SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended December 31,1996
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from to
Commission File No. 1-10682
PAGE AMERICA GROUP, INC.
(Exact name of registrant as specified in its charter)
New York 13-2865787
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
125 State Street, Suite 100, Hackensack, New Jersey 07601
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (201) 342-6676
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.10 par value
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
As of March 1, 1997, the aggregate market value of the voting stock
held by non-affiliates of the registrant, based on the closing price, was
approximately $ 960,000.
As of March 1, 1997, the registrant had 16,037,095 shares of Common Stock
outstanding.
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K.[X]
<PAGE>
Item 1. BUSINESS
General
Page America Group, Inc. (the "Company" or "Page America") provides
paging, messaging and information products and services through networks which
it owns and operates as a radio common carrier ("RCC") under licenses from the
Federal Communications Commission ("FCC"). As of December 31, 1996, the Company
provided paging services to approximately 205,000 pagers in geographic areas
encompassing a total population of 34 million people.
The Company's strategy is to concentrate its operations in major
metropolitan markets in which it can achieve both critical mass and a
substantial market share position. The Company targets specific user segments
and, through its broad distribution capabilities, markets and delivers its
comprehensive package of paging and value-added messaging services to each
particular segment. The Company has secured licenses for multiple channels in
each of its markets and has developed, and continues to develop, networks which
can support significant future growth in paging units as well as value-added
messaging and information services. The Company emphasizes customer ownership of
pagers, as compared to leasing of pagers, which significantly reduces the
Company's capital costs. At March 1, 1997, approximately 75 percent of the
Company's units in service were customer owned.
The accompanying financial statements have been prepared on a going
concern basis. The Company, since its inception, has experienced a deficiency in
working capital and recurring losses. In 1995, as a result of non-compliance by
the Company with certain covenants of its credit facility (the "Credit
Facility"), the terms were modified to accelerate the final maturity to December
29, 1995, and the Subordinated Notes were modified to provide for a final
maturity of six months thereafter. On April 26, 1996, the Credit Facility was
again modified to provide for a revolving credit loan of $750,000, a waiver of
all existing defaults on certain financial and other covenants, the omission of
financial covenants effective April 30, 1996 and an extension of the maturity
date to the earlier of November 30, 1996 or the completion of the sale of the
Company is assets to Metrocall Inc. The Credit Facility has not been repaid and
the lenders have declared the Company in default. In addition, the Subordinated
Notes matured at December 31, 1996 and are in default (see Note E of Notes to
Consolidated Financial Statements). Such debt is classified as a current
liability and the Company's current liabilities exceeded its current assets by
$58.4 million at December 31, 1996. The Company has entered into a definitive
agreement to sell substantially all of its assets to Metrocall, Inc. The cash to
be received by Page America from this sale will not be sufficient for Page
America to pay in full in cash its outstanding obligations under the Credit
Facility or under the Subordinated Notes or to pay its other outstanding
liabilities. Page America is negotiating with the creditors to satisfy its
obligations. In addition, the consent of Page America's lenders is required for
the sale to Metrocall. There is no assurance that Page America will be able to
reach agreement with its creditors, that this transaction will be completed or
that the Company will have sufficient funds to finance its operations, which
continue to show losses, through the year ending December 31, 1997.
All of these matters raise substantial doubt about the Company's
ability to continue as a going concern. The financial statements do not include
any adjustments to reflect the possible future effects on the recoverability and
classification of assets or the amounts or classifications of liabilities that
may result from the outcome of this uncertainty.
Following completion of the sale of its assets to Metrocall, the Company
plans to liquidate (see Liquidity and Capital Resources and Note A of Notes to
Consolidated Financial Statements.
Page America was incorporated in 1976 under the laws of the State of New
York. The Company's principal executive offices are located at 125 State Street,
Hackensack, New Jersey 07601, and its telephone number is (201) 342-6676.
Sale of Assets
On April 23, 1996, Page America entered into a definitive agreement to sell
substantially all of its assets to Metrocall, Inc. On January 30, 1997, this
agreement was amended. The amended agreement provides for a purchase price of
(A) $25 million in cash, (B) 1,500 shares of series B Preferred Stock of
Metrocall having a stated value of $15 million, (C) 762,960 shares of Metrocall
Common Stock, and (D) shares of Metrocall Common Stock or other equity
securities having a share value equal to $15 million, subject to adjustment
based on changes in the Company's Working Capital Deficit and decreases in
service revenue below specified thresholds. Metrocall has the option to
substitute cash at closing for all or a portion of the stock consideration.
Excluded from the sale are cash, assets related to the employee benefit plans
and to the Florida and California operations which had been previously sold,
liabilities under the senior credit facility, subordinated debt agreement and
NEC America leasing contract and obligations with respect to federal, state and
local taxes. After expenses, it is anticipated that the sale will result in a
gain of approximately $19 million. There is no assurance that the transaction
will be consummated.
The original Acquisition Agreement, prior to the January 30, 1997
amendment, provided that the consideration to be received by Page America was to
be (A) $55 million in cash and (B) a number of shares of Metrocall Common Stock
to be determined based on the operating results of Page America through the
closing date. The number of shares of Metrocall Common Stock to be received by
shareholders of Page America was to be equal to $23.5 million (subject to
certain adjustments), divided by the average of the last sales price per share
of Metrocall Common Stock for the 20 consecutive trading days ending on the
trading day five trading days immediately prior to the closing date, provided
that the share price was not to exceed 110% of or be less than 90% of $19.8250.
The value and number of shares of Metrocall Common Stock to be issued in the
Acquisition was to be subject to adjustments based on (a) working capital and
operating results of Page America prior to the Closing and (b) the share price
of the Metrocall Common Stock at the Closing. Based on financial information of
Page America at September 30, 1996, the total amount of working capital
adjustment and operating adjustment would have been $9,886,890, resulting in the
value of the Metrocall Common Stock to be received by Page America in the
Acquisition being reduced from $23.5 million to $13,613,110. This amount would
then be divided by the minimum share price referenced above. The number of
shares of Metrocall Common Stock to have been received by Page America would
have been subject to further adjustments based on Page America's operations
subsequent to September 30, 1996.
The Metrocall transaction requires the approval of the holders of at
least two-thirds of the outstanding voting power of Page America. Certain
stockholders of Page America who beneficially own approximately 48% of the
voting power of Page America have entered into an agreement to vote all their
stock in favor of the transaction. See Item 13.
Sale of California and Florida Operations
On July 28, 1995, the Company sold to Paging Network of Florida, Inc.
its California and Florida paging assets for a cash purchase price of $19.4
million. As of December 31, 1996, approximately $500,000 of the purchase price
was held in escrow. Management expects that the escrow will be released to the
Company in accordance with the time frame set forth in the agreement. The assets
sold had a net book value of approximately $19.1 million and consisted of the
assets which the Company acquired from Crico Communications Corporation
("Crico") on December 30, 1993 and the 900 Mhz channel which is licensed to
provide state-wide coverage in California which the Company acquired in 1994 for
a purchase price of $500,000. The purchase price paid by the Company for the
Crico assets consisted of $12,650,000 in cash paid to Crico's lenders, the
issuance of an aggregate of 1,435,903 shares of Common Stock to Crico's lenders
and the issuance of 240,000 shares of Common Stock and warrants to purchase
130,000 shares of Common Stock at an exercise price of $5.00 per share to a
company related to certain shareholders of Crico. After expenses, the sale
resulted in a loss of approximately $718,000.
Background of the Paging Industry
Radio paging began more than four decades ago as an adjunct to
telephone answering services, delivering tone-only messages to subscribers.
Beginning in the 1970's, cost-effective technological innovations and regulatory
reforms helped to accelerate the use of paging services. Advances in
microprocessor technology facilitated dramatic reductions in the size and weight
of pagers. In 1982, the FCC increased the number of available channels for
paging, further stimulating growth of the industry.
During the 1980's, the paging industry expanded significantly. Factors
contributing to the growth in the paging industry include: (i) a continuing
shift towards a service-based economy and a resultant need to keep in contact;
(ii) increasing mobility among workers; (iii) increasing awareness of the
benefits of mobile communications; (iv) a reduction in the price of pagers;
(v) product distribution at the retail level; and (vi) increasing availability
of information service-based offerings.
In addition, the benefits of mobile and wireless communications have
gained widespread acceptance as a result of the growth in cellular
communications. The Company believes that paging will continue to grow with the
wireless communications industry generally, because it believes paging is the
most cost-effective form of mobile communication. Since paging principally is a
form of one-way communication, it is less expensive than communicating by
cellular telephones. Pagers and air time required to transmit an average message
cost less than equipment and air time for cellular telephones. In fact, some
users of cellular telephones use a pager in conjunction with their telephones to
screen incoming calls and to minimize usage-based charges.
The availability of value-added paging products and services is
creating demand within certain market segments which previously had not been
attracted by the benefits of basic paging services alone. Demand for paging
services is anticipated to increase further as a result of technological
advances which permit messaging to be integrated into business tools (such as
lap top and palm top computers) and into consumer products (such as
wristwatches).
Business Strategy
In operating its business, The Company's objective is to maximize revenues
by focusing on a business strategy which emphasizes the following elements: (i)
major metropolitan market focus; (ii) broad product distribution capabilities;
(iii) network infrastructure and channel capacity; (iv) comprehensive service
options; (v) targeted market segments; (vi) value-added services; and (vii)
customer ownership of pagers.
Major Metropolitan Market Focus. The Company presently operates
in the New York and Chicago metropolitan area markets serving an
aggregate population of 34 million. Based upon its knowledge and
experience in these markets, the Company believes that in each of its
markets, the four largest competitors serve approximately 80 percent
of pager users. Significant barriers to entry exist in the New York
and Chicago metropolitan area markets, since there are no more FCC
paging channels currently available for license and substantial
capital would be required to construct and operate efficient and
competitive paging systems.
Broad Product Distribution Capabilities. The Company has
developed multiple distribution channels which reach targeted market
segments. Products are distributed through a number of different
outlets, including 8 sales offices, four company-owned retail stores,
a direct sales force and resellers.
Network Infrastructure and Channel Capacity. The Company believes
that controlling licenses to a large number of FCC-allocated paging
channels is important to adequately service both current and future
demand for paging and messaging services. The New York network
utilizes 220 transmitters over 14 available paging channels to provide
service to 131,000 pagers throughout most of Connecticut, New York
State south of Albany (including Long Island), New Jersey and Eastern
Pennsylvania. The Chicago network consists of 82 transmitters over 11
available paging channels. This network provides service to 74,000
pagers from the Wisconsin border, throughout Illinois, Northern
Indiana and into Western Michigan. The Company has substantial
capacity to expand in its New York and Chicago metropolitan area
markets utilizing its existing network without the need for more
licenses or significant additional capital expenditures for
transmission and telephony infrastructure.
Comprehensive Service Options. Since the Company has multiple
channels, it is able to offer customers the widest possible choice in
services (tone, tone/voice, numeric, alphanumeric), geographic
coverage and pricing options. Customers select from a wide variety of
pagers, which come with both silent and audible alerts. Convenience,
as evidenced by the location of the sales offices, and flexible
policies regarding service plan options are significant components of
why customers select Page America.
Targeted Market Segments. The Company has designed its product
and service offerings to attract defined user groups. The Company's
marketing efforts are focused on four principal market segments:
mobile workers; medical and other on-call professionals; business
professionals seeking a competitive advantage and the home market.
Value-Added Services. The Company provides subscribers with
value-added services, such as voice mail messaging and
operator-assisted alphanumeric messaging, as well as equipment related
services, including loss and damage protection and paging maintenance
programs. Such offerings include: PageTalkSM, a voice mail system;
PageGramSM, which involves delivery of messages from a personal
computer; Group Calling, which allows notification of several pager
users simultaneously with a common telephone number; and Nationwide
Paging which enables a subscriber to be paged in over 200 cities
across the United States.
Customer Ownership of Pagers. The Company emphasizes customer
ownership of pagers, as compared to leasing, since customer ownership
significantly reduces the Company's capital costs and reduces
potential exposure to changes in technology. Approximately 75 percent
of the Company's units in service are customer owned (including
resellers).
Paging Services
Paging operations consist of a process of signaling, through the use
of a radio transmission network, a portable pocket size, battery-operated radio
receiver carried by a subscriber, commonly called a "pager" or a "beeper". Each
paging subscriber is assigned a distinct telephone number. When a telephone call
for a subscriber is received at one of the Company's computerized paging
terminals, the Company transmits a radio signal to the subscriber's pager, which
causes the pager to emit a beep, vibrate or generate another signal and, in
certain cases, provides the subscriber with additional information from the
caller.
The Company currently provides the following four types of pagers:
Type of Pager Functions
Tone Only Alerts the user with a signal, so the user will
know to call a pre-determined telephone number
(such as the office).
Tone and Voice Alerts the user with a signal, followed by a brief
voice message.
Numeric (Digital) Display Visually displays numbers (such as a telephone
number or a coded message) on a screen to
communicate with the user.
Alphanumeric Display Visually displays up to one-third of a page of text
and/or numbers on a screen so the user receives
actual messages, instead of just a telephone
number or coded message.
The table below sets forth the number of various types of pagers in
service with subscribers of the Company at the dates indicated:
Types of Pagers in Service with Subscribers of the Company
=============================================================================
December 31,
===============================================================================
1994 1995 1996
Units % Units % Units %
- ------------------------------------------------------------------------------
Digital display 283,000 91.0% 207,000 93.7% 192,000 93.7%
- ------------------------------------------------------------------------------
Tone only 8,000 2.7% 4,000 1.8% 2,000 1.0%
- ------------------------------------------------------------------------------
Tone and voice 1,000 0.3% * - * -
- -------------------------------------------------------------------------------
Alphanumeric
display 19,000 6.0% 10,000 4.5% 11,000 5.3%
- ------------------------------------------------------------------------------
Total 311,000 100% 221,000 100% 205,000 100%
================================================================== ============
* Less than 500 units in service
The Company sells and leases a variety of paging models, including
pen-like pagers and conventional pagers, with a range of available options, such
as silent vibrating alert and extended message memory. The Company provides its
subscribers with local, wide-area and national coverage. While the Company
continues to purchase most of its pagers from NEC America, Inc., it intends to
purchase pagers from a number of sources.
The Company's value-added services include PageTalkSM, which combines
the features of an answering machine and paging, enabling a caller to leave a
voice message in the private mailbox of an end user on the Company's voice mail
system, which in turn pages the end user to call the mailbox and retrieve the
message; PageGramSM, which permits people originating messages to the end user
to use either an operator or a personal computer to send a message to an end
user who carries an alphanumeric pager; Group Calling, which allows the
notification of several pager users simultaneously with a common telephone
number; and Nationwide Paging, which allows a pager user to be paged in over 200
cities across the United States on a common frequency.
The Company provides paging services to pagers that are either
(i) owned by the Company and leased to its subscribers, (ii) owned by its
subscribers or (iii) owned by third party resellers which buy pagers from the
Company, lease or sell such pagers to their own subscribers and resell the
Company's paging services as resellers under agreements with the Company.
Subscribers who own their own pagers pay a monthly paging service fee to the
Company. Subscribers who lease pagers pay a monthly rental fee which is combined
with a monthly paging service fee. Service fees, leasing rates and purchase
prices for pagers vary widely by region served, service type and number of
pagers purchased or leased by the subscriber.
The following table sets forth the respective numbers and percentages
of pagers that are (i) serviced directly by the Company and owned by the
Company, (ii) serviced directly by the Company and owned by subscribers and
(iii) serviced by the Company through third party resellers, which may be owned
by the third party resellers or by their subscribers.
Ownership of Pagers in Service with Subscribers of the Company
==============================================================================
December 31,
==============================================================================
1994 1995 1996
Units % Units % Units %
- ------------------------------------------------------------------------------
Company owned 96,000 30.9 58,000 26.2 53,000 25.9
- ------------------------------------------------------------------------------
Subscriber owned 109,000 35.0 87,000 39.4 88,000 42.9
- -------------------------------------------------------------------------------
Third party
reseller 106,000 34.1 76,000 34.4 64,000 31.2
- ------------------------------------------------------------------------------
Total 311,000 100% 221,000 100% 205,000 100%
==============================================================================
Technical Facilities
The Company owns and operates RCC network facilities in each of its
two markets. Page America presently provides service over six primary channels
in New York and three primary channels in Chicago enabling the Company to
provide a wide range of coverage, pricing and product offerings. One channel in
New York, for example, is devoted exclusively to alphanumeric service. The
Company's operations are highly automated and centralized, with all sales
offices linked to a centralized billing, inventory and customer service computer
system, and allowing direct interfacing from its resellers.
The Company completed construction of its own RCC system in New York
in 1985. On July 13, 1990, the Company acquired the New York metropolitan area
paging assets and business of NYNEX Mobile Communications Company and its
affiliates ("NYNEX"). This acquisition increased the Company's number of units
in service by approximately 74,000 pagers. The New York technical facilities
currently consist of seven paging terminals. The New York network utilizes 220
transmitters over 14 available channels to provide service to 131,000 pagers
throughout most of Connecticut, New York State south of Albany (including Long
Island), New Jersey and Eastern Pennsylvania.
The Chicago RCC facilities, which were acquired by the Company in
1984, serve approximately 74,000 pagers in the Illinois and Northwestern Indiana
areas. The Chicago technical facilities consist of three paging terminals, and
the Chicago network consists of 82 transmitters over 11 available channels. This
network provides service from the Wisconsin border, throughout Illinois,
Northwestern Indiana and into Western Michigan.
Marketing
The Company's customers include individuals, corporations and other
organizations whose business or personal needs involve field operations or
require substantial mobility, accessibility and the need to receive timely
information. Potential users of pagers include people in every industry. The
Company services four principal market segments: mobile workers; medical and
other on-call professionals; business professionals seeking a competitive
advantage and the home market.
In order to reach these markets, the Company has developed three
channels of distribution: a direct sales force, resellers and retail stores.
Each of the Company's distribution channels focuses on those market segments
which it addresses most cost effectively. At December 31, 1996, the Company
employed 80 persons in direct sales and marketing support positions.
The following table sets forth the respective revenues and percentages
of revenues that are attributed to (i) the Company's direct sales force,
including retail dealers, (ii) third party resellers and (iii) retail stores.
Channels of Distribution
============================================================================
December 31,
=============================================================================
1994 1995 1996
- ------------------------------------------------------------------------------
Revenues % Revenues % Revenues %
- ------------------------------------------------------------------------------
Direct
Sales Force $30,626,000 82.2 $24,117,000 82.9 $17,976,000 81.8
- -------------------------------------------------------------------------------
Resellers 6,505,000 17.5 4,611,000 15.8 3,275,000 14.8
- ------------------------------------------------------------------------------
Retail
Stores 127,000 0.3 379,000 1.3 733,000 3.4
- ------------------------------------------------------------------------------
Total $37,258,000 100% $29,107,000 100% $21,984,000 100%
==============================================================================
The Company's own direct sales force operates out of 8 sales offices.
The direct sales effort is supported through a multimedia marketing campaign
with advertising, promotion and subscriber enhancement campaigns. The Company
also advertises in print media, including periodicals and yellow pages.
The Company also has a sales force which sells products and services
in bulk to resellers. Resellers purchase service at wholesale rates from the
Company, and in turn, provide service to their own customers. Resellers
contribute to the Company's profits without the Company having to incur any
significant selling or administrative overhead.
The Company, in order to market its products directly to the consumers
and reduce its cost of sales has opened three Company-owned stores in New York
and one in Illinois. These stores sell cellular as well as paging products and
maintain a high end, high tech appearance attracting consumers at all levels.
The Company's marketing strategies have been focused on small to
medium-sized customer accounts, with the result that the Company is not
dependent on any single customer or reseller. No single customer or reseller
accounted for more than one percent of the Company's total revenues in the
fiscal year ended December 31, 1996.
Regulation
The construction and operation of RCCs are subject to both federal and
state regulation, principally by the FCC under the Communications Act of 1934,
as amended (the "Communications Act"). The Company believes it is in compliance
with all applicable federal and state regulations.
The FCC's review and revision of rules affecting paging companies is
ongoing and the regulatory requirements to which the Company is subject may be
modified significantly. The FCC recently has proposed adopting a market area
licensing scheme for all paging channels under which carriers would be licensed
to operate on a particular channel throughout a broad geographic area, rather
than being licensed on a site-by-site basis. Under the proposal, existing paging
facilities would be entitled to protection as grandfathered systems. The ability
of paging carriers to make major modifications to their current systems has been
restricted during the pendency of that rule making proceeding, and may continue
to be restricted once wide area licensing rules are adopted. On February 8,
1996, the FCC announced a temporary cessation in the acceptance of applications
for new paging stations, and restricted current licensees from expanding into
new territories on existing channels. Existing licensees were (and are)
permitted to add transmitters or make modifications to existing facilities that
do not expand the licensee's previously authorized interference contours. On
April 23, 1996, the FCC partially lifted its "freeze" on the filing of paging
applications to permit limited expansion by existing licensees on their
previously- authorized channels. The FCC subsequently stated, by Public Notice,
that it would process paging applications filed on or before July 31, 1996;
applications filed after that date may or may not be processed, depending upon
their status when the FCC adopts a Report and Order in its rule making
proceeding to adopt market area licensing. The FCC also has proceedings underway
that may have a significant impact on the manner in which telephone numbers are
assigned and utilized by common carriers, including paging companies. Some of
the alternatives under consideration by the FCC, if adopted, could adversely
affect the Company.
RCC operations may be conducted only on channels assigned by the FCC.
The FCC grants a license for the use of such channels only upon compliance with
FCC regulations. Upon receiving a grant, a licensee is authorized to construct
and operate an RCC facility in the assigned area using the designated channel.
In the Company's markets all available channels have been allocated.
The FCC licenses granted to the Company are for terms of 10 years, at
the end of which time renewal applications must be approved by the FCC. The
majority of the Company's current licenses all expire in 1999. In the past, FCC
renewal applications routinely have been granted upon a demonstration of
compliance with FCC regulations and adequate service to the public. The FCC has
granted each renewal license the Company has filed. Although the Company is
unaware of any circumstances which would prevent the grant of any renewal
applications, no assurance can be given that any of the Company's licenses will
be renewed by the FCC. In addition, the FCC has the authority to revoke or
modify licenses. No licenses owned by the Company have ever been revoked.
The Communications Act requires licensees such as the Company to
obtain prior approval from the FCC for the transfer of control of any
construction permit or station license, or any rights thereunder. The
Communications Act also requires prior approval by the FCC of acquisitions by
the Company of other paging companies and transfers by the Company of a
controlling interest in any of its licenses or construction permits. The FCC has
approved each acquisition and transfer of control for which the Company has
sought approval.
The Communications Act also limits foreign ownership of entities that
hold licenses from the FCC. All of the Company's FCC licenses are owned by
wholly-owned subsidiaries of the Company. As a result, no more than 25 percent
of the Company's stock may be owned or voted by aliens or their representatives,
a foreign government or its representatives, or a foreign entity.
Historically, RCC paging operations were also subject to regulations
by the states. The Omnibus Budget Reconciliation Act of 1993 (the "Budget Act")
preempted most state and local rate and entry regulation of all Commercial
Mobile Radio Services ("CRMS") operators effective August 10, 1994. Entry
regulations typically refer to the process whereby an RCC operator must apply to
the state to obtain a certificate to provide service in that state. Rate
regulation typically refers to the requirement that RCCs file a tariff
describing the carrier's rates, terms and conditions by which it provides paging
services. Under Section 332(c)(3)(B) of the Communications Act, however, any
state that had such regulations in place as of June 1, 1993, was permitted to
petition the FCC to extend such rate regulations. The FCC indicated that the
states who wished to continue such regulations bore the burden of proving that,
due to lack of marketplace competition and unavailability of local telephone
service, such continued regulation of RCC/CMRS operators would be necessary.
In August of 1994, eight states, Hawaii, Arizona, California,
Connecticut (cellular telephone service only), ouisiana, New York, Ohio and
Wyoming petitioned the FCC to retain rate regulation authority over intrastate
CMRS operators. The FCC has denied all but one of these state petitions (no
confirmation as to the status of the Wyoming petition was available from the
FCC), and all appeals of those denials before the FCC have been exhausted. One
state, Connecticut, filed an appeal of the FCC's denying its petition with the
U.S. Court of Appeals for the Second Circuit. The Second Circuit affirmed the
FCC's decision in early 1996.
Apart from rate regulations, some states may continue to regulate
other aspects of Page America's business in the form of zoning regulations, or
"health and safety" measures. The Budget Act does not preempt state authority to
regulate such matters. Although there can be no assurances given with respect to
future state regulatory approvals, based on its experience to date, Page America
knows of no reason to believe such approvals would not be granted.
More recently, Congress enacted the Telecommunications Act of 1996
(the "Telecommunications Act") which requires, inter alia, that state and local
zoning regulations shall not unreasonably discriminate among providers of
"functionally equivalent" wireless services, and shall not have the effect of
prohibiting the provision of personal wireless services. Additionally, state and
local governments may not regulate the placement, construction and modification
of personal wireless service facilities on the basis of the environmental
effects of radio frequency emissions, if the facilities comply with the FCC's
requirements.
From time to time, legislation which could potentially affect Page
America, either beneficially or adversely, is proposed by federal and state
legislators. In 1993, federal legislation was enacted which permits auction of
new radio spectrum allocated by the FCC to new or existing services which may
have the effect of increasing competition for scarce spectrum and affecting
costs of operation in markets in which Page America operates.
The recently-enacted Telecommunications Act will also have an impact
on the paging industry; the Company expects that the impact will be mostly
positive. For example, the Telecommunications Act imposes a duty on all
telecommunications carriers to provide interconnection to other carriers, and
requires local exchange carriers (LECs) to, among other things, establish
reciprocal compensation arrangements for the transport and termination of calls,
provide other telecommunications carriers access to network elements on an
unbundled basis on reasonable and nondiscriminatory rates, terms and conditions.
The Telecommunications Act also requires the FCC to appoint (an) impartial
entit(y)(ies) to administer telecommunications numbering and to make numbers
available on an equitable basis. Additionally, as previously indicated, the
Telecommunications Act restricts state and local authority with regard to zoning
and environmental regulation of telecommunications operators. Other provisions
of the Telecommunications Act, however, may provide for increased competition to
the Company (for example, the provisions allowing the FCC to forbear from
applying regulations and provisions of the Communications Act to any class of
carriers, not only to CMRS, and the provisions allowing public utilities to
provide telecommunications services directly) and may impose additional
regulatory costs (for example, provisions requiring contributions to universal
service by providers of both interstate and intrastate telecommunications).
Competition
The Company experiences competition, from independent companies as
well as Regional Bell Operating Companies, in its efforts to attract and retain
customers for its services in the markets in which it operates. Competition for
subscribers to the Company's paging services is based primarily on the quality,
price and breadth of services offered (including geographic coverage in each
market served). Since the transmitting and receiving equipment is virtually
identical, companies differentiate themselves by marketing, channels of
distribution, price competition, the variety of service options and breadth of
service coverage (more transmitters covering a larger territory). The Company
believes that based on the quality, price and breadth of services offered, it
generally competes effectively with its competitors.
Many RCCs in the United States are small companies serving limited
market areas; however, some of the Company's competitors, including Regional
Bell Operating Companies, are larger, have greater financial resources and are
more established than the Company.
In addition, future technological advances in the telecommunications
industry could create new services or products competitive with the paging
services currently provided by the Company. There can be no assurance that the
Company would not be adversely affected in the event of such technological
change.
Employees
At February 28, 1997, Page America employed 140 persons, none of whom
was represented by a labor union. Page America believes that its relations with
its employees are good.
Item 2. Properties
The Company leases approximately 15,200 square feet of office space at
125 State Street, Hackensack, New Jersey, under a lease expiring in 2000, at an
annual base rent of $281,000, approximately 10,715 square feet of office space
at 1919 South Highland Avenue, Lombard, Illinois, under a lease expiring in
2005, at an annual base rent of $151,000 and approximately 500 square feet of
retail space at 41 East 42nd Street, New York, New York, under a lease expiring
in 2004, at an annual base rent of $84,000. The Company has several other leases
for office and retail space which are not material individually and which
aggregate $472,000 per year expiring at various dates between 1997 and 2005. The
Company does not own any material real property. The Company also leases sites
for its transmitters on commercial broadcast towers, buildings and other fixed
sites at various rentals for various terms. The Company believes its facilities
are suitable and adequate for its purposes.
Item 3. Legal Proceedings
The Company is involved in various lawsuits and proceedings arising in
the normal course of business. In the opinion of management of the Company, the
ultimate outcome of these lawsuits and proceedings will not have a material
effect on the results of operations, financial position or cash flows of the
Company.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
Price Range of Common Stock
The Common Stock of the Company was listed on the American Stock
Exchange ("AMEX") under the symbol PGG. Due to Page America's inability to
comply with all the financial guidelines of the American Stock Exchange ("AMEX")
for continued listing, the Company's common stock was removed from the AMEX
listing in April, 1996. The last available price quotation was April 16, 1996
and, therefore, current price quotations are not available.
High Low
1995
First Quarter $3.75 $2.50
Second Quarter 3.38 0.50
Third Quarter 1.00 0.56
Fourth Quarter 0.75 0.13
1996
First Quarter $0.3125 $0.1875
Second Quarter 0.75 0.1875
Third Quarter -- --
Fourth Quarter -- --
There were approximately 2,054 shareholders of record of Common Stock
as of February 28, 1997. This number does not include beneficial owners holding
shares through nominee or "street" names.
Dividend Policy
The Company has never declared or paid cash dividends on its Common
Stock and does not anticipate paying cash dividends to the holders of its Common
Stock. The payment of dividends on Common Stock and Preferred Stock is also
restricted pursuant to the provisions of the Company's Credit Agreement (the
"Credit Agreement"). The Company's outstanding series of Series One Convertible
Preferred Stock provides that the Company may not declare or pay dividends on
its Common Stock unless all accrued dividends on the Series One Convertible
Preferred Stock have been paid in full. Payment of dividends on the Series One
Convertible Preferred Stock may be made in cash or in Common Stock of the
Company registered under the Securities Act of 1933. On June 12, 1996, accrued
dividends of $1,432,000 at December 31, 1995 were paid by the issuance of
7,899,590 shares of the Company's Common Stock. At December 31, 1996, accrued
and unpaid dividends on the Company's outstanding Series One Convertible
Preferred Stock aggregated $2,864,000.
Item 6. Selected Financial Data
The following selected consolidated financial data for each of the
five years in the period ended December 31, 1996 are derived from the
Consolidated Financial Statements of the Company. The selected consolidated
financial data should be read in conjunction with the Consolidated Financial
Statements and the related Notes thereto contained elsewhere in this report.
<TABLE>
<CAPTION>
Years Ended December 31,
1992 1993 1994(4) 1995(2) 1996
(In thousands, exept per share and pager date)
<S> <C> <C> <C> <C> <C>
Consolidated Statement of Operations Data:(1)
Total revenues $ 32,805 $ 30,257 $37,258 $29,107 $21,984
Operating expenses:
Cost of service and sales 3,296 4,253 5,709 4,363 3,412
Selling 6,544 4,879 6,842 6,066 3,988
General and administrative 8,940 8,688 10,653 8,923 6,270
Technical 3,455 3,343 4,685 4,262 3,190
Depreciation, amortization and write-off of intangibles 9,519 9,793 10,817 8,585 6,173
--------- ------- -------- ------- -------
Operating profit (loss) 1,051 (699) (1,448) (3,092) (1,049)
Interest expense 4,783 4,032 5,102 6,263 6,153
Other expenses 1,957 1,814 478 3,738 908
Extraordinary gain(5) 7,156 -- -- -- --
Cumulative effect of changes in accounting principles(7) (3,960) -- -- -- --
--------- --------- --------- --------- -------
Net loss (2,493) (6,545) (7,028) (13,093) (8,110)
Preferred stock dividend requirements (2,791) (3,268) (3,023)(3) (2,863)(3) (2,864)
---------- --------- --------- ----------- -------
Net loss applicable to common shares $(5,284) $(9,813) $(10,051) $(15,956) $(10,974)
========== ========= =========== =========== ========
Net loss per common share(6) $(1.40) $(2.55) $(1.55) $(2.01) $(0.88)
========== ========= =========== =========== ========
Weighted average shares outstanding 3,774 3,847 6,464 7,936 12,498
Other Data:
Pagers in service at end of period 228,000 305,000 311,000 221,000 205,000
Capital expenditures, net of book value of pagers
sold (excluding acquisitions) $4,296 $2,630 $5,365 $3,300 $2,597
Net cash provided by (used in)
Operating activities $5,688 $8,028 8,602 $2,064 2,988
Investing activities (8,375) (20,312) (8,881) 11,329 (2,907)
Financing activities 2,779 15,030 (1,505) (13,770) ( 542)
December 31
1992(5) 1993(4) 1994(3) 1995(2)(3) 1996
Consolidated Balance Sheet Data:
Working capital (deficiency) $(10,242) $( 2,053) $( 9,541) $(52,444) (58,409)
Total assets 58,755 75,193 70,229 44,003 39,561
Long-term debt, less current maturities 48,269 57,850 56,953 69 37
Series A, A-2 and B Preferred Stock 17,063 -- -- -- --
Accumulated deficit (59,365) (68,980) (78,989) (94,945) (105,919)
Shareholders' equity (deficit) (21,402) 9,096 439 (11,222) (20,746)
(1) EBITDA (earnings before interest, taxes, depreciation and amortization) for
the years ended December 31, 1992, 1993, 1994, 1995 and 1996 was $10.6
million, $9.1 million, $9.4 million, $5.5 million and $5.1 million
respectively. EBITDA is a standard measure of financial performance in the
paging industry but should not be construed as an alternative to operating
income or cash flows from operating activities as determined in accordance
with generally accepted accounting principles.
(2) In July 1995, the Company sold its California and Florida paging assets.
Concurrently with the sale, the Company amended its Credit Facility and
Subordinated Notes providing, among other things, for accelerated
maturities. Such debt, which was classified as long term at December 31,
1994, is in default and is classified as a current liability at December
31, 1995 and 1996. See Note E of Notes to Financial Statements.
(3) In August, 1994 and March, 1995, the Company issued shares of its Common
Stock as full payment of fiscal year 1994 dividends on Series One
Convertible Preferred Stock. On June 30, 1995, in exchange for the waiver
of the dividend payment on Series One Convertible Preferred Stock, the
accrued dividends were added to the liquidation value. In June, 1996, the
Company issued shares of its Common Stock in payment of accrued dividends
at December 31, 1995 on Series One Convertible Preferred Stock. See Note G
of Notes to Consolidated Financial Statements.
(4) On December 30, 1993, the Company acquired Crico and refinanced its senior
and subordinated debt and redeemable Preferred Stocks.
(5) In June of 1992, the Company repurchased its subordinated note payable.
(6) The Company has never paid any cash dividends on its Common Stock.
(7) Effective January 1, 1992, the Company changed its method of depreciation
for pager equipment from the straight line method to the double declining
balance method.
</TABLE>
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Results of Operations
The following table presents certain items in the Consolidated
Statement of Operations and as a percentage of total revenues for the periods
indicated.
<TABLE>
<CAPTION>
Years Ended
December 31,
------------------------------------------------------------------------------------------------
1996 1995 1994
-----------------------------------------------------------------------------------------------
(Dollar amounts in thousands)
<S> <C> <C> <C> <C> <C> <C>
Total revenues $21,984 100.0% $29,107 100.0% $37,258 100.0%
Operating expenses:
Cost of service and sales 3,412 15.5 4,363 15.0 5,709 15.3
Selling expenses 3,988 18.2 6,066 20.8 6,842 18.4
General and administrative
expenses 6,270 28.5 8,923 30.7 10,653 28.6
Technical expenses 3,190 14.5 4,262 14.6 4,685 12.6
Depreciation, amortization
and write-off of intangibles 6,173 28.1 8,585 29.5 10,817 29.0
Operating profit (loss) (1,049) (4.8) (3,092) (10.6) (1,448) (3.9)
Interest expense 6,153 28.0 6,263 21.5 5,102 13.7
Net loss $(8,110) (36.9)% $(13,093) (45.0)% $(7,028) (18.9)%
</TABLE>
Year Ended December 31, 1996 Compared with
Year Ended December 31, 1995
Total revenues for fiscal 1996 were approximately $7.1 million (24.5
percent) lower than that of 1995. The decline was due to the sale, in 1995, of
the Company's Florida and California operations ($4.4 million ) plus a reduction
in continuing operations ($2.7 million) resulting from lower average revenue per
unit (ARPU) and a reduction in units in service. ARPU declined as a result of
the emphasis on the sale of pagers (for which the Company does not receive
recurring equipment rental revenue) and rates obtained from new subscribers were
lower than the rates associated with lost subscribers due to competitive
pressure. While revenue rates associated with leased units are higher than rates
associated with customer owned units, the Company does not believe that overall
profitability of these arrangements is substantially different because of the
depreciation costs associated with leased units. The Company's units in service
at December 31, 1996 declined by 16,000 units from the 221,000 units in service
at December 31, 1995 as a result of limited capital available to purchase new
pagers.
Cost of service decreased $512,000 (19.4 percent) in 1996. This
decrease was principally due to cost of service associated with the sold
operations. Cost of sales decreased by approximately $439,000 (25.4 percent) in
1996. As a percent of sales revenues, cost of sales increased from 64% of sales
revenues in 1995 to 67% in 1996, primarily as a result of lower selling prices
due to competitive pressure.
Selling expense decreased by approximately $2.1 million (34.3 percent)
in 1996 as compared to 1995. $1 million of the decrease was due to selling
expenses associated with the sold operations. The Company's remaining operations
experienced a decrease of $1.1 million primarily due to a reduction in sales
personnel ($500,000) and advertising ($600,000).
General and administrative expenses decreased by $2.7 million (29.7
percent). A decrease of $1.4 million was due to expenses associated with the
sold operations. The Company's remaining operations experienced a decrease of
$1.3 million primarily due to a reduction in personnel and a decrease in
professional fees, partially offset by an increase in bad debt expense.
Technical expenses decreased by $1.1 million (25.1 percent),
principally as a result of the sale of the Florida and California operations.
Depreciation expense decreased by $938,000 (17.9 percent), $778,000 of
which was due to the sale of depreciable assets in Florida and California. The
decrease experienced by the Company's remaining operations resulted from the
decrease in pagers on lease to customers.
Amortization expense decreased by approximately $1.5 million (44.0
percent) in 1996 over 1995, principally due to the elimination of intangible
assets related to the Florida and California operations.
Interest expense remained relatively constant in 1996 as compared to
1995.
Other expenses decreased approximately $2.8 million (75.7 percent) in
1996. The decrease was primarily due to the following special charges in
1995: a write-down of deferred financing costs related to the senior debt and
subordinated debt amounting to $1.6 million, loss realized on the sale of the
Florida and California operations of approximately $718,000 and costs associated
with the debt restructuring in the amount of $726,000. Fiscal year 1996 included
banking fees of $450,000 associated with the modification of the senior credit
facility.
Net loss was $8.1 million (36.9 percent of total revenues) in the year
ended December 31, 1996, as compared to $13.1 million (45.0 percent of total
revenues) in the year ended December 31, 1995.
EBITDA (earnings before interest, taxes, depreciation and
amortization) in 1996 was $5.1 million as compared to $5.5 million in 1995.
Year Ended December 31, 1995 Compared with
Year Ended December 31, 1994
Total revenues for fiscal 1995 were approximately $8.2 million (21.9
percent) lower than that of 1995. The decline was due to the sale, in 1995, of
the Company's Florida and California operations ($4.5 million) plus a reduction
in continuing operations ($3.7 million) resulting from lower average revenue per
unit (ARPU) and a reduction in units in service. ARPU declined as a result of
the emphasis on the sale of pagers (for which the Company does not receive
recurring equipment rental revenue) and rates obtained from new subscribers were
lower than the rates associated with lost subscribers due to competitive
pressure. While revenue rates associated with leased units are higher than rates
associated with customer owned units, the Company does not believe that overall
profitability of these arrangements is substantially different because of the
depreciation costs associated with leased units. The Company's units in service
at December 31, 1995 declined by 90,000 units (78,000 units are attributable to
the sale of the Florida and California operations) from the 311,000 units in
service at December 31, 1994. The decline attributable to the remaining
operation is a result of limited capital available to purchase new pagers.
Cost of service decreased $303,000 (10.3 percent) in 1995. This
decrease was principally due to cost of service associated with the sold
operations. Cost of sales decreased by approximately $1 million (37.7 percent)
in 1995. As a percent of sales revenues, cost of sales increased from 61% of
sales revenues in 1994 to 64% in 1995, primarily as a result of lower selling
prices due to competitive pressure.
Selling expense decreased by approximately $776,000 (11.3 percent) in
1995 as compared to 1994. $661,000 of the decrease was due to selling expenses
associated with the sold operations.
General and administrative expenses decreased by $1.7 million (16.2
percent). A decrease of $1 million was due to expenses associated with the sold
operations. The Company's remaining operations experienced a decrease of
$700,000 primarily due to a reduction in bad debt expense and, to a lesser
extent, reductions in personnel.
Technical expenses decreased by $423,000 (9.0 percent), principally as
a result of the sale of the Florida and California operations, partially offset
by an increase in personnel costs.
Depreciation expense decreased by $1.1 million (17.8 percent),
$462,000 of which was due to the sale of depreciable assets in Florida and
California. The decrease experienced by the Company's remaining operations
resulted from the lower average price of pagers purchased in 1995 and the
decrease in pagers on lease to customers, partially offset by a $465,000
valuation adjustment of pager assets in the fourth quarter of 1995.
Amortization expense decreased by approximately $1.1 million (24.7
percent) in 1995 over 1994, principally due to the elimination of intangible
assets related to the Florida and California operations and certain customer
lists becoming fully amortized in the second quarter of 1994 and first quarter
of 1995, partially offset by a write off of certain intangibles related to the
Nynex acquisition.
Interest expense increased by approximately $1.2 million (22.8
percent) in 1995 primarily due to higher interest rates, in the current period,
on borrowings outstanding under the Company's senior credit facility and
subordinated debt agreement.
Other expenses increased approximately $3.3 million (682 percent) in
1995. The increase was primarily due to a write-down of deferred financing costs
related to the senior debt and subordinated debt amounting to $1.6 million, loss
realized on the sale of the Florida and California operations of approximately
$718,000 and costs associated with the debt restructuring in the amount of
$726,000.
Net loss was $13.1 million (45.0 percent of total revenues) in the
year ended December 31, 1995, as compared to $7.0 million (18.9 percent of total
revenues) in the year ended December 31, 1994.
EBITDA (earnings before interest, taxes, depreciation and
amortization) in 1995 was $5.5 million as compared to $9.4 million in 1994.
Liquidity and Capital Resources
The Company had working capital deficiencies of $58.4 million, $52.4
million, $9.5 million and $2.1 million at December 31, 1996, 1995, 1994 and
1993, respectively. The $6.0 million increase in working capital deficiency from
1995 to 1996 was principally due to increases in accrued interest ($3.2
million), accrued dividends ($1.4 million) and short term borrowings ($900,000).
The $42.9 million increase from 1994 to 1995 was principally due to an increase
in current debt maturities related to the Company's Senior Credit Facility
($33.2 million) and Subordinated Notes ($14.7 million), offset by decreases in
accounts payable ($2.8 million), accrued expenses ($1.5 million) and accrued
interest ($700,000). The $7.4 million increase from 1993 to 1994 was principally
due to the Company's investment in RCC equipment ($2.0 million), additional
purchase price in connection with the Crico acquisition ($1.5 million), and to
increases in accrued dividends ($1.4 million), accounts payable ($1.0 million)
and accrued interest ($800,000).
The Company, since its inception, has experienced a deficiency in working
capital and recurring losses. In 1995, as a result of non-compliance by the
Company with certain covenants of its credit facility (the "Credit Facility"),
the terms were modified to accelerate the final maturity to December 29, 1995,
and the Subordinated Notes were modified to provide for a final maturity of six
months thereafter. On April 26, 1996, the Credit Facility was again modified to
provide for a revolving credit loan of $750,000, a waiver of all existing
defaults on certain financial and other covenants, the omission of financial
covenants effective April 30, 1996 and an extension of the maturity date to
November 30, 1996. The Credit Facility was not repaid at maturity causing the
Credit Facility to be in default. In addition, the Subordinated Notes matured at
December 31, 1996 and are in default (see Note E of Notes to Consolidated
Financial Statements). Such debt is classified as a current liability and the
Company's current liabilities exceeded its current assets by $58.4 million at
December 31, 1996. On April 23, 1996, Page America entered into a definitive
agreement to sell substantially all of its assets to Metrocall, Inc. On January
30, 1997, this agreement was amended. The amended agreement provides for a
purchase price of (A) $25 million in cash, (B) 1,500 shares of series B
Preferred Stock of Metrocall having a stated value of $15 million, (C) 762,960
shares of Metrocall Common Stock, and (D) shares of Metrocall Common Stock or
other equity securities having a share value equal to $15 million, subject to
adjustment based on changes in the Company's Working Capital Deficit and
decreases in service revenue below specified thresholds. Metrocall has the
option to substitute cash at closing for all or a portion of the stock
consideration. Excluded from the sale are cash, assets related to the employee
benefit plans and to the Florida and California operations which had been
previously sold, liabilities under the senior credit facility, subordinated debt
agreement and NEC America leasing contract and obligations with respect to
federal, state and local taxes. This sale is subject to the approval of the
Company's shareholders. After expenses, it is anticipated that the sale will
result in a gain of approximately $19 million. There is no assurance that the
transaction will be consummated.
Following completion of the sale of its assets to Metrocall, the Company
plans to liquidate. The cash to be received by Page America from this sale will
not be sufficient for Page America to pay in full in cash its outstanding
obligations under the Credit Facility or under the Subordinated Notes or to pay
its other outstanding liabilities. The Company anticipates paying off the
balance of its obligations from proceeds generated by the sale of Metrocall
Common Stock, Common Stock Equivalents and Series B Preferred Stock.
The value of the assets of Page America to be available for distribution to
its shareholders upon liquidation cannot be ascertained at this time and will
depend, among other things, on the amount of its remaining liabilities, the
number of shares of Metrocall Common Stock or Common Stock Equivalents to be
returned to Page America from the escrow and the sale or disposition of the
Metrocall common stock, common stock Equivalents and Series B Preferred Stock to
be received by Page America pursuant to the Acquisition Agreement. Upon the
completion of sale to Metrocall, Page America will not conduct any ongoing
business operations or generate any revenues by reason thereof. Accordingly,
there can be no assurance that there will be any assets available for
distribution to Page America's Shareholders upon liquidation and dissolution.
At December 31, 1996 the Company had net operating losses of
approximately $79.9 million for federal income tax purposes which will expire at
varying dates between 1998 and 2011. Certain stockholder transactions have
resulted in an ownership change, as defined, which, under the Internal Revenue
Code, limits the utilization of the net operating loss carryforwards.
The Company maintains a policy for delinquent customers of billing and
attempting to collect the balance of the unexpired term of their contracts and
the value of unreturned leased pagers. In 1996, the Company wrote off
approximately $900,000 of accounts receivable against the allowance for doubtful
accounts.
Inflation and Changing Prices
Inflation has not materially affected the sale of paging services by
the Company. Paging systems equipment, leasing costs and transmission costs have
not risen significantly, nor has the Company substantially increased its charges
to customers. Pager costs have actually declined in recent years. This reduction
in cost has generally been reflected in lower prices charged to subscribers.
Overhead expenses are, however, subject to inflationary pressure.
Item 8. Financial Statements and Supplementary Data.
The Financial Statements and supplementary data required by Part II,
Item 8, are included in Part IV, as indexed at Item 14(a)(1).
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
None.
PART III
Item 10. Directors and Executive Officers of the Registrant
<TABLE>
<CAPTION>
The executive officers and directors of the Company are as follows:
Director or
Name Age Position with Company Officer Since
<S> <C> <C> <C>
Kathleen C. Parramore 45 President, Chief Operating Officer and Director 1990
Richard A. Contrera 51 Vice President--RCC Engineering 1985
Martin Katz 44 Vice President--Administration
and Chief Financial Officer 1995
Martin H. Neidell 50 Secretary 1983
David A. Barry(1)(2) 50 Chairman of the Board, Director and 1988
Chief Executive Officer
Jack Kadis 48 Director 1996
(1) Member of the Audit Committee
(2) Member of the Compensation Committee
</TABLE>
The Directors are presently elected for one year terms which expire at
the next annual meeting of shareholders. Executive officers are elected annually
by the Board of Directors to hold office until the first meeting of the Board
following the next annual meeting of shareholders and until their successors are
chosen and qualified.
Ms. Parramore has been President and Chief Operating Officer of the
Company since March 1995 and a Director since 1996. She was Vice President from
December 1990 until 1995. She has been employed by the Company since April 1990.
From 1989 to 1990, she was general manager of Nationwide Cellular; from 1987 to
1989, she was Chief Financial Officer of American Mobile Communications; and
from 1984 to 1987, she was Chief Financial Officer of AT&T Intelliserve.
Mr. Contrera has been Vice President--RCC Engineering of the Company
since July 1985 and has been employed by the Company since November 1983. In
1983, Mr. Contrera was a Project Manager for 3M Corporation and from 1973
through 1982 held various positions with U.A. Columbia Cablevision, Inc.,
including Director of Operations.
Mr. Katz has been Vice President-Administration and Chief Financial
Officer since April 1995. From 1987 through 1994, Mr. Katz was Chief Financial
Officer and Vice President of Finance and Business Affairs at CEL
Communications, Inc.
Mr. Neidell has been Secretary of the Company since 1983. For more
than the past five years, Mr. Neidell has been a partner of Stroock & Stroock &
Lavan LLP, counsel to the Company.
Mr. Barry has been President of Bariston Associates, Inc. since April
1986. He has been acting as Chairman of the Board and Chief Executive Officer of
the Company since August 1, 1995. Mr. Barry was Managing Director and Principal
of Winthrop Financial Associates from September 1982 to April 1986. Prior
thereto Mr. Barry was a Managing Director of Paine Webber Incorporated.
Mr. Kadis has been a director since 1996. Mr. Kadis has been Executive
Vice President of Bariston Associates, Inc. for the past ten years.
The Company's non-employee Directors are entitled to annual fees of
$1,500 and $250 for each meeting attended, plus reimbursement for expenses in
attending meetings. Messrs. Barry and Kadis have waived their right to these
fees.
Item 11. Executive Compensation
The following table sets forth information concerning compensation
paid to the Company's Chief Executive Officer and to each of the other most
highly compensated executive officers of the Company whose salary and bonus for
1996 exceeded $100,000. Mr. Barry, the Chief Executive Officer, does not receive
any compensation for service in such capacity.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
=============================================================================================================================
ANNUAL COMPENSATION Long Term Compensation
Name and Principal Year Salary Bonus Other Options All Other
Position ($) ($) Annual (#) Compensation(1)
Comp. ($) ($)
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Kathleen C. Parramore 1996 $165,000 $25,000 $2,807
President, Chief
Operating Officer
and Director
1995 $160,673 - 150,000 $4,957
1994 $140,000 $39,000
- -----------------------------------------------------------------------------------------------------------------------------
Martin Katz 1996 $150,000 $20,000 $2,045
Vice President
1995 $102,692 - 75,000 $1,038
- ----------------------------------------------------------------------------------------------------------------------------------
Richard A. Contrera 1996 $110,140 $10.000 $1,377
Vice President
1995 $110,039 - $5,173
1994 $104,745 $7,867
==================================================================================================================================
(1) Consists of Company matching contributions under the Company's Stock Purchase Plan and $650 in premiums
on an insurance policy on the life of Ms. Parramore under which she designates the beneficiaries.
</TABLE>
Agreements
Ms. Parramore is employed under an employment agreement with the Company
which expires on February 28, 1997 and provides for an annual salary at the rate
of $165,000 per year, plus a discretionary bonus. The agreement is automatically
extended for successive one year periods unless terminated by Page America or
Ms. Parramore at least three months prior to any expiration date. Page America
may terminate this agreement at any time, with or without cause; provided,
however, that if such termination is without cause, Ms. Parramore will be
entitled to receive her salary for one year. Upon the closing of the acquisition
of assets by Metrocall, Ms. Parramore will be entitled to receive a severance
payment of $165,000 payable in twelve equal monthly installments commencing
after the closing. This payment will not be made if Ms. Parramore becomes
employed by Metrocall. In May, 1996, Ms. Parramore received a cash bonus of
$25,000. Upon closing of the acquisition, Ms. Parramore will be entitled to a
further cash bonus of approximately $5,400.
Upon closing of the Acquisition, Mr. Katz will be entitled to a six
month severance payment of $75,000, payable in six equal monthly installments
commencing after the closing. This payment will not be made if Mr. Katz becomes
employed by Metrocall. In May, 1996, Mr. Katz received a cash bonus of $20,000.
Upon closing of the Acquisition, Mr. Katz will be entitled to a further cash
bonus of approximately $12,400.
The Company also entered into an employment arrangement with Richard
Contrera. Page America paid a cash bonus of $10,000 to Mr. Contrera in May,
1996, agreed to a second cash payment of $10,000 at the end of his employment
with Page America and an additional $10,000 for each of the four months
following termination of his employment with Page America.
Stock Option Grants and Exercises
There were no stock options granted during the fiscal year ended
December 31, 1996.
The following table sets forth information with respect to the named
executives concerning exercise of options during the fiscal year ended December
31, 1996 and unexercised options held at December 31, 1996. The value of
unexercised, in-the-money options at December 31, 1996 is the difference between
the exercise price of options and the fair market value of Page America's Common
Stock on December 31, 1996. The last available price quotation was on April 16,
1996 and, therefore, current price quotations are not available.
<TABLE>
<CAPTION>
STOCK OPTION EXERCISES TABLE
FOR THE YEAR ENDED DECEMBER 31, 1996
YEAR END STOCK VALUE
==================================================================================================================================
Number of Unexercised Value of Unexercised
Options at In-the-Money Options at
Shares Value Fiscal Year-End Fiscal Year End ($)
Name Acquired on Realized
Exercise (#) ($)
-----------------------------------------------------------------------
Exercisable Unexercisable Exercisable Unexercisable
(#) (#)
<S> <C> <C> <C> <C> <C> <C>
Kathleen C. Parramore 0 0 37,000 120,500 0 0
- -----------------------------------------------------------------------------------------------------------------------------------
Martin Katz 0 0 15,000 60,000 0 0
- -------------------------------------------------------------------------------------------------------------------------------- -
Richard A. Contrera 0 0 5,000 0 0 0
===================================================================================================================================
</TABLE>
Item 12. Security Ownership of Certain Beneficial Owners and Management
The following table sets forth certain information with respect to
beneficial ownership of Common Stock at January 31, 1997 by (i) each person
known by the Company to beneficially own more than five percent of outstanding
Common Stock, (ii) each Director of the Company, (iii) each of the most highly
compensated executive officers of the Company and (iv) all Directors and
executive officers of the Company as a group. Except as noted below, each person
or entity has sole voting and investment power with respect to all shares listed
as owned by such person or entity.
<TABLE>
<CAPTION>
Name and Address Number(1) Percent of Class
<S> <C> <C>
David A. Barry(2) 8,104,940 33.6%
One International Place
Boston, MA 02110
Jack Kadis(2) 8,069,113 33.5%
One International Place
Boston, MA 02110
Bariston Paging Partners, L.P.(2) 7,781,837 32.7%
c/o Bariston Associates, Inc.
One International Pl.
Boston, MA 02110
T. Rowe Price High Yield Fund, Inc.(3) 2,264,135 12.4%
100 East Pratt Street
Baltimore, MD 21202
T. Rowe Price Strategic Partners Associates, Inc.(4) 974,401 5.7%
100 East Pratt Street
Baltimore, MD 21202
Sandler Mezzanine General Partnership(5) 1,497,464 8.5%
767 Fifth Avenue
New York, NY 10153
Revy Investment Co., Inc.(6) 1,022,724 6.0%
1900 Wilshire Blvd.
Los Angeles, CA 90024
Richard Contrera(7) 25,757 *
Kathleen Parramore(8) 168,624 1.0%
Martin Katz(9) 75,000 *
Directors and executive officers as a group(10) 296,467 1.8%
(5 persons)
* Less than one percent.
(1) Assumes exercise of options or warrants to purchase shares of Common Stock
and conversion of shares of Series One Convertible Preferred Stock into
shares of Common Stock.
(2) David A. Barry is a director of the Company elected by the holders of the
Company's Series One Convertible Preferred Stock. Mr. Barry and Jack Kadis
are the general partners of BHI Associates VI, L.P., which is the sole
general partner of Bariston Paging Partners, L.P. ("Bariston Paging").
Messrs. Barry and Kadis are the controlling shareholders of Bariston
Holdings, Inc., which is the sole shareholder of Bariston Associates, Inc.
("Bariston") and Bariston Securities, Inc. The total number of shares
listed above include 156,242 shares of Series One Convertible Preferred
Stock owned by Bariston Paging; 2,254 shares of Series One Convertible
Preferred Stock owned by Bariston Associates; 378 shares of Series One
Convertible Preferred Stock owned by Mr. Barry, which are convertible into
an aggregate of 3,530,180 shares of Common Stock; 125,778 shares of Common
Stock issuable upon exercise of warrants owned by BHI Associates VI, L.P.;
41,672 shares of Common Stock issuable upon exercise of warrants owned by
Bariston; 4,310,140 shares of Common Stock owned by Bariston Paging; 69,742
shares of Common Stock owned by Bariston; and 27,428 shares of Common Stock
owned by Mr. Barry. Messrs. Barry and Kadis disclaim beneficial ownership
of the portion of the foregoing shares in which they have no actual
pecuniary interest.
(3) Consists of 20,000 shares of Series One Convertible Preferred Stock
convertible into an aggregate of 444,400 shares of Common Stock; warrants
to purchase 711,111 shares of Common Stock at an exercise price of $3.50
per share; and 1,108,624 shares of Common Stock.
(4) T. Rowe Price Strategic Partners Associates, Inc. is the general partner of
T. Rowe Price Strategic Partners Fund, L.P. (the "Fund") and T. Rowe Price
Strategic Partners Fund II, L.P. ("Fund II"). Consists of 5,642 shares of
Series One Convertible Preferred Stock convertible into an aggregate of
125,365 shares of Common Stock and warrants to purchase 15,200 shares of
Common Stock at an exercise price of $3.50 per share and 356,358 shares of
Page America Common Stock owned by the Fund and 12,918 shares of Series One
Convertible Preferred Stock convertible into an aggregate of 287,037 shares
of Common Stock and warrants to purchase an aggregate of 34,800 shares of
Common Stock at an exercise price of $3.50 per share and 155,641 shares of
Common Stock owned by Fund II.
(5) Sandler Mezzanine General Partnership is the investment General Partner of
each of Sandler Mezzanine T-E Partners, L.P. ("TE"), Sandler Mezzanine
Partners, L.P. ("SM") and Sandler Mezzanine Foreign Partners, L.P. ("FP").
Consists of 5,390, 12,020, and 2,590 shares of Series One Convertible
Preferred Stock owned by TE, SM, and FP, respectively, which are
convertible into an aggregate of 444,400 shares of Common Stock; 164,022,
365,782, and 78,815 shares of Common Stock owned by TE, SM and FP,
respectively; and warrants to purchase 119,823, 267,200 and 57,422 shares
of Common Stock owned by TE, SM, and FP, respectively, at an exercise price
of $3.50 per share.
(6) Includes 551,729 shares of Common Stock and 20,000 shares of Series One
Convertible Preferred Stock convertible into an aggregate of 444,400 shares
of Common Stock.
(7) Includes 10,000 shares of Common Stock issuable upon exercise of options
and 15,757 shares of Common Stock vested under the Company's Stock Purchase
Plan.
(8) Includes 162,500 shares of Common Stock issuable upon exercise of options
and 5,724 shares of Common Stock vested under the Company's Stock Purchase
Plan.
(9) Consists of 75,000 shares of Common Stock issuable upon exercise of
options.
(10) Includes 237,500 shares of Common Stock issuable upon exercise of options
owned by all executive officers and Directors; 23,140 shares of Common
Stock vested under the Company's Stock Purchase Plan; 27,428 shares of
Common Stock; and 378 shares of Series One Convertible Preferred Stock
which are convertible into 8,399 shares of Common Stock.
</TABLE>
Item 13. Certain Relationships and Related Transactions
Bariston Associates, Inc. ("Bariston") has been engaged by the Company
to provide investment banking functions for which it receives an annual fee of
$105,000, subject to cost of living adjustments. This agreement will terminate
upon the earlier to occur of Bariston and its affiliates ceasing to control a
majority of the Series One Convertible Preferred Stock or Common Stock issued
upon conversion thereof or Bariston and its affiliates owning less than 20
percent of the Company's fully diluted shares of Common Stock. At December 31,
1996, Page America owed to Bariston the amount of $288,565, which amount is
expected to be paid at the closing of the Acquisition.
Holders of a majority of Series One Convertible Preferred Stock, as a
class, have the right to elect two directors of the Company. In addition, if any
dividend payments are not made to the holders of shares of Series One
Convertible Preferred Stock, the dividend rate will increase to 15% per annum
and the holders of a majority of Series One Convertible Preferred Stock will be
entitled to elect an additional director of the Company. If a change in control
of the Company occurs, the holders of Series One Convertible Preferred Stock
have the right to cause the Company to repurchase such stock at its liquidation
value, plus accrued dividends. Bariston Paging Partners, L.P. holds a majority
of the Series One Convertible Preferred Stock. Mr. Barry and Mr. Kadis are the
directors elected by the holders of Series One Convertible Preferred Stock. The
holders of a majority of the Series One Convertible Preferred Stock have agreed
that as long as they continue to own a majority of such stock they will vote for
a nominee designated by the holders of a majority of such stock.
David A. Barry and Jack Kadis, directors of the Company, are
affiliated with Bariston Securities, Inc. and Bariston.
All of the terms and provisions of the foregoing transactions were
determined on an arms length basis. The Company believes that the terms of these
transactions were no less favorable to the Company than those which could have
been obtained from unaffiliated third parties.
Certain shareholders of Page America, including Bariston Paging
Partners, who in the aggregate beneficially owned approximately 6,097,125 shares
of Page America Common Stock and 198,496 shares of Series One Preferred Stock,
or approximately 48% of the voting rights, have entered into the Stockholders
Agreement pursuant to which they have agreed to vote all of their shares of Page
America Common Stock and Series One Preferred Stock for the approval of the
Metrocall transaction. In addition, pursuant to the Stockholders Agreement, such
shareholders have also agreed to vote at any meeting of shareholders of Page
America against (i) any other acquisition proposal or (ii) any amendment to Page
America's Articles of Incorporation or By-Laws or other proposal or transaction
involving Page America or any of its subsidiaries which amendment or other
proposal or transaction would in any manner impede, frustrate, prevent or
nullify the Metrocall transaction. Pursuant to the terms of the Stockholders
Agreement, each such shareholder has granted Metrocall an option to purchase all
of such shareholders' shares of Page America Common Stock and Series One
Preferred Stock, which option is exercisable in the event that the Metrocall
transaction is terminated by Page America as a result of the receipt by Page
America of an acquisition proposal that is financially superior and is
reasonably capable of being financed. Under the terms of the option, Metrocall
will pay for each share of (i) Common Stock, the average of the last sales price
per share on the AMEX for the twenty consecutive trading days immediately prior
to the date of execution of the Stockholders Agreement, and (ii) Series One
Preferred Stock, $105.00, its liquidation preference.
Part IV
Item 14. Exhibits and Financial Statement Schedules and Reports on Form 8-K.
(a)(1). Financial Statements. The following consolidated financial
statements of Page America Group, Inc. and Subsidiaries,
required by Part II, Item 8, are included in Part IV of this
report:
Report of Independent Auditors
Consolidated Balance Sheets at December 31, 1996 and
December 31, 1995.
Consolidated Statements of Operations for the years ended
December 31, 1996, December 31, 1995, and December 31, 1994.
Consolidated Statements of Cash Flows for the years ended
December 31, 1996, December 31, 1995, and December 31, 1994.
Consolidated Statement of Stockholders' Equity (Deficit) for
the years ended December 31, 1996, December 31, 1995 and
December 31, 1994.
Notes to Consolidated Financial Statements.
(a)(2). Financial Statement Schedule.
Schedule II - Valuation and Qualifying Accounts
All other financial statement schedules are omitted because they are
not applicable, or not required, or because the required information is included
in the consolidated financial statements or notes thereto.
<PAGE>
Exhibits
(a)(3) Exhibits:
Exhibit No.
3.1 Restated Certificate of Incorporation of the Registrant, as amended.
Incorporated by reference to Exhibit 3.1 to Annual Report on Form 10-K
for the fiscal year ended December 31, 1993 ("1993 10-K").
3.2 By-Laws of the Registrant. Incorporated by reference to Exhibit 3.2 to
Registration Statement on Form S-1 (File No. 33-46333).
10.1 Employment Agreement, dated as of March 1, 1995, between the
Registrant and Kathleen Parramore. Incorporated by reference to
Exhibit 10.1 Annual Report on Form 10-K for the fiscal year ended
December 31, 1994 ("1994 10-K").
10.2 Asset Acquisition Agreement dated as of September 27, 1993, as
amended, by and among Page America Group, Inc., Crico Communications
Corporation and the stockholders thereof. Incorporated by reference to
Exhibit 2(a) to Current Report on Form 8-K dated January 14, 1994.
10.3 Credit Agreement dated as of December 30, 1993 by and among Page
America Group, Inc., its subsidiaries and NationsBank of Texas, N.A.,
Canadian Imperial Bank of Commerce, Fleet National Bank and State
Street Bank and Trust Company. Incorporated by reference to Exhibit
10.3 to 1993 10-K.10.4 Subordinated Promissory Note, Preferred Stock,
Common Stock and Warrant Purchase Agreement dated as of December 30,
1993, by and among Page America Group, Inc., its subsidiaries and
various purchasers parties thereto. Incorporated by reference to
Exhibit 10.4 to 1993 10-K.
10.5 Second Amended and Restated Registration Rights Agreement dated as of
December 30, 1993. Incorporated by reference to Exhibit 10.5 to 1993
10-K.
10.6 Subordinated Promissory Note Registration Rights Agreement dated as of
December 30, 1993. Incorporated by reference to Exhibit 10.6 to 1993
10-K.
10.7 Series One Convertible Preferred Stock Voting Agreement dated as of
December 30, 1993. Incorporated by reference to Exhibit 10.7 to 1993
10-K.
10.8 Investment Banking Agreement dated December 30, 1993 between Bariston
Associates, Inc. and Page America Group, Inc. Incorporated by
reference to Exhibit 10.8 to 1993 10-K.
10.9 Amended and Restated Asset Purchase Agreement by and among Page
America Group, Inc., certain of its subsidiaries and Metrocall, Inc.
dated as of January 30, 1997. Incorporated by reference to Exhibit 2.2
to Metrocall's Registration Statement on Form S-4 filed with the
Commission on February 5, 1997.
10.10 Asset Purchase Agreement dated as of February 24, 1995 by and among
Paging Network of Florida, Inc., Page America Group, Inc. and various
subsidiaries of Page America Group, Inc. Incorporated by reference to
Exhibit 10.10 to 1994 10-K.
10.11 Consulting and Non-Competition Agreement dated August 1, 1995 between
Registrant and Steven L. Sinn. Incorporated by reference to Exhibit
10.11 to 1995 10-K.
10.12 Third Amendment dated as of July 28, 1995 to Credit Agreement dated
as of December 30, 1993 by and among Page America Group, Inc., its
subsidiaries, and bank lenders. Incorporated by reference to Exhibit
10.12 to 1995 10-K.
10.13 Indenture dated as of June 30, 1994 among Page America Group, Inc.,
its subsidiaries, and American Stock Transfer and Trust Company, as
Trustee. Incorporated by reference to Exhibit 4 to Registration
Statement on Form S-4 (File No. 33-77832).
10.14 Amendment dated as of July 28, 1995 to Indenture dated as of June 30,
1994 by and among Page America Group, Inc., its subsidiaries, and
American Stock Transfer and Trust Company, as Trustee. Incorporated by
reference to Exhibit 10.14 to 1995 10-K.
21. Subsidiaries of the Registrant. Incorporated by reference to Exhibit
21 to 1994 10-K.
23. Consent of Ernst & Young LLP.
(b) Reports on Form 8-K
None
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
PAGE AMERICA GROUP, INC.
March 21, 1997
By: /s/ Kathleen C. Parramore
Kathleen C. Parramore
President, Chief Operating Officer
and Director
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Name Title Date
/s/ David A. Barry Chairman of the Board and
David A. Barry Chief Executive Officer March 21, 1997
/s/ Kathleen C. Parramore Director March 21, 1997
Kathleen C. Parramore
/s/ Jack Kadis Director March 21, 1997
Jack Kadis
/s/ Martin Katz Chief Financial Officer March 21, 1997
Martin Katz
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
Report of Independent Auditors F-2
Consolidated Balance Sheets at December 31, 1996 and
December 31, 1995 F-3
Consolidated Statements of Operations for the years
ended December 31, 1996, December 31, 1995,
and December 31, 1994 F-5
Consolidated Statements of Cash Flows for the
years ended December 31, 1996, December 31, 1995, and
December 31, 1994 F-6
Consolidated Statement of Shareholders' Equity (Deficit)
for the years ended December 31, 1996, December 31, 1995,
and December 31, 1994 F-8
Notes to Consolidated Financial Statements F-9
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Shareholders and Board of Directors
Page America Group, Inc.
We have audited the accompanying consolidated balance sheets of Page
America Group, Inc. and subsidiaries as of December 31, 1996 and December 31,
1995, and the related consolidated statements of operations, shareholders'
equity (deficit) and cash flows for each of the three years in the period ended
December 31, 1996. Our audit also included the financial statement schedule
listed in the Index at Item 14(a). These financial statements and schedule are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements and schedule 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 consolidated financial statements referred to
above present fairly, in all material respects, the consolidated financial
position of Page America Group, Inc. and subsidiaries at December 31, 1996 and
December 31, 1995, and the consolidated results of their operations and their
cash flows for each of the three years in the period ended December 31, 1996 in
conformity with generally accepted accounting principles. Also, in our opinion,
the related financial statement schedule, when considered in relation to the
basic financial statements taken as a whole, presents fairly in all material
respects the information set forth therein.
The accompanying consolidated financial statements have been prepared
assuming that Page America Group, Inc. will continue as a going concern. As
shown in the financial statements, the Company has incurred losses of $8.1
million and $13 million for the years ended December 31, 1996 and 1995. Losses
from operations in recent years have significantly weakened the Company's
financial position and its ability to purchase paging equipment and meet current
operating expenses. Further, as discussed in Note A, the Company is in default
of its debt agreements under which it has outstanding borrowings of $51 million,
including $34 million of borrowings under a credit facility with certain banks
which is secured by substantially all of the assets of the Company. Such debt is
classified as a current liability and the Company's current liabilities exceeded
its current assets by $58 million at December 31, 1996. Management's plans in
regard to these matters which are also described further in Note A, include the
sale of substantially all of the Company's net operating assets in 1997 and the
liquidation of the Company thereafter. These planned transactions require the
approval of the Company's shareholders, lenders and certain other creditors.
The matters referred to in the preceding paragraph raise substantial
doubt about the Company's ability to continue as a going concern. The
consolidated financial statements do not include any adjustments to reflect the
possible future effects on the recoverability and classification of assets or
the amounts or classifications of liabilities that may result from the outcome
of this uncertainty.
Ernst & Young LLP
Hackensack, New Jersey
March 12, 1997
<PAGE>
Page America Group, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
($ In Thousands)
December 31,
1996 1995
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 290 $ 751
Accounts receivable, net of allowance
for doubtful
accounts of $278 and $277 899 1,017
Prepaid expenses and other current assets 672 944
Total current assets 1,861 2,712
EQUIPMENT, less accumulated depreciation
and amortization 5,382 6,662
OTHER ASSETS
Certificates of authority, net of accumulated
amortization of $3,821 and $3,216 20,363 20,968
Customer lists, net of accumulated amortization
of $8,537 and $7,992 3,232 3,776
Other intangibles, net of accumulated
amortization of $3,472 and $3,184 8,220 8,945
Deferred financing costs, net -- 32
Deposits and other non-current assets 503 908
--------- ---------
32,318 34,629
$ 39.561 $ 44,003
The accompanying notes are an integral part of these statements.
<PAGE>
<TABLE>
<CAPTION>
Page America Group, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS (continued)
($ In Thousands, except share data)
December 31,
1996 1995
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
<S> <C> <C>
CURRENT LIABILITIES
Current maturities of long-term debt $ 51,814 $ 48,666
Accounts payable 1,620 1,982
Accrued expenses and other liabilities 2,187 1,535
Preferred dividends payable 2,864 1,432
Customer deposits 249 299
Deferred revenue 1,536 1,242
---------- ---------
Total current liabilities 60,270 55,156
LONG-TERM DEBT, less current maturities 37 69
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY (DEFICIT)
Series One Convertible Preferred Stock, 10% cumulative, $.01 par
value, authorized 310,000 shares; issued and outstanding--
286,361 shares; liquidation value--$105 per share 30,068 30,068
Common stock--$.10 par value, authorized--100,000,000 shares;
issued and outstanding 16,037,095 and 8,052,305 shares 1,604 805
Paid-in capital 53,501 52,850
Accumulated deficit (105,919) (94,945)
--------- --------
(20,746) (11,222)
--------- --------
$ 39,561 $ 44,003
=========== ==========
The accompanying notes are an integral part of these statements.
</TABLE>
<TABLE>
<CAPTION>
Page America Group, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF OPERATIONS
($ In Thousands, except per share data)
Years Ended December 31,
1996 1995 1994
<S> <C> <C> <C>
Service revenues $20,074 $26,415 $32,693
Sales revenues 1,910 2,692 4,565
-------- ------- -------
Total revenues 21,984 29,107 37,258
Operating expenses:
Cost of service 2,128 2,640 2,943
Cost of sales 1,284 1,723 2,766
Selling 3,988 6,066 6,842
General and administrative 6,270 8,923 10,653
Technical 3,190 4,262 4,685
Depreciation 4,297 5,235 6,370
Amortization and write-off of
intangibles 1,876 3,350 4,447
-------- ------- -------
23,033 32,199 38,706
-------- -------- -------
Operating loss (1,049) (3,092) (1,448)
Interest expense (6,153) (6,263) (5,102)
Other income (expenses)
(Loss) gain on disposal of assets (91) (657) 371
Amortization and write-off
of deferred costs (80) (2,688) (437)
Other (737) (393) (412)
--------- --------- -------
(908) (3,738) (478)
--------- --------- -------
Net loss (8,110) (13,093) (7,028)
Preferred stock dividend requirements (2,864) (2,863) (3,023)
Net loss applicable to common stock $(10,974) $(15,956) $(10,051)
========= ========= =========
Loss per common share $(0.88) $(2.01) $(1.55)
========= ========= =========
Weighted average number of shares
outstanding 12,497,800 7,936,410 6,463,889
=========== ========== ==========
The accompanying notes are an integral part of these statements.
</TABLE>
<TABLE>
<CAPTION>
Page America Group, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
($ In Thousands)
Decrease in Cash and Cash Equivalents
Years Ended December 31,
1996 1995 1994
<S> <C> <C> <C>
Net loss $( 8,110) $(13,093) $( 7,028)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization 6,253 9,690 11,254
Write-off of deferred financing costs -- 1,584 --
Net book value of pagers sold 1,164 1,596 2,731
Provision for losses on accounts receivable 908 710 1,703
Provision for lost pagers 238 249 342
Non cash interest expense 1,950 1,950 --
Loss (gain) on disposal of assets 91 657 (371)
Other 492 578 204
Change in assets and liabilities:
Increase in accounts receivable (790) (374) (698)
Decrease (increase) in prepaid expenses and other
assets 170 279 (245)
(Decrease) increase in accounts payable (293) (1,759) 83
Increase (decrease) in accrued expenses 671 (219) 229
Increase (decrease) in customer deposits and
deferred revenue 244 (532) 398
Net cash provided by operating activities 2,988 2,064 8,602
Cash flows from investing activities:
Capital expenditures (3,523) (5,938) (8,016)
Licensing costs -- (206) (1,016)
Acquisitions and related liabilities -- -- (265)
Net proceeds from disposal of assets 616 17,473 416
Net cash (used in) provided by investing activities (2,907) 11,329 (8,881)
Cash flows from financing activities:
Proceeds from issuance of debt 1,337 116 --
Principal payments on debt (1,562) (13,077) (919)
Costs related to financing of debt (129) (741) (177)
Costs related to planned Metrocall transaction (188) -- --
Cost related to issuance of preferred and common stock -- (68) (409)
Net cash used in financing activities (542) (13,770) (1,505)
Net decrease in cash and cash equivalents (461) (377) (1,784)
Cash and cash equivalents at beginning of period 751 1,128 2,912
Cash and cash equivalents at end of period $ 290 $ 751 $ 1,128
The accompanying notes are an integral part of these statements.
</TABLE>
<TABLE>
<CAPTION>
Page America Group, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
($ In Thousands)
Years Ended December 31,
1996 1995 1994
Supplemental schedule of noncash investing and financing activities:
<S> <C> <C> <C>
Dividends accrued on preferred stock $ 2,864 $ 1,432 $ 1,444
Dividends added to the liquidation value of
preferred shares -- 1,432 --
Common stock issued in connection
with acquisition -- 1,471 --
Common stock issued to employee stock
purchase plan 22 16 130
Common stock adjustment relating to
Crico asset acquisition -- -- 1,471
Common stock issued as payment on preferred stock 1,432 1,445 1,527
Capital expenditures in accounts payable and
accrued expenses 31 94 1,367
Capital expenditures financed 989 1,287 --
The accompanying notes are an integral part of these statements.
</TABLE>
<TABLE>
<CAPTION>
Page America Group, Inc. and Subsidiaries
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY (DEFICIT)
($ In Thousands)
Series One Series C Paid-in
Preferred Stock Preferred Stock Common Stock Capital Accumulated
Shares Amount Shares Amount Shares Amount Amount Deficit Total
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1994 305,768 $30,577 131,479 $1,831 5,999,322 $600 $45,069 $(68,980) $9,097
Issuance of Common Stock:
To employee stock purchase plan
and trust 33,548 3 127 130
For dividends on Preferred
Stock-Series One 406,220 40 1,487 1,527
Purchase price adjustment
related to an acquisition (38,000) (4) (163) (167)
Conversion of Preferred Stock (16,887) (1,689) (18,970) (264) 394,197 40 1,913 0
Preferred Stock-Series C Exchange (112,509) (1,567) 306,581 31 1,536 0
Expenses related to issuance of
Common Stock and Preferred
Stock-Series One (139) (139)
Dividends declared on Preferred
Stock (2,981) (2,981)
Net loss (7,028) (7,028)
Balance at December 31, 1994 288,881 28,888 7,101,868 710 49,830 (78,989) 439
Issuance of Common Stock:
To employee stock purchase plan
and trust 20,912 2 14 16
For dividends on Preferred
Stock-Series One 437,629 44 1,401 1,445
Purchase price adjustment related
to an acquisition 435,903 43 1,427 1,470
Conversion of Preferred Stock (2,520) (252) 55,993 6 246 0
Dividends added to the liquidation
value of Preferred Stock 1,432 1,432
Expenses related to issuance of
Common Stock (68) (68)
Dividends declared on Preferred Stock (2,863) (2,863)
Net loss (13,093) (13,093)
Balance at December 31, 1995 286,361 30,068 0 0 8,052,305 805 52,850 (94,945) (11,222)
Issuance of Common Stock:
To employee stock purchase plan
and trust 85,200 9 13 22
For dividends on Preferred Stock
-Series One 7,899,590 790 642 1,432
Expenses related to issuance of
Common Stock (4) (4)
Dividends declared on Preferred Stock (2,864) (2,864)
Net Loss (8,110) (8,110)
Balance at December 31, 1996 286,361 $30,068 0 $0 16,037,095 $1,604 $53,501 $(105,919) $(20,746)
The accompanying notes are an integral part of this statement.
</TABLE>
Page America Group, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS--The Company is a radio paging company which
markets and provides over-the-air messaging information, products and services
in the New York and Chicago metropolitan area markets through facilities which
it owns and operates as a radio common carrier ("RCC") under licenses from the
Federal Communications Commission. The Company's diversified customer base
provides for a lack of concentration of credit risk.
BASIS OF PRESENTATION--Certain amounts in the prior year financial
statements have been reclassified to conform with the current year presentation.
PRINCIPLES OF CONSOLIDATION--The consolidated financial statements
include the accounts of the Company and its subsidiaries. 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 amounts reported in the financial
statements and accompanying notes. Actual results could differ from those
estimates.
CASH AND CASH EQUIVALENTS--The Company considers all highly liquid
debt instruments purchased with a maturity of three months or less, at date of
acquisition, to be cash equivalents.
EQUIPMENT--Equipment is stated at cost less accumulated depreciation
and amortization and includes pagers held for sale or lease. Depreciation is
computed by the declining balance method for pager equipment and the
straight-line method for all other equipment in amounts sufficient to allocate
the cost of depreciable assets to operations over their estimated useful lives.
Leasehold improvements are amortized over the shorter of the life of the
respective lease or service life of the improvement. Cost of sales and service
does not include depreciation expense, which is presented separately in the
accompanying statements of operations.
CERTIFICATES OF AUTHORITY--The costs of certificates of authority
related to the conduct of RCC operations are amortized on a straight-line basis
principally over periods of 40 years.
CUSTOMER LISTS--Customer lists generally consist of a portion of the
cost of business acquisitions assigned to the value of customer accounts and are
amortized on a straight-line basis over the estimated lives of those customers
which range up to fourteen years.
OTHER INTANGIBLES--Other intangibles include the excess of the
purchase price over the fair market value of the net assets acquired and are
amortized on a straight-line basis principally over 40 year periods. The Company
routinely evaluates the carrying value of all of its intangibles for impairment.
INTEREST RATE PROTECTION--On December 30, 1993, the Company entered
into a new senior credit facility with certain banks. On February 15, 1994, the
Company entered into an interest rate cap agreement which protected the Company
against increases in interest rates on $25 million of this debt. The cost of
this agreement was fully amortized as of December 31, 1996.
LOSS PER SHARE--Loss per share is computed based upon the weighted
average number of common shares outstanding during the periods presented and is
computed after giving effect to preferred stock dividend requirements. Stock
options, warrants and the assumed conversion of the convertible preferred stock
have not been included in the calculation, since their inclusion would be
anti-dilutive for each of the periods presented.
NET LOSSES AND MANAGEMENT'S PLANS--The accompanying financial statements
have been prepared on a going concern basis. The Company, since its inception,
has experienced a deficiency in working capital and recurring losses. In 1995,
as a result of non-compliance by the Company with certain covenants of its
credit facility (The "Credit Facility"), the terms were modified to accelerate
the final maturity to December 29, 1995, and the subordinated notes were
modified to provide for a final maturity of six months thereafter. On April 26,
1996, the Credit Facility was again modified to provide for a revolving credit
loan of $750,000, a waiver of all existing defaults on certain financial and
other covenants, the omission of financial covenants effective April 30, 1996
and an extension of the maturity date to the earlier of November 30, 1996 or the
completion of the sale of the Company's assets to Metrocall, Inc. The Credit
Facility has not been repaid and the lenders have declared the Company in
default. In addition, the Subordinated Notes matured at December 31, 1996 and
are in default. (see Note E of Notes to Consolidated Financial Statements). Such
debt is classified as a current liability and the Company's current liabilities
exceeded its current assets by $58.4 million at December 31, 1996. The Company
has entered into a definitive agreement to sell substantially all its assets to
Metrocall, Inc. The cash to be received by Page America from this sale will not
be sufficient for Page America to pay in full in cash its outstanding
obligations under the Credit Facility or under the Subordinated Notes or to pay
its other outstanding liabilities. Page America is negotiating with the
creditors to satisfy its obligations. In addition, the consent of Page America's
lenders is required for the sale to Metrocall. There is no assurance that Page
America will be able to reach agreement with its creditors. There can be no
assurance that this transaction will be completed or that the Company will have
sufficient funds to finance its operations, which continue to show losses,
through the year ending December 31, 1997.
All of these matters raise substantial doubt about the Company's
ability to continue as a going concern. The financial statements do not include
any adjustments to reflect the possible future effects on the recoverability and
classification of assets or the amounts or classifications of liabilities that
may result from the outcome of this uncertainty.
Following completion of the sale of its assets to Metrocall, the Company
plans to liquidate.
NOTE B--SALE OF FLORIDA AND CALIFORNIA OPERATIONS
On July 28, 1995, the Company sold its California and Florida paging
assets for a cash sale price of $19.4 million. At December 31, 1996, cash
proceeds of $500,000 are being held in escrow and are scheduled to be released
to the Company in 1997, as provided for in the agreement. Part of the proceeds
was used to reduce the Company's senior debt by $11.8 million and to prepay
interest of $1.2 million through December 29, 1995. In connection with this
sale, the Company incurred expenses amounting to approximately $1.0 million.
This sale included approximately 78,000 pagers, two statewide and several
regional frequencies. The assets sold had a net book value of approximately
$19.1 million and consisted of the assets which the Company acquired from Crico
Communications Corporation ("Crico") on December 30, 1993 and the 900 Mhz
channel which is licensed to provide state-wide coverage in California which the
Company acquired in 1994 for a purchase price of $500,000. The purchase price
paid by the Company for the Crico assets consisted of $12,650,000 in cash paid
to Crico's lenders, the issuance of an aggregate of 1,435,903 shares of Common
Stock to Crico's lenders and the issuance of 240,000 shares of Common Stock and
warrants to purchase 130,000 shares of Common Stock at an exercise price of
$5.00 per share to a company related to certain shareholders of Crico. As a
result of the sale, the Company incurred a loss of approximately $718,000.
NOTE C--PLANNED SALE OF NEW YORK AND CHICAGO OPERATIONS
On April 23, 1996, Page America entered into a definitive agreement to
sell substantially all of its assets to Metrocall, Inc. On January 30, 1997,
this agreement was amended. The amended agreement provides for a purchase price
of (A) $25 million in cash, (B) 1,500 shares of series B Preferred Stock of
Metrocall having a stated value of $15 million, (C) 762,960 shares of Metrocall
Common Stock, and (D) shares of Metrocall Common Stock or other equity
securities having a share value equal to $15 million, subject to adjustment
based on changes in the Company's Working Capital Deficit and decreases in
service revenue below specified thresholds. Metrocall has the option to
substitute cash at closing for all or a portion of the stock consideration.
Excluded from the sale are cash, assets related to the employee benefit plans
and to the Florida and California operations which had been previously sold,
liabilities under the senior credit facility, subordinated debt agreement and
NEC America leasing contract and obligations with respect to federal, state and
local taxes. This sale is subject to the approval of the Company's shareholders.
There is no assurance that the transaction will be consummated.
NOTE D--BALANCE SHEET CLASSIFICATIONS ($ In Thousands)
Prepaid expenses and other current assets comprise the following:
December 31,
1996 1995
Current portion of escrow amount from the
sale of Florida and California assets $502 $502
Other current assets 170 442
$672 $944
Equipment consists of the following:
December 31,
1996 1995
Pagers $6,510 $8,164
Radio common carrier equipment 13,282 12,914
Office equipment 3,939 3,946
Leasehold improvements 614 614
Building and land 64 64
24,409 25,702
Less accumulated depreciation and
amortization (19,027) (19,040)
$5,382 $6,662
Accrued expenses and other liabilities comprise the following:
December 31,
1996 1995
Interest $751 $101
Taxes 768 818
Salaries and bonuses 132 366
Professional services 116 95
Other 420 155
$2,187 $1,535
NOTE E--LONG-TERM DEBT
Long-term debt is as follows:
December 31,
1996 1995
($ In Thousands)
Bank credit facility $33,948 $33,200
Subordinated notes (including
deferred interest) 16,900 14,667
Other 1,003 868
51,851 48,735
Less current maturities 51,814 48,666
$ 37 $ 69
On December 30, 1993, the Company entered into a senior secured credit
facility with certain banks. The bank credit facility replacing the Company's
then existing credit facility, provided for an $11.27 million reducing revolving
credit line and a $45 million term loan facility, each with an original final
maturity of March 31, 2000. At closing, the Company paid a fee to the Banks in
the amount of $951,550. The Company was also required to pay the Banks a
commitment fee of 0.5 percent on the unused balance of the revolving credit
facility and annual fees of $55,000. The Company canceled its revolving credit
facility effective November 29, 1994. Payments on the Credit Facility initially
were to be interest only with mandatory principal payments due quarterly
beginning on September 30, 1995.
On July 28,1995, concurrent with the sale of the Company's Florida and
California paging assets, the Credit Facility was amended. Among other things,
the amendment provided for an acceleration of the maturity to December 29, 1995
and modified the financial covenants so that the Company would no longer be in
default as of the amendment date. The Company used the net proceeds from the
sale of its Florida and California operations to reduce the debt by $11.8
million and prepay interest at the LIBOR rate from August 1, 1995 through
December 29, 1995. In the third fiscal quarter of 1995, the Company recorded a
charge of approximately $1.8 million related to the amended agreement which
includes the write-down of deferred financing costs of approximately $1.1
million. On April 26, 1996, the Company's Credit Facility was again modified to
provide for a revolving credit loan of $750,000, a waiver of all existing
defaults on certain financial and other covenants, the omission of financial
covenants effective April 30, 1996 and an extension of the maturity date to the
earlier of November 30, 1996 or the completion of the sale of the Company's
assets to Metrocall, Inc.The Credit Facility has not been repaid and the lenders
have declared the Company in default. The Credit Facility is secured by
substantially all the assets of the Company. At December 31, 1996, the interest
rate was prime of 8.25 percent plus margin of 1.75 percent and 3.75 percent on
the term loan and revolving credit loan, respectively.
On December 30, 1993 the Company sold $13 million aggregate principal
amount of 12 percent Subordinated Notes originally due 2003, with warrants,
pursuant to a Note Purchase Agreement. Payments on the Subordinated Notes
initially were to be interest only with mandatory principal payments of $1.3
million due semi-annually beginning on June 30, 1999. All payments on the notes
are subordinated to the prior payment in full of all amounts outstanding under
the Credit Facility. The notes are governed by certain financial covenants. In
July, 1994, the Company exchanged the notes for identical notes which were
registered under the Securities Act of 1933.
On July 28, 1995, the subordinated notes were modified to provide for
a final maturity of six months subsequent to the final maturity of the Credit
Facility and to defer the cash payment of interest until maturity. The
subordinated notes were due on December 31, 1996 and have not been paid. The
Company is in default on payment of the subordinated notes. Commencing January
1, 1995, interest is increased from 12 to 15 percent per annum, compounded
semi-annually and is satisfied by the issuance of additional promissory notes
with terms substantially identical to the subordinated notes, as amended. In
1995 the Company recorded a charge of approximately $500,000 related to the
modified agreement, which includes the write-down of deferred financing costs of
approximately $479,000. If a change in control of the Company occurs, the note
holders will have the right to require the Company to repurchase the notes at
par plus accrued interest.
Interest payments for the fiscal years 1996, 1995 and 1994 were $3.3
million, $4.5 million and $4.1 million, respectively.
NOTE F--CUMULATIVE SERIES
C PREFERRED STOCK EXCHANGE
On March 7, 1994, the Company offered the holders of its Cumulative
Series C Preferred Stock to exchange each share of such stock, and undeclared
dividends thereon, for 2.725 shares of common stock. The holders of 112,509
shares of Series C elected to accept this offer. Accordingly, 306,581 shares of
Common Stock of the Company were issued in exchange for those shares of Series C
and the holders' right to $970,400 of associated undeclared dividends. In
accordance with the original terms, on September 12, 1994, the remaining shares
outstanding were mandatorily converted to shares of Common Stock of the Company
and accrued dividends of $17,500 were paid.
NOTE G--SHAREHOLDERS' EQUITY
Series One Convertible Preferred Stock--The Series One Convertible
Preferred Stock has a 10 percent dividend, payable semi-annually in arrears and
is convertible into Common Stock at $4.50 per share, subject to certain
anti-dilution provisions. Payment of dividends may be made in cash or in Common
Stock of the Company. Any dividend payments not made when permitted under the
Credit Facility and the Subordinated Note Financing will result in, among other
things, an increase in the dividend rate to 15 percent per annum and entitle
holders of the majority of the Series One Convertible Preferred Stock to elect
an additional representative to the Board of Directors of the Company. On August
11, 1994 and March 8, 1995, the Company issued 406,220 shares and 437,629 shares
of its Common Stock, respectively, to the holders of Series One Convertible
Preferred Stock, as full payment of dividends for the year ended December 31,
1994. On June 30, 1995, the Preferred shareholders waived their rights to
receive the dividend payment of $1,432,000 due on the same date. In exchange,
this amount was added to the liquidation value of the shares. On June 12, 1996,
the Company issued 7,899,590 shares of its Common Stock as full payment of the
dividends accrued at December 31, 1995.
The Company may redeem the Series One Convertible Preferred Stock if
the average closing price of the Common Stock for both the preceding 60 day and
five day periods has equalled or exceeded 150 percent of the conversion price.
After December 31, 2000, the Series One Convertible Preferred Stock may be
redeemed at par, plus accrued dividends. If the Company calls the Series One
Convertible Preferred Stock for redemption, the holders may convert to shares of
Common Stock. Upon any redemption, accrued dividends must be paid by the Company
in cash. Upon conversion of the Series One Convertible Preferred Stock, the
Company will have the option to pay accrued dividends by issuing additional
shares of its Common Stock. Holders of the Series One Convertible Preferred
Stock are entitled to vote as if their shares of Series One Convertible
Preferred Stock were converted into shares of Common Stock. Holders of a
majority of the Series One Convertible Preferred Stock, as a class, are entitled
to elect two representatives to the Board of Directors. If a change in control
in the Company occurs, the holders of Series One Convertible Preferred Stock
will have the right to cause the Company to repurchase such stock at the
liquidation value, plus accrued dividends.
Warrants--In connection with the issuance of the Subordinated Notes,
the Company also issued warrants to purchase an aggregate of 1,205,556 shares of
Common Stock, at a purchase price of $3.50 per share. The warrants expire in
2003. The Company may accelerate the expiration of the warrants if the average
closing price of the Common Stock for both the 60 day and the five day periods
preceding the notice date is equal to or greater than 150 percent of the warrant
exercise price. The holders will be entitled to anti-dilution protection under
certain circumstances. If a change of control of the Company occurs at less than
a 25 percent premium over the exercise price, the warrant holders will have the
right to cause the Company to pay to them the difference between the exercise
price and 125 percent of the exercise price; provided, however, the warrants
must be exercised.
Common Stock Reserved For Issuance--As of December 31, 1996, unissued
Common Stock of the Company was reserved for issuance in accordance with the
terms of outstanding warrants (1,503,252), stock options (240,000) and
convertible preferred stock (6,363,578).
Stock Options--The Company's 1983 Stock Option Plan, as amended,
provides for the granting of options to purchase an aggregate of 235,000 shares
of the Company's Common Stock to key employees. The option prices cannot be less
than the fair market value of Common Stock at dates of grant. Options may not be
exercised until specified time restrictions have lapsed and option periods
cannot exceed five years. No more options may be granted under this plan.
The Company's 1990 Stock Option Plan provides for the grant by the
Company of options to purchase not more than 555,000 shares of Common Stock to
key employees and directors. The exercise price per share is the fair market
value of a share of Common Stock for options granted after December 29, 1992,
and the greater of (i) the fair market value of a share of Common Stock or (ii)
$7.00, for options granted on or before December 29, 1992. Options to be granted
under the 1990 Stock Option Plan may not be exercised prior to one year from the
date of grant and options may be exercised 20 percent per year thereafter.
Exercise of such options will be accelerated if the Company is sold, a change in
control occurs or as the Compensation Committee of the Board of Directors deems
appropriate.
Option activities under the Incentive Plans are detailed in the following
table:
Weighted
Average Option
1990 Plan 1983 Plan Price Per Share
Outstanding at January 1, 1994 300,458 106,000 $5.09
Forfeited/Cancelled (11,750) 7.16
- -------------------------------------------------------------------------
Outstanding at December 31, 1994 288,708 106,000 5.03
Granted 225,000 - .75
Forfeited/Cancelled (267,008) (101,000) 4.90
- ---------------------------------------------------------------------------
Outstanding at December 31, 1995 246,700 5,000 1.39
Forfeited/Cancelled (11,700) - 7.00
- ---------------------------------------------------------------------------
Outstanding at December 31, 1996 235,000 5,000 1.12
Excercisable at December 31, 1996 54,000 5,000 2.13
Exercisable at December 31, 1995 18,700 3,750 6.80
Exercisable at December 31, 1994 225,566 53,000 4.96
At December 31, 1996, for each of the following classes of options as determined
by range of exercise price, the information regarding weighted-average
exercise prices and weighted-average remaining contractual lives of each said
class is as follows:
<TABLE>
<CAPTION>
Weighted Weighted
Average Average
Remaining Exercise
Weighted-Average Contractual Number of Price of
Number of Exercise Price of Life of Options Options
Options Outstanding Outstanding Currently Currently
Option Class Outstanding Options Options Exercisable Exercisable
<S> <C> <C> <C> <C> <C>
Price of
$.75 225,000 $.75 5.8 yrs 45,000 $.75
Price ranging
from
$5.25-$7.38 15,000 $6.66 7 yrs 14,000 $6.59
During 1996 and 1995, the Company did not sell any shares of common stock under
the 1990 or the 1983 plans.
</TABLE>
Had the Company been accounting for its employee stock options under the
fair value method of SFAS No. 123, there would not have been a material impact
on the Company's net loss or net loss per common share during 1995 and 1996.
NOTE H--INCOME TAXES
The Tax Reform Act of 1986 enacted a complex set of rules limiting the
utilization of net operating loss and tax credit carryforwards to offset future
taxable income following a corporate "ownership change". In general, an
ownership change occurs if the percentage of stock of a loss corporation owned
(actually, constructively and, in some cases, deemed ownership) by one or more
"5 percent shareholders" has increased by more than 50 percentage points over
the lowest percentage of such stock owned by those persons during a three year
testing period. If an ownership change occurs it would limit the utilization of
the net operating loss carryforwards for federal income tax purposes. The
Company has determined that there has been an ownership change as of December
31, 1993. As of December 31, 1996, the Company had net operating losses of
approximately $80.2 million for federal income tax purposes which will expire at
various dates between 1998 and 2011. Net operating losses of $52.6 million are
subject to the aforementioned limitations. In addition, the Company has
investment tax credit carryforwards of approximately $670,000 which expire
principally in 1997 through 2000, which are also subject to limitation.
The effects of temporary differences that gave rise to deferred tax
assets and liabilities are as follows:
December 31, 1996 December 31, 1995
Current Long-Term CurrentLong-Term
($ In Thousands) ($ In Thousands)
Deferred tax assets:
FCC License amortization $32 $110
Allowance for bad debts $13
Commission expense 1,351 1,425
Investment tax credit carryforwards 670 670
Net operating loss carryforwards 30,937 27,362
Other 163 256
------- -------
Total deferred tax assets 33,153 13 29,823
----
Less: Valuation allowance (32,729) (13) (29,699)
--------- ----- --------
Net deferred tax assets 424 124
Deferred tax liabilities:
Depreciation 424 124
Total deferred tax liabilities 424 124
Net deferred tax asset/liability $0 $0 $0
======== ======= =======
The Company's valuation allowance increased by approximately $3,017,000 to
$32,729,000 as of December 31, 1996 due principally to the increase in the net
operating losses.
The reconciliation of income taxes computed at the U.S. federal
statutory tax rate to income tax expense is:
Year Ended December 31,
1996 1995 1994
(In Thousands)
Tax (benefit) at U.S. statutory rates ($2,757) ($4,429) ($2,390)
State income taxes, net of federal benefit (278) (487) (195)
Valuation allowance 3,017 4,315 3,014
Other 18 601 (429)
$0 $0 $0
NOTE I--CONTINGENCIES
The Company is involved in various lawsuits and proceedings arising in
the normal course of business. In the opinion of management of the Company, the
ultimate outcome of these lawsuits and proceedings will not have a material
effect on the financial position, results of operations or cash flows of the
Company.
NOTE J--RELATED PARTY TRANSACTIONS
A company (the "Related Company") whose president is a Director of the
Company acted as a placement agent in connection with the sale by the Company of
shares of Series One Convertible Preferred Stock and subordinated notes and the
entering into of the bank credit facility.
The Related Company has been engaged to provide investment banking
functions for which it receives an annual fee of $105,000, subject to cost of
living adjustments. This agreement will terminate if the Related Company ceases
to control a majority of the Series One Convertible Preferred Stock (or Common
Stock issued upon conversion thereof) or owns less than 20% of the Company's
fully diluted shares of Common Stock. At December 31, 1996, investment banking
and other fees accrued but unpaid were $288,565.
In conjunction with the purchase of Series A and Series A-2 Preferred
Stock and the issuance of subordinated notes from 1990 to 1992, the Related
Company was issued warrants to purchase 167,676 shares of the Company's Common
Stock.
NOTE K--RENTALS
Rental expense for the fiscal years 1996, 1995 and 1994 was
approximately $2,383,000, $3,062,000 and $3,236,000, respectively.
Future minimum annual payments under non-cancelable operating leases
for office space and transmitter sites, as of December 31, 1996, are as follows:
Amount (In Thousands)
Amount
(In Thousands)
1997 $1,894
1998 1,625
1999 1,451
2000 857
2001 680
Thereafter 2,039
$8,546
Certain leases are subject to increases in taxes, operating and other
expenses.
NOTE L--EMPLOYEE BENEFIT PLAN
The Company has a 401(K) plan covering substantially all of its
employees. All employees who have completed ninety days of service are eligible
to participate. Employees may contribute 1% to 4% of compensation to the plan on
an after-tax basis and also defer additional amounts of compensation in 1%
increments on a pre-tax basis, subject to limits established by the Internal
Revenue Code. The Company matched 100% of after-tax and 25% of pre-tax
contributions with shares of its common stock until March 15, 1996, after which
matching contributions were paid in cash. The total cost of the plan amounted to
$43,900, $69,400 and $124,800 in 1996, 1995 and 1994, respectively.
<TABLE>
<CAPTION>
Page America Group, Inc. and Subsidiaries
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
($ In Thousands)
Column A Column B Column C Column D Column E
Additions
Balance at-- charged to Balance at
beginning costs and Deductions-- end of
Description of period expenses describe period
<S> <C> <C> <C> <C>
Year ended December 31, 1994
Allowance for
doubtful accounts $895 $1,703 $2,159(a) $439
Year ended December 31, 1995
Allowance for
doubtful accounts $439 $710 $872(a) $277
Year ended December 31, 1996
Allowance for
doubtful accounts $277 $908 $907(a) $278
</TABLE>
(a) Accounts written off as uncollectible.
Exhibit 23
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statement
(Form S-8 No. 33-41887) pertaining to the 1983 Stock Option Plan, 1990 Stock
Option Plan and Stock Purchase Plan and Trust of Page America Group, Inc. of our
report dated March 12, 1997 with respect to the consolidated financial
statements and schedule of Page America Group, Inc. included in the Annual
Report (Form 10-K) for the year ended December 31, 1996.
ERNST & YOUNG LLP
Hachensack, New Jersey
March 21, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 290
<SECURITIES> 0
<RECEIVABLES> 1,177
<ALLOWANCES> 278
<INVENTORY> 0
<CURRENT-ASSETS> 1,861
<PP&E> 24,409
<DEPRECIATION> (19,027)
<TOTAL-ASSETS> 39,561
<CURRENT-LIABILITIES> 60,270
<BONDS> 0
0
30,068
<COMMON> 1,604
<OTHER-SE> (52,418)
<TOTAL-LIABILITY-AND-EQUITY> 39,561
<SALES> 1,910
<TOTAL-REVENUES> 21,984
<CGS> 1,284
<TOTAL-COSTS> 23,033
<OTHER-EXPENSES> 908
<LOSS-PROVISION> 908
<INTEREST-EXPENSE> 6,153
<INCOME-PRETAX> (8,063)
<INCOME-TAX> 47
<INCOME-CONTINUING> (8,110)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (8,110)
<EPS-PRIMARY> (0.88)
<EPS-DILUTED> 0
</TABLE>
