<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): May 3, 1995
PRONET INC.
(Exact name of registrant as specified in its charter)
Delaware 0-16029 75-1832168
- --------------- ------------------------ ----------------
(State or other (Commission File Number) (I.R.S. Employer
jurisdiction of Identification Number)
incorporation)
600 Data Drive
Suite 100
Plano, Texas 75075
- ------------------------- -----
(Address of principal (Zip Code)
executive offices)
Registrant's telephone number,
including area code: (214) 964-9500
1
<PAGE>
Item 2. ACQUISITION OR DISPOSITION OF ASSETS
Effective May 3, 1995, Contact Communications Inc., a Delaware corporation
("CCI") and wholly-owned subsidiary of ProNet Inc. (the "Company"), completed
the acquisition of all of the outstanding capital stock of Metropolitan Houston
Paging Services, Inc., a Texas corporation ("Metropolitan"), for approximately
$21.0 million which was paid in cash at closing pursuant to a Stock Purchase
Agreement dated as of April 20, 1995, by and among CCI, the Company,
Metropolitan, SLT Communications, Inc. ("SLT"), Lufkin-Conroe Telecommunications
Corp. ("LCC"), and GTE Southwest Incorporated ("GTE" and, together with SLT, and
LCC, the "Sellers"). Concurrently with the closing of the Metropolitan
acquisition, CCI entered into noncompetition agreements with the Sellers.
Metropolitan is a provider of commercial paging services and serves more
than 150,000 subscribers in Texas. The assets acquired include accounts
receivable, pager inventory and property and equipment that are used in the
conduct of such radio paging system business. CCI intends to continue to use
the assets acquired from Metropolitan to provide paging services and does not
intend to devote such assets to other purposes.
The Company borrowed approximately $20.5 million in cash to fund the
Metropolitan acquisition under an Amended and Restated Credit Agreement dated as
of February 9, 1995, by and between The First National Bank of Chicago, as Agent
and the Company. The consideration paid for the outstanding capital stock of
Metropolitan was determined through arm's length negotiations between CCI and
the Sellers.
Item 7. FINANCIAL STATEMENTS AND EXHIBITS
The following financial statements and pro forma financial information are
attached hereto and filed as part of this report:
(a) FINANCIAL STATEMENTS OF BUSINESS ACQUIRED.
- Audited Balance Sheet of Metropolitan as of December 31, 1994, 1993
and 1992.
- Audited Statements of Income and Cash Flows for Metropolitan for the
years ended December 31, 1994, 1993 and 1992.
- Unaudited Balance Sheet of Metropolitan as of March 31, 1995.
- Unaudited Statement of Income and Cash Flows for Metropolitan for
the three months ended March 31, 1995.
2
<PAGE>
(b) PRO FORMA FINANCIAL INFORMATION.
- Unaudited Pro Forma Condensed Consolidated Balance Sheet for the
Company as of March 31, 1995, consolidating the assets and certain
liabilities of Carrier Paging Systems, Inc. ("Carrier") and
Metropolitan.
- Unaudited Pro Forma Condensed Consolidated Statements of
Operations for the Company for the year ended December 31, 1994 and
the three months ended March 31, 1995, incorporating the operating
revenues and expenses of Contact Communications, Inc. ("Contact"),
Radio Call Company, Inc. and Affiliates ("Radio Call"), the RCC
Division of Chicago Communication Service, Inc. ("ChiComm"), High
Tech Communications Corp. ("High Tech"), Signet Paging of Charlotte,
Inc.("Signet"), Carrier and Metropolitan.
The Pro Forma Condensed Consolidated Statements of Operations include reasonable
estimates of costs and expenses which will be incurred by the Company in
connection with the operation of Contact, Radio Call, ChiComm, High Tech,
Signet, Carrier and Metropolitan. Operating results for the three month period
are not necessarily indicative of results that may be expected for the full
year. The pro forma condensed consolidated financial statements should be read
in conjunction with the historical consolidated financial statements of the
Registrant and the financial statements of Metropolitan included in this
Form 8-K.
(c) EXHIBITS.
[none]
3
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
PRONET INC.
(Registrant)
Date: May 18, 1995 By: /s/ Jan E. Gaulding
------------------------------
Jan E. Gaulding
Senior Vice President and
Chief Financial Officer
(principal financial and
accounting officer)
4
<PAGE>
PRO FORMA CONSOLIDATED BALANCE SHEET
PRONET INC. AND SUBSIDIARIES
(UNAUDITED)
<TABLE>
<CAPTION>
BALANCE SHEET AT MARCH 31, 1995
-------------------------------
PRO FORMA
PRONET INC. CARRIER METROPOLITAN BALANCE SHEET
----------- ---------- ------------ CARRIER METROPOLITAN AT
MARCH 31, MARCH 31, MARCH 31, PRO FORMA PRO FORMA MARCH 31,
1995 1995 1995 ADJUSTMENTS ADJUSTMENTS 1995
----------- ---------- ------------ ----------- ----------- -------------
ASSETS (A)
<S> <C> <C> <C> <C> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 5,368,400 $ 102,048 $1,558,400 $ (102,048)(5) $(1,349,155)(5) $ 5,577,645
Trade accounts receivable, net of
allowance for doubtful accounts 4,653,659 245,005 103,208 0 0 5,001,872
Inventories 3,848,215 141,150 50,509 0 0 4,039,874
Other current assets 2,696,250 19,527 338,732 (19,527)(5) 0 3,034,982
----------- ---------- ---------- ---------- ----------- ------------
TOTAL CURRENT ASSETS 16,566,524 507,730 2,050,849 (121,575) (1,349,155) 17,654,373
EQUIPMENT
Pagers 25,257,281 800,001 0 (574,328)(5) 0 25,482,954
Communications equipment 14,930,821 797,320 6,068,030 (572,403)(5) (2,615,657)(5) 18,608,111
Security systems equipment 10,842,531 0 0 0 0 10,842,531
Office and other equipment 3,743,036 56,764 757,536 (40,751)(5) (249,175)(5) 4,267,410
----------- ---------- ---------- ---------- ----------- ------------
54,773,669 1,654,085 6,825,566 (1,187,482) (2,864,832) 59,201,006
Less allowance for depreciation 26,880,105 1,187,482 2,864,832 (1,187,482)(5) (2,864,832)(5) 26,880,105
----------- ---------- ---------- ---------- ----------- ------------
27,893,564 466,603 3,960,734 0 0 32,320,901
OTHER ASSETS, net of amortization 42,510,951 192,340 0 5,679,968 (6) 17,060,250 (6) 65,443,509
$86,971,039 $1,166,673 $6,011,583 $5,558,393 $15,711,095 $115,418,783
----------- ---------- ---------- ---------- ----------- ------------
----------- ---------- ---------- ---------- ----------- ------------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Trade payables $ 1,419,930 $ 92,322 $ 209,245 $ (7,317)(5) $ 0 $ 1,714,180
Other accrued expenses and liabilities 7,761,327 330,630 138,898 (190,569)(5) (138,898)(5) 7,901,388
Current maturities of long-term debt 0 554,438 0 (554,438)(5) 0 0
----------- ---------- ---------- ---------- ----------- ------------
TOTAL CURRENT LIABILITIES 9,181,257 977,390 348,143 (752,324) (138,898) 9,615,568
LONG-TERM DEBT, less current maturities 21,900,000 0 0 3,500,000 (7) 21,000,000 (7) 46,400,000
DEFERRED PAYMENTS 5,332,298 0 0 3,000,000 (7) 0 8,332,298
DEFERRED TAX LIABILITIES 145,596 0 513,433 0 0 659,029
SHAREHOLDERS' EQUITY
Common stock 65,472 200 1,800 (200)(5) (1,800)(5) 65,472
Additional capital 49,684,973 0 4,555,839 0 (4,555,839)(5) 49,684,973
Retained earnings 2,091,255 189,083 592,368 (189,083)(5) (592,368)(5) 2,091,255
Owner's Equity 0 0 0 0 0 0
Less treasury stock at cost (1,429,812) 0 0 0 0 (1,429,812)
----------- ---------- ---------- ---------- ----------- ------------
50,411,888 189,283 5,150,007 (189,283) (5,150,007) 50,411,888
----------- ---------- ---------- ---------- ----------- ------------
$86,971,039 $1,166,673 $6,011,583 $5,558,393 $15,711,095 $115,418,783
----------- ---------- ---------- ---------- ----------- ------------
----------- ---------- ---------- ---------- ----------- ------------
<FN>
(A) Amounts include Contact (acquired March 1, 1994), Radio Call and ChiComm (acquired August 1, 1994), High Tech (acquired
December 31, 1994) and Signet (acquired March 1, 1995).
</TABLE>
See accompanying Notes to Unaudited Pro Forma Condensed Consolidated Financial
Statements.
5
<PAGE>
PRONET INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
HISTORICAL RESULTS FOR THE PERIOD FROM JANUARY 1, 1994 TO THE DATE INDICATED
----------------------------------------------------------------------------
RCC DIVISION
CONTACT RADIO CALL OF CHICAGO
COMMUNICATIONS, COMPANY, INC. COMMUNICATION
PRONET INC. INC. AND AFFILIATES SERVICE, INC.
------------ -------------- -------------- -------------
DECEMBER 31, FEBRUARY 28, JULY 29, JULY 31,
1994 1994 1994 1994
------------ -------------- -------------- -------------
<S> <C> <C> <C> <C>
NET REVENUES
Recurring revenues $33,078,998 $1,598,419 $3,199,644 $ 2,224,507
Paging equipment revenues 6,638,587 743,048 738,132 337,911
Cost of paging equipment revenues (6,643,194) (955,717) (536,247) (295,653)
----------- ---------- ---------- -----------
33,074,391 1,385,750 3,401,529 2,266,765
COST OF SALES AND SERVICES 9,184,861 201,783 754,757 486,000
GROSS MARGIN 23,889,530 1,183,967 2,646,772 1,780,765
EXPENSES
Sales, General & Administrative 12,126,202 1,021,828 2,180,698 792,000
Depreciation and amortization 8,573,909 92,921 689,403 412,925
----------- ---------- ---------- -----------
20,700,111 1,114,749 2,870,101 1,204,925
----------- ---------- ---------- -----------
OPERATING INCOME (LOSS) 3,189,419 69,218 (223,329) 575,840
OTHER INCOME (EXPENSE)
Interest Expense (1,774,089) (46,019) (43,781) (140,221)
Interest and Other Income 173,024 0 0 0
----------- ---------- ---------- -----------
(1,601,065) (46,019) (43,781) (140,221)
INCOME (LOSS) BEFORE
INCOME TAXES 1,588,354 23,199 (267,110) 435,619
Provision (benefit) for income taxes 895,452 0 (58,896) 0
----------- ---------- ---------- -----------
NET INCOME (LOSS) $ 692,902 $ 23,199 $ (208,214) $ 435,619
----------- ---------- ---------- -----------
----------- ---------- ---------- -----------
EARNINGS PER SHARE $ 0.16
-----------
-----------
WEIGHTED AVERAGE SHARES 4,392,863
-----------
-----------
<CAPTION>
HISTORICAL RESULTS FOR THE PERIOD FROM
JANUARY 1, 1994 TO THE DATE INDICATED
----------------------------------------------------
HIGH TECH SIGNET CARRIER METROPOLITAN
------------ ------------ ------------ ------------
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1994 1994 1994 1994
------------ -------------- -------------- -------------
<S> <C> <C> <C> <C>
NET REVENUES
Recurring revenues $ 290,716 $4,750,322 $2,434,790 $ 4,834,561
Paging equipment revenues 0 1,099,976 900,539 152,389
Cost of paging equipment revenues 0 (1,089,118) (1,185,274) (156,329)
----------- ---------- ---------- -----------
290,716 4,761,180 2,150,055 4,830,621
COST OF SALES AND SERVICES 86,159 1,148,968 202,813 1,516,933
GROSS MARGIN 204,557 3,612,212 1,947,242 3,313,688
EXPENSES
Sales, General & Administrative 219,951 2,287,592 1,603,121 1,622,247
Depreciation and amortization 127,585 626,714 227,675 597,050
----------- ---------- ---------- -----------
347,536 2,914,306 1,830,796 2,219,297
----------- ---------- ---------- -----------
OPERATING INCOME (LOSS) (142,979) 697,906 116,446 1,094,391
OTHER INCOME (EXPENSE)
Interest Expense 0 (292,167) (124,271) 0
Interest and Other Income 0 4,790 0 27,185
----------- ---------- ---------- -----------
0 (287,377) (124,271) 27,185
INCOME (LOSS) BEFORE
INCOME TAXES (142,979) 410,529 (7,825) 1,121,576
Provision (benefit) for income taxes 0 0 0 381,336
----------- ---------- ---------- -----------
NET INCOME (LOSS) $ (142,979) $ 410,529 $ (7,825) $ 740,240
----------- ---------- ---------- -----------
----------- ---------- ---------- -----------
EARNINGS PER SHARE
WEIGHTED AVERAGE SHARES
<CAPTION>
CONTACT RADIO CALL CHICOMM HIGH TECH
PRO FORMA PRO FORMA PRO FORMA PRO FORMA
ADJUSTMENTS ADJUSTMENTS ADJUSTMENTS ADJUSTMENTS
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
NET REVENUES
Recurring revenues $ 0 $ 0 $ 0 $ 0
Paging equipment revenues 0 0 0 0
Cost of paging equipment revenues 0 0 0 0
----------- ---------- ---------- -----------
0 0 0 0
COST OF SALES AND SERVICES 0 0 0 0
GROSS MARGIN 0 0 0 0
EXPENSES
Sales, General & Administrative (425,228)(3) (534,617)(3) 58,333(3) 0 (3)
Depreciation and amortization 196,558 (1) 170,284 (1) 397,650(1) 76,514 (1)
----------- ---------- ---------- -----------
(228,670) (364,333) 455,983 76,514
----------- ---------- ---------- -----------
OPERATING INCOME (LOSS) 228,670 364,333 (455,983) (76,514)
OTHER INCOME (EXPENSE)
Interest Expense (138,981)(2) (227,381)(2) (176,146)(2) (32,813)(2)
Interest and Other Income 0 0 0 0
----------- ---------- ---------- -----------
(138,981) (227,381) (176,146) (32,813)
INCOME (LOSS) BEFORE
INCOME TAXES 89,689 136,952 (632,129) (109,326)
Provision (benefit) for income taxes 109,163(4) 11,338(4) (71,802)(4) (92,188)(4)
----------- ---------- ---------- -----------
NET INCOME (LOSS) $ (19,474) $ 125,614 $ (560,327) $ (17,138)
----------- ---------- ---------- -----------
----------- ---------- ---------- -----------
<CAPTION>
PRO FORMA
SIGNET CARRIER METROPOLITAN YEAR ENDED
PRO FORMA PRO FORMA PRO FORMA DECEMBER 31,
ADJUSTMENTS ADJUSTMENTS ADJUSTMENTS 1994
----------- ----------- ------------ ------------
<S> <C> <C> <C> <C>
NET REVENUES
Recurring revenues $ 0 $ 0 $ 0 $ 52,411,957
Paging equipment revenues 0 0 0 10,610,582
Cost of paging equipment revenues 0 0 0 (10,861,532)
----------- ---------- ---------- ------------
0 0 0 52,161,007
COST OF SALES AND SERVICES 0 0 0 13,582,274
GROSS MARGIN 0 0 0 38,578,733
EXPENSES
Sales, General & Administrative (210,000)(3) (813,646)(3) (31,800)(3) 19,896,681
Depreciation and amortization 477,184(1) 392,640(1) 1,137,350(1) 14,196,362
----------- ---------- ---------- ------------
267,184 (421,006) 1,105,550 34,093,043
----------- ---------- ---------- ------------
OPERATING INCOME (LOSS) (267,184) 421,006 (1,105,550) 4,485,690
OTHER INCOME (EXPENSE)
Interest Expense (265,833)(2) (129,620)(2) 0(2) (3,391,322)
Interest and Other Income 0 0 0 204,999
----------- ---------- ---------- ------------
(265,833) (129,620) 0 (3,186,323)
INCOME (LOSS) BEFORE
INCOME TAXES (533,017) 291,386 (1,105,550) (1,299,368)
Provision benefit for income taxes (44,755)(4) 103,609(4) 40,090(4) 1,273,347
----------- ---------- ---------- ------------
NET INCOME (LOSS) $ (488,262) $ 187,777 (1,145,640) $ 26,021
----------- ---------- ---------- ------------
----------- ---------- ---------- ------------
EARNINGS PER SHARE $ 0.01
------------
------------
WEIGHTED AVERAGE SHARES 4,392,863
------------
------------
</TABLE>
See accompanying Notes to Unaudited Pro Forma Condensed Consolidated Financial
Statements.
6
<PAGE>
PRONET INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
HISTORICAL RESULTS
------------------------------------------------------
PRONET INC. SIGNET CARRIER METROPOLITAN
------------ -------------- ------------- ---------------
MARCH 31, FEBRUARY 28, MARCH 31, MARCH 31,
1995 1995 1995 1995
<S> <C> <C> <C> <C>
NET REVENUES
Recurring revenues $10,487,788 $ 871,772 $ 532,166 $1,408,364
Paging equipment revenues 2,195,743 109,268 196,829 26,423
Cost of paging equipment revenues (2,065,236) (109,188) (179,036) (30,239)
----------- --------- --------- ----------
10,618,295 871,852 549,959 1,404,548
COST OF SALES AND SERVICES 2,466,451 273,378 59,046 392,284
GROSS MARGIN 8,151,844 598,474 490,913 1,012,264
EXPENSES
Sales, General & Administrative 4,638,132 366,838 285,706 404,212
Depreciation and amortization 2,744,868 17,300 54,292 159,990
----------- --------- --------- ----------
7,383,000 384,138 339,998 564,202
----------- --------- --------- ----------
OPERATING INCOME (LOSS) 768,844 214,336 150,915 448,062
OTHER INCOME (EXPENSE)
Interest Expense (386,076) (53,566) (25,820) 0
Interest and Other Income 41,399 1,658 942 12,709
----------- --------- --------- ----------
(344,677) (51,908) (24,878) 12,709
INCOME (LOSS) BEFORE
INCOME TAXES 424,167 162,428 126,037 460,771
Provision for income taxes 358,422 0 638 156,662
----------- --------- --------- ----------
NET INCOME (LOSS) $ 65,745 $ 162,428 $ 125,399 $ 304,109
----------- --------- --------- ----------
----------- --------- --------- ----------
EARNINGS PER SHARE $ 0.01
-----------
-----------
WEIGHTED AVERAGE SHARES 6,128,131
-----------
-----------
<CAPTION>
PRO FORMA
SIGNET CARRIER METROPOLITAN 3 MOS ENDED
PRO FORMA PRO FORMA PRO FORMA MARCH 31,
ADJUSTMENTS ADJUSTMENTS ADJUSTMENTS 1995
------------- ------------- -------------- -------------
<S> <C> <C> <C> <C>
NET REVENUES
Recurring revenues $ 0 $ 0 $ 0 $13,300,090
Paging equipment revenues 0 0 0 2,528,263
Cost of paging equipment revenues 0 0 0 (2,383,699)
--------- --------- --------- ----------
0 0 0 13,444,654
COST OF SALES AND SERVICES 0 0 0 3,191,159
GROSS MARGIN 0 0 0 10,253,495
EXPENSES
Sales, General & Administrative (38,333)(3) (203,412)(3) (7,950)(3) 5,445,193
Depreciation and amortization 79,531(1) 98,160(1) 284,338(1) 3,438,478
--------- --------- --------- -----------
41,197 (105,252) 276,388 8,883,671
--------- --------- --------- -----------
OPERATING INCOME (LOSS) (41,197) 105,252 (276,388) 1,369,824
OTHER INCOME (EXPENSE)
Interest Expense (39,434)(2) (38,055)(2) 0(2) (542,951)
Interest and Other Income 0 0 0 56,708
--------- --------- --------- -----------
(39,434) (38,055) 0 (486,243)
INCOME (LOSS) BEFORE
INCOME TAXES (80,631) 67,197 (276,388) 883,581
Provision for income taxes 29,887(4) 69,967(4) 14,589(4) 630,165
--------- --------- --------- -----------
NET INCOME (LOSS) $(110,518) $ (2,771) $(290,977) $ 253,416
--------- --------- --------- -----------
--------- --------- --------- -----------
EARNINGS PER SHARE $ 0.04
-----------
-----------
WEIGHTED AVERAGE SHARES 6,128,131
-----------
-----------
</TABLE>
See accompanying Notes to Unaudited Pro Forma Condensed Consolidated Financial
Statements.
7
<PAGE>
PRONET INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
On March 1, 1994, ProNet Inc. (the "Company") completed the acquisition of all
of the outstanding capital stock of Contact Communications, Inc. ("Contact") for
approximately $19 million and filed a Form 8-K/A on May 12, 1994. Effective
August 1, 1994, the Company completed two additional acquisitions. The first of
these acquisitions involved the purchase of substantially all of the paging
assets of Radio Call Company, Inc. ("Radio Call") and certain of its affiliates
for approximately $7.8 million in cash. The second acquisition involved the
purchase of substantially all of the Chicago area paging assets of the RCC
Division of Chicago Communication Service, Inc., ("ChiComm") for consideration
of approximately $9.8 million, comprised of approximately $8.9 million paid in
cash at closing and a $950,000 deferred payment. The Company filed a Form 8-K/A
on October 14, 1994, for the Radio Call and ChiComm acquisitions.
Effective December 31, 1994, ProNet completed the acquisition of substantially
all of the paging assets of High Tech Communications Corp. ("High Tech") for
approximately $900,000, comprised of $700,000 paid in cash at closing and a
$200,000 deferred payment. There was no Form 8-K filed by the Company for this
acquisition as it did not qualify as a significant subsidiary of the Company in
accordance with the definition of significant subsidiary in Rule 1-02 (v) of
Regulation S-X.
On March 1, 1995, Contact Communications Inc., a Delaware corporation ("CCI")
and wholly-owned subsidiary of the Company completed the acquisition of
substantially all of the paging assets of Signet Paging of Charlotte, Inc.
("Signet") for approximately $9.0 million, comprised of approximately $4.8
million paid in cash at closing and a $4.2 million deferred payment. The Company
filed a Form 8-K/A related to the Signet acquisition on May 12, 1995.
On April 1, 1995, CCI completed the acquisition of substantially all of the
paging assets of Carrier Paging Systems, Inc. ("Carrier") for approximately $6.5
million, comprised of approximately $3.5 million paid in cash at closing and a
$3.0 million deferred payment. The Company filed a Form 8-K for the Carrier
acquisition on April 17, 1995.
Effective May 3, 1995, CCI completed the acquisition of all of the outstanding
capital stock of Metropolitan for approximately $21.0 million which was paid in
cash at closing pursuant to a Stock Purchase Agreement dated as of April 20,
1995, by and among CCI, the Company, Metropolitan, SLT Communications, Inc.
("SLT"), Lufkin-Conroe Telecommunications Corp. ("LCC"), and GTE Southwest
Incorporated ("GTE" and, together with SLT, and LCC, the "Sellers").
Concurrently with the closing of the Metropolitan acquisition, CCI entered into
noncompetition agreements with the Sellers.
8
<PAGE>
All deferred payments are due and payable one year from the closing of the
respective transactions. These balances are payable, at the Company's
discretion, either in cash or shares of the Company's common stock based on
market value at the date of payment.
The unaudited pro forma condensed financial statements reflect the transactions
as though Contact, Radio Call, ChiComm, High Tech, Signet, Carrier and
Metropolitan had been acquired at the beginning of the periods presented.
Metropolitan's year end is December 31 which is consistent with the Company.
Since Contact was acquired on March 1, 1994, Contact's results of operations for
the two months ended February 28, 1994 are used to arrive at the pro forma
results for the year ended December 31, 1994. Because Radio Call and ChiComm
were acquired on August 1, 1994, their results of operations for the seven
months ended July 31, 1994 are used to arrive at the pro forma results for the
year ended December 31, 1994. Because Signet was acquired on March 1, 1995,
their results of operations for the two months ended February 28, 1995 are used
to arrive at the pro forma results for the three months ended March 31, 1995.
Since both Carrier and Metropolitan were acquired subsequent to March 31, 1995,
their results of operations for the full three months ended March 31, 1995 are
used to arrive at the pro forma results for the three months ended March 31,
1995.
The accompanying Pro Forma Condensed Consolidated Statements of Operations for
the year ended December 31, 1994, and the three months ended March 31, 1995 have
been prepared by combining the historical results of Contact, Radio Call,
ChiComm, High Tech, Signet, Carrier and Metropolitan for such periods and
reflect the following adjustments:
(1) Pro forma adjustments are made to the statements of operations to reflect
depreciation and amortization expense on the fair value of the assets
acquired as if the acquisitions had occurred at the beginning of the
periods presented. Pro forma depreciation is computed by the straight-line
method over the estimated useful lives of the assets. The noncompetition
agreements are amortized on a straight-line method over a five year term.
Goodwill is amortized on the straight-line method over a fifteen year term.
(2) Pro forma adjustments reflect the impact on interest expense due to the
financing of the acquisitions which includes amounts borrowed under the
Company's line of credit and term loan facility and amounts due pursuant to
the Signet deferred payment.
(3) The pro forma adjustments to selling, general and administrative expenses
are representative of expenses that either would or would not have been
incurred if the acquisitions had occurred at the beginning of the periods
presented. For Radio Call, Contact, Carrier and Metropolitan, cost savings
relate to decreased salaries, office rent and professional fees. For
ChiComm, additional costs relate to increased salaries and office rent.
For Signet, cost savings relate to decreased
9
<PAGE>
salaries and professional fees and additional costs relate to increased
office rent. For High Tech, no pro forma adjustments to selling, general
and administrative expenses are recorded.
(4) A pro forma adjustment is made to reflect the effect on the income tax
provision as if the acquisitions had occurred at the beginning of the
periods presented. The primary differences in the effective tax rate
between the Company's historical financial statements and the pro forma
statements are state taxes and the amortization of goodwill related to the
Contact and Metropolitan acquisitions which is assumed not to be deductible
for tax purposes.
The accompanying Pro Forma Consolidated Balance Sheet as of March 31, 1995, has
been prepared as if the acquisitions of Carrier and Metropolitan had occurred on
that date and includes the following adjustments to reflect the acquisitions
(Contact, Radio Call, ChiComm, High Tech and Signet are reflected in the
March 31, 1995 Balance Sheet of ProNet Inc.):
(5) A pro forma adjustment is made to reflect the fair value of those assets
and liabilities that were acquired as a result of the acquisition of
Carrier and Metropolitan. The Company did not acquire cash, trade
payables, or certain accrued expenses for Carrier.
(6) A pro forma adjustment is made to goodwill equal to the excess of the
purchase price over fair values assigned to specific assets less
liabilities assumed.
(7) A pro forma adjustment is made to record the borrowings under the line of
credit and term loan facility to finance the acquisitions of Carrier and
Metropolitan.
The pro forma condensed financial information presented is not necessarily
indicative of either the results of operations that would have occurred had the
acquisition taken place at the beginning of the periods presented or of future
results of operations of the combined operations.
10
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of
Metropolitan Houston Paging Services, Inc.:
We have audited the accompanying balance sheets of Metropolitan Houston
Paging Services, Inc. (a Texas corporation, the "Company") as of December 31,
1994, 1993 and 1992, and the related statements of income, stockholders' equity
and cash flows for each of the three years in the period ended December 31,
1994. These financial statements are the responsibility of the Company's manage-
ment. Our responsibility is to express an opinion on these financial statements
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Metropolitan Houston Paging
Services, Inc. as of December 31, 1994, 1993 and 1992, and the results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1994, in conformity with generally accepted accounting principles.
As discussed in Note 7 to the financial statements, on December 20, 1994,
the Company was named as a defendant in a lawsuit by a resale contractor. The
Company intends to vigorously defend this claim. The amount of any liability
which might ultimately exist cannot reasonably be estimated and, accordingly, no
provision for loss has been made in the accompanying statement of income.
As discussed in Note 3 to the financial statements, effective January 1,
1993, the Company changed its method of accounting for income taxes in
conjunction with the adoption of Statement of Financial Accounting Standards No.
109, "Accounting for Income Taxes."
ARTHUR ANDERSEN LLP
Little Rock, Arkansas
April 20, 1995
11
<PAGE>
METROPOLITAN HOUSTON PAGING SERVICES, INC.
BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------------------
1994 1993 1992
MARCH 31, ------------- ------------- -------------
1995
-------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Current assets:
Cash and short-term investments..................... $ 1,558,400 $ 1,311,133 $ 786,838 $ 332,008
Accounts receivable, net of allowance for doubtful
accounts of $29,031 and $44,974 and $22,750 as of
December 31, 1994 and 1993, and March 31, 1995,
respectively....................................... 103,208 209,131 80,039 60,535
Pager inventory..................................... 50,509 24,918 -- --
Prepayments and other............................... 126,779 37,853 27,719 59,968
Deferred federal income tax benefit................. 211,953 368,615 276,073 --
------------- ------------- ------------- -------------
2,050,849 1,951,650 1,170,669 452,511
------------- ------------- ------------- -------------
Equipment:
Paging transmission................................. 6,068,030 5,664,223 4,908,353 4,316,171
Office.............................................. 585,087 532,958 380,010 293,693
Vehicles............................................ 172,449 172,449 134,461 84,710
Less accumulated depreciation....................... (2,864,832) (2,704,842) (2,170,030) (1,690,615)
------------- ------------- ------------- -------------
3,960,734 3,664,788 3,252,794 3,003,959
------------- ------------- ------------- -------------
Other assets.......................................... 0 -- 24,038 22,038
------------- ------------- ------------- -------------
Total assets.......................................... $ 6,011,583 $ 5,616,438 $ 4,447,501 $ 3,478,508
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities............ $ 209,245 $ 165,168 $ 126,269 $ 106,547
Payable to affiliate................................ 138,898 91,938 176,018 1,520
------------- ------------- ------------- -------------
348,143 257,106 302,287 108,067
------------- ------------- ------------- -------------
Deferred federal income tax liability................. 513,433 513,433 39,555 --
------------- ------------- ------------- -------------
Commitments and contingencies (Notes 1, 5 and 7)
Stockholders' equity:
Common stock, par value $1 per share; 2,000 shares
authorized; 1,800 shares issued and outstanding.... 1,800 1,800 1,800 1,800
Additional paid-in capital.......................... 4,555,839 4,555,839 4,555,839 4,555,839
Retained earnings (deficit)......................... 592,368 288,260 (451,980) (1,187,198)
------------- ------------- ------------- -------------
5,150,007 4,845,899 4,105,659 3,370,441
------------- ------------- ------------- -------------
Total liabilities and stockholders' equity............ $ 6,011,583 $ 5,616,438 $ 4,447,501 $ 3,478,508
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
</TABLE>
The accompanying notes are an integral part of these balance sheets.
12
<PAGE>
METROPOLITAN HOUSTON PAGING SERVICES, INC.
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------
1994 1993 1992
THREE MONTHS ------------ ------------ ------------
ENDED
MARCH 31,
1995
-------------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Revenues:
Paging services................................. $ 1,408,364 $ 4,834,561 $ 3,644,239 $ 2,480,345
Pager equipment sales........................... 26,423 152,389 -- --
Interest........................................ 12,709 31,466 13,452 5,086
Less provision for uncollectible accounts....... (1,500) (32,000) (40,401) (10,000)
------------------- ------------ ------------ ------------
Total revenues................................ 1,445,996 4,986,416 3,617,290 2,475,431
------------------- ------------ ------------ ------------
Expenses:
Circuit rental.................................. 261,060 1,000,979 939,744 647,088
Salaries and commissions........................ 169,032 663,184 481,182 386,103
General and administrative...................... 194,559 767,466 551,077 332,414
Depreciation.................................... 159,990 597,050 488,137 495,966
Tower space rental.............................. 131,224 515,954 494,621 465,521
Cost of pagers sold............................. 30,239 156,329 -- --
Utilities....................................... 20,406 87,972 78,573 54,624
Insurance....................................... 18,715 71,625 74,579 59,289
Loss on disposal of assets...................... -- 4,281 10,677 5,834
------------------- ------------ ------------ ------------
Total expenses................................ 985,225 3,864,840 3,118,590 2,446,839
------------------- ------------ ------------ ------------
Income before federal income taxes and the
cumulative effect of a change in accounting
principle........................................ 460,771 1,121,576 498,700 28,592
Federal income taxes.............................. 156,663 381,336 171,149 --
------------------- ------------ ------------ ------------
Income before the cumulative effect of a change in
accounting principle............................. 304,108 740,240 327,551 28,592
Cumulative effect of a change in accounting
principle (Note 3)............................... -- -- 407,667 --
------------------- ------------ ------------ ------------
Net income........................................ $ 304,108 $ 740,240 $ 735,218 $ 28,592
------------------- ------------ ------------ ------------
------------------- ------------ ------------ ------------
</TABLE>
The accompanying notes are an integral part of these statements.
13
<PAGE>
METROPOLITAN HOUSTON PAGING SERVICES, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
ADDITIONAL RETAINED
COMMON PAID-IN EARNINGS
STOCK CAPITAL (DEFICIT) TOTAL
----------- ------------ ------------- ------------
<S> <C> <C> <C> <C>
Balance at December 31, 1991................................ $ 1,800 $ 4,555,839 $ (1,215,790) $ 3,341,849
Net income.................................................. -- -- 28,592 28,592
----------- ------------ ------------- ------------
Balance at December 31, 1992................................ 1,800 4,555,839 (1,187,198) 3,370,441
Net income.................................................. -- -- 735,218 735,218
----------- ------------ ------------- ------------
Balance at December 31, 1993................................ 1,800 4,555,839 (451,980) 4,105,659
Net income.................................................. -- -- 740,240 740,240
----------- ------------ ------------- ------------
Balance at December 31, 1994................................ 1,800 4,555,839 288,260 4,845,899
Net income (unaudited)...................................... -- -- 304,108 304,108
----------- ------------ ------------- ------------
Balance at March 31, 1995 (unaudited)....................... $ 1,800 $ 4,555,839 $ 592,368 $ 5,150,007
----------- ------------ ------------- ------------
----------- ------------ ------------- ------------
</TABLE>
The accompanying notes are an integral part of these statements.
14
<PAGE>
METROPOLITAN HOUSTON PAGING SERVICES, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS
ENDED YEAR ENDED DECEMBER 31,
MARCH 31, ---------------------------------------
1995 1994 1993 1992
------------------- ------------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Cash flows provided by operating activities:
Net income....................................... $ 304,108 $ 740,240 $ 735,218 $ 28,592
Adjustments to reconcile net income to net cash
provided by operating activities:
Cumulative effect of a change in accounting
principle..................................... -- -- (407,667) --
Provision for uncollectible accounts........... 1,500 32,000 40,401 10,000
Depreciation................................... 159,990 597,050 488,137 495,966
Deferred federal income taxes.................. 156,663 381,336 171,149 --
Other.......................................... -- 28,319 8,677 (7,912)
Net changes in:
Accounts receivable.......................... 104,423 (161,092) (59,905) (6,670)
Pager inventory.............................. (25,591) (24,918) -- --
Prepayments and other........................ (88,926) (10,134) 32,249 (50,754)
Accounts payable and accrued liabilities..... 44,076 38,899 19,722 (66,830)
Payable to affiliate......................... 46,960 (84,080) 174,498 (3,378)
------------------- ------------- ----------- -----------
Net cash provided by operating
activities................................ 703,203 1,537,620 1,202,479 399,014
------------------- ------------- ----------- -----------
Cash flows used in investing activities:
Capital expenditures............................. (455,936) (1,013,325) (747,649) (293,712)
------------------- ------------- ----------- -----------
Net increase in cash and short-term investments.... 247,267 524,295 454,830 105,302
Cash and short-term investments at beginning of
year.............................................. 1,311,133 786,838 332,008 226,706
------------------- ------------- ----------- -----------
Cash and short-term investments at end of year..... $ 1,558,400 $ 1,311,133 $ 786,838 $ 332,008
------------------- ------------- ----------- -----------
------------------- ------------- ----------- -----------
</TABLE>
The accompanying notes are an integral part of these statements.
15
<PAGE>
METROPOLITAN HOUSTON PAGING SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1994
NOTE 1 -- SALE OF COMPANY
On April 20, 1995, the shareholders of Metropolitan Houston Paging Services,
Inc. ("MHPS") executed an agreement to sell all of the outstanding shares of
common stock of MHPS to ProNet Inc., for $21,000,000. The sale of MHPS is
expected to be completed in May 1995.
NOTE 2 -- ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
MHPS provides a wide variety of radio paging services to a network of agents
in the greater Houston, Dallas, Fort Worth, Austin, San Antonio, Corpus Christi,
Beaumont, Victoria, Texarkana and lower Rio Grande Valley areas of Texas. MHPS
was formed in September 1983 and is owned by the following companies:
<TABLE>
<S> <C>
GTE Southwest, Inc. ("GTE")............................. 600 shares
Lufkin-Conroe Telecommunications, Corp. ("LCT")......... 600 shares
SLT Communications, Inc. ("SLT")........................ 600 shares
</TABLE>
On December 31, 1992, SLT became a wholly-owned subsidiary of ALLTEL
Corporation ("ALLTEL"') through a merger agreement which provided for the
exchange of all of SLT's common and preferred stock for common stock of ALLTEL.
CASH AND SHORT-TERM INVESTMENTS
Cash and short-term investments consist of highly liquid investments with
original maturities of less than three months. These investments are readily
convertible into cash.
EQUIPMENT
MHPS's equipment is recorded at original cost. The costs of maintenance and
repairs, not reflecting substantial betterments, are expensed as incurred.
Depreciation is computed using the straight-line method over the estimated
useful lives as determined by management. The estimated useful lives for
equipment are as follows:
<TABLE>
<CAPTION>
ASSET TYPE YEARS
- ----------------------------------------------------------------------------- -----
<S> <C>
Paging transmission.......................................................... 10
Office....................................................................... 10
Vehicles..................................................................... 5
</TABLE>
When property is retired, the cost of the property and the related
accumulated depreciation are removed from the balance sheet and any gain or loss
on the transaction is included in income.
PAGER INVENTORY
Pager inventory is valued at the lower of cost or market using the first-in,
first-out method ("FIFO").
16
<PAGE>
METROPOLITAN HOUSTON PAGING SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 2 -- ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (CONTINUED)
REVENUE RECOGNITION
Paging services revenues are billed and recorded in the month service is
provided. MHPS derives revenues from its affiliates and is dependent upon
revenues from other significant customers as follows:
<TABLE>
<CAPTION>
1994 1993 1992
------------------------- ------------------------- -------------------------
<S> <C> <C> <C> <C> <C> <C>
Affiliates:
GTE............................. $ 278,915 6% $ 71,600 2% $ 48,181 2%
LCT............................. 26,614 1% 18,012 1 15,202 1
SLT............................. 18,522 -- 5,150 -- 5,234 --
Non-Affiliates:
Paging & Cellular Communications
of Texas....................... 766,128 16 % 501,376 14 315,491 13
</TABLE>
FINANCIAL STATEMENT PRESENTATION
Certain 1993 and 1992 balances have been reclassified to conform with the
1994 financial statement presentation.
NOTE 3 -- FEDERAL INCOME TAXES
MHPS is a "C" corporation and is not included in the federal income tax
returns of its owners due to their minority ownership. MHPS had net operating
loss carryforwards of approximately $1,084,000 at December 31, 1994, which will
begin expiring in 2001. At December 31, 1994 and 1993, the tax effected benefit
of the net operating loss carryforwards has been classified in the accompanying
balance sheets based on management's anticipated realization of such benefit.
Effective January 1, 1993, MHPS, as required, changed its method of
accounting for income taxes by adopting Statement of Financial Accounting
Standards ("SFAS") No. 109, "Accounting for Income Taxes." This pronouncement
requires that deferred taxes related to temporary differences between balances
recorded for financial reporting purposes and tax reporting purposes be
reflected at the enacted tax rate. This change in accounting principle had a
cumulative effect at January 1, 1993, of a credit to federal income tax expense
of $407,667.
MHPS also has approximately $45,000 of investment tax credit carryforwards
which are available to reduce future tax liabilities. These tax credits will
begin expiring in 1998. Due to the uncertainty of the future realization,
management recorded a valuation allowance for these tax credits as part of the
adoption of SFAS No. 109.
For federal income tax reporting purposes, the sources of the temporary
differences and the tax effect of each were as follows for the years ended
December 31:
<TABLE>
<CAPTION>
1994 1993
---------- ----------
<S> <C> <C>
Net operating loss carryforwards utilized................... $ 334,152 $ 135,284
Excess of tax over book depreciation........................ 45,031 33,102
Other, net.................................................. 2,153 2,763
---------- ----------
$ 381,336 $ 171,149
---------- ----------
---------- ----------
</TABLE>
17
<PAGE>
METROPOLITAN HOUSTON PAGING SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 3 -- FEDERAL INCOME TAXES (CONTINUED)
At December 31, the significant components of MHPS's net federal income tax
(liability) benefit were as follows:
<TABLE>
<CAPTION>
1994 1993
----------- -----------
<S> <C> <C>
Equipment................................................. $ (504,342) $ (459,312)
Net operating loss carryforwards.......................... 368,615 702,767
Other, net................................................ (9,091) (6,937)
----------- -----------
$ (144,818) $ 236,518
----------- -----------
----------- -----------
</TABLE>
Total tax assets were $417,365 in 1994 and $749,003 in 1993, and total tax
liabilities were $517,183 in 1994 and $467,485 in 1993. Additionally, at
December 31, 1994 and 1993, total tax assets were partially reduced by a
valuation allowance of $45,000.
NOTE 4 -- RETIREMENT PLANS
During 1993, MHPS began participating in the ALLTEL Corporation ("ALLTEL",
the parent of SLT) trusteed, noncontributory, defined benefit pension plan which
provides retirement benefits for all eligible employees of MHPS. Pension
benefits are based on employees' years of service and compensation. ALLTEL's
funding policy for the defined benefit plan is to satisfy the funding
requirement of the Employees' Retirement Income Security Act of 1974 ("ERISA").
At December 31, 1994, the fair value of ALLTEL plan assets available for
plan benefits exceeded the projected benefit obligation. Total ALLTEL pension
expense (credit) was $2,225,000 in 1994 and $(3,892,000) in 1993, of which
MHPS's share was approximately $24,000 and $(2,000) in 1994 and 1993,
respectively. For 1992 MHPS participated in the SLT defined benefit pension
plan, of which pension (income) expense was ($13,746). The projected benefit
obligations were $68,940 in 1992. Plan assets available for plan benefits were
$60,132.
Actuarial assumptions were 9%, 8.5% and 9% for the investment earnings rate,
5%, 5% and 4.5% for future compensation level increases and a 8.5%, 7.5% and 7%
settlement rate for 1994, 1993 and 1992, respectively.
Effective January 1, 1993, employees of MHPS began participation in ALLTEL's
noncontributory defined contribution plan in the form of a profit sharing
arrangement for eligible employees, excluding bargaining unit employees.
Effective with this plan, there was a reduction in future service benefits
earned by eligible employees under the defined benefit pension plan.
The amount of profit sharing contributions to the plan is determined
annually by ALLTEL's and MHPS's Boards of Directors. The minimum profit sharing
contribution by MHPS is 2% of each participant's compensation. ALLTEL's profit
sharing expense amounted to $26,351,000 in 1994 and $22,717,000 in 1993, of
which MHPS's share was $39,256 and $29,089 in 1994 and 1993, respectively.
18
<PAGE>
METROPOLITAN HOUSTON PAGING SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 5 -- LEASE COMMITMENTS
MHPS leases its corporate offices, certain operating facilities and tower
and antenna sites. These operating leases are recorded in tower space rental and
general and administrative expense in the accompanying statements of income and
amounted to $575,852, $531,575 and $505,644 for 1994, 1993 and 1992,
respectively. The future minimum lease payments under non-cancelable operating
leases at December 31, 1994, were as follows:
<TABLE>
<CAPTION>
YEAR AMOUNT
- ------------------------------------------------------------------------ ----------
<S> <C>
1995.................................................................... $ 449,081
1996.................................................................... 167,128
1997.................................................................... 131,498
1998.................................................................... 115,794
1999.................................................................... 101,814
Thereafter.............................................................. 22,538
----------
$ 987,853
----------
----------
</TABLE>
NOTE 6 -- RELATED PARTY TRANSACTIONS
SLT and certain of its affiliates provide MHPS with management, accounting
and engineering services pursuant to a contract approved by the Rural Utilities
Service (formerly the Rural Electrification Administration). This contract
provides for SLT to recover its actual costs and associated overheads for such
services. Amounts incurred by MHPS for these services were $17,310 in 1994,
$11,189 in 1993 and $31,704 in 1992.
MHPS purchased paging transmission equipment from ALLTEL Supply, Inc., an
affiliate of SLT, in the amounts of $128,991 in 1994, $445,936 in 1993 and
$3,478 in 1992.
A significant portion of MHPS's circuit rental expense is transacted with
certain affiliates. Costs for such rentals provided by SLT were $431,614,
$481,352, and $234,343 in 1994, 1993 and 1992, respectively. LCT provided
circuit rentals of $17,781 in 1994 $11,485 in 1993 and $4,937 in 1992, and GTE
provided rentals of $44,963, $6,052 and $1,911 in 1994, 1993 and 1992,
respectively.
MHPS leases its corporate offices and certain operating facilities from SLT.
Rent expense related to this lease amounted to $47,328 in 1994, $30,399 in 1993
and $23,673 in 1992.
MHPS periodically incurs a liability to SLT for various operating costs
which are initially paid on behalf of the company. This payable is non-interest
bearing and is due on demand. At December 31, 1994 and 1993, this balance is
reflected as payable to affiliate in the accompanying balance sheets.
NOTE 7 -- CONTINGENCIES
On December 20, 1994, MHPS was named as a defendant in a lawsuit by a resale
contractor alleging numerous tort and contract causes of action including
misrepresentation of service provided by MHPS, absence of mutuality of
obligation, misrepresentation of the worth of MHPS and all companies with whom
MHPS had contracts, and breach of warranty. The resale contractor is seeking
approximately $542,000 plus treble damages and legal fees. MHPS intends to
vigorously defend this claim. The amount of any liability which might ultimately
exist cannot reasonably be estimated and, accordingly, no provision for loss has
been made in the accompanying statement of income.
As part of the sale agreement, as described in Note 1, the shareholders of
MHPS have agreed to jointly and severally idemnify, defend and hold harmless
ProNet, Inc., from all primary losses resulting from or arising out of the
allegations of the above lawsuit.
Subsequent to year-end, a customer providing approximately 3% of the total
1994 paging services revenue notified MHPS of its intent to discontinue the use
of MHPS services.
19
