Common Stock held in trust for Mr. Massey's
children and as to which Mr. Massey disclaims beneficial ownership and
7,280 shares of Common Stock issuable upon exercise of the Series D
Warrants. Mr. Massey's address is 1325 Northmeadow Parkway, Suite 120,
Roswell, Georgia 30076.
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<PAGE>
(6) Includes 499,068 shares of Common Stock held by CUE Paging Corporation,
of which Mr. Kaiser is the President and Chief Executive Officer, and
3,640 shares of Common Stock issuable upon exercise of the Series D
Warrants. The address of CUE Paging Corporation is 5 Corporate Park,
Suite 100, Irvine, California 92609.
(7) Includes 238,412 shares of Common Stock held by Gage Partners, of which
Mr. Gage is the General Partner, and 7,280 shares of Common Stock
issuable upon exercise of the Series D Warrants. Mr. Gage's address is
Post Office Box 608, Port Gibson, Mississippi 39150.
(8) Includes 10,920 shares of Common Stock issuable upon exercise of the
Series D Warrants. Mr. Carpenter's address is Post Office Box 608, Port
Gibson, Mississippi 39150.
(9) Includes 46,433 shares of Common Stock held on behalf of Mr. Comeaux's
mother-in-law, Audrey E. Menard, and as to which Mr. Comeaux disclaims
beneficial ownership. Mr. Comeaux's address is 3640 Schooner Ridge Drive,
Alpharetta, Georgia 30202.
(10) Includes 3,640 shares of Common Stock issuable upon exercise of the
Series D Warrants.
(11) Includes 3,640 shares of Common Stock issuable upon exercise of the
Series D Warrants. Additionally, Mr. Lensgraf holds unvested options to
purchase 28,167 shares of Common Stock, which options will vest on the
Closing Date; such shares are included in the shares shown as
beneficially owned after the Offering but are not included in the shares
shown as beneficially owned prior to the Offering.
(12) Includes 46,433 shares of Common Stock held on Ms. Menard's behalf by her
son-in-law, Marc A. Comeaux, all of which shares will be sold in the
Offering.
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<PAGE>
DESCRIPTION OF CAPITAL STOCK
The Company's capital stock currently is divided into two classes of Common
Stock, designated Class A Common Stock, par value $0.01, and Class B Common
Stock, par value $0.01, and four series of Preferred Stock, designated Series
A Convertible Preferred Stock, par value $0.01, Series B Convertible Preferred
Stock, par value $0.01, Series C Convertible Preferred Stock, par value $0.01,
and Series D Convertible Preferred Stock, par value $0.01. On the Closing
Date, the Class A Common Stock will be redesignated as Common Stock, par value
$0.01, and the Series B Preferred Stock will be redesignated as Non-Voting
Preferred Stock, par value $0.01. In addition, the Class B Common Stock will
be eliminated, each outstanding share of Series A Preferred Stock will be
converted into 84 shares of Common Stock, each outstanding share of Series C
Preferred Stock will be converted into 272.5725 shares of Common Stock and
each outstanding share of Series D Preferred Stock will be redeemed using a
portion of the net proceeds from the Offering. Accordingly, no information
regarding the terms of the Class B Common Stock, Series A Preferred Stock, the
Series C Preferred Stock or the Series D Preferred Stock is provided below.
See "Capitalization."
As of the completion of the Offering, the authorized capital stock of the
Company will consist of 50,000,000 shares of Common Stock and 10,030,000
shares of Preferred Stock. Of the 10,030,000 shares of Preferred Stock, 30,000
shares have been designated by the Board of Directors as Non-Voting Preferred
Stock.
The following summary is subject to and qualified in its entirety by the
provisions of the Company's Articles and Bylaws (the "Bylaws") and by the
provisions of applicable law.
COMMON STOCK
Holders of Common Stock are entitled to one vote per share on all matters on
which the holders of Common Stock are entitled to vote. Holders of Common
Stock have no preemptive, conversion, redemption or sinking fund rights. In
the event of a liquidation, dissolution or winding up of the Company, holders
of Common Stock are entitled to share ratably in the assets of the Company, if
any, remaining after the payment of all debts and liabilities of the Company
and the liquidation preference of any outstanding class or series of Preferred
Stock. The outstanding shares of Common Stock are, and the shares of Common
Stock offered by the Company hereby when issued will be, fully paid and
nonassessable. The rights, preferences and privileges of holders of Common
Stock are subject to the Non-Voting Preferred Stock and any series of
Preferred Stock which the Company may issue in the future as described below.
PREFERRED STOCK
The Board of Directors has the authority, pursuant to the Articles, to issue
the Preferred Stock in one or more series and to fix the price, rights,
preferences, privileges and restrictions thereof, including dividend rights,
dividend rates, conversion rights, voting rights, terms of redemption,
redemption prices, liquidation preferences and the number of shares
constituting any series or the designation of such series without further vote
or action by the shareholders. The issuance of Preferred Stock by the Board of
Directors could adversely affect the rights of holders of Common Stock.
The issuance of Preferred Stock may have the effect of delaying, deferring
or preventing a change in control of the Company without further action by the
shareholders and may adversely affect the voting and other rights of the
holders of Common Stock. Other than the Creditanstalt Warrants, there are
currently no agreements or understandings regarding the issuance of Preferred
Stock which agreements or understandings will survive the consummation of the
Offering, and the Board of Directors has no present intention of issuing any
shares of Preferred Stock except for shares of Non-Voting Preferred Stock that
may be issued upon exercise of the Creditanstalt Warrants.
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<PAGE>
The Board of Directors has designated the Non-Voting Preferred Stock solely
for the purpose of fulfilling the Company's obligations under the
Creditanstalt Warrants. The designation of the Non-Voting Preferred Stock does
not restrict the Company from issuing additional securities of any kind,
including shares of Preferred Stock of any class, series or designation,
provided, that issuances of Non-Voting Preferred Stock shall be limited to
issuance upon exercise of the Creditanstalt Warrants. Dividends and other
distributions, payable in cash or other property, shall be paid on the Non-
Voting Preferred Stock equally, ratably and on a parity with such dividends
and other distributions paid on the Common Stock, as when and such dividends
and other distributions are declared by the Board of Directors, as though the
Common Stock and Non-Voting Preferred Stock were one and the same class.
Holders of Non-Voting Preferred Stock are not entitled to vote or give consent
to or on any matter submitted to the Company's shareholders except as
specifically provided by the Georgia Code. Upon liquidation of the Company,
the Non-Voting Preferred Stock is entitled to a preference of $0.01 per share
prior to any payment on the Common Stock or any class or series of stock
ranking junior to the Non-Voting Preferred Stock. Each share of Non-Voting
Preferred Stock is convertible into 84.5 shares of Common Stock. See "Certain
Transactions -- Non-Voting Preferred Stock Warrant Issuance."
CERTAIN PROVISIONS OF THE ARTICLES, BYLAWS AND THE GEORGIA CODE
The Company's Articles and Bylaws as of the Closing Date will contain, and
the Georgia Code currently contains, certain provisions, described below, that
could delay, defer or prevent a change in control of the Company that a
shareholder may deem to be in such shareholder's best interest.
Number, Term and Removal of Directors. The Company's Articles and Bylaws
will provide that the Company's Board of Directors shall be comprised of three
to 11 members, as determined from time to time by resolution of the Board of
Directors. At the first annual meeting of shareholders held after completion
of the Offering, the Board of Directors will be divided into three classes of
approximately equal numbers of directors. Each class of directors will serve
for a term of three years, and the shareholders will elect one new class of
directors each year. Any director may be removed from office but only for
cause and only by the affirmative vote of the holders of at least 75% of all
classes of stock entitled to vote in the election of directors. Any vacancies
on the Board of Directors for any reason, including vacancies resulting from
an increase in the number of directors, may be filed only by the Board of
Directors, acting by the affirmative vote of two-thirds of the total number of
directors then remaining in office. Any director appointed to fill a vacancy
shall be elected for the unexpired term of the predecessor in office and until
the successor is elected and qualified, except that when a directorship is to
be filled by reason of an increase in the number of directors, the term of
such director shall expire at the next election of directors by the
shareholders and upon the election and qualification of the successor.
Call of and Notices Relating to Shareholder Meetings; Actions by Written
Consent of Shareholders. The Company's Bylaws will provide as of the Closing
Date that special meetings of shareholders or special meetings in lieu of
annual meetings of shareholders may be called at any time by the Board of
Directors, the Chairman of the Board or the President, or any holder or
holders of 25% or more of the votes entitled to be cast on the issue or issues
to be considered at the proposed special meeting. Meetings of the shareholders
are to be held at such time and place and on such date as specified in the
notice of the meeting. Notice of annual or special shareholders' meetings
shall be given not less than 10 nor more than 60 days before the date of the
meeting, and notice of any special meeting of shareholders shall state the
purpose or purposes for which the meeting is called. Actions required to be
taken at a shareholders' meeting may be taken without a meeting if the action
is taken by persons who would be entitled to vote at a meeting shares having
voting power to cast not less than the minimum number (or numbers, in the case
of voting by groups) of votes that would be necessary to authorize or take
such action at a meeting at which all shareholders entitled to vote were
present and voted. The action must be evidenced by one or more written
consents describing the action taken, signed by the shareholders entitled to
take action without a meeting and delivered to the Company for inclusion in
the minutes or filing with the corporate records.
Georgia Business Combination Statute. Pursuant to the Bylaws, as of the
Closing Date, the Company will be subject to the provisions of the Georgia
Code prohibiting various "business combinations" involving
61
<PAGE>
"interested shareholders" for a period of five years after the shareholder
becomes an interested shareholder of the Company. Such provisions prohibit any
business combination with an interested shareholder unless either (i) prior to
such time, the Board of Directors approves either the business combination or
the transaction by which such shareholder became an interested shareholder,
(ii) in the transaction that resulted in the shareholder becoming an
interested shareholder, the interested shareholder became the beneficial owner
of at least 90% of the outstanding voting stock of the Company which was not
held by directors, officers, affiliates thereof, subsidiaries or certain
employee stock option plans of the Company, or (iii) subsequent to becoming an
interested shareholder, such shareholder acquired additional shares resulting
in such shareholder owning at least 90% of the outstanding voting stock of the
Company and the business combination is approved by a majority of the
disinterested shareholders' shares not held by directors, officers, affiliates
thereof, subsidiaries or certain employee stock options plans of the Company.
Under the relevant provisions of the Georgia Code, a "business combination" is
defined to include, among other things, (i) any merger, consolidation, share
exchange or any sale, transfer or other disposition (or series of related
sales or transfers) of assets of the Company having an aggregate book value of
10% or more of the Company's net assets (measured as of the end of the most
recent fiscal quarter), with an interested shareholder of the Company or any
other corporation which is or, after giving effect to such business
combination, becomes an affiliate of any such interested shareholder, (ii) the
liquidation or dissolution of the Company, (iii) the receipt by an interested
shareholder of any benefit from any loan, advance, guarantee, pledge, tax
credit or other financial benefit from the Company, other than in the ordinary
course of business and (iv) certain other transactions involving the issuance
or reclassification of securities of the Company which produce the result that
5% or more of the total equity shares of the Company, or of any class or
series thereof, is owned by an interested shareholder. An "interested
shareholder" is defined by the Georgia Code to include any person or entity
that, together with its affiliates, beneficially owns or has the right to own
10% or more of the outstanding voting shares of the Company, or any person
that is an affiliate of the Company and has, at any time within the preceding
two-year period, been the beneficial owner of 10% or more of the outstanding
voting shares of the Company. The restrictions on business combinations shall
not apply to any person who was an interested shareholder before the adoption
of the Bylaw which made the provisions applicable to the Company nor to any
persons who subsequently become interested shareholders inadvertently,
subsequently divest sufficient shares so that the shareholder ceases to be an
interested shareholder and would not, at any time within the five-year period
immediately before a business combination involving the shareholder, have been
an interested shareholder but for the inadvertent acquisition.
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<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Prior to the Offering, there has been no public market for the Common Stock.
Sales of substantial amounts of shares of the Common Stock in the public
market following the Offering, or the perception that such sales could occur,
could adversely affect the market price of the Common Stock prevailing from
time to time and could impair the Company's ability to raise capital in the
future through sales of its equity securities at a time and price which it
deems appropriate.
On the Closing Date, assuming no exercise of outstanding options or
warrants, the Company will have 7,380,297 shares of Common Stock outstanding.
The 3,650,000 shares of Common Stock sold in the Offering will be freely
tradeable without restriction or further registration under the Securities
Act, except that any shares purchased by "affiliates" of the Company, as that
term is defined in Rule 144 of the Commission ("Affiliates"), may generally
only be sold in compliance with Rule 144. The remaining 3,730,297 shares of
Common Stock are "restricted securities" as defined in Rule 144. Restricted
securities may be sold in the public market only if they are registered under
the Securities Act or if they qualify for an exemption from registration such
as that provided by Rule 144 of the Commission.
SALES OF RESTRICTED SECURITIES
On the Closing Date, subject to the provisions of Rule 144, 209,865 shares
of Common Stock will be eligible for immediate sale in the public market
pursuant to Rule 144(k). Beginning 180 days after the date of this Prospectus
(or earlier with the written consent of J.C. Bradford & Co.) 3,520,432
additional shares will be available for immediate sale in the public market,
subject to the provisions of Rule 144, upon the expiration of the Lock-Up
Agreements between the Underwriters and the directors, executive officers,
Selling Shareholders and each holder of more than 5% of the Company's Common
Stock. See "--Lock-Up Agreements."
In general, under Rule 144 as currently in effect, beginning 90 days after
the date of this Prospectus, a person (or persons whose shares are aggregated)
who has beneficially owned restricted securities for at least one year,
including a person who may be deemed an Affiliate of the Company, is entitled
to sell, within any three-month period, a number of shares of Common Stock
equal to the greater of 1% of the outstanding Common Stock (approximately
73,803 shares after giving effect to the Offering) and the average weekly
reported trading volume of the Common Stock during the four calendar weeks
preceding such sale. Sales under Rule 144 are subject to certain restrictions
relating to manner of sale, notice and availability of current public
information about the Company. In addition, under Rule 144(k), a person who is
not an Affiliate and has not been an Affiliate at any time during the 90 days
preceding a sale, and who has beneficially owned shares for at least two
years, would be entitled to sell such shares immediately following the
Offering without regard to the volume limitations, manner of sale provisions
or notice or other requirements of Rule 144.
OPTIONS
As of May 19, 1998, options and warrants to purchase an aggregate of
1,702,818 shares of Common Stock were outstanding and, assuming the exercise
by Creditanstalt of Creditanstalt Warrants to purchase 339,824 shares of
Common Stock to be sold by Creditanstalt in the Offering, as of the Closing
Date, option, and warrants to purchase an aggregate of 1,362,994 shares of
Common Stock will be outstanding. Of such shares of Common Stock, 350,718 will
be eligible for sale beginning 90 days after the date of this Prospectus,
subject to the provisions of Rule 144 and Rule 701 of the Securities and
Exchange Commission (the "Commission"). An additional 1,012,276 shares of
Common Stock that are subject to currently outstanding options and warrants
will become eligible for sale upon the expiration of the Lock-Up Agreements
beginning 180 days after the date of this Prospectus, subject to the
provisions of Rule 144 .
The Company intends to file a Registration Statement on Form S-8 as soon as
practicable after the completion of the Offering to register 1,000,000 shares
of Common Stock, of which 153,422 shares are subject to outstanding but
unvested options, that are available for issuance pursuant to the Plan. All of
such registered shares also generally would then be eligible for immediate
sale in the public market, subject to Lock-Up Agreements, if applicable, and
compliance with certain provisions of Rule 144 by Affiliates.
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<PAGE>
LOCK-UP AGREEMENTS
The directors, executive officers, Selling Shareholders and each holder of
more than 5% of the Company's Common Stock have agreed with the Underwriters,
pursuant to the Lock-Up Agreements, not to directly or indirectly, without the
prior written consent of J.C. Bradford & Co., (i) offer, pledge, sell,
contract to sell, sell any option or contract to purchase, purchase any option
or contract to sell, grant any option, right or warrant to purchase, or
otherwise transfer or dispose of, directly or indirectly, any shares of Common
Stock or any securities convertible into or exercisable or exchangeable for
Common Stock (including, without limitation, shares of Common Stock or
securities convertible into or exercisable or exchangeable for Common Stock
which may be deemed beneficially owned by them), or (ii) enter into any swap
or other arrangement that transfers all or a portion of the economic
consequences associated with the ownership of any Common Stock for a period of
180 days after the date of this Prospectus. Notwithstanding the foregoing, the
Lock-Up Agreements permit, during the 180-day lock-up period, (i) transfers
made by gift, provided the donee thereof agrees in writing to be bound by the
terms of the Lock-Up Agreement, (ii) transfers to the transferor's affiliates,
as such term is defined by Rule 405 under the Securities Act, provided any
such transferee agrees to be bound by the terms of the Lock-Up Agreement and
(iii) transfers made with the prior written consent of J.C. Bradford & Co.
Additionally, each party to a Lock-Up Agreement has agreed that during the
180-day lock-up period, such party will not make any demand for, or exercise
any right with respect to, the registration of any shares of Common Stock or
any securities convertible into or exercisable or exchangeable for Common
Stock without the prior written consent of J.C. Bradford & Co. See "Principal
and Selling Shareholders."
REGISTRATION RIGHTS
Non-Voting Preferred Stock Registration Rights
The Creditanstalt Warrants provide that, upon the written demand of any
Warrant Holder at any time from time to time after the earlier of: (i) six
months following the consummation of the Offering; or (ii) December 3, 1998
requesting that the Company effect the registration under the Securities Act
of Creditanstalt Warrants or shares of Common Stock or Non-Voting Preferred
Stock issuable upon the exercise of Creditanstalt Warrants (the "Warrant
Shares"), the Company shall give written notice of such demand to all other
Warrant Holders. If the Company receives requests for the registration of at
least an aggregate of 1,000 Creditanstalt Warrants or Warrant Shares (or if
less than an aggregate of 1,000 Creditanstalt Warrants or Warrant Shares are
outstanding, the remainder of Warrant Shares not registered under the
Securities Act), the Company shall file a registration statement under the
Securities Act for the registration of the Creditanstalt Warrants or Warrant
Shares, as appropriate (a "Demand Registration"). The Company is obligated to
effect up to three Demand Registrations on behalf of the Warrant Holders.
The Creditanstalt Warrants further provide that if, at any time after
December 3, 1995, the Company proposes to register any of its securities under
the Securities Act (except pursuant to a registration statement filed on Form
S-8 or S-4 or such other form as shall be prescribed under the Securities Act
for substantially similar purposes), it will give written notice to all
holders of Creditanstalt Warrants and Warrant Shares of its intention to
register such securities. Upon the written request of any Warrant Holder given
within 10 days of the Company's notice of registration, the Company shall use
its reasonable best efforts to effect the registration of the Creditanstalt
Warrants and/or the Warrant Shares which it shall have been so requested to
register by including such Creditanstalt Warrants and/or Warrant Shares in the
proposed registration statement. If the proposed registration is for an
underwritten public offering, only Creditanstalt Warrants or Warrant Shares
which are to be included in the underwriting may be included in such
registration, and the Company shall have the right to designate the managing
underwriter(s) in any such underwritten public offering, provided that, (i)
the Company shall use its best efforts to cause the managing underwriter(s) to
include the Creditanstalt Warrants or Warrant Shares in the underwriting; and
(ii) if the managing underwriter(s) advises the Warrant Holders and all other
persons seeking to include securities of the Company held by them in such
registration statement ("Other Security Holders") in writing that the total
amount of securities which they and the Company and any Other Security Holders
intend to include in such offering is sufficiently large to materially and
adversely affect the success of such offering, the amount of securities to be
offered shall be reduced.
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Series C Preferred Stock Registration Rights
The agreement relating to the Series C Issuance (the "Series C Purchase
Agreement") provides that, upon the written demand of any Series C Investor at
any time from time to time after the earlier of: (i) six months following the
consummation of the Offering; or (ii) November 17, 2000 requesting that the
Company effect the registration under the Securities Act of shares of Series C
Preferred Stock or Common Stock issuable upon conversion of such shares of
Series C Convertible Stock ("Series C Shares"), the Company shall give written
notice of such demand to all other Series C Investors. If the Company receives
requests for the registration of at least an aggregate of at least one-fifth
of the Series C Shares (or if less than an aggregate of one-fifth of are
outstanding, the remainder of Series C Shares not registered under the
Securities Act), the Company shall file a registration statement under the
Securities Act for the registration of the Series C Shares (a "Series C Demand
Registration"). The Company is obligated to effect not more than two Series C
Demand Registrations on behalf of the Series C Investors.
The Series C Purchase Agreement further provides that if, at any time after
November 17, 1995, the Company proposes to register any of its securities
under the Securities Act (except pursuant to a registration statement filed on
Form S-8 or S-4 or such other form as shall be prescribed under the Securities
Act for substantially similar purposes), it will give written notice to all
Series C Investors of its intention to register such securities. Upon the
written request of any Series C Investor given within 10 days of the Company's
notice of registration, the Company shall use its reasonable best efforts to
effect the registration of the Series C Shares which it shall have been so
requested to register by including such Series C Shares in the proposed
registration statement. If the proposed registration is for an underwritten
public offering, only Series C Shares which are to be included in the
underwriting may be included in such registration, and the Company shall have
the right to designate the managing underwriter(s) in any such underwritten
public offering, provided that: (i) the Company shall use its best efforts to
cause the managing underwriter(s) to include the Series C Shares in the
underwriting; and (ii) if the managing underwriter(s) advises the Series C
Investors and all other persons seeking to include securities of the Company
held by them in such registration statement ("Other Security Holders") in
writing that the total amount of securities which they and the Company and any
Other Security Holders intend to include in such offering is sufficiently
large to materially and adversely affect the success of such offering, the
amount of securities to be offered shall be reduced.
Series D Preferred Stock Registration Rights
The agreement relating to the Series D Issuance (the "Series D Purchase
Agreement") further provides that if, at any time after April 3, 1998, the
Company proposes to register any of its securities under the Securities Act
(except pursuant to a registration statement filed on Form S-8 or S-4 or such
other form as shall be prescribed under the Securities Act for substantially
similar purposes), it will give written notice to all of its intention to
register such securities. Upon the written request of any Series D Warrant
Holder given within 10 days of the Company's notice of registration, the
Company shall use its reasonable best efforts to effect the registration of
the shares issuable upon exercise of the Series D Warrants (the "Series D
Warrant Shares") which it shall have been so requested to register by
including such Series D Warrant Shares in the proposed registration statement.
If the proposed registration is for an underwritten public offering, only
Series D Warrant Shares which are to be included in the underwriting may be
included in such registration, and the Company shall have the right to
designate the managing underwriter(s) in any such underwritten public
offering, provided that: (i) the Company shall use its commercially reasonable
efforts to cause the managing underwriter(s) to include the Series D Warrant
Shares in the underwriting; and (ii) if the managing underwriter(s) advises
the Series D Warrant Holders and all other persons seeking to include
securities of the Company held by them in such registration statement in
writing that the total amount of securities which they and the Company and any
other security holders intend to include in such offering is sufficiently
large to materially and adversely affect the success of such offering, the
amount of securities to be offered shall be reduced.
Breckenridge Registration Rights
Since 1995, the Company has maintained an ongoing relationship with The
Breckenridge Group, Inc. ("Breckenridge"), an Atlanta-based investment banking
firm. Breckenridge has advised the Company on
65
<PAGE>
significant acquisitions consummated since February 1996. In July 1997, in
consideration of Breckenridge's agreement to forgive the cash payment of
outstanding advisory fees and to advise the Company on future acquisitions,
the Company issued options to purchase an aggregate of 169,000 shares of
Common Stock to principals of Breckenridge. The Breckenridge Options provide
for an exercise price of $3.68 per share and are exercisable in full at any
time on or prior to May 31, 2002. The exercise price of the Breckenridge
Options was based on recent sales prices for shares of Common Stock in arms'
length transactions and the issuance of the Breckenridge Options was approved
by the Board.
The Breckenridge Options provide that if, at any time prior to May 31, 2002,
the Company proposes to register any of its securities under the Securities
Act (except pursuant to a registration statement filed on Form S-8 or S-4 or
such other form as shall be prescribed under the Securities Act for
substantially similar purposes), other than in connection with an underwritten
initial public offering which produces gross proceeds to the Company in excess
of $30,000,000, it will give written notice to all holders of Breckenridge
Options of its intention to register such securities. Upon the written request
of any holder of Breckenridge Options given within 20 business days of the
Company's notice of registration, the Company shall use its reasonable best
efforts to effect the registration of the shares of Common Stock issuable upon
exercise of the Breckenridge Options (the "Breckenridge Shares") which it
shall have been so requested to register by including such shares of Common
Stock in the proposed registration statement. If the proposed registration is
for an underwritten public offering, only Breckenridge Shares which are to be
included in the underwriting may be included in such registration, and the
Company shall have the right to designate the managing underwriter(s) in any
such underwritten public offering, provided that: (i) the Company shall use
its best efforts to cause the managing underwriter(s) to include the
Breckenridge Shares in the underwriting; and (ii) if the managing
underwriter(s) advises the holders of Breckenridge Options and all other
persons seeking to include securities of the Company held by them in such
registration statement ("Other Security Holders") in writing that the total
amount of securities which they and the Company and any Other Security Holders
intend to include in such offering is sufficiently large to materially and
adversely affect the success of such offering, the amount of securities to be
offered shall be reduced. See "Risk Factors -- Shares Eligible for Future
Sale."
66
<PAGE>
UNDERWRITING
Pursuant to the Underwriting Agreement and subject to the terms and
conditions thereof, the underwriters named below (the "Underwriters"), acting
through J.C. Bradford & Co. and Morgan Keegan & Company, Inc., as
representatives of the several Underwriters (the "Representatives"), have
agreed, severally, to purchase from the Company and the Selling Shareholders
the number of shares of Common Stock set forth below opposite their respective
names.
<TABLE>
<CAPTION>
NUMBER OF
NAME OF UNDERWRITER SHARES
------------------- ---------
<S> <C>
J.C. Bradford & Co.................................................
Morgan Keegan & Company, Inc.......................................
---
Total............................................................
===
</TABLE>
In the Underwriting Agreement, the Underwriters have agreed, subject to the
terms and conditions contained therein, to purchase all shares of Common Stock
offered hereby, if any of such shares are purchased.
The Company and the Selling Shareholders have been advised by the
Representatives that the Underwriters propose initially to offer the shares of
Common Stock to the public at the initial public offering price set forth on
the cover page of this Prospectus and to certain dealers at such price less a
concession not in excess of $ per share. The Underwriters may allow, and
such dealers may reallow, a concession not in excess of $ per share to
certain other dealers. After the Offering, the public offering price and such
concessions may be changed. The Representatives have informed the Company and
the Selling Shareholders that the Underwriters do not intend to confirm sales
to accounts over which they exercise discretionary authority.
The Offering of the shares of Common Stock is made for delivery when, as and
if accepted by the Underwriters and subject to prior sale and to withdrawal,
cancellation or modification of the offer without notice. The Underwriters
reserve the right to reject any offer for the purchase of shares.
The Company has granted the Underwriters an option, exercisable not later
than 30 days from the date of this Prospectus, to purchase up to 547,500
additional shares of Common Stock to cover over-allotments, if any. To the
extent that the Underwriters exercise this option, each of the Underwriters
will have a firm commitment to purchase approximately the same percentage
thereof which the number of shares of Common Stock to be purchased by it shown
in the table above bears to the total number of shares in such table, and the
Company will be obligated, pursuant to the option, to sell such shares to the
Underwriters. The Underwriters may exercise such option only to cover over-
allotments made in connection with the sale of the 3,650,000 shares of Common
Stock offered hereby. If purchased, the Underwriters will sell such additional
shares on the same terms as those on which the 3,650,000 shares are being
offered.
Prior to the Offering, there has been no public market for the Common Stock.
The initial public offering price has been determined by negotiation among the
Company, the Selling Shareholders and the Representatives. In determining such
price, consideration was given to, among other things, the financial and
operating history and trends of the Company, the experience of its management,
the position of the Company in its industry, the Company's prospects and the
Company's financial results. Additionally, consideration was given to the
status of the securities markets, market conditions for new offerings of
securities and the prices of similar securities of comparable companies.
67
<PAGE>
The Company, its executive officers and directors, the Selling Shareholders
and each holder of more than 5% of the Company's Common Stock have agreed with
the Representatives, subject to certain exceptions, not to offer to sell or
otherwise dispose of any shares of Common Stock, options or warrants to
purchase Common Stock or other securities convertible into or exchangeable for
Common Stock for a period of 180 days from the date of this Prospectus without
the prior written consent of J.C. Bradford & Co., except that the Company may
issue shares in connection with the exercise of stock options granted pursuant
to the Plan. See "Risk Factors -- Shares Eligible for Future Sale" and "Shares
Eligible for Future Sale -- Lock-Up Agreements."
The Underwriting Agreement provides that the Company and the Selling
Shareholders will indemnify the Underwriters and controlling persons, if any,
against certain civil liabilities, including liabilities under the Securities
Act, or will contribute to payments that the Underwriters or any such
controlling persons may be required to make in respect thereof.
In connection with the Offering, the Underwriters and other persons
participating in the Offering may engage in transactions that stabilize,
maintain or otherwise affect the price of the Common Stock. Specifically, the
Underwriters may over-allot in connection with the Offering, creating a short
position in the Common Stock for their own account. To cover over-allotments
or to stabilize the price of the Common Stock, the Underwriters may bid for,
and purchase, shares of Common Stock in the open market. The Underwriters may
also impose a penalty bid whereby they may reclaim selling concessions allowed
to an underwriter or a dealer for distributing Common Stock in the Offering,
if the Underwriters repurchase previously distributed Common Stock in
transactions to cover their short position, in stabilization transactions or
otherwise. Finally, the Underwriters may bid for, and purchase, shares of
Common Stock in market making transactions. These activities may stabilize or
maintain the market price of Common Stock above market levels that may
otherwise prevail. The Underwriters are not required to engage in these
activities and may end any of these activities at any time.
LEGAL MATTERS
The legality of the shares of Common Stock offered hereby and certain other
legal matters will be passed upon for the Company by Alston & Bird llp,
Atlanta, Georgia. Certain legal matters related to the Offering will be passed
upon for the Underwriters by Nelson Mullins Riley & Scarborough, L.L.P.,
Atlanta, Georgia.
EXPERTS
The historical financial statements of the Company as of July 31, 1996 and
1997 and January 31, 1998 and for each of the three years in the period ended
July 31, 1997 and for the six months ended January 31, 1998, of AVP and C.R.
as of December 31, 1995 and for the year then ended, and of Message World as
of December 31, 1996 and for the year then ended included in this Prospectus
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.
The historical financial statements of Hyde's as of December 31, 1997 and
1996, and for each of the years then ended included in the Prospectus have
been audited by James N. Rachel, independent auditor, as indicated in his
report with respect thereto, and are included herein in reliance upon his
authority as an expert in giving said report.
AVAILABLE INFORMATION
The Company has filed with the Commission a registration statement on Form
S-1 (together with all amendments and exhibits thereto, the "Registration
Statement") under the Securities Act with respect to the securities offered
hereby. This Prospectus does not contain all of the information set forth in
the Registration
68
<PAGE>
Statement and the exhibits and schedules thereto, as permitted by the rules
and regulations of the Commission. For further information with respect to the
Company and the Common Stock, reference is hereby made to the Registration
Statement, including the exhibits and schedules filed or incorporated as a
part thereof. Statements contained herein concerning the provisions of any
document are necessarily summarized and in each instance reference is made to
the copy of the document filed as an exhibit or schedule to the Registration
Statement. Each such statement is qualified in its entirety by reference to
the copy of the applicable documents filed with the Commission.
After effectiveness of the Registration Statement, the Company will file
periodic reports and other information with the Commission under the
Securities Exchange Act of 1934, as amended. The Registration Statement,
including the exhibits and schedules thereto, and the periodic reports and
other information filed in connection therewith, may be inspected and copied
at the public reference facilities maintained by the Commission at 450 Fifth
Street, N.W., Washington, D.C. 20549, and at the following Regional Offices of
the Commission: Seven World Trade Center, New York, New York 10048 and
Northwest Atrium Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661-2511. Copies of such material can be obtained at prescribed
rates from the Public Reference Section of the Commission, 450 Fifth Street,
N.W., Washington, D.C. 20549. The Commission maintains a Web site that
contains reports, proxy and information statements and other information
regarding registrants that file electronically with the Commission. Such
reports, proxy and information statements and other information may be found
on the Commission's site address, http://www.sec.gov. Copies of such material
also can be obtained from the Company upon request.
69
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATED FINANCIAL STATEMENTS
SATELLINK COMMUNICATIONS, INC. AND SUBSIDIARIES
<TABLE>
<S> <C>
Report of Independent Public Accountants.................................. F-3
Consolidated Financial Statements:
Consolidated Balance Sheets as of July 31, 1996 and 1997 and January 31,
1998................................................................... F-4
Consolidated Statements of Operations for the Years Ended July 31, 1995,
1996, and 1997 and for the Six Months Ended January 31, 1997 and 1998.. F-6
Consolidated Statements of Shareholders' Equity (Deficit) for the Years
Ended July 31, 1995, 1996, and 1997 and for the Six Months Ended
January 31, 1998....................................................... F-7
Consolidated Statements of Cash Flows for the Years Ended July 31, 1995,
1996, and 1997 and for the Six Months Ended January 31, 1997 and 1998.. F-8
Notes to Consolidated Financial Statements................................ F-9
Condensed Financial Statements as of April 30, 1998 (Unaudited)
Condensed Balance Sheets as of July 31, 1997 and April 30, 1998
(Unaudited)............................................................ F-24
Condensed Statements of Operations for the Nine Months Ended April 30,
1997 and 1998 (Unaudited).............................................. F-26
Condensed Statement of Cash Flows for the Nine Months Ended April 30,
1997 and 1998 (Unaudited).............................................. F-27
Condensed Notes Financial Statements...................................... F-28
ATLANTA VOICE PAGE, INC.
Report of Independent Public Accountants.................................. F-30
Financial Statements:
Balance Sheet as of December 31, 1995................................... F-31
Statement of Operations for the Year Ended December 31, 1995............ F-32
Statement of Shareholders' Equity for the Year Ended December 31, 1995.. F-33
Statement of Cash Flows for the Year Ended December 31, 1995............ F-34
Notes to Financial Statements............................................. F-35
C.R., INC.
Report of Independent Public Accountants.................................. F-38
Financial Statements:
Balance Sheet as of December 31, 1995................................... F-39
Statement of Operations for the Year Ended December 31, 1995............ F-40
Statement of Shareholders' Equity for the Year Ended December 31, 1995.. F-41
Statement of Cash Flows for the Year Ended December 31, 1995............ F-42
Notes to Financial Statements............................................. F-43
</TABLE>
F-1
<PAGE>
PAGE
----
MESSAGE WORLD
<TABLE>
<S> <C>
Report of Independent Public Accountants.................................. F-47
Financial Statements:
Balance Sheet as of December 31, 1996................................... F-48
Statement of Operations for the Year Ended December 31, 1996............ F-49
Statement of (Accumulated Deficit) Retained Earnings for the Year Ended
December 31, 1996...................................................... F-50
Statement of Cash Flows for the Year Ended December 31, 1996............ F-51
Notes to Financial Statements............................................. F-52
HYDE'S STAY IN TOUCH, INC.
Independent Auditor's Report.............................................. F-55
Financial Statements:
Balance Sheets as of December 31, 1997 and 1996......................... F-56
Statements of Income for the Year Ended December 31, 1997 and 1996...... F-57
Statements of Retained Earnings for the Year Ended December 31, 1997 and
1996................................................................... F-58
Statements of Cash Flows for the Year Ended December 31, 1997 and 1996.. F-59
Notes to Financial Statements............................................. F-60
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
SATELLINK COMMUNICATIONS, INC. AND SUBSIDIARIES
Unaudited Pro Forma Consolidated Financial Information.................... F-66
Unaudited Pro Forma Consolidated Balance Sheet as of April 30, 1998....... F-67
Unaudited Pro Forma Consolidated Statement of Operations for the Nine
Months Ended
April 30 , 1998.......................................................... F-69
Unaudited Pro Forma Consolidated Statement of Operations for the Year
Ended July 31, 1997...................................................... F-72
</TABLE>
F-2
<PAGE>
AFTER THE STOCK SPLIT TRANSACTION REFERRED TO IN NOTE 13 TO SATELLINK
COMMUNICATIONS, INC. CONSOLIDATED FINANCIAL STATEMENTS IS EFFECTED, WE EXPECT
TO BE IN A POSITION TO RENDER THE FOLLOWING AUDIT REPORT.
/s/ Arthur Andersen LLP
May 22, 1998
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Satellink Communications, Inc.:
We have audited the accompanying consolidated balance sheets of SATELLINK
COMMUNICATIONS, INC. (a Georgia corporation) AND SUBSIDIARIES as of July 31,
1996 and 1997 and January 31, 1998 and the related consolidated statements of
operations, shareholders' equity (deficit) and cash flows for each of the
three years in the period ended July 31, 1997 and the six months ended January
31, 1998. These consolidated 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 consolidated financial position of Satellink
Communications, Inc. and subsidiaries as of July 31, 1996 and 1997 and January
31, 1998 and the results of their operations and their cash flows for each of
the three years in the period ended July 31, 1997 and the six months ended
January 31, 1998 in conformity with generally accepted accounting principles.
Atlanta, Georgia
, 1998
F-3
<PAGE>
SATELLINK COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF JULY 31, 1996 AND 1997 AND JANUARY 31, 1998
<TABLE>
<CAPTION>
JULY 31,
------------------------ JANUARY 31,
1996 1997 1998
----------- ----------- -----------
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents. $ 524,708 $ 193,346 $ 255,861
Accounts receivable, net
of allowance for doubtful
accounts of $198,911,
$445,028 and $526,019 as
of July 31, 1996 and 1997
and January 31, 1998,
respectively............. 2,143,173 2,698,481 3,801,322
Other receivables......... 44,746 147,470 235,633
Inventory................. 165,564 268,201 283,576
Prepaid expenses and other
current assets........... 276,135 362,053 391,013
----------- ----------- -----------
Total current assets.... 3,154,326 3,669,551 4,967,405
----------- ----------- -----------
PROPERTY AND EQUIPMENT (Note
2):
Paging systems and
equipment................ 6,863,669 8,973,493 11,337,792
Computer and terminal
equipment................ 2,003,412 3,745,525 3,085,452
Furniture and fixtures.... 188,377 297,686 387,194
Leasehold improvements.... 81,063 107,766 108,966
----------- ----------- -----------
9,136,521 13,124,470 14,919,404
Less accumulated
depreciation............. (3,230,160) (4,371,932) (4,520,142)
----------- ----------- -----------
Property and equipment,
net.................... 5,906,361 8,752,538 10,399,262
----------- ----------- -----------
OTHER LONG TERM ASSETS:
Goodwill, net of
accumulated amortization
of $56,257, $288,718, and
$448,000 as of July 31,
1996 and 1997 and January
31, 1998, respectively
(Note 2)................. 6,584,173 9,447,098 9,695,292
Other intangible assets,
net of accumulated
amortization of
$1,112,743, $1,697,281,
and $1,436,345 as of July
31, 1996 and 1997 and
January 31, 1998,
respectively (Note 2).... 2,064,229 2,999,874 2,967,988
Investments in joint
ventures (Note 4)........ 193,085 219,627 337,082
Other..................... 33,074 33,291 0
----------- ----------- -----------
Total other long term
assets................. 8,874,561 12,699,890 13,000,362
----------- ----------- -----------
Total assets............ $17,935,248 $25,121,979 $28,367,029
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated balance
sheets.
F-4
<PAGE>
SATELLINK COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF JULY 31, 1996 AND 1997 AND JANUARY 31, 1998
<TABLE>
<CAPTION>
JULY 31,
------------------------ JANUARY 31,
1996 1997 1998
----------- ----------- -----------
<S> <C> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
Current maturities of long term debt
(Note 6)............................. $ 811,749 $ 917,326 $ 428,000
Accounts payable and accrued liabili-
ties (Note 2)........................ 1,792,340 2,434,295 2,851,585
Customer deposits..................... 395,506 372,140 247,468
Deferred revenues..................... 661,785 1,076,248 1,092,874
Accrued dividends on preferred stock.. 99,447 88,047 43,887
----------- ----------- -----------
Total current liabilities........... 3,760,827 4,888,056 4,663,814
----------- ----------- -----------
LONG-TERM DEBT, less current maturities
(Note 6)............................... 12,278,139 18,410,822 23,441,212
----------- ----------- -----------
STOCK WARRANTS (Note 7)................. 2,573,615 4,346,722 4,575,596
----------- ----------- -----------
MINORITY INTEREST....................... 2,522 5,351 11,022
----------- ----------- -----------
COMMITMENTS AND CONTINGENCIES (Note 10)
SERIES C REDEEMABLE CONVERTIBLE PRE-
FERRED STOCK (Note 8):
$0.01 par value; 3,500 shares
authorized; 3,500 shares issued and
outstanding at July 31, 1996 and 1997
and January 31, 1998; entitled to a
maximum of $1,000 per share plus
accrued dividends in liquidation,
dissolution, or windup of the
Company.............................. 3,500,000 3,500,000 3,500,000
SHAREHOLDERS' EQUITY (DEFICIT) (NOTE 7):
Series A convertible preferred stock
$.01 par value; 7,500 shares
authorized, 7,360 shares issued and
outstanding at July 31, 1996 and 1997
and January 31, 1998, entitled to a
maximum of $290 per share plus
accrued dividends in liquidation,
dissolution, or windup of the
Company.............................. 74 74 74
Series B convertible preferred stock,
$.01 par value; 0, 30,000 and 30,000
shares authorized at July 31, 1996
and 1997 and January 31, 1998,
respectively, 0 shares issued and
outstanding.......................... -- -- --
Common stock, $.01 par value:
Class A voting, 5,000,000 shares
authorized, 2,907,519, 2,952,811,
and 3,054,377 shares issued and
outstanding at July 31, 1996 and
1997 and January 31, 1998,
respectively........................ 29,076 29,529 30,544
Class B nonvoting, 20,000 shares
authorized, 1,071.32, 535.65, and 0
shares issued and outstanding at
July 31, 1996 and 1997 and January
31, 1998, respectively.............. 10 5 --
Additional paid in capital............ 2,152,931 2,369,806 2,468,796
Accumulated deficit................... (6,361,946) (8,428,386) (10,324,029)
----------- ----------- -----------
Total shareholders' equity
(deficit).......................... (4,179,855) (6,028,972) (7,824,615)
----------- ----------- -----------
Total liabilities and shareholders'
equity (deficit)................... $17,935,248 $25,121,979 $28,367,029
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated balance
sheets.
F-5
<PAGE>
SATELLINK COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED JULY 31, 1995, 1996 AND 1997
AND FOR THE SIX MONTHS ENDED JANUARY 31, 1997 AND 1998
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED JULY 31, JANUARY 31,
------------------------------------ ------------------------
1995 1996 1997 1997 1998
---------- ----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
REVENUES:
Service, rent and main-
tenance revenues...... $6,885,352 $ 9,839,199 $16,308,042 $7,676,578 $ 9,480,557
Product sales.......... 525,615 975,144 1,264,418 577,833 637,266
---------- ----------- ----------- ---------- -----------
Total revenues....... 7,410,967 10,814,343 17,572,460 8,254,411 10,117,823
Cost of products sold.. (468,473) (959,575) (1,201,271) (574,225) (555,935)
---------- ----------- ----------- ---------- -----------
Net revenues......... 6,942,494 9,854,768 16,371,189 7,680,186 9,561,888
OPERATING EXPENSES:
Service, rent and main-
tenance............... 2,717,621 3,878,639 6,541,774 3,189,023 3,598,094
Selling and marketing.. 1,222,030 1,602,467 2,313,930 1,080,652 1,431,693
General and administra-
tive.................. 886,671 1,732,122 3,039,390 1,291,254 1,709,863
Engineering............ 566,962 515,599 638,387 319,497 382,606
Depreciation and amor-
tization.............. 845,160 1,204,478 2,241,518 1,015,933 1,392,526
Fixed asset impairment
and one-time
reengineering charges. -- -- -- -- 1,533,996
---------- ----------- ----------- ---------- -----------
Total operating
expenses............ 6,238,444 8,933,305 14,774,999 6,896,359 10,048,778
---------- ----------- ----------- ---------- -----------
OPERATING INCOME (LOSS). 704,050 921,463 1,596,190 783,827 (486,890)
---------- ----------- ----------- ---------- -----------
OTHER INCOME (EXPENSE):
Other income........... 89,689 91,413 89,808 40,927 96,004
Interest expense....... (703,766) (872,673) (1,564,067) (698,698) (1,112,287)
Accretion of stock war-
rants (Note 7)........ (643,000) (854,350) (1,773,107) (886,554) (228,874)
(Loss) income from
joint venture (Note
4).................... -- (95,715) 26,123 30,729 60,999
Minority interest...... -- (2,522) (2,829) (3,203) (5,673)
---------- ----------- ----------- ---------- -----------
(1,257,077) (1,733,847) (3,224,072) (1,516,799) (1,189,831)
---------- ----------- ----------- ---------- -----------
LOSS BEFORE INCOME TAX
BENEFIT AND
EXTRAORDINARY ITEM..... (553,027) (812,384) (1,627,882) (732,972) (1,676,721)
INCOME TAX BENEFIT...... -- -- -- -- --
---------- ----------- ----------- ---------- -----------
LOSS BEFORE
EXTRAORDINARY ITEM..... (553,027) (812,384) (1,627,882) (732,972) (1,676,721)
EXTRAORDINARY LOSS ON
EARLY RETIREMENT OF
DEBT, net of taxes of
approximately $88,000.. -- 132,130 -- -- --
---------- ----------- ----------- ---------- -----------
NET LOSS................ (553,027) (944,514) (1,627,882) (732,972) (1,676,721)
---------- ----------- ----------- ---------- -----------
PREFERRED STOCK
DIVIDENDS.............. 88,320 334,295 438,558 218,922 218,922
---------- ----------- ----------- ---------- -----------
NET LOSS ATTRIBUTABLE TO
COMMON SHAREHOLDERS.... $ (641,347) $(1,278,809) $(2,066,440) $ (951,894) $(1,895,643)
========== =========== =========== ========== ===========
Allocation of earnings
to:
Class A................ $ (608,072) $(1,221,229) $(2,042,387) $ (940,814) $(1,894,193)
Class B................ (33,275) (57,580) (24,053) (11,080) (1,450)
BASIC AND DILUTED NET
LOSS PER SHARE (NOTE
2):
Loss from extraordinary
item:
Class A................ $ -- $ (0.05) $ -- $ -- $ --
Class B................ -- (2.95) -- -- --
Net loss attributable
to common sharehold-
ers:
Class A................ (0.21) (0.44) (0.69) (0.32) (0.63)
Class B................ (13.76) (28.60) (44.96) (20.71) (41.10)
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING:
Class A................ 2,872,417 2,775,792 2,952,811 2,952,811 2,995,681
Class B................ 2,418 2,013 535 535 35
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-6
<PAGE>
SATELLINK COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
FOR THE YEARS ENDED JULY 31, 1995, 1996 AND 1997 AND FOR THE SIX MONTHS ENDED
JANUARY 31, 1998
<TABLE>
<CAPTION>
COMMON STOCK
---------------------------------- PREFERRED STOCK
CLASS A CLASS B SERIES A
------------------ -------------- ----------------- PAID IN ACCUMULATED
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT TOTAL
--------- ------- ------ ------ -------- ------- ---------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE, July 31, 1994,
as previously reported
....................... 2,347,852 $23,479 2,821 $ 28 7,360 $ 74 $2,615,355 $ (4,441,790) $(1,802,854)
Thirteen for ten Class
A common stock split
(Note 13)............. 704,356 7,044 -- -- -- -- (7,044) -- --
--------- ------- ------ ----- -------- ------- ---------- ------------ -----------
BALANCE, July 31, 1994 . 3,052,208 30,523 2,821 28 7,360 74 2,608,311 (4,441,790) (1,802,854)
Net loss attributable
to common
shareholders.......... -- -- -- -- -- -- -- (641,347) (641,347)
Purchase and retirement
of common stock....... (334,814) (3,348) (750) (7) -- -- (703,490) -- (706,845)
--------- ------- ------ ----- -------- ------- ---------- ------------ -----------
BALANCE, July 31, 1995.. 2,717,394 27,175 2,071 21 7,360 74 1,904,821 (5,083,137) (3,151,046)
Net loss attributable
to common
shareholders.......... -- -- -- -- -- -- -- (1,278,809) (1,278,809)
Issuance of Class A
common stock.......... 105,625 1,056 -- -- -- -- 248,944 -- 250,000
Adjustment for
conversion of Class B
to Class A common
stock................. 84,500 845 (1,000) (11) -- -- (834) -- --
--------- ------- ------ ----- -------- ------- ---------- ------------ -----------
BALANCE, July 31, 1996.. 2,907,519 29,076 1,071 10 7,360 74 2,152,931 (6,361,946) (4,179,855)
Net loss attributable
to common
shareholders.......... -- -- -- -- -- -- -- (2,066,440) (2,066,440)
Adjustment for
conversion of Class B
to Class A common
stock................. 45,292 453 (536) (5) -- -- (448) -- --
Issuance of stock
options (Note 7)...... -- -- -- -- -- -- 217,323 -- 217,323
--------- ------- ------ ----- -------- ------- ---------- ------------ -----------
BALANCE, July 31, 1997.. 2,952,811 29,529 535 5 7,360 74 2,369,806 (8,428,386) (6,028,972)
Net loss attributable
to common
shareholders.......... -- -- -- -- -- -- -- (1,895,643) (1,895,643)
Adjustment for
conversion of Class B
to Class A common
stock................. 45,233 452 (535) (5) -- -- (447) -- --
Exercise of stock
options (Note 7)...... 56,333 563 -- -- -- -- 99,437 -- 100,000
--------- ------- ------ ----- -------- ------- ---------- ------------ -----------
BALANCE, January 31,
1998................... 3,054,377 $30,544 -- $ -- 7,360 $ 74 $2,468,796 $(10,324,029) $(7,824,615)
========= ======= ====== ===== ======== ======= ========== ============ ===========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-7
<PAGE>
SATELLINK COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED JULY 31, 1995, 1996 AND 1997
AND FOR THE SIX MONTHS ENDED JANUARY 31, 1997 AND 1998
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED JULY 31, JANUARY 31,
-------------------------------------- ------------------------
1995 1996 1997 1997 1998
----------- ------------ ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM
OPERATING ACTIVITIES:
Net loss............... $ (553,027) $ (944,514) $(1,627,882) $ (732,972) $(1,676,721)
Adjustments to
reconcile net loss to
net cash provided by
(used in) operating
activities:
Minority interest...... -- 2,522 2,829 3,203 5,673
(Income) loss from
joint venture......... -- 95,715 (26,123) (30,729) (60,999)
Depreciation and
amortization.......... 845,160 1,204,478 2,241,518 1,015,933 1,392,526
Extraordinary loss on
early retirement of
debt.................. -- 132,130 -- -- -
Asset Impairment....... -- -- -- -- 1,533,996
Accretion of stock
warrants.............. 643,000 854,350 1,773,107 886,554 228,874
Changes in operating
assets and
liabilities:
Accounts receivable... (309,274) (970,305) (425,434) (357,474) (1,102,841)
Other receivables..... (5,316) 54,509 (82,724) 21,841 (88,163)
Net investment in
sales type leases.... 9,000 -- -- -- -
Prepaid expenses and
other current as-
sets................. (72,706) (125,206) (85,918) (98,370) (28,960)
Other assets.......... 59,912 (291,312) (462,137) (63,238) (526,899)
Accounts payable and
accrued liabilities.. (10,091) 730,900 641,955 (433,275) 417,290
Customer deposits..... 37,462 47,180 (23,366) (6,870) (124,672)
Deferred revenues..... 81,484 105,453 48,576 (51,665) 16,626
----------- ------------ ----------- ----------- -----------
Total adjustments.... 1,278,631 1,840,414 3,602,283 885,910 1,662,541
----------- ------------ ----------- ----------- -----------
Net cash provided by
(used in) operating
activities.......... 725,604 895,900 1,974,401 152,938 (14,270)
----------- ------------ ----------- ----------- -----------
CASH FLOWS FROM
INVESTING ACTIVITIES:
Purchases of
businesses, net of
cash acquired......... -- (8,949,546) (4,386,230) -- (590,000)
Purchases of property
and equipment, net.... (1,528,398) (1,910,553) (3,647,266) (1,235,165) (3,654,741)
Investment in joint
venture............... (120,331) (158,469) (419) (305,377) (56,456)
----------- ------------ ----------- ----------- -----------
Net cash used in in-
vesting activities.. (1,648,729) (11,018,568) (8,033,915) (1,540,542) (4,301,197)
----------- ------------ ----------- ----------- -----------
CASH FLOWS FROM
FINANCING ACTIVITIES:
Proceeds from issuance
of preferred stock.... -- 3,500,000 -- -- -
Proceeds from
subscriptions
receivable............ 200,000 -- -- -- -
Payment of preferred
stock dividends....... (77,000) (334,295) (449,958) (243,348) (263,082)
Proceeds from issuance
of long term debt,
net................... 1,578,445 7,185,388 6,238,260 984,015 4,541,064
Proceeds from issuance
of common stock....... -- 250,000 -- -- 100,000
Purchase and retirement
of common stock....... (706,845) -- -- -- -
Other financing
activities............ (36,036) -- (60,150) 181,134 -
----------- ------------ ----------- ----------- -----------
Net cash provided by
financing activi-
ties................ 958,564 10,601,093 5,728,152 921,801 4,377,982
----------- ------------ ----------- ----------- -----------
NET INCREASE (DECREASE)
IN PERIOD.............. 35,439 478,425 (331,362) (465,803) 62,515
CASH AT BEGINNING OF
PERIOD................. 10,844 46,283 524,708 524,708 193,346
----------- ------------ ----------- ----------- -----------
CASH AT END OF YEAR..... $ 46,283 $ 524,708 $ 193,346 $ 58,905 $ 255,861
=========== ============ =========== =========== ===========
CASH PAID FOR INTEREST.. $ 600,047 $ 632,729 $ 1,412,766 $ 700,400 $ 741,663
=========== ============ =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-8
<PAGE>
SATELLINK COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND BUSINESS OPERATIONS
Satellink Communications, Inc. (the "Company" or "Satellink") (a Georgia
corporation), formerly Satellink Paging Inc., is a communications company
providing local, regional, and nationwide paging, voicemail, and other
enhanced telecommunications services. The Company has provided paging and
voicemail services since 1988.
The Company has a distribution agreement with CUE Paging Corporation
("CUE"), a nationwide satellite paging company presently offering service in
over 500 cities throughout the United States and Canada, to construct and
operate regional paging systems utilizing FM subcarrier technology in the
states of Georgia and Alabama. At January 31, 1998, CUE owned approximately
14% and 13% of the Company's Class A Common Stock and Series A Preferred
Stock, respectively.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The accompanying consolidated financial statements include the accounts of
the Company, its wholly owned subsidiary, Satellink Paging, LLC and its
majority owned subsidiary, DirectLink Communications, L.L.C. ("Direct Link")
(Notes 5 and 13). All significant intercompany accounts and transactions have
been eliminated in consolidation. The consolidated statement of operations for
the six months ended January 31, 1997 is unaudited and, in the opinion of
management of the Company, includes all normal recurring adjustments necessary
for a fair presentation of the results for the interim period. The results of
operations for the six months ended January 31, 1997 are not necessarily
indicative of the results to be expected for the full year.
USE OF ESTIMATES
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.
CASH AND CASH EQUIVALENTS
The Company considers all short-term highly liquid investments with an
original maturity of three months or less to be cash equivalents.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company's financial instruments include cash and cash equivalents, debt,
and other short-term assets and liabilities. Based on the short-term nature or
variable interest rate of these financial instruments, the estimated fair
value of the Company's financial instruments approximates their carrying value
as of July 31, 1996, July 31, 1997, and January 31, 1998.
LONG-LIVED ASSETS
In 1995, the Company adopted Statement of Financial Accounting Standards
("SFAS") No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of." SFAS No. 121 establishes accounting
standards for the impairment of long-lived assets, certain identifiable
intangibles, and cost in excess of net assets acquired related to those assets
to be held and used and for long-lived assets and certain identifiable
intangibles to be disposed of. The effect of adopting SFAS No. 121 was not
material.
The Company periodically reviews the values assigned to long-lived assets
such as property and equipment, goodwill and other intangible assets to
determine whether any impairment exists. If circumstances suggest that the
asset values may be impaired, an assessment of the assets' estimated fair
value is performed based on the estimated undiscounted cash flows expected to
be generated from such assets over the remaining life of the long-
F-9
<PAGE>
SATELLINK COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
lived assets, and an impairment loss is recognized in income from operations
at the amount in which the assets' estimated fair value is exceeded by the
assets' carrying value. Management believes that the long-lived assets in the
accompanying consolidated balance sheets are appropriately valued.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Expenditures for renewals and
improvements are capitalized, and replacements, maintenance, and repairs that
do not improve or extend the lives of the respective assets are expensed as
incurred. Depreciation is provided on a straight-line basis over the remaining
estimated useful lives, as follows:
<TABLE>
<S> <C>
Paging equipment........................................... 5 years
Paging systems............................................. 10 to 20 years
Computers and terminal equipment........................... 5 to 10 years
Furniture and fixtures..................................... 5 to 10 years
Leasehold improvements..................................... 5 to 10 years
</TABLE>
In the six months ended January 31, 1998 the Company implemented a new
communications platform, the Satellink Telecommunications Application Resource
Network ("STAR*Net"). In conjunction with such implementation, the existing
platform including associated equipment has been removed or is expected to be
removed as a part of the conversion to the new STAR*Net system. Accordingly,
the Company recognized a loss totaling $833,996 related to the impairment of
the existing equipment, which is in the process of being replaced. The Company
estimated the fair value of the existing equipment, based upon the Company's
intention to dispose of the equipment. The remaining net book value of the
impaired assets is immaterial.
GOODWILL
The excess of cost over the fair market value of the identifiable assets
acquired ("goodwill") is being amortized on a straight-line basis over a
period of 30 years.
OTHER INTANGIBLE ASSETS
Other intangible assets, net of accumulated amortization, as of July 31,
1996 and 1997 and January 31, 1998, consisted of the following:
<TABLE>
<CAPTION>
AS OF JULY 31, AS OF
--------------------- JANUARY 31,
1996 1997 1998
---------- ---------- -----------
<S> <C> <C> <C>
Acquired subscriber bases.................. $1,190,333 $1,991,236 $2,049,340
Affiliate fees............................. 268,518 468,941 455,278
Noncompete agreements...................... 374,812 255,139 186,797
Debt issuance costs........................ 230,566 230,476 201,076
FCC licenses............................... -- 54,082 75,497
---------- ---------- ----------
$2,064,229 $2,999,874 $2,967,988
========== ========== ==========
</TABLE>
Acquired subscriber bases related to the Company's acquisitions are
amortized on a straight-line basis over five years. Affiliate fees are
amortized on a straight-line basis over periods ranging from 10 to 20 years.
Federal Communications Commission ("FCC") licenses are amortized on a
straight-line basis over a period of 10 years.
In connection with the Company's acquisitions (Note 3), certain shareholders
of the sellers have entered into noncompete agreements with the Company.
Amounts assigned to noncompete agreements are being amortized on a straight-
line basis over three to five years in accordance with the terms of the
related agreements.
F-10
<PAGE>
SATELLINK COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company has incurred debt issuance costs in connection with its long-
term debt (Note 6). These costs are capitalized and are amortized to interest
expense using the effective interest method over the term of the related debt.
On November 2, 1997, the Emerging Issues Task Force of the FASB reached a
consensus on Issue No. 97-13, "Accounting for Costs Incurred in Connection
with a Consulting Contract or an Internal Project that Combines Business
Process Reengineering and Information Technology" ("EITF 97-13"). EITF 97-13
requires that the cost of business process reengineering activities, whether
done internally or by third parties, is expensed as incurred. EITF 97-13 also
applies when business process reengineering activities are part of a project
to acquire, develop, or implement internal-use software. During the six months
ended January 31, 1998, the Company adopted EITF 97-13. The Company has
recorded the cumulative effect of adopting EITF 97-13 as a non-cash charge
related to reengineering costs previously capitalized, which totaled $700,000.
INCOME TAXES
The Company utilizes the liability method of accounting for income taxes, as
set forth in SFAS No. 109, "Accounting for Income Taxes." Under the liability
method, deferred taxes are determined based on the difference between the
financial and tax bases of assets and liabilities using enacted tax rates in
effect in the years in which the differences are expected to reverse.
ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
Accounts payable and accrued liabilities as of July 31, 1996 and 1997, and
January 31, 1998 consisted of the following:
<TABLE>
<CAPTION>
AS OF JULY 31, AS OF
--------------------- JANUARY 31,
1996 1997 1998
---------- ---------- -----------
<S> <C> <C> <C>
Accounts payable.......................... $ 810,585 $1,228,568 $1,521,269
Accounts payable-related parties (Note
11)...................................... 340,872 355,602 368,666
Accrued interest.......................... 196,167 347,470 285,905
Accrued professional fees................. 153,332 30,000 16,458
Other accrued liabilities................. 291,384 472,655 659,287
---------- ---------- ----------
$1,792,340 $2,434,295 $2,851,585
========== ========== ==========
</TABLE>
REVENUE RECOGNITION AND DEFERRED REVENUES
The Company's revenues consist of: (i) service, rent, and maintenance
revenues; and (ii) product sales. Service, rent, and maintenance revenues
consist primarily of recurring revenues received from paging and voicemail
services. The Company bills the fixed portion of the fees it charges for
paging and voicemail services in advance and bills usage-related fees in
arrears.
The Company's policy is to record revenue at the time the service is
provided. Deferred revenues represent advance billings for recurring charges
to customers. The deferred revenues relating to recurring charges are
recognized when earned, primarily in the following month.
F-11
<PAGE>
SATELLINK COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
ADVERTISING
The Company expenses all advertising costs as incurred. The Company incurred
and expensed advertising costs in the approximate amounts of $214,000,
$206,000, $284,000, and $152,000 during the years ended July 31, 1995, 1996
and 1997 and for the six months ended January 31, 1998, respectively.
BASIC LOSS PER SHARE
During 1997, the Company adopted Statement of Financial Accounting Standards
("SFAS") No. 128, "Earnings Per Share." SFAS No. 128 establishes accounting
standards for calculating earnings per share. All share and per share
information presented in these financial statements has been calculated in
accordance with this statement.
Earnings per share is presented using the two class method. Earnings
attributable to each class of common stock are allocated between each class of
stock based on the extent to which each class shares in the Company's
earnings. The Company's Class A and Class B common shareholders share in
dividends at a 1:65 ratio. All convertible preferred stock, options, and
warrants currently outstanding are antidilutive for all periods presented.
On February 4, 1998, the Securities and Exchange Commission released Staff
Accounting Bulletin ("SAB") No. 98 "Computation of Earnings Per Share." SAB
No. 98 requires the retroactive inclusion of nominal issuances of common stock
and common stock equivalents in earnings per share calculations for all
periods presented and precludes the use of treasury stock method for these
issuances. Management believes that all issuances of common stock and stock
options have been made at the current market value at the time of issuance and
that there have been no nominal issuances.
CREDIT RISK
The Company's accounts receivable potentially subject the Company to credit
risk, as collateral is generally not required. The Company's risk of loss is
limited due to advance billings to customers for services and the ability to
terminate access on delinquent accounts. The concentration of credit risk is
mitigated by the large number of customers comprising the customer base. The
carrying amount of the Company's receivables approximates their fair value.
REGULATION
Various regulatory factors affect the Company's financial performance and
its ability to compete. The Company is subject to regulation by the FCC and by
various state public service and public utility commissions, and is otherwise
affected by regulatory decisions, trends and policies made by these agencies.
3. ACQUISITIONS
During the years ended July 31, 1996 and 1997, and the six months ended
January 31, 1998, Satellink made the acquisitions set forth below. The
acquisitions have been accounted for as purchases in accordance with APB No.
16, and accordingly the purchase price has been allocated to the assets
acquired based on the estimated fair values as of the acquisition dates. The
excess of the cost over the estimated fair value of the net tangible assets
acquired has been allocated to goodwill and certain identifiable intangible
assets.
ATLANTA VOICE PAGE, INC. ("AVP")
Effective February 2, 1996, Satellink acquired substantially all of the
assets of AVP under the terms of an asset purchase agreement. The acquired
assets consisted primarily of local paging subscribers, a paging system,
pagers and spare parts, accounts receivable, and furniture and fixtures. The
purchase price was approximately $3,200,000 before recording certain
acquisition expenses and adjustments and was financed through the Company's
term loan and revolving credit facility.
F-12
<PAGE>
SATELLINK COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
C.R., INC. ("CR")
Effective May 31, 1996, Satellink acquired substantially all of the assets
of CR under the terms of an asset purchase agreement. The acquired assets
consisted primarily of regional and nationwide paging subscribers, a CUE
paging regional affiliate agreement, notes receivable, deposits, equipment,
and furniture and fixtures. The purchase price was approximately $5,700,000
before recording certain acquisition expenses and adjustments and was financed
through the Company's term loan and revolving credit facility.
MESSAGE WORLD ("MW")
Effective February 1, 1997, Satellink acquired substantially all of the
assets of MW under the terms of an asset purchase agreement. The acquired
assets consisted primarily of local voicemail subscribers, a voicemail system,
pagers and spare parts, accounts receivable, and furniture and fixtures. The
purchase price was approximately $1,400,000 before recording certain
acquisition expenses and adjustments and was financed through the Company's
term loan and revolving credit facility.
CALL ONE, INC. ("CALL")
Effective February 15, 1997, Satellink acquired substantially all of the
assets of Call under the terms of an asset purchase agreement. The acquired
assets consisted primarily of voice mail subscribers. The purchase price was
approximately $250,000 before recording certain acquisition expenses and
adjustments and was financed through the Company's term loan and revolving
credit facility.
SATELINK PAGING, INC. ("SPI")
Effective May 23, 1997, Satellink acquired all of the outstanding capital
stock of SPI under the terms of a stock purchase agreement. Subsequent to the
acquisition, SPI was merged into Satellink Paging, LLC. The acquired assets
consisted primarily of local paging subscribers, a paging terminal and
transmitter, pagers and spare parts, accounts receivable, an FCC license, and
furniture and fixtures. The purchase price was approximately $1,650,000 before
recording certain acquisition expenses and adjustments and was financed
through the Company's term loan and revolving credit facility.
FAST COMMUNICATIONS, INC. ("FAST")
Effective May 23, 1997, Satellink acquired substantially all of the assets
of Fast under the terms of an asset purchase agreement. The acquired assets
consisted primarily of local paging subscribers, a paging terminal, pagers and
spare parts, accounts receivable, an airtime credit from a paging carrier, and
furniture and fixtures. The purchase price was approximately $330,000 before
recording certain acquisition expenses and adjustments and was financed
through the Company's term loan and revolving credit facility.
THE DREXLER COMPANY, INC. D/B/A FLINT RIVER PAGING ("FLINT")
Effective May 23, 1997, Satellink acquired substantially all of the assets
of Flint under the terms of an asset purchase agreement. The acquired assets
consisted primarily of local paging subscribers, a paging terminal, pagers and
spare parts, accounts receivable, an FCC license, and furniture and fixtures.
The purchase price was approximately $125,000 before recording certain
acquisition expenses and adjustments and was financed through the Company's
term loan and revolving credit facility.
RADIOFONE OF GEORGIA, INC. ("RADIOFONE")
Effective September 10, 1997, Satellink acquired substantially all of the
assets of Radiofone under the terms of an asset purchase agreement. The
acquired assets consisted primarily of local subscribers, a paging terminal,
F-13
<PAGE>
SATELLINK COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
an FCC license, pagers, and furniture and fixtures. The purchase price was
approximately $190,000 before recording certain acquisition expenses and was
financed through the Company's term loan and revolving credit facility.
WALL COMMUNICATIONS, INC. D/B/A SATELLITE PAGING COMPANY ("WALL")
Effective October 1, 1997, Satellink acquired substantially all of the
assets of Wall under the terms of an asset purchase agreement. The acquired
assets consisted primarily of paging subscribers, a Regional Affiliate
Agreement with CUE, pagers, and furniture and fixtures. The purchase price was
approximately $400,000 before recording certain acquisition expenses and was
financed through the Company's revolving credit facility.
The following unaudited pro forma information has been prepared assuming
that the acquisitions occurred at the beginning of the year of acquisition and
the year immediately preceding. The unaudited pro forma information is
presented for informational purposes only and may not be indicative of the
results of operations as they would have been had the acquisitions been
consummated at the beginning of the respective periods, nor is the information
necessarily indicative of the results of operation which may occur in the
future operations of the combined entities.
<TABLE>
<CAPTION>
SIX MONTHS
YEARS ENDED JULY 31, ENDED
------------------------- JANUARY 31,
1995 1996 1997 1998
------- ------- ------- -----------
<S> <C> <C> <C> <C>
Pro forma revenues................... $12,930 $17,104 $19,554 $10,206
Pro forma income before extraordinary
item................................ (1,437) (1,640) (1,956) (1,688)
Pro forma net loss attributable to
common shareholders.. (1,525) (2,107) (2,394) (1,907)
Allocation of earnings to:
Class A............................ (1,423) (1,985) (2,358) (1,905)
Class B............................ (102) (122) (36) (2)
Pro forma earnings per share:
Class A............................ $ (0.64) $ (0.93) $ (1.04) $ (0.83)
Class B............................ (51.09) (61.11) (71.81) (3.81)
</TABLE>
4. INVESTMENT IN JOINT VENTURE
On May 25, 1995, the Company entered into a joint venture agreement with CR
(which was subsequently acquired in June 1996) (Note 3) and an additional
paging company to form and operate a third-party supplier, FM Concepts, Ltd.
("FM Concepts"). Under the terms of the agreement, the Company was obligated
to make capital contributions to FM Concepts totaling $250,000.
In conjunction with the CR acquisition, FM Concepts was reorganized and
contributed all of its assets with the exception of its pager development
project to FM Concepts, L.L.C. The Company's ownership percentage in both FM
Concepts and FM Concepts L.L.C. was 33.3%. As a result of the acquisition, the
Company acquired an additional 16.7% ownership interest in FM Concepts L.L.C.,
bringing its ownership percentage to 50% at July 31, 1997.
Due to the terms of the joint venture agreement, the Company's 50% ownership
interest does not grant the Company control over the operations of the joint
venture; however, it does exercise significant influence. Accordingly, the
Company accounts for its investments in FM Concepts and FM Concepts L.L.C.
using the equity method of accounting. Accordingly, the Company's net
investment has been reported as investment in joint ventures in the
accompanying consolidated balance sheets. The Company has adjusted the
investment account balance according to its pro rata ownership percentage.
F-14
<PAGE>
SATELLINK COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
5. INVESTMENT IN DIRECT LINK
On December 1, 1995, the Company acquired 60% of the membership interests of
Direct Link for $21,300. This acquisition increased the Company's ownership
percentage in Direct Link to 85%. The consolidated financial statements
include the accounts of Direct Link. The minority interest represents the 15%
separate ownership in Direct Link.
The Company also agreed to make additional investments in Direct Link in the
form of a promissory note not to exceed $400,000. The promissory note will
bear interest at the prime rate plus 2%. As of July 31, 1997 and January 31,
1998, the aggregate amount outstanding under the promissory note totaled
$380,799 which is eliminated in consolidation.
6. LONG-TERM DEBT
Long-term debt at July 31, 1996 and 1997 and January 31, 1998 consisted of
the following:
<TABLE>
<CAPTION>
JULY 31,
----------------------- JANUARY 31,
1996 1997 1998
----------- ----------- -----------
<S> <C> <C> <C>
$8,000,000 note payable to bank, variable
interest rate (9.83% at January 31, 1998),
net of unamortized discount of $226,182,
$188,892, and $166,182 at July 31, 1996
and 1997 and January 31, 1998,
respectively, payable in quarterly
installments;principal due in full on
March 31, 2002; secured by all of the
assets of Satellink Paging, LLC and a
pledge of 100% of the Company's ownership
interest in Satellink Paging, LLC......... $ 5,273,818 $ 7,811,018 $ 7,833,818
$17,000,000 revolving credit facility,
variable interest rate (9.83% at January
31, 1998); interest only with principal
payable in full on March 31, 2002; secured
by all of the assets of Satellink Paging,
LLC and a pledge of 100% of the Company's
ownership interest in Satellink Paging,
LLC....................................... 7,350,092 10,957,394 16,007,394
Notes payable to sellers, interest at 8%
(Note 3)................................. 465,978 559,736 28,000
----------- ----------- -----------
13,089,888 19,328,148 23,869,212
Less current portion...................... 811,749 917,326 428,000
----------- ----------- -----------
$12,278,139 $18,410,822 $23,441,212
=========== =========== ===========
</TABLE>
Following are maturities of long-term debt as of January 31, 1998 for each
of the next five years ending on July 31:
<TABLE>
<S> <C>
Six months ending July 31, 1998.............................. $ 428,000
1999......................................................... 1,600,000
2000......................................................... 1,700,000
2001......................................................... 2,200,000
2002......................................................... 17,941,212
-----------
Total.................................................... $23,869,212
===========
</TABLE>
The fair values of long-term debt, including current maturities, at July 31,
1996 and 1997 and January 31, 1998 approximate the carrying values due to the
variable rates of the instruments.
F-15
<PAGE>
SATELLINK COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In March 1997, the Company amended its term loan and revolving credit
facility (the "New Credit Facility") with Creditanstalt-Bankverein
("Creditanstalt"), providing for maximum borrowings of $25,000,000. The New
Credit Facility was divided into a $17,000,000 revolving line of credit (the
"Revolver") and an $8,000,000 term note (the "Term Note"). The Revolver and
Term Note are both due in full on March 31, 2002 and bear interest, at the
Company's option, at either a Eurodollar interest rate option, as defined,
plus 4% or the prime rate plus 2%.
Under the most restrictive covenants of the New Credit Facility, the Company
must maintain a ratio of operating cash flow to interest expense, as defined,
and achieve specified levels of earnings under the terms of the agreement. As
of January 31, 1998, the Company was in compliance with these debt covenants.
7. EQUITY
COMMON STOCK
During 1996, the Company amended its Articles of Incorporation and increased
the number of authorized shares of Class A Common Stock to 5,000,000 shares
and approved the conversion of all outstanding shares of Class B Common Stock
into Class A Common Stock. As of January 31, 1998, 2,071 shares of Class B
Common Stock had been converted into 175,025 shares of Class A Common Stock.
There are no remaining shares of Class B Common Stock outstanding.
During June 1997, the Company's board of directors approved a 64-for-1 share
dividend to shareholders of record as of June 30, 1997. All share information
has been restated to give effect to the stock dividend.
CONVERTIBLE PREFERRED STOCK
During September 1991, the Company sold 7,360 shares of Series A Convertible
Preferred Stock (the "Series A Preferred Stock") for $100 per share and
received proceeds of $736,000. The Series A Preferred Stock carries a 12% cash
coupon, which is paid monthly. In the event of liquidation of the Company,
holders of Series A Preferred Stock are entitled to $100 plus accrued
dividends and cumulative premium at $38 per annum not to exceed $190 per
share. Each share of Series A Preferred Stock is callable by the Company any
time following the third anniversary of the original issue date, as defined,
and is convertible into 65 shares of Class A Common Stock of the Company.
During 1996, the Company amended its Articles of Incorporation and increased
the number of authorized shares of Series B Convertible Preferred Stock
("Series B Preferred Stock") to 30,000 shares. The Series B Preferred Stock is
nonvoting, and the holders will receive dividends equal to those paid to the
holders of the Company's Common Stock when such dividends are declared. In the
event of liquidation of the Company, holders of Series B Preferred Stock are
entitled to the identical privileges as the holders of the Company's Common
Stock. Each share of Series B Preferred Stock is convertible into 65 shares of
Class A Common Stock.
STOCK WARRANTS
In connection with the Company's original financing agreement with
Creditanstalt, the Company issued a warrant to Creditanstalt to purchase
either 1,009,859 shares of Class A Common Stock or 11,951 shares of Series B
Preferred Stock at an exercise price of $.01 per share. The cost of the
proceeds from the term loan and facility was allocated between long-term debt
and stock warrants. The estimated $450,000 fair market value of the stock
warrants at the date of grant was included in long-term liabilities in the
accompanying consolidated balance sheets. Due to the Company increasing its
line of credit in 1995, Creditanstalt was issued an additional warrant to
purchase 162,324 shares of Class A Common Stock or 1,921 shares of Series B
Preferred Stock at an exercise
F-16
<PAGE>
SATELLINK COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
price of $.01 per share. The estimated $94,682 fair market value of the stock
warrant at the date of grant was included in long-term liabilities in the
accompanying consolidated balance sheets. During June 1996, the Company
amended its credit agreement. In connection with the amendment, the Company
issued additional warrants to purchase 35,152 and 28,138 shares of either
Class A Common Stock at exercise prices of $.01 per share and $3.08 per share,
respectively, or 416 and 333 shares of Series B Preferred Stock at exercise
prices of $.01 per share and $200 per share, respectively. The estimated
$68,180 fair value of the stock warrants at the date of grant was included in
long-term liabilities in the accompanying consolidated balance sheets. The
debt discounts are being amortized to warrant accretion expense over the term
of the term loan and facility. The difference between the estimated fair
market value of the stock warrants at the issue date and their estimated
redemption prices will be accreted as a direct charge to earnings over the
term of the facility and term loan. During fiscal 1995, 1996, and 1997 and the
six months ended January 31, 1998, the Company recorded incremental warrant
accretion expense in the amount of $643,000, $854,350, $1,773,107, and
$228,874, respectively, to reflect the increase in the estimated redemption
price of the stock warrants. In addition to the warrant issuances noted above,
the Company retired 585 warrants and repurchased 34,970 warrants from
Creditanstalt during fiscal year 1996.
The Company may be required to repurchase the unexercised warrants over the
period from November 17, 2001 through December 3, 2006 at a price per share
which values the Company's equity at ten times operating cash flows for the
most recent 12-month period less debt, as defined in the warrant agreement.
The warrants represent rights to purchase approximately 23% of the Company's
outstanding capital stock.
Upon the completion of an initial public offering, the right to put the
warrants back to the Company for cash is contractually eliminated.
STOCK OPTIONS
On August 1, 1995, the Company granted an option to an employee to purchase
84,500 shares of the Company's Class A Common Stock at an exercise price of
$2.31 per share (the estimated fair value at the date of grant). The option
has a term of five years and vests ratably over a period of three years.
During fiscal 1997, the Company granted an option to an outside consultant
to purchase 169,000 shares of the Company's Class A Common Stock at an
exercise price of $4.78 per share (the estimated fair value at the date of
grant). The option was in consideration for services provided regarding the
Company's acquisitions and has been recorded in additional paid-in capital in
the accompanying consolidated balance sheets based on the estimated fair value
of the services received. The option has a term of five years and vested
immediately.
During the six months ended January 31, 1998, the Company granted options to
employees to purchase 140,898 shares of the Company's Class A Common Stock at
an exercise price of $6.00 per share (the estimated fair value at the date of
grant). The options have terms of ten years and vest ratably over a period of
three years.
STATEMENT OF FINANCIAL ACCOUNTING STANDARDS NO. 123
During 1995, the FASB issued SFAS No. 123, "Accounting for Stock-Based
Compensation," which defines a fair value-based method of accounting for
employee stock options or similar equity instrument and encourages all
entities to adopt that method of accounting for all of their employee stock
compensation plans. However, it also allows an entity to continue to measure
compensation cost for those plans using the method of accounting prescribed by
APB 25, "Accounting for Stock Issued to Employees" ("APB 25"). Entities
electing to remain with the accounting methodology required by APB 25 must
make pro forma disclosures of net income and earnings per share as if the fair
value-based method of accounting defined in SFAS No. 123 were used.
The Company has elected to account for its stock-based compensation plans
under APB 25, under which the Company has recognized no compensation cost.
However, the Company has computed, for pro forma
F-17
<PAGE>
SATELLINK COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
disclosure purposes, the estimated fair value of all options for shares of the
Company's Common Stock granted to employees during the years ended July 31,
1996 and 1997 and the six months ended January 31, 1998 using the Black-
Scholes option-pricing model as allowed under by SFAS No. 123 and based on the
following assumptions:
<TABLE>
<CAPTION>
JULY 31, JULY 31, JANUARY 31,
1996 1997 1998
---------- ---------- -----------
<S> <C> <C> <C>
Risk free interest rate.................. 6.27% 6.27%-6.52% 5.80%-6.52%
Expected dividend yield.................. 0% 0% 0%
Expected lives........................... Five years Five years Five years
Expected volatility...................... 0% 0% 0%
</TABLE>
The total fair value of the options granted during the years ended July 31,
1996 and 1997 and the six months ended January 31, 1998 was computed as
$39,435, $169,686, and $165,399, respectively, which would be amortized over
the vesting period of the options. If the Company had accounted for these
options in accordance with SFAS No. 123, the Company's reported pro forma net
loss attributable to common shareholders and earnings per share for the years
ended July 31, 1996 and 1997 and for the six months ended January 31, 1998
would have been as follows:
<TABLE>
<CAPTION>
SIX MONTHS
YEARS ENDED JULY 31, ENDED
------------------------ JANUARY 31,
1996 1997 1998
----------- ----------- -----------
<S> <C> <C> <C>
Net loss attributable to common
shareholders:
As reported
Class A......................... $(1,221,229) $(2,042,387) $(1,894,193)
Class B......................... (57,580) (24,053) (1,450)
----------- ----------- -----------
Total......................... $(1,278,809) $(2,066,440) $(1,895,643)
=========== =========== ===========
Pro forma
Class A......................... $(1,233,555) $(2,222,639) $(1,920,963)
Class B......................... (58,399) (26,632) (1,488)
----------- ----------- -----------
Total......................... $(1,291,954) $(2,249,271) $(1,922,451)
=========== =========== ===========
Basic net loss per share
attributable to common
shareholders, per share:
As reported
Class A......................... $ (0.44) $ (0.69) $ (0.63)
Class B......................... (28.60) (44.96) (41.10)
Pro forma
Class A......................... (0.44) (0.75) (0.64)
Class B......................... (29.01) (49.78) (42.51)
</TABLE>
F-18
<PAGE>
SATELLINK COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following table summarizes the transactions under the Company's stock
option plan:
<TABLE>
<CAPTION>
WEIGHTED
NUMBER AVERAGE
OF PRICE
OPTIONS PER SHARE
------- ---------
<S> <C> <C>
Outstanding at July 31, 1995.............................. -- $--
Granted................................................. 84,500 1.78
-------
Outstanding at July 31, 1996.............................. 84,500 1.78
Granted................................................. 169,000 3.68
-------
Outstanding at July 31, 1997.............................. 253,500 3.05
Granted................................................. 140,898 4.62
Exercised............................................... (56,333) 1.78
-------
Outstanding at January 31, 1998........................... 338,065 3.91
=======
</TABLE>
At July 31, 1997 and January 31, 1998, respectively, there were 253,500 and
338,065 options outstanding with a weighted average remaining contractual life
of 3.33 and 4 years, respectively, and a weighted average exercise price of
$3.05 and $3.91, respectively. There were 225,333 and 214,779 options
exercisable at a weighted average exercise price of $3.21 and $3.52 per share
as July 31, 1997 and January 31, 1998, respectively. The weighted average
grant date fair value of options granted during the year ended July 31, 1997
and for the six months ended January 31, 1998 was $1.01 and $1.18,
respectively.
8. REDEEMABLE CONVERTIBLE PREFERRED STOCK
During November 1995, the Company sold 3,500 shares of Series C Redeemable
Preferred Stock (the "Series C Preferred Stock") for $1,000 per share and
received proceeds of $3,500,000. The Series C Preferred Stock carries a 10%
cash coupon, which is paid monthly. Each share of Series C Preferred Stock may
be converted (subject to antidilution provisions), at the holders' option, at
any time into approximately 272.57 shares of the Company's Class A Common
Stock or 3.23 shares of Series B Convertible Preferred Stock. The Series C
Preferred Stock is redeemable (at the original purchase price plus accrued
dividends) on November 17, 2002. The Company paid dividends in the amounts of
$70, $100, and $50 per share during the years ended July 31, 1996 and 1997 and
the six months ended January 31, 1998, respectively.
9. INCOME TAXES
The Company recorded no federal or state income tax benefit for each of the
three years ended July 31, 1997 and the six months ended January 31, 1998 due
to the level of pre-tax losses incurred in recent years.
The reconciliation of the effective income tax rate to the federal statutory
tax rate is as follows:
<TABLE>
<CAPTION>
YEARS ENDED JULY 31,
-------------------------- SIX MONTHS ENDED
1995 1996 1997 JANUARY 31, 1998
------ ------ ------ ----------------
<S> <C> <C> <C> <C>
Federal income tax statutory
rate........................... (34)% (34)% (34)% (34)%
Effect of net operating loss
carryforward and valuation
allowance...................... 38 38 38 38
State income tax, net of Federal
benefit........................ (4) (4) (4) (4)
------ ------ ------ ---
Effective income tax rate....... 0 % 0 % 0 % 0 %
====== ====== ====== ===
</TABLE>
F-19
<PAGE>
SATELLINK COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Deferred tax assets (liabilities) are comprised of the following as of July
31, 1996 and 1997 and January 31, 1998:
<TABLE>
<CAPTION>
1996 1997 1998
----------- ----------- -----------
<S> <C> <C> <C>
Deferred tax assets:
Net operating loss carryforwards... $ 1,886,268 $ 2,084,978 $ 2,903,302
Bad debt reserve................... 79,564 143,480 114,576
Other.............................. 51,072 57,339 76,782
----------- ----------- -----------
2,016,904 2,285,797 3,094,660
Deferred tax liabilities:
Accelerated depreciation........... (873,057) (1,239,386) (1,749,111)
----------- ----------- -----------
Total net deferred tax asset
before valuation allowance...... 1,143,847 1,046,411 1,345,549
----------- ----------- -----------
Less valuation allowance........... (1,143,847) (1,046,411) (1,345,549)
----------- ----------- -----------
Total net deferred taxes......... $ 0 $ 0 $ 0
=========== =========== ===========
</TABLE>
The increase in the valuation allowance for the six months ended January 31,
1998 was $299,138, related to additional operating loss carryforwards. The
decrease in the valuation allowance for the years ended July 31, 1996 and 1997
was $8,704 and $97,436 related to changes in certain temporary differences,
net of additional operating loss carryforwards.
As of July 31, 1997 and January 31, 1998, the Company had net operating loss
carryforwards, which expire at various dates through 2010, of approximately
$5,212,000 and $7,258,000, respectively. The issuance of stock by the Company
may result in an "ownership change" as defined by the Tax Reform Act of 1986.
Therefore, the unused net operating loss carryforwards could be subject to
limitation. Also, the net operating loss carryforwards used to offset any
taxes calculated, as alternative minimum tax, could be less than the regular
net operating loss carryforwards. Based on pretax losses incurred in recent
years, management has established a valuation allowance against the entire net
deferred tax asset balance. Management believes that through various tax
planning strategies and the Company's overall business plan that the Company
will generate sufficient future taxable income to realize the deferred tax
assets; however, at this time, insufficient objective information exists to
conclude that realization is more likely than not. In the event the planned
initial public offering of Common Stock is completed (Note 13), and the net
proceeds are used to reduce long-term debt and related interest expense, it is
likely that all or a significant portion of the valuation allowance will be
reversed at that time.
The Company made no tax payments during the years ended July 31, 1995, 1996
and 1997, and the six months ended January 31, 1998.
10. COMMITMENTS, CONTINGENCIES, RISKS AND UNCERTAINTIES
OPERATING LEASES
The Company leases office space, antenna sites, and subcarrier frequencies
under noncancelable operating leases expiring on various dates through 2001.
The majority of the subcarrier frequency leases have additional renewal terms
ranging from 10 to 14 years at the option of either party. Because the
Company's operations are dependent upon the availability of antenna sites and
subcarrier frequencies, management expects that most leases will be renewed or
replaced by other leases. The Company recorded lease expense of approximately
$473,000, $757,000, $846,000, and $566,000 for the years ended July 31, 1995,
1996 and 1997 and for the six months ended January 31, 1998, respectively,
related to these operating leases.
F-20
<PAGE>
SATELLINK COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Minimum future payments under noncancelable operating leases as of January
31, 1998 for each of the next five years ending July 31 are as follows:
<TABLE>
<S> <C>
Six months ending July 31, 1998.................................. $ 458,000
1999............................................................. 692,000
2000............................................................. 546,000
2001............................................................. 266,000
2002............................................................. 45,000
----------
$2,007,000
==========
</TABLE>
LEGAL PROCEEDINGS
The Company is subject to lawsuits arising in the ordinary course of
business. In the opinion of management, the ultimate resolution of these
pending legal proceedings will not have a material adverse effect on the
Company's business or financial condition.
DEPENDENCE UPON TELECOMMUNICATIONS PROVIDERS -- NO GUARANTEED SUPPLY
Other than certain local and regional paging networks, the Company does not
own a transmission network and, accordingly, depends on MCI Communications
Corporation and other facilities-based and non-facilities based carriers for
transmission of its subscribers' long distance calls and the majority of its
paging data. These long distance telecommunications and paging services
generally are procured pursuant to supply agreements for terms of up to three
years, subject to earlier termination in certain events. Certain of these
agreements provide for minimum purchase requirements. Further, the Company is
dependent upon local exchange carriers ("LECs") for call origination and
termination. The Company's ability to maintain and expand it business depends,
in part, on its ability to continue to obtain telecommunications services on
favorable terms from long distance and paging carriers and the cooperation of
both interexchange carriers and LECs in originating and terminating service
for its subscribers in a timely manner. The partial or total loss of the
ability to initiate or terminate calls would result in a loss of revenues by
the Company and could lead to a loss of subscribers, which could have a
material adverse effect on the Company's business, financial condition and
results of operations.
RISK OF LOSS FROM RETURNED TRANSACTIONS, FRAUD, BAD DEBT, AND THEFT OF
SERVICES
From time to time, persons have gained unauthorized access to the Company's
network and obtained services without rendering payment to the Company by
unlawfully using the access numbers and personal identification numbers
("PINs") of authorized users. No assurance can be given that future losses due
to unauthorized use of access numbers and PINs will not be material. The
Company attempts to manage these risks through its internal controls and
billing system. The STAR*Net platform is designed to prohibit a single access
number and PIN from establishing multiple simultaneous connections to the
platform, and the Company establishes preset spending limits for each
subscriber. Although the Company believes that its risk management and bad
debt reserve practices are adequate, there can be no assurance that the
Company's risk management practices or reserves will be sufficient to protect
the Company from unauthorized or returned transactions or thefts of services
which could have a material adverse effect on the Company's business,
financial condition and results of operations.
DEPENDENCE ON NETWORKS, SWITCHING FACILITIES AND THE STAR*NET PLATFORMS;
DAMAGE, FAILURE, AND DOWNTIME
There can be no assurance that a fire, act of sabotage, technical failure,
natural disaster, or a similar event would not cause the failure of all or a
portion of the Company's network, a third party network on which the Company
relies, or any of its switching facilities or STAR*Net platforms, thereby
resulting in an interruption of
F-21
<PAGE>
SATELLINK COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
the Company's services. On May 18 and 19, 1998, the Galaxy 4 satellite, which
is owned by PanAmSat and transmits paging messages for a majority of the
pagers in service in the United States, malfunctioned, resulting in an
interruption of paging service to up to 40 million paging subscribers in the
United States, including approximately 25% of the Company's subscribers.
Because the Company uses multiple message distribution networks and the
majority of the Company's subscribers are serviced through the CUE nationwide
FM paging network and Company-owned VHF and UHF paging networks, most of the
Company's subscribers were not affected by the malfunction of the Galaxy 4
satellite. However, there can be no assurance that a technical malfunction
such as the one that affected the Galaxy 4 satellite will not affect one or
more of the Company's distribution networks, resulting in an interruption of
the Company's services. Such an interruption could have a material adverse
effect on the Company's business, financial condition and results of
operations.
The Company currently maintains switching facilities and STAR*Net platforms
in Atlanta, Albany, Augusta, Cordele, Macon, Savannah and Valdosta, Georgia;
Birmingham, Alabama; Baton Rouge and New Orleans, Louisiana; and Dallas,
Texas. The Company's network service operations are dependent on its ability
to protect the equipment and data at its switching facilities and STAR*Net
platforms against potential damage that may be caused by fire, power loss,
technical failures, unauthorized intrusion, natural disasters, sabotage and
other similar events. The Company has implemented monitored security systems,
controlled access and automated data backup procedures, uninterruptable power
supply systems and automated system trouble alerts. Nevertheless, any damage
to the Company's switching facilities or Star*Net platforms could have a
material adverse effect on the Company's business, financial condition and
results of operations.
LIMITATIONS OF CUE PAGING NETWORK
The Company's FM subcarrier paging network is located in Alabama and Georgia
and is linked with the CUE nationwide FM subcarrier paging network, through
which the Company delivers nationwide FM paging service. Accordingly, the
Company is dependent upon CUE for continued maintenance and development of its
nationwide FM subcarrier paging network. CUE is under no contractual
obligation to upgrade or further develop the network to accommodate new
technologies or subscribers beyond its current capabilities. The Company
estimates that the CUE network is currently operating at approximately 60% of
capacity and, assuming the continuation of historical growth rates on the CUE
network, that sufficient capacity is available to accommodate the Company's FM
subscriber growth for the next five years. There can be no assurance, however,
that the Company's estimate of the CUE network capacity or its projection of
the Company's subscriber growth are accurate. If CUE fails to maintain its
nationwide network, fails to upgrade or further develop the network or if the
Company's estimates of network capacity or projections of subscriber growth
are inaccurate, the Company may experience a material adverse effect on its
business, financial condition and results of operations.
11. RELATED-PARTY TRANSACTIONS
The Company pays CUE monthly amounts for regional and nationwide airtime
charges, various telephone charges, and co-op advertising fees. Approximately
$1,681,920, $2,513,000, $4,244,000, and $2,135,865 was paid to CUE for the
years ended July 31, 1995, 1996, 1997 and the six months ended January 31,
1998, respectively, and has been recorded in services, rent and maintenance in
the accompanying consolidated statements of operations. Approximately
$356,000, $341,000, and $369,000 was payable to CUE and is included in
accounts payable and accrued liabilities in the accompanying consolidated
balance sheets as of July 31, 1996 and 1997 and January 31, 1998,
respectively.
The Company purchases pagers from FM Concepts. Approximately $1,421,000,
$1,512,000, and $910,000 was paid to FM Concepts for the years ended July 31,
1996 and 1997 and the six months ended January 31, 1998, respectively and has
been recorded in property and equipment in the accompanying consolidated
balance
F-22
<PAGE>
SATELLINK COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
sheets. Approximately $112,000, $0, and $0 was payable to FM Concepts at July
31, 1996 and 1997 and January 31, 1998, respectively, and is included in the
accompanying consolidated balance sheets.
12. RETIREMENT PLAN
Effective April 1, 1995, the Company adopted a 401(k) retirement plan
covering substantially all employees, which provides for discretionary
employer-matching contributions. The Company contributed $0, $9,500, $20,600,
and $0 during the years ended July 31, 1995, 1996 and 1997, and the six months
ended January 31, 1998, respectively.
13. SUBSEQUENT EVENTS (UNAUDITED)
On January 1, 1998, the Company acquired 15% of the common stock of Direct
Link. This acquisition increased the Company's ownership percentage in Direct
Link to 100%.
March 11, 1998, the Company increased its Revolver from $25 million to $30
million with an additional increase to $40 million contingent on the Company
raising at least $3 million on terms that are satisfactory to the lenders. The
Company paid $150,000 for the increase in the Revolver.
Effective April 1, 1998, the Company acquired substantially all of the
assets of Premiere Paging, Inc. and Premiere Paging of New Orleans, Inc. under
the terms of an asset purchase agreement. The acquired assets consisted
primarily of local subscribers, paging terminals, FCC licenses, pagers, and
furniture and fixtures. The purchase price was approximately $4,300,000 before
recording certain acquisition expenses and was financed through the proceeds
from the issuance of Series D Convertible Preferred Stock.
On April 3, 1998, the Company sold 4,500 shares of Series D Convertible
Preferred Stock ("Series D Preferred Stock") together with 126,000 detachable
stock warrants with an exercise price of $6.00 per share and received
aggregate proceeds of $4.5 million. The proceeds were allocated $4,405,000 to
the Series D Preferred Stock and $45,000 to the stock warrants based on their
relative fair values at the date of issuance. The Series D Preferred Stock
carries an 8.55% cash coupon, which is payable monthly. The securities may be
redeemed at the purchaser's option any time after the first anniversary of the
closing date. The Company may call the Series D Preferred Stock for redemption
any time after the first anniversary of the closing date but will be required
to redeem the Series D Preferred Stock in conjunction with an initial public
offering. The stock warrants are exercisable immediately and expire in 2008.
On May 1, 1998, the Company acquired Hyde's Stay in Touch, Inc. The
estimated purchase price was approximately $12,200,000 and was financed by
additional debt under the Revolver and a promissory note.
In April of 1998, the Company increased its authorized Class A Common Stock
to 50,000,000 common shares.
The Company has filed a registration statement on Form S-1 with the
Securities and Exchange Commission for an initial public offering of 3.65
million shares of Common Stock, of which 2.75 million shares will be offered
and sold by the Company and 900,000 shares will be offered and sold by certain
shareholders of the Company. Shares of the Company's Class A Common Stock will
be renamed Common Stock upon the completion of the initial public offering.
There can be no assurance that this initial public offering will be completed.
On , 1998, the Company effectuated a 1.3-for-one split. All share and
per share amounts have been retroactively adjusted to effect this split.
F-23
<PAGE>
SATELLINK COMMUNICATIONS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
AS OF JULY 31, 1997 AND APRIL 30,1998
<TABLE>
<CAPTION>
JULY 31, APRIL 30,
1997 1998
----------- -----------
(UNAUDITED)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents........................... $ 193,346 $ 255,167
Accounts receivable, net............................ 2,698,481 4,322,969
Other receivables................................... 147,470 265,363
Inventory........................................... 268,201 170,855
Prepaid expenses and other current assets........... 362,053 532,050
----------- -----------
Total current assets.............................. 3,669,551 5,546,404
----------- -----------
PROPERTY AND EQUIPMENT:
Paging systems and equipment........................ 8,973,493 11,715,061
Computer and terminal equipment..................... 3,745,525 3,749,147
Furniture and fixtures.............................. 297,686 537,539
Leasehold improvements.............................. 107,766 108,966
----------- -----------
13,124,470 16,110,713
Less accumulated depreciation....................... (4,371,932) (4,945,836)
----------- -----------
Property and equipment, net....................... 8,752,538 11,164,877
----------- -----------
OTHER LONG TERM ASSETS:
Goodwill, net....................................... 9,447,098 13,827,596
Other intangible assets, net........................ 2,999,874 3,895,013
Investments in joint ventures....................... 219,627 560,363
Other............................................... 33,291 0
----------- -----------
Total other long term assets...................... 12,699,890 18,282,972
----------- -----------
Total assets...................................... $25,121,979 $34,994,253
=========== ===========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
balance sheets.
F-24
<PAGE>
SATELLINK COMMUNICATIONS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
AS OF JULY 31, 1997 AND APRIL 30, 1998
<TABLE>
<CAPTION>
JULY 31, APRIL 30,
1997 1998
----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
Current maturities of long term debt........... $ 917,326 $ 1,200,000
Accounts payable and accrued liabilities....... 2,434,295 2,132,040
Customer deposits.............................. 372,140 280,898
Deferred revenues.............................. 1,076,248 1,283,797
Accrued dividends on preferred stock........... 88,047 93,011
----------- -----------
Total current liabilities.................... 4,888,056 4,989,746
----------- -----------
LONG-TERM DEBT, less current maturities.......... 18,410,822 25,262,612
----------- -----------
STOCK WARRANTS................................... 4,346,722 4,975,162
----------- -----------
MINORITY INTEREST................................ 5,351 --
----------- -----------
COMMITMENTS AND CONTINGENCIES
SERIES C REDEEMABLE CONVERTIBLE PREFERRED STOCK:
$0.01 par value; 3,500 shares authorized; 3,500
shares issued and outstanding at July 31, 1997
and April 30, 1998; entitled to a maximum of
$1,000 per share plus accrued dividends in
liquidation, dissolution, or windup of the
Company....................................... 3,500,000 3,500,000
Series D redeemable preferred stock, $.01 par
value; 0 and 4,500 shares authorized, issued
and outstanding at July 31, 1997 and April 30,
1998, respectively............................ -- 4,500,000
SHAREHOLDERS' EQUITY (DEFICIT):
Series A convertible preferred stock $.01 par
value; 7,500 shares authorized, 7,360 shares
issued and outstanding at 1997 and April 30,
1998, entitled to a maximum of $290 per share
plus accrued dividends in liquidation,
dissolution, or windup of the Company......... 74 74
Series B convertible preferred stock, $.01 par
value; 30,000 shares authorized at July 31,
1997 and April 30, 1998, respectively, 0
shares issued and outstanding................. -- --
Common stock, $.01 par value:
Class A voting, 5,000,000 shares authorized,
2,952,811, and 3,054,377 shares issued and
outstanding at 1997 and April 30, 1998,
respectively................................. 29,528 30,544
Class B nonvoting, 20,000 shares authorized,
535.65, and 0 shares issued and outstanding
at July 31, 1997 and April 30, 1998,
respectively................................. 5 --
Additional paid in capital..................... 2,369,807 2,537,282
Accumulated deficit............................ (8,428,386) (10,801,167)
----------- -----------
Total shareholders' deficit.................. (6,028,972) (8,233,267)
----------- -----------
Total liabilities and shareholders' equity
(deficit)................................... $25,121,979 $34,994,253
=========== ===========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
balance sheets.
F-25
<PAGE>
SATELLINK COMMUNICATIONS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE NINE MONTHS ENDED APRIL 30, 1997 AND 1998
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
APRIL 30,
------------------------
1997 1998
----------- -----------
<S> <C> <C>
REVENUES:
Service, rent and maintenance revenues.............. $11,899,261 $14,577,001
Product sales....................................... 855,636 903,454
----------- -----------
Total revenues.................................... 12,754,897 15,480,455
Cost of products sold............................... (840,014) (801,288)
----------- -----------
Net revenues...................................... 11,914,883 14,679,167
OPERATING EXPENSES:
Service, rent and maintenance....................... 4,870,267 5,475,108
Selling and marketing............................... 1,696,360 2,260,730
General and administrative.......................... 2,094,709 2,563,402
Engineering......................................... 473,940 631,056
Depreciation and amortization....................... 1,604,970 2,130,085
Fixed asset impairment and one-time reengineering
charges............................................ -- 1,533,996
----------- -----------
Total operating expenses.......................... 10,740,246 14,594,377
----------- -----------
OPERATING INCOME .................................... 1,174,637 84,790
----------- -----------
OTHER INCOME (EXPENSE):
Other income........................................ 69,293 180,433
Interest expense.................................... (1,099,857) (1,740,176)
Accretion of stock warrants ........................ (1,251,823) (628,440)
(Loss) income from joint venture ................... 20,353 98,970
Minority interest................................... (1,828) (7,740)
----------- -----------
(2,263,862) (2,096,953)
----------- -----------
NET LOSS ............................................ (1,089,225) (2,012,163)
----------- -----------
PREFERRED STOCK DIVIDENDS............................ 328,743 360,618
----------- -----------
NET LOSS ATTRIBUTABLE TO COMMON SHAREHOLDERS......... $(1,417,968) $(2,372,781)
=========== ===========
Allocation of earnings to:
Class A............................................. $(1,401,463) $(2,371,284)
Class B............................................. (16,505) (1,497)
BASIC AND DILUTED NET LOSS PER SHARE
Class A............................................. (0.47) (0.79)
Class B............................................. (30.85) (51.11)
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING:
Class A............................................. 2,952,811 3,015,800
Class B............................................. 535 29
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
statements of operations.
F-26
<PAGE>
SATELLINK COMMUNICATIONS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED APRIL 30, 1997 AND 1998
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
APRIL 30,
------------------------
1997 1998
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss............................................ $(1,089,225) $(2,012,163)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Minority interest................................... 1,828 7,740
Depreciation and amortization....................... 1,604,970 2,130,085
Asset Impairment.................................... 0 1,533,996
Accretion of stock warrants......................... 1,251,823 628,440
Changes in operating assets and liabilities:
Accounts receivable................................ (592,097) (1,502,791)
Other receivables.................................. 8,407 (117,893)
Prepaid expenses and other current assets.......... (73,750) (16,224)
Other assets....................................... (486,391) (756,004)
Accounts payable and accrued liabilities........... 323,295 865,644
Customer deposits.................................. (1,138) 91,242
Deferred revenues.................................. 69,235 (207,549)
----------- -----------
Total adjustments................................. 2,106,182 2,656,686
----------- -----------
Net cash provided by (used in) operating activi-
ties............................................. 1,016,957 644,523
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of businesses, net of cash acquired....... (1,872,394) (5,827,847)
Purchases of property and equipment, net............ (2,869,668) (5,792,929)
Investment in joint venture......................... (20,065) (340,736)
----------- -----------
Net cash used in investing activities............. (4,762,127) (11,961,512)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of preferred stock........... -- 4,500,000
Payment of preferred stock dividends................ (306,663) (355,654)
Proceeds from issuance of long term debt, net....... 3,595,709 7,134,464
Proceeds from issuance of common stock.............. -- 100,000
----------- -----------
Net cash provided by financing activities......... 3,289,046 11,378,810
----------- -----------
NET INCREASE (DECREASE) IN PERIOD.................... (456,124) 61,821
CASH AT BEGINNING OF PERIOD.......................... 524,708 193,346
----------- -----------
CASH AT END OF YEAR.................................. $ 68,584 $ 255,167
=========== ===========
CASH PAID FOR INTEREST............................... $ 1,103,208 $ 1,838,396
=========== ===========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
statements of cash flows.
F-27
<PAGE>
SATELLINK COMMUNICATIONS, INC. AND SUBSIDIARIES
CONDENSED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to Article 10 of Regulation
S-X of the Securities and Exchange Commission. The accompanying unaudited
condensed consolidated financial statements reflect, in the opinion of
management, all adjustments necessary to achieve a fair statement of financial
position and results for the interim periods presented. All such adjustments
are of a normal recurring nature. It is suggested that these condensed
financial statements be read in conjunction with the annual consolidated
financial statements of the Company and the notes thereto.
2. On April 1, 1998, the Company acquired substantially all of the assets of
Premiere Paging, Inc. and Premiere Paging of New Orleans, Inc. under the terms
of an asset purchase agreement. The acquired assets consisted primarily of
local subscribers, paging terminals, FCC licenses, pagers, and furniture and
fixtures. The purchase price was approximately $4,300,000 before recording
certain acquisition expenses and was financed through the issuance of Series D
Convertible Preferred Stock.
In the fourth quarter of the Company's fiscal year ended 1998, the Company
is planning an offering of its common stock to repay outstanding indebtedness
under the Company's Credit Facility with Creditanstalt and to redeem all
shares of its Series D Preferred Stock outstanding (the "Offering"). The
Company plans to issue 2,750,000 shares in the Offering. There can, however,
be no assurance that the Offering can be completed. There are significant
potential risks associated with this Offering as well as the Company's ability
to compete profitably in this industry. See the "Risk Factors" section (pages
8 to 20) in the foregoing Prospectus related to the proposed Offering for a
discussion of these risks.
Any increases in the Company's growth rate, shortfalls in anticipated
revenues, increases in anticipated expenses, increases in the number of
subscribers acquired, or significant acquisition opportunities could have a
material adverse effect on the Company's liquidity and capital resources and
would require the Company to raise additional capital from public or private
equity or debt sources in order to finance operating losses, anticipated
growth and contemplated capital expenditures. If such sources of financing are
insufficient or unavailable, the Company will be required to modify its growth
and operating plans in accordance with the extent of available funding and
attempt to attain profitability in its existing markets. The Company may need
to raise additional funds in order to take advantage of unanticipated
opportunities, such as acquisitions of complementary business or the
development of new products, or otherwise respond to unanticipated competitive
pressures. There can be no assurance that the Company will be able to raise
any such capital on terms acceptable to the Company or at all.
3. On April 3, 1998, the Company sold 4,500 shares of Series D Convertible
Preferred Stock ("Series D Preferred Stock") together with 126,000 detachable
stock warrants with an exercise price of $6.00 per share and received
aggregate proceeds of $4.5 million. The proceeds were allocated $4,405,000 to
the Series D Preferred Stock and $95,000 to the stock warrants based on their
relative fair values at the date of issuance. The Series D Preferred Stock
carries an 8.5% cash coupon, which is payable monthly. The securities may be
redeemed at the purchaser's option any time after the first anniversary of the
closing date. The Company may call the Series D Preferred Stock for redemption
any time after the first anniversary of the closing date but will be required
to redeem the Series D Preferred Stock in conjunction with an initial public
offering. The stock warrants are exercisable immediately and expire in 2008.
4. On March 11,1998, the Company increased it Revolver from $25 million to
$30 million with an additional increase to $40 million contingent on the
Company raising at least $3 million on terms that are satisfactory to the
lenders. The Company paid $150,000 for the increase in the Revolver.
F-28
<PAGE>
5. During 1997, the Company adopted Statement of Financial Accounting
Standards ("SFAS") No. 128, "Earning Per Share." SFAS No. 128 establishes
accounting standards for calculating earnings per share. All share and per
share information presented in these financial statements has been calculated
in accordance with this statement.
Earnings per share is presented using the two class method. Earnings
attributable to each class of common stock are allocated between each class of
stock based on the extent to which each class shares in the Company's
earnings. The Company's Class A and Class B common shareholders share in
dividends at a 1:84.5 ratio. All convertible preferred stock, options, and
warrants currently outstanding are antidilutive for all periods presented.
On February 4, 1998, the Securities and Exchange Commission released Staff
Accounting Bulletin ("SAB") No. 98 "Computation of Earnings Per Share." SAB
No. 98 requires the retroactive inclusion of nominal issuances of common stock
and common stock equivalents in earnings per share calculations for all
periods presented and precludes the use of treasury stock method for these
issuances. Management believes that all issuances of common stock and stock
options have been made at the current market value at the time of issuance and
that there have been no nominal issuances.
6. There was no provision for or cash payment of income taxes for the three
months and nine months ended April 30, 1997 and 1998, respectively, as the
Company had a net taxable loss for these periods and anticipates a net taxable
loss for the year ended July 31, 1998.
7. On May 1, 1998, the Company acquired substantially all of the assets of
Hyde's Stay In Touch, Inc. and its affiliated company under the terms of a
stock purchase agreement. The acquired assets consisted primarily of local
subscribers, paging terminals, pagers and receivables. The purchase price was
approximately $12.2 million before certain acquisition expenses and was
financed through the Company's Revolver and a promissory note.
On , 1998, the Company effectuated a 1.3-for-one split. All share and
per share amounts have been retroactively adjusted to effect this split.
F-29
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Atlanta Voice Page, Inc.:
We have audited the accompanying balance sheet of ATLANTA VOICE PAGE, INC.
(a Georgia corporation) as of December 31, 1995 and the related statement of
operations, shareholders' deficit, and cash flows for the year then ended.
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 audit.
We conducted our audit 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 audit provides 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 Atlanta Voice Page, Inc.
as of December 31, 1995 and the results of its operations and its cash flows
for the year then ended in conformity with generally accepted accounting
principles.
ARTHUR ANDERSEN LLP
Atlanta, Georgia
March 9, 1998
F-30
<PAGE>
ATLANTA VOICE PAGE, INC.
BALANCE SHEET
AS OF DECEMBER 31, 1995
<TABLE>
<S> <C>
ASSETS
CURRENT ASSETS:
Cash............................................................. $ 37,963
Accounts receivable.............................................. 94,940
Inventory........................................................ 21,332
----------
Total current assets........................................... 154,235
----------
PROPERTY AND EQUIPMENT, at cost:
Paging systems and equipment..................................... 701,699
Computer and terminal equipment.................................. 272,006
Office equipment................................................. 51,703
Furniture and fixtures........................................... 4,648
----------
1,030,056
Less accumulated depreciation.................................... (595,804)
----------
Property and equipment, net.................................... 434,252
----------
OTHER ASSETS:
Goodwill......................................................... 13,049
Intangible assets, net of accumulated amortization of $161,667... 3,333
Deposits......................................................... 1,585
----------
Total other assets............................................. 17,967
----------
$ 606,454
==========
LIABILITIES AND SHAREHOLDERS' DEFICIT
CURRENT LIABILITIES:
Current maturities of long-term debt (Note 4).................... $ 317,493
Accounts payable and accrued liabilities......................... 37,732
Line of credit (Note 3).......................................... 27,000
Deferred revenues................................................ 106,894
Customer deposits................................................ 19,754
----------
Total current liabilities...................................... 508,873
----------
LONG-TERM DEBT, less current maturities (Note 4)................... 222,618
----------
COMMITMENTS AND CONTINGENCIES (Note 5)
SHAREHOLDERS' DEFICIT:
Common stock, $.10 par value:
Voting, 10,000,000 shares authorized, 1,000,000 shares issued
and outstanding................................................ 100,000
Accumulated deficit............................................. (225,037)
----------
Total shareholders' deficit.................................... (125,037)
----------
$ 606,454
==========
</TABLE>
The accompanying notes are an integral part of this balance sheet.
F-31
<PAGE>
ATLANTA VOICE PAGE, INC.
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1995
<TABLE>
<S> <C>
REVENUES:
Service, rent and maintenance revenues............................ $ 962,315
Product sales..................................................... 248,264
---------
Total revenues.................................................. 1,210,579
---------
OPERATING EXPENSES:
Services, rent and maintenance.................................... 127,397
Selling and marketing............................................. 161,490
General and administrative........................................ 287,116
Depreciation and amortization..................................... 210,598
Cost of products sold............................................. 330,973
---------
Total operating expenses........................................ 1,117,574
---------
OPERATING INCOME.................................................... 93,005
---------
OTHER INCOME (EXPENSE):
Other income...................................................... 181
Interest expense.................................................. (95,241)
---------
(95,060)
---------
NET LOSS............................................................ $ (2,055)
=========
</TABLE>
The accompanying notes are an integral part of this statement.
F-32
<PAGE>
ATLANTA VOICE PAGE, INC.
STATEMENT OF SHAREHOLDERS' DEFICIT
FOR THE YEAR ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
COMMON STOCK
------------------ ACCUMULATED
SHARES AMOUNT DEFICIT TOTAL
--------- -------- ----------- ---------
<S> <C> <C> <C> <C>
BALANCE, December 31, 1994........... 1,000,000 $100,000 $(222,982) $(122,982)
Net loss........................... 0 0 (2,055) (2,055)
--------- -------- --------- ---------
BALANCE, December 31, 1995........... 1,000,000 $100,000 $(225,037) $(125,037)
========= ======== ========= =========
</TABLE>
The accompanying notes are an integral part of this statement.
F-33
<PAGE>
ATLANTA VOICE PAGE, INC.
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1995
<TABLE>
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss............................................................ $ (2,055)
--------
Adjustments to reconcile net loss to net cash provided by operating
activities:
Depreciation and amortization..................................... 210,598
Gain on sale of property and equipment............................ (95)
Changes in operating assets and liabilities:
Accounts receivable.............................................. (70,519)
Inventory........................................................ (21,332)
Other assets..................................................... 32
Accounts payable and accrued liabilities......................... 13,087
Customer deposits................................................ (2,031)
Deferred revenues................................................ 106,894
--------
Total adjustments............................................... 236,634
--------
Net cash provided by operating activities....................... 234,579
--------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of property and equipment........................ 61,001
Purchases of property and equipment................................. (182,496)
--------
Net cash used in investing activities........................... (121,495)
--------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of long-term debt............................ 165,454
Payments on long-term debt.......................................... (271,968)
--------
Net cash used in financing activities........................... (106,514)
--------
NET INCREASE IN CASH................................................. 6,570
CASH AT BEGINNING OF YEAR............................................ 31,393
--------
CASH AT END OF YEAR.................................................. $ 37,963
========
INTEREST PAID........................................................ $ 90,329
========
</TABLE>
The accompanying notes are an integral part of this statement.
F-34
<PAGE>
ATLANTA VOICE PAGE, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995
1. ORGANIZATION AND BUSINESS OPERATIONS
Atlanta Voice Page, Inc. (the "Company") (a Georgia corporation) is a
communications company providing local, regional, and nationwide voice paging
services to approximately 15,000 subscribers. The Company operates its own
local paging systems utilizing FM subcarrier technology and purchases regional
and nationwide airtime from PageNet, Porta-Phone, and MobileComm.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
USE OF ESTIMATES
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 AND DEFERRED REVENUES
The Company's policy is to recognize revenue at the time the service is
provided. Deferred revenues represent advance billings and collections for
charges from new and existing customers. The deferred revenues related to the
charges are recognized when earned, primarily in the following month.
CASH AND CASH EQUIVALENTS
The Company considers cash and cash equivalents to include cash on hand and
temporary cash investments purchased with an original maturity of three months
or less.
FAIR VALUE OF FINANCIAL INVESTMENTS
As of December 31, 1995, the estimated fair value of the Company's financial
instruments approximates their carrying value.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Expenditures for renewals and
improvements are capitalized, and replacements, maintenance, and repairs,
which do not improve or extend the lives of the respective assets, are
expensed as incurred. Depreciation is provided on a straight-line basis over
the remaining estimated useful lives, as follows:
<TABLE>
<S> <C>
Paging equipment................................................. 5 years
Paging systems................................................... 15 years
Computer and terminal equipment.................................. 3 years
Office equipment................................................. 2 years
Furniture and fixtures........................................... 5 years
</TABLE>
As of December 31, 1995, depreciation expense totaled $200,598 and is
included in depreciation and amortization in the accompanying statement of
operations.
F-35
<PAGE>
ATLANTA VOICE PAGE, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
INVENTORIES
Inventory consists of pagers held for sale. Inventory is valued at the lower
cost or market (determined on a first-in, first-out basis).
INTANGIBLE ASSETS
The Company was formed in 1991 when its original shareholder purchased the
assets and assumed all of the liabilities of Atlanta Voice Page, a division of
Comlite Systems Inc. ("Comlite"). Consideration provided for this purchase was
primarily debt of the Company, collateralized by the assets of the Company.
The assets purchased consisted primarily of local paging subscribers, a paging
system, pagers and spare parts, accounts receivable, and furniture and
fixtures. The assets purchased were recorded at their estimated fair value at
the acquisition date. The excess cost over the fair market value of the assets
acquired ("goodwill") is being amortized on a straight-line basis over a 15-
year period. The other intangible assets purchased relate to service contracts
acquired in 1991 and are being amortized on a straight-line basis over five
years.
The Company periodically reviews the carrying values assigned to goodwill
and other intangible assets based on expectations of future cash flows and
operating income generated by the underlying tangible assets in determining
whether intangible assets are recoverable.
LONG-LIVED ASSETS
Long-lived assets are evaluated regularly for other than temporary
impairment. If circumstances suggest that the asset values may be impaired, an
assessment of the assets' estimated fair value is performed and an impairment
loss is recognized in income from operations in the amount at which the
assets' carrying value exceeds the assets' estimated fair value. As of
December 31, 1995, none of the companies long-lived assets were considered to
be impaired.
ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
Accounts payable and accrued liabilities at December 31, 1995 consisted of
the following:
<TABLE>
<S> <C>
Accounts payable................................................. $13,045
Accrued payroll.................................................. 10,950
Accrued payroll taxes............................................ 10,604
Other accrued liabilities........................................ 3,133
-------
$37,732
=======
</TABLE>
INCOME TAXES
The Company, with the consent of its shareholders, has elected under the
Internal Revenue Code to be taxed as an S corporation. In lieu of corporate
income taxes, the shareholders of an S corporation are taxed on their
proportionate share of the Company's taxable income. Therefore, no provision
or liability for federal income taxes has been included in these financials.
3. LINE OF CREDIT
The Company maintains a line of credit with maximum borrowings of $50,000.
The line of credit is payable on demand, otherwise it matures June 8, 1996. It
bears interest at prime plus 2% (10.5% at December 31, 1995), which is payable
monthly. The outstanding balance at December 31, 1995 was $27,000.
F-36
<PAGE>
ATLANTA VOICE PAGE, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
4. LONG-TERM DEBT
Long-term debt at December 31, 1995 consisted of the following:
<TABLE>
<S> <C>
Notes payable to Associated Capital, various interest rates (rang-
ing from 11.8% to 14.5% at December 31, 1995); principal and in-
terest payable in monthly installments; secured by the assets
purchased;maturing at various dates through January 1999......... $286,485
Note payable to Satellink Communications, Inc., interest at 8%;
principal and interest due in full on May 15, 1996............... 110,000
Note payable to shareholder, interest at 11%; principal and inter-
est payable in 60 monthly installments; maturing August 2000..... 102,981
Note payable to First of America Trust Company, interest at 10%;
principal and interest payable in 37 monthly installments; matur-
ing May 1998..................................................... $ 40,645
--------
540,111
Less current portion.............................................. 317,493
--------
$222,618
========
</TABLE>
Scheduled future maturities of long-term debt are as follows:
<TABLE>
<S> <C>
1996................................................................ $317,493
1997................................................................ 121,677
1998................................................................ 59,671
1999................................................................ 24,170
2000 and thereafter................................................. 17,100
--------
$540,111
========
</TABLE>
5. COMMITMENTS AND CONTINGENCIES
OPERATING LEASES
The Company leases office space under a noncancelable operating lease
expiring on November 30, 1996. The Company recorded lease expenses of
approximately $14,485 in 1995, related to this operating lease. The future
minimum payment due in 1996 under this lease was $13,672 at December 31, 1995.
6. SUBSEQUENT EVENT
Effective February 1, 1996, Satellink Communications, Inc. acquired
substantially all of the assets of the Company under the terms of an asset
purchase agreement. The assets sold consisted primarily of local paging
subscribers, a paging system, pagers and spare parts, accounts receivable, and
furniture and fixtures. The sale price was approximately $3,200,000 before
recording certain acquisition expenses and adjustments.
F-37
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of C.R., Inc.:
We have audited the accompanying balance sheet of C.R., INC. (a Texas
corporation) as of December 31, 1995 and the related statements of operations,
shareholders' equity, and cash flows for the year then ended. 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 audit.
We conducted our audit 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 audit provides 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 C.R., Inc. as of December
31, 1995 and the results of its operations and its cash flows for the year
then ended in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Atlanta, Georgia
March 9, 1998
F-38
<PAGE>
C.R., INC.
BALANCE SHEET
AS OF DECEMBER 31, 1995
<TABLE>
<S> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents....................................... $ 30,056
Accounts receivable, net of allowance for doubtful account of
$110,138....................................................... 670,300
Note receivable from Nations Link (Note 3)...................... 52,274
Inventory....................................................... 38,477
Other receivables............................................... 24,692
Prepaid expenses and other current assets....................... 10,814
-----------
Total current assets.......................................... 826,613
-----------
PROPERTY AND EQUIPMENT, at cost:
Paging systems equipment........................................ 1,588,023
Furniture and fixtures.......................................... 143,606
Leasehold improvements.......................................... 9,061
-----------
1,740,690
Less accumulated depreciation................................... (1,441,125)
-----------
Property and equipment, net................................... 299,565
-----------
OTHER ASSETS:
Acquired customer base, net of accumulated amortization of
$17,719........................................................ 35,437
Other intangible assets, net of accumulated amortization of
$37,500........................................................ 40,500
Other........................................................... 5,487
-----------
Total other assets............................................ 81,424
-----------
$ 1,207,602
===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued liabilities, including $242,313
payable to affiliate (Note 6).................................. $ 555,435
Customer deposits............................................... 111,847
Current maturities of long term debt (Note 4)................... 42,546
-----------
Total current liabilities..................................... 709,828
===========
LONG-TERM DEBT, less current maturities........................... 5,107
COMMITMENTS AND CONTINGENCIES (Note 7)
SHAREHOLDERS' EQUITY:
Common stock, $1 par value, 1,000 shares authorized, issued, and
outstanding.................................................... 1,000
Additional paid in capital...................................... 328,936
Accumulated equity.............................................. 162,731
-----------
Total shareholders' equity.................................... 492,667
-----------
$ 1,207,602
===========
</TABLE>
The accompanying notes are an integral part of this balance sheet.
F-39
<PAGE>
C.R., INC.
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1995
<TABLE>
<S> <C>
REVENUES:
Service, rent and maintenance revenue.......................... $4,046,182
Product sales.................................................. 261,363
----------
Total revenues............................................... 4,307,545
----------
OPERATING EXPENSES:
Services, rent and maintenance................................. 1,766,926
Selling and marketing.......................................... 233,232
General and administrative..................................... 1,348,092
Research and development....................................... 115,542
Depreciation and amortization.................................. 433,280
Cost of product sales.......................................... 223,626
----------
Total operating expenses..................................... 4,120,698
----------
OPERATING INCOME................................................. 186,847
----------
OTHER INCOME (EXPENSE):
Gain on sale of assets......................................... 106,906
Other income................................................... 6,213
Interest expense, net of interest income of $3,251............. (56,171)
----------
56,948
----------
NET INCOME....................................................... $ 243,795
==========
</TABLE>
The accompanying notes are an integral part of this statement.
F-40
<PAGE>
C.R., INC.
STATEMENT OF SHAREHOLDERS' EQUITY
FOR THE YEAR ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
COMMON STOCK
------------- PAID IN ACCUMULATED
SHARES AMOUNT CAPITAL EQUITY TOTAL
------ ------ -------- ----------- ---------
<S> <C> <C> <C> <C> <C>
BALANCE, December 31, 1994....... 1,000 $1,000 $328,936 $ 295,318 $ 625,254
Net income..................... 0 0 0 243,795 243,795
Forgiveness of note receivable
from affiliates (Note 6)...... 0 0 0 (376,382) (376,382)
----- ------ -------- --------- ---------
BALANCE, December 31, 1995....... 1,000 $1,000 $328,936 $ 162,731 $ 492,667
===== ====== ======== ========= =========
</TABLE>
The accompanying notes are an integral part of this statement.
F-41
<PAGE>
C.R., INC.
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1995
<TABLE>
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income......................................................... $243,795
--------
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization.................................... 433,280
Research and development......................................... 115,542
Gain on sale of assets........................................... (106,906)
Changes in operating assets and liabilities:
Accounts and other receivables................................. (151,947)
Prepaid expenses and other assets.............................. 13,036
Accounts payable and accrued liabilities....................... 257,893
Customer deposits.............................................. 15,490
--------
Total adjustments............................................ 576,388
--------
Net cash provided by operating activities.................... 820,183
--------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment................................ (358,638)
Proceeds from sale of property and equipment....................... 228,482
Advances to affiliate.............................................. (397,188)
--------
Net cash used in investing activities........................ (527,344)
--------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments of long term debt....................................... (440,791)
--------
NET DECREASE IN CASH................................................. (147,952)
CASH AT BEGINNING OF YEAR............................................ 178,008
--------
CASH AT END OF YEAR.................................................. $ 30,056
========
SUPPLEMENTAL INFORMATION:
Interest paid...................................................... $ 59,422
========
Forgiveness of note receivable due from shareholders............... $376,382
========
</TABLE>
The accompanying notes are an integral part of this statement.
F-42
<PAGE>
C.R., INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995
1. ORGANIZATION AND BUSINESS OPERATIONS
C.R., Inc. (the "Company"), a Texas corporation, is a communications company
providing local, regional, and nationwide paging and voicemail services to
approximately 9,500 subscribers in Texas, New Mexico, Oklahoma, Arkansas, and
Louisiana.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
REVENUE RECOGNITION
The Company's policy is to recognize revenue at the time the service is
provided.
USE OF ESTIMATES
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.
CASH AND CASH EQUIVALENTS
For the purposes of the statement of cash flows, the Company considers all
investments purchased with an original maturity of three months or less to be
cash equivalents.
FAIR VALUE OF FINANCIAL INSTRUMENTS
As of December 31, 1995, the estimated fair value of the Company's financial
instruments approximates their carrying value.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Expenditures for renewals and
improvements are capitalized, and replacements, maintenance, and repairs that
do not improve or extend the lives of the respective assets are expensed as
incurred. Depreciation is provided on a straight-line basis over the remaining
estimated useful lives, as follows:
<TABLE>
<S> <C>
Paging systems equipment.................................... 3 to 5 years
Furniture and fixtures...................................... 5 to 7 years
Leasehold improvements...................................... 5 to 39 years
</TABLE>
As of December 31, 1995, depreciation expense totaled $426,032 and is
included in depreciation and amortization in the accompanying statement of
operations.
INVENTORY
Inventory includes pagers held for sale. Inventory is valued at the lower of
cost or market (determined on a first-in, first-out basis).
F-43
<PAGE>
C.R., INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
INTANGIBLE ASSETS
Intangible assets, net of accumulated amortization, at December 31, 1995
consisted of the following:
<TABLE>
<S> <C>
Affiliate License................................................. $40,500
Acquired customer base............................................ 35,437
Other............................................................. 5,487
-------
$81,424
=======
</TABLE>
Affiliate license represents a contract with CUE Paging Corporation ("CUE"),
a nationwide satellite paging company presently offering the exclusive right
to purchase airtime and network services in the Dallas, Texas metropolitan
area and southern Louisiana, to provide regional paging in these service areas
utilizing FM subcarrier technology. The affiliate license is recorded at cost
and amortized on the straight-line basis over the ten-year contract period.
Acquired customer base represents customer accounts purchased by the Company
and is carried on the balance sheet at cost, net of accumulated amortization.
The assets are being amortized on the straight-line basis over a period of 15
years.
The Company periodically reviews the carrying values assigned to goodwill
and other intangible assets based on expectations of future cash flows and
operating income generated by the underlying tangible assets in determining
whether the intangible assets are recoverable.
As of December 31, 1995, amortization expense totaled $14,748 and is
included in depreciation and amortization in the accompanying statement of
operations.
LONG-LIVED ASSETS
Long-lived assets are evaluated regularly for other than temporary
impairment. If circumstances suggest that the asset values may be impaired, an
assessment of the assets' estimated fair value is performed and an impairment
loss is recognized in income from operations in the amount at which the
assets' carrying value exceeds the assets' estimated fair value. As of
December 31, 1995, none of the Company's long-lived assets were considered to
be impaired.
ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
Accounts payable and accrued liabilities at December 31, 1995 consisted of
the following:
<TABLE>
<S> <C>
Accounts payable................................................ $238,931
Other accrued liabilities....................................... 74,289
--------
$313,220
========
</TABLE>
ADVERTISING COSTS
The Company expenses all advertising costs as incurred. Advertising costs
totaled $94,740 as of December 31, 1995 and are included in selling and
marketing in the accompanying statement of operations.
CUSTOMER DEPOSITS
The Company requires a last-month advance from certain customers as a
deposit to guarantee payment. The customer deposits are held up to six months
and then applied to the customer's account. The Company had $111,847 in
customer deposits as of December 31, 1995.
F-44
<PAGE>
C.R., INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
3. INVESTMENT IN NATIONS LINK
On May 25, 1995, the Company entered into a joint venture agreement with
Satellink Communications, Inc. ("Satellink") and Cape Fear Paging of North
Carolina, Inc. to form and operate a third-party supplier, Nations Link, Ltd.
("Nations Link"). The Company's ownership percentage in the joint venture was
approximately 33%. The Company does not have control over the operations of
the joint venture; however, it does exercise significant influence.
Accordingly, the Company accounts for its investment in Nations Link using the
equity method of accounting. During fiscal 1995, the Company wrote-off its
investment in Nations Link and recorded a total of $115,542 in research and
development expense related to pager design. The Company also had unsecured
and noninterest bearing advances outstanding to Nations Link totaling $52,275
as of December 31, 1995, which are included in the accompanying balance sheet.
4. NOTE PAYABLE
On February 24, 1995, the Company converted substantially all of its capital
lease obligations into a 10% promissory note of $245,000, payable in equal
monthly installments of $21,539, including interest, through February 29,
1996. Remaining future minimum payments under the note payable as of December
31, 1995 was $42,546.
5. TAX STATUS
The Company, with the consent of its shareholders, has elected under the
Internal Revenue Code to be taxed as an S corporation. In lieu of corporate
income taxes, the shareholders of an S corporation are taxed on their
proportionate share of the Company's taxable income. Therefore, no provision
or liability for federal income taxes has been included in these financial
statements.
6. RELATED-PARTY TRANSACTIONS
On May 16, 1994, the shareholders of the Company formed a new company, Call
One, Inc ("Call One"). Call One is intended to be the sole provider of message
center services for the Company. Advances in the amount of $76,382 were made
to Call One by the Company during 1995 and are recorded as a reduction to
accumulated equity in the accompanying statement of shareholders' equity as
collection of the advances is not anticipated.
Prior to January 1, 1995, the Company had advanced $300,000 to Call One and
Nations Link and classified these advances as due from affiliates. As of
December 31, 1995, the Company's shareholders agreed to forgive the entire due
from affiliates balance. The forgiveness of these advances is reflected as a
reduction in accumulated equity in the accompanying statement of shareholders'
equity.
The Company receives message center services from Call One. The services
include base box charges ranging from $8,000 to $12,000 per month and 100 to
110 minutes at $.32 per minute. Average monthly charges of the Company are
approximately $40,000. As of December 31, 1995, the Company owed Call One
$242,313 for services received during fiscal 1995. The liability is recorded
in accounts payable and accrued liabilities in the accompanying balance sheet.
During 1995, the Company paid approximately $100,000 in management fees to a
shareholder of the Company for services provided throughout the year.
F-45
<PAGE>
C.R., INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
7. COMMITMENTS AND CONTINGENCIES
OPERATING LEASES
The Company leases office space under a noncancelable operating lease
expiring on May 31, 1996. The Company recorded lease expense of approximately
$60,500 in 1995, related to this operating lease. The future minimum payments
due in 1996 under this lease was approximately $25,000.
8. SUBSEQUENT EVENT
Effective June 1, 1996, Satellink acquired substantially all of the assets
of the Company under the terms of an asset purchase agreement. The acquired
assets consisted primarily of regional and nationwide paging subscribers, a
CUE paging regional affiliate agreement, notes receivable, deposits,
equipment, and furniture and fixtures. The purchase price was approximately
$5,700,000.
F-46
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Saner Communications, Inc.:
We have audited the accompanying balance sheet of MESSAGE WORLD (an
unincorporated division of Saner Communications, Inc, a Georgia corporation)
as of December 31, 1996 and the related statements of operations, (accumulated
deficit), retained earnings and cash flows for the year then ended. These
financial statements are the responsibility of the Division's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit 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 audit provides 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 Message World as of
December 31, 1996 and the results of its operations and its cash flows for the
year then ended in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Atlanta, Georgia
March 9, 1998
F-47
<PAGE>
MESSAGE WORLD
BALANCE SHEET
AS OF DECEMBER 31, 1996
<TABLE>
<S> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents........................................... $ 49,455
Accounts receivable................................................. 69,411
Other receivables................................................... 652
Inventory........................................................... 10,000
--------
Total current assets.............................................. 129,518
--------
PROPERTY AND EQUIPMENT, AT COST:
Paging systems and equipment........................................ 152,173
Voicemail equipment................................................. 175,000
Furniture and fixtures.............................................. 16,836
Computer and terminal equipment..................................... 7,892
--------
351,901
Less accumulated depreciation....................................... (206,901)
--------
Property and equipment, net....................................... 145,000
--------
OTHER ASSETS.......................................................... 3,788
--------
$278,306
========
LIABILITIES AND RETAINED EARNINGS
CURRENT LIABILITIES:
Accounts payable and accrued liabilities............................ $ 27,654
Customer deposits................................................... 493
Current maturities of capital lease obligation (Note 3)............. 48,972
Deferred revenue.................................................... 61,486
--------
Total current liabilities......................................... 138,605
--------
CAPITAL LEASE OBLIGATION, NET OF CURRENT MATURITIES (NOTE 3).......... 87,501
--------
COMMITMENTS AND CONTINGENCIES (NOTE 4)
RETAINED EARNINGS..................................................... 52,200
--------
$278,306
========
</TABLE>
The accompanying notes are an integral part of this balance sheet.
F-48
<PAGE>
MESSAGE WORLD
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
<TABLE>
<S> <C>
REVENUES:
Service, rent and maintenance revenues........................... $593,628
Product sales.................................................... 148,530
--------
Total revenues................................................. 742,158
--------
OPERATING EXPENSES:
Services, rent, and maintenance.................................. 120,338
Selling and marketing............................................ 115,005
General and administrative....................................... 208,074
Engineering...................................................... 5,985
Depreciation..................................................... 16,969
Cost of products sold............................................ 25,761
--------
Total operating expenses....................................... 492,132
--------
OPERATING INCOME................................................... 250,026
INTEREST EXPENSE................................................... (18,299)
--------
NET INCOME......................................................... $231,727
========
</TABLE>
The accompanying notes are an integral part of this statement.
F-49
<PAGE>
MESSAGE WORLD
STATEMENT OF (ACCUMULATED DEFICIT) RETAINED EARNINGS
FOR THE YEAR ENDED DECEMBER 31, 1996
<TABLE>
<S> <C>
BALANCE, December 31, 1995....................................... $(179,527)
Net income..................................................... 231,727
---------
BALANCE, December 31, 1996....................................... $ 52,200
=========
</TABLE>
The accompanying notes are an integral part of this statement.
F-50
<PAGE>
MESSAGE WORLD
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1996
<TABLE>
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income........................................................ $ 231,727
---------
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization................................... 16,969
Changes in operating assets and liabilities:
Accounts receivable............................................ 16,280
Other receivables.............................................. (611)
Accounts payable and accrued liabilities....................... (258,337)
Customer deposits.............................................. (1,097)
---------
Total adjustments............................................. (226,796)
---------
Net cash provided by operating activities..................... 4,931
---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment............................... (1,969)
---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments under capital lease obligation................. (27,189)
---------
NET DECREASE IN CASH................................................ (24,227)
CASH AND CASH EQUIVALENTS, beginning of year........................ 73,682
---------
CASH AND CASH EQUIVALENTS, end of year.............................. $ 49,455
=========
INTEREST PAID....................................................... $ 18,299
=========
</TABLE>
The accompanying notes are an integral part of this statement.
F-51
<PAGE>
MESSAGE WORLD
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
1. ORGANIZATION AND BUSINESS OPERATIONS
Saner Communications, Inc., a Georgia S Corporation ("Saner"), is engaged in
providing local voice mailbox services to approximately 5,000 subscribers in
the Atlanta, Georgia area through Message World, an unincorporated division of
Saner. Message World purchases airtime solely through Preferred Networks,
Incorporated ("PNI"). The financial statements and related footnotes contained
herein reflect the operations of Message World. Substantially all of the
assets and operations of Saner are included in Message World; consequently,
these financial statements include substantially all costs and expenses of
Saner, with the exception of certain immaterial clerical costs recorded
directly by Saner.
Saner has elected under the Internal Revenue Code to be taxed as an S
corporation. The shareholders of an S corporation are taxed on their
proportionate share of Saner's taxable income. Therefore, no provision or
liability for federal income taxes has been included in these financial
statements.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
USE OF ESTIMATES
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
Message World's policy is to recognize revenue at the time the service is
provided.
CASH AND CASH EQUIVALENTS
Message World considers cash and cash equivalents to include cash on hand
and temporary cash investments purchased with an original maturity of three
months or less.
FAIR VALUE OF FINANCIAL INSTRUMENTS
As of December 31, 1996, the estimated fair value of Message World's
financial instruments approximates their carrying value.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Expenditures for renewals and
improvements are capitalized, and replacements, maintenance, and repairs which
do not improve or extend the lives of the respective assets are expensed as
incurred. Depreciation is provided on a straight-line basis over the remaining
estimated useful lives, as follows:
<TABLE>
<S> <C>
Paging system and equipment................................ 5 years
Voicemail equipment........................................ 10 to 20 years
Computers and terminal equipment........................... 5 to 10 years
Furniture and fixtures..................................... 5 to 10 years
Leasehold improvements..................................... 5 to 10 years
</TABLE>
F-52
<PAGE>
MESSAGE WORLD
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
INVENTORY
Inventory consists of pagers held for sale. Inventory is valued at the lower
cost or market (determined on a first-in, first-out basis).
LONG-LIVED ASSETS
Long-lived assets are evaluated regularly for other than temporary
impairment. If circumstances suggest that the asset values may be impaired, an
assessment of the assets' estimated fair value is performed and an impairment
loss is recognized in income from operations in the amount at which the
assets' carrying value exceeds the assets' estimated fair value. As of
December 31, 1996, none of Message World's long-lived assets were considered
to be impaired.
ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
Accounts payable and accrued liabilities at December 31, 1996 consisted of
the following:
<TABLE>
<S> <C>
Accounts payable.................................................. $23,636
Accrued payroll................................................... 4,018
-------
$27,654
=======
</TABLE>
3. CAPITAL LEASES
Message World leases voicemail equipment under a noncancelable capital
lease. The equipment will revert to Message World upon the maturity of the
lease in October 1999. At December 31, 1996, the net book value of this
equipment was $145,000. The effective interest rate on this lease was
approximately 11.5%.
Future minimum payments under the noncancelable capital lease as of December
31, 1996 are as follows:
<TABLE>
<S> <C>
1997............................................................. $ 48,972
1998............................................................. 45,133
1999............................................................. 42,368
--------
$136,473
========
</TABLE>
4. COMMITMENTS AND CONTINGENCIES
OPERATING LEASES
Message World leases office space under a noncancelable operating lease
expiring on July 14, 2000. Message World recorded lease expense of
approximately $24,299 in 1996 related to these operating leases.
Future minimum payments under noncancelable operating leases as of December
31, 1996 are as follows:
<TABLE>
<S> <C>
1997............................................................. $ 35,371
1998............................................................. 36,786
1999............................................................. 38,257
2000............................................................. 24,452
--------
$134,866
========
</TABLE>
F-53
<PAGE>
MESSAGE WORLD
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
5. RELATED-PARTY TRANSACTIONS
Message World purchases airtime from PNI, in which Saner is a shareholder.
During 1996, Message World purchased approximately $66,000 of airtime from
PNI.
6. SUBSEQUENT EVENT
Effective February 1, 1997, Satellink Communications, Inc. acquired
substantially all of the assets of Message World under the terms of an asset
purchase agreement. The assets sold consisted primarily of local voicemail
subscribers, a voicemail equipment, pagers and spare parts, accounts
receivable, and furniture and fixtures. The purchase price was approximately
$1,600,000 before recording certain acquisition expenses and adjustments.
F-54
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors and
Stockholders of Hyde's Stay in Touch, Inc.
I have audited the accompanying Balance Sheets of Hyde's Stay in Touch, Inc.
as of December 31, 1997 and 1996 and the related Statements of Income,
Retained Earnings and Cash Flows for the years then ended. These financial
statements are the responsibility of the Company's management. My
responsibility is to express an opinion on these financial statements based on
my audits.
I conducted my audits in accordance with generally accepted auditing
standards. These standards require that I 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. I believe that my audits provide a reasonable basis
for my opinion.
In my opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Hyde's Stay in Touch, Inc. as
of December 31, 1997 and 1996 and the results of its operations and its cash
flows for the years then ended in conformity with generally accepted
accounting principles.
James N. Rachel
/s/ James N. Rachel
Shreveport, Louisiana
February 23, 1998
F-55
<PAGE>
HYDE'S STAY IN TOUCH, INC.
BALANCE SHEETS
AS OF DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1997 1996
------------ ------------
<S> <C> <C>
ASSETS
Current Assets:
Cash................................................ $ 119,684 $ 124,550
Investments--Trading securities..................... 843,982 434,282
Accounts receivable................................. 581,074 444,877
Inventory........................................... 279,686 356,646
Prepaid expenses.................................... 2,950 4,725
---------- ----------
Total Current Assets.............................. 1,827,376 1,365,080
Property and Equipment, net........................... 891,434 758,352
Other Assets;
Loan fees, net...................................... 3,334 5,834
Deposits............................................ 3,730 2,730
Due from Budget Phone, Inc. ........................ 358,592 225,332
---------- ----------
Total Other Assets................................ 365,656 233,896
---------- ----------
TOTAL ASSETS.......................................... $3,084,466 $2,357,328
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable.................................... $ 100,659 $ 190,063
Accrued expenses.................................... 11,504 11,694
Current maturity of long term debt.................. 544,924 566,426
---------- ----------
Total Current Liabilities......................... 657,087 768,183
Long Term Liabilities:
Long term debt, excluding current portion........... 1,430,992 199,362
---------- ----------
Total Liabilities................................. 2,088,079 967,545
Stockholders' Equity:
Common stock........................................ 706 1,000
Retained earnings................................... 995,681 1,388,783
---------- ----------
Total Stockholders' Equity........................ 996,387 1,389,783
---------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY............ $3,084,466 $2,357,328
========== ==========
</TABLE>
See Accompanying Notes and Auditor's Report.
F-56
<PAGE>
HYDE'S STAY IN TOUCH, INC.
STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
DECEMBER 31,
----------------------
1997 1996
---------- ----------
<S> <C> <C>
Revenues
Fees and airtime, net of returns & allowances......... $3,859,167 $3,363,014
Pager, hardware, and accessory sales.................. 926,867 874,920
Dealer airtime........................................ 373,984 331,712
Dealer hardware sales................................. 224,902 68,768
Trade income.......................................... 40,615 41,325
---------- ----------
Total Revenues...................................... 5,425,535 4,679,739
Cost of Products Sold................................... (1,299,809) (998,243)
---------- ----------
4,125,726 3,681,496
Operating Expenses
General and administrative............................ 1,711,269 1,853,618
Selling and marketing................................. 277,068 235,806
Depreciation and amortization......................... 224,865 200,560
Service, rent & maintenance........................... 515,169 492,235
---------- ----------
Total Operating Expenses............................ 2,728,371 2,782,219
---------- ----------
Income From Operations.................................. 1,397,355 899,277
Other Income (Expense)..................................
Interest income....................................... 37,378 28,188
Unrealized gain (loss) on investment.................. 72,365 (3,760)
Other income.......................................... 17,144 26,311
Rent income........................................... 7,560 2,720
Gain (loss) on sale of assets......................... -- --
Interest expense...................................... (40,904) (34,775)
---------- ----------
Total Other Income (Expense)........................ 93,543 18,684
---------- ----------
Net Income.............................................. $1,490,898 $ 917,961
========== ==========
</TABLE>
See Accompanying Notes and Auditor's Report.
F-57
<PAGE>
HYDE'S STAY IN TOUCH, INC.
STATEMENTS OF RETAINED EARNINGS
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
DECEMBER 31,
-----------------------
1997 1996
----------- ----------
<S> <C> <C>
Beginning Retained Earnings......................... $ 1,388,783 $1,041,901
Net Income.......................................... 1,490,898 917,961
Shareholder Distributions........................... (416,413) (571,079)
Retirement of Treasury Stock........................ (1,467,587) --
----------- ----------
Ending Retained Earnings............................ $ 995,681 $1,388,783
=========== ==========
</TABLE>
See Accompanying Notes and Auditor's Report.
F-58
<PAGE>
HYDE'S STAY IN TOUCH, INC.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
DECEMBER 31,
----------------------
1997 1996
----------- ---------
<S> <C> <C>
Cash Flow From Operating Activities:
Net income............................................ $ 1,490,898 $ 917,961
Adjustments to reconcile net income to net cash
provided by operating activities:
Unrealized (gain) loss on investments............... (72,365) 3,760
Amortization........................................ 2,500 2,500
Depreciation........................................ 222,365 198,060
(Increase) Decrease in:
Accounts receivable................................. (136,197) (62,379)
Inventory........................................... 76,960 (91,505)
Prepaid expenses.................................... 1,775 2,251
Rental deposits..................................... (1,000) --
Increase (Decrease) in:
Accounts payable.................................... (89,404) 165,880
Accrued expenses.................................... (190) (16,165)
----------- ---------
Net Cash Provided (Used) by Operating Activities... 1,495,342 1,120,363
Cash Flows From Investing Activities:
Acquisition of fixed assets........................... (478,991) (250,764)
Sale of fixed assets.................................. 123,543 4,524
Purchases of trading securities....................... (337,335) (321,811)
----------- ---------
Net Cash Provided (Used) by Investing Activities... (692,783) (568,051)
Cash Flows From Financing Activities:
Principal reduction of debt........................... (566,434) (127,689)
Loan proceeds......................................... 1,776,562 430,191
Shareholder distributions............................. (416,413) (796,411)
Advance to Budget Phone, Inc. ........................ (133,260) --
Stock redemption...................................... (1,467,880) --
----------- ---------
Net Cash Provided (Used) by Financing Activities... (807,425) (493,909)
----------- ---------
Net (Decrease) Increase In Cash........................ (4,866) 58,403
Beginning Cash......................................... 124,550 66,147
----------- ---------
Ending Cash............................................ $ 119,684 $ 124,550
=========== =========
</TABLE>
See Accompanying Notes and Auditor's Report.
F-59
<PAGE>
HYDE'S STAY IN TOUCH
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
NOTE A: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BUSINESS OPERATIONS
The Company was organized in 1988 and is licensed by the Federal
Communications Commission (FCC) as a private paging carrier. It specializes in
one-way communications through a networking of UHF and VHF MHz frequencies.
The business provides state of the art paging and voicemail services to over
38,000 subscribers. The Company's coverage area includes eastern Texas, all of
the State of Louisiana and portions of Mississippi.
ACCOUNTING METHOD
The accrual method of accounting is used for both financial and income tax
reporting purposes.
CASH AND MARKETABLE SECURITIES
For purposes of the financial statements of cash flows, the Company
considers cash in operating bank accounts and cash on hand as cash.
The Company's marketable securities that are bought and held primarily for
the purpose of selling them in the near term are classified as trading
securities. Trading securities are recorded at fair value on the balance sheet
in current assets, with the change in fair value during the period included in
earnings.
ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that effect 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 estimated.
CONCENTRATION OF CREDIT RISK
The Company occasionally maintains deposits in excess of federally insured
limits. Statement of Financial Accounting Standards No. 105 identifies this as
a concentration of credit risk requiring disclosure, regardless of the degree
of risk. The risk is managed by maintaining all deposits in high quality
financial institutions.
ACCOUNTS RECEIVABLE
All accounts receivable at December 31, 1997 and 1996 are considered by
management to be collectible and therefore no allowance for bad debts was
deemed necessary.
INVENTORIES
Inventories consist of pagers, which are valued at the lower of market, with
cost determined on a first-in, first-out basis.
F-60
<PAGE>
HYDE'S STAY IN TOUCH
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1997 AND 1996
LOAN FEES
The Company is amortizing a SBA loan fee of $12,502 over sixty months. At
December 31, 1997, sixteen months remained to be amortized.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost. Expenditures for maintenance
and repairs are expensed as incurred while renewals and betterments are
capitalized.
Depreciation and amortization have been provided using the straight-line
method over the useful lives of the assets as follows:
<TABLE>
<S> <C>
Office furniture and fixtures.................................. 10 years
Vehicles....................................................... 3 years
Leased equipment............................................... 3 years
Machinery and equipment........................................ 5-10 years
Leasehold improvements......................................... 10-40 years
</TABLE>
Leased equipment consists of pagers, which are leased to customers on a
monthly basis.
These pagers are added to a leased pool on an accrual basis. The pool is
then depreciated over a three-year period.
Depreciation for the years ended December 31, 1997 and 1996 was $222,365 and
$198,060, respectively.
REVENUE RECOGNITION
Revenue is recognized when services are provided.
INCOME TAXES
Under the provisions of the Internal Revenue Code, the Company has elected
to be taxed as an "S" corporation. Under such election, the Company's federal
taxable income or loss and tax credits are passed through to the individual
stockholders.
NOTE B: INVESTMENTS IN MARKETABLE SECURITIES
Investments in marketable securities classified as trading securities are
summarized as follows at December 31, 1997:
<TABLE>
<CAPTION>
GROSS GROSS
UNREALIZED UNREALIZED FAIR
GAIN LOSS VALUE
---------- ---------- --------
<S> <C> <C> <C>
Eaton Vance Municipals....................... $ 8,898 $ -- $135,704
Oppenheimer Value Fund....................... 8,889 -- 113,229
Oppenheimer Income Fund...................... 33,964 -- 261,517
John Hancock Bank Fund....................... 27,137 -- 81,575
Eaton Vance Growth Fund...................... 1,511 -- 51,511
Franklin Templeton Mutual.................... -- 8,034 200,446
------- ------ --------
$80,339 $8,034 $843,982
======= ====== ========
</TABLE>
F-61
<PAGE>
HYDE'S STAY IN TOUCH, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1997 AND 1996
Investments in marketable securities classified as trading securities are
summarized as follows at December 31, 1996:
<TABLE>
<CAPTION>
GROSS GROSS
UNREALIZED UNREALIZED FAIR
GAIN LOSS VALUE
---------- ---------- --------
<S> <C> <C> <C>
Eaton Vance Municipals....................... $ -- $2,066 $120,339
Oppenheimer Value Fund....................... 1,106 -- 52,466
Oppenheimer Income Fund...................... -- 5,585 208,101
John Hancock Bank Fund....................... 2,785 -- 53,376
------ ------ --------
$3,891 $7,651 $434,282
====== ====== ========
</TABLE>
NOTE C: ACCOUNTS RECEIVABLE
Accounts Receivable consist of the following:
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
Accounts Receivable Trade................................. $488,882 $390,780
Trade Out Receivables..................................... 22,562 13,247
Accounts Receivable Employees............................. 69,630 40,850
-------- --------
$581,074 $444,877
======== ========
</TABLE>
NOTE D: INVENTORIES
Inventories consist of various types of pagers held in each of the various
business locations the Company operates. The total value at lower of cost or
market at December 31, 1997 and 1996 was $279,686 and $356,646, respectively.
NOTE E: PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Office furniture and fixtures......................... $ 45,309 $ 39,805
Vehicles.............................................. 13,423 13,423
Leased equipment...................................... 637,571 577,492
Machinery and equipment............................... 1,193,557 920,556
Leasehold improvements................................ 56,509 39,647
---------- ----------
1,946,369 1,590,923
Less: Accumulated depreciation........................ 1,054,935 832,571
---------- ----------
$ 891,434 $ 758,352
========== ==========
NOTE F: PREPAID EXPENSES
Prepaid expenses consist of the following:
<CAPTION>
1997 1998
---------- ----------
<S> <C> <C>
Prepaid Insurance..................................... $ 2,950 $ 4,725
========== ==========
</TABLE>
F-62
<PAGE>
HYDE'S STAY IN TOUCH, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1997 AND 1996
NOTE G: ACCRUED EXPENSES
Accrued expenses consist of the following:
<TABLE>
<CAPTION>
1997 1996
------- -------
<S> <C> <C>
Interest payable............................................. $ 4,934 $ 767
Sales tax payable............................................ 6,153 9,652
Payroll tax payable.......................................... 417 1,275
------- -------
$11,504 $11,694
======= =======
</TABLE>
NOTE H: LEASE COMMITMENTS
The Company leases building facilities and an auto under agreements which
have been classified as operating leases.
Future lease commitments under operating leases at December 31, 1997 are as
follows:
<TABLE>
<CAPTION>
YEARS ENDING OPERATING
DECEMBER 31 LEASES
------------ ---------
<S> <C>
1998........................................................ $ 87,453
1999........................................................ 66,797
2000........................................................ 51,225
2001........................................................ 9,990
2002........................................................ 5,960
--------
Total minimum lease payments.................................. $221,425
========
</TABLE>
Future lease commitments under capital leases at December 31, 1996 are as
follows:
<TABLE>
<CAPTION>
YEARS ENDING OPERATING
DECEMBER 31 LEASES
------------ ---------
<S> <C>
1997....................................................... $ 63,114
1998....................................................... 87,453
1999....................................................... 66,797
2000....................................................... 51,225
2001....................................................... 9,990
--------
Total minimum lease payments.................................. $278,579
========
</TABLE>
The Company rents space on several transmission towers throughout its
coverage area. Many of the rentals are verbal and on a month to month basis.
Industry standard is sixty days notice to vacate.
Total rental expense on the operating leases for the years ended December
31, 1997 and 1996 was $174,377 and $156,778, respectively.
F-63
<PAGE>
HYDE'S STAY IN TOUCH
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1997 AND 1996
NOTE I: LONG TERM DEBT
Long term debt consists of the following:
<TABLE>
<CAPTION>
1997 1996
---------- ---------
<S> <C> <C>
Note payable to Commercial National Bank in
Shreveport, Louisiana, a $300,000 revolving line
of credit maturing May 31, 1997, at a variable
interest rate. This note is collateralized by
accounts receivable and personal guaranty of
Robert D. Hyde, Jr................................ $ 150,000 $ 285,000
Note payable to Commercial National Bank in
Shreveport, Louisiana, payable in monthly
installments of $13,180 including interest at
8.00% through March 27, 1999. This note is a U.S.
Small Business Administration loan and is
collateralized by equipment, inventory, accounts
receivable, and personal guaranty of Robert D.
Hyde, Jr.......................................... 199,354 335,597
Note payable to the Estate of Shirley Ann Gunstream
Hyde, dated December 31, 1997, payable with
interest at 8.00% on December 31, 1998............ 187,732 145,191
Note payable to Danny Hagen Gunstream Trust,
payable in monthly installments of $9,278.90
including interest at 8.00% through February 10,
2013. The notes is secured by the personal
guaranty of R. Daniel Hyde, Jr. The note can be
accelerated under certain conditions of the sale
of company stock.................................. 970,950 --
Note payable to the congregation of St. John's
Roman Catholic Church of Caddo Parish, Louisiana,
payable in monthly installments of $5,676.88
including interest at 8.00% through November 10,
2007.............................................. 467,880 --
---------- ---------
Total long term debt............................. 1,975,916 765,788
Current portion.................................. (544,924) (566,426)
---------- ---------
Long term portion................................ $1,430,992 $ 199,362
========== =========
</TABLE>
The interest expense for the years ended December 31, 1997 and 1996 was
$40,904 and $34,775, respectively.
Maturities of the notes for each of the five years succeeding December 31 are
as follows:
<TABLE>
<CAPTION>
YEAR 1997 1996
---- -------- --------
<S> <C> <C>
1st........................................................ $544,924 $566,426
2nd........................................................ 123,538 147,542
3rd........................................................ 77,860 51,820
4th........................................................ 84,125 --
5th........................................................ 91,110 --
-------- --------
$921,557 $765,788
======== ========
</TABLE>
F-64
<PAGE>
HYDE'S STAY IN TOUCH, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1997 AND 1996
NOTE J: CAPITAL STOCK
The capital stock consists of 1,000 authorized shares of no par value common
stock. At December 31, 1996 there were 100 shares outstanding of which 50 were
held by Mr. R. Daniel Hyde, Jr. and 50 by the Estate of Shirley Hyde. Mr. Hyde
is the executor of the estate. In her will, Mrs. Hyde made bequeaths to
St. John's Catholic Church and to the Hagen Gunstream Trust. On December 19,
1997 these gifts were transferred from the estate to the donees in the form of
29.36 shares of stock of Hyde's Stay In Touch, Inc., valued at $50,000 per
share as determined by an independent valuation. Simultaneous with the
transfer, the stock was redeemed by the Corporation as treasury stock to be
retired. The stock redemption resulted in corporate notes to the donees as set
forth in Note 1. At December 31, 1997 there were 70.64 shares of stock issued
and outstanding.
NOTE K: RELATED PARTY TRANSACTIONS
Payments made by the Company to the shareholders during the year were
charged to wages, administration fees, or shareholder distributions. The note
payable to the Estate of Shirley Ann Gunstream Hyde was established to
equalize shareholders' distributions. The amount of the note represents the
Estate's portion of the unfunded shareholders distributions at December 31,
1997 and 1996 which was $187,732 and $145,191, respectively. Except as set
forth in Note G there were no receivables from nor payables to the
shareholders at December 31, 1997 or 1996.
The Company's sole surviving shareholder owns the majority of the stock of
Budget Phone, Inc. Advances to Budget Phone, Inc. by the Company totaled
$358,592 and $225,332 at December 31, 1997 and 1996, respectively.
NOTE L: CASH FLOW INFORMATION
The total interest paid for cash flow purposes for the years ended December
31, 1997 and 1996 was $30,954 and $34,008, respectively.
F-65
<PAGE>
SATELLINK COMMUNICATIONS, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
The following unaudited pro forma consolidated balance sheet as of April 30,
1998 has been prepared to give effect to the following events and transactions
(collectively, the "Transactions") as if each occurred on April 30, 1998: (i)
the acquisition (the "Hyde's Acquisition") of Hyde's Stay In Touch, Inc.
("Hyde's"), including the increase in the Revolving Credit Facility and
issuance of a promissory note, which totaled in the aggregate approximately
$12.2 million, and (ii) the sale and issuance of 2,750,000 shares of Common
Stock at an estimated initial public offering price of $11.00 per share.
The unaudited pro forma consolidated statement of operations for the nine
months ended April 30, 1998 have been prepared by combining Satellink's
unaudited historical results of operations for that period with Hyde's
unaudited historical results of operations for the same period adjusted to
give effect to the Transactions as if they had occurred on August 1, 1996.
The unaudited pro forma consolidated statement of operations for the year
ended July 31, 1997 has been prepared by combining Satellink's audited
historical results of operations for the year ended July 31, 1997 with Hyde's
unaudited historical results of operations for the year ended September 30,
1997 adjusted to give effect to the Transactions as if they had occurred on
August 1, 1996. In addition, the unaudited pro forma consolidated statement of
operations for the year ended July 31, 1997 give effect to Satellink's
February 1, 1997 acquisition of Message World as if it had occurred on August
1, 1996.
This unaudited pro forma consolidated financial information is prepared for
informational purposes only and is not necessarily indicative of future
results or of actual results that would have been achieved had the
Transactions been consummated at the beginning of the periods presented.
Because the Hyde's Acquisition was consummated subsequent to April 30, 1998,
the Company's estimated allocation of the purchase price should be considered
preliminary. The Company is undertaking a full investigation of the allocation
of the purchase price among the assets acquired. Although the allocation is
preliminary, the final allocation is not expected to be materially different.
The unaudited pro forma consolidated financial information should be read in
conjunction with "Risk Factors," "Use of Proceeds," "Management's Discussion
and Analysis of Financial Consolidation and Results of Operations" and the
consolidated financial statements of Satellink, Hyde's, and Message World and
related notes thereto included elsewhere in the Prospectus.
The pro forma financial statements are based upon available information and
certain assumptions that management believes are reasonable. Final adjustments
may differ from the pro forma adjustments herein.
F-66
<PAGE>
SATELLINK COMMUNICATIONS, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
AS OF APRIL 30, 1998
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA
--------------------------------- CONSOLIDATED
SATELLINK PRO FORMA PRO FORMA AS ADJUSTED
COMMUNICATIONS, HYDE'S STAY ACQUISITION PRO FORMA OFFERING FOR THE
INC. IN TOUCH, INC.(A) ADJUSTMENTS CONSOLIDATED ADJUSTMENTS OFFERING(E)
--------------- ----------------- ----------- ------------ ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash
equivalents........... $ 255,167 $ 37,736 $ (37,736)(b) $ 255,167 $ -- $ 255,167
Investments............ -- 1,213,078 (1,213,078)(b) -- -- --
Accounts receivable,
net................... 4,322,969 537,601 -- 4,860,570 -- 4,860,570
Other receivables...... 265,363 -- -- 265,363 -- 265,363
Inventory.............. 170,855 435,467 -- 606,322 -- 606,322
Deferred tax asset..... -- -- -- -- 400,000 (i) 400,000
Prepaid expenses and
other current assets.. 532,050 124,390 -- 656,440 -- 656,440
------------ ---------- ----------- ------------ ----------- -----------
Total current assets... 5,546,404 2,348,272 (1,250,814) 6,643,862 400,000 7,043,862
Property and equipment,
net.................... 11,164,877 819,462 (319,462)(c) 11,664,877 -- 11,664,877
Goodwill, net........... 13,827,596 -- 8,356,540 (c) 22,184,136 -- 22,184,136
Other intangible assets,
net.................... 3,895,013 -- 2,200,000 (c) 6,095,013 -- 6,095,013
Investment in joint
venture................ 560,363 -- -- 560,363 -- 560,363
Other assets............ -- 374,586 -- 374,586 900,000 (i) 1,274,586
------------ ---------- ----------- ------------ ----------- -----------
Total assets........... $ 34,994,253 $3,542,320 $ 8,986,264 $ 47,522,837 1,300,000 48,822,837
============ ========== =========== ============ =========== ===========
LIABILITIES AND
SHAREHOLDERS' EQUITY
(DEFICIT)
Current liabilities:
Current maturities of
long term debt........ $ 1,200,000 $ 566,123 $ (566,123)(b) $ 1,200,000 -- $ 1,200,000
Accounts payable and
accrued liabilities... 2,132,040 182,015 (182,015)(b) 2,432,040 -- 2,432,040
300,000 (c)
Customer deposits...... 280,898 -- -- 280,898 -- 280,898
Deferred revenues...... 1,283,797 -- -- 1,283,797 -- 1,283,797
Accrued dividends on
preferred stock....... 93,011 -- -- 93,011 -- 93,011
------------ ---------- ----------- ------------ ----------- -----------
Total current
liabilities........... 4,989,746 748,138 (448,138) 5,289,746 -- 5,289,746
Long-term debt, less
current maturities..... 25,262,612 1,359,047 (1,359,047)(b) 37,491,196 (22,732,000)(e) 14,759,196
12,228,584 (d)
Stock warrants.......... 4,975,162 -- -- 4,975,162 (4,975,162)(f) --
Series C redeemable
preferred stock........ 3,500,000 -- -- 3,500,000 (3,500,000)(g) --
Series D redeemable
preferred stock........ 4,500,000 -- -- 4,500,000 (4,500,000)(e) --
Shareholders' Equity
(Deficit):
Series A convertible
preferred stock....... 74 -- -- 74 (74)(h) --
Class A voting common
stock................. 30,544 706 (706)(d) 30,544 27,500 (e) 73,803
9,540 (g)
6,219 (h)
Additional paid in
capital............... 2,537,282 -- -- 2,537,282 27,204,500 (e) 33,226,097
3,490,460 (g)
(6,145)(h)
Stock warrants......... -- -- -- -- 4,975,162 (f) 4,975,162
Accumulated earnings
(deficit)............. (10,801,167) 1,434,429 (1,434,429)(d) (10,801,167) 1,300,000 (i) (9,501,167)
------------ ---------- ----------- ------------ ----------- -----------
Total shareholders'
equity (deficit)...... (8,233,267) 1,435,135 (1,435,135) (8,233,267) 37,007,162 28,773,895
------------ ---------- ----------- ------------ ----------- -----------
Total liabilities and
shareholders' equity
(deficit)............. $ 34,994,253 $3,542,320 $ 8,986,264 $ 47,522,837 $ 1,300,000 $48,822,837
============ ========== =========== ============ =========== ===========
</TABLE>
F-67
<PAGE>
- --------
ACQUISITION ADJUSTMENTS:
(a) Derived from the unaudited balance sheet of Hyde's as of April 30, 1998.
(b) Reflects a reduction of certain assets and liabilities that will not be
acquired or assumed from Hyde's by the Company, pursuant to the stock
purchase agreement.
(c) Reflects the Company's purchase price allocation arising from the
acquisition of Hyde's by the Company as if such acquisition had occurred
on April 30, 1998. A summary of the computation follows:
<TABLE>
<S> <C>
Purchase price.............................................. $12,228,584
Less: Net tangible assets acquired.......................... (2,291,506)
Plus: Fair value adjustments to net tangible assets
acquired................................................... 319,462
Less: Identifiable intangible assets:
Customer base.............................................. (2,000,000)
FCC License................................................ (100,000)
Non-Compete................................................ (100,000)
-----------
8,056,540
Plus: Transaction costs of purchase acquisition............. 300,000
-----------
Excess purchase price over the fair value of Hyde's net
assets acquired (i.e. goodwill)............................ $ 8,356,540
===========
</TABLE>
Because the Hyde's acquisition was consummated subsequent to April 30,
1998, the Company's estimated allocation of the purchase price should be
considered preliminary. The Company is undertaking a full investigation of
the allocation of the purchase price among the assets acquired. Management
does not expect the final allocation of value among assets acquired to have
a material effect on the Company's results of operations.
(d) Reflects the increase in the Revolving Credit Facility and issuance of a
prommisory note, which totaled in the aggregate approximately $12,228,584
related to the Hyde's Acquisition and the elimination of Hyde's historical
shareholders' equity.
OFFERING ADJUSTMENTS:
(e) Reflects the sale of 2,750,000 shares of Common Stock offered by the
Company hereby at an assumed offering price of $11.00 and application of
the proceeds therefrom as follows:
<TABLE>
<S> <C>
Gross proceeds from the offering............................. $30,250,000
Underwriting discounts and commissions at 7%................. (2,118,000)
Expenses related to the offering............................. (900,000)
-----------
Net proceeds to the Company................................ 27,232,000
Reduction of the revolving line of credit and term loan...... (22,732,000)
Redemption of Series D preferred stock....................... (4,500,000)
-----------
Net increase in cash and cash equivalents.................. $ --
===========
</TABLE>
(f) Reflects reclassification of stock warrants to shareholders' equity
related to the elimination of the put feature upon completion of an
initial public offering.
(g) Reflects the conversion of 3,500 shares of Series C Convertible Preferred
Stock into approximately 272.5725 shares each of the Company's Class A
Common Stock pursuant to the securities purchase agreement.
(h) Reflects the conversion of 7,360 shares of Series A Convertible Preferred
Stock into 84.5 shares each of the Company's Class A common stock, which
are automatically converted in the event of an initial public offering.
(i) Reflects the recognition of the Company's net deferred tax asset as of
April 30, 1998. As a result of the debt and corresponding interest expense
reduction in conjunction with the initial public offering, management
believes that it is more likely than not that the net deferred tax asset
is realizable upon completion of the initial public offering.
F-68
<PAGE>
SATELLINK COMMUNICATIONS, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED APRIL 30, 1998
<TABLE>
<CAPTION>
HISTORICAL
------------------------------- PRO FORMA
HYDE'S STAY PRO FORMA PRO FORMA CONSOLIDATED
SATELLINK IN TOUCH, ACQUISITION PRO FORMA OFFERING AS ADJUSTED
COMMUNICATIONS, INC INC. (A) ADJUSTMENTS CONSOLIDATED ADJUSTMENTS FOR THE OFFERING
------------------- ----------- ----------- ------------ ----------- ----------------
<S> <C> <C> <C> <C> <C> <C>
REVENUES:
Service, rent, and
maintenance........... $14,577,001 $3,300,323 $ -- $17,877,324 $ -- $17,877,324
Product sales.......... 903,454 1,063,509 -- 1,966,963 -- 1,966,963
----------- ---------- --------- ----------- ---------- -----------
Total revenues......... 15,480,455 4,363,832 -- 19,844,287 -- 19,844,287
Cost of products sold.. 801,288 1,168,955 1,970,243 -- 1,970,243
----------- ---------- --------- ----------- ---------- -----------
Net revenues........... 14,679,167 3,194,877 -- 17,874,044 -- 17,874,044
OPERATING EXPENSES:
Services, rent and
maintenance........... 5,475,108 323,773 -- 5,798,881 -- 5,798,881
Selling and marketing.. 2,260,730 208,676 -- 2,469,406 -- 2,469,406
General and
administrative........ 2,563,402 1,230,554 (450,000)(b) 3,343,956 -- 3,343,956
Engineering............ 631,056 -- -- 631,056 -- 631,056
Fixed asset impairment
and one-time
reengineering charges. 1,533,996 -- -- 1,533,996 -- 1,533,996
Depreciation and
amortization.......... 2,130,085 193,376 469,143 (c) 2,792,604 -- 2,792,604
----------- ---------- --------- ----------- ---------- -----------
Total operating
expenses.............. 14,594,377 1,956,379 19,143 16,569,899 -- 16,569,899
----------- ---------- --------- ----------- ---------- -----------
OPERATING INCOME (LOSS). 84,790 1,238,498 (19,143) 1,304,145 -- 1,304,145
----------- ---------- --------- ----------- ---------- -----------
OTHER INCOME (EXPENSES):
Other income........... 180,433 269,647 -- 450,080 -- 450,080
Interest expense....... (1,740,176) (69,701) (885,960)(d) (2,695,837) 1,662,278 (e) (1,033,559)
Accretion of stock
warrants.............. (628,440) -- -- (628,440) 628,440 (f) --
Income from joint
venture............... 98,970 -- -- 98,970 -- 98,970
Minority interest...... (7,740) -- -- (7,740) -- (7,740)
----------- ---------- --------- ----------- ---------- -----------
Total other income
(expense)............. (2,096,953) 199,946 (885,960) (2,782,967) 2,290,718 (492,249)
----------- ---------- --------- ----------- ---------- -----------
INCOME (LOSS) BEFORE
INCOME TAX PROVISION... (2,012,163) 1,438,444 (905,103) (1,478,822) 2,290,718 (g) 811,896
INCOME TAX PROVISION.... -- -- -- -- (308,520) (h) (308,520)
----------- ---------- --------- ----------- ---------- -----------
NET INCOME (LOSS)....... (2,012,163) 1,438,444 (905,103) (1,478,822) 1,982,198 503,376
PREFERRED STOCK
DIVIDENDS.............. 360,618 -- -- 360,618 (360,618) (h) --
----------- ---------- --------- ----------- ---------- -----------
NET INCOME (LOSS)
ATTRIBUTABLE TO COMMON
SHAREHOLDERS........... $(2,372,781) $1,438,444 $(905,103) $(1,839,440) $2,342,816 $ 503,376
=========== ========== ========= =========== ========== ===========
PRO FORMA INCOME (LOSS)
ATTRIBUTABLE TO COMMON
SHAREHOLDERS(I):
Class A Common Stock... $(2,371,284) $ 503,376
Class B Common Stock... (1,497) N/A
BASIC NET INCOME (LOSS)
PER SHARE:
Class A Common Stock .. $ (0.79) $ 0.07
Class B Common Stock .. (51.62) N/A
DILUTED NET INCOME PER
SHARE(L)............... N/A $ 0.06
WEIGHTED AVERAGE NUMBER
OF COMMON SHARES
OUTSTANDING--BASIC(K):
Class A Common Stock .. 3,015,800 7,344,165
Class B Common Stock .. 29 N/A
WEIGHTED AVERAGE NUMBER
OF COMMON SHARES
OUTSTANDING--
DILUTED(L):............ N/A 8,256,548
</TABLE>
- --------
ACQUISITION ADJUSTMENTS:
(a) Historical amounts related to the Hyde's Acquisition in the pro forma
statement of operations for the nine months ended April 30, 1998 have been
derived from Hyde's unaudited financial statements for that period, which
are not included in the Prospectus
(b) Reflects a reduction in salaries and distributions, reflected as expense,
to the owner of Hyde's who, pursuant to the stock purchase agreement, will
not continue employment with the Company upon consummation of the proposed
acquisition.
F-69
<PAGE>
(c) Reflects additional depreciation and amortization expense associated with
the increase in the basis of the acquired assets to fair market value at
the date of the Hyde's Acquisition offset by the estimated amount of
depreciation expense associated with the write-down of Hyde's net tangible
assets acquired at fair value. Amounts allocated to customer base, FCC
licenses, covenant not to compete, goodwill and equipment in connection
with the Hyde's Acquisition will be amortized over five, ten, two, thirty,
and ten years, respectively. Given that the Hyde's Acquisition was
consummated subsequent to April 30, 1998, the Company's estimated
allocation of the purchase price is preliminary. The Company is
undertaking a full investigation of the allocation of the purchase price
among the assets acquired. Management does not expect the final allocation
of value among assets acquired to have a material effect on the Company's
results of operations.
(d) Reflects the increase in interest expense attributable to borrowings used
to affect to the Hyde's Acquisition at an estimated interest rate of
(9.66% - LIBOR + 4%), which represents the Company's interest rate at the
time of the consummation of the acquisition.
OFFERING ADJUSTMENTS:
(e) Reflects a reduction of interest expense related to the pay off of
outstanding long term debt from the proceeds of the offering at the
Company's blended historical rate of 9.75%.
(f) Reflects the elimination of the warrant accretion as the put feature is
contractually eliminated upon completion of an initial public offering.
(g) Reflects income tax effect, using an effective rate of 38%, related to the
Company's pro forma results of operations. Pro forma results do not
include any impact from changes in the valuation reserve which has been
recorded against net operating loss carryforwards historically incurred by
the Company. Upon completion of the initial public offering and
application of the proceeds to repay certain debt, the Company may
substantially reduce the valuation allowance.
(h) Reflects a decrease of $262,503 in dividends related to the conversion of
Series C Preferred Stock which is automatically converted to Common Stock
in the event of an initial public offering and a decrease of $66,240
related to the conversion of Series A Preferred Stock which the Company
intends to convert into Common Stock in connection with the initial public
offering, and the decrease of $31,875 in dividends related to the
redemption of Series D Preferred Stock which is required to be redeemed in
the event of an initial public offering.
(i) The Company is required to present earnings per share for each class of
outstanding common stock. Net income attributable to Class A and Class B
shareholders is allocated between each class based on the extent to which
each class shares in the Company's earnings. Class A and Class B
shareholders share in earnings at a 1:84.5 ratio.
(j) Excluding the effects of the one-time charge related to asset impairment
and reengineering charges in the amount of $951,078, net of tax, net
income and income per share would have been as follows:
<TABLE>
<S> <C>
Net income.................................................... $1,454,454
Basic net income per share.................................... $ 0.20
Diluted net income per share.................................. $ 0.18
</TABLE>
F-70
<PAGE>
(k) Basic weighted average common shares outstanding are comprised of the
following for each class of common stock:
<TABLE>
<CAPTION>
CLASS A CLASS B
--------- -------
<S> <C> <C>
Weighted average shares outstanding prior to initial
public offering......................................... 3,015,800 29
Conversion of Class B Common Stock....................... 2,450 (29)
Conversion of Series A Convertible Preferred Stock....... 621,920 --
Conversion of Series C Convertible Preferred Stock....... 953,995 --
Issuance of common shares from the initial public
offering................................................ 2,750,000 --
--------- ---
Pro forma weighted average shares outstanding............ 7,344,165 --
========= ===
</TABLE>
(l) Diluted net income per share differs from basic earnings per share only for
periods in which earnings are positive. Weighted average common shares
outstanding for diluted net income per share consists of the following:
<TABLE>
<CAPTION>
CLASS A
---------
<S> <C>
Pro forma weighted average common shares outstanding............... 7,344,165
Effect of dilutive stock options and warrants...................... 912,383
---------
Pro forma diluted weighted average common shares outstanding....... 8,256,548
=========
</TABLE>
F-71
<PAGE>
SATELLINK COMMUNICATIONS, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED JULY 31, 1997
<TABLE>
<CAPTION>
HISTORICAL
------------------------------------------- PRO FORMA
SATELLINK PRO FORMA PRO FORMA CONSOLIDATED
COMMUNICATIONS, MESSAGE HYDE'S STAY ACQUISITION PRO FORMA OFFERING AS ADJUSTED
INC. WORLD(A) IN TOUCH, INC.(B) ADJUSTMENTS CONSOLIDATED ADJUSTMENTS FOR THE OFFERING
--------------- -------- ----------------- ----------- ------------ ----------- ----------------
<S> <C> <C> <C> <C> <C> <C> <C>
REVENUES:
Service, rent,
and maintenance. $16,308,042 $230,768 $3,939,527 $ -- $20,478,337 $ -- $20,478,337
Product sales.... 1,264,418 130,409 1,113,468 -- 2,508,295 -- 2,508,295
----------- -------- ---------- ----------- ----------- ---------- -----------
Total revenues... 17,572,460 361,177 5,052,995 -- 22,986,632 -- 22,986,632
Cost of products
sold............ 1,201,271 37,941 1,204,171 -- 2,443,383 -- 2,443,383
----------- -------- ---------- ----------- ----------- ---------- -----------
Net revenues..... 16,371,189 323,236 3,848,824 -- 20,543,249 -- 20,543,249
OPERATING
EXPENSES:
Services, rent,
and maintenance. 6,541,774 56,782 550,645 -- 7,149,201 -- 7,149,201
Selling and mar-
keting.......... 2,313,930 56,195 264,498 -- 2,634,623 -- 2,634,623
General and
administrative.. 3,039,390 91,307 1,727,242 (558,125)(c) 4,299,814 -- 4,299,814
Engineering...... 638,387 3,200 -- -- 641,587 -- 641,587
Depreciation and
amortization.... 2,241,518 16,969 210,262 809,710 (d) 3,278,459 -- 3,278,459
----------- -------- ---------- ----------- ----------- ---------- -----------
Total operating
expenses........ 14,774,999 224,453 2,752,647 251,585 18,003,684 -- 18,003,684
----------- -------- ---------- ----------- ----------- ---------- -----------
OPERATING INCOME.. 1,596,190 98,783 1,096,177 (251,585) 2,539,565 -- 2,539,565
----------- -------- ---------- ----------- ----------- ---------- -----------
OTHER INCOME
(EXPENSES):
Other income..... 89,808 -- 61,448 -- 151,256 -- 151,256
Interest expense. (1,564,067) (18,299) (35,736) (1,266,737)(e) (2,884,839) 2,209,550 (f) (675,289)
Accretion of
stock warrants.. (1,773,107) -- -- -- (1,773,107) 1,773,107 (g) --
Income from joint
venture......... 26,123 -- -- -- 26,123 -- 26,123
Minority
interest........ (2,829) -- -- -- (2,829) -- (2,829)
----------- -------- ---------- ----------- ----------- ---------- -----------
Total other
income
(expense)....... (3,224,072) (18,299) 25,712 (1,266,737) (4,483,396) 3,982,657 (500,739)
INCOME (LOSS)
BEFORE INCOME TAX
PROVISION........ (1,627,882) 80,484 1,121,889 (1,518,322) (1,943,831) 3,982,657 2,038,826
INCOME TAX
PROVISION........ -- -- -- -- -- (774,754)(h) (774,754)
----------- -------- ---------- ----------- ----------- ---------- -----------
NET INCOME (LOSS). (1,627,882) 80,484 1,121,889 (1,518,322) (1,943,831) 3,207,903 1,264,072
PREFERRED STOCK
DIVIDENDS........ 438,558 -- -- -- 438,558 (438,558)(i) --
----------- -------- ---------- ----------- ----------- ---------- -----------
NET LOSS
ATTRIBUTABLE TO
COMMON
SHAREHOLDERS..... $(2,066,440) $ 80,484 $1,121,889 $(1,518,322) $(2,382,389) $3,646,461 $ 1,264,072
=========== ======== ========== =========== =========== ========== ===========
PRO FORMA LOSS
ATTRIBUTABLE TO
COMMON
SHAREHOLDERS(J):
Class A Common
Stock........... $(2,042,387) $ 1,264,072
Class B Common
Stock........... (24,053) N/A
BASIC NET INCOME
(LOSS) PER SHARE:
Class A Common
Stock........... $ (0.69) $ 0.17
Class B Common
Stock........... (44.96) N/A
DILUTED INCOME PER
SHARE(L)......... N/A 0.15
WEIGHTED AVERAGE
NUMBER OF COMMON
SHARES
OUTSTANDING--
BASIC(K):
Class A Common
Stock........... 2,952,811 7,323,933
Class B Common
Stock........... 535 N/A
WEIGHTED AVERAGE
NUMBER OF COMMON
SHARES
OUTSTANDING--
DILUTED(L)....... N/A 8,230,403
</TABLE>
F-72
<PAGE>
- --------
ACQUISITION ADJUSTMENTS:
(a) The Message World acquisition was completed on February 1, 1997.
Historical amounts for Satellink in the pro forma statement of operations
for the year ended July 31, 1997 include the results of operations of
Message World subsequent to the acquisition date. Historical amounts shown
for Message World reflect its unaudited results of operations for the six
months ended January 31, 1997.
(b) Historical amounts related to the Hyde's Acquisition in the pro forma
statement of operations for the year ended July 31, 1997 have been derived
from its unaudited financial statements for the annual period ended
September 30, 1997.
(c) Reflects a reduction in salaries and distributions, reflected as expense,
to the owner of Hyde's who, pursuant to the stock purchase agreement, will
not continue employment with Satellink upon consummation of the proposed
acquisition.
(d) Reflects additional depreciation and amortization expense associated with
the increase in the basis of the acquired assets to fair market value at
the date of acquisition for Message World and Hyde's (the "Acquisitions").
Amounts allocated to the Message World name will be amortized over ten
years. Amounts allocated to customer base, FCC licenses, covenant not to
compete, goodwill and equipment in connection with the Acquisitions will
be amortized over five, ten, two, thirty and ten years, respectively.
Because the Hyde's Acquisition was consummated subsequent to April 30,
1998, the Company's estimated allocation of the purchase price should be
considered preliminary. The Company is undertaking a full investigation of
the allocation of the purchase price among the assets acquired. Management
does not expect the final allocation of value among assets acquired to
have a material effect on the Company's results of operations.
(e) Reflects the increase in interest expense attributable to borrowings used
to affect the Hyde's Acquisition at an estimated interest rate of (9.66% -
LIBOR + 4%), which represents the Company's interest rate at the time of
the consummation of the Hyde's Acquisition and the incremental interest
expense related to the Message World acquisition at the Company's blended
interest rate of 9.72%.
OFFERING ADJUSTMENTS:
(f) Reflects a reduction of interest expense related to the pay off of
outstanding long term debt from the proceeds of the offering at the
Company's blended historical rate of 9.72%.
(g) Reflects the elimination of the warrant accretion as the put feature is
contractually eliminated upon completion of an initial public offering.
(h) Reflects income tax effect, using an effective rate of 38%, related to the
Company's pro forma results of operations. Pro forma results do not
include any impact from changes in the valuation reserve which has been
recorded against net operating loss carryforwards historically incurred by
the Company. Upon completion of the offering, and application of the
proceeds to repay certain debt, the Company may substantially reduce the
valuation allowance.
(i) Reflects a decrease of $350,000 in dividends related to the conversion of
Series C Convertible Preferred Stock which is automatically converted to
Common Stock in the event of an initial public offering and a decrease of
$88,558 related to the conversion of Series A Convertible Preferred Stock
which the Company intends to convert into Common Stock in connection with
the initial public offering.
F-73
<PAGE>
(j) The Company is required to present earnings per share for each class of
outstanding common stock. Net income attributable to Class A and Class B
shareholders is allocated between each class based on the extent to which
each class shares in the Company's earnings. Class A and Class B
shareholders share in earnings at a 1:84.5 ratio.
(k) Basic weighted average common shares outstanding are comprised of the
following for each class of common stock:
<TABLE>
<CAPTION>
CLASS A CLASS B
--------- -------
<S> <C> <C>
Weighted average shares outstanding prior to initial
public offering......................................... 2,952,811 535
Conversion of Class B common shares...................... 45,207 (535)
Conversion of Series A preferred stock................... 621,920 --
Conversion of Series C preferred stock................... 953,995 --
Issuance of common shares from the initial public
offering................................................ 2,750,000 --
--------- ----
Pro forma weighted average shares outstanding............ 7,323,933 0
========= ====
</TABLE>
(l) Diluted earnings per share differs from basic earnings per share only for
periods in which earnings are positive. Weighted average common shares
outstanding for diluted net income per share consists of the following:
<TABLE>
<CAPTION>
CLASS A
---------
<S> <C>
Pro forma weighted average common shares outstanding............... 7,323,933
Effect of dilutive stock options and warrants...................... 906,470
---------
Pro forma weighted average common shares outstanding............... 8,230,403
=========
</TABLE>
F-74
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS IN
CONNECTION WITH THE OFFER CONTAINED HEREIN, AND, IF GIVEN OR MADE, SUCH INFOR-
MATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY
THE COMPANY OR ANY UNDERWRITER. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER
TO SELL OR A SOLICITATION OF AN OFFER TO BUY THE SHARES OF COMMON STOCK OF-
FERED HEREBY BY ANYONE IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION
IS NOT AUTHORIZED OR IN WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS
NOT QUALIFIED TO DO SO, OR TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH
OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE
MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT
THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF
OR THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT
TO THE DATE HEREOF.
UNTIL , 1998 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS
EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR NOT PARTICIPATING IN
THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS DELIVERY RE-
QUIREMENT 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.
----------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary........................................................ 3
Risk Factors.............................................................. 8
Use of Proceeds........................................................... 21
Dividend Policy........................................................... 22
Capitalization............................................................ 23
Dilution.................................................................. 24
Selected Consolidated Financial and Operating Data........................ 25
Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................... 27
Business.................................................................. 36
Management................................................................ 51
Certain Transactions...................................................... 56
Principal and Selling Shareholders........................................ 58
Description of Capital Stock.............................................. 60
Shares Eligible for Future Sale........................................... 63
Underwriting.............................................................. 67
Legal Matters............................................................. 68
Experts................................................................... 68
Available Information..................................................... 68
Index to Consolidated Financial Statements................................ F-1
</TABLE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
3,650,000 SHARES
[SATELLINK COMMUNICATIONS, INC.
LOGO APPEARS HERE]
COMMON STOCK
----------------
PROSPECTUS
----------------
J.C.Bradford&Co.
Morgan Keegan &
Company, Inc.
, 1998
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the various expenses in connection with the
issuance and distribution of the securities being registered hereby, other
than underwriting discounts and commissions. All amounts except the SEC
registration fee and the NASD filing fee are estimated.
<TABLE>
<S> <C>
SEC registration fee............................................ $ 14,860
NASD filing fee................................................. 5,537
Accounting fees and expenses.................................... 350,000
Nasdaq National Market listing fee.............................. 40,000
Legal fees and expenses......................................... 260,000
Printing and engraving expenses................................. 200,000
Blue sky fees and expenses...................................... 2,000
Directors and officers' insurance............................... 15,000
Transfer agent and registrar fees and expenses.................. 10,000
Miscellaneous................................................... 2,603
--------
Total......................................................... $900,000
========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Bylaws state that the Company shall indemnify and save harmless the
directors, officers, employees and agents of the Company for personal losses
or damages incurred for acts or omissions done or not done on behalf of the
Company in accordance with the Company's indemnification policy (the
"Policy"). The Policy provides that the Company shall indemnify and hold
harmless any person who was or who is a party or who is threatened to be made
a party to any threatened, pending, or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative (other than in an
action by or in the right of the Company) by reason of the fact that he or she
is or was a director, officer, employee or agent of the Company, or is or was
serving at the request of the Company as a director, officer, employee or
agent of another company, partnership, joint venture, trust or other
enterprise, against expenses (including attorneys' fees), judgments, fines and
amounts paid in settlement actually and reasonably incurred by him or her in
connection with such action, suit or proceeding, if he or she acted in a
manner he or she reasonably believed to be in or not opposed to the best
interests of the Company, and, with respect to any criminal action or
proceeding, had no reasonable cause to believe his or her conduct was
unlawful. No indemnification shall be made in respect of any claim, issue or
matter as to which a director, officer, employee or agent of the Company shall
have been adjudged to be liable to the Company, unless and only to the extent
that the court in which such action or suit was brought shall determine upon
application that, despite the adjudication of the case, such person is fairly
and reasonably entitled to indemnify for such expenses which the court shall
deem proper. To the extent that a director, officer, employee or agent of the
Company has been successful on the merits or otherwise in defense of any
action, suit or proceeding referred to in the Policy, he or she shall be
indemnified against expenses (including attorneys' fees) actually and
reasonably incurred by him or her in connection therewith. Otherwise, any
indemnification shall be made by the Company only as authorized in the
specific case upon a determination that indemnification of the director,
officer, employee or agent is proper in the circumstances because he or she
has met the applicable standard of conduct. Such a determination shall be
made: (1) by the Board of Directors by a majority vote of a quorum consisting
of directors who were not parties to such action, suit or proceeding; (2) if
such a quorum is not obtainable, or, even if obtainable a quorum of
disinterested directors so directs, by independent legal counsel then employed
by the Company, in a written opinion; or (3) by the affirmative vote of a
majority of the shares entitled to vote thereon.
II-1
<PAGE>
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
On November 17, 1995, the Company issued and sold 3,500 shares of Series C
Convertible Preferred Stock to Creditanstalt, Stiles A. Kellett, Jr., an
affiliate of Mr. Kellett and an unaffiliated accredited investor for cash
consideration of $1,000 per share and received proceeds of $3,500,000 in a
transaction exempt from registration pursuant to Sections 4(2) and 4(6) of the
Securities Act and Rule 505 of Regulation D thereunder. In accordance with the
terms and conditions of the designation of the Series C Convertible Preferred
Stock, contemporaneously with the consummation of the Offering, each issued
and outstanding share of Series C Convertible Preferred Stock will be
converted into 272.5725 shares of Common Stock without any further action on
the part of the Company or the Series C Investors.
During 1996, the Company approved the conversion of all outstanding shares
of Class B Common Stock into Class A Common Stock. As of January 31, 1998,
2,071 shares of Class B Common Stock have been converted into 175,025 shares
of Class A Common Stock, and there are no remaining shares of Class B Common
Stock outstanding. In February 1996, the Company issued and sold 105,625
shares of Class A Common Stock for cash consideration of $2.37 per share and
received proceeds of $250,000 in a transaction exempt from registration under
the Securities Act pursuant to Section 4(2) thereunder.
On April 3, 1998, the Company issued and sold 4,500 shares of Series D
Redeemable Preferred Stock for cash consideration of $1,000 per share in a
transaction exempt from registration under the Securities Act pursuant to Rule
506 of Regulation D. The shares of Series D Redeemable Preferred Stock were
offered to and purchased by a limited number of accredited investors,
including certain directors and executive officers of the Company. Pursuant to
the terms of the designation of the Company's Series D Redeemable Preferred
Stock, all outstanding shares of Series D Redeemable Preferred Stock will be
redeemed contemporaneously with the consummation of the Offering through
proceeds realized from the Offering.
On August 1, 1995, the Company granted an option to an employee to purchase
84,500 shares of Common Stock at an exercise price of $1.78 per share (the
estimated fair value at the date of grant). The option has a term of five
years and vests ratably over a period of three years. In January 1998, the
employee partially exercised his option and purchased 56,332 shares of Common
Stock for cash consideration of $100,099. During fiscal 1997, the Company
granted to principals of Breckenridge options to purchase 169,000 shares of
Common Stock at an exercise price of $3.68 per share (the estimated fair value
at the date of grant) in consideration of services provided in connection with
several of the Company's acquisitions. The option has a term of five years and
vested immediately. During the six months ended January 31, 1998, the Company
granted options to employees to purchase 140,910 shares of Common Stock at an
exercise price of $4.62 per share (the estimated fair value at the date of
grant). These options to employees have terms of ten years and vest ratably
over a period of four years.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) The following exhibits are filed as a part of this Registration
Statement:
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION OF EXHIBIT
------- ----------------------
<C> <S>
1 Underwriting Agreement.
3.1** Restated Articles of Incorporation of the Company.
3.2** Bylaws of the Company.
3.3 Amended and Restated Articles of Incorporation of the Company
3.4 Amended and Restated Bylaws of the Company
4.1** Stockholders Agreement, dated August 1, 1988, by and between Satellink
Paging, Inc. and the several stockholders of the Company.
4.2** Debenture Purchase Agreement and Amendment to Stockholders Agreement,
dated July 25, 1989, by and between Satellink Paging, Inc. and the
several stockholders of the Company.
4.3** Series A Preferred Stock Purchase Agreement and Second Amendment to
Stockholders Agreement, dated by and among Satellink Paging, Inc., the
several purchasers and the several security holders of the Company.
4.4** Second Amended and Restated Warrant Agreement, as amended, dated
November 17, 1995, by and between Satellink Paging, Inc. and
Creditanstalt American Corporation.
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION OF EXHIBIT
------- ----------------------
<S> <C>
4.5** First Amendment, dated May 31, 1996, to Second Amended and Restated
Warrant Agreement by and between Satellink Paging, Inc. and
Creditanstalt American Corporation
4.6** Second Amendment, dated June 27, 1997, to Second Amended and Restated
Warrant Agreement by and between Satellink Paging, Inc. and
Creditanstalt American Corporation.
4.7** Series C Convertible Preferred Stock Securities Purchase Agreement,
dated November 17, 1995, by and among Satellink Paging, Inc. and
Creditanstalt American Corporation. (The Company has entered into
agreements substantially similar in all material respects to this
agreement. A schedule of such similar agreements is attached to this
exhibit).
4.8** Form of Preferred Stock and Warrant Purchase Agreement, dated April
3, 1998, by and among Satellink Communications, Inc. and the several
purchasers of Series D Preferred Stock.
5** Form of opinion regarding legality.
10.1** Satellink Communications, Inc. 1997 Long-Term Incentive Plan.
10.2** Asset Purchase Agreement, dated February 1, 1997, by and among
Satellink Paging, LLC, Saner Communications, Inc. and Michael J.
Saner.
10.3** Merger Agreement, dated May 23, 1997, by and among Satellink Paging,
Inc., A. Lee Pickard and Satellink Paging, LLC.
10.4** Shareholder Agreement, dated May 25, 1995, between C.R., Inc., Cape
Fear Paging Company of North Carolina and Satellink Paging, Inc.
10.5** Merger Agreement, dated January 27, 1998, by and among Premier
Paging, Inc., Premier Paging of New Orleans, Inc., the shareholders
of Premier Paging, Inc., the shareholders of Premier Paging of New
Orleans, Inc. and Satellink Paging, LLC.
10.6** Asset Purchase Agreement, dated May 31, 1996, between Satellink
Paging, Inc., C.R., Inc., James Sowell, Larry Simmons and Jay Lee
Jameson, as Trustee of The Safeton Trust.
10.7** Asset Purchase Agreement, dated February 15, 1997, by and among
Satellink Paging, LLC, Call One, Inc., James Sowell, Larry Simmons
and Jay Lee Jameson, as Trustee of The Safeton Trust.
10.8** Option to Purchase Common Stock of Satellink Communications, Inc.
executed in favor of Donald W. Rochow of The Breckenridge Group, Inc.
(The Company has entered into agreements substantially similar in all
material respects to this agreement. A schedule of such similar
agreements is attached to this exhibit).
10.9** Third Amended and Restated Loan and Security Agreement, dated June
27, 1997, by and among Satellink Communications, Inc., Satellink
Paging, LLC, certain named Lenders and Creditanstalt-Bankverein.
10.10** First Amendment, dated March 11, 1998, to Third Amended and Restated
Loan and Security Agreement by and among Satellink Communications,
Inc., Satellink Paging, LLC, certain named Lenders and Creditanstalt-
Bankverein.
10.11* Agreement with Cape Fear Paging Company of North Carolina.
10.12*** Sales and Distribution Agreement, dated May 21, 1996, between Paging
Network of Atlanta, Inc. and Satellink Paging, Inc.
10.13*** Agency Agreement for Private Carrier Paging (Georgia), dated March 4,
1992, between Preferred Networks, Inc. and Satellink Paging, Inc.
10.14* A+ Network Agreement.
10.15* Pager Supply Agreement.
10.16*** Distribution Agreement, dated April 2, 1990, between CUE Paging
Corporation and Satellink Paging, Inc., as amended by that certain
Amendment to the Distribution Agreement, dated April 2, 1990.
10.17*** Regional Affiliate Agreement, dated August 20, 1990, between CUE
Paging Corporation and C.R., Inc., as assigned to Satellink Paging,
Inc.
10.18*** Distribution Agency Agreement, dated November 29, 1989 between
Satellink Paging, Inc. and Southern Connections, Inc. (The Company
has entered into agreements substantially similar in all material
respects to this agreement. A schedule of such similar agreements is
attached to this exhibit).
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION OF EXHIBIT
------- ----------------------
<S> <C>
10.19*** Reseller Agreement, dated October 17, 1997, between Destineer
Corporation and Satellink Paging , Inc. d/b/a/ Satellink Messaging
10.20** Stock Purchase Agreement, dated April 9, 1998 by and amoung Satellink
Paging, LLC and Hyde's Stay In Touch, Inc. and R. Daniel Hyde, Jr.
10.21 Amendment to Stock Purchase Agreement, dated May 1, 1998, by and
among Satellink Paging, LLC and Hyde's Stay in Touch, Inc. and R.
Daniel Hyde, Jr.
10.22 Stock Purchase Agreement, dated May 1, 1998, by and among Satellink
Paging, LLC and 9077 Broadcasting, Inc. and R. Daniel Hyde, Jr.
21** Subsidiaries of the Company.
23.1** Consent of Alston & Bird LLP (included in Exhibit 5).
23.2 Consent of Arthur Andersen LLP.
23.3 Consent of James N. Rachel.
24** Power of Attorney.
27 Financial Data Schedule.
</TABLE>
- --------
*To be filed by amendment.
**Previously filed.
***Previously filed with portions omitted pursuant to a request for
confidential treatment.
(b) The following Financial Statement Schedules of Satellink Communications,
Inc. are included in this Registration Statement:
Not Applicable.
ITEM 17. UNDERTAKINGS.
(f) The undersigned registrant hereby undertakes to provide to the
underwriter at the closing specified in the underwriting agreement
certificates in such denominations and registered in such names as required by
the underwriter to permit prompt delivery to each purchaser.
(h) 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.
(i) 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 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 part of this
registration statement as of the time it was declared effective.
(2) For the purpose 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-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment No. 1 to this Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Roswell, State of Georgia, on the 26th day of May, 1998.
SATELLINK COMMUNICATIONS, INC.
By: /s/ Jerry W. Mayfield
--------------------------------
JERRY W. MAYFIELD
CHAIRMAN OF THE BOARD, PRESIDENT
AND CHIEF EXECUTIVE OFFICER
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 to this Registration Statement has been signed below by the following
persons in the capacities indicated on May 26, 1998.
SIGNATURE TITLE
/s/ Jerry W. Mayfield Chairman of the Board,
- ------------------------------------- President and Chief
Jerry W. Mayfield Executive Officer
(Principal Executive
Officer)
/s/ Daniel D. Lensgraf Senior Vice President--
- ------------------------------------- Finance & Administration
Daniel D. Lensgraf and Chief Financial Officer
(Principal Financial and
Accounting Officer)
Director
*
- -------------------------------------
James O. Carpenter
Director
*
- -------------------------------------
Marc A. Comeaux
II-5
<PAGE>
SIGNATURE TITLE
Director
*
- -------------------------------------
Robert D. Gage, IV
Director
*
- -------------------------------------
Gordon E. Kaiser
Director
*
- -------------------------------------
Stiles A. Kellett, Jr.
Director
*
- -------------------------------------
David C. Massey
Director
*
- -------------------------------------
/s/ Jerry W. Mayfield
By:
Robert P. Poche
_____________________________
Attorney-in-Fact
II-6
<PAGE>
SATELLINK COMMUNICATIONS, INC.
SCHEDULE II: VALUATION AND QUALIFYING ACCOUNTS YEARS ENDED JULY 31, 1995,
1996, 1997, AND THE SIX MONTHS ENDED JANUARY 31,1998
<TABLE>
<CAPTION>
CHARGED TO
BEGINNING COSTS ENDING
DESCRIPTION AND BALANCE EXPENSE WRITEOFFS BALANCE
----------- --------------- ------- --------- -------
<S> <C> <C> <C> <C>
1995 Allowance for doubtful accounts. 92,000 16,405 (47,644) 60,761
1996 Allowance for doubtful accounts. 60,761 179,722 (41,573) 198,911
1997 Allowance for doubtful accounts. 198,911 523,117 (277,000) 445,028
January 31, 1998 Allowance for
doubtful accounts................... 445,028 326,339 (245,348) 526,019
</TABLE>
S-1
<PAGE>
EXHIBIT 1
SATELLINK COMMUNICATIONS, INC.
______________ SHARES OF COMMON STOCK
UNDERWRITING AGREEMENT
----------------------
____________, 1998
J.C. BRADFORD & CO.
MORGAN KEEGAN & COMPANY, INC.
As Representatives of the several Underwriters
c/o J.C. Bradford & Co.
J.C. Bradford Financial Center
330 Commerce Street
Nashville, Tennessee 37201
Ladies and Gentlemen:
Satellink Communications, Inc., a Georgia corporation (the "Company"),
proposes to sell to the several underwriters named in Schedule I hereto (the
----------
"Underwriters") for whom you are acting as the representatives (the
"Representatives") ______________ shares (the "Company Shares") of the Company's
common stock, par value $0.01 per share (the "Common Stock"), and the
shareholders of the Company named on Schedule II hereto (the "Selling
-----------
Shareholders") propose to sell to the Underwriters ___________ shares of the
Common Stock (the "Selling Shareholder Shares"). The Company Shares and the
Selling Shareholder Shares are hereinafter referred to collectively as the "Firm
Shares." The Company has also agreed to grant to you an option (the "Option")
to purchase up to ____________ additional shares of Common Stock (the "Option
Shares") on the terms and for the purposes set forth in Section 1(b) hereof.
The Firm Shares and the Option Shares are hereinafter collectively referred to
as the "Shares."
The Company and the Selling Shareholders confirm as follows their
agreements with you.
1. AGREEMENT TO SELL AND PURCHASE; PUBLIC OFFERING.
-----------------------------------------------
(a) On the basis of the representations, warranties, agreements and
covenants herein contained, and subject to all the terms and conditions of this
Underwriting Agreement (the "Agreement"), the Company agrees to sell to the
Underwriters an aggregate of ______________ Firm Shares, and each of the Selling
Shareholders agrees, severally and not jointly, to sell to the Underwriters the
aggregate number of Firm Shares set forth opposite such Selling Shareholder's
name in Schedule II hereto, and each of the Underwriters, severally and not
-----------
jointly, agrees to purchase at the purchase price of $______ per share the
number of Firm Shares set forth opposite such Underwriter's name in Schedule I
----------
hereto.
<PAGE>
(b) Subject to all the terms and conditions of this Agreement, the Company
also grants the Underwriters the Option to purchase, severally and not jointly,
up to ____________ Option Shares from the Company, each at the same price per
share as the Underwriters shall pay for the Firm Shares. The Underwriters shall
not be under any obligation to purchase any Option Shares prior to the exercise
of such option. The Option may be exercised only to cover over-allotments in the
sale of the Firm Shares and may be exercised in whole or in part at any time or
from time to time on or before the 30th day after the date of the Prospectus (as
defined below) upon written or telephonic notice (the "Option Shares Notice") by
you to the Company no later than 12:00 noon, Atlanta, Georgia time, at least two
and no more than 15 full business days before the date and time specified for
closing in the Option Shares Notice (the "Option Closing Date") setting forth
the aggregate number of Option Shares to be purchased. On the Option Closing
Date, the Company will issue and sell to the Underwriters the number of Option
Shares set forth in the Option Shares Notice, and unless otherwise adjusted by
the Representatives, each of the Underwriters will purchase such percentage of
the Option Shares as is equal to the percentage of Firm Shares that such
Underwriter is purchasing.
(c) After the Registration Statement becomes effective, upon the
authorization by you of the release of the Shares, the several Underwriters
propose to offer the Firm Shares and the Option Shares purchased by the
Underwriters for sale initially at the price per share set forth in the
Prospectus (the initial offering price) and upon the terms set forth therein.
2. DELIVERY AND PAYMENT.
--------------------
Delivery of the Firm Shares shall be made to you by or on behalf of the
Company and the Selling Shareholders against payment of the purchase price by
federal funds wire transfer payable in same day funds to the order of the
Company at the offices of J.C. Bradford & Co., J.C. Bradford Financial Center,
330 Commerce Street, Nashville, Tennessee 37201, or at such other place as may
be agreed upon by the Representatives and the Company, at 10:00 a.m., Nashville
time, on the third or, if the Firm Shares are priced, as contemplated by Rule
15c6-1(c) promulgated pursuant to the Securities Exchange Act of 1934, as
amended, (the "Exchange Act"), after 4:30 p.m., Washington, D.C. time, the
fourth full business day following the date of this Agreement (the "Closing
Date"), or at such other time on such date, or at such other place, as may be
agreed upon by the Company and the Representatives.
To the extent, if any, that the Option is exercised, delivery of the Option
Shares against payment therefor (in the manner specified above) will take place
at the offices specified above on the Option Closing Date (which, subject to the
requirements set forth above for the Option Shares Notice, may be the Closing
Date).
Certificates evidencing the Shares shall be in definitive form and shall be
registered in such names and in such denominations as you shall request not less
than 48 hours prior to the Closing Date or the Option Closing Date, as the case
may be, by written notice to the Company.
2
<PAGE>
For the purpose of expediting the checking and packaging of certificates for the
Shares, the Company agrees to make such certificates available for inspection at
least 24 hours prior to the Closing Date or the Option Closing Date, as the case
may be, at a location to be designated by you, which may be in New York, New
York, or elsewhere. If the Representatives so elect, delivery of the Shares may
be made by credit through full fast transfer to the accounts designated by the
Representatives at The Depository Trust Company.
The cost of original issue tax stamps, if any, in connection with the
issuance and delivery of the Company Shares and Option Shares by the Company to
the Underwriters shall be borne by the Company. The Company will pay and save
each of the Underwriters and any subsequent holder of the Shares harmless from
any and all liabilities with respect to or resulting from any failure or delay
in paying federal and state stamp and other transfer taxes, if any, which may be
payable or determined to be payable in connection with the original issuance or
sale to such Underwriter of the Company Shares and Option Shares.
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
---------------------------------------------
The Company represents, warrants and covenants to each of the Underwriters
that:
(a) The Company has prepared and has filed with the Securities and
Exchange Commission (the "Commission") a registration statement (Registration
No. 333-49839) on Form S-1 relating to the Shares, including a preliminary
prospectus and such amendments to such registration statement as may have been
required to the date of this Agreement, under the provisions of the Securities
Act of 1933, as amended (the "Act"), and the rules and regulations (collectively
referred to as the "Rules and Regulations") of the Commission thereunder. The
registration statement and all amendments thereto have been duly authorized and
executed by the Company in accordance with the Rules and Regulations. The term
"preliminary prospectus" as used herein means a preliminary prospectus as
contemplated by Rule 430 or Rule 430A of the Rules and Regulations included at
any time as part of the registration statement. Copies of such registration
statement and amendments and of each related preliminary prospectus have been
delivered to you. If such registration statement has not become effective, a
further amendment to such registration statement, including a form of final
prospectus, necessary to permit such registration statement to become effective,
will be filed promptly by the Company with the Commission. If such registration
statement has become effective, a final prospectus containing information
permitted to be omitted at the time of effectiveness by Rule 430A of the Rules
and Regulations will be filed promptly by the Company with the Commission in
accordance with Rule 424(b) of the Rules and Regulations, if required. The term
"Registration Statement" as used herein means the registration statement as
amended at the time it becomes or became effective (the "Effective Date"),
including financial statements and all exhibits and any information deemed to be
included by Rule 430A. The term "Prospectus" means the prospectus as first filed
with the Commission pursuant to Rule 424(b) of the Rules and Regulations or, if
no such filing is required, the form of final prospectus included in the
Registration Statement at the Effective Date.
3
<PAGE>
(b) On the Effective Date, the date the Prospectus is first filed with the
Commission pursuant to Rule 424(b) (if required), at all times subsequent
thereto through and including the Closing Date and, if later, the Option Closing
Date and when any post-effective amendment to the Registration Statement becomes
effective or any amendment or supplement to the Prospectus is filed with the
Commission, the Registration Statement and the Prospectus (as amended or as
supplemented if the Company shall have filed with the Commission any amendment
or supplement thereto), including the financial statements included in the
Prospectus, did and will comply with all applicable provisions of the Act and
the Rules and Regulations and did and will contain all statements required to be
stated therein in accordance with the Act and the Rules and Regulations. On the
Effective Date and when any post-effective amendment to the Registration
Statement becomes effective, no part of the Registration Statement or any such
amendment or supplement did or will contain an untrue statement of a material
fact or omit to state a material fact required to be stated therein or necessary
in order to make the statements therein not misleading. On the date any
amendment or supplement to the Prospectus is filed with the Commission and at
the Closing Date and, if later, the Option Closing Date, the Prospectus did not
or will not contain any untrue statement of a material fact or omit to state a
material fact necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading. The foregoing
representations and warranties in this Section 3(b) do not apply to any
statements or omissions made in reliance on and in conformity with information
relating to the Underwriters furnished in writing to the Company by the
Representatives specifically for inclusion in the Registration Statement or
Prospectus or any amendment or supplement thereto. The Company acknowledges that
the only information relating to the Representatives furnished in writing to the
Company by the Underwriters specifically for inclusion in the Registration
Statement, any preliminary prospectus and the Prospectus is the information in
the last paragraph on the cover page, the paragraphs relating to stabilization
on the inside front cover and the statements set forth under the heading
"Underwriting" in any preliminary prospectus or the Prospectus.
(c) The Company and each of its subsidiaries, as defined in the Rules and
Regulations (individually, a "Subsidiary" and collectively, the "Subsidiaries"),
are, and at the Closing Date and, if later, the Option Closing Date will be, a
corporation or limited liability company duly organized, validly existing and in
good standing under the laws of the jurisdiction of its incorporation or
organization. The Company is the sole legal and beneficial owner of all
securities of the Subsidiaries free and clear of all liens, charges and
encumbrances. The Company and each of the Subsidiaries has, and at the Closing
Date and, if later, the Option Closing Date will have, full power and authority
to conduct all the activities conducted by it, to own or lease all the assets
owned or leased by it and to conduct its business as described in the
Registration Statement and the Prospectus. The Company and each Subsidiary is,
and at the Closing Date and, if later, the Option Closing Date will be, duly
licensed or qualified to do business and in good standing as a foreign
corporation in all jurisdictions in which the nature of the activities conducted
by it or the character of the assets owned or leased by it makes such licensing
or qualification necessary, except where the failure to so qualify would not
have a material adverse effect upon the business, properties, business
prospects, condition (financial or
4
<PAGE>
otherwise) or results of operations of the Company and the Subsidiaries, and no
proceeding has been instituted in any jurisdiction revoking, limiting or
curtailing, or seeking to revoke, limit or curtail, the Company's or any
Subsidiary's power, authority, licensing or qualification. Except for the stock
of the Subsidiaries or as disclosed in the Registration Statement, the Company
does not own, and at the Closing Date and, if later, the Option Closing Date
will not own, directly or indirectly, any shares of stock or any other equity or
long-term debt securities of any corporation or have any equity interest in any
firm, partnership, joint venture, association or other entity. Complete and
correct copies of the Restated Articles of Incorporation (the "Restated
Articles") and the Bylaws (the "Bylaws") of the Company and the certificate of
incorporation and bylaws, or the organizational documents and operating
agreements, as the case may be, of each Subsidiary and all amendments thereto
have been delivered to you, and no changes therein will be made subsequent to
the date hereof and prior to the Closing Date or, if later, the Option Closing
Date.
(d) The outstanding shares of the Company's Common Stock have been, and
the Shares to be issued and sold by the Company upon such issuance and delivery
and payment therefor in the manner herein described will be, duly authorized,
validly issued, fully paid and nonassessable and will not be subject to any
preemptive or similar right. The description of the Common Stock in the
Registration Statement and the Prospectus is, and at the Closing Date and, if
later, the Option Closing Date will be, complete and accurate in all respects.
All offers and sales of securities of the Company have been at all relevant
times duly registered under or exempt from the registration requirements of the
Act and were duly registered under or exempt from the registration requirements
of all applicable state securities or Blue Sky laws. Except as set forth in the
Prospectus and except for options issued under the Company's stock option plans,
the Company does not have outstanding, and at the Closing Date and, if later,
the Option Closing Date will not have outstanding, any options to purchase, or
any rights or warrants to subscribe for, or any securities or obligations
convertible into, or any contracts or commitments to issue or sell any shares of
Common Stock or any such warrants, convertible securities or obligations. The
description of the Company's stock option, stock bonus and other stock plans or
arrangements, and the options or other rights granted and exercised thereunder,
set forth in the Prospectus accurately and fairly presents the information
required to be shown with respect to such plans, arrangements, options and
rights.
(e) The financial statements together with the related notes and schedules
included in the Registration Statement or the Prospectus are accurate in all
material respects and present fairly the financial condition of the Company and
all entities that have been acquired by the Company as of the respective dates
thereof and the results of operations and cash flows of the Company and all
entities that have been acquired by the Company for the respective periods
covered thereby, all in conformity with generally accepted accounting principles
applied on a consistent basis throughout the entire period involved, except as
otherwise disclosed in the Prospectus. The financial and statistical data set
forth in the Prospectus under the captions "Prospectus Summary," "Summary
Consolidated Financial and Operating Data," "Use of Proceeds," "Capitalization,"
"Selected Consolidated Financial and Operating Data," "Management's Discussion
and Analysis of Financial Condition and Results of Operations," "Business,"
"Management" and "Principal and
5
<PAGE>
Selling Shareholders" have been compiled on a basis consistent with that of the
audited financial statements contained in the Registration Statement and
Prospectus and fairly present the information set forth therein. No other
financial statements or schedules of the Company are required by the Act, the
Exchange Act or the Rules and Regulations to be included in the Registration
Statement or the Prospectus. Arthur Andersen LLP (the "Accountants"), who have
reported on certain of such financial statements and schedules, are independent
auditors with respect to the Company as required by the Act and the Rules and
Regulations.
(f) The Company maintains a system of internal accounting controls
sufficient to assure that: (i) transactions are executed in accordance with
management's general or specific authorizations; (ii) transactions are recorded
as necessary to permit preparation of financial statements in conformity with
generally accepted accounting principles and to maintain accountability for
assets; (iii) access to assets is permitted only in accordance with management's
general or specific authorization; and (iv) the recorded accountability for
assets is compared with existing assets at reasonable intervals and appropriate
action is taken with respect to any differences. The Company's system of
internal accounting controls is sufficient to meet the broad objectives of
internal accounting control insofar as those objectives pertain to the
prevention or detection of errors or irregularities in amounts that would be
material in relation to the Company's financial statements; and, except as
disclosed in the Prospectus, neither the Company nor any employee or agent of
the Company has made any payment of funds of the Company or received or retained
any funds in violation of any law, rule or regulation, the receipt or payment of
which could have a material adverse effect on the Company.
(g) There are no outstanding loans, advances (except normal advances for
business expenses in the ordinary course of business) or guarantees of
indebtedness by the Company to or for the benefit of any of the officers or
directors of the Company or any of the members of the families of any of them,
except as disclosed in the Registration Statement and the Prospectus.
(h) Subsequent to the respective dates as of which information is given in
the Registration Statement and the Prospectus and prior to the Closing Date and,
if later, the Option Closing Date, except as set forth in the Registration
Statement and the Prospectus, (i) there has not been and will not have been any
material adverse change in the business, properties, business prospects,
condition (financial or otherwise) or results of operations of the Company,
arising for any reason whatsoever, (ii) the Company has not incurred nor will it
incur any material liabilities or obligations, direct or contingent, except in
the ordinary course of business, (iii) the Company has not entered into any
material transaction not in the ordinary course of business, (iv) the Company
has not and will not have paid or declared any dividends or other distributions
of any kind on any class of its capital stock, (v) there has not been and will
not have been any change in the capitalization of the Company other than
pursuant to the exercise of employee stock options or the issuance of shares
under the Company's stock option plans and (vi) there has not been any loss or
damage (whether or not insured) to the property of the Company which has been
sustained or will have been sustained which has a material adverse effect on the
business, business prospects, condition (financial or otherwise) or results of
operations of the Company.
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(i) The Company has timely filed all necessary federal, state and foreign
income and franchise tax returns and has paid all taxes shown thereon, and there
is no tax deficiency that has been or, to the best of the Company's knowledge,
might be asserted against the Company that might have a material adverse effect
on the business, properties, business prospects, condition (financial or
otherwise) or results of operations of the Company, and all tax liabilities are
adequately provided for on the books of the Company.
(j) The Company is not an "investment company" or an "affiliated person"
of, or "promoter" or "principal underwriter" for, an "investment company," as
such terms are defined in the Investment Company Act of 1940, as amended.
(k) Except as set forth in the Registration Statement and the Prospectus,
there are no actions, suits or proceedings pending or threatened against or
affecting the Company or any Subsidiary or any of their respective officers in
their capacity as such, before or by any federal or state court, commission,
regulatory body, administrative agency or other governmental body, domestic or
foreign, wherein an unfavorable ruling, decision or finding would materially and
adversely affect the Company or its business, properties, business prospects,
condition (financial or otherwise) or results of operations or prevent or
materially hinder the consummation of this Agreement.
(l) The Company has not at any time during the past five years: (i) made
any unlawful contributions to any candidate for any political office, or failed
fully to disclose any contribution in violation of law; or (ii) made any payment
to any state, federal or foreign government official, or other person charged
with similar public or quasi-public duty (other than payment required or
permitted by applicable law).
(m) The Company and each Subsidiary has, and at the Closing Date and, if
later, the Option Closing Date will have: (i) all governmental licenses,
certificates, permits, consents, orders, approvals and other authorizations,
including licenses granted by the Federal Communications Commission (the "FCC")
for and related to the provision of wireless and wireline telecommunications
services (the "FCC Licenses"), necessary to carry on the Company's business as
contemplated in the Prospectus; (ii) complied in all material respects with all
laws, regulations and orders applicable to it or its business or properties; and
(iii) performed all obligations required to be performed by it and is not, and
at the Closing Date and, if later, the Option Closing Date will not be, in
default, under any contract or other instrument material to it to which it is a
party or by which its property is bound or affected where such default would
materially and adversely affect the business, properties, business prospects,
condition (financial or otherwise) or results of operations of the Company and
the Subsidiaries or prevent or materially hinder the consummation of this
Agreement. To the best knowledge of the Company and each Subsidiary, as of the
date of this Agreement, the Closing Date and, if later, the Option Closing Date,
no other party under any contract or other instrument to which it is a party is
in default thereunder, nor at the Closing Date and, if later, the Option Closing
Date will any of them be, in
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<PAGE>
violation of any provision of its certificate of incorporation or bylaws. All
FCC Licenses of the Company and its Subsidiaries are in full force and effect
and have been duly issued in the name of, or validly assigned to, the Company or
one of its Subsidiaries, and no default or breach exists thereunder. No event
has occurred with respect to the FCC Licenses that permits, or after giving
notice, lapse of time or both would permit, revocation or termination of any
such FCC License or would result in any material impairment of the rights of the
holder thereof. All of such FCC Licenses are in effect for the usual FCC License
terms and are unimpaired by any condition of other restriction imposed by the
FCC or other governmental authority (other than restrictions and conditions
generally applicable to licenses of the same or similar type or class).
All applications necessary for renewal or extension of the FCC Licenses
have been timely filed in accordance with the requirements of the FCC or other
governmental authority issuing such FCC Licenses. The Company has not been
informed that any of the FCC Licenses will not be renewed in the ordinary
course, and no allegations, complaints, charges, investigations, renewal or
revocation hearings, or other proceedings, have been threatened or initiated in
any forum, nor has any governmental authority (including, but not limited to,
the FCC) proposed, announced, used, or adopted any amendment, modification, or
change to any law or regulation, with respect to or impacting upon such FCC
Licenses.
(n) No consent, approval, authorization or order of, or any filing or
declaration with, any court or governmental agency or body is required for the
consummation by the Company of the transactions on its part herein contemplated,
except such as have been obtained under the Act or the Rules and Regulations and
such as may be required under state securities or Blue Sky laws or the bylaws
and rules of the National Association of Securities Dealers, Inc. (the "NASD")
in connection with the purchase and distribution by the Underwriters of the
Shares.
(o) The filing of the Registration Statement and the execution and
delivery of this Agreement have been duly authorized by the Board of Directors
of the Company, and the Company has full corporate power and authority to enter
into this Agreement and to perform its obligations hereunder. This Agreement has
been duly executed and delivered by the Company and constitutes a valid and
binding agreement of the Company enforceable against the Company in accordance
with the terms hereof. The performance of this Agreement and the consummation of
the transactions contemplated hereby will not result in the creation or
imposition of any material lien, charge or encumbrance upon any of the assets of
the Company or any Subsidiary pursuant to the terms or provisions of, or result
in a breach or violation of any of the terms or provisions of, or constitute a
default under, or give any other party a right to terminate any of its
obligations under, or result in the acceleration of any obligation under, the
certificate of incorporation or bylaws of the Company or the Subsidiaries, any
indenture, mortgage, deed of trust, voting trust agreement, loan agreement,
bond, debenture, note agreement or other evidence of indebtedness, lease,
contract or other agreement or instrument to which the Company or any Subsidiary
is a party or by which the Company or any Subsidiary or any of its or their
properties are bound or affected, or violate or conflict with any judgment,
ruling, decree, order, statute, rule or regulation of any court or other
governmental agency or body applicable to the business or
8
<PAGE>
properties of the Company or any Subsidiary; the occurrence of which would
materially and adversely affect the business, properties, business prospects,
condition (financial or otherwise) or results of operations of the Company and
the Subsidiaries or prevent or materially hinder the consummation of this
Agreement.
(p) The Company and each Subsidiary has good and valid title to all
properties and assets described in the Registration Statement and Prospectus as
owned by it, free and clear of all liens, charges, encumbrances or restrictions,
except such as are described in the Prospectus or are not material to the
business of the Company. The Company and each Subsidiary has valid, subsisting
and enforceable leases for the properties described in the Prospectus as leased
by it, and with such exceptions as are not material and do not materially
interfere with the use made and proposed to be made of such properties by the
Company and such Subsidiaries, and the Company has no notice or knowledge of any
material claim of any sort which has been, or may be, asserted by anyone adverse
to the Company's or a Subsidiary's rights as lessee or sublessee under any lease
or sublease described above, or affecting or questioning the Company's or a
Subsidiary's rights to the continued possession of the leased or subleased
premises under any such lease or sublease in conflict with the terms thereof.
The Company and each Subsidiary owns or leases all such properties as are
necessary to its operations as now conducted.
(q) Each of the Company and the Subsidiaries owns or possesses adequate
rights to use all patents, patent rights, inventions, trade secrets, know-how,
trademarks, service marks, trade names and copyrights which are necessary to
conduct its businesses as described in the Registration Statement and
Prospectus; the Company has not received any notice of, and has no knowledge of,
any infringement of or conflict with asserted rights of the Company by others
with respect to any patent, patent rights, inventions, trade secrets, know-how,
trademarks, service marks, trade names or copyrights, and the Company has not
received any notice of, and has no knowledge of, any infringement of or conflict
with asserted rights of others with respect to any patent, patent rights,
inventions, trade secrets, know-how, trademarks, service marks, trade names or
copyrights owned or used by the Company, which, singly or in the aggregate, if
the subject of an unfavorable decision, ruling or finding, could have a material
adverse effect on the business, properties, business prospects, condition
(financial or otherwise) or results of operations of the Company and the
Subsidiaries.
(r) To the best of the Company's knowledge, no labor disturbance by the
employees of the Company or any of the Subsidiaries exists or is imminent; and
the Company is not aware of any existing or imminent labor disturbance by the
employees of any of its principal suppliers that could be expected to result in
a material adverse change in the business, properties, business prospects,
condition (financial or otherwise) or results of operations of the Company and
the Subsidiaries.
(s) The Company and the Subsidiaries maintain insurance with insurers of
recognized financial responsibility of the types and in the amounts generally
deemed adequate for their respective business and consistent with insurance
coverage maintained by similar companies in
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<PAGE>
similar businesses, including, but not limited to, insurance covering real and
personal property owned or leased by the Company or the Subsidiaries against
theft, damage, destruction, acts of vandalism and all other risks customarily
insured against, all of which insurance is in full force and effect; neither the
Company nor any such Subsidiary has been refused any insurance coverage sought
or applied for; and neither the Company nor any such Subsidiary has any reason
to believe that it will not be able to renew its existing insurance coverage as
and when such coverage expires or to obtain similar coverage from similar
insurers as may be necessary to continue its business at a cost that would not
materially and adversely affect the business, properties, business prospects,
condition (financial or otherwise) or results of operations of the Company and
the Subsidiaries.
(t) Except as described in the Registration Statement and the Prospectus,
there is no factual basis for any action, suit or other proceeding involving the
Company, the Subsidiaries or any of their material assets for any failure of the
Company, the Subsidiaries or any predecessor thereof, to comply with any
requirements of federal, state, local or foreign regulation relating to air,
water, solid waste management, hazardous or toxic substances, or the protection
of health or the environment. Except as described in the Registration Statement
and the Prospectus, none of the property owned or leased by the Company or the
Subsidiaries is contaminated with any waste or hazardous substances, and neither
the Company nor the Subsidiaries may be deemed an "owner or operator" of a
"facility" or "vessel" which owns, possesses, transports, generates or disposes
of a "hazardous substance" as those terms are defined in Section 9601 of the
Comprehensive Environmental Response, Compensation and Liability Act of 1980, 42
U.S.C. (S)9601, et seq.
------
(u) All documents or contracts required to be filed as exhibits to the
Registration Statement to which the Company or any Subsidiary is a party have
been filed as exhibits to the Registration Statement and have been duly
authorized, executed and delivered by the Company or such Subsidiary and
constitute valid and binding agreements of the Company or such Subsidiary and
are enforceable against the Company or such Subsidiary in accordance with the
terms thereof, except where the lack of authorization, execution, delivery or
enforceability of any such contract would not materially and adversely affect
the business, properties, business prospects, condition (financial or otherwise)
or results of operations of the Company and the Subsidiaries or prevent or
materially hinder the consummation of this Agreement.
(v) No statement, representation, warranty or covenant made by the Company
in this Agreement or made in any certificate or document required by this
Agreement to be delivered to any of the Underwriters was or will be, when made,
inaccurate, untrue or incorrect.
(w) The Company has not taken and will not take, directly or indirectly,
any action designed to or which might reasonably be expected to cause or result
in stabilization or manipulation of the price of any security of the Company to
facilitate the sale or resale of the Shares or the Common Stock, and the Company
is not aware of any such action taken or to be taken by affiliates of the
Company.
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<PAGE>
(x) No holder of securities of the Company has rights which have not been
waived to require the registration of any securities of the Company because of
the filing of the Registration Statement. Other than the registration rights
granted pursuant to: (i) that certain Series A Preferred Stock Purchase
Agreement and Amendment to Stockholders Agreement, dated July 25, 1989, by and
between the Company, the several purchasers and the several security holders of
the Company.(the "Series A Rights"); (ii) those certain Series C Convertible
Preferred Stock Purchase Agreements, dated November 17, 1995, and among the
Company and the several purchasers of Series C Convertible Preferred Stock (the
"Series C Rights"); (iii) Options to purchase Common Stock of the Company
granted to certain principals of The Breckenridge Group, Inc. (the "Breckenridge
Rights"); and (iv) Preferred Stock and Warrant Purchase Agreements, dated April
3, 1998, by and among the Company and the several purchasers of Series D
Redeemable Preferred Stock (the "Series D Rights," and collectively with the
Series A Rights, Series C Rights and Breckenridge Rights, the "Registration
Rights Agreements"), there are no contracts, agreements or understandings
between the Company and any person granting such person the right to require the
Company to file a registration statement under the Act with respect to any
securities of the Company owned or to be owned by such person or to require the
Company to include such securities in the securities registered pursuant to the
Registration Statement or in any securities being registered pursuant to any
other registration statement filed by the Company under the Act.
(y) The Company has taken such action as necessary to have the Company
Shares and the Option Shares authorized for trading, and all of the Company
Shares and the Option Shares have been approved for listing, on the National
Association of Securities Dealers Automated Quotation National Market System
(the "Nasdaq National Market") upon notice of issuance, and the Selling
Shareholder Shares are listed on the Nasdaq National Market.
(z) Other than as contemplated by this Agreement, there is no broker,
finder or other party that is entitled to receive from the Company any brokerage
or finder's fee or other fee or commission as a result of any of the
transactions contemplated by this Agreement.
(aa) Other than as set forth in any preliminary prospectus and the
Prospectus, the Company's internal systems and software and the network
connections it maintains are adequately programmed to address the Year 2000
issue.
(bb) Each of the Company and its Subsidiaries: (i) is in compliance with
the provisions of the Federal Communications Act of 1934, as amended (the
"Communications Act"), as implemented, interpreted, and applied by the FCC; (ii)
is in compliance with FCC requirements and restrictions relating to FCC License
ownership and will continue to be in such compliance immediately following the
Closing Date, and if applicable, the Option Closing Date; (iii) has duly and
timely filed all reports and other filings which are required to be filed by it
under the Communications Act or any other applicable law, rule or regulation of
any governmental authority; and (iv) is in compliance with all such laws, rules
and regulations, the noncompliance with which would affect the continuation of
any FCC License held by the Company or any of its
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<PAGE>
Subsidiaries. All information provided by or on behalf of the Company or any
Subsidiary in any filing with the FCC was, at the time of filing, true, complete
and correct in all material respects when made, and the FCC has been notified of
any substantial or significant changes in such information as may be required in
accordance with applicable laws, rules and regulations.
(cc) The representations and warranties made by the Company in that certain
Third Amended and Restated Loan and Security Agreement, dated June 27, 1997, by
and among the Company, Satellink Paging, LLC, certain named Lenders and
Creditanstalt-Bankverein, as amended by that First Amendment, dated March 11,
1998, to the Third Amended and Restated Loan and Security Agreement by and among
the Company, Satellink Paging, LLC, certain named Lenders and Creditanstalt-
Bankverein, as amended, modified or supplemented from time to time (the "Loan
Agreement"), were true, correct and complete when and as made and will continue
to be true, correct and complete in all material respects as of the date of this
Agreement, the Closing Date and, if later, the Option Closing Date as if set
forth in their entirety herein. The Company is in compliance with all covenants
of the Company and is not in default or breach of any of the terms and
provisions set forth in the Loan Agreement, and after giving effect to the
Offering, the Company will continue to be in compliance with the covenants,
terms and provisions of the Loan Agreement.
(dd) None of the Selling Shareholders listed under the caption "Principal
and Selling Shareholders" in the Prospectus is a member of the NASD that is
participating in the distribution of the Shares or a "person associated with a
member," as that term is defined in the NASD's Review of Corporate Financing
Interpretation.
(ee) Any certificate signed by any officer of the Company and delivered to
you or to counsel for the Underwriters shall be deemed a representation and
warranty to each Underwriter as to the matters covered thereby.
(ff) The Company has not distributed and will not distribute prior to the
later of (i) the Closing Date or the Option Closing Date, as the case may be, or
(ii) completion of the distribution of the Shares, any offering material in
connection with the offering and sale of the Shares other than any preliminary
prospectuses, the Prospectus, the Registration Statement and other materials, if
any, permitted by the Act.
12
<PAGE>
4. REPRESENTATIONS AND WARRANTIES OF THE SELLING SHAREHOLDERS.
----------------------------------------------------------
Each of the Selling Shareholders, severally and not jointly, represents,
warrants and covenants to each Underwriter that:
(a) Such Selling Shareholder at the Closing Date will have good and
valid title to the Shares set forth in Schedule II to be sold by such Selling
-----------
Shareholder, free and clear of any liens, encumbrances, equities and claims
(other than as imposed by the Act or this Agreement), and full right, power and
authority to effect the sale and delivery of such Shares; and upon the delivery
of and payment for the Shares to be sold by such Selling Shareholder pursuant to
this Agreement, good and valid title thereto, free and clear of any liens,
encumbrances, equities and claims, will be transferred to the Underwriters.
(b) Such Selling Shareholder has duly executed and delivered the
Custody Agreement and Power of Attorney (the "Custody Agreement") in the form
previously delivered to the Underwriters, appointing and ,
and each of them, as such Selling Shareholder's attorney-in-fact (the "Attorney-
in-Fact") and , as custodian (the "Custodian"). The Attorney-in-Fact is
authorized to execute, deliver and perform this Agreement on behalf of such
Selling Shareholder, to deliver the Shares to be sold by such Selling
Shareholder hereunder, to accept payment therefor and otherwise to act on behalf
of such Selling Shareholder in connection with this Agreement. Certificates, in
suitable form for transfer by delivery or accompanied by duly executed
instruments of transfer or assignment in blank, representing the Shares to be
sold by such Selling Shareholder hereunder have been deposited with the
Custodian pursuant to the Custody Agreement for the purpose of delivery pursuant
to this Agreement. Such Selling Shareholder agrees that the shares of Common
Stock represented by the certificates on deposit with the Custodian are subject
to the interests of the Company, the Underwriters and the other Selling
Shareholders hereunder, that the arrangements made for such custody and the
appointment of the Attorney-in-Fact are to that extent irrevocable, and that the
obligations of such Selling Shareholder hereunder shall not be terminated except
as provided in this Agreement and the Custody Agreement. If such Selling
Shareholder should die, become disabled or be declared incompetent, dissolve or
become insolvent, or if any other event should occur before the delivery of the
Shares of such Selling Shareholder hereunder, the certificates for such Shares
deposited with the Custodian shall be delivered by the Custodian in accordance
with the terms and conditions of this Agreement as if such death, disability,
incompetency, dissolution, insolvency or other event had not occurred,
regardless of whether or not the Custodian or the Attorney-in-Fact shall have
received notice thereof.
(c) Such Selling Shareholder, acting through its duly authorized
Attorney-in-Fact, has duly executed and delivered this Agreement; this Agreement
constitutes a legal, valid and binding obligation of such Selling Shareholder;
all authorizations and consents necessary for the execution and delivery of this
Agreement and the Custody Agreement on behalf of such Selling Shareholder and
for the sale and delivery of the Shares to be sold by such Selling Shareholder
hereunder have been given, except as may be required by the Act or state
securities laws or the NASD; and such
13
<PAGE>
Selling Shareholder has the legal capacity and full right, power and authority
to execute this Agreement and the Custody Agreement.
(d) The performance of this Agreement and the Custody Agreement and the
consummation of the transactions contemplated hereby and thereby by each of the
Selling Shareholders will not result in a material breach or violation of, or
material conflict with, any of the terms or provisions of, or constitute a
material default by such Selling Shareholder under, any indenture, mortgage,
deed of trust (constructive or other), loan agreement, lease, franchise, license
or other agreement or instrument to which such Selling Shareholder or any of its
properties is bound, any statute, or any judgment, decree, order, rule or
regulation or any court or governmental agency or body applicable to such
Selling Shareholder or any of its properties.
(e) Such Selling Shareholder has not distributed and will not distribute
any prospectus or other offering material in connection with the offer and sale
of the Shares other than any preliminary prospectus prepared and filed by the
Company with the Commission or the Prospectus or other material permitted by the
Act.
(f) The representations and warranties of the Company contained in Section
3 of this Agreement are true and correct in all material respects; such Selling
Shareholder has reviewed and is familiar with the Registration Statement as
originally filed with the Commission and the preliminary prospectus contained
therein. The preliminary prospectus does not include an untrue statement of a
material fact, or omit to state a material fact necessary in order to make the
statements therein, in the light of the circumstances under which they were
made, not misleading; other than as disclosed to the Underwriters, such Selling
Shareholder is not prompted to sell the Shares to be sold by such Selling
Shareholder by any material, non-public information concerning the Company that
is not fully and fairly disclosed in the preliminary prospectus or the
Prospectus.
(g) To the extent that any statements or omissions made in the
Registration Statement, any preliminary prospectus, the Prospectus or any
amendment or supplement thereto are made in reliance upon and in conformity with
written information furnished to the Company by such Selling Shareholder
expressly for use therein, such Registration Statement, preliminary prospectus
and Prospectus and any amendments or supplements thereto did not and will not
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary to make the statements therein
not misleading.
(h) No approval, consent, order, authorization, designation, declaration
or filing by or with any regulatory body, administrative or other governmental
body is necessary in connection with the execution and delivery of this
Agreement by such Selling Shareholder, and the consummation by it of the
transactions herein contemplated (other than as required by the Act, state
securities laws and the NASD).
(i) Any certificates signed by or on behalf of such Selling Shareholder as
such and delivered to the Representatives or to counsel for the Representatives
shall be deemed a
14
<PAGE>
representation and warranty by such Selling Shareholder to each Underwriter as
to the matters covered thereby.
(j) In order to document the Underwriters' compliance with the reporting
and withholding provisions of the Tax Equity and Fiscal Responsibility Act of
1982 with respect to the transactions herein contemplated such Selling
Shareholder agrees to deliver to you prior to or at the Closing Date a properly
completed and executed United States Treasury Department Form W-9 (or other
applicable form or statement specified by Treasury Department regulations in
lieu thereof).
(k) Such Selling Shareholder has not taken and will not take, directly or
indirectly, any action intended to constitute or which has constituted, or which
might reasonably be expected to cause or result in, stabilization or
manipulation of the price of the Common Stock.
5. COVENANTS OF THE COMPANY.
------------------------
The Company covenants and agrees with each of the Underwriters as follows:
(a) The Company will not, either prior to the Effective Date or thereafter
during such period as the Prospectus is required by law to be delivered in
connection with sales of the Shares by an underwriter or dealer, file any
amendment or supplement to the Registration Statement or the Prospectus, unless
a copy thereof shall first have been submitted to you within a reasonable period
of time prior to the filing thereof and you shall not have objected thereto in
good faith.
(b) The Company will use its reasonable best efforts to cause the
Registration Statement and any amendment thereto, if not effective at the time
and date that this Agreement is executed by the parties hereto, to become
effective as promptly as possible and will notify you promptly and confirm such
advice in writing: (i) when the Registration Statement has become effective and
when any post-effective amendment thereto becomes effective; (ii) of any request
by the Commission for amendments or supplements to the Registration Statement or
the Prospectus or for additional information; (iii) of the issuance by the
Commission of any stop order suspending the effectiveness of the Registration
Statement or the initiation of any proceedings for that purpose or the threat
thereof; (iv) of the happening of any event during the period mentioned in the
second sentence of Section 5(e) that in the judgment of the Company makes any
statement made in the Registration Statement or the Prospectus untrue or that
requires the making of any changes in the Registration Statement or the
Prospectus in order to make the statements therein, in light of the
circumstances in which they are made, not misleading; and (v) of receipt by the
Company or any representatives or attorney of the Company of any other
communication from the Commission relating to the Company, the Registration
Statement, any preliminary prospectus or the Prospectus. If at any time the
Commission shall issue any order suspending the effectiveness of the
Registration Statement, the Company will make every reasonable effort to obtain
the withdrawal of such order at the earliest possible moment. If the Company has
omitted any information from the Registration Statement pursuant to Rule 430A of
the Rules and
15
<PAGE>
Regulations, the Company will use its best efforts to comply with the provisions
of and make all requisite filings with the Commission pursuant to said Rule 430A
and to notify the Representatives promptly of all such filings. If the Company
files a term sheet pursuant to Rule 434 of the Rules and Regulations, the
Company will provide evidence satisfactory to you that the Prospectus and term
sheet meeting the requirements of Rule 434(b) or (c), as applicable, of the
Rules and Regulations, have been filed, within the time period prescribed, with
the Commission pursuant to subparagraph (7) of Rule 424(b) of the Rules and
Regulations; if for any reason the filing of the final form of Prospectus is
required under Rule 424(b)(3) of the Rules and Regulations, the Company will
provide evidence satisfactory to you that the Prospectus contains such
information and has been filed with the Commission within the time period
prescribed.
(c) The Company will furnish to you at or before the Closing Date, without
charge, four signed copies of the Registration Statement and of any post-
effective amendment thereto, including financial statements and schedules, and
all exhibits thereto, and will furnish you with such number of copies of the
Registration Statement, without exhibits, and all amendments thereto as you may
reasonably request.
(d) The Company will comply with all the provisions of any undertakings
contained in the Registration Statement. The Company will, from time to time,
after the effective date of the Registration Statement file with the Commission
such reports as are required by the Act, the Exchange Act, the rules and
regulations thereunder (the "Exchange Act Rules and Regulations") and the Rules
and Regulations, and shall also file with state securities commissions in states
where the Shares have been sold by you (as you shall have advised us in writing)
such reports as are required to be filed by the securities acts and the
regulations of those states.
(e) On the Effective Date, and thereafter from time to time until
expiration of the period mentioned in the second sentence of this Section 5(e),
the Company will deliver to each of you, without charge, as many copies of the
Prospectus or any amendment or supplement thereto as you may reasonably request.
The Company consents to the use of the Prospectus or any amendment or supplement
thereto by you and by all dealers to whom the Shares may be sold, both in
connection with the offering or sale of the Shares and for any period of time
thereafter during which the Prospectus is required by law to be delivered in
connection therewith. If during such period of time any event shall occur which
in the judgment of the Company or your counsel should be set forth in the
Prospectus in order to make any statement therein, in light of the circumstances
under which it was made, not misleading, or if it is necessary to supplement or
amend the Prospectus to comply with law, the Company will forthwith prepare and
duly file with the Commission an appropriate supplement or amendment thereto,
and will deliver to each of you, without charge, such number of copies thereof
as you may reasonably request.
(f) Prior to any public offering of the Shares by you, the Company will
cooperate with you and your counsel in connection with the exemption of the
Shares for offer and sale under the securities or Blue Sky laws of such
jurisdictions as you may request; provided, that in no event shall the Company
--------
be obligated to qualify to do business in any jurisdiction where it is not
16
<PAGE>
now so qualified or to take any action which would subject it to general service
of process in any jurisdiction where it is not now so subject. The Company will,
from time to time, file such statements, reports and other documents as are or
may be required to continue such exemptions in effect for so long a period as
the Underwriters may reasonably request.
(g) During a period of five years after the date hereof, the Company will
furnish to its shareholders as soon as practicable after the end of each
respective period annual reports (including financial statements audited by
independent certified public accountants) and unaudited quarterly reports of
operations for each of the first three quarters of the fiscal year, and will
furnish to you and the other several Underwriters hereunder, upon request (i)
concurrently with furnishing such reports to its shareholders, statements of
operations of the Company for each of the first three quarters in the form
furnished to the Company's shareholders, (ii) concurrently with furnishing to
its shareholders, a balance sheet of the Company as of the end of such fiscal
year, together with statements of operations, shareholders' equity and cash
flows of the Company for such fiscal year, accompanied by a copy of the
certificate or report thereon of independent certified public accountants, (iii)
as soon as they are available, copies of all reports (financial or other) mailed
to shareholders, (iv) as soon as they are available, copies of all reports and
financial statements furnished to or filed with the Commission, any securities
exchange or the NASD, (v) every material press release and every material news
item or article in respect of the Company or its affairs which was generally
released to shareholders or prepared by the Company and (vi) any additional
information of a public nature concerning the Company, or the Subsidiaries, or
its business which you may reasonably request.
(h) The Company will make generally available to holders of its securities
as soon as may be practicable but in no event later than the last day of the
15th full calendar month following the calendar quarter in which the Effective
Date falls, an earnings statement (which need not be audited but shall be in
reasonable detail) for a period of 12 months ended commencing after the
Effective Date, and satisfying the provisions of Section 11(a) of the Act
(including Rule 158 of the Rules and Regulations).
(i) Whether or not the transactions contemplated by this Agreement are
consummated or this Agreement is terminated, the Company will pay, or reimburse
if paid by the Underwriters, all costs and expenses incident to the performance
of the obligations of the Company under this Agreement, including but not
limited to costs and expenses of or relating to: (i) the preparation, printing,
and filing of the Registration Statement and exhibits to it, each preliminary
prospectus; the Prospectus and any amendment or supplement to the Registration
Statement or the Prospectus; (ii) the preparation and delivery of certificates
representing the Shares; (iii) the printing of this Agreement and other
underwriting documents, including Underwriter's Questionnaires, Underwriter's
Powers of Attorney, Blue Sky Memorandum, Master Agreement Among Underwriters and
Master Selected Dealer Agreements; (iv) furnishing (including costs of shipping
and mailing) such copies of the Registration Statement, the Prospectus and any
preliminary prospectus, and all amendments and supplements thereto, as may be
requested for use in connection with the offering and sale of the Shares by the
Underwriters or by dealers to whom
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Shares may be sold; (v) the quotation of the Shares on the Nasdaq National
Market; (vi) any filings required to be made by you with the NASD (but not the
fees and disbursements of your counsel in connection therewith); (vii) the
exemption of the Shares for offer and sale under the securities or Blue Sky laws
of such jurisdictions designated pursuant to Section 5(f), including the fees,
disbursements and other charges of your counsel in connection therewith, and the
preparation and printing of preliminary, supplemental and final Blue Sky
memoranda (subject to a maximum fee of $2,000 assuming no unusual
circumstances); and (viii) the transfer agent for the Shares.
(j) If this Agreement shall be terminated by the Company or if for any
reason the Company shall be unable to perform its obligations hereunder, the
Company will reimburse you for all out-of-pocket expenses (including the fees,
disbursements and other charges of your counsel) reasonably incurred by you in
connection herewith. If this Agreement shall be terminated by the Underwriters
based upon a matter within the control of the Company or any fault of the
Company, the Company shall reimburse you for any out-of-pocket expenses
(including the fees, disbursements and other charges of your counsel).
(k) The Company will not at any time, directly or indirectly, take any
action designed, or which might reasonably be expected, to cause or result in,
or which will constitute, stabilization of the price of the shares of Common
Stock to facilitate the sale or resale of any of the Shares. The Company will
not make bids for or purchases of or induce bids for or purchases of, directly
or indirectly, any shares of Common Stock or securities convertible into Common
Stock of the Company until the distribution of all shares of Common Stock being
sold in the public offering has been completed.
(l) The Company will apply the net proceeds from the offering and sale of
the Shares to be sold by the Company in the manner set forth in the Prospectus
under "Use of Proceeds," which description complies in all respects with the
requirements of Item 504 of Regulation S-K.
(m) During the period of 180 days commencing at the Closing Date, the
Company will not, without your prior written consent, grant options to purchase
shares of Common Stock, except in accordance with the provisions of the
Company's stock option plans as previously approved by the Company's
shareholders and except at prices equal to or greater than "fair market value,"
as defined in the Company's stock option plans as in effect on the date hereof.
(n) Except pursuant to this Agreement or with the prior written consent of
J.C. Bradford & Co., the Company will not, and the Company has provided
agreements executed by each of the Company's officers and directors, each
Selling Shareholder and certain other shareholders of the Company providing that
none of them will, for a period of 180 days from the date of the Prospectus, (i)
offer, pledge, sell, contract to sell, sell any option or contract to purchase,
purchase any option or contract to sell, grant any option, right or warrant to
purchase, or otherwise transfer or dispose of, directly or indirectly, any
shares of Common Stock or any securities convertible into or exercisable or
exchangeable for Common Stock (including, without
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limitation, shares of Common Stock or securities convertible into or exercisable
or exchangeable for Common Stock which may be deemed to be beneficially owned by
the undersigned in accordance with the Rules and Regulations and the Exchange
Act Rules and Regulations) or (ii) enter into any swap or other arrangement that
transfers all or a portion of the economic consequences associated with the
ownership of any Common Stock (regardless of whether any of the transactions
described in clause (i) or (ii) is to be settled by the delivery of Common
Stock, or such other securities, in cash or otherwise); provided, however, that
-------- -------
the exercise of stock options or other purchases of Common Stock under stock
option plans or other incentive compensation arrangements for employees or
directors as previously approved by the Company's Board of Directors and as in
effect on the date hereof shall not be prohibited.
(o) The Company will maintain and keep accurate books and records
reflecting its assets and maintain internal accounting controls which provide
reasonable assurance that: (i) transactions are executed in accordance with
management's authorization; (ii) transactions are recorded as necessary to
permit the preparation of the Company's financial statements and to maintain
accountability for the assets of the Company; (iii) access to the assets of the
Company is permitted only in accordance with management's authorization; and
(iv) the recorded accounts of the assets of the Company are compared with
existing assets at reasonable intervals.
(p) If at any time during the 90-day period after the Registration
Statement is declared effective, any rumor, publication or event relating to or
affecting the Company shall occur as a result of which, in your opinion, the
market price for the Shares has been or is likely to be materially affected
(regardless of whether such rumor, publication or event necessitates a
supplement to or amendment of the Prospectus), the Company will, after written
notice from you advising it as to the effect set forth above, prepare, consult
with you concerning the necessity and the substance of and disseminate a press
release or other public statement reasonably satisfactory to you responding to
or commenting on such rumor, publication or event.
(q) The Company will supply you with copies of all correspondence to and
from, and all documents issued to and by, the Commission in connection with the
registration of the Shares under the Act.
(r) Prior to the Closing Date (and, if applicable, the Option Closing
Date), the Company will furnish to you, as soon as they have been prepared,
copies of any unaudited interim financial statements of the Company for any
periods subsequent to the periods covered by the financial statements appearing
in the Registration Statement and the Prospectus.
(s) Prior to the Closing Date (and, if applicable, the Option Closing
Date), the Company will not issue any press releases or other communications
directly or indirectly and will hold no press conferences with respect to the
Company, the business, properties, assets, liabilities, financial condition or
results of operations of the Company, or the offering of the Shares, without
your prior consent which shall not be unreasonably withheld.
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(t) The Company will use its best efforts to maintain the quotation of the
Shares on the Nasdaq National Market.
(u) The Company will maintain a transfer agent and, if necessary under the
jurisdiction of incorporation of the Company, a registrar (which may be the same
entity as the transfer agent) for its Common Stock.
(v) During a period of 120 days from the effective date of the
Registration Statement, the Company will not file a registration statement
registering shares under any stock option plan or other employee benefit plan.
(w) On or prior to the Closing Date, the Company will take all steps
necessary to complete the conversion of the Series A Convertible Preferred Stock
and Series C Convertible Preferred Stock into Common Stock, and such conversion
shall have been consummated.
6. CONDITIONS OF THE OBLIGATIONS OF THE UNDERWRITERS.
-------------------------------------------------
The respective obligations of the Underwriters to purchase and pay for the
Shares shall be subject to the following conditions:
(a) Notification that the Registration Statement has become effective
shall be received by you not later than 5:30 p.m., Atlanta, Georgia time, on the
date of this Agreement or at such later date and time as shall be consented to
in writing by you and all filings required by Rule 424, Rule 430A, Rule 434 and
Rule 462(b) of the Rules and Regulations shall have been made.
(b) (i) No stop order suspending the effectiveness of the Registration
Statement shall have been issued and no proceedings for that purpose shall be
pending or, to the knowledge of the Company, threatened by the Commission, (ii)
no order suspending the effectiveness of the Registration Statement or the
exemption of the Shares under the securities or Blue Sky laws of any
jurisdiction shall be in effect, and no proceeding for such purpose shall be
pending before or threatened or contemplated by the Commission or the
authorities of any such jurisdiction, (iii) any request for additional
information on the part of the staff of the Commission or any such authorities
shall have been complied with to the satisfaction of the staff of the Commission
or such authorities and to the satisfaction of the Representatives, (iv) after
the date hereof no amendment or supplement to the Registration Statement or the
Prospectus shall have been filed unless a copy thereof was first submitted to
you and you did not object thereto in good faith, (v) the NASD, upon review of
the terms of the public offering of the Shares, shall not have objected to such
offering, such terms or the Underwriters' participation in the same, and (vi)
and you shall have received certificates, dated the Closing Date and the Option
Closing Date and signed by the Chief Executive Officer and the Chief Financial
Officer of the Company (who may, as to proceedings threatened, rely upon the
best of their information and belief), to the effect of clauses (i), (ii) and
(iii).
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(c) Since the respective dates as of which information is given in the
Registration Statement and the Prospectus, (i) there shall not have been a
material adverse change, or any development involving a prospective material
adverse change, in the general affairs, business, business prospects,
properties, management, key personnel, condition (financial or otherwise) or
results of operations of the Company, whether or not arising from transactions
in the ordinary course of business, in each case other than as set forth in the
Registration Statement and the Prospectus (or, in the case of a prospective
change, other than as contemplated by the Registration Statement and the
Prospectus) and (ii) the Company shall not have sustained any material loss or
interference with its business or properties from fire, explosion, flood,
hurricane or other casualty or calamity, whether or not covered by insurance, or
from any labor dispute or any court or legislative or other governmental action,
order or decree, which is not set forth in the Registration Statement and the
Prospectus, if in your reasonable judgment any such development makes it
inadvisable to consummate the sale and delivery of the Shares by you at the
public offering price. Since the respective dates as of which information is
given in the Registration Statement and the Prospectus, there shall have been no
litigation or other proceeding instituted against the Company or any of its
officers or directors in their capacities as such, before or by any federal,
state or local court, commission, regulatory body, administrative agency or
other governmental body, domestic or foreign, in which litigation or proceeding
an unfavorable ruling, decision or finding would materially and adversely affect
the business, properties, business prospects, condition (financial or otherwise)
or results of operations of the Company.
(d) All corporate proceedings and other legal matters in connection with
this Agreement, the Registration Statement and the Prospectus, and the
registration, authorization, issue, sale and delivery of the Shares, shall have
been reasonably satisfactory to counsel to the Underwriters, and such counsel
shall have been furnished with such papers and information as they may
reasonably have requested to enable them to pass upon the matters referred to in
this Section 6(d).
(e) Each of the representations and warranties of the Company contained
herein shall be true, accurate and correct in all material respects at the
Closing Date and, with respect to the Option Shares, at the Option Closing Date,
as if made at the Closing Date and, with respect to the Option Shares, at the
Option Closing Date, and all covenants and agreements herein contained to be
performed on the part of the Company and all conditions herein contained to be
fulfilled or complied with by the Company at or prior to the Closing Date and,
with respect to the Option Shares, at or prior to the Option Closing Date, shall
have been duly performed, fulfilled or complied with.
(f) The Underwriters shall have received an opinion, dated the Closing
Date and, with respect to the Option Shares, the Option Closing Date,
satisfactory in form and substance to your counsel, from Alston & Bird LLP,
counsel to the Company, to the effect that:
(i) The Company has been duly incorporated and is a validly existing
corporation in good standing under the laws of the State of Georgia. The
Company has the corporate
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power and corporate authority to own its properties and conduct its
business as described in the Prospectus. The Company is qualified to do
business as a foreign corporation in good standing in all other
jurisdictions, except where the failure to so qualify would not have a
material adverse effect upon the Company.
(ii) Each of the Company's Subsidiaries is a corporation or limited
liability company duly organized and validly existing and in good standing
under the laws of the state of its incorporation or organization, with full
corporate power and authority to own its properties and conduct its
business as now conducted. The outstanding stock of each of the
Subsidiaries is duly authorized, validly issued, fully paid and
nonassessable. Other than as disclosed in any preliminary prospectus and
the Prospectus, all of the outstanding stock and membership interests of
each of the Subsidiaries is owned by the Company, free and clear of all
possessory (and, to the knowledge of such counsel, other) liens,
encumbrances, pledges, equities or claims of any kind. Other than as
disclosed in any preliminary prospectus and the Prospectus, to the
knowledge of such counsel, no options or warrants or other rights to
purchase from the Company or any Subsidiary, agreements or other
obligations to issue or other rights to convert any obligations into any
shares of capital stock or of ownership interests in any of the Company's
Subsidiaries are outstanding.
(iii) The Company and each of its Subsidiaries is duly qualified or
authorized to do business as a foreign corporation in good standing in all
jurisdictions where the nature of its business or character of property
owned or leased by it require it to be so qualified or authorized to do
business, except where the failure to be so qualified or authorized to do
business would not have a material adverse effect.
(iv) The Shares delivered on such Closing Date have been duly
authorized, validly issued and are fully paid and nonassessable and conform
to the description thereof contained under the caption "Description of
Capital Stock" in the Prospectus.
(v) The outstanding shares of Common Stock have been duly
authorized and validly issued, are fully paid and nonassessable and
conform to the description thereof contained under the caption
"Capitalization" in the Prospectus, and there are no preemptive rights or
other rights to subscribe for or to purchase, or any restriction upon the
transfer of, the Shares or any other shares of Common Stock pursuant to,
the Restated Articles, Bylaws or, to the knowledge of such counsel, any
agreement (other than this Agreement) or instrument to which the Company or
any Selling Shareholder is a party or by which it may be bound. All offers
and sales of the Company's securities during the past three years were at
all relevant times duly registered or exempt from the registration
requirements of the Act and were duly registered or the subject of an
exemption from the registration requirements of applicable state securities
or Blue Sky laws.
(vi) Other than the Registration Rights Agreements, there are no
contracts,
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agreements or understandings known to such counsel between the Company and
any person granting such person the right to require the Company to file a
registration statement under the Act with respect to any securities of the
Company owned or to be owned by such person or to require the Company to
include such securities in the securities registered pursuant to the
Registration Statement or in any securities being registered pursuant to
any other registration statement filed by the Company under the Act. All
registration rights under the Registration Rights Agreements have been
waived with respect to the filing of the Registration Statement and the
consummation of the transactions contemplated by this Agreement.
(vii) No consent, approval, authorization or order of, or filing
with, any governmental agency or body or any court or, to the knowledge of
such counsel, any third party, is required for the performance of this
Agreement by the Company, the issuance or sale of the Shares or the
consummation of the transactions contemplated hereby, except such as have
been obtained and made under the Act, the Exchange Act and such as may be
required under state securities or Blue Sky laws.
(viii) The filing of the Registration Statement has been duly
authorized by the Board of Directors of the Company. The execution,
delivery and performance of this Agreement and the consummation of the
transactions herein contemplated, including the issuance and sale of the
Shares and compliance with the provisions thereof, will not result in a
breach or violation of any of the terms or provisions of, or constitute a
default under, (A) any statute, rule or regulation or, to the knowledge of
such counsel, order of any governmental agency or body or any court having
jurisdiction over the Company or any of its properties, (B) any material
obligation, agreement, covenant or condition contained in any agreement or
instrument to the knowledge of such counsel to which the Company or any of
its Subsidiaries is a party or by which the Company or any of its
Subsidiaries is bound or to which any of the properties of the Company or
any of its Subsidiaries is subject, or (C) the Restated Articles or the
Bylaws of the Company or the organizational documents of any of the
Subsidiaries, and the Company has full power and authority to authorize,
issue and sell the Company Shares and the Option Shares as contemplated by
this Agreement.
(ix) The Registration Statement and all post-effective amendments
thereto was declared effective under the Act as of the date and time
specified in such opinion, the Prospectus either was filed with the
Commission pursuant to the subparagraph of Rule 424(b) specified in such
opinion on the date specified therein or was included in the Registration
Statement (as the case may be), and, to the best of the knowledge of such
counsel, no stop order suspending the effectiveness of the Registration
Statement or any part thereof has been issued and no proceedings for that
purpose have been instituted or are pending or contemplated under the Act;
the Registration Statement and the Prospectus, and each amendment or
supplement thereto, as of their respective effective or issue dates,
complied as to form in all material respects with the requirements of the
Act and the Rules
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and Regulations (except that such counsel need express no opinion as to
financial statements, schedules and other financial or statistical
information included therein); the descriptions in the Registration
Statement and Prospectus of the Restated Articles and Bylaws of the Company
and of statutes, legal and governmental proceedings and contracts and other
documents are accurate in all material respects and fairly present the
information required to be shown; and such counsel does not know of any
statutes or regulations or any pending or threatened legal or governmental
proceedings, required to be described in the Prospectus which are not
described as required nor of any contracts or documents of a character
required to be described in the Registration Statement or the Prospectus or
to be filed as exhibits to the Registration Statement which are not
described and filed as required; it being understood that such counsel need
express no opinion as to the financial statements, schedules or other
financial or statistical data contained in the Registration Statement or
the Prospectus or as to the section of the Prospectus entitled
"Underwriting." The Shares have been approved for listing on the Nasdaq
Stock Market's National Market upon notice of issuance.
(x) This Agreement has been duly authorized, executed and delivered
by the Company and constitutes a valid and legally binding obligation of
the Company enforceable in accordance with its terms.
(xi) The statements made in the Registration Statement under the
captions "Dividend Policy" and "Capitalization," to the extent that they
constitute summaries of documents referred to therein or matters of law or
legal conclusions, have been reviewed by such counsel and are accurate
summaries and fairly present the information disclosed therein.
(xii) The Company is not, and will not be as a result of the
consummation of the transactions contemplated by this Agreement, an
"investment company" or a company "controlled" by an "investment company"
within the meaning of the Investment Company Act of 1940, as amended.
In addition, such counsel shall state that such counsel has participated in
conferences with officials and other representatives of the Company, the
Representatives, counsel for the Underwriters and the Accountants, at which such
conferences the contents of the Registration Statement and Prospectus and
related matters were discussed, and although they have not verified the accuracy
or completeness of the statements contained in the Registration Statement or the
Prospectus, nothing has come to the attention of such counsel which leads them
to believe that, at the time the Registration Statement became effective and at
all times subsequent thereto up to and on the Closing Date and on the Option
Closing Date, the Registration Statement and any amendment or supplement thereto
(other than the financial statements including supporting schedules and other
financial and statistical information derived therefrom, as to which such
counsel need express no comment) contained any untrue statement of a material
fact or omitted to state a material fact required to be stated therein or
necessary to make the statements therein not
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misleading, or at the Closing Date or the Option Closing Date, as the case may
be, the Registration Statement, the Prospectus and any amendment or supplement
thereto (except as aforesaid) contained any untrue statement of a material fact
or omitted to state a material fact necessary to make the statements therein, in
the light of the circumstances under which they were made, not misleading.
Counsel rendering the foregoing opinion may rely as to questions of law not
involving the laws of the United States or the State of Georgia upon opinions of
local counsel, and as to questions of fact upon representations or certificates
of officers of the Company or the Selling Shareholders or officers of Selling
Shareholders (when the Selling Shareholder is not a natural person), and of
government officials, in which case their opinion is to state that they are so
relying and that they have no knowledge of any material misstatement or
inaccuracy in any such opinion.
(g) The Underwriters shall have received an opinion, dated the Closing
Date satisfactory in form and substance to your counsel, from Alston & Bird LLP,
counsel to the Selling Shareholders, to the effect that:
(i) This Agreement and the Custody Agreement have been duly executed
and delivered by or on behalf of each of the Selling Shareholders and
constitute valid and binding agreements of such Selling Shareholders in
accordance with their terms.
(ii) To the knowledge of such counsel, the sale of the Shares to be
sold by each Selling Shareholder hereunder and the compliance by such
Selling Shareholder with all of the provisions of this Agreement and the
Custody Agreement and the consummation of the transactions herein and
therein contemplated will not conflict with or result in a material breach
or violation of any terms or provisions of, or constitute a default under
any material indenture, mortgage, deed of trust, loan agreement or other
agreement or instrument known to such counsel to which such Selling
Shareholder is a party or by which such Selling Shareholder is bound or to
which any of the property or assets of such Selling Shareholder is subject,
or any statute, order, rule or regulation of any court or governmental
agency or body known to such counsel to be applicable to such Selling
Shareholder or the property of such Selling Shareholder.
(iii) To the knowledge of such counsel, no consent, approval,
authorization or order of any court or governmental agency or body is
required for the consummation of the transactions contemplated by this
Agreement in connection with the Shares to be sold by each Selling
Shareholder hereunder, except such as have been obtained under the Act and
such as may be required under state securities or Blue Sky laws in
connection with the purchase and distribution of such Shares by the
Underwriters, as to which such counsel need express no opinion.
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(iv) Assuming that the Underwriters will take delivery of the Shares
for value in good faith and without notice of any adverse claim and that
the Underwriters are not parties themselves to any fraud or illegality
affecting the Shares, and by delivery of a certificate or certificates
therefor, the Selling Shareholders will transfer to the Underwriters good
and valid title to such shares, free and clear of any pledge, lien,
security interest, charge, claim, equity or encumbrance of any kind.
In rendering such opinion, such counsel may rely as to matters of fact, to
the extent proper, on certificates of the Selling Shareholders and the
representations and warranties contained in the Custody Agreement executed by
such Selling Shareholder. Such counsel also may rely as to matters of fact, to
the extent proper, on certificates of responsible officers of the Company and
public officials.
(h) You shall have received on the Closing Date and, with respect to the
Option Shares, the Option Closing Date, an opinion, dated the Closing Date and
the Option Closing Date, respectively, of , special FCC counsel
for the Company, in the form attached hereto as Exhibit A.
(i) You shall have received an opinion, dated the Closing Date and, if
applicable, the Option Closing Date, from Nelson Mullins Riley & Scarborough,
L.L.P., as your counsel, with respect to the Registration Statement, the
Prospectus and this Agreement, which opinion shall be satisfactory in all
respects to you, and the Company shall have furnished to such counsel such
documents as they request for the purpose of enabling them to pass upon such
matters.
(j) You shall have received at or prior to the Closing Date from Nelson
Mullins Riley & Scarborough, L.L.P. a memorandum or memoranda, in form and
substance satisfactory to you, with respect to the exemption for offering and
sale by the Underwriters of the Shares under state securities or Blue Sky laws
of such jurisdictions as the Underwriters may have designated to the Company.
(k) The Representatives shall have received from the Accountants a letter
dated the date hereof, and at the Closing Date a second letter dated the Closing
Date (and, if applicable, the Option Closing Date), in form and substance
satisfactory to the Representatives stating that they are independent public
accountants with respect to the Company within the meaning of the Act and the
applicable Rules and Regulations, and the answer to Item 509 of Regulation S-K
set forth in the Registration Statement is correct insofar as it relates to
them, and stating that:
(i) In their opinion, the financial statements and schedules
examined by them and included in the Registration Statement or Prospectus
comply as to form in all material respects with the applicable accounting
requirements of the Act and the Rules and Regulations and are presented in
accordance with generally accepted accounting principles; and they have
made a review in accordance with standards established by the American
Institute of Certified Public Accountants of the interim financial
statements,
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selected financial and operating data, and/or condensed financial
statements derived from audited financial statements of the Company.
(ii) The financial information included in the Preliminary
Prospectus and the Prospectus under the captions "Prospectus Summary,"
"Summary Consolidated Financial and Operating Data" and "Selected
Consolidated Financial and Operating Data" for each of the fiscal years
ended July 31, 1993, 1994, 1995, 1996 and 1997, and the six months ended
January 31, 1998 agrees with the corresponding amounts in the audited
financial statements included in the Prospectus or previously reported on
by them.
(iii) On the basis of a reading of the latest available interim
consolidated financial statements (unaudited) of the Company and its
Subsidiaries, a reading of the minute books of the Company and its
Subsidiaries, inquiries of officials of the Company responsible for
financial and accounting matters and other specified procedures, all of
which have been agreed to by the Representatives, nothing came to their
attention that caused them to believe that:
a. the unaudited financial statements included in the
Registration Statement do not comply as to form in all material
respects with the accounting requirements of the federal securities
laws and the related published rules and regulations thereunder or are
not in conformity with generally accepted accounting principles
applied on a basis consistent with the basis for the audited financial
statements contained in the Registration Statement;
b. any other unaudited financial statement data included in the
Prospectus do not agree with the corresponding items in the unaudited
financial statements from which data was derived and any such
unaudited data were not determined on a basis consistent with the
basis for the corresponding amounts in the audited financial
statements included in the Prospectus;
c. at a specified date not more than five days prior to the
date of delivery of such respective letter, there was any change in
the capital stock, decline in shareholders' equity or increase in
long-term debt of the Company, or any decreases in working capital,
net current assets or net assets or other items specified by the
Underwriters, in each case as compared with amounts shown in the
latest balance sheets included in the Prospectus, except in each case
for changes, decreases or increases which the Prospectus discloses
have occurred or may occur or which are described in such letters; and
d. for the period from the closing date of the latest
statements of operations included in the Prospectus to a specified
date not more than five days prior to the date of delivery of such
respective letter, there were any decreases in net revenues or net
income of the Company, or other items appearing on the face
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of the statement of operations specified by the Representatives, or
any increases in any items appearing on the face of the statement of
operations specified by the Representatives, in each case as compared
with the corresponding period of the preceding year, except in each
case for decreases which the Prospectus discloses have occurred or may
occur or which are described in such letter.
(iv) They have carried out certain specified procedures, not
constituting an audit, with respect to certain amounts, percentages and
financial information specified by you which are derived from the general
accounting records of the Company, which appear in the Prospectus and have
compared such amounts, percentages and financial information with the
accounting records of the Company and have found them to be in agreement.
In the event that the letters to be delivered referred to above set forth
any such changes, decreases or increases, it shall be a further condition to the
obligations of the Underwriters that the Underwriters shall have reasonably
determined, after discussions with officers of the Company responsible for
financial and accounting matters and with the Accountants, that such changes,
decreases or increases as are set forth in such letters do not reflect a
material adverse change in the shareholders' equity or long-term debt of the
Company as compared with the amounts shown in the latest balance sheet of the
Company included in the Prospectus, or a material adverse change in total net
revenues or net income of the Company, in each case as compared with the
corresponding period of the prior year.
(l) At the Closing Date and, as to the Option Shares, the Option Closing
Date, there shall be furnished to you a certificate, dated the date of its
delivery, signed by each of the Chief Executive Officer and Chief Financial
Officer of the Company, in form and substance satisfactory to you, to the effect
that:
(i) Each of the representations and warranties of the Company
contained in Section 3 of this Agreement were, when originally made, and
are, at the time such certificate is delivered, true and correct in all
material respects;
(ii) Each of the covenants required herein to be performed by the
Company on or prior to the delivery of such certificate has been duly,
timely and fully performed, and each condition herein required to be
complied with by the Company on or prior to the date of such certificate
has been duly, timely and fully complied with by the Company.
(m) On or prior to the Closing Date, you shall have received the executed
agreements referred to in Section 5(n).
(n) The Shares shall be exempt for offer and sale in such states as you
may reasonably request, each such exemption shall be in effect and not subject
to any stop order or other proceeding on the Closing Date or the Option Closing
Date.
28
<PAGE>
(o) The Shares shall have been duly authorized for quotation and shall
have been approved for listing on the Nasdaq National Market upon official
notice of issuance.
(p) No Underwriter shall have advised the Company that the Registration
Statement, any preliminary prospectus, the Prospectus or any amendment or any
supplement thereto, contains an untrue statement of fact which, in your
reasonable judgment, is material, or omits to state a fact which, in your
reasonable judgment, is material and is required to be stated therein or
necessary to make the statements therein not misleading and the Company shall
not have cured such untrue statement of fact or stated a statement of fact
required to be stated therein.
(q) The Company shall have furnished to you such certificates, in addition
to those specifically mentioned herein, as you may have reasonably requested as
to the accuracy and completeness at the Closing Date and the Option Closing Date
of any statement in the Registration Statement or the Prospectus, as to the
accuracy at the Closing Date and the Option Closing Date of the representations
and warranties of the Company herein, as to the performance by the Company of
its obligations hereunder, or as to the fulfillment of the conditions concurrent
and precedent to your obligations hereunder.
(r) The Selling Shareholders or the Attorney-in-Fact shall deliver to the
Underwriters a certificate dated the Closing Date, if any, and executed by each
Selling Shareholder or the Attorney-in-Fact to the effect that the
representations and warranties of the Selling Shareholders shall be true and
correct in all material respects as of the Closing Date.
All such opinions, certificates, letters and documents will be in
compliance with the provisions of this Agreement only if they are reasonably
satisfactory to you and counsel for the Underwriters. The Company will furnish
you with such conformed copies of such opinions, certificates, letters and
documents as you may request.
If any of the conditions specified in this Section 6 shall not have been
satisfied at or prior to the Closing Date (and, if applicable, the Option
Closing Date) or waived by you in writing, this Agreement may be terminated by
you pursuant to Section 8 hereof.
7. INDEMNIFICATION AND CONTRIBUTION.
--------------------------------
(a) The Company will indemnify and hold harmless each Underwriter
(including, without limitation, in its capacity as an Underwriter or as a
"qualified independent underwriter" within the meaning of Rule 2700 of the
NASD), the directors, officers, employees and agents of each Underwriter and
each person, if any, who controls each Underwriter within the meaning of Section
15 of the Act or Section 20 of the Exchange Act, from and against any and all
losses, claims, liabilities, expenses and damages (including any and all
investigative, legal and other expenses reasonably incurred in connection with,
and any amount paid in settlement of, any action, suit or proceeding or any
claim asserted), to which they, or any of them, may become subject under the
Act, the Exchange Act or other federal or state statutory law or regulation, at
29
<PAGE>
common law or otherwise, insofar as such losses, claims, liabilities, expenses
or damages arise out of or are based in whole or in part upon (i) any inaccuracy
in the representations and warranties of the Company contained herein, (ii) any
failure of the Company to perform its obligations hereunder or under law or
(iii) any untrue statement or alleged untrue statement of a material fact
contained in any preliminary prospectus, the Registration Statement or the
Prospectus or any amendment or supplement to the Registration Statement or the
Prospectus or in any documents filed under the Exchange Act, or the omission or
alleged omission to state in such document a material fact required to be stated
therein or necessary to make the statements therein not misleading; provided,
--------
however, that the foregoing indemnity agreement with respect to any preliminary
- -------
prospectus or the Prospectus shall not inure to the benefit of any Underwriter
from whom the person asserting any such losses, claims, damages or liabilities
purchased Shares, or any person controlling such Underwriter, if a copy of the
Prospectus (as then amended or supplemented if the Company shall have furnished
any amendments or supplements thereto) was not sent or given by or on behalf of
such Underwriter to such person, if required by law so to have been delivered,
at or prior to the written confirmation of the sale of the Shares to such
person, and if the Prospectus (as so amended or supplemented) would have cured
the defect giving rise to such loss, claim, damage or liability; and further
-------
provided, that the Company will not be liable to the extent that such loss,
- --------
claim, liability, expense or damage arises from the sale of the Shares in the
public offering to any person by an Underwriter and is based on an untrue
statement or omission or alleged untrue statement or omission made in reliance
on and in conformity with information relating to an Underwriter furnished in
writing to the Company by an Underwriter expressly for inclusion in the
Registration Statement, any preliminary prospectus or the Prospectus. The
Company acknowledges that the information in the last paragraph on the cover
page, the paragraphs relating to stabilization on the inside front cover and the
statements set forth under the heading "Underwriting" in any preliminary
prospectus and the Prospectus constitute the only information relating to any
Underwriter furnished in writing to the Company by you expressly for inclusion
in the Registration Statement, any preliminary prospectus or the Prospectus.
This indemnity agreement will be in addition to any liability that the Company
might otherwise have.
(b) Each Selling Shareholder agrees, severally and not jointly, to
indemnify and hold harmless each Underwriter (including, without limitation, in
its capacity as an Underwriter or as a "qualified independent underwriter"
within the meaning of Rule 2700 of the NASD), and each person, if any, who
controls any Underwriter within the meaning of either Section 15 of the Act or
Section 20 of the Exchange Act, or any blue sky application or filing, and the
Company, its directors, its officers who sign the Registration Statement and
each person, if any who controls the Company within the meaning of either such
Section, provided, however, that the indemnification obligation of each Selling
Shareholder shall be limited to the net proceeds received by such Selling
Shareholder with respect to the Shares sold, from and against any and all
losses, claims, damages and liabilities caused by any untrue statement or
alleged untrue statement of a material fact contained in the Registration
Statement or the Prospectus (as amended or supplemented if the Company shall
have furnished any amendment or supplement thereto) or any preliminary
prospectus, or caused by any omission or alleged omission to state therein a
material
30
<PAGE>
fact required to be stated therein or necessary to make the statements therein
not misleading, but only with reference to information relating to such Selling
Shareholder furnished in writing by or on behalf of such Selling Shareholder
expressly for use in the Registration Statement or the Prospectus or in any
preliminary prospectus; provided, however, that the foregoing indemnity
-------- -------
agreement shall be effective only if Selling Shareholder Shares are sold
pursuant to this Agreement; further provided, that the foregoing indemnity
----------------
agreement with respect to any preliminary prospectus or the Prospectus shall not
inure to the benefit of any Underwriter from whom the person asserting any such
losses, claims, damages or liabilities purchased Shares, or any person
controlling such Underwriter, if a copy of the Prospectus (as then amended or
supplemented if the Company shall have furnished any amendments or supplements
thereto) was not sent or given by or on behalf of such Underwriter to such
person, if required by law so to have been delivered, at or prior to the written
confirmation of the sale of the Shares to such person, and if the Prospectus (as
so amended or supplemented) would have cured the defect giving rise to such
loss, claim, damage or liability; and further provided, that the Selling
------- --------
Shareholders will not be liable to the extent that such loss, claim, liability,
expense or damage arises from the sale of the Shares in the public offering to
any person by an Underwriter and is based on an untrue statement or omission or
alleged untrue statement or omission made in reliance on and in conformity with
information relating to an Underwriter furnished in writing to the Company by an
Underwriter expressly for inclusion in the Registration Statement, any
preliminary prospectus or the Prospectus. The Selling Shareholders acknowledge
that the information in the last paragraph on the cover page, the paragraphs
relating to stabilization on the inside front cover and the statements set forth
under the heading "Underwriting" in any preliminary prospectus and the
Prospectus constitute the only information relating to any Underwriter furnished
in writing to the Company by you expressly for inclusion in the Registration
Statement, any preliminary prospectus or the Prospectus. This indemnity
agreement will be in addition to any liability that each Selling Shareholder
might otherwise have.
(c) Each Underwriter will indemnify and hold harmless the Company, each
Selling Shareholder, each person, if any, who controls the Company within the
meaning of Section 15 of the Act or Section 20 of the Exchange Act, each
director of the Company and each officer of the Company who signs the
Registration Statement to the same extent as the foregoing indemnity from the
Company to the Underwriters, but only insofar as losses, claims, liabilities,
expenses or damages arise out of or are based on any untrue statement or
omission or alleged untrue statement or omission made in reliance on and in
conformity with information relating to you furnished in writing to the Company
by you expressly for use in the Registration Statement, any preliminary
prospectus or the Prospectus; provided, however, that such indemnity shall not
-------- -------
be applicable to any Selling Shareholder if no Selling Shareholder Shares are
sold pursuant to this Agreement. The Company acknowledges that the information
set forth in the last paragraph on the cover page, the paragraphs relating to
stabilization on the inside front cover and the statements set forth under the
heading "Underwriting" in any preliminary prospectus and the Prospectus
constitute the only information relating to the Underwriters furnished in
writing to the Company by the Underwriters expressly for inclusion in the
Registration Statement, any preliminary prospectus or the Prospectus. This
indemnity will be in addition to any liability that the Underwriters might
31
<PAGE>
otherwise have.
(d) Any party that proposes to assert the right to be indemnified under
this Section 7 will, promptly after receipt of notice of commencement of any
action against such party in respect of which a claim is to be made against an
indemnifying party or parties under this Section 7, notify each such
indemnifying party of the commencement of such action, enclosing a copy of all
papers served, but the omission so to notify such indemnifying party will not
relieve it from any liability that it may have to any indemnified party under
the foregoing provisions of this Section 7 unless, and only to the extent that,
such omission results in the forfeiture of substantive rights or defenses by the
indemnifying party. If any such action is brought against any indemnified party
and it notifies the indemnifying party of its commencement, the indemnifying
party will be entitled to participate in and, to the extent that it elects by
delivering written notice to the indemnified party promptly after receiving
notice of the commencement of the action from the indemnified party, jointly
with any other indemnifying party similarly notified, to assume the defense of
the action, with counsel reasonably satisfactory to the indemnified party, and
after notice from the indemnifying party to the indemnified party of its
election to assume the defense, the indemnifying party will not be liable to the
indemnified party for any legal or other expenses except as provided below and
except for the reasonable costs of investigation subsequently incurred by the
indemnified party in connection with the defense. The indemnified party will
have the right to employ its own counsel in any such action, but the fees,
expenses and other charges of such counsel will be at the expense of such
indemnified party unless (i) the employment of counsel by the indemnified party
has been authorized in writing by the indemnifying party, (ii) the indemnified
party has reasonably concluded (based on advice of counsel) that there may be
legal defenses available to it or other indemnified parties that are different
from or in addition to those available to the indemnifying party, (iii) a
conflict of interests exists (based on advice of counsel to the indemnified
party) between the indemnified party and the indemnifying party (in which case
the indemnifying party will not have the right to direct the defense of such
action on behalf of the indemnified party) or (iv) the indemnifying party has
not in fact employed counsel to assume the defense of such action within a
reasonable time after receiving notice of the commencement of the action, in
each of which cases the reasonable fees, disbursements and other charges of
counsel will be at the expense of the indemnifying party or parties. It is
understood that the indemnifying party or parties shall not, in connection with
any proceeding or related proceedings in the same jurisdiction, be liable for
the reasonable fees, disbursements and other charges of more than one separate
firm admitted to practice in such jurisdiction at any one time for all such
indemnified party or parties. All such fees, disbursements and other charges
will be reimbursed by the indemnifying party promptly as they are incurred. An
indemnifying party will not be liable for any settlement of any action or claim
effected without its written consent (which consent will not be unreasonably
withheld).
(e) In order to provide for just and equitable contribution in
circumstances in which the indemnification provided for in the foregoing
paragraphs of this Section 7 is applicable in accordance with its terms but for
any reason is held to be unavailable from the Company, the Underwriters or the
Selling Shareholders, then the Company, the Underwriters and the Selling
32
<PAGE>
Shareholders will contribute to the total losses, claims, liabilities, expenses
and damages (including any investigative, legal and other expenses reasonably
incurred in connection with, and any amount paid in settlement of, any action,
suit or proceeding or any claim asserted, but after deducting any contribution
received by the Company from persons other than the Underwriters and the Selling
Shareholders, such as persons who control the Company within the meaning of the
Act, officers of the Company who signed the Registration Statement and directors
of the Company, who may be liable for contribution) to which the Company, the
Underwriters and the Selling Shareholders may be subject in such proportion as
shall be appropriate to reflect the relative benefits received by the Company,
the Underwriters and the Selling Shareholders. The relative benefits received by
the Company on the one hand and the Underwriters on the other hand shall be
deemed to be in the same respective proportions as the total net proceeds from
the offering (before deducting expenses) received by the Company bears to the
total underwriting discounts and commissions received by the Underwriters, in
each case as set forth in the table on the cover page of the Prospectus. The
relative benefits received by the Selling Shareholders shall be deemed to be in
proportion to the net proceeds to be received by them in the offering, as set
forth in the table on the cover page of the Prospectus. If, but only if, the
allocation provided by the foregoing sentences is not permitted by applicable
law, the allocation of contribution shall be made in such proportion as is
appropriate to reflect not only the relative benefits referred to in the
foregoing sentences but also the relative fault of the Company, the Underwriters
and the Selling Shareholders with respect to the statements or omissions which
resulted in such loss, claim, liability, expense or damage, or action in respect
thereof, as well as any other relevant equitable considerations with respect to
such offering. Such relative fault shall be determined by reference to whether
the untrue or alleged untrue statement of a material fact or omission or alleged
omission to state a material fact relates to information supplied by the
Company, the Underwriters or the Selling Shareholders, the intent of the parties
and their relative knowledge, access to information and opportunity to correct
or prevent such statement or omission. The Company, the Underwriters and the
Selling Shareholders agree that it would not be just and equitable if
contributions pursuant to this Section 7(d) were to be determined by pro rata or
per capita allocation (even if the Underwriters were treated as one entity for
such purpose) or by any other method of allocation which does not take into
account the equitable considerations referred to herein. The amount paid or
payable by an indemnified party as a result of the loss, claim, liability,
expense or damage, or action in respect thereof, referred to above in this
Section 7(d) shall be deemed to include, for purpose of this Section 7(d), any
legal or other expenses reasonably incurred by such indemnified party in
connection with investigating or defending any such action or claim.
Notwithstanding the provisions of this Section 7(d), an Underwriter shall not be
required to contribute any amount in excess of the underwriting discounts
received by it (less the aggregate amount of any damages which such Underwriter
and its controlling persons have otherwise been required to pay in respect of
the same or any similar claim), and no person found guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Act) will be
entitled to contribution from any person who was not guilty of such fraudulent
misrepresentation. The Underwriters' obligations to contribute as provided in
this Section 7(d) are several in proportion to their respective underwriting
obligations and not joint. For purposes of this Section 7(d), any person who
controls a party to this Agreement within the meaning of the
33
<PAGE>
Act will have the same rights to contribution as that party, and each officer
and director of the Company who signed the Registration Statement will have the
same rights to contribution as the Company, subject in each case to the
provisions hereof. Any party entitled to contribution, promptly after receipt of
notice of commencement of any action against such party in respect of which a
claim for contribution maybe made under this Section 7(d), will notify any such
party or parties from whom contribution may be sought, but the omission to
notify will not relieve the party or parties from whom contribution may be
sought from any other obligation it or they may have under this Section 7(d). No
party will be liable for contribution with respect to any action or claim
settled without its written consent (which consent will not be unreasonably
withheld).
(f) The indemnity and contribution agreements contained in this Section 7 and
the representations and warranties of the Company and the Selling Shareholders
contained in this Agreement shall remain operative and in full force and effect
regardless of (i) any investigation made by the Underwriters or on their behalf,
(ii) acceptance of any of the Shares and payment therefor or (iii) any
termination of this Agreement.
(g) The parties to this Agreement hereby acknowledge that they are
sophisticated business persons who were represented by counsel during the
negotiations regarding the provisions hereof including, without limitation, the
provisions of this Section 7, and are fully informed regarding said provisions.
They further acknowledge that the provisions of this Section 7 fairly allocate
the risks in light of the ability of the parties to investigate the Company and
its business in order to assure that adequate disclosure is made in the
Registration Statement and Prospectus as required by the Act and the Exchange
Act.
8. TERMINATION.
-----------
The Underwriters' obligations under this Agreement may be terminated at any
time on or prior to the Closing Date (or, with respect to the Option Shares, on
or prior to the Option Closing Date), by notice to the Company from the
Representatives, without liability on the part of any of the Underwriters to the
Company (provided, however, that this Section 8 and Sections 5(h), 5(i) and 7
shall be and always remain effective), if, prior to delivery and payment for the
Firm Shares (or the Option Shares, as the case may be), in your reasonable
judgment, (i) the Company shall have failed, refused or been unable to perform
any agreement on its part to be performed, or because of such condition the
Underwriters' obligations hereunder required to be fulfilled are not fulfilled,
including, but not limited to, any change in the business, properties, business
prospects, condition (financial or otherwise) or results of operations of the
Company from that set forth in the Registration Statement or Prospectus which,
in your reasonable judgment, is material and adverse; (ii) any condition
specified in Section 6 of this Agreement shall not have been satisfied; (iii)
trading in any of the equity securities of the Company shall have been suspended
by the Commission, by an exchange that lists the Shares or by the Nasdaq
National Market; (iv) trading in securities generally on the New York Stock
Exchange or the Nasdaq National Market shall have been suspended or limited or
minimum or maximum prices shall have been generally established on such
exchange, or additional material governmental restrictions, not in force on the
34
<PAGE>
date of this Agreement, shall have been imposed upon trading in securities
generally by such exchange or by order of the Commission or any court of other
governmental authority; (v) a general banking moratorium shall have been
declared by either federal or state authorities; or (vi) any material adverse
change in the financial or securities markets in the United States or in
political, financial or economic conditions in the United States or any outbreak
or material escalation of hostilities or declaration by the United States of a
national emergency or war or other calamity, crisis, act of God or hostile act
against the United States shall have occurred the effect of any of which is such
as to make it, in your reasonable judgment, impracticable or inadvisable to
market the Shares on the terms and in the manner contemplated by the Prospectus.
9. SUBSTITUTION OF UNDERWRITERS.
----------------------------
If any Underwriter shall fail or refuse to purchase any of the Firm Shares
which it has agreed to purchase hereunder, and the aggregate number of Firm
Shares which such defaulting Underwriter agreed but failed or refused to
purchase is not more than one-tenth of the aggregate number of Firm Shares, the
other Underwriters shall be obligated, severally, to purchase the Firm Shares
that such defaulting Underwriter agreed but failed or refused to purchase, in
the proportions which the number of Firm Shares which they have respectively
agreed to purchase pursuant to Section 1 bears to the aggregate number of Firm
Shares which all such non-defaulting Underwriters have so agreed to purchase, or
in such other proportions as you may specify; provided, that in no event shall
--------
the maximum number of Firm Shares which an Underwriter has been obligated to
purchase pursuant to Section 1 be increased pursuant to this Section 9 by more
than one-ninth of such number of Firm Shares without the prior written consent
of such Underwriter. If an Underwriter shall fail or refuse to purchase any
Firm Shares and the aggregate number of Firm Shares which such defaulting
Underwriter agreed but failed or refused to purchase exceeds one-tenth of the
aggregate number of the Firm Shares and arrangements satisfactory to the non-
defaulting Underwriters or the Company for the purchase of such Firm Shares are
not made within 48 hours after such default, this Agreement will terminate
without liability on the part of any non-defaulting Underwriter or the Company
for the purchase or sale of any Shares under this Agreement. In any such case
the Underwriters or the Company shall have the right to postpone the Closing
Date or Option Closing Date, but in no event for longer than seven days, in
order that the required changes, if any, in the Registration Statement and in
the Prospectus or in any other documents or arrangements may be effected. Any
action taken pursuant to this Section 9 shall not relieve any defaulting
Underwriter from liability in respect to any default of such Underwriter under
this Agreement.
10. DEFAULT BY A SELLING SHAREHOLDER.
--------------------------------
If any of the Selling Shareholders shall fail to sell and deliver the number
of Selling Shareholder Shares that such Selling Shareholder is obligated to
sell, the Underwriters may, at their option, by notice to the Company, either
(a) require the Company to sell and deliver such number of shares of Common
Stock as to which the Selling Shareholders have defaulted, (b) elect to purchase
the Firm Shares that the Company and the non-defaulting Selling Shareholders
have
35
<PAGE>
agreed to sell pursuant to this Agreement or (c) terminate this Agreement
if the Company shall have refused to sell and deliver to the Underwriters the
shares of Common Stock referred to in clause (a) of this Section 10.
In the event of a default under this Section 10 that does not result in the
termination of this Agreement, either the Underwriters or the Company shall have
the right to postpone the Closing Date for a period not exceeding seven days in
order to effect any required changes in the Registration Statement or Prospectus
or in any other documents or arrangements. No action taken pursuant to this
Section 10 shall relieve the Company or the Selling Shareholder so defaulting
from liability, if any, in respect of such default.
11. MISCELLANEOUS.
-------------
All communications hereunder shall be in writing and, if sent to any of the
Underwriters, shall be mailed, first class postage prepaid, sent via reliable
overnight delivery service, sent by facsimile (and by one of the two preceding
methods), delivered by hand or telegraphed and confirmed in writing to the
Representatives in care of J.C. Bradford & Co., J.C. Bradford Financial Center,
330 Commerce Street, Nashville, Tennessee, Attention: Kip Reed Caffey, or if
sent to the Company shall be sent by one of the foregoing methods to the Company
at 1325 Northmeadow Parkway, Suite 120, Roswell, Georgia 30075, Attention:
Daniel D. Lensgraf.
This Agreement has been and is made solely for the several Underwriters' and
the Company's and the Selling Shareholders' benefits and of the controlling
persons, directors and officers referred to in Section 7, and their respective
heirs, executors, administrators, successors and assigns, and no other person
shall acquire or have any right under or by virtue of this Agreement. The term
"successors and assigns" as used in this Agreement shall not include a
purchaser, as such purchaser, of Shares from an Underwriter.
This Agreement shall be governed by and construed in accordance with the laws
of the State of Georgia.
This Agreement may be signed in two or more counterparts with the same effect
as if the signatures thereto and hereto were upon the same instrument.
In case any provision in this Agreement shall be invalid, illegal or
unenforceable, the validity, legality and enforceability of the remaining
provisions shall not in any way be affected or impaired thereby.
THE COMPANY, EACH SELLING SHAREHOLDER AND YOU EACH HEREBY IRREVOCABLY WAIVE
ANY RIGHT THEY MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY CLAIM BASED UPON OR
ARISING OUT OF THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY.
36
<PAGE>
You hereby represent and warrant to the Company and each Selling Shareholder
that you have authority to act hereunder on behalf of the several Underwriters,
and any action hereunder taken by you will be binding upon all the Underwriters.
Please confirm that the foregoing correctly sets forth the agreement among the
Company, the Selling Shareholders and you.
Very truly yours,
SATELLINK COMMUNICATIONS, INC.
By: _______________________________
Name:
Title:
SELLING SHAREHOLDERS:
By: _______________________________
[ ], as Attorney-in-Fact
for each of the Selling
Shareholders identified on
Schedule II
-----------
Confirmed and accepted as of the
date first above written.
J.C. BRADFORD & CO.
MORGAN KEEGAN & COMPANY, INC.
By: J.C. Bradford & Co.
By: _______________________________
Name:
Title:
37
<PAGE>
SCHEDULE I
----------
UNDERWRITERS
<TABLE>
<CAPTION>
Number of
Name of Underwriter Firm Shares
- ------------------- -----------
<S> <C>
J.C. Bradford & Co..................................................
Morgan Keegan & Company, Inc........................................
-----------
Total..........................................................
</TABLE> -----------
38
<PAGE>
SCHEDULE II
-----------
SELLING SHAREHOLDERS
<TABLE>
<CAPTION>
Number of
Firm
Name of Selling Shareholder Shares
- --------------------------- -------------
<S> <C>
[ ].......................................................
[ ].......................................................
[ ].......................................................
[ ].......................................................
-------------
Total........................................................
-------------
</TABLE>
39
<PAGE>
EXHIBIT 3.3
AMENDED AND RESTATED
ARTICLES OF INCORPORATION
OF
SATELLINK COMMUNICATIONS, INC.
Pursuant to the provisions of Section 14-2-1007 of the Georgia Business
Corporation Code, Satellink Communications, Inc. hereby amends and restates the
Articles of Incorporation of Satellink Communications, Inc. in their entirety
(with all provisions of the heretofore existing Articles of Incorporation being
hereby amended as follows):
ARTICLE ONE
-----------
NAME
----
The name of the corporation is Satellink Communications, Inc. (the
"Corporation").
ARTICLE TWO
-----------
AUTHORIZED SHARES
-----------------
SECTION 2.1 TOTAL NUMBER OF SHARES OF STOCK. The total number of shares
--------------------------------
of stock of all classes that the Corporation shall have authority to issue is
60,030,000 consisting of the following classes:
(a) 50,000,000 shares of Common Stock, $.01 par value per share (the
"Common Stock");
(b) 10,030,000 shares of Preferred Stock, $.01 par value per share (the
"Preferred Stock").
SECTION 2.2 COMMON STOCK. Except as otherwise required by law or as
-------------
otherwise specified in these Articles of Incorporation, only the holders of
Common Stock shall be entitled to vote at any meeting of shareholders of the
Corporation. Except as otherwise provided in these Articles of Incorporation,
as regards matters as to which they are entitled to vote, holders of Common
Stock shall be entitled to one vote for each share of Common Stock held by them.
No authorized but unissued Common Stock may be issued to holders of Common Stock
by way of a stock dividend, split-up or in any other manner of distribution
unless the same ratable stock dividend, stock split-up or other distribution is
declared and made in Common Stock to the holders of such Common Stock at the
time outstanding. The holders of Common Stock shall be entitled to participate
share for share in any cash dividend which may be declared from time to time on
the Common Stock of the Corporation by the Board of Directors and to receive pro
rata the net assets of the Corporation on liquidation.
<PAGE>
(a) The holders of Common Stock shall be entitled to vote on each matter
on which the shareholders of the Corporation shall be entitled to
vote, and each holder of Common Stock shall be entitled to one vote
for each share of such stock held by such holder.
(b) After dividends on the Preferred Stock, to the extent such Preferred
Stock may be entitled thereto, shall have been paid or set apart for
payment, the Board of Directors of the Corporation may cause dividends
to be paid to holders of shares of Common Stock out of funds legally
available for the payment of dividends. Any dividend or distribution
on the Common Stock shall be payable on shares of Common Stock share
and share alike; provided that in the case of dividends payable in
Common Stock of the Corporation, or options, warrants or rights to
acquire such Common Stock, or securities convertible into or
exchangeable for Common Stock, the shares, options, warrants, rights
or securities so payable shall be payable in shares of, or options,
warrants or rights to acquire or securities convertible into or
exchangeable for, Common Stock of the same class upon which the
dividend or distribution is being paid.
(c) Subject to the provisions of the Preferred Stock, in the event of any
voluntary or involuntary liquidation, dissolution or winding up of the
Corporation, all distributions on the Common Stock of the Corporation
shall be payable to the holders of shares of Common Stock share and
share alike.
SECTION 2.3 PREFERRED STOCK.
----------------
(a) The shares of Preferred Stock of the Corporation may be issued from
time to time in one or more classes or series thereof, the shares of
each class or series thereof to have such voting powers, full or
limited, or no voting powers, and such designations, preferences and
relative, participating, optional or other special rights, and
qualifications, limitations or restrictions thereof, as are stated and
expressed herein or in the resolution or resolutions providing for the
issue of such class or series, adopted by the Board of Directors as
hereinafter provided.
(b) Authority is hereby expressly granted to the Board of Directors of the
Corporation, subject to the provisions of this Article Two and to the
limitations prescribed by the Georgia Business Corporation Code, to
authorize the issue of one or more classes, or series thereof, of
Preferred Stock and with respect to each such class or series to fix
by resolution or resolutions providing for the issue of such class or
series the voting powers, full or limited, if any, of the shares of
such class or series and the designations, preferences and relative,
participating, optional or other special rights, and qualifications,
limitations or restrictions thereof. The authority of
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<PAGE>
the Board of Directors with respect to each class or series thereof
shall include, but not be limited to, the determination or fixing of
the following:
(i) the maximum number of shares to constitute such class or
series, which may subsequently be increased or decreased by
resolution of the Board of Directors unless otherwise provided
in the resolution providing for the issue of such class or
series, the distinctive designation thereof and the stated
value thereof if different than the par value thereof;
(ii) the dividend rate of such class or series, the conditions and
dates upon which such dividends shall be payable, the relation
which such dividends shall bear to the dividends payable on
any other class or classes of stock or any other series of any
class of stock of the Corporation, and whether such dividends
shall be cumulative or noncumulative;
(iii) whether the shares of such class or series shall be subject to
redemption, in whole or in part, and, if made subject to such
redemption, the times, prices and other terms and conditions
of such redemption, including whether or not such redemption
may occur at the option of the Corporation or at the option of
the holder or holders thereof or upon the happening of a
specified event;
(iv) the terms and amount of any sinking fund established for the
purchase or redemption of the shares of such class or series;
(v) whether or not the shares of such class or series shall be
convertible into or exchangeable for shares of any other class
or classes of any stock or any other series of any class of
stock of the Corporation, and, if provision is made for
conversion or exchange, the times, prices, rates, adjustments,
and other terms and conditions of such conversion or exchange;
(vi) the extent, if any, to which the holders of shares of such
class or series shall be entitled to vote with respect to the
election of directors or otherwise;
(vii) the restrictions, if any, on the issue or reissue of any
additional Preferred Stock;
(viii) the rights of the holders of the shares of such class or
series upon the dissolution of, or upon the subsequent
distribution of assets of, the Corporation; and
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(ix) the manner in which any facts ascertainable outside the
resolution or resolutions providing for the issue of such
class or series shall operate upon the voting powers,
designations, preferences, rights and qualifications,
limitations or restrictions of such class or series.
SECTION 2.4 NON-VOTING PREFERRED STOCK. The authorized number of shares
---------------------------
of Preferred Stock of the Corporation shall include a Non-Voting Preferred Stock
(the "Non-Voting Preferred Stock") which shall consist of THIRTY THOUSAND
(30,000) shares, par value $.01 per share. The preferences, privileges and
restrictions granted to and imposed upon the Non-Voting Preferred Stock are set
forth in Annex A attached hereto.
-------
ARTICLE THREE
-------------
PRINCIPAL OFFICE
----------------
The mailing address of the initial principal office of the Corporation is
1325 Northmeadow Parkway, Suite 120, Roswell, Georgia 30076.
ARTICLE FOUR
------------
LIMITATION OF DIRECTOR LIABILITY
--------------------------------
SECTION 4.1 A director of the Corporation shall not be liable to the
Corporation or its shareholders for monetary damages for any action taken, or
any failure to take any action, as a director, except liability (i) for any
appropriation, in violation of his or her duties, of any business opportunity of
the Corporation, (ii) for acts or omissions which involve intentional misconduct
or a knowing violation of law, (iii) of the types set forth in Section 14-2-832
of the Georgia Business Corporation Code, or (iv) for any transaction from which
the director received an improper personal benefit.
SECTION 4.2 Any repeal or modification of the provisions of this Article
by the shareholders of the Corporation shall be prospective only, and shall not
adversely affect any limitation on the liability of a director of the
Corporation with respect to any act or omission occurring prior to the effective
date of such repeal or modification.
SECTION 4.3 If the Georgia Business Corporation Code is hereafter amended
to authorize the further elimination or limitation of the liability of
directors, then the liability of a director of the Corporation, in addition to
the limitation on liability provided herein, shall be limited to the fullest
extent permitted by the Georgia Business Corporation Code, as so amended.
SECTION 4.4 In the event that any of the provisions of this Article
(including any provision within a single sentence) is held by a court of
competent jurisdiction to be invalid,
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void or otherwise unenforceable, the remaining provisions are severable and
shall remain enforceable to the fullest extent permitted by law.
ARTICLE FIVE
------------
CONSTITUENCY CONSIDERATIONS
---------------------------
In discharging the duties of their respective positions and in determining
what is believed to be in the best interests of the Corporation, the Board of
Directors, committees of the Board of Directors, and individual directors, in
addition to considering the effects of any action on the Corporation or its
shareholders, may consider the interests of the employees, customers, suppliers,
and creditors of the Corporation and its subsidiaries, the communities in which
offices or other establishments of the Corporation and its subsidiaries are
located, and all other factors such directors consider pertinent; provided,
however, that this Article shall be deemed solely to grant discretionary
authority to the directors and shall not be deemed to provide to any
constituency any right to be considered.
ARTICLE SIX
-----------
BOARD OF DIRECTORS
------------------
SECTION 6.1 NUMBER OF DIRECTORS AND TERM OF OFFICE. The number of
---------------------------------------
directors of the Corporation shall not be less than three nor more than eleven,
the precise number to be fixed by resolution of the Board of Directors from time
to time. The directors shall be divided into three classes, each consisting, as
nearly equal in number as possible, of one-third of the total number of
directors constituting the entire Board of Directors. At the first election of
directors of the Corporation following the consummation of an initial public
offering of Common Stock, the first class of directors (Class 1) shall be
elected for a term expiring at the next following annual meeting of shareholders
and upon the election and qualification of their respective successors, the
second class of directors (Class 2) shall be elected for a term expiring at the
second next annual meeting of shareholders and upon the election and
qualification of their respective successors, and the third class of directors
(Class 3) shall be elected for a term expiring at the third next annual meeting
of shareholders and upon the election and qualification of their respective
successors. At each succeeding annual meeting of shareholders, successors to
the class of directors whose term expires at the annual meeting of shareholders
shall be elected for a three-year term. Except as provided in Section 6.3 of
this Article Six, a director shall be elected by the affirmative vote of the
holders of a majority of the shares represented at the meeting of shareholders
at which the director stands for election and entitled to elect such director.
SECTION 6.2 REMOVAL. The entire Board of Directors or any individual
--------
director may be removed from office but only for cause and only by the
affirmative vote of the holders of at least 75% of all classes of stock of the
Corporation entitled to vote in the election of such director or directors,
considered for purposes of this Section 6.2 as one
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class. For purposes of this Section 6.2, "cause" shall mean final conviction of
a felony, request or demand for removal by any governmental or regulatory
authority having jurisdiction over the Corporation, or breach of fiduciary duty
involving personal profit. Notwithstanding the foregoing, in the event that
Preferred Stock of the Corporation is issued and authorizes the election of one
or more directors by the holders of such Preferred Stock, any individual
director elected by the holders of such Preferred Stock may be removed only by
the holders of the outstanding shares of such Preferred Stock in accordance with
the terms of the Preferred Stock as provided therein. Removal action may be
taken at any shareholders' meeting with respect to which notice of such purpose
has been given.
SECTION 6.3 VACANCIES. Any vacancies on the Board of Directors for any
----------
reason, including vacancies resulting from an increase in the number of
directors, may be filled only by the Board of Directors, acting by the
affirmative vote of two-thirds of the total number of directors then remaining
in office, though they constitute fewer than a quorum of the Board of Directors.
Notwithstanding the foregoing, in the event that a vacant office was held by a
director elected by holders of Preferred Stock of the Corporation who are
entitled to elect such director pursuant to the terms of the Preferred Stock,
only the remaining directors elected by the holders of such Preferred Stock, or
in the absence of any such directors, the holders of such Preferred Stock, shall
be entitled to fill such vacancy in accordance with the terms of the Preferred
Stock as provided therein. Any director appointed to fill a vacancy shall be
elected for the unexpired term of the predecessor in office and until the
successor is elected and qualified, except that when a directorship is to be
filled by reason of an increase in the number of directors, the term of such
director shall expire at the next election of directors by the shareholders and
upon the election and qualification of the successor.
ARTICLE SEVEN
-------------
SHAREHOLDER ACTION BY LESS THAN UNANIMOUS WRITTEN CONSENT
---------------------------------------------------------
Any action that is required or permitted to be taken at a meeting of the
shareholders may be taken without a meeting if the action is taken by persons
who would be entitled to vote at a meeting shares having voting power to cast
not less than the minimum number (or numbers, in the case of voting by groups)
of votes that would be necessary to authorize or take such action at a meeting
at which all shareholders entitled to vote were present and voted. The action
must be evidenced by one or more written consents describing the action taken,
signed by shareholders entitled to take action without a meeting and delivered
to the Corporation for inclusion in the minutes or filing with the corporate
records.
* * * * * * * * * * * * * * * * * * * * *
These Amended and Restated Articles of Incorporation contain amendments
requiring shareholder approval and were duly adopted in accordance with the
applicable provisions of
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<PAGE>
Section 14-2-1003 of the Georgia Business Corporation Code by the Board of
Directors and the shareholders of the Corporation on ___________________, 1998.
These Amended and Restated Articles of Incorporation supersede the original
Articles of Incorporation.
IN WITNESS WHEREOF, Satellink Communications, Inc. has caused these Amended
and Restated Articles of Incorporation to be executed by its duly authorized
officer this _________ day of June, 1998.
SATELLINK COMMUNICATIONS, INC.
By: /s/ Jerry W. Mayfield
---------------------------------------
Jerry W. Mayfield
President and Chief Executive Officer
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<PAGE>
ANNEX A
-------
CERTIFICATE OF DESIGNATION OF PREFERENCES, LIMITATIONS AND RELATIVE RIGHTS OF
NON-VOTING PREFERRED STOCK
(1) RANK. All shares of Non-Voting Preferred Stock shall rank equally
----
and be identical in all respects. The Corporation shall not be restricted from
issuing additional securities of any kind, including shares of preferred stock
of any class, series or designation (including, without limitation, preferred
stock ranking in parity as to rights and preferences with the Non-Voting
Preferred Stock now or hereafter authorized), provided that issuances of the
Non-Voting Preferred Stock shall be limited to issuance to Creditanstalt
American Corporation or any Affiliate of Creditanstalt American Corporation (as
such term is defined in Section (5)(a)).
(2) DIVIDENDS. Dividends and other distributions, payable in cash or
---------
other property shall be paid on the Non-Voting Preferred Stock equally, ratably
and on a parity with such dividends and other distributions paid on the Common
Stock, as and when such dividends and other distributions are declared by the
Board of Directors of the Corporation, as though the Common Stock and Non-Voting
Preferred Stock were on and the same class: provided that in determining the
number of shares of Non-Voting Preferred Stock outstanding and entitled to
receipt of any such dividend or other distribution, each share of Non-Voting
Preferred Stock outstanding shall be deemed to be equal to the number of shares
of Common Stock into which one share of Non-Voting Preferred Stock could have
been converted on the date on which the holders of Common Stock and Non-Voting
Preferred Stock were determined to receive payment of such dividend or other
distribution, after giving effect to any adjustments.
(3) VOTING RIGHTS. Except as otherwise specifically provided by the
-------------
Georgia Business Corporation Code or other laws of the State of Georgia, the
holders of Non-Voting Preferred Stock shall not be entitled to vote or give a
consent to or on any matters required or permitted to be submitted to the
shareholders of the Corporation for their approval.
(4) LIQUIDATION. The Non-Voting Preferred Stock shall be preferred
-----------
upon liquidation over the Common Stock and any other class or classes of stock
of the Corporation ranking junior in rights and preferences to the Non-Voting
Preferred Stock upon liquidation, so that holders of shares of Non-Voting
Preferred Stock shall be entitled to be paid, after full payment is made on any
stock ranking prior to the Non-Voting Preferred Stock as to rights and
preferences, but before any distribution is made to the holders of the Common
Stock and such junior stock upon the voluntary or involuntary dissolution,
liquidation or winding up of the Corporation. The amount payable on each share
of Non-Voting Preferred Stock in the event of the voluntary or involuntary
dissolution, liquidation or winding up of the Corporation shall be $.01 per
share. After such payment of $.01 per share shall have been made in full to the
holders of the Non-Voting
<PAGE>
Preferred Stock, the holders of the outstanding Non-Voting Preferred Stock shall
be entitled to share ratably with the holders of the other classes of stock then
outstanding in the distribution of the remaining assets of the Corporation. If,
upon any such liquidation, dissolution or winding up of the Corporation, its net
assets are insufficient to permit the payment in full of the amounts to which
the holders of all outstanding shares of Non-Voting Preferred Stock are entitled
as above provided, the entire net assets of the Corporation remaining (after
full payment is made on any classes or series of stock ranking prior to the Non-
Voting Preferred Stock) shall be distributed among the holders of shares of Non-
Voting Preferred Stock in amounts proportionate to the full preferential amounts
to which they and holders of shares of preferred shares ranking in parity with
the Non-Voting Preferred Stock are entitled. For the purpose of this Section 4,
the voluntary sale, lease, exchange or transfer, for cash, shares of stock,
securities or other consideration, of all or substantially all the Corporation's
property or assets to, or its consolidation or merger with, one or more
corporations shall not be deemed to be a liquidation, dissolution or winding up
of the Corporation voluntary or involuntary. Notwithstanding the foregoing, in
the event that any holder of Non-Voting Preferred Stock converts its Non-Voting
Preferred Stock to Common Stock pursuant to Section 5 hereof, the right to
preferential liquidation rights with respect to such converted stock pursuant to
this Section 4 shall be immediately terminated.
(5) CONVERSION PROVISIONS.
---------------------
(a) Subject to the provisions for adjustment hereinafter set forth, each
share of Non-Voting Preferred Stock shall be convertible at any time
at the option of the holder thereof, upon surrender to the transfer
agent for the Non-Voting Preferred Stock of the Corporation of the
certificate or certificates evidencing the shares so to be converted,
into one fully paid and non-assessable share of Common Stock of the
Corporation. Notwithstanding the foregoing provisions of this Section
5, a holder of Non-Voting Preferred Stock shall not have the right to
convert the Non-Voting Preferred Stock held by it if the Common Stock
to be received upon conversion would, when aggregated with shares of
Common Stock previously issued as Warrant Shares (as that term is
defined in the Warrant Agreement) or issued in conversion of Non-
Voting Preferred Stock previously issued as Warrant Shares or
otherwise held by or attributable to such holder (other than shares no
longer held by such holder and which constitute Non Attributable
Stock), exceed 4.99% of the then outstanding Common Stock, unless the
holder is a party other than a bank or an Affiliate of a bank which is
subject to the provisions of the Bank Holding Company Act of 1956 and
the Common Stock to be issued upon such conversion will constitute,
Non-Attributable Stock, as hereinafter defined. For purposes of this
provision, "Non-Attributable Stock" shall mean shares of Common Stock
or Non-Voting Preferred Stock which have been previously sold, or were
issued pursuant to the exercise of Warrants which were previously
sold, either 1. in a widely dispersed public offering; 2. in a private
placement in which no purchaser, individually or in concert with
others, acquired Common Stock, Non-Voting
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<PAGE>
Preferred Stock, Warrants or any combination thereof, representing
(upon conversion, in the case of the Preferred Stock, and upon
exercise for Common Stock, in the case of the Warrants) more than 2%
of the outstanding Common Stock; 3. in compliance with Rule 144 (or
any rule which is a successor thereto) of the Securities Act of 1933,
as amended; or 4. in the secondary market in a market transaction
executed through a registered broker-dealer in blocks of no more than
2.0 % of the shares outstanding of the Corporation in any six month
period. For purposes of this provision, "Affiliate" of any individual,
corporation, trust, partnership or other entity shall mean any other
individual, corporation, trust, partnership or other entity directly
or indirectly controlling, controlled by or under direct or indirect
common control with such individual, corporation, trust, partnership
or other entity. For purposes of this definition, as to Creditanstalt
American Corporation, Affiliate shall include any partnership a
majority of the partners of which are officers, directors, employees
or Affiliates of Creditanstalt American Corporation, and as to the
Corporation, Affiliate shall not include Creditanstalt American
Corporation.
(b) The number of shares of Common Stock into which an issued and
outstanding share of Non-Voting Preferred Stock is convertible shall
be subject to adjustment from time to time as follows:
(i) In the event that the Corporation shall at any time (A) declare a
dividend on the Common Stock in shares of its Common Stock, (B),
split or subdivide the outstanding Common Stock, or (C) combine
the outstanding Common Stock into a smaller number of shares,
each share of Non-Voting Preferred Stock outstanding at the time
of the record date for such dividend or of the effective date of
such split, subdivision or combination shall thereafter be
convertible into the aggregate number of shares of Common Stock
which, if such share of Non-Voting Preferred Stock had been
converted immediately prior to such time, the holder of such
share would have owned or have been entitled to receive by virtue
of such dividend, subdivision or combination. Such adjustment
shall be made successively whenever any event listed above shall
occur.
(ii) In the event that the corporation shall at any time (A) issue any
shares of Common Stock without consideration or at a price per
share less than the current market price per share of Common
Stock (as defined in subsection (5)(b)(iii) hereof), other than
shares issued upon exercise of the Warrants or (B) issue options,
rights or warrants to subscribe for or purchase Common Stock (or
securities convertible into Common Stock other than the Non-
Voting Preferred Stock) at any exercise price per share (or
having a conversion price per share, if a security convertible
into Common Stock) less than the
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<PAGE>
then current market price per share of Common Stock (as defined
in subsection (5)(b)(iii) hereof), each share of Non-Voting
Preferred Stock outstanding on the date of such issuance shall
thereafter be convertible into a number of shares of Common Stock
equal to the product of (x) the number of shares of Common Stock
into which such share of Non-Voting Preferred Stock was
convertible immediately prior to such date of issuance and (y) a
fraction of which the numerator shall be the number of shares of
Common Stock outstanding on the date of such issuance plus the
number of additional shares of Common Stock to be issued or to be
offered for subscription or purchase upon exercise of such
options, rights or warrants (or into which the convertible
securities so to be offered are initially convertible) and of
which the denominator shall be the number of shares of Common
Stock outstanding on the date of such issuance plus the number of
shares of Common Stock which the aggregate offering price of the
total number of shares of Common Stock so to be issued or to be
offered for subscription or purchase upon exercise of such
options, rights, or warrants (or the aggregate initial conversion
price of the convertible securities so to be offered) would
purchase at such current market rice. In case such subscription
price may be paid in a consideration part or all of which shall
be in form other than cash, the value of such consideration shall
be as determined by agreement between the holders of a majority
of the outstanding shares of Non-Voting Preferred Stock and the
Corporation or, in the absence of such an agreement by an
independent investment banking firm or ran independent appraiser
reasonably acceptable to the holders of a majority of the
outstanding shares of Non-Voting Preferred Stock (in either case
the cost of which engagement will be borne by the Corporation).
Shares of Common Stock owned by or held for the account of the
Corporation or any majority-owned subsidiary of the Corporation
shall not be deemed outstanding for the purpose of any such
computation. Such adjustment shall be made successively whenever
the date of such issuance is fixed (which date of issuance shall
be the record date for such issuance if a record date therefore
is fixed); and, in the event that (A) such shares or options,
rights or warrants are not so issued, or (B) any such option,
rights or warrants expires according to its terms without having
been exercised, each share of Non-Voting Preferred Stock
outstanding shall, as of the date of cancellation of such
issuance in the case of clause (A) above and the date of such
expiration in the case of clause (B) above, be convertible into
the number of shares of Common Stock as would have been the case
had the date of such issuance of such unissued options, rights or
warrants not been fixed or such expired options, rights or
warrants not been issued as the case may be.
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<PAGE>
(iii) For the purpose of any computation under this Section (5)(b), the
"current market price per share" of Common Stock on any date
shall be deemed to be:
(A) if the Common Stock is then reported on the Composite
Transactions Tape, the average of the daily closing prices
for the 30 consecutive trading days immediately prior to
such date as reported on the Composite Transactions Tape; or
(B) if the Common Stock is then listed or admitted to trading on
a national securities exchange, the average of the daily
last sales prices regular way of the Common Stock, for the
30 consecutive trading days immediately prior to such date,
on the principal national securities exchange on which the
Common Stock is traded or, in case no such sale takes place
on any such date, the average of the closing bid and asked
prices regular way, in either case on such national
securities exchange; or
(C) if the Common Stock is then traded in the over-the-counter
market, the average of the daily closing sales prices, or,
if there is no closing sales price, the average of the
closing bid and asked prices, in the over-the-counter
market, for the 30 consecutive trading days immediately
prior to such date, as reported by the National Association
of Securities Dealers' Automated Quotation System, or, if
not so reported, as reported by the National Quotation
Bureau, Incorporated or any successor thereof, or, if not so
reported the average of the closing bid and asked prices as
furnished by any member of the National Association of
Securities Dealers, Inc. selected from time to time by the
Board of Directors of the Corporation for that purpose; or
(D) if no such prices are then furnished, the higher of (x) the
exercise price and (y) the fair market value of a share of
Common Stock as determined by agreement between the holders
of a majority of the outstanding shares of Non-Voting
Preferred Stock and the Corporation or, in the absence of
such an agreement, by an independent investment banking firm
or an independent appraiser (in either case the cost of
which engagement will be borne by the Corporation)
reasonably acceptable to the holders of a majority of
outstanding shares of Non-Voting Preferred Stock.
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<PAGE>
(iv) No adjustment in the number of shares of Common Stock issuable
upon conversion of a share of Non-Voting Preferred Stock shall be
required unless such adjustment would require an increase or
decrease in the aggregate number of shares of Common Stock so
issuable of at least 1%, provided that any adjustments which by
reason of this subsection (5)(b)(iv) are not required to be made
shall be carried forward and taken into account in any subsequent
adjustment. All calculations under this Section (5)(b)(iv) shall
be made to the nearest cent, or to the nearest hundredth of a
share, as the case may be.
(v) In the event of any capital reorganization of the Corporation, or
of any reclassification of the Common Stock (other than a
subdivision or combination of outstanding shares of Common
Stock), or in case of the consolidation of the Corporation with
or the merger of the Corporation with or into any other
corporation or of the sale of the properties and assets of the
Corporation as, or substantially as, an entirety to any, other
corporation, each share of Non-Voting Preferred Stock shall after
such capital reorganization, reclassification of Common Stock,
consolidation, merger or sale be convertible upon the terms and
conditions specified in this Section (5), for the number of
shares of stock or other securities or assets to which a holder
of the number of shares of Common Stock into which a share of
Non-Voting Preferred Stock is then convertible (at the time of
such capital reorganization, reclassification of Common Stock,
consolidation, merger or sale) would have been entitled upon such
capital reorganization, reclassification of Common Stock,
consolidation, merger or sale; and in any such case, if
necessary, the provisions set forth in this Section (5) with
respect to the rights of conversion thereafter of the Non-Voting
Preferred Stock shall be appropriately adjusted so as to be
applicable, as nearly as may reasonably be, to any shares of
stock or other securities or assets thereafter deliverable on the
conversion of the Non-Voting Preferred Stock. The Corporation
shall not effect any such consolidation, merger or sale unless
prior to or simultaneously with the consummation thereof, the
successor corporation (if other than the Corporation) resulting
from such consolidation or merger or the corporation purchasing
such assets of the appropriate corporation or entity shall assume
by written instrument, the obligation to deliver to the holder of
each share of Non-Voting Preferred Stock the shares of stock,
securities or assets to which, in accordance with the foregoing
provisions, such holder may be entitled upon conversion of such
Non-Voting Preferred Stock and all other obligations of the
Corporation under this Section (5), and effective provisions are
made in the Articles or Certificate of Incorporation of such
successor or
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transferee corporation providing for conversion privileges
relating to the Non-Voting Preferred Stock equivalent to those
set forth in this Section (5).
(vi) If any question at any time arises with respect to the number of
shares of Common Stock into which a share of Non-Voting Preferred
Stock is convertible following any adjustment pursuant to this
Section (5), such question shall be determined by agreement
between the holders of a majority of the outstanding shares of
Non-Voting Preferred Stock and the Corporation or, in the absence
of such an agreement by an independent investment banking firm or
an independent appraiser (in either case the cost of which
engagement will be borne by the Corporation) reasonably
acceptable to the Corporation and the holders of a majority of
outstanding shares of Non-Voting Preferred Stock and such
determination shall be binding upon the Corporation and the
holders of the Non-Voting Preferred Stock.
(vii) Anything in this Section (5) to the contrary notwithstanding, the
Corporation shall be entitled to take such increases in the
number of shares of Common Stock issuable upon conversion of
shares of Non-Voting Preferred Stock, in addition to those
adjustments required by this Section (5), as it in its sole
direction shall determine to be advisable in order that any
consolidation or subdivision of the Common Stock, or any issuance
wholly for cash or any shares of Common Stock at less than the
current market price, or any issuance wholly for cash or shares
of Common Stock or securities which by their terms are
convertible into or exchangeable for shares of Common Stock, or
any issuance of rights, options or warrants referred to
hereinabove in this Section (5), hereinafter made by the
Corporation to the holders of its common Stock shall not be
taxable to them.
(viii) Upon any adjustment of the number of the shares of Common Stock
issuable upon conversion of shares of Non-Voting Preferred Stock
pursuant to this Section (5), the Corporation shall promptly put
in any event within 20 days thereafter, cause to be given to each
of the registered holders of the Non-Voting Preferred Stock, at
its address appearing on the Register for the Non-Voting
Preferred Stock by registered mail, postage prepaid, return
receipt requested a certificate signed by its chairman, president
or chief financial officer setting forth the number of shares of
Common Stock issuable upon conversion of shares of Class B common
Stock as so adjusted and describing in reasonable detail the
facts accounting for such adjustment and the method of
calculation used. Where appropriate,
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<PAGE>
such certificate may be given in advance and included as a part
of the notice required to be mailed under the other provisions of
this resolution.
(ix) The Corporation will at all times have authorized, and reserve
and keep available, free from preemptive rights, for the purpose
of enabling it to satisfy any obligation to issue shares of
Common Stock upon the conversion of the Non-Voting Preferred
Stock, the number of shares of Common Stock deliverable upon
conversion of the Non-Voting Preferred Stock.
(x) The Corporation shall not be required to issue fractional shares
of Common Stock upon conversion of the Non-Voting Preferred Stock
but shall pay for any such fraction of a share an amount in cash
equal to the current market price per share of Common Stock of
such share (determined in accordance with the provisions of
subsection (5)(b)(iii) hereof) multiplied by such fraction.
(xi) The Corporation will pay all taxes attributable to the issuance
of shares of Common Stock upon conversion of shares of Non-Voting
Preferred Stock, provided that the Corporation shall not be
required to pay any income tax incurred by the holder upon
conversion of the Non-Voting Preferred Stock or any tax which may
be payable in respect of any transfer involved in the issue of
any shares of Common Stock in a name other than that of the
registered holder of the Non-Voting Preferred Stock surrendered
for conversion, and the Corporation shall not be required to
issue or deliver such certificate unless or until the person or
persons requesting the issuance thereof shall have paid to the
Corporation the amount of such tax or shall have established to
the satisfaction of the Corporation that such tax has been paid.
(6) NOTICES TO HOLDERS OF NON-VOTING PREFERRED STOCK.
------------------------------------------------
In the event
(a) of any consolidation or merger to which the Corporation is a party and
for which approval of any shareholders of the Corporation is required,
or of the conveyance or transfer of the properties and assets of the
Corporation substantially as an entirety, or of any capital
reorganization or reclassification or change of the Common Stock
(other than a change in par value, or from par value to no par value,
or from no par value to par value, or as a result of a subdivision or
combination); or
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<PAGE>
(b) of the voluntary or involuntary dissolution, liquidation or winding up
of the Corporation, or
(c) that the Corporation proposes to take any other action which would
require an adjustment in the number of shares of Common Stock or other
securities or assets issuable upon conversion of shares of Non-Voting
Preferred Stock pursuant to Section (5):
then the Corporation shall cause to be given to each of the registered
holders of the Non-Voting Preferred Stock at its address appearing on the
Register for the Non-Voting Preferred Stock, at least 20 calendar days prior to
the applicable record date hereinafter specified, by registered mail, postage
prepaid, return receipt requested, a written notice stating (i) the date as of
which the holders of record of Common Stock entitled to participate in the event
contemplated by clause (c) above are to be determined, or (ii) the date on which
any such consolidation, merger, conveyance, transfer, dissolution, liquidation
or winding up is expected to become effective, and the date as of which it is
expected that holders of record of Common Stock shall be entitled to exchange
their shares for securities or other property, if any, deliverable upon such
reclassification, consolidation, merger, conveyance, transfer, dissolution,
liquidation or winding up. The failure to give the notice required by this
Section (6) or any defect therein shall not affect the legality or validity of
any distribution, right, warrant, consolidation, merger, conveyance, transfer,
dissolution, liquidation or winding up, or the vote upon any action.
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<PAGE>
EXHIBIT 3.4
SATELLINK COMMUNICATIONS, INC.
BYLAWS
Adopted as of June __, 1998
<PAGE>
SATELLINK COMMUNICATIONS, INC.
BYLAWS
TABLE OF CONTENTS
Page
----
ARTICLE ONE - OFFICES AND AGENT
Section 1.1 Registered Office and Agent 1
Section 1.2 Other Offices 1
ARTICLE TWO - SHAREHOLDERS' MEETINGS
Section 2.1 Place of Meetings 1
Section 2.2 Annual Meetings 1
Section 2.3 Special Meetings 1
Section 2.4 Notice of Meetings 1
Section 2.5 Shareholder Nominations and Proposals 2
Section 2.6 Voting Group 3
Section 2.7 Quorum 3
Section 2.8 Vote Required for Action 3
Section 2.9 Voting of Shares 3
Section 2.10 Proxies 4
Section 2.11 Presiding Officer 4
Section 2.12 Adjournments 4
Section 2.13 Action of Shareholders Without a Meeting 4
ARTICLE THREE - THE BOARD OF DIRECTORS
Section 3.1 General Powers 5
Section 3.2 Number, Election and Term of Office 5
Section 3.3 Removal 6
Section 3.4 Vacancies 6
Section 3.5 Compensation 6
ARTICLE FOUR - MEETINGS OF THE BOARD OF DIRECTORS
Section 4.1 Regular Meetings 7
Section 4.2 Special Meetings 7
Section 4.3 Place of Meetings 7
Section 4.4 Notice of Meetings 7
Section 4.5 Quorum 7
Section 4.6 Vote Required for Action 7
<PAGE>
TABLE OF CONTENTS (continued)
Page
----
Section 4.7 Participation by Conference Telephone 8
Section 4.8 Action by Directors Without a Meeting 8
Section 4.9 Adjournments 8
Section 4.10 Committees of the Board of Directors 8
ARTICLE FIVE - MANNER OF NOTICE AND WAIVER AS TO
SHAREHOLDERS AND DIRECTORS
Section 5.1 Procedure 8
Section 5.2 Waiver 9
ARTICLE SIX - OFFICERS
Section 6.1 Number 10
Section 6.2 Appointment and Term 10
Section 6.3 Compensation 10
Section 6.4 Chairman of the Board 10
Section 6.5 President 10
Section 6.6 Vice Presidents 10
Section 6.7 Secretary 11
Section 6.8 Treasurer 11
Section 6.9 Bonds 11
ARTICLE SEVEN - DISTRIBUTIONS AND SHARE DIVIDENDS
Section 7.1 Authorization or Declaration 11
Section 7.2 Record Date With Regard to Distributions
and Share Dividends 11
ARTICLE EIGHT - SHARES
Section 8.1 Authorization and Issuance of Shares 12
Section 8.2 Share Certificates 12
Section 8.3 Rights of Corporation With Respect
to Registered Owners 12
Section 8.4 Transfers of Shares 12
Section 8.5 Duty of Corporation to Register Transfer 12
Section 8.6 Lost, Stolen or Destroyed Certificates 13
Section 8.7 Fixing of Record Date With Regard to
Shareholder Action 13
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<PAGE>
TABLE OF CONTENTS (continued)
Page
----
ARTICLE NINE - INDEMNIFICATION
Section 9.1 Definitions 13
Section 9.2 Basic Indemnification Arrangement 14
Section 9.3 Advances for Expenses 15
Section 9.4 Court-Ordered Indemnification and
Advances for Expenses 16
Section 9.5 Determination and Authorization
of Indemnification 16
Section 9.6 Indemnification of Employees and Agents 17
Section 9.7 Shareholder Approved Indemnification 17
Section 9.8 Insurance 18
Section 9.9 Witness Fees 18
Section 9.10 Report to Shareholders 19
Section 9.11 Security for Indemnification Obligations 19
Section 9.12 No Duplication of Payments 19
Section 9.13 Subrogation 19
Section 9.14 Contract Rights 19
Section 9.15 Specific Performance 19
Section 9.16 Non-exclusivity, Etc. 19
Section 9.17 Amendments 19
Section 9.18 Severability 20
ARTICLE TEN - MISCELLANEOUS
Section 10.1 Inspection of Books and Records 20
Section 10.2 Fiscal Year 20
Section 10.3 Corporate Seal 20
Section 10.4 Annual Financial Statements 20
Section 10.5 Conflict With Articles of Incorporation 21
ARTICLE ELEVEN - AMENDMENTS
Section 11.1 Power to Amend Bylaws 21
ARTICLE TWELVE - CERTAIN PROVISIONS OF GEORGIA LAW
Section 12.1 Fair Price Requirements 21
Section 12.2 Business Combinations 21
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<PAGE>
ARTICLE ONE
OFFICES AND AGENT
Section 1.1 Registered Office and Agent. The corporation shall
---------------------------
maintain a registered office in the State of Georgia and shall have a registered
agent whose business office is identical to the registered office.
Section 1.2 Other Offices. In addition to its registered office, the
-------------
corporation may have offices at any other place or places, within or without the
State of Georgia, as the Board of Directors may from time to time select or as
the business of the corporation may require or make desirable.
ARTICLE TWO
SHAREHOLDERS' MEETINGS
Section 2.1 Place of Meetings. Meetings of shareholders may be held
-----------------
at any place within or without the State of Georgia, as set forth in the notice
thereof or, in the event of a meeting held pursuant to waiver of notice, as set
forth in the waiver, or, if no place is so specified, at the principal office of
the corporation.
Section 2.2 Annual Meetings. The annual meeting of shareholders shall
---------------
be held on a day to be determined by the Board of Directors on or before
December 31 for the purpose of electing directors and transacting any and all
business that may properly come before the meeting. If an annual meeting of
shareholders is not held as provided in this Section 2.2, any business,
including the election of directors, that might properly have been acted upon at
such annual meeting may be acted upon at a special meeting in lieu of the annual
meeting held pursuant to these bylaws or held pursuant to a court order.
Section 2.3 Special Meetings. Special meetings of shareholders or a
----------------
special meeting in lieu of the annual meeting of shareholders may be called at
any time by the Board of Directors, the Chairman of the Board or the President.
Special meetings of shareholders or a special meeting in lieu of the annual
meeting of shareholders shall be called by the corporation upon the written
request of the holders of fifty percent (50%) of all the votes entitled to be
cast on the issue or issues proposed to be considered at the proposed special
meeting.
Section 2.4 Notice of Meetings. Unless waived as contemplated in
------------------
Section 5.2, a notice of each meeting of shareholders stating the date, time and
place of the meeting shall be given not less than ten (10) days nor more than
sixty (60) days before the date thereof, by or at the direction of the
President, the Secretary or the officer or persons calling the meeting, to each
shareholder entitled to vote at that meeting. In the case of an annual meeting,
the notice need not state the purpose or purposes of the meeting unless the
articles of incorporation or the Georgia Business Corporation Code (the "Code")
requires otherwise. In the case of a special meeting, including a special
meeting in lieu of an annual
<PAGE>
meeting, the notice of meeting shall state the purpose or purposes for which the
meeting is called.
Section 2.5 Shareholder Nominations and Proposals
-------------------------------------
(a) No proposal for a shareholder vote shall be submitted by a
shareholder (a "Shareholder Proposal") to the corporation's shareholders unless
the shareholder submitting such proposal (the "Proponent") shall have filed a
written notice setting forth with particularity (i) the names and business
addresses of the Proponent and all natural persons, corporations, partnerships,
trusts or any other type of legal entity or recognized ownership vehicle
(collectively, a "Person") acting in concert with the Proponent; (ii) the name
and address of the Proponent and the Persons identified in clause (i), as they
appear on the corporation's books (if they so appear); (iii) the class and
number of shares of the corporation beneficially owned by the Proponent and the
Persons identified in clause (i); (iv) a description of the Shareholder Proposal
containing all material information relating thereto; and (v) such other
information as the Board of Directors reasonably determines is necessary or
appropriate to enable the Board of Directors and shareholders of the corporation
to consider the Shareholder Proposal. The presiding officer at any
shareholders' meeting may determine that any Shareholder Proposal was not made
in accordance with the procedures prescribed in these Bylaws or is otherwise not
in accordance with law, and if it is so determined, such officer shall so
declare at the meeting and the Shareholder Proposal shall be disregarded.
(b) Only persons who are selected and recommended by the Board of
Directors or the committee of the Board of Directors designated to make
nominations, or who are nominated by shareholders in accordance with the
procedures set forth in this Section 2.5, shall be eligible for election, or
qualified to serve, as directors. Nominations of individuals for election to
the Board of Directors of the corporation at any annual meeting or any special
meeting of shareholders at which directors are to be elected may be made by any
shareholder of the corporation entitled to vote for the election of directors at
that meeting by compliance with the procedures set forth in this Section 2.5.
Nominations by shareholders shall be made by written notice (a "Nomination
Notice"), which shall set forth (i) as to each individual nominated, (A) the
name, date of birth, business address and residence address of such individual;
(B) the business experience during the past five years of such nominee,
including his or her principal occupations and employment during such period,
the name and principal business of any corporation or other organization in
which such occupations and employment were carried on, and such other
information as to the nature of his or her responsibilities and level of
professional competence as may be sufficient to permit assessment of his or her
prior business experience; (C) whether the nominee is or has ever been at any
time a director, officer or owner of five percent or more of any class of
capital stock, partnership interests or other equity interest of any
corporation, partnership or other entity; (D) any directorships held by such
nominee in any company with a class of securities registered pursuant to Section
12 of the Securities Exchange Act of 1934, as amended, or subject to the
requirements of Section 15(d) of such Act or any company registered as an
investment company under the Investment Company Act of 1940, as amended; and (E)
whether such nominee has ever been convicted in a criminal proceeding or has
ever been subject to a judgment, order, finding or decree of any
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<PAGE>
federal, state or other governmental entity, concerning any violation of
federal, state or other law, or any proceeding in bankruptcy, which conviction,
order, finding, decree or proceeding may be material to an evaluation of the
ability or integrity of the nominee; and (ii) as to the Person submitting the
Nomination Notice and any Person acting in concert with such Person, (X) the
name and business address of such Person, (Y) the name and address of such
Person as they appear on the corporation's books (if they so appear), and (Z)
the class and number of shares of the corporation that are beneficially owned by
such Person. A written consent to being named in a proxy statement as a
nominee, and to serve as a director if elected, signed by the nominee, shall be
filed with any Nomination Notice. If the presiding officer at any shareholders'
meeting determines that a nomination was not made in accordance with the
procedures prescribed by these Bylaws, he shall so declare to the meeting and
the defective nomination shall be disregarded.
(c) Nomination Notices and Shareholder Proposals shall be delivered to
the Secretary of the Corporation at the principal executive office of the
corporation within the time period specified in Securities and Exchange
Commission Rule 14a-8(a)(3)(i).
Section 2.6 Voting Group. Voting group means all shares of one or
------------
more classes or series that are entitled to vote and be counted together
collectively on a matter at a meeting of shareholders. All shares entitled to
vote generally on the matter are for that purpose a single voting group.
Section 2.7 Quorum. With respect to shares entitled to vote as a
------
separate voting group on a matter at a meeting of shareholders, the presence, in
person or by proxy, of a majority of the votes entitled to be cast on the matter
by the voting group shall constitute a quorum of that voting group for action on
that matter unless the articles of incorporation or the Code provides otherwise.
Once a share is represented for any purpose at a meeting, other than solely to
object to holding the meeting or to transacting business at the meeting, it is
deemed present for quorum purposes for the remainder of the meeting and for any
adjournment of the meeting unless a new record date is or must be set for the
adjourned meeting pursuant to Section 8.7 of these bylaws.
Section 2.8 Vote Required for Action. If a quorum exists, action on a
------------------------
matter (other than the election of directors) by a voting group is approved if
the votes cast within the voting group favoring the action exceed the votes cast
opposing the action, unless the articles of incorporation, provisions of these
bylaws validly adopted by the shareholders or the Code requires a greater number
of affirmative votes. If the articles of incorporation or the Code provides for
voting by two or more voting groups on a matter, action on that matter is taken
only when voted upon by each of those voting groups counted separately. Action
may be taken by one voting group on a matter even though no action is taken by
another voting group entitled to vote on the matter. With regard to the
election of directors, unless otherwise provided in the articles of
incorporation, if a quorum exists, action on the election of directors is taken
by a plurality of the votes cast by the shares entitled to vote in the election.
Section 2.9 Voting of Shares. Unless the articles of incorporation or
----------------
the Code provides otherwise, each outstanding share having voting rights shall
be entitled to
-3-
<PAGE>
one vote on each matter submitted to a vote at a meeting of shareholders.
Voting on all matters shall be by voice vote or by show of hands unless any
qualified voter, prior to the voting on any matter, demands vote by ballot, in
which case each ballot shall state the name of the shareholder voting and the
number of shares voted by him or her, and if the ballot be cast by proxy, it
shall also state the name of the proxy.
Section 2.10 Proxies. A shareholder entitled to vote pursuant to
-------
Section 2.9 may vote in person or by proxy pursuant to an appointment of proxy
executed in writing by the shareholder or by his or her attorney-in-fact. An
appointment of proxy shall be valid for only one meeting to be specified
therein, and any adjournments of such meeting, but shall not be valid for more
than eleven months unless expressly provided therein. Appointments of proxy
shall be dated and filed with the records of the meeting to which they relate.
If the validity of any appointment of proxy is questioned, it must be submitted
to the secretary of the meeting of shareholders for examination or to a proxy
officer or committee appointed by the person presiding at the meeting. The
secretary of the meeting or, if appointed, the proxy officer or committee, as
the case may be, shall determine the validity or invalidity of any appointment
of proxy submitted, and reference by the secretary in the minutes of the meeting
to the regularity of an appointment of proxy shall be received as prima facie
evidence of the facts stated for the purpose of establishing the presence of a
quorum at the meeting and for all other purposes.
Section 2.11 Presiding Officer. The Chairman of the Board shall serve
-----------------
as the chairman of every meeting of shareholders unless another person is
elected by the shareholders to serve as chairman at the meeting. The chairman
shall appoint any persons he or she deems required to assist with the meeting.
Section 2.12 Adjournments. Whether or not a quorum is present to
------------
organize a meeting, any meeting of shareholders (including an adjourned meeting)
may be adjourned by the holders of a majority of the voting shares represented
at the meeting to reconvene at a specific time and place, but no later than 120
days after the date fixed for the original meeting unless the requirements of
the Code concerning the selection of a new record date have been met. At any
reconvened meeting within that time period, any business may be transacted that
could have been transacted at the meeting that was adjourned. If notice of the
adjourned meeting was properly given, it shall not be necessary to give any
notice of the reconvened meeting or of the business to be transacted, if the
date, time and place of the reconvened meeting are announced at the meeting that
was adjourned and before adjournment; provided, however, that if a new record
date is or must be fixed, notice of the reconvened meeting must be given to
persons who are shareholders as of the new record date.
Section 2.13 Action of Shareholders Without a Meeting. Action
----------------------------------------
required or permitted to be taken at a meeting of shareholders may be taken
without a meeting if the action is taken by all shareholders entitled to vote on
the action or, if so provided in the articles of incorporation, by persons who
would be entitled to vote at a meeting shares having voting power to cast not
less than the minimum number (or numbers, in the case of voting by groups) of
votes that would be necessary to authorize or take the action at a meeting at
which all shareholders entitled to vote were present and voted. The action must
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<PAGE>
be evidenced by one or more written consents describing the action taken, signed
by shareholders entitled to take action without a meeting, and delivered to the
corporation for inclusion in the minutes or filing with the corporate records.
The corporation shall give written notice of actions taken as required by the
Code.
ARTICLE THREE
THE BOARD OF DIRECTORS
Section 3.1 General Powers. All corporate powers shall be exercised
--------------
by or under the authority of, and the business and affairs of the corporation
shall be managed under the direction of, the Board of Directors. In addition to
the powers and authority expressly conferred upon it by these bylaws, the Board
of Directors may exercise all powers of the corporation and do all lawful acts
and things that are not by law, by any legal agreement among shareholders, by
the articles of incorporation or by these bylaws directed or required to be
exercised or done by the shareholders.
Section 3.2 Number of Directors and Term of Office The number of
--------------------------------------
directors of the Corporation shall not be less than three nor more than eleven,
the precise number to be fixed by resolution of the Board of Directors from time
to time. The directors shall be divided into three classes, each consisting, as
nearly equal in number as possible, of one-third of the total number of
directors constituting the entire Board of Directors. At the first election of
directors of the Corporation, the first class of directors (Class I) shall be
elected for a term expiring at the next following annual meeting of shareholders
and upon the election and qualification of their respective successors, the
second class of directors (Class II) shall be elected for a term expiring at the
second next annual meeting of shareholders and upon the election and
qualification of their respective successors, and the third class of directors
(Class III) shall be elected for a term expiring at the third next annual
meeting of shareholders and upon the election and qualification of their
respective successors. At each succeeding annual meeting of shareholders,
successors to the class of directors whose term expires at the annual meeting of
shareholders shall be elected for a three-year term. Except as provided in
Section 3.4, a director shall be elected by the affirmative vote of the holders
of a majority of the shares represented at the meeting of shareholders at which
the director stands for election and entitled to elect such director. The
number of directors may be increased or decreased from time to time as provided
herein or by amendment to these Bylaws and the Articles of Incorporation;
provided, however, that the total number of directors at any time shall not be
less than three; and provided further, that no decrease in the number of
directors shall have the effect of shortening the term of an incumbent director.
In the event that preferred stock of the Corporation is issued and authorizes
the election of one or more directors by the holders of such preferred stock,
the number of directors may be increased in accordance with the terms of the
preferred stock. In the event of any increase or decrease in the authorized
number of directors, each director then serving shall continue as a director of
the class of which he is a member until the expiration of his current term, or
his earlier resignation, retirement, disqualification, removal from office or
death, and the newly created or eliminated directorships resulting from such
increase or decrease shall be apportioned by the Board of Directors among the
three classes of directors so as to maintain such classes
-5-
<PAGE>
as nearly equal as possible; provided, however, that any such additional
directors elected by the Board shall serve only for a term expiring at the next
meeting of the shareholders called for the purpose of electing directors. Each
director shall serve until his successor is elected and qualified or until his
earlier resignation, retirement, disqualification, removal from office, or
death.
Section 3.3 Removal. The entire Board of Directors or any individual
-------
director may be removed from office but only for cause and only by the
affirmative vote of at least 75% of all classes of stock of the Corporation
entitled to vote in the election of such director or directors, considered for
purposes of this Section as one class. For purposes of this Section, "cause"
shall mean final conviction of a felony, request or demand for removal by any
governmental or regulatory authority having jurisdiction over the Corporation,
or breach of fiduciary duty involving personal profit. Notwithstanding the
foregoing, in the event that preferred stock of the Corporation is issued and
authorizes the election of one or more directors by the holders of such
preferred stock, any individual director elected by the holders of such
preferred stock may be removed only by the holders of the outstanding shares of
such preferred stock in accordance with the terms of the preferred stock as
provided therein. Removal action may be taken at any shareholders' meeting with
respect to which notice of such purpose has been given.
Section 3.4 Vacancies. Any vacancies on the Board of Directors for
---------
any reason, including vacancies resulting from an increase in the number of
directors, may be filled only by the Board of Directors, acting by the
affirmative vote of two-thirds of the total number of directors then remaining
in office, though they constitute fewer than a quorum of the Board of Directors.
Notwithstanding the foregoing, in the event that a vacant office was held by a
director elected by holders of preferred stock of the Corporation who are
entitled to elect such director pursuant to the terms of the preferred stock,
only the remaining directors elected by the holders of such preferred stock, or
in the absence of any such directors, the holders of such preferred stock, shall
be entitled to fill such vacancy in accordance with the terms of the preferred
stock as provided therein. Any director appointed to fill a vacancy shall be
elected for the unexpired term of the predecessor in office and until the
successor is elected and qualified, except that when a directorship is to be
filled by reason of an increase in the number of directors, the term of such
director shall expire at the next election of directors by the shareholders and
upon the election and qualification of the successor.
Section 3.5 Compensation. Unless the articles of incorporation
------------
provide otherwise, the Board of Directors may determine from time to time the
compensation, if any, directors may receive for their services as directors. A
director may also serve the corporation in a capacity other than that of
director and receive compensation, as determined by the Board of Directors, for
services rendered in such other capacity.
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<PAGE>
ARTICLE FOUR
MEETINGS OF THE BOARD OF DIRECTORS
Section 4.1 Regular Meetings. Regular meetings of the Board of
----------------
Directors shall be held immediately after the annual meeting of shareholders or
a special meeting in lieu of the annual meeting. In addition, the Board of
Directors may schedule other meetings to occur at regular intervals throughout
the year.
Section 4.2 Special Meetings. Special meetings of the Board of
----------------
Directors may be called by or at the request of the Chairman of the Board, the
President or by any two directors in office at that time.
Section 4.3 Place of Meetings. Directors may hold their meetings at
-----------------
any place within or without the State of Georgia as the Board of Directors may
from time to time establish for regular meetings or as set forth in the notice
of a special meeting or, in the event of a meeting held pursuant to waiver of
notice, as set forth in the waiver.
Section 4.4 Notice of Meetings. No notice shall be required for any
------------------
regularly scheduled meeting of the directors. Unless waived as contemplated in
Section 5.2, each director shall be given at least one day's notice (as set
forth in Section 5.1) of each special meeting stating the date, time and place
of the meeting.
Section 4.5 Quorum. Unless a greater number is required by the
------
articles of incorporation, these bylaws or the Code, or unless otherwise
specifically provided in the Code, a quorum of the Board of Directors consists
of a majority of the total number of directors that has been prescribed by
resolution of the shareholders or of the Board of Directors pursuant to Section
3.2.
Section 4.6 Vote Required for Action.
------------------------
(a) If a quorum is present when a vote is taken, the affirmative vote
of a majority of directors present is the act of the Board of Directors unless
the Code, the articles of incorporation or these bylaws require the vote of a
greater number of directors.
(b) A director who is present at a meeting of the Board of Directors or
a committee of the Board of Directors when corporate action is taken is deemed
to have assented to the action taken unless:
(i) he or she objects at the beginning of the meeting (or promptly
upon his or her arrival) to holding it or transacting business at the
meeting;
(ii) his or her dissent or abstention from the action taken is
entered in the minutes of the meeting; or
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<PAGE>
(iii) he or she delivers written notice of his or her dissent or
abstention to the presiding officer of the meeting before its adjournment
or to the corporation immediately after adjournment of the meeting.
The right of dissent or abstention is not available to a director who votes in
favor of the action taken.
Section 4.7 Participation by Conference Telephone. Any or all
-------------------------------------
directors may participate in a meeting of the Board of Directors or of a
committee of the Board of Directors through the use of any means of
communication by which all directors participating may simultaneously hear each
other during the meeting.
Section 4.8 Action by Directors Without a Meeting. Unless the
-------------------------------------
articles of incorporation or these bylaws provide otherwise, any action required
or permitted to be taken at any meeting of the Board of Directors, or any action
that may be taken at a meeting of a committee of the Board of Directors, may be
taken without a meeting if the action is taken by all the members of the Board
of Directors (or of the committee, as the case may be). The action must be
evidenced by one or more written consents describing the action taken, signed by
each director (or each director serving on the committee, as the case may be),
and delivered to the corporation for inclusion in the minutes or filing with the
corporate records.
Section 4.9 Adjournments. Whether or not a quorum is present to
------------
organize a meeting, any meeting of directors (including an adjourned meeting)
may be adjourned by a majority of the directors present to reconvene at a
specific time and place. At any reconvened meeting, any business may be
transacted that could have been transacted at the meeting that was adjourned.
If notice of the adjourned meeting was properly given, it shall not be necessary
to give any notice of the reconvened meeting or of the business to be
transacted, if the date, time and place of the reconvened meeting are announced
at the meeting that was adjourned.
Section 4.10 Committees of the Board of Directors. The Board of
------------------------------------
Directors by resolution may designate from among its members one or more
committees, each consisting of one or more directors all of whom serve at the
pleasure of the Board of Directors. Except as limited by the Code, each
committee shall have the authority set forth in the resolution establishing the
committee. The provisions of this Article Four as to the Board of Directors and
its deliberations shall be applicable to any committee of the Board of
Directors.
ARTICLE FIVE
MANNER OF NOTICE AND WAIVER AS TO SHAREHOLDERS AND DIRECTORS
Section 5.1 Procedure. Whenever these bylaws require notice to be
---------
given to any shareholder or director, the notice shall be given in accordance
with this Section 5.1. Notice under these bylaws shall be in writing unless
oral notice is reasonable under the circumstances. Any notice to directors may
be written or oral. Notice may be
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<PAGE>
communicated in person; by telephone, facsimile, telegraph, teletype or other
form of wire or wireless communication; or by mail or private carrier. If these
forms of personal notice are impracticable, notice may be communicated by a
newspaper of general circulation in the area where published, or by radio,
television or other form of public broadcast communication. Written notice to
the shareholders, if in a comprehensible form, is effective when mailed, if
mailed with first-class postage prepaid and correctly addressed to the
shareholder's address shown in the corporation's current record of shareholders.
Except as otherwise provided in this Section 5.1, written notice, if in a
comprehensible form, is effective at the earliest of the following:
(a) when received or when delivered, properly addressed, to the
addressee's last known principal place of business or residence;
(b) five days after its deposit in the mail, as evidenced by the
postmark, if mailed with first-class postage prepaid and correctly addressed; or
(c) on the date shown on the return receipt, if sent by registered or
certified mail, return receipt requested, and the receipt is signed by or on
behalf of the addressee.
Oral notice is effective when communicated if communicated in a comprehensible
manner.
In calculating time periods for notice, when a period of time measured
in days, weeks, months, years or other measurement of time is prescribed for the
exercise of any privilege or the discharge of any duty, the first day shall not
be counted but the last day shall be counted.
Section 5.2 Waiver.
------
(a) A shareholder may waive any notice before or after the date and
time stated in the notice. Except as provided in subsection 5.2(b), the waiver
must be in writing, be signed by the shareholder entitled to the notice, and be
delivered to the corporation for inclusion in the minutes or filing with the
corporate records.
(b) A shareholder's attendance at a meeting (i) waives objection to
lack of notice or defective notice of the meeting, unless the shareholder at the
beginning of the meeting objects to holding the meeting or transacting business
at the meeting; and (ii) waives objection to consideration of a particular
matter at the meeting that is not within the purpose or purposes described in
the meeting notice, unless the shareholder objects to considering the matter
when it is presented.
(c) Unless required by the Code, neither the business transacted nor
the purpose of the meeting need be specified in the waiver.
(d) A director may waive any notice before or after the date and time
stated in the notice. Except as provided in subsection 5.2(e), the waiver must
be in writing,
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signed by the director entitled to the notice, and delivered to the corporation
for inclusion in the minutes or filing with the corporate records.
(e) A director's attendance at or participation in a meeting waives any
required notice to him or her of the meeting unless the director at the
beginning of the meeting (or promptly upon his or her arrival) objects to
holding the meeting or transacting business at the meeting and does not
thereafter vote for or assent to action taken at the meeting.
ARTICLE SIX
OFFICERS
Section 6.1 Number. The officers of the corporation shall consist of
------
a Chairman of the Board, a President, a Secretary and a Treasurer and any other
officers as may be appointed by the Board of Directors or appointed by a duly
appointed officer pursuant to this Article Six. The Board of Directors shall
from time to time create and establish the duties of the other officers. Any
two or more offices may be held by the same person.
Section 6.2 Appointment and Term. All officers shall be appointed by
--------------------
the Board of Directors or by a duly appointed officer pursuant to this Article
Six and shall serve at the pleasure of the Board of Directors or the appointing
officers, as the case may be. All officers, however appointed, may be removed
with or without cause by the Board of Directors and any officer appointed by
another officer may also be removed by the appointing officer with or without
cause.
Section 6.3 Compensation. The compensation of all officers of the
------------
corporation appointed by the Board of Directors shall be fixed by the Board of
Directors.
Section 6.4 Chairman of the Board. The Chairman of the Board shall
---------------------
preside at all meetings of the Board of Directors. The Chairman of the Board
shall perform such other duties and have such other authority and powers as the
Board of Directors may from time to time prescribe.
Section 6.5 President. The President shall be the chief executive
---------
officer of the corporation and shall have general supervision of the business of
the corporation. The President shall see that all orders and resolutions of the
Board of Directors are carried into effect. The President shall perform such
other duties as may from time to time be delegated by the Board of Directors.
Section 6.6 Vice Presidents. In the absence or disability of the
---------------
President, or at the direction of the President, the Vice President, if any,
shall perform the duties and exercise the powers of the President. If the
corporation has more than one Vice President, the one designated by the Board of
Directors shall act in lieu of the President. Vice Presidents shall perform
whatever duties and have whatever powers the Board of Directors may from time to
time assign.
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Section 6.7 Secretary. The Secretary shall be responsible for
---------
preparing minutes of the acts and proceedings of all meetings of the
shareholders and of the Board of Directors and any committees thereof. The
Secretary shall have authority to give all notices required by the Code or other
applicable law or these bylaws. The Secretary shall be responsible for the
custody of the corporate books, records, contracts and other documents. The
Secretary may affix the corporate seal to any lawfully executed documents and
shall sign any instruments as may require his or her signature. The Secretary
shall authenticate records of the corporation. The Secretary shall perform
whatever additional duties and have whatever additional powers the Board of
Directors may from time to time assign. In the absence or disability of the
Secretary or at the direction of the President, any assistant secretary may
perform the duties and exercise the powers of the Secretary.
Section 6.8 Treasurer. The Treasurer shall be responsible for the
---------
custody of all funds and securities belonging to the corporation and for the
receipt, deposit or disbursement of funds and securities under the direction of
the Board of Directors. The Treasurer shall cause to be maintained full and
true accounts of all receipts and disbursements and shall make reports of the
same to the Board of Directors and the President upon request. The Treasurer
shall perform all duties as may be assigned to him or her from time to time by
the Board of Directors.
Section 6.9 Bonds. The Board of Directors by resolution may require
-----
any or all of the officers, agents or employees of the corporation to give bonds
to the corporation, with sufficient surety or sureties, conditioned on the
faithful performance of the duties of their respective offices or positions, and
to comply with any other conditions as from time to time may be required by the
Board of Directors.
ARTICLE SEVEN
DISTRIBUTIONS AND SHARE DIVIDENDS
Section 7.1 Authorization or Declaration. Unless the articles of
----------------------------
incorporation provide otherwise, the Board of Directors from time to time in its
discretion may authorize or declare distributions or share dividends in
accordance with the Code.
Section 7.2 Record Date With Regard to Distributions and Share
--------------------------------------------------
Dividends. For the purpose of determining shareholders entitled to a
- ---------
distribution (other than one involving a purchase, redemption or other
reacquisition of the corporation's shares) or a share dividend, the Board of
Directors may fix a date as the record date. If no record date is fixed by the
Board of Directors, the record date shall be determined in accordance with the
provisions of the Code.
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ARTICLE EIGHT
SHARES
Section 8.1 Authorization and Issuance of Shares. In accordance with
------------------------------------
the Code, the Board of Directors may authorize shares of any class or series
provided for in the articles of incorporation to be issued for any consideration
valid under the provisions of the Code. To the extent provided in the articles
of incorporation, the Board of Directors shall determine the preferences,
limitations and relative rights of the shares.
Section 8.2 Share Certificates. The interest of each shareholder in
------------------
the corporation shall be evidenced by a certificate or certificates representing
shares of the corporation which shall be in such form as the Board of Directors
from time to time may adopt. Share certificates shall be numbered
consecutively, shall be in registered form, shall indicate the date of issuance,
the name of the corporation and that it is organized under the laws of the State
of Georgia, the name of the shareholder, and the number and class of shares and
the designation of the series, if any, represented by the certificate. Each
certificate shall be signed by any one of the President, a Vice President, the
Secretary or the Treasurer. The corporate seal need not be affixed.
Section 8.3 Rights of Corporation With Respect to Registered Owners.
-------------------------------------------------------
Prior to due presentation for transfer of registration of its shares, the
corporation may treat the registered owner of the shares as the person
exclusively entitled to vote the shares, to receive any share dividend or
distribution with respect to the shares, and for all other purposes; and the
corporation shall not be bound to recognize any equitable or other claim to or
interest in the shares on the part of any other person, whether or not it shall
have express or other notice thereof, except as otherwise provided by law.
Section 8.4 Transfers of Shares. Transfers of shares shall be made
-------------------
upon the transfer books of the corporation, kept at the office of the transfer
agent designated to transfer the shares, only upon direction of the person named
in the certificate, or by an attorney lawfully constituted in writing; and
before a new certificate is issued, the old certificate shall be surrendered for
cancellation or, in the case of a certificate alleged to have been lost, stolen
or destroyed, the requirements of Section 8.6 of these bylaws shall have been
met.
Section 8.5 Duty of Corporation to Register Transfer. Notwithstanding
----------------------------------------
any of the provisions of Section 8.4 of these bylaws, the corporation is under a
duty to register the transfer of its shares only if:
(a) the certificate is endorsed by the appropriate person or persons;
(b) reasonable assurance is given that the endorsement or affidavit is
genuine and effective;
(c) the corporation either has no duty to inquire into adverse claims
or has discharged that duty;
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(d) the requirements of any applicable law relating to the collection
of taxes have been met; and
(e) the transfer in fact is rightful or is to a bona fide purchaser.
Section 8.6 Lost, Stolen or Destroyed Certificates. Any person
--------------------------------------
claiming a share certificate to be lost, stolen or destroyed shall make an
affidavit or affirmation of the fact in the manner required by the Board of
Directors and, if the Board of Directors requires, shall give the corporation a
bond of indemnity in form and amount, and with one or more sureties satisfactory
to the Board of Directors, as the Board of Directors may require, whereupon an
appropriate new certificate may be issued in lieu of the one alleged to have
been lost, stolen or destroyed.
Section 8.7 Fixing of Record Date With Regard to Shareholder Action.
-------------------------------------------------------
For the purpose of determining shareholders entitled to notice of a
shareholders' meeting, to demand a special meeting, to vote or to take any other
action, the Board of Directors may fix a future date as the record date, which
date shall be not more than seventy (70) days prior to the date on which the
particular action requiring a determination of shareholders is to be taken. A
determination of shareholders entitled to notice of or to vote at a
shareholders' meeting is effective for any adjournment of the meeting unless the
Board of Directors fixes a new record date, which it must do if the meeting is
adjourned to a date more than 120 days after the date fixed for the original
meeting. If no record date is fixed by the Board of Directors, the record date
shall be determined in accordance with the provisions of the Code.
ARTICLE NINE
INDEMNIFICATION
Section 9.1 Definitions. As used in this Article, the term:
-----------
(a) "Corporation" includes any domestic or foreign predecessor entity
of the corporation in a merger or other transaction in which the predecessor's
existence ceased upon consummation of the transaction.
(b) "Director" or "officer" means an individual who is or was a
director or board-appointed officer, respectively, of the corporation or who,
while a director or officer of the corporation, is or was serving at the
corporation's request as a director, officer, partner, trustee, employee, or
agent of another domestic or foreign corporation, partnership, joint venture,
trust, employee benefit plan or other entity. A director or officer is
considered to be serving an employee benefit plan at the corporation's request
if his or her duties to the corporation also impose duties on, or otherwise
involve services by, the director or officer to the plan or to participants in
or beneficiaries of the plan. "Director" or "officer" includes, unless the
context otherwise requires, the estate or personal representative of a director
or officer.
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(c) "Disinterested director" or "disinterested officer" means a
director or officer, respectively, who at the time of a vote or selection
referred to in subsection 9.5(b), 9.5(c) or 9.7(a) is not:
(i) a party to the proceeding; or
(ii) an individual having a familial, financial, professional or
employment relationship with the person whose indemnification or advance
for expenses is the subject of the decision being made with respect to the
proceeding, which relationship would, in the circumstances, reasonably be
expected to exert an influence on the director's or officer's judgment when
voting on the decision being made.
(d) "Expenses" includes counsel fees.
(e) "Liability" means the obligation to pay a judgment, settlement,
penalty, fine (including an excise tax assessed with respect to an employee
benefit plan) or reasonable expenses incurred with respect to a proceeding.
(f) "Official capacity" means:
(i) when used with respect to a director, the office of director
in the corporation; and
(ii) when used with respect to an officer, the office in the
corporation held by the officer.
Official capacity does not include service for any other domestic or foreign
corporation or any partnership, joint venture, trust, employee benefit plan or
other entity.
(g) "Party" includes an individual who was, is, or is threatened to be
made a named defendant or respondent in a proceeding.
(h) "Proceeding" means any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative, arbitrative or
investigative and whether formal or informal.
Section 9.2 Basic Indemnification Arrangement.
---------------------------------
(a) Except as provided in subsection 9.2(d), the corporation shall
indemnify an individual who is a party to a proceeding because he or she is or
was a director or officer against liability incurred in the proceeding if:
(i) such individual conducted himself or herself in good faith;
and
(ii) such individual reasonably believed:
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(A) in the case of conduct in his or her official capacity,
that such conduct was in the best interests of the corporation;
(B) in all other cases, that such conduct was at least not
opposed to the best interests of the corporation; and
(C) in the case of any criminal proceeding, that the
individual had no reasonable cause to believe such conduct was
unlawful.
(b) A director's or officer's conduct with respect to an employee
benefit plan for a purpose he or she believed in good faith to be in the
interests of the participants in and beneficiaries of the plan is conduct that
satisfies the requirement of subsection 9.2(a)(ii)(B).
(c) The termination of a proceeding by judgment, order, settlement or
conviction, or upon a plea of nolo contendere or its equivalent is not, of
itself, determinative that the director or officer did not meet the standard of
conduct described in subsection 9.2(a).
(d) The corporation may not indemnify a director or officer under this
Article:
(i) in connection with a proceeding by or in the right of the
corporation, except for reasonable expenses incurred in connection with the
proceeding if it is determined that the director or officer has met the
relevant standard of conduct under subsection 9.2(a); or
(ii) in connection with any proceeding with respect to conduct
for which he or she was adjudged liable on the basis that personal benefit
was improperly received by him or her, whether or not involving action in
his or her official capacity.
Section 9.3 Advances for Expenses.
---------------------
(a) The corporation shall, before final disposition of a proceeding,
advance funds to pay for or reimburse the reasonable expenses incurred by a
director or officer who is a party to a proceeding because he or she is a
director or officer if he or she delivers to the corporation:
(i) a written affirmation of his or her good faith belief that he
or she has met the relevant standard of conduct described in subsection
9.2(a) or that the proceeding involves conduct for which such person's
liability has been eliminated under the corporation's articles of
incorporation; and
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(ii) his or her written undertaking to repay any funds advanced
if it is ultimately determined that the director or officer is not entitled
to indemnification under this Article or the Code.
(b) The undertaking required by subsection 9.3(a)(ii) must be an
unlimited general obligation of the director or officer but need not be secured
and may be accepted without reference to the financial ability of the director
or officer to make repayment.
Section 9.4 Court-Ordered Indemnification and Advances for Expenses.
-------------------------------------------------------
(a) A director or officer who is a party to a proceeding because he or
she is a director or officer may apply for indemnification or advance for
expenses to the court conducting the proceeding or to another court of competent
jurisdiction. Pursuant to Section 14-2-854 of the Code, after receipt of an
application and after giving any notice it considers necessary, the court shall:
(i) order indemnification or advance for expenses if it
determines that the director or officer is entitled to indemnification; or
(ii) order indemnification or advance for expenses if it
determines, in view of all the relevant circumstances, that it is fair and
reasonable to indemnify the director or officer, or to advance expenses to
the director or officer, even if the director or officer has not met the
relevant standard of conduct, failed to comply with the requirements for
advance of expenses, or was adjudged liable in a proceeding referred to in
subsection 9.2(d), but if the director or officer was adjudged so liable,
the indemnification shall be limited to reasonable expenses incurred in
connection with the proceeding.
(b) If the court determines that the director or officer is entitled
to indemnification or advance for expenses, it may also order the corporation to
pay the director's or officer's reasonable expenses to obtain court-ordered
indemnification or advance for expenses.
Section 9.5 Determination and Authorization of Indemnification.
--------------------------------------------------
(a) The corporation acknowledges that indemnification of a director or
officer under Section 9.2 has been pre-authorized by the corporation as
permitted by Section 14-2-859(a) of the Code. Nevertheless, the corporation
shall not indemnify a director or officer under Section 9.2 unless a
determination has been made for the specific proceeding that indemnification of
the director or officer is permissible in the circumstances because he or she
has met the relevant standard of conduct set forth in subsection 9.2(a);
provided, however, that regardless of the result or absence of any such
determination, the corporation shall indemnify a director or officer who was
wholly successful, on the merits or otherwise, in the defense of any proceeding
to which he or she was a party because he or she was a director or officer of
the corporation against reasonable expenses incurred by the director or officer
in connection with the proceeding.
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(b) The determination referred to in subsection 9.5(a) shall be made:
(i) if there are two or more disinterested directors, by the
Board of Directors of the corporation by a majority vote of all
disinterested directors (a majority of whom shall for such purpose
constitute a quorum) or by a majority of the members of a committee of two
or more disinterested directors appointed by such a vote;
(ii) by special legal counsel:
(A) selected in the manner prescribed in paragraph (i) of
this subsection 9.5(b); or
(B) if there are fewer than two disinterested directors,
selected by the Board of Directors (in which selection directors
who do not qualify as disinterested directors may participate);
or
(iii) by the shareholders, but shares owned by or voted under
the control of a director or officer who at the time does not qualify as a
disinterested director or disinterested officer may not be voted on the
determination.
(c) As acknowledged above, the corporation has pre-authorized the
indemnification of directors and officers hereunder, subject to a determination
for a specific proceeding that the director or officer met the relevant standard
of conduct under subsection 9.2(a). Consequently, no further decision need or
shall be made on a case-by-case basis as to the authorization of the
corporation's indemnification of directors or officers hereunder. Nevertheless,
evaluation as to reasonableness of expenses of a director or officer for a
specific proceeding shall be made in the same manner as the determination that
indemnification is permissible, as described in subsection 9.5(b), except that
if there are fewer than two disinterested directors or if the determination is
made by special legal counsel, evaluation as to reasonableness of expenses shall
be made by those entitled under subsection 9.5(b)(ii)(B) to select special legal
counsel.
Section 9.6 Indemnification of Employees and Agents. The corporation
---------------------------------------
may indemnify and advance expenses under this Article to an employee or agent of
the corporation who is not a director or officer to the extent, consistent with
public policy, that such indemnification and advances may be provided to a
director or officer.
Section 9.7 Shareholder Approved Indemnification.
------------------------------------
(a) If authorized by the articles of incorporation or a bylaw,
contract or resolution approved or ratified by shareholders of the corporation
by a majority of the votes entitled to be cast, the corporation may indemnify or
obligate itself to indemnify a director or officer made a party to a proceeding,
including a proceeding brought by or in the right of the corporation, without
regard to the limitations in other sections of this Article, but shares owned or
voted under the control of a director or officer who at the time of such
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authorization does not qualify as a disinterested director or disinterested
officer with respect to any existing or threatened proceeding that would be
covered by the authorization may not be voted on the authorization.
(b) The corporation shall not indemnify a director or officer under
this Section 9.7 for any liability incurred in a proceeding in which the
director or officer is adjudged liable to the corporation or is subjected to
injunctive relief in favor of the corporation:
(i) for any appropriation, in violation of his or her duties, of
any business opportunity of the corporation;
(ii) for acts or omissions which involve intentional misconduct
or a knowing violation of law;
(iii) for the types of liability set forth in Section 14-2-832
of the Code; or
(iv) for any transaction from which he or she received an
improper personal benefit.
(c) Where approved or authorized in the manner described in subsection
9.7(a), the corporation may advance or reimburse expenses incurred in advance of
final disposition of the proceeding only if:
(i) the director or officer furnishes the corporation a written
affirmation of his or her good faith belief that his or her conduct does
not constitute behavior of the kind described in subsection 9.7(b); and
(ii) the director or officer furnishes the corporation a written
undertaking, executed personally or on his or her behalf, to repay any
advances if it is ultimately determined that he or she is not entitled to
indemnification under this Article.
Section 9.8 Insurance. The corporation may purchase and maintain
---------
insurance on behalf of an individual who is a director, officer, employee or
agent of the corporation or who, while a director, officer, employee or agent of
the corporation, serves at the corporation's request as a director, officer,
partner, trustee, employee or agent of another domestic or foreign corporation,
partnership, joint venture, trust, employee benefit plan or other entity against
liability asserted against or incurred by him or her in that capacity or arising
from his or her status as a director, officer, employee or agent, whether or not
the corporation would have power to indemnify or advance expenses to him or her
against the same liability under this Article or the Code.
Section 9.9 Witness Fees. Nothing in this Article shall limit the
------------
corporation's power to pay or reimburse expenses incurred by a director or
officer in
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connection with his or her appearance as a witness in a proceeding at a time
when he or she is not a party.
Section 9.10 Report to Shareholders. To the extent and in the manner
----------------------
required by the Code from time to time, if the corporation indemnifies or
advances expenses to a director or officer in connection with a proceeding by or
in the right of the corporation, the corporation shall report the
indemnification or advance to the shareholders.
Section 9.11 Security for Indemnification Obligations. The
----------------------------------------
Corporation may at any time and in any manner, at the discretion of the Board of
Directors, secure the Corporation's obligations to indemnify or advance expenses
to a person pursuant to this Article.
Section 9.12 No Duplication of Payments. The Corporation shall not
--------------------------
be liable under this Article to make any payment to a person hereunder to the
extent such person has otherwise actually received payment (under any insurance
policy, agreement or otherwise) of the amounts otherwise payable hereunder.
Section 9.13 Subrogation. In the event of payment under this
-----------
Article, the Corporation shall be subrogated to the extent of such payment to
all of the rights of recovery of the indemnitee, who shall execute all papers
required and shall do everything that may be necessary to secure such rights,
including the execution of such documents necessary to enable the Corporation
effectively to bring suit to enforce such rights.
Section 9.14 Contract Rights. The right to indemnification and
---------------
advancement of expenses conferred hereunder to directors and officers shall be a
contract right and shall not be affected adversely to any director or officer by
any amendment of these Bylaws with respect to any action or inaction occurring
prior to such amendment; provided, however, that this provision shall not confer
upon any indemnitee or potential indemnitee (in his capacity as such) the right
to consent or object to any subsequent amendment of these Bylaws.
Section 9.15 Specific Performance. In any proceeding brought by or
--------------------
on behalf of an officer or director to specifically enforce the provisions of
this Article, the Corporation hereby waives the claim or defense therein that
the plaintiff or claimant has an adequate remedy at law, and the Corporation
shall not urge in any such proceeding the claim or defense that such remedy at
law exists. The provisions of this Section 9.15, however, shall not prevent the
officer or director from seeking a remedy at law in connection with any breach
of the provisions of this Article.
Section 9.16 Non-Exclusivity, etc. The rights of a director or
--------------------
officer hereunder shall be in addition to any other rights with respect to
indemnification, advancement of expenses or otherwise that he may have under
contract or the Code or otherwise.
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Section 9.17 Amendments. It is the intent of the Corporation to
----------
indemnify and advance expenses to its directors and officers to the full extent
permitted by the Code, as amended from time to time. To the extent that the
Code is hereafter amended to permit a Georgia business corporation to provide to
its directors greater rights to indemnification or advancement of expenses than
those specifically set forth hereinabove, this Article shall be deemed amended
to require such greater indemnification or more liberal advancement of expenses
to its directors and officers, in each case consistent with the Code as so
amended from time to time. No amendment, modification or rescission of this
Article, or any provision hereof, the effect of which would diminish the rights
to indemnification or advancement of expenses as set forth herein, shall be
effective as to any person with respect to any action taken or omitted by such
person prior to such amendment, modification or rescission.
Section 9.18 Severability. To the extent that the provisions of this
------------
Article are held to be inconsistent with the provisions of Part 5 of Article 8
of the Code, such provisions of the Code shall govern. In the event that any of
the provisions of this Article (including any provision within a single section,
subsection, division or sentence) are held by a court of competent jurisdiction
to be invalid, void or otherwise unenforceable, the remaining provisions of this
Article shall remain enforceable to the fullest extent permitted by law.
ARTICLE TEN
MISCELLANEOUS
Section 10.1 Inspection of Books and Records. The Board of Directors
-------------------------------
shall have the power to determine which accounts, books and records of the
corporation shall be opened to the inspection of the shareholders, except those
as may by law specifically be made open to inspection, and shall have the power
to fix reasonable rules and regulations not in conflict with the applicable law
for the inspection of accounts, books and records which by law or by
determination of the Board of Directors shall be open to inspection. Without
the prior approval of the Board of Directors in their discretion, the right of
inspection set forth in Section 14-2-1602(c) of the Code shall not be available
to any shareholder owning two percent (2%) or less of the shares outstanding.
Section 10.2 Fiscal Year. The Board of Directors is authorized to fix
-----------
the fiscal year of the corporation and to change the same from time to time as
it deems appropriate.
Section 10.3 Corporate Seal. If the Board of Directors determines
--------------
that there should be a corporate seal for the corporation, it shall be in the
form as the Board of Directors may from time to time determine.
Section 10.4 Annual Financial Statements. In accordance with the
---------------------------
Code, the corporation shall prepare and provide to the shareholders such
financial statements as may be required by the Code.
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Section 10.5 Conflict With Articles of Incorporation. In the event
---------------------------------------
that any provision of these bylaws conflicts with any provision of the articles
of incorporation, the articles of incorporation shall govern.
ARTICLE ELEVEN
AMENDMENTS
Section 11.1 Power to Amend Bylaws. The Board of Directors shall have
---------------------
the power to alter, amend or repeal these bylaws or adopt new bylaws, but any
bylaws adopted by the Board of Directors may be altered, amended or repealed,
and new bylaws adopted, by the affirmative vote of the holders of at least two-
thirds of the voting power of all of the shares of capital stock of the
Corporation then entitled to vote generally in the election of directors, voting
together as a single class. The shareholders may prescribe, by so expressing in
the action they take in amending or adopting any bylaw or bylaws, that the bylaw
or bylaws so amended or adopted shall not be altered, amended or repealed by the
Board of Directors.
ARTICLE TWELVE
CERTAIN PROVISIONS OF GEORGIA LAW
Section 12.1 Fair Price Requirements. All of the requirements of
-----------------------
Article 11, Part 2 of the Code, included in Sections 14-2-1110 through 1113 (and
any successor provisions thereto), shall be applicable to the corporation in
connection with any business combination, as defined therein, with any
interested shareholder, as defined therein.
Section 12.2 Business Combinations. All of the requirements of
---------------------
Article 11, Part 3 of the Code, included in Sections 14-2-1131 through 1133 (and
any successor provisions thereto), shall be applicable to the corporation in
connection with any business combination, as defined therein, with any
interested shareholder, as defined therein.
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EXHIBIT 10.21
FIRST AMENDMENT TO
STOCK PURCHASE AGREEMENT
THIS FIRST AMENDMENT TO STOCK PURCHASE AGREEMENT (the "FIRST AMENDMENT") is
made and entered into as of May 1, 1998, by and among SATELLINK PAGING, LLC
("Satellink"), a Georgia limited liability company, and HYDE'S STAY IN TOUCH,
INC. ("Hyde's"), a Louisiana corporation, and R. DANIEL HYDE, JR., the sole
shareholder of Hyde's ("Shareholder").
Preamble
Satellink, Hyde's and Shareholder are parties to a Stock Purchase
Agreement, dated as of April 9, 1998, pursuant to which Satellink has agreed to
purchase, and Hyde's has agreed to sell, all of the issued and outstanding
capital stock of Hyde's (the "Stock Purchase Agreement"). The consummation of
the transactions contemplated by the Stock Purchase Agreement is subject to
certain consents and approvals by the FCC. In order to enable the parties to
consummate the transactions contemplated by the Stock Purchase Agreement prior
to receipt of such FCC consents and approvals, the parties wish to amend their
understanding so that the FCC License and certain assets used by Hyde's to
broadcast paging messages shall remain under the control of the Shareholder
until such FCC consents have been obtained.
Capitalized terms used in this First Amendment but not defined herein shall
have the meanings ascribed to those terms in the Stock Purchase Agreement.
NOW, THEREFORE, in consideration of the above and the mutual warranties,
representations, covenants and agreements set forth herein, the parties agree as
follows:
1.1 AMENDMENT TO PREAMBLE. The third sentence of the first paragraph of
---------------------
the Preamble of the Stock Purchase Agreement is deleted in its entirety.
1.2 AMENDMENT TO PURCHASE PRICE. The second sentence of Section 1.1 of
---------------------------
the Stock Purchase Agreement is amended to read as follows:
"The purchase price for the Shares purchased herein (the "PURCHASE
PRICE") shall be an amount equal to (a) the Net Equity Value determined by
reference to the Closing Financial Data, less (b) $170,069.13."
1.3 TIME AND PLACE OF CLOSING. Section 1.2(a) of the Stock Purchase
-------------------------
Agreement is deleted in its entirety and the following is substituted in lieu
thereof:
"(a) The closing of the transactions contemplated hereby (the
"CLOSING") will take place at 9:00 o'clock A.M. on May 1, 1998, or at such
other time as the Parties, acting through their authorized officers, may
mutually agree.
<PAGE>
The Closing shall be held at the offices of Alston & Bird LLP, 1201 West
Peachtree Street, Atlanta, Georgia 30309-3424."
1.4 PRE-CLOSING TRANSACTIONS. The following new Section 1.4 is added to
------------------------
the Stock Purchase Agreement.
"Section 1.4 Pre-Closing Transactions.
------------------------
"(a) Immediately following the execution of the First Amendment to
Stock Purchase Agreement and in all events prior to the Closing, the
Shareholder shall cause a new corporation to be formed under the laws of
the State of Louisiana, which new corporation shall have the name "9077
Broadcasting, Inc." ("NEWCO"). Following such incorporation, the
Shareholder shall cause Newco to be duly organized The Shareholder shall be
the sole shareholder of Newco, and shall not cause, permit or allow Newco
to issue any Equity Rights with respect to its capital stock without the
prior consent of Satellink. Promptly upon organization of Newco,
Shareholder shall commence the preparation and filing of all applications
and filings necessary for Newco to become qualified to transact business as
a foreign corporation in the State of Texas.
"(b) Immediately following the organization of Newco and in all
events prior to the Closing, Hyde's shall transfer, and the Shareholder
shall cause Hyde's to transfer, to Newco the assets of Hyde's listed on
SCHEDULE 1.4 hereto (the "BROADCAST ASSETS"). In connection therewith,
promptly following such transfer, Hyde's shall execute all applications and
any amendments thereto or additional applications that may be necessary to
obtain the Consent of the FCC to the transfer and assignment of the FCC
Licenses to Newco, and Shareholder agrees to cause Newco to prepare all
such applications and amendments thereto and to cooperate fully with Hyde's
to procure such Consents. The Shareholder shall cause Newco to hold and
maintain the Broadcast Assets free and clear of all Liens until such time
as the transactions contemplated by the Newco Agreement (as hereinafter
defined) shall have been consummated.
"(c) Contemporaneously with the transfer to Newco of the Broadcast
Assets and in all events prior to the Closing, the Shareholder shall enter
into, and shall cause Newco to enter into, a stock purchase agreement (the
"NEWCO AGREEMENT") pursuant to which the Shareholder shall agree to sell
and transfer to Satellink, and Satellink shall agree to purchase and
acquire from the Shareholder, all of the issued and outstanding capital
stock of Newco for the purchase price of $170,069.13 with the consummation
of the transactions contemplated by the Newco Agreement being subject to
the prior receipt from the FCC of such consents and approvals as shall be
required by applicable law, rule or regulation to the transfer of control
over the FCC Licenses to Satellink.
-2-
<PAGE>
"(d) Contemporaneously with the consummation of the transactions
provided for in the Stock Purchase Agreement, as hereby amended, Satellink
shall enter into, and Shareholder shall cause Newco to enter into, (i) the
Management Agreement in the form of EXHIBIT E hereto, and (ii) the Reseller
Agreement in the form of EXHIBIT F hereto.
"(e) Seller shall not cause, permit or allow Newco to elect treatment
as a "small business corporation" under Section 1361(b) of the Internal
Revenue Code.
"(f) To the extent the Purchase Price payable under the Newco
Agreement is required to be allocated for either tax or book purposes to
the Broadcast Assets, the Parties agree that such purchase price shall be
allocated among such Broadcast Assets as set forth on SCHEDULE 1.4 hereto."
1.5 DELETION OF SECTION 4.7. Section 4.7 of the Stock Purchase Agreement
-----------------------
is deleted in its entirety.
1.6 AMENDMENT OF CONDITIONS PRECEDENT. Section 5.1 of the Stock Purchase
---------------------------------
Agreement is amended by deleting clause (n) thereof and relettering clauses (o),
(p) and (q) thereafter as clauses (n), (o) and (p), respectively.
1.7 THRESHOLD AMOUNT. Section 7.8 of the Stock Purchase Agreement is
----------------
amended to delete "$50,000" and to insert in lieu thereof the term "Threshold
Amount."
1.8 DEFINITIONS. The following defined terms are added to Section 8.1 of
-----------
the Stock Purchase Agreement:
"'NEWCO AGREEMENT' shall mean the Stock Purchase Agreement of even
date herewith between Satellink, Shareholder and Newco.
"'THRESHOLD AMOUNT' shall mean $50,000 less the amount of any Loss, as
defined in the Newco Agreement, that is not subject to indemnification as
provided in Article VII of the Newco Agreement by reason of Section 7.8 of
the Newco Agreement."
1.9 COMPUTATION OF EBITDA AND NET EQUITY VALUE. The definitions of
------------------------------------------
"EBITDA" and "Net Equity Value" contained in Section 8.1 of the Stock Purchase
Agreement is deleted in its entirety and replaced with the following
definitions:
"'EBITDA'" shall mean Hyde's earnings without deduction for interest,
income taxes, depreciation, amortization, officer's insurance premiums,
officer's travel and entertainment, administrative fees and inclusion or
recognition of unrealized gains or losses on investment portfolio and
interest income.
-3-
<PAGE>
"'Net Equity Value'" shall equal the Gross Enterprise Value less: (i)
all liabilities of Hyde's which are required by GAAP to be reflected on
Hyde's balance sheet excluding however accounts payable and accrued
operating expenses in an amount not to exceed $70,000; and (ii) all amounts
owed to Hyde's by Shareholder.
1.10 ADDITION OF EXHIBITS. The schedule of Exhibits attached to and a
--------------------
part of the Stock Purchase Agreement is amended to list thereon the following:
EXHIBIT E Management Agreement
EXHIBIT F Reseller Agreement
The agreements that are such EXHIBITS E and F, respectively, are attached
hereto and by this reference made exhibits to the Stock Purchase Agreement, as
hereby amended. The defined term "EXHIBIT" appearing in Section 8.1 of the
Stock Purchase Agreement is amended to mean and refer to EXHIBITS A through F,
inclusive.
1.11 EFFECT OF AMENDMENT. The Stock Purchase Agreement, as amended by
-------------------
this First Amendment, is hereby ratified and affirmed by the Parties. In the
event of any conflict between any provision of this First Amendment and any
provision of the Stock Purchase Agreement, the provision of this First Amendment
shall control.
1.12 GOVERNING LAW. Notwithstanding the place where this First Amendment
-------------
may be executed by any of the Parties, the parties expressly agree that this
First Amendment shall in all respects be governed by, and construed in
accordance with, the laws of the State of Louisiana, without regard for its
conflicts of laws option.
SIGNATURES ON FOLLOWING PAGE
-4-
<PAGE>
IN WITNESS WHEREOF, Shareholder has executed this First Amendment under
seal and each of the other Parties has caused this First Amendment to be
executed on its behalf by its duly authorized officers as of the day and year
first above written.
SATELLINK PAGING, LLC
BY: SATELLINK COMMUNICATIONS,
INC., ITS MANAGER
BY: /s/ Jerry W. Mayfield
---------------------
JERRY W. MAYFIELD
PRESIDENT
HYDE'S STAY IN TOUCH, INC.
BY: /s/ R. Daniel Hyde, Jr.
-----------------------
R. DANIEL HYDE, JR.
PRESIDENT
THE SHAREHOLDER:
/s/ R. Daniel Hyde, Jr. (SEAL)
-----------------------
R. DANIEL HYDE, JR.
-5-
<PAGE>
EXHIBIT 10.22
STOCK PURCHASE AGREEMENT
BY AND AMONG
SATELLINK PAGING, LLC,
AND
9077 BROADCASTING, INC.
AND
R. DANIEL HYDE, JR.
DATED AS OF MAY 1, 1998
<PAGE>
STOCK PURCHASE AGREEMENT
------------------------
THIS STOCK PURCHASE AGREEMENT (this "AGREEMENT") is made and entered into
as of May 1, 1998, by and among SATELLINK PAGING, LLC ("SATELLINK"), A GEORGIA
LIMITED LIABILITY COMPANY, AND 9077 BROADCAST, INC. ("NEWCO"), A LOUISIANA
CORPORATION; AND THE SOLE SHAREHOLDER OF NEWCO, R. DANIEL HYDE, JR.
("SHAREHOLDER").
PREAMBLE
--------
Shareholder is the record and beneficial owner of all of the issued and
outstanding shares of Newco Common Stock (the "SHARES"). Shareholder desires to
sell all of the Shares to Satellink, and Satellink desires to purchase the
Shares from Shareholder, upon the terms and subject to the conditions set forth
in this Agreement. The transactions described in this Agreement are subject to
the approval of the Federal Communications Commission (the "FCC") and the
satisfaction of certain other conditions described in this Agreement.
Certain terms used in this Agreement are defined in Section 8.1 of this
Agreement.
NOW, THEREFORE, in consideration of the above and the mutual warranties,
representations, covenants, and agreements set forth herein, the parties agree
as follows:
ARTICLE 1
PURCHASE AND SALE
-----------------
1.1 PURCHASE AND SALE. Upon the terms and subject to the conditions
-----------------
of this Agreement, Shareholder shall sell to Satellink, and Satellink shall
purchase from such Shareholder, all of the Shares (the "STOCK PURCHASE"). The
purchase price for the Shares purchased hereunder (the "PURCHASE PRICE") shall
be $170,069.13.
1.2 TIME AND PLACE OF CLOSING.
-------------------------
(a) The closing of the transactions contemplated hereby (the
"CLOSING") will take place at 9:00 A.M. on the fifth (5th) business day
following receipt of the consent and approval of the FCC to the transfer of
control of the FCC Licenses to Satellink, or at such other time as the Parties,
acting through their authorized officers, may mutually agree. The Closing shall
be held at the offices of Alston & Bird LLP, 1201 W. Peachtree Street, Atlanta,
Georgia 30309-3424.
1.3 PAYMENT OF PURCHASE PRICE. At the Closing, Shareholder shall
-------------------------
deliver to Satellink the certificate or certificates representing the Shares
sold by Shareholder hereunder, which certificate or certificates shall be duly
endorsed by Shareholder for transfer to Satellink or
<PAGE>
accompanied by a duly executed assignment separate from such certificate(s). At
the Closing, Satellink shall pay the Purchase Price to Shareholder, by certified
check or by wire transfer to an account specified by shareholder, against
delivery by shareholder to Satellink of the certificate or certificates
representing the Shares, which certificate or certificates shall be duly
endorsed by Shareholder for transfer to Satellink.
ARTICLE 2
REPRESENTATIONS AND WARRANTIES OF THE SHAREHOLDER
-------------------------------------------------
Shareholder hereby represents and warrants to Satellink as follows:
2.1 ORGANIZATION, STANDING, AND POWER. Newco is a corporation duly
---------------------------------
organized, validly existing, and in good standing under the Laws of the State of
Louisiana, and has the corporate power and authority to carry on its business as
now conducted and to own, lease and operate its Assets. Newco operates and
conducts its business exclusively in the States of Louisiana and Texas (but only
through the ownership or lease of tower space and the transmission of paging
messages) and has applied to qualify to transact business as a foreign
corporation in good standing in the State of Texas. The minute book and other
organizational documents for Newco have been made available to Satellink for its
review and are true and complete in all material respects as in effect as of the
date of this Agreement and accurately reflect in all material respects all
amendments thereto and all proceedings of the Board and shareholders thereof.
2.2 AUTHORITY OF NEWCO; NO BREACH BY AGREEMENT.
------------------------------------------
(a) Newco has the corporate power and authority necessary to execute,
deliver, and perform its obligations under this Agreement and to consummate the
transactions contemplated hereby. The execution, delivery, and performance of
this Agreement and the consummation of the transactions contemplated herein,
including the Stock Purchase, have been duly and validly authorized by all
necessary corporate action in respect thereof on the part of Newco. Subject to
such requisite shareholder approval, this Agreement represents a legal, valid,
and binding obligation of Newco, enforceable against Newco in accordance with
its terms.
(b) Neither the execution and delivery of this Agreement by Newco,
nor the consummation by Newco of the transactions contemplated hereby, nor
compliance by Newco with any of the provisions hereof, will (i) conflict with or
result in a breach of any provision of Newco's articles of incorporation or
bylaws or any resolution adopted by the Board of Newco, or (ii) except as
disclosed on SCHEDULE 2.2, constitute or result in a Default under, or require
any Consent pursuant to, or result in the creation of any Lien on any Asset of
Newco under any Contract or Permit of Newco or, (iii) constitute or result in a
Default under, or require any Consent pursuant to, any Law or Order applicable
to Newco or any of its material Assets (including any Satellink Entity or Newco
becoming subject to or liable for the payment of any Tax or any of the Assets
owned by any Satellink Entity or Newco being reassessed or revalued by any
Taxing authority).
-2-
<PAGE>
(c) Other than Consents required from the FCC, no notice to, filing
with, or Consent of, any public body or authority is necessary for the
consummation by Newco of the Stock Purchase and the other transactions
contemplated in this Agreement.
2.3 AUTHORITY OF SHAREHOLDER; NO BREACH BY AGREEMENT.
------------------------------------------------
(a) Shareholder has the absolute and unrestricted right, power,
authority, and capacity to execute and deliver this Agreement and Shareholder's
Closing Documents and to perform its obligations under this Agreement and
Shareholder's Closing Documents. This Agreement represents a legal, valid, and
binding obligation of Shareholder, enforceable against Shareholder in accordance
with its terms. Upon the execution and delivery by Shareholder of Shareholder's
Closing Documents, Shareholder's Closing Documents will constitute the legal,
valid, and binding obligations of Shareholder, enforceable against Shareholder
in accordance with their respective terms.
(b) Neither the execution and delivery of this Agreement by
Shareholder, nor the consummation by Shareholder of the transactions
contemplated hereby, nor compliance by Shareholder with any of the provisions
hereof, will (i) conflict with or result in a breach of any provision of
Newco's's articles of incorporation or bylaws, or (ii) except as disclosed on
SCHEDULE 2.3, constitute or result in a Default under, or require any Consent
pursuant to, or result in the creation of any Lien on any Asset of Newco under,
any Contract or Permit of Newco, or, (iii) violate any Law or Order applicable
to Shareholder or to Newco or any of its material Assets.
(c) Other than Consents required from the FCC no notice to, filing
with, or Consent of, any public body or authority is necessary for the
consummation by Shareholder of the transactions contemplated in this Agreement.
2.4 CAPITAL STOCK.
-------------
(a) The authorized capital stock of Newco consists of 10,000 shares
of Newco Common Stock, of which 100 shares are issued and outstanding as of the
date of this Agreement and will be issued and outstanding on the Closing Date.
All of the issued and outstanding shares of capital stock of Newco are duly and
validly issued and outstanding and are fully paid and nonassessable under the
LBCL. None of the outstanding shares of capital stock of Newco has been issued
in violation of any preemptive rights of the current or past shareholders of
Newco.
(b) Except for the Shares, there are no shares of capital stock or
other equity securities of Newco outstanding and no outstanding Equity Rights
relating to the capital stock of Newco. Shareholder is the owner of all right,
title and interest (legal and beneficial) in and to all of the Shares, free and
clear of all Liens, and the Shares represent all of the issued and outstanding
shares of Newco capital stock. Except as specifically contemplated by this
Agreement, no Person has any Contract or any right or privilege (whether pre-
emptive or contractual) capable of becoming a Contract for the purchase from
Shareholder of any of the Shares, or any Contract or Equity Right for the
purchase, subscription or issuance of any securities of Newco.
-3-
<PAGE>
2.5 NEWCO'S'S SUBSIDIARIES. Newco does not, directly or indirectly, own
----------------------
any stock of, or other interest in, any Person.
2.6 FINANCIAL STATEMENTS. Attached hereto as SCHEDULE 2.6 is the
--------------------
unaudited balance sheet of Newco as of the date hereof (the "FINANCIAL
---------
STATEMENT"). The Financial Statement presents fairly the financial position of
- ---------
Newco as of the date hereof; and is in accordance with the books and records of
Newco, which have been properly maintained and, to the Knowledge of Newco, are
complete and correct in all material respects.
2.7 ABSENCE OF UNDISCLOSED LIABILITIES. Except as set forth on
----------------------------------
SCHEDULE 2.7, Newco does not have any Liabilities of the type required by GAAP
to be reflected in the Financial Statement which are not reflected therein or in
the notes thereto. Since its incorporation, Newco has not incurred or paid any
Liability, except for such Liabilities incurred or paid: (i) in the ordinary
course of business consistent with past business practice; or (ii) in connection
with the transactions contemplated by this Agreement. Newco is not directly or
indirectly liable, by guarantee, indemnity, or otherwise, upon or with respect
to, or obligated, by discount or repurchase agreement or in any other way, to
provide funds in respect to, or obligated to guarantee or assume any Liability
or any Person.
2.8 ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as set forth on
------------------------------------
SCHEDULE 2.8, since its incorporation: (i) Newco has engaged only in the
business of owning certain assets to be used to broadcast paging messages
pursuant to the Reseller Agreement, (ii) there have been no events, changes, or
occurrences which have had, or are reasonably likely to have, individually or in
the aggregate, a Material Adverse Effect; and (iii) Newco has not intentionally
or grossly negligently taken any action, or failed to take any action, prior to
the date of this Agreement, which action or failure, if taken after the date of
this Agreement, would represent or result in a material breach or violation of
any of the covenants and agreements of Newco provided in Article 4.
2.9 TAX MATTERS. Except as set forth on SCHEDULE 2.9:
-----------
(a) Newco has timely filed with the appropriate Governmental
Authorities all required Tax Returns in all jurisdictions in which Tax Returns
are required to be filed, and such Tax Returns are correct and complete in all
material respects. Newco is not currently the beneficiary of any extension of
time within which to file any Tax Returns. All Taxes (whether or not shown on
any Tax Return) for all periods ending on or before the Closing Date, have been
fully paid or appropriate deposits or adequate accruals have been made therefor.
(b) Newco has not been delinquent in the payment of any Tax,
assessment, deposit or other charge by any Governmental Authority and no
Liability is pending or has been assessed, asserted, or threatened against Newco
or any of its assets in connection with any Tax. Newco has not received any
notice of assessment or proposed assessment in connection with any Tax Returns
and there are no pending Tax examinations of or Tax claims asserted against
Newco or any of its assets, including without limitation, any claim by any
Governmental Authority in any
-4-
<PAGE>
jurisdiction where Newco did not file Tax Returns that Newco is or may be
subject to or liable for Taxes imposed by that Governmental Authority or
jurisdiction. There are no Liens for any Taxes on any of Newco assets.
2.10 ASSETS.
------
(a) The only Assets of Newco are listed on SCHEDULE 2.10 hereto.
Newco has good and marketable title, free and clear of all Liens, to all of its
Assets. All tangible properties used in the businesses of Newco are in good
condition, reasonable wear and tear excepted, and are usable in the ordinary
course of business consistent with Newco's's past practices.
(b) Newco has no inventory and has no receivables due it other than
amounts payable by Satellink to Newco under the Reseller Agreement.
(c) All Assets of Newco which are held under leases or subleases by
Newco, are held under valid Contracts enforceable in accordance with their
respective terms, and each such Contract is in full force and effect.
2.11 INTELLECTUAL PROPERTY. Newco does not own or use in the conduct of
---------------------
its business any Intellectual Property.
NewcoNewcoNewcoNewco
2.12 COMPLIANCE WITH LAWS. Newco has in effect or will timely obtain all
--------------------
Permits necessary for it to own, lease, or operate its Assets and to carry on
its business as now conducted, and there has occurred no Default under any such
Permit. Newco:
(a) is not in Default under any of the provisions of its articles of
incorporation or bylaws (or other governing instruments);
(b) is not in Default under any Laws, Orders, or Permits applicable
to its business or employees conducting its business; or
(c) has not since its incorporation, received any notification or
communication from any agency or department of federal, state, or local
government or any Regulatory Authority or the staff thereof (i) asserting
that Newco is not in compliance with any of the Laws or Orders which such
governmental authority or Regulatory Authority enforces, (ii) threatening to
revoke any Permits or FCC Licenses, or (iii) requiring Newco to enter into or
consent to the issuance of a cease and desist order, formal agreement,
directive, commitment, or memorandum of understanding, or to adopt any Board
resolution or similar undertaking.
Copies of all material reports, correspondence, notices and other documents
relating to any inspection, audit, monitoring or other form of review or
enforcement action by a Regulatory Authority have been made available to
Satellink.
-5-
<PAGE>
2.13 LABOR RELATIONS. Newco is not the subject of any Litigation
---------------
asserting that it has committed an unfair labor practice (within the meaning of
the National Labor Relations Act or comparable state law) or seeking to compel
Newco to bargain with any labor organization as to wages or conditions of
employment, nor is Newco party to any collective bargaining agreement, nor is
there any strike or other labor dispute involving Newco, pending or threatened,
or to the Knowledge of Newco, is there any activity involving Newco employees
seeking to certify a collective bargaining unit or engaging in any other
organization activity.
2.14 EMPLOYEE BENEFIT PLANS.
----------------------
(a) Newco has not at any time had, and does not currently have, any
pension, retirement, profit-sharing, deferred compensation, stock option,
employee stock ownership, severance pay, vacation, bonus, or other incentive
plan, written employee programs, arrangements, or agreements, medical, vision,
dental, or other health plans, life insurance plans, and other employee benefit
plans or fringe benefit plans, including "employee benefit plans" as that term
is defined in Section 3(3) of ERISA, for the benefit of employees, retirees,
dependents, spouses, directors, independent contractors, or other beneficiaries
and under which employees, retirees, dependents, spouses, directors, independent
contractors, or other beneficiaries are eligible to participate (collectively,
the "NEWCO BENEFIT PLANS").
(b) Neither the execution and delivery of this Agreement nor the
consummation of the transactions contemplated hereby will (i) result in any
payment (including severance, unemployment compensation, golden parachute, or
otherwise) becoming due to any director or any employee of Newco from Newco
under any Newco Benefit Plan or otherwise, (ii) increase any benefits otherwise
payable under any Newco Benefit Plan, or (iii) result in any acceleration of the
time of payment or vesting of any such benefit.
2.15 MATERIAL CONTRACTS. Except as disclosed on SCHEDULE 2.15, Newco is
------------------
not a party to any Contract.
2.16 LEGAL PROCEEDINGS. There is no Litigation instituted or pending, or,
-----------------
to the Knowledge of Shareholder, threatened (or unasserted but considered
probable of assertion and which if asserted would have at least a reasonable
probability of an unfavorable outcome) against Newco, or against any director,
employee or employee benefit plan of Newco, or against any Asset, interest, or
right of any of them, nor are there any Orders of any Regulatory Authorities,
other governmental authorities, or arbitrators outstanding against Newco.
2.17 REPORTS. Since its incorporation, Newco has timely filed all
-------
reports and statements, together with any amendments required to be made with
respect thereto, that it was required to file with Regulatory Authorities
(except, in the case of state securities authorities, failures to file which are
not reasonably likely to have, individually or in the aggregate, a Material
Adverse Effect). As of their respective dates, each of such reports and
documents, including the financial statements, exhibits, and schedules thereto,
complied in all material respects with all applicable Laws. As of its respective
date, each such report and document did not, in all material respects, contain
any untrue statement of a material fact or omit to state a material fact
required
-6-
<PAGE>
to be stated therein or necessary to make the statements made therein, in light
of the circumstances under which they were made, not misleading.
2.18 STATEMENTS TRUE AND CORRECT. No statement, certificate, instrument,
---------------------------
or other writing furnished or to be furnished by Newco or any Affiliate thereof
to Satellink or any Affiliate of Satellink pursuant to this Agreement or any
other document, agreement, or instrument referred to herein contains or will
contain any untrue statement of material fact or will omit to state a material
fact necessary to make the statements therein, in light of the circumstances
under which they were made, not misleading. All documents that Newco or any
Affiliate thereof is responsible for filing with any Regulatory Authority in
connection with the transactions contemplated hereby will comply as to form in
all material respects with the provisions of applicable Law.
2.19 REGULATORY MATTERS. Neither Newco nor Shareholder or any Affiliate
------------------
thereof has taken or agreed to take any action or has any Knowledge of any fact
or circumstance that is reasonably likely to materially impede or delay receipt
of any Consents of Regulatory Authorities necessary or desirable for the
consummation of the transactions contemplated by this Agreement.
2.20 CHARTER PROVISIONS. Newco and Shareholder have taken all action so
------------------
that the entering into of this Agreement and the consummation of the Stock
Purchase and the other transactions contemplated by this Agreement do not and
will not result in the grant of any rights to any Person under the articles of
incorporation, bylaws or other governing instruments of Newco or restrict or
impair the ability of any Satellink Entity to vote, or otherwise to exercise the
rights of a shareholder with respect to, shares of Newco that may be directly or
indirectly acquired or controlled by them.
2.21 CONSENTS AND APPROVALS. Except as set forth on SCHEDULE 2.22, the
----------------------
execution, delivery and performance of this Agreement by Newco and the
consummation of the transactions contemplated hereby do not require any consent,
approvals or authorization of, or registration or filing with, any Person or
Governmental Authority.
2.22 BROKERAGE. Neither Newco nor Shareholder has made any agreement or
---------
taken any other action which might cause anyone to become entitled to a broker's
fee or commission as a result of the transactions contemplated hereby.
ARTICLE 33
REPRESENTATIONS AND WARRANTIES OF SATELLINK
-------------------------------------------
Satellink hereby represents and warrants to Newco and Shareholder as
follows:
3.1 ORGANIZATION, STANDING, AND POWER. Satellink is a limited
---------------------------------
liability company duly organized, validly existing, and in good standing under
the Laws of the State of Georgia, and has the power and authority to carry on
its business as now conducted and to own, lease and operate its material Assets.
Satellink is duly qualified or licensed to transact business as a foreign
limited liability company in good standing in the States of the United States
and foreign
-7-
<PAGE>
jurisdictions where the character of its Assets or the nature or conduct of its
business requires it to be so qualified or licensed, except for such
jurisdictions in which the failure to be so qualified or licensed is not
reasonably likely to have, individually or in the aggregate, a Material Adverse
Effect.
3.2 AUTHORITY; NO BREACH BY AGREEMENT.
---------------------------------
(a) Satellink has the power and authority necessary to execute,
deliver and perform its obligations under this Agreement and to consummate the
transactions contemplated hereby. The execution, delivery and performance of
this Agreement and the consummation of the transactions contemplated herein,
including the Stock Purchase, have been duly and validly authorized by all
necessary action in respect thereof on the part of Satellink. This Agreement
represents a legal, valid, and binding obligation of Satellink, enforceable
against Satellink in accordance with its terms.
(b) Neither the execution and delivery of this Agreement by
Satellink, nor the consummation by Satellink of the transactions contemplated
hereby, nor compliance by Satellink with any of the provisions hereof, will: (i)
conflict with or result in a breach of any provision of Satellink's Operating
Agreement; or (ii) constitute or result in a Default under, or require any
Consent pursuant to any Contract or Permit of any Satellink Entity; or (iii)
constitute or result in a Default under, or require any Consent pursuant to, any
Law or Order applicable to any Satellink Entity or any of their respective
material Assets (including any Satellink Entity or Newco becoming subject to or
liable for the payment of any Tax or any of the Assets owned by any Satellink
Entity or Newco being reassessed or revalued by any Taxing authority).
(c) Other than the FCC no notice to, filing with, or Consent of, any
public body or authority is necessary for the consummation by Satellink of the
Stock Purchase and the other transactions contemplated in this Agreement.
3.3 BROKERAGE. Except with regard to The Breckenridge Group, whose
---------
fees and expenses are the sole responsibility of Satellink, Satellink has not
made any agreement or taken any other action which might cause any person or
entity to become entitled to a broker's fee or a commission as a result of the
transactions contemplated hereby.
ARTICLE 4
CERTAIN ADDITIONAL COVENANTS AND AGREEMENTS
-------------------------------------------
4.1 OPERATION OF BUSINESS PENDING CLOSING.
-------------------------------------
Prior to the Closing Date, except as set forth in subsection (b) below
and except as necessary to effect the transactions contemplated by this
Agreement, or except with the prior consent of Satellink, Newco shall conduct
its business in the usual and ordinary course and only as necessary to perform
its obligations under the Management Agreement and the Reseller
-8-
<PAGE>
Agreement, and without limiting the generality of the foregoing clause, Newco
shall not do any of the following:
(i) amend its articles of incorporation or bylaws, or merge,
consolidate, liquidate or dissolve;
(ii) issue any capital stock, any securities convertible or
exchangeable into capital stock, or any options, warrants or rights with respect
to capital stock, or split, subdivide or reclassify its capital stock;
(iii) declare or pay any dividend or make any other distribution on
its capital stock;
(iv) increase the compensation or benefits of officers or employees
of Newco or pay any bonuses except for normal and customary increases made or
bonuses paid or accrued in accordance with past practices;
(v) create or incur any Lien on any of its properties; or, except
for the issuance of insurance contracts or policies and the settlement of
insurance claims in the ordinary course of business, incur or assume any
guaranty or other liability to discharge an obligation of another, or incur or
assume any obligations for money borrowed, or cancel or discount any material
debt owed to it;
(vi) enter into or terminate any Contract;
(vii) make any expenditure for fixed assets;
(viii) do or fail to do anything that will cause a breach of, or
default under, any Contract; or
(ix) make any change (whether or not material) in its accounting
procedures, methods, policies or practices or the manner in which Newco
maintains its records.
4.2 ACCESS TO INFORMATION. Subject to the provisions of Section 8.18,
---------------------
Newco and Shareholder shall give to Satellink and its authorized
representatives, during normal business hours, reasonable access to all of Newco
contracts, books and records, and Newco shall furnish to Satellink and its
authorized representatives such additional financial, legal and other
information with respect to Newco that Satellink may reasonably request.
4.3 SCHEDULES. At any time and from time to time between the date hereof
---------
and the date that is two business days prior to the Closing Date, Newco shall
have the right and the continuing obligation to supplement any of the Schedules
contained in Article 2 hereof, respectively, with respect to any matter arising
or coming to the Knowledge of Newco after the date hereof that, if existing,
occurring or known at such date, would have been required to be set forth or
described in such Schedules.
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<PAGE>
4.4 BEST EFFORTS. Each of the Parties agrees to use its best efforts to
------------
take, or to cause to be taken, all reasonable actions and to do, or to cause to
be done, all reasonable things necessary, proper or advisable under applicable
Laws to perform their respective agreements, undertakings and obligations
hereunder and to consummate the transactions contemplated by this Agreement.
None of the Parties will intentionally take or intentionally permit to be taken
any action that would be in breach of the terms or provisions of this Agreement
or that would cause any of the representations contained herein to be or become
untrue.
4.5 EXCLUSIVE DEALINGS. Unless and until this Agreement is terminated
------------------
prior to Closing pursuant to Article 6, neither Newco nor any of its Affiliates,
officers, directors, agents, advisers or Shareholder shall (i) directly or
indirectly, solicit or entertain offers from, negotiate with or in any manner
encourage, discuss, accept or consider any proposal of any other corporation,
firm or individual for the sale of any of the Shares or of all or substantially
all of the assets of Newco, whether through the direct purchase, merger,
consolidation or other business combination (each an "ACQUISITION PROPOSAL"); or
--------------------
(ii) knowingly enter into any agreement or understanding, whether oral or
written, that would prevent the consummation of the transaction proposed hereby.
4.6 EXPENSES. If Closing does not occur as set forth in this Agreement,
--------
the expenses of the parties hereto shall be paid as provided in Section 6.03.
4.7 ASSIGNMENT OF FCC LICENSES. Promptly upon execution of this
--------------------------
Agreement, Newco agrees to execute all applications and any amendments thereto
or additional applications, that may be necessary to obtain the FCC's Consent to
the assignment of the FCC Licenses to Satellink. Satellink agrees to prepare
all such applications and any amendments thereto and to cooperate with Newco in
discharging this responsibility. The fees of special counsel retained by any
Party in connection with application for and obtaining such FCC Consent, and the
reasonable expenses associated therewith, shall be paid for by Satellink.
ARTICLE 5
CONDITIONS TO CLOSING
---------------------
5.1 CONDITIONS TO OBLIGATIONS OF SATELLINK. The obligations of Satellink
--------------------------------------
to proceed with the Closing under this Agreement are subject to the fulfillment
prior to or at Closing of the following conditions (any one or more of which may
be waived in whole or in part by Satellink at Satellink's option):
(a) Bringdown of Representations and Warranties. The representations
-------------------------------------------
and warranties of each of Newco and Shareholder contained in this Agreement
shall be true and correct on and as of the time of Closing, with the same force
and effect as though such representations and warranties had been made on, as of
and with reference to such time and Satellink shall have received certificates
to such effect signed by Shareholder and an authorized officer of Newco.
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(b) Performance and Compliance. Newco and Shareholder shall have
--------------------------
performed all of the covenants and complied with all of the provisions required
by this Agreement to be performed or complied with by them, respectively, on or
before the Closing, and Satellink shall have received a certificate to such
effect signed by Shareholder and an authorized officer of Newco.
(c) Opinion of Counsel. Satellink shall have received from Greer &
------------------
Frazier, counsel for Newco, an opinion dated the Closing Date substantially in
the form of EXHIBIT A.
---------
(d) Satisfactory Instruments. All instruments and documents required
------------------------
on Newco's's' and Shareholder's part to effectuate and consummate the
transactions contemplated hereby shall be delivered to Satellink and shall be in
form and substance reasonably satisfactory to Satellink and its counsel.
(e) Litigation. No order of any court or administrative agency shall
----------
be in effect which enjoins or prohibits the transactions contemplated hereby or
which would limit or materially adversely affect Satellink's ownership or
control of Newco or the business of Newco, and there shall not have been
threatened, nor shall there be pending, any action or proceeding by or before
any Governmental Authority: (i) challenging any of the transactions contemplated
by this Agreement or seeking monetary relief by reason of the consummation of
such transactions; or (ii) which might have a Material Adverse Effect on the
future conduct of the business of Newco.
(f) No Material Adverse Effect. There shall not have occurred any
--------------------------
Material Adverse Effect with respect to Newco, or any condition or event which
is reasonably likely to result in a Material Adverse Effect.
(g) Incumbency Certificate. Newco shall have delivered to Satellink
----------------------
an incumbency certificate dated the Closing Date certifying the incumbency of
all officers of Newco who have executed this Agreement or any of the other
agreements, documents or instruments required to be delivered hereunder. This
certificate shall contain specimens of the signatures of each of such officers
and shall be executed by an officer of Newco other than an officer whose
incumbency or authority is certified.
(h) Certificate of Good Standing. Newco shall have delivered to
----------------------------
Satellink, with respect to Newco, a certificate of the Secretary of State of
Louisiana, dated not more than 10 days before the Closing Date, stating that
Newco is a corporation in good standing under the laws of such state and has
paid all applicable Taxes due to such state.
(i) Certified Copies of Resolutions. Newco shall have delivered to
-------------------------------
Satellink copies, certified by the duly qualified and acting Secretary or
Assistant Secretary of Newco, of resolutions adopted by the Board of Newco,
approving this Agreement and the consummation of the transactions contemplated
hereby.
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(j) Delivery of Original Records. Newco shall have delivered to
----------------------------
Satellink the original corporate minute books for Newco, along with the
certificates representing the issued and outstanding shares of capital stock of
Newco.
(k) Assignment of FCC Licenses. The FCC shall have approved the
---------------------------
assignment of all FCC Licenses to Satellink.
(l) Shareholder Releases. Satellink shall have received from
--------------------
Shareholder a Shareholder's release duly executed by Shareholder.
5.2 CONDITIONS TO OBLIGATIONS OF NEWCO AND SHAREHOLDER. The obligations
--------------------------------------------------
of Newco and Shareholder to proceed with the Closing under this Agreement are
subject to the fulfillment prior to or at Closing of the following conditions
(any one or more of which may be waived in whole or in part by Newco or
Shareholder at Newco's's or Shareholder's option):
(a) Bringdown of Representations and Warranties. The representations
-------------------------------------------
and warranties of Satellink contained in this Agreement shall be true and
correct on and as of the time of Closing, with the same force and effect as
though such representations and warranties had been made on, as of and with
reference to such time, and Newco shall have received a certificate to such
effect signed by authorized officers of Satellink.
(b) Performance and Compliance. Satellink shall have performed all
--------------------------
of the covenants and complied with all of the provisions required by this
Agreement to be performed or complied with by it on or before the Closing, and
Newco shall have received a certificate to such effect signed by authorized
officers of Satellink.
(c) Opinion of Counsel. Newco shall have received from Alston & Bird
------------------
llp, counsel for Satellink, an opinion dated the Closing Date substantially in
the form of EXHIBIT A.
---------
(d) Satisfactory Instruments. All instruments and documents required
------------------------
on Satellink's part to effectuate and consummate the transactions contemplated
hereby shall be delivered to Newco and shall be in form and substance reasonably
satisfactory to Newco and its counsel.
(e) Litigation. No order of any court or administrative agency shall
----------
be in effect which enjoins or prohibits the transactions contemplated hereby,
and there shall not have been threatened, nor shall there be pending, any action
or proceeding by or before any Governmental Authority challenging any of the
transactions contemplated by this Agreement or seeking monetary relief by reason
of the consummation of such transactions.
(f) Incumbency Certificate. Satellink shall have delivered to Newco
----------------------
an incumbency certificate dated the Closing Date certifying the incumbency of
all officers of the Manager of Satellink who have executed this Agreement or any
of the other agreements, documents or instruments required to be delivered
hereunder. This certificate shall contain
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<PAGE>
specimens of the signatures of each of such officers and shall be executed by
officers of the Manager of Satellink other than an officer whose incumbency or
authority is certified.
(g) Certificate of Good Standing. Satellink shall have delivered to
-----------------------------
Newco a certificate of the Secretary of State of Georgia, dated not more than 10
days before the Closing Date, stating that Satellink is a limited liability
company in good standing under the laws of the State of Georgia.
(h) Certified Copies of Resolutions. Satellink shall have delivered
-------------------------------
to Newco copies, certified by the duly qualified and acting Secretary or
Assistant Secretary of Satellink, of resolutions adopted by the Manager of
Satellink approving this Agreement and the consummation of the transactions
contemplated hereby.
ARTICLE 6
TERMINATION
6.1 WHEN AGREEMENT MAY BE TERMINATED. This Agreement may be terminated
--------------------------------
at any time prior to Closing:
(a) By Satellink (i) at any time if any representation and warranty
of Newco or Shareholder contained in Article 2 was incorrect in any material
respect when made or becomes incorrect in any material respect at any time after
the date hereof and prior to the Effective Time, or (ii) at any time if Newco
fails to comply in any material respect with any provision of Article 4 binding
upon it; or
(b) By Newco and Shareholder: at any time if any representation and
warranty of Satellink contained in Article 3 was incorrect in any material
respect when made or becomes incorrect in any material respect at any time after
the date hereof and prior to the Effective Time; or.
(c) By mutual consent of Newco, Shareholder and Satellink; or
(d) by either Satellink, on the one hand, or Newco or Shareholder, on
the other hand, at any time after July 31, 1998 if the FCC's Consent to the
transfer of the FCC Licenses has not been obtained by that date, so long as the
Party or Parties terminating this Agreement pursuant to this Section 6(d) shall
not have breached in any material respect any representation or warranty made by
it hereunder and such breach is continuing at the time of such termiantion and
so long as such Party or Parties have complied with and performed in all
material respects all of its obligations, to be performed and complied with
hereunder to and through the date of such termination.
6.2 EFFECT OF TERMINATION. In the event of termination of this Agreement
---------------------
by either Satellink, on the one hand, or Newco, on the other, as provided above,
this Agreement shall forthwith terminate and there shall be no liability on the
part of any party or any party's officers or
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<PAGE>
directors, except for liabilities arising from a breach of this Agreement prior
to such termination, liabilities set forth in Section 6.3 below and Section
8.18. The provisions of Section 6.3, together with the provisions of Section
8.18 shall survive for a period of one year following the termination of this
Agreement and shall not be extinguished thereby.
6.3 PAYMENT OF EXPENSES ON TERMINATION.
----------------------------------
(a) If this Agreement is terminated by Satellink pursuant to Section
6.1(a), Newco and Shareholder, jointly and severally, shall pay and reimburse
Satellink for all expenses Satellink incurred prior to such termination in
connection with the preparation of this Agreement and the transactions
contemplated hereby, provided however, that Newco and Shareholder shall not be
obligated to reimburse Satellink for any expenses in excess of $10,000. If this
Agreement is terminated by Newco and Shareholder pursuant to Section 6.01(b),
Satellink shall pay and reimburse Newco for all expenses Newco and Shareholder
incurred prior to such termination in connection with the preparation of this
Agreement and the transactions contemplated hereby, provided however, that
Satellink shall not be obligated to reimburse Newco and Shareholder for any
expenses in excess of an aggregate for both Newco and Shareholder of $10,000. If
this Agreement is terminated by Satellink and Newco pursuant to Section 6.1(c)
or by any Party pursuant to Section 6.1(d), each party shall bear its own
expenses incurred in connection with the preparation of this Agreement and the
consummation of the transactions contemplated hereby.
(b) In order to be entitled to any reimbursement of expenses pursuant
to Section 6.3(a), the terminating party shall give the breaching party ten (10)
day's written notice of its intent to terminate this Agreement. If prior to the
expiration of such ten (10) day period (the "Notice Period"), the breaching
party gives the terminating party written notice of its intent to cure, the
breaching party shall have seven (7) days from the expiration of the Notice
Period to cure such breach, if cure is possible. Upon the expiration of such
seven (7) days or the failure of the breaching party to cure, the terminating
party shall be entitled to reimbursement of expenses in accordance with Section
6.3(a).
ARTICLE 7
INDEMNIFICATION
7.1 DEFINITIONS
-----------
For the purposes of this Article:
(a) "BUYER INDEMNITEES" shall mean Satellink and its agents,
-----------------
representatives, employees, officers, directors, shareholders, controlling
persons and Affiliates.
(b) "BUYER INDEMNITOR" shall mean Shareholder.
----------------
(c) "INDEMNIFICATION CLAIM" shall mean a claim for indemnification
---------------------
hereunder.
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<PAGE>
(d) "INDEMNITEE" shall mean Buyer Indemnitee or Seller Indemnitee, as
----------
appropriate.
(e) "INDEMNITOR" shall mean Buyer Indemnitor or Seller Indemnitor, as
----------
appropriate.
(f) "LOSSES" shall mean any and all demands, claims, actions or
------
causes of action, assessments, losses, diminution in value, damages (including
special and consequential damages), liabilities, costs, and expenses, including
without limitation, interest, penalties, cost of investigation and defense, and
reasonable attorneys' and other professional fees and expenses.
(g) "SELLER INDEMNITEE" shall mean Shareholder.
-----------------
(h) "SELLER INDEMNITOR" shall mean Satellink.
-----------------
(i) "THIRD PARTY CLAIM" shall mean any claim, suit or proceeding
-----------------
(including, without limitation, a binding arbitration or an audit by any taxing
authority) that is instituted against an Indemnitee by a person or entity other
than an Indemnitor and which, if prosecuted successfully, would result in a Loss
for which such Indemnitee is entitled to indemnification hereunder.
7.2 AGREEMENT OF BUYER INDEMNITOR TO INDEMNIFY
------------------------------------------
(a) Subject to the terms and conditions of this Article, Buyer
Indemnitor agrees, to indemnify, defend, and hold harmless Buyer Indemnitees,
and each of them, from, against, for, and in respect of any and all Losses
asserted against, or paid, suffered or incurred by, a Buyer Indemnitee and
resulting from, based upon, or arising out of:
(i) the inaccuracy, untruth, or incompleteness of any material
representation or warranty of Buyer Indemnitor contained in or made pursuant to
this Agreement or in any certificate, Schedule, or Exhibit furnished by Buyer
Indemnitor or Newco in connection herewith, provided however, that for purposes
of this Article 7 any qualification of such representations and warranties by
reference to the materiality of matters stated therein or as to matters having
or not having a Material Adverse Effect, and any limitation of such
representations and warranties as being "to the Knowledge of," "known to" or
words of similar effect, shall be disregarded in determining the inaccuracy,
untruth, incompleteness or breach thereof; or
(ii) a breach of or failure to perform any material covenant or
agreement of Buyer Indemnitor made in this Agreement.
7.3 AGREEMENT OF SELLER INDEMNITOR TO INDEMNIFY
-------------------------------------------
(a) Subject to the terms and conditions of this Article, Seller
Indemnitor agrees, to indemnify, defend, and hold harmless Seller Indemnitees,
and each of them, from,
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<PAGE>
against, for, and in respect of any and all Losses asserted against, or paid,
suffered or incurred by, a Seller Indemnitee and resulting from, based upon, or
arising out of:
(i) the inaccuracy, untruth, or incompleteness of any material
representation or warranty of Seller Indemnitor contained in or made pursuant to
this Agreement or in any certificate, Schedule, or Exhibit furnished by Seller
Indemnitor in connection herewith, provided however, that for purposes of this
Article 7, any qualification of such representations and warranties by reference
to the materiality of matters stated therein or as to matters having or not
having a Material Adverse Effect, and any limitation of such representations and
warranties as being "to the Knowledge of," "known to" or words of similar
effect, shall be disregarded in determining the inaccuracy, untruth,
incompleteness or breach thereof;
(ii) a breach of or failure to perform any material covenant or
agreement of Seller Indemnitor made in this Agreement; or
(iii) the Restructure Tax.
7.4 PROCEDURES FOR INDEMNIFICATION.
-------------------------------
(a) An Indemnification Claim shall be made by an Indemnitee by
delivery of a written notice to Indemnitor requesting indemnification and
specifying the basis on which indemnification is sought and the amount of
asserted Losses and, in the case of a Third Party Claim, containing (by
attachment or otherwise) such other information as such Indemnitee shall have
concerning such Third Party Claim.
(b) If the Indemnification Claim involves a Third Party Claim the
procedures set forth in SECTION 7.4 hereof shall be observed by Indemnitee and
Indemnitor.
(c) If the Indemnification Claim involves a matter other than a Third
Party Claim, Indemnitor shall have thirty (30) days to object to such
Indemnification Claim by delivery of a written notice of such objection to such
Indemnitee specifying in reasonable detail the basis for such objection. Failure
to timely so object shall constitute a final and binding acceptance of the
Indemnification Claim by Indemnitor, and the Indemnification Claim shall be paid
in accordance with subsection (d) hereof. If an objection is timely interposed
by Indemnitor and the dispute is not resolved by Indemnitee and Indemnitor
within fifteen (15) days from the date Indemnitee receives such objection, such
dispute shall be resolved by arbitration as provided in Section 8.14 of this
Agreement.
(d) Upon determination of the amount of an Indemnification Claim,
whether by agreement between Indemnitor and Indemnitee or by an arbitration
award or by any other final adjudication, Indemnitor shall pay the amount of
such Indemnification Claim in accordance with the instructions of the Indemnitee
within ten (10) days of the date such amount is determined.
7.5 THIRD PARTY CLAIMS. The obligations and liabilities of the parties
------------------
hereunder with respect to a Third Party Claim shall be subject to the following
terms and conditions:
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<PAGE>
(a) Indemnitee shall give Indemnitor written notice of a Third Party
Claim promptly after receipt by Indemnitee of notice thereof, and Indemnitor may
undertake the defense, compromise and settlement thereof by representatives of
its own choosing reasonably acceptable to Indemnitee. The failure of Indemnitee
to notify Indemnitor of such claim shall not relieve Indemnitor of any liability
that it may have with respect to such claim except to the extent Indemnitor
demonstrates that the defense of such claim is prejudiced by such failure. The
assumption of the defense, compromise and settlement of any such Third Party
Claim by Indemnitor shall be an acknowledgment of the obligation of Indemnitors
to indemnify Indemnitee with respect to such claim hereunder. If Indemnitee
desires to participate in, but not control, any such defense, compromise and
settlement, it may do so at its sole cost and expense. If, however, Indemnitor
fails or refuses to undertake the defense of such Third Party Claim within ten
(10) days after written notice of such claim has been given to Indemnitor by
Indemnitee, Indemnitee shall have the right to undertake the defense, compromise
and settlement of such claim with counsel of its own choosing. In the
circumstances described in the preceding sentence, Indemnitee shall, promptly
upon its assumption of the defense of such claim, make an Indemnification Claim
as specified in Section 7.2 which shall be deemed an Indemnification Claim that
is not a Third Party Claim for the purposes of the procedures set forth herein.
(b) If, in the reasonable opinion of Indemnitee, any Third Party
Claim or the litigation or resolution thereof involves an issue or matter which
could have a material adverse effect on the business, operations, assets,
properties or prospects of Indemnitee (including, without limitation, the
administration of the tax returns and responsibilities under the tax laws of
Indemnitee), Indemnitee shall have the right to control the defense, compromise
and settlement of such Third Party Claim undertaken by Indemnitor, and the costs
and expenses of Indemnitee in connection therewith shall be included as part of
the indemnification obligations of Indemnitor hereunder, provided however, that
Indemnitor shall not compromise or settle any such Third Party Claim without the
prior written consent of Indemnitee, which consent will not be unreasonably
withheld.. If Indemnitee shall elect to exercise such right, Indemnitors shall
have the right to participate in, but not control, the defense, compromise and
settlement of such Third Party Claim at its sole cost and expense.
(c) No settlement of a Third Party Claim involving the asserted
liability of Indemnitors under this Article shall be made without the prior
written consent by or on behalf of Indemnitor, which consent shall not be
unreasonably withheld or delayed. Consent shall be presumed in the case of
settlements of $50,000.00 or less where Indemnitor has not responded within ten
(10) business days of notice of a proposed settlement. If Indemnitor assumes
the defense of such a Third Party Claim, (a) no compromise or settlement thereof
may be effected by Indemnitor without Indemnitee's consent unless (i) there is
no finding or admission of any violation of law or any violation of the rights
of any person and no effect on any other claim that may be made against
Indemnitee (ii) the sole relief provided is monetary damages that are paid in
full by Indemnitor and (iii) the compromise or settlement includes, as an
unconditional term thereof, the giving by the claimant or the plaintiff to
Indemnitee of a release, in form and substance satisfactory to Indemnitee, from
all liability in respect of such Third Party Claim, and
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<PAGE>
(b) Indemnitee shall have no liability with respect to any compromise or
settlement thereof effected without its consent.
(d) In connection with the defense, compromise or settlement of any
Third Party Claim, the parties to this Agreement shall execute such powers of
attorney as may reasonably be necessary or appropriate to permit participation
of counsel selected by any party hereto and, as may reasonably be related to any
such claim or action, shall provide access to the counsel, accountants and other
representatives of each party during normal business hours to all properties,
personnel, books, tax records, contracts, commitments and all other business
records of such other party and will furnish to such other party copies of all
such documents as may reasonably be requested (certified, if requested).
7.6 INDEMNIFICATION EXCLUSIVE REMEDY. The indemnification provisions in
--------------------------------
this Article 7 shall be the exclusive remedy as between Satellink and
Shareholder for any breach of the representations and warranties contained
herein or related hereto, but such provisions shall not be the exclusive remedy
for a failure of a party to timely perform any agreement or undertaking of such
party set forth herein (other than representations and warranties), and any
party damaged by such failure of performance shall have such rights and remedies
with respect to such failure of performance as are provided by law or in equity.
7.7 TIME LIMITATIONS.
----------------
Buyer Indemnitor shall have no liability under clause (a)(i) of
Section 7.2 with respect to: (a) the breach of any representation or warranty,
other than those set forth in Sections 2.1, 2.2, 2.3, 2.4, 2.5, 2.9, 2.10(a),
2.12 and 2.14 hereof, unless on or before five (5) years after the Closing Date
Buyer Indemnitor is given notice asserting an Indemnification Claim with respect
thereto; (b) the breach of the representations and warranties of Buyer
Indemnitor contained in Section 2.9 hereof, unless notice asserting an
Indemnification Claim based thereon is given to Buyer Indemnitor prior to the
expiration of the period of time when deficiencies may be assessed against Newco
with respect to any tax period ended on or prior to the Effective Time; and (c)
the breach of the representations and warranties of Buyer Indemnitor contained
in Section 2.15 unless on or before seven (7) years after the Closing Date Buyer
Indemnitor is given notice asserting an Indemnification Claim with respect
thereto. An Indemnification Claim based upon a breach of the representations
and warranties set forth in Sections 2.2, 2.3, 2.4, 2.5, 2.10(a) or 2.12 or
based upon the failure of any Buyer Indemnitor to perform the covenants and
agreements to be performed by them hereunder may be made at any time.
7.8 LIMITATIONS AS TO AMOUNT. Notwithstanding anything to the contrary
------------------------
in this Agreement, Indemnitor shall be obligated to indemnify Indemnitee only
with respect to Losses actually paid, suffered or incurred, if any only to the
extent that the aggregate amount of such Losses exceeds the Threshold Amount (as
hereinafter defined) up to a maximum aggregate amount equal to the Purchase
Price, provided, however, the limitations set forth in this Section 7.9 shall
not be applicable to the obligation of Seller Indemnitor to indemnify Seller
Indemnitee as provided in Section 7.3(a)(iii) above.
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7.9 SUBROGATION. Upon payment in full of any Indemnification Claim,
-----------
whether such payment is effected by set-off or otherwise, or the payment of any
judgment or settlement with respect to a Third Party Claim, Indemnitors shall be
subrogated to the extent of such payment to the rights of Indemnitee against any
person or entity with respect to the subject matter of such Indemnification
Claim or Third Party Claim.
7.10 SATELLINK'S RIGHT OF SET-OFF. Notwithstanding anything to the
-----------------------------
contrary herein contained, Satellink shall have the right to set-off against and
deduct from the Note (a) any amount which Indemnitor becomes obligated (whether
by agreement between one or more of the Indemnitor and Satellink or by
arbitration award) to pay to Satellink hereunder, and (b) any other amounts
which may be payable by the Indemnitor to Satellink under this Agreement or by
virtue of the transactions provided for herein. Satellink's right of set-off
shall be superior to any right of Indemnitor to request or direct payment of any
part or all of the Note to or for the account of Indemnitor. Prior to
exercising the aforementioned right of set-off, Satellink shall give Indemnitor
ten (10) days written notice of its intent to exercise such right. If within
ten (10) days of receiving such notice, Indemnitor objects in writing to
Satellink's exercise of its right of set-off, then Satellink shall set aside and
hold the disputed amount free of any obligation to pay over the disputed amount
to or at the direction of Indemnitor, and Satellink's asserted right of set-off
will be submitted to arbitration pursuant to Section 8.14 hereof.
Notwithstanding anything to the contrary in this Agreement, all amounts set
aside and held pending the resolution of arbitration shall remain set aside and
held until the final resolution of such arbitration pursuant to Section 8.14
hereof. If at the time for payment of the Note, an Indemnification Claim has
been asserted by Satellink but the Indemnitor obligation with respect thereto
has not been finally determined or agreed upon, Satellink may withhold payment
of such portion of the Note as shall be sufficient to pay and reimburse
Satellink for all Losses upon which the Indemnification Claim is based and shall
not be required to pay such withheld amount over to Indemnitor until ten (10)
days following the final determination or agreement that the Indemnitors are not
obligated to Indemnitees with respect to such Indemnification Claim or if
obligated the Indemnitor have paid and satisfied such Indemnification Claim in
full.
7.11 TAXES AND INSURANCE. Indemnitor and Indemnitees shall make
-------------------
appropriate adjustments for tax benefits, insurance coverage and payments from
third parties in determining Losses for purposes of this Article 7. All
indemnification payments under this Article 7 shall be deemed adjustments to the
Purchase Price.
ARTICLE 8
MISCELLANEOUS
-------------
8.1 DEFINITIONS.
-----------
(a) Except as otherwise provided herein, the capitalized terms set
forth below shall have the following meanings:
-19-
<PAGE>
"AFFILIATE" of a Person shall mean: (i) any other Person directly, or
indirectly through one or more intermediaries, controlling, controlled by or
under common control with such Person; (ii) any officer, director, partner,
employer, or direct or indirect beneficial owner of any 10% or greater equity
or voting interest of such Person; or (iii) any other Person for which a
Person described in clause (ii) acts in any such capacity.
"AGREEMENT" shall mean this Stock Purchase Agreement, including the
Exhibits delivered pursuant hereto and incorporated herein by reference.
"ASSETS" of a Person shall mean all of the assets, properties,
businesses and rights of such Person of every kind, nature, character and
description, whether real, personal or mixed, tangible or intangible, accrued
or contingent, or otherwise relating to or utilized in such Person's
business, directly or indirectly, in whole or in part, whether or not carried
on the books and records of such Person, and whether or not owned in the name
of such Person or any Affiliate of such Person and wherever located.
"BOARD" shall mean the Board of Directors of Newco.
"CLOSING DATE" shall mean the date on which the Closing occurs.
"CONFIDENTIAL INFORMATION" shall mean any confidential or proprietary
information about Shareholder or Newco; provided that it does not include
information which Satellink can demonstrate: (i) is or becomes generally
available to or known by the public other than as a result of improper
disclosure by Satellink; (ii) is obtained by Satellink from a source other
than Newco, provided that such source was not bound by a duty of
confidentiality to Newco with respect to such information; or (iii) Satellink
independently develops, without recourse to the Confidential Information.
"CONSENT" shall mean any consent, approval, authorization, clearance,
exemption, waiver, or similar affirmation by any Person pursuant to any
Contract, Law, Order, or Permit.
"CONTRACT" shall mean any written or oral agreement, arrangement,
authorization, commitment, contract, indenture, instrument, lease,
obligation, plan, practice, restriction, understanding, or undertaking of any
kind or character, or other document to which any Person is a party or that
is binding on any Person or its capital stock, Assets or business.
"DEFAULT" shall mean (i) any breach or violation of, default under,
contravention of, or conflict with, any Contract, Law, Order, or Permit, (ii)
any occurrence of any event that with the passage of time or the giving of
notice or both would constitute a breach or violation of, default under,
contravention of, or conflict with, any Contract, Law, Order, or Permit, or
(iii) any occurrence of any event that with or without the passage of time or
the giving of notice would give rise to a right of any Person to exercise any
remedy or obtain any relief under, terminate or revoke, suspend, cancel, or
modify or change the current
-20-
<PAGE>
terms of, or renegotiate, or to accelerate the maturity or performance of, or
to increase or impose any Liability under, any Contract, Law, Order, or
Permit..
"ENVIRONMENTAL LAWS" shall mean all Laws relating to pollution or
protection of human health or the environment (including ambient air, surface
water, ground water, land surface, or subsurface strata) and which are
administered, interpreted, or enforced by the United States Environmental
Protection Agency and state and local agencies with jurisdiction over, and
including common law in respect of, pollution or protection of the
environment, including the Comprehensive Environmental Response Compensation
and Liability Act, as amended, 42 U.S.C. 9601 et seq. ("CERCLA"), the
Resource Conservation and Recovery Act, as amended, 42 U.S.C. 6901 et seq.
("RCRA"), and other Laws relating to emissions, discharges, releases, or
threatened releases of any Hazardous Material, or otherwise relating to the
manufacture, processing, distribution, use, treatment, storage, disposal,
transport, or handling of any Hazardous Material.
"EQUITY RIGHTS" shall mean all arrangements, calls, commitments,
Contracts, options, rights to subscribe to, scrip, understandings, warrants,
or other binding obligations of any character whatsoever relating to, or
securities or rights convertible into or exchangeable for, shares of the
capital stock of a Person or by which a Person is or may be bound to issue
additional shares of its capital stock or other Equity Rights.
"ERISA" shall mean the Employee Retirement Income Security Act of
1974, as amended.
"EXHIBITS" A and B inclusive, shall mean the Exhibits so marked,
copies of which are attached to this Agreement. Such Exhibits are hereby
incorporated by reference herein and made a part hereof, and may be referred
to in this Agreement and any other related instrument or document without
being attached hereto.
"FCC" shall mean the Federal Communications Commission.
"FCC LICENSE" means all of the right, title and interest of Newco
and/or Shareholder in and to the licenses, permits, certificates, and
governmental authorizations of Newco and/or Shareholder related to the
operation of a radio station, including without limitation, FCC licenses for
call signs WPLS710, WNVG895, WPLR493, WPFK860, WPEW921, WPIV669, WPKY249,
WPDW222, WPBK913, WPGX829, WPKI269, WNMX586, WPFM424, WNRL353, WT5252255
together with any applications and temporary authorizations for FCC licenses.
"GAAP" shall mean generally accepted accounting principles,
consistently applied during the periods involved.
"GLLCA" shall mean the Georgia Limited Liability Company Act.
"GOVERNMENTAL AUTHORITY" means any federal, state, local, foreign or
other governmental or public agency, instrumentality, commission, authority,
board or body.
-21-
<PAGE>
"HAZARDOUS MATERIAL" shall mean (i) any hazardous substance,
hazardous material, hazardous waste, regulated substance, or toxic substance
(as those terms are defined by any applicable Environmental Laws) and (ii)
any chemicals, pollutants, contaminants, petroleum, petroleum products, or
oil (and specifically shall include asbestos requiring abatement, removal, or
encapsulation pursuant to the requirements of governmental authorities and
any polychlorinated biphenyls).
"NEWCO COMMON STOCK" shall mean the no par value common stock of
Newco.
"INTELLECTUAL PROPERTY" shall mean copyrights, patents, trademarks,
service marks, service names, trade names, applications therefor, technology
rights and licenses, computer software (including any source or object codes
therefor or documentation relating thereto), trade secrets, franchises, know-
how, inventions, and other intellectual property rights.
"INTERNAL REVENUE CODE" shall mean the Internal Revenue Code of 1986,
as amended, and the rules and regulations promulgated thereunder.
"KNOWLEDGE" as used with respect to a Person (including references to
such Person being aware of a particular matter) shall mean those facts that are
known or should reasonably have been known after due inquiry by the chairman,
president, chief financial officer, chief accounting officer, chief operating
officer, general counsel, any assistant or deputy general counsel, or any
senior, executive or other vice president of such Person.
"LAW" shall mean any code, law (including common law), ordinance,
regulation, reporting or licensing requirement, rule, or statute applicable
to a Person or its Assets, Liabilities, or business, including those
promulgated, interpreted or enforced by any Regulatory Authority.
"LBCL" shall mean the Louisiana Business Corporation Law.
"LIABILITY" shall mean any direct or indirect, primary or secondary,
liability, indebtedness, obligation, penalty, cost or expense (including
costs of investigation, collection and defense), claim, deficiency, guaranty
or endorsement of or by any Person (other than endorsements of notes, bills,
checks, and drafts presented for collection or deposit in the ordinary course
of business) of any type, whether accrued, absolute or contingent, liquidated
or unliquidated, matured or unmatured, or otherwise.
"LIEN" shall mean any conditional sale agreement, default of title,
easement, encroachment, encumbrance, hypothecation, infringement, lien,
mortgage, pledge, reservation, restriction, security interest, title retention
or other security arrangement, or any adverse right or interest, charge, or
claim of any nature whatsoever of, on, or with respect to any property or
property interest, other than (i) Liens for current property Taxes not yet due
and payable, and (iii) Liens which do not materially impair the use of or title
to the Assets subject to such Lien.
-22-
<PAGE>
"LITIGATION" shall mean any action, arbitration, cause of action,
claim, complaint plaint, criminal prosecution, governmental or other
examination or investigation, hearing, administrative or other proceeding
relating to or affecting a Party, its business, its Assets (including Contracts
related to it), or the transactions contemplated by this Agreement.
"MANAGEMENT AGREEMENT" shall mean the Management Agreement, dated May
___, 1998, between Newco and Satellink.
"MATERIAL ADVERSE EFFECT" means a material adverse effect to the
property, business, operations, prospects or financial condition of Newco or
Satellink.
"NOTE" shall mean that certain promissory note of Satellink issued
and delivered to Shareholder pursuant to the Stock Purchase Agreement
"OPERATING PROPERTY" shall mean any property owned, leased, or
operated by the Party in question or by any of its Subsidiaries or in which
such Party or Subsidiary holds a security interest or other interest
(including an interest in a fiduciary capacity), and, where required by the
context, includes the owner or operator of such property, but only with
respect to such property.
"ORDER" shall mean any administrative decision or award, decree,
injunction, judgment, order, quasi-judicial decision or award, ruling, or
writ of any federal, state, local or foreign or other court, arbitrator,
mediator, tribunal, administrative agency, or Regulatory Authority.
"PARTICIPATION FACILITY" shall mean any facility or property in which
the Party in question or any of its Subsidiaries participates in the
management and, where required by the context, said term means the owner or
operator of such facility or property, but only with respect to such facility
or property.
"PARTY" shall mean either Newco, Shareholder or Satellink, and
"PARTIES" shall mean Newco, Shareholder and Satellink.
"PERMIT" shall mean any federal, state, local, and foreign
governmental approval, authorization, certificate, easement, filing,
franchise, license, notice, permit, or right to which any Person is a party
or that is or may be binding upon or inure to the benefit of any Person or
its securities, Assets, or business.
"PERSON" shall mean a natural person or any legal, commercial or
governmental entity, such as, but not limited to, a corporation, general
partnership, joint venture, limited partnership, limited liability company,
trust, business association, group acting in concert, or any person acting in
a representative capacity.
"REGULATORY AUTHORITIES" shall mean, collectively, the FCC, the
Federal Trade Commission, the United States Department of Justice, and all
other federal, state, county, local or other governmental or regulatory
agencies, authorities (including self-regulatory
-23-
<PAGE>
authorities), instrumentalities, commissions, boards or bodies having
jurisdiction over the Parties and their respective Subsidiaries.
"RESELLER AGREEMENT" shall mean the Reseller Agreement, dated May
___, 1998 between Newco and Satellink.
"RESTRUCTURE TAX" shall mean that amount by which (a) the aggregate
of all federal, state or local income tax payable by Shareholder as a result
of the taxation at ordinary income tax rates of any gain recognized on the
transfer of the Assets by Hyde's Stay in Touch, Inc. to Newco exceeds (b)
the aggregate of all federal, state and local income tax that would be
payable by Shareholder if such gain had been taxed at applicable capital
gains rates.
"SATELLINK ENTITIES" shall mean, collectively, Satellink and
Satellink Communications, Inc..
"SHAREHOLDER'S CLOSING DOCUMENTS" shall mean all certificates to be
delivered by Shareholder pursuant to Section 5.1(a).
"STOCK PURCHASE AGREEMENT" shall mean the Stock Purchase Agreement,
dated as of April 9, 1998, between and among the Parties, as amended by the
First Amendment to Stock Purchase Agreement, dated of even date herewith,
between and among the Parties.
"SUBSIDIARIES" shall mean all those corporations, associations, or
other business entities of which the entity in question either (i) owns or
controls 50% or more of the outstanding equity securities either directly or
through an unbroken chain of entities as to each of which 50% or more of the
outstanding equity securities is owned directly or indirectly by its parent
(provided, there shall not be included any such entity the equity securities
of which are owned or controlled in a fiduciary capacity), (ii) in the case
of partnerships, serves as a general partner, (iii) in the case of a limited
liability company, serves as a managing member, or (iv) otherwise has the
ability to elect a majority of the directors, trustees or managing members
thereof.
"TAX RETURN" shall mean any report, return, information return, or
other information required to be supplied to a taxing authority in connection
with Taxes, including any return of an affiliated or combined or unitary
group that includes a Party or its Subsidiaries.
"TAX" or "TAXES" shall mean any federal, state, county, local, or
foreign taxes, charges, fees, levies, imposts, duties, or other assessments,
including income, gross receipts, excise, employment, sales, use, transfer,
license, payroll, franchise, severance, stamp, occupation, windfall profits,
environmental, federal highway use, commercial rent, customs duties, capital
stock, paid-up capital, profits, withholding, Social Security, single
business and unemployment, disability, real property, personal property,
registration, ad valorem, value added, alternative or add-on minimum,
estimated, or other tax or governmental fee of
-24-
<PAGE>
any kind whatsoever, imposes or required to be withheld by the United States
or any state, county, local or foreign government or subdivision or agency
thereof, including any interest, penalties, and additions imposed thereon or
with respect thereto.
"THRESHOLD AMOUNT" shall mean $50,000 less the amount of any Loss, as
defined in the Stock Purchase Agreement, that is not subject to
indemnification as provided in Article VII of the Stock Purchase Agreement by
reason of Section 7.8 of the Stock Purchase Agreement.
(b) The terms set forth below shall have the meanings ascribed
thereto in the referenced sections:
Acquisition Proposal Section 4.5
Buyer Indemnitee Section 7.1
Buyer Indemnitor Section 7.1
Closing Section 1.2
Newco Benefit Plans Section 2.15
Indemnitee Section 7.1
Indemnitor Section 7.1
Indemnification Claim Section 7.1
Losses Section 7.1
Notice Period Section 6.3
Purchase Price Section 1.1
Seller Indemnitee Section 7.1
Seller Indemnitor Section 7.1
Stock Purchase Section 1.1
Third Party Claim Section 7.1
(c) Any singular term in this Agreement shall be deemed to include
the plural, and any plural term the singular. Whenever the words "include,"
"includes" or "including" are used in this Agreement, they shall be deemed
followed by the words "without limitation."
8.2 NATURE AND SURVIVAL OF REPRESENTATIONS. The representations,
--------------------------------------
warranties, covenants and agreements contained in this Agreement shall survive
the Closing until that date which is five (5) years after the Closing Date,
except that: (i) the representations and warranties contained in Section 2.9
shall survive the Closing until the expiration of the period of time when
deficiencies may be assessed against Newco with respect to any tax period ended
on or prior to the Effective Time; (ii) the representations and warranties
contained in Section 2.14 shall survive the Closing until the seventh
anniversary of the Closing Date; and (iii) the representations and warranties
contained in Sections 2.2, 2.3, 2.4, 2.5, 2.10(a) and 2.12 shall survive
indefinitely. Satellink acknowledges that it has been afforded the opportunity
to perform such investigation of Newco as it deems necessary or appropriate;
however, no investigation by Satellink will diminish or obviate any of the
representations, warranties, covenants or agreements or Satellink's right to
rely upon such representations, warranties, covenants and agreements.
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<PAGE>
8.3 AMENDMENT. This Agreement may not be amended or modified without the
---------
prior written consent of all parties.
8.4 WAIVER. Failure to insist upon strict compliance with any of the
------
terms or conditions of this Agreement at any one time shall not be deemed a
waiver of such term or condition at any other time; nor shall any waiver or
relinquishment of any right or power granted herein at any time be deemed a
waiver or relinquishment of the same or any other right or power at any other
time.
8.5 GOVERNING LAW. Notwithstanding the place where this Agreement may be
-------------
executed by any of the Parties, the Parties expressly agree that this Agreement
shall in all respects be governed by, and construed in accordance with, the laws
of the State of Louisiana without regard for its conflict of laws doctrine.
8.6 NOTICES. Any notice or other communication to be given hereunder
-------
shall be in writing and shall be deemed sufficient when (i) mailed by United
States certified mail, return receipt requested, (ii) mailed by overnight
express mail, (iii) sent by facsimile or telecopy machine, followed by
confirmation mailed by first-class mail or overnight express mail, or (iv)
delivered in person, at the address set forth below, or such other address as a
party may provide to the other in accordance with the procedure for notices set
forth in this Section:
If to Satellink:
Satellink Paging LLC
1325 Northmeadow Parkway
Suite 120
Roswell, Georgia 30076
Attention: Mr. Jerry W. Mayfield
Telephone: (770) 625-2599
Telecopy: (770) 625-2651
with a copy (which shall not constitute notice) to:
Alston & Bird llp
One Atlantic Center
1201 W. Peachtree Street
Atlanta, Georgia 30309
Attention: Sidney J. Nurkin, Esq.
Telephone: (404) 881-7000
Telecopy: (404) 881-7777
If to Newco:
Hyde's Newco Corporation, Inc.
5709 Shoreline
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<PAGE>
Shreveport, Louisiana 71119
Attn: Mr. R. Daniel Hyde, Jr.
Telephone: (318) 425-2255
Telecopy: (318) 869-4552
with a copy (which shall not constitute notice) to:
Greer & Frazier
Post Office Box 404
Shreveport, Louisiana 71162-0404
Attn: John M. Frazier, Esq.
Telephone: (318) 222-0202
Telecopy: (318) 226-1364
If to Shareholder:
Mr. R. Daniel Hyde, Jr.
5709 Shoreline
Shreveport, Louisiana 71119
Telephone: (318) 631-6324
Telecopy: ________________
with a copy (which shall not constitute notice) to:
Greer & Frazier
Post Office Box 404
Shreveport, Louisiana 71162-0404
Attn: John M. Frazier, Esq.
Telephone: (318) 222-0202
Telecopy: (318) 226-1364
8.7 INVALID PROVISION. If any provision of this Agreement shall be
-----------------
determined to be invalid or unenforceable, this Agreement shall be deemed
amended to delete such provision and the remainder of this Agreement shall be
enforceable by its terms.
8.8 ASSIGNMENT. This Agreement may not be assigned or delegated by any
----------
party without the prior written consent of all other parties, which consent
shall not be unreasonably withheld or delayed. In the event of assignment of
this Agreement the original parties shall remain bound to the obligations,
terms, conditions and provisions of this Agreement.
8.9 BINDING EFFECT. This Agreement shall be binding upon and inure to
--------------
the benefit of the Parties and their respective permitted successors and
assigns.
-27-
<PAGE>
8.10 FURTHER ASSURANCES. Each Party agrees to execute and deliver all
------------------
such further instruments and do all such further acts as may be reasonably
necessary or appropriate to effectuate this Agreement.
8.11 HEADINGS. Headings and captions contained in this Agreement are
--------
inserted only as a matter of convenience and for reference and in no way define,
limit, extend or prescribe the scope of this Agreement or the intent of any
provision.
8.12 PERSON AND GENDER. The masculine gender shall include the feminine
-----------------
and neuter genders and the singular shall include the plural.
8.13 ENTIRE AGREEMENT. This Agreement, together with its Schedules and
----------------
Exhibits, and the Letter of Intent and confidentiality agreement referenced
therein, constitute the entire agreement of the parties with respect to matters
set forth in this Agreement and the Letter of Intent, and supersede any prior
understanding or agreement, oral or written, with respect to such matters. To
the extent that the provisions of this Agreement and the Letter of Intent may be
inconsistent, the provisions of this Agreement shall control.
8.14 ARBITRATION. The parties agree that any dispute between or among
-----------
them arising out of or based upon this Agreement, or the consummation of the
transactions provided for herein shall be submitted to and resolved by
arbitration in Shreveport, Louisiana in accordance with the rules and procedures
of the American Arbitration Association, and the decision of a single arbitrator
in such dispute shall be final and binding on the parties to such arbitration
proceeding. Except as the arbitrator may otherwise award or assess the expenses
of any such proceeding, each party shall bear its own costs and expenses,
including the expense of its counsel, in any such arbitration proceeding. The
arbitrator shall be appointed by agreement of the parties. If there is no
agreement upon a single arbitrator within fifteen (15) days after the submission
of the dispute for arbitration, the arbitrator shall be selected by the
following procedure: Satellink shall appoint one (1) arbitrator and Shareholder
shall appoint one (1) arbitrator and the two appointed arbitrators shall select
a mutually agreeable third arbitrator, which arbitrator shall arbitrate the
dispute in accordance with this Section 8.14. If either of the two arbitrators
is not so appointed or if the two arbitrators refuse or fail to appoint the
third arbitrator within 30 days after the expiration of the aforementioned 15
day period, either party may request the American Arbitration Association to
make the appointment in default in accordance with its rules then obtaining and
the parties shall abide by any appointment so made.
8.15 EXECUTION IN COUNTERPARTS. This Agreement may be executed in any
-------------------------
number of counterparts, each of which shall be an original, and all such
counterparts shall constitute one and the same Agreement, binding on all the
parties notwithstanding that all the parties are not signatories to the same
counterpart.
8.16 INTERPRETATIONS. Neither this Agreement nor any uncertainty or
---------------
ambiguity herein shall be construed or resolved against any party, whether under
any rule of construction or otherwise. No party to this Agreement shall be
considered the draftsman. The parties acknowledge and agree that this Agreement
has been reviewed, negotiated, and accepted by all
-28-
<PAGE>
parties and their attorneys and shall be construed and interpreted according to
the ordinary meaning of the words used so as fairly to accomplish the purposes
and intentions of all parties hereto.
IN WITNESS WHEREOF, Shareholder has executed this Agreement under seal
and each of the other Parties has caused this Agreement to be executed on its
behalf by its duly authorized officers as of the day and year first above
written.
SATELLINK PAGING, LLC
By: SATELLINK COMMUNICATIONS, INC.,
its Manager
By: /s/ Jerry W. Mayfield
------------------------------
Jerry W. Mayfield
President
9077 BROADCASTING, INC.
By: /s/ R. Daniel Hyde, Jr.
------------------------------
R. Daniel Hyde, Jr.
President
THE SHAREHOLDER:
/s/ R. Daniel Hyde, Jr. (SEAL)
-----------------------
R. Daniel Hyde, Jr.
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<PAGE>
LIST OF EXHIBITS
----------------
EXHIBIT DESCRIPTION
-------- -----------
A. Form of Newco' Legal Opinion.
B. Form of Satellink's Legal Opinion.
-iii-
<PAGE>
Exhibit 23.2
Consent of Independent Public Accountants
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.
/s/ Arthur Andersen LLP
Atlanta, Georgia
April 8, 1998
<PAGE>
EXHIBIT 23.3
CONSENT OF INDEPENDENT AUDITOR
As Independent auditor for Hyde's Stay In Touch, Inc., I hereby consent to the
use of my report and to the references to me included in or made part of this
registration statement.
James N. Rachel
/s/ James N. Rachel
Shreveport, Louisiana
April 8, 1998
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM SATELLINK
COMMUNICATIONS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUL-31-1998
<PERIOD-START> AUG-01-1997
<PERIOD-END> APR-30-1998
<CASH> 255,167
<SECURITIES> 0
<RECEIVABLES> 4,322,969
<ALLOWANCES> 0
<INVENTORY> 170,885
<CURRENT-ASSETS> 532,050
<PP&E> 16,110,713
<DEPRECIATION> 4,945,836
<TOTAL-ASSETS> 34,994,253
<CURRENT-LIABILITIES> 4,989,746
<BONDS> 0
8,000,000
74
<COMMON> 30,544
<OTHER-SE> 4,975,162
<TOTAL-LIABILITY-AND-EQUITY> 34,994,253
<SALES> 0
<TOTAL-REVENUES> 15,480,455
<CGS> 801,288
<TOTAL-COSTS> 15,395,665
<OTHER-EXPENSES> 2,096,953
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,740,176
<INCOME-PRETAX> 84,790
<INCOME-TAX> 0
<INCOME-CONTINUING> 2,012,163
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,012,163
<EPS-PRIMARY> (.79)
<EPS-DILUTED> (51.11)
</TABLE>
