<PAGE>
As filed with the Securities and Exchange Commission on March 10, 1999
Registration No. 333-71365
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- -------------------------------------------------------------------------------
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
jurisdiction of
incorporation or
organization)
(Primary Standard Industrial Classification Code Number)
(I.R.S. employer
identification number)
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. Jon H. Klapper, Esq.
Scott D. Dickinson, Esq. William J. Ching, 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) 881-4777 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. [_]
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CALCULATION OF REGISTRATION FEE
<TABLE>
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- -------------------------------------------------------------------------------------
<CAPTION>
Proposed Maximum
Title of Each Class of Amount Proposed Maximum Aggregate Amount of
Securities to be to be Offering Price Offering Registration
Registered Registered(1) per Share(2) Price(2) Fee(3)
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<S> <C> <C> <C> <C>
Common Stock, $0.01 par
value per share....... 5,750,000 $11.00 $63,250,000 $17,584.00
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</TABLE>
(1) Includes 750,000 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) $14,067.00 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>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+The information in this prospectus is not complete and may be changed. We may +
+not sell these securities until the registration statement filed with the +
+Securities and Exchange Commission is effective. This prospectus is not an +
+offer to sell these securities and it is not soliciting an offer to buy these +
+securities in any state where the offer or sale is not permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED MARCH 10, 1999
PROSPECTUS
5,000,000 Shares
[LOGO OF SATELLINK COMMUNICATIONS, INC. APPEARS HERE]
Common Stock
This is an initial public offering of 5,000,000 shares of our common stock.
Satellink is offering 4,000,000 of these shares, and our shareholders are
offering 1,000,000 of these shares.
There is currently no public market for our common stock, but we have applied
for the common stock to be listed on The Nasdaq Stock Market's National Market
under the symbol "STLK." We expect that the initial public offering price will
be between $9.00 and $11.00 per share.
See "Risk Factors" beginning on page 7 for a discussion of factors that you
should consider before you invest in our common stock.
-----------
<TABLE>
<CAPTION>
Per Share Total
--------- -----
<S> <C> <C>
Public Offering Price........................................... $ $
Underwriting Discount........................................... $ $
Proceeds to Satellink........................................... $ $
Proceeds to the Selling Shareholders............................ $ $
</TABLE>
Satellink has granted the underwriters an option to purchase up to 750,000
additional shares of common stock to cover over-allotments.
-----------
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved these securities or passed upon the
accuracy or adequacy of this prospectus. Any representation to the contrary is
a criminal offense.
-----------
J.C.Bradford&Co. Morgan Keegan & Company, Inc.
, 1999
<PAGE>
U.S. MAP SHOWING SATELLINK'S STAR*NET LOCATIONS
2
<PAGE>
PROSPECTUS SUMMARY
This summary highlights information contained elsewhere in this prospectus.
It is not complete and does not contain all of the information that you should
consider before investing in our common stock. You should read the entire
prospectus carefully, especially "Risk Factors" and the financial statements
and notes to the financial statements before making any decision to invest in
our common stock. Our fiscal year ends on July 31, and references to a
particular fiscal year refer to the 12 months ended on July 31 of that year. On
December 8, 1998, Satellink merged with the Cape Fear Paging Companies in a
transaction accounted for as a pooling of interests. All financial and
operating data reflect the merger. Unless otherwise stated, all information in
this prospectus assumes that (1) the shares of common stock will be sold to the
public at $10.00 per share and (2) the underwriters will not exercise their
over-allotment option.
Satellink
Satellink is a leading regional provider of messaging and enhanced personal
telecommunications services to businesses and individuals. We provide these
services in smaller metropolitan areas and major cities in the southeastern and
southwestern United States. Through our proprietary STAR*Net telecommunications
platform and the use of multiple messaging networks, we offer our subscribers
an assortment of service and pricing options not readily available from many of
our competitors. Founded in 1988, Satellink has increased its subscriber base
through internal growth and acquisitions from approximately 105,700 subscribers
as of July 31, 1996 to approximately 222,000 subscribers as of January 31,
1999.
In 1995, we began development of our proprietary Satellink Telecommunications
Application Resource Network, or STAR*Net, in anticipation of increased demand
for enhanced personal telecommunications services from a single provider.
Through the STAR*Net platform, which integrates readily available and
relatively inexpensive hardware with our proprietary software, we offer our
subscribers paging services as well as the following enhanced personal
telecommunications services:
. single telephone number access to paging, voicemail, long distance and
"find me" services;
. prepaid and postpaid long distance calling cards;
. inbound 1-800 service;
. the ability to originate a phone call from within a subscriber's
voicemail; and
. Internet e-mail delivery via alphanumeric pager.
While we do not have STAR*Net platforms in place throughout our network,
approximately 30% of our subscribers currently receive messaging and enhanced
personal telecommunications services through a STAR*Net platform. As we install
STAR*Net platforms throughout our network, subscribers will be able to receive
existing messaging and voicemail services and additional STAR*Net services. We
expect approximately 75% of our subscribers to be serviced by a STAR*Net
platform within the next 18 months.
3
<PAGE>
Growth Strategy
Our primary objective is to become a leading national provider of messaging
and enhanced personal telecommunications services. We intend to achieve our
objective by pursuing the following strategies:
. Focus on Niche Markets.
We target smaller metropolitan markets throughout the southeastern and
southwestern United States that we believe are underserved by larger providers
of personal telecommunications services who focus on more densely-populated
metropolitan areas. Each STAR*Net platform costs approximately $25,000, which
is significantly less than comparable switching platforms. This allows us to
offer our services in these smaller markets where the implementation of a more
expensive platform is not economically justified. We also focus on providing
regional and national coverage, which generates higher revenue per subscriber
as compared to local coverage.
. Capitalize on Enhanced STAR*Net Services to Attract New Subscribers.
Satellink believes that the introduction of the STAR*Net services has
expanded our target market because potential new subscribers now include users
of enhanced personal telecommunications services in addition to users of
traditional paging and voicemail services. We also believe that businesses and
individuals who currently use multiple providers for their personal
telecommunications needs will be attracted to Satellink because we are able to
provide them with a suite of services and a single bill for all of their
services.
. Expand Subscriber Base Through Acquisitions.
Satellink intends to continue increasing our subscriber base and our
opportunities to cross-market STAR*Net services by identifying and acquiring
providers of paging, voicemail and other personal telecommunications services.
Since January 1996, we have acquired 13 paging and voicemail operators for an
aggregate consideration of $37.0 million and 2.5 million shares of our common
stock.
. Cross-Market an Integrated Suite of STAR*Net Services to Existing and
Acquired Subscribers.
We intend to continue cross-marketing STAR*Net services to our existing and
acquired subscribers. We believe that our subscribers are mobile individuals
who are likely to use multiple personal telecommunications services and
purchase these services from us.
. Expand the Suite of STAR*Net Services.
Satellink intends to develop new STAR*Net services and offer them along with
existing STAR*Net services. These combined services will constitute a unified
messaging platform and provide us with additional cross-marketing opportunities
to existing and new subscribers.
The Offering
Common stock offered by Satellink......... 4,000,000 shares
Common stock offered by the selling
shareholders.............................. 1,000,000 shares
Common stock to be outstanding after the
offering.................................. 11,485,316 shares
Use of proceeds........................... To repay indebtedness and redeem
our Series D preferred stock
Proposed Nasdaq National Market symbol.... STLK
4
<PAGE>
Summary Financial and Operating Data
You should read the following summary historical and pro forma financial and
operating data in conjunction with "Use of Proceeds," our consolidated
financial statements and related notes, including the unaudited interim and pro
forma consolidated financial information, and other financial information which
appears later in this prospectus.
The pro forma statements of operations and other data reflect the acquisition
of Hyde's Stay In Touch, Inc. and its affiliated company as if it had occurred
at the beginning of the periods presented. The pro forma financial information
does not represent what our results of operations would have been if the
acquisition had occurred on such date, nor does it indicate our future
financial position or results of future operations. The pro forma adjustments
are based on currently available information and certain assumptions that we
believe are reasonable. The "As Adjusted" column reflects our sale of 4,000,000
shares of common stock and the application of the estimated net proceeds.
Adjusted EBITDA represents earnings before interest, taxes, depreciation and
amortization, fixed asset impairment, nonrecurring charges, write-off of
offering costs, accretion of stock warrants, extraordinary item and the
cumulative effect of a change in accounting principle. Adjusted EBITDA is a
measure of financial performance that is often used 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 we are in compliance with the covenants
of our senior credit facility. However, Adjusted EBITDA should not be
considered in isolation or as an alternative to net income (loss), operating
income, cash provided by operating activities or any other measure of
performance under generally accepted accounting principles. Adjusted EBITDA may
be calculated differently by different companies. Thus, Adjusted EBITDA as
presented may not be comparable to Adjusted EBITDA or other similarly titled
measures reported by other companies. Adjusted EBITDA for fiscal 1996 excludes
$440,000 related to research and development expenses. Adjusted EBITDA margin
is calculated by dividing Adjusted EBITDA by net revenues.
<TABLE>
<CAPTION>
Six Months
Years Ended July 31, Ended January 31,
------------------------------------ -----------------------------
Pro Forma As Adjusted
1996 1997 1998 1998 1998 1999 1999
------- ------- ------- --------- ------- ------- -----------
(Dollars in thousands, except per share data and ARPU)
<S> <C> <C> <C> <C> <C> <C> <C>
Consolidated Statement
of Operations Data:
Service, rent and
maintenance revenue.... $21,285 $31,194 $37,339 $40,639 $17,652 $22,008 $22,008
Product sales........... 1,836 2,315 2,322 3,386 930 1,756 1,756
------- ------- ------- ------- ------- ------- -------
Total revenues......... 23,121 33,509 39,661 44,025 18,582 23,764 23,764
Cost of products sold... (1,396) (1,968) (1,515) (2,684) (561) (1,525) (1,525)
------- ------- ------- ------- ------- ------- -------
Net revenues........... 21,725 31,541 38,146 41,341 18,021 22,239 22,239
Operating expenses...... 17,004 25,368 28,858 30,243 13,621 16,247 17,876
Depreciation and
amortization........... 2,222 4,181 5,130 5,793 2,225 2,776 2.776
Research and
development............ 440 -- -- -- -- -- --
Nonrecurring charges.... -- -- -- -- -- 1,629 1,629
Fixed asset impairment.. -- -- 834 834 834 -- --
------- ------- ------- ------- ------- ------- -------
Operating income........ 2,059 1,992 3,324 4,471 1,341 1,587 1,587
Other income (expense)
....................... (17) 494 695 966 (81) 472 472
Interest expense........ (909) (2,289) (3,832) (4,788) (1,463) (2,430) (935)
Accretion of stock
warrants (1)........... (854) (1,773) (450) (450) (229) (119) --
Write-down of offering
costs.................. -- -- -- -- -- (570) --
------- ------- ------- ------- ------- ------- -------
Income (loss) before
income tax expense,
extraordinary item and
cumulative effect of
change in accounting
principle.............. 279 (1,576) (263) 199 (432) (1,060) 1,124
Income tax expense...... 578 390 630 630 558 88 427
------- ------- ------- ------- ------- ------- -------
Income (loss) before
extraordinary item and
cumulative effect of
change in accounting
principle.............. (299) (1,966) (893) (431) (990) (1,148) 697
Extraordinary loss on
early retirement of
debt................... (132) -- -- -- -- -- --
Cumulative effect of
change in accounting
principle.............. -- -- (629) -- (629) -- --
------- ------- ------- ------- ------- ------- -------
Net income (loss) ..... (431) (1,966) (1,522) (431) (1,619) (1,148) 697
Preferred stock
dividends.............. 334 439 630 631 219 508 --
------- ------- ------- ------- ------- ------- -------
Net income (loss)
attributable to common
shareholders........... $ (765) $(2,405) $(2,152) $(1,062) $(1,838) $(1,656) $ 697
======= ======= ======= ======= ======= ======= =======
Allocation to Class A
common stock.......... $ (739) $(2,384) $(2,151) $(1,062) $(1,837) $(1,656) $ 697
Allocation to Class B
common stock.......... (26) (21) (1) -- (1) -- --
</TABLE>
5
<PAGE>
<TABLE>
<CAPTION>
Six Months
Years Ended July 31, Ended January 31,
---------------------------------------------- -----------------------------------
Pro Forma As Adjusted
1996 1997 1998 1998 1998 1999 1999
---------- ---------- ---------- ---------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Net income (loss) per
share (2):
Loss from extraordinary
item -- basic:
Class A common stock... $ (0.03) $ -- $ -- $ -- $ -- $ -- $ --
Class B common stock... (2.23) -- -- -- -- -- --
Loss from cumulative
effect of change in
accounting principle:
Class A common stock... $ -- $ -- $ (0.11) $ -- $ (0.11) $ -- $ --
Class B common stock... -- -- (9.59) -- (9.68) -- --
Net income (loss)
attributable to common
shareholders -- basic:
Class A common stock... $ (0.15) $ (0.47) $ (0.39) $ (0.19) $ (0.33) $ (0.30) $ 0.06
Class B common stock... (12.90) (39.36) (32.77) -- (28.29) -- --
Net income (loss)
attributable to common
shareholders --
diluted:
Class A common stock... $ (0.15) $ (0.47) $ (0.39) $ (0.19) $ (0.33) $ (0.30) $ 0.05
Class B common stock... (12.90) (39.36) (32.77) -- (28.29) -- --
Weighted average common
shares outstanding --
basic:
Class A common stock... 4,841,962 5,117,657 5,545,168 5,545,168 5,486,730 5,588,296 11,485,316
Class B common stock... 2,013 535 22 22 35 -- --
Weighted average common
shares outstanding --
diluted:
Class A common stock... 4,841,962 5,117,657 5,545,168 5,545,168 5,486,730 5,588,296 13,293,229
Class B common stock... 2,013 535 22 22 35 -- --
</TABLE>
<TABLE>
<CAPTION>
At January 31, 1999
--------------------
Actual As Adjusted
------- -----------
<S> <C> <C>
Balance Sheet Data:
Working capital............................................ $ 2,311 $ 2,313
Property and equipment, net................................ 22,763 22,763
Total assets............................................... 67,024 67,027
Long term debt, less current maturities.................... 53,486 21,686
Total shareholders' equity (deficit) ...................... (6,896) 36,921
</TABLE>
<TABLE>
<CAPTION>
Six Months
Years Ended July 31, Ended January 31,
--------------------------------------- -------------------------------
Pro Forma As Adjusted
1996 1997 1998 1998 1998 1999 1999
-------- -------- -------- --------- -------- -------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Other Data:
Cash provided by
operating activities... $ 4,189 $ 4,523 $ 5,440 $ 8,198 $ 1,645 $ 4,048 $ 5,078
Cash used in investing
activities............. (15,329) (14,354) (29,809) (16,055) (5,942) (9,520) (9,520)
Cash provided by financ-
ing activities......... 11,972 9,288 24,241 7,729 4,021 5,380 5,859
Adjusted EBITDA......... 4,265 6,668 9,984 12,063 4,319 6,484 6,484
Adjusted EBITDA margin.. 19.6% 21.1% 26.2% 27.4% 24.0% 29.2% 29.2%
Subscribers (end of pe-
riod).................. 105,748 146,717 207,067 207,067 163,394 221,966 221,966
Average revenues per
unit (3)............... $ 22.14 $ 20.82 $ 17.97 $ 19.48 $ 19.37 $ 17.28 $ 17.28
Capital expenditures.... $ (4,930) $ (5,393) $ (8,831) $ (8,831) $ (5,352) $ (8,739) $ (8,739)
Cash dividends and dis-
tributions (4)......... (334) (450) (519) -- (263) (479) --
</TABLE>
- -------
(1) See note 6 to consolidated financial statements.
(2) See note 2 to consolidated financial statements.
(3) Average revenues per unit, or ARPU, equals the net revenues for a given
period divided by the average number of subscribers during such period. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Overview."
(4) See note 6 to consolidated financial statements and "Dividend Policy."
6
<PAGE>
RISK FACTORS
An investment in our common stock involves a high degree of risk. In addition
to the other information contained in this prospectus, you should carefully
consider the following risk factors before purchasing our common stock.
If we are unable to effectively manage our growth, our business could suffer
Satellink has experienced substantial increases in revenue and personnel in
recent years. This growth has strained our administrative, technical and
financial resources. Future growth could further strain our resources.
Our future operating results will depend heavily on our ability to manage our
business in the face of our growth and changing industry conditions. If we do
not respond appropriately to growth and change, the quality of our services,
our ability to retain key personnel and our business in general could be
negatively affected. For example, a particular problem we face is predicting
growth in network usage and the capacity necessary to support our networks. If
we do not correctly predict the growth in network usage and required capacity,
our business, financial condition and operating results could be negatively
affected.
Acquisitions could harm our business
Much of Satellink's recent growth is due to acquisitions, and we are
continually evaluating possible future acquisitions. However, acquisitions
involve many risks that could negatively affect our business, financial
condition or operating results, including:
. problems integrating the operations of the acquired company;
. diversion of management's attention;
. potential problems as we enter into new markets;
. loss of key employees or subscribers;
. the potential dilution of common stock;
. incurrence of debt held by the acquired company;
. assumption of known or unknown liabilities;
. incurrence of amortization expenses relating to goodwill and other
intangible assets; and
. unexpected transaction expenses.
On December 8, 1998, we completed the merger of Cape Fear Paging Company of
North Carolina, Cape Fear Paging Company and CF Paging Corporation with our
wholly-owned subsidiary. This acquisition was the largest acquisition that we
have made to date. We cannot guarantee that Cape Fear and Satellink will be
successfully integrated or that the integration will be done on a timely basis.
We cannot guarantee that we will complete any future acquisitions.
We have a history of net losses and cannot guarantee that we will be profitable
We have incurred net losses for each of the last four fiscal years and cannot
guarantee that we will be profitable in the future. Our net losses for each of
the last four fiscal years were:
<TABLE>
<S> <C>
1998...................................... $1.5 million
1997...................................... $2.0 million
1996...................................... $ 430,000
1995...................................... $ 330,000
</TABLE>
Our profitability depends on many factors, including:
7
<PAGE>
. maintaining our subscriber base;
. attracting new subscribers; and
. effectively implementing our business strategies.
Changes in technology might harm our business
The telecommunications industry is characterized by rapidly changing
technology and evolving industry standards. Also, subscriber needs frequently
change, and competitors constantly introduce new services. To be successful, we
must:
. use leading technologies effectively;
. continue developing our technical expertise;
. enhance our existing services;
. develop new services; and
. meet changing subscriber needs on a timely and cost-effective basis.
We also expect our services to compete against the following new products and
technologies:
. notebook computers equipped with sound cards, fax modems and cellular
modems;
. portable and wireless Internet appliances;
. personal digital assistants or personal communications systems phones;
and
. unified messaging platforms.
Our STAR*Net platform and services may not be successful
Development of new services requires us to design and successfully integrate
new technologies into our STAR*Net platform. We cannot guarantee that we will
be able to design and integrate these technologies. Several of our competitors
have introduced services that are functionally similar to our STAR*Net
services. We cannot guarantee that present or potential subscribers will accept
our new STAR*Net services or that they will not choose to use our competitors'
services. If we cannot develop new products and services on a timely basis, our
business, financial condition and operating results could be negatively
affected.
We have only limited experience with STAR*Net services
We have limited experience in developing and marketing STAR*Net services, as
well as establishing new networks and replacing existing networks with the
STAR*Net platform. Because of our inexperience with STAR*Net services, we may
experience unexpected delays or problems in developing and marketing new
services, replacing existing networks or establishing new networks. We also may
have problems transferring subscribers from existing networks to the STAR*Net
platform. Our inexperience with the STAR*Net platform may negatively affect our
business, financial condition and operating results.
The telecommunications service industry is very competitive
The telecommunications service industry is very competitive and subject to
rapid technological change. We expect competition to increase in the future.
Many of our competitors have longer operating histories, greater name
recognition, larger customer bases and greater resources than we have. We may
not compete successfully against current or future competitors, and the
competitive pressures that we face may negatively affect our business,
financial condition and operating results.
Several of our competitors offer many of the same services and service
combinations that we offer. For example, Premiere Technologies, Inc. offers
bundled telecommunications services similar to ours. In addition, Octel
Communications Corporation and Microsoft Corporation recently announced a
service called "Unified
8
<PAGE>
Messenger," which places all voicemail, e-mail and fax messages in a single
mailbox that is accessible by telephone or computer. Some of the services our
competitors offer include:
<TABLE>
<CAPTION>
Service Competitors
- ------- -----------
<S> <C>
Paging............................ Air Touch Communications, Inc.
Arch Communications, Inc.
Metrocall, Inc.
Mobile Media Communications, Inc.
Page Mart, Inc.
Paging Network, Inc.
Sky Tel Corporation
Voicemail......................... AT&T Corporation
Boston Technology, Inc.
Centigram Communications Corporation
Digital Sound Corporation
Octel Communications Corporation
Northern Telecom, Inc.
Regional Bell Operating Companies
Siemens Business Communications Systems, Inc.
Mobile Communications............. AT&T Corporation
MCI WorldCom, Inc.
Smaller long distance providers
Sprint Corp.
</TABLE>
On February 8, 1996, President Clinton signed into law the Telecommunications
Act of 1996, or the Telecom Act. The new law allows Regional Bell Operating
Companies, or Baby Bells, to provide long distance telephone service between
Local Access and Transport Areas, or LATAs. The Telecom Act probably will
significantly increase competition for long distance services. In addition, the
new legislation gives the Federal Communications Commission authority to
deregulate other aspects of the telecommunications industry. Possible FCC
deregulation could include allowing the Baby Bells to offer an integrated group
of information and telecommunications services to customers. If the FCC
approves this type of deregulation, our competition will further increase and
our business, financial condition and operating results could be negatively
affected.
Telecommunications companies compete primarily based on price. In addition,
major long distance carriers and paging companies conduct extensive advertising
campaigns to attract customers. If these competitors decrease their rates or
otherwise attract our subscribers, we could be at a competitive disadvantage.
We expect other companies to develop and market information and
telecommunication platforms similar to ours, which could further increase
competition. We also expect that the telecommunications industry will continue
to attract new competitors and new technologies, which could put us at a
further disadvantage.
Market acceptance of personal telecommunications services remains uncertain
Our success depends upon our subscribers' and potential subscribers'
acceptance of our present and future services. Our personal telecommunications
services integrate the functions of telephones and computers. Satellink's
services are different from traditional methods of communication and require
that users be open to new ways of communicating. We believe that broad
acceptance and use of our services depends on ease of use, price, reliability,
quality of service, system security and functionality. In addition, we must
effectively market and distribute our services. If demand for our services
declines or we fail to attract new subscribers, our business, financial
condition and operating results could be negatively affected.
9
<PAGE>
Our services depend on networks, switching facilities and the STAR*Net platform
We rely on our own network, third-party networks, our switching facilities
and the STAR*Net platform to offer our services. A fire, act of sabotage,
technical failure, natural disaster or similar event could impact the networks,
facilities and platforms and cause an interruption in our services. For
example, on May 18 and 19, 1998, the Galaxy 4 satellite owned by PanAmSat
malfunctioned. PanAmSat transmits paging messages for a majority of the pagers
in use in the United States. The satellite malfunction interrupted paging
service of up to 40 million subscribers in the United States, including
approximately 25% of our subscribers. Future technical malfunctions of our own
network, third-party networks, our switching facilities or the STAR*Net
platform could disrupt service on a larger scale.
We depend on CUE Paging Corporation to maintain its network
Our FM subcarrier paging network is linked with the CUE nationwide FM
subcarrier paging network, which we do not control. We deliver nationwide
paging service through this network and depend on CUE to maintain and develop
its paging network. CUE is not obligated to upgrade or further develop its
network to accommodate new technologies or subscribers. We estimate that the
CUE network now operates at approximately 60% of capacity. Assuming that
historical growth rates on the CUE network continue as they have in the past
and that CUE continues to maintain its network, we estimate that the CUE
network can accommodate our projected subscriber growth for the next five
years. However, our estimate of the capacity of the CUE network and our
projections concerning subscriber growth could be inaccurate. If our estimates
are incorrect or if CUE fails to maintain or upgrade its network, our business,
financial condition and operating results could be negatively affected.
Subscribers may reject our FM pagers because of technology limitations
Our existing FM pagers receive only numeric messages and are more expensive
and approximately 50% larger than traditional pagers. Our present or potential
subscribers may decide not to accept the inherent limitations of our FM pagers,
or another company may develop a superior FM pager that we cannot purchase at
competitive prices. In these instances, our ability to attract and retain
subscribers would be negatively affected.
Many factors may affect our operating results and cause fluctuations in our
quarterly results
Our future results depend on a number of factors, including:
. subscribers' acceptance of our new and enhanced services;
. changes in laws and regulations that affect our business;
. the timing of the introduction of new services;
. the number, size and successful integration of acquired companies;
. competitive pricing pressures; and
. general economic and seasonal conditions.
Quarterly revenues and expenses are difficult to predict because the market
for our services is rapidly evolving. Our expense levels are based, in part, on
our expectations about future revenues. If our actual revenue levels do not
meet our projections or if our expenses exceed our projections operating
results will likely be negatively affected. Due to many factors, we believe
that period-to-period comparisons of our business are not
necessarily meaningful. Because our industry changes so quickly, our operating
results in future quarters could be below the expectations of public market
analysts and investors. If we do not meet these expectations, our stock price
could fall significantly.
10
<PAGE>
Our success depends upon our ability to attract and retain key personnel
Our success depends significantly upon the continued employment of our
President and Chief Executive Officer, Jerry W. Mayfield. Our success also
depends on our ability to attract and retain highly qualified engineering,
product development and marketing personnel. In our industry, competition is
intense for the recruitment of highly qualified engineering and product
development personnel. In addition, turnover of sales and marketing personnel
is high. We may not recoup the costs of training sales and marketing
representatives if they leave after a short time of employment. We may not
successfully retain or integrate existing personnel or identify and hire
additional personnel. If we lose the services of key personnel or are unable to
attract additional qualified personnel, our business, financial condition and
operating results could be negatively affected.
Failure to obtain year 2000 compliance may harm our business
The Year 2000 issue is the result of potential problems with computer systems
or any equipment with computer chips that store dates as two digits rather than
four (e.g., "99" for 1999). On January 1, 2000, these systems and equipment may
read "00" as the year 1900 instead of the year 2000. This problem could result
in an interruption in, or failure of, certain of our normal business activities
and operations if our systems are unable to recognize the difference between
"2000" and "1900" and function normally.
We are also discussing the Year 2000 issues with our significant subscribers
and suppliers. If they are unprepared for Year 2000 problems, our business
activities and operations could be negatively affected. We are not yet certain
to what extent our significant subscribers and suppliers have discovered and
resolved their Year 2000 issues. If their systems are not timely converted or
if their converted systems are not compatible with ours, our business,
financial condition and operating results could be negatively affected.
Our software may contain undetected errors that could harm our business
Our software may contain undetected errors. Software errors could result in a
partial or total failure of our network. In addition, the cost to fix the
errors or to further develop the software could be high. Our revenues could
decrease because of subscribers' inability to use the network or their
decisions to cancel their subscriptions because of problems caused by the
errors.
We depend on other telecommunications providers
We depend on other carriers for transmission of our subscribers' long-
distance calls and the majority of our paging data. Our agreements with our
carriers are generally for three-year terms but are subject to early
termination. Some contracts also contain minimum purchase requirements. In
addition, we depend on local exchange carriers for call origination and
termination. Our ability to maintain and expand our business depends in part on
our ability to enter into favorable contracts with long-distance and paging
carriers. Our success also depends on interexchange and local exchange carriers
originating and terminating our service in a timely manner. The partial or
total loss of our ability to initiate or terminate calls would result in a loss
of revenues and could lead to a loss of subscribers.
Unauthorized transactions and bad debt may harm our business
By unlawfully using the access numbers and PINs of authorized users, people
have occasionally gained unauthorized access to our network and services. Our
business, financial condition and operating results could be negatively
affected by large amounts of unauthorized use. In addition, large amounts of
unauthorized use may force us to write-off significant amounts of bad debt.
11
<PAGE>
Federal, state and local regulation may impact our business
Our business may be affected by federal, state and local regulation. For
example, the FCC may soon approve some local exchange carriers' applications to
provide long-distance services to customers within their local service
territories, including applications of Baby Bells. As a result, we may soon
face increased competition. In addition, we may be subject to additional
regulatory requirements and costs because of the Telecom Act, including:
. common carrier interconnection;
. pay phone rates;
. enhanced 911 (E-911);
. assignment of new area codes;
. telephone repay service fund contributions;
. resale requirements; and
. auction authority.
Our business could be harmed if the FCC does not renew our licenses
If we are unable to renew our FCC licenses, our business, financial condition
and results of operations could be adversely affected. One of our competitors
could file a competing application or the FCC could decide not to renew our
licenses. In addition, the FCC has the authority to restrict the operations of
licensed radio facilities or, following a hearing under the Communications Act
of 1934, revoke or modify radio licenses.
Our business could be harmed if the FCC does not grant us additional licenses
The FCC may, at any time, require auctions for new or existing services prior
to the award of any license. Additionally, the FCC no longer accepts many types
of applications for licenses on exclusive paging frequencies. We cannot be
certain that we will be able to obtain additional frequencies or expand
existing paging networks into new services areas.
Recently enacted FCC rules could eliminate some of our competitive advantages
The FCC has fully implemented rules classifying the services offered by
paging carriers as either commercial mobile radio services or private mobile
radio services. These FCC rules aim to reduce the disparate regulatory
treatment given to similar mobile services. We believe that these parity rules
will remove some regulatory advantages that we and other private carriers
previously received.
We have only limited protection of our proprietary rights and technology
We rely primarily on a combination of intellectual property laws and
contracts to protect our proprietary rights and technology. However, these laws
and contractual provisions provide only limited protection. Unauthorized
parties may attempt to copy aspects of our software or services or to obtain
and use proprietary information. Although we do not know of any present or past
infringements, we cannot be certain that our means of protecting our
proprietary rights and technology will be successful. Alternatively, our
competitors could independently develop similar technology. Also, some foreign
countries' laws do not offer as much protection of our proprietary rights as
laws in the United States.
We may not be successful in avoiding claims that we infringe others'
proprietary rights
Many patents, copyrights and trademarks have been issued in the general areas
of information and telecommunications services as well as personal
telecommunications. In the ordinary course of our business, third parties may
claim that our services infringe on their patent, copyright or trademark
rights. Third parties
12
<PAGE>
making infringement claims may have significantly greater resources than we do
to pursue litigation, and we cannot be certain that we would prevail in an
infringement action.
Infringement claims, whether with or without merit, could be time consuming,
distract management, result in costly litigation, delay the introduction of
new services and require us to enter into royalty or licensing agreements. As
a result of an infringement claim, we could be required to discontinue use of
a specific technology, tradename or service mark. In such instances, it could
be expensive for us to develop or buy replacement technology or market a new
name. Consequently, whether justified or not, infringement claims could have a
negative effect on our business, financial condition and operating results.
Investors will not be able to exert control over Satellink
If you purchase our securities, you will become a minority shareholder of
Satellink and will not be able to control our management or business. Upon the
completion of the offering, our directors, officers and their affiliates will
beneficially own 3,993,722 shares (approximately 34.8%) of our common stock,
including exercisable options and warrants. Our directors, officers and their
affiliates also will hold options to acquire 146,750 shares of common stock
that are not immediately exercisable. If exercised, these options, taken with
the shares owned and the exercisable options, would give the directors,
officers and their affiliates ownership of approximately 36.1% of our common
stock. Consequently, our directors, officers and their affiliates could
control or exercise significant influence over the election of directors and
all other matters requiring shareholder approval. As shareholders, our
directors, officers and their affiliates also could prevent a change of
control or ownership of Satellink. You will become minority shareholders of
Satellink and will not be able to control our management or business.
Our stock has not previously traded on a public market and its price may be
volatile
Prior to the offering, our common stock has not been traded on a public
market. We have applied for listing of our common stock on the Nasdaq National
Market. The initial public offering price will be determined by negotiations
between Satellink and the underwriters. The initial price may not be related
to our book value, net worth or any other established criteria of value. In
addition, the initial price may not be indicative of the market price for the
common stock after the offering. The price of our stock after the offering may
fluctuate significantly and may fall below the initial price. The stock market
at times experiences significant price and volume fluctuations that may be
unrelated to the operating results of particular companies. The stock market's
fluctuations particularly affect the stock prices of high technology companies
such as Satellink. Our stock price could be affected by the following factors,
among others:
. actual or anticipated operating results;
. growth rates;
. changes in analysts' estimates;
. industry conditions;
. competitors' announcements;
. regulatory actions; and
. general economic conditions.
If our operating results are below the expectations of analysts and
investors, our stock price could fall significantly.
Additional shares will be eligible for public sale in the future and could
cause our stock price to drop
The market price of our common stock could drop as a result of sales of a
large number of shares in the market after the offering, or the perception
that such sales could occur. These factors also could make it more difficult
for us to raise funds through future offerings.
13
<PAGE>
There will be 11,485,316 shares of common stock outstanding immediately after
the offering. Of these shares, the shares sold in the offering, except for any
shares purchased by "affiliates" of Satellink as defined in Rule 144 under the
Securities Act of 1933, as well as 475,164 of the currently outstanding shares
will be freely transferable without restriction or further registration under
the Securities Act. Of those shares 115,065 are subject to the provisions of
lock-up agreements. The remaining 6,010,152 shares of common stock outstanding
will be "restricted securities" as defined in Rule 144. These shares may be
sold in the future without registration under the Securities Act to the extent
permitted by Rule 144 or an exemption under the Securities Act. Additionally,
we have granted registration rights to some of our shareholders, as well as to
holders of options and warrants to buy our common stock, that allow them to
require us to register their common stock for public sale under certain
circumstances. We also plan to register under the Securities Act all of the
common stock issuable under our 1997 Long-Term Incentive Plan.
In connection with the offering, Satellink, our executive officers and
directors, holders of more than 5% of our common stock, all of the selling
shareholders and all of the holders of registration rights have agreed that,
with certain exceptions, they will not sell any shares of common stock without
the consent of J.C. Bradford & Co. for 180 days after the date of this
prospectus.
Purchasers' shares will be immediately diluted
The initial public offering price is substantially higher than the tangible
book value per share of our outstanding common stock. Investors purchasing
shares in the offering will incur immediate and substantial dilution. At the
same time, existing shareholders will receive a significant increase in the
tangible book value per share of their shares. At an initial public offering
price of $10.00 per share, the immediate dilution to new investors would be
$9.70 per share. In addition, purchasers' shares will be further diluted to the
extent outstanding options and warrants are exercised.
Several measures that we have adopted have anti-takeover effects
Several measures that we have adopted limit the ability of shareholders or
others to change or gain control of Satellink. The Board of Directors may issue
preferred stock, with any rights it may wish to assign, without shareholder
action. The existence of this "blank check" preferred stock could discourage or
make difficult a tender offer, merger, proxy contest or other attempt to gain
control. In addition, the Board of Directors will be divided into three classes
of directors at the first annual shareholders meeting held after the completion
of the offering. The directors will then be elected for staggered three-year
terms, which could affect shareholders' ability to change control of Satellink.
In addition to considering the best interests of Satellink and its
shareholders, our articles of incorporation also permit directors to consider
the interests of other constituencies when considering any change of control
transaction. Directors may consider the impact of their decisions on employees,
customers, suppliers, creditors and the communities in which Satellink operates
as well as other factors that the directors deem pertinent when carrying out
their responsibilities. We have also elected to be subject to provisions of the
Georgia Business Corporation Code that can make more difficult and discourage
business combinations with interested shareholders.
14
<PAGE>
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Some of the statements in this prospectus, including some statements in
"Prospectus Summary," "Risk Factors," "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and "Business," are forward-
looking statements about what may happen in the future. They include statements
regarding our current beliefs, goals and expectations about matters such as our
expected financial position and operating results, our business strategy and
our financing plans. These statements can sometimes be identified by our use of
forward-looking words such as "anticipate," "estimate," "expect," "intend,"
"may," "will" and similar expressions. We cannot guarantee that our forward-
looking statements will turn out to be correct or that our beliefs and goals
will not change. Our actual results could be very different from and worse than
our expectations for various reasons, including those discussed in "Risk
Factors."
15
<PAGE>
USE OF PROCEEDS
The net proceeds to Satellink from the sale of the 4,000,000 shares of common
stock offered by Satellink are estimated to be approximately $36.3 million
after deducting estimated underwriting discounts and offering expenses payable
by Satellink.
Satellink 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.......................................... $31,800,000 88%
To redeem all outstanding shares of Series D
preferred stock................................... 4,500,000 12
----------- ---
Total............................................ $36,300,000 100%
=========== ===
</TABLE>
Satellink currently intends to use approximately $31.8 million of the net
proceeds to repay outstanding indebtedness under Satellink's credit facility
with Bank Austria Creditanstalt, which indebtedness totaled $52.7 million at
January 31, 1999. This indebtedness matures as follows: (1) approximately $2.8
million during fiscal 2000 ; (2) approximately $3.8 million during fiscal 2001;
(3) approximately $3.8 million in fiscal 2002; (4) approximately $3.8 million
in fiscal 2003; and approximately $17.6 million in fiscal 2004. The credit
facility carries a variable interest rate based on, at Satellink's election:
(a) Creditanstalt's prime rate plus 2%; or (b) LIBOR plus 4%. Satellink has
historically utilized the credit facility for working capital and to finance
acquisitions. As of February 28, 1999, the outstanding balance under the credit
facility accrued interest at a rate of 9.2%. During the past 12 months,
Satellink borrowed approximately $28.8 million under the credit facility, which
was used for three acquisitions and for capital expenditures and general
corporate purposes.
Satellink 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. These shares were issued in April 1998, and the proceeds from this
issuance were used to finance a portion of the purchase price of Premier
Paging, Inc., Premier Paging of New Orleans, Inc and Hyde's Stay in Touch, Inc.
Upon the closing of the offering, Satellink will amend its articles of
incorporation 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 Satellink. Satellink currently is engaged in preliminary
discussions with potential acquisition candidates. Although it has no binding
commitments to acquire any of such candidates, management believes that
Satellink 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
Satellink will complete any acquisitions on terms favorable to Satellink, if at
all. See "Risk Factors -- Acquisitions could harm our business," "Management's
Discussion and Analysis of Financial Condition and Results of Operations --
Liquidity and Capital Resources" and "Business -- Acquisitions."
16
<PAGE>
DIVIDEND POLICY
Satellink 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. Satellink 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 Satellink's earnings,
financial condition, capital requirements, cash flow, long range plans and
other factors that the Board of Directors may deem relevant at that time. The
terms of the credit facility prohibit Satellink, without the prior written
consent of its lenders, from paying cash dividends in any fiscal year in an
amount exceeding the lesser of 25% of Satellink's excess cash flow (as defined
in the credit facility) for the immediately preceding fiscal year or $350,000.
Additionally, the designation of Satellink's non-voting preferred stock
provides that 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 dividends and other distributions paid on the common stock.
See "Description of Capital Stock."
17
<PAGE>
CAPITALIZATION
The following table sets forth the indebtedness and capitalization of
Satellink at January 31, 1999 from a historical basis and as adjusted to
reflect (1) the conversion of all issued and outstanding shares of Series A
preferred stock and Series C preferred stock into shares of common stock,
(2) the exercise of warrants to purchase 321,096 shares of common stock to be
sold in the offering by a selling shareholder, (3) the sale by Satellink of
4,000,000 shares of the common stock offered hereby and (4) the application of
the estimated net proceeds to repay indebtedness and redeem Series D preferred
stock. Upon the closing of the offering, Satellink will amend its articles of
incorporation 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 "Use of Proceeds," "Selected Financial and Operating
Data," "Management's Discussion and Analysis of Financial Condition and Results
of Operations" and the consolidated financial statements and related notes,
including the unaudited pro forma consolidated financial information, included
elsewhere in this prospectus.
<TABLE>
<CAPTION>
At January 31, 1999
--------------------------
Actual As Adjusted
----------- -------------
(Dollars in thousands)
<S> <C> <C>
Short-term debt (including
current portion of long-
term debt)................. $ -- $ --
=========== ===========
Long-term debt.............. $ 53,486 $ 21,686
Stock warrants.............. 5,896 --
Series C redeemable
convertible preferred
stock; 3,500 shares
authorized, issued and
outstanding, actual; 0
shares authorized, issued
and outstanding, as
adjusted................... 3,500 --
Series D redeemable
preferred stock; 4,500
shares authorized, issued
and outstanding, actual; 0
shares authorized, issued
and outstanding, as
adjusted................... 3,672 --
Shareholders' equity
(deficit):
Series A convertible
preferred stock; 7,500
shares authorized and 7,360
shares issued and
outstanding, actual; 0
shares authorized, issued
and outstanding, as
adjusted................... -- --
Series B convertible
preferred stock; 30,000
shares authorized and 0
shares issued and
outstanding................ -- --
Class A common stock;
50,000,000 shares
authorized and 5,588,296
shares issued and
outstanding, actual; and
11,164,220 shares issued
and outstanding, as
adjusted (1)............... 56 115
Class B common stock; 20,000
shares authorized and 0
shares issued and
outstanding, actual; 0
shares authorized, issued
and outstanding, as
adjusted................... -- --
Additional paid-in capital.. 2,805 43,878
Stock warrants.............. -- 4,566 (2)
Accumulated deficit......... (10,810) (11,638)(3)
----------- -----------
Total shareholders'
equity (deficit)....... (7,949) 36,921
----------- -----------
Total capitalization... $ 58,605 $ 58,607
=========== ===========
</TABLE>
- --------
(1) Excludes 1,784,346 shares of common stock that were subject to outstanding
options and warrants at January 31, 1999 at a weighted average exercise
price of $2.86 per share. See "Management -- Incentive Plan," "Shares
Eligible for Future Sale" and Note 6 to the consolidated financial
statements.
(2) Includes a reduction in value of stock warrants of $1,330,000 related to
the exercise of 321,096 warrants in the offering.
(3) Includes a loss of approximately $828,063 that Satellink expects to incur
upon redemption of the Series D redeemable preferred stock (the difference
between the $4,500,000 redemption value and the $3,671,937 carrying value).
18
<PAGE>
DILUTION
As of January 31, 1999, the net tangible book value of Satellink was
approximately $(41,480,000), or $(7.42) per share of common stock. "Net
tangible book value per share" is defined as the book value of Satellink's
tangible assets less all liabilities, divided by the number of issued and
outstanding shares of common stock. The pro forma net tangible book value of
Satellink as of January 31, 1999 would have been approximately $3,390,000 or
$0.30 per share, after giving effect to (1) the conversion of all outstanding
shares of Series A preferred stock and Series C preferred stock into common
stock, (2) the exercise of warrants to purchase 321,096 shares of common stock
to be sold in the offering by a selling shareholder, (3) the sale of the
4,000,000 shares of common stock offered hereby at an assumed initial public
offering price of $10.00 per share and (4) deduction of the estimated
underwriting discounts and offering expenses payable by the Company. This
represents an immediate increase in net tangible book value of $7.72 per share
to existing shareholders and an immediate dilution in net tangible book value
of $9.70 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.................. $10.00
------
Net tangible book value before the offering.................... (7.42)
Increase per share attributable to new shareholders............ 7.72
-----
Pro forma net tangible book value per share...................... 0.30
------
Dilution per share to new shareholders........................... $ 9.70
======
</TABLE>
The following table sets forth as of January 31, 1999, on a pro forma basis
giving effect to the conversion of the Series A preferred stock and Series C
preferred stock into common stock and the exercise of warrants to purchase
321,096 shares of common stock to be sold in the offering by a selling
shareholder, (1) the number of shares of common stock acquired from Satellink,
(2) the total consideration paid and (3) the average price per share paid by
existing shareholders and by new investors, assuming the sale of 4,000,000
shares of common stock in the offering at an assumed initial public offering
price of $10.00 per share.
<TABLE>
<CAPTION>
Average
Price
Shares Purchased Total Consideration Per Share
------------------ ------------------- ---------
Number Percent Amount Percent
---------- ------- ----------- -------
<S> <C> <C> <C> <C> <C>
Existing shareholders.......... 7,485,316 65.2% $ 6,362,930 13.7% $ 0.85
New investors.................. 4,000,000 34.8 40,000,000 86.3 10.00
---------- ----- ----------- -----
Total.......................... 11,485,316 100.0% $46,362,930 100.0%
========== ===== =========== =====
</TABLE>
The foregoing tables do not take into account the exercise of outstanding
options and warrants to acquire 1,784,346 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 $9.36. See "Management -- Incentive Plan," "Certain Transactions Non-Voting
Preferred Stock Warrant Issuance" and note 6 to the consolidated financial
statements.
19
<PAGE>
SELECTED FINANCIAL AND OPERATING DATA
The following table sets forth selected historical and pro forma consolidated
financial and operating information of Satellink. The selected historical
consolidated financial data as of July 31, 1997 and 1998 and for the fiscal
years ended July 31, 1996, 1997 and 1998 have been derived from Satellink's
consolidated financial statements 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, 1994, 1995 and 1996 and
for the years ended July 31, 1994 and 1995 have been derived from Satellink's
unaudited consolidated financial statements that are not included in this
prospectus. The selected historical consolidated financial data as of and for
the six months ended January 31, 1998 and 1999 have been derived from
Satellink's unaudited consolidated financial statements 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 six months ended January 31, 1999 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, Satellink's consolidated
financial statements and the notes to the consolidated financial statements,
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."
The pro forma statements of operations data reflect the acquisition of Hyde's
Stay In Touch, Inc. and its affiliated company as if it had occurred at the
beginning of the periods presented. The pro forma financial information does
not represent what Satellink's results of operations would have been if the
acquisition had occurred on such date, nor does it indicate Satellink's future
financial position or results of future operations. The pro forma adjustments
are based on currently available information and certain assumptions that we
believe are reasonable. The "As Adjusted" column reflects the sale of 4,000,000
shares of common stock offered by Satellink in this offering and the
application of the estimated net proceeds from the offering.
Adjusted EBITDA represents earnings before interest, taxes, depreciation and
amortization, fixed asset impairment, nonrecurring charges, write-off of
offering costs, accretion of stock warrants, extraordinary item and the
cumulative effect of a change in accounting principle. Adjusted EBITDA is a
measure of financial performance that is often used 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 Satellink 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 income (loss), operating
income, cash provided by operating activities or any other measure of
performance under generally accepted accounting principles. Further, Adjusted
EBITDA may be calculated differently by different companies. 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 $440,000 related to research and development expenses.
Adjusted EBITDA margin is calculated by dividing Adjusted EBITDA by net
revenues.
20
<PAGE>
<TABLE>
<CAPTION>
Six Months Ended
Years Ended July 31, January 31,
------------------------------------------------------ -----------------------------
Pro Forma As Adjusted
1994 1995 1996 1997 1998 1998 1998 1999 1999
------- ------- ------- ------- ------- --------- ------- ------- -----------
(Dollars in thousands, except per share data and ARPU)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Statement of Operations
Data:
Service, rent and
maintenance revenues... $13,610 $16,580 $21,285 $31,194 $37,339 $40,639 $17,652 $22,008 $22,008
Product sales........... 906 1,251 1,836 2,315 2,322 3,386 930 1,756 1,756
------- ------- ------- ------- ------- ------- ------- ------- -------
Total revenues......... 14,516 17,831 23,121 33,509 39,661 44,025 18,582 23,764 23,764
Cost of products sold... (825) (1,108) (1,396) (1,968) (1,515) (2,684) (561) (1,525) (1,525)
------- ------- ------- ------- ------- ------- ------- ------- -------
Net revenues........... 13,691 16,723 21,725 31,541 38,146 41,341 18,021 22,239 22,239
Service, rent and
maintenance expenses... 5,193 6,782 8,962 13,517 15,600 15,924 7,496 8,379 8,379
Selling and marketing
expenses............... 1,747 2,736 3,053 4,281 4,764 4,973 2,198 3,214 3,214
General and
administrative
expenses............... 2,231 2,874 4,320 6,573 7,332 8,184 3,371 3,784 3,784
Engineering expenses.... 552 673 669 997 1,162 1,162 556 870 870
Depreciation and
amortization........... 1,755 1,916 2,222 4,181 5,130 5,793 2,225 2,776 2,776
Research and
development............ -- -- 440 -- -- -- -- -- --
Nonrecurring charges.... -- -- -- -- -- -- -- 1,629 1,629
Fixed asset impairment.. 297 -- -- -- 834 834 834 -- --
------- ------- ------- ------- ------- ------- ------- ------- -------
Operating income........ 1,916 1,742 2,059 1,992 3,324 4,471 1,341 1,587 1,587
Other income (expense).. 182 13 (17) 494 695 966 (81) 472 472
Interest expense........ (769) (926) (909) (2,289) (3,832) (4,788) (1,463) (2,430) (935)
Accretion of stock
warrants(1)............ (350) (643) (854) (1,773) (450) (450) (229) (119) --
Write-down of offering
costs.................. -- -- -- -- -- -- -- (570) --
------- ------- ------- ------- ------- ------- ------- ------- -------
Income (loss) before
income tax expense,
extraordinary item and
cumulative effect
of change in accounting
principle.............. 979 296 279 (1,576) (263) 199 (432) (1,060) 1,124
Income tax expense...... 492 626 578 390 630 630 558 88 427
------- ------- ------- ------- ------- ------- ------- ------- -------
Income (loss) before
extraordinary item and
cumulative effect of
change in accounting
principle.............. 487 (330) (299) (1,966) (893) (431) (990) (1,148) 697
Extraordinary loss on
early retirement of
debt .................. -- -- (132) -- -- -- -- -- --
Cumulative effect of
change in accounting
principle.............. -- -- -- -- (629) -- (629) -- --
------- ------- ------- ------- ------- ------- ------- ------- -------
Net income (loss)...... 487 (330) (431) (1,966) (1,522) (431) (1,619) (1,148) 697
Preferred stock
dividends.............. 88 88 334 439 630 631 219 508 --
------- ------- ------- ------- ------- ------- ------- ------- -------
Net income (loss)
attributable to common
shareholders........... $ 399 $ (418) $ (765) $(2,405) $(2,152) $(1,062) $(1,838) $(1,656) $ 697
======= ======= ======= ======= ======= ======= ======= ======= =======
Allocation to Class A
common stock.......... $ 385 $ (401) $ (739) $(2,384) $(2,151) $(1,062) $(1,837) $(1,656) $ 697
Allocation to Class B
common stock.......... 14 (17) (26) (21) (1) -- (1) -- --
</TABLE>
21
<PAGE>
<TABLE>
<CAPTION>
Years Ended July 31, Six Months Ended January 31,
---------------------------------------------------------------------- ----------------------------------
Pro Forma As Adjusted
1994 1995 1996 1997 1998 1998 1998 1999 1999
---------- ---------- ---------- ---------- ---------- ---------- --------- ---------- -----------
(Dollars in thousands, except per share data and ARPU)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net income (loss)
per share (2):
Loss from
extraordinary
item -- basic:
Class A common
stock.......... $ -- $ -- $ (0.03) $ -- $ -- $ -- $ -- $ -- $ --
Class B common
stock.......... -- -- (2.23) -- -- -- -- -- --
Loss from
cumulative
effect of
change in
accounting
principle:
Class A common
stock.......... $ -- $ -- $ -- $ -- $ (0.11) $ -- $ (0.11) $ -- $ --
Class B common
stock.......... -- -- -- -- (9.59) -- (9.68) -- --
Net income
(loss)
attributable to
common
shareholders --
basic:
Class A common
stock.......... $ 0.08 $ (0.08) $ (0.15) $ (0.47) $ (0.39) $ (0.19) $ (0.33) $ (0.30) $ 0.06
Class B common
stock.......... 6.46 (6.86) (12.90) (39.36) (32.77) -- (28.29) -- --
Net income
(loss)
attributable to
common
shares --
diluted:
Class A common
stock.......... $ 0.06 $ (0.08) $ (0.15) $ (0.47) $ (0.39) $ (0.19) $ (0.33) $ (0.30) $ 0.05
Class B common
stock.......... 4.75 (6.86) (12.90) (39.36) (32.77) -- (28.29) -- --
Weighted average
common shares
outstanding --
basic:
Class A common
stock.......... 4,977,621 4,938,587 4,841,962 5,117,657 5,545,168 5,545,168 5,486,730 5,588,296 11,485,316
Class B common
stock.......... 2,821 2,418 2,013 535 22 22 35 -- --
Weighted average
common shares
outstanding --
diluted:
Class A common
stock.......... 6,844,790 4,938,587 4,841,962 5,117,657 5,545,168 5,454,168 5,486,730 5,588,296 13,293,229
Class B common
stock.......... 2,821 2,418 2,013 535 22 22 35 -- --
<CAPTION>
At July 31, At January 31,
---------------------------------------------------------- ----------------------------------
As Adjusted
1994 1995 1996 1997 1998 1998 1999 1999
---------- ---------- ---------- ---------- ---------- --------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance Sheet
Data:
Working capital
(deficit)....... $ 1,587 $ 2,987 $ 1,255 $ (1,798) $ (3,150) $ 1,895 $ 2,311 $ 2,313
Property and
equipment, net.. 3,730 4,760 8,615 13,041 17,251 15,008 22,763 22,763
Total assets..... 8,614 10,738 24,135 36,047 62,662 39,464 67,024 67,027
Long-term debt,
less current
maturities...... 6,223 8,748 15,951 24,065 41,342 29,777 53,486 21,686
Total
shareholders'
equity
(deficit)....... (640) (1,677) (2,192) (4,365) (6,154) (5,698) (6,896) 36,921
<CAPTION>
Years Ended July 31,(1) Six Months Ended January 31,
---------------------------------------------------------------------- ----------------------------------
Pro Forma As Adjusted
1994 1995 1996 1997 1998 1998 1998 1999 1999
---------- ---------- ---------- ---------- ---------- ---------- --------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Other Data:
Cash provided by
operating
activities...... $ 925 $ 806 $ 4,189 $ 4,523 $ 5,440 $ 8,198 $ 1,645 $ 4,048 $ 5,078
Cash used in
investing
activities...... (2,146) (2,803) (15,329) (14,354) (29,809) (16,055) (5,942) (9,520) (9,520)
Cash provided by
financing
activities...... 1,255 1,654 11,972 9,288 24,241 7,729 4,021 5,380 5,859
Adjusted EBITDA.. 4,150 3,781 4,265 6,668 9,984 12,063 4,319 6,484 6,484
Adjusted EBITDA
margin.......... 30.3% 22.6% 19.6% 21.1% 26.2% 27.4% 24.0% 29.2% 29.2%
Subscribers (end
of period)...... 44,001 57,808 105,748 146,717 207,067 207,067 163,394 221,966 221,966
Average revenues
per unit (3).... $ 32.92 $ 27.38 $ 22.14 $ 20.82 $ 17.97 $ 19.48 $ 19.37 $ 17.28 $ 17.28
Capital
expenditures.... $ (2,146) $ (2,803) $ (4,930) $ (5,393) $ (8,831) $ (8,831) $ (5,352) $ (8,739) $ (8,739)
Cash dividends
and
distributions (4).. (100) (77) (334) (450) (519) -- (263) (479) --
</TABLE>
- --------
(1) See note 6 to consolidated financial statements.
(2) See note 2 to consolidated financial statements.
(3) Average revenues per unit, or ARPU, equals the net revenues for a given
period divided by the average number of subscribers during such period.
See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Overview."
(4) See note 6 to consolidated financial statements and "Dividend Policy."
22
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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 is a leading regional provider of messaging and enhanced personal
telecommunications services to businesses and individuals. Satellink provides
these services in smaller metropolitan areas and major cities in the
southeastern and southwestern United States. Through Satellink's proprietary
STAR*Net platform and the use of multiple message distribution networks,
Satellink offers its subscribers an assortment of service and pricing options
not readily available from many of its competitors. The low-cost STAR*Net
platform allows Satellink to quickly customize its services to meet the needs
of its subscribers and expand system capacity.
Satellink's revenues consist of service, rent and maintenance revenues and
product sales. Service, rent and maintenance revenues consist of revenues from
messaging and enhanced personal telecommunications services. Satellink bills
the fixed portion of the fees it charges for these services in advance and
bills usage-related fees in arrears. The majority of Satellink's revenues are
recurring in nature (approximately 92.1%, 93.1%, 94.1% and 92.6% for fiscal
1996, 1997 and 1998 and for the six months ended January 31, 1999,
respectively) and are derived from periodic (usually monthly) fixed and usage-
related fees charged to subscribers. While a subscriber continues to use
Satellink'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 cost of products sold consists of the cost of subscriber equipment.
Service, rent and maintenance expenses include: subcarrier, tower and
satellite channel lease costs; data delivery telephone costs; third party
carriers' airtime expenses; and network maintenance expenses. Selling and
marketing expenses include salaries, commissions, travel and administrative
costs for Satellink'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. Satellink has experienced a decline in total average operating
expenses per unit in service (operating expenses per unit before depreciation,
amortization, and nonrecurring charges from $17.78 for fiscal 1996 to $13.59
for fiscal 1998. Operating expenses per unit in service was $12.62 for the six
months ended January 31, 1999.
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 three 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 Satellink to finance acquisitions.
Accretion of stock warrants represents non-cash expense or income associated
with the put feature of the Creditanstalt warrants. The expense or income has
been calculated using a formula based on Satellink's Adjusted EBITDA. The put
feature of the Creditanstalt warrants is canceled upon completion of a
qualified initial public offering of common stock that yields net proceeds to
Satellink of at least $10.0 million.
23
<PAGE>
Income tax expense consists of the expense associated with one of the Cape
Fear Paging Companies. The Cape Fear Paging Companies consisted of one S
corporation and two C corporations. The income tax expense reflects the expense
associated with the C corporation. Upon the completion of the merger, which was
accounted for as a pooling of interest, each of the Cape Fear Paging Companies
was merged with a wholly-owned subsidiary of Satellink. In the future,
Satellink and the Cape Fear Paging Companies will recognize income tax expense
on a consolidated net basis.
ARPU equals the net revenues for a given period divided by the average number
of subscribers during such period. ARPU for fiscal 1996, 1997 and 1998 and for
the six months ended January 31, 1999 was $22.14, $20.82, $17.97 and $17.28,
respectively. The downward trend is the result of the acquisitions of paging
companies that primarily provide local service and competitive pressures. At
August 1, 1995, local, regional and nationwide subscribers as a percentage of
total subscribers equaled 16.7%, 58.8% and 24.5%, respectively. At January 31,
1999, local, regional and nationwide subscribers as a percentage of total
subscribers equaled 48.6%, 34.0% and 17.4%, respectively.
Adjusted EBITDA represents earnings before interest, taxes, depreciation,
amortization, fixed asset impairment, nonrecurring charges, write-off of
offering costs, accretion of stock warrants, extraordinary item and the
cumulative effect of a change in accounting principle. Adjusted EBITDA is a
measure of financial performance that is often used 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 Satellink is in compliance with certain
covenants under the credit facility. However, Adjusted EBITDA should not be
considered in isolation or as an alternative to net income or 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.
24
<PAGE>
Results of Operations
The following table sets forth the percentage of net revenues represented by
items in Satellink's statements of operations:
<TABLE>
<CAPTION>
Six Months
Years Ended July Ended
31, January 31,
--------------------- -------------
1996 1997 1998 1998 1999
----- ----- ----- ------ -----
<S> <C> <C> <C> <C> <C>
Service, rent and maintenance
revenues.............................. 98.0% 98.9% 97.9% 98.0% 99.0%
Product sales.......................... 8.5 7.3 6.1 5.1 7.9
----- ----- ----- ------ -----
Total revenues....................... 106.5 106.2 104.0 103.1 106.9
Cost of products sold.................. (6.5) (6.2) (4.0) (3.1) (6.9)
----- ----- ----- ------ -----
Net revenues......................... 100.0 100.0 100.0 100.0 100.0
Service, rent and maintenance
expenses.............................. 41.2 42.8 40.9 41.6 37.7
Selling and marketing expenses......... 14.1 13.6 12.5 12.2 14.5
General and administrative expenses.... 19.9 20.8 19.2 18.7 17.0
Engineering expenses................... 3.1 3.2 3.1 3.1 3.9
Depreciation and amortization.......... 10.2 13.3 13.4 12.4 12.5
Research and development............... 2.0 -- -- -- --
Nonrecurring charges................... -- -- 2.2 4.6 7.3
----- ----- ----- ------ -----
Operating income....................... 9.5 6.3 8.7 7.4 7.1
Other income (expense)................. -- 1.6 1.8 (0.4) 2.1
Interest expense....................... (4.3) (7.3) (10.0) (8.1) (10.9)
Accretion of stock warrants............ (3.9) (5.6) (1.2) (1.3) (0.5)
Writedown of offering costs............ -- -- -- -- (2.6)
----- ----- ----- ------ -----
Income (loss) before income tax
provision and extraordinary item...... 1.3 (5.0) (0.7) (2.4) (4.8)
Income tax provision................... 2.7 1.2 1.6 3.1 (0.4)
----- ----- ----- ------ -----
Loss before extraordinary item......... (1.4) (6.2) (2.3) (5.5) (5.2)
Extraordinary loss on early retirement
of debt............................... (0.6) -- -- -- --
Cumulative effect of change in
accounting principle.................. -- -- (1.7) (3.5) --
----- ----- ----- ------ -----
Net loss............................. (2.0) (6.2) (4.0) (9.0) (5.2)
Preferred stock dividends.............. (1.5) (1.4) (1.6) (1.2) (2.2)
----- ----- ----- ------ -----
Net loss attributable to common
shareholders.......................... (3.5)% (7.6)% (5.6)% (10.2)% (7.4)%
===== ===== ===== ====== =====
</TABLE>
Six Months Ended January 31, 1999 Compared to Six Months Ended January 31, 1998
Total Revenues. Total revenues increased $5.2 million, or 28.0%, to $23.8
million for the six months ended January 31, 1999 from $18.6 million for the
six months ended January 31, 1998. This increase was primarily due to growth in
subscribers both internally and from acquisitions. Total subscribers increased
58,600, or 35.9%, to 222,000 at January 31, 1999 from 163,400 at January 31,
1998. Of this increase in subscribers, internal growth accounted for 9,600 new
subscribers and two acquisitions during the period accounted for 49,000 new
subscribers. Product sales increased $871,000, or 93.8%, to $1.8 million for
the six months ended January 31, 1999 from $929,000 for the six months ended
January 31, 1998, and increased as a percentage of net revenues to 7.9% for the
six months ended January 31, 1999 from 5.1% for the six months ended
January 31, 1998. The increase in product sales and the increase in product
sales as a percentage of net revenue was primarily the result of subscriber
base growth.
Cost of Products Sold. Cost of products sold increased $939,000, or 167.4%,
to $1.5 million for the six months ended January 31, 1999 from $561,000 for the
six months ended January 31, 1998. The gross margin on products sold decreased
to 13.1% for the six months ended January 31, 1999 from 39.7% for the six
25
<PAGE>
months ended January 31, 1998. The increase in cost of products sold was
attributable to increased product sales while the decrease in gross margin was
primarily attributable to lower prices paid by customers for subscriber
equipment.
Service, Rent and Maintenance Expenses. Service, rent and maintenance
expenses increased $900,000, or 12.0%, to $8.4 million for the six months ended
January 31, 1999 from $7.5 million for the six months ended January 31, 1998.
This increase reflects an increase in airtime expense paid to third party
service providers associated with subscriber base growth and related increased
telephone expenses. Telephone expenses increased due to additional telephone
facilities and increased voicemail usage. Service, rent and maintenance
expenses decreased as a percentage of net revenues to 37.7% for the six months
ended January 31, 1999 from 41.6% for the six months ended January 31, 1998.
This decrease reflects Satellink's ability to achieve certain economies of
scale as the subscriber base has grown.
Selling and Marketing Expenses. Selling and marketing expenses increased $1.0
million, or 45.5%, to $3.2 million for the six months ended January 31, 1999
from $2.2 million for the six months ended January 31, 1998. Selling and
marketing expenses increased as a percentage of net revenues to 14.5% for the
six months ended January 31, 1999 from 12.2% for the six months ended January
31, 1998. These increases reflect increased expenditures for sales and
marketing activities, advertising and the hiring of a new director of
marketing.
General and Administrative Expenses. General and administrative expenses
increased $400,000, or 11.8%, to $3.8 million for the six months ended January
31, 1999 from $3.4 million for the six months ended January 31, 1998. This
increase reflects higher office costs and customer service staffing levels
associated with subscriber base growth. This increase also relates to costs
incurred by Satellink in connection with the introduction of new STAR*Net
products. General and administrative expenses decreased as a percentage of net
revenues to 17.0% for the six months ended January 31, 1997 from 18.7% for the
six months ended January 31, 1998.
Engineering Expenses. Engineering expenses increased $314,000, or 56.5%, to
$870,000 for the six months ended January 31, 1999 from $556,000 for the six
months ended January 31, 1999. This increase reflects higher staffing levels
and costs associated with upgrading Satellink's information systems and
capabilities and the introduction of new STAR*Net products.
Adjusted EBITDA. Adjusted EBITDA increased $2.2 million, or 51.2%, to $6.5
million for the six months ended January 31, 1999 from $4.3 million for the six
months ended January 31, 1998. As a percentage of net revenues, Adjusted EBITDA
increased to 29.3% for the six months ended January 31, 1999 from 23.9% for the
six months ended January 31, 1998. These increases reflect the factors
discussed above.
Depreciation and Amortization. Depreciation and amortization increased
$600,000, or 27.3%, to $2.8 million for the six months ended January 31, 1999
from $2.2 million for the six months ended January 31, 1998. This increase
reflects an increase in pagers, switches and other depreciable assets
associated with the growth of the subscriber base and amortization related to
acquired intangible assets.
Operating Income. Operating income increased $300,000, or 23.1%, to $1.6
million for the six months ended January 31, 1999 from $1.3 million for the six
months ended January 31, 1998. This increase reflects Satellink's ability to
achieve certain economies of scale related to subscriber base growth.
Interest Expense. Interest expense increased $900,000, or 60%, to $2.4
million for the six months ended January 31, 1999 from $1.5 million for the six
months ended January 31, 1998. This increase primarily reflects the growth in
the debt outstanding under the credit facility due to acquisitions completed
during the second half of fiscal 1997.
26
<PAGE>
Accretion of Stock Warrants. Accretion of stock warrants decreased $110,000,
or 48.0%, to $119,000 for the six months ended January 31, 1999 from $229,000
for the six months ended January 31, 1998. Changes in the value of the warrants
are based on a formula contained in the put feature of the Creditanstalt
warrants.
Income Tax Expense. Income tax expense decreased $470,000, or 84.2%, to
$88,000 for the six months ended January 31, 1999 from $558,000 for the six
months ended January 31, 1999. This decrease primarily reflects a decrease in
the pre-tax income of the Cape Fear entity that was a C corporation.
Net Loss. Net loss decreased $500,000, or 31.3%, to $1.1 million for the six
months ended January 31, 1999 from $1.6 million for the six months ended
January 31, 1998. This increase reflects the factors described above. Excluding
the effect of the accretion of stock warrants, net loss decreased $400,000, or
28.6%, to $1.0 million for the six months ended January 31, 1999 from $1.4
million for the six months ended January 31, 1998.
Fiscal Year Ended July 31, 1998 Compared to Fiscal Year Ended July 31, 1997
Total Revenues. Total revenues increased $6.2 million, or 18.5%, to $39.7
million for fiscal 1998 from $33.5 million for fiscal 1997. This increase was
primarily due to growth in subscribers both internally and from acquisitions.
Total subscribers increased 60,400, or 41.2%, to 207,100 at July 31, 1998 from
146,700 at July 31, 1997. Of this increase in subscribers, internal growth
accounted for 9,600 new subscribers and four acquisitions during the period
accounted for 50,800 new subscribers. Product sales increased $7,000, or 0.3%,
to $2.3 million for fiscal 1998, but decreased as a percentage of net revenues
to 6.1% for fiscal 1998 from 7.3% for fiscal 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.
Cost of Products Sold. Cost of products sold decreased $500,000, or 25.0%, to
$1.5 million for fiscal 1998 from $2.0 million for fiscal 1997. The gross
margin on products sold increased to 34.8% for fiscal 1998 from 15.0% for
fiscal 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 the declining cost for subscriber equipment.
Service, Rent and Maintenance Expenses. Service, rent and maintenance
expenses increased $2.1 million, or 15.4%, to $15.6 million for fiscal 1998
from $13.5 million for fiscal 1997. This increase reflects an increase in
airtime expenses paid to third party service providers associated with
subscriber base growth and related increased telephone expenses. Telephone
expenses increased due to additional telephone facilities and increased
voicemail usage. Service, rent and maintenance expenses decreased as a
percentage of net revenues to 40.9% for fiscal 1998 from 42.8% for fiscal 1997.
This decrease reflects Satellink's ability to achieve certain economies of
scale as the subscriber base has grown.
Selling and Marketing Expenses. Selling and marketing expenses increased
$500,000, or 11.6%, to $4.8 million for fiscal 1998 from $4.3 million for
fiscal 1997. This increase reflects increased expenditures for sales and
marketing activities, including the hiring and compensation of additional sales
representatives, and advertising. Selling and marketing expenses decreased as a
percentage of net revenues to 12.5% for fiscal 1998 from 13.6% for fiscal 1997.
General and Administrative Expenses. General and administrative expenses
increased $700,000, or 10.6%, to $7.3 million for fiscal 1998 from $6.6 million
for fiscal 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 Satellink in connection with the introduction
of new STAR*Net services. General and administrative expenses decreased as a
percentage of net revenues to 19.2% for fiscal 1998 from 20.8% for fiscal 1997.
27
<PAGE>
Engineering Expenses. Engineering expenses increased $203,000, or 20.4%, to
$1.2 million for fiscal 1998 from $997,000 for fiscal 1997. This increase
reflects higher staffing levels and costs associated with upgrading Satellink's
information systems and capabilities and the introduction of new STAR*Net
products.
Adjusted EBITDA. Adjusted EBITDA increased $3.3 million, or 49.3%, to $10.0
million for fiscal 1998 from $6.7 million for fiscal 1997. As a percentage of
net revenues, Adjusted EBITDA increased to 26.2% for fiscal 1998 from 21.1% for
fiscal 1997. These increases reflect the factors discussed above.
Depreciation and Amortization. Depreciation and amortization increased
$900,000, or 21.4%, to $5.1 million for fiscal 1998 from $4.2 million for
fiscal 1997. This increase reflects an increase in pagers, switches and other
depreciable assets associated with the growth of the subscriber base and
amortization related to acquired intangible assets.
Operating Income. Operating income increased $1.3 million, or 65.0%, to $3.3
million for fiscal 1998 from $2.0 million for fiscal 1997. The fiscal 1998
results include an $834,000 one-time charge for the write-down of traditional
paging terminals removed from service in connection with Satellink's
implementation of its STAR*Net platform and the write-off of assets associated
with Satellink's previous billing system which was replaced. Excluding the one-
time charge, operating income would have been $4.1 million for fiscal 1998, a
108.8% increase over fiscal 1997.
Interest Expense. Interest expense increased $1.5 million, or 65.2%, to $3.8
million for fiscal 1998 from $2.3 million for fiscal 1997. This increase
primarily reflects the growth in the debt outstanding under the credit facility
due to acquisitions completed during the second half of fiscal 1997 and fiscal
1998, and to a lesser extent, higher bank lending rates during fiscal 1998.
Accretion of Stock Warrants. Accretion of stock warrants expense decreased
$1.4 million, or 77.8%, to $450,000 for fiscal 1998 from $1.8 million for
fiscal 1997.
Income Tax Expense. Income tax expense increased $240,000, or 61.5%, to
$630,000 for fiscal 1998 from $390,000 for fiscal 1997. This increase primarily
reflects an increase in the pre-tax income of the Cape Fear entity that was a C
corporation.
Net Loss. Net loss decreased $500,000, or 25.0%, to $1.5 million for fiscal
1998 from $2.0 million for fiscal 1997. This decrease reflects the factors
described above. Excluding the effect of the accretion of stock warrants, the
one-time charge for the write-down of traditional paging terminals removed from
service in connection with Satellink's implementation of its STAR*Net platform,
the write-off of assets associated with Satellink's previous billing system
that was replaced and the cumulative effect of a change in accounting
principle, net income increased $584,000 to $391,000 for fiscal 1998 from a
loss of $193,000 for fiscal 1997.
Fiscal Year Ended July 31, 1997 Compared to Fiscal Year Ended July 31, 1996
Total Revenues. Total revenues increased $10.4 million, or 45.0%, to $33.5
million for fiscal 1997 from $23.1 million for fiscal 1996. This increase was
primarily due to growth in subscribers both internally and from acquisitions.
Total subscribers increased 41,000, or 38.8%, to 146,700 at July 31, 1997 from
105,700 at July 31, 1996. Of this increase in subscribers, internal growth
accounted for 14,600 new subscribers and six acquisitions during the period
accounted for 26,400 new subscribers. Results for fiscal 1997 include 12 months
of operations of C.R., Inc. and Atlanta Voice Page, Inc. ("AVP"), which were
acquired in February and June, 1996, respectively, through which Satellink
added 22,000 paging subscribers. Also during fiscal 1997, Satellink completed
four 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 $500,000, or 27.8%, to $2.3 million for fiscal
1997 from $1.8 million for fiscal 1996. This increase was related to subscriber
base growth. Product sales decreased as a percentage of net revenues to 7.3%
for fiscal 1997 from 8.5% for fiscal 1996. This decrease reflects increased
voicemail and other services revenues which do not require subscriber
equipment.
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Cost of Products Sold. Cost of products sold increased $600,000, or 42.9%, to
$2.0 million for fiscal 1997 from $1.4 million for fiscal 1996. This increase
was associated with continued subscriber base growth. Gross margin on products
sold decreased to 13.0% for fiscal 1997 from 22.2% for fiscal 1996. This
decrease was primarily attributable to lower prices paid by customers for
subscriber equipment.
Service, Rent and Maintenance Expenses. Service, rent and maintenance
expenses increased $4.5 million, or 50.0%, to $13.5 million for fiscal 1997
from $9.0 million for fiscal 1996. This increase reflects an increase in
airtime expense paid to third party service providers and 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 for all of fiscal
1997 but are included only in the last two months and six months, respectively,
of fiscal 1996. Telephone expenses 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 42.8% for
fiscal 1997 from 41.2% for fiscal 1996. This increase primarily reflects
increases in telephone and airtime costs as a percentage of net revenues.
Selling and Marketing Expenses. Selling and marketing expenses increased $1.2
million, or 38.7%, to $4.3 million for fiscal 1997 from $3.1 million for fiscal
1996. This increase reflects increased expenditures for sales and marketing
activities, including the hiring and compensation of additional sales
representatives, and advertising. Selling and marketing expenses decreased as a
percentage of net revenues to 13.6% for fiscal 1997 from 14.1% for fiscal 1996.
General and Administrative Expenses. General and administrative expenses
increased $2.3 million, or 53.5%, to $6.6 million for fiscal 1997 from $4.3
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 20.8% for fiscal 1997 from 19.9% for fiscal 1996.
Engineering Expenses. Engineering expenses increased $328,000, or 49.0%, to
$997,000 for fiscal 1997 from $669,000 for fiscal 1996. This increase reflects
higher staffing levels associated with the subscriber base growth and related
systems.
Adjusted EBITDA. Adjusted EBITDA increased $2.4 million, or 55.8%, to $6.7
million for fiscal 1997 from $4.3 million for fiscal 1996. As a percentage of
net revenues, Adjusted EBITDA decreased to 21.1%, for fiscal 1997 from 19.6%
for fiscal 1996.
Depreciation and Amortization. Depreciation and amortization increased $2.0
million, or 90.9%, to $4.2 million for fiscal 1997 from $2.2 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 decreased $100,000, or 4.8%, to $2.0
million for fiscal 1997 from $2.1 million for fiscal 1996.
Interest Expense. Interest expense increased $1.4 million, or 154.0%, to $2.3
million for fiscal 1997 from $909,000 for fiscal 1996. This increase primarily
reflects the growth in the debt outstanding under the credit facility due to
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
$946,000, or 110.8%, to $1.8 million for fiscal 1997 from $854,000 for fiscal
1996.
Income Tax Expense. Income tax expense decreased $188,000, or 32.5%, to
$390,000 for fiscal 1997 from $578,000 for fiscal 1996. This decrease primarily
reflects a decrease in the pre-tax income of the Cape Fear entity that was a C
corporation.
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Net Loss. Net loss increased $1.6 million, or 372.1%,to $2.0 million for
fiscal 1997 from $430,000 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
loss increased $740,000, or 136.0%, to $200,000 for fiscal 1997 from net income
of $556,000 for fiscal 1996.
Liquidity and Capital Resources
Satellink has met its primary cash requirements from borrowings under the
credit facility and cash flows from operations. Borrowings under the credit
facility have been used to fund acquisitions, capital expenditures and general
corporate needs. Satellink had outstanding borrowings under the credit facility
of $12.6 million, $18.8 million and $38.3 million as of July 31, 1996, 1997 and
1998, respectively, and $52.8 million as of January 31, 1999. The credit
facility was increased in October 1998 to $55.0 million from $40.0 million. The
credit facility carries a variable rate of interest based on, at Satellink's
election: (1) Bank Austria Creditanstalt's prime rate plus 2%; or (2) LIBOR
plus 4%. The credit facility is secured by substantially all of Satellink's
assets.
Satellink's cash balances were $1.2 million, $666,000 and $538,000 at July
31, 1996, 1997 and 1998, respectively, and $445,000 at January 31, 1999. Net
cash provided by operating activities was $4.2 million, $4.5 million and $5.4
million for the years ended July 31, 1996, 1997 and 1998, respectively, and
$4.0 million for the six months ended January 31, 1999.
Net cash used in investing activities was $15.3 million, $14.4 million and
$29.8 million for the years ended July 31, 1996, 1997 and 1998, respectively,
and $9.5 million for the six months ended January 31, 1999. Investing
activities during fiscal 1996 included $10.4 million for acquisitions and $4.9
million net purchases of property and equipment. Investing activities during
fiscal 1997 included $9.0 million for acquisitions and $5.4 million net
purchases of property and equipment. Investing activities during fiscal 1998
included $21.0 million for acquisitions and $8.8 million net purchases of
property and equipment. Investing activities during the six months ended
January 31, 1999 included $781,000 for acquisitions and $8.7 million net
purchases of property and equipment.
Net cash provided by financing activities was $12.0 million, $9.3 million and
$24.2 million for the years ended July 31, 1996, 1997 and 1998, respectively,
and $5.4 million for the six months ended January 31, 1999. Included in cash
provided by financing activities for fiscal 1996 was $8.6 million of proceeds
from the issuance of long-term debt, $3.5 million of proceeds from the issuance
of Series A preferred stock and Series C preferred stock, $250,000 of proceeds
from the issuance of common stock, 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 $10.0 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 for
fiscal 1998 was $20.4 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 $519,000 of
dividends on Series A preferred stock, Series C preferred stock and Series D
preferred stock and $206,000 of other financing activities. Included in cash
provided by financing activities for the six months ended January 31, 1999 was
$6.0 million from the issuance of long term debt, partially offset by $479,000
of dividends on Series A preferred stock, Series C preferred stock and Series D
preferred stock, and $150,000 of other financing activity.
Satellink had negative working capital of $1.8 million and $3.1 million at
July 31, 1997 and 1998, respectively, and working capital of $2.3 million at
January 31, 1999.
On April 3, 1998, Satellink issued $4.5 million of Series D preferred stock,
a portion of the proceeds of which was used to finance the acquisition of
Premier Paging and Hyde's Stay in Touch. The acquisition of Premier 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.
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On May 1, 1998, Satellink borrowed $11.4 million under the credit facility to
finance the acquisition of Hyde's Stay in Touch, Inc. and other working capital
purposes. Satellink 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. This indebtedness matures as follows: (1) approximately $2.8
million during fiscal 2000; (2) approximately $3.8 million during fiscal 2001;
(3) approximately $3.8 million in fiscal 2002; (4) approximately $3.8 million
in fiscal 2003; and (5) approximately $38.5 million in fiscal 2004.
While there can be no assurance, Satellink 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 Satellink's anticipated needs for
working capital for the next 12 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. Satellink has no present plans to
make any other significant capital expenditures.
Impact of Year 2000
Many existing computer hardware and software systems are designed to use two
digits to identify a year in date fields (e.g., "99" for "1999"). These systems
may not properly recognize a year that begins with "20" instead of "19." If not
corrected, these systems could fail or could create erroneous results when
working with dates beyond the year 1999. This is commonly referred to as the
"Year 2000 issue." Satellink believes that the Year 2000 issue may affect it
through its services and internal operations.
Readiness Status
Satellink has substantially completed its assessment of the state of
readiness of its services and its internal operations. Further, Satellink has
put in place plans that are intended to ensure that all of its services as well
as its internal operations will be Year 2000 compliant (i.e. that such systems
will recognize the difference between the years "2000" and "1900" and will
continue to function normally) by October 1999. These plans, which were
developed by internal personnel without third party assistance, are described
below.
Satellink designed the STAR*Net platform to be Year 2000 compliant. The
STAR*Net platform is based on Microsoft's MS-DOS 6.22 operating system, which
Microsoft has certified to be Year 2000 compliant. In 1998, Satellink tested
STAR*Net for Year 2000 compliance on several hardware platforms and found no
failures.
Satellink uses three switches manufactured by Glenayre Electronics. They are
the GL-3000 paging terminal, the GL-3900 TAS terminal and the MVP voice mail
terminal. These three terminals are not Year 2000 compliant. Glenayre has
produced a Year 2000 compliant software upgrade to each terminal which is
presently available. However, Satellink has elected to retire these terminals
and migrate the existing customers to the STAR*Net platform by October 1999. If
for any reason the Glenayre terminals must remain in use after October 1999,
Satellink will purchase and install the Glenayre software upgrades at a total
estimated cost of $28,000. Glenayre has assured Satellink that it will continue
to support these terminals after the Year 2000.
Satellink delivers paging services by broadcasting messages over various
paging networks, some of which it owns and some of which are owned by third
parties. Satellink has tested the paging networks that it owns and has found
them to be Year 2000 compliant. Satellink also has received written assurances
from the operators of the other paging networks that these paging networks are
Year 2000 compliant. However, if any of the paging networks tested by Satellink
are not Year 2000 compliant, it could negatively affect the functionality of
Satellink's paging services.
Although Satellink believes that its services currently are, or by October
1999 will be, Year 2000 compliant, Satellink cannot guarantee that its current
or future services, or those of the paging networks used by it, contain or will
contain all necessary date code changes or that errors will not be found later.
The costs to resolve any resulting Year 2000 related problems could negatively
impact Satellink's business, financial condition and operating results.
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Satellink has identified and assessed the Year 2000 readiness of most of the
material information technology and non-information technology systems,
including accounting systems, billing systems, telephone equipment and systems,
and telephone service providers, used internally as part of Satellink's
operations, but such work is ongoing. Satellink's only accounting system is the
Real World Accounting system, which is not Year 2000 compliant. However,
Satellink has ordered a Year 2000 compliant upgrade, which is scheduled to be
installed by May 1, 1999 at a total estimated cost of $3,000.
Satellink uses billing systems provided by In-Touch and by Beep Plus. Both
companies have certified that their systems are Year 2000 compliant. The In-
Touch system uses a Unix operating system that does not rely on 2-digit values
for the year, which minimizes the chance of a Year 2000 problem. The Beep Plus
system uses the Microsoft MS-DOS 6.22 system, which Microsoft has certified to
be Year 2000 compliant. Additionally, Satellink wrote a portion of its billing
software in-house using Microsoft Access, which Microsoft has certified to be
Year 2000 compliant.
Satellink uses office telephone systems and equipment from three major
vendors: Siemens, Toshiba and Lucent. These vendors have certified that their
equipment is Year 2000 compliant. Satellink also uses call-tracking software
from Tap-it Software. This software in its present configuration is not Year
2000 compliant. Satellink has ordered an update to this system that has been
certified to be Year 2000 complaint, and Satellink expects that this update
will be installed and tested by April 1, 1999. The total estimated cost of this
upgrade is $1,000. Satellink uses the telephone services of most of the major
telephone companies, including BellSouth, GTE, MCI WorldCom, Sprint and
Southwestern Bell. These vendors have certified the Year 2000 readiness of the
services used by Satellink.
Satellink continues to assess and test its remaining internal operating
systems for Year 2000 compliance. Satellink expects its testing of these
remaining systems to be complete by October 1999. Satellink believes that it
has appropriate plans in place to achieve timely Year 2000 readiness for all of
its internal systems. Satellink believes further that the costs of the
remaining assessment, testing and any required remediation will not be
significant. However, Satellink's on-going assessment and testing program may
in the future reveal Year 2000 issues which are not currently identified or
fully understood.
As indicated above, Satellink depends heavily on third party providers for
most of its critical internal operating systems, as well as for certain
critical aspects of the services that it provides. If these third party
services are not Year 2000 compliant (despite certifications to the contrary by
the third party providers), Satellink's business, financial condition and
operating results could be negatively affected.
Satellink's services as well as its internal operations also could be
negatively impacted by Year 2000 issues affecting vendors and other third
parties with which Satellink has relationships, such as utilities, distributors
and banks. Satellink has gathered written materials published by all third
parties upon which Satellink's services and internal operations significantly
depend or have otherwise communicated directly with such third parties to
determine the Year 2000 readiness of their business operations or the services
they supply to Satellink. While Satellink has collected many responses and
other materials from such third parties regarding their Year 2000 readiness,
the process is ongoing. Satellink expects to have received information on all
third parties upon which it significantly relies by October 1999. Satellink is
not certain that the Year 2000 issue will be properly and timely resolved by
all of the third parties upon which it relies. If not so resolved, it could
negatively affect Satellink's business, financial condition and operating
results.
Costs to Address the Year 2000 Issue
Satellink has incurred approximately $50,000 in costs to make its services
and internal systems Year 2000 compliant. Other than an additional $28,000 that
Satellink would incur if it purchases the Glenayre software update for its
switches, Satellink does not expect to incur material additional costs to
remedy any
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remaining Year 2000 problems with its services and internal systems. However,
Satellink cannot currently assess the costs of remedying problems resulting
from the Year 2000 issues of others. If the costs of remedying these Year 2000
problems prove to be significant, it may negatively affect Satellink's
business, financial condition and operating results.
Risks
Satellink's business is heavily dependent upon the constant availability of
telecommunications services and other utilities. As a result, Satellink
currently believes that the most reasonably likely worst case Year 2000
scenario would involve the temporary interruption of telephone, electric power
or other utility supplies to Satellink's facilities due to a failure of a
utility supplier to be Year 2000 compliant. In addition, despite assurances and
testing, it is also possible that the services or internal systems of some of
the third parties upon which Satellink significantly depends may not be Year
2000 compliant. Such failure could negatively affect Satellink's business,
financial condition and operating results.
In addition, "business interruption" litigation may arise out of the Year
2000 issue. Satellink is not aware of any possible claim against it arising
from instances of business interruption. However, Satellink cannot assure that
customers or others will not bring Year 2000 related claims against Satellink.
Any such claims, with or without merit, could be time consuming and expensive
for Satellink to defend or resolve. Any adverse outcome in any such litigation
could subject Satellink to significant liability. As a result, business
interruption litigation could negatively affect Satellink's business, financial
condition and operating results.
Contingency Plans
Satellink has not yet established a contingency plan to address the most
reasonably likely worst case scenario described above. Satellink is currently
considering whether it is feasible to attempt to develop a contingency plan
that could address such a far-reaching worst case scenario.
Cautionary Statements
The continued assessment, progress and timing of Satellink's Year 2000
readiness efforts and potential exposures as described above depend upon the
cooperation and responsiveness of third parties, the accuracy and reliability
of responses provided and testing procedures, and the availability of skilled
resources, both internal and external, to address Year 2000 issues that exist
or may arise. There can be no assurance that assessments to date will prove to
be accurate. Serious deficiencies which are not currently identified or fully
understood may arise in the future and may negatively affect Satellink's
business, financial condition and operating results. Satellink plans to
continue its assessment of Year 2000 issues and develop appropriate contingency
plans where necessary in an effort to minimize potential exposure to the Year
2000 issue.
Recent Accounting Pronouncement
In June 1997, the Financial Accounting Standards Board 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 Satellink's financial statements.
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BUSINESS
General
Founded in 1988, Satellink is a leading regional provider of messaging and
enhanced personal telecommunications services to businesses and individuals.
Satellink provides these services in smaller metropolitan areas and major
cities in the southeastern and southwestern United States. In 1995, Satellink
began development of its proprietary STAR*Net platform in anticipation of
increased demand for enhanced personal telecommunications services from a
single provider. The STAR*Net platform allows Satellink to provide messaging
services and an integrated suite of personal telecommunications services to
businesses and individuals in smaller markets not generally targeted by major
providers. Current services provided by the STAR*Net platform when combined
with services under development will comprise a unified messaging service.
Satellink will continue capitalizing on its STAR*Net platform by marketing
messaging and enhanced services to its existing subscriber base and by
attracting new subscribers who would otherwise use multiple providers to
fulfill their personal telecommunications needs. Satellink has increased its
subscriber base through internal growth and acquisitions from approximately
105,700 subscribers as of July 31, 1996 to approximately 222,000 subscribers as
of January 31, 1999.
Through the STAR*Net platform, which integrates carrier-grade telephony
platform hardware with Satellink's proprietary software, Satellink provides its
subscribers messaging and enhanced services such as single telephone number
access to paging, voicemail, long distance and "find me" services. The STAR*Net
platform also allows Satellink to offer subscribers paging services as well as
the following enhanced personal telecommunication services:
.single telephone number access to paging, voicemail, long distance and
"find me" services;
.prepaid and postpaid long distance calling cards;
.inbound 1-800 service;
.the ability to originate a phone call from within a subscribers voicemail;
and
.Internet e-mail delivery via alphanumeric pager,
At a cost of approximately $25,000 per platform, the STAR*Net platform costs
significantly less than comparable switching platforms. This allows Satellink
to offer its services in smaller markets where the implementation of a more
expensive platform is not economically justified. Satellink believes that the
STAR*Net platform's scalable and flexible architecture and relatively low cost
of implementation provide a competitive advantage by allowing it to quickly add
and customize services.
Satellink delivers paging services by broadcasting messages over the
following networks:
. an FM subcarrier network that it owns in Alabama, Georgia, Kentucky and
Tennessee and that is 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;
. VHF and UHF paging networks in Georgia and Louisiana that it owns; and
. VHF, UHF, 900 MHz and narrowband PCS paging networks operated by third
parties from which Satellink purchases and resells local, regional and
nationwide service.
Satellink has exclusive regional distribution rights on the CUE system in the
areas where it owns the network as well as in North Carolina, southern
Louisiana and Dallas/Fort Worth. Satellink's use of the STAR*Net platform and
multiple message distribution networks in its market areas allows Satellink to
offer an assortment of service and pricing options not readily available from
many of its competitors.
Satellink's principal executive offices are located at 1325 Northmeadow
Parkway, Suite 120, Roswell, Georgia 30075, and the telephone number is (770)
625-2599. Satellink maintains a website on the Internet at www.satellink.net.
Information contained in the website is not part of this prospectus.
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Industry
The telecommunications industry has been characterized by high levels of
competition and consolidation over the past 15 years as a result of
deregulation and the breakup of AT&T. The Telecom Act further increased
competition by allowing many telecommunications companies to enter markets from
which they were previously excluded. One result was further industry
consolidation as companies acquired other companies in their market segment as
well as companies in different market segments. Additionally, many companies
are attempting to broaden their product and service offerings and sell those
products to existing and new customers. Many companies which once regarded
themselves as primarily long distance carriers, local exchange carriers, paging
companies, cellular companies, cable companies or Internet service providers
now compete with each other. For example, Satellink's messaging and enhanced
personal telecommunications services now compete with services offered by
companies as diverse as BellSouth, MCI WorldCom and Premiere Technologies, as
well as traditional paging and voice messaging competitors.
Satellink believes that the principal factors influencing financial results
in the telecommunications industry are price, cost of service, customer
acquisition cost, customer attrition, and the ability to sell multiple
services, which increases the revenue per customer. As the industry continues
to consolidate, Satellink believes that these factors will become increasingly
important.
The messaging and enhanced personal telecommunications industry is large and
growing. The U.S. paging industry had 48.2 million subscribers at December 31,
1997 and was estimated to grow to 53.4 million by December 31, 1998, an annual
growth rate of 10.8%. From 1990 through 1997, the number of subscribers grew
from 9.9 million to 48.2 million, a compound annual growth rate of 25.4%. From
December 31, 1997 through 2002, the number of paging subscribers is forecast to
grow at a compound annual rate of 7.4%, reaching penetration of approximately
24% of the U.S. population. Paging industry revenue was approximately $5.2
billion in 1997, with average revenues per unit of $9.57. For 1998, revenue is
estimated to be $6.2 billion, with average revenues per unit of $10.17. For
2002, The Strategis Group forecasts industry revenue and average revenues per
unit to be $8.6 billion and $10.69, respectively. The U.S. paging market is
serviced by over 2,000 paging companies. Of these companies, the five largest
served approximately 51.0% of the total subscribers as of December 31, 1997.
An important development in the paging market has been the recent development
of advanced messaging services, which include guaranteed messaging, two-way
text messaging and voice messaging. Advanced messaging was estimated to account
for approximately 600,000 subscribers as of December 31, 1998, or approximately
1.1% of the paging market. The Strategis Group forecasts that advanced
messaging will grow to approximately 8.4 million subscribers, or 12.2% of the
paging market, by 2002.
Another trend that provides growth opportunities for messaging and
telecommunications companies is unified messaging. Unified messaging allows a
subscriber to retrieve messages sent to a voice mailbox, pager, fax machine or
e-mail address through a number of methods. As the telecommunications industry
is increasingly focusing on user-friendly messaging capabilities, voicemail
companies, local exchange carriers, competitive local exchange carriers, and
Internet service providers are offering unified messaging. The Pelorus Group
estimates that worldwide unified messaging revenues could grow from $26.8
million in 1997 to $2.3 billion in 2002. Additionally, Ovum estimates that the
global unified messaging market will reach $31 billion by 2006. The Pelorus
Group estimates that in the United States unified messaging revenues could grow
to $970 million by 2002. Ovum estimates that by 2006 more than one-third of
households and 75% of businesses in the United States will subscribe to
services that include unified messaging.
Growth Strategy
Satellink's primary objective is to become a leading national provider of
messaging and enhanced personal telecommunications services. Satellink intends
to achieve its objective by pursuing the following strategies:
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. Focus on Niche Markets. Satellink targets smaller metropolitan markets
throughout the southeastern and southwestern United States that it
believes are underserved by larger providers of personal
telecommunications services, who focus on more densely populated
metropolitan areas. Satellink 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 to obtain new subscribers in
smaller metropolitan markets. While Satellink serves larger markets,
smaller markets are attractive to Satellink because management believes
these markets have reduced competition for personal telecommunications
services, limited availability of competitive services and lower market
penetration rates for personal telecommunications services. Satellink
also focuses on providing regional and national coverage, which
generates higher revenue per subscriber as compared to local coverage.
Approximately 18% of Satellink paging subscribers currently utilize
nationwide coverage paging services as compared to approximately 8% of
total paging subscribers in the United States who used such services as
of December 31, 1997. Satellink believes this reflects its ability to
serve mobile individuals who require the broad, uninterrupted coverage
area provided by Satellink.
. Capitalize on Enhanced STAR*Net Services to Attract New
Subscribers. Satellink intends to attract new subscribers by continuing
to aggressively market its STAR*Net services. Satellink believes that
the introduction of the STAR*Net services has expanded its target market
because potential new subscribers now include users of enhanced personal
telecommunications services in addition to users of traditional paging
and voicemail services. In addition, Satellink believes that businesses
and individuals who currently use multiple providers for their personal
telecommunications needs will be attracted to Satellink because
Satellink is able to provide subscribers with a suite of services and a
single bill for all of their services. During the six-month period ended
January 31, 1999, approximately 45% of new STAR*Net subscribers selected
enhanced services in addition to traditional messaging services.
. Expand Subscriber Base Through Acquisitions. Satellink intends to
continue increasing its subscriber base and its opportunities to cross-
market STAR*Net services by identifying and acquiring providers of
paging, voicemail and other personal telecommunications services. Based
on its experience acquiring and integrating 13 paging and voicemail
operators since January 1996, Satellink believes that acquisitions will
generate cost savings through integration of acquired companies,
particularly from its increased purchasing power for equipment and
airtime and other resulting economics of scale. Any cost savings would
effectively reduce the multiple paid for acquired companies, thereby
increasing Satellink's return on invested capital. Satellink intends to
continue to focus on smaller acquisition candidates because it expects
larger providers to focus increasingly on internal growth and larger
acquisitions, decreasing competition for smaller acquisition candidates.
. Cross-Market an Integrated Suite of STAR*Net Services to Existing and
Acquired Subscribers. Satellink intends to continue cross-marketing
additional STAR*Net services to its existing and acquired subscribers.
Satellink believes that its subscribers are mobile individuals who are
likely to use multiple personal telecommunications services. Satellink
believes these subscribers are more likely to purchase these services
from Satellink because:
. Satellink owns the subscribers' access numbers and is able to
offer them the ability to change service plans and coverage areas
without changing access numbers;
. Satellink has developed a proprietary unified billing system that
enables it to provide its subscribers with a single bill for all
of Satellink's personal telecommunications services; and
. subscribers are familiar with Satellink and have purchased
services from it in the past.
. Expand the Suite of STAR*Net Services. Satellink intends to develop new
STAR*Net services and offer them along with existing STAR*Net services.
These combined services will constitute a unified messaging service and
provide Satellink with additional cross-marketing opportunities to
existing and new subscribers. Services under development include
Internet-based conference calling, local access voicemail between
cities, text-to-speech playback of e-mail messages and narrowband PCS.
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<PAGE>
Acquisitions
Acquisitions have contributed significantly to Satellink's growth. The
following table provides a summary of acquisitions in which Satellink acquired
more than 5,000 subscribers. Satellink paid an aggregate cash consideration of
approximately $34.0 million and issued approximately 2.5 million shares of its
common stock in connection with these acquisitions.
<TABLE>
<CAPTION>
Approximate
Date Number
Name of Acquired Company Locations Acquired of Subscribers
---------------------------- ----------------------- ------------- --------------
<C> <S> <C> <C>
Cape Fear Paging Companies.. Nashville and Jackson, December 1998 59,000
TN, Raleigh and
Fayetteville, NC
Hyde's Stay in Touch, Shreveport, Monroe and May 1998 39,000
Inc. ...................... Alexandria, LA
Premier Paging, Inc. ....... Baton Rouge, New April 1998 10,000
Orleans, Denham Springs
and Hammond, LA
Message World............... Atlanta, GA February 1997 5,300
C.R., Inc. ................. Dallas, TX May 1996 10,500
Atlanta Voice Page, Inc. ... Atlanta, GA February 1996 11,500
</TABLE>
Since January 1996 Satellink has completed seven additional acquisitions for
aggregate consideration of approximately $3.0 million. Through these
acquisitions, Satellink acquired approximately 8,900 paging subscribers,
generally in smaller metropolitan markets. Satellink 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 --
Acquisitions could harm our business" and "Use of Proceeds."
Services
Satellink provides an integrated suite of messaging 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. Satellink's current services combined with its services
under development will allow Satellink to offer unified messaging services. The
following table summarizes each of Satellink's current and planned services.
<TABLE>
<CAPTION>
Current Services
----------------
<C> <S>
STAR*Paging Satellink provides a variety of local, regional or
national paging services through traditional, FM and
third party networks. Satellink's paging network is
able to reach 95% of the population of the United
States and Canada.
STAR*Message Satellink provides subscribers with an outsourced
voicemail solution that allows subscribers to avoid
the capital investment necessary to establish their
own stand alone voicemail system.
STAR*FindMe Satellink provides 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.
</TABLE>
37
<PAGE>
<TABLE>
<C> <S>
STAR*Calling Satellink enables a subscriber to place worldwide
long distance calls from the United States while
accessing the STAR*Net voicemail box, thereby
allowing the subscriber 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 postpaid Satellink calling cards
to place long distance calls.
One number services Satellink enables a subscriber to change coverage
area or type of service without changing the
subscriber's local or 1-800 access number.
STAR*Toll Free Satellink provides a subscriber the opportunity to
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.
STAR*MeetMe Satellink enables a subscriber to initiate a
conference call from any telephone with up to 16
participants without operator assistance.
STAR*Mail Satellink enables a subscriber to receive an e-mail
message via an alphanumeric pager.
MessageLink.Net Satellink provides a subscriber unlimited Internet
access service for $19.95 per month.
<CAPTION>
Services Under Development
--------------------------
<C> <S>
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.
STAR.Conference An individual would be able to initiate, monitor
and manage conference calls with up to eight
participants via Satellink's website.
</TABLE>
Paging Infrastructure
Satellink operates multiple paging distribution networks and has reseller and
other arrangements with third parties which enable Satellink to distribute its
services in ways that address the needs of a variety of subscribers. The
majority of these services utilize Satellink's FM and traditional paging
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 Satellink to reach over 95% of the population of the United States
and Canada and covers 60,000 miles of interstate highway. Despite Satellink's
multiple distribution networks, there can be no assurance that Satellink's
subscribers will not experience downtime due to the failure of Satellink's
network, a third party's network on which Satellink relies or any of
Satellink's switching facilities or its STAR*Net platforms. See "Risk
Factors -- Our services depend on networks, switching facilities and the
STAR*Net platform."
FM Network
Satellink's FM network operates by broadcasting on the sideband of FM radio
stations in Alabama, Georgia, Kentucky and Tennessee. Satellink has entered
into agreements with approximately 55 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, Satellink 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
38
<PAGE>
network. This allows Satellink to enter a new local market by installing
equipment to inject 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 Satellink's FM network are broadcast from
approximately 55 radio stations. Satellink's pagers are programmed to scan the
FM frequency spectrum to locate a station broadcasting Satellink's 57 KHz
paging signal, allowing subscribers to move within the coverage area without
interruption of paging service. Satellink'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 Satellink 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. Satellink
offers regional, nationwide and North American paging through the CUE network,
and CUE bills Satellink for paging distribution depending on the coverage
provided. Additionally, Satellink pays a co-operative advertising fee to CUE
based on the number of Satellink pagers connected to the CUE network. See "Risk
Factors -- We depend on CUE paging corporation to maintain its network."
Traditional Paging Networks
Satellink has developed or acquired traditional paging networks in Georgia,
Kentucky, Louisiana North Carolina and Tennessee. The traditional paging
network broadcasts messages on VHF, UHF and 900 MHz. These messages are
broadcast from transmitters owned by Satellink. Such transmitters are mounted
on radio towers owned by third parties who lease tower space to Satellink and
other broadcasters of radio and other transmissions. Each transmitter owned by
Satellink is operated pursuant to an FCC-issued license. See "-- Government
Regulation."
Third Party Carrier Network
In addition to maintaining its own traditional paging network, Satellink's
switching facilities are networked to traditional regional and nationwide
paging networks owned and operated by third parties, including PageNet,
Preferred Networks, Inc., Metrocall, Inc., BestCom and others. Paging data is
transferred from Satellink's switch to the third party network, which then
transmits the data over its network. Satellink has entered into a nationwide
resale agreement with PageNet pursuant to which Satellink can resell PageNet
airtime anywhere in the United States. Under this reseller agreement, Satellink
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.
Satellink is also a party to a national reseller agreement with SkyTel pursuant
to which Satellink can resell SkyTel's one-way and two-way nationwide paging
services.
The STAR*Net Platform
Incoming calls to or from Satellink's subscribers are received by either a
traditional switching platform or by the STAR*Net platform. Traditional
switching platforms provide only for the delivery of paging and voicemail
messages. The STAR*Net platform allows Satellink 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. In addition, 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 Satellink'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, Satellink can
switch a subscriber between paging networks with different coverage areas or
with less paging traffic, which often results in more reliable and timely
message delivery, without changing the subscriber's access number.
39
<PAGE>
The STAR*Net platform is a software-driven system that utilizes carrier grade
telephony platform hardware combined with Satellink's proprietary software. A
STAR*Net platform is generally located in each of Satellink's markets, thereby
providing access to Satellink's multiple message distribution networks.
Subscribers in market areas where a separate STAR*Net platform has not been
installed may still obtain access to the broad range of enhanced 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, Satellink is able to enter new markets without the substantial
capital investment associated with traditional switching equipment.
Additionally, Satellink 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 Satellink's network, the STAR*Net platform
can be customized to meet the specific needs of a subscriber, such as a school
system that implements an automated system through which students can access
grades or register for courses or a small business that needs an integrated
voicemail system but cannot afford a traditional voicemail system.
Satellink currently maintains switching facilities and STAR*Net platforms in
the following locations:
.Albany, Atlanta, Augusta, Cordele, Macon, Savannah and Valdosta, Georgia;
.Birmingham, Alabama;
.Baton Rouge and New Orleans, Louisiana;
.Fayetteville, Lumberton and Raleigh, North Carolina;
.Clarksville and Nashville, Tennessee; and
.Dallas and Stevenville, Texas.
Satellink'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. Satellink 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, Satellink has relied on its direct sales force to obtain
subscribers. Satellink's sales and marketing strategy incorporates a multi-
channel distribution system that utilizes the following distribution channels
to access different market segments:
. a direct sales staff that concentrates on business accounts;
. a database telemarketing sales staff which uses computerized lead
management and professional telemarketing techniques to identify
primarily small businesses and professionals as potential subscribers;
and
. retail stores that are designed to sell products and services that
produce higher average revenues per unit to the consumer market.
Satellink also has developed a major account program with sales
representatives and managers dedicated to establishing and maintaining
relationships with large clients. As of January 31, 1999, Satellink employed
125 sales representatives, including Satellink's direct sales staff,
telemarketing professionals, retail sales staff and sales representatives who
call on third-party retailers.
Satellink's sales representatives are typically recent college graduates who
attend a weeklong training program administered by Satellink's senior marketing
personnel. Sales representatives are compensated through salary plus a
commission generally based on recurring revenue generated by each new
subscriber. Satellink believes that this compensation system encourages its
sales representatives to sell multiple services to each new subscriber in order
to generate recurring revenues and increase the recurring revenue per new
subscriber. See "Risk Factors -- Our success depends upon our ability to
attract and retain key personnel."
40
<PAGE>
In connection with the development of the STAR*Net platform and rollout of
STAR*Net services, Satellink has commenced an intensive program designed to
educate its sales representatives about STAR*Net services. The sales
representatives cross-market STAR*Net services to existing subscribers as well
as sell such services to new subscribers. Satellink also intends to hire
additional outside sales representatives for its retail outlets to focus on
marketing STAR*Net services to multi-unit subscribers. At the same time,
Satellink intends to market STAR*Net services to individual and small business
subscribers through billing inserts and telemarketing. Sales representatives
are compensated based on the first month's recurring revenue generated by each
subscriber, which promotes the cross-sale of STAR*Net services which generate
higher monthly recurring revenue.
Satellink maintains customer service centers in Roswell, Georgia and
Nashville, Tennessee. As of January 31, 1999, these centers employed 22 full-
time customer service personnel who are available via a toll-free call 24 hours
a day, 7 days a week. Satellink also has four customer services representatives
at its offices in Louisiana. Customer service calls received between midnight
and 8:00 a.m. are forwarded via a paging message to on-call customer service
personnel, who return the service calls 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 Satellink's services and to resolve
billing and technical issues. Satellink's customer service centers can
accommodate an additional 11 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. These subscribers have traditionally included
truck drivers and other small business operators and employees, utility
companies, professionals, medical personnel, sales and service providers,
construction and trade people, and real estate brokers and developers.
Additionally, messaging and enhanced personal telecommunications services are
increasingly being adopted by individuals for private, nonbusiness uses such as
communicating with family members and friends. Satellink also believes that its
focus on business and high-volume individual subscribers generates increased
revenues, reduces subscriber turnover and provides an attractive base to market
additional personal telecommunications services. Based on the number of
individuals using Satellink's services, Satellink's largest subscribers include
Southern Company, the State of Tennessee, CSX Corporation, Tennessee Valley
Authority, Sprint, Carolina Power and Light and State Farm Insurance. No
subscriber represents more than 5% of Satellink's subscriber base.
Pagers
The majority of Satellink's paging services are delivered through either: (1)
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 (2) alphanumeric display pagers,
which allow the subscriber to receive and store text messages. Satellink
utilizes pagers for traditional paging subscribers that are manufactured by
Motorola, NEC, Panasonic and other manufacturers. Satellink utilizes Info
Telecom numeric pagers for FM paging subscribers. Most of the traditional
pagers used by Satellink are among the smallest available and have time and
date stamping capability and average battery life of five weeks. Info Telecom
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.
Satellink is seeking to address the limitations of the Info Telecom pager by
developing a new FM pager, the FM Concepts Pager, which is expected to be 25%
smaller than the Info Telecom pager and have capabilities similar to those of
many popular traditional pagers. Satellink plans to introduce the FM Concepts
Pager during the fourth quarter of fiscal 1999 and believes the FM Concepts
Pager can be produced at approximately 75% of the cost of its Info Telecom
pager. These cost savings can be passed on to new subscribers, thereby making
FM paging a more cost-effective alternative for new subscribers. There can be
no assurance that Satellink'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 Satellink does not have
41
<PAGE>
access at competitive prices. Reduced acceptance of FM pagers or increased
competition from FM pager providers could have a material adverse effect on
Satellink's business, financial condition and results of operations. See "--
Proprietary Rights and Technology."
Satellink'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.
Satellink purchases a variety of models of traditional pagers from Motorola
and other manufacturers and sells or leases these pagers to its subscribers.
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 pager. Satellink and most of its competitors sell pagers
without a significant markup. The absence of a markup inhibits Satellink's
ability to compete on the basis of price. Accordingly, the cost at which
Satellink is able to obtain pagers directly relates to the price at which it is
able to sell pagers and generate recurring revenues from providing services to
the purchasers of such pagers.
Proprietary Rights and Technology
In 1995, Satellink 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 Satellink and independent
contractor programmers. See "-- The STAR*Net Platform" and "Risk Factors --We
Must Adapt To Changes In Technology" and "-- Our Software May Contain
Undetected Errors."
Satellink intends to develop and use a new FM pager, the FM Concepts Pager,
to reduce its dependence on Info Telecom pagers. As of January 31, 1999, the FM
Concepts Pager was at an experimental stage, and there can be no assurance that
it will ever reach the production stage. In addition, 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. Satellink intends to
outsource the production of the FM Concepts Pager to a third party
manufacturer. However, there can be no assurance that Satellink 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.
Satellink's ability to compete is dependent in part upon its proprietary
technology, particularly its newly-developed STAR*Net platform and FM Concepts
Pager. Satellink relies primarily on a combination of intellectual property
laws and contractual provisions to protect its proprietary rights and
technology. Satellink has identified several key components of the FM Concepts
Pager for which it intends to submit patent applications. In addition,
Satellink intends to submit several patent applications in connection with the
STAR*Net platform. These laws and contractual provisions provide only limited
protection of Satellink's proprietary rights and technology. Satellink's
proprietary rights and technology include confidential information and trade
secrets that Satellink attempts to protect through confidentiality and
nondisclosure agreements. Satellink generally 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 Satellink'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
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<PAGE>
obtain and use Satellink's proprietary technology without authorization, or
independently develop technologies that are similar or superior to Satellink's
technology. However, Satellink 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 --
We have only limited protection of our 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 Satellink's current or future
products or services infringe the patent, copyright or trademark rights of such
third parties. The success of any such claim could negatively affect
Satellink's business, financial condition and operating results.
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. Satellink'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.
Satellink's technical support and development personnel developed the
STAR*Net platform over a three-year period using carrier grade telephony
platform 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 Satellink's personnel will be able to successfully
identify such needs or developments or develop and implement new technologies
or applications in response thereto.
As of January 31, 1999, Satellink had 14 employees and 6 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
Satellink'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 its strategic partners and vendors.
Competition
Satellink believes that its focus on business and individual subscribers
requiring regional or nationwide service distinguishes it from larger
providers, many of whom focus on selling local paging services to a larger
number of lower-volume subscribers. Satellink 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 who focus on more densely-populated metropolitan markets. However, the
information and telecommunications services industry is intensely competitive,
rapidly evolving and subject to rapid technological change. Satellink expects
competition to increase in the future, especially as an increasing number of
telecommunications companies begin offering unified messaging services. Many of
Satellink'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 Satellink. Competition from these competitors could have a negative effect
on Satellink's business, financial condition and operating results.
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<PAGE>
Satellink 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 Satellink. For example, Premiere Technologies offers bundled
telecommunications services which are similar to those offered by Satellink.
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. Satellink's nationwide mobile
communications services and features compete with services provided by
companies such as AT&T, MCI WorldCom and Sprint as well as smaller
interexchange long distance providers. Satellink's voicemail services compete
with voicemail services provided by AT&T, certain Baby Bells and other service
bureaus as well as by equipment manufacturers, such as Octel, Nortel, Siemens,
Centigram, Boston Technology and Digital Sound. Satellink'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.
Satellink expects that other parties will develop and implement information and
telecommunications service platforms similar to its platform, thereby
increasing competition for Satellink's services.
In addition, the Telecom Act may allow the Baby Bells, as is the case with
other local exchange carriers ("LECs"), to provide long distance telephone
service between LATAs. The Telecom 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 in the future may, if authorized by the FCC, facilitate the offering of
an integrated suite of information and telecommunications services by the Baby
Bells in competition with Satellink. Such increased competition could have a
negative effect on Satellink's business, financial condition and operating
results. 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 Baby Bells and other LECs
into the bundled telecommunications market, would not have a negative effect on
Satellink's business, financial condition and operating results. Satellink
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
Satellink's technology.
Legislative Matters
The Telecom Act was intended to increase competition in the long distance and
local telecommunications markets. The Telecom 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 Baby Bells. The Telecom Act allows Baby Bells 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. A Baby Bell 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 Baby Bells open their own local
markets to competition before the FCC will approve such application. Further,
while the FCC has final authority to determine whether a Baby Bell application
is granted, the FCC must consult with the Department of Justice and with the
relevant state authority to determine that the pro-competitive criteria have
been satisfied. Satellink is unable to determine how the FCC will rule on any
such applications.
The Telecom Act provides a framework for Satellink and other long distance
carriers to compete with LECs by reselling local telephone service, by
interconnecting to LEC network facilities at different points in the network or
by building new local service facilities. In the future, Satellink may decide
to lease unbundled network elements, which could also be used as a platform to
provide access to Satellink's services, or to build local service facilities.
Satellink'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.
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Government Regulation
Satellink provides telecommunications services and consequently 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. Satellink 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. The tariffs of
non-dominant carriers, such as Satellink, may be implemented and changed on one
day's notice. The FCC usually does not review or require them to be changed
unless a complaint is filed. Currently, Satellink 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.
The order prohibits 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, but were
appealed by several parties. 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. Satellink is currently unable to
predict what impact the outcome of the FCC's detariffing proceeding will have
on it.
Local Interconnection and Resale. In August 1996, the FCC adopted an order
that established rules relating to the manner in which telecommunications
carriers can interconnect with the LECs' networks. The interconnection order
addressed several important interconnection issues, including the use of the
LEC's facilities and networks 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 order, including
rules governing the pricing of interconnection, resale and unbundled network
elements. The FCC and other parties appealed the Eighth Circuit Court's ruling
to the U.S. Supreme Court, and the case was argued before the Supreme Court in
the Fall of 1998. The Supreme Court issued a decision on January 25, 1999
affirming some portions of the case and remanding other matters back to both
the Eighth Circuit and the FCC. Until the Eighth Circuit and the FCC respond to
the Supreme Court remands, Satellink is unable to predict the impact on its
ability to offer competitive local service. No assurance can be given that the
Supreme Court's decision will not have a negative effect on Satellink's
business, financial condition and results of operation.
FCC Licenses. Satellink's paging operations are subject to FCC regulation
under the Communications Act of 1934. Satellink holds FCC licenses to use the
radio frequencies necessary to conduct its paging operations. The FCC licenses
set forth the technical parameters for each station under which Satellink is
authorized to operate, such as location, frequency, signal strength and tower
height.
License Grant and Renewal. Satellink's FCC licenses are for varying terms of
up to 10 years. The license expiration dates are staggered, and only a portion
of the licenses expire in any particular calendar year. At the end of the
license terms, Satellink must file a renewal application with the FCC.
Licensees in the paging services industry generally are renewed automatically,
unless a competitor demonstrates that the licensee has not operated the station
in conformance with FCC rules or that the licensee has not provided adequate
service to the public. Challenges by competitors are rare, and the vast
majority of license renewal applications are granted in the normal course.
Although Satellink is unaware of any circumstance which could prevent the grant
of its license renewal applications, no assurance can be given that any of
Satellink'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
under the Communications Act, to revoke or involuntarily modify radio licenses.
To date, none of Satellink's licenses have ever been revoked or modified
involuntarily.
45
<PAGE>
FCC Regulatory Developments. Under FCC regulations governing the award of
radio licenses, 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 Satellink will be able to procure additional frequencies or
expand existing paging networks into new service areas.
In March 1994, the FCC adopted rules under which licenses for blocks of
spectrum are auctioned 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 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 and broadband PCS. In these
auctions, successful bidders have made significant auction payments in order to
obtain their blocks of spectrum.
Satellink has the option of participating in the market area licensing
auctions for paging services. It is anticipated that the FCC will schedule the
auction for the 900 MHz paging bands in 1999. The lower paging bands, e.g., the
exclusive 150 and 450 MHz frequencies, are likely to be auctioned in 1999 or
2000. Satellink believes that most bidders in the auctions will be larger
carriers, with significant resources to build out large regional systems. As a
result, Satellink may not be successful in acquiring additional frequencies
through the market area licensing auctions. 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 applications for new or
modified transmitter facilities in paging services. The FCC temporarily lifted
the freeze to permit existing paging carriers' expansion applications. The FCC
has dismissed expansion applications filed after July 31, 1996 for paging
systems licensed on exclusive paging frequencies. The FCC also has dismissed
any pending application that was mutually exclusive with another pending
application due to the possibility of harmful electrical interference. However,
the FCC is accepting expansion applications from incumbent licensees with
respect to shared paging channels, e.g. 462,850 MHz. Therefore, although
Satellink 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. However, this method cannot be used to expand its
paging system licensed on exclusive frequencies under the FCC rules. Currently,
the only method for expanding that paging system is by acquiring existing
stations, with prior FCC approval, which Satellink did during 1998.
In 1996, the FCC fully implemented its rules classifying the services offered
by paging carriers as either commercial mobile radio service or private mobile
radio service. These FCC rules aim to reduce the disparities in the regulatory
treatment of similar mobile services. Satellink's paging services are
classified as commercial service under the rules because its radio facilities
are interconnected to the public switched telephone network and its services
are provided to the general public for profit. Satellink believes that the new
parity rules removed certain regulatory advantages that it and other private
carriers previously enjoyed. However, some disparities still exist between the
exclusive frequencies and the shared frequencies licensed by the FCC. These
disparities can affect Satellink's ability to respond timely to subscriber
demands. Specifically, Satellink will only be able to expand its exclusive
paging channel coverage through the acquisition of another carrier's station on
the same channel or by winning the bid in an upcoming paging auction.
The paging auctions will feature "overlay" licenses, and that the winning
bidder will be required to protect existing licensees in the designated service
area. If Satellink wins the bid for its areas, it will be able to expand the
coverage in the licensed market areas of its existing exclusive operations
without further FCC approval. If Satellink does not win the bid, it will be
unable to expand its existing coverage unless it obtains the consent of the
winning bidder and, if licensing partitioning is contemplated, the prior
approval of the FCC. However, the winning bidder would have to protect
Satellink's existing coverage areas from interference. Additionally, with
respect to its shared channel operations, Satellink is still able to license
additional facilities on a site by site basis.
46
<PAGE>
Satellink's FM sub-carrier paging system is separate and distinct from
Satellink's paging facilities discussed above. Although the FCC requires
Satellink and other carriers to file applications prior to initiating service
on "leased subcarrier facilities of broadcast stations," these applications are
not included in the FCC's freeze on applications for paging systems. Thus,
Satellink can expand its FM subcarrier paging system if necessary.
The Telecom Act could have both positive and negative impacts on Satellink's
business. Proposed federal guidelines regarding antenna siting issues could
remove local and state barriers to the construction of communications
facilities. In addition, the local and state restrictions are now being
litigated in the courts and debated in Congress, and could be changed as a
result of those processes. Satellink's cost of acquiring necessary
communications services and facilities could decrease if competition in the
local and interexchange industries increased. However, some provisions of the
Telecom Act could place additional burdens on Satellink or subject it to
increased competition such as:
.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.
FAA regulations indirectly affect paging carriers. Proposed antenna sites may
require prior FAA approval, and the tower owner usually is the party
responsible for obtaining the approval. If FAA approval is required, the FCC
will not grant an application for new or modified facilities the until the FAA
approves the antennae structure. Recently, the FCC issued stricter guidelines
with respect to radio frequency radiation hazards, although most paging
facilities will be categorically exempt if the base station and antenna system
meet specific criteria governing power and antenna height. If the base station
does not meet the exemption criteria, Satellink may have to modify its facility
or relocate to another antenna structure. Satellink's choices for relocation
will be limited to certain sites within its service area if an exclusive paging
channel is involved, because Satellink cannot expand its composite interference
contour. However, Satellink can move freely with respect to the shared paging
frequencies if it has FCC approval, which could take several months.
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 Satellink, as well as certain other
entities, must make contributions to the federal programs. Satellink'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. Satellink'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 negative
effect on Satellink's business, financial condition and operating results.
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 access charge levels will have an effect on the
prices Satellink pays for originating and terminating interstate traffic.
47
<PAGE>
Payphone Compensation. In September 1996, the FCC issued an order adopting
rules to implement the Telecom Act's requirements that all payphone service
providers be fairly compensated for every completed call made 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, decreasing the per-call
compensation amount to be paid to payphone service providers to $0.284 per
call. Satellink 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 Satellink expects to incur
additional costs to receive "dial around" calls that originate from payphones,
the FCC has permitted long distance carriers, such as Satellink, to pass such
costs through to their customers.
State Regulation. Most public utility commissions require carriers that wish
to provide intrastate common carrier services to be authorized to provide such
services. Satellink 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.
Satellink is generally not subject to price regulation or to rate of return
regulation for its intrastate services. In most states, however, Satellink 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. Satellink 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. Satellink's ability to incur long-term indebtedness is
subject to prior public utility commission approval in some state
jurisdictions. In addition, some state public utility commissions regulate the
issuance of securities and the transfer of control of entities subject to their
jurisdiction. These state regulations may have attached to Satellink's recent
acquisitions. Currently, Satellink is reviewing whether and to what extent
additional regulatory compliance is required in this regard. See "Risk
Factors -- Federal, state and local regulation may impact our business."
Properties
Satellink's corporate headquarters occupy approximately 10,000 square feet of
office space in Roswell, Georgia under a lease expiring in November 2001.
Satellink's main network switching center, along with its Atlanta sales force,
occupies nearby office space of approximately 7,000 square feet in Roswell,
Georgia under a lease expiring in November 2001. Satellink also occupies office
space for sales and network operation in Birmingham, Alabama; Albany, Cordele
and Valdosta, Georgia; Baton Rouge and New Orleans, Louisiana; Fayetteville and
Raleigh, North Carolina; Nashville, Tennessee; and Dallas, Texas. Satellink
believes that its current space is sufficient to meet its present needs and
does not anticipate any difficulty securing additional space, as needed, on
acceptable terms.
Employees
At January 31, 1999, Satellink had 294 employees, of whom 14 were technical
support personnel (two of whom also performed development functions), 125 were
sales and marketing personnel and 155 were managerial and administrative
employees. In addition, at January 31, 1999, Satellink had six technical
support personnel who were independent contractors, all of whom also performed
development functions. Except for Satellink's 401(k) Plan, Satellink does not
have any collective bargaining, employment, pension or compensation
arrangements with any of its employees. Satellink considers its relations with
its employees to be good. See "Management."
Legal Proceedings
Satellink is not a party to any legal proceeding that it believes would have
a negative effect on its business, financial condition or operating results.
48
<PAGE>
MANAGEMENT
Directors and Executive Officers of Satellink
The directors and executive officers of Satellink and their ages as of
January 31, 1999 are as follows:
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<C> <C> <S>
Jerry W. Mayfield................ 52 Chairman of the Board, President and
Chief Executive Officer
V. Weyher Dawson, Jr. ........... 44 Executive Vice President, Assistant
Secretary and Director
David C. Massey.................. 51 Senior Vice President -- Sales &
Marketing and Director
Robert P. Poche.................. 42 Senior Vice President -- Systems &
Technology and Director
Daniel D. Lensgraf............... 36 Senior Vice President -- Finance &
Administration, Chief Financial
Officer and Secretary
James O. Carpenter............... 48 Director
Marc A. Comeaux.................. 44 Director
Robert D. Gage, IV............... 44 Director
Gordon E. Kaiser................. 54 Director
Stiles A. Kellett, Jr. .......... 55 Director
</TABLE>
Jerry W. Mayfield has been Chairman of the Board, President and Chief
Executive Officer of Satellink since May 1994. Mr. Mayfield served as Executive
Vice President of Satellink from the time of its formation in 1988 until May
1994 and has been a director of Satellink 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.
V. Weyher Dawson, Jr. has been Executive Vice President, Assistant Secretary
and a Director of Satellink since January 1999. From 1989 until December 1998,
he served as president and as a director of the Cape Fear Paging Companies.
From 1979 to 1989, Mr. Dawson was the general manager of Cape Fear Broadcasting
Company. He presently serves on the board of directors of Cape Fear
Broadcasting Company.
David C. Massey has been Senior Vice President -- Sales & Marketing of
Satellink since February 1993 and a director of Satellink since December 1995.
Mr. Massey has primary responsibility for Satellink'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
Satellink's formation in 1988 and was elected a director of Satellink in 1995.
Mr. Poche has primary responsibility for Satellink'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.
Daniel D. Lensgraf has been Senior Vice President -- Finance &
Administration, Chief Financial Officer and Secretary of Satellink since August
1995. From May 1992 until August 1995, Mr. Lensgraf was employed as a Senior
Associate in the Corporate Finance Group of Bank Austria Creditanstalt.
James O. Carpenter has been a director of Satellink 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 Satellink 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 Satellink from
1988 until May 1994.
49
<PAGE>
Robert D. Gage, IV has been a director of Satellink 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 Satellink since April 1990. Mr.
Kaiser has been President and Chief Executive Officer of CUE Paging
Corporation, 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.
Stiles A. Kellett, Jr. has been a director of Satellink 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 MCI
WorldCom, Inc.
Directors of Satellink currently are elected at the annual meeting of
shareholders to serve one-year terms. Executive officers of Satellink 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. Satellink is not party to any
employment agreements with its executive officers.
Board of Directors
Satellink's Board of Directors is comprised of nine members who, beginning
with Satellink's first annual meeting of shareholders following the offering,
will be divided into three equal classes. 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 Satellink'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 dated August 1, 1988 between Satellink
and certain of its shareholders, the shareholders 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 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 Satellink. Pursuant to an
agreement with Mr. Kellett, Satellink 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 upon the closing of the offering, 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 a Satellink
employee receives fees of $750 and $500 for each meeting of the Board of
Directors and each Board committee, respectively, attended in person. Following
the completion of the offering, the Board intends to begin paying each director
who is not a Satellink employee an annual fee of $6,000 as well as fees of
$1,000 and $500 for each meeting of the Board of Directors and Board committee,
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."
50
<PAGE>
Meetings and Committees
The Board of Directors conducts its business through meetings of the full
Board and through Board committees, including the Audit Committee and the
Compensation Committee.
The Audit Committee's responsibilities include:
. reviewing with Satellink'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 Satellink's internal auditing
procedures;
. consulting with the independent accountants and management with regard
to Satellink'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
Satellink during fiscal 1998.
The Compensation Committee is responsible for establishing the compensation
of executive officers and for administering Satellink's Incentive 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 Satellink during fiscal 1998.
Compensation Committee Interlocks and Insider Participation
On November 17, 1995, Satellink 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, Satellink entered into a letter agreement with Mr. Kellett
pursuant to which Satellink agreed to cause its management to nominate Mr.
Kellett to serve on the Satellink Board of Directors and to use its best
efforts to cause Mr. Kellett's election to the Board. The letter agreement will
terminate upon the closing of the offering. Each issued and outstanding share
of Series C preferred stock will then be converted into 272.5725 shares of
common stock without further action on the part of Satellink or the holders of
the Series C preferred stock. It is expected that Mr. Kellett will continue to
serve as a director of Satellink 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, Satellink issued and sold 300 shares of Series D preferred
stock to Mr. Carpenter for $300,000, 200 shares to Mr. Gage for $200,000 and
1,500 shares 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 upon the closing of the offering through
proceeds realized from the offering. See "Certain Transactions -- Series D
Preferred Stock And Related Warrant Issuance."
Executive Compensation
Summary Compensation
The following table summarizes the compensation paid by Satellink for
services rendered for fiscal 1998 by Satellink's Chief Executive Officer and
Satellink's other executive officers whose total salary and bonus for fiscal
1998 exceeded $100,000 (collectively, the "Named Executive Officers").
51
<PAGE>
Summary Compensation Table
<TABLE>
<CAPTION>
Annual Long Term
Compensation Compensation
----------------- ------------
Number of
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............. 1998 $180,000 $50,400 37,267 $9,124
Chairman of the Board,
President and Chief
Executive Officer
V. Weyher Dawson.............. 1998 106,386 -- -- --
Executive Vice President and
Assistant Secretary
David C. Massey............... 1998 125,000 30,000 19,662 6,394
Senior Vice President --
Sales & Marketing
Robert P. Poche............... 1998 125,000 30,000 19,662 6,398
Senior Vice President --
Systems & Technology
Daniel D. Lensgraf............ 1998 120,000 28,800 17,875 5,700
Senior Vice President --
Finance & Administration,
Chief Financial Officer and
Secretary
</TABLE>
- --------
(1) Consists of a discretionary bonus paid to the Named Executive Officer based
on Satellink's performance during fiscal 1998.
(2) Represents contributions by Satellink under its 401(k) Profit Sharing Plan
on behalf of the Named Executive Officer.
Stock Option Grants
The following table sets forth information concerning each grant of stock
options to the Named Executive Officers during the year ended July 31, 1998.
<TABLE>
<CAPTION>
Potential Realizable
Value at Assumed
Annual Rates of Stock
Price Appreciation
Individual Grants for Option Term(1)
---------------------------------------------- ----------------------
Number of Percent of
Securities Total Options Exercise
Underlying Granted to or Base
Options Employees in Price Expiration
Name Granted Fiscal Year ($/Sh) Date 5% ($) 10% ($)
---- ---------- ------------- -------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Jerry W. Mayfield....... 37,267 24.3% $4.62(2) 7/31/07 392,027 665,669
David C. Massey......... 19,662 12.8% $4.62(2) 7/31/07 206,833 351,206
Robert P. Poche......... 19,662 12.8% $4.62(2) 7/31/07 206,833 351,206
Daniel D. Lensgraf...... 17,875 11.7% $4.62(2) 7/31/07 188,034 319,286
</TABLE>
- --------
(1) The 5% and 10% assumed annual rates of compounded stock price appreciation
are mandated by rules of the Securities and Exchange Commission. There can
be no assurance that the actual stock price appreciation over the term will
be at the assumed 5% and 10% levels or at any other defined level. Unless
the market price of the common stock appreciates over the option term, no
value will be realized from the option grants made to the Named Executive
Officers.
(2) Options were granted at the fair market value of the common stock on the
date of grant as determined by the Board of Directors. These options vest
ratably over four years beginning with the date of the grant.
52
<PAGE>
Option Values as of July 31, 1998
The following table sets forth information concerning the stock options held
by each of the Named Executive Officers as of July 31, 1998. No options were
exercised, and no stock appreciation rights were exercised or outstanding,
during fiscal 1998.
Fiscal Year-End Option Values
<TABLE>
<CAPTION>
Number Of Value Of Unexercised
Securities Underlying In-The-Money
Unexercised Options Options At July 31,
At July 31, 1998 1998(1)
------------------------- -------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Jerry W. Mayfield........... -- 37,267 -- 200,496
David C. Massey............. -- 19,662 -- 105,781
Robert P. Poche............. -- 19,662 -- 105,781
Daniel D. Lensgraf.......... 28,167 17,875 231,533 96,168
</TABLE>
- --------
(1) There was no public trading market for the Common Stock at July 31, 1998.
Accordingly, these values have been calculated based on an assumed initial
public offering price of $10.00 per share, less the applicable exercise
price. See "Principal And Selling Shareholders."
Incentive Plan
The Plan was adopted by Satellink's Board of Directors on September 18, 1997
and approved by the shareholders on December 18, 1997. The Plan's purpose is to
promote the success and enhance the value of Satellink 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 Satellink flexibility in motivating,
attracting and retaining individuals upon whose judgment, interest and special
effort Satellink's success is largely dependent. The Plan authorizes the
granting of awards to key employees, officers and directors of Satellink or its
subsidiaries in the form of:
. options (both incentive stock options and non-qualified stock options)
to purchase shares of stock;
. stock appreciation rights;
. performance shares;
. restricted stock; and
. 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 had been granted and
were outstanding as of December 31, 1998.
401(k) Plan
Satellink sponsors a defined contribution plan (the "401(k) Plan") for
eligible employees under Section 401(k) of the Internal Revenue Code of 1986.
Participants may contribute up to 15% of their annual salaries to the 401(k)
Plan, subject to certain limitations. All employee contributions are fully
vested and are not subject to forfeiture. Satellink may make discretionary
matching contributions to the 401(k) Plan on behalf of all eligible employees.
During fiscal 1998, Satellink made matching contributions equal to 40% of the
eligible contribution made by each employee to the 401(k) Plan.
53
<PAGE>
CERTAIN TRANSACTIONS
Non-Voting Preferred Stock Warrant Issuance
In connection with the Credit Facility, Satellink issued the Creditanstalt
Warrants for the purchase of 14,074 shares of non-voting preferred stock or
1,189,253 shares of common stock, at the election of Bank Austria
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 holders may not exercise their 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 warrants or
issued upon conversion of non-voting preferred stock issued pursuant to the
warrants, would exceed 4.99% of the aggregate number of shares of common stock
outstanding as of the time of the exercise of the warrants. The Creditanstalt
Warrants further provide that in no event shall any 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 Bank Austria Creditanstalt or its affiliates, would, upon issuance,
represent in excess of 24.99% of the total shareholders' equity of Satellink,
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 shares to be
issued under the warrants, subject to certain terms and conditions. The put
feature of the Creditanstalt warrants will be canceled upon completion of a
qualified offering of common stock that yields net proceeds of at least $10.0
million. See "Description of Capital Stock --Preferred Stock" and "Shares
Eligible For Future Sale -- Registration Rights."
Series C Preferred Stock Issuance
On November 17, 1995, Satellink issued and sold 1,000 shares of Series C
preferred stock to Bank Austria 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, for aggregate cash consideration of $3.5
million. See "Management --Compensation Committee Interlocks and Insider
Participation." Pursuant to the terms and conditions of the Series C preferred
stock, upon the closing of the offering 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 Satellink or the holders of Series C
preferred stock. The terms of the Series C preferred stock provide holders of
the stock 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, Satellink 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 Bank Austria 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 upon the closing of the offering through proceeds realized from the
offering. The issuance and sale of the Series D preferred stock to directors
and executive officers of Satellink was approved by Satellink's shareholders.
See "Use Of Proceeds."
In connection with the issuance of Series D preferred stock, Satellink issued
warrants to purchase an aggregate of 327,600 shares of common stock (or, with
respect to Bank Austria Creditanstalt and at the election of Bank Austria
Creditanstalt, 861.579 shares of non-voting preferred stock) at a price of
$4.62 per share
54
<PAGE>
($390.00 per share for non-voting preferred stock). If Satellink does not
redeem the Series D preferred stock by December 31, 1999 and December 31, 2000,
the aggregate number of shares of common stock subject to the warrants
increases to 409,500 and 491,400, respectively (or, with respect to Bank
Austria Creditanstalt, 1,076.9225 and 1,292.3070 shares of 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 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 of the 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 Bank Austria
Creditanstalt or its affiliates, would, upon issuance, represent in excess of
24.99% of the total shareholders' equity of Satellink, including all series of
preferred stock, determined in accordance with GAAP. The terms of the Series D
warrants provide the 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, Satellink has maintained an ongoing relationship with CUE
pursuant to which Satellink's FM subcarrier paging network is linked with the
CUE nationwide FM paging network. In April 1988, Satellink 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, Satellink 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 Satellink. As of January 31, 1999, CUE owned
approximately 7.3% of the outstanding common stock of Satellink on a fully
diluted basis. CUE from time to time provides Satellink with different paging
services, principally airtime and network services for regional and nationwide
paging. Satellink paid $6.0 million, $8.6 million, $9.6 million and $4.8
million to CUE for such services during fiscal 1996 and 1997 and 1998 and
during the six months ended January 31, 1999, respectively. Satellink will
periodically have outstanding affiliated receivables and payables related to
the timing of payments for such services.
Bank Austria Creditanstalt is a lender and agent for the lenders under
Satellink's $55.0 million Credit Facility. As of January 31, 1999, total
indebtedness under the credit facility was $52.7 million. The amounts paid by
Satellink to Bank Austria Creditanstalt, as agent for the lenders, under the
credit facility for fiscal 1996, 1997 and 1998 and for the six months ended
January 31, 1999 were $900,000, $1.6 million, $2.7 million and $2.1 million,
respectively. Satellink intends to use a portion of the net proceeds to repay
outstanding indebtedness under the Credit Facility. See "Use of Proceeds."
Satellink requires all material transactions between Satellink and its
officers, directors or other affiliates to be approved by a majority of the
disinterested members of the Board of Directors and to be on terms no less
favorable to Satellink than could be obtained from unaffiliated third parties.
Satellink believes that none of the transactions described above were on terms
less favorable to Satellink than could have been obtained in a transaction with
an unaffiliated party.
On August 1, 1995, Satellink granted to Daniel D. Lensgraf, Vice President
and Chief Financial Officer, options to purchase up to 84,500 shares of common
stock of an exercise price of $1.78 per share. Mr. Lensgraf's options vested
over a three-year term and, as of January 31, 1999, all of these options had
vested.
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<PAGE>
PRINCIPAL AND SELLING SHAREHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of the common stock as of January 31, 1999, and as adjusted to
reflect the sale of the common stock offered by this prospectus, by: (1) each
director of Satellink who beneficially owns common stock; (2) each Named
Executive Officer; (3) all directors and executive officers of Satellink as a
group; (4) each person known to Satellink to beneficially own more than 5% of
the common stock; and (5) 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 and the
redemption of all issued and outstanding shares of Series D preferred stock
upon the closing of the offering.
<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>
Bank Austria
Creditanstalt (2)...... 1,534,625 18.2 321,096 1,213,529 10.5
Kellett Partners, L.P.
and Stiles A. Kellett,
Jr. (3)................ 629,612 8.7 150,000 479,612 4.1
Jerry W. Mayfield (4)... 607,592 8.5 -- 607,592 5.3
David C. Massey (5)..... 554,641 7.7 -- 554,641 4.8
CUE Paging Corporation
and Gordon E.
Kaiser (6)............. 670,020 9.4 -- 670,020 5.8
Robert D. Gage, IV (7).. 489,244 6.8 -- 489,244 4.3
James O. Carpenter (8).. 455,099 6.3 -- 455,099 4.0
Marc A. Comeaux (9)..... 322,954 4.5 106,433 216,521 1.9
Robert P. Poche (10).... 161,092 2.2 15,000 146,092 1.3
Daniel D.
Lensgraf (11).......... 109,249 1.5 -- 109,249 1.0
V. Weyher Dawson, Jr. .. 265,652 3.7 -- 265,652 2.3
Margaret H.
Dickson (12)........... 496,430 6.9 -- 496,430 4.3
Ann H. Lawing (13)...... 496,430 6.9 -- 496,430 4.3
David Autin............. 60,963 * 60,963 -- --
Ira Carpenter (14)...... 94,637 1.3 14,365 80,272 *
Clear Fir Partners...... 54,793 * 20,000 34,793 *
Mary M. Dominique....... 84,500 1.2 84,500 -- --
Audrey Menard (15)...... 88,683 1.2 88,683 -- --
Jay Menard.............. 84,500 1.2 84,500 -- --
Paul Breaux............. 100,893 1.4 100,893 -- --
All directors and
executive officers as a
group (10 persons)..... 4,265,155 57.5 3,993,722 34.8
</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 January 31, 1999 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 72,800 shares of common stock issuable upon
exercise of the Series D warrants. The address of Bank Austria
Creditanstalt is 245 Park Avenue, New York, New York 10167.
(3) Includes 520,693 shares of common stock held by Kellett Partners, L.P., of
which Mr. Kellett is the general partner, and 109,200 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 30339. Mr. Kellett is a director of Satellink.
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<PAGE>
(4) Includes 14,560 shares of common stock issuable upon exercise of the
Series D warrants and 9,316 shares of common stock issuable upon exercise
of vested options. Mr. Mayfield's address is 1325 Northmeadow Parkway,
Suite 120, Roswell, Georgia 30075.
(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, 10,920
shares of common stock issuable upon exercise of the Series D warrants and
4,915 shares of common stock issuable upon exercise of vested options.
Mr. Massey's address is 1325 Northmeadow Parkway, Suite 120, Roswell,
Georgia 30076.
(6) Includes 662,740 shares of common stock held by CUE Paging Corporation, of
which Mr. Kaiser is the President and Chief Executive Officer, and 7,280
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 14,560 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 21,840 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 B. Menard, and as to which Mr. Comeaux disclaims
beneficial ownership. Mr. Comeaux is a director of Satellink.
(10) Includes 7,280 shares of common stock issuable upon exercise of the Series
D warrants and 4,915 shares of common stock issuable upon exercise of
vested options. Mr. Poche is Senior Vice President--Systems and Technology
of Satellink as well as a director.
(11) Includes 7,280 shares of common stock issuable upon exercise of the Series
D warrants and 32,635 shares of common stock issuable upon exercise of
vested options.
(12) Ms. Dickson's address is 1009 Drayton Road, Fayetteville, North Carolina
28303.
(13) Ms. Lawing's address is 1009 Drayton Road, Fayetteville, North Carolina
28303.
(14) Includes 7,280 shares of common stock issuable upon exercise of the Series
D warrants.
(15) Includes 46,433 shares of common stock held by Mr. Comeaux on behalf of
Ms. Menard.
57
<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 per share, and Class B
common stock, par value $0.01 per share, and four series of preferred stock,
designated Series A convertible preferred stock, par value $0.01 per share,
Series B convertible preferred stock, par value $0.01 per share, Series C
convertible preferred stock, par value $0.01 per share, and Series D preferred
stock, par value $0.01 per share. As of January 31, 1999, there were 30
beneficial owners of Satellink's common stock. Upon the closing of the
offering, Satellink will redesignate the Class A common stock as common stock,
par value $0.01 per share, and will redesignate the Series B preferred stock as
non-voting preferred stock, par value $0.01 per share. In addition, Satellink
will eliminate the Class B common stock and will convert each outstanding share
of Series A preferred stock into 84.5 shares of common stock. Satellink will
convert each outstanding share of Series C preferred stock into 272.5725 shares
of common stock and will redeem each outstanding share of Series D preferred
stock 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."
Upon the closing of the offering, Satellink's authorized capital stock 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 Satellink's articles of incorporation and 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 Satellink, holders of common
stock are entitled to share ratably in the assets of Satellink, if any,
remaining after the payment of all debts and liabilities of Satellink 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 Satellink in this prospectus 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
Satellink may issue in the future as described below.
Preferred Stock
The Board of Directors has the authority, pursuant to the articles of
incorporation, 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 Satellink 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 Satellink's obligations under the Creditanstalt
warrants. The designation of the non-voting preferred stock does not restrict
Satellink from issuing additional securities of any kind, including shares of
preferred stock of any class, series or designation. However, issuances of non-
voting preferred stock will be limited to issuances 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
Satellink's shareholders except as specifically provided by the Georgia Code.
Upon liquidation of Satellink, 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."
Provisions of the Articles of Incorporation, Bylaws and the Georgia Code
Satellink's articles of incorporation and bylaws as of the closing of the
offering will contain, and the Georgia Code currently contains, certain
provisions that could delay, defer or prevent a change in control of Satellink
that a shareholder may deem to be in the shareholder's best interest.
Number, Term and Removal of Directors. Satellink's articles of incorporation
and bylaws will provide that the Board of Directors will 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. A director may be removed from office 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 remaining
in office. Any director appointed to fill a vacancy will be elected for the
unexpired term of his or her predecessor and until his or her successor is
elected and qualified. If a directorship is filled by reason of an increase in
the number of directors, the term of the new director will expire at the next
election of directors by the shareholders and upon the election and
qualification of his or her successor.
Call of and Notices Relating to Shareholder Meetings; Actions by Written
Consent of Shareholders. Satellink's bylaws will provide as of the closing of
the offering that special meetings of shareholders or special meetings in lieu
of annual shareholders' meetings 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. 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
holding 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 Satellink for
inclusion in the minutes or filing with the corporate records.
59
<PAGE>
Georgia Business Combination Statute. Pursuant to Satellink's bylaws, as of
the closing of the offering, Satellink will be subject to the provisions of the
Georgia Code prohibiting various "business combinations" involving "interested
shareholders" for a period of five years after the shareholder becomes an
interested shareholder of Satellink. Such provisions prohibit any business
combination with an interested shareholder unless either:
. prior to such time, the Board of Directors approves either the business
combination or the transaction by which such shareholder became an
interested shareholder;
. 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 Satellink that
was not held by directors, officers, affiliates thereof, subsidiaries or
certain employee stock option plans of Satellink; or
. subsequent to becoming an interested shareholder, such shareholder
acquired additional shares resulting in such shareholder owning at least
90% of Satellink's outstanding voting stock 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 Satellink.
Under the relevant provisions of the Georgia Code, a "business combination"
is defined to include, among other things, (1) any merger, consolidation, share
exchange or any sale, transfer or other disposition (or series of related sales
or transfers) of Satellink's assets having an aggregate book value of 10% or
more of Satellink's net assets (measured as of the end of the most recent
fiscal quarter), with an interested shareholder or any other corporation which
is or, after giving effect to such business combination, becomes an affiliate
of any such interested shareholder, (2) the liquidation or dissolution of
Satellink, (3) the receipt by an interested shareholder of any benefit from any
loan, advance, guarantee, pledge, tax credit or other financial benefit, other
than in the ordinary course of business and (4) certain other transactions
involving the issuance or reclassification of securities of Satellink which
produce the result that 5% or more of the total equity shares of Satellink, 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 Satellink, or any
person that is an affiliate of Satellink 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 Satellink. The restrictions on business
combinations do not apply to any person who was an interested shareholder
before the adoption of the bylaws which made the provisions applicable to
Satellink 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.
60
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Prior to the offering, there has been no public market for the common stock.
If anyone was to sell substantial amounts of shares of Satellink's common stock
in the public market after the offering or if analysts or the public believed
anyone intended to sell a large number of shares, the market price of the
common stock could adversely be affected. This could impair Satellink's ability
to raise capital in the future through sales of its equity securities at a time
and price which it deems appropriate.
Upon the completion of the offering, assuming no exercise of outstanding
options or warrants other than the exercise of warrants by Creditanstalt for
321,096 shares of common stock, Satellink will have 11,485,316 shares of common
stock outstanding. The 5,000,000 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 Satellink,
as that term is defined in Rule 144 of the Securities and Exchange Commission,
may generally only be sold in compliance with Rule 144. The remaining 6,485,316
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
Upon the completion of the offering, subject to the provisions of Rule 144,
790,577 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.)
3,839,749 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 Satellink'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 Satellink, 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 114,853
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
Satellink. 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 and Warrants
As of January 31, 1999, options and warrants to purchase an aggregate of
2,105,442 shares of common stock were outstanding. Of such shares of common
stock, 321,096 will be sold in the offering and 234,697 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 Commission. An additional 1,449,649
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.
Satellink 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 291,422 shares are subject to outstanding options,
that are available for issuance pursuant to the Incentive 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 Satellink's common stock (collectively beneficially owning a
total of 6,315,176 shares) have entered into lock-up agreements with the
underwriters. Pursuant to the lock-up agreements, they have agreed not to
directly or indirectly (1) 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 (2) 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.
However, the lock-up agreements permit, during the 180-day lock-up period, (1)
transfers made by gift, provided the donee thereof agrees in writing to be
bound by the terms of the lock-up agreement, (2) transfers to the transferor's
affiliates, as such term is defined by Rule 405 under the Securities Act,
provided the transferee agrees to be bound by the terms of the lock-up
agreement and (3) transfers made with the prior written consent of J.C.
Bradford & Co. If a shareholder should request that J.C. Bradford & Co. 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 the 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. Additionally, each party to
a lock-up agreement has agreed that during the 180-day lock-up period, the
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
holder requesting that Satellink 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, Satellink will give
written notice to all other warrant holders. If Satellink receives requests for
the registration of at least an aggregate of 1,000 Creditanstalt warrants or
shares subject to the warrants (or if less than an aggregate of 1,000
Creditanstalt warrants or shares subject to the warrants are outstanding, the
remainder of shares subject to the warrants not registered under the Securities
Act), Satellink shall file a registration statement under the Securities Act
for the registration of the Creditanstalt warrants or shares subject to the
warrants, as appropriate. Satellink is obligated to effect up to three
registrations on behalf of the warrant holders upon their request.
The Creditanstalt warrants further provide that if, at any time after
December 3, 1995, Satellink proposes to register any of its securities under
the Securities Act (excluding registration statements filed on Form S-8 or S-4
or other forms prescribed under the Securities Act for substantially similar
purposes), it will give written notice to all holders of Creditanstalt warrants
and shares subject to the warrants of its intention to register such
securities. Upon the written request of any warrant holder given within 10 days
of the registration notice, Satellink shall use its reasonable best efforts to
effect the registration of the Creditanstalt warrants and/or the shares subject
to the warrants requested to be included in the proposed registration
statement. If the proposed registration is for an underwritten public offering,
only Creditanstalt warrants or shares subject to the warrants that are to be
included in the underwriting may be included in such registration. Satellink
will have the right to designate the managing underwriter(s) in any such
underwritten public offering, provided that, (1) Satellink shall use its best
efforts to cause the managing underwriter(s) to include the Creditanstalt
warrants or shares subject to the warrants in the underwriting; and (2) if the
managing underwriter(s) advises the warrant holders and all other persons
seeking to include Satellink securities held by them in such registration
statement in
62
<PAGE>
writing that the total amount of securities which they and Satellink 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 C Preferred Stock Registration Rights
The purchase agreement relating to the issuance of Series C preferred stock
provides that upon the written demand of any holder of Series C preferred
stock, at any time after the earlier of: (1) six months following the
consummation of the offering or (2) November 17, 2000, requesting that
Satellink effect the registration under the Securities Act of shares of Series
C preferred stock or common stock issuable upon conversion of such shares,
Satellink will give written notice of such demand to all other holders of
Series C preferred stock. If Satellink receives requests for the registration
of an aggregate of at least one-fifth of the Series C shares (or if less than
an aggregate of one-fifth are outstanding, the remainder of Series C shares not
registered under the Securities Act), Satellink will file a registration
statement under the Securities Act for the registration of the Series C shares.
Satellink is obligated to effect up to two registrations on behalf of the
holders of Series C preferred stock.
The Series C purchase agreement further provides that if Satellink proposes
to register any of its securities under the Securities Act (excluding
registration statements filed on Form S-8 or S-4 or other forms prescribed
under the Securities Act for substantially similar purposes), it will give
written notice to all holders of Series C preferred stock of its intention to
register such securities. Upon the written request of any Series C shareholder
given within 10 days of the registration notice, Satellink shall use its
reasonable best efforts to effect the registration of the Series C shares
requested to be included in the proposed registration statement. If the
proposed registration is for an underwritten public offering, only Series C
shares that are to be included in the underwriting may be included in such
registration. Satellink will have the right to designate the managing
underwriter(s) in any such underwritten public offering, provided that:
(1) Satellink shall use its best efforts to cause the managing underwriter(s)
to include the Series C shares in the underwriting; and (2) if the managing
underwriter(s) advises the Series C shareholders and all other persons seeking
to include securities of Satellink held by them in such registration statement
in writing that the total amount of securities which they and Satellink 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 purchase agreement relating to the issuance of Series D preferred stock
provides that if Satellink proposes to register any of its securities under the
Securities Act (excluding registration statements filed on Form S-8 or S-4 or
other forms prescribed under the Securities Act for substantially similar
purposes), it will give written notice to all holders of Series D preferred
stock of its intention to register such securities. Upon the written request of
any holder of Series D warrants given within 10 days of the registration
notice, Satellink shall use its reasonable best efforts to effect the
registration of the shares issuable upon exercise of the Series D warrants
requested to be included in the proposed registration statement. If the
proposed registration is for an underwritten public offering, only shares
issuable upon exercise of the Series D warrants that are to be included in the
underwriting may be included in such registration. Satellink shall have the
right to designate the managing underwriter(s) in any such underwritten public
offering, provided that: (1) Satellink shall use its best efforts to cause the
managing underwriter(s) to include the shares issuable upon exercise of the
Series D warrants in the underwriting; and (2) if the managing underwriter(s)
advises the Series D warrant holders and all other persons seeking to include
Satellink securities in such registration statement in writing that the total
amount of securities which they and Satellink 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.
63
<PAGE>
Breckenridge Registration Rights
Since 1995, Satellink has maintained an ongoing relationship with The
Breckenridge Group, Inc., an Atlanta-based investment banking firm.
Breckenridge has advised Satellink on 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
Satellink on future acquisitions, Satellink 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 sales prices at the time for shares of
common stock in arms' length transactions, and the issuance of the Breckenridge
options was approved by the Board of Directors of Satellink.
The Breckenridge options provide that if Satellink proposes to register any
of its securities under the Securities Act (excluding registration statements
filed on Form S-8 or S-4 or other forms prescribed under the Securities Act for
substantially similar purposes), at any time prior to May 31, 2002, Satellink
must notify all holders of Breckenridge options of its intention to register
its securities. This notice is not required if Satellink proposes to enter into
an underwritten initial public offering that produces gross proceeds to the
Company in excess of $30,000,000. If any holder of Breckenridge options
notifies Satellink within 20 business days of the registration notice,
Satellink shall use its reasonable best efforts to effect the registration of
the shares of common stock issuable upon exercise of the Breckenridge options
requested to be included in the proposed registration statement. If the
proposed registration is for an underwritten public offering, only Breckenridge
shares that are to be included in the underwriting may be included in the
registration. Satellink shall have the right to designate the managing
underwriter(s) in any such underwritten public offering, provided that: (1)
Satellink will use its best efforts to cause the managing underwriter(s) to
include the Breckenridge shares in the underwriting; and (2) if the managing
underwriter(s) advises the holders of Breckenridge options and all other
persons seeking to include securities of Satellink held by them in such
registration statement in writing that the total amount of securities which
they and Satellink 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 -- Additional shares will be eligible for public sale in the
future."
64
<PAGE>
UNDERWRITING
Pursuant to the underwriting agreement and subject to the terms and
conditions thereof, the underwriters named below, acting through J.C. Bradford
& Co. and Morgan Keegan & Company, Inc., as representatives of the several
underwriters, have agreed, severally, to purchase from Satellink and the
selling shareholders the number of shares of common stock set forth below
opposite their respective names.
<TABLE>
<CAPTION>
Number of
Name of Underwriters Shares
-------------------- ---------
<S> <C>
J.C. Bradford & Co.................................................
Morgan Keegan & Company, Inc.......................................
Total............................................................
</TABLE>
The underwriters have agreed, subject to the terms and conditions contained
in the underwriting agreement, to purchase all shares of common stock offered
hereby if any of such shares are purchased.
Satellink 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 stated 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 Satellink and the
selling shareholders that the underwriters do not intend to confirm sales to
accounts over which they exercise discretionary authority.
The following table shows the underwriting fees to be paid to the
underwriters by Satellink and the selling shareholders in connection with the
offering. These amounts are shown assuming both no exercise and full exercise
of the underwriters' over-allotment option to purchase additional shares of
common stock.
<TABLE>
<CAPTION>
No Exercise Full Exercise
----------- -------------
<S> <C> <C>
Per share......................................... $ $
Total to be paid by Satellink..................... $ $
Total to be paid by the selling shareholders...... $ $
</TABLE>
Other expenses of the offering (including the registration fees and the fees
of financial printers, counsel and the accountants) payable by Satellink are
expected to be approximately $900,000.
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.
Satellink has granted the underwriters an option, exercisable not later than
30 days from the date of this prospectus, to purchase up to 750,000 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 Satellink 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 5,000,000 shares of common stock offered
hereby. If purchased, the underwriters will sell such additional shares on the
same terms as those on which the 5,000,000 shares are being offered.
65
<PAGE>
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
Satellink, 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 Satellink, the experience of its management,
the position of Satellink in its industry, Satellink's prospects and
Satellink'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.
Satellink, its executive officers and directors, the selling shareholders and
each holder of more than 5% of Satellink'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 Satellink may
issue shares in connection with the exercise of stock options granted pursuant
to the Plan. See "Risk Factors -- Additional Shares Will Be Eligible For Public
Sale In The Future" and "Shares Eligible For Future Sale Lock- Up Agreements."
The underwriting agreement provides that Satellink 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 by this prospectus and
certain other legal matters will be passed upon for Satellink 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 and financial statement schedule of
Satellink as of July 31, 1997 and 1998 and for each of the three years in the
period ended July 31, 1998 included in this prospectus and elsewhere in the
Registration Statement have been audited by Arthur Andersen LLP, independent
public accountants, as indicated in their reports. Their reports are included
in this prospectus in reliance upon the authority of said firm as experts in
giving the 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 this prospectus have
been audited by James N. Rachel, independent auditor, as indicated in his
report, which is included in this prospectus in reliance upon his authority as
expert in giving the report.
66
<PAGE>
ADDITIONAL INFORMATION
Satellink has filed with the Securities and Exchange Commission a
registration statement on Form S-1 under the Securities Act with respect to the
common stock offered by this prospectus. This prospectus does not contain all
of the information set forth in the registration statement and its exhibits and
schedules, as permitted by the rules and regulations of the Commission. For
further information with respect to Satellink and the common stock, refer to
the registration statement, including the exhibits and schedules filed or
incorporated with it. Statements contained in this prospectus 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, Satellink will file
periodic reports and other information with the Commission under the Securities
Exchange Act of 1934. The registration statement, including the exhibits and
schedules, and the periodic reports and other information filed, 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 Satellink upon request.
67
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATED FINANCIAL STATEMENTS
Satellink Communications, Inc. and Subsidiaries
<TABLE>
<S> <C>
Report of Independent Public Accountants.................................. F-2
Consolidated Financial Statements:
Consolidated Balance Sheets as of July 31, 1997 and 1998................. F-3
Consolidated Statements of Operations for the Years Ended July 31, 1996,
1997, and 1998.......................................................... F-5
Consolidated Statements of Shareholders' Equity (Deficit) for the Years
Ended July 31, 1996, 1997, and 1998..................................... F-6
Consolidated Statements of Cash Flows for the Years Ended July 31, 1996,
1997, and 1998.......................................................... F-7
Notes to Consolidated Financial Statements................................ F-8
Condensed Consolidated Financial Statements as of January 31, 1999
(Unaudited):
Condensed Consolidated Balance Sheets as of July 31, 1998 and January 31,
1999 (Unaudited)........................................................ F-27
Condensed Consolidated Statements of Operations for the Six Months Ended
January 31, 1998 and 1999 (Unaudited)................................... F-28
Condensed Consolidated Statement of Cash Flows for the Six Months Ended
January 31, 1998 and 1999 (Unaudited)................................... F-29
Notes to Condensed Consolidated Unaudited Financial Statements............ F-30
Hyde's Stay In Touch, Inc.
Independent Auditor's Report.............................................. F-34
Financial Statements:
Balance Sheets as of December 31, 1997 and 1996.......................... F-35
Statements of Income for the Year Ended December 31, 1997 and 1996....... F-36
Statements of Retained Earnings for the Year Ended December 31, 1997 and
1996.................................................................... F-37
Statements of Cash Flows for the Year Ended December 31, 1997 and 1996... F-38
Notes to Financial Statements............................................. F-39
Financial Statements:
Balance Sheet as of April 30, 1998 (Unaudited)........................... F-45
Statements of Income for the Four Months Ended April 30, 1998 and 1997
(Unaudited)............................................................. F-46
Statements of Cash Flows for the Four Months Ended April 30, 1998 and
1997 (Unaudited)........................................................ F-47
Condensed Notes to Unaudited Financial Statements......................... F-48
</TABLE>
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
Satellink Communications, Inc. and Subsidiaries
<TABLE>
<S> <C>
Unaudited Pro Forma Consolidated Financial Information................... F-49
Unaudited Pro Forma Consolidated Statement of Operations for the Six-
Months Ended January 31, 1999........................................... F-50
Unaudited Pro Forma Consolidated Statement of Operations for the Year
Ended July 31, 1998..................................................... F-52
</TABLE>
F-1
<PAGE>
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,
1997 and 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, 1998. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Satellink Communications, Inc.
and subsidiaries as of July 31, 1997 and 1998 and the results of their
operations and their cash flows for each of the three years in the period ended
July 31, 1998 in conformity with generally accepted accounting principles.
As explained in Note 2 to the financial statements, during the year ended July
31, 1998, the Company changed its method of accounting for certain
reengineering costs.
/s/ Arthur Andersen LLP
Atlanta, Georgia
December 18, 1998
F-2
<PAGE>
SATELLINK COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JULY 31, 1997 AND 1998
<TABLE>
<CAPTION>
1997 1998
----------- ------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents.......................... $ 666,032 $ 537,799
Accounts receivable, net of allowance for doubtful
accounts of $445,028 and $622,208 in 1997 and
1998, respectively................................ 3,453,150 5,715,651
Other receivables.................................. 234,433 544,363
Marketable securities.............................. 793,537 587,826
Inventory.......................................... 1,123,891 2,499,272
Prepaid expenses and other current assets (Note
2)................................................ 425,535 1,576,989
----------- ------------
Total current assets............................... 6,696,578 11,461,900
----------- ------------
PROPERTY AND EQUIPMENT (Note 2):
Paging systems and equipment....................... 16,095,844 20,601,562
Computer and terminal equipment.................... 4,288,456 5,816,071
Furniture and fixtures............................. 602,730 771,102
Leasehold improvements............................. 119,809 104,789
----------- ------------
21,106,839 27,293,524
Less accumulated depreciation...................... (8,065,682) (10,042,459)
----------- ------------
Property and equipment, net........................ 13,041,157 17,251,065
----------- ------------
OTHER LONG-TERM ASSETS:
Goodwill, net of accumulated amortization of
$404,604 and $956,003 in 1997 and 1998,
respectively (Note 2)............................. 12,553,334 27,667,639
Other intangible assets, net of accumulated
amortization of $2,054,812 and $2,794,118 in 1997
and 1998, respectively (Note 2)................... 3,722,288 6,281,685
Other.............................................. 33,191 --
----------- ------------
Total other long-term assets....................... 16,308,813 33,949,324
----------- ------------
Total assets....................................... $36,046,548 $ 62,662,289
=========== ============
</TABLE>
The accompanying notes are an integral part of these consolidated balance
sheets.
F-3
<PAGE>
SATELLINK COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS--(Continued)
JULY 31, 1997 AND 1998
<TABLE>
<CAPTION>
1997 1998
----------- -----------
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
Current maturities of long-term debt (Note 5)....... $ 3,108,813 $ 6,135,525
Accounts payable and accrued liabilities (Note 2)... 2,968,994 5,464,701
Customer deposits................................... 674,995 646,686
Deferred revenues................................... 1,491,030 2,058,504
Deferred tax liabilities............................ 162,497 172,045
Accrued dividends on preferred stock................ 88,047 134,642
----------- -----------
Total current liabilities.......................... 8,494,376 14,612,103
----------- -----------
LONG-TERM DEBT, less current maturities (Note 5)..... 24,064,912 41,342,337
----------- -----------
STOCK WARRANTS (Notes 6 and 8)....................... 4,346,722 5,776,517
----------- -----------
MINORITY INTEREST.................................... 5,351 --
----------- -----------
COMMITMENTS AND CONTINGENCIES (Note 10)
SERIES C REDEEMABLE CONVERTIBLE PREFERRED STOCK (Note
7):
$.01 par value; 3,500 shares authorized; 3,500
shares issued and outstanding in 1997 and 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 (Note 8):
$.01 par value; 0 and 4,500 shares authorized,
issued, and outstanding in 1997 and 1998,
respectively....................................... -- 3,585,333
----------- -----------
SHAREHOLDERS' EQUITY (DEFICIT) (Note 6):
Series A convertible preferred stock, $.01 par
value; 7,500 shares authorized, 7,360 shares issued
and outstanding in 1997 and 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 in 1997 and 1998; 0
shares issued and outstanding...................... -- --
Common stock, $.01 par value:
Class A voting, 50,000,000 shares authorized,
5,486,730 and 5,588,296 shares issued and
outstanding in 1997 and 1998, respectively......... 54,868 55,883
Class B nonvoting, 20,000 shares authorized, 535.5
and 0 shares issued and outstanding in 1997 and
1998, respectively................................. 5 --
Additional paid-in capital.......................... 2,453,467 2,804,501
Accumulated deficit................................. (6,880,213) (9,032,346)
Unrealized gain on marketable securities............ 6,986 17,887
----------- -----------
Total shareholders' equity (deficit)............... (4,364,813) (6,154,001)
----------- -----------
Total liabilities and shareholders' equity......... $36,046,548 $62,662,289
=========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated balance
sheets.
F-4
<PAGE>
SATELLINK COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED JULY 31, 1996, 1997, AND 1998
<TABLE>
<CAPTION>
1996 1997 1998
----------- ----------- -----------
<S> <C> <C> <C>
REVENUES:
Service, rent, and maintenance
revenues............................. $21,284,575 $31,194,030 $37,338,780
Product sales......................... 1,835,942 2,315,379 2,322,688
----------- ----------- -----------
Total revenues...................... 23,120,517 33,509,409 39,661,468
Cost of products sold................. (1,395,971) (1,968,382) (1,514,984)
----------- ----------- -----------
Net revenues........................ 21,724,546 31,541,027 38,146,484
----------- ----------- -----------
OPERATING EXPENSES:
Service, rent, and maintenance........ 8,961,461 13,517,471 15,600,359
Selling and marketing................. 3,052,991 4,280,744 4,764,265
General and administrative............ 4,320,069 6,572,482 7,331,578
Engineering........................... 669,398 997,411 1,161,827
Depreciation and amortization......... 2,222,100 4,181,239 5,130,377
Research and development.............. 439,813 -- --
Fixed asset impairment (Note 2)....... -- -- 833,996
----------- ----------- -----------
Total operating expenses............ 19,665,832 29,549,347 34,822,402
----------- ----------- -----------
OPERATING INCOME 2,058,714 1,991,680 3,324,082
----------- ----------- -----------
OTHER INCOME (EXPENSE):
Other income.......................... (13,363) 497,694 702,850
Interest expense...................... (908,804) (2,289,249) (3,831,924)
Accretion of stock warrants (Notes 6
and 8)............................... (854,350) (1,773,107) (449,795)
Minority interest..................... (2,522) (2,829) (7,740)
----------- ----------- -----------
(1,779,039) (3,567,491) (3,586,609)
----------- ----------- -----------
INCOME (LOSS) BEFORE INCOME TAX EXPENSE,
EXTRAORDINARY ITEM, AND CUMULATIVE
EFFECT OF CHANGE IN ACCOUNTING
PRINCIPLE.............................. 279,675 (1,575,811) (262,527)
INCOME TAX EXPENSE...................... 577,960 390,174 629,989
----------- ----------- -----------
LOSS BEFORE EXTRAORDINARY ITEM AND
CUMULATIVE EFFECT OF CHANGE IN
ACCOUNTING PRINCIPLE................... (298,285) (1,965,985) (892,516)
EXTRAORDINARY LOSS ON EARLY RETIREMENT
OF DEBT, net of taxes of approximately
$88,000................................ (132,130) -- --
CUMULATIVE EFFECT OF CHANGE IN
ACCOUNTING PRINCIPLE (Note 2).......... -- -- (628,700)
----------- ----------- -----------
NET LOSS................................ (430,415) (1,965,985) (1,521,216)
PREFERRED STOCK DIVIDENDS............... 334,295 438,558 630,917
----------- ----------- -----------
NET LOSS ATTRIBUTABLE TO COMMON
SHAREHOLDERS........................... $ (764,710) $(2,404,543) $(2,152,133)
=========== =========== ===========
ALLOCATION OF LOSS TO:
Class A............................... $ (738,752) $(2,383,488) $(2,151,412)
Class B............................... $ (25,958) $ (21,055) $ (721)
BASIC AND DILUTED NET LOSS PER SHARE
(Note 2):
Loss from extraordinary item:
Class A............................. $ (0.03) $ -- $ --
Class B............................. $ (2.23) $ -- $ --
Loss from cumulative effect of change
in accounting principle:
Class A............................. $ -- $ -- $ (0.11)
Class B............................. $ -- $ -- $ (9.59)
Net loss attributable to common
shareholders:
Class A............................. $ (0.15) $ (0.47) $ (0.39)
Class B............................. $ (12.90) $ (39.36) $ (32.77)
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING:
Class A............................... 4,841,962 5,117,657 5,545,168
Class B............................... 2,013 535 22
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-5
<PAGE>
SATELLINK COMMUNICATIONS, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
FOR THE YEARS ENDED JULY 31, 1996, 1997, AND 1998
<TABLE>
<CAPTION>
Common Stock
Preferred Stock --------------------------------
Series A Class A Class B
----------------- ----------------- -------------- Paid-In Accumulated Unrealized
Shares Amount Shares Amount Shares Amount Capital Deficit Gain Total
-------- ------- --------- ------- ------ ------ ---------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE, July 31,
1995................ 7,360 $ 74 4,783,564 $47,837 2,071 $ 21 $1,986,159 $(3,710,960) $ 3,853 $(1,673,016)
Net loss
attributable to
common
shareholders....... -- -- -- -- -- -- -- (764,710) -- (764,710)
Issuance of Class A
common stock....... -- -- 105,625 1,056 -- -- 248,944 -- -- 250,000
Net change in
unrealized gain on
marketable
securities......... -- -- -- -- -- -- -- -- 1,032 1,032
Adjustment for
conversion of Class
B to Class A common
stock.............. -- -- 84,500 845 (1,000) (11) (834) -- -- --
-------- ------ --------- ------- ------ ----- ---------- ----------- ------- -----------
BALANCE, July 31,
1996................ 7,360 74 4,973,689 49,738 1,071 10 2,234,269 (4,475,670) 4,885 (2,186,694)
Net loss
attributable to
common
shareholders....... -- -- -- -- -- -- -- (2,404,543) -- (2,404,543)
Issuance of Class A
common stock....... -- -- 467,749 4,677 -- -- 2,323 -- -- 7,000
Net change in
unrealized gain on
marketable
securities......... -- -- -- -- -- -- -- -- 2,101 2,101
Adjustment for
conversion of Class
B to Class A common
stock.............. -- -- 45,292 453 (536) (5) (448) -- -- --
Issuance of stock
options (Note 6)... -- -- -- -- -- -- 217,323 -- -- 217,323
-------- ------ --------- ------- ------ ----- ---------- ----------- ------- -----------
BALANCE, July 31,
1997................ 7,360 74 5,486,730 54,868 535 5 2,453,467 (6,880,213) 6,986 (4,364,813)
Net loss
attributable to
common
shareholders....... -- -- -- -- -- -- -- (2,152,133) -- (2,152,133)
Net change in
unrealized gain on
marketable
securities......... -- -- -- -- -- -- -- -- 10,901 10,901
Adjustment for
conversion of Class
B to Class A common
stock.............. -- -- 45,233 452 (535) (5) (447) -- -- --
Issuance of stock
options (Note 6)... -- -- -- -- -- -- 252,044 -- -- 252,044
Exercise of stock
options (Note 6)... -- -- 56,333 563 -- -- 99,437 -- -- 100,000
-------- ------ --------- ------- ------ ----- ---------- ----------- ------- -----------
BALANCE, July 31,
1998................ 7,360 $ 74 5,588,296 $55,883 -- $ -- $2,804,501 $(9,032,346) $17,887 $(6,154,001)
======== ====== ========= ======= ====== ===== ========== =========== ======= ===========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-6
<PAGE>
SATELLINK COMMUNICATIONS, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED JULY 31, 1996, 1997, AND 1998
<TABLE>
<CAPTION>
1996 1997 1998
----------- ----------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss.............................. $ (430,415) $(1,965,985) $(1,521,216)
----------- ----------- -----------
Adjustments to reconcile net loss to
net cash provided by operating
activities:
Minority interest................... 2,522 2,829 7,740
Depreciation and amortization....... 2,222,100 4,181,239 5,130,377
Deferred income taxes............... 48,623 (21,126) 9,548
Extraordinary loss on early
retirement of debt................. 132,130 -- --
Asset impairment.................... -- -- 905,296
Cumulative effect of change in
accounting principle............... -- -- 628,700
Accretion of stock warrants......... 854,350 1,773,107 449,795
Changes in operating assets and
liabilities, net of the effects of
acquisitions:
Accounts receivable, net.......... (54,726) (1,350,595) (1,737,603)
Other receivables................. (10,184) (161,961) (309,930)
Marketable securities............. 498,103 58,236 793,537
Inventory......................... 158,963 (283,723) (1,375,381)
Prepaid expenses and other current
assets........................... (124,706) 326,200 (845,143)
Other assets...................... 108,007 (586,157) (403,635)
Accounts payable and accrued
liabilities...................... (28,282) 2,129,443 2,605,411
Customer deposits................. 644,501 (215,322) (14,528)
Deferred revenues................. 168,052 636,345 1,117,474
----------- ----------- -----------
Total adjustments............... 4,619,453 6,488,515 6,961,658
----------- ----------- -----------
Net cash provided by operating
activities..................... 4,189,038 4,522,530 5,440,442
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of businesses, net of cash
acquired............................. (10,399,546) (8,960,645) (20,978,475)
Purchases of property and equipment,
net.................................. (4,929,700) (5,393,089) (8,830,728)
----------- ----------- -----------
Net cash used in investing
activities..................... (15,329,246) (14,353,734) (29,809,203)
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of preferred
stock................................ 3,500,000 -- 4,500,000
Payment of preferred stock dividends.. (334,295) (449,958) (518,859)
Proceeds from issuance of long-term
debt, net............................ 8,556,386 9,791,335 20,365,148
Proceeds from issuance of common
stock................................ 250,000 7,000 100,000
Other financing activities............ -- (60,150) (205,761)
----------- ----------- -----------
Net cash provided by financing
activities..................... 11,972,091 9,288,227 24,240,528
----------- ----------- -----------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS............................ 831,883 (542,977) (128,233)
CASH AND CASH EQUIVALENTS AT BEGINNING
OF YEAR................................ 377,126 1,209,009 666,032
----------- ----------- -----------
CASH AND CASH EQUIVALENTS AT END OF
YEAR................................... $ 1,209,009 $ 666,032 $ 537,799
=========== =========== ===========
CASH PAID FOR INTEREST.................. $ 1,337,063 $ 1,765,766 $ 3,486,792
=========== =========== ===========
CASH PAID FOR TAXES..................... $ 704,334 $ 353,000 $ 554,984
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-7
<PAGE>
SATELLINK COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JULY 31, 1996, 1997 AND 1998
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, voice mail, and other
enhanced telecommunications services. The Company has provided paging and voice
mail services since 1988.
In December 1998, the Company completed the acquisitions of Cape Fear Paging
Company, Cape Fear Paging Company of North Carolina, and CF Paging Corporation
(collectively, "Cape Fear Companies"). Cape Fear Companies are engaged in
providing local, regional, and nationwide paging and voice mail communications
services. The acquisitions of Cape Fear Companies were accounted for as a
pooling of interests. The accompanying consolidated financial statements have
been restated for all periods presented to give effect to these transactions
(Note 3).
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying consolidated financial statements include the accounts of
the Company, its wholly owned subsidiaries, Satellink Paging, LLC, FM Concepts,
Ltd., FM Concepts, L.L.C., and DirectLink Communications, L.L.C. ("DirectLink")
(Note 4). All significant intercompany accounts and transactions have been
eliminated in consolidation.
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.
Marketable Securities
The Company's marketable securities are categorized as available-for-sale
securities as defined by Statement of Financial Accounting Standards ("SFAS")
No. 115, "Accounting for Certain Investments in Debt and Equity Securities."
Unrealized holding gains and losses are reflected as a net amount in a separate
component of shareholders' equity (deficit) until realized. For the years ended
July 31, 1996, 1997, and 1998, gross realized gains and losses on sales of
available-for-sale securities were not material. The cost of securities sold is
based on the specific identification method.
Inventory
Inventory is valued at the lower of cost or market. Inventory consists
primarily of pagers and pager replacement parts.
Prepaid Expenses and Other Current Assets
Prepaid expenses and other current assets as of July 31, 1997 and 1998
consisted of the following:
F-8
<PAGE>
SATELLINK COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
JULY 31, 1996, 1997 AND 1998
<TABLE>
<CAPTION>
1997 1998
-------- ----------
<S> <C> <C>
Deferred offering costs (Note 13)....................... $ 0 $ 696,496
Prepaid expenses........................................ 227,404 667,132
Other................................................... 198,131 213,361
-------- ----------
$425,535 $1,576,989
======== ==========
</TABLE>
Deferred offering costs associated with the Company's initial public offering
will be expensed if the Company is unable to complete its planned initial
public offering.
Long-Lived Assets
In 1995, the Company adopted SFAS No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." SFAS No. 121
established 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 to the Company's consolidated financial statements.
The Company reviews its long-lived assets such as property and equipment,
goodwill, and other intangible assets for impairment at each balance sheet date
or whenever events or changes in circumstances indicate that the carrying
amount of an asset should be assessed. Management evaluates the tangible and
intangible assets related to each acquisition individually to determine whether
an impairment has occurred. An impairment is recognized when the undiscounted
future cash flows estimated to be generated by the assets are not sufficient to
recover the unamortized balance of the asset with the amount of any such
deficiency charged to income in the current year. Estimates of future cash
flows are based on many factors, including current operating results, expected
market trends, and competitive influences. If an impairment is recognized, the
reduced carrying amount of the asset is accounted for as its new cost and
depreciated over the asset's remaining useful life. 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 15 years
</TABLE>
All costs in the software development process that are classified as research
and development are expensed as incurred until technological feasibility has
been established. Once technological feasibility has been established, such
costs are considered for capitalization. The Company's policy is to amortize
these costs using the greater of the ratio that current gross revenues for a
product bear to the total of current and anticipated future gross revenues for
that product or the straight-line method over the remaining estimated economic
life of the product. Amortization will begin when the product is available for
general release to customers, accordingly, no amortization related to software
cost has been charged to expense during the years ended July 31, 1996, 1997 and
1998. The amount of capitalized unamortized software cost included in the
accompanying consolidated balance sheet at July 31, 1997 and 1998 is $327,251
and $914,972, respectively.
In the year ended July 31, 1998, the Company implemented a new communications
platform, the Satellink Telecommunications Application Resource Network
("STAR*Net"). In conjunction with such implementation,
F- 9
<PAGE>
SATELLINK COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
JULY 31, 1996, 1997 AND 1998
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
on the Company's intention to dispose of the equipment. The remaining net book
value of the impaired assets is immaterial.
Goodwill and Other Intangible Assets
The excess of cost over the fair market value of the identifiable assets
acquired is being amortized using the straight-line method over a period of 30
years.
Other intangible assets, net of accumulated amortization as of July 31, 1997
and 1998, consisted of the following:
<TABLE>
<CAPTION>
1997 1998
---------- ----------
<S> <C> <C>
Acquired subscriber bases........................... $1,991,236 $4,518,386
Affiliate fees...................................... 557,538 544,166
Noncompete agreements............................... 530,556 309,455
Debt issuance costs................................. 257,209 393,104
FCC licenses........................................ 385,749 516,574
---------- ----------
$3,722,288 $6,281,685
========== ==========
</TABLE>
Acquired subscriber bases related to the Company's acquisitions are amortized
using the straight-line method 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 using the straight-
line method over a period of ten 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 using the
straight-line method over three to five years in accordance with the terms of
the related agreements.
Subsequent to an acquisition that results in the recording of goodwill or
other intangible assets, the Company continually evaluates whether later events
and circumstances have occurred that indicate that the remaining estimated
useful life of intangible assets may warrant revision or that the remaining
balance of intangible assets may not be recoverable. When factors indicate that
intangible assets should be evaluated for possible impairment, the Company uses
an estimate of the related business segment's undiscounted cash flows over the
remaining life of the intangible assets in measuring whether such intangible
assets are recoverable in accordance with APB Opinion No. 17.
The Company has incurred debt issuance costs in connection with its long-term
debt (Note 6). These costs are capitalized and are amortized using the
effective interest method over the term of the related debt.
The Company initially capitalized certain costs related to process
reengineering initiatives that were directed toward assessing the current state
of certain processes and reengineering those processes associated with its
customer service department and certain retail stores. On November 20, 1997,
the Emerging Issues Task Force of the Financial Accounting Standards Board
("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, be 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
year ended July 31, 1998, the Company
F-10
<PAGE>
SATELLINK COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
JULY 31, 1996, 1997 AND 1998
adopted EITF 97-13. Capitalized third-party and internally generated costs
related to operational efficiency improvement initiatives as of November 20,
1997 totaled $628,700 and have been written off through a cumulative effect of
a change in accounting principle in the accompanying statement of operations
for the year ended July 31, 1998. The Company incurred $234,000 and $466,000 of
costs related to these initiatives in fiscal 1997 and 1998, respectively, of
which $71,300 was incurred subsequent to November 20, 1997 and is recorded in
operating expenses in the accompanying statement of operations for the year
ended July 31, 1998.
Accounts Payable and Accrued Liabilities
Accounts payable and accrued liabilities as of July 31, 1997 and 1998
consisted of the following:
<TABLE>
<CAPTION>
1997 1998
---------- ----------
<S> <C> <C>
Accounts payable.................................... $1,208,919 $1,749,013
Accounts payable -- related parties (Note 11)....... 545,095 1,164,735
Accrued interest.................................... 417,751 207,189
Accrued professional fees (Note 13)................. 60,000 741,444
Accrued wages, salaries, and related taxes.......... 410,029 762,177
Other accrued liabilities........................... 327,200 840,143
---------- ----------
$2,968,994 $5,464,701
========== ==========
</TABLE>
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.
Cape Fear Paging Company of North Carolina ("CFNC"), included herein, was
acquired in conjunction with the pooling-of-interests method of accounting
discussed in Note 3 and was treated as an S corporation for federal and state
income tax purposes. As such, in lieu of corporate income tax consequences
arising at CFNC's level, the individual shareholders were allocated their
proportionate shares of CFNC's taxable income or loss.
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 of
revenues received for enhanced voice messaging and personal telecommunications
services. The Company bills the fixed portion of the fees it charges for
enhanced voice messaging and personal telecommunications services in advance
and bills usage-related fees in arrears. Revenue from product sales is recorded
at the time the goods are transferred or title passes.
The Company's policy is to record revenue at the time the service is
performed. 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.
Research and Development
Research and development costs incurred in connection with the Company's
pager development project are charged to operations in the year incurred.
Approximately $439,800 was expensed related to the Company's pager development
project for the year ended July 31, 1996 and has been recorded as research and
development in the accompanying statements of operations.
F-11
<PAGE>
SATELLINK COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
JULY 31, 1996, 1997 AND 1998
Advertising
The Company expenses all advertising costs as incurred. The Company incurred
and expensed advertising costs in the approximate amounts of $370,100,
$450,400, and $516,700 for the years ended July 31, 1996, 1997, and 1998,
respectively, and has recorded these costs as selling and marketing in the
accompanying consolidated statements of operations.
Commissions
The Company expenses commissions when earned by sales representatives.
Basic Loss Per Share
During 1997, the Company adopted 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 are 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 ("SEC") 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 the 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.
Fair Value of Financial Instruments
The Company's financial instruments include cash and cash equivalents,
marketable securities, 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 values of the Company's financial instruments
approximates their carrying value as of July 31, 1997 and 1998.
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 amounts of the Company's receivables approximates their fair values.
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 could be
affected by regulatory decisions, trends, and policies made by these agencies.
New Accounting Pronouncements
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive Income,"
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 No. 130 is not expected to have an impact on the
Company's financial statements.
F-12
<PAGE>
SATELLINK COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
JULY 31, 1996, 1997 AND 1998
In June 1997, the FASB issued SFAS No. 131, "Disclosures About Segments of an
Enterprise and Related Information," which establishes standards for the way
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 No. 131 is not expected to have a material impact on
the Company's financial statements.
3. ACQUISITIONS
Satellink has made the acquisitions set forth below. The acquisitions have
been accounted for as purchases and poolings of interest in accordance with the
Accounting Principles Board ("APB") Opinion No. 16, "Business Combinations."
Poolings of Interest
Cape Fear Companies
Effective December 8, 1998, the Company acquired all of the outstanding
shares of Cape Fear Companies in exchange for 2,533,893 shares of common stock
of the Company. The transactions were accounted for as a pooling of interests.
Prior to Cape Fear Companies' merger with Satellink, Cape Fear Companies
reported on a calendar year basis ending December 31. In accordance with the
SEC rules and interpretations, Cape Fear Companies' financial statements for
the 12-month periods ending September 30, 1996, 1997, and 1998 have been
combined with the Company's financial statements for the fiscal years ended
July 31, 1996, 1997, and 1998, respectively. The consolidated financial
statements have been restated for all periods presented to include the
operations of the Cape Fear Companies accounted for as a pooling of interests.
A reconciliation of previously reported operating results to those restated
for the poolings-of-interest transactions is as follows (in thousands, except
earnings per share data):
<TABLE>
<CAPTION>
1996 1997 1998
------- ------- -------
<S> <C> <C> <C>
Revenues:
Satellink, as previously reported.............. $10,814 $17,572 $22,848
Cape Fear Companies............................ 12,307 15,937 16,813
------- ------- -------
Satellink, as restated....................... $23,121 $33,509 $39,661
======= ======= =======
Loss from continuing operations:
Satellink, as previously reported.............. $ (812) $(1,628) $ (884)
Cape Fear Companies............................ 514 (338) (9)
------- ------- -------
Satellink, as restated....................... $ (298) $(1,966) $ (893)
======= ======= =======
Allocation of losses to:
Satellink, as previously reported:
Class A...................................... $(1,205) $(2,035) $(2,143)
------- ------- -------
Class B...................................... $ (74) $ (31) $ (1)
======= ======= =======
Satellink, as restated:
Class A...................................... $ (739) $(2,383) $(2,151)
======= ======= =======
Class B...................................... $ (26) $ (21) $ (1)
======= ======= =======
</TABLE>
F-13
<PAGE>
SATELLINK COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
JULY 31, 1996, 1997 AND 1998
<TABLE>
<CAPTION>
1996 1997 1998
------- ------- -------
<S> <C> <C> <C>
Basic and diluted net loss per share:
Satellink, as previously reported:
Class A...................................... $ (0.43) $ (0.69) $ (0.71)
======= ======= =======
Class B...................................... $(36.69) $(58.24) $(59.68)
======= ======= =======
Satellink, as restated:
Class A...................................... $ (0.15) $ (0.47) $ (0.39)
======= ======= =======
Class B...................................... $(12.90) $(39.36) $(32.77)
======= ======= =======
</TABLE>
Purchases
MidSouth Paging Network, Inc. ("MidSouth")
Effective October 15, 1996, the Company acquired substantially all of the
assets of MidSouth under the terms of an asset purchase agreement. The acquired
assets consisted primarily of local subscribers, pagers, paging terminals,
furniture and fixtures, and an FCC license. The purchase price was
approximately $4,000,000 before recording certain acquisition expenses and
adjustments and was financed through a note payable.
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 voice mail subscribers. The purchase price was
approximately $1,550,000 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.
Satellink 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.
F-14
<PAGE>
SATELLINK COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
JULY 31, 1996, 1997 AND 1998
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, 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.
Premier Paging, Inc. and Premier Paging of New Orleans, Inc. (collectively,
"Premier")
Effective April 1, 1998, the Company acquired substantially all of the assets
of Premier 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.
Hyde's Stay In Touch, Inc. ("Hyde's")
Effective May 1, 1998, Satellink acquired substantially all of the assets of
Hyde's 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 $12,200,000, before certain
acquisition expenses, and was financed through the Company's revolver and a
promissory note.
The following unaudited pro forma information has been prepared assuming that
the purchase 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
actual results of operations which would have occurred had the purchase
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 (in thousands, except
earnings per share data).
F-15
<PAGE>
SATELLINK COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
JULY 31, 1996, 1997 AND 1998
<TABLE>
<CAPTION>
1997 1998
------- -------
<S> <C> <C>
Pro forma revenues....................................... $43,442 $45,632
Pro forma loss from continuing operations................ (4,460) (1,396)
Pro forma net loss attributable to common shareholders
from continuing operations.............................. (4,899) (2,656)
Allocation of earnings to:
Class A................................................ (4,856) (2,655)
Class B................................................ (43) (1)
Pro forma net loss per share:
Class A................................................ $ (0.95) $ (0.48)
Class B................................................ (80.37) (45.45)
</TABLE>
4. INVESTMENT IN DIRECTLINK
On December 1, 1995, the Company acquired 60% of the membership interests of
DirectLink for $21,300. This acquisition increased the Company's ownership
percentage in DirectLink to 85%. On January 1, 1998, the Company acquired the
remaining 15% of the common stock of DirectLink. The consolidated financial
statements include the accounts of DirectLink. The minority interest represents
the 15% separate ownership in DirectLink for the period from December 1, 1995
through July 31, 1996, the year ended July 31, 1997, and the five-month period
ended December 31, 1997.
The Company also agreed to make additional investments in DirectLink in the
form of a promissory note. The promissory note bears interest at the prime rate
plus 2%. As of July 31, 1997 and 1998, the aggregate amount outstanding under
the promissory note totaled $380,799 and $579,326, respectively, which is
eliminated in consolidation.
5. LONG-TERM DEBT
Long-term debt at July 31, 1997 and 1998 consisted of the following:
<TABLE>
<CAPTION>
1997 1998
----------- -----------
<S> <C> <C>
$32,000,000 revolving credit facility, variable
interest rate (9.6875% at July 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..................... $10,957,394 $30,807,394
$8,000,000 note payable to bank, variable interest rate
(9.6875% at July 31, 1998), net of unamortized
discount of $188,892 and $143,382 at July 31, 1997 and
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................................. 7,811,018 7,456,618
$1,850,000 note payable to bank, interest at 9.76%
through November 2000 and the lower of 9.76% or LIBOR
plus 3% through maturity of November 2003; principal
and interest payable monthly; secured by certain
assets of the Company and guaranteed by certain
shareholders.......................................... 1,607,738 1,343,452
</TABLE>
F-16
<PAGE>
SATELLINK COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
JULY 31, 1996, 1997 AND 1998
<TABLE>
<CAPTION>
1997 1998
----------- -----------
<S> <C> <C>
$1,750,000 note payable to bank, interest at 9.84%
through November 2000 and the lower of 9.84% or
LIBOR plus 3% through maturity of November 2003;
principal and interest payable monthly; secured by
certain assets of the Company and guaranteed by
certain shareholders............................... $ 1,220,833 $ 1,120,833
$1,000,000 revolving credit facility, interest at
prime plus 1%, interest payable monthly with
principal and accrued interest due October 1998,
secured by certain assets of the Company........... -- 959,940
$1,470,000 note payable to bank, interest at 10.39%
through August 2000 and at the lower of 10.39% or
LIBOR plus 3% thereafter, payable in monthly
installments through maturity of August 2003;
secured by certain assets of the Company and
guaranteed by certain shareholders................. 1,032,569 911,310
$820,083 note payable to bank, interest at prime
plus 1%, principal and interest payments payable
monthly through January 2000; secured by certain
assets of the Company.............................. 592,011 318,921
$750,000 revolving credit facility, interest at
prime plus 1%, interest payable monthly with
principal payable in full in October 1998; secured
by leased pagers................................... -- 573,469
$500,000 term note with principal and interest
payable monthly at prime plus 1% until April 2000;
secured by certain assets of the Company........... 467,160 273,852
$500,000 revolving credit facility; interest at
prime plus 1%, monthly payments of interest until
demand payment of principal and interest; secured
by accounts receivable and inventory............... 464,000 --
$657,449 note payable to bank, interest at prime
plus 1%, principal and interest payments payable
monthly through October 1999; secured by paging
equipment.......................................... 456,652 255,674
$500,000 revolving credit facility, interest at
prime plus 1%, interest payable monthly with
principal payable in 30 installments beginning
August 1997........................................ 373,395 --
Other............................................... 125,886 215,766
----------- -----------
27,173,725 47,477,862
$1,200,000 note payable to bank, interest at prime
plus 1.5%, principal and interest payments payable
monthly through December 1999; secured by paging
equipment.......................................... 300,000 80,000
Less current portion................................ (3,108,813) (6,135,525)
----------- -----------
$24,064,912 $41,342,337
=========== ===========
</TABLE>
Note payable to shareholders, interest payable
annually at 5.85%, principal payments to begin in
1999............................................... 523,843 2,624,577
Notes payable to sellers, interest at 0% to 9% (Note
3)................................................. 1,241,226 536,056
F-17
<PAGE>
SATELLINK COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
JULY 31, 1996, 1997 AND 1998
Following are maturities of long-term debt as of July 31, 1998 for each of
the next five years ending on July 31:
<TABLE>
<S> <C>
1999............................................................. $ 6,135,525
2000............................................................. 3,382,251
2001............................................................. 2,897,134
2002............................................................. 34,280,734
2003............................................................. 739,363
Thereafter....................................................... 42,855
-----------
Total.......................................................... $47,477,862
===========
</TABLE>
The fair value of long-term debt, including maturities, at July 31, 1997 and
1998 approximates the carrying value due to the variable rate of the
instruments.
During 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 million. The New
Credit Facility was divided into a $17 million revolving line of credit (the
"Revolver") and an $8 million term note (the "Term Note").
In March 1998, the Company amended the New Credit Facility to increase its
Revolver from $25 million to $32 million. The Company paid $150,000 for the
increase in the Revolver.
The Revolver and the 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 July 31, 1998, the Company was in compliance with these debt covenants.
6. 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 July 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.
During October 1997, the Company's board of directors issued 4,677 shares of
Class A common stock in connection with the incorporation of CF Paging
Corporation.
In April 1998, the Company amended its articles of incorporation and
increased the number of authorized shares of Class A common stock to
50,000,000.
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
F-18
<PAGE>
SATELLINK COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
JULY 31, 1996, 1997 AND 1998
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 a 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 84.5 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 84.5 shares
of Class A common stock. The Company has never issued shares of the Series B
Preferred Stock.
Stock Warrants
In connection with the Company's original financing agreement with
Creditanstalt, the Company issued a warrant to Creditanstalt to purchase either
999,194 shares of Class A common stock or 11,404 shares of Series B Preferred
Stock at an exercise price of $.01 per share. The proceeds from the term loan
and credit facility were allocated between long-term debt and stock warrants.
The estimated $450,000 fair market value of stock warrants at the date of grant
was included in long-term liabilities in the accompanying consolidated balance
sheets. Due to the Company's 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
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 interest 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 is
being accreted as a direct charge to earnings over the term of the facility and
term loan. During fiscal 1996, 1997, and 1998, the Company recorded incremental
warrant accretion expense in the amount of $854,350, $1,773,107, and $449,795,
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 13% of the Company's
outstanding capital stock. The put feature of the warrants is cancelled upon
completion of a qualified initial public offering of common stock which yields
net proceeds to the Company of at least $10.0 million.
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
$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.
F-19
<PAGE>
SATELLINK COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
JULY 31, 1996, 1997 AND 1998
During the year ended July 31, 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 $3.68 per share (the estimated fair value at the
date of grant). The option was in consideration for services provided during
the years ended July 31, 1997 and 1998 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 year ended July 31, 1998, the Company granted options to employees
to purchase 153,422 shares of the Company's Class A common stock at an exercise
price of $4.62 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 four 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 instruments 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 Opinion No. 25, "Accounting for Stock Issued to Employees." Entities
electing to remain with the accounting methodology required by APB Opinion No.
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 Opinion No. 25, under which the Company has recognized no
compensation cost. However, the Company has computed, for pro forma 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, 1997 and 1998
using the Black-Scholes option pricing model, as allowed under SFAS No. 123 and
based on the following assumptions:
<TABLE>
<CAPTION>
1997 1998
----------- -----------
<S> <C> <C>
Risk-free interest rate........................... 6.27%-6.52% 5.8%-6.52%
Expected dividend yield........................... 0% 0%
Expected lives.................................... Five years Five years
Expected volatility............................... 45% 45%
The total fair value of the options granted during the years ended July 31,
1996, 1997, and 1998 was computed as $39,435, $328,968, and $113,565,
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, 1997 and 1998 would have
been as follows:
<CAPTION>
1997 1998
----------- -----------
<S> <C> <C>
Net loss attributable to common shareholders:
As reported:
Class A....................................... $(2,383,488) $(2,151,412)
Class B....................................... (21,055) (721)
----------- -----------
Total....................................... $(2,404,543) $(2,152,133)
=========== ===========
</TABLE>
F-20
<PAGE>
SATELLINK COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
JULY 31, 1996, 1997 AND 1998
<TABLE>
<CAPTION>
1997 1998
----------- -----------
<S> <C> <C>
Pro forma:
Class A...................................... $(2,709,576) $(2,264,939)
Class B...................................... (23,935) (759)
----------- -----------
Total...................................... $(2,733,511) $(2,265,698)
=========== ===========
Basic net loss per share attributable to common
shareholders:
As reported:
Class A...................................... $ (0.47) $ (0.39)
Class B...................................... (39.36) (32.77)
Pro forma:
Class A...................................... (0.53) (0.41)
Class B...................................... (44.74) (34.50)
</TABLE>
The following table summarizes the transactions under the Company's stock
option plan:
<TABLE>
<CAPTION>
Weighted
Average
Number Price Per
of Options Share
---------- ---------
<S> <C> <C>
Outstanding at July 31, 1996............................ 84,500 $1.78
Granted............................................... 169,000 3.68
-------
Outstanding at July 31, 1997............................ 253,500 3.05
Granted............................................... 153,422 4.62
Exercised............................................. (56,333) 1.78
-------
Outstanding at July 31, 1998............................ 350,589
=======
</TABLE>
At July 31, 1997 and 1998, there were 253,500 and 350,589 options,
respectively, outstanding with a weighted average remaining contractual life of
3.33 and 4 years, respectively. There were 225,333 and 201,939 options
exercisable at a weighted average exercise price of $3.21 and $3.83 per share
as of July 31, 1997 and 1998, respectively. The weighted average fair value of
options granted during the years ended July 31, 1997 and 1998 was $1.01 and
$1.18, respectively.
7. 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 holder's 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 $100 per share during the years ended July 31, 1996, 1997, and
1998, respectively.
8. REDEEMABLE PREFERRED STOCK
On April 3, 1998, the Company sold 4,500 shares of Series D redeemable
preferred stock ("Series D Preferred Stock") together with 163,800 detachable
stock warrants with an exercise price of $4.62 per share
F-21
<PAGE>
SATELLINK COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
JULY 31, 1996, 1997 AND 1998
and received aggregate proceeds of $4,500,000. The proceeds were allocated
$3,520,000 to the Series D Preferred Stock and $980,000 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 Company's option any time after the first
anniversary of the closing date and at the purchaser's option after the fifth
anniversary of the closing date. The Company is 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. The Company paid
dividends of $28.33 per share during the year ended July 31, 1998. The
difference between the carrying amount of the Series D Preferred Stock and the
exchange price of $4,500,000 is being accreted over five years. The Company
realized accretion expense of approximately $65,300 for the year ended July 31,
1998, which is included in the accompanying consolidated statements of
operations as preferred stock dividends.
9. INCOME TAXES
The Company recorded no federal or state income tax benefit for each of the
three years ended July 31, 1996, 1997, and 1998 due to the level of pretax
losses incurred in recent years.
The reconciliation of the effective income tax rate to the federal statutory
tax rate is as follows:
<TABLE>
<CAPTION>
1996 1997 1998
-------- --------- --------
<S> <C> <C> <C>
Federal income tax expense (benefit) at
statutory rate (34%)........................ $ 95,090 $(535,776) $(89,259)
State income tax expense (benefit) at net of
federal benefit (4%)........................ 11,187 (63,032) (10,501)
S corporation losses not subject to corporate
level taxes................................. 93,062 397,793 344,500
Valuation allowance.......................... 308,706 644,887 359,295
Other........................................ 69,915 (53,698) 25,954
-------- --------- --------
Income tax expense........................... $577,960 $ 390,174 $629,989
======== ========= ========
</TABLE>
Deferred tax assets (liabilities) are comprised of the following as of July
31, 1997 and 1998:
<TABLE>
<CAPTION>
1997 1998
----------- -----------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards............... $ 2,105,288 $ 3,050,801
Bad debt reserve............................... 143,480 258,405
Other.......................................... 57,339 143,244
----------- -----------
2,306,107 3,452,450
Deferred tax liabilities:
Accelerated depreciation....................... (1,401,883) (2,198,479)
----------- -----------
Total net deferred tax asset before valuation
allowance................................... 904,224 1,253,971
Less valuation allowance......................... (1,066,721) (1,426,016)
----------- -----------
Total net deferred liabilities............... $ (162,497) $ (172,045)
=========== ===========
</TABLE>
Cape Fear Paging Company of North Carolina ("CFNC") included herein that was
acquired in conjunction with the pooling-of-interests method of accounting
discussed in Note 3 elected to be treated as an S corporation for federal and
state income tax purposes. As such, in lieu of corporate income tax
consequences arising at CFNC's level, the individual shareholders were
allocated their proportionate shares of CFNC's taxable income or loss.
F-22
<PAGE>
SATELLINK COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
JULY 31, 1996, 1997 AND 1998
The increase in the valuation allowance for the year ended July 31, 1998 was
$359,295, primarily related to additional operating loss carryforwards. The
decrease in the valuation allowance for the year ended July 31, 1997 was
$77,126 and related to changes in certain temporary differences, net of
additional operating loss carryforwards.
As of July 31, 1997 and 1998, the Company had net operating loss
carryforwards, which expire at various dates through 2010, of approximately
$5,212,000 and $9,352,000, 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 a majority of the
deferred tax asset balance. The entire deferred tax liability recognized
related to Cape Fear Paging Company ("CFPC"). For the years ended July 31, 1997
and 1998, CFPC was profitable as a separate taxable entity and management
recognized the deferred tax liability. Management believes that through various
tax planning strategies and the Company's overall business plan, 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.
10. COMMITMENT AND CONTINGENCIES
Operating Leases
The Company leases office space, antenna sites, and subcarrier frequencies
under noncancelable operating leases expiring on various dates through 2004.
The majority of the subcarrier frequency leases have additional renewal terms
ranging from 3 to 14 years at the option of either party. Because the Company's
operations are dependent on 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 $1,613,000,
$1,894,000, and $1,640,000 for the years ended July 31, 1996, 1997, and 1998,
respectively, related to these operating leases.
Minimum future payments under noncancelable operating leases as of July 31,
1998 for each of the next five years ended July 31 are as follows:
<TABLE>
<S> <C>
1999.............................................................. $1,587,150
2000.............................................................. 1,120,292
2001.............................................................. 651,095
2002.............................................................. 453,043
2003.............................................................. 279,618
Thereafter........................................................ 105,882
----------
$4,197,080
==========
</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 and results of operations.
F-23
<PAGE>
SATELLINK COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
JULY 31, 1996, 1997 AND 1998
Dependence on Other Telecommunications Providers
Except for a few local and regional paging networks, the Company does not own
a transmission network. The Company depends on MCI WorldCom and other
facilities-based and nonfacilities-based carriers for transmission of the
Company's subscribers' long-distance calls and the majority of paging data. The
Company has entered into supply agreements with MCI WorldCom and other carriers
to provide long-distance telecommunications and paging services. The contracts
are generally for a term of three years but are subject to early termination in
certain instances. Some of the contracts also contain minimum purchase
requirements. In addition, the Company depends on local exchange carriers for
call origination and termination. Satellink's ability to maintain and expand
business depends in part on its ability to enter into favorable contracts with
long-distance and paging carriers. The Company's success also depends on the
cooperation of interexchange and local exchange carriers originating and
terminating service in a timely manner. The partial or total loss of ability to
initiate or terminate calls would result in a loss of revenues and could lead
to a loss of subscribers.
Risk of Loss From Fraud, Bad Debt, and Theft of Services
By unlawfully using the access numbers and personal identification numbers
("PINs") of authorized users, various people have occasionally gained
unauthorized access to the Company's network and services. Unauthorized use of
access numbers and PINs in the future may be material to Satellink's business,
financial condition, and results of operations. The Company attempts to control
unauthorized use through internal controls and the Company's billing system.
The STAR*Net platform is designed to prohibit a single access number and PIN
from establishing multiple connections to the platform at the same time. The
Company has established preset spending limits for each subscriber. Although
the Company believes that risk management and bad debt reserve practices are
adequate, unauthorized transactions and theft of services could negatively
affect the Company's business, financial condition, and results of operations.
Dependence on Networks, Switching Facilities, and the STAR*Net Platform
The Company relies on its own network, third-party networks, its switching
facilities, and the STAR*Net platform to operate its services. A fire, act of
sabotage, technical failure, natural disaster, or similar event could impact
the networks, facilities, and platforms and cause an interruption in services.
For example, on May 18 and 19, 1998, the Galaxy 4 satellite owned by PanAmSat
malfunctioned. PanAmSat transmits paging messages for a majority of the pagers
in use in the United States. The satellite malfunction interrupted the paging
service of up to 40 million subscribers in the United States, including
approximately 25% of the Company's subscribers.
Most subscribers were not affected by the satellite malfunction because the
Company uses multiple message distribution networks. The majority of
subscribers are serviced through the CUE nationwide FM paging network and the
Company's VHF and UHF paging networks. However, future technical malfunctions
could have a much greater effect on the Company's customers or affect the
Company's other distribution networks.
At this time, the Company has switching facilities and STAR*Net platforms in
16 locations in the southeastern and southwestern United States. Network
services are dependent upon the Company's ability to protect the equipment and
data at the Company's switching facilities and the STAR*Net platforms. The
Company has implemented monitored security systems, controlled access
procedures, automated data backup, uninterruptable power supply systems, and
automated system trouble alerts at all locations. However, these safeguards
offer no guarantee that the Company's equipment and data will be protected.
Dependence on CUE Paging to Maintain its Network
The FM subcarrier paging network is located in Alabama, Kentucky, Tennessee,
and Georgia and is linked with the CUE nationwide FM subcarrier paging network.
This is the network through which the Company delivers nationwide paging
services, and therefore, the Company is dependent upon CUE to maintain and
F-24
<PAGE>
SATELLINK COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
JULY 31, 1996, 1997 AND 1998
develop its paging network. CUE is not under any contractual obligation to
upgrade or further develop its network to accommodate new technologies or
subscribers. The Company estimates that the CUE network is now operating at
approximately 60% of capacity. Assuming that historical growth rates on the CUE
network continue at the same pace, the Company estimates that the CUE network
can accommodate Satellink's subscriber growth for the next five years. However,
if the Company's estimates are incorrect or if CUE fails to maintain or upgrade
its network, Satellink's business, financial condition, and results of
operations could be negatively impacted.
Dependence on Liquidity and Capital Resources
Any increase 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 acquisition 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.
11. RELATED-PARTY TRANSACTIONS
CUE Paging Corporation
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, Kentucky, Tennessee, and Alabama. At July 31, 1998, CUE owned
approximately 9% and 13% of the Company's Class A common stock and Series A
preferred stock, respectively.
The Company pays CUE monthly amounts for regional and nationwide airtime
charges, various telephone charges, and co-op advertising fees. Approximately
$5,960,000, $8,563,000, and $9,610,000 were paid to CUE for the years ended
July 31, 1996, 1997, and 1998, respectively, and have been recorded in
services, rent, and maintenance in the accompanying consolidated statements of
operations. Approximately $777,000 and $838,000 were payable to CUE and are
included in accounts payable and accrued liabilities in the accompanying
consolidated balance sheets as of July 31, 1997 and 1998, respectively.
Cape Fear Broadcasting Company
Certain shareholders of the Company are shareholders in Cape Fear
Broadcasting Company, a North Carolina S corporation. The Company leases pagers
to Cape Fear Broadcasting Company, and Cape Fear Broadcasting Company provides
advertising for the Company. At July 31, 1997 and 1998, the Company had
payables of $189,493 and $323,636, respectively, which are classified as
accounts payable and accrued liabilities in the accompanying consolidated
balance sheets.
F-25
<PAGE>
SATELLINK COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
JULY 31, 1996, 1997 AND 1998
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 $9,500, $20,600, and $34,600
during the years ended July 31, 1996, 1997, and 1998, respectively.
13. SUBSEQUENT EVENTS (UNAUDITED)
The Company plans to offer approximately 4,000,000 shares of its common stock
(approximately 4,750,000 shares if the underwriters' overallotment option is
exercised in full) for sale to the public at a proposed price range of $9 to
$11 per share during 1999 (the "Equity Offering"). There can be, however, no
assurance that the Equity Offering will be completed at a per share price
within the estimated range or at all. There are significant potential risks
associated with the Equity Offering as well as with the Company's ability to
compete profitably in this industry.
On September 17, 1998, the Company effected a 1.3-for-1 split. All share and
per share amounts have been retroactively adjusted to give effect to this
split.
On October 13, 1998, the Company amended the New Credit Facility to increase
its Revolver from $32 million to $40 million and the term loan from $8 million
to $15 million.
F-26
<PAGE>
SATELLINK COMMUNICATIONS, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
JULY 31, 1998 AND JANUARY 31, 1999
<TABLE>
<CAPTION>
Pro Forma
Equity at
July 31, January 31, January 31,
1998 1999 1999
----------- ------------ ------------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents.... $ 537,799 $ 444,991
Accounts receivable, net..... 6,260,014 7,547,645
Marketable securities........ 587,826 --
Inventory.................... 2,499,272 1,536,832
Prepaid expenses and other
current assets.............. 1,576,989 1,200,474
----------- ------------
Total current assets......... 11,461,900 10,729,942
----------- ------------
PROPERTY AND EQUIPMENT, NET... 17,251,065 22,763,258
----------- ------------
OTHER LONG-TERM ASSETS:
Goodwill, net................ 27,667,639 28,054,793
Other intangible assets,
net......................... 6,281,685 5,476,109
----------- ------------
Total other long-term
assets...................... 33,949,324 33,530,902
----------- ------------
Total assets................. $62,662,289 $ 67,024,102
=========== ============
LIABILITIES AND STOCKHOLDERS'
EQUITY (DEFICIT)
CURRENT LIABILITIES:
Current maturities of long-
term debt................... $ 6,135,525 $ --
Accounts payable and accrued
liabilities................. 5,464,701 3,889,850
Accrued nonrecurring
charges..................... -- 1,304,789
Customer deposits............ 646,686 656,415
Deferred revenues............ 2,058,504 2,232,243
Deferred tax liability....... 172,045 172,045
Accrued dividends on
preferred stock............. 134,642 164,082
----------- ------------
Total current liabilities.... 14,612,103 8,419,425
----------- ------------
LONG-TERM DEBT, less current
maturities................... 41,342,337 53,486,401
----------- ------------
STOCK WARRANTS................ 5,776,517 5,895,538 $ --
----------- ------------ ------------
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, 1998 and
January 31, 1999, 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:
$0.01 par value, 4,500 shares
authorized, issued, and
outstanding................. 3,585,333 3,671,937 --
----------- ------------ ------------
SHAREHOLDERS' EQUITY
(DEFICIT):
Series A convertible
preferred stock $.01 par
value; 7,500 shares
authorized, 7,360 shares
issued and outstanding at
July 31, 1998 and January
31, 1999, 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, 1998
and January 31, 1999, 0
shares issued and
outstanding................. -- -- --
Common stock, $.01 par value:
Class A voting, 50,000,000
shares authorized, 5,588,296
shares issued and
outstanding at July 31, 1998
and January 31, 1999........ 55,883 55,883 74,853
Class B nonvoting, 20,000
shares authorized, 535.65
and 0 shares issued and
outstanding at July 31, 1998
and January 31, 1999,
respectively................ -- -- --
Additional paid-in capital... 2,804,501 2,804,501 7,618,077
Stock warrants............... -- -- 4,565,538
Accumulated deficit.......... (9,032,346) (10,809,657) (11,637,720)
Unrealized gain on marketable
securities.................. 17,887 -- --
----------- ------------ ------------
Total shareholders'
(deficit) equity........... (6,154,001) (7,949,199) $ 620,748
----------- ------------ ------------
Total liabilities and
shareholders' equity....... $62,662,289 $ 67,024,102
=========== ============
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
balance sheets.
F-27
<PAGE>
SATELLINK COMMUNICATIONS, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS ENDED JANUARY 31, 1998 AND 1999
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
January 31
------------------------
1998 1999
----------- -----------
<S> <C> <C>
REVENUES:
Service, rent, and maintenance fees................ $17,652,075 $22,008,388
Product sales...................................... 929,460 1,755,982
----------- -----------
Total revenues................................... 18,581,535 23,764,370
Cost of products sold.............................. (560,881) (1,525,233)
----------- -----------
Net revenues..................................... 18,020,654 22,239,137
----------- -----------
OPERATING EXPENSES:
Service, rent, and maintenance..................... 7,496,318 8,379,110
Selling and marketing.............................. 2,197,786 3,214,146
General and administrative......................... 3,370,439 3,784,050
Engineering........................................ 556,278 869,702
Depreciation and amortization...................... 2,225,145 2,776,005
Restructuring and other one-time charges........... 833,996 1,628,789
----------- -----------
Total operating expenses......................... 16,679,962 20,651,802
----------- -----------
OPERATING INCOME.................................... 1,340,692 1,587,335
OTHER INCOME (EXPENSE):
Other income (expense)............................. (75,426) 472,160
Interest expense................................... (1,462,908) (2,430,262)
Accretion of stock warrants........................ (228,874) (119,021)
Minority interest.................................. (5,673) --
Write-off of offering costs........................ -- (570,000)
----------- -----------
LOSS BEFORE INCOME TAX EXPENSE AND CUMULATIVE EFFECT
OF CHANGE IN ACCOUNTING PRINCIPLE.................. (432,189) (1,059,788)
INCOME TAX EXPENSE.................................. 558,100 88,117
----------- -----------
LOSS BEFORE CUMULATIVE EFFECT OF CHANGE IN
ACCOUNTING PRINCIPLE............................... (990,289) (1,147,905)
CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING
PRINCIPLE.......................................... (628,700) --
----------- -----------
NET LOSS............................................ (1,618,989) (1,147,905)
PREFERRED STOCK DIVIDENDS........................... 219,162 508,414
----------- -----------
NET LOSS ATTRIBUTABLE TO COMMON SHAREHOLDERS........ $(1,838,151) $(1,656,319)
=========== ===========
ALLOCATION OF LOSS TO:
Basic and diluted:
Class A............................................ $(1,837,147) $(1,656,319)
Class B............................................ $ (1,004) $ --
BASIC AND DILUTED NET LOSS PER SHARE:
Net loss attributable to common shareholders:
Class A............................................ $ (0.33) $ (0.30)
Class B............................................ $ (28.29) $ --
Loss from cumulative effect of change:
Class A............................................ $ (0.11) $ --
Class B............................................ $ (9.68) $ --
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING:
Basic and diluted:
Class A............................................ 5,486,730 5,588,296
Class B............................................ 35 --
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
F-28
<PAGE>
SATELLINK COMMUNICATIONS, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JANUARY 31, 1998 AND 1999
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
January 31
------------------------
1998 1999
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss............................................ $(1,618,989) $(1,147,905)
----------- -----------
Adjustments to reconcile net income to net cash
provided by operating activities:
Minority interest.................................. 5,673 --
Depreciation and amortization...................... 2,225,145 2,776,005
Nonrecurring charges............................... 1,533,996 1,628,789
Accretion of stock warrants........................ 228,874 119,021
Restatement related to pooling-of-interests
transaction (Note 2).............................. -- 120,992
Changes in operating assets and liabilities:
Accounts receivable............................... (1,317,332) (1,274,987)
Marketable securities............................. 34,536 569,939
Inventory......................................... 172,935 962,440
Prepaid expenses and other current assets......... (268,124) 376,515
Accounts payable and accrued liabilities.......... 1,236,243 (265,954)
Customer deposits................................. (55,047) 9,729
Deferred revenues................................. (532,734) 173,739
----------- -----------
Total adjustments................................ 3,264,165 5,196,228
----------- -----------
Net cash provided by operating activities........ 1,645,176 4,048,323
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of businesses, net of cash acquired...... (590,000) (781,324)
Purchases of property and equipment, net........... (5,351,906) (8,739,372)
----------- -----------
Net cash used in investing activities............ (5,941,906) (9,520,696)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of common stock........................... 100,000 --
Payment of preferred stock dividends............... (263,082) (478,974)
Proceeds from issuance of long-term debt, net...... 4,183,682 6,008,539
Other financing activities......................... -- (150,000)
----------- -----------
Net cash provided by financing activities........ 4,020,600 5,379,565
----------- -----------
NET DECREASE IN CASH AND CASH EQUIVALENTS............ (276,130) (92,808)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD..... 666,032 537,799
----------- -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD........... $ 389,902 $ 444,991
=========== ===========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
F-29
<PAGE>
SATELLINK COMMUNICATIONS, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The accompanying unaudited interim condensed consolidated financial
statements have been prepared by management of Satellink Communications, Inc.
and its subsidiaries (the "Company" or "Satellink") in accordance with rules
and regulations of the Securities and Exchange Commission ("SEC").
Accordingly, certain information and footnote disclosures usually found in
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted. In the opinion of management of the
Company, all adjustments (consisting only of normal recurring adjustments,
except ads disclosed herein) considered necessary for a fair presentation of
the consolidated financial statements have been included. Preparing financial
statements requires management to make estimates and assumptions that affect
the reported amounts of assets, liabilities, revenues, and expenses. Examples
include provisions for bad debts, carrying values, and useful lives assigned
to goodwill and other long-lived assets and accruals. Actual results could
differ from those estimates. These interim condensed consolidated financial
statements should be read in conjunction with the annual financial statements
of Satellink and the notes thereto.
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.
2. POOLING OF INTERESTS ACQUISITIONS
Effective December 8, 1998, the Company acquired all of the outstanding
shares of Cape Fear Companies in exchange for 2,533,893 shares of common stock
of Cape Fear Paging Company, Cape Fear Paging Company of North Carolina, and
CF Paging Corporation (collectively, "Cape Fear Companies"). The transactions
were accounted for as pooling of interests. Prior to Cape Fear Companies'
merger with Satellink, Cape Fear Companies reported on a calendar year basis
ending December 31. In accordance with the SEC's rules and interpretations,
Cape Fear Companies' financial statements for the 12-month period ending
September 30, 1997 and 1998 have been combined with the Company's financial
statements for the fiscal year 1997 and 1998, respectively. The condensed
consolidated financial statements have been restated for all periods presented
to include the operations of the acquired entities accounted for as a pooling
of interests.
For the six months ended January 31, 1999, Cape Fear Companies' financial
position and operating results were restated to coincide with the Company's
quarter ended January 31, 1999. As a result of this restatement, Cape Fear
Companies' results of operations for the months ended August and September
1998 have been included in both the financial statements for the year ended
July 31, 1998 and the six months ended January 31, 1999. Cape Fear Companies'
revenues, operating expenses, and net loss for the two months ended September
1998 were approximately $2,736,514, $2,558,114, and $120,992, respectively.
The operating results for the six months ended January 31, 1998 have been
prepared by combining Satellink's results for the six months ended January 31,
1998 with those of the Cape Fear Companies for the six months ended March 31,
1998.
F-30
<PAGE>
SATELLINK COMMUNICATIONS, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
3. NONRECURRING CHARGES
The Company recorded charges against income of approximately $1.6 million in
the second quarter of fiscal 1999 in connection with the acquisition of the
Cape Fear Companies. Such charges consist of transaction costs, principally
investment banking and professional fees, which must be expensed under pooling
of interests accounting. In addition, the Company has accrued the estimated
costs to exit certain facilities and discontinue certain business processes and
activities which are duplicative or redundant in the combined operations of the
Company and Cape Fear Companies. These costs consist of severance associated
with work force reduction and asset impairments for duplicative equipment.
A summary of the nonrecurring charges is as follows (in thousands):
<TABLE>
<S> <C>
Transaction costs.................................................. $ 943
Severance.......................................................... 247
Asset impairments.................................................. 439
------
$1,629
======
</TABLE>
The asset impairments represent the writedown of duplicative equipment which
the Company intends to dispose of as a result of the Cape Fear acquisitions.
The equipment has been written down to its estimated salvage value which is
immaterial to the financial statements. The Company anticipates that the
$1,190,000 accrued for transaction costs and severance will be fully paid
during the year ending July 31, 1999.
In addition to the above charges, the Company recorded a charge of $570,000
in the six months ended January 31, 1999 to write off deferred costs associated
with a planned initial public offering which has been withdrawn.
During 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, was removed as a part of the
conversion of the STAR*Net system. Accordingly, the Company recognized a loss
totaling $833,996 related to the impairment of the existing equipment.
4. NEW ACCOUNTING PRONOUNCEMENT
In June 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 131, "Disclosures
About Segments of an Enterprise and Related Information," which establishes
standards for the way 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 No. 131 is not expected to have a
material impact on the Company's financial statements.
5. NET LOSS PER SHARE
Net loss per share is computed in accordance with SFAS No. 128, "Earnings Per
Share." Net loss 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. In the first quarter of fiscal 1998, the final outstanding shares
of Class B common stock were converted to Class A common stock. Consequently,
only Class A loss per share for the six months ended January 31, 1999 are
presented.
Basic net loss per share is computed by dividing net loss attributable to
common shareholders by the weighted average number of common shares outstanding
during the period and does not include any other
F-31
<PAGE>
SATELLINK COMMUNICATIONS, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
potentially dilutive securities. Diluted net income per share gives effect to
all potentially dilutive securities. The Company's Series A convertible
preferred stock, Series C redeemable convertible preferred stock, stock
options, and stock warrants are potentially dilutive securities. For all
periods presented, the inclusion of dilutive securities are anti-dilutive.
Accordingly, diluted earnings per share data is not presented.
On February 4, 1998, the SEC 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 the 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. COMPREHENSIVE INCOME
In 1998, the Company adopted SFAS No. 130, "Reporting Comprehensive Income."
Comprehensive income represents the change in equity of a business during a
period, except for investments by owners and distributions. Unrealized gains
adjustments represent the Company's only component of other comprehensive
income. These unrealized gains are considered immaterial for all periods
presented.
7. CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE
The Company initially capitalized certain costs related to process
reengineering initiatives that were directed toward assessing the current state
of certain processes and reengineering those processes associated with its
customer service department and certain retail stores. On November 20, 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, be 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. Capitalized third-party and internally
generated costs related to operational efficiency improvement initiatives as of
November 20, 1997 totaled $628,700 and have been written off through a
cumulative effect of a change in accounting principle in the accompanying
statement of operations for the six months ended January 31, 1998. The Company
incurred $234,000 and $466,000 of costs related to these initiatives in fiscal
1997 and 1998, respectively, of which $71,300 was incurred subsequent to
November 20, 1997 and is recording in operating expenses in the accompanying
statement of operations for the six months ended January 31, 1998.
8. INCOME TAXES
The income tax provisions for the six months ended January 31, 1998 and 1999
represent income tax expenses associated with the operations of Cape Fear
Paging Company, a C corporation. Prior to Cape Fear Companies' merger with
Satellink, one of the Cape Fear Companies (Cape Fear Paging Company of North
Carolina) had elected to be treated as an S corporation, which is not subject
to corporate-level federal income tax. The remaining members of the Cape Fear
Companies were C corporations, which were subject to federal income tax.
No net income tax provision was recorded by Satellink or CF Paging
Corporation, as their taxable income was fully offset by net operating losses
("NOLs") generated in prior periods. Valuation allowances recorded against
these NOLs were reversed to reflect their utilization.
F-32
<PAGE>
SATELLINK COMMUNICATIONS, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
9. STOCK SPLIT
On September 17, 1998, the Company effected a 1.3-for-one split. All share
and per share amounts have been retroactively adjusted to give effect to this
split.
10. AMENDMENT TO CREDIT FACILITY
On October 13, 1998, the Company amended the New Credit Facility to increase
its Revolver from $32 million to $40 million and the Term Loan from $8 million
to $15 million.
11. SUBSEQUENT EVENTS
In the third quarter of the Company's fiscal year ended 1999, 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 4,000,000 shares of its common stock (approximately 4,750,000 shares
if the underwriters' overallotment option is exercised in full) in the
Offering. There can, however, be no assurance that the Offering can be
completed.
If the offering is completed, certain changes in Satellink's capitalization
will occur:
(i) each outstanding share of Series A Preferred Stock will be converted
into 84.5 shares of common stock;
(ii) each outstanding share of Series C Preferred Stock will be converted
into 272.5725 shares of common stock;
(iii) each outstanding share of Series D Preferred Stock will be redeemed
using a portion of the net proceeds from the offering; and
(iv) the put feature of the Company's stock warrants will be cancelled.
The pro forma equity column included on the accompanying condensed
consolidated balance sheets gives pro forma effect to these changes as of
January 31, 1999. It does not, however, give effect to the offering or the
receipt of proceeds therefrom.
F-33
<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
By___________________________________
Shreveport, Louisiana
February 23, 1998
F-34
<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
Commitments and Contingencies (Note H and I)
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-35
<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-36
<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
Stockholder 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-37
<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
Purchases of trading securities...................... (337,335) (321,811)
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.... 1,158,007 798,552
----------- --------
Cash Flows From Investing Activities:
Acquisition of fixed assets............................ (478,991) (250,764)
Sale of fixed assets................................... 123,543 4,524
----------- --------
Net Cash Provided (Used) by Investing Activities.... (355,448) (246,240)
----------- --------
Cash Flows From Financing Activities:
Principal reduction of debt............................ (566,434) (127,689)
Loan proceeds.......................................... 1,776,562 430,191
Stockholder distributions.............................. (416,413) (571,079)
Advance to Budget Phone, Inc........................... (133,260) (225,332)
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-38
<PAGE>
HYDE'S STAY IN TOUCH, INC.
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.
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.
F-39
<PAGE>
HYDE'S STAY IN TOUCH, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
DECEMBER 31, 1997 AND 1996
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
Gain Loss Fair 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
------- ------ --------
$80,399 $8,034 $843,982
======= ====== ========
</TABLE>
F-40
<PAGE>
HYDE'S STAY IN TOUCH, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
DECEMBER 31, 1997 AND 1996
Investments in marketable securities classified as available-for-sale
securities are summarized as follows at December 31, 1996:
<TABLE>
<CAPTION>
Gross Gross
Unrealized Unrealized
Gain Loss Fair 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
========== ==========
</TABLE>
F-41
<PAGE>
HYDE'S STAY IN TOUCH, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
DECEMBER 31, 1997 AND 1996
NOTE F: PREPAID EXPENSES
Prepaid expenses consist of the following:
<TABLE>
<CAPTION>
1997 1998
------ ------
<S> <C> <C>
Prepaid Insurance............................................ $2,950 $4,725
====== ======
</TABLE>
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
========
Future lease commitments under capital leases at December 31, 1996 are as
follows:
<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-42
<PAGE>
HYDE'S STAY IN TOUCH, INC.
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 note
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-43
<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 Company as treasury stock to be retired. The stock
redemption resulted in corporate notes to the donees as set forth in Note I. 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 stockholders during the year were charged
to wages, administration fees, or stockholder distributions. The note payable
to the Estate of Shirley Ann Gunstream Hyde was established to equalize
stockholders' distributions. The amount of the note represents the Estate's
portion of the unfunded stockholders 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 stockholders at December
31, 1997 or 1996.
The Company's sole surviving stockholder 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-44
<PAGE>
HYDE'S STAY IN TOUCH, INC.
BALANCE SHEET
AS OF APRIL 30, 1998
<TABLE>
<CAPTION>
April 30,
1998
-----------
(Unaudited)
-----------
<S> <C>
ASSETS
Current Assets:
Cash............................................................... $ 37,736
Investments--trading securities.................................... 1,213,078
Accounts receivable................................................ 537,601
Inventory.......................................................... 435,467
Prepaid expenses................................................... 124,390
----------
Total Current Assets.............................................. 2,348,272
Property and Equipment, net......................................... 819,462
Other Assets:
Loan fees, net..................................................... 2,501
Deposits........................................................... 3,730
Due from Budget Phone, Inc......................................... 368,355
----------
Total Other Assets................................................ 374,586
----------
TOTAL ASSETS........................................................ $3,542,320
==========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current Liabilities:
Accounts payable................................................... $ 142,264
Accrued expenses................................................... 39,751
Current maturity of long term debts................................ 566,123
----------
Total Current Liabilities......................................... 748,138
Long Term Liabilities:
Long term debt, excluding current portion.......................... 1,359,047
----------
Total Liabilities................................................. 2,107,185
Stockholder's Equity:
Common stock....................................................... 706
Retained earnings.................................................. 1,434,429
----------
Total Stockholder's Equity........................................ 1,435,135
----------
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY.......................... $3,542,320
==========
</TABLE>
See Accompanying Notes
F-45
<PAGE>
HYDE'S STAY IN TOUCH, INC.
STATEMENTS OF INCOME
FOR THE FOUR MONTHS ENDED APRIL 30, 1998 AND 1997
(Unaudited)
<TABLE>
<CAPTION>
Four months ended
April 30,
----------------------
1998 1997
---------- ----------
<S> <C> <C>
Revenues
Fees and airtime, net of returns & allowance........... $1,493,198 $1,268,369
Pager, hardware, and accessory sales................... 422,024 328,575
Dealer airtime......................................... 132,925 125,683
Dealer hardware sales.................................. 148,844 80,633
---------- ----------
Total Revenues........................................ 2,196,991 1,803,260
Cost of Products Sold................................... (573,753) (424,354)
---------- ----------
1,623,238 1,378,906
Operating Expenses
General and administrative............................. 615,348 547,726
Selling and marketing.................................. 94,213 112,877
Depreciation and amortization.......................... 73,476 78,546
Service, rent and maintenance.......................... 147,208 198,878
---------- ----------
Total Operating Expenses.............................. 930,245 938,027
---------- ----------
Income from Operations.................................. 692,993 440,879
Other Income (Expenses)
Interest income........................................ 3,071 2,545
Unrealized gain (loss) on investment................... 91,025 16,582
Gain (loss) on disposition of assets................... 44,135 --
Other income........................................... 10,676 1,903
Rent income............................................ 4,750 --
Interest expense....................................... (51,911) (17,927)
---------- ----------
Total Other Income (Expense).......................... 101,746 3,103
---------- ----------
Net Income.............................................. $ 794,739 $ 443,982
========== ==========
</TABLE>
See Accompanying Notes
F-46
<PAGE>
HYDE'S STAY IN TOUCH, INC.
STATEMENTS OF CASH FLOWS
FOR THE FOUR MONTHS ENDED APRIL 30, 1998 AND 1997
(Unaudited)
<TABLE>
<CAPTION>
Four months ended
April 30,
-----------------
1998 1997
----------------- --------
<S> <C> <C>
Cash Flow from Operating Activities:
Net income........................................ $794,739 $443,982
Adjustments to reconcile net income to net cash
provided by operating activities:
Unrealized (gain) loss on investments........... (91,025) (16,582)
Purchases of trading securities................. (278,071) --
Gain on disposition of fixed assets............. (44,135) --
Amortization.................................... 833 833
Depreciation.................................... 72,643 74,122
(Increase) Decrease in:
Accounts receivable............................. 43,473 (58,433)
Inventory....................................... (155,781) 42,673
Prepaid expenses................................ (121,440) (6,119)
Increase (Decrease) in:
Accounts payable................................ 41,605 57,975
Accrued expenses................................ 28,247 25,766
-------- --------
Net Cash Provided (Used) by Operating
Activities.................................... 291,088 564,217
-------- --------
Cash Flows from Investing Activities:
Acquisition of fixed assets....................... (111,605) (104,663)
-------- --------
Net Cash Provided (Used) by Investing
Activities...................................... (111,605) (104,663)
-------- --------
Cash Flows from Financing Activities:
Principal reduction of debt....................... (50,746) (329,253)
Stockholder distributions......................... (200,922) (89,211)
Advance to Budget Phone, Inc...................... (9,763) (22,856)
-------- --------
Net Cash Provided (Used) by Financing
Activities...................................... (261,431) (441,320)
-------- --------
Net (Decrease) Increase In Cash.................... (81,948) 18,234
Beginning Cash..................................... 119,684 124,550
-------- --------
Ending Cash........................................ $37,736 $142,784
======== ========
</TABLE>
See Accompanying Notes
F-47
<PAGE>
HYDE'S STAY IN TOUCH, INC.
CONDENSED NOTES TO 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 thereof.
2. On May 1, 1998, Satellink Communications, Inc. acquired substantially all
of the assets of Hyde's Stay in Touch, Inc.
F-48
<PAGE>
SATELLINK COMMUNICATIONS, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
The following unaudited pro forma consolidated statement of operations for
the six months ended January 31, 1999 has been prepared by adjusting
Satellink's unaudited historical results of operations for that period to give
effect to the sale and issuance of 4,000,000 shares of Common Stock at an
estimated initial offering price of $10.00 per share (the "Offering") as if it
had occurred on August 1, 1997.
The unaudited pro forma consolidated statement of operations for the year
ended July 31, 1998 has been prepared by combining Satellink's audited
historical results of operations for the year ended July 31, 1998, which
includes Hyde's Stay In Touch, Inc. ("Hyde's") results of operations for the
period May 1, 1998 through July 31, 1998, with Hyde's unaudited historical
results of operations for the nine months ended April 30, 1998 (Acquisition
date). The unaudited pro forma consolidated statement of operations for the
year ended July 31, 1998 has been adjusted to give effect to the acquisition of
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 the Offering as if they had occurred on August 1, 1997.
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. 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 and Hyde's 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-49
<PAGE>
SATELLINK COMMUNICATIONS, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JANUARY 31, 1999
<TABLE>
<CAPTION>
Pro Forma
Pro Forma Consolidated
Satellink Offering As Adjusted For
Communications, Inc. Adjustments The Offering
-------------------- ----------- ---------------
<S> <C> <C> <C>
Revenues:
Services, rent, and
maintenance........... $22,008,388 -- $22,008,388
Product sales.......... 1,755,982 -- 1,755,982
----------- ---------- -----------
Total revenues....... 23,764,370 -- 23,764,370
Cost of products sold.. (1,525,233) -- (1,525,233)
----------- ---------- -----------
Net revenues......... 22,239,137 -- 22,239,137
----------- ---------- -----------
Operating expenses:
Services, rent, and
maintenance........... 8,379,110 -- 8,379,110
Selling and marketing.. 3,214,146 -- 3,214,146
General and
administrative........ 3,784,050 -- 3,784,050
Engineering............ 869,702 -- 869,702
Depreciation and
amortization.......... 2,776,005 -- 2,776,005
Restructuring and other
one-time charges...... 1,628,789 -- 1,628,789
----------- ---------- -----------
Total operating
expenses............ 20,651,802 -- 20,651,802
----------- ---------- -----------
Operating income......... 1,587,335 -- 1,587,335
----------- ---------- -----------
Other income (expenses):
Other income.......... 472,160 -- 472,160
Interest expense...... (2,430,262) 1,494,600 (a) (935,662)
Accretion warrants.... (119,021) 119,021 (b) --
Write-off of offering
costs (570,000) 570,000 (c) --
----------- ---------- -----------
Total other income
(expense)........... (2,647,123) 2,183,621 (463,502)
----------- ---------- -----------
Income before income tax
provision............... (1,059,788) 2,183,621 1,123,833
Income tax provision..... (88,117) (338,940)(d) (427,057)
----------- ---------- -----------
Net income (loss)........ (1,147,905) 1,844,681 696,776
Preferred stock
dividends............... 508,414 (508,414)(e) --
----------- ---------- -----------
Net income (loss)
attributable to common
shareholders............ $(1,656,319) $2,353,095 $ 696,776
=========== ========== ===========
Basic earnings per
share................... $ (0.30) $ 0.06
Diluted earnings per
share................... (0.30) 0.05
Weighted average number
of common shares
outstanding--basic(f)... 5,588,296 11,485,316
Weighted average number
of common shares
outstanding--
diluted(g).............. 5,588,296 13,269,662
</TABLE>
- --------
Offering Adjustments:
(a) Reflects reduction of actual expense incurred to the pay off of outstanding
long-term debt from the proceeds of the offering.
(b) Reflects the elimination of the warrant amortization as the put feature is
contractually eliminated upon completion of an initial public offering.
(c) Reflects the elimination of offering costs related to a withdrawn offering.
(d) Reflects income tax effect, using an effective rate of 38%, related to the
Company's pro forma results of operations. Pro forma results of operations
do not include any impact from changes in the valuation reserve which has
been recorded
F-50
<PAGE>
recognition of the Company's deferred tax asset is a material nonrecurring
credit which results directly from the Offering. Upon completion of the
initial public offering and application of the proceeds to repay certain
debt, management believes that is more likely than not that the deferred tax
asset will be realized. Consequently, management anticipates recognizing its
deferred tax asset in its historical results of operations within the next 12
months.
(e) Reflects a decrease of $175,002 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 $44,160
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 $289,252 in dividends and accretion of equity
issued related to the redemption of Series D Preferred Stock which is
required to be redeemed in the event of an initial public offering. The
Company expects to incur a loss of approximately $828,063 upon redemption
of the Series D Preferred Stock. This loss has been excluded from the pro
forma results of operations for the six months ended January 31, 1999.
(f) Basic weighted average common shares outstanding are comprised of the
following for each class of common stock:
<TABLE>
<CAPTION>
Class A
----------
<S> <C>
Weighted average shares outstanding prior to initial public
offering.................................................... 5,588,296
Conversion of Series A Convertible Preferred Stock........... 621,920
Conversion of Series C Convertible Preferred Stock........... 954,004
Exercise of stock warrants................................... 321,096
Issuance of common shares from the initial public offering... 4,000,000
----------
Pro forma weighted average shares outstanding................ 11,485,316
==========
</TABLE>
(g) 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............ 11,485,316
Effect of dilutive stock options and warrants................... 1,784,346
----------
Pro forma weighted average common shares outstanding............ 13,269,662
==========
</TABLE>
F-51
<PAGE>
SATELLINK COMMUNICATIONS, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED JULY 31, 1998
<TABLE>
<CAPTION>
Historical Pro Forma
------------------------------------ Pro Forma Pro Forma Consolidated
Satellink Hyde's Stay In Acquisition Pro Forma Offering As Adjusted For
Communications, Inc. Touch, Inc. (a) Adjustments Consolidated Adjustments The Offering
-------------------- --------------- ----------- ------------ ----------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Revenues:
Services, rent, and
maintenance............ $37,338,780 $3,300,323 $ -- $40,639,103 $ -- $40,639,103
Product sales........... 2,322,688 1,063,509 -- 3,386,197 -- 3,386,197
----------- ---------- --------- ----------- ---------- -----------
Total revenues.......... 39,661,468 4,363,832 -- 44,025,300 -- 44,025,300
Cost of products sold... 1,514,984 1,168,955 -- 2,683,939 -- 2,683,939
----------- ---------- --------- ----------- ---------- -----------
Net revenues............ 38,146,484 3,194,877 -- 41,341,361 -- 41,341,361
----------- ---------- --------- ----------- ---------- -----------
Operating expenses:
Services, rent, and
maintenance............ 15,600,359 323,773 -- 15,924,132 -- 15,924,132
Selling and marketing... 4,764,265 208,676 -- 4,972,941 -- 4,972,941
General and
administrative......... 7,331,578 1,230,554 (378,000)(b) 8,184,132 -- 8,184,132
Engineering............. 1,161,827 -- -- 1,161,827 -- 1,161,827
Depreciation and
amortization........... 5,130,377 193,376 469,143 (c) 5,792,896 -- 5,792,896
Fixed asset impairment.. 833,996 -- -- 833,996 -- 833,996
----------- ---------- --------- ----------- ---------- -----------
Total operating
expenses............... 34,822,402 1,956,379 91,143 36,869,924 -- 36,869,924
----------- ---------- --------- ----------- ---------- -----------
Operating income (loss) 3,324,082 1,238,498 (91,143) 4,471,437 -- 4,471,437
----------- ---------- --------- ----------- ---------- -----------
Other income (expenses):
Other income............ 702,850 269,647 -- 972,497 -- 972,497
Interest expense........ (3,831,924) (69,701) (885,960)(d) (4,787,585) 4,295,580 (e) (492,005)
Accretion of stock
warrants............... (449,795) -- -- (449,795) 449,795 (f) --
Minority interest....... (7,740) -- -- (7,740) -- (7,740)
----------- ---------- --------- ----------- ---------- -----------
Total other income
(expense).............. (3,586,609) 199,946 (885,960) (4,272,623) 4,745,375 472,752
----------- ---------- --------- ----------- ---------- -----------
Income before income tax
provision.............. (262,527) 1,438,444 (977,103) 198,814 4,745,375 4,944,189
Income tax provision.... (629,989) -- -- (629,989) (1,248,803)(g) (1,878,792)
----------- ---------- --------- ----------- ---------- -----------
Net income (loss)....... (892,516) 1,438,444 (977,103) (431,175) 3,496,572 3,065,397
Preferred stock
dividends.............. 630,917 -- -- 630,917 (630,917)(h) --
----------- ---------- --------- ----------- ---------- -----------
Net income (loss)
attributable to common
shareholders........... $(1,523,433) $1,438,444 $(977,103) $(1,062,092) $4,127,489 $ 3,065,397
=========== ========== ========= =========== ========== ===========
Pro forma income (loss)
attributable to common
shareholders(i):
Class A common stock... (1,522,923) 3,065,397
Class B common stock... (510) --
Basic earnings per
share:
Class A common stock... (0.27) 0.27
Class B common stock... (23.18) --
Diluted earnings per share:
Class A common stock... (0.27) 0.24
Class B common stock... (23.18) --
Weighted average number
of common shares
outstanding--basic(j):
Class A common stock... 5,545,168 11,444,047
Class B common stock... 22 --
Weighted average number
of common shares
outstanding--
diluted(k):
Class A common stock... 5,545,168 12,579,141
Class B common stock... 22 --
</TABLE>
F-52
<PAGE>
- --------
Acquisition Adjustments:
(a) Historical amounts related to the Hyde's Acquisition in the pro forma
statement of operations for the year ended July 31, 1998 have been derived
from Hyde's unaudited financial statements for the nine months ended April
30, 1998 (the acquisition date), which are not included in the prospectus.
Financial information for the period May 1, 1998 through July 31, 1998 for
Hyde's is included in the historical amounts for Satellink.
(b) Reflects a reduction in salary expense to the owner of Hyde's who did not
continue employment with the Company. The reduction in salary expense is
net of the cost expected to be incurred by the Company to perform the
duties previously performed by the owner of Hyde's.
(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 acquisition for Hyde's Stay In Touch Inc. Amounts allocated to
customer base, FCC licenses, covenant not to compete, goodwill and
equipment in connection with the acquisition will be amortized over five,
ten, two, thirty and ten years, respectively. The purchase price allocation
arising from the acquisition of Hyde's by the Company is as follows:
<TABLE>
<S> <C>
Purchase price.................................................. $12,228,500
Less: Net tangible assets acquired.............................. (768,500)
Plus: Fair value adjustments to net tangible assets required.... 319,000
Less: Identifiable intangible assets:
Customer base.................................................. (2,009,000)
Non-Compete.................................................... (50,000)
-----------
9,720,000
Plus: Transaction costs of purchase acquisition................. 600,000
-----------
Excess purchase price over the fair value of Hyde's net assets
acquired (i.e. goodwill)....................................... $10,320,000
===========
</TABLE>
(d) 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.
F-53
<PAGE>
Offering Adjustments:
(e) Reflects reduction of actual interest expense incurred related to the pay
off of outstanding long-term debt from the proceeds of the offering.
(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 of operations
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 since recognition of the Company's deferred tax
asset is a material nonrecurring credit which results directly from the
Offering and the Hyde's Acquisition. Upon completion of the offering, and
application of the proceeds to repay certain debt, management believes that
it is more likely than not that the deferred tax asset will be realized.
Consequently, management anticipates recognizing its deferred tax asset in
its historical results of operation within the next 12 months.
(h) Reflects 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, a decrease of
$88,084 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, and the decrease of $192,833 related to the
redemption of Series D redeemable preferred stock with the proceeds from
the 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) 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........................ 5,545,168 22
Conversion of Class B common stock.............. 1,859 (22)
Conversion of Series A preferred stock.......... 621,920 0
Conversion of Series C preferred stock.......... 954,004 0
Exercise of stock warrants...................... 321,096 0
Issuance of common stock in the initial public
offering....................................... 4,000,000 0
---------- ---
Pro forma weighted average shares outstanding... 11,444,047 0
========== ===
(k) 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:
<CAPTION>
Class A
----------
<S> <C> <C>
Pro forma weighted average common shares
outstanding.................................... 11,444,047
Effect of dilutive stock options and warrants... 1,135,094
----------
Pro forma weighted average shares outstanding... 12,579,141
==========
</TABLE>
F-54
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
We have not authorized any dealer, salesperson or other person to give any in-
formation or to represent anything not contained in this prospectus. You must
not rely on any unauthorized information or representations. This prospectus
does not offer to sell or buy any shares in any jurisdiction where it is unlaw-
ful to do so. The information contained in this prospectus is current only as
of its date.
Dealer Prospectus Delivery Obligation
Until , 1999 (25 days after the date of this prospectus), all dealers
that effect transactions in the common stock, whether or not participating in
the offering, may be required to deliver a prospectus. This is in addition to
the dealers' obligation 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............................................................. 7
Special Note Regarding Forward-Looking Statements........................ 15
Use of Proceeds.......................................................... 16
Dividend Policy.......................................................... 17
Capitalization........................................................... 18
Dilution................................................................. 19
Selected Financial and Operating Data.................................... 20
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 23
Business................................................................. 34
Management............................................................... 49
Certain Transactions..................................................... 54
Principal and Selling Shareholders....................................... 56
Description of Capital Stock............................................. 58
Shares Eligible for Future Sale.......................................... 61
Underwriting............................................................. 65
Legal Matters............................................................ 66
Experts.................................................................. 66
Additional Information................................................... 67
Index to Consolidated Financial Statements............................... F-1
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
5,000,000 Shares
[LOGO OF SATELLINK COMMUNICATIONS, INC. APPEARS HERE]
Common Stock
---------------
PROSPECTUS
---------------
J.C.Bradford&Co.
Morgan Keegan & Company, Inc.
, 1999
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<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............................................... $ 17,584
NASD filing fee.................................................... 6,825
Accounting fees and expenses....................................... 345,000
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...................................................... 218
--------
Total............................................................ $900,000
========
</TABLE>
Item 14. Indemnification of Directors and Officers
The Bylaws of the Company 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
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 together with warrants to purchase an aggregate of
163,800 shares of common 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 thereunder. The shares of Series D redeemable preferred
stock and related warrants 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 December 8, 1998, the Company issued and sold 2,533,893 shares of common
stock to the shareholders of the Cape Fear Paging Companies in exchange for all
of the issued and outstanding capital stock of the Cape Fear Paging Companies
in a transaction exempt from the Securities Act pursuant to Rule 506 of
Regulation D thereunder.
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.
These options have a term of five years and vested immediately. During fiscal
1998, the Company granted options to employees to purchase 153,422 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.
II-2
<PAGE>
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, dated November 28, 1990
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.
* 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.
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
Exhibit
No. Description of Exhibit
------- ----------------------
<C> <S>
*10.8 Option to Purchase Common Stock of Satellink Communications, Inc.
executed in favor of Donald W. Rochow of The Breckenridge Group, Inc.
(Satellink 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 Merger Agreement, dated as of November 6, 1998, by and among Cape
Fear Paging Company of North Carolina, Cape Fear Paging Company, CF
Paging Corporation, the shareholders of Cape Fear Paging Company of
North Carolina, Cape Fear Paging Company and CF Paging Corporation,
and Satellink Communications, Inc. and Satellink Paging, LLC.
**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 Non-exclusive Reseller Agreement, dated January 18, 1994, between
Satellink Paging, Inc. and Alabama Network USA, Inc.
*10.15 Pager Supply Agreement, dated May 5, 1997, between FM Concepts,
L.L.C. and Info Telecom S.A.
**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).
**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 among 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.
10.23 Second Amendment, dated October 13, 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.
*21 Subsidiaries of the Company.
*23.1 Consent of Alston & Bird LLP (included in Exhibit 5).
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
Exhibit
No. Description of Exhibit
------- ----------------------
<C> <S>
23.2 Consent of Arthur Andersen LLP.
23.3 Consent of James N. Rachel.
*24 Power of Attorney (included in the signature page hereto).
27 Financial Data Schedule.
</TABLE>
- --------
* Previously filed.
** Confidential treatment has been requested for certain confidential portions
of this exhibit pursuant to Rule 406(b)(2) under the Securities Act. In
accordance with Rule 406(b)(2), these confidential portions have been
omitted from this exhibit and filed separately with the Commission.
(b) The following Financial Statement Schedule of Satellink Communications,
Inc. is included in this Registration Statement:
Schedule II: Valuation and Qualifying Accounts for the Years Ended July 31,
1996, 1997 and 1998.
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-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Roswell, State of
Georgia, on the 10th day of March, 1999.
SATELLINK COMMUNICATIONS, INC.
/s/ Jerry W. Mayfield
By: _________________________________
Jerry W. Mayfield
Chairman of the Board, President
and
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities indicated on March 10, 1999.
<TABLE>
<CAPTION>
Signature Title
--------- -----
<S> <C>
/s/ Jerry W. Mayfield Chairman of the Board, President and Chief
______________________________________ Executive Officer (Principal Executive Officer)
Jerry W. Mayfield
/s/ Daniel D. Lensgraf Senior Vice President -- Finance & Administration
______________________________________ and Chief Financial Officer (Principal Financial
Daniel D. Lensgraf and Accounting Officer)
* Director
______________________________________
James O. Carpenter
* Director
______________________________________
Marc A. Comeaux
* Director
______________________________________
Robert D. Gage, IV
* Director
______________________________________
Gordon E. Kaiser
* Director
______________________________________
Stiles A. Kellett, Jr.
* Director
______________________________________
David C. Massey
* Director
______________________________________
Robert P. Poche
* Director
______________________________________
</TABLE> V. Weyher Dawson
/s/ Daniel D. Lensgraf
*By: _______________________
Daniel D. Lensgraf
Attorney-in-fact
II-6
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS AS TO SCHEDULE
To Satellink Communications, Inc.:
We have audited in accordance with generally accepted auditing standards, the
financial statements of Satellink Communications, Inc. (a Georgia corporation)
and subsidiaries as of July 31, 1997 and 1998 and for each of the three years
in the period ended July 31, 1998, and have issued our report thereon dated
December 18, 1998. Our audits were made for the purpose of forming an opinion
on those statements taken as a whole. The schedule listed under Schedule II
herein as it relates to Satellink Communications, Inc. and subsidiaries is the
responsibility of the Company's management and is presented for purposes of
complying with the Securities and Exchange Commission's rules and is not part
of the basic financial statements. This schedule has been subjected to the
auditing procedures applied in the audits of the basic financial statements
and, in our opinion, fairly states in all material respects the financial data
required to be set forth therein in relation to the basic financial statements
taken as a whole.
/s/ Arthur Andersen llp
Atlanta, Georgia
December 18, 1998
S-1
<PAGE>
SATELLINK COMMUNICATIONS, INC. AND SUBSIDIARIES
SCHEDULE II: VALUATION AND QUALIFYING ACCOUNTS YEARS ENDED JULY 31, 1996,
1997, 1998.
<TABLE>
<CAPTION>
Charged to
Beginning Costs Ending
Description and Balance Expense Writeoffs Balance
----------- --------------- ------- --------- -------
<S> <C> <C> <C> <C>
1996 Allowance for doubtful
accounts.......................... 60,761 253,285 (115,136) 198,910
1997 Allowance for doubtful
accounts.......................... 198,910 968,945 (722,828) 445,027
1998 Allowance for doubtful
accounts.......................... 445,027 855,022 (677,841) 622,208
</TABLE>
S-2
<PAGE>
EXHIBIT 3.2
BYLAWS
OF
SATELLINK PAGING INC.
ARTICLE I
OFFICES
The corporation shall at all times maintain a registered office in the
State of Georgia and a registered agent at that address but may have other
offices located within or outside the State of Georgia as the Board of Directors
may determine.
ARTICLE II
SHAREHOLDERS' MEETINGS
2.1 Annual Meeting. A meeting of shareholders of the corporation shall be
held annually, within four (4) months of the end of each fiscal year of the
corporation. The annual meeting shall be held at such time and place and on such
date as the Directors shall determine from time to time and as shall be
specified in the notice of the meeting.
2.2 Special Meetings. Special meetings of the shareholders may be called
at any time by the President or any holder or holders of as much as twenty-five
percent of the outstanding capital stock of the corporation. Special meetings
shall be held at such a time and place and on such date as shall be specified in
the notice of the meeting.
<PAGE>
2.3 Place. Annual or special meetings of shareholders may be held within
or without the State of Georgia.
2.4 Notice. Notice of annual or special shareholders meetings stating
place, day and hour of the meeting shall be given in writing not less than ten
nor more than fifty days before the date of the meeting, either mailed to the
last known address or personally given to each shareholder. Notice of a meeting
may be waived by an instrument in writing executed before or after the meeting.
The waiver need not specify the purpose of the meeting or the business
transacted, unless one of the purposes of the meeting concerns a plan of merger
or consolidation, in which event the waiver shall comply with the further
requirements of law concerning such waivers. Attendance at such meeting in
person or by proxy shall constitute a waiver of notice thereof. Notice of any
special meeting of shareholders shall state the purpose or purposes for which
the meeting is called. The notice of any meeting at which amendments to or
restatements of the articles of incorporation, merger or consolidation of the
corporation, or the disposition of corporate assets requiring shareholder
approval are to be considered shall state such purpose, and further comply with
all requirements of law.
2.5 Quorum. At all meetings of shareholders a majority of the outstanding
shares of stock shall constitute a quorum for the transaction of business, and
no resolution or business shall be
-2-
<PAGE>
transacted without the favorable vote of the holders of a majority of the shares
represented at the meeting and entitled to vote. A lesser number may adjourn
from day to day, and shall announce the time and place to which the meeting is
adjourned.
2.6 Action in Lieu of Meeting. Any action to be taken at a meeting of the
shareholders of the corporation, or any action that may be taken at a meeting of
the shareholders, may be taken without a meeting if a consent in writing setting
forth the action so taken shall be signed by the holders of all of the shares
entitled to vote with respect to the subject matter thereof, or by the holders
of such lesser number of shares as may be required in accordance with any lawful
provision of the Articles of Incorporation, and any further requirements of law
pertaining to such consents have been complied with.
ARTICLE III
DIRECTORS
3.1 Management. Subject to these bylaws, or any lawful agreement between
the shareholders, the full and entire management of the affairs and business of
the corporation shall be vested in the Board of Directors, which shall have and
may exercise all of the powers that may be exercised or performed by the
corporation.
3.2 Number of Directors. The shareholders shall fix by resolution the
precise number of members of the Board of Directors, provided that the Board of
Directors shall consist of
-3-
<PAGE>
not fewer than three (3) nor more than seven (7) members unless there are fewer
than three (3) shareholders, in which case there may be two (2) directors or, if
at any time at least 51% of the stock of the corporation shall be held by one
(1) person, the Shareholders may determine to have only one (1) member of the
Board of Directors. Directors shall be elected at each annual meeting of the
shareholders and shall serve for a term of one year and until their successors
are elected. A majority of said Directors shall constitute a quorum for the
transaction of business. All resolutions adopted and all business transacted by
the Board of Directors shall require the affirmative vote of a majority of the
Directors present at the meeting.
3.3 Vacancies. The Directors may fill the place of any Director which may
become vacant prior to the expiration of his term, such appointment by the
Directors to continue until the expiration of the term of the Director whose
place has become vacant, or may fill any directorship created by reason of an
increase in the number of directors, such appointment by the Directors to
continue for a term of office until the next election of directors by the
Shareholders and until the election and qualification of the successor.
3.4 Meetings. The Directors shall meet annually, without notice, following
the annual meeting of the shareholders. Special meetings of the Directors may be
called at any time by the President or by any two Directors, on two days'
written
-4-
<PAGE>
notice to each Director, which notice shall specify the time and place of the
meeting. Notice of any such meeting may be waived by an instrument in writing
executed before or after the meeting. Directors may attend and participate in
meetings either in person or by means of conference telephones or similar
communications equipment by means of which all persons participating in the
meeting can hear each other, and participation in a meeting by means of such
communication equipment shall constitute presence in person at any meeting.
Attendance in person at such meeting shall constitute a waiver of notice
thereof.
3.5 Action in Lieu of Meeting. Any action to be taken at a meeting of the
Directors, or any action that may be taken at a meeting of the Directors, may be
taken without a meeting if a consent in writing, setting forth the action so
taken, shall be signed by all of the Directors and any further requirements of
law pertaining to such consents have been complied with.
3.6 Removal. Any Director may be removed from office, with or without
cause, upon the majority vote of the shareholders, at a meeting with respect to
which notice of such purpose is given.
3.7 Interested Directors and Officers. An interested director or officer
is one who is a party, to a contract or transaction with the corporation or who
is an officer or director of, or has a financial interest in, another
corporation, partnership or association which is a party to a contract or
transaction with the corporation. Contracts and transactions
-5-
<PAGE>
between the corporation and one or more interested directors or officers shall
not be void or voidable solely because of the involvement or vote of such
interested persons as long as (i) the contract or transaction is approved in
good faith by the board of directors or appropriate committee by the affirmative
votes of a majority of disinterested directors, even if the disinterested
directors be less than a quorum, at a meeting of the board or committee at which
the material facts as to the interested person or persons and the contract or
transaction are disclosed or known to the board or committee prior to the vote;
or (ii) the contract or transaction is approved in good faith by the
shareholders after the material facts as to the interested person or persons and
the contract or transaction have been disclosed to them; or (iii) the contract
or transaction is fair as to the corporation as of the time it is authorized,
approved or ratified by the board, committee, or shareholders. Interested
directors may be counted in determining the presence of a quorum at a meeting of
the board or committee which authorizes the contract or transaction.
3.8 Committees of the Board. The Directors may, by resolution passed by a
majority of the entire Board of Directors, designate one or more committees,
each committee to consist of two or more Directors, which, to the extent
provided in the resolution, shall have and may exercise the powers of the Board
in managing the corporate business and affairs, and may have
-6-
<PAGE>
power to authorize the seal of the corporation to be fixed to all papers which
may require it. The committee or committees shall have such name or names as may
be determined from time to time by resolution adopted by the Board of Directors.
The committees shall keep regular minutes of their proceedings and report same
to the Board of Directors when required.
ARTICLE IV
OFFICERS
4.1 General Provisions. The officers of the corporation shall consist of a
President, a Secretary and a Treasurer who shall be elected by the Board of
Directors, and such other officers as may be elected by the Board of Directors
or appointed as provided in these bylaws. Each officer shall be elected or
appointed for a term of office running until the meeting of the Board of
Directors following the next annual meeting of the shareholders of the
corporation, or such other term as provided by resolution of the Board of
Directors or the appointment to office. Each officer shall serve for the term of
office for which he is elected or appointed and until his successor has been
elected or appointed and has qualified or his earlier resignation, removal from
office or death. Any two or more offices may be held by the same person, except
the offices of President and Secretary.
-7-
<PAGE>
4.2 President. The President shall be the chief executive officer of the
corporation and shall have general and active management of the operation of the
corporation. He shall be responsible for the administration of the corporation,
including general supervision of the policies of the corporation and general and
active management of the financial affairs of the corporation, and shall execute
bonds, mortgages or other contracts in the name and on behalf of the
corporation.
4.3 Secretary. The Secretary shall keep minutes of all meetings of the
shareholders and Directors and have charge of the minute books, stock books and
seal of the corporation and shall perform such other duties and have such other
powers as may from time to time be delegated to him by the President or the
Board of Directors.
4.4 Treasurer. The Treasurer shall be charged with the management of the
financial affairs of the corporation, shall have the power to recommend action
concerning the corporation's affairs to the President, and shall perform such
other duties and have such other powers as may from time to time be delegated to
him by the President or Board of Directors.
4.5 Assistant Secretaries and Treasurers. Assistants to the Secretary and
Treasurer may be appointed by the President or elected by the Board of Directors
and shall perform such duties and have such powers as shall be delegated to them
by the President or the Board of Directors.
-8-
<PAGE>
4.6 Vice Presidents. The corporation may have one or more Vice Presidents,
elected by the Board of Directors, who shall perform such duties and have such
powers as may be delegated by the President or the Board of Directors.
ARTICLE V
CAPITAL STOCK
5.1 Share Certificates. Share certificates shall be numbered in the order
in which they are issued. They shall be signed by the President and Secretary
and the seal of the corporation shall be affixed thereto. Share certificates
shall be kept in a book and shall be issued in consecutive order therefrom. The
name of the person owning the shares, the number of shares, and the date of
issue shall be entered on the stub of each certificate. Share certificates
exchanged or returned shall be cancelled by the Secretary and placed in their
original place in the stock book.
5.2 Transfer of Shares. Transfers of shares shall be made on the stock
books of the corporation by the holder in person or by power of attorney, on
surrender of the old certificate for such shares, duly assigned.
5.3 Voting. The holders of the capital stock shall be entitled to one vote
for each share of stock standing in their name.
-9-
<PAGE>
ARTICLE VI
SEAL
The seal of the corporation shall be in such form as the Board of
Directors may from time to time determine. In the event it is inconvenient to
use such a seal at any time, the signature of the corporation followed by the
word "Seal" enclosed in parentheses or scroll shall be deemed the seal of the
corporation. The seal shall be in the custody of the Secretary and affixed by
him or by his assistants on the certificates of stock and other appropriate
papers.
ARTICLE VII
AMENDMENT
These bylaws may be amended by majority vote of the Board of Directors of
the corporation or by majority vote of the shareholders, provided that the
shareholders may provide by resolution that any bylaw provision repealed,
amended, adopted or altered by them may not be repealed, amended, adopted or
altered by the Board of Directors.
ARTICLE VIII
INDEMNIFICATION
The corporation shall indemnify and save harmless the Directors, officers,
employees or agents of the corporation for personal losses or damages incurred
for acts or omissions done or not done on behalf of the corporation in
accordance with the
-10-
<PAGE>
Indemnification Policy (the Policy) attached hereto as Exhibit A and
incorporated herein by this reference. It is the intention of the corporation
that indemnification under the Policy shall extend to the maximum
indemnification possible under the laws of the State of Georgia.
-11-
<PAGE>
EXHIBIT A
INDEMNIFICATION POLICY
OF
SATELLINK PAGING INC.
1. Under the circumstances prescribed in Paragraphs 3 and 4 below, the
corporation 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 an action by or in the right of the corporation) by
reason of the fact that he is or was a Director, officer, employee or agent of
the corporation, or is or was serving at the request of the corporation as a
Director, officer, employee or agent of another corporation, 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 in connection with such action, suit or proceeding, if he acted
in a manner he reasonably believed to be in or not opposed to the best interests
of the corporation, and, with respect to any criminal action or proceeding, had
no reasonable cause to believe his conduct was unlawful. The termination of any
action, suit or proceeding by judgment, order, settlement, conviction, or upon a
plea of nolo contendere or its equivalent, shall not, of itself, create a
presumption that the person did not act in a manner which he
<PAGE>
reasonably believed to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal action or proceeding, had
reasonable cause to believe that his conduct was unlawful.
2. Under the circumstances prescribed in Paragraphs 3 and 4 below, the
corporation shall indemnify and hold harmless any person who was or is a party
or who is threatened to be made a party to any threatened, pending or completed
action or suit by, or in the right of the corporation to procure a judgment in
its favor by reason of the fact he is or was a Director, officer, employee or
agent of the corporation, or is or was serving at the request of the corporation
as a Director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise against expenses (including attorneys'
fees) actually and reasonably incurred by him in connection with the defense or
settlement of such action or suit if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
corporation; except that no indemnification shall be made in respect of any
claim, issue or matter as to which such person shall have been adjudged to be
liable to the corporation, 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 liability but in view of all the circumstances of the case,
such person is fairly and reasonably entitled to indemnity for such expenses
which the court shall deem proper.
-2-
<PAGE>
3. To the extent that a Director, officer, employee or agent of a
corporation has been successful on the merits or otherwise in defense of any
action, suit or proceeding referred to in Paragraphs 1 and 2, or in defense of
any claim, issue or matter therein, he shall be indemnified against expenses
(including attorneys' fees) actually and reasonably incurred by him in
connection therewith.
4. Except as provided in Paragraph 3 and except as may be ordered by a
court, any indemnification under Paragraphs 1 and 2 shall be made by the
corporation 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 has met the applicable standard of conduct set forth
in Paragraphs 1 and 2. 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 the firm of independent legal counsel then employed by the
corporation, in a written opinion; or (3) by the affirmative vote of a majority
of the shares entitled to vote thereon.
5. Expenses incurred in defending a civil or criminal action, suit or
proceeding may be paid by the corporation in advance of the final disposition of
such action, suit or
-3-
<PAGE>
proceeding upon receipt of an undertaking by or on behalf of the Director,
officer, employee or agent to repay such amount if it shall ultimately be
determined that he is not entitled to be indemnified by the corporation as
authorized in this Indemnification Policy.
6. The indemnification and advancement of expenses provided by or granted
pursuant to this Indemnification Policy shall not be deemed exclusive of any
other rights, in respect of indemnification or otherwise, to which those seeking
indemnification or advancement of expenses may be entitled under any by-law,
resolution, or agreement, either specifically or in general terms approved by
the affirmative vote of the holders of a majority of the shares entitled to vote
thereon, taken at a meeting, the notice of which specified that such by-law,
resolution, or agreement, would be placed before the shareholders, both as to
action by a Director, officer, employee, or agent in his official capacity and
as to action in another capacity while holding such office or position. No such
other rights, in respect to indemnification or otherwise, may be provided or
granted to a Director, officer, employee, or agent pursuant to this policy: (i)
for any appropriation, in violation of his duties, of any business opportunity
of the corporation; (ii) for acts or omissions not in good faith or which
involve intentional misconduct or a knowing violation of the law; (iii) for the
types of liabilities set forth in Georgia Business
-4-
<PAGE>
Corporation Code, Section 14-2-154; or (iv) for any transaction from which the
director derives an improper personal benefit.
7. The corporation may purchase and maintain insurance on behalf of any
person who is or was a Director, officer, employee or agent of the corporation,
or who is or was serving at the request of the corporation as a Director,
officer, employee or agent of another corporation, partnership, joint venture,
trust or other enterprise, against any liability asserted against him and
incurred by him in any such capacity, or arising out of his status as such,
whether or not the corporation would have the power to indemnify him against
such liability under the provisions of this Indemnification Policy.
8. If any expenses or other amounts are paid by way of indemnification,
otherwise than by court order or action by the shareholders or by an insurance
carrier pursuant to insurance maintained by the corporation, the corporation
shall, not later than the next annual meeting of shareholders unless such
meeting is held within three months from the date of such payment, and, in any
event, within 15 months from the date of such payment, sent by first class mail
to its shareholders of record at the time entitled to vote for the election of
Directors a statement specifying the persons paid, the amounts paid, and the
nature and status at the time of such payment of the litigation or threatened
litigation.
-5-
<PAGE>
The indemnification and advancement of expenses provided by or granted
pursuant to this Indemnification Policy shall, unless otherwise provided when
authorized or ratified, continue as to a person who has ceased to be a Director,
officer, employee, or agent and shall inure to the benefit of the heirs,
executors, and administrators of such a person.
-6-
<PAGE>
EXHIBIT 4.3
----------------------------------------------------------
SERIES A PREFERRED STOCK PURCHASE AGREEMENT
BY AND AMONG
SATELLINK PAGING INC.
AND
THE SEVERAL PURCHASERS NAMED ON THE SIGNATURE PAGES HEREOF
Dated as of November 28, 1990
----------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
Page
----
SECTION 1. THE SERIES A SHARES....................................... 1
1.1 Issuance, Sale, and Delivery of the Series A Shares....... 1
1.2 Closing................................................... 1
SECTION 2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY............. 2
2.1 Organization, Standing, and Qualification................. 2
2.2 Subsidiaries and other Equity Interests................... 2
2.3 Authorization of Agreements, Etc.......................... 2
2.4 Compliance with other Instruments......................... 3
2.5 Authorized Capital Stock.................................. 3
2.6 Litigation; Compliance with Law........................... 4
2.7 Title to Properties....................................... 4
2.8 Leasehold Interests....................................... 4
2.9 Loans and Advances........................................ 5
2.10 Governmental Approvals.................................... 5
2.11 Financial Statements...................................... 5
2.12 Disclosure................................................ 5
SECTION 3. REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS.......... 6
3.1 Investment Representations and Warranties................. 6
3.2 Legends................................................... 7
SECTION 4. CONDITIONS TO THE OBLIGATIONS OF THE PURCHASERS........... 8
4.1 Representations and Warranties to be True and Correct..... 8
4.2 Performance............................................... 8
4.3 Consents and Waivers...................................... 8
4.4 Supporting Documents...................................... 9
4.5 Compliance Certificate.................................... 9
4.6 All Proceedings to be Satisfactory........................ 9
SECTION 5. CONDITIONS TO THE OBLIGATIONS OF THE COMPANY.............. 9
5.1 Representations and Warranties to be True and
Correct................................................... 9
5.2 All Proceedings to be Satisfactory........................ 9
SECTION 6. RESERVATION OF CONVERSION SHARES.......................... 10
-i-
<PAGE>
SECTION 7. MISCELLANEOUS............................................. 10
7.1 Expenses.................................................. 10
7.2 Survival of Agreements.................................... 10
7.3 Finder's Fees............................................. 10
7.4 Parties in Interest....................................... 11
7.5 Notices................................................... 11
7.6 Governing Law............................................. 12
7.7 Entire Agreement.......................................... 12
7.8 Counterparts.............................................. 12
7.9 Amendments and Waivers.................................... 12
7.10 Severability ............................................. 12
7.11 Titles and Subtitles...................................... 12
TABLE OF SCHEDULES
------------------
SCHEDULE I Schedule of Purchasers
SCHEDULE II Investor Certification
TABLE OF EXHIBITS
-----------------
EXHIBIT A Articles of Amendment
TABLE OF DEFINED TERMS
----------------------
TERM DEFINED IN SECTION
- ---- ------------------
Agreement Preamble
Class A Common Stock Recitals
Class B Common Stock 2.5
closing 1.2
Closing Date 1.2
Common Stock 2.5
Company Preamble
Conversion Shares 2.3
Disclosure Letter 2-first paragraph
Financial Statements 2.14
Preferred Stock 2.5
Purchased Securities 3.1
Purchasers Preamble
Securities Act 3.11
Series A Shares Recitals
-ii-
<PAGE>
SERIES A PREFERRED STOCK PURCHASE AGREEMENT
--------------------------------------------
THIS AGREEMENT (the "Agreement") is entered into as of November 28, 1990 by
and among SATELLINK PAGING INC., a Georgia corporation (the "Company") and the
several purchasers named on the signature pages hereof (individually a
"Purchaser" and collectively the "Purchasers").
W I T N E S E T H
-----------------
WHEREAS, the Company wishes to issue and sell to the Purchasers up to an
aggregate of 7,500 shares of its preferred stock, $.01 par value, designated as
"Series A Convertible Preferred Stock" (the "Series A Shares") which are
convertible into shares of Class A common stock, $.01 par value (the "Class A
Common Stock") of the Company; and
WHEREAS, the Purchasers, severally and not jointly, wish to purchase the
Series A Shares on the terms and subject to the conditions set forth in this
Agreement;
NOW, THEREFORE, in consideration of the premises and the mutual covenants
contained in this Agreement, the parties hereby agree as follows:
SECTION 1.
THE SERIES A SHARES
1.1 Issuance, Sale, and Delivery of the Series A Shares. The Company has
----------------------------------------------------
authorized the sale and issuance of the Series A Shares to the Purchasers in
accordance with the terms of this Agreement. The Company agrees to issue and
sell to each Purchaser, and each Purchaser hereby agrees to purchase from the
Company, the number of Series A Shares set forth opposite the name of such
Purchaser under the heading "Number of Series A Shares Purchased" on Schedule I,
----------
at a price of $100.00 per Series A Share.
1.2 Closing. The closing of the purchase and sale of the Series A Shares
--------
shall take place at the offices of Powell, Goldstein, Frazer & Murphy, Suite
1050, 400 Perimeter Center Terrace, Atlanta, Georgia, 30346 at 10:00 a.m., local
time, on November 30, 1990, or at such other location, date, and time as may be
fixed by mutual agreement between the Purchasers and the Company (such closing
being the "Closing" and the date the Closing actually occurs being the "Closing
Date"). At the Closing, the Company shall issue and deliver to each Purchaser a
certificate evidencing the number of Series A Shares set forth adjacent to such
Purchaser's name on Schedule I under the caption "Number of Shares Purchased" in
----------
definitive form, registered in
<PAGE>
the name of such Purchaser, against delivery by each Purchaser of the purchase
consideration set forth adjacent to such Purchaser's name on Schedule I under
----------
the caption "Purchase Consideration," by certified or official bank check made
payable to the order of the Company.
SECTION 2.
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby represents and warrants to each Purchaser that, except
as otherwise set forth in the letter dated November 21, 1990, as such letter may
be amended, supplemented or restated prior to the date of this Agreement (such
letter, as amended, supplemented or restated hereinafter referred to as the
"Disclosure Letter"), a copy of which has been delivered by the Company to each
of the Purchasers:
2.1 organization, Standing, and Qualification. The Company is a corporation
------------------------------------------
duly organized, validly existing, and in good standing under the laws of the
State of Georgia and is duly qualified to transact business as a foreign
corporation and is in good standing in each state in which the nature of the
business transacted by it or the character of the properties owned or leased by
it requires such qualification. The Company has the requisite corporate power
and authority to own, lease, and operate its properties and assets, and to carry
on its business as presently conducted and as proposed to be conducted.
2.2 Subsidiaries and other Equity Interests. The Company does not (i) own
----------------------------------------
of record or beneficially, directly, or indirectly, (A) any shares of capital
stock or securities convertible into capital stock of any corporation, or (B)
any participating interest in any partnership, joint venture, or other non-
corporate business enterprise or (ii) control, directly or indirectly, any other
entity.
2.3 Authorization of Agreements, Etc. All corporate action on the part of
---------------------------------
the Company, its officers, directors, and stockholders necessary for the sale
and issuance of the Series A Shares, the issuance of the Class A Common Stock
issuable upon conversion of the Series A Shares (the "Conversion Shares"), and
the execution, delivery, and performance by the Company of this Agreement has
been duly and validly taken. This Agreement is the valid and binding obligation
of the Company enforceable against the Company in accordance with its terms
except as enforcement may limited by applicable bankruptcy, insolvency,
reorganization, moratorium, or other laws of general application relating to or
affecting enforcement of creditors' rights and to the exercise of
-2-
<PAGE>
judicial discretion in accordance with general equitable principles.
2.4 Compliance with other Instruments. The execution and delivery by the
----------------------------------
Company of this Agreement and the other documents and instruments contemplated
hereby, the performance by the Company of its obligations hereunder and
thereunder, the issuance, sale, and delivery of the Series A Shares and the
Conversion Shares will not result in any such violation, conflict with, result
in a breach of, or constitute (with due notice or lapse of time or both) a
default under any such provision, require any consent or waiver under any such
provision, or result in the creation or imposition of any lien, charge,
restriction, claim, or encumbrance of any nature whatsoever upon any of the
properties or assets of the Company.
2.5 Authorized Capital Stock The authorized capital stock of the Company
------------------------
will, immediately prior to the Closing, consist of (i) 50,000 shares of Class A
Common Stock, of which 27,970.54 shares will be validly issued and outstanding,
fully paid and nonassessable, (ii) 20,000 shares of Class B common stock, $.01
par value ("Class B Common Stock"), of which 2,821.32 shares will be validly
issued and outstanding, fully paid and nonassessable (the Class A Common Stock
and the Class B Common Stock hereinafter sometimes referred to as the "Common
Stock"), and (iii) 30,000 shares of preferred stock, $.01 par value ("Preferred
Stock") (including 7,500 shares of Preferred Stock designated as Series A
Shares), none of which will be issued and outstanding. The Series A Shares have
been duly and validly reserved for issuance upon the terms and conditions of the
Agreement and, when so issued, will be duly authorized, validly issued, fully
paid, and nonassessable, and will be free of any liens or encumbrances created,
or imposed, by operation of law or otherwise, upon such shares, by the Company
except for certain restrictions on transfer under state and/or federal
securities laws as set forth herein or otherwise required by such laws at the
time a transfer is proposed. The Conversion Shares have been duly and validly
reserved for issuance upon conversion of the Series A Shares and, when so
issued, will be duly authorized, validly issued, fully paid, and nonassessable,
and will be free of any liens or encumbrances created, or imposed, by operation
of law or otherwise, upon such shares, by the Company except for certain
restrictions on transfer under state and/or federal securities laws as set forth
herein or otherwise required by such laws at the time a transfer is proposed.
The designations, powers, preferences, rights, qualifications, and limitations
of the Series A Shares are as set forth in the Company's Articles of Amendment,
in substantially the form of Exhibit A hereto. There are no outstanding rights,
-------
plans, options, warrants, conversion rights, or agreements for the purchase or
acquisition from the
-3-
<PAGE>
Company of any shares of the capital stock of the Company. Neither the issuance,
sale, or delivery of the Series A Shares nor the issuance or delivery of the
Conversion Shares is subject to any preemptive right of stockholders of the
Company or to any right of first refusal or other right in favor of any person
which has not been waived.
2.6 Litigation; Compliance with Law. There is no (i) action, suit, claim,
--------------------------------
proceeding, or investigation pending or to the best of the Company's knowledge,
threatened against or affecting the Company, at law or in equity, by or before
any Federal, state, municipal, or other governmental department, commission,
board, bureau, agency, or instrumentality, domestic or foreign, (ii) arbitration
proceeding relating to the Company pending under collective bargaining
agreements or otherwise, or (iii) governmental inquiry pending or, to the best
of the Company's knowledge, threatened against or affecting the Company
(including without limitation any inquiry as to the qualification of the Company
to hold or receive any license or permit), and there is no basis known to the
Company for any of the foregoing. The Company is not subject to any order, writ,
injunction, or decree known to or served upon the Company of any court or of any
Federal, state, municipal, or other governmental department, commission, board,
bureau, agency, or instrumentality, domestic or foreign. The Company is, to the
best of its knowledge, in material compliance with all laws, rules, regulations,
and orders applicable to the Company's business. There is no existing law, rule,
regulation, or order nor is the Company aware of any proposed law, rule,
regulation, or order, whether Federal or state, which would prohibit or restrict
the Company from, or otherwise materially adversely affect the Company in,
conducting its business in any jurisdiction in which it is now conducting
business or in which it proposes to conduct business.
2.7 Title to Properties. The Company has good and marketable title to all
--------------------
the tangible properties and assets owned by it, free and clear of all mortgages,
pledges, security interests, liens, charges, claims, restrictions, and other
encumbrances, except liens for current taxes not yet due and payable and minor
imperfections of title, if any, not material in nature or amount and not
materially detracting from the value or impairing the use of the property
subject thereto or impairing the operations or proposed operations of the
Company. The Company owns or leases all tangible properties and assets necessary
to the operation of its business as now conducted.
2.8 Leasehold Interests. Each lease or agreement to which the Company is a
--------------------
party under which it is a lessee of any property, real or personal, is a valid
and subsisting agreement without any default of the Company thereunder and, to
the best of
-4-
<PAGE>
the Company's knowledge, without any default thereunder of any other party
thereto. No event has occurred and is continuing which, with due notice or lapse
of time or both, would constitute a default or event of default by the Company
under any such lease or agreement or, to the best of the Company's knowledge, by
any other party thereto. The Company's possession of such property has not been
disturbed and, to the best of the Company's knowledge, no claim has been
asserted against the Company adverse to its rights in such leasehold interests.
2.9 Loans and Advances. Except as reflected in the Financial Statements
-------------------
(as hereinafter defined), the Company does not have any outstanding loans or
advances to any person and is not obligated to make any such loans or advances,
except for advances to employees of the Company in respect of reimbursable
business expenses anticipated to be incurred by them in connection with
performance of services for the Company.
2.10 Governmental Approvals. Subject to the accuracy of the representations
-----------------------
and warranties of the Purchasers set forth in Section 3 hereof, no registration,
qualification, or filing with, or consent or approval of or other action by, any
Federal, state, or other governmental agency or instrumentality is or will be
necessary for the valid execution, delivery, and performance by the Company of
this Agreement, the offer, issuance, sale, and delivery of the Series A Shares,
the issuance and delivery of the Conversion Shares, or the consummation of any
other transaction contemplated hereby, other than filings pursuant to state
securities laws (all of which filings have been made or will be made within the
applicable time frame for such filings) in connection with the offer and sale of
the Series A Shares, and the filing of a notice under Regulation D under the
Securities Act of 1933, as amended (the "Securities Act").
2.11 Financial Statements. The Company's financial statements (consisting
---------------------
of an unaudited balance sheet and unaudited statements of operations,
stockholders' deficiency, and cash flows) for the years ended December 31, 1989
and 1988 and the nine months ended September 30, 1990 (together the "Financial
Statements") have been furnished to Purchasers. The Financial Statements are
true, correct, and complete in all material respects and have been prepared in
accordance with generally accepted accounting principles consistently applied,
are in accordance with the books and records of the Company, and present fairly
the financial position of the Company as of the dates, and for the periods
indicated, with the unaudited financial statements being subject to normal year-
end audit adjustments.
2.12 Disclosure. Neither this Agreement nor the Disclosure Letter contains
-----------
any untrue statement of a material fact or omits
-5-
<PAGE>
a material fact necessary to make the statements contained herein or therein not
misleading. None of the statements, documents, certificates, or other items
prepared or supplied by the Company with respect to the transactions
contemplated hereby contains an untrue statement of a material fact or omits a
material fact necessary to make the statements contained therein not misleading.
There is no material fact which the Company has not disclosed to the Purchasers
and of which the Company is aware which materially and adversely affects or
could materially and adversely affect the business, prospects, financial
condition, operations, property, or affairs of the Company.
SECTION 3.
REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS
3.1 Investment Regulations and Warranties. Each Purchaser acknowledges that
--------------------------------------
the Series A Shares and the Conversion Shares (the "Purchased Securities") have
not been registered under the Securities Act of 1933, as amended (the
"Securities Act"), and are being offered and sold pursuant to an exemption from
registration contained in the Securities Act based in part upon the
representations of the Purchasers contained herein. Each Purchaser represents
and warrants to the Company, severally and not jointly, and only as to himself
that:
(a) The Purchased Securities are being acquired for Purchaser's own
account, for investment and not with a view to, or for resale in connection
with, any distribution or public offering thereof within the meaning of the
Securities Act or the securities laws of any other state applicable to
Purchaser.
(b) During the negotiation of the transactions contemplated hereby,
Purchaser and its representatives have been afforded full and free access to
corporate books, records, contracts, documents, and other information concerning
the Company and to offices and facilities of the Company, have been afforded an
opportunity to ask such questions of the Company's officers, employees, agents,
accountants, and representatives concerning the Company's business, operations,
financial condition, assets, liabilities, and other relevant matters as they
have deemed necessary or desirable, and have been given all such information as
has been requested, in order to evaluate the merits and risks of the prospective
investments contemplated herein.
(c) Purchaser and Purchaser's representatives have been solely
responsible for Purchaser's own "due diligence" investigation of the Company and
the Company's management and
-6-
<PAGE>
business, for Purchaser's own analysis of the merits and risks of this
investment, and for Purchaser's own analysis of the fairness and desirability of
the terms of the investment. In taking any action or performing any role
relative to the arranging of the proposed investment, Purchaser has acted solely
in Purchaser's own interest and not as an agent of the Company. Purchaser has
such knowledge and experience in financial and business matters that Purchaser
is capable of evaluating the merits and risks of the purchase of the Purchased
Securities pursuant to the terms of this Agreement and of protecting Purchaser's
interests in connection therewith.
(d) Purchaser is able to bear the economic risk of the purchase of the
Purchased Securities pursuant to the terms of this Agreement, including a
complete loss of Purchaser's investment in the Purchased Securities.
(e) Purchaser acknowledges that (i) the Purchased Securities have not
been registered under the Securities Act by reason of their issuance in a
transaction exempt from the registration requirements of the Securities Act,
(ii) the Purchased Securities must be held indefinitely unless a subsequent
disposition thereof is registered under the Securities Act or is exempt from
such registration, (iii) the Purchased Securities will bear legends to such
effect, (iv) the Company will make a notation on its transfer books to such
effect, and (v) the Company is under no obligation to register any of the
Purchased Securities under the Securities Act or any state securities laws.
(f) Purchaser has furnished the Company with an Investor Certification
in substantially the form of Schedule II hereto and the information set forth
-----------
thereon with respect to Purchaser's organization and its principal office or its
principal residence, as the case may be, and Purchaser's status as an accredited
investor is true and correct.
(g) Purchaser has the full right, power, authority, and capacity to
enter into and perform Purchaser's obligations under this Agreement, and this
Agreement constitutes a valid and binding obligation of Purchaser enforceable in
accordance with its terms, except as limited by applicable bankruptcy,
insolvency, reorganization, moratorium, or other laws of general application
relating to or affecting enforcement of creditors' rights and rules or laws
concerning equitable remedies.
(h) Purchaser knows of no public solicitations or advertisements in
connection with the offer and sale of the Purchased Securities.
-7-
<PAGE>
3.2 Legends. Purchaser acknowledges that each certificate representing
--------
the Purchased Securities may be endorsed with the following legend and Purchaser
shall not make any transfer of the Purchased Securities without first complying
with the restrictions on transfer described in such legends:
THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR ANY APPLICABLE STATE SECURITIES LAWS, AND
MAY NOT BE SOLD, TRANSFERRED, ASSIGNED, OR HYPOTHECATED UNLESS THERE IS AN
EFFECTIVE REGISTRATION UNDER SUCH ACT OR SUCH APPLICABLE STATE SECURITIES LAWS
COVERING SUCH SECURITIES OR THE COMPANY RECEIVES AN OPINION OF COUNSEL FOR THE
HOLDER OF THESE SECURITIES, REASONABLY SATISFACTORY TO THE COMPANY, STATING THAT
SUCH SALE, TRANSFER, ASSIGNMENT OR HYPOTHECATION IS EXEMPT FROM THE REGISTRATION
REQUIREMENTS OF SUCH ACT OR SUCH APPLICABLE STATE SECURITIES LAWS.
Purchaser agrees that the Company may also endorse any other legends required by
applicable state securities laws.
The Company need not register a transfer of the Purchased Securities, and may
also instruct its transfer agent not to register the transfer of the Purchased
Securities, unless the conditions specified in the foregoing legends are
satisfied.
SECTION 4.
CONDITIONS TO THE OBLIGATIONS
OF THE PURCHASERS
The obligation of each Purchaser to purchase the Series A Shares being
purchased by it on the Closing Date is, at its option, subject to the
satisfaction or waiver on or before the Closing Date of the following
conditions:
4.1 Representations and Warranties to be True and Correct. The
------------------------------------------------------
representations and warranties contained in Section 2 hereof shall be true,
complete, and correct on and as of the Closing Date with the same effect as
though such representations and warranties had been made on and as of such date.
4.2 Performance. The Company shall have performed and complied with all
------------
covenants and agreements contained herein required to be performed or complied
with by it prior to or at the Closing Date.
4.3 Consents and Waivers. The Company shall have obtained any and all
---------------------
consents, permits, and waivers and made all filings
-8-
<PAGE>
necessary or appropriate for the consummation of the transactions contemplated
hereby.
4.4 Supporting Documents. The Purchasers shall have received copies of
---------------------
such supporting documents and other information with respect to the operations
and affairs of the Company as the Purchasers reasonably may request in writing.
4.5 Compliance Certificate. If required by the Purchasers or their counsel
-----------------------
in writing, on the Closing Date, the Company shall have delivered to Purchasers
a certificate, executed by the President of the Company, dated the Closing Date,
certifying to the fulfillment of the conditions specified in Sections 4.1, 4.2
and 4.3 hereof.
4.6 All Proceedings to be Satisfactory. All corporate and other
-----------------------------------
proceedings to be taken by the Company in connection with the transactions
contemplated hereby and all documents relating to such transactions shall be
satisfactory in form and substance to the Purchasers, and the Purchasers have
received all such counterpart originals or certified or other copies of such
documents as they reasonably may request.
SECTION 5.
CONDITIONS THE OBLIGATIONS
OF THE COMPANY
The obligation of the Company to issue and sell the Series A Shares to the
Purchasers on the Closing Date is, at its option, subject to the satisfaction or
waiver, on or before the Closing Date, of the following conditions:
5.1 Representations and Warranties to be True and Correct. All
------------------------------------------------------
representations and warranties of the Purchasers, and each of them, contained in
Section 3 hereof shall be true and correct on the Closing Date with the same
effect as though such representations and warranties had been made on and as of
such date.
5.2 All Proceedings to be Satisfactory. All corporate and other
-----------------------------------
proceedings to be taken by the Purchasers in connection with the transactions
contemplated hereby, and all documents incidental thereto, shall be satisfactory
in form and substance to the Company.
-9-
<PAGE>
SECTION 6.
RESERVATION OF CONVERSION SHARES
The Company covenants and agrees with each of the Purchasers that, unless
waived in accordance with Section 7.9 hereof, so long as any of the Series A
Shares or Conversion Shares is outstanding the Company shall at all times
reserve and keep available out of its authorized but unissued shares of Class A
Common Stock, for the purpose of effecting the conversion of the Series A Shares
and otherwise complying with the terms of this Agreement. If at any time the
number of authorized but unissued shares of Class A Common Stock shall not be
sufficient to effect the conversion of the Series A Shares or otherwise fail to
comply with the terms of this Agreement, the Company will forthwith take such
corporate action as may be necessary to increase its authorized but unissued
shares of Common Stock to such number of shares as shall be sufficient for such
purposes.
SECTION 7.
MISCELLANEOUS
7.1 Expenses. Each party hereto will pay its own expenses in connection
---------
with the transactions contemplated hereby, whether or not such transactions
shall be consummated.
7.2 Survival of Agreements. All covenants, agreements, representations,
-----------------------
and warranties made herein or in any certificate or instrument delivered to the
Purchasers pursuant to or in connection with this Agreement shall survive the
execution and delivery of this Agreement, and the Closing of the transactions
contemplated hereby.
7.3 Finder's Fees.
--------------
(a) The Company (i) represents and warrants that it has retained no
finder or broker, in connection with the transactions contemplated by this
Agreement and (ii) hereby agrees to indemnify and to hold Purchasers harmless of
and from any liability for any commission or compensation in the nature of a
finder's fee to any broker or other person or firm (and the costs and expenses
of defending against such liability or asserted liability) for which the
Company, or any of its employees or representatives, is responsible.
(b) Each Purchaser (i) represents and warrants that it has retained
no finder or broker in connection with the transactions contemplated by this
Agreement and (ii) hereby
-10-
<PAGE>
agrees to indemnify and hold the Company harmless of and from any liability for
any commission or compensation in the nature of a finder's fee to any broker or
other person or firm (and the costs and expenses of defending against such
liability or asserted liability) for which Purchaser, or any of Purchaser's
employees or representatives, is responsible.
7.4 Parties in Interest. All representations, covenants, and agreements
--------------------
contained in this Agreement shall bind and inure to the benefit of the
respective successors and assigns of the parties hereto whether so expressed or
not. Without limiting the generality of the foregoing, all representations,
covenants, and agreements benefiting the Purchasers shall inure to the benefit
of any and all subsequent holders from time to time of the Series A Shares or
Conversion Shares.
7.5 Notices. Every notice or other communication required or contemplated
--------
by this Agreement by any party shall be delivered either by (a) personal
delivery, (b) postage prepaid return receipt requested certified mail (airmail
if available), or the equivalent of certified mail under the laws of the country
where mailed, (c) facsimile transmission or (d) "tested" telex (a telex for
which the proper answer back has been received) addressed to the party for whom
intended as follows:
If to a Purchaser, at the address of such Purchaser set forth in
Schedule I hereof.
- ----------
If to the Company, at Satellink Paging Inc., 12 Perimeter Center East,
Suite 1200, Atlanta, Georgia, Attn: Marc A. Comeaux, President, Telecopier:
(404) 698-9025; with a copy (which shall not constitute notice) to: Sidney J.
Nurkin, Esq., Powell, Goldstein, Frazer & Murphy, 400 Perimeter Center Terrace,
Suite 1050, Atlanta, Georgia, 30346, Telecopier: (404) 399-2879.
or at such other address as the intended recipient previously shall have
designated by written notice to the other parties. Notice by certified mail
shall be effective on the date it is officially recorded as delivered to the
intended recipient by return receipt or equivalent. All notices and other
communications required or contemplated by this Agreement delivered in person or
sent by facsimile transmission or "tested" telex shall be deemed to have been
delivered to and received by the addressee and shall be effective on the date of
personal delivery or on the date sent, respectively. Notice not given in writing
shall be effective only if acknowledged in writing by a duly authorized
representative of the party to whom it was given.
-11-
<PAGE>
7.6 Governing Law. This Agreement shall be governed by and construed in
--------------
accordance with the laws of the State of Georgia.
7.7 Entire Agreement. This Agreement, including the Schedules and
-----------------
Exhibits hereto, and the other documents delivered pursuant hereto constitute
the full and entire agreement of the parties with respect to the subject matter
hereof and thereof. No representations or statements of any kind made be any
representative of either party which are not stated herein shall be binding. No
course of dealing or usage of trade or course of performance shall be relevant
to explain or supplement any term expressed in this Agreement.
7.8 Counterparts. This Agreement may be executed in two or more
-------------
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
7.9 Amendments and Waivers. Neither this Agreement nor any provision
-----------------------
hereof may be changed, waived, discharged, or terminated orally, but only by a
statement in writing signed by the party against which enforcement of the
change, waiver, discharge or termination is sought.
7.10 Severability. If any provision of this Agreement shall be declared
-------------
void or unenforceable by any judicial or administrative authority, to the extent
possible, it shall be construed in such manner as to be valid, legal, and
enforceable but so as to most nearly retain the intent of the parties and, if
such construction is not possible, such provision shall be severed from this
Agreement, and in either case, the validity and enforceability of any other
provision and of the entire Agreement shall not be affected thereby.
7.11 Titles and Subtitles. The title and subtitles used in this Agreement
---------------------
are for convenience only and are not to be considered in construing or
interpreting any term or provision of this Agreement.
-12-
<PAGE>
IN WITNESS WHEREOF, the Company and the Purchasers have executed this
Agreement as of the day and year first above written.
SATELLINK PAGING INC.
(Corporate Seal] By:
--------------------------------------
Marc A. Comeaux, President
Attest:
- -------------------------------
Secretary
PURCHASERS:
------------------------------------------
Marc A. Comeaux
------------------------------------------
Jerry W. Mayfield
------------------------------------------
James O. Carpenter
------------------------------------------
E. Paul Breaux, Jr.
------------------------------------------
Robert D. Gage, III
------------------------------------------
Robert D. Gage, IV
------------------------------------------
Ira Carpenter, Jr.
------------------------------------------
Charles R. Carpenter
------------------------------------------
Robert Poche
------------------------------------------
Humerto Izquierdo
/s/ David C Massey
------------------------------------------
David C. Massey
-13-
<PAGE>
SCHEDULE I
TO
SERIES A PREFERRED STOCK PURCHASE AGREEMENT
dated as of November 11, 1990
Schedule of Purchasers
----------------------
Purchaser Name Number of Shares Purchase
and Address Purchased Consideration
- -------------- ---------------- -------------
Marc A. Comeaux $
Satellink Paging Inc. ---------------- -------------
12 Perimeter Center East
Suite 1200
Atlanta, GA 30346
Jerry W. Mayfield $
Satellink Paging Inc. ---------------- -------------
12 Perimeter Center East
Suite 1200
Atlanta, GA 30346
James O. Carpenter $
Port Gibson Bank ---------------- -------------
P. O. Box 608
702 Main Street
Port Gibson, MS 39150
E. Paul Breaux, Jr. $
337 Bacque Cresent ---------------- -------------
Lafayette, LA 70503
Robert D. Gage, III $
Port Gibson Bank ---------------- -------------
P. O. Box 608
702 Main Street
Port Gibson, MS 39150
Schedule I to Series A Preferred Stock Purchase Agreement
I-1
<PAGE>
Purchaser Name Number of Shares Purchase
and Address Purchased Consideration
- --------------- ---------------- -------------
Robert D. Gage, IV $
Port Gibson Bank ---------------- -------------
P. O. Box 608
702 Main Street
Port Gibson, MS 39150
Ira Carpenter, Jr. $
Peoples Bank of Biloxi ---------------- -------------
Lameuse & Howard Avenues
Biloxi, MS 39533
Charles R. Carpenter $
Port Gibson Bank ---------------- -------------
P. O. Box 608
702 Main Street
Port Gibson, MS 39150
Robert Poche $
Satellink Paging Inc. ---------------- -------------
12 Perimeter Center East
Suite 1200
Atlanta, GA 30346
Humberto Izquierdo $
Satellink Paging Inc. ---------------- -------------
12 Perimeter Center East
Suite 1200
Atlanta, GA 30346
David C. Massey $100,000
2506 Indian Mound Blvd ---------------- -------------
Monroe, LA 71201
Totals $
---------------- -------------
$
================ =============
Schedule I to Series A Preferred Stock Purchase Agreement
I-2
<PAGE>
SCHEDULE II
TO
SERIES A PREFERRED STOCK PURCHASE AGREEMENT
dated as of November 28, 1990
Investor Certification
----------------------
ALL INFORMATION FURNISHED IS FOR THE SOLE USE OF SATELLINK PAGING INC. (THE
"COMPANY") AND ITS COUNSEL AND WILL BE HELD IN CONFIDENCE BY THE COMPANY AND ITS
COUNSEL, EXCEPT THAT THIS QUESTIONNAIRE MAY BE FURNISHED TO SUCH PARTIES AS THE
COMPANY AND COUNSEL DEEM NECESSARY TO ESTABLISH COMPLIANCE WITH FEDERAL OR STATE
SECURITIES LAWS OR TO THE EXTENT REQUIRED BY LAW. CAPITALIZED TERMS NOT DEFINED
HEREIN HAVE THE MEANINGS ASCRIBED IN THE SERIES A PREFERRED STOCK PURCHASE
AGREEMENT AND SECOND AMENDMENT TO STOCKHOLDERS AGREEMENT DATED AS OF NOVEMBER
28, 1990.
The Series A Shares being offered by the Company are not registered under the
Securities Act of 1933, as amended (the "Act"), in reliance upon certain
exemptions from registration provided by the Act. One of the exemptions being
relied upon is provided by Regulation D of the Securities and Exchange
commission. Regulation D requires, among other things, that prior to making a
sale of any Series A Shares, the Company must have reasonable grounds to
believe, and shall believe after reasonable inquiry, that the offeree is an
"accredited investor" (as defined). The Company intends to limit the purchase of
the Series A Shares to accredited investors. In order to obtain the facts needed
to determine whether the Company may accept a purchaser's investment, it is
necessary for the purchaser (the "Purchaser") to complete this Investor
Certification. The form should be signed, dated, and forwarded to the Company.
* * * * * * * *
Schedule II to Series A Preferred Stock Purchase Agreement
II-1
<PAGE>
Answer all questions. Write "INIA" if not applicable.
-----------------------------------------------------
* * * * * * * *
A. PLEASE PROVIDE THE FOLLOWING INFORMATION.
1. (a) Name of Purchaser: David C. Massey
-----------------------------------------------------------------
(b) If Purchaser is a corporation, partnership, trust or other entity,
state the name of individual(s) making the investment decision on behalf of the
entity:
-----------------------------------------------------------------
-----------------------------------------------------------------
2. (a) Purchaser's Address:
2506 Indian Mound Blvd.
-----------------------------------------------------------------
Monroe, LA 71201
-----------------------------------------------------------------
3. Telephone/Number:
Office: (318) 329-2001 Home: 322-7482
-----------------------------------------------------------------
4. Taxpayer Identification Number of Purchaser:
SS# ###-##-####
-----------------------------------------------------------------
5. Date of organization or incorporation:
------------------------------
B. THE FOLLOWING INFORMATION IS TO BE PROVIDED SO THAT THE COMPANY CAN
DETERMINE IF THE PURCHASER IS AN ACCREDITED INVESTOR.
Please indicate, by initialing, one or more of the following categories
which are applicable to you. If no category is applicable, please initial
Item 18.
Under Regulation D, an "accredited investor" is defined as any person who
comes within any of the following categories, or who the issuer reasonably
believes comes within any of the following
Schedule II to Series A Preferred Stock Purchase Agreement
II-2
<PAGE>
categories, at the time of the sale of the securities to that person:
1. A bank as defined in Section 3 (a) (2) of the Act whether acting
----- in its individual or fiduciary capacity.
2. A savings and loan association or other institution as defined
----- in section 3 (a) (5) (A) of the Act whether acting in its
individual or fiduciary capacity.
3. A broker or dealer registered pursuant to Section 15 of the
----- Securities Exchange Act of 1934.
4. An insurance company as defined in Section 2(13) of the Act.
-----
5. An investment company registered under the Investment Company
----- Act of 1940.
6. A business development company as defined in Section 2(a)(48) of
----- the Investment Company Act of 1940 (a closed-end company,
operated for the purpose of investing in securities described in
Section 55(a)(l)-(3) of such Act and makes available
"significant managerial assistance" with respect to the issuers
of such securities and has elected to be regulated pursuant to
Sections 55-65 of such Act as a business development company].
7. A Small Business Investment Company licensed by the U.S. Small
----- Business Administration under Section 301(c) or (d) of the Small
Business Investment Act of 1958.
8. A plan established and maintained by a state, its political
----- subdivisions, or any agency or instrumentality of a state or its
political subdivisions, for the benefit of its employees, if
such plan has total assets in excess of $5,000,000.
9. An employee benefit plan within the meaning of the Employee
----- Retirement Income Security Act of 1974 ("ERISA"), (a) if the
investment decision is made by a plan fiduciary, as defined in
Section 3(21) of ERISA, which is either a bank, savings and loan
association, insurance company, or registered investment
adviser, or (b) if the employee benefit plan has total assets in
excess of $5,000,000, or
--
Schedule II to Series A Preferred Stock Purchase Agreement
II-3
<PAGE>
(c) if a self-directed plan, with investment decisions made
solely by persons that are accredited investors.
10. A private business development company as defined in Section
----- 202(a)(22) of the Investment Advisers Act of 1940 (a company
which is a business development company but which need not be
closed-end and need not elect to be subject to regulation under
Sections 55-65 of the Investment Company Act of 19401.
11. An organization described in Section 501(c)(3) of the Internal
----- Revenue Code, with total assets in excess of $5,000,000 not
formed for the specific purpose of acquiring the securities
offered.
12. A corporation, Massachusetts or similar business trust, or
----- partnership, not formed for the specific purpose of acquiring
the securities offered, with total assets in excess of
$5,000,000.
13. A director or executive officer of the Company. (An "executive
----- officer" means the president, any vice president in charge of a
principal business unit, division or function (such as sales,
administration or finance), any other officer who performs a
policy making function, or any other person who performs similar
policy making functions for the Company.)
14. A natural person whose individual net worth, or joint net worth
----- with that person's spouse, at the time of his purchase exceeds
$1,000,000.
(For purposes of calculating net worth, any assets may be
considered including the fair market value of one's principal
residence and automobiles. The principal residence, owned by an
individual should be valued either at (A) cost, including the
cost of improvements, net of current encumbrances upon the
property, or (B) the appraised value of the property as
determined upon a recent written appraisal used by an
institutional lender making a loan secured by the property,
including the cost of subsequent improvements, net of current
encumbrances upon the property.]
Schedule II to Series A Preferred Stock Purchase Agreement
II-4
<PAGE>
15. A natural person who had an individual income (not including
----- ----------
income of spouse) in excess of $200,000 in each of the two most
recent years (1988 and 1989) or joint income with that person's
spouse in excess of $300,000 in each of those years and who
reasonably expects to reach the same income level in the current
year (1990).
["Income" may include amounts normally excluded from "adjusted
gross income" such as any amounts attributable to tax exempt
income received, losses claimed as a limited partner in any
limited partnership, deductions claimed for depletion,
contributions to an IRA or Keogh retirement plan, alimony
payments, and any amount by which income from long-term capital
gains has been reduced in arriving at adjusted gross income.
However, "income" is not necessarily synonymous with "revenue";
for example, a self-employed person should deduct operating
expenses to give an accurate indication of income.]
16. A trust, with total assets in excess of $5,000,000 not formed
----- for the specific purpose of acquiring the securities offered,
whose purchase is directed by a sophisticated person is
described in Rule 506(b)(2)(ii) under the Act.
17. An entity in which all of the equity owners meet the
----- ---
requirements of Items B1, B2, B3, B4, B5, B6, B7, B8, B9, B10,
B11, B12, B13 or B14 and/or B15 immediately above. (If this item
is checked, complete the "Accredited Investor Certificate"
below.)
18. DM Check here if none of the above are applicable.
-----
Schedule II to Series A Preferred Stock Purchase Agreement
II-5
<PAGE>
C. THE FOLLOWING INFORMATION IS TO BE PROVIDED BY PURCHASERS WHO ARE
INDIVIDUALS, OR BY THE PERSON MAKING THE INVESTMENT DECISION ON BEHALF OF
CORPORATIONS, PARTNERSHIPS, TRUSTS, OR OTHER ENTITIES.
1. Are you aware of the fact that you have the opportunity to question a
representative of the Company about this investment, the Company, the
Company's properties, the Company's operations and the Company's methods
of doing business?
X
--- ---
Yes No
2. (a) Do you understand the merits and risks associated with investments in
closely-held companies?
X
--- ---
Yes No
(b) Do you understand the merits and risks associated with an investment
in the Company?
X
--- ---
Yes No
3. Do you understand that there is no guarantee of any financial return on
this investment and that you run the risk of losing your entire
investment?
X
--- ---
Yes No
4. Do you understand that this investment is illiquid?
X
--- ---
Yes No
5. Do you understand that you may purchase an interest in the Company for
investment only, and not with a view to the sale or other distribution
thereof?
X
--- ---
Yes No
Schedule II to Series A Preferred Stock Purchase Agreement
II-6
<PAGE>
SIGNATURE
The undersigned hereby represents to the Company that (a) the information
contained herein is complete and accurate and may be relied upon by the Company,
(b) the Company will be notified by the undersigned of any material adverse
change in any of the information contained herein occurring prior to the
purchase of the Series A Shares, (c) the undersigned has received or had access
to all material information enabling the undersigned to make an informed
investment decision and that all information requested has been furnished to the
undersigned.
/s/ David C. Massey David C. Massey
---------------------------------------
Name of Purchaser (please print)
By:
-------------------------------
Title:
----------------------------
Executed at
-------------------------------------------------
on this day of , 19 .
------- ----------------------- --
Schedule II to Series A Preferred Stock Purchase Agreement
II-7
<PAGE>
EXHIBIT 10.23
SECOND AMENDMENT TO
THIRD AMENDED AND RESTATED
LOAN AND SECURITY AGREEMENT
THIS SECOND AMENDMENT TO THIRD AMENDED AND RESTATED LOAN AND SECURITY
AGREEMENT (this "Amendment") is made and entered into as of the 13th day of
---------
October, 1998, by and among SATELLINK COMMUNICATIONS, INC., a Georgia
corporation, f/k/a Satellink Paging, Inc. (hereinafter referred to as "Parent"),
------
SATELLINK PAGING, LLC, a Georgia limited liability company (hereinafter referred
to as "Borrower"; Parent and Borrower are sometimes collectively hereinafter
--------
referred to as "Obligors" and individually as an "Obligor"), the financial
-------- -------
institutions party to the Third Restated Loan Agreement referred to below
(collectively, the "Lenders"), and BANK AUSTRIA CREDITANSTALT CORPORATE FINANCE,
-------
INC., a Delaware corporation, as assignee of CREDITANSTALT AG, f/k/a
Creditanstalt-Bankverein, an Austrian banking corporation, in its separate
capacity as agent for the Lenders (in such capacity, the "Agent").
-----
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, Parent, Borrower, the Lenders and the Agent are each a party to that
certain Third Amended and Restated Loan and Security Agreement dated as of June
27, 1997 as amended by the First Amendment to the Third Amended and Restated
Loan and Security Agreement dated March 11, 1998 (the "Third Restated Loan
-------------------
Agreement") pursuant to which the Lenders have (a) made available to Borrower a
- ---------
revolving line of credit for loans and advances not to exceed in the aggregate
$32,000,000 at any one time outstanding and (b) made to Borrower term loans
having, as of the date hereof, an aggregate outstanding principal amount of
$7,600,000; and
WHEREAS, the Obligors have requested that the Lenders agree to increase the
amount of the revolving line of credit from $32,000,000 to $40,000,000 and the
amount of the term loans from $8,000,000 to $15,000,000, and the Lenders have
agreed to such request, subject to the terms and conditions hereof; and
WHEREAS, the Obligors have requested that the Agent and the Lenders amend the
Third Restated Loan Agreement; and
WHEREAS, the Agent and the Lenders are willing to amend the Third Restated
Loan Agreement, subject to the terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the foregoing premises, to induce the
Lenders and the Agent to enter into this Amendment and to extend the financing
provided for herein, and for other good and valuable consideration, the receipt,
adequacy and legal sufficiency of which are acknowledged by the Obligors, the
Obligors, the Lenders and the Agent hereby agree as follows:
1. Defined Terms. All capitalized terms used herein and not otherwise
-------------
defined herein shall have the meanings ascribed to such terms in the Third
Restated Loan Agreement.
<PAGE>
2. Amendments. The Third Restated Loan Agreement is amended as follows,
----------
subject to the satisfaction of the conditions precedent set forth in Section 3
of this Amendment:
2.1. Amortization Date Definition. Section 1.1 of the Third Restated
----------------------------
Loan Agreement is hereby amended by deleting in its entirety the
definition of "Amortization Date" contained therein and by substituting
therefor a new definition of "Amortization Date" to read as follows:
"Amortization Date" shall mean, collectively, each March 31, June 30,
-----------------
September 30, and December 31, commencing on December 31, 1999 and
continuing to and including September 30, 2003.
2.2. Commitment Definition. Section 1.1 of the Third Restated Loan
---------------------
Agreement is hereby amended by deleting in its entirety the
definition of "Commitment" contained therein and by substituting
therefor a new definition of "Commitment" to read as follows:
"Commitment" shall mean the aggregate obligation of the Lenders to
----------
make Revolving Credit Loans to Borrower, subject to the terms and
conditions hereof, up to an aggregate principal amount not to exceed
at any one time outstanding for all the Lenders Forty Million Dollars
($40,000,000).
2.3. Commitment Percentage. Section 1.1 of the Third Restated Loan
----------------------
Agreement is hereby amended by deleting in its entirety the definition of
"Commitment Percentage" contained therein and by substituting therefor a new
definition of "Commitment Percentage" to read as follows:
"Commitment Percentage" shall mean, as to each Lender, that
---------------------
amount, expressed as a percentage, equal to the ratio of the amount
Set forth opposite the name of such Lender on Schedule I hereto under
the heading "Revolving Credit Commitment" to the aggregate amount of
the Commitment; provided that the Commitment Percentage of each
Lender shall be increased or decreased, as appropriate, to reflect
any assignments made by such Lender pursuant to Section 13.3(c)
hereof.
2.4. Maturity Date. Section 1.1 of the Third Restated Loan
--------------
Agreement is hereby amended by deleting in its entirety the definition of
"Maturity Date" contained therein and by substituting therefor a new definition
of "Maturity Date" to read as follows:
"Maturity Date" shall mean September 30, 2003.
-------------
2
<PAGE>
2.5. New Definition. Section 1.1 of the Third Restated Loan Agreement
--------------
is hereby amended by adding, in appropriate alphabetical order, a new
definition of "Second Amendment" to read as follows:
"Second Amendment" shall mean that certain Second Amendment to
----------------
Third Amended and Restated Loan and Security Agreement, dated as of
October 13, 1998 among the Obligors, the Lenders and the Agent.
2.6. New Definition. Section 1.1 of the Third Restated Loan Agreement
--------------
is hereby amended by adding, in appropriate alphabetical order, a new
definition of "Second Amendment Effective Date" to read as follows:
"Second Amendment Effective Date" shall mean the date that the Second
-------------------------------
Amendment has been signed by the Obligors, the Lenders and the Agent
and the conditions precedent set forth in Section 3 of the Second
Amendment have been satisfied or waived by the Lenders in writing.
2.7. Revolving Credit Loans. Section 2.1(a) of the Third Restated
----------------------
Loan Agreement is hereby amended by deleting in its entirety the first sentence
thereof and by substituting therefor a new sentence to read as follows:
Subject to the terms and conditions hereof and provided that there
exists no Default or Event of Default, each of the Lenders, severally
but not jointly, agrees to make revolving loans (the "Revolving
---------
Credit Loans") as requested by Borrower in accordance with the
------------
provisions of Section 2.3 hereof, to Borrower from time to time on
-----------
and after the date hereof and up to, but not including, the
Termination Date in an aggregate amount not to exceed at any one time
outstanding an amount equal to such Lender's Commitment Percentage of
the Commitment, provided, however, that no Lender shall be required
-------- -------
to make any Revolving Credit Loan if, after giving effect to the
making of such Loan, the Senior Debt/Cash Flow Ratio would be greater
than the applicable maximum ratio then permitted under Section 8.3
-----------
hereof.
2.8. Term Loans. Section 2.2 of the Third Restated Loan Agreement is
----------
hereby amended by deleting in its entirety Section 2.2 thereof and by
substituting therefor a new Section 2.2 to read as follows:
(a) Prior to the Second Amendment Effective Date, certain of
the Lenders had made certain term loans to the Parent (which term loans
subsequently were assigned to, and assumed by, the Borrower) and to the
Borrower, in an aggregate principal amount of Eight Million Dollars
($8,000,000), the outstanding principal balance of which, as of the Second
Amendment Effective Date, is $7,600,000 (collectively, the "Original Term
-------------
Loans"). The outstanding balance of the Original Term Loan for each Lender
-----
is as set forth on Schedule I hereto in respect of such Lender. Each
3
<PAGE>
Lender agrees to make, on the Second Amendment Effective Date, an
additional term loan (each a "1998 Term Loan" and, collectively, the "1998
Term Loans") in the principal amount set forth for such Lender on Schedule
I hereto and to consolidate its Original Term Loan and its 1998 Term Loan
into a single term loan in the principal amount set forth for such Lender
on Schedule I hereto and having an aggregate principal amount, as to all of
the Lenders, of $15,000,000 (each a "Term Loan" and, collectively, the
"Term Loans"). The Term Loans shall be evidenced by one or more promissory
notes, substantially in the form of Exhibit B attached hereto (each such
---------
promissory note, together with any and all amendments, modifications and
supplements thereto, and any renewals, replacements or extensions thereof,
in whole or in part, the "Term Note"), and shall be payable to the Lenders
---------
in the respective principal amounts of the Term Loans made of the Lenders,
as set forth in respect of each Lender on Schedule I.
(b) The aggregate principal amount of the Term Loans shall be
repayable in sixteen (16) quarterly installments of principal, payable on
each Amortization Date commencing on December 31, 1999 and ending on the
Maturity Date, with each such principal installment being in the amount of
$937,500.
2.9. Reporting. The Third Restated Loan Agreement is hereby further
---------
amended by deleting in its entirety clause (e) of Section 6.2 thereof and
by substituting therefor a new clause (e) to read as follows:
(e) As soon as available, and in any event within thirty (30)
days after the end of each fiscal quarter (i) an accounts receivable aging,
showing separately for Parent, Borrower and each Subsidiary the aggregate
dollar value of the Accounts and the accounts of each such Subsidiary and
indicating the aggregate value of such Accounts that are past due and
whether such Accounts are thirty (30), sixty (60) or ninety (90) or more
days past due and containing such other information regarding such Accounts
as the Agent, on its behalf and on behalf of the Lenders, may request
(including, without limitation, an accounts receivable aging showing the
age of each individual Account as of the last day of the preceding quarter
(segregating such items in such manner and to such degree as the Agent, on
behalf of the Lenders, may request, including the type and dollar value of
the Accounts and the location of the Account Debtor thereon as of the end
of the preceding quarter)); (ii) a current subscriber list, setting forth,
among other things, the net gain or loss during such fiscal quarter of
subscribers for local, regional and national paging and voicemail; and
(iii) a certificate (a "Compliance Certificate") signed by the Chief
----------------------
Financial Officer of the Parent certifying as to Obligors' compliance with
the financial covenants set forth in Section 8 hereof, substantially in the
---------
form of Exhibit E, including or
---------
4
<PAGE>
accompanied by information sufficient to enable the Agent and the Lenders
to verify the calculations set forth therein;
2.10. Interest Coverage Ratio. The Third Restated Loan Agreement is
-----------------------
hereby further amended by deleting in its entirety Section 8.1 thereof and
by substituting therefor a new Section 8.1 to read as follows:
8.1 Interest Coverage Ratio. Permit the Interest Coverage Ratio
as of the last day of each fiscal quarter set forth below of to be less
than the applicable ratio set forth opposite such quarter as set forth
below:
Quarter Ending Applicable Ratio
-------------- ----------------
October 31, 1998 through
April 30, 1999 2.25 to 1.00
July 31, 1999 2.75 to 1.00
Thereafter 3.00 to 1.00
2.11. Net Worth. The Third Restated Loan Agreement is hereby further
---------
amended by deleting in its entirety Section 8.2 thereof and by substituting
therefor a new Section 8.2 to read as follows:
8.2 Net Worth. Permit Net Worth as of any date from and after
the Effective Date to be less than the amount set forth opposite the
applicable period as follows:
Applicable Period Amount
----------------- ------
October 1, 1998 through
July 31, 1999 $ 5,000,000
August 1, 1999 through
January 31, 2000 $ 6,000,000
February 1, 2000 through
July 31, 2000 $ 6,500,000
August 1, 2000 through
January 31, 2001 $ 7,000,000
February 1, 2001 through
July 31, 2001 $ 8,000,000
5
<PAGE>
August 1, 2001 through
July 31, 2002 $ 9,000,000
Thereafter $10,500,000
provided, however, that effective upon each issuance of any equity
-------- -------
securities by the Parent, the minimum amounts set forth above for the
period in which such equity issuance occurs and for each period
thereafter shall be automatically increased by an amount equal to
seventy-five percent (75%) of amount by which shareholders' equity is
increased as a result of such equity issuance.]
2.12. Senior Debt/Cash Flow Ratio. The Third Restated Loan Agreement
---------------------------
is hereby further amended by deleting in its entirety Section 8.3 thereof
and by substituting therefor a new Section 8.3 to read as follows:
8.3 Senior Debt/Cash Flow Ratio. Permit the Senior Debt/Cash Flow
Ratio during any applicable period set forth below to at any time be
greater than the applicable ratio set forth opposite such applicable period
as set forth below:
Applicable Period Applicable Ratio
----------------- ----------------
Second Amendment Effective Date
through April 30, 1999 4.25 to 1.00
May 1, 1999 through
July 31, 1999 4.00 to 1.00
August 1, 1999 through
January 31, 2000 3.75 to 1.00
Thereafter 3.50 to 1.00
2.13. Schedule I. The Third Restated Loan Agreement is hereby further
-----------
amended by deleting Schedule I thereto in its entirety and by substituting
therefor a new Schedule I in the form of Schedule I to this Amendment.
2.14. Form of Revolving Credit Note. The Third Restated Loan Agreement is
------------------------------
hereby further amended by deleting Exhibit A thereof and by substituting
therefor a new Exhibit A attached hereto as Annex I and by reference made a
-------
part hereof.
2.15. Form of Term Note. The Third Restated Loan Agreement is hereby
------------------
further amended by deleting Exhibit B thereof and by substituting therefor a new
Exhibit B attached hereto as Annex II and by reference made a part hereof.
--------
6
<PAGE>
3. Conditions Precedent. Subject to the other terms and conditions of this
--------------------
Amendment, this Amendment shall not become effective until each of the following
conditions precedent has been satisfied (and, upon the satisfaction of such
conditions precedent, this Amendment shall be effective as of the date hereof):
(a) Giving effect to this Amendment, all conditions precedent
to the making of any Loan set forth in Section 11.2 of the Third Restated
Loan Agreement shall be satisfied;
(b) The Agent shall have received the following documents, each
duly executed and delivered to the Agent, and each to be satisfactory in
form and substance to the Agent, the Lenders, and their respective counsel
(collectively, the "Amendment Documents"):
-------------------
(i) new Revolving Credit Notes;
(ii) new Term Notes;
(iii) a certificate of the Secretary of Parent dated the date
hereof certifying (A) that is a true and correct copy of the Article of
Incorporation of the Parent as in effect on the date hereof; (B) that since
March 11, 1998, Parent has not amended its By-laws, which By-laws, as
certified to the Agent and the Lenders on such date, remain in full force
and effect on the date hereof; (C) that attached thereto is a true and
complete copy of Resolutions adopted by the Board of Directors of Parent
and/or a duly authorized committee of the Board of Directors of Parent,
authorizing the execution, delivery and performance of this Amendment and
the other Amendment Documents; and (D) as to the incumbency and genuineness
of the signatures of the officers of Parent executing this Amendment or any
of the other Amendment Documents;
(iv) a certificate of the Secretary of Borrower certifying (A)
that since March 11, 1998, Borrower has not filed any amendment to its
Articles of Organization, and that such Articles of Organization remain in
full force and effect as of the date hereof; (B) that since March 11, 1998,
Borrower has not amended its Operating Declaration, and that such Operating
Declaration remains in full force and effect as of the date hereof; (C)
that attached thereto is a true and complete copy of Resolutions adopted by
the Board of Directors of the Manager of Borrower, authorizing the
execution, delivery and performance of this Amendment and the other
Amendment Documents; and (D) as to the incumbency and genuineness of the
signatures of the officers of the Manager of Borrower executing this
Amendment or any of the other Amendment Documents;
(v) the written opinion of Alston & Bird LLP, counsel to Parent
and Borrower, in form and content acceptable to the Lenders;
7
<PAGE>
(vi) copies of all required regulatory approvals including, without
limitation, any which may be required by regulatory authorities having
jurisdiction over Borrower and any that may be required for any
transactions contemplated by this Amendment or any of the other
Amendment Documents; and
(vii) such other documents, instruments and agreements with respect
to the transactions contemplated by this Amendment, in each case in such
form and containing such additional terms and conditions as may be
satisfactory to the Agent and the Lenders, and containing, without
limitation, representations and warranties which are customary and usual in
such documents; and
(c) The Borrower and each Lender shall have executed and delivered to
the Agent the signature pages to this Amendment.
4. Representations & Warranties. Each Obligor hereby represents and warrants
----------------------------
to the Agent and the Lenders that, after giving effect to this Amendment, all of
such Obligor's representations and warranties contained in the Third Restated
Loan Agreement, as amended hereby, and the other Loan Documents are true and
correct on and as of the date of such Obligor's execution of this Amendment,
except to the extent that such representations and warranties expressly relate
to an earlier date (in which case such representations and warranties shall have
been true and correct in all material respects on and as of such earlier date)
and no Default or Event of Default as of such date has occurred and is
continuing under any Loan Document. Each Obligor hereby further represents and
warrants that (i) such Obligor has the power and authority to enter into this
Amendment and the other Amendment Documents and to perform all of its
obligations hereunder and thereunder; (ii) the execution and delivery of this
Amendment and the other Amendment Documents have been duly authorized by all
necessary action (corporate or otherwise) on the part of such Obligor; and (iii)
the execution and delivery of this Amendment and the other Amendment Documents
and the performance thereof by such Obligor do not and will not violate the
Articles or Certificate of Incorporation, Articles of Organization, By-laws,
Operating Declaration or other organizational documents of such Obligor and do
not and will not violate or conflict with any law, order, writ, injunction, or
decree of any court, administrative agency or other governmental authority
applicable to such Obligor or any properties of such Obligor.
5. Reaffirmation of Guaranty. Parent hereby (a) consents to the execution
-------------------------
and delivery of this Amendment by Borrower, and agrees to be bound by the terms
and conditions hereof applicable to Parent; (b) acknowledges and agrees that all
Obligations of Borrower under the Third Restated Loan Agreement, as amended
hereby, are included in and constitute "Guaranteed Obligations," as such term is
defined in that certain Amended and Restated Guaranty and Agreement, dated as of
June 27, 1997 (the "Guaranty"), executed by Parent in favor of the Lenders and
the Agent, and that such obligations are guaranteed by the Guaranty, and all
references in the Guaranty to the "Guaranteed Obligations" shall hereafter be
deemed to include the Borrower's Obligations under the Third Restated Loan
Agreement, as amended hereby, and the other instruments, documents and
agreements executed and delivered pursuant to this Amendment or in connection
herewith; and (c) acknowledges and agrees that the Guaranty and its obligations
8
<PAGE>
thereunder remain in full force and effect without release, diminution or
impairment, notwithstanding the execution and delivery of this Amendment.
6. Expenses. Borrower agrees to pay, immediately upon demand by the Agent,
--------
all costs, expenses, attorneys' fees and other charges and expenses actually
incurred by the Agent and the Lenders in connection with the negotiation,
preparation, execution and delivery of this Amendment, all other Amendment
Documents and any other instrument, document, agreement or amendment executed in
connection with this Amendment.
7. Breaches. The breach of any representation, warranty or covenant
--------
contained herein, in any other Amendment Document or in any other document
executed in connection herewith, or the failure to serve or comply with any term
or agreement contained herein shall constitute an Event of Default under the
Third Restated Loan Agreement and the Agent and the Lenders shall be entitled to
exercise all rights and remedies they may have under the Third Restated Loan
Agreement, the other Loan Documents, and any other documents executed in
connection therewith and applicable law.
8. References. All references in the Third Restated Loan Agreement and the
----------
Loan Documents to the Third Restated Loan Agreement shall hereafter be deemed to
be references to the Third Restated Loan Agreement as amended hereby and as the
same may hereafter be amended from time to time.
9. Limitation of Amendment. Except as expressly set forth herein, this
-----------------------
Amendment shall not be deemed to waive, amend or modify any term or condition of
the Third Restated Loan Agreement which is hereby ratified and reaffirmed and
which shall remain in full force and effect, nor to serve as a consent to any
matter prohibited by the terms and conditions thereof.
10. Counterparts. This Amendment may be executed in two or more
------------
counterparts, each of which when fully executed shall be an original, and all of
said counterparts taken together shall be deemed to constitute one and the same
Amendment. Any signature page to this Amendment may be witnessed by a telecopy
or other facsimile of any original signature page and any signature page of any
counterpart hereof may be appended to any other counterpart hereof to form a
completely executed counterpart hereof.
11. Further Assurances. Borrower and Parent agree to take such further
------------------
action as the Agent and any Lender shall reasonably request in connection
herewith to evidence the amendments herein contained to the Third Restated Loan
Agreement.
12. Successors and Assigns. This Amendment shall be binding upon and inure
----------------------
to the benefit of the successors and permitted assigns of the parties hereto;
provided, however, that no assignment of the rights of any party hereunder shall
- -------- -------
be made except to the extent permitted by, and made in conformity with, Section
13.3 of the Third Restated Loan Agreement.
13. Governing Law. This Amendment shall be governed by, and construed in
-------------
accordance with, the laws of the State of New York, without regard to principles
of conflicts of law.
9
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Amendment under seal
on the date first above written.
"PARENT"
SATELLINK COMMUNICATIONS, INC., a Georgia
corporation
By: /s/ Jerry W. Mayfield
--------------------------------------
Jerry W. Mayfield
President
Attest: /s/ Daniel D. Lensgraf
--------------------------------------
Daniel D. Lensgraf
Secretary:
[CORPORATE SEAL]
"BORROWER"
SATELLINK PAGING, LLC, a Georgia limited liability
company
By: Satellink Communications, Inc., Its Manager
By: /s/ Jerry W. Mayfield
--------------------------------------
Jerry W. Mayfield
President
Attest: /s/ Daniel D. Lensgraf
----------------------------------
Daniel D. Lensgraf
Secretary:
[CORPORATE SEAL]
10
<PAGE>
"AGENT"
BANK AUSTRIA CREDITANSTALT
CORPORATE FINANCE, INC.
By: /s/ Robert M. Biringer
---------------------------------------
Robert M. Biringer
Executive Vice President
By: /s/ Stephen W. Hipp
----------------------------------------
Name: Stephen W. Hipp
Title: Associate
11
<PAGE>
"LENDER"
BANK AUSTRIA CREDITANSTALT
CORPORATE FINANCE, INC.
By: /s/ Robert M. Biringer
------------------------------------
Robert M. Biringer
Executive Vice President
By: /s/ John G. Taylor
-------------------------------------
Name: John G. Taylor
-------------------------------
Title: Senior Associate
-------------------------------
12
<PAGE>
"LENDER"
FINOVA CAPITAL CORPORATION
By: /s/ David A. Meier
-------------------------------------
Name: David A. Meier
-------------------------------
Title:
-------------------------------
13
<PAGE>
SCHEDULE I
Revolving Credit Commitments
<TABLE>
<CAPTION>
Original Increase In Revolving
Revolving Credit Revolving Credit Credit
Lender Commitment Commitment Commitment
------ ---------------- ---------------- ----------
<S> <C> <C> <C>
Bank Austria Creditanstalt $19,200,000 $ 800,000 $20,000,000
Corporate Finance, Inc.
Finova Capital Corporation $12,800,000 $7,200,000 $20,000,000
----------- ---------- -----------
Totals $32,000,000 $8,000,000 $40,000,000
</TABLE>
Term Loan Amounts
<TABLE>
<CAPTION>
Balance of
Original Term 1998
Lender Loan Term Loan Term Loan
------ --------------- ------------- -------------
<S> <C> <C> <C>
Bank Austria Creditanstalt $4,560,000 $2,940,000 $ 7,500,000
Corporate Finance, Inc.
Finova Capital Corporation $3,040,000 $4,460,000 $ 7,500,000
---------- ---------- -----------
Totals $7,600,000 $7,400,000 $15,000,000
</TABLE>
14
<PAGE>
ANNEX I
-------
Exhibit A
to
Third Amended and Restated
Loan and Security Agreement
dated as of June 27, 1997
FORM OF
REVOLVING CREDIT NOTE
New York, New York
$_______________ As of ________, 1998
FOR VALUE RECEIVED, the undersigned, SATELLINK PAGING, LLC, a Georgia limited
liability company (hereinafter referred to as "Maker"), promises to pay to the
-----
order of _________________________________ (hereinafter referred to as
"Holder"), at such account or at such other place as Holder may from time to
------
time designate in writing, the principal sum of __________________________
UNITED STATES DOLLARS (U.S. $____________), or if less, the aggregate
outstanding principal amount of Revolving Credit Loans, as such term is defined
in the Loan Agreement referred to hereinbelow, made or issued by Holder to
Maker, in lawful money of the United States, payable in full on the Maturity
Date (as defined in the Loan Agreement).
Interest on the principal balance from time to time outstanding hereunder
shall accrue at the rates and shall be payable in the manner set forth in that
certain Third Amended and Restated Loan and Security Agreement dated as of June
27, 1997, as amended, by and among Maker, Satellink Communications, Inc., a
Georgia corporation, the Lenders from time to time party thereto, and Bank
Austria Creditanstalt Corporate Finance, Inc., as Agent for the Lenders (such
agreement, as heretofore, now or hereafter amended, restated, supplemented or
otherwise modified from time to time, the "Loan Agreement"). Capitalized terms
--------------
used herein and not otherwise defined shall have the meanings ascribed to such
terms in the Loan Agreement.
In no contingency or event whatsoever shall the interest rate charged pursuant
to the terms of this Revolving Credit Note (this "Note") exceed the highest rate
permissible under any law which a court of competent jurisdiction shall, in a
final determination, deem applicable hereto. In the event that such a court
determines that Holder has received interest hereunder in excess of the highest
applicable rate, Holder shall promptly refund such excess interest to Maker.
The date and amount of each Revolving Credit Loan made by Holder to Maker
under the Loan Agreement, and each payment of principal thereof, shall be
recorded by Holder on its books and, prior to any transfer of this Note,
endorsed by Holder on the Schedule attached hereto or on any continuation
thereof.
15
<PAGE>
This Note is, in part, a replacement, extension and renewal note for that
certain Revolving Credit Note dated as of March 11, 1998, executed by Maker in
favor of Holder, which note was, in part, a replacement note for that certain
Revolving Credit Note dated as of June 27, 1997 executed by Maker in favor of
Holder. This Note is a "Revolving Credit Note" referred to in the Loan
Agreement, and is subject to all of the terms and conditions of the Loan
Agreement, including, but not limited to, those related to the acceleration of
the indebtedness represented hereby upon the occurrence of an Event of Default
or the reduction of the Commitment. Payment of this Note is secured by the
Collateral.
In the event that all or any portion of the indebtedness evidenced hereby
shall be collected by or through an attorney-at-law, Holder shall be entitled to
collect from Maker all costs of collection, including reasonable attorneys'
fees.
Maker hereby waives presentment, demand for payment, protest and notice of
protest, notice of dishonor and all other notices in connection with this Note.
This Note shall be payable without right of setoff, any defense of want or
failure of consideration, nonperformance of any condition precedent, nondelivery
or delivery for a special purpose or any other defense of any nature whatsoever.
THIS NOTE, AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER, SHALL BE
GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK
(WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAW). MAKER HEREBY (A) SUBMITS TO
THE NONEXCLUSIVE JURISDICTION OF THE UNITED STATES DISTRICT COURT FOR THE
SOUTHERN DISTRICT OF NEW YORK AND OF ANY NEW YORK STATE COURT SITTING IN NEW
YORK CITY FOR THE PURPOSES OF ALL LEGAL PROCEEDINGS ARISING OUT OF OR RELATING
TO THIS NOTE, AND (B) IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY
LAW, ANY OBJECTION WHICH IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF THE VENUE
OF ANY SUCH PROCEEDING BROUGHT IN SUCH A COURT AND ANY CLAIM THAT ANY SUCH
PROCEEDING BROUGHT IN SUCH A COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM.
NOTWITHSTANDING ANYTHING HEREIN TO THE CONTRARY, NOTHING HEREIN SHALL LIMIT THE
RIGHT OF HOLDER TO BRING PROCEEDINGS AGAINST MAKER IN THE COURTS OF ANY OTHER
JURISDICTION.
AFTER REVIEWING THIS PROVISION SPECIFICALLY WITH ITS COUNSEL, MAKER HEREBY
KNOWINGLY, INTELLIGENTLY AND INTENTIONALLY WAIVES ANY AND ALL RIGHTS IT MAY HAVE
TO A TRIAL BY JURY IN RESPECT OF ANY LEGAL PROCEEDING BASED ON OR ARISING OUT
OF, UNDER, IN CONNECTION WITH, OR RELATING TO THIS NOTE, THE TRANSACTIONS
CONTEMPLATED HEREBY, OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS
16
<PAGE>
(WHETHER ORAL OR WRITTEN), OR ACTIONS OF MAKER OR HOLDER. THIS PROVISION IS A
MATERIAL INDUCEMENT TO HOLDER TO MAKE THE LOANS EVIDENCED BY THIS NOTE TO MAKER.
IN WITNESS WHEREOF, the undersigned has caused this Note to be executed under
seal by its duly authorized officer as of the day and year first written above.
"MAKER"
SATELLINK PAGING, LLC, a Georgia
limited liability company
By: Satellink Communications, Inc.,
its Manager
By:
--------------------------------
Name:
----------------------------
Title:
----------------------------
Attest:
----------------------------
Name:
----------------------------
Title:
----------------------------
[CORPORATE SEAL]
17
<PAGE>
Schedule to
Revolving Credit Note
dated as of March __, 1998
of Satellink Paging, LLC,
a Georgia limited liability company
Principal Principal
Amount of Interest Amount of Outstanding
Date Loan Rate Payment Balance
- ---- --------- -------- --------- ---------
18
<PAGE>
ANNEX II
--------
Exhibit B
to
Third Amended and Restated
Loan and Security Agreement
dated as of June 27, 1997
FORM OF TERM NOTE
New York, New York
$_____________ As of _______ __, 1997
FOR VALUE RECEIVED, the undersigned, SATELLINK PAGING, LLC, a Georgia
limited liability company (hereinafter referred to as "Maker"), promises to pay
-----
to the order of __________________________ (hereinafter referred to as the
"Holder"), at such account or at such other place as Holder may from time to
- -------
time designate in writing, the principal sum of ___________________ UNITED
STATES DOLLARS (U.S. $_____________), repayable in accordance with the Loan
Agreement referred to below. Each capitalized term contained herein and not
otherwise defined herein shall have the meaning given to such term in the Loan
Agreement.
Interest on the principal balance from time to time outstanding
hereunder shall accrue at the rates and shall be payable in the manner set forth
in that certain Third Amended and Restated Loan and Security Agreement dated as
of June 27, 1997, as amended, by and among Maker, Satellink Communications,
Inc., a Georgia corporation, the Lenders from time to time party thereto, and
Bank Austria Creditanstalt Corporate Finance, Inc., as Agent for the Lenders (as
the same may be further amended, restated, supplemented or otherwise modified
from time to time, the "Loan Agreement"). In no contingency or event whatsoever
--------------
shall the interest rate charged pursuant to the terms of this Term Note (the
"Note") exceed the highest rate permissible under any law which a court of
- -----
competent jurisdiction shall, in a final determination, deem applicable hereto,
In the event that such a court determines that Holder has received interest
hereunder in excess of the highest applicable rate, Holder shall promptly refund
such excess interest to Maker.
This Note is, in part, a replacement, renewal and extension of that
certain Term Note, dated as of June 27, 1997 executed by Maker in favor of
Holder. This Note is a "Term Note" referred to in the Loan Agreement, and is
subject to all of the terms and conditions of the Loan Agreement, including, but
not limited to, those relating to prepayments hereon, and those relating to the
acceleration of the indebtedness represented hereby upon the occurrence of an
Event of Default. Payment of this Note is secured by the Collateral. All
prepayments under this Note shall be applied to the principal installments
hereof in the inverse order of their maturities.
19
<PAGE>
In the event that all of any portion of the indebtedness evidenced
hereby shall be collected by or through an attorney-at-law, Holder shall be
entitled to collect from Maker all costs of collection, including reasonable
attorneys' fees.
The Maker hereby waives presentment, demand for payment, protest and
notice of protest, notice of dishonor and all other notices in connection with
this Note. This Note shall be payable without right of setoff, any defense of
want or failure of consideration, nonperformance of any condition precedent,
nondelivery or delivery for a special purpose or any other defense of any nature
whatsoever.
THIS NOTE, AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER,
SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF
NEW YORK (WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAW). MAKER HEREBY (A)
SUBMITS TO THE NONEXCLUSIVE JURISDICTION OF THE UNITED STATES DISTRICT COURT FOR
THE SOUTHERN DISTRICT OF NEW YORK AND OF ANY NEW YORK STATE COURT SITTING IN NEW
YORK CITY FOR THE PURPOSES OF ALL LEGAL PROCEEDINGS ARISING OUT OF OR RELATING
TO THIS NOTE (B) AGREES THAT SECTIONS 5-1401 AND 5-1402 OF THE GENERAL
OBLIGATIONS LAW OF THE STATE OF NEW YORK SHALL APPLY TO THIS NOTE AND (C)
IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY OBJECTION WHICH
IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF THE VENUE OF ANY SUCH PROCEEDING
BROUGHT IN SUCH A COURT AND ANY CLAIM THAT ANY SUCH PROCEEDING BROUGHT IN SUCH A
COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM. NOTWITHSTANDING ANYTHING
HEREIN TO THE CONTRARY, NOTHING HEREIN SHALL LIMIT THE RIGHT OF THE HOLDER TO
BRING PROCEEDINGS AGAINST MAKER IN THE COURTS OF ANY OTHER JURISDICTION.
MAKER HEREBY KNOWINGLY, INTELLIGENTLY AND INTENTIONALLY WAIVES ANY AND
ALL RIGHTS IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LEGAL PROCEEDING
BASED ON OR ARISING OUT OF, UNDER, IN CONNECTION WITH, OR RELATING TO THIS NOTE,
THE TRANSACTIONS CONTEMPLATED HEREBY, OR ANY COURSE OF CONDUCT, COURSE OF
DEALING, STATEMENTS (WHETHER ORAL OR WRITTEN), OR ACTIONS OF MAKER OF HOLDER.
THIS PROVISION IS A MATERIAL INDUCEMENT FOR THE HOLDER TO MAKE THE LOANS
EVIDENCED BY THIS NOTE TO MAKER.
IN WITNESS WHEREOF, the undersigned has caused this Note to be
executed under seal by its duly authorized officer as of the day and year first
written above.
20
<PAGE>
"MAKER"
SATELLINK PAGING, LLC, a Georgia
limited liability company
By: Satellink Communications, Inc.,
its Manager
By:
--------------------------------
Name:
----------------------------
Title:
----------------------------
Attest:
----------------------------
Name:
----------------------------
Title:
----------------------------
[CORPORATE SEAL]
21
<PAGE>
EXHIBIT 23.2
[LETTERHEAD OF ARTHUR ANDERSEN APPEARS HERE]
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 part of this registration
statement.
/s/ ARTHUR ANDERSEN LLP
Atlanta, Georgia
March 8, 1999
<PAGE>
EXHIBIT 23.3
CONSENT OF INDEPENDENT AUDITOR
As independent auditor, I hereby consent to the use of my report and to the
references to me included in or made part of this registration statement.
/s/ James N. Rachel
- -------------------------
James N. Rachel
Shreveport, Louisiana
March 8, 1999
<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> 6-MOS
<FISCAL-YEAR-END> JUL-31-1998
<PERIOD-START> AUG-01-1998
<PERIOD-END> JAN-31-1999
<CASH> 444,991
<SECURITIES> 0
<RECEIVABLES> 7,547,645
<ALLOWANCES> 0
<INVENTORY> 1,536,832
<CURRENT-ASSETS> 10,729,942
<PP&E> 34,082,310
<DEPRECIATION> 11,319,032
<TOTAL-ASSETS> 67,024,102
<CURRENT-LIABILITIES> 8,419,425
<BONDS> 0
7,171,937
74
<COMMON> 55,883
<OTHER-SE> 8,005,156
<TOTAL-LIABILITY-AND-EQUITY> 67,024,102
<SALES> 22,764,370
<TOTAL-REVENUES> 22,764,370
<CGS> 1,525,238
<TOTAL-COSTS> 22,177,035
<OTHER-EXPENSES> 2,077,123
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,430,262
<INCOME-PRETAX> (1,059,788)
<INCOME-TAX> 88,117
<INCOME-CONTINUING> (1,147,905)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,147,905)
<EPS-PRIMARY> (0.30)
<EPS-DILUTED> (0.30)
</TABLE>
